Opinion
No. 05-09-01206-CV
Opinion issued December 1, 2009.
Original Proceeding from the 95th Judicial District Court, Dallas County, Texas, Trial Court Cause No. 09-09061.
Before Justices MORRIS, FITZGERALD, and LANG-MIERS.
MEMORANDUM OPINION
Relators contend the trial court erred in denying their special exceptions and plea to the jurisdiction. The facts and issues are well known to the parties, so we need not recount them in detail herein. In order to obtain mandamus relief, relators must show both that the trial court has abused its discretion and that they have no adequate appellate remedy. In re Prudential Ins. Co., 148 S.W.3d 124, 135-36 (Tex. 2004) (orig. proceeding); Walker v. Packer, 827 S.W.2d 833, 839-40 (Tex. 1992) (orig. proceeding). Relators have met this burden, and we therefore conditionally grant the writ of mandamus.
The underlying case is a derivative suit challenging certain compensation decisions made by the board of directors of Denbury Resources, Inc. The parties agree that Delaware law applies to this case and that real party in interest was required either to make a pre-suit demand on the board of directors or plead facts sufficient to establish that such demand would be futile. Real party in interest Harbor Police Retirement Fund ("Harbor") chose to plead demand futility, which required it to show that the board was incapable of making an independent and disinterested decision to institute and vigorously prosecute this action. One of the directors in question, Roberts, was the recipient of the compensation in question; thus, he is not capable of making a disinterested decision as a matter of Delaware law. See Pogostin v. Rice, 480 A.2d 619, 624 (Del. 1984) (holding "[d]irectorial interest exists whenever . . . a director either has received, or is entitled to receive, a personal financial benefit from the challenged transaction which is not equally shared by the stockholders").
Harbor's other allegations regarding demand futility involve the three directors who were members of the compensation committee. As to these directors, Harbor must have pled particularized facts creating a reasonable doubt that: (1) the directors are disinterested and independent; or (2) the challenged transaction was otherwise the product of a valid exercise of business judgment. See Aronson v. Lewis, 473 A.2d 805, 814 (Del. 1984).
Harbor alleges, first, that these directors are incapable of making an independent and disinterested decision because they are substantially likely to be held liable for breaching their fiduciary duties and wasting corporate assets. "However, the mere threat of personal liability for approving a questioned transaction, standing alone, is insufficient to challenge either the independence or disinterestedness of directors." Id. at 815. Harbor has failed to meet the first prong of the Aronson test.
Second, Harbor claims that demand is excused because the actions of these directors constitute corporate waste and, accordingly, the facts alleged in the petition raise a reasonable doubt that their actions were the product of a valid exercise of business judgment. Harbor's petition alleges that the committee breached its fiduciary duties in awarding the compensation in question, but does not contain any specific facts to support this assertion. In fact, Harbor admits that the committee had the power to set executive compensation based on any factors that the committee considered relevant. We conclude Harbor's allegations are insufficient as a matter of Delaware law to show that the awards were not the result of a valid exercise of business judgment. See Brehm v. Eisner, 746 A.2d 244, 263 (Del. 2000) (refusing to excuse demand on grounds of corporate waste because "the size and structure of executive compensation are inherently matters of judgment"). There is no basis in the petition to find that the compensation awards were so extreme that "no business person of ordinary, sound judgment could conclude that the corporation has received adequate consideration." See id. Because Harbor's petition did not contain sufficient allegations to meet either prong of the Aronson test, the trial court failed to correctly apply the law in this case.
"[A] clear failure by the trial court to analyze or apply the law correctly will constitute an abuse of discretion, and may result in appellate reversal by extraordinary writ." Walker, 827 S.W.2d at 840. Relators have met the first requirement necessary for mandamus relief. Further, relators have no adequate remedy at law. See In re Schmitz, 285 S.W.3d 451, 459 (Tex. 2009) (orig. proceeding) (allowing derivative case to proceed to trial despite lack of proper demand defeats substantive right involved, making appellate review inadequate). Relators have therefore met the second requirement to obtain mandamus relief.
This Court has previously held that the proper procedural remedy when demand futility is inadequately pled under Delaware law is to grant special exceptions. See Connolly v. Gasmire, 257 S.W.3d 831, 839 (Tex. App.-Dallas 2008, no pet.). Relators have requested that we grant this remedy. Accordingly, we conditionally grant relators' petition for writ of mandamus to the extent it requests vacation of the trial court's September 30, 2009 order and requests an order requiring the trial court to grant relators' special exceptions. A writ will issue only in the event the trial court fails to vacate its September 30, 2009 order and to render an order granting relators' special exceptions.