In Cambridge Retirement System v. Bosnjak, C.A. No. 9178-CB (Del. Ch. June 26, 2014), Chancellor Andre G. Bouchard’s first memorandum opinion, the Court of Chancery addressed a novel interpretation of Section 141(h) of the Delaware General Corporation Law on the defendants’ motion to dismiss derivative claims for breach of fiduciary duty and corporate waste. The defendants argued that to give effect to Section 141(h) (providing board authority to set director compensation absent restrictions in the certificate of incorporation or bylaws), derivative plaintiffs must allege not only that a majority of directors are interested in their own compensation but also must allege particularized facts creating a reasonable doubt that the directors’ approval of their own compensation was the product of a valid exercise of business judgment. The court ultimately rejected this argument, holding that Section 141(h) does not address the standard of review applicable to directors’ authority to set their own compensation.

The plaintiff asserted claims for breach of fiduciary duty and corporate waste regarding compensation paid to the non-executive directors of Unilife Corp. This compensation included equity awards the Unilife directors granted to themselves subject to obtaining stockholder approval, as well as cash compensation paid to themselves without obtaining stockholder approval. The defendants moved to dismiss the complaint for failure to make demand on the Unilife board of directors, or to plead facts demonstrating that demand should be excused. The defendants also moved to dismiss the waste claim and breach of fiduciary duty claim (as to the grant of equity awards) for failure to state a claim upon which relief may be granted. The defendants did not move to dismiss the fiduciary-duty claim regarding the cash compensation granted to the directors.

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