Delaware Business Litigation Report

Court Of Chancery Upholds Compensation Claim In Derivative Suit

Seinfeld v. Slager, C.A. 6462-VCG (June 29, 2012)

Derivative suits alleging excess compensation are hard to plead.  To avoid dismissal, the plaintiffs must show the directors were interested in the compensation awarded and their customary director fees do not count.  Indeed, even bonus awards to themselves are not enough when the bonuses are approved by a stockholder vote.  But this decisions shows why there is an exception to this general rule.

Here the bonus plan did not contain any limit on the board's discretion, except for a cap on the total awarded.  Finding that this made the awards free from any real stockholder control, the Court held the complaint stated a valid derivative claim.  The lesson then is to put some guidance on the awards into the plan when it is submitted for the stockholders' approval.

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