Justia Corporate Compliance Opinion Summaries

Plaintiff Erika Rickman brought this suit against her former employer, Premera Blue Cross, for wrongful discharge in violation of public policy. Rickman alleged she was terminated in retaliation for raising concerns about potential violations of the federal Health Insurance Portability and Accountability Act of 1996, and its Washington counterpart, the Uniform Health Care Information Act (UHCIA). The trial court dismissed Rickman's suit on Premera's motion for summary judgment, concluding Rickman could not satisfy the jeopardy element of the tort because Premera's internal reporting system provided an adequate alternative means to promote the public policy. The Court of Appeals affirmed. The Washington Supreme Court granted review of this case and two others in order to resolve confusion with respect to the jeopardy element of the tort of wrongful discharge in violation of public policy. Consistent with its decisions in the other two cases, the Court held that nothing in Premera' s internal reporting system, nor in HIPAA or UHCIA, precluded Rickman's claim of wrongful discharge. The Court reversed the Court of Appeals but remanded for that court to address Premera's alternate argument for upholding the trial court's order of dismissal. View "Rickman v. Premera Blue Cross" on Justia Law

Respondent Gregg Becker began working for Rockwood Clinic PS, an acquired subsidiary of Community Health Systems (CHS) 1 as its chief financial officer (CFO) in February 2011. As a publicly traded company, CJ-IS is required to file reports with the United States Securities and Exchange Commission (SEC). As Rockwood's CFO, Becker was required by state and federal law to ensure that Rockwood's reports did not mislead the public, which also required his personal verification that the reports did not contain any inaccurate material facts or material omissions. In October 2011, Becker submitted to CHS' financial department an "EBIDTA," calculation. Becker was not told that when CHS acquired Rockwood, it represented to creditors that the acquisition would incur a $4 million operating loss. To cover the discrepancy, CHS' financial supervisors allegedly directed Becker to correct his EBIDTA to reflect the targeted $4 million loss. CHS did not provide a basis for its low calculation. Becker refused, fearing that the projection would mislead creditors and investors in violation of the Sarbanes-Oxley Act. The CEO made clear that Becker's refusal to do so put his position in jeopardy; Becker felt compelled to resign unless CHS responded to his concerns. CHS and Rockwood accepted Becker's resignation. CHS filed a CR 12(b)(6) motion to dismiss Becker's complaint for wrongful termination, contending that the jeopardy element of the tort had not been met because there were adequate alternative means to protect the public policy of honesty in corporate financial reporting. The Court of Appeals accepted review and determined that the jeopardy element had been satisfied because the alternative administrative enforcement mechanisms of SOX were inadequate and therefore did not foreclose common law tort remedies for employees. The Supreme Court's holding in "Rose v. Anderson Hay" instructed that alternative statutory remedies were to be analyzed for exclusivity, rather than adequacy. Under that formulation, neither SOX nor Dodd-Frank precluded Becker from recovery. The Court affirmed the trial court's denial of Community CHS' CR 12(b)(6) motion, and affirmed the Court of Appeals in upholding that decision upon certified interlocutory review. View "Becker v. Comm'y Health Sys., Inc.." on Justia Law

The United States Court of Appeals for the Second Circuit certified a question of Delaware law to the Delaware Supreme Court: "If a shareholder demands that a board of directors investigate both an underlying wrongdoing and subsequent misstatements by corporate officers about that wrongdoing, what factors should a court consider in deciding whether the board acted in a grossly negligent fashion by focusing its investigation solely on the underlying wrongdoing?" The plaintiffs in this case made a demand that the board of JPMorgan Chase & Co. investigate two related issues regarding a high-profile situation, what the Second Circuit has called the "London Whale debacle." According to the Second Circuit, these issues were: (1) the failure of JPMorgan‘s risk management policies to prevent the trading that resulted in corporate losses; and (2) supposed false and misleading statements made by JPMorgan management in the wake of the emergence of the problem. According to the plaintiffs, the board investigative committee only made findings as to the former issue by arguing that what management knew when it made disclosures was the subject of several pages of the report. In the Delaware Supreme Court's view, Delaware law on the relevant topic required that the decision of an independent committee to refuse a demand should only be set aside if particularized facts were pled supporting an inference that the committee, despite being comprised solely of independent directors, breached its duty of loyalty, or breached its duty of care, in the sense of having committed gross negligence. The Court concluded that the determination of what constituted gross negligence in the circumstances by definition required a review of the relevant circumstances facing the directors charged with acting. The Court requested more information from the Second Circuit prior to answering the certified question. View "Espinoza v. Dimon, et al." on Justia Law

From 2004-2007, CUNA purchased residential mortgage-backed securities from RBS. The housing market crashed and the securities declined in value. CUNA commissioned a forensic study of the loan pools underlying the securities and found that 40.8 percent of the loans were materially defective: “they violated applicable underwriting guidelines in a manner that materially increased the credit risk of the loan and that was not justified by sufficient compensating factors.” CUNA alleged that RBS induced it to purchase the securities by materially misrepresenting that the underlying loans complied with underwriting guidelines by repeatedly assuring CUNA that extensive due diligence was conducted on the loan pools and that the relevant prospectuses represented that the loans complied with guidelines related to borrower ability to pay and sufficiency of collateral. The court granted summary judgment in RBS’s favor on all but one of CUNA’s rescission claims, finding claims with regard to nine of the securities time-barred. The Seventh Circuit affirmed in part, finding that rescission claims were not time-barred. A reasonable factfinder could find that CUNA actually relied on the prospectuses' representations and that the representations were material. CUNA was entitled to a trial on the claims and with respect to the claims of due diligence. View "CMFG Life Ins. Co. v. RBS Sec., Inc." on Justia Law

American Century, a mutual fund, offers investment portfolios, including Ultra Fund. Ultra Fund invested in PartyGaming, a Gibraltar company that facilitated internet gambling. In 2005, PartyGaming made an initial public offering of its stock, which was listed on the London Stock Exchange. In its prospectus, PartyGaming noted that the legality of online gaming was uncertain in several countries, including the U.S.; 87 percent of its revenue came from U.S. customers. PartyGaming acknowledged that “action by US authorities … prohibiting or restricting PartyGaming from offering online gaming in the US . . . could result in investors losing all or a very substantial part of their investment.” Ultra Fund purchased shares in PartyGaming totaling over $81 million. In 2006, following increased government enforcement against illegal internet gambling, the stock price dropped. Ultra Fund divested itself of PartyGaming, losing $16 million. Seidl, a shareholder, claimed negligence, waste, and breach of fiduciary duty against American Century. The company refused her demand to bring an action. Seidl brought a shareholder’s derivative action. The Eighth Circuit affirmed summary judgment for the defendants, concluding that Seidl could not bring suit where the company had declined to do so in a valid exercise of business judgment. The litigation committee adopted a reasonable methodology in conducting its investigation and reaching its conclusion. View "Seidl v. Am. Century Co., Inc" on Justia Law

Plaintiffs appealed the district court’s dismissal of a securities class action against ZAGG, Inc. and its former CEO and Chairman, Robert Pedersen, alleging violations of the antifraud provisions of the securities laws. The plaintiffs alleged Pedersen failed to disclose in several of ZAGG’s SEC filings the fact that he had pledged nearly half of his ZAGG shares (or approximately 9 percent of the company), as collateral in a margin account. The district court dismissed the complaint for a failure to plead particularized facts giving rise to a strong inference that Pedersen acted with an intent to defraud as required by the Private Securities Litigation Reform Act of 1995 (PSLRA). The Tenth Circuit found that the PSLRA subjected plaintiffs to a heightened pleading requirement of alleging intent to defraud with particularized facts that give rise to an inference that is at least as cogent as any competing, nonculpable explanations for a defendant’s conduct. After review, the Tenth Circuit agreed with the district court that the plaintiffs did not meet that standard here. View "Swabb v. ZAGG, Inc." on Justia Law

Kevin and Lisa Nutt worked at Osceola Nursing Home. Funds were withheld from their paychecks as “pre-tax insurance.” After Kevin was injured, they learned that Osceola had not paid premiums. Their policy had lapsed; the Nutts owed $233,000 for medical services. The insurer told Lisa that it could reinstate the policy and pay the bills if Osceola made the delinquent premium payments. Osceola did not do so. Osceola then entered into a contract with Cooper, who specialized in turning around financially troubled nursing homes. Cooper’s company, Berryville, ultimately took title to the property. Before the closing, Cooper could assume management under a temporary lease. Cooper assigned this lease to OTLC, created for the project and owned by Hargis. Though OTLC was independent, Hargis regularly worked with Cooper in nursing-home ventures. OTLC operated the facility for Cooper and Berryville for three years. Nutt told Hargis about the outstanding bills. Days later, OTLC fired both Lisa and Kevin. They sued. The court entered default judgment against Osceola under the Employee Retirement Income Security Act, 29 U.S.C. 1001; found that they could not provide adequate relief; and, on a theory of successor liability, held OTLC liable. The Eighth Circuit reversed, stating that if successor liability required only subsequent operation, it would discourage the free transfer of assets to their most valuable uses. OTLC was not a party to the unlawful practices of Osceola and operated without significant connection to the culpable parties. View "Nutt v. Osceola Therapy & Living Cntr., Inc." on Justia Law

Kivisto, co-founder and former President and CEO of SemCrude, an Oklahoma-based oil and gas company, allegedly drove SemCrude into bankruptcy through his self-dealing and speculative trading strategies. SemCrude’s Litigation Trust sued Kivisto, and the parties reached a settlement agreement and granted a mutual release of all claims. A month later, a group of SemCrude’s former limited partners (Oklahoma Plaintiffs) sued Kivisto in state court, alleging breach of fiduciary duty, negligent misrepresentation, and fraud. The Bankruptcy Court for the District of Delaware granted Kivisto’s emergency motion to enjoin the state action, finding that the Oklahoma Plaintiffs’ claims derived from the Litigation Trust’s claims. The district court reversed, concluding that the claims were possibly direct and remanded. The Third Circuit concluded that the claims are derivative and reversed. Even if Kivisto owed the Oklahoma Plaintiffs unique, individual fiduciary duties in addition to the duties owed to them as unitholders, they could show neither that they were injured separately from the company or all other unitholders on the basis of that misconduct, nor that they were entitled to recovery of the units they allegedly would not have contributed or would have sold but for Kivisto’s misconduct. View "In re: Semcrude L.P." on Justia Law

Northbound generates and sells life insurance leads, using the brand name “Leadbot,” but ran out of cash with a frozen line of credit and revenue that did not support its overhead. Norvax generates and sells health insurance leads. An asset purchase agreement was signed in 2009, “by and between” Northbound and Leadbot LLC, a subsidiary of Norvax that was formed to purchase the assets of Northbound. Under the agreement, Leadbot LLC was obligated to use the assets it acquired from Northbound in furtherance of the Leadbot brand. The purchase price was not paid in cash. Instead Northbound would receive an “earn-out” calculated as a percentage of the monthly net revenue of Leadbot LLC. The agreement also contained an Illinois choice-of-law clause. Northbound claims that Leadbot LLC and Norvax violated the agreement. The district court dismissed some claims and granted summary judgment for defendants on the remainder. The Seventh Circuit affirmed, reasoning that Norvax was not actually a party to the contract that was allegedly breached, nor is there any basis for holding Norvax liable for any breach by a subsidiary. View "Northbound Grp., Inc. v. Norvax, Inc." on Justia Law

ManWeb, an Indianapolis engineering and installation company, entered into an asset purchase agreement with Tiernan, another Indianapolis electrical contractor. Unlike ManWeb, Tiernan was party to a collective bargaining agreement with a union, under which it contributed to a multiemployer pension fund. After the asset purchase, Tiernan ceased operations. Although ManWeb continued to do the same type of work in the jurisdiction, ManWeb did not make contributions. Counsel for the Plan sent a letter to Tiernan’s former address, stating that the company had effectuated a complete withdrawal from the Plan and, under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. 1001–1461, the Plan had assessed withdrawal liability against Tiernan of $661,978.00. The letter was forwarded to ManWeb’s address and signed for by a ManWeb employee. No payments were made, nor was review or arbitration requested, despite the availability of both under the statute. The Plan filed a collection action, adding ManWeb as a defendant under a theory of successor liability. The district court granted the Plan partial summary judgment, finding that Tiernanr had waived its right to dispute the assessment of withdrawal liability, but rejected the claim of successor liability. The Seventh Circuit reversed to allow the district court to address the successor liability continuity requirement. View "Tsareff v. Manweb Services, Inc." on Justia Law