On May 4, 2017, Judge Jon S. Tigar of the U.S. District Court for the Northern District of California delivered a resounding victory to the plaintiffs in In re Wells Fargo & Company Shareholder Derivative Litigation. The court denied the defendants’ motion to dismiss with respect to ten out of the eleven counts in the complaint, determining that a majority of Wells Fargo’s directors knew about widespread illegal activity occurring at the bank and “consciously disregarded their fiduciary duties to oversee and monitor the company.” Saxena White and Lieff Cabraser Heimann & Bernstein are serving as co-lead counsel in the action on behalf of two institutional investors.

The case arose out of Wells Fargo’s high pressure sales culture, where bankers were given unreasonably high sales quotas and were threatened with termination if they failed to meet those goals. To avoid being fired, thousands of Wells Fargo employees across the country fraudulently opened more than two million unauthorized deposit and credit accounts on behalf of customers. This high pressure sales culture allowed Wells Fargo to achieve its goal of becoming the industry leader in “cross-selling”—the sale of multiple banking products to the same customer.

Dubbed “the scandal of the year” by Wall Street Journal readers, the resulting fallout has inflicted severe damage on the company and its shareholders. In addition to fines of $185 million assessed by the Consumer Financial Protection Bureau and other agencies, a number of states, including California, Ohio, and Illinois, and the cities of Seattle and Chicago, have suspended doing business with Wells Fargo. A study released last October showed that the bank stands to lose $99 billion in deposits, $4 billion in revenue, and 30% of its customer base as a result of the scandal. In Congressional hearings, Stumpf was harshly criticized by a number of Senators. In one memorable exchange, Senator Elizabeth Warren accused the CEO of “gutless leadership” and said he should be criminally investigated. Stumpf resigned as CEO shortly thereafter.

In its order denying defendants’ motion to dismiss, the court stated that the allegations in the complaint “create a reasonable doubt as to whether a majority of the Director Defendants face a substantial likelihood of liability as to Plaintiffs claims.” The court emphasized that Wells Fargo’s directors consciously disregarded their fiduciary obligations because “Wells Fargo’s success was dependent upon cross-selling, which was in turn dependent upon the same strict sales quotas that drove employees to create fake accounts.”