As readers know, directors and officers of both public and private companies face a number of sources of potential liability exposure that can in turn learn to claims against them. One area of potential D&O claims exposure that may not always be considered is the possibility that the individuals could face claims brought against them by their own company, as happened, for example, in the lawsuit that McDonald’s recently filed against its former CEO. The latest example of a case where a company has sued one of its former senior officials is the lawsuit filed earlier last week by General Motors against one of its former directors, based on allegations that the director leaked confidential information to a rival company and to the UAW, which, the company alleges, added billions to the company’s labor costs. The lawsuit, which is interesting in and of itself, also raises a number of interesting issues, as discussed below. A copy of GM’s complaint in the lawsuit can be found here.


The Lawsuit

On September 14, 2020, GM filed a lawsuit in the District of New Jersey against Joseph Ashton, a former high-ranking UAW official who served as a member of GM’s board of directors from August 2014 to December 2017. Ashton was the UAW’s designee to the GM board, pursuant to a provision of a collective bargaining agreement GM reached with the UAW in the wake of the global financial crisis.


At the center of GM’s complaint against Ashton are allegations relating to “two sprawling and long-running criminal schemes.” The first of the alleged schemes involves Ashton’s alleged receipt of alleged kickbacks paid to him by vendors who received favorable contracts under a UAW program that Ashton helped to oversee while he was at the UAW; the program, which GM funded, was intended to provide education to GM employees. On December 4, 2019, Ashton plead guilty to conspiring to commit wire fraud and money laundering in connection with the kickback scheme, admitting that between 2012 and 2016, he participated in a scheme to siphon money from the program. According to GM’s recently filed complaint against him, Ashton allegedly continued to receive the payments during the time that he was on the GM board. The complaint alleges that since GM funded the UAW program from which Ashton was getting paid the kickbacks Ashton “embezzled” funds provided by GM.


The complaint alleges that Ashton also “played a central role in another scheme to harm GM while serving as a GM director.” GM’s allegations against Ashton relating to this second scheme pertain to matters raise in connection with a federal investigation into corruption involving Fiat Chrysler and the UAW. The investigation looked into whether Fiat Chrysler paid bribes to UAW officials in order to harm GM and force a merger between GM and Fiat Chrysler. GM’s complaint alleges that Fiat Chrysler used offshore accounts to facilitate the bribes.


GM alleges that, as one of the highest-ranking UAW officials, Ashton “was uniquely situated to further this scheme.” GM alleges that in return for “secret compensation” paid to him by Fiat Chrysler through foreign accounts, Ashton “used his influence to deny GM specific structural labor concessions.” Ashton also allegedly passed “highly confidential information” to the UAW and to Fiat Chrysler about Fiat Chrysler’s then-ongoing merger inquiries, as well as GM’s approach and expectations for collective bargaining negotiations. Ashton allegedly never disclosed his involvement in this scheme to GM. The complaint alleges that “in part due to Ashton’s disloyalty and breaches of confidence, GM was forced to incur billions of dollars in increased labor costs.”


Ashton, the GM complaint alleges, “owed unqualified fiduciary duties including the highest duties of loyalty, care, confidentiality and disclosure to GM.”  Instead, the complaint alleges, Ashton “violated every conceivable duty owed to GM.”


The complaint alleges substantive claims against Ashton for breach of fiduciary duty; fraud; and fraud by omission. The complaint seeks as damages recoupment of monies paid for services as a GM director; as well as damages GM suffered “as a result of Ashton’s breaches of fiduciary duty, fraudulent statements, and omissions.”



It is important to note that GM filed the complaint against Ashton as part of a series of lawsuits the company has filed as part of a broader legal fight against Fiat Chrysler and against various other UAW officials relating to Fiat Chrysler’s alleged corruption conspiracy. Through this litigation, GM is trying to establish that it suffered billions of dollars in losses due to corrupt actions taken by UAW officials and Fiat Chrysler executives.


Understanding this larger litigation context helps explain why GM is going after Ashton. Other than perhaps recouping the director compensation it paid Ashton, it is hard to guess what else GM might hope to get out of Ashton – although there some suggestion that GM believes Ashton may still have or have access to overseas bank accounts that contained and may still contain some or all of the funds allegedly paid to him by Fiat Chrysler.


Because GM is suing Ashton for actions he took or failed to take a director of the company, Ashton theoretically at least might attempt to have GM’s D&O insurers pay for his defense and even any settlements or judgments against him. I have no way of knowing whether Ashton has any interest in trying to obtain protection under the D&O insurance policy, but if he were to seek the insurance, the insurers undoubtedly would raise a number of coverage defenses.


First of all, most D&O insurance policies contain exclusions precluding coverage for claims brought by one insured against another insured. In recent times, this exclusion in many D&O insurance policies (particularly policies issued to publicly traded companies) has been modified so that it precludes coverage only for claims brought by the corporate entity against an individual insured person, making it an entity vs. insured exclusion. GM’s lawsuit against Ashton would appear to be a prototypical example of an entity versus insured claim.


Then there is also the issue of the fact that Ashton entered a guilty plea in the criminal proceedings against him relating to the UAW kickback scheme. D&O insurance policies uniformly preclude coverage for Loss “arising out of, based upon, or attributable to … any deliberate criminal or deliberate fraudulent act by the Insured.” The insurer likely would try to argue that this exclusion precludes coverage for all of GM’s claims against Ashton; were it to get to that point, Ashton might try to argue that the exclusion would preclude coverage, if at all, only for GM’s claims against him relating to the UAW kickback scheme, since those are the only allegations to which his guilty plea relate. Ashton might argue that the guilty plea does not relate at all to GM’s separate allegations relating to the alleged Fiat Chrysler corruption conspiracy.


The fact that GM is seeking to recoup the compensation it paid Ashton for his services as a director also raises the possibility that the insurer might argue that coverage for the claims against Ashton is precluded by the standard policy exclusion precluding coverage for Loss “arising out of, based upon, or attributable to … remuneration, profit or other advantage to which the Insured was not legally entitled.” However, these days, these exclusions in most D&O insurance policies are written in such a way that the exclusion’s preclusive effect is not triggered unless there has been a final adjudication that the precluded conduct took place. The high likelihood is that there will never be such a final adjudication in GM’s lawsuit against Ashton. In any event, the insurer would contend that the amount of any compensation recouped is not covered because it represents the return of ill-gotten gains and therefore does not represent loss.


There is one further interesting coverage issue here. The issue has to do with insured capacity. A D&O insurance policy provides coverage only for claims based on alleged wrongful acts undertaken in their capacity as a director or officer of the company. GM’s allegations against Ashton suggest that the company believes he may at least have been acting in a dual capacity – that is, both on behalf of GM and the UAW and/or Fiat Chrysler; indeed, at times is seems as if GM contends that given Ashton’s participation in the corrupt scheme, Ashton, though nominally on the board, was not acting in GM’s interests at all, but rather he was acting on the behalf of the UAW and/or Fiat Chrysler. The fact that Ashton was in fact named to the GM board by the UAW provides an interesting overlay to these capacity issues as well.


Of course, these issues may all be purely theoretical, as Ashton may not seek the insurance, especially in light of the Entity vs. Insured policy exclusion. But theoretical or not, the situation does show how complicated the questions can become when it comes to the potential applicability of insurance to claims brought against a former director or officer by their former company. As shown by the lawsuit McDonald’s recently filed against its former CEO and by this lawsuit GM brought against a former lawsuit, these kinds of claims can and do arise, and thus do represent a kind of D&O liability exposure, one that is an uncomfortable fit under the D&O insurance policy. This uncomfortable fit is undoubtedly a reflection of the fact that the D&O insurers have little interest in picking up the tab for claims that involve corporate in-fighting and that may be about more than just money.


Special thanks to a loyal reader for alerting me to this lawsuit, which motivated me to run down the complaint.