Justia U.S. 2nd Circuit Court of Appeals Opinion Summaries

Sealed Appellant 1, the former CEO of a publicly traded company, and Sealed Appellants 2 and 3, a lawyer and law firm that represented him and the company, appealed an order from the United States District Court for the Southern District of New York. The district court compelled Sealed Appellants 2 and 3 to produce documents withheld under attorney-client privilege in response to grand jury subpoenas. The court found that the crime-fraud exception to attorney-client privilege applied, as there was probable cause to believe that communications between Sealed Appellants 1 and 2 were made to criminally circumvent the company’s internal controls.The district court concluded that the company had an internal control requiring its legal department to review all significant contracts. It found that Sealed Appellant 1 and Sealed Appellant 2 concealed settlement agreements with two former employees who had accused Sealed Appellant 1 of sexual misconduct. These agreements were not disclosed to the company’s legal department or auditors, violating internal controls and resulting in false statements to auditors.The United States Court of Appeals for the Second Circuit reviewed the case. It first determined that it had jurisdiction under the Perlman exception, which allows for immediate appeal when privileged information is in the hands of a third party likely to disclose it rather than face contempt. On the merits, the court found no abuse of discretion in the district court’s application of the crime-fraud exception. It held that there was probable cause to believe that the communications were made to circumvent internal controls, thus facilitating or concealing criminal activity. Consequently, the Second Circuit affirmed the district court’s order compelling the production of the documents. View "In Re: Grand Jury Subpoenas Dated September 13, 2023" on Justia Law

Shanda Games Limited, a video game company registered in the Cayman Islands, issued proxy materials as part of a freeze-out merger. The lead plaintiff, David Monk, alleged that these materials were materially misleading, causing him to accept the merger price instead of exercising his appraisal rights. The United States District Court for the Southern District of New York dismissed Monk’s claims, stating he failed to properly allege loss causation.The district court found that Monk had adequately pleaded that Shanda made two material misstatements but ruled that Monk had failed to plead reliance because the market in ADS was not efficient after the merger announcement. The court also held that the statements about the merger's fairness were inactionable opinions. Monk's motion for reconsideration was denied in part and granted in part, and his motion to add another lead plaintiff was denied. Monk filed a second amended complaint, which was again dismissed for failure to state a claim.The United States Court of Appeals for the Second Circuit reviewed the case and held that the district court erred in dismissing Monk’s claims. The appellate court concluded that Monk adequately alleged material misstatements, including the preparation of financial projections, the projections themselves, and the fairness of the merger. The court also found that Monk adequately pleaded scienter, reliance, and loss causation. The court affirmed in part, vacated in part, and remanded the case for further proceedings. View "In re Shanda Games Ltd. Securities Litigation" on Justia Law

Defendants-Appellants Nuveen Floating Rate Income Fund, Nuveen Floating Rate Income Opportunity Fund, Nuveen Short Duration Credit Opportunities Fund, Nuveen Global High Income Fund, Nuveen Senior Income Fund, and their trustees (collectively, “Nuveen”) appealed from a final judgment entered in favor of Plaintiffs-Appellees Saba Capital CEF Opportunities, Ltd. and Saba Capital Management, L.P. (collectively, “Saba”). The district court granted summary judgment for Saba, declaring it unlawful and rescinding an amendment to Nuveen’s investment company bylaws that restricts shareholders from voting shares acquired above specified levels of ownership. On appeal, Nuveen challenged Saba’s Article III standing and the district court’s judgment with respect to the legality of Nuveen’s amendment. Nuveen argues that Saba lacks standing because Saba has not alleged, or supported with evidence, an actual or imminent injury that is concrete.   The Second Circuit affirmed. The court explained that Section 12(d)(1) says nothing about the proper interpretation of the ICA’s meaning of “voting stock” and “voting security.” That Congress has imposed, in another section of the ICA, voting conditions and exceptions on presumptively unlawful acquisitions does not permit Nuveen to impose its own more extreme vote-stripping measures directly at odds with Section 18(i)’s language. Further, the court explained that Nuveen points to Section 1(b)(4), which reflects Congress’s concern over investment companies that are “inequitably distributed” and “unduly concentrated through pyramiding or inequitable methods of control.” But Congress directly addressed those concerns in other provisions of the ICA, which restricts investment company acquisitions. View "Saba Cap. CEF Opportunities 1, Ltd., Saba Cap. Mgmt., L.P. v. Nuveen" on Justia Law

Plaintiff appealed the dismissal of his direct suit against Defendant Brightstar Asia, Ltd. In connection with the sale of his company, Harvestar, to Brightstar Asia, Plaintiff entered into a contract with Brightstar Asia, Harvestar, and his co-founder. The contract provided that conflicted transactions between Brightstar Asia and Harvestar must be on “terms no less favorable to” Harvestar than those of an arms-length transaction. Plaintiff alleged in his complaint that Brightstar Asia engaged in conflicted transactions that rendered his options rights worthless. Those actions, according to Plaintiff, breached both the express terms of the contract and the implied covenant of good faith and fair dealing. The district court dismissed his complaint for raising claims that could be brought only in a derivative suit.   The Second Circuit agreed that Plaintiff can bring a claim for breach of the express conflicted-transactions provision only in a derivative suit. However, the court held that Plaintiff may bring a direct suit for breach of the covenant of good faith and fair dealing because that covenant is based on his individual options rights. Accordingly, the court affirmed in part and vacated in part the district court’s judgment.   The court explained that the inquiry into whether a claim is direct, and a plaintiff, therefore, has “standing” to bring it, is not an Article III standing inquiry Even if the district court were right that Plaintiff’s claims had to be brought in a derivative suit, it should have dismissed the complaint for failure to state a claim. View "Miller v. Brightstar Asia, Ltd." on Justia Law

Between 2004 and 2009, Stryker submitted information to the Securities and Exchange Commission’s Enforcement Division regarding alleged wrongdoing by ATG and an involved individual. In 2009, the SEC opened an investigation and interviewed Stryker. The SEC subsequently filed an enforcement action against ATG and the individual, charging them with violating Section 5 of the Securities Act of 1933. In 2010, the SEC reached a settlement with the respondents to the enforcement action. The district court approved the settlement, whereby ATG and the individual were held liable for more than $19 million. In 2011, Stryker sought a whistleblower award under Section 21F of the Dodd-Frank Act, 15 U.S.C. 78u-6, based on the successful enforcement action. The SEC denied the award because the information was submitted before enactment of Dodd-Frank. The Second Circuit affirmed, concluding that the SEC’s interpretation was within its authority and consistent with the legislation. View "Stryker v. Secs. & Exch. Comm'n" on Justia Law

StreetEasy filed suit under the Anticybersquatting Consumer Protection Act, 15 U.S.C. 1125(d). This appeal arose out of the attempted resolution of a dispute between a real estate listing website and one of its co-founders over the propriety of actions taken by the co-founder when he separated from the company, and the validity of corporate actions that occurred before his departure. Because the order of dismissal failed to retain jurisdiction over enforcement of the parties' settlement agreement, or to incorporate the terms of that agreement, the district court lacked jurisdiction to enforce the agreement. Therefore, the court vacated the district court's orders enforcing the settlement agreement and holding defendant in contempt for noncompliance. Because defendant was properly sanctioned for only one of the three factual contentions identified by the district court as the basis for its sanctions award, the court vacated that award and remanded the matter for reconsideration of the appropriate amount of monetary sanctions in light of this decision. View "StreetEasy, Inc. v. Chertok" on Justia Law

Starr, AIG's former principal shareholder, filed suit against the FRBNY for breach of fiduciary duty in its rescue of AIG during the fall 2008 financial crisis. The district court dismissed Starr's claims and Starr appealed. The suit challenged the extraordinary measures taken by FRBNY to rescue AIG from bankruptcy at the height of the direst financial crisis in modern times. In light of the direct conflict these measures created between the private duties imposed by Delaware fiduciary duty law and the public duties imposed by FRBNY's governing statutes and regulations, the court held that, in this suit, state fiduciary duty law was preempted by federal common law. Accordingly, the court affirmed the judgment of the district court. View "Starr Int'l Co. v. Federal Reserve Bank of New York" on Justia Law

This case involved shareholders who owned stock in a C Corporation, which in turn held appreciated property. Commissioner appealed the district court's holding that Diebold could not be held liable as a transferee of a transferee under 26 U.S.C. 6901. The court concluded that the standard of review for mixed questions of law and fact in a case on review from the Tax Court was the same as that for a case on review after a bench trial from the district court: de novo to the extent that the alleged error was in the misunderstanding of a legal standard and clear error to the extent the alleged error was in a factual determination. On the merits, the court held that the two requirements of 26 U.S.C. 6901 were separate and independent inquiries, one procedural and governed by federal law, and the other substantive and governed by state law; under the applicable state statute, the series of transactions at issue collapsed based upon the constructive knowledge of the parties involved; and the court vacated the Tax Court's decision and remanded for further proceedings. View "Diebold Foundation, Inc. v. Commissioner of Internal Revenue" on Justia Law

Plaintiff appealed the district court's dismissal of his complaint against the Guthrie Defendants. Plaintiff's principal issue on appeal required the court to consider whether the unauthorized disclosure of confidential medical information by a medical corporation's employee gives a plaintiff a right of action for breach of fiduciary duty under New York law that runs directly against the corporation, even when the corporation's employee acted outside the scope of her employment and is not plaintiff's treating physician. Plaintiff's appeal presented a question that has not been resolved by the New York Court of Appeals. Accordingly, the court deferred decision and certified the question to the New York Court of Appeals. The court disposed of plaintiff's remaining claims on appeal in a separate summary order filed simultaneously with this opinion. View "Doe v. Guthrie Clinic, Ltd." on Justia Law

Plaintiff appealed the district court's dismissal of his complaint against defendant Justin Korn. Plaintiff, a former shareholder and officer of defendant GVC, sought indemnification from GVC after successfully defending a suit brought by GVC in Delaware, and also sought to pierce the corporate veil to hold Korn accountable for any resulting judgment. The district court entered a stipulated judgment against GVC, but dismissed the complaint against Korn. Because the district court erroneously held that plaintiff could not pursue both indemnification and an alter-ego veil-piercing theory, the court vacated the order of dismissal and remanded for further proceedings. View "Kertesz v. General Video Corp." on Justia Law