Justia Corporate Compliance Opinion Summaries

Petitioner challenged the IRS's determination that the gross income petitioners reported in 2003 and 2004 based on their ownership of a controlled foreign corporation should have been taxed at the rate of petitioners' ordinary income rather than the lower tax rate they had claimed. At issue was whether amounts included in petitioners' gross income for 2003 and 2004 pursuant to 26 U.S.C. 951(a)(1)(B) and 956 (collectively, "section 951 inclusions") constituted qualified dividend income under 26 U.S.C. 1(h)(11). The court concluded that section 951 inclusions did not constitute actual dividends because actual dividends required a distribution by a corporation and receipt by a shareholder and these section 951 inclusions involved no distribution or change in ownership; Congress clearly did not intend to deem as dividends the section 951 inclusions at issue here; and petitioners' reliance on other non-binding sources were unavailing. Accordingly, the court affirmed the judgment of the tax court. View "Rodriguez, et al. v. Commissioner of Internal Revenue" on Justia Law

Plaintiff, president and owner of WestCorp, sued the government for a refund of an IRS tax penalty that he paid. At issue was the treatment of admittedly incomplete payments WestCorp made from 2000-2001. To maximize its recovery, the IRS applied those payments first toward WestCorp's non-trust fund taxes rather than dividing the payments proportionally between WestCorp's trust fund and non-trust fund taxes. The court agreed with the district court that the undisputed facts show, as a matter of law, that plaintiff willfully failed to pay the trust fund taxes at issue; the court also agreed with the district court that the IRS properly allocated the undesignated payments at issue; and the court rejected plaintiff's contention that the IRS should nonetheless have applied at least part of the undesignated payments toward WestCorp's trust fund obligations. Accordingly, the court affirmed the judgment. View "Westerman v. United States" on Justia Law

This appeal arose from eleven notices of final partnership administrative adjustment (FPAAs) issued by the IRS with respect to three Limited Liability Companies (LLCs) treated as partnerships for tax purposes. The IRS claimed that the partnerships' transactions provided one partner with an illegal tax shelter to avoid taxes on his unrelated personal capital gain of the same approximate amount. The court affirmed the district court's determinations that (1) the FOCus transactions lacked economic substance and must be disregarded for tax purposes; (2) the negligence penalty was applicable and the partnerships were not entitled to the reasonable cause defense; and (3) the valuation misstatement penalty was inapplicable. The court vacated and rendered judgment for plaintiffs as to the remaining claims addressing the FPAAs premised on the government's alternative theory under Treasury Regulation 1.701-2 and the district court's approval of the alternative substantial understatement penalty. View "Nevada Partners Fund, et al. v. United States" on Justia Law

Plaintiff Joel Gerber held limited partnership (LP) units in Enterprise GP Holdings, L.P. He sued on behalf of two classes of former public holders of LP units in Enterprise, challenging the sale of a subsidiary and a merger with another. Defendants successfully moved the trial court to dismiss Plaintiff's complaint, and Plaintiff appealed. Upon review, the Supreme Court concluded the trial court erred in dismissing the complaint. The Court affirmed in part, reversed in part, and remanded the case for further proceedings. View "Gerber v. Enterprise Products Holdings,LLC " on Justia Law

Creditors-plaintiffs sued a Colorado LLC claiming the LLC authorized a distribution to members that bankrupted the company and left it unable to pay them. The defendants moved to dismiss plaintiffs' claims of unlawful distribution and breach of fiduciary duty, arguing that no creditor had a right to sue for the distribution, nor a right to claim breach of fiduciary duty. The trial court granted the defendants' motion; the appellate court reversed. Upon review, the Supreme Court concluded that under Colorado law, LLC members are liable to the LLC, but not the LLC's creditors. Furthermore, the Court concluded that the manager of an insolvent LLC does not owe the creditors the same duty an insolvent corporation's directors owe a corporation's creditors. Accordingly, the Court reversed the appellate court and reinstated the trial court's order. View "Weinstein v. Colborne Foodbotics, LLC" on Justia Law

In 2007, a shareholder of Calais Company, Inc., Deborah Kyzer Ivy, filed a complaint against Calais seeking involuntary corporate dissolution. In May 2009, Ivy and Calais reached a settlement agreement in which Calais agreed to purchase Ivy's shares at "fair value" as determined by a three-member panel of appraisers. The appraisers disagreed over the fair value of the company. Calais sought to enforce the Agreement in superior court, arguing the two majority appraisers had failed to comply with the appraisal procedure mandated by the Agreement and the Agreement's definition of "fair value." The superior court ultimately declined to rule on the issue, concluding that interpreting the term "fair value" was beyond its scope of authority under the terms of the Agreement. Consequently, the court ordered Calais to purchase Ivy's shares based on the majority appraisers' valuation. Calais appealed. Upon review of the matter, the Supreme Court reversed the superior court's final order and remanded for the court to remand to the appraisers with explicit instructions to calculate the "fair value" as defined by AS 10.06.630(a), as required by the Agreement. View "Calais Company, Inc. v. Kyzer Ivy" on Justia Law

The issue before the Supreme Court in this case was whether the Court of Chancery erred in dismissing a derivative and class action complaint against the general partner and other managers of a limited partnership. The governing limited partnership agreement provided that appellees had no liability for money damages as long as they acted in good faith. The Court of Chancery dismissed the complaint because it failed to allege facts that would support a finding of bad faith. After remand, the Court of Chancery held that appellants waived their alternative claims for reformation or rescission. Upon review of the matter, the Supreme Court affirmed. View "Brinckerhoff v. Enbridge Energy Company, Inc." on Justia Law

This is an adversary proceeding arising out of the bankruptcy of debtor (Derivium). Plaintiff (Grayson), assignee of the Chapter 7 bankruptcy trustee, appealed from a district court judgment affirming the bankruptcy court's decision to grant summary judgment for defendants (Wachovia). The court concluded that the district court did not err in affirming the grant of summary judgment for Wachovia on Grayson's Customer Transfers claim; summary judgment for Wachovia on Grayson's Cash Transfers claim; the bankruptcy court's determinations that the stockbroker defense applied to commissions; and the bankruptcy court's ruling that in pari delicto barred Grayson's tort claims against Wachovia. View "Grayson Consulting, Inc. v. Wachovia Securities, LLC" on Justia Law

Plaintiffs, two shareholders of a closely held corporation, attempted to tender their shares to the corporation pursuant to a buy-sell agreement. Dissatisfied with the corporation's offer to purchase, the two shareholders sought relief in Chancery Court, and the court submitted the matter to binding arbitration to determine the stock's value as required by the contract. However, the chancellor rejected the arbitrator's valuations and ordered the corporation to buy the plaintiffs' stock at a much higher purchase price. The corporation appealed the chancellor's rejection of the arbitration award, and plaintiffs cross-appealed, claiming that they were entitled to additional damages, including prejudgment interest. Finding no legal basis for setting aside the arbitration award, the Supreme Court reversed the chancery court and reinstated the arbitration award. View "Bailey Brake Farms, Inc. v. Trout" on Justia Law

Plaintiffs are investors who purchased Omnicare securities in a 2005 public offering. They sold their securities a few weeks later and sought relief under the Securities Act of 1933,15 U.S.C. 77k, alleging that the registration statement was materially misleading. Omnicare is the nation’s largest provider of pharmaceutical care services for the elderly and other residents of long-term care facilities in the U.S. and Canada. Plaintiffs claimed that Omnicare was engaged in a variety of illegal activities including kickback arrangements with pharmaceutical manufacturers and submission of false claims to Medicare and Medicaid. The Registration Statement stated “that [Omnicare’s] therapeutic interchanges were meant to provide [patients with] . . . more efficacious and/or safer drugs than those presently being prescribed” and that its contracts with drug companies were “legally and economically valid arrangements that bring value to the healthcare system and patients that we serve.” The district court dismissed the suit against Omnicare, its officers, and directors, holding that plaintiffs had not adequately pleaded knowledge of wrongdoing. The Sixth Circuit reversed with regard to claims of material misstatements or omissions of legal compliance, but affirmed with respect to claims that revenue was substantially overstated in violation of Generally Accepted Accounting Principles. View "IN State Dist. Counsel v. Omnicare, Inc." on Justia Law