Northern District of California Dismisses Shareholder Complaint Against Hewlett-Packard

On May 6, 2013, the U.S. District Court for the Northern District of California dismissed a shareholder derivative complaint against certain current and former directors of Hewlett-Packard Company (HP). The plaintiff alleged that HP's board of directors violated Delaware and federal securities law in connection with a wide range of matters, including former HP CEO Mark Hurd's compensation and termination, alleged bribes in violation of the Foreign Corrupt Practices Act, and HP's acquisition of 3PAR. Prior to filing suit, the plaintiff served litigation demands on HP's board of directors, which the company rejected following an investigation conducted by a special committee of the board with the assistance of independent counsel. Wilson Sonsini Goodrich & Rosati acted as lead counsel for HP in the matter.

Notwithstanding the plaintiff's repeated denials that his litigation demands had not conceded the disinterestedness and independence of the HP board, the court agreed with HP and ruled that, in light of the demands and their refusal by HP, "the only relevant question is whether the directors acted in an informed manner and with due care, in a good faith belief that their action was in the best interests of the corporation." Judge Edward Davila's order dismissing the prior complaint found that the plaintiff had failed to raise a "reasonable doubt" in each instance, and the court, in its latest order, found that the plaintiff's most recent complaint did not remedy the earlier deficiencies.

The court also rejected the plaintiff's argument that, in addition to his derivative claims, he had asserted a direct claim for violation of Section 14(a) of the Securities Exchange Act of 1934 in connection with alleged misstatements and omissions regarding HP's executive compensation practices described in the company's 2012 proxy statement. Applying the two-prong test from the Delaware Supreme Court's seminal decision in Tooley v. Donaldson—under which a court examines whether the plaintiff or the corporation suffered the alleged harm and who would receive any remedy—the court concluded that the claim was derivative because even if the plaintiff could show he had suffered an individual harm, he had failed to show any remedy that would benefit him individually; the plaintiff's request for a new annual meeting and vote for the 2012 board was "simply brought too late," as the directors elected in 2012 already had substantially served their one-year terms. Thus, the court found that all of the plaintiff's claims were derivative, and therefore subject to dismissal due to the plaintiff's failure to adequately plead wrongful refusal of his litigation demands.

Judge Davila's decision denied the plaintiff's motion for leave to amend the complaint to add allegations related to HP's November 2012 announcement that the company would take an impairment charge related to its 2011 acquisition of Autonomy Corporation. The court accepted the company's argument that allowing such allegations would introduce "new, separate, and distinct causes of action that would likely implicate individuals not named as defendants in this action," and that the claims themselves already were being litigated before Judge Charles Breyer of the Northern District of California.

Partner Steven Schatz led the Wilson Sonsini Goodrich & Rosati team representing Hewlett-Packard in the matter, which also included Boris Feldman, Katherine Henderson, Cheryl Foung, Bryan Ketroser, Brian Danitz, and Nessia Kushner.

For more information, please refer to the Northern District's decision.