Free Letter - District Court of Delaware - Delaware

Case 1 :05-cv-00298-JJF Document 76 Filed 10/06/2005 Page 1 of 2
Porter
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° GOYYOO1] l..l.P Stephen C. Norman
Partner
Attorney at Law
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P0 BUN 951 302 98443038 Direct Phone
Wilruington, DE 19899-0951 302 658-l E92. Fax
302 984- 6000
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October 6, 2005
BY E—FILE
The Honorable Joseph J. liarnan, Jr.
United States District Court
For the District of Delaware
844 North King Street
Wilmington, Delaware l 9801
Re: Frank D. Seinfeld v. Craig R. Barrett, et al.,
D. Del. C.A. 05-298-5JF
Dear Judge Farnan:
I write on behalf of defendants to bring to Your I~Ionor”s attention ( I) a recent
decision that bears upon an issue raised in Plaintiffs Answering Brief in Opposition to
Defendants Two Motions to Disniiss (D..l.. 24) and (2) cases that refute an issue first raised in
Plaintiffs Reply Brief in Further Support of His Motion for Summary Judgment ("Reply") (Di.
68)..
First, defendants bring to the Court's attention the recent decision of`Fink v. Wei//,
No. 02 Civ. i0.250, 2005 WL 2298224 (S.D..N.Y. Sept. l9, 2005) (applying Delaware law). Fink
was issued after defendants tiled their demand futility reply, and it reaffirms that the standard
enunciated by the Delaware Supreme Court in Ro/er v Blcrrbczird, 634 A.2d 927 (Del. 1993),
applies where, as here, a shareholder challenges in a derivative action something other than a
specific action or decision ofthe board. See Fink, 2005 WL 2298224, at *3 & 11.5. See also
Semirmris rr. Lcmcki, 662 A..2d 1350, 1354 (Del. 1993). Under the Rc:/es standard, only the first
prong ofthe Aronsorz test is applicable. Thus, plaintiff rnust provide particularized allegations
that "create a reasonable doubt that, as of the time the complaint is filed, the board of directors
could have properly exercised its independent and disinterested business judgment in responding
to a dernand." Rules, 634 A.2d at 934. In Fink, the piaintiffishareholder brought a derivative
action alleging in part that the directors had violated Section l4(a) and breached their fiduciary
duties with regard to the proxy statements issued for the annual election of directors. The Court
applied the Roles standard, rather than the Aronson standard, because the plaintiff had tailed to
allege specific facts and circurnstances indicating that the board had knowledge ofthe underlying
violations and thus no specific decision or action ofthe board was challenged. Fink, 2.005 WL

Case 1:05-cv-00298-JJF Document 76 Filed 10/06/2005 Page 2 of 2
The Honorable Joseph J. Farnan, lr.
October 6, 2005
Page 2
2.298.224, at *3 ri.5 The court went on to hold that the plaintiflliad failed to plead demand
futility and dismissed the complaint. Id at *3-4. For your convenience, a copy of the Fink
decision is enclosed (Exhibit A hereto).
Second, in his Reply (at 5), Piaintiflcites for the iirst time As/1 v. LFE Corp , 525
F.2d 2l 5 (3d Cir. 1975), for the proposition that he need not establish that the directors were
negligent because his motion seeks only injunctive relieli. We wish to direct the Court to
additional case law that bears directly upon this issue. The Third Circuit held in a subsequent
case, Gould v Americm1-Hrzi-l»c:iinn SS Co , 535 F.2d 76l, 777»-78 (3d Cir. l976), that a plaintiff
must show that the defendants acted or fem! negligently with respect to the facts in the proxy to
prevail on a Section l¢l(a) claim. District courts within the Third Circuit have followed Gould
and required a showing of at least negligence, even in cases where the plaintiffs seek only
injunctive relieli Sec Bolger v Fins! Stole F in Serv, 759 li. Supp. 18.2, 193 (D.N.J. l99l);
Berioglio v. Texas [nl'! Co , 488 F. Supp. 630, 634, 652 (D. Del. l980). Moreover, As/i was
limited to situations involving the shareholder hranchise. As/2, 525 F.2d at 2.20 (case concerns
only "injunctive reliefdirected to the integrity ofthe exercise of stockholder ftanchise”).. Here,
plaintifi”s motion does not seek to preserve the shareholder franchise; rather it is directed solely
toward enjoining payments under an executive compensation plan.
Thanlt you for your consideration of these matters. Should Your Honor have any
questions, I am available at the Court's convenience.
Respectfully,
QQQQQW
Stephen C. Norman (Bar LD. #2686)
snonnan@;gotteranderson.com
SCN:mp/70.2.239
Enclosure
cc: Clerk of the District Court (By E-File)
Francis GX. Pileggi, Esquire (By E—l*ile)
A. Arnold Gershon, Esquire (By Email)