Every year just after Labor Day, I take a step back and survey the most important current trends and developments in the world of Directors’ and Officers’ liability and D&O insurance. This year’s survey is set out below. Once again, there are a host of things worth watching in the world of D&O.
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Guest Post: Playing the Blame Game: Fiduciary Duty Litigation in Bankruptcy Proceedings
An unfortunately frequent part of bankruptcy proceedings is the assertion of claims against the directors and officers of the failed company. In the following guest post, Joseph W. Swanson and Donald R. Kirk of the Carlton Fields law firm take a look at the kinds of claims these officials face, as well as the steps these individuals can take to try to avoid the claims in the first place. I would like to thank Joe and Donald for their willingness to publish their article as a guest post on my 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 Joe and Donald’s article.
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Supreme Court Asked to Review Responsible Corporate Officer Doctrine
The U.S. Supreme Court may soon get a chance to consider and review the “Responsible Corporate Officer” Doctrine (also sometimes referred to as the “Park doctrine,” in reference to the 1975 case in which the Court first described the doctrine) in a case in which corporate executives challenge their individual criminal imprisonment sentences for alleged corporate misconduct in which they were not involved and of which they had no knowledge. As discussed here, the executives’ sentences were affirmed by the Eighth Circuit, and the executives have now filed a petition for a writ of certiorari to the Supreme Court, in which they seek to have the Court take up the question of whether the imposition of a sentence of imprisonment for a supervisory liability offense violates constitutional due process requirements. As a May 3, 2017 memo from the Cadwalader law firm put it, the case may be the “most important Park doctrine case in over forty years.”
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How Will the Trump Administration Affect D&O Claims?
A recurring question – one that I am getting now on just about a daily basis – arises from concerns about the Trump administration’s possible impact on the world of directors’ and officers’ liability. Implicit in the question is the assumption that the new administration’s policies and actions will indeed affect D&O claims. While I agree with this assumption – that the new administration’s actions will have an impact–at this point it is still far too early to tell what that impact might be. For now, I think all we can do is watch some key indicators. In this blog post, I review what I think are the key indicators, and what the indicators may tell us about what lies ahead for D&O claims.
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The Liability Exposures of Directors and Officers of Pre-IPO Companies
When private companies are on track toward a planned IPO, much of the focus and attention is on readying the company for the burdens and responsibilities it will face as a public company. Among other things, this also means a focus on the potential liability exposures for the company and its directors and offices once the company goes public. Until the company actually completes its planned offering, however, it is still a private company — albeit one with a heightened set of risk exposures because of the company’s pre-IPO activities. If the planned IPO never happens, the company and its senior officials sometimes face liability claims arising from pre-IPO activities. A recent complaint filed in the Northern District of California against the former directors and officers of a pre-IPO company that ultimately went bankrupt illustrates the kind of claims pre-IPO companies and their executives can face. Pre-IPO companies’ liability exposures have important implications for the companies’ D&O insurance programs, as discussed below.
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Guest Post: Pitfalls of Sharing Privileged Information During Due Diligence
One of the interesting recurring issues arising in M&A transactions is the question of the extension of attorney client privilege to information shared during transactional due diligence. In the following guest post, Joseph B. Crace, Jr. and Britt K. Latham take a look a recent New York Court of Appeals decision examining the question of the extension of the common interest doctrine to privileged information shared between parties to a prospective merger. A version of this article was originally published by Bass, Berry & Sims in the firm’s annual “Securities & Shareholder Litigation 2017: A Look Ahead” (here). I would like to thank Joe and Britt for their willingness 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 Joe and Britt’s guest post.
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Guest Post: The Importance of the Business Judgment Rule
The business judgment rule is one of the important principles involved when questions of board and director liability are raised. In the following guest post, Bernard Sharfman, an associate fellow of the R Street Institute and a member of the Journal of Corporation Law’s editorial advisory board, takes a look at the way that the business judgment rule is often presented and understood. Bernie’s guest post is a summary of his longer academic paper on the same topic, which can be found here. This post previously appeared on the Harvard Law School Forum on Corporate Governance and Financial Regulation. I would like to thank Bernie for his willingness to allow me to publish his 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 publish a guest post. Here is Bernie’s guest post.
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Del. Court Pans Fee-Shifting Portion of Forum Selection Bylaw
Many readers will recall that just a short time ago companies were actively experimenting to try to incorporate litigation management measures into their corporate bylaws. These efforts led to decisions by Delaware courts upholding both forum selection bylaws (about which refer here) and fee-shifting bylaws (refer here). Delaware’s legislature ultimately addressed these bylaw experimentation efforts by adopting statutory provisions allowing forum selection bylaws but prohibiting fee-shifting bylaws.
Following the enactment of this legislation, the payroll software services firm Paylocity adopted a bylaw provision designating Delaware as the forum for any shareholder disputes and holding any shareholder who filed an action outside Delaware and who did not prevail on the merits liable for the company’s attorneys’ fees. A Paylocity shareholder filed an action in Delaware Chancery Court challenging the bylaw’s fee-shifting provision. In an interesting December 27, 2016 opinion (here), Chancellor Andre Bouchard held that the Paylocity bylaw’s penalty provisions violated the Delaware statutory fee-shifting bylaw prohibitions, but dismissed the claims that company’s board had violated its fiduciary duties in enacting the bylaw.
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The Top Ten D&O Stories of 2016
While the world of directors’ and officers’ liability is always dynamic, the D&O liability arena was particularly eventful during 2016, with significant implications for what may lie ahead in 2017 – and possibly for years to come. With full awareness that a complete inventory of key 2016 events could actually be much longer, here is a list of the Top Ten D&O stories of 2016.
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Will the DOJ Priorities in the Yates Memo Continue in the New Administration?
Among the many questions surrounding the new incoming Presidential administration is the question of what direction the Trump administration will go with criminal and regulatory enforcement. And among the many specific questions under that topic heading is the question of whether or not the Department of Justice will continue the current agency policy of giving priority to holding individuals accountable for corporate wrongdoing. Based on early signs, all indications are that the current policy, embodied in the so-called Yates Memo, will continue under the new administration.
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