A group of around 100 institutional investors are reportedly preparing a case against Boohoo in what could prove to be one of the most striking supply chain-centric lawsuits in fashion. “Sovereign wealth funds and local councils are among a group of investors plotting a £100 million lawsuit against Boohoo after allegations of modern slavery wiped more than £1 billion from the company’s value,” the Sunday Times revealed this week, stating that the potential suit will seek compensation for shareholders who suffered losses after allegations of forced labor in Boohoo’s factories came to light in 2020.
A Bit of Background: Boohoo made headlines a few years ago following a Sunday Times investigation, which found illegal working conditions and low pay in factories tied to Boohoo in Leicester, a city in England’s East Midlands region. Boohoo commissioned an independent review of its supply chain in July 2020 following media reports in furtherance of which auditor Alison Levitt found that “allegations about poor working conditions and low rates of pay in many Leicester factories are … substantially true.”
In her report, Levitt stated that “Boohoo’s monitoring of its Leicester supply chain was inadequate, and this was attributable to weak corporate governance.” Senior directors for the UK-headquartered fast fashion retailer “knew for a fact that there were very serious issues about the treatment of factory workers in Leicester,” according to Levitt, and while Boohoo “put in place a program intended to remedy this, it did not move quickly enough.”
$$$ … The fallout from the media reports and subsequent audit has caused Boohoo’s share price to fall by 85% over the past five years. Once worth more than £4B, LSE-traded Boohoo’s market cap is now down to $406.5M.
It is not yet clear what causes of action – if any – will be waged against Boohoo and whether its directors and officers will be named as defendants in what appears to be a stock-drop lawsuit in the making. But the possibility of individuals associated with the company being named as defendants is not out of the question: One need not look further than the case that ClientEarth filed in an English High Court in Feb. against Shell’s Board of Directors for “failing to move away from fossil fuels fast enough” as an example of such a course of action. In particular, ClientEarth – in its capacity as a (minority) Shell shareholder – alleged that Shell’s 11 directors failed to manage the “material and foreseeable” risks posed to the company by climate change.
Siding with Shell’s board in May, the judge held that ClientEarth’s case “ignores the fact that the management of a business of the size and complexity of that of Shell will require the directors to take into account a range of competing considerations,” and that courts should not be in the business of interfering.
The Bigger Picture: Nonetheless, the lawsuit – which was “the first ever case of its kind seeking to hold corporate directors personally liable” – may be an indication of where litigation in the sustainability/ESG space is going. In a note this spring, Dentons attorneys stated that “other climate-focused NGOs and interest groups will no doubt be looking at similarly novel ways to bring ESG claims highlighting contributions that specific companies make to climate change” (or ESG and supply chain issues more broadly). And regardless of the outcome in the Shell case, “other claims are likely to follow seeking to impose personal liability on directors as a way to further ESG agendas.”
Looking beyond big oil, retail will almost certainly not be immune to the growing trend of shareholders and other stakeholders using litigation to hold companies and their directors accountable regarding ESG issues. Stay tuned – and in the meantime, we dove into the rise of claims against companies’ directors for ESG breaches, which you can find here.
– Shein v. Temu and Temu v. Shein: The two Chinese ultra-fast fashion rivals seem to have settled a two-pronged legal clash, filing joint stipulations of voluntary dismissal (without prejudice) with federal courts in Massachusetts & Illinois this week. (For background on Shein’s “impersonation” case against Temu, you can find that here. And for Temu’s case, in which it accused Shein of anti-competition, that is right here.)
– Yuga Labs v. Ryder Ripps: Following a bench trial, the court awarded Yuga $1.38M of the profits that Ryder Ripps made from the sale of the RR/BAYC NFTs, $200,000 in statutory damages, and attorneys’ fees and costs in a case over “copycat” NFTs. Beyond that, the court issued a permanent injunction, which requires Ripps and co. to transfer several domain names & Twitter handles (including rrbayc.com) and to relinquish control of the RR/BAYC NFTs smart contract. (You can find the Findings of Fact and Conclusions of Law here.)
– Graham v. Ye: The latest celebrity to land on the receiving end of a copyright infringement lawsuit is Ye, who allegedly posted another party’s video – of himself – on his Instagram without authorization.
The biggest deal news of the week come on Monday when Richemont revealed that the European Commission has “unconditionally” cleared the path for Farfetch’s acquisition of a 47.5 percent stake in Yoox Net-a-Porter (“YNAP”) from Richemont in exchange for the issuance of Farfetch Class A ordinary shares. The European market regulator was the last regulatory authority required to provide clearance for the highly-anticipated deal that the parties announced this past summer.