Justia Business Law Opinion Summaries

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Appellant Alex Bäcker was the co-founder and majority common stockholder of QLess, Inc. In June 2019, the Company’s board removed Alex as CEO following an internal investigation into workplace complaints. Alex eventually relented to the change and expressed support for his successor, Kevin Grauman. In the week leading up to the November 15, 2019 board meeting, the Company’s outside counsel circulated board resolutions that, among other things, would appoint Grauman to the board. Alex made a series of statements that collectively represented support for Grauman’s appointment. On the eve of the board meeting, the Company’s independent director unexpectedly resigned, giving Alex a board majority. Alex leapt into action, devising a secret counter agenda to fire Grauman and lock-in Alex’s control of the Company. Alex caught his fellow directors by surprise at the meeting, passing his counter agenda over objections and seizing control of the Company. Palisades Growth Capital II, L.P., the majority owner of the Company’s Series A preferred stock, filed a complaint in the Court of Chancery seeking to reverse Alex’s actions. Following a paper trial, the court held that, even if technically legal, the board’s actions were invalid as a matter of equity because Alex affirmatively deceived a fellow director to establish a quorum. After review of the parties briefs and the record on appeal, the Delaware Supreme Court held the Court of Chancery's finding of affirmative deception was not clearly erroneous. The Supreme Court also held that the Court of Chancery did not impose an equitable notice requirement for regular board meetings, that Appellants failed to properly raise an equitable participation defense below, and that the Court of Chancery did not exercise its equitable powers to grant relief for a de facto breach of contract claim. Accordingly, the Supreme Court affirmed the Court of Chancery’s March 26, 2020 Memorandum Opinion. View "Backer v. Palisades Growth Capital" on Justia Law

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Shah, a board-certified pediatric anesthesiology specialist, joined STAR, which became the exclusive provider of anesthesia services at several San Antonio-area acute-care hospitals, including NCB. BHS guaranteed STAR $500,000 in collections for pediatric anesthesia services provided at NCB. In 2012, STAR became the exclusive provider of anesthesia services at four BHS hospitals. Shah was not a party to the 2012 agreement, nor was he named in the pediatric income guarantee but he continued to practice as a STAR pediatric anesthesiologist, becoming the primary beneficiary of STAR’s guaranteed collections. In 2016, STAR and BHS amended the 2012 agreement, eliminating the pediatric income guarantee. The exclusivity provision remained. STAR terminated its relationship with Shah. Shah could no longer provide pediatric anesthesia services at NCB or any other BHS facility included in the exclusivity agreement. Shah requested authorization to provide pediatric anesthesia care at NCB; BHS responded that Shah’s reappointment to the Medical Staff of BHS and his privileges were approved but the exclusivity provision precluded Shah from providing pediatric anesthesia services at six BHS facilities (including NCB). After unsuccessfully suing STAR in Texas state court, Shah sued under the Sherman Act.The Fifth Circuit affirmed summary judgment in favor of the BHS parties. Shah’s definition of the relevant market is insufficient as a matter of law; it does not encompass all interchangeable substitute products because it does not include the two non-BHS facilities that the BHS parties contend serve as viable alternatives to BHS facilities. View "Shah v. VHS San Antonio Partners, LLC" on Justia Law

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Louisiana bar owners challenged the Governor’s restrictions to the operation of bars in response to COVID-19. The Bar Closure Order prohibited on-site consumption of alcohol and food at “bars,” but permitted on-site consumption of alcohol and food at “restaurants.” Two district courts denied the bar owners’ motions for preliminary injunctive relief. The Fifth Circuit affirmed, rejecting an argument under the Equal Protection Clause of the Fourteenth Amendment. The court applied “rational basis” review. The classification at issue is based on a business permit, and does not differentiate on the basis of a suspect class. The Bar Closure Order’s differential treatment of bars operating with AG permits is at least rationally related to reducing the spread of COVID-19 in higher-risk environments. A classification does not fail rational-basis review because it is not made with mathematical nicety or because in practice it results in some inequality. View "Big Tyme Investments, L.L.C. v. Edwards" on Justia Law

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R & F Financial Services, LLC, appealed a district court order dismissing its claims against Cudd Pressure Control, Inc., and RPC, Inc., and granting Cudd’s and RPC’s counterclaims and cross claims. North American Building Solutions, LLC (“NABS”) and Cudd Pressure Control, Inc. (“Cudd”) entered into an agreement where Cudd would lease from NABS 60 temporary housing modules for employee housing. The terms of the Lease required Cudd, at its sole expense, to obtain any conditional use permits, variances or zoning approvals “required by any local, city, township, county or state authorities, which are necessary for the installation and construction of the modules upon the Real Property.” The Lease was set to commence following substantial completion of the installation of all the modules and was to expire 60 months following the commencement date. NABS assigned its interest in 28 modules under lease to R & F; NABS sold the modules to R & F by bill of sale. Cudd accepted the final 32 modules from NABS, to which R & F was not a party. RPC, as the parent company of Cudd, guaranteed Cudd’s performance of payment obligations to R & F under the Lease. The Lease was for a set term and did not contain an option for Cudd to purchase the modules at the expiration of that set term. At the time R & F purchased NABS’s interest in the Lease, it understood the purpose of the Lease was to fulfill Cudd’s need for employee housing. The County required a conditional use permit for workforce housing, and Cudd had been issued a permit allowing for the use of the modules as workforce housing. The City of Williston annexed the Property within its corporate limits. Thereafter, the City adopted a resolution that declared all workforce housing was temporary and extension of permits was subject to review. The City modified the expiration date policy and extended all approvals for workforce housing facilities to December 31, 2015, such that all permits would expire the same day. In December 2015, Cudd successfully extended its permit for the maximum time permitted to July 1, 2016. Cudd sent a letter to NABS stating that it viewed the Lease as being terminated by operation of law as of July 1, 2016. R & F argued the trial court erred in finding the Lease was not a finance lease and, in the alternative, that the court erred in finding the doctrines of impossibility of performance and frustration of purpose to be inapplicable. Finding no reversible error, the North Dakota Supreme Court affirmed. View "R & F Financial Services v. North American Building Solutions, et al." on Justia Law

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Plaintiff DIA Brewing Co., LLC contended that after the district court entered an order dismissing this action pursuant to C.R.C.P.12(b)(1), C.R.C.P. 15(a) gave DIA Brewing the right to amend its complaint as a matter of course and without leave of the court or the consent of defendants because no responsive pleading had been filed. Defendants MCE-DIA, LLC and Richard Schaden (collectively, “MCE-DIA”), in contrast, contended that the C.R.C.P. 12(b)(1) dismissal resulted in a final judgment that cut off DIA Brewing’s right to amend as a matter of course under C.R.C.P. 15(a). Thus: if DIA Brewing wanted to amend, it was required to seek leave of the court or to obtain MCE-DIA’s written consent. The Colorado Supreme Court granted certiorari to resolve this dispute, and concluded a final judgment cuts off a plaintiff’s right to file an amended complaint as a matter of course under C.R.C.P. 15(a), and the dismissal order here was a final judgment. Therefore, DIA Brewing did not have the right to amend its complaint as a matter of course, but obligated to request the trial court for leave to amend, or indicate MCE-DIA had consented in writing to the filing of an amended complaint. In this case, the Supreme Court determined the amended pleading was not futile, stating viable claims for relief. The Court thus affirmed the appellate court, though on different grounds, and remanded this case with directions that this case be returned to the district court to accept DIA Brewing’s amended complaint for filing, after which MCE-DIA could respond in the ordinary course. View "Schaden v. DIA Brewing Co., LLC" on Justia Law

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Sterling Bank purchased Damian Services. The stock purchase agreement set up a two-million-dollar escrow to resolve disputes arising after the purchase and established comprehensive rights, obligations, remedies, and procedures for resolving disputes. After the purchase, a former Damian employee called some of Damian’s clients to tell them of a billing practice that the sellers had instituted years earlier. When Sterling learned of the situation, it investigated with the help of a forensic accountant. Sterling concluded that under the sellers’ management, Damian had overcharged its clients by over one million dollars. Sterling refunded the overpayments to its current clients, then unsuccessfully demanded indemnification from the escrow, claiming that the sellers had misrepresented Damian’s liabilities and vulnerability to litigation.The district court granted the sellers summary judgment, reasoning that Sterling missed the deadline for claiming indemnification under the stock purchase agreement. The court denied the sellers’ request for statutory interest on the escrow money.The Seventh Circuit reversed. Whether Sterling’s demand for indemnification was late depends on disputed facts. Even if the demand was late, however, the agreement’s elaborate terms provide that any delay could be held against Sterling only “to the extent that [sellers] irrevocably forfeit[] rights or defenses by reason of such failure.” Undisputed facts show that the sellers have not irrevocably forfeited any claims or defenses. View "Sterling National Bank v. Block" on Justia Law

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In 2007, GM sold a power plant to DTEPN, which leased the land under the plant for 10 years. DTEPN agreed to sell utilities produced at the plant to GM, to maintain the plant according to specific criteria, and to address any environmental issues. DTEPN’s parent company, Energy, guaranteed DTEPN’s utility, environmental, and maintenance obligations. Two years later, GM filed for bankruptcy. GM and DTEPN agreed to GM’s rejection of the contracts. DTEPN exercised its right to continue occupying the property. An environmental trust (RACER) assumed ownership of some GM industrial property, including the DTEPN land. DTEPN remained in possession until the lease expired. RACER then discovered that DTEPN had allowed the power plant to fall into disrepair and contaminate the property.The district court dismissed the claims against Energy, reasoning that RACER’s allegations did not support piercing the corporate veil and Energy’s guaranty terminated after GM rejected the contracts in bankruptcy.The Sixth Circuit reversed. Michigan courts have held that a breach of contract can justify piercing a corporate veil if the corporate form has been abused. By allegedly directing its wholly-owned subsidiary to stop maintaining the property, Energy exercised control over DTEPN in a way that wronged RACER. DTEPN is now judgment-proof because it was not adequately capitalized by Energy. RACER would suffer an unjust loss if the corporate veil is not pierced. Rejection in bankruptcy does not terminate the contract; the contract is considered breached, 11 U.S.C. 365(g). The utility services agreement and the lease are not severable from each other. Energy guaranteed DTEPN’s obligations under the utility agreement concerning maintenance, environmental costs, and remediation, so Energy’s guaranty is joined to DTEPN’s section 365(h) election. View "EPLET, LLC v. DTE Pontiac North, LLC" on Justia Law

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Defendant was a successful franchise operator of several tax preparation businesses under the umbrella of JTH Tax, Inc. and SiempreTax+ LLC (together, "Liberty Tax"). In this case, Liberty Tax requested that defendant assign it the leases for the franchise properties, as provided for by the Purchase and Sale Agreement (PSA). However, the parties could not agree to terms for the assignment. Liberty Tax subsequently filed suit and defendant countersued. Defendant largely prevailed and was awarded a significant sum of damages. The Fourth Circuit vacated a substantial portion of the damages award but upheld the judgment in defendant's favor. On remand, the district court recalculated damages based on the Fourth Circuit's instructions and then, on defendant's motion, subsequently amended the judgment, increasing the damages based on purportedly new evidence. Both parties appealed again.The Fourth Circuit found no error in the district court's denial of defendant's arguments for reinstatement of much of the original damages. The court explained that the district court did not err in concluding that the Rule 59(e) standard and the mandate rule precluded defendant's disgorgement theory. However, the court found error in the district court's conclusion that defendant met the standard for relief based on newly discovered evidence and in the award of nominal damages. The court concluded that, in the declaration and now on appeal, defendant does not show he exercised reasonable due diligence during the three years of litigation to discover and present evidence of unpaid rent on the Burnside property. Furthermore, nominal damages were unavailable because defendant was awarded compensatory damages to remedy Liberty Tax's breach of contract, regardless of the finding that Liberty Tax also breached the contract by breaching the implied covenant. Accordingly, the court affirmed in part, reversed and vacated in part, and remanded with instructions to recalculae damages. View "JTH Tax, Inc. v. Aime" on Justia Law

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The Court of Chancery granted summary judgment to Plaintiffs in this case involving the removal of one plaintiff from an LLC's board of managers, holding that Plaintiffs were entitled to summary judgment and that Defendants were not entitled to summary judgment.Plaintiffs filed a complaint under 6 Del. C. 18-110 seeking an injunction preventing Lorenzo Roccia's removal from the Skyline Renewables LLC board of managers and a declaration that his purported removal was void. Defendants argued that the removal of Roccia was valid and binding. Both parties filed motions for summary judgment. The Court of Chancery granted summary judgment for Plaintiffs, holding that the individual who removed Roccia was not authorized to do so. View "Roccia v. Mugica" on Justia Law

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Beginning in 2005, petitioner San Joaquin Regional Transit District (District) began discussing with real parties in interest DSS-2731 Myrtle LLC and Sardee Industries, Inc. (collectively, "Sardee") the possible acquisition through negotiated purchase or eminent domain of a two-acre parcel in Stockton on which Sardee operated a manufacturing facility. Correspondence regarding appraisal of the property and Sardee’s rights in eminent domain took place in 2008, but efforts to negotiate a purchase ultimately failed, leading to the filing of an eminent domain complaint in 2010. In April 2011 a stipulated order of possession gave legal possession of the parcel to District with a right of Sardee to occupy a portion of the property as it explored options for a new facility, to wind down its operations and move elsewhere. Sardee undertook to move its Stockton operations to its facility in Lisle, Illinois, which it upgraded to handle ongoing work from its Stockton plant. Under the stipulated order Sardee could occupy the property without charge until March 2012 and until June 30, 2012, by payment of rent. By March 2012 most of its equipment and operations had been relocated; in April 2012 the District abandoned its condemnation action. Following dismissal of the action, Sardee sought damages under Code of Civil Procedure section 1268.620, which permitted an award of damages “after the defendant moves from property in compliance with an order or agreement for possession or in reasonable contemplation of its taking.” District argued the costs involved in closing down Sardee’s Stockton facility and moving all but the items remaining for shipment in March could not be recovered. The trial court disagreed with this all-or-nothing interpretation of the statutory language and concluded Sardee should have been permitted to present its damage claim to a jury, whereupon District filed its petition for writ of mandate, prohibition or other appropriate relief, and sought a stay of the damages trial. The Court of Appeal concurred with the trial court that sufficient evidence supported the court’s finding that Sardee had moved from the property, supporting application of section 1268.620. The District's petition was denied. View "San Joaquin Regional Transit Dist. v. Superior Court" on Justia Law