A Look at the Modern Business Judgement Rule

del1Under time-honored standards, and as developed over time by Delaware’s court, the business judgment rule is, as is often stated, a “presumption that in making a business decision, the directors of a company have acted on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the corporation.” However, as discussed in an interesting paper, in more recent times, courts have had to consider these principles in more troubling contexts, such as takeover battles or controlling shareholder transactions. As a result the courts have developed what BYU Law Professor D. Gordon Smith in his August 6, 2015 post on the CLS Blue Sky Blog (here) calls “the Modern Business Judgment Rule.” A longer version of Professor Smith’s paper can be found here. Continue Reading

Cal. Supreme Court: Insurer May Seek to Recover Directly From Independent Counsel Allegedly Excessive or Unreasonable Fees

cal sup ctOn August 10, 2015, in an opinion that has already garnered a great deal of attention and commentary, the California Supreme Court ruled that an insurer that funded the payment for its insured of independent counsel (or “Cumis” counsel as independent counsel are known in California) in defense of a claim may seek to recover directly from the independent counsel law firm amounts the insurer paid that the insurer contends were excessive or unreasonable. Though the ruling represents a landmark of sorts, the California Supreme Court’s opinion is much narrower than many commentators have acknowledged, which will limit its applicability in other cases. A copy of the California Supreme Court’s opinion can be found here. Continue Reading

What We Recommend: Three Very Cool Apps for Your Phone

googletranslateI have been fairly slow in joining the 21st century. For example, I did not finally purchase an iPhone until last December. I have been trying to make up for lost time, among other things by becoming better acquainted with some of the available apps. In this post, I review three of my favorite new app discoveries, both to share what I have found and in the hope that others will share their favorite apps as well. Continue Reading

Should Nevada Be the New Preferred Forum? (That’s Right, Nevada.)

NevadaAs I noted in a recent post, when the Wall Street Journal has a front-page article asking the question whether Delaware’s claim as the preferred home jurisdiction for many U.S. corporations continues to be warranted, it might be time to wonder whether Delaware’s preeminence might actually be under serious challenge. And if a recent article on Law 360 is any indication, the good citizens of Nevada – or at least one member of its legal bar in particular – are quite sure where U.S. companies should turn next, at least for the resolution of corporate disputes. That is, Nevada.

 

That’s right, Nevada.

 

In an August 11, 2015 article entitled “Strike Suit Certainty Remains the Status Quo in Nevada” (here, subscription required), Jeffrey S. Rugg of the Browstein Hyatt Farber Schreck law firm in Las Vegas argues that Nevada provides an advantageous forum compared to Delaware because of the expeditiousness with which Nevada courts resolve M&A-related strike suits. In Delaware, Rugg argues, “the consideration and resolution of strike suits … has become increasingly uncertain and, as a result, expensive,” whereas Nevada “continues to provide all parties with the certainty of consistent application of law and efficient resolution of motions.” Continue Reading

The Problem with a Broadly Worded Professional Service Exclusion in a Service Firm’s D&O Insurance Policy

floridaIn a recent post (here), I discussed a recent federal district court ruling in which the court broadly interpreted the professional services exclusion in a bank’s D&O insurance policy in order to preclude coverage under the policy for a claim that had been made against the bank and certain of its directors and officers in a case arising out of the long-running Rothstein Ponzi scheme scandal. Southern District of Florida Kathleen M. Williams’s May 2015 opinion in the case, which I discussed in that earlier post, can be found here. As I noted in my earlier post, the case presents an example of the problems that can arise when a professional services firm’s D&O insurance policy contains a professional services exclusion with the  broad “arising out of, based upon, or attributable to” preamble language.

 

As discussed below, a recent law firm memo analyzing the court’s ruling called Judge Williams’s expansive reading of the language “troubling” and expressed the concern that the breadth of the court’s reading of the exclusion’s preclusive effect could render the D&O insurance policy’s coverage “largely illusory.” Continue Reading

Guest Post: Maximizing the Return on Your D&O Insurance for Merger Objection Lawsuit

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Peter M. Gillon

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Alexander Hardiman

One of the most distinctive corporate and securities litigation phenomena over the last several years has been the rise in merger objection lawsuits. We are now to the point that virtually every M&A transaction attracts at least one lawsuit. These suits present a number of challenges, including, among other things, questions arising in connection with D&O insurance coverage for the companies and individuals named as defendants in the lawsuits, particularly with respect to the price change exclusion, sometimes referred to as the “bump up” exclusion.

 

In the following guest post, Peter M. Gillon and Alexander Hardiman of the Pillsbury Winthrop Shaw Pittman LLP law firm take a look at the insurance coverage issues that frequently arise in these types of cases and offer some practical advice about the ways that insureds can maximize their insurance coverage when these claims arise, particularly in dealing with issues involving the bump up exclusion. Peter is a Partner and Alex is Counsel at the Pillsbury law firm. A version of this article was recently published as a Pillsbury client alert.

 

I would like to thank Peter and Alex for their willingness to publish their article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Peter and Alex’s guest post.

 

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With the explosion of “merger objection” lawsuits being filed by the plaintiffs’ securities bar in the last decade, policyholders seeking coverage under their directors’ and officers’ (D&O) liability insurance for those suits have increasingly been bumping heads with their insurance carriers over the application of the “price change exclusion” (also referred to as the “bump-up” exclusion).  This has been a major source of frustration for companies reasonably expecting their policies to respond fully to merger objection suits – especially shareholder suits claiming breach of fiduciary duties by the target company’s Board of Directors in approving the sale of the target.  Many companies and their securities defense counsel have capitulated in the face of their carriers’ declinations of coverage.  But, as this note explains, it is critical to consult with coverage counsel on these matters as insurers’ assertion of the price change exclusion is often misplaced.  Continue Reading

Time for Nominations to the ABA’s List of Top 100 Law Blogs

aba1Once again, it is time for nominations to the American Bar Association’s annual list of the Top 100 Law Blogs. I certainly am going to nominate my favorite law blogs for inclusion in the list. I would be very grateful to any reader who would be willing to nominate The D&O Diary. You can nominate your favorite law blogs on the ABA website, here. When you make your nominations be sure to provide the reasons why you like the blogs you are nominating. Nominations are due no later than 11:59 p.m. CDT on Friday, Aug. 16, 2015. Thank you for your support.

Tenth Circuit: D&O Insurance Policy’s Insured vs. Insured Exclusion Unambiguously Precludes Coverage for FDIC’s Failed Bank Claims

tenthcircuitIn an important decision concerning D&O insurance coverage in connection with failed bank claims, the Tenth Circuit, applying Kansas law, held that a D&O policy’s insured vs. insured exclusion unambiguously precluded coverage for claims brought by the FDIC as receiver of a failed bank against the bank’s former directors and officers. The Tenth Circuit’s decision arguably contrasts with the Eleventh Circuit’s December 2014 decision in the Community Bank & Trust case (about which refer here), in which the Eleventh Circuit had held that the insured vs. insured exclusion at issue in that case was ambiguous with respect to the question of whether it precluded coverage for FDIC’s failed bank claims. However, the specific language in the exclusion at issue in this case precluding coverage for claims brought a “receiver” of the insured company – language not present in the policy the Eleventh Circuit considered — was a dispositive factor in the Tenth Circuit’s conclusion about the exclusion’s applicability. A copy of the Tenth Circuit’s August 6, 2015 decision can be found here. Continue Reading

Guest Post: Ten Cybersecurity Concerns for Every Board of Directors

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John Reed Stark

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David Fontaine

It is well understood by now that cyber security is a concern for every organization and that it is an issue on which every company’s board should be focused. But what specifically should boards of directors be worried about and what questions should they be asking? In the following guest post, John Reed Stark and David R. Fontaine take a look at the ten cybersecurity concerns on which every board of directors should be focused. John Reed Stark is President of John Reed Stark Consulting LLC, a data breach response and digital compliance firm.  David Fontaine is Executive Vice President, Chief Legal & Administrative Officer and Corporate Secretary of Altegrity, a privately held company that among other entities, owns Kroll’s data breach response services. The authors’ complete biographies appear at the end of the post. This article was previously published on CybersecurityDocket.com, an online global cybersecurity and incident response report, and a division of Docket Media.

 

I would like to thank the authors’ for their willingness to publish their article on this site. I welcome guest posts from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. The authors’ guest post follows.

 

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Every board now knows its company will fall victim to a cyber-attack, and even worse, that the board will need to clean up the mess and superintend the fallout.

 

Yet cyber-attacks can be extraordinarily complicated and, once identified, demand a host of costly responses. These include digital forensic preservation and investigation, notification of a broad range of third parties and other constituencies,[1] fulfillment of state and federal compliance obligations, potential litigation, engagement with law enforcement, the provision of credit monitoring, crisis management, a communications plan – and the list goes on.

 

And besides the more predictable workflow, a company is exposed to other even more intangible costs as well, including temporary or even permanent reputational and brand damage;[2] loss of productivity; extended management drag; and a negative impact on employee morale and overall business performance.

 

So what is the role of a board of directors amid all of this complex and bet-the-company workflow? Corporate directors clearly have a fiduciary duty to understand and oversee cybersecurity, but there is no need for board members (many of whom have limited IT experience) to panic.

 

Below we compile a list of ten cybersecurity considerations that provide a solid bedrock  of inquiry for corporate directors who want to take their cybersecurity oversight and supervision responsibilities seriously.[3]  This “cybersecurity top ten list” provides the requisite strategical framework for boards of directors to engage in an intelligent, thoughtful and appropriate supervision of a company’s cybersecurity risks. Continue Reading

Guest Post: Court of Appeals Warns Against Complacency in the PSLRA’s Safe Harbor

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Bruce Ericson

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Stacie Kinser

One of the most important ways a company can try to avoid potential liability under the federal securities laws is to incorporate precautionary disclosure in its public statements and regulatory filings. However, in a June 23, 2015 decision in In re Harman International Industries Securities Litigation (here), the D.C. Circuit provided a reminder to companies on the importance of keeping their precautionary disclosures up-to-date.

 

In the following guest post, Bruce A. Ericson and Stacie Kinser of the Pillsbury Winthrop Shaw Pittman LLP law firm take a detailed look at the D.C. Circuit’s recent opinion and consider the decision’s practical implications for companies’ precautionary disclosures. Ericson is a partner and Kinser is an associate at the Pillsbury law firm. Ericson is also Managing Partner of Pillsbury’s San Francisco Office, and Co-Head of Pillsbury’s Securities Litigation and Enforcement Team. A version of this article previously was published as a Pillsbury client alert and on Law 360.

 

I would like to thank Bruce and Stacie for their willingness to publish their article as a guest post on my site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is Bruce and Stacie’s guest post.

 

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SEC Rule 10b-5 makes it unlawful to misstate a material fact (or omit to say something if the omission would render misleading what you do say) in connection with the purchase or sale of a security. The Private Securities Litigation Reform Act (PSLRA) created a safe harbor for statements that are forward-looking and accompanied by meaningful cautionary language. In a recent decision, the D.C. Circuit revisited the standard for forward-looking statements, and placed special emphasis on the accompanying cautionary language, holding that statements which fail to account for historical facts cannot be meaningful. The opinion should serve as a timely reminder for companies to review and update their cautionary language. Continue Reading

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