The case of Dennis v. Hart, before the U.S. District Court for the Southern District of California, is another recent decision regarding litigation resulting from a say-on-pay vote that was not supported by shareholders. The case relates to PICO Holdings, Inc.
The case was originally filed in state court, and the defendants filed a notice of removal asserting substantial federal questions. In the motion before the Court, the plaintiff sought relief including damages, injunctive relief, and a “[d]eclaration that the adverse May 13, 2011 advisory shareholder vote on the PICO Board’s 2010 executive compensation rebutted the business judgment surrounding the PICO Board’s decisions to increase executive compensation in 2010.”
In deciding plaintiff’s motion, the court reviewed the Declaratory Judgment Act. The court noted the language of the Dodd-Frank Act expressly states that it “may not be construed … to create or imply any change to fiduciary duties” nor does it “create or imply any additional fiduciary duties.” See 15 U.S.C. § 78n-1(c). Therefore the court concluded the Dodd-Frank Wall Street Reform Act did not change state law regarding fiduciary duty or the business judgment presumption and dismissed the plaintiff’s claim for declaratory judgment.
Defendants contend that resolution of the plaintiff’s claim for breach of fiduciary duty requires a determination as to whether, under the Dodd-Frank Act, an adverse say-on-pay vote should be interpreted or constructed as evidence of a breach of fiduciary duty. The court saw it differently and noted to the extent that plaintiff seeks to use the negative say-on-pay vote as evidence that the business judgment presumption was rebutted, resolution of the issue depends on California state law. Therefore federal question jurisdiction did not exist and the case was remanded to state court.
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