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

Articles Posted in Corporate Compliance
by
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

by
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

by
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

by
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

by
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

by
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

by
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

by
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

by
Terex manufactures equipment. Apuzzo was its Chief Financial Officer. URI is an equipment rental company. Nolan was URI’s Chief Financial Officer. URI and Nolan, carried out fraudulent “sale-leaseback” transactions, to allow URI to recognize revenue prematurely and inflate profits. URI sold used equipment to GECC, a financing corporation, and leased it back. To obtain GECC’s participation, URI convinced Terex to agree to resell the equipment after the lease periods. Terex guaranteed that GECC would receive at least 96 percent of the purchase price for the equipment. URI secretly agreed to indemnify Terex for losses from the guarantee and to purchase new equipment from Terex. Apuzzo knew that if the extent of the transactions was transparent, URI would not be able to claim increased revenue under Generally Accepted Accounting Principles. Apuzzo disguised URI’s risks and obligations, and approved inflated invoices to conceal indemnifications. Following transactions under the scheme, the SEC charged that Apuzzo aided and abetted securities laws violations through his role in a fraudulent accounting scheme. The district court dismissed; the complaint plausibly alleged that Apuzzo had actual knowledge of the primary violation, but did not allege “substantial assistance.” The Second Circuit reversed, holding that Apuzzo associated himself with the venture, participated in it as in something that he wished to bring about, sought by his action to make it succeed. . View "Sec. & Exch. Comm'n v. Apuzzo" on Justia Law

by
Plaintiffs appealed from a judgment of the district court granting defendants' motion to dismiss and denying as moot plaintiffs' motion for summary judgment on liability. The District Court held that plaintiffs failed to state a claim, under a variety of theories, based on defendants' purchase and possession of an interest in the Coca-Cola Bottling Company of Egypt. The court concluded that the facts alleged in plaintiffs' Amended Complaint, if true, told a tragic story of religious discrimination in Egypt in the 1960s and the court understood the desire for compensation. However, that wrong, if it did indeed occur, was inflicted by the Egyptian government, not by defendants. Because the district court correctly determined that the Amended Complaint failed to state a claim against defendants and also therefore correctly denied plaintiffs' motion for partial summary judgment as moot, the judgment of the district court was affirmed. View "Bigio v. The Coca-Cola Co." on Justia Law