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THE COURT OF CHANCERY OF THE STATE OF DELAWARE","paragraph_id":"para_1"},{"text":"DAVID RAUL, as custodian for","paragraph_id":"para_2"},{"text":"MALKA RAUL UTMA, NY,","paragraph_id":"para_3"},{"text":"Plaintiff,","paragraph_id":"para_4"},{"text":")","paragraph_id":"para_5"},{"text":")","paragraph_id":"para_6"},{"text":")","paragraph_id":"para_7"},{"text":")","paragraph_id":"para_8"},{"text":"v.","paragraph_id":"para_9"},{"text":")","paragraph_id":"para_10"},{"text":")","paragraph_id":"para_11"},{"text":")","paragraph_id":"para_12"},{"text":"Civil Action No. 9169-VCG","paragraph_id":"para_13"},{"text":"ASTORIA FINANCIAL","paragraph_id":"para_14"},{"text":"CORPORATION,","paragraph_id":"para_15"},{"text":"Defendant.","paragraph_id":"para_16"},{"text":")","paragraph_id":"para_17"},{"text":")","paragraph_id":"para_18"},{"text":")","paragraph_id":"para_19"},{"text":")","paragraph_id":"para_20"},{"text":"MEMORANDUM OPINION","paragraph_id":"para_21"},{"text":"Date Submitted: May 8, 2014","paragraph_id":"para_22"},{"text":"Date Decided: June 20, 2014","paragraph_id":"para_23"},{"text":"Joel Friedlander and Jaclyn Levy, of FRIEDLANDER & GORRIS, P.A.,","paragraph_id":"para_24"},{"text":"Wilmington, Delaware; OF COUNSEL: Eduard Korsinsky and Douglas E. Julie, of","paragraph_id":"para_25"},{"text":"LEVI & KORSINSKY, LLP, New York, New York, Attorneys for the Plaintiff.","paragraph_id":"para_26"},{"text":"Rolin P. Bissell and Emily V. Burton, of YOUNG CONAWAY STARGATT &","paragraph_id":"para_27"},{"text":"TAYLOR, LLP, Wilmington, Delaware; OF COUNSEL: Stewart D. Aaron and","paragraph_id":"para_28"},{"text":"Robert C. Azarow, of ARNOLD & PORTER LLP, New York, New York,","paragraph_id":"para_29"},{"text":"Attorneys for the Defendant.","paragraph_id":"para_30"},{"text":"GLASSCOCK, Vice Chancellor","paragraph_id":"para_31"},{"text":"2","paragraph_id":"para_32"},{"text":"A stockholder directs her attorney to investigate her corporation’s activities,","paragraph_id":"para_33","court_paragraph":2},{"text":"then sends the board of directors a demand letter stating that, in the opinion of the","paragraph_id":"para_34"},{"text":"stockholder, the corporation is violating the law. The corporation takes action in","paragraph_id":"para_35"},{"text":"response, arguably working a benefit on all stockholders. Is the stockholder","paragraph_id":"para_36"},{"text":"entitled to have her attorneys’ fees reimbursed under the corporate benefit","paragraph_id":"para_37"},{"text":"doctrine?","paragraph_id":"para_38"},{"text":"Our law provides that if the actions of the board of directors were such that,","paragraph_id":"para_39"},{"text":"at the time a demand was made, a suit based on those actions would have survived","paragraph_id":"para_40"},{"text":"a motion to dismiss, and a material corporate benefit resulted, the attorneys’ fees","paragraph_id":"para_41"},{"text":"incurred by the stockholder may be recovered despite the fact that no suit was ever","paragraph_id":"para_42"},{"text":"filed. If, on the other hand, the stockholder has simply done the company a good","paragraph_id":"para_43"},{"text":"turn by bringing to the attention of the board an action that it ultimately decides to","paragraph_id":"para_44"},{"text":"take, she is not entitled to coerced payment of her attorneys’ fees by the","paragraph_id":"para_45"},{"text":"stockholders at large. Finding that the demand at issue here falls into the latter","paragraph_id":"para_46"},{"text":"category, I decline to shift fees onto the corporation and its stockholders.","paragraph_id":"para_47"},{"text":"I. FACTS","paragraph_id":"para_48"},{"text":"1. The Parties","paragraph_id":"para_49"},{"text":"Astoria Financial Corporation (“Astoria,” or the “Company”) is a publicly-","paragraph_id":"para_50"},{"text":"traded Delaware corporation engaged primarily in the operation of its wholly-","paragraph_id":"para_51"},{"text":"owned subsidiary, Astoria Federal, whose business includes “attracting retail","paragraph_id":"para_52"},{"text":"3","paragraph_id":"para_53"},{"text":"deposits from the general public and businesses and investing those deposits,","paragraph_id":"para_54","court_paragraph":3},{"text":"together with funds generated from operations, principal repayments on loans and","paragraph_id":"para_55"},{"text":"securities and borrowings, primarily in one-to-four family, or residential, mortgage","paragraph_id":"para_56"},{"text":"loans, multi-family mortgage loans, commercial real estate mortgage loans and","paragraph_id":"para_57"},{"text":"mortgage-backed securities”1—in other words, banking.","paragraph_id":"para_58"},{"text":"The Plaintiff in this action is the custodian of Astoria common stockholder","paragraph_id":"para_59"},{"text":"Malka Raul UTMA, NY.","paragraph_id":"para_60"},{"text":"2. Dodd-Frank and “Say On Pay”","paragraph_id":"para_61"},{"text":"In July 2010, “in response to the worst financial crisis since the Great","paragraph_id":"para_62"},{"text":"Depression,”2 Congress enacted the Dodd-Frank Wall Street Reform and","paragraph_id":"para_63"},{"text":"Consumer Protection Act (“Dodd-Frank”). Targeted at regulation of the financial","paragraph_id":"para_64"},{"text":"services industry, ostensibly “in an attempt to restore responsibility and","paragraph_id":"para_65"},{"text":"accountability in our financial system,”3 Dodd-Frank imposed broad new","paragraph_id":"para_66"},{"text":"regulation of approval and disclosure of corporate executive compensation","paragraph_id":"para_67"},{"text":"decisions. Of importance in the present action, Section 951 of Dodd-Frank","paragraph_id":"para_68"},{"text":"1 Compl. ¶ 7. Unless otherwise indicated, the facts cited herein are taken from the Plaintiff’s","paragraph_id":"para_69"},{"text":"Verified Complaint, as well as those documents incorporated by reference in the Complaint. See","paragraph_id":"para_70"},{"text":"LNR Partners, LLC v. C-III Asset Mgmt. LLC, 2014 WL 1312033, at *9 (Del. Ch. Mar. 31, 2014)","paragraph_id":"para_71"},{"text":"(“Generally, on a motion to dismiss under Rule 12(b)(6), the Court will consider only the","paragraph_id":"para_72"},{"text":"complaint and the documents integral to or incorporated by reference into it.”).","paragraph_id":"para_73"},{"text":"2 Compl. ¶ 8.","paragraph_id":"para_74"},{"text":"3 Id.","paragraph_id":"para_75"},{"text":"4","paragraph_id":"para_76"},{"text":"amended the Securities Exchange Act of 1934 to include Section 14A, governing","paragraph_id":"para_77","court_paragraph":4},{"text":"shareholder approval of executive compensation. Section 14A provides, in part:","paragraph_id":"para_78"},{"text":"(1) In general","paragraph_id":"para_79"},{"text":"Not less frequently than once every 3 years, a proxy or consent or","paragraph_id":"para_80"},{"text":"authorization for an annual or other meeting of the shareholders for","paragraph_id":"para_81"},{"text":"which the proxy solicitation rules of the Commission require","paragraph_id":"para_82"},{"text":"compensation disclosure shall include a separate resolution subject to","paragraph_id":"para_83"},{"text":"shareholder vote to approve the compensation of executives, as","paragraph_id":"para_84"},{"text":"disclosed pursuant to section 229.402 of title 17, Code of Federal","paragraph_id":"para_85"},{"text":"Regulations, or any successor thereto.","paragraph_id":"para_86"},{"text":"(2) Frequency of vote","paragraph_id":"para_87"},{"text":"Not less frequently than once every 6 years, a proxy or consent or","paragraph_id":"para_88"},{"text":"authorization for an annual or other meeting of the shareholders for","paragraph_id":"para_89"},{"text":"which the proxy solicitation rules of the Commission require","paragraph_id":"para_90"},{"text":"compensation disclosure shall include a separate resolution subject to","paragraph_id":"para_91"},{"text":"shareholder vote to determine whether votes on the resolutions","paragraph_id":"para_92"},{"text":"required under paragraph (1) will occur every 1, 2, or 3 years.4","paragraph_id":"para_93"},{"text":"In other words, the so-called “Say On Pay” provisions under Dodd-Frank require","paragraph_id":"para_94"},{"text":"companies to submit to their stockholders non-binding votes (1) to approve the","paragraph_id":"para_95"},{"text":"compensation arrangements of company executives (the “Say-On-Pay Vote”), and","paragraph_id":"para_96"},{"text":"(2) to determine whether future stockholder advisory votes on executive","paragraph_id":"para_97"},{"text":"compensation should occur every one, two, or three years (the “Frequency Vote”).","paragraph_id":"para_98"},{"text":"In addition to requiring that a company hold a Say-On-Pay Vote and","paragraph_id":"para_99"},{"text":"Frequency Vote, Dodd-Frank requires companies to make certain disclosures with","paragraph_id":"para_100"},{"text":"respect to those votes once completed. Two such disclosures are at issue in this","paragraph_id":"para_101"},{"text":"4 15 U.S.C. § 78n-1(a)(1)-(2).","paragraph_id":"para_102"},{"text":"5","paragraph_id":"para_103"},{"text":"litigation, including (1) a requirement that the company disclose in its Form 8-K","paragraph_id":"para_104","court_paragraph":5},{"text":"the results of the Frequency Vote, as well as its decision, in light of that vote, on","paragraph_id":"para_105"},{"text":"how frequently future Say-On-Pay Votes will be held, and (2) a requirement that","paragraph_id":"para_106"},{"text":"the company disclose in its proxy statement whether, and if so, how, its board","paragraph_id":"para_107"},{"text":"considered the results of the Say-On-Pay Vote when making compensation","paragraph_id":"para_108"},{"text":"decisions.","paragraph_id":"para_109"},{"text":"Specifically, Form 8-K, Item 5.07(b) requires a company to “state the","paragraph_id":"para_110"},{"text":"number of votes cast for each of 1 year, 2 years, and 3 years,” while Item 5.07(d)","paragraph_id":"para_111"},{"text":"provides that:","paragraph_id":"para_112"},{"text":"No later than one hundred fifty calendar days after the end of the","paragraph_id":"para_113"},{"text":"annual or other meeting of shareholders at which shareholders voted","paragraph_id":"para_114"},{"text":"on the frequency of shareholder votes on the compensation of","paragraph_id":"para_115"},{"text":"executives as required by section 14A(a)(2) of the Securities","paragraph_id":"para_116"},{"text":"Exchange Act of 1934 . . . by amendment to the most recent Form 8-K","paragraph_id":"para_117"},{"text":"filed pursuant to (b) of this Item, disclose the company’s decision in","paragraph_id":"para_118"},{"text":"light of such vote as to how frequently the company will include a","paragraph_id":"para_119"},{"text":"shareholder vote on the compensation of executives in its proxy","paragraph_id":"para_120"},{"text":"materials until the next required vote on the frequency of shareholder","paragraph_id":"para_121"},{"text":"votes on the compensation of executives.5","paragraph_id":"para_122"},{"text":"Further, Regulation S-K, Item 402(b)(1)(vii) requires disclosure, in a company’s","paragraph_id":"para_123"},{"text":"proxy statement, of:","paragraph_id":"para_124"},{"text":"Whether, and if so, how the registrant has considered the results of the","paragraph_id":"para_125"},{"text":"most recent shareholder advisory vote on executive compensation","paragraph_id":"para_126"},{"text":"required by section 14A of the Exchange Act . . . in determining","paragraph_id":"para_127"},{"text":"compensation policies and decisions and, if so, how that consideration","paragraph_id":"para_128"},{"text":"5 Form 8-K, Item 5.07(d).","paragraph_id":"para_129"},{"text":"6","paragraph_id":"para_130"},{"text":"has affected the registrant’s executive compensation decisions and","paragraph_id":"para_131","court_paragraph":6},{"text":"policies.6","paragraph_id":"para_132"},{"text":"The parties dispute whether Astoria’s board satisfied those disclosure requirements","paragraph_id":"para_133"},{"text":"following the Company’s 2011 annual meeting.","paragraph_id":"para_134"},{"text":"3. Astoria’s 2011 Annual Meeting","paragraph_id":"para_135"},{"text":"Less than a year after the July 2010 enactment of Dodd-Frank, on May 18,","paragraph_id":"para_136"},{"text":"2011, Astoria held an annual meeting. In connection with that meeting, on April","paragraph_id":"para_137"},{"text":"11, 2011, the Astoria board submitted a proxy statement (the “2011 Proxy","paragraph_id":"para_138"},{"text":"Statement”) informing stockholders of the Company’s intention to hold the","paragraph_id":"para_139"},{"text":"Company’s first Say-On-Pay Vote and Frequency Vote. The 2011 Proxy","paragraph_id":"para_140"},{"text":"Statement described the executive compensation packages for which the Company","paragraph_id":"para_141"},{"text":"sought approval, and included the Astoria board’s recommendations that the","paragraph_id":"para_142"},{"text":"stockholders (1) vote to approve the executive compensation packages, and (2)","paragraph_id":"para_143"},{"text":"vote to hold future Say-On-Pay Votes annually.","paragraph_id":"para_144"},{"text":"At the May 18, 2011 annual meeting, approximately 65% of stockholders","paragraph_id":"para_145"},{"text":"voted to approve Astoria’s executive compensation, and roughly 74% of","paragraph_id":"para_146"},{"text":"stockholders voted to hold future Say-On-Pay Votes annually, in both cases as the","paragraph_id":"para_147"},{"text":"board had recommended. After receiving the results of those votes, Astoria filed a","paragraph_id":"para_148"},{"text":"Form 8-K. Pursuant to Item 5.07, the Company disclosed:","paragraph_id":"para_149"},{"text":"6 17 C.F.R. § 229.402(b)(1)(vii).","paragraph_id":"para_150"},{"text":"7","paragraph_id":"para_151"},{"text":"The non-binding vote to determine the frequency of future","paragraph_id":"para_152","court_paragraph":7},{"text":"shareholder advisory votes to approve the compensation of the","paragraph_id":"para_153"},{"text":"Company’s named executive officers is based on the highest number","paragraph_id":"para_154"},{"text":"of votes cast by shareholders represented in person or by proxy and","paragraph_id":"para_155"},{"text":"entitled to vote. Based on the vote indicated below, the results of the","paragraph_id":"para_156"},{"text":"future advisory shareholder votes to approve the compensation of the","paragraph_id":"para_157"},{"text":"Company’s named executives is every year.7","paragraph_id":"para_158"},{"text":"Despite the Defendant’s contention that the italicized language above sufficiently","paragraph_id":"para_159"},{"text":"informed Astoria’s stockholders of the results of the Frequency Vote, according to","paragraph_id":"para_160"},{"text":"the Plaintiff, the language cited above was insufficient to meet the disclosure","paragraph_id":"para_161"},{"text":"requirements articulated in Item 5.07.","paragraph_id":"para_162"},{"text":"4. Astoria’s 2012 Annual Meeting","paragraph_id":"para_163"},{"text":"Several months later, on April 6, 2012, as its next annual meeting","paragraph_id":"para_164"},{"text":"approached, Astoria disseminated a second proxy statement (the “2012 Proxy","paragraph_id":"para_165"},{"text":"Statement”) to its stockholders. As in 2011, the 2012 Proxy Statement sought the","paragraph_id":"para_166"},{"text":"Astoria stockholders’ non-binding approval of Astoria’s executive compensation","paragraph_id":"para_167"},{"text":"pursuant to a new 2012 Say-On-Pay Vote. In addition, as in the preceding year,","paragraph_id":"para_168"},{"text":"the 2012 Proxy Statement described the compensation packages at issue, as well as","paragraph_id":"para_169"},{"text":"the board’s recommendation that the stockholders approve Astoria’s executive","paragraph_id":"para_170"},{"text":"compensation arrangements. The Plaintiff contends, however, that the 2012 Proxy","paragraph_id":"para_171"},{"text":"Statement did not disclose whether, and if so, how, the Astoria board considered","paragraph_id":"para_172"},{"text":"7 Mem. of Law in Supp. of Def.’s Mot. to Dismiss at 17, Chart 1 (emphasis added).","paragraph_id":"para_173"},{"text":"8","paragraph_id":"para_174"},{"text":"the results of the prior 2011 Say-On-Pay Vote in making its executive","paragraph_id":"para_175","court_paragraph":8},{"text":"compensation decisions.","paragraph_id":"para_176"},{"text":"5. The Plaintiff’s Demand","paragraph_id":"para_177"},{"text":"Ten days after Astoria disseminated its 2012 Proxy Statement, on April 16,","paragraph_id":"para_178"},{"text":"2012, the Plaintiff sent a demand letter (the “Demand”) to the Astoria board. In","paragraph_id":"para_179"},{"text":"that Demand, the Plaintiff asserted that, “[i]n violation of Securities and Exchange","paragraph_id":"para_180"},{"text":"Commission (‘SEC’) regulation disclosure standards and the Astoria Board’s duty","paragraph_id":"para_181"},{"text":"of candor,” the Astoria board “concealed material and required information","paragraph_id":"para_182"},{"text":"concerning the Company’s executive compensation policies and practices in the","paragraph_id":"para_183"},{"text":"2012 Proxy Statement”8 by failing to disclose “whether, and if so, how, the Astoria","paragraph_id":"para_184"},{"text":"Board considered the results of the 2011 say-on-pay vote.”9 Further, the Plaintiff","paragraph_id":"para_185"},{"text":"explained that, “[i]n violation of SEC rules, the Company has failed to disclose","paragraph_id":"para_186"},{"text":"how frequently it has decided to hold future say-on-pay votes.”10 In his Demand,","paragraph_id":"para_187"},{"text":"the Plaintiff summarized his position as follows:","paragraph_id":"para_188"},{"text":"The Astoria Board owes Astoria a fiduciary duty of loyalty—the","paragraph_id":"para_189"},{"text":"highest duty known to the law. Each of the Astoria Board members","paragraph_id":"para_190"},{"text":"has a fiduciary duty to ensure that Astoria disseminated accurate,","paragraph_id":"para_191"},{"text":"truthful, and complete information to its shareholders. The Astoria","paragraph_id":"para_192"},{"text":"Board participated in or had actual or constructive knowledge of the","paragraph_id":"para_193"},{"text":"inadequate disclosures made in the 2012 Proxy Statement . . . . Based","paragraph_id":"para_194"},{"text":"8 Id. Ex. 5 at 2.","paragraph_id":"para_195"},{"text":"9 Id. at 1.","paragraph_id":"para_196"},{"text":"10 Id. at 2.","paragraph_id":"para_197"},{"text":"9","paragraph_id":"para_198"},{"text":"on the foregoing, the Astoria Board breached its fiduciary duty of","paragraph_id":"para_199","court_paragraph":9},{"text":"loyalty (and candor and good faith).11","paragraph_id":"para_200"},{"text":"Accordingly, the Plaintiff demanded that the board (1) issue corrective disclosures,","paragraph_id":"para_201"},{"text":"(2) adopt stronger protocols regarding disclosures, and (3) amend the Company’s","paragraph_id":"para_202"},{"text":"Compensation Committee Charter to require that Committee to consider the results","paragraph_id":"para_203"},{"text":"of future Say-On-Pay Votes when making executive compensation decisions. The","paragraph_id":"para_204"},{"text":"Demand did not request that the Company conduct any litigation.12","paragraph_id":"para_205"},{"text":"Astoria responded to the Plaintiff’s Demand by letter dated May 3, 2012.","paragraph_id":"para_206"},{"text":"That response explained:","paragraph_id":"para_207"},{"text":"Please be assured that we regularly evaluate the adequacy of our","paragraph_id":"para_208"},{"text":"compensation-related disclosures and related policies and procedures.","paragraph_id":"para_209"},{"text":"We recognize that recent changes to certain disclosure requirements","paragraph_id":"para_210"},{"text":"regarding executive compensation have created some confusion with","paragraph_id":"para_211"},{"text":"respect to compliance with both the letter and the spirit of these","paragraph_id":"para_212"},{"text":"requirements. Many public companies have worked hard to comply","paragraph_id":"para_213"},{"text":"with these new rules, and have not all taken the same path. In","paragraph_id":"para_214"},{"text":"recognition of this and as a result of our ongoing efforts to evaluate","paragraph_id":"para_215"},{"text":"and improve our public disclosures when appropriate, we would like","paragraph_id":"para_216"},{"text":"to advise you of the following recent actions that have been taken by","paragraph_id":"para_217"},{"text":"the Company:","paragraph_id":"para_218"},{"text":"1. On April 20, 2012, the Company filed with the SEC,","paragraph_id":"para_219"},{"text":"pursuant to Item 5.07(d), an amendment on Form 8-K/A . . . .","paragraph_id":"para_220"},{"text":"This amendment discloses that, in light of the shareholder","paragraph_id":"para_221"},{"text":"advisory vote at the 2011 Annual Meeting on the frequency of","paragraph_id":"para_222"},{"text":"11 Id. at 3.","paragraph_id":"para_223"},{"text":"12 See id. (requesting only that Company take certain remedial measures, but noting that “[i]f you","paragraph_id":"para_224"},{"text":"fail to respond or contact the undersigned by May 4, 2012, we will be forced to assume that you","paragraph_id":"para_225"},{"text":"have decided not to pursue any investigation, litigation, or remedial steps described above and","paragraph_id":"para_226"},{"text":"we will be forced to take such action as we deem in the best interest of the Company and its","paragraph_id":"para_227"},{"text":"shareholders, including but not limited to the institution of an action in a court of law”).","paragraph_id":"para_228"},{"text":"10","paragraph_id":"para_229"},{"text":"shareholder votes on approval of the compensation of the","paragraph_id":"para_230","court_paragraph":10},{"text":"Company’s named executive officers . . . the Company intends","paragraph_id":"para_231"},{"text":"to hold a say-on-pay vote every year . . . .","paragraph_id":"para_232"},{"text":"2. On April 25, 2012, the Company mailed a letter to its","paragraph_id":"para_233"},{"text":"shareholders, which, among other things, clarifies whether and","paragraph_id":"para_234"},{"text":"how the Company considered the results of the shareholder","paragraph_id":"para_235"},{"text":"advisory vote on the approval of the compensation . . . .","paragraph_id":"para_236"},{"text":"3. In view of the delayed submission of the Form 8-K","paragraph_id":"para_237"},{"text":"Amendment, the Company recently authorized its Director of","paragraph_id":"para_238"},{"text":"Investor Relations to undertake a complete review of the","paragraph_id":"para_239"},{"text":"Current Report requirements under the Exchange Act as they","paragraph_id":"para_240"},{"text":"currently exist and will be implementing an education program","paragraph_id":"para_241"},{"text":"that will allow for timely identification and reporting of those","paragraph_id":"para_242"},{"text":"items that are required to be reported by the Company under the","paragraph_id":"para_243"},{"text":"Exchange Act. . . .13","paragraph_id":"para_244"},{"text":"The Company’s May 3 letter also assured the Plaintiff that:","paragraph_id":"para_245"},{"text":"At the next regular meeting of the Company’s Compensation","paragraph_id":"para_246"},{"text":"Committee, the Compensation Committee will evaluate your request","paragraph_id":"para_247"},{"text":"that the Company include a provision in its Compensation Committee","paragraph_id":"para_248"},{"text":"Charter requiring the Compensation Committee to consider the results","paragraph_id":"para_249"},{"text":"of future say-on-pay votes in its executive compensation decisions","paragraph_id":"para_250"},{"text":"and practices and that such provision should require the","paragraph_id":"para_251"},{"text":"Compensation Committee to reach out to certain shareholders that","paragraph_id":"para_252"},{"text":"voted against the Company’s compensation to determine the reasons","paragraph_id":"para_253"},{"text":"for such opposition.14","paragraph_id":"para_254"},{"text":"In fact, on September 19, 2012, Astoria’s Compensation Committee did amend its","paragraph_id":"para_255"},{"text":"Charter as requested by the Plaintiff.15","paragraph_id":"para_256"},{"text":"13 Mem. of Law in Supp. of Def.’s Mot. to Dismiss Ex. 8 at 1-2.","paragraph_id":"para_257"},{"text":"14 Id. at 2.","paragraph_id":"para_258"},{"text":"15 I note, however, that although the Plaintiff contends that this amendment was a benefit","paragraph_id":"para_259"},{"text":"conferred on the corporation, the adoption of such an amendment bears no relation to the","paragraph_id":"para_260"},{"text":"11","paragraph_id":"para_261"},{"text":"6. This Litigation","paragraph_id":"para_262","court_paragraph":11},{"text":"Following a denied request that Astoria pay attorneys’ fees in connection","paragraph_id":"para_263"},{"text":"with investigating and mailing his April 16, 2012 Demand, the Plaintiff filed his","paragraph_id":"para_264"},{"text":"Complaint in this action on December 17, 2013, “seeking an equitable assessment","paragraph_id":"para_265"},{"text":"of attorneys’ fees,”16 and alleging that the Plaintiff’s efforts to remedy the","paragraph_id":"para_266"},{"text":"disclosure violations identified in his Demand conferred upon Astoria a benefit","paragraph_id":"para_267"},{"text":"justifying an award of fees. On February 11, 2014, Astoria moved to dismiss the","paragraph_id":"para_268"},{"text":"Complaint. I heard oral argument on that Motion on May 6, 2014.","paragraph_id":"para_269"},{"text":"In support of its Motion to Dismiss, Astoria contends that the Plaintiff is not","paragraph_id":"para_270"},{"text":"entitled to an award of attorneys’ fees under the corporate benefit doctrine, as the","paragraph_id":"para_271"},{"text":"Plaintiff never (1) presented a meritorious claim to the Astoria board or (2)","paragraph_id":"para_272"},{"text":"conferred any benefit on the corporation. In response, the Plaintiff contends that","paragraph_id":"para_273"},{"text":"under the corporate benefit doctrine, the Plaintiff is entitled to recover attorneys’","paragraph_id":"para_274"},{"text":"fees for the successful resolution of his Demand, as it presented a meritorious","paragraph_id":"para_275"},{"text":"claim for breach of fiduciary duty, and conferred a benefit on the Astoria","paragraph_id":"para_276"},{"text":"stockholders by bringing the Company into compliance with applicable law.","paragraph_id":"para_277"},{"text":"fiduciary duty claims that the Plaintiff asserts could have been brought here. Those claims are","paragraph_id":"para_278"},{"text":"addressed in detail below.","paragraph_id":"para_279"},{"text":"16 Compl. ¶ 1.","paragraph_id":"para_280"},{"text":"12","paragraph_id":"para_281"},{"text":"II. STANDARD OF REVIEW","paragraph_id":"para_282","court_paragraph":12},{"text":"Under Court of Chancery Rule 12(b)(6), this Court must deny a motion to","paragraph_id":"para_283"},{"text":"dismiss for failure to state a claim upon which relief may be granted where “the","paragraph_id":"para_284"},{"text":"well-pled factual allegations of the complaint would entitle the plaintiff to relief","paragraph_id":"para_285"},{"text":"under a reasonably conceivable set of circumstances . . . .”17 In considering such a","paragraph_id":"para_286"},{"text":"motion, I must “accept the well-pleaded allegations of fact in the complaint as true","paragraph_id":"para_287"},{"text":"and draw all reasonable inferences that logically flow from those allegations in the","paragraph_id":"para_288"},{"text":"plaintiff’s favor.”18 I am not required, however, to “blindly accept conclusory","paragraph_id":"para_289"},{"text":"allegations unsupported by specific facts,” or to “draw unreasonable inferences in","paragraph_id":"para_290"},{"text":"the plaintiffs’ favor.”19","paragraph_id":"para_291"},{"text":"III. ANALYSIS","paragraph_id":"para_292"},{"text":"The Plaintiff here seeks recovery of attorneys’ fees and costs in connection","paragraph_id":"para_293"},{"text":"with his pre-suit investigation and Demand. Under the corporate benefit doctrine","paragraph_id":"para_294"},{"text":"as it applies to moot claims, a plaintiff may receive attorneys’ fees where “(i) the","paragraph_id":"para_295"},{"text":"[underlying cause of action] was meritorious when filed; (ii) the action producing","paragraph_id":"para_296"},{"text":"benefit to the corporation was taken by the defendants before a judicial resolution","paragraph_id":"para_297"},{"text":"was achieved; and (iii) the resulting corporate benefit was causally related to the","paragraph_id":"para_298"},{"text":"17 Sustainable Energy Generation Grp., LLC v. Photon Energy Projects B.V., 2014 WL 2433096,","paragraph_id":"para_299"},{"text":"at *12 (Del. Ch. May 30, 2014).","paragraph_id":"para_300"},{"text":"18 In re Trados Inc. S’holder Litig., 2009 WL 2225958, at *4 (Del. Ch. July 24, 2009).","paragraph_id":"para_301"},{"text":"19 Gantler v. Stephens, 965 A.2d 695, 704 (Del. 2009).","paragraph_id":"para_302"},{"text":"13","paragraph_id":"para_303"},{"text":"lawsuit.”20 Our Courts have understood the requirement that an underlying claim","paragraph_id":"para_304","court_paragraph":13},{"text":"be “meritorious when filed” to mean only that when presented to the board, the","paragraph_id":"para_305"},{"text":"underlying cause of action asserted by the plaintiff was meritorious; a plaintiff","paragraph_id":"para_306"},{"text":"need not have filed an underlying action in the Court of Chancery to recover fees.21","paragraph_id":"para_307"},{"text":"The corporate benefit doctrine, an exception to the American Rule under","paragraph_id":"para_308"},{"text":"which each side bears its costs, is premised on the idea that, “where a litigant has","paragraph_id":"para_309"},{"text":"conferred a common monetary benefit upon an identifiable class of stockholders,","paragraph_id":"para_310"},{"text":"all of the stockholders should contribute to the costs of achieving that benefit.”22","paragraph_id":"para_311"},{"text":"Where applicable, the corporate benefit doctrine promotes private enforcement of","paragraph_id":"para_312"},{"text":"fiduciary breaches; through this fee-shifting mechanism, our legal system","paragraph_id":"para_313"},{"text":"incentivizes private actors to police corporate misconduct where, in the absence of","paragraph_id":"para_314"},{"text":"such a mechanism, “there [would] be less shareholder monitoring expenditures","paragraph_id":"para_315"},{"text":"than would be optimum [for] the shareholders as a collectivity.”23 But, “[o]f","paragraph_id":"para_316"},{"text":"course, [private enforcement] itself suffers from deep agency problems,”24 and the","paragraph_id":"para_317"},{"text":"requirement that there exist a meritorious claim when filed, and not merely a","paragraph_id":"para_318"},{"text":"corporate benefit, operates to further protect stockholder interest under our","paragraph_id":"para_319"},{"text":"20 United Vanguard Fund, Inc. v. TakeCare, Inc., 727 A.2d 844, 850 (Del. Ch. 1998).","paragraph_id":"para_320"},{"text":"21 Bird v. Lida, Inc., 681 A.2d 399, 405 (Del. Ch. 1996).","paragraph_id":"para_321"},{"text":"22 United Vanguard Fund, Inc., 727 A.2d at 850.","paragraph_id":"para_322"},{"text":"23 Bird, 681 A.2d at 403.","paragraph_id":"para_323"},{"text":"24 Id.","paragraph_id":"para_324"},{"text":"14","paragraph_id":"para_325"},{"text":"corporate model, in which the board, not the stockholders, are responsible for","paragraph_id":"para_326","court_paragraph":14},{"text":"managing the corporation.25","paragraph_id":"para_327"},{"text":"Under this model, our Courts adjudicate corporate wrongdoing, not","paragraph_id":"para_328"},{"text":"directors’ exercise of their discretion. The availability of cost-shifting for a","paragraph_id":"para_329"},{"text":"corporate benefit conferred, unrelated to a meritorious claim, was closely","paragraph_id":"para_330"},{"text":"considered nearly twenty years ago by then-Chancellor Allen in Bird v. Lida. That","paragraph_id":"para_331"},{"text":"scholarly and thoughtful analysis cannot be improved upon here. I add only that","paragraph_id":"para_332"},{"text":"where a volunteer stockholder (or non-stockholder, for that matter) notifies","paragraph_id":"para_333"},{"text":"directors, not that they are in breach of their duties, but simply that they have","paragraph_id":"para_334"},{"text":"missed a corporate opportunity or should avoid a corporate loss, the consideration","paragraph_id":"para_335"},{"text":"of such a notification is a board, not a Court, affair. If the board takes action","paragraph_id":"para_336"},{"text":"resulting in a corporate benefit, such that it believes the stockholders at large","paragraph_id":"para_337"},{"text":"would have consented to paying the volunteer for his investigation ex ante, the","paragraph_id":"para_338"},{"text":"directors may have an incentive to reward the volunteer ex post, and may thereby","paragraph_id":"para_339"},{"text":"promote not only equity but efficient levels of volunteer-monitoring in the future,","paragraph_id":"para_340"},{"text":"as the directors find appropriate. It is only where a benefit results from a demand","paragraph_id":"para_341"},{"text":"to address corporate wrongdoing under Rule 23.1, however, that it is appropriate","paragraph_id":"para_342"},{"text":"for the Court to intervene in the equitable distribution of the costs among all","paragraph_id":"para_343"},{"text":"25 See Allied Artists Pictures Corp. v. Baron, 413 A.2d 876, 879 (Del. 1980) (“But this Court has","paragraph_id":"para_344"},{"text":"been concerned with discouraging baseless litigation and has adhered to the merit requirement.”)","paragraph_id":"para_345"},{"text":"(citation omitted).","paragraph_id":"para_346"},{"text":"15","paragraph_id":"para_347"},{"text":"stockholders, consistent with the Court’s role as an adjudicative body. Consider a","paragraph_id":"para_348","court_paragraph":15},{"text":"stockholder who investigates and provides notice of leaking drums of chemicals","paragraph_id":"para_349"},{"text":"stored at a corporate site. Assume that the circumstances are such that no","paragraph_id":"para_350"},{"text":"actionable breach of duty has taken place by a corporate director or officer in","paragraph_id":"para_351"},{"text":"connection with the leaks. The stockholder through his attorney files a demand","paragraph_id":"para_352"},{"text":"with the board that action be taken to correct the situation, after which the","paragraph_id":"para_353"},{"text":"corporation investigates and rectifies the leak, saving the corporation loss of","paragraph_id":"para_354"},{"text":"product and potential legal liability. The board may decide to reward the","paragraph_id":"para_355"},{"text":"stockholder, in its discretion. But the stockholder would not be able to cause the","paragraph_id":"para_356"},{"text":"Court to force the corporation to reimburse his costs, legal or otherwise, because he","paragraph_id":"para_357"},{"text":"was a mere volunteer, presumably acting in his own interest. The sharing of that","paragraph_id":"para_358"},{"text":"stockholder’s costs—as well as the resulting benefits—among the stockholders at","paragraph_id":"para_359"},{"text":"large may appear efficient, or “fair,” but this Court is not a general enforcer of","paragraph_id":"para_360"},{"text":"either of those qualities outside the context of litigation within its purview. The","paragraph_id":"para_361"},{"text":"costs of litigation may equitably be distributed by the Court, consistent with its","paragraph_id":"para_362"},{"text":"jurisdiction; and equitable distribution of legal costs where a meritorious action is","paragraph_id":"para_363"},{"text":"mooted before litigation commences is but a corollary of the equitable distribution","paragraph_id":"para_364"},{"text":"of litigation expenses. But a general allocation of the costs incurred by good","paragraph_id":"para_365"},{"text":"Samaritans untethered to a meritorious (actual or potential) cause of action would","paragraph_id":"para_366"},{"text":"16","paragraph_id":"para_367"},{"text":"drastically expand the jurisdiction of this Court, and usurp a core function of the","paragraph_id":"para_368","court_paragraph":16},{"text":"board of directors.","paragraph_id":"para_369"},{"text":"In that light, the stockholder in the hypothetical above would no more be","paragraph_id":"para_370"},{"text":"entitled to compel payment of his costs than would a stockholder/treasure-hunter","paragraph_id":"para_371"},{"text":"whose research enabled her to reveal to the board that a treasure trove was buried","paragraph_id":"para_372"},{"text":"on the grounds of corporate headquarters. To hold otherwise would be to license","paragraph_id":"para_373"},{"text":"each stockholder to decide how much oversight must be devoted to any given","paragraph_id":"para_374"},{"text":"corporate activity, and, when a benefit results, shift the cost to the corporation.","paragraph_id":"para_375"},{"text":"But, so long as the board acts consistent with its fiduciary duties,26 what resources","paragraph_id":"para_376"},{"text":"to devote to oversight—whether for the inspection of storage containers or the","paragraph_id":"para_377"},{"text":"search for buried treasure—is a core board function, and not a stockholder","paragraph_id":"para_378"},{"text":"function. Only where the stockholder has acted on behalf of the corporation","paragraph_id":"para_379"},{"text":"because those whose duty it is to act, the directors, have breached their fiduciary","paragraph_id":"para_380"},{"text":"duties, will the stockholder be entitled to compel payment of fees and costs by the","paragraph_id":"para_381"},{"text":"stockholders generally, via the equitable power of this Court.27","paragraph_id":"para_382"},{"text":"26 See In re Caremark Int’l Inc. Derivative Litig., 698 A.2d 959, 970 (Del. Ch. 1996).","paragraph_id":"para_383"},{"text":"27 Of course, failure to reward a monitoring volunteer who does the corporation a good turn may","paragraph_id":"para_384"},{"text":"result in a level of volunteer monitoring that is inefficiently low. It is not clear, however, that","paragraph_id":"para_385"},{"text":"coerced cost-shifting in such a situation would result in optimal monitoring, either. In any event,","paragraph_id":"para_386"},{"text":"the efficiency argument was disposed of, persuasively in my view, in Bird:","paragraph_id":"para_387"},{"text":"Quite evidently a strong policy argument in favor of cost sharing in this context","paragraph_id":"para_388"},{"text":"could be made along that line. Against that argument stand certain legal","paragraph_id":"para_389"},{"text":"institutional concerns. Courts do fashion cost sharing/fee shifting awards under","paragraph_id":"para_390"},{"text":"established criteria. In this country that practice occurs not generally, but in a","paragraph_id":"para_391"},{"text":"17","paragraph_id":"para_392"},{"text":"The state of our law remains as set forth by Chancellor Allen in Bird: the","paragraph_id":"para_393","court_paragraph":17},{"text":"“presentation of a meritorious corporate claim by a shareholder” is a requisite","paragraph_id":"para_394"},{"text":"element of a claim for reimbursement under the corporate benefit doctrine.28 In","paragraph_id":"para_395"},{"text":"that regard, under our case law, “[a] claim is meritorious within the meaning of the","paragraph_id":"para_396"},{"text":"rule if it can withstand a motion to dismiss on the pleadings if, at the same time,","paragraph_id":"para_397"},{"text":"the plaintiff possesses knowledge of provable facts which hold out some","paragraph_id":"para_398"},{"text":"reasonable likelihood of ultimate success.”29","paragraph_id":"para_399"},{"text":"limited class of cases. To the extent courts extend fee shifting to instances in","paragraph_id":"para_400"},{"text":"which a Rule 23.1 demand is satisfied and derivative litigation is thus avoided, a","paragraph_id":"para_401"},{"text":"small step away from a practice that limits courts to fee shifting in litigation has","paragraph_id":"para_402"},{"text":"been taken. That small step, closely tied by Rule 23.1 to the litigation setting, is","paragraph_id":"para_403"},{"text":"well justified, as Chancellor Seitz held [in Kaufman v. Shoenberg, 91 A.2d 786","paragraph_id":"para_404"},{"text":"(Del. Ch. 1952)]. But will not the same justification apply to a larger step which","paragraph_id":"para_405"},{"text":"would see the court act generally to facilitate solutions to the shareholders","paragraph_id":"para_406"},{"text":"collective action disabilities by ordering the payment of reasonable compensation","paragraph_id":"para_407"},{"text":"whenever a shareholder risks the expenditure of funds in monitoring corporate","paragraph_id":"para_408"},{"text":"management and that expenditure results in board action that confers a substantial","paragraph_id":"para_409"},{"text":"financial benefit on the corporation? Perhaps so, but such an innovation is a step","paragraph_id":"para_410"},{"text":"that would move courts from their traditional mission, including the settlement of","paragraph_id":"para_411"},{"text":"disputed legal questions (and incidentally the awarding of fees for services","paragraph_id":"para_412"},{"text":"rendered in litigation), to a rather different administrative task: the ex post pricing","paragraph_id":"para_413"},{"text":"of “volunteer” informational services to corporations. While such a result would","paragraph_id":"para_414"},{"text":"certainly be rational and quite possibly efficient, the step that it requires cannot","paragraph_id":"para_415"},{"text":"sufficiently be supported by existing legal authorities to warrant judicial adoption","paragraph_id":"para_416"},{"text":"at this time. Therefore, I am of the view that to gain reimbursement of","paragraph_id":"para_417"},{"text":"investigation fees (including reasonable attorney’s fees) following the making of a","paragraph_id":"para_418"},{"text":"good faith shareholders demand pursuant to Rule 23.1, it is essential that the","paragraph_id":"para_419"},{"text":"matter brought to the board’s attention constitute a “meritorious” claim of legal","paragraph_id":"para_420"},{"text":"wrong, and not simply an opportunity for more profitable operation of the firm.","paragraph_id":"para_421"},{"text":"Bird, 681 A.2d at 407.","paragraph_id":"para_422"},{"text":"28 Id. at 405.","paragraph_id":"para_423"},{"text":"29 In re Primedia, Inc. S’holders Litig., 67 A.3d 455, 478 (Del. Ch. 2013) (citing Chrysler Corp.","paragraph_id":"para_424"},{"text":"v. Dann, 223 A.2d 384, 387 (Del. 1966)).","paragraph_id":"para_425"},{"text":"18","paragraph_id":"para_426"},{"text":"The Defendant here contends that the Plaintiff has failed to identify a","paragraph_id":"para_427","court_paragraph":18},{"text":"meritorious underlying cause of action justifying a fee award under the corporate","paragraph_id":"para_428"},{"text":"benefit doctrine. While the Plaintiff generally asserts that the Astoria board","paragraph_id":"para_429"},{"text":"breached its fiduciary duties by failing to comply with the disclosure requirements","paragraph_id":"para_430"},{"text":"under Dodd-Frank, he does not fully articulate the legal bases underlying any","paragraph_id":"para_431"},{"text":"fiduciary breach. I assume, for purposes of this Motion to Dismiss only, that a","paragraph_id":"para_432"},{"text":"corporate benefit has resulted from the actions of the Plaintiff.30 In the remainder","paragraph_id":"para_433"},{"text":"of this Memorandum Opinion, I consider whether the underlying allegations","paragraph_id":"para_434"},{"text":"contained in the Plaintiff’s Demand and Verified Complaint state a meritorious","paragraph_id":"para_435"},{"text":"cause of action for breach of the duty of candor, loyalty, or care. For the reasons","paragraph_id":"para_436"},{"text":"that follow, I find that the Plaintiff failed to present to the Astoria board any","paragraph_id":"para_437"},{"text":"meritorious cause of action for breach of fiduciary duty, and accordingly grant the","paragraph_id":"para_438"},{"text":"Defendant’s Motion to Dismiss.","paragraph_id":"para_439"},{"text":"1. Duty of Candor","paragraph_id":"para_440"},{"text":"Under Delaware law, directors owe a fiduciary duty to “fully and accurately","paragraph_id":"para_441"},{"text":"disclose all material information to stockholders when seeking stockholder","paragraph_id":"para_442"},{"text":"30 Because I find that the Plaintiff has failed to assert a meritorious underlying claim, I need not","paragraph_id":"para_443"},{"text":"reach the question of whether in fact the Plaintiff’s actions conferred a benefit on the Astoria","paragraph_id":"para_444"},{"text":"stockholders.","paragraph_id":"para_445"},{"text":"19","paragraph_id":"para_446"},{"text":"action,”31 which duty arises out of a director’s duties of both loyalty and care.32 As","paragraph_id":"para_447","court_paragraph":19},{"text":"under the federal securities laws, information is material if, in the context of the","paragraph_id":"para_448"},{"text":"“total mix” of information, a reasonable stockholder would consider it important in","paragraph_id":"para_449"},{"text":"deciding how to act.33 To survive a motion to dismiss, “a pleader must allege that","paragraph_id":"para_450"},{"text":"facts are missing from the statement, identify those facts, state why they meet the","paragraph_id":"para_451"},{"text":"materiality standard and how the omission caused injury.”34","paragraph_id":"para_452"},{"text":"As noted above, the Plaintiff fails in briefing to articulate the basis of the","paragraph_id":"para_453"},{"text":"underlying fiduciary duty claim asserted in his Demand, nor does his Complaint","paragraph_id":"para_454"},{"text":"identify such a basis.35 The Plaintiff’s Demand itself, however, asserted that, “[i]n","paragraph_id":"para_455"},{"text":"violation of [SEC] regulation disclosure standards and the Astoria Board’s duty of","paragraph_id":"para_456"},{"text":"31 Ehlen v. Conceptus, Inc., 2013 WL 2285577, at *2 (Del. Ch. May 24, 2013); see also In re","paragraph_id":"para_457"},{"text":"Sauer-Danfoss Inc. S’holders Litig., 65 A.3d 1116, 1127 (Del. Ch. 2011) (“[I]f a complaint does","paragraph_id":"para_458"},{"text":"not identify a material misstatement or omission, it cannot survive a motion to dismiss and","paragraph_id":"para_459"},{"text":"therefore is not meritorious.”).","paragraph_id":"para_460"},{"text":"32 See Orman v. Cullman, 794 A.2d 5, 41 (Del. Ch. 2002) (“The fiduciary duty to disclose","paragraph_id":"para_461"},{"text":"material facts does not solely implicate the duty of loyalty, a breach of which results in liability","paragraph_id":"para_462"},{"text":"that cannot be avoided by an exculpatory provision. Rather, ‘[t]he duty of directors to observe","paragraph_id":"para_463"},{"text":"proper disclosure requirements derives from the combination of the fiduciary duties of care,","paragraph_id":"para_464"},{"text":"loyalty and good faith.’”).","paragraph_id":"para_465"},{"text":"33 Ehlen, 2013 WL 2285577, at *2.","paragraph_id":"para_466"},{"text":"34 Malpiede v. Townson, 780 A.2d 1075, 1087 (Del. 2001) (quoting Loudon v. Archer-Daniels-","paragraph_id":"para_467"},{"text":"Midland Co., 700 A.2d 135, 141 (Del. 1997).","paragraph_id":"para_468"},{"text":"35 The Plaintiff’s Complaint refers only twice to the Astoria board’s fiduciary duties. See Compl.","paragraph_id":"para_469"},{"text":"¶ 16 (“The Demand Letter identified the disclosure deficiencies described above and alleged that","paragraph_id":"para_470"},{"text":"the Board violated the federal securities laws and breached its fiduciary duty of candor by failing","paragraph_id":"para_471"},{"text":"to disclose the required and material information detailed above.”); id. at ¶ 24 (“Plaintiff’s","paragraph_id":"para_472"},{"text":"Demand raised meritorious legal claims with respect to the Board’s breaches of fiduciary duties","paragraph_id":"para_473"},{"text":"and violations of federal securities laws by failing to disclose material and required information","paragraph_id":"para_474"},{"text":"following their 2011 say-on-pay vote.”).","paragraph_id":"para_475"},{"text":"20","paragraph_id":"para_476"},{"text":"candor,”36 the Astoria board failed to satisfy the disclosure requirements contained","paragraph_id":"para_477","court_paragraph":20},{"text":"in Item 5.07(d) of Form 8-K as well as 17 C.F.R. § 229.402(b)(1)(vii).37 In other","paragraph_id":"para_478"},{"text":"words, the Plaintiff challenged the board’s failure to disclose (1) how the board","paragraph_id":"para_479"},{"text":"considered the results of the 2011 Frequency Vote, and (2) whether and how the","paragraph_id":"para_480"},{"text":"board considered the results of the 2011 Say-On-Pay Vote. I do not accept,","paragraph_id":"para_481"},{"text":"however, that the underlying allegations in the Plaintiff’s Demand presented a","paragraph_id":"para_482"},{"text":"meritorious claim for breach of the duty of candor under Delaware law.","paragraph_id":"para_483"},{"text":"The Plaintiff has identified two purportedly actionable omissions, neither of","paragraph_id":"para_484"},{"text":"which, in my view, rise to a level of a breach of the duty of candor. First, the","paragraph_id":"para_485"},{"text":"Plaintiff suggests that a failure to disclose to the Astoria stockholders how the","paragraph_id":"para_486"},{"text":"board considered the results of the 2011 Frequency Vote constituted a breach of","paragraph_id":"para_487"},{"text":"the duty of candor. However, it is unclear to me how that information would be","paragraph_id":"para_488"},{"text":"material to a reasonable stockholder given that the board (1) recommended in the","paragraph_id":"para_489"},{"text":"2011 Proxy Statement that stockholders vote to hold annual Say-On-Pay Votes; (2)","paragraph_id":"para_490"},{"text":"disclosed in a subsequent 8-K that “[b]ased on the vote indicated below, the results","paragraph_id":"para_491"},{"text":"of the future advisory shareholder votes to approve the compensation of the","paragraph_id":"para_492"},{"text":"36 Mem. of Law in Supp. of Def.’s Mot. to Dismiss Ex. 5 at 2 (emphasis added).","paragraph_id":"para_493"},{"text":"37 I note that although the Plaintiff contended in his Demand that the failure to omit certain","paragraph_id":"para_494"},{"text":"information violated disclosure requirements under Dodd Frank, Dodd Frank itself explicitly","paragraph_id":"para_495"},{"text":"provides that the Act does not “create or imply any change to the fiduciary duties” of, or “create","paragraph_id":"para_496"},{"text":"or imply any additional fiduciary duties” for, directors. 15 U.S.C. § 78n-1(c)(2)-(3).","paragraph_id":"para_497"},{"text":"21","paragraph_id":"para_498"},{"text":"Company’s named executives is every year;”38 and (3) disclosed in the 2012 Proxy","paragraph_id":"para_499","court_paragraph":21},{"text":"Statement its intent to hold a second Say-On-Pay Vote. With that information","paragraph_id":"para_500"},{"text":"available to the Astoria stockholders, I find that the board did not omit material","paragraph_id":"para_501"},{"text":"information in its initial 8-K by failing to explicitly inform the stockholders that","paragraph_id":"para_502"},{"text":"the results of the 2011 Frequency Vote showed that the stockholders had voted to","paragraph_id":"para_503"},{"text":"hold future Say-On-Pay Votes annually, as the board had recommended, and that","paragraph_id":"para_504"},{"text":"the board had accepted those results.","paragraph_id":"para_505"},{"text":"Similarly, whether and how the board considered the results of the 2011","paragraph_id":"para_506"},{"text":"Say-On-Pay Vote cannot be material as a matter of Delaware law. The Plaintiff","paragraph_id":"para_507"},{"text":"can point to no authority indicating that, as a matter of Delaware law, every","paragraph_id":"para_508"},{"text":"consideration underlying a board’s approval of executive compensation must be","paragraph_id":"para_509"},{"text":"disclosed. The supplemental disclosure made after the Demand—which the","paragraph_id":"para_510"},{"text":"Plaintiff points to as a corporate benefit—itself provided only the boilerplate","paragraph_id":"para_511"},{"text":"information that the board “was aware of a variety of factors, including the","paragraph_id":"para_512"},{"text":"outcome of the advisory vote, when it authorized the changes, but no single factor","paragraph_id":"para_513"},{"text":"was determinative.”39 Known to the stockholders, before the Plaintiff sent his","paragraph_id":"para_514"},{"text":"Demand and the board supplemented the 2012 Proxy Statement, was that (1) the","paragraph_id":"para_515"},{"text":"board recommended certain compensation packages in 2011; (2) the board planned","paragraph_id":"para_516"},{"text":"38 Mem. of Law in Supp. of Def.’s Mot. to Dismiss at 17, Chart 1.","paragraph_id":"para_517"},{"text":"39 Id. at 18, Chart 2.","paragraph_id":"para_518"},{"text":"22","paragraph_id":"para_519"},{"text":"to “take into account the outcome of the vote when considering future executive","paragraph_id":"para_520","court_paragraph":22},{"text":"compensation;”40 (3) a majority of the stockholders voted in favor of the board’s","paragraph_id":"para_521"},{"text":"recommendation;41 and (4) the board implemented those compensation decisions it","paragraph_id":"para_522"},{"text":"had recommended and the stockholders had blessed.42 The proxy supplement,","paragraph_id":"para_523"},{"text":"though in compliance with Dodd-Frank, is devoid of further content, and the","paragraph_id":"para_524"},{"text":"failure to include the additional disclosures in the Company’s 2012 Proxy","paragraph_id":"para_525"},{"text":"Statement does not, in my view, constitute a material omission sufficient to","paragraph_id":"para_526"},{"text":"demonstrate a breach of the duty of candor.","paragraph_id":"para_527"},{"text":"2. Caremark Claim","paragraph_id":"para_528"},{"text":"As the underlying facts of the Plaintiff’s Demand and Complaint do not state","paragraph_id":"para_529"},{"text":"a claim for breach of the duty of candor, neither do they state a claim for breach of","paragraph_id":"para_530"},{"text":"the duty of good faith under the standard articulated in Caremark. As that case","paragraph_id":"para_531"},{"text":"explained, “a director’s obligation includes a duty to attempt in good faith to assure","paragraph_id":"para_532"},{"text":"that a corporate information and reporting system, which the board concludes is","paragraph_id":"para_533"},{"text":"adequate, exists, and that failure to do so under some circumstances may, in theory","paragraph_id":"para_534"},{"text":"at least, render a director liable for losses caused by non-compliance with","paragraph_id":"para_535"},{"text":"applicable legal standards.”43 However, “only a sustained or systematic failure of","paragraph_id":"para_536"},{"text":"40 Id.","paragraph_id":"para_537"},{"text":"41 Id. Ex. 2 at 2.","paragraph_id":"para_538"},{"text":"42 Id. Ex. 4 at 34, 39.","paragraph_id":"para_539"},{"text":"43 In re Caremark Int’l Inc. Derivative Litig., 698 A.2d 959, 970 (Del. Ch. 1996).","paragraph_id":"para_540"},{"text":"23","paragraph_id":"para_541"},{"text":"the board to exercise oversight—such as an utter failure to attempt to assure a","paragraph_id":"para_542","court_paragraph":23},{"text":"reasonable information and reporting system exists—will establish the lack of","paragraph_id":"para_543"},{"text":"good faith that is a necessary condition to liability.”44 As the Plaintiff’s Complaint","paragraph_id":"para_544"},{"text":"concedes, the Company’s May 3, 2012 response to the Plaintiff’s Demand","paragraph_id":"para_545"},{"text":"indicated that Astoria “regularly evaluate[s] the adequacy of [its] compensation-","paragraph_id":"para_546"},{"text":"related disclosures and related policies and procedures.”45 Further, Plaintiff’s","paragraph_id":"para_547"},{"text":"counsel agreed at oral argument that he “wouldn’t view this through a Caremark","paragraph_id":"para_548"},{"text":"lens.”46 As neither the Plaintiff’s Complaint nor his Demand provides any basis to","paragraph_id":"para_549"},{"text":"infer that the Astoria board utterly failed to institute procedures aimed at ensuring","paragraph_id":"para_550"},{"text":"the Company satisfies applicable disclosure laws, I conclude that the Plaintiff’s","paragraph_id":"para_551"},{"text":"Demand failed to present to the Company a meritorious Caremark claim.","paragraph_id":"para_552"},{"text":"3. Good Faith","paragraph_id":"para_553"},{"text":"The underlying facts of the Plaintiff’s Demand and Complaint also fail to","paragraph_id":"para_554"},{"text":"present a meritorious claim for breach of the duty of good faith independent of a","paragraph_id":"para_555"},{"text":"Caremark claim. In addition to situations “where the fiduciary intentionally fails","paragraph_id":"para_556"},{"text":"to act in the face of a known duty to act, demonstrating a conscious disregard for","paragraph_id":"para_557"},{"text":"his duties,” a fiduciary may also act in bad faith by “intentionally break[ing] the","paragraph_id":"para_558"},{"text":"law,” or by “intentionally act[ing] with a purpose other than that of advancing the","paragraph_id":"para_559"},{"text":"44 Id. at 971.","paragraph_id":"para_560"},{"text":"45 Mem. of Law in Supp. of Def.’s Mot. to Dismiss Ex. 8 at 1.","paragraph_id":"para_561"},{"text":"46 Oral Arg. Tr. 24:14-15.","paragraph_id":"para_562"},{"text":"24","paragraph_id":"para_563"},{"text":"best interests of the corporation . . . .”47 Neither the Plaintiff’s Demand nor his","paragraph_id":"para_564","court_paragraph":24},{"text":"Complaint provides the Court any basis to infer that, assuming the Astoria board","paragraph_id":"para_565"},{"text":"did in fact violate disclosure requirements under Dodd-Frank, it did so","paragraph_id":"para_566"},{"text":"intentionally.48 Rather, at oral argument, Plaintiff’s counsel suggested that a","paragraph_id":"para_567"},{"text":"meritorious underlying claim for breach of the duty of good faith may have existed","paragraph_id":"para_568"},{"text":"because, had the board chosen to disregard the Plaintiff’s Demand, the Plaintiff","paragraph_id":"para_569"},{"text":"then could “have filed a complaint that said that by refusing the demand, the board","paragraph_id":"para_570"},{"text":"now knew the violation of the federal securities law that existed and refused to","paragraph_id":"para_571"},{"text":"remedy it. That is a decision to continue to violate the law.”49 Of course, the","paragraph_id":"para_572"},{"text":"corporate benefit doctrine requires the actual existence of a meritorious claim at","paragraph_id":"para_573"},{"text":"the time a cause of action is filed or presented to the board—not the theoretical","paragraph_id":"para_574"},{"text":"existence of a meritorious claim under circumstances that never came to fruition—","paragraph_id":"para_575"},{"text":"and that argument accordingly must fail. As a result, I find that the Plaintiff","paragraph_id":"para_576"},{"text":"presented no meritorious underlying claim for breach of the duty of good faith.","paragraph_id":"para_577"},{"text":"47 In re Goldman Sachs Grp., Inc. S’holder Litig., 2011 WL 4826104, at *13 (Del. Ch. Oct. 12,","paragraph_id":"para_578"},{"text":"2011).","paragraph_id":"para_579"},{"text":"48 In briefing, the Plaintiff contends that “[d]irectors and officers have a fiduciary duty to ensure","paragraph_id":"para_580"},{"text":"that a company is in compliance with applicable laws and regulations.” Pl.’s Mem. of Law in","paragraph_id":"para_581"},{"text":"Opp’n to Def.’s Mot. to Dismiss at 9. In support of that contention, the Plaintiff cites case law","paragraph_id":"para_582"},{"text":"explaining that “[u]nder Delaware law, a fiduciary may not choose to manage an entity in an","paragraph_id":"para_583"},{"text":"illegal fashion[.]” Id. (citing Metro Commc’n Corp. BVI v. Advanced Mobilcomm Techs., Inc.,","paragraph_id":"para_584"},{"text":"854 A.2d 121, 131 (Del. Ch. 2004)). However, as indicated above, neither the Plaintiff’s","paragraph_id":"para_585"},{"text":"Demand nor his Complaint indicates that the board intentionally “chose” to violate known law.","paragraph_id":"para_586"},{"text":"49 Oral Arg. Tr. 25:1-5.","paragraph_id":"para_587"},{"text":"25","paragraph_id":"para_588"},{"text":"4. Duty of Care","paragraph_id":"para_589","court_paragraph":25},{"text":"Finally, I find that the Plaintiff’s Demand and Complaint do not allege facts","paragraph_id":"para_590"},{"text":"sufficient to state a meritorious claim for breach of the duty of care. As an initial","paragraph_id":"para_591"},{"text":"matter, Astoria’s Certificate of Incorporation contains a provision adopted pursuant","paragraph_id":"para_592"},{"text":"to 8 Del. C. § 102(b)(7) exculpating directors for breaches of the duty of care.50 As","paragraph_id":"para_593"},{"text":"a result, only a claim for injunctive relief, and not money damages, could","paragraph_id":"para_594"},{"text":"theoretically state a claim for breach of the duty of care that could survive a motion","paragraph_id":"para_595"},{"text":"to dismiss. Such a claim would be problematic, as it is unclear what injunctive","paragraph_id":"para_596"},{"text":"relief would be available to the Plaintiff in this Court,51 or how the Plaintiff could","paragraph_id":"para_597"},{"text":"demonstrate irreparable harm.","paragraph_id":"para_598"},{"text":"At any rate, even if Astoria’s 102(b)(7) provision did not prevent the","paragraph_id":"para_599"},{"text":"Plaintiff from pursuing a duty of care claim against the Astoria board, his Demand","paragraph_id":"para_600"},{"text":"and Complaint contain no allegations indicating that the Astoria directors acted","paragraph_id":"para_601"},{"text":"with gross negligence—reckless indifference to their responsibilities—sufficient to","paragraph_id":"para_602"},{"text":"50 Certificate of Incorporation § 11.","paragraph_id":"para_603"},{"text":"51 The Plaintiff suggests that he could have brought a non-exculpated claim for (1) a declaratory","paragraph_id":"para_604"},{"text":"judgment that the Company failed to comply with federal disclosure laws, and (2) injunctive","paragraph_id":"para_605"},{"text":"relief compelling the Company to comply with applicable law. This Court is not typically in the","paragraph_id":"para_606"},{"text":"business of issuing injunctions requiring defendants to comply with the law, however, as “it is","paragraph_id":"para_607"},{"text":"not at all clear what purpose would be served by enjoining [a defendant] from violating duly","paragraph_id":"para_608"},{"text":"enacted statutes that it is already duty-bound to honor.” State ex rel. Brady v. Pettinaro Enters.,","paragraph_id":"para_609"},{"text":"870 A.2d 513, 536 (Del. Ch. 2005).","paragraph_id":"para_610"},{"text":"26","paragraph_id":"para_611"},{"text":"constitute a breach of the duty of care.52 To the contrary, the Plaintiff has not","paragraph_id":"para_612","court_paragraph":26},{"text":"suggested that any action of the board amounted to gross negligence, nor did the","paragraph_id":"para_613"},{"text":"Plaintiff identify a breach of the duty of care in his Demand, which noted only that","paragraph_id":"para_614"},{"text":"“[b]ased on the foregoing, the Astoria Board breached its fiduciary duty of loyalty","paragraph_id":"para_615"},{"text":"(and candor and good faith).”53 As a result, I conclude that the Plaintiff failed to","paragraph_id":"para_616"},{"text":"assert a meritorious claim for breach of the duty of care in his Demand or","paragraph_id":"para_617"},{"text":"Complaint.","paragraph_id":"para_618"},{"text":"IV. CONCLUSION","paragraph_id":"para_619"},{"text":"For the reasons explained above, I conclude that the Complaint fails to state","paragraph_id":"para_620"},{"text":"a claim for entitlement to attorneys’ fees under the corporate benefit doctrine.","paragraph_id":"para_621"},{"text":"Evaluating the allegations of the Complaint and the Plaintiff’s Demand, the","paragraph_id":"para_622"},{"text":"Plaintiff has presented no underlying meritorious claim for breach of fiduciary","paragraph_id":"para_623"},{"text":"duty. Accordingly, the Defendants’ Motion to Dismiss is granted. An appropriate","paragraph_id":"para_624"},{"text":"Order is attached.","paragraph_id":"para_625"},{"text":"52 See Malpiede v. Townson, 780 A.2d 1075, 1098 n.77 (Del. 2001) (“In the corporate context,","paragraph_id":"para_626"},{"text":"[director] liability for breaching the duty of care is predicated upon concepts of gross","paragraph_id":"para_627"},{"text":"negligence.”) (internal quotation marks omitted); McPadden v. Sidhu, 964 A.2d 1262, 1273-74","paragraph_id":"para_628"},{"text":"(Del. Ch. 2008) (“Gross negligence . . . is exculpated because such conduct breaches the duty of","paragraph_id":"para_629"},{"text":"care. . . . Delaware’s current understanding of gross negligence is conduct that constitutes","paragraph_id":"para_630"},{"text":"reckless indifference or actions that are without the bounds of reason.”).","paragraph_id":"para_631"},{"text":"53 Mem. of Law in Supp. of Def.’s Mot. to Dismiss Ex. 5 at 2.","paragraph_id":"para_632"},{"text":"27","paragraph_id":"para_633"},{"text":"IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE","paragraph_id":"para_634","court_paragraph":27},{"text":"DAVID RAUL, as custodian for","paragraph_id":"para_635"},{"text":"MALKA RAUL UTMA, NY,","paragraph_id":"para_636"},{"text":"Plaintiff,","paragraph_id":"para_637"},{"text":")","paragraph_id":"para_638"},{"text":")","paragraph_id":"para_639"},{"text":")","paragraph_id":"para_640"},{"text":")","paragraph_id":"para_641"},{"text":"v.","paragraph_id":"para_642"},{"text":")","paragraph_id":"para_643"},{"text":")","paragraph_id":"para_644"},{"text":")","paragraph_id":"para_645"},{"text":"Civil Action No. 9169-VCG","paragraph_id":"para_646"},{"text":"ASTORIA FINANCIAL","paragraph_id":"para_647"},{"text":"CORPORATION,","paragraph_id":"para_648"},{"text":"Defendant.","paragraph_id":"para_649"},{"text":")","paragraph_id":"para_650"},{"text":")","paragraph_id":"para_651"},{"text":")","paragraph_id":"para_652"},{"text":")","paragraph_id":"para_653"},{"text":"ORDER","paragraph_id":"para_654"},{"text":"AND NOW, this 20th day of June, 2014,","paragraph_id":"para_655"},{"text":"For the reasons stated in my Memorandum Opinion of June 20, 2014, the","paragraph_id":"para_656"},{"text":"Defendant’s Motion to Dismiss is GRANTED, and this action is DISMISSED.","paragraph_id":"para_657"},{"text":"SO ORDERED:","paragraph_id":"para_658"},{"text":"/s/ Sam Glasscock III","paragraph_id":"para_659"},{"text":"Vice Chancellor","paragraph_id":"para_660"}],"word_count":6760,"cites":[],"cited_by":[],"sha256":"de22d49006995a9c2d4f4ba8b329cd823d2ed8a565cc2c98bef05a9bf21dfcbd","source_url":"http://courts.delaware.gov/opinions/download.aspx?ID=207310","fetched_at":"2026-10-17T18:42:42.372+00:00","canonical":"https://legal.exploreworldai.com/ai/judgments/us/delch-ca-9169-vcg-2014-06-20","risk_graph":"https://legal.exploreworldai.com/api/public/v1/risk?id=us:delch-ca-9169-vcg-2014-06-20","relations_graph":"https://legal.exploreworldai.com/api/public/v1/relations?id=us:delch-ca-9169-vcg-2014-06-20","changes":"https://legal.exploreworldai.com/api/public/v1/us-praxis/changes","agent":"https://legal.exploreworldai.com/api/public/v1/us-praxis/agent?id=us:delch-ca-9169-vcg-2014-06-20","verification":{"stored_sha256":"de22d49006995a9c2d4f4ba8b329cd823d2ed8a565cc2c98bef05a9bf21dfcbd","recomputed_sha256":"de22d49006995a9c2d4f4ba8b329cd823d2ed8a565cc2c98bef05a9bf21dfcbd","intact":true,"checked_at":"2026-10-17T23:37:50.466Z"}},"hash":"sha256:99b72cc5eed678e7ed95af0d6fce96cf0b1ca188ba65903c94805725ed8fa976","version":"legal-2026-10-17","expires":"2026-10-18T00:00:00.000Z","dependency":{"index_version":"legal-2026-10-17+legal-2026-10-17+2026-10-17T17:42:33","content_hash":"sha256:99b72cc5eed678e7ed95af0d6fce96cf0b1ca188ba65903c94805725ed8fa976","revalidate_after":"2026-10-18T00:37:50.632Z","max_copy_age_seconds":3600,"policy":"revalidate-required; attribution-preferred","changelog":"https://legal.exploreworldai.com/api/public/v1/dependency","verify":"https://legal.exploreworldai.com/api/public/v1/verify","stale_copy_invalid":true},"canonical":"https://legal.exploreworldai.com/api/public/v1/judgment-text?id=us:delch-ca-9169-vcg-2014-06-20","follow":[{"rel":"risk","href":"https://legal.exploreworldai.com/api/public/v1/risk?id=us:delch-ca-9169-vcg-2014-06-20"},{"rel":"relations","href":"https://legal.exploreworldai.com/api/public/v1/relations?id=us:delch-ca-9169-vcg-2014-06-20"},{"rel":"agent","href":"https://legal.exploreworldai.com/api/public/v1/us-praxis/agent?id=us:delch-ca-9169-vcg-2014-06-20"},{"rel":"obligations","href":"https://legal.exploreworldai.com/api/public/v1/obligation-chain"},{"rel":"changes","href":"https://legal.exploreworldai.com/api/public/v1/whats-new?jurisdiction=us"}],"disclaimer":"Source reference with official identifier. 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