District Court Denies Defendants' Motions to Dismiss Derivative Action for Failure to Comply with Demand Requirement and Lack of Subject Matter Jurisdiction and Denies Plaintiff's Motion for Summary Judgment.
Seinfeld v. Barrett
, C.A. No. 05-298-JJF, 2006 WL 890909 (D. Del. Mar. 31, 2006).
Plaintiff filed a derivative action against defendants, alleging that they violated Section 14(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 14a-8 and breached their fiduciary duties under Delaware law by making false and misleading statements in connection with a proxy statement issued by the defendants in March 2005. Plaintiff moved for summary judgment, and defendants moved to dismiss for lack of subject matter jurisdiction and for failure to comply with Rule 23.1.
Plaintiff alleged that the defendants made false or misleading statements in Intel Corporation's ("Intel") proxy statememnt, which discussed four proposals to be voted on by Intel's shareholders, including the re-election of ten of eleven of Intel's directors, the approval of a public accounting firm for the year, and amendments to and the extension of Intel's 2004 Equity Incentive Plan ("EIP") and the Executive Officer Incentive Program ("EIOP"). Plaintiff moved for summary judgment, contending that the proxy statement falsely disclosed that if the shareholders approved the bonuses under the EIOP, Intel would be able to deduct them from its taxes, when there would be no tax deduction available under the tax code regardless of whether or not the shareholders approved the EIOP, and that the proxy statement omitted other material terms about the bonuses.
Defendants moved to dismiss under Fed. R. Civ. P. 23.1 for failure to make a demand on Intel's board of directors before filing suit, and contended that the court lacked subject matter jurisdiction because plaintiff's claims would not be ripe for review until payments had been made under the EIOP, a tax deduction had been claimed, or the IRS ruled that the deduction would be improper. Plaintiff argued that demand would have been futile due to Intel's directors' interest and lack of business judgment, and that the claims were ripe for review because they arose when the allegedly false or misleading statements were made in the proxy statement.
The court determined that although the plaintiff failed to plead particularized facts to overcome the presumption of director disinterest and independence, plaintiff pled facts sufficient to raise a doubt as to whether the board's actions in issuing the statements regarding the EIOP were honest and in good faith. The court found demand was excused and therefore denied defendants' motion to dismiss under Rule 23.1. The court also denied defendants' motion to dismiss for lack of subject matter jurisdiction and concluded that plaintiffs' claims were ripe for review because if Section 14(a) and Rule 14a-9 were violated, those violations occurred when the proxy statement was issued with the allegedly false and misleading statements. Finally, the court denied plaintiff's motion for summary judgment, concluding that materiality is a mixed question of law and fact, and that it was unable to determine that reasonable minds could not differ on the materiality of the variables surrounding the EIOP bonuses.