Justia Business Law Opinion Summaries

A Texas citizen brought state-law claims in federal court against “Dining Alliance Inc.” Prior to the suit, however, Dining Alliance Inc. had converted into Dining Alliance LLC (“Dining Alliance”), whose citizenship may include both Texas and Delaware. This potential jurisdictional defect was not recognized because Dining Alliance originally answered under the name Dining Alliance Inc. and represented itself as a Massachusetts citizen. Dining Alliance unacceptably hid the ball with respect to the elementary jurisdictional facts during the entire course of litigation, including on appeal. The district court dismissed its third-party claims with prejudice as a sanction for that willful abuse of the judicial process.   The Fifth Circuit affirmed. The court explained that a district court may invoke its inherent power to dismiss claims with prejudice in order to protect “the integrity of the judicial process.” It must find that the litigant acted in bad faith or willfully abused the judicial process. It must also find that “lesser sanctions would not serve the best interests of justice.” The court wrote that contrary to Dining Alliance’s assertion, the district court found that Dining Alliance itself willfully abused the judicial process based on the totality of its litigation misconduct, which culminated in its refusal to obey the court’s order. That misstatement was reckless because the company’s transformation into Dining Alliance LLC should have been and apparently was known at the time. Accordingly, the court held that the district court neither lacked jurisdiction nor abused its discretion in dismissing Dining Alliance LLC’s third-party claims with prejudice as a sanction for its willful abuse of the judicial process. View "Dining Alliance v. Foodbuy" on Justia Law

The Court of Chancery granted summary judgment in favor of Defendants in this action challenging two provisions in a certificate of incorporation of Bumble, Inc., holding that the challenged provisions were valid.The provisions at issue stated that each share will carry one vote, unless the share is owned by a "Principal Stockholder," defined as the parties to a publicly-disclosed stockholders agreement, in which case it will carry ten votes. At the time of this action there were two principal stockholders, including Bumble's founder and its financial sponsor. Plaintiff brought this action seeking a declaration that the provisions were invalid as violating sections 212(a) and 151(a) of the Delaware General Corporation Law (DGCL). The Court of Chancery granted summary judgment for Defendants, holding that the challenged provisions complied with Delaware law. View "Colon v. Bumble, Inc." on Justia Law

The Colorado Supreme Court granted review in this case to consider whether the common law litigation privilege for party-generated publicity in pending class action litigation excluded situations in which the identities of class members were ascertainable through discovery. In 2018, two law firms, Killmer, Lane & Newman, LLP and Towards Justice (collectively, along with attorney Mari Newman of Killmer, Lane & Newman, “the attorneys”), filed on behalf of former employee and nail technician Lisa Miles and those similarly situated a federal class action lawsuit. This lawsuit named as defendants BKP, Inc.; Ella Bliss Beauty Bar LLC; Ella Bliss Beauty Bar-2, LLC; and Ella Bliss Beauty Bar-3, LLC (collectively, “the employer”), among others. The employer operated three beauty bars in the Denver metropolitan area. Pertinent here, the class action complaint alleged that the employer’s business operation was “founded on the exploitation of its workers.” The complaint alleged that the employer violated the Fair Labor Standards Act and the Colorado Wage Claim Act by not paying service technicians for hours spent performing janitorial work, electing to forgo hiring a janitorial service. The Supreme Court concluded the division erred in conditioning the applicability of the litigation privilege in pending class action litigation on whether the identities of class members were ascertainable through discovery. The Court reached this conclusion for two reasons: (1) ascertainability was generally a requirement in class action litigation, and imposing such a condition would unduly limit the privilege in this kind of case; and (2) the eventual identification of class members by way of documents obtained during discovery was not a substitute for reaching absent class members and witnesses in the beginning stages of litigation. The Court found the litigation privilege applied in this case: five allegedly defamatory statements at issue "merely repeated, summarized, or paraphrased the allegations made in the class action complaint, and which served the purpose of notifying the public, absent class members, and witnesses about the litigation, were absolutely privileged." View "Killmer, Lane & Newman v. B.K.P., Inc." on Justia Law

Shake Out, LLC entered into a contract with Clearwater Construction, LLC (“Clearwater”), to repair the building Shake Out’s restaurant occupied. The relationship between the parties quickly deteriorated, resulting in Shake Out filing a lawsuit against Clearwater. The parties attempted to mediate their dispute but were unsuccessful. After the case had proceeded for some time, Clearwater sought to compel arbitration pursuant to the contract. Shake Out objected, asserting that Clearwater had waived its right to enforce the arbitration clause because it had participated in the litigation for almost ten months before seeking to compel arbitration. The district court concluded Clearwater had not waived its right to seek arbitration and entered an order compelling arbitration and staying the proceedings. Finding no reversible error in that judgment, the Idaho Supreme Court affirmed. View "Shake Out, LLC v. Clearwater Construction, LLC" on Justia Law

Plaintiff NexPoint holds $7.5 million in subordinated notes issued by Acis CLO-2015-6 Ltd. (the “Issuer”), as part of a CLO. The Issuer acquired the CLO collateral and conveyed it to a trust under an indenture between the Issuer and U.S. Bank National Association as Trustee (the “Indenture”). Defendant-appellee Acis Capital Management, L.P. (“Acis”) was engaged as the CLO’s portfolio manager pursuant to a Portfolio Management Agreement between the Issuer and Acis (the “PMA”). NexPoint claims that Acis, Terry, and Brigade (together, the “Advisers”) maximized their own profits at the expense of the CLO in violation of fiduciary duties imposed by Section 206 of the IAA. The district court concluded that NexPoint failed to state a claim under Section 215(b). NexPoint appealed, arguing that the District Court erred in limiting Section 215(b)’s application to contracts that require illegal performance, as opposed to lawful contracts performed in an unlawful manner.   The Second Circuit affirmed. The court held that under Section 215(b), a contract’s performance involves the violation of the IAA only if performing a contractual duty requires conduct prohibited by the IAA. No such unlawful conduct is required by the contracts NexPoint seeks to rescind. The court further explained that the text and structure of the IAA, interpreted with the benefit of TAMA, Oxford, and other precedent, make clear that a contract’s performance “involves” the violation of the IAA only if performing a contractual duty requires a party to engage in conduct prohibited by the IAA. NexPoint does not seek rescission of any contract requiring a party to engage in conduct prohibited by the IAA. View "NexPoint Diversified Real Est. Tr. v. Acis Cap. Mgmt., L.P." on Justia Law

Defendants-appellants and cross-appellees, Gregory Holifield (“Holifield”) and GH Blue Holdings, LLC (“Blue”), appealed a Court of Chancery memorandum opinion in favor of plaintiff- appellee and cross-appellant, XRI Investment Holdings LLC (“XRI”). The issue this case presented was whether Holifield validly transferred his limited liability membership units in XRI to Blue on June 6, 2018. The resolution of that issue bore on the ultimate dispute between the parties (not at issue here) on whether XRI validly delivered to Holifield a strict foreclosure notice purporting to foreclose on the XRI membership units, or whether such notice was incorrectly delivered to him because Blue was, in fact, the owner of the units following the transfer. Following a one-day trial, the Court of Chancery determined that the transfer of the units from Holifield to Blue was invalid because it was not a permitted transfer under XRI’s limited liability company agreement, which provided that noncompliant transfers of XRI interests were “void.” The trial court, in interpreting the Delaware Supreme Court's holding in CompoSecure, L.L.C. v. CardUX, LLC, 206 A.3d 807 (Del. 2018), held that the use of the word “void” in XRI’s LLC agreement rendered the transfer incurably void, such that affirmative defenses did not apply. Despite this holding, the trial court, in dicta, further found that XRI had acquiesced in the transfer. The Delaware Supreme Court affirmed Court of Chancery’s judgment with respect to the Blue Transfer, but reversed the judgment insofar as it precluded XRI’s recovery for breach of contract damages and recoupment of legal expenses advanced to Holifield. The Court held that the trial court’s finding of acquiescence as to only one of the alleged breaches did not bar either remedy, and the Court remanded the case for the trial court to make further determinations. View "Holifield v. XRI Investment Holdings LLC" on Justia Law

This action concerns loans issued by Plaintiff, EMA Financial, LLC, to a group of companies that were controlled by Defendants. The loan agreements contained so-called “floating-price conversion option” provisions, which gave EMA the right to exercise an option to receive company stock in lieu of cash repayment on the loans. When EMA initially sought partial repayment of the loans through the stock repayment option in 2017, the companies delivered the shares to EMA at the agreed-upon discount rate. EMA sought to exercise the conversion option again. This time, the companies failed to deliver the stock. EMA then brought suit, claiming breach of contract and breach of guaranty as to the loan agreements, and fraudulent conveyance and fraudulent inducement. Defendants asserted as an affirmative defense that the loan agreements were void because the conversion option provisions rendered the agreements criminally usurious under New York law. The district court dismissed this defense and entered judgment in favor of EMA for some of its claims and in favor of Defendants for other. Two Defendants appealed, arguing that the district court’s dismissal of the usury defense at summary judgment should be vacated in light of an intervening change in New York law.   The Second Circuit vacated. The court reasoned that it is also clear that Adar Bays II materially altered the Defendants’ rights by providing them with a newly viable avenue by which they could seek to void the Notes and avoid liability for breaching them. Therefore, even assuming the other necessary conditions for collateral estoppel are met, the Defendants are not precluded from raising a usury defense notwithstanding the Corporate Defendants’ default. View "EMA Financial, LLC v. Chancis" on Justia Law

The petitioners here—two motorcycle dealerships who sought to enforce restrictive covenants against a former employee under Florida law— asked the Georgia Supreme Court to reconsider the application of a public-policy exception, citing recent changes in Georgia law that required a more flexible and permissive approach to enforcing restrictive covenants. When contracting parties choose the law of a jurisdiction other than Georgia to govern their contractual relations, Georgia courts generally honored that choice unless applying the foreign law would violate Georgia's public policy. Having taken a fresh look, the Supreme Court concluded that Georgia law remained "the touchstone for determining whether a given restrictive covenant is enforceable in our courts, even where the contract says another state’s law applies." After a careful review of Georgia decisional law and statutory history in this space, the Court found the Georgia legislature has codified this view, including with the recent enactment of the Georgia Restrictive Covenants Act. In this case, the trial court accepted the parties’ choice of Florida law to govern the employment contracts at issue without first determining whether the restrictive covenants in the contracts complied with the GRCA. The Court of Appeals reversed, and in doing so, correctly identified application of the GRCA as the first step in the analysis of whether the public-policy exception overrides the parties’ choice of foreign law. But because the Supreme Court set out a clear framework for that analysis in this opinion, it left it for the trial court to apply that framework in the first instance. The Court therefore vacated the decisions below for further review by the trial court. View "Motorsports of Conyers, LLC, et al. v. Burbach" on Justia Law

The Law Firm of Fox and Fox (Law Firm) appealed from a judgment entered after the trial court granted summary judgment in favor of Chase Bank, N.A. The Law Firm filed this action against Chase, alleging negligence in the disbursement of funds from a blocked account containing estate funds to the sole signatory on the account (as administrator of the estate), Jazzmen Brumfield (Brumfield). The trial court granted Chase’s motion for summary judgment. On appeal, the Law Firm contends it raised triable issues of fact with respect to whether Chase owed a duty to the Law Firm, whether Chase breached any such duty, and whether Chase’s conduct in distributing the funds to Brumfield (who absconded with the funds) was the proximate cause of the Law Firm’s damages.   The Second Appellate District reversed. The court concluded Chase owed the Law Firm a duty of care based on the special relationship it had with the Law Firm as an intended beneficiary of the probate court’s order directing that the estate funds be deposited into a blocked account from which withdrawals could only be made “on court order” and Chase’s acceptance of that order by executing the “receipt and acknowledgment of order for the deposit of money into blocked account.” The court explained that although banks do not generally have a duty to police customer accounts for suspicious activity, Chase owed the Law Firm, as an intended beneficiary of the blocked account order and acknowledgment, a duty to act with reasonable care in limiting distributions from the blocked account to those authorized by court order. View "The Law Firm of Fox and Fox v. Chase Bank" on Justia Law

Legacy, a small family-owned business, provides nonemergency ambulance services in several Ohio counties that border Kentucky. After receiving many inquiries from Kentucky hospitals and nursing homes, Legacy sought to expand into the Commonwealth. Kentucky required Legacy to apply for a “certificate of need” with the Kentucky Cabinet for Health and Family Services. Existing ambulance providers objected to Legacy’s request. The Cabinet denied Legacy’s application partly on the ground that these providers offered an adequate supply. Legacy sued, alleging that Kentucky’s certificate-of-need law violated the “dormant” or “negative” part of the Commerce Clause.The district court granted the defendants summary judgment. The Sixth Circuit affirmed with respect to Legacy’s request to offer intrastate ambulance transportation in Kentucky. Under the modern approach to the dormant Commerce Clause, a law’s validity largely depends on whether it discriminates against out-of-state businesses in favor of in-state ones. Legacy’s evidence suggests that the state’s limits will harm Kentucky’s own “consumers.” It has not shown a “substantial harm” to interstate commerce. The court reversed with respect to Legacy’s request to offer interstate ambulance transportation between Kentucky and Ohio. States may not deny a common carrier a license to provide interstate transportation on the ground that the interstate market contains an “adequate” supply. The bright-line rule barring states from obstructing interstate “competition” does require a finding that a state has discriminated against out-of-state entities. View "Truesdell v. Friedlander" on Justia Law