Justia Corporate Compliance Opinion Summaries
BlackRock Credit Allocation Income Trust, et al. v. Saba Capital Master Fund, Ltd.
The issue this case presented for the Delaware Supreme Court’s review centered on whether, under their respective bylaws, two closed-end investment funds, BlackRock Credit Allocation Income Trust (“BTZ”) and BlackRock New York Municipal Bond Trust (“BQH”, and with BTZ, the “Trusts”), properly excluded their shareholder, Saba Capital Master Fund, Ltd. (“Saba”), from presenting its slate of dissident trustee nominees for election at the respective annual meetings. The Court of Chancery held that such exclusion was improper, reasoning that the supplemental questionnaires that Saba’s nominees were asked to complete, exceeded the bylaws’ scope and, thus, the Trusts were “not permitted to rely on the five-day deadline for Saba’s compliance with that request.” It also held that laches did not bar Saba’s claims for equitable relief. On appeal, Appellants-Trusts contended the Court of Chancery erred by issuing an injunction requiring the Trusts to count the votes for Saba’s nominees at the respective annual meetings, since they claimed that Saba’s nominees were ineligible for election because of their failure to timely provide supplemental information in accordance with the clear and unambiguous bylaws. Appellants also contended the court erred in holding that Saba’s claims for equitable relief were not barred by laches. On appeal, the parties continued to dispute whether the Questionnaire was the type of “necessary” and “reasonably requested” subsequent information that falls within the meaning of Article I, Section 7(e)(ii) of the Trusts’ bylaws. The Delaware Supreme Court agreed with the Vice Chancellor that Section 7(e)(ii) was clear and unambiguous, but disagreed that Saba should have been excused from complying with the Bylaws’ clear deadline. Further, the Court affirmed the Vice Chancellor’s holding as to laches. View "BlackRock Credit Allocation Income Trust, et al. v. Saba Capital Master Fund, Ltd." on Justia Law
Ciccarello v. Davies
Mark Ciccarello formed a company named F.E.M. Distribution, LLC for the purpose of marketing and selling a product line called “Lotus Electronic Cigarettes.” In 2013, Ciccarello faced federal criminal charges related to his operation of another business that sold and marketed synthetic cannabinoids. As a result of the federal charges, some of F.E.M.’s assets were seized by the federal government. To prevent further seizure of F.E.M.’s remaining assets, Ciccarello contacted attorney Jeffrey Davies; Ciccarello and Davies discussed options for safeguarding F.E.M.’s assets, which included the possible sale of F.E.M. to another company. Davies drafted documents to form two new companies, Vapor Investors, LLC, and Baus Investment Group, LLC, which collectively owned Lotus Vaping Technologies, LLC. Davies put together a group of investors. The members of Vapor and Baus orally agreed with Ciccarello that he would receive $2 million and a majority ownership interest in Baus in exchange for the sale of F.E.M.’s assets to Lotus, the shares to be held by Bob Henry until Ciccarello's federal problems concluded. F.E.M. was sold to Lotus, and Ciccarello continued to act as CEO and manage operations. In January 2014, the federal government issued a letter stating it had no further interest in Ciccarello’s involvement in Lotus. Ciccarello requested his shares in Baus be returned and that the sale documents be modified to reflect him as the owner of the Baus shares. However, this was never done. In June 2014, Ciccarello was incarcerated due to his federal criminal case. Lotus ceased making monthly payments to Ciccarello in July 2014 and never resumed. At some point in 2014, Ciccarello was also ousted from Lotus by its members and Bob Henry took over his role as CEO. In April 2016, Ciccarello sued Lotus, Vapor, Davies, Henry, and several other investors involved in the sale of F.E.M. to Lotus, seeking recovery of damages Ciccarello alleged he suffered as a result of the structure of the sale. Ciccarello’s claims against Davies was negligence claims asserting legal malpractice. Shortly after Ciccarello made his expert witness disclosure, Davies moved for summary judgment, arguing that even if Davies represented Ciccarello at the time of the F.E.M. sale, Davies was not negligent in his representation. After review, the Idaho Supreme Court determined the district court did not err in granting summary judgment in favor of Davies, denying Ciccarello’s motion for reconsideration, or denying Ciccarello’s motion for relief under Idaho Rule of Civil Procedure 60(b). View "Ciccarello v. Davies" on Justia Law
Ex parte Valley National Bank.
Valley National Bank ("VNB") petitioned the Alabama Supreme Court for a writ of mandamus to direct directing the trial court to dismiss a declaratory-judgment action filed against VNB by Jesse Blount, Wilson Blount, and William Blount. William owned a 33% interest in Alabama Utility Services, LLC ("AUS"). William also served as the president of WWJ Corporation, Inc. ("WWJ"), and WWJ managed AUS. Wilson and Jesse, William's sons, owned all the stock of WWJ. In May 2013, William transferred his 33% interest in AUS to WWJ, and WWJ then owned all the interest in AUS. In July 2015, VNB obtained a $905,599.90 judgment against William in an action separate from the underlying action. On August 31, 2015, Asset Management Professionals, LLC, purchased from WWJ all the assets of AUS for $1,600,000. On July 17, 2018, the Blounts filed a declaratory judgment action seeking a judgment declaring "that a) William's transfer of his interest in AUS to WWJ was not fraudulent as to [VNB], b) William was not the alter ego of AUS or WWJ, c) the sale of AUS did not result in a constructive trust in favor of [VNB], and d) the [Blounts] did not engage in a civil conspiracy." VNB filed an action under the Alabama Uniform Fraudulent Transfer Act against the Blounts and others in which it asserted that William had fraudulently transferred assets and sought to pierce the corporate veil of WWJ. After review of the trial court records and documents submitted by the parties, the Alabama Supreme Court determined VNB did not demonstrate a clear legal right to have claims against them dismissed. The court denied the mandamus petition insofar as it sought dismissal of the alter-ego claim and the constructive-trust claim. View "Ex parte Valley National Bank." on Justia Law
Weare Bible Baptist Church, Inc. v. Fuller
Defendants Evelyn Quimby, Susan Quimby, and Christopher Quimby, appealed superior court orders denying their motion to dismiss the Weare Bible Baptist Church’s motion for contempt, finding the defendants in contempt, and imposing additional obligations upon the defendants. In 1985, Leland Quimby, the patriarch of the defendants’ family, became the pastor of the Church. In 2014, after Leland suffered a stroke, defendants decided to find an interim pastor. Calvin Fuller was voted in by the entire Church membership to become pastor. Thereafter, Fuller invited new members to join the Church, took several actions relating to the administration of the Church and its finances, amended the Church’s corporate charter, and replaced the members of the corporate board. Subsequently, defendants filed an action on behalf of the Church seeking to void the memberships of Fuller, his wife, and the new members he invited to join the Church, and the official acts Fuller took as pastor, due to an alleged failure to comply with the corporate charter. Following a bench trial, the trial court issued a final order in February 2016 (2016 order) in which it concluded that: (1) Fuller was duly elected as pastor with full authority; (2) Fuller, his wife, and the other new members of the Church were properly admitted; and (3) certain “official acts” taken by Fuller and the defendants following Fuller’s appointment were invalid for failure to follow the procedures set forth in the Church’s corporate charter. On appeal, defendants argued the trial court: (1) erred in denying their motion to dismiss because the Church’s contempt motion failed to identify a clear directive of the court that defendants violated; (2) committed an unsustainable exercise of discretion in finding defendants in contempt in the absence of a clear directive in the underlying order; and (3) lacked subject matter jurisdiction to render its findings and rulings because doing so required the court to consider ecclesiastical matters of the Church. Because the Church’s contempt motion asks the court to rule on ecclesiastical matters, the New Hampshire Supreme Court reversed the trial court’s denial of defendants’ motion to dismiss, and vacated and remanded the trial court’s additional rulings. View "Weare Bible Baptist Church, Inc. v. Fuller" on Justia Law
Sheldon, et al. v. Pinto Technology Ventures, L.P., et al.
Appellants Jeffrey Sheldon and Andras Konya, M.D., Ph.D., alleged in the Delaware Court of Chancery that several venture capital firms and certain directors of IDEV Technologies, Inc. (“IDEV”) violated their fiduciary duties by diluting the Appellants’ economic and voting interests in IDEV. Appellants argued their dilution claims were both derivative and direct under Gentile v. Rosette, 906 A.2d 91 (Del. 2006) because the venture capital firms constituted a “control group.” The Court of Chancery rejected that argument and held that Appellants’ dilution claims were solely derivative. Because Appellants did not make a demand on the IDEV board or plead demand futility, and because Appellants lost standing to pursue a derivative suit after Abbott Laboratories purchased IDEV and acquired Appellants’ shares, the court dismissed their complaint. On appeal, Appellants raised one issue: that, contrary to the Court of Chancery’s holding, they adequately pleaded that a control group existed, rendering their claims partially “direct” under Gentile. Therefore, according to Appellants, their complaint should not have been dismissed. The Delaware Supreme Court agreed with the Court of Chancery’s determination that Appellants failed to adequately allege that the venture capital firms functioned as a control group. Accordingly, the Supreme Court affirmed dismissal of the complaint with prejudice. View "Sheldon, et al. v. Pinto Technology Ventures, L.P., et al." on Justia Law
Farthest North Girl Scout Council v. Girl Scouts of the United States of America
The Board of Directors of the Girl Scouts of the United States of America increased the amount of annual membership dues. Farthest North Girl Scout Council, its executive director, and the chair of its board of directors challenged this increase, claiming that the corporation’s governing documents did not give the Board authority to increase membership dues. The superior court denied Farthest North’s motion for summary judgment, ruling in favor of the Girl Scouts of the United States of America that the Board had such authority. The Alaska Supreme Court disagreed, finding the corporate governing documents vested authority to establish membership dues solely in the National Council of the Girl Scouts of the United States of America. View "Farthest North Girl Scout Council v. Girl Scouts of the United States of America" on Justia Law
North Dakota Private Investigative & Security Board v. TigerSwan, LLC, et al.
The North Dakota Private Investigative and Security Board appealed, and TigerSwan, LLC and James Reese cross-appealed, a judgment dismissing the Board’s request for an injunction prohibiting TigerSwan and Reese from providing private investigative and security services without a license. Reese was the majority interest owner in TigerSwan, a limited liability company organized under North Carolina law. TigerSwan was registered in North Dakota as a foreign LLC. During protests over construction of the Dakota Access Pipeline, TigerSwan was hired to provide security services, though the company denied providing such services when it received a notice from the Board. Concurrent to denying providing security services to the pipeline, TigerSwan submitted an application packet to become a licensed private security provider in North Dakota. The North Dakota Supreme Court concluded the district court did not abuse its discretion in denying the injunction or in the denial of a motion for sanctions and attorney fees. View "North Dakota Private Investigative & Security Board v. TigerSwan, LLC, et al." on Justia Law
Goulding v. Weiss
Nutmeg LLC, formerly managed by Goulding, served as an investment advisor and sole general partner of more than a dozen investment funds, each a limited partnership under Illinois or Minnesota law. Goulding’s management of the Funds ended in 2009, when the SEC brought an enforcement action against him, Nutmeg, and others under the Investment Advisors Act of 1940, alleging that Nutmeg misappropriated client assets and failed to maintain proper records. The district court found that the SEC made the showing necessary to warrant the issuance of a restraining order prohibiting Goulding from managing the Funds and granted the SEC’s unopposed motion to appoint attorney Weiss as receiver for Nutmeg. Unsatisfied with Weiss’s performance, Goulding and limited partners from certain funds managed by Nutmeg filed an individual and derivative action on behalf of the Funds, alleging breach of fiduciary duty and legal malpractice. The court dismissed the federal securities law claim, claims against Nutmeg, all legal malpractice claims against Weiss and her firm, and two breach of fiduciary duty claims. The Seventh Circuit Affirmed, holding that even when viewed in the light most favorable to the plaintiffs, no reasonable jury could find that either Weiss or her firm willfully and deliberately violated any fiduciary duties. View "Goulding v. Weiss" on Justia Law
Jaludi v. Citigroup
Jaludi began working for Citigroup in 1985 and rose steadily through the ranks. Jaludi was laid off and terminated in 2013 after reporting certain improprieties in Citigroup’s internal complaint monitoring system. Jaludi, believing Citigroup had fired him in retaliation for his reporting, sued under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. 1962 (RICO), and the Sarbanes–Oxley Act of 2002, 18 U.S.C. 1514A. Citigroup moved to compel arbitration, relying on two Employee Handbooks. The 2009 Employee Handbook, contained an arbitration agreement requiring arbitration of all claims arising out of employment—including Sarbanes–Oxley claims. In 2010, Congress passed the Dodd–Frank Wall Street Reform and Consumer Protection Act, which amended Sarbanes–Oxley to prohibit pre-dispute agreements to arbitrate whistleblower claims, 18 U.S.C. 1514A(e)). In 2011, Citigroup and Jaludi agreed to the 2011 Employee Handbook; the arbitration agreement appended to that Handbook excluded “disputes which by statute are not arbitrable” and deleted Sarbanes–Oxley from the list of arbitrable claims. Nonetheless, the district court held that arbitration was required for all of Jaludi’s claims. The Third Circuit reversed in part. Although Jaludi’s RICO claim falls within the scope of either Handbook’s arbitration provision, the operative 2011 arbitration agreement supersedes the 2009 arbitration agreement and prohibits the arbitration of Sarbanes–Oxley claims. View "Jaludi v. Citigroup" on Justia Law
Obasi Investment Ltd v. Tibet Pharmaceuticals Inc
Tibet, a holding company, “effectively control[led]” Yunnan, a manufacturer. Tibet attempted to raise capital for Yunnan's operations through an initial public offering (IPO). Zou was an investor in Tibet and the sole director of CT, a wholly-owned subsidiary of Tibet. Tibet’s control of Yunnan flowed through CT. Zou told Downs, a managing director at the investment bank A&S, about the IPO. A&S agreed to serve as Tibet’s placement agent. Zou and downs were neither signatories to Tibet’s IPO registration statement nor named as directors of Tibet but were listed as non-voting board observers chosen by A&S without formal powers or duties. The registration statement explained, “they may nevertheless significantly influence the outcome of matters submitted to the Board.” The registration statement omitted information that Yunnan had defaulted on a loan from the Chinese government months earlier. Before Tibet filed its amended final prospectus, the Chinese government froze Yunnan’s assets. Tibet did not disclose that. The IPO closed, offering three million public shares at $5.50 per share. The Agricultural Bank of China auctioned off Yunnan’s assets, which prompted the NASDAQ to halt trading in Tibet’s stock. Plaintiffs sued Zou, Downs, Tibet, A&S, and others on behalf of a class of stock purchasers under the Securities Act of 1933, 15 U.S.C. 77k(a). The Third Circuit directed the entry of summary judgment in favor of Zou and Downs, holding that a nonvoting board observer affiliated with an issuer’s placement agent is not a “person who, with his consent, is named in the registration statement as being or about to become a director[ ] [or] person performing similar functions,” under section 77k(a). The court noted the registration statement’s description of the defendants, whose functions are not “similar” to those of board directors. View "Obasi Investment Ltd v. Tibet Pharmaceuticals Inc" on Justia Law