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Cincinnati Bell has agreed to settle one of the say-on-pay law suits which is pending against it in the Hamilton County Court of Common Pleas.  The lawsuit arises out of the shareholder’s “say on pay” vote taken at Cincinnati Bell’s May 2011 annual meeting. The Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law in July, 2010, requires that all public companies solicit an advisory shareholder vote on executive compensation.  We previously reported on a related case here and here which survived a motion to dismiss.

According to Phillip R. Cox, Chairman of Cincinnati Bell’s Board of Directors, “The proposed settlement includes features which will clarify the Company’s executive compensation policies and which will more clearly communicate these policies to our shareholders. Importantly, the changes represented by this agreement should better assist our shareholders’ understanding of how these policies are applied to covered employees.”

One of Plaintiffs’ Counsel, Ed Korsinsky, adds that: “The longer-term and perhaps most important aspect of the settlement is that it provides a binding agreement that executive compensation decisions remain consistent with the Company’s pay for performance philosophy and that the Board of Directors will continue to clearly articulate the Company’s philosophy to its shareholders.” As part of this settlement, Cincinnati Bell will, among other things, reaffirm its pay for performance practice and provide for an annual discussion of its philosophy related to executive compensation.

Many may conclude the failed say-on-pay law suit which is settled for disclosure relief will become a shake down for an attorney fee award, much like numerous cases filed to block an acquisition.  It will be interesting to see what kind of fee award the court grants for this type of “success.”  That may drive how many of these litigations are filed in the future.

But the case settled is a different one than the case which survived a motion to dismiss.  The effect of the settlement on that case, pending in the United States District Court for the Southern District of the Western Ohio Division, is unclear.  However, that case has taken some unusual twists and turns.

After the court denied the defendants’ motion to dismiss, the defendants learned that diversity jurisdiction did not exist.  Plaintiffs failed to identify itself as a citizen of Georgia and one of Cincinnati Bell’s defendant directors was a citizen of Georgia.  Plaintiffs attempted to correct the subject matter jurisdiction by amending the complaint to drop the director which resides in Georgia and voluntary dismissal of the director.  The court granted defendants motion to strike the amended complaint and voluntary dismissal as procedurally improper.  Apparently the plaintiffs can still a motion to amend the complaint following the proper procedures.

But there is another twist to the case that can only make the defense bar smile.  The court sua sponte issued an order to the plaintiffs attorney to show cause why the attorneys should not be sanctioned under Rule 11 for failure to conduct a reasonable inquiry into the factual contentions as to the alleged diversity.  The court ultimately concluded it was an honest mistake but found the attorneys “incomplete answer to the Court’s direct question of him at oral hearing represented misbehavior of an officer of the Court in his official transactions.”  As a result, the court revoked the attorneys pro hac vice admission in the case.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

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