Sanjay Israni v. Robert Bittman
473 F. App'x 548
9th Cir.2012Background
- Sanjay Israni, a stockholder of International Game Technology (IGT), files a derivative suit challenging corporate actions.
- The district court dismissed the derivative complaint for failure to plead demand futility under Rule 23.1.
- IGT is incorporated in Nevada; Nevada law governs demand futility, guided by Delaware law for pleading standards.
- The nine directors at the relevant time were Bittman, Burt, Hart, Mathewson, Matthews, Miller, Rentschler, Roberson, and Satre.
- Allegations focus on Matthews’ amended employment agreement, high director compensation, committee memberships, and alleged insider trading by three directors.
- The court reviews for abuse of discretion on dismissal of a derivative suit for failure to plead demand futility and affirms the district court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the complaint pleads demand futility. | Israni argues futility due to conflicted directors. | IGT directors are capable of impartial consideration; no reasonable doubt of disinterestedness. | No demand futility established; district court affirmed dismissal. |
| Does Matthews’ amended employment agreement create reasonable doubt about director disinterestedness? | Matthews’ contract aligns directors’ interests with higher compensation. | No facts showing influence on other directors; not enough to negate business judgment. | Allegations insufficient to establish futility. |
| Do director compensation and fees create reasonable doubt of independence? | Leads to potential loyalty conflicts and non-independence. | Compensation alone, without unusual or uncustomary terms, does not excuse demand. | No reasonable doubt from compensation figures; not enough to excuse demand. |
| Do committee memberships or lack of information to committees excuse demand? | Committee oversight failures show bad faith or misconduct. | Insufficient facts about committee actions and information; no misconduct shown. | Not excused by committee membership alone; no deliberate misconduct shown. |
| Do insider trading allegations against Burt, Bittman, and Matthews render demand futile? | Insider trading involvement suggests partiality and conflict. | District court did not reach this due to other grounds; potential futility not established by this record. | Not necessary to decide given lack of predominant impartiality finding on other grounds. |
Key Cases Cited
- In re Silicon Graphics, Inc. Sec. Litig., 183 F.3d 970 (9th Cir. 1999) (uses state-law framework for demand futility in derivative suits)
- Shoen v. SAC Holding Corp., 137 P.3d 1171 (Nev. 2006) (guides Delaware-law standards for pleading demand futility)
- Potter v. Hughes, 546 F.3d 1051 (9th Cir. 2008) (abuse of discretion review framework in derivative suits)
- Grobow v. Perot, 526 A.2d 914 (Del. Ch. 1987) (business judgment rule considerations in director compensation cases)
- In re Walt Disney Co. Derivative Litig., 731 A.2d 342 (Del. Ch. Ct. 1998) (insider relationships and independence considerations)
- In re Caremark Intern. Inc. Derivative Litig., 698 A.2d 959 (Del. Ch. 1996) (duty of due care and information systems for board oversight)
- In re Amerco Derivative Litig., 252 P.3d 681 (Nev. 2011) (Nevada standards on director independence and duties)
- In re NutriSystem, Inc. Derivative Litig., 666 F. Supp. 2d 501 (E.D. Pa. 2009) (independence and insider-director considerations in derivative actions)