Wells Fargo Derivative Suit A Cautionary Tale For Directors

By Brad Karp, Susanna Buergel, Andrew Ehrlich and Audra Soloway (December 11, 2017, 10:46 AM EST) -- On Oct. 4, 2017, in In re Wells Fargo & Co. Shareholder Derivative Litigation, which concerns alleged sales practices at Wells Fargo that have received wide attention, Judge Jon S. Tigar of the Northern District of California substantially denied the defendant officers' and directors' motions to dismiss the complaint.[1] Judge Tigar had previously granted in part and denied in part nominal defendant Wells Fargo's motion to dismiss the complaint.[2] Notably, the court's Oct. 4 order took a somewhat broad read of the complaint's allegations concerning the directors' knowledge of the alleged sales practices that support the plaintiffs' Section 10(b) and Rule 10b-5 claims, as well as its claims under Section 14(a). While the court's approach could influence how future courts evaluate the adequacy of plaintiffs' pleading of such claims, the allegations with respect to Wells Fargo may be sufficiently unique that this opinion may well be limited to its unusual facts. Nevertheless, the opinion is a stark reminder to directors that they must be especially sensitive when allegations of misconduct on the part of management come to their attention, particularly when those allegations surface in multiple forms....

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