In what is the largest case dispositions of its type that I have ever seen, a court in Tokyo has ordered four executives of Tokyo Electric Power Holdings (Tepco) to pay the company 13.321 trillion yen – the equivalent of $97 billion — based on the court’s finding that the individuals had negligently failed to take steps that would have prevented the disaster at the Fukushima Daiichi nuclear plant after the March 2011 earthquake and tsunami. This verdict, which is described in a July 13, 2022 Wall Street Journal article (here), is noteworthy on many levels, as discussed below.
The civil lawsuit had been filed in the Tokyo District Court in 2012 by 48 Tepco shareholders against five Tepco executives, including former Tepco Chairman Tsunehisa Katsumata. The other four defendants included former Tepco vice presidents Sakae Muto and Ichiro Takekuro, former President Masataka Shimizu and former Managing Director Akio Kormori.
Among other things, the plaintiffs alleged that the defendants had access to a study several years before the accident that identified the risk to the nuclear plant arising from the possibility of a tsunami hitting the facility, which is located on Japan’s Pacific Coast. The plaintiffs argued that the defendants had negligently failed to take steps to have a seawall built or to take other measures that would have protected the plant from a tsunami. The plaintiffs sought to force the defendants to pay back the company for the costs the company incurred as a result of the defendants’ alleged negligence. The plaintiffs had sought to recover 22 trillion yen, or about $160 billion. For their part, the defendants argued that the report the plaintiffs cited did not contain sufficient information to act upon.
According to the Journal article, the Tokyo court found that four of the five defendants, including the former Tepco chairman, should pay the company damages of 13.321 trillion yen, the amount the court said the company has spent so far as a result of the Fukushima disaster. (The court found that defendant Komori was not liable.)
The Journal article quotes a summary of the court’s decision as saying that the four defendants “fundamentally lacked a sense of responsibility and awareness of safety,” ignored unwelcome scientific findings and mainly considered “how they could preserve the status quo as much as possible.”
The Journal article quotes one of the plaintiffs’ attorneys as saying that while it would be impossible for the defendants to pay the full amount of the award, the verdict would send a message of deterrence. The attorney also said the verdict would “greatly affect the future resumption of nuclear plants’ operation.”
According to news reports, three of the individual defendants had been acquitted in a related criminal trial in 2019.
The size of the verdict awarded against the former Tepco executives is what grabs your attention, but the magnitude of the award should not obscure the significance of the verdict itself. As one commentator who sent me a copy of a news article about the verdict noted, the concept of assigning personal responsibility is still new in Japan and in Asia. A verdict holding corporate executives responsible in this way, in a country that does not have a well-developed history of holding corporate executives accountable, is extraordinary. Indeed, the court’s conclusion that the executives could be held liable is significant in and of itself.
The Fukushima disaster arguably represents a highly unusual — and arguably even unique set of circumstances – and for that reason there may be reason to hesitate to say that this verdict foreshadows the possibility that in the future more corporate executives could be held accountable and liable to their companies for their negligence that causes harm to the company. But there is no doubt that the case does show that executives can be held liable; the case also shows how it can be done. The fact that is happened once does suggest the possibility that it could happen again.
The size of the award is obviously astonishing. It far exceeds anything the individuals could ever pay to the company. To that extent, I suppose, the award’s size is symbolic (although it does also represent the harm that the court found the defendants’ conduct had caused to the company). The sheer attention-grabbing size of the verdict does raise the question about whether individuals would even want to serve as an executive of a nuclear utility or be involved in another operation with significant disaster potential (say, running an airport or shipping dangerous goods). The prospect of direct personal liability could well deter individuals from engaging in employment with companies involved in certain kinds of operations.
The press coverage does not say whether or not Tepco carried directors’ and officers’ insurance. Of course, even if the company carried D&O insurance, the amount of the insurance (even if not otherwise already depleted by defense fees) would be only a small fraction of the size of this verdict. Just the same though, and even though insurance, if in place, would have provided these individuals only slight protection, it seems likely to me that this verdict is the kind of development that could spur interest among corporate executives in making sure their companies purchase D&O insurance.
From the press accounts, it appears that the shareholders’ suit against the Tepco executives was in the form of a derivative lawsuit. Among other things, the press reports say that the court’s verdict directed the defendants to pay the amount of the award to the company itself; in other words, the plaintiffs were not directly seeking their own damages, they were attempting to recover the company’s damages, for the benefit of the company. The plaintiffs’ success in this lawsuit certainly does, as I suggested above, raise the question whether other claimants may seek to use a similar approach in the event of alleged corporate misconduct. It does raise the possibility for future shareholder derivative litigation against corporate executives in Japan.
One final note. There has been much commentary in the U.S. (including on this site) about the recent alarming increase in the number of jumbo settlements in shareholder derivative suits. Indeed, the increase in the number of very large shareholder derivative lawsuit settlements in the U.S. is alarming. However, even the largest derivative settlements in the U.S. are only a fraction of the size of this award. It represents an imposition of liability beyond anything we have seen in the U.S. Indeed, as I said at the outset, this award against the Tepco executives is the largest of its kind that I have ever seen.
Special thanks to the several loyal readers who sent me copies of news articles about the Tepco verdict.