Friedman v. Dolan, C.A. No. 9425-VCN (Del. Ch. June 30, 2015), is a Delaware Court of Chancery decision that should be read by anyone who thinks they should be able to challenge allegedly excessive compensation packages granted to members of a family in a family-controlled company. This ruling granted a motion to dismiss claims related to a quite generous executive compensation package awarded to family members of a family that controlled a publicly traded company. The worth and qualifications of the family members who received the outsized wages were alleged to be have been disproportionate to the amounts they were paid. The court’s reasoning in a 37-page letter ruling was summarized thusly:
compensation decisions are not the expertise of trial judges, and the Court should not second-guess an independent compensation committee’s business decisions that are not irrational. The Court also lacks a principled way to evaluate a director’s decision to accept a position and her performance as a director. Although the amount of compensation and board composition raise some concern, that concern does not justify judicial intervention into that thicket here.
The Court relied on the bedrock Delaware principle that an independent and disinterested compensation committee is entitled to the deference of the business judgment rule. In addition, DGCL section 157(b) supports deference to the board in their valuation of stock options in the absence of fraud.
The Court declined to inquire into the fitness of a director to serve or whether lack of perfect attendance at meetings or less than stellar qualifications were a basis to allow claims to proceed. Predictably, despite the large amount of compensation involved, in part due to evidence of comparable compensation for similarly situated company executives, the claims for waste were also rejected.