By Elena Eyber, J.D.
The federal district court in New York dismissed Apple shareholders’ complaint with prejudice, claiming Apple made materially false representations related to executive compensation in the Proxy Statement. The court found that shareholders failed to plead loss causation in their Section 14(a) of the Exchange Act claims related to the Compensation Proposal and Election Proposal. The court also dismissed shareholder’s derivative claim, holding that shareholders did not provide Apple with a reasonable time to respond to the demand, and therefore, failed to meet the pleading standards required by Rule 23.1 (International Brotherhood of Teamsters v. Apple Inc., February 7, 2024, Rochon, J.).
Proxy statement. The 2023 Proxy Statement stated that Apple intended to award the NEOs $77.5 million in performance-based compensation in each of 2021 and 2022. As disclosed in Apple’s 2023 Proxy Statements, when a Monte Carlo analysis was used to calculate the grant date fair value of the performance-based RSUs, the NEOs were awarded $92,685,830 in performance-based shares for 2021, and $94,021,780 for 2022. The shareholders brought three claims: two Section 14(a) claims relating to the Compensation Proposal and Election Proposal and one derivative claim to recover excess compensation of the NEOs. Shareholders alleged that Apple’s representations were materially false when the amount of executive compensation disclosed in the compensation-narrative section of the 2023 Proxy Statement understated the actual compensation as disclosed in the compensation-tables section of the 2023 Proxy Statement.
Section 14(a) Compensation Proposal claim. Apple argued that shareholders allegations failed to fulfill Section 14(a)’s three requirements that the proxy statement: (1) contained a material misrepresentation or omission, which (2) caused shareholders injury, and (3) that the proxy solicitation itself, rather than the particular defect in the solicitation materials, was an essential link in the accomplishment of the transaction. The court found that shareholders failed to plead loss causation based on the advisory nonbinding “Say-on-Pay” vote. Even if it had, the court found that shareholders failed to adequately plead any misrepresentation in the 2023 Proxy Statement that was an “essential link” in affecting the proposed corporate action. Accordingly, the court dismissed this claim.
Section 14(a) Election Proposal claim. Apple argued that shareholders allegations failed to fulfill Section 14(a)’s three requirements. In opposition, shareholders argued that if the Apple 2023 Proxy Statement had accurately disclosed the costs of the NEOs’ compensation, instead of disclosing a target value that understated these costs by millions of dollars, stockholders would have reconsidered their vote for the directors who awarded this compensation. The court found that the complaint contained one single statement relating to the Election Proposal and this sentence failed to allege that the Election Proposal was an essential link to any corporate action or the cause of any alleged harm. The court held that shareholders failed to adequately allege non-speculative loss causation resulting from the potential re-election of the directors. Thus, the court dismissed this claim.
Derivative claim. Apple argued that shareholders failed to adequately plead the derivative claim because shareholders did not meet the threshold requirements of Rule 23.1, and the complaint did not plead the basic elements of a claim for breach of fiduciary duty. The court found that shareholders did not provide Apple with a reasonable time to respond to the demand, and therefore, shareholders failed to meet the pleading standards required by Rule 23.1. Even if the lapse of time were considered a de facto refusal of shareholders’ demand, the court’s holding would have been the same. The court found that shareholders failed to plead sufficient facts to suggest that the board’s decision was unreasonable or not made in good faith. Therefore, the court held that shareholders failed to adequately plead a derivative claim and dismissed their claim.
The case is No. 1:23-cv-01867-JLR.