Buch v. Asuncion Aramburuzabala Larregui

Background

Cathy Buch, a shareholder of Coty Inc., sued Coty and its board of directors. The amended complaint asserted two claims: a claim under Section 14(a) of the Securities Exchange Act of 1934 concerning allegedly misleading disclosures in Coty’s proxy statement, and a shareholder derivative claim alleging that the board breached its fiduciary duties by approving the compensation of Coty’s chief executive officer, Sue Nabi.

The proxy statement described Nabi’s compensation, including salary, bonuses, restricted stock units, performance-based awards, and a ratio of chief-executive compensation to median employee compensation of 3,769 to 1. It reported compensation of approximately $283.8 million, $3.6 million, and $149.4 million for fiscal years 2021, 2022, and 2023, respectively. Buch sought injunctive relief to nullify the shareholder vote and did not seek damages for the proxy claim.

Section 14(a) Claim

The court held that a Section 14(a) claim requires loss causation—meaning that the challenged proxy solicitation caused the plaintiff an economic loss. The amended complaint expressly stated that the 2023 proxy statement “did not cause economic loss.” The court therefore dismissed the claim.

The court rejected Buch’s argument that loss causation was unnecessary because she sought injunctive relief rather than damages. It concluded that the requirement applies to Section 14(a) claims generally, including claims seeking an injunction. The court also relied on a Second Circuit decision indicating that allegations that directors were reelected because of an unlawful proxy statement may establish transaction causation but do not establish loss causation.

Shareholder Derivative Claim

A shareholder derivative claim is brought by a shareholder on behalf of the corporation. Federal Rule of Civil Procedure 23.1 requires the shareholder to describe efforts to obtain the requested action from the directors or explain why no effort was made. Buch alleged that she made no pre-suit demand because doing so would have been futile.

Applying Delaware law, the court explained that demand is excused only if, for at least half of the demand board, a director received a material personal benefit, faced a substantial likelihood of liability, or lacked independence from someone who did. The court concluded that Buch did not plead facts showing that a majority of the eleven individual defendants faced a substantial likelihood of liability on a claim not barred by Coty’s director-liability protection.

The court found that allegations that Nabi’s compensation was excessive and that the directors acted in bad faith were conclusory and were not pleaded separately for each director. It also concluded that the compensation, although very large, was not alleged to be so extreme that it could only be explained by bad faith. The court considered the proxy statement’s figures and found that Nabi’s compensation for fiscal years 2021 through 2023 totaled approximately $437 million, rather than the more than $900 million alleged in the amended complaint. The court further noted that the complaint did not identify deficiencies in Nabi’s job performance and that Delaware law gives corporate boards broad discretion over executive compensation.

The court also found that Buch’s allegations that the directors lacked independence were conclusory. Because Buch did not show that demand was excused as futile, the court dismissed the derivative claim.

Disposition

Judge Dale E. Ho granted the motion to dismiss. The court dismissed the amended complaint with prejudice, denied Buch’s request for oral argument as moot, directed the Clerk of Court to close the motion at ECF No. 47, and terminated the case.