Director and Officer Liability

Bryan Coffey
Peter Gillon

The Delaware General Assembly has amended the Delaware General Corporation Law Section 102(b)(7), effective August 1, 2022, to permit the exculpation of corporate officers. In the following guest post, Bryan Coffey and Peter Gillon of the Pillsbury Winthrop Shaw Pittman LLP law firm examine the new statutory provision and consider the provision’s D&O insurance implications. The authors’ article previously was published on Law360 and is republished here with permission. I would like to thank Bryan and Peter for allowing me to publish their article on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is Bryan and Peter’s article.
Continue Reading Guest Post: What Del. Officer Exculpation Law Means For D&O Insurance

A recurring issue concerning directors’ duties is the question whether or not directors have duties to their company’s creditors when the company is in the “zone of insolvency.” In an interesting recent decision, the U.K. Supreme Court addressed the duty of directors to creditors when their company becomes insolvent or when it approaches or is at risk of insolvency. In a case in which it decided that the directors for the company before the Court were not liable, the Court ruled that the creditor duty may arise not only when the company is insolvent but when it is “bordering on insolvency,” though the creditor duty does not become paramount until insolvency is “inevitable.” The Court’s October 5, 2022 decision in BTI 204 LLC v. Sequana SA can be found here. The Press Summary of the Court’s Judgement can be found here.
Continue Reading U.K. Supreme Court Addresses Directors’ Duties for Companies “Bordering on Insolvency”

In an interesting and unusual development, the victims’ trust that was created as part of the Pacific Gas & Electric (PG&E) bankruptcy has reached an agreement to settle the trust’s assigned claims against PG&E’s directors and officers for $117 million. According to the parties’ settlement agreement, the settlement is to be funded entirely with proceeds from PG&E’s D&O insurance program. As discussed below, there are a number of interesting aspects and implications to this settlement A copy of the Fire Victim’s Trust’s September 29, 2022 press release about the settlement can be found here. A copy of the parties’ settlement agreement can be found here.
Continue Reading Wildfire Victims Reach $117 Million Settlement with PG&E Executives for Assigned Liability Claims

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