In the wake of the SPAC frenzy, which peaked in 2021, investors have filed a significant number of SPAC-related lawsuits, including not only securities class action lawsuits, but also including Delaware direct action breach of fiduciary duty suits. The Delaware actions have so far in at least some cases proven to be successful. More recently, however, the Delaware courts have projected impatience and even fatigue with these kinds of suits, and in at least one recent case, granted the defendants’ motion to dismiss. However, in a more recent case, the Delaware Chancery Court, although noting that the plaintiff’s allegations are “not strong” and “close to the line between an adequate and an inadequate claim,” denied the defendants’ dismissal motion. There are several interesting features to court’s opinion, as discussed below. The Delaware Chancery Court’s October 18, 2024, opinion can be found here.

Continue Reading Del. Court Denies Dismissal Motion in SPAC-Related Action

A Dutch court has entered a significant ruling in one of the long-running efforts by Petrobras investors to recover damages following the company’s bribery scandal. The Petrobras U.S. securities class action lawsuit settled in 2018 for $3 billion. Investors who purchased their Petrobras shares outside the U.S. were not part of that settlement, and these investors have pursued claims elsewhere, including in the Netherlands, where an action filed by a Foundation acting on behalf of a group of investors is pending. In a ruling last week, the District Court of Rotterdam rejected the Foundation’s claims under Brazilian and Argentinian law. The Court also ruled on bondholders’ claims under Luxembourg and Dutch law, as discussed below. The court’s judgment is subject to appeal. Petrobras’s October 30, 2024, filing with the SEC on Form 6-K describing the court’s judgment can be found here.

Continue Reading Court Rules on Petrobras Investors’ Claims in Dutch Collective Action

Long-time readers know that the significant amount of SPAC activity in past years led to a surge in SPAC-related litigation. Some of this litigation has taken the form of traditional securities class action lawsuits. However, among the more noteworthy developments in the rise of SPAC-related litigation has been the emergence of a separate type of suit, the Delaware direct action breach of fiduciary class action lawsuit, sometimes referred to a MultiPlan claim in reference to the first suit of the type to be filed. As detailed below, these kinds of lawsuits have gone through a relatively swift evolution. Many of the these kinds of cases remain pending, have not yet reached the settlement stage. However, the GeneDX lawsuit, which is one of these kinds of cases, recently settled for $21 million, subject to court approval. There are a number of interesting aspects of this settlement, as discussed below. The parties settlement stipulation in the case can be found here.

Continue Reading Delaware SPAC-Related Direct Action Breach of Fiduciary Duty Suit Settles for $21 Million

Many private company D&O insurance policies have a so-called antitrust exclusions that precludes coverage for claims alleging violations of the antitrust laws. However, these exclusions are written broadly and often seek to preclude a wide range of kinds of claims, beyond just claims alleging violations of the antitrust laws. A recent case from the Eastern District of California provides an illustration of the antitrust exclusion’s coverage preclusive reach. The court, applying California law, held that the applicable policy’s antitrust exclusion barred coverage for the unjust enrichment claim and consumer protection law violation claim filed as part of a larger antitrust lawsuit. The court’s reasoning in concluding that the claims were precluded is interesting and provides some insight into the operation of the exclusion and its potential application to various kinds of claims.

The Court’s August 22, 2024, opinion in the case can be found here. The Wiley law firm’s October 14, 2024, post in its Executive Summary blog can be found here.

Background

Foster Poultry Farms is a chicken producer. It is one of several U.S. chicken producers named as defendants in the consolidated Broiler Chicken Antitrust Lawsuits. The plaintiffs in the antitrust lawsuit alleged four causes of action: violation of the Section 1 of the Sherman Act; violations of various state antitrust laws; violation of several state consumer protection and unfair competition laws; and unjust enrichment “by the receipt of unlawfully inflated prices and unlawful profits.”

At the relevant time, Foster maintained a program of D&O insurance consisting of a layer of primary insurance and a layer of excess follow form insurance. Foster submitted the complaints in the antitrust litigation to its insurers. Both the primary insurer and the excess insurer denied coverage for the claim im reliance on the antitrust exclusion. Foster and the primary insurer later worked out a compromise in which the primary insurer agreed to pay a percentage of Foster’s defense fees, up to an agreed-upon cap (the cap was less than the limits of liability of the primary policy).

The excess insurer filed an action seeking a judicial declaration that the antitrust exclusion precluded coverage for the entire antitrust litigation. In the coverage lawsuit, Foster did not dispute that the exclusion precluded coverage for the Sherman Act and state antitrust claims. Foster contended, however, that the antitrust exclusion did not apply to the separate causes of action in the underlying lawsuit for unjust enrichment and violations of the state consumer protection laws, and the separate allegations in the underlying lawsuit of fraud and false advertising. The parties filed cross-motions for summary judgment. The motions were ruled upon by Southern District of Texas Judge Lee Rosenthal, sitting by designation in the Eastern District of California.

Applicable Policy Language

The antitrust exclusion in the primary policy, to which the excess carrier followed form, excludes coverage for “any actual or alleged violation of any law, whether statutory, regulatory, or common law, respecting any of the following activities: antitrust, business competition, unfair trade practices or tortious interference in another’s business or contractual relationships.”

The Court’s Opinion

In an August 22, 2024, opinion, Judge Rosenthal, applying California law, held that the antitrust exclusion applied to preclude coverage for all of the claims in the underlying litigation, including the unjust enrichment claim and the state consumer protection law violations claim, as well as the allegations of fraud and false advertising.

Judge Rosenthal said that Foster’s arguments that the antitrust exclusion did not apply to the other claims “unpersuasive.” He said that the unjust enrichment claim is “derivative of, and entirely dependent upon, the antitrust claims and underlying price-fixing allegations,” noting that in support of the unjust enrichment claim the plaintiff had alleged that the defendants were “unjustly enriched by the receipt of unlawfully inflated prices and unlawful profits.” The allegations in the unjust enrichment claims, he said, “are identical to the allegations underlying the excluded antitrust causes of action.”

The state consumer protection law violation cause of action is, Judge Rosenthal said, “in this respect, no different from the unjust enrichment claims.” The allegations in the consumer protection claims “are the same as the allegations underlying the claims for violations of the Sherman Act and the state antitrust statutes.”

Judge Rosenthal also said that the same analysis applies to the separate allegations in the underlying litigation for fraud and false advertising. These claims are “exclusively allegations that the defendants omitted, concealed, and misrepresented material facts with the intent of hiding from the public their alleged conspiracy to fix the price of broiler chickens.”

Judge Rosenthal acknowledged that the antitrust exclusion “could have been drafted to apply more clearly to the unjust enrichment, consumer protection, and deceptive trade practices claims.” But he found no ambiguity that the antitrust exclusion applies to causes of action that “while not designated as ‘antitrust causes of action,’ are based entirely on allegations of anticompetitive conduct.” He added that this application of the exclusion was consistent with the principle of California law that “allegations in the complaint, not the labels given to the causes of action, determine the duty to defend.”

Discussion

Long-time readers know that in prior posts, I have sounded the alarm bell about the antitrust exclusion (as, for example, here). Antitrust exclusions are found in many, if not most, private company D&O insurance policies, as well as many kinds of professional liability insurance policies. But though these exclusions are referred to in shorthand terms as “antitrust exclusions,” they usually sweep much more broadly, encompassing a broad variety of other kinds of claims as well – as was the case with the exclusion in this policy, which not only precludes coverage for antitrust claims, but also for other kinds of claims, including “business competition, unfair trade practices or tortious interference with another’s business or contractual relationship.”

Many of these enumerated additional kinds of claims are not at all what most people think of when the hear the word “antitrust,” nor are they what most people would think of as being precluded from coverage by an exclusion denominated as an “antitrust exclusion.”

The court in this coverage lawsuit found that the antitrust exclusion swept broadly to preclude coverage not just for claims denominated as antitrust claims, but also to other kinds of claims, even though these other causes of action were not expressly to be found among the “other” claims specified in the antitrust exclusion. In essence, Judge Rosenthal said what matters with respect to the preclusive reach of the antitrust exclusion is not the labels causes of action are given, but rather the nature of the underlying allegations. Because all of the claims, including even the claims not denominated as antitrust claims, were based “entirely on allegations of anticompetitive conduct,” all of the claims, including the ones not expressly alleging violations of the antitrust laws, are precluded from coverage by the antitrust exclusion.

The fact that the antitrust exclusion was held here to preclude all of the causes of action, and not just the claims denominated as antitrust claims, shows how the antitrust exclusion can operate as a kind of stealth coverage bar. It is particularly noteworthy here that the exclusion was held to bar coverage even as to causes of action that, as denominated, were not among the exclusions list of “other” claims that for which the exclusion bars coverage.

The reach of the antitrust exclusion, and its potential applicability to many kinds of claims not denominated as antitrust claims, matters because many private company D&O insurance claims involve causes of action for deceptive or trade practices, of violations of state consumer or business protection laws. The antitrust exclusion can come into play in a wide variety of kinds of claims, much more frequently that is often understood.

As it has developed over the years, at least some carriers will remove the antitrust exclusion upon request. Other carriers will upon request modify the exclusion to narrow its scope, or at least provide antitrust coverage subject to a sublimit or coinsurance. It may be that in many insurance placement transactions, there is no alternative for a particular insurance buyer than to get insurance with a full antitrust exclusion. Many buyers will want to seek and prefer other alternatives.

Chinese e-commerce company Alibaba, whose American Depository Shares (ADS) trade on the NYSE, has agreed to settle a long-running securities class action lawsuit in which the company was alleged to have misrepresented its exclusivity practices and certain aspects of the planned but withdrawn IPO of its financial affiliate, Ant Group. The company has agreed to pay $433.5 million to settle the lawsuit. The settlement is subject to court approval. As discussed below, this settlement has several interesting features.

Continue Reading Alibaba Settles Securities Suit Over Exclusivity Practices and Ant Group’s Scuttled IPO for $433.5 Million

Standard D&O insurance policies typically include an exclusion precluding coverage for claims brought by one insured against another insured. This exclusion also typically has a carve-back to the exclusion preserving coverage claims brought by bankruptcy officials, such as a trustee or received. One recurring question is whether or not a claim brought against an insured person by the company acting as debtor-in-possession is precluded by the exclusion, or whether the bankruptcy carve-back preserves coverage for the claim.

In an interesting October 3, 2024, decision, a bankruptcy court judge presiding over the Chapter 11 bankruptcy of Walker County Hospital Corporation, and applying Texas law, held that a claim by the Hospital acting as debtor-in-possession against the Hospital’s former CEO fell within the bankruptcy carve-back, and therefore that the insured vs. insured exclusion did not preclude coverage. The court’s analysis of this recurring question is interesting, as discussed below. A copy of the bankruptcy court’s October 3, 2024, opinion can be found here.

Continue Reading Insured vs. Insured Exclusion Does Not Bar Coverage for Debtor-in-Possession’s Suit Against Former CEO

Earlier this week, the SEC announced that it had filed settled charges against four companies for alleged misleading disclosures concerning cybersecurity incidents at the companies. The charges against the companies arose out of the SEC’s investigation of companies potentially affected by the compromise of SolarWinds’ Orion software. One of the four companies was additionally charged with disclosure controls and procedures violations. Without admitting or denying the SEC’s charges, each company agreed to the entry of a cease-and-desist order against them. The companies agreed to pay civil penalties ranging from $4 million to $990,000. The SEC’s October 22, 2024, press release about the charges against the four companies can be found here.

Continue Reading SEC Charges Four Companies for “Downplaying” Cyber Incidents

With the news broke within the last few weeks that months earlier the SEC had quietly disbanded its Climate and ESG task force, the agency took pains to emphasize that the winding up of the Task Force did not mean that the agency was no longer policing ESG-related issues. At least one recent development underscores the fact that the agency is continuing to monitor ESG concerns, particularly “greenwashing”-type concerns. Earlier this week, the agency initiated entered an agreed cease-and-desist order against investment adviser WisdomTree Asset Management, based on alleged misstatements and compliance failures relating to the firm’s execution of its ESG investment strategy. Among other things, the agency alleged that the firm’s funds invested in the investment classes it had said it would avoid.

Continue Reading SEC Charges Investment Adviser With Failing to Adhere to Stated ESG Investment Criteria

In the following guest post, Syed S. Ahmad, Geoffrey B. Fehling and Evan J. Warshauer of Hunton Andrews Kurth LLP’s Insurance Coverage Group analyze a New York federal judge’s recent decision to grant an insured’s motion to transfer venue in a coverage matter, highlighting key considerations related to forum selection and related strategy. This article was originally published on October 4, 2024 online with Westlaw Today. Reproduced with permission from Thomson Reuters. Further duplication is prohibited.

Continue Reading Guest Post: New York Federal Court Reinforces Importance of Forum Selection for Insurance Disputes

More than once I have had occasion to write about qui tam actions on this site, primarily in connection with the complicated insurance coverage questions the cases can present. Now, in unexpected and provocative ruling, a federal district court judge has held the False Claims Act’s qui tam provisions to be unconstitutional. While just the opinion of a single district court judge, and therefore without precedential effect outside of the federal district in which it was rendered, the ruling nonetheless is groundbreaking and potentially significant. The potential significance of this development is discussed below. A copy of Middle District of Florida Judge Katherine Kimball Mizelle’s September 30, 2024, opinion can be found here.

Continue Reading Federal Court Holds False Claim Act’s Qui Tam Provisions Unconstitutional