Wednesday, January 1, 2014

In re Tyson Food, Inc. (Tyson I) case brief

In re Tyson Food, Inc. (Tyson I) case brief summary
919 A.2d 563 (2007)

The court considered a complaint by plaintiffs, a shareholder and a bank, against defendants, current and former board members of a corporation, a limited partnership, and the corporation as nominal defendant. Plaintiffs made nine separate claims, including violation of fiduciary duties, a pattern of failing to investigate and disclose self-dealing payments, and unjust enrichment. Defendants moved to dismiss, Del. Ch. Ct. R. 12(b)(6).


  • In 2001, shareholders of Tyson Foods, Inc. approved a stock incentive plan.
  • The stock incentive plan gave the Compensation Committee complete discretion to issue stock options and other incentives to employees, officers, as well as directors of the company, provided that the option price was no lower than the fair market value of the stock on the day of the grant. 
  • In 2005, Eric Mayer as well as other Tyson shareholders (the plaintiffs) filed a derivative action against 18 directors and officers, among others. 
  • The plaintiffs alleged that on four specific occasions, the Compensation Committee improperly awarded spring-loaded options to the directors and officers. . 
  • The dissident shareholders alleged that the spring-loaded options here were in violation of the committee members’ duty of loyalty because they contravened the restrictions in the stock incentive plan. 
  • The directors moved to dismiss the complaint, arguing that the committee members were disinterested and independent directors and are therefore protected by the business judgment rule.

  • As to count III, the grant of options between 1999 and 2001, the court found that assuming every fact in the consolidated complaint to be true, plaintiffs amply demonstrated that the doctrines of equitable tolling and fraudulent concealment tolled the statute of limitations, Del. Code Ann. title 10, § 8106. 
  • Plaintiffs alleged that defendants knowingly "spring-loaded" options to key executives and directors while maintaining in public disclosures that such options were issued at market rates. 
  • Such partial, selective disclosure constituted an act of "actual artifice" that satisfied the requirements of the doctrine of fraudulent concealment. 
  • Plaintiffs alleged adequately that the compensation committee violated a fiduciary duty by acting disloyally and in bad faith with regard to the grant of options. 
  • Defendants were entitled to the protection of the statute of limitations with regard to two consulting contracts signed in 2001. The company disclosed both contracts as part of SEC filings in December 2001. 
  • By waiting to file the action until February 16, 2005, plaintiffs had given up their right to all claims in count I except those regarding a 2004 contract with one of the consultants.
See: Spring Loaded Option.

Counts I, VIII, and VII were dismissed. Count IV remained only with regard to related-party transactions either not disclosed before or undertaken after February 16, 2002, and were allegedly not reviewed by an independent committee. Count V went forward only as to disclosure failures in regard to perquisites that led to an SEC settlement. Counts II, VI and IX survived, while count III survived as to seven members of a compensation committee.

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