Justia Corporate Compliance Opinion Summaries

Plaintiff Franklin Eng appealed a judgment in favor of defendants Michael Patrick Brown and Gerald Levy following a jury trial. Eng claimed that Brown and Levy breached their fiduciary duties to him as purported partners or joint venturers in the ownership and operation of the Tin Fish Gaslamp, a seafood restaurant in San Diego. The jury found that Eng, Brown, and Levy entered into a partnership or joint venture, but it was terminated when they formed a corporation, B.L.E. Fish, Inc. to purchase and operate the restaurant. Eng's claim for breach of fiduciary duty based on a partnership or joint venture was therefore unsupportable. Eng argued on appeal that, among other things:(1) the trial court erred by denying his request, in a motion in limine, that the court find that the parties created a partnership as a matter of law; (2) the court erred by denying his motion in limine seeking to exclude any evidence or argument that B.L.E. Fish merged with or superseded the partnership; (3) the court erred by granting Brown and Levy's motion to amend their answer to assert an affirmative defense based on merger or supersession; (4) the court erred by denying Eng's motion for directed verdict; (5) the court committed instructional error (and a related error in the special verdict) regarding merger and supersession; (6) the court erred in its response to a juror question during deliberations; (7) the court erred by denying Eng's motion to amend his complaint to add a claim for breach of fiduciary duties based on the parties' corporate relationship; (8) the court erred by denying Eng's motion to strike the testimony of a defense expert witness; and (9) the court erred by denying Eng's ex parte application for the release of juror contact information. Finding no reversible errors, the Court of Appeal affirmed. View "Eng v. Brown" on Justia Law

Diamond Resorts International’s board of directors recommended to its stockholders that they sell their shares to a private equity buyer, Apollo Global Management, for cash in a two-step merger transaction involving a front-end tender offer followed by a back-end merger. The proxy statement had a detailed recitation of the background leading to the merger, and the reasons for and against it. But notably absent from that recitation was that the company’s founder, largest stockholder, and Chairman, had abstained from supporting the procession of the merger discussions, and from ultimately approving the deal, because he was "disappointed with the price and the Company’s management for not having run the business in a manner that would command a higher price, and that in his view, it was not the right time to sell the Company." On a motion to dismiss, the Court of Chancery held that the complaint challenging the merger should have been dismissed because the stockholders’ acceptance of the first-step tender offer was fully informed, rejecting the plaintiffs’ argument that the omission of the Chairman’s reasons for abstaining rendered the proxy statement materially misleading. The issue this case presented for the Delaware Supreme Court's review was whether that ruling was correct. The Supreme Court agreed with the plaintiffs that it was not, and that the defendants’ argument that the reasons for a dissenting or abstaining board member’s vote can never be material was incorrect. "Precisely because Delaware law gives important effect to an informed stockholder decision, Delaware law also requires that the disclosures the board makes to stockholders contain the material facts and not describe events in a materially misleading way." Here, the Court found the founder and Chairman’s views regarding the wisdom of selling the company were ones that reasonable stockholders would have found material in deciding whether to vote for the merger or seek appraisal, and the failure to disclose them rendered the facts that were disclosed misleadingly incomplete. View "Appel v. Berkman, et al." on Justia Law

Turtle Creek Crossing, LLC, a minority interest holder in Kimco Hattiesburg, L.P., filed an action in circuit court after it learned it would receive no distribution from the sale of the partnership’s only asset, a multimillion-dollar shopping center. In its complaint, Turtle Creek alleged its fellow partners breached their fiduciary duties and conspired with each other, the partnership, and a sister partnership to market and sell the asset in such a way as to keep Turtle Creek from profiting. According to the defendants, the predominant claim was for an accounting - an equitable claim that belonges in chancery court; had this case been filed in chancery court, there would be a strong argument for the chancery court’s original jurisdiction over the accounting claim, as well as pendant jurisdiction over the legal claims. Turtle Creek did not file this action in chancery court. It filed it in circuit court. And the circuit court also had original jurisdiction, not only over the accounting claim, but also Turtle Creek’s other legal claims. Because Turtle Creek chose a forum with proper subject-matter jurisdiction, the Mississippi Supreme Court determined that choice must be respected. The Supreme Court affirmed the circuit court’s denial of the motion to transfer and remanded for further proceedings. View "KD Hattiesburg 1128, Inc. v. Turtle Creek Crossing, LLC" on Justia Law

In 2009, XTO Energy, Inc., filed an interpleader action, seeking to resolve competing claims to oil and gas proceeds held by XTO. XTO named several potential claimants as defendants in the interpleader action, including Seawatch Royalty Partners, LLC (managed by Chester Ellsworth) and several alleged heirs of the record owner of the relevant oil and gas interests. After a bench trial, the court concluded that a group of individuals (deemed the true heirs of the record owner) were entitled to the proceeds. Of relevance to this appeal, the trial court also ruled that Seawatch’s claims and defenses were frivolous; that Seawatch was an alter ego of Ellsworth; and that Seawatch and Ellsworth were jointly and severally liable for any future award of attorneys’ fees. Ellsworth was subsequently joined as a party under C.R.C.P. 21 and served via substituted service. The post-judgment sanctions proceedings continued for another several years. During that time, Ellsworth contested his individual liability, arguing that the court lacked personal jurisdiction over him; that he had been improperly served; and that Seawatch was not, in fact, his alter ego. The trial court rejected these arguments and entered judgment jointly and severally against Seawatch and Ellsworth for approximately $1 million in attorneys’ fees. Ellsworth appealed pro se. In an unpublished opinion, the court of appeals vacated the judgment against Ellsworth, holding that the district court lacked jurisdiction to hold him jointly and severally liable for the attorneys’ fee award because, as a nonparty, Ellsworth did not have notice and opportunity to contest his individual liability. The Colorado Supreme Court concluded Ellsworth had adequate notice and opportunity to challenge the alter ego findings that established his liability, and reversed the appellate court's judgment. View "Stockdale v. Ellsworth" on Justia Law

Apple shareholders filed a consolidated derivative action concerning Apple’s alleged pursuit and enforcement of anticompetitive agreements with other Silicon Valley companies to prohibit the recruitment of each other’s employees. Plaintiffs alleged that certain current and former members of Apple’s board of directors were aware of or tacitly approved of Apple’s practices and breached their fiduciary duties by permitting the illegal agreements over many years. Plaintiffs alleged that the Apple board never disclosed settlements of an earlier action filed by the Department of Justice based on violations of the federal antitrust laws and several federal class action lawsuits brought by employees of Apple and other technology companies. Given each board member’s alleged role in participating in or allowing the illegal agreements, plaintiffs claimed that any demand on Apple's board to institute the derivative action against the individual defendants should be excused as a futile and useless act. The superior court found that an amended complaint adequately alleged demand futility as to the board in place when the original action was filed. The composition of the board of directors had changed in the interim. The court of appeal disagreed. The court was required to assess demand futility as to the board in place when the amended complaint was filed. View "Apple, Inc. v. Superior Court" on Justia Law

Norman and Elkin were the only shareholders of USM, a company that acquired and sold rights to radio frequencies. Norman held a minority interest and sought legal relief after he discovered that Elkin had transferred to another company the ownership of several frequencies purchased by USM, that Elkin had treated capital contributions as loans, and that Elkin had paid himself from USM funds without giving Norman any return on his minority investment. Despite two juries agreeing with Norman, verdicts in his favor were overturned. Most of his claims were held to be time-barred after the district court rejected his argument that a state court case he had brought to inspect USM’s books and records under the Delaware Code tolled the statute of limitations. Other claims were eliminated for insufficient evidence. The Third Circuit vacated in part. The district court erred in concluding that tolling of the statute of limitations is categorically inappropriate when a plaintiff has inquiry notice before initiating a books and records action in the Delaware courts and erred in vacating the jury’s award of nominal damages for one of Norman’s breach of contract claims. Norman’s fraud claim was not supported by sufficient proof of damages. View "Norman v. Elkin" on Justia Law

This appeal arose from a conflict among the three members of IE Test, LLC (IE Test). After a dispute between defendant Kenneth Carroll and the other members, Patrick Cupo and Byron James, IE Test filed an action to expel Carroll, pursuant to the Limited Liability Company Act (LLCA). In 2004,Carroll and Cupo formed Instrumentation Engineering, LLC. Carroll owned a fifty-one percent interest in Instrumentation Engineering, and Cupo owned the remaining forty-nine percent. James was employed by Instrumentation Engineering, initially as Business Development Manager and later as Vice President. Carroll, Cupo, and James entered into a preliminary agreement stating intention to enter into an operating agreement for IE Test. Carroll claimed that Instrumentation Engineering owed substantial sums to him and his companies, and that became a point of contention among Cupo, James, and Carroll soon after they agreed to share ownership of IE Test. Carroll acknowledged that IE Test had no legal obligation to repay him for losses sustained because of Instrumentation Engineering's bankruptcy, but pressed for compensation that would allow him to recover some of his lost investment. By early 2010, Cupo and James were actively pursing a strategy to use the LLCA to expel Carroll as a member of the LLC. The trial court found in IE Test's favor on its claim based on subsection 3(c), reasoning that the "not reasonably practicable" language imposed a less stringent standard than did subsection 3(a). The trial court granted IE Test's motion for partial summary judgment and expelled Carroll as an LLC member. Carroll appealed. In an unpublished opinion, an Appellate Division panel affirmed, construing N.J.S.A.42:2B-24(b)(3), and its counterpart provision in the Revised Uniform Limited Liability Company Act (RULLCA), N.J.S.A.42:2C-46(e), to mandate that a trial judge engage in predictive reasoning in order to evaluate the future impact of an LLC member's current conduct. The panel found that Carroll's relationship with Cupo and James never recovered from Carroll's demand that he be compensated in a manner that permitted him to recoup his lost investment. The Supreme Court reversed. Applied to the record of this case, the standard of subsection 3(c) did not warrant a grant of partial summary judgment expelling Carroll from IE Test. View "IE Test, LLC v. Carroll" on Justia Law

In 2011 UJC private jet charter services hired Plaintiff as a co-pilot. After altercations between Plaintiff, a woman, and male pilots, which Plaintiff perceived to constitute sexual harassment, Plaintiff wrote an email to UJC management. About three weeks later, Plaintiff’s employment was terminated. Plaintiff sued, alleging retaliation. Defendants’ answer stated that UJC had converted from a corporation to an LLC. Plaintiff did not amend her complaint. Defendants’ subsequent motions failed did not raise the issue of UJC’s identity. UJC’s CEO testified that he had received reports that Plaintiff had used her cell phone below 10,000 feet; that once Plaintiff became intoxicated and danced inappropriately at a bar while in Atlantic City for work; that Plaintiff had once dangerously performed a turning maneuver; and that Plaintiff had a habit of unnecessarily executing “max performance” climbs. There was testimony that UJC’s male pilots often engaged the same behavior. The jury awarded her $70,250.00 in compensatory and $100,000.00 in punitive damages. When Plaintiff attempted to collect on her judgment, she was told that the corporation was out of business without assets, but was offered a settlement of $125,000.00. The court entered a new judgment listing the LLC as the defendant, noting that UJC’s filings and witnesses substantially added to confusion regarding UJC’s corporate form and that the LLC defended the lawsuit as though it were the real party in interest. The Sixth Circuit affirmed, stating it was unlikely that UJC would have offered a generous settlement had it genuinely believed itself to be a victim of circumstance, or that it would be deprived of due process by an amendment to the judgment; the response indicated a litigation strategy based on “roll[ing] the dice at trial and then hid[ing] behind a change in corporate structure when it comes time to collect.” View "Braun v. Ultimate Jetcharters, LLC" on Justia Law

Plaintiffs sued Sugar Rock, seeking a dissolution of partnerships, alleging them to be mining partnerships and attempted to obtain class action status. The circuit court granted plaintiffs partial summary judgment, finding that the partnerships should be dissolved, and appointed a special receiver and a distribution company to achieve that result. The Supreme Court of Appeals reversed, finding genuine issues of material fact and questions of law regarding the type of partnerships involved in the case, the parties who are the partners thereof, whether the partnerships’ property includes leases, and whether the procedural requirements for a decree of dissolution have been satisfied. View "Sugar Rock, Inc. v. Washburn" on Justia Law

Corporate citizens of Delaware, Nebraska, and Illinois, sued Americold, a “real estate investment trust” organized under Maryland law, in a Kansas court. Americold removed the suit based on diversity jurisdiction, 28 U.S.C. 1332(a)(1), 1441(b). The federal court accepted jurisdiction and ruled in Americold’s favor. The Tenth Circuit held that the district court lacked jurisdiction. The Supreme Court affirmed. For purposes of diversity jurisdiction, Americold’s citizenship is based on the citizenship of its members, which include its shareholders. Historically, the relevant citizens for jurisdictional purposes in a suit involving a “mere legal entity” were that entity’s “members,” or the “real persons who come into court” in the entity’s name. Except for that limited exception of jurisdictional citizenship for corporations, diversity jurisdiction in a suit by or against the entity depends on the citizenship of all its members, including shareholders. The Court rejected an argument that anything called a “trust” possesses the citizenship of its trustees alone; Americold confused the traditional trust with the variety of unincorporated entities that many states have given the “trust” label. Under Maryland law, the real estate investment trust at issue is treated as a “separate legal entity” that can sue or be sued. View "Americold Realty Trust v. ConAgra Foods, Inc." on Justia Law