U.S. District Court for the Southern District of New York denies plaintiffs’ motion for attorneys fees and request for discovery in connection with their say-on-pay challenge.
On August 19, Willkie obtained a victory for the Board of Directors of Citigroup, Inc. in the United States District Court for the Southern District of New York, when Judge Paul J. Oetken denied plaintiffs’ motion for attorneys fees and request for discovery in connection with their say-on-pay challenge. Willkie represents the independent members of Citigroup’s Board of Directors in the matter.
Less than two days after Citigroup’s shareholders voted against the company’s 2011 executive compensation plan in an advisory Dodd-Frank say-on-pay vote, plaintiffs filed a shareholder derivative action against the Board of Directors of Citigroup, alleging that the Board breached their fiduciary duties by authorizing pay increases for five executives, including CEO Vikram Pandit and Chief Operating Officer John Havens, in violation of the company’s pay-for-performance executive compensation policy. Defendants moved to dismiss the case on various grounds, including that plaintiffs had failed to make a demand before filing suit or adequately allege that such a demand would have been futile. Mr. Pandit and Mr. Havens later resigned from the company, forfeiting certain long-term retention awards, and plaintiffs never opposed the motion to dismiss. Instead, plaintiffs voluntarily dismissed the action on the ground that their claims had supposedly been "mooted" by subsequent events. Nevertheless, plaintiffs claimed that it was their efforts that led to the resignations of Messrs. Pandit and Havens and the forfeiture of their long-term retention awards, allegedly creating a $43 million benefit for the company. According to plaintiffs, they were therefore entitled to $6 million in attorneys’ fees under the common benefit doctrine for causing this benefit. As reported in the Am Law Litigation Daily and New York Law Journal, Judge Oetken rejected plaintiffs’ fee bid, calling it "farfetched."
In a case of first impression in the Second Circuit, the court held that the burden was on plaintiffs to prove that there was a causal connection between the litigation and the benefit allegedly conferred on Citigroup because, notwithstanding their contentions otherwise, plaintiffs’ claims had not in fact been "completely" mooted. Applying that standard, the court rejected plaintiffs’ argument that it was their lawsuit that led to the departure of Messrs. Pandit and Havens as "not plausible," noting that the Board had already undergone the expense of a motion to dismiss and the motion was likely to succeed. Accordingly, the court also rejected plaintiffs’ argument that they were entitled to extensive discovery, including discovery relating to the departure of the two executives.
The case was handled by partners Mary Eaton and Sameer Advani, and associates Zheyao Li, Eli Rubin, and Dane Lund.