## Facts

- A Maxim Integrated Products, Inc. stockholder brought a derivative action against directors and officers, alleging stock-option backdating and related misconduct.
- Maxim’s stock-option plans, approved by stockholders and described in public filings, required option exercise prices to be at least the stock’s fair market value on the grant date.
- The complaint alleged that, between 1998 and 2002 (and related periods), executives received options that were falsely documented as granted on earlier dates when Maxim’s stock traded at lower prices, increasing the options’ value.
- A statistical analysis was cited to support an inference that purported grant dates were repeatedly aligned with monthly or annual stock-price lows.
- The complaint alleged directors and compensation-committee members approved or acquiesced in the grants and caused misleading disclosures stating the grants complied with the plans and were made at fair market value.
- The complaint alleged harm to Maxim, including receiving reduced exercise-price payments and exposure to accounting and tax consequences associated with in-the-money options.
- Defendants moved to dismiss for failure to plead demand futility and failure to state a claim, raised timeliness defenses, and sought a stay or dismissal in favor of related actions pending in other jurisdictions.
- Because the plaintiff became a stockholder on April 11, 2001, claims based on pre-acquisition grants were addressed separately as to standing; later-period claims were allowed to proceed.

## Issues

1. Whether demand on the board was excused because a majority of directors faced a substantial likelihood of personal liability for approving or permitting backdated option grants.
2. Whether allegations of intentional backdating contrary to a stockholder-approved plan and associated misstatements plead non-exculpated breaches of fiduciary duty (loyalty/good faith) sufficient to overcome business-judgment protection and an exculpatory charter provision.
3. Whether the claims were time-barred or could proceed under equitable tolling, including fraudulent concealment and the “inherently unknowable” nature of the alleged wrongdoing.
4. Whether the derivative action should be stayed or dismissed in favor of earlier-filed proceedings in other forums.

## Decision

- The court denied, in substantial part, the motion to dismiss, holding the complaint adequately pled intentional backdating in violation of stockholder-approved plans and deceptive disclosures as non-exculpated loyalty and bad-faith claims.
- The court held demand was excused because the allegations supported a reasonable inference that a majority of directors faced a substantial likelihood of liability for non-exculpated conduct.
- The court declined to dismiss on statute-of-limitations grounds at the pleading stage, finding tolling was adequately alleged based on fraudulent concealment and equitable doctrines.
- The court denied the motion to stay or dismiss in favor of other actions, emphasizing Delaware’s interest in adjudicating fiduciary-duty claims involving directors of Delaware corporations.
- Claims tied to option grants predating the plaintiff’s stock ownership were dismissed in a separate standing ruling; claims tied to later grants proceeded.

## Legal Principles

- Intentional option backdating that violates express terms of a stockholder-approved compensation plan can state a claim for breach of the duty of loyalty and bad faith, not merely due care.
- When a corporation has a charter provision exculpating directors from monetary liability for duty-of-care breaches, demand futility must be supported by well-pled, non-exculpated claims (e.g., loyalty or bad faith) creating a substantial likelihood of liability.
- A pattern of grants aligned with stock-price lows, coupled with allegations of knowing approval and misleading disclosures, may support an inference of bad-faith conduct at the pleading stage.
- Statute-of-limitations dismissal is generally inappropriate when the complaint pleads facts supporting equitable tolling, including affirmative concealment through misleading disclosures and wrongdoing not reasonably discoverable by stockholders.
- Delaware courts may retain and proceed with derivative fiduciary-duty litigation involving Delaware corporations notwithstanding related proceedings elsewhere, particularly where the Delaware action centers on Delaware fiduciary obligations.

## Conclusion

The court allowed a derivative challenge to proceed where the complaint pled intentional option backdating contrary to stockholder-approved plans and related misstatements as non-exculpated loyalty and bad-faith breaches, excusing demand and supporting tolling based on concealment, while declining to yield the case to other forums.


Ryan v. Gifford, 918 A.2d 341 (Del. Ch. 2007)