In 2015, the stockholders of nominal defendant, Investors Bancorp, Inc. (“Investors Bancorp” or the “Company”), voted to approve an equity incentive plan (“EIP”) adopted by the Company’s board of directors (the “Board”). After the stockholders approved the EIP, the Board awarded itself substantial restricted stock awards (“RSAs”) and stock options under its terms (the “2015 Awards”). Kevin Cummings, a Board member and Company CEO, and Domenick Cama, also a Board member and Company President and COO, were the EIP’s two largest beneficiaries.
Plaintiff, Robert Elburn, previously brought a derivative action in 2016 alleging the Board breached its fiduciary duties by approving the 2015 Awards. Defendants moved to dismiss that complaint and the Delaware Court of Chancery granted the motion. The Delaware Supreme Court reversed and remanded for further proceedings. Shortly before trial, the parties reached a settlement (the “Settlement”). Under the Settlement, the EIP awards to Cummings and Cama were rescinded and the awards to the non-executive members of the Board were substantially reduced.
In April 2019, two months before the Settlement was presented to the Court for approval, Investors Bancorp filed its Proxy Statement (the “Proxy”) for the Company’s 2019 Annual Stockholders Meeting (the “Annual Meeting”) during which, among other business, the stockholders were to vote on the reelection of four current members of the Board. The Proxy informed the stockholders that the Board intended to consider the issuance of new awards to Cummings and Cama under the previously approved EIP (the “Replacement Awards”).
True to its disclosure, a month later, the Company’s Compensation Committee recommended, and the Board approved, Replacement Awards for Cummings and Cama that were similar in scope to the awards that were rescinded in the Settlement.
The Court of Chancery approved the Settlement in June 2019, and the Replacement Awards were granted on July 22, 2019. Plaintiff Robert Eldburn filed his complaint in the present action two months later.
In a motion for summary judgment in the current case, Plaintiff argued there was no genuine dispute of material fact that Defendants withheld information from the stockholders in advance of the 2019 Annual Meeting that would have been material to them when deciding whether to reelect the directors to the Board. The Plaintiff sought an order declaring the election results void and ordering a new stockholder vote on director elections.
Among other things, Plaintiff alleged Defendants had an obligation to supplement the Proxy immediately before the stockholder vote to apprise stockholders that the Replacement Awards under Board consideration had been approved.
According to the Court, Defendants could not meaningfully dispute that the Proxy was rendered stale when the Board actually approved the Replacement Awards. By the time of the vote, shareholders knew only that the Board had “commenced” a process for the review and assessment of replacement equity grants to Messrs. Cummings and Cama, and that a compensation consultant and outside legal counsel had been retained. In reality, when the shareholders cast their vote at the Annual Meeting on May 21, 2019, the Compensation Committee had completed its “process,” had recommended issuance of the Replacement Awards and the full Board had voted to approve the awards. According to the Court, stating an outcome as a possibility, that in fact is not a possibility, is misleading.
The Court then noted the next step of the analysis was whether the omission was material. Defendants argued the omitted facts could not be material as “[a] reasonable stockholder could expect that by the time of the Annual Meeting, over a month after the Proxy was filed, the decision-making process would likely have progressed, potentially to the point of actually determining the awards.”
The Court was unable to grant the Plaintiff’s motion for summary judgment as it could not conclude there was no genuine dispute of material facts. While the Board had completed its “process” and approved the Replacement Awards before the Annual Meeting, the Replacement Awards were still conditioned on the Court’s approval of the Settlement, and therefore not final as of the time of the stockholder vote. Moreover, the stockholders had already approved the equity incentive plan, or EIP, from which the Replacement Awards were to be drawn. The approval suggested, at least, that the stockholders understood and approved of the EIP, the manner in which awards under the EIP would be made and the purpose of such awards. Thus, while the stockholder approval of the EIP did not leave the Board unaccountable for the awards it chose to make under that plan, as the Delaware Supreme Court made clear, the fact of the stockholder approval made the materiality inquiry more challenging than Plaintiff’s summary judgment argument allows. The Court noted that instances where new director elections were ordered involved far more serious malfeasance than the disclosure violations Plaintiff has alleged here.