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  • Law School Case Brief

In re Inv’rs Bancorp, Inc. Stockholder Litig. - 177 A.3d 1208 (Del. 2017)

Rule:

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. 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 inequitable action does not become permissible simply because it is legally possible under the general authority granted by the stockholders.

Facts:

The plaintiffs are stockholders of Investors Bancorp, Inc. and were stockholders at the time of the awards challenged in this case. The defendants fall into two groups—ten non-employee director defendants and two executive director defendants. Investors Bancorp, the nominal defendant, is a Delaware corporation with its principal place of business in Short Hills, New Jersey. The Equity Incentive Plan ("EIP") approved by the stockholders of Investor Bancorp Inc. 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. The trial court dismissed the complaint.

Issue:

Did the directors act inequitably in granting themselves unfair and excessive awards exercising their discretion under the Equity Incentive Plan (EIP)?

Answer:

Yes.

Conclusion:

The Court held that Investors Bancorp stockholders approved the general parameters of the EIP. But, as the plaintiffs have properly alleged, the directors, when exercising their discretion under the EIP, acted inequitably in granting themselves unfair and excessive awards. The directors' exercise that authority inconsistent with their fiduciary duties. And, because the stockholders did not ratify the specific awards under the EIP, the affirmative defense of ratification cannot be used to dismiss the complaint. Thus, the Court of Chancery's decision is reversed, and the case is remanded for further proceedings. 

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