(CN) — A federal judge on Thursday dismissed claims against three Wells Fargo senior executives in a derivative shareholder lawsuit over “sham” job interviews the bank purportedly conducted to make it look as if they were trying to hire more diverse employees.
U.S. District Judge Trina Thompson agreed with the bank and the three executives that the plaintiffs’ second amended complaint had failed to overcome the deficiencies that had prompted the judge to dismiss the same claims last year. This time, however, Thompson’s decision was with prejudice and didn’t allow the plaintiffs another chance to fix their claims.
The three executives, according to the plaintiffs, made false statements in corporate filings and media interviews about Wells Fargo’s efforts to diversify the upper echelons of its workforce with a rule that required that half of the candidates interviewed for a position that pays more than $100,000 have to come from historically underrepresented groups.
However, as part of a derivative shareholder lawsuit, the plaintiffs needed to show that they first tried to have company’s board of directors address their grievances, or convincingly argue that such a demand on the board would have been futile.
Whereas the plaintiffs argue that the directors face substantial liability for the claims against the executives, this wasn’t sufficient to meet the standard for demand futility, according to the judge, and the amended complaint failed to supply a more factual basis for that thesis.
“The factual allegations against the director defendants and the officer defendants are not a near-total overlap,” Thompson said. “As currently pleaded, plaintiffs’ allegations as to demand futility for claims asserted against officer defendants are conclusory as they add no facts that indicate demand on the board was futile.”
Thompson last year dismissed the claims against the senior executives because she found that the plaintiffs had failed to give a good explanation why it would have been futile for them go to the bank’s board of directors to resolve their complaints about the executives before filing suit.
Gia Jung, an attorney for the shareholders, told Thompson at a hearing earlier this week in San Francisco on the executives’ motion to dismiss the claims that the amended complaint “unequivocally” addressed demand futility.
“The discriminatory hiring statements that this court has already found to be actionable against the board completely overlap and are nearly identical to the statements that underlie the securities claims against the officer defendants,” Jung said. “A demand on the board as to any of the alleged claims against the officer defendants would be futile, because the board would be conflicted.”
Thompson, a Joe Biden appointee, asked Jung what was in the amended complaint that could change her mind about her previous order dismissing the claims against the officers.
Jung replied that the false statements of both the directors and officers implicate and are intertwined with liability allegations.
“And so here we’re tying those as it relates to the board with those that relate to the officer defendants,” Jung said.
The attorney didn’t immediately respond to a request for comment on Thompson’s decision.
Tuesday’s ruling only addressed the claims against three executives that were part of the consolidated, derivative lawsuits: Scott Powell, the bank’s chief operating officer, Carly Sanchez, a senior human resources executive who had been vice president for diversity recruiting until 2022, and Kleber Santos, currently the bank’s CEO for consumer banking, and until July 2022, head of Wells Fargo’s Diverse Segments, Representation, and Inclusion group.
Wells Fargo shareholders sued in 2022 after a New York Times’ exposure of the sham interviews the bank conducted with women and people of color, among other so-called diverse candidates for jobs paying more than $100,000 a year, even though the position was already filled and the bank had no intention to offer the job to the candidate.
The news caused Wells Fargo’s shares to drop, and investors filed both securities lawsuits, claiming the bank had lied to them about its efforts to promote diversity in its ranks, and derivative lawsuits on behalf of the bank, accusing directors and officers of breaching their fiduciary duty.