This Bloomberg article about insurance disputes over “bump ups” caught my attention, so it’s another moment for me to step outside my (corporate) lane and pretend I know something about contracts (or insurance).

The issue is, lots of corporate managers have D&O coverage, and that coverage includes standard exclusions.  Like, D&O insurance won’t cover willful acts of misconduct, that kind of thing, but it will cover settlement of such claims.

And it also includes an exclusion for “bump up” claims.  That kind of claim is when the company sells itself to an acquirer, and the former shareholders sue alleging the consideration was inadequate.  If there’s a settlement – or I guess an adjudication that doesn’t fall into the willful category – for bumping up the consideration paid to shareholders in an acquisition, the insurer is not obligated to cover it.

That’s led to a lot of litigation over what kinds of settlements/claims are excluded, and what are not, and insurers come out on the short end of the stick.  For example, in Harman Int’l Indus. Inc. v. Ill. Nat’l Ins. Co., a Delaware Superior court held that Section 14 claims for a false proxy statement issued in connection with a merger are not excluded by the “bump up” provision – i.e., insurance is responsible for those claims.  In 2023, a Delaware Superior Court held that the bump up provision did not apply – and claims were insured – against Viacom’s directors, in connection with CBS’s acquisition of Viacom.  The theory was that the insurance contract was ambiguous as to the types of transactions covered and ambiguity was construed in favor of the insured.

In the Bloomberg article, unsurprisingly, “Policyholder attorneys were united in their view that shareholder litigation following M&A transactions should fall within the scope of coverage.”  One attorney opined, “here is a problematic gulf between the coverage that they believe they purchased based on the plain language of these policies and the positions that certain insurance companies are taking when the insurance actually is needed.”

Okay but here’s the thing.

Let’s say Acquirer Company strikes a deal to buy Target Company.  Let’s say, arguably, the directors and officers of Target sold for too low a price, and shareholders of Target sue. 

The defendants, one way or another, are likely to be indemnified by Target – so, especially if there’s a settlement, damages aren’t actually paid by directors, they’re paid by Target, which means ultimately they’re paid by the Acquirer. 

Think about the incentives here. It’s almost better if directors arguably breach their fiduciary duties and agree to a lowball price. In the absence of insurance, the worst that happens is, there’s a lawsuit, and Acquirer pays what it should have paid originally. In the best case scenario, though, insurance kicks in, pays the excess, and now part of the purchase price can be offloaded on to the insurer. The insurer, in other words, can be counted on to finance the purchase.

That, I assume, is why insurers exclude bump ups from coverage: to prevent Acquirers from forcing insurance to help finance their deals.

So if that’s right, it should inform how courts evaluate the scope of the exclusion.  Rather than fall back on standard canons like, insurance contracts are construed against the insurer, I think courts should think about what’s being incentivized here, and why the exclusion exists in the first place. If ultimately the insurer is being asked to pay for the fair value of Target – value that is now accruing to the Acquirer, which is the real party in interest – the insurer should win.

And another thing: In this week’s Shareholder Primacy podcast, Mike Levin and I talk about the Fifth Circuit decision striking the NASDAQ diversity rules, and about the services proxy advisors provide to corporations.  Available here on Spotify, here on Apple, and here on YouTube.

Increasingly, it seems like not a day goes by without my reading some story in the financial press about the growth of and developments in private capital markets. For example, earlier this week, the WSJ ran a story about Goldman Sachs’ plans for a new “Capital Solutions Group,” an institutional development seemingly related to the surge of private credit markets. And the private company market is also hot! So, Professor Christina Sautter and I wrote a short paper called “Democratization of the Private Markets?” for Transactions: The Tennessee Journal of Business Law. In this paper, we explore the market for private company equity with a particular focus on closed-end funds (CEFs) like ARK Venture Fund and Destiny Tech100. It’s a piece related to Transactions’ yearly Connecting the Threads Symposium, which is always a fabulous event and one of my favorite conferences of the year!

The Lowell Milken Institute for Business Law and Policy at UCLA School of Law is pleased to announce its first annual Business and Tax Roundtable for Upcoming Professors (“BATRUP”). This in-person Roundtable will take place at UCLA from Friday evening June 13^th through Sunday June 15^th.  The program will feature commentary by invited senior scholars as well as an opportunity to meet fellow aspiring scholars while enjoying Los Angeles.  We warmly invite scholars preparing for the academic job market to participate.

Roundtable Purpose and Eligibility
The Roundtable is designed to offer mentorship and feedback to aspiring legal scholars who plan to pursue tenure-track positions at law schools. It is open to scholars who hold a JD, master’s degree, or PhD, who have not yet secured a tenure-track law faculty appointment, and who are not yet listed in this academic year’s Faculty Appointments Register. Selected authors must be able to attend the Roundtable in person at UCLA.

We welcome submissions on any topic within business law or tax law. Co-authored papers are eligible provided all authors meet the submission criteria. To ensure the Roundtable’s focus on evolving scholarship, we ask that submitted papers not be published or scheduled for publication by the Roundtable date, though papers accepted for publication that remain open to substantive revisions are eligible.

Selection Process and Roundtable Details
We anticipate selecting 7–9 papers from the submissions received. For each selected paper, the Lowell Milken Institute will cover reasonable travel, accommodation, and meal expenses for one author to attend the Roundtable. Participants will have the chance to engage in dynamic exchanges with UCLA faculty and invited guest scholars, as well as with their peers. Our aim is to foster a supportive community of early-career business and tax law scholars as they prepare for their careers in legal academia.

Submission Guidelines
Interested participants should submit either a complete draft or an extended summary of at least 5,000 words by email to lowellmilkeninstitute@law.ucla.edu by February 14, 2025. We expect to notify authors of their selection by March 31, 2025. For any questions, please reach out to the same email address or to one of our faculty co-directors, Professors Jason Oh or Andrew Verstein.

Please feel free to share this call for papers with anyone who may be interested in participating.

Well, an awful lot, naturally, but Imma return to two of my favorite Musk subjects, namely, the pay package that was rescinded by Chancellor McCormick in Tornetta v. Musk, and the Twitter takeover.

So, Tornetta! Where we last left things, Chancellor McCormick had rejected Musk’s attempt to restore the pay package through shareholder ratification (Me and Mike Levin devoted a whole podcast to that decision, here). With that decision, and her award with attorneys’ fees, the case was finally over, and the defendants were able to appeal.

Which they did earlier this week.

Now, notices of appeal are usually sparse and rather dry reading, but not this time. To wit:

PLEASE TAKE NOTICE that Defendants-Below/Appellants Elon Musk, Robyn M. Denholm, Antonio J. Gracias, James Murdoch, Linda Johnson Rice, Brad W. Buss, and Ira Ehrenpreis, hereby appeal to the Supreme Court of the State of Delaware from (i) the December 13, 2024 Order and Final Judgment entered by the Honorable Kathaleen St. J. McCormick (the “Judgment”), (ii) the December 2, 2024 Opinion Awarding Attorney’s Fees and Denying Motion to Revise the Post-Trial Opinion (the “Ratification Opinion”), (iii) the January 30, 2024 Post-Trial Opinion (the “Post-Trial Opinion”), (iv) the September 20, 2019 Opinion on Defendants’ Motion to Dismiss the Complaint (the “Motion to Dismiss Opinion”), and (v) all other rulings and interlocutory orders made appealable through the Judgment in and for New Castle County, by the Delaware Court of Chancery in C.A. No. 2018-0408-KSJM. A copy of the Judgment is attached hereto as Exhibit A. A copy of the Ratification Opinion is attached hereto as Exhibit B. A copy of the Post-Trial Opinion is attached hereto as Exhibit C. A copy of the Motion to Dismiss Opinion is attached hereto as Exhibit D.

The defendants can always change their minds about it, and maybe they’re just keeping their options open, but what this suggests is they plan to make an issue not just of the trial verdict, and not just of the ratification decision, but of the original denial of the motion to dismiss (which was when the case belonged to Vice Chancellor Slights, and I blogged about it here).

The thinking, I assume, is that if they prevail on the argument that the case should have been dismissed on the pleadings, then everything else is erased – the whole trial, the whole decision on ratification, and everything else.

That is an … aggressive argument, and also one that smacks a little bit of desperation. After all, it’s far easier to reverse a dismissal ruling (which is reviewed de novo) than it is to reverse trial findings (which are reviewed for clear error). Does this suggest Musk’s attorneys aren’t confident they get a reversal of the trial verdict? Or are they just hedging their bets? I suppose we have to wait for the briefing to get a better sense.

But that’s not all –

A while back, when Brazil ordered the seizure of Starlink’s assets to force Twitter to comply with court orders, I blogged about corporate separateness as applied to Elon Musk.

That was intended more as a hypothetical than anything else, but of course, since Elon Musk finds it necessary to hit every unit in the BizOrgs (and Sec Reg and M&A) syllabus, it’s now come to life.

Namely, in the wake of the Twitter takeover, Musk ordered that, well, a lot of Twitter’s contracts be broken, which led to a lot of litigation. One of those cases, Arnold v. X Corp., alleges that pre-Musk Twitter made promises about employee severance that post-Musk Twitter is obligated to honor. And the employees argue that Elon Musk, along with Twitter, is personally responsible for the debt on – you guessed it – a veil-piercing theory. The plaintiffs say:

Plaintiffs alleged that Musk, through X Holdings I and its successors, owns more than 50% of Twitter (and its successors) and dominates Twitter’s decisionmaking and operations. Plaintiffs also alleged Musk intermingled his companies’ assets, treating them as one and the same – and as extensions of himself – despite their ostensibly separate corporate existences.

Plaintiffs have also sufficiently alleged it would be inequitable to allow Musk to use the corporate form to escape liability. By intermingling his corporate assets in the alleged conduct without formally having Twitter contract with the employees of his other companies, Musk has created a situation where – absent claims against Musk himself – the corporate defendants could argue the discriminatory or other wrongful activity was engaged in by Tesla, Space X, or Boring Company employees working as Musk’s agents, not Twitter’s. Indeed, Defendants would have every incentive to do so. The only way to avoid such a shell-game is to recognize that Musk’s decision to treat his various corporations as interchangeable personal playthings opens him to personal liability for their actions. Moreover, as Plaintiffs alleged, Musk has repeatedly asserted that the debt load created by his acquisition of Twitter has driven Twitter to the edge of bankruptcy. Musk chose to saddle Twitter with crushing debt despite having more than enough money to pay Twitter’s purchase price with no debt. That is sufficient to allege that Twitter was undercapitalized, and that allowing him to use that (perhaps deliberate) undercapitalization to avoid liability for obligations taken on in that very acquisition would be inequitable and unjust. No more is necessary at the pleading stage.

Now, the standard for pleading veil piercing is very high, and one could reasonably question whether this was sufficient except, well … from the magistrate decision recommending the claims be sustained:

It is clear from Musk’s opening brief that he knew that Plaintiffs’ justification for keeping claims like Count III and IV alive as to him related to Plaintiffs’ assertions in the FAC about veil piercing/alter ego liability. … Yet for some reason, Musk only made arguments about this veil piercing/alter ego issue in a footnote in that opening brief. And even there, in that two-sentence footnote, Musk made only one brief merits-based assertion as to why the veil piercing allegations in the FAC would be insufficient to plausibly allege alter ego liability: i.e., that “Plaintiffs fail to explain [in the FAC] how respecting the corporate form would lead to an ‘injustice’ or ‘inequitable’ result’ as is necessary to pierce the corporate veil[.]”

Arguments raised solely in footnotes are considered waived or forfeited. This policy is understandable, in part because when a party makes arguments like these only in a footnote, such arguments tend to be sparse and unhelpful—and they end up leading to insufficient and unhelpful briefing on important legal matters. Indeed, that exactly is what happened here, due to the fact that Musk did not sufficiently address the veil piercing/alter ego issue in his opening brief.

Therefore, since Musk waived or forfeited any argument that Counts III and IV should be dismissed due to Plaintiffs’ failure to plausibly assert that Twitter’s corporate veil should be pierced, his motion to dismiss these counts should be denied. The Court thus recommends denial of Musk’s motion to dismiss with respect to Plaintiffs’ breach of contract and promissory estoppel claims in Counts III and IV.

Arnold v. X Corp., No. 23-528-JLH-CJB (D. Del. Jan. 08, 2025).

So. There it is.

And another thing: Mike Levin and I open 2025 with a Shareholder Primacy podcast about aiding and abetting fiduciary breaches, and the empty voting saga at Masimo. Available here on Spotify, here on Apple, and here on YouTube.