Justia Corporate Compliance Opinion Summaries

The under seal appellant ("Company 1"), a foreign company, appealed the district court's denial of its motion to quash the government's grand-jury subpoenas served on the under seal intervenor ("Company 2") where the subpoenas sought documents that Company 1 delivered to Company 2 in response to discovery requests that arose during the course of civil litigation between the two companies in district court. The court affirmed the denial of Company 1's motion to quash the government's subpoenas and held that the district court did not abuse its discretion in determining that the subpoenas passed muster under Rule 17 of the Federal Rules of Criminal Procedure and Company 1 provided no basis for the court to craft a new procedural rule in support of its position. The court also held that there were no clearly erroneous rulings by the district court in resolving the factual issue regarding the nature of Company 2's interaction with the government and Company 1 failed to show that the issue merited any further investigation or an evidentiary hearing. The court rejected Company 1's remaining arguments and affirmed the district court's denial of Company 1's motion to quash.

Cobb Electric Membership Corporation ("Cobb EMC") members filed a derivative action against Cobb EMC and the parties subsequently entered into a settlement agreement. At issue was whether the Court of Appeals erred by failing to defer to the trial court's determination that Cobb EMC's Board of Directors ("Board") was authorized to adopt the proxy voting bylaw agreement. Also at issue was whether the Court of Appeals erred in holding that the use of the proxy voting pursuant to the Board's bylaw amendment violated the provision of the settlement agreement. The court held that although the Court of Appeals mischaracterized the nature of the issue on appeal, it did utilize the correct standard for reviewing the trial court's legal conclusions, i.e., de novo review. The court also held that while it agreed with the conclusion that the Board's proxy voting bylaw amendment violated the terms of the settlement agreement, the Court of Appeal's reasoning was not the basis upon which the court's conclusion rested. The court held, nevertheless, that the Board's proxy voting bylaw amendment violated the trial court order approving the settlement agreement because it significantly changed the conditions under the parties' agreed-upon plan for proposing the option of proxy voting. The court finally held that, because the trial court's May 2009 order did not address the "full cooperation" requirement of its previous order, the Court of Appeals erred in considering the issue. Accordingly, the judgment was affirmed in part and reversed in part.

This matter involved a stockholder challenge to a merger in which a third-party strategic aquiror had agreed to merge with the target corporation for consideration valued at $35 per share. Plaintiffs moved for a preliminary injunction and requested that the court delay the target's stockholder vote and enjoin the deal protections for a period of 45-60 days so as to allow the target to seek higher bids. The court first addressed the issue of whether and in what circumstances Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. applied when merger consideration was split roughly evenly between cash and stock. Based on its analysis, the court held that plaintiffs were likely to succeed on their argument that the approximately 50% cash and 50% stock consideration triggered Revlon. Therefore, when the board explored whether to enter into the proposed transaction, which warranted review under Revlon, its fiduciary duties required it to obtain the best value reasonably available to Smurfit-Stone stockholders. The court held, however, that plaintiffs failed to carry their burden to prove they were likely to succeed on the merits of their claims, would suffer imminent irreparable harm in injunctive relief was not granted, and were favored by the equities. Accordingly, plaintiffs' motion for a preliminary injunction was denied.

Plaintiffs alleged that corporate officers committed securities fraud (15 U.S.C. 78j, 78t) by making false statements about about the corporation's financial health and controlled other persons regarding false statements by the corporation and other employees. The district court dismissed; the Sixth Circuit remanded. The district court again dismissed and the Sixth Circuit reversed. The complaint adequately alleged scienter by alleging that the defendants received internal reports and information showing financial distress, yet continually made false, positive statements regarding financial health. The court noted allegations concerning temporal proximity between false statements and corrective statements, defendants' financial motivations, the retirement of one defendant, and that the SEC investigated the company's accounting practices.

The Shoen family controls AMERCO. AMERCO engaged in numerous business transactions with SAC entities, which are real estate holding companies controlled by AMERCO shareholder and executive Mark Shoen. Based on several of those transactions, Appellants-Shareholders filed an underlying shareholder derivative lawsuit against AMERCOâs former and current directors and the SAC entities, primarily for breach of fiduciary duty. However, appellants failed to make a demand for corrective action on AMERCOâs board of directors. Subsequently, AMERCO moved to dismiss the lawsuit. Appellants appealed, and the Supreme Court reversed that decision and remanded the case for further proceedings. On remand, the district court again granted AMERCOâs motion to dismiss, this time because of a settlement agreement that dated back to 1995 in which shareholders agreed not to bring shareholder derivative lawsuits against AMERCO. Appellants sought the Supreme Courtâs review of the district courtâs second dismissal of their case. They asked whether the settlement bars their present lawsuit against AMERCO. The Supreme Court found that the settlement does not bar Appellantsâ case. The Court again reversed the district courtâs decision, and remanded the case for further proceedings.

Plaintiffs, and its wholly owned subsidiary, proposed to split off as a new publicly traded company ("SplitCo") the businesses, assets, and liabilities attributed to plaintiffs' Capital Group and Starz Group (the "Capital Splitoff"). At issue was whether plaintiffs pursued a "disaggregation strategy" designed to remove assets from the corporate structure against which the bondholders had claims and shifted the assets into the hands of plaintiffs' stockholders. The court held that plaintiffs were entitled to judgment declaring that the Capital Splitoff, as currently structured, complied with the Successor Obligor Provision in an indenture dated July 7, 1999 and therefore, plaintiffs were entitled to a declaration that the Capital Splitoff did not violate the Successor Obligor Provision.

Plaintiff, a shareholder in Avenir Corporation ("Avenir"), brought a shareholder derivate suit naming Avenir and its three principal officers ("principals") as defendants and alleged that the principals engaged in various forms of financial misconduct as Avenir's managers. At issue was whether the district court properly granted attorney's fees for abuse of discretion to plaintiff where plaintiff originally filed in Superior Court and defendants removed the case to the U.S. District Court for the District of Columbia under 28 U.S.C. 1441, where Avenir's primary place of business was in D.C., and where the district court found removal improper under section 1441(b). The court held that the district court improperly awarded attorney's fees to plaintiff where Avenir was a nominal defendant and defendants' reasoning had at least some logical and precedential force behind it.

Plaintiffs appealed from judgments dismissing their class-action complaints seeking to hold defendants (collectively, "Rating Agencies") liable as underwriters or control persons for misstatements or omissions in securities offering documents in violation of sections 11 and 15 of the Securities Act of 1933 ("1933 Act"), 15 U.S.C. 77k(a)(5), 77o(a). At issue was whether the Rating Agencies were "underwriters" as defined by 15 U.S.C. 77b(a)(11) because they helped structure securities transactions to achieve desired ratings. Also at issue was whether the Rating Agencies were "control persons" because of their alleged provision of advice and direction to primary violators regarding transaction structures under section 77o(a) of the 1933 Act. The court held that plaintiffs' section 11 claims that the Rating Agencies were "underwriters" was properly dismissed because the Rating Agencies' alleged structuring or creation of securities was insufficient to demonstrate their involvement in the requisite distributional activities. The court also held that plaintiffs' "control person" claims under section 77o(a) were properly dismissed because the Rating Agencies' provision of advice and guidance regarding transaction structures was insufficient to permit an inference that they had the power to direct the management or policies of alleged primary violators of section 11. The court further held that the district court did not abuse its discretion in denying implicitly plaintiffs' cursory requests for leave to amend.

Plaintiff appealed from a judgment dismissing a three-count complaint arising from the renegotiation of certain investment-advisory agreements. The court certified a question to the Supreme Judicial Court of Massachusetts as to the circumstances under which that state's business judgment rule could be asserted in response to a shareholder derivative suit under the Massachusetts Business Corporations Act, Mass. Gen. Laws ch. 156D, 5.44. Upon the receipt of the answer, the court affirmed the district court's dismissal of two of plaintiff's claims brought pursuant to various provisions of the Investment Company Act, 15, U.S.C. 80a-15(a), and Massachusetts state law. Regarding the third claim, a derivative state law claim for breach of fiduciary duty to which the certified question related and as to which the district court granted a motion to dismiss, the court vacated the judgement and remanded with instructions to convert the motion to dismiss to a motion for summary judgment, and to rule on that motion, after further discovery if further discovery was warranted.

Plaintiff, on behalf of himself and other similarly situated current and former Black & Decker (U.S.) Inc. ("B&D") employees, sued B&D asserting three sets of claims under the Fair Labor Standards Act ("FLSA"), 29 U.S.C. 201 et seq., and the New York Labor Law ("NYLL"), N.Y. Comp. Codes R. & Regs. tit. 12 section 142-2.2. At issue was whether B&D owed plaintiff compensation for all the time he spent commuting between home and the job site ("commute time claims") and overtime hours that plaintiff allegedly worked but did not record ("off-the-clock claims"). The court held that the district court properly granted B&D summary judgment on the commute time claims where, even if plaintiff's activities were integral and indispensable to his principal activities, they did not render the entirety of his commute time compensable under the FLSA. The court also held that plaintiff raised genuine issues of material fact on his off-the-clock claims where plaintiff presented sufficient evidence for a reasonable jury to conclude that he had shown the amount of his uncompensated work as a matter of just and reasonable inference.