A federal judge has dismissed a shareholder class action lawsuit alleging that Hewlett-Packard Co.'s board of directors violated its own policies in 2005 when it granted more than $40 million in a severance package to former Hewlett-Packard Co. Chief Executive Officer Carly Fiorina, who spearheaded the company's failed merger with Compaq Computer Corp.
The suit was filed by several pension plans against Fiorina and eight current and former board members, including former Chairwoman Patricia Dunn, who was indicted about two years ago on four felony counts, including conspiracy, by then-California Attorney General Bill Lockyer. Those charges were later dropped.
In the suit, the plaintiffs had alleged that Hewlett-Packard violated its own policies by not obtaining shareholder approval before granting Fiorina's severance package. The suit, which also includes derivative claims, later claimed that recent allegations of "pre-texting," which were part of an internal investigation into boardroom leaks, were done in order to hide the specifics of the Compaq merger and Fiorina's termination benefits.
In a March 28 order, U.S. District Judge Ronald M. Whyte, for the Northern District of California, said that the plaintiffs failed to prove that demanding books and records from the HP board of directors was futile. Their arguments, he said, do not "support plaintiffs' proposed inference that the directors who approved Fiorina's severance and benefits package were concerned of their own alleged wrongdoing in connection with the failed Compaq merger, that they were afraid Fiorina would disclose these purported wrongdoings, and that the severance and benefits package was paid to keep Fiorina silent regarding the failed Compaq merger."
Regarding the recent investigation of the boardroom leaks, Whyte noted that the allegations "do not give rise to a reasonable inference that the directors' launch of the investigation was for the purpose of covering up their own purported wrongdoing in connection with the Compaq merger or the alleged cover up of 'hush money' to Fiorina."
A lawyer for the HP directors, Jonathan Dickey, co-chairman of Los Angles-based Gibson, Dunn & Crutcher's national securities litigation practice, and a partner in the New York office, said the leak information, which was added later in the case, failed "to show why these plaintiffs would not be required to make demand on the board because all the directors were somehow implicated in this wrongdoing." As to whether the severance package violated company policies, the "court clearly sided with us in concluding that they were lawful payments," he said.
Michael J. Barry, a partner at Wilmington, Del.-based Grant & Eisenhofer who represents the pension plans, declined to comment.