Over the last couple of years, defense oriented commentators have used the meme “event driven securities litigation” as part of complaining about the increasing volume of class action litigation. From my perspective, there could be merit to some complaints, but the meme is far too broad and all “event driven” cases are not equal. Why? Because the events at issue may range from allegedly causing massive fires to allegedly concealing product liability risks to allegedly failing to disclose accurate facts regarding regulatory interactions with agencies such as FDA to losing verdicts in cases alleging perpetration of massive fraudulent conveyances. Simply put, one size memes do not fit all fact patterns.

That said, the “event driven” meme also came to mind while reading a December 5, 2018 article in LAW360 regarding oral arguments in the Delaware Supreme Court regarding the Fresenius case. There, a would be buyer terminated a corporate m&a deal based on the plummeting value of a target due to regulatory failures, which caused the buyer  to invoke a “material adverse event” clause. The issues went to trial, and a Delaware chancery judge (Lasker) upheld the termination based on adverse outcomes in events prior to the intended closing date for the transaction. In a nutshell, “What mattered was the root of this shortfall. Fresenius claimed that Akorn made misrepresentations when it claimed to be in compliance with Food and Drug Administration regulations and making progress in fixing manufacturing shortfalls. In particular, according to a NYT article of October 2, 2018, Fresenius said that Akorn had been sloppy with — or, worse, fabricated — the data that underlies F.D.A. drug approvals.”

Now, in just three days, the Delaware Supreme Court has affirmed the Fresenius ruling by Judge Lasker, in a brief three page order by Chief Justice Strine. It therefore seems logical to infer that the Delaware Supreme court found it easy to conclude that “event driven” problems could indeed alter the value of an entity so much that the material adverse event clause was properly invoked to terminate the deal. Therefore, one might see merit to at least some “event driven” securities suits.

Directors and officers face increasing risks of criminal prosecution by DOJ and federal agencies, as described in a March 25, 2016 blog post at D&O Diary, built in part from a Jones Day memo of March 10, 2016. The post begins as follows, and the entire post is a good read for anyone not up to speed on the risks:

“In a March 10, 2016 memo entitled “Individuals in the Cross Hairs? What This Means for Directors” (here), the Jones Day law firm takes a look at the Yates Memo’s provisions and what the government’s new focus on individual liability has meant in practice. As the memo’s authors’ note, the Yates Memo’s “clear goal” is to “force line prosecutors and companies seeking cooperation to more aggressively gather and produce evidence of individual wrongdoing.”


For companies operating in the UK, there are more issues for public company directors and risk managers to consider when evaluating whether management’s operational philosophy poses risks that are not acceptable to the company and its shareholders. Among other things, a question to ask is whether an enterprise is prepared to accept the risk of large fines for multiple violations of laws. A new example arises as a UK court stated willingness, if not enthusiasm, for the imposition of  large fines for repeated incidents of pollution. The opinion arises under a newish sentencing statute, as reported in a June 3, 2015 article in the Financial Times. The BBC also has a story on the opinion.

The court expressed the view that there is a need to deter the business model in which modest fines are viewed as a cost of doing business:

“For example, to bring the message home to the directors and shareholders of organisations which have offended negligently once or more than once before, a substantial increase in the level of fines, sufficient to have a material impact on the finances of the company as a whole, will ordinarily be appropriate. This may therefore result in fines measured in millions of pounds.”

As the cyberheists continue at Home Depot and JPMorgan, an Amazon.com sort of site exists to sell the stolen credit cards, as detailed by Mr. Krebs. Meanwhile back in the world of law,  articles continue to accelerate regarding litigation risks, including D&O claims regarding a failure to ask questions about and invest in  “secure web sites.” A September 4, 2014 guest post at D&O Diary reviews federal government actions aimed at more understanding of the extent of the security failures. As with asbestos and other mass litigation, there is a long latency period – the annual Black Hat security conferences date back to 1997.

Takeaways? There are significant risks and costs in not investigating issues related to the manner in which business operations are conducted, ranging from product sources to product safety to the soundness of business systems. And, there are further risks when using boilerplate warnings instead of factual disclosures.

Kevin LaCroix published a September 3, 2014 post with his prognostications about a range of D&O issues. Of note, he included litigation about the lack of adequate environmental disclosures. And, of course, it takes little imagination to extend that thought to disclosures about mass tort claims and risks.

Set out below is the introduction to his section on environmental disclosures – the entire post is well worth reading.

Will Environmental Liability and Climate Change Emerge as Important D&O Liability Issues?: During the financial crisis, many issues and concerns that previously had loomed large moved further down the agenda. Even though the recovery from the crisis is still uneven, some of the issues that fell by the wayside are moving back up the list of priorities. Environmental liability issues are among these concerns. Among other things, this has meant an uptick in D&O litigation arising from environmental issues.

In recent months, there have been a number of securities class action lawsuits filed based on alleged misrepresentations of the defendant company’s environmental compliance. On August 7, 2014, the securities suit filed against Exide Technologies and certain of its directors and officers based on the defendants’ allegedly misleading statements about the company’s compliance with environmental regulations became the latest environmental disclosure securities suits to overcome the initial pleading hurdles. A copy of Central District of California Judge Stephen V. Wilson’s August 7, 2014 order denying the defendants’ motion to dismiss can be found here.”


“Over a billion email accounts stolen.” The phrase sounds somewhat like the old McDonald’s ads about the number of burgers sold. For now, though, the cyber crooks are not advertising their numbers. Other sources (such as Krebs on Security), however, are revealing the numbers, and they are staggering. They also reveal a modern oxymoron: “Secure web site.”

Not surprisingly, and far too late, corporate directors are starting to be sued and lawyers are writing about Caremark duties related to cyber security.   Soon we will see arguments that the risks and harms were not foreseeable until now. But that  argument should fail since cyber security has been much discussed for many years, which is easy to see by looking at a decade of past blog posts and articles by Mr. Krebs, or the reality that the annual Black Hat security conference dates back to 1997.


Globalization can reduce expenses and raise profits by purchasing goods from the cheapest supplier. But purchasing the cheapest product sometimes is not a good answer. Literally decades ago, well run companies set up supply chain oversight and checking for overseas suppliers. Others, however, do little or nothing to check on suppliers, and some Ds and Os ask few questions. Failing to ask good questions can produce adverse headlines and financial consequences, as illustrated by this week’s set of stories about food recalls involving Chinese suppliers.

It may be the corporate boards are starting to get the message about the need to pay attention to science, technology and cybersecurity. According to an article in the June 30, 2014 WSJ: “Corporate Boards Race to Shore Up Cybersecurity.”

Perhaps the most telling part of the story is the following quote:  “A longtime banker, media executive and leadership consultant, Mr. Czarnecki, 74 years old, said he and his peers aren’t always fluent in the technology of computer defenses. “Most people in this room have gray hair,” he said at the directors’ summit. “It’s like having someone who has never paid any attention to their health talk to a doctor.”

The quote could be rephrased: “A longtime banker, media executive and leadership consultant, Mr. Czarnecki, 74 years old, said he and his peers aren’t always fluent in the [revolution in molecular biology]. “Most people in this room have gray hair,” he said at the directors’ summit. “It’s like having someone who has never paid any attention to their health talk to a doctor.”

The molecular biology revolution is well underway. Dennis Paustenbach brought it up in 2008 at a DRI meeting, and I blogged about it then. But there is blissful ignorance among most boards, lawyers, futures representatives, trustees of  asbestos trusts, and judges. Therefore, there can be and are more or less accidental discoveries of additional possible causes of mesothelioma, such as the new paper on mesotheliomas and  vinylidene chloride (think Saran wrap), as described in the first post of this morning here on GlobalTort. Meanwhile, researchers are pushing forward on the role of the BAP1 mutation in mesothelioma,  with a paper two weeks ago providing plenty of grist for future arguments by plaintiff’s experts and lawyers, but not so much for defense experts and lawyers. Moreover, sober researchers and doctors are optimistic about soon significantly slowing mesothelioma deaths, and maybe even providing cures when the disease is found very early. Thus, last Friday, Dr. Farris Farassati  shocked some lawyers with his molecular biology presentation at ACI’s asbestos conference – he spoke about precision medicine treatments for mesothelioma. And, today, groups such as the Mesothelioma Applied Research Foundation are non-partisan and run by smart researchers and physicians, instead of lawyers. There will be more or less cures – the real question is when, and how many will die before that day.

The molecular biology revolution matters far beyond asbestos. Think benzene cases tried or settled based on genetic markers. Think microRNA signatures for cellular injuries caused by tobacco smoke, cadmium and other substances. Also think about the Human Exposome project. Think “the next asbestos,” but then think that 3,500 annual mesotheliomas are a drop in the ocean when compared the vast numbers of cancers every year. As a result, the “next asbestos” could actually be 2x- 10x the size of asbestos.

Headlines today are prominent and frequent regarding  cybersecurity breaches, fired CEOS, and related liability concerns. Heck, even the SEC went out of its way to sound a wake up call by holding a conference on cybersecurity.  Or, think about GM and recalls, with the CEO claiming:  “I did not know – no one told me.”  Will your manufacturing company, insurance company, asbestos trust, or law firm become the subject of a future headline because little or no attention was paid to the ongoing revolution in molecular biology, and the world’s scientific knowledge?

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…."