Justia Corporate Compliance Opinion Summaries

Intel acquired McAfee, in a cash sale at $48 per share. Plaintiff, a pension fund, on behalf of itself and a class, alleged that McAfee, Intel, and former members of McAfee’s board of directors, consisting of nine outside directors and the former president and CEO, DeWalt (defendants), engaged in an unfair merger process contaminated by conflicts; that DeWalt withheld material information about negotiations from McAfee’s directors, who failed to safeguard the process and approved an undervalued price; and that defendants omitted material information from the merger proxy statement on which McAfee’s shareholders relied in voting for the merger. The trial court, applying Delaware law, granted the defendants summary judgment, finding no triable issue of material fact regarding the individual defendants’ alleged breaches of fiduciary duty, and concomitantly no liability on behalf of the corporation for aiding and abetting. The court of appeal affirmed as to the nine directors and reversed as to DeWalt and the corporations. Plaintiff raised triable issues of material fact related to DeWalt’s apparent nondisclosure of arguably material information about a $50-per-share overture. DeWalt bears the burden under the enhanced scrutiny standard to show that he exercised his fiduciary duties in furtherance of the obligation “to secure the transaction offering the best value reasonably available.” View "Central Laborers' Pension Fund v. McAfee, Inc." on Justia Law

Plaintiffs alleged insider-trading side deals in connection with the sale of a small aerospace manufacturing company, Kreisler, and insufficient disclosure to stockholders regarding the sales process. Before the sale, Kreisler was offered to dozens of potential acquirers. Several bidders emerged. A fairness opinion was rendered and a special committee ultimately recommended the sale. The transaction was approved by written consent of a majority of the shares outstanding. A block of shares of just over 50 percent executed a stockholder support agreement providing for approval of the transaction, so there was no stockholder vote. An Information Statement was provided to stockholders to permit them to decide whether to seek appraisal. A majority of Kreisler’s board of directors are independent and disinterested, and its charter contains an exculpation provision. The Delaware Court of Chancery dismissed the complaint, finding that even accepting the well-pled allegations as true and drawing all reasonable inferences in the Plaintiff’s favor, the Complaint fails to state a claim on which relief may be granted. View "Kahn v. Stern" on Justia Law

Globus, a publicly-traded medical device company, terminated its relationship with one of its distributors, Vortex, in keeping with a policy of moving toward in-house sales. Several months later, in August 2014, Globus executives alerted shareholders that sales growth had slowed, attributed the decline in part to the decision to terminate its contract with Vortex, and revised Globus’s revenue guidance downward for fiscal year 2014. The price of Globus shares fell by approximately 18% the following day. Globus shareholders contend the company and its executives violated the Securities Exchange Act, 15 U.S.C. 78j(b) and Rule 10b-5 and defrauded investors by failing to disclose the company’s decision to terminate the distributor contract and by issuing revenue projections that failed to account for this decision. The Third Circuit affirmed dismissal of the case. Globus had no duty to disclose either its decision to terminate its relationship with Vortex or the completed termination of that relationship. Plaintiffs did not sufficiently plead that a drop in sales was inevitable; that the revenue projections were false when made; nor that that Globus incorporated anticipated revenue from Vortex in its projections. View "Williams v. Globus Medical, Inc." on Justia Law

In 1998, in order to pursue a real estate investment and development project, Lynn and Connie Hanaway, T.R. White, Inc. (“T.R. White”), and several others formed a limited partnership, Sadsbury Associates, L.P. (“Sadsbury”). The Hanaways were among several limited partners of Sadsbury, while T.R. White served as the general partner. In 2002, acting independently from Sadsbury, T.R. White contracted for options to purchase two separate tracts of land. In 2005, prompted by the success of Sadsbury, the partners of Sadsbury formed The Parkesburg Group, LP (“Parkesburg”) in order to implement a new residential development project involving two tracts of land. T.R. White served as Parkesburg’s general partner, and the Hanaways were among several limited partners. Parkesburg’s limited partnership agreement gave T.R. White broad discretion to carry out its duties. Pursuant to the express terms of the agreement, T.R. White, as the general partner, controlled “the business and affairs of the Partnership.” The crux of this dispute concerned Parkesburg’s sale of the land to a newly formed limited partnership, Parke Mansion Partners (“PMP”). The Hanaways filed a six-count complaint against T.R. White, PMP, Parkesburg, and Sadsbury, alleging T.R. White, as general partner, breached Parkesburg’s limited partnership agreement. They viewed the sale of the Parkesburg tracts to PMP as a sham, executed to freeze them out of Parkesburg. The issue presented for the Pennsylvania Supreme Court’s review centered on the applicability of the implied covenant of good faith and fair dealing to a limited partnership agreement formed pursuant to Pennsylvania’s Revised Uniform Limited Partnership Act (“PRULPA”). The Superior Court reversed the trial court’s order, which had granted partial summary judgment in favor of Parkesburg’s general partner and against two of its limited partners. The Supreme Court reversed the Superior Court’s order in relevant part, holding that the implied covenant of good faith and fair dealing was inapplicable to the Pennsylvania limited partnership agreement at issue, which was formed well before the enactment of amendments that codified such a covenant. View "Hanaway v. Parkesburg Group" on Justia Law

Emerald had an Illinois gaming license to operate in East Dubuque. Emerald operated profitably in 1993 but then struggled to compete with an Iowa casino. By 1996, Emerald had closed the casino and was lobbying for an act that would allow it to relocate. The Board denied Emerald’s license renewal application. While an appeal was pending, 230 ILCS 10/11.2 was enacted, permitting relocation. In 1998, before the enactment, defendants met with Rosemont’s mayor and representatives of Rosemont corporations about moving to Rosemont. After the enactment, the parties memorialized the terms of Emerald’s relocation. Emerald did not disclose the agreements as required by Illinois Gaming Board rules. By October 1999, Emerald had contracts with construction companies and architecture firms but had not disclosed them. Emerald altered its ownership structure; several new “investors” had connections to Rosemont’s mayor and state representative. stock transfers occurred without required Board approval. In 2001, the Board voted to revoke Emerald’s license. Its 15-month investigation was apparently based on a belief that Emerald had associated with organized crime but the denial notice focused on inadequate disclosures. The Board listed five counts but did not list who was responsible for which violation. Illinois courts affirmed the revocation but held that the Board had not proven an association with organized crime. Emerald was forced into bankruptcy. The trustee sued the defendants, asserting breach of contract and breach of fiduciary duty. The district court dismissed the breach‐of‐fiduciary‐duty claim as time-barred. The Shareholder’s Agreement required that shareholders comply with IGB rules; the court held that each defendant had violated at least one rule, calculated damages by valuing Emerald’s license, and held all but one defendant severally liable for the loss. The Seventh Circuit concluded that the defendants should be held jointly and severally liable, but otherwise affirmed. View "Estate of Pedersen v. Gecker" on Justia Law

The Delaware Court of Chancery held that, under 8 Del. C. 202, in order for a stockholder to be bound by stock transfer restrictions that are not "noted conspicuously on the certificate or certificates representing the security," he must have actual knowledge of the restrictions before he acquires the stock. If the stockholder does not have actual knowledge of the stock transfer restrictions at the time he acquires the stock, he can become bound by the stock transfer restrictions after the acquisition of the stock only if he affirmatively assents to the restrictions, either by voting to approve the restrictions or by agreeing to the restrictions. In this case, plaintiff did not have actual knowledge of the restrictions prior to acquiring his stock and the company must produce the requested documents as they are necessary to effectuate the stockholder's stated purpose. View "Henry v. Phixios Holdings, Inc." 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

MCL 450.4515(1)(e) provided alternative statutes of limitations: one based on the time of discovery of the cause of action and the other based on the time of accrual of the cause of action. Plaintiffs were former employees of defendant ePrize who acquired ownership units in the company. Plaintiffs alleged founder Jeff Linkner orally promised them that their interests in ePrize would never be diluted or subordinated. In its fifth operating agreement, executed in 2009, ePrize stock issued in Series C and Series B Units carried distribution priority over the common units held by plaintiffs. The Operating Agreement further provided that if the company were ever sold, Series C Units would receive the first $68.25 million of any available distribution. In 2012, ePrize sold substantially all of its assets and, pursuant to the Operating Agreement, distributed nearly $100 million in net proceeds to the holders of Series C and Series B Units. Plaintiffs received nothing for their common shares. Plaintiffs thereafter sued, bringing claims for LLC member oppression, breach of contract, and breach of fiduciary duty. The trial court granted defendants’ motion for summary judgment, concluding that the three-year limitation period in MCL 450.4515(1)(e) constituted a statute of limitations, rather than a statute of repose, and that plaintiffs' claims accrued in 2009. The Court of Appeals disagreed, finding plaintiffs’ claims did not accrue until 2012, when ePrize sold substantially all of its assets, because until that sale plaintiffs had not incurred a calculable financial injury and any damage claim before that time would have been “speculative.” Accordingly, the Court concluded that plaintiffs’ claims were timely filed before the expiration of the three-year limitation period. The Michigan Supreme Court agreed with the trial court's reasoning: plaintiffs’ actions for damages under MCL 450.4515(1)(e) were barred by the three-year statute of limitations unless plaintiffs could establish on remand that they were entitled to tolling. View "Frank v. Linkner" on Justia Law

After Thomas, a member of the Board of Directors of Applied Medical Corporation, was removed from the Board in January 2012, Applied exercised its right to repurchase shares of its stock issued to Thomas as part of stock incentive plans. Thomas objected to the repurchase price, and in August 2012 Applied filed suit. In June, 2015, the trial court granted summary judgment against Applied. The court of appeal affirmed as to Applied’s fraud-based claims, but reversed as to Applied’s claims based on breach of contract and conversion. A conversion claim may be based on either ownership or the right to possession at the time of conversion. Applied’s fraud claims were barred by the applicable statute of limitations; the court rejected Applied’s argument that those claims, first alleged in 2014, were timely under either the discovery rule or the relation back doctrine. View "Applied Medical Corp. v. Thomas" on Justia Law

Plaintiffs Peter Brinckerhoff and his trust, were long-term investors in Enbridge Energy Partners, L.P. (“EEP”), a Delaware master limited partnership (“MLP”). A benefit under Delaware law of this business structure was the ability to eliminate common law duties in favor of contractual ones, thereby restricting disputes to the four corners of the limited partnership agreement (“LPA”). This was not the first lawsuit between Brinckerhoff and the Enbridge MLP entities over a conflicted transaction. In 2009, Brinckerhoff filed suit against most of the same defendants in the current dispute, and challenged a transaction between the sponsor and the limited partnership. Enbridge, Inc. (“Enbridge”), the ultimate parent entity that controlled EEP’s general partner, Enbridge Energy Company, Inc. (“EEP GP”), proposed a joint venture agreement (“JVA”) between EEP and Enbridge. Brinckerhoff contested the fairness of the transaction on a number of grounds. After several rounds in the Court of Chancery leading to the dismissal of his claims, and a trip to the Delaware Supreme Court, Brinckerhoff eventually came up short when the Court of Chancery’s ruling that he had waived his claims for reformation and rescission of the transaction by failing to assert them first in the Court of Chancery was affirmed. A dispute over the Clipper project would again go before the Court of Chancery. In 2014, Enbridge proposed that EEP repurchase Enbridge’s interest in the Alberta Clipper project excluding the expansion rights that were part of the earlier transaction. As part of the billion dollar transaction, EEP would issue to Enbridge a new class of EEP partnership securities, repay outstanding loans made by EEP GP to EEP, and, amend the LPA to effect a “Special Tax Allocation” whereby the public investors would be allocated items of gross income that would otherwise be allocated to EEP GP. According to Brinckerhoff, the Special Tax Allocation unfairly benefited Enbridge by reducing its tax obligations by hundreds of millions of dollars while increasing the taxes of the public investors, thereby undermining the investor’s long-term tax advantages in their MLP investment. The Court of Chancery did its best to reconcile earlier decisions interpreting the same or a similar LPA, and ended up dismissing the complaint. On appeal, Brinckerhoff challenged the reasonableness of the Court of Chancery’s interpretation of the LPA. The Supreme Court agreed with the defendants that the Special Tax Allocation did not breach Sections 5.2(c) and 15.3(b) governing new unit issuance and tax allocations. But, the Court found that the Court of Chancery erred when it held that other “good faith” provisions of the LPA “modified” Section 6.6(e)’s specific requirement that the Alberta Clipper transaction be “fair and reasonable to the Partnership.” View "Brinckerhoff v. Enbridge Energy Company, Inc., et al." on Justia Law