Justia Corporate Compliance Opinion Summaries

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 The defendants appealed to the South Carolina Court of Appeals, which affirmed the circuit court's decision in an unpublished opinion.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

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

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

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 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

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

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

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

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

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