Kaufman v. Alexander
| Decision Date | 23 April 2014 |
| Docket Number | Civil Action No. 11–00217–RGA |
| Court | U.S. District Court — District of Delaware |
| Parties | Jeffrey Kaufman, Plaintiff; v. Barbara T. Alexander, et al., Defendants, v. Qualcomm Incorporated, Nominal Defendant. |
Brian E. Farnan, Esq., Farnan LLP, Wilmington, DE; Alexander Arnold Gershon, Esq. (argued), Barrack, Rodos & Bacine, New York, NY; Michael A. Toomey, Esq., Barrack, Rodos & Bacine, New
York, NY; Jeffrey A. Barrack, Esq., Barrack, Rodos & Bacine, Philadelphia, PA, attorneys for the Plaintiff.
Richard L. Horwitz, Esq., Potter Anderson & Corroon LLP, Wilmington, DE; Rachel G. Skaistis, Esq. (argued), Cravath, Swaine & Moore LLP, New York, NY; Leslie W Regenbaum, Esq., Cravath, Swaine & Moore LLP, New York, NY, attorneys for the Individual Defendants.
Collins J. Seitz, Jr., Esq., Seitz Ross Aronstam & Moritz LLP, Wilmington, DE; William B. Sailer, Esq., Qualcomm, San Diego, CA, attorneys for Defendant Qualcomm.
Amended Memorandum Opinion
Presently before the Court for disposition are Defendants Barbara T. Alexander, Stephen M. Bennett, Donald G. Cruickshank, Raymond V. Dittamore, Thomas W. Horton, Irwin M. Jacobs, Robert E. Kahn, Sherry Lansing, Duane Nelles, Francisco Ros, Brent Scowcroft, Marc I. Stern, William E. Keitel, Steven R. Altman, Steven M. Mollenkopf, and Donald J. Rosenberg's (“Individual Defendants”) Motion for Summary Judgment and Jeffrey Kaufman's (“Plaintiff”) Motion for Partial Summary Judgment. (D.I. 230, 236). These matters have been fully briefed. (D.I. 231, 255, 264, 306, 237, 252, 266). The Court heard Oral Argument on the motions on October 8, 2013. For the reasons set forth herein, the Individual Defendants' Motion for Summary Judgment is GRANTED and the Plaintiffs Motion for Summary Judgment is DENIED.
The original complaint in this case was filed on March 11, 2011 and included three claims. (D.I. 1). The complaint included one direct claim and two derivative claims, all arising out of a 2011 proxy statement produced by QualComm Incorporated. The direct claim sought relief pursuant to § 14(a) of the Exchange Act and SEC Rules 14a–4 and 14a–9 “for making materially false and misleading statements to the stockholders in the 2011 proxy Statement.”Id. at ¶ 41. The two derivative actions were Delaware state law claims for breach for fiduciary duty and corporate waste. Id. at ¶¶ 47–55. Upon a Motion to Dismiss filed by the Individual Defendants, the Court granted partial relief, dismissing the direct claim. (D.I. 50).
The Plaintiff then filed a first amended complaint on August 13, 2012, which included ten new claims, four direct and six derivative.1 (D.I. 122). The Defendants moved to dismiss the amended complaint, which was granted in part. (D.I. 205). The only remaining claims were then Claims II, III, VIII, IX, X, XI, XII, and XIII. The second amended verified complaint was filed on July 12, 2013.2 (D.I. 213).
“The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The moving party has the initial burden of proving the absence of a genuinely disputed material fact relative to the claims in question. Celotex Corp. v. Catrett, 477 U.S. 317, 330, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Material facts are those “that could affect the outcome” of the proceeding, and “a dispute about a material fact is ‘genuine’ if the evidence is sufficient to permit a reasonable jury to return a verdict for the nonmoving party.” Lamont v. New Jersey, 637 F.3d 177, 181 (3d Cir.2011) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ). The burden on the moving party may be discharged by demonstrating that there is an absence of evidence supporting the non-moving party's case. Celotex, 477 U.S. at 325, 106 S.Ct. 2548.
The burden then shifts to the non-movant to demonstrate the existence of a genuine issue for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586–87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ; Williams v. Borough of West Chester, Pa., 891 F.2d 458, 460–61 (3d Cir.1989). A non-moving party asserting that a fact is genuinely disputed must support such an assertion by: “(A) citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations ..., admissions, interrogatory answers, or other materials; or (B) showing that the materials cited [by the opposing party] do not establish the absence ... of a genuine dispute....” Fed. R. Civ. P. 56(c)(1).
When determining whether a genuine issue of material fact exists, the court must view the evidence in the light most favorable to the non-moving party and draw all reasonable inferences in that party's favor. Scott v. Harris, 550 U.S. 372, 380, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007) ; Wishkin v. Potter, 476 F.3d 180, 184 (3d Cir.2007). A dispute is “genuine” only if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson, 477 U.S. at 247–49, 106 S.Ct. 2505. If the non-moving party fails to make a sufficient showing on an essential element of its case with respect to which it has the burden of proof, the moving party is entitled to judgment as a matter of law. See Celotex Corp., 477 U.S. at 322, 106 S.Ct. 2548.
Claims II and III are derivative claims against the directors for distributing false and misleading information in the proxy statement and breaching their fiduciary duties. (D.I. 213 at 32–34). The claims are premised on the theory that the statements made by the directors in the 2011 proxy statement, regarding the long-term incentive plan (“LTIP”), would prevent Qualcomm from receiving tax deductions under Treasury Regulation § 1.162–27(e)(4)(i) and § 162(m). Id.
“The Internal Revenue Code (IRC) generally disallows deductions for employee remuneration in a publicly held corporation in excess of $1 million.” Shaev v. Saper, 320 F.3d 373, 379 (3d Cir.2003). However, the IRC allows for corporations to deduct wages in excess of one million dollars when the compensation is based upon an incentive plan that meets a “narrow set” of requirements. Id. The incentive plan is only deductible if:
26 U.S.C. § 162(m)(4)(c). The regulations additionally require that:
The requirements ... are not satisfied if the compensation would be paid regardless of whether the material terms are approved by shareholders. The material terms include the employees eligible to receive compensation; a description of the business criteria on which the performance goal is based; and either the maximum amount of compensation that could be paid to any employee or the formula used to calculate the amount of compensation to be paid to the employee if the performance goal is attained (except that, in the case of a formula based, in whole or in part, on a percentage of salary or base pay, the maximum dollar amount of compensation that could be paid to the employee must be disclosed).
26 C.F.R. § 1.162–27(e)(4)(i).
The aforementioned regulations are violated where shareholders are not provided a real choice as to whether to accept the LTIP. For example, the Court in Shaev found that a proxy statement was coercive when the shareholders were informed that regardless of their vote the LTIP would be enacted. Shaev, 320 F.3d at 381. Conversely, in Seinfeld v. O'Connor, the Court found that when a proxy statement reserves the right to maintain bonus payments, but does not state that bonus payments will continue to be made, the proxy statement is not coercive. 774 F. Supp.2d 660, 669 (D.Del.2011). This interpretation is supported by a private letter ruling by the IRS.3 I.R.S. P.L.R. 200617018, 2006 WL 1126274 (Apr. 28, 2006).
The Defendants argue that as a matter of law and fact “Qualcomm's shareholders were not coerced into approving the 2011 amended LTIP and that, absent coercion, the relevant Treasury regulation was not violated.” (D.I. 264 at 9). Conversely, the Plaintiff argues that the 2011 proxy Statement was coercive. (D.I. 255 at 33).
The relevant portion of the Proxy Statement states:
Should stockholder approval not be obtained, then the proposed amendments will not be implemented, and the 2006 LTIP will continue in effect pursuant to its current terms. However, the shares reserved for issuance will be depleted, and the 2006 LTIP will not achieve its intended objectives of helping to attract and retain employees.
It is clear from the language of the 2011 Proxy Statement that this case is unlike Shaev. There the proxy statement informed the shareholders that a specific bonus payment would be made independent of their vote, and that they were only determining if the bonus would be tax deductible. Here the shareholders were choosing between a new and the old LTIP. The Proxy Statement simply informed the shareholders that a “no” vote would result in the 2006 LTIP remaining the governing document for the company. Furthermore, the statement communicated the factual situation that, without the issuance of additional shares, the company could not achieve the goal of the 2006 LTIP. This is much like in Seinfeld where the...
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Kaufman v. Alexander
...amended verified complaint, which left the claims unchanged but substituted the plaintiff from Hoch to Kaufman. Kaufman v. Alexander, 62 F. Supp. 3d 395, 397 n.2 (D. Del. 2014). The Individual Directors moved for summary judgment. Appellant cross-moved for partialsummary judgment. On June 1......