Netflix Wants Executive Bonuses Suit Tossed; Calls Objections “Entirely Novel”

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The jockeying of Emmy season will have long since passed, but Netflix is hoping a December hearing in federal court will see them awarded the dismissal of a lawsuit over executive bonuses.

The streaming service wants the actions of shareholder the City of Birmingham Relief and Retirement System back in the spring tossed “on the grounds that Plaintiff lacks standing to pursue this action because it did not make a pre-filing demand on Netflix’s Board of Directors and has not pleaded particularized facts demonstrating that such a demand would have been futile” (read it here).


In a board rules-heavy and well-parsed motion filed late last week, the Reed Hastings-run home of House of Cards rejects the assumptions of the efforts by the Alabama group on the “rigged the compensation process” that saw Chief Content Officer Ted Sarandos pocketing $10.5 million and several others receiving pretty hefty payouts too. Essentially, the Birmingham investors alleged that Netflix used a once viable tax loophole to deduct deep-pocket bonuses for execs pulling in over $1 million annually if the award was linked to performance goals that could be determined as — and you have to love this language — “substantially uncertain” to be achieved.

Earlier this year, the City of Birmingham Relief and Retirement System called BS on the actuality of that phraseology and the methodology supporting it by claiming the streamer knew exactly what the revenues were going to be when subscription levels were factored in – hence nothing uncertain at all. Their suit seeks damages based on Netflix board members violating fiduciary duty. As a result, the shareholder is putting the hurt on for the return of all compensation paid out during the time Netflix was supposedly in breach.

Not so says Netflix, terming the overall argument “entirely novel” in a June 8 motion. Plus, anyways, asked the streamer, why are you trying to tear down something that is working so well and no one else is upset by?

“The compensation plan was created so that Netflix could take advantage of available tax deductions for bonuses paid to three of its senior officers, as permitted by the applicable tax laws,” the Wilson Sonsini Goodrich & Rosati attorneys for defendants Hastings, Sarandos and other board members and executive defendants stated on June 8. “The deductions claimed by Netflix reduced its tax burden, and therefore were beneficial to Netflix and its stockholders,” the memorandum of points and authorities in support of the dismissal motion adds. “Neither the Internal Revenue Service (the “IRS”) nor any other government entity has challenged Netflix’s tax deductions. Plaintiff’s lawsuit therefore challenges something that benefited the Company—the opposite of the type of corporate harm derivative lawsuits typically seek to remedy.”

“Finally, Plaintiff’s allegations quibbling with the performance bonuses come nowhere close to satisfying the high standard for pleading a waste claim,” Netflix’s legal team concludes.

Thing is, this type of bonus compensation is now dead under President Donald Trump’s tax bill of this year, and hence Netflix doesn’t do it anymore. Now that the loophole is closed, the company just jacked up all the big wigs’ salaries instead to reflect what used to be called “bonuses” – not so much with the “uncertain” there.

Lawyers at Scott-Scott Attorneys At Law representing the City of Birmingham Relief and Retirement System did not respond to a request for comment on the dismissal motion.

Either way, all parties will be in the San Jose courtroom of Judge Beth Labson Freeman at 9 AM on December 13 to argue if this lawsuit becomes binge-watching or dies.

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