After the Dodd-Frank Act gave public company shareholders the right to vote on executive pay, Robbins Geller Rudman & Dowd took an aggressive lead in filing shareholder derivative suits against corporate boards that that ignored negative “say-on-pay” votes. But the firm is learning the hard way that the non-binding shareholder votes don’t mean all that much to the courts.
On March 7, in the latest setback for say-on-pay plaintiffs, a federal judge in California dismissed an Illinois pension fund’s derivative suit against executives and directors of a semiconductor company called Intersil Corporation. Robbins Geller filed the suit last summer, alleging that the defendants breached their fiduciary duty when they approved a 42 percent executive pay hike last year despite lousy financial performance at the company and a negative say-on-pay vote. San Jose federal district court judge Edward Davila agreed with the defendants’ lawyers at Dechert that the pension fund’s claims had to be dismissed for at least two reasons.
First, Judge Davila found that the pension fund hadn’t shown that making a pre-suit demand on Intersil’s board would have been futile. The judge rejected the theory of demand futility that Robbins Geller has been pressing in its say-on-pay suits: that the defendants weren’t independent or disinterested because they either stood to profit from the pay plan or faced potential liability for approving it.
The judge also ruled that Robbins Geller couldn’t get past the Delaware law presumption that the defendants were exercising their good faith business judgment in approving the compensation plan. Judge Davila mused that Congress must have expected say-on-pay votes to have some weight when it enacted Dodd-Frank, but he found that a negative say-on-pay vote isn’t enough to plausibly allege breach of duty.
“If the shareholder vote approving executive compensation is meant to have no effect whatsoever, it seems unlikely that Congress would have included a specific provision requiring such a vote,” the judge wrote. But, he concluded, “on the particular facts presented in the case before the court, where 56 percent of shareholders disapproved of Intersil’s 2010 executive compensation package, the court finds that the shareholder vote alone is not enough to rebut the presumption of the business judgment rule.”
As we’ve reported (here and here), judges in Oregon and Los Angeles dismissed two Robbins Geller say-on-pay suits in just the last two weeks. In both cases, the judges cited the plaintiffs’ failure to show demand futility and their inability to survive the business judgment rule.
So far, of the handful judges to rule on motions to dismiss in say-on-pay suits, only one that we’re aware of has allowed the plaintiffs’ claims to move forward and found that that a negative shareholder vote can call boardmembers’ business judgment into question. The judge in that case–an Ohio federal district court judge presiding over a Robbins Geller suit against Cincinnati Bell–refused to dismiss the suit last September. (The judge recently allowed the plaintiffs to re-plead despite a jurisdictional snafu that almost lost Robbins Geller the case; The litigation is now on holding pending a settlement in a related Ohio state court action.)
We reached out to Robbins Geller partners Darren Robbins, Travis Downs III, and Shawn Williams but didn’t hear back. Counsel for the Intersil defendants, Joshua Hess and Chris Scott Graham, also didn’t immediately respond to a request for comment.
Update: We got news late Monday of yet another say-on-pay dismissal–though this time it’s not a Robbins Geller case. Baltimore, Md., federal district court judge James Bredar ruled that lawyers at Levi & Korsinsky hadn’t pled their way around pre-suit demand requirements in a shareholder derivative suit against BioMed Realty Trust directors and officers. The judge denied as moot a separate motion to dismiss based on the business judgment rule. Peter Wald, Patrick Gibbs, and Christian Word of Latham & Watkins represent the defendants.
