# Cohen v. LyondellBasell Industries N.V.

> District Court, E.D. New York · September 30, 2020

URL: https://www.frixlaw.com/law-library/cases/10304960

## Case

- **Court:** District Court, E.D. New York
- **Decided:** September 30, 2020
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10304960

## How later opinions describe it (automated extraction)

- applying materiality threshold to the underlying violation
- discussing “substantial benefit” test for attorneys’ fees

## Opinion text

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
------------------------------------x

EDWARD COHEN,

Plaintiff, MEMORANDUM & ORDER
19-CV-2622(EK)(SMG)
-against-

LYONDELLBASELL INDUSTRIES N.V.,

Defendant.

------------------------------------x

ERIC KOMITEE, United States District Judge:
Plaintiff Edward Cohen sued LyondellBasell Industries
N.V., alleging a deficiency in a proxy statement Lyondell filed
in connection with a shareholder vote to extend its stock
incentive plan. The alleged deficiency was that the proxy
statement failed to state the number of eligible plan
participants, as required by the Securities and Exchange
Commission’s (“SEC”) proxy rules. After Plaintiff sued, but
prior to the actual vote, Defendant supplemented the proxy
statement with the omitted information. The parties agree this
mooted Plaintiff’s claim, but they dispute whether Plaintiff is
now entitled to attorneys’ fees and costs.
Before the Court is Magistrate Judge Steven M. Gold’s
report and recommendation (“R&R”) on Plaintiff’s motion for over
$60,000 in attorneys’ fees and costs pursuant to the “common
benefit doctrine.” Judge Gold recommends that the Court deny
this motion because Plaintiff did not confer a “substantial
benefit” on Defendant’s shareholders, as required by the
doctrine. Plaintiff filed timely objections to the R&R, to
which Defendant responded. After conducting a de novo review,
the Court adopts the R&R in its entirety, with one modest

exception.
Background
On April 9, 2019, Defendant filed a definitive proxy
statement with the SEC in advance of its annual meeting on May
31, 2019 (the “Proxy Statement”).1 Compl. ¶ 1, ECF No. 1. It
contained numerous items to be voted on, including Item 10 —
Amendment of the Company’s Long-Term Incentive Plan (the
“Plan”). Compl. ¶ 12; Proxy Statement at 58-60, ECF No. 1-1.
The Plan was originally created in April 2010 to provide stock
options to eligible employees and directors for a ten-year term
ending in April 2020. Proxy Statement at 58. In the 2019 vote,
the Board asked shareholders to approve certain amendments to

the Plan, including “to approve the extension of the term of the
Plan for so long as the previously approved shares remain
available for issuance.” Id. The Board made clear that it was
“not asking for the approval of any additional shares.” Id. At

1 The Court assumes familiarity with the factual and procedural history
of this case, as set forth in greater detail in Judge Gold’s R&R.
that time, there were approximately 4.2 million shares still
available for issuance under the Plan. Id. In its recitation
of the Plan’s “material terms,” the Proxy Statement recited that
“[a]ll regular employees of the Company and its subsidiaries and
Board members are eligible to participate in the [Plan], if

selected by the Compensation Committee.” Id. The Proxy
Statement did not, however, say how many employees the company
had at that time.
On May 3, 2019, Plaintiff filed this action alleging
that the Proxy Statement violated Section 14(a) of the
Securities Exchange Act and SEC regulations thereunder. In
particular, Plaintiff claimed that it contravened Item 10(a)(1)
of Schedule 14A, which instructs: “Describe briefly the material
features of the plan being acted upon, identify each class of
persons who will be eligible to participate therein, indicate
the approximate number of persons in each such class, and state
the basis of such participation.” 17 C.F.R. § 240.14a-101

(emphasis added).
On May 9, 2019, Defendant filed a supplement to the
Proxy Statement (the “Supplement”) stating, in relevant part:
“As of May 1, 2019, there were approximately 19,000 employees
and 11 non-employee directors eligible to participate in the
[Plan].” Supplement at 3, ECF No. 14-5. At the annual meeting
on May 31, 2019, the shareholders approved Item 10, with 97.5%
of the vote in favor. See Form 8-K at 6, ECF No. 16-5. In the
days following the meeting, Defendant issued approximately
35,000 shares under the Plan. Pl.’s Mem. of Law at 10, ECF No.
14-2.
Plaintiff then filed a motion for attorneys’ fees and
costs, ECF No. 14, which was referred to Judge Gold.2 Judge Gold

issued an R&R on June 23, 2020, to which Plaintiff objected on
July 7, 2020. R&R, ECF No. 20; Pl.’s Obj., ECF No. 21.
Legal Standard
A district court reviewing a magistrate judge’s R&R
“may accept, reject, or modify, in whole or in part, the
findings or recommendations made by the magistrate judge.”
28 U.S.C. § 636(b)(1)(C). The district court reviews de novo
those portions of an R&R to which a party has specifically
objected. Id.; Fed. R. Civ. P. 72(b)(3); see also Kruger v.
Virgin Atl. Airways, Ltd., 976 F. Supp. 2d 290, 296 (E.D.N.Y.
2013) (“A proper objection is one that identifies the specific

portions of the R&R that the objector asserts are erroneous and
provides a basis for this assertion.”), aff'd, 578 F. App'x 51
(2d Cir. 2014). Objections that are general, conclusory, or
“merely recite the same arguments presented to the magistrate

2 Judge Margo K. Brodie referred this motion for an R&R. The case was
subsequently transferred to the undersigned.
judge” do not constitute proper objections and are reviewed only
for clear error. See Sanders v. City of New York, No. 12-cv-
113, 2015 WL 1469506, at *1 (E.D.N.Y. Mar. 30, 2015).
Discussion
The common-benefit doctrine “permits a prevailing

party to obtain reimbursement of attorneys’ fees ‘in cases where
the litigation has conferred a substantial benefit on the
members of an ascertainable class’ and where it is possible to
spread the costs proportionately among the members of the
class.” Amalgamated Clothing & Textile Workers Union v. Wal-
Mart Stores, Inc., 54 F.3d 69, 71 (2d Cir. 1995) (quoting Mills
v. Elec. Auto-Lite Co., 396 U.S. 375, 393-94 (1970). The
benefit “must be something more than technical in its
consequence and be one that accomplishes a result which corrects
or prevents an abuse which would. . . affect the enjoyment or
protection of an essential right to the stockholder's interest.”
Mills, 396 U.S. at 396.

Judge Gold recommends denying Plaintiff’s motion for
attorneys’ fees and costs because Defendant’s supplemental
disclosure merely corrected a “technical” omission, and
therefore Plaintiff did not confer a “substantial benefit” on
shareholders, as required by Mills and its progeny. R&R at 8.
Plaintiff objects to this conclusion and to most of Judge Gold’s
reasoning. Although some of these objections are repurposed
from Plaintiff’s moving papers, the Court will review the R&R de
novo.
A. Plaintiff’s Chevron Argument
Plaintiff claims that Judge Gold erred by resting his
conclusion, in part, on the fact that shareholders were

primarily asked to extend the term of the Plan, and not to (for
example) increase the number of shares available, or take
another action that would dilute shareholder value or impact
overall compensation levels. Pl.’s Obj. at 2-4. In support of
this objection, Plaintiff argues that the Supplement corrected a
“material omission.” Id. at 4. Essentially, Plaintiff’s
argument appears to be that any omission of information called
for by Schedule 14 is material by definition, because the SEC
would not have instructed proxy filers to include such
information if the Commission did not think it material, and the
Commission’s view in that regard is entitled to Chevron
deference (or at least something like it). See id. at 3 (noting

that the SEC’s Disclosure Interpretations require proxy filers
to include all information in Item 10, regardless of whether the
proxy seeks to issue new shares or merely modify the terms of an
existing plan); see also id. (stating that the “SEC’s
requirements, expressed in its own regulations, are entitled to
deference” and citing Chevron, U.S.A. v. Nat. Res. Def. Council,
Inc., 467 U.S. 837 (1984)).
This argument misses the point of Mills, which holds
clearly that the “substantial benefit” standard, and not the
materiality threshold, is what determines a plaintiff’s

entitlement to attorneys’ fees. Mills, 396 U.S. at 396
(shareholder-plaintiff is entitled to recover fees for
instituting an action that “results in a substantial benefit to
[the] corporation”). The “materiality by definition” test urged
by Plaintiff would effectively write Mills’ “substantial
benefit” test out of existence; instead, any action identifying
a violation of Schedule 14A’s instructions, no matter how
“technical,” would result in an entitlement to fees. This
result would be inconsistent with Mills’ admonition that the
substantial entitlement “must be something more than technical
in its consequence and be one that accomplishes a result which
corrects or prevents an abuse which would be prejudicial to the

rights and interests of the corporation or affect the enjoyment
or protection of an essential right to the stockholder's
interest.” Id. Plaintiff’s argument is also undermined by the
fact that Mills itself considered (in separate sections) both
the materiality threshold and the “substantial benefit” test.
Compare Mills, 396 U.S. at 384-85 (applying materiality
threshold to the underlying violation), with id. at 393-97
(discussing “substantial benefit” test for attorneys’ fees). If
Mills intended these to be the same thing, presumably the Court
would have used the same terminology for the same test in the
same opinion.
The original Proxy Statement in this case — that is,

the one Plaintiff challenged — went a long stretch of the way
towards the full disclosure required by the SEC, even before
Plaintiff brought suit. That version had already informed
shareholders that “[a]ll regular employees of the Company and
its subsidiaries and Board members” could participate — even if
it didn’t explicitly state the approximate number of those
employees. Proxy Statement at 58. Given this, and given (as
Judge Gold pointed out) that the number of shares being issued
was not changing, it is difficult to imagine a more “technical”
amendment than the one at issue.
In support of its materiality argument, Plaintiff
cites two cases in this district — Stein v. Medtronic plc, No.

17-CV-5343 (E.D.N.Y.) (“Medtronic”) and Stein v. Raymond James
Financial, Inc., No. 16-CV-379 (E.D.N.Y) (“Raymond James”) —
that ascribe significance to defendants’ failure to comply with
Item 10(a)(1). See Pl.’s Obj. at 4. Those cases, however, are
distinguishable because they involved votes to increase the
number of shares available for issuance under the plans — by an
additional 50 million shares in Medtronic and 16 million in
Raymond James. See Medtronic, Compl. ¶ 11, ECF No. 1; Raymond
James, Transcript dated Feb. 9, 2016 at 6:25-7:3, ECF No. 16.
The corrective litigation in those cases thus clearly conferred
a “substantial benefit” on shareholders generally: as the SEC
has observed, shareholders have a “strong interest in

understanding” equity compensation programs because of the
“dilution of their ownership interests” that follows as
“companies issue more shares of their stock to employees.”
Disclosure of Equity Compensation Plan Information, Securities
Act Release No. 8048, Exchange Act Release No. 45189, 67 Fed.
Reg. 232-01, 2002 WL 4156 (Jan. 2, 2002) (noting, as well, that
equity compensation plans “may result in a significant
reallocation of ownership in an enterprise between existing
security holders and management and employees”).
Those substantial benefits are not present here. The
instant Proxy Statement stated that the Board was “not asking
for the approval of any additional shares” beyond those

previously approved. Proxy Statement at 58. It reiterated that
the Plan had been approved in April 2010 for a ten-year term and
that approximately 4.2 million shares were still available for
issuance. Id. The Proxy Statement also included almost two
pages setting out the terms of the Plan under the following
headers: purpose, eligibility for participation, administration,
authorized shares, types of awards, maximum awards payable to an
employee, grants to non-employee directors, amendment and
termination, income tax consequences, and plan benefits. Id. at
58-60. As noted above, the “eligibility for participation”
section did provide the following meaningful information about
the universe of eligible employees: “[a]ll regular employees of

the Company and its subsidiaries and Board members are eligible
to participate in the [Plan], if selected by the Compensation
Committee.” Id. at 58. Under the circumstances, the Court
cannot conclude that the benefit conferred here was “so
significant as to warrant the award of attorneys’ fees.”
Amalgamated Clothing, 54 F.3d at 71 (emphasis added).
Plaintiff also argues the R&R failed to recognize that
the right “to cast an informed vote” is, in and of itself, a
substantial benefit, as the Second Circuit held in Amalgamated
Clothing, 54 F.3d at 71. See Pl.’s Obj. at 6. Judge Gold did
not dispute this principle, however; rather, he correctly
distinguished Amalgamated Clothing based on its facts. In that

case, the defendant — Walmart — had initially excluded the
relevant proposal (relating to its affirmative-action policies)
from the proxy statement in its entirety; absent the plaintiff’s
action, the proposal would not have gone to a shareholder vote
at all. Amalgamated Clothing, 54 F.3d at 70; see also R&R at 7.
Judge Gold also distinguished the facts in Chen v. Select Income
REIT, No. 18-CV-10418, 2019 WL 6139014 (S.D.N.Y. Oct. 11, 2019),
in which a supplemental disclosure provided information
essential to evaluate a change-of-control transaction. Id. at
*13 (supplement provided “information necessary for . . . common
stock shareholders to cast an informed vote concerning [a]
proposed merger,” including previously omitted unlevered free

cash flow projections, valuation analyses, and various conflicts
of interest); see also R&R at 7 (citing Chen, 2019 WL 6139014,
at *13-15).
Here, in contrast, the supplemental disclosure of the
specific number of corporate employees and directors did not
substantially help to inform shareholders, as required by Mills.
Plaintiff cites no case supporting his novel argument that the
correction of any and every omission from a proxy statement
constitutes, by definition, a “substantial benefit,” and this
Court is aware of none — notwithstanding Amalgamated Clothing’s
discussion of the importance of informed shareholder voting.
B. Plaintiff’s Contention that Shares Issued Would Have
Been Rendered Void, Absent the Correction

Plaintiff’s next argument alludes to a more tangible
benefit than his generic reference to informed shareholders: he
argues that, had he not sued to correct the proxy, the shares
issued under the Plan would have been subject to rescission.
Pl.’s Obj. at 7 (arguing that “absent a properly authorized
shareholder approval of the Proposal, no shares would be legally
granted after the [Plan] expired in April of 2020”). Rescission
is a strong remedy, and if the Plaintiff had actually saved the
corporation from it, he might indeed have a stronger
“substantial benefit” argument to make. But he cites no
authority for the proposition that the omission he identified

would have required that remedy, and again the Court is aware of
none. Indeed, Mills itself undermines his assertion: it notes
that district courts have broad discretion as to remedies for
proxy violations. See 396 U.S. at 386-88 (holding that “nothing
in the statutory policy [of Section 14] ‘requires the court to
unscramble a corporate transaction merely because a violation
occurred,’” and that the transaction “should be set aside only
if a court of equity concludes, from all the circumstances, that
it would be equitable to do so”).3 Thus it remains far from
certain — indeed, it seems highly doubtful — that the remedy for
the foot fault here would have been rescission of any shares
issued after April 2020, as Plaintiff suggests.

C. Plaintiff’s Argument Concerning the Number of Votes
in Favor of the Proposal

Finally, Plaintiff argues the R&R should not have
relied on the percentage of votes cast in favor of extending the

3 Notably, Plaintiff did not object to Judge Gold’s finding that the
litigation did not save Defendant from having to void shares issued in May
2019. As Judge Gold noted, the issuance of the 35,000 shares following the
annual meeting had already been authorized under the original Plan that
extended through April 2020. R&R at 8.
Plan, in part because doing so is contrary to Amalgamated
Clothing. Pl.’s Obj. 5-6. The Second Circuit has held that
“[t]he percentage of shares voted against a proposal is
insignificant” to the question of whether a plaintiff vindicated
the shareholders’ right to cast an informed vote. Amalgamated

Clothing, 54 F.3d at 71. Based on this admonition, the R&R
shall be modified to strike the following sentence: “More than
97% of shareholders voted in favor of Item 10, suggesting that
the disclosure triggered by this lawsuit was not of great
import.” R&R at 8. This change, however, does not alter the
analysis above or the conclusion that the Plaintiff’s action did
not meet the “substantial benefit” test.
Conclusion
As set forth above, the Court adopts in part and
modifies in part Judge Gold’s Report and Recommendation dated
June 23, 2020. Plaintiff’s motion for attorneys’ fees and costs
is denied.

SO ORDERED.

_/s Eric Komitee_____________
ERIC KOMITEE
United States District Judge

Dated: September 30, 2020
Brooklyn, New York

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10304960. Public record. Not legal advice.