January 31, 2023

Delaware District Dismisses Lawsuit Against Wireless Technology Company For Failure To Plead Actionable Inaccuracy – Corporate / Commercial Law

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United States: Delaware District Dismisses Lawsuit Against Wireless Technology Company For Failure To Plead Actionable Inaccuracy

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On November 15, 2021, Judge Richard G. Andrews of the United States District Court for the District of Delaware dismissed a derivative lawsuit against a company that provides hardware, software and services for wireless technology ( the “Company”), alleging that the Company violated Section 14 (a) of the Securities Exchange Act of 1934 and breached its fiduciary duty by allegedly allowing “illegal and discriminatory practices to proliferate within the company” . Kiger v. Mollenkopf, n ° 21-409-RGA (D. Del. November 15, 2021). The complainants alleged that the Company made false statements in the 2019 and 2020 proxy statements regarding its commitment to diversify its board of directors (the “Board”). The court dismissed the complaint for failure to plead an actionable inaccuracy or omission and for failure to plead the futility of the claim.

As the Court noted at the start of the opinion, “there was no specific event involving the company. . . which gained public notoriety and precipitated the filing “of a lawsuit. Instead, the plaintiff-shareholders of the Company suing in a derivative manner on behalf of the Company-alleged that certain statements in the Company’s proxy statements in 2019 and 2020 regarding the Company’s efforts to increase diversity were misleading. Specifically, the complainants alleged that the company made false and misleading statements or omissions when it (1) stated that the “objective” of its governance committee was to constitute a diverse board of directors; (2) said he would ask recruiting firms to include candidates of various racial and ethnic backgrounds in his pool of candidates for the board; (3) failed to disclose that the “purpose and effect” of the Company’s proxy access rules and term limits were to “prevent” the appointment and election of various Board candidates; (4) distorted the nature of executive compensation; and (5) failed to disclose supervisory breaches related to alleged discriminatory practices. The company requested the dismissal, arguing that the plaintiffs had not pleaded an actionable inaccuracy or omission and failed to demonstrate the futility of the request.

The Court ruled in favor of the Company and dismissed the complaint. First, the court dismissed the plaintiffs’ claims regarding the company’s statement in its 2019 proxy statement regarding its “goal” of building a diverse board of directors. The Court explained that statements about a company’s “objectives” constituted unenforceable buffoonery and are liable to be dismissed because they involve “subjective analysis or extrapolations”.

Second, the court dismissed the plaintiffs’ claims regarding the company’s statement regarding its governance committee’s instructions in the 2020 proxy statement on the grounds that the plaintiffs had not properly alleged that the impugned statements were misleading. As the Court explained, “[t]The fact that no minority candidate has been elected to the board in the past six years does not necessarily mean that the governance committee has not included or asked its recruiting firms to include “racial candidates.” ethnically diverse ”in its candidate pool. The court further rejected the plaintiffs’ argument that the 2020 proxy statement was misleading because the governance committee did not “intend” to nominate candidates of diverse race and ethnicity. to the board. would in fact nominate candidates of various races and ethnicities, but those candidates would only be included in the pool of director candidates.

With respect to the other categories of alleged inaccuracies, the Court dismissed the plaintiffs’ claims regarding the proxy access rules and time limits, as it concluded that there was no obligation to disclose the “Purpose and effect” of proxy access rules and time limits. The court further dismissed the plaintiffs’ claims regarding executive compensation because the plaintiffs failed to identify a misrepresentation regarding executive compensation in any of the disputed proxy statements. The court also dismissed the plaintiffs’ claims regarding the alleged omission of inadequate oversight because it found that the plaintiffs were only “initiating a federal securities claim to a third party. [state law] cause of action for breach of fiduciary duty “, which” is not admissible “.[] the Court that their Article 14 (a) [claim] based on supervisory breaches falls under the exception where such claims may be pursued in conjunction with a fiduciary duty claim. “

Finally, the court dismissed the plaintiffs’ claims for breach of fiduciary duty because the complaint lacked “the detailed allegations necessary to pass the gathering under rule 23.1”. More specifically, the Court ruled that the complainants’ allegations “did not lead to a reasonable inference that there is widespread unlawful racial discrimination in Canada. [the Company] that the board of directors knowingly ignored or tacitly approved.[d] a substantial likelihood of liability on fiduciary duty claims so the claim should be excused. “

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