The D&O Diary

The D&O Diary


Challenging Consequences: The Government’s Requirement for Wrongdoing Admissions in Civil Fraud Suits

Posted in Director and Officer Liability

doj1In one of the more troublesome recent developments for corporate officials who find themselves targeted by government investigations, both the U.S. Department of Justice and the Southern District of New York U.S. Attorney’s Office have made it clear that as part of the settlement of civil fraud actions, the governmental authorities intend to seek both admissions of misconduct as well as sanctions against the corporate executives involved. These developments are not only troublesome in and of themselves but also for the collateral consequences they could have for related proceedings. In addition, the admissions could have important implications for the continued availability of D&O insurance for the companies and executives involved.


As discussed in an April 6, 2015 article entitled “DOJ’s Pursuit of Admissions – And the Risks of Settling” (here) by Matthew Previn, Michelle Rogers and Ross Morrison of the Buckley Sandler law firm, both the DOJ and the S.D.N.Y. U.S. Attorney’s office have made it clear that they will “increasingly require” admissions of misconduct and individual accountability in the form of sanctions against corporate executives in resolving civil fraud actions.


The most recent example of this phenomenon the authors cite is the March 19, 2015 settlement that the S.D.N.Y. U.S. Attorney’s Office reached with Bank of New York Mellon in connection with the government’s allegations that bank engaged in fraud and other misconduct in providing foreign exchange services to its customers, in violation of FIRREA. The bank not only agreed to pay $714 million as part of the settlement, but the settlement also included specific admissions from the bank and one of its executives with regard to the alleged misconduct. For its part, the bank agreed that it would “admit, acknowledge and accept responsibility for” certain of the allegations as part of the settlement. The executive involved, David Nichols, agreed that he “admits and accepts responsibilities for” conduct the government had alleged in its complaint. The bank also agreed to terminate “certain executives,” including Nichols. The U.S. Attorney’s Office’s March 19, 2015 press release about the settlement can be found here.


As the authors note, the S.D.N.Y. U.S. Attorney’s Office has “been a leader among U.S. attorney’s offices in requiring such admissions in civil fraud settlements.” The Manhattan U.S. Attorney’s Offices has obtained admissions of wrongdoing in several recent civil fraud cases. For example, as part of the office’s July 1, 2014 settlement with HSBC bank relating to the bank’s alleged failure to monitor fees submitted for mortgage-related services, the bank not only agreed to pay $10 million, but it also “admitted, acknowledged and accepted responsibility” for certain misconduct specified in the settlement agreement.


It is worth noting for purposes of the discussion below about the collateral consequences of admissions, that the U.S. Attorney’s Office’s press release about the HSBC settlement highlights the fact that the civil fraud action followed a private whistleblower lawsuit that had been filed under seal under the False Claims Act, and even following the settlement of the civil fraud action the whistleblower suit remains under seal as the government continues its investigation.


As the authors also note in the article, the DoJ has also “increasingly insisted on admissions in civil fraud settlements.” Among other examples the authors cite is the DoJ’s August 2014 settlement with Bank of America of the government’s civil actions against the bank relating to its mortgage-backed securities practices. According to the DoJ’s August 21, 2014 press release (here), the bank not only agreed to pay a total of $16.65 billion as part of the settlement, but it and its Countrywide unit made admissions that “they were aware of that many of the residential mortgage loans they had made to borrowers were defective, that many of the representations and warranties they made to the [government sponsored entities] about the quality of the loans were inaccurate, and that they did not self-report to the GSEs mortgage loans they had internally identified as defective.”


Because the governmental policies behind the requirements for admissions of wrongdoing include a commitment toward “holding individuals accountable for alleged misconduct,” the DoJ and the Manhattan U.S. attorney’s office have not only “increasingly named corporate executives as defendants in civil fraud actions,” but it have in fact “recovered significant monetary penalties from executives, separate and apart from any such penalties imposed on the corporate employer.”


Among other examples of that that the authors cite is the December 31, 2014 settlement the S.D.N.Y. U.S. Attorney’s office reached with Golden First Mortgage Corporation relating to the government’s allegations with respect to the company’s participation in the FHA lender program. Both the company and its owner and President, David Movtady, not only “admitted, acknowledged and accepted responsibility for” the conduct the government alleged, but Movtady agreed to a $300,000 payment, in addition to the $36 million judgment to which the company agreed. The U.S. Attorney’s office’s December 31, 2014 press release about the settlement can be found here.


The fact that the DoJ and the U.S. Attorney’s office likely will “increasingly seek admissions of misconduct and individual accountability in civil fraud cases” makes the decision for companies and for their executives on whether or not to settle with the government “more complicated decisions.”


For the individuals involved, these issues are particularly fraught. The admissions of the type the government is requiring can have important consequences for the individuals. It is not just the employment implications, as was the case with the individual involved in the Bank of New York Mellon foreign exchange settlement referenced above, whose employment was terminated as part of the settlement. These kinds of admissions can, as the memo’s authors point out, put both the corporate and individual defendants in a position where they “could face increased exposure to criminal charges,” which is a particularly concern with respect to allegations of wrongdoing under FIRREA, as “its underlying predicate acts are violations of criminal charges.”


In addition, the “collateral consequences” from the kinds of admissions that the government is requiring include possible complication of parallel proceedings that are not resolved as part of the settlement with the government. A good example of this kind of problem is the False Claims Act action referenced in connection with the HSBC settlement described above; the settlement with the government did not resolve the whistleblower’s False Claims Act case, which remains pending and obviously was aided by the admissions the government required as part of the settlement. Many of these governmental civil fraud actions are accompanied by parallel civil litigation, such as shareholder litigation or other type of claims, that in most instances would not be resolved in a settlement with the government. The admissions the government and the individuals are required to make in their settlements with the government often will be helpful to the claimants in the parallel cases, often substantially so.


Another potential concern has to do with the D&O insurance of the companies involved. In most instances, there would be no coverage for the fines and penalties paid as part of the settlements. But the deeper concern for the entities and individuals forced to make these kinds of admissions in reaching settlements with the government is that the admissions might possibly trigger exclusions in the company’s D&O insurance policy. The triggering of the exclusions might not only preclude coverage going forward defense expenses but could also cause the insurer to seek to recover amounts that have already been paid. The loss of going forward defense cost coverage could be a particular concern where there are further parallel proceedings that will continue even after the settlement with the government. The individuals and the entity might face the prospect of having to fight continuing proceedings without insurance.


Whether a particular admission could trigger an exclusion will depend both on what specifically was admitted and on the specific wording of the exclusion involved. A careful litigant aware of these concerns might be able to negotiate admissions that are acceptable to the government but that might not trigger the exclusion. (For example, if the exclusion is only triggered if there were “deliberate” misconduct, the admission could be crafted to avoid any admission that the misconduct was “deliberate.”) Another factor in determining whether or not the exclusion is triggered where the exclusion has an “adjudication requirement” will depend on the procedures surrounding the admission; the carriers may seek to argue where the admissions are incorporated into the court’s judgment that the “adjudication” requirement has been met. Obviously, this concern also could be relevant during the settlement negotiations with respect to the specific forms in which the admissions will be made.


It is clear that the government authorities will increasingly seek to require admissions in connection with the settlement of civil fraud actions. As the memo’s authors state, given this likelihood, “corporate and individual defendants now more than ever need to weigh the possible consequences of a settlement incorporating those elements against the risks of litigating against the government.” Among the consequences that corporations and individuals will have to consider are the possible D&O insurance consequences.

A Q&A with Mark Lebovitch of Bernstein Litowitz: A Plaintiffs’ Counsel’s Perspective on the Fee-Shifting Bylaw Debate

Posted in Corporate Governance

Lebovitch_Mark_300dpiOne of the more significant recent developments in the corporate and securities litigation arena has been the emergence of the debate over fee-shifting bylaws following the Delaware Supreme Court’s May 2014 decision in ATP Tour, Inc. v. Deutscher Tennis Bund. Draft proposed legislation is now being considered by the Delaware legislature that would address fee-shifting bylaws, among other issues.


As part of this debate, Mark Lebovitch and Jeroen Van Kwawegen of the Bernstein, Litowitz, Berger & Grossmann law firm wrote a March 16, 2015 paper entitled “Of Babies and Bathwater: Deterring Frivolous Stockholder Suits Without Closing the Courthouse Doors to Legitimate Claims” (here) in which they contributed their views as plaintiffs’ attorneys on the fee-shifting bylaw controversy. A summary version of their longer article appears in an April 8, 2015 post on the Harvard Law School Forum on Corporate Governance and Financial Regulation (here).


After reviewing their paper, I approached Mark to see if he would be willing to participate in a Q&A for this website, discussing his views on the topic. Mark agreed to participate, and our exchange is reproduced below. My questions are in boldface, Mark’s responses are in plain text.


By way of background, Mark is a partner at the Bernstein, Litowitz, Berger & Grossmann law firm. He heads the firm’s corporate governance litigation practice, focusing on derivative suits and transactional litigation. Since becoming a shareholder-side lawyer after leaving Skadden Arps as a senior associate, Mark has served as lead plaintiffs’ counsel in several of the highest profile and most successful shareholder lawsuits. I would like to thank Mark for his willingness to participate in this Q&A, which follows below. 




I know your recent article opposes the Delaware Supreme Court’s opinion in the ATP Tour case for a wide range of policy and legal reasons. What was your immediate reaction to the opinion? At what point did you see the case as a threat to the viability of shareholder litigation itself?

When I first read the opinion, I was stunned. The Court justified bylaws adopted by the board of a member corporation that forced plaintiff-members to fund the board’s defense costs unless the plaintiff-members obtained substantially all the relief sought in their complaint. I kept waiting for the “but here’s the limitation” moment when the ruling would be cabined in some way so it would not apply to public companies. That moment never came. Instead, the opinion affirmatively said that “deterring litigation” was itself a proper purpose for a bylaw, without even including the word “frivolous.” As a result, the opinion seemed to invite boards to limit their accountability to the shareholders whose assets they manage by adopting fee-shifting bylaws. This outcome seemed totally inconsistent with everything I had believed about Delaware law. (I will note that the Chief Justice recently stated, publicly, that the Court did not contemplate that public companies would seize upon the ruling.)

Fee shifting provisions at public companies is just impossible to justify. They eliminate the ability of stockholders to pursue meritorious claims because you are letting corporations make an individual plaintiff seeking to achieve a benefit for a class of plaintiffs bear unknown and massive personal liability risk. Nobody would file suit knowing that the longer the case goes on, the larger the black hole of personal liability the stockholder will face if the case fails to get a complete and total victory. The deck is just stacked so fully against you that it would never make sense to begin the fight.

To me, it was just a matter of time before corporate CEOs, even those who generally mean well and try to do right by their shareholders, would be telling their executives and boards that by unilaterally passing a simple bylaw, they could now manage massive amounts of other people’s money without any fear of accountability to those investors. And sure enough, within days, certain corporate firms started recommending these bylaws to their clients, albeit nicely dressed up in some Orwellian terms that made the bylaws seem like a modest step.  


Since the Delaware Supreme Court issued its ATP Tour opinion, the question of whether or not corporate boards should be able to unilaterally adopt fee-shifting bylaws has been actively debated. What is your core disagreement with the reasoning of the Delaware Supreme Court in the ATP Tour case? If fee-shifting bylaws should not be allowed, are fee-shifting provisions in a company’s articles of incorporation OK?

My core problem is that ATP seemed to ignore the inherent conflict of interest in allowing a board of directors to pass a resolution and, voila, become effectively immune to shareholder enforcement of fiduciary and related duties. That conflict is very real.

To take a slightly theoretical perspective, giving directors broad power to use bylaws to affect core stockholder rights conflicts with former U.S. Supreme Court Chief Justice Oliver Wendell Holmes’ “Bad Man” theory of how you set up the law. I may be oversimplifying, but Holmes wrote that when you craft laws that regulate conduct, you do so with a bad actor in mind, not the moral person of high integrity, who will naturally behave in a socially acceptable way with or without the lines drawn by law.

The business judgment rule conforms to Holmes’ theory. Courts will not generally intervene or second-guess director decisions. But that presumption of normalcy goes away, and courts expose decisions to various degrees of judicial scrutiny, when there is some misaligned incentive or other logical basis to fear the directors may not act solely for the best interests of the shareholders whose assets they oversee. In other words, the law typically presumes directors are good people. Yet, when there’s a basis to fear self-interested conduct or signs of a misalignment of interests, the corporate law is realistic about the situation, and provides judicial protection against abuse by the “bad man.”

The ATP opinion was troubling because it applied the business judgment presumption to a context where the conflict of interest just seems so obvious. If directors can benefit themselves at the expense of stockholders by simply writing a bylaw insulating themselves from accountability, then you not only empower the “bad man” directors and officers that we all know exist, but you may even push good actors, the vast majority of directors who have integrity and truly want to do the “right thing,” towards harmful and conflicted conduct.

That gets us to your question about charter provisions. I think Professor Larry Hamermesh got it right in a recent article that considers the issue of consent from the perspective of reasonable investor expectations. Public company investors are entitled to have some basic expectations about how their companies operate, and the ability to enforce fiduciary duties sure seems to me to be at the very heart of the corporate structure itself. People simply cannot invest their savings and retirement money with public company boards if those boards are immune from accountability, whether or not the charter creates that circumstance. The idea that shareholders implicitly consent to fee-shifting provisions by buying securities rests on a misconception as to why investors buy securities in the first place. Nobody buys stock with a future lawsuit in mind; they buy because they believe the securities will increase in value. So while I don’t think it is conceivable that disinterested shareholders would ever agree to consciously impose fee-shifting on themselves, I also think that the economic proposition that is the public corporation just doesn’t work without enforceable fiduciary duties.


Do you also think that forum selection bylaws are inappropriate? If you are OK with forum selection bylaws, what is the difference?

I don’t have a fundamental problem with the end goal of getting shareholders to bring identical lawsuits in a single competent jurisdiction. But I question the means the corporations have used to achieve that end.

Traditionally, bylaws were like the “Robert’s Rules of Order” aspect of the corporate structure – they told you how to call a meeting, who could vote, how many make a quorum, and so on. Bylaws truly addressed the internal functioning of corporate affairs. Letting directors amend bylaws did not typically raise conflict of interest concerns. Using bylaws to dictate where stockholders could bring a lawsuit, which is the essence of the forum selection issue, still relates to an internal affairs issue, but it comes closer to affecting shareholders’ personal rights.

To be clear, I’m not saying you reject that use of bylaws. Frankly, a forum selection provision does not impair any shareholder’s right to hold his or her agents on the board accountable. And in the post-Chevron world, any debate on the issue is beside the point anyway. But once the Delaware courts allowed the use of bylaws to dictate where a lawsuit is filed, you have to ask where the line is drawn and worry about unintended consequences. If judicial forum selection is within the proper function of a bylaw, would discovery limits also qualify? How about forcing arbitration? Holding requirements to sue? Each of these potential consequences would impair shareholder rights to hold boards accountable. So I had no problem with the end achieved through the Chevron ruling, but I did worry about the means used to achieve that end because it opened the foor for boards to push the envelope on this.


What is your view of the proposed amendment that has been submitted to the Delaware legislature, which would bar public companies from adopting fee-shifting provisions in their bylaws or charters?

I think the proposed amendment is a helpful clarification that the ATP ruling approving fee-shifting bylaws does not apply to stockholder corporations, and should be approved without delay. That said, the proposal is clearly limited only to fee shifting and does not otherwise limit what can be achieved through bylaws. So while it fixes the fee shifting problem, I’m concerned that we’ve opened a Pandora’s Box and not fully gone back to the status quo. Overly aggressive directors and corporate advisors are now actively exploring creative ways to use bylaws to impair core stockholder rights.

Just consider how aggressive directors have become in using bylaws as a weapon against their shareholders to impede proxy contests. The once routine stockholder notice and nomination process has been transformed, via the latest generation of advance notice and nomination bylaws, into a complex labyrinth that requires hundreds of pages of disclosures and provides all sorts of pretexts for a board to reject a stockholder nominee. So I think that the fighting over the proper use of and role for bylaws is going to continue.


Delaware is not the only state where developments involving fee-shifting bylaws are underway. For example, Oklahoma’s legislature has enacted a statute authorizing companies organized under that state’s laws to adopt fee-shifting bylaws. Isn’t it inevitable that there will have to be some type of federal action on the topic of fee-shifting bylaws?

It seems to me that the Oklahoma fee shifting statute was a political outcome driven by people who really do want to eliminate board accountability altogether. Oklahoma’s statute appears to have been adopted in direct response to a ruling by an Oklahoma court sustaining a derivative breach of fiduciary duty claim. Denying a pleadings motion should not cause a legislative overhaul, but it seems the defendants may have had some influence with the Oklahoma legislature and used it to escape accountability for their alleged misconduct.

Anyway, I think that if the Delaware legislature approves the proposed legislation, it can send a powerful message and forestall calls for federal intervention. A failure to pass the statute, on the other hand, will increases pressure on the SEC, which was largely silent on the issue until its Chairwoman recently discussed fee shifting bylaws and suggested that state laws allowing fee shifting provisions would be subject to preemption in the federal securities context. Getting back to your comment about Oklahoma, I think that the Delaware legislature can make it harder for other states to engage in a destructive “race to the bottom.” The legislature could make clear that it rejects corporate fee shifting because you can’t have a credible and balanced legal regime that leaves investors at the complete mercy of their fiduciaries, without any real ability to take action in response to serious wrongdoing.


The context for all of these developments is that that many observers feel there has been an upsurge in frivolous litigation (or if frivolous is too strong a word, then unmeritorious litigation). Do you have any suggestions for ways that frivolous litigation can be deterred or discouraged while allowing meritorious lawsuits to go forward?

I’ve said and written for years that there are, in fact, problems in the field of stockholder litigation. It makes no sense that so many public company deals trigger a lawsuit. But that does not mean that you do away with shareholder litigation altogether. Look, just because there’s some mold in the basement, you don’t burn down the whole house. Or, to use a medical analogy, a good doctor observes the symptoms, diagnoses the disease, and then selects the treatment. It seems to me that because of the overblown hyperbole about the symptom – too much litigation – the corporate world skipped the diagnosis stage and proposed treatments that just kill the patient.

So I think you need to address frivolous litigation without preventing meaningful litigation. As we write in the article, quoting professor Coffee, don’t throw out the baby with the bathwater. By allowing supposed cures that do not differentiate between frivolous cases and cases that may have merit, you lose the benefit of meaningful stockholder litigation. I truly believe that the cases in which I invest my and my partners’ time and resources arise from real misconduct that genuinely warrants a meaningful remedy, and/or raise important policy issues that broadly affect the interests of stockholders in public corporations.

My partner and co-author, Jeroen van Kwawegen, and I, propose some changes to the litigation practice that could deter a majority of the M&A litigation that is filed today. We suggest ways to make the disclosure-only settlement far less attractive for plaintiffs and defendants alike. Our proposal, which has support in Delaware law, requires that disclosures providing the consideration for a settlement actually be material as a matter of law, and that the release be limited, absent good cause, to the nature of the disclosures provided. If you don’t have material disclosures, you don’t have consideration. And if you link the scope of the release to the disclosures, you have a fair quid pro quo. I think the demanding scrutiny on the materiality of disclosures and narrowed scope of releases, combined, would deter the filing of the weakest 50-65% of merger lawsuits going forward.

I’m sure others may have better ideas. But the key is to be targeted. Fix problems. Don’t use problems as cover to fundamentally change the relationship between shareholders and their boards, and thus make bigger problems.


In the last few years there has been an increase in the number of shareholder derivative settlements involving the payment of substantial cash amounts. Is there a reason we have been seeing more of these derivative suit settlements involving large cash payments? What are the factors that you think lead to a derivative suit settlement involving a large cash component?

There are a couple of factors, but I think the growth in derivative settlements finds a parallel in the securities class action field. You have been writing about the declining numbers, in volume and dollar value, of securities class actions. Plenty stock drops don’t even trigger lawsuits. That is because the pleading standards keep getting tighter, and people don’t really want to invest their own time in cases that are extremely likely to die on the vine. From the PSLRA, to Dura, Tellabs, Stoneridge, and more recent cases, the ability of investors to bring lawsuits, even some that appear to be meritorious, has consistently been narrowed. The result, which I think reflects an improved quality in the lawsuits that are actually filed and prosecuted, is an increase in the relative recovery per settlement, notwithstanding fewer settlements. It’s harder to bring a suit, but if a case gets past the pleading stage, it more likely than not does have some merit.

I think the same dynamic exists in the derivative litigation practice. It’s tougher to get a case past the motion to dismiss stage. In fact, it feels like the courts have been tightening the standards and showing a willingness to dismiss cases that I think might have survived in prior years. This also means that cases that are sustained are more likely to have merit. Also, the Chancery Court has shown that it recognizes when plaintiff’s lawyers are willing to assume real risk and litigate aggressively. So when lawyers have a good case, they know they will be rewarded for fighting for the last dollar.

The other reason for increased settlements may be better advice on the defense side. I’m sure there are plenty of defense lawyers who lose a motion to dismiss in a derivative case and tell their clients that the judge got it wrong or the law is too permissive. I’m sure some of those lawyers even believe what they say. But I think it’s a credit to the D&O counsel and better defense advisors that beneath their posturing, they recognize that some cases have merit and should rationally be settled (even at significant levels) to avoid devastating adverse legal rulings.


Management Liability Insurance: If a Qui Tam Action is a Claim, When is it “First Made”?

Posted in D & O Insurance

californiaThe federal False Claims Act imposes liability on those who defraud the government. The law also allows third-parties to bring so-called qui tam actions in the form liability claims under the Act; if the qui tam actions are successful, the third-party can receive a portion of the recovery. When a third-party files a qui tam action, the Act requires that the complaint remain under seal for at least sixty days and that it “not be served on the defendant until the court so orders,” so that the government can decide whether it wants to intervene and pursue the action. Even if the government declines to intervene, “the person who initiated the action shall have the right to conduct the action.”


The practical effect of these procedural requirements is that there is sometime a protracted lag between the date the qui tam action complaint is filed and the date it is served. These procedural aspects of the qui tam action process fit awkwardly with the standard management liability insurance policy provisions. Indeed, the coverage questions these kinds of cases present are recurring issues.


As discussed in a recent decision from the Northern District of California, the qui tam action process can raise basic questions about whether and when the qui tam action is a “claim” within the meaning of the policy, and, if it is a claim, when the claim is “first made.” In an April 3, 2015 decision, Judge Jon S. Tigar held that a qui tam action complaint that had been filed but not yet served represented a “claim” but had not yet been “first made,” and therefore that the defendant company’s management liability insurer’s duty to advance defense expenses had not yet been triggered.  NOTE: The link to the opinion  has been removed. The court’s docket state’s that the opinion is currently under seal and not available to the general public.



In February 2012, the Department of Justice issued subpoenas to Braden Partners, LP, doing business as Pacific Pulmonary Services, requesting documentation related to Braden’s sales practices and claims for payment from federally funded healthcare programs. In August 2013, Branden obtained a redacted copy of a qui tam complaint that had been filed against it. The complaint alleged violations of the federal and California False Claims Act. The underlying complaint remains under seal and the court has not yet entered an order authorizing service of the complaint on Braden.


At the times Braden obtained the various subpoenas and later when it obtained the redacted complaint, Braden submitted them to its management liability insurer, which had issued a general partners’ liability policy to Braden for the policy period August 15, 2011 to June 1, 2012. The insurer denied that it had an obligation to advance Braden’s costs of responding to the subpoenas and in connection with the redacted complaint on a number of grounds, including its contention that the neither the subpoenas nor the unserved redacted complaint represented “claims” and that in any event the claim if any has not yet been “first made.”


In April 2014, Braden filed an action alleging that the insurer had breached the policy by refusing to advance the defense costs for the subpoenas and the underlying complaint. In an earlier ruling, Judge Tigar granted the insurer’s motion with respect to the subpoena-related costs. The insurer moved for judgment on the pleading with respect to Branden’s claims related to the underlying complaint.


The Relevant Policy Provisions

The policy at issue provided that the insurer “will pay on behalf of the Partnership all Loss which the Partnership shall become legally obligated to pay as a result of a Claim first made against the Partnership and reported to the Insurer during the Policy Period.”


The policy defines a “Claim” as:


(a) A judicial or other proceeding against a General Partner for a Wrongful Act in which such General Partners could be subject to a binding adjudication or liability for compensatory monetary damages or other civil relief, including an appeal therefrom, or (b) a written demand against a General Partner for compensatory money damages or other civil relief on account of a Wrongful Act.


Section (IV)(G) of the policy provide further that a “Claim shall be deemed to have been first made against a General Partner on the date a summons or similar document is first served upon such General Partner.”


The policy’s notice of claim provision provides, among other things, that


If during the Policy Period the General Partners or the Partnership become aware of a specific Wrongful Act that may reasonably be expected to give rise to a Claim against any General Partner… then any Claim subsequently arising from such Wrongful Act duly reported in accordance with this paragraph shall be deemed under this Policy to be a Claim made during the Policy Period.


The April 3 Decision 

In his April 3, 2015 Order, Judge Tigar granted the insurer’s motion for judgment on the pleadings, holding that while the underlying complaint is a “Claim” within the meaning of the policy, because it has not yet been served on Braden the claim has not yet been “first made,” and accordingly the insurer has no duty to advance defense expenses.


In ruling that the underlying complaint is a “Claim,” Judge Tigar rejected the insurer’s argument that because the complaint had not yet been served, it is merely a “threatened claim” and that Braden may never face liability. Judge Tigar said that “the Policy’s plain language merely requires the possibility of liability by adjudication, rather than absolute certainty.” He noted also that the policy “only references ‘service’ with regard to when a ‘Claim’ is deemed to have been ‘first made’ – not to determine whether the definition of ‘Claim’ is met.”


With respect to the “first made” question, Judge Tigar said that the policy’s provisions “unambiguously require service of summons or similar document to trigger coverage of a claim,” adding that “The Policy explicitly requires either service of summons or a similar document for a Claim under subpart (a) of the Policy definition to be deemed ‘first made’” Because the underlying complaint remains sealed and unserved, the “Claim” has not been “first made.”


Finally, Judge Tigar rejected Braden’s argument that the notice provision alters the requirement of a service of a summons for a claim to be “first made.” Judge Tigar said that “nothing in the language of the notice provision indicates that it functions to nullify, contradict or serve as an exception to the requirement that a ‘Claim’ be ‘first made’ by service of summons in order to qualify for coverage.”


Judge Tigar dismissed Braden’s complaint wihtout prejudice, noting that Braden may refile its complaint if necessary after service of the complaint in the underlying suit.



As a noted in an earlier post discussing a coverage dispute involving a False Claims Act case, the qui tam case procedures are an uncomfortable fit with the typical management liability policy provision. The fact that a qui tam complaint can be filed but remain sealed and unserved for an extended period of time can be a particular problem, as the lag can extend across several policy periods – during which, as here, the company that is the target of the complaint is incurring legal expenses.


A particular problem here could be that even if Braden is eventually served with the qui tam complaint, the claim will be “first made” at the time of service. The policy under which Braden is seeking coverage had a 2011-2012 policy period. On its face, it might look like the claim was not “first made” during the policy period of the claims made policy. That is point where the “deemer” language in the policy’s notice provision would become relevant. Under the notice provision, when the complaint is finally served, it will be deemed to have been first made at the time of Braden’s initial notice, which did take place during the policy period. Judge Tigar’s opinion states that “the parties do not dispute that the requirements of the notice provision were met,” so it would seem that by that point, the insurer’s advancement obligations would finally be triggered.


Unlike the insurer in the coverage dispute discussed in the prior blog post to which I linked above, the insurer here would not be able to argue that coverage for the claim would be precluded by the prior and pending litigation exclusion, because the qui tam action had not been “filed or commenced on or before … the effective date of this policy.” The Braden qui tam action was “filed or commenced” after the policy period commenced. But while Braden might not have to fight over the prior and pending litigation exclusion, it could have other battles; Judge Tigar’s opinion recites that when Braden first submitted the redacted complaint to the insurer, the insurer denied coverage “based on several policy exclusions.” The policy exclusions on which the carrier was relying are not identified in the opinion.


Even if the policyholder here were able to overcome all of the hurdles and the insurer were to agree to advance defense expenses, the policyholder likely will still be stuck with all of the defense expenses that have and that will have accrued before the complaint was served. In more recent management liability policies, the definition of claim expressly references the service of a subpoena as a claim under a policy; in a policy with this more contemporary wording, an insured might be able to advance to an earlier time the point at which the carrier will start picking up the defense expenses.


Based on the case decisions that have come across my desk dealing with the issue, it looks as if the carriers are pretty invested in fighting coverage for qui tam actions. At one level, I understand this – as I noted at the outset, the qui tam action procedures are an awkward fit with many of the basic management liability insurance policy provisions. But it is not as if the carriers are coming right out and saying — as I think they should if they really don’t intend to cover these kinds of claims — “this policy provides no coverage from Loss arising from claims alleging violations of the federal False Claims Act or its state equivalents.” If the carriers are not taking the position that qui tam actions are simply not covered, then I think the industry needs to do a better job addressing the recurring issues qui tam actions present – particularly since we are basically talking about defense cost coverage here. There may need to be a specific policy provision addressing qui tam claims — for example, specifying modified definitions of the terms “Claims” and “first made” for purposes of claims alleging violations of the federal False Claims Act or state equivalents, and also making sure that prior and pending litigation issues are addressed as well.


Of course, it could be that the carriers feel that their policies simply do not cover False Claims Act claims, but if that is their position they should say so in an express policy exclusion, rather than depend on a thicket of miscellaneous policy provisions to deny coverage.


About the Judge — and His Father: Northern District of California Judge Jon S. Tiger has been a U.S. District Court Judge since January 2013. Before that, he was a state court judge in California. He is the son of the prominent criminal defense attorney,  Michael Tigar. When I was a very young attorney, I had the opportunity to meet Michael Tigar and to see him in action in the courtroom. The experience has stayed with me, because Michael Tigar was teriffic.


There is an interesting story about Michael Tigar. In 1966, after his graduation from U. Cal Berkeley law school, he had been hired to work as a law clerk for Justice William Brennan of the United States Supreme Court. However, after only a week, Brennan fired him  following complaints made by conservative columnists and FBI director J. Edgar Hoover, because of Tigar’s activist background as an undergraduate and law student at Berkeley. Despite this early setback, Tigar went on to have a very successful legal career (including a stint as a partner at Williams & Connolly). He eventually become a law professor at the University of Texas law school, among other things. The elder Tigar’s criminal defense clients included Angela Davis, Lynne Stewart, Terry Nichols, and John Demjanjuk.


In a March 12, 1990 New Yorker article about Justice Brennan entitled “The Constitutionalist” (here), the article’s author, Nat Hentoff, recounts asking Brennan about what happened with Tigar’s clerkship. The article quotes Brennan as saying about Tigar and the clerkship that “That was a very sad occasion for both of us at the time. Mike and I have remained good friends. He’s a great guy, a wonderful lawyer. What actually happened was a deluge. The right wing deliberately set up a program—a system of pressure—that involved Abe Fortas, who was on the Court then; J. Edgar Hoover; and, more particularly, Hoover’s right-hand man, Clyde Tolson. They bombarded me with all kinds of letters—all having to do with Mike’s participation in the Helsinki youth meeting. Probably, if I had just continued to face it down, the investigation would never have happened. But they had twenty-eight or more congressmen protesting Mike’s appointment. Clyde Tolson came over to see Fortas, and Fortas came in to see me to tell me that if I went through with this there might well be an inquiry, which would be most embarrassing to Tigar and to me—and to the Court.”


The interview recounted in the article continues as follows, with Brennan speaking first and Hentoff asking  responding questions and commenting:  

“I must say I’ve had a number of second thoughts,” he said. “I suppose I should have treated it as something that would go away, but I didn’t. I was very much concerned that—in the atmosphere of those days—if we got into this kind of thing it certainly would not have done the Court any good. That’s what I said in the discussion I had with Mike at the time. A clerkship simply could not have that much significance—if it was going to hurt the institution.”

“Did Tigar understand that?”

“Oh, Mike understood it perfectly.” Brennan paused. “That’s the only instance of anything like that I’ve had in all my years here.”

All that Professor Tigar will say is “I have enormous respect for Justice Brennan.”



What’s Up with IPOs?

Posted in IPOs

stock pricesIt has been three years since Congress passed the JOBS Act in the hope that aiding “Emerging Growth Companies” would help create jobs. Among other things, the Act’s IPO on-ramp provisions were designed to encourage fledgling companies to go public, on the theory that that would boost employment. As discussed below, the legislation’s jobs creation track record is generally positive but also a little vague. There is no doubt, however, that the IPO market has been active since the Act was passed. Most of the companies that have gone public during that time have taken advantage of the Act’s IPO provisions, as detailed in a recent study also discussed below. But while there were more U.S. IPOs in 2014 at any time since the dot com era, IPO activity so far in 2015 is well off last year’s pace.


The JOBS Act’s IPO on-ramp provisions were designed to help emerging growth companies – firms with less than $1 billion in annual sales — to go public. The Act permits these companies to submit their initial filings to the SEC confidentially and to have expanded discussions with investors before the SEC has approved their offering documents. In addition, the eligible companies are relived from certain accounting and disclosure standards.



The purpose of these measures was to encourage job creation, and there appears to be some reason to think the Act has helped to spur employment. An April 3, 2015 Wall Street Journal article (here) reports that that “tens of thousands of related jobs have been created” by the Act, but “it’s a challenge to say just how many owe their existence to the bill.” The Journal says that the U.S. companies that completed offerings under the JOBS Act provisions added about 82,000 jobs since they completed their offerings, an increase of roughly 30% from their pre-IPO head counts.


However, attributing all of this job growth to the JOBS Act is a little questionable, since many of the companies would have gone public even if the JOBS Act had not been enacted. In addition, the impact if any has been concentrated in a few companies — more than 40% of the positions were created by just ten JOBS Act companies. The Journal article notes that “Economists say it is still too early to tell whether the law will lead to large-scale U.S. employment gains.”


While the Act’s impact on job creation may be uncertain, there is no doubt the Act’s IPO provisions have proven to be popular. The Journal reports that of the nearly 660 companies that have gone public since the Act became law, 539 companies (about 82%) have completed their IPOs under the JOBS Act’s provisions. Of those 539 companies, 454 were U.S. companies and 85 were domiciled outside the U.S.


It is certainly clear that the number of IPOs since the JOBS Act was enacted has jumped to the highest level in years. According to Renaissance Capital (here), 275 companies completed IPOs in 2014, compared to 222 in 2013 and just 128 in 2012 (the year the Act became law). The increased numbers of completed offerings are clearly due to the recovering economy and the healthy state of the equity markets. But even if the JOBS Act is not the direct cause of the increased IPO activity, its provisions are helping to facilitate the activity.


An interesting March 17, 2015 report from the Proskauer Law firm entitled “2015 IPO Report” (here) takes a very detailed look at last year’s IPOs, by focusing on the 119 U.S.-listed IPOs completed in 2014 with a deal size of $50 million or greater. The 144-page report analyzes these larger IPOs based on a number of criteria, including whether or not the offering priced in the target range; how many comments the SEC has about the companies’ offering documents; how much the companies incurred in fees and expenses; and how the companies fared post-offering.


The report also examines the extent to which the IPO companies took advantage of the JOBS Act provisions in connection with their offering. The report notes that of the 119 IPOs analyzed, 77% were emerging growth companies. 60% of the firms that qualified as emerging growth companies took advantage of the JOBS Act provision allowing them to submit only two years of audited financials and 52% took advantage of the JOBS Act provision allowing them to submit only two years of selected financial data. (Firms that do not qualify as emerging growth companies are required to include three years of audited financials and five years of selected financial information.)


The JOBS Act provision that the emerging growth companies really like is the Act’s provision allowing them to submit their draft registration statement on a confidential basis. Of the IPOs the law firm analyzed that involved emerging growth companies, fully 96% elected to submit their draft registration statement confidentially. The report also notes that on average, the emerging growth companies that submitted their draft registration statement confidentially made their first pubic filing 76 days after their first confidential submission and their offering priced 49 days after the public filings.


Interestingly, the report notes that a greater percentage of emerging growth companies priced above range than companies that did not qualify as emerging growth companies, and also that the emerging growth companies generally outperformed non-emerging growth companies.


Though 2014 was the most active year for IPOs since the go-go days of the dot com era, there are early signs that may suggest that the robust level IPO activity is waning, as noted in an April 3, 2014 Wall Street Journal MoneyBeat article entitled “Companies Saying ‘No’ to IPO” (here).


According to Renaissance Capital (here), through April 3, 2015, only 35 IPOs have priced year-to-date, a decline of 51% from this same point last year. The 34 offerings completed in the first quarter of this year is the lowest quarterly total since the fourth quarter of 2012, when there were 29 offerings completed. The decline in total offering proceeds for the year-to-date IPOs is even steeper. The 35 offerings completed through April 3, 2015 have raised a total of only $5.5 billion, compared to $12.6 billion raised as of the same date last year, a decline of 56%. The number of filings during the first quarter of the year was also off; the 49 filings in 1Q15 were the lowest quarterly number of filings since the first quarter of 2013 (when there were 36).


The Proskauer report suggests a possible reason for these declines. The report notes that there were important differences between the IPOs completed in the first half of 2014 compared to those completed in the second half. 45 percent of the second-half deals priced below range, compared to 25 percent of first-half deals. Second-half deals also generally underperformed first-half deals in the aftermarket. Either the quality of the deals declined during the year or investors lost their appetite for IPOs. Either way, the market for IPOs became tougher as 2014 progressed and we may be seeing the effects in the form of reduced IPO activity so far in 2015.


It is far too early to call the end of the current IPO wave. There is still a long way to go this year, and during the current wave the pace of IPO activity has ebbed and flowed a little bit. Even with the lower level of IPO activity in this year’s first quarter, the IPO pricings are on pace for 136 IPOs by year end, which would still be a higher number of IPOs than were completed in 2012. Renaissance Capital’s analysis of the current IPO market remains upbeat; in their 1Q15 IPO analysis (here), the firm said that “the solid performance of recent IPOs combined with a large active pipeline should support a more active second quarter.” But in light of the reduced number of IPO filings in the year’s first quarter, it does seem probable that there will be fewer IPOs completed this year than were completed in either 2013 or 2014.


As I have noted previously on this blog, increased IPO activity means increased IPO-related litigation. The year-to-date securities class action litigation filings bear this out, as eight of the 46 securities class action lawsuit filings so far this year (about 17%) have involved companies that completed IPOs in either 2013 or 2014. Given the usual lag between the IPO dates and lawsuit filings dates, we will probably continue to see significant numbers of IPO-related securities suit filings for some time. (There were, after all, 497 IPOs in 2013 and 2014.) But if the current slump in IPO pricings and filings continues, a decline in IPO-related litigation could follow.

The Curse of Multi-Jurisdiction Litigation: A Problem for Everyone, Not Just Defendants

Posted in Director and Officer Liability

del1One of the more distinct litigation phenomena in recent years has been the rise of multi-jurisdiction litigation, particularly in connection with merger objection litigation. Corporate advocates and defense attorneys have decried this development, as it has forced companies facing litigation to have to fight a multi-front war and to incur increased defense expense. At its worst, multi-jurisdiction litigation can also hazard the possibility of inconsistent rulings in different jurisdiction. The usual focus of any discussion of the problems of multi-jurisdiction litigation has been on the challenges it creates for the corporate defendants. However, as recent developments in the derivative litigation involving Wal-Mart stores and the scandal surrounding its Mexican operations shows, multi-jurisdiction litigation is not just a problem for defendants – it can also be a serious problem for competing sets of plaintiffs’ lawyers as well.


The Wal-Mart litigation relates to allegations of improper payments and of an alleged cover up relating to supposed improper payments the company’s Mexican operation paid to ensure approval or building permit for the company’s stores in Mexico. The allegations first came to light in an April 12, 2012 New York Times article entitled “Wal-Mart Hushed Up a Vast Mexican Bribery Case” (here). Following the publication of the Times article, various shareholders launched lawsuits against the company and its directors and officers. For example, plaintiff shareholders filed a series of securities class action lawsuits against the company and certain of its directors and officers that were consolidated in the Western District of Arkansas.


Plaintiff shareholders also filed derivative lawsuits based on the Mexican operations bribery scandal. All told, plaintiffs filed seven derivative suits in the Western District of Arkansas, where Wal-Mart’s corporate headquarters are located. The various Arkansas derivative actions ultimately were consolidated into a single proceeding. In addition, a separate plaintiff filed a books and records proceeding in Delaware, in light of that state’s courts’ well-known preference for prospective claimants to first review the corporate records before filing derivative lawsuits in Delaware’s courts. (Wal-Mart is organized under the laws of Delaware.)


Wal-Mart moved to stay the Arkansas action while the Delaware books and records proceedings went forward. While the Arkansas judge agreed to stay the cases in her court, in December 2013, the Eighth Circuit ruled that the Arkansas cases should proceed.


The Arkansas case then went forward, and on March 31, 2015, Western District of Arkansas Judge Susan O. Hickey, applying Delaware law, granted the defendants’ motion to dismiss, based on her determination that the plaintiffs had failed to made the requisite demand on the Wal-Mart board that the corporation should pursue the litigation and further had failed to establish demand futility. Among other things, Judge Hickey said that “Plaintiffs have failed to plead with particularity that [a majority of the] Director Defendants face a substantial likelihood of personal liability so that their ability to consider a demand impartiality would be compromised.”


A copy of Judge Hickey’s March 31 opinion can be found here. The FCPA Professor blog has a detailed review of the issues addressed in Judge Hickey’s ruling in an interesting April 2, 2015 post, here. The Arkansas plaintiffs’ lawyers have indicated they intend to appeal Judge Hickey’s ruling to the Eighth Circuit.


Judge Hickey’s ruling in the Arkansas litigation is obviously welcome news for Wal-Mart and for the individual defendants. It is very bad news for the claimants in the Delaware proceeding and their counsel. The claimants involved in the Delaware proceedings have been fighting actively for three years to try to obtain all of the documents sought in the books and records action. Now it seems likely that the Delaware claimants will be barred from pursuing their claims before they have even had a chance to file a complaint.


With the benefit of Judge Hickey’s ruling in hand, Wal-Mart and the other defendants will likely have the means to move to dismiss any lawsuit the Delaware claimants might seek to file. The defendants will likely be able to argue that under the principles of collateral estoppel, any action filed in Delaware courts would be precluded by the Arkansas ruling. In making these arguments, the defendants would be substantially aided by the Delaware Supreme Court’s 2013 ruling in the Allergan litigation, in which the Court held that an earlier dismissal by a California court was preclusive of an action in Delaware courts by a different set of plaintiffs, as discussed in detail here. (The likelihood that Wal-Mart would raise the arguments is significantly enhanced by the fact that its counsel representing Wal-Mart in the Delaware books and records proceedings is the same attorney that represented Allergan.)


As you might predict, the plaintiff’s counsel in the Delaware proceeding is unhappy about this turn of events. Indeed, it is fair to say that the lead Delaware plaintiffs’ lawyer, Stuart Grant of the Grant & Eisenhofer, is livid, as very colorfully described in Alison’s Frankel’s excellent April 1, 2015 post on her On the Case blog (here).


I should emphasize here that while Frankel’s post contains numerous quotes from Grant in which he is critical of the Arkansas plaintiffs’ counsel, her post also contains extensive statements from the lead Arkansas plaintiffs’ counsel defending their actions, refuting Grant’s remarks, and emphasizing the Arkansas plaintiffs’ intent to appeal Judge Hickey’s ruling. In the interests of balance and fairness, I encourage readers to read Frankel’s post in full, and in particular to read the statements of the Arkansas plaintiffs’ lawyer there.


Frankel’s post, entitled “War Looms Between Plaintiffs’ Firms After Suit vs. Walmart Board is Tossed” includes statements attributed to Grant to the effect that he is considering filing a malpractice action against the Arkansas plaintiffs’ counsel. “If I were them,” Frankel quotes Grant as saying, “I’d be letting my malpractice carriers know.” (Whether a shareholder could derivatively pursue a malpractice claim is one of those theoretical questions that we may or may not ever get to see tested. The Arkansas plaintiffs’ counsel dismisses Grant’s remarks about a malpractice action as a “temper tantrum.”)


In her blog post, Frankel also quotes Grant as saying that while he has not yet filed a complaint owing to the battle he has been fighting with Walmart over the documents, because of the material he has collected, his complaint would have been “much stronger” than the one filed in the dismissed Arkansas suit. In fact, he argues, his complaint, which he apparently still intends to file, will show why the Arkansas plaintiffs’ lawyers “ill-served shareholders by moving forward with a case before conducting a books and records investigation.” He adds further, with reference to the Arkansas dismissal, that “This is a perfect example of what happens when you have a small shareholder running to a foreign jurisdiction filing a derivative suit without investigation,” adding that “I don’t believe this is the way Delaware wants things to be.”


If I may paraphrase Grant’s remarks in my own terms, I would say that what this case is a “perfect example” of is how multi-jurisdiction litigation can turn out to be a problem for everybody, depending on how things play out. Where this situation got off track was when the Eighth Circuit lifted the stay in the Arkansas proceeding. After the appellate court lifted the stay, there were two sets of proceedings going forward, which is always fraught and often produces problems for somebody. Just the same, as the earlier Allergan case demonstrates, this is not the first time proceedings in another jurisdiction have superseded proceedings in Delaware.


It may be that these kind of competing proceedings will become less frequent as more companies adopt exclusive forum bylaws, designating a specific court (usually in Delaware) to consider intracorporate litigation. If as Grant suggests that the sequence of events is “not the way Delaware wants things to be,” forum selection (or exclusive forum) bylaws could help avert these kinds of situations. In any event, this case underscores how the curse of multi-jurisdiction litigation potentially can be a problem for everyone, not just the defendants – although, to be sure, in this case, Wal-Mart probably at this point does not have a problem with the way things turned out, at least so far.


It is worth noting that the various derivative lawsuits filed against Wal-Mart and arising out of its Mexican operations represent a trend I discussed in a recent post; that it, the number of corporate and securities lawsuits arising out of anticorruption investigations in Latin America. It could also be argued that the Arkansas derivative suit dismissal illustrates another trend I have noted on this blog, which is that often the follow-on civil actions filed in the wake of antibribery investigations and disclosures do not always fare all that well and many do not survive motions to dismiss. However, in fairness, it probably should be noted that in the parallel securities class action litigation arising out of the Wal-Mart operations regarding its Mexican operations, Judge Hickey denied the defendants’ motion to dismiss, as discussed here.


Olympus Securities Fraud Claims in Japan Settled for $92 Million: Readers interested in developments in securities litigation outside the U.S. will want to note that the scandal-plagued Olympus Corporation has agreed to a $92 million settlement with institutional investors that had asserted claims against the company in following the companies disclosures of accounting improprieties, as discussed in an April 2, 2015 article on Law 360 (here, subscription required). The claims reportedly were resolved using alternative dispute resolution processes that had been advanced by a litigation funder, DRRT. The article contains relatively little detail about the processes employed, the claimants involved, or how the settlement was brought about, but clearly it is a significant development with respect to the assertion of securities fraud claims in Japan, and perhaps even elsewhere.


For reference, DRRT does say on its website with respect to the Olympus litigation that: “A case against Olympus was filed in the Toyko District Court, Japan, on behalf of 50 institutional investors with over $240 million in damages on June 28, 2012. A second case was filed on June 25, 2013 adding over 40 institutions with more than $160 million in claims.”


Background regarding the Olympus scandal can be found here. In addition to the claims in Japan, certain shareholders had also filed a securities class action lawsuit in connection with the scandal, as discussed here. However, only a very small fraction of the shares of Olympus traded in the U.S. and, according to reports, the U.S. action settled for a payment of $2.6 million.

A Closer Look at an FDIC Failed Bank Lawsuit Settlement

Posted in Failed Banks

prAccording to the FDIC’s website (here), as of March 24, 2015, 44 of the 106 failed bank lawsuits the agency has filed have settled. So there is nothing particularly newsworthy about the fact that the parties to another one of the failed bank lawsuit had reached a settlement. Just the same, however, the recent news that one of the failed bank cases had been settled caught my attention, both because of the higher-profile history of the case and because of the unusually detailed features of the settlement disclosed in the settlement documents.


The recent settlement relates to the lawsuit that the FDIC had filed as receiver for the failed Puerto Rican Bank, Westernbank. 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.


One of the reasons that this case had a higher profile (in addition to the magnitude of the losses to the FDIC insurance fund) is that there were a series of coverage rulings in the case addressing the question of whether or not coverage under the D&O insurance policies was precluded by the policies’ insured vs. insured exclusion.


As discussed here, on October 12, 2012, Judge Gustavo 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 one of the directors 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. The earlier suits (the “Prior Suits”) were filed in 2007 and 2008 and triggered the bank’s 2006-2007 D&O insurance program. Payments in settlement of the Prior Suits substantially diminished the 2006-2007 insurance program.


As discussed here, on July 9, 2014, Judge 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. The upshot of the ruling is that both the earlier and the subsequent insurance programs were in play.


The parties to the case now apparently have reached an agreement to settle both the liability and the insurance coverage portions of the lawsuit. As discussed in a March 31, 2015 Law 360 article (here, subscription required), Judge Gelpi has signed off on the parties’ $34 million settlement of the case. The settlement is detailed in the parties Settlement and Release Agreement (here). According to the agreement, the insurers are contributing $33 million toward the settlement, and “some of the D&O defendants have contributed $1 million toward the settlement.” The agreement does not specify which individuals were contributing toward the settlement or in what amount.


The settlement agreement includes a detailed description of the two insurance programs that were at play in connection with this lawsuit as a result of Judge Gelpi’s July 2014 ruling. The 2006-2007 program has total limits of $50 million, arranged in a primary layer of $20 million and three excess layers of $10 million each. The settlement agreement does not say how much of $50 million 2006-2007 program had been eroded by the earlier claim. The 2009-2010 program (the one in force at the time the failed bank claim was launched) also has total limits of $50 million, arranged in a five layers of $10 million each. The lineup of carriers changed slightly between the two programs, though the same carrier is in the primary position on both programs; that same carrier also had 10 x 30 layer on the 2009-2010 program.


For those interested in a “inside baseball” look into how a case like this gets settled, the settlement agreement also details how much each of the carriers involved are contributing toward the $33 million insurance portion of the $34 million settlement.


All of the carriers involved in the two programs contributed at least something toward the settlement amount. The carrier that is primary on both programs and that also has an excess position on the 2009-2010 program is contributing the largest amount toward the settlement ($16.33 million). The two lower level excess carriers that are on both programs are each contributing $6.33 million, and the two carriers that are in the top level excess position on the two programs are each contributing $2 million.


The failed bank litigation wave is now nearly five years old, as the first of the FDIC’s failed bank lawsuit following the financial crisis was filed in July 2010. As noted at the top of the post, more than a third of the lawsuits have already settled, and more of them will be settling in the months ahead. I suspect that Judge Gelpi’s various rulings in this case provided a motivation for the carriers to try to settle this case (as in, the carriers had had just about as much of this fun as they could stand). But, just the same, if a contentious, complicated case like this one can settle, many of the other cases can be settled as well.


As the cases are gradually worked out, the failed bank litigation wave will slowly wind down. To be sure, the FDIC is still filing lawsuits. It has already filed two more failed bank suits in 2015, after filing nineteen in 2014. With new lawsuits still accumulating, it will be a while yet before the litigation has finally wound down. But because the pace of new lawsuits has definitely slowed and because many of the other cases are moving toward settlement, we definitely seem to have moved into the wind down phase of failed bank litigation phenomenon.

Bank Directors Facing Increased Regulatory Scrutiny, Raising Fears of Potential New Liability Exposures

Posted in Director and Officer Liability

scrutiny2Federal banking regulators have stepped up their interactions with and scrutiny of bank directors, according a recent Wall Street Journal article. The March 31, 2015 article, entitled “Regulators Intensify Scrutiny of Bank Boards” (here) details the ways in which regulators are “zeroing in on Wall Street boardrooms as part of the government’s intensified scrutiny of the banking system.” However, as the article also makes clear, the increased pressure is not limited just to the largest banks; smaller banks are also facing scrutiny. The level and intensity of the regulatory scrutiny, and of the regulators’ efforts to impose what amounts to performance standards, has raised concerns that the regulatory activity could encourage new director liability claims.


According to the article, the stepped up regulatory scrutiny is the result of concerns that that banking problems that contributed to the global financial crisis were due in part to the fact that banks’ boards did not understand the risks their firms were taking or did not exercise appropriate oversight. In the immediate aftermath of the financial crisis, regulators first focused on ensuring the banks had robust financial cushions. According to the article, in the last two years regulators have turned their attention to corporate governance and the role of directors to “ensure banks have the right culture and controls to prevent excessive risk taking.”


The practical result is that bank directors “have begun facing a new level of scrutiny.” The regulators are now focused on “whether directors are adequately challenging management and monitoring risks in the banking system.”


The article makes clear that the steps regulators are taking as part of this increased scrutiny are nothing short of extraordinary. It is clear from the article that that the specific steps regulators are taking varies from institution. But the range of actions regulators are taking is quite broad and arguably even intrusive in some cases.


Among other thing, according to the article, regulators are holding regular meetings with banks’ independent directors; “singling out boards in internal regulatory critiques of bank operations and oversight”; attending and sitting in on board meetings; meeting with board committee members; and even, in one case detailed in the article, dictating the makeup of the board by requiring the expansion of the board by the inclusion of additional independent board members.


In addition, regulators are reviewing information directors receive from bank management; asking about succession planning; and inquiring about how directors gauge the potential downsides of certain transactions.


Although the banking institutions mentioned by name — such as Goldman Sachs, Bank of America, J.P Morgan, and GE Capital – are among the world’s largest financial institutions, the article also emphasizes that “directors at smaller banks are also being pressed, including on how much they understand and the kinds of loans banks are making and the associated risks.”


It is little wonder then that, as stated by the Comptroller of the Currency Thomas Curry in the article, that “We have the independent directors’ attention.”


The heightened regulatory scrutiny has triggered alarm bells. According to one independent board member quoted in the article, the threat of being held accountable for failing to properly supervise management is “creating a ton of tension” for directors. Some regulatory moves have raised concerns that the banking supervisors are pushing directors to “take on managerial duties beyond their traditional roles as overseers.”


These concerns about the pressure on directors and the expansion of the directors’ roles have in turn raised concerns that the “new, material obligations” being placed on boards “could give rise to new director liability claims.” These fears about potential future director liability claims are reinforced by the wave of lawsuits the FDIC brought against the former directors and officers of failed banks in the wake of the financial crisis.


These concerns about potential personal liability have in turn raised concerns about whether banks might have trouble recruiting and retaining qualified directors. The Journal article quotes one commentator as saying that there are many qualified individuals who “simply … won’t serves as directors … because of fear” of personal liability. The article also quotes a federal regulator as conceding that regulators are sometimes guilty of placing too may requirements on boards.



The suggestion that increased regulatory scrutiny and heightened regulatory expectations could lead to new liability claims against directors is not far-fetched. To the contrary, some regulators have made overt, express calls for the scope of fiduciary duties expected of bank directors to be expanded (at least for directors of systemically important financial institutions), as discussed, for example, here. These public statements, along with the level of regulatory expectations of directors, suggest that regulators may consider expanded director accountability to be appropriate. As the Journal article correctly points out, the FDIC failed bank lawsuit show not only that banking regulators intend to hold directors accountable and even to seek to impose liability on them.


Nor is it far-fetched to contend, as the Journal article suggests, the (apparently well-founded) fears of personal liability may deter qualified persons from serving on banking boards. As I discussed in a prior post (here), a recent survey of the American Association of Bank Directors found that existing and potential bank directors increasingly are unwilling to serve due to fear of personal liability. Among other things, the survey results showed that nearly a quarter of the survey respondents have had a director or potential director shun or shy away from board service based on personal liability concerns.


It is important to emphasize that, although the Journal article highlighted developments involving the largest Wall Street firms, the article also showed the increased scrutiny is not restricted just to the global financial firms. The increased scrutiny also extends to smaller institutions.


Among the more troubling items in the article is the suggestion that the banking regulators are creating written “regulatory critiques of bank operations and oversight” and that boards are being “written up” in supervisory reports. Although these type of reports are highly confidential and would be very difficult for non-regulatory claimants to obtain, the fact that they exist and the possibility that they might come to light in claims brought by third-party claimants adds an additional layer to the concern that the increased regulatory scrutiny could lead to increased personal liability for bank directors.


Given the magnitude of the problems at financial institutions that came to light in the global financial crisis, it may be no surprise the bank directors are facing heightened scrutiny. Just the same, the level of scrutiny, and the forms that the scrutiny is taking (as detailed in the Journal article), pose a significant challenge for banks, for bank directors, and for the banks’ D&O liability insurance carriers. The possibility that the current level of heightened scrutiny might foster new director liability claims is of particular concern.


Corporate Boards and CFO Hiring: The same Wall Street Journal issue that contained the article discussed above about regulatory pressure on bank directors and the directors’ changing roles included another article about the changing roles of corporate directors. An article entitled “Boards Join in CFO Picks” (here) discusses how “corporate boards are playing an increasingly pivotal role in choosing CFOs.” Companies identified in the article where directors played an active role in recruiting and hiring the firms’ Chief Financial Officer include Google, McDermott International, Avon Products, and Newell Rubbermaid. The article also notes that boards “also can help unseat underperforming finance chiefs.”


The increased board role in CFO hiring – and sometimes firing – is in part due to the heightened expectations of the Sarbanes-Oxley Act and in part due to the financial crisis, which underscored the importance of “having a veteran at the helm.” In addition, “directors are also assuming a stronger role because more finance chiefs now rise to the top job.” According to sources cited in the article, 12 of the Fortune 50 CFOs are former finance chiefs.


There is no doubt that the boards’ increased involvement in CFO hiring is a direct consequence of the changed environment in which boards conduct their business these days. Investors (and as discussed above, regulators) increasingly expect active board involvement, and in turn boards are increasingly engaged in company operations in ways they might not have been in the past. Overall, increased board involvement in CFO hiring should be a positive thing, particularly as it is portrayed in the Journal article.


But perhaps because I read the Journal article about increased board involvement in CFO hiring immediately after reading the article discussed above about bank director scrutiny, I immediately thought about whether increased board involvement in CFO hiring and firing might also lead to liability claims.


I can imagine these kinds of potential claims taking at least two forms. On the one hand, because, as the article details, some corporate boards are becoming actively involved in CFO firing, it is possible claimants might assert that the board of a company that sustained problems because of CFO misconduct breached its duties by failing to act quickly enough to discharge the deficient finance chief. By the same token, if a company were to sustain problems because of misconduct by a CFO that the board had proactively recruited and hired, claimants might try to assert that the board breached its duties through its negligent recruiting and hiring activities (for example, by failing to scrutinize the candidate or identify past problems).


All of which is another way of saying that in an era where boards are increasingly under scrutiny, even the actions of an active and engaged board can come in for criticism and challenge. Or to put it another way, in our hyper-litigious society, even a seemingly positive development could lead to litigation.


More About Shareholder Activism: In a recent post (here), I jumped into the ongoing debate about shareholder activism, a topic that has grown importance as level of shareholder activism has grown. Readers who are interested in the topic will want to read the cover article in the latest issue of the American Lawyer. The March 30, 2015 article, which is written by Michael Goldhaber and is entitled “Marty Lipton’s War on Hedge Fund Activists” (here, subscription required), frames the debate on shareholder activism in terms of the continuing battle between corporate champion Marty Lipton of the Wachtell Lipton law firm and the Harvard Law School Professor and corporate scourge, Lucian Bebchuk.


As the article states, the only thing the two can agree on is that, lately at least, “the activist hedge funds are winning the war.” As for whether or not this is a good thing, that “depends on which narrative you accept.” In Lipton’s view, the activists are short-term focused and very bad for the economy. In Bebchuk’s view, the activists’ efforts regularly create shareholder value that is sustained over the longer term.


The article quotes a chorus of voices suggesting that perhaps the real answer is somewhere in between. Among other things, critics arguing for the middle view suggest that while activists are not as evil as Lipton suggests, Bebchuk does not look at the effect of their activities on the economy as a whole, as they cut corporate spending by laying off workers and cutting R&D budgets. Others suggest that Lipton is too willing to overlook executive compensation excesses.


After laying out the parameters of the debate, the article concludes with reference to Delaware Supreme Court Chief Justice Leo Strine’s call for institutional investors to become more involved, particularly in making sure that short term thinking does not overwhelm strategic corporate decision-making. As the article quotes the venerable New York lawyer Ira Millstein as saying, “Companies and pension funds are getting smarter. If the real investors think the activists are wrong, then they don’t have to go along.” 


Cornerstone Research: Accounting-Related Securities Suits Jump in 2014

Posted in Securities Litigation

cornerstone reserach pdfThe number of securities class action lawsuit filings raising accounting allegations rose by 47 percent in 2014 compared to the prior year, according to a new report from Cornerstone Research. The March 31, 2015 report, entitled “Accounting Class Action Filings and Settlements: 2014 Review and Analysis,” can be found here. Cornerstone Research’s March 31, 2015 press release about the report can be found here.


The report tracks what it calls “accounting cases,” which are cases that include allegations related to Generally Accepted Accounting Principles (GAAP) violations, auditing violations, or weaknesses in internal controls over financial reporting.


According to the report, there were 69 accounting case filings in 2014, representing 41% of all securities class action filings during the year, compared with 47 accounting case filings in 2013, representing 28% of all securities suit filings during the year. The 69 accounting case filings in 2014 is roughly equal to the 2005-2015 average annual number of accounting case filings of 68. The increase in the number of accounting case filings “occurred against the backdrop of a year marked by essentially no change in the overall securities class action filings activity.”


The filing of accounting cases that also involved an SEC inquiry or action reached the highest level in 2014 since Cornerstone Research began tracking this factor in 2010. In 2014, 18 accounting cases related to an SEC inquiry or action, compared to only five in 2013. The report notes that the rise in the number of accounting cases with associated SEC action is “consistent with the SEC’s increased focus on identifying accounting-related fraud.”


The report also examines what it calls disclosure dollar loss, which is the dollar value change in the defendant firm’s market capitalization between the trading day immediately before the end of the class period and its capitalization immediately after the end of the class period. The report notes that the disclosure dollar loss declined significantly for all securities class action filings in 2014 compared to 2013, but the decline for accounting cases (35%) was less severe than for non-accounting cases (52%). In 2014, accounting cases amounted to 50 percent of the aggregate disclosure dollar losses for all securities suit filings, even though only 41 percent of all securities class action lawsuits were filed as accounting cases.


The number of restatement cases increased in 2014. There were 29 cases filed in 2014 involving restatements, representing 42% of all accounting cases filed during the year, compared to 19 restatement cases representing 40% of all accounting cases in 2013. The 29 restatement cases filed in 2014 was the highest number in the last seven years and is well above the 2009-2013 annual average number of restatement case filings during the period of 19. The increase in the number of restatement case filings during 2014 was “consistent with data showing that the number of restatements by accelerated filers (i.e., large companies that are heavily targeted in securities class actions) has increased in recent years.”


The report also notes that the median stock price drop surrounding announcements of financial statement restatements was “the second highest in the last 10 years.” The aggregate disclosure dollar loss for accounting case filings with restatements was over 80 percent greater than the average between 2005 and 2013.


For the past two years, the number of accounting case filings involving allegations of internal control weaknesses has increased; indeed, the number of accounting case filings alleging internal control weaknesses was higher in 2014 than any of the previous five years. Of the 29 accounting case filings that included a restatement, two in three also included allegations of weaknesses in internal controls.


The report also notes that accounting cases generally involve higher “estimated damages” (a simplified calculation of shareholder losses) that securities class action lawsuit filings without accounting allegations, a trend that continued in 2014. Overall, the report also notes that the median settlement for accounting cases has also been higher for accounting cases than for non-accounting cases. The presence of a restatement is a significant factor in explaining higher settlements amounts, and as is the existence of a related SEC action or inquiry. Cases involving restatements have settled for the highest percentage of “estimated damages.”


In 2014, there were 44 settlements of accounting cases, representing 70% of all securities class action settlements during the year, the highest proportion of settlements since 2010. The aggregate value of accounting case settlements as a portion of aggregate value of all securities class action lawsuit settlements represented an even greater proportion; the accounting suit settlements represented 85% of the total value of all securities class action lawsuit settlements.


My recent post on Cornerstone Research’s annual report on securities class action lawsuits generally can be found here.



Paris Arts Review

Posted in Travel Posts

004aThe D&O Diary rounded out its European visit last week with a quick weekend visit to Paris. In addition to rendezvous with friends and family, the stopover included several long walks, two encounters with the Parisian contemporary art museum scene, and one extraordinary meal.


The best of the weekend’s walks was an energetic march through the Bois de Boulogne, the enormous park and preserve at the Western edge of the city of Paris, where the flowering plants and trees were blooming in the late March sunshine. At 2,090 acres, the Bois de Boulogne is nearly two and a half times larger than Central Park. Along the park’s east side are a winding set of pathways flanking a series of ponds. The ponds include a number of interesting and curious structures, including the Kiosk of the Emperor on an island in the Lac Inferieur (lower lake), as shown in the picture below.





041aAs pleasant as our stroll was, the primary purpose of our visit to the park was to see the Louis Vuitton Foundation (pictured left), the new $143 million art museum designed by the famed architect Frank Gehry. The museum opened in late 2014. The glass, wood and stone structure is built in the shape of sailboat sails inflated by the wind. The glass exterior shapes enclose a central stone structure that includes a series of multilevel roof terraces. The terraces afford views of the Bois de Boulogne (first picture below), and, to the west, to La Défense, the agglomeration of modern, high-rise office buildings just outside the city (second picture below)





020aThe two-story structure encloses eleven galleries of different sizes. The museum’s collection includes works of contemporary art assembled from a combination of works owned by LVMH and Bernard Arnault. The casual visitor will find the works on exhibit to be avant-garde, experimental and, often, obscure. All of the works are high-concept, mannered, and many are difficult (deliberately so, one can only assume). One work on display was a pile of metal ironing boards. Another room contained large paintings of canvases cut in basic geometric shapes, painted in a single color – a black rectangle, a red rhombus, a green parallelogram. A very large room on the ground level contained a massive audio system playing the music of Kanye West, with a video projected along the back wall. The video was created by the award-winning director Steve McQueen. In the video, Kanye walks around. Or looks around. Then he sits down. Then he stands up. Etc. The music is very, very, very loud.


022aThe building itself is a challenge for the art inside. The building is so massive and its style so flamboyant that the art inside is almost overwhelmed. The overall effect is that the art can seem insignificant and ephemeral.


Despite my skeptical remarks, I recommend a visit to the museum for any Parisian tourist. The building is striking and remarkable. Indeed, I would recommend visiting the museum sooner rather than later. Time could prove me wrong, but I fear that the beautiful white stone and the exposed wooden beams that affix the glass exterior to the interior stone building will not age well. In particular, I am concerned that time and weather will diminish the inspiring glimpses of the building’s complex structure from the terraces.



051aAs much as I enjoyed my visit to the Fondation, in terms of the art on display, I have to say that I preferred the contemporary art collection in the Palais de Tokyo, which we visited early the next day. The Palais is located on the Seine, across the river and just upstream from the Eiffel Tower. The collection in the Palais is much larger, and the works are much more adventurous and even rebellious – and in at least some instance, deliberately humorous. The Palais opened in 1937 as the pavilion of modern art for the Universal Exposition held that year in Paris. The museum’s rather conventional 20th century building is the modest backdrop for the 21st century art within. On the day of our visit there were two particular interesting exhibitions; the first, L’Usage des Formes (The Use of the Form), explored the artistry of tools and instruments used in craftsmanship. The second, Le Bord du Mondes (The Edge of Worlds), featured contemporary art from around the world (particularly Southeast Asia).



This Paris visit culminated in a very unusual dinner on Saturday night, in which ten friends gathered to discuss the philosophy of Epicureanism over an excellent French meal accompanied by a profusion of French wine and champagne. The hours-long discussion took place exclusively in French. Early in the evening, I felt like I was holding my own. But as the evening wore on and the empty bottles accumulated, I was content to listen and to try to keep up with the increasingly animated discussion. This was no mere intellectual exercise; passions were engaged as well. Indeed, late in the evening, one of the guests — after a heated exchange with another guest in which both were shouting “non, non, non, non, non” at each other in true Gallic fashion – suddenly got up and left, in a fit of philosophical rage. It was an extraordinary evening, but I have to confess that as I made my way to the Metro at the end of the evening, my head ached from trying to listen to and comprehend the French conversation for several hours.


For those readers who may have an interest in Epicureanism, I highly recommend Harvard Professor Stephen Greenblatt’s National Book Award-winning book The Swerve: How the World Became Modern, which tells the tale of how the Italian 15th century humanist  Poggio Bracciolini found  long-forgotten manuscripts of Lucretius’s epic philosophical poem De rerum natura, which contains the tenets and philosophy of Epicureanism, and how the philosophy influenced modern thought. I should add that the book was gift to me from my good friend, Perry Granof.


Lest anyone think my weekend in Paris involved only effete entertainments, I should add here that my visit also included an evening at the Moose Bar (a Canadian-themed watering hole in the Odeon district favored by ex-pats) watching the French national team lose 1-3 to the Brazilian team in an International Friendly soccer match. Late in the evening, after the soccer game ended, we had the unexpected experience of watching the start of an NCAA tournament basketball game deep in the heart of the Rive Gauche.


Every time I visit Paris I wish I had planned to spend more time there. Of course, if every visit to Paris is too short, a weekend visit is particularly so.


Notes from the London Underground

Posted in Travel Posts

065aThe D&O Diary was in London this week for meetings and a couple of industry events. Though my schedule on this visit was full, I did have a little time between meetings for a bit of touristing. I have been to London many times before, but I always try to make a little time to walk through the city’s many historic sites, like, for example, St. James’s Park (pictured left, looking toward the Old Admiralty Buildings).


I also always try to go somewhere I haven’t been before. This time, I managed to make time to visit Hampstead Heath, which covers 790 acres in the northern part of the city. I took the Northern Line Underground train to Kentish Town, and walked to Parliament Hill in the southern end of the park, which at an elevation of about 350 ft. is one of the highest points in the city. Even though it was a little hazy the day I visited, looking south from the hilltop back toward the city center, I could clearly make out Canary Wharfthe Gherkinthe Shard and St Paul’s Cathedral. Because of the haze and the sunlight to the south, the view was hard to photograph, but I have tried to depict the view in the first picture below. There is no consensus on how Parliament Hill (shown in the second picture below) got its name, but the likely explanation is that the Houses of Parliament could be seen from the hilltop (although on the day I was there I was unable to make out the actual Parliament building, which is about 6 miles away). I actually prefer the story that the hill got its name because Guy Fawkes and the other Gunpowder Plot conspirators retreated to the hill to watch the Parliament building blow up. (Their plot failed.) I will say that the Heath was an extraordinarily pleasant place to stroll on a sunny but chilly March morning. The third picture below is a view back across the Heath to Kentish Town. The final picture is a view back towards the Heath itself.










078aOne other place I made some time to visit was St. John’s Wood, a  high-end residential area in the city’s northwest. The churchyard adjacent to the St. John’s Church that gave the area its name was also an agreeable place to visit on a sunny morning (as depicted in the picture to the left). The High Street in St. John’s Wood has a well-kept, prosperous feel to it (as depicted in the picture below). However, I wanted to visit the area for other reasons. The first was to see Lord’s Cricket Ground, which is located across the street from the church. The second, more important reason was the line in the Rolling Stones’ song, “Playing with Fire” (which was the B-side on the 45 rpm version of the Rolling Stones’ 1965 hit “The Last Time”). The lyrics to the song go like this: “Your mother she’s an heiress, owns a block in St. John’s Wood/And your father’d be there with her, if he only could/But don’t play with me, ’cause you’re playing with fire.” Given the suggestion in the song’s lyrics, I was not surprised to find that there actually are quite a few very high-end houses in the area, particularly on Avenue Road. Wikipedia reports that “in 2013, the price of housing in St John’s Wood reached exceptional levels. Avenue Road had more than 10 large mansions/villas for sale. The most expensive had an asking price of £65 million, with the cheapest at £15 million. The remainder were around £25 million.” St. John’s Wood is also the home of the Abbey Road recording studio the Beatles made famous in their 1969 album. It was difficult to get a picture zebra-striped crossing without a group of people in the cross-walk trying the recreate the album cover.








013aBetween my meetings and my touring around, I managed to spend a fair amount of time during this visit on the Tube. There is nothing like the vacant time on a subway ride to allow your mind to wander and to contemplate things like, say, the interesting and odd assortment of place names in and around London. In the Underground with nothing else to distract, things occur to you, like, for instance, there probably once was a white chapel in what is now Whitechapel, and there were once black friars in what is now Blackfriars. But was there a ham in West Ham? Or, for that matter, East Ham? And what are we to suppose about the origins of such place names as Spitalfields, Cockfosters, Tooting Bec, Chigwell, Fairlop and Barking? And even without these mysteries to ponder, there are the other curious names – such as Shepherd’s Bush, Elephant and Castle, Mudchute, and Upminster?  Then there are the odd re-occurrences of similar sounding names. Not only is there an Underground station named Cannon Street, but also there is a Canning Town stop and a Canons Park stop, and there is both an Edgware stop and an Edgeware Road stop (the two stations are on different lines and nowhere near each other), and both a Kennington stop and a Kensington stop (not to mention West Kensington, South Kensington, and Kensington High Street). There’s an Ealing Broadway, a Fulham Broadway and Tooting Broadway. Also Bethnel Green, Stepney Green, Golders Green, Parsons Green, Turnham Green — and Green Park.


005aFor an American traveling on the tube, there are also the unfolding revelations about many of the place name pronunciations. For most uninitiated U.S. visitors, the most surprising station name pronunciation is that of Leiscester Square – not just the first word, which most Americans are surprised to discover is pronounced not “lye-chester” but “lester” – but also the second word, which is pronounced with two syllables as “skway-uh.” Even a station name as seemingly straightforward as Earl’s Court turns out to involve sonic surprises – it is pronounced “ulls coat.” (The  Earl’s Court station is pictured left.) Even a familiar name like Arsenal can surprise – it is not “Ar-son-ul” as an American might expect but rather it is “Ah-snull.”


And beyond the place names, there are the street names – Crutched Friars, Mincing Lane, Seething Lane, Savage Garden. The street names sound vaguely like detective novel titles or rock band group names.


By the way, if you have ever wondered who that lady is that does the in-train station announcements on the London Underground, her name is Emma Clarke, a professional voice-over performer. Her website, with links to sample of her various announcements – including her silky smooth reminder to “Please mind the gap between the train and the platform” – can be found here.


My primary purposes for visiting London this time were to attend the C5 D&O Liability conference and to attend a reception co-sponsored with Beazley and the Mayer Brown law firm. On Thursday morning at the C5 conference, I participated on a panel discussion U.S. D&O liability developments along with my good friends Chris Warrior of Hiscox and Phil Norton of Arthur J. Gallagher (first picture below). At the Beazley event, I participated in a panel discussion with Tracy Holm and Adrian Jenner of Beazley, and David Chadwick of Mayer Brown (second picture below). Both events were a great success and I enjoyed them both immensely. I was particularly pleased to learn in my discussions with the attendees at both events how many of them follow The D&O Diary.






I took the final picture below of the audience at the Beazley event. Adrian Jenner of Beazley had just asked me whether the pictures I have posted in my various travel posts were taken with a smart phone camera or with a digital camera. In response to the question, I pulled out my digital camera (which I was at the moment wearing in a holster on my belt) and snapped a picture of the audience. Immediately after I took the picture, we adjourned the panel discussion in favor of cocktails.