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

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

Aquarian Foundation, Inc., a non-profit religious organization, alleged that Bruce Lowndes infringed on its copyrights by uploading spiritual teachings of its late founder, Keith Milton Rhinehart, to various websites. Lowndes claimed he had a license from Rhinehart, granted in 1985, to use the materials. Rhinehart passed away in 1999, bequeathing his estate, including the copyrights, to Aquarian.The United States District Court for the Western District of Washington granted partial summary judgment, confirming that Rhinehart's copyrights were properly transferred to Aquarian via his will. After a bench trial, the court ruled against Aquarian on its claims of copyright infringement, trademark infringement, and false designation of origin. The court found that Rhinehart created the works as his own, not as works for hire, and that he had validly licensed them to Lowndes. The court also determined that Lowndes did not breach the licensing agreement and that Aquarian could not terminate the license under 17 U.S.C. § 203(a). The court denied attorneys’ fees to both parties.The United States Court of Appeals for the Ninth Circuit affirmed the district court’s findings that Rhinehart’s works were not created as works for hire, that he validly licensed the works to Lowndes, and that Lowndes did not breach the licensing agreement. The court also affirmed the decision not to award Lowndes attorneys’ fees under the Lanham Act. However, the Ninth Circuit reversed the district court’s determination regarding the termination of the license, holding that Aquarian’s termination letter in May 2021 was effective. The case was remanded for further proceedings to address any infringement that may have occurred after the license termination, as well as the denial of injunctive relief and attorneys’ fees under the Copyright Act. View "AQUARIAN FOUNDATION, INC. V. LOWNDES" on Justia Law

Movant-Appellee Nabors Drilling USA, L.P. filed for reorganization under Chapter 11 of the Bankruptcy Code. That filing triggered the automatic stay under 11 U.S.C. 362(a)(1), which generally applied to protect a debtor after it has filed for bankruptcy protection. The question presented in this case was whether that stay applied to a lawsuit filed by appellant-plaintiff Jeremy Porter, who has asserted a claim under California’s Private Attorney General Act of 2004 (“PAGA”). Porter contended the exception established in 11 U.S.C. 362(b)(4) applied to exempt his PAGA claim from the automatic stay. The Ninth Circuit concluded that the exception does not apply to a claim brought by a private party under PAGA, and therefore granted Nabors’s motion to recognize the automatic stay. View "Porter v. Nabors Drilling USA, L.P." on Justia Law

The SBA guaranteed a loan between a private bank and Michael Bensal's company, BCI. The private bank filed suit against BCI as the borrower and Bensal as a personal guarantor after BCI defaulted on the loan. The private bank recovered a default judgment and assigned that judgment to the SBA. Bensal later received an inheritance from his father's trust that he did not accept and, instead, disclaimed. Bensal's disclaimer of the inheritance legally passed his trust share to his two children and prevented creditors from accessing his trust share under California law. The SBA filed suit seeking to satisfy the default judgment. The court held that the Fair Debt Collection Practices Act (FDCPA), 28 U.S.C. 3301-3308, displaces California's disclaimer law. In this case, the court concluded that Bensal's disclaimer constitutes a transfer of property under the FDCPA, and California disclaimer law did not operate to prevent the SBA from reaching Bensal's trust share. The court also concluded that the portion of the default judgment based on the second loan, which was guaranteed by the SBA, was a debt within the meaning of the FDCPA. Accordingly, the court affirmed the judgment. View "SBA v. Bensal" on Justia Law

Plaintiffs, shareholders of Wynn Resorts, challenged two actions the board took on behalf of its subsidiary Wynn Macau: a 2011 decision to donate $135 million to the University of Macau Development Foundation, and a 2012 decision to redeem the shares held by a former director named Kazuo Okada, who was the only director to vote against the donation. Plaintiffs filed a derivative action, alleging that the director defendants breached their fiduciary duties and committed corporate waste by approving the Macau donation because the donation caused the company to incur legal expenses and be exposed to potential liability. Plaintiffs also allege that defendants breached their fiduciary duties by redeeming Okada’s shares because such action had no legitimate purpose and merely encumbered the company with a higher debt load. The district court dismissed the amended complaint. At issue is whether shareholders may pursue a derivative lawsuit against a corporation’s board of directors despite their failure to demand that the board initiate this litigation itself. Plaintiffs argued that demand would be futile. As a preliminary matter, the court concluded that jurisdiction is improper under 28 U.S.C. 1332(a)(2) because both plaintiffs and some defendants are American citizens; one of the defendants is neither a citizen of a State nor a citizen of a foreign state for jurisdiction under section 1332(a)(3); but, the court dismissed that defendant as a dispensable party under Rule 19 in order to make jurisdiction under section 1332(a)(3) proper. On the merits, the court concluded that the district court did not abuse its discretion in determining that the shareholders failed to comply with Rule 23.1 or state law governing demand futility. The court concluded that plaintiffs' broad-based domination theory is simply too speculative and insufficiently particularized to satisfy the heightened pleading requirements of Rule 23.1; the court rejected plaintiffs' theory that demand is excused based on allegations that the directors face a substantial likelihood of liability for approving the Macau donation; and the court rejected plaintiffs' theory that demand is futile because there is a reasonable doubt that the directors will be entitled to the business judgment rule if the Okada redemption is challenged in court. Finally, the court rejected plaintiffs' claim that the district court illicitly considered materials extraneous to the complaint. Accordingly, the court affirmed the judgment. View "LMPERS v. Wynn" on Justia Law

Marcus Katz contributed stock to MK Hillside, a partnership between him and his wholly owned corporation. After the IRS issued a Final Partnership Administrative Adjustment (FPAA) to MK Hillside on January 2, 2008, finding that MK Hillside was a sham, lacked economic substance, and was formed and used principally to avoid taxes, Katz petitioned the tax court contesting the finding and asserting the statute of limitations. The IRS determined that 26 U.S.C. 6501(e)(1)'s six-year statute of limitations applied because Katz’s omission of the $198,000 credit from a collar termination on his 1999 return constituted more than 25% of the gross income reported on the return. The tax court denied summary judgment, holding that a trial would be necessary to determine whether Katz in fact omitted substantial income from his 1999 return. To avoid a trial, the parties agreed to a Stipulation of Facts and a Second Stipulation of Settled Issues. Based on those stipulations, the tax court held that the period for assessing tax on the 1999 MK Hillside partnership items was open as to Katz. The court concluded that, because the tax court had jurisdiction to consider Katz's argument, it necessarily had jurisdiction to reject it, at least for purposes of the partnership proceeding. Accordingly, the court affirmed the judgment. View "MK Hillside Partners v. Commissioner" on Justia Law

Millennium filed suit against Ameritox, alleging claims of trade dress infringement under the Lanham Act, 15 U.S.C. 1125(a), and unfair competition under California Business and Professions Code section 17200. Millennium and Ameritox compete in the medication monitoring industry, and sell urine-testing services to healthcare providers who treat chronic pain patients with powerful pain medications. The district court granted Ameritox summary judgment. At issue is whether a product’s visual layout is functional, defeating a claim for trade dress infringement. The court concluded that, under the Au-Tomotive Gold two-step test, the district court erred by granting summary judgment to Ameritox on Millennium’s trade dress claim. In regard to the first step, genuine issues of material fact remain regarding whether Millennium's claimed trade dress has any utilitarian advantages. Under the second step, because Millennium has presented evidence that the graphical format served in part a source identifying function, Millennium has presented enough evidence to allow a jury to assess the question of aesthetic functionality. Accordingly, the court reversed and remanded. View "Millennium Labs. v. Ameritox, Ltd." on Justia Law

Millennium filed suit against Ameritox, alleging claims of trade dress infringement under the Lanham Act, 15 U.S.C. 1125(a), and unfair competition under California Business and Professions Code section 17200. Millennium and Ameritox compete in the medication monitoring industry, and sell urine-testing services to healthcare providers who treat chronic pain patients with powerful pain medications. The district court granted Ameritox summary judgment. At issue is whether a product’s visual layout is functional, defeating a claim for trade dress infringement. The court concluded that, under the Au-Tomotive Gold two-step test, the district court erred by granting summary judgment to Ameritox on Millennium’s trade dress claim. In regard to the first step, genuine issues of material fact remain regarding whether Millennium's claimed trade dress has any utilitarian advantages. Under the second step, because Millennium has presented evidence that the graphical format served in part a source identifying function, Millennium has presented enough evidence to allow a jury to assess the question of aesthetic functionality. Accordingly, the court reversed and remanded. View "Millennium Labs. v. Ameritox, Ltd." on Justia Law

Plaintiffs filed a putative class action against defendants, a group of developers and their agents or affiliates, claiming that defendants' business practices violated California's Unfair Competition Law (UCL), Cal. Bus. & Prof. Code 17200 et seq. Plaintiffs specifically alleged that defendants failed to make certain disclosures as required by the Interstate Land Sales Full Disclosure Act (ILSA), 15 U.S.C. 1701 et seq. Although defendants concede that they failed to comply with the disclosure requirements, they raise certain affirmative defenses. The district court rejected defendants' claims and granted partial summary judgment for plaintiffs. In this interlocutory appeal, the court affirmed the judgment. The court concluded that, because the UCL's four-year statute of limitations and its accompanying accrual rules apply, the district court properly concluded that plaintiffs’ UCL claim is not time-barred; defendants failed to overcome the strong presumption against preemption, and ILSA’s three-year statute of limitations does not bar plaintiffs’ UCL claim; plaintiffs' units are "lots" and are therefore subject to ILSA's disclosure requirements; the Improved Lot Exemption does not extinguish plaintiffs’ claims; the text and interpretive history of the statute lead to the conclusion that the agency’s interpretation of “lot” is reasonable and entitled to Chevron deference; and the 2014 Amendment to ILSA does not retroactively apply to the present action where the amendment was a substantive change in the law. Accordingly, the court affirmed the judgment. View "Beaver v. Tarsadia Hotels" on Justia Law