Despite having more than its fair share of failed banks, Florida has not been a hotbed of D&O litigation. On November 9th, the FDIC filed only its second lawsuit against former directors of a failed banking institution. The defendants here are former directors of Century Bank, FSB (Sarasota, FL), which was placed into receivership in mid-November 2009.  A copy of the FDIC’s complaint is available here.

After failed court-ordered mediation, Hostess Brands, Inc. – makers of iconic bakery goods that include Twinkies, Ding Dongs, Ho Hos and Wonder Bread – received permission from a bankruptcy court to cease operations and liquidate last week.

So, what does the impending liquidation of Hostess have to do with employee benefits? Well, one of the largest issues facing Hostess has been crippling union pension contributions, which have been reported as high as $1 billion.

The United States District Court for the Eastern District of Virginia, applying Texas law, has held that a settlement agreement resolving coverage litigation released the insurer’s obligation for defense costs for certain claims tendered for coverage under a subsequent policy.  Nat’l Heritage Found., Inc. v. Philadelphia Indem. Ins. Co., 2012 WL 5331570 (E.D. Va. Oct. 25, 2012).

The United States Bankruptcy Court for the District of Nebraska has held that an insurer may make settlement payments for claims against a debtor’s directors and officers where any claims of the debtor are subordinate to those of the directors and officers under the terms of the policy.  The court stated that under these circumstances “the issue of whether the policies are property of the bankruptcy estate is irrelevant.”  In re TierOne Corp., 2012 WL 4513554 (Bankr. D. Neb. Oct. 2, 2012).

Explaining the Subsequent New Value and Contemporaneous Exchange Defenses to Avoidable Preferences

Avoidable Preferences

The bankruptcy code allows a debtor, trustee or other estate representative to recover certain payments or other transfers (such as judgment liens and attachments) to creditors made within 90 days of the date a bankruptcy case was filed.

A Georgia bankruptcy court has held that notwithstanding the discharge of an individual in his individual bankruptcy proceeding, the Federal Deposit Insurance Corporation (FDIC) may file suit against the individual as a former officer of a failed bank so long as the applicable D&O policy covers defense costs and the FDIC’s recovery is limited to insurance proceeds.  In re Hayden, 2012 WL 3597422 (Bankr. N.D. Ga. July 6, 2012).

The United States District Court for the Central District of California has held that, under California law, claims for restitutionary relief are uninsurable as a matter of law. Dobson v. Twin City Fire Ins. Co., et al., 2012 WL 2708392 (C.D. Cal. July 5, 2012). Additionally, the court held that individual insureds breached a policy’s no-voluntary payment provision by settling an underlying claim without insurer consent and that the insureds’ breach was not excused by the carrier’s failure to advance defense costs.

The United States Bankruptcy Court for the District of Delaware, applying federal law, has held that a Liquidation Trustee and a Litigation Trustee (the Trustees) did not have standing to object to the disbursal of policy proceeds in an insurer’s interpleader action because they had no existing claims or realistic potential claims for coverage under the policy. Federal Insurance Co. v. DBSI, Inc., 2012 WL 2501090 (Bankr. D. Del. June 27, 2012).

Trademark licensees won a victory on July 9, 2012, when the Court of Appeals for the Seventh Circuit issued its decision in Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC. The opinion holds that the rights of a trademark licensee do not automatically terminate when its license agreement is rejected by a trademark owner in bankruptcy. Nevertheless, the significance of that victory will only become clarified if and when other courts, including possibly the Supreme Court, and Congress address the issues raised in Sunbeam.  

Applying Georgia law, the United States Bankruptcy Court for the Northern District of Georgia has voided a surplus lines policy on the grounds that the insured, a purported hedge fund management firm, concealed that it was operating a Ponzi scheme, submitted an inaccurate financial statement, and misrepresented that its investment funds were “stable.”Perkins v. Am. Int’l Specialty Lines Ins. Co., 2012 WL 2105908 (Bankr. N.D. Ga. Apr. 3, 2012).