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Activision prevails as court tosses 'frat house' culture lawsuit

Investors use up all their continues, game over

A California judge has tossed out a lawsuit filed by Activision Blizzard shareholders against the company's leadership accusing them of breaching fiduciary duties by allowing a hostile environment to develop that top brass tried to hide from the public.

Unfortunately for the shareholders, even in their third attempt at filing an amended complaint they failed to meet the legal standards to bring action against Activision, said US Central District of California Judge Percy Anderson, because they never asked for changes from company leadership before filing the suit.

"Plaintiffs do not allege an effort to demand action from Defendants and instead plead demand would have been futile," Anderson said [PDF]. The complaint was dismissed with prejudice [PDF], meaning the case is over, and the shareholders aren't being given another mulligan. 

The original complaint [PDF], filed in November 2021, stemmed from a suit filed earlier that year by the California Department of Fair Employment and Housing alleging Activision Blizzard fostered a "frat house cultural paradigm" in which women were paid less, minorities were discriminated against, and sexual harassment was rampant. 

ActiBliz settled that lawsuit for $18 million a few months later, but the damage led to shareholders calling for CEO Bobby Kotick to resign, which has not happened. 

The World of Warcraft developer was also sued in 2022 by the Equal Employment Opportunity Commission, leading to a consent decree being issued against the company forcing it to provide relief for affected employees.

If you would've just asked… 

The shareholders then brought their derivative lawsuit, which is an action by shareholders on behalf of a company against its directors for breach of duty. Citing prior legal decisions, Judge Anderson said that in order to meet the burden to bring a derivative action, shareholders "must first demand action from the corporation's directors or plead with particularity the reasons why demand would have been futile." 

As the shareholders never asked the board to take action, the judge said, they were instead relying on arguments that their demands would have been futile because Activision directors "face a substantial likelihood of liability for oversight failures." To ask them would have been pointless, goes the argument, because to take action would be to admit fault.

In the case, the shareholders leaned on Activision's 2020 and 2021 proxy statements as evidence that the company was intentionally misrepresenting the state of gender pay equality at the company, which the judge said isn't substantial – and he said it wasn't the first time he had to tell them that.

"The Court previously allowed Plaintiffs to amend and supply new factual allegations. Despite that opportunity, the [third amended complaint] is comprised of recycled facts and arguments that the Court previously found insufficient. The Court therefore concludes that dismissal without leave to amend is appropriate," Judge Anderson said. 

We've asked the legal team representing the shareholders to comment but haven't heard back.

Activision Blizzard VP of Media Relations Joe Christinat told The Register this was the third time the court had rejected the shareholder's "meritless" claims, noting that it wasn't just dismissed with prejudice this time around, but that the judge awarded Activision its legal costs too. 

"As the Court recognized, plaintiffs again were unable to show that the Company's Board failed to exercise appropriate oversight, that it failed to enforce compliance, or that it misled shareholders," Christinat said. 

Activision is facing other legal challenges stemming from Microsoft's $69 billion bid for the video game giant, which landed in court this month as the Federal Trade Commission seeks to stop the deal. 

EU officials are also reportedly readying a statement of objections on the deal which may be sent to Microsoft in the coming weeks. Microsoft said it is working with EU regulators to address marketplace concerns. ®

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