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Illinois Court Dismisses Putative Shareholder Class Action, Finding Lack of Alleged Injuries – Noble v. AAR Corp.

An Illinois federal court granted a motion to dismiss in a putative shareholder derivative class action, having already denied the plaintiff’s application for a temporary restraining order (TRO). Noble v. AAR Corp., et al, No. 12 C 7973, memorandum and order (E.D. Ill., Apr. 3, 2013). The plaintiff asserted causes of action for various alleged breaches of fiduciary duty on behalf of the corporation, but the court found that the lawsuit was a direct action, primarily for the plaintiff’s benefit as a shareholder, rather than a derivative one.

The dispute related to a recommendation by the Board of Directors to the shareholders of AAR Corporation, a publicly-traded company, regarding an executive compensation plan. The Board made a unanimous proposal regarding the corporation’s “say on pay” plan, which allowed the shareholders to vote on executive pay as required by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), 15 U.S.C. § 78n-1. In a seventy-page proxy statement, the Board asked the shareholders to approve an advisory resolution regarding executive compensation at the corporation’s annual shareholder meeting, which was scheduled for October 10, 2012.

The plaintiff filed suit against the corporation and individual Board members, alleging that the Proxy Statement failed to disclose various details about what the Board considered before making its proposal. Noble, memorandum at 5. He claimed that the individual defendants breached their fiduciary duties of good faith, care, and loyalty to the shareholders, and that the corporation aided and abetted these breaches. Id. at 5-6. The defendants removed the case to federal court on October 4, 2012. The following day, the plaintiff filed a motion for a TRO, asking the court to stop the shareholder vote. The court held a hearing on October 9 and denied the motion. On October 10, the shareholders approved the Board’s proposal, with seventy-seven percent of the shares voting in favor. Id. at 1-2.


The defendants moved to dismiss the plaintiff’s complaint under Federal Rule of Civil Procedure 12(b)(6). All parties agreed that Delaware law applied to the breach of fiduciary duty claims. Delaware law, the court noted, requires disclosure of “material information when seeking shareholder action.” Id. at 7 (internal citations omitted). The court found that the Dodd-Frank Act did not require disclosure of the information that the plaintiff complained was left out of the Proxy, and that the plaintiff did not demonstrate that federal regulations required disclosure of said information. Id. at 8.

With regard to the injuries alleged by the plaintiff, the court noted that Delaware law allows a direct claim by a shareholder for failure to disclose, which would allow a claim for direct injury to a shareholder’s interests. The plaintiff instead brought a derivative claim on behalf of the corporation, and did not allege any direct losses. Id. at 10-11. Because the type of harm alleged by the plaintiff did not match the suit he brought, the court dismissed his breach of fiduciary duty claims. It dismissed the aiding and abetting claim because it was entirely dependent on the breach of fiduciary duty claims.

Class action lawsuits give plaintiffs a means of asserting their rights against much larger opponents, which is a particular benefit if plaintiffs might otherwise find it infeasible to bring their claims individually. The class action attorneys at DiTommaso♦Lubin have decades of experience representing plaintiffs throughout the Midwest, including Illinois Indiana, Wisconsin and Iowa. Our firm has its offices in the greater Chicago area. Please contact us today online, at (630) 333-0000, or at (877) 990-4990 to schedule a confidential consultation with a member of our team.

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Photo credit: By Ilmari Karonen [CC-BY-SA-3.0], via Wikimedia Commons.