Regular readers will recall that last summer and fall there was a series of lawsuits filed against the directors of several publicly traded companies that had no African Americans on their boards. For a time, it seemed as if this litigation outbreak had subsided, as no further lawsuits were filed after the end of September. However, the impression that this phenomenon had played itself out was dispelled in February, when a plaintiff shareholder filed yet another board diversity lawsuit against the directors of Micron Technology. Now, in the latest sign that the board diversity litigation movement may have even further to run, on March 5, 2020, a plaintiff shareholder filed yet another board diversity lawsuit, this time against Florida-based healthcare company, OPKO Health, Inc. The lawsuit against OPKO Health’s board can be found here.
The Lawsuit
OPKO is a diversified healthcare company. The complaint in this new lawsuit, filed by a plaintiff shareholder in the Southern District of Florida, names as defendants ten individual directors of the company. The complaint also names the company itself as nominal defendant. The complaint alleges that the defendants violated Section 14(a) of the Securities Exchange Act of 1934, based on alleged misrepresentations or omissions in the company’s proxy statements. The complaint also asserts claims for breach of fiduciary duty; unjust enrichment; waste of corporate assets; abuse of control; and “Gross Management.”
The complaint alleges that the defendants “falsely assur[ed] the investing public in SEC filings and in corporate governance documents, that OPKO celebrates diversity and prides itself on its diverse staff and is committed to creating and maintaining a health workplace where discrimination is not tolerated.” The company allegedly also claimed that diversity was considered in its director nomination process. The complaint alleges that the company “acted in opposition those statements.”
The complaint specifically alleges that since at least April 2018, the company’s board “consisted of zero Black or Latinx members” and its management and leadership “have zero Black employees.” The complaint also alleges that the at least one Black employee initiated a race discrimination lawsuit. The complaint alleges that defendants caused the company to violate federal and state diversity and discrimination laws by “repeatedly refusing to nominate, appoint, and/or hire Black or Latinx individuals or other underrepresented minorities to the Board or Black individuals to the executive management team.”
The complaint seeks to have damages awarded to the company and to compel “necessary actions to reform and improve” the company, including strengthening board supervision; permitting shareholders to nominate six candidates for election to the Board; establishing a fund for hiring and promotion of Black, Latinx and other ethnically underrepresented individuals; requiring annual board training; and tying 30% of executive compensation to the achievement of diversity goals.
Discussion
By my count, this lawsuit is the tenth board diversity lawsuit to have been filed in the wake of last summer’s social unrest following the death of George Floyd. The allegations in this lawsuit are substantially similar to the allegations in many of the prior lawsuits, although this suit differs in certain ways from the others. First, unlike most of the others, it does not involve a technology company. Second, it does not involve a company based in California. In addition, many of the prior lawsuits were filed by the same California-based plaintiffs’ firm, Bottini and Bottini. This lawsuit, like the lawsuit filed against the Mircron Technology board filed in February, was filed by a different plaintiffs’ firm (The Rosen Law Firm), acting through local counsel.
The involvement of yet another law firm in this apparently continuing litigation trend suggests that the trend could become more generalized, and perhaps involve even other law firms, rather than being something of a pet project for a few activist firms. The involvement of a new law firm may also suggest that there could be more of this type of litigation to come. The fact that the lawsuit was filed against a non-Technology company based outside California may also suggest a broadening reach of this type of litigation and could also point toward further litigation of this type.
I had thought that the California board diversity legislation and the Nasdaq board diversity initiative might preempt this kind of litigation. But with the filing of the Micron Technology lawsuit in February and now this lawsuit, that clearly is not the case. In that regard, it is worth noting that both Micron Technology and OPKO are Nasdaq listed companies, and so they would be subject to the Nasdaq guidelines if they were to be approved, but nevertheless they have been targeted in board diversity lawsuits.
There is one interesting thing about the fact that this lawsuit was filed against lawsuit, and that is that the Opko board is not entirely lacking in diversity. Indeed, among the individuals named as defendants there are two women, both of whom are of Asian ancestry. Apparently this level and type of diversity was insufficient to forestall litigation.
While a number of different plaintiffs’ firms have shown interest in pursuing this type of litigation, it remains to be seen how the lawsuits will fare and what if anything they will accomplish.