Justia Corporate Compliance Opinion Summaries

Martensen was a supervisor in the Chicago Stock Exchange’s unit responsible for examining compliance with trading regulations. He was fired in 2016. He claimed his firing violated 15 U.S.C. 78u–6(h), a part of the Dodd-Frank Act that protects whistleblowers. Martensen’s complaint did not allege that he reported any unlawful activity to the Securities and Exchange Commission. The Seventh Circuit affirmed the dismissal of his suit. Only a person who has reported “a violation of the securities laws to the Commission” is covered by 78u–6(h). The judge was wrong to reject Martensen’s proposal to file an amended complaint alleging that he had reported fraud to the SEC, but remand would be pointless. The report was unrelated to his discharge. A report to the SEC does not prevent employers from responding adversely to later reports that do not concern fraud or any other violation of the securities laws and never reach the SEC. Martensen acknowledged that the Exchange did not retaliate against him for the act that made him a whistleblower and did not argue that an internal complaint, which resulted in his firing, was “required or protected” by any particular rule of the Chicago Stock Exchange. View "Martensen v. Chicago Stock Exchange, Inc." 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 2014, Traci Salinas and Sharon Lee Stark, as shareholders of Sterne Agee Group, Inc. ("SAG") filed a shareholder-derivative action, on behalf of nominal defendant SAG, against James and William Holbrook and the nonHolbrook directors, who together composed the SAG board of directors. Salinas and Stark alleged that the Holbrooks had breached their fiduciary duty to the SAG shareholders by misusing, misappropriating, and wasting corporate assets and that the non-Holbrook directors had knowledge of, and had acquiesced in, the Holbrooks' alleged misconduct. In 2015, while Salinas and Stark's action was pending, SAG entered into a merger agreement with Stifel Financial Corp. ("Stifel") pursuant to which Stifel would acquire SAG ("the merger"). As a result of the merger, each share of certain classes of SAG stock was to be converted into a right of the shareholder to receive a pro rata share of merger consideration in cash and/or shares of Stifel common stock. The Holbrooks moved for summary judgment in which they argued that, under Delaware law, when a plaintiff in a shareholder-derivative action ceases to be a shareholder of the corporation on whose behalf the action was brought, the shareholder was divested of standing to continue prosecuting the derivative action. Thus, the Holbrooks argued, because Salinas and Wainwright were no longer SAG shareholders following the merger, they lacked standing to prosecute their derivative action and, the argument continued, the Holbrooks were entitled to a judgment as a matter of law. In response, Salinas and Wainwright amended their complaint to allege that a merger "cannot absolve fiduciaries from accountability for fraudulent conduct that necessitated the merger." Rather, they maintained, "such conduct gives rise to a direct claim that survives the merger, as the injury caused by such misconduct is suffered by the shareholders rather than the corporation, and thereby supports a direct cause of action." Subsequently, the parties filed a stipulation of dismissal in which they dismissed Salinas from the action, leaving Wainwright as the sole plaintiff. The Alabama Supreme Court determined that a May 2017 trial court order did not come within the subject-matter-jurisdiction exception to the general rule that the denial of a motion to dismiss or a motion for a summary judgment was not reviewable by petition for a writ of mandamus. “The petitioners have an adequate remedy by way of appeal should they suffer an adverse judgment. Accordingly, we deny the petitions.” View "Ex parte Jon S. Sanderson et al." on Justia Law

In 2014, Traci Salinas and Sharon Lee Stark, as shareholders of Sterne Agee Group, Inc. ("SAG") filed a shareholder-derivative action, on behalf of nominal defendant SAG, against James and William Holbrook and the nonHolbrook directors, who together composed the SAG board of directors. Salinas and Stark alleged that the Holbrooks had breached their fiduciary duty to the SAG shareholders by misusing, misappropriating, and wasting corporate assets and that the non-Holbrook directors had knowledge of, and had acquiesced in, the Holbrooks' alleged misconduct. In 2015, while Salinas and Stark's action was pending, SAG entered into a merger agreement with Stifel Financial Corp. ("Stifel") pursuant to which Stifel would acquire SAG ("the merger"). As a result of the merger, each share of certain classes of SAG stock was to be converted into a right of the shareholder to receive a pro rata share of merger consideration in cash and/or shares of Stifel common stock. The Holbrooks moved for summary judgment in which they argued that, under Delaware law, when a plaintiff in a shareholder-derivative action ceases to be a shareholder of the corporation on whose behalf the action was brought, the shareholder was divested of standing to continue prosecuting the derivative action. Thus, the Holbrooks argued, because Salinas and Wainwright were no longer SAG shareholders following the merger, they lacked standing to prosecute their derivative action and, the argument continued, the Holbrooks were entitled to a judgment as a matter of law. In response, Salinas and Wainwright amended their complaint to allege that a merger "cannot absolve fiduciaries from accountability for fraudulent conduct that necessitated the merger." Rather, they maintained, "such conduct gives rise to a direct claim that survives the merger, as the injury caused by such misconduct is suffered by the shareholders rather than the corporation, and thereby supports a direct cause of action." Subsequently, the parties filed a stipulation of dismissal in which they dismissed Salinas from the action, leaving Wainwright as the sole plaintiff. The Alabama Supreme Court determined that a May 2017 trial court order did not come within the subject-matter-jurisdiction exception to the general rule that the denial of a motion to dismiss or a motion for a summary judgment was not reviewable by petition for a writ of mandamus. “The petitioners have an adequate remedy by way of appeal should they suffer an adverse judgment. Accordingly, we deny the petitions.” View "Ex parte Jon S. Sanderson et al." on Justia Law

Accredo delivers clotting medication and provides nursing assistance for hemophilia patients. Accredo makes donations to charities concerned with hemophilia, including HSI and HANJ, which allegedly recommended Accredo as an approved provider for hemophilia patients. Greenfield, a former Accredo area vice president, sued, alleging violations of the Anti-Kickback Statute, 42 U.S.C. 1320a-7b(b), and the False Claims Act, 31 U.S.C. 3729(a)(1)(A)-(B). If Greenfield prevailed, he would get at least 25% of any civil penalty or damages award. The government did not intervene. The district court, following discovery, granted Accredo summary judgment, finding that Greenfield failed to provide evidence of even a single federal claim for reimbursement that was linked to the alleged kickback scheme. The Third Circuit affirmed. The Anti-Kickback Statute prohibits kickbacks regardless of their effect on patients’ medical decisions. Because any kickback violation is not eligible for reimbursement, to certify otherwise violates the False Claims Act but there must be some connection between a kickback and the reimbursement claim. It is not enough to show temporal proximity. Greenfield was required to show that at least one of the 24 federally-insured patients for whom Accredo provided services and submitted reimbursement claims was exposed to a referral or recommendation by HSI/HANJ in violation of the Anti-Kickback Statute. View "Greenfield v. Medco Health Solutions Inc" on Justia Law

Verfuerth, the founder and former CEO of Orion, had disputes with Orion’s board of directors, involving outside counsel's billing practices, potential patent infringement, potential conflicts of interests involving a board member, violations of internal company policy, such as consumption of alcohol at an informal meeting, the board’s handling of a defamation suit by a former employee, and the fact that the chairman of Orion’s audit committee allowed his CPA license to expire. The board ignored his advice to disclose those matters to stockholders. Orion removed Verfuerth as CEO, citing high rates of management turnover. The board conditionally offered Verfuerth emeritus status. Verfeurth declined. The parties were unable to negotiate his severance package. The board fired him for cause, citing misappropriation of company funds in connection with his divorce, disparagement of the new CEO, and attempts to form a dissident shareholder group. Verfuerth filed suit, claiming that his complaints to the board were “whistleblowing” and that, by firing him, Orion violated the Sarbanes‐Oxley Act, 18 U.S.C. 1514A(a), and the Dodd‐Frank Act, 15 U.S.C. 78u‐6.e. The Seventh Circuit affirmed summary judgment for Orion. An executive who advises board members to disclose a fact that the board already knows about has not “provide[d] information” about fraud.. Nothing in any federal statute prevents a company from firing its executives over differences of opinion. View "Verfuerth v. Orion Energy Systems, Inc." 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

The remaining petitioners in this matter were former stockholders of Dell, Inc. who validly exercised their appraisal rights instead of voting for a buyout led by the Company’s founder and CEO, Michael Dell, and affiliates of a private equity firm, Silver Lake Partners (“Silver Lake”). In perfecting their appraisal rights, petitioners acted on their belief that Dell’s shares were worth more than the deal price of $13.75 per share, which was already a 37% premium to the Company’s ninety-day-average unaffected stock price. The Delaware appraisal statute allows stockholders who perfect their appraisal rights to receive “fair value” for their shares as of the merger date instead of the merger consideration. Furthermore, the statute requires the Court of Chancery to assess the “fair value” of such shares and, in doing so, “take into account all relevant factors.” The trial court took into account all the relevant factors presented by the parties in advocating for their view of fair value and arrived at its own determination of fair value. The Delaware Supreme Court found the problem with the trial court’s opinion was not that it failed to take into account the stock price and deal price; the court erred because its reasons for giving that data no weight (and for relying instead exclusively on its own discounted cash flow (“DCF”) analysis to reach a fair value calculation of $17.62) did not follow from the court’s key factual findings and from relevant, accepted financial principles. "[T]he evidence suggests that the market for Dell’s shares was actually efficient and, therefore, likely a possible proxy for fair value. Further, the trial court concluded that several features of management-led buyout (MBO) transactions render the deal prices resulting from such transactions unreliable. But the trial court’s own findings suggest that, even though this was an MBO transaction, these features were largely absent here. Moreover, even if it were not possible to determine the precise amount of that market data’s imperfection, as the Court of Chancery concluded, the trial court’s decision to rely 'exclusively' on its own DCF analysis is based on several assumptions that are not grounded in relevant, accepted financial principles." View "Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd, et al." on Justia Law

At issue in this appeal are the limits of the stockholder ratification defense when directors make equity awards to themselves under the general parameters of an equity incentive plan. In the absence of stockholder approval, if a stockholder properly challenges equity incentive plan awards the directors grant to themselves, the directors must prove that the awards are entirely fair to the corporation. But, when the stockholders have approved an equity incentive plan, the affirmative defense of stockholder ratification comes into play. The Court of Chancery has recognized a ratification defense for discretionary plans as long as the plan has “meaningful limits” on the awards directors can make to themselves. Here, the Equity Incentive Plan (“EIP”) approved by the stockholders left it to the discretion of the directors to allocate up to 30% of all option or restricted stock shares available as awards to themselves. Plaintiffs have alleged facts leading to a pleading stage reasonable inference that the directors breached their fiduciary duties by awarding excessive equity awards to themselves under the EIP. The Delaware Supreme Court determined a stockholder ratification defense was not available to dismiss the case, and the directors had to demonstrate the fairness of the awards to the Company. The Court reversed the Court of Chancery’s decision dismissing the complaint and remanded this matter for further proceedings. View "In Re Investors Bancorp, Inc. Stockholder Litigation" on Justia Law