9th Circ. Reverses Ruling That U.S. Securities Laws Do Not Apply to Toshiba’s Unsponsored ADRs

One of the questions that courts have wrestled with as they have struggled to apply the U.S. Supreme Court’s decision in Morrison is whether or not the U.S. securities laws apply to transactions in American Depositary Receipts (ADRs). In the U.S. securities class action lawsuit filed against Toshiba in the wake of the company’s massive accounting scandal, the district court granted the company’s motion to dismiss on the grounds that the Exchange Act did not apply to the plaintiffs’ over-the-counter (OTC) transactions in the company’s unsponsored American Depositary Receipts (ADRs). The plaintiffs appealed. In a July 17, 2018 decision, the Ninth Circuit reversed the dismissal and remanded the case in order for the plaintiffs’ to have the opportunity to try to plead facts that might be sufficient to establish that the securities laws apply, notwithstanding the fact that the ADRs were unsponsored. The Ninth Circuit’s opinion can be found here. Continue Reading

Percentage of M&A Deals Attracting Litigation Continued to Decline in 2017

The percentage of M&A transactions valued over $100 million attracting at least one merger objection lawsuit continued to decline in 2017, according to a recent Cornerstone Research study. The July 18, 2018 study, entitled “Shareholder Litigation Involving Acquisitions of Public Companies: Review of 2017 M&A Litigation” (here), also reports that the average number of lawsuits filed per M&A deal and the percentage of M&A deal litigation voluntarily dismissed declined in 2017, as well. Cornerstone Research’s July 18, 2018 press release about the report can be found here. Continue Reading

Another D&O Lawsuit Arising from Sexual Misconduct Allegations

In the latest example of a D&O lawsuit arising in the wake of allegations against a corporate executive of sexual misconduct, a shareholder has filed a securities class action lawsuit against National Beverage Corp. and certain of its executives following news reports that the company’s Chairman and CEO allegedly had inappropriately touched company pilots while traveling on the Chairman’s business jet.  (National Beverage manufactures the ubiquitous LaCroix brand mineral water, with which the author of this blog has absolutely no connection.) The complaint, a copy of which can be found here, also contains separate allegations relating to allegedly misleading financial disclosures. This new lawsuit, like the prior D&O lawsuits filed following revelations of sexual misconduct allegations, underscores the fact as corporate executives are called out for alleged misbehavior, the accountability process may extend not only the alleged wrongdoers themselves, but may also extend to their company and other executives.   Continue Reading

Fifth Circuit Reverses Dismissal of Data Breach Coverage Suit Against D&O Insurer

In a recent case in the Fifth Circuit, a retail merchant sought to establish that its D&O insurer was required to provide a defense to a data breach-related claim that had been brought against the merchant. The appellate court held that the trial court erred in granting the insurer’s motion for judgment on the pleadings and ruling that the policy’s contractual liability exclusion precluded coverage. The ruling, which suggests at least the possibility of coverage under the D&O policy for at least some of the claims against the merchant, raises a number of important issues, as discussed below. The Fifth Circuit’s June 25, 2018 opinion in the case can be found here. A July 11, 2018 memo from the Crowell & Moring law firm about the decision can be found here. Continue Reading

Florida Court Adopts Delaware’s Strict Standard for Review of Disclosure-Only Settlements

In a series of rulings that culminated in the January 2016 decision in the Trulia case, the Delaware courts evinced their hostility to the disclosure-only settlements that so often characterize the resolution of merger objection lawsuits. Since that time claimants have been filing the merger objection suits in courts outside Delaware. The question has been whether the other courts where the merger objection cases are now being filed would follow Delaware’s strict Trulia standard when reviewing disclosure-only settlements. In a ruling late last week, an intermediate appellate court in Florida expressly adopted Delaware’s Trulia standard. The Florida ruling does raise hopes that other courts might follow as well, which in turn could help stem the tide of proliferating merger objection litigation. The Florida District Court of Appeal, Second District’s July 13, 2018 decision in the Quality Distribution case can be found here. Continue Reading

6th Circ.: Crime Policy’s Computer Fraud Section Covers Email Scheme Losses

In the second policyholder-favorable federal appellate court decision on the issue in a matter of days, the Sixth Circuit has held that the Computer Fraud provisions of a commercial crime policy cover a company’s losses from an email payment instruction fraud scheme. Just last week, the Second Circuit ruled in the Medidata case that Computer Fraud coverage applied to losses incurred in a similar email scam. However, the Sixth Circuit’s decision may be even more helpful for policyholders as, unlike the Second Circuit’s decision, the policyholder-favorable ruling is not as dependent on very specific factual determinations about the way the fraudster manipulated the harmed company’s email program. The Sixth Circuit’s July 13, 2018 decision in the American Tooling Center (ATC) opinion can be found here. Continue Reading

More About Climate Change Disclosure

As I have previously noted on this site, climate change-related disclosure is a hot button issue for certain activist investors and non-governmental organization. A series of recent actions underscores the extent to which some groups are attempting to escalate these disclosure issues, with significant impact. As described below, a number of companies have joined collaborative efforts to advance climate change disclosure initiatives within their industries. These developments have relevance not only for companies’ disclosures to investors, but they may also have liability implications as well. Continue Reading

The Growing Costs of Merger Objection Litigation

As most readers are aware, litigation involving objection to mergers and acquisitions transactions has been proliferating in recent years, to the point that virtually every deal draws at least one lawsuit. While many of these actions are nuisance lawsuits, they are not without their costs. Indeed, according to one recent study, the costs to defend and settle these suits are growing. Continue Reading

Guest Post: ICO-Related Claims and Insurance Coverage: Questions You Should be Asking

Among the most interesting and significant recent developments on the financial landscape has been the rise of cryptocurrencies and ICOs. As these digital assets have proliferated, they have created a host of regulatory and legal issues. These issues in turn have presented related insurance issues. In the following guest post, John McCarrick, Sedgwick Jeanite, and Michael Goldwasser of the White & Williams law firm take a look at the claims and insurance coverage issues that ICOs present. I would like to thank the authors for allowing me to publish their article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would to submit a guest post. Here is the authors’ article. Continue Reading

California Enacts Sweeping Privacy Legislation

Earlier this year, after Facebook was sued in a securities class action following news that it had given access to personal user information to Cambridge Analytica, I questioned whether privacy issues might represent the next big corporate liability exposure. Among other things, in making this suggestion, I was taking into consideration that fact that the EU’s General Data Protection Regulation (GDPR) was about to go into effect. More recent developments confirm my view that privacy issues likely will represent an area of specific and growing concern and potential liability for companies, their management, and their boards. Continue Reading

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