Justia Corporate Compliance Opinion Summaries

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

Bank of America lost approximately $34 million when the Knight companies went bankrupt. BOA sued, claiming that Knight’s directors and managers looted the firm and that its accountants failed to detect the embezzlement. The district court dismissed. The accountants invoked the protection of Illinois law, 225 ILCS 450/30.1, which provides that an accountant is liable only to its clients unless the accountant itself committed fraud (not alleged in this case) or “was aware that a primary intent of the client was for the professional services to benefit or influence the particular person bringing the action” The court found that BOA did not plausibly allege that the accountants knew that Knight’s “primary intent” was to benefit the Bank in alleging that the accountants knew that Knight would furnish copies of the financial statements to lenders. The Seventh Circuit affirmed, noting BOA’s choice not to pursue its claims in the bankruptcy process. View "Bank of America, N.A. v. Knight" on Justia Law

Shareholders of a closely held corporation brought a derivative suit against a shareholder-director and the corporation's former attorneys for fiduciary fraud, fraudulent conveyance, legal malpractice, and civil conspiracy. After an evidentiary hearing, the superior court ruled all the claims were time-barred. Upon review of the matter, the Supreme Court affirmed the superior court's dismissal of most claims, but reversed its dismissal of two and remanded those claims for further proceedings. View "Gefre v. Davis Wright Tremaine, LLP" on Justia Law

The Court of Chancery dismissed a class action complaint that objected to the merger of a limited partnership with its general partner's controller. The plaintiff-limited partner's complaint alleged that the general partner (its controller) and its directors took actions during and preceding the merger negotiations that breached the contractual duties the partnership agreement. Upon review, the Supreme Court concluded that the plaintiff's allegations that the independent directors failed to negotiate effectively did not permit a reasonable inference that the independent directors breached their duty to act with subjective good faith. Therefore the Supreme Court affirmed dismissal of the complaint. View "Allen v. Encore Energy Partners, L.P., et al." on Justia Law

Walsh and Martin, principals of a futures and foreign currency trading company that acted as a “futures commission merchant” and as a “forex dealer member,” used customer funds for personal expenses, then concealed the company’s insolvency and their criminal conduct by misleading customers about the company’s ability to meet its obligations. Existing customers got account statements that falsely stated their available margin funds, and they solicited new customers by making false statements. They also used a Ponzi-like scheme for redemptions. Shortly before it was shut down, the company had $17,654,486 in unpaid customer liabilities and only $677,932 in assets. Walsh and Martin pleaded guilty to wire fraud, tax evasion, and to making false statements in a report to the Commodities Futures and Trading Commission, a Commodities Exchange Act (7 U.S.C. 6d(a)) violation. The district court sentenced them to terms of imprisonment of 150 and 204 months, respectively, and ordered each to pay $16,976,554 in restitution. The Seventh Circuit affirmed, rejecting challenges to a finding as to the amount of loss and restitution and to application of a sentencing enhancement based upon a finding that each was an officer or director of a futures commission merchant. View "United States v. Walsh" on Justia Law

Amicas agreed to a merger for $5.35 per Amicas share. Shareholders sued in Massachusetts state court, contesting the adequacy of a proxy statement used to seek approval. A preliminary injunction stopped the vote. The suit settled when a third party made a $6.05 per-share tender offer. Amicas shareholders gained $26 million. The lawyers who filed the suit sought attorneys’ fees based on the difference between the bids. Carolina Casualty had issued a policy covering what Amicas and its directors pay their own litigation lawyers and what Amicas must pay adversaries’ lawyers. The state court awarded $3,150,000, using a lodestar of $630,000 (1,400 hours at $450 per hour) times five, to reflect the risk of nonpayment and “an exceptionally favorable result.” Carolina Casualty filed a diversity suit, claiming that coverage was limited to $630,000. The district judge affirmed, but denied damages for bad faith or vexatious failure to pay. The Massachusetts appeal settled with payment of a sum that cannot be affected by the results of federal litigation. The Seventh Circuit held that the case was not moot, but affirmed, rejecting an argument that the award constituted excluded “civil or criminal fines or penalties … punitive or exemplary damages, the multiplied portion of multiplied damages.” View "Carolina Cas. Ins. Co v. Merge Healthcare Solutions, Inc." on Justia Law