Chief Executive Officer/Clerk Case #1-12-CV-231541 Filing ... · PDF fileGoodwin v. Live...

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MPA ISO DEMURRER CASE NO. 1-12-CV-231541

DEAN S. KRISTY (CSB No. 157646)KEVIN P. MUCK (CSB No. 120918) JAMES J. VARELLAS (CSB No. 253633) MARIE C. BAFUS (CSB No. 258417) FENWICK & WEST LLP 555 California Street, 12th Floor San Francisco, California 94104 Telephone: (415) 875-2300 Facsimile: (415) 281-1350 Attorneys for Defendants Symantec Corporation, Stephen M. Bennett, Michael A. Brown, Frank E. Dangeard, Stephen E. Gillett, Geraldine B. Laybourne, David L. Mahoney, Robert S. Miller, Daniel H. Schulman and V. Paul Unruh

SUPERIOR COURT OF THE STATE OF CALIFORNIA

COUNTY OF SANTA CLARA

NATALIE GORDON, on behalf of herself and all others similarly situated,

Plaintiff,

v.

SYMANTEC CORPORATION, et al.,

Defendants.

Case No. 1-12-CV-231541

DEFENDANTS’ MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER TO CLASS ACTION COMPLAINT Date: February 22, 2013 Time: 9:00 a.m. Dept: 1 Case Filed: September 4, 2012

E-FILEDNov 20, 2012 3:25 PM

David H. YamasakiChief Executive Officer/Clerk

Superior Court of CA, County of Santa ClaraCase #1-12-CV-231541 Filing #G-48859

By M. Huerta, Deputy

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MPA ISO DEMURRER i CASE NO. 1-12-CV-231541

TABLE OF CONTENTS Page

I. INTRODUCTION ............................................................................................................... 1

II. FACTS ................................................................................................................................. 2

A. Parties .......................................................................................................................... 2

B. Background ................................................................................................................. 2

1. Dodd-Frank and Advisory Say-on-Pay Votes ............................................. 2

2. The 2012 Proxy And The Say-On-Pay Proposal ......................................... 3

C. Procedural History And The Shareholder Vote .......................................................... 4

III. GOVERNING LEGAL STANDARDS ............................................................................... 5

IV. PLAINTIFF LACKS STANDING BECAUSE ANY CLAIMS ARE DERIVATIVE ..................................................................................................................... 6

A. Derivative vs. Direct Claims Under Delaware Law .................................................... 6

B. Plaintiff Cannot Allege Any Direct Injury As A Result Of The Proxy And The Say-on-Pay Vote, Much Less Injury That Is Independent Of Alleged Harm To Symantec ........................................................................................ 7

C. Plaintiff Does Not Allege She Has Satisfied The Demand Requirement ................... 8

V. EVEN IF PLAINTIFF COULD ASSERT A DIRECT CLAIM, SHE FAILS TO ALLEGE A CAUSE OF ACTION FOR BREACH OF FIDUCIARY DUTY ............. 9

A. Under Delaware Law, Claims For Breach Of The Duty Of Care Are Barred, And Plaintiff Must Allege The Directors Breached The Duty Of Loyalty ................................................................................................................... 9

B. Plaintiff Does Not Adequately Allege That The Directors Breached The Duty Of Loyalty By Failing To Include Additional Information In The Proxy ......................................................................................................................... 10

1. Plaintiff Must Plead Facts Showing That The Directors Deliberately And Wrongfully Omitted Material Information ................................................................................................. 10

2. The Complaint Fails To Plead Any Material Omission, Let Alone One That Was The Product Of A Breach Of The Duty Of Loyalty .................................................................................................. 11

a. Information Regarding Mercer And Its Work ............................... 11

b. Information Regarding Other Companies ...................................... 13

c. Discussion Of “How” Directors Made Certain Decisions ............. 14

E-FILED: Nov 20, 2012 3:25 PM, Superior Court of CA, County of Santa Clara, Case #1-12-CV-231541 Filing #G-48859

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MPA ISO DEMURRER ii CASE NO. 1-12-CV-231541

3. Plaintiff Does Not Plead Any Injury Resulting From The Proxy .......................................................................................................... 15

C. Plaintiff Fails To Allege An Aiding And Abetting Claim Against Symantec ................................................................................................................... 15

VI. CONCLUSION .................................................................................................................. 15


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MPA ISO DEMURRER iii CASE NO. 1-12-CV-231541

TABLE OF AUTHORITIES Page(s)

CASES

Aronson v. Lewis, 473 A.2d 805 (Del. 1984), overruled on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 1998) ................................................................................................................ 8

Bader v. Anderson, 179 Cal. App. 4th 775 (2009) ........................................................................................... 6, 8, 9

Beam v. Stewart, 845 A.2d 1040 (Del. 2004) ....................................................................................................... 9

Cede & Co. v. Technicolor, Inc., 634 A.2d 345 (Del. 1993) ......................................................................................................... 9

City of Port Hueneme v. Oxnard Harbor Dist., 146 Cal. App. 4th 511 (2007) ................................................................................................... 6

Feldman v. Cutaia, 951 A.2d 727 (Del. 2008) ......................................................................................................... 8

Freedman v. Adams, 2012 WL 1345638 (Del. Ch. Mar. 30, 2012) .................................................................... 12, 13

Goodwin v. Live Entm’t, Inc., 1999 WL 64265 (Del. Ch. Jan. 25), aff’d, 741 A.2d 16 (Del. 1999) ...................................... 11

In re 3Com S’holders Litig., 2009 WL 5173804 (Del Ch. Dec. 18, 2009) ........................................................................... 11

In re Alloy, Inc. S’holder Litig., 2011 WL 4863716 (Del. Ch. Oct. 13, 2011) ......................................................... 11, 13, 14, 15

In re Baxter Int’l, Inc. S’holders Litig., 654 A.2d 1268 (Del. Ch. 1995) ............................................................................................... 10

In re Citigroup, Inc. S’holder Deriv. Litig., 964 A.2d 106 (Del. Ch. 2009) ................................................................................................... 9

In re Cogent, Inc. S’holder Litig., 7 A.3d 487 (Del. Ch. 2010) ..................................................................................................... 11

In re Delphi Fin. Grp. S’holder Litig., 2012 WL 729232 (Del. Ch. Mar. 6, 2012) .............................................................................. 12

In re J.P Morgan Chase & Co. S’holder Litig., 906 A.2d 808 (Del. Ch. 2005), aff’d, 906 A.2d 766 (Del. 2006) .......................................... 7, 8

In re McAfee, Inc. S’holder Litig., Order Adopting Tentative Ruling, No. 1-10-CV-180413 (Santa Clara Sup. Ct., Nov. 2, 2012) ......................................................................................... 7

In re Micromet, Inc. S’holders Litig., 2012 WL 681785 (Del. Ch. Feb. 29, 2012) ............................................................................ 13

In re Sauer-Danfoss Inc. S’holders Litig., 2011 WL 2519210 (Del. Ch. Apr. 29, 2011) .......................................................................... 15

In re Transkaryotic Therapies, Inc., 954 A.2d 346 (Del. Ch. 2008) ................................................................................................... 7


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MPA ISO DEMURRER iv CASE NO. 1-12-CV-231541

In re Tyson Foods, Inc. S’holder Litig., 919 A.2d 563 (Del. Ch. 2007) ................................................................................................... 7

In re Walt Disney Co. Deriv. Litig. 907 A.2d 693 (Del. Ch. 2005), aff’d, 906 A.2d 27 (Del. 2006) ................................................ 9

In re Western Nat’l Corp. S’holders Litig., 2000 WL 710192 (Del. Ch. May 22, 2000) ............................................................................ 13

J.I. Case Co. v. Borak, 377 U.S. 426 (1964), abrogated on other grounds by Corr. Servs. Corp. v.

Malesko, 534 U.S. 61 (2001) .................................................................................................... 7

Khanna v. McMinn, 2006 WL 1388744 (Del. Ch. May 9, 2006) ............................................................................ 11

Knee v. Brocade Comm. Sys., Inc., Case No. 1-12-CV-220249, Order After Hearing (Santa Clara Super. Ct. Apr. 10, 2012) ................................................................................................................................. 13

Laborers’ Local v. Intersil, 2012 WL 762319 (N.D. Cal. Mar. 7, 2012) .............................................................................. 2

Lewis v. Vogelstein, 699 A.2d 327 (Del. Ch. 1997) ................................................................................................. 13

Los Altos Golf & Country Club v. County of Santa Clara, 165 Cal. App. 4th 198 (2008) ................................................................................................... 5

Loudon v. Archer-Daniels-Midland Co., 700 A.2d 135 (Del. 1997) ................................................................................................ passim

Malpiede v. Townson, 780 A.2d 1075 (Del. 2001) ............................................................................................... 10, 15

McMillan v. Intercargo Corp., 768 A.2d 492 (Del. Ch. 2000) ................................................................................................. 10

Moore v. Regents of Univ. of California, 51 Cal. 3d 120 (1990) ............................................................................................................... 5

Pfeffer v. Redstone 965 A.2d 676 (Del. 2009) ...................................................................................................... 10

Rales v. Blasband, 634 A.2d 927 (Del. 1993) ......................................................................................................... 9

Ravenswood Inv. Co. v. Winmill, 2011 WL 2176478 (Del. Ch. May 31, 2011) ............................................................................ 8

Skeen v. Jo-Ann Stores, Inc., 750 A.2d 1170 (Del. 2000) ......................................................................................... 10, 12, 14

Solomon v. Armstrong, 747 A.2d 1098 (Del. Ch. 1999), aff’d, 746 A.2d 277 (Del. 2000) .......................................... 14

Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004) ................................................................................................... 6, 8

Van de Walle v. Unimation, Inc., 1991 WL 29303 (Del. Ch. Mar. 7, 1991) ................................................................................ 14

Vaughn v. LJ Int’l, Inc., 174 Cal. App. 4th 213 (2009) ................................................................................................... 6


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MPA ISO DEMURRER v CASE NO. 1-12-CV-231541

Wayne Co. Empl. Ret. Sys. v. Corti, 2009 WL 2219260 (Del. Ch. July 24, 2009), aff’d, 996 A.2d 795 (Del. 2010) ....................................................................................... passim

Wood v. Baum, 953 A.2d 136 (Del. 2008) ..................................................................................................... 6, 9

STATUTES

8 Del. C. § 102(b)(7) ................................................................................................................. 9, 10

15 U.S.C. § 78n-1 ............................................................................................................................ 2

15 U.S.C. § 78n-1(c) ....................................................................................................................... 3

California Code of Civil Procedure

§ 430.10(e) ................................................................................................................................ 5

§ 430.70 ..................................................................................................................................... 6

California Evidence Code

§ 452(c) ................................................................................................................................... 10

§ 452(h) ................................................................................................................................... 10

OTHER AUTHORITIES

17 C.F.R. § 229.407(e)(iii)(A) ...................................................................................................... 13


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MPA ISO DEMURRER 1 CASE NO. 1-12-CV-231541

I. INTRODUCTION

Plaintiff brings suit based on just one theory: that the directors of Symantec Corporation

(“Symantec” or the “Company”), in connection with an advisory non-binding shareholder vote on

executive compensation for fiscal 2012, allegedly breached their fiduciary duties by failing to

include certain information in the Company’s proxy statement. As the Court will recall, plaintiff

sought to enjoin that advisory vote, but was unable to make the necessary showing – among other

things, she could not demonstrate a likelihood of success on her disclosure claims. Accordingly,

the vote proceeded as scheduled on October 23, 2012, and was overwhelmingly approved. Despite

that fact, and despite that her Complaint is focused entirely on the purported need to prevent the

advisory vote from occurring, plaintiff nonetheless continues to press her claims.

Whatever the reason may be for that curious decision, it is clear that the Complaint fails to

state a cause of action. As discussed below, now that the vote has occurred, neither plaintiff nor

any other shareholder can assert a direct claim against the directors based on alleged deficiencies in

the Proxy. Instead, governing Delaware law provides that, if plaintiff could show that some harm

flowed from the advisory vote (which she cannot do), such harm would be to Symantec. Hence,

any claim would belong to the Company, plaintiff would lack standing to assert such a claim, and

her Complaint cannot withstand demurrer.

Even if plaintiff could clear that insuperable obstacle and somehow show that she is

entitled to assert direct claims, the Complaint still could not survive demurrer. Plaintiff is unable

to allege (as she must) facts to show that the information purportedly “omitted” from Symantec’s

Proxy was material. Additionally, Delaware law requires plaintiff to plead particularized facts

showing that any alleged nondisclosure was the product of intentional, bad faith conduct on the

part of the directors – i.e., that the directors breached their duty of loyalty. The Complaint does not

begin to allege such facts. Plaintiff must also plead that the supposed omissions caused the

shareholders to suffer actual injury. Given that her Complaint assails only a non-binding

retrospective shareholder resolution, it is hardly surprising that she is also unable to satisfy that

element. For all of these reasons, defendants’ demurrer to the Complaint should be sustained

without further leave to amend.


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II. FACTS

A. Parties

Symantec is a Delaware corporation headquartered in Mountain View. The Company

provides security, storage and systems management solutions to a wide array of customers, ranging

from consumers and small businesses to the largest global organizations. Comp. ¶¶ 9, 28.

Symantec’s board of directors has nine members, eight of whom are independent directors:

Michael A. Brown, Chairman of Line 6, Inc.; Frank E. Dangeard, Managing Partner of Harcourt

and former CEO of Thomson S.A.; Stephen E. Gillett, Executive Vice President and President,

Best Buy Digital, Global Marketing and Strategy, Best Buy Co., Inc.; Geraldine B. Laybourne,

Chairman of Alloy, Inc. and former CEO of Oxygen Media; David L. Mahoney, former co-CEO of

McKesson HBOC, Inc.; Robert S. Miller, CEO of Hawker Beechcraft, Inc.; Daniel H. Schulman,

Group President, Enterprise Group, American Express and former CEO of Virgin Mobile USA,

Inc.; and V. Paul Unruh, retired Vice Chairman of Bechtel Group, Inc. Comp. ¶¶ 10-18; Proxy

Statement (“Proxy”), filed with the SEC on Aug. 30, 2012, at 15-19.1 The only employee director

is Stephen M. Bennett, who became CEO of Symantec in July 2012. Id. at 15.

Plaintiff Natalie Gordon is a Symantec shareholder who purports to bring suit on behalf of a

class comprising all holders of the Company’s common stock. Comp. ¶¶ 8, 20. She is a frequent

plaintiff in shareholder litigation throughout the country.2

B. Background

1. Dodd-Frank and Advisory Say-on-Pay Votes

In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-

Frank”) became effective. One of its provisions was to require (starting in 2011) public companies

“to conduct a non-binding shareholder vote on executive compensation at least once every three

years.” Laborers’ Local v. Intersil, 2012 WL 762319, at *7 (N.D. Cal. Mar. 7, 2012) (citing 15

U.S.C. § 78n-1). These advisory resolutions are commonly referred to as “say-on-pay” votes. Id.

1 A copy of the Proxy, which is referred to and quoted throughout the Complaint (see, e.g., ¶¶ 2, 3, 5, 29-31) is attached as Ex. 1 to the Decl. of Kevin P. Muck (“Muck Decl.”). As set forth in Defendants’ Request for Judicial Notice (“RJN”), the Court may consider the Proxy in connection with defendants’ demurrer. 2 See Opp. to Motion for Preliminary Injunction (“Opp. to PI Mot.”), filed Oct. 9, 2012, at 3 n.3.


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Dodd-Frank expressly provides that the say-on-pay requirement does not alter the fiduciary duties

of directors or impose additional fiduciary duties upon them. 15 U.S.C. § 78n-1(c).

Pursuant to Dodd-Frank, Symantec conducted an advisory say-on-pay vote at its October

25, 2011 annual shareholder meeting. Proxy at 37. Stockholders overwhelmingly approved the

proposal, with more than 98% of the outstanding shares voting in favor. Id.

2. The 2012 Proxy And The Say-On-Pay Proposal

In advance of Symantec’s October 23, 2012 annual shareholder meeting, the Company filed

the Proxy with the SEC on August 30 and distributed it to stockholders. Comp. ¶ 2. The Proxy

describes four matters on which shareholders would be asked to vote. Id. ¶ 3; Proxy at 15-28.

Proposal No. 3 – the say-on-pay resolution – asked shareholders “to cast an advisory vote to

approve the [fiscal 2012] compensation of our named executive officers [NEOs], as disclosed in

this proxy statement.” Id. at 25. See also Comp. ¶¶ 3, 30.

In connection with Proposal No. 3, shareholders were directed to, and “encouraged to read,”

the CD&A section of the Proxy – along with the accompanying “compensation tables and narrative

discussion” – for a detailed discussion of Symantec’s executive pay. Proxy at 25. Within the text

of Proposal No. 3, the Proxy summarizes how officers are compensated “consistent with our pay-

for-performance philosophy and corporate governance best practices.” The summary notes that:

for fiscal 2012, about 91% of CEO target total direct compensation was at risk, and 89% of the

target total direct compensation for other officers was at risk; in 2012, NEOs were granted

restricted stock units (RSUs) rather than stock options, and explains the metrics for performance-

based RSUs; new ownership guidelines were adopted in April 2012, requiring executives to hold a

higher minimum value in Symantec stock; and while cash incentive compensation is designed to

reward performance, it is capped to guard against excessive risk-taking. Id. Shareholders were

advised that the vote on Proposal No. 3 is “advisory, and therefore not binding.” Id.

The CD&A contains a comprehensive discussion of Symantec’s approach to executive

compensation and its implementation by the Compensation Committee. Proxy at 34-53.3 In

3 The Compensation Committee consists solely of independent directors. During fiscal 2012, the Chair was Mr. Schulman; the other members were Ms. Laybourne, Mr. Mahoney and Mr. Bennett (who resigned from the Committee when he became CEO in July 2012). Proxy at 53.


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particular, the CD&A provides detailed information regarding, among other things, the following:

The five NEOs and their compensation (both in fiscal 2011 and 2012), including analyses of the components of their compensation – i.e., their base salaries and amounts earned under Symantec’s Executive Annual Incentive Plan and Long Term Incentive Plan, as well as equity incentive awards granted to them (id. at 34, 41-49);

Symantec’s compensation philosophy and practices, the goal of tying compensation to current and long-term performance, and specific decisions in fiscal 2012 to further that goal – e.g., reducing fixed components of executive compensation, increasing variable performance-based targets, shifting target pay positioning for executives from the 65th percentile to 50th percentile of the relevant market composite for salary, moving toward the 65th percentile for other performance-based pay elements, granting RSUs rather than stock options, and enhancing stock ownership guidelines for executives (id. at 34);

CEO compensation for 2010, 2011 and 2012, and factors considered in addressing compensation for the newly-appointed CEO (Mr. Bennett) in fiscal 2013 (id. at 36);

A detailed discussion of factors considered by the Compensation Committee, including pay-for-performance, a “total rewards” approach, market positioning, competitive market assessments, and the appropriate pay mix for executives (id. at 38-41);

Competitive factors facing Symantec in attracting and retaining executives (id. at 39);

The Compensation Committee’s use of various market data to evaluate NEO pay, including a peer group of 15 technology companies in different market segments (id.);

Other policies and procedures to ensure that overall compensation structure is responsive to stockholder interests and competitive with the market (id. at 51-53).

C. Procedural History And The Shareholder Vote

Plaintiff filed her Complaint on September 4, 2012, based on the theory that the Proxy is

deficient with respect to the say-on-pay proposal. Notably, the Complaint does not allege anything

in the Proxy is false. Instead, it merely avers that additional details should have been included

regarding: (i) work performed by Mercer, the outside consultant (Comp. ¶ 31(a)-(b)); (ii) data

regarding other companies considered by the Compensation Committee in setting executive

compensation (id. ¶ 31(c)-(e)); and (iii) “how the Board and/or the … Compensation Committee”

chose certain guidelines for executive compensation (id. ¶ 31(f)-(h)). Based on these averments,

plaintiff claims Symantec’s directors breached their fiduciary duties, and that the Company is

liable as an “aider and abettor.” Id. ¶¶ 33-38, 41-42. Although the Complaint’s prayer contains a

cursory reference to unspecified “damages” (id. at p. 12), the operative allegations make clear that

the entire purpose of bringing suit was to enjoin the say-on-pay vote. Id. ¶¶ 1, 5, 32, 38, 39.

Following document discovery, plaintiff filed a motion for preliminary injunction on

October 2. In that motion, she pared back her disclosure claims, arguing only that Symantec


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should be precluded from conducting the advisory “say-on-pay” vote pending further detail

regarding Mercer’s work and the peer group used by the Compensation Committee.4

Symantec opposed the motion on various grounds, including plaintiff’s failure to establish a

likelihood of success on the merits. In that regard, Symantec demonstrated that the allegedly

omitted information – consisting of publicly available data or additional details consistent with

what was already discussed at length in the Proxy – was not material. Opp. to PI Mot. at 8-16.

Those arguments were supported by the detailed analysis of Professor Robert Daines, who – after

examining Symantec’s Proxy and the proxy statements of 34 other corporations, including the

largest companies in Silicon Valley – concluded that the Proxy: (i) complied with applicable SEC

rules; (ii) is consistent with the goals of Dodd-Frank; and (iii) is consistent with industry

standards.5 Symantec also argued that plaintiff failed to demonstrate any irreparable harm would

result from permitting the advisory, non-binding vote to proceed. Id. at 16-18.

Plaintiff’s motion was heard on October 17. Following oral argument, the Court denied the

motion, “principally for the grounds set forth in the opposition brief by the defendants.” Transcript

of Proceedings, Oct. 17, 2012, at 21:1-6 (Muck Decl., Ex. 2). Accordingly, the October 23, 2012

annual meeting proceeded as scheduled, and shareholders overwhelmingly approved the advisory

say-on-pay proposal. Muck Decl., Ex. 3 (Form 8-K, filed with SEC on Oct. 24, 2012).

III. GOVERNING LEGAL STANDARDS

A demurrer tests the legal sufficiency of plaintiff’s allegations, and should be sustained

when the complaint does not “allege[] facts stating a cause of action under any legal theory.” Los

Altos Golf & Country Club v. County of Santa Clara, 165 Cal. App. 4th 198, 203 (2008). See also

C.C.P. § 430.10(e). In ruling on a demurrer, the Court examines the complaint “as a whole and all

its parts in their context.” Moore v. Regents of Univ. of California, 51 Cal. 3d 120, 125 (1990).

The Court does not “assume the truth of contentions, deductions, or conclusions of fact or law”

(id.), and assesses allegations in light of documents referenced in the pleading and matters subject

4 See Mem. of Pts. and Auth. in Supp. of Plaintiff’s Motion for Preliminary Injunction (“PI Mot.”), filed Oct. 2, 2012, at 11-13. 5 See, e.g., Decl. of Robert S. Daines (“Daines Decl.”), filed Oct. 9, 2012, ¶¶ 8, 9. Indeed, Professor Daines explained that not one of the 34 companies he examined provided the information that plaintiff claimed was purportedly “omitted” from Symantec’s Proxy. Id. ¶¶ 13-39.


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to judicial notice. City of Port Hueneme v. Oxnard Harbor Dist., 146 Cal. App. 4th 511, 514

(2007). See also C.C.P. § 430.70.

The determination of whether plaintiff has stated a viable cause of action must be conducted

with reference to applicable substantive law. As plaintiff acknowledged in her preliminary

injunction motion (PI Mot. at 9), her claims are governed by Delaware law. That is because

Symantec is a Delaware corporation (Comp. ¶ 9), and the claims in this case pertain solely to the

nature and scope of fiduciary duties allegedly owed by the Company’s directors – matters going to

the corporation’s “internal affairs.” Vaughn v. LJ Int’l, Inc., 174 Cal. App. 4th 213, 223 (2009).

IV. PLAINTIFF LACKS STANDING BECAUSE ANY CLAIMS ARE DERIVATIVE

A. Derivative vs. Direct Claims Under Delaware Law

At the outset, the Court must determine whether the claims asserted by plaintiff are direct

(i.e., belonging to individual shareholders) or instead are derivative and belong to the Company.

The distinction is critical because, except in extraordinary circumstances that plaintiff does not

contend are present here, an individual shareholder does not have standing to assert claims

belonging to the corporation. See, e.g., Wood v. Baum, 953 A.2d 136, 143-44 (Del. 2008).

Under Delaware law, the test for determining whether a claim is derivative or direct turns on:

“(1) who suffered the alleged harm (the corporation or the suing stockholders, individually); and

(2) who would receive the benefit of any recovery or other remedy (the corporation or the

stockholders, individually).” Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1033

(Del. 2004). See also Bader v. Anderson, 179 Cal. App. 4th 775, 801-02 (2009) (discussing

Tooley). A claim is direct only if the stockholder’s claimed injury is “independent of any alleged

injury to the corporation.” Tooley, 845 A.2d at 1039. The court must “[l]ook[] at the body of the

complaint and consider[] the nature of the wrong alleged and the relief requested” to see whether

“plaintiff [has] demonstrated that he or she can prevail without showing an injury to the

corporation.” Id. at 1036.

As discussed below, plaintiff has no direct claim. Even assuming arguendo that some harm

could be attributed to the non-binding say-on-pay vote, any putative harm would be to Symantec.


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B. Plaintiff Cannot Allege Any Direct Injury As A Result Of The Proxy And The Say-on-Pay Vote, Much Less Injury That Is Independent Of Alleged Harm To Symantec

Proxy disclosure claims may in some cases support direct relief on behalf of stockholders.

See In re J.P Morgan Chase & Co. S’holder Litig., 906 A.2d 808, 825-26 (Del. Ch. 2005), aff’d,

906 A.2d 766 (Del. 2006); Loudon v. Archer-Daniels-Midland Co., 700 A.2d 135, 138 (Del. 1997).

However, where the purported harm to stockholders is deprivation of the right to cast an informed

vote (Comp. ¶ 38), and that vote has already occurred, neither damages nor equitable relief is

available. J.P Morgan, 906 A.2d at 826-27; In re Transkaryotic Therapies, Inc., 954 A.2d 346,

361-62 (Del. Ch. 2008). Indeed, the Court addressed this issue when it granted summary judgment

in another case asserting post-vote disclosure claims on behalf of a class of shareholders:

Regarding the proxy disclosures, Plaintiffs do not address Defendants’ point that any disclosure violation cannot be remedied by monetary damages or injunctive relief. “[A] breach of the disclosure duty leads to irreparable harm… [O]nce this irreparable harm has occurred – i.e., when shareholders have voted without complete and accurate information – it is, by definition, too late to remedy the harm… [T]he right to cast an informed vote is ‘peculiar’ and specific and it cannot be adequately quantified or monetized.”

In re McAfee, Inc. S’holder Litig., Order Adopting Tentative Ruling at 11-12, No. 1-10-CV-180413

(Santa Clara Sup. Ct., Nov. 2, 2012) (Muck Decl., Ex. 4) (quoting Transkaryotic, 954 A.2d at 360-

61).6

Furthermore, to the extent any damages or other relief might even be potentially available to

address injury from proxy disclosures and the say-on-pay vote, it would be for harm to Symantec.

As the Supreme Court has held, “injury which a stockholder suffers from corporate action pursuant

to a deceptive proxy solicitation ordinarily flows from the damage done to that corporation, rather

than the damage inflicted directly upon the stockholder.” J.I. Case Co. v. Borak, 377 U.S. 426,

432 (1964), abrogated on other grounds by Corr. Servs. Corp. v. Malesko, 534 U.S. 61 (2001).

In fact, setting aside the question of whether a non-binding advisory vote can result in injury

to anyone, plaintiff suggests the say-on-pay proposal would harm Symantec. Among other things,

6 Plaintiff cannot avoid that conclusion by claiming that shareholders are entitled to pursue direct claims for “nominal” damages as a result of alleged disclosure deficiencies in the Proxy. It is well established that shareholders are not entitled to nominal damages as recompense “for their right to cast a fully-informed vote” on the election of directors. In re Tyson Foods, Inc. S’holder Litig., 919 A.2d 563, 601-02 (Del. Ch. 2007). Rather, nominal damages are available only in limited circumstances “where directors have breached their disclosure duties in a corporate transaction that has in turn caused impairment to the economic or voting rights of stockholders.” Loudon, 700 A.2d at 142. Plaintiff does not (and cannot) allege any such “corporate transaction” here.


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plaintiff avers the vote will result in improperly sanctioning its “executive compensation practices”

(Comp. ¶ 35), somehow permit the defendants to “engage[e] in self-dealing” (id. ¶ 22(b)), allow

directors and other insiders to “unjustly enrich[] themselves” (id. ¶ 22(c)), and have some “dilutive

effect” (Comp. ¶¶ 22(e), 38). Such claims necessarily entail injury to the Company and, as a result,

are derivative. See Ravenswood Inv. Co. v. Winmill, 2011 WL 2176478, at *6 (Del. Ch. May 31,

2011) (claims that individuals received improper compensation from company “are derivative and

are not direct”); Bader, 179 Cal. App. 4th at 801 (allegedly improper executive compensation

“consisted of harm to the corporation itself” and are derivative); Feldman v. Cutaia, 951 A.2d 727,

732-33 (Del. 2008) (holding that dilution claims involved injury to corporation). Put another way,

neither plaintiff nor her fellow shareholders can show harm “independent of any alleged injury to

the corporation.” Tooley, 845 A.2d 1036, 1039. See also J.P. Morgan, 906 A.2d at 826.

That conclusion is not altered in any way by the fact that plaintiff claims to sue directly based

on an allegedly misleading proxy. In Bader, as here, plaintiff purported to bring a “direct” claim

based on denial of the shareholders’ right to cast an “informed vote” in light of an allegedly

misleading proxy. Bader, 179 Cal. App. 4th at 801. In analyzing the claim under both California

and Delaware law (and, specifically, under Tooley), the Bader court found that alleged damage to

shareholders would consist of nothing more than diminution in stock value. Such injury was not

independent of alleged harm to the corporation, and the claim was therefore derivative. Id. The

court also rejected any suggestion that shareholders can assert direct claims by alleging that “their

vote … was essentially subverted by the Proxy Statement claimed to have contained

misrepresentations and material omissions,” noting that such an argument would impermissibly

“transform truly derivative claims into direct ones simply because conduct causing direct corporate

harm had an indirect impact in some fashion on the shareholders as well.” Id. at 801-02.

C. Plaintiff Does Not Allege She Has Satisfied The Demand Requirement

Because the alleged claims are derivative, the inquiry turns next to the issue of standing to

assert claims belonging to the Company. “A cardinal precept of the General Corporation Law of

the State of Delaware is that directors, rather than shareholders, manage the business and affairs of

the corporation.” Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984), overruled on other grounds by


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Brehm v. Eisner, 746 A.2d 244 (Del. 1998). Accordingly, a shareholder who wishes to assert

derivative claims on behalf of a Delaware corporation must plead with particularity that she made

pre-suit demand on the board of directors or, alternatively, the reasons why demand is excused. Id.

This requirement may be excused only in those rare instances where demand would be futile – i.e.,

where plaintiff can plead particularized facts showing that a majority of the board is incapable of

exercising its independent business judgment in deciding whether to pursue litigation. Beam v.

Stewart, 845 A.2d 1040, 1048 (Del. 2004); Rales v. Blasband, 634 A.2d 927, 934 (Del. 1993).

Here, plaintiff does not even purport to satisfy the demand requirement, and hence she has

no standing to assert claims on Symantec’s behalf. Wood, 953 A.2d at 143-44. Defendants’

demurrer must therefore be sustained. See id. See also Bader, 179 Cal. App. 4th at 799.

V. EVEN IF PLAINTIFF COULD ASSERT A DIRECT CLAIM, SHE FAILS TO ALLEGE A CAUSE OF ACTION FOR BREACH OF FIDUCIARY DUTY

A. Under Delaware Law, Claims For Breach Of The Duty Of Care Are Barred, And Plaintiff Must Allege The Directors Breached The Duty Of Loyalty

Fiduciary duty claims against directors implicate either the duty of care or duty of loyalty.

See Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 367 (Del. 1993); Wayne Co. Empl. Ret. Sys. v.

Corti, 2009 WL 2219260, at *8 (Del. Ch. July 24, 2009), aff’d, 996 A.2d 795 (Del. 2010). The

duty of care requires directors to act as “ordinarily careful and prudent men would … in similar

circumstances,” and “‘consider all material information reasonably available’ in making business

decisions.” In re Walt Disney Co. Deriv. Litig. 907 A.2d 693, 749 (Del. Ch. 2005) (quotations

omitted), aff’d, 906 A.2d 27 (Del. 2006). The duty of loyalty centers on the obligation to refrain

from deliberately acting at odds with the interests of shareholders. See In re Citigroup, Inc.

S’holder Deriv. Litig., 964 A.2d 106, 124-25 (Del. Ch. 2009). A claim for breach of the duty of

loyalty requires a showing that directors engaged in fraud or intentional misconduct, acted in bad

faith, or improperly benefited at the expense of the corporation or its shareholders. Corti, 2009

WL 2219260, at *14; Wood, 953 A.2d at 141.

Pursuant to 8 Del. C. § 102(b)(7), Symantec’s stockholders adopted a provision (contained

in its certificate of incorporation) precluding claims against the Company’s directors to the fullest

extent permitted by Delaware law. See Article 7 of Symantec’s Amended and Restated Certificate


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of Incorporation (Muck Decl., Ex. 5).7 That provision mandates dismissal of any claim for

damages based on allegations that the directors breached the duty of care. Malpiede v. Townson,

780 A.2d 1075, 1093-94 (Del. 2001). As the Delaware Supreme Court said in affirming dismissal

of an action at the pleading stage, “even if the plaintiffs had stated a claim for gross negligence,

such a well-pleaded claim is unavailing because defendants have brought forth the Section

102(b)(7) charter provision that bars such claims. This is the end of the case.” Id. at 1094-95.

Since the vote has occurred and an injunction is no longer available, plaintiff is left with her

prayer for “appropriate damages.” Comp. at p. 12. Given that and the exculpatory provision, the

directors can only be liable for “bad faith, self-interested, or other intentional misconduct rising to

the level of a breach of the duty of loyalty.” McMillan v. Intercargo Corp., 768 A.2d 492, 502

(Del. Ch. 2000). Conclusory averments do not suffice to plead that the directors violated the duty

of loyalty. Pfeffer v. Redstone, 965 A.2d 676, 685 (Del. 2009); Corti, 2009 WL 2219260, at *9.

B. Plaintiff Does Not Adequately Allege That The Directors Breached The Duty Of Loyalty By Failing To Include Additional Information In The Proxy

1. Plaintiff Must Plead Facts Showing That The Directors Deliberately And Wrongfully Omitted Material Information

To state a fiduciary duty claim against directors for nondisclosures, plaintiff must plead

with particularity what “facts are missing from the proxy statement, identify those facts, state why

they meet the materiality standard and how the omission caused injury.” Loudon, 700 A.2d at 141.

The threshold for materiality is high: there must be a “substantial likelihood that the undisclosed

information would significantly alter the total mix of information already provided.” Skeen v. Jo-

Ann Stores, Inc., 750 A.2d 1170, 1174 (Del. 2000). Allegations that additional information “might

be helpful” are insufficient. Id. An omitted fact is material only if the omitted fact would have

“significantly altered the ‘total mix’ of information made available.” Id. at 1172. In other words:

To be actionable, there must be a substantial likelihood that the undisclosed information would significantly alter the total mix of information already provided. [Plaintiff must identify] facts suggesting that the undisclosed information is inconsistent with, or otherwise significantly differs from, the disclosed information.

Id. at 1174 (emphasis added).

7 The certificate is properly subject to judicial notice. Cal. Evid. Code § 452(c), (h); see also In re Baxter Int’l, Inc. S’holders Litig., 654 A.2d 1268, 1270 (Del. Ch. 1995).


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Because directors consider a vast array of data in making decisions, courts reject claims

that “all information about a particular subject” must be disclosed. In re Cogent, Inc. S’holder

Litig., 7 A.3d 487, 509-10 (Del. Ch. 2010). Instead, “[s]o long as the proxy…viewed in its

entirety, sufficiently discloses and explains the matter to be voted on, the omission or inclusion of

a particular fact is generally left to management’s business judgment.” In re 3Com S’holders

Litig., 2009 WL 5173804, at *1 (Del Ch. Dec. 18, 2009). Additionally, “material[ity] is context-

specific.” Khanna v. McMinn, 2006 WL 1388744, at *29 (Del. Ch. May 9, 2006). Information

that might be important to shareholders in the context of a significant transaction such as a merger

– in which shareholders are faced with a decision where the stakes are enormous, valuation is

central, and the company disappears if the deal is approved – may not be material in other

situations. Here, plaintiff bears the burden of pleading facts to show that any allegedly omitted

information would have been material to shareholders in the context of a non-binding, advisory

shareholder vote on last year’s compensation.

Moreover, since (as noted) Symantec’s certificate of incorporation precludes claims for

violation of the duty of care, it is not enough to plead that an alleged omission is material. Plaintiff

must also plead specific facts showing that any nondisclosure was “intentional or unfaithful.”

Goodwin v. Live Entm’t, Inc., 1999 WL 64265, at *17 (Del. Ch. Jan. 25), aff’d, 741 A.2d 16 (Del.

1999). See also Corti, 2009 WL 2219260, at *9 (disclosure claim deficient absent facts showing

directors violated the duty of loyalty); In re Alloy, Inc. S’holder Litig., 2011 WL 4863716, at *14

(Del. Ch. Oct. 13, 2011) (dismissing disclosure claims where plaintiff failed to plead facts that

directors violated “their duty of loyalty or acted in bad faith”).

2. The Complaint Fails To Plead Any Material Omission, Let Alone One That Was The Product Of A Breach Of The Duty Of Loyalty

a. Information Regarding Mercer And Its Work

The allegation that the Proxy “fails to disclose a fair summary of the Competitive Market

Analysis performed by Mercer” (Comp. ¶ 31(a)) does nothing to state a claim.8 Plaintiff fails to

plead (as she must) what specific facts are supposedly “missing” from the Proxy, or “why [those

8 Notably, plaintiff did not bother to press this claim in her preliminary injunction motion.


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allegedly omitted facts] meet the materiality standard.” Loudon, 700 A.2d at 141. Plaintiff’s

failure is especially noteworthy given the Proxy’s discussion of the competitive market factors

considered by the Compensation Committee and Mercer, including “publicly-disclosed data” from

15 enumerated peer companies, compensation information from “a broader group of information

technology companies,” comparison of “specific job scope and responsibilities,” and competition

Symantec faces in addressing its leadership talent needs (from other software firms, the broader

information technology industry, and a wider array of companies in the geographic areas in which

Symantec operates). Proxy at 38-39. Put simply, the Complaint does not allege that there is any

additional “undisclosed” information pertaining to Mercer’s “competitive market analysis” work

that “is inconsistent with, or otherwise significantly differs from, the disclosed information”

(Skeen, 750 A.2d at 1174) – let alone that the directors intentionally chose to omit such information

in derogation of their duty of loyalty. See Corti, 2009 WL 2219260, at *9.

Likewise, plaintiff’s assertion that Symantec was required to disclose further details of

Mercer’s non-compensation work (Comp. ¶ 31(b)) is meritless. The Proxy states that: Mercer was

paid $187,000 in fiscal 2012 for executive compensation work; Mercer (and affiliates) received

about $1.898 million for unrelated services, which were approved by management in the ordinary

course of business; and those other services were not reviewed or approved by the Compensation

Committee. Proxy at 37-38. The Proxy also notes that, “[b]ased in part on policies and procedures

implemented by Mercer to ensure the objectivity of its executive compensation consultants, the

Compensation Committee believes that the consulting advice it receives from Mercer is objective

and not influenced by Mercer’s or its affiliates’ other relationships with Symantec.” Id. at 38.

In light of these disclosures, plaintiff does not (and cannot) allege there were any additional

details that would have altered the total mix of information. Skeen, 750 A.2d at 1172, 1174. See

also Freedman v. Adams, 2012 WL 1345638, at *17 (Del. Ch. Mar. 30, 2012) (rejecting this

variety of “tell me more” disclosure claims and noting that “[a] challenged omission must be

material, not just merely helpful”); In re Delphi Fin. Grp. S’holder Litig., 2012 WL 729232, at *18

(Del. Ch. Mar. 6, 2012) (rejecting “tell me more” variety of disclosure claims given the quantity

and quality of the disclosures provided in the proxy statement). Moreover, plaintiff does not begin


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to plead facts sufficient to show that the failure to provide further details was the product of bad

faith. Alloy, 2011 WL 4863716, at *14. Plaintiff’s inability to plead materiality and bad faith are

underscored by the fact that the SEC has explicitly promulgated disclosure requirements for

compensation consultants who perform other services, and the Proxy complied fully with those

requirements. See Item 407(e)(3)(iii)(A) of SEC Regulation S-K, 17 C.F.R. § 229.407(e)(iii)(A).9

b. Information Regarding Other Companies

Plaintiff fares no better with allegations that defendants should have disclosed additional

information relating to other companies considered by the Compensation Committee. Despite the

averment that the “the criteria used to select the … Peer Group” were omitted (Comp. ¶ 31(c)), the

Proxy not only lists the peer companies but also explains that the group was designed to encompass

a broader group of technology companies in different market segments of a comparable size to

Symantec. Proxy at 39. The Proxy also explained the factors that led the Committee to determine

a broader group was appropriate: e.g., Symantec competes for executive talent with a wider group

(not merely other software companies) and stockholders measure its performance against a broad

array of technology peers. Id. The Complaint fails to plead that any other details would have been

material to shareholders. Freedman, 2012 WL 1345638, at *17. Nor can plaintiff show Symantec

was obligated to summarize “executive compensation data” for peer companies, or compare “burn

rate[s]” and “overhang” to other companies. Comp. ¶¶ 31(c), (e). As discussed in connection with

the preliminary injunction motion (Opp. to PI Mot. at 10-12), not only does plaintiff fail to plead

that such data would be anything other than immaterial detail, it is well established that proxies

need not disclose such publicly available information. Knee v. Brocade Comm. Sys., Inc., No. 1-

12-CV-220249, Order After Hearing at 8 (Santa Clara Super. Ct. Apr. 10, 2012); In re Micromet,

Inc. S’holders Litig., 2012 WL 681785, at *12 (Del. Ch. Feb. 29, 2012).

9 Specifically, Item 407(e)(3)(iii)(A) requires a company to disclose: (i) the aggregate fees for compensation-related work; (ii) the aggregate fees for non-compensation related work by the consultant or its affiliates; (iii) whether the decision to engage the consultant or its affiliates for unrelated services was made or recommended by management; and (iv) whether the compensation committee approved such other services of the consultant or its affiliates. It is important to note that where (as here) the SEC has adopted disclosure rules, courts are extremely reluctant to upset that regulatory scheme by adding judicially-imposed disclosure requirements. See, e.g., In re Western Nat’l Corp. S’holders Litig., 2000 WL 710192, at *29 (Del. Ch. May 22, 2000) (no requirement that directors provide proxy disclosures beyond those mandated by the SEC); Lewis v. Vogelstein, 699 A.2d 327, 332-33 (Del. Ch. 1997) (same).


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Plaintiff also fails to demonstrate that there was any need to provide “survey data” that the

Compensation Committee may have considered in “target[ing] … executive compensation.”

Comp. ¶ 31(d). The Proxy discusses at length the specific compensation components and targets

for individual Symantec officers, the process by which those targets were set, factors considered by

the Compensation Committee, and how actual performance compared to targets. Proxy at 34-48.

In light of that comprehensive discussion, it is not surprising that plaintiff is unable to plead that

providing unspecified “survey data” would do anything other than bury shareholders with needless

minutiae. See Van de Walle v. Unimation, Inc., 1991 WL 29303, at *16 (Del. Ch. Mar. 7, 1991)

(“A proxy statement need not disclose all the wealth of detail presented to or considered by the

corporation’s directors and advisors, whether or not material”). See also Solomon v. Armstrong,

747 A.2d 1098, 1130 (Del. Ch. 1999), aff’d, 746 A.2d 277 (Del. 2000) (directors should not be

“forced to bury the shareholders in an avalanche of trivial information. Otherwise, shareholder

solicitations would become so detailed and voluminous that they will no longer serve their

purpose.”) (quotations and citations omitted).

Furthermore, the Complaint is devoid of facts even hinting at bad faith or intent to mislead

shareholders. In other words, even if plaintiff could plead that additional information regarding

other companies was material (which she cannot do), the Complaint still fails to provide any basis

for concluding that such purported omissions would support a non-exculpated claim against the

directors for breach of the duty of loyalty. Alloy, 2011 WL 4863716, at *14.

c. Discussion Of “How” Directors Made Certain Decisions

Finally, the Complaint alleges that the Proxy failed to disclose “how” the directors set

certain guidelines for fiscal 2012 (i.e., reducing target pay positioning for salaries to the 50th

percentile, increasing target positioning for performance-based compensation to the 65th percentile,

and increasing stock ownership guidelines). Comp. ¶¶ 31(f)-(h). Significantly, plaintiff ignored

these allegations in her preliminary injunction motion, presumably because she recognizes there is

no conceivable basis for arguing that unspecified additional information regarding “how” the

Compensation Committee established the guidelines (whatever that is supposed to mean) would be

material. Skeen, 750 A.2d at 1172, 1174. See also Loudon, 700 A.2d at 145 (affirming dismissal


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of a claim that did not identify disclosure violations but rather “pose[d] a question”); In re Sauer-

Danfoss Inc. S’holders Litig., 2011 WL 2519210, at *12 (Del. Ch. Apr. 29, 2011) (asking “why” is

insufficient to plead a disclosure claim). Indeed, to the extent that plaintiff suggests shareholders

might have wanted to know the underlying factors and rationale for these decisions, the Proxy

provides a detailed discussion of those very matters. See Proxy at 34-35, 38-47. Plaintiff cannot

show that anything more was required – much less that the directors believed more information

was required and deliberately chose not to include it. Corti, 2009 WL 2219260, at *9.

3. Plaintiff Does Not Plead Any Injury Resulting From The Proxy

As noted above, plaintiff must plead facts to show how any alleged omissions “caused

injury” to shareholders. Loudon, 700 A.2d at 141. The Complaint offers no such allegations.

Indeed, plaintiff asserts that the only action implicated by the purportedly deficient proxy was the

advisory say-on-pay vote – and nowhere does she explain how shareholders could have suffered

any harm (or been affected in any way) by approval of a non-binding proposal relating to

compensation paid to executives in fiscal 2012 (which ended in March 2012). That is yet another

reason why defendants’ demurrer must be sustained.

C. Plaintiff Fails To Allege An Aiding And Abetting Claim Against Symantec

Because plaintiff does not plead an underlying breach of duty by the directors, there can be

no aiding and abetting claim against Symantec. Alloy, 2011 WL 4863716, at *14. Additionally,

the claim against Symantec would fail given the complete absence of factual allegations to show

the Company’s “knowing participation” in any breach of duty. Malpiede, 780 A.2d at 1096.

VI. CONCLUSION

Plaintiff fails to allege facts sufficient to state a cause of action against the directors or

Symantec. Consequently, defendants’ demurrer should be sustained without leave to amend.

Dated: November 20, 2012

FENWICK & WEST LLP

By /s/ Kevin P. Muck Kevin P. Muck

Attorneys for Defendants


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