The plaintiffs alleged that when a real estate investment trust (REIT) disclosed that a financially troubled key tenant was making “partial monthly rent payments” — but omitted to mention that the tenant’s rent payments had been funded by an undisclosed loan from the REIT, not from the tenant’s own revenues — the REIT committed securities fraud. The district court dismissed the plaintiffs’ complaint, concluding that the plaintiffs had failed to plead a strong inference that the REIT had acted with the requisite scienter. However, in an interesting August 3, 2020 opinion (here), the Second Circuit reversed the district court, concluding that the plaintiffs’ allegations were sufficient to satisfy the scienter pleading requirements. The opinion includes an interesting analysis of the scienter pleading requirements in an omission case alleging recklessness. Continue Reading Second Circuit Reverses District Court, Concludes Plaintiffs Adequately Pled Scienter

Acting in light of what the proposal calls the “exponential growth” in litigation financing, and taking its first action in the area since 2012, the American Bar Association’s House of Delegates has approved a proposal for the third-party litigation funding “best practices.” The proposal, which stays away from some of the higher-profile litigation funding issues (such as whether or not litigation funding should be disclosed), is built around principles of transparency and client control.

 

On August 3, 2020, the American Bar Association House of Delegates, meeting virtually due to the pandemic, voted 366-10 to approve the proposed “Best Practices for Third-Party Litigation Funding,” a copy of which can be found here. The Best Practices proposal updates the House of Delegate’s 2012 informational white paper on litigation funding. The ABA’s August 3, 2020 press release describing the House of Delegate’s approval of the litigation funding best practices proposal, as well as a number of other actions taken the same day by the House of Delegates, can be found here. The House of Delegates consists of 597 representatives of state, local, and specialty bar associations. Continue Reading ABA Adopts Third-Party Litigation Funding “Best Practices” Proposal

As the coronavirus outbreak in the U.S. approaches the beginning of its sixth month, Congress continues to debate whether and to what extent the federal government should provide further economic support, relief, and stimulus. The House of Representatives and the Senate recently have proposed two very different coronavirus relief packages and efforts to reconcile the policy differences reflected in the two different approaches have to date not been successful. But while it remains to be seen what if anything ultimately may emerge, among the critical aspects of the proposed packages worth considering are the liability shield provisions in the proposed Senate package. The Senate liability shield bill, if enacted, could significantly diminish the potential liabilities of businesses and other organizations for the transmission of the COVID-19 disease in their facilities. These liability restrictions could have significant implications for these organizations’ liability insurers as well. And, as discussed below, the adoption of the kinds of liability restrictions that the Senate has proposed could have implications – at least indirectly —  for the organizations’ D&O insurers, too. Continue Reading Potential Impact of Proposed Coronavirus Liability Shield

When insurer Lemonade recently completed its IPO, it did so as a “public benefit corporation” – that is, a corporation chartered to allow it to have a public benefit purpose, in addition to the traditional profit maximization model. Lemonade’s IPO has raised the question whether other companies will follow this model, including in particular whether other IPO companies will complete their listings as a public benefit corporations. The possibility that other companies may adopt the public benefit corporation model raises a number of questions, including in particular questions concerning the duties and potential liabilities of public benefit corporation directors, as discussed below. Continue Reading Will More Companies Adopt the Benefit Corporation Model?

Since I first started tallying the coronavirus-related securities class action lawsuits back in March, a recurring issue has emerged – it has become increasingly difficult to keep a firm handle on what makes a case “coronavirus-related.” Even in just the short time I have been tracking the cases, there have already been a number of close calls, as I have previously discussed, for example, here. A couple of new lawsuits filed this week present further challenges. As discussed below, I have concluded that both of the two new lawsuits count as coronavirus-related, but their inclusion on my list will probably cause my tally to diverge from other similar tallies even further than is already the case now. Continue Reading Coronavirus-Related Securities Suits: Do These Two New Cases Count?

In a study that analyzes both federal and state securities suit filings during the first half of 2020  (unlike other prior first half reports that analyzed only federal court filings), Cornerstone Research reports that combined state and federal suits in the year’s first six months were down 18% compared to the second half of 2019 and at the lowest level since 2016.  The report, which was published in conjunction with the Stanford Law School Securities Class Action Clearinghouse, is entitled “Securities Class Action Filings: 2020 Midyear Assessment,” can be found here. Cornerstone Research’s July 29, 2020 press release about the report can be found here. Continue Reading Cornerstone Research: Federal and State Securities Suit Filings Down in Year’s First Half

Makoto Ikeya

In the following guest post, Makoto Ikeya, Managing Director, Alpha Financial Experts K. K., analyzes trends in Japanese and Delaware court decisions in appraisal litigation and presents a common recent trend in both jurisdictions to place heavy weight on merger price while highlighting differences on how to assess the fair procedure and other conditions to adopt the merger price as a base for the fair price. A version of this article previously was published on the Alpha Financial Experts’ website. I would like to thank Makoto for allowing me to publish his article as a guest post 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 Makoto’s article. Continue Reading Guest Post: Appraisal Litigation in Japanese and Delaware Courts – Trends of Decisions on the Fair Price

Among the looming economic consequences of the pandemic is the likelihood of a huge surge in bankruptcy filings. A rise in bankruptcies will in turn likely lead to an increase in the number of bankruptcy-related litigation claims against directors and officers of the bankrupt companies, which in turn could lead to insurance coverage issues under the companies’ D&O insurance policies. In the following guest post, Alicia Garcia and Kate Hausmann, Complex Claim Specialists with Hiscox USA, and James Talbert and Elan Kandel of the Bailey Cavalieri law firm take a look at the issues that could arise in the bankruptcy context with respect to the policies’ Insured vs. Insured Exclusion. I would like to thank the authors for allowing me 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 the authors’ article. Continue Reading Guest Post: The Impending Bankruptcy Surge and Insured vs. Insured Exclusion Considerations

Securities class action lawsuit filings in the first half of 2020 were more than 15% below the number of filings in the first half of each of the last three years, according to a new report from NERA Economic Consulting. The report, entitled “Recent Trends in Securities Class Action Litigation: 2020 H1 Update” (here), projects a year-end total number of filings below the last three years’ totals, but still well above the totals for the years prior to 2017. NERA’s July 17, 2020 press release, which contains a detailed summary of the findings illustrated in the report, can be found here.  My analysis of the first half filings can be found here.

 

According to the report, there were 175 federal court securities class action lawsuit filings in the first half of 2020. (The numbers in the report do not reflect securities class action lawsuits filed in state court.) The first half filings project to a year-end total of 350 federal court securities suits, which would represent a 16.5% decrease compared to the 421 federal court suits that NERA reports were filed in 2019. Though the 2020 first half filings project to a year-end total that would be below the annual total in each year during the period 2017-2019, a total of 350 securities suit filings would be above the annual total in any year prior to 2017 (other than 2001, when the filing figures were inflated by the IPO laddering cases).

 

Of the first half 2020 filings, 70 were merger objection lawsuits, with the remainder consisting of standard cases under Rule10b-5, Section 11, and/or Section 12, and other types of securities class actions. While there were fewer of all types of cases in the first half of 2020, the mix of cases is “consistent with the mix observed in 2019, with fewer merger objections filed than standard cases.”

 

The mix of companies hit with non-merger objection lawsuits reflects a shift in the industries targeted in 2020 compared to recent years. The industrial sector that saw the most securities litigation activity in the first half of 2020 was the Electronic Technology and Technology Services Sector, which accounted for 23% of new filings. If this concentration were to continue for the remainder of the year, 2020 would be the first year during the period 2016-2020 in which Health Technology and Services sector was not the most frequently targeted sector.

 

According to the report, 11 of the first half 2020 securities suit filings were COVID-19 related securities suit filings. (My own tally of COVID-19 related securities suits filings during the year’s first half was 15; for a discussion of the difference in the counting, please see the discussion in my recent post about the coronavirus outbreak and D&O insurance and liability issues, here.) The report notes that about half of the COVID-19 related securities suit filings involved defendants in the Health Technology and Services and in the Electronic Technology and Technology Services sectors.

 

The aggregate NERA defined investor losses in cases alleging violations of Rule 10b-5, Section 11 and/or Section 12 for the first six months of 2020 was $244 million, an amount that projects to a year-end total of $488 million, slightly below the $498 year-end total in 2019.

 

The mix of case resolutions in the first half of 2020 reflects a higher proportion of dismissals and a lower proportion of settlements compared to the most recent years. There were 36 case settlements in the first six months of 2020, which projects to a year-end total of 72, which would represent a new record low annual number of settlements for the 2011-2020 period. There were 135 dismissals in the year’s first half, which annualizes to a year-end total of 270 case dismissals, which would be the highest number of any year during the period 2011-2020. The aggregate number of dismissals and settlements for the year’s first half projects to a year-end total of 342 total case resolutions, which would be slightly above the 312 case resolutions in 2019 but in line with the 338 case resolutions in 2017 and 339 case resolutions in 2018.

 

The average settlement amount of all securities suit settlements in the first half of 2020 (excluding merger objection suit settlements and zero dollar settlements) was $65 million, well above the 2019 average settlement amount in 2019 of $28 million. However, the average settlement amounts across a measurement period can be distorted by very large settlements; when the same data are reviewed but with settlements over $1 billion excluded, the average settlement amount for the first six months of 2020 is only $37 million, compared to a comparably derived average settlement amount in 2019 of $28 million. An annual average settlement of $37 million would represent the highest average settlement amount since 2016.

 

The median securities suit settlement amount (excluding merger objection suits, settlements over $1 billion, and zero dollar settlements) for the first six months of 2020 was $13.4 million, compared to $12 million in 2019. A year end median of $13.4 million would be the highest annual median settlement amount since 2016.

As part of a continuing series, I have been participating in sessions that the Professional Liability Underwriting Society (PLUS) has organized addressing the potential D&O liability and insurance issues arising out of the COVID-19 outbreak. I have been joined in these recorded sessions by my good friends Carl Metzger of the Goodwin Procter law firm and Rob Yellen of Willis Towers Watson. Because so much has happened since our last session, we recorded an updated session last week, the fourth in the series. The latest session is short (less than 30 minutes), informal, and conversational. In the recording, we discuss what we are currently seeing in the D&O insurance marketplace and what we are telling our clients about it, and also project ahead for what might may see as a result of the pandemic’s lengthening duration and continued spread. The recording can be found in a July 23, 2020 post on the PLUS Blog, here.