The U.S. Supreme Court has agreed to take up a case involving risk factor disclosures in connection with the alleged misuse of Facebook user data by Cambridge Analytica. The case will address a Circuit Court split on the question of what companies must disclose in its risk factors about past instances where risks materialized. As Facebook put it in its petition for writ of certiorari, the question the case presents is whether risk factor disclosures are misleading if they do not disclose past materializations of the risk even if the past event poses no current risk to the company’s ongoing or future business.  The case itself is important because it raises important issues about potential securities law liabilities arising from privacy issues, and the Court’s consideration of the case could address important continuing concerns about corporate risk factor disclosures. A copy of the Court’s June 10, 2024, order in Facebook, Inc. v. Amalgamated Bank granting Facebook’s petition can be found here.


This case arises out of the Facebook-Cambridge Analytica User Data Scandal. Cambridge Analytica allegedly improperly used Facebook user data to target voters in connection with the 2016 U.S. Presidential election. News reports revealed Cambridge Analytica’s use of Facebook user data. However, a subsequent whistleblower-based news report revealed the extent of Cambridge Analytica’s use of the data, and its continued use of the data even after Facebook had become aware of the misuse and had asked Cambridge Analytica to destroy the data.

Facebook investors filed several securities class action lawsuits against Facebook (now known as Meta) and certain of its directors and officers. The lawsuits (later consolidated) raised a number of allegations, including, with greatest relevance to the issues the Supreme Court has agreed to take up, that the company in its risk factor disclosures had referred to the risks to the company of an unauthorized user data disclosure, but had presented the risk as hypothetical when in fact it has already materialized. The district court granted the defendants’ motions to dismiss, and the plaintiff appealed.

As discussed here, in an October 18, 2023, opinion, the Ninth Circuit, with Judge Bumatay partially dissenting, affirmed in part and reversed in part the district court’s dismissal. Of greatest significance, the appellate court reversed the lower court and revived the lawsuit with respect to the plaintiffs’ allegations concerning what Facebook had disclosed about what it knew about Cambridge Analytica’s misuse of user data. Of greatest significance to the Supreme Court’s consideration of the case, the appellate court said that “Because Facebook had presented the prospect of misuse of user data as “purely hypothetical’” when it had already occurred, such a statement “could be misleading even if the magnitude of the ensuing harm was still unknown.”

The Cert Petition

On March 4, 2024, Facebook filed a petition to the Supreme Court for a writ of certiorari. In its petition, Facebook argued that the Ninth Circuit panel’s decision was erroneous, and sought to have the Supreme Court review the following question: “Are risk disclosures false or misleading when they do not disclose that a risk has materialized in the past, even if that past event presents no known risk of ongoing or future business harm?” (Facebook also urged the Court to take up a second question having to do with pleading loss causation, but the Court agreed only to take up the first question.)

In seeking to have the Court take up the case, Facebook argued that the Circuit courts have split on the question of what risk factor disclosures are required with respect to prior events. Facebook argued that prior to this case, the Circuit Courts had developed differing approaches: the Sixth Circuit does not require any risk factors disclosures of past events; and six other circuits require risk factor disclosures only if the company knows the past events will harm the business. In this case, Facebook argued, a two-judge panel adopted, according to Facebook, an “extreme, outlier” position, even if past event poses no known threat of business harm.

In addition to arguing that the Ninth Circuit’s standard makes no sense and would result in risk factor disclosures becoming less useful to investors as it would drown them in irrelevant information about past incidents with no current relevance, and would also encourage “plaintiffs to plead fraud-by-hindsight by attaching significance after a stock drop to events a company had no reason to know were significant at the time of disclosure.”

In their opposition to the petition, the plaintiffs first argued that the question Facebook argues that the case presents is based on a faulty premise that the prior incident involved no known current or future risk. The Ninth Circuit’s opinion, the plaintiffs argue, in to the contrary. The plaintiffs also argued that there is in fact no circuit split, and that in fact the circuit rulings can be reconciled, and that the Ninth Circuit’s holding is also consistent – in each case, the plaintiffs argued, the courts held that a risk cannot be presented as hypothetical if it has already occurred.

Several parties filed amicus briefs in support of Facebook’s petition. For example, the U.S. Chamber of Commerce argued in an amicus brief that the Ninth Circuit’s ruling “all but guarantees that every incident that, with the full benefit of hindsight, can be said to have harmed a public company’s business will spawn securities fraud claims alleging that the company should have disclosed the event sooner.  As the only way to play defense against that outcome, companies will be forced to bloat their future risk disclosures with descriptions of past events—even those that the company does not believe will have any real world impact on its business.”

On June 10, 2024, the U.S. Supreme Court granted the writ of certiorari. The case will be on the Court’s docket for its 2024-2025 term, which begins in October.


Any time the U.S. Supreme Court agrees to take up a securities case, it is significant. The Court simply does not take up that many securities cases, and any occasion on which the Court will be called upon to weigh in on the securities laws is noteworthy. Also, any time the U.S. Supreme Court takes up a securities case there is always the possibility that that Court will introduce an approach that shakes up the securities litigation world. (Think, for example, of the Morrison case and its aftermath.)

The fact that the Supreme Court has agreed to take up this case is of particular significance. It is not an uncommon allegation at all in securities complaints that the defendants presented risks as hypothetical that have allegedly already materialized. It will be interesting to see what the Court makes of these kinds of allegations, in the context of a very high profile lawsuit. The Court’s ruling on this case could also have larger significance with respect to risk factor disclosures generally.

There is at least one other reason why the Court’s taking up this case could be significant. That is because at its heart this case is about privacy. The fundamental wrong that Cambridge Analytica (and by extension Facebook) allegedly committed is a violation of Facebook users’ privacy rights. I have long thought that privacy related issues could represent a significant new area of corporate and securities litigation exposure. This case has been one of the most prominent examples of how privacy-related issues can translate into securities litigation. I know, I know, the Supreme Court case is not going to be about privacy issues as such. However, if any portion of the case survives the Supreme Court’s review, it could have important implications about privacy issues as a source of litigation risk.

In any event, this case is now on the Court’s docket for its next term, and it will be interesting to watch.

Napa Valley

The D&O Diary was on assignment last week in Napa Valley in California. Although I have visited Napa several times in the past, it has been a while since I have been there. I had forgotten what a beautiful place it is and how much fun it is to visit.

My primary purpose for traveling to Napa was to participate as a speaker at Inigo’s 2024 Securities Panel Event. The event was held at the beautiful Auberge du Soleil Resort, perched in the hills above Napa Valley. It was a pleasure and an honor to be a part of this excellent event, which first class in every respect. I would like to thank my friends Yera Patel, Ed Whitworth, Tom Ielapi, and all of their Inigo colleagues for inviting me to be a part of this event. It was a great success and a tremendous amount of fun. It was particularly enjoyable to see so many industry friends in such a pleasant setting.

It was an honor to be on this panel with such esteemed fellow speakers. From left to right: Yera Patel of Inigo, who moderated the panel; Boris Feldman of the Freshfields law firm; Stephanie Avakian, former head of the SEC Enforcement Division, now of Wilmer Hale; Jim Harrod of the Bernstein Litowitz law firm; me; and Tom Ielapi of Inigo. It really was an excellent panel and it was great to be a part of it.
After the session, on a terrace at the hotel, with Seth Pfalzer of Woodruff Sawyer and Deidre Finn of Newfront.
With Patricia Ramos and Derek Lakin of Lockton and Nicolai Revin of Marsh.
With Katie Myczek of AON.
With Amy Jeter and Hilarie Gates of Marsh, Larry Bowlus of EPIC, and Jeff Perkins of Marsh.
With Ed Whitworth and Yera Patel of Inigo
With Steve Shappell of Alliant Insurance Services and Laura Markovich of the Skarzynski Marick & Black law firm.
With Erin Stephenson of Woodruff Sawyer.
With Andrew Oldis of the Kaufman Borgeest & Ryan law firm and Millie Baars of Inigo
Such a beautiful venue in such a beautiful setting. A truly memorable event.

In the following guest post, Ed Whitworth, the Head of Financial Lines at Inigo, and Yera Patel, Chief Legal officer and Head of Financial Lines Claims for Inigo, summarize the results of a recent survey Inigo conducted of U.S. securities litigation defense counsel. The original of the survey summary previously was published on Inigo’s blog, here. I would like to thank Ed, Yera, and Inigo for allowing me to publish the report summary on this site. I welcome guest post submissions from responsible authors on topics of interest to the blog’s readers. Please contact me directly if you would like to submit a guest post. Here is the authors’ article. 


The Inigo 2024 Defense Counsel survey findings are in.

We have published our 2024 Defense Counsel survey, our third annual temperature check of the US Securities Litigation landscape, with some familiar areas of discussion and some new.

The new cybersecurity disclosures, a new cadre of judges on the Federal bench, plus a tougher financing environment and mixed economic picture are affecting corporate litigation in the US, according to the leading corporate attorneys whose opinions we polled. Delaware also continues to be a tough forum to defend Derivative actions.

  • Cybersecurity will new disclosures trigger more class actions?
  • Securities class actions are settlement demands increasing?
  • Artificial intelligence the next ESG or EV DeSPAC?
  • Bankruptcies – what happens when there is no money left?
  • Derivatives and Delaware how bad can it get?

We asked our respondents 58 questions across these subjects, as well as conducting extensive interviews to understand their perspective. We will highlight some of the key findings we discovered here but there is much more detail in the survey, which we encourage you to read.

Firstly, despite ransomware attacks and other cyber breaches against businesses continuing apace, most US-listed companies are unprepared for the Securities and Exchange Commission’s new rules on reporting their cyber readiness and any attacks they suffer, defense counsels told us. In addition, there is a view amongst many of them that the Plaintiff Bar will also see this as an attractive opportunity. As a result, they predict that the new disclosure regime will likely lead to more lawsuits being filed against public companies.

Another worrying trend that our survey respondents told us is that the size of defense settlements has jumped. There have been several very large settlements this year and, with others in the pipeline, the total value of settlements could set a record in 2024. That, combined with other factors, such as the growing influence of new judges appointed to the Federal Bench by President Biden, means those we surveyed expect the cost of defending and settling claims will rise.

Artificial Intelligence (AI) looks set to revolutionize our lives, but it’s also likely to catch many companies out, either because they exaggerate their use of the new tech or because they don’t foresee how it will disrupt their business. Nearly three quarters of the defense counsels we spoke to thought AI will trigger more litigation in the year ahead, particularly following SEC Chair Gary Gensler’s warnings to companies to not ‘AI wash’. This is supported by the fact that we have already seen 3 AI related SCA filings in Q1 24 alone.

Some likened the wave of litigation to the recent phenomena around Electric Vehicle litigation, which has been disproportionately higher than other industry sectors. There was less agreement about how aggressive the enforcement regime will be but it is clear the litigation landscape is going to evolve almost as fast as the technology, with the majority believing this will lead to more litigation against companies operating in AI.

Next we explored the financial health of companies and the impact this has on litigation. Although the pandemic is now receding in people’s memory, there’s a sting in the Covid tail for Corporate America. Sluggish consumer demand, the end of stimulus packages and ratcheting interest rates to counter the rising inflation partly created by those aid measures has meant a surge in the number of US companies filing for bankruptcy. Worse, more of those businesses are collapsing, rather than being able to restructure their debts and trade on.

This is a problem for their D&O cover, particularly if the companies don’t have enough money set aside to pay their share of the defense costs required under the B and C sides of their policies. With no money left in the pot it can be very difficult to reach a settlement, say defense counsels. The moral of the story is to not stint on buying A Side coverage, as it might be all there is to defend a company’s executives and board members if it goes down in flames.

The final chapter covers a theme familiar in both our previous surveys. There is now a slew of derivative litigation in Delaware, with our prediction of there being 5 settlements over $100m coming true last year. Defense counsels cite the continued fallout from landmark judgments, like those redefining the Caremark standard as well as the McDonald’s decision, clarifying the duties of officers as well as directors. They also highlight the state’s courts being more friendly to plaintiffs as well as mushrooming Section 220 Demands as making it an even tougher state now for companies to fight lawsuits. It’s become even more of a favorite destination for plaintiff’s lawyers as a result, and the cost of defending and settling cases is rising, so companies need to beware.

We cover this and much more in our survey, with thanks to our respondents for taking the time to complete the survey and participate in interviews.

Finally, in this year’s report, as in previous years, we marked the predictions we made in 2023 – and made some more for 2024. We asked defense attorneys to once again rate their adversaries, which we use to rank the top five plaintiff’s law firms in the country. Will your regular opposite numbers feature on that list, and do you agree with the views of your peers? If you’d like to read the full survey, please click on the link here.

Here at The D&O Diary, our job is to watch for emerging trends in corporate and securities litigation. There is plenty to watch. Because we are always so attentive to what is new, it sometimes surprises us when a development appears that reflects an old or even seemingly played-out trend. That was our reaction to seeing the new COVID-related complaint filed this week against the health Insurer Humana, in which the plaintiff alleges that the company misled investors about the company’s rising costs associated with increased patient utilization rates due to post-pandemic pent-up demand. It is, in fact, a little surprising that even now, more than four years after the coronavirus first emerged in the U.S., COVID-related lawsuits are still being filed. A copy of the Humana complaint can be found here.

Continue Reading Health Insurer Hit with COVID-Related Securities Suit

In several posts (most recently here), I have tried to assess the continuing risks associated with what has been called The Banking Crisis of 2023. In my view, the risks continue, including in particular with respect to banks’ exposure to commercial real estate market. A May 28, 2024, paper by an economist at the Federal Reserve Bank of St. Louis entitled “Commercial Real Estate in Focus” (here) takes a detailed look at the current state of play in Commercial Real Estate (CRE) and examines the implications for banks and thrifts that hold CRE debt. Given the extent of the exposures of banks and thrifts to CRE debt, the author concludes, the CRE sector remains “a challenge for the banking system,” with significant concerns for the banks “if and when losses materialize.”

As the paper details, the CRE asset market is a huge part of the U.S. economy, representing over $22.5 trillion as of the end of 2023. Outstanding CRE debt totaled $5.9 trillion as of the end of 2023, with banks and thrifts holding 50% of that total (government-sponsored entities, insurance companies, and debt securities make up the other half). With such a large share of CRE debt held by banks and thrifts, “the potential weaknesses and risks associated with this sector have become top of mind for banking supervisors.” 

It is worth noting, as the paper shows, that banks’ exposure to CRE debt has grown enormously in the past decade, growing from about $1.2 trillion outstanding as of the first quarter of 2014 to about $3 trillion at the end of 2023. It is perhaps even more noteworthy that, as the paper notes, “a disproportionate share of this growth has occurred at regional and community banks, with roughly two-thirds of all CRE loans held by banks with assets under $100 billion.”

In other words, the health of the CRE market is of critical importance for the banking industry. As the author details in her paper, the CRE sector is currently “navigating several challenges.” The first of these challenges arises from the fact that much of the outstanding CRE debt will soon be maturing and will need to be re-financed at higher interest rates. The second is that these interest rate risks arise while certain market fundamentals continue to deteriorate.

With respect to the maturing debt, the author notes that roughly $1.7 trillion, or nearly 30% of the outstanding CRE debt “is expected to mature from 2024 to 2026.” This prospect is known as the “maturity wall.” The CRE sector has long relied on shorter-term debt durations, in expectation that the debt will be re-financed at maturity. During the many years that interest rates were low and stable, this arrangement made sense. However, in the current interest rate environment, borrowers looking to refinance maturing CRE debt “may face higher debt payments.” While higher debt obligations by themselves weigh on profitability, the weakening of the CRE market’s underlying fundamentals, especially for the office sector, “compounds the issue.”

The three underling fundamentals that are, according to the author, deteriorating are: net operating income (NOI); vacancy rates; and valuations.

The net operating income for the CRE market “has come under pressure of late, especially for office properties.” The office sector faces “not only cyclical headwinds from higher interest rates by also structural challenges from a reduction in office footprints as increased hybrid and remote work has reduced demand for office space.” Higher expenses as a result of sustained economic inflation have also raised operating costs. Overall, the author points out, “any erosion in NOI will have important implications for valuations” (about which see below).

Vacancy rates are obviously important as well, as higher vacancy rates indicate lower tenant demand, “which weighs on rental income and valuations.” U.S. office vacancy rates in the first quarter of 2024 reached 19%, surpassing previous highs reached during the Great Recession and the COVID-19 recession. The vacancy rate may even underestimate the overall level of vacant office space, as space that is leased but not being fully used runs the risk of turning into vacancies as leases expire.

As rates remain elevated, NOI declines, and vacancy rates rise, CRE valuations are under pressure. Because there have been relatively few transactions through early 2024, “price discovery” remains a challenge –meaning it is hard to gauge exactly how much valuations have declined. The reason there have been fewer transactions recently is that “building owners have delayed sales to avoid realizing losses.” By one measure the author cites, the office sector commercial property price index as of the first quarter of 2024 had decline 34% from its peak. The author suggests that “further pressure on valuations could occur as sales volumes return.”

The author concludes that the CRE market remains “a potential headwind for the U.S. economy in 2024,” as weakening fundamentals suggest “lower valuations and potential losses.” Stress in the CRE market is likely to “remain a key risk factor to watch in the near term as loans mature, building appraisals and sales resume, and price discovery occurs,” which will “determine the extent of losses for the market.”


Some observers that follow the commercial real estate sector may say there is little new in the economist’s report, but I think the author deserves credit both for the concision of her summary and for marshaling key data to support her analysis and conclusions. The report, which is short, is worth reading in full.

The picture the author paints is indeed troubling. But notwithstanding the concerns, there are some things worth considering. For one thing, and for all of the gloom the author conjures up in her paper, there has still only been one failed bank so far in 2024, and here we are just weeks before the end of the year’s first half. To be sure, it could be that the real trouble is still ahead, as debts mature and as losses are realized. But in that regard, it is reassuring to note that, as the author observes, banks are now “increasing their allowances for loan losses on CRE portfolios,” and “stronger capital positions by U.S. banks provide added cushion against stress.” It is also probably worth noting that the author herself does not raise the specter of further possible bank failures ahead, but rather says only that there are key risk factors to watch in order to “determine the extent of losses for the market.”

There is one note in the author’s paper that is particularly troubling, and that is her observation that a “disproportionate share” of the growth in outstanding CRE debt during the past decade is concentrated at regional and community banks. The author specifically notes that CRE is a challenge to the banking sector overall, but that among banks with high CRE concentrations, “there is a potential for liquidity concerns and capital deterioration if and when losses materialize.”

The challenge that the CRE sector is facing is not helped by the fact that interest rate decreases, which many investors had assumed were on the calendar for later this year, likely will now be delayed. As long as interest rates remain elevated, the concerns surrounding the “maturity wall” will continue, with the likelihood that maturing debt will be rolled over at elevated interest rate levels – which will further weigh on landlords’ operating income and on valuations, which could contribute to and exacerbate losses.

One final note. All of these observations are disturbing enough by themselves, but they are even more alarming when the sheer size of the total CRE debt — $5.9 trillion — is taken into account, especially given that $1.7 trillion is due to mature during the 2024-2026 timeframe. That’s a lot of debt to roll over. It is also a lot of risk for creditors and lenders, particularly if interest rates continue to stay higher longer for longer.  

In numerous posts over the years (most recently here), I have noted that qui tam actions under the False Claims Act fit awkwardly with the typical D&O Insurance policy terms and conditions. Many of the related coverage problems arise from the fact that applicable procedures require a qui tam claimant to file his or her complaint under seal and to withhold service of process while the government decides whether or not it will intervene in the case. The upshot is that there sometimes can be a very long time lag between filing and service. This can make it challenging, for example, to determine when the claim was first made. It can also cause problems under the prior and pending litigation exclusion, as was the case in a recent bankruptcy-related proceeding.

As discussed below, the bankruptcy court judge granted a D&O insurer’s summary judgment motion, agreeing with the insurer that, by operation of the policy’s prior and pending litigation exclusion, coverage was precluded for a subsequent derivative suit that was based on the same operative facts as an earlier filed but not served qui tam lawsuit. As discussed below, as far as I am concerned, the upshot of this case (and other cases like it) is that the key policy terms should be modified so that the policy wording fits better with the qui tam procedures. A copy of the May 29, 2024, opinion in the Insys Therapeutics bankruptcy proceeding can be found here.


In 2012, Insys Therapeutics, a pharmaceutical company, was sued in a qui tam action under the False Claims Act. The qui tam action was filed under seal and was dismissed before it was served on the directors and officers of Insys. At the time Insys purchased the D&O insurance at issue in the subsequent coverage action, the company was unaware of the existence of the qui tam action.

In 2016, the company’s directors and officers were sued in a shareholder derivative lawsuit. Both the qui tam action and the derivative action involved the same allegedly fraudulent scheme to market addictive opioid products. Insys submitted the derivative lawsuit to its D&O insurer as a claim under the policy. The insurer denied coverage for the claim in reliance on the policy’s Prior and Pending Litigation exclusion, which precluded coverage for actions “brought” prior to May 02, 2012. The insurer contended that the qui tam action, involving the same allegations, had been brought prior to May 02, 2013.

In 2019, Insys filed for bankruptcy. The trustee for the litigation trust in bankruptcy filed a coverage lawsuit in the bankruptcy proceeding seeking to recover defense expenses the estate had incurred in defending against the derivative suit. The insurer moved for summary judgment based on the Prior and Pending Litigation exclusion. The litigation trustee filed a cross-motion for summary judgment arguing first that the “unique procedural characteristics” of qui tam suits call for different treatment under the Prior and Pending Litigation exclusion, and second that the word “brought” in the exclusion is ambiguous in this context.

The Prior and Pending Litigation exclusion provides as follows:

In consideration of the premium charged, no coverage shall be available under this Policy for claims based upon, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving any fact circumstance, situation, transaction, event or wrongful act, underlying or alleged in any prior and/or pending litigation, or administrative or regulatory proceeding or arbitration was brought prior to May 02, 2013.

The May 29, 2024, Order

In a brief May 29, 2024, order, District of Delaware Bankruptcy Court Judge John T. Dorsey, applying Delaware law, granted the insurer’s motion for summary judgment, and denied the litigation trustee’s cross-motion, holding that coverage for the derivative suit defense fees was precluded by the policy’s Prior and Pending Litigation exclusion.

In reaching this conclusion, Judge Dorsey first rejected the litigation trustee’s argument that, in the context of a qui tam lawsuit, the word “brought” in the exclusion reasonably could be interpreted to mean both filed and served on the defendant. The court said that it is “commonly understood” that a litigation is “brought” when “a complaint is filed.” Delaware law, Judge Dorsey said, requires that insurance policies must be construed in a “common sense manner.” Accordingly, he found that under the Prior and Pending Litigation exclusion, litigation is “brought” when the complaint is filed with the court – which, in this case, was before the Prior and Pending Litigation date.

Judge Dorsey also rejected the litigation trustee’s argument that due to the “unique procedural characteristics” of the qui tam action, the action should be treated differently under the exclusion’s language. In so ruling, Judge Dorsey specifically cited and quoted with approval from the Pennsylvania Superior Court’s 2014 appellate opinion in the AmerisourceBergen Corp. case, in which a court held that a Prior and Pending litigation exclusion precluded coverage under an E&O policy for a subsequent claim based on similar facts as an earlier filed qui tam action. (I discussed the AmerisourceBergen decision at length in a blog post at the time, here.) Judge Dorsey concluded his analysis of this issue by saying that “Neither the arguments advanced by the Trustee, nor the relevant case law, indicate that the Qui Tam Action in this case should be treated any differently than other civil actions.”


The litigation trustee may not have prevailed on the argument, but there is no doubt whatsoever that qui tam actions do indeed have “unique procedural characteristics.” And not only do qui tam actions have unique procedural characteristics, but these characteristics are such that over and over again they result in the preclusion of D&O insurance coverage for subsequent claims, owing to nothing other than the distinctive way that qui tam actions unfold.

 It may well be that, as Judge Dorsey said, under this policy and indeed under most conventional D&O insurance policies as written, there is no reason that qui tam actions should be treated differently than other civil actions. However, that does not mean that the policies themselves should not be written differently so as to treat qui tam actions differently and in a way that takes the unique procedural characteristics of qui tam actions into account.

There is one quick way to clean up this recurring problem involving qui tam actions, and that would be to amend the Prior and Pending Litigation exclusion to provide that for purposes of qui tam actions, the claim is “brought” (or “commenced” or whatever the operative word is in the exclusion) when the action is served, not when it is filed. Alternatively, the exclusion could be amended to specify that the exclusion does not apply to qui tam action complaints that were filed but not served before the prior litigation date.

For me, a particularly compelling solution here would be to line up the language between the Prior and Pending Litigation exclusion and the standard Definition of Claim, so that both require service of process. For me, this alternative has the appeal of having the policy’s various clauses operate consistently – as it is now, the inconsistency between the Prior and Pending Litigation exclusion, which does not require service of process, and the Definition of Claim, which does require service of process, is a jarring inconsistency that not only is dissonant but it produces harsh, unsatisfying outcomes like the one here.

As I said at the outset, qui tam actions fit awkwardly with the standard D&O insurance policy language. As an industry, we can just acknowledge that the standard policy language does not operate well in the context of qui tam actions, and that it is time to do something about it. I have proposed some possible solutions above. I hope that if others have suggestions they will add it to the dialog. The fact is this problem has been around for years. It should not be the case that there regularly are these situations where the D&O policy just doesn’t work well.

Special thanks to a loyal reader for providing me with a copy of Judge Dorsey’s opinion.

In recent months, much of the discussion of ESG issues has focused on the impact of the ESG backlash.  However, the predominance of the backlash movement in the current ESG discussion does not mean that interest in addressing ESG-related concerns has disappeared; in certain circles at least, ESG concerns remain on the agenda. The most interesting recent development along these lines is the May 9, 2024, issuance of a Request for Proposals (RFP) by the Michigan Department of Attorney General, in which the Department has solicited attorneys to act as Special Assistant Attorneys General (SAAG) to pursue climate change-related lawsuits against fossil fuel companies and others. The Department’s notice is reminder that for all of the noise surrounding the ESG backlash, the threat of ESG-related litigation is continuing.

Continue Reading Michigan AG Solicits Attorney Help for Climate Change Litigation

There is no doubt that, as I have previously noted on this site, the conversation about ESG has changed over time, particularly as ESG has faced a political backlash. These changes not only concern ESG itself but each of its three constituent pillars – and while ESG discussions frequently focus on the “E” pillar, and in particular on climate change, the changes in the ESG conversation also concern the “S” pillar as well. Of the recent changes surrounding the Social component of ESG, arguably none is more important that the U.S. Supreme Court’s 2023 decision in Students for Fair Admissions v. Harvard College, in which the Court ruled that race-based policies should not be used in university admissions. In a May 23, 2024, Law360 article entitled “The State of Play in DEI and ESG One Year After Harvard Ruling” (here), attorneys from the Crowell & Moring law firm review the ways that the Supreme Court’s decision in the Harvard case have changed the dialog surrounding Diversity, Equity and Inclusion (DEI) and ESG.

Continue Reading ESG, DEI, and the Supreme Court’s College Admissions Decision

One of the procedural innovations the PSLRA introduced was the requirement that plaintiffs’ counsel who file a securities class action lawsuit complaint must issue a press release announcing the complaint’s filing and notifying prospective class members of the opportunity to seek to become lead plaintiff. Plaintiffs’ lawyers quickly realized the potential publicity value for them from this exercise. Over time, related practices have developed, including the now commonplace practice in which plaintiffs’ lawyers issue a press release before they have filed a suit, announcing that they are “investigating potential claims.” While this practice is now familiar, it is still worth considering what the pre-suit communication tells us about the prospective lawsuit.

In a recent paper, four academics have examined this question; their article concludes that what the authors call “plaintiff’s attorney marketing” not only signals the likelihood of future litigation, but also may indicate severity of the litigation. The four authors are Steven E. Kaplan of Arizona State University, and Adi Masli, Matt Peterson, and Eric H. Weisbrod of the University of Kansas. Their article entitled “Corporate Ambulance Chasing? Plaintiff’s Attorney Marketing as a Signal of Corporate Litigation Risk,” can be found here. The authors’ May 23, 2024, post on The CLS Blue Sky Blog summarizing their article can be found here.

The authors evaluated a sample involving 4,500 public companies over the period from 2013-2020. The authors collected data on announcements (in the form of press releases and tweets) from the companies during the eight-year study period, in order to identify plaintiffs’ attorney investigation announcements. The authors examined a total of 167,357 investigation articles and 30,831 investigation tweets during the sample period.

Based on their analysis, the authors determined that overall, investigation announcements were “relatively rare,” occurring in only about 3 percent of company-months. But, the authors determined, when these announcements do occur, “subsequent litigation is much more likely.”

The authors determined that the “baseline probability” of a company in the sample getting sued in the next twelve months is about 18.7 percent. They further determined that in months in which an investigation tweet or press release appeared, the probability of future litigation jumps to 45 percent for investigation articles and 46 percent for investigation tweets. Moreover, the probability of future litigation continues to rise with greater numbers of press releases or tweets during the month. That is, not only does the presence of an investigation press release or tweet indicate an increased likelihood of future litigation, but the greater the number of press releases or tweets, the greater the likelihood of litigation.

The obvious objection to these observations is that of course companies that are the subject of the investigation press release or tweet are likelier to be sued, because obviously something happened to the company of sufficient importance to attract the plaintiffs’ lawyers’ attention. The authors themselves acknowledge that the marketing releases are often triggered by adverse corporate events, such as financial restatements, merger announcements, or signs of internal control weaknesses.

Based on their further analysis, the authors conclude that “even controlling for these potential triggers,” the plaintiffs’ lawyers’ marketing releases “remain incrementally informative about future litigation risk,” concluding further that “adding indicators for investigation articles and tweets to a litigation risk model increases the litigation risk model’s predictive power by 33 percent. The authors interpret these results as suggesting that “plaintiffs’ attorneys’ marketing efforts signal their judgment about a case’s potential viability.”

As a further test of these conclusions, the authors completed additional analysis with respect to financial restatement announcements, which the authors characterized as “a known trigger of shareholder lawsuits.” Even controlling for “restatement characteristics that speak to the potential merits of a case,” such as, for example, an indicated of fraud, the existence of plaintiffs’ attorney investigation articles or tweets in a three-day announcement window “remains strongly predictive of future litigation.”

The authors also considered the possibility that plaintiffs’ attorney marketing “may causally facilitate corporate litigation by connecting attorneys with potential plaintiffs.” The authors specifically found that due to an alteration in the algorithm that determines which tweets are displayed in a user’s Twitter feed, in which tweets most relevant to the user based on the user’s prior activity were displayed first, investigative tweets became incrementally more predictive of future litigation. The authors conjecture that this use of social media may have played a causal role in facilitating litigation by reducing the coordination costs between plaintiffs and law firms.

The authors acknowledge that courts and others have bemoaned that plaintiff marketing can “undermine regulations aimed at reducing frivolous lawsuits” and that some commentators go so far as to publicly label the attorneys putting out the press releases as “corporate ambulance chasers.”

However, whatever one may think of these marketing practices, the incorporation of plaintiff attorney marketing into litigation risk models “meaningfully increase(s) the predictive ability” of the model. Moreover, the authors conclude, the attorney marketing efforts are “not merely associated with the incidence of lawsuits but reflect value-relevant information about attorneys’ assessment of corporate liability.” The plaintiff’s attorneys’ marketing releases are “an informative, timely, and publicly available signal of the likelihood of corporate litigation, and, to a lesser extent, its potential severity.”


On one level, it may be observed that the authors have merely concluded that when plaintiffs’ lawyers make a public statement that they have zeroed in on a specific company, it is likelier that the company is going to be sued. However, there is, in my view more to the authors’ analysis that this. For starters, the authors have quantified the probabilities, and demonstrated the general likelihood that companies that are the subject of one of these press releases are likelier to get sued.

Here is what I see as the value of these observations. Many times over the years I have found myself in conversation with management or counsel for a company that has been the subject of one of these attorney marketing press releases. My universal practice in these circumstances is to recommend that the company provide to its D&O insurer a notice of circumstances that may give rise to a claim. A surprisingly larger percentage of time, the company’s management or counsel will push back on the recommendation, usually on the ground that the prospective litigation would be frivolous or that the notice itself is just the product of ambulance chasers just trying to drum up business.

These kinds of observations may, at some level, be valid, but they don’t change the wisdom of providing a notice of circumstances to the company’s D&O insurers; as the authors’ analysis shows, a company that is the subject of an investigation press release is much likelier to get hit with a securities suit. Better for the company to conduct itself accordingly.

Another valuable observation in the authors’ paper is their conclusion these attorney marketing practices may serve a “causal role in facilitating litigation.” The authors’ analysis of this phenomenon was focused in particular with respect to the attorneys’ social media practices, but it is my observation that attorney marketing practices serve this role, whether the medium used is Twitter (or its current successor, X) or a more traditional press release.

The point is, the plaintiffs’ lawyers putting out the communication are trying to find plaintiffs to represent, preferably ones with a greater financial interest in the lawsuit who are therefore likelier to win the lead plaintiff derby. Indeed, the attorneys’ interest in using these communications to find clients to represent is so well understood that these kinds of attorney marketing efforts are universally referred to as “trolling press releases,” meaning that they attorney using the press release to troll for clients. While the reality of these practices are well-understood on a common sense basis, the authors’ research is helpful to identify, describe, and quantify these practices.

Long-time readers may recall that just a short time ago there was growing concern that New York’s courts might be becoming a preferred forum for aggrieved investors to pursue liability claims against non-U.S. companies’ executives, based on the companies’ home country laws. However, in early 2022, just as the alarm bells began to sound, New York courts issued a series of rulings dismissing various cases of this kind, suggesting that the furor might have been overblown. But even following these events, concern remained that New York’s courts might still prove to be available in at least certain circumstances for claims under home country law against non-U.S. companies and their executives.

A recent decision from a New York trial court, in which the court denied the defendants’ motion to dismiss a breach of fiduciary duty claim brought under Cayman law against former officers and directors of a Cayman company, confirms that, under some circumstances at least, New York courts may be an available forum for litigants to pursue these kinds of claims involving non-U.S. companies. The fact that the Court accepted the case, and the considerations that proved to be relevant to the court, are both instructive.

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