IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
IN RE TYSON FOODS, INC.
Consolidated C.A. No. 1106-N
Date Submitted: September 20, 2006
Date Decided: February 6, 2007
Stuart M. Grant, Megan D. McIntyre, and Michael J. Barry, of GRANT &
EISENHOFER P.A., Wilmington, Delaware; OF COUNSEL: Jeffrey G. Smith and
Robert Abrams, of WOLF HALDENSTEIN ADLER FREEMAN & HERZ LLP,
New York, New York, Attorneys for Plaintiffs.
A. Gilchrist Sparks, III, S. Mark Hurd, and Samuel T. Hirzel, of MORRIS,
NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; OF COUNSEL:
David F. Graham, Anne E. Rea, and Julie K. Potter, of SIDLEY AUSTIN LLP,
Chicago, Illinois, Attorneys for Defendants.
Kurt M. Heyman and Patricia L. Enerio, of PROCTOR HEYMAN LLP,
Wilmington, Delaware, Attorneys for Nominal Defendant.
Before me is a motion to dismiss a lengthy and complex complaint that
includes almost a decade’s worth of challenged transactions. Plaintiffs level
charges, more or less indiscriminately, at eighteen individual defendants, one
partnership, and the company itself as a nominal defendant.
allegations are leveled at clearly inappropriate directors or challenge actions
well beyond the statute of limitations. Over six hundred pages of additional
documents and briefs have been filed by one party or another in order to
provide context for my decision. Although I do not grant defendants’ motion
in its entirety, I may at this point winnow the grist of future proceedings from
chaff that may be dismissed.
My decision is divided roughly into three parts. First, I describe in
some detail the parties, the facts alleged in plaintiffs’ complaint (and any
appropriate accompanying materials), and the parties’ primary contentions.
Second, I describe the legal standards that are applicable across most counts
in the complaint: the demand requirement and the statute of limitations.
Finally, I evaluate each count of the consolidated complaint separately,
highlighting the relevant legal issues and determining the extent to which a
particular count may be limited or dismissed altogether.
In evaluating a motion to dismiss, I must accept as true all well-pleaded
factual allegations.1 Such facts must be asserted in the complaint, not merely
in briefs or oral argument.2 I must draw all reasonable inferences in favor of
the non-moving party, and dismissal is inappropriate unless the “plaintiff
would not be entitled to recover under any reasonably conceivable set of
circumstances susceptible of proof.”3
I. PARTIES AND PROCEDURAL HISTORY
This case arises from an unusually complex procedural history.
Plaintiffs’ consolidated complaint is the fourth iteration arising from
defendants’ challenged actions. Before delving into disputes spanning over a
decade and the events that bring the parties before this Court, I pause briefly
to describe the relevant players.
A. The Plaintiffs
An SEC investigation regarding the proper classification of executive
perquisites aroused the suspicions of plaintiff Eric Meyer, a New Jersey
resident and Tyson shareholder. He made a written demand for documents to
the company pursuant to 8 Del. C. § 220 on August 26, 2004. After almost a
In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006) (quoting
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-7 (Del. 2002)).
Orman v. Cullman, 794 A.2d 5, 28 n.59 (Del. Ch. 2002).
In re Gen. Motors, 897 A.2d at 168 (quoting Savor, Inc. v. FMR Corp., 812 A.2d 894,
896-97 (Del. 2002)).
year of wrangling over precisely which papers were and were not to be
produced, Tyson handed over an agreed upon set of documents on July 21,
2005. Meyer then filed his initial lawsuit on September 12, 2005.
Meyer was not alone in his concerns. Plaintiff Amalgamated Bank, a
New York-based banking institution, had begun its own investigation slightly
earlier.4 Its action, filed on February 16, 2005, included both class action and
derivative complaints for breaches of fiduciary duty and proxy disclosure
violations. Amalgamated’s complaint was later amended on July 1, 2005.
On September 21, 2005, this Court requested that counsel for the two
plaintiffs confer and determine whether their actions could be consolidated.
They agreed and filed the consolidated complaint on January 11, 2006.
B. Tyson Foods, Inc.
Tyson Foods, Inc., a Delaware corporation with its principal office in
Springdale, Arkansas, provides more protein products to the world than any
other firm. Founded in the 1930s, the Tyson family has at all times kept the
company under its power and direction. Tyson’s share ownership structure
ensures this: as of October 2, 2004, Tyson had 250,560,172 shares of Class A
common stock and 101,625,548 shares of Class B common stock outstanding.
Amalgamated’s shareholder standing derives from its trusteeship of the LongView
MidCap 400 Index Fund.
Each Class A shareholder may cast one vote per share on all matters subject
to the shareholder franchise, while Class B shareholders may cast ten votes
for each one of their Class B shares.
The Tyson Limited Partnership (“TLP”), a limited partnership
organized in Delaware, owns 99.9% of the Class B stock, thus controlling
over 80% of the company’s voting power. In turn, Don Tyson controls 99%
of TLP, either directly or indirectly through the Randal W. Tyson
Testamentary Trust. Tyson Limited Partnership is also a defendant in this
C. Defendant Board Members
Defendant Don Tyson has served as a director since 1952, and as
Senior Chairman of the Board from 1995 to 2001. He has retired from that
position, but remains employed as a consultant to the Tyson firm.
maintains his position as the managing general partner of TLP.
Defendant John Tyson, son of Don Tyson, joined the board in 1984 and
was elevated to Chairman in 1998. In April 2000, he became Tyson’s Chief
Executive Officer. Like his father, he is a general partner of TLP.
Defendant Barbara Tyson, the widow of Randal Tyson and the sisterin-law of Don Tyson, took her board position in 1998. Retiring from the
company’s Vice Presidency in 2002, Ms. Tyson entered into a consultancy
arrangement with the company. She remains a shareholder in the company
and a general partner of TLP.
Defendant Lloyd V. Hackley came to the board in 1992. Hackley
beneficially owns at least 13,510 shares of Tyson Class A common stock and
serves as Chairman of the Governance Committee.
Defendant Jim Kever, besides serving on Tyson’s board, also owns
twelve percent of the shares of DigiScript, Inc., a company in which John
Tyson made an indirect investment in 2003. He serves as the Chairman of the
Audit Committee and sits on the Governance Committee. Kever owns at least
2,621 shares of Tyson Class A common stock.
Defendant David A. Jones joined the board in 2000, beneficially owns
2,492 shares of Tyson Class A stock, and served on the Compensation and
Audit Committees. He resigned from the Tyson board in 2005, shortly after
this action was filed.
Defendant Richard L. Bond, Tyson’s President and Chief Operating
Officer, also sits on the board of directors. He owns at least 1,523,288 shares
of Tyson Class A common stock as well as significant quantities of restricted
stock. He serves as an officer under a contract that extends through February
Defendant Jo Ann R. Smith joined the Tyson board in 2001 and
remains a director. She is president of Smith Associates, an agricultural
Chairperson of the Compensation Committee and a
member of the Audit and Governance Committees, she is also the beneficial
owner of 6,932 shares of Tyson Class A common stock.
Defendant Leland E. Tollett has been a board member since 1984. He
served as the Chairman of the Board and Chief Executive Officer from 1995
to 1998. After retiring in 1998, he signed a ten-year consulting contract
which provided for payments of $310,000 per year for the first five years and
$125,000 per year for the remainder of the term, as well as providing for the
vesting of Tollett’s outstanding options and continuing health insurance. He
is a general partner of TLP and the beneficial owner of 3,398,034 shares of
Tyson Class A common stock.
Defendant Wayne B. Britt sat on the Tyson board from 1998 to 2000.
He served as Chief Executive Officer from 1998 until 2000, as Executive
Vice President and Chief Financial Officer from 1996 to 1998, as Senior Vice
President, International Division from 1994 to 1996, as Vice President,
Wholesale Club Sales and Marketing from 1992 to 1994, and in a variety of
positions before 1992.
Defendant Joe F. Starr served on the Tyson board from 1969 until
1992. He also served as Vice President until 1996.
Defendant Neely E. Cassady participated in the board’s Audit and
Compensation Committees from 1994 to 2000 and was a member of the
Special Committee from 1997 to 2000. He started on the board in 1974 and
left in 2000.
Defendant Fred Vorsanger held a board position from 1977 until 2000.
During his tenure he served on the Audit, Compensation, and Special
Tyson elected defendant Shelby D. Massey to the board in 1985, where
he remained until 2002. He served as Senior Vice Chairman from 1985 until
1988. He was a member of the Compensation Committee (approximately
1994 to 2002), Special Committee (1997 to 2002) and Governance
Defendant Donald E. Wray was a board member from 1994 to 2002.
He also held the positions of President from April 1995 until 2000 and Chief
Operating Officer from 1991 until 1999. Wray currently holds a Senior
Executive Employment Agreement that extends until 2008.
Defendant Gerald M. Johnston served on the board from 1996 until
2002. From 1981 to 1996, he served as Executive Vice President of Finance,
after which he stepped down and became a consultant for Tyson.
Defendant Barbara Allen served on the board between 2000 and 2002.
She was selected at various times to participate on the Compensation and
Audit Committees as well as the Compensation Subcommittee.
Defendant Albert C. Zapanta is President and CEO of the United
States-Mexico Chamber of Commerce. He joined the board in May 2004 and
sits on the Compensation and Governance committees.
II. FACTUAL BACKGROUND
A. The Herbets Action and the Formation of the Special Committee
Many of the defendants do not find themselves before this Court for the
first time answering challenges to their duty of loyalty. In February 1997, this
Court entered an order pursuant to a settlement agreement in Herbets v. Don
Tyson and, thus, resolved an earlier long-running dispute between the Tyson
family and minority shareholders.5 As is typical in such settlements, no
defendant admitted to any wrongdoing whatsoever.6 Nevertheless, as part of
C.A. No. 14231 (Del. Ch. Feb. 7, 1997).
Defs.’ Opening Br. in Supp. of Mot. to Dismiss Ex. O at 14-15 [hereinafter “Herbets
Settlement”]. (“No provision contained in this Stipulation, nor any document prepared or
proceeding taken in connection with this Stipulation, shall be deemed an admission by any
the settlement, Tyson Foods consented to create a “Special Committee”
consisting of outside directors to annually review “the terms and fairness of
all transactions between the company, on the one hand, and its directors,
officers or their affiliates, on the other, which are required to be disclosed in
the company’s proxy statements pursuant to Securities and Exchange
Commission regulations.”7 Further, the Special Committee was to “review
the reasonableness of Don Tyson’s requests for expense reimbursements
The Special Committee consisted of defendants Massey, Jones, Kever,
and Hackley (who served as Chairman), although it is unclear who served at
which times. The Herbets settlement required this committee to make its
determinations once a year, and plaintiffs concede that it “held . . . one
meeting annually from 1999 to 2002 . . . .”9 According to plaintiffs, the
of the Defendants as to any claims alleged or asserted . . . and neither this Stipulation nor
the negotiations or proceedings in connection with this Stipulation shall be offered or
received in evidence at any action or proceeding . . . .”) Nor can the fact of the settlement
be used to prove liability for any of the actions covered therein. Del. R. Evid. 408.
Herbets Settlement at 9-10.
Id. at 9.
Consol. Compl. at ¶ 60. Plaintiffs complain that the Special Committee “held only one
meeting annually.” The Herbets settlement contains a relatively simple set of requirements
with regard to independent committees, however: there must be a committee, and that
committee must once a year review at least two issues (Don Tyson’s expenses and relatedparty transactions). Herbets Settlement at 9. The only requirement that the Governance
Committee meet more often is allegedly contained in its charter, which specifies that the
Committee should “normally . . . [meet] four times per year.” Consol. Compl. at ¶ 62.
Committee did not review all of the related-party transactions or Don Tyson’s
requests for expenses, despite the annual meetings. Plaintiffs allege that the
committee’s limited review ignored recommendations of outside consultants
and approved transactions without regard to their fairness to Tyson.
On August 2, 2002, the Special Committee was replaced by the
A charter provision required the Governance
Committee to “review and approve” every “Covered Transaction,” which is in
turn defined as “any transaction …between the Company and any officer,
director, or affiliate of the company that would be required under the
Securities and Exchange Commission rules and regulations to be disclosed in
the company’s annual proxy statement.”10 Such reviews were to be annual,
and were to include analyses of whether the terms of related-party
transactions were fair to the company. Although the charter provides that the
Governance Committee is to meet “‘normally…four times per year,’”
plaintiffs allege that it did not meet at all in 2002 and met only once in 2003
and once in 2004.11
Plaintiffs identify defendants Hackley (Chairman),
Consol. Compl. at ¶ 61.
Once again, the timing of the Special Committee and Governance Committee meetings
seem confused in the consolidated complaint. Plaintiffs make three assertions. First, “The
Special Committee held only one meeting annually from 1999 to 2002, when it was
replaced by the Governance Committee on August 2, 2002.” Id. at ¶ 60. Second, “[The
Governance Committee’s charter provides that it is] to meet ‘normally . . . four times per
Massey, Kever, Jo Ann Smith and Albert Zapanta as former or current
members of the Governance Committee.
B. Compensation and Regulation Before the SEC Investigation in
Plaintiffs contend that the Herbets settlement did little to prevent the
Tyson family’s abuse of the corporation and that the same managerial selfdealing complained of in 1997 continues to this day.
concentrates on three particular types of board malfeasance: (1) approval of
consulting contracts that provided lucrative and undisclosed benefits to
corporate insiders; (2) grants of “spring-loaded” stock options to insiders; and
(3) acceptance of related-party transactions that favored insiders at the
expense of shareholders.
1. The Don Tyson and Peterson Consulting Contracts
In 1998, John Tyson succeeded his father, Don Tyson, as Chairman of
the Tyson Board of Directors and CEO. The elder Tyson remained until 2001
as Senior Chairman of the Board. Upon his retirement in October 2001, the
board approved a pair of consulting contracts, one for Don Tyson and one for
year . . . .’” Id. at ¶ 62. Finally, “[T]he Governance Committee did not meet at all in 2002,
and met only once in 2003 and once in 2004.” Id. Taken together, this suggests that some
committee empowered to discuss related-party transactions met at least once per year
between 1999 and 2004. This meets the requirements of the Herbets settlement, if not the
Governance Committee Charter.
Robert Peterson, former Chairman of the Board and CEO of Iowa Beef
Packers (“IBP”).12 Both contracts provided that the former executives would
“upon reasonable request, provide advisory services . . . as follows: . . . (b)
[Employee] may be required to devote up to twenty (20) hours per
month . . . .”13 In the event of the employee’s death before the expiration of
the agreement, all payments and benefits were to go to designated survivors.
Don Tyson’s consulting contract provided for an annual payment of $800,000
for ten years, and granted the right to personal perquisites and benefits,
including “‘travel and entertainment costs…consistent with past practices.’”14
Peterson’s contract similarly entitled him to a payment of $400,000 per year
for ten years plus personal perquisites and benefits.
Peterson died in May 2004, and his rights to salary and perquisites
passed to his wife. Plaintiffs make much of the fact that Peterson rendered no
services to the company after May 2004.
Plaintiffs also allege that defendants Tollett and Wray agreed to similar,
if smaller, consulting contracts in 1999 and 1998 respectively. Both receive
health insurance and the vesting of stock options throughout the terms of their
IBP and Tyson Foods merged before Don Tyson retired.
Defs.’ Opening Br. in Supp. of Mot. to Dismiss Exs. D & E.
agreements, in addition to annual payments ranging from $100,000 to
$350,000 over ten years.
2. Stock Option Grants
In 2001, Tyson adopted a Stock Incentive Plan granting the board
permission to award Class A shares, stock options, or other incentives to
employees, officers, and directors of the company.
Tyson gave the
Compensation Committee and Compensation Subcommittee complete
discretion as to when and to whom they would distribute these awards, but
instructed that they were to consult with and receive recommendations from
Tyson’s Chairman and Chief Executive Officer. Plaintiffs allege that, at all
relevant times, the Plan required that the price of the option be no lower than
the fair market value of the company’s stock on the day of the grant.15
Consol. Compl. at ¶ 134. Tyson’s 2004 Proxy Statement, however, suggests a more
complex and nuanced Stock Incentive Plan. The Proxy states:
The Plan provides for the grant of incentive stock options and
nonqualified options. . . .
The exercise price of an option shall be set forth in the applicable Stock
Incentive agreement. The exercise price of an incentive stock option may
not be less than the fair market value of the Class A Common Stock on the
date of the grant (nor less than 100% of the fair market value if the
participant owns more than 10% of the stock of the Company or any
subsidiary). . . . Nonqualified stock options may be made exercisable at a
price equal to, less than or more than the fair market value of the Class A
Common Stock on the date that the option is granted.
Defs.’ Opening Br. in Supp. of Mot. to Dismiss Ex. M at 10-11 (emphasis added). The
authority of the Compensation Committee to set a strike price depends upon whether the
grant of options in question concerns “incentive” or “nonqualified” stock options.
Plaintiffs allege that the Compensation Committee, at the behest of
several Defendant board members, “spring-loaded” these options.
before Tyson would issue press releases that were very likely to drive stock
prices higher, the Compensation Committee would award options to key
employees.16 Around 2.8 million shares of Tyson stock bounced from the
corporate vaults to various defendants in this manner. Plaintiffs specifically
identify four instances of allegedly well-timed option grants.
The Compensation Committee (then Massey, Vorsanger, and Cassady)
granted John Tyson, former-CEO Wayne Britt, and then-COO Greg Lee
options on 150,000 shares, 125,000 shares and 80,000 Class A shares,
respectively, at $15 per share on September 28, 1999. The next day, Tyson
informed the market that Smithfield Foods, Inc. had agreed to acquire
Tyson’s Pork Group. The announcement propelled the price upwards to
$16.53 per share in less than six days, and to $17.50 per share by December 1,
A compensation committee that “spring loads” options grants them to executives before
the release of material information reasonably expected to drive the shares of such options
higher. (An opposite effect, “bullet dodging,” is achieved by granting options to
employees after the release of materially damaging information.)
Plaintiffs and defendants both agree that Tyson subsequently cancelled the grants to
John Tyson and Lee, rendering moot any claim with respect to those grants. It remains
unclear whether the grant to Britt was also cancelled.
Once again, the Compensation Committee (then Massey, Hackley, and
Allen) granted options on 200,000 Class A shares to John Tyson, 100,000 to
Lee, and 50,000 to then-CFO Steven Hankins at $11.50 per share on March
29, 2001. A day later, Tyson publicly cancelled its $3.2 billion deal to
acquire IBP, Inc. By the close of that day, the stock price had shot up to
The Compensation Committee (then Hackley, Allen, and Massey)
granted options on 200,000 Class A shares to John Tyson, 60,000 to Lee, and
15,000 to Hankins sometime in October 2001. Within two weeks, Tyson
publicly announced its 2001 fourth-quarter earnings would be more than
double those expected by analysts, catapulting the stock price to $11.90 by
the end of November.
The Compensation Committee (then Smith, Jones, and Hackley)
granted stock options to a number of executives and directors, including
500,000 to John Tyson, 280,000 to Bond, and 160,000 to Lee, at $13.33 per
share on September 19, 2003.
On September 23, 2003, Tyson publicly
announced that earnings were to exceed Wall Street’s expectations, propelling
the price to $14.25.
3. Related Party Transactions
Proxy statements reveal that Tyson engaged in a total of $163 million
in related-party transactions between 1998 and 2004, over ten percent of
Tyson’s $1.6 billion net earnings. Plaintiffs allege that the terms of these
contracts have been consistently kept from minority shareholders, with
defendants simply disclosing in each year’s proxy statement the aggregate
amounts paid to related entities in the previous fiscal year and a cursory
description of the nature of the transactions. According to plaintiffs, these
transactions were unfair to the corporation, serving to enrich corporate
insiders who made sure that the proxies were too misleading, incomplete, and
cursory to constitute any real disclosure.
The consolidated complaint lists a motley of typical related-party
transactions, including grow-out opportunities, farm leases, and other research
and development contracts with insiders.18 Plaintiffs allege that Tyson has
never disclosed the prices at which it bought back livestock from corporate
As described in the consolidated complaint, Tyson conducts grow-out operations by
selling baby chicks and swine, feed, veterinary and technical services, supplies, and other
related items to insiders, who then grow the animals to market age. The related parties
then sell the mature animals either to Tyson or to unaffiliated companies when they are
ready for market.
insiders through the grow-out programs.19 Additionally, Tyson leased farms
from various corporate insiders with a total value averaging over $2 million
per year between 2001 and 2003.
A very liberal trade existed between directors (and ex-directors) and the
company, of which the complaint provides many specific examples. Perhaps
the most relevant involves defendants Shelby and Massey. After Massey’s
retirement in 2002, Tyson purchased over $10 million worth of cattle per year
in 2002 and 2003 from Shelby Massey farms. Similarly, for the three years
between 2001 and 2003 Tollett received $624,077 per year for breeder hen
research and development.
Plaintiffs and defendants disagree vehemently on how many of the
related-party transactions have actually been reviewed by the Special
Committee. Meyer attempted to use his demand for records to verify that the
Special Committee had approved all related-party transactions. But Meyer
only requested documentation concerning a limited list of related-party
transactions. Meyer alleges that he received documentation relating to further
Although plaintiffs do not mention this specifically, the Herbets settlement contained an
agreement that “in any future livestock and feed sale and repurchase transactions between
the Company any directors [sic], officers or their affiliates, the profits, if any, in excess of
the Company’s short-term borrowing rate will be shared between the Company (75%) and
the individual (25%).” Herbets Settlement at 8. The grow-out opportunities would seem
to be subject to this earlier agreement.
related-party transactions (including summary reports), and that from this the
Court should conclude that the Committee considered only the transactions
indicated by documents in the § 220 request. Of the $163 million in relatedparty transactions from 1998 through 2004, Meyer could only verify that the
Committees had reviewed $69 million, or less than 42% of the total
transactions by value.
Specifically, plaintiff Meyer did not observe any
evidence that the Committees had reviewed the swine grow-out program, the
poultry grow-out program, cattle purchases from Massey, a lease of cold
storage facilities partially owned by Johnston, or certain individual farm
Defendants contend that I may not infer from these documents that the
transactions were not in fact reviewed, notwithstanding the high degree of
deference to which a plaintiff is entitled on a 12(b)(6) motion. Defendants
point out that the documents requested in Meyer’s § 220 demand did not
cover all the transactions alleged in the complaint, and that the proxy
statements repeatedly state that all transactions were reviewed.
It is true that a very strong negative inference is required for me to
suppose from the facts alleged that the appropriate board committees did not
review these transactions, yet two aspects of the complaint lead me to
conclude that a negative inference is warranted. First, plaintiffs made a § 220
request to defendants who knew the crux of plaintiffs’ complaint. Even if the
request was in fact narrow, defendants had the opportunity to widen the scope
of documents granted in order to exculpate themselves.20 While they were, of
course, not required to do so, it is more reasonable to infer that exculpatory
documents would be provided than to believe the opposite:
documents existed and yet were inexplicably withheld.
Second, the complaint contains detailed allegations that would lead me
to infer that some transactions were not, in fact, reviewed. The SEC Order
and the logo vendor transactions described below, for instance, suggest a
board of directors that at the very least failed to pay sufficient attention to
transactions with Don Tyson and his associates. It is not unreasonable to infer
that a board which lets these transactions pass without scrutiny is not
watching other related-party transactions with an eagle eye. Drawing every
reasonable inference in favor of the plaintiffs, there is at least a suggestion
that some transactions were not, in fact, reviewed.
Advisors to Delaware corporations should realize by now that the company’s books and
records can serve as a “tool at hand” to defend against unfounded charges of wrongdoing.
A books and records demand under 8 Del. C. § 220 can afford the company an opportunity
to rebut a shareholder’s complaint and actually deter the filing of litigation. See S. Mark
Hurd & Lisa Whittaker, Books and Records Demands and Litigation: Recent Trends and
Their Implications for Corporate Governance, 9 Del. L. Rev. 1, 32-36 (2006).
In any event, plaintiffs allege that where an independent committee did
review a transaction, such a review put little effort into considering whether
the transactions simulated arms-length deals or whether bidding processes
would have saved money. Three specific examples of improper reviews are
alleged in the complaint: the Arnett Sow Complex, the Tyson Children’s
Partnership Lease, and the Logo Vendor affair.
a. Arnett Sow Complex
In the spring of 2000, an independent consultant advised that the
company was paying an inflated rate of return to the Arnett Sow Complex
(partially owned by Don Tyson and Starr) despite the fact that the complex
was reportedly in worse shape than other suitable sow farms. The Pork
Group (a subsidiary of Tyson) proposed that lease rates with the complex be
revised downwards by 85% to reflect poor conditions within the industry.
Plaintiffs contend that the board ignored these recommendations, although
they admit that the company did cut the lease rates half as much as
recommended by the Pork Group.
b. Tyson Children’s Partnership Lease
Plaintiffs allege that the company leased a farm belonging to the Tyson
Children’s Partnership at a much higher rate than would be expected in an
arm’s length transaction. The ten-year lease required payments of $450,000
per year (plus all taxes, utility costs, and insurance and maintenance costs) for
a farm whose appraised value stood at $2.8 million. Plaintiffs also allege that
an independent auditor was of the opinion that the lease was not an armslength market lease.
c. The Logo Vendor Affair
In addition to the Arnett Sow Complex and the Tyson Children’s
Family Lease, plaintiffs also point to a transaction with a “supplier of logo
merchandise” owned by a close personal friend of Don Tyson. Almost $5
million of product was purchased from the vendor without engaging in a
bidding process. At the same time, the Compensation Committee was forced
to cancel a company credit card that Don Tyson had given to the vendor
without company authorization.
C. The 2004 SEC Investigation of Don Tyson’s Perquisites
In March 2004, the Securities and Exchange Commission (the “SEC”)
conducted a formal, non-public investigation into the annual perquisites given
to several board members and other executives that had been disclosed as
“other annual compensation” in the footnotes of Tyson’s proxy statements.
This “other annual compensation” category appeared every year since at least
1992, when only Don Tyson received such remuneration. In 1998, when John
Tyson became Chairman of the Board, he too began receiving “other annual
compensation.” Upon his ascension to the board in 2001, Richard Bond,
Tyson’s then-President and Chief Operating Officer, started to benefit from
“other annual compensation” as well. The proxy statement dated December
31, 2003 described this category of compensation as consisting of travel and
entertainment costs, insurance premiums, reimbursements for income tax
liability related to the travel and entertainment costs, and other such items.
The SEC investigation revealed that Tyson’s proxy statements were
incomplete and misleading between 1997 to 2003, in that they included under
“travel and entertainment costs” expenses that could not reasonably be
considered either travel or entertainment. On August 16, 2004, the SEC
notified Tyson that it intended to recommend a civil enforcement action
against the company and a separate action against Don Tyson. Further, the
SEC was considering a monetary penalty based on Tyson’s noncompliance
with SEC regulations for the years 1997 through 2003. The noncompliance
penalty would cover over $1.7 million of perquisites given to Don Tyson, the
inadequacy of internal controls over the personal use of Tyson assets, and
incomplete disclosure of perquisites and personal benefits.
Tyson consented to the SEC’s entry of an “Order Instituting Cease-andDesist Proceedings, Making Findings, and Imposing Cease-and-Desist Order
Pursuant to Section 21C of the Securities Exchange Act of 1934” (the
In the Order, the SEC found that Tyson made misleading
disclosure of perquisites and personal benefits provided to Don Tyson in
proxy statements filed from 1997 to 2003. The Order described how Tyson
had failed to disclose over $1 million in perquisites and improperly
characterized many disclosed perquisites.
Nearly $3 million worth of
undisclosed or inadequately disclosed perquisites had been paid to Don
Tyson, or to his family and friends, including use of the Tyson corporate
credit cards for personal expenditures such as antiques, vacations, a horse,
and substantial additional purchases of clothing, jewelry, artwork, and theater
tickets. Family and friends were also allegedly given virtually unlimited use
of corporate aircraft and company-owned homes in England and Cabo San
Lucas, Mexico, including the use of company-paid chauffeurs, cars, cooks,
housekeepers, landscapers, telephones, and a boat crew.
The Order found that Tyson made false or inadequate disclosures
regarding the perquisites and personal benefits paid to Don Tyson pursuant to
his 2001 consulting agreement. The SEC further faulted Tyson for violating
proxy solicitation and reporting provisions required by federal securities laws
and failing to implement internal accounting controls over personal use of
Defs.’ Opening Br. in Supp. of Mot. to Dismiss Ex. P.
assets sufficient to detect, prevent, or account properly for Don Tyson’s and
his family’s and friends’ use of company assets.
Committee conducted its own investigation in light of the SEC findings and
determined that Don Tyson should reimburse the company for improper
compensation and perquisites.
Unsurprisingly, the 2004 proxy statement read quite differently from
those of earlier years. First, it disclosed that Don Tyson had agreed to pay the
company over $1.5 million as reimbursement for certain perquisites and
personal benefits received during fiscal years 1997 through 2003, and that he
had also agreed to pay an additional $200,000 for improper expenses.
Second, Tyson disclosed that on July 30, 2004, it had approved an increase in
Don Tyson’s annual compensation pursuant to his consulting contract from
$800,000 to $1.2 million annually, with the consideration to be paid, in the
event of his death, to his three children until the termination of the contract in
The proxy statement further disclosed that the Governance
Incidentally, the proxy statement incorrectly describes the terms of the contract as “Mr.
Tyson will continue to furnish up to 20 hours per week of advisory services,” while the
contract actually states that he may furnish up to 20 hours per month. Id. at 41 (emphasis
Committee had approved the purchase by Tyson of over 1 million shares of
Don Tyson’s Class A common stock at a purchase price of $15.11 per share.23
From these facts, plaintiffs make nine separate claims, each of them
against various defendants. In Counts I-IV, plaintiffs contend that the board
violated its fiduciary duties by approving the Peterson and Don Tyson
consulting contracts in 2001 and the amended Don Tyson consulting contract
in 2004 (Count I); the awards of “Other Annual Compensation” between 2001
and 2003 (Count II); the “spring-loaded” options of 1999 to 2003 (Count III);
and related-party transactions occurring since 1997 (Count IV). Count V,
which is brought against every individual director, alleges a “pattern and
practice of failing to investigate and disclose self-dealing payments,” which
plaintiffs contend not only wasted assets but also brought SEC investigations
and fines against the company.24
In the next two counts (VI and VII),
plaintiffs contend that the defendant directors not only breached their
contractual duties (Count VI) but also violated an order of this Court (Count
VII) by failing to act in accordance with the Herbets settlement. Count VIII,
a class action but not a derivative claim, maintains that the defendant directors
Consol. Compl. at ¶ 131. Plaintiffs regard this as unseemly. There is no allegation,
however, that the shares purchased were at more than market value.
Consol. Compl. at ¶ 188.
materially misrepresented facts in the company’s 2004 proxy statement such
that the election of directors in that year should be held to be invalid. Finally,
plaintiffs assert (Count IX) that the related-party transactions, spring-loaded
options, consulting contracts and payments in the “other annual
compensation” category amount to unjust enrichment of certain individual
defendants, entitling the company to, among other things, a disgorgement of
benefits from the unjustly enriched individual defendants.
Defendants raise their own chorus of objections in support of their
motion to dismiss. First, many of the claims (they say) are barred by the
statute of limitations. Second, many claims are raised against directors who
had little or nothing to do with the challenged decisions. Third, in some cases
plaintiffs have brought derivative actions where demand was not excused.
Finally, where the proper directors have been named in the complaint and the
action itself is not time-barred, defendants assert that plaintiffs have not stated
a claim for which relief can be granted.
IV. DEMAND, INTERESTEDNESS AND INDEPENDENCE
Before addressing the morass of plaintiffs’ various legal theories, it will
be helpful to consider in detail two legal doctrines implicated in almost every
the standards for demand excusal and the process by which the
Delaware statute of limitations runs and is tolled.
The first hurdle facing any derivative complaint is Rule 23.1, which
requires that the complaint “allege with particularity the efforts, if any, made
by the plaintiff to obtain the action the plaintiff desires from the directors . . .
and the reasons for the plaintiff’s failure to obtain the action or for not making
the effort.”25 Rule 23.1 stands for the proposition in Delaware corporate law
that the business and affairs of a corporation, absent exceptional
circumstances, are to be managed by its board of directors.26 To this end,
Rule 23.1 requires that a plaintiff who asserts that demand would be futile
must “comply with stringent requirements of factual particularity that differ
substantially from the permissive notice pleadings” normally governed by
Rule 8(a).27 Vague or conclusory allegations do not suffice to upset the
presumption of a director’s capacity to consider demand.28 As famously
explained in Aronson v. Lewis, plaintiffs may establish that demand was futile
by showing that there is a reason to doubt either (a) the distinterestedness and
independence of a majority of the board upon whom demand would be made,
Ch. Ct. R. 23.1.
In re Walt Disney Co. Derivative Litig., 2005 WL 2056651, at *31 (Del. Ch. Aug. 9,
Zimmerman ex rel. Priceline.com, Inc. v. Braddock, 2002 WL 31926608, at *7 (Del. Ch.
Dec. 20, 2002).
or (b) the possibility that the transaction could have been an exercise of
There are two ways that a plaintiff can show that a director is unable to
act objectively with respect to a pre-suit demand. Most obviously, a plaintiff
can assert facts that demonstrate that a given director is personally interested
in the outcome of litigation, in that the director will personally benefit or
suffer as a result of the lawsuit in a manner that differs from shareholders
generally.30 A plaintiff may also challenge a director’s independence by
alleging facts illustrating that a given director is dominated through a “close
personal or familial relationship or through force of will,”31 or is so beholden
to an interested director that his or her “discretion would be sterilized.”32
Plaintiffs must show that the beholden director receives a benefit “upon which
the director is so dependent or is of such subjective material importance that
its threatened loss might create a reason to question whether the director is
able to consider the corporate merits of the challenged transaction
Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984).
Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1049
Orman v. Cullman, 794 A.2d 5, 25 n.50 (Del. Ch. 2002).
Beam, 845 A.2d at 1050 (quoting Grimes v. Donald, 673 A.2d 1207, 1217 (Del. 1996)).
Texlon Corp. v. Meyerson, 802 A.2d 257, 264 (Del. 2002).
Frequent confusion arises because the Aronson test for demand futility
closely resembles the test for determining whether a duty of loyalty claim
survives a motion to dismiss under Rule 12(b)(6). In both cases plaintiffs
raise a reason to doubt the independence or interestedness of a majority—or
even half—of a board of directors.34
Given the fact that most claims
involving the duty of loyalty are derivative, both analyses often appear in the
same case.35 The inquiries differ, however, in the level of detail demanded of
the plaintiffs’ allegations and the directors at whom the inquiry is directed. In
the context of a motion to dismiss under Rule 23.1, the Court considers the
directors in office at the time a plaintiff brings a complaint, and plaintiffs may
not rely upon the notice pleading standards of Rule 8(a). In the context of a
motion to dismiss for failure to state a claim, on the other hand, the directors
relevant to the Court’s decision will usually be those in office at the time the
challenged decision was made, and the standard, while perhaps more rigorous
in derivative cases than in some others,36 does not reach so high a bar as Rule
See, e.g., In re The Limited S’holder Litig., 2002 WL 537692 (Del. Ch. Mar. 27, 2002).
My predecessor Chancellor Allen famously set forth both the standard applied to
derivative litigation under Rule 12(b)(6) and its justification. “It is a fact evident to all of
those who are familiar with shareholder litigation that surviving a motion to dismiss
means, as a practical matter, that economically rational defendants (who are usually not apt
to be repeat players in these kinds of cases) will settle such claims, often for a peppercorn
and a fee. This fact causes one to apply the pleading test under Rule 12 with special care
in such suits. The court cannot be satisfied with mere conclusions, as it might, for
23.1. In both cases this Court must make all inferences in favor of plaintiffs,
but in the Rule 23.1 context such inferences may only be drawn from
particularized facts, while in the former case I may draw from general, if not
The distinction between the two processes is critical in sorting through
the plaintiffs’ complaint for two reasons. First, because the consolidated
complaint challenges transactions going back almost a decade,37 this case
presents the relatively rare scenario in which the board members who may be
liable for a given breach of fiduciary duty are significantly different from
those upon whom demand is required. Second, plaintiffs have scattered their
shot unevenly across their chosen targets:
some defendant directors are
alleged to be sufficiently entangled to be lacking independence for 12(b)(6)
purposes, but would be given the benefit of the doubt under the stricter
standard of Rule 23.1.
example, in an auto-accident case, because in this sort of litigation the risk of strike suits
means that too much turns on the mere survival of the complaint.” Solomon v. Pathe
Commc’ns Corp., 1995 WL 250374, at *4 (Del. Ch. Apr. 21, 1995), aff’d, 672 A.2d 35
As a practical matter, the Supreme Court has instructed this Court to give even
closer scrutiny to challenges to the disinterestedness of a special litigation committee. See
Beam, 845 A.2d at 1055.
Awards of other annual compensation, challenged in Counts II and V, were first awarded
With that in mind, I turn to consider the sufficiency of plaintiffs’
allegations against Tyson’s directors. There is little doubt that Don Tyson is
directly interested in almost all of the transactions questioned in the
consolidated complaint. The sole objection raised by defendants involves
related-party transactions benefiting directors who are not members of the
Tyson family, such as Tollett’s breeder hen research, Johnston’s cold storage
lease, or Massey’s cattle purchases. At the time the complaint was filed, only
Tollett was currently a director of the company.
Defendants insist that
demand is not excused with respect to these transactions because the
complaint provides no reason to suspect that the Tyson family directors
lacked independence from Massey, Tollett or, indeed, any director outside of
the Tyson family.
Here defendants rely upon a formalistic and spiritless reading of past
precedent to divide Delaware law from an obvious reality.38 The Tyson
family defendants focus upon their undoubted independence, when the issue
is actually whether they “will receive a personal financial benefit from a
Defendants rely upon Brehm v. Eisner, 746 A.2d 244, 257-58 (Del. 2000) (“Because we
hold that the Complaint fails to create a reasonable doubt that Eisner was disinterested in
[the transaction], we need not reach or comment on” whether directors were beholden to
Eisner) and Rales v. Blasband, 634 A.2d 927, 936 (Del. 1993) (“Blasband must show that
the directors are “beholden” to the Rales brothers or so under their influence that their
discretion would be sterilized.”).
transaction that is not equally shared by the stockholders”39—in other words,
are the Tyson family directors interested in such transactions? Plaintiffs’
complaint in the present case presents a conspiracy-style theory of relatedparty transactions: the Tyson family’s perquisites are alleged to be granted by
other favored directors in exchange for their own favorable related-party
transactions. Defendants ask us to believe that, despite the allegation that
unearned benefits to non-Tyson family directors are the quid pro quo for
approval of perquisites to the Tyson family, the latter would quite readily
pursue a claim against the former.40 Such an assertion goes against human
nature and flies in the face of common sense.
If the allegations in the
complaint are true, then the Tyson family is interested in every related-party
Rales, 634 A.2d at 936.
Defendants dismiss allegations of a quid pro quo as “conclusory and unsupported.”
They do not challenge demand futility in connection with types of transactions in which
Tyson family and non-family directors both had interests (e.g., farm leases), and protest
only related-party transactions of a different type (e.g., poultry research). Defendants walk
far too fine a line here. Even under Rule 23.1’s heightened pleading standards, where
plaintiffs allege a plethora of related-party transactions, it is reasonable to assume that quid
pro quo transactions will not be limited merely to those of the very same specific order.
A related and somewhat stronger argument that defendants might raise is that the
2005 board could not be interested in transactions involving directors who had left the
board at the time of the suit. Again, however, plaintiffs are entitled to the reasonable
inference that so long as (a) the majority of the complaint rests against present directors,
(b) the challenged transactions represent an alleged quid pro quo relationship and (c)
current directors expect to retire from the board in the future, then the current directors will
be interested in protecting the gains of former directors so that their own potential benefits
are safeguarded in the future.
transaction, as these are the currency through which they in turn ensure their
For purposes of demand, I will therefore consider both family and nonfamily transactions to be on the same footing. As to the former, defendants
have virtually conceded that demand is futile. Don Tyson, Barbara Tyson and
John Tyson are all either interested in each transaction or can be considered to
lack independence by reason of consanguinity or marriage. Tollett’s general
partnership in the Tyson Family Partnership, as well as his alleged benefit
from related-party transactions, suffices to create a reasonable doubt as to his
independence, as does Bond’s service as CEO, essentially at the pleasure of
the Tyson family.41 Every derivative count implicates either a member of the
Tyson family or Tollett or Bond and, hence, plaintiffs raise a reason to doubt
According to Tyson’s 2004 proxy statement, Bond received a base salary of $943,615
and a bonus of $1.2 million in 2003. He is also one of the executives receiving the “other
annual compensation” attacked in Count II. While the general Delaware rule holds that
neither a director nor an executive appointed by a controlling shareholder are per se
incapable of considering demand upon the company, where an executive’s considerable
salary is set by an otherwise dominated board, this Court may reasonably infer that a
director-executive is dominated. See In re Walt Disney Derivative Litig., 731 A.2d 342,
357 (Del. Ch. 1998), rev’d in part on other grounds, Brehm v. Eisner, 746 A.2d 244 (Del.
2000) (concluding two directors may be interested because their salaries set by the board
exceeded their personal shareholdings). In this case, the value of Bond’s shareholdings
may well exceed the nominal value of his salary. However, other employees who have
held Bond’s role have gone on to receive partnerships in TLP, significant income from
related-party transactions, and expanded “other” compensation. The value of these
benefits to Bond—and the value to him of continued good favor from the Tyson family—
puts in doubt his independence from the Tyson family.
the disinterestedness and independence of the board, justifying excusal of
demand with regard to the entire consolidated complaint.42
V. STATUTE OF LIMITATIONS
Equity follows the law and in appropriate circumstances will apply a
statute of limitations by analogy.43 A three-year statute of limitations applies
to breaches of fiduciary duty,44 and the matter is properly raised on a motion
to dismiss.45 The statute of limitations begins to run at the time that the cause
of action accrues, which is generally when there has been a harmful act by a
defendant. This is true even if the plaintiff is unaware of the cause of action
or the harm.46
Plaintiffs point to three justifications for tolling the statute of
limitations that would allow me to consider an otherwise stale claim. Under
the doctrine of inherently unknowable injuries, the statute will not run where
it would be practically impossible for a plaintiff to discover the existence of a
cause of action. No objective or observable factors may exist that might have
Once the interest of Tyson family directors is called into question, a doubt is raised as to
the independence of other directors. For instance, with regard to Tollett’s breeder hen
research facility, Tollett may be considered directly interested, the Tyson family directors
are interested due to the alleged quid pro quo relationships, and Bond’s independence may
be called into question as a result. Demand is thus excused.
In re Dean Witter P’ship Litig., 1998 WL 442456, at *3 (Del. Ch. July 17, 1998).
10 Del. C. § 8106.
In re Dean Witter P’ship Litig., 1998 WL 442456, at *4.
See Isaacson, Stolper & Co. v. Artisan’s Sav. Bank, 330 A.2d 120, 132 (Del. 1974); In re
Dean Witter P’ship Litig., 1998 WL 442456, at *5.
put the plaintiffs on notice of an injury, and the plaintiffs bear the burden to
show that they were “blamelessly ignorant” of both the wrongful act and the
resulting harm.47 Similarly, the statute of limitations may be disregarded
when a defendant has fraudulently concealed from a plaintiff the facts
necessary to put him on notice of the truth. Under this doctrine, a plaintiff
must allege an affirmative act of “actual artifice” by the defendant that either
prevented the plaintiff from gaining knowledge of material facts or led the
plaintiff away from the truth.48 Finally, the doctrine of equitable tolling stops
the statute from running while a plaintiff has reasonably relied upon the
competence and good faith of a fiduciary. No evidence of actual concealment
is necessary in such a case, but the statute is only tolled until the investor
“knew or had reason to know of the facts constituting the wrong.”49
Under any of these theories, a plaintiff bears the burden of showing that
the statute was tolled, and relief from the statute extends only until the
plaintiff is put on inquiry notice. That is to say, no theory will toll the statute
beyond the point where the plaintiff was objectively aware, or should have
See In re Dean Witter P’ship Litig., 1998 WL 442456, at *5; Ruger v. Funk, 1996 WL
110072, at *2 (Del. Super. Jan. 22, 1996).
See Ewing v. Beck, 520 A.2d 653, 667 (Del. 1987); In re Dean Witter P’ship Litig., 1998
WL 442456, at *5; Litman v. Prudential-Bache Props., Inc., 1994 WL 30529, at *4 (Del.
Ch. Jan. 14, 1994); Halpern v. Barran, 313 A.2d 139, 143 (Del. Ch. 1973).
See In re Dean Witter P’ship Litig., 1998 WL 442456, at *6.
been aware, of facts giving rise to the wrong.50 Even where a defendant uses
every fraudulent device at its disposal to mislead a victim or obfuscate the
truth, no sanctuary from the statute will be offered to the dilatory plaintiff
who was not or should not have been fooled.
One more complication emerges on a motion to dismiss an action as
untimely: the evidence the Court is allowed to evaluate. If matters outside
the complaint are to be considered by the Court, then this motion to dismiss is
more properly treated as a motion for summary judgment, and the plaintiffs
are entitled to conduct discovery.51 Nevertheless, I may review two types of
evidence, even if they are outside the four corners of the consolidated
complaint, without converting the motion to one of summary judgment: (a)
documents expressly referred to and relied upon in the complaint itself, and
(b) documents that are required by law to be filed, and are actually filed, with
federal or state officials.52
Ch. Ct. R. 12(b).
Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 n.28 (Del. 2004) (holding
that Court may take notice of documents filed with government officials according to
requirements of federal and state law); In re Dean Witter P’ship Litig., 1998 WL 442456,
at *6 n.46 (explaining that matters referred to and relied upon in a complaint may be
considered on a motion to dismiss).
With these rules in mind, I turn to each of plaintiffs’ claims. Where
defendants have raised an objection on the grounds of the statute of
limitations, I consider that argument first, and then move to consideration of
the substantive merits of each claim.
A. Count I: Consulting Contracts for Peterson and Don Tyson in
1. Statute of Limitations
Defendants are entitled to the protection of the statute of limitations
with regard to the Tyson and Peterson contracts signed in 2001.53
company disclosed both contracts as part of SEC filings in December 2001.
By waiting to file this action until February 16, 2005, plaintiffs have given up
their right to all claims in Count I except those regarding the 2004 contract
with Don Tyson.
Plaintiffs’ arguments for tolling fall far short of the required standard.
They admit that the contracts were disclosed to the public in late 2001, but
insist that (a) the contracts required no actual work on the part of the
consultants and (b) the fact that no services were required of Tyson or
Count I involves three consulting contracts: two signed in 2001 employing Don Tyson
and Peterson as consultants and a revised contract for Don Tyson signed in 2004.
Defendants do not argue that the statute of limitations applies to the contract signed in
Peterson could not have been known until either no services were rendered
(for instance, when Peterson died) or when the SEC discovered that the
company’s disclosures of Don Tyson’s perquisites were inadequate.
I can quickly dispense with the allegation that neither Don Tyson nor
Peterson was “required” to do any work under their contracts. Plaintiffs
ceaselessly complain of Tyson’s perfidy in describing the contracts as
anything other than optional on the part of the consultants. They base this
upon a single clause: “Executive may be required to devote up to twenty (20)
hours per month to Employer.”54
More fully, however, both contracts
Services During the Term. During the Term, Executive will,
upon reasonable request, provide advisory services to [the
Employer] as follows: . . . (b) Executive may be required to
devote up to twenty (20) hours per month to Employer. . . . (d)
Executive shall not be obligated to render services. . during any
period when he is disabled due to illness or injury, however
Executive will continue to receive the benefits under Sections 3
and 4 of this Agreement . . . .55
This contract is clear on its face. In exchange for the salary specified in the
contract, Tyson could require twenty hours of work per month from either
consultant at its discretion. The fact that the contracts purchase, in essence,
Consol. Compl. at ¶ 107; Defs.’ Opening Br. in Supp. of Mot. to Dismiss Ex. E at 2.
Although the quoted language is from Peterson’s contract, Don Tyson’s 2001 contract is
Defs.’ Opening Br. in Supp. of Mot. to Dismiss Ex. E at 2 (emphasis added).
an option on the employees’ time does not make them illusory, nor is the
nature of the agreement obscure. If plaintiffs believed that these contracts
were unfair, they could reasonably have been aware of their injuries in
I am even less convinced as to plaintiffs’ contention that they were
unaware of the nature of Peterson’s contract until he died. The consulting
contracts clearly contemplate the payment of benefits to the spouses of either
employee after their deaths. In essence, the company chose to internalize the
provision of life insurance to employees. Even were plaintiffs to maintain
that this payment constituted a pure waste of corporate assets, the relevant
value for consideration would not be the ex post cost of benefits paid to Ms.
Peterson after her husband’s death, but the cost of the risk placed on the
company at the time of the contract.56 Plaintiffs were on inquiry notice of this
An employment contract does not constitute waste simply because it continues to pay
benefits to the spouse of an employee after death. A corporation entering into such a
contract merely takes upon itself the cost of providing the employee with an insurance
policy payable to the employee’s spouse. As a matter of economics, there may be little
significant difference between providing an employee with (a) an option for post-death
payment of salary, (b) an equivalent life-insurance or annuity policy, or (c) a salary
increase sufficient for the employee to buy such insurance on his or her own.
That plaintiffs gloss over this fact is understandable, as the complaint misstates the
actual provisions of Peterson’s contract when it alleges that “if Peterson died one day after
he was awarded the consulting contract, Peterson’s spouse would still be entitled to 10
years worth of payments and perquisites.” Consol. Compl. at ¶ 111. That would be true if
Tyson had purchased an assignable annuity for Peterson. In fact, Peterson’s spouse would
be entitled to up to 10 years of benefits under the contract, as the necessity for Tyson to
risk when Peterson signed his contract; his death gave the plaintiffs no new
and relevant information.
Plaintiffs provide no valid reason why they could not have brought suit
concerning the 2001 contracts in a timely fashion. Therefore, Count I of the
complaint is time-barred as to the 2001 agreements.
2. Substantive Claims
Plaintiffs and defendants disagree as to whether the whole board
approved the 2004 Don Tyson consulting contract or whether it was relegated
to the Compensation Committee. On a motion to dismiss, I am bound by the
well-plead accusations in the consolidated complaint, and these are
unequivocal in suggesting that the whole board approved the contract. The
fact that the complaint recognizes the existence of the Compensation
Committee is not enough to contradict this assertion. Although the complaint
and the associated proxies admit to the existence of a committee, defendants
pay terminates upon her death. As any actuary would recognize, the value of Peterson’s
contract would depend greatly upon such factors as the age of Peterson’s wife, her health,
etc. Plaintiffs provide no such information, instead baldly asserting that the contract must
be unfair because it pays out after death. That the contract internalizes risks—even
extreme ones—does not come close to creating the suggestion of waste.
Nor would it be clear that Peterson’s contract constituted waste if plaintiffs claimed
that Peterson in fact did no work. (Plaintiffs imply, but do not make, such an accusation,
and the silence is telling.) Peterson’s consulting contract came only after a bitter
disagreement over the sale of IBP, Peterson’s former company. Defendants may very well
have considered the non-compete provision of his consulting contract worth the bulk of its
costs and valued the labor component very lightly. Such a decision would not be outside
the bounds of business judgment.
can point to no proxy that suggests that the committee actually considered the
2004 consulting agreement.
In the absence of such evidence, plaintiffs’
allegation must stand and the whole board must be considered as proper
On this issue, the distinction is of little moment, however, as plaintiffs
fail to state a claim either way. Plaintiffs’ argument that the consulting
contract constitutes little more than a gift fails for the reason discussed above:
the fact that Don Tyson’s hours were to be determined by Tyson itself does
not mean the contract lacked consideration. No strained reading of clear
contractual language can convert a purchased option into a gift. As the
consulting agreement does not fall outside the bounds of business judgment,
Count I can only withstand a motion to dismiss by sufficiently alleging that a
majority of those who approved the transaction were dominated by or
otherwise conflicted with respect to the recipient.57 The only directors for
which sufficient conflicts are alleged, however, are John Tyson, Bond, Tollett
and Barbara Tyson. Defendants’ only allegations against Hackley, Kever,
Jones, Smith, Zapanta or Allen are that the board members are nominated at
the behest of the Tyson family because of their voting control and that they
Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984).
have “demonstrated a consistent and unvaried pattern of deferring to anything
the Tyson family wants, and of failing to exercise independent business
judgment.”58 As to the first argument, it is well-settled that a director’s
appointment at the behest of a controlling shareholder does not suffice to
establish a lack of independence.59 Plaintiffs’ remaining argument becomes
wholly circular: in order to find that defendants lack independence, I must
conclude that they failed to exercise independent business judgment by
approving self-interested transactions; and yet in order to find those very
transactions beyond the bounds of business judgment, I must conclude that
the defendants lacked independence. Such a decision would be contrary to
the presumption of business judgment that directors enjoy, however, and
cannot be supported.
The consolidated complaint thus fails to allege that a majority of the
entire board lacked independence.60
Given that “a board’s decision on
executive compensation is entitled to great deference”61 and that plaintiffs
Consol. Compl. at ¶ 146.
Aronson v. Lewis, 473 A.2d 805, 816 (Del. 1984); In re Walt Disney Co. Derivative
Litig., 731 A.2d 342, 356 (Del. Ch. 1998).
Nor does the complaint allege that the decision to award the contract was less than
unanimous, or that a majority of the six non-conflicted directors failed to approve the
Brehm v. Eisner, 746 A.2d 244, 263 (Del. 2000).
have failed to rebut the presumption of business judgment, the remainder of
Count I must be dismissed for failure to state a claim.
B. Count II: Breach of Fiduciary Duty for Award of “Other Annual
Compensation” in 2001
1. Statute of Limitations
Defendants’ objections based upon the statute of limitations extend
only to “other annual compensation” paid in 2001, as the amounts of such
compensation were disclosed in the proxy statement of Jan. 2, 2002.62 Here
plaintiffs may rely upon the doctrines of fraudulent concealment and
equitable tolling. True, the proxy statement did disclose payments of “other
annual compensation” to shareholders in early 2002, but according to the
consolidated complaint, it did so by describing as business or travel expenses
payments that could not be properly characterized as such. Plaintiffs had the
right to rely upon fiduciaries to correctly categorize these payments, and at
least as alleged, the mischaracterization would rise to the level of actual
artifice. Hence, the first plaintiffs would have reason to know of this wrong
would be upon learning of the SEC’s investigation and its results in 2004.
Thus the statute of limitations is tolled.
Defs.’ Opening Br. in Supp. of Mot. to Dismiss Ex. J. at 16.
2. Substantive Claims
Plaintiffs argue that defendant directors63 breached their fiduciary
duties in two separate ways. First, they argue that the approval of “other
annual compensation” payments constituted a breach. Second, they maintain
that defendant directors failed to disclose sufficient details regarding these
payments, thus bringing an SEC investigation upon the company.
disclosure charge is analytically similar to that raised in Count V, and I will
consider it there, leaving this section to concentrate on the approval of the
Once again, plaintiffs and defendants disagree as to which body
approved the other annual compensation payments, and in this Count the
issue is a distinction with a difference.
Plaintiffs’ complaint as to the
approval of the compensation amounts to a claim for excessive compensation.
To maintain such a claim, plaintiffs must show either that the board or
committee that approved the compensation lacked independence (in which
case the burden shifts to the defendant director to show that the compensation
was objectively reasonable), or to plead facts sufficient to show that the board
Count II implicates defendant directors Don Tyson, John Tyson, Bond, Hackley, Kever,
Jones, Tollett, Barbara Tyson, Starr, Massey, Wray, Johnston, and Allen.
or committee lacked good faith in making the award.64 Assuming that this
standard is met, plaintiffs need only allege some specific facts suggesting
unfairness in the transaction in order to shift the burden of proof to defendants
to show that the transaction was entirely fair.65
Which body approved the compensation is thus critical to plaintiffs’
Plaintiffs’ allegations with regard to Compensation Committee
members Allen, Hackley, Jones, Smith, and Massey fail for the reasons
already outlined in Count I.66 On the other hand, plaintiffs point to obvious
conflicts with regard to Don Tyson, John Tyson, Barbara Tyson, Tollett and
Bond, sufficient to challenge at least half of the entire board. Hence, Count II
should survive a motion to dismiss only if I must credit the complaint’s
assertion that the entire board approved the decision. If the Compensation
Committee made the decision, on the other hand, Tyson is entitled to
dismissal of this Count.
Gagliardi v. TriFoods Int’l, Inc., 683 A.2d 1049, 1051 (Del. Ch. 1996).
Solomon v. Pathe Commc’ns Corp., 1995 WL 250374, at *4 (Del. Ch. Apr. 21, 1995),
aff’d, 672 A.2d 35 (Del. 1996).
Aronson, 473 A.2d at 815. Plaintiffs do include Massey as a director involved in
related-party transactions dating from 2002 and 2003. Massey resigned from the
Compensation Committee on August 2, 2002. Even given the extreme deference given to
plaintiffs on a motion to dismiss, it would be unreasonable to challenge Massey’s
independence before his involvement in the sale of his farms. The complaint does not
specify precisely when the other annual compensation was awarded in 2002 and, thus, I am
forced to infer, at most, that Massey may have been interested over a period of eight
months in 2002 before his resignation.
So long as plaintiffs’ position is not contradicted within the
consolidated complaint or documents upon which it relies, at this stage I must
accept plaintiffs’ assertion that the compensation was approved by the entire
I may not hold otherwise merely because plaintiffs concede the
existence of a compensation committee and rely upon proxy statements that
mention the Committee, as defendants wish me to do. Studying all relevant
proxy statements relied upon by plaintiffs, it is impossible to find a reference
that directly states that the compensation in question was approved by the
To take one example, the January 2, 2003 proxy statement
includes a “Summary Compensation Table” that includes six types of
compensation: salary, bonus, other annual compensation, options, restricted
stock and all other compensation.67
The report of the Compensation
Committee in the same proxy, however, discusses salaries, bonuses, options
It is thus reasonable to infer at this stage that the Compensation
Committee did not approve or review the other annual compensation.
Plaintiffs easily meet their further burden to allege some fact suggesting that
Defs.’ Opening Br. in Supp. of Mot. to Dismiss Ex. K at 2.
Id. at 16-19.
the transactions were unfair to shareholders: the transactions and their related
lack of disclosure undeniably exposed the company to SEC sanctions.
Defendants misread Solomon to state that plaintiffs must show that the
compensation itself was unreasonable in relation to similar companies in the
industry. That the nature of the compensation was unfairly concealed from
them is plainly sufficient.
Defendants’ motion to dismiss Count II is therefore denied. I reiterate
that at this stage in the litigation, I am required to give weight to plaintiffs’
assertions regarding the body that approved the compensation, relying almost
completely upon the statements of plaintiffs. The proxy statements are the
only tangible evidence before me and they could be fairly read in favor of
C. Count III: Grant of Options Between 1999 and 2001
1. Statute of Limitations
Plaintiffs urge this Court to conclude that no good faith challenge could
be made to a spring-loaded option before 2003 because no diligent investor
could have recognized the fortunate coincidence between stock-option grants
and favorable news releases. The spring-loading of these option grants could
only be discovered, according to plaintiffs, after investors were able to
observe a pattern of opportune distributions. Defendants, on the other hand,
assert that plaintiffs possessed every bit of information necessary to discover
any alleged injury when the options were announced. All three options grants
between 1999 and 2001 were listed in Tyson’s proxy statements, and all three
grants accurately included the number of shares granted, the exercise price,
and the date of the grant.
To defendants, any shareholder could have
compared the stock option award with the year’s news clippings and realized
that, for instance, the 1999 options had been granted the day before Tyson
announced the sale of the Pork Group for $80 million. Two questions thus
present themselves. First, have plaintiff alleged facts sufficient to suggest that
the statute of limitations is be tolled? Second, did Tyson’s disclosure of the
mere date and price of the grants, without more, suffice to put plaintiffs on
Assuming every fact in the consolidated complaint to be true, plaintiffs
amply demonstrate that the doctrines of equitable tolling and fraudulent
concealment toll the statute of limitations. Plaintiffs allege that defendants
knowingly spring-loaded options to key executives and directors while
maintaining in public disclosures that such options were issued at market
Such partial, selective disclosure—if not itself a lie, certainly
exceptional parsimony with the truth—constitutes an act of “actual artifice”
that satisfies the requirements of the doctrine of fraudulent concealment.
Even were this not the case, defendants’ roles as fiduciaries would justify
tolling the statute of limitations through the doctrine of equitable tolling.
Plaintiffs were entitled to rely upon the competence and good faith of those
protecting their interests.69 It is difficult to conceive of an instance, consistent
with the concept of loyalty and good faith, in which a fiduciary may declare
that an option is granted at “market rate” and simultaneously withhold that
both the fiduciary and the recipient knew at the time that those options would
quickly be worth much more.
Certainly at this stage of the litigation,
plaintiffs are entitled to the reasonable inference of conduct inconsistent with
a fiduciary duty.
Similarly, it would be inappropriate to infer that plaintiffs were on
inquiry notice of injury simply because some relevant information was in the
Certainly, investors are under an obligation to exercise
reasonable diligence in their affairs, and no succor from the statute of
limitations should be offered a dilatory plaintiff in the absence of such care.70
Yet it would be manifest injustice for this Court to conclude, as a matter of
law, that “reasonable diligence” includes an obligation to sift through a proxy
statement, on the one hand, and a year’s worth of press clippings and other
See In re Dean Witter P’ship Litig., 1998 WL 442456, at *6.
filings, on the other, in order to establish a pattern concealed by those whose
duty is to guard the interests of the investor.
The consolidated complaint contains allegations sufficient to justify
tolling the statute of limitations, at least for purposes of a motion to dismiss.
At trial, defendants will have the opportunity to present evidence to show that
plaintiffs were, in fact, on inquiry notice. For instance, defendants might
establish that financial analysts, institutional investors, or academic
researchers had published research suggesting that Tyson’s directors
favorably timed option grants long before the consolidated complaint was
I may not infer such knowledge at this point in the proceedings,
2. Substantive Claims
Plaintiffs concede that the sole authority to grant these options rested in
the Compensation Committee, but argue that the entire board may be
challenged because the Committee was required to consider the
recommendations of the Chairman and Chief Executive Officer, each of
whom were recipients of options themselves. This argument is inconsistent
with Delaware law.
A committee of independent directors enjoys the presumption that its
actions are prima facie protected by the business judgment rule.71 That the
Committee was required to consult with other corporate officers is irrelevant:
the committee admittedly retained independent authority and discretion to
approve or modify whatever it received as a recommendation. Plaintiffs’
complaint should properly target only the members of the compensation
committee at the time the options were approved:
Cassady, Allen, Hackley, Jones and Smith.72
As plaintiffs’ allegations against these directors are insufficient to
suggest a lack of independence, plaintiffs must demonstrate that the grant of
the 2003 options could not be within the bounds of the Compensation
Committee’s business judgment.
overcome this presumption:
A severe test faces those seeking to
“[W]here a director is independent and
disinterested, there can be no liability for corporate loss, unless the facts are
Nomad Acquisition Corp. v. Damon Corp., 1988 WL 383667, at *6 (Del. Ch. Sept. 20,
Although Count III is dismissed except with regard to these seven defendants, none of
whom are alleged to have received any financial benefit through the grant of spring-loaded
options, the other defendant directors may yet be affected indirectly. Not all acts of
disloyalty or bad faith will directly benefit the malefactor, and a director may be held
personally liable for a breach of the duty of loyalty in the absence of a personal financial
gain. Where the beneficiary of disloyalty is not directly liable for losses, that beneficiary
might still be found to retain “money or property of another against the fundamental
principles of justice or equity and good conscience,” and thus to be unjustly enriched.
Schock v. Nash, 732 A.2d 217, 232-233 (Del. 1999).
such that no person could possibly authorize such a transaction if he or she
were attempting in good faith to meet their duty.”73
Whether a board of directors may in good faith grant spring-loaded
options is a somewhat more difficult question than that posed by options
backdating, a practice that has attracted much journalistic, prosecutorial, and
judicial thinking of late.74 At their heart, all backdated options involve a
fundamental, incontrovertible lie: directors who approve an option dissemble
as to the date on which the grant was actually made. Allegations of springloading implicate a much more subtle deception.75
Gagliardi v. TriFoods Int’l, Inc., 683 A.2d 1049, 1052-1053 (Del. Ch. 1996) (emphasis
In a paradigmatic backdating scenario, a company issues stock options to an executive
on one date while providing false documentation to show that the options were actually
issued earlier, thus granting the executive an “in the money” option. Of the many reasons
proposed for director’s willingness to backdate options, favorable tax treatment, fairness
among successively-hired employees, or shareholder-approved rules requiring at-market
options are often mentioned. See David I. Walker, Some Observations on the Stock
Options Backdating Scandal of 2006 1-6 (Boston Univ. Sch. of Law Working Paper
Series, Law And Economics, Paper No. 06-31, 2006), available at http://ssrn.com/
abstract=929702. Although similar to spring-loading, the backdating of options always
involves a factual misrepresentation to shareholders. Issuance of options in conjunction
with such deception, and against the background of a shareholder-approved stock-incentive
program, amounts to a disloyal act taken in bad faith. See Ryan v. Gifford, __ A.2d __, __
The touchstone of disloyalty or bad faith in a spring-loaded option remains deception,
not simply the fact that they are (in every real sense) “in the money” at the time of issue.
A board of directors might, in an exercise of good faith business judgment, determine that
in the money options are an appropriate form of executive compensation. Recipients of
options are generally unable to benefit financially from them until a vesting period has
elapsed, and thus an option’s value to an executive or employee is of less immediate value
than an equivalent grant of cash. A company with a volatile share price, or one that
expects that its most explosive growth is behind it, might wish to issue options with an
Granting spring-loaded options, without explicit authorization from
shareholders, clearly involves an indirect deception. A director’s duty of
loyalty includes the duty to deal fairly and honestly with the shareholders for
whom he is a fiduciary.76 It is inconsistent with such a duty for a board of
directors to ask for shareholder approval of an incentive stock option plan and
then later to distribute shares to managers in such a way as to undermine the
very objectives approved by shareholders. This remains true even if the board
complies with the strict letter of a shareholder-approved plan as it relates to
strike prices or issue dates.
The question before the Court is not, as plaintiffs suggest, whether
spring-loading constitutes a form of insider trading as it would be understood
under federal securities law.77 The relevant issue is whether a director acts in
exercise price below current market value in order to encourage a manager to work hard in
the future while at the same time providing compensation with a greater present market
value. One can imagine circumstances in which such a decision, were it made honestly
and disclosed in good faith, would be within the rational exercise of business judgment.
But the facts alleged in this case are different.
In re Walt Disney S’holder Derivative Litig., 907 A.2d 693, 755 (Del. Ch. 2005) (“To
act in good faith, a director must act at all times with an honesty of purpose and in the best
interests and welfare of the corporation.” (emphasis added)).
Pls.’ Answering Br. in Opp’n to Mot. To Dismiss at 13. Academic commentary on the
relationship between spring-loading and insider trading is decidedly mixed. See, e.g.,
Victor Fleischer, Options Backdating, Tax Shelters, and Corporate Culture 9 n.27 (Univ.
of Colo. Legal Studies Working Paper Series, Working Paper No. 06-38, 2006), available
at http://ssrn.com/abstract=939914; Stephen Bainbridge, Spring-loaded Options and
Insider Trading, on ProfessorBainbridge.com, http://www.professorbainbridge.com/2006/
07/springloaded_op_1.html (July 10, 2006) (presenting argument of Iman Anabtawi that
spring-loaded options constitute a form of insider trading or breach of fiduciary duty);
bad faith by authorizing options with a market-value strike price, as he is
required to do by a shareholder-approved incentive option plan, at a time
when he knows those shares are actually worth more than the exercise price.
A director who intentionally uses inside knowledge not available to
shareholders in order to enrich employees while avoiding shareholderimposed requirements cannot, in my opinion, be said to be acting loyally and
in good faith as a fiduciary.
This conclusion, however, rests upon at least two premises, each of
which should be (and, in this case, has been) alleged by a plaintiff in order to
show that a spring-loaded option issued by a disinterested and independent
board is nevertheless beyond the bounds of business judgment.
plaintiff must allege that options were issued according to a shareholderapproved employee compensation plan.78 Second, a plaintiff must allege that
the directors that approved spring-loaded (or bullet-dodging) options (a)
possessed material non-public information soon to be released that would
Larry E. Ribstein, Options and Insider Trading, on Ideoblog, http://busmovie.typepad.com/
ideoblog/2006/07/options_and_ins.html (July 11, 2006) (refuting Anabtawi’s insider
Shareholder approved employee compensation plans are common partially as a result of
I.R.C. § 162(m), the section of the tax code that allows a business to deduct employee
compensation above $1 million only if it qualifies as performance-based compensation.
Performance-based compensation plans must be approved by a majority vote of
shareholders. See I.R.C. § 162(m)(4)(C)(ii).
impact the company’s share price, and (b) issued those options with the intent
to circumvent otherwise valid shareholder-approved restrictions upon the
exercise price of the options. Such allegations would satisfy a plaintiff’s
requirement to show adequately at the pleading stage that a director acted
disloyally and in bad faith and is therefore unable to claim the protection of
the business judgment rule. Of course, it is conceivable that a director might
show that shareholders have expressly empowered the board of directors (or
relevant committee) to use backdating, spring-loading, or bullet-dodging as
part of employee compensation, and that such actions would not otherwise
violate applicable law. But defendants make no such assertion here.
Plaintiffs’ have alleged adequately that the Compensation Committee
violated a fiduciary duty by acting disloyally and in bad faith with regard to
the grant of options. I therefore deny defendants’ motion to dismiss Count III
as to the seven members of the committee who are implicated in such
D. Count IV: Related Party Transactions
Plaintiffs include in their complaint related-party transactions taken
from proxy statements covering the period between 1998 to 2004. Plaintiffs
insist that these transactions were entered into for the purposes of enriching
the Tyson family and other insiders. Before looking at the merits of the
complaint, however, it is first necessary to address the statute of limitations.
1. Statute of Limitations
Plaintiffs admit that many of the related-party transactions were
revealed in Tyson’s proxy statements. Amalgamated brought substantially
the same complaint with regard to these transactions in 2004 without the
benefit of Meyer’s books and records request. Given these facts, there cannot
be much doubt that plaintiffs were on inquiry notice.79 Plaintiffs are caught
on the horns of a dilemma. Either Amalgamated raised a claim on February
16, 2005 without sufficient knowledge (thus violating, among other things,
Rule 11), or the fact that Amalgamated filed its complaint serves to show that
any plaintiff would have been on inquiry notice at that point.
To the extent that the company disclosed that it was involved in
related-party transactions, it can hardly be said that Tyson shareholders were
not on notice. Shareholders in the course of ordinary diligence, particularly
Plaintiffs incorrectly suggest that the doctrine of fraudulent concealment tolls the statute
of limitations until plaintiffs actually discover the facts giving rise to claims, citing a
Superior Court case, Wright v. Dumizo, 2002 WL 31357891, at *3 (Del. Super. Oct. 17,
2002). The Superior Court in Wright, faced with a case in which the plaintiff had actually
discovered wrongdoing, applied the law relevant to the case at hand and only paraphrased
the more complete rule of Giordano v. Czerwinski, 216 A.2d 874, 876 (Del. 1966). In
Giordano, the Supreme Court was quite clear: “[W]hile the Statute of Limitations may not
apply when the acts complained of are fraudulently concealed from the plaintiff, such
application is suspended only until his rights are discovered or could have been discovered
by the exercise of reasonable diligence.” Id. at 229 (emphasis added).
through demands for records under § 220, should have been able to discover
their harm from the moment the related-party transactions were revealed.
Thus, Count IV must be dismissed with regard to all transactions revealed in
proxies before February 16, 2002.
2. Substantive Claims
Two distinct parts of Count IV remain vital, however, and must be
First, the statute of limitations does not cover related-party
transactions not revealed to the public.80
For instance, the relationship
between Tyson and its logo vendor, allegedly ongoing since 2001, seems not
to have been disclosed in proxy statements. Second, the statute of limitations
would not apply to transactions entered into after February 16, 2002. In
considering the substantive question, the remaining transactions can be
usefully separated into those that both parties agree were reviewed by some
form of governance committee, and those that plaintiffs insist were never
reviewed at all. 81
The complaint mentions only that transactions were disclosed through proxy statements.
Defendants will of course have the opportunity to show at trial that information had been
released to the public through other means (e.g., press releases, website disclosures).
Over the period in question, related-party transactions were either reviewed by the
Special Committee or the Governance Committee. For simplicity, I refer to these both as
the “independent committees.”
a. Transactions Admittedly
I apply the standard Aronson analysis to those transactions admittedly
reviewed by a special committee. Plaintiffs have already failed to challenge
the disinterestedness and independence of the special committee.82 The next
question is whether the transactions are outside the bounds of business
judgment: does the complaint allege sufficient facts from which I may infer
that the board knew that material decisions were being made without adequate
deliberation in a manner that suggests that they did not care shareholders
would suffer a loss?83 This is a scienter-based test, and the complaint must
allege not only that the directors were incorrect in their assessment at the time
but that they either intended to harm shareholders, or at least were absolutely
careless in the matter.
This is a high hurdle, and plaintiffs do not come near to reaching it.
The complaint must allege that the directors “consciously and intentionally
The consolidated complaint makes only one serious attempt to convince this Court that a
member of the independent committees, defendant Massey, was interested, and this
because of a single related-party transaction. Plaintiffs urge me to find that the other
directors must have been interested simply because no disinterested director might have
approved the long list of transactions in the complaint. This circular reasoning once again
fails to convince.
Official Comm. of Unsecured Creditors of Integrated Health Servs., 2004 WL 1949290,
at *10 (Del. Ch. Aug. 24, 2002) (quoting In re Walt Disney Co. Derivative Litig., 825 A.2d
275, 289 (Del. Ch. 2003)).
disregarded their responsibilities.”84 Here plaintiffs rely upon my decision in
iXCore, S.A.S. v. Triton Imaging, Inc., where I stated that a complaint may
remove the presumption of business judgment where it “may indicate a
violation of the fiduciary duty of care in considering all material information
reasonably available before making a business decision . . . .”85 Plaintiffs
suggest that the meager materials they received in response to their § 220
request justifies the conclusion that “the [independent committees’] work was
cursory at best and, at worst, a mere whitewash designed to deceive
shareholders into believing that the company had exercised some level of
control . . . .”86
The consolidated complaint offers up few facts in support of those
There is an important distinction between an
allegation of non-deliberation and one of inadequate deliberation.87 It is easy
to conclude that a director who fails to consider an issue at all has violated at
the very least a duty of due care.
In alleging inadequate deliberation,
however, a successful complaint will need to make detailed allegations with
regard to the process by which a committee conducted its deliberations: the
In re Walt Disney Co. Derivative Litig., 825 A.2d at 289.
2005 WL 1653942, at *1 (Del. Ch. July 8, 2005).
Pls. Answering Br. in Opp’n to Mot. to Dismiss at 40.
See Official Comm. of Unsecured Creditors of Integrated Health Servs., 2004 WL
1949290, at *12 n.58.
amount of time a committee took in considering a specific motion, for
instance, or the experts relied upon in making a decision.88 The consolidated
complaint mentions none of these things, instead urging that defendants’ bad
faith is obvious due to the sheer volume of transactions challenged.89 Not
only would such a conclusion be contrary to Delaware law, it is also contrary
to judicial policy, as it encourages complaints covering lengthy historical
periods with scant evidentiary weight.
Count IV, therefore, must be
The complaint does allege that an independent committee met only once a year, despite
requirements in their charter that they meet more often. This is not enough for a court to
infer, however, that the transactions were given only cursory review. A decision to change
the scheduling of meetings does not require the conclusion that those meetings were
ineffective or that the directors in attendance were insincere.
The complaint attempts to conjure a suggestion of bad faith from a total of
approximately $163 million worth of related-party transactions, on the one hand, and
specific allegations regarding the Arnett Sow Complex, the Tyson Children’s Partnership
Leases, and the grow-out transactions. Despite plaintiffs’ best attempt to characterize the
three specific transactions as beyond the possible bounds of business judgment, each is
amenable to reasonable explanation. For instance, plaintiffs point to a reduction in the
lease rates paid to the Arnett Sow Complex by 42.5%, rather than the 85% requested by
the Pork Group, as somehow per se unfair. I have no reason to infer, however, that the
Pork Group’s recommendation lacked self-interest or was even reasonable, and in any
event the law places the duty to make such a decision in the hands of Tyson’s directors, not
the Pork Group’s. Nor are the lease rates paid by Tyson to the Tyson Children’s
Partnership so inherently high that this Court may conclude that no director could in good
faith approve the transaction.
Particularly confusing is plaintiffs’ insistence that “[t]here is no valid business
reason for selling . . . insiders [Tyson’s] raw materials and everything needed to develop it,
and then turning around and buying the finished product from them at a higher price . . . .”
Consol. Compl. at ¶ 76. First, the Herbets settlement not only specifically countenances
the continuation of grow-out transactions, but also provides for rates at which profits may
be split between Tyson and corporate insiders. Second, the obvious purpose of grow-out
transactions is to shift the risk of production failure outside Tyson itself. The many
tragedies that may adhere between egg and broiler hen—incidence of avian flu, alteration
to regulations regarding the raising of poultry, etc.—become the concern of the contractor,
who is presumably paid a premium to accept those risks.
dismissed for failure to state a claim with regard to any transaction admittedly
reviewed by an independent committee.90
b. Transactions Allegedly not Reviewed by an
Count IV actually hits its mark with respect to transactions after 2002
(or not revealed in proxy statements before that date) that are alleged by
plaintiffs not to have been reviewed at all. As the majority of the Tyson
board can be considered interested at all relevant times, transactions not
sterilized by independent review receive no protection from the business
judgment rule, and plaintiffs must only allege that the transactions were in
some way unfair to shift the burden upon the defendants to prove their entire
By the terms of the Herbets settlement, all related-party
transactions were required to be reviewed. The fact that they allegedly were
The consolidated complaint concedes that an independent committee did review the
following transactions: farm leases with Johnston & Starr and waste-water treatment plant
leases with Don Tyson (1998); a farm lease with the John and Helen Tyson Estate;
payments to Tollett’s breeder hen research facility, and an office space lease from a
company partially owned by Starr and John Tyson (1999); farm leases with John Tyson
and the Randal Tyson Trust, the Tyson Children’s Partnership, Tollett, Johnston, Don
Tyson, the Randal Tyson Trust, and entities related to Starr, as well as the Arnett Sow
Complex lease (2000); an aircraft lease with Tyson Family Aviation (2001); farm leases
with the John Tyson and Randal Tyson Trust, Joe Starr and the children of Don Tyson, the
Tyson Children’s Partnership, JHT LLC, and Tollett, as well as payments to Tollett’s
breeder hen research facility, contracts with Don Tyson’s waste water plants, and the office
space lease with Starr and John Tyson (2004).
See Solomon v. Pathe Commc’ns Corp., 1995 WL 250374, at *5 (Del. Ch. Apr. 21,
1995), aff’d, 672 A.2d 35 (Del. 1996).
not is sufficient for me to infer that, at least in the context of this case, the
transaction may have escaped oversight for a reason.
Count IV, however, is dismissed except with respect to this relatively
narrow class of claims.
E. Count V: Breach of Fiduciary Duty for Inadequate Disclosure of
Perquisites Leading to SEC Sanctions and Fines
Before I may properly consider Count V, it is necessary to decipher
from the complaint its actual scope. According to the consolidated complaint,
“Defendants breached their fiduciary duties to Tyson by engaging in a
consistent pattern and practice of neglect, which resulted in disclosure
violations that exposed the company to SEC sanctions and fines, including,
but not limited to failures to disclose amounts of ‘other compensation,’
amounts of ‘travel and entertainment’ expenses paid to executives by the
company and amounts paid in related-party transactions.”92
Count V is
further targeted at “inadequate, incomplete, or no disclosures regarding large
amounts of executive compensation, which any reasonable Board member
would have adequately investigated and would have adequately disclosed.”93
Yet, puzzlingly, neither the SEC investigation nor the allegations describing it
in the complaint say anything about related-party transactions or executive
Consol. Compl. at ¶ 190.
compensation in general.
Rather, they focus entirely on Don Tyson’s
Plaintiffs seem to believe that any or all alleged malfeasance by the
defendants may somehow be shoehorned into a disclosure claim because
anything that defendants failed to disclose “exposed” Tyson to SEC scrutiny.
Disclosure claims do not allow so broad a target. For a disclosure claim to be
viable, it must demonstrate damages that flow from the failure to adequately
disclose information, not that the information disclosed concerned matters for
which damages are appropriate.94 Plaintiffs must at the very least allege some
connection between the lack of disclosure and an actual harm.95 Exposure to
risk of investigation does not suffice. Attempting to expand the concept of
harm to include the “risk” of investigation represents a triumph of
imagination, but little else.
Other than Don Tyson’s perquisites, which resulted in SEC penalties,
plaintiffs make no showing of damage from failure to disclose any form of
excessive compensation. Therefore, Count V fails to state a claim regarding
all matters not relating to the SEC settlement.
Brown v. Perrette, 1999 WL 342340, at *6 (Del. Ch. May 14, 1999).
Loudon v. Archer-Daniels-Midland Co., 700 A.2d 135, 147 (Del. 1997).
Allegations regarding the disclosure violations stemming from Don
Tyson’s perquisites, on the other hand, will not be dismissed. Defendants rely
upon Tyson’s exculpatory provision under § 102(b)(7), which releases
directors from liability for breaches of the duty of care. It is not clear,
however, that the duty of care is at issue here. Disclosure violations may, but
do not always, involve violations of the duty of loyalty.96 A decision violates
only the duty of care when the misstatement or omission was made as a result
of a director’s erroneous judgment with regard to the proper scope and
content of disclosure, but was nevertheless made in good faith.97 Conversely,
where there is reason to believe that the board lacked good faith in approving
a disclosure, the violation implicates the duty of loyalty.
It is too early for me to conclude that the alleged failures to disclose do
not implicate the duty of loyalty. As stated in my discussion of Count II, I
must accept as true that the “other annual compensation” was approved by the
entire board, as there is nothing in the proxy statements to affirmatively
suggest that it was considered by the compensation committee. Furthermore,
the entire board approved the proxy statements later condemned by the SEC.
Since 2001, the board of directors included Don Tyson, Barbara Tyson, John
Orman v. Cullman, 794 A.2d 4, 50 (Del. Ch. 2002).
Id. at 41.
Tyson, Tollett and Bond.98 Where the independence of a majority of the
board can be questioned, I cannot determine as a matter of law that a
disclosure violation was solely a violation of the duty of care.99
As a consequence of this narrowing of plaintiffs’ scattershot
allegations, Count V applies only to disclosure violations that culminated in
the 2005 settlement with the SEC. Additionally, as this settlement covered
the years 1997 to 2003, this count should be dismissed in its entirety with
regard to defendant Zapanta (appointed to the board in 2004).
F. Counts VI and VII: Breaches of Contract and Contempt Prior to
Counts VI and VII address the responsibilities of the Tyson directors
who entered into the Herbets settlement.
Plaintiffs seek to enforce the
settlement under one of two theories. Count VI maintains that the directors
have breached a contractual duty. In the alternative, Count VII asks that I
impose sanctions against the defendants for violating an Order of this Court.
Both counts present procedural challenges that highlight a paradox of the
Bond was appointed to the Tyson board in 2001. For periods before 2001, Starr’s
membership on the board suffices to suggest a conflict of interest between Starr and Tyson.
According to the complaint, Starr was involved in approximately $18 million of relatedparty transactions with Tyson between 1998 and 2004.
Orman, 794 A.2d at 41 (“Unfortunately for the defendants, however, because Orman has
pled facts which make it reasonable to question the independence and disinterest of a
majority of the Board that decided what information to include in the Proxy Statement, I
cannot say, as a matter of law, that the complaint unambiguously states only a duty of care
derivative complaint. Shareholders bring suit on behalf of a corporation, but
the corporation is also a party to most settlements. When a director later
breaches such a settlement, who has the ability to bring an action on behalf of
the shareholders to enforce the agreement, and how may it be done? The
underlying allegations in both counts are the same: the directors failed to
ensure that all related-party transactions were reviewed by a special
committee and failed to review Don Tyson’s perquisites.
1. Procedural Issues for Contempt Under Rule 70(B)
Plaintiffs’ motion for contempt is procedurally improper and may be
easily dismissed. Defendants urge that there is no cause of action for civil
contempt, citing an opinion of the 7th Circuit,100 but there is no need to go so
far afield for guidance. The contempt powers of Delaware courts are indeed
broad, and “the protean force of equity has not been spent” in this
jurisdiction: this Court retains the power to fashion remedies “where justice
requires and the law is silent.”101 Nevertheless, I need only exercise this
power where the law is actually silent and no just remedy available. The rules
of the Court of Chancery speak directly to the matter of contempt:
“For failure to . . . obey or perform any order, an attachment may
be ordered by the Court upon a filing in the case of an
D. Patrick, Inc. v. Ford Motor Co., 8 F.3d 455, 459 (7th Cir. 1993).
Parsons v. Mumford, 1989 WL 63899, at *1-2 (Del. Ch. June 14, 1989).
affidavit . . . setting
Plaintiffs’ proper recourse with regard to contempt would be to file a motion
to show cause in the earlier case. Given the peculiar nature of derivative
complaints, in which a corporation is both a nominal defendant and the entity
on whose behalf damages are sought, plaintiffs are arguably already parties to
the earlier case. Even were this not true, Rule 71 provides that an order made
in favor of a person not a party to an action may be enforced “by the same
process as if that person were a party.”103 Plaintiffs face no impediment in
pursuing contempt and, thus, there is no particular reason for this Court to
craft for them a peculiar equitable remedy. Count VII must be dismissed.
2. Breach of Contract Claim for a Settlement in a Derivative
If plaintiffs’ contempt claim is procedurally improper, it is equally true
that there is no Delaware authority barring the enforcement of a settlement
agreement through an action for breach of contract. Defendants may be
correct in describing as “bizarre”104 a process by which a plaintiff may assert
rights under a contract on behalf of the company when the company itself did
not fulfill its responsibility. But such an action is no more unusual than the
Ch. Ct. R. 70(b) (emphasis added).
Ch. Ct. R. 71.
Defs.’ Opening Br. in Supp. of Mot. to Dismiss at 45.
derivative lawsuit itself. The Herbets settlement, although embodied in a
court order, represented an agreement between the company and its
shareholders, on the one hand, and the company as embodied in its board, on
the other. That settlement, entered into by a minority shareholder on behalf of
the company, should be enforceable by another minority shareholder. To
object that plaintiffs in the two actions have differing names would reduce the
institution of derivative litigation to a rigid formalism.
Similarly, the fact that the settlement was adopted as a court order
makes it no less enforceable as a contract. While there is authority for the
proposition a Delaware court cannot enforce a settlement through contempt
unless it is adopted as part of an order,105 defendants point to no authority to
suggest that once adopted contempt becomes the only remedy for violation.
Nor is there any need to create such a rule.
3. Violations of the Herbets Settlement
I must still determine whether the complaint alleges a claim for breach
of contract. Count VI asserts that defendants violated the Herbets settlement
in three ways:
through a failure to review annually the related-party
transactions; through a failure to review the annual expenses submitted by
Read v. Wilmington Senior Ctr., Inc., 1992 WL 296870, at *1 (Del. Ch. Sept. 16, 1992)
(recounting that Read had failed in the Court of Common Pleas to enforce an action for
contempt because the settlement had not been incorporated into an order).
Don Tyson; and finally, through a failure to keep track of the use of the Tyson
boat.106 Two issues remain: first, are plaintiffs barred by the statute of
limitations, and second, do they present a claim for which relief may be
With regard to the statute of limitations, there is no reason to suspect
that plaintiffs were on inquiry notice before the SEC investigation. Where
plaintiffs have relied upon a fiduciary’s statements (such as proxy statements)
attesting that all related-party transactions were reviewed, they are not on
inquiry notice of the harm done to them unless they had some reason to
suspect that the information upon which they relied was inaccurate.
Defendants assured shareholders in their proxy statements that related-party
transactions and Don Tyson’s perquisites were disclosed and reviewed. The
SEC now insists that this was incorrect, but there is no indication in the record
that investors should have known of the dissembling before the SEC
Plaintiffs include the grow-out operations as related-party transactions under Count IV,
and maintain that “neither the Board nor its Committees reviewed whether Tyson was
receiving a fair price from the Tyson insiders at the front end of these arrangements, or
whether it was paying a fair price when buying the livestock back at the end.” Consol.
Compl. at ¶ 77. Plaintiffs’ allegations, if true, would seem to implicate an additional
condition of the Herbets settlement not included in the complaint: “In any further
livestock and feed sale and repurchase transactions between the Company any directors
[sic], officers or their affiliates, the profits, if any, in excess of the Company’s short-term
borrowing rate will be shared between the Company (75%) and the individual (25%).” As
the issue has not been brought before the Court, I do not consider it here.
As to the substantive issue, plaintiffs have certainly put forward facts
sufficient to suggest that defendants breached their contract made with
shareholders in 1997. The complaint suggests strongly that not all of Don
Tyson’s perquisites, nor many related-party transactions, were actually
If nothing else, the SEC investigation provides a very strong
inference.107 Defendants protest that no such review was required, and that no
breach can be found in “the alleged fact that the Compensation Committee
did not review every detail of every expense item submitted by Don Tyson,
but instead created procedures for others to do so.”108
contradicts the settlement language.
Nothing in Herbets suggests that
directors are entitled to establish such procedures. The Herbets case, like this
Defendants make some attempt at distinguishing the expense payments to Don Tyson
before his retirement and the payments to Don Tyson as a result of his consulting contract
after his retirement, an exercise that brings to light an interesting fact. The 2001 Don
Tyson and Peterson contracts are almost entirely identical. However, Peterson’s contract
(which has no bearing on the Herbets settlement) entitles him to “reimbursement for
reasonable out of pocket expenses.” Don Tyson’s contract is conspicuously silent on the
issue of “expenses,” instead entitling him to “travel and entertainment costs.”
The Herbets settlement, on the other hand, makes no reference to the position Don
Tyson occupies, inside or outside of Tyson’s organizational structure. It instead requires
that a committee review all “expense reimbursements” to him as an individual. Defendants
nevertheless wish me to infer that any payments to Don Tyson after his retirement are
outside the scope of the settlement: Tyson was being reimbursed, after all, not for
“expenses” but for “costs.”
I decline to take such a narrow view of the agreement, at least at this stage. I
cannot imagine that the strictest of formalists would comb through words as defendants
suggest, allowing directors to escape the terms of a settlement agreement by making
payments consistent with past practices but distinguished by the granting of a new name.
Defs.’ Opening Br. in Supp. of Mot. to Dismiss at 47.
one, alleged that interested Tyson directors and management are working
primarily for the benefit of the Tyson family. Shareholders agreed to a
settlement that provided them with protection from future abuse through the
oversight of independent directors. If Tyson’s directors instead chose to
delegate their contractual duties to others, they did so against the terms of the
agreement and at their own peril.
Reading the settlement to allow the
independent board to devolve its review responsibilities to management led
by John Tyson would give new meaning to allowing the fox to guard the
Finally, defendants attempt to recharacterize Count VI as a fiduciary
duty claim in order to draw themselves within the protection of the Tyson
exculpatory clause. Count VI and Count IV do draw upon substantially the
same facts, but they are two separate causes of action. A director might well
breach a contract without violating any fiduciary duty.109 Similarly, a director
can behave utterly disloyally while attending to the terms of a contract.
Tyson’s 102(b)(7) provision only exculpates a director from liability for
breaches of fiduciary duty, and therefore is of no relevance to Count VI.
Indeed, to the extent that a contract may be rationally and efficiently breached, a
director might believe that he is obligated by his fiduciary duties to do so.
Assuming (as I must) the truth of all factual allegations, Count VI thus
states a claim for which relief may be granted.
G. Count VIII:
Material Misrepresentations in the 2004 Proxy
transactions and misrepresentations regarding other annual compensation into
a class action claim for misrepresentation in Tyson’s 2004 proxy statement.
Plaintiffs theorize that had Tyson’s management faithfully disclosed
information regarding these transactions, shareholders might not have voted
to elect the directors and, therefore, seek nominal damages to recompense
them for their right to cast a fully-informed vote as well as disgorgement of
“all ill-gotten gains” received by the directors elected in 2004. Defendants
protest, inter alia, that the claim presented is not direct but derivative, that the
issue of the 2004 elections have been mooted by subsequent events, and that
damages are inappropriate in the context of an election for directors. I will
deal with these arguments in order.
The Supreme Court recently has determined that the proper analysis of
direct and derivative claims centers on two questions: who has suffered the
alleged harm, and who would receive the benefit of any remedy that a court
would impose?110 For a shareholder (or, as here, a class of shareholders) to
maintain a direct claim, he or she must identify an injury that is not dependent
upon injury to the corporation.
To put it another way, plaintiffs must
demonstrate that “considering the nature of the wrong alleged and the relief
requested . . . he or she can prevail without showing an injury to the
corporation . . . .”111 In a very limited sense, plaintiffs have succeeded.
Where a shareholder has been denied one of the most critical rights he
or she possesses—the right to a fully informed vote—the harm suffered is
almost always an individual, not corporate, harm. Withholding information
from shareholders violates their rights even if it leads to them making the
“right,” and even highly profitable, result. To hold otherwise would be to
state that a corporation may request consent from its shareholders, withhold
relevant information, and only be liable for damages in those situations in
which it appears ex post that the company has suffered financial damages.
This cannot be, and is not, the law of Delaware.
Nevertheless, plaintiffs have failed to suggest any form of relief that
can be granted to them in a direct claim and, thus, Count VIII must be
dismissed. In a direct suit based upon a disclosure claim, the Supreme Court
Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1036 (Del. 2004)
(quoting Agostino v. Hicks, 2004 WL 443987, at *7 (Del. Ch. Mar. 11, 2004)).
has been very clear: damages to plaintiff shareholders are limited only to
those that arise logically and directly from the lack of disclosure, and nominal
damages are appropriate only where the shareholder’s economic or voting
rights have been injured.112 Plaintiffs’ allegations demonstrate harm to the
corporation that accrued from the lack of disclosure in the 2004 proxy, but
even assuming that defendants obtained “ill gotten gains” through their
election, the shareholders would have no direct right to share in any
disgorgement of these benefits. On the other hand, there is no allegation that
as a result of the 2004 election plaintiffs’ rights to a share of economic profits
or access to the shareholder franchise have been impeded. Lacking any form
of relief that might be granted, plaintiffs have failed to state a claim, and thus
Count VIII must be dismissed.113
In re J.P. Morgan Chase & Co. S’holder Litig., 906 A.2d 766, 773-74 (Del. 2006).
Curiously, both parties suggest that plaintiffs have requested that I void the 2004
elections. Defs.’ Opening Br. in Supp. of Mot. to Dismiss at 48 (“Plaintiffs seek to void
this election in 2004 . . . .”); Pls.’ Answering Br. in Opp’n to Mot. to Dismiss at 59
(“Under the factual circumstances present here, the equitable remedy of voiding past
elections is available . . .”). The consolidated complaint, however, contains only a request
for damages. Consol. Compl. at ¶¶ 209-210. In any event, equitable relief would be
inappropriate for at least two reasons. First, given that the consolidated complaint admits
that Don Tyson directly or indirectly controls over 80% of the voting power of the
company, it seems highly unlikely that any order insisting upon new elections would foster
some different result. Second, the board has survived two subsequent elections regarding
which plaintiffs make no allegations of impropriety. Overturning the result of the 2004
elections would thus have no real effect, as it is beyond this Court’s power to insist that
new directors travel backwards in time a number of years to take up their posts.
H. Count IX: Unjust Enrichment
As a parting shot, plaintiffs level a claim for unjust enrichment against
various of the individual defendants and TLP, alleging that they have
benefited at the expense of the company through self-dealing transactions and
breaches of fiduciary duties. Defendants rightly point out that no part of this
Count presents new factual issues, but that does not render it irrelevant.
Count IX presents an opportunity to assign liability to an individual director
without requiring plaintiffs to demonstrate fault with respect to that director.
Unjust enrichment is “the unjust retention of a benefit to the loss of
another, or the retention of money or property of another against the
fundamental principles of justice or equity and good conscience.”114
defendant may be liable “even when the defendant retaining the benefit is not
a wrongdoer” and “even though he may have received [it] honestly in the first
instance.”115 Although neither party develops the concept in their brief, the
structure of the complaint suggests that were certain directors to be found
liable for breaches of fiduciary duty under other theories, Count IX would
allow the Court to force other directors to disgorge, for example, improperly
Schock v. Nash, 732 A.2d 217, 232-233 (Del. 1999).
spring-loaded options or profits from related-party transactions without
having to show a breach of fiduciary duty on the part of a particular director.
Given the considerable complexity of the other eight counts of the
complaint, it would be difficult for me to conclude there is no “reasonably
conceivable set of circumstances”116 under which it might later be determined
that one of the fourteen named defendants was unjustly enriched. I will
provide only one example that could reasonably be imagined. TLP is included
in this Count, and yet TLP is not itself a Tyson director. Some of the Tyson
family stock options—property that might be subject to disgorgement—may
have been transferred from any one of the family members to TLP, and the
resolution of this matter may result in the need to enjoin TLP to return those
shares. For this reason, I will not dismiss Count IX .
Based on the foregoing analysis of the complaint, the following list of
hits and misses describes the issues that remain before the Court as the case
goes forward. Counts I and VIII are dismissed in their entirety, and Count
VII must be dismissed as procedurally improper. Count IV remains only with
regard to related-party transactions that were either not disclosed before or
In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006) (quoting
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del. 2002)).
undertaken after February 16, 2002 and were allegedly not reviewed by an
independent committee. Count V goes forward only as to disclosure failures
in regard to Don Tyson’s perquisites that led to the SEC settlement. Counts
II, VI and IX survive completely intact, while Count III survives as to the
seven members of the compensation committee.
Plaintiffs and defendants shall confer and submit an implementing form