The importance of ESG issues for companies and their executives is nothing new, but in recent days ESG issues seem to have taken center stage. The surprising success of activist investor Engine No. 1 in electing climate change-focused candidates to the board of ExxonMobil and the order by the Dutch court requiring Royal Dutch Shell to reduce carbon dioxide emissions by 50% of 2019 levels by 2030 are just two of the recent examples of the ways in which ESG issues increasingly have come to predominate corporate agendas. As discussed below, challenges related to ESG issues seem likely to continue. Among other things, these developments present new risks for potential D&O liability exposures as well.
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Another COVID-19-Securities Suit Against Cruise Line Dismissed
Among the industries hit hardest at the outset of the coronavirus outbreak last year was the cruise ship business. As these companies were forced to cease operations, revenues plunged. Several of the companies were hit with securities class action lawsuits as well, though, as discussed below, these lawsuits have not fared well. On May 28, 2021, in the latest ruling in a COVID-19-related securities suit against a cruise ship line, the federal judge in the securities suit pending against Carnival Corp. granted the defendants motion to dismiss. The court’s ruling evinces a great deal of skepticism of the plaintiffs’ case.
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Multiple Endorsements Modifying Same Exclusion Render Policy Ambiguous, Negating Exclusion’s Applicability
Commercial insurance policies often are contractually complex. Many insurance policies include multiple endorsements modifying provisions of the base insurance policy form. Interpreting the way that the various parts of the policy work together is an important part of determining insurance coverage. When it is unclear how the parts relate uncertainty results. In a recent decision, the Eighth Circuit found that where multiple policy endorsements modified the same policy exclusion, the net effect of the endorsements was ambiguity, resulting in the conclusion that the exclusion did not apply at all. The appellate court’s decision is a cautionary tale for anyone involved in the insurance placement process.
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Virgin Galactic Hit with Securities Suit Over SPAC Warrant Accounting Issue
When senior SEC staff issued a statement in April saying that most warrants issued by SPACs should be treated as liabilities rather than as equity, it triggered a huge slowdown in the previously hot SPAC IPO market. It also forced many existing SPACs to review the way they had previously accounted for warrants; in some instances, individual SPAC companies concluded that they needed to restate their prior financial statements. Now, in a development that highlights the risks that these seemingly obscure accounting issues present, a plaintiff shareholder has filed a securities class action lawsuit against Virgin Galactic Holdings, a post-SPAC-merger company that restated its financials based on the warrant accounting issue. The May 28, 2021 complaint, a copy of which can be found here, alleges that the company had previously improperly accounted for its warrants, and that the prior accounting treatment violated the securities laws.
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Dismissal Motion Granted in Oracle Board Diversity Lawsuit
Regular readers will recall that last year and earlier this year, plaintiffs’ lawyers filed a series of shareholder derivative lawsuits against the directors of several companies alleging that the lack of diversity on the companies’ boards breached the directors’ fiduciary duties. In the latest ruling to address preliminary motions in these various cases, the court in the board diversity lawsuit filed against directors and officers of Oracle has granted the defendants’ motion to dismiss. As discussed in greater detail below, the plaintiffs’ track record on the board diversity lawsuits is not good so far; the ruling in the Oracle suit represents the third successive dismissal granted in these suits.
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The Duty of Oversight and the Need for Regular Board Review of Corporate Risk
An important recent litigation phenomenon that I have been monitoring on this site is the recent revival of the duty of oversight as a legal theory on which plaintiffs can try to assert claims against corporate boards. Delaware’s court have recently sustained several of these kinds of claims – often referred to as “Caremark” claims in reference to the 1986 Delaware Court of Chancery decision that first recognized the legal theory behind these claims – and indeed on recent federal court decision sustained a breach of the duty of oversight claim under Ohio law. In light of these developments, boards will need to anticipate the possibility that these kinds of claims can arise, which possibility in turn raises the question of what boards can do to protect themselves from these kinds of claims.
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Guest Post: SPACs and SPAC-Related Litigation: A Primer on Reducing Litigation and Enforcement Risk
As I have documented on this site, along with the rapid rise of SPAC-related transaction activity has come a surge in SPAC-related litigation. In the following guest post, Paul R. Bessette and Chris Crawford consider the likelihood for even further litigation relating to SPAC transactions and review the steps that well advised companies involved in SPAC transactions can take to try to reduce their litigation risks. Paul is co-chair of the King & Spalding law firm’s Corporate & Securities Litigation Practice and Chris is a Senior Vice President and Client Executive with Marsh in Los Angeles. A version of this article was previously published in Westlaw Today, 2021 WL 1990398. I would like to thank Paul and Chris for allowing me to publish their article 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 Paul and Chris’s article.
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Internet Technology Company Hit with Data Breach-Related Securities Suit
A cybersecurity incident earlier this year at the technology company Ubiquiti has given rise to a securities class action lawsuit against the company and two of its executives. The lawsuit is the latest example of the D&O risk exposure relating to cybersecurity. As discussed below, the lawsuit’s allegation illustrates that the way that a company handles bad news can be an important litigation risk factor. A copy of the May 19, 2021 securities lawsuit complaint against Ubiquiti can be found here.
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Guest Post: COVID-19 Update: Investor Related Class Actions
As readers of this blog are aware, since the outbreak of the pandemic early last year, there has been a flow of COVID-19-related securities class action lawsuits filed in U.S. courts. I have tried to track these cases as they have been filed and to note them on this site. ISS Securities Class Action Services has also been tracking these cases. In the following guest post, Jeff Lubitz and Louis Angelo Panis analyze the COVID-19 securities suits. Jeff is the Executive Director and Louis is an analyst at ISS Securities Class Action Services. The ISS SCAS data is slightly more inclusive than the data I have compiled and reported on this site, as the ISS SCAS data includes state court securities class action lawsuits as well as federal court securities class action lawsuits, whereas my data set is limited to federal court actions only. Please note that several graphic displays of the ISS SCAS litigation data follow the article. A version of this article previously was published as an ISS Insights article. I would like to thank Jeff and Louis for allowing me to publish their 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 submit a guest post. Here is Jeff and Louis’s article.
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Guest Post: As Equity Markets Surge, Carriers Need to Examine D&O Governance Exposure
An important corporate governance topic – but a subject that I frankly have not addressed frequently this site – is the topic of executive compensation. In the following guest post, Sarah Abrams, Director, Management Liability Claims at Markel, examines the recent rise in D&O litigation involving executive compensation. I would like to thank Sarah for allowing me to publish her article 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.
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