Devoted to Corporate Attorneys, Corporate Lawyers, and Corporate Counsel

The following is not meant to be legal advice.

In Ryan v. Gifford (C.A. 2213-N, Feb. 6, 2007), the court refused to dismiss a shareholder suit.  Stock option grant practices are subject of heightened scrutiny by the courts. The suit claimed that the Board of Maxim Integrated Products, Inc. violated its fiduciary duties by intentionally backdating stock option grants.

The intentional violation of the company's stock plan, along with fraudulent disclosure about compliance with the plan, constituted bad faith. The backdated option grants had an exercise price lower than the fair market value on the actual grant date. The grants allegedly violated the company's stock plan.  The stock plan did not permit the issuance of discounted options.

The court denied motions to dismiss based on the statute of limitations.  When a plaintiff alleged intentional falsification of public disclosures, the statute of limitations did not begin to run until the falseness of the filing was revealed. The court denied defendants' request to stay the case. The company and the defendants were exposed to duplicative lawsuits. The court denied a motion to dismiss based on a failure to make a pre-suit demand on the board. The court held that a Board's knowing and intentional decision to exceed the limits of a shareholder-approved plan raised doubt regarding whether the decision valid business judgment to excuse a failure to make the required demand.