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Delaware Chancery Court “Green Lights” Claims against Directors for Approving Excessive Stock Option Grants

The Delaware Chancery Court denied a motion to dismiss a shareholder derivative action claiming that the company’s directors breached their fiduciary duty to shareholders by approving stock option grants to the president in excess of amounts permitted under the company’s stock incentive plan and by issuing a materially misleading 2012 proxy statement.  The action also asserted claims against the company’s president for breaching his fiduciary duty and for unjust enrichment by accepting the grant.  The directors sought to dismiss the claims for demand futility and failure to state a claim.  The court denied the motion to dismiss for futility because the grants were a clear violation of the terms of the plan.  The motion to dismiss for failure to state a claim was dismissed because the clear violation of the stockholder-approved plan implicates the duty of loyalty and therefore states a viable claim.  Pfeiffer v. Leedle, C.A. No. 7831-VCP (Del. Ch. Nov. 8, 2013).

The lawyers of our Employee Benefits and Executive Compensation Practice Group are readily able to assist companies on a nationwide basis with implementing sophisticated benefit plans and providing answers to their most challenging compensation issues. Additionally, our lawyers are well aware of the daily employee benefits challenges facing companies of all sizes and are capable of helping in-house lawyers and human resources personnel with the day-to-day advice and guidance necessary to properly administer employee benefits plans.

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