Justia Securities Law Opinion Summaries

Harman International Industries was acquired by Samsung Electronics in a reverse triangular merger, after which a class of former Harman shareholders filed a federal securities lawsuit alleging that disclosures made in connection with the transaction were misleading and violated Sections 14(a) and 20(a) of the Securities Exchange Act. The shareholders claimed they were deprived of a fully informed vote and the full value of their shares, seeking damages equal to the difference between the merger price and Harman’s true value. The parties settled the suit for $28 million, which was distributed to a class defined as shareholders who held Harman stock at any time during the relevant period, including some who did not receive merger consideration.Harman sought coverage for the $28 million settlement under its Directors and Officers (D&O) insurance policies with Illinois National Insurance Company, Federal Insurance Company, and Berkley Insurance Company. The insurers denied coverage, invoking a “Bump-Up Provision” that excluded settlements representing an effective increase in deal consideration for claims alleging inadequate consideration in an acquisition. Harman sued the insurers for breach of contract in the Delaware Superior Court. After initial motions were denied due to insufficient facts, both sides moved for summary judgment on the applicability of the Bump-Up Provision.The Delaware Superior Court held that the Bump-Up Provision did not exclude coverage because the underlying complaint did not allege inadequate consideration as a viable remedy, and the settlement amount did not represent an effective increase in deal consideration. On appeal, the Supreme Court of Delaware affirmed the Superior Court’s judgment, holding that although the complaint did allege inadequate consideration, the insurers failed to prove the settlement amount effectively increased the deal consideration. Thus, the $28 million settlement was covered under Harman’s policies. View "Illinois National Insurance Company and Federal Insurance Company v. Harman International Industries, Incorporated" on Justia Law

Under Armour, a publicly traded sports apparel company, faced significant legal claims and government investigations over its financial forecasts and accounting practices following the bankruptcy of a major customer, Sports Authority, in 2016. Shareholders alleged that Under Armour made misleading public statements about its financial prospects and that company insiders sold stock at inflated prices. These allegations led to a federal securities class action, derivative demands, and eventually an SEC investigation into whether Under Armour manipulated its accounting by pulling forward revenue to maintain the appearance of strong growth.In the United States District Court for the District of Maryland, Under Armour’s insurers sought a declaratory judgment, arguing that the securities litigation, derivative actions, and government investigations constituted a single claim under the terms of Under Armour’s directors and officers insurance policies and therefore were subject only to the coverage limit of the earlier policy period. Under Armour countered that the government investigations were a separate claim, entitling it to an additional $100 million in coverage under a subsequent policy. The district court sided with Under Armour, finding that the government investigations and the earlier shareholder claims were not sufficiently related to constitute a single claim under the policy’s language.The United States Court of Appeals for the Fourth Circuit reviewed the district court’s decision de novo. The Fourth Circuit held that, under the plain meaning of the 2017–2018 insurance policy’s “single claims” provision, the claims related to Under Armour’s public financial statements and its accounting practices were “logically or causally related” and thus constituted a single claim. As a result, only the coverage limits from the earlier, 2016–2017 policy period applied. The Fourth Circuit reversed the district court’s judgment in favor of Under Armour. View "Navigators Insurance Co. v. Under Armour, Inc." on Justia Law

Alexion Pharmaceuticals, Inc. develops therapies for rare disorders and was insured under two director and officer liability insurance programs covering different periods. The first program provided $85 million of coverage for claims made between June 27, 2014, and June 27, 2015 (Tower 1). The second program provided $105 million of coverage for claims made between June 27, 2015, and June 27, 2017 (Tower 2). In 2015, the SEC issued a formal investigation order against Alexion, which led to a subpoena seeking information related to Alexion’s grant-making activities and compliance with the Foreign Corrupt Practices Act (FCPA). Alexion disclosed this investigation to its Tower 1 insurers.The Superior Court of Delaware found that the SEC investigation and a later securities class action against Alexion were unrelated, placing the securities class action coverage in Tower 2. The court applied the “meaningful linkage” standard and concluded that the connection between the SEC investigation and the securities class action was insufficient to make them related.The Supreme Court of Delaware reviewed the case and disagreed with the Superior Court’s conclusion. The Supreme Court found that the securities class action was meaningfully linked to the wrongful acts disclosed in Alexion’s 2015 notice to its Tower 1 insurers. Both the SEC investigation and the securities class action involved the same underlying wrongful acts, including Alexion’s grant-making activities and compliance with the FCPA. The Supreme Court held that the securities class action claim should be deemed to have been first made during the Tower 1 coverage period, and therefore, coverage should be under Tower 1. The judgment of the Superior Court was reversed. View "In re Alexion Pharmaceuticals, Inc. Insurance Appeals" on Justia Law

In this case, the plaintiff, Shandor S. Badaruddin, was sanctioned by the Nineteenth Judicial District Court, Lincoln County, for his conduct as defense counsel in a criminal trial involving his client, Kip Hartman, who faced multiple felony charges related to securities and insurance fraud. The trial was conducted under strict time constraints due to the COVID-19 pandemic, and the court allocated equal time for both the prosecution and defense. Badaruddin was accused of mismanaging his allotted time, leading to a mistrial declaration by the District Court.The District Court found that Badaruddin had deliberately delayed the trial, which led to the mistrial. Consequently, the court imposed monetary sanctions amounting to $51,923.61 against Badaruddin for the costs associated with the trial. Badaruddin appealed the sanctions, arguing that he was not given adequate notice of the court's concerns and that his actions were not deliberate but rather a result of the challenging circumstances.The Supreme Court of the State of Montana reviewed the case and noted that the U.S. District Court had previously ruled that the mistrial declaration was erroneous. The U.S. District Court found that Badaruddin's actions did not constitute deliberate delay and that his efforts to manage the trial time were competent. The U.S. District Court's ruling was affirmed by the U.S. Court of Appeals for the Ninth Circuit, which held that Hartman could not be retried due to double jeopardy protections.Given the federal court's findings, the Supreme Court of Montana concluded that there was no basis for the sanctions under § 37-61-421, MCA, as there was no multiplication of proceedings. The court reversed the District Court's sanction order, determining that the costs incurred were not "excess costs" as defined by the statute. View "Badaruddin v. 19th Judicial District" on Justia Law

Cobalt International Energy partnered with three Angolan companies to explore and produce oil and gas off the coast of West Africa. Later, the federal Securities and Exchange Commission announced it was investigating Cobalt for allegations of illegal payments to Angolan government officials and misrepresentation of the oil content of two of its exploratory wells. This led to a significant drop in Cobalt’s stock price and prompted a class action lawsuit from Cobalt's investors, led by GAMCO, a collection of investment funds that held Cobalt shares. Prior to these events, Cobalt had purchased multiple layers of liability insurance from a number of insurance companies, collectively referred to as the Insurers in this case. When the allegations surfaced, Cobalt notified the Insurers, who denied coverage on the grounds that Cobalt's notice was untimely and certain policy provisions excluded the claims from coverage.In 2017, Cobalt filed for bankruptcy and began settlement negotiations with GAMCO. Eventually, a settlement agreement was reached, which stipulated that Cobalt would pay a settlement amount of $220 million to GAMCO, but only from any insurance proceeds that might be recovered. Cobalt and GAMCO then jointly sought approval of the settlement from the federal court and the bankruptcy court, both of which granted approval.The Insurers then filed a petition for a writ of mandamus, arguing that the settlement agreement was not binding or admissible in the coverage litigation, that Cobalt had not suffered a "loss" under the policies, and that GAMCO could not sue the Insurers directly.The Supreme Court of Texas held that (1) Cobalt had suffered a “loss” under the policies because it was legally obligated to pay any recoverable insurance benefits to GAMCO, (2) GAMCO could assert claims directly against the Insurers, and (3) the settlement agreement was not binding or admissible in the coverage litigation to establish coverage or the amount of Cobalt’s loss. The court reasoned that the settlement was not the result of a "fully adversarial proceeding," as Cobalt bore no actual risk of liability for the damages agreed upon in the settlement. The court conditionally granted the Insurers' petition for a writ of mandamus in part, ordering the trial court to vacate its previous orders to the extent they relied on the holding that the settlement agreement was admissible and binding to establish coverage under the policies and the amount of any covered loss. View "IN RE ILLINOIS NATIONAL INSURANCE COMPANY" on Justia Law

In this case, the Supreme Court of the State of Delaware reversed the decision of the Superior Court of the State of Delaware. The case centered around an insurance dispute involving Verizon Communications, Inc. and several of its insurers. The dispute arose after Verizon settled a lawsuit brought by a litigation trust, which was pursuing claims against Verizon arising out of a transaction Verizon had made with FairPoint Communications Inc. The litigation trust had alleged that Verizon made fraudulent transfers in the course of the transaction, which harmed FairPoint's creditors. After settling the lawsuit, Verizon sought coverage for the settlement payment and defense costs from its insurers.The insurers denied coverage, arguing that the litigation trust's claims did not qualify as a "Securities Claim" under the relevant insurance policies. The Superior Court disagreed, ruling that the litigation trust's claims were brought derivatively on behalf of FairPoint by a security holder of FairPoint, as required to qualify as a Securities Claim under the policies.The Supreme Court of Delaware reversed this decision, finding that the litigation trust's claims were direct, not derivative. The court reasoned that the trust's claims were brought on behalf of the creditors, not FairPoint or its subsidiary, and the relief sought would benefit the creditors, not the business entity. Therefore, the claims did not meet the definition of a Securities Claim under the insurance policies. Consequently, the Supreme Court held that the insurers were not obligated to cover Verizon's settlement payment and defense costs. View "In re Fairpoint Insurance Coverage Appeals" on Justia Law

Joy Global and Komatsu agreed to merge. Joy sent its investors disclosures required under the Securities Exchange Act, 15 U.S.C. 78n. Subsequent suits contended that Joy violated the Act by not disclosing some internal projections of Joy’s future growth that could have been used to negotiate a higher price, rendering the proxy statements fraudulent, and that Joy’s directors violated their state law duties by not maximizing the price for the shareholders. The suits settled for $21 million.The district court held that the $21 million loss is not covered by insurance. The policies do not require indemnification for “any amount of any judgment or settlement of any Inadequate Consideration Claim other than Defense Costs.” An “inadequate consideration claim” is that part of any Claim alleging that the price or consideration paid or proposed to be paid for the acquisition or completion of the acquisition of all or substantially all the ownership interest in or assets of an entity is inadequate.The Seventh Circuit affirmed. The suits assert the wrongful act of failing to disclose documents that could have been used to seek a higher price and are within the definition of “inadequate consideration claim.” The claims do not identify any false or deficient disclosures about anything other than the price. The only objection to this merger was that Joy should have held out for more money, and that revealing this would have induced the investors to vote “no.” View "Joy Global Inc. v. Columbia Casualty Co." on Justia Law

Stillwater Mining Company filed suit against its directors’ and officers’ liability insurers to recover the expenses it incurred defending a Delaware stockholder appraisal action. The superior court granted the insurers’ motions to dismiss after it found that Delaware law applied to the dispute and the Delaware Supreme Court’s decision in In re Solera Ins. Coverage Appeals (“Solera II”) precluded coverage for losses incurred in a stockholder appraisal action under a similar D&O policy. The primary issue on appeal was whether Delaware or Montana law applied to the claims in Stillwater’s amended complaint. Stillwater argued that the superior court should have applied Montana law because Montana had the most significant relationship to the dispute and the parties. If Montana law applied, according to Stillwater, it could recover its defense costs because Montana recognized coverage by estoppel, meaning the insurers were estopped to deny coverage when they failed to defend Stillwater in the appraisal action. Before the Delaware Supreme Court issued Solera II, the Solera I court held that D&O insureds could recover losses incurred in a stockholder appraisal action. Taking advantage of that favorable ruling, Stillwater argued in its complaint that Delaware law applied to the interpretation of the policies. Then when Solera II was issued, Stillwater reversed position and claimed that Montana law applied to the policies. Its amended complaint dropped all indemnity claims for covered losses in favor of three contractual claims for the duty to advance defense costs and a statutory claim under Montana law. In the Supreme Court's view, Stillwater’s amended claims raised the same Delaware interests that Stillwater identified in its original complaint – applying one consistent body of law to insurance policies that cover comprehensively the insured’s directors’, officers’, and corporate liability across many jurisdictions. It then held the superior court did not abuse its discretion when it denied Stillwater's motions. View "Stillwater Mining Company v. National Union Fire Insurance Company of Pittsburgh, PA" on Justia Law

In March 2012, First Solar, Inc. stockholders filed a class action lawsuit against the company alleging that it violated federal securities laws by making false or misleading public disclosures ("Smilovits Action"). National Union Fire Insurance Company of Pittsburgh, PA (“National Union”) provided insurance coverage for the Smilovits Action under a 2011–12 $10 million “claims made” directors and officers insurance policy. While the Smilovits Action was pending, First Solar stockholders who opted out of the Smilovits Action filed what has been referred to as the Maverick Action. The Maverick Action alleged violations of the same federal securities laws as the Smilovits Action, as well as violations of Arizona statutes and claims for fraud and negligent misrepresentation. In this appeal the issue presented for the Delaware Supreme Court's review was whether the Smilovits securities class action, and a later Maverick follow-on action were related actions, such that the follow-on action was excluded from insurance coverage under later-issued policies. The Superior Court found that the follow-on action was “fundamentally identical” to the first-filed action and therefore excluded from coverage under the later-issued policies. The Supreme Court found that even though the court applied an incorrect standard to assess the relatedness of the two actions, judgment was affirmed nonetheless because under either the erroneous “fundamentally identical” standard or the correct relatedness standard defined by the policies, the later-issued insurance policies did not cover the follow-on action. View "First Solar, Inc. v. National Union First Insurance Company of Pittsburgh, PA" on Justia Law

The Court of Appeals reversed the decision of the Appellate Division reversing Supreme Court's order granting summary judgment to Bear, Stearns & Co. Inc. and Bear Stearns Securities Corp. (collectively, Bear Stearns) in this action brought by Bear Stearns' successor companies alleging that its insurers (Insurers) had breached insurance contracts, holding that the $140 million disgorgement for which Bear Stearns sought coverage was not a "payment" within the meaning of the relevant policy.When the Securities and Exchange Commission (SEC) censured Bear Stearns for securities law violations, Bear Stearns agreed to a $160 million disgorgement payment and a $90 million payment for civil money penalties. Both payments were to be deposited in a fund to compensate mutual fund investors allegedly harmed by Bear Stearns' improper trading practices. Bear Stearns transferred the payments to the SEC. Plaintiffs then brought this action against Insurers seeking coverage under a "wrongful act" liability for the disgorged funds. Supreme Court granted summary judgment to Bear Stearns. The Appellate Division reversed, concluding that Bear Stearns was not entitled to coverage for the SEC disgorgement payment. The Court of Appeals reversed, holding that Insurers failed to establish that the $140 million disgorgement payment clearly and unambiguously fell within the policy exclusion for "penalties imposed by law." View "J.P. Morgan Securities Inc. v. Vigilant Insurance Co." on Justia Law