Does Investor Litigation Over #MeToo Stand a Chance?
A recently filed securities class action against CBS is the latest attempt by investors to hold company directors and officers responsible for an executive's alleged sexual misconduct. But will the courts buy it?
September 04, 2018 at 03:53 PM
3 minute read
From claims of defamation to hostile work environment, the #MeToo movement has spawned its fair share of lawsuits.
And a recently filed securities class action suit against CBS Corp. is the latest attempt by investors to use the courts to hold company directors and officers responsible for alleged misconduct within executive ranks.
In this case, a plaintiff-shareholder claimed that CBS filings with the U.S. Securities and Exchange Commission were false and misleading, in violation of federal securities laws. The company had affirmatively declared in filings that all its directors and employees upheld a code of conduct that included “a bias-free and harassment-free workplace.”
The suit, filed Aug. 27, stemmed from an article published last month in The New Yorker magazine that included six women's allegations of sexual harassment against network CEO Leslie Moonves.
After the article was published, CBS' stock price fell more than 6 percent, causing “significant losses and damages” to the potential class members, according to the complaint.
And it's not the first suit of its kind involving false statements and omissions in the context of #MeToo. In March 2017, Signet Jewelers Ltd. was sued in a securities fraud class action based on the company's alleged failure to disclose sexual harassment allegations against executives in an ongoing arbitration.
Attorneys who have followed these cases agreed that targeting disclosures about a company and its executives' adherence to ethical standards is an unusual strategy for a securities fraud class action claim. They said that these cases normally focus on financial statements, not alleged misconduct.
But unusual does not necessarily mean unsuccessful, assuming all the elements of the cause of action are met, said Shira Scheindlin, a former judge in the U.S. District Court for the Southern District of New York, now of counsel at Stroock & Stroock & Lavan.
“If there are false and misleading statements and causation between the misstatement and the financial loss that can be shown and made with the requisite standard, that's a classic securities fraud case,” she said, also noting that the prominence of Pomerantz, the firm that filed the CBS case, may foreshadow a litigation trend.
“If they bring this, there will be other firms that use it as a model, and consider bringing it in similar situations,” Scheindlin said. “Once you see one, you will see many.”
But Columbia Law School professor John Coffee Jr. wasn't so certain that these cases can succeed. He said in an email that there may not be too many more of these complaints because of the “high obstacle” of having to show that the stock price declined because of some misstatement or omission by the company.
“Thus, while harassed plaintiffs can sue the company for maintaining a hostile work environment or for various violations of state law, they will face much more difficulty in showing that the failure to disclose the corporate executive's misconduct caused their stock to drop (often many years later),” he wrote. “In the case of Mr. Moonves, what would cause CBS stock to drop is his replacement or firing, but that is not the same thing.”
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