Justia Corporate Compliance Opinion Summaries

The case involves Capital Advisors, LLC, and Danzig, Ltd., minority shareholders of Cam Group, Inc. (CAMG), who filed a shareholder derivative action against nine CAMG officers and directors. The defendants included Wei Heng Cai (Ricky) and Wei Xuan Luo (Tracy), who were the only ones to proceed to trial. The plaintiffs alleged that Ricky arranged for a $1.85 million unsecured loan at zero-percent interest to a company called Parko Ltd., and Tracy, as CFO, failed to stop the loan. The loan allegedly drained approximately 80% of the cash reserves for the consolidated CAM companies. Ricky later resigned from CAMG to focus on developing business opportunities for another company, National Agricultural Holdings Limited (NAHL), and his own company, Precursor Management Inc. (PMI).The district court granted a motion for judgment as a matter of law in favor of Ricky and Tracy, dismissing all causes of action. The court found that officers and directors of a parent company cannot be held liable for actions taken by a wholly owned subsidiary without piercing the corporate veil. The court also awarded Ricky and Tracy over $2 million in attorney fees and costs.The Supreme Court of Nevada affirmed in part, reversed in part, vacated in part, and remanded the case for further proceedings. The court held that officers and directors of a parent company who allow a wholly owned subsidiary to take action adverse to the parent can be held liable without use of the alter ego doctrine. The court also held that shareholders may file derivative suits against officers and directors of a parent company based on wrongful actions that occurred at a wholly owned subsidiary of a wholly owned subsidiary without asserting alter ego. The court concluded that the district court erred by finding that officers and directors of a parent company cannot be held liable for actions taken by a wholly owned subsidiary without piercing the corporate veil. The court also found that the plaintiffs presented sufficient evidence to defeat a motion for judgment as a matter of law as to some of their causes of action. View "CAPITAL ADVISORS, LLC VS. CAI" on Justia Law