One of the fundamental principles on which our system of securities regulation is based is the importance of disclosure. The system is built on the notion that companies must disclose certain basic information about their operations and performance so that investors can make informed investment decisions. While the disclosures required are a matter of regulation and statute, investors’ and regulators’ expectations about what must be disclosed changes over time. Signs are that disclosure expectations  — and as a result disclosure practices — are changing rapidly in two particular areas: cybersecurity and climate change. Continue Reading Now Trending: Cybersecurity and Climate Change Disclosure Practices

In the latest decision in which class action consumer data breach claimants have been successful in establishing the requisite standing to pursue their claims, on August 1, 2017, the D.C. Circuit held that the claimants’ risk of future harm is sufficient to meet Article III standing requirements. This decision is the latest in a growing number of federal circuit decisions finding that data breach claimants have satisfied standing requirements, but it also deepens a circuit split that could mean eventual U.S. Supreme Court review of the issue. The D.C. Circuit’s August 1 opinion in the Attias v. Care First case can be found here.   Continue Reading Deepening Circuit Split on Data Breach Suit Standing

Much has been written about the explosive growth in merger objection litigation in recent years. A less common but increasingly frequent type of merger-related litigation is appraisal rights litigation. In these types of lawsuits an investor exercises his or her statutory right for a judicial determination of the value of his or her stock. These kinds of cases present their own sets of issues and challenges.

 

Among the recurring issues is the question of whether or not the costs a company incurs in an appraisal proceeding are covered under a D&O insurance policy; traditionally, D&O carriers have argued that appraisal proceedings are not covered under their policies because the request for an appraisal proceeding does not involve an alleged “Wrongful Act.” However, an August 2, 2017 memo by Peter Gillon and Benjamin Tievsky of the Pillsbury law firm  (here) argues that in many cases this coverage analysis is inaccurate and that in fact there should be coverage under the D&O policy for the expenses incurred in an appraisal proceeding. Continue Reading D&O Insurance and Delaware Appraisal Rights Proceedings

Just days after a Southern District of New York judge ruled in the Medidata Solutions decision that the Computer Fraud section of a commercial crime policy covered losses from social engineering fraud  (as I discussed in a post last week), a judge in the Eastern District of Michigan has held that a crime policy’s computer fraud section did not apply to social engineering fraud. Eastern District of Michigan Judge John Corbett O’Meara concluded, based on the specific policy language at issue, that the computer fraud coverage only applied when the fraud directly caused the loss, and that because there had been intervening steps between the computer fraud and the transfer of funds, the coverage did not apply. As discussed below, these recent decisions underscored the problems facing policyholders as they seek insurance coverage for social engineering fraud losses. Judge O’Meara’s August 1, 2017 opinion can be found here. Continue Reading More about Crime Coverage and Social Engineering Fraud

Those of us immersed in the world of directors and officers could not imagine becoming involved in any sort of business organization without the protection and benefit of D&O insurance. Just the same, I have fairly regular conversations with officials and executives at closely held companies who see no need for the insurance, on their belief that without outside investors, their company faces no risk of incurring a D&O claim. However, long experience tells me that D&O insurance should be a part of every organization’s insurance program, regardless of its ownership. Continue Reading The Importance of D&O Insurance for Private Companies

If a “fast filer” plaintiff races to the courthouse in one jurisdiction to file a derivative suit without prior due diligence, should a dismissal of the  lawsuit for failure to plead demand futility preclude a separate derivative lawsuit brought be a different , more diligent plaintiff who files in a second forum? On the one hand, considerations of judicial efficiency and conservation of public resources argues in favor of precluding the second claim. On the other hand, policies in favor of greater pre-suit care prior to filing a lawsuit would militate in allowing the more diligent plaintiff’s claim to go forward.

 

In an interesting July 25, 2017 opinion (here) in which he reviewed these questions of the prior derivate suit dismissal’s claim preclusive effects on subsequent non-party claimant derivative claims, Chancellor Andre Bouchard concluded, in a break with the Court’s prior practices, the prior derivative suit dismissal on grounds of failure to plead demand futility does not preclude the claims of a subsequent claimant. This new approach to the issue of non-party preclusion in derivative litigation has important practical implications, as discussed below. Continue Reading Delaware Chancery Court Ruling Could Allow a Second Chance on Demand Futility Rulings

Securities class action lawsuits were filed at a record pace in the first half of 2017, according to the latest report from Cornerstone Research. While the surge in securities suit filings is due in part to the rise of federal court merger objection lawsuit filings, both traditional securities suit filings and M&A filings were “at historic levels.” The Report, jointly prepared by Cornerstone Research in conjunction with the Stanford Securities Class Action Clearinghouse and entitled “Securities Class Action Filings – 2017 Mid-Year Assessment,” can be found here. Cornerstone Research’s July 25, 2017 press release about the report can be found here. My own analysis of the first half securities suit filings can be found here. Continue Reading Cornerstone Research: First Half Securities Suit Filings at Record Pace

One of the more vexing threats in the current business environment is the rise of “social engineering fraud” or “payment instruction fraud.” In these schemes scammers using official-seeming email communications induce company employees to transfer company funds to the imposters’ account. Among the many issues involved when these kinds of scams occur is the question of insurance coverage for the loss. In many instances, insurers take the position that because the schemes do not involve a “hacking” of the company’s systems and because the actual funds transfers are voluntary, the loss of funds is not covered under commercial crime policies.

 

However, in a July 21, 2017 decision (here), Southern District of New York Judge Andrew L. Carter, Jr., applying New York law, held that Mediadata Solutions Inc.’s commercial crime policy covered the company’s loss of $4.77 million transferred in response to an email instruction that falsely appeared to be from the company’s President. The court’s decision raises and addressed a number of interesting issues, as discussed below. Continue Reading District Court Holds Crime Policy Covers Payment Instruction Fraud

The highest-profile attempt to utilize the new U.K. regime for consumer class actions has come to a grinding halt. The case involved a claim alleging that MasterCard’s fee structure had resulted in overcharges to tens of millions of U.K. consumers. On July 21, 2017, the Competition Appeal Tribunal, newly re-organized to oversee the consumer class action regime, declined to grant the necessary collective proceedings order that would have allowed the action to go forward. The tribunal’s ruling is highly fact-specific and its decision to decline the collective proceedings order very much reflects the specific features of the claims against MasterCard, but the ruling nevertheless does raise concerns about the viability of the class action regime and its attractiveness to prospective claimants in other cases. A copy of the Tribunal’s July 21, 2017 order can be found here. Continue Reading U.K. Court Halts Effort to Use New Opt-Out Class Action Procedures

The right of shareholders to demand inspection of companies’ books and records is of course nothing new. What is new is the increased frequency of books and records demands, often as a result of courts’ requirement for prospective shareholder claimants to investigate alleged misconduct of corporate executives before filing a lawsuit. The scope of the books and records requests is also expanding as well. These developments raise a number of D&O insurance coverage issues, which in turn has led to the rise of a variety of policy wording alternatives, as discussed in a recent paper. Continue Reading D&O Insurance: Securing Coverage for Books and Records Requests