Court Allows Derivative Action Against Dow Chemical Management and Board of Directors to Proceed

11/18/2014 - The Honorable Sue L. Robinson of the United States District Court for the District of Delaware has denied the defendants’ motion to dismiss in Kaufman v. Allemang, et al., Civ No. 13-359-SLR, a derivative action brought against the board of directors and highest-paid officers of The Dow Chemical Corporation, alleging violations of section 14(a) of the Securities Exchange Act of 1934.  Barrack, Rodos and Bacine serves as counsel in the action, representing a stockholder plaintiff.   

The complaint alleges that The Dow Chemical Company, its board of directors, and its five highest-paid officers, including Andrew Liveris, its CEO, failed to provide sufficient information in its 2012 proxy statement for shareholders to consider and vote on the Dow 2012 Stock Incentive Plan (the “2012 Plan”).  The complaint alleged that this lack of information caused the shareholder vote held on this plan to be uninformed and illegal and that any awards granted through the 2012 Plan were improper. 

On September 30, 2014, the Court granted the defendants’ motion to dismiss the claims based on the information omitted from the 2012 proxy statement because the Court believed that Dow’s 2011 Form 10-K contained some of the missing information, even though the Court believed that demand on the board for action on the plaintiff’s claims was excused.  In its opinion, the court held that:

[T]he 2012 plan’s substantial increase in director and [officer] compensation (with new cash compensation for non-employee directors capped at $15 million per year) allows the directors to award themselves substantial compensation without oversight.  This evidences that the directors were interested and demand is excused as to the claims involving the 2012 plan.

Plaintiff asked the Court to reconsider its ruling on the motion to dismiss and on November 18, 2014, the Court granted the motion, holding that it had committed clear error of law.   The Court held that “absent a specific indication that Dow intended its annual report and form 10-K to be subject to the disclosure requirements of Rule 14a-9, we should not look to those materials for purposes of supplementing the proxy statement.”  Thus, the Court granted reconsideration and denied defendants’ motion to dismiss.

Judge Robinson’s ruling allows the plaintiff to move forward with the prosecution of the action against The Dow Chemical Company, its board of directors, and its five highest-paid officers.

If you have any questions about the court’s November 18, 2014 decision or the litigation against The Dow Chemical Company, please contact BR&B partner Arnold Gershon at agershon@barrack.com or Michael A. Toomey at mtoomey@barrack.com.