Starting last summer and through the early part of this year, plaintiffs’ lawyers filed several shareholder derivative lawsuits against the boards of a number of companies alleging that the directors had breached their fiduciary duties by failing to include African American individuals on their boards. As I have detailed in previous posts (most recently here), these suits have not fared well, as courts have granted the motions to dismiss each of the cases in which courts have ruled on dismissal motions. In the past week, the courts in two more of these cases – involving the boards of NortonLifeLock and OPKO Health – granted the defendants’ motions to dismiss. The August 30, 2021 order in the NortonLifeLock case can be found here and the September 1, 2021 order in the OPKO Health case can be found here.
NortonLifeLock
As discussed here, on August 5, 2021, a plaintiff shareholder filed a shareholder derivative suit in the Northern District of California against the board of directors of NortonLifeLock, as well as against the company as nominal defendant. The complaint alleges that despite the company’s statements “that it is committed to diversity and inclusion, NortonLifeLock has failed to create and diversity at the very top of the Company – the Board of Directors.” The complaint also alleges that there are no African Americans among the company’s senior executives.
The complaint alleges that the company’s directors have “deceived stockholders and the market by claiming to have concrete and specific inclusion and diversity programs that are measurable and produce actionable tasks.” In doing so, the complaint alleges, the directors “have breached their duty of candor and have also violated the federal securities laws.” Their conduct has also “irreparably harmed NortonLifeLock.” The defendants filed a motion to dismiss the plaintiff’s complaint.
In his August 30, 2021 Order, Northern District of California Judge Richard Seeborg granted the defendants’ motion to dismiss, saying that the complaint “simply does not plausibly plead an actionable false statement,” and ruling further that the plaintiffs’ had failed to present allegations sufficient to establish that a pre-suit demand on the board would have been futile. In granting the defendants’ motion to dismiss, Judge Seeborg said “Without questioning that there may be systemic under-representation in corporate boardrooms, or plaintiff’s good faith in looking for legal recourse, the flaws in this putative class action complaint require dismissal.” Judge Seeborg granted the plaintiffs’ 30 days to seek to present an amended complaint. In addition, on the basis of the forum selection provision in the company’s charter, Judge Seeborg severed out the plaintiff’s state law claims and dismissed the claims without prejudice, for the plaintiff to re-file those claims in Delaware if the plaintiff chooses to pursue that path.
OPKO Health
As discussed here, on March 5, 2020, a plaintiff shareholder filed a shareholder derivative lawsuit in the Southern District of Florida against the board of OPKO Health, “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 defendants moved to dismiss the plaintiffs’ complaint.
In her September 1, 2021 Order, Judge Cecelia Altonaga granted the defendants’ motion to dismiss, saying that the plaintiffs’ complaint was “replete with conclusory allegations,” and that with respect to the allegations, “Plaintiffs offer no particularized facts to animate these accusations.” Instead, the judge said, “plaintiffs point to a settled lawsuit against one of Opko’s subsidiaries as well as other companies’ recent social justice initiatives.” These allegations, Judge Altonaga said, “have no bearing on whether Opko’s directors discriminated against underrepresented minorities when nominating individuals to serve on Opko’s board or executive team.” Judge Altonaga’s granted the dismissal without prejudice; she gave the plaintiffs leave until September 10, 2021 to file an amended complaint.
Discussion
The dismissal motion grants in these two cases come after dismissal motions had been similarly granted in the board diversity derivative lawsuits that had been filed against the boards of Facebook (discussed here); The Gap (here); Oracle (here); the Danaher Corporation (here). In all of the board diversity lawsuits in which court have ruled on dismissal motions, all of the motions have been granted. None of the complaints where the courts have ruled have survived the initial pleading hurdles.
These lawsuits were sort of a flavor of the month for a brief period at the end of last year and at the beginning of this year. Most of them (including the NortonLifeLock suit) were filed by the same California-based law firm, Bottini & Bottini, although other firms did get into the act. So far, it is looking like the plaintiffs’ lawyers are going to be coming up empty on these suits.
Which is not necessarily to say that these lawsuits did nothing. For starters, the lawsuit did draw attention to the fact that the companies involved lacked African American individuals in their boardrooms. Taking together with other non-judicial developments discussed in the next paragraph, the suits did present the companies involved, and for that matter other companies as well, occasion to consider the composition of their boards.
The fact is that other developments are likelier to have a greater impact on board diversity issues, including the California legislation passed into law in late September 2020 requiring companies based in California to include representatives of “underrepresented communities” on their boards, and the Nasdaq board diversity guidelines, which the SEC approved in early August. In addition, pressure from institutional investors has also escalated board diversity issues.
Thus, while these lawsuits have at least so far been singularly unsuccessful in terms of their courtroom impact, they have at least been part of the environment in which board diversity issues have taken on a heightened urgency. However, that said, and given the track record in these cases, it seems highly unlikely that any more lawsuits like this will be filed in the future.