Read the fact pattern below, then answer the questions that follow.
Case: Raul v. Rynd[1]
Facts: Hercules Offshore, Inc. provided drilling services to the oil and natural gas industry. In the prior year, its revenue was down 11 percent and it had a net operating loss of $1.17 per share. Its total assets decreased by $300 million while its net cash from operating activities was down almost 13 percent ($100 million). Its stock price had fallen almost 25 percent. In the face of this poor performance, the board of directors unanimously approved a compensation plan that raised executive pay by between 40 percent and 190 percent.
In its proxy statement to shareholders, Hercules stated that:
Our compensation committee will continue to design compensation arrangements with the objectives of emphasizing pay for performance and aligning the financial interests of our executives with the interests of long-term stockholders.
As required by say-on-pay rules, the company presented this compensation plan to shareholders at the annual meeting. The board recommended that they vote in favor but 59% of Hercules’ shares voted against it. The board ignored the shareholder vote and continued with the plan anyway.
Pincus E. Raul, a Hercules shareholder, brought suit, alleging that the board had breached its fiduciary duty by approving the compensation plan in the face of a negative shareholder vote. He also alleged that the compensation plan violated the company’s pay-for-performance philosophy as outlined in the proxy statement.
Hercules filed a motion to dismiss.
What is the issue in this case? What question does the court need to answer to resolve this case?
What is the rule of law in this case? Remember, the rule of law is the legal principle the court relies upon to resolve the issue.
What were the three arguments put forth by Plaintiff ?
Underline the text that illustrates the rule of law in this case.