Director and Officer Liability

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

In the following guest post, Francis Kean takes a look at the lessons from the U.K. Serious Fraud Office’s recent attempts to criminally prosecute executives of companies that have entered into a deferred prosecution agreement. Francis is a Partner, Financial Lines, at McGill and Partners. A version of this article previously was published as an alert for clients of McGill and Partners. I would like to thank Francis for allowing me to publish this 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 Francis’s article.
Continue Reading Guest Post: Why Might a Company Throw its Directors Under a Bus?

Among the companies with D&O litigation in recent years arising from sexual misconduct allegations was the clothing and consumer products company L Brands. The parties to the various legal proceedings arising out of the allegations have reached a settlement in which L Brands has agreed to adopt a number of management and governance measures; in order to fund these initiatives, the company has committed to funding of $90 million over the course of five years. As discussed below, the settlement has several interesting features. The parties’ July 30, 2021 stipulation of settlement can be found here.
Continue Reading L Brands Establishes $90 Million Fund in Sexual Misconduct Derivative Suit Settlement

Many fledgling companies aspire toward completing an IPO. Some succeed, but many others do not. Occasionally when a company falls short of its IPO plan, litigation results, in the form of a “failure to launch” claim. A recent example involving a California-based cannabis company illustrates how these kinds of claims can arise. As discussed below, these possibility for these kinds of claims has insurance implications.
Continue Reading Cannabis Company Hit with “Failure to Launch” Claim

An important recent litigation phenomenon that I have been monitoring on this site is the recent revival of the duty of oversight as a legal theory on which plaintiffs can try to assert claims against corporate boards. Delaware’s court have recently sustained several of these kinds of claims – often referred to as “Caremark” claims in reference to the 1986 Delaware Court of Chancery decision that first recognized the legal theory behind these claims – and indeed on recent federal court decision sustained a breach of the duty of oversight claim under Ohio law. In light of these developments, boards will need to anticipate the possibility that these kinds of claims can arise, which possibility in turn raises the question of what boards can do to protect themselves from these kinds of claims.
Continue Reading The Duty of Oversight and the Need for Regular Board Review of Corporate Risk