Justia Corporate Compliance Opinion Summaries

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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