February 7, 2023

Volume XIII, Number 38


February 06, 2023

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Another Diversity Suit Stifled

Last week, yet another federal court dismissed a shareholder derivative suit that claimed a company had failed to diversify its corporate leadership team.  Shareholders had alleged that Opko Health Inc., a Miami-based medical company, failed to nominate or appoint minorities to the board and executive management team despite public statements celebrating the company’s diverse staff.

Unlike other recent diversity-focused suits subject to similar fates, this case was not dismissed on the basis of a forum selection clause in the company’s charter or corporate bylaws.  Instead, the court held that the plaintiffs had failed to show that any director faced a substantial likelihood of liability on their claims.  The court’s thorough analysis of these claims evinces a strong sense that, absent specific allegations regarding directors’ actions or knowledge regarding their company’s purported diversity failures, these types of claims may continue to succumb to motions to dismiss.

The plaintiffs had brought allegations under Delaware common law and federal securities laws.  The court held that the complaint was “replete with conclusory allegations” regarding Opko’s board’s purported lack of diversity, and that such allegations were not sufficient to support an inference directors and executives acted in bad faith, intentionally acted against the company’s interest, or consciously disregarded their duties of loyalty.

The court also found deficient the plaintiffs’ allegations that the defendants caused Opko to make misleading statements in corporate filings because those filings failed to disclose that the board had refused to nominate minorities to the board or executive team. The court found that, even assuming the filings were false or misleading, the complaint lacked facts suggesting that the defendants had any knowledge of as much.  And the plaintiffs’ claim under Section 14(a) of the Securities Exchange Act failed for similar reasons – the court held that there was nothing in the complaint sufficient to show statements in Opko’s corporate filings were false and misleading.

The Opko case tends to suggest that, even assuming they can overcome jurisdictional hurdles, plaintiffs will face an uphill battle with diversity-based derivate suits.  Plaintiffs may have to provide specific examples of discrimination or refusals to hire specific candidates, as well as the board’s knowledge of such conduct, in order to successfully show demand futility.  As noted elsewhere, many of these suits were launched by the same law firm in the summer of 2020, but the allegations have thus far failed to gain any sort of traction with judges across the country.

© 2023 Proskauer Rose LLP. National Law Review, Volume XI, Number 253

About this Author

Joseph S. Hartunian Litigation Attorney Proskauer Law Firm

Joe Hartunian earned his J.D. from the University of Michigan Law School, where he was an executive editor of the Michigan Journal of Law Reform. While at Michigan, Joe worked as a legal intern for the U.S. Attorney’s Office for the Eastern District of New York.

Prior to law school, Joe served as a legislative aide for Senator Charles E. Schumer on the Senate Judiciary Committee, focusing on issues related to opioid abuse, telecommunications and gun safety. Upon graduation, he returned to the committee as an advisor to Senator Amy Klobuchar on the nomination of now-Justice...