June 24, 2009
Liability of Government Director Nominees
Vice Chancellor Lamb of the Delaware Chancery Court noted recently in a pubic speech that government director nominees "should be treated like anyone else (other directors)" when fidicuiary duty standards are in issue. This is the tip of the iceberg, of course. The statement is a reaffirmation that the directors will be responsible to all shareholders, not just the government, in their board actions. This will test government nominees ability to answer to both the government (which may have objectives other than a firm's profits in mind) and to equity investors (who are primarily interested in profits). But liability will be another matter. Can the director nominees be personally liable? They are subject to the court's injunctive powers, but are they subject to damages for official actions? Their immunity as government actors will be tested. Second, is the government as prinicipal liable for the nominees actions that may injure other shareholders? The hazy area of liability of controlling shareholder for the actions of borad nominees, not yet fully developed in the case law, will be in issue as well the sovering immunity of the government itself? Has the government waived its liability for the actions of the nominees? (See, e.g., the Federal Tort Claims Act). Plaintiff's lawyers will be busy, as the government is an obvious potential deep pocket in shareholder derivative actions. I would suggest to all government director nominees that, before they accept the position, they get good advice on their personal exposure to private lawsuits.
June 22, 2009
The New Finanical Products Consumer Protection Act
A piece of legislation sponsored by the new administration that makes sense, in theory, is the new finanical product consumer protection act. Long championed by Professor Warren, a federal act is necessary to stop consumer fraud by national financial institutions. State officials in states other than New York and a few other states have been reluctant to pursue cases of consumer fraud in the sale and marketing of complex financial products. But theory is not fact and the new act may go too far, proscribing more the fraud. It may limit the sale of selected complex financial products, however marketed and sold. The impowered agency may be asked by Congress to act like a drug approval agency rather than an anti-fraud enforcement agency. Banks have noticed the threat and are lobbying intensely against versions of the act in draft.