Hewlett-Packard Co. shareholders, who sued challenging the company severance package paid to disgraced form CEO Mark Hurd, lost another round in San Jose federal court Tuesday.
U.S. District Judge Edward Davila ordered the investor derivative class action dismissed. But he did allow that they could amend their claims in an effort to revive the shaky claims.
The plaintiffs “have failed to show that approving the separation agreement was so egregious or irrational that it could not have been based on a valid assessment of the corporation’s best interests,” he wrote.
This decision follows the June 21 ruling in a Delaware Chancery Court that dismissed an investor lawsuit challenging the $40 million severance package given to Hurd when he left the company in 2010.
The San Jose lawsuit was brought by the Teamster Union Local #142; Key West Police & Fire Pension Fund and Louisiana Municipal Police Employees Retirement system against Hurd and individual HP board members.
In May 2010, HP learned that a former independent contractor at HP, claimed that Hurd has sexually harassed her, according to Davila. Hurd was accused of concealing his personal relationship with Jodie Fisher, and making inaccurate expense reports intended to hide the relationship.
He resigned August 6, 2010 and received $12.2 million in cash, the right to exercise stock options, an additional nearly 16,000 shares of company stock and various other benefits. A month later Oracle Corp. announced Hurd had joined the company as president.
HP sued in September claiming breach of contract. Less than a two weeks later the action was settled with Hurd agreeing to forfeit rights to 346,000 HP shares.
The current lawsuit was brought by shareholders on behalf of the company claiming the Board wasted company assets and breached duties to the company by giving such a sweet exit deal to Hurd.
HP countered by arguing it receive valuable considerations in the deal. Hurd agreed not to use or disclose HP trade secrets, solicit HP customers or employees and he provided transition help to HP as well as agreeing to refrain from bad-mouthing the firm.
Davila said that despite the claims the board lacked independent, sound judgment in its deal with Hurd, he found no claim the directors had personal interests in or derived any personal benefit from approval of Hurd’s separation package.
Lastly, Davila said, “Plaintiffs have failed to demonstrate that the benefits and cash payment in the separation agreement were excessive.”
He dismissed the shareholder suit for “failure to state a claim” but allowed them 30 days to fix the problems and file a new complaint.
Davila ordered both sides back to court Nov. 30, 2012 to check the status of the case.
Case: In re HP Derivative Litigation, No. 10-cv-3608EJD