California Court Of Appeal Affirms Dismissal Of Say-On-Pay Suit

by Allen Matkins

Yesterday, a panel of the California Court of Appeal added to the growing list of opinions rejecting suits triggered by failed say-on-pay votes.  Some may be surprised that this case, which involves a Delaware corporation, was in the California courts of all, but the Ninth Circuit has held that the Dodd-Frank Act’s say-on-pay mandate did not by itself confer jurisdiction on the federal courts.  Dennis v. Hart, 2013 U.S. App. LEXIS 15648 (9th Cir. July 31, 2013).  I discuss the case in Ninth Circuit Says Say-On-Pay Suit Should Stay In California Court.

Four Things To Know About Say-On-Pay Votes

In the opinion issued yesterday, Justice Sandy R. Kriegler listed four important attributes of say-on-pay votes (plaintiffs’ firms would do well to ruminate on each of these before filing another failed say-on-pay complaint):

  • They are explicitly nonbinding;
  • They may not be construed to overrule a decision by the Board of Directors;
  • They do not create or change directors’ fiduciary duties; and
  • They do not restrict or limit the ability of shareholders to make proposals for inclusion in proxy materials relating to executive compensation.

Charter Township of Clinton Police and Fire Ret. Sys. v. Martin, Cal. Ct. Appeal Case No. B241087 (Sept. 17, 2013), citing Raul v. Rynd, 2013 U.S. Dist. LEXIS 35256 (D. Del. Mar. 14, 2013).

Do Directors Issue Proxy Statements?

In Martin, the defendants (the company’s directors, executive officers and compensation consultant) demurred (California’s analogue to a motion to dismiss) on the grounds that the defendants had failed to plead pre-suit demand futility adequately.  The Court of Appeal affirmed on this basis, applying Delaware’s two-pronged test for demand futility established in Aronson v. Lewis, 473 A.2d 805 (Del. 1984) overruled on other grounds in Brehm v. Eisner, 746 A.2d 244 (Del. 2000).  The court’s application of Aronson and the cases cited should be familiar to anyone who has litigated the issue.  I did not the Court’s discussion of the plaintiff’s allegation that each board issued an allegedly misleading proxy.  The Court faulted the plaintiff’s allegations for being conclusory because they failed to explain how an individual director is able to “issue” a proxy on behalf of the corporation.  The Court went on to say that even if the plaintiff had alleged that the directors had signed the proxy, that allegation alone would not establish potential liability of the directors.

When it comes to failed say-on-pay votes, it seems that plaintiffs’ firms are operating under the theory that if you take enough swings, a ball will eventually land on the green.  Although the plaintiff in Martin was swinging without a club, Justice Richard M. Mosk’s concurrence and dissent may provide some hope for plaintiffs.  He agreed that simply alleging a failed say-on-pay is insufficient, but found that the plaintiff had alleged sufficient additional facts.

Director or Shareholder Primacy?

Perhaps, the majority and dissenting views can be explained by the statements that they make about governance.  The majority cited Aronson: “A Cardinal precept of the General Corporation Law of the State of Delaware is that directors, rather than the shareholders, manage the business and affairs of the corporation.”  The dissent ends with “In connection with the increasing number of shareholder derivative actions concerning executive compensation, ‘[t]he issue of shareholders being able to control executive compensation will be part of the legal discussion for the foreseeable future.’” quoting Nelson, Ending the Silence: Shareholders Derivative Suits and Amending the Dodd-Frank Act so “Say on Pay” Votes May be Heard in the Boardroom, 20 U. Miami Bus. L. Rev. 149, 209 (2012).


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Allen Matkins | Attorney Advertising

Written by:

Allen Matkins

Allen Matkins on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.