Justia Business Law Opinion Summaries

The dispute arose between two longtime business partners who co-owned interests in several companies, including a parking facility management business. During the COVID-19 pandemic, the business faced financial difficulties, prompting the partners to seek a federal loan. One partner, who was in a position to influence the loan’s approval, allegedly pressured the other to sell his business interests at a reduced price, threatening to block the loan if the sale did not proceed. The sale was formalized through several transfer agreements containing broad releases of claims. The selling partner later sued, alleging he signed the agreements under duress and as a result of fraud.The case was first heard in the Minnesota District Court, which dismissed the complaint in its entirety, finding that the releases in the transfer agreements barred all claims. The district court also awarded costs and attorney fees to the defendants as prevailing parties under the agreements. The district court further held that the plaintiff was required to return the consideration received to void the releases, and, in the alternative, found that some claims failed on their own merits. The Minnesota Court of Appeals affirmed the dismissal, but on different grounds, holding that the plaintiff’s complaint failed to allege sufficient facts to invalidate the releases and thus the claims were barred. The appellate court also affirmed the award of costs and attorney fees.The Minnesota Supreme Court reviewed the case and clarified the pleading standard for motions to dismiss based on affirmative defenses. The court held that a plaintiff’s complaint does not need to anticipate and rebut an affirmative defense to survive a motion to dismiss; dismissal is only appropriate if the complaint’s allegations, construed in the plaintiff’s favor, establish an unrebuttable defense. The court reversed the lower courts’ dismissal of the complaint and the award of costs and attorney fees, and remanded the case for further proceedings. View "Hoskin vs. Krsnak" on Justia Law

Three individuals, including the appellant, formed a limited liability company (LLC) to design and sell firearms products, later adding two more members to a second LLC. The first LLC did not have a formal operating agreement, while the second adopted one in early 2019, setting a low company valuation. The appellant’s behavior became erratic and disruptive, leading to accusations against a key business partner and other members, which damaged business relationships and led to the loss of significant contracts. The remaining members of both LLCs unanimously voted to dissociate the appellant, citing his conduct as making it unlawful to continue business with him. The appellant disputed the validity of the operating agreement in the second LLC and challenged the valuation of his interests in both companies, also alleging wrongful dissociation, defamation, and conversion of property.The Eleventh Judicial District Court, Flathead County, granted summary judgment to the defendants on all claims. The court found the appellant was properly dissociated from the first LLC under Montana’s Limited Liability Company Act due to the unanimous vote and the unlawfulness of continuing business with him. It also held that the second LLC’s operating agreement was valid and permitted dissociation by unanimous vote. The court valued the appellant’s interests according to the operating agreement for the second LLC and based on company assets for the first LLC. The court denied the appellant’s motion to extend expert disclosure deadlines and partially denied his motion to compel discovery. It also granted summary judgment to the defendants on the conversion claim, finding no evidence of unauthorized control over the appellant’s property.The Supreme Court of the State of Montana affirmed the lower court’s rulings on dissociation and valuation regarding the second LLC, as well as the summary judgment on the conversion claim. However, it reversed the valuation of the appellant’s interest in the first LLC, holding that the district court erred by failing to consider the company’s “going concern” value as required by statute. The case was remanded for further proceedings on that issue. View "Herbert v. Shield Arms" on Justia Law

A group of former executives from an investment management company were prosecuted after the company collapsed and was placed in receivership. The company, which raised hundreds of millions of dollars from private investors, primarily through promissory notes and other investment vehicles, experienced severe financial distress following the default of a major asset. Despite this, the executives continued to solicit investments, representing to investors that their funds would be used to purchase secure receivables and that the company was financially healthy. In reality, most new investor funds were used to pay prior investors and cover operating expenses. The executives were accused of making material misrepresentations and misleading half-truths about the use of investor funds, the security of investments, and the company’s financial health.The United States District Court for the District of Oregon presided over the trial. The jury found all three defendants guilty of conspiracy to commit mail and wire fraud and multiple counts of wire fraud; one defendant was also convicted of making a false statement on a loan application. The defendants argued that they were improperly convicted on an omissions theory of fraud and that they were prevented from presenting a complete defense based on disclosures in offering documents and financial statements. They also challenged the sufficiency of the evidence and the materiality of their statements.The United States Court of Appeals for the Ninth Circuit reviewed the case. The court held that the government’s theory at trial was based on affirmative misrepresentations and misleading half-truths, not mere omissions, and that the jury instructions fairly stated the law. The court found that evidence of what was not disclosed was relevant to materiality, and that disclaimers in offering documents did not render other representations immaterial in a criminal fraud prosecution. The convictions were affirmed. View "USA V. JESENIK" on Justia Law

Steven Meads and Penny Lipking-Meads operated a business as a sole proprietorship before partnering with Jed Driggers in 2010 to expand the business. The parties formed Afterburner, LLC, with the Meadses and Driggers as members, and Driggers as manager. The Meadses contributed assets and goodwill, while Driggers provided capital and expertise. The LLC’s operating agreement included a provision stating that the LLC could only be dissolved by a vote of the members or bankruptcy/insolvency, and that members agreed not to take any other voluntary action to dissolve the LLC, effectively waiving the right to seek judicial dissolution under certain statutory circumstances.A decade later, the Meadses alleged Driggers had improperly diverted business funds and filed a lawsuit in the Superior Court of Siskiyou County seeking, among other relief, judicial dissolution of the LLC. Driggers and the LLC filed a cross-complaint for breach of contract and breach of fiduciary duty, arguing that the Meadses violated the operating agreement’s waiver provision by seeking dissolution. The Meadses responded with a motion to strike the cross-complaint under California’s anti-SLAPP statute, contending that the waiver provision was unenforceable as contrary to law and public policy. The Superior Court granted the anti-SLAPP motion, finding the cross-complaint arose from protected activity and that Driggers could not show a probability of prevailing.The California Court of Appeal, Third Appellate District, reviewed the case and affirmed the trial court’s order. The appellate court held that, under the Beverly-Killea Limited Liability Company Act, an LLC operating agreement may not waive or vary a member’s statutory right to seek judicial dissolution in the circumstances specified by law. The court concluded that the waiver provision was void and unenforceable, and thus Driggers could not prevail on his cross-complaint. The order striking the cross-complaint was affirmed. View "Meads v. Driggers" on Justia Law

The Securities and Exchange Commission (SEC) initiated a civil enforcement action against Ongkaruck Sripetch and several other defendants, alleging that they engaged in fraudulent schemes involving at least 20 penny stock companies. The SEC claimed that the defendants obtained over $6 million in illicit proceeds through violations of the Securities Act of 1933 and the Securities Exchange Act of 1934, including securities fraud and the sale of unregistered securities. The SEC sought various remedies, including an order requiring the defendants to disgorge all ill-gotten gains.The United States District Court for the Southern District of California presided over the case. Sripetch consented to the entry of judgment, agreeing that the court could order disgorgement and prejudgment interest, and that the complaint’s allegations would be accepted as true for the purposes of the SEC’s motion. The district court ordered Sripetch to disgorge $2,251,923.16 in net profits, plus prejudgment interest. Sripetch appealed, arguing that disgorgement under 15 U.S.C. § 78u(d)(5) and (d)(7) requires a showing of pecuniary harm to investors, which he claimed the SEC had not demonstrated.The United States Court of Appeals for the Ninth Circuit reviewed the district court’s disgorgement order for abuse of discretion. The Ninth Circuit held that the SEC is not required to show that investors suffered pecuniary harm as a precondition to a disgorgement award under § 78u(d)(5) or (d)(7). The court reasoned that disgorgement is a profits-based remedy focused on depriving wrongdoers of ill-gotten gains, not compensating victims for losses. Accordingly, the Ninth Circuit affirmed the district court’s judgment. View "UNITED STATES SECURITIES AND EXCHANGE COMMISSION V. SRIPETCH" on Justia Law

Walmart, a national pharmacy operator, was investigated by the U.S. Attorney’s Office for the Eastern District of Texas from 2016 to 2018 regarding its opioid dispensing practices. The investigation included raids, subpoenas, and meetings where prosecutors indicated a possible indictment, but ultimately, the Department of Justice declined to prosecute criminally, though a civil investigation continued. In 2020, a news article revealed the investigation, causing Walmart’s stock price to drop. Later that year, the DOJ filed a civil lawsuit against Walmart for alleged violations of the Controlled Substances Act.Investors who owned Walmart stock during the relevant period filed a putative securities fraud class action in the United States District Court for the District of Delaware. They alleged that Walmart’s public filings failed to adequately disclose the government investigation, violating Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5, and that Walmart’s statements about its “reasonably possible” liabilities and compliance with accounting rules (ASC 450) were misleading. The District Court granted Walmart’s motion to dismiss, finding no actionable misrepresentation or omission, and denied plaintiffs’ request to further amend their complaint.The United States Court of Appeals for the Third Circuit reviewed the case de novo. The court held that Walmart’s omission of the investigation from its disclosures before June 4, 2018, was not misleading because the investigation did not constitute a “reasonably possible” material liability at that stage. After June 4, 2018, Walmart’s disclosures sufficiently informed investors about the existence and potential impact of government investigations. The court also found no violation of ASC 450 and affirmed the District Court’s denial of leave to amend, concluding that further amendment would be futile. The Third Circuit affirmed the dismissal of all claims. View "In re Walmart Inc. Securities Litigation" on Justia Law

Robinhood Markets, Inc., an online brokerage firm, experienced a surge in business during early 2021 due to increased trading in “meme stocks” and Dogecoin. This activity declined sharply in the second quarter of 2021, leading to significant drops in key financial metrics and performance indicators. In July 2021, Robinhood conducted an initial public offering (IPO) and issued a registration statement that included limited information about its second-quarter performance. After the IPO, Robinhood released its full second-quarter results, which revealed substantial declines and led to a drop in its stock price. Plaintiffs, representing a class of investors, alleged that Robinhood’s registration statement omitted material information about these declines, violating Sections 11, 12, and 15 of the Securities Act of 1933.The United States District Court for the Northern District of California dismissed the plaintiffs’ claims with prejudice. The district court found that Robinhood and its co-defendants were not liable under the Securities Act for failing to disclose the pre-IPO declines in key performance indicators and certain revenue sources. The court also held that there was no actionable omission regarding the increased percentage of Robinhood’s revenue attributable to speculative trading.On appeal, the United States Court of Appeals for the Ninth Circuit reviewed the district court’s decision de novo. The Ninth Circuit held that the district court applied incorrect legal standards to the plaintiffs’ theories under Section 11’s “misleading” prong and Item 303 of Regulation S-K. The appellate court clarified that, in this context, Sections 11 and 12 require disclosure of all material information, and rejected the “extreme departure” test used by the district court. The court vacated the dismissal as to these theories and remanded for further proceedings. However, the Ninth Circuit affirmed the district court’s dismissal of the claim based on Item 105 of Regulation S-K, finding no duty to provide a breakdown of revenue sources for the relevant period. View "Sodha v. Golubowski" on Justia Law

Rowena Joyce Scott served as both the president of the board and general manager of Park Southern Neighborhood Corporation (PSNC), a nonprofit that owned a large apartment building in Washington, D.C. During her tenure, Scott exercised near-total control over PSNC’s finances and operations. She used corporate funds for personal expenses, including luxury items and services, and made significant cash withdrawals from PSNC’s accounts. After PSNC defaulted on a loan, the District of Columbia’s Department of Housing and Community Development intervened, replacing Scott and the board with a new property manager, Vesta Management Corporation, which took possession of PSNC’s records and computers. Subsequent investigation by the IRS led to Scott’s indictment for wire fraud, credit card fraud, and tax offenses.The United States District Court for the District of Columbia presided over Scott’s criminal trial. Scott filed pre-trial motions to suppress statements made to law enforcement and evidence obtained from PSNC’s computers, arguing violations of her Fifth and Fourth Amendment rights. The district court denied both motions. After trial, a jury convicted Scott on all counts, and the district court sentenced her to eighteen months’ imprisonment, supervised release, restitution, and a special assessment. Scott appealed her convictions, challenging the sufficiency of the evidence and the denial of her suppression motions.The United States Court of Appeals for the District of Columbia Circuit reviewed the case. The court held that Scott forfeited her statute of limitations defense by not raising it in the district court. It found the evidence sufficient to support all convictions, including wire fraud and tax offenses, and determined that Scott was not in Miranda custody during her interview with IRS agents. The court also concluded that the search warrant for PSNC’s computers was supported by probable cause, and that Vesta’s consent validated the search. The court affirmed the district court’s judgment in all respects. View "United States v. Scott" on Justia Law

Armistice Capital, LLC and its client fund held warrants to purchase shares in Vaxart, Inc., a biotech company developing an oral COVID-19 vaccine. Stephen J. Boyd, Armistice’s Chief Investment Officer, served on Vaxart’s board. The warrants included “blocker provisions” limiting Armistice’s ownership to 4.99% and 9.99% of Vaxart’s shares. Boyd requested that Vaxart’s board amend these provisions to allow Armistice to own up to 19.99%. The board, with full knowledge that Boyd and another director were Armistice representatives, unanimously approved the amendment. Shortly after Vaxart announced its vaccine’s selection for a federal study, Armistice exercised the warrants and sold its shares, allegedly realizing an $87 million profit.Andrew E. Roth, a Vaxart shareholder, filed suit in the United States District Court for the Southern District of New York, alleging that Armistice and Boyd, as statutory insiders, violated Section 16(b) of the Securities Exchange Act by engaging in a prohibited short-swing transaction. Roth sought disgorgement of the profits to Vaxart. The defendants moved for summary judgment, arguing that even if a short-swing transaction occurred, they were exempt from liability under SEC Rule 16b-3(d) because the Vaxart board had approved the transaction with knowledge of all material facts. The District Court granted summary judgment for the defendants, finding the exemption applied.On appeal, the United States Court of Appeals for the Second Circuit reviewed the District Court’s decision de novo. The Second Circuit held that the exemption under SEC Rule 16b-3(d) applied because the transaction involved the acquisition of issuer equity securities by insiders, those insiders were directors at the time, and the transaction was approved in advance by the issuer’s board with full knowledge of the relevant relationships. The court affirmed the District Court’s judgment, holding that the defendants were exempt from Section 16(b) liability under Rule 16b-3(d). View "Roth v. Armistice Capital, LLC" on Justia Law

Two business compliance companies entered into a partnership to develop a software product, with one company providing “white-label” services to the other. The partnership was formalized in a written agreement, but disputes arose over performance, payment for out-of-scope work, and the functionality of the software integration. As the relationship deteriorated, the company that had sought the services began developing its own infrastructure, ultimately terminating the partnership and launching a competing product. The service provider alleged that its trade secrets and proprietary information were misappropriated in the process.The United States District Court for the Eastern District of Pennsylvania presided over a jury trial in which the service provider brought claims for breach of contract, trade secret misappropriation under both state and federal law, and unfair competition. The jury found in favor of the service provider, awarding compensatory and punitive damages across the claims. The jury specifically found that six of eight alleged trade secrets were misappropriated. The defendant company filed post-trial motions for judgment as a matter of law, a new trial, and remittitur, arguing insufficient evidence, improper expert testimony, and duplicative damages. The District Court denied these motions.On appeal, the United States Court of Appeals for the Third Circuit reviewed the District Court’s rulings. The Third Circuit held that the defendant had forfeited its argument regarding the protectability of the trade secrets by not raising it with sufficient specificity at trial, and thus assumed protectability for purposes of appeal. The court found sufficient evidence supported the jury’s finding of misappropriation by use, and that the verdict was not against the weight of the evidence. The court also found no reversible error in the admission of expert testimony. However, the Third Circuit determined that the damages awarded for trade secret misappropriation and unfair competition were duplicative, and conditionally remanded for remittitur of $11,068,044, allowing the plaintiff to accept the reduced award or seek a new trial on damages. View "Harbor Business Compliance Corp v. Firstbase IO Inc" on Justia Law