In Calma v. Templeton (Del. Ch. Apr. 30, 2015), the Delaware Court of Chancery analyzed whether stockholder approval of a general “compensation plan subjects the self-interested payment of compensation to non-employee directors under such a plan to judicial review under a waste standard instead of an entire fairness standard.” In adjudicating the defendants' motion to dismiss, Chancellor Andre G. Bouchard concluded that “advance stockholder approval of a compensation plan with multiple classes of beneficiaries and a single generic limit on the amount of compensation that may be awarded in a given year” does not necessarily establish a ratification defense to challenges to compensation paid pursuant to the plan. Accordingly, claims relating to such payments would be subject to review under the entire fairness standard applicable to conflicted transactions, rather than the more forgiving waste standard.

Plaintiff John Calma, an individual stockholder of Citrix Systems Inc., derivatively challenged the grants of restricted stock options and cash payments to eight non-employee directors of Citrix in 2011, 2012 and 2013 under theories of breach of fiduciary duty, waste of corporate assets, and unjust enrichment. The directors received their stock grants under Citrix's equity incentive plan, which was approved by a majority of Citrix's disinterested stockholders in 2005. The plan did not, however, “specify the compensation that the company's non-employee directors w[ould] receive annually,” the court said. Instead, the “only limit on annual compensation under the plan [wa]s the generic 1 million share limit … applicable to all beneficiaries,” with “no sub-limits varied by position within the company.” At the time of the suit, 1 million shares of stock were valued over $55 million. Pursuant to the plan, in 2011, 2012 and 2013, Citrix's compensation committee, composed of three non-employee directors, granted each member of the board, including themselves, at least $250,000 in stock grants and options, as well as additional cash payments.

The court concluded that the plaintiff had stated a claim for breach of fiduciary duty relating to the board's award and receipt of the stock grants. As an initial matter, the court held that the business judgment rule did not apply because “at least half of the directors who approved [the grants] [we]re not independent or disinterested.” Accordingly, the decision to award the grants was subject to review under the entire fairness standard, which would require the directors to “establish … 'that the transaction was the product of both fair dealing and fair price'” unless the transaction was ratified by a majority of the company's disinterested stockholders.