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New Jersey Building Laborers Pension Fund v. Ball

United States District Court, D. Delaware

March 13, 2014

NEW JERSEY BUILDING LABORERS PENSION FUND, Plaintiff,
v.
F. MICHAEL BALL, HERBERT W. BOYER, Ph.D, DEBORAH DUNSIRE, M.D., JEFFREY L. EDWARDS, MICHAEL R. GALLAGHER, DAWN E. HUDSON, ROBERT A. INGRAM, TREVOR M. JONES, Ph.D, LOUIS J. LAVIGNE, JR., DAVID E.I. PYOTT, RUSSELL T. RAY, STEPHEN J. RYAN, M.D., and SCOTT M. WHITCUP, Defendants. -and- ALLERGAN, INC., Nominal Defendant.

REPORT AND RECOMMENDATION

SHERRY R. FALLON, Magistrate Judge.

I. INTRODUCTION

Presently before the court in this shareholder derivative action brought under Section 14(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78n(a) et seq., are two motions to dismiss plaintiff New Jersey Building Laborers Pension Fund's ("NJBLPF") verified complaint pursuant to Federal Rules of Civil Procedure 23.1 and 12(b)(6), which were filed by nominal defendant Allergan, Inc. ("Allergan") (D.I. 23), and individual defendants F. Michael Ball ("Ball"), Herbert W. Boyer, Ph.D. ("Boyer"), Deborah Dunsire, M.D. ("Dunsire"), Jeffrey L. Edwards ("Edwards"), Michael R. Gallagher ("Gallagher"), Dawn E. Hudson ("Hudson"), Robert A. Ingram ("Ingram"), Trevor M. Jones, Ph.D. ("Jones"), Louis J. Lavigne, Jr. ("Lavigne"), David E.I. Pyott ("Pyott"), Russell T. Ray ("Ray"), Stephen J. Ryan, M.D. ("Ryan"), and Scott M. Whitcup ("Whitcup") (collectively, the "Individual Defendants;" together with Allergan, "Defendants") (D.I. 26), on February 7, 2012. For the following reasons, I recommend that the court grant Allergan's motion to dismiss pursuant to Rule 23.1 and deny as moot the Individual Defendants' motion to dismiss pursuant to Rule 12(b)(6).

II. BACKGROUND

A. The Parties

NJBLPF was a stockholder of Allergan at the time of the alleged misconduct and has continuously owned stock in Allergan since that time. (D.I. 1 at ¶ 11)

Allergan is a publicly traded global pharmaceutical company that is incorporated in Delaware and maintains its principal place of business in California. ( Id. at ¶ 12) Allergan focuses on discovering, developing and commercializing innovative pharmaceuticals, biologics and medical devices, making products that include ophthalmic pharmaceuticals, dermatology products, and neurological products such as Botox. ( Id. )

Defendants Boyer, Dunsire, Gallagher, Hudson, Ingram, Jones, Lavigne, Pyott, Ray, Ryan, and Schaeffer (collectively, the "Director Defendants") are members of Allergan's Board of Directors (the "Board"). ( Id. at ¶¶ 13-23) Gallagher, Hudson, Ingram, Lavigne, Ray, and Schaeffer are members of Allergan's Organization and Compensation Committee (the "Compensation Committee"). ( Id. at ¶¶ 15-17, 19, 21, 23)

Defendants Pyott, Ball, Edwards, and Whitcup (the "Executive Defendants") served as Allergan's top executive officers during the relevant time period. ( Id. at ¶¶ 20, 25-27) Pyott serves as Allergan's CEO and became chairman of the Board in 2001. ( Id. at ¶ 20) Pyott served as President from January 1998 to February 2006, and again from March 2011 to the present. ( Id. ) Ball served as President of Allergan until March 27, 2011. ( Id. at ¶ 25) Edwards has served as Allergan's Executive Vice President of Finance and Business Development, and as Chief Financial Officer ("CFO"), since September 2005. ( Id. at ¶ 26) Whitcup has served as Allergan's Executive Vice President of Research and Development since July 2004, and became the Chief Scientific Officer in April 2009. ( Id. at ¶ 27) The Executive Defendants are "covered employees" as defined in Section 162(m) of the Internal Revenue Code. ( Id. at ¶ 28)

B. The Proxy Statement

On March 8, 2011, the Director Defendants issued a proxy statement (the "Proxy Statement")[1] seeking shareholder approval of Allergan's 2011 Incentive Award Plan (the "2011 Plan"), among other things.[2] ( Id. at ¶ 34) The Proxy Statement indicated that the 2011 Plan was designed to allow for tax-deductibility of incentive-based executive compensation awards pursuant to Section 162(m). ( Id. at ¶ 37) The 2011 Plan lists thirty-two performance goals used to determine future compensation awards. ( Id. at ¶ 40) The 2011 Plan further sets a maximum amount of compensation of 1, 500, 000 shares of stock or a maximum of $5 million in cash. ( Id. at ¶ 47) Allergan's stock price on March 3, 2011 was $72.06, which would equate to an award of $113, 090, 000 for any participant eligible to receive the maximum amount. ( Id. )

Both Executive Defendants and Director Defendants are eligible to participate in the 2011 Plan. ( Id. at ¶ 64) In addition to the awards generally given to the Plan participants, the Director Defendants are eligible to receive Transition Restricted Stock Awards. ( Id. at ¶ 65)

On May 3, 2011, Allergan's shareholders approved the 2011 Plan at All ergan's annual meeting. ( Id. at ¶ 3)

Without first making a demand on the Board, NJBLPF initiated this lawsuit on November 21, 2011, alleging derivative claims on behalf of Allergan against the Board and the Executive Officers. (D.I. 1) NJBLPF alleges that Allergan's shareholders approved the 2011 Plan because they were led to believe that all compensation paid under the 2011 Plan would be tax deductible. NJBLPF alleges four causes of action in its complaint: (1) violations by all Defendants of Section 14(a) of the Exchange Act, International Revenue Code Section 162(m), and the Treasury Regulations, (2) breaches of fiduciary duty, (3) waste of corporate assets, ...


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