Raul v. Astoria Fin. Corp.
| Decision Date | 20 June 2014 |
| Docket Number | Civil Action No. 9169-VCG |
| Parties | DAVID RAUL, as custodian for MALKA RAUL UTMA, NY, Plaintiff, v. ASTORIA FINANCIAL CORPORATION, Defendant. |
| Court | Court of Chancery of Delaware |
Joel Friedlander and Jaclyn Levy, of FRIEDLANDER & GORRIS, P.A., Wilmington, Delaware; OF COUNSEL: Eduard Korsinsky and Douglas E. Julie, of LEVI & KORSINSKY, LLP, New York, New York, Attorneys for the Plaintiff.
Rolin P. Bissell and Emily V. Burton, of YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; OF COUNSEL: Stewart D. Aaron and Robert C. Azarow, of ARNOLD & PORTER LLP, New York, New York, Attorneys for the Defendant.
A stockholder directs her attorney to investigate her corporation's activities, then sends the board of directors a demand letter stating that, in the opinion of the stockholder, the corporation is violating the law. The corporation takes action in response, arguably working a benefit on all stockholders. Is the stockholder entitled to have her attorneys' fees reimbursed under the corporate benefit doctrine?
Our law provides that if the actions of the board of directors were such that, at the time a demand was made, a suit based on those actions would have survived a motion to dismiss, and a material corporate benefit resulted, the attorneys' fees incurred by the stockholder may be recovered despite the fact that no suit was ever filed. If, on the other hand, the stockholder has simply done the company a good turn by bringing to the attention of the board an action that it ultimately decides to take, she is not entitled to coerced payment of her attorneys' fees by the stockholders at large. Finding that the demand at issue here falls into the latter category, I decline to shift fees onto the corporation and its stockholders.
Astoria Financial Corporation ("Astoria," or the "Company") is a publicly-traded Delaware corporation engaged primarily in the operation of its wholly-owned subsidiary, Astoria Federal, whose business includes "attracting retaildeposits from the general public and businesses and investing those deposits, together with funds generated from operations, principal repayments on loans and securities and borrowings, primarily in one-to-four family, or residential, mortgage loans, multi-family mortgage loans, commercial real estate mortgage loans and mortgage-backed securities"1—in other words, banking.
The Plaintiff in this action is the custodian of Astoria common stockholder Malka Raul UTMA, NY.
In July 2010, "in response to the worst financial crisis since the Great Depression,"2 Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"). Targeted at regulation of the financial services industry, ostensibly "in an attempt to restore responsibility and accountability in our financial system,"3 Dodd-Frank imposed broad new regulation of approval and disclosure of corporate executive compensation decisions. Of importance in the present action, Section 951 of Dodd-Frankamended the Securities Exchange Act of 1934 to include Section 14A, governing shareholder approval of executive compensation. Section 14A provides, in part:
In other words, the so-called "Say On Pay" provisions under Dodd-Frank require companies to submit to their stockholders non-binding votes (1) to approve the compensation arrangements of company executives (the "Say-On-Pay Vote"), and (2) to determine whether future stockholder advisory votes on executive compensation should occur every one, two, or three years (the "Frequency Vote").
In addition to requiring that a company hold a Say-On-Pay Vote and Frequency Vote, Dodd-Frank requires companies to make certain disclosures with respect to those votes once completed. Two such disclosures are at issue in thislitigation, including (1) a requirement that the company disclose in its Form 8-K the results of the Frequency Vote, as well as its decision, in light of that vote, on how frequently future Say-On-Pay Votes will be held, and (2) a requirement that the company disclose in its proxy statement whether, and if so, how, its board considered the results of the Say-On-Pay Vote when making compensation decisions.
Specifically, Form 8-K, Item 5.07(b) requires a company to "state the number of votes cast for each of 1 year, 2 years, and 3 years," while Item 5.07(d) provides that:
No later than one hundred fifty calendar days after the end of the annual or other meeting of shareholders at which shareholders voted on the frequency of shareholder votes on the compensation of executives as required by section 14A(a)(2) of the Securities Exchange Act of 1934 . . . by amendment to the most recent Form 8-K filed pursuant to (b) of this Item, disclose the company's decision in light of such vote as to how frequently the company will include a shareholder vote on the compensation of executives in its proxy materials until the next required vote on the frequency of shareholder votes on the compensation of executives.5
Further, Regulation S-K, Item 402(b)(1)(vii) requires disclosure, in a company's proxy statement, of:
Whether, and if so, how the registrant has considered the results of the most recent shareholder advisory vote on executive compensation required by section 14A of the Exchange Act . . . in determining compensation policies and decisions and, if so, how that considerationhas affected the registrant's executive compensation decisions and policies.6
The parties dispute whether Astoria's board satisfied those disclosure requirements following the Company's 2011 annual meeting.
Less than a year after the July 2010 enactment of Dodd-Frank, on May 18, 2011, Astoria held an annual meeting. In connection with that meeting, on April 11, 2011, the Astoria board submitted a proxy statement (the "2011 Proxy Statement") informing stockholders of the Company's intention to hold the Company's first Say-On-Pay Vote and Frequency Vote. The 2011 Proxy Statement described the executive compensation packages for which the Company sought approval, and included the Astoria board's recommendations that the stockholders (1) vote to approve the executive compensation packages, and (2) vote to hold future Say-On-Pay Votes annually.
At the May 18, 2011 annual meeting, approximately 65% of stockholders voted to approve Astoria's executive compensation, and roughly 74% of stockholders voted to hold future Say-On-Pay Votes annually, in both cases as the board had recommended. After receiving the results of those votes, Astoria filed a Form 8-K. Pursuant to Item 5.07, the Company disclosed:
The non-binding vote to determine the frequency of future shareholder advisory votes to approve the compensation of the Company's named executive officers is based on the highest number of votes cast by shareholders represented in person or by proxy and entitled to vote. Based on the vote indicated below, the results of the future advisory shareholder votes to approve the compensation of the Company's named executives is every year.7
Despite the Defendant's contention that the italicized language above sufficiently informed Astoria's stockholders of the results of the Frequency Vote, according to the Plaintiff, the language cited above was insufficient to meet the disclosure requirements articulated in Item 5.07.
Several months later, on April 6, 2012, as its next annual meeting approached, Astoria disseminated a second proxy statement (the "2012 Proxy Statement") to its stockholders. As in 2011, the 2012 Proxy Statement sought the Astoria stockholders' non-binding approval of Astoria's executive compensation pursuant to a new 2012 Say-On-Pay Vote. In addition, as in the preceding year, the 2012 Proxy Statement described the compensation packages at issue, as well as the board's recommendation that the stockholders approve Astoria's executive compensation arrangements. The Plaintiff contends, however, that the 2012 Proxy Statement did not disclose whether, and if so, how, the Astoria board consideredthe results of the prior 2011 Say-On-Pay Vote in making its executive compensation decisions.
Ten days after Astoria disseminated its 2012 Proxy Statement, on April 16, 2012, the Plaintiff sent a demand letter (the "Demand") to the Astoria board. In that Demand, the Plaintiff asserted that, "[i]n violation of Securities and Exchange Commission ('SEC') regulation disclosure standards and the Astoria Board's duty of candor," the Astoria board "concealed material and required information concerning the Company's executive compensation policies and practices in the 2012 Proxy Statement"8 by failing to disclose "whether, and if so, how, the Astoria Board considered the results of the 2011 say-on-pay vote."9 Further, the Plaintiff explained that, "[i]n violation of SEC rules, the Company has failed to disclose how frequently it has decided to hold future say-on-pay votes."10 In his Demand, the Plaintiff summarized his...
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