In an important decision that highlights the liability exposures facing corporate boards for claims alleging breaches of the duty of oversight, a Delaware Court of Chancery Vice Chancellor denied in substantial part the defendants’ motion to dismiss in the shareholder derivative suit pending against the board of Boeing relating to the 737 Max air crashes. The court concluded that the plaintiff had sufficiently alleged that the company’s board had breached its oversight obligations by failing to establish safety oversight mechanisms prior to the October 2018 Lion Air crash and ignoring red flags about safety issues after the Lion Air crash and before the March 2019 Ethiopian Airlines crash. Vice-Chancellor Morgan Zurn’s September 7, 2021 opinion can be found here.
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Two More Board Diversity Lawsuits Dismissed
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.
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49 Corporate Law Firms Trash SPACs-Are-Investment-Companies Lawsuits
As I noted in prior posts (here and here), in the last few days a group of plaintiffs’ lawyers that includes former SEC Commissioner Robert Jackson and Yale Law Professor John Morley filed shareholder derivative suits against the boards of three SPACs alleging that the SPACs had improperly failed to register as investment companies under the Investment Company Act of 1940. In response, a group of 49 corporate law firms has now issued a joint statement decrying the lawsuits and trashing the plaintiffs’ arguments that SPACs are investment companies merely because the SPACs invest their IPO proceeds in trust accounts while seeking a merger partner. The corporate law firms’ joint statement sheds interesting light on the legal theories asserted in the new lawsuits. A copy of the August 27, 2021 joint statement can be found here.
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More SPACs-Are-Really-Investment-Companies Derivative Suits Filed
Last week, when a group of plaintiffs’ attorneys filed a shareholder’s derivative suit against Bill Ackman’s SPAC seeking damages and alleging the company was really an Investment Company that should be registered under the Investment Company Act, I assumed the attorneys filed the suit because it was Ackman’s firm; because of the size and prominence of the SPAC; and because of Ackman’s unusual plan to invest the SPAC’s IPO proceeds in a minority interest. Well, it turns out, the plaintiffs’ lawyers involved were just getting started. They have now filed two more shareholders derivative suits against two other SPACs’ boards and sponsors, based on the same theory as in the Ackman SPAC suit that the SPACs involved are really Investment Companies that should be registered under the Investment Company Act. Looks like these SPACs-are-Investment-Companies suits are a thing now, and this could all get very interesting.
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Bill Ackman’s SPAC’s Directors Hit With Derivative Suit Over “Staggering” Compensation
Regular readers know that I have been tracking SPAC-related securities class action lawsuits and other SPAC-related litigation. As I discuss in the second item below, the SPAC-related class actions have continued to be filed as the year has progressed. There have also been SPAC-related shareholder derivative lawsuits filed as well, but none quite like the derivative lawsuit filed this week on behalf of Wall Street investor William Ackerman’s SPAC vehicle, Pershing Square Tontine Holdings Ltd. against the SPAC’s directors and other defendants. The suit claims that the defendants structured massive compensation arrangements for the SPAC sponsor and the SPAC directors in violation of the Investment Company Act of 1940 and the Investment Advisers Act of 1940. A copy of the complaint can be found here.
Continue Reading Bill Ackman’s SPAC’s Directors Hit With Derivative Suit Over “Staggering” Compensation
Board Diversity Lawsuit Against Danaher Directors Dismissed
The shareholder derivative lawsuit filed against the directors of Danaher Corporation is the latest board diversity lawsuit to fail to survive initial pleading hurdles. In a June 28, 2021 order (here), District of Columbia District Court Judge Trevor N. McFadden granted the defendants’ motion to dismiss the shareholders’ claims, based on his determination that the plaintiffs had failed to establish that pre-suit demand on the board would have been futile. In making his rulings on the motion, Judge McFadden made several interesting and noteworthy observations about the plaintiffs’ board diversity allegations.
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Dismissal Motion Granted in Oracle Board Diversity Lawsuit
Regular readers will recall that last year and earlier this year, plaintiffs’ lawyers filed a series of shareholder derivative lawsuits against the directors of several companies alleging that the lack of diversity on the companies’ boards breached the directors’ fiduciary duties. In the latest ruling to address preliminary motions in these various cases, the court in the board diversity lawsuit filed against directors and officers of Oracle has granted the defendants’ motion to dismiss. As discussed in greater detail below, the plaintiffs’ track record on the board diversity lawsuits is not good so far; the ruling in the Oracle suit represents the third successive dismissal granted in these suits.
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Board Diversity Lawsuit Against The Gap Dismissed Based on Forum Clause
In the second dismissal motion ruling in one of the many board diversity lawsuits filed in recent months, a magistrate judge has granted the defendants’ dismissal motion in the suit against the board of clothing retailer The Gap. This latest ruling follows the dismissal motion grant last month in the similar lawsuit against Facebook’s board. As discussed below, the court’s dismissal of the case against The Gap’s board was based on the forum selection clause in the company’s bylaws. Northern District of California Magistrate Judge Sallie Kim’s April 27, 2021 ruling in the case can be found here.
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Alphabet Establishes $310 Million Fund in Google Sexual Misconduct Lawsuit Settlement
In a derivative lawsuit settlement with one of the highest nominal dollar values ever – and in what is one of the largest #MeToo-related D&O lawsuit settlement ever – Google parent Alphabet has agreed to establish a $310 million diversity, equity, and inclusion fund as part of the settlement of the consolidated derivative litigation relating to the company’s alleged mishandling of sexual harassment allegations against senior executives and the company’s alleged overall culture of sexual discrimination and harassment. The company also agreed to adopt extensive reforms to its employment policies and to implement a number of governance reform measures as part of the settlement. The settlement is subject to court approval.
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Qualcomm Hit with Board Racial Diversity Derivative Lawsuit
In the latest in a series of lawsuits that recently have been filed against corporate directors based on board diversity issues, a Qualcomm shareholder has filed a derivative lawsuit against the company’s board, alleging that the company’s directors violated their duties to the company and shareholders by falling short of stated objectives on diversity and inclusion and by falling to include a single African-American either on the board or among the company’s senior officers. The lawsuit against Qualcomm follows similar lawsuit filed earlier this month against Oracle and Facebook. A copy of the July 17, 2020 complaint against the Qualcomm board can be found here.
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