Justia Corporate Compliance Opinion Summaries

Menard operated a store in a building subleased from Wal-Mart. In 2006, Menard entered into a Purchase Agreement (PA) with Dial; Clauff signed as a managing member of Dial. Menard planned to build a store and wanted to be relieved of its obligations under the sublease. Menard and Dial agreed that Dial would assume responsibility for the sublease after Menard opened its new store. With Wal-Mart’s consent, DKC (Chauff's other LLC) and Menard executed an Assignment. Clauff purported to sign as a member of DKC. DKC did not file Articles of Organization until later. Clauff and Menard claim, but neither provided evidence, that DKC adopted the Assignment after the company formed. Menard remained secondarily liable. Menard opened its new store in 2008. When the Sublease expired in 2011, Wal-Mart was owed more than $700,000. Menard paid $350,000 and sued Dial, DKC, and Clauff. The district court granted summary judgment, finding Clauff liable under Nebraska Revised Statute 21-2635: "[a]ll persons who assume to act as a limited liability company without authority to do so shall be jointly and severally liable for all debts and liabilities of the company." The Eighth Circuit reversed for determination of whether common law or section 21-2635 preclude Clauff's argument that his liability may be avoided because DKC adopted the contract and commenced performance. View "Menard, Inc. v. Clauff" on Justia Law

Whenever a Michigan corporation holds a shareholder meeting, it must disclose any proposals on the agenda that a shareholder wishes to submit for shareholder action. In 2012, one of Bancorp’s shareholders asked the company to circulate such a proposal before the company’s 2013 annual meeting. The proposal called for “director accountability” in amending Bancorp’s bylaws, which did not permit the corporation to claw back fees paid to directors found liable for breaching their fiduciary duties. In its proxy statement discussing the agenda, Bancorp neither distributed the proposal nor described it, stating only that a shareholder planned to propose a resolution urging the board to amend the bylaws and that, If that resolution materialized, the directors would use their “discretionary authority” to vote it down by treating all submitted proxies as no-votes absent instructions to the contrary. After the proposal was voted down at the meeting, the shareholder sued. The district court dismissed. The Sixth Circuit reversed, finding that the “notice” did not satisfy Mich. Comp. Laws 450.1404. Mere acknowledgement of the existence of a proposal, without describing even its subject matter, cannot amounts to “notice” under the statute. View "Hartman Revocable Living Trust v. S. Mich. Bancorp, Inc." on Justia Law

Between 2004 and 2009, Stryker submitted information to the Securities and Exchange Commission’s Enforcement Division regarding alleged wrongdoing by ATG and an involved individual. In 2009, the SEC opened an investigation and interviewed Stryker. The SEC subsequently filed an enforcement action against ATG and the individual, charging them with violating Section 5 of the Securities Act of 1933. In 2010, the SEC reached a settlement with the respondents to the enforcement action. The district court approved the settlement, whereby ATG and the individual were held liable for more than $19 million. In 2011, Stryker sought a whistleblower award under Section 21F of the Dodd-Frank Act, 15 U.S.C. 78u-6, based on the successful enforcement action. The SEC denied the award because the information was submitted before enactment of Dodd-Frank. The Second Circuit affirmed, concluding that the SEC’s interpretation was within its authority and consistent with the legislation. View "Stryker v. Secs. & Exch. Comm'n" on Justia Law

Petters purported to purchase and resell electronics. His operations were a Ponzi scheme. In 2005, Petters purchased Polaroid and become Chairman of Polaroid’s board of directors. Polaroid continued to engage in legitimate business. Petters took several million dollars from Polaroid. In 2007-2008, Petters’s companies, including Polaroid, experienced major financial difficulty. Ritchie made short term loans of more than $150 million, with annual interest rates of 80 to 362.1%. Polaroid was not a signatory, although some proceeds were used to repay a Polaroid debt. When the loans were past due, Ritchie demanded collateral. Petters executed a Trademark Security Agreement (TSA) giving Ritchie liens on Polaroid trademarks. Polaroid’s CEO objected to the TSA as impeding Polaroid’s ability to raise needed capital. The TSA did allow Polaroid to grant first-priority trademark liens to secure $75 million in working capital. After the FBI raid, which resulted in Petters’s convictions for mail fraud, wire fraud, and money laundering, and sentence of 50 years in prison, Ritchie accelerated all of the loans. Polaroid filed for bankruptcy and challenged the TSA as an actual fraudulent transfer under federal and Minnesota bankruptcy law, citing the “Ponzi scheme presumption.” The bankruptcy court presumed Petters executed the liens with fraudulent intent, found Ritchie had not received them in good faith and for value, and granted summary judgment. The district court upheld the admission of expert testimony and application of the Ponzi scheme presumption. The Eighth Circuit affirmed. View "Ritchie Capital Mgmt., LLC v. Stoebner" on Justia Law

While inspecting a commercial fishing vessel in the Gulf of Mexico, a federal agent found that the catch contained undersized red grouper, in violation of conservation regulations, and instructed the captain, Yates, to keep the undersized fish segregated from the rest of the catch until the ship returned to port. After the officer departed, Yates told the crew to throw the undersized fish overboard. Yates was convicted of destroying, concealing, and covering up undersized fish to impede a federal investigation under 18 U. S. C. 519, which applies when a person “knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence” a federal investigation. Yates argued that section 1519 originated in the Sarbanes-Oxley Act, to protect investors, and that its reference to “tangible object” includes objects used to store information, such as computer hard drives. The Eleventh Circuit affirmed. The Supreme Court reversed, holding that “tangible object” refers to one used to record or preserve information. Section 1519’s position within Title 18, Chapter 73 and its title, “Destruction, alteration, or falsification of records in Federal investigations and bankruptcy,” signal that it was not intended to serve as a cross-the-board ban on the destruction of physical evidence. The words immediately surrounding “tangible object,” “falsifies, or makes a false entry in any record [or] document,” also indicate the contextual meaning of that term. Even if traditional tools of statutory construction leave any doubt about the meaning of the term, it would be appropriate to invoke the rule of lenity. View "Yates v. United States" on Justia Law

When the dude ranch owned by a closely held Wisconsin corporation was sold, the shareholders planned to liquidate, but the asset sale had produced a sizable capital ($1.8 million) gain and the corporation faced significant federal and state tax liability. Midcoast proposed an intricate tax-avoidance transaction that involved Midcoast purchasing shares for offset against bad debts and losses purchased from credit card companies, purportedly financing the purchases with a loan. The shareholders implemented the plan. The taxes were never paid. The IRS sought to hold the former shareholders responsible for the tax debt as transferees of the defunct corporation under 28 U.S.C. 6901 and Wisconsin law of fraudulent transfer and corporate dissolution. The tax court ruled in favor of the IRS. The Seventh Circuit affirmed, agreeing with the tax court that the substance of the transaction was a liquidation. Midcoast did not actually pay the shareholders for their stock; instead, each shareholder received a pro rata distribution of cash on hand— the proceeds of the asset sale—making them “transferees” as that term is broadly defined in section 6901(h). View "Dugan v. Comm'r of Internal Revenue" on Justia Law

Miller, an African-American male, worked as a cook for Hospitality’s Sparx Restaurant. Miller became assistant kitchen manager and was a satisfactory employee. On October 1, 2010, Miler discovered racially offensive pictures at the kitchen cooler. Miller lodged a complaint. Two employees admitted responsibility. The manager agreed that the posting was a termination-worthy offense, but one offender was given a warning and the other was not disciplined. Soon after Miller’s complaint, supervisors began to criticize Miller’s work performance. Sparx fired Miller on October 23, 2010. The EEOC filed suit on Miller’s behalf under Title VII, 42 U.S.C. 2000e-2(a), 3(a). Before trial, Sparx had closed and Hospitality had dissolved. The court concluded that successor corporations could be liable. The jury awarded $15,000 in compensatory damages on the retaliation claim. The EEOC sought additional remedies. The district court denied the front-pay request but awarded Miller $43,300.50 in back pay (and interest) plus $6,495.00 to offset impending taxes on the award; enjoined the companies from discharging employees in retaliation for complaints against racially offensive postings; and required them to adopt policies, investigative processes, and annual training consistent with Title VII. The Seventh Circuit affirmed with respect to both successor liability and the equitable remedies. View "Equal Emp't Opportunity Comm'n v. N. Star Hospitality, Inc" on Justia Law

Section 747 of the Consolidated Appropriations Act of 2010 created an arbitration procedure for automobile dealerships to seek continuation or reinstatement of franchise agreements that had been terminated by Chrysler during bankruptcy proceedings, with the approval of the bankruptcy court. After an arbitral decision favoring the dealer, the manufacturer was required to provide the dealer a “customary and usual letter of intent” to enter into a sales and service agreement. After arbitrations, a trial was held to determine whether Chrysler supplied each prevailing dealer with such a letter. Most of the rejected dealers reached settlements with New Chrysler. The court determined that the remaining dealers had received “customary and usual” letters. The Sixth Circuit agreed that section 747 does not constitute an unconstitutional legislative reversal of a federal court judgment and that the only relief it provides to successful dealers is the issuance of a letter of intent. The letters at issue were “customary and usual,” except one contractual provision that required reversal. Contrary to the district court’s conclusion application Michigan and Nevada state dealer acts is preempted by section 747, because those acts provide for redetermination of factors directly addressed in federally-mandated arbitrations closely related to a major federal bailout. View "Chrysler Grp. LLC v. Sowell Auto., Inc." on Justia Law

Shareholders are required to make a “demand” on the corporation’s board of directors before filing a derivative suit, unless they sufficiently allege that demand would be futile. Before Arduini filed his derivative action against IGT and its board, four shareholders filed derivative suits that were consolidated. They argued that a demand was excused because: the IGT board extended the employment contract of IGT’s former CEO and chairman of IGT’s board of directors, and allowed him to resign rather than terminating him for cause; three directors received such high compensation from IGT that their ability to impartially consider a demand was compromised; six directors faced a substantial likelihood of liability for breaches of their fiduciary duties as committee members; and that other members had engaged in insider trading. The district court dismissed the consolidated suit for failure to make a demand or sufficiently allege futility; the Ninth Circuit affirmed. The district court then dismissed Arduini’s action, holding that Arduini had failed to make a demand and could not allege demand futility based on issue preclusion due to its ruling in the prior suit. The Ninth Circuit affirmed, holding that under Nevada law and these facts, issue preclusion barred relitigation of futility. View "Arduini v. Int'l Gaming Tech." on Justia Law

Husband and wife acquired a 25 percent interest in the LLC. Hartley served as president and managing member. A judgment dissolving the marriage awarded wife one-half of the LLC share. Husband's other obligations to wife were secured by his LLC share. Wife did not file a UCC Financing Statement, but gave Hartley and other LLC members written notice. Amendments to the LLC’s records and its tax returns showed her interest. Husband defaulted on his obligations to wife. Hartley loaned husband $200,000 from his pension plan, secured by the same membership share pledged to wife. Hartley did not disclose the loan or his security interest to wife. Wife notified Hartley that she intended to take the LLC share and sued to foreclose "judicial liens" created by the dissolution judgment. Hartley determined that she had not filed a financing statement and filed his own. A court ordered husbandto transfer his share to wife. He complied. Husband failed to repay the Hartley loan; the pension plan published "Notice of Disposition" announcing sale of husband's LLC interest to satisfy the debt. The trial court declared that wife has a 25 percent membership interest, not encumbered by the Hartley claims. The court of appeal affirmed. Where a perfected security interest is created by breaching a fiduciary duty owed to another, equitable principles may give priority to an earlier unperfected security interest. View "Feresi v. The Livery, LLC" on Justia Law