Avanir Pharmaceuticals, Inc. Class Action to Enjoin Shareholder Vote

On February 12, 2014, California State Judge Cormac Carney denied Plaintiff’s motion for preliminary injunction in a suit that claimed that Avanir’s 2014 proxy was materially misleading regarding its proposed equity compensation plan, allowing Avanir, our client, to proceed with the shareholder vote. Plaintiff sought to enjoin the shareholder vote in part because Avanir’s proxy allegedly omitted information regarding the reasons for and effects of the proposed equity compensation plan, including how, and at what rate, the plan may dilute shareholders’ interests. Compass Lexecon affiliate, Professor Robert Daines, the Pritzker Professor of Law and Business at Stanford Law School and co-director of the Rock Center on Corporate Governance, submitted a report on behalf of Avanir. Professor Daines opined that, from a policy perspective, the disclosures requested by Plaintiff should not be required because the costs of providing the additional information outweighed the benefits. Professor Daines also opined that, from an economic perspective, the additional disclosures were unlikely to be important to shareholders. Based on a review of a sample of similar companies holding similar votes, Professor Daines found that Avanir’s disclosures were consistent with industry custom and practice, that the requested additional information was rarely provided, and that none of the companies in the sample disclosed all of the information that Plaintiff claims was omitted by Avanir. In his opinion, Judge Carney cited Professor Daines’ analysis and concluded that if the Court were to require each of the details Plaintiff demanded, one would have needed to enjoin the vote at every single one of the companies Professor Daines examined. Professor Daines was supported by a Compass Lexecon team led by Ralph Scholten in our Washington, D.C. office. The Compass Lexecon team worked closely with John Tang and others of Jones Day.