Friday, October 19, 2012

Marx v. Akers case brief

 Marx v. Akers
666 N.E.2d 1034 (1996)

-Sylvia larx (P) brought a shareholder derivative suit against International Business Machines (IBM) (D) and its directors without first demanding the board pursue the action.
-The complaint alleges the board paid excessive compensation to the company's executives and directors, wasting corporate assets.
-The plaintiff bases her case on the fact that while profits declined at IBM, the outside directors were paid excessive compensation and violated their fiduciary duties by voting for excessive compensation for IBM (D) executives.
Procedural History
Plaintiff shareholder sought review of an order of the Appellate Division of the Supreme Court in the Second Judicial Department (New York), which affirmed the trial court's grant of motions by defendants, a company and its board of directors, to dismiss the amended complaint. The shareholder had commenced the shareholder derivative action alleging that the board wasted corporate assets without first demanding that the board initiate a lawsuit
Is a derivative complaint required to be dismissed if the plaintiff failed to make a demand of the board to pursue the action on its own?
Because only three directors were alleged to have received the benefit of the compensation scheme, a majority of the board was not "interested" in it.
- 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.
A director will always be an interested party, for the purpose of the excusal of a demand, when the director is voting on director compensation.  However, a plaintiff has to demonstrate with particularity that the compensation is excessive.
 The allegations that the board used faulty accounting procedures to calculate executive compensation levels were "conclusory allegations of wrongdoing" insufficient to excuse demand.
-The court did find that a director who voted for a raise in directors' compensation was always "interested" because that person received a personal financial benefit from it.
- The court affirmed the order of the court below dismissing the shareholder's complaint for failure to state a cause of action, with costs.

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