Law360 (October 26, 2022, 8:46 PM EDT) — Verizon Communications Inc. is covered for a $95 million settlement in a fraudulent transfer suit by a bankruptcy trustee to claw back $2.3 billion in indirect payments, according to a Delaware Superior Court decision unsealed Wednesday that found the underlying suit was a covered securities claim.
The fraudulent transfer suit was brought by the trustee for then-insolvent FairPoint Communications, which accused Verizon of luring FairPoint into a “disastrous” acquisition of Verizon’s outdated, mostly landline, telephone equipment and infrastructure.
That suit constitutes a securities claim that was “brought derivatively” on behalf of Northern New England Spinco Inc. — an entity Verizon created for delivering its landline assets to FairPoint in a merger — which is a covered organization by the directors and officers policy at issue here, the Delaware court said.
The court also held that the trustee was a security holder for Spinco, which meant the FairPoint suit was a covered securities claim and the settlement for the suit is covered. Under the policy, a securities claim is defined as a claim “brought derivatively on the behalf of an organization by a security holder of such organization,” with “organization” including any for-profit entity Verizon controlled on or before the effective date of the policy.
The court’s decision is a “complete” win for policyholders, Keith McKenna, counsel for Verizon, told Law360.
“To our knowledge, no court has previously addressed whether a fraudulent conveyance claim can qualify as a securities claim under the policy language that was at issue in the decision,” McKenna said. Because the policy language at issue in the case is a standard form used throughout the country, the decision “opens the door” for policyholders across the nation to get coverage for fraudulent transfer claims against them, McKenna added.
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