## Facts

- A stockholder brought a derivative action involving compensation decisions at Cablevision Systems Corporation, a controlled company in which the Dolan family held voting control and significant board representation.
- A three-member compensation committee composed of non-family directors approved executive compensation for Charles Dolan (founder/executive chairman) and James Dolan (CEO/director), including annual pay and one-time retention-oriented option grants.
- The full board approved non-employee director compensation paid equally to outside directors, including three non-employee directors who were Charles Dolan’s daughters.
- The complaint alleged the compensation committee effectively rubber-stamped excessive compensation and that the executives and non-employee director daughters breached fiduciary duties by accepting the compensation.
- Defendants moved to dismiss for failure to state a claim under Court of Chancery Rule 12(b)(6).

## Issues

1. Whether executive compensation decisions approved by an independent committee in a controlled company are reviewed under the business judgment rule or entire fairness.
2. Whether the complaint pled facts sufficient to rebut business judgment by showing lack of independence or bad faith by the compensation committee.
3. Whether executives or directors state a fiduciary-duty claim merely by accepting allegedly excessive compensation approved through corporate processes.
4. Whether the option grants and board-fee decisions plausibly constituted corporate waste.

## Decision

- The Court of Chancery granted the motions to dismiss and dismissed the complaint in its entirety.
- The court applied the business judgment rule to the executive compensation decisions because they were made by an independent compensation committee, notwithstanding the company’s controlled status.
- The court held the complaint did not plead non-conclusory facts showing the committee lacked independence or acted in bad faith.
- The court dismissed claims against Charles and James Dolan based on acceptance of compensation, absent particularized allegations of coercion, domination, or misleading conduct.
- The court dismissed claims against the non-employee director daughters because allegations about qualifications or attendance, coupled with receipt of standard fees, did not plead disloyalty, bad faith, or waste.
- The court dismissed the waste claims because the pleadings did not show compensation decisions lacking any rational business purpose.

## Legal Principles

- Executive compensation decisions made by an independent committee are generally reviewed under the business judgment rule, even in a controlled company, absent well-pled facts showing controller coercion, domination, or a transaction warranting stricter review.
- Allegations of long tenure, prior service on affiliated boards, retirement status, or generalized relationships are insufficient, without specific supporting facts, to plead that directors are not independent.
- To plead bad faith in compensation-setting, a plaintiff must allege more than high or arguably excessive pay; the complaint must support an inference of intentional misconduct or conscious disregard of duty.
- Absent specific allegations of self-dealing conduct beyond receipt of compensation, executives and directors do not breach fiduciary duties merely by accepting compensation or fees approved through independent or board processes.
- Corporate waste requires pleading an extreme exchange lacking any rational business purpose; generous compensation does not constitute waste if a rational explanation is apparent from the pleadings.

## Conclusion

The court held that deference under the business judgment rule applied to compensation decisions made by an independent committee in a controlled company and that the complaint did not plausibly plead non-exculpated fiduciary misconduct or corporate waste based on the compensation awards or standard director fees.


Friedman v. Dolan, No. C.A. 9425-VCN, 2015 WL 4040806 (Del. Ch. June 30, 2015)