Michael Hendricks
Burkhard Fassbach

As I discussed in a blog post at the time, in June 2021 VW announced that a settlement had been reached in the D&O liability action that had been filed against the company’s executives in connection with the “Dieselgate” scandal. The settlement, which had an aggregate value of approximately $351 million, was approved by VW shareholders in July 2021. However, minority shareholders have now filed a legal action against VW in an effort to oppose the settlement. In the following guest post, Michael Hendricks and Burkhard Fassbach review the minority shareholders’ legal action and discuss its implications. Michael is the founder of the German D&O specialist broker hendricks GmbH and Burkhard is a D&O-lawyer in private practice in Germany. I would like to thank Michael and Burkhard for allowing me to publish their article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Michael and Burkhard’s article. Continue Reading Guest Post: VW Dieselgate: Minority Shareholders File Suit Against D&O Settlement

David H. Topol

In the following guest post, David H. Topol of the Wiley law firm takes a look at the recent decision by the U.S. Securities and Exchange Commission to amend the agency’s operative definition of the term “accredited investor.” A copy of the agency’s final rule incorporating the revised definition can be found here. The agency’s August 26, 2020 press release about the change can be found here. I would like to thank David for allowing me to publish his article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is David’s article. Continue Reading Guest Post: SEC Definition of “Accredited Investor”: A Step Forward or Backward?

vw2Several years ago, when investors’ representatives used class claims settlement procedures available under Netherlands law to reach securities claim settlements involving Royal Dutch Shell (about which refer here) and Converium (about which refer here), there was a great deal of speculation whether the Dutch procedures could become an important vehicle for aggrieved investors to recover damages for alleged securities law violations.

 

This speculation was particularly magnified after the Amsterdam Court of Appeal, in connection with the Converium settlement, held that the Dutch settlement procedures could be used to resolve securities claims of non-Dutch investors against a non-Dutch company, in the form of judgment that is enforceable throughout the EU and among other European countries. Though many of these kinds of investor settlements were anticipated, the onslaught of securities settlements using the Dutch procedures never really did materialize.

 

However, a new initiative being organized in The Netherlands on behalf of Volkswagen securities holders whose investment interests were harmed as a result of the automobile company’s emissions-related scandal may represent the most significant effort since the Converium case to try to use the Netherlands procedures on behalf of an aggrieved class of investors. This initiative on behalf of Volkswagen’s securityholders has a number of interesting features. It also raises a number of potentially complicated questions about jurisdiction, priority, potential preemption, and international comity. Continue Reading Dutch Shareholder Foundation Seeks to Represent Global Class of VW Investors

Kara_Altenbaumer-price1[1]On June 20, 2014, the Texas Supreme Court issued its opinion in Ritchie v. Rupe, in which the Court addressed the rights and remedies of minority shareholders of Texas companies. In the following guest post Kara Altenbaumer-Price, Vice President, Management & Professional Liability Counsel for USI Southwest / USI Northwest, takes a look at the decision and analyzes its implications.

 

I would like to thank Kara for her willingness to publish her post on this site. I welcome guest post submissions from responsible authors on topics of interest to readers of this blog. If you would like to submit a guest post, please contact me directly. Here is Kara’s guest post:

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The Texas Supreme Court ruled in late June that minority shareholders in private companies in Texas cannot sue for shareholder oppression, even when majority shareholders attempt push them out of the business, dilute their shares, or otherwise act to lower the value of their investment.  While some have heralded the decision as pro-business and an effort to keep the courts out of Texas boardrooms, others suggest that the case will discourage investment in Texas companies.

The ruling in Ritchie v. Rupe, which applies to businesses incorporated in Texas, held that not only does the Texas Business Organizations Code not prohibit oppression of minority shareholders, there is no common-law cause of action for minority shareholder oppression in Texas.  Intermediate appellate courts in Texas had allowed such claims to be brought, but this was the first time the question had been addressed by the Texas Supreme Court.  The Court’s ruling means that except in very narrow circumstances—addressed below—minority shareholders cannot sue unless they can allege that the complained-of actions were fraudulent, a breach of fiduciary duty, or another cause of action other than shareholder oppression.  

The facts in Ritchie v. Rupe involved a minority shareholder who inherited 18 percent of private company stock following the death of her husband.  The majority shareholders had offered to purchase the shares for $1 million, but because the company had sales in excess of $150 million and assets in excess of $50 million, her attorney encouraged her to decline the “absurd” offer.  Although the offer was ultimately raised to $1.7 million through negotiations, the minority shareholder continued to refuse what she believed was a too-low offer.  She then found a third-party buyer to whom she wanted to sell the stock, but the majority shareholders objected and refused to meet with the potential third-party buyer for fear it would put the company at risk for securities fraud.  This left the minority shareholder unable to market or monetize her shares.  She sued, alleging that the majority shareholders engaged in “oppressive” conduct toward her.  At trial, the company was ordered to purchase her shares at a jury-determined fair market value of $7.3 million.  The majority shareholders appealed. 

The Texas Supreme Court ruled that her claims were not valid under Texas common law or the Texas Business Organizations Code.  Instead, the Court held that the only time a shareholder oppression claim could be brought against a private company in Texas is when a rehabilitative receiver has been appointed.  Even within this narrow context of receivership, the standard for proving a shareholder oppression claim would be extremely high; a shareholder would have to show that he or she was intentionally harmed by officers and directors.  As a practical matter, it is unlikely that forcing the company into rehabilitative receivership would benefit the minority shareholder seeking to get greater value for his or her shares.  As a result, this is a hollow consolation at best.

As one Texas appellate lawyer described it, this ruling puts Texas “on an island.”  Most states either overtly allow suits for minority shareholders oppression or don’t prohibit them.  From a litigation perspective, the ruling is certainly positive for private companies in that it will very likely reduce the amount of shareholder litigation against them, or at the very least, make them more likely to prevail on suits that are filed on other grounds.  While there are still avenues for minority shareholders to sue, as noted above, it may not make logical sense for them to sue for fear of even further reducing the value of their investment by pushing for rehabilitative receivership or because claims like fraud or breach of fiduciary duty are difficult to prevail on.

This ruling should not, however, cause private companies to abandon their D&O insurance for a number of reasons.  First, as noted above, minority shareholders can still sue Texas companies; they just won’t be able to bring this relatively common cause of action unless they also seek to place the company into rehabilitative receivership.  Plaintiffs lawyers are resourceful, and private companies will still need to defend themselves from disgruntled shareholders.  Second, sophisticated investors—even if minority investors—will be likely to add minority shareholder protections contractually into their investor agreements as prerequisite to investing in a Texas corporation.  They would be able to sue pursuant to these contractual provisions.   Third, the Texas Legislature meets in a little less than six months and has the ability to change the Business Organizations Code to overrule the Court’s decision by statute.  Finally—and most importantly—unlike public company D&O insurance, the coverage afforded under private company D&O insurance is very broad and can cover many non-investor claims, including those arising from vendors, business partners, lenders, and other third parties.  It would be wise, however, for Texas private companies to use this reduced threat of shareholder litigation as leverage in renewal negotiations with carriers to push for improved terms and conditions or pricing.

 

In one of the largest shareholder derivative lawsuit settlements ever, involving a very unusual derivative claim under Cayman Island law prosecuted in a U.S. court on behalf of a China-based Cayman Islands company, the parties to the Renren derivative litigation have agreed to settle the case for at least $300 million. The settlement is subject to a “true up” process that could increase the ultimate amount of the settlement payments. The settlement is also subject to court approval. The parties’ October 7, 2021 settlement stipulation can be found here. Renren’s October 8, 2021 press release about the settlement can be found here. An October 8, 2021 press release from the lead plaintiff’s counsel about the settlement can be found here. Continue Reading N.Y. Derivative Suit Against China-Based Cayman Islands Company Settles for $300 Million

David Topol

Private investments funds (hedge funds, PE firms, venture capital funds and the like) are a significant part of the U.S. economy. From a management liability insurance perspective, private investment funds present unique underwriting and claims issues. In the following guest post, David Topol, takes a detailed look at these kinds of enterprises, and considers the relevant claims and insurance issues. David is a partner in the insurance practice at Wiley.  He has substantial experience over the past fifteen years representing insurers as monitoring counsel and in coverage litigation on policies issued to investment advisers, private funds and broker-dealers.  A version of this article will be published in a forthcoming issue of the Wiley law firm’s Executive Summary blog. I would like to thanks David for allowing me to publish his article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is David’s article. Continue Reading Guest Post: Private Investment Fund Claims from an Insurance Perspective

Jeff Hirsch

As I have noted in prior posts, and as a result of a number of factors, the current marketplace for D&O insurance marketplace is disrupted, with many buyers experiencing significant price increases. In the following guest post, Jeff Hirsch, Head of Product at Scale Underwriting, takes a detailed look at current D&O insurance pricing trends. A version of this article previously was published on the Foundershield blog. I would like to thank Jeff and Foundershield for allowing me to publish this article. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Jeff’s article. Continue Reading Guest Post: D&O Insurance Pricing Trends

The directors’ and officers’ liability environment is always changing, but 2022 was a particularly eventful year, with important consequences for the D&O insurance marketplace. The past year’s many developments also have significant implications for what may lie ahead in 2023 – and possibly for years to come.  I have set out below the Top Ten D&O Stories of 2022, with a focus on future implications. Please note that on Thursday, January 12, 2023 at 11:00 AM EST, my colleagues Marissa Streckfus, Chris Bertola, and I will be conducting a free, hour-long webinar in which we will discuss The Top Ten D&O Stories of 2022. Registration for the webinar can be found here. I hope you will please join us for the webinar.

Continue Reading The Top Ten D&O Stories of 2022

As I have noted in prior posts on this site (most recently here), plaintiffs’ lawyers’ claims in cybersecurity-related D&O lawsuits recently have fared poorly. A number of these suits recently have failed to clear the initial pleading hurdles. However, in a ruling last week, the federal judge presiding over the SolarWinds cybersecurity-related securities suits substantially denied the defendants’ motions to dismiss in an opinion that has a number of interesting features, as discussed below. Western District of Texas Judge Robert Pitman’s March 30, 2022 opinion in the case can be found here. Continue Reading Dismissal Motion Largely Denied in the SolarWinds Cybersecurity-Related Securities Suit

The directors’ and officers’ liability environment is always changing, but 2021 was a particularly eventful year, with important consequences for the D&O insurance marketplace. The past year’s many developments also have significant implications for what may lie ahead in 2022 – and possibly for years to come.  I have set out below the Top Ten D&O Stories of 2021, with a focus on the future implications. Please note that on Thursday, January 13, 2022 at 11:00 AM EST, my colleague Marissa Streckfus and I will be conducting a free, hour-long webinar in which we will discuss The Top Ten D&O Stories of 2021. Registration for the webinar can be found here. I hope you will please join us for the webinar. Continue Reading The Top Ten D&O Stories of 2021