Editor’s Note: Today’s Sunday Arts installment excerpts a post from my very earliest days of blogging. The May 25, 2006 post (here) appeared in a separate and now defunct blog called And Furthermore that I then maintained in parallel with what was then and remains now my principal blog, The D&O Diary.

 

One of the more interesting stories in the financial pages these days is the news surrounding the options backdating probes. As the options backdating story has continued to unfold, some have questioned whether or not there is actually anything wrong with options backdating. For example, the wsj.com law blog has a May 23, 2006 video post containing a debate between a business school prof and a CNBC reporter on the topic. Options backdating is obviously not harmless — the revelation of options backdating has already proven damaging to at least some of the companies caught up in the probe as they have had to restate their past financials to reflect their true compensation costs. But even beyond the restatement threat, there is a particular reason why the options backdating story has gained momentum in a way that stories about executives’ use of corporate aircraft or gold-plated pensions have not. Continue Reading Sunday Arts: Cheating at Cards

In early January 2022,  I will be publishing on this site my annual survey of the Top Ten Stories in D&O. On Thursday, January 13, 2022, my colleague Marissa Streckfus and I will be hosting a one-hour webinar on the topic of “The Top Ten D&O Stories of 2021.”  We will be discussing the key developments of 2021 affecting the liability exposures of corporate directors and officers — including  securities litigation trends, SPAC-related litigation, litigation arising from COVID-19, D&O claims arising from cybersecurity incidents, the rise of the duty of oversight claims, and so much more. This free session will begin at 11:00 am EST. I hope that all of my loyal readers will attend. To register for the webinar, please refer here.

Among the significant constraints in the current business and financial environment is the continuing disruption of corporate supply chains. The disruption is a side-effect of the pandemic that has been exacerbated by weather events and other developments. I have been concerned that supply-chain disruption could not only interfere with ongoing business operations but could, for companies experiencing significant setbacks, lead to D&O claims, including securities class action lawsuits. There have in fact been prior securities suits filed this year arising out of supply chain issues.

 

The latest securities suit to reflect this phenomenon is the securities class action lawsuit filed on December 14, 2021 against bed and mattress manufacturer Sleep Number Corporation, whose supply sources for mattress foam was disrupted by the Texas winter storms earlier this year. This latest lawsuit illustrates how supply chain issues can translate into D&O claims. As discussed below, this new lawsuit raises a number of interesting questions about possible future claims. Continue Reading Supply Chain Disruption Leads to Securities Suit Against Mattress Manufacturer

Jeffrey Lubitz

In the following guest post, Jeffrey Lubitz, Executive Director of ISS Securities Class Action Services, takes a look at securities class action settlements in 2021, including aggregate figures and the largest individual settlements during the year. Jeff also notes several important trends and developments in collective investor actions outside the U.S during 2021. A version of this article previously was published on the ISS Insights blog (here). Please note that the 2021 figures below are preliminary; the final calculations will be published in January 2022. The 2021 settlement figures include all settlements with a settlement hearing date between January 1, 2021 and December 31, 2021; some hearings currently scheduled to take place before year end potentially could be pushed into 2022, which would shift the settlement into the 2022 settlement year. I would like to thank Jeff for allowing me to publish his article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Jeff’s article. Continue Reading Guest Post: Shareholder Class Action Settlements Continue Strong Pace in 2021

A standard feature of virtually every commercial contract is a choice-of-law clause. The general perception is that these types of clauses help facilitate settlement and reduce litigation costs. There is, however, one type of contract the usually omits choice-of law-clauses – insurance policies. Throughout the insurance industry and across most lines of coverage, insurance policies lack choice of law clauses. The reasons why insurance policies omit provisions that are standard for virtually every other type of commercial contract is the subject of an interesting new paper from University of North Carolina Law Professor John F. Coyle, entitled “The Mystery of the Missing Choice-of-Law Clause.” Coyle’s paper raises a number of interesting questions, some of which may be relevant as some insurers consider the question of whether they many need to add choice of law clauses to their policies. A copy of Professor Coyle’s December 2, 2021 paper can be found here. Continue Reading Why Don’t Insurance Policies Have Choice-of-Law Clauses?

In just a few days, when the time comes to tot up the 2021 securities class action lawsuit filings and to mark out the key 2021 filing trends, one of the key stories is going to be the surge during the year in the number of SPAC-related securities suit filings. In the latest example of this 2021 filing trend, late last week a plaintiff shareholder filed a securities class action lawsuit against a post-SPAC-merger fintech company. The individuals named as defendants in the lawsuit include two former officers of the SPAC. The new lawsuit has many of the features that have characterized the SPAC-related lawsuits that have been filed this year. Continue Reading Post-SPAC-Merger Fintech Company Hit with Securities Suit

I hope all of you already know this, for just in case and for those of you who do not, registration is now open for the 2022 PLUS D&O Symposium, which will be held March 1-2, 2022, at the Marriott Marquis in New York. The event will held live this year. I have already registered and I hope many of you will also register and attend the event. It will be so great to see everyone again! To register and for other information, please refer here. Continue Reading PLUS D&O Symposium March 1-2, 2022 in New York

In my annual roundup of the issues to watch in the world of D&O that I posted early in the fall, I included in my list of topics the possibility of an increase in antitrust-related enforcement activity. I raised this concern in part because of fears arising from the emerging make-up of the Biden Administration’s antitrust regulatory team. For some readers, it may not have been apparent how these antitrust regulatory concerns might translate into D&O claims activity. Anyone looking for an example of how antitrust enforcement activity can lead to D&O claims will want to review the two shareholder derivative actions filed late last week against certain directors and officers of Alphabet, the parent of Google, as well as against directors and officers of Google itself. The complaints assert breach of fiduciary duty claims against the defendants relating to antitrust enforcement actions that have been filed against Alphabet and against Google by federal and state regulators. Continue Reading Alphabet’s Board Hit with Antitrust Enforcement Follow-On D&O Lawsuits

The “economic structure” of SPACs creates an ‘inherent conflict” between the SPAC sponsor and the SPAC’s public shareholders, according to a new paper from two leading law professors.  The conflict arises from the SPAC sponsor’s financial interest in completing a merger even if the merger is not value-creating, which may conflict with the shareholders’ interest in redeeming their shares if they believe that the proposed merger is disadvantageous. Because of the potential conflict, it is critical that the SPAC’s board independently reviews the proposed merger and inform shareholders about the merger with appropriate candor. However, if the board members’ compensation aligns their interests with those of the sponsor, the sponsor’s conflict could extend to the directors themselves – a circumstance the paper’s authors call the “epitome of bad governance.”

 

The solution, the authors suggest, is for the SPAC to structure the board members’ compensation in a way that aligns the directors’ financial interests with those of the shareholders. Moreover, the authors contend, courts reviewing shareholders’ allegations that a SPAC’s board members breached their fiduciary duties should consider the potential for conflict inherent in the SPAC’s structure and accordingly review the underlying circumstances using the “entire fairness” standard. These considerations are relevant to cases now pending in the Delaware courts, which have the potential to be “groundbreaking.” Stanford Law Professor Michael Klausner and NYU Law Professor Michael Ohlrogge’s November 19, 2021 paper entitled “SPAC Governance: In Need of Judicial Review” can be found here. Continue Reading SPACs’ Structural Conflicts, Shareholder Litigation, and Judicial Review

In a November 30, 2021 opinion (here), a Delaware Superior Court judge, applying Delaware law, held that the later investigations of the insured policyholder by two regulatory agencies were unrelated to an earlier investigation of the company by one of the agencies. In making this “relatedness” determination, the court declined to apply the “fundamentally identical” standard that some Delaware courts have applied to relatedness issues, but instead applied a “meaningful linkage” test. Because relatedness disputes are so frequent, and because Delaware’s court increasingly are becoming the forum in which insurance disputes are addressed, this court’s adoption of the revised relatedness standard court have important implications. Continue Reading D&O Insurance: Delaware Court Applied “Meaningful Linkage” Interrelated Claims Test