Justia Corporate Compliance Opinion Summaries

Arnold, a former officer of two corporate defendants, held significant stock in each. In 1999, Arnold sued both in Illinois state court, claiming shareholder oppression. In 2006, the parties allegedly agreed to settle, but never executed settlement documents. The defendants have not paid any of the $207,500 purportedly required. The court dismissed without deciding whether the case had been settled. A month later, Arnold agreed to sell his stock to KJD for $290,000. KJD advanced $100,000; Arnold represented that he had good title. KJD notified the defendants that it had purchased the stock and wished to inspect the corporate books. They did not respond, but moved to vacate the dismissal, alleging that, under the alleged settlement, Arnold had transferred his stock to the corporations. They also filed suit before a different judge, resulting in a default judgment ordering Arnold to execute settlement papers and comply with the agreement. The Appellate Court affirmed. KJD was never joined as a party. The court stayed proceedings in the original action. Arnold filed a FRCP Rule 22 interpleader action, naming the corporations and KJD, stating that he made no claim to continued ownership and was willing to transfer the stock to whichever defendant the court determined to have superior right. Invoking the Rooker-Feldman doctrine, the district court dismissed, but ordered Arnold to return the $100,000 advance payment. The Seventh Circuit vacated and remanded, reasoning that the interpleader action does not attack the state court judgment itself, so further proceedings are necessary.View "Arnold v. KJD Real Estate, LLC" on Justia Law

Brothers Patrick and Thomas each owned one‐third of the stock of Commercial Light, a Chicago electrical contractor. Between 1982 and the 2008 sale of the company, Thomas was the CEO, board chairman, and president. The other officers were the company’s treasurer, and its executive vice‐president. The board of directors had only two members: Thomas and a lawyer. Patrick took no part in the company’s management. Patrick sued, claiming that when Morris became executive vice‐president in 1992, he, with Thomas’s approval, started jacking up the salaries and bonuses paid so that the compensation of the three officers soared, totaling $22 million between 1993 and 2000, and that the lawyer on the board rubber‐stamped Thomas’s compensation decisions. The Seventh Circuit affirmed a jury verdict finding breach of fiduciary duty. The jury did not have to find that the compensation was excessive in order to find a breach of fiduciary duty by concealment. Illinois allows as a remedy for breach of fiduciary duty a forfeiture of all the fiduciary’s earnings during the period of breach. The court speculated on why the highly-educated Patrick did not discover the concealment until several years after the sale, but noted that the appeal only concerned jury instructions. View "Halperin v. Halperin" on Justia Law

Robert Rude and Harold Rudolph were shareholders and former directors of Cook Inlet Region, Inc. (CIRI). They distributed a joint proxy solicitation in an attempt to be elected to the CIRI board of directors at CIRI’s 2010 annual meeting. Rude and Rudolph accumulated over one quarter of the total outstanding votes, but CIRI’s Inspector of Election refused to allow them to cumulate their votes. Thus, votes were split evenly between the two of them and neither was seated. Upon review of the matter, the Supreme Court concluded that the language of the proxy form required the shareholders’ votes to be equally distributed between Rude and Rudolph unless a shareholder indicated otherwise. Therefore the Court affirmed the superior court’s decision granting summary judgment in favor of CIRI on this issue. View "Rude v. Cook Inlet Region, Inc." on Justia Law

The issue before the Supreme Court in this matter centered on a Court of Chancery decision arising from a 2011 acquisition by MacAndrews & Forbes Holdings, Inc. (M&F), a 43% stockholder in M&F Worldwide Corp (MFW), of the remaining common stock of MFW. M&F’s proposal to take MFW private was made contingent upon two procedural conditions. Appellants initially sought to enjoin the transaction. They withdrew their request for injunctive relief after taking expedited discovery, including several depositions. Appellants then sought post-closing relief against M&F, Ronald Perelman, and MFW’s directors for breach of fiduciary duty. Defendants then moved for summary judgment, which the Court of Chancery granted. Appellants raised two arguments on appeal: (1) the Court of Chancery erred in concluding that no material disputed facts existed regarding the conditions precedent to business judgment review; and (2) the Court of Chancery erred, as a matter of law, in holding that the business judgment standard applied to controller freeze-out mergers where the controller’s proposal is conditioned on both Special Committee approval and a favorable majority-of-the-minority vote.The Supreme Court concluded Defendants’ motion for summary judgment was properly granted on all of those issues. The Court determined that the business judgment rule standard of review applied to this controlling stockholder buyout. View "Kahn, et al v. M&F Worldwide Corp., et al." on Justia Law

Plaintiff-appellant Eldon Klaassen appealed a Court of Chancery judgment which held that Klaassen was not the de jure chief executive officer of Allegro Development Corporation. Klaassen claimed that the remaining Allegro directors, by removing him as CEO, violated an equitable notice requirement and also improperly employed deceptive tactics. After a trial and without addressing its merits, the Court of Chancery held that the claim was barred under laches and acquiescence. Upon review of the matter, the Supreme Court affirmed the Court of Chancery: to the extent that Klaassen’s claim was cognizable, it was equitable in nature. Furthermore, the Court concluded that the Court of Chancery properly found that Klaassen acquiesced in his removal as CEO, and was therefore barred from challenging removal. View "Klaassen v. Allegro Development Corporation, et al." on Justia Law

Petitioner filed a complaint with OSHA, asserting that Saybolt and Core Labs had violated Section 806 of the Corporate and Criminal Fraud Accountability Act of 2002, Title VIII of the Sarbanes-Oxley Act, 18 U.S.C. 1514A(a), by retaliating against him for blowing the whistle on an alleged scheme to violate Colombian tax law. OSHA, an ALJ, and the Board all rejected petitioner's complaint. The court concluded that petitioner did not demonstrate that he engaged in protected conduct because he did not complain, based on a reasonable belief, that one of six enumerated categories of U.S. law had been violated. Petitioner had not demonstrated that he engaged in any protected activity, and given this, the court could not say that Core Labs knew that petitioner engaged in a protected activity that was a contributing factor in the unfavorable actions of withholding petitioner's pay raise and ultimately terminating him. Accordingly, the court affirmed the Board's dismissal of petitioner's complaint because he had not demonstrated that his claim fell within the scope of section 806. View "Villanueva v. U.S. Dept. of Labor" on Justia Law

Starr, AIG's former principal shareholder, filed suit against the FRBNY for breach of fiduciary duty in its rescue of AIG during the fall 2008 financial crisis. The district court dismissed Starr's claims and Starr appealed. The suit challenged the extraordinary measures taken by FRBNY to rescue AIG from bankruptcy at the height of the direst financial crisis in modern times. In light of the direct conflict these measures created between the private duties imposed by Delaware fiduciary duty law and the public duties imposed by FRBNY's governing statutes and regulations, the court held that, in this suit, state fiduciary duty law was preempted by federal common law. Accordingly, the court affirmed the judgment of the district court. View "Starr Int'l Co. v. Federal Reserve Bank of New York" on Justia Law

In an effort to save Quartz Mountain Aerospace, some of its investors and directors took out large loans from First State Bank of Altus for the benefit of the company. The Bank failed, and the Federal Deposit Insurance Corporation (FDIC) took over as receiver and filed suit to collect on the loans. The Borrowers raised affirmative defenses to the FDIC’s claims and brought counterclaims, alleging that the Bank’s CEO had assured them that they would not be personally liable on any of the loans. The district court granted summary judgment for the FDIC because the CEO’s alleged promises were not properly memorialized in the Bank’s records. The Borrowers appealed on two grounds: (1) that the district court should not have granted summary judgment before allowing them to conduct discovery, and (2) that the district court should have set aside the summary judgment because they presented newly discovered evidence of securities fraud by the Bank. The Tenth Circuit affirmed the district court on both of the Borrowers' claims. View "FDIC v. Arciero, et al" on Justia Law

Petitioners-Appellants, tort claimants in lawsuits pending against Krafft-Murphy Company, Inc. in other jurisdictions, sought the appointment of a receiver to enable them lawfully to pursue those claims against the company in those other courts. The company argued argued that because it held no assets other than unexhausted liability insurance policies, Delaware law did not authorize the appointment of a receiver and that it was not necessary to appoint one. The Court of Chancery granted summary judgment in favor of the company. The Petitioners appealed. The case raised two questions of first impression in for the Delaware Court, plus a third question directly addressed by settled Delaware law: (1) does a contingent contractual right, such as an insurance policy, constitute "property"?; (2) does Delaware's statutory corporate dissolution scheme contain a generally applicable statute of limitations that time-bars claims against a dissolved corporation by third parties after the limitations period expires?; and (3) after a three year winding-up period expires, does a dissolved corporation have the power to act absent a court-appointed receiver or trustee? Upon review, the Supreme Court concluded: (1) under 8 Del. C. 279, contingent contractual rights, such as unexhausted insurance policies, constitute "property" of a dissolved corporation, so long as those rights are capable of vesting; (2) Delaware's dissolution statutes impose no generally applicable statute of limitations that would time-bar claims against a dissolved corporation by third parties; and (3) the existence of the "body corporate" continues beyond the expiration of the statutory winding-up period of 8 Del. C. sec. 278 for purposes of conducting litigation commenced before the expiration of that period. But, for litigation commenced after the expiration of that statutory period, a dissolved corporation may act only through a receiver or appointed trustee. Because the judgment of the Court of Chancery rested on legal determinations inconsistent with these holdings, the Supreme Court reversed the judgment and remanded the case for further proceedings. View "Anderson v. Krafft-Murphy Co. Inc." on Justia Law

The issue before the Supreme Court in this case was an interlocutory appeal by the Court of Chancery of a preliminary injunction halting consummation of a stock purchase agreement under which Vivendi, S.A. would have divested itself of its controlling interest in Appellee Activision Blizzard, Inc., and an Activision stockholder. Appellees convinced the trial court that the company’s charter required that a majority of the public stockholders vote in favor of the transaction. The relevant provision applied to "any merger, business combination, or similar transaction" involving Vivendi and Activision. The trial court held that Activision's purchase of its own stock would be a business combination because significant value would be transferred to Vivendi in exchange for Activision's acquisition of a newly-formed Vivendi subsidiary that held Vivendi's Activision stock. In October 2013, the Supreme Court reversed, and this opinion set forth the basis for its decision. View "Activision Blizzard, Inc., et al. v. Hayes, et al." on Justia Law