Ryan v. Gifford

918 A.2d 341 (Del.Ch. 2007)

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Nature of the Case

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Facts

Maxim Integrated Products is a manufacturer of linear and mixed-signal integrated circuits used in microprocessor-based electronic equipment. Maxim's board of directors and compensation committee granted stock options for the purchase of millions of shares of Maxim's common stock to Gifford (D), founder, chairman of the board, and chief executive officer, pursuant to shareholder-approved stock option plans filed with the Securities and Exchange Commission. Maxim represented that the exercise price of all stock options granted would be no less than the fair market value of the company's common stock, measured by the publicly traded closing price for Maxim stock on the date of the grant. P is a shareholder of Maxim and has continuously held shares since his Dallas Semiconductor Incorporated shares were converted to Maxim shares upon Maxim's acquisition of Dallas Semiconductor on April 11, 2001. P filed this derivative action on June 2, 2006, against Ds, members of the board and compensation committee at all relevant times. P alleges that nine specific grants were backdated between 1998 and 2002, as these grants seem too fortuitously timed to be explained as simple coincidence. All nine grants were dated on unusually low (if not the lowest) trading days of the years in question, or on days immediately before sharp increases in the market price of the company. Merrill Lynch determined that management of Maxim was remarkably effective at timing options pricing events. Merrill Lynch found that the twenty-day return on option grants to management averaged 14% over the five-year period, an annualized return of 243%, or almost ten times higher than the 29% annualized market returns in the same period. The Merrill Lynch report formed the bases for other derivative lawsuits. The suits were consolidated. All four derivative plaintiffs have stipulated to consolidate and agreed to a lead plaintiff and lead counsel structure. P alleges that Ds breached their fiduciary duties to Maxim and its shareholders. Ds moved to stay. Ds also seek dismissal under numerous theories. Ds allege that P fails to meet his burden of pleading demand futility with particularity because P does not show that the companies' directors were incapable of making an impartial decision regarding litigation. Ds state that P lacks standing to assert seven of his nine claims because he was not a shareholder when those challenged transactions occurred. Ds assert that P fails to state a claim for breach of fiduciary duty because P fails to rebut the business judgment rule. Ds contend that the statute of limitations bars the claim and cannot relying on any tolling doctrines because all relevant information was public. Ds assert that P's unjust enrichment claim fails because P does not allege the manner in which D was unjustly enriched. P never suggests that D has exercised any of the allegedly backdated options or sold any stock.