Firm News

Bob Allen Litigates D&O Case of First Impression involving Coverage for Delaware Securities Appraisal Actions.

When Dallas-based Zales Jewerly was purchased by jewelry conglomerate Signet in 2014, litigation against the Zale Board of Directors predictably followed. In addition to the typical fiduciary class action; a large percentage of Zale shareholders, including arbitrageurs, dissented to the merger and brought an action in Delaware Chancery Court to have their shares of Zale stock appraised by the court. While the stock appraisal action could have resulted in the disputed stock being valued higher, lower or the same as the actual merger price; these appraisal petitioners enjoyed annual interest on the merger value of their stock at 5% over the federal discount rate, compounded quarterly. With the federal discount rate hovering around .75% at this time, the interest component alone presented certain sophisticated investors with a virtual no-lose proposition.

After Zale successfully defended the fiduciary action; although incurring over $1 million in defense costs in so doing, it settled the appraisal action for $34.2 million after incurring over $6 million in defense costs in that action. Zale then sued its entire $35 million tower of D&O insurers in Dallas state court to recover its defense costs in the fiduciary action and its settlement and defense costs in the appraisal action. The case raises a series of issues of first impression including whether stock appraisal actions involve a “wrongful act,” and whether part or all of the appraisal action settlement is excluded from coverage due to the policies’ “bump-up” exclusions.

Along with Hudson’s national counsel, Joe Monteleone of Weber Gallagher, Bob Allen represented excess carrier Hudson Insurance Company in the litigation. After 15 months of discovery and motion practice, a recent mediation resulted in a settlement between Hudson and Zale. Nonetheless, Zale’s case continues against the lower level D&O insurers, with summary judgment briefing on the substantive coverage issues expected in March and April 2019. Bob wrote the attached casenote on this litigation for publication in the ABA Tort & Trial Insurance Practice Section’s Professional Liability Insurance Committee E-Newsletter.