Brief Fact Summary. Plaintiff, Sylvia Marx, initiated a shareholder derivative action against the Defendant Board of Directors, John Akers et al., without first demanding that the board initiate the suit.
Synopsis of Rule of Law. A director will always be an interested party, for the purpose of the excusal of a demand, when the director is voting on director compensation, but a plaintiff has to demonstrate with particularity that the compensation is excessive.
Directors are self-interested in a challenged transaction where they will receive a direct financial benefit from the transaction which is different from the benefit to shareholders generally.View Full Point of Law
â€¢ The first issue is whether demand was excused because the directors had an interest in their own compensation.
â€¢ The second issue is whether Plaintiff asserted a factually-based claim against Defendants.
â€¢ Demand was excused because the Defendant Directors have an interest in their own compensation.
â€¢ The Plaintiff did not adequately support his claim and therefore the suit should be dismissed. Other than asserting that the compensation was excessive, Plaintiff did not demonstrate with particularity what accounting decisions or any other facts that would establish the excessiveness of the raises.
â€¢ The Court looked at universal demand, which would be to require demand in all instances, and the Delaware reasonableness approach, but they applied New York’s statutory â€œparticularityâ€ requirements.
â€¢ The court does not provide much guidance as to a precise threshold to establish the excessiveness. Plaintiff established that the compensation was greater than the cost of living increase, and established that the company was not prospering under the current Board, but this was not enough.