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SUPERIOR COURT OF THE STATE OF CALIFORNIA
SANTA CLARA COUNTY JUDICIAL DISTRICT
THE HONORABLE JAMES P. KLEINBERG, JUDGE
DEPARTMENT NO. 1
---o0o---
NATALIE GORDON, ))
PLAINTIFF, ))
-VS- )) CASE NO. 1-12-CV-231541
SYMANTEC CORPORATION ET AL.,))
DEFENDANTS. )____________________________)
REPORTER'S TRANSCRIPT OF PROCEEDINGS
OCTOBER 17, 2012
A P P E A R A N C E S:
FOR THE PLAINTIFF: JUAN E. MONTEVERDEBARBARA A. ROHRATTORNEYS AT LAW
FOR THE DEFENDANTS: DEAN S. KRISTYKEVIN P. MUCKATTORNEYS AT LAW
OFFICIAL COURT REPORTER: GENICE PEREZ, CSRCERTIFICATE NO. 12267
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SAN JOSE, CALIFORNIA OCTOBER 17, 2012
P R O C E E D I N G S:
THE COURT: Good morning. This is the motion
by plaintiffs for preliminary injunction. And could I
have appearances of counsel please.
MR. MONTEVERDE: Good morning, your Honor.
Juan Monteverde from Faruqi & Faruqi for plaintiff.
And I am appearing under my pro hac vice, your order
signed last week.
THE COURT: Okay.
MR. KRISTY: And Dean Kristy of Fenwick &
West for Symantec. And my colleague Kevin Muck is here
with me.
THE COURT: Ms. Rohr, you're here as well.
MS. ROHR: Yes.
THE COURT: Your name, please.
MS. ROHR: Barbara Rohr for the plaintiff.
THE COURT: Okay. Thank you. All right.
I've read over the papers. I have questions. For
plaintiff's counsel, I -- Mr. Monteverde, I took a look
at the -- among all the other papers and I don't know
if you have it handy. You've got a lot of papers
there, as do I. But focusing for the moment on page 7
of the opposition brief, it was filed on October the
8th.
MR. MONTEVERDE: Okay.
THE COURT: And it says -- and madam
reporter, I'll try to read slowly -- "Plaintiff has
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cited no case, and we have found none, in which any
court has ever enjoined a non-binding say-on-pay vote,
or imposed additional disclosure requirement that
neither Congress nor the SEC has adopted with respect
to such a vote." I'll stop there. Is that correct,
Mr. Monteverde?
MR. MONTEVERDE: Yes, your Honor.
THE COURT: Okay. And then it goes on to
say, quote, "In an effort to procure this unprecedented
relief, plaintiff's entire evidentiary showing consists
of a few PowerPoint presentations cherry-picked from
the mountain of materials evaluated by the Compensation
Committee over the past year, and three proxies of
other companies," unquote; is that correct?
MR. MONTEVERDE: I don't agree with that
characterization, your Honor.
THE COURT: All right. What else have you
got to show the Court or did you show the Court that's
in support of your position?
MR. MONTEVERDE: We also provided, your
Honor, a reply to other proxies. But I think when we
look at -- just for the record, the characterization in
our brief that we picked these three PowerPoints out of
the thousand pages of documents produced, we only had a
few PowerPoints. And those are the materials that are
important that the board relied on. Here, your Honor,
we're asking that not only you identify primarily the
peer group, what companies they looked at, but give the
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data.
It's different in other cases. And I know my
colleagues on my left argue, well, all this information
if a shareholder really, really wants is publicly
available. Unlike other cases like in the old cases
where that argument has been made by the defense and
sometimes successfully, here we don't even know what
matrix they looked at, your Honor. We only know what
companies they looked at. So you can't really expect
shareholders to go and look at, for example, what is
the share return for the peer group company because the
shareholders don't even know that the shareholder
return was observed. So that's an important
distinction, your Honor.
We don't have a lot of evidence because we
don't need a lot of evidence. The evidence we have is
what the board reviewed and what the proxy does not
say. That is at the end of the day why we are here,
your Honor.
THE COURT: So do you rely -- so I looked at
your reply brief as well, of course. And you talked
about in your reply memorandum about the Mercer's Peer
Group analysis; correct?
MR. MONTEVERDE: Yes, sir.
THE COURT: And that peer group analysis
includes among its peers companies such as Crane Co.,
Curtiss Wright, Moog Inc., PerkinElmer, Teledyne,
Curtiss Wright. I mean, I'm not reading all of them,
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of course. Tupperware.
MR. MONTEVERDE: Yes.
THE COURT: Well, wait.
MR. MONTEVERDE: Oh, I'm sorry.
THE COURT: Callaway Golf. What
impossible -- what could these companies possibly tell
a shareholder with respect to Symantec?
MR. MONTEVERDE: Nothing. I think the point,
why we included that, your Honor, is to show your Honor
what we observed other companies did. And just for the
record, we did not go and look at every company that
has made public filings. We just happened to know
about these companies for other reasons, for other
cases, and we thought it would be helpful to show the
Court that what we're asking is not an unreasonable
request and look at what other folks are doing to
comply.
The reason why there is nothing out there,
what's required is a new statute, your Honor. It was
recently passed and just now companies are starting to
comply with it. All I'm saying, and I really want to
get to the specifics for this case -- and the ruling
today, your Honor, I think would be very, very limited
because what we are complaining about here, and we
would have not known about this had we not had
expedited discovery, is that 1048 of Symantec, that is
the real chart. I think that's the golden chart that
we're really going after. It shows a lot of
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information about the competitors. What's troublesome
is that the proxy tells you that they're trying to pay
between the 50 and 65th percentile, depending if you
look at the bonus or the salary, in comparison to the
peer group. What it doesn't tell you is that the
metrics of Symantec are not at the 50 to 65th
percentile of the other companies.
In fact, on 1048 there's four performance
metrics. Three of them are below the 25th percentile.
So what you're saying is we're going to compensate the
executives at Symantec the same way that other
companies with perhaps better performance are doing but
shareholders don't know that, Judge. That's the
trouble here. That's the worrisome.
I know we asked for other things in the
papers. I'm trying to focus the Court's attention to
what I think is the primary issue. And we go back to
well established law. You have to disclose a fair
summary. Bottom line results are meaningless. And no
shareholder could ever find out this information
because they don't tell the proxy well, we looked at
the shareholder return. They don't say that. Not only
they don't disclose the metrics, they don't disclose
the type of metrics they were reviewing, which is
different than the cases that my colleagues for the
defense have cited such as 3Com or CheckFree for the
proposition that if the information is available in the
marketplace that's good enough.
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THE COURT: Well, you're not saying that
every piece of information has to be disclosed, are
you? It has to be material; correct?
MR. MONTEVERDE: Correct. And if I --
THE COURT: Well, let me interrupt you again.
MR. MONTEVERDE: Please.
THE COURT: Would you agree that Professor
Daines is extraordinarily well qualified to testify in
this case?
MR. MONTEVERDE: I agree with that but I
don't --
THE COURT: Well, do you have anything to say
in rebuttal to what Professor Daines has said in his
declaration?
MR. MONTEVERDE: Absolutely, two things.
One, we object to his attempt to reach legal
conclusions that I think fall within your jurisdiction,
not his. And two, he essentially -- all he's really
saying is I don't agree that you would have to give
this information. And I've done an example of what
other people have done, and I think, yes, perhaps
there's some folks that plaintiffs have identified that
do better than us but we have identified a lot of
people doing worse than us so we're okay. I disagree
with that.
And let me just go back, your Honor. It's a
limited ruling here because here you have what I think
is perhaps a misleading statement where the proxy
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indicates that they're paying to the 50 to
65th percentile but then the metrics don't fall within
that and then you don't know what metrics they looked
at. It's very different in a case where you have some
metrics. And the point of us showing, your Honor, what
other companies are doing is to show they should be
doing something like that. We're not saying that's --
that's just persuasive. We're not saying that's
binding, your Honor. That's really the crux of the
case here.
THE COURT: What's the irreparable injury?
MR. MONTEVERDE: The second you issue a
misleading or incomplete document, the shareholders are
harmed. And that, your Honor, it's established law. I
know Delaware cases have said that. The one in
particular that comes to mind which we cited in our
reply brief is Laborers Local 235 Benefits Funds versus
Starent Networks. It's a 2009 decision. And it made
it clear under Delaware law, nearly all disclosure
violations are per se irreparable harm.
THE COURT: Speaking of Delaware, do I have
to reach Delaware as a proper forum for this case or
not?
MR. MONTEVERDE: I take issue with their
attempt in their opposition to try to deprive your
Honor of jurisdiction for two reasons. One, we have in
our reply papers indicated we don't believe that bylaw
is proper because it was unilaterally adopted. But
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two, they should have moved to dismiss or moved to
change venue, not in an opposition to a preliminary
injunction raise the issue. I don't think it's
properly raised. I don't think your Honor -- quite
frankly, I think your Honor's been put in a difficult
position to try to adjudicate an issue that is not
properly brought before your Honor. But that being
said, I think the case we cite, Galaviz versus Berg
from the Northern District of California where they --
the Court there refused to enforce --
THE COURT: I'm very familiar with that case.
MR. MONTEVERDE: I'm sure you are, your
Honor. I was just mentioning it for the record. I
think that case gives clear indication that the bylaw,
if it's not approved by the shareholder, should not be
enforced. I understand in that case there was also a
second issue which was they apparently did it to apply
retroactively but that's not the issue here, but we
still have the issue of unilateral approval without
shareholder consent.
THE COURT: I don't want you to repeat what's
in the papers. They're extensive. Is there anything
you wish to tell me this morning that you haven't put
in the papers?
MR. MONTEVERDE: Yes. I'm going to try to --
I've sort of said it but maybe I can just do it with
your Honor, go over the specifics. I actually think it
makes it easier.
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THE COURT: No. Please, let's not do that.
Sitting in a box over there is an entire box full of
papers, tons of authorities, tons of charts, statutory
authority.
MR. MONTEVERDE: It's just one page.
THE COURT: All right. What is it?
MR. MONTEVERDE: All I want to -- in the
page, your Honor, you have listed all the data for the
companies in the peer group. We don't know in the
proxy what type of metric they were looking at. I've
already said that. We don't know the multiple. At a
minimum your Honor can see at the bottom there is a
chart of like ranges of the percentile. That, at a
minimum, that's a fair summary that should be
disclosed. And that's Exhibit B to my declaration,
1048.
THE COURT: Thank you. Anything further
right now?
MR. MONTEVERDE: Not for the time, your
Honor.
THE COURT: Okay. Very good. Sir.
MR. KRISTY: Your Honor, I'll just address a
couple of the points that you covered with
Mr. Monteverde. I want to start with what the proxy
actually says, the 50th to 65th percentile stuff. It's
very clearly comparing pay, executive compensation pay
to peer company pay. There is no dispute in the record
that those statements are absolutely true, absolutely
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true. They pay compensation to what peer companies
pay, not how they perform, how they pay. And there's
no dispute in the record. That is absolutely true. So
we then get to this exhibit.
Now, one thing they don't tell you about the
exhibit -- let me step back. A couple of things about
the exhibit. First of all, all the data about the peer
company, and we identified the peer companies in the
proxy, all the financial data reflected in that chart
is publicly available. This is exactly like the peer
equity utilization data in Brocade where your Honor
found that the plaintiff didn't have a likelihood of
success on the merits because it's publicly available.
Shareholders can go and figure out whatever they want
about the financial performance of their peers. And as
Professor Daines indicates in his declaration at some
length, having studied 34 leading Silicon Valley
companies, nobody discloses this kind of information.
Indeed, your Honor, one of the things the
plaintiffs never addressed is Reg S-K, Item 402(b)(1)
of Reg S-K. Professor Daines talked about this,
paragraphs 51 through 53 of his declaration. Those
paragraphs say that if you benchmark pay against other
companies you have to disclose who those companies are.
But there is no obligation to disclose underlying data,
none. They want you to rewrite what the FCC has
decided. And then last but not least --
THE COURT: Let me interrupt you because I
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want to ask you this. And I may not have stated it
correctly. But I think one of the issues that
plaintiffs have brought is that they say that there
should be a, quote, fair summary, unquote, of the
information the board reviewed. Now, is there such a
summary? And if not, why not?
MR. KRISTY: Your Honor, there isn't a
summary of the document that he's talking about. There
is a summary of the relevant comparison which is the
50th to 65th percentile. But let's talk about this
document, this peer discussion document. So first he
calls it a Mercer document. It's not a Mercer
document. This wasn't prepared by Mercer. This is
just a company document. And it's an appendix to a
presentation, not the presentation, an appendix, an
appendix from October of 2011, a year ago, a year
before the proxy. And it's in the mountain of material
that the company's comp committee looked at over the
past year.
And when you look at the data, the data
that's in the chart isn't even for fiscal year 2012
which is what we're talking about. That's what this
proxy concerns. It's last year's data. It's last
year's data. And you know that because our fiscal year
doesn't even end until March. There is not a scintilla
of evidence in the record that shows that the comp
committee considered and felt important or relied upon
this appendix, none. This is an evidentiary hearing.
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You can't just go in and say there's a pile of papers
that the comp committee may have seen and that somehow
every piece of paper, all thousand pages that we've
produced to these guys of comp committee material, all
of them had actual significance to the comp committee
and all of them had to be disclosed.
The peers are identified. Any analysis that
any shareholder wants to do, they can go ahead and do.
There's just no record that would support this.
THE COURT: What about the irreparable
injury?
MR. KRISTY: Well, I don't see how there is
any, your Honor. Now, they articulate the standard
really well in their brief. And I'm reading from the
plaintiff's brief. What do they say? They say that
irreparable harm occurs where, quote, significant
corporate action is being proposed. And it would be
impossible to, quote, unscramble the eggs, from their
brief. I'm not saying it. It's page 13 of their
brief. That's how they lead their irreparable harm
argument.
Well, your Honor, an advisory, optional,
non-binding say-on-pay vote is not significant
corporate action. The pay doesn't change. Nothing
happens. It's advisory. The company doesn't have to
change the compensation. In fact, for fiscal year 2012
the compensation has already been paid. This is a vote
that's advisory but it doesn't have that significant
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corporate type action that you see in merger cases,
which is what the plaintiff is chiefly relying on.
There's nothing to unscramble. This isn't where you've
combined companies and now you can't unwind them when
you determined that the proxy's misleading that led to
it. Everybody is still there. The pay is the pay.
There is no difference. That's why there are no cases
on this point showing that there's irreparable harm or
in the context of any other kind of advisory vote ever
sought.
THE COURT: I'm going to ask you about that
because it's at the end of both briefs. I don't think
either side put a great deal of weight on it based upon
what I read. And this is a brand new issue about
Delaware. And you would agree, wouldn't you, that the
venue issue here for reasons that Mr. Monteverde stated
but also adjusted by the law, that this was a bylaw
unilaterally adopted by the Symantec board with respect
to Delaware. This has been tried by other companies.
We're well aware of it. And I'd like to hear if you
have anything further to say about it. I don't want to
belabor it, but Mr. Monteverde is right. And that is,
if you were really, really serious about it you would
have brought a motion to stay or to transfer this case,
isn't that so?
MR. KRISTY: No, your Honor. Let me tell you
what our agreement with Mr. Monteverde is. So we
raised this issue with him in our very first phone
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call. And what we said to him was you belong in
Delaware.
THE COURT: Why?
MR. KRISTY: Because of the venue bridge.
That's the bylaw. And we don't think that Delaware
court would even give you expedited discovery in this
context. We reached an agreement with Mr. Monteverde.
This is an agreement where we would agree to provide
him with expedited discovery nevertheless, agreed upon
the scope. And we all agreed that it was without
prejudice to us raising this in this very motion. We
told him we were going to raise it and we have raised
it.
THE COURT: Is there a parallel action
proceeding in Delaware?
MR. KRISTY: No, your Honor. No, your Honor.
THE COURT: Okay. Go ahead.
MR. KRISTY: So that was the agreement in
place. So it's not a surprise to Mr. Monteverde. And
maybe I shouldn't have reached that agreement with
Mr. Monteverde. Maybe I should have made a motion but
I reached an agreement. It is what it is. Shame on
me.
The underlying point, though, the Galaviz
case isn't like this one. There are certain
similarities unilaterally adopted by the board. That's
true, absolutely true. But what Intershop, the leading
California case, tells you is that you have to make a
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specific showing that enforcement of the venue
provision, the form provision is unreasonable in the
context, that's the quote of the core, in the context
of the case. The context here is that we have a
plaintiff who has previously sued in Delaware, has sued
California based corporations in Delaware, McAfee and
Intel.
THE COURT: She lives in New York.
MR. KRISTY: She lives in New York, not here.
And the -- in this scenario where they're challenging a
2012 proxy, that's conduct after the bylaw is adopted,
unlike the Oracle case where the conduct was
beforehand. So if you look at the circumstances of
this case, we think they are much different, your
Honor.
THE COURT: All right. Is there anything
further you want to say? I don't want to rush you, but
I have read the papers.
MR. KRISTY: No, your Honor.
THE COURT: Okay. Thank you very much. Back
to you.
MR. MONTEVERDE: I'll be brief.
THE COURT: Okay.
MR. MONTEVERDE: They relied on Brocade.
Your Honor decided partly to grant the injunction for
the projections but not for the public information. It
was very difficult. I'll tell you why.
THE COURT: I agree with you. I'll interrupt
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you. I'll agree. I think Knee versus Brocade is a
different case.
MR. MONTEVERDE: It's a different case but in
there we knew the burn rate, what the metric observed.
We don't know what metric they looked at, your Honor.
I take issue with that. It's very different in the old
cases where they say we look at EBITDA. We look at
P/E. We look at these multiples but we're not going to
give you the multiples.
THE COURT: Excuse me. That's a stock
dilution case, and it is very different. This is a
non-binding statement, if you will, by the shareholders
with respect to compensation. It's a different
situation.
MR. MONTEVERDE: Just because the vote is
non-binding does not allow them to not inform
shareholders.
THE COURT: I agree with that. As a general
principle, yes.
MR. MONTEVERDE: Yes.
THE COURT: Okay.
MR. MONTEVERDE: And the paper foreman,
they're right. They do say 50 to 60. They're saying
we're going to pay on the 50th percentile to all these
competitors but they're not saying why those
competitors fall in the 50th percentile. It would be
like a law firm that practices petty criminal cases say
we're going to pay 50th percentile as the law firms
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like Fenwick & West. It wouldn't make sense. Their
revenues are different. The talents are different.
You've got to give some information to shareholders to
make it be fair. They're in the 25th percentile, your
Honor, in performance and comparison. Shareholders
should know that. We're not saying it's wrong. We're
saying shareholders should know about that. And the
whole issue that the Regs of S & K don't require this
or do require that, that's irrelevant. It's a
fiduciary duty case in a state court about whether the
shareholders have received all the information the
board relied on. And the whole argument oh, the board
is old. It's 2011. Well, we're in 2012. I would be
very surprised if they know what companies are going to
do in 2012. Of course they're relying on last year.
Second, they're using the companies and telling your
Honor, but we disclosed the companies.
THE COURT: You better slow down. The
reporter won't get all this.
MR. MONTEVERDE: Sorry. My passion sometimes
makes me go too fast.
THE COURT: Well, I understand the passion
but the reporter's passionate too and she wants to get
a clean record.
MR. MONTEVERDE: My apologies.
THE COURT: That's okay. Go ahead.
MR. MONTEVERDE: The issue boils down to
they're not disputing that the presentation does not
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contain the company's data disclosed in the proxy.
They're saying that's all we're going to give. That's
wrong. It's just wrong. Now, your Honor may or may
not grant injunction but I do think showing a little
bit of information about the companies they observed
makes sense when your metrics are not disclosed, the
data's not disclosed and you fall below those metrics
because you do rely on those metrics to issue
compensation. We do pay people based on performance.
The whole concept that we don't or that they're not
doing that here, it doesn't make any sense. If people
perform well, they get paid well. If people don't
perform well, they don't get paid well. I think that's
a principle that we can agree gets followed to some
degree.
THE COURT: To some degree.
MR. MONTEVERDE: Unless your dad owns the
company.
But your Honor, that's all we're asking. And
the whole thing of non-binding vote, like your Honor
stated earlier, it's a principle. You have to give
information, whether it's binding or not. People may
get out of the investment. People may make decisions
saying look, you're not performing the way we think you
should be performing and you're paying the executives
the way companies that are performing better. I don't
like that. I'm cashing out. But if you don't give
them that information, you're depriving them of
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material information. And that's irreparable injury,
your Honor, right there. Right there.
How can we compensate them? We cannot. We
could take this case for the next two years, have a
trial, decide that it was material information and then
what? Now is the time. The vote is tomorrow. They
can do an 8-K. Not tomorrow, I apologize. The vote is
next week. They could do an 8-K today. The vote
doesn't get moved. They don't incur more cost than the
filing fee, which it's a minimal fee. Let's do the
right thing. Let's have shareholders have information
at a minimum of the percentile they observe and the
metrics they observe. Let's do the right thing this
morning, and let's grant the injunction. Thank you.
THE COURT: Thank you, Mr. Monteverde.
And Ms. Rohr, do you wish to say anything?
MS. ROHR: No, your Honor.
THE COURT: Okay. Mr. Muck, do you wish to
saying anything?
MR. MUCK: No, your Honor.
THE COURT: Okay. Back to you. Anything
further either side or is the matter submitted for
decision? Submitted for decision? That's the magic
phrase.
MR. KRISTY: Yes, your Honor.
MR. MONTEVERDE: Yes.
THE COURT: Yes? Yes?
MR. MONTEVERDE: Yes, it is, your Honor.
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THE COURT: All right. The Court is going to
deny the request for preliminary injunction principally
for the grounds set forth in the opposition brief by
the defendants. I thought the points there covered the
issues adequately, and that would be the basis for the
decision.
Let me ask you while you're all here, I don't
have in front of me our printed out calendar on the
computer. Do we have a case management conference
coming up soon?
MR. KRISTY: I believe it's in January, your
Honor. That's my recollection. I don't remember the
exact date but it's sometime in the future.
MR. MONTEVERDE: That sounds about right.
THE COURT: Okay. Well, that's fine. It
occurred to me that I didn't have it on the sheet, so I
thought I'd ask you about that.
All right. I want to congratulate both sides
on the papers that you filed and the arguments that
were made today. I thought that both sides did an
exceptionally good job in presenting their positions.
I thank you for that.
Okay. If there's nothing further, we'll be
adjourned.
MR. MUCK: Your Honor, with your indulgence,
one housekeeping matter.
THE COURT: Yes.
MR. MUCK: We did have motions to seal
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portions of the materials that were submitted.
THE COURT: Yes.
MR. MONTEVERDE: And the plaintiff does not
object to that.
THE COURT: Well, what's going to happen with
all of those materials is that they're going to be
returned to counsel. And that will be done in due
course through the clerk's office. They'll be sent
back to you. Thank you for pointing that out this
morning.
MR. MUCK: Thank you, your Honor.
THE COURT: And the CMC is on January the
18th at ten o'clock. And please adhere to the
guidelines with respect to preparing a joint status
conference statement.
MR. KRISTY: We will, your Honor. Thank you
very much.
MR. MUCK: Thank you, your Honor.
THE COURT: Thank you very much.
MR. MONTEVERDE: Thank you.
THE COURT: We're adjourned.
(Whereupon, the proceedings concluded.)
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STATE OF CALIFORNIA )) ss.
COUNTY OF SANTA CLARA )
I, GENICE PEREZ, CSR, HEREBY CERTIFY:
That I was the duly appointed, qualified shorthand
reporter of said court in the above-entitled action
taken on the above-entitled date; that I reported the
same in machine shorthand and thereafter had the same
transcribed through computer-aided transcription as
herein appears; and that the foregoing typewritten
pages contain a true and correct transcript of the
proceedings had in said matter at said time and place
to the best of my ability.
I further certify that I have complied with
CCP 237(a)(2) in that all personal juror identifying
information has been redacted if applicable.
DATE: October 24, 2012
_____________________________GENICE PEREZ, CSR NO. 12267CSR, CRP
ATTENTION:
California Government Code Section 69954(D) States:
"Any Court, party, or person who has purchased atranscript may, without paying a further fee to thereporter, reproduce a copy or portion thereof as anexhibit pursuant to Court order or rule, or forinternal use, but shall not otherwise provide orsell a copy or copies to any other party or person."
