United States District Court, D. Maryland, Southern Division
[Copyrighted Material Omitted]
For Georg Garnitschnig, derivatively on behalf of GenVec, Inc., and individually on behalf of himself and all other similarly situated shareholders of GENVEC, INC., Plaintiff: Douglas Julie, PRO HAC VICE, Nicholas Ian Porritt, LEAD ATTORNEY, Levi & Korsinsky LLP, Washington, DC.
For Zola P Horovitz, Paul H. Fischer, Wayne T. Hockmeyer, William N Kelley, Kevin M Rooney, Marc R Schneebaum, GenVec, Inc., a Delaware Corporation, Nominal Defendant, Defendants: Scott R Haiber, Steven F Barley, LEAD ATTORNEYS, Hogan Lovells U.S. LLP, Baltimore, MD.
Paul W. Grimm, United States District Judge.
Plaintiff has brought derivative claims and class claims on behalf of a Delaware corporation and its shareholders against certain directors and officers, alleging that the board of directors made awards that exceeded the limits of a shareholder-approved compensation plan. The company has moved to dismiss under Fed.R.Civ.P. 23.1 for failure to make a demand on the board to redress the wrongs alleged in the Complaint, and the individual Defendants have moved to dismiss under Fed.R.Civ.P. 12(b)(6) and 9(b). Because I find that Plaintiff adequately has pleaded that the board exceeded its authority and a majority of the board received the challenged awards, I find that demand is excused in this case. Further, because Plaintiff adequately has alleged all but one of his claims, I deny both motions to dismiss with respect to those claims.
For the purposes of considering Defendants' motions to dismiss, this Court accepts the facts that Plaintiff has alleged in his Amended Verified Complaint as true. See Aziz v. Alcolac, 658 F.3d 388, 390 (4th Cir. 2011). GenVec, Inc. (" GenVec" or the " Company" ), a Delaware corporation headquartered in Maryland, Am. Compl. ¶ 12, ECF No. 11, " is a biopharmaceutical company that researches and develops therapeutic drugs and vaccines," Compl. ¶ 2, ECF No. 1. As documented more thoroughly in Judge Williams's earlier Memorandum Opinion in this case, Mem. Op. 1-2, ECF No. 23, GenVec's stock dropped significantly after the 2010 announcement that it would discontinue clinical trials on its " leading product candidate," prompting multiple lawsuits in this Court. After Chief Judge Chasanow dismissed a related securities class action, see Shah v. GenVec, Inc., No. DKC-12-0341, 2013 WL 5348133 (D. Md. Sept. 20, 2013), Plaintiff Georg Garnitschnig amended his complaint to abandon his earlier claims and, instead, allege an entirely new set of claims that have arisen since the original complaint was filed. See Redlined Compl., Am. Compl. Ex., ECF No. 11-6.
A. The 2011 Omnibus Incentive Plan
On April 21, 2011, GenVec's board of directors (the " Board" ) approved a 2011 Omnibus Incentive Plan (the " Plan" ), authorizing the granting of equity awards to certain of GenVec's officers, employees, and directors. Am. Compl. ¶ ¶ 1-2, 27. On April 29, 2011, the Board filed a Schedule 14A Proxy Statement (the " 2011 Proxy Statement" ) with the Securities and Exchange Commission (" SEC" ) with respect to an upcoming shareholder meeting on June 15, 2011 (the " 2011 Meeting" ). 2011 Proxy Statement 1, Am. Compl. Ex. B, ECF No. 11-2. Among the proposals in the 2011 Proxy Statement was a shareholder vote on the adoption of the Plan; the 2011 Proxy Statement explained that " [a]n affirmative vote of a majority of the shares present or represented by proxy and entitled to vote on such matter at the Annual Meeting is required for approval of
the adoption of the 2011 Omnibus Incentive Plan." Id. at 33.
According to the 2011 Proxy Statement:
[t]he maximum number of shares of Common Stock subject to options or stock appreciation rights [" SARs" ] that can be granted under the 2011 Omnibus Incentive Plan in a calendar year to any person is 25,000 [the " 25,000 Limit" ]. The maximum number of shares of Common Stock that can be granted under the 2011 Omnibus Incentive Plan to any person, other than pursuant to an option or stock appreciation right, is 12,500 per year [the " 12,500 Limit and, together with the 25,000 Limit, the " Individual Limits" ].
Id. at 38. In addition, the 2011 Proxy Statement stated that the aggregate number of shares available for issuance under the Plan was 867,197 as of March 31, 2011. Id. at 33.
The 2011 Proxy Statement also said, " The Board of Directors may terminate or amend the Plan at any time and for any reason. . . . Amendments will be submitted for stockholder approval to the extent required by the Internal Revenue Code or other applicable laws, rules or regulations." Id. at 34. It also explained that " [t]he 2011 Omnibus Incentive Plan is designed to permit the Committee to grant awards that qualify as performance-based for purposes of satisfying the conditions of [Internal Revenue Code] Section 162(m)," which required, inter alia, that " the material terms under which the compensation is to be paid must be disclosed to, and subsequently approved by, stockholders of the Company in a separate vote before payment is made." Id. at 36.
On June 17, 2011, following approval of the Plan at the 2011 Meeting, the Board filed a copy of the Plan with the SEC as an exhibit to a Form 8-K. Am. Compl. ¶ 27; Plan, Am. Compl. Ex. A, ECF No. 11-1. The version of the Plan filed with the SEC comports with the representations made in the 2011 Proxy Statement.
Section 6.2 of the Plan provides:
(a) the maximum number of shares of Stock subject to Options or SARs that may be granted under the Plan in a calendar year to any person eligible for an Award under Section 6 is 25,000 shares;
(b) the maximum number of shares of Stock that may be granted under the Plan, other than pursuant to Options or SARs, in a calendar year to any person eligible for an Award under Section 6 is 12,500 shares.
Under the terms of the plan, the " Effective Date" is " June 15, 2011, the date on which the Plan was approved by the Company's shareholders." Plan § 2.19. The Plan also provides that:
The Board may, at any time and from time to time, amend, suspend, or terminate the Plan as to any shares of Stock as to which Awards have not been made. The effectiveness of any amendment to the Plan shall be contingent on approval of such amendment by the Company's shareholders to the extent provided by the Board or required by Applicable Laws (including
the rules of any Stock Exchange on which the Stock is then listed) . . . .
Id. § 5.3.
" Applicable Laws" is a defined term and includes:
the legal requirements relating to the Plan and the Awards under (a) applicable provisions of the corporate, securities, tax and other laws, rules, regulations and government orders of any jurisdiction applicable to the Awards granted to residents therein and (b) the rules of any Stock Exchange on which the Stock is listed.
Id. § 2.2.
On January 18, 2012, the Compensation Committee--composed of Defendants Marc R. Schneebaum, Wayne T. Hockmeyer, William N. Kelley, and Edward M. Connor, Jr.--issued awards under the Plan (the " 2012 Awards" ) as follows:
o 150,000 shares to then-President and CEO Paul H. Fisher; 
o 60,000 shares to Douglas J. Swirsky, then serving as an officer;
o 75,000 shares to Douglas E. Brough, Chief Science Officer; and
o 60,000 shares to Bryan T. Butman, Senior Vice President, Development.
Am. Compl. ¶ ¶ 13, 15, 24-25, 35. Each of these awards exceeded the 25,000 Limit. Am. Compl. ¶ 36.
On May 31, 2012, GenVec filed a 14A Proxy Statement (the " 2012 Proxy Statement" ) with the SEC with respect to its July 11, 2012 shareholder meeting (the " 2012 Meeting" ). 2012 Proxy Statement, Am. Compl. Ex. C, ECF No. 11-3. Among the proposals on the 2012 Proxy Statement was a proposal to increase the aggregate number of shares available under the Plan by 640,000 shares of common stock, increasing the number of total shares available from 531,750 to 1,171,750. 2012 Proxy Statement 31. The proposal noted that shareholder approval was required under NASDAQ Rules. Id. In summarizing the terms of the Plan, the 2012 Proxy Statement included the same Individual Limits as were reported in the 2011 Proxy Statement. Id. at 36.
On January 22, 2013, the Compensation Committee--composed of Schneebaum, Hockmeyer, Kelley, and Connor--issued awards under the Plan (the " January 2013 Awards" ) as follows:
o 200,000 shares to Swirsky;
o 125,000 shares to Brough; and
o 75,000 shares to Butman.
Am. Compl. ¶ 41. The next day, then-President and CEO Cynthia Collins was awarded 200,000 shares. Id. ¶ 41 Each of these awards exceeded the 25,000 Limit. Id. ¶ 43.
On May 31, 2012, GenVec filed a 14A Proxy Statement (the " 2012 Proxy Statement" ) with the SEC with respect to its July 11, 2012 shareholder meeting (the " 2012 Meeting" ). 2012 Proxy Statement, Am. Compl. Ex. C, ECF No. 11-3. Among the proposals on the 2012 Proxy Statement was a proposal to increase the aggregate number of shares available under the Plan by 640,000 shares of common stock, increasing the number of total shares available from 531,750 to 1,171,750. 2012 Proxy Statement 31. The proposal noted that shareholder approval was required under NASDAQ Rules. Id. In summarizing the terms of the Plan, the 2012 Proxy Statement included the same Individual Limits as were reported in the 2011 Proxy Statement. Id. at 36. The
amendment to the Plan was approved. Am Compl. ¶ 40.
On September 3, 2013, the Compensation Committee--composed of Schneebaum, Hockmeyer, and Kelley--issued awards under the Plan (the " September 2013 Awards" and, collectively with the 2012 Awards and the January ...