Why New York City is suing Activision-Blizzard

Several of New York City's municipal retirement funds and pension systems are suing Activision-Blizzard, and here's why.

@DeekeTweak
Published Wed, May 4 2022 3:59 PM CDT   |   Updated Wed, May 4 2022 4:06 PM CDT

Activision is facing court complaints once more and this time it's by New York City's municipal retirement branches. Here's what you need to know.

Why New York City is suing Activision-Blizzard 99 | TweakTown.com

Many of New York City's municipal pensions and retirement funds have invested into Activision-Blizzard, making them bona-fide shareholders in the billion-dollar company. The shareholders in question include New York City employees' retirement system, New York City fire department pension fund, New York City board of education retirement system, and teachers' retirement system for the City of New York. All of these branches are suing Activision-Blizzard for failing to deliver specific documents.

The lawsuit alleges the plaintiffs started to prepare a derivative claim as far back as October 2021, when the controversial sexual harassment reports broke out and caused Activision-Blizzard's stock to plummet. The plaintiffs were preparing their own suit (in this case, the derivative claim) that has been described as "lucrative," meaning the plaintiffs likely expected Activision to settle the case for a specific amount.

The plaintiffs needed more information for their claim. So they requested many internal documents from Activision-Blizzard specifically relating to board meetings, correspondence, and other details to help bolster their derivative claim.

Definition of a Derivative Claim

A litigation claim brought by a holder of ownership interests in an entity (such as a stockholder in a corporation or a member in a limited liability company) on behalf of the entity against the entity's management or board of directors typically alleging breach of fiduciary duty, fraud or mismanagement. The procedure for a derivative claim is governed by state law, but typically an interest holder must:

  • Have been an interest holder at the time of the alleged wrong doing.
  • Retain ownership throughout the litigation.
  • Make a demand on the board of directors (or governing persons in an alternative entity) to take corrective action or show that such a demand would be futile.

The shareholders claim it is their right under Section 220 of Delaware Corporation Law to ask for and receive these documents.

Section 220 reads: "[a]ny stockholder, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose, and to make copies and extracts from... [t]the corporation's stock ledger, a list of its stockholders, and its other books and records."

Activision failed to deliver sufficient documents to satisfy the request.

The plaintiffs filed a petition in order to obtain more documents.

As the petition was ongoing, Activision announced the Microsoft acquisition deal. This interrupted the A) delivery of the documents and B) the ongoing investigation from shareholders' legal council.

Plaintiffs then submitted another Section 220 order for documents, this time scrutinizing the finer details of the merger. Activision did issue the documents, but it did so later than the deadline, and once again didn't deliver all the documents requested of them.

"In response to Plaintiffs' original demand, Activision produced a total of 107 documents, consisting of director questionnaires, Board minutes and materials, and other documents. These documents suggested that the Board faced a strong likelihood of liability for breaches of fiduciary duty. For years, the Board had ignored credible and disturbing allegations of misconduct against its senior executives."

The lawsuit includes multiple pages of claims of abuse and wrongdoing based on the documents received by Activision.

Claims include how Bobby Kotick and Activision-Blizzard's board of directors allegedly breached fiduciary duty in multiple instances, says the $95 per share offer "severely undervalues" shares, and goes into great detail how the board and Bobby Kotick have not been held liable for their actions.

A particular passage alleges that Activision's board knew of sexual misconduct of one of its executives and didn't take action. Instead, the company promoted him.

Following the details learned from the obtained documents, the plaintiffs filed for yet another Section 220 demand to determine multiple things including wrongdoing, breach of fiduciary duty, and whether or not Bobby Kotick and the board were trying to "escape" liability with the merger.

The lawsuit says that Activision ultimately failed to meet its Section 220 demands:

"Activision has therefore violated its obligations under Section 220, forcing Plaintiffs to bring this action to enforce their statutory inspection rights."

Plaintiffs seek full access to the requested Section 220 documents, which includes a massive array of information, books, ledgers, correspondence, data, and other records, as well as attorney fees and any damages the court determines viable.

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Derek joined the TweakTown team in 2015 and has since reviewed and played 1000s of hours of new games. Derek is absorbed with the intersection of technology and gaming, and is always looking forward to new advancements. With over six years in games journalism under his belt, Derek aims to further engage the gaming sector while taking a peek under the tech that powers it. He hopes to one day explore the stars in No Man's Sky with the magic of VR.

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