Labor Day has come and gone. The kids are back in school. The air is cooler and the nights are longer. There’s a definite autumnal feel in the air. It is time to get back to work. Fortunately, The D&O Diary kept its eye on things over the summer. So if you are feeling the need to get caught up on what happened while you were at the beach, don’t worry, we’ve got you covered. Here is a quick summary of what you missed on The D&O Diary while you were away.
Key Insurance Coverage Decisions: There have been several important D&O insurance coverage decisions in the last few months, two of them in the federal circuit courts. Probably the most significant decision of the summer is the Second Circuit’s July 1, 2011 ruling in the MBIA case, in which the Court held that the company’s D&O insurance policies cover the investigative and special litigation committee expense the company incurred during a regulatory investigation of its accounting practices.
The Fifth Circuit issued another important coverage ruling on August 5, 2011 when it held that where a policyholder has accepted a compromise payment from a primary carrier of less than the limit of liability of the primary policy, the excess carrier’s payment obligations were not triggered and the excess carriers has no obligation to pay the policyholders‘ loss.
In another interesting coverage decision, the Judge William Q. Hayes of the Southern District of California held in an August 15, 2011 decision (refer here) that the D&O insurance policy at issue covered the attorneys’ fees of non-party employee witnesses.
Significant Developments in the Subprime and Credit Crisis-Related Litigation Wave: The subprime litigation wave began over four years ago but only a small number of the cases have been settled. As reflected in my running tally of subprime cases, even now only 29 of the cases have settled. But a number of these settlements were announced just in the past few weeks, and there is a definite sense that the movement of these cases toward settlement is gaining momentum.
The recent settlements in subprime and credit crisis-related cases included the largest subprime securities lawsuit settlement so far, the $627 million Wachovia bondholders settlement, about which refer here. Other subprime securities lawsuit settlements this summer included the following: Washington Mutual, $208.5 million (refer here); Wells Fargo Mortgage Backed Securities, $125 million (refer here); National City, $168 Million (refer here); Colonial Bank, $10.5 million (refer here); and Lehman Brothers executives, $90 million (refer here).
In other developments in the subprime and credit crisis cases, two appellate courts affirmed the lower courts’ dismissals of a couple of subprime cases. On May 24, 2011, the Eleventh Circuit affirmed the dismissal of the HomeBanc case (refer here), and on August 23, 2011, the Second Circuit affirmed the dismissal of the action that had been brought on behalf of the Regions Financial trust preferred securities holders (refer here).
There were also dismissal motion denials in two of the higher profile cases. First, on July 27, 2011, Southern District of New York Judge Lewis Kaplan denied the motion to dismiss in the Lehman Brothers case (about which refer here; as noted above, the Lehman Brothers executives settled the case against them shortly thereafter). And as discussed here, on July 29, 2011, Southern District of New York Judge Kevin Castel granted in part and denied in part the renewed motions to dismiss in the BofA/Merrill Lynch merger case.
FDIC Failed Bank Litigation Mounts: The current wave of bank failures is now several years old. Over 390 banks have failed since January 1, 2008. Yet the FDIC has filed lawsuits involving former directors and officers of failed banks in only a very small number of instances. In the past several weeks, however, the FDIC has launched several new lawsuits and there is a definite sense that the lull in FDIC lawsuit filings may be over.
Just in the last few weeks, the FDIC has filed lawsuits involving the former CEO of IndyMac bank (about which refer here); former directors and officers of Haven Trust bank (refer here); former directors and officers of Silverton bank (refer here); and First National Bank of Arizona (refer here). The Silverton bank case is particularly interesting because, as I discuss in my blog post about the lawsuit, the defendants that the FDIC named in the lawsuit include the bank’s D&O insurers.
With these latest filings, the FDIC has now filed a total of eleven cases involving former directors and officers of failed banks. But the likelihood is that there are more cases to come, perhaps many more. The FDIC’s own website states that the agency has authorized suits in connection with 30 failed institutions against 266 individuals for D&O liability with damage claims of at least $6.8 billion. The lawsuits the FDIC has filed so far involve only eleven failed institutions and 77 individuals. Even just taking account of the lawsuits that have already been authorized, there are many more suits to come, and undoubtedly even more lawsuits will be authorized.
Mid-Year Securities Litigation Studies Released: All of the leading statistical services issued their respective studies of securities class action lawsuit filings for the first six months of 2011. My post about the Cornerstone Research study can be found here; the NERA Economic Consulting study, here; and the Advisen study, here. My own analysis of the first half filings can be found here.
Supreme Court Issues Key Rulings: It already seems like a long time ago, but at the end of the Supreme Court’s term in June, the Court issued its opinions in several key cases. First, in a June 6, 2011 opinion (about which refer here), the Supreme Court held in the Halliburton case that proof of loss causation is not required at the class action certification stage. On June 13, 2011, the Court held in the Janus Capital case (refer here) that a mutual fund management company cannot be held liable for the alleged misstatements in the prospectuses of the mutual funds that the management company administered.
And finally, on June 20, 2011 the Court held in the Wal-Mart Stores v. Dukes case (refer here) that the gender discrimination claimants did not allege a companywide pattern of discriminatory practices and therefore their case could not proceed as a class action. (Earlier in the year, the Supreme Court also issued its opinion in the Matrixx Initiatives case, refer here, in which the Court rejected the “statistical significance” test for securities suit materiality.)
Consistent with the inexplicable interest the Court has shown in recent years in taking up securities cases, the Court has already granted a writ of certiorari for yet another securities case to be heard in the upcoming term. As discussed here, the Court has agreed to hear the Credit Suisse Securities case, which involves statute of limitations issues in Section 16(b) short-swing profits cases.
Litigation Against U.S.-Listed Chinese Companies Continues to Surge: As I have noted in several posts, most recently here, one of the most distinct securities litigation trends over the last twelve months or so has been the surge in litigation involving U.S.-listed Chinese companies. Signs are that this litigation surge is continuing, as the filings involving these companies have continued to accumulate so far in the second half of the year, about which refer here. While some have questioned the merits or value of these cases, at least one of these cases recently survived a motion to dismiss, as discussed here.
These cases raise a number of important D&O insurance issues for these companies. A July 14, 2011 Client Advisory that I co-authored (about which refer here) examines the critical D&O insurance issues that these companies face and reviews the questions these companies should be asking about their D&O insurance.
Keynote Speeches at the Stanford Directors’ College: In June, I attended the Stanford Law School Directors’ college as a member of the event faculty. While there I was able to monitor the keynote speeches, about which I reported in a series of blog posts. The key note speakers included SEC Commissioner Troy Paredes, about whose presentation I wrote here; Delaware Supreme Court Chief Justice Myron Steele, whose speech I wrote about here; and SEC Enforcement Division head Robert Khuzami, about whose presentation I wrote here.
Debating Director Liabilities: As part of this blog’s continuing mission to explore the issues surrounding the liabilities of corporate directors and officers, I posted a couple of commentaries this summer discussing whether and to what extent directors should be held responsible when problems occur at their companies.
First, on June 13, 2011, I published a post here examining the question of whether or not directors should be held liable more often. And on August 5, 2011 (here), I reviewed the question of whether or not directors at companies that have failed should be stigmatized for their association with the failed companies. Finally, on a related topic, in an August 15, 2011 post, I took a look here at issues surrounding the potential liabilities of former directors of failed banks.
Guest Posts: One of the great privileges of maintaining this site is that from time to time I am honored to be able to publish guest posts from leading commentators and observers. Over the course of this summer, I was fortunate to be able to publish several guest posts, including posts from the following authors and on the following topics: Anjali Das on the U.K. Bribery Act (here); Angelo Savino on the applicability of the Morrison decision to SEC enforcement actions (here); Rick Bortnick and Micha J.M. Knapp on the significance and implications of the Second Circuit’s decision in the MBIA case (here); Anjali Das again, on the issues surrounding the lawsuits against Chinese reverse merger companies (here); and Paul Ferrillo on the question of insurance coverage for investigative costs in light of the revisions of the Dodd-Frank Act (here).
Finally, just this past week, I published a post (here) by Mary Gill, Robert Long and Todd Chatham about the issues and concerns surrounding the defense of former directors and officers of failed banks in FDIC litigation.
I am very grateful to all of these authors for their willingness to publish their articles on this site. I am interesting in receiving guest post submissions from responsible commentators on topics of interest to readers of this blog. If you are interested in submitting a guest post, please contact me.
Coming Attractions: Tomorrow I hope to post my annual fall survey, “What to Watch Now in the World of D&O.” Obviously due to their significance, many of the items referenced above will also appear in tomorrow’s post, albeit discussed in greater depth, and there will be many additional topics as well.
ABA TIPS Commemorates 9/11: In recognition of the tenth anniversary of 9/11, the Tort, Trial and Insurance Practice Section (TIPS) of the American Bar Association is sponsoring a series of educational events. Among these events will be a teleconference sponsored by the TIPS Professionals, Officers and Directors Committee scheduled for September 16, 2011 from 12:00 to 1:30 Eastern Time, entitled “9/11 Attacks on the World Trade Center: Duties of Corporate Directors and Officers in the Preparation and Executive of Disaster Avoidance and Recovery,” which will be moderated by my friend Perry Granof. Complete information about this series can be found here. Registration for the September 16 teleconference can be found here.
It’s a Long, Long While from May to December, But the Days Grow Short When You Reach September: Summer, it was great having you around. We are sorry to see you go. Please come back again next year. We will be thinking about you while you are gone. One thing, though. Next year we can do without the heat wave, hurricanes, earthquakes, tornadoes, and tropical storms, O.K.?
It is hard to believe that it is already September. There is something about heading into September and moving past Labor Day that always makes me feel blue. The feeling is captured in the classic soulful “September Song,” sung here by the incomparable Sarah Vaughn, with Teddy Wilson Quartet. Oh, the days dwindle down to a precious few.