Justia Business Law Opinion Summaries

Gina Champion-Cain operated a Ponzi scheme through her company ANI Development, LLC, defrauding over 400 investors of approximately $389 million. The SEC initiated a civil enforcement action, freezing Cain’s and ANI’s assets, appointing a receiver for ANI, and temporarily staying litigation against ANI. Defrauded investors then sued third parties, including Chicago Title Company and the Nossaman law firm, alleging their involvement in the scheme.The United States District Court for the Southern District of California approved a global settlement between the Receiver and Chicago Title, which included a bar order preventing further litigation against Chicago Title and Nossaman related to the Ponzi scheme. Kim Peterson and Ovation Fund Management II, LLC, whose state-court claims against Chicago Title and Nossaman were extinguished by the bar orders, challenged these orders.The United States Court of Appeals for the Ninth Circuit reviewed the case. The court held that the district court had the authority to enter the bar orders because the claims by Peterson and Ovation substantially overlapped with the Receiver’s claims, seeking recovery for the same losses stemming from the Ponzi scheme. The bar orders were deemed necessary to protect the ANI receivership estate, as allowing the claims to proceed would interfere with the Receiver’s efforts and deplete the receivership’s assets.The Ninth Circuit also concluded that the Anti-Injunction Act did not preclude the bar orders, as they were necessary in aid of the district court’s jurisdiction over the receivership estate. The court rejected Peterson’s argument that the bar order was inequitable, noting that Peterson had the opportunity to file claims through the receivership estate but was determined to be a net winner from the Ponzi scheme. Consequently, the Ninth Circuit affirmed the district court’s bar orders. View "USSEC V. CHICAGO TITLE COMPANY" on Justia Law

Eido Hussam Al-Nahhas, an Illinois resident, took out four loans from Rosebud Lending LZO, operating as ZocaLoans, with interest rates up to nearly 700%, far exceeding Illinois law limits. Al-Nahhas alleged that ZocaLoans was a front for two private equity firms, 777 Partners, LLC, and Tactical Marketing Partners, LLC, to evade state usury laws by claiming tribal sovereign immunity through the Rosebud Sioux Tribe. He sued ZocaLoans and the firms for violating Illinois usury statutes and the federal Racketeer Influence and Corrupt Organizations Act.The defendants participated in litigation for fourteen months, including filing an answer, engaging in discovery, and attending status conferences. They later sought to compel arbitration based on an arbitration provision in the loan agreements. The United States District Court for the Northern District of Illinois denied the motion, finding that the defendants had waived their right to compel arbitration by participating in litigation.The United States Court of Appeals for the Seventh Circuit reviewed the case. The court affirmed the district court's decision, holding that the defendants waived their right to arbitrate through their litigation conduct. The court also found that the case was not moot despite the settlement between Al-Nahhas and ZocaLoans, as punitive damages were still at issue. The court granted the parties' motions to file documents under seal. View "Hussam Al-Nahhas v 777 Partners LLC" on Justia Law

The case involves a civil enforcement action by the Securities and Exchange Commission (SEC) against Henry B. Sargent for allegedly violating registration and antifraud provisions of federal securities laws. The district court granted partial summary judgment to the SEC, finding that Sargent violated section 5 of the Securities Act of 1933 by directing unregistered public offerings of penny stocks. The court ordered equitable remedies, including disgorgement and a ten-year ban on trading penny stocks, but dismissed the SEC's fraud claims and denied an additional civil penalty.Sargent appealed the partial summary judgment, arguing that his transactions were exempt from registration and that the district court abused its discretion in imposing the ten-year ban and calculating the disgorgement amount. The SEC cross-appealed, contending that the district court erred in not imposing a civil penalty and in dismissing its fraud claims.The United States Court of Appeals for the First Circuit affirmed the district court's grant of partial summary judgment, the disgorgement amount, and the dismissal of the SEC's fraud claims. However, it found that the district court erred in imposing equitable remedies and in concluding that it lacked the power to issue a civil penalty. The appellate court vacated the injunction against Sargent and remanded the case for further proceedings to assess the appropriateness of injunctive relief and civil penalties for Sargent's section 5 violation. View "Securities and Exchange Commission v. Sargent" on Justia Law

Givaudan SA, a Swiss multinational manufacturer of flavors and fragrances, entered into a business relationship with Conagen Inc., a Massachusetts-based synthetic biology company. In 2016, the two companies executed a term sheet outlining several potential transactions, including Givaudan's purchase of a 5% equity stake in Conagen for $10 million and an exclusivity agreement for Conagen's intellectual property. Givaudan paid the $10 million and received the shares, but negotiations on the exclusivity agreement failed.Givaudan sued Conagen in the United States District Court for the Southern District of New York, claiming breach of contract, promissory estoppel, and unjust enrichment, seeking the return of its $10 million. After a bench trial, the district court found Conagen not liable on all claims and dismissed the case. Givaudan appealed the dismissal of its breach of contract claim.The United States Court of Appeals for the Second Circuit reviewed the case. The court affirmed the district court's decision, holding that Givaudan failed to prove damages, an essential element of a breach of contract claim under Delaware law. The court found that the $10 million payment for the 5% equity stake was a completed transaction and not contingent on the successful negotiation of the exclusivity agreement. The court also determined that the term sheet was a binding preliminary agreement that established a duty to negotiate in good faith, but Givaudan did not incur any costs or expenses that would qualify as reliance damages. Thus, the judgment of the district court was affirmed. View "Givaudan v. Conagen" on Justia Law

Michael Bullinger invested in Sundog Interactive, Inc. in 1998. In 2019, Sundog negotiated a sale to Perficient, Inc. Bullinger dissented to the sale and demanded fair value for his shares. Sundog estimated the value of Bullinger's shares at $646,106.09, but Bullinger demanded $1,164,102.50. Sundog did not pay the demanded amount, negotiate a different amount, or initiate court proceedings to determine the fair value. Bullinger sued for declaratory judgment and claimed the individual defendants breached their fiduciary duties.The District Court of Cass County dismissed Bullinger's claims with prejudice and awarded attorneys' fees to Sundog. Bullinger appealed, arguing the court erred in its interpretation of N.D.C.C. § 10-19.1-88(5) and (10), and in finding he was not entitled to damages for breach of fiduciary duties. The North Dakota Supreme Court previously remanded the case for further findings, but the district court again dismissed Bullinger's claims and awarded attorneys' fees to Sundog.The North Dakota Supreme Court reviewed the case and concluded the district court erred in finding Bullinger was not a dissenting shareholder and not entitled to payment equal to his demand. The court held that Bullinger complied with the statutory requirements and was entitled to payment of his demand since Sundog failed to act within the required sixty days. The court affirmed the district court's finding that there was no breach of fiduciary duties by the individual defendants. The case was remanded for reconsideration of the award of attorneys' fees and costs in light of the Supreme Court's decision. The North Dakota Supreme Court affirmed in part, reversed in part, and remanded the case. View "Bullinger v. Sundog Interactive, Inc." on Justia Law

The case involves a dispute between two long-time friends and business associates, where the plaintiff invested $3 million in Digipac LLC, controlled by the defendant, based on an oral agreement. The agreement promised the plaintiff an exit opportunity from the investment either if Remark Holdings, Inc.'s share price hit $50 or after five years based on the value of Digipac's Remark holdings. The plaintiff made the investment in two installments in 2012 and 2013. In 2014, the defendant unilaterally amended the LLC agreement, which included a merger clause stating that it superseded all prior agreements.The plaintiff filed a lawsuit in the Supreme Court for breach of contract and promissory estoppel, seeking $11.6 million. The defendant moved to dismiss, arguing that the oral agreement was superseded by the amended LLC agreement. The Supreme Court granted the motion, finding the oral agreement unenforceable and the promissory estoppel claim unreasonable. The Appellate Division affirmed, holding that the plaintiff was bound by the amended LLC agreement and its merger clause, which nullified the oral agreement. The court also dismissed the promissory estoppel claim, noting that it was duplicative of the breach of contract claim.The New York Court of Appeals affirmed the Appellate Division's decision. The court held that the amended LLC agreement, governed by Delaware law, unambiguously nullified the prior oral agreement through its merger clause. The court rejected the plaintiff's arguments that the defendant acted in a personal capacity and that the agreements involved different subject matters. The court also dismissed the promissory estoppel claim, as the amended LLC agreement governed the promise at issue. The court emphasized the importance of scrutinizing LLC agreements and protecting contractual rights in closely held LLCs. View "Behler v Kai-Shing Tao" on Justia Law

A controller orchestrated a merger that consolidated Sears, Roebuck and Co. and Kmart Corporation under Sears Holdings Corporation. The controller, through his investment funds, owned a majority of the new entity. In 2012, Sears Holdings spun off Sears Hometown and Outlet Stores, Inc. (the Company) as a separate public entity, with the controller retaining a majority stake. In 2019, the Company merged with an acquisition subsidiary, with each share converted into the right to receive $3.21. Some stockholders sought appraisal, while others pursued a plenary action alleging breaches of fiduciary duty.The Court of Chancery of the State of Delaware coordinated the appraisal proceeding and the plenary action for discovery and trial. The court certified a class in the plenary action, which was later modified to explicitly include stockholders who sought appraisal. During the appraisal proceeding, the Company and its post-merger parent became insolvent, rendering the appraisal claimants as general creditors with no prospect of recovery. The Fund, an appraisal claimant, opted to join the plenary action. The court found the merger was not entirely fair and determined a fair price of $4.06 per share, awarding incremental damages of $0.85 per share to the class members who had received the merger consideration.The Fund, having not received the merger consideration, sought to recover the full fair price damages award. The court held that under the precedent set by the Delaware Supreme Court in Cede & Co. v. Technicolor, Inc., the Fund was entitled to the full fair price damages of $4.06 per share without any offset for the merger consideration it did not receive. The court concluded that the Fund could opt out of the appraisal proceeding and participate in the plenary action remedy, ensuring it was made whole. View "In re Sears Hometown and Outlet Stores, Inc. Stockholder Litigation" on Justia Law

Plaintiffs, purchasers of coupon processing services, alleged that Inmar, Inc. and its subsidiaries engaged in an anticompetitive conspiracy to raise coupon processing fees. They sought class certification for a manufacturer purchaser class. The district court rejected their attempts to certify the class, leading to this appeal.The United States District Court for the Middle District of North Carolina denied plaintiffs' first two motions for class certification. The first was denied due to discovery issues, and the second was rejected as an impermissible fail-safe class. Plaintiffs' third motion proposed three different class definitions: the Fixed List Class, the Limited Payer Class, and the All Payer Class. The district court rejected all three, finding the Fixed List Class to be a fail-safe class, the Limited Payer Class to be unascertainable and excluding too many injured manufacturers, and the All Payer Class to fail the predominance requirement of Rule 23(b)(3) due to a high percentage of uninjured members.The United States Court of Appeals for the Fourth Circuit reviewed the district court's decision and affirmed the denial of class certification. The court found that the Fixed List Class failed to define a class and improperly shifted the burden to the district court. The Limited Payer Class was deemed unascertainable and not superior due to its exclusion of many injured manufacturers. The All Payer Class failed the predominance requirement as the plaintiffs' expert did not show injury for 32% of the class members, raising both predominance and standing issues. The Fourth Circuit concluded that the district court did not abuse its discretion in denying class certification. View "Mr. Dee's Inc. v. Inmar, Inc." on Justia Law

A plaintiff purchased shares of a company that went public through a direct listing, which involved listing already-issued shares rather than issuing new ones. Following the listing, the company's stock price fell, and the plaintiff filed a class action lawsuit alleging that the registration statement was misleading, thus violating sections 11 and 12(a)(2) of the Securities Act of 1933. These sections impose strict liability for any untrue statement or omission of a material fact in a registration statement or prospectus.The district court denied the defendants' motion to dismiss, despite the plaintiff's concession that he could not trace his shares to the registration statement. The court held that it was sufficient for the plaintiff to allege that the shares were of the same nature as those issued under the registration statement. The Ninth Circuit initially affirmed this decision.The United States Supreme Court vacated the Ninth Circuit's decision, holding that section 11 requires plaintiffs to show that the securities they purchased were traceable to the particular registration statement alleged to be false or misleading. On remand, the Ninth Circuit concluded that section 12(a)(2) also requires such traceability. Given the plaintiff's concession that he could not make the required showing, the Ninth Circuit reversed the district court's decision and remanded with instructions to dismiss the complaint in full and with prejudice. View "PIRANI V. SLACK TECHNOLOGIES" on Justia Law

Gary D. LeClair, a founding member of the now-defunct law firm LeClairRyan PLLC, attempted to withdraw from the firm in July 2019. He announced his immediate withdrawal and resignation effective July 31, 2019. However, on July 29, 2019, the firm's other members voted to dissolve the firm and established a Dissolution Committee. The firm filed for Chapter 11 bankruptcy on September 3, 2019, which was later converted to Chapter 7. The bankruptcy trustee listed LeClair as an equity holder, making him liable for some of the firm's tax obligations. LeClair contested this, arguing that he had effectively withdrawn before the bankruptcy filing.The bankruptcy court ruled that LeClair's withdrawal was ineffective because it occurred after the dissolution vote, interpreting the firm's operating agreement to prohibit member withdrawal after a dissolution event. The district court largely affirmed this decision but reversed on a minor point regarding the date of the equity holders list.The United States Court of Appeals for the Fourth Circuit reviewed the case. The court found that the bankruptcy and district courts misinterpreted the operating agreement. The agreement did not prohibit members from withdrawing after a dissolution event; it only barred withdrawal while a member held shares and the firm was still operational. Since LeClair's employment ended on July 31, 2019, his shares were automatically transferred back to the firm, and he ceased to be a member.The Fourth Circuit vacated the district court's judgment and remanded the case for further proceedings, instructing the bankruptcy court to determine if any equitable considerations might still warrant denying LeClair's motion to amend the equity holders list. View "LeClair v. Tavenner" on Justia Law