Case Briefs
Highlights of the latest insurance cases from around the country.
D&O Insurance and 'Holding Claims'
A Supreme Court of California securities fraud decision sounds a warning to corporate policyholders to review their directors' and officers' ("D&O") insurance policies. In <i>Small v. Fritz Cos.<i>, 132 Cal. Rptr.2d 490 (Cal. 2003), the court upheld the validity of securities "holding claims" — claims seeking redress for persons induced to hold stock instead of selling it. Unlike typical securities fraud claims, the claims in this case did not involve the purchase or sale of securities. D&O policies usually link the availability of entity coverage for the corporation to a "securities claim" having been filed against the corporation. Unfortunately, some policies define "securities claim" narrowly in a manner that arguably does not include coverage for "holding claims." In light of the California decision, policyholders should insist that their policies define "securities claims" broadly in a manner that does include "holding claims."
Book Review
Richard Jacobs, QC, Lorelie S. Masters, and Paul Stanley, <i>"Liability Insurance in International Arbitration — The Bermuda Form"</i> Hart Publishing (2004)It's exciting to find something entirely new and innovative. That's how I feel about the treatise by Richard Jacobs, Lorelie Masters and Paul Stanley, <i>"Liability Insurance in International Arbitration — The Bermuda Form."</i>
Chapter 11 Transfer Tax Exemption Expanded by the Eleventh Circuit
The ability to sell assets during the course of a Chapter 11 case without incurring transfer taxes customarily levied on such transactions outside of bankruptcy often figures prominently in a potential debtor's strategic bankruptcy planning. However, the circumstances under which a sale or related transaction qualifies for the tax exemption has been a focal point of dispute for many courts, including no less than four circuit courts of appeal. A ruling recently handed down by the Court of Appeals for the Eleventh Circuit fuels this growing controversy in a way that may encourage Chapter 11 debtors to rethink the way that they structure plans of reorganization.
Production Resources Decision
In the current environment of increasing scrutiny of corporate behavior after corporate scandals such as Enron and WorldCom, lawsuits brought by creditors for breach of the fiduciary duties owed to them by officers and directors have increased significantly. The suits are taking center stage on the dockets of bankruptcy courts and state courts alike, and receive much public attention across the country. Against this backdrop, the Delaware Court of Chancery's November opinion in <i>Production Resources Group, L.L.C. v. NCT Group, Inc.</i>, __ A.2d __ (Del. Ch. 2004); C.A. No. 114-N, 2004 Del. Ch. LEXIS 174 (Del. Ch. Nov.) is likely the most important pronouncement on the nature of fiduciary duty claims brought by creditors since the Court of Chancery's 1991 opinion in <i>Credit Lyonnais Bank Nederland, N.V. v. Pathe Communications Corp.</i>, C.A. No. 12150, 1991 WL 277613 (Del. Ch. Dec. 30, 1991).
Can the Marshalling Doctrine Rescue Reclaiming Creditors?
Some courts deny relief under Section 546(c) of the Bankruptcy Code to a vendor holding a valid reclamation claim where a secured lender holds a floating lien on after-acquired inventory. In such cases, no administrative expense claim or replacement lien is granted to the vendor. This occurs even when the secured lender is oversecured. This article poses the question as to whether pursuant to Sections 544(a) and 546(c) of the Bankruptcy Code the equitable doctrine of marshalling should apply to provide relief to a reclamation creditor where a secured lender holding a lien on substantially all of the debtor's assets, including floating lien and after-acquired inventory, is oversecured. A plain reading of Sections 544(a) and 546(c) of the Bankruptcy Code suggests that a reclaiming creditor may be able to invoke the marshalling doctrine under these circumstances.
The TAP Pharmaceutical Acquittals
In 2001, the U.S. Attorney in Boston charged TAP Pharmaceutical Products Inc. (TAP) with conspiring to provide urologists with thousands of free samples of Lupron', for which the doctors billed Medicare and their patients. In order to survive and continue selling its blockbuster product for advanced prostate cancer, TAP made a reasoned decision to pay the government $885 million to resolve both civil and criminal charges. With this resolution, Boston's talented federal prosecutors continued their remarkable success in bringing major pharmaceuticals to their knees and reaching landmark settlements.
Supreme Court Gives the Defense a Boost in Plea Bargaining
The Supreme Court's Jan.12 decision in <i>U.S. v. Booker</i>, which made the federal Sentencing Guidelines advisory rather than mandatory, is likely to: 1) prove modest in its impact on sentences in the short run; 2) alter a bit the balance of power among prosecutors, defense attorneys and judges; and 3) spur Congress to make federal sentencing even more Draconian than it was for 2 decades under the mandatory Guidelines.
