Readers will recall that at the peak of the #MeToo movement, several companies were hit with securities lawsuits and other types of D&O claims relating to underlying allegations of sexual misconduct or sexual harassment. Among these lawsuits was the #MeToo-related securities class action lawsuit filed against CBS. The CBS lawsuit was largely dismissed; however, one allegation survived the dismissal motion. Now, the parties to the CBS lawsuit have agreed to settle the case, as discussed below. The settlement is subject to court approval. The parties’ April 15, 2022 stipulation of settlement can be found here.
As detailed in a prior post (here), on August 2018, Moonves was the subject of a lengthy article in The New Yorker magazine in which he was accused of sexual misconduct involving at least six women. The article contained the ironic note that in late 2017 after revelations of others’ misconduct Moonves had become a prominent voice in the #MeToo movement in Hollywood. On the first day that news of the forthcoming article began circulating, the company’s share price declined approximately 6%. The news was soon followed by the filing of a securities class action lawsuit.
In their amended complaint (here), the plaintiffs alleged that the defendants had on numerous occasions stated that the company maintained the highest standards for ethics and appropriate business actions, and that the company had a zero tolerance policy for sexual harassment, while in fact the company had a pervasive culture of sexual misconduct; that the company’s culture created an undisclosed risk that Moonves would have to leave the company; and that after the #MeToo story first began to emerge the defendants – and Moonves in particular—made a number of reassuring statements about the company and its practices, which the plaintiffs allege were misleading. The complaint further alleges that a number of CBS executives, including Moonves, sold millions of dollars’ worth of their personal holding in company stock in advance of the revelations about Moonves.
As detailed here, on January 15, 2020, in a lengthy and detailed opinion, Southern District of New York Judge Valerie Caproni largely granted the defendants’ motion to dismiss the lawsuit. Although she largely rejected the plaintiffs’ claims, Judge Caproni did find one statement that Moonves himself had made at a November 29, 2017 industry event to be false and misleading. Moonves had said that the #MeToo movement was a “watershed event,” adding that “It’s important that a company’s culture will not allow for this. And that’s the thing that is far-reaching. There’s a lot we’re learning. There’s a lot we didn’t know.”
Judge Caproni found, taking the allegations in the light most favorable to the plaintiffs, that this statement was — “just barely” — false and misleading, as it implied that Moonves was just learning for the first time about these kinds of allegations when he was at the time actively seeking to conceal his own misconduct. The statement also falsely implied that he was not personally at risk himself.
Judge Caproni also concluded that the plaintiffs’ amended complaint did sufficiently allege – again, “just barely” – that Moonves was “consciously reckless” when he made his statements at the industry event. His statements disclaimed awareness of misconduct at a time when he was aware of his own precariousness and vulnerability. The plaintiffs’ allegations, Judge Caproni, were sufficient to establish that Moonves made the statements with awareness of their untruth or with reckless indifference to their truthfulness or falsity. Judge Caproni found that these statements were also sufficient to establish corporate scienter, as Moonves was speaking as the CEO of CBS when he made the statements.
As a result of Judge Caproni’s rulings, CBS and Moonves were the sole remaining defendants in the action
After the dismissal motion, and while other proceedings in the case were continuing, the parties engaged in settlement discussions and third-party mediation. These negotiations ultimately resulted in the parties’ agreement to settle the case for a cash payment of $14,750,000, subject to court approval, as reflected in the Stipulation of Settlement to which I linked above. Among other things, in the Settlement Stipulation, the defendants reiterated their denial of any liability or wrongdoing.
The Settlement Stipulation does not say whether or to what extent any portion of the settlement amount is to be paid by D&O insurance. The Stipulation has only that CBS “shall pay or cause to be paid” the Settlement Amount into escrow within a timeframe specified in the Stipulation. Interestingly, the Stipulation does recite that “for the avoidance of doubt, neither Moonves or any other Released Defendant Parties shall be required to pay or contribute any portion of the Settlement Amount.”
As I noted at the time of the dismissal motion ruling in this case, the court’s dismissal of almost all of the plaintiffs’ allegations shows how difficult it is for plaintiffs to try to transform allegations of sexual misconduct involving one corporate executive into a securities claim against the executive’s company or other company officials. However, while the dismissal motion rulings did show how difficult it is for plaintiffs’ to pursue these kinds of claims, the fact is that a portion of the plaintiffs’ claims did survive the defendants’ motions to dismiss, even if only “just barely.”
The name of the game for plaintiffs in these kinds of cases is to get past the dismissal motion, even if just barely, which is what the plaintiffs managed to do. Even though most of their lawsuit was wiped out, the plaintiffs managed to live for another day, and as a result they were able to get to the point where they could settle the claim for a not insubstantial amount of money.
To be sure, a $14.75 million settlement is not setting any records. But for a case that was almost entirely dismissed, a settlement of that amount is nothing to sneeze at. To be sure, the amount of this settlement is far less than some of the settlements in other #MeToo-related lawsuits, including for example, the $90 million settlements in both the L Brands #MeToo-related derivative lawsuit (discussed here) and the 21st Century Fox #MeToo-related derivative lawsuit (discussed here). It is also much smaller than the $240 million settlement in the Signet Jewelers sexual misconduct-related lawsuit (although it should be noted that the Signet lawsuit involved both allegations of sexual misconduct and allegation of financial misrepresentations), and smaller than the $310 million derivative settlement by Alphabet, Google’s parent company, in connection with sexual misconduct allegations.
But while the amount of this settlement is smaller than several of the sexual misconduct-related D&O claims that were filed in recent years, the case did result in a multi-million dollar settlement. The fact is that a number of the #MeToo-related D&O lawsuits that were filed were entirely dismissed. Though this one barely survived the dismissal motion, it did survive and it did result in a settlement. I am not sure if there are any lessons to be drawn from this, other than the fact that while it can be difficult for plaintiffs to survive dismissal motions in these kinds of cases, when they do get past the dismissal stage, the path toward settlement becomes more promising. The lesser amount of the settlement in this case, at least in comparison to the settlements mentioned above, reflects the fact that, though the lawsuit survived the dismissal motion, it just barely did so.