Willner v. Syntel, Inc.
| Decision Date | 02 May 2017 |
| Docket Number | Case No. 16-13574. |
| Citation | 256 F.Supp.3d 684 |
| Parties | Philip WILLNER, Plaintiff, v. SYNTEL, INC., Defendant. |
| Court | U.S. District Court — Eastern District of Michigan |
Eric A. Parzianello, Mark M. Snitchler, John A. Hubbard, Hubbard Snitchler & Parzianello PLC, Detroit, MI, for Plaintiff.
Andrew J. Kolozsvary, Dykema Gossett, Detroit, MI, Lori M. McAllister, Dykema Gossett, Lansing, MI, for Defendant.
In 2016, Defendant Syntel, Inc. asked its shareholders to approve a new incentive compensation plan for its officers, directors, and employees. In connection with that request, Syntel issued a proxy statement describing the proposed plan. Plaintiff Philip Willner, a Syntel shareholder, and his lawyer compared the proxy statement to the terms of the compensation plan and concluded that the proxy mischaracterized the plan. Willner's lawyer sent a letter to Syntel demanding that it supplement the proxy statement with revised disclosures, and Syntel did so (even though Syntel disagreed with Willner's claim that the proxy was inaccurate). In this action, Willner insists that his counsel's work conferred a substantial benefit on Sytnel's shareholders, and he claims that Syntel must pay him more than $75,000 in attorney fees for that benefit. But Michigan law does not permit such a fee award under these circumstances. Therefore, the Court DISMISSES Willner's Complaint.
Syntel is a publicly-traded "global provider of digital transformation, information technology, and knowledge process outsourcing services to Global 2000 companies." (Compl. at ¶ 2, ECF # 1 at Pg. ID 2.) It is headquartered in Troy, Michigan. (See id. ) Willner is a Syntel shareholder and a citizen of New York. (See id. at ¶ 1.)
At Syntel's 2016 annual meeting, the company asked its shareholders to approve a new incentive compensation plan. (See id. at ¶ 7, ECF # 1 at Pg. ID 2.) Prior to that meeting, Syntel described the compensation plan—and its revised limits on executive compensation—in a Schedule 14A Definitive Proxy Statement (the "Proxy"). (See id. at Pg. ID 3.) It filed the Proxy with the Securities and Exchange Commission (the "SEC") and issued it to shareholders. (See id. )
Willner compared the Proxy against the compensation plan. He concluded that the Proxy "falsely represented that the [compensation plan] restricted the amount of stock awards that [Syntel's Board of Directors] could grant to an individual participant during a calendar year." (Id. at ¶ 7, ECF # 1 at Pg. ID 3.) According to Willner, the Proxy represented that the compensation plan authorized Syntel's Board to award participants "no more than 1,850,000 shares" of stock per year, but under the actual terms of the plan, that "limit[ ] ... [was] only applicable to awards that [Syntel's] Compensation Committee specifically designate[d] as subject" to Section 162(m) of the Tax Code. (Id. at ¶ 27, ECF # 1 at Pg. ID 8.) Simply put, Willner contended that the Proxy falsely told shareholders that the compensation plan contained "participant annual limits" on stock awards. (Id. at Pg. ID 8–9.) Willner believed that "[a]s a result of the Board's affirmative misrepresentations ... Syntel shareholders were [ ] misled about the material terms of the [compensation plan] that they were being asked to approve." (Id. at ¶ 35, ECF # 1 at Pg. ID 10.)
On May 10, 2016, Willner's counsel sent a shareholder demand letter to Syntel (the "Demand Letter"). (See ECF # 1–1.) In the Demand Letter, Willner's attorney alleged that the Proxy "misrepresent[ed] material terms of the [compensation plan]" because it mischaracterized the plan in the manner described above. (Id. at Pg. ID 16; see also Compl. at ¶ 7, ECF # 1 at Pg. ID 2–3.) Among other things, Willner "demanded that the Board issue a supplemental disclosure to correct the [ ] Proxy before shareholders voted [on the compensation plan] at the 2016 Annual Meeting." (Compl. at ¶ 37, ECF # 1 at Pg. ID 11.)
Syntel reviewed the Demand Letter and disagreed with Willner's contention that the Proxy materially mischaracterized the compensation plan. (See ECF # 1–3 at Pg. ID 23–24.) Syntel nonetheless decided to file a supplemental Schedule 14A Proxy Statement with the SEC (the "Supplemental Proxy"). (See Compl. at ¶ 38, ECF # 1 at Pg. ID 11.) In the Supplemental Proxy, Syntel stated that "the previously-disclosed annual ‘limit’ [on stock awards] would ‘apply only to Section 162(m) Awards under the [compensation plan] and not to any other awards.’ " (Id. at ¶ 39, ECF # 1 at Pg. ID 11, quoting the Supplemental Proxy; internal emphasis removed.)
Syntel's shareholders approved the compensation plan at the company's 2016 annual meeting. (See id. at ¶ 41, ECF # 1 at Pg. ID 12.) Willner thereafter sought "a reasonable attorneys' fee" from Syntel. (Id. at ¶ 11, ECF # 1 at Pg. ID 4.) Syntel declined to pay Willner any fee. (See id. )
On October 16, 2016, Willner filed this action. Willner's sole count seeks more than $75,000 in legal fees and expenses in connection with the Demand Letter. (See id. at ¶¶ 3, 46, ECF # 1 at Pg. ID 2, 13.) Willner claims that he is entitled to his fees under "the common or corporate benefit doctrine"—a doctrine that authorizes an award of attorney fees and expenses to "representative plaintiffs and their counsel ... for producing a benefit to a represented class." (Id. at ¶ 10, ECF # 1 at Pg. ID 4.) Willner says that the doctrine applies here because his efforts benefitted Syntel's shareholders. In Willner's words, he "conferred [a benefit] on [Syntel's] shareholders by means of a pre-suit demand that caused corrective action to be taken and enabled shareholders to render a fully-informed vote on [the compensation plan]." (Id. at ¶ 6, ECF # 1 at Pg. ID 2; see also id. at ¶ 10, ECF # 1 at Pg. ID 3, in which Willner claims that he is entitled to fees based on the "substantial benefit he conferred on the [Syntel's] shareholders.") Willner maintains that "[w]ere it not for his counsel's investigation and review of [Syntel's] voluminous SEC filings, and the resulting Demand [Letter], shareholders would have been deprived of their fundamental right to an informed vote at the 2016 Annual Meeting." (Id. at ¶ 10, ECF # 1 at Pg. ID 4.)
Syntel filed a motion to dismiss Willner's claim for attorney fees on November 18, 2016. (See ECF # 8.) The Court held a hearing on Syntel's motion on April 12, 2017.
Syntel moves to dismiss Willner's claim for attorney fees under Rule 12(b)(6) of the Federal Rules of Civil Procedure. "To survive a motion to dismiss" under Rule 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A claim is facially plausible when a plaintiff pleads factual content that permits a court to reasonably infer that the defendant is liable for the alleged misconduct. See id. When assessing the sufficiency of a plaintiff's claim, a district court must accept all of a complaint's factual allegations as true. See Ziegler v. IBP Hog Mkt., Inc. , 249 F.3d 509, 512 (6th Cir. 2001). "Mere conclusions," however, Iqbal , 556 U.S. at 664, 129 S.Ct. 1937. A plaintiff must therefore provide "more than labels and conclusions," or "a formulaic recitation of the elements of a cause of action." Twombly , 550 U.S. at 556, 127 S.Ct. 1955. "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937.
The Court has subject matter jurisdiction over this action based upon the parties' diversity of citizenship and the amount in controversy. See 28 U.S.C. 1332(a)(1). In a diversity action like this one, the Court must apply Michigan law as determined by the Michigan Supreme Court. See Erie R.R. v. Tompkins , 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).
Willner does not dispute that Michigan law governs his claim for attorney fees, but he nonetheless urges the Court to consult Delaware law in resolving his claim. Willner argues that "on unresolved corporate law issues such as [the one before the Court], ‘Michigan courts commonly refer to Delaware law....’ " (Willner Resp. Br., ECF # 11 at Pg. ID 246 quoting Consumers Power Co. Deriv. Litig. , 132 F.R.D. 455, 461 (E.D. Mich. 1990) ).
For several reasons, the Court declines Willner's invitation to rely on Delaware law. First, the issues before this Court are not "unresolved" under Michigan law. On the contrary, as described below, there is a substantial body of Michigan case law addressing and resolving the questions presented. Second, that body of law is inconsistent with the Delaware rule cited by Willner. Finally, the question before the Court—whether Willner's fee request falls within an exception to the common law rule that attorney fees are not ordinarily recoverable—is unlike the questions of corporate law on which courts applying Michigan law have looked to Delaware law. See, e.g., Plaza Sec. Co. v . Fruehauf Corp. , 643 F.Supp. 1535, 1543 (E.D. Mich. 1986) (). Willner has not cited any decisions in which Michigan courts have treated Delaware law as especially persuasive in fee disputes like the one before the Court. The Court need not look any further than Michigan common and statutory law to resolve the questions presented here.
"For better or worse, the common-law tradition in Michigan follows what is sometimes called the ‘American Rule’ regarding attorney fees." Popma v. Auto Club Ins....
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