William Morrison and CHARLES KIST, On Behalf of Themselves and All Others Similarly Situated, Plaintiffs,
The Hain Celestial Group, Inc., BARRY J. ALPHERIN, LEWIS D. SCHILIRO, IRWIN D. SIMON, RICHARD C. BERKE, JACK FUTTERMAN, MARINA HAHN, BRETT ICAHN, ROGER MELTZER, DAVIDE SCHECTER and LAWRENCE S. ZILAVY, Defendants.
Plaintiff's Attorney: Faruqi & Faruqi, LLP John E. Monteverde, Esq. Jaspen Schlesinger, LLP Steven Schlesinger, Esq.
Defendants' Attorney: Lynn, Gartner, Dunne & Covello, LLP Joseph Covello, Esq.
Vito M. DeStefano, J.
Motion by the plaintiffs, William Morrison and Charles Kist, for: (1) leave to amend their verified class action complaint, and; (2) further relief amending the caption so as to remove therefrom, co-plaintiff William Morrison, inasmuch as he is no longer a shareholder of the defendant corporation, The Hain Celestial Group, Inc., is granted in part and denied in part.
Cross motion by the defendants for an order pursuant to, inter alia, CPLR 3211(a)(7), dismissing the verified complaint is granted.
Factual and Procedural Background
In November 2012, the plaintiff-shareholders, William Morrison and Charles Kist, commenced the putative class action against The Hain Celestial Group, Inc ["Hain"], a Delaware corporation, and Hain's board of directors, codefendants Barry J. Alperin, Lewis D. Schiliro, Irwin D. Simon, Richard C. Berke, Jack Futterman, Marina Hahn, Brett Icahn, Roger Meltzer, David Schechter and Lawrence S. Zilavy (collectively "the Board") (Cmplt., at ¶¶ 9-21, 30).
In the complaint, the plaintiffs allege that in early October 2012, Hain, which specializes in the manufacturing of natural/organic food and personal care products, filed a "Definitive Proxy Statement in Schedule 14A" ("the Proxy") with the Securities and Exchange Commission ("SEC"). Among other things, the Proxy contained proposal "2", proposing a new executive compensation package. Significantly, the compensation package was submitted to the shareholders for an advisory vote pursuant to the so-called, Dodd-Frank "Wall Street Reform" Acts, more colloquially known as the "Say on Pay"Act (Exhibit "1" to Defendant's Cross Motion [Proxy], at pp 16, 29-52) (15 U.S.C. § 78n—1[c], ). In substance, the Dodd-Frank Act, which recites that it does not create new fiduciary obligations, mandates that publicly-traded companies permit shareholders to vote, in advisory fashion, on executive compensation at least once every three years (see 15 U.S.C. § 78n—1[c], ; Noble v AAR Corp., ___F.Supp.2d___, 2013 WL 1324915, at 3-4 [ND Ill. 2013]; Raul v Rynd, ___F.Supp.2d___, 2013 WL 1010290, at 2-3 [D Del 2013]; Assad v Hart, ___ F.Supp.2d___, 2012 WL 33220, at 3-4 [SD Cal 2012]).
The Proxy also contained a proposal "3", which would amend Hain's "amended and restated 2002 Long Term Incentive and Stock Award Plan, " by making an additional 1, 250, 000 shares of common stock available to 4, 000 eligible employees, with the new shares to be issued upon, inter alia, certain performance and/or merit-based criteria (Complaint at ¶¶ 4-5, 32-33; Covello Affirmation in Support of Defendant's Cross Motion; Exhibit "1" to Defendant's Cross Motion [Proxy] at 17-24). The Proxy advises that increasing the number of issuable shares under the 2002 plan would allow Hain to "utilize equity-based compensation awards to [motivate, ] retain and attract the services of key individuals essential to * * * [Hain's] growth and success" and permit employees to share in Hain's "future success" (Exhibit "1" to Defendant's Cross Motion [Proxy] at 18).
The class action complaint avers, however, that the materials filed by the defendants were misleading and failed to provide a "fair summary" of the "key metrics and data" relied upon by the Board with respect to both proposals (Complaint at ¶¶ 33, 36-37) . For example, the complaint alleges in substance that the Board failed to produce and disseminate a proper and complete summary of the advice and analysis provided to the Board by it's compensation consultant, Aon Hewitt, including certain peer group data relied on by the Board in arriving at the various compensation proposals (Complaint at ¶ 33). The complaint further asserts that the Board failed to disclose how the Board "selected Aon as its independent compensation consultant" and that the Proxy does not disclose what fees were paid to Aon for its services (Complaint at ¶ 33).
With respect to the stock issuance proposal, the plaintiffs similarly assert that: the Proxy does not provide adequate information relating to the issuance of the new stock; the Proxy does not disclose the criteria utilized by the Board in deciding to issue the stock at this particular juncture; the analyses developed by Aon Hewitt, on which the Board relied, were not fully revealed, and; the Proxy also fails to assess the "dilutive" impact of the new stock to be issued — which issuance, according to the plaintiffs, might not be exhausted until the year 2025 (Complaint at ¶ 40). With respect to the latter claim, the Proxy also advises that the precise amount of benefits payable pursuant to the proposed amendment are "not currently determinable" — although it provides certain illustrative examples and tables relating to categories of stock issued prior to the fiscal year ending in June of 2012 (Exhibit "1" to Defendant's Cross Motion [Proxy] at 24) According to the plaintiffs, Hain has issued approximately 44 million shares of outstanding common stock to date (Complaint at ¶¶ 10, 23[a]).
Based upon these claims and others, the complaint sets forth two causes of action. The first cause of action sounds in breach of fiduciary duty (against the individually named Board members), while the second alleges that Hain "aided and abetted" the Board members' alleged breach of fiduciary duties (Complaint at ¶¶ 42-52). With respect to the specific duties violated, the complaint avers that the Board members breached fiduciary duties of "care, loyalty, candor and good faith" by putting their interests above the shareholders" and that they acted "as part of a common plan * * * to dilute the holdings" of the plaintiffs and other shareholders (Complaint at ¶¶ 38-39).
Shortly after they commenced the within action, the plaintiffs moved by order to show cause for a temporary restraining order ("TRO") and preliminary injunction staying the shareholder vote on the two disputed proposals, which application was denied by the undersigned in an order dated November 14, 2012.
In denying the TRO, this court noted with respect to proposal 2 (executive compensation), that "omitted facts are not material simply because they might be helpful" (Skeen v Jo-Ann Stores, 1nc., 750 A.2d 1170, 1174 [Delaware Supreme Court 2000])". The court then held that "the [plaintiffs'] failure * * * to demonstrate the materiality of the information sought undercuts the required showing of irreparable injury necessary to obtain interim injunctive relief (cf., In ...