FirstMerit wins dismissal of all claims in shareholder derivative lawsuits relating to compensation and adverse say-on-pay vote
Clients FirstMerit Corporation
Jones Day represented the board of directors of FirstMerit Corporation in a shareholder derivative action (dismissed) arising from compensation decisions and disclosures made in light of a negative result in the company’s 2012 say-on-pay shareholder vote. The plaintiffs alleged that the defendants had breached their fiduciary duties by awarding excessive compensation to senior management that violated a “pay for performance” policy allegedly set forth in FirstMerit’s proxy statement, and by not rescinding the compensation following the say-on-pay vote. Plaintiffs sought an award from the company of damages, disgorgement or other equitable or injunctive relief and the implementation and administration of internal controls relating to executive compensation.
FirstMerit moved to dismiss the complaint on the ground that the plaintiffs had not made a pre-suit demand on the company’s board of directors, and had failed to show that a demand would have been futile. On May 10, 2013, the U.S. District Court for the Northern District of Ohio granted the motion to dismiss. It found that the failure to make a demand was not excused, because the complaint lacked allegations showing that FirstMerit’s directors were substantially likely to be personally liable. The Court rejected plaintiffs’ arguments that the proxy statement contained false statements regarding the company’s compensation policies or the defendants’ actions and that the board of directors’ alleged failure to rescind the compensation in light of the say-on-pay vote gave rise to a breach of fiduciary duties. The Court further held that mere membership on the compensation committee did not give rise to a risk of personal liability for compensation decisions. The Court declined to follow the reasoning of the Southern District of Ohio in NECA-IBEW Pension Fund ex rel. Cincinnati Bell, Inc. v. Cox, 2011 WL 4383368 (S.D. Ohio Sept. 20, 2011), and held that the action must be dismissed.
Robinson Family Trust et al. v. Paul Grieg, et al., 5:12-cv-1713 (N.D. Ohio) (2013 BL 124978)