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Laborers' Local v. Intersil et al

March 7, 2012

LABORERS' LOCAL, PLAINTIFF,
v.
INTERSIL ET AL.,
DEFENDANTS.



The opinion of the court was delivered by: Edward J. Davila United States District Judge

United States District Court For the Northern District of California

ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS (Re: Docket Item Nos. 19, 20)

I.INTRODUCTION

Presently before the court are two motions filed by Defendants to dismiss Plaintiff Laborers' Local #231 Pension Fund's ("Plaintiff") complaint. Defendants are David B. Bell, 20 Jonathan A. Kennedy, Susan J. Hardman, Peter R. Oaklander, David M. Loftus, Robert W. Conn, 21 James V. Diller, Gary E. Gist, Mercedes Johnson, Gregory Lang, Jan Peeters, Robert N. 22 Pokelwaldt, James A. Urry, Compensia Inc. ("Compensia"), and Nominal Defendant Intersil 23 Corporation ("Intersil"). 24

For the reasons discussed below, Defendants' motions to dismiss will be granted with leave 25 to amend. 26

II.FACTUAL AND PROCEDURAL BACKGROUND

This is a shareholders' derivative action suit brought for the benefit of Nominal Defendant Intersil against certain executives and directors of Intersil. According to the complaint, Plaintiff has been a shareholder of Intersil since July 2009. See Complaint, Docket Item No. 1, at ¶ 10. 2

Intersil is a Delaware corporation, headquartered in Milpitas, California, which designs, develops, 3 manufactures and markets high-performance analog and mixed-signal integrated circuits. Id. at ¶ 4 11. Compensia, a citizen of California, is an executive compensation advisory firm that assisted 5 the Intersil Board in connection with the 2010 executive pay. Id. at ¶ 25. Compensia was retained 6 by Intersil "to advise it on competitive market practices and other areas of Named Executive 7 Officer compensation." Id. at ¶ 36 (quoting 2011 Proxy Statement, at 18). The thirteen 8 individually named defendants are directors and officers of Intersil. Id. at ¶¶ 12-24. Defendant 9 Bell is the CEO, President, and a director of Intersil. Id. at ¶ 12. His pay was increased by 40.6 10 percent in 2010. Id. Defendant Kennedy is the Chief Financial Officer of Intersil, and his pay was Vice President of Intersil and his pay was increased by 36.7 percent. Id. at ¶ 15. Defendant Loftus 14 is also a Senior Vice President of Intersil and his pay increased by 66.6 percent. Id. at ¶ 16. 15

Defendants Conn, Diller, Gist, Johnson, Lang, Peeters, Pokelwaldt, and Urry were all Intersil 16 directors at the time of the transaction and served either on the company's Compensation or Audit 17

On March 26, 2011, the Intersil Board recommended shareholder approval of the 2010 19 executive compensation.*fn1 Id. at ¶ 36. The executive compensation plan raised the compensation 20 of the company's named executives by an average of 41.7 percent, pursuant to Intersil's "pay for 21 performance" policy. *fn2 Id. at ¶¶ 12-16, 31, 34. On May 4, 2011, pursuant to the Dodd-Frank Wall 22

increased by 26.1 percent in 2010. Id. at ¶ 13. Defendant Hardman is Senior Vice President of

Intersil and her pay was increased by 38.6 percent. Id. at ¶ 14. Defendant Oaklander is Senior 13

Committees, which approved the 2010 pay raises. Id. at ¶¶ 17-24. 18

Street Reform and Consumer Protection Act ("Dodd-Frank Act"), a non-binding shareholder vote 2 was held on executive compensation.*fn3 Id. at ¶ 39. In that vote, 56 percent of voting Intersil 3 shareholders rejected the Board's 2010 CEO and top executive compensation.*fn4 Id. at ¶¶ 2, 39. 4

On August 19, 2011, Plaintiff filed this action for breach of fiduciary duty and unjust

5 enrichment on behalf of Intersil by one of its shareholders against several of Intersil's current 6 executives and Board of Directors, alleging that the 2010 executive compensation approved by the 7

Board of Directors was "excessive, irrational, and unreasonable" and that Intersil has been and 8 continues to be severely injured by the executive pay. Id. at ¶¶ 34, 41. Plaintiff alleges that in 9

2010, Intersil suffered substantial financial declines in its net income, which declined by 31.6 10 percent, and earnings per share, which declined by 34.4 percent. Id. at ¶¶ 32-33. At the same time,

the Board approved substantial pay raises for its top executives, under the "pay for performance"

program. Id. at ¶¶ 31, 34. Thus, Plaintiff claims that the relationship between executive pay and 13 corporate performance was "tenuous at best." Id. at ¶ 32. 14

Compensia, an independent compensation consultant. Plaintiff seeks recovery, on behalf of 16

Plaintiff also asserts a claim for aiding and abetting breach of fiduciary duty against

Intersil, and asks for damages, declaratory judgment, equitable and/or injunctive relief, 17 implementation and administration of internal control and systems to prohibit and prevent payment 18 of excessive executive compensation, and costs and fees associated with this action. 19

Before filing this action, Plaintiff did not make a pre-suit demand on Intersil's Board.

However, Plaintiff alleges that demand would be futile because the entire board "faces a substantial 21 likelihood of liability for breach of loyalty" and the Board's decision is not entitled to business 22 judgment protection. Id. at ¶ 45. 23

24 defendants, and Defendant Compensia each filed a motion to dismiss Plaintiff's complaint. See 25

Docket Item Nos. 19, 20. Additionally, Compensia filed a notice of joinder to Intersil's motion to 2 dismiss. See Docket Item No. 21. Plaintiff filed its combined opposition to Defendants' motions 3 on November 21, 2011. See Docket Item No. 22. Defendants filed two reply briefs on December 4 16, 2011. See Docket Item Nos. 23, 24. 5

Bender v. Williamsport Area Sch. Dist., 475 U.S. 534, 541 (1986). Plaintiff asserts federal 9 jurisdiction based upon the parties' diversity of citizenship. Jurisdiction is proper under 28 U.S.C 10 controversy exceeds $75,000. Venue is proper under 28 U.S.C. §1391(a) because Intersil maintains its executive offices and principal place of business in this District. 13

Under Federal Rule of Civil Procedure 12(b)(6), a complaint may be dismissed if it fails to 15 state a claim upon which relief can be granted. "To survive a motion to dismiss, a complaint must 16 contain sufficient factual matter, accepted as true, 'to state a claim to relief that is plausible on its 17 face.'" Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949 (2009) (internal citations omitted). 18

"A claim has facial plausibility when the plaintiff pleads factual content that allows the court to 19 draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. Recitals 20 of the elements of a cause of action and conclusory allegations are insufficient. Id. 21

Federal Rule of Civil Procedure 8(a) requires a plaintiff to plead each claim with sufficient 22 specificity to "give the defendant fair notice of what the . . . claim is and the grounds upon which it 23 rests." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotations omitted). 24

Moreover, the factual allegations "must be enough to raise a right to relief above the speculative 25 level" such that the claim "is plausible on its face." Id. at 555, 570. In considering the sufficiency 26 of a claim, the court must accept as true all of the factual allegations contained in the complaint. 27

Id. at 555-56. However, the court is not required to accept as true legal conclusions cast in the 28 form of factual allegations. Id. at 555.

III.JURISDICTION

Federal courts are courts of limited jurisdiction, possessing only that power authorized by Article III of the United States Constitution and statutes enacted by Congress pursuant thereto. See 8 §1332(a)(1), as there is complete diversity between Plaintiff and Defendants and the amount in

IV.LEGAL STANDARD

2 pleading could not possibly be cured by the allegation of other facts. Lopez v. Smith, 203 F.3d 3 1122, 1130 (9th Cir. 2000). If amendment would be futile, however, a dismissal may be ordered 4 with prejudice. Dumas v. Kipp, 90 F.3d 386, 393 (9th Cir.1996) (internal quotations omitted). 5

8 on behalf of a corporation a claim belonging not to the shareholder, but to the corporation. 9

746 A.2d 244 (Del. 2000)). Pursuant to Federal Rule of Civil Procedure 23.1, which governs

derivative actions, a shareholder's complaint must state with particularity "any effort by the

plaintiff to obtain the desired action from the directors" and "the reasons for not obtaining the 13 action or not making the effort." Fed. R. Civ. P. 23.1. Rule 23.1 imposes a higher standard of 14 pleading than Rule 8(a). 15

17 demand on Intersil's Board of Directors, as required by Delaware law, and that Plaintiff failed to 18 plead particularized facts excusing the demand, as required under Rule 23.1. Plaintiff concedes 19 that it did not make a pre-suit demand on Intersil's Board. See Docket Item No. 1, at ¶¶ 44-47. 20

However, Plaintiff contends that the demand upon the Board would have been futile. 21

23 determine the controlling substantive law. Patton v. Cox, 276 F.3d 493, 495 (9th Cir. 2002). Here, 24 because Intersil has its corporate headquarters and main place of business in Milpitas, California, 25 the court applies California state law. 26

If dismissal is granted under Rule 12(b)(6), leave to amend should be allowed unless the

V.DISCUSSION

A.Shareholder Derivative Suits

A shareholder derivative suit is a uniquely equitable remedy in which a shareholder asserts

Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984) (overruled on other grounds ...


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