Director and Officer Liability

On January 4, 2023, Delaware Vice Chancellor Lori Will denied the defendants’ motion to dismiss in the breach of fiduciary duty case a shareholder of the SPAC, Gig Capital3 Inc. (Gig3), against the SPAC’s sponsor and its board of directors in connection with the SPAC’s May 6, 2021, merger with Lightening eMotors. Essentially, the plaintiff alleged that the defendants withheld information about the dilutive impact of the transaction on the cash value of the investors’ shares, depriving the investors of the information they need to decide whether or not to redeem their shares.

In a ruling substantiating well-publicized contentions of Stanford Law Professor Michael Klausner about SPACs’ structural flaws (doubly noteworthy because Klausner acted as co-counsel for the plaintiff in the Gig3 case), Vice Chancellor Will denied the defendants’ dismissal motion, raising questions about whether similar allegations could be raised against a host of other SPACs, as discussed below. A copy of Vice Chancellor Will’s opinion can be found here.

Continue Reading Will Del. Court’s Ruling Mean a SPAC Lawsuit “Gold Rush”?

As I noted in my recent round-up of D&O insurance issues, one of the consequences of the end of the SPAC IPO boom is that many of the SPACs from the IPO classes of 2020 and 2021 have given up trying to find a merger target and instead have opted to liquidate – which raises the question whether liquidation could lead to litigation. On the one hand, where’s the harm, since the investors get their money back. On the other hand, in our litigious society, litigation often follows after disappointed expectations. A December 30, 2022, lawsuit brought by SPAC investors against the SPAC, its sponsors, and its directors and officers, may provide an example of how litigation can arise in the wake of a SPAC liquidation.
Continue Reading Liquidating SPAC Hit With Suit Over Proposed Asset Distribution

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 a result of a host of recent developments – including the War in Ukraine, trade tensions with China, and growing issues involving digital assets – several long-standing regulatory regimes have become increasingly important for companies and their executives. These regulatory regimes include U.S. sanctions, export controls, anti-money laundering (AML) and anti-bribery and corruption laws. According to a recent memo from the Skadden law firm entitled “Why Directors and Executives Need to Pay Attention to Sanctions, Money Laundering, and Export Rules” (here), boards and senior management need to be especially vigilant with respect to these laws as the company officials can become targets of enforcement actions – indeed, directors and officer have been named personally in both civil and criminal enforcement actions involving these laws and regulations.
Continue Reading D&O Risks Relating to Trade Sanctions, Money Laundering, and Export Rules

One of the fundamental principles of corporate law – in the U.S., as well as in other countries – is that a corporate entity has a legal existence separate and apart from its shareholders, officers, and directors, and that the individuals cannot be held personally liable for the debts and obligations of the company. However, in a recent extraordinary and noteworthy decision, the Irish High Court, applying Irish law, pierced the corporate veil in finding two Irish directors and two shadow directors personally liable in connection with a multinational fraud scheme. As discussed below, the decision underscores the importance of directors’ duties and their obligations to be informed about their companies’ operations. A copy of the Court’s October 28, 2022 decision can be found here.
Continue Reading Irish Court Lifts Corporate Veil to Hold Directors Liable

On October 26, 2022, the SEC adopted final rules implanting the Dodd-Frank Act’s requirement for issuers to recover from current and former executives compensation that was erroneously paid due to an accounting restatement. The final rules require securities exchanges to adopt listing standards that will require listed companies to implement and disclose policies requiring the erroneously paid compensation to be recovered, on a “no fault” basis – that is, without regard to whether any misconduct occurred or whether an executive bears responsibility. The SEC’s Release covers a broad range of topics, including — importantly for readers of this blog — considerations relating to indemnification or insurance for the clawed-back compensation. The SEC’s October 26, 2022 press release about the new rules can be found here. The SEC’s fact sheet about the new rules can be found here. The SEC’s Release document (referred to below as the “Release”) can be found here.
Continue Reading Insurance Implications of the SEC’s New Compensation Clawback Rules

In numerous prior posts I have examined efforts by plaintiffs’ attorneys to try to impose civil liability on corporate executives in D&O claims following cyber security incidents. Two recent cases show that, in addition to potential civil litigation liability exposure, corporate executives may also face potential regulatory liability and even criminal liability exposure for cyber security incidents at their company. The two recent cases are discussed in an October 27, 2022 memo from the White and Case law firm, here.
Continue Reading Corporate Executives Face Personal Liability Exposure for Cyber Incidents

As readers of this blog know, there have been important case law developments in Delaware concerning boards’ duty of oversight. In the following guest post, the authors review the key recent developments and consider the practical implications for boards. The authors of this paper are: Sebastian M. Alia, Deputy General Counsel, Hudson Insurance Group; H. Stephen Grace, Ph.D., President, H.S. Grace & Company, Inc.: Alvin H. Fenichel, CPA, Senior Advisor, H.S. Grace & Company, Inc.; and Joseph P. Monteleone, Esq., Partner, Weber Gallagher. A version of this article previously was published in the ACC Docket. I would like to thank the authors for allowing me to publish their articles 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 the authors’ article.
Continue Reading Guest Post: How To Structure a Board to Oversee Mission-Critical Activities

In prior posts on this site (for example here), I have expressed my concern that the current hot topic of ESG has a fundamental underlying flaw in that the term lacks definition and that this lack of precision has led to a great deal of sloppy thinking. A recent post on the Harvard Law School Forum on Corporate Governance provides a good examination of these ESG-related concerns. In an October 14, 2022 post (here), Douglas Chia of Soundboard Governance LLC, shows, using cybersecurity as an example, that one of the “biggest flaws” of ESG is “the subjective open-endedness of what counts as E, S, or G.”
Continue Reading ESG’s “Biggest Risk”?