Justia Corporate Compliance Opinion Summaries

Two of Oxbow Carbon LLC’s minority Members, Crestview Partners, L.P. and Load Line Capital LLC, attempted to force a sale of Oxbow over the objection of Oxbow’s majority Members, William Koch and his affiliates (the “Koch Parties”). This dispute centered on the proper interpretation of the governing Third Amended and Restated Limited Liability Company Agreement (the “LLC Agreement”). Although the Court of Chancery found that the minority investors affiliated with Koch, Ingraham Investments LLC and Oxbow Carbon Investment Company LLC (collectively, the “Small Holders”), could block the sale unless it met certain payment conditions, the court nonetheless found a contractual gap in the LLC Agreement because the Board did not specify the terms and conditions under which the Small Holders acquired their units. Using the implied covenant of good faith and fair dealing, the Court of Chancery filled that gap by implying a “Top-Off” option for the Small Holders’ units, effectively stripping them of the right to block the proposed transaction. On appeal, Oxbow claimed that: (1) the trial court improperly applied the implied covenant; (2) there was no contractual gap; (3) Oxbow did not breach the LLC Agreement; and (4) the court’s rulings on remedies were made in error. The Delaware Supreme Court determined the Court of Chancery correctly interpreted the LLC Agreement’s plain language, but erred by finding a contractual gap concerning the admission of the Small Holders. Thus, the Court affirmed in part, reversed in part, and remanded the Court of Chancery’s February 12, 2018, decision, and vacated its August 1, 2018, decision on remedies. View "Oxbow Carbon & Minerals Holdings, Inc., et al. v. Crestview-Oxbow Acquisition, LLC, et al." on Justia Law

Consumer banks Hudson and M&T merged. Hudson’s shareholders claimed they violated the Exchange Act, 15 U.S.C. 78n(a), and SEC Rule 14a-9, by omitting facts concerning M&T’s regulatory compliance from their joint proxy materials: M&T’s having advertised no-fee checking accounts but later switching those accounts to fee-based accounts (consumer violations) and deficiencies in M&T’s Bank Secrecy Act/anti-money laundering compliance program. They argued that because the proxy materials did not discuss M&T’s noncompliant practices, M&T failed to disclose significant risk factors facing the merger, rendering M&T’s opinion statements regarding its adherence to regulatory requirements and the prospects of prompt approval of the merger misleading under Supreme Court precedent (Omnicare). The Third Circuit reversed, in part, the dismissal of the suit. The shareholders pleaded actionable omissions under the SEC Rule but failed to do so under Omnicare. The joint proxy had to comply with a provision that requires issuers to “provide under the caption ‘Risk Factors’ a discussion of the most significant factors that make the offering speculative or risky.” It would be reasonable to infer the consumer violations posed a risk to regulatory approval of the merger, despite cessation of the practice by the time the proxy issued. The disclosures were inadequate as a matter of law. View "Jaroslawicz v. M&T Bank Corp" on Justia Law

1st Century was a Delaware corporation headquartered in Los Angeles; its shares were publicly traded on the NASDAQ. 1st Century and Midland announced merger plans. Midland was to acquire 1st Century for $11.22 in cash per share, a 36.3 percent premium over 1st Century’s closing share price on March 10, 2016. The merger was subject to approval by the holders of a majority of 1st Century’s outstanding shares. A shareholder vote on the proposed merger was scheduled. 1st Century’s certificate of incorporation authorized its directors “to adopt, alter, amend or repeal” the company’s bylaws, “subject to the power of the stockholders of the Corporation to alter or repeal any Bylaws whether adopted by them or otherwise.” 1st Century’s board of directors exercised that power when it approved the merger agreement, adding a forum selection bylaw providing that, absent the corporation’s written consent, Delaware is “the sole and exclusive forum for” intra-corporate disputes, including any action asserting a breach of fiduciary duty claim. The trial court stayed a putative shareholder class action, concluding that the bylaw’s forum selection clause was enforceable. The court of appeal affirmed, holding that a forum selection bylaw adopted by a Delaware corporation without stockholder consent is enforceable in California. View "Drulias v. 1st Century Bancshares, Inc." on Justia Law

Maynard, Cooper & Gale, P.C. ("MCG"), petitioned the Alabama Supreme Court for a writ of mandamus to direct the Jefferson Circuit Court to vacate its July 30, 2018 order denying MCG's motion for a change of venue and to enter an order transferring the underlying action to the Madison Circuit Court on the basis of the doctrine of forum non conveniens. In late 2017, AAL USA, Inc. ("AAL"), a Delaware corporation doing business in Alabama, and Oleg Sirbu, a resident of Dubai, United Arab Emirates (collectively, "the plaintiffs"), sued MCG, asserting a claim of legal malpractice pursuant to the Alabama Legal Services Liability Act ("the ALSLA"), and seeking, among other relief, disgorgement of all attorney fees paid by the plaintiffs to MCG. AAL maintained, repaired, and overhauled helicopters through various government contracts or subcontracts on United States military bases. MCG represented the plaintiffs from 2014 through October 28, 2016; two MCG attorneys, Jon Levin and J. Andrew Watson III, were shareholders of MCG whose allegedly wrongful conduct was performed within the line and scope of their employment with MCG. The events giving rise to this litigation began in September 2016, when AAL received a "base-debarment" letter notifying it that it no longer had access to certain military bases outside the continental United States. MCG chief financial officer Keith Woolford forwarded this letter to MCG, and, according to the plaintiffs, MCG "immediately embarked in a central role in [MCG CEO Paul] Daigle's and Woolford's scheme to steal the assets of AAL." The complaint alleged that Levin worked closely with Woolford and Daigle to draft the APA pursuant to which Black Hall Aerospace, Inc., Daigle, and Woolford would purchase all of AAL's assets, as a way to cure the base-debarment problem. The plaintiffs alleged that MCG knew that the APA would "gut" the plaintiffs –- its current clients –- while simultaneously benefiting Daigle, Woolford, and BHA –- other clients of MCG -- and that this "clear and irreconcilable conflict of interest ... was never disclosed to [the plaintiffs]." The Alabama Supreme Court concluded MCG carried its burden of showing that Madison County's connection to the action was strong and that Jefferson County's connection to the action was weak. Thus, the circuit court exceeded its discretion in refusing to transfer the case to the Madison Circuit Court in the interest of justice. MCG's petition for a writ of mandamus was granted. View "Ex parte Maynard, Cooper & Gale, P.C." on Justia Law

Former shareholders alleged that Altisource and several of its officers (collectively AAMC) inflated the price of its stock through false and misleading statements. When these mistruths were revealed to the market, they claimed, the price of AAMC’s stock plummeted, costing shareholders billions of dollars. The district court dismissed the complaint, concluding that Plaintiffs failed to satisfy the requirements of the Private Securities Litigation Reform Act (PSLRA), 15 U.S.C. 78u– 4. The Third Circuit affirmed. Plaintiffs failed to adequately plead three elements of a Rule 10b-5 claim: a material misrepresentation (or omission), scienter, and loss causation, with “particularity” as required by PSLRA. The economic harm suffered by AAMC’s investors is "regrettable," but plaintiffs failed to plausibly allege that this harm arose from fraud. When a stock experiences the rapid rise and fall that occurred here, it will not usually prove difficult to mine from the economic wreckage a few discrepancies in the now-deflated company’s records. View "City of Cambridge Retirement System v. Altisource Asset Management Corp." on Justia Law

Olagues is a self-proclaimed stock options expert, traveling the country to file pro se claims under section 16(b) of the Securities and Exchange Act of 1934, which permits a shareholder to bring an insider trading action to disgorge “short-swing” profits that an insider obtained improperly. Any recovery goes only to the company. In one such suit, the district court granted a motion to strike Olagues’ complaint and dismiss the action, stating Olagues, as a pro se litigant, could not pursue a section 16(b) claim on behalf of TimkenSteel because he would be representing the interests of the company. The Sixth Circuit affirmed that Olagues cannot proceed pro se but remanded to give Olagues the opportunity to retain counsel and file an amended complaint with counsel. View "Olagues v. Timken" on Justia Law

The question before the Delaware Supreme Court in this case was whether the Court of Chancery properly applied Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014) (“MFW”) by reading it as: (1) allowing for the application of the business judgment rule if the controlling stockholder conditions its bid on both of the key procedural protections at the beginning stages of the process of considering a going private proposal and before any economic negotiations commence; and (2) requiring the Court of Chancery to apply traditional principles of due care and to hold that no litigable question of due care exists if the complaint fails to allege that an independent special committee acted with gross negligence. In the Supreme Court's previous affirmance of the Court of Chancery in Swomley v. Schlecht, 128 A.3d 992 (Del. 2015), the Court held that an interpretation of MFW based on these principles was correct. Accordingly, the Court affirmed. View "Flood v. Synutra International, Inc., et al." on Justia Law

This case was presented to the Vermont Supreme Court after a lengthy bench trial between appellants/cross-appellees Kneebinding, Inc. (Kneebinding) and Kneebinding company directors John and Tina Springer-Miller (the Springer-Millers), and appellee/cross-appellant Richard Howell that resulted in a series of interlocutory decisions before final judgment. Kneebinding and the Springer-Millers appealed the trial court’s decisions regarding: (1) a stipulated fine for Howell’s alleged violations of an injunction prohibiting him from speaking in certain settings about Kneebinding or the Springer-Millers; (2) termination of the injunction; (3) other contempt sanctions for Howell’s alleged violations of the injunction; (4) defamation damages; (5) Kneebinding’s claim of tortious interference with contract; and (6) attorney’s fees. With respect to their appeal, the Supreme Court affirmed in part, reverse in part, and remand for further proceedings. Howell appealed the trial court’s denial of his third-party shareholder derivative and direct claims against the Springer-Millers for fraud in the inducement and various alleged breaches of fiduciary duties. The Supreme Court affirmed the trial court’s judgment on these claims. View "Kneebinding, Inc. v. Howell" on Justia Law

At issue in this case is whether a court should alter contractual obligations in a corporate reorganization, when the corporation utilized the type of reorganization it used in order to avoid altering its contractual obligations. The type of reorganization used in this case was referred to as a reverse triangular merger. The usefulness of such a merger is to leave the target corporation intact as a subsidiary of the acquiring corporation where the target corporation has contracts or assets that are not easily assignable. The Court of Appeal concluded that where the form of reorganization was not chosen to disadvantage creditors or shareholders, it would not ignore the form of reorganization chosen by the corporation. View "North Valley Mall v. Longs Drug Stores etc." on Justia Law

Guadalupe Ontiveros, as minority shareholder in Omega Electric, Inc. (Omega), sued majority shareholder Kent Constable, his wife Karen, and Omega, asserting direct and derivative claims arising from a dispute over management of Omega and its assets. In response to Ontiveros's claim of involuntary dissolution of Omega, Appellants filed a motion to stay proceedings and appoint appraisers to fix the value of Ontiveros's stock. The superior court granted the motion, staying the action. Ontiveros then tried to dismiss his claim for involuntary dissolution without prejudice, but the court clerk would not accept his filing because the matter had been stayed. Ontiveros thus filed a motion, asking the court to revoke its order granting Appellants' motion, or in the alternative, to reconsider and then vacate the order. The court treated that motion as a motion for leave to file a dismissal with prejudice under Code of Civil Procedure section 581 (e), granted the motion, and allowed Ontiveros to dismiss his cause of action for involuntary dissolution of Omega. Without the existence of that claim, the court found no basis on which to stay the action and order an appraisal of the stock. As such, the court lifted the stay, terminating the procedure. Appellants appealed, contending the court abused its discretion in granting Ontiveros's motion. In addition, Appellants argued the trial court improperly interpreted section 2000 in granting the motion. Ontiveros countered by arguing the trial court's order was not appealable. The Court of Appeal determined Appellants presented an appealable issue, and was persuaded the trial court abused its discretion here: the superior court relied upon that code section as a mechanism to lift the stay and terminate the section 2000 special proceeding, misapplying the law. Consequently, the trial court's order was reversed. View "Ontiveros v. Constable" on Justia Law