Wells Fargo & Co. defended the board of directors’ oversight systems amid racial discrimination scandals involving the bank’s mortgage lending and employee hiring practices at a hearing before a San Francisco federal judge.
The bank, facing a lawsuit from shareholders over the two scandals, argued Tuesday that the plaintiffs didn’t show that the board “utterly failed” to implement systems to monitor racial disparities in mortgage lending and hiring, which is the standard under Delaware law, where the bank is incorporated.
The shareholders sued the bank in 2022 in the US District Court for the Northern District of California, arguing the board of directors made no good faith attempt to monitor and report on “mission critical” issues around lending and hiring.
The suit stems from reporting by Bloomberg News revealing the bank approved home mortgage loans to Black and Hispanic applicants at a disproportionately lower rate than White applicants. And the suit also draws from reporting by the The New York Times finding that the bank gave sham job interviews to minority candidates in order to fulfill a company rule of considering diverse candidates.
Wells Fargo moved to dismiss the case in June.
Judge Trina L. Thompson asked Wells Fargo’s attorney where the court should draw the line to determine whether the board utterly failed in its monitoring duties.
“‘Utterly’ means not trying at all,” said Wells Fargo’s attorney Christopher Viapiano of Sullivan & Cromwell LLP. He said the shareholders’ complaint points to detailed board meeting minutes from one meeting that show the members were discussing issues about discriminatory lending.
The shareholders’ attorney Lesley Weaver, of Bleichmar Fonti & Auld LLP, said that one discussion wasn’t enough, and that the board failed to create specific committees to monitor racial disparities in lending and hiring.
“What is required here is reasonable or regular reporting,” Weaver said. “That didn’t occur here with either the lending or hiring issues.”
Other discussions or evidence of the board acting on the scandals was largely after they occurred or for public relations purposes only, she said.
The hearing before Thompson comes shortly after she ruled that Wells Fargo must face a similar lawsuit from shareholders over the sham job interviews scandal. The judge found that 11 statements made by the bank about its diverse hiring policy were misleading.
The attorneys for the shareholders at the Tuesday hearing argued that her ruling in that case should guide how she thinks about this case.
Cotchett Pitre & McCarthy LLP and Motley Rice LLC also represent the shareholders.
The case is In re: Wells Fargo & Co. Hiring Practices Derivative Litigation, N.D. Cal., No. 3:22-cv-05173, 8/27/24.
