Justia Securities Law Opinion Summaries

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

Insurance providers asked the Delaware Supreme Court whether certain costs incurred in connection with an appraisal action under 8 Del. C. 262 were precluded from coverage under the primary and excess directors’ and officers’ insurance policies (the “D&O Policies”) issued to Solera Holdings, Inc. (“Solera”). An affiliate of Vista Equity acquired Solera in 2016. That transaction gave rise to litigation, including an appraisal action. Solera requested coverage under the D&O Policies for the Appraisal Action. The insurers denied the request. Solera then filed suit against the insurers for breach of contract and declaratory judgment, seeking coverage for pre-judgment interest and defense expenses incurred in connection with the Appraisal Action. However, Solera did not seek coverage for the underlying fair value amount paid to the dissenting stockholders, upon which the pre-judgment interest was based. The issuer of the primary policy settled, and the excess policy insurers moved for summary judgment. The superior court denied the motion, interpreting the policy to hold that: (1) a “Securities Claim” under the policy was not limited to a claim alleging wrongdoing, and the Appraisal Action was for a “violation” under the Securities Claim definition; (2) because the “Loss” definition was not limited by any other language, the policy covered pre-judgment interest on a non-covered loss; and (3) as to defense expenses, Delaware law implied a prejudice requirement in insurance contract consent clauses, and Solera’s breach of the consent clause did not bar coverage for defense expenses absent a showing of prejudice. The Insurers appealed, contending that the superior court erred in holding that the Appraisal Action could be covered under the D&O Policies for a violation of a “Securities Claim.” The Supreme Court disagreed with the superior court's determination the Appraisal Action was for a “violation,” concluding the Appraisal Action did not fall within the definition of a “Securities Claim.” Because the Appraisal Action was not a Securities Claim, the remaining issues were moot. View "In Re Solera Insurance Coverage Appeals" on Justia Law

In this insurance dispute, the First Circuit affirmed the judgment of the district court granting summary judgment in favor of Defendants and dismissing Plaintiff's suit to recover unreimbursed defense costs that a former investment advisory firm (Firm) incurred in connection with a Securities and Exchange Commission (SEC) investigation of the Firm, holding that the Firm was not entitled to coverage.Plaintiff, in his capacity as trustee of a trust established during the bankruptcy proceedings of the Firm, filed this suit against Defendants, two of the Firm's excess insurers, seeking to recover defense costs that the Firm incurred in connection with the SEC investigation. The district court granted summary judgment for Defendants, concluding that an SEC order issued before the start of Defendants' coverage period initiated the investigation of the Firm, and this order triggered the policy's "deemed-made" clause, meaning that the claim was deemed first made prior to Defendants' policy taking effect. The First Circuit affirmed, holding (1) the SEC investigation was a claim that was deemed to have been made when the SEC order issued prior to the inception of Defendants' policies; and (2) accordingly and the claim was outside of the policies' coverage period, and Defendants were not obligated to reimburse the Firm for its defense costs. View "Jalbert v. Zurich Services Corp." on Justia Law

In 2006, Verizon divested its print and electronic directories business to its stockholders in a tax-free “spin-off” transaction. As part of the transaction, Verizon created Idearc, Inc. and appointed John Diercksen, a Verizon executive, to serve as Idearc’s sole director. Verizon then distributed Idearc common stock to Verizon shareholders. Idearc launched as a separate business with $9.1 billion in debt. In connection with the Idearc spinoff, Verizon and Idearc purchased primary and excess Executive and Organizational Liability Policies (“Idearc Runoff Policies"). The Idearc Runoff Policies covered certain claims made against defined insureds during the six-year policy period that exceeded a $7.5 million retention. Relevant here, Endorsement No. 7 to the policies stated that “[i]n connection with any Securities Claim,” and “for any Loss . . . incurred while a Securities Claim is jointly made and maintained against both the Organization and one or more Insured Person(s), this policy shall pay 100% of such Loss up to the Limit of Liability of the policy.” “Securities Claim” was defined in pertinent part as a “Claim” against an “Insured Person” “[a]lleging a violation of any federal, state, local or foreign regulation, rule or statute regulating securities (including, but not limited to, the purchase or sale or offer or solicitation of an offer to purchase or sell securities).” Under the policy, Verizon could recover its “Defense Costs” when a Securities Claim was brought against it and covered directors and officers, and Verizon indemnified those directors and officers. Idearc operated as an independent, publicly traded company until it filed for bankruptcy in 2009; a litigation trust was set up to pursue claims against Verizon on behalf of creditors. Primary amongst the allegations was Dickersen and Verizon saddled Idearc with excessive debt at the time of the spin-off. This appeal turned on the definition of a "Securities Claim;" the Superior Court found the definition ambiguous. Using extrinsic evidence, the court held that fiduciary duty, unlawful dividend, and fraudulent transfer claims brought by a bankruptcy trustee against Verizon Communications Inc. and others were Securities Claims covered under the policy. The Delaware Supreme Court disagreed, finding that, applying the plain meaning of the Securities Claim definition in the policy, the litigation trustee’s complaint did not allege any violations of regulations, rules, or statutes regulating securities. Thus, the Superior Court’s grant of summary judgment to Verizon was reversed and that court directed to enter summary judgment in favor of the Insurers. View "In Re Verizon Insurance Coverage Appeals" on Justia Law