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Activision beats shareholder lawsuit over workplace discrimination

The judge closed the case a day after a group of New York pension funds asked him to stay his decision while they seek permission from a Delaware court to bring in newly obtained evidence.

LOS ANGELES (CN) — Activision Blizzard defeated a lawsuit by shareholders who claimed the video game maker's board of directors failed for years to remedy discrimination against women employees even though they had been made aware of the illegal hiring and pay practices.

U.S. District Judge Percy Anderson on Monday dismissed the shareholders' third attempt to jump the hurdle that requires them to explain why they didn't directly demand the board to fix the problem, as the law requires, before they went to court. Anderson didn't allow the shareholders to remedy their complaint a fourth time and closed the case.

The judge specifically rejected the shareholders' argument that it would have been "futile" for them to first request action from the board because, as they claimed, the directors faced a substantial likelihood of liability for their purported oversight failures. The amended complaint, the judge said, didn't make a plausible case that the directors faced such a substantial likelihood of liability.

"Continuing violations do not automatically give rise to an inference of bad faith indifference," Anderson said. "Though plaintiffs allege violations continued occurring, there are no facts showing defendants knew their internal controls were deficient."

Attorneys for the shareholders didn't immediately respond to a request for comment on the ruling.

The Santa Monica, California-based publisher of the Call of Duty and World of Warcraft franchises, among other video games, was sued in 2021 by the California Department of Fair Employment and Housing, which claimed the company had fostered a pervasive "frat boy" workplace and had created a breeding ground for harassment and discrimination against women. Activision's initial denial of the allegations prompted its employees to walk out.

Last year, the company settled a separate lawsuit by the U.S. Equal Employment Opportunity Commission over allegations of sexual harassment for $18 million. California had objected to the settlement, saying it gave Activision leverage to walk away cheaply from the sexual harassment and discrimination claims under the state's own laws, which are far more protective of workers than federal law. The California lawsuit is still pending.

Two Activision shareholders filed a so-called derivative lawsuit, in which they sued on behalf of the company, against the board in 2021, claiming the directors failed their fiduciary duty because they knew since 2018 that California was investigation the company for gender discrimination and failed to take any steps in spite of these "red flags."

"The DFEH investigation, and the company’s 'cooperation' into extensive discovery practice relating to pay and promotion practices, furnished the board with full visibility into the gross pay and promotion disparities between men and women at the company," according to the shareholders' third amended complaint filed in September 2022. "The board has not undertaken any good faith action to remedy the misconduct during the nearly four years Activision has been investigated for illegal pay practices."

Among the remedies the shareholders requested was that longtime CEO Bobby Kotick, who also sits on the board, and other culpable executives be terminated for cause and that the directors pay back any compensation and benefits they received from the company.

To step into the shoes of the company in a derivative lawsuit, however, requires that the shareholders either first go to the board with their demands or explain in some detail why that would have been "futile." Futility can occur when the board isn't independent from management or benefitted from the claimed misconduct, or, as the shareholders argued unsuccessfully in this case, the directors faced liability because they knowingly failed to perform their duties.

The judge dismissed the case a day after a group of New York pension funds, which have been using the Delaware Court of Chancery to demand information from Activision to investigate possible corporate wrongdoing, asked him to delay his decision so that they could seek permission from the Delaware court to use the evidence they obtained and join the shareholders' lawsuit.

According to the New York funds' request to halt the Los Angeles case, Activision has threatened to sue them if they filed a motion to intervene that included confidential information from their Delaware proceedings. This made it clear, according to the New York funds, that Activision was desperate to prevent the judge from considering these newly-obtained documents.

"The documents that the NYC funds recently obtained from Activision via Section 220 are the entire reason they originally sought to intervene in this litigation," the New York funds said in their request Monday. "Activision’s threat of legal action therefore means that the NYC funds are now unable to describe to this court why their newly obtained documents are important, how these documents relate to plaintiffs’ allegations in this case, and why the court should therefore permit them to work with plaintiffs to file an amended complaint."

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