Erica Smith | Bloomberg LawNECA-IBEW Pension Fund v. Cox, No. 11-cv-00451 (S.D. Ohio Sept. 20, 2011) The U.S. District Court for the Southern District of Ohio denied the defendants' motion to dismiss a shareholder derivative action alleging that the board of directors breached its fiduciary duty by approving certain executive compensation. The court found that the plaintiff adequately pleaded that the directors' decision was not entitled to protection of the business judgment rule. Under the circumstances, the plaintiff was also excused from making pre-suit demand on the board to pursue the claims.
Shareholder Challenges Board's Approval of Executive Compensation
Business Judgment Rule
Given that the director defendants devised the challenged compensation, approved the compensation, recommended shareholder approval of the compensation, and suffered a negative shareholder vote on the compensation, [the] plaintiff . . . demonstrated sufficient facts to show that there is reason to doubt these same directors could exercise their independent business judgment over whether to bring suit against themselves for breach of fiduciary duty in awarding the challenged compensation.
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