Corporate Compliance - Justia Case Law Summaries

Ayers v. Foley

2026-06-15T11:01:57-08:00

A stockholder of a publicly traded corporation brought a derivative action challenging two categories of compensation decisions made by the company’s board of directors. The first involved a substantial, one-time equity grant awarded to the company’s founder and non-executive chairman to incentivize his continued service. The second involved annual increases to director compensation for the company’s non-employee directors in 2022, 2023, and 2024, which the plaintiff alleged were excessive compared to peer companies and not justified by the company’s overall financial performance. Prior to this action, the plaintiff made a books and records demand under Section 220 of the Delaware General Corporation Law and, after obtaining documents, filed suit in the Court of Chancery of the State of Delaware. The plaintiff asserted claims for breach of fiduciary duty and unjust enrichment against the directors who approved or received the compensation. The defendants moved to dismiss, arguing that the plaintiff had failed to plead that making a demand on the board would have been futile and that the complaint did not state a viable claim. The Court of Chancery of the State of Delaware held that the claims challenging the chairman’s equity grant must be dismissed. The compensation and related person transaction committees that approved the grant were composed of directors who satisfied national exchange independence standards, entitling them to a heightened presumption of disinterestedness under 8 Del. C. § 144(d)(2). The plaintiff failed to plead substantial and particularized facts rebutting this presumption or showing a substantial likelihood of liability or bad faith. However, the court found that claims related to director self-compensation were sufficiently pleaded as to the committee members who approved those awards, because such decisions are subject to entire fairness review. The unjust enrichment claim concerning director compensation also survived against all directors who retained the challenged awards. The motion to dismiss was granted in part and denied in part. View "Ayers v. Foley" on Justia Law

NIA V. BANK OF AMERICA, N.A.

2026-04-13T08:01:26-08:00

An Iranian citizen, living in the United States, held a credit card account with a large financial institution. Due to United States sanctions against Iran, federal regulations prohibit U.S. banks from providing services to accounts of individuals ordinarily resident in Iran, unless those individuals are not located in Iran. The bank had a compliance policy requiring account holders from such sanctioned countries to regularly provide documents showing they were not residing in those countries. The plaintiff, subject to this policy, submitted various documents as proof of U.S. residency. After the bank mistakenly treated one of his residency documents as temporary rather than permanent, it closed his account when he failed to submit additional documentation. The plaintiff sued in state court, alleging violations of federal and state anti-discrimination and consumer protection statutes, including 42 U.S.C. § 1981, the Equal Credit Opportunity Act, the California Unruh Civil Rights Act, and the California Unfair Competition Law. The defendant bank removed the case to the United States District Court for the Southern District of California. The district court granted summary judgment for the bank on all claims except for an ECOA notice claim and a related UCL claim, both of which the plaintiff later voluntarily dismissed. The plaintiff then appealed. The United States Court of Appeals for the Ninth Circuit held that the International Emergency Economic Powers Act’s liability shield provision immunizes the bank from liability for good faith actions taken in connection with compliance with sanctions regulations, even if such actions are not strictly compelled by the regulations. The court found that the bank’s policy was consistent with federal guidance and that the plaintiff failed to show a genuine dispute of material fact regarding the bank’s good faith. The Ninth Circuit affirmed the district court’s judgment in favor of the bank. View "NIA V. BANK OF AMERICA, N.A." on Justia Law

In re Orbit/FR, Inc. Stockholders Litig.

2026-04-13T07:02:19-08:00

A Delaware corporation specializing in antenna measurement systems was majority-owned by a parent company, which controlled the board and imposed a services agreement that disproportionately allocated expenses to the subsidiary. An investment fund, having previously rejected buyout offers, became a vocal minority stockholder. In 2018, after a controversial squeeze-out merger at $3.30 per share—approved without effective minority protections—a third-party expressed interest in buying the parent at a much higher valuation, but later withdrew due to concerns over the parent’s transfer pricing practices. The merger closed at a valuation much lower than that suggested by the later private equity investment. A minority stockholder initially filed suit in the Court of Chancery of the State of Delaware, alleging breaches of fiduciary duty related to the merger. The court denied a motion to dismiss, and the original plaintiff’s counsel negotiated a proposed $825,000 settlement. The investment fund objected, sought to replace the lead plaintiff and counsel, and ultimately succeeded after the original settlement was rejected and the fund posted security to protect other stockholders’ interests. The fund, with new counsel, filed an amended complaint, pursued broader discovery, and advanced new damages theories, including contesting the services agreement and relying on the arm’s-length valuation from the private equity transaction. The litigation efforts included multiple discovery motions, expert reports, and defeating dismissal attempts, culminating in a mediated settlement for $17.85 million—21.64 times the original settlement and reflecting a 235% premium over the deal price. The Court of Chancery of the State of Delaware, in the present opinion, held that the investment fund, as lead plaintiff, was entitled to an incentive award of $730,000. The court found that the award was justified based on the fund’s considerable time, effort, and resources expended, the significant benefit obtained for the class, and the absence of problematic incentives or conflicts. View "In re Orbit/FR, Inc. Stockholders Litig." on Justia Law

Trigger Energy Holdings v. Stevens

2025-12-23T08:13:27-08:00

Two companies, Gulf Coast Investments, LLC and Trigger Energy Holdings, LLC, sold their membership interests in Blueprint Energy Partners, LLC to TCU Holdings, LLC. Blueprint, formed in 2017 for shale oil operations in Wyoming, originally had three equal members: Gulf Coast, Trigger, and TCU, with Aladdin Capital, Inc. as the manager and primary creditor. After financial struggles and interpersonal conflicts, the parties negotiated the buyout in 2019. TCU’s principal, Kent Stevens, threatened to leave and take staff and clients unless Gulf Coast and Trigger agreed to a set price, known as the “dynamite option.” Despite these threats, the plaintiffs were represented by counsel who advised them of alternatives, and negotiations spanned several months, culminating in a signed purchase agreement. The Circuit Court of the Second Judicial Circuit, Minnehaha County, South Dakota, reviewed the plaintiffs’ post-sale lawsuit alleging economic duress, breach of operating agreement, breach of fiduciary duty, tortious interference, shareholder oppression, unjust enrichment, and sought accounting and injunctive relief. The circuit court granted summary judgment for the defendants on all counts, reasoning that the plaintiffs voluntarily entered the agreement, had legal alternatives, and that the contract itself contained a waiver of further claims. The court also addressed each substantive claim on its merits, finding no legal basis for recovery. On appeal, the Supreme Court of the State of South Dakota affirmed the circuit court’s grant of summary judgment. The Supreme Court held that, under either the three-part or two-part test for economic duress, the plaintiffs failed to show involuntary acceptance or lack of reasonable alternatives. The court also found no breach of the operating agreement or fiduciary duties, no tortious interference or shareholder oppression, and no basis for unjust enrichment or usurpation. The holding confirms the validity and enforceability of the purchase agreement and disposes of all claims against the defendants. View "Trigger Energy Holdings v. Stevens" on Justia Law

In re Tesla, Inc. Derivative Litigation

2025-12-19T13:32:14-08:00

In 2018, the board of a major clean-energy vehicle company approved a substantial equity compensation plan for its CEO, contingent on achieving a series of ambitious market capitalization and operational milestones. The plan granted the CEO the right to purchase significant company stock if these milestones were met. A company shareholder filed a derivative suit, alleging that the CEO, as a controlling stockholder, had improperly influenced the board to secure excessive compensation. The shareholder also claimed failures in disclosure to stockholders who later approved the plan. The Court of Chancery of the State of Delaware held a five-day trial. It found that the CEO exercised transaction-specific control despite not holding a majority of voting power. Concluding that the CEO and the board had breached their fiduciary duties, the court applied the “entire fairness” standard and ordered rescission of the CEO’s compensation package. After this decision, the board resubmitted the compensation plan to the stockholders with new disclosures, and a majority of disinterested stockholders approved it in a second vote. The board then requested that the court revise its prior judgment, but the Court of Chancery refused, maintaining rescission and awarding the plaintiff’s counsel substantial fees. On appeal, the Supreme Court of the State of Delaware reviewed whether rescission was a proper remedy. The Supreme Court held that rescission was improper because it could not restore all parties to their positions before the transaction, given the CEO’s six years of performance under the plan. The Court reversed the rescission remedy, reinstated the compensation plan, and awarded the plaintiff nominal damages. The Supreme Court further ruled that the plaintiff’s attorneys were entitled to fees based on the reasonable value of their services. View "In re Tesla, Inc. Derivative Litigation" on Justia Law

Timeless Bar, Inc. v. Illinois Casualty Co.

2025-07-22T07:31:07-08:00

Andrew and Jessie Welsh purchased The Press Bar and Parlor in 2016, managing it through two entities: Horseshoe Club, LLC, which owned the real estate, and Timeless Bar, Inc., which operated the bar. Andrew and Jessie were the sole members and officers of both entities. Illinois Casualty Company (ICC) issued a business owner’s policy covering the bar’s property and operations. Timeless Bar was the named insured, and Horseshoe Club was an additional insured. After their divorce in November 2019, Andrew took sole control of the businesses’ finances. On February 17, 2020, a fire destroyed The Press Bar and Parlor. Andrew and Jessie submitted a claim to ICC, stating the fire was of unknown origin. However, an investigation revealed Andrew had intentionally set the fire, leading to his conviction for arson. ICC denied the claim based on policy exclusions for concealment, misrepresentation, fraud, dishonesty, and intentional acts. The United States District Court for the District of Minnesota dismissed Jessie’s claims due to her lack of standing as a non-insured. On cross-motions for summary judgment, the court ruled in favor of ICC, attributing Andrew’s conduct to both business entities and concluding the policy did not cover the loss. The court also held that Minnesota’s statutory protection for innocent co-insureds did not extend to corporate entities. The United States Court of Appeals for the Eighth Circuit reviewed the district court’s grant of summary judgment de novo. The court affirmed the district court’s judgment, holding that Andrew’s misrepresentations were attributable to the business entities, and thus, ICC was justified in denying coverage. The court found no basis in Minnesota law to extend the innocent co-insured doctrine to corporations or limited liability companies. View "Timeless Bar, Inc. v. Illinois Casualty Co." on Justia Law

Hyperheal Hyperbarics v. Shapiro

2025-07-17T10:05:22-08:00

Eric Shapiro founded Hyperheal Hyperbarics, Inc., a medical provider offering hyperbaric oxygen therapy and wound care. He served as a director, controlled day-to-day operations, and was employed as a certified HBOT technician. Hyperheal's charter required indemnification for directors and officers to the fullest extent permitted by Maryland law. Hyperheal sued Shapiro, alleging misconduct that led to significant financial losses. The claims included intentional misrepresentation and common law indemnification, asserting that Shapiro breached fiduciary duties as a director and engaged in improper conduct to increase profits. The Circuit Court for Baltimore County dismissed Shapiro's indemnification claim on summary judgment, concluding that the corporation's claims were based solely on his actions as an employee, not as a director. The Appellate Court of Maryland reversed this decision, finding that the allegations implicated Shapiro's fiduciary duties as a director, thus triggering indemnification under the statute. The Appellate Court held that the claims bore a sufficient nexus to Shapiro's status as a director. The Supreme Court of Maryland affirmed the Appellate Court's judgment. The court held that the indemnification required under subsection 2-418(d) of the Corporations and Associations Article applies when a director is sued "by reason of service" in his capacity as a director and prevails. The court determined that the requisite nexus requirement is established if any of the factual allegations, causes of action, or legal theories implicate the individual's role or status as a director. Therefore, Shapiro was entitled to indemnification for his legal expenses incurred in defending the lawsuit. View "Hyperheal Hyperbarics v. Shapiro" on Justia Law

SOUTHERN METHODIST UNIVERSITY v. SOUTH CENTRAL JURISDICTIONAL CONFERENCE OF THE UNITED METHODIST CHURCH

2025-06-27T06:19:41-08:00

Southern Methodist University (SMU), a nonprofit corporation, was founded by predecessors to the South Central Jurisdictional Conference of the United Methodist Church (the Conference). Historically, SMU’s articles of incorporation indicated that the university was owned and controlled by the Conference, requiring Conference approval for amendments. In 2019, SMU’s board of directors amended the articles without Conference approval, removing all references to the Conference. The Conference sued, seeking a declaration that the amendments were void and asserting claims for breach of contract and filing a materially false instrument. The trial court dismissed the Conference’s claims for declaratory judgment and breach of contract under Texas Rule of Civil Procedure 91a and granted summary judgment on the false-filing claim. The Court of Appeals for the Fifth District of Texas reversed the trial court’s decision in relevant part, allowing the Conference to pursue its claims. The Supreme Court of Texas held that the Conference has statutory authority to sue SMU to enforce its rights under the articles of incorporation and the Texas Business Organizations Code. The court also held that the Conference could pursue its breach-of-contract claim as a third-party beneficiary of SMU’s articles of incorporation. However, the court agreed with SMU that it was entitled to summary judgment on the false-filing claim, as the certificate of amendment did not constitute a materially false instrument. The Supreme Court of Texas affirmed the Court of Appeals’ judgment in part, allowing the declaratory judgment and breach-of-contract claims to proceed, and reversed it in part, upholding the summary judgment on the false-filing claim. The case was remanded to the trial court for further proceedings. View "SOUTHERN METHODIST UNIVERSITY v. SOUTH CENTRAL JURISDICTIONAL CONFERENCE OF THE UNITED METHODIST CHURCH" on Justia Law

Erste Asset Management GmbH v. Hees

2025-06-09T08:03:29-08:00

In early 2020, Erste Asset Management GmbH filed a derivative action against Kraft Heinz Company’s fiduciaries, arising from an August 2018 stock sale by 3G Capital, Inc., a significant minority stockholder. The Court of Chancery dismissed the complaint under Rule 23.1, concluding that the plaintiffs failed to plead particularized facts creating a reasonable doubt that six of Kraft Heinz’s eleven directors were disinterested or lacked independence. One of those directors, John Cahill, was alleged to have ended his consulting relationship with Kraft Heinz before the derivative action was filed. However, it was later revealed that Cahill continued to serve as a consultant after July 2019, contrary to Kraft Heinz’s public disclosures. The Court of Chancery dismissed the derivative action, relying on the false representation that Cahill’s consulting agreement had terminated. Erste later discovered the ongoing consultancy and filed a new action seeking relief from the judgment under Rule 60(b) for fraud and newly discovered evidence. The Court of Chancery dismissed this new action, holding that the fraud must be extrinsic and that the new information was not newly discovered evidence because Erste could have learned it with reasonable diligence. The Supreme Court of Delaware reversed the Court of Chancery’s decision, holding that Rule 60(b)(3) applies to both intrinsic and extrinsic fraud and that Erste had pleaded a claim that Kraft Heinz’s misrepresentations prevented it from fairly presenting its case. The court remanded the case for further proceedings, including Rule 23.1 motion practice to reassess demand futility in light of the new evidence. The court also remanded Erste’s breach of fiduciary duty claim for further consideration. View "Erste Asset Management GmbH v. Hees" on Justia Law

Fraunhofer-Gesellschaft v. Sirius XM Radio Inc.

2025-06-09T05:05:09-08:00

Fraunhofer-Gesellschaft zur Förderung der angewandten Forschung e.V. (Fraunhofer) is a non-profit research organization that developed and patented multicarrier modulation (MCM) technology used in satellite radio. In 1998, Fraunhofer granted WorldSpace International Network, Inc. (WorldSpace) an exclusive license to its MCM technology patents. Fraunhofer also collaborated with XM Satellite Radio (XM) to develop a satellite radio system, requiring XM to obtain a sublicense from WorldSpace. XM later merged with Sirius Satellite Radio to form Sirius XM Radio Inc. (SXM), which continued using the XM system. In 2010, WorldSpace filed for bankruptcy, and Fraunhofer claimed the Master Agreement was terminated, reverting patent rights to Fraunhofer. In 2015, Fraunhofer notified SXM of alleged patent infringement and filed a lawsuit in 2017. The United States District Court for the District of Delaware initially dismissed the case, ruling SXM had a valid license. The Federal Circuit vacated this decision and remanded the case. On remand, the district court granted summary judgment for SXM, concluding Fraunhofer's claims were barred by equitable estoppel due to Fraunhofer's delay in asserting its rights and SXM's reliance on this delay to its detriment. The United States Court of Appeals for the Federal Circuit reviewed the case and reversed the district court's summary judgment. The Federal Circuit agreed that Fraunhofer's delay constituted misleading conduct but found that SXM did not indisputably rely on this conduct in deciding to migrate to the high-band system. The court noted that SXM's decision was based on business pragmatics rather than reliance on Fraunhofer's silence. The case was remanded for further proceedings to determine if SXM relied on Fraunhofer's conduct and if it was prejudiced by this reliance. View "Fraunhofer-Gesellschaft v. Sirius XM Radio Inc." on Justia Law

Boggs v. Johnston Asphalt, LLC

2025-05-22T08:11:08-08:00

The plaintiff, William Boggs, was injured on August 9, 2016, while transferring liquid asphalt from a tanker truck to a distribution truck in Framingham, Massachusetts. He was sprayed with liquid asphalt, resulting in burns and permanent injuries. Boggs was employed by All States Asphalt, Inc. (All States), which accepted his workers' compensation claim. Boggs filed a complaint against Johnston Asphalt, LLC, alleging negligence in maintaining the truck that caused his injuries. The Kent County Superior Court granted summary judgment in favor of Johnston Asphalt on February 27, 2024. The court found no genuine issues of material fact and concluded that Johnston Asphalt owed no duty to Boggs. The court noted that the truck was owned and maintained by All States, and the only person who worked on the truck was an All States employee, Michael Kelly. The court also rejected Boggs' argument to pierce the corporate veil, finding no evidence that Johnston Asphalt and All States were not separate entities. The Rhode Island Supreme Court reviewed the case and affirmed the Superior Court's judgment. The Supreme Court held that Boggs failed to present competent evidence to demonstrate a genuine issue of material fact regarding Johnston Asphalt's duty of care. The court found that the single piece of mail addressed to Kelly at Johnston Asphalt's address was insufficient to establish that Kelly was an employee of Johnston Asphalt. The court also upheld the lower court's decision not to pierce the corporate veil, as Boggs did not meet the burden of proof required to disregard the corporate entity. View "Boggs v. Johnston Asphalt, LLC" on Justia Law

Ezell v. Dinges

2025-05-13T15:30:19-08:00

In 2006, Cabot Oil & Gas Company began fracking in Dimock Township, Pennsylvania. By 2009, their operations caused a residential water well explosion, leading to methane gas contamination in local water supplies. The Pennsylvania Department of Environmental Protection (DEP) found Cabot in violation of environmental laws, resulting in the 2009 Consent Order, which mandated corrective actions and a $120,000 penalty. Cabot violated this order by 2010, leading to another consent order and additional fines. Over the next decade, Cabot received numerous violation notices and faced lawsuits, including a 2020 grand jury finding of long-term indifference to remediation efforts, resulting in criminal charges and a nolo contendere plea. Shareholders filed a derivative suit against Cabot’s directors, alleging breaches of fiduciary duties, including failure to oversee operations, issuing misleading statements, and insider trading. The United States District Court for the Southern District of Texas dismissed the claims, finding no serious oversight failure or bad faith by the directors, and insufficient particularized allegations to support claims of material misrepresentation or insider trading. The United States Court of Appeals for the Fifth Circuit reviewed the case de novo. The court affirmed the district court’s dismissal, agreeing that the directors had implemented and monitored compliance systems, and that the shareholders failed to demonstrate bad faith or conscious disregard of duties. The court also found that the statements in Cabot’s disclosures were not materially misleading and that the shareholders did not adequately plead demand futility regarding the insider trading claim. Thus, the court upheld the dismissal of all claims with prejudice. View "Ezell v. Dinges" on Justia Law

Kaiser-Francis Oil Company v. Deutsche Oel & Gas, S.A.

2025-03-28T11:30:28-08:00

Kaiser-Francis Oil Company (KFOC), a Delaware corporation, and its subsidiary Aurora-KF, LLC, sold Aurora Gas, LLC, an Alaska company, to Rieck Oil, Inc., a Delaware corporation formed by Kay Rieck. The sale included an indemnity guarantee from Deutsche Oel & Gas, S.A. (DOGSA), another company owned by Rieck, to cover obligations under a pre-existing guarantee by George B. Kaiser to Cook Inlet Regional, Inc. (CIRI). When Aurora Gas went bankrupt, CIRI called on Kaiser and KFOC to fulfill the obligations, but DOGSA and Rieck Oil did not indemnify them. KFOC sued Rieck Oil, DOGSA, and Kay Rieck in the Alaska Superior Court, seeking to pierce Rieck Oil’s corporate veil to hold Rieck personally liable. The superior court applied Delaware law, reasoning that most jurisdictions apply the law of the state of incorporation for veil-piercing claims. Under Delaware law, the court found that KFOC failed to prove the necessary element of fraud or injustice to pierce the corporate veil and ruled in favor of Rieck. The Supreme Court of Alaska reviewed the case, focusing on whether Alaska or Delaware law should apply to the veil-piercing claim. The court held that Alaska law applies, as veil-piercing is not a matter of internal corporate affairs but involves the rights of third parties. The court reasoned that Alaska has a more significant interest in the matter, given the involvement of Alaska land and an Alaska Native Corporation. Consequently, the court vacated the superior court’s ruling and remanded the case for further proceedings under Alaska law. View "Kaiser-Francis Oil Company v. Deutsche Oel & Gas, S.A." on Justia Law

Dewberry Group, Inc. v. Dewberry Engineers Inc.

2025-02-26T08:35:04-08:00

Dewberry Engineers sued Dewberry Group for trademark infringement under the Lanham Act, alleging that Dewberry Group's use of the "Dewberry" name violated their trademark rights. Dewberry Group, a real-estate development company, provides services to separately incorporated affiliates, which own commercial properties. The affiliates generate rental income, while Dewberry Group operates at a loss, surviving through cash infusions from its owner, John Dewberry. The District Court found Dewberry Group liable for trademark infringement and awarded Dewberry Engineers nearly $43 million in profits. The court treated Dewberry Group and its affiliates as a single corporate entity, totaling the affiliates' real-estate profits to calculate the award. The Fourth Circuit Court of Appeals affirmed this decision, agreeing with the District Court's approach to treat the companies as a single entity due to their economic reality. The Supreme Court of the United States reviewed the case and held that the District Court erred in treating Dewberry Group and its affiliates as a single corporate entity for calculating profits. The Court ruled that under the Lanham Act, only the profits of the named defendant, Dewberry Group, could be awarded. The affiliates' profits could not be considered as the defendant's profits since they were not named as defendants in the lawsuit. The Supreme Court vacated the Fourth Circuit's decision and remanded the case for a new award proceeding consistent with its opinion. View "Dewberry Group, Inc. v. Dewberry Engineers Inc." on Justia Law

In re Sears Hometown and Outlet Stores, Inc. Stockholder Litigation

2025-02-13T07:02:03-08:00

A controller orchestrated a merger that consolidated Sears, Roebuck and Co. and Kmart Corporation under Sears Holdings Corporation. The controller, through his investment funds, owned a majority of the new entity. In 2012, Sears Holdings spun off Sears Hometown and Outlet Stores, Inc. (the Company) as a separate public entity, with the controller retaining a majority stake. In 2019, the Company merged with an acquisition subsidiary, with each share converted into the right to receive $3.21. Some stockholders sought appraisal, while others pursued a plenary action alleging breaches of fiduciary duty. The Court of Chancery of the State of Delaware coordinated the appraisal proceeding and the plenary action for discovery and trial. The court certified a class in the plenary action, which was later modified to explicitly include stockholders who sought appraisal. During the appraisal proceeding, the Company and its post-merger parent became insolvent, rendering the appraisal claimants as general creditors with no prospect of recovery. The Fund, an appraisal claimant, opted to join the plenary action. The court found the merger was not entirely fair and determined a fair price of $4.06 per share, awarding incremental damages of $0.85 per share to the class members who had received the merger consideration. The Fund, having not received the merger consideration, sought to recover the full fair price damages award. The court held that under the precedent set by the Delaware Supreme Court in Cede & Co. v. Technicolor, Inc., the Fund was entitled to the full fair price damages of $4.06 per share without any offset for the merger consideration it did not receive. The court concluded that the Fund could opt out of the appraisal proceeding and participate in the plenary action remedy, ensuring it was made whole. View "In re Sears Hometown and Outlet Stores, Inc. Stockholder Litigation" on Justia Law

In Re: Grand Jury Subpoenas Dated September 13, 2023

2025-02-07T08:30:08-08:00

Sealed Appellant 1, the former CEO of a publicly traded company, and Sealed Appellants 2 and 3, a lawyer and law firm that represented him and the company, appealed an order from the United States District Court for the Southern District of New York. The district court compelled Sealed Appellants 2 and 3 to produce documents withheld under attorney-client privilege in response to grand jury subpoenas. The court found that the crime-fraud exception to attorney-client privilege applied, as there was probable cause to believe that communications between Sealed Appellants 1 and 2 were made to criminally circumvent the company’s internal controls. The district court concluded that the company had an internal control requiring its legal department to review all significant contracts. It found that Sealed Appellant 1 and Sealed Appellant 2 concealed settlement agreements with two former employees who had accused Sealed Appellant 1 of sexual misconduct. These agreements were not disclosed to the company’s legal department or auditors, violating internal controls and resulting in false statements to auditors. The United States Court of Appeals for the Second Circuit reviewed the case. It first determined that it had jurisdiction under the Perlman exception, which allows for immediate appeal when privileged information is in the hands of a third party likely to disclose it rather than face contempt. On the merits, the court found no abuse of discretion in the district court’s application of the crime-fraud exception. It held that there was probable cause to believe that the communications were made to circumvent internal controls, thus facilitating or concealing criminal activity. Consequently, the Second Circuit affirmed the district court’s order compelling the production of the documents. View "In Re: Grand Jury Subpoenas Dated September 13, 2023" on Justia Law

In re Alexion Pharmaceuticals, Inc. Insurance Appeals

2025-02-04T12:03:11-08:00

Alexion Pharmaceuticals, Inc. develops therapies for rare disorders and was insured under two director and officer liability insurance programs covering different periods. The first program provided $85 million of coverage for claims made between June 27, 2014, and June 27, 2015 (Tower 1). The second program provided $105 million of coverage for claims made between June 27, 2015, and June 27, 2017 (Tower 2). In 2015, the SEC issued a formal investigation order against Alexion, which led to a subpoena seeking information related to Alexion’s grant-making activities and compliance with the Foreign Corrupt Practices Act (FCPA). Alexion disclosed this investigation to its Tower 1 insurers. The Superior Court of Delaware found that the SEC investigation and a later securities class action against Alexion were unrelated, placing the securities class action coverage in Tower 2. The court applied the “meaningful linkage” standard and concluded that the connection between the SEC investigation and the securities class action was insufficient to make them related. The Supreme Court of Delaware reviewed the case and disagreed with the Superior Court’s conclusion. The Supreme Court found that the securities class action was meaningfully linked to the wrongful acts disclosed in Alexion’s 2015 notice to its Tower 1 insurers. Both the SEC investigation and the securities class action involved the same underlying wrongful acts, including Alexion’s grant-making activities and compliance with the FCPA. The Supreme Court held that the securities class action claim should be deemed to have been first made during the Tower 1 coverage period, and therefore, coverage should be under Tower 1. The judgment of the Superior Court was reversed. View "In re Alexion Pharmaceuticals, Inc. Insurance Appeals" on Justia Law

In re Shanda Games Ltd. Securities Litigation

2025-02-03T07:30:07-08:00

Shanda Games Limited, a video game company registered in the Cayman Islands, issued proxy materials as part of a freeze-out merger. The lead plaintiff, David Monk, alleged that these materials were materially misleading, causing him to accept the merger price instead of exercising his appraisal rights. The United States District Court for the Southern District of New York dismissed Monk’s claims, stating he failed to properly allege loss causation. The district court found that Monk had adequately pleaded that Shanda made two material misstatements but ruled that Monk had failed to plead reliance because the market in ADS was not efficient after the merger announcement. The court also held that the statements about the merger's fairness were inactionable opinions. Monk's motion for reconsideration was denied in part and granted in part, and his motion to add another lead plaintiff was denied. Monk filed a second amended complaint, which was again dismissed for failure to state a claim. The United States Court of Appeals for the Second Circuit reviewed the case and held that the district court erred in dismissing Monk’s claims. The appellate court concluded that Monk adequately alleged material misstatements, including the preparation of financial projections, the projections themselves, and the fairness of the merger. The court also found that Monk adequately pleaded scienter, reliance, and loss causation. The court affirmed in part, vacated in part, and remanded the case for further proceedings. View "In re Shanda Games Ltd. Securities Litigation" on Justia Law

In re Oracle Corporation Derivative Litigation

2025-01-21T07:04:07-08:00

Oracle Corporation acquired NetSuite Inc. in 2016. Following the acquisition, Oracle stockholders filed a derivative suit against Oracle directors and others, alleging that Lawrence Ellison, a co-founder and substantial equity holder in both companies, forced Oracle to overpay for NetSuite. After the Court of Chancery denied the defendants’ motion to dismiss, the Oracle board formed a special litigation committee (SLC) to review the plaintiffs’ derivative claims. The SLC investigated and tried to settle the suit but eventually returned the case to the plaintiffs to pursue. The parties litigated over five years, and the Court of Chancery held a ten-day trial, ultimately entering judgment for the remaining defendants. The Court of Chancery found that the special committee negotiated the NetSuite transaction untainted by Ellison’s or Oracle management’s influence. The court concluded that Ellison did not exercise general control over Oracle or specific control over the transaction. The court also found that neither Ellison nor Catz withheld material information or misled the Oracle board and special committee. On appeal, the stockholders contended that the court erred by allowing the SLC to withhold its interview memos, applying business judgment review to a transaction involving an alleged controlling stockholder, employing the wrong legal standard when evaluating whether Ellison misled the special committee, and finding that Ellison’s alleged undisclosed future operational plans were immaterial. The Supreme Court of Delaware affirmed the Court of Chancery’s judgment. The court held that the SLC did not waive work product protection during mediation and that the plaintiffs did not demonstrate substantial need or undue hardship for the interview memos. The court also affirmed the application of business judgment review, finding that Ellison did not exercise actual control over Oracle or the transaction. Finally, the court agreed that Ellison’s undisclosed post-closing plans were immaterial to the special committee’s evaluation and negotiation of the transaction. View "In re Oracle Corporation Derivative Litigation" on Justia Law

Innovative Waste Management, Inc. v. Crest Energy Partners GP, LLC

2025-01-15T07:08:43-08:00

Innovative Waste Management (IWM) entered into a joint venture with Dunhill Products in 2009 and 2010, which led to allegations of breach of contract, fraud, and misappropriation of trade secrets. IWM accused Dunhill Products, Crest Energy Partners, and Henry Wuertz of stealing trade secrets, interfering with business relationships, and theft of petroleum products. IWM sought $12 million in economic damages and punitive damages. The defendants responded with affirmative defenses and counterclaims. IWM served discovery requests in 2012, but the defendants failed to comply, leading to multiple motions to compel and sanctions. The Circuit Court of Dorchester County found the defendants in contempt for violating discovery orders and sanctioned them by striking their answer and counterclaims. The defendants appealed to the South Carolina Court of Appeals, which affirmed the circuit court's decision in an unpublished opinion. The defendants then sought review by the South Carolina Supreme Court. The South Carolina Supreme Court reviewed whether the Court of Appeals erred in finding that the defendants waived review of the trial court's interlocutory discovery orders and whether the circuit court abused its discretion by striking the defendants' pleadings. The Supreme Court agreed with the Court of Appeals, holding that the defendants waived their right to review the discovery orders by not complying with them and that the circuit court did not abuse its discretion in striking the pleadings due to the defendants' deliberate pattern of discovery abuse. The Supreme Court affirmed the decision of the Court of Appeals. View "Innovative Waste Management, Inc. v. Crest Energy Partners GP, LLC" on Justia Law

Black v. Securities and Exchange Commission

2025-01-14T11:30:43-08:00

Frank Harmon Black and his securities investment firm, Southeast Investments, N.C., Inc., are involved in an ongoing disciplinary proceeding initiated by the Financial Industry Regulatory Authority, Inc. (FINRA) in September 2015. The proceedings were based on allegations that Black and Southeast failed to establish and maintain an adequate broker supervisory system, failed to preserve business-related electronic correspondence, and submitted false documents and testimony to FINRA examiners, violating FINRA rules and federal securities laws. In March 2017, a FINRA hearing panel found Black and Southeast in violation of these rules and imposed fines and sanctions, including barring Black from associating with other FINRA member firms. Black and Southeast appealed the FINRA decision to the National Adjudicatory Council (NAC), which affirmed the findings but reduced the fines in May 2019. They then petitioned the Securities and Exchange Commission (SEC) for review. On December 7, 2023, the SEC affirmed the NAC's decision regarding the supervisory and record retention violations but remanded the false testimony and fabricated documents issues to FINRA for further proceedings, determining that FINRA's failure to produce certain investigatory notes was not a harmless error. The United States Court of Appeals for the Fourth Circuit reviewed the SEC's decision. The court concluded that the SEC's decision was not a final order because it remanded part of the case to FINRA for further proceedings. As a result, the court determined that it lacked jurisdiction to review the petition and dismissed it. The court emphasized that a final order must mark the consummation of the agency's decision-making process and result in legal consequences, which was not the case here. View "Black v. Securities and Exchange Commission" on Justia Law

Ex parte Caribe Resort Condominium Association Board of Directors

2024-12-13T08:30:07-08:00

The Caribe Resort Condominium Association Board of Directors, Larry Wireman, and Judy Wireman, along with Caribe Realty, Inc., Caribe, Inc., and Sentinels, LLC, sought a writ of mandamus to direct the Baldwin Circuit Court to dismiss derivative claims brought by Robert Simmons and other condominium-unit owners on behalf of the Caribe Resort Condominium Association. The claims included allegations of breaching duties, wasting corporate assets, entering into inflated self-dealing contracts, and misappropriating funds. The Baldwin Circuit Court denied the motion to dismiss, leading to the current petition. The petitioners argued that Alabama law does not recognize derivative actions on behalf of nonprofit corporations. They noted that while Alabama law allows derivative actions for for-profit corporations, limited-liability companies, and limited partnerships, it does not provide similar provisions for nonprofit corporations. They also pointed out that the Alabama Nonprofit Corporation Law, which adopted the Model Nonprofit Corporation Act, intentionally omitted the chapter on derivative proceedings. The Supreme Court of Alabama agreed that Alabama law does not generally recognize derivative actions for nonprofit corporations. However, it noted that under § 10A-3-2.44(2), Ala. Code 1975, members of a nonprofit corporation can bring a representative suit against officers or directors for exceeding their authority. The court found that the Caribe members' claims against the board defendants alleged that the board exceeded their authority, thus falling under this provision. However, claims against the Wireman companies did not fall under this provision and were due to be dismissed. The Supreme Court of Alabama granted the petition in part, dismissing the claims against the Wireman companies, and denied it in part, allowing the claims against the board defendants to proceed. View "Ex parte Caribe Resort Condominium Association Board of Directors" on Justia Law

Ravindran v. GLAS Trust Company LLC

2024-09-23T05:33:45-08:00

The case involves a dispute over the control of Byju’s Alpha, Inc., a Delaware subsidiary of Think and Learn Private Ltd. (T&L), an Indian company. Byju’s Alpha entered into a $1.2 billion loan agreement with GLAS Trust Company LLC (GLAS) as the administrative and collateral agent. The agreement required Whitehat, another T&L subsidiary, to become a guarantor, contingent on approval from the Reserve Bank of India (RBI). However, changes in RBI regulations made it impossible for Whitehat to obtain the necessary approval. The Court of Chancery of Delaware held a trial and ruled that Timothy R. Pohl was the sole director and officer of Byju’s Alpha, following actions taken by GLAS to enforce its rights under the loan agreement. The court found that the failure of Whitehat to accede as a guarantor constituted a breach of the loan agreement, allowing GLAS to take control of Byju’s Alpha’s shares and appoint Pohl as the sole director and officer. The Delaware Supreme Court reviewed the case and affirmed the Court of Chancery’s decision. The Supreme Court held that the amendments to the loan agreement explicitly defined Whitehat’s failure to accede as a “Specified Default,” entitling GLAS to enforce its remedies. The court also rejected the impossibility defense, concluding that the changes in RBI regulations were foreseeable and could have been guarded against in the contract. The court found that the sophisticated parties involved should have anticipated the regulatory changes and included provisions to address such risks. In conclusion, the Delaware Supreme Court affirmed the lower court’s ruling that Pohl was the sole director and officer of Byju’s Alpha, and that GLAS was entitled to enforce its remedies under the loan agreement due to the breach caused by Whitehat’s failure to accede as a guarantor. View "Ravindran v. GLAS Trust Company LLC" on Justia Law

Occidental Petroleum v. Wells Fargo

2024-09-18T09:30:49-08:00

Occidental Petroleum Corporation acquired Anadarko Petroleum Corporation in 2019, resulting in a trust holding a significant amount of Occidental stock. Wells Fargo, acting as trustee, agreed via email to sell the stock between January 6 and January 10, 2020. However, Wells Fargo failed to execute the sale until March 2020, by which time the stock's value had significantly decreased, causing a loss of over $30 million. Occidental sued Wells Fargo for breach of contract based on the email chain and the Trust Agreement. The United States District Court for the Southern District of Texas granted summary judgment in favor of Occidental, finding that Wells Fargo breached the Trust Agreement by failing to sell the stock as planned. The court also dismissed Wells Fargo’s counterclaim and affirmative defenses and awarded damages and attorney’s fees to Occidental. The United States Court of Appeals for the Fifth Circuit reviewed the case and held that the 2019 email chain did not constitute a contract due to lack of consideration. However, Wells Fargo was judicially estopped from arguing that the Trust Agreement was not a contract, as it had previously asserted that the relationship was contractual to dismiss Occidental’s fiduciary-duty claim. The court affirmed that Wells Fargo breached the Trust Agreement by failing to prudently manage the Trust’s assets. The Fifth Circuit also upheld the district court’s calculation of damages, rejecting Wells Fargo’s argument that reinvestment should have been considered. The court found that reinvestment was speculative and unsupported by the record. Additionally, the court affirmed the dismissal of Wells Fargo’s counterclaim and affirmative defenses, as Wells Fargo failed to show a genuine dispute of material fact. Finally, the court upheld the award of attorney’s fees, finding no basis for segregating fees based on Wells Fargo’s different capacities. The district court’s judgment was affirmed. View "Occidental Petroleum v. Wells Fargo" on Justia Law

Kim v. Cedar Realty Trust, Inc.

2024-09-04T10:30:30-08:00

Plaintiffs, a group of preferred stockholders in Cedar Realty Trust, sued Cedar and its directors, alleging that a series of transactions culminating in Cedar's acquisition by Wheeler Properties devalued their preferred shares. Cedar delisted its common stock and paid common stockholders, but the preferred stock remained outstanding and its value dropped significantly. Plaintiffs claimed Cedar and its directors breached contractual and fiduciary duties by structuring the transactions to deprive them of their preferential rights. They also alleged Wheeler tortiously interfered with their contractual rights and aided Cedar's breach of fiduciary duties. The United States District Court for the District of Maryland dismissed the complaint. It found that the transactions did not trigger the preferred stockholders' conversion rights under the Articles Supplementary because Wheeler's stock remained publicly traded. The court also ruled that Maryland law does not recognize an independent cause of action for breach of the implied duty of good faith and fair dealing. Additionally, the court held that the fiduciary duty claims were duplicative of the breach of contract claims, as the rights of preferred stockholders are defined by contract. Consequently, the claims against Wheeler failed because they depended on the existence of underlying breaches of contract and fiduciary duty. The United States Court of Appeals for the Fourth Circuit affirmed the district court's decision. It held that the transactions did not constitute a "Change of Control" under the Articles Supplementary, as Wheeler's stock remained publicly traded. The court also agreed that Maryland law does not support an independent claim for breach of the implied duty of good faith and fair dealing. Furthermore, the court found that the fiduciary duty claims were properly dismissed because the directors' duties to preferred stockholders are limited to the contractual terms. Finally, the claims against Wheeler were dismissed due to the absence of underlying breaches by Cedar and its directors. View "Kim v. Cedar Realty Trust, Inc." on Justia Law

New Jersey Staffing Alliance v. Fais

2024-07-24T09:00:09-08:00

The New Jersey Staffing Alliance, the American Staffing Association, and the New Jersey Business and Industry Association sought to enjoin a New Jersey law designed to protect temporary workers. The law, known as the Temporary Workers’ Bill of Rights, mandates recordkeeping, disclosure requirements, and state certification procedures for staffing firms. It also imposes joint and several liability on clients hiring temporary workers and requires staffing firms to pay temporary workers wages equivalent to those of permanent employees performing similar work. The United States District Court for the District of New Jersey denied the preliminary injunction, concluding that the Staffing Associations were unlikely to succeed on the merits of their claims. The court found that the law did not discriminate against out-of-state businesses, as it imposed the same burdens on both in-state and out-of-state firms. The court also rejected the void-for-vagueness claim, reasoning that the law provided sufficient guidance on its requirements. Additionally, the court determined that the law was a reasonable exercise of New Jersey’s police power, as it was rationally related to the legitimate state interest of protecting temporary workers. The United States Court of Appeals for the Third Circuit affirmed the District Court’s decision. The Third Circuit agreed that the Staffing Associations failed to show a likelihood of success on their claims. The court held that the law did not violate the dormant Commerce Clause, as it did not favor in-state businesses over out-of-state competitors. The court also found that the law was not unconstitutionally vague, as it provided adequate notice of its requirements. Finally, the court upheld the law as a permissible exercise of state police power, as it was rationally related to the goal of protecting temporary workers. View "New Jersey Staffing Alliance v. Fais" on Justia Law

Landrum v. Livingston Holdings, LLC

2024-07-19T01:22:11-08:00

In 2006, David and Jill Landrum, along with Michael and Marna Sharpe, purchased land in Madison County to develop a mixed-use project called the Town of Livingston. The project stalled due to the 2008 financial crisis and legal issues. In 2010, Jill and Marna formed Livingston Holdings, LLC, which owned the development properties. Marna contributed more financially than Jill, leading to a disparity in ownership interests. In 2014, Marna sold her interest to B&S Mississippi Holdings, LLC, managed by Michael Bollenbacher. Jill stopped making her required monthly contributions in December 2018. The Madison County Chancery Court disqualified Jill as a derivative plaintiff, realigned Livingston Holdings as a defendant, and dismissed several claims. The court found that Jill did not fairly and adequately represent the interests of the company due to personal interests and economic antagonisms. The court also granted summary judgment in favor of several defendants and denied the Landrums' remaining claims after a bench trial. The Supreme Court of Mississippi reviewed the case and affirmed the lower court's decision to disqualify Jill as a derivative plaintiff and exclude the Landrums' expert witness. The court found that Jill's personal interests and actions, such as failing to make required contributions and attempting to gain control of the company, justified her disqualification. The court also affirmed the dismissal of claims for negligent omission, misstatement of material facts, civil conspiracy, fraud, and fraudulent concealment due to the Landrums' failure to cite legal authority. However, the Supreme Court reversed and remanded the case on the issues of remedies and attorneys' fees under the Second Memorandum of Understanding (MOU) and the alleged breach of fiduciary duty between B&S and Jill. The court found that the chancellor erred in interpreting the Second MOU as providing an exclusive remedy and remanded for further proceedings to determine if Livingston is entitled to additional remedies and attorneys' fees. The court also remanded for factual findings on whether B&S breached its fiduciary duty to Jill regarding property distribution and tax loss allocation. View "Landrum v. Livingston Holdings, LLC" on Justia Law

Kellner v. AIM ImmunoTech Inc.

2024-07-11T12:01:40-08:00

A group of AIM ImmunoTech, Inc. stockholders believed the board was mismanaging the company and initiated a campaign to elect new directors. This effort included two felons convicted of financial crimes. The board rejected two nomination attempts under its bylaws, leading to a lawsuit. The Court of Chancery denied the insurgents' request for a preliminary injunction, citing factual disputes. The insurgents, led by Ted D. Kellner, made a third attempt to nominate directors. The board amended its bylaws to include new advance notice provisions and rejected Kellner's nominations for non-compliance. Kellner filed suit. The Court of Chancery invalidated four of the six main advance notice bylaws and reinstated a 2016 bylaw. The court upheld the board's rejection of Kellner's nominations for failing to comply with the remaining bylaws, including the reinstated 2016 provision. Kellner argued that the court improperly used the 2016 bylaw and that the amended bylaws were preclusive and adopted for an improper purpose. The defendants contended that the court erred in invalidating the bylaws and that they withstood enhanced scrutiny. The Delaware Supreme Court reviewed the case. It found that the AIM board identified a legitimate threat to its information-gathering function but acted inequitably by adopting unreasonable bylaws to thwart Kellner's proxy contest. The court held that the board's primary purpose was to interfere with Kellner's nominations and maintain control. Consequently, the court declared the amended bylaws unenforceable. The judgment of the Court of Chancery was affirmed in part and reversed in part, closing the case. View "Kellner v. AIM ImmunoTech Inc." on Justia Law

Motorola Solutions, Inc. v. Hytera Communications Corporation Ltd.

2024-07-02T11:00:48-08:00

This case involves a dispute between Motorola Solutions, Inc. and Hytera Communications Corporation Ltd., two global competitors in the market for two-way radio systems. After struggling to develop its own competing products, Hytera poached three engineers from Motorola, who, before leaving Motorola, downloaded thousands of documents and files containing Motorola's trade secrets and copyrighted source code. Using this stolen material, Hytera launched a line of radios that were functionally indistinguishable from Motorola's radios. In 2017, Motorola sued Hytera for copyright infringement and trade secret misappropriation. The jury found that Hytera had violated both the Defend Trade Secrets Act of 2016 (DTSA) and the Copyright Act, awarding compensatory and punitive damages totaling $764.6 million. The district court later reduced the award to $543.7 million and denied Motorola’s request for a permanent injunction. Both parties appealed. The United States Court of Appeals for the Seventh Circuit held that the district court must recalculate copyright damages, which will need to be reduced substantially from the original award of $136.3 million. The court affirmed the district court’s award of $135.8 million in compensatory damages and $271.6 million in punitive damages under the DTSA. The court also found that the district court erred in denying Motorola’s motion for reconsideration of the denial of permanent injunctive relief. The case was remanded for the district court to reconsider the issue of permanent injunctive relief. View "Motorola Solutions, Inc. v. Hytera Communications Corporation Ltd." on Justia Law

Doe v. Uber Technologies, Inc.

2024-06-24T16:01:31-08:00

In 2020 and 2021, two plaintiffs, identified as Jane Doe WHBE 3 and Jane Doe LSA 35, filed separate lawsuits against Uber Technologies, Inc. and its subsidiary, Raiser, LLC, alleging they were sexually assaulted by their Uber drivers in Hawaii and Texas, respectively. These cases, along with hundreds of others, were coordinated before a single judge of the San Francisco Superior Court. Uber moved to stay the cases on the ground of forum non conveniens, arguing that the cases should be heard in the jurisdictions where the alleged incidents occurred. The trial court granted Uber's motions, staying the cases and providing for tolling of the statute of limitations. The trial court's decision was based on a comprehensive 21-page order that considered whether the alternate forums (Hawaii and Texas) were suitable for trial, the private interests of the litigants, and the public interest in retaining the action for trial in California. The court concluded that the alternate forums were suitable, and that the public interest factors weighed heavily in favor of transfer. The court also found that the cases should be viewed as individual sexual assault/misconduct cases in which the plaintiffs claimed Uber was vicariously liable due to its deficient safety practices, rather than as corporate misconduct cases. The plaintiffs appealed both the trial court’s forum non conveniens order and the agreed-upon order applying it to the non-California cases. They argued that the trial court erred in failing to ensure that a suitable alternative forum existed for all the affected cases, failing to require Uber to demonstrate that California was a “seriously inconvenient” forum, and failing to “accord the coordination order proper deference.” The Court of Appeal rejected all of these arguments and affirmed the trial court's decision. View "Doe v. Uber Technologies, Inc." on Justia Law

Santa Fe Natural Tobacco Co. v. Dept. of Rev.

2024-06-20T07:27:10-08:00

The case involves Santa Fe Natural Tobacco Company (Santa Fe), a New Mexico corporation that sells branded tobacco products to wholesalers, who then sell to retailers in Oregon. The primary issue is whether a federal statutory limit on a state’s ability to impose income tax on out-of-state corporations, 15 USC section 381, precludes Oregon from taxing Santa Fe because its business in Oregon is limited. The Oregon Department of Revenue concluded that Santa Fe’s various actions in Oregon had taken it outside the safe harbor of Section 381, thus rendering Santa Fe liable to pay Oregon tax. The Tax Court agreed with the department that Santa Fe’s actions had made it subject to taxation in this state. The Tax Court agreed with the Oregon Department of Revenue that Santa Fe Natural Tobacco Company's actions in Oregon had made it subject to taxation in the state. The court found that Santa Fe's representatives had exceeded the scope of "solicitation of orders" when they obtained "prebook orders" from Oregon retailers. These orders, bolstered by incentive agreements with wholesalers, facilitated sales on behalf of wholesalers, who were effectively committed to accept those sales. This activity went beyond the protections of Section 381(a)(2), which limits a state's ability to impose income tax on out-of-state corporations whose in-state activities are limited to the solicitation of orders. The Supreme Court of the State of Oregon affirmed the judgment of the Tax Court. The court concluded that Santa Fe's pursuit of prebook orders in Oregon, invoking incentive agreement contractual provisions used by Santa Fe to ensure that wholesalers treated each one of those orders favorably, exceeded the scope of permitted "solicitation of orders" under Section 381(a)(2). The court further agreed that Santa Fe's activities were not de minimis. Accordingly, Santa Fe was subject to Oregon income tax. View "Santa Fe Natural Tobacco Co. v. Dept. of Rev." on Justia Law

INSULET CORP. v. EOFLOW, CO. LTD.

2024-06-17T06:31:40-08:00

Insulet Corp. and EOFlow are medical device manufacturers that produce insulin pump patches. Insulet began developing its OmniPod product in the early 2000s, and EOFlow started developing its EOPatch product after its founding in 2011. Around the same time, four former Insulet employees joined EOFlow. In 2023, reports surfaced that Medtronic had started a process to acquire EOFlow. Soon after, Insulet sued EOFlow for violations of the Defend Trade Secrets Act (DTSA), seeking a temporary restraining order and a preliminary injunction to enjoin all technical communications between EOFlow and Medtronic in view of its trade secrets claims. The U.S. District Court for the District of Massachusetts temporarily restrained EOFlow from disclosing products or manufacturing technical information related to the EOPatch or OmniPod products. The court then granted Insulet’s request for a preliminary injunction, finding strong evidence that Insulet is likely to succeed on the merits of its trade secrets claim, strong evidence of misappropriation, and that irreparable harm to Insulet crystallized when EOFlow announced an intended acquisition by Medtronic. The injunction enjoined EOFlow from manufacturing, marketing, or selling any product that was designed, developed, or manufactured, in whole or in part, using or relying on alleged trade secrets of Insulet. The United States Court of Appeals for the Federal Circuit reversed the district court’s order. The court found that the district court had failed to address the statute of limitations, lacked a tailored analysis as to what specific information actually constituted a trade secret, and found it hard to tell what subset of that information was likely to have been misappropriated by EOFlow. The court also found that the district court had failed to meaningfully engage with the public interest prong. The court concluded that Insulet had not shown a likelihood of success on the merits and other factors for a preliminary injunction. The case was remanded for further proceedings consistent with the opinion. View "INSULET CORP. v. EOFLOW, CO. LTD. " on Justia Law

United States v. Bolos

2024-06-12T09:01:43-08:00

The case involves Dr. Peter Bolos, who was convicted of mail fraud, conspiracy to commit healthcare fraud, and felony misbranding as part of a complex scheme. Bolos purchased an interest in Florida-based pharmacy Synergy Pharmacy Services in 2013 and became the managing partner. Synergy signed an agreement with HealthRight, a telemarketing firm, to generate business. HealthRight used social media advertisements and large phone banks to generate potential clients for Synergy. The information collected from potential clients was forwarded to a licensed doctor in the patient’s home state for review. Most of these decisions were made without the doctor ever seeing or speaking to the patient. The doctors then sent the prescriptions to Synergy for filling. The District Court for the Eastern District of Tennessee convicted Bolos on all counts after a four-week trial. Bolos appealed, arguing that his actions were not unlawful and that he was being unfairly held criminally culpable for contractual violations and others’ misconduct. The United States Court of Appeals for the Sixth Circuit disagreed with Bolos and affirmed the lower court's decision. The court found that Bolos and Synergy leadership knew of the deficiencies in their business practices and either actively facilitated and furthered them or turned a blind eye, all in an effort to induce Pharmacy Benefit Managers (PBMs) to pay Synergy. The court also held that the federal healthcare-fraud statute requires the government to prove that Bolos knowingly devised a scheme or artifice to defraud a health care benefit program in connection with the delivery of or payment for health care benefits, items, or services. The court found ample evidence in the record to support the jury’s finding that Bolos conspired to create a scheme with the intent to defraud the PBMs of their money. View "United States v. Bolos" on Justia Law

Wagner v. BRP Group, Inc.

2024-05-28T08:32:17-08:00

The case involves a dispute over the validity of certain provisions in a governance agreement between BRP Group, Inc. and its founder. The founder sought to maintain control over the company while selling a significant portion of his equity stake. The agreement stipulated that as long as the founder and his affiliates owned at least 10% of the outstanding shares, the corporation had to obtain the founder's prior written approval before engaging in a list of actions. A stockholder plaintiff challenged three of these pre-approval requirements as invalid. The corporation argued that the plaintiff had waited too long to sue and had implicitly accepted the terms of the agreement by purchasing shares. However, the court rejected these arguments, stating that equitable defenses could not validate void acts. The corporation also claimed that a subsequent agreement, in which the founder agreed to consent to any action approved by an independent committee of directors, rendered the plaintiff's claims moot. The court disagreed, finding that the plaintiff's claims were not moot because the corporation had modified but not eliminated the challenged provisions. On the merits, the court found that the challenged provisions were invalid because they contravened sections of the Delaware General Corporation Law. The court granted the plaintiff's motion for judgment on the pleadings as to those provisions and denied the company's cross motion for judgment on the pleadings to a reciprocal degree. View "Wagner v. BRP Group, Inc." on Justia Law

CAPITAL ADVISORS, LLC VS. CAI

2024-05-23T08:07:21-08:00

The case involves Capital Advisors, LLC, and Danzig, Ltd., minority shareholders of Cam Group, Inc. (CAMG), who filed a shareholder derivative action against nine CAMG officers and directors. The defendants included Wei Heng Cai (Ricky) and Wei Xuan Luo (Tracy), who were the only ones to proceed to trial. The plaintiffs alleged that Ricky arranged for a $1.85 million unsecured loan at zero-percent interest to a company called Parko Ltd., and Tracy, as CFO, failed to stop the loan. The loan allegedly drained approximately 80% of the cash reserves for the consolidated CAM companies. Ricky later resigned from CAMG to focus on developing business opportunities for another company, National Agricultural Holdings Limited (NAHL), and his own company, Precursor Management Inc. (PMI). The district court granted a motion for judgment as a matter of law in favor of Ricky and Tracy, dismissing all causes of action. The court found that officers and directors of a parent company cannot be held liable for actions taken by a wholly owned subsidiary without piercing the corporate veil. The court also awarded Ricky and Tracy over $2 million in attorney fees and costs. The Supreme Court of Nevada affirmed in part, reversed in part, vacated in part, and remanded the case for further proceedings. The court held that officers and directors of a parent company who allow a wholly owned subsidiary to take action adverse to the parent can be held liable without use of the alter ego doctrine. The court also held that shareholders may file derivative suits against officers and directors of a parent company based on wrongful actions that occurred at a wholly owned subsidiary of a wholly owned subsidiary without asserting alter ego. The court concluded that the district court erred by finding that officers and directors of a parent company cannot be held liable for actions taken by a wholly owned subsidiary without piercing the corporate veil. The court also found that the plaintiffs presented sufficient evidence to defeat a motion for judgment as a matter of law as to some of their causes of action. View "CAPITAL ADVISORS, LLC VS. CAI" on Justia Law

Forsythe v. Teva Pharmaceutical Industries Ltd

2024-05-16T09:30:37-08:00

The case involves Gerald Forsythe, who filed a class action lawsuit against Teva Pharmaceuticals Industries Ltd. and several of its officers. Forsythe claimed that he and others who purchased or acquired Teva securities between October 29, 2015, and August 18, 2020, suffered damages due to misstatements and omissions by Teva and its officers related to Copaxone, a drug used to treat multiple sclerosis. Teva's shares are dual listed on the New York Stock Exchange and the Tel Aviv Stock Exchange. The District Court granted Forsythe's motion for class certification, rejecting Teva's assertion that the class definition should exclude purchasers of ordinary shares. The Court also rejected Teva's argument that Forsythe could not satisfy Rule 23(b)(3)’s predominance requirement. Teva sought permission to appeal the District Court’s Order granting class certification, arguing that interlocutory review is proper under Federal Rule of Civil Procedure 23(f). Teva contended that the Petition presents a novel legal issue and that the District Court erred in its predominance analysis with respect to Forsythe’s proposed class-wide damages methodology. The United States Court of Appeals for the Third Circuit denied Teva's petition for permission to appeal. The court found that the securities issue did not directly relate to the requirements for class certification, and agreed with the District Court’s predominance analysis. The court also clarified that permission to appeal should be granted where the certification decision itself under Rule 23(a) and (b) turns on a novel or unsettled question of law, not simply where the merits of a particular case may turn on such a question. View "Forsythe v. Teva Pharmaceutical Industries Ltd" on Justia Law

In re: COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION DERIVATIVE LITIGATION

2024-05-03T09:00:10-08:00

The case involves a shareholder derivative action against Cognizant Technology Solutions Corporation and its board of directors. The plaintiffs, shareholders of Cognizant, alleged that the directors breached their fiduciary duties, engaged in corporate waste, and unjust enrichment. The allegations stemmed from a bribery scheme in India, where Cognizant employees allegedly paid bribes to secure construction-related permits and licenses. The plaintiffs claimed that the directors ignored red flags about the company's anti-corruption controls and concealed their concerns from shareholders. The case was initially dismissed by the United States District Court for the District of New Jersey, which held that the plaintiffs failed to state with particularity the reasons why making a demand on the board of directors would have been futile. The plaintiffs appealed this decision to the United States Court of Appeals for the Third Circuit. The Third Circuit, sitting en banc, reconsidered the standard of review for dismissals of shareholder derivative actions for failure to plead demand futility. The court decided to abandon its previous standard of review, which was for an abuse of discretion, and adopted a de novo standard of review. Applying this new standard, the court affirmed the District Court's dismissal of the case. The court found that the plaintiffs failed to show that a majority of the directors faced a substantial likelihood of liability or lacked independence, which would have excused the requirement to make a demand on the board. View "In re: COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION DERIVATIVE LITIGATION" on Justia Law

City of Sarasota Firefighters' Pension Fund v. Inovalon Holdings, Inc.

2024-05-01T05:32:03-08:00

The case involves a group of pension funds (plaintiffs) who filed a lawsuit against Inovalon Holdings, Inc., and its board of directors (defendants), challenging an acquisition of Inovalon by a private equity consortium led by Nordic Capital. The plaintiffs claimed that the defendants breached their fiduciary duties and unjustly enriched themselves through the transaction. They also alleged that the company's charter was violated because the transaction treated Class A and Class B stockholders unequally. In the lower court, the Court of Chancery of the State of Delaware, the defendants moved to dismiss the case. They argued that the transaction satisfied the elements of a legal framework known as MFW, which would subject the board's actions to business judgment review. The Court of Chancery granted the defendants' motions to dismiss in full. On appeal, the Supreme Court of the State of Delaware reversed the decision of the Court of Chancery. The Supreme Court found that the lower court erred in holding that the vote of the minority stockholders was adequately informed. The Supreme Court determined that the proxy statement issued to stockholders failed to adequately disclose certain conflicts of interest of the Special Committee’s advisors. Therefore, the Supreme Court concluded that the transaction did not comply with the MFW framework, and the case was remanded for further proceedings. View "City of Sarasota Firefighters' Pension Fund v. Inovalon Holdings, Inc." on Justia Law

McRitchie v. Zuckerberg

2024-04-30T08:31:46-08:00

The plaintiff, a shareholder of Meta Platforms, Inc., sued the company's directors, officers, and controller, alleging that they breached their fiduciary duties by managing the company to generate firm-specific value at the expense of the economy as a whole. The plaintiff argued that under Delaware law, directors owe fiduciary duties to the corporation and its stockholders as diversified equity investors, not just as investors in the specific corporation. The plaintiff proposed that Delaware law should change to adopt a diversified-investor model, particularly for systemically significant corporations. The defendants moved to dismiss the complaint, arguing that they manage Meta under a firm-specific model, as required by Delaware law. The Court of Chancery of the State of Delaware granted the defendants' motion, holding that directors owe firm-specific fiduciary duties. The court found that the plaintiff's argument was not supported by Delaware law, which contemplates a single-firm model where directors owe duties to the stockholders as investors in that specific corporation. The court also rejected the plaintiff's proposal to change Delaware law to adopt a diversified-investor model. The court concluded that the plaintiff had not made a persuasive case for such a change and dismissed the complaint. View "McRitchie v. Zuckerberg" on Justia Law

SIKOUSIS LEGACY, INC. V. B-GAS LIMITED

2024-03-25T08:30:41-08:00

In this case, the United States Court of Appeals for the Ninth Circuit affirmed the district court's decision to vacate the plaintiffs' quasi in rem attachment of a vessel owned by Bergshav Aframax Ltd., a defendant in an admiralty action seeking fulfillment of arbitration awards. The arbitration awards were owed to the plaintiffs by B-Gas Ltd., renamed Bepalo, a different corporate entity. The plaintiffs tried to hold Aframax liable for the arbitration awards by arguing that Aframax and Bepalo were alter egos, essentially the same entity. However, the court found that the plaintiffs failed to show a reasonable probability of success on their veil piercing theory, which would be required to establish that Aframax and Bepalo were alter egos. The court found that the plaintiffs did not demonstrate that Bepalo was dominated and controlled by the Bergshav Group, the parent corporate group of Aframax. The court noted that the minority shareholders of Bepalo exercised independent judgment in approving the relevant transactions, countering the claim that the Bergshav Group had total domination of Bepalo. Therefore, the court concluded that the plaintiffs had not met their burden of demonstrating a reasonable probability of success on their veil-piercing claim, leading to the affirmation of the district court's decision to vacate the attachment of the vessel. View "SIKOUSIS LEGACY, INC. V. B-GAS LIMITED" on Justia Law

LKQ Corporation v. Rutledge

2024-03-15T11:31:11-08:00

The case concerns a dispute between LKQ Corporation and its former Plant Manager, Robert Rutledge, who resigned from the company and joined a competing firm. LKQ sought to recover proceeds Rutledge realized from multiple stock sales over many years, based on a forfeiture-for-competition provision in their Restricted Stock Unit Agreements. The key legal issue revolves around the applicability of Delaware law on forfeiture-for-competition provisions. These provisions require former employees to forfeit a monetary benefit upon joining a competitor. The Delaware Supreme Court held in a recent case that such provisions are not subject to a reasonableness review. However, the United States Court of Appeals for the Seventh Circuit found it unclear whether this ruling applies outside the context of highly sophisticated parties. The Court of Appeals affirmed the lower court's judgment in favor of Rutledge on the breach of the Restrictive Covenant Agreements and unjust enrichment claims. However, due to the complexity of the Delaware law issue, the Court decided to certify questions to the Delaware Supreme Court for clarification. Specifically, the certified questions ask whether the Delaware Supreme Court's ruling on forfeiture-for-competition provisions applies outside the limited partnership context and, if not, what factors inform its application. View "LKQ Corporation v. Rutledge" on Justia Law

Applied Medical Distribution Corp. v. Jarrells

2024-03-08T12:02:06-08:00

The case involves Applied Medical Distribution Corporation (Applied) suing its former employee, Stephen Jarrells, for misappropriation of trade secrets, breach of a contract governing Applied’s proprietary information, and breach of fiduciary duty. The trial court granted Applied’s posttrial motion for a permanent injunction and awarded Applied partial attorney fees, costs, and expenses. On appeal, the Court of Appeal of the State of California affirmed in part, reversed in part, and remanded for further proceedings. The court concluded that Applied was the prevailing party on the misappropriation cause of action and was entitled to a permanent injunction to recover its trade secrets and prevent further misappropriation. The court also found that Applied was entitled to an award of the reasonable attorney fees, costs, and expenses it incurred to obtain injunctive relief. However, the court disagreed with the trial court's decision to mechanically award only 25 percent of the incurred attorney fees and costs because Applied prevailed on only one of four claims it asserted. The court found that the trial court erred in how it determined the amount awarded by failing to address the extent to which the facts underlying the other claims were inextricably intertwined with or dependent upon the allegations that formed the basis of the one claim on which Applied prevailed. The court also found that the trial court erred in excluding certain expert witness fees from the damages calculation presented to the jury. Finally, the court concluded that the trial court erred by granting a nonsuit on whether Jarrells’s misappropriation was willful and malicious, and remanded for a jury trial on this issue. If the jury finds the misappropriation was willful and malicious, the court shall decide whether attorney fees and costs should be awarded to Applied and, if so, in what amount. View "Applied Medical Distribution Corp. v. Jarrells" on Justia Law

West Palm Beach Firefighters' Pension Fund v. Moelis & Company

2024-02-23T12:32:01-08:00

In the case of West Palm Beach Firefighters' Pension Fund v. Moelis & Company, the plaintiff, a stockholder of Moelis & Company (the "Company"), challenged the validity of certain provisions in a Stockholder Agreement between the Company and its CEO, Ken Moelis. The agreement gave Moelis extensive pre-approval rights over the Company's board of directors' decisions, the ability to select a majority of board members, and the power to determine the composition of any board committee. The plaintiff argued that these provisions violated Section 141(a) of the Delaware General Corporation Law (DGCL), which mandates that the business and affairs of a corporation be managed by or under the direction of a board of directors, except as otherwise provided in the DGCL or in the corporation's certificate of incorporation. The Court of Chancery of the State of Delaware agreed with the plaintiff, holding that the Pre-Approval Requirements, three of the Board Composition Provisions, and the Committee Composition Provision in the Stockholder Agreement were facially invalid under Section 141(a) of the DGCL. The court found that these provisions effectively transferred the management of the corporation to Moelis, contrary to Section 141(a). The court reasoned that while Delaware law generally favors private ordering, the ability to engage in private ordering is subject to the limitations of the DGCL, including Section 141(a). However, the court found that certain provisions were not facially invalid, including Moelis’ right to designate a number of directors, the requirement for the Company to nominate Moelis’ designees, and the requirement for the Company to make reasonable efforts to enable Moelis’ designees to be elected and continue to serve. View "West Palm Beach Firefighters' Pension Fund v. Moelis & Company" on Justia Law

In re Fox Corporation/Snap Inc. Section 242 Litigation

2024-01-26T13:01:14-08:00

In 2022, Fox Corporation and Snap Inc. amended their corporate charters to exculpate their officers from damages liability for breaches of the duty of care. The amendments were authorized by recent Delaware legislation. The companies' Class A non-voting common stockholders claimed that these amendments deprived them of their power to sue officers for damages for duty of care violations and, thus, a separate class vote was required to approve the amendments. However, the Supreme Court of the State of Delaware affirmed the Court of Chancery's decision that a separate class vote was not required. The court held that the ability to sue directors or officers for duty of care violations was a general right of the stockholders, not a class-based power stated in the corporate charter. Therefore, it was not a "power, preference, or special right" of the Class A common stock under Section 242(b)(2) of the Delaware General Corporation Law, which requires a separate class stockholder vote to amend a corporate charter if the amendment would adversely affect the powers, preferences, or special rights of the shares of such class. The holding was based on long-standing precedent and the court's interpretation of related sections of the Delaware General Corporation Law. View "In re Fox Corporation/Snap Inc. Section 242 Litigation" on Justia Law

Hardaway v. Howard Industries, Inc.

2024-01-26T02:14:43-08:00

In the case before the Supreme Court of Mississippi, Vince Hardaway brought an action against his employer, Howard Industries, Inc., claiming bad faith denial of his workers’ compensation benefits for temporary partial disability due to carpal tunnel syndrome. Howard Industries had contracted CorVel Enterprise, a third-party claims administrator, to manage workers’ compensation claims. The trial court granted summary judgment in favor of Howard Industries, finding that the company's conduct did not constitute gross negligence or an independent tort. On appeal, the Supreme Court of Mississippi affirmed the trial court's decision. The court found that under Mississippi Code Section 71-3-125(1), Howard Industries was permitted to delegate its duty to administer employee workers’ compensation claims to CorVel. The Court also determined that Hardaway failed to provide sufficient evidence that Howard Industries acted with actual malice or gross negligence in denying his benefits. Therefore, his claims did not survive summary judgment. The court held that any failure to pay benefits by Howard Industries under these circumstances did not amount to gross negligence. View "Hardaway v. Howard Industries, Inc." on Justia Law

Gammons v. Adroit Medical Systems, Inc.

2024-01-22T13:01:07-08:00

The United States Court of Appeals affirmed a district court's grant of summary judgment in favor of Adroit Medical Systems, Inc., Grazyna Gammons, Kelley Patten, and Gene Gammons. The plaintiff, Scott Gammons, alleged that his father and stepfamily, who controlled the family business, Adroit, were diverting company funds for personal use without accounting for tax consequences. He claimed that after he reported their financial misdeeds to the IRS, they fired him. Scott brought an action under federal and state whistleblower statutes and state common law. The court found that while Scott’s reporting of alleged financial malfeasance to the IRS was protected conduct and may have contributed to his termination, the defendants had clear and convincing evidence that they would have fired Scott due to his attempted hostile takeover of the company, irrespective of his whistleblowing. Scott had obtained an emergency conservatorship over his father, Gene, which he used to control the family business. When the conservatorship was dissolved, the defendants regained control and promptly fired Scott. Scott also brought claims under the Tennessee Public Protection Act (TPPA) and state common law. The court found that Scott failed to show that the defendants’ legitimate reason for terminating him was pretextual. The court also rejected Scott’s state common law claims, holding that the individual defendants were immune from tortious interference claims as they were acting within their corporate capacities and did not personally benefit from Scott’s termination. View "Gammons v. Adroit Medical Systems, Inc." on Justia Law

Kellner v. AIM Immunotech Inc., et al.

2023-12-28T14:07:39-08:00

In this case before the Court of Chancery of the State of Delaware, plaintiff and counterclaim-defendant Ted D. Kellner sought to challenge certain bylaws adopted by AIM ImmunoTech Inc., defendant and counterclaim-plaintiff, and its board of directors. Kellner had sought to nominate himself and two others as director candidates for election at AIM's 2023 annual meeting. The AIM Board rejected the nomination notice for violating the amended bylaws. Kellner challenged six provisions in the amended bylaws. He also asserted that the Board's rejection of his nomination notice was improper. The court found that the Board proved that two of the challenged provisions were non-preclusive and reasonable means to obtaining enhanced disclosure. It struck down the other four provisions because they inequitably infringed on the stockholder franchise without a legitimate reason. However, the court found that the Board acted reasonably and equitably in rejecting the Kellner Notice. The court thus entered judgment for Kellner in part and for AIM in part on the claim concerning the validity of the amended bylaws. It entered judgment for AIM on the claim concerning Kellner's compliance with the amended bylaws and the Board's rejection of his notice. View "Kellner v. AIM Immunotech Inc., et al." on Justia Law

A.C. & C.E. Investments, Inc. v. Eagle Creek Irrigation Company

2023-12-19T09:33:04-08:00

The Supreme Court of Idaho affirmed the lower court's decision that A.C. & C.E. Investments, Inc. (AC&CE) did not properly plead a derivative action and lacked standing to bring a direct claim in a lawsuit against Eagle Creek Irrigation Company (Eagle Creek). AC&CE, a shareholder of Eagle Creek, a nonprofit mutual irrigation corporation, challenged amendments made to Eagle Creek's bylaws and articles of incorporation that increased the number of capital shares the corporation was authorized to issue and removed a provision that Eagle Creek would hold all the water rights it acquired “in trust” for the benefit of its shareholders. AC&CE claimed Eagle Creek breached its fiduciary duty and requested that the district court declare the proposed amendments void. However, the district court concluded that AC&CE's complaint did not properly plead a derivative action, that AC&CE lacked standing to bring a direct claim, and that the amendments were validly adopted by a majority shareholder vote. The Supreme Court of Idaho affirmed these conclusions. The court also found that AC&CE's claim regarding the increase in the number of authorized capital shares was not ripe for adjudication because no additional shares had been issued. Finally, the court affirmed the lower court's denial of Eagle Creek's request for attorney fees. View "A.C. & C.E. Investments, Inc. v. Eagle Creek Irrigation Company" on Justia Law

Lebanon County Employees' Retirement Fund v. Collis

2023-12-18T12:02:36-08:00

A case involving Lebanon County Employees' Retirement Fund and Teamsters Local 443 Health Services & Insurance Plan, as plaintiffs-appellants, and Steven H. Collis, Richard W. Gochnauer, Lon R. Greenberg, Jane E. Henney, M.D., Kathleen W. Hyle, Michael J. Long, Henry W. McGee, Ornella Barra, D. Mark Durcan, and Chris Zimmerman, as defendants-appellees, was heard by the Supreme Court of the State of Delaware. The plaintiffs, shareholders in AmerisourceBergen Corporation, brought a derivative complaint against the directors and officers of the Corporation alleging that they failed to adopt, implement, or oversee reasonable policies and practices to prevent the unlawful distribution of opioids. The plaintiffs claimed that this led to AmerisourceBergen incurring liability exceeding $6 billion in a 2021 global settlement related to the Company's role in the opioid epidemic. The Court of Chancery of the State of Delaware initially dismissed the complaint, basing its decision on a separate federal court finding that AmerisourceBergen had complied with its anti-diversion obligations under the Controlled Substances Act. However, the Supreme Court of the State of Delaware reversed the Court of Chancery's dismissal of the complaint, ruling that the lower court had erred in considering the federal court's findings as it changed the date at which demand futility should be considered and violated the principles of judicial notice. The case was remanded for further proceedings. View "Lebanon County Employees' Retirement Fund v. Collis" on Justia Law

Illumina v. FTC

2023-12-15T16:30:27-08:00

In 2020, Illumina, a for-profit corporation that manufactures and sells next-generation sequencing (NGS) platforms, which are crucial tools for DNA sequencing, entered into an agreement to acquire Grail, a company it had initially founded and then spun off as a separate entity in 2016. Grail specializes in developing multi-cancer early detection (MCED) tests, which are designed to identify various types of cancer from a single blood sample. Illumina's acquisition of Grail was seen as a significant step toward bringing Grail’s developed MCED test, Galleri, to market. However, the Federal Trade Commission (FTC) objected to the acquisition, arguing that it violated Section 7 of the Clayton Act, which prohibits mergers and acquisitions that may substantially lessen competition. The FTC contended that because all MCED tests, including those still in development, relied on Illumina’s NGS platforms, the merger would potentially give Illumina the ability and incentive to foreclose Grail’s rivals from the MCED test market. Illumina responded by creating a standardized supply contract, known as the "Open Offer," which guaranteed that it would provide its NGS platforms to all for-profit U.S. oncology customers at the same price and with the same access to services and products as Grail. Despite this, the FTC ordered the merger to be unwound. On appeal, the United States Court of Appeals for the Fifth Circuit found that the FTC had applied an erroneous legal standard in evaluating the impact of the Open Offer. The court ruled that the FTC should have considered the Open Offer at the liability stage of its analysis, rather than as a remedy following a finding of liability. Furthermore, the court determined that to rebut the FTC's prima facie case, Illumina was not required to show that the Open Offer would completely negate the anticompetitive effects of the merger, but rather that it would mitigate these effects to a degree that the merger was no longer likely to substantially lessen competition. The court concluded that substantial evidence supported the FTC’s conclusions regarding the likely substantial lessening of competition and the lack of cognizable efficiencies to rebut the anticompetitive effects of the merger. However, given its finding that the FTC had applied an incorrect standard in evaluating the Open Offer, the court vacated the FTC’s order and remanded the case for further consideration of the Open Offer's impact under the proper standard. View "Illumina v. FTC" on Justia Law

Saba Cap. CEF Opportunities 1, Ltd., Saba Cap. Mgmt., L.P. v. Nuveen

2023-11-30T07:30:07-08:00

Defendants-Appellants Nuveen Floating Rate Income Fund, Nuveen Floating Rate Income Opportunity Fund, Nuveen Short Duration Credit Opportunities Fund, Nuveen Global High Income Fund, Nuveen Senior Income Fund, and their trustees (collectively, “Nuveen”) appealed from a final judgment entered in favor of Plaintiffs-Appellees Saba Capital CEF Opportunities, Ltd. and Saba Capital Management, L.P. (collectively, “Saba”). The district court granted summary judgment for Saba, declaring it unlawful and rescinding an amendment to Nuveen’s investment company bylaws that restricts shareholders from voting shares acquired above specified levels of ownership. On appeal, Nuveen challenged Saba’s Article III standing and the district court’s judgment with respect to the legality of Nuveen’s amendment. Nuveen argues that Saba lacks standing because Saba has not alleged, or supported with evidence, an actual or imminent injury that is concrete. The Second Circuit affirmed. The court explained that Section 12(d)(1) says nothing about the proper interpretation of the ICA’s meaning of “voting stock” and “voting security.” That Congress has imposed, in another section of the ICA, voting conditions and exceptions on presumptively unlawful acquisitions does not permit Nuveen to impose its own more extreme vote-stripping measures directly at odds with Section 18(i)’s language. Further, the court explained that Nuveen points to Section 1(b)(4), which reflects Congress’s concern over investment companies that are “inequitably distributed” and “unduly concentrated through pyramiding or inequitable methods of control.” But Congress directly addressed those concerns in other provisions of the ICA, which restricts investment company acquisitions. View "Saba Cap. CEF Opportunities 1, Ltd., Saba Cap. Mgmt., L.P. v. Nuveen" on Justia Law

Engel v. Pech

2023-09-28T13:01:18-08:00

A limited liability partnership and one of its partners retained a lawyer but limited the scope of representation to having the lawyer represent the partnership in a specific, ongoing case. After the partnership lost the case, the partner sued the lawyer for malpractice. In an amended complaint, the partnership was added as a plaintiff. The partner’s complaint was filed before the statute of limitations ran; the amendment was filed after. The trial court issued its judgment of dismissal, the partner filed a motion for reconsideration along with a proposed second amended complaint. The trial court denied the motion as untimely and without merit because the proffered second amended complaint did not “present any new allegations which could support the claim. The Second Appellate District affirmed. The court concluded as a matter of law that the partner has suffered no damage as a result of the attorney’s alleged malpractice to the LLP during the Wells Fargo litigation and that the partner’s malpractice claims were properly dismissed. Further, the court held that given that all damages for any malpractice claims were suffered by and belong to the LLP, there is no “reasonable possibility” that the partner can amend the complaint to state a viable malpractice claim. View "Engel v. Pech" on Justia Law

Chris Ronnie v. U.S. Department of Labor

2023-09-25T12:02:55-08:00

Petitioner was employed at Office Depot as a senior financial analyst. He was responsible for, among other things, ensuring data integrity. One of Ronnie’s principal duties was to calculate and report a metric called “Sales Lift.” Sales Lift is a metric designed to quantify the cost-reduction benefit of closing redundant retail stores. Petitioner identified two potential accounting errors that he believed signaled securities fraud related to the Sales Lift. Petitioner alleged that after he reported the issue, his relationship with his boss became strained. Eventually, Petitioner was terminated at that meeting for failing to perform the task of identifying the cause of the data discrepancy. Petitioner filed complaint with the Department of Labor’s Occupational Safety and Health Administration (OSHA), and OSHA dismissed his complaint. Petitioner petitioned for review of the ARB’s decision.  The Eleventh Circuit denied the petition. The court explained that Petitioner failed to allege sufficient facts to establish that a reasonable person with his training and experience would believe this conduct constituted a SOX violation, the ARB’s decision was not arbitrary or capricious, an abuse of discretion, or otherwise not in accordance with the law. The court wrote that Petitioner’s assertions that Office Depot intentionally manipulated sales data and that his assigned task of investigating the discrepancy was a stalling tactic are mere speculation, which alone is not enough to create a genuine issue of fact as to the objective reasonableness of Petitioner’s belief. View "Chris Ronnie v. U.S. Department of Labor" on Justia Law

EpicentRx, Inc. v. Super. Ct.

2023-09-21T13:01:22-08:00

EpicentRx, Inc. and several of its officers, employees, and affiliates (collectively, the defendants) challenged a trial court order denying their motion to dismiss plaintiff-shareholder EpiRx, L.P.’s (EpiRx) lawsuit on forum non conveniens grounds. The defendants sought dismissal of the case based on mandatory forum selection clauses in EpicentRx’s certificate of incorporation and bylaws, which designated the Delaware Court of Chancery as the exclusive forum to resolve shareholder disputes like the present case. The trial court declined to enforce the forum selection clauses after finding that litigants did not have a right to a civil jury trial in the Delaware Court of Chancery and, therefore, enforcement of the clauses would deprive EpiRx of its inviolate right to a jury trial in violation of California public policy. The California Court of Appeal agreed with the trial court that enforcement of the forum selection clauses in EpicentRx’s corporate documents would operate as an implied waiver of EpiRx’s right to a jury trial, thus the Court concluded the trial court properly declined to enforce the forum selection clauses at issue, and denied the defendants’ request for writ relief. View "EpicentRx, Inc. v. Super. Ct." on Justia Law

Holifield v. XRI Investment Holdings LLC

2023-09-07T06:01:28-08:00

Defendants-appellants and cross-appellees, Gregory Holifield (“Holifield”) and GH Blue Holdings, LLC (“Blue”), appealed a Court of Chancery memorandum opinion in favor of plaintiff- appellee and cross-appellant, XRI Investment Holdings LLC (“XRI”). The issue this case presented was whether Holifield validly transferred his limited liability membership units in XRI to Blue on June 6, 2018. The resolution of that issue bore on the ultimate dispute between the parties (not at issue here) on whether XRI validly delivered to Holifield a strict foreclosure notice purporting to foreclose on the XRI membership units, or whether such notice was incorrectly delivered to him because Blue was, in fact, the owner of the units following the transfer. Following a one-day trial, the Court of Chancery determined that the transfer of the units from Holifield to Blue was invalid because it was not a permitted transfer under XRI’s limited liability company agreement, which provided that noncompliant transfers of XRI interests were “void.” The trial court, in interpreting the Delaware Supreme Court's holding in CompoSecure, L.L.C. v. CardUX, LLC, 206 A.3d 807 (Del. 2018), held that the use of the word “void” in XRI’s LLC agreement rendered the transfer incurably void, such that affirmative defenses did not apply. Despite this holding, the trial court, in dicta, further found that XRI had acquiesced in the transfer. The Delaware Supreme Court affirmed Court of Chancery’s judgment with respect to the Blue Transfer, but reversed the judgment insofar as it precluded XRI’s recovery for breach of contract damages and recoupment of legal expenses advanced to Holifield. The Court held that the trial court’s finding of acquiescence as to only one of the alleged breaches did not bar either remedy, and the Court remanded the case for the trial court to make further determinations. View "Holifield v. XRI Investment Holdings LLC" on Justia Law

SEC v. Barton

2023-08-31T09:30:16-08:00

The Securities and Exchange Commission (“SEC”) sued Defendant as well as other individual Defendants and corporate entities for securities violations. Defendant appealed the district court’s order appointing a receiver over all corporations and entities controlled by him. A central dispute between the parties is what test the district court should have applied before imposing a receivership. Defendant argued the district court abused its discretion because it did not apply the standard or make the proper findings under the factors set forth in Netsphere (“Netsphere factors”). The SEC responded that Netsphere is inapplicable and the district court’s findings were sufficient under First Financial. The Fifth Circuit vacated the district court’s order appointing a receiver. The court granted in part Defendant’s motion for a partial stay pending appeal. The court explained that, as Defendant points out, the district court’s order denying the stay discussed events and actions that took place after the receivership was already in place. Accordingly, the court vacated the appointment of the receiver and remanded so that the district court may consider whether to appoint a new receivership under the Netsphere factors. The court immediately suspended the receiver’s power to sell or dispose of property belonging to receivership entities, including the power to complete sales or disposals of property already approved by the district court. The court explained that the suspension does not apply to activities in furtherance of sales or dispositions of property that have already occurred or been approved by the district court. The court clarified that “activities in furtherance” do not include the completion of the sale of any property. View "SEC v. Barton" on Justia Law

Dorsey v. Dorsey

2023-08-30T07:19:45-08:00

In 2019, Matt Dorsey brought an action against his father, Tom Dorsey, seeking formal accounting, dissolution, and winding up of their joint dairy operation, Dorsey Organics, LLC. The district court appointed a Special Master; the Special Master subsequently recommended to the district court that it grant partial summary judgment to Tom on Counts Four (breach of contract) and Five (constructive fraud). Without receiving a definitive ruling from the district court on the recommendations regarding the motions for summary judgment, the case then proceeded to a four-day hearing presided over by the Special Master, which resulted in the Special Master making Proposed Findings of Fact and Conclusions of Law. The district court adopted, with almost no changes, the Special Master’s Proposed Findings of Fact and Conclusions of Law, which relied upon the accounting of Tom's expert and rejected the opinions of Matt's expert. The district court then entered a judgment incorporating, with few changes, the Special Master’s Proposed Findings of Fact and Conclusions of Law. The district court also denied Tom's request for attorney fees. Matt appealed, arguing: (1) the district court failed to properly review the evidence before accepting the findings of the Special Master; (2) questioned whether a court could override the terms of a contract even though the contract’s terms arguably produced an inequitable result; (3) Tom wrongfully dissociated from Dorsey Organics prior to its dissolution and the winding up of its affairs; and (4) challenged whether summary judgment was properly granted on Counts Four and Five of the Third Amended Complaint. The Idaho Supreme Court concluded the district court erred in failing to independently review the record before adopting the Special Master's Proposed Findings of Fact and Conclusions of Law. Accordingly, the Court vacated the district court's conclusions that relied on the Special Master's findings. The case was thus remanded for further proceedings. View "Dorsey v. Dorsey" on Justia Law

CCSB Financial Corp. v. Totta

2023-07-20T04:01:20-08:00

The corporate charter of a bank holding company capped at 10% the stock that could be voted by a “person” in any stockholder vote. During a proxy contest for three seats of a staggered board, the CCSB board of directors instructed the inspector of elections not to count 37,175 shares voted in favor of a dissident slate of directors. According to the board, the 37,175 shares exceeded the 10% voting limitation because certain stockholders were acting in concert with each other. If the votes had been counted, the dissident slate of directors would have been elected. The CCSB corporate charter also provided that the board’s “acting in concert” determination, if made in good faith and on information reasonably available, “shall be conclusive and binding on the Corporation and its stockholders.” In a summary proceeding brought by the plaintiffs, the Court of Chancery found: (1) the “conclusive and binding” charter provision invalid under Delaware corporate law; (2) the board’s instruction to the inspector of elections invalid because the individuals identified by the board were not acting in concert; and (3) the board’s election interference did not withstand enhanced scrutiny review. The court also awarded the plaintiffs attorneys’ fees for having conferred a benefit on CCSB. CCSB argued the Court of Chancery erred when it invalidated the charter provision and reinstated the excluded votes. The Delaware Supreme Court affirmed the Court of Chancery: plaintiffs proved that the board breached its duty of loyalty by instructing the inspector of elections to disregard the 37,175 votes. "The charter provision cannot be used to exculpate the CCSB directors from a breach of the duty of loyalty. Further, the court’s legal conclusion and factual findings that the stockholders did not act in concert withstand appellate review." View "CCSB Financial Corp. v. Totta" on Justia Law

Bullinger v. Sundog Interactive, et al.

2023-07-19T05:36:38-08:00

Michael Bullinger appealed a district court judgment dismissing his declaratory judgment action seeking a determination of whether Sundog Interactive, Inc. (“Sundog”) violated N.D.C.C. § 10-19.1-88 and whether the individual defendants, Brent Teiken, Eric Dukart, Jonathan Rademacher, and Matthew Gustafson breached their fiduciary duties. Bullinger argued the court erred in failing to make adequate findings, erred in its application of N.D.C.C. § 10-19.1-88(10), erred in finding Bullinger has been paid the fair value of his ownership in Sundog, erred in finding Bullinger was not entitled to damages as a result of the individual defendants’ breach of their fiduciary duties, and erred in denying Bullinger costs and attorney’s fees. After review, the North Dakota Supreme Court concluded the trial court’s findings were inadequate to permit appellate review, therefore judgment was reversed and the case remanded for further proceedings. View "Bullinger v. Sundog Interactive, et al." on Justia Law

Benjamin Reetz v. Aon Hewitt Investment Consulting, Inc.

2023-07-17T11:30:54-08:00

On behalf of a class, Plaintiff sued Aon Hewitt Investment Consulting for investment advice given to Lowe’s Home Improvement to help manage its employees’ retirement plans. Aon, first as an investment consultant and later as a delegated fiduciary, owed the plan fiduciary duties under the Employee Retirement Income Security Act. Plaintiff claimed that Aon’s conduct violated the core duties of loyalty and prudence. After a five-day bench trial, the district court held that Aon, in fact, did not breach its fiduciary duties. Plaintiff appealed. The Fourth Circuit affirmed. The court explained that the district court that Aon’s recommendation was not motivated by self-interest. And Plaintiff’s contention that Aon’s research conducted before it was Lowe’s delegated fiduciary could not discharge its duty of prudence also falls short. Aon engaged in a reasoned decision-making process by reviewing comparable funds. It makes no difference here that the review occurred when it established the fund (which was before Aon became Lowe’s delegated fiduciary). Plus, it continued to monitor the fund. So Aon did not violate the duty of prudence. View "Benjamin Reetz v. Aon Hewitt Investment Consulting, Inc." on Justia Law

Discover Property Cslty v. Blue Bell

2023-07-11T09:31:04-08:00

A Listeria outbreak led to a shutdown of Blue Bell factories and a nationwide recall of its products. Consequently, Blue Bell suffered a substantial financial loss. A shareholder of Blue Bell Creameries brought a derivative action against Blue Bell’s directors and officers, alleging a breach of fiduciary duties. The shareholder, on behalf of Blue Bell, alleged that Blue Bell’s officers and directors breached their fiduciary duties of care and loyalty by failing “to comply with regulations and establish controls.” The Blue Bell Defendants appealed the district court’s grant of summary judgment in favor of Discover Property & Casualty Insurance Company and the Travelers Indemnity Company of Connecticut. The Fifth Circuit affirmed. Here, only the duty to defend is at issue because the parties have stipulated that “If the district court finds there is no duty to defend, it may also find there is no duty to indemnify, but otherwise the duty to indemnify will not be a subject of the Parties’ motions.” Accordingly, the court wrote that it is confined by Texas’s “eight-corners rule,” which directs courts to determine an insurer’s duty to defend based on: (1) the pleading against the insured in the underlying litigation and (2) the terms of the insurance policy. The court explained that while it disagrees with the district court’s determination as to whether the directors and officers are “insureds” in relation to the shareholder lawsuit, it agreed with its determination that the complaint in the shareholder lawsuit does not allege any “occurrence” or seek “damages because of bodily injury.” Each issue is independently sufficient for affirmance. View "Discover Property Cslty v. Blue Bell" on Justia Law

Estate of James P. Keeter, Deceased, et al. v. Commissioner of Internal Revenue

2023-07-05T12:33:32-08:00

This appeal turns on the meaning of the phrase “partner level determinations” in Section 6230(a)(2)(A)(i) of the now-repealed Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”). When the IRS adjusts the tax items of a partnership, these partnership-level changes often require corresponding adjustments to “affected items” on the individual partners’ income tax returns. The IRS makes these resulting partner-level changes using one of two procedures. If adjusting a partner-taxpayer’s affected item “require[s] partner level determinations,” the IRS must send the taxpayer a notice of deficiency describing the adjustment to the taxpayer’s tax liability, and the taxpayer has the right to challenge the adjustments in court before paying. If, on the other hand, adjusting the affected item does not “require partner level determinations,” the IRS generally must make a direct assessment against the taxpayer, and the taxpayer may challenge the adjustment only in a post-payment refund action. The Eleventh Circuit affirmed the Tax Court. The court explained that making the relevant adjustments requires an individualized assessment of each taxpayer’s unique circumstances, we hold that they “require partner level determinations,” mandating deficiency procedures. The court explained that none of the authorities on which taxpayers rely addressed the ultimate question in this case—whether adjusting losses claimed on sales of property from a sham partnership requires partner-level determinations. Instead, all the on-point caselaw bolsters our conclusion. The court explained that because it concluded that the IRS was required to make partner-level determinations to adjust the taxpayers’ reported losses and itemized deductions, the IRS properly employed deficiency procedures to make these adjustments. View "Estate of James P. Keeter, Deceased, et al. v. Commissioner of Internal Revenue" on Justia Law

Coster v. UIP Companies, Inc.

2023-06-28T06:02:22-08:00

Marion Coster and Steven Schwat – the two UIP Companies stockholders who each owned fifty percent of the company – deadlocked after attempting several times to elect directors. In response to the director election deadlock, Coster filed a petition for appointment of a custodian for UIP. The UIP board responded by issuing stock to a long-time employee representing a one-third interest in UIP. The stock issuance diluted Coster’s ownership interest, broke the deadlock, and mooted the custodian action. Coster countered by requesting that the Delaware Court of Chancery cancel the stock issuance. After trial, the Court of Chancery found that the stock sale met the most exacting standard of judicial review under Delaware law – entire fairness. On appeal, the Delaware Supreme Court concluded that the court erred by evaluating the stock sale solely under the entire fairness standard of review, reasoning that even though the stock sale price might have been entirely fair, issuing stock while a contested board election was taking place interfered with Coster’s voting rights as a half owner of UIP. Therefore, the court needed to conduct a further review to assess whether the board approved the stock issuance for inequitable reasons. If not, the court still had to decide whether the board, even if it acted in good faith, approved the stock sale to thwart Coster’s leverage to vote against the board’s director nominees and to moot the custodian action. To uphold the stock issuance under those circumstances, the board had to demonstrate a compelling justification to interfere with Coster’s voting rights. On remand, the Court of Chancery found that the UIP board had not acted for inequitable purposes and had compelling justifications for the dilutive stock issuance. Upon return, the Supreme Court agreed with the court’s assessment and "appreciate[d] its work to address the issues remanded for reconsideration." View "Coster v. UIP Companies, Inc." on Justia Law

In Re Tesla Motors, Inc. Stockholder Litigation

2023-06-06T06:31:57-08:00

At issue before the Delaware Supreme Court in this case was the 2016 all-stock acquisition of SolarCity Corporation (“SolarCity”) by Tesla, Inc. (“Tesla”). Tesla’s stockholders claimed CEO Elon Musk caused Tesla to overpay for SolarCity through his alleged domination and control of the Tesla board of directors. At trial, the foundational premise of their theory of liability was that SolarCity was insolvent at the time of the Acquisition. Because the Court of Chancery assumed, without deciding, that Musk was a controlling stockholder, it applied Delaware’s most stringent "entire fairness" standard of review, and the Court of Chancery found the Acquisition to be entirely fair. In this appeal, the two sides disputed various aspects of the trial court’s legal analysis, including, primarily, the degree of importance the trial court placed on market evidence in determining whether the price Tesla paid was fair. Appellants did not challenge any of the trial court’s factual findings. Rather, they raised only a legal challenge, focused solely on the application of the entire fairness test. After careful consideration, the Delaware Supreme Court was convinced that the trial court’s decision was supported by the evidence and that the court committed no reversible error in applying the entire fairness test. View "In Re Tesla Motors, Inc. Stockholder Litigation" on Justia Law

Kanter v. Reed

2023-06-02T13:31:10-08:00

Plaintiffs were stockholders of Sempra when the Aliso Canyon Natural Gas Storage Facility (Aliso Canyon facility) experienced a natural gas leak (Aliso gas leak). Sempra was a California corporation “whose operating units invest[ed] in, develop[ed], and operate[d] energy infrastructure, and provide[d] gas and electricity services to [its] customers in North and South America.” One of Sempra’s wholly-owned subsidiaries, Southern California Gas Company (SoCalGas), maintained the Aliso Canyon facility. Defendants were either officer of Sempra or members of the Board or officers or members of the board of directors of SoCalGas at the time of the Aliso gas leak. When Plaintiffs filed the operative amended complaint, eight of the Board members had also been Board members at the time of the leak. The trial court issued the judgment of dismissal, which Plaintiffs timely appealed. The Second Appellate District affirmed. The court concluded that a director acts with “reckless disregard” of his duties, within the meaning of section 204, subdivision (a)(10)(iv), when the director (1) does an intentional act or intentionally fails to act in accordance with those duties, (2) with knowledge, or with reason to have knowledge, that (3) the director’s conduct creates a substantial risk of serious harm to the corporation or its shareholders. The court held that Plaintiffs have not alleged particularized facts supporting their Caremark theory of liability and thus have failed to plead to demand futility as required under section 800, subdivision (b)(2). View "Kanter v. Reed" on Justia Law

Thomas Connelly v. United States

2023-06-02T07:31:22-08:00

Plaintiffs, two brothers, were the sole shareholders of Crown C Corporation. The corporation obtained life insurance on each brother so that if one died, the corporation could use the proceeds to redeem his shares. When one brother died, the Internal Revenue Service assessed taxes on his estate, which included his stock interest in the corporation. According to the IRS, the corporation’s fair market value includes the life insurance proceeds intended for the stock redemption. The brother's estate argues otherwise and sued for a tax refund. The district court agreed with the IRS. The Eighth Circuit affirmed. The court explained that here the estate argues that the court should look to the stock-purchase agreement to value of the brother’s shares because it satisfies these criteria. But the estate glosses over an important component missing from the stock purchase agreement: some fixed or determinable price to which we can look when valuing the brother’s shares. Further, the Treasury regulation that clarifies how to value stock subject to a buy-sell agreement refers to the price in such agreements and “the effect, if any, that is given to the . . . price in determining the value of the securities for estate tax purposes.” 26 C.F.R. Section 20.2031-2(h). Here, the stock-purchase agreement fixed no price nor prescribed a formula for arriving at one. Further, the court explained that the proceeds were simply an asset that increased shareholders’ equity. A fair market value of the brother's shares must account for that reality. View "Thomas Connelly v. United States" on Justia Law

Adelsperger v. Elkside Development LLC

2023-05-18T07:37:45-08:00

Elkside Development, LLC (Elkside) owned and operated the Osprey Point RV Resort in Lakeside, Oregon. Part of Elkside’s business model involved selling membership contracts that conferred free use of the campground, among other benefits. In April 2017, Barnett Resorts LLC, an Oregon limited liability company operated by member-managers Stefani and Chris Barnett, purchased Elkside. Shortly after the purchase, the Barnetts sent a letter to all campground members, identifying them as “owners” of the resort, and indicating that they would not honor Elkside’s membership contracts. Plaintiffs, a group of 71 people who, collectively, were party to 39 membership contracts with Elkside, brought suit alleging a variety of claims against Stefani and Chris Barnett individually, and against the company, Barnett Resorts LLC. On appeal, this case raised three issues relating to: (1) a breach of contract claim; (2) an intentional interference with contract claim; and (3) a statutory claim of elder abuse, based on the fact that the majority of the membership contracts had been held by plaintiffs over the age of 65. As to the claims against the Barnetts individually, the trial court granted summary judgment for defendants, relying on ORS 63.165 and Cortez v. Nacco Materials Handling Group, 337 P3d 111 (2014). Plaintiffs argued, in part, that whether ORS 63.165 shielded the Barnetts from liability required considering whether their actions were entirely in support of the LLC, or whether they were, instead, in furtherance of a non-LLC individual motive. The Court of Appeals affirmed without opinion. The Oregon Supreme Court allowed review and reversed in part the Court of Appeals and the trial court. Specifically, the Supreme Court reversed as to the elder abuse claim, affirmed as to the breach of contract claim, and affirmed the intentional interference claim by an equally divided court. View "Adelsperger v. Elkside Development LLC" on Justia Law

Towers Watson & Co. v. National Union Fire Insurance Company

2023-05-09T11:01:07-08:00

In 2015, Towers Watson & Co. (“Towers Watson”), a Delaware company headquartered in Virginia, purchased directors and officers (“D&O”) liability insurance coverage from several insurance companies, including National Union Fire Insurance Company of Pittsburgh, Pa. (“National Union”) as the primary insurer. Following Towers Watson’s merger with another company, Towers Watson shareholders filed several lawsuits against Towers Watson’s chairman and CEO and others, alleging that the shareholders received below-market consideration for their shares in the merger. The litigation was settled, and Towers Watson sought indemnity coverage from its insurers under the relevant D&O policies. The insurers refused the indemnity request, citing a so-called “bump-up” exclusion in the policies. This declaratory judgment action followed. The district court sided with Towers Watson and held that the bump-up exclusion “does not unambiguously” preclude indemnity coverage for the underlying settlements. The Fourth Circuit vacated the district court’s judgment and remanded for further proceedings. Under Virginia law, it will not do to merely identify any conceivable basis to hold that an insurance-coverage exclusion does not apply before stripping the exclusion of all force. Rather, the language of the exclusion must reasonably lend itself to an “equally possible” interpretation precluding the exclusion’s applicability. Here, however, the district court’s chosen interpretation, which disregarded the Policy’s plain language and inserted terms not included by the parties, cannot be characterized as one of two “equally possible” constructions. View "Towers Watson & Co. v. National Union Fire Insurance Company" on Justia Law

Terrell v. Kiromic Biopharma, Inc.

2023-05-04T06:31:39-08:00

The Delaware Court of Chancery was asked to resolve a dispute between a company and one of its former directors over the meaning of a stock option agreement and option grant notice. Applying the plain text of the agreement, the Court of Chancery determined that the dispute was to be resolved in accordance with a board committee’s interpretation of the agreement and notice. After the board, acting through a committee, interpreted the agreement and notice in a manner favorable to the company, the Court of Chancery, without hearing further from the former director, promptly dismissed the former director’s complaint for lack of subject matter jurisdiction. The Delaware Supreme Court found the Court of Chancery properly stayed the action to permit the board’s committee to interpret the agreement and notice in the first instance. The Supreme Court disagreed, however, with the court’s decision to dismiss the former director’s complaint without any meaningful review of the committee’s interpretation. The Court of Chancery’s order of dismissal was therefore reversed, and the case remanded for a review of the committee’s conclusions. View "Terrell v. Kiromic Biopharma, Inc." on Justia Law

Takiguchi v. Venetian Condominiums Maintenance Corp.

2023-04-21T10:01:16-08:00

Venetian Condominiums Maintenance Corporation was a condominium project with 368 condominium units in the University Town Center area of San Diego. It was a nonprofit mutual benefit corporation governed by the California Nonprofit Mutual Benefit Corporation Law. Ali Ghorbanzadeh owned 18 units at the Venetian. He was elected to Venetian’s board of directors in 2008. In 2009, Ghorbanzadeh appointed his son Sean Gorban to the board. They controlled the three-member board continuously from 2009 through at least 2021. Guy Takiguchi was elected as the third director in 2015. From 2009 to 2021, the board repeatedly failed to hold annual elections, either due to the absence of a quorum or for other reasons. Ghorbanzadeh’s seat was up for re-election at the 2020 annual meeting, and there were two other candidates for the seat, including Nishime. The Ballot Box, Inc. contracted as the Venetian's inspector of elections, declaring there was no quorum for the meeting because Ballot Box had only received 166 ballots, and the quorum was 188. Nishime participated in the January 20, 2021 meeting remotely by computer and took multiple screenshots of the participants. Nishime was able to identify eight members who were present (representing 37 units). Had those units been counted with written ballots, there would have been a quorum of 203 present at the meeting. The eight participating members who represented units for which no ballot had been submitted included Ghorbanzadeh (representing 18 units), his son Sean Gorban (representing one unit), his other son Brian Gorban (representing three units), and an ally of Ghorbanzadeh’s who was also running for the director’s seat (representing one unit). An allegation asserted Ghorbanzadeh and his allies did not submit their ballots “in a deliberate and tactical effort to not reach quorum so they could remain in power another year or two.” Venetian submitted no evidence refuting this accusation. The Court of Appeal concluded the trial court properly ordered Venetian to hold a meeting for the purpose of counting the 166 written ballots cast for its January 20, 2021 annual member meeting and election. Substantial evidence supported the trial court’s finding that there was a quorum present for that meeting. By adjourning the meeting based on the purported absence of a quorum, Venetian failed to conduct the scheduled meeting or cover the noticed agenda items, which included counting the ballots and determining the results. View "Takiguchi v. Venetian Condominiums Maintenance Corp." on Justia Law

Reliant Life Shares, LLC v. Cooper

2023-04-05T11:01:38-08:00

Reliant Life Shares, LLC (Reliant or LLC) was a profitable limited liability company owned in equal parts by three members. Two of them, SM and DC, were longtime friends and business partners. After DC stopped working out of the offices of Reliant because of a medical condition, no one at Reliant expected him to return to work, but SM assured CDC he remained a loyal business partner. Before long, however, SM and the third member of Reliant, SG, tried to force out DC, splitting the company’s profits and other revenues 50/50 and paying DC nothing. The LLC sued DC, seeking a declaratory judgment that he was properly removed as a member of the LLC. DC cross-complained against the parties and the LLC, alleging breach of contract, fraud, breach of the duty of loyalty and several other causes of action, seeking damages, an accounting and imposition of a constructive trust over funds obtained through violation of fiduciary duties. The jury awarded DC damages and valued his equity interest. The LLC, SM, SG, and several of their entities appealed. They assert a multitude of arguments for reversal of the judgment. The Second Appellate District found no merit in any of the claims and affirmed the judgment in full. The court found that the trial court acted well within its discretion when it decided alter ego claims in phase one. Further, the court found no merit in the election of remedies argument, either as it relates to prejudgment interest or anything else. View "Reliant Life Shares, LLC v. Cooper" on Justia Law

Lake Lindero Homeowners Assn., Inc. v. Barone

2023-03-27T14:02:23-08:00

Defendant appealed an order under Corporations Code section 7616 confirming the validity of an election removing the former board of the Lake Lindero Homeowners Association, Inc. (the Association) and electing a new board of directors. Defendant made two contentions: (1) the election was not valid because it contravened the Association’s bylaws and statutory provision governing board recall elections, and (2) section 7616 did not authorize Plaintiffs' action or the trial court’s order validating the recall election. The Second Appellate District affirmed. The court held that the appeal is not moot: material questions remain regarding the construction of the bylaws and statutes governing the vote required to remove the association’s board of directors. Further, the court explained that the trial court correctly determined the former board was validly recalled under the Association’s bylaws and statutory law. The court explained that the trial court correctly recognized section 7616, subdivision (d) authorizes the court to “direct such other relief as may be just and proper” in connection with confirming the validity of a board election. Here, the complaint alleged Defendant, in his role as CEO and with the sanction of a majority of the former board, was engaged in frustrating the new board’s efforts to fulfill its duties under the Association’s bylaws. Having confirmed the validity of the new board’s election, the statute plainly authorized the trial court to enter an order confirming Defendant had no authority to act on behalf of the Association, as was “just and proper” under the Association’s bylaws. View "Lake Lindero Homeowners Assn., Inc. v. Barone" on Justia Law

Metropolitan Washington Chapter, Associated Builders and Contractors, Inc. v. DC

2023-03-14T06:32:37-08:00

Metropolitan Washington Chapter, Associated Builders and Contractors, Inc. (“Metro Washington”), a corporate trade organization representing construction companies, brought this pre-enforcement challenge to the constitutionality of the District of Columbia First Source Employment Agreement Act of 1984. The statute requires contractors on D.C. government-assisted projects to grant hiring preferences to D.C. residents. Metro Washington appealed the district court’s Rule 12 dismissals of the claims under the dormant Commerce Clause, U.S. Const. and the Privileges and Immunities Clause, and the grant of summary judgment to the District of Columbia on the substantive due process claim. The DC Circuit affirmed the district court’s Rule 12(b)(6) dismissal of Metro Washington’s dormant Commerce Clause claim and Rule 12(c) dismissal of the Privileges and Immunities Clause claim. The court also affirmed the district court’s grant of summary judgment to the District of Columbia on the inapplicability of the Privileges and Immunities Clause to a corporation. Further, although Metro Washington has Article III standing as an association, it lacks third-party standing to raise its alternative Privileges and Immunities claim based on incorporation through the Fifth Amendment, and therefore the court dismissed this alternative contention. View "Metropolitan Washington Chapter, Associated Builders and Contractors, Inc. v. DC" on Justia Law

SEAVIEW TRADING, LLC, AGK INVE V. CIR

2023-03-10T09:31:47-08:00

The Internal Revenue Service (IRS) generally has three years from the date a taxpayer files a tax return to assess any taxes that are owed for that year. In this case, we must decide whether a partnership “filed” its 2001 tax return by faxing a copy of that return to an IRS revenue agent in 2005 or by mailing a copy to an IRS attorney in 2007. If either of those actions qualified as a “filing” of the partnership’s return, the statute of limitations would bar the IRS’s decision, more than three years later, to disallow a large loss the partnership had claimed. The Ninth Circuit affirmed the Tax Court’s decision. The court held that neither Seaview Trading LLC’s faxing a copy of their delinquent 2001 tax return to an IRS revenue agent in 2005, nor mailing a copy to an IRS attorney in 2007, qualified as a “filing” of the partnership’s return, and therefore the statute of limitations did not bar the IRS’s readjustment of the partnership’s tax liability. The court concluded that because Seaview did not meticulously comply with the regulation’s place-for-filing requirement, it was not entitled to claim the benefit of the three-year limitations period. The court wrote that its conclusion was consistent with cases from other circuits and a long line of Tax Court decisions. The court also rejected Seaview’s argument that the regulation’s place-for-filing requirement applies only to returns that are timely filed—not to those that are filed late. View "SEAVIEW TRADING, LLC, AGK INVE V. CIR" on Justia Law

Civelli v. J.P. Morgan Chase

2023-01-11T10:31:56-08:00

Plaintiff, an investor and venture capitalist and the CEO of InterOil Corporation (“InterOil”), developed a business relationship. Throughout that relationship, Plaintiff (and “entities controlled and beneficially owned by him”) provided loans, cash advances, and funds to the CEO and InterOil. Plaintiff and the CEO continued to have a business relationship until 2016, at which point the CEO’s actions and words made Plaintiff concerned he would not receive his shares back from the CEO. In late 2017, as part of a larger suit against the CEO, Plaintiff and Aster Panama sued the J.P. Morgan Defendants for (1) breach of trust and fiduciary duty, (2) negligence, and (3) conspiracy to commit theft. The district court granted summary judgment on all counts relating to the J.P. Morgan defendants and awarded them attorneys’ fees under the Texas Theft Liability Act (“TTLA”). The Fifth Circuit affirmed. Under Texas law, the only question is whether the J.P. Morgan Defendants expressly accepted a duty to ensure the stocks were kept in trust for Plaintiff or Aster Panama. That could have been done by express agreement or by the bank’s acceptance of a deposit that contained writing that set forth “by clear direction what the bank is required to do.” Texas courts require a large amount of evidence to show that a bank has accepted such a duty. Here, no jury could find that the proffered statements and emails were sufficient evidence of intent from the J.P. Morgan Defendants to show an express agreement that they “owe[d] a duty to restrict the use of the funds for certain purposes.” View "Civelli v. J.P. Morgan Chase" on Justia Law

Daniel v. Hawkins

2023-01-06T07:32:40-08:00

The Delaware Court of Chancery entered judgment in favor of appellee Sharon Hawkins on her request for a declaration that the irrevocable proxy which provided appellant W. Bradley Daniel (“Daniel”) with voting power over all 100 shares of N.D. Management, Inc. (“Danco GP”) (the “Irrevocable Proxy”), did not bind a subsequent owner of such Danco GP shares. The Court of Chancery also held that an addendum to the Irrevocable Proxy did not obligate the current owner of the Danco GP shares, MedApproach, L.P. (the “Partnership”), to demand that the buyer in a sale to an unaffiliated third party bind itself to the Irrevocable Proxy. Daniel appealed the Court of Chancery’s judgment that the Irrevocable Proxy did not run with the Majority Shares, arguing the court erred by: (1) rather than interpreting and applying the plain language of the Irrevocable Proxy as written, the court relied on the Restatement (Third) of Agency, which was not adopted until nearly a decade after the parties entered into the Irrevocable Proxy; (2) reading additional language into the Irrevocable Proxy in order to support its finding that the broad “catch-all” language that the parties included to prevent termination of the Irrevocable Proxy did not encompass a sale of the shares; and (3) not giving effect to all of the terms of the Irrevocable Proxy and improperly limiting the assignment clause of the Irrevocable Proxy so as not to bind assigns of the stockholder. Finding no reversible error, the Delaware Supreme Court affirmed the Court of Chancery. View "Daniel v. Hawkins" on Justia Law

Emilio Braun, et al. v. America-CV Station Group, Inc., et al.

2023-01-05T11:32:00-08:00

Just before the Chapter 11 reorganization plans of Caribevision Holdings, Inc. and Caribevision TV Network, LLC was set to be confirmed, the debtors filed an emergency motion to modify the plans under 11 U.S.C. Section 1127(a). The initial plans called for equity in the reorganized companies to be split between four shareholders: R.D.B., Pegaso Television Corp., E.B., and Vasallo TV Group. The modification, after being approved by the bankruptcy court, stripped the first three of their equity and allocated full ownership to the fourth—a company controlled by the debtors’ Chief Executive Officer. the three ousted shareholders, who collectively call themselves the Pegaso Equity Holders, now challenge the bankruptcy court’s order granting the debtors’ emergency motion to modify the reorganization plans. They contend that they were entitled to a revised disclosure statement and a second opportunity to vote on the plans under Federal Rule of Bankruptcy Procedure 3019(a)—a procedural protection the bankruptcy court did not provide them. The Eleventh Circuit reversed the order granting the debtor’s emergency motion to modify the reorganization plans, reversed in part the bankruptcy court’s order confirming the reorganization plans to the extent that it adopts the modification, and remanded to the bankruptcy court to fashion an equitable remedy. The court held that the bankruptcy court erred in granting the debtor’s modification without first requiring that the debtor provide the Pegaso Equity Holders with a revised disclosure statement and a second opportunity to cast a ballot. View "Emilio Braun, et al. v. America-CV Station Group, Inc., et al." on Justia Law

Jaludi v. Citigroup & Co.

2023-01-04T10:01:34-08:00

Jaludi worked at Citigroup. After he reported company wrongdoing, he was demoted, transferred, and (in 2013) terminated. He claims Citigroup blacklisted him from the financial industry. In 2015, Jaludi sued Citigroup for retaliation under both the Sarbanes-Oxley Act and RICO. The district court sent his claims to arbitration. Jaludi appealed the arbitration order. In early 2018, while that appeal was pending, he filed an administrative complaint with the Secretary of Labor, adding one new allegation that, in late 2017, a headhunter had stopped returning his calls. In 2019, the Third Circuit remanded, holding that he was not required to arbitrate his Sarbanes-Oxley claims. On remand, the district court dismissed, finding his administrative complaint untimely. Though Sarbanes-Oxley required an administrative complaint within 180 days of the retaliatory conduct, he had waited more than two years after the last incident. Jaludi argued that the court should have granted him leave to amend because the 2017 allegation that he added in his administrative complaint happened fewer than 180 days before that complaint, making it timely. The Third Circuit affirmed. Although neither filing the administrative complaint after the statute of limitations had run nor suing before exhausting his administrative remedies was jurisdictional under the Sarbanes-Oxley Act, Jaludi’s delay in filing justified the dismissal. View "Jaludi v. Citigroup & Co." on Justia Law

Christopher Garvey v. Administrative Review Board

2022-12-23T08:37:20-08:00

Plaintiff was employed through various foreign subsidiaries of Morgan Stanely between 2006 and 2016. Plaintiff claims that, between 2014 and 2016, he raised concerns about U.S. securities violations, which occurred overseas but affected U.S. markets. After receiving a pay cut and a recommendation that he find employment elsewhere. In January 2016, Plaintiff resigned. Plaintiff then hired counsel. However, counsel withdrew after Morgan Stanley threatened to pursue an action against counsel for violations of his professional obligations. The Department of Labor Administrative Review Board dismissed Plaintiff's claim under Section 806 of the Corporate and Criminal Fraud Accountability Act of 2002, Title VIII of the Sarbanes–Oxley Act, finding that Section 806 did not apply because he was not an "employee" at the time of any alleged retaliation. The D.C. Circuit affirmed, finding that Plaintiff did not meet the definition of "employee" at any time during the alleged retaliation. View "Christopher Garvey v. Administrative Review Board" on Justia Law

Farnum v. Iris Biotechnologies Inc.

2022-12-19T12:01:50-08:00

Iris, incorporated in 1999, went public in 2007. In 2019, the SEC revoked the registration of Iris’s securities. Since its incorporation, Chin has been chairman of Iris’s three-member board of directors, its president, secretary, CEO, CFO, and majority shareholder. Chin’s sister was also a board member. Farnum was a board member, 2003-2014, and owned eight percent of Iris’s stock. In 2014, Farnum requested inspection of corporate minutes, documents relating to the acquisition of Iris’s subsidiary, and cash flow statements, then, in his capacity as a board member and shareholder, sought a writ of mandate. Before the hearing on Farnum’s petition, Farnum was voted off Iris’s board. The court denied Farnum’s petition (Corporations Code 1602) because Farnum no longer had standing to inspect corporate records due to his ejection from the board, and his request was “overbroad and lack[ed] a statement of purpose reasonably related to his interests as a shareholder.” Weeks later, Farnum served 31 inspection requests on Iris and subsequently filed another mandamus petition. The superior court denied the petition and Farnum’s associated request for attorney fees. On remand with respect to certain records, Farnum sought reimbursement of his expenses in enforcing his rights as a shareholder ($91,000). The court of appeal affirmed the denial of the request. Farnum scored “only a partial victory” given the scope of what he sought; there was no showing that on the whole, Iris acted without justification in refusing Farnum’s inspection demands. View "Farnum v. Iris Biotechnologies Inc." on Justia Law

Karton v. Musick, Peeler, Garrett LLP

2022-10-03T11:32:38-08:00

A client who retained Plaintiff, the Law Corporation, to represent him in a marital dissolution action. The client assigned the judgments to Musick Peeler & Garrett LLC (Musick Peeler). In October 2019, the Law Corporation filed a motion (the setoff motion) in the superior court to set off against its judgment debt to Musick Peeler a debt that Dougherty allegedly owes to the Law Corporation. The client’s alleged tortious actions to hinder, delay, or defraud the Law Corporation in its efforts to collect on a 1999 default judgment prior to our opinion vacating that judgment and declaring it void in 2009. The trial court denied the motion and the Law Corporation appealed. The Second Appellate District affirmed. The court explained that to the extent the Law Corporation incurred any fees or costs in connection with its defense against the collateral attack actions in California, they were incurred in defending actions by the client, not a third person. These actions, therefore, do not support a setoff claim based on the tort of another doctrine. Further, even if the Law Corporation’s motion was procedurally proper, the Law Corporation failed to support its setoff claims with relevant evidence and, therefore, the court did not abuse its discretion in denying the motion. View "Karton v. Musick, Peeler, Garrett LLP" on Justia Law

Pederson v. Arctic Slope Regional Corporation

2022-09-23T09:00:56-08:00

A corporate shareholder alleged the corporation violated his statutory right to inspect certain records and documents. The superior court found that the shareholder did not assert a proper purpose in his request. The shareholder appealed, arguing the superior court erred by finding his inspection request stated an improper purpose, sanctioning him for failing to appear for his deposition, and violating his rights to due process and equal protection by being biased against him. After review, the Alaska Supreme Court reversed the superior court’s order finding that the shareholder did not have a proper purpose when he requested the information at issue from the corporation, but it affirmed the superior court’s discovery sanctions. View "Pederson v. Arctic Slope Regional Corporation" on Justia Law

ZF Micro Solutions, Inc. v. TAT Capital Partners, Ltd.

2022-09-07T09:30:56-08:00

ZF Micro Solutions, Inc., the successor of now deceased ZF Micro Devices, Inc., alleged TAT Capital Partners, Ltd., murdered its predecessor by inserting a board member who poisoned it. The trial court decided the claim for breach of TAT’s fiduciary duty as a director was equitable rather than legal and, after a court trial, entered judgment for TAT. ZF Micro Solutions argued this was error. The Court of Appeal agreed, holding that while examining the performance of a board member’s fiduciary duties would be required, resolution of this claim did not implicate the powers of equity, and it should have been tried as a matter at law. Judgment was reversed and the matter remanded for further proceedings. View "ZF Micro Solutions, Inc. v. TAT Capital Partners, Ltd." on Justia Law

United States v. Armbruster

2022-09-07T09:04:15-08:00

Armbruster, a CPA with experience working at a Big Four accounting firm, began serving as the controller for Roadrunner's predecessor in 1990 and became Roadrunner’s CFO. Roadrunner grew rapidly, acquiring transportation companies and going public in 2010. In 2014, Roadrunner’s then‐controller recognized shortcomings in a subsidiary's (Morgan) accounting and began investigating. In 2016, many deficiencies in Morgan’s accounting remained unresolved. The departing controller found that Morgan had inflated its balance sheet by at least $2 million and perhaps as much as $4–5 million. Armbruster filed Roadrunner's 2016 third quarter SEC Form 10‐Q with no adjustments of the carrying values of Morgan balance sheet items and including other misstatements. Roadrunner’s CEO learned of the misstatements and informed Roadrunner’s Board of Directors. Roadrunner informed its independent auditor. Roadrunner’s share price dropped significantly. Roadrunner filed restated financial statements, reporting a decrease of approximately $66.5 million in net income over the misstated periods. Criminal charges were brought against Armbruster and two former departmental controllers. A mixed verdict acquitted the departmental controllers on all counts but convicted Armbruster on four of 11 charges for knowingly falsifying Roadrunner‘s accounting records by materially misstating the carrying values of Morgan's receivable and prepaid taxes account, 15 U.S.C. 78m(b)(2), (5), i78ff(a), 18 U.S.C. 2, fraudulently influencing Roadrunner’s external auditor, and filing fraudulent SEC financial statements, 18 U.S.C.1348. The Seventh Circuit affirmed. While the case against Armbruster may not have been open‐and‐shut, a rational jury could have concluded that the government presented enough evidence to support the guilty verdicts. View "United States v. Armbruster" on Justia Law

USA v. Honeywell International, Inc.

2022-08-30T06:31:01-08:00

The United States sued Honeywell International Inc. for providing the material in allegedly defective bulletproof vests sold to or paid for by the government. Among other relief, the government sought treble damages for the cost of the vests. It has already settled with the other companies involved, and Honeywell seeks a pro tanto, dollar for dollar, credit against its common damages liability equal to those settlements. For its part, the government argues Honeywell should still have to pay its proportionate share of damages regardless of the amount of the settlements with other companies. The district court adopted the proportionate share rule but certified the question for interlocutory review under 28 U.S.C. Section 1292(b). The DC Circuit reversed the district court’s ruling and held the pro tanto rule is the appropriate approach to calculating settlement credits under the False Claims Act. The court explained that in the False Claims Act, Congress created a vital mechanism for the federal government to protect itself against fraudulent claims. The FCA, however, provides no rule for allocating settlement credits among joint fraudsters. Because the FCA guards the federal government’s vital pecuniary interests, and because state courts widely diverge over the correct rule for settlement offsets, the court found it appropriate to establish a federal common law rule. The pro tanto rule best fits with the FCA and the joint and several liability applied to FCA claims. Thus, Honeywell is entitled to offset its common damages in the amount of the government’s settlements from the other parties. View "USA v. Honeywell International, Inc." on Justia Law

Crane v. R. R. Crane Investment Corp., Inc.

2022-08-29T11:00:50-08:00

Plaintiff initiated an action for involuntary dissolution of R. R. Crane Investment Corporation, Inc. (R. R. Crane), a family-owned investment business that he shared with his brother. To avoid corporate dissolution, the brother and R. R. Crane invoked the statutory appraisal and buyout provisions of the Corporations Code.1 In December of 2020, after a prolonged appraisal process, the trial court confirmed the fair value of Plaintiff’s shares at over $6.1 million, valued as of November 13, 2017, the date Plaintiff filed for dissolution. On appeal, Plaintiff contends the trial court erred by failing to award him prejudgment interest on the valuation of his shares. He argues he was entitled to interest at a rate of 10 percent per annum from the date he first sought dissolution until the eventual purchase of his shares more than three years later. The Second Appellate District disagreed and affirmed the trial court’s ruling. The court held that it disagrees that prejudgment interest must be added to the appraised value of Plaintiff’s shares. The court explained that a plaintiff’s entitlement to prejudgment interest pursuant to Civil Code section 3287, subdivision (a), does not apply to a buyout of shares under Corporations Code section 2000. Further, the court wrote that Plaintiff’s alternative contention that he is entitled to prejudgment interest under Civil Code section 3288also fails. The trial court correctly applied the plain language of Civil Code section 3288 and concluded that the valuation award “is not based on the breach of an obligation not arising from contract or a showing of oppression, fraud, or malice.” View "Crane v. R. R. Crane Investment Corp., Inc." on Justia Law

Potter v. Cozen & O'Connor

2022-08-24T09:00:13-08:00

Attorneys Blume, Cozen, and Madonia were involved in the sale to The Institutes of LLCs owned by the Shareholders. Blume also served on the board of directors and as General Counsel for one of the LLCs, assisting the Shareholders in making business decisions. Unbeknownst to the Shareholders, Cozen represented The Institutes in several matters, including negotiating the price for their transaction. After the deal closed, the Shareholders allegedly determined that they had sold the LLCs at a price substantially below their fair market value and that the attorneys had wrongfully secured a favorable outcome for The Institutes by using confidential client information. Shareholder Potter sued in the Shareholders' names, claiming breach of fiduciary duty and professional malpractice, although he identified the harm as “the difference in the true value of the [LLCs] and the purchase price” that was to be paid to the LLCs themselves. The lawyers argued that under the “shareholder standing rule,” the individuals did not have the legal right to bring the entities' claims in their own names. The district court dismissed the complaint for lack of jurisdiction, stating that the Shareholders “lack[ed] Article III standing." The Third Circuit vacated. The third-party standing rule is merely prudential, not constitutional and jurisdictional, and is properly considered under Rule 12(b)(6), not Rule 12(b)(1). There are different considerations in deciding a motion to dismiss under Rule 12(b)(6) that could produce a different outcome in this case. View "Potter v. Cozen & O'Connor" on Justia Law

Griffith v. Stein

2022-08-16T09:02:18-08:00

An objector appealed a Delaware Court of Chancery decision approving a litigation settlement for claims alleging excessive non-employee director compensation. Initially, the parties agreed to a preliminary settlement and presented it to the Court of Chancery for approval. The Court of Chancery sided with the objector and refused to approve a non-monetary settlement of the derivative claims. The court also awarded the objector fees. After the court denied a motion to dismiss, the parties came up with a new settlement that included a financial benefit to the corporation. The objector renewed his objection, this time arguing that the new settlement improperly released future claims challenging compensation awards and that the plaintiff was not an adequate representative for the corporation’s interests. The Court of Chancery approved the new settlement and refused to award the objector additional attorneys’ fees. On appeal to the Delaware Supreme Court, the objector argued the court erred by: (1) approving an overbroad release; (2) approving the settlement without finding that the plaintiff was an adequate representative of the corporation’s interests; and (3) reducing the objector’s fee because the court believed it would have rejected the original settlement agreement without the objection. Though the Supreme Court acknowledged the Court of Chancery and the parties worked diligently to bring this dispute to a close, it reversed the judgment because the settlement agreement released future claims arising out of, or contemplated by, the settlement itself instead of releasing liability for the claims brought in the litigation. View "Griffith v. Stein" on Justia Law

Graham v. Peltz

2022-08-11T11:00:13-08:00

Hackers compromised customer-payment information at several Wendy’s franchisee restaurants. Shareholders took legal action against Wendy’s directors and officers on the corporation’s behalf to remedy any wrongdoing that might have allowed the breach to occur. Three shareholder derivative legal efforts ensued—two actions and one pre-suit demand—leading to a series of mediation sessions. Two derivative actions (filed by Graham and Caracci) were consolidated and resulted in a settlement, which the district court approved after appointing one of the settling shareholder’s attorneys as the lead counsel. Those decisions drew unsuccessful objections from Caracci, who had not participated in the latest settlement discussions. No other shareholder objected. Caracci appealed decisions made by the district court, which together had the effect of dramatically reducing Caracci’s entitlement to an attorney’s fees award. The Sixth Circuit affirmed. The court acted within the bounds of its wide discretion to manage shareholder litigation in its appointment of a lead counsel, its approval of the settlement, and its interlocutory orders on discovery and the mediation privilege. View "Graham v. Peltz" on Justia Law

Miller v. Brightstar Asia, Ltd.

2022-08-03T06:30:20-08:00

Plaintiff appealed the dismissal of his direct suit against Defendant Brightstar Asia, Ltd. In connection with the sale of his company, Harvestar, to Brightstar Asia, Plaintiff entered into a contract with Brightstar Asia, Harvestar, and his co-founder. The contract provided that conflicted transactions between Brightstar Asia and Harvestar must be on “terms no less favorable to” Harvestar than those of an arms-length transaction. Plaintiff alleged in his complaint that Brightstar Asia engaged in conflicted transactions that rendered his options rights worthless. Those actions, according to Plaintiff, breached both the express terms of the contract and the implied covenant of good faith and fair dealing. The district court dismissed his complaint for raising claims that could be brought only in a derivative suit. The Second Circuit agreed that Plaintiff can bring a claim for breach of the express conflicted-transactions provision only in a derivative suit. However, the court held that Plaintiff may bring a direct suit for breach of the covenant of good faith and fair dealing because that covenant is based on his individual options rights. Accordingly, the court affirmed in part and vacated in part the district court’s judgment. The court explained that the inquiry into whether a claim is direct, and a plaintiff, therefore, has “standing” to bring it, is not an Article III standing inquiry Even if the district court were right that Plaintiff’s claims had to be brought in a derivative suit, it should have dismissed the complaint for failure to state a claim. View "Miller v. Brightstar Asia, Ltd." on Justia Law

Friend of Camden v. Brandt

2022-08-02T10:01:13-08:00

Plaintiff, who owned a 1 percent interest in a limited liability company (LLC), filed a lawsuit seeking judicial dissolution of the LLC under Corporations Code section 17707.03. Defendants, other members of the LLC who together held 50 percent of the membership interests, filed a motion to avoid the dissolution by purchasing Plaintiff’s 1 percent interest. Then Plaintiff, together with other members owning 49 percent of the membership interests in the LLC—for a total of 50 percent—voted to dissolve the LLC. The issue on appeal is whether the vote to dissolve the LLC extinguished the right Defendants otherwise would have had to purchase Plaintiff’s 1 percent interest and avoid dissolution of the LLC. The Second Appellate District concluded, in accordance with the plain language of section 17707.01, that the answer is “yes,” and the vote of 50 percent of the LLC membership interests to dissolve the LLC must be given effect. Consequently, the court held that the trial court erred when it issued an order appointing appraisers to determine the price Defendants must pay to purchase Plaintiff’s 1 percent membership interest. The court ordered the trial court to dismiss the buyout proceeding as moot and directed the parties to wind up the activities of the LLC. View "Friend of Camden v. Brandt" on Justia Law

Jerrell Whitten v. Ronald F. Clarke, et al.

2022-07-27T06:30:35-08:00

Plaintiff, a shareholder and citizen of Illinois, brought this shareholder derivative action alleging breach of fiduciary duties by FleetCor’s directors and executives without first making a demand on the board. Plaintiff argued that demand was excused because a majority of the board faced a substantial likelihood of liability for their breach of fiduciary duties. The district court held that Plaintiff had failed to adequately plead that demand was excused and dismissed Plaintiff’s claims. The Eleventh Circuit affirmed the district court’s dismissal of Plaintiff’s complaint under Rule 23.1. The court held that Plaintiff failed to plead particularized facts showing demand was excused. The court explained that because Plaintiff failed to adequately plead Board knowledge of the allegedly fraudulent scheme, all three of his claims that purportedly show that a majority of the Board faced a substantial likelihood of liability fail. View "Jerrell Whitten v. Ronald F. Clarke, et al." on Justia Law

United States v. Scarfo

2022-07-15T13:00:14-08:00

Four defendants, who have multiple ties to organized crime, were convicted for their roles in the unlawful takeover and looting of FirstPlus Financial, a publicly traded mortgage loan company. Their scheme began with the defendants’ and their co-conspirators’ extortion of FirstPlus’s board of directors and its chairman, using lies and threats to gain control of the company. Once they forced the old leadership out, the defendants drained the company of its value by causing it to enter into expensive consulting and legal-services agreements with themselves, causing it to acquire (at vastly inflated prices) shell companies they personally owned, and using bogus trusts to funnel FirstPlus’s assets into their own accounts. They ultimately bankrupted FirstPlus, leaving its shareholders with worthless stock. Each defendant was convicted of more than 20 counts of criminal behavior and given a substantial prison sentence. In a consolidated appeal, the Third Circuit affirmed, rejecting challenges to the investigation, the charges and evidence against them, the pretrial process, the government’s compliance with its disclosure obligations, the trial, the forfeiture proceedings, and their sentences. The government conceded that the district court’s assessment of one defendant’s forfeiture obligations was improper under a Supreme Court decision handed down during the pendency of this appeal and remanded that assessment. View "United States v. Scarfo" on Justia Law

Hill v. Cohen

2022-07-06T14:00:16-08:00

Under Pennsylvania law, a court may appoint a custodian to take control of a corporation if the corporation’s board of directors is deadlocked or if the directors’ acts are illegal, oppressive, fraudulent, or wasteful. The eight-person FRBK Board of Directors became evenly split into two factions until one of the Hill Directors died. The Madonna Directors immediately used their new numerical advantage to start rearranging the bank’s leadership and took steps to fill the Board vacancy with an ally. The Hill Directors sued. Within hours, the district court ordered the Madonna Directors to cease their actions. Nine days later, without an evidentiary hearing or fact-finding, the court appointed a custodian to take control of FRBK and to hold a special shareholders’ meeting to fill the vacant Board seat. The following month, the court – without prompting from any shareholder or Board member – directed the custodian to add a Board seat and to fill that seat at the special shareholders’ meeting. The Third Circuit reversed. The decision to displace the corporate governance structure of a publicly-traded company did not reflect the required caution, circumspection, or justification for such a drastic step. FRBK’s bylaws describe how the Board should proceed after the death of a director. The Madonna Directors followed those instructions. The court abused its discretion by hastily supplanting the Bylaws with its own process. There was no deadlock, illegality, oppression, or any other ground for appointing a custodian. View "Hill v. Cohen" on Justia Law

Arbitrage Event-Driven Fund v. Tribune Media Co.

2022-07-05T14:00:18-08:00

Tribune and Sinclair announced an agreement to merge. Tribune abandoned the merger and sued Sinclair, accusing it of failing to comply with its contractual commitment to “use reasonable best efforts” to satisfy the demands of the Antitrust Division of the Justice Department and the FCC, both of which could block the merger. Sinclair settled that suit for $60 million; the settlement disclaims liability. While the merger agreement was in place, investors bought and sold Tribune’s stock. In this class action investors alleged violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 by failing to disclose that Sinclair was “playing hardball with the regulators,” increasing the risk that the merger would be stymied. The Seventh Circuit affirmed the dismissal of the suit. The principal claims, which rest on the 1934 Act, failed under the Private Securities Litigation Reform Act of 1995. Questionable statements, such as predictions that the merger was likely to proceed, were forward-looking and shielded from liability because Tribune expressly cautioned investors about the need for regulatory approval and the fact that the merging firms could prove unwilling to do what regulators sought, 15 U.S.C. 78u–5(c)(1)..With respect to the 1933 Act, the registration statement and prospectus through which the shares were offered stated all of the material facts. The relevant “hardball” actions occurred after the plaintiffs purchased shares. “Plaintiffs suppose that, during a major corporate transaction, managers’ thoughts must be an open book." No statute or regulation requires that. View "Arbitrage Event-Driven Fund v. Tribune Media Co." on Justia Law

Evans v. Avande, Inc.

2022-06-10T05:01:35-08:00

Evans served as CEO and a director of Avande, a privately held Delaware corporation that provides medical claims management services to insurance companies and healthcare organizations. Following Evans’s termination, Avande performed an audit and discovered suspect transactions undertaken by Evans while he was serving as CEO. Avande filed suit, alleging breach of fiduciary duty based on alleged self-dealing transactions and improper expenditures and tortious interference, defamation, and conversion based on acts that Evans allegedly committed after his termination. Evans was found liable for about $65,000 in damages, plus interest. Evans demanded advancement for expenses incurred in connection with the action. The Delaware Chancery court entered judgment in favor of Avande. Avande established that there is no causal link between Evans’s status as a former officer of Avande and the tortious inference and defamation claims; those claims solely concerned Evans’s post-termination conduct. Avande demonstrated that Evans did not succeed but was found liable. View "Evans v. Avande, Inc." on Justia Law

West Dakota Oil v. Kathrein Trucking, et al.

2022-05-26T06:06:48-08:00

Lee Kathrein appealed a judgment piercing the veil of Kathrein Trucking, LLC. In May 2020, West Dakota Oil, Inc. sued Kathrein Trucking, LLC and its owner, Kathrein, for failing to pay for fuel West Dakota provided. West Dakota amended its complaint in January 2021 and alleged breach of contract, unjust enrichment and quantum meruit. A bench trial was held in June 2021. In September 2021, the district court issued a memorandum opinion finding in favor of West Dakota. The court issued its findings of fact and judgment, ordering Kathrein Trucking and Kathrein to pay $63,412.35, jointly and severally. In deciding to pierce the veil of Kathrein Trucking, the district court found Kathrein disregarded the formalities required of limited liability companies, provided West Dakota title to a trailer Kathrein personally owned as security for the company’s debt, charged items at West Dakota that Kathrein personally used, and utilized company assets for personal use. The court found Kathrein operated his company as an alter ego based on a totality of the circumstances and the rubric for factors used to pierce a veil. After reviewing the record, the North Dakota Supreme Court concluded the evidence did not support findings under the applicable factors or a conclusion the company’s veil should have been pierced. The decision to pierce the veil and hold Kathrein personally liable was reversed. View "West Dakota Oil v. Kathrein Trucking, et al." on Justia Law

NOELLE LEE V. ROBERT FISHER

2022-05-13T09:07:19-08:00

Plaintiff brought a shareholder derivative action alleging that The Gap, Inc. and its directors (collectively, Gap) failed to create meaningful diversity within company leadership roles, and that Gap made false statements to shareholders in its proxy statements about the level of diversity it had achieved. Gap’s bylaws contain a forum-selection clause that requires “any derivative action or proceeding brought on behalf of the Corporation” to be adjudicated in the Delaware Court of Chancery. Notwithstanding the forum-selection clause, Plaintiff brought her derivative lawsuit in a federal district court in California, alleging a violation of Section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. Section 78n(a), along with various state law claims. The district court dismissed Plaintiff’s complaint based on its application of the doctrine of forum non conveniens, holding that she was bound by the forum selection clause. The Ninth Circuit affirmed the district court’s dismissal and held that Plaintiff did not meet her burden to show that enforcing Gap’s forum-selection clause contravenes federal public policy, rejecting as unavailing the evidence Plaintiff identified as supporting her position: the Securities Exchange Act’s anti-waiver provision and exclusive federal jurisdiction provision, Delaware state case law, and a federal court’s obligation to hear cases within its jurisdiction. The court, therefore, concluded that the district court did not abuse its discretion in dismissing the complaint. View "NOELLE LEE V. ROBERT FISHER" on Justia Law

Sirott v. Superior Court of Contra Costa County

2022-05-05T10:01:12-08:00

EBO filed suit after unsuccessfully seeking to lease a space in a building owned by the Taylor LLC, including derivative claims brought by EBO on behalf of Taylor, alleging that the denial of the lease caused Taylor to suffer economic injury. The defendants argued that EBO lacked standing under Corporations Code section 17709.02 to pursue them because during the litigation it relinquished its interest in and was no longer a member of the Taylor LLC. The court determined that it nonetheless had statutory discretion to allow EBO to maintain the derivative claims. The court of appeal vacated. Section 17709.02 requires a party to maintain continuous membership in a limited liability company to represent it derivatively, just as section 800 requires a party to maintain continuous ownership in a corporation to represent it derivatively. The statutory discretion conferred on trial courts under section 17709.02(a)(1), to permit “[a]ny member [of an LLC] who does not meet these requirements” to maintain a derivative suit does not permit courts to excuse a former member from the continuous membership requirement. While equitable considerations may warrant exceptions to the continuous membership requirement, no such considerations were presented here. View "Sirott v. Superior Court of Contra Costa County" on Justia Law

Grove v. Juul Labs, Inc.

2022-04-27T14:00:55-08:00

Grove, an employee of Juul, a Delaware corporation that was headquartered in San Francisco, received options to acquire company stock. Grove stopped working for Juul in 2017, then exercised those options. In 2019, Grove sought to inspect the company’s books and records under California Corporations Code section 1601 to determine the value of his stock and to investigate potential breaches of fiduciary duty. Juul sought declaratory and injunctive relief in Delaware. Grove filed a shareholder class action and derivative complaint in California. Juul cited a forum selection clause, requiring that derivative and class claims proceed in Delaware. Grove filed an amended complaint, alleging only violations of section 1601. The California court stayed Grove's action, reasoning that the Agreement Grove signed states that Delaware courts have exclusive jurisdiction to enforce the agreement. The Court of Chancery of Delaware then granted Juul judgment on the pleadings; Grove did not waive inspection rights under California law but “[s]tockholder inspection rights are a core matter of internal corporate affairs,” so Grove’s rights as a stockholder are governed by Delaware law; Grove may litigate his inspection rights only in a Delaware court. The California court of appeal affirmed the stay order. It was reasonable to enforce the forum selection clause as to the class and derivative claims. Grove’s claim to inspect the books and records has already been adjudicated in the Delaware court, whose decision is entitled to full faith and credit. View "Grove v. Juul Labs, Inc." on Justia Law