Starting last summer, a series of derivative cases were filed against boards of a number of public companies alleging that the boards failed to create meaningful diversity in their board rooms and amongst the ranks of senior management. These cases, filed mostly by one law firm and primarily in the Northern District of California, had the markings of becoming a new genre of claim. Two of these cases have now proceeded through their first motion hearing and neither survived intact. Ocegueda v. Zuckerberg et al., No. 20-cv-04444 (the Facebook case) and Lee v. Fisher et al., No. 20-cv-06163 (the Gap case). Although other cases remain pending and perhaps these two will be refiled, judicial reaction so far suggests that other methods to promote diversity may have greater impact.
Securities class actions against life sciences companies are almost always second-order problems. The first-order problem is a business or regulatory setback that, when disclosed by the company or a third party, triggers a stock price decline. Following the decline, plaintiffs’ class-action attorneys will search the company’s previous public statements and seek to identify inconsistencies between past positive comments and the current negative development. In most cases, plaintiffs’ attorneys will seek to show that any arguable inconsistency amounts to fraud — that is, they will claim that the earlier statement was knowingly or recklessly false or misleading. Where a company makes the challenged statement in a public offering document — a registration statement or prospectus — plaintiffs need only show that the statement was materially false or misleading, not that it was made with scienter.