SAN JOSE, Calif. (CN) - A federal judge dismissed claims that Hewlett-Packard board members hurt the company by not divulging information about former CEO Mark Hurd.
Teamster Union Local No.142 Pension Trust, Key West Police & Fire Pension Fund and Louisiana Municipal Police Employees Retirement System say HP falsely represented in a 2010 proxy statement that Hurd's status with the company was in tact. In fact, his employment agreement had expired on March 29, 2009 and had not been renewed or extended.
That information, shareholders say, affected their votes on the election of Hurd for another term and the approval of the Stock Incentive Plan, "pursuant to which the board sought and received authority to issue additional shares of stock for use in compensating HP's officers, directors and employees, including Hurd."
The complaint further alleges a former independent contractor informed HP in May 2010 that Hurd had sexually harassed her. An internal investigation found that Hurd had a "close personal relationship" with the woman and that he "failed to disclose that relationship to the board of directors; and that there were numerous instances where Hurd submitted inaccurate expense reports that were intended to conceal or had the effect of concealing Hurd's personal relationship," with her.
Finally, the lawsuit claims a separation agreement signed by both Hurd and HP's board following Hurd's August 2010 resignation was too generous. The deal included over $12 million in cash on top of over 330,000 performance-based restricted stock shares and other benefits.
The complaint lists five counts against Hurd and members of the HP board.
"Count I alleges that the directors wasted corporate assets by approving the separation agreement. Count II alleges that the director breached their fiduciary duties of loyalty and good faith by awarding Hurd excessive and unwarranted severance payments and benefits, and by knowingly failing to inform themselves regarding all material information in making that decision. Count III asserts an unjust enrichment claim against Hurd. Count IV alleges that all defendants breached their fiduciary duties of loyalty and good faith by filing false and misleading statements regarding Hurd's employment agreement in HP's 2010 proxy statement. Count V alleges a similar claim under section 14(a) of the Securities Exchange Act."
U.S. District Judge Edward Davila, however, dismissed the claims, stating, in part, that the plaintiffs failed to show the benefits in the separation agreement were indeed excessive.
"Here, plaintiffs do not allege that HP suffered significant losses during Hurd's tenure as CEO or that he otherwise was an ineffectual executive," Davilla said. "Under such circumstances, at least some portion of Hurd's severance could represent 'reasonable' compensation for his successful past performance."
He also said the complaint failed to show the board of directors did not make an informed decision, that it breached its fiduciary duty or that Hurd was unjustly enriched. All claims were dismissed with leave to amend.
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