Title: In Re Investors Bancorp, Inc. Stockholder Litigation

State: delaware

Issuer: Delaware Supreme Court

Document:

IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
IN RE INVESTORS BANCORP, 
§ 
 
INC. STOCKHOLDER   
 
§  
No. 169, 2017 
LITIGATION 
 
 
 
§ 
 
 
 
 
 
 
§  
Court Below – Court of Chancery 
 
 
 
 
 
 
§  
of the State of Delaware 
 
 
 
 
 
 
§  
 
 
 
 
 
 
 
§  
C.A. No. 12327-VCS 
 
 
 
 
 
 
§ 
 
 
 
 
 
 
 
 
 
 
 
 
Submitted: October 4, 2017 
 
 
 
 
Decided: 
December 13, 2017 
 
 
 
 
Revised: 
December 19, 2017 
 
Before STRINE, Chief Justice; VALIHURA, VAUGHN, SEITZ, and 
TRAYNOR, Justices. 
 
Upon appeal from the Court of Chancery: REVERSED and REMANDED. 
 
Steve J. Purcell, Esquire (Argued), Purcell Julie & Lefkowitz LLP, New York, New 
York; David A. Jenkins, Esquire, Neal C. Belgam, Esquire, and Clarissa R. 
Chenoweth, Esquire, Smith Katzenstein & Jenkins LLP, Wilmington, Delaware, for 
Plaintiffs-Below, Appellants Robert Elburn and Dieter Soehnel. 
 
Kenneth J. Nachbar, Esquire (Argued) and Zi-Xiang Shen, Esquire, Morris, Nichols, 
Arsht & Tunnell LLP, Wilmington, Delaware, for Defendants-Below, Appellees 
Robert C. Albanese, Dennis M. Bone, Doreen R. Byrnes, Domenick A. Cama, 
Robert M. Cashill, William V. Cosgrove, Kevin Cummings, Brian D. Dittenhafer, 
Brendan J. Dugan, James J. Garibaldi, Michele N. Siekerka, and James H. Ward III, 
and Nominal Defendant-Below, Appellee Investors Bancorp, Inc. 
 
 
 
2 
 
SEITZ, Justice: 
 
 
In this appeal we consider the limits of the stockholder ratification defense 
when directors make equity awards to themselves under the general parameters of 
an equity incentive plan.  In the absence of stockholder approval, if a stockholder 
properly challenges equity incentive plan awards the directors grant to themselves, 
the directors must prove that the awards are entirely fair to the corporation.  But, 
when the stockholders have approved an equity incentive plan, the affirmative 
defense of stockholder ratification comes into play.  Stated generally, stockholder 
ratification means a majority of fully informed, uncoerced, and disinterested 
stockholders approved board action, which, if challenged, typically leads to a 
deferential business judgment standard of review. 
For equity incentive plans in which the award terms are fixed and the directors 
have no discretion how they allocate the awards, the stockholders know exactly what 
they are being asked to approve.  But, other plans—like the equity incentive plan in 
this appeal—create a pool of equity awards that the directors can later award to 
themselves in amounts and on terms they decide.  The Court of Chancery has 
recognized a ratification defense for such discretionary plans as long as the plan has 
“meaningful limits” on the awards directors can make to themselves.1  If the 
                                          
 
1 Seinfeld v. Slager, C.A. No. 6462-VCG, 2012 WL 2501105, at *11–12 (Del. Ch. June 29, 
2012). 
3 
 
discretionary plan does not contain meaningful limits, the awards, if challenged, are 
subject to an entire fairness standard of review.             
Stockholder ratification serves an important purpose—directors can take self-
interested action secure in the knowledge that the stockholders have expressed their 
approval.  But, when directors make discretionary awards to themselves, that 
discretion must be exercised consistent with their fiduciary duties.  Human nature 
being what it is,2 self-interested discretionary acts by directors should in an 
appropriate case be subject to review by the Court of Chancery.          
We balance the competing concerns—utility of the ratification defense and 
the need for judicial scrutiny of certain self-interested discretionary acts by 
directors—by focusing on the specificity of the acts submitted to the stockholders 
for approval.  When the directors submit their specific compensation decisions for 
approval by fully informed, uncoerced, and disinterested stockholders, ratification 
is properly asserted as a defense in support of a motion to dismiss.  The same applies 
for self-executing plans, meaning plans that make awards over time based on fixed 
criteria, with the specific amounts and terms approved by the stockholders.  But, 
when stockholders have approved an equity incentive plan that gives the directors 
                                          
 
2 Gottlieb v. Heyden Chem. Corp., 90 A.2d 660, 663 (1952) (“Human nature being what it is, the 
law, in its wisdom, does not presume that directors will be competent judges of the fair treatment 
of their company where fairness must be at their own personal expense.  In such a situation the 
burden is upon the directors to prove not only that the transaction was in good faith, but also that 
its intrinsic fairness will withstand the most searching and objective analysis.”). 
4 
 
discretion to grant themselves awards within general parameters, and a stockholder 
properly alleges that the directors inequitably exercised that discretion, then the 
ratification defense is unavailable to dismiss the suit, and the directors will be 
required to prove the fairness of the awards to the corporation.         
Here, the Equity Incentive Plan (“EIP”) approved by the stockholders left it 
to the discretion of the directors to allocate up to 30% of all option or restricted stock 
shares available as awards to themselves.  The plaintiffs have alleged facts leading 
to a pleading stage reasonable inference that the directors breached their fiduciary 
duties by awarding excessive equity awards to themselves under the EIP.  Thus, a 
stockholder ratification defense is not available to dismiss the case, and the directors 
must demonstrate the fairness of the awards to the Company.  We therefore reverse 
the Court of Chancery’s decision dismissing the complaint and remand for further 
proceedings consistent with this opinion.   
I. 
 
According to the allegations of the complaint, which we must accept as true 
at this stage of the proceedings,3 the plaintiffs are stockholders of Investors Bancorp, 
Inc. (“Investors Bancorp” or the “Company”) and were stockholders at the time of 
                                          
 
3 In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006) (“In deciding a motion 
to dismiss under Rule 12(b)(6), a trial court must accept as true all of the well-pleaded allegations 
of fact and draw reasonable inferences in the plaintiff’s favor.”). 
5 
 
the awards challenged in this case.  The defendants fall into two groups—ten non-
employee director defendants4 and two executive director defendants.5  Investors 
Bancorp, the nominal defendant, is a Delaware corporation with its principal place 
of business in Short Hills, New Jersey.  Investors Bancorp is a holding company for 
Investors Bank, a New Jersey chartered savings bank with corporate headquarters in 
Short Hills, New Jersey.  The Company operates 143 banking branches in New 
Jersey and New York.  In 2014, after a mutual-to-stock conversion,6 Investors 
Bancorp conducted a second-step offering to the public, which is when the plaintiffs 
acquired their shares.  In this second-step offering, the Company sold 219,580,695 
shares and raised about $2.15 billion.  
 
The board sets director compensation based on recommendations of the 
Compensation and Benefits Committee (“Committee”), composed of seven of the 
ten non-employee directors.  In 2014, the non-employee directors were compensated 
by (i) a monthly cash retainer; (ii) cash awards for attending board and board 
                                          
 
4 Robert C. Albanese, Dennis M. Bone, Doreen R. Byrnes, Robert M. Cashill, William V. 
Cosgrove, Brian D. Dittenhafer, Brendan J. Dugan, James J. Garibaldi, Michele N. Siekerka, and 
James H. Ward III. 
5 Kevin Cummings, the Company’s President and CEO, and Domenick A. Cama, the Company’s 
COO and Senior Executive Vice President. 
6  In May 2014, a mutual-to-stock conversion transformed Investors Bank from a two-tier mutual 
holding company into a fully public stock holding company.  App. to Opening Br. at 29 (Compl., 
In re Investors Bancorp, Inc. Stockholder Litig., No. 12327-VCS, ¶ 29 (Del. Ch. June 7, 2016)).  
Through the conversion, MHC, Old Investors Bancorp’s parent company, merged into Old 
Investors Bancorp, which merged into Investors Bancorp—the Company that is the subject of this 
suit.  Id.  Old Investors Bancorp shares not held by MHC were converted into Investors Bancorp 
shares, and the common shares of MHC were sold.  Id. 
6 
 
committee meetings; and (iii) perquisites and personal benefits.  The chairman of 
each committee received an additional annual retainer.  As the Court of Chancery 
noted, the annual compensation for all non-employee directors ranged from $97,200 
to $207,005, with $133,340 as the average amount of compensation per director: 
Name 
Investors 
Bancorp 
Cash Fees 
Bank Cash 
Fees 
All Other 
Compensation 
Total 
Albanese 
$56,500 
$73,200 
$343 
$130,043 
Bone 
$37,500 
$73,200 
$264 
$110,964 
Byrnes 
$59,500 
$73,200 
$9,898 
$142,598 
Cashill 
$48,000 
$146,400 
$12,605 
$207,005 
Cosgrove 
$24,000 
$73,200 
$32,970 
$130,170 
Dittenhafer 
$59,500 
$73,200 
$13,392 
$146,092 
Dugan 
$45,000 
$73,200 
- 
$118,200 
Garibaldi 
$24,000 
$73,200 
- 
$97,200 
Siekerka 
$45,000 
$73,200 
$230 
$118,430 
Ward 
$59,500 
$73,200 
- 
$132,700 
Total  
 
 
 
$1,333,402 
In 2014, Cummings, the Company’s President and CEO, received (i) a 
$1,000,000 base salary; (ii) an Annual Cash Incentive Award of up to 150% of his 
base salary contingent on certain performance goals; and (iii) perquisites and 
benefits valued at $278,400, which totaled $2,778,700.  Cama, the Company’s COO 
and Senior Executive Vice President, received annual compensation consisting of 
(i) a $675,000 base salary; (ii) an Annual Cash Incentive Award of up to 120% of 
7 
 
his base salary; and (iii) perquisites and benefits valued at $180,794, which totaled 
$1,665,794.7 
 
At the end of 2014, following completion of the conversion plan, the 
Committee met to review 2014 director compensation and set compensation for 
2015.  Gregory Keshishian, a compensation consultant from GK Partners, Inc., 
presented to the board a study of director compensation for eighteen publicly held 
peer companies.  According to the study, these companies paid their non-employee 
directors an average of $157,350 in total compensation. The Company’s $133,340 
average non-employee director compensation in 2014 fell close to the study average.  
Following the presentation, the Committee recommended to the board that the non-
employee director compensation package remain the same for 2015.  The only 
change was to increase the fees paid for attending committee meetings from $1,500 
to $2,500. 
 
The Committee also reviewed the compensation package for executive 
officers.  After GK Partners reviewed peer-average figures with the committee, the 
committee unanimously recommended no changes to Cummings’ or Cama’s annual 
salary, but recommended an increase in the 2015 Annual Cash Incentive Award from 
                                          
 
7 App. to Opening Br. at 30–34 (Compl. ¶¶ 32–40).   
8 
 
150% to 200%, and 120% to 160% of their base salaries, respectively.8  The 
Committee did not discuss any additional equity awards at the December or February 
meetings. 
 
Just a few months after setting the 2015 board compensation, in March, 2015, 
the board proposed the 2015 EIP.  The EIP was intended to “provide additional 
incentives for [the Company’s] officers, employees and directors to promote [the 
Company’s] growth and performance and to further align their interests with those 
of [the Company’s] stockholders . . . and give [the Company] the flexibility [needed] 
to continue to attract, motivate and retain highly qualified officers, employees and 
directors.”9 
 
The Company reserved 30,881,296 common shares for restricted stock 
awards, restricted stock units, incentive stock options, and non-qualified stock 
options for the Company’s 1,800 officers, employees, non-employee directors, and 
service providers.  The EIP has limits within each category.  Of the total shares, a 
maximum of 17,646,455 can be issued for stock options or restricted stock awards 
                                          
 
8 App. to Opening Br. at 38 (Compl. ¶ 54).  The Committee did not define the precise performance 
metrics that would be used to set the Annual Cash Incentive Award percentage Cummings or Cama 
would receive, noting only that receiving the full amount would “entail a significant degree of 
challenge.”  Id. at 39 (Compl. ¶ 57).  The metrics were later determined at the February 23, 2015 
Committee meeting and included net income, successful conversion of the core operating system, 
and certain personal goals.  Id. at 40 (Compl. ¶ 59). 
9 Id. at 328 (Investors Bancorp, Inc., Proxy Statement for the 2014 Annual Meeting of 
Stockholders, at 40 (June 9, 2015) [hereinafter 2014 Proxy])). 
9 
 
and 13,234,841 for restricted stock units or performance shares.  Those limits are 
further broken down for employee and non-employee directors: 
 A maximum of 4,411,613 shares, in the aggregate (25% of the 
shares available for stock option awards), may be issued or delivered 
to any one employee pursuant to the exercise of stock options; 
 
 A maximum of 3,308,710 shares, in the aggregate (25% of the 
shares available for restricted stock awards and restricted stock 
units), may be issued or delivered to any one employee as a 
restricted stock or restricted stock unit grant; and 
 
 The maximum number of shares that may be issued or delivered to 
all non-employee directors, in the aggregate, pursuant to the 
exercise of stock options or grants of restricted stock or restricted 
stock units shall be 30% of all option or restricted stock shares 
available for awards, “all of which may be granted in any calendar 
year.”10 
 
 
According to the proxy sent to stockholders, “[t]he number, types and terms 
of awards to be made pursuant to the [EIP] are subject to the discretion of the 
Committee and have not been determined at this time, and will not be determined 
until subsequent to stockholder approval.”11  At the Company’s June 9, 2015 annual 
meeting, 96.25% of the voting shares approved the EIP (79.1% of the total shares 
outstanding).12 
                                          
 
10 In re Investors Bancorp, Inc. Stockholder Litig., C.A. No. 12327-VCS, 2017 WL 1277672, at 
*4 (Del. Ch. Apr. 5, 2017) (quoting App. to Answering Br. at 351 (2014 Proxy, at 72 § 3.3). 
11 App. to Answering Br. at 336 (2014 Proxy, at 46).  
12 In re Investors Bancorp, Inc. Stockholder Litig., 2017 WL 1277672, at *4. 
10 
 
 
Three days after stockholders approved the EIP, the Committee held the first 
of four meetings and eventually approved awards of restricted stock and stock 
options to all board members.  According to the complaint, these awards were not 
part of the final 2015 compensation package nor discussed in any prior meetings.13  
The first meeting took place on June 12, 2015.  The Committee met with Cummings, 
Cama, Keshishian (the compensation consultant), and representatives from Luse 
Gorman (outside counsel) “to begin the process of determining the allocation of 
shares.”14    
At the second meeting on June 16, 2015, the Committee met with Keshishian, 
the Luse Gorman representatives, and the full board except Siekerka and Ward, to 
“gather input” from outside experts and Committee members.15  They considered a 
list of the stock options and awards granted by the 164 companies that underwent 
mutual-to-stock conversions in the last twenty years.16  Luse Gorman presented an 
analysis of these companies, selected “based on the size of the company and the size 
of the equity sold in the second step offering, and the size of the equity plan.”17  The 
complaint alleges that the first two are arbitrary and the third is “a textbook example 
                                          
 
13 App. to Opening Br. at 41, 45–46 (Compl. ¶ 61, 27–29 ¶ 72).  
14 Id. at 46 (Compl. ¶ 73).  It is unclear when these meetings were planned; but as of the first 
meeting, the three future meetings had already been scheduled.  Id. 
15 Id. at 47 (Compl. ¶ 75). 
16 Id.  
17 Id. at 73 (Compl. ¶ 120). 
11 
 
of results driven by self-selection bias.”18  The plaintiffs also claim that Luse 
Gorman did not compare five other companies on the list that met the criteria and 
had more recently undergone conversions—each of which granted significantly 
lower awards.19   
At the third meeting on June 19, 2015, the Committee met with Cummings, 
Cama, Keshishian, and the representatives from Luse Gorman “to have a thorough 
discussion of all the major decisions” regarding the allocation of shares.20  They 
analyzed the circumstances surrounding the peer companies’ awards and discussed 
the EIP, noting the stockholders’ authorization of director awards of up to 30% of 
the EIP’s restricted stock options.21  Cama proposed and the attendees approved the 
specific awards—including those to Cama and Cummings.22  According to the 
plaintiffs, however, the 2016 Proxy disclosed that Cummings and Cama did not 
attend meetings when their “compensation is being determined.”23  The Committee 
held a fourth and final meeting on June 23, 2015 when the entire board, after hearing 
from Keshishian and the Luse Gorman representatives, “approve[d] all the 
                                          
 
18 Id. at 47 (Compl. ¶ 75). 
19 Id. at 71–74 (Compl. ¶¶ 117–22). 
20 Id. at 47 (Compl. ¶ 76). 
21 Id. at 4748 (Compl. ¶¶ 7677). 
22 App. to Opening Br. at 129 (Pls.’ Opposition to Defs.’ Mot. to Dismiss 15, In re Investors 
Bancorp, Inc. Stockholder Litig., C.A. No. 12327-VCS (Del. Ch. Oct. 13, 2016).  
23 App. to Opening Br. at 48 (Compl. ¶ 77). 
12 
 
components of the incentive stock and option grants for Directors and 
Management.”24    
The board awarded themselves 7.8 million shares.25  Non-employee directors 
each received 250,000 stock options—valued at $780,000—and 100,000 restricted 
shares—valued at $1,254,000; Cashill and Dittenhafer received 150,000 restricted 
shares—valued at $1,881,000—due to their years of service.  The non-employee 
director awards totaled $21,594,000 and averaged $2,159,400.  Peer companies’ 
non-employee awards averaged $175,817.  Cummings received 1,333,333 stock 
options and 1,000,000 restricted shares, valued at $16,699,999 and alleged to be 
1,759% higher than the peer companies’ average compensation for executive 
directors.  Cama received 1,066,666 stock options and 600,000 restricted shares, 
valued at $13,359,998 and alleged to be 2,571% higher than the peer companies’ 
average. 
 
According to the complaint, the total fair value of the awards was 
$51,653,997, broken down by board member as follows:26 
Name 
Restricted 
Stock 
Stock 
Options 
Total 
Cummings 
$12,540,000 
$4,159,999 
$16,699,999 
Cama 
$10,032,000 
$3,327,998 
$13,359,998 
Albanese 
$1,254,000 
$780,000 
$2,034,000 
                                          
 
24 Id. (Compl. ¶ 78). 
25 Id. at 50 (Compl. ¶ 82). 
26 Id. at 51 (Compl. ¶ 32); In re Investors Bancorp, Inc. Stockholder Litig., 2017 WL 1277672, at 
*5. 
13 
 
Bone 
$1,254,000 
$780,000 
$2,034,000 
Byrnes 
$1,254,000 
$780,000 
$2,034,000 
Cashill 
$1,881,000 
$780,000 
$2,661,000 
Cosgrove 
$1,254,000 
$780,000 
$2,034,000 
Dittenhafer 
$1,881,000 
$780,000 
$2,661,000 
Dugan 
$1,254,000 
$780,000 
$2,034,000 
Garibaldi 
$1,254,000 
$780,000 
$2,034,000 
Siekerka 
$1,254,000 
$780,000 
$2,034,000 
Ward 
$1,254,000 
$780,000 
$2,034,000 
Total 
 
 
$51,653,997 
 
 
After the Company disclosed the awards, stockholders filed three separate 
complaints in the Court of Chancery alleging breaches of fiduciary duty by the 
directors for awarding themselves excessive compensation.  Following the filing of 
a consolidated complaint, the defendants moved to dismiss under Court of Chancery 
Rule 12(b)(6) for failure to state a claim and under Court of Chancery Rule 23.1 for 
failure to make a demand before filing suit. 
 
The Court of Chancery granted both motions and dismissed the plaintiffs’ 
complaint.27  Relying on the court’s earlier decisions in In re 3COM Corp.28 and 
Calma on Behalf of Citrix Systems, Inc. v. Templeton,29 the court dismissed the 
complaint against the non-employee directors because the EIP contained 
“meaningful, specific limits on awards to all director beneficiaries” like the 3COM 
plan, as opposed to the broad-based plan in Citrix that contained a generic limit 
                                          
 
27 In re Investors Bancorp, Inc. Stockholder Litig., 2017 WL 1277672, at *12. 
28 C.A. No. 16721, 1999 WL 1009210 (Del. Ch. Oct. 25, 1999). 
29 114 A.3d 563 (Del. Ch. 2015). 
14 
 
covering director and non-director beneficiaries.30  The court also dismissed the 
claims directed to the executive directors because the plaintiffs failed to make a pre-
suit demand on the board.   
 
We review the Court of Chancery decision dismissing the complaint de 
novo.31   
II. 
Unless restricted by the certificate of incorporation or bylaws, Section 141(h) 
of Delaware General Corporation Law (“DGCL”) authorizes the board “to fix the 
compensation of directors.”32  Although authorized to do so by statute, when the 
board fixes its compensation, it is self-interested in the decision because the directors 
are deciding how much they should reward themselves for board service.33  If no 
other factors are involved, the board’s decision will “lie outside the business 
judgment rule’s presumptive protection, so that, where properly challenged, the 
receipt of self-determined benefits is subject to an affirmative showing that the 
                                          
 
30 In re Investors Bancorp, Inc. Stockholder Litig., 2017 WL 1277672, at *8. 
31 Gantler v. Stephens, 965 A.2d 695, 703 (Del. 2009). 
32 8 Del. C. § 141(h).   
33 Texlon Corp. v. Meyerson, 802 A.2d 257, 262 (Del. 2002).  
15 
 
compensation arrangements are fair to the corporation.”34  In other words, the entire 
fairness standard of review will apply.35 
Other factors do sometimes come into play.  When a fully informed, 
uncoerced, and disinterested majority of stockholders approve the board’s 
authorized corporate action, the stockholders are said to have ratified the corporate 
act.  Stockholder ratification of corporate acts applies in different corporate law 
settings.36  Here, we address the affirmative defense of stockholder ratification of 
director self-compensation decisions. 
A. 
Early Supreme Court cases recognized a ratification defense by directors 
when reviewing their self-compensation decisions.  In the 1952 decision Kerbs v. 
California Eastern Airways, Inc., a stockholder filed suit against the directors 
attacking a stock option and profit sharing plan on a number of grounds.37  As to the 
                                          
 
34 Id. at 257; see also Gottlieb, 90 A.2d at 663 (“[W]here a majority of the directors representing 
the corporation are conferring benefits upon themselves out of the assets of the corporation, we do 
not understand [the business judgment rule] to have any application what[so]ever.”).   
35 Citrix, 114 A.3d at 577 (quoting Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 
1993)) (“[T]he Court reviews the directors’ decision under the entire fairness standard, in which 
case the directors must establish ‘to the court’s satisfaction that the transaction was the product of 
both fair dealing and fair price.’”). 
36 See, e.g., Gantler, 965 A.2d at 712 (proposal to reclassify shares); In re Gen. Motors (Hughes) 
S’holder Litig., 897 A.2d at 166 (series of financial transactions splitting off a subsidiary); Stroud 
v. Grace, 606 A.2d 75, 84 (Del. 1992) (amendments to a company’s charter and bylaws); Fliegler 
v. Lawrence, 361 A.2d 218, 220 (Del. 1976) (director decision to exercise an option for shares); 
Kleinman v. Saminsky, 200 A.2d 572, 575 (Del. 1964) (underwriting contracts and management 
fees). 
37 90 A.2d 652. 
16 
 
stock option plan, 250,000 shares of the corporation’s unissued stock were granted 
in specific amounts to named executives of the corporation at a $1 per share exercise 
price.38  The profit sharing plan was based on a mathematical formula tied to the 
financial performance of the corporation.39  Both plans were approved at a board 
meeting where five of the eight directors were beneficiaries of both plans.40  The 
stockholders approved the plans.   
Addressing the effect of stockholder approval of the stock option plan, our 
Court held that “ratification cures any voidable defect in the action of the [b]oard.  
Stockholder ratification of voidable acts of directors is effective for all purposes 
unless the action of the directors constituted a gift of corporate assets to themselves 
or was ultra vires, illegal, or fraudulent.”41  As to the profit sharing plan, the Court 
viewed things differently because “the effectiveness of such ratification depends 
upon the type of notice sent to the stockholder and the explanation to them of the 
plan itself,”42 and the record on appeal was insufficient to determine the adequacy of 
the disclosures.43 
                                          
 
38 Id. at 655. 
39 Id. 
40 Id. 
41 Id. (citations omitted).   
42 Id. at 65960.  
43 Id. at 655. 
17 
 
The stock option plan approved by the stockholders in Kerbs was self-
executing, meaning once approved by the stockholders, implementing the awards 
required no discretion by the directors.44  The Court addressed a similar dispute in a 
case decided the following day.  In Gottlieb v. Heyden Chemical Corp.,45 the 
restricted stock option plan granted specific company officers—six of whom were 
board members—present and future options to purchase fixed amounts of common 
stock at prices to be set by the board, subject to a price collar.  The plan was 
contingent upon ratification by a majority of the stockholders.46  In advance of the 
stockholder meeting, the board disclosed the names of the officers receiving the 
awards, the number of shares allocated to each, the price per share, and the schedule 
for future issuances.47  The stockholders approved the plan.48 
After initially denying the stockholder’s challenge to the plan, on reargument, 
the Court noted the effect of stockholder ratification.  For the current awards 
specifically approved by the stockholders: 
Where there is stockholder ratification, . . . the burden of proof is shifted 
to the objector.  In such a case the objecting stockholder must convince 
the court that no person of ordinary sound business judgment would be 
                                          
 
44 Id. 
45 90 A.2d 660 (Del. 1960). 
46 Id. at 661. 
47 Id. at 662. 
48 Id.  
18 
 
expected to entertain the view that the consideration furnished by the 
individual directors is a fair exchange for the options conferred.49 
 
But, for the options subject to future awards, the court explained that they 
were not ratified because the 25,500 shares had not been placed into any contracts 
prior to approval.50  The stockholders only approved the allocation of shares “of a 
certain general pattern,” but “nobody [knew] what all of the terms of these future 
contracts [would] be.”51  The Court concluded that ratification “cannot be taken to 
have approved specific bargains not yet proposed.”52  Thus, after Kerbs and Gottlieb, 
directors could successfully assert the ratification defense when the stockholders 
were fully informed and approved stock option plans containing specific director 
awards.  But the award of “specific bargains not yet proposed” could not be ratified 
by general stockholder approval of the compensation plan.53 
                                          
 
49 Gottlieb, 91 A.2d at 58; see id. (“Where there was stockholder ratification, however, the court 
will look into the transaction only far enough to see whether the terms are so unequal as to amount 
to waste, or whether, on the other hand, the question is such a close one as to call for the exercise 
of what is commonly called ‘business judgment.’”). 
50 Id. at 5960. 
51 Id. at 60. 
52 Id.  In another early case, Kaufman v. Shoenberg, 91 A.2d 786 (Del. Ch. 1952), the Court of 
Chancery addressed a stockholder challenge to the consideration the corporation received for a 
restricted stock option plan.  The plan in Kaufman did not specify the awards to be issued, but the 
awards were administered by a board committee that did not receive options under the plan.  Id. at 
788–89, 793.  The Chancellor held that “independent stockholder ratification of an interested 
director transaction” led to the conclusion that “the objecting stockholder has the burden of 
showing that no person of ordinary sound business judgment would say that the consideration 
received for the options was a fair exchange for the options granted.”  Id. at 791.    
53 Gottlieb, 91 A.2d at 58. 
19 
 
Our Court has not considered ratification of director self-compensation 
decisions since Kerbs and Gottlieb.  The Court of Chancery has, however, continued 
to develop this area of the law.      
B. 
Following the Supreme Court’s lead recognizing the ratification defense only 
when specific acts are presented to the stockholders for approval, the Court of 
Chancery in Steiner v. Meyerson54 and Lewis v. Vogelstein55 recognized the directors’ 
ratification defense when awards made to directors under equity compensation plans 
were specific as to amounts and value.  In Steiner, the stock option plan granted each 
non-employee director “an option to purchase 25,000 shares upon election to the 
Telxon board, and an additional 10,000 shares on the anniversary of his election 
while he remains on the board.”56  In Lewis, the plan provided for two categories of 
director compensation: (i) one-time grants of 15,000 options per director; and (ii) 
annual grants of up to 10,000 options per director depending on length of board 
service.57  The plans were self-executing, meaning that no further director action was 
required to implement the awards as they were earned.  In both cases, the Court of 
                                          
 
54 C.A. No. 13139, 1995 WL 441999 (Del. Ch. July 19, 1995). 
55 699 A.2d at 338. 
56 1995 WL 441999, at *5. 
57 699 A.2d at 329–30. 
20 
 
Chancery held that the stockholders validly ratified the awards, and the standard of 
review following ratification was waste.58 
Two Court of Chancery decisions following Steiner and Lewis addressed a 
twist in previous cases that bears directly on this appeal—the plans approved by the 
stockholders set upper limits on the amounts to be awarded, but allowed the directors 
to decide the specific awards or change the conditions of the awards after stockholder 
approval.59  In In re 3COM Corp. Shareholders Litigation, the option grants were 
based on “specific ceilings on the awarding of options each year” which “differ 
based on specific categories of service, such as service on a committee, position as 
a lead director, and chairing the [b]oard.”60  The plaintiff alleged in conclusory 
fashion that grants made by the board were “lavish and excessive compensation 
tantamount to a waste of corporate assets.”61  Because the board exercised its 
discretion within the specific limits approved by the stockholders, the Court of 
                                          
 
58 In Lewis, Chancellor Allen explored the ratification defense through the lens of agency, finding 
that ratification “contemplates the ex post conferring upon or confirming of the legal authority of 
an agent in circumstances in which the agent had no authority or arguably had no authority. . . . 
[T]he effect of informed ratification is to validate or affirm the act of the agent as the act of the 
principal.”  699 A.2d at 334 (citing Restatement (Second) of Agency § 82 (1958)).   The Chancellor 
also observed that the standard of review following stockholder ratification of director self-
compensation decisions evolved from the Kerbs proportionality or reasonableness standard when 
considering the adequacy of the consideration to a waste standard.  Id. at 338 (citing Michelson v 
Lewis, 407 A.2d 211 (Del. 1979)). 
59 In re 3Com Corp. S’holders Litig., 1999 WL 1009210, at *2–3; Criden v. Steinberg, 2000 WL 
354390, at *2 (Del. Ch. Mar. 23, 2000). 
60 1999 WL 1009210, at *3 n.9. 
61 Id. at *1. 
21 
 
Chancery determined that the stockholder approval of the plan parameters extended 
to the specific awards made after plan approval.62  Thus, the directors’ post-approval 
compensation decisions were subject to the business judgment rule standard of 
review, requiring the directors to show waste.63 
In Criden v. Steinberg, the Court of Chancery addressed a broad-based stock 
option plan that allowed the directors to re-price the options after stockholder 
approval of the plan.64  The re-pricing decisions, although not submitted to the 
stockholders for approval, were subject to a business judgment standard of review.65  
According to the court, the stockholders approved a plan setting the re-pricing 
parameters, and the directors re-priced the options within those parameters.66  Thus, 
the directors’ decisions were reviewed under a business judgment rule standard of 
review. 
After 3COM and Criden, the Court of Chancery decided Sample v. Morgan.67  
In Sample, the Court addressed two non-employee directors on the compensation 
committee who awarded 200,000 shares to the company’s three employee directors 
under a management stock incentive plan.68  A disinterested majority of Randall 
                                          
 
62 Id. at *2. 
63 Id. 
64 2000 WL 354390. 
65 Id. at *3–4. 
66 Id. at *4. 
67 Sample v. Morgan, 914 A.2d 647 (Del. Ch. 2007). 
68 The company granted 100,000 shares to the CEO, 75,000 shares to the Vice President of 
Manufacturing, and 25,000 shares to the CFO.  Id. at 654. 
22 
 
Bearings’ stockholders had previously approved the plan, which authorized up to 
200,000 shares, with no parameters on how the shares should be awarded.  The court 
rejected a ratification defense and stated: 
[T]he Delaware doctrine of ratification does not embrace a “blank 
check” theory.  When uncoerced, fully informed, and disinterested 
stockholders approve a specific corporate action, the doctrine of 
ratification, in most situations, precludes claims for breach of fiduciary 
duty attacking that action.  But the mere approval by stockholders of a 
request by directors for the authority to take action within broad 
parameters does not insulate all future action by the directors within 
those parameters from attack.  Although the fact of stockholder 
approval might have some bearing on consideration of a fiduciary duty 
claim in that context, it does not, by itself, preclude such a claim.  An 
essential aspect of our form of corporate law is the balance between law 
(in the form of statute and contract, including the contracts governing 
the internal affairs of corporations, such as charters and bylaws) and 
equity (in the form of concepts of fiduciary duty).  Stockholders can 
entrust directors with broad legal authority precisely because they know 
that that authority must be exercised consistently with equitable 
principles of fiduciary duty.  Therefore, the entrustment to the 
[compensation committee] of the authority to issue up to 200,000 shares 
to key employees under discretionary terms and conditions cannot 
reasonably be interpreted as a license for the [c]ommittee and other 
directors making proposals to it to do whatever they wished, 
unconstrained by equity.  Rather, it is best understood as a decision by 
the stockholders to give the directors broad legal authority and to rely 
upon the policing of equity to ensure that that authority would be 
utilized properly. For this reason alone, the directors’ ratification 
argument fails.69 
 
The court in Sample did not address either 3COM or Criden.  But, in Seinfeld 
v. Slager,70 the court addressed 3COM and a concern that recognizing ratification for 
                                          
 
69 Id. at 663–64. 
70 2012 WL 2501105, at *11–12. 
23 
 
plans approved by stockholders with only general parameters for making 
compensation awards provided insufficient protection from possible self-dealing.  
The plan in Seinfeld was a broad-based plan applying to directors, officers, and 
employees.71  Unlike the plan in 3COM, where each category of beneficiaries had an 
upper limit on what they could receive, the Seinfeld plan contained a single generic 
limit on awards, with no restrictions on how the awards could be distributed to the 
different classes of beneficiaries.72  Rather than essentially approve a blank check, 
or in the Vice Chancellor’s words—give the directors carte blanche—to make 
awards as the directors saw fit, the court required “some meaningful limit imposed 
by the stockholders on the [b]oard for the plan to be consecrated by 3COM and 
receive the blessing of the business judgment rule.”73  Thus, after Seinfeld, directors 
could retain the discretion to make awards after stockholder plan approval, but the 
plan had to contain meaningful limits on the awards the directors could make to 
themselves before ratification could be successfully asserted. 
Finally, in Cambridge Retirement System v. Bosnjak, although the plan did 
not set forth the specific compensation awarded to the directors, the specific awards 
                                          
 
71 Id. at *10. 
72 Id. 
73 Id. at *12.  The court went on to hold that “[i]f a board is free to use its absolute discretion under 
even a stockholder-approved plan, with little guidance as to the total pay that can be awarded, a 
board will ultimately have to show that the transaction is entirely fair.”  Id. 
24 
 
were submitted to the stockholders for approval.74  Thus, the court found that the 
directors could assert a ratification defense.75  And, in Calma on Behalf of Citrix 
Systems, Inc. v. Templeton, Chancellor Bouchard, after a thorough review of the case 
law, determined that directors could not assert a ratification defense when the 
incentive plan had generic limits on compensation for all the plan beneficiaries.76  
The court denied a ratification defense, holding “when the [b]oard sought 
stockholder approval of the broad parameters of the plan and the generic limits 
specified therein, Citrix stockholders were not asked to approve any action specific 
to director compensation.”77 
III. 
A. 
As ratification has evolved for stockholder-approved equity incentive plans, 
the courts have recognized the defense in three situations—when stockholders 
approved the specific director awards; when the plan was self-executing, meaning 
the directors had no discretion when making the awards; or when directors exercised 
discretion and determined the amounts and terms of the awards after stockholder 
approval.  The first two scenarios present no real problems.  When stockholders 
                                          
 
74 C.A. No. 9178-CB, 2014 WL 2930869, at *2 (Del. Ch. June 26, 2014). 
75 Id. at *8–9; see also Desimone, 924 A.2d at 917 (dismissing a claim challenging option grants 
because stockholders approved the specific amount to be granted). 
76 114 A.3d 563. 
77 Id. at 588 (emphasis omitted). 
25 
 
know precisely what they are approving, ratification will generally apply.  The rub 
comes, however, in the third scenario, when directors retain discretion to make 
awards under the general parameters of equity incentive plans.  The defendants rely 
on 3COM and Criden, where the Court of Chancery recognized a stockholder 
ratification defense even though the directors’ self-compensation awards were not 
submitted for stockholder approval.78  As noted earlier, in 3COM, the Court of 
Chancery recognized ratification for director-specific compensation plans, where the 
plans contained specific limits for awards depending on factors set forth in the plan.79  
In Criden, the court upheld a ratification defense when the plan authorized the 
directors to re-price the options after stockholder approval.80 
The court’s decisions in 3COM and Criden opened the door to the difficulties 
raised in this appeal.  After those decisions, the Court of Chancery had to square 
3COM and Criden—and their expanded use of ratification for discretionary plans—
with existing precedent, which only recognized ratification when stockholders 
                                          
 
78  Answering Br. at 17–18, 23; In re 3COM Corp., 1999 WL 1009210; Criden, 2000 WL 354390.  
The defendants also rely on Steiner, 1995 WL 441999, and Cambridge Ret. Sys. v. Bosnjak, 2014 
WL 2930869, but those cases are not helpful to their argument.  The plan in Steiner was self-
executing.  1995 WL 441999, at *4 (“The plan grants each director an option to purchase 25,000 
shares upon election to the Telxon board, and an additional 10,000 shares on the anniversary of 
his election while he remains on the board.”).  In Cambridge Retirement System, the stockholders 
approved the specific awards made by the directors.  2014 WL 2930869, at *8 (“Unilife 
stockholders approved the grant of up to 100,000 options to two of the [c]ompany’s outside 
directors and, in 2011, approved the grant of up to 45,000 stock-based awards to six of the 
Company’s outside directors.”). 
79 1999 WL 1009210, at *3. 
80 2000 WL 354390, at *4. 
26 
 
approved the specific awards.  The Court of Chancery tried to harmonize the 
decisions by requiring “meaningful limits” on the amounts directors could award to 
themselves.   
We think, however, when it comes to the discretion directors exercise 
following stockholder approval of an equity incentive plan, ratification cannot be 
used to foreclose the Court of Chancery from reviewing those further discretionary 
actions when a breach of fiduciary duty claim has been properly alleged.  As the 
Court of Chancery emphasized in Sample, using an expression coined many years 
ago, director action is “twice-tested,” first for legal authorization, and second by 
equity.81  When stockholders approve the general parameters of an equity 
compensation plan and allow directors to exercise their “broad legal authority” under 
the plan, they do so “precisely because they know that that authority must be 
exercised consistently with equitable principles of fiduciary duty.”82  The 
stockholders have granted the directors the legal authority to make awards.  But, the 
directors’ exercise of that authority must be done consistent with their fiduciary 
duties.  Given that the actual awards are self-interested decisions not approved by 
the stockholders, if the directors acted inequitably when making the awards, their 
                                          
 
81 Sample, 914 A.2d at 672 (Strine, V.C.) (citing Adolf A. Berle, Corporate Powers as Powers in 
Trust, 44 HARV. L. REV. 1049, 1049 (1931)) (“Corporate acts thus must be ‘twice-tested’—once 
by the law and again by equity.”). 
82 Id. at 584. 
27 
 
“inequitable action does not become permissible simply because it is legally 
possible”83 under the general authority granted by the stockholders.   
The Sample case underlines the need for continued equitable review of self-
interested discretionary director self-compensation decisions.  As noted before, the 
plaintiffs in Sample alleged that the board adopted “a self-dealing plan to entrench 
the Company under the then-current management and massively dilute the equity 
interests of the public holders to benefit management personally.”84  If ratification 
could be invoked at the outset, those breach of fiduciary duty allegations would be 
insulated from judicial review.  Other cases reinforce the same point—when a 
stockholder properly alleges that the directors breached their fiduciary duties when 
exercising their discretion after stockholders approve the general parameters of an 
equity incentive plan, the directors should have to demonstrate that their self-
interested actions were entirely fair to the company.85  
                                          
 
83 Schnell v. Chris-Craft Ind., Inc., 285 A.2d 487, 489 (Del. 1971).  As noted in Desimone v. 
Barrows, 924 A.2d 908, 917 (Del. Ch. 2007), “[s]pecifying the precise amount and form of director 
compensation . . . ‘ensure[s] integrity’ in the underlying principal–agent relationship between 
stockholders and directors.” 
84 914 A.2d at 659 (Pet’rs’ Second Am. Class Action & Derivative Compl. ¶ 55, Sample, 2005 WL 
5769871 (Del. Ch. May 24, 2015)).  
85 For example, in Seinfeld, the Court of Chancery refused to extend stockholder approval of the 
plan to the awards themselves.  2012 WL 2501105, at *12.  The directors had the “theoretical 
ability to award themselves as much as tens of millions of dollars per year, with few limitations.”  
Id.  The board was also “free to use its absolute discretion . . . with little guidance as to the total 
pay that can be awarded.”  Id.  In Citrix, where the stockholders challenged the awards as out of 
line with peer group compensation, the plan broadly authorized payments as high as $55 million a 
year to any one person.  114 A.3d at 587–88.  Because the plan lacked any restrictions on the 
amounts the directors could allocate to themselves, ratification could not be used to prevent 
28 
 
B. 
The Investors Bancorp EIP is a discretionary plan as described above.  It 
covers about 1,800 officers, employees, non-employee directors, and service 
providers.  Specific to the directors, the plan reserves 30,881,296 shares of common 
stock for restricted stock awards, restricted stock units, incentive stock options, and 
non-qualified stock options for the Company’s officers, employees, non-employee 
directors, and service providers.86  Of those reserved shares and other equity, the 
non-employee directors were entitled to up to 30% of all option and restricted stock 
shares, all of which could be granted in any calendar year.87  But, “[t]he number, 
types, and terms of the awards to be made pursuant to the [EIP] are subject to the 
discretion of the Committee and have not been determined at this time, and will not 
be determined until subsequent to stockholder approval.”88   
When submitted to the stockholders for approval, the stockholders were told 
that “[b]y approving the Plan, stockholders will give [the Company] the flexibility 
[it] need[s] to continue to attract, motivate and retain highly qualified officers, 
employees and directors by offering a competitive compensation program that is 
                                          
 
equitable review.  Id. at 588.  In both cases, if the directors acted inequitably in exercising their 
broad discretionary powers under the plans, those decisions should be subject to review by the 
Court of Chancery. 
86 Opening Br. at 11; App. to Answering Br. at 349 (Investors Bancorp, Inc., 2014 Proxy, Appendix 
A: Equity Incentive Plan, at A-5 § 3.2(a) (June 9, 2015) [hereinafter EIP]). 
87 App. to Answering Br. at 349–50 (EIP, at A-5 § 3.3). 
88 Id. at 336 (2014 Proxy, at 57). 
29 
 
linked to the performance of [the Company’s] common stock.”89  The complaint 
alleges that this representation was reasonably interpreted as forward-looking.  In 
other words, by approving the EIP, stockholders understood that the directors would 
reward Company employees for future performance, not past services.   
After stockholders approved the EIP, the board eventually approved just under 
half of the stock options available to the directors and nearly thirty percent of the 
shares available to the directors as restricted stock awards, based predominately on 
a five-year going forward vesting period.  The plaintiffs argue that the directors 
breached their fiduciary duties by granting themselves these awards because they 
were unfair and excessive.90  According to the plaintiffs, the stockholders were told 
the EIP would reward future performance, but the Board instead used the EIP awards 
to reward past efforts for the mutual-to-stock conversion—which the directors had 
already accounted for in determining their 2015 compensation packages.91  Also, 
according to the plaintiffs, the rewards were inordinately higher than peer 
companies’.  As alleged in the complaint, the Board paid each non-employee director 
more than $2,100,000 in 2015,92 which “eclips[ed] director pay at every Wall Street 
                                          
 
89 Id. at 329 (2014 Proxy, at 50).  
90 App. to Opening Br. at 50 (Compl. ¶ 83). 
91 Id. at 42–43 (Compl. ¶ 65). 
92 App. to Opening Br. at 136 (Pls.’ Opposition to Defs.’ Mot. to Dismiss 22 (citing Compl. ¶¶ 88–
89)).   
30 
 
firm.”93  This significantly exceeded the Company’s non-employee director 
compensation in 2014, which ranged from $97,200 to $207,005.94  It also far 
surpassed the $198,000 median pay at similarly sized companies and the $260,000 
median pay at much larger companies.95  And the awards were over twenty-three 
times more than the $87,556 median award granted to other companies’ non-
employee directors after mutual-to-stock conversions.96   
In addition, according to the complaint, Cama and Cummings’ compensation 
far exceeded their prior compensation and that of peer companies.  Cummings’ 
$20,006,957 total compensation in 2015 was seven times more than his 2014 
compensation package of $2,778,000.97  And Cama’s $15,318,257 compensation 
was nine times more than his 2014 compensation package of $1,665,794.98  
Cummings’ $16,699,999 award was 3,683% higher than the median award other 
companies granted their CEOs after mutual-to-stock conversions.  And Cama’s 
                                          
 
93 Id. at 58 (Compl. ¶ 96 (quoting Caleb Melby, New Jersey Bank Pays Directors More than at 
Any 
Finance 
Firm, 
BLOOMBERG 
(May 
5, 
2016, 
5:00AM), 
https://www.bloomberg.com/news/articles/2016-05-05/new-jersey-bank-pays-directors-more-
than-any-wall-street-board)).  
94 Id. at 32 (Compl. ¶ 35). 
95 Id. at 57–58 (Compl. ¶ 95).  Plaintiffs allege the 75th percentile of pay at these companies was 
$227,000.  Id.    
96 Id. at 51–54 (Compl. ¶¶ 85–86).  As alleged in the complaint, the average award at these 
companies was $175,817.  Id.   
97 Id. at 32–33, 64 (Compl. ¶¶ 37, 105).  According to plaintiffs, CEO compensation at peer 
companies averaged $4,170,000—approximately one-fifth of Cummings’ compensation and one-
fourth of Cama’s.  App. to Opening Br. at 139 (Pls.’ Opposition to Defs.’ Mot. to Dismiss 25). 
98 Id. at 33 (Compl. 15 ¶ 38). 
31 
 
$13,359,998 award was 5,384% higher than the median other companies granted 
their second-highest paid executives after the conversions.99 
The plaintiffs have alleged facts leading to a pleading stage reasonable 
inference that the directors breached their fiduciary duties in making unfair and 
excessive discretionary awards to themselves after stockholder approval of the EIP.  
Because the stockholders did not ratify the specific awards the directors made under 
the EIP, the directors must demonstrate the fairness of the awards to the Company.   
IV. 
 
The parties raise a last issue—whether the plaintiffs are excused from making 
a demand on the board under Court of Chancery Rule 23.1 for the awards made to 
executive directors Cama and Cummings.  The directors do not contest that they are 
interested for the awards they made to themselves.  But, according to the directors, 
the awards made to the two executive directors were not part of a “single transaction” 
because these awards were made as part of a series of compensation meetings 
                                          
 
99 Id. at 64 (Compl. ¶ 104).  The average awards at peer companies were $898,490 for CEOs and 
$510,435 for the second-highest paid executives.  Id. at 61–64 (Compl. ¶ 103).  The plaintiffs also 
point out that this discrepancy with peer companies greatly exceeds the discrepancies in Citrix, in 
which the Court of Chancery found the plaintiffs sufficiently alleged an unfair compensation 
claim.  In Citrix, non-employee director compensation ranged from $303,360 to $425,570, which 
was “on average over $100,000 more” than peer companies that had “stock significantly 
outperforming Citrix.”  Pls.’ S’holder Derivative Compl.  ¶¶ 2, 9–10, Citrix, No. 9579-CB, 2014 
WL 1873725 (Del. Ch. May 6, 2014).  Since the board’s change in director compensation, the peer 
companies’ stock increased 5% on average, while Citrix’s stock performed 43% worse.  Id. ¶ 28.  
The court found these numbers stated a cognizable claim of unfair compensation and allowed the 
case to proceed.  Citrix, 114 A.3d at 589–90. 
32 
 
following the EIP’s adoption.  Further, they argue, the plaintiffs failed to 
demonstrate a “quid pro quo” between the non-employee directors and Cama and 
Cummings.  Thus, the non-employee directors claim they would be capable of 
exercising independent judgment to consider a demand challenging the board’s 
awards to the executive directors. 
 
Demand is futile when, under the particular facts alleged, a reasonable doubt 
is created that (1) a majority of the board is disinterested and independent, or (2) the 
challenged transaction was otherwise the product of a valid exercise of business 
judgment.100  Although showing a quid pro quo might be one way of proving 
interestedness or lack of independence, it is not a requirement.  Rather, the focus is 
on the acts being challenged and the relationship between those acts and the directors 
who approved them.  Here, immediately after the Investors Bancorp stockholders 
approved the EIP, the directors held a series of nearly contemporaneous meetings 
that resulted in awards to both the non-employee directors and the executive 
directors.  It is implausible to us that the non-employee directors could 
independently consider a demand when to do so would require those directors to call 
into question the grants they made to themselves.  In other words, “[i]t strains reason 
to argue that a defendant–director could act independently to evaluate the merits of 
                                          
 
100 Aronson v. Lewis, 473 A.2d 805, 814 (Del. 1984), overruled on other grounds by Brehm v. 
Eisner, 746 A.2d 244 (Del. 2000).   
33 
 
bringing a legal action against any of the other defendants if the director participated 
in the identical challenged misconduct.”101  Thus, demand is excused for the claims 
made against non-employee and executive directors. 
V. 
The Investors Bancorp stockholders approved the general parameters of the 
EIP.  The plaintiffs have properly alleged, however, that the directors, when 
exercising their discretion under the EIP, acted inequitably in granting themselves 
unfair and excessive awards.  Because the stockholders did not ratify the specific 
awards under the EIP, the affirmative defense of ratification cannot not be used to 
dismiss the complaint.  The plaintiffs have also demonstrated that demand would be 
futile as to all directors.  Thus, the Court of Chancery’s decision is reversed, and the 
case is remanded for further proceedings consistent with this opinion.  
 
                                          
 
101 Needham v. Cruver, C.A. No. 12428, 1993 WL 179336, *3 (Del. Ch. May 12, 1993).