WeWork may not have been able to complete its once-planned IPO, but even so it now has something that many IPO companies often experience – a shareholder class action lawsuit. On November 4, 2019, a WeWork investor filed a lawsuit in California state court on behalf the company’s minority shareholders as well as on behalf of the company itself. As discussed below, the shareholder complaint makes a number of interesting allegations and raises some interesting issues as well.
Background
WeWork is a real estate and office share company. It was founded in 2010. Among its founders was Adam Neumann, who until recently served as WeWork’s CEO. At one time the company had over 5,000 employees and facilities in over 200 locations around the world. One of the company’s major investors is SoftBank, the multinational investment company led by Masayoshi Son.
In January 2019, WeWork announced that it was rebranding itself as The We Company and stated its valuation as $47 billion. In August 2019, the company announced its plans to go public. The company immediately drew sharp public criticism for its governance, share structure, and finances, among many other things. In September 2019, the company pulled its plan offering. Shortly thereafter, Neumann resigned his CEO position. At the same time, SoftBank agreed to take a controlling position in the company in a transaction that valued the company at about $8 billion.
The complaint seeks unspecified damages, and also seeks to block WeWork and SoftBank from further buybacks of minority shareholders’ shares.
Discussion
The new WeWork lawsuit is interesting and noteworthy largely because of the massive publicity that surrounded the company, its founder, and the company’s failed attempt to go public. The lawsuit seems like the latest act in the unfolding morality play in which the company has recently been involved.
There undoubtedly are many lessons from WeWork’s dramatic fall. At a minimum, the company is the latest example of the so-called Unicorns – privately held companies with massive valuations – that has fallen from its lofty heights.
There probably is a lot more that can be said for investment firms that pump massive amounts of money into what are essentially start-up companies, driving for ever loftier valuations, rather than economically viable enterprises. I will leave to others to try to sort out the issues and conclusions under that heading.
For those of us active in the management liability field, the circumstances – and in particular, the new lawsuit – are interesting for what it may say more generally about private company management liability. To be sure, WeWork may represent its own unique set of circumstances. Its size, the characteristics of its CEO, and other attributes of the company may make it unrepresentative concerning the risks private companies in general. Nevertheless, the circumstances and the lawsuit do provide an example of how a private company can become involved in shareholder litigation, and in this case, a shareholder class action lawsuit. Private companies can, and sometimes do, face very serious claims, and among them are claims brought by shareholders.
A. Did the corporate directors/officers owe a duty to the shareholders? and if so - how was that duty breached?