Director and Officer Liability

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

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