Kevin LaCroix has been keeping track of the recent wave of shareholder suits alleging boards have violated state or federal law by not having diverse boards:
As I have documented on this site, over the last few months plaintiffs’ lawyers have filed a series of lawsuits against the directors of companies that allegedly lack African American representatives on their corporate boards. Many of these lawsuits, particularly at the outset of this litigation filing trend, were filed by the same law firm. Among the first of these lawsuits was a shareholder derivative lawsuit filed in July 2020 against the board of the social media company, Facebook. In an order dated March 19, 2021 (here), Northern District of California Magistrate Judge Laurel Beeler granted the defendants’ motion to dismiss the plaintiff’s complaint. The dismissal was without prejudice with respect to the plaintiff’s proxy misrepresentation claims under Section 14(a). As discussed below, the court’s ruling could have important implications for the other pending (and prospective future) board diversity lawsuits. ...
The complaint assert[ed] claims for breach of fiduciary duty; aiding and abetting breach of fiduciary duty; abuse of control; unjust enrichment; and violation of Section 14(a) of the Securities Exchange Act of 1934. ...
The defendants moved to dismiss the plaintiff’s complaint on several grounds: first, the defendants argued that the plaintiff had neither made the requisite pre-suit demand on the board nor provided sufficient allegations to establish that demand was futile; second, in reliance on the forum selection clause in the company’s restated certificate of incorporation (the text of which is set out below), the defendants argued that the plaintiff has sued in the wrong forum; and third, the defendants argued that the plaintiff had failed to state a Section 14(a) claim due to the failure to sufficiently plead false and misleading statements in the proxy statements at issue.
Mr. LaCroix then goes on to analyze the decision granting the motion to dismiss. He then summarizes the plaintiff's options:
The plaintiff will now need to consider whether to try to re-plead her Section 14(a) allegations or to simply accept that the next step is to try to refile her state law claims in Delaware Chancery Court. An obvious concern will have to be whether the remaining claims, shorn of the supposed board diversity concerns to which the initial complaint attached so much weight, are simply not enough to carry the claim.
Go read the whole thing.
