Justia Corporate Compliance Opinion Summaries

The case involves Gerald Forsythe, who filed a class action lawsuit against Teva Pharmaceuticals Industries Ltd. and several of its officers. Forsythe claimed that he and others who purchased or acquired Teva securities between October 29, 2015, and August 18, 2020, suffered damages due to misstatements and omissions by Teva and its officers related to Copaxone, a drug used to treat multiple sclerosis. Teva's shares are dual listed on the New York Stock Exchange and the Tel Aviv Stock Exchange.The District Court granted Forsythe's motion for class certification, rejecting Teva's assertion that the class definition should exclude purchasers of ordinary shares. The Court also rejected Teva's argument that Forsythe could not satisfy Rule 23(b)(3)’s predominance requirement.Teva sought permission to appeal the District Court’s Order granting class certification, arguing that interlocutory review is proper under Federal Rule of Civil Procedure 23(f). Teva contended that the Petition presents a novel legal issue and that the District Court erred in its predominance analysis with respect to Forsythe’s proposed class-wide damages methodology.The United States Court of Appeals for the Third Circuit denied Teva's petition for permission to appeal. The court found that the securities issue did not directly relate to the requirements for class certification, and agreed with the District Court’s predominance analysis. The court also clarified that permission to appeal should be granted where the certification decision itself under Rule 23(a) and (b) turns on a novel or unsettled question of law, not simply where the merits of a particular case may turn on such a question. View "Forsythe v. Teva Pharmaceutical Industries Ltd" on Justia Law

The case involves a shareholder derivative action against Cognizant Technology Solutions Corporation and its board of directors. The plaintiffs, shareholders of Cognizant, alleged that the directors breached their fiduciary duties, engaged in corporate waste, and unjust enrichment. The allegations stemmed from a bribery scheme in India, where Cognizant employees allegedly paid bribes to secure construction-related permits and licenses. The plaintiffs claimed that the directors ignored red flags about the company's anti-corruption controls and concealed their concerns from shareholders.The case was initially dismissed by the United States District Court for the District of New Jersey, which held that the plaintiffs failed to state with particularity the reasons why making a demand on the board of directors would have been futile. The plaintiffs appealed this decision to the United States Court of Appeals for the Third Circuit.The Third Circuit, sitting en banc, reconsidered the standard of review for dismissals of shareholder derivative actions for failure to plead demand futility. The court decided to abandon its previous standard of review, which was for an abuse of discretion, and adopted a de novo standard of review. Applying this new standard, the court affirmed the District Court's dismissal of the case. The court found that the plaintiffs failed to show that a majority of the directors faced a substantial likelihood of liability or lacked independence, which would have excused the requirement to make a demand on the board. View "In re: COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION DERIVATIVE LITIGATION" on Justia Law

The case involves a group of pension funds (plaintiffs) who filed a lawsuit against Inovalon Holdings, Inc., and its board of directors (defendants), challenging an acquisition of Inovalon by a private equity consortium led by Nordic Capital. The plaintiffs claimed that the defendants breached their fiduciary duties and unjustly enriched themselves through the transaction. They also alleged that the company's charter was violated because the transaction treated Class A and Class B stockholders unequally.In the lower court, the Court of Chancery of the State of Delaware, the defendants moved to dismiss the case. They argued that the transaction satisfied the elements of a legal framework known as MFW, which would subject the board's actions to business judgment review. The Court of Chancery granted the defendants' motions to dismiss in full.On appeal, the Supreme Court of the State of Delaware reversed the decision of the Court of Chancery. The Supreme Court found that the lower court erred in holding that the vote of the minority stockholders was adequately informed. The Supreme Court determined that the proxy statement issued to stockholders failed to adequately disclose certain conflicts of interest of the Special Committee’s advisors. Therefore, the Supreme Court concluded that the transaction did not comply with the MFW framework, and the case was remanded for further proceedings. View "City of Sarasota Firefighters' Pension Fund v. Inovalon Holdings, Inc." on Justia Law

The plaintiff, a shareholder of Meta Platforms, Inc., sued the company's directors, officers, and controller, alleging that they breached their fiduciary duties by managing the company to generate firm-specific value at the expense of the economy as a whole. The plaintiff argued that under Delaware law, directors owe fiduciary duties to the corporation and its stockholders as diversified equity investors, not just as investors in the specific corporation. The plaintiff proposed that Delaware law should change to adopt a diversified-investor model, particularly for systemically significant corporations.The defendants moved to dismiss the complaint, arguing that they manage Meta under a firm-specific model, as required by Delaware law. The Court of Chancery of the State of Delaware granted the defendants' motion, holding that directors owe firm-specific fiduciary duties. The court found that the plaintiff's argument was not supported by Delaware law, which contemplates a single-firm model where directors owe duties to the stockholders as investors in that specific corporation. The court also rejected the plaintiff's proposal to change Delaware law to adopt a diversified-investor model. The court concluded that the plaintiff had not made a persuasive case for such a change and dismissed the complaint. View "McRitchie v. Zuckerberg" on Justia Law

In this case, the United States Court of Appeals for the Ninth Circuit affirmed the district court's decision to vacate the plaintiffs' quasi in rem attachment of a vessel owned by Bergshav Aframax Ltd., a defendant in an admiralty action seeking fulfillment of arbitration awards. The arbitration awards were owed to the plaintiffs by B-Gas Ltd., renamed Bepalo, a different corporate entity. The plaintiffs tried to hold Aframax liable for the arbitration awards by arguing that Aframax and Bepalo were alter egos, essentially the same entity.However, the court found that the plaintiffs failed to show a reasonable probability of success on their veil piercing theory, which would be required to establish that Aframax and Bepalo were alter egos. The court found that the plaintiffs did not demonstrate that Bepalo was dominated and controlled by the Bergshav Group, the parent corporate group of Aframax. The court noted that the minority shareholders of Bepalo exercised independent judgment in approving the relevant transactions, countering the claim that the Bergshav Group had total domination of Bepalo. Therefore, the court concluded that the plaintiffs had not met their burden of demonstrating a reasonable probability of success on their veil-piercing claim, leading to the affirmation of the district court's decision to vacate the attachment of the vessel. View "SIKOUSIS LEGACY, INC. V. B-GAS LIMITED" on Justia Law

The case concerns a dispute between LKQ Corporation and its former Plant Manager, Robert Rutledge, who resigned from the company and joined a competing firm. LKQ sought to recover proceeds Rutledge realized from multiple stock sales over many years, based on a forfeiture-for-competition provision in their Restricted Stock Unit Agreements.The key legal issue revolves around the applicability of Delaware law on forfeiture-for-competition provisions. These provisions require former employees to forfeit a monetary benefit upon joining a competitor. The Delaware Supreme Court held in a recent case that such provisions are not subject to a reasonableness review. However, the United States Court of Appeals for the Seventh Circuit found it unclear whether this ruling applies outside the context of highly sophisticated parties.The Court of Appeals affirmed the lower court's judgment in favor of Rutledge on the breach of the Restrictive Covenant Agreements and unjust enrichment claims. However, due to the complexity of the Delaware law issue, the Court decided to certify questions to the Delaware Supreme Court for clarification. Specifically, the certified questions ask whether the Delaware Supreme Court's ruling on forfeiture-for-competition provisions applies outside the limited partnership context and, if not, what factors inform its application. View "LKQ Corporation v. Rutledge" on Justia Law

The case involves Applied Medical Distribution Corporation (Applied) suing its former employee, Stephen Jarrells, for misappropriation of trade secrets, breach of a contract governing Applied’s proprietary information, and breach of fiduciary duty. The trial court granted Applied’s posttrial motion for a permanent injunction and awarded Applied partial attorney fees, costs, and expenses.On appeal, the Court of Appeal of the State of California affirmed in part, reversed in part, and remanded for further proceedings. The court concluded that Applied was the prevailing party on the misappropriation cause of action and was entitled to a permanent injunction to recover its trade secrets and prevent further misappropriation. The court also found that Applied was entitled to an award of the reasonable attorney fees, costs, and expenses it incurred to obtain injunctive relief.However, the court disagreed with the trial court's decision to mechanically award only 25 percent of the incurred attorney fees and costs because Applied prevailed on only one of four claims it asserted. The court found that the trial court erred in how it determined the amount awarded by failing to address the extent to which the facts underlying the other claims were inextricably intertwined with or dependent upon the allegations that formed the basis of the one claim on which Applied prevailed. The court also found that the trial court erred in excluding certain expert witness fees from the damages calculation presented to the jury.Finally, the court concluded that the trial court erred by granting a nonsuit on whether Jarrells’s misappropriation was willful and malicious, and remanded for a jury trial on this issue. If the jury finds the misappropriation was willful and malicious, the court shall decide whether attorney fees and costs should be awarded to Applied and, if so, in what amount. View "Applied Medical Distribution Corp. v. Jarrells" on Justia Law

In the case of West Palm Beach Firefighters' Pension Fund v. Moelis & Company, the plaintiff, a stockholder of Moelis & Company (the "Company"), challenged the validity of certain provisions in a Stockholder Agreement between the Company and its CEO, Ken Moelis. The agreement gave Moelis extensive pre-approval rights over the Company's board of directors' decisions, the ability to select a majority of board members, and the power to determine the composition of any board committee. The plaintiff argued that these provisions violated Section 141(a) of the Delaware General Corporation Law (DGCL), which mandates that the business and affairs of a corporation be managed by or under the direction of a board of directors, except as otherwise provided in the DGCL or in the corporation's certificate of incorporation.The Court of Chancery of the State of Delaware agreed with the plaintiff, holding that the Pre-Approval Requirements, the Board Composition Provisions, and the Committee Composition Provision in the Stockholder Agreement were facially invalid under Section 141(a) of the DGCL. The court found that these provisions effectively transferred the management of the corporation to Moelis, contrary to Section 141(a). The court reasoned that while Delaware law generally favors private ordering, the ability to contract is subject to the limitations of the DGCL, including Section 141(a). The court emphasized that a provision may be part of a corporation's internal governance arrangement, and thus subject to Section 141(a), even if it appears in a contract other than the corporation's charter or bylaws.However, the court found that certain provisions were not facially invalid, including Moelis’ right to designate a number of directors, the requirement for the Company to nominate Moelis’ designees, and the requirement for the Company to make reasonable efforts to enable Moelis’ designees to be elected and continue to serve. View "West Palm Beach Firefighters' Pension Fund v. Moelis & Company" on Justia Law

In 2022, Fox Corporation and Snap Inc. amended their corporate charters to exculpate their officers from damages liability for breaches of the duty of care. The amendments were authorized by recent Delaware legislation. The companies' Class A non-voting common stockholders claimed that these amendments deprived them of their power to sue officers for damages for duty of care violations and, thus, a separate class vote was required to approve the amendments. However, the Supreme Court of the State of Delaware affirmed the Court of Chancery's decision that a separate class vote was not required. The court held that the ability to sue directors or officers for duty of care violations was a general right of the stockholders, not a class-based power stated in the corporate charter. Therefore, it was not a "power, preference, or special right" of the Class A common stock under Section 242(b)(2) of the Delaware General Corporation Law, which requires a separate class stockholder vote to amend a corporate charter if the amendment would adversely affect the powers, preferences, or special rights of the shares of such class. The holding was based on long-standing precedent and the court's interpretation of related sections of the Delaware General Corporation Law. View "In re Fox Corporation/Snap Inc. Section 242 Litigation" on Justia Law

In the case before the Supreme Court of Mississippi, Vince Hardaway brought an action against his employer, Howard Industries, Inc., claiming bad faith denial of his workers’ compensation benefits for temporary partial disability due to carpal tunnel syndrome. Howard Industries had contracted CorVel Enterprise, a third-party claims administrator, to manage workers’ compensation claims. The trial court granted summary judgment in favor of Howard Industries, finding that the company's conduct did not constitute gross negligence or an independent tort.On appeal, the Supreme Court of Mississippi affirmed the trial court's decision. The court found that under Mississippi Code Section 71-3-125(1), Howard Industries was permitted to delegate its duty to administer employee workers’ compensation claims to CorVel. The Court also determined that Hardaway failed to provide sufficient evidence that Howard Industries acted with actual malice or gross negligence in denying his benefits. Therefore, his claims did not survive summary judgment. The court held that any failure to pay benefits by Howard Industries under these circumstances did not amount to gross negligence. View "Hardaway v. Howard Industries, Inc." on Justia Law