The Delaware Chancery Court recently dismissed a shareholder’s claim for attorneys’ fees under Delaware’s corporate benefits doctrine even after assuming the shareholder’s demand conveyed a benefit to the corporation. The reason is that a shareholder’s demand must present a meritorious claim when filed, which in turn results in a material corporate benefit. The shareholder in Raul v. Astoria Financial Corporation presented a demand that caused Astoria Financial Corporation (“Astoria”) to take action, but according to the Court did not state a meritorious claim. Like many companies, Dodd Frank imposed new regulations on Astoria related to the approval and disclosure of corporate executive compensation decisions. In 2011, Astoria presented to its shareholders a non-binding vote to approve executive compensation and to determine whether future votes would occur every one, two, or three years. After shareholders approved the compensation and chose one-year, Astoria presented its next vote on compensation in 2012. Astoria did not, however, disclose how its board took into account the 2011 shareholder’s vote when making 2012 executive compensation decisions. The plaintiff in Raul sent a demand claiming that this omission violated Dodd-Frank. In response Astoria’s compensation committee amended its charter as requested by the plaintiff.

The plaintiff then filed suit seeking attorneys’ fees pursuant to Delaware’s corporate-benefit doctrine. While the Court assumed for purposes of Astoria’s motion to dismiss that the plaintiff had conveyed a corporate benefit, the Court did not find that the plaintiff presented a meritorious claim. The Court explained that a claim is meritorious when, at the time it is filed or presented to the board, it would survive a motion to dismiss or if the plaintiff possesses knowledge of provable facts which hold out some reasonable likelihood of success. “Only where the shareholder has acted on behalf of the corporation because those whose duty to act, the directors, have breached their fiduciary duties, will the stockholder be entitled to compel payment of fees and costs.” The Court then examined whether the directors breached their duties of candor, good faith, and care, along with their Caremark duties, but found no such breach. The directors did not breach their duties of candor because no reasonable stockholder would consider the disclosure important or material. The directors did not breach their Caremark duties because there was no allegation that the board utterly failed to institute policies aimed at ensuring Astoria complied with the applicable disclosure laws. The directors did not breach their duties of good faith because there was no evidence they acted intentionally. And the directors did not breach their duty of care because the plaintiff made no allegations of gross negligence. Having failed to find a meritorious claim, the Court the dismissed the complaint and denied attorneys’ fees, despite the fact that Astoria did as the plaintiff demanded.

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