Justia Corporate Compliance Opinion Summaries

A winning candidate for a seat on the board of directors of an Alaska Native Corporation declined to sign the corporation’s confidentiality agreement and code of conduct. When the corporation denied him a seat on the board, he sought a declaratory judgment that these agreements were unlawful and an injunction that he be seated on the board. He argued that the scope of the confidentiality agreement was so broad, and the code of conduct so apt to be used to suppress dissenting directors, that they were inconsistent with directors’ fiduciary duties to the corporation. The Alaska Supreme Court determined he did not challenge the application of these agreements to any concrete factual situations, therefore, his claims were not ripe for adjudication. The Court therefore affirmed the judgment and the award of attorney’s fees against him. View "Borer v. Eyak Corporation" on Justia Law

In June 2017, Google engineers alerted Intel’s management to security vulnerabilities affecting Intel’s microprocessors. Intel management formed a “Problem Response Team” but made no public disclosures. In January 2018, media reports described the security vulnerabilities. Intel acknowledged the vulnerabilities, and management’s prior knowledge of them. Intel’s stock price dropped. Tola filed a shareholder derivative complaint, alleging that certain Intel officers and directors breached fiduciary duties. After obtaining records from Intel, Tola filed a third amended complaint, alleging that certain officers “knowingly disregarded industry best practices, material risks to the Company’s reputation and customer base, and their fiduciary duties of care and loyalty … the Board of Directors willfully failed to exercise its fundamental authority and duty to govern Company management and establish standards and controls.”The trial court dismissed, concluding that Tola failed to allege, with the requisite particularity, that it was futile to make a pre-suit demand on Intel’s board of directors. The court of appeal affirmed. Tola does not support his conclusory allegations with sufficient particularized facts that support an inference of bad faith. At most, Tola alleged that two directors received a material personal benefit from alleged insider trading, which still leaves an impartial board majority to consider a demand. View "Tola v. Bryant" on Justia Law

In 2005, Lyons opened a Home Equity Line of Credit (HELOC) with PNC’s predecessor, signing an agreement with no arbitration provision. In 2010, Lyons opened deposit accounts at PNC and signed a document that stated he was bound by the terms of PNC’s Account Agreement, including a provision authorizing PNC to set off funds from the account to pay any indebtedness owed by the account holder to PNC. PNC could amend the Account Agreement. In 2013, PNC added an arbitration clause to the Account Agreement. Customers had 45 days to opt out. Lyons opened another deposit account with PNC in 2014 and agreed to be bound by the 2014 Account Agreement, including the arbitration clause. Lyons again did not opt out. Lyons’s HELOC ended in February 2015. PNC began applying setoffs from Lyons’s 2010 and 2014 Accounts.Lyons sued under the Truth in Lending Act (TILA). PNC moved to compel arbitration. The court found that the Dodd-Frank Act amendments to TILA barred arbitration of Lyons’s claims related to the 2014 Account but did not apply retroactively to bar arbitration of his claims related to the 2010 account. The Fourth Circuit reversed in part. The Dodd-Frank Act 15 U.S.C. 1639c(e) precludes pre-dispute agreements requiring the arbitration of claims related to residential mortgage loans; the relevant arbitration agreement was not formed until after the amendment's effective date. PNC may not compel arbitration of Lyons’s claims as to either account. View "Lyons v. PNC Bank" on Justia Law

In October 2018, a Boeing 737 MAX airliner crashed in the sea near Indonesia, killing everyone on board. In March 2019, a second 737 MAX crashed in Ethiopia, again killing everyone on board. Within days of the second crash, all 737 MAX airliners around the world were grounded. The FAA kept the planes grounded until November 2020, when it was satisfied that serious problems with the planes’ flight control systems had been corrected. The Pension Plan, a shareholder of the Boeing Company, filed a derivative suit on behalf of Boeing under the Securities Exchange Act of 1934, 15 U.S.C. 78n(a)(1), alleging that Boeing officers and board members made materially false and misleading public statements about the development and operation of the 737 MAX in Boeing’s 2017, 2018, and 2019 proxy materials.The district court dismissed the suit without addressing the merits, applying a Boeing bylaw that gives the company the right to insist that any derivative actions be filed in the Delaware Court of Chancery. The Seventh Circuit reversed. Because the federal Exchange Act gives federal courts exclusive jurisdiction over actions under it, applying the bylaw to this case would mean that the derivative action could not be heard in any forum. That result would be contrary to Delaware corporation law, which respects the non-waiver provision in Section 29(a) of the federal Exchange Act, 15 U.S.C. 78cc(a). View "Seafarers Pension Plan v. Bradway" on Justia Law

Bruce, Phillip, and Judith are siblings and co-equal general partners of the Guttman Family Limited Partnership, which owns Los Angeles County real estate. Bruce sued to dissolve the partnership, Corporations Code 15908.02(a). Phillip and Judith initiated a statutory procedure to buy out Bruce’s interest in the partnership. Court-appointed appraisers submitted valuations of the partnership’s properties. One appraiser concluded that the value of the partnership properties was $37,180,000, another appraiser established the value at $38,300,000, and the third at $39,037,000. The court agreed with Bruce that the buyout procedure did not require a consensus among the appraisers, or among two of them.Bruce, believing the appraisals undervalued the properties, dismissed his complaint without prejudice. The court then granted Phillip and Judith’s motion to vacate the dismissal. The court of appeal dismissed Bruce’s petition for review. In addition to the commencement of trial limitation on a plaintiff’s right to dismiss, a plaintiff may not dismiss an action when a defendant seeks affirmative relief in the case. Because Phillip and Judith were pursuing the affirmative relief available under the buyout provision at the time Bruce filed his request to dismiss the action, the entry of dismissal was improper. View "Guttman v. Guttman" on Justia Law

Blizzard invested in a tire pyrolysis project in Kansas and subsequently sued Schaefers. A Kansas jury returned a $3.825 million fraud judgment, which was entered in California. The California court added a judgment debtor (BKS) pursuant to the “outside reverse veil piercing” doctrine, which arises when the request for piercing comes from a third party outside the targeted business entity. The targeted entity was BKS. Schaefers owns a 50 percent interest in that LLC. Schaefers’ wife, Karin, owns the other 50 percent. Neither Karin nor BKS was a defendant in the Kansas action. The California court found that BKS is Schaefers’ alter ego.The court of appeal affirmed in part. The evidence is sufficient to support the finding that BKS is Schaefers’ alter ego. The court remanded for further proceedings so that the trial court may weigh competing equities that bear on the veil-piercing issue. Blizzard is entitled to recover the damages awarded by the Kansas judgment, but Karin may be an innocent third party who would suffer substantial harm if recovery is accomplished through the reverse veil piercing; there is no indication that she was involved in the fraud committed by Schaefers. Karin may not be responsible for debts incurred by Schaefers after their separation in 1996. View "Blizzard Energy, Inc. v. Schaefers" on Justia Law

Indeck develops, owns, and operates conventional and alternative fuel power plants. DePodesta, Indeck's vice president of business development, had overall responsibility for Indeck’s electrical generation project development efforts. Dahlstrom was director of business development. DePodesta and Dahlstrom had signed confidentiality agreements.In 2010, Dahlstrom founded HEV, a consulting firm that develops electrical power generation projects. DePodesta later became a member of HEV. In 2013, DePodesta, Dahlstrom, and HEV formed an LLC to develop natural-gas-fired, simple cycle power plants in Texas. The two subsequently copied and removed from Indeck’s premises thousands of documents and files. DePodesta resigned from Indeck on November 1, 2013, and Dahlstrom on November 4. They did not tell anyone at Indeck that they intended to pursue an opportunity with a new LLC. In 2014, Indeck filed suit, alleging breach of the confidentiality agreements and fiduciary duties,” seeking injunctive relief and disgorgement.The Illinois Supreme Court affirmed in part and reversed in part. Indeck’s confidentiality agreement was unenforceable as overbroad and Indeck failed to prove it had sustained injury based on any breach. Any profits from breaches of fiduciary duty after the defendants were speculative; there was no identifiable fund traceable to those breaches, so a constructive trust was not available. However, defendants breached their fiduciary duties during their employment and were required to disgorge their salaries. Indeck failed to prove the injury necessary for its claim of usurpation of a corporate opportunity. View "Indeck Energy Services, Inc. v. DePodesta" on Justia Law

While Appvion was in financial distress, 2012-2016, the defendants allegedly fraudulently inflated stock valuations to enrich the directors and officers, whose pay was tied to the valuations of its ERISA-covered Employee Stock Ownership Plan (ESOP). They allegedly carried out this scheme with knowing aid from the ESOP trustee, Argent, and its independent appraiser, Stout. Appvion directors allegedly provided unlawful dividends to its parent company by forgiving intercompany notes. Appvion filed for bankruptcy protection. Appvion’s bankruptcy creditors were given authority to pursue certain corporation-law claims on behalf of Appvion to recover losses from the defendants’ alleged wrongs against the corporation; they brought state law claims against the directors and officers for breaching their corporate fiduciary duties; alleged that Argent and Stout aided and abetted those breaches, and asserted state-law unlawful dividend claims. The defendants argued that their roles in Appvion’s ESOP valuations were governed by the Employee Retirement Income Security Act (ERISA), which preempted state corporation-law liability and that, despite their dual roles as corporate and ERISA fiduciaries, they acted exclusively under ERISA when carrying out ESOP activities, 29 U.S.C. 1002(21)(A). The district court agreed and dismissed.The Seventh Circuit reversed in part. ERISA does not preempt the claims against directors and officers. ERISA expressly contemplates parallel corporate liability against those who serve dual roles as both corporate and ERISA fiduciaries. ERISA preempts the claims against Argent and Stout. Corporation-law aiding and abetting liability against these defendants would interfere with the cornerstone of ERISA’s fiduciary duties—Section 404's exclusive benefit rule. View "Halperin v. Richards" on Justia Law

Coscia used electronic exchanges for futures trading and implemented high-frequency trading programs. High-frequency trading, called “spoofing,” and defined as bidding or offering with the intent to cancel the bid or offer before execution, became illegal in 2010 under the Dodd-Frank Act, 7 U.S.C. 6c(a)(5). Coscia was convicted of commodities fraud, 18 U.S.C. 1348, and spoofing, After an unsuccessful appeal, Coscia sought a new trial, citing new evidence that data discovered after trial establishes that there were errors in the data presented to the jury and that subsequent indictments for similar spoofing activities undercut the government’s characterization of Coscia as a trading “outlier.” He also claimed that his trial counsel provided ineffective assistance, having an undisclosed conflict of interest. The Seventh Circuit affirmed. Even assuming that Coscia’s new evidence could not have been discovered sooner through the exercise of due diligence, Coscia failed to explain how that evidence or the subsequent indictments seriously called the verdict into question. Coscia has not established that his attorneys learned of relevant and confidential information from its cited unrelated representations. Coscia’s counsel faced “the common situation” where the client stands a better chance of success by admitting the underlying actions and arguing that the actions do not constitute a crime. That the jury did not accept his defense does not render it constitutionally deficient. View "Coscia v. United States" on Justia Law

There were allegations that Gilead intentionally withheld a safer and potentially more effective HIV/AIDS medication in order to extend the sales window for its older, more dangerous treatment. In 2019, Ramirez, a beneficial owner of Gilead shares, demanded that the company permit him to inspect broad categories of documents for the purpose of “obtaining accurate and complete information about his investment in Gilead, and to find out how the mismanagement and breaches of fiduciary duties at Gilead relating to violations of federal and state laws affect that investment..” Gilead rejected the inspection request. Ramirez then filed a petition for writ of mandate, Corporations Code section 1601, in the superior court asserting common law and statutory rights to inspect the documents described in his demand letter.The trial court denied the petition on the ground that Delaware, Gilead’s state of incorporation, was the sole and exclusive forum to litigate Ramirez’s inspection demand. While his appeal was pending, Ramirez litigated his inspection demand to judgment in Delaware. The court of appeal concluded Ramirez lacks standing to pursue his California inspection demand under section 1601 because he is not a holder of record of Gilead stock. View "Ramirez v. Gilead Sciences, Inc." on Justia Law