The U.S. Department of Justice released a directive last week restating and reinforcing the agency’s commitment to targeting corporate executives in cases of corporate wrongdoing. The cornerstone of the agency’s new policies is the specification that in order for a company to qualify for any cooperation credit in connection with a DoJ investigation, the company must provide the agency with all relevant facts about the individuals involved in the misconduct. As discussed below, the agency’s new directive could pose added challenges for companies involved in DoJ investigations, and it could represent a significant new threat to the executives of the companies involved. As also discussed below, the directive raises some important D&O insurance issues as well.
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What to Watch Now in the World of D&O
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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While You Were Out
September is here. Labor Day has come and gone. That can mean only one thing – time to put away the surf boards, bungee cords, fencing foils, pogo sticks, nunchuks, hula hoops, light sabers, and unicycles, and get back to work. Yes, it is time to answer all those emails and return all of those phone messages. And most important of all, it is time to catch up on what has been happening in the world of directors’ and officers’ liability and insurance. Here is what happened while you were out.
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A Closer Look at the Massive $148 Million Damages Award Against Dole’ s CEO and General Counsel
A frequent theme these days in the world of corporate and securities litigation is the complaint about merger objection litigation – how virtually every deal announced attracts at least one lawsuit, and how all too often the cases are resolved on the basis of a disclosure-only settlement and the payment of the plaintiffs’ attorneys’ fees, an arrangement that produce no benefit for anyone except the lawyers. However, a recent Delaware Chancery court post-trial opinion provides a sharp reminder that some merger transactions can include some real problems.
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The Short-Termism Debate: Are There D&O Liability Issues Involved, Too?
In recent months, commentators from across the political spectrum, largely in response to perceived excesses of activist investors, have called for changes to discourage “short-termism” – that is, the perceived excessive focus of businesses on short-term results rather long-term value creation. Voices ranging all the way from Democratic Presidential candidate Hillary Clinton (about which refer here) to Republican SEC Commissioner Daniel Gallagher (refer here) have voiced their concerns about what they characterize as the inappropriately short term focus that they suggest is driving American business decision-making. This topic raises a number of issues of importance for a variety of different constituencies, including, as discussed below, those of us in the D&O insurance industry.
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A Look at the Modern Business Judgement Rule
Under time-honored standards, and as developed over time by Delaware’s court, the business judgment rule is, as is often stated, a “presumption that in making a business decision, the directors of a company have acted on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the corporation.” However, as discussed in an interesting paper, in more recent times, courts have had to consider these principles in more troubling contexts, such as takeover battles or controlling shareholder transactions. As a result the courts have developed what BYU Law Professor D. Gordon Smith in his August 6, 2015 post on the CLS Blue Sky Blog (here) calls “the Modern Business Judgment Rule.” A longer version of Professor Smith’s paper can be found here.
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Delaware Supreme Court Trims Independent Directors’ Potential Liabilities in M&A Transactions
On May 14, 2015, in a landmark ruling with important implications for the potential liabilities of independent directors of companies involved in M&A transactions, the Delaware Supreme Court held that in order to state a claim for damages against directors of a company that has an exculpatory provision in its corporate charter, a plaintiff must
Challenging Consequences: The Government’s Requirement for Wrongdoing Admissions in Civil Fraud Suits
In one of the more troublesome recent developments for corporate officials who find themselves targeted by government investigations, both the U.S. Department of Justice and the Southern District of New York U.S. Attorney’s Office have made it clear that as part of the settlement of civil fraud actions, the governmental authorities intend to seek both
The Curse of Multi-Jurisdiction Litigation: A Problem for Everyone, Not Just Defendants
One of the more distinct litigation phenomena in recent years has been the rise of multi-jurisdiction litigation, particularly in connection with merger objection litigation. Corporate advocates and defense attorneys have decried this development, as it has forced companies facing litigation to have to fight a multi-front war and to incur increased defense expense. At its
Bank Directors Facing Increased Regulatory Scrutiny, Raising Fears of Potential New Liability Exposures
Federal banking regulators have stepped up their interactions with and scrutiny of bank directors, according a recent Wall Street Journal article. The March 31, 2015 article, entitled “Regulators Intensify Scrutiny of Bank Boards” (here) details the ways in which regulators are “zeroing in on Wall Street boardrooms as part of the government’s intensified