Marx v. Akers

666 N.E.2d 1034 (1996)

Facts:

  • P challenged D’s (the board’s) decision to increase three of the outside director’s compensation packages to $55K and 100 shares of stock.

o   P argued this was above the cost of living at the time and was therefore exorbitant, given the fact that the company had been doing as poorly as it had.

  • D argued that only 3 of the board members were actually impacted by the increases, which wasn’t a majority of the board.

o   Normally, a board may vote on matters impacting itself, including compensation, insofar as a majority of the board members are independent.

  • D also argued that P only submitted conclusive statements that the pay was excessive, but didn’t submit any evidence or expand on the argument at all. Importantly, there was no particularity asserted by P regarding the compensation. This was the reason it was not excused.
  • P filed a derivative action against IBM (the company at issue) and its D board members without first issuing a demand.
  • The board excused the demand

Issue:

  • Should demand by a shareholder be excused when directors have interest in their own compensation?
  • Whether P provided a particularized claim.

Holding:

  • OUTCOME: The court affirmed the order of the court below dismissing the shareholder’s complaint for failure to state a cause of action, with costs.
  • The court found that because only three directors were alleged to have received the benefit of the compensation package, a majority of the board wasn’t “interested” and therefore the demand wasn’t futile.
  • The court found that board members will always have an interest when voting on their own compensation.
  • The P didn’t appropriately support his claim with particularized facts or assertions.

o   The court held, however, that the allegations that the compensation bore no relationship to duties performed or to the cost of living were insufficient as a matter of law because they lacked factually-based allegations of wrongdoing or waste which could, if true, sustain a verdict for the shareholder.

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