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.



As discussed here, in July 2020, a plaintiff shareholder filed a derivative lawsuit in the Northern District of California against twelve members of the Facebook board of directors, also naming the company itself as nominal defendant. The complaint asserts 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 complaint asserts that, contrary to the company’s many public statements about its commitment to diversity and inclusion, the defendants “failed to achieve real diversity on the Board and among the senior executive ranks.” The complaint further alleges that the company has for several years been accused of facilitating racial and other forms of discrimination by allowing advertising on its platform that discriminates based on race and other protected categories. The complaint also contained allegations based on the company’s supposed failure to contain hate speech.


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.


In support of their motion to dismiss the defendants specifically contested the plaintiff’s allegations about the composition of the company’s board. Among other things, the defendants argued that, contrary to the plaintiff’s allegations, two of the company’s nine directors are Black; a third black director stepped down in March 2020 to join Berkshire Hathaway; four of the nine directors are women, one is openly gay, and, since its adoption of a its diversity policy in 2018, a majority of the new nominees have been Black or women.


The forum selection clause in the Facebook charter on which the defendants relied provides in relevant part that “the Court of Chancery of the state of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for (1) any derivative action or proceeding brought on behalf of the corporation, (2) any action asserting a claim of breach of fiduciary duty owed by, or other wrongdoing by, and director, officer, employee or agent of the corporation to the corporation or the corporation’s stockholders…”


The March 19, 2021 Order

In her March 19, 2021 Order, Magistrate Judge Beeler granted the defendants’ motion to dismiss, ruling: that the plaintiff did not “plausibly plead” demand futility; that the forum selection clause precludes the lawsuit; and that the plaintiff’s allegations “do not plausibly plead a materially false statement” under Section 14(a).


With respect to the demand futility issue, Magistrate Judge Beeler said that “the plaintiff has not plausibly alleged any facts about the directors’ actual or constructive knowledge  of illegal conduct, their failure to act, or their lack of independence, and thus she has not plead futility with particularity.”


In reaching this conclusion, Magistrate Judge Beeler noted, with the respect to the individual board member’s prospective future liability (which, the plaintiff alleged, rendered the demand requirement futile) based on their supposed disregard of “red flags about Facebook’s illegal conduct” that many of the allegations are “contradicted by the record about the actual composition of the board and the nomination practices.” With respect to the individuals’ prospective liability for proxy statement violations, based on assertions that, contrary to the proxy statements, that the board was not committed to diversity and had disregarded discriminatory advertising, Judge Beeler said, “these are not facts; these are conclusions.”

With respect to the forum-selection clause issue, Magistrate Judge Beeler, applying a forum non conveniens analysis, held that the clause is enforceable against the plaintiff. In response to the plaintiff’s argument that the clause cannot be enforced against her because it would deprive her of a forum for her Section 14(a) claim, Judge Beeler exercised her discretion to sever the federal claim, dismiss it, and to dismiss the remaining state claims in favor of the Delaware forum.


In granting the motion to dismiss the severed Section 14(a) claim, Judge Beeler held that the plaintiff had failed to plead an “actionable false statement.” The supposedly misleading statements on which the plaintiff sought to rely were “non-actionable puffery or aspirational (and hence immaterial).” Similarly, Judge Beeler said that the plaintiff’s allegations “do not support the claims of widespread unlawful practices,” noting that the allegations about the boar’s composition and selection process are “inaccurate.”


Magistrate Judge Beeler granted the motion to dismiss the severed federal law claim under Section 14(a), allowing the plaintiff 21 days to amend. She granted the motion to dismiss the remaining state law claims on forum non conveniens ground, without prejudice to the reassertion of the claims in Delaware Chancery Court.



As I have detailed on this site, plaintiffs’ lawyers have seemingly been eager to file numerous various board diversity lawsuits. According to my most recent count (here), the plaintiffs’ lawyers have filed a total of ten of the board diversity lawsuits. Many of the initial lawsuits were filed by the same plaintiffs’ law firm, the Bottini and Bottini law firm, which in fact filed this lawsuit against Facebook.


These lawsuits first emerged last summer, in the wake of the social unrest that followed after the death of George Floyd in Minneapolis. As I noted at the time, these lawsuits appeared to represent an effort to translate the diversity and inclusion concerns behind the social unrest into D&O claims. While a number of these claims have been filed, questions about the ultimate goals and meritoriousness of these claims have surrounded the suits from the outset. Magistrate Judge Beeler’s opinion raises serious questions about whether these claims ultimately may be successful, however “success” may be measured.


One obvious problem for the plaintiff in this case is the gap between the plaintiff’s allegations about the supposed lack of diversity on Facebook’s board and the actual composition of the board. I don’t think it is reading too much into Magistrate Judge Beeler’s opinion to suggest that this gap really bothered her. Magistrate Judge Beeler specifically said that the “fact allegations about the board’s composition and selection process are inaccurate,” a consideration that can only have undermined the plaintiff’s various allegations. In a March 22, 2021 Law360 article about Magistrate Judge Beeler’s ruling quotes the plaintiff’s lawyer as saying that the primary focus of the case “is not on the lack of diversity on the board, but instead a lack of diversity in the workforce, as well as the failure of the board to curtail discriminatory advertising and hate speech.”


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.


A larger question based on Magistrate Judge Beeler’s opinion is what the implications of her ruling may be for the various other pending board diversity lawsuits. It may be that the relevance for the other suits may be limited, given the rather unusual feature that Facebook was able to show that the plaintiff’s board diversity allegations were false. However, I do think Magistrate Judge Beeler’s conclusions on the demand futility issue and the proxy statement misrepresentation issues could prove to be very relevant and helpful in the other various board diversity lawsuits.


Magistrate Judge Beeler’s ruling on the forum selection clause issue is also interesting. As readers of this blog know, many companies recently have adopted similar forum selection provisions. Many of these board diversity lawsuits (particularly the earlier ones) were brought in federal court in California; to the extent the companies involved also have forum selection provisions in their charters could make the lawsuits susceptible to similar motions to dismiss as Magistrate Judge Beeler granted here.


One final note about this ruling is that it should be of concern to any other prospective claimants considering filing yet another board diversity lawsuit. The cold shoulder that Magistrate Judge Beeler gave the plaintiff’s claims here could well chill other prospective claimants and their attorneys.


Special thanks to a loyal reader for calling my attention to the ruling.