Seidman v. Clifton Savings Bank, S.L.A

Bancorp, a publicly traded corporation, was owned by Clifton MHC (defendant), a federal mutual holding company, and by the public. Lawrence Seidman (plaintiff) was a stockholder of Bancorp. Bancorp scheduled its annual stockholder meeting for July 14, 2005, and sent stockholders the annual meeting notice and a proxy statement. The annual meeting was to consider Bancorp’s 2005 Equity Incentive Plan (the plan). The notice and proxy statement summarized the plan and referenced the applicable federal regulations of the Securities and Exchange Commission. The statement identified four purposes for the plan: to attract and retain personnel; provide officers, employees, and directors with an interest in Bancorp; promote the attention of management to stockholder concerns; and reward employees for outstanding performance. The statement disclosed the plan’s administration by the compensation committee, which was to have broad authority. The plan was approved. The compensation committee issued grants of stock to all Bancorp’s directors and other employees, and restricted stock awards to the directors and other employees. The compensation committee was guided by federal regulations on the limit of awards to the board of directors, and the committee consulted with counsel, accountants, and a compensation consultant before issuing the awards. Seidman filed suit, arguing that protection of the business-judgment rule was only available if the stockholders were fully informed prior to stockholder approval or ratification. Seidman claimed the business-judgment rule was unavailable because of the insufficient disclosure of applicable federal regulations restricting awards to directors, which invalidated the approval by Bancorp’s stockholders. Seidman further claimed the plan was corporate waste that did not serve the intended purpose to attract personnel, because the directors were long-time Bancorp employees who were already well compensated. The trial court and the appellate division held the plan disclosures were sufficient to place the stockholders on notice of the federal regulatory limits on the awards. Seidman appealed, claiming improper disclosure and notice and corporate waste.