Justia Corporate Compliance Opinion Summaries

Catambay’s husband was sued in Santa Clara County for embezzlement. Longview International won a judgment for more than one million dollars and recorded an abstract of judgment in San Mateo County, creating a judgment lien on a house owned by Catambay’s husband in Redwood City. Two days later, Catambay’s husband conveyed the Redwood City house to her as part of a marital settlement agreement in their then-pending dissolution proceeding. Catambay discovered that at the time Longview recorded the abstract of judgment its corporate powers had been suspended. The Delaware corporation had failed to provide an annual statement of information and pay a $25 fee. She sought to intervene in the Santa Clara County embezzlement case and moved to expunge the judgment lien from the Redwood City property. Longview argued that its corporate powers had been reinstated, which retroactively validated any actions it took while suspended. The court of appeal affirmed the denial of Catambay’s motion. Recording an abstract of judgment is a procedural act that is retroactively validated once a suspended corporation’s powers are reinstated. View "Longview International, Inc. v. Stirling" on Justia Law

After a limited liability company and its individual members failed to make payments on a real estate loan, the lender sued. One member, Kenneth Duffus, cross-claimed against a second member, Lee Baker, Jr., alleging breach of contract and tort claims related to the management of the business. Baker counterclaimed against Duffus, also alleging breach of contract and tort claims. After several years of litigation, only the claims by and between Duffus and Baker remained; the superior court granted partial summary judgment to Duffus, finding that the statutes of limitation barred Baker’s counterclaims. A trial jury found against Baker on Duffus’s breach of contract and tort claims, and awarded damages to Duffus. Baker appealed the grant of summary judgment and a number of procedural issues from the trial. Because the Alaska Supreme Court determined it was error to conclude that Baker’s claims were not compulsory counterclaims, thus changing the statutes of limitation analysis, it reversed the superior court’s grant of summary judgment, vacated the judgment, and remanded for a new trial on both Duffus’s cross-claims and Baker’s counterclaims. View "Baker v. Duffus" on Justia Law

After Hawk died, his wife, Nancy, decided to sell the family business, Holiday Bowl and made a deal with MidCoast, which claimed an interest in acquiring companies with corporate tax liabilities that it could set off against its net-operating losses. Holiday first sold its bowling alleys to Bowl New England, receiving $4.2 million in cash and generating about $1 million in federal taxes. Nancy and Billy’s estate then sold Holiday Bowl to MidCoast for about $3.4 million,"in essence exchanging one pile of cash for another minus the tax debt MidCoast agreed to pay." MidCoast never paid the taxes. The United States filed a transferee-liability action against Nancy and Hawk’s estate. The Tax Court ruled for the government. The Sixth Circuit affirmed, reasoning that the Hawks were transferees of a delinquent taxpayer under 26 U.S.C. 6901, and that Tennessee has adopted the Uniform Fraudulent Transfer Act, which provides remedies to creditors (like the United States) when insolvent debtors fraudulently transfer assets to third parties. Holiday Bowl owed taxes. “Congress, with assistance from the courts, has constructed a formidable defense against taxpayer efforts to traffic in net operating losses and other corporate tax benefits.” View "Billy F. Hawk, Jr., GST Non-Exempt Marital Trust v. Commissioner of Internal Revenue" on Justia Law

In 2011 Caterpillar made serious inquiries about the possible acquisition of a Chinese mining company and its wholly‐owned subsidiary (Siwei). Caterpillar completed that acquisition in June 2012. Only after the closing did Caterpillar gain access to Siwei’s physical inventory and find that Siwei had overstated its profits and improperly recognized revenue. Caterpillar took a $580 million goodwill impairment charge just months after the acquisition. Plaintiffs, Caterpillar shareholders, filed a shareholder derivative suit alleging that several former Caterpillar officers breached their fiduciary duties by failing to conduct an adequate investigation of the Siwei acquisition, which caused Caterpillar’s loss. They made an unsuccessful demand that the Caterpillar Board bring the litigation. The district court dismissed the complaint for failure adequately to allege that the Board wrongfully refused to pursue the Plaintiffs’ claim. The Seventh Circuit affirmed. The Board’s decision not to litigate was protected by the “wide bounds of the business judgment rule.” The plaintiffs might come to a different conclusion about the strategic importance of the acquisition, the risk that litigation might cause disruption and excessive cost for Caterpillar, or the need to interview Siwei’s former CEO, but those types of business and investigative choices are exactly what the business judgment rule protects. View "Lowinger v. Oberhelman" on Justia Law

A participant in an Employee Stock Ownership Program (ESOP) filed suit after owners of a closely held corporation sold the company to its ESOP. The participant contended that the trustee chosen for the ESOP by the corporation breached its fiduciary duties to the ESOP and overpaid for the stock — improperly enriching the corporation's owners at the expense of its employees.The Fourth Circuit affirmed the district court's careful findings of fact concluding that the trustee had breached its fiduciary duties. In regard to liability, the district court found four major failures involving SRR's report; that the trustee failed to act as a prudent fiduciary solely on behalf of the ESOP participants; that the value of Stock Appreciation Rights (SARs) issued in connection with the ESOP's purchase of Constellis should have been deducted from Constellis's equity value for purposes of SRR’s valuation; and that the ACADEMI sale did not constitute a meaningful comparator. Furthermore, the court found no error in the district court's damages award and fee award. View "Tim Brundle v. Wilmington Trust, N.A." on Justia Law

Boschetti sued Pacific Bay, Sparks, and others, alleging that Boschetti and Sparks owned commercial real property through membership in limited liability companies and partnerships, that defendants provide real property management services for the real estate portfolio, and that Pacific Bay paid itself improper distributions in violation of its fiduciary duty to Boschetti. Sparks and Pacific Bay cross-complained, seeking dissolution of six of the out-of-state LPs and LLCs because Sparks and Boschetti could not coexist effectively given the litigation. Boschetti sought to avoid dissolution by buy-outs. When an action is brought to dissolve a California LP or LLC, the other partners or members may avoid the dissolution by purchasing, for cash, the interests owned by the party seeking dissolution, Corp. Code 15908.02(b), 17707.03(c)(1). These “buyout” provisions do not apply to an action to dissolve a general partnership, sections 16801–16807. An amended cross-complaint alleged that Boschetti and Sparks have a general partnership and sought an order dissolving that partnership. The out-of-state LPs and LLCs hold title to property owned by the general partnership. Boschetti again sought to avoid dissolution and moved to stay the dissolution of the LPs and LLCs. The court of appeal held that the trial court lacks authority to order the dissolution of the out-of-state entities. View "Boschetti v. Pacific Bay Investments Inc." on Justia Law

Bio-Rad and its CEO appealed a jury verdict in favor of the company's former general counsel finding that defendants violated the Sarbanes-Oxley Act (SOX), the Dodd-Frank Act, and California public policy by terminating general counsel's employment in retaliation. General counsel produced an internal report that he believed Bio-Rad had engaged in serious and prolonged violations of the Foreign Corrupt Practices Act (FCPA) in China.The Ninth Circuit vacated in part and held that the district court erred by instructing the jury that statutory provisions of the FCPA constitute rules or regulations of the SEC for purposes of whether general counsel engaged in protected activity under section 806 of the SOX. However, the panel rejected Bio-Rad's argument that no properly instructed jury could return a SOX verdict in favor of general counsel. The panel held that the district court's SOX instructional error was harmless and affirmed as to the California public policy claim. The panel remanded for further consideration. View "Wadler v. Bio-Rad Laboratories, Inc." on Justia Law

Stockholder-plaintiff KT4 Partners LLC appealed the Court of Chancery’s post-trial order granting in part and denying in part KT4’s request to inspect various books and records of appellee Palantir Technologies Inc., a privately held technology company. The Court of Chancery found that KT4 had shown a proper purpose of investigating suspected wrongdoing in three areas: (1) “Palantir’s serial failures to hold annual stockholder meetings”; (2) Palantir’s amendments of its Investors’ Rights Agreement in a way that “eviscerated KT4’s (and other similarly situated stockholders’) contractual information rights after KT4 sought to exercise those rights”; and (3) Palantir’s potential violation of two stockholder agreements by failing to give stockholders notice and the opportunity to exercise their rights of first refusal, co-sale rights, and rights of first offer as to certain stock transactions. The Court ordered Palantir to produce the company’s stock ledger, its list of stockholders, information about the company’s directors and officers, year-end audited financial statements, books and records relating to annual stockholder meetings, books and records relating to any cofounder's sales of Palantir stock. The Court otherwise denied KT4's requests, including a request to inspect emails related to Investors' Rights Agreement amendments. Both sides appealed, but the Delaware Supreme Court was satisfied the Court of Chancery did not abuse its discretion with respect to all but two issues: (1) denying wholesale requests to inspect email relating to the Investors' Rights Agreement; (2) and requests to temper the jurisdictional use restriction imposed by the court. "Given that the court found a credible basis to investigate potential wrongdoing related to the violation of contracts executed in California, governed by California law, and among parties living or based in California, the basis for limiting KT4’s use in litigation of the inspection materials to Delaware and specifically the Court of Chancery was tenuous in the first place, and the court lacked reasonable grounds for denying the limited modifications that KT4 requested." View "KT4 Partners LLC v. Palantir Technologies, Inc." on Justia Law

This case involved questions of how the attorney-client privilege should apply in the context of derivative litigation. The nonprofit corporations involved in this matter were the Pittsburgh History and Landmarks Foundation (“the Foundation”) and its subsidiary, the Landmarks Financial Corporation (“the Corporation”), which managed the Foundation’s endowment. Plaintiffs were five former members of the Boards of Trustees of the Foundation and the Corporation who alleged they were improperly and ineffectively removed from the Boards in an attempt to thwart their oversight of the Foundation’s president, whom they believed was engaging in actions that were improper and not in accord with the Foundation’s mission. The Foundation’s Board created a Governance Task Force to review various practices of the Foundation; the Task Force recommended that both Boards be reduced substantially in number. The Foundation Board approved this recommendation and removed all trustees then serving from both Boards; significantly smaller boards were elected and as a result of these consolidations, and Derivative Plaintiffs lost their seats on the Boards. In accord with standard procedures for bringing a derivative action adopted by the Pennsylvania Supreme Court in Cuker v. Mikalauskas, 692 A.2d 1042 (Pa. 1997). The Supreme Court rejected the Commonwealth Court’s adoption of a qualified attorney-client privilege as set forth in Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970), which the Supreme Court viewed as inconsistent with prior Pennsylvania caselaw emphasizing predictability in the application of the attorney-client privilege. However, the Commonwealth Court’s decision not to apply the fiduciary or co-client exceptions to the attorney-client privilege under the facts of this case was affirmed. The matter was remanded for further al court and the Commonwealth Court and remanded the matter to the trial court for further proceedings. View "Pgh History v. Ziegler" on Justia Law

The Mississippi Supreme Court previously unanimously held that KPMG, LLP could not enforce arbitration agreements attached to five annual engagement letters with Singing River Health System (Singing River), a community hospital, because the terms and condition of the letters were not sufficiently spread upon the hospital board’s minutes to create an enforceable contract. In this appeal, KPMG sought to enforce the very same arbitration agreements attached to the very same engagement letters with Singing River - this time against Jackson County, Mississippi, which acted as Singing River’s bond guarantor. For the same reason the Supreme Court affirmed the trial court’s denial of KPMG’s motion to compel arbitration in KPMG, LLP v. Singing River Health System, the Court reversed and remanded the trial court’s grant of KPMG’s motion to compel arbitration in this case. View "Jackson County, Mississippi v. KPMG, LLP" on Justia Law