Seidman v. Clifton Savings Bank
14 A.3d 36
| N.J. | 2011Background
- Clifton Savings Bank reorganized from a mutual to a stock-structure under a mutual holding company framework; Bancorp holds the Bank’s stock, with Clifton MHC owning the majority.
- Seidman became a Bancorp stockholder through the Bank’s 2004-2005 restructuring and remained a Bancorp stockholder until November 2004.
- Bancorp adopted the 2005 Equity Incentive Plan, approved by a Bancorp stockholder vote on July 14, 2005, authorizing stock options and restricted stock awards.
- The proxy statement and plan attached a complete description of the plan, the compensation committee’s authority, and limits under federal regulations (12 C.F.R. § 575.8; § 563b.500).
- The proxy noted Clifton MHC’s 55.2% stake and voting arrangement, including votes required for approval ('Vote Standard A' and 'Vote Standard B').
- Seidman sued in Chancery alleging corporate waste and improper director awards under the 2005 Plan; the trial court and Appellate Division dismissed, and the Supreme Court affirmed, upholding the business judgment rule.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was stockholder ratification sufficient to apply the business judgment rule? | Seidman contends disclosure defects render ratification infirm. | Disclosures were sufficiently detailed; stockholders were informed and ratified. | Yes; disclosures sufficed and rule applied. |
| Were proxy disclosures adequate to inform maximum director awards under the Plan? | Maximum permissible awards to directors should have been disclosed upfront. | Proxy and plan disclosed regulatory limits and administration; informed decision possible. | Adequate disclosures; informed stockholders. |
| Did the 2005 Plan awards constitute corporate waste? | Awards were excessive and served insiders at the expense of the corporation. | Awards aligned incentives and followed peer practices; not wasteful. | No; record supports taxpayer-like alignment and market-based rationale. |
| Do Gottlieb and Gantler alter application of the business judgment rule here? | Delaware standards undermine the rule when insiders benefit without full disclosure. | Gottlieb and Gantler are distinguishable; stockholder ratification displaced the need for court scrutiny. | Gottlieb/Gantler distinctions do not undermine rule; rule affirmed. |
Key Cases Cited
- Eliasberg v. Standard Oil Co., 23 N.J.Super. 431 (Ch. Div. 1952) (business judgment rule; waste standard; notice and proxy sufficiency)
- Gottlieb v. Heyden Chem. Corp., 91 A.2d 57 (Del. 1952) (stockholder ratification shifts burden to objector; self-dealing standard)
- Gantler v. Stephens, 965 A.2d 695 (Del. 2009) (pleading standard for overcoming business judgment rule in derivative suits)
- Lewis v. Vogelstein, 699 A.2d 327 (Del.Ch. 1997) (definition of corporate waste; one-sided exchange)
- In re Walt Disney Co. Derivative Litig., 907 A.2d 693 (Del.Ch. 2005) (deferential stance toward director compensation within business judgment framework)
- Green Party v. Hartz Mountain Indus., 164 N.J. 127 (2000) (articulates business judgment rule framework in New Jersey)