William B. Chandler

“ Plaintiffs must at the very least allege some connection between the lack of disclosure and an actual harm. [95] Exposure to risk of investigation does not suffice. Attempting to expand the concept of harm to include the "risk" of investigation represents a triumph of imagination, but little else.
Other than Don Tyson's perquisites, which resulted in SEC penalties, plaintiffs make no showing of damage from failure to disclose any form of excessive compensation. Therefore, Count V fails to state a claim regarding all matters not relating to the SEC settlement. ”

“ My predecessor Chancellor Alien famously set forth both the standard applied to derivative litigation under Rule 12 (b) (6) and its justification. "It is a fact evident to all of those who are familiar with shareholder litigation that surviving a motion to dismiss means, as a practical matter, that economically rational defendants (who are usually not apt to be repeat players in these kinds of cases) will settle such claims, often for a peppercorn and a fee. This fact causes one to apply the pleading test under Rule 12 with special care in such suits. ”

“ I can quickly dispense with the allegation that neither Don Tyson nor Peterson was "required" to do any work under their contracts. Plaintiffs ceaselessly complain of Tyson's perfidy in describing the contracts as anything other than optional on the part of the consultants. They base this upon a single clause: "Executive may be required to devote up to twenty (20) hours per month to Employer." ”

“ As plaintiffs' allegations against these directors are insufficient to suggest [p592] a lack of independence, plaintiffs must demonstrate that the grant of the 2003 options could not be within the bounds of the Compensation Committee's business judgment. A severe test faces those seeking to overcome this presumption: " [W] here a director is independent and disinterested, there can be no liability for corporate loss, unless the facts are such that no person could possibly authorize such a transaction if he or she were attempting in good faith to meet their duty." ”

“ Plaintiffs' complaint in the present case presents a conspiracy-style theory of related-party transactions: the Tyson family's perquisites are alleged to be granted by other favored directors in exchange for their own favorable related-party transactions. Defendants ask us to believe that, despite the allegation that unearned benefits to non-Tyson family directors are the quid pro quo for approval of perquisites to the Tyson family, the latter would quite readily pursue a claim against the former. [40] Such an assertion goes against human nature and flies in the face of common sense. ”

“ I am even less convinced as to plaintiffs' contention that they were unaware of the nature of Peterson's contract until he died. The consulting contracts clearly contemplate the payment of benefits to the spouses of either employee after their deaths. In essence, the company chose to internalize the provision of life insurance to employees. ”

“ Unjust enrichment is "the unjust retention of a benefit to the loss of another, or the retention of money or property of another against the fundamental principles of justice or equity and good conscience." [114] A defendant may be liable "even when the defendant retaining the benefit is not a wrongdoer" and "even though he may have received [it] honestly in the first instance." [115] Although neither [p603] party develops the concept in their brief, the structure of the complaint suggests that were certain directors to be found liable for breaches of fiduciary duty under other theories. ”

“ Assuming every fact in the consolidated complaint to be true, plaintiffs amply demonstrate that the doctrines of equitable tolling and fraudulent concealment toll the statute of limitations. Plaintiffs allege that defendants knowingly spring-loaded options to key executives and directors while maintaining in public disclosures that such options were issued at market rates. ”

“ Whether a board of directors may in good faith grant spring-loaded options is a somewhat more difficult question than that posed by options backdating, a practice that has attracted much journalistic, prosecutorial, and judicial thinking of late. [74] At their heart, all backdated options involve a fundamental, incontrovertible lie: directors who approve an option dissemble as to the date on which the grant was actually made. Allegations of spring-loading implicate a much more subtle deception. ”

“ For a disclosure claim to be viable, it must demonstrate damages that flow from the failure to adequately disclose information, not that the information disclosed concerned matters for which damages are appropriate. ”

“ In the context of a motion to dismiss for failure to state a claim, on the other hand, the directors relevant to the Court's decision will usually be those in office at the time the challenged decision was made, and the standard, while perhaps more rigorous in derivative cases than in some others, [36] does not reach so high a bar as Rule 23.1. In both cases this Court must make all inferences in favor of plaintiffs, but in the Rule 23.1 context such inferences may only be drawn from particularized facts, while in the former case I may draw from general, if not conclusory, allegations. ”

“ As the majority of the Tyson board can be considered interested at all relevant times, transactions not sterilized by independent review receive no protection from the business judgment rule, and plaintiffs must only allege that the transactions were in some way unfair to shift the burden upon the defendants to prove their entire fairness. [91] By the terms of the Herbets settlement, all related-party transactions were required to be reviewed. ”

“ Tollett's general partnership in the Tyson Family Partnership, as well as his alleged benefit from related-party transactions, suffices to create a reasonable doubt as to his independence, as does Bond's service as CEO, essentially at the pleasure of the Tyson family. [41] Every derivative count implicates either a member of the Tyson family or Tollett or Bond and, hence, plaintiffs raise a reason to doubt the disinterestedness and independence of the board, justifying excusal of demand with regard to the entire consolidated complaint. ”

“ Nevertheless, plaintiffs have failed to suggest any form of relief that can be granted to them in a direct claim and, thus. Count VIII must be dismissed. In a direct suit based upon a disclosure claim, the Supreme Court has been very clear: damages to plaintiff shareholders are limited only to those that arise logically and directly from the lack of disclosure, and nominal damages are appropriate only where the shareholder's economic or voting rights have been injured. ”

“ Most obviously, a plaintiff can assert facts that demonstrate that a given director is personally interested in the outcome of litigation, in that the director will personally benefit or suffer as a result of the lawsuit in a manner that differs from shareholders generally. ”

“ In exchange for the salary specified in the contract, Tyson could require twenty hours of work per month from either consultant at its discretion. The fact that the contracts purchase, in essence, an option on the employees' time does not make them illusory, nor is the nature of the agreement obscure. If plaintiffs believed that these contracts were unfair, they could reasonably have been aware of their injuries in December 2001. ”

“ Unjust Enrichment As a parting shot, plaintiffs level a claim for unjust enrichment against various of the individual defendants and TLP, alleging that they have benefited at the expense of the company through self-dealing transactions and breaches of fiduciary duties. Defendants rightly point out that no part of this Count presents new factual issues, but that does not render it irrelevant. Count IX presents an opportunity to assign liability to an individual director without requiring plaintiffs to demonstrate fault with respect to that director. ”

“ It is thus reasonable to infer at this stage that the Compensation Committee did not approve or review the other annual compensation. Plaintiffs easily meet their further burden to allege some fact suggesting that assert that plaintiffs possessed every bit of information necessary to discover any alleged injury when the options were announced. All three options grants between 1999 and 2001 were listed in Tyson's proxy statements, and all three grants accurately included the number of shares granted, the exercise price, and the date of the grant. ”

“ Finally, plaintiffs assert (Count IX) that the related-party transactions, spring-loaded options, consulting contracts and payments in the "other annual compensation" category amount to unjust enrichment of certain individual defendants, entitling the company to, among other things, a disgorgement of benefits from the unjustly enriched individual defendants. [p581] Defendants raise their own chorus of objections in support of their motion to dismiss. First, many of the claims (they say) are barred by the statute of limitations. ”

“ A committee of independent directors enjoys the presumption that its actions are prima facie protected by the business judgment rule. [71] That the Committee was required to consult with other corporate officers is irrelevant: the committee admittedly retained independent authority and discretion to approve or modify whatever it received as a recommendation. Plaintiffs' complaint should properly target only the members of the compensation committee at the time the options were approved: Vorsanger, Massey, Cassady, Allen, Hackley, Jones and Smith. ”

“ Even where a defendant uses every fraudulent device at its disposal to mislead a victim or obfuscate the truth, no sanctuary from the statute will be offered to the dilatory plaintiff who was not or should not have been fooled. ”

“ Herbets Settlement at 8. The grow-out opportunities would seem to be subject to this earlier agreement.↑ Advisors to Delaware corporations should realize by now that the company's books and records can serve as a "tool at hand" to defend against unfounded charges of wrongdoing. A books and records demand under 8 Del. C. § 220 can afford the company an opportunity to rebut a shareholder's complaint and actually deter the filing of litigation. ”

“ Plaintiffs' allegations demonstrate harm to the corporation that accrued from the lack of disclosure in the 2004 proxy, but even assuming that defendants obtained "ill gotten gains" through their election, the shareholders would have no direct right to share in any disgorgement of these benefits. ”

“ IV. DEMAND, INTERESTEDNESS AND INDEPENDENCE Before addressing the morass of plaintiffs' various legal theories, it will be helpful to consider in detail two legal doctrines implicated in almost every count: the standards for demand excusal and the process by which the Delaware statute of limitations runs and is tolled.
The first hurdle facing any derivative complaint is Rule 23.1, which requires that the complaint "allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the directors . . . ”

“ In the event of the employee's death before the expiration of the agreement, all payments and benefits were to go to designated survivors. Don Tyson's consulting contract provided for an annual payment of $ 800,000 for ten years, and granted the right to personal perquisites and benefits, including '"travel and entertainment costs... consistent with past practices.'" [14] Peterson's contract similarly entitled him to a payment of $ 400,000 per year for ten years plus personal perquisites and benefits. ”

“ Although the quoted language is from Peterson's contract, Don Tyson's 2001 contract is substantially similar.↑ Defs.' Opening Br. in Supp. of Mot. to Dismiss Ex. E at 2 (emphasis added) .↑ An employment contract does not constitute waste simply because it continues to pay benefits to the spouse of an employee after death. A corporation entering into such a contract merely takes upon itself the cost of providing the employee with an insurance policy payable to the employee's spouse. ”

“ LEXIS 133, 1988 WL 383667, at *6 (Del. Ch. Sept. 20, 1988) .↑ Although Count III is dismissed except with regard to these seven defendants, none of whom are alleged to have received any financial benefit through the grant of spring-loaded options, the other defendant directors may yet be affected indirectly. Not all acts of disloyalty or bad faith will directly benefit the malefactor, and a director may be held personally liable for a breach of the duty of loyalty in the absence of a personal financial gain. ”

“ Defendants point out that the documents requested in Meyer's § 220 demand did not cover all the transactions alleged in the complaint, and that the proxy statements repeatedly state that all transactions were reviewed.
It is true that a very strong negative inference is required for me to suppose [p578] from the facts alleged that the appropriate board committees did not review these transactions, yet two aspects of the complaint lead me to conclude that a negative inference is warranted. First, plaintiffs made a § 220 request to defendants who knew the crux of plaintiffs' complaint. ”

“ Plaintiffs allege that Tyson has never disclosed the prices at which it bought back livestock from corporate insiders through the grow-out programs. [19] Additionally, Tyson leased farms from various corporate insiders with a total value averaging over $ 2 million per year between 2001 and 2003.
A very liberal trade existed between directors (and ex-directors) and the company, of which the complaint provides many specific examples. Perhaps the most relevant involves defendants Shelby and Massey. ”

“ Plaintiffs also allege that defendants Tollett and Wray agreed to similar, if smaller, consulting contracts in 1999 and 1998 respectively. Both receive health insurance and the vesting of stock options throughout the terms of their agreements, in addition to annual payments ranging from $ 100,000 to $ 350,000 over ten years.
2. Stock Option Grants In 2001, Tyson adopted a Stock Incentive Plan granting the board permission to award Class A shares, stock options, or other incentives to employees, officers, and directors of the company. ”