Justia Business Law Opinion Summaries

The Court of Chancery issued a memorandum opinion in an action brought under Delaware's Corporation Law, section 220 (the "DGCL"). The opinion ordered AmerisourceBergen Corporation to produce certain books and records to Lebanon County Employees Retirement Fund and Teamsters Local 443 Health Services & Insurance Plan (“Plaintiffs”) and granting Plaintiffs leave to take a Rule 30(b)(6) deposition “to explore what types of books and records exist and who has them.” The Company claimed Plaintiffs’ inspection demand, which, among other things, was aimed at investigating possible breaches of fiduciary duty, mismanagement, and other wrongdoing, was fatally deficient because it did not disclose Plaintiffs’ ultimate objective, which was what they intended to do with the books and records in the event that they confirmed their suspicion of wrongdoing. The Company also contended the Court of Chancery erred by holding Plaintiffs were not required to establish a credible basis to suspect actionable wrongdoing. And finally, the Company argued the Court of Chancery erred as a matter of law when it allowed Plaintiffs to take a post-trial Rule 30(b)(6) deposition. After review, the Delaware Supreme Court held that when a Section 220 inspection demand stated a proper investigatory purpose, it did not need to identify the particular course of action the stockholder will take if the books and records confirm the stockholder’s suspicion of wrongdoing. In addition, the Court held that, although the actionability of wrongdoing can be a relevant factor for the Court of Chancery to consider when assessing the legitimacy of a stockholder’s stated purpose, an investigating stockholder was not required in all cases to establish the wrongdoing under investigation was actionable. Finally, the Court found the Court of Chancery’s allowance of the post-trial deposition was not an abuse of discretion. View "Amerisourcebergen Corp v. Lebanon County Employees' Retirement Fund" on Justia Law

Plaintiffs-appellants were two of three founding owners, investors, and directors of Energy Efficient Equity, Inc. (“E3” or the “Corporation”), a Delaware corporation operating in the property-assessed, clean-energy financing industry. After a series of financing transactions with WR Capital Partners, LLC (“WR Capital”), plaintiffs filed suit against WR Capital and its representatives. Among other claims, plaintiffs alleged that defendants breached their fiduciary duties and were unjustly enriched when they negotiated and approved the financing transactions that allowed them to take control of E3 from the founders. During the litigation, plaintiffs entered into a settlement agreement and two stock repurchase agreements. Plaintiffs settled with some of the defendants in exchange for payments and the sale of the plaintiffs’ stock to E3. The Settlement Agreement contained a release, but carved out claims that the plaintiffs wanted to continue to pursue against the non-settling WR Capital and its representatives. An inconsistency between the agreements arose, however, because the Stock Repurchase Agreements transferred “all of Seller’s right, title, and interest” in E3 stock while only the Settlement Agreement contained a carve out for claims against the non-settling defendants (the “Release Carve Out”). After the partial settlement, the Court of Chancery granted defendants’ motion to dismiss, finding plaintiffs could not import the Settlement Agreement’s Release Carve Out into the Stock Repurchase Agreements; plaintiffs lost standing to pursue their direct breach of fiduciary duty claims when they sold their E3 stock; and plaintiffs’ unjust enrichment claims were duplicative of their breach of fiduciary duty claims and traveled with the sale of E3 stock. On appeal, plaintiffs argued the Court of Chancery should have found that the Stock Repurchase Agreements incorporated by reference the Settlement Agreement. If that was the case, plaintiffs claimed they could preserve their claims against the remaining defendants. In the alternative, plaintiffs fell back on the argument that their breach of fiduciary duty claims were personal and did not attach to the stock sold as part of the settlement. In addition, they argued the unjust enrichment claims were independent of the breach of fiduciary duty claims. The Delaware Supreme Court affirmed the Court of Chancery: while plaintiffs had an argument that the parties intended to treat the three agreements as a unitary transaction through incorporation by reference, the Settlement Agreement’s Release Carve Out confilcted with the complete transfer of all right, title, and interest in the plaintiffs’ E3 stock under the Stock Repurchase Agreements. In the event of a conflict, the Stock Repurchase Agreements plainly stated their terms controlled. Plaintiffs’ remaining claims were also part of the rights accompanying the E3 stock sale, and the unjust enrichment claim traveled with the E3 stock when repurchased by E3. View "Urdan v. WR Capital Partners, LLC" on Justia Law

The Court of Chancery granted Defendants' motion to dismiss Harley Franco's action filed under 6 Del. C. 18-110 and 6 Del. C. 18-111 seeking a declaration that because Franco no longer agreed to Doug Houghton's continued service on the Avalon Freight Services LLC Board of Directors, Houghton must be removed from the Board, holding that section 3.1 of the Avalon LLC Agreement did not empower Franco to unilaterally remove Houghton from the Board.Franco interpreted section 3.1's requirement that the fifth director of the Avalon Board - Houghton - be mutually agreement upon and appointed by Franco and one other director to mean that if Franco no longer agreed to houghton's continued service, Houghton must be removed from the Board. The Court of Chancery dismissed the action, holding that that Franco may not unilaterally remove Houghton from the Avalon Board. View "Franco v. Avalon Freight Services LLC" on Justia Law

The defendants sell shaker tubes in grocery stores across the country, with labels advertising “100% Grated Parmesan Cheese.” The products are not 100 percent cheese but contain four to nine percent added cellulose powder and potassium sorbate, as indicated on the ingredient list on the back of the package. Plaintiffs claim that these ingredient lists show that the prominent “100%” labeling is deceptive under state consumer-protection laws. The Judicial Panel on Multidistrict Litigation transferred numerous similar actions to the Northern District of Illinois for consolidated pretrial proceedings. That court ultimately dismissed the plaintiffs’ deceptive labeling claims (100% claims) with prejudice.The Seventh Circuit reversed in part. Plaintiffs have plausibly alleged that the prominent “100%” labeling deceives a substantial portion of reasonable consumers, and their claims are not preempted by federal law. An accurate fine-print list of ingredients does not foreclose as a matter of law a claim that an ambiguous front label deceives reasonable consumers. Many reasonable consumers do not instinctively parse every front label or read every back label before purchasing groceries. For reasons specific to multidistrict litigation, the court concluded that it lacked appellate jurisdiction to review the dismissal of the 100% claims in two complaints because the appeals were filed too late. View "Bell v. Albertson Companies, Inc." on Justia Law

In this case involving the proper scope of the litigation privilege in Ohio the Supreme Court reversed the judgment of the court of appeals affirming the judgment of the trial court granting judgment on the pleadings concluding that certain actions of the Certified Steel Stud Association's directors were protected by the litigation privilege, holding that judgment on the pleadings was inappropriate.ClarkDietrich previously sued the Association alleging that the Association made defamatory statements about ClarkDietrich's products. William Gardner and Edward Slish (together, Appellees) were members of the Association's board of directors at that time. The jury returned a verdict in favor of ClarkDietrich. John Reister, who was subsequently appointed as a receiver on behalf of the Association, filed this action claiming that Appellees breached their fiduciary duties by mishandling the ClarkDietrich litigation. The court of appeals affirmed, concluding that Appellees' actions were protected under the litigation privilege rule. The Supreme Court reversed, holding (1) the litigation privilege protects statements, not actions; and (2) the decision to grant judgment on the pleadings was improper in this case. View "Reister v. Gardner" on Justia Law

Siemens shipped two electrical transformers from Germany to Kentucky. K+N arranged the shipping, retaining Blue Anchor Line. Blue Anchor issued a bill of lading, in which Siemens agreed not to sue downstream Blue Anchor subcontractors for any problems arising out of the transport from Germany to Kentucky. K+N subcontracted with K-Line to complete the ocean leg of the transportation. Siemens contracted with another K+N entity, K+N Inc., to complete the land leg of the trip from Baltimore to Ghent. K+N Inc. contacted Progressive, a rail logistics coordinator, to identify a rail carrier. They settled on CSX. During the rail leg from Maryland to Kentucky, one transformer was damaged, allegedly costing Siemens $1,500,000 to fix.Progressive sued CSX, seeking to limit its liability for these costs. Siemens sued CSX, seeking recovery for the damage to the transformer. The actions were consolidated in the Kentucky federal district court, which granted CSX summary judgment because the rail carrier qualified as a subcontractor under the Blue Anchor bill and could invoke its liability-shielding provisions. The Sixth Circuit affirmed. A maritime contract, like the Blue Anchor bill of lading, may set the liability rules for an entire trip, including any land-leg part of the trip, and it may exempt downstream subcontractors, regardless of the method of payment. The Blue Anchor contract states that it covers “Multimodal Transport.” It makes no difference that the downstream carrier was not in privity of contract with Siemens. View "Progressive Rail Inc. v. CSX Transportation, Inc." on Justia Law

In 2009, the president of the International Congress for Joint Reconstruction, Inc. (ICJR) retained Mark Sacaris, part owner of the Center for Healthcare Education and Research, Inc. (CHE), to assist ICJR in producing medical education conferences on the subject of joint-reconstruction surgery. Their agreement was unwritten, and there was no discussion of the rates ICJR would be charged. Sacaris was given full control over ICJR’s money accounts as part of the arrangement. Sacaris used ICJR’s money accounts to pay CHE’s invoices without notifying ICJR’s board members of the amounts ICJR was being charged. Over time, and also without informing the board of ICJR, he increased the scope of CHE’s services, thereby creating additional sources of profit for CHE, and indirectly for himself, but he did not disclose his interest in these arrangements to ICJR. Eventually the ICJR board was informed by Sacaris that ICJR had amassed a $2 million to CHE. ICJR terminated its relationship with Sacaris and CHE. CHE filed suit to recover amounts it claimed it was owed by ICJR under the agreement. ICJR cross-sued Sacaris and CHE, asserting Sacaris secretly profited from his relationship with ICJR. After a bench trial, the court found ICJR liable to CHE for breach of contract. Although the court also found that CHE and Sacaris breached their fiduciary duties to ICJR in earning all four categories of the profits ICJR sought to disgorge, the court awarded ICJR recovery only as to categories two and four. On appeal, ICJR contended the trial court erred in determining that ICJR could not recover disgorgement of CHE and Sacaris’s profits from their undisclosed charges for management services without proof their breach of fiduciary duties caused ICJR to suffer monetary damages. The Court of Appeal agreed ICJR was not required to show it suffered monetary harm to establish a right to disgorgement of CHE and Sacaris' profits from undisclosed charges for event management services. The Court of Appeal reversed that portion of the judgment affected by the error and remanded for the trial court to determine the appropriate amount of the award of disgorgement. However, the Court rejected ICJR’s claim that the court erred in determining that running symposia for pharmaceutical companies was not a corporate opportunity of ICJR. View "Center Healthcare Ed. & Res. v. Internat. Cong. Joint Reconst." on Justia Law

Between 1983-2015, Heneghan was an associated person (AP) of 14 different National Futures Association (NFA)-member firms. Troyer invested hundreds of thousands of dollars in financial derivatives through NFA Members. The first interaction between Troyer and Heneghan was in 2008. After receiving an unsolicited phone call from Heneghan, Troyer invested more than $160,000. Despite changes in Heneghan’s entity affiliation, his working relationship with Troyer remained constant. At one point, Heneghan’s then-firm, Statewide, withdrew from the NFA following an investigation. Heneghan was the subject of a four-month NFA approval-hold in 2012. Troyer began sending money to Heneghan personally in 2013, allegedly to obtain trading firm employee discounts; these investments totaled $82,000. Troyer neither received nor asked for any investment documentation for this investment. In 2016-2015, NFA investigated Heneghan’s then-firm, PMI, Despite Troyer’s alleged substantial investment, no PMI accounts were listed for either Troyer or Heneghan. In 2015, Troyer directed Heneghan to cash out the fund; “all hell broke loose.” In 2016, the NFA permanently barred Heneghan from NFA membership. Troyer filed suit under the Commodities Exchange Act. 7 U.S.C. 25(b).The Seventh Circuit affirmed the summary judgment rejection of Troyer’s claim. NFA Bylaw 301(a)(ii)(D), which bars persons from becoming or remaining NFA Members if their conduct was the cause of NFA expulsion, is inapplicable. Statewide’s agreement not to reapply represented a distinct sanction from expulsion and did not trigger Bylaw 301(a)(ii)(D). View "Troyer v. National Futures Association" on Justia Law

BRC and Continental signed a five-year contract. Continental agreed to supply BRC with “approximately 1.8 million pounds of prime furnace black annually” taken in “approximately equal monthly quantities.” The price of carbon black consists of a baseline price and “feedstock” adjustments. The contract listed baseline prices with instructions for calculating feedstock adjustments. In 2010, BRC bought 2.6 million pounds of carbon black. In early 2011, BRC bought about 1.3 million pounds. In April 2011, supplies were tight. Continental tried to increase baseline prices. BRC replied that the price increase would violate the contract. BRC placed new orders relying on the contract’s prices. Continental did not respond to BRC's protests. On May 11, Continental missed a shipment to BRC. Continental would not confirm future shipment dates or tell BRC when to expect a response. On May 16, BRC formally invoked U.C.C. 2-609, asking for adequate assurance that Continental would continue to supply carbon black under the existing contract, requesting a response by May 18. Continental gave contradictory responses and continued to demand that BRC accept the price increase. On June 2, BRC notified Continental that it was terminating the contract and had filed suit. BRC proceeded to “cover” by buying from another supplier at higher prices.The Seventh Circuit affirmed an order that Continental pay damages. The district court properly applied U.C.C. 2-609 to find that Continental gave BRC reasonable grounds for doubting that it would perform and that Continental repudiated by failing to provide adequate assurance that it would continue to perform. The court properly applied U.C.C. 2-712 to find that cover was commercially reasonable and awarded prejudgment interest. View "BRC Rubber & Plastics, Inc. v. Continental Carbon Co." on Justia Law

The district court granted summary judgment for plaintiff in a derivative suit on behalf of 1-800-Flowers.com against Master Fund, ruling that Master Fund was the beneficial owner of more than ten percent of the shares of 1-800-Flowers, Inc., which were bought and sold within a period of six months, and requiring Master Fund to disgorge $4,909,393 in short-swing profits for violating section 16(b) of the Securities Exchange Act of 1934. Master Fund appealed and plaintiff cross-appealed.The Second Circuit concluded that factual questions remain on the issue of Master Fund's beneficial ownership and therefore remanded. In this case, RCM is a registered investment advisor; Master Fund, Offshore, and QP are customers of RCM; and William C. Martin holds positions in RCM, Master Fund, and Offshore, and indirectly has a role in QP. The relationship among RCM, Master Fund, Offshore, and QP is governed by an Investment Management Agreement (IMA), which was signed by Martin on behalf of all four parties to the agreement.The court concluded that it would be inconsistent with principles concerning section 16(b) of the Securities Exchange Act of 1934 to accept the district court's first reason for rejecting Master Fund's delegation of voting and investing authority to RCM. The court explained that, although Rule 13d-3(a) includes within the definition of a beneficial owner "any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has" voting or investment authority, 17 C.F.R. 240.13d-3(a), using generalized wording such as "intertwined" or "not unaffiliated" to bring a person within the coverage of Rule 13d-3(a) would extend the reach of section 16(b) beyond the text of both the statute and the rule. The court also concluded that making an investment advisor a customer's agent for the specified purpose of carrying out the advisor's traditional functions for a customer does not make the advisor an agent for all purposes. Finally, the court concluded that there remains to be determined as a factual matter whether, under all the relevant circumstances, Martin is in control of Master Fund and the feeder funds with authority to commit these entities to altering or terminating the IMA. View "Packer v. Raging Capital Management, LLC" on Justia Law