A shareholder is challenging the corporate maneuvers of a major tech company, alleging a breach of fiduciary duty and unjust enrichment. Edward Sanchez filed a complaint against Chuck Robbins and other executives of Cisco Systems, Inc. in the Court of Appeal of the State of California on June 12, 2024.
The lawsuit traces back to September 2020 when Sanchez accused Cisco's leadership of failing to promote racial and ethnic diversity within the corporation. According to Sanchez, who is a resident of California and owns Cisco stock, the defendants concealed Cisco’s lack of diversity and did not foster any meaningful change at the top levels of the company. At that time, Cisco was headquartered in San Jose, California. However, following Sanchez's filing, Cisco’s board decided to reincorporate from California to Delaware in October 2020—a move approved by shareholders in December 2020. This reincorporation included new bylaws mandating that derivative actions be brought exclusively in Delaware’s Court of Chancery.
Sanchez's legal battle faced a significant setback when the trial court dismissed his action based on this newly adopted forum selection bylaw. The court found no abuse of discretion in enforcing this clause, stating it would not be unfair or unreasonable. The ruling emphasized that such clauses are enforceable under Delaware law even if they were adopted after litigation had commenced.
In his appeal, Sanchez argued that the forum selection bylaw was retroactively applied to dismiss his already-pending lawsuit without adequate notice to shareholders about its implications for ongoing litigation. He claimed this omission rendered the proxy statement misleading and questioned whether shareholders were fully informed about how their vote could impact existing legal actions against Cisco.
Despite these arguments, the appellate court upheld the trial court's decision. It noted that shareholders had been informed about the exclusive forum provision before voting on reincorporation and overwhelmingly approved it. The court also pointed out that there was no evidence suggesting that the bylaw was adopted specifically to target Sanchez’s lawsuit.
The case underscores ongoing tensions between corporate governance practices and shareholder rights, particularly regarding transparency and accountability in promoting diversity within major corporations like Cisco Systems.
Representing Edward Sanchez is an attorney whose name was not provided in the document; however, Judge Grover delivered the opinion with Judges Greenwood and Lie concurring. The case ID is H050521.