Nemec v. Shrader

Pursuant to its Officer Stock Rights Plan (the Plan), Booz Allen (defendant) afforded retired officers two years after retirement within which they could sell their Booz Allen stock back to the corporation. When the two-year period expired, Booz Allen had the right to redeem the stock at book value. Joseph Nemec and Gerd Wittkemper (plaintiffs) retired from Booz Allen on March 31, 2006. Each retained at least some of his stock through the two-year period. In 2007, Booz Allen negotiated a sale of its government business unit to The Carlyle Group (Carlyle). The sale was expected to close by March 31, 2008, which was also the deadline for Nemec and Wittkemper to sell back their shares. However, the Carlyle transaction was delayed and did not close until July 31, 2008. In April 2008, Booz Allen redeemed Nemec and Wittkemper’s stock at the pre-Carlyle transaction book value, which was significantly less than Nemec and Wittkemper would have received if they had been able to participate in the transaction. Certain Booz Allen directors (defendants) who approved the buyback received a share of the distribution resulting from the Carlyle transaction. Nemec and Wittkemper filed suit. They claimed breach of the covenant of good faith and fair dealing implied in the Plan and breach of the fiduciary duty of loyalty, because Booz Allen bought back their shares when it knew that the Carlyle transaction was yet to occur. The defendants filed a motion to dismiss for failure to state a claim, which the trial court granted. Nemec and Wittkemper appealed.