Richards Layton & Finger

Chancery Dismisses Stockholder Suit Over Expedia CEO Award

July 30, 2014

In Friedman v. Khosrowshahi, C.A. No. 9161-CB (Del. Ch. July 16, 2014), the Court of Chancery dismissed the plaintiff's claims challenging the decision by the compensation committee of Expedia Inc. to accelerate the vesting of a restricted stock unit award. Following the well-trodden path in this "seemingly increasing area of litigation," the plaintiff claimed that, under Sanders v. Wang, C.A. No. 16640-VCS (Del. Ch. Nov. 10, 1999), and its progeny, the compensation committee violated the unambiguous terms of the corporation's stock plan such that demand was excused under the second prong of Aronson v. Lewis, 473 A.2d 805, 814 (Del. 1984). In dismissing the claim, the court essentially limited the application of Sanders to situations where plaintiffs have alleged with particularity "a clear or intentional violation of a compensation plan." Nevertheless, the opinion serves as a reminder that stockholders are increasingly scrutinizing actions taken under equity award plans, and that boards of directors and board committees should review the terms of the plans before making awards or adjusting the terms of existing awards.