In an opinion issued this morning, Judge Oetken denied a $6 million fee request from lawyers that voluntarily dismissed a suit charging Citi with awarding excessive compensation. The suit was filed after Citi’s shareholders, in a non-binding “say-on-pay” vote, rejected Citi’s proposed executive compensation plan for 2011. The lawyers argued that the suit caused certain Citi executives to resign and forfeit certain compensation (thus allegedly mooting the action to some extent), but Judge Oetken disagreed:
Plaintiffs argue that “Plaintiffs’ Counsel were, at the very least, a partial cause of Pandit’s and Havens’ sudden ‘resignations,’ and the Board’s subsequent decision to acquiesce to Plaintiffs’ demand that the Company deny severance and rescind 2011 payments made to the aforementioned executives.” (Pls.’ Mem. at 2.) This contention is both unsupported and farfetched. Indeed, it reflects a post hoc ergo propter hoc fallacy, as changes to executive compensation were already underway when the suit was filed. Plaintiffs filed this suit immediately after Citigroup conducted a “say on pay” vote. But even before the suit was filed, Citigroup had already made clear that a major shakeup in executive compensation was forthcoming. For example, shortly after the vote, former Citigroup Chairman Richard Parsons publicly stated that he considered the vote a “serious matter” and that the Board would take steps to “fix” the Company’s executive compensation program. (See Eaton Decl., Ex. 2-3.) Moreover, after the vote but before this action was filed, the Board agreed to engage an outside consultant to address the executive compensation programs in light of shareholder concerns. (Eaton Decl., Ex. 23.) Indeed, during these discussions—and before Plaintiffs’ suit had been filed—Mr. Pandit himself acknowledged that Citigroup needed to “take seriously the results of the Say-on-Pay vote” in considering future executive compensation. (Id.) It was only after these developments that Plaintiffs filed this suit, knowing full well, as one article on the say-on-pay vote put it, that while the “vote is non-binding . . ., [i]gnoring shareholders’ wishes could put Citi directors on the hot seat . . . .” (Eaton Decl., Ex. 4.) Plaintiffs’ own Standstill Letter quotes from a Forbes article which speculates that Pandit’s resignation may well have stemmed from the “inevitable consultations following on from the negative Say on Pay vote.” (Standstill Letter at 2 (emphasis added); see also Eaton Decl., Ex. 4 (noting that both Parson and Citi’s spokesperson “promise[d] that the board w[ould] consult with shareholders”).) In other words, shareholder pressure, not the lawsuits at issue in this action, was the cause of Citigroup’s policy changes.