Justia Corporate Compliance Opinion Summaries

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

This appeal stemmed from dispute in the Court of Chancery over the membership of the board of directors of Biolase, Inc. The Court of Chancery resolved the dispute by finding that the Biolase board of directors consisted of five directors, including Paul Clark. The Court of Chancery concluded that Clark was appointed to the Biolase board after a previous director, Alexander Arrow, resigned through oral statements at a board meeting. A press release issued by Biolase after the board meeting quoted Federico Pignatelli, Biolase's Chief Executive Officer and Chairman, as saying he was "thrilled" with Clark's appointment to the board. But Pignatelli quickly reversed course when he learned that Clark had aligned himself with a faction of the board that wanted to remove Pignatelli from his position as CEO. Pignatelli argued that because Arrow's resignation at the board meeting was given orally and was not reduced to writing before Clark was appointed to fill the vacancy created by Arrow's resignation, Clark had not been properly appointed to the board under 8 Del. C. section 141(b). Biolase's largest stockholder, appellee Oracle Partners, L.P., brought suit Biolase seeking a declaration that, among other things, Arrow had resigned from the Biolase board and been replaced by Clark at the board meeting. The Court of Chancery rejected the Pignatelli Faction's legal argument and held that section 141(b) was a permissive statute, that a director may resign by an oral statement, and that there was no requirement that a resignation be in writing. Because the Court of Chancery's holding that directors are permitted under section 141(b) to resign by oral statements was not legally erroneous and the Court of Chancery's determination that Arrow resigned at the board meeting was supported by substantial evidence, the Supreme Court affirmed the Court of Chancery's ruling that Clark was properly appointed to the Biolase board of directors. View "Biolase, Inc. v. Oracle Partners, L.P." on Justia Law

StreetEasy filed suit under the Anticybersquatting Consumer Protection Act, 15 U.S.C. 1125(d). This appeal arose out of the attempted resolution of a dispute between a real estate listing website and one of its co-founders over the propriety of actions taken by the co-founder when he separated from the company, and the validity of corporate actions that occurred before his departure. Because the order of dismissal failed to retain jurisdiction over enforcement of the parties' settlement agreement, or to incorporate the terms of that agreement, the district court lacked jurisdiction to enforce the agreement. Therefore, the court vacated the district court's orders enforcing the settlement agreement and holding defendant in contempt for noncompliance. Because defendant was properly sanctioned for only one of the three factual contentions identified by the district court as the basis for its sanctions award, the court vacated that award and remanded the matter for reconsideration of the appropriate amount of monetary sanctions in light of this decision. View "StreetEasy, Inc. v. Chertok" on Justia Law

This case is one of many "clawback" actions initiated by the Receiver to recover profits from investors in a Ponzi scheme run by Arthur Nadel. The Lee Defendants appealed the district court's grant of summary judgment in favor of the Receiver on the Receiver's complaint under Florida Uniform Fraudulent Transfer Act (FUFTA), Fla. Stat. 726.101 et seq. The receiver appealed the denial of prejudgment interest on the profits Lee was ordered to return to the receivership entities. Since the undisputed facts show that Nadel's transfers to the Lee Defendants satisfy all the elements of FUFTA, the district court's grant of summary judgment in favor of the Receiver is due to be affirmed as is the judgment for the Receiver and against the Lee Defendants in the amount of $935,631.51. The court reversed and remanded with instructions for the district court to apply the factors in Blasland, Bouck & Lee, Inc. v. City of N. Miami, to determine whether equitable considerations justify denying or reducing a prejudgment interest award in light of Florida's general rule that prejudgment interest is an element of pecuniary damages. View "Wiand v. Lee, et al." on Justia Law

Between 2008 and 2011, Viacom Inc. paid three senior executives more than $100 million in bonus or incentive compensation. Compensation exceeding $1 million paid by a corporation to senior executives is not normally deductible under federal tax law, but a corporate taxpayer may deduct an executive’s otherwise nondeductible compensation over $1 million if an independent committee its board of directors approves the compensation on the basis of objective performance standards and the compensation is “approved by a majority of the vote in a separate shareholder vote” before being paid. In 2007, a majority of Viacom’s voting shareholders approved such a plan. Shareholder Freedman sued, claiming that Viacom’s Board failed to comply with the terms of the Plan and that, instead of using quantitative performance measures, the Board partially based its awards on qualitative, subjective factors, destroying the basis for their tax deductibility. Freedman claimed that this caused the Board to award executives more than $36 million of excess compensation. The plan was reauthorized in 2012. The district court dismissed. The Third Circuit affirmed. With respect to his derivative claim, Freedman did not make a pre-suit demand to the Board or present sufficient allegations explaining why a demand would have been futile. With respect to his direct claim regarding participation by stockholders without voting rights, federal law does not confer voting rights on shareholders not otherwise authorized to vote or affect Delaware law permit ting corporations to issue shares without voting rights. View "Freedman v. Redstone" on Justia Law