Lewis v. Vogelstein

699 A.2d 327 (Chancery of Delaware 1997)

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Nature of the Case

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Facts

The board of Mattel adopted a stock compensation plan for directors. They got a one-time grant of stock and then smaller annual grants. The shareholders were asked to ratify the plan. They did so and after ratification P took this suit. P asserts that the proxy statement was materially incomplete and misleading because it did not include the estimated present value of the stock option grants and that the directors had a present duty to disclose that present value of the options. P also alleges that the grants did not offer reasonable assurance to Mattel that it would receive adequate value in exchange for such grants and that such grants were excessively large for director compensation in relation to the value of their service to Mattel; thus granting the option was a breach of fiduciary duty. P also maintains an entire fairness claim because the transaction is a self-interested transaction and as such the directors must justify it as entirely fair in order to avoid a breach of loyalty claim. D filed a motion to dismiss for failure to state a claim upon which relief may be granted. The court refused to adopt a rule that would require directors to disclose the estimated value of the plan in order to fulfill their fiduciary duty. It then addressed if the plan could be challenged on other grounds.