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

In 1520, the nearly-50-year-old German artist Albrecht Dürer travelled to the Low Countries. The Holy Roman Emperor Maximillian I had just died, and his grandson Charles V was about to be crowed in Aachen as his successor. Dürer, both fleeing plague in his hometown of Nuremberg and seeking to confirm with the new emperor the continuation of his pension, roamed widely for more than a year throughout what is now the Netherlands and Belgium. Dürer meticulously recorded his experience and observations in a journal that miraculously (and fortunately for us) has survived. As memorialized in the journal, the curiosity that guided Dürer’s path was frequently rewarded; among other things, he was among the first to see the incredible first shipment of Aztec treasures that Hernán Cortés shipped back to Europe from his first voyage to Mexico as they were unloaded in Antwerp. Continue Reading Sunday Arts: Albert and the Whale

Sarah Abrams

In the following guest post, Sarah Abrams, Head of PL Claims at Bowhead Specialty Underwriters, takes a look at the D&O insurance underwriting and claims implications of private equity investment in managed care organizations. I would like to thank Sarah for allowing me to publish her 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 Sarah’s article. Continue Reading Guest Post: PE Investment in Healthcare and Impact to Managed Care Organization D&O

Companies in the pharmaceutical industry are frequent targets of securities class action lawsuits. In the following guest post, Tony Kriesel, Claims Specialist with IQUW; Elan Kandel, a Member of the Bailey Cavalieri law firm; and James Talbert, an Associate at Bailey Cavalieri, take a look at the reasons for the pharmaceutical industry’s high securities litigation frequency experience and at the implications of the lawsuit frequency for pharmaceutical companies and their insurers. They also consider the significance of the interrelated claims provision typically found in D&O insurance policies for securities claims involving pharmaceutical companies. I would like to thank the authors for allowing me to publish their 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 the authors’ article. Continue Reading Guest Post: D&O Risks and Challenges for Pharmaceutical Companies and their Insurers

The filing of data breach and other cybersecurity incident-related shareholder derivative lawsuits against corporate boards is nothing new; plaintiffs’ lawyers have been filing these kinds of claims now for several years. However, in recent months, the plaintiffs’ lawyers have shown an increasing inclination to file these claims based on allegations of breach of the duty of oversight. The latest example of this type of claim is the shareholder derivative suit filed this week against the board of T-Mobile USA. Although the plaintiff’s complaint does not expressly use the words “breach of the duty of oversight” or refer to “Caremark duties,” the complaint does refer to the board’s alleged “failure to monitor” and to the board’s alleged failure “to heed red flags” – the very kind of allegations that are at the heart of breach of the duty of oversight claims. A copy of the plaintiff’s complaint in the November 29, 2021 lawsuit can be found here. Continue Reading Data Breach-Related Derivative Suit Filed Against T-Mobile USA Board

Several years ago, when it became clear that plaintiffs’ lawyers were going to file merger objection lawsuits in connection with essentially every M&A transaction, the D&O insurers responded by adding a separate, larger retention for M&A-related claims. The larger M&A-related claim retention quickly became pretty much a standard feature of public company D&O insurance policies. However, because the M&A claim retention is in many instances substantially larger than the retention that would otherwise apply, the question of whether the larger retention applies to a particular claim can be a significant one. In a recent case, the Delaware Superior Court addressed a D&O insurance coverage dispute in which, among other things, the insurers and the policyholder disagreed on whether the larger M&A-related claim retention applied to the underlying litigation. In an interesting November 23, 2021 opinion (here), Delaware Superior Court Judge Eric Davis held that the larger M&A retention did not apply. Continue Reading Court Holds Larger M&A-Related Retention Does Not Apply to Securities Claim

In the latest development in the long-running saga involving the efforts by J.P. Morgan to obtain D&O insurance coverage for the $140 million “disgorgement” that its predecessor-in-interest, Bear Stearns, paid to settle SEC market-timing allegations, the New York Court of Appeals (the state’s highest court) has reversed the intermediate appellate court’s ruling that the payment represented a “penalty” for which coverage is precluded. The Court of Appeals rejected the intermediate appellate court’s conclusion, made in reliance on the U.S. Supreme Court’s 2017 Kokesh decision, that a “disgorgement” payment to the SEC is a “penalty.” The Court of Appeals held that Kokesh did not control, and that because the payment was compensatory in nature, it did not represent a “penalty” for which coverage is precluded under the policies. The Court’s November 24, 2021 opinion can be found here. Continue Reading New York’s Highest Court Holds SEC “Disgorgement” Payment Not a “Penalty”

Editor’s Note: This installment of Sunday Arts reproduces a portion of a blog post originally published on May 10, 2010.

The reference to Michael Lewis’s Vanity Fair article reminded me that a copy of his latest book, The Big Short, is languishing unread on my bookshelf. Rather than reading yet another account of our dysfunctional financial system, I have been distracted by Maurice Lever’s excellent biography of Pierre-Augustin Caron de Beaumarchais.

Beaumarchais is now remembered mostly for having written The Barber of Seville and The Marriage of Figaro, though ironically he wrote those works essentially as a diversion from his many other hyperkinetic activities. Beaumarchais was a watchmaker’s son who managed to leverage music lessons provided to Louis XV’s daughters into court contacts and business opportunities from which he achieved wealth, notoriety and a life so full it almost can’t be summarized.

Variously an entrepreneur, inventor, author, royal agent, diplomat, spy, labor organizer, publisher and printer, arms merchant, and revolutionary, and throughout it all a tireless and effective self-promoter and compulsive litigant, Beaumarchais was at the center of many of the critical events in the events leading up to the French Revolution.

The vast sweep of Beaumarchais’s life encompasses enough to have filled several lifetimes. If we now remember him most for his plays, we should at least recognize how provocative and even seditious his plays were at the time. One excerpt from Figaro is particularly illustrative in that regard, and worth reproducing here. Though Figaro speaks the words, it is not too hard to imagine these same sentiments come from the mouth of one as talented and ambitious as Beaumarchais, chaffing against the unfairness of a system of aristocracy that delimited the upward range of his achievement:

Just because you’re a great nobleman, you think you’re a great genius! Being an aristocrat, having money, a position in society, holding public office – all that makes a man so arrogant! What have you ever done for all this wealth? You took the trouble to be born and nothing else! Apart from that you’re rather an ordinary man. And me, God damn it, a nobody, one of the crowd, and I’ve had to use more skill and ingenuity simply to stay alive than they’ve expended in a hundred years governing the whole of Spain! And you dare challenge me!