As readers of this blog well know, life sciences companies are frequent targets of securities class action lawsuits. Interestingly, at least according to the latest annual report from the Sidley law firm, in recent years the number of lawsuits filed against life sciences companies has declined, although the lawsuit frequency against life sciences companies still remains elevated by comparison to the frequency of litigation against the universe of public companies. Perhaps even more importantly, motions to dismiss in securities lawsuits filed against life sciences companies are granted more than half of the time. A copy of the law firm’s April 2024 memo, entitled “Securities Class Actions in the Life Sciences Sector: 2023 Annual Survey,” can be found here. A two-page summary of the report can be found here.

Continue Reading A Detailed Look at the 2023 Securities Litigation Against Life Sciences Companies
Justice Sonia Sotomayor

On April 12, 2023, in a short, unanimous opinion written by Justice Sonja Sotomayor, the U.S. Supreme Court held that a failure to disclose information required under Item 303 of Regulation S-K is, standing alone, not an actionable omission under Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The Supreme Court said that in the absence of affirmative statement that is rendered misleading by the omission, an Item 303 violation alone is not sufficient to state a claim under Rule 10b-5. As the Supreme Court opinion put it in summarizing its decision, “pure omissions are not actionable under Rule 10b–5.” The Court’s opinion in Macquarie Infrastructure Corp. v. Moab Partners L.P. can be found here.

Continue Reading U.S. Supreme Court: Item 303 Omissions Alone Not Actionable

The D&O Diary is on assignment in Europe this week, with the first stop in Frankfurt, the German financial capital. The spring weather in Frankfurt was mild and pleasant while I was there, though I was in Frankfurt all too briefly.

The purpose of my visit to Frankfurt was to participate in the DRRT law firm’s Global Securities Litigation Update conference. I always enjoy participating in this well-attended and well-run event. I would like to thank Alexander Reus and his colleagues for inviting back to this event and for being such good hosts during the conference.

My main contribution to the event was to participate as a panelist on the Hot Topics panel, together with Eric Belfi of the Labaton Keller Sucharow law firm and Alexander Reus of the DRRT law firm. I always enjoy this session, in part because I am never quite sure where it is going to go or how it is going to unfold. This year’s version was a lot of fun.
Here’s a view of the audience at the event. One of the reasons I particularly like this event is that the audience members come from literally all over the world. Also, the Frankfurt Sofitel is a great venue and a great hotel.
Here’s a view of one of the many ponds in the Wallanlagen, the park that is built were Frankfurt’s city walls used to be and that form a 5km semicircular green space around the inner city. I did not get much of a chance to see Frankfurt on this trip, as I was only in town briefly — I spent less than 12 hours in Frankfurt total before heading on to my next destination. Always a pleasure to visit the city, next visit I need to allow more time.

Financially distressed companies often can only obtain D&O insurance coverage on a policy with a bankruptcy or insolvency exclusion precluding coverage for bankruptcy-related claims. The enforcement of these exclusions in the wake of a subsequent bankruptcy can produce harsh results, and insureds often argue that the exclusion does not apply or even that the exclusion is contrary to the provisions of the Bankruptcy Code. In a recent decision, the Second Circuit, applying New York law to the contractual issues, addressed these recurring issues and upheld a lower court’s denial of a preliminary injunction, affirming the district court’s holding that the bankruptcy exclusion applied to preclude coverage for the individual’s defense. As discussed below, the court’s analysis of the bankruptcy related issues is interesting. A copy of the appellate court’s March 18, 2024, opinion can be found here. An April 4, 2024, post on the Wiley Executive Summary blog can be found here.


Several affiliated healthcare companies, collectively referred to as Oaktree, found themselves in financial distress. In 2018, Timothy Daileader was appointed as the independent director and manager of the Oaktree entities. (Daileader took the position at the request of his employer which specializes in financial restructurings.) In September 2019, the Oaktree entities filed for Chapter 7 bankruptcy. In September 2021, the trustee initiated adversary proceedings against Daileader. Among other things, the trustee alleged that Daileader failed to take appropriate restructuring steps, but as assets were depleted and liabilities grew, collected professional fees, until there were no more funds to pay the fees, when Daileader filed the Chapter 7 petition.

At relevant times, Oaktree maintained a program of insurance that consisted of a layer of primary insurance and additional layers of excess insurance. Daileader submitted the adversary proceeding to the insurers. The primary insurer paid Daileader’s defense fees until its limits of liability were exhausted. Daileader then sought to have his defense fees paid by the first level excess insurer. The excess insurer denied coverage under the policy in reliance on the Bankruptcy Exclusion. Daileader sought a preliminary injunction requiring the excess insurer to pay his defense fees. The district court denied his petition. Daileader appealed to the Second Circuit, arguing that the district court had improperly denied his petition for injunctive relief.

The Bankruptcy Exclusion provides in pertinent part that “the insurer shall not be liable to make any payment for Loss under this policy in connection with any Claim made against the Insured: 1 Alleging, arising out of, based upon, attributable to, or in any way involving, director or indirectly, in whole or in part: a. The bankruptcy or insolvency of the Insured Organization; [or] b. The Insured Organization’s filing of a petition, or a petition being filed against the Insured Organization pursuant to the federal Bankruptcy Code or any similar state law.”

The Second Circuit’s Opinion

In a March 18, 2024, Opinion written by Judge John M. Walker Jr. for a unanimous three-judge panel of the Second Circuit, the appellate court affirmed the district court, holding that the district court had not abused its discretion in denying Daileader’s petition for a preliminary injunction.

Much of the appellate court’s opinion focuses on the nature of the injunctive relief Daileader sought and the appropriate standard to be applied given the relief sought. The court’s analysis of these issues is technical and need not detain us here.

Having worked its way through those issues, the court then turned to the question of whether Daileader had established that he was entitled to injunctive relief, and in the context of this case under the applicable standards, whether or not Daileader had demonstrated a clear or substantial likelihood of success on the merits in the coverage action. The appellate court agreed with the district court that he had not.

Daileader had tried to argue, in reliance on traditional insurance contract interpretation canons, that if the policy provided covered any of the causes of action in the adversary proceeding, then the insurer was obligated to defend the entire action. The appellate court rejected the argument in this context, in part because the policy defined the term “Claim” to mean the entire proceeding and not a single cause of action, and in part because all of the causes of action in the adversary proceeding were “arising out of,  based upon, attributable to, or in any way involving … the bankruptcy or insolvency of the Insured Organization.”

Daileader has also sought to argue that the insurer could not enforce the bankruptcy exclusion because it operated as an ipso facto clause prohibited under the Bankruptcy Code. (Ipso facto clauses are prohibited by Section 365(e)(1) of the Bankruptcy Code, which prohibits provisions in an executory contract  that provide for termination or modification based on the filing of a bankruptcy petition or the financial condition of the debtor, where the operation of the provision effects a forfeiture, modification, or termination of the debtor’s interest in property).

Daileader argued that the bankruptcy exclusion was prohibited because if enforced it would effect a prohibited forfeiture or termination of Oaktree’s estate’s property interests in the policy and the policy proceeds. The insurer argued that while the policy may be property of the estate, the policy proceeds were not. The appellate court said that while the estate might well have a property interest in the proceeds for purposes of satisfying a settlement or judgment against Daileader, his liability had not yet been established, and the estate’s potential claims to the proceeds did not created a property interest. Because Daileader could not show that the estate had a property interest in the proceeds, he could not show that enforcement of the bankruptcy exclusion would effect a prohibited forfeiture.

In an interesting coda that is worth noting, the appellate court observed that following oral argument in the coverage lawsuit, Daileader’s counsel had advised the court that Daileader and the trustee had entered into a settlement resolving the adversary proceedings. The appellate court said, “We express no view as to whether that agreement has accorded the Oaktree estate a property interest in the proceeds.” The appellate court added that it entrusted the consideration of that questions “insofar as it remains disputed, to the district court.”


I confess that I am fascinated with the question of the applicability of the Bankruptcy Code’s prohibition on ipso facto clauses to bar the application of a D&O insurance policy’s bankruptcy exclusion. As the final part of the appellate court’s opinion expressly recognizes, it is emphatically not the case that a D&O policy’s bankruptcy exclusion is never a prohibited ipso facto clause. Indeed, interested readers may want to refer to a prior post on this site dealing with these questions, here, in which I discuss a decision in which a court held that a D&O policy’s bankruptcy exclusion is a prohibited ipso facto provision.

Because the appellate court did not itself address the question of whether the settlement of the adversary proceeding would be sufficient to make the policy proceeds property of the debtor’s estate,  and therefore would make the bankruptcy clause a prohibited ipso facto provision, there is no way to tell in the end whether or not the bankruptcy exclusion ultimately will apply to preclude coverage here. The case will have to return to the lower court for the question to be answered through the further unfolding of the case.

For me, there are two very important take-aways here with respect to the question about ipso facto clauses. First, even though the insured did not succeed here in establishing his entitlement to injunctive relief, and even though the court held that the insured had not shown that the bankruptcy exclusion is a prohibited ipso facto clause, the court did NOT hold that a bankruptcy exclusion can never be an ipso facto clause. Second, as the court’s final comments about the possible effect of the adversary proceeding settlement highlight, whether or not a bankruptcy exclusion operates as a prohibited ipso facto provision is a factor of the applicable facts and circumstances. As the case to which I linked above expressly found, a D&O Policy’s bankruptcy exclusion can operate as a prohibited ipso facto provision.

From time to time, I am asked to speak directly to corporate boards of directors. I find these opportunities endlessly fascinating. Among other things, I learn so much from the directors’ questions. One frequently recurring question I get is:  what can directors do to avoid litigation or to be in a position better defend themselves if they are sued. The first thing I always talk about when asked these kinds of question is the importance of board minutes. Because this is one of my go-to talking points when I meet with boards, I was particularly pleased to see the recent post on the Harvard Law School Forum on Corporate Governance blog written by Leo E. Strine, Jr., the former Delaware Supreme Court Chief Justice and Chancellor, in which Strine highlights the importance of board minutes in corporate litigation. Strine’s comments are essential reading for anyone concerned with the liabilities of corporate directors. Strine’s April 4, 2024 article can be found here.

Continue Reading The Importance of Board Minutes

It is frequently the case that lawsuits are preceded by a letter in which a prospective litigant identifies a grievance and makes various kinds of threats or demands. A perennial question is whether this type of pre-suit demand letter constitutes a “claim” within the meaning of a claims-made liability insurance policy. The Second Circuit, applying New York law, recently affirmed a district court ruling holding that a pre-suit demand letter, received before the applicable policy’s coverage inception date, was a claim within the meaning of the policy. Because the claim was first made prior to the inception of coverage, the court held that there was no coverage for the subsequently filed lawsuit. The Court’s ruling provides an interesting take on this frequently recurring issue.

Continue Reading When Is a Pre-Suit Demand Letter a Claim?

The number of securities class action lawsuit filings involving accounting allegations increased in 2023 compared to 2022, but the 2023 accounting-related filings remained below the long-term annual average number of such filings, according to the latest annual report from Cornerstone Research. The number of accounting-related settlements decreased during 2023, as did the median settlement value, though the aggregate and average value of accounting related settlements increased. The Cornerstone Research Report, which is entitled “Accounting Class Action Filings and Settlements: 2023 Review and Analysis,” can be found here. Cornerstone Research’s April 3, 2024, press release about the report can be found here.

Continue Reading Cornerstone Research: Accounting-Related Securities Suit Filings Increased in 2023

Readers know that since the initial coronavirus-related outbreak in the U.S. in March 2020, I have been tracking the COVID-related securities suit filings. Even though the four-year mark since the initial outbreak recently passed, and even though it has now been a considerable amount of time since businesses fully reopened from government shutdowns, COVID-related securities suits continue to be filed. Earlier this week, a plaintiff shareholder filed a securities lawsuit against health services management company Agilon Health, in which the plaintiff alleged that the company had understated the impact of the COVID-19 on patient utilization rates, thereby overstating key financial metrics. A copy of the April 2, 2024, complaint can be found here.

Continue Reading Health Services Management Company Hit with COVID-19 Related Securities Suit

The number of securities class action lawsuits filed against life sciences companies in 2023 remained steady compared to 2022, as suits against life sciences companies represented almost one in five of the securities class action lawsuits filed during the year, according to a new report from the Dechert law firm. The report, entitled “Dechert Survey: Developments in Securities Fraud Class Actions Against U.S. Life Sciences Companies: 2023 Edition,” states that there were a total of 43 securities suits filed against life sciences companies in 2023, the same number as were filed in 2022. The Dechert law firm’s March 27, 2024 press release, which links to the full report,  can be found here.

Continue Reading Life Sciences Companies Remained Frequent Securities Suit Targets in 2023

In an interesting March 18, 2024, decision, a California federal district court, applying California law, has held that insurance coverage may be available under the D&O liability endorsement to a community association policy for a claim arising from funds misdirected due to fraudulent payment instructions in a spoofed email. The court held that because the non-payment happened due to the association’s treasurer’s alleged negligence, the vendor’s claim for non-payment arose out of “wrongful acts” of the treasurer, and therefore the vendor’s claim triggered coverage. The court’s decision raises some interesting possibilities about the potential for D&O insurance coverage for these kinds of misdirected payment claims, and it also raises interesting possibilities about potential coverage for breach of contract claims.

Continue Reading Claim for Nonpayment Due to Payment Instruction Fraud Potentially Covered Under D&O Policy