Justia Corporate Compliance Opinion Summaries

Petitioner Lisa McBride was an accountant who worked as Respondent Peak Wellness Center’s business manager for about nine years. Peak terminated her in 2009, citing job performance and morale issues. Petitioner claimed she was terminated in retaliation for bringing various accounting improprieties to the attention of Peak’s Board of Directors. Petitioner brought several federal and state-law claims against Peak: (1) whistleblower retaliation under the federal False Claims Act (FCA); (2) violations of the federal Fair Labor Standards Act (FLSA); (3) breach of employment contract; (4) breach of implied covenant of good faith and fair dealing; (5) defamation; and (6) a federal sex discrimination claim under Title VII of the Civil Rights Act. After discovery, Peak moved for summary judgment on all claims, and the district court granted the motion. Petitioner appealed, arguing that significant issues of material fact remained unresolved and that her claims should have proceeded to trial. She also appealed district court’s denial of an evidentiary motion. Finding no error in the district court’s decision, the Tenth Circuit affirmed its grant of summary judgment in favor of Peak.View "McBride v. Peak Wellness Center Inc." on Justia Law

Plaintiffs are holders of Savient’s 4.75% convertible senior notes due in 2018, which are unsecured and subject to the terms of an indenture. Collectively, Plaintiffs own a face value of $48,709,000, approximately 40% of the outstanding Notes. Defendants are members of Savient’s board of directors USBNA serves as trustee for the Indenture governing the Notes. Following dismal sales of its new drug, KRYSTEXXA, Savient’s Board approved a financing transaction to exchange some existing unsecured Notes for new senior secured notes with a later maturity date. Through the Exchange, Savient exchanged around $108 million in Notes, raised around $44 million in new capital, and issued additional SSDNs with a face value of approximately $63 million. Like the Notes, the SSDNs are subject to an indenture for which USBNA serves as trustee. Plaintiffs sought a declaration that Savient was insolvent and brought derivative claims alleging waste and breach of fiduciary duty in connection with the Exchange Transaction; alleged breach of fiduciary duty and waste claims in connection with the Board’s approval of retention awards for certain Savient executives. The chancellor dismissed the receivership claim for lack of standing and granted a declaration that an Event of Default has not occurred.View "Tang Capital Partners LP, v. Norton" on Justia Law

A jury returned a special verdict that: (a) awarded damages against an attorney and his girlfriend based upon the jury's finding that they had breached their fiduciary duties to a former client of the attorney by purchasing half of his stock in a closely held corporation for less than its fair market value; and (b) cancelled debts owing by the corporation to the attorney and his girlfriend based upon the jury's finding that they had breached their fiduciary duties to a shareholder, the former client's widow, by making loans to the corporation. The district court granted a new trial on the ground that there was insufficient evidence to justify the verdict, and this appeal followed. Finding sufficient evidence to support the jury's verdict, the Supreme Court affirmed the grant of a new trial.View "Berry v. McFarland" on Justia Law

Peppel, former President, CEO, and Chairman of the Board of Directors of MCSi, a publicly-traded communications-technology company, conspired with CFO Stanley to falsify MCSi accounting records and financial statements in order to conceal the actual earnings from shareholders, while laundering proceeds from the sale of his own shares in a public stock offering. Peppel pleaded guilty to conspiracy to commit securities, mail, and wire fraud, 18 U.S.C. 1371 and 1349; willful false certification of a financial report by a corporate officer,18 U.S.C. 1350; and money laundering, 18 U.S.C. 1957. The parties stipulated to use of the 2002 Sentencing Guidelines Manual The district court heard testimony and received reports on five competing amount-of-loss theories and, based almost solely on its estimation of Peppel as “a remarkably good man,” varied downward drastically from this advisory range, imposing a custodial sentence of only seven days—a 99.9975% reduction. The Sixth Circuit vacated, holding that the district court abused its discretion by imposing an unreasonably low sentence, but did not err in calculating the amount of loss or number of victims. View "United States v. Peppel" on Justia Law

This case concerned attorney fees under the dissenters' rights provisions of the Washington Limited Liability Company Act (LLC Act). The issue was first considered two years ago when the Supreme Court reversed the award of attorney fees imposed on Humphrey Industries Ltd. (Humphrey) and remanded to the trial court to reconsider an award of attorney fees in Humphrey's favor. On remand, the trial court awarded Humphrey part of its fees but also reinstated part of the attorney fee award against Humphrey that the Supreme Court had reversed. Humphrey appealed directly to the Supreme Court, contending that the trial court on remand failed to follow the Supreme Court's order. Upon review, the Supreme Court held that the trial court erred by imposing fees on Humphrey. View "Humphrey Indus., Ltd. v. Clay St. Assocs." on Justia Law

The Pennsylvania Supreme Court accepted certification from the United States Court of Appeals for the Third Circuit to address the exclusiveness of a statutory appraisal remedy provided to minority shareholders in certain merger scenarios under Pennsylvania corporate law. Where there is a fair value dispute, the BCL provides for post-merger judicial valuation or appraisal of the shares. Mitchell Partners, L.P., was a minority shareholder of Irex Corporation. In 2006, Irex participated in a merger structured so that some minority shareholders would be "cashed out" and would not receive an equity interest in the surviving corporation, a wholly owned subsidiary of North Lime Holdings Corporation. Mitchell objected to the acquisition. The merger proceeded nonetheless, and Irex commenced valuation proceedings in state court to address the dispute with Mitchell. Meanwhile, Mitchell pursued common law remedies in a diversity action in federal court, naming as defendants Irex, its directors, most of its officers, and North Lime. The defendants sought dismissal on the ground that, under Section 1105 of the BCL, judicial valuation was the sole remedy available to dissenting shareholders in the post-merger timeframe. A divided three-judge panel of the Third Circuit reversed the superior court in favor of Mitchell. Defendants sought rehearing, and the Governor of Pennsylvania and several business groups moved for leave to file supportive amicus briefs. The Governor expressed particular concern that the Third Circuit had interpreted the BCL's provisions relating to dissenting shareholders' rights in a manner inconsistent with Commonwealth case law. Accordingly, he urged the Third Circuit to grant rehearing and certify a question of law to the Supreme Court. Upon review, the Supreme Court, in response to the certified question, Section 1105 (of the BCL) "precludes postmerger remedies other than appraisal only in the absence of fraud or fundamental unfairness."View "Mitchell Partners, L.P., Aplt v. IREX Corporation" on Justia Law

In a derivative action on behalf of Hewlett-Packard Company, plaintiff accused certain HP directors of committing waste and breaching the duty of care in connection with the August 2010 termination of then-CEO, Hurd. Plaintiff contends that Hurd was not entitled to, and did not deserve, any severance upon his termination but that the directors granted Hurd a severance package estimated to be worth $40 million or more. Plaintiff also challenged the lack of a long term CEO succession plan as a breach of the directors’ duty of care. The chancellor dismissed. Under Rule 23.1, a stockholder must either make a demand on the board to instigate the legal action that the stockholder seeks to bring on the corporation’s behalf or allege with particularity why such a demand is excused. Plaintiff did not to make a presuit demand and did not adequately allege a basis to excuse presuit demand.View "Zucker v. Andreessen" on Justia Law

A stockholder of Republic, a Delaware corporation that engages in waste hauling and waste disposal, filed a derivative suit based on Republic’s compensation decisions: that a payment to O’Connor was made without consideration and was, therefore, wasteful; that an incentive payment to O’Connor was wasteful because it was not tax-deductible and rendered Republic’s compensation plan not tax-deductible; that Directors paid themselves excessive compensation; that Directors breached their duty of loyalty and wasted corporate assets by awarding a certain type of stock option; and that Directors improperly awarded employee bonuses because the requirements of the bonus scheme under which the bonuses were awarded were not met. The chancellor dismissed all but the claim arising from the board’s granting itself stock awards.View "Frank David Seinfeld v. Donald W. Slager, et al." on Justia Law

In this appeal, the issue before the Supreme Court was whether a derivative complaint challenging a corporate board's decision to pay certain executive bonuses without adopting a plan that could make those bonuses tax deductible states a claim for waste. The trial court concluded that the complaint failed to allege with particularity, that the board's decision not to implement a so-called "Section 162(m)" plan was a decision that no reasonable person would have made. Upon review, the Supreme Court agreed and affirmed the trial court's decision. View "Freedman v. Adams, et al." on Justia Law

OCV supplies equipment and licenses software for in-room hotel entertainment and sought a judgment of $641,959.54 against Roti, the owner of companies (Markwell, now defunct) that owned hotels to which OCV provided services. The district judge granted summary judgment, piercing the corporate veil, but rejecting a fraud claim. The Seventh Circuit reversed. While the Markwell companies were under-funded, OCV failed to treat the companies as separate businesses and proceed accordingly in the bankruptcy proceedings of one of the companies and made no effort to determine the solvency of the companies. View "On Command Video Corp. v. Roti" on Justia Law