A federal judge recently dismissed a defamation lawsuit filed by former Playboy model Karen McDougal against Fox News host Tucker Carlson. The lawsuit concerned statements Carlson had made about McDougal during his show “Tucker Carlson Tonight” which airs on the Fox News Channel. The judge ultimately granted the motion to dismiss filed by Fox News after determining that the allegedly defamatory statements constituted only nonactionable opinion and rhetorical hyperbole as a matter of law.

The statements at issue in the lawsuit were made by Carlson on a segment of his show that aired on December 10, 2018. During that show, Carlson discussed alleged payments made to McDougal in an effort to keep her from discussing her alleged affair with President Trump back in 2006. Carlson did not refer to McDougal by name when making the comments, though at one point during the show her picture was displayed on-screen.

The opinion by U.S. District Judge Mary Kay Vyskocil quotes at length from the transcript of the show in which Carlson made the allegedly libelous statements. From the several minutes of dialogue reproduced in the opinion, the Court identified two statements that McDougal cited in her complaint as giving rise to a claim of defamation per se. The first statement was that McDougal “approached Donald Trump and threatened to ruin his career and humiliate his family if he doesn’t give [her] money.” The second statement claimed that McDougal’s actions were “a classic case of extortion,” which is a crime. Nearly a year after these statements aired, McDougal filed a single count complaint for defamation per se in a New York state court which Fox News subsequently removed to federal court.

In its motion to dismiss, Fox News argued that the lawsuit was an attempt to silence the media from discussing matters of public concern. It argued that the defamation per se claim failed because the statements constituted nonactionable opinion and rhetorical hyperbole that is protected by the First Amendment. It also argued that the complaint failed to allege facts to support an inference that Fox News acted with actual malice, a necessary requirement when the plaintiff is a public figure. Continue reading ›

After a corporation attempted to designate its principal agent the right to file an answer to a complaint pro se, the trial court found that the corporation had not properly appeared before the court and awarded a default judgment to the plaintiff. The corporation attempted to have the default judgment declared void, and the trial court found that the corporation had not demonstrated that it acted with due diligence to explain its failure to file a proper appearance. The appellate panel determined that the trial court did not err and that the corporation’s petition failed under both a standard 2-1401 and a subsection (f) analysis.

AZM Group, Inc. executed an asset purchase agreement with Askew Insurance Group, LLC. The APA addressed AZM’s purchase of Askew. The terms of the agreement stated that Askew would continue its current lease agreement for its office space from September 2014 to April 2017. A separate sublease agreement between AZM and Askew would enable AZM to sublease Askew’s office space from the same time period. AZM agreed to pay Askew $1300 per month for rent. Askew would then add the additional amount to total the monthly rent at $1550, to be paid to the landlord by Askew. Continue reading ›

Recently, the U.S. Seventh Circuit Court of Appeals held that a putative class action lawsuit alleging a technical violation of the Illinois Biometric Information Privacy Act (BIPA) was sufficient to establish the Article III standing required in order to proceed in federal court, reversing the District Court’s dismissal of the claims. Only time will tell the full impact of this ruling but it does have the potential to be an important precedent that any business operating in Illinois and collecting fingerprints or utilizing facial-recognition technology must be aware of. Beyond its potential impact on Illinois businesses, the ruling is another decision interpreting the Supreme Court’s 2016 decision in Spokeo, Inc. v. Robins and the requirements set forth in that opinion for establishing Article III standing, and particularly the injury-in-fact prong of the standing analysis.

The plaintiff, Christine Bryant, worked for a call center in Illinois which had a workplace cafeteria with vending machines operated by the Compass Group. The machines did not accept cash and instead, employees had to scan and use their fingerprints to create user accounts and to purchase items.

Bryant initially filed a putative class action lawsuit in state court in the Circuit Court of Cook County. Her complaint alleged that Compass violated Section 15(b) of BIPA, which contains the requirement to obtain informed consent of individuals, by failing to: (1) inform her in writing that her biometric identifier was being collected or stored; (2) inform her in writing of the specific purpose and length of term for which her fingerprint was being collected, stored, and used; or (3) obtain her written release to collect, store, and use her fingerprint. Bryant’s complaint additionally alleged that Compass had also violated another section of BIPA, Section 15(a), which requires private entities that collect biometric information to make publicly available a data retention schedule and guidelines for permanently destroying the collected biometric identifiers, by failing to make such a written policy available to her or the other putative class members.

Following the filing of Bryant’s complaint in state court, Compass removed the action to federal court under the Class Action Fairness Act, 28 U.S.C. § 1332(d). In a somewhat unusual twist, it was the plaintiff who argued that she lacked Article III standing required to litigate her claims in federal court. Bryant argued that what she alleged in her complaint were bare procedural violations that did not constitute an injury-in-fact under Spokeo. The district court agreed with Bryant and remanded the action to state court. Compass appealed the district court’s ruling to the Seventh Circuit. This set up an odd dynamic on appeal where Compass, the defendant, argued that Bryant’s allegations did constitute an injury-in-fact sufficient to confer subject matter jurisdiction on the federal court.

Compass’s primary argument in favor of standing was that the Illinois legislature, bypassing BIPA, elevated to protectable status an individual’s right to control his or her own biometric identifiers and information. The Court agreed with Compass with regard to Bryant’s claims concerning violations of Section 15(b) of BIPA. Relying on Justice Thomas’s concurrence in Spokeo, the Court focused on whether Bryant’s claims sought to vindicate a private right or a public one, which the Court characterized as “a useful distinction.” The Court reasoned that the disclosure requirements in Section 15(b) of BIPA protect a private right by granting individuals a right to be fully informed as to how their biometric information will be used before deciding to disclose such information. By contrast, the Court held that the public disclosure requirements in Section 15(a) of BIPA protect a public right because Section 15(a) creates an obligation to the public generally. Consequently, the Court only found the injury-in-fact requirement satisfied with regard to Bryant’s Section 15(b) claims but not her Section 15(a) claims.

The Court’s entire opinion is available online here. Continue reading ›

Every time you hear a famous song playing in a commercial, it’s because the producers paid for the right to use that song in their commercial … or at least they were supposed to. According to a recent copyright lawsuit the Doobie Brothers filed against Bill Murray, the famous actor allegedly failed to obtain permission from the band before using one of their hits in a commercial for his clothing line.

Murray, along with his brothers, released a line of golf clothing under the name William Murray. One of his recent commercials promoting the clothing line featured the song, “Listen to the Music”, a hit created by the Doobie Brothers that reached #11 on the Billboard chart in 1972.

The commercial featuring the song was specifically promoting a polo shirt called Zero Hucks Given, which is named after the fictional character, Huckleberry Finn. The clothing line is meant to bring back the loud golfing clothes that were popular in the 1970s, which could be why Murray chose to use a song from the early ‘70s to evoke that time period in his advertisements.

Peter T. Paterno, the attorney representing the Doobie Brothers, sent a letter to Murray notifying him of the lawsuit. Paterno also represents other musicians whose music Murray has allegedly stolen for use in commercials promoting his line of golf wear, although the Doobie Brothers are the only plaintiffs named in this copyright lawsuit. Continue reading ›

Two corporations agreed to arbitrate a dispute in front of a foreign arbitration panel in Birmingham, England, under the terms of their agreement. After they agreed to arbitrate, one of the parties filed an ex parte application to a U.S. district court asking the court to issue a subpoena compelling a third company to produce documents for use in the arbitration. The district court initially granted the motion, but later quashed it after the defendant objected. The plaintiff appealed, and the appellate panel determined that the district court did not err. The appellate panel found that private arbitration panels did not qualify for the kind of discovery assistance provided for foreign state-sponsored tribunals under §§ 1781 and 1782 of Title 28.

Rolls-Royce PLC manufactured and sold a Trent 1000 aircraft engine to the Boeing Company for incorporation into a 787 Dreamliner aircraft. In January 2016, Boeing tested the new aircraft at its facility near the Charleston International Airport in Charleston, South Carolina. A piece of metal became lodged in an engine valve, restricting the flow of fuel to the engine. As Boeing employees attempted to fix the problem, the engine caught fire, damaging the aircraft. Boeing demanded compensation from Rolls-Royce, and in 2017 the companies settled for $12 million. Rolls-Royce then sought indemnification from Servotronics, Inc., the manufacturer of the valve. Continue reading ›

In a recent opinion, the Delaware Court of Chancery considered a summary judgment motion in an action by Applied Energetics, Inc. against George Farley, who at the time of the challenged actions was the sole member of the company’s board of directors and compensation committee as well as an officer. The suit sought to undo certain actions taken by Farley on behalf of Applied and recover certain amounts the company paid him. The company sought a declaration that Farley’s actions on behalf of Applied were invalid for lack of authorization. The Court granted the company summary judgment on the issue of whether Farley’s actions were invalid for a lack of authorization but denied summary judgment on the other claims, including on the issue of whether Farley’s actions could potentially be validated under §205 of the Delaware General Corporation Law and that Farley could potentially recover damages from Applied for allegedly unpaid compensation.

Applied was founded in 2002 in response to the terrorist attacks on 9/11. The company markets, develops, and manufactures products for the defense and security industry. At its peak in 2006, the company achieved a market capitalization of nearly $1 billion. However, things went downhill for the company after that and just two years later, the company’s share price had fallen by nearly 98%. The company continued its decline over the next decade shedding employees and directors until five of the company’s six directors had resigned, leaving Farley as Applied’s only remaining director.

Alone at the helm of the company which had ceased all operations by that time, Farley attempted to revive Applied with the help of Steven McCahon, one of the company’s founders who had previously served as its chief technology officer. McCahon had left Applied to form his own company. Farley and McCahon decided that Applied would contract with McCahon’s new company to assemble a scientific team and develop new technologies based on Applied’s patent portfolio. To pay McCahon, Farley and McCahon agreed that Applied would issue shares of common stock to McCahon and accrue cash compensation for him at a rate of $150,000 per year, payable once the company had sufficient funds to make the payments. Continue reading ›

Freedom of speech and defamation law are sometimes in tension with each other. Freedom of speech holds that people should be free to say what they want without fear of reprisal. Defamation law holds that people can be held liable and forced to pay for harm caused by false statements about a person or business. As libel attorneys, we have written at length about the limits of libel law liability and the interplay between defamation law and the First Amendment. A recent opinion from a New York state court exemplifies the tension between these two concepts.

In Rowbotham v. Wachenfeld, the plaintiff Jim Rowbotham brought suit against Jeff Wachenfeld and Wachenfeld’s employer, West Hampton True Value hardware store. In his complaint, Rowbotham alleged that the defendant Wachenfeld posted a defamatory comment on the Facebook page of an advertising agency with whom Rowbotham was professionally affiliated. According to the complaint, the comment stated that “Jim [Rowbotham] is a crook. Worst company to do business with.” Rowbotham claims that his professional affiliation with the advertising agency was damaged as a result of Wachenfeld’s comment.

Rowbotham retained an attorney who sent a written request for the comment to be removed. Wachenfeld allegedly did remove the comment sometime in May 2017, replacing it with a five-star review though Wachenfeld denied having posted the comment in the first place. Wachenfeld claimed that anyone at the West Hampton True Value store could have left the comment as all ten computers at the store were logged into his personal Facebook account, making it available to anyone. Continue reading ›

Leprino Foods Co. is the largest manufacturer of mozzarella cheese in the world and is solely responsible for making all the mozzarella that goes on top of Domino’s, Papa John’s, and Pizza Hut’s pizzas. It’s worth billions of dollars, but it’s also a family business.

It was founded in Denver, Colorado in the 1950s by Michael and Susie Leprino. The couple had five children, including Michael Jr. and James. James went into the family business as soon as he had graduated from high school, and while Michael Jr. was involved in the business, he also had his own career in banking and real estate.

James and his daughters, Terry Leprino and Gina Vecchiarelli, together own 75% of the company’s stock.

Michael Jr. died in August of 2018 and his daughters, Nancy, Mary, and Laura Leprino, together own the remaining 25% of the stock in the company. In July, Nancy and Mary sued their uncle and cousins in Denver District Court for allegedly managing the company in a way that provided the greatest financial reward for them, while ignoring the financial interests of the minority shareholders.

The lawsuit alleges James and his daughters tend to align their votes so the outcome always provides them with the greatest financial benefits, but allegedly leaves Nancy and Mary out in the cold. Nancy and Mary also allege they have been unable to obtain financial records to which they are legally entitled as shareholders of the company. Continue reading ›

A business made loans to the son of its founder and never required the loans to be repaid. The business later attempted to write off the loans as bad debts or as ordinary and necessary business expenses. The IRS pursued the business, seeking $92 million in back taxes. The company petitioned the tax court, but after a trial the court upheld the agency’s determination, finding that the debts could not be written off because the company and the founder’s son lacked a bonafide creditor-debtor relationship. The company appealed and the appellate panel affirmed, finding that the company routinely deferred payment or renewed promissory notes without any receipt of payments and that it did not expect to be repaid unless various other events occurred. The panel determined that the company had not shown that it presented sufficient existence of a bonafide relationship to the tax court and it, therefore, affirmed the decision of the lower court.

Ron Van Den Heuvel’s father founded VHC in 1985 to provide services to the paper manufacturing industry. Ron and his four brothers all worked for VHC or its subsidiaries in some capacity, but Ron found particular success. Ron started at two of VHC’s subsidiaries, directed a number of its other companies, and launched his own companies separate from VHC. Between 1997 and 2013, VHC advanced $111 million to Ron and his companies. The payments fulfilled several purposes, including paying debts owed by both Ron and his companies. Ron and his companies would come to owe VHC $132 million, with interest, by 2013, but would only repay $39 million.

In 2004, VHC began writing off its payments to Ron as “bad debts,” ultimately writing off $95 million by 2013. After an audit, the IRS issued a notice of deficiency to VHC rejecting $92 million of the write-offs. VHC petitioned the tax court, and after a ten-day bench trial, the tax court upheld the agency’s deficiency finding. The court determined that Ron’s debts could not be written off because VHC and Ron lacked a bonafide debtor-creditor relationship. VHC then appealed. Continue reading ›

Business partnerships sometimes come to an end. As we have written about previously, it is important going into a partnership to have an agreed-upon exit strategy in place. However, as a recent decision from an Indiana appeals court highlights, it is important for business partners to not only include exit provisions in their partnership agreements, operating agreements, or shareholder agreements but to carefully think through the wording of the provisions to avoid disputes and misunderstandings later.

In Hartman v. BigInch Fabricators & Construction Holding Company, Inc., the dispute considered by the court involved interpretation of a provision in the parties’ shareholder agreement that required the company to purchase the shares of any shareholder who was involuntarily terminated at “appraised market value on the last day of the year preceding the valuation, determined in accordance with generally accepted accounting principles by a third-party valuation company.”

The plaintiff in the case, Blake Hartman, was a co-founder and longtime president and director of the company called BigInch Fabricators & Construction Holding Company. Hartman was one ten shareholders, none of which owned a majority stake in the company. In 2006, the shareholders entered into a shareholder agreement.

The agreement included a buyback provision (also known as a repurchase agreement) requiring the company to purchase the shares of any shareholder who was involuntarily terminated as an officer or director of the company. The purchase was to be made at “appraised market value on the last day of the year preceding the valuation, determined in accordance with generally accepted accounting principles by a third-party valuation company.” The agreement did not define the term “appraised market value” or elaborate on the methodology to be used by a third party in performing the valuation.

In March 2018, Hartman was involuntarily terminated as a director and officer of BigInch. At the time of his termination, Hartman owned 8,884 shares in the company, representing a 17.77% interest. As required by the shareholder agreement, the company hired an appraiser to calculate the value of the company for the purposes of valuing Harman’s shares for repurchase. The appraiser calculated the fair market value of Hartman’s shares to be $2,398,000.00, which included discounts for the marketability of the shares and the lack of control represented by Hartman’s minority interest.

Hartman filed a declaratory judgment action contesting the valuation and requesting that the court declare the value of his shares. Hartman argued that the appraiser’s application of the “fair market value” standard to value his shares was not in accordance with the agreement because that standard presupposes an “open market” of willing sellers and willing buyers.

At the outset of its analysis, the Court began by explaining the utility of buyback provisions or repurchase agreements like those included in the BigInch shareholder agreement. Close corporations generally lack a market for their shares, the Court explained, because the only people interested in owning the business are the “incorporated partners” who are intimately involved with the entity. Because there is often no market for one’s shares, it is difficult and speculative to value a close corporation’s shares, which is why repurchase agreements frequently specify the valuation method to be used.

The Court turned its attention to two popular business valuation methods: the “fair value” method and the “fair market value” method. The Court next outlined the differences between the two methods. The “fair value” standard seeks to ensure that shareholders were fairly compensated. The “fair market value” standard, on the other hand, attempts to determine the amount that a willing seller and willing buyer would arrive at after negotiations. Because the fair market value standard attempts to approximate the results of a real-life negotiation, discounts for lack of control and lack of marketability are appropriate.

The question for the Court was which valuation method did the BigInch shareholder agreement require. The agreement did not specify but instead only required an “appraised market value.” The trial court held that this required application of the fair market value method which permitted discounts for lack of marketability and lack of control. On appeal, the Court disagreed and held that the proper valuation methodology in a forced sale is the fair value method.

The Court concluded that “minority and control discounts have no application in compelled transactions to a controlling party.” Applying such discounts in forced sales involving the company purchasing back shares from a minority shareholder would result in a windfall to the purchasing majority shareholder or shareholders. A windfall would result because “a sale of the minority shareholders’ shares to majority shareholders consolidates or increases the power of those already in control.” Given that the majority shareholders are already benefitting by increasing their power, it does not follow that the majority shareholders should be able to realize this benefit at a discount.

The Court’s full opinion is available online here. Continue reading ›

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