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By Yin Wilczek
July 1 — A derivative lawsuit challenging the compensation paid to Cablevision Systems Corp. founder Charles Dolan and other members of his family was dismissed by the Delaware Chancery Court June 30.
Vice Chancellor John Noble wrote that he was “troubled” by the facts of the case, including the “various ties” between Cablevision's compensation committee and the Dolans.
However, applying the business judgment rule, the judge found that the court shouldn't “second-guess an independent compensation committee's business decisions that are not irrational.”
“Although the amount of compensation and board composition raise some concern, that concern does not justify judicial intervention into that thicket here,” Noble wrote.
Cablevision, one of the largest cable providers in the U.S., said in a statement that the lawsuit was based on “unfounded accusations.”
“The Dolan family has operated the company and created extraordinary shareholder value since founding Cablevision more than 40 years ago, and we are gratified that the court rejected the plaintiff’s lawsuit,” the company said.
Counsel for shareholder plaintiff Julie Friedman did not immediately respond to a request for comment.
Friedman's lawsuit challenged the compensation, stock options and benefits awarded to Dolan, his son James Dolan, who is Cablevision's chief executive officer, and to three daughters who serve on the company's board as non-employee directors. According to the court, the Dolan family controls about 73 percent of Cablevision's voting power.
The court also observed that from fiscal years 2010 through 2012, Charles Dolan's compensation package was worth $40.27 million while James's was worth $41.18 million. In FY 2011 and 2012, the daughters' compensation packages were worth between $340,000 to $375,000.
The court noted that the compensation committee defendants have been criticized by advisory firms and shareholders and were subject to withhold votes in 2010 and 2012 elections.
The court rejected the plaintiff's argument that the entire fairness review standard should apply, finding that she failed to show the informational advantages and coercion necessary to rebut the business judgment rule presumption.
“Additionally, the Court hesitates to endorse the principle that every controlled company, regardless of use of an independent committee, must demonstrate the entire fairness of its executive compensation in court whenever questioned by a shareholder,” the court said. “It is especially undesirable to make such a pronouncement here, where annual compensation is not a ‘transformative' or major decision.”
In granting the defendants' motions to dismiss, the court found that there was no reason to believe that the executives' compensation was “uninformed, hastily made, or manipulated” by Charles and James Dolan. It also observed that it was “poorly equipped to determine” how much executives should be paid or whether individuals are qualified to serve as directors.
“The choices of Cablevision’s board and the Dolan Daughters, as pled in the complaint, may have been less than ideal,” it held. “Yet Cablevision’s governance system is public knowledge, and questionable decisions do not warrant creating a new policing function for the Court.”
The plaintiff was represented by Joel Friedlander and Christopher Foulds, Friedlander & Gorris PA, Wilmington, Del.
The defendants were represented by Robert Giuffra Jr., Sullivan & Cromwell LLP, New York; Brian Ralston, Potter Anderson & Corroon LLP, Wilmington, Del.; and Raymond DiCamillo, Richards, Layton & Finger PA, Wilmington, Del.
To contact the reporter on this story: Yin Wilczek in Washington at email@example.com
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The opinion is available at http://www.bloomberglaw.com/public/document/Friedman_v_Dolan_No_9425VCN_2015_BL_209974_Del_Ch_June_30_2015_Co.
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