## Facts

- A shareholder brought a derivative action on behalf of a Delaware corporation challenging a board-approved 2010 executive-compensation plan.
- The plan allegedly increased compensation for named executives by an average of 41.7% while company net income allegedly declined.
- In a Dodd-Frank “say-on-pay” advisory vote, a majority of voting shareholders (56%) rejected the compensation plan.
- The complaint asserted breach of fiduciary duty (loyalty/good faith) against directors and certain officers, unjust enrichment against executives, and aiding and abetting breach of fiduciary duty against the compensation consultant.
- The plaintiff made no pre-suit demand on the board, alleging demand was excused because directors faced a substantial likelihood of liability and the negative say-on-pay vote removed business-judgment protection.

## Issues

1. Whether the complaint pleaded, with particularized facts, that pre-suit demand on the board was futile under Delaware law.
2. Whether a negative, nonbinding say-on-pay vote by itself supports an inference of bad faith or a substantial likelihood of director liability sufficient to excuse demand.
3. Whether, absent adequate demand futility allegations, the derivative claims for breach of fiduciary duty, unjust enrichment, and aiding and abetting could proceed.

## Decision

- The court granted defendants’ motions to dismiss.
- The court held the plaintiff failed to plead demand futility under Delaware law and therefore lacked standing to maintain the derivative action.
- The court treated the say-on-pay vote as expressly advisory and insufficient, standing alone, to remove business-judgment deference or establish a substantial likelihood of director liability.
- Because demand was not excused, the court dismissed the fiduciary-duty and unjust-enrichment claims, and dismissed the aiding-and-abetting claim as dependent on an adequately pleaded underlying breach.

## Legal Principles

- In a derivative action involving a Delaware corporation, demand futility must be pleaded with particularized facts showing a majority of the board is interested, lacks independence, or faces a substantial likelihood of liability.
- A negative Dodd-Frank say-on-pay vote is nonbinding and does not, by itself, strip directors of business-judgment protection for executive-compensation decisions.
- Allegations that compensation was excessive relative to performance, without nonconclusory facts suggesting self-dealing, bad faith, or waste, generally do not create a substantial likelihood of director liability.
- An aiding-and-abetting claim against a third-party advisor cannot proceed where the complaint does not adequately plead an underlying fiduciary breach in a posture permitting derivative litigation.

## Conclusion

The court dismissed the derivative challenge to executive compensation because the shareholder did not plead demand futility with particularized facts; shareholder disapproval in a nonbinding say-on-pay vote, combined with alleged pay-for-performance mismatch, was insufficient to excuse demand or overcome business-judgment deference.


Laborers’ Loc. 231 Pension Fund v. Intersil Corp., 868 F. Supp. 2d 838 (N.D. Cal. 2012)