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Laborers' Local v. Intersil et al


March 7, 2012


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



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


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.


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


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


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 by Brehm v. Eisner, 10

B.Demand Futility

Defendants move to dismiss the complaint on the ground that Plaintiff did not make a

1.Choice of Law

When a federal court sits in diversity, it looks to the forum state's choice of law rules to

Pursuant to the "internal affairs" doctrine, which is generally followed by courts in

California, "the law of the state of incorporation governs liabilities of officers or directors to the 28 corporation or its shareholders." In re Sagent Tech., Inc., Derivative Litig., 278 F. Supp. 2d 1079, 1086 (N.D. Cal. 2003); see Cal. Corp. Code § 2116. Additionally, the demand requirements for a 2 shareholder derivative suit are determined by the law of the state of incorporation. Kamen v. 3

Kemper Financial Services, Inc., 500 U.S. 90, 96, 108-09 (1991) ("the function of the demand 4 doctrine . . . is a matter 'substance' not 'procedure' . . . . [Courts] must apply the demand futility 5 exception as it is defined by the law of the state of incorporation"); Potter v. Hughes, 546 F.3d 1051, 1054 n.1 (9th Cir. 2008) ("the substantive demand requirement is an issue of state law"); In 7 re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 990 (9th Cir. 1999) (superseded by statute on 8 other grounds). Accordingly, because Intersil is incorporated in Delaware, the court applies 9

Under Delaware law, "directors of a corporation and not its shareholders manage the business and affairs of the corporation, and accordingly, the directors are responsible for deciding whether to engage in derivative litigation." Levine v. Smith, 591 A.2d 194, 200 (Del. Ch. 1991) (internal citation omitted) (overruled on other grounds by Brehm, 746 A.2d 244). Because 14 directors are empowered to manage or direct the business affairs of the corporation, a shareholder 15 seeking to bring a derivative action must first make a demand on that corporation's board of 16 directors, giving the board an opportunity to examine the alleged grievance to determine whether 17 pursuing the action is in the best interest of the corporation. Aronson, 473 A.2d at 812. The right 18 of a shareholder to prosecute a derivative suit is limited to situations where the shareholder has 19 demanded that the directors pursue the claim and they have wrongfully refused to do so or where 20 demand is excused because the directors are incapable of making impartial decisions regarding 21 such litigation. Rales v. Blasband, 634 A.2d 927, 932 (Del. 1993) (quoting Levine, 591 A.2d at 22

To prove that demand is excused, a shareholder must plead with particularity the reasons why such demand would have been futile. Fed. R. Civ. P. 23.1. Under Delaware law, failure to 25 make a demand may be excused if a plaintiff can raise a reasonable doubt that (1) a majority of the 26 board is disinterested or independent, or (2) the challenged act was a product of the board's valid 27 exercise of business judgment. Aronson, 473 A.2d at 814. If either part of the test is satisfied, 28 demand is excused. Brehm, 746 A.2d at 256. However, where a plaintiff fails to adequately allege

Delaware law to determine whether demand is excused. 10

200). 23

particularized facts demonstrating that either of the Aronson prongs has been met, the complaint 2 must be dismissed. See Aronson, 473 A.2d 805. 3

5 majority of the board is disinterested or independent. Directorial interest exists whenever divided 6 loyalties are present, where the director will receive a personal financial benefit from a transaction 7 that is not equally shared by the stockholders, or when a corporate decision will have a "materially 8 detrimental impact" on a director but not on the corporation or its stockholders. Rales, 634 A.2d at 9

2.First Prong of Aronson: Independent and Disinterested

Under the first part of the Aronson test, Plaintiff must raise a reasonable doubt that a

936; Aronson, 473 A.2d at 812. Independence exists when a director's decision is based on "the 10 corporate merits of the subject before the board rather than extraneous considerations or

13 whole Board because the Board of Directors faces a substantial likelihood of liability for breach of 14 loyalty as a result of the approved 2010 executive compensation. The duty of loyalty mandates 15 that the best interests of the corporation and its shareholders take precedence over any interest 16 possessed by a director or officer. See Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 17 1993). To establish a breach of loyalty, a plaintiff must allege that a director or officer "was on 18 both sides of the transaction, or derived any personal financial benefit from it in the sense of self-19 dealing . . . ." Id. at 362 (quoting Aronson, 473 A.2d at 812). Plaintiff has not pled facts that show 20 a majority of the Board breached its duty of loyalty, as the complaint only alleges that one director 21 derived personal financial benefit. 22

Under Delaware law, "the mere threat of personal liability for approving a questioned

23 transaction, standing alone, is insufficient to challenge either the independence or disinterestedness 24 of directors . . . ." Aronson, 473 A.2d at 815. A plaintiff may not "bootstrap allegations of futility" 25 by pleading merely that "the directors participated in the challenged transaction or that they would 26 be reluctant to sue themselves." Blasband v. Rales, 971 F.2d 1034, 1049 (3rd Cir. 1992) (citing 27 Delaware law). Demand is not excused simply because the Board might be liable for a breach of 28 duty of loyalty as a result of approving the 2010 executive compensation.

influences." Aronson, 473 A.2d at 816.

Plaintiff insists that the complaint creates a reasonable doubt as to the independence of the

2 because, as the CEO of Intersil, he lacks independence as he has received and continues to receive 3 monetary compensation and benefits from Intersil. 4

The court finds that Plaintiff does not meet its burden of proving that a majority of the

5 directors are interested or not independent. Plaintiff has alleged that only one director, Defendant 6

Bell, received any personal benefit from the challenged transaction. Plaintiff has not pled any facts 7 to show that the Board was dominated by Defendant Bell or that the Board was so under his 8 influence that the majority of its members were not independent. See Levine, 591 A.2d at 205. 9

Derivative Litig., 825 A.2d 275, 286 (Del. Ch. 2003). The business judgment rule is "a 14 presumption that in making a business decision the directors of a corporation acted on an informed 15 basis, in good faith and in the honest belief that the action taken was in the best interest of the 16 company." Aronson, 437 A.2d at 812. Under the business judgment rule, "directors are entitled to 17 a presumption that they were faithful to their fiduciary duties . . . . [and] the burden is upon the 18 plaintiff in a derivative action to overcome that presumption." Beam v. Stewart, 845 A.2d 1040, 19 1048-49 (Del. 2004). To rebut the business judgment rule presumption, "plaintiffs must plead 20 particularized facts sufficient to raise (1) a reason to doubt that the action was taken honestly and in 21 good faith or (2) a reason to doubt that the board was adequately informed in making the decision." 22

Walt Disney Co., 825 A.2d at 286). "[A] decision made by a loyal and informed board will not be 24 overturned by the courts unless it 'cannot be attributed to any rational business purpose.'" Cede, 25

Co., 825 A.2d at 286-87. In Delaware, corporations are empowered to "[a]ppoint such officers and 27 agents as the business of the corporation requires and to pay or otherwise provide for them suitable 28

Additionally, Plaintiff claims that a pre-suit demand against Defendant Bell is excused

Accordingly, Plaintiff has not met the first prong of the Aronson test for demand futility.

3.Second Prong of Aronson: Business Judgment Rule

Under the second prong of the Aronson test, Plaintiff must raise a reasonable doubt that the

transaction is entitled to the protection of the business judgment rule. In re Walt Disney Co. 13

In re J.P. Morgan Chase & Co. S'holder Litig., 906 A.2d 808, 824 (Del. Ch. 2005) (quoting In re 23

634 A.2d at 361 (quoting Sinclair Oil Corp., 280 A.2d 717, 720 (Del. 1971)); see In re Walt Disney 26

compensation." 8 Del. C. § 122(5). A board's decision on executive compensation is "entitled to 2 great deference." Brehm, 746 A.2d at 263. 3

The complaint fails to allege facts showing that Intersil's Board was not adequately

4 informed in making the decision regarding the 2010 executive compensation. With regards to the 5 honesty and good faith of the Board, Plaintiff points to the shareholder vote to call the directors' 6 decision into question. See In re J.P. Morgan, 906 A.2d at 825. 7

8 inconsistent with Intersil's "pay for performance" compensation policy, and therefore, not entitled 9 to business judgment protection. Plaintiff alleges that the company's net income and earnings per 10 share declined, whereas executive compensation rose. However, Defendants claim that the

See Docket Item No. 1, at ¶ 36 (quoting 2011 Proxy Statement). Plaintiff does not contend that 14

Intersil's targets were not reached; in fact, Defendants claim that in 2010 both revenue and 15 operating income increased substantially. See Docket Item No. 19, at 23. However, Plaintiff 16 claims that even with that information, the majority of shareholders expressed their opinion that 17

Intersil's executive compensation was not in line with the company's own "pay for performance" 18 policy. Plaintiff claims that the negative "say-on-pay" shareholder vote is evidence showing that 19 directors failed to act in the shareholders' best interests and rebuts the presumption that the Board's 20 decision regarding compensation is entitled to business judgment protection.*fn5 21

2011 WL 4383368 (S.D. Ohio Sept. 20, 2011), a similar case recently decided in the United States District Court for the Southern District of Ohio applying Ohio state law to interpret the Dodd-23

Frank Act. The court found that where a majority of shareholders, in a shareholder vote, disapproved of the executive compensation, plaintiff has demonstrated sufficient facts to show that 24 there is reason to doubt that the directors could exercise their independent business judgment over whether to bring suit against themselves for breach of fiduciary duty in awarding the challenged 25 compensation. Id. at *4. However, this case has been called into question by Plumbers Local No. 137 Pension Fund v. Davis, 2012 WL 104776 (D. Or. Jan. 11, 2012). The District Court for the 26

District of Oregon noted that the Cincinnati Bell court apparently lacked subject matter jurisdiction and the plaintiff failed to disclose contrary authority in response to the court's specific inquiry. Id. 27 at *5.

A recent case decided by the Georgia Superior Court, Teamsters Local 237 Additional Security

Benefit Fund ("Beazer") v. McCarthy, No. 2011-cv-197841(Superior Court of Fulton County, Ga.,

Plaintiff claims that the Board's decision regarding increased 2010 executive pay was

compensation was in line with Intersil's policy. Intersil's 2011 Proxy Statement explained that

performance-based incentives would be based on "revenue goals" and "operating income goal." 13

2 country. It is described, in part, as "[a]n Act to promote the financial stability of the United States 3 by improving accountability and transparency in the financial system . . . ." Dodd-Frank Wall 4

Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010). In a 5 report on The Restoring American Financial Stability Act of 2010, later renamed the Dodd-Frank 6

Act, Senator Christopher Dodd noted that, "[i]n connection with the crisis . . . investors need more 7 protection; shareholders need a greater voice in corporate governance . . . . Congress is 8 empowering shareholders in a public company to have a greater voice on executive compensation . 9

Urban Affairs held hearings for nearly three years in order to "identify[] and examin[e] gaps, 11 overlaps, and shortfalls in a regulatory system that has not been updated since the 1930s"

The Dodd-Frank Act was signed into law in July 2010 in light of the financial crisis in this

. . ." S. Rep. No. 111-176 at 35-37 (2010). The Senate Committee on Banking, Housing, and 10

and, as a

result, created "the reform our financial system needed and provided the American people with the 13 economic stability that they deserve." Hearing on the Implementation of the Dodd-Frank Wall 14

Affairs (Sept. 30, 2010) (statement of Sen. Christopher Dodd, Chairman, S. Comm. on Banking, 16

Housing and Urban Affairs). 17 18

Sept. 16, 2011), applied Delaware law in a situation similar to the case at hand. In Beazer, 19 plaintiffs alleged that defendants had breached their duties of loyalty, candor, and good faith by approving "excessive" executive pay and that the results of the shareholder "say on pay" vote 20 rebutted the presumption of the business judgment rule. Id. at *3. Defendants in that case, as here, moved to dismiss the complaint, alleging that plaintiffs did not properly plead excuse from the 21 demand requirement. The Georgia Superior Court decided that, under Delaware law, plaintiffs did not meet the first prong of the Aronson test, because only one of the directors was alleged to have 22 received the challenged compensation. Id. at *8. Furthermore, the court determined that plaintiffs did not meet the second prong of the Aronson test when plaintiffs pled that the negative "say on 23 pay" vote constituted evidence to rebut the business judgment rule. Id. at *10. First, the court noted that the vote was held after the challenged decision was made, so the Board could not have 24 considered the result of the shareholder vote when making decisions regarding executive pay, and thus the directors did not fail to act on an informed basis when they did not take the vote's results 25 into consideration. Id. Second, the court reiterated that the Dodd-Frank Act preserves the pre-existing fiduciary duty framework concerning directors' executive compensation decisions and that 26 shareholders' independent business judgment does not rebut the presumption of business judgment. Id. at *11. The court refused to conclude that "an adverse say on pay vote alone suffices to rebut 27 the presumption of business judgment protection applicable to directors' compensation decisions." However, the court did not conclude that such a vote could not be used along with other facts to 28 rebut the business judgment protection. Id. at *12.

Street Reform and Consumer Protection Act Before the S. Comm. on Banking, Housing and Urban 15

2 shareholder vote on executive compensation at least once every three years. 15 U.S.C. § 78n-1. 3

Senator Barney Frank noted that the "say on pay" provision was passed "to empower 4 shareholders." Hearing on Executive Compensation Oversight Before the H. Comm. on Financial 5

Services). The shareholder vote is meant to give shareholders "the ability to hold executives 7 accountable, and to disapprove of misguided incentive schemes." 156 Cong. Rec. S5902-01, 8

Section 951 of the Dodd-Frank Act requires public companies to conduct a non-binding

Services (Sept. 24, 2010) (statement of Rep. Barney Frank, Chairman, H. Comm. on Financial 6

S5916 (2010) (statement of Sen. Jack Reed). Section 951 expressly states that the shareholder vote 9 is not binding and it "may not be construed . . . to create or imply any change to the fiduciary 10 duties" nor "to create or imply any additional fiduciary duties." 15 U.S.C. § 78n--1(c). While the

few courts analyzing section 951 of the Dodd-Frank Act agree that it does not create any new

fiduciary duties,*fn6 no court in California or Delaware has decided whether a negative shareholder 13 vote under the Dodd-Frank Act can be used as evidence to rebut the business judgment rule 14 presumption under Delaware law.*fn7

Congress was explicit that the shareholder vote on executive pay is non-binding, but the

Act is silent on what consideration courts should give to the shareholder vote. Where resolution of 17 a question of federal law turns on a statute and the intention of Congress, courts first look to the 18

statutory language, and if it is unclear, then to the legislative history. Blum v. Stenson, 465 U.S. 2 886, 896 (1984). Congress must have intended for the shareholder vote to have some weight if, as 3 discussed above, the goals of section 951 are to empower shareholders and to hold executives 4 accountable. Furthermore, if the shareholder vote approving executive compensation is meant to 5 have no effect whatsoever, it seems unlikely that Congress would have included a specific 6 provision requiring such a vote. 7

8 directors to take good faith actions that they believe will benefit stockholders, "even if they realize 9 that the stockholders do not agree with them." In re Lear Corp. S'holder Litig., 967 A.2d 640, 655

Earlier cases, decided before passage of the Dodd-Frank Act, held that Delaware law allows

(Del. Ch. 2008); see Mercier v. Inter-Tel (Del.) Inc., 929 A.2d 786 (Del. Ch. 2007); TW Services,

Inc. v. SWT Acquisition Corp., 1989 WL 20290, at *8 n.14 (Del. Ch. Mar. 2, 1989). In Lear, the

company's board knew that shareholder approval of the contested decision was unlikely, but there 13 was no shareholder vote that expressly indicated disagreement. The Lear court noted that it would 14 be inconsistent with the business judgment rule for a court to "sustain a complaint grounded in the 15 concept that directors act disloyally if they adopt a merger agreement in good faith simply because 16 stockholders might (?), were likely (?), or were almost certain (?) to reject it." In re Lear, 976 A.2d 17 at 655. In the case at hand, unlike in Lear, no speculation is necessary, because the Intersil Board 18 knew for a fact that a majority of shareholders did not approve the executive compensation. 19

Act and where no shareholder vote took place, is misplaced under these particular facts. 21

22 of the Dodd-Frank Act, as well as the purpose of the Dodd-Frank Act, this court concludes that a 23 shareholder vote on executive compensation under the Act has substantial evidentiary weight and 24 may be used as evidence by a court in determining whether the second prong of the Aronson test 25 has been met. Ruling only on the particular facts presented in the case before the court, where 56 26 percent of shareholders disapproved of Intersil's 2010 executive compensation package, the court 27 finds that the shareholder vote alone is not enough to rebut the presumption of the business 28

Therefore, reliance on cases such as Lear, which were decided before passage of the Dodd-Frank 20

Looking to precedent from other courts that have interpreted the shareholder vote provision

judgment rule. Additional facts are required for plaintiff to raise a reasonable doubt that the 2 decision was not a valid exercise of business judgment. 3

4 rebut the business judgment presumption. Furthermore, Plaintiff has not pled sufficient facts to 5 raise a reasonable doubt that the challenged act was a product of the board's valid exercise of 6 business judgment. As such, Plaintiff has not met the second prong of the Aronson test for demand 7 futility. 8

9 such, Defendants' motions to dismiss the Complaint for failure to state a claim are GRANTED10 with leave to amend.

Kennedy, Hardman, Oaklander, and Loftus. Plaintiff claims that pay hikes violated the Board's 14

2010. In the Complaint, Plaintiff points to 2010 pay increases ranging from 26.1 percent to 66.6 16 percent for Defendants Bell, Kennedy, Hardman, Oaklander, and Loftus. Plaintiff claims that the 17 demand requirement is excused for the unjust enrichment claim, as discussed above. Plaintiff 18 alleges that this claim stems from the wrongful conduct alleged against the Board and that 19 reasonable doubt exists that the Board could independently evaluate a demand challenging the 20 executive compensation. 21

However, Defendants argue that Plaintiff claims that only Defendant Bell received anything

22 of benefit from the challenged transaction and that Plaintiff fails to allege demand futility as to its 23 unjust enrichment claim. 24

25 prove that demand for any claim is excused. Therefore, Defendants' motions to dismiss the 26

Complaint for failure to state a claim are GRANTEDwith leave to amend. 27 28

Accordingly, the 56 percent negative vote by Intersil shareholders does not, on its own,

Accordingly, Plaintiff has not pled facts sufficient to prove that demand is excused. As

C.Unjust Enrichment

Plaintiff also seeks to assert a claim for unjust enrichment against Defendants Bell,

"pay for performance" policy and were unwarranted in light of Intersil's financial performance in 15

For the reasons discussed above, the court finds that Plaintiff has not pled facts sufficient to 3 the Intersil Board of Directors, aided and abetted the alleged breach of fiduciary duty. Defendant 4

Compensia argues that the claim for aiding and abetting should be dismissed because Plaintiff has 5 provided no justification for its failure to make a pre-suit demand on Intersil's Board of Directors 6 with respect to its claim against Compensia and Plaintiff has not shown how such a demand was 7 excused. Furthermore, Defendant Compensia claims that Plaintiff's claim would fail as a matter of 8 law because the complaint fails to properly allege the conduct required to support the claim. 9

D.Aiding and Abetting

Plaintiff claims that Defendant Compensia, a consultant to the Compensation Committee of

Defendant Compensia argues that tort claims brought against third parties who are not

10 fiduciaries of the plaintiff are not governed by the "internal affairs" doctrine discussed above and

California law, rather than Delaware law, applies to the claim. See, e.g., In re Brocade Commc'n

Systems, Inc. Deriv. Litig., 615 F. Supp. 2d 1018, 1036 (N.D. Cal 2009) ("The court is not 13 convinced, however, that the internal affairs doctrine mandates that Delaware law apply to tort 14 claims brought against individuals who are not fiduciaries of a plaintiff employer.") ; Solow v. 15

Stone, 994 F. Supp 173, 177 (S.D.N.Y. 1998) (declining to apply internal affairs doctrine to aiding 16 and abetting fiduciary claim). In California, to prevail on a claim for aiding and abetting an 17 intentional tort, plaintiff must establish that the accused: "(a) knows the other's conduct constitutes 18 a breach of duty and gives substantial assistance or encouragement to the other to so act or (b) 19 gives substantial assistance to the other in accomplishing a tortious result and the person's own 20 conduct, separately considered, constitutes a breach of duty to the third person." Davenport v. 21

Plaintiff, on the other hand, contends that Delaware law applies to the claim for aiding and

23 abetting. In support of applying Delaware law, Plaintiff relies on cases holding that claims for 24 aiding and abetting are governed by the laws of the state of incorporation of the party alleged to 25 have committed the underlying breach of duty. However, none of the cases that Plaintiff relies on 26 are binding on this court. In Delaware, "a third party may be liable for aiding and abetting a breach 27 of fiduciary duty if the third party 'knowingly participates' in the breach," meaning that the third 28 party acts "with the knowledge that the conduct advocated or assisted constitutes such a breach."

Litton Loan Servicing, LP, 725 F. Supp. 2d 862, 882 (N.D. Cal. 2010). 22

Beard Research, Inc. v. Kates, 8 A.3d 573, 603 (Del. Ch. 2010) (quoting Malpiede v. Townson, 2 780 A.2d 1075, 1096-97 (Del. 2001)). 3

Ultimately, the court does not find it necessary to decided which state's laws apply to this

4 claim. Regardless of which state law applies to determine the claim of aiding and abetting, the 5 complaint does not allege any particular act that Defendant Compensia purportedly took to aid or 6 abet any breach by the Board of Directors. Plaintiff merely states that Defendant Compensia 7

"aided and abetted and rendered substantial assistance" to the Board's breach of fiduciary duty and 8 therefore "acted with knowledge of the primary wrongdoing, substantially assisted the 9 accomplishment of that wrongdoing, and was aware of its overall contribution to and furtherance 10 of the wrongdoing." See Docket Item No. 1, at ¶ 56. Without further factual allegations,

Plaintiff's claim fails as a matter of law. Moreover, Plaintiff does not allege any basis upon which the Board could not have disinterestedly and independently considered a demand to sue Defendant 13 Compensia.

Accordingly, Plaintiff's claim for aiding and abetting breach of fiduciary duty is legally insufficient. Therefore, Defendant Compensia's motion to dismiss the claim for aiding and 16 abetting is GRANTED with leave to amend.


For the foregoing reasons, Defendants' motions to dismiss for failure to state a claim pursuant to Rule 12(b)(6) and Rule 23.1 are GRANTED. 20

IT IS HEREBY ORDERED that Plaintiff's Complaint is dismissed with leave to amend.


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