The plaintiffs' allegations were centered on certain compensation decisions made by the defendants regarding the structure of payments to present and former directors and officers that allegedly resulted in the payments being non-tax-deductible. Specifically, the plaintiffs alleged that a revenue ruling by the IRS, which the defendants relied upon in structuring those payments, was incorrect and therefore was void and rendered the payments non-tax-deductible. In essence, the plaintiffs alleged that the compensation scheme chosen by the defendants would lead to an unnecessary payment to the federal government in the form of a higher tax bill for the corporation. The plaintiffs also alleged that the stock incentive plan used to compensate the defendants constituted corporate waste because the defendants chose to award so-called "time-vesting" units, which vested after a certain period of time and were non-tax-deductible, as opposed to "performance-vesting" units, which vested when certain performance goals were achieved and were tax-deductible.
The court began its analysis by noting that "there is no general fiduciary duty to minimize taxes [and that] [t]here are a variety of reasons why a company may choose or not choose to take advantage of certain tax savings." Typically, these decisions are "an area of corporate decision-making best left to management's business judgment, so long as it is exercised in an appropriate fashion." The court did not rule out the possibility that an overpayment of taxes would never result in a breach of fiduciary duty, but instead simply held "that a decision to pursue or forgo tax savings is generally a business decision for the board of directors." As for the specific allegations of the complaint, the court found that the claim related to the direct payments made under the compensation plan was unfounded and that the plaintiffs failed to show how the IRS revenue ruling relied upon by the defendants was incorrect - let alone that the defendants knew it was incorrect when choosing to make those payments. However, the court did find that the defendants' decision to award bonuses via the stock incentive plan to board members must be evaluated for entire fairness because the plan gave the board almost unlimited discretion in setting these awards.