Justia Corporate Compliance Opinion Summaries

Columbus Cheer Company ("CCC") entered into a rental contract for the use of school facilities. Subsequently, CCC was informed that Columbus Municipal School District ("CMSD") would not honor the contract with CCC. CCC filed a complaint against CMSD. The complaint read in part: "[p]laintiff Columbus Cheer Company is a profit corporation licensed to due [sic] business in the state of Mississippi . . . ." The prayer sought judgment for plaintiff (CCC). Defendants filed their motion to dismiss or for summary judgment, asserting that CCC was an administratively dissolved corporation; therefore, CCC could not have entered into a valid contract with CMSD, and CCC did not possess the requisite legal status to initiate suit. The trial court entered an order granting Defendants' motion for summary judgment. CCC appealed, and the issues on appeal were: (1) whether a dissolved corporation could pursue a legal action; and if not, (2) could the corporation's shareholders pursue the same action in their own name? The Supreme Court answered both questions "no." View "Columbus Cheer Company v. City of Columbus" on Justia Law

This case came before the Supreme Court on appeal of a jury verdict which found that ev3, Inc., the buyer of Appriva Medical, Inc., breached its contractual obligations to Appriva’s former shareholders, who gave up their shares in the merger. The merger agreement between ev3 and Appriva provided for the bulk of the payments to the Appriva shareholders to be contingent upon the timely accomplishment of certain milestones toward the approval and marketability of a medical device that Appriva was developing. After it became clear that the milestones were not going to be achieved, the former Appriva shareholders sued. At many points during the trial, ev3 attempted to convince the Superior Court that a non-binding letter of intent should not be used to interpret or contradict the clear terms of the merger agreement, but the Superior Court adhered to the contrary view advocated by Appriva. Appriva was permitted to argue to the jury that ev3 not only failed to act in good faith under the agreement, but that it breached a “promise” to honor the Funding Provision contained in the non-binding letter of intent. The jury agreed that ev3 had breached its contractual obligations and determined that ev3 owed Appriva the full amount of the milestone payments, $175 million. On appeal, ev3 argued that the Superior Court erred by permitting Appriva to argue that the Funding Provision in the non-binding letter of intent continued to bind ev3, and also that the non-binding letter of intent modified the “sole discretion” standard set forth in the agreement. After review, the Supreme Court concluded that the Superior Court erred by accepting Appriva’s position that the non-binding Funding Provision within the letter of intent was admissible to affect the meaning of the merger agreement. The case was remanded for further proceedings. View "EV3, Inc. v. Lesh, M.D., et al." on Justia Law

This case arose from a business venture that was established by plaintiff Brendan Allen and defendant Asnel Diaz Sanchez. The venture was operated through plaintiff ADS Associates, Inc. (ADS), a corporation fully owned by Sanchez. Allen and Sanchez opened a business checking account in the name of ADS at a branch of Oritani Savings Bank where ADS had preexisting accounts. By agreement between ADS and Oritani, the new ADS account required the signatures of both Allen and Sanchez to appear on each check drawn on the account. Despite that limitation, Sanchez linked the new ADS account to other ADS accounts within his control and, through a series of internet transactions, transferred a substantial sum of money from the ADS account he had established with Allen to his other ADS accounts. After learning of these transfers, Allen sued Oritani and Sanchez. Although it dismissed Allen’s claims, the trial court permitted Allen to assert claims on ADS’s behalf against Oritani, notwithstanding Sanchez’s issuance of a resolution denying Allen the authority to maintain an action on ADS’s behalf. A jury returned a verdict in favor of ADS. The trial court, however, entered a judgment notwithstanding the verdict in favor of Oritani premised on an indemnification provision in the agreement governing ADS’s account with Oritani. An Appellate Division panel reversed the trial court’s determination. It found that the ADS resolution signed by Sanchez deprived Allen of authority to assert a claim on behalf of ADS. The panel held, however, that Allen could assert a common law negligence claim against Oritani despite the fact that he was not Oritani’s banking customer. It concluded that Allen had a “special relationship” with Oritani, and that Oritani had a duty to advise Allen of its internet banking policies when he and Sanchez opened the ADS account. The Supreme Court agreed with the trial court that Article 4A of the Uniform Commercial Code (UCC) governed the wire transfers at the center of this case, and that Allen could not assert a claim under Article 4A against Oritani because he did not meet the statutory definition of a bank “customer.” Furthermore, the Court held that Allen could not assert a negligence claim based upon an alleged special relationship with Oritani. Accordingly, the Appellate Division was reversed and the trial court's judgment was reinstated. View "ADS Associates Group, Inc. v. Oritani Savings Bank" on Justia Law

On May 10, 2013, CAG MLG, L.L.C. sued Bart Smelley and Smelley Family Investments, L.L.C., alleging six counts of misrepresentation and/or fraud and a single count of unjust enrichment. Smelley responded with a motion to dismiss, arguing that CAG was a foreign limited-liability company formed and organized in the State of Florida in 2010 and that it was "not registered or qualified to do business in the State of Alabama." Smelley also alleged that CAG had domesticated in Wyoming as Oceans, LLC, in March 2011 and that CAG was subsequently dissolved as a Florida entity in April 2011. Smelley argued that CAG "failed to state the jurisdictional element establishing its ability to maintain an action in its initial pleading." Accordingly, Smelley argued, the circuit court lacked "subject matter jurisdiction and/or personal jurisdiction over the matters contained in the [c]omplaint." CAG amended its complaint to add an eighth count requesting that the circuit court issue an injunction preventing Smelley from selling a piece of real property. Smelley amended its motion to dismiss to include the additional claim. CAG filed a motion to strike the paragraphs of Smelley's motion to dismiss that alleged that CAG was a foreign entity that was not registered to transact business in Alabama and the exhibits attached in support thereof. The circuit court held a hearing on the motions, and, the next day, issued an order granting CAG's motion to strike the objected to paragraphs of Smelley's motion. The court dismissed the request for an injunction as moot, and instructed the parties to file briefs regarding the remainder of Smelley's motion. Later that year, the circuit court granted Smelly's motion. CAG appealed. On review, the Supreme Court found that the circuit court granted Smelley's motion to dismiss without considering the exhibits attached thereto (having struck those exhibits pursuant to CAG's motion). Accordingly, Smelley's motion was not converted to a motion for a summary judgment. The the circuit court's dismissal of CAG's complaint would have only been proper if CAG's alleged lack of capacity was evident from the face of CAG's complaint. The Court concluded that it was not. Therefore, the circuit's court's dismissal of the complaint was reversed. View "CAG MLG, L.L.C. v. Smelley" on Justia Law

Allergan, the pharmaceutical manufacturer of Botox, settled several qui tam suits concerning allegations that it had acted illegally in marketing and labeling Botox, and pled guilty in a criminal case. Plaintiffs, all Allergan shareholders, subsequently filed a derivative action alleging that Allergan's directors are liable for violations of various state and federal laws, as well as breaches of their fiduciary duties to Allergan. Plaintiffs failed to make a demand on Allergan's board requesting that Allergan bring the derivative claims in its own name. The court concluded that the district court misapplied governing Delaware law and improperly drew inferences against plaintiffs rather than in their favor when the district court dismissed the action on the ground that plaintiffs failed to allege particularized facts showing that demand was excused under Federal Rule of Civil Procedure 23.1. The court concluded that demand was excused where plaintiffs' particularized allegations established a reasonable doubt as to whether the Board faces a substantial likelihood of liability and as to whether the Board is protected by the business judgment rule. Accordingly, the court reversed the judgment of the district court. View "Rosenbloom v. Pyott" on Justia Law

This dispute arose from violations issued by the Department of Labor's Mine Safety and Health Administration. At issue was whether the word "corporation" includes limited liability companies (LLCs) for purposes of the Federal Mine Safety and Health Act of 1977 (the Mine Act), 30 U.S.C. 801 et seq. The court concluded that the terms "corporation" and "corporate operator" in the Mine Act are ambiguous. Applying Chevron deference, the court concluded that the Secretary's interpretation is reasonable where, most importantly, construing section 110(c) to include agents of LLCs is consistent with the legislative history. Therefore, the court held that an LLC is a corporation for purposes of the Mine Act and that section 110(c) can be used to assess civil penalties against agents of an LLC. Because substantial evidence supported the ALJ's decision to hold petitioners personally liable for the order at issue, the court affirmed on this issue. Finally, the order underlying their civil penalties was not duplicative. Accordingly, the court affirmed the ALJ's decision. View "Sumpter, et al. v. Secretary of Labor, et al." on Justia Law

A shareholder of Arctic Slope Regional Corporation sought to exercise his statutory right to inspect books and records of account and minutes of board and committee meetings relating to executive compensation and an alleged transfer of equity in corporate subsidiaries to executives. The Corporation claimed that the materials were confidential and sought to negotiate a confidentiality agreement prior to release of any documents. When the shareholder ultimately rejected the proposed confidentiality agreement, the Corporation released to the shareholder only the annual reports and proxy statements of the Corporation and the minutes describing the subjects discussed and actions taken at the meetings. The shareholder did not receive the detailed, individualized compensation information he sought. The shareholder sued, claiming that the Corporation withheld information that statutorily it was required to release, and that the Corporation improperly insisted on a confidentiality agreement prior to releasing any of the requested documents. The superior court ruled that electronically maintained accounting records were not within the statutory category of "books and records of account"; that the Corporation satisfied the requirement to disclose "books and records of account" when it disclosed only annual reports and proxy statements; and that the Corporation satisfied the requirement to disclose meeting minutes. Furthermore, the court concluded that the Corporation could demand a confidentiality agreement prior to release of any information, and that the terms of the particular confidentiality agreement offered in this case were reasonable. The shareholder appealed, arguing that the statutory right of inspection encompasses more than what the Corporation provided and that the Corporation had no right to demand the confidentiality agreement in this case. This appeal presented several issues of first impression in Alaska. Upon review, the Supreme Court held: (1) the statutory phrase "books and records of account" includes electronically maintained books and records of account; (2) the statutory phrase also goes beyond mere annual reports and proxy statements; and (3) the statutory phrase at least encompasses monthly financial statements, records of receipts, disbursements and payments, accounting ledgers, and other financial accounting documents, including records of individual executive compensation and transfers of corporate assets or interests to executives; (4) the statutory category "minutes" does not encompass all presentations or reports made to the board but rather merely requires a record of the items addressed and actions taken at the meeting, as have been faithfully recorded after the meeting; and (5) a corporation may request a confidentiality agreement as a prerequisite to distributing otherwise-inspectable documents provided that the agreement reasonably defines the scope of confidential information subject to the agreement and contains confidentiality provisions that are not unreasonably restrictive in light of the shareholder's proper purpose and the corporation's legitimate confidentiality concerns. The Court found that the Corporation's proffered confidentiality agreement in this case was not sufficiently tailored or limited in scope and thus the shareholder's refusal to sign it could not serve as a legal basis for avoiding liability for denying his inspection claims. View "Pederson v. Arctic Slope Regional Corp." on Justia Law

"The Record in this case is voluminous, and illustrates the complex and, at times, contentious nature of these proceedings. The circuit judge presided over numerous motion hearings and issued numerous orders over the course of this litigation." However, this appeal concerned a final order in which the circuit judge dismissed all of the cases and awarded fees and costs to Respondents as sanctions for Appellants' continued refusal to comply with his previous discovery rulings. In addition, Appellants appealed the judge's failure to disqualify himself at the outset of this litigation and late refusal to recuse himself. Appellants were limited partners in five separate limited partnerships and asserted legal claims in five separate actions against Respondents, their general partners. The limited partnerships were formed in the 1960s to construct and operate the properties at issue, affordable housing projects for low-income citizens in three counties. Respondents became general partners around 1975, and from that point forward, Appellants took no part in the management or business affairs of the complexes. In 1984, Respondents notified Appellants that they had contracted to sell the properties to Boston Financial Group (BFG). The terms of the sale called for a small amount to be paid upfront but the majority would be paid in 1999 in a "balloon" payment with accruing interest. However, BFG defaulted on the payment, and sold the properties without intervention from the partnerships. All of the claims stemmed from Respondents' roles in selling the properties and their actions in the aftermath of BFG's default. Appellants argued on appeal the Supreme Court that the circuit abused its discretion by dismissing these cases under the facts, particularly because" (1) less "draconian" punishments were available to the court; (2) Appellants agreed to receive a less harsh sanction and "took extraordinary steps to avoid dismissal"; (3) the judge consistently espoused Respondents' arguments as evidence constituting a factual basis to support his decisions; and (4) the judge deviated from South Carolina law to effect dismissal. The Supreme Court affirmed the circuit court in all respects: the circuit court did not abuse its discretion in the rulings it made, and Appellants failed to prove that they suffered any prejudice as a result of the judge's refusal to recuse himself in this case. The case was remanded for further proceedings. View "Davis v. Parkview Apartments" on Justia Law

In 2010, plaintiffs and Tidyman’s Management Services Inc. (TMSI) filed a complaint against Michael A. Davis and John Maxwell in their capacities as officers and directors of TMSI and/or its subsidiary, Tidyman’s LLC, alleging breach of corporate duties arising out of a merger between TMSI and SuperValu, which created Tidyman’s LLC. Plaintiffs requested punitive damages and attorney fees. The merger at issue occurred despite advice from a financial advisor TMSI had retained that the company should be sold, and the complaint alleged that the directors and officers had misrepresented the merit of the transaction. TMSI is a Washington corporation with its principal place of business in Montana, and was a member of Tidyman’s LLC; employee shareholders owned TMSI. A corporate liability insurance policy was in place that purported to insure Davis and Maxwell against liability incurred in their positions as officers and directors of Tidyman’s LLC. The Policy was to provide a legal defense for Davis and Maxwell throughout the federal ERISA litigation. The issues this case presented to the Montana Supreme Court were: (1) whether the District Court was correct in concluding Montana law, rather than Washington law, applied in this case; (2) whether the District Court erred in concluding that the corporate liability insurer breached its duty to defend without analyzing coverage under the policy; (3) whether the District Court erred in denying the insurer a hearing and discovery on reasonableness and collusion related to the stipulated settlements; and (4) whether the District Court erred by awarding pre-judgment interest, or in its determination of when the interest began accruing. The Montana Court concluded that genuine issues of material fact regarding reasonableness precluded summary judgment on the amount of the stipulated settlements. Accordingly,the Court reversed judgment on the stipulated settlements and remanded this case for further proceedings. The Court affirmed on all other issues. View "Tidyman s et al. v. Davis et al." on Justia Law

Massuda invested $4,000,000 in Concessions, Inc., which was part owner, with Tony Rezko, of a group of Panda Express restaurants. Rezko, who controlled several companies, hoped to expand the business. Rezko was indicted and convicted on federal fraud and bribery charges, for which he received a lengthy prison sentence in 2011. Rezko’s real estate ventures collapsed. Massuda filed suit against Rezko’s corporations and associated people, raising claims of unjust enrichment, fraud, and aiding and abetting a breach of fiduciary duty. The district court concluded that all of Massuda’s claims, except portions of her fraud claim, were derivative, and on that ground dismissed those counts with prejudice for failure to state a claim. Massuda declined to amend her fraud allegations, which were then dismissed. The Seventh Circuit affirmed, rejecting a claim that if the holder of a majority interest acts in a way that helps him and hurts the minority, there is a direct claim. A direct claim exists when a majority shareholder engages in wrongdoing in such a way as to dilute the voting power of the minority shareholders; a dilution of voting power is a direct harm to the shareholders that is not felt by the company. View "Massuda v. Panda Express Inc." on Justia Law