Justia Corporate Compliance Opinion Summaries

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Indeck develops, owns, and operates conventional and alternative fuel power plants. DePodesta, Indeck's vice president of business development, had overall responsibility for Indeck’s electrical generation project development efforts. Dahlstrom was director of business development. DePodesta and Dahlstrom had signed confidentiality agreements.In 2010, Dahlstrom founded HEV, a consulting firm that develops electrical power generation projects. DePodesta later became a member of HEV. In 2013, DePodesta, Dahlstrom, and HEV formed an LLC to develop natural-gas-fired, simple cycle power plants in Texas. The two subsequently copied and removed from Indeck’s premises thousands of documents and files. DePodesta resigned from Indeck on November 1, 2013, and Dahlstrom on November 4. They did not tell anyone at Indeck that they intended to pursue an opportunity with a new LLC. In 2014, Indeck filed suit, alleging breach of the confidentiality agreements and fiduciary duties,” seeking injunctive relief and disgorgement.The Illinois Supreme Court affirmed in part and reversed in part. Indeck’s confidentiality agreement was unenforceable as overbroad and Indeck failed to prove it had sustained injury based on any breach. Any profits from breaches of fiduciary duty after the defendants were speculative; there was no identifiable fund traceable to those breaches, so a constructive trust was not available. However, defendants breached their fiduciary duties during their employment and were required to disgorge their salaries. Indeck failed to prove the injury necessary for its claim of usurpation of a corporate opportunity. View "Indeck Energy Services, Inc. v. DePodesta" on Justia Law

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While Appvion was in financial distress, 2012-2016, the defendants allegedly fraudulently inflated stock valuations to enrich the directors and officers, whose pay was tied to the valuations of its ERISA-covered Employee Stock Ownership Plan (ESOP). They allegedly carried out this scheme with knowing aid from the ESOP trustee, Argent, and its independent appraiser, Stout. Appvion directors allegedly provided unlawful dividends to its parent company by forgiving intercompany notes. Appvion filed for bankruptcy protection. Appvion’s bankruptcy creditors were given authority to pursue certain corporation-law claims on behalf of Appvion to recover losses from the defendants’ alleged wrongs against the corporation; they brought state law claims against the directors and officers for breaching their corporate fiduciary duties; alleged that Argent and Stout aided and abetted those breaches, and asserted state-law unlawful dividend claims. The defendants argued that their roles in Appvion’s ESOP valuations were governed by the Employee Retirement Income Security Act (ERISA), which preempted state corporation-law liability and that, despite their dual roles as corporate and ERISA fiduciaries, they acted exclusively under ERISA when carrying out ESOP activities, 29 U.S.C. 1002(21)(A). The district court agreed and dismissed.The Seventh Circuit reversed in part. ERISA does not preempt the claims against directors and officers. ERISA expressly contemplates parallel corporate liability against those who serve dual roles as both corporate and ERISA fiduciaries. ERISA preempts the claims against Argent and Stout. Corporation-law aiding and abetting liability against these defendants would interfere with the cornerstone of ERISA’s fiduciary duties—Section 404's exclusive benefit rule. View "Halperin v. Richards" on Justia Law

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Coscia used electronic exchanges for futures trading and implemented high-frequency trading programs. High-frequency trading, called “spoofing,” and defined as bidding or offering with the intent to cancel the bid or offer before execution, became illegal in 2010 under the Dodd-Frank Act, 7 U.S.C. 6c(a)(5). Coscia was convicted of commodities fraud, 18 U.S.C. 1348, and spoofing, After an unsuccessful appeal, Coscia sought a new trial, citing new evidence that data discovered after trial establishes that there were errors in the data presented to the jury and that subsequent indictments for similar spoofing activities undercut the government’s characterization of Coscia as a trading “outlier.” He also claimed that his trial counsel provided ineffective assistance, having an undisclosed conflict of interest. The Seventh Circuit affirmed. Even assuming that Coscia’s new evidence could not have been discovered sooner through the exercise of due diligence, Coscia failed to explain how that evidence or the subsequent indictments seriously called the verdict into question. Coscia has not established that his attorneys learned of relevant and confidential information from its cited unrelated representations. Coscia’s counsel faced “the common situation” where the client stands a better chance of success by admitting the underlying actions and arguing that the actions do not constitute a crime. That the jury did not accept his defense does not render it constitutionally deficient. View "Coscia v. United States" on Justia Law

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There were allegations that Gilead intentionally withheld a safer and potentially more effective HIV/AIDS medication in order to extend the sales window for its older, more dangerous treatment. In 2019, Ramirez, a beneficial owner of Gilead shares, demanded that the company permit him to inspect broad categories of documents for the purpose of “obtaining accurate and complete information about his investment in Gilead, and to find out how the mismanagement and breaches of fiduciary duties at Gilead relating to violations of federal and state laws affect that investment..” Gilead rejected the inspection request. Ramirez then filed a petition for writ of mandate, Corporations Code section 1601, in the superior court asserting common law and statutory rights to inspect the documents described in his demand letter.The trial court denied the petition on the ground that Delaware, Gilead’s state of incorporation, was the sole and exclusive forum to litigate Ramirez’s inspection demand. While his appeal was pending, Ramirez litigated his inspection demand to judgment in Delaware. The court of appeal concluded Ramirez lacks standing to pursue his California inspection demand under section 1601 because he is not a holder of record of Gilead stock. View "Ramirez v. Gilead Sciences, Inc." on Justia Law

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The two equal stockholders of UIP Companies, Inc. were deadlocked and could not elect new directors. One of the stockholders, Marion Coster, filed suit in the Court of Chancery and requested appointment of a custodian for UIP. In response, the three-person UIP board of directors — composed of the other equal stockholder and board chairman, Steven Schwat, and the two other directors aligned with him— voted to issue a one-third interest in UIP stock to their fellow director, Peter Bonnell, who was also a friend of Schwat and long-time UIP employee (the “Stock Sale”). Coster filed a second action in the Court of Chancery, claiming that the board breached its fiduciary duties by approving the Stock Sale. She asked the court to cancel the Stock Sale. After consolidating the two actions, the Court of Chancery found what was apparent given the timing of the Stock Sale: the conflicted UIP board issued stock to Bonnell to dilute Coster’s UIP interest below 50%, break the stockholder deadlock for electing directors, and end the Custodian Action. Ultimately, however, the court decided not to cancel the Stock Sale. The Delaware Supreme Court reversed the Court of Chancery on the conclusive effect of its entire fairness review and remanded for the court to consider the board’s motivations and purpose for the Stock Sale. "If the board approved the Stock Sale for inequitable reasons, the Court of Chancery should have cancelled the Stock Sale. And if the board, acting in good faith, approved the Stock Sale for the 'primary purpose of thwarting' Coster’s vote to elect directors or reduce her leverage as an equal stockholder, it must 'demonstrat[e] a compelling justification for such action' to withstand judicial scrutiny." View "Coster v. UIP Companies, Inc." on Justia Law

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California Senate Bill 826 requires all corporations headquartered in California to have a minimum number of females on their boards of directors. Corporations that do not comply with SB 826 may be subject to monetary penalties. The shareholders of OSI, a corporation covered by SB 826, elect members of the board of directors. One shareholder of OSI challenged the constitutionality of SB 826 on the ground that it requires shareholders to discriminate on the basis of sex when exercising their voting rights, in violation of the Fourteenth Amendment.The Ninth Circuit reversed the dismissal of the suit for lack of standing. The plaintiff plausibly alleged that SB 826 requires or encourages him to discriminate based on sex and, therefore, adequately alleged an injury-in-fact, the only Article III standing element at issue. Plaintiff’s alleged injury was also distinct from any injury to the corporation, so he could bring his own Fourteenth Amendment challenge and had prudential standing to challenge SB 826. The injury was ongoing and neither speculative nor hypothetical, and the district court could grant meaningful relief. The case was therefore ripe and not moot. View "Meland v. Weber" on Justia Law

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Metaxas was the president and CEO of Gateway Bank in 2008, during the financial crisis. Federal regulators categorized Gateway as a “troubled institution.” Gateway tried to raise capital and deal with its troubled assets. Certain transactions resulted in a lengthy investigation. The U.S. Attorney became involved. Metaxas was indicted. In 2015, she pleaded guilty to conspiracy to commit bank fraud. Gateway sued Metaxas based on two transactions involving Ideal Mortgage: a March 2009 $3.65 million working capital loan and a November 2009 $757,000 wire transfer. A court-appointed referee awarded Gateway $250,000 in tort-of-another damages arising from “the fallout” from the first transaction, and $132,000 in damages for the second.The court of appeal affirmed, rejecting arguments that the first transaction resulted in “substantial benefit” to Gateway and that Metaxas had no alternative but to approve the wire transfer. Gateway did not ask for any purported “benefit.” The evidence showed that the Board would not have approved either the toxic asset sale or the working capital loan if Metaxas had disclosed the true facts. Metaxas damaged Gateway’s reputation. Metaxas knew that the government was trying to shut Ideal down but approved the wire transfer on the last business day before Ideal was shut down, by expressly, angrily, overruling the CFO. View "Gateway Bank, F.S.B. v. Metaxas" on Justia Law

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In 1986 Deibel, Hoeg, and Steffen founded Hy-Pro Corporation. Deibel, its president, received 2,500 shares, representing 12.5% of the authorized stock. Deibel guaranteed Hy-Pro’s payment of a $100,000 debt to a bank. Within a year Deibel demanded that Hoeg leave. When Hoeg refused, Deibel quit but held onto his stock even. A state court suit settled, but the settlement was not reduced to writing. Deibel insists that under the settlement Hy-Pro would pay $15,000 and arrange with the bank to release his guarantee. Hoeg and Steffen assert that Deibel was also to surrender his shares.Almost 30 years later, Deibel filed a federal suit. HyPro was sold in 2017 for about $20 million; a 12.5% share would exceed $2.5 million. Indiana has a two-year period of limitations for such claims. The Seventh Circuit affirmed the dismissal of the suit as untimely, rejecting Deibel’s claims that he was still an investor when the firm was sold, and, if not, that a firm’s refusal to recognize him as an investor was a “continuing wrong.” When Deibel did not return his shares, Hy-Pro canceled Deibel’s stock. Deibel has not been on the company’s books as a shareholder since 1992. Deibel received multiple letters from various parties, including the IRS, notifying him of that fact; his claim accrued no later than 1998. View "Deibel v. Hoeg" on Justia Law

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Xanthopoulos, a Mercer consultant, detected securities fraud; his internal complaints failed. He went to the SEC website, and, in March 2014, Xanthopoulos submitted his first TCR Form. Unlike the Sarbanes-Oxley OSHA Form, which may be used to notify OSHA of a Sarbanes-Oxley complaint, the SEC’s TCR Form does not affirmatively indicate that submission of the form will initiate a formal lawsuit under the federal securities law. Xanthopoulos allegedly submitted seven TCR Forms through June 2018; in his 2018 submissions, he mentioned Mercer’s mistreatment of him as an employee, not just the securities fraud. Every TCR Form Xanthopoulos submitted specifically referenced a whistleblowing award.As Xanthopoulos predicted in those filings, Mercer fired him in October 2017. Xanthopoulos filed an OSHA administrative complaint in September 2018, alleging violations of Sarbanes-Oxley’s anti-retaliation provision, 18 U.S.C. 1514A. OSHA dismissed the complaint as untimely because Xanthopoulos filed 350 days after Mercer discharged him. He responded that “there was no[] 180-day-period[] in which [he] could have decided in clear conscience, that [he] had every information needed, to contact OSHA.” Xanthopoulos, then represented by counsel, argued that he filed his claim in the wrong forum, which tolled the statute of limitations: the TCR Forms constituted Sarbanes-Oxley claims mistakenly filed with the SEC. The Seventh Circuit affirmed the dismissal. The reports to the SEC did not toll the 180-day period for his Sarbanes-Oxley complaint. Xanthopoulos has not articulated a sufficient ground to equitably toll his untimely complaint. View "Xanthopoulos v. United States Department of Labor Administrative Review Board" on Justia Law

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Through several corporations, members of the Boersen family have farmed in Michigan for several generations. After 2016's poor crop, their corporate entities could not cover their debts. One creditor, Helena, obtained a nearly 15-million-dollar judgment against the Boersen entities and family members who ran them. Much of the farm equipment was repossessed and, unable to obtain financing, the Boersens discontinued farming until 1999, when family members Stacy and Nick formed new entities, secured financing to lease the land and remaining equipment, and resumed farming. Because the original defendants could not pay their debt, Helena sued Stacy and Nick and their new companies.The Sixth Circuit affirmed summary judgment in favor of the defendants. The leases do not transfer the debtors’ assets; none of the involved entities owes any money to Helena. Stacy and Nick’s use of the family farm’s production history to obtain crop insurance does not constitute a “transfer of assets.” Neither Stacy nor Nick was an owner, manager, or shareholder of any of the Boersen entities covered by the judgment; no Boersen legacy owner or guarantor serves as an officer of or is otherwise employed by, either new company. No original Boersen defendant received anything of value from the new companies other than fair market value payments on leases. Nor was either new company used to commit a wrong against Helena. View "Helena Agri-Enterprises, LLC v. Great Lakes Grain, LLC" on Justia Law