One of the more interesting recent developments in the world of corporate and securities litigation has been the litigation reform bylaw movement. Among the types of bylaws with which various companies have experimented are the forum selection bylaws (now permitted by statute in Delaware) and fee-shifting bylaws (now prohibited in Delaware for stock corporations, as discussed here). Yet another type of litigation reform bylaw that has attracted attention is the minimum stake to sue bylaw, which requires shareholder claimants to show that the represent a specified interest of the company’s ownership interest in order to be able to pursue a class or derivative claim. Continue Reading Lawsuit Challenging Minimum Stake to Sue Bylaw Dismissed
The “Myth” of Outside Director Liability and the Critical Importance of D&O Insurance
In the world of corporate governance, there are a number of common presumptions about board structure and practices. However, according to a recent paper, many of these presumptions may in fact represent corporate governance “myths.” In their September 30, 2015 paper entitled “Seven Myths of Boards of Directors” (here) Stanford Business School Professor David Larcker and Resercher Brian Tayan examine several “commonly accepted beliefs about boards of directors that are not substantiated by empirical evidence.” Continue Reading The “Myth” of Outside Director Liability and the Critical Importance of D&O Insurance
Money Laundering Allegations and Follow-On Securities Litigation
In the wake of the 9/11 terrorist attacks, Congress enacted or expanded a number of laws regarding the global financial system in order to combat money laundering and promote national security. As I have noted in prior post (most recently here), regulatory enforcement activity under these laws represents a potentially significant new area of potential D&O exposure. In addition, as a recently filed securities class action lawsuit shows, alleged violations of these financial controls not only can lead to regulatory action by federal regulators but may also lead to private civil litigation. Continue Reading Money Laundering Allegations and Follow-On Securities Litigation
SEC Enforcement Actions Against Outside Directors
From time to time, the SEC reiterates its view of the critical gatekeeper role companies’ outside directors play in safeguarding investors’ interests. Nevertheless, it has been relatively rare for SEC to pursue enforcement actions against outside directors based on an alleged failure to fulfill that role. But while these actions are rare, the agency does periodically bring enforcement actions against directors whom the agency contends shirked their duties. Continue Reading SEC Enforcement Actions Against Outside Directors
Game Over?: Del. Chancery Court Rejects Disclosure-Only Settlement in H-P/Aruba Networks Merger Objection Lawsuit
Stating his belief that the merger objection litigation dynamic represents a “systemic” problem that has resulted in a “misshapen legal system,” Delaware Chancery Court Vice Chancellor Travis Laster rejected the proposed disclosure-only settlement of litigation that had been filed objecting to Hewlett-Packard’s $2.7 billion acquisition of Aruba Networks. In an October 9, 2015 settlement hearing in the case, Laster cited the “inadequacy of the representation” of plaintiffs’ counsel for the shareholder class as the basis for his rejection of the settlement, as well as for the outright dismissal of the case. Liz Hoffman’s October 10, 2015 Wall Street Journal article about Laster’s ruling can be found here. Continue Reading Game Over?: Del. Chancery Court Rejects Disclosure-Only Settlement in H-P/Aruba Networks Merger Objection Lawsuit
A Guide to Directors’ Duties and Liabilities in Europe
One of the vestiges of the global financial crisis is that company directors and officers now face more scrutiny than ever. This scrutiny, in turn, has led to a greater liability exposure for corporate officials, as well. This increased scrutiny and amplified liability exposure applies not only in the U.S., but in other countries, including, in particular, in Europe, according to a recent report. The report, issued earlier this week by the European Confederation of Directors’ Associations (ecoDa) in conjunction with AIG and entitled “Guide to Directors’ Duties and Liabilities” (here) examines the risks facing directors of European countries and highlights the specific risks in a number of countries. As the report details, the nature of directors’ duties and liabilities and the manner in which they are enforced can be affected by the differences in legal environments and board structures across Europe. The report also discusses the role of D&O insurance in helping to address these risks. The October 5, 2015 press release from ecoDa about the report’s publication can be found here. Continue Reading A Guide to Directors’ Duties and Liabilities in Europe
Guest Post: Access to Internal Investigation Records by Shareholders
In many instances when allegations of wrongdoing surface at a company, the appropriate course for the company’s board will be to appoint an independent committee to investigate the allegations. The investigation can be conducted in a way to preserve confidential information and privileges. However, recent case law developments underscore the fact that in some instances the company’s shareholders may have access to the records of the investigation even when all steps are taken to preserve confidentiality and privileges. In the following guest post, Mary Gill and Courtney Quirós of the Alston & Bird law firm take a look at the recent case law developments and consider the implications of these recent cases. Mary is a partner and Courtney is an associate in the Securities Litigation Group at the firm. This article was prepared for a panel at the 23rd Annual Securities Litigation and Regulatory Practice Seminar, to be held in Atlanta on October 23, 2015.
I would like to thank Mary and Courtney for their willingness to publish their 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 Mary and Courtney’s guest post.
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I. Introduction
In the current environment, it is not uncommon for a company, its executives, or directors to be presented with allegations of wrongdoing. Whether the issues are raised by a concerned or disgruntled employee, the Securities Exchange Commission, or the Department of Justice, the company should be prepared to promptly determine the nature and severity of the potential problem. Generally, the appropriate course in these situations is for the board of directors of the company to appoint an independent committee to oversee an internal investigation into the allegations. Through an internal investigation, the company can determine the factual nature and scope of the alleged misconduct and analyze the legal implications of the situation, which will allow the company’s board of directors to take appropriate remedial action if necessary. The investigation should be conducted in such a way to achieve maximum credibility, integrity, and accuracy, while at the same time preserving all applicable privileges and legal defenses for the company to the greatest extent possible. A recent Delaware Supreme Court decision serves as a reminder that even where companies and their counsel take care to protect the confidentiality of an internal investigation, there is no guarantee against shareholders’ access to these records. Continue Reading Guest Post: Access to Internal Investigation Records by Shareholders
Defense Costs Paid Under Reservation of Rights Do Not Erode Fiduciary Liability Policy’s Limit of Liability?
As part of our beat here at the The D&O Diary, we read a lot of judicial opinions. We are quite accustomed to the fact that the case outcomes can be and often are all over the map. Just the same, every now and then we read a decision that really makes us scratch our heads. That was our reaction when we read Southern District of Mississippi Chief Judge Louis Guirola, Jr.’s October 2, 2015 opinion in the Singing River Health Systems case (here), in which Judge Guirola, applying Mississippi law, held that when a fiduciary liability insurer defends its insured under a reservation of rights, the defense expense payments do not erode the policy’s limits of liability. A number of questions and concerns may fairly be raised about this decision, as discussed below. The Traub Lieberman Insurance Law Blog has an October 5, 2015 post about Judge Guirola’s decision, here. Continue Reading Defense Costs Paid Under Reservation of Rights Do Not Erode Fiduciary Liability Policy’s Limit of Liability?
Guest Post: Supreme Court Declines To Consider Second Circuit’s Landmark Insider Trading Ruling
The U.S. government’s petition for writ of certiorari in the case of United States v. Newman had been very closely watched. The government hoped to have the Supreme Court set aside the Second Circuit’s 2014 decision in the case (here), which had overturned the convictions of two hedge fund managers accused of insider trading. In an unexpected development, on the first day of the Supreme Court’s 2015-16 term, the Court declined take up the case.
The following guest post from the Paul Weiss law firm takes a look at this development and analyzes the implications. I would like to that the authors for their willingness to publish their article on this blog. 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 Paul Weiss firm’s guest post.
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Yesterday, the United States Supreme Court declined to hear the petition for a writ of certiorari (the “Petition”) filed by the United States Department of Justice (“DOJ”) in United States v. Newman, 773 F.3d 438 (2d Cir. 2014), a landmark decision that dismissed indictments against two insider trading defendants. By declining to hear the Petition, the Supreme Court ensured that the Second Circuit’s decision in Newman will remain binding in the Second Circuit and influential across the country.
As we explain below, two of Newman’s holdings are particularly important: first, that the government must prove that a remote tippee knew or should have known of the personal benefit received by a tipper in exchange for disclosing nonpublic information; and second, that the benefits alleged by the government in United States v. Newman were not sufficient to support a conviction, as they were not sufficiently “consequential.” Continue Reading Guest Post: Supreme Court Declines To Consider Second Circuit’s Landmark Insider Trading Ruling
Tesco Securities Suit: Applicability of U.S. Securities Laws to Unlisted ADRs?
It has been over five years since the U.S. Supreme Court’s June 2010 decision in Morrison v. National Australia Bank restricted the ability of shareholders of non-U.S. companies who purchased their shares outside the U.S. to file securities fraud lawsuit in U.S. courts under the U.S. securities laws. During that five year period, the lower courts have sorted out many of the issues the Morrison decision raises. But one issue continues to percolate – that is, the question of Morrison’s effect on securities suits brought in U.S. court under U.S. law against non-U.S. companies by investors who purchased the companies’ unlisted ADRs over- the-counter in the U.S. The investor lawsuits filed in U.S. court just in the last few days by holders of unlisted Volkswagen ADRs raise this very issue.
The action filed in Southern District of New York in October 2014 by holders of unlisted ADRs of Tesco raise these same issues as well. The parties’ briefing in connection with the defendants’ motion to dismiss in the Tesco case present a detailed examination of the issues involved in the question of the applicability of Morrison to transactions in unlisted ADRs, as discussed below. Continue Reading Tesco Securities Suit: Applicability of U.S. Securities Laws to Unlisted ADRs?