Justia Business Law Opinion Summaries

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The Supreme Court of Appeals of West Virginia recently ruled on a case involving the nonprofit organization Tax Analysts and Matthew Irby, the West Virginia State Tax Commissioner. Tax Analysts requested copies of field audit and audit training manuals from the West Virginia State Tax Department under the West Virginia Freedom of Information Act (FOIA). The Department denied the request, citing a statutory exemption protecting certain tax-related documents. Tax Analysts then filed a declaratory judgment action seeking to prevent the Department from withholding the requested documents.The Circuit Court of Kanawha County ruled in favor of the Department and dismissed the case, accepting the Department's argument that the documents were statutorily protected by the asserted FOIA disclosure exemption. However, the Supreme Court of Appeals of West Virginia reversed this decision, concluding that the circuit court erred by not requiring the Department to present detailed justifications, known as a Vaughn index and an affidavit, as to why each document or part of it was exempt from disclosure under the FOIA.The court remanded the case with instructions for the circuit court to require the Department to file a Vaughn index and an affidavit explaining why disclosure of the documents would be harmful and why they should be exempt. The court concluded that the Department had not met its burden of showing the express applicability of the claimed exemption to the material requested. View "Tax Analysts v. Irby" on Justia Law

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The case involves a dispute between the Trustee for the bankrupt company BWGS, LLC and BMO Harris Bank N.A. and Sun Capital Partners VI, L.P. The Trustee sought to avoid a payment made by BWGS to BMO Harris, which was used to finance the acquisition of BWGS by Sun Capital's subsidiary. The Trustee argued that the payment constituted a constructively fraudulent transfer under the U.S. Bankruptcy Code and Indiana state law.The United States Court of Appeals for the Seventh Circuit had to address two novel issues: whether Section 546(e) of the Bankruptcy Code, which protects certain transactions made “in connection with a securities contract,” applies to transactions involving private securities; and, if so, whether it also preempts state law claims seeking similar relief.The Court held that Section 546(e) does apply to transactions involving private securities and does preempt state law claims seeking similar relief. Consequently, the Trustee's attempt to avoid the payment under the Bankruptcy Code and Indiana law was barred by Section 546(e). The Court also rejected the Trustee's argument that he could recover the value of the payment from Sun Capital under a different provision of the Bankruptcy Code, holding that this claim was also preempted by Section 546(e). The Court thus affirmed the lower court's decision to dismiss the Trustee's complaint with prejudice. View "Petr v. BMO Harris Bank N.A." on Justia Law

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The case concerns a dispute between LKQ Corporation and its former Plant Manager, Robert Rutledge, who resigned from the company and joined a competing firm. LKQ sought to recover proceeds Rutledge realized from multiple stock sales over many years, based on a forfeiture-for-competition provision in their Restricted Stock Unit Agreements.The key legal issue revolves around the applicability of Delaware law on forfeiture-for-competition provisions. These provisions require former employees to forfeit a monetary benefit upon joining a competitor. The Delaware Supreme Court held in a recent case that such provisions are not subject to a reasonableness review. However, the United States Court of Appeals for the Seventh Circuit found it unclear whether this ruling applies outside the context of highly sophisticated parties.The Court of Appeals affirmed the lower court's judgment in favor of Rutledge on the breach of the Restrictive Covenant Agreements and unjust enrichment claims. However, due to the complexity of the Delaware law issue, the Court decided to certify questions to the Delaware Supreme Court for clarification. Specifically, the certified questions ask whether the Delaware Supreme Court's ruling on forfeiture-for-competition provisions applies outside the limited partnership context and, if not, what factors inform its application. View "LKQ Corporation v. Rutledge" on Justia Law

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The Nebraska Supreme Court affirmed a decision holding Allen Crow, a corporate officer, personally liable for unpaid use taxes of his former corporation, Direct Media Marketing, Inc. The court determined that Crow failed to rebut the presumption of correctness of the amount of use taxes assessed against Direct Media. The court further found that Crow was a responsible officer of Direct Media and willfully failed to pay Direct Media's use taxes, making him personally liable for the tax deficiency.Despite the Department of Revenue's significant delay in pursuing proceedings against Direct Media and Crow, the court did not find compelling circumstances or demonstrated prejudice that would warrant equitable relief. The court held that the doctrine of laches, which bars a party from relief due to delay, could not be applied against the government in its efforts to enforce a public right or protect a public interest. The court concluded that the delay did not absolve Direct Media and Crow of their liability. Therefore, the court affirmed the district court's order upholding the order of the Tax Commissioner that held Crow personally liable for Direct Media's unpaid taxes. View "Crow v. Nebraska Dept. of Rev." on Justia Law

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The Supreme Court of Wisconsin was asked to review a decision by the state's Labor and Industry Review Commission (LIRC) and determine whether Catholic Charities Bureau, Inc. (CCB) and its four sub-entities were operated primarily for religious purposes, and thus exempt from making contributions to Wisconsin's unemployment insurance system. The Court decided that in determining whether an organization is "operated primarily for religious purposes" according to Wisconsin Statute § 108.02(15)(h)2, both the motivations and activities of the organization must be examined.Reviewing the facts of the case, the court determined that while CCB and its sub-entities professed to have a religious motivation, their activities were primarily charitable and secular. The services provided by the sub-entities, which included job training, placement, and coaching, along with services related to daily living, could be provided by organizations of either religious or secular motivations, and thus were not "primarily" religious in nature.The court also rejected CCB's argument that this interpretation of the statute violated the First Amendment, as it did not interfere with the church's internal governance nor examine religious dogma. Instead, it was a neutral and secular inquiry based on objective criteria. Therefore, the court affirmed the decision of the court of appeals. View "Catholic Charities Bureau, Inc. v. State of Wisconsin Labor and Industry Review Commission" on Justia Law

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In this case, the Supreme Court of Kentucky addressed a dispute over the division of proceeds from the sale of a commercial property. The parties involved were business partners who had formed an LLC to manage the property. One of the partners, Allen, had previously asked his partners to sell their interests in the LLC to his children to resolve a tax problem. The partners agreed, but wanted to ensure they would not forfeit potential future profits from the property sale. They decided that proceeds from a future sale of the building would be split according to their ownership interests up to $8 million, and any proceeds above $8 million would be divided equally among them.In 2017, the property sold for $10 million, and a dispute arose over how to distribute the proceeds. One of the partners, Swyers, distributed the proceeds according to the previously agreed upon formula. However, the Allen family contested this, arguing that the entire proceeds should have been distributed according to ownership interests.The trial court ruled in favor of Swyers, finding that the agreement provided for a bifurcated distribution of proceeds, with an $8 million sale price threshold. The Court of Appeals disagreed, concluding that distributions of one-third each were warranted only if the total net proceeds exceeded $8 million.The Supreme Court of Kentucky reversed the Court of Appeals' decision, agreeing with the trial court's interpretation of the agreement. The court concluded that the parties had intended to split the proceeds on a sale price threshold of $8 million, and that only the sales commission needed to be deducted before calculating the distribution of the final $2 million of the sale price. View "SWYERS V. ALLEN FAMILY PARTNERSHIP #1" on Justia Law

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A Puerto Rican company, Caribe Chem, filed a lawsuit against a Florida company, Southern Agricultural Insecticides, and two Puerto Rican entities. The case was initially non-removable to federal court due to lack of complete diversity among parties. After the Puerto Rican defendants were dismissed from the lawsuit based on the statute of limitations, Southern attempted to remove the case to federal court, citing now-complete diversity of parties. Caribe objected, and the district court ruled in Caribe's favor, ordering the case to be remanded to Commonwealth court. Southern appealed the remand order.The United States Court of Appeals for the First Circuit affirmed the district court's remand order. The court adopted the voluntary/involuntary rule, which states that a lawsuit initially lacking complete diversity can acquire it when all non-diverse parties are dismissed from the action. However, if the non-diverse defendants are dismissed without the plaintiff's acquiescence, the lawsuit is generally not removable. The court ruled that the dismissal of the non-diverse defendants was involuntary since it was over Caribe's objections. The court also stated that the plaintiff's decision not to appeal the dismissal does not make the dismissal voluntary. The court reaffirmed that the voluntary/involuntary rule precludes removal where non-diverse defendants are dismissed without plaintiff's voluntary action. The court also affirmed the district court's denial of Southern's motion to set aside the judgment under Rule 60. View "Caribe Chem Distributors, Corp. v. Southern Agricultural Insecticides, Inc." on Justia Law

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This case arose from a Securities & Exchange Commission (SEC) enforcement action against Mohammed Ali Rashid, a former senior partner at the private equity firm Apollo Management L.P. Rashid was accused of breaching his fiduciary duties to the Apollo-affiliated private equity funds he advised by submitting fraudulent expense reports, which were eventually paid by the funds. The district court held that Rashid was not liable under § 206(1) of the Investment Advisers Act because he was not aware that the funds, rather than Apollo, would pay for his expenses. However, the court found Rashid liable under § 206(2) of the Act, concluding he was indifferent and therefore negligent as to which entity would pay for his expenses.The United States Court of Appeals for the Second Circuit reversed the district court's decision. The appellate court held that it was not reasonably foreseeable to Rashid that the funds would pay for his expenses, concluding that Rashid did not breach his duty of care to the funds or proximately cause their harm. The court noted that while Rashid's actions were serious and likely criminal, they did not constitute fraud against the funds as required under § 206(2) of the Investment Advisers Act. The court also found that Rashid did not breach his duty of care to the funds, as he could not have reasonably known that the funds would cover his expenses. The court concluded that Rashid did not proximately cause the funds' harm, as Apollo's intervening actions in overbilling the funds were not reasonably foreseeable to Rashid. View "SEC v. Rashid" on Justia Law

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In this case, five former customers of Peregrine Financial Group, Inc., a defunct futures commission merchant, filed a class action lawsuit against various defendants, including JPMorgan Chase Bank and National Futures Association. They claimed that their investments were wiped out due to fraudulent activities by Peregrine's CEO. The United States District Court for the Southern District of New York dismissed the federal claims as time-barred and declined to exercise supplemental jurisdiction over the state-law claims.On appeal, the United States Court of Appeals for the Second Circuit affirmed the lower court's decision. The main issue addressed by the Second Circuit was whether a party could compel a district court to exercise subject-matter jurisdiction on a theory of jurisdiction that the party raised untimely.The Court held that a party may not do so. The Court distinguished between objecting to a federal court's exercise of jurisdiction, which a party could do at any stage in the litigation, and invoking the district court’s jurisdiction, which can be forfeited if not raised timely. Therefore, although federal courts must ensure they have jurisdiction, there is no corresponding obligation to find and exercise jurisdiction on a basis not raised by the parties. The Court concluded that the district court was within its discretion to decline to consider the untimely raised theory of jurisdiction. View "Behrens v. JPMorgan Chase Bank, N.A." on Justia Law

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The case involves Purpose Built Families Foundation, a Florida nonprofit that received federal grants from the Department of Veterans Affairs to serve veterans and their families. In 2022, the Department notified the Foundation that activities and payments under five grants would be terminated or withheld due to "major fiscal mismanagement activities". The Foundation sued the Secretary of Veterans Affairs under the Administrative Procedure Act and received a temporary restraining order. Subsequently, the Department withdrew the challenged notices and the Secretary moved to dismiss the action as moot. The district court granted the motion.The United States Court of Appeals for the Eleventh Circuit affirmed the decision of the district court. The court held that the case was moot, as the Department's withdrawal of the notices meant the Foundation's claims could not provide meaningful relief. It also ruled that neither the voluntary-cessation nor the capable-of-repetition-yet-evading-review exceptions to mootness applied. The court stated that the Department's subsequent actions, including a more robust process and new termination notices, were materially different from the original notices. Therefore, a lawsuit challenging the new termination notices would involve materially different allegations and answers. The court concluded that the Foundation would have ample opportunity for judicial review of the legality of the new terminations, once the administrative process was completed. View "Purpose Built Families Foundation, Inc. v. USA" on Justia Law