Justia U.S. 6th Circuit Court of Appeals Opinion SummariesArticles Posted in Corporate Compliance
Billy F. Hawk, Jr., GST Non-Exempt Marital Trust v. Commissioner of Internal Revenue
After Hawk died, his wife, Nancy, decided to sell the family business, Holiday Bowl and made a deal with MidCoast, which claimed an interest in acquiring companies with corporate tax liabilities that it could set off against its net-operating losses. Holiday first sold its bowling alleys to Bowl New England, receiving $4.2 million in cash and generating about $1 million in federal taxes. Nancy and Billy’s estate then sold Holiday Bowl to MidCoast for about $3.4 million,"in essence exchanging one pile of cash for another minus the tax debt MidCoast agreed to pay." MidCoast never paid the taxes. The United States filed a transferee-liability action against Nancy and Hawk’s estate. The Tax Court ruled for the government. The Sixth Circuit affirmed, reasoning that the Hawks were transferees of a delinquent taxpayer under 26 U.S.C. 6901, and that Tennessee has adopted the Uniform Fraudulent Transfer Act, which provides remedies to creditors (like the United States) when insolvent debtors fraudulently transfer assets to third parties. Holiday Bowl owed taxes. “Congress, with assistance from the courts, has constructed a formidable defense against taxpayer efforts to traffic in net operating losses and other corporate tax benefits.” View "Billy F. Hawk, Jr., GST Non-Exempt Marital Trust v. Commissioner of Internal Revenue" on Justia Law
Olagues v. Timken
Olagues is a self-proclaimed stock options expert, traveling the country to file pro se claims under section 16(b) of the Securities and Exchange Act of 1934, which permits a shareholder to bring an insider trading action to disgorge “short-swing” profits that an insider obtained improperly. Any recovery goes only to the company. In one such suit, the district court granted a motion to strike Olagues’ complaint and dismiss the action, stating Olagues, as a pro se litigant, could not pursue a section 16(b) claim on behalf of TimkenSteel because he would be representing the interests of the company. The Sixth Circuit affirmed that Olagues cannot proceed pro se but remanded to give Olagues the opportunity to retain counsel and file an amended complaint with counsel. View "Olagues v. Timken" on Justia Law
Norfolk County Retirement System v. Community Health Systems, Inc.
Community, the nation’s largest for-profit hospital system, obtained about 30 percent of its revenue from Medicare reimbursement. Instead of using one of the systems commonly in use for determining whether Medicare patients need in-patient care, Community used its own system, Blue Book, which directed doctors to provide inpatient services for many conditions that other hospitals would treat as outpatient cases. Community paid higher bonuses to doctors who admitted more inpatients and fired doctors who did not meet quotas. Community’s internal audits found that its hospitals were improperly classifying many patients; its Medicare consultant told management that the Blue Book put the company at risk of a fraud suit. Community attempted a hostile takeover of a competitor, Tenet. Tenet publicly disclosed to the SEC, expert analyses and other information suggesting that Community’s profits depended largely on Medicare fraud. Community issued press releases, denying Tenet’s allegations, but ultimately corroborated many of Tenet’s claims. Community’s shareholders sued Community and its CFO and CEO, alleging that the disclosure caused a decline in stock prices. The district court rejected the claim. The Sixth Circuit reversed. The Tenet complaint at least plausibly presents an exception to the general rule that a disclosure in the form of a complaint would be regarded, by the market, as comprising mere allegations rather than truth. The plaintiffs plausibly alleged that the value of Community’s shares fell because of revelations about practices that Community had previously concealed. View "Norfolk County Retirement System v. Community Health Systems, Inc." on Justia Law
IBEW Local No. 58 Annuity Fund v. EveryWare Global, Inc.
Plaintiffs, who purchased EveryWare securities in 2013-2014, alleged a “pump and dump” scheme by EveryWare’s principal shareholders and officers to inflate the price of EveryWare shares and then sell their EveryWare shares before prices plummeted. They claim that EveryWare’s CEO released EveryWare’s financial projections for 2013, despite actually knowing those projections to be false and misleading and, months later, told investors, with the intent to deceive, manipulate, or defraud, that EveryWare was on track to meet its projections and that when EveryWare offered a portion of its shares to investors in September 2013, and submitted a registration statement and a prospectus in connection with that offering, EveryWare’s underwriters and directors signed documents, incorporating EveryWare’s financial projections and failing to disclose material downward trends in the business. The Sixth Circuit affirmed dismissal of plaintiffs’ claims under the Securities Exchange Act of 1934 and the Securities Act of 1933. The Exchange Act claims failed because plaintiffs did not allege particularized facts giving rise to a strong inference that defendants acted with the requisite scienter; the Securities Act claims failed because plaintiffs did not allege any well-pleaded material statement or omission in the registration statement or the prospectus. View "IBEW Local No. 58 Annuity Fund v. EveryWare Global, Inc." on Justia Law
Braun v. Ultimate Jetcharters, LLC
In 2011 UJC private jet charter services hired Plaintiff as a co-pilot. After altercations between Plaintiff, a woman, and male pilots, which Plaintiff perceived to constitute sexual harassment, Plaintiff wrote an email to UJC management. About three weeks later, Plaintiff’s employment was terminated. Plaintiff sued, alleging retaliation. Defendants’ answer stated that UJC had converted from a corporation to an LLC. Plaintiff did not amend her complaint. Defendants’ subsequent motions failed did not raise the issue of UJC’s identity. UJC’s CEO testified that he had received reports that Plaintiff had used her cell phone below 10,000 feet; that once Plaintiff became intoxicated and danced inappropriately at a bar while in Atlantic City for work; that Plaintiff had once dangerously performed a turning maneuver; and that Plaintiff had a habit of unnecessarily executing “max performance” climbs. There was testimony that UJC’s male pilots often engaged the same behavior. The jury awarded her $70,250.00 in compensatory and $100,000.00 in punitive damages. When Plaintiff attempted to collect on her judgment, she was told that the corporation was out of business without assets, but was offered a settlement of $125,000.00. The court entered a new judgment listing the LLC as the defendant, noting that UJC’s filings and witnesses substantially added to confusion regarding UJC’s corporate form and that the LLC defended the lawsuit as though it were the real party in interest. The Sixth Circuit affirmed, stating it was unlikely that UJC would have offered a generous settlement had it genuinely believed itself to be a victim of circumstance, or that it would be deprived of due process by an amendment to the judgment; the response indicated a litigation strategy based on “roll[ing] the dice at trial and then hid[ing] behind a change in corporate structure when it comes time to collect.” View "Braun v. Ultimate Jetcharters, LLC" on Justia Law
Rhinehimer v. U.S. Bancorp Inv.., Inc.
Plaintiff sued USBI, alleging retaliation in violation of the Sarbanes–Oxley Act, 18 U.S.C. 1514A. Plaintiff was disciplined and fired in retaliation for an email he sent alerting his superiors to unsuitable trades made by a co-worker, Harrigan, to the detriment of Plaintiff’s elderly client, Purcell. The trades occurred while Plaintiff was on disability leave. Plaintiff learned of the trades from his assistant shortly after they were made. He called his supervisor twice to express concern and wrote an email to his supervising principal, criticizing the trades for “destroy[ing]” Purcell’s estate plan. Upon returning, Plaintiff was reprimanded for his email. His superiors threatened his job, placed him on an aggressive “performance improvement plan,” and fired him when he ultimately failed to meet its goals. The jury awarded damages for economic loss and emotional damages, finding that Plaintiff proved by a preponderance of the evidence that he had an objectively reasonable belief that Harrigan committed unsuitability fraud and that his email was a contributing factor in his termination; and that USBI did not prove by clear and convincing evidence that it would have discharged Plaintiff even if he had not sent the email. The Sixth Circuit affirmed, holding that Plaintiff established that he engaged in protected activity. View "Rhinehimer v. U.S. Bancorp Inv.., Inc." on Justia Law
Hartman Revocable Living Trust v. S. Mich. Bancorp, Inc.
Whenever a Michigan corporation holds a shareholder meeting, it must disclose any proposals on the agenda that a shareholder wishes to submit for shareholder action. In 2012, one of Bancorp’s shareholders asked the company to circulate such a proposal before the company’s 2013 annual meeting. The proposal called for “director accountability” in amending Bancorp’s bylaws, which did not permit the corporation to claw back fees paid to directors found liable for breaching their fiduciary duties. In its proxy statement discussing the agenda, Bancorp neither distributed the proposal nor described it, stating only that a shareholder planned to propose a resolution urging the board to amend the bylaws and that, If that resolution materialized, the directors would use their “discretionary authority” to vote it down by treating all submitted proxies as no-votes absent instructions to the contrary. After the proposal was voted down at the meeting, the shareholder sued. The district court dismissed. The Sixth Circuit reversed, finding that the “notice” did not satisfy Mich. Comp. Laws 450.1404. Mere acknowledgement of the existence of a proposal, without describing even its subject matter, cannot amounts to “notice” under the statute. View "Hartman Revocable Living Trust v. S. Mich. Bancorp, Inc." on Justia Law
Posted in: Corporate Compliance
Chrysler Grp. LLC v. Sowell Auto., Inc.
Section 747 of the Consolidated Appropriations Act of 2010 created an arbitration procedure for automobile dealerships to seek continuation or reinstatement of franchise agreements that had been terminated by Chrysler during bankruptcy proceedings, with the approval of the bankruptcy court. After an arbitral decision favoring the dealer, the manufacturer was required to provide the dealer a “customary and usual letter of intent” to enter into a sales and service agreement. After arbitrations, a trial was held to determine whether Chrysler supplied each prevailing dealer with such a letter. Most of the rejected dealers reached settlements with New Chrysler. The court determined that the remaining dealers had received “customary and usual” letters. The Sixth Circuit agreed that section 747 does not constitute an unconstitutional legislative reversal of a federal court judgment and that the only relief it provides to successful dealers is the issuance of a letter of intent. The letters at issue were “customary and usual,” except one contractual provision that required reversal. Contrary to the district court’s conclusion application Michigan and Nevada state dealer acts is preempted by section 747, because those acts provide for redetermination of factors directly addressed in federally-mandated arbitrations closely related to a major federal bailout. View "Chrysler Grp. LLC v. Sowell Auto., Inc." on Justia Law
Lukas v. McPeak
Lukas owns stock in Miller, a publicly owned corporation engaged in production of oil and natural gas. In 2009, Miller announced that it had acquired the “Alaska assets,” worth $325 million for only $2.25 million. Miller announced several increases in the value of the Alaska assets over the following months, causing increases in its stock price. In 2010, Miller amended its employment agreement with its CEO (Boruff), substantially increasing his compensation and giving him stock options. The Compensation Committee (McPeak, Stivers, and Gettelfinger) recommended the amendment and the Board, composed of those four and five others, approved it. In 2011 a website published a report claiming that the Alaska assets were worth only $25 to $30 million and offset by $40 million in liabilities. In SEC filings, Miller acknowledged “errors in . . . financial statements” and “computational errors.” The stock price decreased., Lukas filed suit against Miller and its Board members, alleging: breach of fiduciary duty and disseminating materially false and misleading information; breach of fiduciary duties for failing to properly manage the company; unjust enrichment; abuse of control; gross mismanagement; and waste of corporate assets. The district court dismissed. The Sixth Circuit affirmed. Lukas brought suit without first making a demand on the Miller Board of Directors to pursue this action, as required by Tennessee law, and did not establish futility. View "Lukas v. McPeak" on Justia Law
Autocam Corp. v. Sebelius
Kennedy family members own a controlling interest in corporate entities that comprise Autocam. John Kennedy is Autocam’s CEO. The companies are for-profit manufacturers in the automotive and medical industries and have 661 employees in the U.S. The Kennedys are practicing Roman Catholics and profess to “believe that they are called to live out the teachings of Christ in their daily activity and witness to the truth of the Gospel,” which includes their business dealings. Regulations under the Patient Protection and Affordable Care Act of 2010 (ACA), 124 Stat. 119, require that Autocam’s health care plan cover, without cost-sharing, all FDA-approved contraceptive methods, sterilization, and patient education and counseling for enrolled female employees. Autocam and the Kennedys claim that compliance with the mandate will force them to violate their religious beliefs, in violation of the Religious Freedom Restoration Act, 42 U.S.C. 2000bb. The district court denied their motion for a preliminary injunction. The Sixth Circuit affirmed for lack of standing. Recognition of rights for corporations under the Free Speech Clause 20 years after RFRA’s enactment does not require the conclusion that Autocam is a “person” that can exercise religion for purposes of RFRA. View "Autocam Corp. v. Sebelius" on Justia Law