Gap Triumphs in Shareholder Lawsuit Concerning Racial Diversity Commitment

The San Francisco-based company faced allegations in a 2020 lawsuit filed in the San Francisco federal court by shareholder Noelle Lee. Lee argued that despite making statements to the contrary in securities filings, Gap had failed to make significant progress in diversifying its senior leadership.

In response, Gap maintained that the allegations were “offensive, racially charged, and demonstrably false.” On June 1, 2023, the 9th U.S. Circuit Court of Appeals ruled in favor of Gap, allowing the company to enforce a corporate bylaw requiring shareholder derivative litigation to be filed in Delaware Chancery Court.

This decision effectively dismissed the claims made by Lee, who argued that enforcing the forum selection clause would enable the company to evade any litigation and waive its obligations under federal securities law.

The ruling highlights a split among federal appeals courts on how forum selection provisions apply to derivative suits alleging violations of the federal Securities and Exchange Act…