Director and Officer Liability

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We live in a time of significant geopolitical risk, from the highly volatile conditions in the Middle East, to the ongoing war in Ukraine, to continuing tensions in the South China Sea, among many other concerns. These risks of course have important ramifications, including among many other things as a source of potential D&O liability exposure. In prior posts (most recently here), I have highlighted ways that geopolitical issues, such as, for example, trade sanctions, can translate into corporate and securities litigation. In the latest example of this phenomenon, on December 19, 2024, a plaintiff securityholder filed a securities class action lawsuit against Joint Stock Company Kaspi.kz, a Kazakh company whose American Depositary Shares (ADS) trade on Nasdaq. Among other things, the plaintiff alleges that the company misrepresented the extent to which its bank subsidiary was being used for unlawful purposes, including assisting Russians with evading sanctions in the wake of the 2022 Russian invasion of Ukraine. A copy of the December 19, 2024 complaint in the case can be found here.Continue Reading Geopolitical Risk, Trade Sanctions, and D&O Risk Exposure

In the wake of the SPAC frenzy, which peaked in 2021, investors have filed a significant number of SPAC-related lawsuits, including not only securities class action lawsuits, but also including Delaware direct action breach of fiduciary duty suits. The Delaware actions have so far in at least some cases proven to be successful. More recently, however, the Delaware courts have projected impatience and even fatigue with these kinds of suits, and in at least one recent case, granted the defendants’ motion to dismiss. However, in a more recent case, the Delaware Chancery Court, although noting that the plaintiff’s allegations are “not strong” and “close to the line between an adequate and an inadequate claim,” denied the defendants’ dismissal motion. There are several interesting features to court’s opinion, as discussed below. The Delaware Chancery Court’s October 18, 2024, opinion can be found here.Continue Reading Del. Court Denies Dismissal Motion in SPAC-Related Action

Long-time readers know that the significant amount of SPAC activity in past years led to a surge in SPAC-related litigation. Some of this litigation has taken the form of traditional securities class action lawsuits. However, among the more noteworthy developments in the rise of SPAC-related litigation has been the emergence of a separate type of suit, the Delaware direct action breach of fiduciary class action lawsuit, sometimes referred to a MultiPlan claim in reference to the first suit of the type to be filed. As detailed below, these kinds of lawsuits have gone through a relatively swift evolution. Many of the these kinds of cases remain pending, have not yet reached the settlement stage. However, the GeneDX lawsuit, which is one of these kinds of cases, recently settled for $21 million, subject to court approval. There are a number of interesting aspects of this settlement, as discussed below. The parties settlement stipulation in the case can be found here.Continue Reading Delaware SPAC-Related Direct Action Breach of Fiduciary Duty Suit Settles for $21 Million

As readers of this blog know, one of the vestiges of the SPAC frenzy that peaked in 2021 is a large volume of SPAC-related securities class action litigation; indeed, as I have recently noted, SPAC-related securities class action lawsuits continue to be filed. In addition to these federal court securities suits, prospective claimants with SPAC-related grievances have also filed Delaware state court breach of fiduciary duty actions, a form of litigation often referred to as “MultiPlan actions,” in reference to the MultiPlan lawsuit, which, as discussed here, was the first of these Delaware court actions to survive a motion to dismiss. Since the ruling in the MultiPlan case, plaintiffs have largely been successful in surviving dismissal motions in these kinds of cases.

However, as discussed in a June 2024 memo from the Skadden law firm (here), in May 2024, the Delaware Court of Chancery granted the motion to dismiss in the SPAC-related direct action breach of fiduciary duty suit relating to Canoo Inc., a company that was the result of a 2020 merger with a publicly traded SPAC, Hennessy Capital Acquisition Corp. IV. According to the law firm memo, the Court’s ruling was the first opinion granting a motion to dismiss in a MultiPlan claim. As discussed below, the Court’s opinion reflects a number of interesting observations about the lawsuit and claims of this type. A copy of the Court’s May 31, 2024 opinion can be found here. Continue Reading Delaware Court Grants Dismissal Motion in SPAC Transaction Proxy Disclosure Case

For many years, Delaware’s courts emphasized that duty of oversight claims (often known as Caremark claims) are “possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment.” However, in a line of cases beginning with the Delaware Supreme Court’s 2019 decision in Marchand v. Barnhill, Delaware courts have sustained various plaintiffs’ assertion of breaches of the duty of oversight. This in turn encouraged more claimants to file duty of oversight claims, a development that clearly has alarmed the Delaware courts. The more recent result has been a series of cases in which the Delaware Chancery Court has emphatically shot down would-be duty of oversight claims.

The latest of these decisions is a ruling in a case involving the directors of Centene Corporation, in which Vice Chancellor Morgan Zurn granted the defendants’ motion to dismiss the plaintiff’s breach of the duty of oversight claims against the Centene board, in an opinion that emphasizes the high bar for Caremark liability. A copy of the July 12, 2024, opinion in Bricklayers Pension Fund of Western Pennsylvania v. Brinkley can be found here. A July 15, 2024, Memo from the Fried Frank law firm about the court’s ruling can be found here.  Continue Reading Del. Chancery Court Rejects Oversight Breach Claims Against Centene’s Board

Long-time readers may recall that just a short time ago there was growing concern that New York’s courts might be becoming a preferred forum for aggrieved investors to pursue liability claims against non-U.S. companies’ executives, based on the companies’ home country laws. However, in early 2022, just as the alarm bells began to sound, New York courts issued a series of rulings dismissing various cases of this kind, suggesting that the furor might have been overblown. But even following these events, concern remained that New York’s courts might still prove to be available in at least certain circumstances for claims under home country law against non-U.S. companies and their executives.

A recent decision from a New York trial court, in which the court denied the defendants’ motion to dismiss a breach of fiduciary duty claim brought under Cayman law against former officers and directors of a Cayman company, confirms that, under some circumstances at least, New York courts may be an available forum for litigants to pursue these kinds of claims involving non-U.S. companies. The fact that the Court accepted the case, and the considerations that proved to be relevant to the court, are both instructive.Continue Reading NY Court Keeps Cayman Law D&O Suit Involving a Cayman Company

From time to time, I am asked to speak directly to corporate boards of directors. I find these opportunities endlessly fascinating. Among other things, I learn so much from the directors’ questions. One frequently recurring question I get is:  what can directors do to avoid litigation or to be in a position better defend themselves if they are sued. The first thing I always talk about when asked these kinds of question is the importance of board minutes. Because this is one of my go-to talking points when I meet with boards, I was particularly pleased to see the recent post on the Harvard Law School Forum on Corporate Governance blog written by Leo E. Strine, Jr., the former Delaware Supreme Court Chief Justice and Chancellor, in which Strine highlights the importance of board minutes in corporate litigation. Strine’s comments are essential reading for anyone concerned with the liabilities of corporate directors. Strine’s April 4, 2024 article can be found here.Continue Reading The Importance of Board Minutes

For nearly 40 years, Delaware Corporations have been permitted to adopt corporate charter provisions exculpated their directors from liability. Effective August 1, 2022, Section 102(b)(7) of the Delaware General Corporations Law (DGCL) was amended to permit Delaware corporations to adopt charter provisions exculpating officers, in order to provide officers with protection from liability for monetary damages similar to the protection available to directors. In the time since the officer exculpation amendment provision went into effect, many Delaware corporations have adopted officer exculpation provisions; the record so far suggest that these provisions generally enjoy significant shareholder support. As discussed below, these developments should also be of interest to D&O insurance professionals.Continue Reading Companies Adopting Officer Exculpation Amendments to Corporate Charters

It is an idea that suddenly is all the rage – that companies should shake the Delaware dust off their feet and reincorporate elsewhere. Elon Musk has famously said, in the wake of the Delaware Chancery Court’s decision voiding his $55.8 billion pay package, that he will seek to reincorporate Tesla in Texas. (SpaceX, also a Musk company, has in fact already reincorporated in Texas.) The former Attorney General William Barr and another GOP official published a Wall Street Journal column arguing that Delaware’s courts are driving corporations away (as discussed here), and suggesting that companies increasingly will find it more attractive to be incorporated in Nevada or another state. Some companies have indeed left Delaware and reincorporated elsewhere – including not just SpaceX, but also TripAdvisor, for example. Why would a company change its state of incorporation from Delaware to another state? And with reference to the focus of  this blog, does a company’s redomestication from Delaware to another state have implications for the potential liability exposures of the company’s directors and officers?Continue Reading Does a Del. Corp.’s Reincorporation in Another State Reduce D&O Liability Exposure?