If things these days for the rest of you are the way they are for me, then all of you are basically finding out that SPACs are taking over your life. All SPACs, all the time. Wall to wall SPACs. At one level, this development should come as no surprise, as the sheer volume of SPAC activity is nothing short of astonishing. According to SPACInsider (here), since January 1, 2020, there have been a total of 554 SPAC IPOs completed – 308 in the three and a half months of 2021 alone. A further 261 SPAC IPO Registrations are currently pending. A staggering 435 post-IPO SPACs are currently in the process of trying to identify merger partners. Along with this wave of financial activity has come an accompanying flow of SPAC-related news and information. I have identified below just a few of the many SPAC-related items that crossed my desk in the last week; the selected items underscore the opportunities and risks involved in the SPAC-crazy world that we all now inhabit. And as also noted below, there could be some hints of a slowdown as well.
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Del. Sup. Ct. Rules for Insureds in Long-Running Dole Foods D&O Insurance Coverage Dispute
In a development that undoubtedly will be discussed among D&O insurance professionals for months to come, the Delaware Supreme Court issued an opinion last week in the long-running Dole Foods insurance coverage battle. Many D&O insurance industry observers will not be surprised to learn that the Delaware Court’s opinion is favorable to policyholders. As discussed below, the opinion (and the many rulings in the court below in this dispute) may encourage insurers to consider possible policy wording revisions. A copy of the Delaware Supreme Court’s March 3, 2021 opinion can be found here.
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D&O Insurance: Bankruptcy Trustee’s Fraudulent Transfer Claim is a “Securities Claim”
As I noted in a recent post (here), a recurring public company D&O insurance coverage issue is whether a claim in which a company is involved qualifies as a “Securities Claim.” This question matters because D&O insurance provides coverage for the corporate entity (as opposed to the insured directors and officers) only for “Securities Claims” as that term is defined in the policy. In a recent decision, a Delaware Superior Court judge concluded that a bankruptcy trustee’s fraudulent transfer claim against Verizon Communications and related entities came within the applicable D&O insurance policy definition of “Securities Claim.” The coverage dispute illustrates the intricate issues that can arise in determining whether a claim qualifies as a “Securities Claim.” A copy of the Court’s February 23, 2021 Opinion can be found here.
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Breach of Fiduciary Duty Claim Not a “Securities Claim” Under D&O Policy
Coverage for the corporate entity under public company D&O insurance policies is limited to claims that constitute “Securities Claims” as that term is defined in the policy. A coverage dispute between Calamos Asset Management and its D&O insurer involved the question of whether an underlying breach of fiduciary duty claims alleged in connection with the company’s take-private tender offer meet the policy’s “Securities Claim” definition.
In a February 19, 2021 opinion (here), District of Delaware Judge Maryellen Noreika, applying Delaware law, ruled that the breach of fiduciary duty claims do not fall with the policy’s definition of “Securities Claim” and granted summary judgment for the insurer, largely in reliance on the Delaware Supreme Court’s 2019 decision in the Verizon case, notwithstanding the fact that the definition of the term “Securities Claim” in the Calamos dispute express referred to the “common law,” while the definition in the Verizon dispute did not.
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Delaware Court Addresses “Sprawling” Northrup Grumman D&O Insurance Coverage Dispute
It is not uncommon for coverage disputes to arise in connection with D&O insurance claims, but every now and then there is a coverage dispute so broad that it constitutes a veritable D&O insurance coverage curriculum. That was certainly the case in what a Delaware Superior Court judge called the “sprawling insurance coverage dispute” between a unit of Northrup Grumman and its predecessors-in-interest’s D&O insurers. The coverage dispute arose out of underlying claims relating to the 2015 merger of Alliant Techsystems, Inc and Orbital Sciences Corporation to form Orbital ATK, Inc. The court’s lengthy opinion on the parties’ cross-motions for summary judgment and for judgment on the pleadings covers a wide variety of recurring D&O insurance coverage issues and makes for interesting reading for anyone involved with D&O insurance. The Delaware Superior Court’s February 2, 2021 opinion in the Northrup Grumman case can be found here.
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Del. Chancery Court: Caremark Claims Against MoneyGram Board Not Sustained
As I have noted in prior posts, there has been a recent renewed focus among observers of Delaware corporate case law development on breach of the duty of oversight claims (sometimes called Caremark claims in reference to the initial Court of Chancery decision elaborating on the duty of oversight). Indeed, at least one academic commentator has suggested, based on a series of Delaware court rulings during 2019-2020, that we have entered a “new era” of Caremark claims.
But though there have been a number of high profile cases in which breach of the duty of oversight claims have been sustained, a recent Delaware Court of Chancery decision underscores the fact that the pleading hurdles for these types of claims are still substantial, and, indeed, as discussed below, at least one set of commentators has suggested that this most recent decision raises the question whether the pleading bar for these types of claims has changed at all. The Delaware Court of Chancery’s December 31, 2020 decision in Richardson v. Clark can be found here.
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A “New Era” of Caremark Claims?
One of the more noteworthy recent developments in corporate and securities litigation has been the resurgence of Delaware law “duty of oversight” claims, as I noted in my recent annual round-up of D&O liability issues. Delaware courts have sustained several of these kinds of “Caremark duty” claims, which until recently were distinctly disfavored – which raises the questions of why these claims are now proving viable, and whether the renewed risk of duty of oversight claims is here to stay? In a December 2020 paper entitled “A New Caremark Era: Causes and Consequences” (here), Professor Roy Shapira of IDC Herzliya Radzyner Law School identifies what he believes to be the causes of the recent revival of duty of oversights, and presents his view that the changes are here to stay. Professor Shapira’s views are summarized in a January 18, 2021 post (here) on the Harvard Law School Forum on Corporate Governance.
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Delaware Supreme Court: Appraisal Action Not a “Securities Claim” and Therefore Not Covered by D&O Insurance
In a closely watched insurance coverage dispute, the Delaware Supreme Court reversed a lower court rulings and held that an appraisal proceeding is not a “Securities Claim” within the meaning of the defendant company’s D&O insurance policy and therefore that the proceeding is not a covered claim under the policy. Because it ruled there is no coverage, the Court did not address the other more controversial aspects of the lower court’s ruling. The Supreme Court’s October 23, 2020 opinion in In re Solera Insurance Coverage Appeals can be found here.
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Excess Insurer Cannot Avoid Payment Where Underlying Insurer Settled With Policyholder for Less Than Full Policy Limits
In the latest development in Pfizer’s long-running efforts to recover from its D&O insurers amounts the company paid in defense and settlement of prior securities litigation (the “Morabito Action”), a Delaware Superior Court Judge, applying Delaware law, has held that the company’s settlement with a lower level excess insurer for less than that insurer’s policy limit did not create a gap relieving an upper layer excess insurer of its payment obligations. The court also found that the company’s earlier notice of a different securities litigation did not trigger the policy’s Prior Notice exclusion. The court’s August 28, 2020 opinion can be found here.
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California Court to Address Enforceability of Delaware Corporation’s Federal Forum Provision
After the Delaware Supreme Court’s March 2020 decision in Salzberg v. Sciabacucchi upholding the facial validity of corporate charter provisions designating federal court as the forum for Securities Act liability claims, several questions remained. Among the questions is whether others’ states courts will recognize and enforce federal forum provisions in Delaware corporations’ charters. This issue has been teed up for decision in a Section 11 lawsuit pending in San Mateo County court in California, in a case involving Dropbox. Dropbox has filed a motion urging the California state court to dismiss the action, in reliance on the federal forum provision in its corporate charter.
As discussed Alison Frankel’s July 13 post on her On the Case blog (here), a group of six ex-judges from Delaware has now entered an amicus brief on the issue in the case, urging the California court to recognize Delaware legal authority and enforce the federal forum provision in Dropbox’s charter. The Dropbox case, according to Frankel, is “shaping up as an early test of the application of the [Sciabacucchi decision] that forum selection clauses requiring shareholders to litigate Securities Act claims in federal court are facially valid because they concern the corporation’s internal affairs.”
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