October 28, 2016 Practice Points

DOJ Policy Shift Will Have Significant Effect on D&O Claims

A recent shift by the Department of Justice in its policy toward holding individual corporate executives accountable for corporate misconduct will almost certainly have significant implications for coverage under directors and officers liability policies

by Joshua D. Davey

The recent shift by the Department of Justice in its policy toward holding individual corporate executives accountable for corporate misconduct will almost certainly have significant implications for coverage under directors and officers liability policies.

On September 9, 2015, Deputy Attorney General Sally Quillian Yates released a memorandum entitled “Individual Accountability for Corporate Wrongdoing” (or the “Yates Memo”) that outlines a new direction in the DOJ’s approach to corporate wrongdoing. Noting that in large corporations “responsibility can be diffuse and decisions are made at various levels” making it “difficult to determine if someone possessed the knowledge and criminal intent necessary to establish their guilt beyond a reasonable doubt,” the Yates Memo emphasizes that the DOJ must “fully leverage its resources to identify culpable individuals at all levels in corporate cases.” To this end, the Yates Memo outlines six steps the DOJ will now take when investigating corporate misconduct in both civil and criminal cases:

  1. To be eligible for any cooperation credit, corporations must provide to the department all relevant facts about the individuals involved in corporate misconduct.

  2. Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.

  3. Criminal and civil attorneys handling corporate investigations should be in routine communications with one another.

  4. Absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals.

  5. Corporate cases should not be resolved without a clear plan to resolve related individual cases before the statute of limitations expires and declinations as to individuals in such cases must be memorialized.

  6. Civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual’s ability to pay.
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