Labor Day has come and gone. The kids are back in school. The air is cooler and the nights are longer. There’s a definite autumnal feeling in the air. It is time to get back to work. Fortunately, The D&O Diary kept its eye on things over the summer. So if you are feeling the need to get caught up on what happened while you were out, don’t worry, we’ve got you covered. Here is a quick summary of what you missed on The D&O Diary while you were away.


Libor Scandal Surges, Litigation Emerges: The unfolding scandal moved into the headlines of business pages around the world in late June after Barclays agreed to over $450 million in regulatory fines and penalties. Inevitably, litigation has followed; indeed, it had begun to accumulate well before the Barclays settlements were announced.  An overview of the scandal itself  can be found here, and the details of the follow-on  litigation can be found here, here and here. Although many of the lawsuits filed so far have been based on antitrust claims, there has been at least one securities class action lawsuit filed as well, involving Barclays and its former CEO and its former Chairman (about which refer here). The scandal clearly has further to run, and there will likely be further litigation as well. As Stanford Law Professor Joe Grundfest put it, “the Libor-litigation industry is clearly a sector to watch for years to come.”


Mid-Year Securities Litigation Studies Released: All of the leading statistical services have issued their respective studies of securities class action lawsuit filings for the first six months of 2012. My post about the Cornerstone Research study can be found here; the NERA Economic Consulting study, here; and the Advisen study can be found here. My own analysis of the first half filings can be found here.


Key Insurance Coverage Decisions: In a case that addressed one of the perennial D&O insurance coverage issues, on June 27, 2012 Central District of California Judge R. Gary Klausner ruled that subsequent lawsuits related to the collapse of IndyMac bank were interrelated with an earlier suit and therefore there is no coverage under a second tower of D&O insurance for the subsequent claims. A discussion of the case and the interrelatedness issue can be found here.


In a different case, on June 29, 2012, the Seventh Circuit, applying Illinois law, held that when the defendants in a lawsuit include both persons who are insureds under the defendant company’s D&O policy and persons are not insureds, the policy’s Insured vs. Insured exclusion does not preclude coverage for the entire lawsuit, but only the portion attributable to the claims brought against the non-insured person defendants. The extent of coverage available when the defendants include both insured persons and non-insureds is to be determined by the policy’s allocation provisions. A discussion of the Seventh Circuit’s opinion can be found here.


In the latest of what is now a lengthening line of cases, on June 12, 2012, the New York Supreme Court, Appellate Division, First Department, applying Illinois law, ruled in a coverage case brought by JPMorgan Chase that owing to settlements reached with underlying carriers in a professional liability insurance program, the excess insurers in the program have no payment obligation because conditions precedent to coverage under the excess carriers’ policies had not been met. The New York case and the earlier line of cases are discussed here.


And as discussed here, in a decision that gives broad effect to a D&O insurance policy’s contractual liability exclusion, on August 17, 2012, Middle District of Pennsylvania Judge William Nealon granted the insurer’s motion for summary judgment, holding under Pennsylvania law that the insurer had no obligation to defend or indemnify the policyholder for negligent and fraudulent misrepresentation claims in the underlying action.


Finally, In an August 21, 2012 opinion, Central District of California Judge James V. Selna, applying California law, rejected the insured’s efforts to have the malpractice insurer’s duty to advance obligations determined under duty to defend principles. The court concluded that the insurer did not have the duty to advance the insured’s defense expenses incurred in a dispute between the insured and his former law firm. Judge Selna’s opinion is discussed here.


The FDIC’s Pace of Failed Bank of Lawsuit Filing Slows: As I noted when the FDIC filed two new failed bank lawsuits in mid-July, those two new lawsuits represented the first lawsuits the agency had filed in two months. Although it seemed at the time as if the two new suits might represent an end to the lull, in time following the July filing of the two lawsuits, the FDIC has not filed any further new failed bank lawsuits. Indeed, between April 20, 2012 and today, the FDIC has filed only three lawsuits, after filing eleven in the first four months of the year.


This apparent slowdown in FDIC failed bank lawsuit filings during the last four months is all the more surprising given that during the equivalent period three years prior well over 50 banks closed. In addition, according to its website, the agency has authorized so many more lawsuits than it has filed – and it has been increasing the number of authorized lawsuits each month. In the latest update to its website on August 14, 2012, the agency indicated that his has now authorized suits involving 73 failed institutions; against 617 individuals for D&O liability (those figures represented an increase from the prior month’s numbers of with 68 failed institutions against 576 individuals). So far the agency has filed 32 suits involving 31 failed institutions, involving 268 individuals.


Courts Wrestle With Business Judgment Rule and the Scope of Potential Failed Bank Director and Officer Liability: When the FDIC has initiated litigation against the former directors and officers of a failed bank, in many instances, the FDIC has included in its complaint a claim against the individual defendants for ordinary negligence. However, in several instances, individual defendants have successfully argued that their conduct is protected by the business judgment rule and accordingly, that they cannot be held liable for ordinary negligence.


The most significant holding is the August 14, 2012 decision in the Northern District of Georgia in the Haven Trust case, in which Judge Steve C. Jones dismissed the claims against both the director and officer defendants, because of his determination that under Georgia law the directors’ and officers’ conduct is protected by the business judgment rule. The Haven Trust case is discussed here. Earlier in August, a judge in the Middle District of Florida, ruled in the FDIC’s failed bank lawsuit relating to the failed Florida Community Bank of Immokalee, Florida, that under Florida law directors cannot be held liable for ordinary negligence, as discussed here. The ruling in that case did not reach the question of whether or not officers can be held liable for ordinary negligence under Florida law.


However, as California attorney Jon Joseph wrote in his April 11, 2012 guest post on this blog (here), courts applying California law on the issue and considering whether corporate officers as well as directors can rely on the business judgment rule have split on the issue. Most recently, on June 7, 2012, Eastern District of California Judge Lawrence O’Neill held that the defendant officers cannot rely on the statutorily codified business judgment rule under California Corporations Code Section 309, because the statute by its terms refers only to officers not directors Judge O’Neill’s ruling is discussed here (second item).


Keynote Addresses at the Stanford Directors’ College: Once again this summer, I participated in the annual Stanford Directors’ College, held at Stanford Law School in Palo Alto, California. Though I was there as a faculty member, I also attended in my capacity as a blogger, and I reported on the keynote address of NASDAQ CEO Robert Greifeld and the keynote addresses of venture capitalists Marc Andreessen and Ben Horowitz here. I separately reported on the keynote addresses of Delaware Chancellor Leo Strine and Netflix CEO Reed Hastings here.


Interview with Professional Liability Insurance Industry Leader: On June 21, 2012, I published my interview of my good friend and industry colleague David Bell. David announced earlier this year that he was leaving Bermuda to return to Montana, where he was taking up a position as President and Chief Operating Officer of ALPS Corporation. The interview not only covers David’s reasons for making the move, but also reflects his thoughts about the industry and about life.


U.S. Supreme Court Grants Cert in the Amgen Case:  As discussed here, on June 11, 2012, the U.S. Supreme Court agreed to hear an appeal of a securities class action lawsuit in the Amgen v Connecticut Retirement Plans case. The Supreme Court will address a significant split in the Circuits on the question whether securities plaintiffs must establish in their class certification petition that the alleged misrepresentation on which they rely was material.  The case, which will be argued and presumably decided during the upcoming Supreme Court term, may also give the Court the opportunity to take a look at the fraud on the market theory as well.


Chinese Cases Face Pleading Obstacles, Settle Modestly: A number of the securities suits filed against U.S.-listed Chinese companies have survived motions to dismiss. First, the Second Circuit revived the suit against China North Petroleum Holdings, which the district court had dismissed. And on August 8, 2012, Southern District of New York Judge Katherine Forrest denied the motion to dismiss the securities class action lawsuit that had been filed against China Automotive Holdings. A copy of Judge Forrest’s opinion can be found here. And as discussed here, on August 24, 2012, Southern District of New York Judge George Daniels denied in part the company’s motion to dismiss in the Duoyuan Global Water and two of its officers.


Not all of the suits against the Chinese companies have fared as well. For example, on August 1, 2012, Southern District of Florida Judge Marcia Cook, in the securities class action lawsuit involving Jiangbo Pharmaceuticals, granted the motions to dismiss of the company’s CFO, Elsa Sung, and of its auditor. The dismissals are without prejudice. A copy of her opinion can be found here.  


The claimants that have managed to get their suits against U.S.-listed Chinese companies all the way to the settlement stage have found that they often are forced to accept only modest settlements, often because the Chinese companies carry only very modest levels of D&O insurance (about which refer here).


Congressional Bill Would Increase SEC’s Penalty Authority: As discussed here, on July 23, 2012, Democratic Rhode Island Senator Jack Reed and Republican Senator Charles Grassley introduced a bill titled The Stronger Enforcement of Civil Penalties Act of 2012 to increase the SEC’s civil monetary penalties authority and to directly link the size of those penalties to the scope of the harm and investor losses. The Senators’ joint July 23, 2012 press release about the Bill can be found here.


And Finally: It may be that everyone here at The D&O Diary has attention deficit disorder. From time to time, we do seem to have trouble staying on topic. For example, my reflections on Time and Summer probably distracted me a lot more than anything else I posted this summer. I confess that I like the Time and Summer post (which can be found here) better than anything I have written for this site. Some day I will have the courage to explain why I wrote it, but not yet. If you have not yet read it, please take a moment and at least look at the pictures and read the many readers’ comments. The post’s concluding message seems apt even as summer draws to a close.


Anyway, I think my favorite off-topic foray of the summer was when I posted the new Matt is Dancing video. The Where the Hell is Matt 2012 video is embedded below. The video opens with a short commercial (sorry) but stick with it, the video is so much fun. Cue it up and prepare to smile.