Director and Officer Liability

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Mark Sutton
Leah Barratt

In the following guest post, Mark Sutton and Leah Barratt take a look at the proposed Economic Crime and Corporate Transparency Bill, a piece of legislation currently pending in the U.K. Mark is a Partner and Leah is a Senior Associate in the Clyde & Co. law firm. A version of the article previously was published on the Clyde & Co. website. I would like to thank Mark and Leah for allowing me to publish their article on this site. I welcome guest post submissions from responsible authors on topics of interest to readers of this blog. Please contact me directly if you would like to submit a guest post. Here is Mark and Leah’s article.Continue Reading Guest Post: Failure to Prevent Fraud – the New Company Exposure

Earlier this year, when Vice Chancellor Lori Will sustained the plaintiff’s SPAC-related Delaware State Court direct breach of fiduciary duty action against the motion to dismiss of the former directors of Gig Capital3 (Gig3), there was some speculation that the court’s ruling would lead to a “deluge” of similar lawsuits. While no onslaught of new lawsuits has yet materialized, there was (as I noted in a recent post, here) a SPAC-related Delaware state court direct breach of fiduciary duty action filed late last week against the board of Adara Acquisition Corp. Now, a shareholder plaintiff has filed an additional SPAC-related Delaware State Court direct breach of fiduciary duty action, against the board of Trident Acquisition Corp. in connection with the SPAC’s merger with AutoLotto, to form Lottery.com. As discussed below, the allegations against Trident’s board (as well as its sponsor and its financial underwriting advisor) more closely resemble those alleged in the Gig3 case, underscoring the possibility that plaintiffs’ attorneys may well seek to pursue the state court breach of fiduciary duty claim on similar theories. A copy of the April 3, 2023 complaint against the Trident board can be found here.Continue Reading Shareholders Sue Former SPAC Execs in Delaware Direct Fiduciary Duty Breach Action

Though SPAC-related lawsuits were among the most important factors contributing to securities class action litigation filing volume in 2022, SPAC-related litigation has not yet been as significant of a factor so far in 2023. But while there have been relatively few SPAC related securities suits filed this year, there has been SPAC-related Delaware state court breach of fiduciary duty litigation. In the latest example of this Delaware state court litigation activity, plaintiff shareholders recently filed a Delaware Chancery Court lawsuit against the directors of a SPAC; the post-merger de-SPAC company, as successor in interest in the SPAC; and the SPAC’s sponsor, alleging that the defendants breached their fiduciary duties in connection with the merger. A copy of the plaintiff’s March 31, 2023, complaint can be found here.Continue Reading SPAC Board and Sponsor Hit with Delaware State Court Breach of Fiduciary Duty Direct Action

The collapse of Silicon Valley Bank is one of those singular events, charged with implications and fraught with dangerous possibilities, but that is also still so recent that it is difficult to discern what it ultimately will mean. Earlier this week, in an excellent webinar presented by the Rock Center for Corporate Governance at the…

Delaware’s courts traditionally have said that breach of the duty of oversight claims (sometimes referred to as Caremark claims) are “possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment.” However, in series of cases following the Delaware Supreme Court’s 2019 decision in Marchand v. Barnhill, Delaware courts have sustained a number of breach of the duty of oversight claims. More recently, Vice Chancellor Laster, in a pair of decisions in the McDonald’s case, elaborated significantly on the reach of duty of oversight. Among other things, Laster made it clear that the duty extends to corporate officers as well as to directors. Some commentators (including me) were concerned that Laster’s elaborations could lead to further lawsuits alleging breach of the duty of oversight.

Now, in what is the first high-profile post-McDonald’s Caremark claim of which I am aware, a group of four institutional investors has brought a breach of the duty of oversight claim against certain directors and officers of Meta, alleging that the executives failed to take sufficient action with respect to allegations that the company’s social media sites were being used for human trafficking. The new complaint appears to have been shaped to reflect many of the implications arising from Laster’s decisions in the McDonald’s case. A copy of the redacted public version of the plaintiffs’ March 20, 2023, complaint in the Meta case can be found here.Continue Reading Meta Board and Execs Hit with Oversight Duty Breach Claim Based on Trafficking Allegations

As I have noted in prior posts (most recently here), many of the SPACs that completed IPOs during the SPAC frenzy in 2020 and 2021 are nearing the end of their two-year search period. Many of these SPACs have not identified suitable merger partners and the SPACs are liquidating. One question I have been asking as these SPACs liquidate is whether there might be litigation. One the one hand, in the liquidation, the investors get their money back. On the other hand, in our litigious society litigation is always possible when plans don’t work out. In the latest example of how litigation might arise in the SPAC liquidation context, investors in SPAC which has announced its plan to liquidate have brought an action against the SPAC, its directors and officers, and the SPAC sponsor, in a fight about how assets the SPAC holds beyond the IPO trust funds are to be distributed.Continue Reading Liquidating SPAC Hit With Investor Suit Over Planned Asset Distribution

In the latest development in the Delaware courts’ evolving elucidation of the standards surrounding claims for breach of the duty of oversight – sometimes referred to as Caremark claims — a Delaware Court has held that the board of McDonald’s cannot be held liable for an alleged oversight duty breach in connection with the alleged scandals at the company involving sexual harassment allegations. This ruling in the directors’ favor follows closely after the same court’s recent ruling in the same case that the plaintiffs had stated a claim against an officer defendant for breach of the duty of oversight. The court’s recent rulings in the case provide extensive additional insights with respect to what must be alleged to establish a Caremark claim. Vice Chancellor Laster’s March 1, 2023, opinion in the case, dismissing the claims against the McDonald’s directors, can be found here.Continue Reading Breach of Duty of Oversight Claims Against McDonald’s Directors Dismissed

Sarah Abrams

In the following guest post, Sarah Abrams, Head of Professional Liability Claims at Bowhead Specialty, takes a look at the challenges that financial trading based on Artificial Intelligence (AI) could mean for D&O, Professional, and Cyber insurers. I would like to thank Sarah for allowing me to publish her 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 Sarah’s article.Continue Reading Guest Post: AI Financial Trading; A Brave New World for Insurers

In a shareholder claim against the former global head of HR at McDonald’s, the Delaware Chancery Court has held that liability for breach of the duty of oversight, which Delaware courts had previously extended only to corporate directors, can also extend to corporate officers, as well. In addition, in a separate part of the opinion that may not gain as much attention as the duty of oversight ruling, the same court also held that a breach of fiduciary duty claim can be alleged against an officer based on sexual harassment allegations. The court’s January 25, 2023 opinion in this case, a copy of which can be found here, is likely to be the subject of scrutiny, commentary, and controversy.Continue Reading Breach of the Duty of Oversight Liability Extends to Officers as Well as Directors

On January 4, 2023, Delaware Vice Chancellor Lori Will denied the defendants’ motion to dismiss in the breach of fiduciary duty case a shareholder of the SPAC, Gig Capital3 Inc. (Gig3), against the SPAC’s sponsor and its board of directors in connection with the SPAC’s May 6, 2021, merger with Lightening eMotors. Essentially, the plaintiff alleged that the defendants withheld information about the dilutive impact of the transaction on the cash value of the investors’ shares, depriving the investors of the information they need to decide whether or not to redeem their shares.

In a ruling substantiating well-publicized contentions of Stanford Law Professor Michael Klausner about SPACs’ structural flaws (doubly noteworthy because Klausner acted as co-counsel for the plaintiff in the Gig3 case), Vice Chancellor Will denied the defendants’ dismissal motion, raising questions about whether similar allegations could be raised against a host of other SPACs, as discussed below. A copy of Vice Chancellor Will’s opinion can be found here.Continue Reading Will Del. Court’s Ruling Mean a SPAC Lawsuit “Gold Rush”?