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Wells Fargo & Co. on Tuesday urged a California federal judge to dismiss claims against three of its executives in a derivative lawsuit filed by shareholders. The shareholders allege that the bank's leadership failed to address discriminatory lending and hiring practices, but Wells Fargo argues that the investors did not explain why they could not have raised their concerns with the company’s board before taking the matter to court.

During a hearing before U.S. District Judge Trina Thompson in San Francisco, a lawyer for Wells Fargo argued that the second amended complaint still doesn’t explain why the investors felt there was no point in approaching the bank's board of directors with concerns related to the three executives before filing the lawsuit. The operative 170-page complaint, filed in October, lodges claims against 14 current and former bank directors, as well as four officers. The motion to dismiss seeks to dismiss three of the four officers from the lawsuit: Senior Executive Vice President and Chief Operating Officer Scott Powell; Carly Sanchez, a senior executive in human resources at Wells Fargo who served as vice president of talent acquisition and diversity recruiting from 2013 to 2022; and Senior Executive Vice President and CEO of Consumer Lending Kleber Santos.

In a letter to the parties before Tuesday’s hearing, Judge Thompson noted that the new allegations regarding demand futility addressed several counts, including breach of fiduciary duty. She pointed out that the officer defendants' oversight of discriminatory lending and hiring practices will implicate a different set of facts than the breach of duty claim against the board of director defendants, who are also named in the litigation. A lawyer for the three executives, Leonid Traps of Sullivan & Cromwell LLP, argued that, for that reason, the count should be dismissed.

Traps also argued that the allegations against the officers are not consistent with the claims against the directors, as the shareholders contend. “The directors and officers are obviously different people,” Traps said. “They make different statements on different dates, and critically, they knew different things.” The lawyer also argued that the plaintiffs had not alleged that a majority of the board “is somehow beholden to the officers,” so they can't claim that a demand to the board would have been futile.

“There are no new facts in the latest version of the suit, just arguments saying that a demand would have been futile because the claims applied the same to both the directors and the executives,” Traps told the court. “Nothing prevented plaintiffs from first making the demand, at least on these claims against the officers,” Traps said. “They did not. They never gave the directors an opportunity.”