Ryan v. Gifford

Maxim Integrated Products, Inc. (Maxim) shareholders approved a stock option plan requiring options to be priced no lower than the stock's market price on the grant date, but between 1998 and 2003 Maxim repeatedly granted options to founder, chairman, and CEO John Gifford (defendant) on dates that a Merrill Lynch analysis found suspiciously favorable, often coinciding with the stock's lowest price of the month or year for nine separate grants. The report concluded either Maxim's directors were extraordinarily lucky at picking dates or had back-dated the options to benefit Gifford. Walter Ryan (plaintiff) filed a derivative suit based on the report, alleging Gifford and Maxim's other directors (defendants) breached their duty of loyalty by back-dating options in violation of the plan's clear terms and by making fraudulent disclosures claiming compliance; the directors moved to dismiss, arguing the allegations failed to rebut the business judgment rule.