Justia Corporate Compliance Opinion Summaries

Menard operated a store in a building subleased from Wal-Mart. In 2006, Menard entered into a Purchase Agreement (PA) with Dial; Clauff signed as a managing member of Dial. Menard planned to build a store and wanted to be relieved of its obligations under the sublease. Menard and Dial agreed that Dial would assume responsibility for the sublease after Menard opened its new store. With Wal-Mart’s consent, DKC (Chauff's other LLC) and Menard executed an Assignment. Clauff purported to sign as a member of DKC. DKC did not file Articles of Organization until later. Clauff and Menard claim, but neither provided evidence, that DKC adopted the Assignment after the company formed. Menard remained secondarily liable. Menard opened its new store in 2008. When the Sublease expired in 2011, Wal-Mart was owed more than $700,000. Menard paid $350,000 and sued Dial, DKC, and Clauff. The district court granted summary judgment, finding Clauff liable under Nebraska Revised Statute 21-2635: "[a]ll persons who assume to act as a limited liability company without authority to do so shall be jointly and severally liable for all debts and liabilities of the company." The Eighth Circuit reversed for determination of whether common law or section 21-2635 preclude Clauff's argument that his liability may be avoided because DKC adopted the contract and commenced performance. View "Menard, Inc. v. Clauff" on Justia Law

Miller, an African-American male, worked as a cook for Hospitality’s Sparx Restaurant. Miller became assistant kitchen manager and was a satisfactory employee. On October 1, 2010, Miler discovered racially offensive pictures at the kitchen cooler. Miller lodged a complaint. Two employees admitted responsibility. The manager agreed that the posting was a termination-worthy offense, but one offender was given a warning and the other was not disciplined. Soon after Miller’s complaint, supervisors began to criticize Miller’s work performance. Sparx fired Miller on October 23, 2010. The EEOC filed suit on Miller’s behalf under Title VII, 42 U.S.C. 2000e-2(a), 3(a). Before trial, Sparx had closed and Hospitality had dissolved. The court concluded that successor corporations could be liable. The jury awarded $15,000 in compensatory damages on the retaliation claim. The EEOC sought additional remedies. The district court denied the front-pay request but awarded Miller $43,300.50 in back pay (and interest) plus $6,495.00 to offset impending taxes on the award; enjoined the companies from discharging employees in retaliation for complaints against racially offensive postings; and required them to adopt policies, investigative processes, and annual training consistent with Title VII. The Seventh Circuit affirmed with respect to both successor liability and the equitable remedies. View "Equal Emp't Opportunity Comm'n v. N. Star Hospitality, Inc" on Justia Law

Section 747 of the Consolidated Appropriations Act of 2010 created an arbitration procedure for automobile dealerships to seek continuation or reinstatement of franchise agreements that had been terminated by Chrysler during bankruptcy proceedings, with the approval of the bankruptcy court. After an arbitral decision favoring the dealer, the manufacturer was required to provide the dealer a “customary and usual letter of intent” to enter into a sales and service agreement. After arbitrations, a trial was held to determine whether Chrysler supplied each prevailing dealer with such a letter. Most of the rejected dealers reached settlements with New Chrysler. The court determined that the remaining dealers had received “customary and usual” letters. The Sixth Circuit agreed that section 747 does not constitute an unconstitutional legislative reversal of a federal court judgment and that the only relief it provides to successful dealers is the issuance of a letter of intent. The letters at issue were “customary and usual,” except one contractual provision that required reversal. Contrary to the district court’s conclusion application Michigan and Nevada state dealer acts is preempted by section 747, because those acts provide for redetermination of factors directly addressed in federally-mandated arbitrations closely related to a major federal bailout. View "Chrysler Grp. LLC v. Sowell Auto., Inc." on Justia Law

Shareholders are required to make a “demand” on the corporation’s board of directors before filing a derivative suit, unless they sufficiently allege that demand would be futile. Before Arduini filed his derivative action against IGT and its board, four shareholders filed derivative suits that were consolidated. They argued that a demand was excused because: the IGT board extended the employment contract of IGT’s former CEO and chairman of IGT’s board of directors, and allowed him to resign rather than terminating him for cause; three directors received such high compensation from IGT that their ability to impartially consider a demand was compromised; six directors faced a substantial likelihood of liability for breaches of their fiduciary duties as committee members; and that other members had engaged in insider trading. The district court dismissed the consolidated suit for failure to make a demand or sufficiently allege futility; the Ninth Circuit affirmed. The district court then dismissed Arduini’s action, holding that Arduini had failed to make a demand and could not allege demand futility based on issue preclusion due to its ruling in the prior suit. The Ninth Circuit affirmed, holding that under Nevada law and these facts, issue preclusion barred relitigation of futility. View "Arduini v. Int'l Gaming Tech." on Justia Law

The Everetts formerly operated a PDRI franchise. After that franchise was terminated, they violated a non-compete clause. Only Mr. Everett and the Everetts’ corporation actually signed the franchise agreement. PDRI sought to bind Ms. Everett to an arbitration award pursuant to the franchise agreement. Although Everett was a non-signatory to the franchise agreement, PDRI asserted she was subject to arbitration under the doctrine of direct benefits estoppel. The district court determined that the benefits Everett received were filtered through her ownership interest in their corporation or through her husband and were therefore indirect. The Seventh Circuit reversed, holding that Everett did receive a direct benefit. It is clear that the Everetts’ corporation was formed to gain the benefit of the franchise agreement and was used only to conduct the business of the franchise; Ms. Everett had a 50% ownership and played an active role in running the corporation. View "Everett v. Paul Davis Restoration, Inc." on Justia Law

Plaintiff filed a shareholder derivative action on behalf of Deckers to recover damages he claimed it suffered because of misconduct by Deckers' officers and directors. The trial court sustained defendants' demurrer with leave to amend but plaintiff elected not to file an amended complaint. The trial court subsequently dismissed the complaint and plaintiff appealed. The court concluded that discovery is not available to a person seeking to qualify as a plaintiff in a shareholder derivative action involving a Delaware corporation. Plaintiff must comply with the particularized pleading requirement of Rule 23.1 without the assistance of Deckers, its officers, or board of directors. Plaintiff, instead, should consult and use the "tools at hand," such as an inspection demand or taking the steps necessary to obtain the facts from publicly available SEC filings. Accordingly, the court affirmed the dismissal. View "Jones v. Martinez (Deckers Outdoor Corp.)" on Justia Law

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