Justia Business Law Opinion Summaries

After the IRS refused to grant the foreign shipping corporation Good Fortune an exemption to some of its U.S.-based income from taxation, the tax court ruled in favor of the IRS. The DC Circuit reversed, holding that the IRS's interpretation of Internal Revenue Code 883 in the 2003 Regulation was unreasonable and could not stand. Even if the IRS reasonably concluded that sometimes—maybe oftentimes—bearer shares were incapable of proving the residence of their owners, the court held that the 2003 Regulation's categorical bar on considering bearer shares did not follow from that premise. The court explained that the IRS has not justified treating all bearer shares as incapable of proving ownership; and if some corporations' bearer shares were not kept in record form, and thus were not capable of proving the location of an owner, then the IRS should have identified those corporations' shares and tailored its rule accordingly. View "Good Fortune Shipping SA v. Commissioner" on Justia Law

Hartman and Ott co-founded Spectrum Tool & Design and divided management responsibilities. Ott was supposed to handle the company’s payroll taxes, which required him to withhold federal taxes from employees’ wages and send the money to the IRS. When Spectrum encountered financial difficulties, however, Ott failed to pay the taxes several times in 2004 and 2005. Hartman continued to rely on Ott to pay the taxes even after discovering the delinquency. After Spectrum went bankrupt, the government sued Hartman to recover the unpaid taxes. The district court granted the government summary judgment. The Sixth Circuit affirmed, noting that Hartman “willfully” failed to pay Spectrum’s taxes. The government imposes personal liability for outstanding payroll taxes on anyone who was “required to” pay these taxes and “willfully” failed to pay the funds to the IRS, 26 U.S.C. 6672(a). Hartman acted willfully by repeatedly claiming to believe that Ott paid the taxes when he no longer had any plausible basis for thinking that was so. He knew of Ott’s past failures and had ample means to identify and remedy Ott’s misconduct. View "United States v. Hartman" on Justia Law

These consolidated appeals stemmed from the Commissioner's efforts to hold the former shareholders of a close corporation, Slone Broadcasting, responsible for taxes owed on the proceeds of its sale of assets to another broadcasting company, Citadel. The shareholders followed up the asset sale to Citadel by selling Slone Broadcasting's stock to another company, Berlinetta, an affiliate of Fortrend. Berlinetta and Slone Broadcasting then merged into a new company called Arizona Media.The Ninth Circuit reversed the tax court's judgment on the petition for redetermination of federal income tax deficiency challenging the shareholders' liability for taxes in connection with an asset and stock sale. The panel applied Arizona's Uniform Fraudulent Transfer Act and held that the transaction was constructively fraudulent as to the creditor (the IRS) because the debtor (Slone Broadcasting) did not receive a reasonably equivalent value in exchange for the transfer to the shareholders and was left unable to satisfy its tax obligation. In this case, the purpose of the shareholders' transaction with Berlinetta was tax avoidance and thus reasonable actors in the shareholders' position would have been on notice that Berlinetta never intended to pay Slone Broadcasting's tax obligation. The panel held that the shareholders' sale to Berlinetta was a cash-for-cash exchange lacking independent economic substance beyond tax avoidance. The panel also held that the shareholders were liable to the government for Slone Broadcasting's federal tax obligation as "transferees" under 26 U.S.C. 6901, because Slone Broadcasting's liquidating distribution to the shareholders was a constructively fraudulent transfer under Arizona law. View "Slone v. Commissioner of Internal Revenue" on Justia Law

A commercial tenant breached its lease and owed unpaid rent. The landlord sued and obtained a writ of attachment against any funds owed the tenant from Alaska’s Department of Health and Social Services (DHSS). DHSS replied to the writ by stating it owed nothing to the tenant because a recent audit showed the tenant owed DHSS $1.4 million. Without responding to DHSS’s reply the landlord moved for a writ of execution against DHSS, which the superior court denied after finding there were no funds to attach. The court denied the landlord’s motion for reconsideration, as well as its request for a hearing to examine DHSS. The landlord appealed the denial of its motion for reconsideration and sought a remand for a hearing to examine DHSS. In affirming the superior court, the Alaska Supreme Court concluded the superior court was correct in denying reconsideration of its order regarding the writ of execution. View "Arcticorp v. C Care Services, LLC" on Justia Law

The Supreme Court affirmed the judgment of the trial court in favor of Plaintiffs on their claims of breach of contract and breach of fiduciary duty and the award of punitive damages.On appeal, Defendant argued that the trial court erred in overruling its motion for judgment notwithstanding the verdict (JNOV) because Plaintiffs failed to make a submissible case as to a breach of fiduciary duty and punitive damages. Plaintiffs, in response, argued that the Supreme Court lacked appellate jurisdiction because Defendant filed an untimely notice of appeal. The Supreme Court held (1) because Plaintiffs’ motion for attorney fees was an authorized after-trial motion to amend the judgment, Defendant timely filed its notice of appeal; and (2) Defendant failed to preserve for appellate review its claims that the trial court erred in overruling its JNOV motion. View "Heifetz v. Apex Clayton, Inc." on Justia Law

This appeal stemmed from a dispute between Jaguar and Autobahn concerning chargebacks of around $300,000 in incentive payments the distributor had made to the dealer. The Board of the Texas Department of Motor Vehicles declared the chargebacks invalid, and Jaguar exercised its statutory right of review in the state appellate court. During the pending of the appeal, Autobahn filed suit for damages based on the Board's findings, claiming violations of the Texas Deceptive Trade Practices Act (DTPA) and breach of contract. The Fifth Circuit reversed the district court's grant of summary judgment for Autobahn and remanded, holding that Autobahn's antecedent failure to exhaust divested the district court of power to decide the claim when it did. View "Autobahn Imports, L.P. v. Jaguar Land Rover North America" on Justia Law

Kohl’s operates more than 1000 stores, 65 percent of which are leased. In 2011, Kohl’s announced that it was correcting several years of its financial filings because of multiple lease accounting errors. Plaintiffs, led by the Pension Fund, filed suit under the Securities Exchange Act of 1934, 15 U.S.C. 78j(b), SEC Rule 10b-5, and the “controlling person” provisions of 15 U.S.C. 78t(a), alleging that Kohl’s and two executives defrauded investors by publishing false and misleading information prior to the corrections. The Fund argued that one can infer that the defendants knew that these statements were false or recklessly disregarded that possibility because Kohl’s recently had made similar lease accounting errors. Despite those earlier errors, it was pursuing aggressive investments in leased properties, and at the same time, company insiders sold considerable amounts of stock. The district court dismissed the complaint with prejudice for failure to meet the enhanced pleading requirements for scienter imposed by the Private Securities Litigation Reform Act. The Seventh Circuit affirmed, reasoning that the complaint fell short and the Fund did not suggest how an amendment might help. The Fund made a strong case that many of Kohl’s disclosures regarding its lease accounting practices were false but that is not enough. The Fund provided very few facts that would point either toward or away from scienter. View "Pension Trust Fund for Operating Engineers v. Kohl's Corp." on Justia Law

The Ninth Circuit affirmed the dismissal of an action alleging that when Yahoo! invested in Alibaba.com, a Chinese retail website, Yahoo! violated the conditions of its exemption, granted by the SEC, from the registration requirements of the Investment Company Act (ICA). Plaintiff brought derivative claims against Yahoo!'s board of directors and certain corporate officers, as well as one direct claim against Yahoo!, under the ICA. The panel held that plaintiff failed to state a claim because the ICA does not establish a private right of action for challenging the continued validity of an ICA exemption. View "UFCW Local 1500 Pension Fund v. Mayer" on Justia Law

Knopick purchased a Jayco recreational vehicle from an independent Iowa dealer for $414,583, taking title through an LLC he alone controlled. Jayco’s two-year limited manufacturer’s warranty disclaims all implied warranties and “does not cover … any RV used for rental or other commercial purposes,” explains that an RV is “used for commercial and/or business purposes if the RV owner or user files a tax form claiming any business or commercial tax benefit related to the RV, or if the RV is purchased, registered or titled in a business name,” and states that performance of repairs excluded from coverage are "goodwill" repairs and do not alter the warranty. Almost immediately, Knopick claims, the RV leaked, smelled of sewage, had paint issues, and contained poorly installed features, including bedspreads screwed into furniture and staples protruding from the carpet. Knopick drove it to Jayco’s Indiana factory for repairs. He later picked up the RV to drive to his Texas home. Concerned about continuing problems, Knopick left it at a Missouri repair facility, from which a Jayco driver took it to Indiana for further repairs. Jayco later had a driver deliver the coach to Knopick in Arkansas. Knopick remained unsatisfied and sued for breach of warranty under state law and the Magnuson-Moss Warranty Act, 15 U.S.C. 2301. The Seventh Circuit affirmed summary judgment for Jayco, finding that Knopick had no rights under the warranty because the RV was purchased by a business entity. View "Knopick v. Jayco, Inc." on Justia Law

Devon, a Pennsylvania corporation, sells computer products; Bennett and DiRocco, a married couple, jointly own 100 percent of Devon’s shares as tenants by the entirety. In 2010, Devon obtained a contract from Dell. Devon contracted with Clientron, a Taiwanese company, to manufacture Dell's computers. Clientron shipped them directly to Dell; Dell paid Devon. Devon stopped paying Clientron entirely in 2012, owing over $6 million. Dell terminated its relationship with Devon, paying Devon $2 million, none of which reached Clientron. Pursuant to their contract, Clientron requested arbitration in Taiwan; arbitrators awarded Clientron $6.5 million. Clientron then sued Devon, Bennett, and DiRocco in Pennsylvania to enforce the award and seeking $14.3 million in damages for fraud and breach of contract. Clientron alleged that Devon was the alter ego of the couple. During discovery, the defendants continually failed to meet their obligations under the Federal Rules. The court entered sanctions, and instructed the jury that it was permitted, but not required, to make an adverse inference due to Devon' discovery conduct; the instruction did not reference Bennett or DiRocco. The jury found Devon liable for breach of contract and awarded Clientron an additional $737,018 in damages but rejected Clientron’s fraud claim and declined to pierce Devon’s corporate veil. Post-trial, the court pierced the veil to reach Bennett but not DiRocco, holding Bennett personally liable for the $737,018 damages award and the $44,320 monetary sanction earlier imposed on Devon; it did not make Bennett personally liable for the Taiwanese arbitration award. Devon is insolvent The Third Circuit vacated; the court committed legal error in piercing Devon’s veil to reach only Bennett and in holding Bennett personally liable for only part of the judgment. View "Clientron Corp. v. Devon IT Inc" on Justia Law