Justia Corporate Compliance Opinion Summaries

The United States appealed from a judgment of the district court invalidating two notices of Final Partnership Administrative Adjustments issued by the IRS. The district court so ruled because it concluded that the taxpayer's characterization of two tax-exempt Dutch banks as its partners in Castle Harbour LLC was proper under Internal Revenue Code 704(e)(1). The district court also concluded that, even if the banks did not qualify as partners under section 704(e)(1), the government was not entitled to impose a penalty pursuant to Internal Revenue Code 6662. The court held that the evidence compelled the conclusion that the banks did not qualify as partners under section 704(e)(1), and that the government was entitled to impose a penalty on the taxpayer for substantial understatement of income. Accordingly, the judgment of the district court was reversed. View "TIFD III-E Inc. v. United States" on Justia Law

This derivative suit was brought against the Grupo Mexico subsidiary that owned Minera, the Grupo Mexico-affiliated directors of Southern Peru, and the members of the Special Committee, alleging that the Merger at issue was entirely unfair to Southern Peru and its minority stockholders. The court concluded that the transaction was unfair and remedied the unfairness by ordering the controller to return to the NYSE-listed company a number of shares necessary to remedy the harm. The court applied a conservative metric because of plaintiff's delay, which occasioned some evidentiary uncertainties and which subjected the controller to lengthy market risk. View "In re Southern Peru Copper Corp. Shareholder Derivative Litigation" on Justia Law

This appeal concerned the maintenance of a suit for rescission under section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. 78a et seq., by plaintiffs Kenneth Weiss and his wholly-owned corporation. The district court granted summary judgment to defendants on all claims and awarded defendants attorneys' fees. The court held that a plaintiff suing under section 10(b) seeking rescission must demonstrate economic loss and that the misrepresentation or fraud conduct caused the loss. The court found that the record revealed that rescission was not feasible in the instant case. Yet employing a rescissionary measure of damages, Weiss would be able to convince the finder of fact that he was entitled to relief. On that basis, the court reversed the district court's grant of summary judgment of Weiss's federal and state securities claims and remanded for consideration under a rescissionary measure of damages. With respect to the statue of limitations issue, the court remanded for consideration in light of Merck & Co., Inc. v. Reynolds. The court affirmed the district court's judgment on Weiss's state law claims of common law fraud, negligent misrepresentation, mutual mistake, and unjust enrichment. The court vacated the district court's attorneys' fee award and dismissed the appeal of this award as moot. View "Strategic Diversity, Inc., et al. v. Alchemix Corp., et al." on Justia Law

Defendants appealed from a judgment of the district court in favor of plaintiff on claims of Section 16(b) of the Securities and Exchange Act of 1934, 15 U.S.C. 78p(b). At issue was whether a beneficial owner's acquisition of securities directly from an issuer - at the issuer's request and with the board's approval - should be exempt from the definition of a "purchase" under Section 16(b), on the theory that such a transaction lacked the "potential for speculative abuse" that Section 16(b) was designed to curb. The court held that such transactions were covered by Section 16(b) and that defendants, who were limited partnerships, were beneficial owners for the purpose of Section 16(b) liability, notwithstanding their delegation of voting and investment control over their securities portfolios to their general partners' agents. Accordingly, the court affirmed the judgment of the district court. View "Huppe v. WPCS Int'l, Inc." on Justia Law

Plaintiffs moved for a temporary restraining order (TRO) to enjoin ChinaCast from holding its annual shareholder meeting. Plaintiffs claimed, among other things, that the board breached its fiduciary duty of disclosure when communicating its reasons for publicly disclosing that it had removed the current director from the company's slate and no longer recommended his reelection. Plaintiffs argued that this TRO was necessary to provide ChinaCast's shareholders sufficient time to consider corrective disclosures and plaintiffs' competing slate of nominees. The court concluded that it appeared that this action essentially was a dispute between two directors who disagreed about the best way to advance the interests of ChinaCast's shareholders. That disagreement, moreover, had culminated in an impasse in their working relationship. It was not, however, the place of a company's incumbent management or the court to decide whether one candidate was preferable to another for election to the board. Rather, the corporate law emphatically vested that power in the shareholder franchise. Accordingly, Plaintiffs Motion for a TRO was granted so that ChinaCast's shareholders received a fair opportunity to vote their preference on the future direction of the company. View "Sherwood, et al. v. Ngon, et al." on Justia Law

The title company provided real estate closing services. From 1984 through 1995, it served as exclusive agent for defendant and managed an escrow account that defendant contractually agreed to insure. The title company was not profitable and its managers used escrow funds in a "Ponzi" scheme. In 1989, there was a $26 million shortfall. To fill the hole, the managers began looting another business, Intrust, to pay defendant's policyholders ($40.9 million) and to pay defendant directly ($27 million), so that defendant was a direct and indirect beneficiary of the title company's arrangement with Intrust. In 2000 the state agency learned that the funds were missing, took control of Intrust and placed it in receivership. In July 2010, the Receiver filed suit for money had and received, unjust enrichment, vicarious liability), aiding and abetting breach of fiduciary duty, and conspiracy. The district court dismissed based on the statute of limitations. The Seventh Circuit affirmed. The Illinois doctrine of adverse domination does not apply. That doctrine tolls the statute of limitations for a claim by a corporation against a nonboard-member co-conspirator of the wrongdoing board members. View "Indep. Trust Corp. v. Stewart Info. Serv. Corp." on Justia Law

Davidson Directors and PBGC appealed the district court's order to distribute all of News-Journal assets to Cox, a long-time shareholder of the closely-held News-Journal. The court vacated the order, interpreting Florida's election-to-purchase statute to require that any payment made as a result of a corporation's share repurchase decision complied with the distribution requirements of Fla. Stat. 607.06401, which prohibited the distribution of corporate assets to a shareholder if it would render the corporation insolvent. Because the court considered any payment to Cox a distribution to a shareholder within the meaning of the statute, the district court erred when it ordered the distribution of all of News-Journal's assets to Cox without applying the insolvency test contained in the statute. If on remand, the district court finds a distribution to Cox would violate the statute, News-Journal's other creditors should receive payment before any distribution is made to Cox. View "Cox Enterprises, Inc. v. Pension Benefit Guaranty Corp; Cox Enterprises, Inc. v. Davidson, et al." on Justia Law

Harold and his son William started a corporation, operated by William. Harold made loans to the corporation. When the corporation ceased operating William and his wife formed PCI-2 to take its place; despite an agreement, Harold's loans were not repaid and Harold made loans to PCI-2, lending about $300,000 to PCI-1 and PCI-2. William and his wife acquired other corporations and substantial real estate holdings. One business, WEL, issued one share of stock to Harold and nine shares to Harold as custodian for William's infant son, L.L. Harold was a director of WEL. William and his wife divorced. In 2004, Harold filed a loan repayment lawsuit against WEL and PCI-2; William did not defend, asserting there was no money. Harold obtained default judgments of $1,107,550 and $1,204,439, commenced execution proceedings against property that WEL owned, and obtained approximately $320,000 in proceeds. In the Bankruptcy Court, a custodian for shares owned by L.L. sought to recover $345,000 from Harold, claiming that Harold breached his fiduciary duties owed to L.L. The Bankruptcy Court and the district court rejected the claim. The Third Circuit reversed. Harold breached his duties as a WEL director and as a custodian for L.L.'s shares. View "In re: Lampe, Jr" on Justia Law

Plaintiff filed this action seeking books and records from HP under 8 Del. C. 220. At issue was whether a letter concerning allegedly inappropriate conduct by a corporate executive should be kept under seal. The court held that the Court of Chancery acted well within its discretion in holding that the intervenor did not establish good cause to maintain the confidentiality of the letter and therefore, the letter should be unsealed. View "Hurd v. Espinoza and Hewlett-Packard Co." on Justia Law

Sagarra, a Spanish corporation, was a minority shareholder of Uniland, also a Spanish corporation. Sagarra brought a Court of Chancery action to rescind the sale, by CPV, of Giant, to Uniland. CPV was the controlling stockholder of both Giant and Uniland. Sagarra purported to sue derivatively on behalf of a wholly-owned Delaware subsidiary of Uniland, UAC, which was specifically created as the vehicle to acquire Giant. Defendants moved to dismiss the complaint on the ground that Sagarra lacked standing to enforce a claim on behalf of UAC. The Court of Chancery held that Sagarra's standing to sue was governed by Spanish law, because Uniland - the only entity in which Sagarra owned stock - was incorporated in Spain. The court upheld the Court of Chancery's reasoning and judgment because Sagarra failed to satisfy the demand requirements of Spanish law. View "Sagarra Inversiones, S.L., v. Cementos Portland Valderrivas, S.A., et al." on Justia Law