The CLS Blue Sky blog includes an interesting new post on decisions from SCOTUS and others that accept the legal sufficiency of allegations of "willful blindness" in the corporate boardroom. The article also touches on potential implications for Caremark claims regarding board failure to foresee and/or manage risks.
John Tate of Stites & Harbison wrote a short but cogent article on recognizing and managing repetitive or "serial litigation" arising from products. It's online here via LinkedIn. His article includes a fine list of events that can signal the future arrival of serial claims, and so could be especially useful for directors thinking about Caremark duties to manage risks. One item on the list is dear to my line of thinking, but oft ignored:
Watch for "case reports or survey articles in medical, technical or scientific literature...."
Delaware corporate lawyers and D & O lawyers are buzzing about Chancellor Strine's recent ruling on D & O issues while denying a motion to dismiss in a derivate claim lawsuit arising from misdeeds in China. A February 27, 2013 post at D & O Diary collects links to some of the posts and to some of the case materials. The ruling is not a formal written opinion, and instead is a hearing transcript, so one might assume a bit of breadth of wording that would not end up in a more hand-crafted opinion. That said, the words are sweeping and Chancellor Strine no doubt knew the words would reach many. The key quotes of Chancellor Strine are as follows:
"On 12(b)(6), I am sorry. Even if it's just purely looked at as a Caremark case, drawing reasonable, rational inferences in favor of the plaintiffs, as I must, I believe the inference – one possible inference you can draw from this complaint is that essentially somebody took hold of an American vehicle, filled it with assets, sold a large amount of stock to the American investing public that independent directors were willing to go on and be a vehicle and get payments without understanding the duties they were taking on.
If you’re going to have a company domiciled for purposes of its relations with investors in Delaware and the assets and operations of the company are situated in China that, in order for you to meet your obligation of good faith, you better have your physical body in China an awful lot. You better have in place a system of controls to make sure that you know that you actually own the assets. You better have the language skills to navigate the environment in which the company is operating. You better have retained accountants and lawyers who are fit to the task of maintaining a system of controls over a public company
This is a very troubling case in terms that, the use of a Delaware entity in something along these lines. Independent directors who step into these situations involving essentially the fiduciary oversight of assets in other parts of the world have a duty not to be dummy directors. I’m not mixing up care in the sense of negligence with loyalty here, in the sense of our duty of loyalty. I’m talking about the loyalty issue of understanding that if assets are in Russia, if they’re in Nigeria, if they’re in the Middle East, if they’re in China, that you’re not going to be able to sit in your home in the U.S. and do a conference call four times a year and discharge your duty of loyalty. That won’t cut it.
Delaware Supreme Court Briefing on Standing to File Shareholder Derivative Claims After a Merger After a Massive Problem
Alison Frankel covers the developments in shareholder derivative claims arising from the Countrywide financial fiasco and its subsequent merger with Bank of America. The case is now before the Delaware Suprem Court via certification of questions of law. The outcome could matter to mass tort lawyers in situations where there were alleged failures to recognize or disclose impending mass tort problems.
The D & O Diary includes a new update on failed bank litigation in the US.
Under Caremark, corporate directors are to ensure that the operating staff of a business review and understand contingent risks, and that coping plans are in place - see Professor Bainbridge's article for specifics. So, how would you feel if you were a director of Carnival Cruise lines, which apparently is failing badly in coping with the highly foreseeable possibility of losing some or all power and other services aboard a cruise ship? And, how big is Carnival's reputation risk loss with this fiasco as a follow-up to last year's Concordia disaster, and large amounts of subsequent litigation against Carnival.
Conclusion? Contingency planning really is needed. Just ask BP.
This post at Kevin LaCroix's D & O Diary covers an interesting new decision from Canada on global choice of law issues arising from D & O policies, and identifies contract clauses that might be changed to obtain better outcomes. Here's an excerpt:
"The November 12 Opinion
In his November 12, 2009 decision (here), Justice Walker determined that British Columbia law is the proper law to be applied to the interpretation of the policy.
He began with the determination that the parties intended different laws to apply to different parts of the policy (a choice of law principle known as dépeçage). In reaching this conclusion, Justice Walker referenced several different parts of the policies at issue, including in particular the primary policy's definition of "Loss," which contained a provision specifying that the policy's coverage for punitive and exemplary damages would be determined under the law most favorable to the insured. Justice Walker also referenced the policy's Oregon state amendatory endorsements, which specified that Oregon law would govern any disputes regarding alleged misrepresentations in the insurance application.
Justice Walker determined that given these clause-specific choice of law provisions, and given the absence from the policies of any general choice of law provisions, the "proper law" governing the disputes arising under other policy provisions "is left to be determined by the court hearing the dispute to find based on the application of its own laws, taking into account the directing language in the policies."
Reviewing these circumstances in this light, and discounting the policies' various connection to jurisdictions in the United States, and applying British Columbia choice of law principles, Justice Walker concluded that "the policies have the closest and most substantial connection with BC," and therefore BC law governs the coverage dispute presented by the receiver.
In substantiating this decision, Justice Walker stated that given the importance of the Canadian subsidiary, "most of the claims could be expected to arise from Canadian operations," and he stressed that the P&T Ltd. employees' wage claims are "unique to Canadian operations" and have "no equivalent in Oregon," as a result of which Justice Walker concluded that "the proper law of the policies to determine the carriers' coverage obligations for these claims is BC law."
He added that the parties "would reasonably have expected BC law to apply to determine the insurers' coverage obligations."
The D + O Diary, a blog on D + O liability, includes this post about a new German law that seeks to change behavior of corporate officers and directors by imposing 10% of a loss on the individual officers subject to an annual cap. Here's the gist of the law as described by the post:
"Among other things, this new Act will impose a new requirement that German Stock Corporations (Aktiengesetz) purchasing D + O insurance for their executives must impose a personal deductible to be borne by the directors in an amount equivalent to at least 10% of the relevant loss, up to an annual cap. Comments accompanying the Act specify that the annual cap must be set at not less than one and one half the annual fixed remuneration of the director."
The post goes on to cover issues/methods that may come into play if Ds and Os and their companies seek to skirt the new law. In short, an interesting article about an interesting new law, but perhaps the ultimate point is that the article proves that most any government has a heck of a time actually regulating business because lawyers and business persons often can find or create a way to skirt many laws, for better or for worse.