Archive for July, 2012« Older Entries
Corporation Required to Advance Legal Fees to Director to Defend Lawsuit Brought by the Corporation Against the Director
Expert Article by Alexander Kipp
The Supreme Court of Ohio recently ruled that a corporation cannot avoid its duty under R.C. 1701.13(E)(5)(a) to advance the legal defense expenses of a corporate director who is sued by the corporation even when the alleged misconduct, if proven, would amount to a violation of the corporate director’s fiduciary duties to the corporation.
The case, captioned Miller et al. v. Miller, 2012-Ohio-2928, concerned Sam M. Miller, a director and co-owner of Trumbull Industries Inc., who was sued by two other directors of the corporation, Murray Miller and Sam H. Miller, for allegedly violating his fiduciary duties to shareholders and the corporation by participating in a new business venture to which Murray and Sam H. objected. The complaint sought injunctive relief and damages.
Sam M. subsequently sent a memorandum/undertaking to Murray and Sam H. notifying them that he had reimbursed himself from Trumbull Industries’ corporate funds for the costs he had incurred in preparing a defense against their lawsuit. Both sides then filed motions with the trial court seeking a determination as to whether Sam M. was entitled to the funds. The trial court ultimately ruled in favor of Sam M.
On appeal, the Eleventh District Court of Appeals reversed the trial court and held that Sam M. was not entitled to indemnification for his legal defense costs from Trumbull Industries. Sam M. sought and was granted Supreme Court review of the Eleventh District’s ruling.
In reversing the Eleventh District, the Supreme Court stated as follows: “Based upon the unambiguous language of R.C. 1701.13(E)(5)(a), we hold that Trumbull is required by law to advance expenses to Sam M. Trumbull’s articles of incorporation do not state by specific reference that R.C. 1701.13(E)(5)(a) does not apply to Trumbull. Thus we hold that appellees failed to show that Trumbull opted out of the mandatory advancement requirement. Finally, we hold that Trumbull’s statutory duty to advance Sam M.’s fees arose upon receipt of Sam M.’s undertaking.”
Corporate employers should be aware of this recent ruling and should review their articles of incorporation to ensure that company policies regarding payment of directors’ and officers’ legal fees are specifically addressed. If a corporation intends to opt out of the mandatory advancement requirement, the articles of incorporation must specifically reference that intention.
Massimo Mantovani – General Counsel Legal Affairs – Senior Executive Vice President with Eni
Hassan Hassan, General Counsel Africa, India, Middle East Russia/CIS, Mars, Incorporated (UAE)
Expert Article by Jonathan Secrest
On June 25, 2012, the United States Supreme Court agreed to consider Vance v. Ball State Univ., No. 11-556, a case in which the issue is whether the definition of “supervisor” under Title VII includes an employee who has no authority to hire and fire an employee but who oversees and directs the worker’s daily tasks.
In Vance, the plaintiff is an African-American catering assistant who claimed she was harassed by white co-workers and supervisors based on her race. The U.S. Court of Appeals, Seventh Circuit, determined that plaintiff failed to establish liability based on supervisor or co-worker harassment. Plaintiff contended that one of the alleged harassers actually was a supervisor and not a co-worker because this harasser directed her work. The Seventh Circuit determined, however, that this harasser did not have the power to hire, fire, demote, promote, transfer or discipline Plaintiff and was therefore not a supervisor. On this basis, the Seventh Circuit affirmed summary judgment to Ball State University on the plaintiff’s Title VII claim.
The outcome of Vance is significant because typically under Title VII, an employer is vicariously liable for harassment by a supervisor of the victim regardless of whether the employer knew or had reason to know the harassment was occurring. If the harasser is a co-worker, however, the employer is not liable unless it was negligent and knew or had reason to know the harassment was occurring.
C5, in partnership with the HMRC, is proud to announce the 2nd Advanced Forum on Customs Compliance. 2012 has seen several important changes to the customs compliance environment throughout Europe.
Companies must now prepare for the new Union Customs Code while the signing of the Mutual Recognition Agreement between the European Union and United States will carry substantial benefits for companies operating under the Authorised Economic Operator (AEO) and, in the future, Customs-Trade Partnership Against Terrorism (C-TPAT).
Gain first hand insights from the HMRC as they address a number of key sessions throughout this 2 day, business critical forum. Capitalise on this unique opportunity to hear these recent changes and new opportunities and the impact they will have on your organisation
New for 2012:
New Mutual Recognition Agreement between the AEO and C-TPAT programme
* What the Mutual Recognition Agreement entails
* What your organisation can do now to use the Agreement
* What benefits you can expect
The new Union Customs Code:
* Key updates and priorities
* How you can upgrade your current customs compliance procedures to get in line with imminent changes
Prepare you company for potential proof of origin audits
* How to properly mark the origin of compound products
* How to ensure that your origin marking is correct
* How to secure the documents to back it up
Optimise your customs valuations: Identify and understand key strategies for working with your finance, tax and supply chain teams to choose the best valuation methods for your products
Whether AEO certified, seeking certification, or just wanting to remain compliant, learn how to train employees to make the highest standards of compliance a part of everyday life
Prepare for the multitude of countries being taken off of the Generalised Systems of Preferences list: find out how other companies are compensating
How well do you know your third parties?
As international trading companies in Europe and across the world look to new markets in an attempt to keep profit margins at acceptable levels during this prolonged economic slump, legal and compliance teams must ensure that not only their internal compliance systems are robust but also maintain a cost effective and efficient third party screening and monitoring programme to facilitate not only the expansion of trade into new regions but also protect your organization against increasing risks which exist in more traditional markets.
Companies across all sectors must be able to account for their suppliers, distributors, freight forwarders, agents, brokers, advisors and joint venture business partners to ensure these third parties are not potentially exposing your organisation to significant commercial losses, reputational damage and regulatory fines through their actions. Potential liability can arise from anywhere including corruption and bribery allegations, breach of economic or trade sanctions or global export controls, potential fraud and money laundering, or anti-competitive behaviour. Both prime contractors and all third parties down the supply chain must implement robust screening, due diligence and monitoring systems and be ready to answer questions, produce documents and have sufficient checks on their own third parties in order to win and retain business.
C5’s forum Managing Third Party Relationship Risks will bring together a leading faculty of experienced in-house and private practice lawyers, compliance executives to discuss not only the hottest regulatory risks but also potential reputational and commercial risks which must be considered at the outset of any relationship. Throughout this forum legal and compliance experts from some of the world’s largest companies will discuss the biggest risks they consider when engaging with third parties. Use this opportunity to benchmark your practices and pick up critical knowledge from the international third party compliance community by participating in such critical discussions including:
- How to Categorise Third Parties as Low, Medium and High Risk by Asking the Right Questions: Effectively Taking a Risk Based Approach
- Successfully Negotiating Adequate Clauses in a Third Party Contract: Audit, Inspection and Termination Rights
- Identifying Key Areas of Concern in Regards to Corruption and Bribery Risks and working with your Business Partners and other Third Parties to Minimise Exposure
- Maintaining Robust Ongoing Monitoring Systems on Third Parties: What to do When a Problem is Uncovered Mid-Relationship
- Assessing Reputational and Commercial risks presented by a Third Party’s Business Practices: Deciding what is and is not a Deal-Breaker
- Taking Responsibility for Third Party Compliance: How much Training and Support Should Be Given to a Third Party?
Use this opportunity to benchmark your practices with leading local and international organisations and pick up critical knowledge from the European compliance experts. This is an outstanding career, business networking and information sharing opportunity.
The clearance and approval process…pre-approval concerns…product labeling… clinical trials and IDEs…MDRs… QSRs… post-market controls…recalls and withdrawals…enforcement – all are critical aspects in the commercialization process for medical devices, which are governed by FDA law and regulation.
Recent court cases, and high-profile trials concerning FDA-regulated products have made it clear that it is essential for attorneys who do not have regulatory practices — but who do deal with FDA-regulated medical devices — to have a familiarity with these concepts. The changing business dynamics of the life sciences industry have also made it critical for business executives, policy analysts and securities experts who work in this field to have a clear understanding of the dynamics of the FDA.
Many products liability lawyers, patent counsel, business and investment experts, medical and regulatory affairs professionals, and those involved in pricing and reimbursement — despite their tenure in working with FDA-regulated devices — are not well-versed in the essentials of the approval process and the regulatory hurdles of the post-approval period. Whether you are a products liability or patent litigator, in-house counsel, in-house business development or federal affairs professional, FDA Boot Camp – Devices Edition will provide you the insights you need.
Learn about the FDA approval process and the ins and outs of post-approval challenges
ACI’s second annual FDA Boot Camp – Devices Edition has been designed to give products or patent litigators, as well as patent prosecutors, industry in-house counsel, and life sciences investment and securities experts, a strong working knowledge of core FDA competencies.
A distinguished faculty of top FDA regulatory device experts — a “Who’s Who of the FDA Bar” — will share their knowledge and give you critical insights on:
- The organization, jurisdiction, functions, and operations of the FDA
- An overview of medical device regulations
- The classification of devices and the concept of “risk-based” classification
- Clinical trials and IDEs
- The 510(k) clearance process – what you need to know now and what to expect in the future
- The premarket approval process (PMAs) and drug labeling and promotion
- General post-market controls and MDRs
- QSRs vs. cGMPs and ISO
- Mitigating the impact of enforcement actions
- Recalls, product withdrawals, and FDA oversight authority
ERISA “Fiduciary Exception” Does Not Exempt Attorney Correspondence Created After the Filing of a Complaint from Work-Product Protection
Expert Article by Emily Seymour Costin
On May 31, 2012, Magistrate Judge Ann Marie Donio of the United States District Court for the District of New Jersey denied plaintiffs’ motion to compel the production of 54 e-mails on the basis that these documents were protected from disclosure by the work-product doctrine.
In doing so, Judge Donio held that these documents did not fall within the “fiduciary exception” commonly applied in the ERISA context so as to mandate their disclosure because the documents were created specifically for use in litigation against the beneficiary requesting the documents. See Goldenberg v. Indel, Inc., et al., Case No. 09-5202, Order dated May 31, 2012 (Doc. No. 205).
Plaintiffs filed their putative class action complaint on October 9, 2009, alleging that Defendants mismanaged the Inductotherm Companies Master Profit Sharing Plan (“the Plan”). Plaintiffs are both past and present participants in the Plan. Plaintiffs’ complaint asserts claims against three sets of Defendants: (1) the “Inductotherm Defendants” which include the individual Trustees of the Plan and Indel, Inc.; (2) the “FSC Defendants” which include Financial Services Corporation, FSC Securities Corporation, and the Wharton Business Group, which allegedly provided advice to the Plan’s Trustees concerning investment of the Plan’s assets; and (3) the “SunAmerica Defendants” which include the American International Group, SunAmerica Asset Management Corporation, SunAmerica Capital Services, Inc., and SunAmerica Fund Services, Inc., entities related to the SunAmerica Money Market Fund, a fund used as a sweep account for some of the Plan’s assets.
At issue in Plaintiff’s motion to compel was Defendants’ claim of protection for e-mails sent after the filing of the complaint in this matter. The e-mails contain mostly correspondence between Indel, Inc.’s corporate counsel; non-attorney representatives of the FSC Defendants and the Wharton Defendants; and non-attorney representatives of the Inductotherm Defendants. During discovery, Defendants withheld the e-mails asserting work product protection and the common interest privilege. Plaintiffs subsequently filed a motion to compel the production of the e-mails.
Plaintiffs asserted that the work-product doctrine did not apply to the e-mails in question because: (1) the e-mails were not created for the purpose of litigation; (2) the e-mails were not created by or for an attorney; and (3) the Indel Defendant’s in-house counsel was not acting in his capacity as an attorney. Plaintiffs further asserted that, by sharing the e-mails with the FSC Defendants and the Wharton Defendants, the Inductotherm Defendants waived work product protection. Plaintiffs also asserted that the common interest privilege did not protect the e-mails from this alleged waiver.
In response, Defendants asserted that all e-mails were created in response to the complaint and solely for litigation purposes and that Indel’s in-house counsel was acting in his capacity as corporate counsel for Indel. Defendants further asserted that the sharing of the e-mails between Defendants did not waive the work-product doctrine, and that even if the doctrine had been waived, the common interest privilege would apply to afford protection from disclosure.
After examining the work-product doctrine in some detail, and an in camera review of the documents, the Court held that documents were prepared “in anticipation of litigation” because the e-mails (1) were sent after the date the complaint was filed, and (2) made references to the complaint or issues raised in the complaint. Further, the Court found that the documents were prepared “because of” the complaint and for no other reason and, therefore, they met the two-prong test for work product protection. The Court further held that the work-product protection was not waived when the e-mails were shared with the other defendants because the protection for work-product is only waived when the information is disclosed in a manner inconsistent with keeping the documents from the adversary.
Plaintiffs then asserted that, if the documents were protected by the work-product doctrine, the ERISA “fiduciary exception” nevertheless required Defendants to produce them. The Court rejected this argument and rightfully held that the fiduciary exception did not apply to documents created specifically for use in litigation against the beneficiary requesting the documents.
The Court noted that the fiduciary exception generally provides that “where beneficiaries sue their fiduciaries alleging breaches of fiduciary duty, the attorney-client privilege does not attach to legal advice rendered to the fiduciaries for assistance in the performance of fiduciary duties.” Wachtel v. Health Net, Inc., 482 F.3d 225, 233 (3d Cir. 2007) (citing Donovan v. Fitzsimmons, 90 F.R.D. 583, 585 (N.D.Ill. 1981)). Further, this exception to the attorney client privilege is “premised on both the beneficiaries’ right to inspection and their identity as the ‘real’ clients.” Wachtel, 432 F.3d at 233.
Here, however, the Court noted that the e-mails were all created after Plaintiffs filed their complaint and in connection with the fiduciaries’ defense of the action – that is, for the fiduciaries’ “own personal defense in contemplation of adversarial proceedings against its beneficiaries.” Where the information or communications sought were created solely for adversarial proceedings against the beneficiaries, the Court concluded that the fiduciary exception to work product simply does not apply. Therefore, because the Court found that the e-mails were protected by the work-product doctrine, that the work-product doctrine had not been waived, and that the ERISA fiduciary exception did not apply in this situation, plaintiffs’ motion to compel was denied.
In so ruling, the Court explicitly rejected Plaintiffs’ argument to endorse a more extensive application of the fiduciary exception. Rather, the Court confirmed that the fiduciary exception is a narrow exception, limited only to instances when the beneficiary of a fiduciary relationship seeks to acquire communications or documents otherwise protected by the attorney-client privilege or the work-product doctrine when the documents were created “in furtherance of a fiduciary duty.”
Expert Article by Emily Seymour Costin
It’s that time of year again. Final exams are almost over, the school year is ending, and summer recess is almost here. With graduations looming, May often serves as a time to reflect on the past and look to the future. Inspired by the sense of nostalgia this time of year brings, we thought it would be a good time to reflect on how ERISA stock drop class actions have fared in the Circuit Courts of Appeal during this spring semester of 2012.
In re Citigroup ERISA Litigation and Gearren v. McGraw-Hill Cos., Inc.
Last fall, the Second Circuit joined the Third, Fifth, Sixth and Ninth Circuits in holding that the presumption of prudence is the applicable standard in reviewing breach of fiduciary duty claims related to investments in employer stock. In re Citigroup ERISA Litig., 662 F. 3d 128 (2d Cir. 2011). On December 6, 2011, plaintiffs-appellants petitioned for rehearing or rehearing en banc, asking the Second Circuit to reconsider this significant decision, purporting to raise three questions of law of exceptional importance: (1) Is a judicially created presumption of prudence for employer securities offered in defined contribution plans mandated by or consistent with ERISA? (2) If such a presumption exists, what is its strength? (3) Does ERISA’s duty of loyalty impose upon defined contribution plan fiduciaries a duty to disclose to plan participants material adverse information about company stock which the fiduciaries know but plan participants do not?
Despite the additional support of an amicus curie brief submitted by the Secretary of Labor, plaintiffs-appellants were unsuccessful in challenging the decision. In a summary order, the Second Circuit denied the petition on February 23, 2012, thereby confirming that the presumption of prudence is here to stay in the Second Circuit. This marks the bitter end of plaintiffs’ class action bid arising from the drop in the price of McGraw Hill and Citigroup stock held in their 401(k) plans after the financial crisis of 2008. Grade: Fail.
Our advisory, summarizing these two cases in more detail, can be accessed through the link below:
Pfeil v. State Street Bank & Trust Co.
The Sixth Circuit recently took the opportunity to resolve a district court split on the issue of whether the “Kuper/Moench presumption” may be applied when considering a motion to dismiss, holding that the presumption of “reasonableness” adopted in Kuper v. Iovenko, 66 F.3d 1447 (6th Cir. 1995) is not an additional pleading requirement and, thus, does not apply at the motion to dismiss stage. Pfeil v. State Street Bank & Trust Co., No. 10-2302, 2012 WL 555481 (6th Cir. Feb. 22, 2012).
In Pfeil, plaintiffs alleged that State Street Bank and Trust – as the fiduciary for the two primary retirement plans offered by General Motors – breached its fiduciary duty under ERISA by continuing to allow participants to invest in GM common stock, even though public information indicated that GM was headed for bankruptcy. The district court dismissed the complaint, holding that State Street’s alleged breach of duty could not have plausibly caused the losses to the plan.
After acknowledging that State Street was entitled to the Kuper/Moench presumption, the Sixth Circuit noted that it had not addressed whether the presumption applies at the pleading stage and, therefore, took the “opportunity to address whether a plaintiff must plead enough facts to overcome the Kuper presumption in order to survive a motion to dismiss.” In this regard, the Sixth Circuit held that the presumption does not apply at the pleading stage because the plain language of Kuper stated that a plaintiff could rebut the presumption of reasonableness by “showing” that a prudent fiduciary acting under similar circumstances would have made a different investment decision. Further, in Kuper, the presumption was cast as an evidentiary presumption and the Sixth Circuit applied the presumption to a fully developed evidentiary record, and not merely the pleadings. Moreover, the Court noted that this holding is consistent with the standard for motions to dismiss in general because application of the presumption necessarily concerns weighing questions of fact that would be inconsistent with the Rule 12(b)(6) standard. Apparently, the Court never grasped the notion that since all of the alleged facts are assumed to be true, the standard can and should be applied to see if the claims alleged are “plausible.”
The Sixth Circuit has thus set itself apart as the only Circuit to affirmatively reject the Kuper/Moenchpresumption as a standard that may be applied at the pleading stage. The plaintiffs’ bar undoubtedly views this as a major victory, and courts in the Sixth Circuit will likely see a rise in ERISA stock drop suits, now that plaintiffs are far more likely to advance to the long (and costly) discovery phase of litigation. Grade: Pass.
The Class of 2013?
Two other potential class actions are worth noting and (we expect) may resurface in the fall semester, if not sooner:
Lanfear v. Home Depot
In Lanfear, the Northern District of Georgia concluded that plaintiffs failed to plausibly plead that Home Depot stock was an imprudent investment during the proposed class period. Although the district court refused to explicitly adopt the Moench presumption, it nonetheless analyzed the facts under the Moench presumption and determined that plaintiffs’ stock drop claim would still fail. Now on appeal, the Eleventh Circuit is expected to either explicitly adopt (or reject) the Moench presumption in its opinion. The Lanfear case was argued on October 7, 2011. Lanfear v. Home Depot, 11th Cir. Case No. 10-13002.
Harris v. Amgen, Inc. et al.
Likewise, in the first stock drop case following its adoption of the Moench presumption in Quan v. Computer Sciences Corp., 623 F.3d 870 (9th Cir. 2010), the Ninth Circuit will address whether plaintiffs have alleged sufficient facts to overcome the presumption in a case arising from a temporary drop in Amgen’s stock price following negative publicity surrounding one of its products. Because Quan was decided on a summary judgment motion, the Amgen panel may take the opportunity to opine on whether the Moench presumption should apply at the pleading stage. The Amgen case was argued on February 17, 2012. Harris v. Amgen, Inc., et al, 9th Cir. Case No. 10-56014.
The nation’s premier ERISA litigation conference devoted entirely to managing and defending complex ERISA-related claims returns for its fifth installment, led by an unparalleled faculty of leading in-house counsel and expert outside defense counsel, as well as federal and state judges from across the nation.
Increasingly complex theories of liability, mounting requests for attorneys’ fees, continuing scrutiny of and litigation arising from investment decisions, PPACA compliance and litigation concerns, new and emerging regulations affecting disclosures from plan sponsors and service providers, a very sophisticated plaintiffs’ bar, the ongoing fallout from Cigna v. Amara, new developments regarding the 404(c) defense, the impact of Tussey v. ABB, Inc.on fee cases, overwhelming discovery burdens, and preemption complexities– these are just some of the issues facing plan sponsors, fiduciaries, service provides, insurance companies, and defense lawyers today.
Building on the incredible success of our past ERISA events, and in response to demand from the market, ACI has developed its 5th National Forum on Defending and Managing ERISA Litigation. This advanced forum has been designed to bring together the nation’s leading in-house counsel and outside defense attorneys to engage in a two-day seminar geared towards developing winning litigation strategies and overcoming new and emerging theories of liability from the plaintiffs’ bar. Our expert faculty, led by seasoned in-house counsel, top defense attorneys, and renowned federal and state judges, will provide you with the proven strategies, innovative tactics, and key insights needed to mount a rigorous defense