Cleary Gottlieb Wins Motion to Dismiss Shareholder Derivative Suit Concerning Executive Compensation

On September 30, 2014, Judge Sue Robinson in the District Court for the District of Delaware ruled in favor of Cleary Gottlieb’s clients, The Dow Chemical Company and its officers and directors, dismissing the Plaintiff’s amended complaint alleging violations of federal proxy law and other state law violations in connection with the approval of Dow’s 1988 and 2012 stock option plans.

In his complaint, amended following Dow’s first motion to dismiss, the Plaintiff alleged that Dow’s directors and principal officers violated federal proxy and state law in connection with the approval of Dow’s 1988 and 2012 stock option plans. The Plaintiff’s claims were rooted in the allegation that the statements in Dow’s proxy statements were false and misleading because these stock option plans could not provide Section 162(m) qualifying compensation. Dow moved to dismiss the Plaintiff’s amended complaint.

Judge Robinson granted Dow’s motion to dismiss finding that Plaintiff’s claims were insufficient as a matter of law. First, the Plaintiff did not show demand futility with regard to the 1988 stock option plan, based, among other things, on the fact that the Plaintiff had not substantiated his allegations that any misleading disclosures concerning the 1988 plan were knowing and intentional. The Court also declined Plaintiff’s invitation to extend Delaware law, refusing to hold that demand is always excused for a claim based on nondisclosures in a proxy. Second, the court dismissed the federal securities claims concerning the 2012 stock option plan as failing to state a claim because there were no false or misleading statements or incomplete disclosures. Finally, regarding the Plaintiff’s claims for unjust enrichment and waste, the Plaintiff failed to plead facts demonstrating that any excessive awards were made under the 2012 stock option plan.