Justia Corporate Compliance Opinion Summaries

The bankruptcy trustee of Northlake, a Georgia corporation, filed suit against defendant, a shareholder of Northlake, alleging that a 2006 Transfer was fraudulent. The facts raised in the complaint and its exhibits, taken as true, were sufficient to conclude that Northlake's benefits under the Shareholders Agreement were reasonably equivalent exchange for the 2006 Transfer. Because the complaint contained no allegations indicating why these benefits did not constitute a reasonably equivalent exchange for the 2006 Transfer, the court had no ground to conclude that they did not. Accordingly, the court affirmed the judgment of the district court. View "Crumpton v. Stephen" on Justia Law

Fitness Holdings, the debtor in this bankruptcy case, was a home fitness corporation. At issue was whether debtor's pre-bankruptcy transfer of funds to its sole shareholder, in repayment of a purported loan, could be a constructively fraudulent transfer under 11 U.S.C. 548(a)(1)(B). The court held that a court has the authority to determine whether a transaction created a debt if it created a right to payment under state law. Because the district court concluded that it lacked authority to make this determination, the court vacated the decision and remanded for further proceedings. View "In re: Fitness Holdings Int'l" on Justia Law

In the 1960s, the founder’s sons (plaintiff and his brothers) joined the business, later incorporated as MBP. The business grew to have annual sales of $60 million. Plaintiff served as vice-president, secretary, and a member of the board of directors, and was a shareholder. Plaintiff had a “spiritual awakening” in 1995. He claims that the change resulted in antagonism toward him. Plaintiff delivered a eulogy at his father’s 2009 funeral, which upset family members. Days later, plaintiff received notice of termination of his employment and that various benefits would cease. The letter explained that “[y]our share of any draws from the corporation or other entities will continue to be distributed to you.” Plaintiff continued on the board of directors until August, 2009, when the shareholders did not re-elect him. Plaintiff filed charges of religious discrimination under Title VII of the Civil Rights Act of 1964, 42 U.S.C. 2000e-2(a)(1) and of hostile work environment. The district court dismissed, finding that he was not an employee under Title VII and did not establish existence of a hostile work environment. The Third Circuit affirmed, stating that it was clear that plaintiff was entitled to participate in development and governance of the business. View "Mariotti. v. Mariotti Bldg. Prods., Inc." on Justia Law

Indiana Boxcar, a holding company that owns several railroads, petitioned for review of the Board's determination that Indiana Boxcar was an "employer" for purposes of the Railroad Retirement Act and the Railroad Unemployment Insurance Act, 45 U.S.C. 231, 351. To be an employer under those two Acts, a company such as Indiana Boxcar must be "under common control" with a railroad. Before this case, the Board repeatedly held that parent corporations like Indiana Boxcar were not under common control with their railroad subsidiaries. Under Board precedent, the term "common control" did not usually apply to two companies in a parent-subsidiary relationship. Here, however, the Board did not adhere to that precedent and did not reasonably explain and justify its deviation from its precedent. Therefore, the court held that the Board's decision was arbitrary and capricious under the Administrative Procedure Act, 5 U.S.C. 706(2)(A). Accordingly, the court vacated and remanded to the Board. View "Indiana Boxcar Corp. v. RRRB" on Justia Law

Appellants challenged the IRS's deficiency finding, as well as an accuracy-related penalty. On appeal, appellants argued that the Tax Court misunderstood relevant law when it affirmed the IRS's calculation of their remaining basis in their S corporation. They also challenged the factual basis for the Tax Court's decisions affirming the Service's rejection of their over-reporting claim and upholding its imposition of the penalty. The court rejected defendant's first challenge, concluding that a shareholder's basis was decreased "for any period" by the amount of that shareholder's pro rata share of the corporation's losses, and a shareholder incurred previously unabsorbed losses in the first year the shareholder had adequate basis to do so. In regards to the over-reporting claim, the court held that the Tax Court made no clear error when it upheld the IRS's determination not to reduce the sole proprietorship's income. Consequently, there was no dispute that appellants' 2003 tax return understated their taxes by an amount that qualified as substantial. Accordingly, the court affirmed the judgment. View "Barnes, et al v. Commissioner, IRS" on Justia Law

The Securities and Exchange Commission filed a civil enforcement action against 12 defendants, alleging that they violated registration, disclosure, and anti-fraud provisions of federal securities law, in connection with a “reverse merger” that involved creation of a shell company for the purpose of OTC trading, followed my merger of a private company into the shell, with an exchange of stock. A reverse merger enables a private company to access public markets without undertaking the expensive process of an initial public offering. One of the defendants, Tsai, has formed more than 100 shell companies.The district court granted the SEC partial summary judgment and granted permanent injunctions against the defendants. Tsai appealed. The Sixth Circuit affirmed entry of the injunction. Tsai’s failure to challenge findings with respect to his industry experience and education means the court did not abuse its discretion in finding he had at least some degree of scienter. View "Secs. & Exch. Comm'n v. Sierra Brokerage Servs, Inc." on Justia Law

At issue in this case was whether a school district is subject to the campaign-finance reporting requirements found in Minn. Stat. 211A and whether the complaint in this matter stated a claim under Minn. Stat. 211B.06, which prohibits the dissemination of false campaign material. The Supreme Court held (1) a school district is a "corporation" under section 211A.01 and therefore can qualify as a "committee" subject to chapter 211A's campaign-finance reporting requirements if it acts "to promote or defeat a ballot question"; (2) because Appellants' complaint, filed with the Office of Administrative Hearings, stated a prima facie claim that the school district here was a "committee" under section 211A.01 that promoted a ballot question, the ALJ assigned to the matter erred in dismissing the complaint without an evidentiary hearing; and (3) the complaint failed to state a prima facie violation of section 211B.06 with respect to two allegedly false statements. Remanded.View "Abrahamson v. St. Louis County Sch. Dist." on Justia Law

Plaintiff appealed the district court's dismissal of his complaint against the Guthrie Defendants. Plaintiff's principal issue on appeal required the court to consider whether the unauthorized disclosure of confidential medical information by a medical corporation's employee gives a plaintiff a right of action for breach of fiduciary duty under New York law that runs directly against the corporation, even when the corporation's employee acted outside the scope of her employment and is not plaintiff's treating physician. Plaintiff's appeal presented a question that has not been resolved by the New York Court of Appeals. Accordingly, the court deferred decision and certified the question to the New York Court of Appeals. The court disposed of plaintiff's remaining claims on appeal in a separate summary order filed simultaneously with this opinion. View "Doe v. Guthrie Clinic, Ltd." on Justia Law

Wiest worked in Tyco’s accounting department for 31 years, until his termination in 2010. Beginning in 2007, Wiest refused to process reimbursement claims that he believed were unlawful or constituted “parties” at resorts. Wiest sued Tyco and its officers and directors under the whistleblower protection provisions in Section 806 of the Sarbanes-Oxley Act, 18 U.S.C. 1514A, and under Pennsylvania law. The district court dismissed the federal whistleblower claims and declined to exercise supplemental jurisdiction. The Third Circuit reversed in part, holding that the court erred in requiring that Wiest allege that his communications to his supervisors “definitively and specifically relate to” an existing violation of a particular anti-fraud law, as opposed to expressing a reasonable belief that corporate managers are taking actions that could run afoul of a particular anti-fraud law. View "Wiest v. Lynch" on Justia Law

At an L.O.M. stockholders’ meeting, stockholders raised concerns about sufficiency of notice, accuracy of proxy materials, and lack of current financial information. In response to a stockholder’s request, the President of L.O.M., Matthews, adjourned the meeting. Matthews and “numerous stockholders” departed. L.O.M.’s counsel then announced that the meeting had not adjourned and that a recess was being taken. A director then purported to preside over a resumed meeting, at which challenged directors were allegedly elected. The challenged directors took a number of actions, including approving L.O.M.’s 2012 stock option plan and firing Matthews. Defendants assert that after the meeting resumed, votes were counted, and challenged directors were elected by about 56% of outstanding shares; after the meeting, the challenged directors sent the stockholders a letter that informed the stockholders of the meeting’s results. In an action to determine the composition of the board, the chancellor denied a motion to dismiss. The chancellor acknowledged sympathy for defendants’ “real argument,” that in attempting to ratify the vote for the challenged directors, a majority of shares outstanding have, in effect, been voted for the challenged directors and that adjournment of the meeting was simply an attempt by Matthews to preserve himself in office.View "Gentili v. L.O.M. Med. Int'l, Inc." on Justia Law