Justia Corporate Compliance Opinion Summaries

HMC was a shipping and shipyard services company, whose president was Hannah. HMC had a collective bargaining agreement with the mechanics union that required it to make contributions to the union’s pension fund to finance pensions for HMC’s employees. Hannah’s son, Mark, formed FCG, which bought the assets of HMC. No significant liabilities of HMC were explicitly transferred to FCG, which tried to negotiate its own collective bargaining agreement with the union. When HMC employees voted to decertify the union in 2009. the pension fund assessed withdrawal liability under the Multiemployer Pension Plan Amendments Act, 29 U.S.C. 1381. HMC had become insolvent, so the fund sought to impose HMC’s liability to the fund on FCG as HMC’s successor. The district court entered summary judgment in favor of FCG. The Seventh Circuit reversed in part, stating that lack of evidence that Mark knew about the pension fund and the possibility of withdrawal liability cannot excuse that liability. The court stated that fraudulent intent, while a factor in deciding whether there is alter ego liability, is not necessarily an essential factor, so summary judgment on a theory of successor liability was premature. View "Bd. of Trs. of the Auto. Mechs' Local v. Full Circle Group, Inc." on Justia Law

Shareholders of Diablo Controls submitted a written demand to inspect Diablo’s accounting books and records; the minutes of proceedings of shareholders, the board, and committees of the board; and certain other records. The demand requested the inspection take place at Diablo’s California office. The requested records were located in a Diablo office in Illinois. Diablo shipped records to California and made them available for inspection at its counsel’s California office. The shareholder found those records to be incomplete and sought a writ of mandate, claiming violation of Corporations Code section 1601. After the petition was filed, Diablo mailed the shareholders copies of additional records and made other records available for inspection at its counsel’s California office. The shareholders claimed the records were still incomplete. Diablo argued that section 1601 only obligated it to make the records available for inspection at its Illinois office. The trial court agreed and dismissed the action. The court of appeal affirmed; section 1601 requires that the records be made available for inspection at the office where such records are kept, even if the office is out of state. View "Innes v. Diablo Controls, Inc." on Justia Law

Caris Life Sciences, Inc. operated three business units: Caris Diagnostics, TargetNow and Casrisome. The Diagnostics unit was consistently profitable. TargetNow generated revenue but not profits, and Carisome was in the developmental stage. To secure financing for TargetNow and Carisome, Caris sold Caris Diagnostics to Miraca Holdings. The transaction was structured using a "spin/merge" structure: Caris transferred ownership of TargetNow and Carisome to a new subsidiary, then spun off that subsidiary to its stockholders. Owning only Caris Diagnostics, Caris merged with a wholly owned subsidiary of Miraca. Plaintiff Kurt Fox sued on behalf of a class of option holders of Caris. Fox alleged that Caris breached the terms of the Stock Incentive Plan because members of management as Plan Administrator, rather than the Board of Directors, determined how much the option holders would receive. Regardless of who made the determination, the $0.61 per share attributed to the spun off company was not a good faith determination, and resulted from an arbitrary and capricious process. The Court of Chancery found that fair market value was not determined, and the value received by the option holders was not determined in good faith and that the ultimate value per option was determined through a process that was "arbitrary and capricious." Caris appealed, arguing the Court of Chancery erred in arriving at its judgment. Finding no reversible error in the Court of Chancery's judgment, the Delaware Supreme Court affirmed. View "CDX Holdings, Inc. v. Fox" on Justia Law

Plaintiff filed suit under Sarbanes-Oxley, 18 U.S.C. 1514A(a)(1)(C), and Dodd-Frank, 15 U.S.C. 78u-6(h)(1)(A)(iii), after Oracle terminated his employment in retaliation for reporting that Oracle was falsely projecting sales revenues. The district court granted summary judgment to Oracle. The court joined the Second, Third, and Sixth Circuits and adopted the "reasonable belief" standard in Sylvester v. Parexel Int’l LLC standard, rejecting Platone v. FLYI, Inc.'s "definite and specific" standard, in determining that the employee must simply prove that a reasonable person in the same factual circumstances with the same training and experience would believe that the employer violated securities laws. Under the Sylvester standard, the court concluded that plaintiff's belief that Oracle was defrauding its investors was objectively unreasonable where missed projections by no more than $10 million are minor discrepancies to a company that annually generates billions of dollars. The court also concluded that plaintiff's claim under Dodd-Frank fails because he did not make a disclosure protected under Sarbanes-Oxley. Accordingly, the court affirmed the judgment. View "Beacom v. Oracle America, Inc." 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

Wanooka Farms, Inc. was a closely held family farming corporation. During the course of negotiations over the a split of the corporation (to avoid certain tax consequences), two appraisals were done. The appeal before the Supreme Court in this matter was an appeal of a bench trial in which the district court found that the fair value of shares in Wanooka equaled $3,344 per share. Finding no reversible error in the trial court's finding, the Supreme Court affirmed. View "Wagner v. Wagner" on Justia Law

In 1998 IGF bought Continental’s crop-insurance business at a price to be determined at either side’s option by the exercise of a put or call. In 2001 Continental exercised its put option; under the contractual formula, IGF owed Continental $25.4 million. Around that same time, IGF sold its business to Acceptance for $40 million. The Symons, who controlled IGF, structured the purchase price: $16.5 million to IGF; $9 million to IGF's parent companies Symons International and Goran in exchange for noncompetition agreements; and $15 million to Granite, an affiliated Symons-controlled company, for a reinsurance treaty. Continental, still unpaid, sued for breach of contract and fraudulent transfer. The court found for Continental and pierced the corporate veil to impose liability on the controlling companies and individuals. The Seventh Circuit affirmed, finding Symons International liable for breach of the 1998 sale agreement; Symons International, Goran, Granite, and the Symons liable as transferees under the Indiana Uniform False Transfer Act; and the Symons liable under an alter-ego theory. The Symons businesses observed corporate formalities only in their most basic sense. The noncompetes only made sense as a fraudulent diversion of the purchase money, not as legitimate protection from competition. The reinsurance treaty. which was suggested bySymons and outside industry norms, was unjustified and overpriced. View "Cont'l Cas. Co. v. Symons" 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

Two shareholders brought a shareholder derivative suit against the directors of an Indiana company, Biglari Holdings, that owns two restaurant chains, Western Sizzlin’ and Steak ‘n Shake, which operate some restaurants, and franchise others. They claimed that the board approved “entrenchment transactions,” intended to cement CEO Biglari’s control of the company and enrich him at the expense of other shareholders: the sale of an investment company to CEO Biglari and a stock offering. The plaintiffs characterized the board’s members as Biglari’s puppets and alleged demand futility: that it was a forgone conclusion that the board would not respond to their demands. The Seventh Circuit affirmed the district court's rejection of the claim. Given the stringency of the Indiana standard of demand futility and the lack of strong support for the plaintiffs’ claims to demonstrate that futility, the challenged transactions, individually or together, cannot be deemed so oppressive to shareholders as to create a substantial doubt that the transactions were the product of a valid exercise of business judgment by an unbiased and independent board. View "Taylor v. Biglari" on Justia Law

The Company was organized as a limited liability company in 2007; its sole managing member was another LLC, whose sole members were the Ngs, who controlled and managed the Company. Defendant was one of the Company’s lawyers. The Company’s stated purpose was to serve as an investment company making secured loans to real estate developers. The Managers actually created the Company to perpetrate “a fraudulent scheme” by which the Company transferred the money invested in it to another entity the Managers controlled. Defendant knew that the Managers intended to and did use the Company for this fraudulent purpose and, working with the Managers, helped the Company conceal the nature of its asset transfers. The Company was eventually rendered insolvent and its investors filed an involuntary bankruptcy petition. The bankruptcy trustee filed suit against Defendant, alleging tort claims based on Defendant’s involvement in the Company’s fraud. Defendant argued that the claims are barred by the in pari delicto doctrine. The court of appeal affirmed dismissal, finding that the in pari delicto applies to the trustee and rejecting an argument that the doctrine should not bar her claims because the wrongful acts of the Managers should not be imputed to the Company. View "Uecker v. Zentil" on Justia Law