Justia Securities Law Opinion Summaries

Articles Posted in Insurance Law
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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

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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

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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

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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

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At issue in these two separate cases was whether a life settlement agreement or viatical settlement agreement is an investment contract and thus a security under the Texas Securities Act. In one case, Plaintiffs filed a class action alleging that Life Partners, Inc. violated the Texas Securities Act (Act) by selling unregistered securities and misrepresenting to purchasers that they were not, in fact, securities. In the second case, the State filed suit alleging that Life Partners had committed fraud in connection with the sale of securities. The Both district courts entered judgments for Life Partners. Both courts of appeals reversed in part, concluding that the life settlement agreements were securities under the Texas Securities Act. The Supreme Court affirmed, holding that that the agreements at issue in these cases were investment contracts, and thus securities, under the Texas Securities Act. View "Life Partners Holdings, Inc. v. State" on Justia Law

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Customers of a securities firm made claims against that firm based on real estate investments the firm’s broker-dealers recommended. An entity that had an interest in and operated each of the real estate investments filed for bankruptcy, and at least some of the real estate investments became debtors in that bankruptcy proceeding. The appointed examiner in the bankruptcy proceeding found that the entity was engaged in a fraudulent “Ponzi scheme.” When the securities firm applied for professional liability insurance, it disclosed one of the customer claims but not the facts that would support other potential customer claims arising out of investments through the same entity as that involved in the disclosed claim. The insurer refused to defend against undisclosed claims because the policy’s application included an exclusion for nondisclosure of facts that might lead to a claim. The court of appeal affirmed judgment in favor of the insurer: There was no insurance coverage because all of the undisclosed claims arose out of the same events as the disclosed claim. The securities firm was aware of facts and circumstances that might result in a claim or claims being made against it, which awareness it was required to disclose. View "Crown Capital Secs., L.P. v. Endurance Am. Specialty Ins. Co." on Justia Law

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Accretive provides cost control, revenue cycle management, and compliance services to non-profit healthcare providers. Accretive and Fairview entered into a Revenue Cycle Operations Agreement (RCA), accounting for about 12% of Accretive’s revenue during the class period, and a Quality and Total Cost of Care (QTCC) contract, promoted as the future for healthcare services. In 2012, the Minnesota Attorney General sued Accretive for noncompliance with healthcare, debt collection, and consumer protection laws. Accretive wound down its RCA contract short of its term, expecting a loss of $62 to $68 million. The AG released a damaging report on Accretive’s business practices. Fairview cancelled its QTCC contract. Accretive’s stock fell from over $24 to under $10 per share. Plaintiffs filed a class action under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, alleging that Accretive concealed its practices to artificially inflate its common stock. The parties negotiated a settlement of $14 million: $0.20 per share ($0.14 with attorneys’ fees and expenses deducted). Notice was sent to 34,200 potential class members. Only one opted out; only Hayes filed an objection. At the fairness hearing, the district court granted approval, awarding attorneys’ fees of 30% and expenses of $63,911.14. Hayes did not attend. The Seventh Circuit affirmed. View "Hayes v. Accretive Health, Inc." on Justia Law

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In 2003, the Securities and Exchange Commission (SEC) notified Bear Stearns & Co. and Bear Stearns Securities Corp. of its intention to charge Bear Stearns with violations of federal securities laws. Bear Stearns agreed to pay $160 million as a disgorgement and $90 million as a civil penalty. Bear Stearns then sought indemnification from its insurers (Insurers), requesting indemnity for the $160 million SEC disgorgement payment. Insurers denied coverage. Bear Stearns subsequently brought this breach of contract and declaratory judgment action against Insurers. Insurers unsuccessfully moved to dismiss the complaint. The Appellate Division reversed and dismissed the complaint, holding that, as a matter of public policy, Bear Stearns could not seek coverage under its policies for any of the SEC disgorgement payment. Bear Stearns appealed, arguing that, while it was reasonable to preclude an insured from obtaining indemnity for the disgorgement of its own illegal gains, Bear Stearns was not unjustly enriched by at least $140 million of the disgorgement payment, the sum attributable to the profits of its customers. The Court of Appeals reversed, holding that Insurers did not meet their burden of establishing, as a matter of law, that Bear Stearns was barred from pursuing insurance coverage under its policies.View "J.P. Morgan Sec. Inc. v. Vigilant Ins. Co." on Justia Law

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Pagliara, a licensed securities broker for more than 25 years, maintained a spotless record with the Financial Industry Regulatory Authority (FINRA) except for this case. Under a 2002 licensing agreement, Pagliara served both Capital Trust and NBC until 2008. During that time, Butler followed Pagliara’s recommendation to invest $100,000 in bank stocks that later lost value. Butler’s attorney threatened to sue NBC and Pagliara. NBC retained JBPR for defense. Unbeknownst to NBC and JBPR, Pagliara offered to settle the claim for $14,900, $100 below FINRA’s mandatory reporting threshold. Butler refused. Pagliara then informed NBC of his intent to defend the claim in FINRA Arbitration and objected to any settlement of the “frivolous claim.” NBC insisted that Pagliara not have any contact with Butler, based on the License Agreement signed by the parties, which stated that: “NBCS, at its sole option and without the prior approval of either [Capital Trust] or the applicable Representative, may settle or compromise any claim at any time.” JBPR finalized a $30,000 settlement without obtaining a release for Pagliara. Pagliara sued, alleging breach of fiduciary duty, violation of the Tennessee Consumer Protection Act, and intentional infliction of harm. The district court rejected the claims. The Sixth Circuit affirmed. View "Pagliara v. Johnston Barton Proctor & Rose, LLP" on Justia Law

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Plaintiffs purchased variable universal life insurance policies from defendant. Plaintiffs subsequently filed a class action suit against defendant under the Securities Litigation Uniform Standards Act (SLUSA), 15 U.S.C. 78bb(f)(1), for levying excessive cost of insurance charges. The court concluded that claims of breach of contract and breach of the duty of good faith and fair dealing were not precluded by SLUSA, even if such claims related to the purchase or sale of a covered security. The court reversed the district court's dismissal of the two contract claims, on the condition that plaintiffs amend their complaint to remove any reference to deliberate concealment or fraudulent omission. The court affirmed the dismissal of the class claim for unfair competition in violation of California law. View "Freeman Investments, L.P., et al v. Pacific Life Ins. Co." on Justia Law