Morgan Stanley Wins Dismissal of Shareholder Lawsuit Over Employee Pay

Morgan Stanley Chairman John Mack, Chief Executive Officer James Gorman and other executives won a dismissal of a shareholder lawsuit filed over $45 billion paid to the firm’s employees over three years.

New York State Supreme Court Justice Shirley Werner Kornreich threw out the lawsuit, citing a requirement that shareholders first make a demand on a board before suing on behalf of a company or show that such a move would be futile, according to a Dec. 10 decision.

The “complaint fails to show” that a demand on Morgan Stanley’s board “would be futile,” Kornreich wrote. “There is no reasonable doubt that the respective board approvals were not a valid exercise of business judgment.”

The complaint by shareholders including the Security Police and Fire Professionals of America Retirement Fund said employee compensation during 2006, 2007 and 2009 was “unconscionable” given the firm’s performance, including its reliance on a government bailout.

The shareholders argued in court papers that making a demand on Morgan Stanley’s board would have been futile because its members were “beholden” to the firm. Kornreich rejected that argument, saying the plaintiffs didn’t show that the board couldn’t make disinterested decisions.

“We are pleased with the court’s ruling, which dismisses all claims with prejudice,” Mark Lake, a Morgan Stanley spokesman, said in an e-mailed statement.

Jay Eisenhofer, a lawyer for the plaintiffs, didn’t immediately return a phone call seeking comment.

The case is Security Police and Fire Professionals of America Retirement Fund v. John J. Mack, 600359-2010, New York State Supreme Court (Manhattan).

To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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