AMD directors dodge shareholder derivative suit over board diversity

A gavel and a block is pictured at the George Glazer Gallery antique store in this illustration picture taken in Manhattan, New York City
REUTERS/Andrew Kelly/Illustration
  • Shareholder showed no basis to skip demanding action from board
  • Half of similar lawsuits over diversity failures dismissed

(Reuters) - A federal judge in California has dismissed a lawsuit alleging Advanced Micro Devices Inc's board breached its duties to the semiconductor company and its shareholders by not including a Black director.

U.S. District Judge Lucy Koh in San Jose said in a ruling Thursday that the lawsuit contained no specific allegations as to why it would have been futile to directly demand that the board investigate the allegation before suing it. The judge gave the investor leave to amend the lawsuit.

An attorney for the company declined to comment. Counsel for the pension fund that sued did not immediately reply to requests for comment on Friday.

Derivative lawsuits allow shareholders to sue directors for violations of law that harm the company.

But in order to do so without first asking the board for action, the shareholder must explain why a majority of the board could not be trusted to handle the issue themselves.

The requirement to show demand futility has been a stumbling block for similar cases filed since last summer, when protests swept the nation over the murder of George Floyd, an unarmed Black man, by a Minneapolis police officer.

Directors at about a dozen publicly traded companies have been sued for failing to include Black board members. With Koh's ruling, six of those lawsuits have now been dismissed, though most plaintiffs received permission to refile.

A pension fund sued AMD's board in September, saying it had embraced "a narrow brand of diversity" by failing to nominate a Black individual despite the company portraying itself as a champion of diversity.

The shareholder also alleged that a demand on the board would be futile because they faced exposure to social and reputational damage over the claims.

AMD denied the allegations, which it deemed "an effort to monetize an important progressive moment in our nation's history." The company moved to dismiss the lawsuit for failure to plead demand futility.

Granting the motion on Thursday, Koh said the complaint "fails to identify any communications, meetings, or other particularized facts" that would show each director knew they were breaching their duties to shareholders.

The case is City of Pontiac Police and Fire Retirement System v. Caldwell et al., U.S. District Court, Northern District of California, No. 20-cv-06794.

For AMD: Elizabeth Deeley, Morgan Whitworth, BJ Trach, Jason Hegt and Hilary Mattis of Latham & Watkins

For the plaintiff: Shawn Williams, Darren Robbins, Travis Downs III and Benny Goodman III of Robbins Geller Rudman & Dowd

Read More: Oracle directors urge judge to end "outrageous" diversity lawsuit Facebook directors get diversity failure lawsuit tossed

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Jody Godoy reports on banking and securities law. Reach her at