Justia Corporate Compliance Opinion Summaries

In the 1960s, the founder’s sons (plaintiff and his brothers) joined the business, later incorporated as MBP. The business grew to have annual sales of $60 million. Plaintiff served as vice-president, secretary, and a member of the board of directors, and was a shareholder. Plaintiff had a “spiritual awakening” in 1995. He claims that the change resulted in antagonism toward him. Plaintiff delivered a eulogy at his father’s 2009 funeral, which upset family members. Days later, plaintiff received notice of termination of his employment and that various benefits would cease. The letter explained that “[y]our share of any draws from the corporation or other entities will continue to be distributed to you.” Plaintiff continued on the board of directors until August, 2009, when the shareholders did not re-elect him. Plaintiff filed charges of religious discrimination under Title VII of the Civil Rights Act of 1964, 42 U.S.C. 2000e-2(a)(1) and of hostile work environment. The district court dismissed, finding that he was not an employee under Title VII and did not establish existence of a hostile work environment. The Third Circuit affirmed, stating that it was clear that plaintiff was entitled to participate in development and governance of the business. View "Mariotti. v. Mariotti Bldg. Prods., Inc." on Justia Law

Indiana Boxcar, a holding company that owns several railroads, petitioned for review of the Board's determination that Indiana Boxcar was an "employer" for purposes of the Railroad Retirement Act and the Railroad Unemployment Insurance Act, 45 U.S.C. 231, 351. To be an employer under those two Acts, a company such as Indiana Boxcar must be "under common control" with a railroad. Before this case, the Board repeatedly held that parent corporations like Indiana Boxcar were not under common control with their railroad subsidiaries. Under Board precedent, the term "common control" did not usually apply to two companies in a parent-subsidiary relationship. Here, however, the Board did not adhere to that precedent and did not reasonably explain and justify its deviation from its precedent. Therefore, the court held that the Board's decision was arbitrary and capricious under the Administrative Procedure Act, 5 U.S.C. 706(2)(A). Accordingly, the court vacated and remanded to the Board. View "Indiana Boxcar Corp. v. RRRB" on Justia Law

Appellants challenged the IRS's deficiency finding, as well as an accuracy-related penalty. On appeal, appellants argued that the Tax Court misunderstood relevant law when it affirmed the IRS's calculation of their remaining basis in their S corporation. They also challenged the factual basis for the Tax Court's decisions affirming the Service's rejection of their over-reporting claim and upholding its imposition of the penalty. The court rejected defendant's first challenge, concluding that a shareholder's basis was decreased "for any period" by the amount of that shareholder's pro rata share of the corporation's losses, and a shareholder incurred previously unabsorbed losses in the first year the shareholder had adequate basis to do so. In regards to the over-reporting claim, the court held that the Tax Court made no clear error when it upheld the IRS's determination not to reduce the sole proprietorship's income. Consequently, there was no dispute that appellants' 2003 tax return understated their taxes by an amount that qualified as substantial. Accordingly, the court affirmed the judgment. View "Barnes, et al v. Commissioner, IRS" on Justia Law

Wiest worked in Tyco’s accounting department for 31 years, until his termination in 2010. Beginning in 2007, Wiest refused to process reimbursement claims that he believed were unlawful or constituted “parties” at resorts. Wiest sued Tyco and its officers and directors under the whistleblower protection provisions in Section 806 of the Sarbanes-Oxley Act, 18 U.S.C. 1514A, and under Pennsylvania law. The district court dismissed the federal whistleblower claims and declined to exercise supplemental jurisdiction. The Third Circuit reversed in part, holding that the court erred in requiring that Wiest allege that his communications to his supervisors “definitively and specifically relate to” an existing violation of a particular anti-fraud law, as opposed to expressing a reasonable belief that corporate managers are taking actions that could run afoul of a particular anti-fraud law. View "Wiest v. Lynch" on Justia Law

At an L.O.M. stockholders’ meeting, stockholders raised concerns about sufficiency of notice, accuracy of proxy materials, and lack of current financial information. In response to a stockholder’s request, the President of L.O.M., Matthews, adjourned the meeting. Matthews and “numerous stockholders” departed. L.O.M.’s counsel then announced that the meeting had not adjourned and that a recess was being taken. A director then purported to preside over a resumed meeting, at which challenged directors were allegedly elected. The challenged directors took a number of actions, including approving L.O.M.’s 2012 stock option plan and firing Matthews. Defendants assert that after the meeting resumed, votes were counted, and challenged directors were elected by about 56% of outstanding shares; after the meeting, the challenged directors sent the stockholders a letter that informed the stockholders of the meeting’s results. In an action to determine the composition of the board, the chancellor denied a motion to dismiss. The chancellor acknowledged sympathy for defendants’ “real argument,” that in attempting to ratify the vote for the challenged directors, a majority of shares outstanding have, in effect, been voted for the challenged directors and that adjournment of the meeting was simply an attempt by Matthews to preserve himself in office.View "Gentili v. L.O.M. Med. Int'l, Inc." on Justia Law

Polar Holding was sole shareholder of PMC, a company engaged in the petroleum-additive business. PMC was in default on a loan for which it had pledged valuable intellectual property as collateral, and Polar Holding was in the midst of an internal dispute between members of its board of directors regarding business strategy for PMC. One of the directors, Socia, formed a competing company, Petroleum, for the purpose of acquiring PMC’s promissory note and collateral from the holder of PMC’s loan. Petroleum brought suit against Woodward, an escrow agent in possession of PMC’s collateral, alleging that PMC was in default on the payment of its promissory note. Polar Holding and PMC intervened and filed counterclaims against Petroleum and a third-party complaint against additional parties, including Socia. Polar Holding and PMC allleged breach of fiduciary duty, civil conspiracy, and tortious interference. After PMC filed for bankruptcy, its claims became the property of the bankruptcy trustee. Polar Holding’s claims were later dismissed. The Sixth Circuit affirmed dismissal of a tortious interference claim as addressed by the district court, but reversed dismissal of a breach-of-fiduciary-duty claim against Socia and a civil-conspiracy claim against individual third-party defendants.View "Petroleum Enhancer, L.L.C. v. Woodward" on Justia Law

Appellants Consipio Holding, BV; Ilan Bunimovitz; Tisbury Services, Inc.; and Claudio Gianascio (collectively, Consipio) are shareholders of Private Media Group, Inc. (PRVT). In August 2010, Consipio filed a complaint in the Nevada district court, seeking injunctive relief and the appointment of a receiver for PRVT. Consipio also asserted derivative claims on behalf of PRVT against PRVT's former CEO and president, Berth H. Milton, Jr., and against officer and director respondents Johan Carlberg (PRVT director), Peter Dixinger (PRVT director), Bo Rodebrant (PRVT director), Johan Gillborg (former PRVT CFO), and Philip Christmas (PRVT subsidiary CFO). The claims focused on respondents' alleged conduct in assisting Milton, Jr., to financially harm PRVT for their personal gain. The complaint alleged that respondents assisted Milton, Jr., in obtaining significant loans for himself and entities he controls. It further stated that respondents failed to demand repayment on these loans and that they helped Milton, Jr. by removing funds from PRVT and concealing the wrongdoing. Given these allegations, Consipio contended that respondents collectively were guilty of misfeasance, malfeasance, and breach of their fiduciary duties. The issue before the Supreme Court was whether Nevada courts could properly exercise personal jurisdiction over nonresident officers and directors who directly harm a Nevada corporation. The Court concluded that they can. In this case, the district court failed to conduct adequate factual analysis to determine whether it could properly exercise personal jurisdiction over the respondents before dismissing the complaint against them. Accordingly, the Supreme Court vacated the dismissal order and remanded this case to the district court for further proceedings.View "Consipio Holding, BV v. Carlberg" on Justia Law

Petitioner Lisa McBride was an accountant who worked as Respondent Peak Wellness Center’s business manager for about nine years. Peak terminated her in 2009, citing job performance and morale issues. Petitioner claimed she was terminated in retaliation for bringing various accounting improprieties to the attention of Peak’s Board of Directors. Petitioner brought several federal and state-law claims against Peak: (1) whistleblower retaliation under the federal False Claims Act (FCA); (2) violations of the federal Fair Labor Standards Act (FLSA); (3) breach of employment contract; (4) breach of implied covenant of good faith and fair dealing; (5) defamation; and (6) a federal sex discrimination claim under Title VII of the Civil Rights Act. After discovery, Peak moved for summary judgment on all claims, and the district court granted the motion. Petitioner appealed, arguing that significant issues of material fact remained unresolved and that her claims should have proceeded to trial. She also appealed district court’s denial of an evidentiary motion. Finding no error in the district court’s decision, the Tenth Circuit affirmed its grant of summary judgment in favor of Peak.View "McBride v. Peak Wellness Center Inc." on Justia Law

A jury returned a special verdict that: (a) awarded damages against an attorney and his girlfriend based upon the jury's finding that they had breached their fiduciary duties to a former client of the attorney by purchasing half of his stock in a closely held corporation for less than its fair market value; and (b) cancelled debts owing by the corporation to the attorney and his girlfriend based upon the jury's finding that they had breached their fiduciary duties to a shareholder, the former client's widow, by making loans to the corporation. The district court granted a new trial on the ground that there was insufficient evidence to justify the verdict, and this appeal followed. Finding sufficient evidence to support the jury's verdict, the Supreme Court affirmed the grant of a new trial.View "Berry v. McFarland" on Justia Law

This case concerned attorney fees under the dissenters' rights provisions of the Washington Limited Liability Company Act (LLC Act). The issue was first considered two years ago when the Supreme Court reversed the award of attorney fees imposed on Humphrey Industries Ltd. (Humphrey) and remanded to the trial court to reconsider an award of attorney fees in Humphrey's favor. On remand, the trial court awarded Humphrey part of its fees but also reinstated part of the attorney fee award against Humphrey that the Supreme Court had reversed. Humphrey appealed directly to the Supreme Court, contending that the trial court on remand failed to follow the Supreme Court's order. Upon review, the Supreme Court held that the trial court erred by imposing fees on Humphrey. View "Humphrey Indus., Ltd. v. Clay St. Assocs." on Justia Law