In an unpublished October 5, 2015 opinion (here), the Eleventh Circuit, applying Florida law, held that a D&O insurance policy’s contractual liability exclusion precluded coverage for negligence claims asserted against persons insured under the policy. The contract exclusion was written with a broad “based upon, arising out of” preamble wording. As discussed below, the decision highlights concerns about the use of the broad preamble in D&O insurance policies’ contractual liability exclusion. An October 28, 2015 post on the Wiley Rein law firm’s Executive Summary Blog about the Eleventh Circuit’s ruling can be found here. Continue Reading D&O Insurance: Contractual Liability Exclusion Applied to Preclude Coverage for Negligence Claim
The Next Step in Litigation Financing?
In recent years, litigation financing has become an increasingly important –albeit controversial – part of the litigation landscape. The ongoing evolution of litigation financing now appears to have taken a significant next step, in the form of a formal, public partnership between the litigation funding firm and a plaintiffs’ law firm. On October 28, 2015, the litigation funding firm Burford Capital and the plaintiffs’ competition law firm Hausfield issued a joint press release (here) in which the two firms announced their entry into a €30 million agreement to fund claims in Germany and to allow the law firm to open a Berlin office. Continue Reading The Next Step in Litigation Financing?
SEC Adopts Final Crowdfunding Rules
On October 30, 2015, by a 3-1 vote, the SEC adopted final rules to permitting small companies to raise funds by selling shares to the investing public through crowdfunding offerings conducted on Internet fundraising portals. In this long-awaited vote, which represented the last remaining significant rulemaking procedure required by the Jumpstart our Business Startups (JOBS) Act of 2012, the agency finally authorized, in slightly modified form, the rules it had first proposed in October 2013. The agency’s October 30, 2015 press release announcing its action and describing the final rules can be found here. The 686-page adopting release can be found here. Continue Reading SEC Adopts Final Crowdfunding Rules
Class Action Litigation, Professor Coffee, and Judge Rakoff
One of the legal issues that attracts continuous vigorous debate is the question of whether or not class actions in general, and securities class actions in particular, produce a social benefit sufficient to justify their sometimes enormous costs. This question receives an interesting and readable analysis in an article in the November 19, 2015 issue of The New York Review of Books entitled “The Cure for Corporate Wrongdoing: Class Actions vs. Individual Prosecutions” (here) in which Southern District of New York Judge Jed Rakoff reviews Columbia Law Professor John Coffee’s new book, Entrepreneurial Litigation: Its Rise, Fall, and Future (here). While Judge Rakoff provides his (quite positive) assessment of Professor Coffee’s book, he also delivers his own analysis of the issues Professor Coffee raises, as well as of the prescriptions Professor Coffee proposes for the class action defects he has identified, as discussed below. Continue Reading Class Action Litigation, Professor Coffee, and Judge Rakoff
Uptick in Securities Suits Against U.S.-Listed Chinese Companies
Long-time readers of this blog will recall that in 2011, there was a rash of U.S. securities class action lawsuits filed against U.S.-listed Chinese companies. Many of these companies had obtained their U.S.-listings by way of a reverse merger with a U.S.-listed public shell. The 39 securities suits filed in 2011 against U.S.-listed Chinese companies represented 18% of all securities class action lawsuits filed in the U.S. that year. While the number of lawsuit filed against Chinese reverse-merger companies has abated since the peak in 2011, U.S. securities lawsuits continue to be filed against Chinese companies at a significant rate. Continue Reading Uptick in Securities Suits Against U.S.-Listed Chinese Companies
New York Court Pans Merger Objection Lawsuit Disclosure-Only Settlement
Delaware’s courts have recently made it clear that the days where they would routinely approve disclosure-only settlements in merger objection lawsuits may be over (as discussed here). It now appears that other states also are no longer willing to approve these kinds of settlements. In a blistering October 23, 2015 opinion (here), New York (New York County) Supreme Court Judge Charles E. Ramos refused to approve the disclosure-only settlement proposed in the Allied Healthcare merger objection lawsuit, saying that courts’ willingness to approve these kinds of settlements “reflects poorly on the profession and on those courts that, from time to time, have approved these settlements.” Continue Reading New York Court Pans Merger Objection Lawsuit Disclosure-Only Settlement
New SEC Enforcement Action Database from NYU and Cornerstone Research
On October 27, 2015, Cornerstone Research in conjunction with the New York University Pollock Center for Law & Business and the Leonard N. Stern School of Business to launch the Securities Enforcement Database (SEED). As described in the organizations’ joint October 27, 2015 press release (here), the database will track record and information relating to SEC enforcement actions filed against public companies. The SEED database, which can be found here, will facilitate the analysis of and reporting of SEC enforcement actions through regular updates of new filings and settlement information relating to ongoing enforcement action. Continue Reading New SEC Enforcement Action Database from NYU and Cornerstone Research
Ninth Circuit: Embezzler Executive’s Knowledge Can Be Imputed to Company in Innocent Third Party-Filed Securities Suit
For purposes of determining the scienter of a corporate entity defendant under the federal securities laws, a company’s executives’ knowledge generally is imputed to company. There is an exception to these general principles – the “adverse interest exception” – which provides that an executive’s knowledge will not be imputed to the company if the executive acted for his or her own purposes and contrary to the interests of the company. There is also an exception to the exception, which provides further that a rogue executive’s knowledge will nevertheless be imputed to the company when an innocent third-party has relied on the executive’s representations made with apparent authority.
In an October 23, 2015 opinion (here), the Ninth Circuit applied these principles to reverse the district court’s dismissal of the ChinaCast Education Corp. securities class action lawsuit, holding that the knowledge of the company’s CEO, who had embezzled funds and mislead investors through omissions and false statements, could be imputed to the company for purposes of innocent third-party investors’ claims. Continue Reading Ninth Circuit: Embezzler Executive’s Knowledge Can Be Imputed to Company in Innocent Third Party-Filed Securities Suit
SEC Files Record Number of Independent Enforcement Actions in Fiscal 2015
According to the agency’s recently released enforcement activity statics, the SEC’s overall enforcement activity and the number of independent enforcement actions both increased in the fiscal year 2015 (which just ended on September 30) compared to prior years. More specifically, during fiscal 2015, the agency filed a record number of independent actions for violations of the federal securities laws. The agency’s enforcement statistics reflect a significant increase in the number of financial reporting and audit cases. The agency’s October 22, 2015 press release presenting its 2015 fiscal year enforcement statistics can be found here. Continue Reading SEC Files Record Number of Independent Enforcement Actions in Fiscal 2015
D&O Insurance: Two Federal Appellate Courts Issue Rulings Confirming Carriers’ Coverage Denials
When I started out as a law firm associate doing D&O insurance coverage work more than three decades ago, there was virtually no interpretive case law available. Legal research in connection with D&O insurance tended to be a meagre, frustrating process. Things have changed so much in the interim that now we can have two appellate decisions from two different federal circuit courts on D&O insurance issues in just a single day. On October 21, 2015, both the Second and Fifth Circuits issued D&O insurance coverage rulings, in both cases finding that the there was no coverage under the D&O insurance policies involved for the matters in dispute.
The Second Circuit’s October 21, 2015 summary order in Nomura Holding America, Inc. v. Federal Insurance Company can be found here. The Fifth Circuit’s October 21, 2015 opinion in Martin Resource Management Corporation v. Axis Insurance Company can be found here. I discuss the two appellate decisions below. Continue Reading D&O Insurance: Two Federal Appellate Courts Issue Rulings Confirming Carriers’ Coverage Denials