Gap Diversity Case Pits Corporate Bylaws Against Stockholders

A Gap Inc. shareholder suing to improve the clothier’s diversity efforts will battle current and former directors before the full Ninth Circuit over a corporation’s ability to use its bylaws to knock out a derivative claim filed on its behalf.

The judges may even address whether the species of derivative claim advanced by the stockholders—one arising from proxy statements—exists at all. And the case could create a circuit split, opening a path to the US Supreme Court.

Gap’s bylaws say all shareholder suits brought on its behalf—derivative suits—must be heard in Delaware state court. But some derivative claims, including one ...