californiaThe federal False Claims Act imposes liability on those who defraud the government. The law also allows third-parties to bring so-called qui tam actions in the form liability claims under the Act; if the qui tam actions are successful, the third-party can receive a portion of the recovery. When a third-party files a qui tam action, the Act requires that the complaint remain under seal for at least sixty days and that it “not be served on the defendant until the court so orders,” so that the government can decide whether it wants to intervene and pursue the action. Even if the government declines to intervene, “the person who initiated the action shall have the right to conduct the action.”

 

The practical effect of these procedural requirements is that there is sometime a protracted lag between the date the qui tam action complaint is filed and the date it is served. These procedural aspects of the qui tam action process fit awkwardly with the standard management liability insurance policy provisions. Indeed, the coverage questions these kinds of cases present are recurring issues.

 

As discussed in a recent decision from the Northern District of California, the qui tam action process can raise basic questions about whether and when the qui tam action is a “claim” within the meaning of the policy, and, if it is a claim, when the claim is “first made.” In an April 3, 2015 decision, Judge Jon S. Tigar held that a qui tam action complaint that had been filed but not yet served represented a “claim” but had not yet been “first made,” and therefore that the defendant company’s management liability insurer’s duty to advance defense expenses had not yet been triggered.  NOTE: The link to the opinion  has been removed. The court’s docket state’s that the opinion is currently under seal and not available to the general public.

 

Background                       

In February 2012, the Department of Justice issued subpoenas to Braden Partners, LP, doing business as Pacific Pulmonary Services, requesting documentation related to Braden’s sales practices and claims for payment from federally funded healthcare programs. In August 2013, Branden obtained a redacted copy of a qui tam complaint that had been filed against it. The complaint alleged violations of the federal and California False Claims Act. The underlying complaint remains under seal and the court has not yet entered an order authorizing service of the complaint on Braden.

 

At the times Braden obtained the various subpoenas and later when it obtained the redacted complaint, Braden submitted them to its management liability insurer, which had issued a general partners’ liability policy to Braden for the policy period August 15, 2011 to June 1, 2012. The insurer denied that it had an obligation to advance Braden’s costs of responding to the subpoenas and in connection with the redacted complaint on a number of grounds, including its contention that the neither the subpoenas nor the unserved redacted complaint represented “claims” and that in any event the claim if any has not yet been “first made.”

 

In April 2014, Braden filed an action alleging that the insurer had breached the policy by refusing to advance the defense costs for the subpoenas and the underlying complaint. In an earlier ruling, Judge Tigar granted the insurer’s motion with respect to the subpoena-related costs. The insurer moved for judgment on the pleading with respect to Branden’s claims related to the underlying complaint.

 

The Relevant Policy Provisions

The policy at issue provided that the insurer “will pay on behalf of the Partnership all Loss which the Partnership shall become legally obligated to pay as a result of a Claim first made against the Partnership and reported to the Insurer during the Policy Period.”

 

The policy defines a “Claim” as:

 

(a) A judicial or other proceeding against a General Partner for a Wrongful Act in which such General Partners could be subject to a binding adjudication or liability for compensatory monetary damages or other civil relief, including an appeal therefrom, or (b) a written demand against a General Partner for compensatory money damages or other civil relief on account of a Wrongful Act.

 

Section (IV)(G) of the policy provide further that a “Claim shall be deemed to have been first made against a General Partner on the date a summons or similar document is first served upon such General Partner.”

 

The policy’s notice of claim provision provides, among other things, that

 

If during the Policy Period the General Partners or the Partnership become aware of a specific Wrongful Act that may reasonably be expected to give rise to a Claim against any General Partner… then any Claim subsequently arising from such Wrongful Act duly reported in accordance with this paragraph shall be deemed under this Policy to be a Claim made during the Policy Period.

 

The April 3 Decision 

In his April 3, 2015 Order, Judge Tigar granted the insurer’s motion for judgment on the pleadings, holding that while the underlying complaint is a “Claim” within the meaning of the policy, because it has not yet been served on Braden the claim has not yet been “first made,” and accordingly the insurer has no duty to advance defense expenses.

 

In ruling that the underlying complaint is a “Claim,” Judge Tigar rejected the insurer’s argument that because the complaint had not yet been served, it is merely a “threatened claim” and that Braden may never face liability. Judge Tigar said that “the Policy’s plain language merely requires the possibility of liability by adjudication, rather than absolute certainty.” He noted also that the policy “only references ‘service’ with regard to when a ‘Claim’ is deemed to have been ‘first made’ – not to determine whether the definition of ‘Claim’ is met.”

 

With respect to the “first made” question, Judge Tigar said that the policy’s provisions “unambiguously require service of summons or similar document to trigger coverage of a claim,” adding that “The Policy explicitly requires either service of summons or a similar document for a Claim under subpart (a) of the Policy definition to be deemed ‘first made’” Because the underlying complaint remains sealed and unserved, the “Claim” has not been “first made.”

 

Finally, Judge Tigar rejected Braden’s argument that the notice provision alters the requirement of a service of a summons for a claim to be “first made.” Judge Tigar said that “nothing in the language of the notice provision indicates that it functions to nullify, contradict or serve as an exception to the requirement that a ‘Claim’ be ‘first made’ by service of summons in order to qualify for coverage.”

 

Judge Tigar dismissed Braden’s complaint wihtout prejudice, noting that Braden may refile its complaint if necessary after service of the complaint in the underlying suit.

 

Discussion

As a noted in an earlier post discussing a coverage dispute involving a False Claims Act case, the qui tam case procedures are an uncomfortable fit with the typical management liability policy provision. The fact that a qui tam complaint can be filed but remain sealed and unserved for an extended period of time can be a particular problem, as the lag can extend across several policy periods – during which, as here, the company that is the target of the complaint is incurring legal expenses.

 

A particular problem here could be that even if Braden is eventually served with the qui tam complaint, the claim will be “first made” at the time of service. The policy under which Braden is seeking coverage had a 2011-2012 policy period. On its face, it might look like the claim was not “first made” during the policy period of the claims made policy. That is point where the “deemer” language in the policy’s notice provision would become relevant. Under the notice provision, when the complaint is finally served, it will be deemed to have been first made at the time of Braden’s initial notice, which did take place during the policy period. Judge Tigar’s opinion states that “the parties do not dispute that the requirements of the notice provision were met,” so it would seem that by that point, the insurer’s advancement obligations would finally be triggered.

 

Unlike the insurer in the coverage dispute discussed in the prior blog post to which I linked above, the insurer here would not be able to argue that coverage for the claim would be precluded by the prior and pending litigation exclusion, because the qui tam action had not been “filed or commenced on or before … the effective date of this policy.” The Braden qui tam action was “filed or commenced” after the policy period commenced. But while Braden might not have to fight over the prior and pending litigation exclusion, it could have other battles; Judge Tigar’s opinion recites that when Braden first submitted the redacted complaint to the insurer, the insurer denied coverage “based on several policy exclusions.” The policy exclusions on which the carrier was relying are not identified in the opinion.

 

Even if the policyholder here were able to overcome all of the hurdles and the insurer were to agree to advance defense expenses, the policyholder likely will still be stuck with all of the defense expenses that have and that will have accrued before the complaint was served. In more recent management liability policies, the definition of claim expressly references the service of a subpoena as a claim under a policy; in a policy with this more contemporary wording, an insured might be able to advance to an earlier time the point at which the carrier will start picking up the defense expenses.

 

Based on the case decisions that have come across my desk dealing with the issue, it looks as if the carriers are pretty invested in fighting coverage for qui tam actions. At one level, I understand this – as I noted at the outset, the qui tam action procedures are an awkward fit with many of the basic management liability insurance policy provisions. But it is not as if the carriers are coming right out and saying — as I think they should if they really don’t intend to cover these kinds of claims — “this policy provides no coverage from Loss arising from claims alleging violations of the federal False Claims Act or its state equivalents.” If the carriers are not taking the position that qui tam actions are simply not covered, then I think the industry needs to do a better job addressing the recurring issues qui tam actions present – particularly since we are basically talking about defense cost coverage here. There may need to be a specific policy provision addressing qui tam claims — for example, specifying modified definitions of the terms “Claims” and “first made” for purposes of claims alleging violations of the federal False Claims Act or state equivalents, and also making sure that prior and pending litigation issues are addressed as well.

 

Of course, it could be that the carriers feel that their policies simply do not cover False Claims Act claims, but if that is their position they should say so in an express policy exclusion, rather than depend on a thicket of miscellaneous policy provisions to deny coverage.

 

About the Judge — and His Father: Northern District of California Judge Jon S. Tiger has been a U.S. District Court Judge since January 2013. Before that, he was a state court judge in California. He is the son of the prominent criminal defense attorney,  Michael Tigar. When I was a very young attorney, I had the opportunity to meet Michael Tigar and to see him in action in the courtroom. The experience has stayed with me, because Michael Tigar was teriffic.

 

There is an interesting story about Michael Tigar. In 1966, after his graduation from U. Cal Berkeley law school, he had been hired to work as a law clerk for Justice William Brennan of the United States Supreme Court. However, after only a week, Brennan fired him  following complaints made by conservative columnists and FBI director J. Edgar Hoover, because of Tigar’s activist background as an undergraduate and law student at Berkeley. Despite this early setback, Tigar went on to have a very successful legal career (including a stint as a partner at Williams & Connolly). He eventually become a law professor at the University of Texas law school, among other things. The elder Tigar’s criminal defense clients included Angela Davis, Lynne Stewart, Terry Nichols, and John Demjanjuk.

 

In a March 12, 1990 New Yorker article about Justice Brennan entitled “The Constitutionalist” (here), the article’s author, Nat Hentoff, recounts asking Brennan about what happened with Tigar’s clerkship. The article quotes Brennan as saying about Tigar and the clerkship that “That was a very sad occasion for both of us at the time. Mike and I have remained good friends. He’s a great guy, a wonderful lawyer. What actually happened was a deluge. The right wing deliberately set up a program—a system of pressure—that involved Abe Fortas, who was on the Court then; J. Edgar Hoover; and, more particularly, Hoover’s right-hand man, Clyde Tolson. They bombarded me with all kinds of letters—all having to do with Mike’s participation in the Helsinki youth meeting. Probably, if I had just continued to face it down, the investigation would never have happened. But they had twenty-eight or more congressmen protesting Mike’s appointment. Clyde Tolson came over to see Fortas, and Fortas came in to see me to tell me that if I went through with this there might well be an inquiry, which would be most embarrassing to Tigar and to me—and to the Court.”

 

The interview recounted in the article continues as follows, with Brennan speaking first and Hentoff asking  responding questions and commenting:  

“I must say I’ve had a number of second thoughts,” he said. “I suppose I should have treated it as something that would go away, but I didn’t. I was very much concerned that—in the atmosphere of those days—if we got into this kind of thing it certainly would not have done the Court any good. That’s what I said in the discussion I had with Mike at the time. A clerkship simply could not have that much significance—if it was going to hurt the institution.”

“Did Tigar understand that?”

“Oh, Mike understood it perfectly.” Brennan paused. “That’s the only instance of anything like that I’ve had in all my years here.”

All that Professor Tigar will say is “I have enormous respect for Justice Brennan.”

 

 

stock pricesIt has been three years since Congress passed the JOBS Act in the hope that aiding “Emerging Growth Companies” would help create jobs. Among other things, the Act’s IPO on-ramp provisions were designed to encourage fledgling companies to go public, on the theory that that would boost employment. As discussed below, the legislation’s jobs creation track record is generally positive but also a little vague. There is no doubt, however, that the IPO market has been active since the Act was passed. Most of the companies that have gone public during that time have taken advantage of the Act’s IPO provisions, as detailed in a recent study also discussed below. But while there were more U.S. IPOs in 2014 at any time since the dot com era, IPO activity so far in 2015 is well off last year’s pace.

 

The JOBS Act’s IPO on-ramp provisions were designed to help emerging growth companies – firms with less than $1 billion in annual sales — to go public. The Act permits these companies to submit their initial filings to the SEC confidentially and to have expanded discussions with investors before the SEC has approved their offering documents. In addition, the eligible companies are relived from certain accounting and disclosure standards.

 

 

The purpose of these measures was to encourage job creation, and there appears to be some reason to think the Act has helped to spur employment. An April 3, 2015 Wall Street Journal article (here) reports that that “tens of thousands of related jobs have been created” by the Act, but “it’s a challenge to say just how many owe their existence to the bill.” The Journal says that the U.S. companies that completed offerings under the JOBS Act provisions added about 82,000 jobs since they completed their offerings, an increase of roughly 30% from their pre-IPO head counts.

 

However, attributing all of this job growth to the JOBS Act is a little questionable, since many of the companies would have gone public even if the JOBS Act had not been enacted. In addition, the impact if any has been concentrated in a few companies — more than 40% of the positions were created by just ten JOBS Act companies. The Journal article notes that “Economists say it is still too early to tell whether the law will lead to large-scale U.S. employment gains.”

 

While the Act’s impact on job creation may be uncertain, there is no doubt the Act’s IPO provisions have proven to be popular. The Journal reports that of the nearly 660 companies that have gone public since the Act became law, 539 companies (about 82%) have completed their IPOs under the JOBS Act’s provisions. Of those 539 companies, 454 were U.S. companies and 85 were domiciled outside the U.S.

 

It is certainly clear that the number of IPOs since the JOBS Act was enacted has jumped to the highest level in years. According to Renaissance Capital (here), 275 companies completed IPOs in 2014, compared to 222 in 2013 and just 128 in 2012 (the year the Act became law). The increased numbers of completed offerings are clearly due to the recovering economy and the healthy state of the equity markets. But even if the JOBS Act is not the direct cause of the increased IPO activity, its provisions are helping to facilitate the activity.

 

An interesting March 17, 2015 report from the Proskauer Law firm entitled “2015 IPO Report” (here) takes a very detailed look at last year’s IPOs, by focusing on the 119 U.S.-listed IPOs completed in 2014 with a deal size of $50 million or greater. The 144-page report analyzes these larger IPOs based on a number of criteria, including whether or not the offering priced in the target range; how many comments the SEC has about the companies’ offering documents; how much the companies incurred in fees and expenses; and how the companies fared post-offering.

 

The report also examines the extent to which the IPO companies took advantage of the JOBS Act provisions in connection with their offering. The report notes that of the 119 IPOs analyzed, 77% were emerging growth companies. 60% of the firms that qualified as emerging growth companies took advantage of the JOBS Act provision allowing them to submit only two years of audited financials and 52% took advantage of the JOBS Act provision allowing them to submit only two years of selected financial data. (Firms that do not qualify as emerging growth companies are required to include three years of audited financials and five years of selected financial information.)

 

The JOBS Act provision that the emerging growth companies really like is the Act’s provision allowing them to submit their draft registration statement on a confidential basis. Of the IPOs the law firm analyzed that involved emerging growth companies, fully 96% elected to submit their draft registration statement confidentially. The report also notes that on average, the emerging growth companies that submitted their draft registration statement confidentially made their first pubic filing 76 days after their first confidential submission and their offering priced 49 days after the public filings.

 

Interestingly, the report notes that a greater percentage of emerging growth companies priced above range than companies that did not qualify as emerging growth companies, and also that the emerging growth companies generally outperformed non-emerging growth companies.

 

Though 2014 was the most active year for IPOs since the go-go days of the dot com era, there are early signs that may suggest that the robust level IPO activity is waning, as noted in an April 3, 2014 Wall Street Journal MoneyBeat article entitled “Companies Saying ‘No’ to IPO” (here).

 

According to Renaissance Capital (here), through April 3, 2015, only 35 IPOs have priced year-to-date, a decline of 51% from this same point last year. The 34 offerings completed in the first quarter of this year is the lowest quarterly total since the fourth quarter of 2012, when there were 29 offerings completed. The decline in total offering proceeds for the year-to-date IPOs is even steeper. The 35 offerings completed through April 3, 2015 have raised a total of only $5.5 billion, compared to $12.6 billion raised as of the same date last year, a decline of 56%. The number of filings during the first quarter of the year was also off; the 49 filings in 1Q15 were the lowest quarterly number of filings since the first quarter of 2013 (when there were 36).

 

The Proskauer report suggests a possible reason for these declines. The report notes that there were important differences between the IPOs completed in the first half of 2014 compared to those completed in the second half. 45 percent of the second-half deals priced below range, compared to 25 percent of first-half deals. Second-half deals also generally underperformed first-half deals in the aftermarket. Either the quality of the deals declined during the year or investors lost their appetite for IPOs. Either way, the market for IPOs became tougher as 2014 progressed and we may be seeing the effects in the form of reduced IPO activity so far in 2015.

 

It is far too early to call the end of the current IPO wave. There is still a long way to go this year, and during the current wave the pace of IPO activity has ebbed and flowed a little bit. Even with the lower level of IPO activity in this year’s first quarter, the IPO pricings are on pace for 136 IPOs by year end, which would still be a higher number of IPOs than were completed in 2012. Renaissance Capital’s analysis of the current IPO market remains upbeat; in their 1Q15 IPO analysis (here), the firm said that “the solid performance of recent IPOs combined with a large active pipeline should support a more active second quarter.” But in light of the reduced number of IPO filings in the year’s first quarter, it does seem probable that there will be fewer IPOs completed this year than were completed in either 2013 or 2014.

 

As I have noted previously on this blog, increased IPO activity means increased IPO-related litigation. The year-to-date securities class action litigation filings bear this out, as eight of the 46 securities class action lawsuit filings so far this year (about 17%) have involved companies that completed IPOs in either 2013 or 2014. Given the usual lag between the IPO dates and lawsuit filings dates, we will probably continue to see significant numbers of IPO-related securities suit filings for some time. (There were, after all, 497 IPOs in 2013 and 2014.) But if the current slump in IPO pricings and filings continues, a decline in IPO-related litigation could follow.

del1One of the more distinct litigation phenomena in recent years has been the rise of multi-jurisdiction litigation, particularly in connection with merger objection litigation. Corporate advocates and defense attorneys have decried this development, as it has forced companies facing litigation to have to fight a multi-front war and to incur increased defense expense. At its worst, multi-jurisdiction litigation can also hazard the possibility of inconsistent rulings in different jurisdiction. The usual focus of any discussion of the problems of multi-jurisdiction litigation has been on the challenges it creates for the corporate defendants. However, as recent developments in the derivative litigation involving Wal-Mart stores and the scandal surrounding its Mexican operations shows, multi-jurisdiction litigation is not just a problem for defendants – it can also be a serious problem for competing sets of plaintiffs’ lawyers as well.

 

The Wal-Mart litigation relates to allegations of improper payments and of an alleged cover up relating to supposed improper payments the company’s Mexican operation paid to ensure approval or building permit for the company’s stores in Mexico. The allegations first came to light in an April 12, 2012 New York Times article entitled “Wal-Mart Hushed Up a Vast Mexican Bribery Case” (here). Following the publication of the Times article, various shareholders launched lawsuits against the company and its directors and officers. For example, plaintiff shareholders filed a series of securities class action lawsuits against the company and certain of its directors and officers that were consolidated in the Western District of Arkansas.

 

Plaintiff shareholders also filed derivative lawsuits based on the Mexican operations bribery scandal. All told, plaintiffs filed seven derivative suits in the Western District of Arkansas, where Wal-Mart’s corporate headquarters are located. The various Arkansas derivative actions ultimately were consolidated into a single proceeding. In addition, a separate plaintiff filed a books and records proceeding in Delaware, in light of that state’s courts’ well-known preference for prospective claimants to first review the corporate records before filing derivative lawsuits in Delaware’s courts. (Wal-Mart is organized under the laws of Delaware.)

 

Wal-Mart moved to stay the Arkansas action while the Delaware books and records proceedings went forward. While the Arkansas judge agreed to stay the cases in her court, in December 2013, the Eighth Circuit ruled that the Arkansas cases should proceed.

 

The Arkansas case then went forward, and on March 31, 2015, Western District of Arkansas Judge Susan O. Hickey, applying Delaware law, granted the defendants’ motion to dismiss, based on her determination that the plaintiffs had failed to made the requisite demand on the Wal-Mart board that the corporation should pursue the litigation and further had failed to establish demand futility. Among other things, Judge Hickey said that “Plaintiffs have failed to plead with particularity that [a majority of the] Director Defendants face a substantial likelihood of personal liability so that their ability to consider a demand impartiality would be compromised.”

 

A copy of Judge Hickey’s March 31 opinion can be found here. The FCPA Professor blog has a detailed review of the issues addressed in Judge Hickey’s ruling in an interesting April 2, 2015 post, here. The Arkansas plaintiffs’ lawyers have indicated they intend to appeal Judge Hickey’s ruling to the Eighth Circuit.

 

Judge Hickey’s ruling in the Arkansas litigation is obviously welcome news for Wal-Mart and for the individual defendants. It is very bad news for the claimants in the Delaware proceeding and their counsel. The claimants involved in the Delaware proceedings have been fighting actively for three years to try to obtain all of the documents sought in the books and records action. Now it seems likely that the Delaware claimants will be barred from pursuing their claims before they have even had a chance to file a complaint.

 

With the benefit of Judge Hickey’s ruling in hand, Wal-Mart and the other defendants will likely have the means to move to dismiss any lawsuit the Delaware claimants might seek to file. The defendants will likely be able to argue that under the principles of collateral estoppel, any action filed in Delaware courts would be precluded by the Arkansas ruling. In making these arguments, the defendants would be substantially aided by the Delaware Supreme Court’s 2013 ruling in the Allergan litigation, in which the Court held that an earlier dismissal by a California court was preclusive of an action in Delaware courts by a different set of plaintiffs, as discussed in detail here. (The likelihood that Wal-Mart would raise the arguments is significantly enhanced by the fact that its counsel representing Wal-Mart in the Delaware books and records proceedings is the same attorney that represented Allergan.)

 

As you might predict, the plaintiff’s counsel in the Delaware proceeding is unhappy about this turn of events. Indeed, it is fair to say that the lead Delaware plaintiffs’ lawyer, Stuart Grant of the Grant & Eisenhofer, is livid, as very colorfully described in Alison’s Frankel’s excellent April 1, 2015 post on her On the Case blog (here).

 

I should emphasize here that while Frankel’s post contains numerous quotes from Grant in which he is critical of the Arkansas plaintiffs’ counsel, her post also contains extensive statements from the lead Arkansas plaintiffs’ counsel defending their actions, refuting Grant’s remarks, and emphasizing the Arkansas plaintiffs’ intent to appeal Judge Hickey’s ruling. In the interests of balance and fairness, I encourage readers to read Frankel’s post in full, and in particular to read the statements of the Arkansas plaintiffs’ lawyer there.

 

Frankel’s post, entitled “War Looms Between Plaintiffs’ Firms After Suit vs. Walmart Board is Tossed” includes statements attributed to Grant to the effect that he is considering filing a malpractice action against the Arkansas plaintiffs’ counsel. “If I were them,” Frankel quotes Grant as saying, “I’d be letting my malpractice carriers know.” (Whether a shareholder could derivatively pursue a malpractice claim is one of those theoretical questions that we may or may not ever get to see tested. The Arkansas plaintiffs’ counsel dismisses Grant’s remarks about a malpractice action as a “temper tantrum.”)

 

In her blog post, Frankel also quotes Grant as saying that while he has not yet filed a complaint owing to the battle he has been fighting with Walmart over the documents, because of the material he has collected, his complaint would have been “much stronger” than the one filed in the dismissed Arkansas suit. In fact, he argues, his complaint, which he apparently still intends to file, will show why the Arkansas plaintiffs’ lawyers “ill-served shareholders by moving forward with a case before conducting a books and records investigation.” He adds further, with reference to the Arkansas dismissal, that “This is a perfect example of what happens when you have a small shareholder running to a foreign jurisdiction filing a derivative suit without investigation,” adding that “I don’t believe this is the way Delaware wants things to be.”

 

If I may paraphrase Grant’s remarks in my own terms, I would say that what this case is a “perfect example” of is how multi-jurisdiction litigation can turn out to be a problem for everybody, depending on how things play out. Where this situation got off track was when the Eighth Circuit lifted the stay in the Arkansas proceeding. After the appellate court lifted the stay, there were two sets of proceedings going forward, which is always fraught and often produces problems for somebody. Just the same, as the earlier Allergan case demonstrates, this is not the first time proceedings in another jurisdiction have superseded proceedings in Delaware.

 

It may be that these kind of competing proceedings will become less frequent as more companies adopt exclusive forum bylaws, designating a specific court (usually in Delaware) to consider intracorporate litigation. If as Grant suggests that the sequence of events is “not the way Delaware wants things to be,” forum selection (or exclusive forum) bylaws could help avert these kinds of situations. In any event, this case underscores how the curse of multi-jurisdiction litigation potentially can be a problem for everyone, not just the defendants – although, to be sure, in this case, Wal-Mart probably at this point does not have a problem with the way things turned out, at least so far.

 

It is worth noting that the various derivative lawsuits filed against Wal-Mart and arising out of its Mexican operations represent a trend I discussed in a recent post; that it, the number of corporate and securities lawsuits arising out of anticorruption investigations in Latin America. It could also be argued that the Arkansas derivative suit dismissal illustrates another trend I have noted on this blog, which is that often the follow-on civil actions filed in the wake of antibribery investigations and disclosures do not always fare all that well and many do not survive motions to dismiss. However, in fairness, it probably should be noted that in the parallel securities class action litigation arising out of the Wal-Mart operations regarding its Mexican operations, Judge Hickey denied the defendants’ motion to dismiss, as discussed here.

 

Olympus Securities Fraud Claims in Japan Settled for $92 Million: Readers interested in developments in securities litigation outside the U.S. will want to note that the scandal-plagued Olympus Corporation has agreed to a $92 million settlement with institutional investors that had asserted claims against the company in following the companies disclosures of accounting improprieties, as discussed in an April 2, 2015 article on Law 360 (here, subscription required). The claims reportedly were resolved using alternative dispute resolution processes that had been advanced by a litigation funder, DRRT. The article contains relatively little detail about the processes employed, the claimants involved, or how the settlement was brought about, but clearly it is a significant development with respect to the assertion of securities fraud claims in Japan, and perhaps even elsewhere.

 

For reference, DRRT does say on its website with respect to the Olympus litigation that: “A case against Olympus was filed in the Toyko District Court, Japan, on behalf of 50 institutional investors with over $240 million in damages on June 28, 2012. A second case was filed on June 25, 2013 adding over 40 institutions with more than $160 million in claims.”

 

Background regarding the Olympus scandal can be found here. In addition to the claims in Japan, certain shareholders had also filed a securities class action lawsuit in connection with the scandal, as discussed here. However, only a very small fraction of the shares of Olympus traded in the U.S. and, according to reports, the U.S. action settled for a payment of $2.6 million.

prAccording to the FDIC’s website (here), as of March 24, 2015, 44 of the 106 failed bank lawsuits the agency has filed have settled. So there is nothing particularly newsworthy about the fact that the parties to another one of the failed bank lawsuit had reached a settlement. Just the same, however, the recent news that one of the failed bank cases had been settled caught my attention, both because of the higher-profile history of the case and because of the unusually detailed features of the settlement disclosed in the settlement documents.

 

The recent settlement relates to the lawsuit that the FDIC had filed as receiver for the failed Puerto Rican Bank, Westernbank. Regulators closed Westernbank on April 30, 2010, which, according to the FDIC, cost the insurance fund $4.25 billion. In October 2011, certain of the former Westernbank directors and officers sued the bank’s primary D&O insurer in state court in Puerto Rico, seeking a judicial declaration that the insurer must defend that against claims the FDIC had asserted against them  (about which refer here). The FDIC, as receiver for Westernbank, moved to intervene in the state court action, and on December 30, 2011, removed the state court action to the District of Puerto Rico. On January 20, 2012, the FDIC filed its amended complaint in intervention, in which it named as defendants certain additional directors and officers, and, in reliance on Puerto Rico’s direct action statute, the various D&O insurers in the bank’s D&O insurance program. A copy of the FDIC’s amended complaint can be found here.

 

One of the reasons that this case had a higher profile (in addition to the magnitude of the losses to the FDIC insurance fund) is that there were a series of coverage rulings in the case addressing the question of whether or not coverage under the D&O insurance policies was precluded by the policies’ insured vs. insured exclusion.

 

As discussed here, on October 12, 2012, Judge Gustavo Gelpi  ruled that the insured vs. insured exclusion did not preclude coverage for the FDIC’s liability action against the former directors and officers, in part because at least in this case the FDIC not only sought to enforce the rights of the failed bank to which it succeeded as the failed bank’s receiver, but also because the FDIC also sought to enforce the rights of “depositors, account holders, and a depleted insurance fund.” As discussed here, on March 31, 2014, the First Circuit affirmed Judge Gelpi’s ruling that the insurers were obligated to advance the directors and officers defense expenses.

 

The insurers subsequently renewed their motion in the district court for summary judgment on the insured vs. insured exclusion issue, while one of the directors moved for summary judgment on the issue of whether or not the FDIC’s claims against the directors and officers involved alleged wrongful acts that were interrelated with wrongful acts that had been alleged against the directors and officers in an earlier lawsuit. The earlier suits (the “Prior Suits”) were filed in 2007 and 2008 and triggered the bank’s 2006-2007 D&O insurance program. Payments in settlement of the Prior Suits substantially diminished the 2006-2007 insurance program.

 

As discussed here, on July 9, 2014, Judge Gelpi, applying Puerto Rico law, held that the FDIC’s claims against the former directors and officers of the failed Westernbank did not involve the “facts alleged” against the directors and officers in an earlier lawsuit, and therefore were not deemed made at the time of the earlier lawsuit. Because he found the FDIC’s claims to be unrelated, the claims were covered by the policy in effect at the time the FDIC filed the claims rather than the prior policy that had been substantially eroded by the earlier claim. However, in an unusual twist, Judge Gelpi did conclude that one part of the FDIC’s claim was related to the earlier lawsuit and therefore that that portion (and that portion alone) was deemed made at the time of the earlier suit. The upshot of the ruling is that both the earlier and the subsequent insurance programs were in play.

 

The parties to the case now apparently have reached an agreement to settle both the liability and the insurance coverage portions of the lawsuit. As discussed in a March 31, 2015 Law 360 article (here, subscription required), Judge Gelpi has signed off on the parties’ $34 million settlement of the case. The settlement is detailed in the parties Settlement and Release Agreement (here). According to the agreement, the insurers are contributing $33 million toward the settlement, and “some of the D&O defendants have contributed $1 million toward the settlement.” The agreement does not specify which individuals were contributing toward the settlement or in what amount.

 

The settlement agreement includes a detailed description of the two insurance programs that were at play in connection with this lawsuit as a result of Judge Gelpi’s July 2014 ruling. The 2006-2007 program has total limits of $50 million, arranged in a primary layer of $20 million and three excess layers of $10 million each. The settlement agreement does not say how much of $50 million 2006-2007 program had been eroded by the earlier claim. The 2009-2010 program (the one in force at the time the failed bank claim was launched) also has total limits of $50 million, arranged in a five layers of $10 million each. The lineup of carriers changed slightly between the two programs, though the same carrier is in the primary position on both programs; that same carrier also had 10 x 30 layer on the 2009-2010 program.

 

For those interested in a “inside baseball” look into how a case like this gets settled, the settlement agreement also details how much each of the carriers involved are contributing toward the $33 million insurance portion of the $34 million settlement.

 

All of the carriers involved in the two programs contributed at least something toward the settlement amount. The carrier that is primary on both programs and that also has an excess position on the 2009-2010 program is contributing the largest amount toward the settlement ($16.33 million). The two lower level excess carriers that are on both programs are each contributing $6.33 million, and the two carriers that are in the top level excess position on the two programs are each contributing $2 million.

 

The failed bank litigation wave is now nearly five years old, as the first of the FDIC’s failed bank lawsuit following the financial crisis was filed in July 2010. As noted at the top of the post, more than a third of the lawsuits have already settled, and more of them will be settling in the months ahead. I suspect that Judge Gelpi’s various rulings in this case provided a motivation for the carriers to try to settle this case (as in, the carriers had had just about as much of this fun as they could stand). But, just the same, if a contentious, complicated case like this one can settle, many of the other cases can be settled as well.

 

As the cases are gradually worked out, the failed bank litigation wave will slowly wind down. To be sure, the FDIC is still filing lawsuits. It has already filed two more failed bank suits in 2015, after filing nineteen in 2014. With new lawsuits still accumulating, it will be a while yet before the litigation has finally wound down. But because the pace of new lawsuits has definitely slowed and because many of the other cases are moving toward settlement, we definitely seem to have moved into the wind down phase of failed bank litigation phenomenon.

scrutiny2Federal banking regulators have stepped up their interactions with and scrutiny of bank directors, according a recent Wall Street Journal article. The March 31, 2015 article, entitled “Regulators Intensify Scrutiny of Bank Boards” (here) details the ways in which regulators are “zeroing in on Wall Street boardrooms as part of the government’s intensified scrutiny of the banking system.” However, as the article also makes clear, the increased pressure is not limited just to the largest banks; smaller banks are also facing scrutiny. The level and intensity of the regulatory scrutiny, and of the regulators’ efforts to impose what amounts to performance standards, has raised concerns that the regulatory activity could encourage new director liability claims.

 

According to the article, the stepped up regulatory scrutiny is the result of concerns that that banking problems that contributed to the global financial crisis were due in part to the fact that banks’ boards did not understand the risks their firms were taking or did not exercise appropriate oversight. In the immediate aftermath of the financial crisis, regulators first focused on ensuring the banks had robust financial cushions. According to the article, in the last two years regulators have turned their attention to corporate governance and the role of directors to “ensure banks have the right culture and controls to prevent excessive risk taking.”

 

The practical result is that bank directors “have begun facing a new level of scrutiny.” The regulators are now focused on “whether directors are adequately challenging management and monitoring risks in the banking system.”

 

The article makes clear that the steps regulators are taking as part of this increased scrutiny are nothing short of extraordinary. It is clear from the article that that the specific steps regulators are taking varies from institution. But the range of actions regulators are taking is quite broad and arguably even intrusive in some cases.

 

Among other thing, according to the article, regulators are holding regular meetings with banks’ independent directors; “singling out boards in internal regulatory critiques of bank operations and oversight”; attending and sitting in on board meetings; meeting with board committee members; and even, in one case detailed in the article, dictating the makeup of the board by requiring the expansion of the board by the inclusion of additional independent board members.

 

In addition, regulators are reviewing information directors receive from bank management; asking about succession planning; and inquiring about how directors gauge the potential downsides of certain transactions.

 

Although the banking institutions mentioned by name — such as Goldman Sachs, Bank of America, J.P Morgan, and GE Capital – are among the world’s largest financial institutions, the article also emphasizes that “directors at smaller banks are also being pressed, including on how much they understand and the kinds of loans banks are making and the associated risks.”

 

It is little wonder then that, as stated by the Comptroller of the Currency Thomas Curry in the article, that “We have the independent directors’ attention.”

 

The heightened regulatory scrutiny has triggered alarm bells. According to one independent board member quoted in the article, the threat of being held accountable for failing to properly supervise management is “creating a ton of tension” for directors. Some regulatory moves have raised concerns that the banking supervisors are pushing directors to “take on managerial duties beyond their traditional roles as overseers.”

 

These concerns about the pressure on directors and the expansion of the directors’ roles have in turn raised concerns that the “new, material obligations” being placed on boards “could give rise to new director liability claims.” These fears about potential future director liability claims are reinforced by the wave of lawsuits the FDIC brought against the former directors and officers of failed banks in the wake of the financial crisis.

 

These concerns about potential personal liability have in turn raised concerns about whether banks might have trouble recruiting and retaining qualified directors. The Journal article quotes one commentator as saying that there are many qualified individuals who “simply … won’t serves as directors … because of fear” of personal liability. The article also quotes a federal regulator as conceding that regulators are sometimes guilty of placing too may requirements on boards.

 

Discussion

The suggestion that increased regulatory scrutiny and heightened regulatory expectations could lead to new liability claims against directors is not far-fetched. To the contrary, some regulators have made overt, express calls for the scope of fiduciary duties expected of bank directors to be expanded (at least for directors of systemically important financial institutions), as discussed, for example, here. These public statements, along with the level of regulatory expectations of directors, suggest that regulators may consider expanded director accountability to be appropriate. As the Journal article correctly points out, the FDIC failed bank lawsuit show not only that banking regulators intend to hold directors accountable and even to seek to impose liability on them.

 

Nor is it far-fetched to contend, as the Journal article suggests, the (apparently well-founded) fears of personal liability may deter qualified persons from serving on banking boards. As I discussed in a prior post (here), a recent survey of the American Association of Bank Directors found that existing and potential bank directors increasingly are unwilling to serve due to fear of personal liability. Among other things, the survey results showed that nearly a quarter of the survey respondents have had a director or potential director shun or shy away from board service based on personal liability concerns.

 

It is important to emphasize that, although the Journal article highlighted developments involving the largest Wall Street firms, the article also showed the increased scrutiny is not restricted just to the global financial firms. The increased scrutiny also extends to smaller institutions.

 

Among the more troubling items in the article is the suggestion that the banking regulators are creating written “regulatory critiques of bank operations and oversight” and that boards are being “written up” in supervisory reports. Although these type of reports are highly confidential and would be very difficult for non-regulatory claimants to obtain, the fact that they exist and the possibility that they might come to light in claims brought by third-party claimants adds an additional layer to the concern that the increased regulatory scrutiny could lead to increased personal liability for bank directors.

 

Given the magnitude of the problems at financial institutions that came to light in the global financial crisis, it may be no surprise the bank directors are facing heightened scrutiny. Just the same, the level of scrutiny, and the forms that the scrutiny is taking (as detailed in the Journal article), pose a significant challenge for banks, for bank directors, and for the banks’ D&O liability insurance carriers. The possibility that the current level of heightened scrutiny might foster new director liability claims is of particular concern.

 

Corporate Boards and CFO Hiring: The same Wall Street Journal issue that contained the article discussed above about regulatory pressure on bank directors and the directors’ changing roles included another article about the changing roles of corporate directors. An article entitled “Boards Join in CFO Picks” (here) discusses how “corporate boards are playing an increasingly pivotal role in choosing CFOs.” Companies identified in the article where directors played an active role in recruiting and hiring the firms’ Chief Financial Officer include Google, McDermott International, Avon Products, and Newell Rubbermaid. The article also notes that boards “also can help unseat underperforming finance chiefs.”

 

The increased board role in CFO hiring – and sometimes firing – is in part due to the heightened expectations of the Sarbanes-Oxley Act and in part due to the financial crisis, which underscored the importance of “having a veteran at the helm.” In addition, “directors are also assuming a stronger role because more finance chiefs now rise to the top job.” According to sources cited in the article, 12 of the Fortune 50 CFOs are former finance chiefs.

 

There is no doubt that the boards’ increased involvement in CFO hiring is a direct consequence of the changed environment in which boards conduct their business these days. Investors (and as discussed above, regulators) increasingly expect active board involvement, and in turn boards are increasingly engaged in company operations in ways they might not have been in the past. Overall, increased board involvement in CFO hiring should be a positive thing, particularly as it is portrayed in the Journal article.

 

But perhaps because I read the Journal article about increased board involvement in CFO hiring immediately after reading the article discussed above about bank director scrutiny, I immediately thought about whether increased board involvement in CFO hiring and firing might also lead to liability claims.

 

I can imagine these kinds of potential claims taking at least two forms. On the one hand, because, as the article details, some corporate boards are becoming actively involved in CFO firing, it is possible claimants might assert that the board of a company that sustained problems because of CFO misconduct breached its duties by failing to act quickly enough to discharge the deficient finance chief. By the same token, if a company were to sustain problems because of misconduct by a CFO that the board had proactively recruited and hired, claimants might try to assert that the board breached its duties through its negligent recruiting and hiring activities (for example, by failing to scrutinize the candidate or identify past problems).

 

All of which is another way of saying that in an era where boards are increasingly under scrutiny, even the actions of an active and engaged board can come in for criticism and challenge. Or to put it another way, in our hyper-litigious society, even a seemingly positive development could lead to litigation.

 

More About Shareholder Activism: In a recent post (here), I jumped into the ongoing debate about shareholder activism, a topic that has grown importance as level of shareholder activism has grown. Readers who are interested in the topic will want to read the cover article in the latest issue of the American Lawyer. The March 30, 2015 article, which is written by Michael Goldhaber and is entitled “Marty Lipton’s War on Hedge Fund Activists” (here, subscription required), frames the debate on shareholder activism in terms of the continuing battle between corporate champion Marty Lipton of the Wachtell Lipton law firm and the Harvard Law School Professor and corporate scourge, Lucian Bebchuk.

 

As the article states, the only thing the two can agree on is that, lately at least, “the activist hedge funds are winning the war.” As for whether or not this is a good thing, that “depends on which narrative you accept.” In Lipton’s view, the activists are short-term focused and very bad for the economy. In Bebchuk’s view, the activists’ efforts regularly create shareholder value that is sustained over the longer term.

 

The article quotes a chorus of voices suggesting that perhaps the real answer is somewhere in between. Among other things, critics arguing for the middle view suggest that while activists are not as evil as Lipton suggests, Bebchuk does not look at the effect of their activities on the economy as a whole, as they cut corporate spending by laying off workers and cutting R&D budgets. Others suggest that Lipton is too willing to overlook executive compensation excesses.

 

After laying out the parameters of the debate, the article concludes with reference to Delaware Supreme Court Chief Justice Leo Strine’s call for institutional investors to become more involved, particularly in making sure that short term thinking does not overwhelm strategic corporate decision-making. As the article quotes the venerable New York lawyer Ira Millstein as saying, “Companies and pension funds are getting smarter. If the real investors think the activists are wrong, then they don’t have to go along.” 

 

cornerstone reserach pdfThe number of securities class action lawsuit filings raising accounting allegations rose by 47 percent in 2014 compared to the prior year, according to a new report from Cornerstone Research. The March 31, 2015 report, entitled “Accounting Class Action Filings and Settlements: 2014 Review and Analysis,” can be found here. Cornerstone Research’s March 31, 2015 press release about the report can be found here.

 

The report tracks what it calls “accounting cases,” which are cases that include allegations related to Generally Accepted Accounting Principles (GAAP) violations, auditing violations, or weaknesses in internal controls over financial reporting.

 

According to the report, there were 69 accounting case filings in 2014, representing 41% of all securities class action filings during the year, compared with 47 accounting case filings in 2013, representing 28% of all securities suit filings during the year. The 69 accounting case filings in 2014 is roughly equal to the 2005-2015 average annual number of accounting case filings of 68. The increase in the number of accounting case filings “occurred against the backdrop of a year marked by essentially no change in the overall securities class action filings activity.”

 

The filing of accounting cases that also involved an SEC inquiry or action reached the highest level in 2014 since Cornerstone Research began tracking this factor in 2010. In 2014, 18 accounting cases related to an SEC inquiry or action, compared to only five in 2013. The report notes that the rise in the number of accounting cases with associated SEC action is “consistent with the SEC’s increased focus on identifying accounting-related fraud.”

 

The report also examines what it calls disclosure dollar loss, which is the dollar value change in the defendant firm’s market capitalization between the trading day immediately before the end of the class period and its capitalization immediately after the end of the class period. The report notes that the disclosure dollar loss declined significantly for all securities class action filings in 2014 compared to 2013, but the decline for accounting cases (35%) was less severe than for non-accounting cases (52%). In 2014, accounting cases amounted to 50 percent of the aggregate disclosure dollar losses for all securities suit filings, even though only 41 percent of all securities class action lawsuits were filed as accounting cases.

 

The number of restatement cases increased in 2014. There were 29 cases filed in 2014 involving restatements, representing 42% of all accounting cases filed during the year, compared to 19 restatement cases representing 40% of all accounting cases in 2013. The 29 restatement cases filed in 2014 was the highest number in the last seven years and is well above the 2009-2013 annual average number of restatement case filings during the period of 19. The increase in the number of restatement case filings during 2014 was “consistent with data showing that the number of restatements by accelerated filers (i.e., large companies that are heavily targeted in securities class actions) has increased in recent years.”

 

The report also notes that the median stock price drop surrounding announcements of financial statement restatements was “the second highest in the last 10 years.” The aggregate disclosure dollar loss for accounting case filings with restatements was over 80 percent greater than the average between 2005 and 2013.

 

For the past two years, the number of accounting case filings involving allegations of internal control weaknesses has increased; indeed, the number of accounting case filings alleging internal control weaknesses was higher in 2014 than any of the previous five years. Of the 29 accounting case filings that included a restatement, two in three also included allegations of weaknesses in internal controls.

 

The report also notes that accounting cases generally involve higher “estimated damages” (a simplified calculation of shareholder losses) that securities class action lawsuit filings without accounting allegations, a trend that continued in 2014. Overall, the report also notes that the median settlement for accounting cases has also been higher for accounting cases than for non-accounting cases. The presence of a restatement is a significant factor in explaining higher settlements amounts, and as is the existence of a related SEC action or inquiry. Cases involving restatements have settled for the highest percentage of “estimated damages.”

 

In 2014, there were 44 settlements of accounting cases, representing 70% of all securities class action settlements during the year, the highest proportion of settlements since 2010. The aggregate value of accounting case settlements as a portion of aggregate value of all securities class action lawsuit settlements represented an even greater proportion; the accounting suit settlements represented 85% of the total value of all securities class action lawsuit settlements.

 

My recent post on Cornerstone Research’s annual report on securities class action lawsuits generally can be found here.

 

 

004aThe D&O Diary rounded out its European visit last week with a quick weekend visit to Paris. In addition to a rendezvous with friends and family, the stopover included several long walks, two encounters with the Parisian contemporary art museum scene, and one extraordinary meal.

 

The best of the weekend’s walks was an energetic march through the Bois de Boulogne, the enormous park and preserve at the Western edge of the city of Paris, where the flowering plants and trees were blooming in the late March sunshine. At 2,090 acres, the Bois de Boulogne is nearly two and a half times larger than Central Park. Along the park’s east side are a winding set of pathways flanking a series of ponds. The ponds include a number of interesting and curious structures, including the Kiosk of the Emperor on an island in the Lac Inferieur (lower lake), as shown in the picture below.

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041aAs pleasant as our stroll was, the primary purpose of our visit to the park was to see the Louis Vuitton Foundation (pictured left), the new $143 million art museum designed by the famed architect Frank Gehry. The museum opened in late 2014. The glass, wood and stone structure is built in the shape of sailboat sails inflated by the wind. The glass exterior shapes enclose a central stone structure that includes a series of multilevel roof terraces. The terraces afford views of the Bois de Boulogne (first picture below), and, to the west, to La Défense, the agglomeration of modern, high-rise office buildings just outside the city (second picture below)

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020aThe two-story structure encloses eleven galleries of different sizes. The museum’s collection includes works of contemporary art assembled from a combination of works owned by LVMH and Bernard Arnault. The casual visitor will find the works on exhibit to be avant-garde, experimental and, often, obscure. All of the works are high-concept, mannered, and many are difficult (deliberately so, one can only assume). One work on display was a pile of metal ironing boards. Another room contained large paintings of canvases cut in basic geometric shapes, painted in a single color – a black rectangle, a red rhombus, a green parallelogram. A very large room on the ground level contained a massive audio system playing the music of Kanye West, with a video projected along the back wall. The video was created by the award-winning director Steve McQueen. In the video, Kanye walks around. Or looks around. Then he sits down. Then he stands up. Etc. The music is very, very, very loud.

 

022aThe building itself is a challenge for the art inside. The building is so massive and its style so flamboyant that the art inside is almost overwhelmed. The overall effect is that the art can seem insignificant and ephemeral.

 

Despite my skeptical remarks, I recommend a visit to the museum for any Parisian tourist. The building is striking and remarkable. Indeed, I would recommend visiting the museum sooner rather than later. Time could prove me wrong, but I fear that the beautiful white stone and the exposed wooden beams that affix the glass exterior to the interior stone building will not age well. In particular, I am concerned that time and weather will diminish the inspiring glimpses of the building’s complex structure from the terraces.

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051aAs much as I enjoyed my visit to the Fondation, in terms of the art on display, I have to say that I preferred the contemporary art collection in the Palais de Tokyo, which we visited early the next day. The Palais is located on the Seine, across the river and just upstream from the Eiffel Tower. The collection in the Palais is much larger, and the works are much more adventurous and even rebellious – and in at least some instances, deliberately humorous. The Palais opened in 1937 as the pavilion of modern art for the Universal Exposition held that year in Paris. The museum’s rather conventional 20th century building is the modest backdrop for the 21st century art within. On the day of our visit there were two particular interesting exhibitions; the first, L’Usage des Formes (The Use of the Form), explored the artistry of tools and instruments used in craftsmanship. The second, Le Bord du Mondes (The Edge of Worlds), featured contemporary art from around the world (particularly Southeast Asia).

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This Paris visit culminated in a very unusual dinner on Saturday night, in which ten friends gathered to discuss the philosophy of Epicureanism over an excellent French meal accompanied by a profusion of French wine and champagne. The hours-long discussion took place exclusively in French. Early in the evening, I felt like I was holding my own. But as the evening wore on and the empty bottles accumulated, I was content to listen and to try to keep up with the increasingly animated discussion. This was no mere intellectual exercise; passions were engaged as well. Indeed, late in the evening, one of the guests — after a heated exchange with another guest in which both were shouting “non, non, non, non, non” at each other in true Gallic fashion – suddenly got up and left, in a fit of philosophical rage. It was an extraordinary evening, but I have to confess that as I made my way to the Metro at the end of the evening, my head ached from trying to listen to and comprehend the French conversation for several hours.

 

For those readers who may have an interest in Epicureanism, I highly recommend Harvard Professor Stephen Greenblatt’s National Book Award-winning book The Swerve: How the World Became Modern, which tells the tale of how the Italian 15th century humanist  Poggio Bracciolini found  long-forgotten manuscripts of Lucretius’s epic philosophical poem De rerum natura, which contains the tenets and philosophy of Epicureanism, and how the philosophy influenced modern thought. I should add that the book was gift to me from my good friend, Perry Granof.

 

Lest anyone think my weekend in Paris involved only effete entertainments, I should add here that my visit also included an evening at the Moose Bar (a Canadian-themed watering hole in the Odeon district favored by ex-pats) watching the French national team lose 1-3 to the Brazilian team in an International Friendly soccer match. Late in the evening, after the soccer game ended, we had the unexpected experience of watching the start of an NCAA tournament basketball game deep in the heart of the Rive Gauche.

 

Every time I visit Paris I wish I had planned to spend more time there. Of course, if every visit to Paris is too short, a weekend visit is particularly so.

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065aThe D&O Diary was in London this week for meetings and a couple of industry events. Though my schedule on this visit was full, I did have a little time between meetings for a bit of touristing. I have been to London many times before, but I always try to make a little time to walk through the city’s many historic sites, like, for example, St. James’s Park (pictured left, looking toward the Old Admiralty Buildings).

 

I also always try to go somewhere I haven’t been before. This time, I managed to make time to visit Hampstead Heath, which covers 790 acres in the northern part of the city. I took the Northern Line Underground train to Kentish Town, and walked to Parliament Hill in the southern end of the park, which at an elevation of about 350 ft. is one of the highest points in the city. Even though it was a little hazy the day I visited, looking south from the hilltop back toward the city center, I could clearly make out Canary Wharf, the Gherkin, the Shard and St Paul’s Cathedral. Because of the haze and the sunlight to the south, the view was hard to photograph, but I have tried to depict the view in the first picture below. There is no consensus on how Parliament Hill (shown in the second picture below) got its name, but the likely explanation is that the Houses of Parliament could be seen from the hilltop (although on the day I was there I was unable to make out the actual Parliament building, which is about 6 miles away). I actually prefer the story that the hill got its name because Guy Fawkes and the other Gunpowder Plot conspirators retreated to the hill to watch the Parliament building blow up. (Their plot failed.) I will say that the Heath was an extraordinarily pleasant place to stroll on a sunny but chilly March morning. The third picture below is a view back across the Heath to Kentish Town. The final picture is a view back towards the Heath itself.

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078aOne other place I made some time to visit was St. John’s Wood, a  high-end residential area in the city’s northwest. The churchyard adjacent to the St. John’s Church that gave the area its name was also an agreeable place to visit on a sunny morning (as depicted in the picture to the left). The High Street in St. John’s Wood has a well-kept, prosperous feel to it (as depicted in the picture below). However, I wanted to visit the area for other reasons. The first was to see Lord’s Cricket Ground, which is located across the street from the church. The second, more important reason was the line in the Rolling Stones’ song, “Playing with Fire” (which was the B-side on the 45 rpm version of the Rolling Stones’ 1965 hit “The Last Time”). The lyrics to the song go like this: “Your mother she’s an heiress, owns a block in St. John’s Wood/And your father’d be there with her, if he only could/But don’t play with me, ’cause you’re playing with fire.” Given the suggestion in the song’s lyrics, I was not surprised to find that there actually are quite a few very high-end houses in the area, particularly on Avenue Road. Wikipedia reports that “in 2013, the price of housing in St John’s Wood reached exceptional levels. Avenue Road had more than 10 large mansions/villas for sale. The most expensive had an asking price of £65 million, with the cheapest at £15 million. The remainder were around £25 million.” St. John’s Wood is also the home of the Abbey Road recording studio the Beatles made famous in their 1969 album. It was difficult to get a picture zebra-striped crossing without a group of people in the cross-walk trying the recreate the album cover.

 

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013aBetween my meetings and my touring around, I managed to spend a fair amount of time during this visit on the Tube. There is nothing like the vacant time during a subway ride to allow your mind to wander and to contemplate things like, say, the interesting and odd assortment of place names in and around London. In the Underground with nothing else to distract, things occur to you, like, for instance, there probably once was a white chapel in what is now Whitechapel, and there were once black friars in what is now Blackfriars. But was there a ham in West Ham? Or, for that matter, East Ham? And what are we to suppose about the origins of such place names as Spitalfields, Cockfosters, Tooting Bec, Chigwell, Fairlop and Barking? And even without these mysteries to ponder, there are the other curious names – such as Shepherd’s Bush, Elephant and Castle, Mudchute, and Upminster?  Then there are the odd re-occurrences of similar sounding names. Not only is there an Underground station named Cannon Street, but also there is a Canning Town stop and a Canons Park stop, and there is both an Edgware stop and an Edgeware Road stop (the two stations are on different lines and nowhere near each other), and both a Kennington stop and a Kensington stop (not to mention West Kensington, South Kensington, and Kensington High Street). There’s an Ealing Broadway, a Fulham Broadway and Tooting Broadway. Also Bethnel Green, Stepney Green, Golders Green, Parsons Green, Turnham Green — and Green Park.

 

005aFor an American traveling on the tube, there are also the unfolding revelations about many of the place name pronunciations. For most uninitiated U.S. visitors, the most surprising station name pronunciation is that of Leiscester Square – not just the first word, which most Americans are surprised to discover is pronounced not “lye-chester” but “lester” – but also the second word, which is pronounced with two syllables, as “skway-uh.” Even a station name as seemingly straightforward as Earl’s Court turns out to involve sonic surprises – it is pronounced “ulls coat.” (The  Earl’s Court station is pictured left.) Even a familiar name like Arsenal can surprise – it is not “Ar-son-ul” as an American might expect but rather it is “Ah-snull.”

 

And beyond the place names, there are the street names – Crutched Friars, Mincing Lane, Seething Lane, Savage Garden. The street names sound vaguely like detective novel titles or rock band group names.

 

By the way, if you have ever wondered who that lady is that does the in-train station announcements on the London Underground, her name is Emma Clarke, a professional voice-over performer. Her website, with links to sample of her various announcements – including her silky smooth reminder to “Please mind the gap between the train and the platform” – can be found here.

 

My primary purposes for visiting London this time were to attend the C5 D&O Liability conference and to attend a reception co-sponsored with Beazley and the Mayer Brown law firm. On Thursday morning at the C5 conference, I participated on a panel discussion U.S. D&O liability developments along with my good friends Chris Warrior of Hiscox and Phil Norton of Arthur J. Gallagher (first picture below). At the Beazley event, I participated in a panel discussion with Tracy Holm and Adrian Jenner of Beazley, and David Chadwick of Mayer Brown (second picture below). Both events were a great success and I enjoyed them both immensely. I was particularly pleased to learn in my discussions with the attendees at both events how many of them follow The D&O Diary.

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I took the final picture below of the audience at the Beazley event. Adrian Jenner of Beazley had just asked me whether the pictures I have posted in my various travel posts were taken with a smart phone camera or with a digital camera. In response to the question, I pulled out my digital camera (which I was at the moment wearing in a holster on my belt) and snapped a picture of the audience. Immediately after I took the picture, we adjourned the panel discussion in favor of cocktails.

 

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weilIn the current environment, most organizations are aware of the potential threats to their firms from a breach of their data systems and networks. Among the ways companies can protect themselves from these types of threats is through improved employee awareness and training. In the following guest post, Paul Ferrillo and Randi Singer of the Weil, Gotshal & Manges law firm discuss the steps companies can take to avoid common lapses in employee judgment or awareness that can expose a company to a cyber-incident

 

I would like to thank Paul and Randi for their willingness to publish their guest post on my site. I welcome guest post submissions from responsible authors on topics of interest to readers of this site. Please contact me directly if you would like to submit a guest post. Here is Paul and Randi’s guest post.

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They may be based in North Korea, Russia, China, or the United States. They may call themselves “Deep Panda,” “Axiom,” Group 72,” the “Shell_Crew,” the “Guardians of Peace,” or the “Syrian Electronic Army.” But no matter how exotic or mundane the origins of a particular cyber-criminal organization, all that it needs to initiate a major cyberattack is to entice one of your employees to click on a malicious link in an email, inadvertently disseminate malware throughout the network servers, and potentially cause tremendous damage and loss of business.[i]

Indeed, “spear phishing” is a tactic used by cyber-criminals that involves sending phony, but seemingly legitimate, emails to specific individuals, company divisions, or even business executives, among other typically unwitting targets. Unlike spam, these emails usually appear to be from someone the recipient knows and in many cases can appear completely legitimate, or at least unassuming. If the recipient opens any attachments or clicks any links, havoc can ensue. Such spear phishing emails are suspected to have caused many of the recent major cyber attacks. Despite fancy-sounding defensive cybersecurity devices at companies and financial institutions, “spear phishing with malware attachments” is often the easiest route into a sophisticated network.[ii] One report recently noted that, “Compared to the ‘spam-phishing’ emails of days past, which most people have learned to identify and avoid over the years, spear-phishing emails are astronomically more effective. Whereas the current open rate for spam emails is a meager 3%, the open rate for spear-phishing emails is a staggering 70% (not to mention 50% of those who open these emails also click the links they contain). A study published by Cisco found 1,000 spear-phishing emails generate ten times more data revenue for hackers than sending 1,000,000 spam-phishing emails.”[iii] According to another recent study, 90 percent of all hacks in the first half of 2014 were preventable, and more than 25 percent were caused by employees.[iv]

For these reasons, it is absolutely crucial that a company provide training to its employees to detect and avoid spear phishing attacks, and more broadly, avoid common lapses in judgment or awareness that can expose a company to a cyber-incident. For example, companies can easily offer training that improves password protection, helps avoid workplace theft, and better protects employee-owned devices without password protection such as smartphones, laptops, and tablets. Though no one particular training regimen can provide guaranteed protection from a cyber-attack, statistics support their inclusion as a critical part of a company’s overall security posture.

Anti-Spear Phishing Training

Weeks after the announcement of the Anthem attack, which, like that on Sony Pictures, was likely caused by a sophisticated spear phishing operation, cybersecurity guru Brian Krebs noted that others were attempting to prey upon the misfortune of over 80 million patients by sending their own spoofed emails to affected customers.[v] Other “cold-calling” scams apparently were perpetrated at about the same time as the fake emails were sent:

anthem

 

Now, if you were a terrified Anthem patient whose personal health information was potentially stolen, this sort of an email communication would not be unexpected, and would be very appealing; it would be natural to click the link. In reality, clicking on the fraudulent “free credit protection link” would only have touched off a whole new world of pain.

Here is another example illustrating the growing sophistication of spear phishing attacks. What if you were an existing customer of HSBC and received this email? Would you click on the link, or ignore it and potentially let your account be suspended by “the bank”?[vi]

 

hsbc

 

But the potential price for opening a link that does not appear to be obviously suspicious can be breathtakingly high. In an era where there is so much personal information about everyone on the Internet, it would not be hard for even a high-school student to create an authentic-looking email that could catch us when we least suspect a cyber-attack (especially the Anthem “customer email”). Even higher-level employees are vulnerable to spear phishing (often called “whaling” when high-level executives are targeted), and the corresponding damage can be exponentially worse.[vii]

How do you guard against a socially engineered spear phishing attack? You train and you train, and then you train some more. Many corporate IT departments already periodically send out fake emails to their employees hoping for a “bite.” Many more companies regularly train their employees monthly on anti-spear phishing using automated computer programs that send emails to employees from exact website addresses to see who will unwittingly click on the links.[viii] Records can be kept of successes (and failures). Some companies might award prizes to employees who religiously resist getting tricked, gaining loyalty while simultaneously lowering risk. Lowering the risks of an employee clicking on a malware-infected spear phishing email can be substantial.[ix]

Password Protection and Awareness

There has also been a tremendous amount of publicity over the inadequacy of employee passwords. A January 2013 report by Deloitte suggests that an astonishing 90 percent of user passwords are vulnerable to hacking.[x] There are a few rules of the road:

  1. Companies should force employees to change their passwords regularly (preferably every 30 days), without exception;
  2. Employee passwords cannot be common defaults such as “password” or “12345”;[xi]
  3. Employees should not store passwords on sticky notes placed on their computers or in a physical or digital file or folder called “password”;
  4. Employee passwords should be strong; rather than the first name of the employee’s child, dog or cat, it should contain unique patterns of letters, numbers and other signs, like “I li6e cho$hlat@”;
  5. Employees should be required to install passwords on any device used to access company email or any company resources, including home laptops, so that they remain secure as well;
  6. Companies should make sure that employees follow responsible “social media” practices with regard to company-specific information;
  7. Companies should provide privacy screens to employees to prevent “shoulder surfing” (reading over an employee’s shoulder); and
  8. Employees should receive frequent training on spear phishing, so no employee inadvertently gives up his password to an unauthorized third party.

Other Simple (Non-Hardware) Ideas to Protect Company Data

Finally, for any company, it is important for the IT department to reinforce the following best practices for the handling of company data:

  1. Follow least-access principles and control against over-privileging. An employee should only be given access to the specific resources required to do his or her job. Not every employee needs the keys to the kingdom.
  2. Make sure software patches and critical updates are made in a prompt and timely fashion so that no critical patch is left uninstalled for lack of time or budget.
  3. Every company should install within each employee a sense of “ownership” in the collective good of the company, one that requires him or her to be cyber-conscious and sensitive to the potential areas of susceptibility that we have described above.

Cybersecurity is the ultimate team sport, and every person in the company, from a director down to an entry-level employee, needs to be invested in its cybersecurity:

The infamous Sony hack, the systematic attacks of Heartbleed and Shellshock targeting core internet services and technologies, and the new wave of mass mobile threats have placed the topic of security center stage. Organizations are dramatically increasing their IT budgets to ward off attack but will continue to be vulnerable if they over-invest in technology while failing to engage their workforce as part of their overarching security solution. If we change this paradigm and make our workforce an accountable part of the security solution, we will dramatically improve the defensibility of our organizations.”[xii]

We cannot claim that any of these ideas are cure-alls for the hacking problem in the United States (in fact, none are complete solutions). We can only subscribe to the theory that failing to implement basic cybersecurity “blocking and tackling” practices is the functional equivalent of forgetting to lock the back door.

[i] See “Learning from the Mistakes of Others: Sony, NSA, G2O, & DoD Hacks,” available here; also see, e.g. “Data Breach at Health Insurer Anthem Could Impact Millions,” available here.

[ii] See “‘Spear Phishing’ Attacks Infiltrate Banks’ Networks,” available here.

[iii] See above at footnote 1.

[iv] See “Over 90 percent of data breaches in first half of 2014 were preventable,” available here; also see “The Weakest Link Is Your Strongest Security Asset,” available here (noting, “According to PwC, employees and corporate partners are responsible for 60% of data breaches. Verizon’s research suggests the number is even higher, at almost 80%.”).

[v] See “Phishers Pounce on Anthem,” available here.

[vi] See here.

[vii] See “Hacking the Street, FIN4 Likely Playing the Market,” available here.

[viii] See e.g. the anti-spear phishing training offered by a company called Phishme, available here.

[ix] See “KnowBe4 Security Awareness Training Blog: Train Employees And Cut Cyber Risks Up To 70 Percent,” available here.

[x] See “90 percent of passwords vulnerable to hacking,” available here.

[xi] See here.

[xii] See “The Weakest Link Is Your Strongest Security Asset,” available here.

kaganIn a March 24, 2015 opinion in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund (here), the U.S. Supreme Court set aside the Sixth Circuit’s ruling that allegations of “objective falsity” were sufficient to make a statement of opinion in securities offering documents actionable. The Supreme Court remanded the case to the lower court to consider whether the plaintiffs had sufficiently alleged that facts had been omitted from the opinion so as to make the statement of opinion misleading, in light of the entire context. The Court’s decision is briefly summarized in the accompanying guest post from the Skadden law firm.

 

The Omnicare case involves the standard for liability under Section 11 for statements of opinion in a company’s offering documents. The Supreme Court took up the case to determine whether or not it is sufficient to survive a dismissal motion for a plaintiff in a Section 11 case to allege that a statement of opinion was objectively false, or whether the plaintiff must also allege that the statement was subjectively false – that is, that the defendant did not believe the opinion at the time the statement was made. The Supreme Court’s granted the writ of certiorari in the Omnicare case because of a a split in the circuits between those (such as the Second and Ninth Circuits) holding that in a Section 11 case allegations of knowledge of falsity are required; and those (such as the Sixth Circuit, in the Omnicare case) holding that allegations of knowledge of falsity are not required.

 

In the Omnicare case, the plaintiff shareholders alleged that two statements in its registration statement filed in connection with its $765 million securities offering in December 2005 had been misleading – first, the statement by the company that “we believe” that the company’s contractual arrangements with various third parties are “in compliance with applicable federal and state law,” and second, the statement by the company that “we believe” that its contracts with pharmaceutical manufacturers “are legally and economically valid arrangements that bring value to the healthcare system.” The plaintiffs alleged, in reliance on separate enforcement actions the federal government filed against Omnicare alleging that the company had paid kickbacks, that these two statements were false and misleading.

 

The defendants moved to dismiss the complaint and the district court granted the motion to dismiss. However, the Sixth Circuit reversed the district court, holding that the shareholders complaint alleged that the two statements were “objectively false,” and further, that the defendants did not need to allege that anyone at Omnicare disbelieved the statements.

 

In its March 24, 2015 opinion, the Court vacated the Sixth Circuit’s opinion and remanded the case to the Sixth Circuit for further proceedings. The Court’s opinion was written by Justice Elena Kagan and in which all nine justices joined in the court’s judgment – although Justices Scalia and Thomas wrote concurring opinions voicing their separate concerns with aspects of the majority opinion.

 

Justice Kagan’s opinion divided the consideration of the case into two parts, based on two parts of Section 11, because she said, the two parts raise different issues. The first part of her analysis related to the portion of Section 11 making companies and corporate officials liable for “untrue statement[s] of . . . material fact” and the second part makes the same defendants liable if they “omitted to state a material fact . . . necessary to make the statements [in its registration filing] not misleading.”

 

Omnicare had tried to argue that a defendant can never be liable for a mere opinion. Justice Kagan rejected this argument, saying that “as even Omnicare acknowledges, every such statement explicitly affirms one fact: that the speaker actually holds the stated belief.”If the speaker did not hold the belief, then he or she can be held liable.

 

Moreover, she added, if the statement of opinion includes a “supporting fact” — such as the statement about patented technology in this statement of opinion: “I believe our TVs have the highest resolution available because we use a patented technology to which our competitors do not have access” – the speaker can not only be held liable under the false statement portion of the Section 11 if the “speaker did not hold the belief she professed” but also “if the supporting fact she supplied were untrue.”

 

The plaintiffs in this case, she noted, cannot avail itself of either of these two types of false statement liability, because the statements on which the plaintiffs rely are “pure statements of opinion.” Basically, Justice Kagan said, the statements on which plaintiffs rely amounted to the company’s saying “we believe we are obeying the law.” Plaintiffs argue that these statements turned out to be untrue because the company was paying kickbacks. But the mere fact that statements turned out to be untrue cannot serve as the basis of liability because “a sincere statement of pure opinion is not an ‘untrue statement of material fact,’ regardless whether an investor can ultimately prove the belief wrong.” Contrary to the plaintiffs’ argument and the Sixth Circuit’s opinion, Section 11’s false statement provision is not “an invitation to Monday morning quarterback an issuer’s opinions.”

 

Justice Kagan then went on to analyze the plaintiffs’ claims under Section 11’s omissions provision. The question, she said is, “when, if ever, the omission of a fact can make a statement of opinion like Omnicare’s, even if literally accurate, misleading to an ordinary investor.” In reaching the conclusion that a statement of opinion might under some circumstances support an omission claim, she said that “a reasonable investor may, depending on the circumstances, understand an opinion statement to convey facts about how the speaker has formed the opinion.” If, she said, “the real facts are otherwise, but not provided, the opinion statement will mislead its audience.” For example, a company might say “we believe our conduct is lawful” without having consulted a lawyer, which she said, would be “misleadingly incomplete.” Thus, she said, “if a registration statement omits material facts about the issuer’s inquiry into or knowledge concerning a statement of opinion, and if those facts conflict with what a reasonable investor would take from the statement itself, then §11’s omissions clause creates liability.”

 

Having said that an omission of material facts might give rise to Section 11 liability for an opinion, Justice Kagan then walked this observation back. She said that an opinion “is not necessarily misleading when an issuer knows, but fails to disclose, some fact cutting the other way,” adding that “a reasonable investor does not expect that every fact known to an issuer supports its opinion statement.” She said that “whether an omission makes an expression of opinion misleading always depends on context” because “the reasonable investor understands a statement of opinion in its full context, and §11 creates liability only for the omission of material facts that cannot be squared with such a fair reading.”If it were otherwise, she said, a company could “nullify” the statutory requirement simply by starting a sentence with “we believe” or “we think.”

 

Having said that the omissions clause in Section 11 can support liability for an opinion based on what a reasonable investor might understand, she added that to establish this type of claim, a claimant must allege the “failure to include a material fact has rendered a published statement misleading.” To be specific, she said,

 

The investor must identify particular (and material) facts going to the basis for the issuer’s opinion—facts about the inquiry the issuer did or did not conduct or the knowledge it did or did not have—whose omission makes the opinion statement at issue misleading to a reasonable person reading the statement fairly and in context.

 

Because the Sixth Circuit had not considered the Omnicare case in light of this analysis, the Supreme Court remanded the case to the lower courts for further consideration with the “right standard in mind.” On remand, and with respect to any facts the plaintiff allege were omitted, the courts below “must determine whether the omitted fact would have been material to a reasonable investor.” If the plaintiffs clear those hurdles, then the courts have to consider whether Omnicare’s legal compliance opinions were misleading “because the excluded fact shows that Omnicare lacked the basis for making those statements that a reasonable investor would expect.”She added that “the analysis of whether Omnicare’s opinion is misleading must address the statement’s context” – that is, the other statements throughout the rest of the registration statement.

 

Justice Scalia filed a concurring opinion, joining the Court’s judgment but differing from the majority opinion on the circumstances in which omitted facts could support Section 11 liability for an opinion. Justice Thomas also joined the Court’s judgment but said that the majority should not have reached the omission question because it was not properly before the Court.

 

Discussion

The Supreme Court’s ruling represents, in its rejection of the Sixth Circuit’s “objective falsity” standard, a victory for the defendants. However, the Court’s conclusion that omitted facts could make a statement of opinion misleading and support Section 11 liability is more to the liking of those on the plaintiffs’ side of the aisle, even if the Court did set a rather high bar for stating a claim under the statute’s omissions prong. Even the false statement-part of the Court’s analysis arguably gives the plaintiffs something they can use, in the Court’s analysis of “supporting facts” in an opinion that might be misleading. At a minimum, the plaintiffs in this case have managed to live for another day, even though the Sixth Circuit’s ruling was set aside.

 

 

The Court seemed clear that there are basic differences between facts and opinions. However, an opinion might, we are told, might include “supporting facts.” And while Omnicare’s statement did not include supporting facts – the statements on which the plaintiffs rely, we are told, are “pure statements of opinion” – there could be “omitted facts” whose omission makes the statement of opinion misleading. Moreover, whether or not these omitted facts are sufficient to make the statement actionable depends on “context.” The difference between facts and opinions may be clear, but the two interact in complex ways.

 

Opinions often are involved in the allegations in Section 11 claims because financial statements contain many different types of opinions. Court have held that financial statement items such as reserves, goodwill and so on constitute opinions, and, at least until the Sixth Circuit decision in the Omnicare case, have been pretty comfortable saying that opinions are not actionable under Section 11 unless the speaker didn’t believe the opinion. Now, courts will have to consider whether the opinion included misleading “supporting facts,” and whether or not there were “omitted facts” sufficient to make the opinion misleading, taken in context of the entire Registration Statement. Maybe the lower courts will apply these standards without difficulty. I suspect some courts will labor, particularly on questions surrounding allegedly omitted facts and whether or not the alleged omissions were sufficient to make even a “pure statement of opinion” misleading, in light of the entire context.

 

These issues may be particularly important just now because of the increase in IPO activity in the securities marketplace in 2013, 2014 and continuing this year. As I have pointed out previously on this blog, more IPOs mean more IPO-related litigation. As plaintiffs in the IPO cases prepare their complaints, they will now be sure with respect to any statements of opinion to allege that the opinion omitted facts and were therefore both misleading and actionable. The Omnicare standards of liability for statements of opinion in registration statements are likely to get a workout in the district courts where the IPO-related lawsuits are filed.

 

Alison Frankel’s March 24, 2015 post on her On the Case blog (here) discusses how what she calls the Court’s “middle of the road approach” in the Omnicare case is consistent with several recent decisions from the U.S. Supreme Court. A March 24, 2015 memo from the Proskauer law firm discussing the Court’s decision can be found here.