Court Opinion

ID: 9398851
Source: CourtListenerOpinion
Date Created: 2023-06-01 15:05:09.880107+00
Date Added: 2024-06-11T17:19:37.027750
License: Public Domain

COURT OF CHANCERY
                                     OF THE
                               STATE OF DELAWARE
     LORI W. WILL                                               LEONARD L. WILLIAMS JUSTICE CENTER
 VICE CHANCELLOR                                                   500 N. KING STREET, SUITE 11400
                                                                  WILMINGTON, DELAWARE 19801-3734

                                       June 1, 2023

     Stephen E. Jenkins, Esquire                   Francis G.X. Pileggi, Esquire
     Tiffany Geyer Lydon, Esquire                  Aimee M. Czachorowski, Esquire
     Ashby & Geddes, P.A.                          Lewis Brisbois Bisgaard & Smith LLP
     500 Delaware Avenue, 8th Floor                500 Delaware Avenue, Suite 700
     Wilmington, DE 19801                          Wilmington, DE 19801

                                                   Jody C. Barillare, Esquire
                                                   Morgan, Lewis & Bockius LLP
                                                   1201 N. Market Street, Suite 2201
                                                   Wilmington, DE 19801

         RE:    Knight v. Miller, et al., and Universal Health Services, Inc.,
                C.A. No. 2021-0581-LWW

Dear Counsel:
         I write regarding the proposed settlement of this derivative action challenging

equity grants awarded to directors and officers of Universal Health Services, Inc.

After a careful review of the record, I conclude that the proposed settlement is

inadequate and decline to approve it. My reasoning follows.

I.       BACKGROUND

         The following facts are drawn from the Verified Stockholder Derivative

Complaint (the “Complaint”) and documents it incorporates by reference (including

those produced to the plaintiff pursuant to 8 Del. C. § 220), the parties’ motion to
C.A. No. 2021-0581-LWW
June 1, 2023
Page 2

dismiss briefing, the court’s April 27, 2022 Memorandum Opinion denying the

motion to dismiss in part, various submissions made in connection with the proposed

settlement, and the settlement hearing transcript.1 I am not making findings of fact

in this decision. Instead, I am reciting the record as it was presented for the purpose

of evaluating the parties’ request for approval of their settlement.

          A.    The Awards

          The plaintiff in this action is a purported stockholder of nominal defendant

Universal Health Services, Inc. (the “Company” or “UHS”). She challenges grants

of equity compensation (the “Awards”) made to directors and officers of the

Company amid COVID-19-related market volatility in mid-March 2020.

          The plaintiff alleges that, despite the abnormal macroeconomic conditions,

the Compensation Committee of the Company’s Board of Directors proceeded with

a March 18, 2020 meeting concerning the Awards.2 The timing of that meeting was

fixed about six months in advance.3 The Company’s stock option grants had

historically (with one exception) been made during meetings held in March.4 Still,

1
 See Verified S’holder Deriv. Compl. (Dkt. 1) (“Compl.”); Mem. Op. (Dkt. 37); Tr. of
Dec. 15, 2022 Telephonic Settlement Hr’g (Dkt. 68) (“Hr’g Tr.”).
2
    Compl. ¶¶ 68, 71; Mem. Op. 10.
3
    Mem. Op. 8-9.
4
    Id. at 9.
C.A. No. 2021-0581-LWW
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Page 3

the plaintiff averred that the Compensation Committee treated the option grant

process in March 2020 as though it “were any other normal year when it manifestly

was not.”5

         The March 18 Compensation Committee meeting began before the market

opened for trading.6       The Compensation Committee invited non-independent

director Warren Nimetz to attend the meeting.7 The meeting was also attended by

the Company’s outside compensation consultants, who delivered a presentation and

made a recommendation regarding the Awards and comparisons to the Company’s

“peer group.”8

         After the consultants left the meeting, alleged controller defendant Alan

Miller and UHS Chief Financial Officer Steve Filton joined the Compensation

Committee “and the members discussed performance bonuses for executive

officers.”9 The Compensation Committee “decided to defer any discussion or

approval of the specific bonus formulae . . . for the Company’s executive officers [in

5
 See id. at 10 (quoting Pl.’s Answering Br. in Opp’n to Defs.’ Mot. to Dismiss Verified
S’holder Deriv. Compl. (Dkt. 24) at 8).
6
    Compl. ¶ 68.
7
    Id. ¶ 69 (noting that Nimetz was not a member of the Compensation Committee).
8
    Id. ¶¶ 70, 77.
9
 Mem. Op. 11 (citing Compl. ¶ 70; Opening Br. in Supp. of Defs.’ Mot. to Dismiss Verified
S’holder Deriv. Compl. (Dkt. 20) (“MTD Opening Br.”) Ex. F at 2).
C.A. No. 2021-0581-LWW
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Page 4

fiscal year 2020] given the significant uncertainties created by the recent emergence

of the Covid-19 crisis.”10

         The Compensation Committee then discussed recommended stock option

grants, “presumably still in the presence of Nimetz and Alan Miller.”11          The

members “reviewed the previously distributed recommendations of management as

to the grant of stock options and ‘premium priced’ stock options to the senior

executives,” and passed a resolution to grant the Awards.12 Over one million options

and restricted stock units were granted to the Company’s officers and directors, with

over 750,000 options going to the Company’s controllers Alan Miller and Marc

Miller.13 “The resolution adopted by the Compensation Committee purport[ed] to

specify the closing sale price of the common stock as the strike price of the stock

options, though it would not be determined until later that day.”14

         UHS common stock closed at $67.69 per share on March 18, which was 16%

lower than the closing price the prior day.15 The next day—when the federal

10
     MTD Opening Br. Ex. F at 2; see also Mem. Op. 11.
11
     Mem. Op. 11.
12
     Id. (quoting MTD Opening Br. Ex. F at 2).
13
     Compl. ¶ 72.
14
     Mem. Op. 11.
15
   Compl. ¶ 71. UHS stock had traded between approximately $124 and $148 per share
throughout the previous three months. Id. ¶ 28.
C.A. No. 2021-0581-LWW
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government’s second phase coronavirus relief legislation passed—the market

improved and the Company’s stock price rose 25%.16 By the time the third phase

was signed into law on March 30, the Company’s stock price closed at $100.13.17

          B.     The Litigation

          On July 6, 2021, the plaintiff filed the Complaint against various UHS

directors and officers. She advanced a breach of fiduciary duty claim against the

Compensation Committee for granting the Awards, a breach of fiduciary duty claim

against all defendants for accepting the Awards, an unjust enrichment claim, and a

corporate waste claim.18 The plaintiff asserted that making a pre-suit demand would

have been futile because the Board received a material financial benefit from the

Awards and faced a substantial likelihood of personal liability for breaching their

duties of loyalty.19 The defendants subsequently moved to dismiss the Complaint

under Court of Chancery Rule 12(b)(6), arguing that the price and process relating

to the equity grants were entirely fair.20

16
     Id. ¶ 74.
17
     Id. ¶ 75 (“This was 47% above the March 18 grant price of $67.69.”).
18
     See id. ¶¶ 114-28.
19
     See id. ¶¶ 104-13.
20
     MTD Opening Br. 23-24.
C.A. No. 2021-0581-LWW
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          On April 27, 2022, Vice Chancellor Glasscock issued a Memorandum

Opinion on the motion. The court largely declined to dismiss the breach of fiduciary

duty claim against the Compensation Committee for granting the Awards.21 By

granting the Awards to the Company’s outside directors—including themselves—it

was reasonably conceivable that the Compensation Committee members undertook

a self-interested compensation decision subject to the entire fairness standard of

review.22 Although the Company’s stockholders had approved a stock incentive

plan pursuant to which the Awards were issued, the plan allowed for significant

Compensation Committee discretion.23 The facts pleaded to indicate a lack of

fairness were “not overwhelming” but “sufficient” to survive a Rule 12(b)(6)

motion.24       As to the Compensation Committee approving grants to UHS’s

controlling stockholders, entire fairness likewise applied given the controllers’

“ability to elect directors” and receipt of non-ratable benefits.25

          The court also denied the defendants’ motion to dismiss the unjust enrichment

claim.26 Since the court dismissed the fiduciary duty claims against all defendants

21
     Mem. Op. 34-35.
22
     Id. at 21 (citing In re Investors Bancorp, Inc. S’holder Litig., 177 A.3d 1208 (Del. 2017)).
23
     Id. at 22-23 (citing Investors Bancorp, 177 A.3d at 1222).
24
     Id. at 24-25.
25
     Id. at 26-27.
26
     Id. at 33-34.
C.A. No. 2021-0581-LWW
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except for the Compensation Committee members, the unjust enrichment claim was

not “truly duplicative” of the remaining breach of fiduciary duty claim.27

           The defendants’ motion to dismiss was otherwise granted.

           C.      The Settlement

           The defendants answered the Complaint on May 27, 2022.28 The plaintiffs

went on to serve requests for production and interrogatories on the defendants, and

the individual defendants served requests for production on the plaintiff.29 “As the

parties began to take discovery, they started to discuss a framework to address the

issues raised in the Complaint without the need for uncertain and expensive

litigation.”30 Settlement talks began on June 9.31

           The parties reached a proposed settlement on August 26 and entered into a

memorandum of understanding.32 The defendants agreed to adopt “a package of

targeted governance reforms designed to strengthen controls over the Company’s

27
     Id.
28
     See Dkts. 43-45.
29
     See Dkts. 52-53.
30
  See Pl.’s Appl. for Approval of the Settlement, an Award of Att’ys’ Fees and Expenses,
and the Pl.’s Serv. Award (Dkt. 58) (“Pl.’s Settlement Br.”) 8.
31
     Id.
32
     Id. at 8-9.
C.A. No. 2021-0581-LWW
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compensation practices and prevent a recurrence of the alleged misconduct.”33

These “reforms,” as detailed in the parties’ Stipulation and Agreement of Settlement

(the “Stipulation”), included the following:34

           •     Changes to the Individual Defendants’ Stock-Based Compensation.
                 The Compensation Committee decreased the weighting of stock-based
                 compensation to the Company’s top five executive officers and outside
                 directors with an accompanying increase in the weighting of cash
                 compensation.       These individuals began receiving stock-based
                 compensation “in a fixed dollar value rather than in a fixed number of
                 shares” starting in March 2022.35 The executive officers also began to
                 receive 50% of their annual stock-based compensation in performance-
                 based restricted stock units rather than in stock options.36 Additionally,
                 the Compensation Committee eliminated the award of stock options
                 with five-year vesting to compensate the outside director defendants,
                 and now awards restricted stock units that vest in one year
                 installments.37 I refer to this category of governance enhancements as
                 the “Stock-Based Compensation Changes.”

           •     Fixed Award Date for Stock-Based Compensation. The Compensation
                 Committee “decided” to fix the annual grant date for the outside
                 directors’ stock-based compensation to the date of the annual May
                 Board meeting held after the annual meeting of stockholders, subject to
                 certain exceptions.38 The individual defendants also agreed that any
                 future changes to this date would be disclosed to stockholders.39 I refer

33
     Id. at 9.
34
   Stip. and Agreement of Settlement (Dkt. 54) (“Stip.”). I refer to the terms of Exhibit A
to the Stipulation for a complete description of these so-called reforms.
35
     Stip. Ex. A at 2-3.
36
     Id. at 3.
37
     Id. at 4.
38
     Id. at 5.
39
     Id.
C.A. No. 2021-0581-LWW
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                    to this category of governance enhancements as the “Fixed Award Date
                    Changes.”

           •        Compensation Committee Executive Session. The Compensation
                    Committee’s “principal deliberations” about Alan Miller or Marc
                    Miller’s compensation will be held in executive session.40 But the
                    Compensation Committee is not prohibited from “any incidental
                    discussion of, or taking any formal action concerning, such
                    compensation outside of executive session, nor from discussing or
                    negotiating compensation with Alan Miller or Marc Miller.”41 I refer
                    to this governance enhancement as the “Executive Session Change.”

                 • Compensation Committee Training. The Compensation Committee
                   will “receive training from the Company’s outside counsel or an
                   independent consultant,” which can include previously engaged
                   counsel or consultants, “regarding the laws and regulations governing
                   the Company’s current stock incentive plan and other compensation
                   plans.”42 I refer to this governance enhancement as the “Training.”

                 • Outside Advisor Process Review. The Compensation Committee will
                   “engage outside counsel or an independent consultant,” which can
                   include previously engaged counsel or consultants, “to review the
                   process by which the Committee grants stock options or other equity
                   awards.”43 The results of this review will be presented to the
                   Compensation Committee. I review to this governance enhancement
                   as the “Process Review.”

                 • Review of Changes to Stock-Based Compensation Policies. The
                   Company’s in-house or outside counsel will review and advise the
                   Compensation Committee on any changes proposed or made to the
                   Company’s policies and procedures about the award of stock-based

40
     Id.
41
     Id. at 6.
42
     Id.
43
     Id. at 6-7.
C.A. No. 2021-0581-LWW
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                    compensation.44 I refer to this governance enhancement as the “Policy
                    Review.”

                 • Review of Public Disclosures. The Compensation Committee—either
                   separately or with the full Board—will “review the Company’s proxy
                   statements and Form 8-K disclosures relating to executive or director
                   compensation prior to filing.”45 The directors will be assisted by
                   “outside counsel or independent consultants,” “as they deem
                   necessary.”46 I refer to this governance enhancement as the “Disclosure
                   Review.”

           The Stipulation was filed with the court on September 28, 2022. In addition

to the governance enhancements discussed above, the Stipulation explained that the

parties bargained for a release of claims relating to the matters raised in the

Complaint and the underlying Section 220 demand.47 The Stipulation further stated

that the defendants and Company agreed not to oppose the plaintiff’s counsel’s

application for an award of fees and expenses of $925,000.48

           On September 29, the court entered a scheduling order with respect to notice

and a settlement hearing.49 A settlement hearing was held on December 15. At the

hearing, Vice Chancellor Glasscock expressed concern that the settlement amounted

44
     Id. at 7.
45
     Id.
46
     Id.
47
     See Stip. ¶ 1(j)-(q).
48
     Id. ¶ 13.
49
     Dkt. 55.
C.A. No. 2021-0581-LWW
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to “a handful of nothing.”50 The court took the parties’ request to approve the

settlement under advisement. The plaintiff’s counsel noted that they would be

willing to “serv[e] discovery” and “continue to litigate the case.”51

          The court “strongly suggest[ed]” that the parties “talk about whether there is

something more tangible that can be done in the way of corporate governance.”52

Two letters from counsel followed. First, the defendants’ counsel told the court that

the defendants would be willing to supplement the Process Review to require that

the Compensation Committee adopt any process-related recommendations made,

unless doing so was deemed not in the best interest of the Company or its

stockholders.53 Next, the plaintiff’s counsel informed the court that the plaintiff was

“unable to join Defendants in submitting” the supplemental Process Review

provision for the court’s review.54        The plaintiff proposed recommencing the

litigation if the court concluded that the proposed settlement was unsatisfactory.55

50
     Hr’g Tr. 36.
51
     Id. at 41-42.
52
     Id. at 42.
53
     See Dkt. 67 at 3.
54
     Dkt. 69 at 1.
55
   Id. at 3. The letter also indicated that the court could consider the additional term
proposed by the defendants in assessing the overall reasonableness of the settlement,
despite declining to join the defendants in proposing it. Id. After these letters were filed,
the action was reassigned to me. Dkt. 70.
C.A. No. 2021-0581-LWW
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II.      ANALYSIS

         Court of Chancery Rule 23.1(c) requires court approval of the dismissal or

settlement of derivative actions.56 The court must determine whether the settlement

is “fair and reasonable,” exercising “a form of business judgment to determine the

overall reasonableness of the settlement.”57 The court is to “consider the nature of

the claim, the possible defenses thereto, [and] the legal and factual circumstances of

the case, and then . . . apply its own business judgment in deciding whether the

settlement is reasonable in light of these factors.”58 In doing so, the court must

carefully scrutinize “the reasonableness of the ‘give’ and the ‘get’”—that is, what

the nominal defendant received “in exchange for ending the litigation.”59

         A.     The “Get”

         The plaintiff’s brief in support of the settlement argues that she achieved

significant benefits for the Company in the form of the Stock-Based Compensation

Changes and the Fixed Award Date Changes.60 The Stock-Based Compensation

56
     Ct. Ch. R. 23.1(c).
57
     Polk v. Good, 507 A.2d 531, 536 (Del. 1986).
58
   Barkan v. Amsted Indus., Inc., 567 A.2d 1279, 1284 (Del. 1989) (quoting Polk, 507 A.2d
at 535).
59
  In re Trulia, Inc. S’holder Litig., 129 A.3d 884, 891 (Del. Ch. 2016) (addressing a
putative class action settlement).
60
     See Pl.’s Settlement Br. 15-17.
C.A. No. 2021-0581-LWW
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Changes were purportedly intended to address the plaintiff’s assertion that awarding

equity compensation with a value based on grant-date market prices may result in

an unearned windfall if UHS’s stock price increases shortly after the grant date.61

The Fixed Award Date Changes were purportedly designed to eliminate the

directors’ discretion concerning the grant date of the defendants’ stock-based

compensation and ensure that stockholders have an opportunity to be heard before

any such compensation is granted.62

         These categories of enhancements might arguably have provided some

tangible (albeit modest) benefits to the nominal defendant.               But they were

implemented well before the settlement was reached.63

61
     See Compl. ¶¶ 76-77.
62
     Pl.’s Settlement Br. 17-18.
63
   Stip. Ex. A at 1-5 (describing changes already undertaken: “[t]he Compensation
Committee has decreased the weighting of stock-based compensation . . .”; “commencing
in March 2022, each of the Executive Officer Defendants began receiving stock-based
compensation denominated in a fixed dollar value . . .”; “the Executive Officer Defendants
now receive 50% of their annual stock-based compensation not in stock options . . .”; “[t]he
Compensation Committee has likewise decreased the weighting of stock-based
compensation to individual Defendants . . .”; “commencing in 2022, each Outside Director
Defendant began receiving stock-based compensation denominated in a fixed dollar
value . . .”; “the Compensation Committee decided to fix the annual grant date for the
Outside Director Defendants’ stock-based compensation to the date of the Board of
Directors’ meeting held in May”); see supra notes 35-46 and accompanying text; see also
Universal Health Servs., Inc. Schedule 14A (Apr. 6, 2022) at 57-58 (describing changes to
director compensation undertaken by the Compensation Committee and Board in March
2022).
C.A. No. 2021-0581-LWW
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          The plaintiff’s counsel maintains that these governance enhancements were

undertaken by the Board because of the lawsuit.64 That may well be true. And the

defendants’ counsel, for their part, avers that the Board was mindful of the issues

raised by the lawsuit and did not “want to wait” to make improvements.65 I do not

doubt it. Insofar as these changes were caused by the lawsuit, they might support a

mootness fee. They are not, however, present consideration for a settlement. To

treat them as such would deprive the court of its “important oversight role” in

approving derivative settlements.66

          That leaves the remaining enhancements, which Vice Chancellor Glasscock

observed were “largely precatory.”67 I agree.

          The Executive Session Change, which ensures the “principal deliberations”

on the controllers’ compensation are made outside of their presence, seems to be the

64
     Hr’g Tr. 31.
65
     Id. at 32.
66
    Barkan, 567 A.2d at 1284 (explaining the general rule that settlements cannot be
approved without present consideration); see also Chickering v. Giles, 270 A.2d 373, 375
(Del. Ch. 1970) (declining to approve a settlement the parties implemented before the court
had an opportunity to rule on its fairness and observing than an exception might be present
if the parties were “faced with an emergency or facts which compel action before the Court
can give notice or hold a hearing on a settlement petition”). I see no basis to make an
exception to this general rule.
67
     Hr’g Tr. 30.
C.A. No. 2021-0581-LWW
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most considerable.68 It provides for baseline good governance. But it is heavily

qualified and makes explicit that “incidental discussion[s]” and “formal action”

about the controllers’ compensation can occur outside of an executive session.69 The

Executive Session Change does little to remove the potential for influence by the

controllers, despite this being a pervasive theme described in the Complaint and in

the court’s Memorandum Opinion.

           The other enhancements—the Training, Process Review, Policy Review, and

Disclosure Review—are trifling. The Compensation Committee met with outside

compensation consultants before setting the challenged Awards.70 The Process

Review does not seem to require a markedly different process. For example, the

Compensation Committee is not required to follow the advice of the outside counsel

or consultant (subject to its fiduciary duties, of course). It is also not apparent to me

that the Policy Review requires any changes from the Compensation Committee’s

prior process. One would expect that Company counsel was already reviewing

proposed changes to UHS’s stock-based compensation policies and procedures. As

to the Disclosure Review, the Board members have an enduring obligation to review

certain compensation-related disclosures.         Despite acknowledging this, the

68
     Stip. Ex. A at 6.
69
     Id.
70
     Compl. ¶¶ 70, 77.
C.A. No. 2021-0581-LWW
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plaintiff’s counsel believes that the settlement will make the directors “more

diligent” in performing this task.71

          As I previously noted, the defendants proposed a favorable change to the

Process Review after the settlement hearing.72 The plaintiff was “unable to join

Defendants in submitting [the] provision to the court.”73 Because there has been no

meeting of the minds on an amended settlement, I must limit my analysis to the terms

of the initial settlement presented.

          B.     The “Give”

          In exchange for the governance enhancements (i.e., those not adopted

pre-settlement), the plaintiff agreed to dismiss this action and to a release of claims.

The Stipulation defines the “Released Plaintiff’s Claims” as “claims, rights, duties,

controversies” and the like—whether known or unknown—that:

          (i) were or could have been asserted by the Company, or by Plaintiff or
          any other UHS Stockholder derivatively on the Company’s behalf, and
          (ii) arise out of or relate to the allegations, transactions, facts, matters,
          disclosures, or non-disclosures set forth in the Complaint filed in the
          Action or in Plaintiff’s January 11, 2021 inspection demand, or that
          arise out of or relate in any way to the defense or settlement of the
          claims against Defendants, except for claims relating to the
          enforcement of the Stipulation.74

71
     Hr’g Tr. 28-29.
72
     See Dkt. 67.
73
     Dkt. 69.
74
     Stip. ¶ 1(n).
C.A. No. 2021-0581-LWW
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         The plaintiff’s claims were not especially strong and were found to be viable

in no small part based on inferences.75 The plaintiff acknowledges that she faced

“significant obstacles.”76 Still, certain claims survived a motion to dismiss and were

subject to the entire fairness standard of review. The plaintiff ultimately agreed to

release claims that could have potentially recovered a small money damages award

for the nominal defendant, if the defendants failed to prove entire fairness at trial.

         C.     Balancing the “Give” and the “Get”

         In Investors Bancorp, the Delaware Supreme Court held that—in most

situations—actions taken by directors in setting their own compensation should be

reviewed under the entire fairness standard because of the inherent conflicts of

interest involved.77 Since then, the Court of Chancery has had a steady diet of breach

of fiduciary duty suits regarding allegedly excessive director compensation. These

claims have become fodder for quick settlements and substantial fee requests.

         In resolving such suits, the parties generally agree to some form of prospective

governance enhancements or therapeutic terms in exchange for a release. This

approach is, in my view, often appropriate. To require disgorgement from the

75
     E.g., Mem. Op. 25, 34.
76
     Pl.’s Settlement Br. 13-14.
77
  177 A.3d at 1217 (“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.”).
C.A. No. 2021-0581-LWW
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directors or officers who received the compensation—before those defendants are

found to have engaged in wrongdoing—would create an inequitable bar to the

voluntary settlement of claims that Delaware law encourages.78 A derivative action

is not about punishment.79

      The settlement terms presented in post-Investors Bancorp director

compensation cases vary wildly. In some cases, the parties agreed to meaningful

improvements like fixed caps on compensation or quantifiably lower director

compensation more in line with the companies’ peers.80 In others, the settlement

78
   See Rome v. Archer, 197 A.2d 49, 53 (Del. 1964); see also In re Salesforce.com, Inc.
Deriv. Litig., C.A. No. 2018-0922-AGB, at 57 (Del. Ch. Dec. 17, 2019) (TRANSCRIPT)
(“I disagree with the objector’s criticism of the settlement for not obtaining disgorgement
from the current directors. Prospective benefits can provide consideration for a derivative
settlement, and indeed this court has approved such arrangements many times.”); J & S
Eppers Revocable Tr. v. De Backer, C.A. No. 2021-0084-PAF, at 25-26 (Del. Ch. Jan. 21,
2022) (TRANSCRIPT) (“Although the settlement does not involve a cash payment to the
company or disgorgement from these director defendants, the benefit of capping the outside
directors’ compensation based on a percentage of peers is a quantifiable and meaningful
benefit.”).
79
  See Beals v. Wash. Int’l, Inc., 386 A.2d 1156, 1159 (Del. Ch. 1978) (“Traditionally and
historically, the Court of Chancery as the Equity Court is a court of conscience and will
permit only what is just and right with no element of vengeance and therefore will not
enforce penalties or forfeitures.”).
80
   E.g., In re Salesforce.com, C.A. No. 2018-0922-AGB, at 55-56, 61 (overruling an
objection and approving a settlement of claims challenging non-employee director
compensation where the parties agreed to a “meaningful ‘get’” of capping average director
compensation at the 75th percentile of the company’s peers, which reduced the average
annual compensation by approximately $200,000 per director); Solak v. Starr, C.A. No.
2020-0674-KSJM, at 44-46 (Del. Ch. Oct. 11, 2022) (TRANSCRIPT) (approving a
settlement of claims regarding non-employee director compensation where the settlement
consideration included backstop “caps” for initial and annual equity grants and dollar-
C.A. No. 2021-0581-LWW
June 1, 2023
Page 19

consideration was modest and approval was granted because the released claims

were of correspondingly limited value.81 A few proposed settlements of such claims

have been rejected.82

based caps on cash compensation, provided “meaningful limits on director compensation,”
and required the company to seek approval of a non-employee director equity
compensation plan); De Backer, C.A. No. 2021-0084-PAF, at 15, 25-26 (approving a
settlement of excessive director compensation claims where the terms included a
substantial reduction in the directors’ annual pay for a five year period, including that total
annual compensation could not exceed the mean per-director compensation awarded by the
60th percentile of the company’s peer group, with an estimated present value of $6.8
million); Solak v. Barrett, 2017-0362-JRS, at 19-20 (Del. Ch. May 30, 2018)
(TRANSCRIPT) (approving a settlement of compensation-related claims where the
company agreed to set compensation at a specific amount with specific limitations and a
binding stockholder vote would be taken on the compensation plan); Pascal v. Czerwinski,
C.A. No. 2020-0320-SG, at 19-20 (Del. Ch. Feb. 7, 2022) (TRANSCRIPT) (approving a
settlement of director and officer compensation claims where the settlement contemplated
three separate ratification votes, which the court viewed as “an ideal settlement under the
circumstances” because it gave stockholders the opportunity to decide whether the
compensation was fair); Alvarado v. Lynch, C.A. No. 2020-0237-LWW, at 23-24, 27-29
(Del. Ch. June 4, 2021) (TRANSCRIPT) (approving a settlement of non-employee director
compensation claims where the company agreed to “meaningful benefits,” including to
modify its compensation policy to provide that the average total compensation will not
exceed the 75th percentile of its agreed-upon peer group, and that the peer group will be
approved by its compensation committee with the aid of a compensation consultant); see
also Solak v. Sato, C.A. No. 2020-0775-JTL, at 42-44 (Del. Ch. Apr. 16, 2021)
(TRANSCRIPT) (approving a settlement of seemingly viable excessive compensation
claims where the settlement terms were the same “relatively common package of
settlement measures,” which had “some value” but not “overwhelming value,” and a peer
group limitation was the “most meaningful” benefit achieved).
81
   E.g., Solak v. Huff, C.A. No. 2022-0400-LWW, at 30 (Del. Ch. Jan. 11, 2023)
(TRANSCRIPT) (approving a settlement of claims concerning non-employee director
compensation where the plaintiff obtained “mild” benefits in exchange for “the release of
a claim that isn’t particularly strong” and the “give and the get [were] roughly even”).
82
  See Shumacher v. Loscalzo, C.A. No. 2022-0059-LWW, at 54-55, 61 (Del. Ch. Sept. 21,
2022) (TRANSCRIPT) (rejecting an initial settlement where an objector who filed a
separate suit desired to pursue claims and the proposed release was overbroad (citing
C.A. No. 2021-0581-LWW
June 1, 2023
Page 20

         This case presents a more extreme scenario. It did not settle shortly after it

was filed. Instead, certain claims survived a motion to dismiss—including a claim

suggesting that a controller had forced the Compensation Committee’s hand to

award him a windfall.83        The governance enhancements serving as settlement

consideration do little to address this issue. Nor do they alleviate the inherent

conflicts in self-compensation that the court’s Memorandum Opinion highlighted.

The settlement does not (for example) require the Board to adopt meaningful caps

on director compensation or mandate stockholder approval of specific compensation

awards or a self-executing formula.84 In fact, it does nothing of consequence.85

Griffith v. Stein, 283 A.3d 1124 (Del. 2022)); Shumacher v. Dukes, C.A. No. 2020-1049-
PAF, at 42-43 (Del. Ch. Nov. 17, 2022) (TRANSCRIPT) (declining to approve a settlement
of excessive compensation claims where the court was “not persuaded that the get is worth
the give”).
83
     See supra note 25 and accompanying text.
84
  See Investors Bancorp, 177 A.3d at 1218, 1222 (explaining that stockholder approval of
director compensation may allow for the application of business judgment review if the
stockholders approve specific awards or a self-executing compensation formula (citing
Kerbs v. Cal. E. Airways, Inc., 90 A.2d 652 (Del. 1952); Gottlieb v. Heyden Chem. Corp.,
91 A.2d 57 (Del. 1952))).
85
   Compare Howland v. Kumar, 2018-0804-KSJM, at 25-27 (Del. Ch. Oct. 1, 2019)
(TRANSCRIPT) (approving a settlement filed after the court denied a motion to dismiss
that “provide[d] for 15 internal corporate governance reforms” including “special
parameters within which the compensation committee must operate when discussing the
CEO’s compensation,” a “say-on-pay vote,” and “a two-year moratorium on repricing
stock options,” as well as requiring the compensation committee “to adopt resolutions
fixing the exercise price for all unexercised stock options that were repriced in 2017” and
the repayment of funds by certain defendants).
C.A. No. 2021-0581-LWW
June 1, 2023
Page 21

         If the Stock-Based Compensation Changes and the Fixed Award Date

Changes were part of the settlement, I might have found that the settlement fell

within a range of fairness.86 But they are not. The plaintiff could have opted to

dismiss her suit and seek a mootness fee. But she did not. That leaves a proposed

settlement that is both insufficient and incongruent.

         I do not relish rejecting a settlement and I recognize the difficulties parties

face in resolving these actions. I am, however, charged with acting as a fiduciary

for the nominal defendant in this circumstance.87                The slight governance

enhancements that form the “get” are inadequate consideration in view of the “give”

of the release of claims.88

         The plaintiff’s counsel insist that if the court concludes the settlement is

inadequate, they are eager to push ahead with the litigation. They are welcome to

86
   During the settlement hearing, Vice Chancellor Glasscock observed that the Fixed
Award Date Changes “may have some value.” Hr’g Tr. 30. Counsel did not, however,
emphasize that the Fixed Award Date Changes had long since been implemented—as my
review of the Stipulation and the Company’s proxy statement indicates. See supra note
63. I do not believe that this was untoward; it was a misunderstanding. In any event, the
only aspect of the Fixed Award Date Change that I read as perhaps not being implemented
pre-settlement is that any “future change” to the date for awarding outside director stock-
based compensation will be “disclosed to stockholders.” Stip. Ex. A at 5. It is not clear to
me, though, whether this adds anything to the Company’s current disclosure obligations.
87
   In re Infinity Broad. Corp. S’holders Litig., 802 A.2d 285, 289 (Del. 2002) (“Any
decision of the Court of Chancery regarding the fairness of a proposed settlement is within
the discretion of that court and requires an application of its own business judgment.”).
88
     See Trulia, 129 A.3d at 907.
C.A. No. 2021-0581-LWW
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Page 22

do so. Given the burden and expense that an entire fairness trial would impose on

the Company and that some governance enhancements were admittedly undertaken

in response to this litigation, I urge the plaintiff to first consider whether dismissing

her claims is in the best interest of the nominal defendant she purports to represent.

Continued litigation may ultimately prove detrimental to all parties. Barring that, I

encourage the parties to confer about an amended settlement with meaningful

benefits for the Company.

III.   CONCLUSION

       For the foregoing reasons, I decline to approve the settlement as presented.

The plaintiff may dismiss her claims and, if she chooses, seek a mootness fee for the

benefits already achieved. Otherwise, the case should proceed.

       To the extent necessary for this decision to take effect, IT IS SO ORDERED.

                                               Sincerely yours,

                                               /s/ Lori W. Will
                                               Lori W. Will
                                               Vice Chancellor

cc:    All counsel of record (by File & ServeXpress)