micah skidmore
Micah Skidmore

As I discussed in a recent post, on July 20, 2015, the Seventh Circuit issued its opinion in the Neiman Marcus consumer data breach class action lawsuit. In its opinion (a copy of which can be found here), the appellate court ruled that the district court erred in concluding that the plaintiffs’ fear of future harm from the breach was insufficient to establish standing to pursue their claims. The court held that the impending injuries alleged were sufficient to support Article III standing.

 

In the following guest post, Micah Skidmore of the Haynes and Boone law firm takes a closer look at the decision and discusses some important insurance coverage issues that the court’s ruling about future injuries may present.

 

I would like to thank Micah for his willingness to publish his article on my 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 Micah’s guest post.

 

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The recent Neiman Marcus decision from the Seventh Circuit has lowered the bar for plaintiffs suing in the wake of a data breach.  In addition to actual injury, future “impending” injuries substantiated by an “objective,” “substantial risk of harm” and actual costs incurred to prevent or mitigate “imminent” harm are sufficient to support Article III standing.  While the Neiman Marcus decision may provide some clarity regarding standards of pleading and liability (at least for plaintiffs), for those defendants reliant on network security/privacy liability insurance to protect against data breach claims, the opinion prompts an urgent question: does my policy cover liability for future injuries and preventive measures? Continue Reading Guest Post: Coverage for Future Injuries: Is Your Cyber Policy Up To The Neiman Marcus Challenge?

cyberspaceMany observers, including even this blog, have speculated whether the rising wave of data breaches and cyber security attacks will result in litigation against the directors and officers of the affected companies. Indeed, in 2014, there were two sets of lawsuits filed against the boards of companies that had experienced high-profile data breaches, Target Corp. (refer here) and Wyndham Worldwide (refer here). But the Wyndham lawsuit was dismissed in late 2014, and since that time there really have been no additional significant cyber security related D&O lawsuits filed, even though there have been a number of high profile data breaches in interim (including, for example, Home Depot, Anthem and Sony Entertainment). However, as discussed below, there have been  a couple of recent developments suggesting that the plaintiffs’ lawyers are working along the edges of this issue, and, at a minimum, looking for ways to develop D&O claims out of data breach incidents. Continue Reading When Data Hacks Lead to D&O Lawsuits, Actual and Threatened

doleA frequent theme these days in the world of corporate and securities litigation is the complaint about merger objection litigation – how virtually every deal announced attracts at least one lawsuit, and how all too often the cases are resolved on the basis of a disclosure-only settlement and the payment of the plaintiffs’ attorneys’ fees, an arrangement that produce no benefit for anyone except the lawyers. However, a recent Delaware Chancery court post-trial opinion provides a sharp reminder that some merger transactions can include some real problems. Continue Reading A Closer Look at the Massive $148 Million Damages Award Against Dole’ s CEO and General Counsel

gunsofaLast August, in conjunction with the centennial of the start of World War I, I re-read Barbara Tuchman’s classic account of the war’s first days, The Guns of August. Tuchman is a great writer and she tells the story of the war’s first weeks well. One thing she captures particularly well is the way that poor military planning based on fatally flawed assumptions brought on catastrophes that affected all of the combatants.

 

Unfortunately, Tuchman’s book has some flaws and some critical omissions. Tuchman is a great story-teller, but all too often her desire to tell the story interferes with her account. There are too many sentences like this one, relating to Belgium’s war minister: “Baron de Broqueville, Premier and concurrently War Minister, entered the room as the work concluded, a tall, dark gentleman of elegant grooming whose resolute air was enhanced by an energetic black mustache and expressive black eyes.” Maybe it is just me, but when a war looms, the minister’s grooming, moustache and eyes are hardly relevant. Even if his mustache was — as improbable as it seems – “energetic.”

 

And whether or not you like the way she tells the tale, the problem is that her rendition is hollow at its core. Although Tuchman dutifully recites Bismarck’s famous quip that “some damn foolish thing in the Balkans”  will start the next war,  and although she dutifully if tersely recounts how the assassinations of the heir presumptive to the Austro-Hungarian throne, Franz Ferdinand, and his wife, Sophie, triggered the war, she does not explain why the events in the Balkans threatened war so portentously, as Bismarck predicted, or even why the assassination of an Austrian Archduke would provoke a war that drew all of the major powers into what became at the time the most destructive war that the world had ever seen. Indeed, though she does a great job detailing the flaws of the various combatants’ war plans, she does little to explain why they were preparing for war in the first place and why all of the major powers viewed war as inevitable.

 

So, after finishing Tuchman’s book, I set out on what has proven to be a year of reading to try to gain a better understanding of what happened and why. Continue Reading The Great War: A Book List

paperstackRepresentations and warranties insurance has been around for years, but it is becoming an increasingly important part of M&A transactions, according to an August 24, 2015 Law 360 article (here). According to the article, more buyers are “embracing representations and warranties insurance” in order to “stand out in crowded auctions,” particularly where the seller is a private equity firm. The insurance product is “increasingly deemed a prerequisite toward sealing middle-market deals.” Continue Reading Reps and Warranties Insurance: Increasingly Indispensable Part of M&A Deals

third circuit blueOn August 24, 2015, in a ruling that was much-anticipated because of its potential implications for the regulatory liability exposures of companies that have been hit with data breaches, the Third Circuit affirmed the authority of the Federal Trade Commission to pursue an enforcement action against Wyndham Worldwide Corp. and related entities alleging that the company and its affiliates had failed to make reasonable efforts to protect consumers’ private information. This ruling confirms that, in addition to the disruption and reputational harm that may follow in the wake of a successful cybersecurity, companies may also face a regulatory action from the FTC as well, as discussed further below. The Third Circuit’s opinion can be found here. The August 24, 2015 statement of the FTC’s Chair about the Third Circuit’s opinion can be found here. Continue Reading Third Circuit: FTC May Pursue Data Breach Enforcement Action against Wyndham Worldwide

short termIn recent months, commentators from across the political spectrum, largely in response to perceived excesses of activist investors, have called for changes to discourage “short-termism” – that is, the perceived excessive focus of businesses on short-term results rather long-term value creation. Voices ranging all the way from Democratic Presidential candidate Hillary Clinton (about which refer here) to Republican SEC Commissioner Daniel Gallagher (refer here) have voiced their concerns about what they characterize as the inappropriately short term focus that they suggest is driving American business decision-making. This topic raises a number of issues of importance for a variety of different constituencies, including, as discussed below, those of us in the D&O insurance industry. Continue Reading The Short-Termism Debate: Are There D&O Liability Issues Involved, Too?

ninth circuitThe problems that can arise from the wording of the professional services exclusion in the D&O insurance policy of a service company are perennial issues and a recurring topic on this blog (see most recently here). In an unpublished August 18, 2015 opinion (here), the Ninth Circuit affirmed the district court’s conclusion that coverage for a claim under a payroll services firm’s management liability insurance policy was precluded by the policy’s professional services exclusion. While the preclusion of coverage under the professional services exclusion in services firms’  D&O policies often can be questionable, this instance seems like a situation where the exclusion was applicable. As discussed below, however, there are still some important lessons from this case. Continue Reading Ninth Circuit: Professional Services Exclusion Precludes Coverage Under Payroll Services Firm’s Management Liability Insurance Policy

ncOn August 18, 2015, in an interesting opinion that takes a close look at exculpatory bylaw issues and the business judgment rule under North Carolina law, the Fourth Circuit affirmed in part and reversed in part the district court’s dismissal of the failed bank lawsuit the FDIC had filed against former directors and officers of Cooperative Bank of Wilmington, N.C. The appellate court affirmed the dismissal of all of the claims against the director defendants but reversed the lower court’s ruling as to the negligence and breach of fiduciary duty claims against the officer defendants. Continue Reading Fourth Circuit Affirms Dismissal of All Claims Against Failed Bank’s Directors, Revives Negligence Claims Against Bank’s Officers

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Renzo Comolli
Jorge Baez NERA photo
Jorge Baez

In its June 2014 opinion in Erica P. John Fund, Inc. v. Halliburton Co., the United States Supreme Court held that in connection with a motion for class certification in a securities class action lawsuit, a defendant should have the opportunity to try to rebut the presumption of reliance by showing that the alleged misrepresentation did not impact the defendant company’s share price. The case itself was remanded to the district court for further proceedings in light of the Supreme Court’s ruling. On July 25, 2015, the District Court issued its ruling on the motion for class certification based on the principles the Supreme Court enunciated. A copy of the District Court ruling can be found here.

 

In the following guest post, Renzo Comolli and Jorge Baez of NERA Economic Consulting take a look at the district court’s ruling on the class certification motion. Renzo and Jorge are both Senior Consultants for NERA.

 

I would like to thank Renzo and Jorge for their willingness to allow me to publish their article as a guest post here. I welcome guest post submissions from responsible authors on topics of interest to readers of this blog. Please contact me directly if you would like to submit a guest post. Here is Renzo and Jorge’s guest post.

 

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On 25 July 2015, the United States District Court for the Northern District of Texas issued the much-anticipated ruling on class certification in Erica P. John Fund, Inc. v. Halliburton Co. The economic analysis of price impact was front and center in the Court’s ruling.

This ruling follows the Supreme Court’s decision on price impact that is widely known as Halliburton II. Although this ruling involves facts that are unique to Halliburton’s particular disclosures, attorneys may look at it as a roadmap for guiding economic analysis of price impact in future cases in the post-Halliburton II world. Continue Reading Guest Post: Update on Economic Analysis of Price Impact in Securities Class Actions Post-Halliburton II