The D&O Diary

The D&O Diary

A PERIODIC JOURNAL CONTAINING ITEMS OF INTEREST FROM THE WORLD OF DIRECTORS & OFFICERS LIABILITY, WITH OCCASIONAL COMMENTARY

Advisen Releases 2014 First Half Corporate and Securities Litigation Report

Posted in Securities Litigation

PrintThe level of all corporate and securities filings continued to decline in the second quarter of 2014 as filing activity returns to levels that prevailed before the financial crisis, according to the latest quarterly D&O claims activity report of Advisen. According to the report, filing levels in the second quarter reflected the “fewest securities and business litigation filings and enforcement actions in the post financial crisis era.” However, securities class action filings bounced back in the second quarter after a “downward fluctuation” in the first quarter. A copy of the Advisen report can be found here. My analysis of first half securities class action litigation filings can be found here.

 

It is important to understand that the Advisen report differs in significant respects from other published reports of securities litigation activity. The other published reports discuss only the levels of securities class action filings, whereas the Advisen report captures a broader sweep of corporate and securities litigation, including regulatory enforcement actions, individual securities actions, breach of fiduciary duty lawsuits and even foreign litigation. In addition, Advisen uses a counting methodology that differs from that used by other reporting sources, which count each action as a single suit no matter how many complaints are filed and no matter how many defendants are named. By contrast, Advisen “counts each company for which securities violations are alleged in a single complaint as a separate suit.” As a result of these features of Advisen’s approach, the figures Advisen reports may appear different from other reported figures.

 

According to Advisen, the quarterly decline in securities and business litigation filings puts filing activity in 2014 on pace for its third straight year of declines in litigation filings levels. Corporate and securities litigation filing levels declined in the second quarter by 26 percent from the first quarter of this year, and declined 25 percent compared to the second quarter of 2013, as the total number of events dropped from 303 to 227. Exhibit 1 to the report graphically depicts filings levels since 2005 and clearly shows that 2014 filing activity is on pace for its lowest level since 2008.

 

In contrast to the overall levels of corporate and securities litigation filing activity, securities class action litigation filings actually increased in the second quarter. According to the Advisen report, there were 44 new securities class actions filed in the second quarter, compared to 39 in the first quarter. The first-half total of 83 projects to a year-end filing total of 166, which is close to the 2013 filing level. (For example, Cornerstone Research tallied the 2013 year-end total of securities class action filings as 166.)

 

 

For the past several years, securities class action litigation as a percentage of all corporate and securities litigation had been declining. However, with the overall decline in the corporate and securities lawsuit filings and the increase in the number of securities class action litigation filings in the second quarter, the percentage that securities class action lawsuit filings represent of all corporate and securities lawsuit filings has increased. In the second quarter, securities class action lawsuit filings represented 20 percent of all filings. On an annualized basis, 2014 is on pace to be the third consecutive year in which securities class action lawsuit filings increased as a percentage of all corporate and securities litigation  filings.

 

While securities class action lawsuit filings are up as a percentage of all corporate and securities filings, the number of new securities class action lawsuits is down from the longer term historical average. For example, Cornerstone Research reports that the 1997-2012 average annual number of securities class action lawsuits was 192, well above the projected number of 2014 securities class action lawsuit filings of 166. According to the Advisen report, “the general decline in the number of securities class actions may be driven by factors such as a reduction in the number of companies traded on the U.S. Stock Exchange or the winding down of credit crisis litigation.”  The longer term trend “may also reflect a change in emphasis by plaintiffs’ firms.”

 

The sector experiencing the greatest number of corporate and securities lawsuits is the financial sector, as has been the case in every quarter since the beginning of the financial crisis. According to the Advisen report, 27 percent of all corporate and securities filings in the second quarter involved companies in the financial sector. Though this level is down compared to 2008, when financial firms were involved in 40 percent of all corporate and securities litigation, financial firms remain the leading sector for new filings.

 

One of the most noteworthy trends in corporate and securities litigation has been the explosion in recent years of M&A-related litigation. Various reports have noted that lawsuits are now filed in connection with virtually every M&A transaction. The most recent Advisen report notes that while M&A litigation increased dramatically through 2011, in the last two years, the trend in terms of absolute numbers of lawsuit filings has been downward. However, the report reflects only absolute numbers of M&A lawsuit filings; it does not attempt to express the M&A related litigation activity as a reflection of the levels of underlying merger and acquisition activity.

 

The report also notes that in the second quarter foreign firms were involved in fifteen percent of all corporate and securities litigation filings, the same level as in the first quarter. The average settlement cost for all types of cases in the second quarter was $16 million, up from $14 million in the first quarter, but well below the $41 million reported in the second quarter of 2013.

 

Advisen Quarterly Claims Trends Webinar: On Thursday July 24, 2014, I will be participating in a free Advisen webinar on the topic of Quarterly D&O Claims Trends. The hour-long call will begin at 11:00 am EDT. The webinar will also include Brenda Shelley of Marsh, Paul Rodriquez of Swiss Re Corporate Solutions, and Jim Blinn of  Advisen. For additional information about the webinar and to register, please refer here.

 

PLUS Professional Liability Regional Symposium in Singapore: On August 21, 2014, I will be participating in the Professional Liability Insurance Society (PLUS) Regional Professional Liability Symposium in Singapore. This evening  event, which will take place at the Singapore Cricket Club, will include a keynote presentation from Chelva Rajah of the Tan, Rajah & Cheah law firm. I already know that many industry professionals in the region plan to attend. I hope that everyone in the region will plan to attend and will encourage others to attend as well. Information about the event including registration can be found here.

Management Liability Insurance and Immigration Enforcement

Posted in D & O Insurance

kansasIn a May 1, 2014 opinion (here), District of Kansas Judge Sam A. Crow, applying Illinois law, held that neither the EPL insurance coverage part nor the D&O insurance coverage part of a restaurant company’s management liability insurance policy covered the defense fees incurred or the forfeiture amount ordered in an immigration enforcement proceeding that resulted in the company’s entry of a guilty plea to a criminal charge.

 

The court held that the immigration enforcement proceeding did not involve “Wrongful Employment Practices” as required for coverage under the EPL coverage part and did not involve a Claim within the meaning of the D&O coverage part because the criminal proceeding did not involve an adjudication of liability “for damages or other relief.” Judge Crow also held that in any event the forfeiture ordered as a result of the guilty plea was not covered under the policy.

 

A July 22, 2014 memorandum from the McGuire Woods law firm about Judge Crow’s opinion can be found here.

 

Background 

McCalla Corporation operates McDonald’s restaurants. In August 2012, McCalla learned it was a target of a U.S. Immigration and Customs Enforcement investigation. In September 2012, the company received a search warrant. The government subsequently entered a one-count criminal information against the company.

 

On December 3, 2012, the company entered a plea to the criminal charges, admitting among other things that McCalla’s director of operations was aware that one its McDonald’s restaurant store manager’s I-9 form identity documents were expired or invalid. Two days after the supervisor advised the manager of the problem, the manager presented the supervisor with a “resident alien” card “that the supervisor knew did not appear to be genuine” yet the supervisor took no further action. The supervisor was also aware that “it took weeks, not two days, for a foreign national to obtain a ‘resident alien’ card, giving him further reason to know that the resident alien card …was not genuine.” McCalla was ordered to pay a $300,000 fine and a $100,000 forfeiture.

 

McCalla sought to have its management liability insurer pay its costs of defending the criminal proceeding as well as the $100,000 forfeiture. The management liability insurer denied coverage for the claim. McCalla filed an action in the District of Kansas seeing a judicial declaration that the insurer owed McCalla a duty to defend the company in the immigration proceeding and also was obligated to pay the $100,000 forfeiture. The parties filed cross- motions for summary judgment.

 

The EPL coverage part of the management liability insurance policy defined “Wrongful Employment Practices” to include “wrongful failure or refusal to adopt or enforce adequate workplace or employment practices, policies or procedures.”  However, the policy further provides that Wrongful Employment Practices are covered “only if employment-related and claimed by or on behalf of an Employee, Former Employee or applicant for employment.”

 

The D&O coverage part of the management liability insurance policy defined the term “Claim” to mean “a civil, criminal, administrative or regulatory proceeding commenced against any Insureds in which they may be subjected to binding adjudication or liability for damages or other relief.”

 

The May 1 Order 

In his May 1, 2014 order, Judge Crow denied McCalla’s motion for summary judgment and granted the insurer’s motion for summary judgment.

 

Judge Crow held that the EPL coverage part did not cover the claim because the criminal proceeding was not “claimed by or on behalf of” an employee, former employee, or applicant, but rather was brought by prosecutors acting on behalf of U.S. regulators.  Judge Crow said that the plaintiff had not provided an interpretation of the policy that “would justify reading this plain language out of the contract, as is necessary to trigger Defendant’s duty to defend.” Judge Crow added that doing so “would defeat the purpose of EPL coverage, which is necessarily limited to enumerated acts claimed by employees, former employees and prospective employees.” Judge Crow also held that the forfeiture does not constitute covered “Loss” under the EPL coverage section.

 

Judge Crow held that the claim was not covered under the D&O coverage part because the criminal proceeding did not meet the D&O coverage section’s definition of “Claim.” While the term claim encompassed a “criminal” proceeding, the definition specifies that the proceeding must represent an adjudication of liability “for damages or other relief.” The Court said that the plaintiff provided “no reasonable construction” of the definition that would “permit the Court to find that the search warrant process or the filing of the information  .. could subject the Plaintiff to an adjudication of liability for damages or to an adjudication  of liability for other relief.” Judge Crow also concluded that the forfeiture did not meet the definition of Loss in the D&O coverage section.

 

Finally Judge Crow held that even if the insurer had breached its duty to defend under either the EPL coverage section or the D&O coverage section the plaintiff “has shown no damages from any breach of that duty.” McCalla’s criminal plea and sentencing represented “a final adjudication of a criminal act,” and therefore fell within the conduct exclusions found in both coverage sections. Even if the insurer had paid the company’s defense expenses prior to the guilty plea, the company “would need to repay those amounts now.” Judge Crow added that the company “cites no cases in which a breach of the duty to defend or to pay defense costs was found where the insured was found guilty of the criminal offense and the policy contained a criminal adjudication exclusion, as here.”

 

Discussion 

It is a statement of the obvious that immigration enforcement is a matter of serious concern for every employer in the United States. Employers undoubtedly would want reassurance that if they are hit with an immigration enforcement action that their costs of defense, at least, would be paid by their management liability insurer. Unfortunately, as was the case for McCalla here, there likely will be no management liability coverage even for defense costs incurred in defending against immigration proceedings that result in a criminal guilty plea or a criminal conviction, as no management liability insurance policies will provide coverage for an adjudicated criminal conviction. As Judge Crow noted, even if the insurer had advanced defense fees prior to the guilty plea or conviction, the insurer would be entitled to have the amount of those advanced fees reimbursed following the conviction.

 

However, the absence of coverage in the event of a guilty plea or conviction is hardly the end of the analysis. At a minimum, companies hit with immigration enforcement actions would want to have their defense fees advanced during the pendency of the proceeding and in any event would want to know that their defense fees would be paid if they are successful in defending the immigration enforcement action. And on that score, this case shows nothing so much as how much depends on the precise wording of the policy. Here, the specific wording of the relevant coverage parts at issue resulted in Judge Crow’s determination that there is no coverage under either coverage part. However, the relevant wordings in this policy differed significantly from other coverage terms and conditions available in the marketplace.

 

The policy at issue here offered coverage only for claims by employees, former employees and applicants. However, many EPL policies available in the market place include Third Party Liability Coverage, or the carriers offer Third Party Liability coverage as an option. This coverage extends the EPL coverage to claims brought by third parties. However, depending on the wording of the Third Party Coverage part, the policy might or might not extend to the type of claim here. Many EPL policies offering this coverage limit the definition of Third Parties to “natural persons.” Other polices’ definition of Third Party Claims omit criminal proceedings from the definition. Thus it would not be sufficient to bring the type of immigration enforcement action here within the scope of the EPL coverage for the policy to include Third Party liability coverage; the policy’s definition would have to be broad enough to encompass claims by the government and broad enough to encompass criminal proceedings. In addition, one or more exclusions found in the EPL coverage part might also operate to preclude coverage for an immigration enforcement action.

 

The possibility for coverage under the D&O coverage part is perhaps more promising. Here the insured ran afoul of an infelicitous wording in the definition of claim, where the phrase “adjudication of liability for damages or other relief” was found to modify not only “civil … administrative or regulatory” proceeding but also to modify a “criminal” proceeding. Because all of these various named types of proceedings are telescoped together into a single phrase, the impression is created that the phrase “damages or other relief” was meant to apply to “criminal proceedings.” However, for policies in which the definition of “claim” is subdivided with each of these types of proceedings having its own separate subpart, the intent of the policy is clearer and in particular there is no mistake that the phrase “damages or other relief” or its equivalent applies  to “criminal proceedings.” Policyholders whose policies have this clarifying definition of “claim,” could hope to have their costs of defending a criminal immigration enforcement proceeding advanced, and in the absence of a guilty plea, covered.

 

As the McGuire Woods memo linked above puts it, when it comes to coverage for immigration enforcement actions, “the particulars of the policy language dictate the extent of coverage.” According to the memo, which is quite critical of the opinion, Judge Crow’s ruling is on appeal to the Tenth Circuit.

 

Director and Officer Liability for Environmental Enforcement Actions: As I have noted on this blog, environmental enforcement actions can result in findings of liability against the individual directors and officers of companies that caused environmental damage or harm. In an interesting July 22, 2014 article in the Arizona State Law Journal entitled “Liability of Parent Corporations, Officers, Directors and Successors: When Can CERCLA Liability Extend Beyond the Company?” (here), Michelle De Blasi of the Gammage and Burnham law firm takes a look at the broad reach of the joint and several liability regime under the Comprehensive Environmental Response Compensation and Liability Act. (CERCLA).

 

The article covers a lot of ground but among other things it examines the circumstances under which directors and officers can be personally liable under CERCLA. The author also briefly reviews a number of specific cases where individuals have been held liable under CERCLA or for environmental reporting.

Guest Post: Bylaws and Arbitration

Posted in Director and Officer Liability

Allen_Claudia_2013_Color[1]For many years, business groups and corporate representatives have tried to reform shareholder litigation through legislation and case law development, with mixed success. However, in more recent years an interesting new initiative has emerged – the attempt to achieve litigation reform through amendments to corporate bylaws. This effort received a significant boost last year when the Delaware Chancery Court upheld the validity of a forum selection bylaw, designating the preferred forum for shareholder litigation.

 

The initiative was even further advanced earlier this year when the Delaware Supreme Court upheld the validity of a fee-shifting bylaw, which requires an unsuccessful litigant in shareholder litigation to pay their adversaries legal expenses. The future prospects for this type of bylaw are uncertain at the moment as the Delaware legislature considers whether or not to prohibit Delaware stock corporations from using this type of bylaw.

 

Along with these other litigation reform bylaws initiatives, the most interesting and arguably most controversial proposal is the use of bylaws requiring shareholder disputes and claims to be resolved through binding arbitration. As discussed here, several courts have now upheld the validity of these types of bylaws, which may encourage other companies to consider adopting bylaws requiring shareholder disputes to be arbitrated.

 

In the following guest post, Claudia Allen of the Katten Muchin law firm describes her recent article in which she reviews the legal, policy and practical issues that these kinds of mandatory arbitration bylaws present. She also reviews the obstacles that companies attempting to adopt these kinds of bylaws might face, as well as the kinds of issues that companies considering adopting these kinds of bylaws might want to take into account.

 

I would like to thank Claudia for her willingness to publish her guest post on my site. I welcome guest post submissions from responsible authors on topics of interest to readers of this blog. Please contact me directly if you are interested in submitting a post. Here is Claudia’s guest post:   

 

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                Bylaws Mandating Arbitration of Stockholder Disputes? (forthcoming Delaware Journal of Corporate Law, available at http://ssrn.com/abstract=2444771) examines the legal, policy and practical issues raised by bylaws that would mandate arbitration of stockholder disputes and eliminate the right to pursue such claims on a class action basis.  The article also analyzes the limited number of arbitration bylaws that have been adopted or proposed and related case law concerning the validity and enforceability of these provisions.

 

                Bylaws was prompted by late June 2013 decisions from the United States Supreme Court and the Delaware Court of Chancery, which, when read together, suggested that such bylaws should be enforceable.  In American Express Co. v. Italian Colors Restaurant, the United States Supreme Court, interpreting the Federal Arbitration Act, upheld a mandatory arbitration provision, including a class action waiver, in a commercial contract.  The decision focused upon the arbitration provision as a contract subject to the FAA.  Next, the Delaware Court of Chancery rendered its opinion in Boilermakers Local 154 Retirement Fund v. Chevron Corp. The decision, which emphasized that bylaws are contracts between a corporation and its stockholders, upheld bylaws adopted by the boards of Chevron Corporation and FedEx Corporation requiring that intra-corporate disputes be litigated exclusively in Delaware courts.

 

                Subsequent United States Supreme Court and Delaware Supreme Court decisions addressing forum selection and a board’s unilateral power to adopt bylaws have only strengthened the argument for enforceability. For example, the United States Supreme Court views an arbitration clause as a specialized kind of forum selection clause, and in December 2013 reiterated the strong presumption in favor of the validity of arbitration provisions in Atlantic Marine Construction Company, Inc. v. United States District Court for the Western District of Texas. While Boilermakers was a Delaware trial court decision, and thus not a definitive statement of Delaware law, the Delaware Supreme Court effectively endorsed Boilermakers and the validity of board-adopted bylaws that may deter litigation in its May 2014 ATP Tour, Inc. v. Deutscher Tennis Bund (German Tennis Federation).  That opinion upheld the validity of “loser pays” bylaws.

 

                In addition to complementing each other, both American Express and Boilermakers address a similar issue, namely, the explosion in class action and derivative litigation that settles primarily for attorneys’ fees, most commonly in the context of mergers and acquisitions.  Stockholders ultimately bear the costs of such litigation. Class actions and derivative lawsuits are forms of representative litigation, in which named plaintiffs seek to act on behalf of a class of stockholders or the corporation itself.  The plaintiffs are customarily represented by attorneys on a contingent fee basis, making the lawyer the “real party in interest in these cases.”  If mandatory arbitration bylaws barring class actions were enforceable, the logical outcome would be a marked decline in class actions, since the alleged existence of a class is a principal driver of attorneys’ fees.

 

                Bylaws analyzes potential obstacles to adopting arbitration bylaws, including the policy of the Securities and Exchange Commission staff against allowing companies with arbitration provisions in their organizing documents to go public. This policy, which does not apply to companies that are already public, is based upon the notion that stockholders would be forced to waive rights under the securities laws, thus violating the “anti-waiver” provisions in such laws. Yet, the Staff’s position is at odds with Supreme Court precedent finding that agreements to arbitrate are not waivers of substantive rights.  Corporations could, however, overcome this issue by excluding securities claims from the scope of an arbitration clause.

 

                Mandatory arbitration bylaws are also likely to attract significant negative stockholder sentiment, at least initially, particularly if they include a class action waiver.  This would be consistent with the reaction of consumer advocates to the Supreme Court’s decisions upholding arbitration in commercial agreement, and the initial reaction of stockholder advocates to exclusive forum and fee-shifting provisions in certificates of incorporation and bylaws.  Bylaws examines potential avenues for stockholders to express opposition, including seeking repeal.  

 

                Perhaps a more fundamental question is whether public companies will support arbitration.   While arbitration is often viewed by opponents as favoring corporations, and is widely used in the financial services industry, corporations have a range of viewpoints on arbitrating.  Arbitration theoretically offers speed, lower costs, confidentiality and the ability to influence the selection of the arbitrator.  However, since arbitration is final and non-appealable, except in extremely limited circumstances, it is also less predictable.  Predictability may be of less concern when the amounts in controversy are relatively small, but, in connection with securities class actions and derivative claims, the stakes can be high, making arbitration of such claims less attractive.  

 

                Since arbitration is fundamentally a creature of contract, Bylaws argues that there are opportunities for corporations to craft arbitration bylaws that take into account company-specific concerns, while responding to many likely criticisms.  For example, carving out claims in excess of a specified high dollar threshold, and providing that such claims would be litigated, would address company concerns about unpredictability.  Providing that arbitrators’ decisions (perhaps including brief findings of fact and conclusions of law) will be made public could, for those corporations interested in making the arbitration process more transparent, answer critics who believe that arbitration occurs in a black box and automatically disadvantages individuals. However, the inherent bias of some stockholders and corporations against arbitration is likely to make experimentation in this area slow and difficult.      

 

On the Frontiers of Corporate Litigation and Liability: Inversion Transactions and a Proposed Duty to Warn

Posted in Director and Officer Liability

frontierAmong the developments dominating the business headlines in recent weeks have been two unrelated stories – the rising wave of so-called “inversion” transactions in which U.S. companies acquire foreign firms to avoid U.S. tax laws and the revelation of previously undisclosed problems with the ignition switches in certain GM cars that allegedly resulted in numerous passenger deaths. While these stories are unrelated, both are generating a great deal of concern in Washington. And both represent potentially significant developments at the frontier of corporate litigation and liability.

 

Inversion Transactions 

On July 18, 2014, drug maker AbbVie became the latest company to enter into a business deal as part of the trend of U.S. companies acquiring overseas firms to establish headquarters outside the U.S. and avoid U.S .tax laws. As discussed in a July 19, 2014 Wall Street Journal article about the transaction (here), AbbVie will pay a total of $54 billion to acquire Shire PLC. Shire is based in Dublin and incorporated in the U.K. tax haven Jersey. By moving its headquarters overseas, AbbVie will, according to the Journal, by 2016 lower its tax rate to 13% from the current 22%. The move will also allow the company to avoid U.S. taxes upon the repatriation to the U.S. of profits earned overseas.

 

As discussed here, this type of transaction is known as an “inversion.” AbbVie joins a growing list of about 50 U.S. firms that have reincorporated overseas through inversion in the last 10 years, most of them since 2008. Because the transactions appear calculated to avoid U.S. taxes, they have become increasingly controversial, particularly among U.S. lawmakers.

 

As discussed in a July 15, 2014 Wall Street Journal article (here), the Obama administration is calling for Congress to pass legislation to restrict U.S. companies’ ability to participate in inversion transactions. Last week, U.S. Treasury Secretary Jacob Lew sent a letter to Congressional leaders calling on them to “enact legislation immediately…to shut down this abuse of our tax system.” However, the various members of Congress disagree on the appropriate solution. And there are those who are defending corporations’ resort to inversion transactions as the appropriate business response to U.S. tax laws and tax policies.

 

While it is hardly surprising that inversion transactions are controversial in Washington, it would seem given the tax benefits that they would be popular with shareholders, and that the last thing that would happen would be for a company announcing an inversion transaction to get hit with a shareholder suit. However, the environment for U.S. companies not only includes high rates of corporate taxation, but it also involves a certain inevitability about shareholder litigation. In this country’s litigious environment, even a transaction seemingly as beneficial for a company as an inversion apparently can generate a shareholder suit.

 

According to a July 17, 2014 St. Paul Pioneer Press article (here), on July 2, 2014, a shareholder of Minnesota-based Medtronic has filed a class action lawsuit in Hennepin County District Court challenging the company’s planned $42.9 billion acquisition of Ireland-based Covidien, which will result in a new company to be called Medtronic PLC. The shareholder plaintiff contends that the transaction, in which Medtronic shareholders will receive shares in the new company in exchange for their existing Medtronic shares, will result in a “substantial loss” for Medtronic shareholders. The plaintiff alleges that the shareholders will have to pay taxes on any gains on their shares, but the transaction will not generate cash out of which to pay the taxes. According to the article, the lawsuit alleges that “Medtronic shareholders will be forced to pay taxes on any gains in Medtronic stock.”

 

Washington lawmakers are scrambling to try to find the right response to the loss of U.S.-based companies and of U.S. tax revenues to lower tax jurisdictions. However, while lawmakers struggle to find the right legislative response, companies will continue to have significant incentives to consider these kinds of transaction, particularly where their competitors have pressed ahead with these types of deals and lowered their tax burdens. As the Medtronic lawsuit shows, companies pursuing these kinds of transactions not only risk attracting the ire of Washington lawmakers, but also may face the possibility of shareholder litigation.

 

GM Ignition Switches and the Failure to Warn 

According to documents released by federal safety regulators on July 18, 2014, U.S. automobile manufacturer GM knew for over 11 years about problems with the ignition switches in as many as 6.7 million vehicles but did not warn consumers or recall the switches until earlier this year.  As a result of the defect, the ignition switches can slip out of gear, shutting down the engine and knocking out power steering and brakes. Drivers can lose control of their cars, and if they crash, the air bags will not deploy. The list of recalls includes 2.6 million older small cars with faulty switches that GM has blamed for at least 13 deaths.

 

Like the inversion transactions, GM’s problems with the ignition switches have attracted the attention of Washington lawmakers. A Senate committee has been holding hearings and has taken testimony from key GM officials, including GM CEO Mary Barra and General Counsel Michael Millikin, as discussed here.

 

In addition, as discussed in a July 16, 2014 post on the Corporate Crime Reporter (here), three U.S. senators have introduced legislation that would criminalize the concealment of danger. Senators Bob Casey, Richard Blumenthal, and Tom Harkin (all Democrats) have introduced a bill entitled the Hide No Harm Act that would hold “responsible corporate officers” criminally accountable if they knowingly conceal “serious dangers” that lead to consumer or worker deaths or injuries.

 

The draft legislation (a copy of which can be found here) requires corporate officials who acquire knowledge of a “serious danger” involving a product or service of the company to  inform “an appropriate Federal agency” of the danger, and as soon as practicable, to warn affected employees and other individuals who may be exposed to the danger. The draft bill defines “serious danger” as a danger “not readily apparent to a reasonable person” that “has an immediate risk of causing death or serious bodily injury.”

 

The bill defines a “responsible corporate officer” as an “employee, director or officer of a business entity” that has “the responsibility and authority … to acquire knowledge of any serious danger” and “the responsibility to communicate information about the serious danger” to the appropriate federal agency and to employees and other individuals.

 

An individual who “knowingly violates” the duty to warn specified in the legislation “shall be fined … imprisoned under this title, or both.” The bill provides further that if a fine is imposed, “the fine may not be paid, directly or indirectly, out of the assets of any business entity or on behalf of the individual.”

 

The draft bill also provides civil liability protections against retaliation directed at individuals who report serious dangers to federal agencies, employees or other individuals.

 

The point of the legislation is obviously to impose liability directly on corporate officials for withholding information about serous dangers. According to the Corporate Crime Reporter, “under existing law, while the company eventually could face criminal fines, individual officers who knew about the deadly defect – but did not inform the public or federal regulators – cannot face any criminal charges.” The article cites other instances in addition to the GM ignition switch situation in which corporate officials have withheld information about allegedly unsafe products, including Pfizer’s alleged withholding of information about Vioxx and Toyota’s alleged withholding of information about its vehicles’ acceleration pedals.

 

While this legislation is part of a larger trend to try to hold corporate officials personally liable for corporate misconduct, it is noteworthy that the bill would impose liability only on individuals who knowingly withhold information. The legislation does not seek to impose liability simply because the individuals held senior positions at the company and had overall responsibility for the company’s operations.

 

The proposed bill will now proceed through the legislative process. Even though the bill is sponsored only by Democratic senators, it could make it through the Democrat-controlled Senate. But even if that were to happen, the possibility that the bill would survive the Republican-controlled House of Representatives seems less likely.

 

Though the legislation’s prospects are uncertain, the draft bill does represent a significant new type of potential liability for corporate officials. Individuals who face the kind of criminal charges this bill would create would of course incur significant defense expenses. These individuals likely would look to their company’s D&O insurance for payment of these expenses. D&O insurance typically will pay the individuals’ defense expenses after indictment. However, if this proposed legislation were to become law, it could be important for the bodily injury/property damage exclusion found in most D&O insurance policies to be modified, to ensure that the exclusion would not preclude coverage for these kinds of defense expenses.

 

Cybersecurity, the Financial System and Management Responsibility: Another development on the frontier of corporate litigation and liability has been the emergence of cybersecurity as the source of potential liability for corporate officials. As I have previously noted on this blog, earlier this year the boards of Target (here) and Wyndham (here) were hit with shareholder suits as a result of significant cyber breaches at those companies. And last month, SEC Commissioner Aguilar stressed in a speech that cybersecurity oversight is an important board responsibility, warning that boards that disregard that responsibility do so at their own risk.

 

On July 16, 2014, Treasury Secretary Jacob Lew became the latest official in the current administration to weigh-in on emerging cybersecurity issues. In a speech at the Delivering Alpha Conference in New York (a copy of which can be found here), Lew said that “cyber attacks on our financial system represent a real threat to our economic and national security.” He emphasized that “our cyber defenses are not what they need to be.” And while he acknowledged that the government can and should be doing more, he also stressed that “far too many hedge funds, asset managers, insurance providers, exchanges, financial market utilities, and banks can and should be doing more.”

 

Lew acknowledged that corporate officials are now doing more to try to address cybersecurity concerns, but he also stressed that “cyber security cannot be the concern of only the information technology and security departments. It should be the responsibility of management at all levels.” He also emphasized that if you are a business leader “you should know how strong your company’s defenses are, you should know if there are response plans in place” and “you should be getting regular reports on cyber security threats and what your company is doing to respond to these threats.”

 

And You Think You Have a Lot of Complications to Juggle: How about an axe, a machete and a cleaver? Or an apple, an egg and a bowling ball? Or Water? It’s Monday. Do yourself a favor — watch the video and have a laugh, along with Ron and Nancy. (Special thanks to a loyal reader for sending me a link to the video.) 

India’s Securities Regulator Imposes Massive Penalties on Satyam’s Founder and Other Executives

Posted in Director and Officer Liability

satyamOn July 16, 2014, India’s securities regulator, the Securities and Exchange Board of India (SEBI), entered an order (here) against the founder and former executives of Satyam Computer Services to disgorge over $306 million in allegedly ill-gotten gains from their role in the scheme to falsify the company’s financial statements, as well as at least $201  million in interest. A July 18, 2014 Law 360 article describing the SEBI order can be found here (subscription required).

 

As discussed here, Satyam was quickly dubbed the “Indian Enron” in early 2009 after the company’s founder, Ramalinga Raju, sent an extraordinary letter to the company’s board in which he admitted, among other things, that  ”the company’s financial position had been massively inflated during the company’s expansion from a handful of employees into an outsourcing giant with 53,000 employees and operations in 66 countries.” As much as 53.6 billion rupees (or about $1.04 billion) in cash that the company reported on its immediately prior financial statement was nonexistent. Satyam’s share price dropped 87 percent on the news.

 

Satyam, whose American Depositary Shares at the time traded on the New York Stock Exchange, was hit with a securities class action lawsuit, which also named certain of its directors and officers as defendants, as well as the company’s outside auditor, PwC.  As discussed here, in February 2011, Satyam’s successor agreed to pay $125 million to settle the claims filed against Satyam itself. In May 2011, PwC agreed to pay $25.5 million to settle the claims against the accounting firm. As discussed here, in January 2013, the claims against seven of Satyam’s outside directors were dismissed.

 

According to the India Real Time blog (here), the 65-page SEBI order in the Satyam case is “one of the first attempts to put all the pieces together” about the Satyam scandal. As discussed in July 16, 2014 Wall Street Journal article (here), the order alleges that Raju and his brother, with the help of the company’s chief financial officer and two others, created fake orders and falsified other company records to make the business appear more profitable, enriching themselves in the process.

 

SEBI said that Raju was “the chief orchestrator of the fraud” and was responsible for “deliberately conveying a false picture of Satyam Computers finances to the investing public and concerned authorities.” SEBI also said that the former Satyam executives engaged in insider trading when they sold company shares at inflated prices before the scandal broke. The order states that the executives “have committed a sophisticated white collar financial fraud with pre-meditated and well thought of plan and deliberate design for personal gains and to the detriment of the company and investors in its securities.”  The order also states that “the fraudulent acts and omissions of [the individuals] in a coordinated manner have shattered the confidence of millions of genuine and unsuspecting investors in securities of Satyam Computers and caused serious prejudice to the integrity of the securities market.”

 

According to the Journal, SEBI’s order can be appealed to a special securities tribunal and the country’s Supreme Court. Raju, his brother and several others have been charged with criminal offenses in connection with the scandal, in which, according to the India Real Time blog, a verdict is expected later this month.

 

The size of the penalty against the individuals is clearly meant to make a statement. According to the Journal, SEBI “has faced criticism from investors for a perceived lack of vigor” but “lately has seemed more assertive.” A commentator is quoted in the Journal article as stating that “this order by itself is driving a message that SEBI is going to be aggressive in dealing with fraud in the Indian Capital Markets.” (On the other hand, other commentators have criticized the regulator for dragging its feet and suggested that the order was far too late in coming.)

 

I find the order and size of the award interesting in a slightly different way. I have traveled around the world quite a bit in the last several years and attended industry conferences at which, inevitably, the aggressiveness of U.S. regulators is bemoaned. These comments usually include a lament about the lottery-sized penalties that U.S. regulators have imposed.

 

As this SEBI order demonstrates, U.S. regulators are not the only ones primed to impose large fines. Regulators everywhere, under pressure from the recent global financial crisis as well as because of the periodic outbreak of massive scandals like Satyam, increasingly are taking a more aggressive approach and increasingly are seeking to use regulatory tools to enforce their own laws and to impose penalties. These regulatory initiatives, which are emerging in countries around the world, have significant implications for companies, their executives, and their insurers.  

Despite Policyholder’s Delayed Notice, Insurer Must Cover Subsequent Claims Related to Earlier Timely Claim

Posted in D & O Insurance

eigthOn July 16, 2014, the Eighth Circuit, applying New York law, concluded that because a financial services firm’s professional liability insurance policy was ambiguous on the question whether the policy’s timely notice requirements apply to later claims related to a timely original claim, the policy provides coverage for the later claims. The district court had held that Missouri law governed the notice issue and because the insurer had not been prejudiced by the late notice, the delayed notice did not preclude coverage. The appellate court found that New York law governed rather than Missouri law but nevertheless affirmed the district court’s holding because it found the notice requirements to be ambiguous. A copy of the Eighth Circuit’s opinion can be found here.

 

Background       

George K. Baum & Company is a nationwide financial services firm based in Missouri with offices around the country, including in New York. Among other things, Baum underwrote various municipal bonds, representing them to be tax exempt. In August 2003, Baum became aware of an IRS investigation into twenty-three of its municipal bond issues. Baum timely advised its professional liability insurer of the IRS investigation and of the possibility of claims by municipal clients and bondholders. Baum’s insurer agreed to treat the IRS investigation as a claim under the policy. Baum ultimately settled with the IRS without admitting liability.

 

In 2008, Baum was hit with a series of lawsuits relating to its municipal derivatives business (the “derivatives lawsuits”). In April 2010, almost two years after the derivatives lawsuits were filed, Baum provided its professional liability insurer with notice of the suits. The insurer denied coverage for the derivatives suits on the grounds that the suits were not claims made during the period when its policy was in force.

 

In January 2011, Baum filed an action in the Western District of Missouri against its insurer alleging breach of contract and seeking a judicial declaration that the derivatives lawsuits were covered under the professional liability policy. Three days before its answer to Baum’s complaint was due, the insurer admitted that its earlier coverage denial on the claims made issue was in error and agreed that it would treat the subsequent derivatives lawsuits and the earlier IRS investigation as a single claim first made when the IRS investigation was launched in 2003. However, the carrier nevertheless continued to deny coverage for the derivative lawsuits on the ground — not previously raised — that the derivatives lawsuits were not timely reported to the insurer as required by the policy. The insurer filed a declaratory judgment counterclaim and parties filed cross motions for summary judgment.

 

The district court held that under Missouri law untimely notice is no defense to coverage in absence of prejudice and because the insurer claimed no prejudice, the delayed notice of the derivatives lawsuits did not preclude coverage. The district court also ruled that the $3 million retention applicable to “activities as an underwriter or seller of municipal bonds” applied, rather than the $1 million retention Baum contended was applicable. Both parties appealed.

 

The July 16 Opinion 

In a July 16, 2014 opinion written by Judge William J. Riley for a unanimous three-judge panel, the Eighth Circuit affirmed the district court’s rulings, even though the appellate court held that New York law governed rather than Missouri law.

 

The insurer had argued that New York rather than Missouri law applied and that under the New York law applicable at the time, an insurer asserting a late notice defense was not required to show prejudice, by contrast to Missouri law where an insurer that was not prejudiced could not assert a late notice defense. Because the policy had been (at Baum’s request) delivered to Baum’s New York address and had been issued with the requisite New York amendatories, the appellate court agreed with the insurer that New York law governed the interpretation of the policy. However, because the appellate court also found the policy to be ambiguous on the applicability of the policy’s timely notice requirements to subsequent related claims, the court rejected the insurer’s arguments on the notice issue.

 

The appellate court found that because the subsequent lawsuit and the IRS investigation were deemed a single claim under the policy, “all of the later filed derivatives litigation lawsuits constitute ‘a single CLAIM for all purposes,’ including notice.” The court added “we do not find any unambiguous basis in the policy” for the insurer’s proposed limitation of the phrase “all purposes” so as to carve out notice issues. Accordingly, the Court accepted Baum’s interpretation that the policy’s notice provisions do not apply to subsequent actions, such as the derivatives lawsuits, arising from the same underlying conduct as the earlier timely notified claim.  

 

The Court also rejected the insurer’s argument that if Baum’s theory were accepted then the policyholder would be free to delay notice of subsequent related claims for indefinite time periods. The appellate court said that “these are the complaints of a poor draftsman, and we are as unsympathetic as we expect the New York Court of Appeals would be,” adding that “it is not our role to rescue an insurer from its own drafting decisions.”

 

The Court also declined to consider whether or not Baum breached New York’s implied-in-law requirement of notice within a reasonable time because the insurer “failed to raise any implied notice argument in the district court or on appeal.” But even setting aside the insurer’s “waiver” of this issue, the Court said it would be “reluctant to predict a breach” of the implied requirement “in the absence of prejudice,” as, the Court noted, New York courts have been “reticent” to apply the state’s “no prejudice rule” where the insurer received timely notice of claim but arguably late notice of a lawsuit.

 

Finally, the Court affirmed the district court’s ruling that the policy’s $3 million retention for claims related to underwriting activities applied, rather than the $1 million retention that would otherwise have applied.

 

Discussion  

In a June 2, 2014 post (here), I noted that a New York appellate court, applying New York law, held that an insurer’s policy was ambiguous on the question of the applicability of notice timeliness requirements to subsequent related claims where notice of the first claim was timely. I also noted that the question that case presented was an “interesting issue” that “undoubtedly will come up again in the future.”

 

As this latest case show, the notice timeliness of subsequent related claims issue is a recurring one. The Eighth Circuit seems to have been unaware of the New York intermediate appellate court decision I referenced in the earlier post (it was a terse, three-page opinion), but the holdings of both the courts were essentially the same – that is, that the applicability of the notice timeliness requirements to subsequent claims related to an earlier timely claim is ambiguous.

 

Given that earlier New York appellate decision, the Eighth Circuit’s application of New York law here seems to be on solid ground. Just the same, it seems to me the insurer’s case here was always going to be tough. First of all, as I noted in my prior post linked in the preceding paragraph, notice defenses generally are disfavored by the courts (although not invariably, as noted here).

 

The other problem about the insurer’s position is that the insurer originally denied coverage on the basis that the subsequent derivatives lawsuits were not claims made during the applicable policy period. The insurer later walked back its coverage denial on this ground – but only after the insured had already been forced to initiate coverage litigation to compel the insurer to honor its contractual obligations. Rather than simply acknowledging coverage at that point, the carrier substituted a new basis for denying that it had not previously asserted, that is, the alleged untimeliness of notice of the subsequent derivatives claims. This belated substitution of coverage defenses put the insurer in an unfavorable light, which at least to my eyes seems to have affected the Eight Circuit’s perception of carrier’s position. (I will say that this sequence affirms the value for carriers of laying out their entire coverage position at the outset, as a later piecemeal substitution of alternative coverage defenses arguably reflects poorly on the carrier.)

 

There arguably is another issue that I think may supersede all of the various notice-related issues discussed in this opinion. That is, the way I read the court’s description of Baum’s initial notice, Baum not only notified the insurer of the IRS investigation but advised the insurer that the circumstances could subsequently give rise to claims. I presume that this policy like all policies of this type had a notice provision allowing the policyholder to give notice to the insurer of circumstances that may give rise to a claim and providing that if the subsequent claims do arise the subsequent claims are deemed made at the time of the notice. If as I assume was the case this policy had a notice of circumstances provision of this kind, it seems to me that Baum satisfied the notice requirements at the time of the initial  notice and that all the other arguments about the timeliness of notice are inapposite.

 

Setting to one side my argument about the timeliness of the notice of circumstances, there is an issue for carriers to consider in light of this opinion and the earlier New York intermediate appellate decision, which is whether they need to introduce into their policies a notice timeliness requirement for subsequent related claims. The Eighth Circuit was “unsympathetic” to the insurer’s concern that if there were no timeliness requirements  that the insured could give notice of subsequent related claims at any time, even years after the fact, on the grounds that it was not the Court’s role to “rescue an insurer from its own drafting decisions.” In other words, if the insurers don’t want policyholders to have an indefinite time within which to provide notice of subsequent related claims, then the insurers need to expressly identify the time requirements in their policies.

 

One final note. In his opinion, Judge Riley said that the Court would be “reticent” to apply New York’s “no prejudice rule” to cases where the insurer received timely notice of claim but arguably late notice of a lawsuit. I believe that the correct word in this context is “reluctant,” not “reticent.” The Miriam-Webster Dictionary defines “reticent” as “inclined to be silent or uncommunicative in speech; reserved.” The word “reluctant” is defined in the same dictionary to mean “feeling or showing doubt about doing something; not willing or eager to do something.”

 

Clearly the Eighth Circuit was feeling doubt, not inclined to be silent, about what the New York Court’s might do on the issues, so the word employed should have been “reluctant” not “reticent.”  (The reticent/reluctant confusion is one of the common errors I noted in a prior post on frequent word choice inaccuracies, here).

Guest Post: Mergers, Acquisitions, and Data Privacy: The FTC is Watching

Posted in Cyber Liability

Boeck_head_shot[1]The question of the privacy rights of consumers is an increasingly important topic. In the following guest post, Bill Boeck, Senior Vice President. Insurance & Claims Counsel for Lockton Financial Services, takes a look at recent actions the Federal Trade Commission has taken to protect consumers’ privacy rights and to enforce companies’ privacy policies.

 

I would like to thank Bill for his willingness to publish his article on this site. I welcome guest post submissions from responsible authors on topics of interest to readers of this blog. Please contract me directly if you are interested in submitting a guest post. Here is Bill’s post:

 

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Selling your company or its assets?  These days it seems certain that litigation will follow.  If your company holds the personal data of customers, and has made promises in its data privacy policy about not selling it, then you may be hearing from the Federal Trade Commission (FTC).  You won’t enjoy it.

 

Companies doing business on the Internet typically have privacy policies explaining how the company will collect and use consumers’ personal information.  Various state and federal laws require them.  Those privacy policies often contain language to the effect that the company will not give the information to any third party without the consumer’s consent.

 

The FTC views violations of privacy policies as deceptive trade practices which are prohibited by the FTC Act.  The FTC frequently brings enforcement actions against companies for such violations.

 

In May 2014 the FTC sent a letter to the judge overseeing the bankruptcy of ConnectEDU, Inc. stating that the proposed sale of the company’s assets would violate the ConnectEDU privacy policy because consumer information would be sold without the consumers’ consent.

 

ConnectEDU is an educational technology company that helps students prepare for college and connect with career opportunities.  Students create profiles on the ConnectEDU web site that contain personal information.  The ConnectEDU privacy policy states that:

 

[T]he personally identifiable data you submit to ConnectEDU is not made available or distributed to third parties, except with your express consent and at your direction. In particular, the Company will not give, sell or provide access to your personal information to any company, individual or organization for its use in marketing or commercial solicitation or for any other purpose, except as is necessary for the operation of this site.

 

The policy allows information to be disclosed when the company or its assets are sold, but consumers must be given notice and an opportunity to remove their information.

 

The FTC states that their concerns would be diminished if ConnectEDU notified individuals that their information was being sold and gave them the opportunity to have the information removed.  The FTC would also be satisfied if the information was simply destroyed.  (The FTC identified a third option that would apply only in the bankruptcy context.)

 

The FTC’s letter is a warning to all companies being sold that they will face a potential enforcement action if consumer information is transferred to a buyer in violation of the company’s privacy policy.

 

The FTC isn’t the only thing companies need to worry about though.  It isn’t hard to imagine that individuals and their lawyers will bring class action suits for alleged misrepresentations privacy policies.  Such actions are being brought against companies now.

 

And it isn’t just companies that need to be concerned.  Their directors and officers need to worry too.  M&A-related litigation against directors and officers is depressingly common.  If directors and officers cause their company to be sold in violation of its privacy policy that violation could figure prominently in breach of fiduciary duty allegations in a shareholder lawsuit.

 

So what should companies do?

 

  • Companies should examine their privacy policies to determine whether the policies would permit personal data to be transferred if the company or its assets are sold.  If transferring the data would violate the privacy policy then a company may wish to work with their privacy counsel to change the policy to allow a transfer.

 

  • Purchasers of companies or their consumer data should assure that the selling companies represent and warrant that they are in compliance with their data privacy policy, and that they are authorized to transfer the consumer data to the buyer.

 

If a company faces a claim from the FTC or private plaintiffs it should have the consolation of its insurers’ support.  Such a claim should be covered under most good cyber policies.  Companies should consider whether their existing policy limits and any applicable sublimits are adequate though.  Buying and selling companies should also consider Representations and Warranties Insurance policies to cover any resulting losses.

 

D&O policies should cover any shareholder claims for breach of fiduciary duty by a company’s directors and officers.

 

The FTC has proved to be a very active enforcer of privacy rights.  If the FTC and private plaintiffs are focused on an issue, companies do well to pay attention.  An ounce of prevention now in the form of a well-crafted privacy policy and an equally well-crafted insurance program may save companies a very expensive pound of cure later.

 

 

 

Guest Post: Texas Supreme Court Guts Minority Shareholder Oppression Claims

Posted in Director and Officer Liability

Kara_Altenbaumer-price1[1]On June 20, 2014, the Texas Supreme Court issued its opinion in Ritchie v. Rupe, in which the Court addressed the rights and remedies of minority shareholders of Texas companies. In the following guest post Kara Altenbaumer-Price, Vice President, Management & Professional Liability Counsel for USI Southwest / USI Northwest, takes a look at the decision and analyzes its implications.

 

I would like to thank Kara for her willingness to publish her post on this site. I welcome guest post submissions from responsible authors on topics of interest to readers of this blog. If you would like to submit a guest post, please contact me directly. Here is Kara’s guest post:

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The Texas Supreme Court ruled in late June that minority shareholders in private companies in Texas cannot sue for shareholder oppression, even when majority shareholders attempt push them out of the business, dilute their shares, or otherwise act to lower the value of their investment.  While some have heralded the decision as pro-business and an effort to keep the courts out of Texas boardrooms, others suggest that the case will discourage investment in Texas companies.

The ruling in Ritchie v. Rupe, which applies to businesses incorporated in Texas, held that not only does the Texas Business Organizations Code not prohibit oppression of minority shareholders, there is no common-law cause of action for minority shareholder oppression in Texas.  Intermediate appellate courts in Texas had allowed such claims to be brought, but this was the first time the question had been addressed by the Texas Supreme Court.  The Court’s ruling means that except in very narrow circumstances—addressed below—minority shareholders cannot sue unless they can allege that the complained-of actions were fraudulent, a breach of fiduciary duty, or another cause of action other than shareholder oppression.  

The facts in Ritchie v. Rupe involved a minority shareholder who inherited 18 percent of private company stock following the death of her husband.  The majority shareholders had offered to purchase the shares for $1 million, but because the company had sales in excess of $150 million and assets in excess of $50 million, her attorney encouraged her to decline the “absurd” offer.  Although the offer was ultimately raised to $1.7 million through negotiations, the minority shareholder continued to refuse what she believed was a too-low offer.  She then found a third-party buyer to whom she wanted to sell the stock, but the majority shareholders objected and refused to meet with the potential third-party buyer for fear it would put the company at risk for securities fraud.  This left the minority shareholder unable to market or monetize her shares.  She sued, alleging that the majority shareholders engaged in “oppressive” conduct toward her.  At trial, the company was ordered to purchase her shares at a jury-determined fair market value of $7.3 million.  The majority shareholders appealed. 

The Texas Supreme Court ruled that her claims were not valid under Texas common law or the Texas Business Organizations Code.  Instead, the Court held that the only time a shareholder oppression claim could be brought against a private company in Texas is when a rehabilitative receiver has been appointed.  Even within this narrow context of receivership, the standard for proving a shareholder oppression claim would be extremely high; a shareholder would have to show that he or she was intentionally harmed by officers and directors.  As a practical matter, it is unlikely that forcing the company into rehabilitative receivership would benefit the minority shareholder seeking to get greater value for his or her shares.  As a result, this is a hollow consolation at best.

As one Texas appellate lawyer described it, this ruling puts Texas “on an island.”  Most states either overtly allow suits for minority shareholders oppression or don’t prohibit them.  From a litigation perspective, the ruling is certainly positive for private companies in that it will very likely reduce the amount of shareholder litigation against them, or at the very least, make them more likely to prevail on suits that are filed on other grounds.  While there are still avenues for minority shareholders to sue, as noted above, it may not make logical sense for them to sue for fear of even further reducing the value of their investment by pushing for rehabilitative receivership or because claims like fraud or breach of fiduciary duty are difficult to prevail on.

This ruling should not, however, cause private companies to abandon their D&O insurance for a number of reasons.  First, as noted above, minority shareholders can still sue Texas companies; they just won’t be able to bring this relatively common cause of action unless they also seek to place the company into rehabilitative receivership.  Plaintiffs lawyers are resourceful, and private companies will still need to defend themselves from disgruntled shareholders.  Second, sophisticated investors—even if minority investors—will be likely to add minority shareholder protections contractually into their investor agreements as prerequisite to investing in a Texas corporation.  They would be able to sue pursuant to these contractual provisions.   Third, the Texas Legislature meets in a little less than six months and has the ability to change the Business Organizations Code to overrule the Court’s decision by statute.  Finally—and most importantly—unlike public company D&O insurance, the coverage afforded under private company D&O insurance is very broad and can cover many non-investor claims, including those arising from vendors, business partners, lenders, and other third parties.  It would be wise, however, for Texas private companies to use this reduced threat of shareholder litigation as leverage in renewal negotiations with carriers to push for improved terms and conditions or pricing.

 

Georgia Supreme Court Affirms, Elucidates Business Judgment Rule – and Its Limitations

Posted in Director and Officer Liability

Ga Supreme CourtA recurring issue in FDIC litigation against the former directors and officers of failed banks has been whether the business judgment rule insulates the defendants  from claims of ordinary negligence. This question has been particularly important in Georgia, where there were more bank failures than any in other state and consequently more failed bank litigation.

 

Several federal district courts, applying Georgia law, have ruled that individual defendants are entitled to have the FDIC’s negligence claims against them dismissed based on the business judgment rule (as discussed, for example, here). However, in the lawsuit the FDIC filed against the former directors and officers of The Buckhead Community Bank, the district judge questioned whether or not the business judgment rule afforded this protection, and certified the question to the Georgia Supreme Court.

 

On July 11, 2014, the Georgia Supreme Court ruled in Federal Deposit Insurance Corporation v Loudermilk (here) that the common law of Georgia recognizes the business judgment rule and that the rule has not been superseded by Georgia statutory law. But while the Court found that the rule insulates directors ad officers from claims of negligence concerning the wisdom of their judgment, it does not foreclose negligence claims against them alleging that their decision making was made without deliberation or the requisite diligence, or in bad faith.

 

The Court further elaborated that in connection with the negligence claims not foreclosed by the business judgment rule bank directors and officers are subject only to a limited standard of care, are entitled to a conclusive presumption of reasonableness in connection with their reliance on the information and statement provided to them by bank officers and outside advisors, and are presumed to have acted in good faith and to have exercised ordinary care.

 

Background 

As discussed here, on November 30, 2012, the FDIC as receiver of The Buckhead Community Bank filed a complaint in the Northern District of Georgia against nine former directors and officers of the failed bank. The FDIC’s complaint asserts claims against the defendants for negligence and for gross negligence and alleges that the defendants engaged in “numerous, repeated, and obvious breaches and violations of the Bank’s Loan Policy, underwriting requirements and banking regulations, and prudent and sound banking practices” as “exemplified” by thirteen loans and loan participations the defendants approved that caused the bank damages “in excess of $21.8 million.”

 

The defendants moved to dismiss the FDIC‘s ordinary negligence claims against them, relying on several prior decisions in failed bank cases in the Northern District of Georgia that bank directors cannot be held liable for ordinary negligence under Georgia’s business judgment rule.

 

As discussed here, on November 25, 2013, Northern District of Georgia Judge Thomas W. Thrash Jr. said that he “is not convinced that the business judgment rule in Georgia should be applied to bank officers and directors and is not convinced that Georgia law is settled on the issue.” He certified the following question to the Georgia Supreme Court:

 

Does the business judgment rule in Georgia preclude as a matter of law a claim for ordinary negligence against the officers and directors of a bank in a lawsuit brought by the FDIC as receiver for the bank?

 

The July 11 Opinion 

In a scholarly and detailed July 11, 2014 opinion written by Justice Keith R. Blackwell, a unanimous Georgia Supreme Court held that “the business judgment rule precludes some, but not all claims, against bank directors and officers that sound in ordinary negligence.”

 

Justice Blackwell opened his consideration of the certified question with an extensive historical review on of prior Georgia Supreme Court case law, concluding based on the prior cases that “if the only dispute is the wisdom of a business judgment” then “the law at least would require something more than a mere want of ordinary care to establish liability.” However if the question was whether a business decision was “a product of deliberation, reasonably informed diligence and made in good faith,” the decision is “open to judicial scrutiny.”

 

Based on this review, Justice Blackwell concluded that “the business judgment rule is a settled part of our common law in Georgia” that “generally precludes claims against directors and officers for their business decisions that sound in ordinary negligence, except to the extent those decisions are shown to have been made without deliberation, without the requisite diligence to ascertain and asses the facts and circumstances upon which the decisions are based, or in bad faith.” In other words,

 

the business judgment rule at common law forecloses claims against officers and directors that sound in ordinary negligence when the alleged negligence concerns only the wisdom of their judgment, but it does not absolutely foreclose such claims to the extent that a business decision did not involve “judgment” because it was made in a way that did not comport with the duty to exercise good faith and ordinary care.

 

Justice Blackwell added that the rule “applies equally at common law to corporate directors and officers generally and to bank directors and officers.”

 

Justice Blackwell then considered whether the Georgia General Assembly had “modified or abrogated the business judgment rule.” After reviewing OCGA Section 7-1-490(a), Justice Blackwell concluded that the statute “does not supersede the business judgment rule at common law, as the rule was acknowledged in the early decisions of this Court.”

 

The Court did rule that the common law and the statutory provisions were inconsistent with at least two intermediate appellate court decisions in which the courts had held that the business judgment rule precluded all claims of ordinary negligence against directors and officers. Noting that under the common law and the corollary statutory provisions directors and officers “may be held liable for a failure to exercise ordinary care with respect to the way in which business decisions are made,” the Supreme Court overruled the intermediate appellate opinions.

 

Interestingly, though the court observed that it could have limited its decision to overrule the intermediate appellate court decisions solely to questions involving bank directors and officers’ liability, leaving questions for another day would “only create needless uncertainty” and so the Court overruled the decisions for all purposes – that is, as to bank directors and officers and as to non-bank directors and officers as well.

 

The Court acknowledged the defendants’ argument that even if only some claims for ordinary negligence against bank directors and officers are precluded by the business judgment rule, “bank management will be too much deterred from taking risks, to the detriment of Georgia banks and consumers alike.” The Court said that these worries “underestimate, we think, the strength of the business judgment rule acknowledged in our early decisions at common law.”

 

In addition, the Court noted, there are several features of the standard of care for bank directors and officers under Georgia law as a result of which the individuals still enjoy “meaningful protection to offices and directors who serve in good faith and with due care.”

 

First the court noted, “the standard of ordinary care for bank officers and directors is less demanding than the standard of ‘ordinary diligence’ with which “most ordinary negligence claims are concerned.”

 

Second, the statutory law “conclusively presumes that it is reasonable for an officer or director to rely upon information” provided by bank management or outside advisors. If the officer or director “relies in good faith on information” provided by others, “the reasonableness of his reliance cannot be questioned in court.”

 

Finally, the Court noted, “when a business decision is alleged to have been made negligently, the wisdom of the decision is ordinarily insulated from judicial review, and as for the process by which the decision was made, the officers and directors are presumed to have acted in good faith and to have exercised  ordinary care.”

 

In conclusion, the Court noted that the business judgment rule “never was meant” to protect “mere dummies or figureheads,” but to the extent that “more protection for officers and directors is desirable, the political branches may provide it.”

 

Discussion

The Georgia Supreme Court’s decision will have an immediate impact on the many FDIC lawsuits involving failed Georgia banks, as it will substantially affect the ability of the individual defendants to have the claims against them dismissed. The allegations in these cases will all have to be considered in the light of the protections the Supreme Court said the business judgment rule affords business decision making and the limitations on those protections for alleged negligence in the decision-making process.

 

The likelihood under this standard is that while the directors and officers may succeed in getting some of the negligence claims against them dismissed, they may not be successful in having other negligence claims against them dismissed. Although the FDIC’s allegations in its many complaints vary, its negligence claims do not typically allege merely that the defendants made the wrong decision, bur rather that their decisions were imprudent or made without appropriate deliberation – that is, the kind of allegations with respect to which the Georgia Supreme Court said the business judgment rule does not afford protection.

 

In other words, the practical implication of the Georgia Supreme Court’s ruling is that many – perhaps even most — of the FDIC negligence claims against former directors and officers of Georgia banks will survive motions to dismiss.

 

To be sure, the Georgia Supreme Court emphasized that the bank directors and officers subjected to claims not precluded by the business judgment rule are afforded “meaningful protection” as a result of the lower standard of care and presumptions of reasonable reliance and good faith. The individual directors and officers and their counsel will of course endeavor to make the most of these aspects of the Court’s decision, and in cases that are decided on the merits after a full evidentiary hearing, these considerations may indeed afford the individual defendants substantial protection.

 

The difficulty is that without the ability to have many kinds of negligence claims dismissed at the outset, the individuals must incur the expense and uncertainty of defending against the claims. Facing the prospect of possible liability in a case based on a lower standard of liability (that is, mere negligence rather that gross negligence), the directors and officers may face pressure to settle – and with the increased prospect of liability based on the lower standard of liability, the cost of settlement may be increased as well.

 

The precedential authority of the Georgia Supreme Court’s decision is limited to cases to which the law of Georgia applies. However, the decision may have persuasive effect in cases to which other jurisdictions’ law applies. It is rare for any state’s Supreme Court to address these kinds of issues, and as the Georgia Supreme Court’s opinion is both a scholarly, thoughtful ruling and the rare pronouncement by a court of highest authority, it undoubtedly will be invoked by parties in other courts and considered by courts in other jurisdictions.  Just as the Georgia Court itself took into account cases involving similar laws in other jurisdictions (particularly New York and Florida), the courts in other jurisdictions may look to the Georgia Supreme Court’s analysis to inform their decisions. The Georgia Supreme Court’s opinion potentially could have a substantial impact, even outside of Georgia.

 

One specific case on which The Buckhead Community Bank decision seemingly would have a direct and immediate impact is the “other” case that had been certified to the Georgia Supreme Court on nearly identical questions of law – that is, the Integrity Bank case, in which the Eleventh Circuit had also certified a question concerning the business judgment rule to the Georgia Supreme Court (as discussed here)  The Georgia Supreme Court not only did not issue a decision in the Integrity Bank case on July 11 – the final day of the term — but did not in The Buckhead Community Bank case even refer to the Integrity Bank case, a silence that strikes me as odd.

 

In response to my question about why the Georgia Supreme Court did not issue opinions in the two cases simultaneously, a lawyer for one of the parties in the Integrity Bank case said “Beats me.” So with the other cases still hanging out there, there is the uncertain possibility that the opinion in the Integrity Bank case may have something more to say on these topics. A ruling in the Integrity Bank case before the end of 2014 seems likely.

 

One final issue that I was interested to see the Georgia Supreme Court address was the question that Judge Thrash had raised in the District Court, which is whether or not bank directors and officers are entitled to lesser protection from the business judgment rule than are directors and officers of other business corporations. The Court’s answer was not exactly what the bank directors and officers had been hoping for; that is, the Court agreed in the end that the business judgment rule protects bank directors and officers and directors and officers of other corporations in the same way, but that in neither case are directors and officers entitled to absolute immunity from negligence claims.

 

I would like to thank the several loyal readers who sent me copies of the Georgia Supreme Court opinion. I am very grateful to all of the readers who help supply me with the information to help keep this blog timely and informative.  

 

A New Book About D&O Insurance Underwriting: All readers of this blog, and particularly those interested in learning more about D&O Insurance underwriting, will want to know about a new book written by industry veteran Larry Goanos. The book, which recently became available for purchase here, is entitled “D&O Insurance 101: Understanding Directors and Officers Insurance.” As I wrote in the book’s foreword, the book provides “a detailed overview of all of the basic technical concepts involved with D&O insurance underwriting” and it also “addresses perennial issues, such as limits selection, retentions, coinsurance and much more besides.”

 

The book represents, I wrote in the foreword, “a valuable resource for anyone involved with the D&O insurance industry or who wants to try to understand how it works at the basic transactional level. The book not only provides a useful introduction to the D&O insurance underwriting process, but it also provides an insider’s look at the way things actually work in the trenches.”

 

Another reason to recommend this book is that Larry intends to donate the book’s proceeds among six charities: Go Campaign, Lighthouse International, The Carolyn Sullivan Memorial Foundation; The Danielle Kousoulis Memorial Scholarship Fund;  The National Kidney Foundation; and The St. Baldrick’s Foundation.

 

As I said in the final sentence of the book’s foreword, “It is obvious Larry had a lot of fun writing this book. The rest of us get to have the pleasure of reading it.” I recommend this book for everyone.

 

PLUS Webinar on the Halliburton Decision: On Monday July 14, 2014, at 12:30 pm EDT, the Professional Liability Underwriting Society will be hosting a free webinar on the U.S. Supreme Court’s recent Halliburton decision and its implications for publicly traded companies and for their D&O insurers. This 45-minute webinar will feature Jordan Eth of the Morrison Foerster law firm, Mike Dowd of the Robbins Geller law firm, and Michael Nicholai of Berkley Professional. Registration information about the webinar can be found here.

 

Time for Nominations to the ABA Journal’s Annual Blawg 100: It is once again time for nominations to the ABA Journal’s annual list of the top 100 law blogs. Everyone should take a moment to nominate their favorite law blogs for inclusion in the list. I would be humbled and grateful if any reader would be willing to nominate my blog. Nominations can be made here. Don’t delay, nominations are due by 5:00 pm EDT on Friday August 8, 2014.

 

 

 

D&O Insurance: FDIC’s Claims Against Failed Bank’s Directors and Officers Not Related to Earlier Claims, Trigger Separate Policy Period

Posted in D & O Insurance

prOn July 9, 2014, in yet another in the ever growing line of cases examining whether or not separate D&O claims involving interrelated wrongful acts, District of Puerto Rico Judge Gustavo Gelpi, applying Puerto Rico law, held that the FDIC’s claims against the former directors and officers of the failed Westernbank did not involve the “facts alleged” against the directors and officers in an earlier lawsuit, and therefore were not deemed made at the time of the earlier lawsuit. Because he found the FDIC’s claims to be unrelated, the claims were covered by the policy in effect at the time the FDIC filed the claims rather than the prior policy that had been substantially eroded by the earlier claim.

 

However, in an unusual twist, Judge Gelpi did conclude that one part of the FDIC’s claim was related to the earlier lawsuit and therefore that that portion (and that portion alone) was deemed made at the time of the earlier suit. A copy of Judge Gelpi’s July 9 opinion can be found here.

 

 Background 

Regulators closed Westernbank on April 30, 2010, which according to the FDIC cost the insurance fund $4.25 billion. In October 2011, certain of the former Westernbank directors and officers sued the bank’s primary D&O insurer in state court in Puerto Rico, seeking a judicial declaration that the insurer must defend that against claims the FDIC had asserted against them  (about which refer here). The FDIC, as receiver for Westernbank, moved to intervene in the state court action, and on December 30, 2011, removed the state court action to the District of Puerto Rico. On January 20, 2012, the FDIC filed its amended complaint in intervention, in which it named as defendants certain additional directors and officers, and, in reliance on Puerto Rico’s direct action statute, the various D&O insurers in the bank’s D&O insurance program. A copy of the FDIC’s amended complaint can be found here.

 

In its complaint, the FDIC, as Westernbank’s receiver, seeks recovery of over $176 million in damages from the former bank’s directors and officers as well as their conjugal partners, based on various alleged grossly negligent commercial real estate, construction and asset-based loans approved and administered from January 28, 2004 through November 19, 2009. In its complaint in intervention in the directors and officers coverage action against the bank’s D&O insurers, the FDIC seeks a judicial declaration that its claims against the directors and officers are covered under the policies.

 

As discussed here, on October 12, 2012, Judge Gustavo Gelpi denied all of the motions to dismiss. A copy of the court’s October 23, 2012 decision can be found here. Among other things, Judge Gelpi ruled that the insured vs. insured exclusion did not preclude coverage for the FDIC’s liability action against the former directors and officers, in part because at least in this case the FDIC not only sought to enforce the rights of the failed bank to which it succeeded as the failed bank’s receiver, but also because the FDIC also sought to enforce the rights of “depositors, account holders, and a depleted insurance fund.” As discussed here, on March 31, 2014, the First Circuit affirmed Judge Gelpi’s ruling that the insurers were obligated to advance the directors and officers defense expenses.

 

The insurers subsequently renewed their motion in the district court for summary judgment on the insured vs. insured exclusion issue, while the FDIC and the directors and officers moved for summary judgment on the issue of whether or not the FDIC’s claims against the directors and officers involved alleged wrongful acts that were interrelated with wrongful acts that had been alleged against the directors and officers in an earlier lawsuit. (Update: Counsel for one of the parties to the Westernbank case clarified for me that the FDIC did not move for summary judgment on the interrelatedness issue. One of the individual defendants moved for summary judgment on the issue, while the FDIC moved for clarification of the Court’s prior rulings on defense cost advancement issues. The insurers then moved for summary judgment seeking a ruling that the FDIC’s claims all related back to the earlier lawsuit.)

 

The earlier lawsuits, involved the Inyx loans and alleged that the directors and officers were, according to Judge Gelpi, “purportedly derelict in loan approvals and administration surrounding the Inyx loans.” The earlier suits (the “Prior Suits”) were filed in 2007 and 2008 and triggered the bank’s 2006-2007 D&O insurance program. According to Judge Gelpi, payment s in settlement of the Prior Suits substantially diminished the 2006-2007 insurance program.

 

The insurers contend that because the FDIC’s claims against the bank’s former directors and officers also allege negligent approval and administration of loans, the FDIC’s claims were interrelated with the claims in the Prior Suits and therefore were deemed made at the time of the earlier lawsuits and triggered coverage only under the depleted 2006-2007 insurance program. The FDIC contends that its claims were distinct from those asserted in the Prior Suits and therefore that their claims fall under the bank’s 2009-2010 insurance program.

 

The primary insurance policy in the 2009-2010 program provides that:

 

If written notice of a Claim has been given to the Insurer … then a Claim which is subsequently made against an Insured and reported to the Insurer alleging, arising out of, based upon or attributable to the facts alleged in the Claim for which such notice has been given, or alleging any Wrongful Act which is the same as or related to any Wrongful Act alleged in the Claim of which such notice has been given, shall be considered related to the first Claim and made at the time such notice was given.

 

The July 9 Opinion 

In his July 9 opinion, Judge Gelpi denied the insurers’ motion for summary judgment based on the insured vs. insured exclusion and granted the motions of the FDIC and of the individual directors and officers on the question of whether or not the FDIC’s claims are interrelated with the Prior Suits.

 

In granting the FDIC’s and individual directors’ and officers’ motion for summary judgment on the interrelatedness issue, Judge Gelpi rejected the insurers’ argument that because both the Prior Suits and the FDIC’s lawsuit allege a “general pattern of grossly negligent behavior” with respect to the bank’s lending activities, the FDIC’s claims are interrelated with the Prior Suits.

 

Judge Gelpi acknowledged that “while the D&O’s general course of conduct is similar … the only specific factual allegations in the FDIC’s complaint and the Prior Suits meriting a comparable reading” are related to the Inyx loans to which Prior Suits related. The other loans referenced in the FDIC’s complaint “were either issued or administered by D&Os before and after the Inyx loans, and six of the seven non-Inyx loans originated or were administered in the commercial real estate and construction departments, not the asset-based lending department.” To highlight the similarities and differences between the FDIC’s claims and the Prior Suits’ allegations, Judge Gulpi attached a detailed appendix to his opinion. Judge Gelpi said that based on his detailed review that “to find the complaints substantially related would ignore the divergent fact-specific nature of the FDIC’s claims.”

 

Judge Gelpi then said that “while similarity between the complaints in  this case and the Prior Suits is not substantial, to the extent the Prior Suits’ complaints highlights the same course of grossly negligent conduct regarding the Inyx loans, there is a simple solution” – that is “to sever the Inyx loans from coverage under the 2009-2010 tower to remain in the 2006-2007 tower.” Under this simple solution, the FDIC’s allegations relating to the Inyx loans are covered by the 2006-2007 policy and “the rest of the claims concerning other borrowers are covered by the 2009-2010 policy. “

 

Judge Gelpi concluded his analysis of the interrelatedness issues with a swipe at the insurers, commenting that they “knew or reasonably should have known they were assuming a great risk by insuring the D&Os,” and that the Prior Suits and various examiner’s reports “should have given any reasonably prudent insurance company cause for concern,” yet they agreed to accept the risk without adding a Regulatory Exclusion to protect them from claims and without adding an express exclusion for claims for conduct during the prior policy period.

 

Finally, Judge Gelpi rejected the insurers’ effort to revisit the Insured vs. Insured exclusion issues. Judge Gelpi had previously rejected the insurers’ arguments that the exclusion precluded coverage because, as the failed bank’s receiver, the FDIC “stepped into the shoes” of the failed bank and therefore was acting as an insured. In his prior ruling Judge Gelpi had said that the exclusion did not apply because the FDIC was filing its lawsuit “on behalf of depositors, account holders, and a depleted insurance fund.”

 

In their renewed motion, the insurers argued that the FDIC did not represent depositors and account holders because the FDIC could provide no evidence identifying the depositors and account holders it purports to represent. Judge Gelpi rejected this argument, among other reasons, based on the FDIC’s argument that the bank’s failure had produced substantial losses to the deposit insurance fund. While the FDIC will have to prove these losses at trial, the agency’s representation of its losses provides a sufficient issue of material fact to preclude summary judgment. He added that “the court does not accept AIG’s argument that the FDIC fails to specify who or what it represents and that such failure merits summary judgment.”

 

Discussion

Judge Gelpi’s opinion in this case underscores a point I have frequently made on this blog (most recently here) about the frustratingly elusive nature of relatedness issues. The difficulty here, as in all coverage cases involving relatedness issues, is determining what degree or quantum of relatedness is sufficient to make alleged wrongful acts interrelated. Here, it is not just that the Prior Suits and the FDIC’s claim involve substantially similar kinds of allegations (that is, misconduct in connection with loan approvals and administration) during overlapping time periods, but that the Prior Suits and the FDIC’s suits involved allegations in connection with some of the same loans.

 

I don’t know how satisfied others might be with Judge Gelpi’s “simple solution” of gerrymandering the overlapping allegations involving the Inyx loans into the prior policy period while shifting all of other loan allegations into the subsequent policy period, but that seems to me like a contrivance to avoid the implications of the interrelated wrongful acts provision. The provision states that if the subsequent claim is “alleging, arising out of, based upon or attributable to the facts alleged in the Claim for which such notice has been given” then the subsequent claim “shall be considered related to the first Claim and made at the time such notice was given.” The provision does not say that only the overlapping “facts alleged” in the subsequent claim are to be considered related, but rather it says that if the “facts alleged” overlap then the claims are related and the subsequent claim is deemed first made at the time of the earlier claim.

 

Judge Gelpi’s parting swipe at the insurers suggests that he views all of this as the insurers’ own damn fault, for even getting on this risky account in the first place, and for not taking defensive measures that, had they taken them, would have protected them from this claim. This aside seems irrelevant to me on the question of whether or not the Prior Suits and the FDIC’s are sufficiently interrelated to be deemed a single claim first made at the time of the Prior Suits.

 

I am not sure why Judge Gelpi included these remarks. It is almost as if he is justifying his conclusion on the interrelatedness issue by, in effect, saying the insurers on the 2009-2010 program should have to pick up the costs of the FDIC’s claims because the insurers were imprudent enough to have agreed to insure a clearly troubled financial institution. (I note that these remarks appear in a different part of the opinion from his analysis of the Insured vs. Insured exclusion issues, but to the extent these remarks were meant to apply to the insurers’ arguments about the Insured vs. Insured exclusion, they arguably make more sense.)  

 

The one thing I will say about Judge Gelpi’s opinion is that it illustrates why court decisions on interrelatedness issues are all over the map. They are, like this case, intensely fact-specific disputes. As a result, it is difficult to make generalizations.

 

Special thanks to the several loyal readers who sent me copies of Judge Gelpi’s opinion.

 

Upcoming PLUS Event in Singapore: Here is an important message for readers in Asia. On August 21, 2014, I will be participating in a PLUS Regional Professional Liability Symposium in Singapore. The event will take place at the Singapore Cricket Club. The evening event is scheduled to begin at 6:00 pm, and in addition to a presentation I will be giving on hot topics in D&O, the event will feature a keynote presentation by Chelya Rajah of Tan Rajah & Cheah. I hope that everyone in the region will plan on attending this event and encourage others to attend as well. Information about the event including instructions on how to register can be found here. I look forward to seeing everyone in Singapore.