Justia Business Law Opinion Summaries

Cherry Oil is a closely held corporation in eastern North Carolina, primarily owned and managed by members of the Cherry and Mauck families. Armistead and Louise Mauck, who together own 34% of the company’s shares, became involved in the business after Armistead was invited to join during a period of financial difficulty. In 1998, the families formalized their relationship through a Shareholder Agreement, which included provisions allowing either party to force a buyout of shares at fair market value. Over time, disputes arose regarding management and succession, culminating in the Maucks’ removal from the board and Cherry Oil’s attempt to buy out their shares. The buyout process stalled, leaving the Maucks as minority shareholders no longer employed by the company.The Maucks filed suit in Superior Court, Lenoir County, asserting claims for judicial dissolution under N.C.G.S. § 55-14-30, breach of fiduciary duty, constructive fraud, and breach of the Shareholder Agreement. The case was designated a mandatory complex business case and assigned to the North Carolina Business Court. The Business Court dismissed most claims, including the judicial dissolution claim for lack of standing, finding that the Shareholder Agreement’s buyout provision provided an adequate remedy. It also dismissed other claims for reasons such as untimeliness and insufficient factual allegations. The court later granted summary judgment to defendants on the remaining claims, concluding that the actions taken by the Cherry family were valid corporate acts and that the Maucks had not demonstrated breach of duty or contract.On appeal, the Supreme Court of North Carolina held that the Maucks did have standing to seek judicial dissolution but affirmed the dismissal of that claim under Rule 12(b)(6), finding that the Shareholder Agreement’s buyout provision provided a sufficient remedy and that the complaint did not allege facts showing dissolution was reasonably necessary. The Supreme Court otherwise affirmed the Business Court’s rulings. View "Mauck v. Cherry Oil Co." on Justia Law

A real estate investment trust that specializes in purchasing and leasing properties to cannabis companies was defrauded by one of its tenants, Kings Garden, which submitted fraudulent reimbursement requests for capital improvements. The trust paid out over $48 million based on these requests before discovering irregularities, such as forged documentation and payments for work that was not performed. After uncovering the fraud, the trust sued Kings Garden and disclosed the situation to the market, which led to a decline in its stock price.Following these events, several shareholders filed a putative class action in the United States District Court for the District of New Jersey, alleging violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The shareholders claimed that the trust and its executives made false or misleading statements about their due diligence, tenant monitoring, and the nature of reimbursements, and that these misstatements caused their losses when the fraud was revealed. The District Court dismissed the complaint with prejudice, finding that while some statements could be misleading, the plaintiffs failed to plead facts giving rise to a strong inference of scienter, as required by the Private Securities Litigation Reform Act.On appeal, the United States Court of Appeals for the Third Circuit affirmed the District Court’s dismissal. The Third Circuit held that most of the challenged statements were either non-actionable opinions, not false or misleading, or not sufficiently specific. For the one statement plausibly alleged to be false or misleading, the court found that the facts did not support a strong inference that the statement’s maker acted with scienter. The court also rejected the application of corporate scienter and found no basis for control-person liability under Section 20(a) in the absence of a primary violation. View "Handal v. Innovative Industrial Properties Inc" on Justia Law

Several national securities exchanges challenged a 2024 rule adopted by the Securities and Exchange Commission (SEC) that lowered the cap on fees exchanges may charge investors for executing orders. The SEC had previously set a cap of 30 mils ($0.003) per share for stocks priced at or above $1, and 0.3% of the quotation price for stocks below $1. In 2024, after gathering new data and considering market developments, the SEC reduced these caps to 10 mils for stocks priced at or above $1, and 0.1% for stocks below $1. The SEC explained that the changes were necessary to address market distortions and to align fee caps with reduced minimum tick sizes, thereby promoting price transparency and market efficiency.After the SEC adopted the new rule, several exchanges petitioned the United States Court of Appeals for the District of Columbia Circuit for review, arguing that the SEC exceeded its statutory authority and acted arbitrarily or capriciously. The SEC agreed to stay the amendment pending judicial review. The exchanges contended that the SEC lacked authority to impose an industry-wide fee cap and that, if it had such authority, it was required to proceed on an exchange-by-exchange basis. They also argued that the SEC’s decision-making was arbitrary, particularly in its assessment of market effects and its choice of the 10-mil cap.The United States Court of Appeals for the District of Columbia Circuit held that the SEC acted within its statutory authority under the Securities Exchange Act of 1934, as amended, which grants the SEC broad discretion to regulate the national market system, including the power to set universal access-fee caps. The court further found that the SEC’s rulemaking was not arbitrary or capricious, as the agency reasonably considered relevant issues, explained its decision, and relied on both economic theory and empirical data. The petition for review was denied. View "Cboe Global Markets, Inc. v. SEC" on Justia Law

A group of dentists, who are both members of a nonprofit mutual benefit corporation and parties to provider agreements with that corporation, challenged the corporation’s decision to unilaterally amend its fee schedules and related rules. The provider agreements allowed the corporation to set the fees paid to dentists for services rendered to plan enrollees, and the agreements, as amended by a 2018 settlement, expressly permitted the corporation to make unilateral changes to the fee structure with 120 days’ notice, during which dentists could terminate their agreements if they did not accept the new terms. In 2022, the corporation announced further amendments that, according to the dentists, reduced fees and altered the fee determination process. The dentists alleged that these changes breached the implied covenant of good faith and fair dealing in their provider agreements and that certain directors breached fiduciary duties owed to them as members.The Superior Court of San Francisco City and County sustained demurrers by all defendants without leave to amend. The court found that the corporation could not breach the implied covenant by exercising rights expressly granted in the agreements, and that the directors owed no fiduciary duty to the dentists in connection with the corporation’s exercise of its contractual rights to amend fee schedules.The California Court of Appeal, First Appellate District, Division One, affirmed the trial court’s judgment. The court held that the implied covenant of good faith and fair dealing cannot be used to override or limit a party’s express contractual right to unilaterally amend fee schedules, provided the contract is supported by consideration and the changes are prospective, with adequate notice and an opportunity to terminate. The court also held that directors of a nonprofit mutual benefit corporation owe fiduciary duties to the corporation itself, not to individual members in their capacity as contracting parties. View "California Dental Assn. v. Delta Dental of California" on Justia Law

A company that supplies allergy testing materials and personnel to primary-care physicians in Tennessee alleged that several insurers and a dominant allergy-care medical group conspired to drive it and its contracting physicians out of the market. The company provided technicians and supplies to physicians, who then billed insurers for allergy services. The company claimed that the insurers and the medical group coordinated audits, denied claims, and set restrictive reimbursement policies, which led physicians to stop using its services and caused it financial harm.The United States District Court for the Eastern District of Tennessee dismissed the company’s federal antitrust claims at the pleading stage, finding it lacked standing to sue under the antitrust laws, and later granted summary judgment to the defendants on the company’s state-law tort claims. The company appealed both the dismissal of its antitrust claims and the grant of summary judgment on its tort claims.The United States Court of Appeals for the Sixth Circuit affirmed the district court’s decisions. The Sixth Circuit clarified that, under federal antitrust law, a plaintiff must show both antitrust injury and proximate causation. The court held that the company’s injuries were only indirect, as they resulted from harms inflicted on the physicians, who were the direct victims of the alleged anticompetitive conduct. Applying the Supreme Court’s rule from Illinois Brick Co. v. Illinois, the court found that indirect sellers—those two or more steps removed in the distribution chain—may not sue for antitrust violations. The court also affirmed summary judgment on the state-law claims, concluding that the company failed to show either malice or causation as required for tortious interference, and that its civil conspiracy claim could not survive without an underlying tort. View "Academy of Allergy & Asthma in Primary Care v. Amerigroup Tennessee, Inc." on Justia Law

A pathologist who was an officer, director, shareholder, and employee of a closely held professional corporation was subject to annual employment agreements and the corporation’s bylaws, which required shareholders to be employed by the corporation. The employment agreement allowed for termination “for any reason or no reason,” and the bylaws provided that a shareholder who ceased to be an employee would have their shares redeemed at book value. After several incidents involving the pathologist’s performance, the board voted not to renew his employment agreement. As a result, his employment ended, and the corporation sought to redeem his shares at book value, as specified in the bylaws.The pathologist filed suit in the District Court for Lancaster County, alleging breach of fiduciary duty, shareholder oppression justifying judicial dissolution, and seeking declaratory relief regarding the value of his shares and the enforceability of a noncompetition provision. The corporation moved for summary judgment. The district court granted summary judgment in part, dismissing claims related to termination of employment and the noncompetition provision, but allowed discovery and further proceedings on the valuation and redemption of shares. After additional discovery, the corporation again moved for summary judgment. The district court granted summary judgment on the remaining claims, finding no genuine issue of material fact and that the corporation had acted in accordance with the agreements. The court also denied the pathologist’s motions to compel further discovery and to continue the summary judgment hearing.On appeal, the Nebraska Supreme Court reviewed the grant of summary judgment de novo and the discovery rulings for abuse of discretion. The court held that the pathologist had no reasonable expectation of continued employment given the clear terms of the agreements he signed, and that the corporation’s actions in redeeming his shares at book value did not constitute a breach of fiduciary duty or shareholder oppression. The court affirmed the district court’s judgment in all respects. View "Noel v. Pathology Med. Servs." on Justia Law

A group of investors who purchased American Depository Shares in a Spanish engineering and construction company alleged that the company manipulated its financial records to conceal a liquidity crisis, which ultimately led to its bankruptcy. The investors claimed that the company’s registration statement for its U.S. offering contained false statements about its accounting practices, specifically regarding the use of the percentage-of-completion method for recognizing revenue. They also alleged that company executives and underwriters were involved in or responsible for these misrepresentations. The complaint relied on information from confidential witnesses and findings from Spanish criminal proceedings and regulatory investigations, which described widespread accounting fraud and the deliberate inflation of project revenues.The United States District Court for the Southern District of New York dismissed the investors’ claims under both the Securities Act of 1933 and the Securities Exchange Act of 1934. The district court found the Securities Act claims untimely under the one-year statute of limitations and concluded that the complaint failed to state a claim under either statute. The court also denied leave to amend the Exchange Act claims against the company’s former CEO, finding that such amendment would be futile.The United States Court of Appeals for the Second Circuit reviewed the case and held that the Securities Act claims were timely because the relevant “storm warning” triggering the statute of limitations occurred later than the district court had found. The appellate court also held that the complaint adequately stated claims under both the Securities Act and the Exchange Act against the company, crediting the detailed allegations from confidential witnesses and Spanish proceedings. However, the court affirmed the denial of leave to amend the Exchange Act claims against the former CEO, finding insufficient allegations of scienter. The judgment of the district court was affirmed in part, reversed in part, and vacated in part. View "Sherman v. Abengoa, S.A." on Justia Law

A fuel distribution company sought to acquire a competitor in Western Alaska, prompting the State to sue for anticompetitive conduct under Alaska’s consumer protection laws. To resolve the dispute, the State and the company negotiated a consent decree requiring the company to divest a portion of its fuel storage capacity in Bethel to another distributor, Delta Western, before completing the acquisition. The consent decree specified that it would expire in 30 years or could be dissolved by court order for good cause. Delta Western was not a party to the consent decree, but entered into a separate fuel storage contract with the acquiring company as required by the decree. The contract’s term extended beyond the initial five years at Delta Western’s option.Years later, the Superior Court for the State of Alaska, Second Judicial District, Nome, dissolved the consent decree at the acquiring company’s request. The company then notified Delta Western that it considered the fuel storage contract terminated as a result. Delta Western filed a breach of contract action in Anchorage Superior Court, seeking to enforce the contract and arguing that its terms were independent of the consent decree. The contract case was transferred to Nome Superior Court, which issued a preliminary ruling that the contract remained valid despite the dissolution of the consent decree. The court also vacated its initial order dissolving the consent decree to allow Delta Western to intervene and present its position.The Supreme Court of the State of Alaska reviewed whether dissolution of the consent decree automatically terminated the fuel storage contract and whether the superior court abused its discretion by permitting Delta Western to intervene. The court held that dissolution of the consent decree did not automatically void the contract between the parties, and that the superior court did not abuse its discretion in allowing Delta Western to intervene. The Supreme Court affirmed the superior court’s decisions and lifted the stay on the contract case. View "Crowley Marine Services, Inc. v. State of Alaska" on Justia Law

A group of individuals with large social media followings was charged with securities fraud and conspiracy to commit securities fraud. The government alleged that these individuals engaged in a “pump and dump” scheme: they would purchase securities, then use their social media platforms to post false or misleading information about those securities to induce their followers to buy, thereby artificially inflating the price. After the price increased, the defendants would sell their holdings for a profit. The indictment claimed that the defendants collectively profited $114 million from this scheme.After indictment in the United States District Court for the Southern District of Texas, one defendant pleaded guilty while the others moved to dismiss the indictment. The district court granted the motion to dismiss, reasoning that the indictment failed to allege a scheme to deprive victims of a traditional property interest, instead only alleging deprivation of valuable economic information. The district court relied on the Supreme Court’s decision in Ciminelli v. United States, which held that deprivation of economic information alone does not constitute fraud under federal law.On appeal, the United States Court of Appeals for the Fifth Circuit reviewed the sufficiency of the indictment de novo. The Fifth Circuit concluded that the indictment adequately alleged both a scheme to defraud and an intent to defraud, as required by the securities fraud statute. The court distinguished the case from Ciminelli, finding that the indictment alleged a fraudulent-inducement theory—whereby the defendants used misrepresentations to induce followers to part with money by purchasing securities—not merely a deprivation of information. The court also held that the fraud statutes do not require proof that the defendants intended to cause economic harm, only that they intended to obtain money or property by deceit. The Fifth Circuit reversed the district court’s dismissal of the indictment and remanded the case for further proceedings. View "USA v. Constantinescu" on Justia Law

Two parties, both experienced in the grocery business, negotiated the sale of a grocery store’s inventory, stock, and equipment for $175,000. The agreement was reached orally and memorialized with a handshake, but no written contract was signed. Following the oral agreement, the buyers took control of the store, closed it for remodeling, met with employees, and were publicly identified as the new owners. However, within two weeks, the buyers withdrew from the deal, citing issues with a third-party wholesaler. The sellers, having already closed the store and lost perishable goods, were unable to find another buyer and subsequently filed suit.The sellers brought ten claims in the Lee County Circuit Court, including breach of contract, estoppel, and negligent misrepresentation. The buyers moved to dismiss, arguing that the Statute of Frauds barred enforcement of the oral agreement because the sale involved goods valued over $500 and no signed writing existed. The circuit court agreed, dismissing the contract and estoppel-based claims, as well as the negligent misrepresentation claim, but allowed other claims to proceed. The sellers appealed the dismissal of the contract and estoppel claims.The Supreme Court of Mississippi reviewed the case de novo. It held that the sellers’ complaint plausibly invoked two exceptions to the Statute of Frauds under Mississippi law: the merchants’ exception and the part-performance exception. The Court found that, at the motion to dismiss stage, it could not determine as a matter of law that no valid contract existed under these exceptions. Therefore, the Supreme Court of Mississippi reversed the circuit court’s dismissal of claims (1) through (7) and remanded the case for further proceedings. View "Palmer's Grocery Inc. v. Chandler's JKE, Inc." on Justia Law