Seinfeld v. O'connor

• Decision Date: 30 March 2011
• Docket Number: Civ. No. 09–887–LPS.
• Citation: 774 F.Supp.2d 660
• Parties: Frank David SEINFELD, Plaintiff,v.James E. O'CONNOR, Tod C. Holmes, Donald W. Slager, John W. Croghan, David I. Foley, Ramon A. Rodriguez, Michael W. Wickham, James W. Crownover, Nolan Lehmann, Allan C. Sorensen, William J. Flynn, W. Lee Nutter, John M. Trani, Michael Larson, and Republic Services, Inc., Defendants,andRepublic Services, Inc., Nominal Defendant.
• Court: U.S. District Court — District of Delaware

774 F.Supp.2d 660

Frank David SEINFELD, Plaintiff,

v.James E. O'CONNOR, Tod C. Holmes, Donald W. Slager, John W. Croghan, David I. Foley, Ramon A. Rodriguez, Michael W. Wickham, James W. Crownover, Nolan Lehmann, Allan C. Sorensen, William J. Flynn, W. Lee Nutter, John M. Trani, Michael Larson, and Republic Services, Inc., Defendants,andRepublic Services, Inc., Nominal Defendant.

Civ. No. 09–887–LPS.

United States District Court, D. Delaware.

March 30, 2011.

Robert D. Goldberg, Biggs and Battaglia, Wilmington, DE; Mark J. Rosen, Barrack, Rodos & Bacine, Philadelphia, PA; Alexander Arnold Gershon, Barrack, Rodos & Bacine, New York, NY, for Plaintiff.Andre G. Bouchard, Bouchard Margules & Friedlander, P.A., Wilmington, DE; Michele Odorizzi, Mayer Brown LLP, Chicago, IL; Allen M. Terrell, Jr. Daniel A., Dreisbach, Geoffrey G. Grivner, Nicole C. Bright, Richards, Layton & Finger, Wilmington, DE, for Defendants.

OPINION

STARK, District Judge:

This is a shareholder securities lawsuit. Presently pending before the Court are motions to dismiss filed by the defendant corporation and the defendant directors. (D.I. 17; D.I. 19) For the reasons that follow, the Court will grant the corporation's motion to dismiss and will deny the individual directors' motion to dismiss as moot.

I. BACKGROUND

Defendant, Republic Services, Inc. (“Republic”), a publicly traded company incorporated in the state of Delaware, is one of the nation's largest waste-hauling and waste-disposal companies. (D.I. 18 at 2) Plaintiff Frank David Seinfeld (“Seinfeld”) is one of Republic's stockholders. Seinfeld held stock in the company at the time of the transactions that form the basis of this lawsuit and continuously thereafter. (D.I. 13 at 2)

The controversy here arises out of an April 3, 2009 proxy statement that was distributed by Republic's board of directors in anticipation of Republic's annual stockholder meeting that eventually took place on May 14, 2009. (D.I. 18 at 2; id. Ex. A) The proxy statement solicited shareholder approval for several different items, including two interrelated compensation plans for some of Republic's senior executives. The Executive Incentive Plan (“EIP”) authorized the company to grant “annual awards, long-term awards and synergy awards to individuals selected from time to time by the Compensation Committee....” (D.I. 18 Ex. A at 46) The Synergy Plan, which is a part of the EIP, granted the Compensation Committee discretion to award one-time cash bonuses to certain executives based upon cost-reductions (i.e., synergies) flowing from Republic's 2008 merger with Allied Waste, which was completed on December 5, 2008. ( Id. at 46, 49; see also D.I. 31 Ex. A at 1) Both the EIP and the Synergy Plan were described in the proxy statement; the plans themselves were also attached as exhibits to the proxy statement. ( Id. at 46–51; id. at A–1; id. at B–1) The proxy statement laid out the three types of incentive awards that would be authorized under the EIP, who would be eligible under the plans, the menu of performance goals, and how the awards would be treated in certain situations, such as in the event that an eligible officer voluntarily or involuntarily left the company's employment. ( Id.)

The proxy statement states that Republic was submitting the EIP to the stockholders so that payments under the EIP “may qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code” (hereinafter, “IRC”). ( Id. at 46) Section 162(m) of the IRC grants a tax exemption to companies for certain compensation they pay under certain circumstances. The EIP and the Synergy Plan were intended to comply with the IRC, as well as relevant SEC and Treasury regulations, so that the plans could qualify for tax-deductions. (D.I. 25 at 1)

The EIP and the Synergy Plan were approved by Republic's stockholders at the May 14, 2009 annual stockholder meeting. (D.I. 18 at 1) On November 20, 2009, Seinfeld filed the instant lawsuit, alleging that the April 3, 2009 proxy statement contained materially false or misleading statements or omissions. (D.I. 1; D.I. 13) Seinfeld's first two claims for relief are direct claims pursuant to § 14(a) of the Securities Exchange Act of 1934 (“the Exchange Act”). In these first two causes of action, Seinfeld names as defendants Republic, its board of directors, and three of its officers. (D.I. 13 at 3; id. at 17) Seinfeld's third claim is a derivative action on behalf of Republic against the individual members of the board of directors in their personal capacities.¹ (D.I. 13 at 18) Republic filed a motion to dismiss the direct claims against all of the defendants on May 12, 2010. (D.I. 17; D.I. 18) On the same day, the individual defendants filed a separate motion to dismiss the derivative action. (D.I. 19; D.I. 20) Seinfeld filed a joint brief in opposition to the two motions. (D.I. 25) The Court heard oral argument on the motions on February 18, 2011. (D.I. 36) (“Tr.”)

II. LEGAL STANDARDS

Federal Rule of Civil Procedure 12(b)(1) authorizes dismissal of a complaint for lack of jurisdiction over the subject matter. See Samsung Electronics Co., Ltd. v. ON Semiconductor Corp., 541 F.Supp.2d 645, 648 (D.Del.2008). Motions brought under Rule 12(b)(1) may present either facial or factual challenges to the Court's subject matter jurisdiction.

In reviewing a facial challenge under Rule 12(b)(1), the standards relevant to Rule 12(b)(6) apply. In this regard, the Court must accept all factual allegations in the Complaint as true, and the Court may only consider the complaint and documents referenced in or attached to the complaint. Gould Electronics, Inc. v. United States, 220 F.3d 169, 176 (3d Cir.2000). [In contrast, however,] [i]n reviewing a factual challenge to the Court's subject matter jurisdiction, the Court is not confined to the allegations of the complaint, and the presumption of truthfulness does not attach to the allegations in the complaint. Mortensen v. First Fed. Sav. & Loan, 549 F.2d 884, 891 (3d Cir.1977). Instead, the Court may consider evidence outside the pleadings, including affidavits, depositions and testimony, to resolve any factual issues bearing on jurisdiction. Gotha v. United States, 115 F.3d 176, 179 (3d Cir.1997).

Id.

Once the Court's subject matter jurisdiction over a complaint is challenged, Plaintiff bears the burden of proving that jurisdiction exists. Mortensen, 549 F.2d at 891. “Dismissal for lack of subject-matter jurisdiction because of the inadequacy of the federal claim is proper only when the claim is so insubstantial, implausible, foreclosed by prior decisions of [the Supreme Court], or otherwise completely devoid of merit as not to involve a federal controversy.” Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 89, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998) (internal quotation marks omitted).

Evaluating a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) requires the Court to accept as true all material allegations of the complaint. See Spruill v. Gillis, 372 F.3d 218, 223 (3d Cir.2004). “The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.” In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1420 (3d Cir.1997) (internal quotation marks omitted). Thus, the Court may grant such a motion to dismiss only if, after “accepting all well-pleaded allegations in the complaint as true, and viewing them in the light most favorable to plaintiff, plaintiff is not entitled to relief.” Maio v. Aetna, Inc., 221 F.3d 472, 481–82 (3d Cir.2000) (internal quotation marks omitted).

However, “[t]o survive a motion to dismiss, a civil plaintiff must allege facts that ‘raise a right to relief above the speculative level on the assumption that the allegations in the complaint are true (even if doubtful in fact).’ ” Victaulic Co. v. Tieman, 499 F.3d 227, 234 (3d Cir.2007) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1965, 167 L.Ed.2d 929 (2007)). While heightened fact pleading is not required, “enough facts to state a claim to relief that is plausible on its face” must be alleged. Twombly, 127 S.Ct. at 1974. At bottom, “[t]he complaint must state enough facts to raise a reasonable expectation that discovery will reveal evidence of [each] necessary element” of a plaintiff's claim. Wilkerson v. New Media Technology Charter School Inc., 522 F.3d 315, 321 (3d Cir.2008) (internal quotation marks omitted). Nor is the Court obligated to accept as true “bald assertions,” Morse v. Lower Merion School Dist., 132 F.3d 902, 906 (3d Cir.1997) (internal quotation marks omitted), “unsupported conclusions and unwarranted inferences,” Schuylkill Energy Resources, Inc. v. Pennsylvania Power & Light Co., 113 F.3d 405, 417 (3d Cir.1997), or allegations that are “self-evidently false.” Nami v. Fauver, 82 F.3d 63, 69 (3d Cir.1996).

III. DISCUSSIONA. Direct Claims against Republic

Seinfeld asserts two direct claims against Republic based on § 14(a) of the Exchange Act. 15 U.S.C. § 78n et seq. (2006). Section 14(a) makes it unlawful for anyone to solicit proxies that are in contravention of rules and regulations promulgated by the SEC. Id. SEC Rule 14a–9, promulgated pursuant to § 14(a) states, in relevant part:

No solicitation subject to this regulation shall be made by means of any proxy statement ... which, at the time ... it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of a proxy for the same meeting or subject matter which has become false or misleading.

17 C.F.R. § 240.14a–9(a). Section 14(a) is a key tool to prevent corporate directors or officers from procuring shareholder approval for transactions through proxy...