Director and Officer Liability

A claim alleging a board’s breach of duty of oversight has long been regarded as one of the most difficult for a plaintiff to sustain. But after the Delaware Supreme Court’s 2019 opinion in Marchand v. Barnhill, breach of the duty of oversight claims (or Caremark claims, as they are sometimes called) have in recent years, as Vice Chancellor Sam Glasscock put in in his recent opinion in the SolarWinds case, “bloomed like dandelions after a warm spring rain.” Some commentators questioned whether oversight breach claims were in fact as difficult to sustain as is so often said. However, in his recent opinion, the Vice Chancellor emphasized the oversight breach claims remain “one of the most difficult claims” to sustain and granted the defendants’ motion to dismiss the cybersecurity-related oversight breach claims asserted against the board of Solar Winds.  A copy of Vice Chancellor Glasscock’s September 6, 2022 opinion in the SolarWinds case can be found here.
Continue Reading Del. Court Dismisses Cybersecurity-Related Oversight Claim Against SolarWinds Board

In my recently published survey of the top topics in the world of directors’ and officers’ liability and insurance, and in connection with my discussion of ESG issues, I briefly mentioned the lawsuit that was filed last week against directors and officers of Starbucks in connection with the company’s “Diversity, Equity, and Inclusion” (DEI) policies. Because there are a number of notable aspects of this lawsuit, it is worth taking a closer look at the suit. As discussed below, the lawsuit represents yet another instance of anti-ESG backlash and illustrates how companies taking the initiative on ESG issues could incur scrutiny and litigation risk. A copy of the recent complaint can be found here and a copy of the plaintiff’s August 31, 2022 press release can be found here.
Continue Reading Starbucks Execs Hit With Suit Alleging the Company’s DEI Policies Violate Civil Rights Laws

Readers of this blog are well aware that “ESG” (whatever that term may mean) is one of the hot topics in the financial and business sectors. Companies face scrutiny and pressure to show that they are making progress on ESG goals. The SEC has established an ESG task force and proposed climate change disclosure rules. Now, as if all of that were not enough, political reaction is giving rise to an ESG backlash. As detailed in two recent memos from the Morgan Lewis law firm (here and here), as many as 17 states have now adopted “anti-ESG” state legislation that would limit the ability of state governments, including public retirement plans, to do business with entities “boycotting” industries based on ESG criteria or considering ESG factors in their investment processes.
Continue Reading And Now, The ESG Backlash

The financial press is already reporting that many of the nearly 600 SPACs currently searching for merger targets may be unable to find suitable merger targets. Indeed, famous investor Bill Ackerman, unable to find a suitable merger target for his largest-ever SPAC, Pershing Square Tontine Holdings, has already thrown in the towel and liquidated the $4 billion SPAC. With hundreds of SPACs facing the end of their search period in this and the next two quarters, there are likely to be many other SPACs that choose to liquidate in the coming months.

One question I have had about this likelihood is whether or not there is a risk of litigation as SPACs redeem investors’ shares. On the one hand, litigation seemingly should be unlikely as investors are getting their money back. Where’s the harm? On the other hand, in our litigious society, the possibility of litigation always seems to be lurking whenever things don’t work out as planned. While the circumstances involved are very case-specific, a lawsuit filed last week in the Delaware Chancery Court, provides of an example of the kind of end-game squabble that could arise as more SPACs liquidate in the coming months.
Continue Reading SPAC Unable to Find Merger Target Caught Up in Pre-Liquidation Litigation

In most instances, corporate officers cannot be held personally liable for the misconduct of the company they serve. However, there are occasions when corporate officers can be held personally liable in their individual capacities for corporate acts or omissions. A recent decision by a California intermediate appellate court held that an individual who served as a company’s CEO and CFO can be held liable for the claimants’ unpaid wages. As discussed below, the ruling represents an interesting example of the circumstances in which individuals can be held liable for company misconduct. A copy of the California Court of Appeal’s June 28, 2022 decision can be found here. A July 21, 2022 post on The CorporateCounsel.net blog about the decision can be found here.
Continue Reading California Appellate Court Holds Corporate Officer Personally Liable for Unpaid Wages

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.
Continue Reading Massive $97 Billion Verdict Awarded Against Fukushima Utility Executives

As I have noted before, Elon Musk is a reliable source of interesting blog fodder. His hyperkinetic fracases are so numerous that at times it is easy to lose track of the many controversies in which he is involved. Amidst all of the hoopla about his current bid to acquire Twitter, it was easy to overlook the fact that he remained mired in ongoing litigation relating Tesla’s 2016 acquisition of SolarCity. As the heart of the dispute was the fact that Musk served both as Chairman of SolarCity and as an executive of and as the largest shareholder of Tesla at the time.

The dispute went to a ten-day bench trial in 2021, and on April 27, 2022, Delaware Vice Chancellor Joseph R. Slights III issued a lengthy opinion ruling in Musk’s favor on all issues. A copy of the opinion can be found here. As discussed below, the sprawling, 132-page opinion contains a number of interesting observations and insights and also has important implications.
Continue Reading Elon Musk Prevails in Trial Over Tesla’s Acquisition of SolarCity

In January of this year, when the Delaware Chancery Court sustained the Delaware state court direct action filed against the directors and officers of the SPAC that had acquired MultiPlan Corp., I speculated that the Court’s ruling would encourage other disgruntled SPAC investors to bring similar Delaware direct actions against SPAC management.

Consistent with my speculation, on March 18, 2022, a plaintiff shareholder filed a direct action for breach of fiduciary duty against certain former directors of officers of Decarbonization Plus Acquisition Corporation, a special purpose acquisition company (SPAC), that in July 2021 merged with Hyzon Motors USA to form Hyzon Motors Inc. The claim is brought on behalf of SPAC investors who were entitled to redeem their shares at the time of the merger.  The plaintiff claims that the defendants’ misrepresentations about the merger deprived the plaintiff class of their right to make an informed redemption decision. The claims asserted on behalf of the investors are not only very similar to the allegations previously raised in the MultiPlan litigation, but the new complaint expressly quotes the dismissal motion denial ruling in the MultiPlan ruling. As discussed below, this latest lawsuit may indicate a likely future direction for SPAC related litigation. A copy of the complaint in the new Delaware state court direct action can be found here.
Continue Reading Investors Bring SPAC-Related Direct Fiduciary Breach Action Relating to Hyzon Motors Merger

One of the biggest stories in the financial world for the last 18-24 months has been the astonishing surge in SPAC-related activity. Some readers will recall that in the midst of the SPAC ballyhoo, three academics had sounded a serious note of caution. In their conspicuous November 2020 paper, “A Sober Look at SPACs” (here), Stanford Law Professor Michael Klausner, NYU Law Professor Michael Ohlrogge, and Stanford Research Associate Emily Ruan warned, among other things, that SPAC shares were highly diluted, that their post-SPAC-merger performance was poor, and that sponsors’ returns were extraordinarily high.

Critics at the time suggested that the academics’ research was out of date, and that later SPACs addressed the concerns the authors noted in their  data set from an earlier time period. In response to the criticisms, the authors have now updated their earlier paper and published their research results in a January 24, 2022 post on the Harvard Law School Forum on Corporate Governance entitled “A Second Look at SPACs: Is This Time Different?” (here). As detailed below, the authors conclude, based on their review of more recent SPAC transactions, that, contrary to the assertion of SPAC defenders, “this time is not different,” and that “SPACs remain highly diluted, and their returns remain poor.”

And in a separate paper that provides additional interesting reading about de-SPAC transactions, on January 24, 2022, the Freshfields law firm published a statistical analysis of 2021 de-SPACs entitled “2021 De-SPAC Debrief” (here), which, as also discussed below, provides an abundance of additional  information.
Continue Reading SPACs and De-SPACs: Just the Facts