Claims and Bad Faith Law Blog

CLAWBACK POLICIES DON'T ALWAYS WALK THE WALK.

Corporations tend to announce, loudly, that they have so-called "clawback" policies in place.  This is intended to reassure shareholders since the purpose of clawback policies is to "claw back" payments made by the corporation to corporate officers who have allegedly done bad things for which the corporation has paid penalties with corporate money, when the corporation also pays the alleged miscreants with corporate money that would otherwise go to benefit the shareholders.  Clawbacks have been addressed here several times in the past.

"But saying and doing are two different things," reports Gretchen Morgenson in "How Badly Must a C.E.O. Behave Before His Pay is Clawed Back?" (New York Times Online, posted on Friday, June 9, 2017, accessible at https://nyti.ms/2s5xwdJ; subscription may be required by the New York Times).  United Airlines provides the example of the day.

One Smisek was United's CEO who approved a money-losing route from Newark Airport so that a politician could fly to his second home in South Carolina.  The day after Smisek approved the route (allegedly surreptitiously), the Port Authority headed by the politician approved one of United's projects at Newark Airport.

The Department of Justice investigated.  United made a "nonprosecution agreement" and paid $2.25 million in penalties and a further amount of unreported sums "to enhance its ethics and compliance procedures."

The Securities and Exchange Commission also investigated United's silent award of a money-losing airline for one person in this case.  United paid $2.4 million to the SEC.

After United was served with grand jury subpoenas by the U.S. Attorney's Office for New Jersey, United's directors decided to terminate Mr. Smisek's relationship.  They gave him a severance package worth $28.6 Million.  The cash in that payment was some $5 Million.

The City of Tamarac, Florida's Firefighters Pension Trust Fund was and apparently still is a United shareholder.  They asked United's directors to claw back the corporate money they paid to several United officers including Smisek, but the directors refused.

United's directors say that they cannot claw back this money because no-one claws back payments made with corporate money.

They contend that "clawing back severance awarded to executives amid a bribery investigation is not industry practice," Ms. Morgenson reports.  And in a truly Orwellian twist, the directors defend themselves for not clawing back the payments by saying that if they did something that is different from the industry standard, then they would be at a disadvantage in hiring executives.

Who knew that United's directors are a dance team, doing the Shameless Shuffle?  Like everyone else in charge at United, they know how to make a buck though.

But if you are a United shareholder, the buck comes out of your pocket, apparently, based on Ms. Morgenson's outstanding reporting.

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.

CLAWBACKS AND RECOUPMENT: AN ESSAY ON "SUPREME DISGORGEMENT."

An essay worth reading, it provokes thought:  Caprice L. Roberts, "Supreme Disgorgement" 68 Fla. L. Rev. 1413 (September 2016), also available online at http://www.floridalawreview.com/wp-content/uploads/6-Roberts.pdf, in the current issue of the Florida Law Review as these words are written.

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.

Related articles

Orwellian Fiduciaries.

CLAWBACKS AND THE LAW OF LIABILITY FOR BREACH OF DUTY.

Part Two.

Want to change the "clawback" policies of corporations in which you or your clients hold shares?

This year, both Verizon and Caterpillar are putting shareholder proxy proposals to a vote that would write new rules.  Apparently many corporate executives and their boards of directors have had a problem writing rules on this subject for at least the past 7 years.  This year, many shareholders at many corporations again take the rule-writing pens into their own hands, so to speak.  This year's shareholder proposals at Verizon and Caterpillar, for example, would expand the potential for recovering money back from executives who allegedly cost the company money or weaken the value of your shares.

Want to know when and why the boards of directors at corporations in which you or your clients hold shares, either pursue recoupment or decline to get the corporation's money back from executives?

This year, shareholders have proposed that Verizon "must disclose details of any clawbacks to shareholders as well as decisions not to pursue recoveries."

Want to make your views known even if you hold stocks only through mutual funds who vote your shares?

[W]rite to the fund's executives and tell them how you want them to vote your shares.  They may not do as you say, but at least they'll know where you stand.

 Gretchen Morgenson, "Fair Game / Shareholder Proxies Could be the New Regulators" (New York Times Online, posted on Friday, March 24, 2017) (online at www.nytimes.com, subscription may be required).

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.

Related articles

Mutual Funds' Fiduciary Issues for Investors, Investments.

Enforcing Directors' Duties of Communication: Fiduciary Law Can Provide Means.

Insurance Claims and Bad Faith Law Blog: CLAWBACKS AND THE LAW OF LIABILITY FOR BREACH OF DUTY.

CLAWBACKS AND THE LAW OF LIABILITY FOR BREACH OF DUTY.

PART ONE.

"Clawbacks" is another word to describe recouping executive pay.  The ability to take some of the executives' pay package back to the bank accounts of the corporation and its shareholders is very limited, however.  Basically clawbacks are only possible because of misuse of corporate funds or other improper activities of corporate executives that hurt the bottom line and so reduce shareholder value.

As anyone knows who follows excuses for corporate behavior in the 21st Century, the bottom line and shareholder value are the only goals corporate executives say they pursue.

Except when they don't.  When corporate executives act for their own interests at the expense of the corporation and the corporation's shareholders, then and only then do clawbacks become possible.

At one large company, shareholders want to change the current recoupment standard from just "'willful misconduct' that causes significant financial or reputational harm to the company."  They want to "also cover wrongdoing that arose because of negligence or a supervisory failure."  See Gretchen Morgenson, "Fair Game / Shareholder Proxies Could be the New Regulators" (New York Times Online, posted on Friday, March 24, 2017), available through www.nytimes.com (subscription may be required).

So, the key is tangible, real damage to the corporation's coffers and to the value of its shares.  Yet, companies reportedly oppose shareholder proxies like this one as a general rule.  Presumably, when it is reported that "companies" generally oppose these shareholder proxies, the reporting really means the boards of directors or perhaps smaller units of the boards such as compensation committees.

Yet directors have fiduciary duties toward the corporation and arguably to the corporation's shareholders.  Their duties include a duty of loyalty and a duty to avoid self-dealing, among other duties.  If it is a fiduciary breach or other breach of duty for a director to oppose shareholder proxies like these, is the directors' opposition covered by insurance?

We are talking after all about shareholder proxies that are proposed to make it easier to recoup money for the corporation and its shareholders.  It may be inconvenient for wayward directors or officers to pay money for their alleged breaches of duties, but would any such alleged breaches be covered by insurance?  D&O coverages, paid for by the shareholders, perhaps?

It seems that there is a pretty clear argument that it is a breach of duty to oppose shareholder proxies which, if adopted, could only benefit the corporations and their shareholders while at the same time adversely affecting only the directors and officers themselves.

Do you think differently?

To be continued ....

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.  

Related articles

Mutual Funds' Fiduciary Issues for Investors, Investments.

Enforcing Directors' Duties of Communication: Fiduciary Law Can Provide Means.

Orwellian Fiduciaries.

NO "Buss" TO ALASKA FOR FEES DESPITE POLICY, DISREGARD AGREEMENT.

The Alaska Supreme Court just answered these two certified questions, effectively letting the tires out of the "Buss" for liability carriers seeking to recoup defense fees and costs in cases where they defend counts and claims which they do not cover, even with their insureds' concurrence and agreement to the carriers' reserved rights of reimbursement, when at the same time the carriers defend counts and claims their policies affirmatively do cover:

1. Does Alaska law prohibit enforcement of a policy provision entitling an insurer to reimbursement of fees and costs incurred by the insurer defending claims under a reservation of rights, where (1) the insurer explicitly reserved the right to seek such reimbursement in its offer to tender a defense provided by independent counsel, (2) the insured accepted the defense subject to the reservation of rights, and (3) the claims are later determined to be excluded from coverage under the policy?
2. If the answer to Question 1 is “Yes,” does Alaska law prohibit enforcement of a policy provision entitling an insurer to reimbursement of fees and costs incurred by the insurer defending claims under a reservation of rights, where (1) the insurer explicitly reserved the right to seek such reimbursement in its offer to tender a defense provided by independent counsel, (2) the insured accepted the defense subject to the reservation of rights, and (3) it is later determined that the duty to defend never arose under the policy because there was no possibility of coverage? 

    The answer to both questions is “yes.”

Attorneys Liability Protection Society, Inc. v. Ingaldson Fitzgerald, P.C., No. S–15683, 2016 WL 1171299, at *1 (Alaska March 25, 2016) (STATED BY WESTLAW AS NOT PRECEDENT BECAUSE "THE CASE WAS ENTERED IN THE WESTLAW DATABASE BEFORE THE TIME FOR REHEARING HAD EXPIRED.").

          So, read the answers in this case for what they are worth in other words.  Assuming that these answers to certified questions remain unchanged, Alaska will clearly join the minority view on these questions.

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with  Supplements).  The majority and minority views on these questions, including the ground-breaking views expressed by the California Supreme Court in its Buss v. Superior Court decision, are set out in 1 id. § 3:6, "Informing the Insured:  Insurer assertion of rights to reimbursement from the insured of clearly noncovered indemnity and defense expenses," and in 2 id. § 13:21, "Damages payable to insurer--By insured."  All rights reserved.

SUBROGATION, BUT YOU CAN'T CALL IT EQUITABLE … BECAUSE IT ISN'T.

In the case of Allstate Ins. Co. v. Theodotou, 171 So. 3d 163 (Fla. 5th DCA 2015), a panel of Florida's Fifth District Court of Appeal dismantled equitable subrogation.  Equitable subrogation was administered by Courts of Equity for centuries following settled principles, until this case was decided on July 24, 2015.

Equitable subrogation always required that the injured or damaged parties must be fully compensated for their injuries or damages as an element of another party seeking to stand in their shoes and sue somebody else for a part of the injuries or damages.  Parenthetically, the victim has traditionally been identified as the "creditor" in equitable subrogation, whereas in recent cases, judges often refer to the injured or damaged party by the made-up word, "subrogor."

In the case of Allstate Insurance Co. v. Theodotou, the Fifth District panel expressed confusion over this requirement.  The panel opinion even describes this requirement in terms that make it seem like something of a Florida Supreme Court innovation in 1999.  Allstate Ins. Co. v. Theodotou, 171 So. 3d 163, 166-67 (Fla. 5th DCA 2015).  Far from an innovation of the Florida Supreme Court in 1999, the requirement that the injured person must be fully compensated for the loss before anyone else can sue to recoup their payment to the injured party, this has been a requirement of equity at least until July 24, 2015.

The Florida appellate panel seemed to recognize the need for this requirement in equity when they wrote that "[s]urely, the injured victim deserves to be made whole."  Allstate Ins. Co. v. Theodotou, 171 So. 3d 163, 168 (Fla. 5th DCA 2015).  So much for that, however.  Right after making that statement, the panel shifted its attention to the party which paid the money and no longer even expressed concern about the victim. In shifting its attention away from the victim which claimed compensation for injuries, the panel shifted its attention to the party which claimed the right to recover money it had paid under an obligation to the victim.  In short, the panel shifted its attention from redressing injuries to recouping money.  And then they called this "equity."

It must be recalled that the case presented a claim for equitable subrogation, meaning that the subrogation plaintiff claimed the rights of the victim against another party.  It was not a case where the subrogation plaintiff claimed compensation for its own injuries; it was a case in which the subrogation plaintiff claimed the right to be compensated for the victim's injuries.

The panel's holding resulted from this skewed viewpoint.  It permitted the insurance company to sue medical providers who allegedly caused a part of the victim's injuries compensated by the insurance company.  The panel went further, however, and in Its opinion wrote that "equity" requires that the party which paid money to the injured victim -- here, an insurance company which paid its policy limits, which were not enough to fully compensate the victim -- should still be subrogated to the rights of the victim to sue "the Medical Providers" which allegedly increased the victim's injuries.

The panel did not explore an alternative, which would have included allowing the subrogation plaintiff to sue subsequent tortfeasors or joint tortfeasors subject to a requirement that the victim must be paid first out of any recovery.

Apparently in doubt of discarding the full compensation requirement of equity, the panel certified the following question to the Supreme Court of Florida to answer:

Is a party that has had judgment entered against it entitled to seek equitable subrogation from a subsequent tortfeasor when the judgment has not been fully satisfied?

Allstate Ins. Co. v. Theodotou, 171 So. 3d 163, 168 (Fla. 5th DCA 2015).  One judge on the three-judge panel in this case joined in certifying the question, but dissented on eliminating the full compensation requirement for equitable subrogation.

Two judges, or more, can invent this rule of recoupment, if they want to.  But they have no right to call their rule "equitable" subrogation.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with 2015 Supplements), including Section 7:9, Actions by Excess Carriers--Subrogation.  All rights reserved.

 

CALIFORNIA SUPREME COURT ANSWERS QUESTION OF "WHO IS UNJUSTLY ENRICHED": Lawyers.

In a decision on August 10, 2015, the California Supreme Court answered the following question of great public importance, tweaked here with a question mark at the end of the quotation:

Who is "unjustly" enriched if independent counsel representing the insured, but compensated by the insurer, are allowed to retain payments that were unreasonable and unnecessary for the insureds' defense against any claim?

Hartford Cas. Ins. Co. v. J.R. Marketing, L.L.C., ___ Cal. ___ ___, ___ P.3d ___, 190 Cal. Rptr. 3d 599, 2015 WL 4716917, *6 (2015).

The high Court's answer to its own question was that the lawyers are the ones who are unjustly enriched in such a case.  The Court was careful to point out that it was assuming "unreasonable and unnecessary" fees for the sake of argument, so to speak.

Further, the California Supreme Court emphasized the unique posture of the case before it.  The trial court entered an order requiring the lawyers to bill "reasonable and necessary" fees in their defense of insureds in their role as Cumis or conflict counsel, and allowing the carrier to sue the lawyers "in a subsequent reimbursement action" if the lawyers' fees were unreasonable and unnecessary.  The California Supreme Court accepted this ruling as a "given" and limited themselves to addressing the question whether the carrier may seek reimbursement directly from the lawyers as distinct from, say, the insured.  Hartford Cas. Ins. Co. v. J.R. Marketing, L.L.C., ___ Cal. ___ ___, ___ P.3d ___, 190 Cal. Rptr. 3d 599, 2015 WL 4716917, *6 (2015).

To say again, the California high Court held that the carrier could sue the lawyers in this case.  Future cases may present different trial court orders and differing circumstances.  Some of those cases will arise in California and some will not.  Until then, it is fair to say that J.R. Marketing is unique.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All rights reserved.

THE FDIC'S PURSUIT OF BAD FAITH.

          Case law reflects the lines being drawn by the Federal Deposit Insurance Corporation in its pursuit of recoveries while standing in the shoes of banks in its receivership.

          In Federal Deposit Ins. Corp. v. Icard, Merrill, Cullis, Timm, Furen & Ginsburg, P.A., 2013 WL 1830806 *1 (M.D. Fla. May 1, 2013), the FDIC alleged claims of legal malpractice and breach of fiduciary duties.  The defendants are a law firm and a lawyer who advised a bank regarding a closing which involved $5,300,000.00 in a "real estate acquisition and development loan" to a development company.

          Parenthetically, the issue presented to the Court which resulted in this particular decision was the Defendants' Motion in Limine to Exclude Expert Testimony by one of the FDIC's Experts, a nonlawyer who was proffered to testify about "'commercial lending and underwriting practices, bank management, bank operations and procedures, and the standards of care in the banking industry.'"  Federal Deposit Ins. Corp. v. Icard, Merrill, Cullis, Timm, Furen & Ginsburg, P.A., 2013 WL 1830806 *1 (M.D. Fla. May 1, 2013).  The Court denied the motion.

Please Read The Disclaimer.    

INSUREDS' REIMBURSEMENT OF INSURER'S DEFENSE COSTS: NOT IN WASHINGTON STATE.

            The Supreme Court of Washington has recently addressed the issue of whether a Liability Carrier which defends under a Reservation of Rights, including a reservation of its right to recoup its defense expenses for noncovered claims which the Carrier defended, and if a Court later determines that there was no Coverage, i.e., no Duty to Defend, may the Liability Carrier then recover its defense expenses from its own Insureds in such cases.  Many Courts have addressed this precise issue by answering "yes".  See generally Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith § 3:6, "Informing the Insured:  Insurer Assertion of Rights to Reimbursement From the Insured of Clearly Noncovered Indemnity and Defense Expenses" (West 3d Edition, 2013 Supplement in process).

            In a recent decision, the Supreme Court of Washington has answered "no" to this question.  As the majority of the Court put it at the outset of its opinion:

 ¶ 1 This court has long recognized that a liability insurer uncertain of its obligation to defend its insured may undertake a “reservation of rights” defense while seeking a declaration regarding coverage. The question in this case is whether the insurer may unilaterally condition its reservation of rights defense on making the insured absorb the defense costs if a court ultimately determines there is no coverage. We answer no. We recognize, however, that an insurer may avoid or minimize its responsibility for defense costs when an insured belatedly tenders a claim and the insurer demonstrates actual and substantial prejudice as a result. We affirm the Court of Appeals.

 National Surety Corp. v. Immunex Corp., 2013 WL 865459 *1 (Wash. March 7, 2013)(en banc).

            The majority's holding drew a sharp rebuke from a dissenting Justice in this case:

¶ 43 Rather than focus on the equities of the case at hand, the majority seizes on this opportunity to pronounce that insurers who defend under a reservation of rights may never recoup defense costs after a court determines that an insurance policy does not cover an insured's claim and that the insurer never had a duty to defend. This rule is both overly broad and unnecessary, and in the context of this case, it is unjust. I dissent.

 National Surety Corp. v. Immunex Corp., 2013 WL 865459 *11 (Wash. March 7, 2013).

             The issues are joined.  Although the division among the Courts is a close one, the Washington Supreme Court majority followed an apparent minority view in this case.  Liability Carriers in Washington State would be well advised to govern themselves accordingly.

 Please Read The Disclaimer.

FDIC Recovery Actions: Federal Primary Jurisdiction, Inherent Stay No Bars.

   Columbian Bank and Trust Company lost some $52 Million before it was taken over by the Federal Deposit Insurance Corporation.  The FDIC filed suit to recover these losses from some of the Bank's former Directors and Executive Officers on the grounds that these people allegedly caused the losses through their alleged Negligence and alleged Breach of Fiduciary Duties.

   These individual Defendants filed a Motion to Stay the FDIC's recovery action against them.  The asserted grounds behind their Motion to Stay essentially boiled down to alternative reasons for the Federal Court in this case to rule that the FDIC had been appointed Receiver of the defunct Bank "prematurely".  One of the asserted reasons was that although the Kansas State Bank Commissioner had declared that the Bank was insolvent and accordingly was in need of receivership, the Bank filed an appeal from that State administrative ruling, and the appeal was "remanded" to the Kansas Administrative Agency by the Kansas Court.

   The Defendants in the FDIC recovery action argued for a Stay of that action because Kansas should have "primary jurisdiction" and the FDIC's recovery action against them would, they argued, be preempted for purposes of a Federal Court Stay under theories of "primary jurisdiction," abstention, or inherent Stay powers.  The Federal Judge disagreed completely in this case.

   First, and factually most significant to her ruling in this case, the Federal Judge wrote that "[t]his court is not deciding the same issue that is being reviewed in the state administrative proceeding.  This Court is not reviewing the decision to declare the Bank insolvent or the decision to appoint a receiver."  Federal Deposit Insurance Corp. as Receiver of the Columbian Bank & Trust Co. v. McCaffree, et al., 2011 WL 625785 *2 (D. Kan. December 15, 2011), Download Federal Deposit Insurance Corp., Receiver of Coumbian Bank and Trust Co. v. McCaffree (D.Kan. Case No. 11.2447, Memo. and Order Dec. 15, 2011) PUBLIC ACCESS.

    Second, and legally most significant to the District Judge's ruling in this case, the FDIC filed its recovery action while acting pursuant to Federal statutory authority.  Federal Courts are therefore forbidden to enjoin -- or stay, by another name -- the FDIC's recovery actions because those recovery actions are authorized by Federal Statute.  "This case involves an area of enforcement that carries with it a strong congressional policy in favor of prompt enforcement....  This case was filed by the FDIC-R pursuant to its statutory authority as receiver....  The FDIC-R's filing of this director and officer liability action is in keeping with its statutory duty to maximize recoveries for the receivership."  Id. at *4.

   The Federal Deposit and Insurance Corporation's authority by Federal Statute to recover monies from Directors and Executive Officers of statutorily defined "banks," lends new light to any attempt to understand the intensity with which many Directors and Officers of investment banks vowed not to ever subject themselves or their institutions to the FDIC. 

 HAPPY HOLIDAYS TO ALL, AND TO ALL A HAPPY NEW YEAR!

Please Read The Disclaimer.

 

RMBS Defendants Sued For Alleged Misrepresentations.

   Residential Mortgage Backed Securities have so many problems.  Now those problems are sticking to the issuers of RMBS.

   To begin with, four lawsuits have recently been filed in Federal Courts on Claims based on alleged illegal sales of RMBS, including alleged misrepresentations to Credit Unions.  In each case, the Plaintiff is the Regulator of Credit Unions, the National Credit Union Administration Board, which "charters and regulates federal credit unions and insures their accounts," Gregory Mott and Joel Rosenblatt, "Goldman Sachs Sued by U.S. Over Securities Sold to Failed Credit Unions" (Bloomberg.com, Wednesday, August 10, 2011).  The Defendants in these cases are well-known, very large financial institutions:

   1.  Goldman Sachs, Fremont Mortgage Securities Corp., et al.  National Credit Union Admin. Bd. v. Goldman Sachs & Co., et al., Case No. 11-06521, United States District Court for the Central District of California, Complaint Filed August 9, 2011 (unavailable on PACER, the Federal Courts' electronic docket).

   2. Royal Bank of Scotland ("RBS") and Wachovia Mortgage Loan Trust, LLC, among others in Download National Credit Union Admin. Bd. v. RBS Securities, Inc., etc., et al. (Complaint, Part 1, Filed July 18, 2011, C.D. Cal. Case No. 11.5887).  The linked document is only Part 1 of the Complaint in this case; PACER identifies three (3) other Parts of the Complaint in the Court File.  The linked Part 1 is 35 pages long and has its own Table of Contents.

   3.  The NCUA also sued RSB in the U.S. District Court, Western District of Missouri, in a Complaint reportedly filed on June 20, 2011 (Complaint unavailable on PACER).

   4.  JP Morgan Chase, reportedly in a separate lawsuit also filed in the U.S. District Court for the Western District of Missouri, Complaint reportedly filed on June 20, 2011 (Complaint also unavailable on PACER).

   As noted, each of the four above lawsuits was filed by the NCUA, a Board of the United States.  The Commonwealth of Massachusetts previously filed and recently settled its own lawsuit.  The Defendant was one Option One.  The Commonwealth alleged that Option One, a subprime lender, engaged in unfair and discriminatory lending practices.  As the Massachusetts Attorney General described the settled case:

   They [Option One, the Defendant subprime lender] employed a business model that absolutely failed to gauge the ability of borrowers to replay the loans.  In other words, they knew or should have known that those loans were going to fail.

Massachusetts Attorney General Martha Coakley, quoted in Associated Press Report published in the New York Times National Edition of Wednesday, August 10, 2011, p. B4, col. 5.   Reportedly, when the lawsuit was filed by Massachusetts in 2008, it was the first lawsuit in which a subprime lender was accused of civil rights violations in the making of subprime loans.  See id.

   Recently, American International Group ("AIG") has also sued on similar Claims.  The Defendant is Bank of America.  "The suit seeks to recover more than $10 billion in losses on $28 billion of investments, in possibly the largest mortgage-security-related action filed by a single investor."  Louise Story and Gretchen Morgenson, "A.I.G. to Sue Bank on Loss In Fiscal Crisis" p. A1, col. 5 (New York Times Nat'l ed., Monday, August 8, 2011).  Parenthetically, note that by the time this linked newspaper article was posted online, the story opener was changed to reflect the fact that AIG's lawsuit had already been filed at that time.

   The Securities and Exchange Commission, which for whatever reason has not filed many such lawsuits and no significant charges of criminal wrongdoing whatsoever in connection with RMBS, has now sued a broker, Stifel, Nicolaus & Company, for alleged misrepresentations in the sale of securities 'backed' by Synthetic Collateralized Debt Obligations or "CDOs".  Download United States Securities and Exchange Commn v. Stifel, Nicholas & Co., and David W. Noack (Complaint Filed August 10, 2011 E.D. Wis.) (44pages).  The Eastern District of Wisconsin's Case Number is 2:11-cv-00755-AEG.

   Reportedly, Credit Unions are pursuing political means to make up for lost ground or lost profits, by lobbying the U.S. Congress through their trade association to increase their lending limits by Federal Statute.  See Emily Maltby, "A Push For More Loans / Credit Unions Aim to Raise Lending Cap, Say Banks Aren't Doing Enough" p.B9, col. 1 (Wall Street Journal print edition, Thursday, August 11, 2011).

   The 22nd Annual Bad Faith Litigation Conference of the American Conference Institute is being held in 2011 in Orlando, Florida.  The author will be speaking.  As a result, the ACI will offer you a large  discount if you choose to register for the Conference.  In order to register and receive this discount from the ACI, contact Amanda Waltmon, Esquire, Legal Analyst and Program Director at the ACI on or before September 15, 2011.  Her direct dial is 212.352.3220, ext. 5231 or send Ms. Waltmon an EMail at a.waltmon@americanconference.com.  Here is a link to the American Conference Institute Website Page which features this Conference including registration, if you or anyone you know would like to attend.

Please Read The Disclaimer.    

Can There Be Bad Faith in Reimbursement Claims Against Insureds?

     In American Modern Home Insurance Co. v. Fahmian, 2011 WL 1334959 (Cal. 4th DCA, Div. 3, April 8, 2011) a California District Court of Appeal affirmed and directed awards to American Modern Home Insurance Company which include reimbursement from its Policyholder, Mr. Fahmian, whom it defended in an underlying lawsuit.  The reimbursement award included $300,000 paid by American Modern to settle the underlying lawsuit on behalf of Mr. Fahmian and his business; fees and defense expenses "that the trial court determines are reimbursable under the terms of the policy," i.e., that were not covered by the policy;  plus prejudgment interest.  Id. at *10.

     The California Appellate Court applied what it called these "binding" rules concerning reimbursement claims and causes of action by liability insurance companies against their policyholders and other insureds:

Under binding California Supreme Court authority, an insurance company may obtain reimbursement from its insured for a policy limits settlement, when it is determined the underlying claim was not covered by the policy, if the insurance company (1) made a timely and express reservation of rights, (2) provided express notification to the insured of the insurer's intent to accept the proposed settlement offer, and (3) made an express offer that the insured could assume its own defense.  In this case, American Modern did all of the foregoing.  We decline to add any additional requirements.

 Id. at *1.

   The "additional requirement" that the California Appellate Court did not add in this particular case was a requirement added by the Trial Court in denying American Modern's claim for reimbursement against Mr. Fahmian.  The Jury in that case found as a fact, and the Trial Judge incorporated that finding into his ruling, "that Fahmian did not have sufficient time to make a reasoned reply to American Modern."  Id.

   Some practitioners have wondered whether there can be Bad Faith and Unfair Dealing issues where a Policyholder or other Insured -- and perhaps the Liability Insurance Company as well -- is presented with a situation like this, in which as a matter of fact the Insured "did not have sufficient time to make a reasoned reply to" their Liability Insurance Company.  The case law has not yet addressed this issue to my knowledge.

   The American Modern Home Insurance Co. v. Fahmian decision is the subject of a post I wrote for the Defense Research Institute Official Blogger at www.dri.org (no password or registration required to access it).  The case has also received comments at the "Insurance Coverage" Group on LinkedIn (registration believed to be required for access to www.linkedin.com).

Please Read The Disclaimer.

 

FDIC to Sue Failed Bankers to Recover Lost Deposits.

    Newspapers report that the Federal Deposit Insurance Corporation is poised to sue Bankers to recoup lost profits of people who invested in their Banks.  See, e.g., Suzanne Kapner & Paul Davies, "U.S. Watchdogs to Sue Executives of Failed Banks" (Financial Times Online, published April 10, 2011).

   It seems likely that any lawsuits filed by the FDIC in this regard will or should include claims for Breach of Fiduciary Duties, and alleged Bad Faith, as well as Recoupment and Restitution.  See, e.g., posts here in the Category of "Recoupment and Restitution" on April 15, 2009,  May 13, 2010, and July 30, 2010.  

 Please Read The Disclaimer.

Representations? Warranties? Millions in Defense, Provoke Settlements, Seal it Up.

   Insurance Companies will not be left to hold the bag in silence.  Those which issued Insurance Policies covering certain aspects of Mortgage Securitizations, such as Mortgage Insurance most notably, did so allegedly on the ground of representations and warranties given by Lenders.  Lenders, like the frequent Defendant Countrywide now owned by Bank of America, allegedly represented and warranted that the securitization packages for which they requested Insurance, met the lenders' Underwriting guidelines.  Allegedly, they did not, and the Insurance Companies are suing to force the Lenders to buy back the insured loan packages, thereby shifting the responsibility to pay from the Insurance Companies back to the Lenders.

   Parenthetically, although these reported Claims and Causes of Action seem to be based on Contracts, the requested relief sounds very much like Rescission or the prevention of Unjust Enrichment, or other Equitable Remedies.

   We are now at the beginning of this class of litigation.  Reportedly, a New York State Supreme Court Justice has ruled that MBIA, one of the Plaintiffs in such a case, can prove its case through a statistical sample of insured loans rather than proving that representations and warranties were not met in a universe of many, many individual instances.  The Justice relied on a case decided in 1856, writes David S. Hilzenrath, "Bank of America Hit With Setback in MBIA Insurance Mortgage Liability Lawsuit" (Washington Post Online, Friday, December 31, 2010).

   The linked newspaper report also notes that Allstate Insurance filed its own such lawsuit against Bank of America last week.  See id.  (The article unfortunately does not mention the Court in which the Allstate lawsuit is pending, or the case numbers of either the Allstate or MBIA cases.  When these are located, they will be posted here so that you can read the allegations for yourself if you choose.)

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'And a Little Unknown Agency Shall Lead Them': ...

  ... The Federal Housing Finance Agency Leads The Way on the Road to Recoupment.

   The Federal Housing Finance Agency is investigating Trustees for pools of Mortgages and Servicers of the pooled Mortgages.  The FHFA has subpoenaed unidentified records from 64 different entities.  Subpoenas became necessary when polite requests were ignored.

   "Among the bigger trustees in the business are Deutsche Bank and the Bank of New York, while loan servicers include Bank of America and many more.  None of the banks would confirm if they had received subpoenas."  Gretchen Morgenson, "Fair Game/Holding Bankers' Feet to the Fire" p. 1, col. 1 (New York Times, "SundayBusiness" Section, Sunday, July 18, 2010).

   The FHFA is the Conservator of Fannie Mae and Freddie Mac.  It is charged with recouping the Federal Taxpayers' payments and losses on failed Mortgages where the circumstances warrant recoupment.  That clearly seems to be the focus of the FHFA investigation:  "Once that question has been answered, Fannie and Freddie can force the institutions that sold the securities to repurchase the improper loans, allowing taxpayers to recover some of the losses they've swallowed on Fannie's and Freddie's federal bailout."  Id.

   Reports of the demise of recoupment and restitution following the Great Collapse are premature.

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Fed Demanded Secret Waiver Immunity by AIG: Bad Faith Too?

   When the Federal Reserve in Washington and the New York Federal Reserve Board forced AIG to pay 100 cents on the dollar of each of the Credit Default Swaps AIG issued to Goldman Sachs, Deutsche Bank and Merrill Lynch, the Fed also required AIG to give them a waiver that AIG would never sue them to get the money back.  See Louise Story and Gretchen Morgenson, "Documents on Bailout of A.I.G. Show How Big Banks Benefited" p. A1, col. 1 (New York Times Nat'l ed., Wed., June 30, 2010).

   The existence of AIG's waiver, which also binds parties who "stand in the shoes" of AIG, i.e., the people who succeed to AIG's rights such as you and me and other Taxpayers in America, was not previously disclosed.  Not by Goldman, nor by Deutsche Bank, nor by Merrill Lynch.  Nor by the Fed.  Nor by AIG, which was apparently also required to keep the waiver a secret from you and me and other Taxpayers in America.

   The waiver itself was produced among many, many pages of documents in response only to a Congressional subpoena issued earlier this year:

   It was not until a Congressional committee issued a subpoena in January that the New York Fed finally turned over more comprehensive records.  The bulk remained private until May, when some committee staff members put them online, saying they lacked the resources to review them all.

Louise Story and Gretchen Morgenson, New York Times June 30, 2010, supra.

   Dumping thousands of irrelevant documents along with a few pages of relevant production appears to be a frequently used tactic.  See "Delay, Disrupt and Dismay:  Goldman Sachs and Its Lawyers Respond ... Dump Documents, May Overwhelm Financial Crisis Inquiry Commission," posted here on June 11, 2010.

   It is clear however that AIG's waiver was good for Goldman, good for Deutsche Bank, and good for Merrill.

   Who told you that AIG's waiver was good for AIG, or for you, or for me, or for any other American taxpayer?

   If it had been, they would all have told everyone who would listen.  They did not.

   Disclosure of secrets which, if kept secret will or may cause injury to other people, is compelled by Law in certain circumstances in many States, including Florida.  Fla. Stat. § 69.081.  Disclosure is almost always a better policy choice than secrecy when it comes to the payment of money or, in this instance, waiving other people's rights to get that money back.

   Some Questions:

   Can AIG's waiver include a waiver of all causes of action to redress fraud against it by those that received AIG's waiver?

   Would it include all causes of action for Breach of Fiduciary Duties and Fair Dealing?

   There are many other questions, including who received the benefits and immunities arguably conferred by AIG's waiver, who asked for it, and why was it given.  The linked newspaper article reflects that the documents disclosed so far do not reflect answers, yet, to any other questions such as these.

   AIG's waiver must be examined by independent lawyers.  Then some of these and other similar questions can begin to be addressed.  And until then, a word of advice:

"Pay no attention to the man behind the curtain."  Those that kept AIG's waiver a secret are not to be heard now as to why it should not be further disclosed.

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Mortgage, Bond Insurers Seek Claim Payment Recoupment, Allege Mortgage Misrepresentations.

   The following newspaper report evidences the turn taken by Bond Insurance Companies and Mortgage Insurance Companies to recoup some of their Claims payments after the Big Collapse.  The Bond and Mortgage Insurers may end up leading a March of the Penguins filing recoupment lawsuits as they are joined by many other parties who were also called upon to make large payments in the past few years:

Bond and mortgage insurers have recently made efforts to sift loan files for misrepresentations and say they are seeing a lot.  Bond insurer Assured Guaranty recently said a "material amount" of second-lien mortgages in transactions it has insured appear to have misrepresentations.  If the insurers start going after and winning big sums, investors in securitizations could join in.

Peter Eavis, "Heard on the Street/Mortgages Could Haunt H&R Block" p. C10, col. 1 (Wall Street Journal, Thursday, May 6, 2010)(subscription required to access the Wall Street Journal Online).

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Fiduciary Disclosure, Standards Underpin S.E.C. Anti-Fraud Claims Against Goldman.

   The Securities and Exchange Commission has filed a Civil Suit alleging Fraud against Goldman Sachs and one of its Officers, one Fabrice Tourre.  Download S.E.C. v. Goldman Sachs and Fabrice Tourre (S.D.N.Y. Case No. 10 Civ. 3229 Complaint Filed 04.16.10).  Here is the SEC's Press Release describing its Complaint:  Download Press Release.041610.SEC Charges Goldman, Sachs With Fraud in Connection With the Structuring and Marketing of a Synthetic CDO.

   The filing of this lawsuit has set off a tremendous number of newspaper reports from Coast to Coast, and across the world, every day since Friday when the SEC filed its lawsuit, down through the morning of this post.  E.g., Joshua Gallu & Christine Harper, "Goldman Sachs Sued by SEC for Fraud Tied to CDOs (Update 4)" (Bloomberg.com, Friday, April 16, 2010); Walter Hamilton & Nathaniel Popper, "SEC Targets Goldman Sachs With Fraud Suit" (latimes.com, Saturday, April 17, 2010); Gretchen Morgenson and Landon Thomas, Jr., "A Glare on Goldman, From U.S. and Beyond" p. B1, col. 5 (New York Times Nat'l ed., "Business Day" Section, Monday, April 19, 2010); Aline van Duyn, "Regulator's Move Risks Opening Lawsuit Floodgates" (FT.com, Sunday, April 18, 2010).

    The SEC's lawsuit is not based on the inherent characteristics or the very nature of Collateralized Debt Obligations (CDOs).  It is based instead on a Claim of Fraud in the use of a CDO.  The CDO involved in the SEC's Lawsuit was called Abacus.  Goldman Sachs allegedly invented it and invited people, for a premium, to invest in it.  It was allegedly devised for the purpose of failure.  A billionaire client of Goldman Sachs selected the investment securities (tied to subprime mortgages) that would go into Abacus.  He then bet against the securities that he selected.  And made more billions.  The Abacus investors allegedly did not know that Goldman's client selected the securities which Goldman invited them to invest in; in fact, allegedly Goldman told the Abacus investors that an impartial/disinterested third party selected the securities.

  After Goldman's client selected the subprime mortgage securities to be placed inside the Abacus CDO, Goldman arranged for its billionaire client to insure them with Credit Default Swaps (CDSs), or credit insurance policies, which is how the client bet against the securities that the client selected.  Goldman Sachs allegedly also received a Premium for this form of Credit Insurance.  The insurers?  AIG and parties still unknown, but perhaps not unknown for much longer.  Simply put, when Abacus failed, Goldman's billionaire client received more billions from the payout of the Credit Default Swaps.

   Thus, the SEC lawsuit is underpinned by Fiduciary Standards of liability and behavior, i.e., Full Disclosure and No Self-Dealing.  Timely concepts for the SEC and other Regulators to enforce.  When those and similar Fiduciary Duties are not enforced, a Great Collapse is the present result -- and will be again if behaviors are not changed.

   A post on the SEC Lawsuit and Fiduciary Duties is on the Insurance Claims and Issues Blog of Sunday, April 18, 2010.

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Travelers Homers With Hillerich and Bradsby, But Hillerich Hits Too.

  **Author's Note:  If you have reached this blog through a list that carries advertising, your computer may or may not be put at risk either through the list or through the advertising.  I do not accept or authorize any commercial advertising of any kind on any list or post.  Placing commercial advertisements with or near any of my web log posts is prohibited.  Further, I do not recommend any products or services advertised with or near any of my posts or any list of my posts.**   

   The issues confronted concerning Reimbursement of Indemnity sought by the Liability Insurance Company in the case discussed below are discussed at length in Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 3:4 (Shepard's/McGraw-Hill Second Edition; 2009 Supplement West Publishing Company).  The Policyholder's-Insured's recovery of Defense Expenses it incurred after a Liability Insurer wrongfully refused to defend it, are similarly addressed at length in id. § 13:13.

   Travelers has hit a home run in a case where it ran the risk of being home-towned.  It filed an action for reimbursement of settlement funds it expended on behalf of its Policyholder, Hillerich & Bradsby, in an underlying case which was filed against the bat-maker in the Eastern District of Michigan.  The Travelers filed its action for reimbursement in the same Court, the Eastern District of Michigan.  Hillerich & Bradsby's motion to transfer the case to its Headquarters District in the Western District of Kentucky was granted.  Download Travelers Property Casualty Co. v. Hillerich and Bradsby Co. (6th Cir. Case Nos. 09-5113, 09-5136 Opinion Filed March 12, 2010); also reported as Travelers Property Casualty Co. v. Hillerich & Bradsby Co., 2010 WL 841275 *1 (6th Cir. March 12, 2010)(subscription required to access Westlaw).

   On appeal, a panel of the Sixth Circuit was confronted with the same open issue of Kentucky Law that confronted the Trial Court:

   Kentucky has not specifically spoken on the issue presented in this case, which is whether Travelers can seek reimbursement of settlement for non-covered claims when it funded the settlement under a reservation of rights, when Hillerich was given notice of its intent to seek reimbursement, and when Hillerich retained meaningful control of the defense and negotiation process.  In particular, Kentucky has not addressed whether an insurer can unilaterally reserve a right to reimbursement over the objection of the insured.

 Travelers Property Casualty Co. v. Hillerich & Bradsby Co., 2010 WL 841275 *5 (6th Cir. March 12, 2010).  The Sixth Circuit panel, like the Trial Judge, predicted that Kentucky would follow what the Sixth Circuit held was the majority view on this novel question:

   Therefore, we conclude that Kentucky, like the majority of jurisdictions, will allow reimbursement for an insurer after a unilateral reservation of rights by the insurer over the objection of the insured in at least the narrow circumstances posed in this case and in cases such as Blue Ridge [Blue Ridge Ins. Co. v. Jacobsen, 25 Cal. 4th 489, 106 Cal. Rptr. 2d 535, 22 P.3d 313 (Cal. 2001)].  This reimbursement right arises under an implied-in-law contract theory to allow an insurer to seek reimbursement when [quoting the District Court, which quoted from Blue Ridge:]  "(1) the insurer has timely asserted a reservation of rights; (2) the insurer has notified the insured of its intent to seek reimbursement; and (3) the insured has meaningful control of the defense and negotiation process."

Travelers Property Casualty Co. v. Hillerich & Bradsby Co., 2010 WL 841275 *8 (6th Cir. March 12, 2010).  The Sixth Circuit was not through with its work in this case, however.

    The Sixth Circuit further held that the Insured, Hillerich & Bradsby, had driven home some of its defense fees.  It turns out that Travelers had a duty to defend the first amended complaint in the underlying case, based upon "one allegation".  Kentucky Insurance Law determines the Duty to Defend under a standard of potential liability on the part of the Insured under a complaint.  Accordingly, there was a duty to defend such a complaint under Kentucky Law.  Travelers Property Casualty Co. v. Hillerich & Bradsby Co., 2010 WL 841275 *12 (6th Cir. March 12, 2010).  The amended complaint was "constructively tendered" by Hillerich to The Travelers when Hillerich sent a draft of it to The Travelers and again sent it to The Travelers after the amended complaint was filed in the underlying case -- without change.  The Sixth Circuit held that, under Kentucky Law, The Travelers had a Duty to Defend the amended complaint from and after the date that the amended complaint was filed in the underlying case.  Travelers Property Casualty Co. v. Hillerich & Bradsby Co., 2010 WL 841275 *14 (6th Cir. March 12, 2010).  Accordingly, The Travelers was responsible for the Insured's Defense Fees and Costs from that date.

Note:  Both sides scored in the Travelers v. Hillerich & Bradsby Sixth Circuit case.  The author's recently published article in Insurance Litigation Reporter anticipates many of the same and other issues presented by Settlement decisions:  Dennis J. Wall, "The Era of Initiating Settlement Negotiations:  What Is A Liability Insurer to Do?"  32 Insurance Litigation Rptr. 1 (2010), which is now available here:  Download Article. Dennis J. Wall, The Era of Initiating Settlement Negotiations What Is An Insurance Company To Do. Published in 32 Insurance Lit Rptr 1 (2010).

HAPPY ST. PATRICK'S DAY!

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Bankruptcy Code Treatment of Preferential Transfers: Recoupment D&O Covered "Loss"?

   **Author's Note:  If you have reached this blog through a list that carries advertising, your computer may or may not be put at risk either through the list or through the advertising.  I do not accept or authorize any commercial advertising of any kind on any list or post.  Placing commercial advertisements with or near any of my web log posts is prohibited.  Further, I do not recommend any products or services advertised with or near any of my posts or any list of my posts.**   

   The principles underlying the treatment of Preferential Transfers and getting the money back  under the Bankruptcy Code, as outlined in an excellent new article, seem to be very similar to the Equitable Doctrines of Recoupment and Exoneration:  See J. Henk Taylor & Justin Henderson, "Preferences/When Can a Trustee Claw Back Payments to Creditors?" 19 Business Law Today 60 (American Bar Association, Business Law Section, March/April 2010).

   A question arises, then:  Is the repayment of an established Preferential Transfer under the Bankruptcy Code a Covered "Loss" under Director's and Officer's Liability Insurance Coverage, or is it instead in the nature of a penalty for restitution which, it has been held, is not a covered "Loss" under a D&O Policy?  See, e.g., the post on Insurance Claims and Issues on March 10, 2010.

"Reimbursement and Exoneration" are the featured topics of Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 7:18 (Second Edition Shepard's/McGraw-Hill; 2009 Supplement West Publishing Company).

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SUCCESS APPARENT: Goldman Money Sachs Full Now: WARRANTS REPURCHASED.

    Initial published reports are positive on the price paid by Goldman Sachs to repurchase its warrants from the Treasury Department.

    In my post here on July 19, 2009, "Goldman Money Sachs Full Now:  Warrant to Repay Federal Taxayers?," I strongly recommended that the Treasury Department negotiate Goldman's lowball repurchase offer.  It has just been reported that Goldman is today agreeing to pay $1.1 Billion or nearly 41% more than its initial offer to the Treasury Department.   See Richard Beales and Dwight Cass, "Goldman Relents, But Not Chase/Breakingviews.com" p. B2, col. 1 (New York Times Nat'l ed., "Business Day" Section, Thursday, July 23, 2009).

    Good job, Treasury.

    Next up in the batter's box:  JP Morgan Chase and its CEO "Diamond Jamie" Dimon.  See id.

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Goldman Money Sachs Full Now: Warrant to Repay Federal Taxpayers?

    Goldman Sachs reportedly is raking in enough profit this year to pay enormous "bonuses" once again. After repaying its TARP loan of Federal Taxpayer monies, and benefitting from FDIC guarantees and other Federal Bailouts and perks, Goldman Sachs is reportedly negotiating a price with the Treasury Department to repurchase the warrants it gave as part of the collateral for receiving the Federal Taxpayer Monies under TARP. 

    The New York Times recently reported at the end of a story about Goldman Sachs' great success in 2009:  "It is also in talks to buy back a warrant on Goldman stock held by the government."  Graham Bowley, "$3.4 Billion Profit at Goldman Revives Gilded Pay Packages" p. A1, col. 2 (New York Times Nat'l ed., Wed., July 15, 2009).

    Goldman has the money now, Mr. Geithner.  Now is the time to negotiate for a fair and just consideration to be paid to the Federal Taxpayers by Goldman Sachs if it wants its collateral-- its warrants-- back.  Now is the time.

    Goldman would do no less in negotiations with its own debtors.  Show Goldman that you can play in the same league.

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Reimbursement - Recoupment Remedies Renamed in Newspapers, Substance Remains in Court.

    Reporters seemingly need to rename things.  The remedies of Reimbursement and Recoupment remain unchanged in substance in Court, however.  See Joanna Chung, "Madoff Trustee Files First 'Claw Back' Suit" (Financial Times.com, Thursday, April 9, 2009).  

    The Bankruptcy Trustee in the Madoff business Bankruptcy has asked the Court to apply two settled rules of Reimbursement and Recoupment there.  One rule is the "preference rule," by which anyone coming into possession of funds subject to the Bankruptcy Proceeding, in this instance reportedly within 90 days before Mr. Madoff's arrest, may have no defense to turning those proceeds over to the Court.  The other rule is the "fraudulent conveyance rule," by which the proceeds received from fraudulent transfers made by Mr. Madoff's business, simply stated, must be returned to the Court registry.  See id.  The Trustee is reportedly not alleging at this time that recipients of proceeds engaged in any wrongdoing themselves.  Id.

    It should be noted that there are now two Bankruptcy proceedings.  Recently the same Bankruptcy Judge ordered that Mr. Madoff personally be subjected involuntarily to Bankruptcy in order to give all creditors a shot at reimbursement and recoupment.

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Boards, Bonuses, and Bailouts: Fiduciary and Insurance Claims Have Begun.

    Ms. Nell Minow is Chair of the Corporate Library.  The Corporate Library, by its own admisssion, is "[t]he leading independent source for corporate governance and executive compensation information and analysis."  Those words are displayed at the top of the Corporate Library web site, here.

    Ms. Minow, "an expert on boards of directors, noted [recently] that boards approve all bonuses.  All too often, she said, they were not rigorous enough in their review or smart enough to understand their company."  Frank Ahrens, "Admiration Turns to Anger as Wall St. Bosses Feather Nests" (Washington Post.com, Saturday, January 31, 2009).

    Phew.  Directors of publicly traded corporations would do well to immediately find out the extent of their Director's and Officer's Insurance Coverage and of any other Insurance Coverage under any other Insurance Policy that might be available to them, for their actions and conduct while serving as Board members.  It sure looks like the Insurance Claims are coming, if they have not already arrived.

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Contractual, Systemic Safeguards on Big Pay For No Performance.

But Do Not Discount Common Law and Equitable Remedies.

    Contractual, systemic safeguards on big pay for no performance by corporate executives is a true "hot-button issue".  It will not go away.  Various safeguards under general discussion include absolute caps on pay, and so-called "clawback provisions" under which corporate executives contractually agree that they can be "forced to give some of the money back" if they make large amounts of money even as their companies do not.  The situation is discussed by Andrew Ross Sorkin, "Dealbook/Rein In Chief's Pay?  It's Doable"  p. B1, col. 1 (New York Times Nat'l Ed., Business Day Section, Tuesday, Election Day, November 4, 2008).

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