Private investment funds (the “funds”) sought to prevent activist investors (the “activist”) from suing them under the Investment Company Act (the “ICA”) by asking the U.S. Supreme Court to rule that Section 47(b) (the “Section”) of the ICA does not allow for private right of action.

According to the funds, Congress intended to empower the SEC (and not private parties) to enforce the ICA; that’s why a provision that would allow individuals and private parties to bring civil lawsuits—a private right of action—was not included in the Section.

The activist filed a lawsuit against an investment company, arguing that the investment company violated the ICA by preventing it from exercising its voting rights. With the support of the federal government, the funds argued that the activist did not have a private right of action under the Section. In turn, the activist argued that the private right of action was granted by the ICA to sue over contracts that allegedly violate the statute.

The Court ruled in favor of the activist, stating that the fund impaired the investor’s ability to acquire ownership state, and the Second Circuit upheld the decision, thereby contributing to the already existing circuit split. The fund appealed to the Supreme Court and the Supreme Court agreed to review the issue.

According to the fund, recognizing a private right of action in the ICA would create tremendous uncertainty for the funds that are plagued with the important task of managing retirement funds and financial stability of the country’s population. The federal government also submitted amicus curiae brief in support of the fund.

The Supreme Court’s decision will be important for the exposure that private investment funds face and Alliant will continue monitoring the issue.

A court determined that a D&O policy’s Prior Notice exclusion applied only if the potential liability in the underlying claim arose out of related prior wrongful acts.

In the underlying dispute, a condo owner (the “owner”) leased certain condo units back to the Condo association (the “association”), which, pursuant to the lease agreement, were to remain vacant and undeveloped. The association chose not to renew the lease, and the board rejected an offer from the owner to purchase the units. The owner later sought to sell the units to another party to be redeveloped into multi-family dwellings, which was subject to a condominium declaration that gave the association the right to purchase the units on the same terms as the new buyers and was contingent upon approval of the redevelopment plans.

The designs were submitted to the association for approval, but the association’s board rejected the plans. The buyers sued the association over the rejection, claiming that the board had no authority to require prior review and approval, that the association’s design guidelines were unenforceable, and that the buyers were free to move ahead with their redevelopment plans. The buyers also alleged the denial was a pretext to hide the board’s desire to avoid redevelopment of the units, as well as breach of the duty of good faith and tortious interference with the purchase agreement. The suit was noticed to the association’s D&O carrier and the carrier provided a defense. The court eventually dismissed the breach and tortious interference claims.

During the subsequent policy period, the association attempted to exercise its option to purchase the units and alleged that the owner was legally unable to close on the initial proposed sale. The buyers assigned its rights to a new party and the owner, and a new buyer proceeded to close. The association filed suit to enforce its option to buy and sought an injunction to stop redevelopment. The buyer counterclaimed that the association’s option was void, that the design review guidelines did not apply, as well as slander of title and tortious interference for the association’s communication with the title company stating the sale could not close.

The association tendered the counterclaims to its D&O carrier and the carrier argued the Prior Notice exclusion precluded coverage. The Prior Notice exclusion barred coverage for "[a]ny liability arising out of the facts alleged, or to the same or related 'wrongful acts' alleged or contained in any 'claim' which has been reported, or in any circumstances of which notice has been given, under" a prior insurance policy. The lower court concluded that the "Prior Notice" exclusion barred coverage for the counterclaims because the counterclaims were "clearly … related to wrongful acts that had previously been reported" during the prior policy period. The association appealed.

The court found that the "wrongful acts" on which the prior claims were based were the association’s refusal to approve the initial redevelopment plans. These were not related to the alleged subsequent wrongful acts which stemmed from conduct that occurred years later in the association’s attempt to exercise its right of first refusal. Therefore, the exclusion did not bar coverage for, tortious interference and slander of title, because the association’s potential liability did not arise out of related "wrongful acts" alleged in a prior notice. The court also noted that while “the Prior Notice exclusion does not require that the lineup of parties in the two actions be identical, the presence of different parties in a subsequent lawsuit is one factor that weighs against a determination of relatedness” and the fact that both disputes concerned the same condo units was not determinative of relatedness.