Justia Corporate Compliance Opinion Summaries

A 2007 stockholders’ derivative suit alleged that Massey’s officers and directors breached their fiduciary duties by failing to make sure that Massey employees were complying with environmental and mine worker safety laws and regulations. A 2008 settlement released the claims in exchange for certain reforms to be made a part of corporate governance policies relating to company oversight and conduct regarding environmental and mine worker safety standards. The reforms were incorporated into Massey’s written Corporate Governance Agreement and were to remain in effect for five years. On April 5, 2010, an explosion occurred at Massey’s Upper Big Branch Mine at Montcoal, West Virginia, killing 29 miners. According to a contempt petition, investigations subsequent to the disaster found systematic mine safety compliance failures leading up to the explosion. The trial court dismissed the civil contempt petition. The West Virginia Supreme Court affirmed. The petitioners lacked standing to pursue contempt proceedings because they no longer own any Massey stock; Massey has been purchased by Alpha Natural Resources; and the respondents were removed by Alpha as corporate directors and officers. View "Manville Pers. Injury Settlement Fund v. Blankenship" on Justia Law

In 2008 and 2009, Dr. Raley was employed by Minimally Invasive Spine Institute, PLLC (MISI), a medical practice owned and managed by Haider. Raley claimed MISI had failed to pay him all the money he earned and filed suit in 2010, claiming breach of contract and breach of implied contract against MISI. In Count II, Raley sued MISI as well as Haider, alleging that Haider wrongfully distributed money from MISI to himself, depleting MISI of funds in violation of Code § 13.1-1035, which governs distributions made by Virginia LLCs. The trial court agreed that Raley, who was not a member of MISI, could not bring a cause of action under Code § 13.1-1035, and dismissed Raley’s Count II claim. Raley was awarded $395,428.70 plus interest against MISI., but has been unable to collect the judgment. He filed a garnishment proceeding, naming Haider as the garnishee. Raley also filed a second complaint against Haider, Minimally Invasive Pain Institute, PLLC (MIPI) and Wise, LLC (Wise). The cases were consolidated. The trial court dismissed all counts, based upon the dismissal with prejudice of Count II of the original case. The Virginia Supreme Court affirmed in part, holding that res judicata does not bar claims against MIPI and Wise and Raley’s Count I or garnishment claims against Haider, but does bar other claims against Haider. View "Raley v. Haider" on Justia Law

The Funds, closed-end investment companies registered under the Investment Company Act of 1940, 15 U.S.C. 80a- 5(a)(1)(2), are organized as Massachusetts business trusts under G.L. c. 182. Plaintiffs are beneficial owners of preferred shares of each of the Funds. The Funds’ declarations of trust state that meetings shall be held “so long as Common Shares are listed for trading on the New York Stock Exchange, on at least an annual basis." After plaintiffs delivered written notice stating an intention to nominate one of their partners for election as a preferred shares trustee of each fund at the 2011 annual meeting, the Funds issued a press release stating that their annual meeting was being rescheduled to July 2012, the last day of the Funds' 2012 fiscal year. Plaintiffs claimed that the bylaws require that an annual shareholders’ meeting be held within 12 months of the last annual shareholder meeting. The Funds argued that the bylaws require only that one meeting be held each fiscal year. The Massachusetts Supreme Court held that "on at least an annual basis" means that a shareholders' meeting for each Fund must be held no later than one year and 30 days after the last annual meeting. View "Brigade Leveraged Capital Structures Fund, Ltd. v. PIMCO, Income Strategy Fund" on Justia Law

A question of Delaware law was certified from the United States Court of Appeals for the Ninth. The issue focused on whether under the "fraud exception" to Delaware's continuous ownership rule, shareholder plaintiffs may maintain a derivative suit after a merger that divests them of their ownership interest in the corporation on whose behalf they sue by alleging that the merger at issue was necessitated by, and is inseparable from, the alleged fraud that is the subject of their derivative claims. The Delaware Court answered that question in the negative. View "Arkansas Teacher Retirement System, et al. v. Countrywide Financial Corporation, et al." on Justia Law

Plaintiffs Costantini, Jr. and Kahn sought indemnification for their fees and costs in underlying litigation involving Swiss Farm. The court concluded that Costantini was entitled to indemnification under Article 14 of the Operating Agreement because he was a manager of Swiss Farm and was sued by Swiss Farm in that capacity and prevailed. However, the court concluded that, although Kahn was sued for breach of fiduciary duty and prevailed, he was not a member of the Board of Managers, an officer, an employee or an agent of the company and, therefore, was not entitled to indemnification under the Operating Agreement. Accordingly, the court granted in part and denied in part plaintiffs' motion for judgment on the pleadings. View "Costantini, et al. v. Swiss Farm Stores Acquisition LLC" on Justia Law

Trusts that owned fifty percent of the common stock of nominal defendant IMS alleged that two of the company's three most senior officers mismanaged the company in breach of their fiduciary duties. Trusts moved to compel IMS to produce the senior officers' work email accounts. The senior officers asserted the attorney-client privilege but did not invoke the work product doctrine. The court concluded that the In re Asia Global Crossing, Ltd. factors weighed in favor of production, absent a statutory override that could alter the common law result. Because IMS conducted its business in Maryland, the federal government and the State of Maryland were the sovereigns whose laws IMS must follow when dealing with its employees' email. The Federal Wiretap Act, 18 U.S.C. 2510 et seq.; the Federal Store Communications Act, 18 U.S.C. 2701; the Maryland Wiretap Act, Md. Code, Cts. & Jud. Proc. 10-401 to 10-414; and the Maryland Stored Communications Act, Md. Code, Cts. & Jud. Proc. 10-4A-01 to 10-4A-08, did not change the common law privilege analysis. Accordingly, the court granted the motion to compel. View "In re Info. Mgmt. Servs., Inc. Derivative Litigation" on Justia Law

Plaintiffs brought a derivative action on behalf of China Automotive alleging breaches of fiduciary duty, insider trading, and unjust enrichment against five members of China Automotive's Board. The court concluded that because plaintiffs have not alleged particularized facts showing that any of Defendants Richardson, Tung, or Xu were interested, not independent, or facing a substantial threat of personal liability at the time the derivative Complaint was filed, these three directors were entitled to consider demand. Therefore, under Court of Chancery Rule 23.1, demand was not excused. The court rejected plaintiffs' remaining claims under Rule 23.1 and dismissed as to plaintiffs with prejudice. View "In re: China Automotive Systems Inc. Derivative Litigation" on Justia Law

R&D, a member of the Joint Venture, brought a books and records action under 6 Del. C. 18-305 and the Joint Venture's limited liability company agreement, seeking two categories of books and records that were in the possession and control of Investment Services. At issue was whether the court had jurisdiction over Investment Services, an Indiana corporation, under either Delaware's long-arm statute or its Limited Liability Company Act, 6 Del. C. ch. 18. The court concluded that R&D had not met its burden of making a prima facie showing of a statutory basis for personal jurisdiction over Investment Services under either Delaware's long-arm statute or Section 18-109 of the LLC Act. Therefore, R&D's claim against Investment Services must be dismissed under Rule 12(b)(2) for lack of personal jurisdiction. The court also concluded that the court did have jurisdiction over HDG Properties because of its contractual consent; R&D failed to allege any "reasonably conceivable" collection of facts upon which it could prevail against other HDG Defendants; and R&D's inspection claims against these HDG Defendants must be dismissed under Rule 12(b)(6). Accordingly, the motion to dismiss was granted as to all of the HDG Defendants. View "Florida R&D Fund Investors, LLC v. Florida BOCA/Deerfield R&D Investors, LLC, et al." on Justia Law

Baxter’s Colleague Infusion Pump, an electronic device used to deliver intravenous fluids to patients, was known to have a range of defects. The FDA sent Baxter warning letters. Baxter’s response was not satisfactory. In 2005 the FDA sought forfeiture of all Baxter‐owned Pumps. In 2006, Baxter entered into a Consent Decree to stop manufacturing and distributing all models of the Pump within the U.S., and committed to bringing the approximately 200,000 Pumps in the hands of health care professionals into compliance with the FDA Act. Baxter devoted significant resources to fixing the Pumps, but the FDA was not satisfied and ordered a product recall. In a derivative suit, plaintiffs alleged that that Baxter’s directors and officers breached fiduciary duties by consciously disregarding their responsibility to bring about compliance with the Consent Decree, causing Baxter to lose more than $550 million. Plaintiffs did not first ask Baxter’s board of directors to pursue those claims, but alleged futility. The district court dismissed, finding that Westmoreland failed adequately to plead demand futility, as required by FRCP 23.1(b)(3) and Delaware substantive law. The Seventh Circuit reversed, stating that particularized facts furnished by plaintiffs cast a reasonable doubt that the defendants’ conduct was the product of a valid exercise of business judgment. View "Westmoreland Cnty. Emps. Retirement Sys. v. Parkinson" on Justia Law

Greenblatt, the “bad boy of Chicago arbitrage” became involved in litigation concerning use of his “web of corporations,” including Loop Corporation and Banco. In 2000, Banco extended a $9.9 million line of credit in exchange for a blanket lien over Loop’s assets. Loop defaulted; nevertheless, Banco expanded the line of credit by several million dollars in 2002 and continued lending Loop money until 2004. Banco lost senior creditor status when the district court voided the lien in an earlier case. In 2001 Loop purchased millions of shares of EZ Links stock from Golf Venture, giving a promissory note. Loop defaulted; Golf Venture won a judgment of $1.2 million. Also in 2001, a failed margin transaction left Loop indebted to its brokerage firm, Wachovia, in the amount of $1,885,751. Wachovia took Loop to arbitration and won a $2,349,000 award in 2005. Wachovia is still trying to collect. Loop had transferred almost all of its valuable assets to another Greenblatt company, leaving only the EZ Links stock, in possession of Banco, and Banco claimed to have creditor priority over Wachovia. The district vourt pierced Loop’s corporate veil, allowing Wachovia to reach Greenblatt’s assets, and voiding Banco’s lien, and ordered the sale of Loop’s only asset, EZ Links stock. Banco attempted to contest the d decisions. The Seventh Circuit dismissed Banco’s appeal for lack of standing. View "Wachovia Sec., LLC v. Loop Corp." on Justia Law