Shiva Stein, derivatively on behalf of The Goldman Sachs Group, Inc. v. Lloyd C. Blankfein

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

SHIVA STEIN, derivatively on behalf of
)
The Goldman Sachs Group, Inc., and
)
individually as a Stockholder of The
)
Goldman Sachs Group, Inc., )
)
Plaintiff, )
v. ) C.A. No. 2017-0354-SG
)
)
LLOYD C. BLANKFEIN, M. )
MICHELE BURNS, GARY D. COHN, )
MARK A. FLAHERTY, WILLIAM W. )
GEORGE, JAMES A. JOHNSON, )
ELLEN J. KULLMAN, LAKSHMI N. )
MITTAL, ADEBAYO O. OGUNLESI, )
PETER OPPENHEIMER, DEBORA L. )
SPAR, MARK E. TUCKER, DAVID A. )
VINIAR, MARK O. WINKELMAN, and )
THE GOLDMAN SACHS GROUP, )
INC., )
)
Defendants. )

MEMORANDUM OPINION

Date Submitted: February 4, 2019
Date Decided: May 31, 2019

Brian E. Farnan, Michael J. Farnan, and Rosemary J. Piergiovanni, of FARNAN
LLP, Wilmington, Delaware; OF COUNSEL: A. Arnold Gershon and Michael A.
Toomey, of BARRACK, RODOS & BACINE, New York, New York, Attorneys for
Plaintiff.

Kevin G. Abrams, J. Peter Shindel, Jr., and Matthew L. Miller, of ABRAMS &
BAYLISS LLP, Wilmington, Delaware; OF COUNSEL: Robert J. Guiffra, Jr. and
David M.J. Rein, of SULLIVAN & CROMWELL LLP, New York, New York,
Attorneys for the Director-Defendants.
Gregory V. Varallo, Kevin M. Gallagher, and Robert L. Burns, of RICHARDS,
LAYTON & FINGER, P.A., Wilmington, Delaware, Attorneys for Defendant The
Goldman Sachs Group, Inc.

GLASSCOCK, Vice Chancellor
 Self-interest dulls the keenest equitable acuity. Justice Tunnell’s words from

nearly seventy years ago remain a bedrock of corporate equity today, and their

reasoning will undoubtedly persist as long as corporations are directed by women

and men: “Human nature being what it is, the law, in its wisdom, does not presume

that directors will be competent judges of the fair treatment of their company where

fairness must be at their own personal expense.”1 Instead, the burden in such a

situation is on the directors, who must demonstrate “not only that the transaction was

in good faith,”2 but must also show that it was entirely fair to the entity.

This matter involves the quintessence of director self-interest: self-

compensation. It is before me on the Defendants’ Motion to Dismiss.3 Our Supreme

Court recently clarified the standard for ratification of director self-compensation,

shifting the standard of review to business judgment only where stockholders

approve a compensation plan that does not involve future director discretion in

setting the amount of self-payment.4 The compensation plans at issue here

manifestly fail that standard-shifting test. Nonetheless, the Director-Defendants

move to dismiss on two grounds.5

1
Gottlieb v. Heyden Chem. Corp., 90 A.2d 660, 663 (Del. Ch. 1952).
2
Id.
3
The route by which this matter, filed on May 9, 2017, has only now arrived at the Motion to
Dismiss stage of litigation is described adequately in my Letter Opinion of October 23, 2018.
4
See In re Inv’rs Bancorp, Inc. S’holder Litig., 177 A.3d 1208 (Del. 2017).
5
The Goldman Sachs Group, Inc. joined the Director-Defendants’ Motion to Dismiss briefing.
D.I. 9, 14.
 First, they point out that the plans in question absolve, in advance, the

directors for breaches of duty in self-dealing, absent a demonstration of bad faith; in

other words, they provide a kind of immaculate ratification.6 I find that, to the

(dubious) extent that our law would respect such an untethered waiver of fiduciary

duty, the circumstances here fall far short of the kind of specificity necessary to

support a waiver of stockholder rights.

Second, and more convincingly, the Defendants argue that the matter should

be dismissed under Rule 12(b)(6), because the Plaintiff fails adequately to allege that

the self-awarded director compensation was not entirely fair. The Plaintiff attacks

here only the amount, and not the process by which that amount was determined.

Moreover, the amount of compensation, in light of that of Goldman’s peers, is high,

but not shockingly so. However, viewed under the applicable standard, reasonable

conceivability, I find the Complaint is sufficient to proceed.

The Plaintiff also makes two stale disclosure claims involving compensation,

which are dismissed. My reasoning follows.

I. BACKGROUND

At this Motion to Dismiss stage, I assume the facts found in the Complaint to

be true. The following facts come from the Complaint.

6
Stockholder ratification, in other words, unsullied by the gritty details of any particular
transaction, consideration of which (according to counsel at oral argument) is precisely what the
stockholders meant to avoid.
3
 A. The Parties

Plaintiff Shiva Stein is a common stockholder of The Goldman Sachs Group,

and has been a common stockholder continuously since June 12, 2014.7

Defendant The Goldman Sachs Group, Inc. (“Goldman”) is a Delaware

corporation that operates as a bank holding company and financial holding company.

Its common stock has one vote per share and trades on the New York Stock

Exchange.8

Defendant Lloyd C. Blankfein is Goldman’s Chairman of the Board and Chief

Executive Officer and has been a Board member since April 2003.9

Defendant M. Michele Burns has been a director of Goldman since October

2011.10

Defendant Mark A. Flaherty has been a director of Goldman since December

2014.11

Defendant William W. George has been a director of Goldman since

December 2002.12

7
Compl. ¶ 3.
8
Id. ¶ 4.
9
Id. ¶ 5.
10
Id. ¶ 6.
11
Id. ¶ 7.
12
Id. ¶ 8.
4
 Defendant James A. Johnson has been a director of Goldman since May

1999.13

Defendant Ellen J. Kullman has been a director of Goldman since December

2016.14

Defendant Lakshmi N. Mittal has been a director of Goldman since June

2008.15

Defendant Adebayo O. Ogunlesi has been a director of Goldman since

October 2012.16

Defendant Peter Oppenheimer has been a director of Goldman since March

2014.17

Defendant Debora L. Spar was a director of Goldman from June 2011 until

April 28, 2017.

Defendant Mark E. Tucker was a director of Goldman from November 2012

until April 28, 2017.

Defendant David A. Viniar has been a director of Goldman since January

2013.18

13
Id. ¶ 9.
14
Id. ¶ 10.
15
Id. ¶ 11.
16
Id. ¶ 12.
17
Id. ¶ 13.
18
Id. ¶ 14.
5
 Defendant Mark O. Winkelman has been a director of Goldman since

December 2014.19

Defendant Gary D. Cohn became a member of the Board in June 2006 and

was a Board member and Goldman’s president and chief operating officer until

December 31, 2016.20

I refer to the Defendants, excluding Defendant Goldman Sachs Group, as “the

Directors,” and collectively as “the Board.”

B. Goldman’s Director Compensation

According to the Complaint, non-employee Director compensation is set by

the Goldman Board. In the years pertinent here, each non-employee Director of

Goldman received an annual grant of restricted stock units valued at $500,000.21 In

addition to those restricted stock units, the Board has authorized the non-employee

Directors to receive an annual retainer of $75,000 in cash or restricted stock units, at

the Director’s choice.22 Those Directors are also able to earn an annual $25,000

chairmanship fee in cash or RSUs, at the Director’s choice.23 The Board has

additionally authorized Goldman to pay up to $20,000 to each non-employee

Director for a matching gift to charities.24 Altogether, per the Plaintiff, each non-

19
Id. ¶ 15.
20
Id. ¶ 16.
21
Id. ¶ 20.
22
Id.
23
Id.
24
Id.
6
employee Director is eligible to receive $605,000 in annual compensation.25 In

January 2015, 2016, and 2017, the Board authorized the issuance of restricted stock

units to the non-employee Directors, which cost Goldman generally $500,000 to

$600,000 per non-employee Director.26

Per the Plaintiff, the non-employee Directors’ compensation is “substantially

more than that of the non-employee directors of the four U.S. peer companies that

[the] Defendants identified in their 2015, 2016, and 2017 annual meeting proxy

statements.”27 The average compensation for those peer companies was $352,000

in 2015 and $353,000 in 2016.28 Goldman had less net revenue and net income than

each of those peers in 2015, and it had less net revenue than each of those peers and

less net income than three of its peers in 2016.29 Still, its non-employee Directors

were more highly compensated than those of Goldman’s peers.

The Plaintiff alleges that at an average of $605,000 per year, the non-

employee Directors’ compensation is grossly excessive, so as to amount to a breach

of the Directors’ fiduciary duty of loyalty.30

25
Id. ¶ 21.
26
Id. ¶¶ 22–27.
27
Id. ¶ 28.
28
Id.
29
Id. ¶¶ 29–30.
30
Id. ¶¶ 21, 52.
7
 C. Disclosure Claims

1. The 2013 and 2015 Stock Incentive Plans

Much of this litigation centers around Goldman’s stock incentive plans

(“SIPs”). These SIPs must be approved by the company’s stockholders, and are

intended to “attract, retain, and motivate officers, directors, and employees,” and “to

compensate them for their contributions to the long-term growth and profits” of

Goldman.31 The SIPs at issue were approved by Goldman stockholders in 2013 and

2015.32 The majority of Goldman’s director compensation is paid pursuant to the

company’s SIPs, at the Board’s discretion.33

Adoption of the SIPs requires approval of the Goldman stockholders, “in

accordance with Treasury Regulation § 1.162-27(e)(4), Section 422 of the Internal

Revenue Code, the rules of the New York Stock Exchange and other applicable

law.”34 Treasury Regulation § 1.162-27(e)(4)(v) requires the “material terms of a

performance goal” to be “adequately disclosed to shareholders,” as determined using

“the same standards as apply under the Exchange Act.”35 The Exchange Act, in turn,

provides:

31
Director-Defs.’ Mot. to Dismiss, Ex. 6, at 71.
32
Compl. ¶ 34.
33
Id. ¶ 32.
34
Id. ¶ 33.
35
Id. ¶ 34.
8
 Item 10. Compensation Plans.
If action is to be taken with respect to any plan pursuant to which cash
or noncash compensation may be paid or distributed, furnish the
following information:
(a) Plans subject to security holder action.
(1) Describe briefly the material features of the plan
being acted upon, identify each class of persons
who will be eligible to participate therein, indicate
the approximate number of persons in each such
class, and state the basis of such participation.36

The Plaintiff submits that the Director-Defendants violated this provision when

asking stockholders to approve the 2013 and 2015 Stock Plans, which violation also

amounted to a breach of fiduciary duties under Delaware law.37 Specifically, the

Plaintiff argues that the Proxy Statement seeking stockholder approval of the SIPs

did not adequately “(i) identify each class of persons who would be eligible to

participate in the stock plan; (ii) indicate the approximate number of persons in each

class; and (iii) state the basis of such participation,” as required under Item 10(a) of

the Exchange Act.38

Under the Plaintiff’s theory, because the 2013 and 2015 SIPs did not receive

an informed stockholder vote, the Plaintiff submits that “all stock-based awards that

the [Board members] have issued to themselves, and to everyone else, after May 23,

36
17 C.F.R. § 240.14a-101.
37
Compl. ¶¶ 35–36.
38
Id. ¶ 35.
9
2013” are void and asks that I cancel them.39 Moreover, the Plaintiff contends that

in issuing awards under the invalid SIPs, the Defendants violated their fiduciary

duties of loyalty and care.

2. Cash-Based Incentive Awards

From 2011 to 2016, Goldman made cash-based incentive awards to its named

executive officers.40 The amount of these awards was “based on Goldman’s return

on equity and book value per share multiplied by the Target of the award over a

performance period of time.”41 Each award has an eight-year performance period

and a maximum amount, which, along with the target, are set by the compensation

committee.42 Goldman’s 2015, 2016, and 2017 Proxy Statements represented that

compensation, including equity-based awards, were intended to be tax deductible.43

They did not, however, specifically discuss the cash-based incentive awards.44 They

did, however, reveal that the Board “may decide to pay non-deductible variable

compensation.”45 Ultimately, the cash-based incentive awards “were ‘variable

compensation,’ up to a maximum of $100,276,510 in 2014 and $115,504,582 in

2015 and 2016,” and as currently structured, they are not tax deductible.46

39
Id. ¶ 36.
40
Id. ¶ 37.
41
Id.
42
Id.
43
Id. ¶ 39.
44
Id. ¶ 40.
45
Id.
46
Id. ¶ 43.
10
 The Plaintiff avers that because “there was no ‘may decide’ about it . . . the

ambiguous statement to this effect in the 2015, 2016, and 2017 Proxy Statements

was misleading” and constituted a breach of the duty of loyalty.47

D. Procedural History

This action was filed on May 9, 2017. In response to the Complaint, the

Defendants filed a Motion to Dismiss, which was fully briefed as of November 30,

2017. Before Oral Argument occurred, however, the parties reached a settlement.

One stockholder objected to the settlement, and I denied the settlement in an October

23, 2018 Letter Opinion. Thereafter, the parties proceeded to Oral Argument on the

pending Motion to Dismiss. This Memorandum Opinion follows.

II. ANALYSIS

The Plaintiff brings four claims, two derivative and two direct: a derivative

claim for breach of fiduciary duty of loyalty based on excessive compensation of

non-employee Directors; a direct claim against the Board for breach of the fiduciary

duty of loyalty in connection with disclosures resulting in stockholder approval of

the SIPs; a derivative claim against the Board for breach of the fiduciary duties of

loyalty and care48 in issuing invalid stock-based awards made under the “void” SIPs;

and a direct claim against the Board for breach of the fiduciary duty of loyalty in

47
Id. ¶¶ 44, 68.
48
Goldman Directors are exculpated from liability for breaches of the duty of care, but the Plaintiff
here seeks equitable relief, not simply damages. See Feb. 4, 2019 Oral Argument Tr., at 62:1–17.
11
connection with disclosures regarding the cash-based incentive awards to its named

executive officers.49 In accordance with Rule 23.1’s requirements, the Plaintiff

argues that demand on the Goldman Board would have been futile.50 The

Defendants do not contest demand futility.

The Defendants moved to dismiss all claims under Court of Chancery Rule

12(b)(6), for failure to state a claim. The Defendants also raised the threshold issue

of standing, and argue that the Plaintiff does not have standing to challenge the 2013

SIP because she did not become a stockholder until 2014.

A. Legal Standard

When faced with a Motion to Dismiss under Rule 12(b)(6), I must accept the

well-pled allegations of fact as true and draw all reasonable inferences in the

plaintiff’s favor, then determine whether those allegations “would entitle the

plaintiff to relief under a reasonably conceivable set of circumstances . . . .” 51 In

Delaware, “a complaint must plead enough facts to plausibly suggest that the

plaintiff will ultimately be entitled to the relief she seeks. If a complaint fails to do

that and instead asserts mere conclusions, a Rule 12(b)(6) motion to dismiss must be

granted.”52

49
See generally Compl.
50
Id. ¶¶ 46–50.
51
In re Alloy, Inc., 2011 WL 4863716, at *6 (Del. Ch. Oct. 13, 2011) (quoting Cent. Mortg. Co.
v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531 (Del. 2011).
52
Desimone v. Barrows, 924 A.2d 908, 929 (Del. Ch. 2007).
12
 B. Excessive Compensation

The Plaintiff alleges that the non-employee Directors’ compensation is

grossly excessive and, because the Directors set their own compensation, such

excessive compensation constitutes a breach of the fiduciary duty of loyalty.53

1. The Standard of Review

Decisions of corporate directors are presumed in our law to have been made

in a loyal and informed manner; absent a showing to the contrary, they are thus

reviewed under the deferential business judgment standard. Conversely, directors’

self-interested decisions are inherently likely to be disloyal; those decisions are

subject to review under the onerous standard of entire fairness, and the burden to

demonstrate fair price and process is on the directors, not the plaintiff.

Section 141(h) of the DGCL gives a corporation’s board of directors the

power to fix director compensation.54 Where a challenge is raised to a director

decision on director compensation, however, Section 141 is the beginning, not the

end, of the inquiry. The DGCL provision means that the actions of the directors are

not ultra vires, but it says nothing about whether those actions are consistent with

fiduciary duties. For the reasons just stated, that matter is reviewed under entire

fairness.

53
Compl. ¶¶ 21, 52.
54
8 Del. C. § 141(h).
13
 Nonetheless, in their Motion to Dismiss, the Defendants here contend that,

under the terms of the SIPs approved by stockholders, entire fairness does not apply.

Instead, per the Defendants, the burden is on the Plaintiff to show that the director

compensation decisions were taken in bad faith.55 That is because stockholders

authorized the SIPs at issue, which included provisions that “no member of the

Board . . . shall have any liability to any person . . . for any action taken or omitted

to be taken or any determination made in good faith with respect to the [SIPs] or any

Award.”56 Thus, any action taken by the Board under the SIPs—self-interested or

otherwise—is, per the Defendants, reviewable only under a good faith standard.

This, the Defendants argue, is dispositive; they note that the Plaintiff does not plead

that the Defendants did not act in good faith. To the contrary, the Defendants argue

that they exercised their good faith judgment in setting their own compensation, and

that even though their compensation is higher than their peer companies’ executive

compensation, they are well worth it: higher compensation is warranted because

Goldman Sach’s directors are, well, Goldman Sachs directors.

The Defendants, to their credit, do not argue that the SIPs’ language is a true

ratification of the awards in question. They argue, however, that adoption of the

language operates in the same way. If the awards at issue had been specifically

55
The Director-Defs.’ Opening Br. in Support of their Mot. to Dismiss the Compl. [hereinafter
The Director-Defs.’ Opening Br.], at 21.
56
Miller Aff., Ex. 2, § 1.3.5; Miller Aff., Ex. 3, § 1.3.5.
14
placed before the stockholders for a vote, stockholder approval would cleanse any

actionable breach of duty, based solely on overpayment.57 Here, according to the

Defendants, in light of the SIPs—which purport to absolve the Directors of liability

for future breaches of duty absent bad faith—I should reach the same result: no

damages for self-dealing transactions, even if unfair, unless the Plaintiff successfully

pleads bad faith. I find to the contrary: under the facts here, stockholder approval of

the SIPs does not set a standard for director self-dealing at anything less than the

entire fairness standard.

The fiduciary limits on director behavior are a bedrock of our corporate law.

Individuals structuring entities can, of course, avoid the strictures of fiduciary duties

by choosing a form of entity other than the corporation. LLCs, MLPs, and other

alternative entities may capture value by choosing to organize in favor of conflicted

transactions with limited fiduciary constraints, and investors in those entities are (or

should be) aware of the risks incumbent in the entity structure. Stockholders of

corporations, on the other hand, are free to invest—and to take corporate votes—

secure in the knowledge that those making decisions for them are cabined by

57
See In re Inv’rs Bancorp, Inc., S’holder Litig., 177 A.3d 1208, 1217–18 (Del. 2017) (discussing
Kerbs v. Cal. E. Airways, Inc., 90 A.2d 652, 655 (Del. 1952), which held that ratification cures
self-interested directors’ breaches of duty absent “a gift of corporate assets to themselves or
[where] ultra vires, illegal, or fraudulent”); see also id. at 1226 (“Because the stockholders did not
ratify the specific awards under the [compensation plan], the affirmative defense of ratification
cannot be used to dismiss the complaint.”).
15
fiduciary duties.58 A world in which corporate directors are limited only by the

strictures of bad faith, would, as is implicit in the Defendants’ argument itself, be

very different indeed.

The duty to act in good faith is a subset of the duty of loyalty. Bad faith

involves acts of bad intent, or scienter. These include “classic” bad faith, that is,

action motivated by intent to harm the entity, as well as intentional and conscious

disregard of duty.59 Thus, a breach of the duty of loyalty—a self-dealing transaction

unfair to stockholders—cannot be redressed, in light of the Defendants’

understanding of the SIPs’ language, absent an intent to do wrong on the Defendants’

part. A good-faith, Stuart Smalley-like60 belief, held by the directors, that they were

good enough, smart enough, and doggone it, they were worth twice—or twenty

times—the salary of their peers, would not be actionable.

In effect, the Defendants argue that in approving the SIPs, Goldman’s

stockholders waived the right to entire fairness review in cases of self-dealing

transactions, absent bad faith. For the reasons set out above, I am dubious that a

majority of stockholders can waive the corporation’s right to redress for future and

58
See, e.g., Sample v. Morgan, 914 A.2d 647, 663–64 (Del. Ch. 2007).
59
In re Walt Disney Co. Deriv. Litig., 906 A.2d 27, 64–66 (Del. 2006).
60
See, e.g., Daily Affirmations with Stuart Smalley, Saturday Night Live (NBC television
broadcast Feb. 9, 1991) (“I’m good enough, I’m smart enough, and doggone it, people like me.”).
16
unknown unfair self-dealing transactions.61 That question is not before me, however,

because the language of the SIPs is inadequate to support such a waiver.

Waiver as a defense requires that the waiving party has voluntarily, and

intentionally, relinquished a known right.62 A party has waived a right where she

has knowledge of all material facts pertaining to the right and nonetheless intends to

waive and to refrain from enforcing the right.63 A party successfully asserting

waiver must demonstrate three elements: 1) a right or requirement that 2) is known

to the waiving party and 3) that “the waiving party [intends] to waive” the right.64

Here, I assume for purposes of this Motion to Dismiss, the waiver language

was included as part of a series of broad SIPs. Those SIPs involve incentives to

numerous employees and officers of Goldman. Many of the awards possible under

each SIP, therefore, would not involve the Directors bringing their judgment to bear

in light of their own interests. In other words, the bulk of the director discretion

approved under the SIPs would not be self-dealing, and would be within the

Defendants’ business judgment. In such a context, receiving a majority of

stockholder votes exculpating good-faith actions of the Director-Defendants is, in

my mind, insufficient to demonstrate a knowing waiver of the right to redress for

61
While the provision here is not precisely the provision in question in Bancorp, the rationale of
that decision suggests that our courts would not enforce such an undefined waiver, as opposed to
ratification of specific board action. See Inv’rs Bancorp, 177 A.3d at 1226.
62
Realty Growth Inv’rs v. Council of Unit Owners, 453 A.2d 450, 456 (Del. 1982).
63
Bantum v. New Castle Cty. Vo-Tech Educ. Ass’n, 21 A.3d 44, 50 (Del. 2011).
64
Id. (internal quotations omitted).
17
future unfair and self-dealing transactions on the part of the Directors.65 To

constitute waiver in these circumstance—to the extent such a thing is possible66—

the Defendants would at minimum have to inform stockholders that the SIPs

contemplated self-interested transactions subject to entire fairness, and provide that

a vote in favor amounted to a waiver of the right to redress for such transactions,

even if unfair, absent bad faith. I conclude that the stockholders have not caused

Goldman to waive its right to entire fairness for self-interested director

compensation. The standard of review is entire fairness.

2. The Motion to Dismiss for Failure to State a Claim

The case law on director compensation was previously something of a

muddle. Fortunately, our Supreme Court’s recent decision in In re Investors

Bancorp, Inc. Stockholder Litigation clarified—and simplified—review of action

taken by boards to set their own compensation.67 In Investors Bancorp, a

corporation’s stockholders approved an equity incentive plan that allowed the

directors to later award themselves compensation, on terms set at the discretion of

the directors. Even though the stockholders approved the equity incentive plan,

because the directors were able to later determine their own compensation under the

65
Because of my decision here, I have not considered whether the “standard of review” language,
associated with other provisions of the SIPs, can be considered “voluntary” for waiver purposes.
66
See generally Inv’rs Bancorp, 177 A.3d 1208 (foreclosing the ratification defense where details
of the directors’ self-dealing compensation were not disclosed).
67
Id. at 1208.
18
plan, the Supreme Court held that entire fairness was the applicable standard.68 It

reasoned that “[a]lthough authorized to do so by statute, when the board fixes its

compensation, it is self-interested in the decision because the directors are deciding

how much they should reward themselves for board service.”69

According to the Complaint here, the SIPs set no specific limit on non-

employee Director compensation, and permitted Directors to use their discretion to

set that compensation. Here, in other words, the stockholders were not informed

about the specifics of the compensation package itself; that is to say, as in Investors

Bancorp, the stockholders did not “know precisely what they [were] approving.”70

The SIPs that the Goldman stockholders approved provided for stock awards to the

Directors at their discretion—precisely the situation that the Supreme Court found

implicated entire fairness in Investors Bancorp.

A finding that entire fairness, with its burden on the defendant, is the

applicable standard usually precludes dismissal under Rule 12(b)(6). However,

“[e]ven in a self-interested transaction in order to state a claim a shareholder must

allege some facts that tend to show the transaction was not fair.”71 As the Defendants

point out, the Complaint must meet a pleading burden: it must assert facts that, if

68
Id. at 1212.
69
Id. at 1217.
70
Id. at 1222; see also, generally, Lewis v. Vogelstein, 699 A.3d 327 (Del. Ch. 1997); Steiner v.
Meyerson, 1995 WL 441999 (Del. Ch. July 19, 1995).
71
Solomon v. Pathe Comm’ns Corp., 1995 WL 250374, at *5 (Del. Ch. Apr. 21, 1995).
19
true, make it reasonably conceivable that the transaction is not entirely fair to the

corporation. 72 Moreover, such a burden in the self-compensation area cannot be

simply conclusory, in light of the power the DGCL confers on directors to self-

compensate. The Defendants contend that the Complaint fails to adequately plead

that the Non-Employee Directors’ compensation is unfair, and so the excessive

compensation claim must be dismissed.73

The Plaintiff makes the following allegations: The Director-Defendants made

nearly twice as much as their counterparts at the similarly situated companies

identified as peers by Goldman itself. And those peer directors attended more board

meetings than did the Defendants—that is, the Goldman Directors awarded

themselves more pay for the same or less work. These peer companies have similar

capitalization and exist in the same industry, and their performance is as good or

better than Goldman’s.74 The Complaint is, however, silent as to unfair process.

Conversely, the Defendants point out that they set compensation with the help of an

outside consultant, and that high director compensation has not negatively affected

Goldman’s performance; its returns on investment, according to the Defendants, are

medial compared with peers in the industry. It is also, I note, true that setting salaries

72
See Calma on Behalf of Citrix Sys., Inc. v. Templeton, 114 A.3d 563, 589 (Del. Ch. 2015).
73
The Director-Defs.’ Opening Br., at 32–39.
74
Compl. ¶ 29. According to the Plaintiff’s Answering Brief, this constitutes “wretched excess,”
demonstrating, I suppose, that as with prose, when it comes to director compensation, wretched is
in the eye of the beholder. Pl.’s Br. in Opp’n to Defs.’ Mots. to Dismiss [hereinafter Pl.’s
Answering Br.], at 11.
20
above the peer average is not evidence of excessive compensation—if it were, half

of all companies would be overcompensating their directors.

The question is, given the pleading above, has the Plaintiff met her burden

here? I must accept all well-pleaded allegations as true and draw all inferences in

favor of the non-moving party; dismissal is inappropriate unless the Plaintiff would

not be entitled to recover under any reasonably conceivable set of circumstances

susceptible of proof.75

Regarding excessive compensation, the Complaint is not, to my mind,

particularly strong. I find, however, that the Plaintiff has met her low pleading

burden regarding director compensation: to point to “some facts” implying lack of

entire fairness, which will require a unified review of both process and price.76 The

Complaint does more than assert conclusory allegations. The Plaintiff pleads that

the Board’s average compensation is nearly twice77 that of its peer companies’

directors, and points to evidence of that difference. Moreover, as described above,

the Plaintiff also alleges that Goldman’s directors managed an entity no larger or

more profitable than its peers, did less, and achieved no better results, in light of this

75
In re Ezcorp Inc. Consulting Agreement Derivative Litig., 2016 WL301245, at *7 (Del. Ch. Jan.
25, 2016) (citing Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002)).
76
Solomon, 1995 WL 250374, at *5.
77
In fact, the Director-Defendants receive largely stock-based compensation—about 1.7 times the
average peer salary. The Defendants point out that much of the stock is restricted, and is thus less
valuable than its trading value. Feb. 4, 2019 Oral Argument Tr., at 22:1–6. The record is silent as
to how peers are compensated.
21
near-double compensation. To my mind, this raises at least an inference of unfair

transactions. Under entire fairness review, it is the Defendants’ burden to rebut these

allegations.

The Defendants argue that their compensation is well within the bounds

reasonable to a company of Goldman’s caliber, particularly considering the checks

established on their own self-interest, such as employing a compensation consultant

and accepting that consultant’s recommendation.78 They point out that the Goldman

Directors have extensive duties outside the “official Board meetings” represented in

the Plaintiff’s analysis, and they argue that compensation less-than-double its peers

does not implicate lack of fairness to the corporation. This inquiry, going forward,

will be factual.79 The Defendants’ argument may ultimately prove persuasive. The

matter is before me on a Motion to Dismiss, with the inferences going to the Plaintiff;

the Defendants’ arguments must be reviewed under a more developed record. The

Defendants’ Motion to Dismiss is denied as to the Plaintiff’s derivative

compensation claim.

78
See Feb. 4, 2019 Oral Argument Tr., at 8:5–7.
79
The Defendants imply that, absent dismissal, this case will encourage a massive filing of strike
suits in the director compensation field. The Director-Defs.’ Opening Br., at 20 (citing Solomon,
1995 WL 250374, at *4). I find this specter less than concerning, for at least two reasons. In most
compensation cases, the amount at issue will not be large, and while surviving a motion to dismiss
does give a plaintiff significant leverage, that plaintiff will incur significant expense developing a
record which may well lead to a determination that the compensation was fair. Second, the
Supreme Court in Bancorp has made clear the path by which directors can obtain ratification,
which will eliminate the potential for liability for such directors who obtain ratification going
forward.
22
 C. Disclosures

The Plaintiff makes disclosure-based claims (both derivative and direct)

regarding stockholder approval of the SIPs. The Plaintiff alleges, in a direct claim,

that the Directors did not provide stockholders with material information, as required

by the SIPs, Treasury Regulation § 1.162-27(e)(4)(v), and the Directors’ duty of

disclosure, concerning the SIPs that were approved in 2013 and 2015.80 In her

answering brief to the Defendants’ Motion to Dismiss, however, the Plaintiff

acknowledged that much of the “omitted information”81 was, in fact, discussed in

Goldman’s proxy statements, but she argues that the information was “buried” and

should be considered as though omitted.82 Because of this, she submits, the SIPs

never received an informed stockholder vote, which amounts to a breach of the duty

of loyalty (including the duty of candor), and the SIPs are void ab initio.83 It follows,

alleges the Plaintiff in a derivative claim, that by later issuing awards under the

invalid SIPs, the Board members breached their duties of loyalty and care.84

Similarly, the Plaintiff alleges (also derivatively) that the Board members

breached their fiduciary duty of loyalty by making “partial, vague, and misleading

80
Compl. ¶ 58.
81
See id. ¶¶ 34, 59.
82
Pl.’s Answering Br., at 33.
83
Compl. ¶ 59.
84
Id. ¶¶ 62–66.
23
disclosures and omissions concerning the tax deductibility of the cash-based

incentive awards.”85

In their Motion to Dismiss, the Defendants first argue that the Plaintiff does

not have standing to challenge the 2013 SIP. The Complaint alleges that the Plaintiff

has been a stockholder since June 12, 2014; therefore, she does not have standing to

challenge the SIP approval, which occurred on May 23, 2013.86 In any event, the

Defendants submit, the disclosure claims are untimely and should accordingly be

dismissed.87 The Defendants also argue that no breach of duty inheres in the

disclosures relative to the incentive awards. I examine each argument in turn, below.

1. The SIP Claims

a. The 2013 SIP

Standing is a threshold issue in any litigation. In a general sense, “the concept

of ‘standing’ . . . refers to the right of the party to invoke the jurisdiction of a court

to enforce a claim or redress a grievance.”88 To establish standing,

(1) the plaintiff must have suffered an injury in fact—an invasion of a
legally protected interest which is (a) concrete and particularized and
(b) actual or imminent, not conjectural or hypothetical; (2) there must
be a causal connection between the injury and the conduct complained
of—the injury has to be fairly traceable to the challenged action of the
defendant and not the result of the independent action of some third
party not before the court; and (3) it must be likely, as opposed to

85
Id. ¶ 69.
86
The Director-Defs.’ Opening Br., at 41.
87
Id. at 42–43.
88
El Paso Pipeline GP Co., LLC v. Brinckerhoff, 152 A.3d 1248, 1256 (Del. 2016) (quotation
omitted).
24
 merely speculative, that the injury will be redressed by a favorable
decision.89

Rule 23.1 contains rigorous pleading requirements, including those that relate

to standing. Choses in action, as this Court has noted many times, are assets that, if

they belong to a corporate entity, are under the control of that entity and its directors,

not the company’s stockholders or members.90 An exception exists where the

company (due, for instance, to director conflicts) will not, or cannot, deploy the asset

in the corporate interest. In that limited subset of cases, stockholders may have

standing to bring the action derivatively.91 To do so, a stockholder’s complaint must

“allege that the plaintiff was a stockholder or member at the time of the transaction

of which the plaintiff complains . . . .”92

Here, the Plaintiff asserts a claim against Board members for breach of

fiduciary duty of loyalty in connection with disclosures seeking stockholder

approval of the 2013 SIP and awards made pursuant to that “void” SIP. The

Complaint, however, only alleges that the Plaintiff “has been a common stockholder

continuously since June 12, 2014.”93 There is no allegation that the Plaintiff had any

relationship, contractual or otherwise, with the Board when the 2013 SIP was

89
Dover Hist. Soc. v. City of Dover Planning Comm’n, 838 A.2d 1103, 1110 (Del. 2003).
90
See, e.g., Park Emps.’ & Ret. Bd. Emps.’ Annuity and Benefit Fund of Chi. v. Smith, 2016 WL
3223395, at *1 (Del. Ch. May 31, 2016).
91
See generally Rales v. Blasband, 634 A.2d 927 (Del. 1993).
92
Ct. Chan. R. 23.1(a).
93
Compl. ¶ 3.
25
approved. Accordingly, I find that the Plaintiff lacks standing to challenge the 2013

SIP, or awards made thereunder. In any case, the Plaintiff’s claim is untimely, as

explained below.

b. The 2015 SIP

As with the 2013 SIP, the Plaintiff asserts a derivative claim and a direct,

individual claim against the Board for breach of fiduciary duty of loyalty in

connection with stockholder approval of the 2015 SIP. Per the Plaintiff, when asking

for stockholder approval of the 2015 SIP, the Directors did not provide stockholders

with all relevant, material information, as required by the SIP itself, by Treasury

Regulation § 1.162-27(e)(4)(v), and by the Directors’ “duty of disclosure.”94 The

Plaintiff posits that because the stockholders were not provided with all relevant,

material information, there was no informed stockholder vote, and the SIPs are void;

under that logic, the Board violated the fiduciary duties of loyalty and care by issuing

invalid stock-based awards under the void SIPs. Accordingly, all awards pursuant

to the SIPs are themselves void, and the Plaintiff seeks rescission and declaratory

relief.95

94
Id. ¶ 58.
95
At oral argument, the Plaintiff suggested that I could require Goldman to “re-do” the 2013 and
2015 votes, or assess monetary damages (although counsel could not suggest a metric for the
latter). Feb. 4, 2019 Oral Argument Tr., at 58:15–6:9.
26
 Regarding the basis for these disclosure violations, the Plaintiff points to

Treasury Regulation § 1.162-27(e)(4), which requires disclosure and stockholder

approval of “[t]he material terms of the performance goal under which the

compensation is to be paid,” as determined under the same standards as the

Exchange Act.96 In turn, the Exchange Act provides:

Item 10. Compensation Plans.
If action is to be taken with respect to any plan pursuant to which cash
or noncash compensation may be paid or distributed, furnish the
following information:
(a) Plans subject to security holder action.
(1) Describe briefly the material features of the plan being
acted upon, identify each class of persons who will be eligible to
participate therein, indicate the approximate number of persons in each
such class, and state the basis of such participation.97

Per the Plaintiff, the Proxy Statement seeking stockholder approval of the SIP did

not “(i) identify each class of persons who would be eligible to participate in the SIP;

(ii) indicate the approximate number of persons in each class; and (iii) state the basis

of such participation,” as required under Item 10(a) of the Exchange Act—or at least,

that it did not do so with sufficient clarity.98

In their Motion to Dismiss, the Defendants argue that the information at issue

was, in fact, disclosed, and that at any rate, the Plaintiff’s challenges come too late.99

96
26 C.F.R. § 1.162-24(e)(4); see also Pl.’s Answering Br., at 31.
97
17 C.F.R. § 240.14a-101.
98
Compl. ¶ 35.
99
Director-Defs.’ Opening Br., at 42–43.
27
 This Court requires a Plaintiff who has been harmed to seek resolution in a

timely fashion; equity aids the vigilant, not those who slumber on their rights. Where

there are alleged disclosure deficiencies, “the preferred time to address such claims

[is before a stockholder vote] in order to afford remedial relief appropriate for

genuine informational deficiencies.”100 Moreover, the equitable doctrine of laches

can bar claims by a plaintiff who “unreasonably delayed in bringing his claims after

he became aware of them.”101 The party asserting a laches defense must show that

the plaintiff knew of the invasion of his rights, that he unreasonably delayed in

bringing suit to vindicate those rights, and resulting prejudice to the defendant.102

The first prong requires the defendant to demonstrate “that the plaintiff was on

inquiry notice, if not actual notice, of his claims.”103 In general, an analysis of laches

is fact-intensive; for that reason, it is not typically applied at the motion to dismiss

phase.104 Nevertheless, a Court may dismiss a case under the laches doctrine when

“it is clear from the face of the complaint that an affirmative defense exists and that

the plaintiff can prove no set of facts to avoid it.”105 Laches is apt in disclosure cases

100
In re Solera Hldgs., Inc. S’holder Litig., 2017 WL 57839, at *8 (Del. Ch. Jan. 5, 2017).
101
Forman v. CentrifyHealth, Inc., 2019 WL 1810947, at *7 (Del. Ch. Apr. 25, 2019).
102
See Akrout v. Jarkoy, 2018 WL 3361401, at *8 (Del. Ch. July 10, 2018).
103
Forman, 2019 WL 1810947, at *7.
104
See Reid v. Spazio, 970 A.2d 176, 183 (Del. 2009).
105
Bean v. Fursa Capital Partners, LP, 2013 WL 755792, at *6 (Del. Ch. Feb. 28, 2013) (citation
omitted).
28
where the plaintiff eschews pre-vote relief, then, significantly after the fact, seeks

rescission.106

The Plaintiff here argues that the SIP omitted material information; however,

it is apparent that to the extent there is a deficiency, such deficiency would be

obvious from the face of the Proxy Statement. The Proxy Statement, in fact, refers

specifically to the Treasury Regulation in light of which, per the Plaintiff, it is

deficient. Nonetheless, the Plaintiff did not bring suit until 2017, two years after the

2015 SIP was approved. The Plaintiff did not object to the SIP in 2015, and for two

years after, she continued to accept the benefits of Goldman’s management. She

now seeks to unwind incentive payments made to employees under the SIP, the

benefits of which she has already reaped. This remedy would be damaging to third

parties and cause harm to Goldman’s relationship with its employees. This harm

accrued while the Plaintiff slumbered on her rights.107 To now argue that the 2015

SIP is void ab initio, and must be undone, violates fundamental principles of laches,

106
Cf. Nguyen v. Barrett, 2016 WL 5404095, at *7 (Del. Ch. Sept. 28, 2016) (“The preferred
method for vindicating truly material disclosure claims is to bring them pre-close, at a time when
the Court can insure an informed vote.”); Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital
Hldgs. LLC, 2012 WL 3201139, at *15 (Del. Ch. Aug. 7, 2012) (“[A] laches bar may arise earlier
than the statutory cut-off when a plaintiff seeks equitable remedies such as . . . rescission . . . .
Relief of this kind will only be obtained if the plaintiff acts with dispatch, and will normally be
foreclosed to a plaintiff who sits on his hands until near the end of the analogous limitations
period.” (quotations omitted)).
107
The Plaintiff argues that the existence of other litigation, dismissed on standing grounds,
implicates the savings statute. Pl.’s Answering Br., at 26–28. While the saving statute may toll
the statute of limitations, it does not, to my mind, affect my laches analysis here.
29
as well as this Court’s preference for disclosure claims to be brought before the

stockholder vote. Accordingly, the Plaintiff is barred from bringing this claim. As

a result of my decision here, I need not address the Defendants’ contention that the

disclosures, which the Plaintiff now acknowledges were made but were “buried” in

the Proxy Statement, were in fact adequate.108

2. Tax Deductibility of Executive Compensation

In a direct claim, the Plaintiff alleges that the Director-Defendants,

individually, breached their fiduciary duty of loyalty by making “partial, vague, and

misleading disclosures and omissions concerning the tax deductibility of the cash-

based incentive awards.”109 Each year Goldman has made cash-based incentive

awards to its named executive officers.110 The Compensation Discussion and

Analysis section of Goldman’s 2015, 2016, and 2017 Proxy Statements contained a

subsection titled “Section 162(m),” which detailed tax implications for executive

compensation.111 The Proxy Statements informed stockholders that compensation

(under stockholder-approved plans) was intended to be tax deductible, but did not

disclose whether all cash-based incentive awards would, in fact, be tax deductible.112

108
See Zalmanoff v. Hardy, 2018 WL 5994762 (Del. Ch. Nov. 13, 2018), aff’d 2019 WL 2151662
(Del. 2019) (finding no violation of fiduciary duty where a proxy statement with alleged omissions
was mailed alongside a Form 10-K, which contained the information).
109
Compl. ¶ 69.
110
Id. ¶ 37.
111
Id. ¶ 39.
112
Miller Aff., Ex. 4, at 50.
30
Specifically, the proxy statements included language providing that the company

“may decide to pay non-deductible variable compensation.”113 The Plaintiff

contends that this violates the fiduciary duty of candor because it is a partial

disclosure. Per the Plaintiff, “[t]he Directors have awarded enormous amounts of

‘variable compensation,’ which are not tax-deductible. There was no ‘may decide’

about it, and therefore, the ambiguous statement to this effect in the 2015, 2016, and

2017 Proxy Statements was misleading and failed to fully and accurately disclose

the Directors’ actions and intent.”114

In their Motion to Dismiss, the Defendants argue, inter alia, that that these

awards have not yet been made—rather, the awards have been announced but no

payments have been distributed—which renders any argument about their tax-

deductibility premature, especially considering that there are ways in which this

compensation may be tax-deductible, when it is ultimately paid. In sum, the

Defendants aver that the challenged disclosure was not false or misleading.115

I find that the Plaintiff has failed to state a claim on which relief can be granted

because the challenged disclosure was not materially false or misleading. The Proxy

Statement informed Goldman’s stockholders that the Directors intended

compensation, generally, to be deductible, but that they “may decide to pay non-

113
Compl. ¶ 40.
114
Id. ¶ 44.
115
The Director-Defs.’ Opening Br., at 53–54.
31
deductible variable compensation.”116 This disclosed to the stockholders the

possibility that Goldman would pay non-deductible variable compensation; the

stockholders were on notice of such.117 Subsequently, the Board issued such awards.

This is, simply put, in this context not materially misleading. Accordingly, this

claim is dismissed.

III. CONCLUSION

For the foregoing reasons, the Defendants’ Motion to Dismiss is granted in

part and denied in part. An Order is attached.

116
Compl. ¶ 40.
117
The stockholders were not asked to vote on these cash-based incentive awards, but were asked
to re-elect the Directors making the disclosures. See Feb. 4, 2019 Oral Argument Tr., at 38:5–14.
32
 IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

SHIVA STEIN, derivatively on behalf of )
The Goldman Sachs Group, Inc., and )
individually as a Stockholder of The )
Goldman Sachs Group, Inc., )
)
Plaintiff, )
)
v. ) C.A. No. 2017-0354-SG
)
)
LLOYD C. BLANKFEIN, M. )
MICHELE BURNS, GARY D. COHN, )
MARK A. FLAHERTY, WILLIAM W. )
GEORGE, JAMES A. JOHNSON, )
ELLEN J. KULLMAN, LAKSHMI N. )
MITTAL, ADEBAYO O. OGUNLESI, )
PETER OPPENHEIMER, DEBORA L. )
SPAR, MARK E. TUCKER, DAVID A. )
VINIAR, MARK O. WINKELMAN, )
and THE GOLDMAN SACHS GROUP, )
INC., )
)
Defendants. )

ORDER

AND NOW, this 31st day of May, 2019,

The Court having considered the Defendants’ Motion to Dismiss, and for the

reasons set forth in the Memorandum Opinion dated May 31, 2019, IT IS HEREBY

ORDERED that the Motion to Dismiss is GRANTED as to Counts II, III, and IV,

and DENIED as to Count I.

/s/ Sam Glasscock III
Vice Chancellor