Justia Business Law Opinion Summaries

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

Earl Miller, who owned and operated several real estate investment companies under the 5 Star name, was responsible for soliciting funds from investors, primarily in the Amish community, with promises that their money would be used exclusively for real estate ventures. After becoming sole owner in 2014, Miller diverted substantial investor funds for personal use, unauthorized business ventures, and payments to friends’ companies, all in violation of the investment agreements. He also misled investors about the nature and use of their funds, including issuing false statements about new business activities. The scheme continued even as the business faltered, and Miller ultimately filed for bankruptcy.A federal grand jury in the Northern District of Indiana indicted Miller on multiple counts, including wire fraud and securities fraud. At trial, the government presented evidence, including testimony from an FBI forensic accountant, showing that Miller misappropriated approximately $4.5 million. The jury convicted Miller on one count of securities fraud and five counts of wire fraud, acquitting him on one wire fraud count and a bankruptcy-related charge. The United States District Court for the Northern District of Indiana sentenced Miller to 97 months’ imprisonment, applying an 18-level sentencing enhancement based on a $4.5 million intended loss, and ordered $2.3 million in restitution to victims.The United States Court of Appeals for the Seventh Circuit reviewed Miller’s appeal, in which he challenged the district court’s loss and restitution calculations. The Seventh Circuit held that the district court reasonably estimated the intended loss at $4.5 million, as this amount reflected the funds Miller placed at risk through his fraudulent scheme, regardless of when the investments were made. The court also upheld the restitution award, finding it properly included all victims harmed by the overall scheme. The Seventh Circuit affirmed the district court’s judgment. View "USA v Miller" on Justia Law

Investors who purchased shares of a fitness equipment company between February 2021 and January 2022 alleged that the company and several executives misled the public about the ongoing demand for its products and the state of its inventory following the COVID-19 pandemic. During the pandemic, demand for the company’s products surged, but plaintiffs claimed that by early 2021, demand had declined as gyms reopened. Plaintiffs asserted that the company concealed this decline and continued to assure investors that demand remained strong and that supply chain investments were necessary. Their allegations were supported by statements from numerous former employees who described declining sales, missed quotas, and growing excess inventory.The United States District Court for the Southern District of New York reviewed the case after the plaintiffs filed an amended complaint. The district court dismissed the complaint, finding that the plaintiffs failed to allege any actionable material misstatements or omissions. The court determined that most statements were either protected forward-looking statements, non-actionable puffery, or consistent with the company’s actual financial results. The court also found that the confidential witness accounts were anecdotal and did not reflect the company’s overall performance.The United States Court of Appeals for the Second Circuit reviewed the district court’s decision. The appellate court agreed that most of the challenged statements were not actionable, either because they were not materially false or misleading, or because they constituted non-actionable puffery. However, the Second Circuit found that the plaintiffs plausibly alleged actionable misstatements or omissions regarding the company’s characterization of a price reduction as “absolutely offensive” and its risk disclosures about excess inventory in certain SEC filings, which may have been misleading because the risks had already materialized. The Second Circuit vacated the district court’s dismissal as to these statements and remanded for further proceedings, while affirming the dismissal of claims based on other statements. View "City of Hialeah Employees' Retirement System v. Peloton Interactive, Inc." on Justia Law

Ripple Analytics Inc. operated a software platform for human resources functions and originally owned the federal trademark for the word “RIPPLE®” in connection with its software. In April 2018, Ripple assigned all rights, title, and interest in its intellectual property, including the trademark, to its Chairman and CEO, Noah Pusey. Meanwhile, People Center, Inc. began using the name “RIPPLING” for similar software, though it abandoned its own trademark registration effort. Ripple later sued People Center for trademark infringement and unfair competition, claiming ownership of the RIPPLE® mark.The United States District Court for the Eastern District of New York reviewed the case. During discovery, Ripple produced the assignment agreement showing that Pusey, not Ripple, owned the trademark. People Center moved to dismiss under Federal Rule of Civil Procedure 17, arguing Ripple was not the real party in interest. The district court dismissed Ripple’s trademark infringement claim with prejudice, dismissed its unfair competition claims without prejudice for lack of standing, and denied Ripple’s motion to amend its complaint, finding the proposed amendment futile because it did not resolve the standing issue.On appeal, the United States Court of Appeals for the Second Circuit affirmed the district court’s judgment. The appellate court held that Ripple was not the real party in interest for the trademark infringement claim, as ownership had been assigned to Pusey, who failed to ratify or join the action. The court also held that Ripple lacked standing to pursue unfair competition claims under federal and state law, as it no longer had a commercial interest in the trademark. The denial of Ripple’s motion to amend was upheld because the amendment would not cure the standing defect. The court further found that the district court’s interlocutory order allowing People Center to amend its answer was not properly before it on appeal. View "Ripple Analytics Inc. v. People Center, Inc." on Justia Law