Justia Corporate Compliance Opinion SummariesArticles Posted in U.S. 5th Circuit Court of Appeals
Bemont Investments, L.L.C., et al. v. United States
These consolidated cases sought judicial review of notices of final partnership administrative adjustment (FPAA) issued to Bemont and BPB. Following the review of the district court, the government appealed the ruling on the partnerships' motion for partial summary judgment disallowing the 40% valuation misstatement penalty, and the ruling post trial holding that the FPAA issued to Bemont for the 2001 tax year was time-barred. The partnerships appealed the district court's judgment upholding the imposition of the 20% substantial understatement and negligence penalties. The court reversed the judgment of the district court that the FPAA as to the 2001 tax year was untimely; affirmed the judgment of the district court in all other respects including disallowing the 40% valuation misstatement penalty and upholding the 20% negligence penalty for both 2001 and 2002. View "Bemont Investments, L.L.C., et al. v. United States" on Justia Law
MC Asset Recovery LLC v. Commerzbank A.G., et al.
This case arose when Mirant, an energy company, sought to expand its European operations by acquiring nine power islands from General Electric. When the power island deal fell through, Mirant made payments pursuant to a guaranty and soon thereafter sought bankruptcy protection. Mirant, as debtor-in-possession, sued Commerzbank and other lenders in bankruptcy court to avoid the guaranty and to recover the funds Mirant paid pursuant to the guaranty. After Mirant's bankruptcy plan was confirmed MCAR, plaintiff, substituted into the case for Mirant. Commerzbank and other lenders, defendants, filed a motion to dismiss based on Rules 12(b)(1) and 12(b)(6). The district court subsequently denied defendants' motion to dismiss based on plaintiff's alleged lack of standing. Thereafter, the district court granted summary judgment for defendants. Both sides appealed. While the court agreed that the district court correctly determined that there was standing to bring the avoidance claim, the court vacated the judgment of dismissal because the district court erroneously applied Georgia state law rather than New York state law to the avoidance claim. View "MC Asset Recovery LLC v. Commerzbank A.G., et al." on Justia Law
The American Cancer Society v. Cook
Karen Cook was appointed receiver over the assets of a number of related corporations and individuals, who the SEC alleged violated multiple federal securities laws. Cook discovered that before the SEC filed its civil complaint, the corporate entities involved had made charitable contributions to the American Cancer Society (ACS). Cook moved to recover the donations on behalf of the receivership, arguing that they qualified as fraudulent transfers under Texas' Uniform Fraudulent Transfer Act (TUFTA), Tex. Bus. & Co. Code 24.005(a). The court held that the receiver's attempt to liken the scheme in question to a "Ponzi-like fraud," and therefore reduce her burden to proving "presumed intent to defraud," failed for lack of evidence. Accordingly, the court reversed the judgment of the district court. View "The American Cancer Society v. Cook" on Justia Law
Amco Energy, Inc., et al. v. Tana Exploration Co., et al.
In a bankruptcy adversary proceeding, Capco brought claims of fraud and various business torts against Ryder, Tana, TRT, and Tristone. The claims arose out of a transaction in which Capco purchased from Tana certain oil and gas reserves located in the Gulf of Mexico (the Properties). The bankruptcy court granted summary judgment in favor of Ryder, Tana, TRT, and Tristone and dismissed the claims. The court held that Capco failed to present evidence to demonstrate a genuine issue of material fact about whether Ryder was contracted to provide an independent reevaluation of the Properties and advice at the meeting regarding Capco's decision to close on the Properties. The court also held that because the purchase and sale agreement contained a clear intent to disclaim reliance, the lower courts correctly held that Capco was unable to claim fraudulent inducement based on the prior representations of Tana, TRT, and Tristone. Accordingly, the judgment was affirmed. View "Amco Energy, Inc., et al. v. Tana Exploration Co., et al." on Justia Law
Stettner, et al. v. Smith
IFS and 17 affiliated organizations (collectively, Interamericas) were debtors in a series of Chapter 7 cases. This appeal arose from eight collective adversary proceedings, which a trustee of IFS brought against appellants for avoidance of fraudulent transfers under Chapter 5 of the Bankruptcy Code and Chapter 24 of the Texas Business and Commerce Code. Appellants appealed the district court's affirmance of the bankruptcy court judgment of over $3 million in favor of the trustee. The court held that control could be sufficient to show ownership of what was ultimately a fact-based inquiry that would vary according to the peculiar circumstances of each case. The court also held that the lower courts' findings of ownership were not clearly erroneous and, moreover, comported with precedent and the court's holding today where IFS exercised control over the accounts at issue such that it had de facto ownership over the accounts, as well as the funds contained. The court further held that the record supported the lower courts' findings of fraudulent transfer. Specifically, IFS faced pending lawsuits and mounting debts just as it liquidated nearly all Interamericas' assets and evidence that IFS operated as a fraudulent enterprise at the time of transfer supported this finding of fraudulent intent. Accordingly, the judgment was affirmed. View "Stettner, et al. v. Smith" on Justia Law
Evans, et al. v. Sterling Chemicals, Inc., et al.
This appeal required the court to determine what effect, if any, a retiree benefits-related provision included in an asset purchase agreement had on the acquiring company's retiree benefits plans governed under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. 1000 et seq. The court held that the provision constituted a valid plan amendment. Moreover, the court held that the provision was assumed, not rejected, in bankruptcy. Accordingly, the court reversed and remanded. View "Evans, et al. v. Sterling Chemicals, Inc., et al." on Justia Law
Southgate Master Fund, L.L.C. v. United States
Plaintiff partnership was formed for the purpose of facilitating the acquisition of a portfolio of Chinese nonperforming loans (NPLs). The IRS determined that plaintiff was a sham partnership that need not be respected for tax purposes and that plaintiff's allocation of the $200 million loss to the deducting partner should be disallowed. At issue on appeal are the income-tax consequences of three interrelated transactions entered into by plaintiff and its three members. The court held that the district court correctly held that, while the acquisition of an interest in a portfolio of Chinese NPLs had economic substance, the plaintiff partnership was a sham that must be disregarded for federal income-tax purposes. As a consequence, that acquisition must be recharacterized as a direct sale. The court also held that the district court was correct to disallow all accuracy-related penalties on the ground that plaintiff had reasonable cause for, and exhibited good faith in, reporting the positions it took on its 2002 partnership return. Accordingly, the judgment was affirmed. View "Southgate Master Fund, L.L.C. v. United States" on Justia Law
LHC Nashua Partnership, Ltd. v. PDNED Sagamore Nashua, LLC, et al.
This litigation arose out of a contract between the parties in which PDNED agreed to transfer its rights to LHC to purchase shopping mall property from a third party. LHC alleged that, based on representations made by PDNED, LHC expected to lease the property to Lowe's Home Improvement. PDNED subsequently appealed a judgment entered on a jury verdict in favor of LHC. As a preliminary matter, the court held that it need not resolve the choice-of-law question where the parties agreed that, with a few exceptions, no material differences existed between New Hampshire and Texas law with regard to the case and the court's conclusions would be the same under either state's law. The court held that the purchase and sale agreement (P&S Agreement) precluded LHC's promissory estoppel claim because the agreement itself controlled the extent of PDNED's binding promises with regard to the purchase and sale of the property. The court also held that the district court did not err when it denied PDNED's motion to dismiss LHC's negligent and fraudulent misrepresentations claims as a matter of law where the evidence presented at trial was sufficient to support finding PDNED liable for negligent and fraudulent misrepresentations. The court also held that the jury's out-of-pocket award was the appropriate measure to compensate LHC for reliance costs but that lost profits were not an appropriate measure of damages for the fraudulent misrepresentations in this case. The court finally held that PDNED could not be considered the prevailing party in this litigation for purposes of the P&S Agreement's attorneys' fees provision. Accordingly, the court vacated the district court's judgment against PDNED on LHC's promissory estoppel claim and the jury's award in lost profits. The court affirmed the district court's judgment and the jury's award of out-of-pocket damages and the denial of PDNED's motion for attorney's fees. View "LHC Nashua Partnership, Ltd. v. PDNED Sagamore Nashua, LLC, et al." on Justia Law
ASARCO, Inc., et al. v. Elliot Mgmt., et al.
The bankruptcy court issued an order that authorized the debtor to reimburse qualified bidders for expenses incurred in connection with the sale of a substantial asset of the debtor's estate. Debtor and debtor's parent companies subsequently appealed the bankruptcy court's reimbursement order. As a preliminary matter, the court held that it had jurisdiction over the appeal where, in settling this "discrete dispute," the reimbursement order was sufficiently separable from the rest of the bankruptcy proceeding to be appealable as a "final" order under 28 U.S.C. 158(a) and (d). The court also held that, based on the record, the bankruptcy court did not err in issuing the reimbursement order under the business judgment standard in section 363(b) of the Bankruptcy Code. Accordingly, the judgment of the district court was affirmed. View "ASARCO, Inc., et al. v. Elliot Mgmt., et al." on Justia Law
United States v. Brown
This appeal arose from an earlier trial relating to the Enron scandal. The government alleged that Enron loaned out the stake in the barges that it owned off the Nigerian coast to Merill Lynch, risk-free and with a guaranteed return, but made it seem like a sale so that it could book a pretend profit. Defendant, a managing director at Merrill Lynch and the head of its Strategic Asset and Lease Finance group at the time of the transaction, challenged his convictions related to the sale on the grounds that the government violated his right to due process by withholding materially favorable evidence that it possessed pre-trial. The court affirmed and held that the district court did not clearly err in holding that the evidence at issue was not material. View "United States v. Brown" on Justia Law