The Delaware Supreme Court recently affirmed a decision of the Chancery Court in a case involving a growing area of litigation: actions challenging the payment of compensation to officers or directors of Delaware corporations based on alleged violations of compensation plans. In Friedman v. Khosrowshahi, Del. Supr., No. 442, 2014, Strine, C.J. (March 6, 2015) (Order), the Supreme Court affirmed the Chancery Court’s dismissal of the plaintiff’s breach of fiduciary duty and unjust enrichment claims. While dismissing the dismissal of the plaintiff’s breach of fiduciary claims for failure to make a demand upon the board, the Supreme Court noted the unsettled status of Delaware law on whether a plaintiff must plead demand excusal if the claim is brought under contract law for breach of a stockholder-approved compensation plan.
Background of the Lawsuit
The plaintiff, Julie Friedman, brought a derivative action against the board of directors of Expedia Inc., a Delaware corporation and well-known online travel company. Friedman, a stockholder of Expedia since 2005, asserted claims for (1) breach of fiduciary duty and (2) unjust enrichment concerning the decision to accelerate the vesting of a grant of restricted stock units representing 400,000 shares of Expedia common stock (the RSU award) even though one of the conditions of the RSU award had not been satisfied. The RSU award was made to Expedia’s chief executive officer, Dara Khosrowshahi, under Expedia’s 2005 Stock and Annual Incentive Plan.
Chancery Court Dismissal
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