McCormick
WILMINGTON, Del. - The founder and two directors of realty company eXp may be liable to shareholders for failing to do anything about widespread reports of sexual abuse within the company, including a 2020 Facebook post by an agent and later arrest of a top executive for sexual assault, a Delaware court ruled.
There were enough “red flags” for eXp founder and Chairman Glenn Sanford and other directors to take action long before they did, Chancery Court Judge Kathaleen McCormick wrote in a Jan. 16 decision. She stopped short of allowing claims against a “control group” of shareholders including Sanford, but said the derivative complaint against directors can proceed.
Several high-ranking executives of eXp including Michael Bjorkman and David Golden had a practice of drugging female agents at company events and raping them, sometimes taking photos and videos they used to blackmail them into silence, the court said. Structured as a multilevel marketing firm, eXp executives collected a share of the money that agents in their “downline” earned, with Sanford sharing in the earnings of everyone.
That structure gave directors an incentive to hush up growing reports of sexual misconduct, the judge wrote, since that would jeopardize their own earnings. Director meeting minutes from 2020 through 2022 show zero mention of anyone discussing sexual misconduct, even after Bjorkman was arrested in 2020.
The first mention of misconduct in the compliance committee minutes came in May 2022, although the committee met every two weeks. Hundreds of people commented on the Facebook post in 2020, where an eXp agent accused another employee of assaulting her. Seven other women commented they had been drugged and raped at eXp events.
“It is hard to believe that no one thought to tell any of the eXp Board members about the accusations in the post, Bjorkman’s arrest, or the reasons for Bjorkman’s termination,” the judge wrote.
The directors argued they didn’t know about the allegations before mid-2022 but one director, identified as “The Whistleblower,” wrote a memo to the board in April of that year urging them to launch an independent investigation.
“The likelihood that these incidents will be reported to the media or as a legal challenge increases daily,” the director wrote. “It may not be tomorrow, next year, or in 5 years, however, it will become public at some point.”
The board refused. The Whistleblower isn’t identified, but she left the board after her nomination was withdrawn in June 2022, the same time Felicia Gentry left for that reason.
Four eXp agents sued the company in February 2023 and another group did the same in December, a day before the New York Times published an expose on the scandal.
Sexual misconduct and litigation of this scale is “corporate trauma” enough to hold directors liable for violating their fiduciary duty, the judge ruled. Plaintiffs also sued a “control group” led by Sanford that owned 50% of the stock with a legal agreement to vote together. The judge said Delaware law hasn’t extended fiduciary liability to such a group yet and she wasn’t going to break new ground.
She did allow claims to proceed against Sanford and directors Monica Weakley and Randall Miles, saying it would be futile for plaintiffs to first demand the board sue the directors itself. Lead plaintiff Los Angeles City Employees Retirement System is represented by Bernstein Litowitz.
