The early returns in the Libor-scandal related litigation have not been favorable for the claimants. As noted here, on March 29, 2013, Southern District of New York Judge Naomi Reice Buchwald substantially granted the motion to dismiss in the consolidated Libor-scandal antitrust litigation, and as discussed here, on May 13, 2013, Southern District of New York Judge Shira Scheindlin granted the motion to dismiss in the Libor-related securities class action lawsuit filed against Barclays.

 

Notwithstanding these setbacks for claimants seeking to recover damages from the Libor benchmark rate-setting banks, on May 20, 2013, certain claimants filed yet another Libor scandal-related lawsuit against the banks. The latest lawsuit, which was filed in the New York (New York County) Supreme Court, is filed as an individual action, not a class action, and may represent a new approach calculated to overcome some of the hurdles that the prior claimants have faced.

 

Alison Frankel has an interesting May 21, 2013 post about this latest Libor-scandal related lawsuit in her On the Case blog , here.

 

The latest complaint, a copy of which can be found here, was filed on behalf of two investment firms and two investment failed funds that they represent. In late 2007 and early 2008, the funds had entered into a type of complex financial transaction called a corporate bond basis package. One of the critical components of the transaction was an interest rate swap that, among other things, was designed to provide a floating-rate interest payment to the funds. The plaintiffs investment strategy assumed that as the banking crisis worsened, the Libor rate would increase, as (it was assumed) the crisis would force the rate-setting banks themselves to pay higher interest rates. The investment was designed to provide increased interest payments as the Libor benchmark increased.

 

Instead of making money as the Libor benchmark increased, the funds lost money, and actually had to make increased levels of collateral commitment, as the benchmark stayed basically level. Ultimately the funds were forced to unwind the transactions on very unfavorable terms, including, among other things, locking in artificially suppressed levels of Libor for the remaining periods of the swap transactions. Ultimately, the funds failed as a result of these problems. It was only later, when the details of the manipulation of the Libor benchmark rates emerged, that the plaintiffs understood that the investment performed so poorly because the Libor benchmark had been suppressed, as the participating banks sought to mask their true financial condition. Many of the Libor rate-setting banks that are accused of manipulating the benchmark rates were parties in the financial transactions that are the basis of the lawsuit.

 

Against the six banks with whom the plaintiffs had a direct financial relationship with the now-defunct funds , the plaintiffs have filed claims for breach of contract; breach of the implied covenant of good faith and fair dealing; and unjust enrichment. Against all of the rate-setting banks, the plaintiffs have filed claims for common law fraud; aiding and abetting fraud; tortious interference with contract; tortious interference with prospective business advantage; and civil conspiracy. The plaintiffs claim damages of $250 million.

 

By asserting common law claims, the claimants in this action avoid the statutory defenses that have led to setbacks for the claimants in the Libor-scandal antitrust and securities lawsuits. And while the assertion of these claimants of common law fraud claims will require the claimants to establish reliance, the nature of the relationship that these claimants had with the banks as a result of the transactions increases the likelihood that they will be able to establish reliance.

 

There have been prior Libor scandal-related cases asserting common law fraud claims (refer for example here). Nevertheless, this latest lawsuit may represent something of a new front in the Libor-scandal litigation wars, and may suggest a way for prospective Libor-scandal related to circumvent some of the obstacles that prior claimants have faced. That is, the claimants may avoid the problems prior claimants have confronted by proceeding individually rather than in the form of a class action, and by asserting common law claims rather than federal statutory claims.

 

The question is whether other prospective claimants individually have sufficient damages to warrant proceeding individually, and in addition whether the prospective claimants had sufficient direct contact with the Libor benchmark rate-setting banks in order  to be able to try to substantiate the common law claims  — for example, to allow the claimants to satisfy “reliance” requirements. According to comments from the counsel for these claimants that Frankel quoted in her blog post, there “are lots and lots of investors who dealt directly with the banks “ and that have sufficient damages to warrant individual claims.

 

It may be, as these claimants’ counsel is quoted as saying in Frankel’s blog post, that “this is where the future of Libor litigation exists, if it exists.” While the Libor claimants may have hit some early setbacks in the prior cases, there may be future cases that avoid the hurdles that the prior claimants faced and that prove to be more productive for the claimants.

 

It is far to early if this alternative approach to Libor litigation will bear fruit, but there is at least the suggestion that Libor litigation still has much further to go. Despite the early setbacks, it may be a while yet before we can assess overall how claimants are faring in this litigation. 

 

In Defense of “No Admit” Settlements: For some time now, settlements of SEC enforcement actions in which the defendants neither admit nor deny wrongdoing have been under attack. These kinds of settlements were first and most publicly attacked by Southern District of New York Judge Jed Rakoff, who, in a November 2011 order, questioned the SEC’s no admit settlement with Citigroup. (That ruling is currently on appeal to the Second Circuit.) More recently, on May 14, 2013, Senator Elizabeth Warren sent the heads of several federal agencies, including the SEC, a letter questioning the practice of entering into settlements without an admission of guilt.

 

There clearly will continue to be debate on this issue. I have long thought that if the SEC is prohibited from entering into “no admit” settlements, among the possible consequences would be that fewer cases would settle, more cases would go to trial, and the SEC’s resources would be stretched, meaning even less enforcement in the end.

 

In a May 21, 2013 op-ed piece in the Wall Street Journal entitled “Why the SEC needs ‘No-Admit’ Settlements” (here), former SEC Enforcement head and current King & Spaulding partner Russell G. Ryan adds some additional concerns that might arise if the SEC were barred from entering into “no admit” settlements.

 

First, Ryan notes that an obvious alternative for the SEC, rather than pursuing civil enforcement actions in which it would be barred from entering into “no admit” settlements, the SEC would logically seek to pursue more cases through its administrative process, which requires no oversight by the courts. The administrative proceedings are viewed as less severe that federal court enforcement proceedings. In addition, because of the absence of judicial scrutiny, cases in the administrative process “invite the potential for reduced transparency and accountability when compared with settlements that require the imprimatur of an independent federal judge.”

 

Second, Ryan argues that if the agency were barred from entering “no admit” settlements, the outcome would be “weaker settlements overall.” Ryan points out that settlements are the result of protracted negotiations characterized by give and take by both parties. Ryan notes that:

 

Among many terms negotiated in an SEC settlement, the no-admit clause is one of the most important to the defense. A policy change requiring an admission of wrongdoing would, in essence, take this settlement term off the table. It would therefore force the SEC to compromise elsewhere in the bargain to maintain the fragile equilibrium that would have prevailed without the admission.

 

It is “naïve” to think that the SEC would be able to bargain for the exact same settlements as they are now if the SEC is not able to offer the possibility of a “no admit” provision in the bargain. Ryan contends that “the inevitable end result” if an admission of wrongdoing is required would be “lighter overall sanctions in a less accountable venue.”

 

As I have previously noted (refer for example here), one of the most vexing issues in the D&O claims arena is the questions of whether or not two claims are or are not interrelated. If the two are interrelated, they are deemed a single claim for purposes of determining the claims made date. The outcome of this analysis often can mean the difference between the availability of coverage and non-coverage for one or both of the claims.

 

In a recent D&O insurance coverage dispute in the Western District of Washington, Judge Richard A. Jones wrestled with the relatedness question in the context of a qui tam claim that followed after an earlier anti-retaliation claim. Having determined that the subsequent qui tam claim “related back” to the prior anti-retaliation claim, and that the subsequent claim was deemed made at the time of the earlier claim, Judge Jones then had to determine whether the two claims were also a single claim for purposes of the application of a policy exclusion.

 

As discussed in his March 11, 2013 opinion (here), Judge Jones determined that the “single claim” deeming term operates only with respect to the policy’s claims made provisions, but did not operate with respect to the application of the policy’s exclusions. Judge Jones’s opinion is the subject of a May 15, 2013 memorandum from Matt Jacobs and Jan Larson of the Jenner & Block law firm (here).

 

Background

In April 2009, Richard Klein, the former CFO of Omeros Corporation, notified the company that he believed he had been terminated from the company in retaliation for internally reporting what he contended was the provision of falsified time records to the National Institute of Health (NIH) in connection with an NIH grant. In September 2009, Klein filed a lawsuit against Omeros alleging that he had been fired in violation of the anti-retaliation provisions of the False Claims Act.

 

Omeros submitted the anti-retaliation claim to its management liability insurer, which provided both EPL and D&O insurance to Omeros. Pursuant to a reservation of rights, the insurer defended Omeros against the Klein suit under the EPL coverage section. The insurer ultimately exhausted the $1 million limit of liability applicable to the EPL coverage in defense of the Klein claim.

 

In November 2010, Klein sought leave to amend his complaint to include a qui tam action on behalf of the United States, asserting that Omeros had violated the False Claims Act. Omeros submitted this amended claim to its management liability insurer. The insurer agreed to defend the amended claim, again under a reservation of rights, under the D&O liability portion of its coverage. The insurer then filed an action seeking a judicial declaration that it there is no coverage under its policy for the qui tam action. Omeros filed a counterclaim contending that the insurer had breached its duties under the policy, acted in bad faith, and violated the Washington Insurance Fair Conduct Act.

 

The insurer moved for partial summary judgment, arguing that because Klein did not file his qui tam claim until November 2010, and because the applicable policy expired in October 2009, the qui tam action was not a claim made during the policy period, and therefore was not covered under the policy. Omeros argued, in reliance on the policy’s Related Acts provisions and definitions, that the subsequent qui tam action related back to the prior anti-retaliation claim, that the subsequent claim is deemed made at the time of the earlier claim, and as a result of the operation of these provisions is deemed a claim made during the policy period.

 

The relevant provisions of the Policy provide that

 

All Claims based upon or arising out of the same Wrongful Act or any Related Wrongful Acts or one or more series of any similar, repeated or continuous Wrongful Acts or Related Wrongful Acts, shall be considered a single Claim. Each Claim shall be deemed to be first made at the earliest of the following times:

1. when the earliest Claim arising out of such Wrongful Act or Related Wrongful Act is first made; or

2. when notice pursuant to section VII.B above [relating to notice of facts “which may be reasonably expected to give rise to a Claim”] of a fact, circumstance, or situation giving rise to such a Claim is given.

 

The D&O Coverage section of the Policy defines “Related Wrongful Acts” as “Wrongful Acts” that re “logically or causally connected by reason of common fact, circumstance, situation, transaction, casualty, event or decision.”

 

The March 11 Opinion

In his March 11, 2013 Opinion, Judge Jones held that “the qui tam claim and the anti-retaliation claim Mr. Klein raise in his initial complaint are based on related wrongful acts.” Judge Jones noted that Klein had alleged in his initial complaint and in his qui tam claim that Omeros had made false reports to the NIH, and accordingly the two claims were logically connected. The insurer had argued that there were differences between the qui tam claim and the anti-retaliation claim; for example, the former seeks recoveries for wrongs done to the United States, while the later seeks a recovery solely from wrongs done to Klein. Judge Jones said that “the policy’s test for a related wrongful act is not whether there are differences, but whether or not there is any ‘common fact, circumstance, situation event or decision’ that logically connects the acts.”

 

Judge Jones added that Omeros’s alleged false reporting “is a common event that logically connects the anti-retaliation and qui tam claims.” The facts underlying both claims “are common facts.” Because the facts are related within the meaning of the policy, the policy requires the insurer “to treat separate claims based on those wrongful acts as if they had been made on the date of the earlier claim.”

 

The insurer, Judge Jones noted, also had a “backup argument.” The insurer argued that if the policy required the two claims to be treated as a “single claim,” and because that “single claim” would have to include Klein’s original anti-retaliation claim, the following exclusion in the D&O portion of the policy was therefore triggered with respect to the qui tam claim: “The Insurer shall not be liable to make any payment for Loss in connection with a Claim made against any Insured …based upon, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving any past, present or future actual or potential employment relationship.”

 

Judge Jones concluded that although the policy deems interrelated claims a single claim for purposed of determining when a claim was made, “they are not a single claim for purposed of applying policy exclusions that are unrelated to the claim-made nature of the policy.” He added that “it is reasonable to construe exclusions that have nothing to do with the claims-made nature of the policy to apply individually to separate claims, even if the separate claims are considered a single claim for purposed of determining when they were made.”

 

Discussion

As I have frequently noted on this site, interrelatedness issues are among the most vexing that can arise under the D&O insurance policy. However, the insurer’s argument here that the anti-retaliation and qui tam claim were unrelated and therefore separate claims was always going to be an uphill battle. It is not just the Klein asserted the qui tam claim in an amended complaint in the same lawsuit in which he had asserted the anti-retaliation claim. It is also the fact that both claims depended on a core nucleus of underlying factually allegations based on his contention that the company had falsely reporting specific information to the NIH in connection with an NIH grant.

 

What is more interesting about this decision is Judge Jones’s exploration of the question of what it means that separate claims are “deemed a single claim.” The insurer argued that if the separate claims are a single claim for purposes of the determining the claims made date, then they must be a single claim for purposes of determining the application of policy exclusions. The problem with this argument is that the “deemer” clause deems separate claims to be a single claim for purposes of making the claims made date determination, not for all purposes under the policy.

 

The easiest way to see the problem with the insurer’s argument is to consider a situation in which Klein had filed both the anti-retaliation claim and the qui tam claim in his initial complaint during the policy period. In that circumstance, Omeros would reasonably expect that the insurer would provide coverage for both of the simultaneously made claims, with coverage for the anti-retaliation claim under the EPL coverage section and coverage for the qui tam claim under the D&O coverage section. The mere fact that the were separately made but deemed a single claim for purposes of the determining the claims made date should not change the availability of coverage under the policy.

 

It is always an interesting question whether or not two matters will be found to be sufficiently related to be deemed a single claim. In this case, the Court was asked to determine the extent of the implications if two separate claims were deemed a single claim for purposes of determining the claims made date. As Judge Jones determined, even if the separate claims are deemed a single claim for purposes of the claims made date determinations, the single-claim clause does not govern when applying policy exclusions unrelated to the claims-made nature of the policy.

 

In a May 16, 2013 decision (here), Eastern District of Missouri Magistrate Judge Terry Adelman, applying Missouri law, determined that the failure of an insured under a management liability insurance policy to provide timely notice of claim precluded coverage under the policy, even in the absence of a showing of prejudice to the insurer.

 

Background       

On December 28, 2007, Secure Energy’s Board of Directors received a demand from Michael McMurtrey regarding commissions he allegedly was owed. On May 16, 2008, McMurtrey filed a lawsuit against Kenny Securities and against John Kenny, a director and founder of Secure Energy. On April 13, 2009, McMurtrey added Secure Energy as a defendant to the lawsuit. McMurtrey sought to recover $1.8 million in commissions and $2 million in punitive damages. McMurtrey alleged breach of contract, unjust enrichment, fraud, negligent misrepresentation, and conspiracy against Secure Energy. McMurtrey voluntarily dismissed his suit on June 25, 2009 but refilled it against the same defendants on July 8, 2009.

 

Secure Energy’s management liability insurance policy provided that the insured must provide notice of claim to the insurer as soon as practicable after becoming aware of the claim but no later than 60 days after the expiration of the policy. However, Secure Energy did not notify the insurer of the claim until May 4, 2011. According to the Magistrate Judge’s opinion, the reason for Secure Energy’s delay in providing notice was it was unsure whether it had a claim. However, the Magistrate Judge also noted that in 2009, the company’s insurance broker had advised the company that while there may be little or no coverage under the policy for the claim, the only way to determine coverage is to submit a claim.

 

The insurer rejected coverage for Secure Energy’s claim on the grounds of late notice. Secure Energy then filed an action seeking a judicial declaration that there was coverage for the claim under the policy. The insurer filed a motion for summary judgment arguing that coverage was precluded because Secure Energy had failed to provide timely notice. Secure Energy argued that coverage was not precluded because the insurer had suffered no prejudice from the untimely notice.

 

The May 16, 2013 Decision

In a short May 16 opinion, Magistrate Judge Adelman granted the insurer’s motion for summary judgment. Secure Energy had tried to argue that under Missouri law, an insurer cannot deny coverage for a claim based on late notice unless the insurer can demonstrate that the insured’s failure to comply with the notice provisions prejudiced the insurer. The insurer argued that under Missouri case law, in order to deny coverage on the basis of late notice, an insurer under a “claims made” policy need not demonstrate prejudice.

 

After reviewing the case law, Magistrate Judge Adelman observed that “the Missouri Supreme Court distinctly held that an insurer is not required to show prejudice in a ‘claims made’ policy. Several Missouri state and federal courts have followed this reasoning.” Magistrate Judge Adelman concluded that the insurer “is not required to demonstrate that it was prejudiced by Secure Energy’s failure to provide notice under the claims made policies. Secure Energy’s failure to give the requisite notice precludes it from coverage.”

 

Discussion         

Delayed notice is a recurring problem for policyholders seeking to obtain insurance coverage for claims. The reasons that the notice is delayed are innumerable. All too often, it will emerge that the reason the notice was delayed is that the policyholder did not think there was coverage or, as apparently was the case here, the policyholder did not think there was yet a claim. In other cases, the insured simply concluded that the claim was no big deal – only to find out later that it is a bigger problem than first appeared. Because I have seen these patterns so many times over the years, I have developed a simple rule – always give notice. No good comes from withholding notice. If you are asking the question whether or not you should give notice, then you should give notice.

 

But if policyholders sometimes hurt themselves by withholding notice, it can sometimes appear that some carriers in some instances seek to use the notice requirements as a coverage dodge. (Please note that in making this observation here, I am in no way commenting on the carrier’s behavior in the Secure Energy case.). For that reason, I am concerned when late notice can serve as a basis to deny coverage even in the absence of prejudice to the insurer. In fairness, the notice here was years late. The tardiness of the notice here is hard to excuse, particularly when two years prior to actually providing notice, the company had been advised by its broker to go ahead and give notice. But even here, the carrier does not appear to have prejudiced by the delay – or, at a minimum, did not claim to have been prejudiced by the delay.

 

The best way for companies to avoid problems with the notice requirement is to have processes to ensure that notice to the insurer is quickly provided after a claim has arisen. However, long experience has taught me that in the real world, the insurer is not always notified right away. The simple fact is that company management, particularly at some smaller companies, is focused on operational issues and is not always sophisticated about insurance issues. Courts evolved the “notice prejudice” rule in recognition of this practical reality.

 

I know that there are a number of jurisdictions where the courts have held that the “notice prejudice” rule is not applicable in the claims made context. I would argue that the “notice prejudice” rule has a place, even in the world of “claims made” policies. As I discussed in a prior post (here), some courts have applied the notice prejudice rule even in the claims made context (although, it should be noted, in that prior post, I noted some concerns with the court’s application of the rule in that specific case).

 

My concern is that without the application of the “notice prejudice” rule, the notice requirements can become a trap for the unsophisticated or uninformed insured and result in an inadvertent loss of the insured’s rights under the policy. I recognize that insurers want to be able to be involved in claims and don’t want to get caught up in murky questions about what may constitute “prejudice,” and therefore prefer a bright-line notice test. I would argue that the “notice prejudice” provides an appropriate balancing of interests. Obviously, the later a policyholder’s notice of claim is, the harder it would be for a policyholder to obtain coverage under the policy.  

 

I know my friends on the carrier side may have differing views, and in particular may well contend that the notice provisions serve important purposes that should not lightly be set aside. I invite readers to add their views using this blog’s comment feature in the right hand column.

 

BlackRobe Litigation Funding Firm Shuts Down: In recent posts (most recently here), I have noted with alarm the apparently proliferation of firms in the U.S. formed to provide litigation financing. The firms are in the business of providing funding for litigation as a form of investment. Among the many developments in this area that captured my attention was the 2011 formation of BlackRobe Capital Partners. The firm’s principals included Sean Coffey, a former partner at the Bernstein Litowitz plaintiffs’ securities firm, joined a year later by retired Simpson Thacher partner Michael Chepiga. As I noted at the time, the involvement of highly respected attorneys like Coffey and Chepiga added an entirely new dimension to the emerging litigation funding phenomenon.

 

Now comes the news that BlackRobe is closing down. As reported in a May 14, 2013 Wall Street Journal article (here), the firm’s founders are “walking away from the litigation-finance firm, citing internal disagreements and a failure to attract enough outside capital from investors.” Though the firm has made over $30 million in investments, “the firm wasn’t able to raise a large discretionary pool of capital.”

 

It is hard to know how much significance to attach to BlackRobe’s demise. On the one hand, a significant factor contributing to the firm’s closure were philosophical differences among the firm’s founders. On the other hand, the firm was also having trouble raising capital, which could suggest an overall lack of investor support for the litigation funding project. However, representatives of several more established litigation funding firm are quoted in the Journal article to the effect that their firms have had no difficulty raising money. So it is possible that BlackRobe’s quick end reflects nothing more than the difficulty that startups face in an evolving industry.

 

Susan Beck’s May 16, 2012 Am Law Litigation Daily article about the BlackRobe firm’s demise (here), includes comments from several of the firm’s principals that seem to corroborate the conclusion that firm’s end was in large measure the result of company-specific factors, including in particular differences among the firm’s principals about how to run the firm.

 

Although the demise of the BlackRobe firm unquestionably is noteworthy, it may or may not say anything about the emergence of the litigation funding phenomenon. Certainly the firm’s difficulties raising capital suggest that it may be a difficult field for startups. Overall, it seems that litigation funding will continue to be a factor, notwithstanding BlackRobe’s demise.

 

Libor Claimants Face High Hurdles: As readers of this blog know, the civil claimants attempted to recover damages against the Libor benchmark rate-setting banks have found the going difficult. For example, most recently the claimants in the Libor scandal-related securities suit filed against Barclays had their action dismissed (about which refer here). A May 16, 2012 Law 360 by Michael Gass, Stuart Glass and Kevin Quigley of the Choate Hall law firm entitled “Libor Litigation Must Overcome Significant Obstacles” (here, subscription required) reviews the various adverse litigation developments the Libor scandal claimants have had to face and concludes that the claimants’ “obstacles to recovery are inherent and, perhaps, insurmountable.”

 

Special thanks to a loyal reader for sending along a link to the Choate Hall memo.

 

The D&O Diary’s European sojourn concluded with a brief stop earlier this week for business meetings in Madrid. I had never been to Madrid before. Like many Americans, I have a deep attachment to Paris, a city I have visited many times and for which I have an abiding affection. However, after my visit to Madrid this week, I now recognize that a visit to Madrid was long overdue — and that my bias toward Paris may have been due to a simple lack of critical comparative data.

 

Madrid is a big city. Its population is almost 3.5 million, a little less than that of Los Angeles. Driving in from the airport, the city’s size and sprawl are apparent. But Madrid’s Centro de la Ciudad is quite compact. It is possible to walk the diameter of the city center, from the Palacio Real to the Museo del Prado, in an afternoon. But though it is physically possible to traverse the central city in a short time, to actually do so would be a mistake. There is so much to see within the city that a more leisurely pace is by far the better approach, and indeed Madrid’s own rhythm pretty much requires it anyway.

 

The city’s heart (and literally the country’s central point) is the sun-drenched, crescent-shaped Plaza Puerto del Sol (pictured above at the top of the post). Radiating northward from the plaza are busy upscale pedestrian shopping streets. Far more interesting are the streets to the west of the plaza, full of stores selling clocks, musical instruments, antique religious paraphernalia, coins, tapestries, hats, gloves, and assorted other remnants of time and history.

 

Just to the southwest of the Puerta del Sol is the Plaza Mayor, a sprawling, colonnaded quadrangle with an area of nearly 200,000 square feet enclosed by three-story residential structures mixing Habsburg, Bourbon and Georgian architecture. Today, the Plaza is ringed with shops, sidewalk cafes and restaurants, and thronged with sightseers snapping selfies with their cell phones. Enterprising young hustlers work the crowd, trying to sell French and Italian school kids little plastic wind up pieces of crap and bird whistles that make a sound like a duck with a hernia.

 

I had a particularly pleasant evening sitting at a sidewalk café in the Plaza Mayor, watching the peaceful procession of tourists while the sun set and the day turned to dusk. The Plaza has not always been so serene. At the Museo del Prado, I saw a painting from the time of the Spanish Inquisition depicting an auto de fe in the Plaza Mayor. The painting appeared to have been created in celebration of the event, which involved the trial of dozens of heretics. Among the attendees depicted in the painting was the then-monarch, King Charles II (who proved to be the last of the Spanish Habsburg monarchs). As I watched the darkness gather in the Plaza, I wondered whether the ancestors of the swifts and swallows that flitted about the twilight sky also flew about the heretics’ pyres as well.

 

The sun sets unexpectedly late in Madrid — after 9 pm local time while I was there. Turns out that Madrid has put itself in the “wrong” time zone. Madrid is actually a little bit further west than London, but rather than sharing Greenwich Mean Time with the U.K., Madrid has put itself on Central European Time, the same time as the rest of Western Europe. Madrileños adaptation to solar time explains in part – but only in part— their late-shift lifestyle. The hours around midnight are prime time in the city’s many atmospheric neighborhoods. But it is not just the evenings that are late. The entire day is oriented later.

 

 

For one of my business meetings while there, I met a couple of industry colleagues for lunch. We met at my hotel at 1:30 pm, and we strolled around Malasaña, one of the many neighborhoods in the city center with atmospheric, narrow alleyways lined with tabernas, wine bars, and restaurants. From there, we made our way through a maze of city streets to the Mercado de San Miguel, a 19th century iron-canopied marketplace near the Plaza Mayor. After a renovation completed in 2009, the market is now full of small, upscale eateries, as well as shops selling upmarket meats, cheeses and wine. We paused there to share a plate of oysters from Galicia, which we ate standing up and which we washed down with a glass of white wine. From there, we made our way westward toward the Palacio Real, to a traditional Spanish restaurant near the Plaza de las Vistillas (which affords an agreeable view of the green expanse of the enormous Casa de Campo and the Sierra de Guadarrama mountains beyond).

 

We finally sat down at our table for lunch at about 3:15 pm. The restaurant was packed. After many plates of sardines, clams, small squares of dried ham and toasted bread with tomato sauce, plus potatoes with eggs, fish cooked in garlic with onions and mushrooms, cheese, and much else besides, we finished our lunch around 5:30, about the same time as the rest of the lunchtime crowd. No wonder they eat dinner so late in Madrid.

 

In at least one respect, the city’s late-hour orientation worked to my advantage. One day, after I had finished my meetings for the day, I was able to sneak in a visit to the Museo del Prado, because it stays open until 8 pm. The Prado unquestionably is one of the world’s great art museums. Its collection holds over 7,000 paintings, including many masterpieces of Western Art, but from my perspective, the most interesting art works in the museum are the "pinturas negras" (black paintings) of Francisco Goya. The fourteen paintings, which were given their collective name due to the artist’s heavy use of dark pigment, were painted as murals in the artist’s rural retreat and apparently were never meant for exhibition. The paintings are intense and haunting, and present quite a contrast to the many galleries of well-fed Habsburgs and Bourbons upstairs. 

 

In a happy stroke of luck, my visit to Madrid coincided with the feast day of San Isidro. Because San Isidro is the patron saint of Madrid, his feast day is a city holiday. On the feast day, a number of people in traditional attire made a pilgrimage to the various sites around the city associated with the saint, including a well at which the saint is reported to have miraculously saved the life of his son through the intercession of angels. One of the day’s traditions includes drinking water from the well, a ritual (in which I joined) that is supposed to produce particularly salubrious effects, both physically and spiritually.

 

Most of the city’s residents seemed to be honoring the saint’s feast day by strolling through Madrid’s parks and ancient neighborhoods, with their narrow streets and tiny plazas. And why not? Madrid has to be one of the best cities in the world in which to just walk around. I got lost numerous times while I was there, which at first I found quite frustrating, as I have a certain pride in my sense of direction. But after a while, I realized that it didn’t matter, that I should just follow the streets where they led and enjoy the scene as I passed through.

 

Given the throngs of happy strollers on San Isidro’s feast day, the idea that Spain is the midst of an economic crisis seems wildly implausible. Nick Paumgarten explained this seeming paradox in a February 23, 2013 New Yorker article entitled “The Hangover” (here):

 

It is often hard to perceive an economic crisis. Debt doesn’t look like much. It has no shape and smell. But over time, it leaves a mark. In Spain, it manifested itself, first, as empty buildings, stillborn projects and idled machines. The country is now a museum of doomed developments – a white-elephant safari… In twenty years, Spain acquired an urbane opulence that turns out to have been built on debt that cannot be repaid…. Once the crisis came, foreign money dried up. No one, in either the private or public sector, wanted to finance Spain’s liabilities, and interest rates shot up. Spain is now stuck with an unaffordable currency and seemingly unpayable debt.

 

What may lie ahead for Madrid and for the country remains to be seen. The city and the country have been through very dark times before. Whatever may come, it seems likely the city will endure, as it has through centuries of change.

 

I opened this post about Madrid by mentioning Paris. My invocation of the romantic French city was deliberate. I know that for many Americans, Paris represents the urban ideal, as is captured in the old saying to the effect that when good Americans die, they go to Paris (a quotation variously attributed to Oliver Wendall Holmes and Oscar Wilde). With all due respect to our conditioned reverence for all things Parisian, I have to say that Madrid has every bit of Paris’s charm – perhaps even more. As one of my American friends in Madrid put it, Madrid is Paris without the Parisians. I wouldn’t quite put it that way, as I happen to have had only good experiences with Parisians. I would say that Madrid is Paris without the requirement for rigid adherence to certain aesthetic forms.

 

Whether or not the comparisons between the two cities are apt, or even necessary, the simple fact is that Madrid is a colorful city with a rich and complicated historical heritage, and a vibrant street life of which I think I could never grow tired.

 

I propose a revision to the old saying; how about this – when good Americans die, they wind up in Madrid on a warm spring evening, seated at an outdoor table at a tapas bar, with a bottle of Rioja and hours to go before the dawn.

 

 

 

 

 

 

 

 

 

More pictures of Madrid:

Fiesta de San Isidro:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Palacio Real

 

Paseo del Prado: 

 

 

 

 

 

 

 

 

 

 

 

Gran Via

 

 

 

 

 

 

 

 

 

 

 

The Streets of Madrid

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In a May 13, 2013 order (here), Southern District of New York Judge Shira Scheindlin granted defendants’ motion to dismiss the Libor-scandal related securities suit that had been filed against Barclays and two of its former executives following the company’s entry into a massive Libor-related settlement last summer. The suit’s dismissal is just the latest setback for claimants hoping to recover damages in connection with the Libor scandal.

 

As discussed in greater detail here, on July 10, 2012, Barclays shareholders filed a securities class action lawsuit in the Southern District of New York, against Barclays PLC and two related Barclays entities, as well as the company’s former CEO, Robert Diamond; and its former Chairman Marcus Agius. The complaint, which can be found here, was filed on behalf of class of persons who purchased Barclays ADRs between July 10, 2007 and June 27, 2012.

 

The complaint alleges that the defendants participating in an illegal scheme to manipulate the LIBOR rates, and that the defendants “made material misstatements to the Company’s shareholders about the Company’s purported compliance with their principles and operational risk management processes and repeatedly told shareholders that Barclays was a model corporate citizen even though at all relevant times it was flouting the law.” The defendants moved to dismiss.

 

In her May 13 order, Judge Scheindlin granted the defendants motion to dismiss, holding that Barclays’ representations about its business practices and its disclosures about its contingent liabilities were not actionable misstatements or omissions, and with respect to the remaining statements on which the plaintiffs, that even if they are actionable, that the statements were too attenuated from the company’s 2012 corrective disclosure to establish loss causation.

 

Judge Scheindlin found that many of the statements on which the plaintiffs sought to rely concerning the company’s business practices, particularly general statements about the company’s high standards, constituted mere “puffery.” She added that even as to the statements concerning the company’s Libor practices that arguably are not mere puffery, “plaintiffs’ allegations fail to connect the statements” to the company’s Libor practices. She added that “finding such statements actionable on these facts would render every financial institution liable to every investor for every act that broke the law or harmed reputation.”

 

Judge Scheindlin granted the motion to dismiss with prejudice, expressly denying plaintiffs leave to amend.

 

The Barclays securities suit was the first securities suit to be filed as part of the Libor scandal, and remains the only traditional securities suit filed in connection with the scandal. The only other lawsuit filed in connection with the Libor scandal in which securities law violations have been raised is the state court complaint that Schwab recently filed against the Libor rate setting banks. As discussed here, among the many other claims that Schwab asserted in the complaint, Schwab also asserted a claim against the banks under the ’33 Act, in reliance on the statutes concurrent jurisdiction provision. The Barclays suit is the only case in which the plaintiffs have filed a federal court action relating to Libor and primarily alleging a securities law violation.

 

There obviously is much further to go as the Libor-related litigation unfolds, and it is far too early to start making generalizations. Nevertheless, it does seem that at least so far, the claimants are not faring particularly well in the Libor-related litigation. Judge Scheindlin’s dismissal motion grant in the Barclays case follows Judge Buchwald’s March 2013 ruling in the consolidated Libor-related antitrust litigation largely granting the defendants’ motion to dismiss. To be sure, Judge Buchwald recently granted the plaintiffs in the consolidated case leave to seek to file and amended complaint (while at the same time throwing buckets of cold water on any hopes that she might actually allow the plaintiffs to file an amended complaint).

 

At a minimum, it looks as if the Libor-related litigation might involve a long slog for the claimants, possibly involving extensive appellate litigation. The claimants may yet have a day to celebrate in the Libor litigation, but so far things have not been going particularly well.

 

David Bario’s May 13, 2013 Am Law Litigation Daily article about Judge Scheindlin’s ruling the Barclays suit can be found here.

 

Class Actions: Coming Soon to a Palais du Justice Near You?: According to news reports, the government of French President François Hollande is trying to advance legislation that would allow consumers in France to pursue claims in a form of a class action. On May 2, 2013, the government submitted proposed legislation to the Council of Ministers that would permit consumer class actions. As described in a May 9, 2013 article in Commercial Risk Europe (here), the bill “will enable the public to get compensation for damages caused by mass-market products and anti-competitive practices, reducing the disadvantage that a consumer is prone to suffer when taking action alone against a big corporation.”

 

As discussed in a May 9, 2013 Economist article about the legislation (here), the collective action that the Act proposes is somewhat different than the U.S. class action process.

 

The proposed legislation faces significant opposition from business groups. And even if it were enacted, it would be limited to consumer-type representation; it would not represent the advent of securities class action litigation in France. However, if enacted, it would represent the latest development in the expansion of collective action processes outside the United States. Whether or not the development would lead to the future enactment of some type of securities-related collective action, it nevertheless represents an example of how non-U.S. litigation threats continue to expand and grow.

 

As the Economist article linked above discusses, many other countries have recently enacted provisions allowing for collective action, and other countries are considering it. Recent U.S. judicial decisions (including the Morrison decision) may have advanced this process as U.S. courts have begun to restrict access to non-U.S. claimants. The Economist article suggests that a competition of sorts may already be underway as countries vie to become the preferred venue.

 

Keeping Track of International D&O: With all the changes afoot, it is hard to keep track of where things stand among various countries with respect to the potential liabilities of directors and officers. A recently published directory does provide significant help in that regard. In its recent publication, “A Global Guide to Directors’ and Officers’ Issues Around the World in 2013” (here), Zurich Insurance provides an overview of D&O issues in 43 different countries. The massive 868-page publication continues extensive useful information with respect to each of the countries covered. It is a valuable resource for anyone who much advised companies regarding the potential liability exposures of directors and officers in a range of companies.

 

Very special thanks to a loyal reader for providing links to the article about the new French legislation and to the Zurich Insurance publication.

The D&O Diary is on assignment in Europe this week. The first stop was in Barcelona, where I was a speaker at an annual industry event hosted by my good friends at HCC Global. The education session was a success. As for Barcelona itself … what can you say about a city that has a beautiful beach, a rich historic and cultural heritage, complex and fascinating architecture, and world-class nightlife?

 

Barcelona is larger, busier and more beautiful than I had anticipated. The city sits on the Mediterranean Sea, with Tibidabo, a 1,600 ft. mountain to the northwest, and with Montjuic, a rocky prominence that was the site of the 1929 World Fair and the 1992 Barcelona Olympics, to the south. With a population of 1.6 million, Barcelona is about the size of Philadelphia (although all comparisons between the two cities stop there). While we think of Barcelona as Spanish, the locals consider their city to be Catalan. I don’t think I saw a single Spanish flag in Barcelona itself, but Catalan flags and banners fly everywhere.

 

Barcelona’s architecture is varied and much of it is beautiful. At many street corners, tourists stop to photograph façades and building ornaments. Many of Barcelona’s architectural gems are mixed into otherwise ordinary neighborhoods. For example, Antoni Gaudí’s famous Casa Milà was right around the corner from my hotel, on a busy upscale shopping street. The building for which Gaudí is best known, the stunning and still controversial and still unfinished Sagrada Família cathedral, bursts upward out of a quiet residential neighborhood like some sort of surreal volcano. The narrow alleyways of the Bari Gòtic, the medieval district inside Barcelona’s Ciutat Vella, its old city, are full of well-preserved medieval buildings as well as portions of the Roman Wall and the beautiful Plaça del Rei.

 

Running through the city center from the seafront northwestward into the upscale L’Eixample neighborhood is La Rambla (which at Plaçe de Catalunya becomes Rambla de Catalunya), a tree-lined avenue with a pedestrian walkway in its wide median.  Along the several kilometers-long promenade are sidewalk cafes, small shops and kiosks, street musicians, and squadrons of tourists looking for the right place to sit down and have a glass of sangria.

 

I don’t speak Spanish (much less Catalan), but I have mastered a few Spanish words, including one indispensable phrase: Una cerveza por favor. I was sitting at a sidewalk café along La Rambla, after having successfully deployed my indispensable Spanish phrase, when a German couple sat down next to me. When the waiter came up, it was clear that the waiter didn’t speak German and the Germans didn’t speak Spanish. With instantaneous tacit agreement, both the waiter and the Germans switched to English. This was one of many incidents during my visit to Barcelona that caused me to contemplate languages and communications and the way the forces of the global economy are shaping both. Among other things, I was able to communicate – in English – with all of the other conference participants, regardless of where they are from. Most of the people I met in Barcelona spoke multiple languages, while I spoke only one – fortunately for me, I grew up speaking the one that everyone else could speak.

 

On my way over to Barcelona, I read a history of the Spanish Civil War. In analyzing the war’s causes, the book noted that in the early ’30s, high levels of unemployment had led to social unrest. The book reported that the unemployment rate in Spain in 1933 was 12%. The current rate of unemployment in Spain is approaching 25%. The country now has safety nets that it did not in the ’30s, and Barcelona itself continues to project prosperity. But during my visit, there were unmistakable signs that the current poor economic conditions are taking a significant toll.

 

For example, on my first day in the city, when I entered the Bari Gòtic, I walked right into a massive demonstration, involving a huge crowd of people chanting, blowing whistles, and beating drums. They had gathered opposite the Palau de la Generalitat (which houses the offices of the President of Catalonia). They were protesting against educational spending cuts. Many of the protesters also carried signs (in Catalan) about Catalonian independence. The protest was peaceful and even had a festive air. But surrounding the protesters was a heavily armed cordon of riot police.  It doesn’t take much imagination to picture how the peaceful protest could quickly turn into something much more ominous. But for most of my visit, the troubles stayed well in the background.

 

My visit to Barcelona coincided with the annual Formula 1 Grand Prix of Spain. I had never been to a Formula 1 race before, or for that matter, a motorsports event of any kind. Here is what you need to know about a Formula 1 race: the noise from twenty-two F1 race cars as the race starts is the loudest sound that has occurred in the entire universe since the Big Bang itself. The cars accelerate from a standing start (pictured below, left) to over 120 miles an hour in five seconds. The race, which is a combination of noise, speed, raw power, skill and danger, is 66 laps of total sensory overload.

 

After the race is underway and the cars begin taking pit stops, the cars are scattered across the course, and it becomes, at least for an uninformed observer like me, impossible to tell what is going on. When the race ended (an event I had no idea was coming), I turned to the person next to me and asked him who had won. I gathered later that my question was the F1 racing equivalent of asking  — after LeBron James has hit a buzzer-beater slam dunk to win an NBA playoff game — who that guy was who scored the last basket. The winning driver, it turns out, was the local favorite, Fernando Alonzo, a Spanish driver for the Ferrari team. I believe that every single person there, other than me, knew which car was Alonzo’s and that he had crossed the finish line first at the checkered flag, ten seconds ahead of his closest competitor. Alonzo received a huge trophy and sprayed champagne on the crowd around the viewing stand. My ears were ringing for hours afterwards.

 

It has been many years since I have stayed out on the town past two in the morning. Because dinner time in Barcelona isn’t until 10:00 p.m. or later, on two consecutive evenings, I did not return to my room until the early morning hours. However, it turned out that I was something of an early bird, by Barcelona standards. When I was in a cab on my way back to the hotel at the ungodly hour of 2 am, the city streets were still active and alive with revelers apparently planning on greeting the dawn. I know that I found the F1 race an absolutely overwhelming experience. I can only imagine how it felt to those who had come back from the nightclub at 5 or 6 am. The cars’ noise must have seemed the voice of an angry and vengeful god.

 

The central part of Barcelona is dense and bustling. But the city also has a great deal of green space, some spectacular parks and, of course, an absolutely stunning beach. Among the city’s parks is Parc Guell, which may be one of the most interesting and beautiful urban parks I have ever seen. The park sits on a ridge above the city and is full of fantastic buildings designed by Gaudí. Pathways lead up the hillside from the park’s eccentric, whimsical entrance, offering spectacular views of the city and the sea at every turn. On a sunny afternoon, a host of leisurely strollers made their way up the hill or sat at overlooks listening to the innumerable buskers. The view from the hilltop, pictured at the top of this post, is breathtakingly beautiful. As I stood there looking at the city spread below and the azure sea beyond, I was irrevocably confirmed in my certainty that Barcelona is a truly awesome place.

 

I would like to thank my friends at HCC Global for inviting me to be a part of their great event and for the opportunity to visit their beautiful city. It was a great pleasure to be able to meet so many industry colleagues from all over the world, and to find out that not only could I converse with all of them in my own language, but also that all of them read The D&O Diary. I must say that Barcelona is the perfect venue for …well, for just about anything as far as I can tell. 

 

Farewell to you, beautiful Barcelona. Sorry that I had to leave, but I needed to get some sleep.

 

More pictures: 

As I said, Barcelona is a truly awesome place: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A view of the old city and the Placa del Rei:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

La Sagrada Familia bursts up out of the surrounding quiet residential neighborhood like some sort of surreal volcano.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Barcelona — great nightlife and a world class venue for anything

 

 

 

 

Failed bank lawsuit this year area on pace to total the largest annual number of lawsuits yet during the current bank failure wave, according to an April 2013 report from Cornerstone Research entitled “Characteristics of FDIC Lawsuits Against Directors and Officers” (here). The report identifies several factors – including the FDIC’s recently published settlement data – that the authors believe that “together suggest that substantially more FDIC cases may be filed in upcoming months.”

 

The report notes that as of April 22, 2013, the FDIC has filed twelve lawsuits against former directors and officers of failed banks during 2013. (I am aware of at least two additional suits that have been filed since that time; refer here, second item for the most recent). That brings the total number of lawsuits that the FDIC has filed since 2012, as of that date, to 56. The authors project that at the current filing rate, 2013 filings could total as many as 39.

 

Given the three year lag that generally follows after a bank fails before the FDIC files suit, and given that the peak number bank failures took place between the third quarter of 2009 and the third quarter of 2010, “this year will likely be a peak period for new filings.”

 

Though lawsuits have continued to emerge this year, bank failures themselves have slowed considerably during 2013, with only eight for the year so far compared to 51 during all of 2012. Since the beginning of 2007, 476 banks have failed. The authors project that as many as 26 banks total could fail this year.

 

To date, 12 percent of bank failures have resulted in D&O lawsuits. The lawsuits generally have targeted larger institutions and those whose failures produced larger costs. To date the FDIC has filed lawsuits against 21 percent of the banks that failed in 2009 and against 10 percent of banks that failed in 2010.

 

As I noted in an earlier post, the FDIC recently began publishing on its website information regarding settlements the agency has reached in connection with bank failure claims and lawsuits. The authors of this report have done the hard work of going through all of the settlements that agency has posted on its website.

 

Among other things, the authors report that the FDIC has obtained aggregate settlements of $601 million — $115 million attributable to filed D&O lawsuits; $216 million attributable to 33 claims involving directors and officers of failed banks that did not result in a complaint; and $270 million attributable to claims against professional firms and non-D&O individuals. As many as 17 of the settlement agreements required out-of-pocket payment by individual directors and officers. The out-of-pocket payments totaled $8 million.

 

The report is interesting and worth reading in full. The authors merit our gratitude for working through and summarizing the settlement information on the FDIC’s website. The report contains a number of interesting insights, such as, for example, the authors’ observation about the number of settlements in which directors and officers were required to make out-of-pocket contributions to the settlements.

 

Citing the “obvious magnitude” of the Libor-related antitrust litigation, Southern District of New York Judge Naomi Reice Buchwald has given the plaintiffs leave to attempt to amend their complaints to address the shortcomings that previously led her to grant the defendants’ motion to dismiss. Judge Buchwald granted the plaintiffs’ request for leave to file a motion to amend in a short May 3, 2013 order, a copy of which can be found here.

 

As detailed here, on March 29 2013, Judge Buchwald, in a ruling that she acknowledged at the time might be “unexpected,” granted the Libor benchmark- setting banks’ motions to dismiss the plaintiffs’ consolidated antitrust and RICO claims. In her massive 161-page opinion, Judge Buchwald held that the plaintiffs had failed to allege “antitrust injury” – that is, that the injury of which the plaintiffs’ complain was the result of the defendants’ anti-competitive conduct. Judge Buchwald dismissed the antitrust claims with prejudice.

 

Following her March 29 ruling, various groups of plaintiffs petitioned Judge Buchwald to try to obtain leave to amend their complaints. In her May 3 order, Judge Buchwald expressed skepticism that the plaintiffs could amend their pleadings sufficiently in order to address the concerns that led her to grant to the motion to dismiss. She noted that “although plaintiffs have described the allegations that they intend to add in their second amended complaint with regard to the issue of antitrust injury, we are inclined to think that none of these proposed allegations would change the outcome reached in our Memorandum and Order.”

 

Judge Buchwald cited a number of factors in support of her skepticism that the plaintiffs would be able to overcome the shortcomings of their prior complaints. First, she noted that as a result of the procedural history of the consolidated case and the revelations of the various regulatory investigations, the plaintiffs have in effect already effectively had opportunities to amend their pleadings. In addition, she noted that “plaintiffs have long been on notice that antitrust injury would be an important issue in this case,” adding that “plaintiffs never specifically argued, until after we issued our Memorandum and Order, that they would be able to satisfy the requirements for antitrust injury through additional allegations.”

 

Despite her skepticism that the plaintiffs will be able to address the antitrust injury issue in their amended pleadings, she nevertheless granted the plaintiffs leave to file a motion to amend and a proposed amended complaint. She added that “given the obvious magnitude f this litigation, we intend to proceed deliberately in evaluating plaintiffs’ request.”   However, in light of her concerns, as well as the “comprehensive manner” of her prior ruling and “the tremendous amount of resources already expended by defendants,” she said that she will review the proposed amended complaint prior to requiring the defendants to respond to any motion for leave to amend. Judge Buchwald allowed the plaintiffs two weeks in which to file a motion to amend, to which they must attach their proposed amended complaint.

 

Judge Buchwald’s May 3 order also addresses a number of other requests that other litigants have raised. Several of the defendants had sought to have her reconsider her denial of the motion to dismiss the exchange-based plaintiffs’ Commodity Exchange Act claims. Without ruling on the motion for reconsideration, she requested the parties to confer “regarding whether the exchange-based plaintiffs will be able to adequately allege their CEA claims against each moving defendant in a second amended complaint, in light of our rulings in our Memorandum and Order.”

 

In light of these other rulings, Judge Buchwald declined the request of several parties to lift the stay that has remained in place. She also decline to rule on the exchange-based plaintiffs’ request for leave to seek an interlocutory appeal, asking for additional briefing on the issue.

 

As a result of their efforts, the plaintiffs have at least managed to obtain leave to file a motion to amend. On the other hand Judge Buchwald gave them little reason from which to hope that they might overcome her concerns about their prior allegations. Indeed, among the possible outcomes is that Judge Buchwald could simply deny their motion for leave to amend. Nevertheless, Judge Buchwald’s May 3 ruling does raise the possibility, no matter how slight, that the antitrust allegations in the Libor-scandal might go forward after all.

 

Motion to Dismiss Granted in Securities Suit Against U.S.-Listed Chinese Company: In a May 6, 2013 order, Southern District of New York Judge Katherine B. Forrest granted the motion of China National Offshore Oil Co. (CNOOC) Limited, a U.S.-listed Chinese petroleum company, to dismiss the securities suit pending against the company. (The plaintiffs had previously voluntarily dismissed the claims they had filed against certain individual plaintiffs.) A copy of Judge Forrest’s May 6 order can be found here.

 

As discussed here, the plaintiffs filed their action in February 2012, alleging that the company had initially failed to disclose and then later down played two oil spills at the company’s production facilities in Bohai Bay. The company moved to dismiss the plaintiffs’ complaint.

 

Judge Forrest granted the defendants’ motion to dismiss, finding that the plaintiffs’ allegation were “insufficient to support a plausible inference of scienter.” In reaching this conclusion, she observed that “quite simply, there is not a single allegation in the complaint specifically identifying any information known to CNOOC at the time CNOOC made any of its allegedly false statements undermining the accuracy of those statements in any way.” Judge Forrest granted the motion to dismiss with prejudice.

 

Now This:  The most interesting Muppet in the world. (Hat tip to Cheezburger.com)

The collapse of the venerable Dewey & LeBoeuf law firm is a cautionary tale from which observers have drawn many lessons, including cautions about the perils associated with large law firm mergers and the challenges associated with various forms of law firm partner compensation. The firm’s failure and the claims that have subsequently arisen against the firm’s former managers also highlight important  issues surrounding management liability  insurance for law firms.

 

As discussed here, the Dewey & LeBoeuf firm was the result of a 2007 merger between the Dewey Ballantine firm and the LeBoeuf Lamb Greene & MacRae firm. After encountering financial difficulties, the firm filed for bankruptcy in May 2012. A detailed description of the firm’s collapse can be found here.  In the bankruptcy proceedings, as part of the firm’s liquidation plan, about 400 former Dewey partners agreed to repay the firm’s bankruptcy estate a portion of the compensation they had earned during 2011 and 2012. The total value of the partner contribution plan is $71.5 million. This agreement allowed these former partners to avoid further claims from the estate.

 

However, the committee representing the firm’s unsecured creditors sought and obtained leave of the bankruptcy court to pursue separate claims against the firm’s former leaders – former firm Chairman Steven Davis, former executive director Stephen DiCarmine and former Chief Executive Officer Joel Sanders. (These three individuals were expressly excluded from the agreement embodies in the $71.5 partnership contribution plan.)  Late last year, representatives of the estate sent Davis a demand letter, accusing Davis of mismanagement. In papers filed with the court seeking leave to pursue claims against the three men, the estate’s representatives alleged that the three firm leaders had, among other things, “over-distributed the Firm’s available cash to select partners; abusively relied on guarantee agreements that bore no economic rationality; and concealed the firm’s true financial condition from its partners, employees and creditors.” 

 

On April 22, 2013, representatives of the estate filed a settlement agreement reflecting that Davis, the bankruptcy estate and the law firm’s primary D&O insurer had reached an agreement to settle the estates claims against Davis. A copy of the settlement agreement can be found here.  A copy of the motion to the bankruptcy court to approve the settlement can be found here. Among other things, Davis agreed to pay $511,145 to the estate and in addition the firm’s primary D&O insurer agreed to pay $19 million in settlement of the claims against him. Sara Randazzo’s April 23, 2013 Am Law Litigation Daily article about the settlement with Davis can be found here.

 

On May 2, 2013, DiCarmine and Sanders, who are not parties to the Davis settlement, filed limited objections to the proposed settlement. A copy of their objections, in which they asked the bankruptcy court to reject or modify the settlement, can be found here. Among other things, the two men objected that the $19 million insurance settlement would, together with the $6 million “soft cap” on defense fees, deplete the $25 million limit of liability of the primary policy, while additional claims remain or have been threatened against the two of them. The two men also object that the release contained in the settlement agreement not only releases the primary D&O insurer but, according to the two men, the law firm’s excess D&O insurers as well. (According to the Am Law Litigation Daily article linked above, the law firm carried a total of $50 million D&O insurance, provided by three different insurers that the article identifies.) . Tom Huddleston’s May 2, 2012 Am Law Litigation Daily article discussing the objections can be found here.

 

The outcome of the efforts of Davis and of the firm’s primary management liability insurer to settle the claims against him, as well as the impact of the objections, remains to be seen. While the situation still has further to go before it is fully resolved, the circumstances also present some important insurance implications.

 

First and foremost, these circumstances underscore the importance for law firms of a separate program of management liability insurance. Attorneys are well aware of their need to procure and maintain errors and omissions insurance – or what they typically think of as malpractice insurance. But while they understand their need to have insurance in the event of claims against them asserting that they erred in the delivery of client services, attorneys, or at least some of them, can be reluctant to accept their need to also maintain insurance protecting their firm’s managers against claims for wrongful acts committed in the management of their firm.

 

As these circumstances demonstrate, law firm managers face the possibility of potential claims for a wide variety of potential claimants. Indeed, law firm managers at least potentially face potential claims from the same general range of claimants as does any privately held business and therefore the need for management liability insurance is the same. At a minimum these circumstances provide a vivid illustration to use to explain to law firm manager trying to understand the kinds of claims that might be asserted against them.

 

Second, the size of the proposed settlement with Davis has important implications for law firms when they consider how much management liability insurance to buy.  By the same token, the multiplicity of claims that have been asserted against the former firm managers (which are detailed in the filing the objectors presented to the court) underscore the breadth of litigation that can arise against firm management. Many law firms do not need to be persuaded that they need to carry hefty limits of liability for their E&O insurance, but they may underestimate their needs when it comes to their management liability insurance. As a reader pointed out to me in a recent email exchange, many law firms carry significantly greater levels of E&O insurance than management liability  insurance. The scale of the claims involved here could encourage some law firms to consider increasing the limits of liability for their management liability insurance program.

 

Third, this situation also raises important considerations with respect to the terms and conditions of a law firm’s management liability insurance program. In November 2012, when the unsecured creditors’ committee first sought leave of the bankruptcy court to pursue claims against the three former firm leaders, one concern that was raised was whether the firm’s management liability  insurance would provide coverage for a claim of that type, as the creditors committee in effect would be asserting the law firm’s own claims against the individuals.

 

The concern was that these claims might run afoul of the policy preclusion of coverage for claims filed by one insured against another insured. The fact that the estate and Davis have reached a settlement agreement to be funded largely by management liability insurance suggests that this potential coverage issue was resolved. But the fact that this concern was raised does have important implications about the need to ensure that the insured vs. insured exclusion is revised to insure that it does not preclude coverage for claims brought by representatives of the bankruptcy estate, such as a bankruptcy trustee or creditors’ committee.

 

There are other insured vs. insured exclusion concerns potentially affecting coverage under a law firm management liability insurance policy. For example, one type of claim that frequently arises in the law firm context is a claim by a law firm partner not involved in firm management against the firm’s managers. The way a law firm’s management liability policy would respond to this type of claim is an important coverage consideration, as is the policy’s response to partnership and compensation issues.

 

Many observers have chosen to interpret the demise of the Dewey & LeBoeuf law firm as a sort of a morality tale about the wages of supposed greed and excess. While some may find enough from the law firm’s demise to support that kind of an interpretation, it would be unfortunate if those lessons were the only ones drawn from these events. Even if the law firm’s collapse is the result of the firm’s own peculiar set of circumstances, there are still important lessons for other law firms, even those that consider their circumstances to be different from those of the late lamented Dewey LeBoeuf firm. Among the lessons that every firm would do well to heed is the message about the importance of management liability insurance for law firm managers.

 

Special thanks to a loyal reader for sending me a copy of the objection to the Davis settlement.

 

FDIC Files Another Failed Bank Lawsuit: On April 30, 2013, the FDIC filed its latest lawsuit against former directors and officers of a failed bank. In a suit the agency filed in the Northern District of Illinois in its capacity as receiver of the failed Midwest Bank and Trust Company of Elmwood Park, Illinois, which failed on May 14, 2010, the FDIC asserts claims for gross negligence, negligence and breaches of fiduciary duty against 18 former directors and officers of the bank. A copy of the FDIC’s complaint can be found here. The American Banker’s May 2, 2013 article about the lawsuit can be found here.

 

In its complaint, the FDIC alleges that the Defendants “exhibited an extreme departure from the standard of care and want of even scant care in agreeing to lend $100 million to six uncreditwortthy borrowers and affiliated parties” without employing care and diligence to ensure that the borrowers were creditworthy or that the proposed projects were even feasible or would likely result in repayment of the loans. The alleged misconduct allegedly took place after regulators had warned the bank about its lending practices. The complaint further alleges that the defendants “disregarded prior experience, criticism and the Bank’s specific policy” in connection with $85 million in investments in certain preferred stock. Despite prior bad experience with similar investments, the defendants “pursued an uninformed gamble and held the stock until it had most of its value,” producing a loss for the bank that allegedly could have been avoided if the bank had followed its own announced policies and practices. In its complaint the FDIC seeks to recover over “$128 million in damages.”

 

With the filing of this latest complaint, the FDIC has now filed a total of 58 lawsuits against former directors and officers of failed banks, including fourteen so far this year. As I discussed here, it seems likely there will be more to come, as well. Special thanks to a loyal reader who sent me a copy of the Midway Bank complaint.

 

Mugging for the Camera: Following its cameo appearance during Advisen’s recent quarterly claims update webinar, one of The D&O Diary’s coffee mugs also made a guest appearance on Twitter, as captured below. To find out how you can get one of The D&O Diary coffee mugs, refer here.

 

 

The liabilities of corporate officials are a reflection of the laws of the jurisdiction in which the corporation is chartered. The jurisdiction’s liability provisions in turn have important implications for the structure of the insurance put in place to protect the corporate officials.

 

In the following guest post, Michael Hendricks (pictured above left), the founder and head of the German D&O specialist broker HENDRICKS & CO GmbH and Burkhard Fassbach (pictured above right), licensed to practice law in Germany and standing legal counsel to the German operation of the London-based Howden Broking Group, take a close look at the particular need for separate D&O Insurance Cover for Supervisory Board Members in the German two-tier board system.

 

I am very grateful to Michael and Burkhard for their willingness to publish their post on this site. I welcome guest posts from responsible commentators on topics relevant to this blog. Any readers who are interested in publishing a guest post on this site are encouraged to contact me directly. Michael and Burkhard guest post follows:



Introduction

D&O Insurance Policies are widespread in Germany nowadays after initial adoption from its homeland in the United States. The product designation (Directors & Officers) directly refers to the American one-tier board system. If the German insurance industry would not have simply had assumed the American designation and had instead rather taken the German two-tier board system into account, the German product designation more precisely had better been labeled as Insurance for Supervisory and Executive Board Members – S&E rather than D&O Insurance.

Both, Members of the Supervisory Board and the Executive Board are “insured persons” under the D&O Company Policy and are subject to the potential liability of Board Members. Only the “insured persons” are entitled to the rights arising from the D&O Policy. However, the company is the sole Policyholder and pays the premiums. The insured event (Trigger) is foremost a claim made against an insured person due to alleged breach of duty.

In the framework of the liability regime set out by the German two-tier board system, the Supervisory Board is the competent corporate body in charge of triggering a claim against the Executive Board. The corporation (Policyholder) – represented by the Supervisory Board – takes legal action against the Executive Board due to alleged breach of duty.

The D&O claims experience gained in recent times clearly shows that significant conflicting interests occur because the D&O Insurance carrier cannot at the same time fulfill its fiduciary duty towards the Executive Board and the Supervisory Board. In particular, the problems arise in the event that the Executive Board – which has been sued by the company in the first place – issues a third-party notice towards the Supervisory Board in the court proceedings of the civil liability trial in order to take precaution for a later recourse against the Supervisory Board, more precisely against individual former or current Members of the Supervisory Board.

For the sake of avoiding such conflicting interests – in particular in the event of third-party notices – it is of utmost importance that the corporation buys an independent D&O cover for the Supervisory Board and thereby ensures full harmony with the German dual two-tier board system. It is essential that the D&O Insurance cover for the Supervisory Board is provided by a totally separate Insurance carrier which is definitely not participating in the company’s D&O Insurance program (Primary or Excess layers).

Twin Tower Model

In order to reflect the dual two-tier board system cleanly and properly in the concept of D&O Insurance programs, the Twin Tower Model would be the best solution: Tower 1 by Insurance carrier A only covers the Executive Board. Tower 2 by the Insurance carrier B only covers the Supervisory Board.

For reason of the „principle of equality of arms“, both towers should have the same limit of cover (insured amount). Any conflicting interests are destroyed at birth by implementing the Twin Tower Model. A powerful Supervisory Board should in any case explore such a solution. However, in a D&O market expected to become tougher the Twin Tower Model will only sell for high premiums. Therefore, the Two-Tier Trigger Policy for Supervisory Board Members outlined as follows is much more meaningful.

Two-Tier Trigger Policy

A special D&O Policy – only for the Supervisory Board – should solely align with the need for protection required by the Supervisory Board. The protection requirements shall tie in with the triggers (insured events). In contrast to the Twin Tower Model the Supervisory Board Members still remain insured persons under the Company’s D&O Policy for the time being. The Two-Tier Trigger Policy only steps in whenever a conflict of interests arises. A presentation of the several Triggers is shown as follows:

Trigger 1: Exhaustion of the insured limit of the Company’s D&O Policy

The first Trigger is the exhaustion of the insured limit of the Company’s D&O Policy (Primary and Excess layers). In this respect the Two-Tier Trigger Policy is functioning like an excess D&O Policy (Following Form to the Company’s D&O Policy). As a result an additional insured limit provided by a separate D&O insurance carrier is available exclusively to the Supervisory Board.

This Trigger in particular ensures the necessary independence to carry out the mandate of the Supervisory Board Member and this can be clearly shown by the following scenario:

As a general rule, claims in regard to breach of duty are foremost made against the Executive Board. Whilst asserting such claims the Supervisory Board runs the risk that the insured limit of the Company’s D&O Policy is exhausted (“eaten up”) by the Executive Board – perhaps only by defense costs – and the Supervisory Board is absolutely without any cover in the event of a later potential recourse litigation in the future. Should such a scenario become obvious, the defense lawyers of the Executive Board Members could solely by a tactical third-party notice served to the Supervisory Board demonstrate the defenselessness of the Supervisory Board. Thereby, the independence of the Supervisory Board mandate is concretely endangered. Individual Supervisory Board Members who are the recipients of a third-party notice could for their own personal interest – contrary to the company’s interest – work towards a settlement deal, what they possibly would not do if they had cover provided by their own independent D&O insurance policy.

Trigger 2: Third-Party Notice

Besides the trigger of the exhaustion of the insured limit, an independent D&O Policy for Supervisory Board Members shall certainly have to provide the third-party notice as a trigger. This trigger shall already come into action prior to the exhaustion of the insured limit of the company’s D&O policy. In the event of a third-party notice significant conflicting interests arise in the framework of the two-tier board system, which can be clearly shown by the typical course of action and the dynamics of a D&O claim case:

In the course of the decision-making of the Supervisory Board moving to a resolution regarding asserting a claim against the Executive Board, the company’s (claimant’s) lawyer reviews the likelihood of success of a lawsuit. The company / Policyholder has a primary interest in balance sheet protection and therefore tries to push the D&O insurance carrier towards adjusting the claim.

The insurance carrier has a statutory option right between adjusting the claim or defending against the claim.

Usually and as a first step, out-of-court claims adjustment negotiations between the parties are conducted on the basis of a draft statement of a claim (writ of summons). Should the insurance carrier only offer a very low quota, then a negotiated settlement could in an extreme situation be regarded as breach of fiduciary trust by the Supervisory Board, if the quota offered by the insurance carrier is disproportionate in relation to the amount of the asserted claim. The more so, as the Supervisory Board basically meets the duty to assert claims against the Executive Board pursuant to the highest-court case-law in Germany and failure to act accordingly results into potential liability of the Supervisory Board.
 

Should out-of-court settlement negotiations fail, a civil liability trial at the ordinary courts of law – oftentimes over the various stages of appeal – must determine if a negligent breach of duty occurred which has caused a financial loss.
 

In the event the Insurance carrier exercises its statutory option right and elects to bear the defense costs for the insured persons (Executive Board), then the insurance carrier obviously has an own interest in successfully defending the claims.
 

More and more often insurance carriers take the approach of an active liability defense. By a collaborative defense which is set out by the insurance carrier the D&O insurer can steer the entire defense strategy and tries to limit exceeding lawyer’s expenses. The defense lawyers can each present individual statements of the case on top of the basis of the collaborative defense. In the framework of an active liability defense the insurance carrier as an intervener accesses the legal court-proceedings on the side of the defendants by the rules of legal intervention stipulated in the Code of Civil Procedure.

The company / the Supervisory Board perceive the defense litigation brief by the lawyer appointed by the D&O Insurer as rather strange, hence the insurance carrier is still the contractual party and pockets the insurance premiums even if the D&O insurance is by construction insurance for the benefit of third parties (insured persons).

The mistrust results into escalation at the latest in the event individual Members of the Supervisory Board are recipients of third-party notices issued by the sued Executive Board Members. With a view to potential future recourse litigation the defense lawyers advise to issue a third-party notice towards the Supervisory Board Members. They argue that the Supervisory Board shares liability, had knowledge of the alleged breach of duty and has supported or approved such breach of duty. In the event a judgment against the Executive Board becomes final and res judicata – contrary to the expectation of the defense lawyer – then recourse claims against the Supervisory Board arise.

In particular current Members of the Supervisory Board will not necessarily take the decision to intervene the legal court-proceedings on the side of the defendant. Obviously, it would be highly contradictory if a Supervisory Board Member who is responsible for asserting the claim would subsequently intervene the legal court-proceeding on the side of the defendant. Should they do so, they certainly need to think about resigning from the Supervisory Board with immediate effect. However, in individual cases an intervention on the side of the defendant may make sense for former Members of the Supervisory Board or for Supervisory Board Members who had been outvoted in the framework of the resolution regarding asserting claims against the Executive Board.

Under the company’s D&O Policy the third-party notice is one of the triggers defined as an insured event. The Supervisory Board Members who are the recipients of a third party-notice will notify the occurrence of an insured event to the company’s D&O insurance carrier.
 

Apparently, the Members of the Supervisory Board who are recipients of a third-party notice are in need of legal consultation regarding questions of intervention to the court proceedings, whilst taking potential future recourse litigation into consideration. The lawyer appointed by the Supervisory Board Member – who had received a third-party notice – in a first step needs to review the entire records of the court case which are often very voluminous and as a second step needs to argue scenarios of liability and recourse with his client and finally provide legal advice regarding intervention of the court proceedings.

Should an intervention on the side of the defendant not be viable due to the reasons outlined above the alternative of intervention on the side of the plaintiff or no intervention at all needs to be reasoned. An intervention on the side of the plaintiff may make sense if it definitely needs to be ensured that the Member of the Supervisory Board who is the recipient of a third-party notice is accommodated in the distribution circle of the judicial post of the liability trial (litigation briefs) and is thereby not cut-off from the flow of information. Individual Members of the Supervisory Board do not always have access to the entire records of the court case in particular in the event they have already left the Board.

The assessment of the prospect of success regarding potential recourse litigation against the Supervisory Board Members – who are the recipients of the third-party notice – is at the core of the legal advice.

Subsequent to a third-party notice the Member of the Supervisory Board needs to make a request to the company’s D&O insurance carrier for a confirmation of cover regarding legal expenses; whereas exactly the same D&O insurance carrier had beforehand sided with the defendants as an intervener in the course of active liability defense and may have possibly even supported the third-party notice towards the Supervisory Board issued by a defendant.
 

Here massive conflicting interests arise! The D&O insurance carrier of the company’s policy cannot at the same time fulfill its fiduciary duty towards the Executive Board (Trigger: claims made / lawsuit) and the Supervisory Board (Trigger: Third-Party Notice).

Imagine the following case:

After the trigger of the third-party notice had been pulled, the affected Supervisory Board Member asked the company’s D&O insurance carrier – who had sided with the defendants as an intervener beforehand – for a confirmation of cover. Firstly, the D&O insurance carrier was asked to bear the legal expenses related to the questions of intervention to the court proceedings. After having basically agreed to the principle of hourly rates for the lawyer’s fees, the D&O insurance carrier wanted to limit the lawyer’s mandate to only strategically reviewing the facts of the case rather than a full blown legal review. In view of a solid legal opinion covering the potential recourse which is a requirement for the question of intervention to the court proceedings, the lawyer appointed by the Supervisory Board Members – who had received a third-party notice – has not agreed to limit the mandate to a strategic review due to his overall and extensive lawyer’s duties towards his client.

The time-sheets of the lawyer included the time spent for the legal opinion in respect to potential recourse litigation. The D&O insurance carrier asked for a copy of the legal opinion (prospects of potential recourse litigation) and stated that the D&O insurance carrier is entitled to receive a copy of the legal opinion; otherwise the lawyer’s bill would not be paid by the D&O insurer.
 

Due to the fact that the D&O insurer had in the first place sided with the sued Executive Board Members as an intervener, the lawyer appointed by the Supervisory Board Members – who received a third-party notice – has declined to hand over the legal opinion regarding the potential recourse litigation to the D&O insurer. Because of the active liability defense and the collaborative defense there was also the risk that confidential and sensible information from the legal opinion (recourse litigation) or significant contents hereof directly or indirectly leaked to the lawyers of the defendants, keeping in mind that the D&O insurer is steering the entire defense. A declaration by the D&O insurer whereas the contents of the legal opinion is subject to absolute confidentiality and are not shared with the lawyers of the defendants was not enough to convince the lawyer of the Supervisory Board Members of such a “Chinese Wall."

If the mere intention of the D&O insurer had been to get clear certainty about the actual work time of the lawyer and the correctness of the time-sheets, then the inspection of the legal opinion by a neutral third party would have absolutely served this purpose. If a mutually recognized neutral lawyer had inspected the legal opinion about potential recourse litigation and had then confirmed towards the D&O Insurer that the time-sheets regarding the legal opinion are correct, then the D&O Insurer actually should have been in a position to pay the lawyer’s bill. However, the D&O insurer has not agreed with this proposal and rather insisted to receive a copy of the legal opinion about recourse litigation.

The lawyer of the Supervisory Board has strongly advised not to hand over the legal opinion – under no circumstances – to the D&O insurer who had been biased by the active liability defense.

Due to a severe conflict of interests the D&O insurer was not able to fulfill its fiduciary duties in the described situation.

The concept of the Two-Tier Trigger Policy for Supervisory Board Members takes up such conflicting interests and defines the event of a third-party notice as a trigger!

The special need for protection of a single Member of the Supervisory Board also derives from the following aspect: In such a scenario massive conflicting interests can arise within the Supervisory Board. Members of the Supervisory Board who are not recipients of a third-party notice may regard their colleagues in the Supervisory Board who are recipients of a third-party notice as biased. It has already been outlined that such affected members could for personal interests – contrary to the company’s interest – work towards a negotiated settlement. In order to avoid such conflicting interests within the Supervisory Board, the competence for asserting the claims against the Executive Board is assigned to a Claims Adjustment Committee within the Supervisory Board. Such members of the Supervisory Board who are affected by the third-party notices cannot become members of the Claims Adjustment Committee. The Claims Adjustment Committee has its own bylaws – and also has employee’s representatives as members – and the committee has a chairman who is steering the litigation strategy against the Executive Board with the plaintiff’s lawyer. Whereas – for the sake of avoiding conflicting interests – the Members of the Supervisory Board who are recipients of third-party notices need to seek their own independent legal advice regarding complex questions of intervention to the liability court-proceedings and potential future recourse litigation.
 


Trigger 3: Rescission

Another trigger is the rescission of the company’s D&O policy. For instance, if a Member of the Executive Board had made false statements in the framework of a warranty statement towards the D&O insurer, there is a risk that the D&O insurer declares rescission of the entire D&O Policy with the effect that all insured persons – apparently also including the Members of the Supervisory Board – remain to stand unprotected without any D&O insurance cover.

Trigger 4: Special Representative pursuant to section 147 German Stock Companies Act

Further conflicting interests can arise in the event a special representative asserts claims at the same time against the Supervisory Board and the Executive Board.

Logically, conflicting interests between the Supervisory Board and the Executive Board arise, which derive from the different scope of functions and duties of both Boards in the dual two-tier board system, in particular in the event they are the target of a legal attack.

The dispute between both corporate Boards always centers on the core issue, if the Executive Board has informed the Supervisory Board or has provided sufficient or complete information (argument of the Executive Board) or if the Supervisory Board has not been sufficiently informed or even has been misled (argument of the Supervisory Board).


Future Triggers

The Two-Tier Trigger Policy shall always come into action if there is a need for the protection of the Supervisory Board and there is a conflict of interests between the Executive Board and the Supervisory Board, which has its origin in the dual two-tier board system. Certainly, the product is at an early stage yet and time will tell which additional triggers need to be defined as insured events in the future.

Individual-Policy

Last but not least an individual Member of the Supervisory Board may wish to have an individual D&O Policy. In this alternative the individual Supervisory Board Member is the sole Policyholder and has to pay the premiums out of his own pocket. For multiplayers this has the advantage that mandates in several Supervisory Boards of different companies – to be listed in the certificate of insurance – are covered.

Future-Outlook

Hopefully, a speedy distribution of the Two-Tier Trigger Policy for Supervisory Board Members will finally bring the concept of D&O insurance programs in Germany in harmony with the dual two-tier board system. This will most certainly not cloud the trustful co-operation between Executive Board and Supervisory Board in times of sunshine with mistrust. Rather, the clear separation and borderline between the D&O cover with separate D&O insurance carriers results in a strengthening of both mandates – Supervisory Board and Executive Board – and can therefore only be advocated in the light of “best practice“ and “Corporate Governance.“