BR&B Derivative Case Against ADM Executives Upheld

3/28/2011 - In an opinion issued on March 28, 2011, Chief Judge Gregory M. Sleet of the United States District Court for the District of Delaware denied the defendants' motion to dismiss BR&B's executive-compensation and corporate governance derivative case against executives of Archer-Daniels-Midland Company (“ADM”), which alleges that ADM’s board of directors disseminated a false or misleading proxy statement on September 25, 2009. The court ruled that the complaint identified “imminent injuries and injuries-in-fact” caused by the failure to disclose to shareholders certain information about executive compensation and that “these injuries are traceable to the Individual [Director] Defendants’ efforts to obtain stockholder approval of the 2009 [Compensation] Plan without adhering to § 14(a) of the [Exchange Act] and § 162(m) of the [Internal Revenue Code], their failure to seek stockholder re-approval of the [2002 Compensation] Plan, and their acceptance of non-tax-deductible compensation under the 2002 and 2009 Plans.” The court also held ruled that the facts pleaded show that “ADM has paid or will pay excessive tax liabilities under the 2009 Plan, which was approved by stockholders due to the allegedly false or misleading statements in the Proxy Statement.”

Plaintiff’s derivative claim under Section 14(a) alleges that the misrepresentations in the Proxy Statement harmed ADM by “interfering with proper governance on its behalf that follows the free and informed exercise of the stockholders’ right to vote for directors and compensation plans.” The court ruled that where ADM faces substantial and avoidable tax liability and incentive compensation payments of over $90 million per Board Member, as alleged, “no person of ordinary sound judgment could view the benefits received in the transaction as a fair exchange for the consideration by ADM.” The ADM director defendants -- “whose independence in this matter” the court found to be “compromised” -- “benefitted from the compensation they received … while ADM was harmed.”

If you have any questions about the court’s March 28, 2011, opinion and order, or about the ADM case in general, please contact BR&B partner Jeffrey A. Barrack via email at jbarrack@barrack.com.