Director & Officer Liability Newsletter
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Message from the Chair

Featured Articles
  Cybersecurity and Director and Officer Accountability
  D&O - Failed Bank Coverage Litigation - Insured v. Insured Exclusion - 1st Circuit Finds Duty To Pay Defense Costs
  White v. Kern, C.A. No. 7872-VCG (Del. Ch. Jan. 24, 2014) (Glasscock, V.C.) (TRANSCRIPT)

Editorial Board:

Corinne Elise Amato
    Newsletter Co-Editor
    Associate at Morris James LLP

Frances Floriano Goins
    Newsletter Co-Editor
    Partner at Ulmer & Berne LLP

Michaela Sozio
    Newsletter Co-Editor
    Partner at Tressler LLP

  Message from the Chair
 

Our committee has been active since we last met. Ongoing projects include planning, under Jim Wing's leadership, a CLE-eligible program at the Business Law Section's Spring meeting in Los Angeles, sending out alerts of recent cases and other developments, updating our checklist for D&O insurance and publishing this newsletter. A podcast on the attorney-client privilege as it relates to directors and officers is also in the works. Our committee will meet in Los Angeles from 10:00 to 11:30 a.m. on Friday, April 11, 2014 in Plaza 3, Third level, at the JW Marriott Hotel. Our CLE, which is co-sponsored by the Business and Corporate Litigation, Corporate Governance and Private Equity and Venture Capital Committees, is scheduled for 2:30 to 4:30 p.m. on Saturday, April 12 in the Gold Ballroom, Salon 1, First Level, of the JW Marriott. Perhaps due to this level of activity and content-generation, I am pleased to report that our committee is one of the fastest-growing committees of the Business Law Section. Thanks once again to our subcommittee chairs -- Frances Goins, Michaela Sozio and James Wing -- and the newsletter committee of Frances, Michaela and Corinne Amato, for their efforts in in keeping you up to date on topics relevant to director and officer liability. I look forward to seeing you in Los Angeles.

Business Law Section Spring Meeting Information

The Director and Officer Liability Committee Meeting will be held on Friday, April 11, 2014 from 10:00 a.m. to 11:30 a.m. at the JW Marriott, Plaza 3, Third Level.

The dial-in information is as follows:

Toll-free dial-in number (U.S. and Canada):
(866) 646-6488

International dial-in number:
(707) 287-9583

Conference code:
7465900121

Spring Meeting CLE: Directors, Officers and In-House Counsel: You Think You're Covered, But You're Not (And What To Do About It)
April 12, 2014 at 2:30 p.m. to 4:30 p.m., Gold Ballroom, Salon 1, First Level, JW Marriott

This CLE is unique both in its focus and its panelists. The title is descriptive: "Directors, Officers and In-House Counsel: You Think You're Covered, But You're Not (And What To Do About It)." It summarizes the results of the D&O Liability Committee's two-year exploration of the law and practice relating to the advancement of defense costs to innocent executives and their counsel when they become, as a U.S. Supreme Court case put it, "ensnared in ambiguous circumstances" that have criminal law implications. Experience teaches that these are the most stressful and potentially catastrophic claims that executives and their counsel can face, and they are not prepared for the damage that frequently follows to their health, family relationships, career and finances -- even if they are vindicated or not even charged.

The program will show how the common law of advancement has grown in a piecemeal fashion and remains fractured and complex. It will also demonstrate how insurance coverage is only beginning to catch up. It will then suggest means to limit the possible damage.

The panelists have been selected to cover the waterfront. Francis Pileggi, a noted practitioner and Delaware law legal blogger from Eckert Seamans in Wilmington, Delaware, will speak to the pitfalls and advantages of Delaware law and the twelve U.S. jurisdictions that are viewed as following it. Nancy Adams of Mintz Levin in Boston, Massachusetts, a noted insurance practitioner, will illustrate the problems inherent in the laws of the 40+ Model Act jurisdictions that require an executive seeking advancement to either waive critical Fifth Amendment rights as a condition to advancement or forfeit both his or her job and right to advancement. She will also link those issues to cooperation clauses in D&O policies. James Wing of Holland & Knight in Miami, Florida and Chicago, Illinois has defended executives caught in parallel civil and criminal proceedings and litigated advancement cases in which Fifth Amendment concerns were paramount. He will provide attendees with a Fifth Amendment primer directed to executive risks in internal investigations. He will also introduce our committee's current corporate counsel checklist as well as a 52 jurisdiction summary and analysis of advancement law as it relates to the Fifth Amendment and other means by which executives' rights to advancement can be compromised.

In addition, Leslie Kurshan, chief executive of the management liability division of Marsh London, a major international insurance broker, will link these points to current developments in both U.S. and international D&O insurance markets. Finally, Kara Altenbaumer-Price, management liability counsel for USL Dallas, a major broker for cover for in-house counsel, will explore how these issues impact "employed lawyers" (the insurance-industry term) and discuss particular issues unique to their protection when they are accused of aiding alleged miscreant executives.

The program promises to be both interesting and educational. The D&O Liability Committee encourages your attendance.

Lewis H. Lazarus
Morris James LLP
Chair, Directors and Officers Liability Committee
ABA Business Law Section


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  Featured Articles
   
Cybersecurity and Director and Officer Accountability
By Frances Floriano Goins, Ulmer & Berne LLP

In the ever-expanding world of risk management, corporate directors and officers may find themselves facing potential liability for failing to adequately oversee and supervise cyber risk. Recently, at least two shareholder derivative complaints were filed against the directors and certain executive officers of Target, based on their alleged failure to prevent and subsequently manage massive data breaches at the company resulting from the activity of hackers in the pre-holiday retail season. In the wake of what has been termed the "worst data breach" in American retail history, these complaints allege Target's directors and officers breached duties of loyalty and good faith to the company by failing to implement preventive practices and procedures. Plaintiffs also claim the defendants allowed Target to release false and misleading statements about the scope and the extent of the breaches after the fact, resulting in serious reputational, brand, and goodwill damage, depression of the company's stock price, exposure to costly customer class action litigation and regulatory investigations, and other costs incurred by Target as a result of the breaches, including notifying and dealing with customers. Based on early reports, such damages are likely to be in the hundreds of millions of dollars. More...

D&O - Failed Bank Coverage Litigation - Insured v. Insured Exclusion - 1st Circuit Finds Duty To Pay Defense Costs
By Joseph Monteleone, Tressler LLP

In a somewhat folksy Opinion by Judge O. Rogeriee Thompson, the First Circuit affirmed an Order of the District Court for the District of Puerto Rico holding that an insurer had an obligation to advance defense costs in underlying litigation brought by the Federal Deposit Insurance Corporation (FDIC) against directors and officers of a failed bank. W. Holding Co., Inc. v. AIG Ins. Co. - Puerto Rico, No. 12-2008, (1st Cir. March 31, 2014). More...

White v. Kern, C.A. No. 7872-VCG (Del. Ch. Jan. 24, 2014) (Glasscock, V.C.) (TRANSCRIPT)
By Morris James LLP, Corporate and Fiduciary Litigation Group

In this transcript opinion, Vice Chancellor Glasscock of the Delaware Court of Chancery highlighted the need for mandatory advancement provisions and the consequences if directors are sued and attempt unilaterally to amend by-laws to advance funds. The Court granted the petitioners' motion to compel reimbursement of legal fees that were advanced to two directors without express authorization of the company and absent a bylaw provision allowing for advancement of legal fees to directors. The Court rejected the respondents' attempt to retroactively amend the company's bylaws to adopt an advancement provision. The conflicted directors' appropriation of company funds was an ultra vires act, and the Court enjoined further disbursements of company funds to the conflicted directors absent Court order. More...

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