Court Dismisses Claim That Board Breached Fiduciary Duty by Failing to Seek Recovery of Bonus that Turned Out to Be Unjustified After Accounting Restatement
Laties v. Wise, C.A. No. 1280-N, 2005 WL 3501709 (Del. Ch. Dec. 14, 2005).
In 2001, Defendant corporate executive received bonuses and other compensation near $9 million as CEO, due in some part to the corporation's reported profits that year. Several years later, after that executive's departure, the corporation restated its 2001 performance from a $93 million profit to a $447 million loss. Plaintiff brought a derivative claim against executive for unjust enrichment, and against the present directors of the corporation for breach of fiduciary duty and waste. Defendants moved to dismiss under Court of Chancery Rule 23.1.
The court granted Defendants' motion. The court first observed that Plaintiff's claim was not ripe because the complaint made no allegations (let alone particularized factual allegations) that the directors had made a definitive decision not to seek restitution from Wise or that the remedies were time-barred or otherwise in imminent danger of becoming unavailable. The court also found that Plaintiff failed to establish that demand should be excused because the complaint did not plead facts showing that the directors faced a substantial likelihood of liability. Specifically, the court noted that the corporation's certificate of incorporation contained an exculpatory provision pursuant to 8 Del.C. -102(b)(7)
of the Delaware General Corporation Law and that the complaint did not assert bad faith, intentional misconduct, knowing violation of law, or other conduct for which the directors would be liable.