United States District Court, D. Delaware
PHILIP HALPERT, derivatively on behalf of ASIAINFO-LINKAGE, INC, Plaintiffs,
STEVE ZHANG, JIAN DING, LIBIN SUN, SEAN SHAO, YUNGANG LU, DAVIN A. MACKENZIE, THOMAS J. MANNING, SUNING TIAN, XIWEI HUANG, and GUOXIANG LIU, Defendants, and ASIAINFO-LINKAGE, INC., a Delaware Corporation, Nominal Defendant
For Philip Halpert, derivatively on behalf of AsiaInfo-Linkage Inc., Plaintiff: Brian E. Farnan, LEAD ATTORNEY, Farnan LLP, Wilmington, DE.
For Steve Zhang, Jian Ding, Libin Sun, Sean Shao, Yungang Lu, Davin A. Mackenzie, Thomas J. Manning, Suning Tian, Xiwei Huang, Guoxiang Liu, Defendants: Arthur L. Dent, Potter Anderson & Corroon, LLP, Wilmington, DE.
For AsiaInfo-Linkage Inc., a Delaware Corporation, Defendant: Arthur L. Dent, Potter Anderson & Corroon, LLP, Wilmington, DE; David Kistenbroker, PRO HAC VICE; Joni S. Jacobsen, PRO HAC VICE.
SUE L. ROBINSON, United States District Judge.
At Wilmington this 6th day of June, 2014, having reviewed plaintiff Philip Halpert's (" Halpert" ) motion for judgment on the pleadings (D.I. 34) and the papers filed in connection therewith, the court issues its decision based on the reasoning that follows:
Halpert, as a shareholder, initiated this action derivatively on behalf of AsiaInfo-Linkage, Inc. (" AsiaInfo" ), a Delaware corporation that sells telecommunications software and information technology, on October 16, 2012. (D.I. 1 at ¶ ¶ 9-10, 33) Halpert alleges demand futility, a breach of fiduciary duty, waste of corporate assets, and unjust enrichment. Defendants include the members of Asialnfo's board of directors (" Board" ) and three of AsiaInfo's executives. ( Id. at ¶ ¶ 37, 45, 51, 56) AsiaInfo's Board has nine members, defendants Jian Ding (" Ding" ), Xiwei Huang (" Huang" ), Yungang Lu (" Lu" ), Davin A. Mackenzie (" Mackenzie" ), Thomas J. Manning (" Manning" ), Sean Shao (" Shao" ), Libin Sun (" Sun" ), Suning Tian (" Tian" ), and Steve Zhang (" Zhang" ). ( Id. at ¶ ¶ 11-19) Zhang is the President and CEO of AsiaInfo, Sun is the Executive Co-Chairman, and defendant Guoxiang Liu (" Liu" ) is the Executive Vice President (collectively with the Board, " defendants" ). ( Id. at ¶ ¶ 11, 13, 20)
2. On February 19, 2011, the Board adopted the 2011 Stock Incentive Plan (" the Plan" ), which " authorizes the [c]ompany to grant restricted stock awards, stock options, and other types of equity awards to the [c]ompany's executive officers, directors, and other employees." ( Id. at ¶ 22) The shareholders approved the Plan on April 21, 2011. ( Id. ) Grants under the Plan are determined by the compensation committee. ( Id. at ¶ 23) At the relevant time, directors Ding, Mackenzie, Tian, and Shao were on the compensation committee. ( Id. at ¶ 21)
3. On December 6, 2011, the compensation committee granted 750,000 stock options to Zhang and 110,000 stock options to Liu, ostensibly under the Plan. ( Id. at ¶ 24) Halpert alleges that these actions directly contradicted Section 4.2 of the Plan, which states that " no individual may be granted within any one fiscal year of [AsiaInfo] one or more [a]wards intended to qualify as Performance-Based Compensation which in the aggregate are for more than (a) 100,000 shares . . . [or] up to 200,000 shares . . . to newly hired or newly promoted individuals . . . ." ( Id. at ¶ 26) The Plan defines performance-based compensation as that which satisfies § 162(m) of the Internal Revenue Code (" IRC" ), which generally disallows a tax deduction to public companies for compensation in excess of $1 million, but carves out an exception for performance-based compensation. ( Id. at ¶ 28) Furthermore, the 2012 Proxy Statement states that " [a]wards issued under [AsiaInfo's] stock incentive plans (including stock options . . .) have been structured so that any taxable compensation derived . . . should not be subject to . . . deductibility limitations" under § 162(m) of the IRC. ( Id. ; D.I. 35, ex. B; D.I. 45, ex. D) Halpert avers that the grants to Zhang and Liu exceeded the Board's authority and harmed AsiaInfo and its shareholders. (D.I. 1 at ¶ ¶ 30, 32)
4. Defendants' motion to dismiss (D.I. 10) was denied on August 7, 2013. (D.I. 21) Defendants Ding, Huang, Lu, Mackenzie, Manning, Shao, Sun, and Tian answered
Halpert's complaint on September 5, 2013 (D.I. 26), and later submitted an amended answer. (D.I. 31) Nominal defendant AsiaInfo answered Halpert's complaint on September 19, 2013 (D.I. 27), and defendants Zhang and Liu answered on September 26, 2013. (D.I. 30) Currently before the court is Halpert's motion for ...