Justia Business Law Opinion Summaries

Several individuals orchestrated microcap securities fraud schemes by creating nineteen shell companies with no genuine business operations or assets, selling their securities at inflated prices once publicly tradable. Two firms, operated by Carl Dilley and Micah Eldred—Spartan Securities Group, Ltd. (a broker-dealer) and Island Capital Management (a transfer agent)—facilitated this process. Spartan submitted Form 211 applications to FINRA for each shell company, enabling public trading, while Island managed applications for Depository Trust Company (DTC) eligibility. The U.S. Securities and Exchange Commission (SEC) brought an enforcement action against Dilley, Eldred, Spartan, and Island, alleging, among other claims, that they made false statements to obtain FINRA clearance and DTC eligibility, violating Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5(b).The United States District Court for the Middle District of Florida denied the defendants’ pretrial motions to exclude the SEC’s expert witness and for special jury interrogatories, and allowed the case to proceed to trial. The jury found all defendants liable on the count concerning false statements or omissions under Section 10(b) and Rule 10b-5(b. The district court subsequently denied the defendants’ motions for judgment as a matter of law, and imposed remedies including injunctions against future violations, penny stock bars, civil penalties, and ordered Island to disgorge profits to the U.S. Treasury.On appeal to the United States Court of Appeals for the Eleventh Circuit, the defendants challenged the admission of expert testimony, denial of judgment as a matter of law, and the remedies imposed. The Eleventh Circuit affirmed the district court’s rulings, holding that sufficient evidence supported the jury’s finding of material misrepresentations made in connection with the purchase or sale of securities. The court further held that the SEC was authorized to seek disgorgement to the Treasury and that the remedies, including civil penalties, were timely and equitable. View "Securities and Exchange Commission v. Spartan Securities Group, LTD" on Justia Law

A cloud-based real estate services company faced persistent and grave allegations that two top agents, along with several others, drugged and sexually assaulted company agents at events. Reports began surfacing in 2020, including a viral social media post and a memo sent to company executives detailing numerous incidents. Despite these warnings, the board initially terminated one perpetrator but continued paying him, and allowed others implicated to continue working. A whistleblower director raised these issues repeatedly at board meetings and with outside counsel, but the board’s responses were limited to internal investigations led by insiders and did not result in meaningful change. The company only took further action after survivors filed federal anti-trafficking lawsuits in 2023 and the story became public.Prior to the current litigation, federal courts sustained anti-trafficking claims against the company and its leadership, finding sufficient allegations that the leadership benefited from retaining perpetrators due to the company’s revenue-sharing structure. The defendants in this derivative action are not accused of direct misconduct, but of harming the company by allowing and covering up systemic sexual abuse. The plaintiff, a shareholder, alleges the board and certain officers actively covered up abuse and breached their fiduciary duties, and that some board members failed their oversight obligations in the face of numerous red flags.The Delaware Court of Chancery reviewed the defendants’ motions to dismiss. It held that workplace sexual misconduct can constitute a corporate trauma supporting a breach of fiduciary duty claim under Delaware law. The court denied dismissal as to claims against the officer alleged to have benefited from covering up abuse, and against the directors for failing to respond in good faith to clear red flags. However, it granted dismissal of a novel claim seeking to extend oversight duties to a control group of shareholders, declining to make new law in that area. View "Los Angeles City Employees' Retirement System v. Sanford" on Justia Law

A nonprofit organization challenged the validity of the City of La Habra’s February 2023 revision to its housing element, arguing that the modifications were adopted by the City Manager rather than the City Council and without additional public hearings. The housing element, part of the city’s general plan, is subject to periodic revision and state review. In this instance, after several public meetings and hearings on earlier drafts, the City Council adopted the housing element in September 2022 and authorized the City Manager to make further technical or clerical changes necessary for state certification. The City Manager subsequently approved additional revisions in February 2023, which were submitted to and certified by the Department of Housing and Community Development.In the Superior Court of Orange County, the nonprofit filed a petition for writ of mandate, seeking to prohibit the City from treating the February 2023 version as validly adopted. The court denied the petition, finding that the City had met public participation requirements through hearings on prior drafts and online posting of the revised element. The trial court also ruled that the City Council validly delegated authority to the City Manager for minor revisions and determined that any procedural errors were harmless, as required by Government Code section 65010, subdivision (b).The California Court of Appeal, Fourth Appellate District, Division Three, affirmed the judgment. The court held that additional public hearings were not required for the February 2023 modifications since they constituted part of the ongoing revision and certification process, rather than a distinct amendment. It further held that the City Council’s delegation of authority to the City Manager was valid and consistent with local law. Finally, the court found no prejudicial error or substantial harm resulted from the process used, upholding the presumption of validity following state certification. The judgment was affirmed. View "Californians for Homeownership v. City of La Habra" on Justia Law

A businessman from Kazakhstan alleged that he was wrongfully detained and psychologically coerced by the country’s National Security Committee into signing unfavorable business agreements, including waivers of legal claims and a forced transfer of valuable company shares. The business at issue, CAPEC, operated in Kazakhstan’s energy sector and held significant assets, some of which were allegedly misappropriated by fellow shareholders and transferred through U.S. financial institutions. The plaintiff claimed these actions harmed him economically, including the loss of potential U.S.-based legal claims.Following unsuccessful litigation in Kazakhstan, the plaintiff initiated suit in the United States District Court for the Eastern District of New York, seeking to invalidate the coerced agreements and recover damages under the Racketeer Influenced and Corrupt Organizations Act (RICO), the Alien Tort Statute, and other state and federal laws. The district court dismissed the complaint for lack of subject-matter jurisdiction, finding that the plaintiff, as a permanent resident alien, could not establish diversity jurisdiction against foreign defendants, that the alleged torts occurred outside the U.S., and that the plaintiff failed to allege a domestic injury required for civil RICO claims. The court denied leave to amend, determining that any amendment would be futile.The United States Court of Appeals for the Second Circuit reviewed the matter de novo, affirming the district court’s judgment. The Second Circuit held that claims against the National Security Committee were barred by the Foreign Sovereign Immunities Act, as its conduct was sovereign rather than commercial. For the individual defendants, the court found that the plaintiff failed to allege a domestic injury under RICO, as the harm and racketeering activity occurred primarily in Kazakhstan. The court further concluded that amendment of the complaint would have been futile. The judgment was affirmed. View "Yerkyn v. Yakovlevich" on Justia Law

LJM Partners, Ltd. and Two Roads Shared Trust, both involved in options trading on the Chicago Mercantile Exchange, experienced catastrophic losses on February 5 and 6, 2018, when volatility in the S&P 500 surged unexpectedly; LJM lost approximately 86.5% of its managed assets and the Preservation Fund (managed by Two Roads) lost around 80%. The plaintiffs alleged that eight defendant firms, acting as market makers, manipulated the VIX index by submitting inflated bid-ask quotes for certain SPX Options, which artificially raised volatility and resulted in inflated prices on the plaintiffs' trades, causing over one billion dollars in combined losses.After initially filing complaints against unnamed "John Doe" defendants in the United States District Court for the Northern District of Illinois, the plaintiffs pursued extensive discovery to identify the responsible parties. The cases were swept into a multidistrict litigation proceeding (VIX MDL), which delayed discovery. Eventually, after several rounds of amended complaints, the plaintiffs identified and named eight defendant firms. The defendants moved to dismiss. The district court found that LJM lacked Article III standing because it failed to allege an injury in fact, as the losses belonged to its clients, not LJM itself. For Two Roads, the district court held that its claims were time-barred under the Commodity Exchange Act’s two-year statute of limitations, and equitable tolling was denied due to lack of diligence.The United States Court of Appeals for the Seventh Circuit affirmed the district court’s judgment. It held that LJM’s complaint failed to establish Article III standing, as it did not allege that LJM itself—not just its clients—suffered actual losses. The court further held that Two Roads’s complaint was untimely and that the district court did not abuse its discretion in refusing equitable tolling. Both dismissals were affirmed. View "LJM Partners, Ltd. v. Barclays Capital, Inc." on Justia Law

On February 5, 2018, an abrupt spike in market volatility led to a sharp decline in the S&P 500 and a rapid increase in the VIX index. LJM Partners, Ltd. and Two Roads Shared Trust pursued trading strategies on the Chicago Mercantile Exchange that assumed low volatility and suffered catastrophic losses when volatility soared. They alleged that several market makers manipulated the VIX by quoting inflated bid-ask prices for certain options, which artificially increased volatility and caused losses exceeding one billion dollars in managed assets over two days.Both LJM and Two Roads filed suit in the United States District Court for the Northern District of Illinois, initially naming “John Doe” defendants. The cases were coordinated into multidistrict litigation, and the plaintiffs sought expedited discovery to identify the defendants. After extensive litigation, they amended their complaints to name eight firms as defendants. The defendants moved to dismiss. The district court found that LJM lacked Article III standing, as its complaint only alleged injuries suffered by its clients, not by LJM itself. The court denied LJM’s request for leave to substitute the real party in interest and dismissed its complaint without prejudice. For Two Roads, the court found that its claims were barred by the Commodity Exchange Act’s two-year statute of limitations, declined to apply equitable tolling, and also dismissed for failure to state a claim.On appeal, the United States Court of Appeals for the Seventh Circuit affirmed the district court’s judgment. The Seventh Circuit held that LJM did not allege a concrete injury in fact sufficient for Article III standing, as its complaint failed to distinguish between its own losses and those of its clients. The court also held that Two Roads’s complaint was untimely and that the district court did not abuse its discretion in denying equitable tolling. The court declined to reach the merits of the underlying Commodity Exchange Act claims. View "Two Roads Shared Trust v. Barclays Capital Inc." on Justia Law

An individual who founded a Michigan biomedical research company sold a majority stake in 2019 to four defendants but retained a minority interest, later becoming dissatisfied with the company’s management and moving out of state. The new owners aimed to expand the company but withheld information from the plaintiff about their efforts to secure financing, including discussions with Avista Capital Partners, a venture capital firm that ultimately made a large investment. The plaintiff sold his shares in December 2020 for a price based on an annual valuation, prior to Avista’s capital infusion that significantly increased the company’s value. The plaintiff later sued, alleging violations of federal and state securities laws, breach of fiduciary duty under Michigan law, and various fraud and contract claims based on the defendants’ failure to disclose material facts about the company’s pursuit of equity financing and Avista’s interest.The case was first heard in the United States District Court for the Western District of Michigan. That court denied the defendants’ motion to dismiss but, following discovery, granted summary judgment in favor of the defendants on all counts. The court concluded that the omissions were not material under federal securities law and, applying Delaware law and a federal standard, also found no materiality for the breach of fiduciary duty claim under Michigan law.On appeal, the United States Court of Appeals for the Sixth Circuit affirmed the district court’s summary judgment as to the federal securities law claims, the Michigan Uniform Securities Act claim, and the contract-based claims, holding that the omissions were not material under the applicable federal standards. However, the Sixth Circuit reversed the summary judgment for the Michigan common-law fiduciary duty and fraud claims, finding the district court had applied an incorrect legal standard and that genuine disputes of material fact remained. The case was remanded for further proceedings on the fiduciary duty and fraud counts. View "Boyd v. Northern Biomedical Research Inc." on Justia Law

Getty Images Holdings, Inc. became a publicly traded company after merging with CC Neuberger Principal Holdings II, a special purpose acquisition company. Alta Partners, LLC and CRCM Institutional Master Fund (BVI) Ltd., along with CRCM SPAC Opportunity Fund LP, acquired warrants to purchase Getty stock. The warrants’ exercise was governed by a warrant agreement requiring both an effective registration statement and a current prospectus for the underlying shares. After the merger, Getty filed two relevant registration statements: a Form S-4 and a Form S-1. Alta and CRCM attempted to exercise their warrants in August 2022, when Getty’s stock price was significantly higher than the warrant strike price, but Getty refused, claiming the contractual conditions for exercise were unmet.The United States District Court for the Southern District of New York reviewed breach of contract claims brought by Alta and CRCM. The court granted summary judgment for the plaintiffs, finding as a matter of law that the conditions of the warrant agreement had been satisfied. Specifically, it held the Form S-4 was an effective registration statement for the warrant shares and the accompanying prospectus was current at the time the plaintiffs attempted to exercise their warrants. The court awarded damages based on the stock price at the time of the breach but limited Alta’s recovery, denying damages for warrants purchased after Getty’s refusal to honor the redemption.The United States Court of Appeals for the Second Circuit affirmed the district court’s judgment. It held that Getty breached the warrant agreement because the required registration statement and prospectus conditions were met on the relevant dates. The court concluded that damages should be calculated using the market price of the shares at the time of breach and upheld the limitation on Alta’s damages for post-breach warrant purchases. The affirmance applies to all aspects of the district court’s rulings challenged on appeal. View "Alta Partners, LLC v. Getty Images Holdings, Inc." on Justia Law

Two individuals formed a partnership to operate a business, with one contributing property and inventory, and the other providing labor, management, and assuming operational expenses. Disputes arose regarding the dissolution of the partnership and the distribution of remaining assets. The central issues concerned whether the partners had an agreement that would override the statutory default rules for capital accounts and partnership winding up, and whether one partner was entitled to a credit for “sweat equity” or an in-kind distribution of inventory.The District Court of McLean County, South Central Judicial District, initially found that the parties formed a partnership, that property was contributed, and that the partnership’s inventory was partnership property. It dismissed certain tort claims and awarded costs to one party. However, the court did not apply North Dakota’s statutory default rules for partnership dissolution and winding up. On appeal, the Supreme Court of North Dakota in Ziemann v. Grosz, 2024 ND 166, affirmed in part and reversed in part, remanding with instructions for the district court to apply the statutory default winding up provisions under N.D.C.C. § 45-20-07 and to enter judgment consistent with its decision.On remand, the district court found no evidence of an agreement to vary the statutory defaults, credited the partner who contributed property with the appropriate capital credit, found no evidence of significant contributions from the other partner outside a small deposit, held that an in-kind distribution of inventory was not required, and ordered dissolution and winding up. Upon further appeal, the Supreme Court of North Dakota held that the district court properly followed its mandate, did not clearly err in its factual findings, and correctly applied the statutory provisions regarding partnership dissolution and distributions. The Supreme Court affirmed the district court’s remand order and judgment. View "Ziemann v. Grosz" on Justia Law

A Mississippi retail pharmacy, Rx Solutions, Inc., sought to join the pharmacy benefit management (PBM) network operated by Caremark, LLC, which is associated with CVS Pharmacy, Inc. Caremark denied Rx Solutions’ application, citing inconsistencies in ownership information and affiliations with Quest Pharmacy, owned by Harold Ted Cain, who Caremark claimed was previously found guilty of violating the False Claims Act. Rx Solutions disputed these reasons, noting acceptance by other PBM networks and asserting that Harold Ted Cain lacked operational control over Rx Solutions and had not been convicted of any relevant criminal offense.Rx Solutions filed suit in the United States District Court for the Southern District of Mississippi, alleging two federal antitrust violations under the Sherman Act and three state law claims: violation of Mississippi’s “any willing provider” statute, violation of the state antitrust statute, and tortious interference with business relations. The district court dismissed the federal antitrust and state statutory claims, concluding that Rx Solutions failed to adequately define relevant product and geographic markets and did not allege antitrust injury. The court also determined there was no diversity jurisdiction to support the remaining state law claims and declined to exercise supplemental jurisdiction.The United States Court of Appeals for the Fifth Circuit affirmed the district court’s dismissal of the federal antitrust and Mississippi state antitrust claims, holding that Rx Solutions did not sufficiently plead a relevant market or antitrust injury. However, the Fifth Circuit reversed the district court’s finding regarding diversity jurisdiction, based on admissions by Caremark and CVS establishing complete diversity between the parties. The appellate court affirmed the dismissal of the state antitrust claim and remanded the claims under Mississippi’s “any willing provider” statute and for tortious interference with business relations for further proceedings. View "Rx Solutions v. Caremark" on Justia Law