In yet another significant #MeToo-related development, the parties to the Signet Jewelers securities class action lawsuit have agreed to settle the case for $240 million. There are a number of interesting features to the settlement, as discussed below; among other things, over $200 million of the settlement amount is to be funded by insurance. The settlement is subject to court approval. The plaintiff’s March 26, 2020 letter to the court regarding the settlement can be found here. The parties’ stipulation of settlement can be found here.
As detailed here, Signet Jewelers and certain of its directors and officers were first sued in a securities class action lawsuit in the Southern District of New York in August 2016. Multiple consolidated amended complaints were later filed. The lead plaintiff’s Fifth Amended Complaint, the operative complaint in the action, can be found here.
The plaintiff’s complaint included two distinct sets of allegations: first, that the company had made a series of misrepresentations and omissions concerning the in-house lending program, through which the company provided purchase financing to its jewelry customers. The complaint essentially alleges that the company represented its lending program as conservative, when, in fact, the plaintiff alleged, the company had built up a large portfolio of “high-risk subprime loans” that cause the company to incur significant losses.
The second set of were based on allegations pertaining to alleged sexual harassment. As described in the plaintiff’s motion for preliminary approval of the proposed settlement (here), the sexual harassment related allegations pertained to the company’s allegedly misleading public statements concerning the “Jock litigation,” an employment arbitration brought by employees of Signet’s U.S. division, Sterling Jewelers. The securities litigation lead plaintiff alleged that the defendants “misleadingly minimized the Jock litigation as involving only ‘store-level’ employment practices concerning ‘compensation and promotional opportunities’ at a ‘few stores.’” Instead, the securities plaintiff alleged, the Jock litigation “in fact concerned allegations of sexual harassment by Signet’s most senior executives, which were set forth in numerous sworn declarations by former Sterling employees.” The securities plaintiff further alleged that the company’s investors “suffered losses when the truth was revealed through a February 27, 2017 Washington Post article” reporting on the statements in the employees’ declarations.
Among other things, the lead plaintiff in the securities litigation alleged, the over 200 declarations in the Jock litigation showed that the ranks of Signet’s executives were filed with “womanizers,” “playboys,” and serial sexual harrassers who “preyed” on female employees. The declarations alleged that female employees were propositioned to engage in sexual behavior in exchange for employment advancement; those who did so were rewarded with promotions, but those who declined or reported the activity were retaliated against. Specific allegations of sexual misconduct were alleged against the company’s then-CEO.
The defendants moved to dismiss the plaintiff’s complaint. As detailed here, on November 26, 2018, Southern District of New York Judge Colleen McMahaon denied the defendants’ motion to dismiss. The opinion can be found here.
Following the dismissal motion denial and extensive subsequent proceedings in the case, the parties entered mediation, which ultimately resulted in settlement.
According to the company’s March 26, 2020 filing on Form 10-K, the charge the company taking for the settlement cost is “net of expected recoveries from the Company’s insurance carriers of $207.4 million.”
In a recent post (here), in which I discussed the dismissal without prejudice of the #MeToo-related securities lawsuit pending against Papa John’s International, I tried to make the statement that the various #MeToo-related management liability-related lawsuits had not fared particularly well.
Several readers challenged this statement, noting that in addition to the $90 million settlement in the 21st Century Fox #MeToo-related derivative lawsuit settlement (which I had mentioned in the blog post), the Wynn Resorts #MeToo-related derivative lawsuit also had settled for a cash payment of $41 million, including a $20 million cash payment from Steve Wynn personally. My blog post had not initially acknowledged the Wynn Resorts settlement.
In light of the massive settlement in the Signet Jewelers securities lawsuit, as well as the two previous large settlements in the 21st Century Fox and Wynn Resorts suits, it clearly is not accurate to say that the plaintiffs’ in these various #MeToo-related management liability lawsuits have not been particularly successful. At a minimum, plaintiffs in at least some of these #MeToo-related management liability cases have been very successful.
To be sure, it is complicated to talk about the Signet Jewelers securities suit settlement in relation to the other #MeToo-related management liability lawsuit settlements, because the Signet Jewelers case included a distinct set of allegations unrelated to the underlying sexual misconduct-related allegations. The lead plaintiff’s allegations concerning the company’s in-house lending program were serious and extensive, and actually were featured most prominently in the plaintiff’s final complaint. It is hard to know how much of the $240 million settlement of the Signet Jewelers securities suit is related to the underlying sexual harassment allegations. Clearly, some indeterminate but not insignificant portion of the settlement is not related to the #MeToo allegations. It is hard to say how much.
One thing we can say for sure about this settlement is that it is massive. According to the latest ISS Securities Class Action Services list of the Top 100 Securities Class Action Settlements (discussed here), the Signet Jewelers settlement would rank 71st on the all-time list.
It is also the latest in a series of recent significant securities suit settlements, including, among others, the January 2020 $350 million First Solar securities suit settlement (discussed here), the February 2020 $149 million Equifax securities suit settlement (discussed here), and the February 2020 $187.5 Snap settlement (discussed here). All of these securities suit settlements are on top of the separate March 2020 Wells Fargo derivative suit settlement, which had a cash value of $240 million (discussed here). All of these massive settlements have been entered just in the first quarter of this calendar year.
Cumulatively, the impact of these various settlements on the D&O Insurers is enormous. The D&O insurers’ contribution to the Signet Jewelry settlement alone was over $200 million (not counting defense fees, which in this case undoubtedly were substantial). These kinds of developments are among the myriad of reasons why the D&O insurance market was already in disarray before the recent coronavirus outbreak. These kinds of developments are a significant factor in the recent increases in D&O insurance premiums that insurance purchasers have been experiencing, and likely will continue to experience.
One noteworthy point about the Signet Jewelers settlement is that it arose in connection with a securities class action lawsuit. The two prior significant #MeToo-related settlements – in the 21st Century Fox and Wynn Resorts cases – both arose in connection with derivative lawsuits. As far as I am aware, the Signet Jewelers settlement is the first (and certainly the most significant) settlement in a #MeToo related securities suit. Indeed, in its motion for preliminary approval of the settlement, the plaintiff expressly asserted that “to Lead Counsel’s knowledge, [these types of allegations] have never been successfully pursued in securities litigation prior to this case.”
As interesting as it is to consider the various settlements in these #MeToo-related cases, it may be that these kinds of settlements may be a relatively short-lived phenomenon. While there were a host of #MeToo related case filed in 2018 and early 2019, it has been more than 12 months since I have registered the filing of any additional #MeToo-related management liability lawsuits. Of course, there may have been cases filed of which I am unaware, but I feel comfortable saying that there have not been any high-profile #MeToo-related management liability lawsuits filed for many months.
There have of course continued to be event-driven lawsuits filed; this Signet Jewelers settlement involves one of the many event-driven lawsuits that have been filed in recent years. Interestingly, most of the very large settlements noted above also involve event-driven lawsuits, as well. Whether or not we are going to see any further #MeToo-related management liability lawsuits, we surely are going to continue to see event-driven litigation filed.