So your flight was cancelled and you weren’t able to make it to New York for the PLUS D&O Symposium? Have no fear, my flight managed to get through and I made it to the conference, and so I am able to report here on the first day’s proceedings.
It may be cold consolation for those of you who didn’t make it, but you should know that you are not alone. There were quite a few empty seats in this morning’s sessions, and even a couple of speakers were unable to make it. Fortunately, the conference organizers were able to locate some able substitutes, and the show is going forward.
The day’s opening session was, as is customary, devoted to current corporate and securities litigation trends. The session was chaired by Bruce Angiolillo of the Simpson Thacher law firm, who substituted into the role at the last minute. The other panelists included leading members of both the plaintiffs and defense bar, as well as Columbia Law Professor John Coffee.
There were a number of recurring themes during the opening session, one of the most interesting of which was the recurring suggestion that the nature of securities class action litigation has been changing. For example, Professor Coffee noted that the source of the wrongdoing has changed; whereas in the past, the typical securities case would involve allegations of financial fraud, now there are many more cases involving alleged product defects or operational deficiencies than there are cases alleging financial fraud or restatements. Plaintiffs’ attorney Michael Dowd of the Robbins Geller firm, while acknowledging that filings of new financial fraud cases may have declined more recently, stated that he "has faith" that the financial fraud cases "will be back."
Other panelists echoed this suggestion that securities cases are changing, although they invoked different points of reference. Bill Grauer of the Cooley law firm noted that cases are becoming "much more complex" and "much more fragmented," particularly as one set of circumstances can and often does give rise to a multitude of separate regulatory and litigated proceedings.
In focusing on the past year’s most significant developments, the panel extensively discussed the U.S. Supreme Court’s decisions in the Morrison case (about which refer here) and in the Merck case. With respect to the Morrison case, among the topics discussed were the as yet unanswered questions that will have to be resolved in the wake of Supreme Court’s decision.
For example, Professor Coffee noted that questions remain on the question whether Morrison will apply to liability claims under Section 11 of the ’33 Act as well as to the Section 10(b) type claims that were involved in the Morrison case itself (at least one court has said that Morrison does extend to the ’33 Act, refer here). He also noted that the applicability of Morrison to tender offer litigation also remains to be answered. Finally, he noted that we are all waiting to find out what impact, if any, the Morrison opinion will have on the jury verdict entered in the Vivendi case (about which refer here).
Jay Eisenhofer of the Grant & Eisenhofer firm also noted some additional questions that remain in the wake of Morrison, including whether or not Morrison will preclude claims of persons who purchased American Depositary Receipts in the U.S (at least one court has held that at least with respect to ADRs purchased over the counter, as opposed to on an exchange, Morrison does preclude the applicability of Section 10(b)). He also noted that it will remain to be seen whether plaintiffs who bought their shares outside the U.S. can pursue claims under the law of the non-U.S. company’s home country, and whether or not plaintiffs can and will attempt to pursue claims under the common law.
The panel also extensively discussed the U.S. Supreme Court’s decision in the Merck case (about which refer here). Several panelists noted the difficulty defendants will now have, in the wake of Merck, showing that the plaintiffs had access to information sufficient to trigger the running of the statute of limitations, the result of which may be to keep cases alive much longer. Professor Coffee asserted that while the Merck decision may not be as important as the Morrison decision, it will "have an impact," and Dowd agreed that Merck will "have an impact on the quantity and quality of cases."
The panel also discussed the rising levels of merger and acquisition related litigation. As a preliminary matter, Eisenhofer expressed some skepticism whether there really is an increase in the level of M&A activity, suggesting that the apparent increase may simply be a refection of the fact that these types of suits may not have been fully "captured" in litigation statistics in the past, and that M&A litigation generally will "rise and fall" with the level of economic activity.
One attribute of the M&A related litigation that is arising is that it is often characterized by multiple proceedings in separate jurisdictions, a development that created logistical and cost issues for all concerned, which represents another manifestation of corporate and securities litigation. Several panelists suggested that one reason that these cases may be "migrating" away from Delaware is that the Court of Chancery has proved to be skeptical of many of these cases and therefore unwilling to award plaintiffs significant attorneys fees, particularly where the ostensible benefit to the defendant company as a result of the litigation is slight.
The panel discussed the question of whether or not companies can use forum selection clauses in their by laws to try to designate in advance to forum in which litigation involving the Board must go forward. The problem is that at least one court (in the Oracle case, about which refer here, scroll down) has found that a by-law forum selection clause is not enforceable.
The panel debated whether or not the whistleblower provisions of the Dodd-Frank Act will be significant. While some panelists expressed the view that the whistleblower provisions could have a significant impact on securities litigation, others were less sure. Professor Coffee noted that at least in the short run, the SEC’s budget constraints and the unwillingness of Congress to fund many activities mandated in Dodd-Frank may constrain the significance of whistleblowing at least for now.
As far as what may lie ahead in 2011, the panel discussed at length the cases now pending on the U.S. Supreme Court’s docket, particularly the Halliburton case, which will examine the question of whether or not the loss causation issue must be determined at the class certification stage. Eisenhofer expressed the view that the Halliburton case is "the big case of the Supreme Court term."
Professor Coffee stated that he believed, consistent with the holding in the Seventh Circuit and with the amicus brief filed by the Solicitor General, that far from loss causation being an issue that must be determined at the class action certification stage, as the Fifth Circuit has held, the issue of loss causation is a "common issue" that does not have to be proven at the class certification stage because it is not related to the Rule 23 predominance requirement.
Dowd, the plaintiffs’ attorney, noted that one consequence of this these efforts to drive issues that appropriately should be dealt with later in the case into a point earlier in the case is that defense expenses accrue much more quickly and much earlier in the case, sometimes creating impediments to later settlement because defense fees have substantially exhausted the available insurance.
Angiolillo had an interesting comment on what may be interfering with case settlement. He suggested that over the last ten years or so, it has become increasingly common for company’s D&O insurance to be structured into a tower of as many as twelve layers of insurance, and that as defense fees and prospective settlement amounts move progressively through the towers, points of resistance emerge that interfere with settlement efforts. Angiolillo suggested that the process participants "need to do a better job getting everyone on the same page" because this "structural issue …inhibits settlements."
And For Those Who Want More: Those home-bound due to weather and therefore unable to attend this conference and want more about what is going on with respect to directors and officers liability and insurance issues can refer to the several recent blog posts I have added on that very topic, including The Top Ten D&O Stories of 2010 (here), What to Watch Now in the World of D&O (here), A Closer Look at the 2010 Securities Class Action Filings (here), and The Latest Status on the Subprime and Credit Crisis-Related Securities Litigation (here).