Earlier last month, Judge Vince Chhabbria of the United States District Court for the Northern District of California dismissed a novel complaint that the court noted stretched the bounds of when directors of a company could reasonably be held accountable for the actions of its executives. Notwithstanding the case’s amusing subject matter, the decision applies typical Delaware standards to dismiss a shareholder derivative complaint formed on the basis of an executive’s out-of-office behavior.
On January 28, 2022, the Securities and Exchange Commission filed a complaint in the U.S. District Court for the Northern District of California against HeadSpin, Inc., a Silicon Valley start-up. In the complaint, the SEC alleged that HeadSpin, though its then-CEO Manish Lachwani, engaged in a fraudulent scheme “to propel its valuation to over $1 billion by falsely inflating the company’s key financial metrics and doctoring its internal sales records.”
The acronym “ESG” is shorthand for environmental, social, and governance concerns. In recent years, companies have used “ESG” to refer to initiatives involving climate change, responding to racial injustice, and supporting workers’ rights. The “S” in ESG can be a bit nebulous, however, as “social” may refer to any number of issues affecting a corporation, its stakeholders, and the community at large. For example, children’s privacy has always been a hot button social issue, but it has only gained traction during the COVID-19 pandemic as children have transitioned to remote learning and socializing online more than ever before. And a derivative lawsuit suggests that companies may want to ensure they are responding to child privacy concerns as part of their regular ESG practices and policies.
Late last month, a new batch of plaintiffs filed a stockholder derivative suit against Pinterest, Inc., in Delaware Chancery Court, making similar allegations to those made in a pair of cases filed in the Northern District of California in 2019.
The plaintiffs allege that Pinterest executives ignored and failed to correct systemic race and gender discrimination across the company and retaliated against employees who voiced concerns about the problem.
An interesting shareholder derivative suit was filed on November 30, 2020 in the Northern District of California against Pinterest, Inc. Pinterest, a visual discovery engine popular for collecting ideas for weddings and aggregating recipes, went public in April 2019. The complaint alleges that Pinterest executives “breached their fiduciary duties to the [c]ompany by perpetrating or knowingly ignoring the long-standing and systemic culture of discrimination and retaliation at Pinterest.” Pinterest allegedly payed unequal salaries to women and racial minorities while denying multiple women opportunities commensurate with their job titles and level of experience.
The U.S. District Court for the Northern District of California held on January 4, 2017 that the federal securities laws apply to U.S. transactions in sponsored, but unlisted, American Depositary Receipts (“ADRs”) for a foreign issuer’s shares. The decision in In re Volkswagen “Clean Diesel” Marketing, Sales Practices, and Products Liability Litigation adds to the handful of decisions addressing whether U.S. transactions in sponsored, but unlisted, ADRs are covered by the federal securities laws. Most of those decisions have held that U.S. law applies to those transactions. The Volkswagen ruling also joins the majority of decisions in holding that the over-the-counter (“OTC”) markets are not considered to be “exchanges” for purposes of determining the scope of the federal securities laws.