In Re Investors Bancorp, Inc. Stockholder Litigation

Facts

Ps are stockholders of Investors Bancorp, Inc. Ds fall into two groups-ten non-employee director defendants and two executive director defendants. Investors Bancorp, the nominal defendant, is a Delaware corporation and a holding company for Investors Bank, a New Jersey chartered savings bank. The Company operates 143 banking branches in New Jersey and New York. In 2014, after a mutual-to-stock conversion, Investors Bancorp conducted a second-step offering to the public, which is when Ps acquired their shares. In this second-step offering, the Company sold 219,580,695 shares and raised about $2.15 billion. The board sets director compensation based on recommendations of the Compensation and Benefits Committee (Committee), composed of seven of the ten non-employee directors. In 2014, the non-employee directors were compensated by (i) a monthly cash retainer; (ii) cash awards for attending board and board committee meetings; and (iii) perquisites and personal benefits. The annual compensation for all non-employee directors ranged from $97,200 to $207,005, with $133,340 as the average. Following the completion of the conversion plan, the Committee met to review the 2014 director compensation and set compensation for 2015. A study showed peer companies paid their non-employee directors an average of $157,350.  The Committee recommended to the board that the non-employee director compensation package remain the same for 2015 along with an increase in fees paid for attending committee meetings from $1,500 to $2,500. The committee unanimously recommended no changes to the officers' annual salaries but recommended an increase in the 2015 Annual Cash Incentive Award from 150% to 200%, and 120% to 160% of their base salaries. The Committee did not discuss any additional equity awards at the December or February meetings. In March 2015, the board proposed the 2015 EIP (Equity Incentive Plan). The Company reserved 30,881,296 common shares for restricted stock awards, restricted stock units, incentive stock options, and non-qualified stock options for the Company's 1,800 officers, employees, non-employee directors, and service providers. Of the total shares, a maximum of 17,646,455 can be issued for stock options or restricted stock awards and 13,234,841 for restricted stock units or performance shares. Restrictions were held to 25% of the shares available for stock option awards), which may be issued or delivered to any one employee pursuant to the exercise of stock options; 25% of the shares available for restricted stock awards and restricted stock units), may be issued or delivered to any one employee as a restricted stock or restricted stock unit grant; and the maximum number of shares that may be issued or delivered to all non-employee directors was 30% of all option or restricted stock shares available for awards, 'all of which may be granted in any calendar year.' The proxy stated: '[t]he number, types and terms of awards to be made pursuant to the [EIP] are subject to the discretion of the Committee and have not been determined at this time, and will not be determined until subsequent to stockholder approval.' At the next shareholder meeting, 96.25% of the voting shares approved the EIP (79.1% of the total shares outstanding). The Committee held four meetings and eventually approved awards of restricted stock and stock options to all board members. The board awarded themselves 7.8 million shares. Non-employee directors each received 250,000 stock options-valued at $780,000-and 100,000 restricted shares-valued at $1,254,000; Cashill and Dittenhafer received 150,000 restricted shares-valued at $1,881,000-due to their years of service. The non-employee director awards totaled $21,594,000 and averaged $2,159,400. Peer companies' averaged $175,817. Cummings received 1,333,333 stock options and 1,000,000 restricted shares, valued at $16,699,999 and alleged to be 1,759% higher than the peer companies' average compensation for executive directors. Cama received 1,066,666 stock options and 600,000 restricted shares, valued at $13,359,998 and alleged to be 2,571% higher than the peer companies' average. Ps filed three separate complaints alleging breaches of fiduciary duty by the directors for awarding themselves excessive compensation. Ds moved to dismiss under Court of Chancery Rule 12(b)(6) for failure to state a claim and under Court of Chancery Rule 23.1 for failure to make a demand before filing suit. The motions were granted. The court dismissed the complaint against the non-employee directors because the EIP contained 'meaningful, specific limits on awards to all director beneficiaries' as opposed to the broad-based plan that contained a generic limit covering director and non-director beneficiaries. The court dismissed the claims directed to the executive directors because Ps failed to make a presuit demand on the board. Ps appealed. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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