Only a handful of the claims survived summary judgment in the recent order issued by Vice Chancellor Joseph R. Slights III in In re Ebix, Inc. Stockholder Litig. This was the third major ruling in a five-year-old, repeatedly amended stockholder suit that involved stock incentives, a past acquisition bonus, and allegedly inadequate disclosures. Of the ten causes of action, the only ones to survive summary judgment were claims for breach of fiduciary duty to disclose material facts that alleged false or misleading disclosures that could have altered deliberations of a reasonable shareholder.
The surviving disputes, which are now headed to trial, concerns three documents that created executive compensation arrangements in 2009 and 2010: (1) an Acquisition Bonus Agreement (“ABA”) that Ebix, Inc. (“Ebix”) entered into with Chairman and Chief Executive Officer Robin Raina in 2009; (2) a 2010 Stock Incentive Plan (the “2010 Plan”), (3) a proxy statement issued before Ebix’s 2010 annual meeting (the “2010 Proxy Statement”) in which Ebix’s board of directors (“Board”) recommended approval of the 2010 Plan, and (4) the proxy statement issued in 2016 that included the 2016 CEO bonus plan (the “2016 Proxy Statement”).
Plaintiffs challenged the 2010 Proxy Statement as materially misleading and incomplete. Plaintiffs also challenged the Board members’ disbursement of incentive compensation to themselves under the 2010 Plan as a breach of fiduciary duties. The Court held there remained genuine issues of fact as to the materiality of the omission in the 2010 Proxy Statement regarding the unwritten terms that director defendants allegedly added to the ABA after its adoption. A reasonable stockholder voting on a compensation plan that could lead to additional compensation for directors, officers, and, most importantly, Raina, might find it important to know the particular terms of the bonus to which Raina was already entitled under the ABA. Because no new facts were presented in the summary judgment record that would alter the materiality analysis with regard to the particular disclosure, the related count survived summary judgment.
As for the other count, it was unclear to the Court whether the claim was factually or legally supported by the record, but it was desirable to “inquire more thoroughly into the facts in order to clarify the application of the law to the circumstances.” As such, the Court denied summary judgment as to that count.
Vice Chancellor Slights also denied (in part) summary judgment for another count where Plaintiffs claimed that the materially misleading or omitted information regarding the ABA in the 2016 Proxy Statement prevented stockholders from validly approving the 2016 CEO Bonus Plan. Because the 2016 CEO Bonus Plan was not ratified by stockholders, Plaintiffs argued that any bonus paid to Raina should be rescinded and cancelled and the Board should be enjoined from making any further payments to Raina under the 2016 CEO Bonus Plan. The Court held there was a triable dispute of fact as to whether a reasonable stockholder considering a grant of additional compensation to Raina would have found it material to know the terms of the ABA, including any unwritten terms that would increase compensation due to Raina under the ABA.
The Court granted summary judgment as to the remaining causes of action. Specifically, two counts alleged breaches of fiduciary duty by the director defendants in connection with the ABA. Because the only remedy sought was declaratory relief, which was redundant of the other counts, summary judgment was granted. Likewise, the claims for declaratory relief purported to state a claim for damages, but the record did not support the claims. Plaintiffs alleged that certain terms were added to the ABA that deterred potential bidders and created lost opportunities. The Court found such allegations to be unspecified, speculative and not supported by discovery. So, they, too, were dismissed.
Next, the Court granted summary judgment on the claims that challenged the 2014 Bylaw amendments. One count alleged the 2014 Bylaw amendments were an unreasonable anti-takeover device adopted in breach of defendants’ fiduciary duties. But by 2016, no evidence showed the 2014 Bylaw amendments were ever adopted in response to any present or future takeover threats. The lack of defensive use of the Bylaw amendments triggered the business judgment rule, rather than Unocol, and Plaintiffs failed to rebut the business judgment presumption so summary judgment was granted. The second count challenged the adoption of the 2014 Bylaws amendments, claiming no unanimous written consent or other document evidenced the Board’s approval of the Bylaws. Beyond the absence of minutes of a meeting or a written consent, Plaintiffs failed to prove that the 2014 Bylaw amendments were not adopted by the Board. Notably, the Court held that testimony from several directors that did not recall the approval of the 2014 Bylaw amendments does not “place in dispute” the approval of the 2014 Bylaw amendments. So, summary judgment was granted here as well.