Justia Corporate Compliance Opinion Summaries

Greenblatt, the “bad boy of Chicago arbitrage” became involved in litigation concerning use of his “web of corporations,” including Loop Corporation and Banco. In 2000, Banco extended a $9.9 million line of credit in exchange for a blanket lien over Loop’s assets. Loop defaulted; nevertheless, Banco expanded the line of credit by several million dollars in 2002 and continued lending Loop money until 2004. Banco lost senior creditor status when the district court voided the lien in an earlier case. In 2001 Loop purchased millions of shares of EZ Links stock from Golf Venture, giving a promissory note. Loop defaulted; Golf Venture won a judgment of $1.2 million. Also in 2001, a failed margin transaction left Loop indebted to its brokerage firm, Wachovia, in the amount of $1,885,751. Wachovia took Loop to arbitration and won a $2,349,000 award in 2005. Wachovia is still trying to collect. Loop had transferred almost all of its valuable assets to another Greenblatt company, leaving only the EZ Links stock, in possession of Banco, and Banco claimed to have creditor priority over Wachovia. The district vourt pierced Loop’s corporate veil, allowing Wachovia to reach Greenblatt’s assets, and voiding Banco’s lien, and ordered the sale of Loop’s only asset, EZ Links stock. Banco attempted to contest the d decisions. The Seventh Circuit dismissed Banco’s appeal for lack of standing. View "Wachovia Sec., LLC v. Loop Corp." on Justia Law

Bank of America lost approximately $34 million when the Knight companies went bankrupt. BOA sued, claiming that Knight’s directors and managers looted the firm and that its accountants failed to detect the embezzlement. The district court dismissed. The accountants invoked the protection of Illinois law, 225 ILCS 450/30.1, which provides that an accountant is liable only to its clients unless the accountant itself committed fraud (not alleged in this case) or “was aware that a primary intent of the client was for the professional services to benefit or influence the particular person bringing the action” The court found that BOA did not plausibly allege that the accountants knew that Knight’s “primary intent” was to benefit the Bank in alleging that the accountants knew that Knight would furnish copies of the financial statements to lenders. The Seventh Circuit affirmed, noting BOA’s choice not to pursue its claims in the bankruptcy process. View "Bank of America, N.A. v. Knight" on Justia Law

Shareholders of a closely held corporation brought a derivative suit against a shareholder-director and the corporation's former attorneys for fiduciary fraud, fraudulent conveyance, legal malpractice, and civil conspiracy. After an evidentiary hearing, the superior court ruled all the claims were time-barred. Upon review of the matter, the Supreme Court affirmed the superior court's dismissal of most claims, but reversed its dismissal of two and remanded those claims for further proceedings. View "Gefre v. Davis Wright Tremaine, LLP" on Justia Law

The Court of Chancery dismissed a class action complaint that objected to the merger of a limited partnership with its general partner's controller. The plaintiff-limited partner's complaint alleged that the general partner (its controller) and its directors took actions during and preceding the merger negotiations that breached the contractual duties the partnership agreement. Upon review, the Supreme Court concluded that the plaintiff's allegations that the independent directors failed to negotiate effectively did not permit a reasonable inference that the independent directors breached their duty to act with subjective good faith. Therefore the Supreme Court affirmed dismissal of the complaint. View "Allen v. Encore Energy Partners, L.P., et al." on Justia Law

Walsh and Martin, principals of a futures and foreign currency trading company that acted as a “futures commission merchant” and as a “forex dealer member,” used customer funds for personal expenses, then concealed the company’s insolvency and their criminal conduct by misleading customers about the company’s ability to meet its obligations. Existing customers got account statements that falsely stated their available margin funds, and they solicited new customers by making false statements. They also used a Ponzi-like scheme for redemptions. Shortly before it was shut down, the company had $17,654,486 in unpaid customer liabilities and only $677,932 in assets. Walsh and Martin pleaded guilty to wire fraud, tax evasion, and to making false statements in a report to the Commodities Futures and Trading Commission, a Commodities Exchange Act (7 U.S.C. 6d(a)) violation. The district court sentenced them to terms of imprisonment of 150 and 204 months, respectively, and ordered each to pay $16,976,554 in restitution. The Seventh Circuit affirmed, rejecting challenges to a finding as to the amount of loss and restitution and to application of a sentencing enhancement based upon a finding that each was an officer or director of a futures commission merchant. View "United States v. Walsh" on Justia Law

Amicas agreed to a merger for $5.35 per Amicas share. Shareholders sued in Massachusetts state court, contesting the adequacy of a proxy statement used to seek approval. A preliminary injunction stopped the vote. The suit settled when a third party made a $6.05 per-share tender offer. Amicas shareholders gained $26 million. The lawyers who filed the suit sought attorneys’ fees based on the difference between the bids. Carolina Casualty had issued a policy covering what Amicas and its directors pay their own litigation lawyers and what Amicas must pay adversaries’ lawyers. The state court awarded $3,150,000, using a lodestar of $630,000 (1,400 hours at $450 per hour) times five, to reflect the risk of nonpayment and “an exceptionally favorable result.” Carolina Casualty filed a diversity suit, claiming that coverage was limited to $630,000. The district judge affirmed, but denied damages for bad faith or vexatious failure to pay. The Massachusetts appeal settled with payment of a sum that cannot be affected by the results of federal litigation. The Seventh Circuit held that the case was not moot, but affirmed, rejecting an argument that the award constituted excluded “civil or criminal fines or penalties … punitive or exemplary damages, the multiplied portion of multiplied damages.” View "Carolina Cas. Ins. Co v. Merge Healthcare Solutions, Inc." on Justia Law

Petitioner challenged the IRS's determination that the gross income petitioners reported in 2003 and 2004 based on their ownership of a controlled foreign corporation should have been taxed at the rate of petitioners' ordinary income rather than the lower tax rate they had claimed. At issue was whether amounts included in petitioners' gross income for 2003 and 2004 pursuant to 26 U.S.C. 951(a)(1)(B) and 956 (collectively, "section 951 inclusions") constituted qualified dividend income under 26 U.S.C. 1(h)(11). The court concluded that section 951 inclusions did not constitute actual dividends because actual dividends required a distribution by a corporation and receipt by a shareholder and these section 951 inclusions involved no distribution or change in ownership; Congress clearly did not intend to deem as dividends the section 951 inclusions at issue here; and petitioners' reliance on other non-binding sources were unavailing. Accordingly, the court affirmed the judgment of the tax court. View "Rodriguez, et al. v. Commissioner of Internal Revenue" on Justia Law

Plaintiff, president and owner of WestCorp, sued the government for a refund of an IRS tax penalty that he paid. At issue was the treatment of admittedly incomplete payments WestCorp made from 2000-2001. To maximize its recovery, the IRS applied those payments first toward WestCorp's non-trust fund taxes rather than dividing the payments proportionally between WestCorp's trust fund and non-trust fund taxes. The court agreed with the district court that the undisputed facts show, as a matter of law, that plaintiff willfully failed to pay the trust fund taxes at issue; the court also agreed with the district court that the IRS properly allocated the undesignated payments at issue; and the court rejected plaintiff's contention that the IRS should nonetheless have applied at least part of the undesignated payments toward WestCorp's trust fund obligations. Accordingly, the court affirmed the judgment. View "Westerman v. United States" on Justia Law

This appeal arose from eleven notices of final partnership administrative adjustment (FPAAs) issued by the IRS with respect to three Limited Liability Companies (LLCs) treated as partnerships for tax purposes. The IRS claimed that the partnerships' transactions provided one partner with an illegal tax shelter to avoid taxes on his unrelated personal capital gain of the same approximate amount. The court affirmed the district court's determinations that (1) the FOCus transactions lacked economic substance and must be disregarded for tax purposes; (2) the negligence penalty was applicable and the partnerships were not entitled to the reasonable cause defense; and (3) the valuation misstatement penalty was inapplicable. The court vacated and rendered judgment for plaintiffs as to the remaining claims addressing the FPAAs premised on the government's alternative theory under Treasury Regulation 1.701-2 and the district court's approval of the alternative substantial understatement penalty. View "Nevada Partners Fund, et al. v. United States" on Justia Law

Plaintiff Joel Gerber held limited partnership (LP) units in Enterprise GP Holdings, L.P. He sued on behalf of two classes of former public holders of LP units in Enterprise, challenging the sale of a subsidiary and a merger with another. Defendants successfully moved the trial court to dismiss Plaintiff's complaint, and Plaintiff appealed. Upon review, the Supreme Court concluded the trial court erred in dismissing the complaint. The Court affirmed in part, reversed in part, and remanded the case for further proceedings. View "Gerber v. Enterprise Products Holdings,LLC " on Justia Law