Justia Business Law Opinion Summaries

Alliance Data Systems, a company based in Columbus, Ohio, faced mounting debt and responded by selling off side businesses, including spinning off its LoyaltyOne division into a standalone company called Loyalty Ventures Inc. Prior to and during the spinoff, executives publicly described LoyaltyOne’s Canadian AIR MILES program as having strong, long-term sponsor relationships. However, in the period leading up to and following the spinoff, AIR MILES lost several major sponsors, including its second largest, Sobeys, which announced its intention to exit the program shortly before the sponsor’s contract allowed. Loyalty’s financial condition deteriorated, leading to its bankruptcy about a year and a half after the spinoff.Investors, specifically two funds managed by Newtyn Management, brought a class action in the United States District Court for the Southern District of Ohio. They alleged that Alliance Data Systems and individual executives committed securities fraud by making misleading statements or omissions about AIR MILES’s sponsor relationships and LoyaltyOne’s financial health, in violation of Section 10(b) of the Exchange Act and Rule 10b-5. The district court dismissed the complaint, finding that Newtyn had not adequately alleged any actionable misrepresentation or omission, nor had it sufficiently pled that the defendants acted with scienter (intent to defraud).On appeal, the United States Court of Appeals for the Sixth Circuit reviewed the district court’s dismissal de novo. The Sixth Circuit affirmed, holding that the statements cited by Newtyn were either immaterial puffery, accurate historical statements, or accompanied by sufficient cautionary language such that no reasonable investor would have been misled. The court also determined that Newtyn failed to plead a strong inference of scienter and that its related scheme liability and control person claims could not survive absent a primary violation. The judgment dismissing the complaint was affirmed. View "Newtyn Partners, LP v. Alliance Data Systems Corp." on Justia Law

A minor league baseball team in Oregon lost its longstanding affiliation with a Major League Baseball (MLB) club after MLB restructured its relationship with minor league teams in 2020. The team’s owner alleges that a minority owner of an MLB franchise, who also served on the board and a negotiation committee of the national minor league association, acted to reduce the number of minor league clubs for personal gain, which resulted in the team’s exclusion from the new affiliation structure. The owner claims that the association’s rules left it dependent on the board and committee members to protect its interests.The United States District Court for the District of New Jersey dismissed the owner’s complaint, finding that it failed to plausibly allege the existence of a fiduciary relationship between the board member and the team. The owner appealed, arguing that fiduciary duties arose under Florida’s non-profit statute, by contract, or by implication due to the structure of the association and the interactions between the parties.The United States Court of Appeals for the Third Circuit reviewed the District Court’s dismissal de novo. The Third Circuit held that Florida’s non-profit statute does not create a fiduciary duty from a director to the members of the non-profit, only to the corporation itself. The court also found no express or implied fiduciary duty arising from contractual provisions or the surrounding circumstances. The court distinguished direct and derivative actions and concluded that the complaint did not allege facts to support a direct or implied fiduciary relationship. Accordingly, the Third Circuit affirmed the District Court’s dismissal of the complaint for failure to state a claim. View "Sports Enterprises Inc v. Goldklang" on Justia Law

An investor brought a derivative action against the managers of a limited liability company, alleging unauthorized transactions conducted under their management. After a bench trial, the investor lost both at trial and on appeal. The investor’s claims were rejected, and the court awarded costs to the prevailing manager. Although both managers were originally involved in the case, only one remained relevant for the cost award proceedings at this stage.Following the trial and appellate losses, the Superior Court of Los Angeles County awarded costs to the prevailing manager under Code of Civil Procedure section 1032 and California Rules of Court, rule 8.891, which together provide that a prevailing party is generally entitled to recover costs. The plaintiff had previously defeated the manager’s motion for a security bond under Corporations Code section 17709.02, a statute intended to deter frivolous derivative suits. The plaintiff argued that this earlier success on the bond motion should bar any subsequent award of costs, claiming that section 17709.02 overrides the ordinary cost rules.The California Court of Appeal, Second Appellate District, Division Eight, reviewed this argument. The appellate court held that Corporations Code section 17709.02 does not preclude an award of ordinary litigation costs to a prevailing defendant in a derivative action where the bond motion was denied. The court found no statutory language supporting the plaintiff’s position and noted that case law, including Brusso v. Running Springs Country Club, Inc., confirms that the bond statute is special-purpose and does not displace general cost-recovery rules. The appellate court affirmed the Superior Court’s judgment, awarding costs to the prevailing defendant. The court also found that the plaintiff had forfeited several additional arguments by failing to support them with adequate briefing or legal authority. View "Barrios v. Chraghchian" on Justia Law

Under Armour, a publicly traded sports apparel company, faced significant legal claims and government investigations over its financial forecasts and accounting practices following the bankruptcy of a major customer, Sports Authority, in 2016. Shareholders alleged that Under Armour made misleading public statements about its financial prospects and that company insiders sold stock at inflated prices. These allegations led to a federal securities class action, derivative demands, and eventually an SEC investigation into whether Under Armour manipulated its accounting by pulling forward revenue to maintain the appearance of strong growth.In the United States District Court for the District of Maryland, Under Armour’s insurers sought a declaratory judgment, arguing that the securities litigation, derivative actions, and government investigations constituted a single claim under the terms of Under Armour’s directors and officers insurance policies and therefore were subject only to the coverage limit of the earlier policy period. Under Armour countered that the government investigations were a separate claim, entitling it to an additional $100 million in coverage under a subsequent policy. The district court sided with Under Armour, finding that the government investigations and the earlier shareholder claims were not sufficiently related to constitute a single claim under the policy’s language.The United States Court of Appeals for the Fourth Circuit reviewed the district court’s decision de novo. The Fourth Circuit held that, under the plain meaning of the 2017–2018 insurance policy’s “single claims” provision, the claims related to Under Armour’s public financial statements and its accounting practices were “logically or causally related” and thus constituted a single claim. As a result, only the coverage limits from the earlier, 2016–2017 policy period applied. The Fourth Circuit reversed the district court’s judgment in favor of Under Armour. View "Navigators Insurance Co. v. Under Armour, Inc." on Justia Law

The case centers on a dispute between a former employee and his employer regarding an alleged agreement to transfer company stock. The plaintiff, who had worked for the employer for many years and was promoted several times, claimed that he was promised a portion of stock if he remained employed through a specific date. This promise was allegedly memorialized in a 2018 letter from one of the company’s owners. After the plaintiff fulfilled his employment commitment but did not receive the stock, he sued the company and several individuals for promissory estoppel, fraud, and breach of contract.Previously, the District Court of the Fourth Judicial District, Ada County, reviewed the case. The court granted summary judgment to two individual defendants, dismissing them from the suit. The plaintiff’s claims against the remaining defendants proceeded to a bench trial. After trial, the district court found in favor of the company and its owner on all counts, concluding there was no enforceable contract due to the absence of an essential term—price—and insufficient evidence of fraud. The court also awarded attorney fees to both the company and the owner.The Supreme Court of the State of Idaho affirmed the district court’s dismissal of the breach of contract and fraud claims, agreeing that the 2018 letter did not create an enforceable contract and that there was no clear and convincing evidence of fraud. The Supreme Court also affirmed the award of attorney fees to the owner but vacated the fee award to the company, finding the company’s initial fee request procedurally deficient. The case was remanded for entry of an amended judgment consistent with these findings. Attorney fees and costs on appeal were awarded to the owner, but not to the company. View "York v. Kemper Northwest, Inc." on Justia Law

A publicly traded investment banking corporation entered into a stockholders agreement with an entity controlled by its founder in 2014, contemporaneous with its initial public offering. The agreement granted the founder’s entity extensive governance rights, including restrictions on board actions and control over board and committee composition, provided certain ownership and other conditions remained met. These arrangements and the founder’s control were disclosed in the company’s IPO prospectus and subsequent public filings. Nearly nine years later, a Class A stockholder filed suit seeking a declaratory judgment that key provisions of the stockholders agreement were facially invalid under Section 141(a) of the Delaware General Corporation Law, which vests management authority in the board of directors unless otherwise provided in the certificate of incorporation.The Court of Chancery of the State of Delaware denied the company’s time-bar and laches defenses, holding that if the challenged provisions violated Section 141(a), they were void rather than voidable, and therefore not subject to equitable defenses like laches. The court further reasoned that the alleged statutory violation was ongoing, so the claim was not untimely even though it was brought many years after the agreement was executed. The court proceeded to find that several provisions of the stockholders agreement facially violated Section 141(a), declared them void and unenforceable, and later awarded attorney fees to the plaintiff.On appeal, the Supreme Court of the State of Delaware reversed. It held that to the extent the challenged provisions conflicted with Section 141(a), they were voidable—not void—and thus subject to equitable defenses, including laches. The Supreme Court concluded that the plaintiff’s claim accrued when the agreement was executed in 2014, that the delay in bringing suit was unreasonable, and that the claim was barred by laches. The Supreme Court vacated the declaratory judgment and fee award, declining to reach the merits of the facial validity of the agreement’s provisions. View "Moelis & Company v. West Palm Beach Firefighters' Pension Fund" on Justia Law

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