Director and Officer Liability

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

Sarah Abrams
Bret Hilgart

Corporate share repurchases hit record levels in 2021. But as discussed in the following guest post by Sarah Abrams and Bret Hilgart, share repurchases can sometimes result in litigation and share repurchases could have important implications for directors and officers’ liability. Sarah is Head of Professional Liability at Bowhead Specialty Underwriters and Bret is Head of Commercial D&O at Bowhead Specialty Underwriters. I would like to thank Sarah and Bret for allowing me to publish their article as a guest post on this site. I welcome guest posts 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 Sarah and Bret’s article.
Continue Reading Guest Post: Scrutiny Over Share Repurchase Programs; Can The Board Ever Get It Right?

In my review of SPAC-related litigation on this site, I have mostly focused on SPAC-related securities litigation. However, there have been other types of SPAC-related lawsuits filed, including SPAC-related breach of fiduciary duty direct actions filed in Delaware courts (as discussed for example here). On January 3, 2022, Delaware Vice Chancellor Lori W. Will entered an opinion in one of these direct action breach of fiduciary duty cases – the closely-watched MultiPlan action – denying the defendants’ motion to dismiss and holding that though Delaware courts “have not previously had an opportunity to consider the application of our law in the SPAC context,” well-established Delaware legal principles led the court “despite the novel issues presented” to conclude that the plaintiffs have pleaded “viable, non-exculpated claims against the SPAC’s controlling stockholder and directors.”

As discussed below, the court’s ruling is a landmark ruling addressing governance concerns relating to potential conflicts of interest between a SPAC’s sponsors and directors and officers and its public shareholders. A copy of the January 3, 2022 opinion can be found here.
Continue Reading Del. Court Dismissal Denial Has Important SPAC-Related Litigation Implications

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

The “economic structure” of SPACs creates an ‘inherent conflict” between the SPAC sponsor and the SPAC’s public shareholders, according to a new paper from two leading law professors.  The conflict arises from the SPAC sponsor’s financial interest in completing a merger even if the merger is not value-creating, which may conflict with the shareholders’ interest in redeeming their shares if they believe that the proposed merger is disadvantageous. Because of the potential conflict, it is critical that the SPAC’s board independently reviews the proposed merger and inform shareholders about the merger with appropriate candor. However, if the board members’ compensation aligns their interests with those of the sponsor, the sponsor’s conflict could extend to the directors themselves – a circumstance the paper’s authors call the “epitome of bad governance.”

The solution, the authors suggest, is for the SPAC to structure the board members’ compensation in a way that aligns the directors’ financial interests with those of the shareholders. Moreover, the authors contend, courts reviewing shareholders’ allegations that a SPAC’s board members breached their fiduciary duties should consider the potential for conflict inherent in the SPAC’s structure and accordingly review the underlying circumstances using the “entire fairness” standard. These considerations are relevant to cases now pending in the Delaware courts, which have the potential to be “groundbreaking.” Stanford Law Professor Michael Klausner and NYU Law Professor Michael Ohlrogge’s November 19, 2021 paper entitled “SPAC Governance: In Need of Judicial Review” can be found here.
Continue Reading SPACs’ Structural Conflicts, Shareholder Litigation, and Judicial Review

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

As I have noted in prior posts (most recently here),over the last several months plaintiff shareholders have filed numerous SPAC-related securities class action lawsuits. In an interesting variant of SPAC-related litigation, a claimant has filed a post-merger SPAC-related class action lawsuit in the Delaware Court of Chancery against the former directors of a SPAC and against the SPAC’s sponsor, in which the claimant alleges the defendants breached their fiduciary duties to the pre-merger SPAC shareholders. The lawsuit has a number of interesting features, as discussed below. A copy of the plaintiffs’ August 4, 2021 complaint in the action can be found here.
Continue Reading SPAC-Related Class Action Breach of Fiduciary Duty Lawsuit Filed in Delaware Chancery Court