Articles Posted in Business Disputes

A Delaware Chancery Court judge recently rendered a post-trial verdict in the In re Tesla Motors Stockholder Litigation in which he found in favor of co-founder and CEO of Tesla Motors, Elon Musk, on claims that Musk breached his fiduciary duties, was unjustly enriched, and created corporate waste in connection with Tesla’s 2016 acquisition of the SolarCity Corporation.

This high-profile, high-stakes lawsuit stemmed from alleged conflicts of interest created by Musk’s leadership and ownership of both companies during the 2016 acquisition. At the time of the merger, Musk was SolarCity’s largest stockholder and chaired its board of directors. At the same time, he owned 22% of Tesla stock and served as CEO and a director of Tesla. When the potential acquisition of SolarCity came up, Tesla’s board elected not to form a special committee of independent directors to negotiate the transaction. It did, however, condition approval of the acquisition on the “affirmative vote of a majority of the minority of Tesla’s disinterested stockholders” and recused Musk from certain Board discussions regarding the acquisition.

Despite these protections, the plaintiff shareholders alleged that Musk, as Tesla’s controlling shareholder, exerted his influence over Tesla’s board to approve the acquisition at an unfair price, following a highly flawed process, in order to bail out his (and other family members’) foundering investment in SolarCity. Plaintiffs named both Musk and members of Tesla’s board as defendants and sought damages as well as equitable remedies. Before trial, all defendants except Musk settled with plaintiffs, leaving only the claims against Musk proceeding to an 11-day trial over July and August 2021. Continue reading ›

A California state appellate court recently issued an opinion reviving a class-action lawsuit concerning alleged violations of requirements employers must follow when performing employment-related background checks. In its opinion, the Court reversed summary judgment entered in favor of book retailer Barnes & Noble in a class-action lawsuit accusing the retailer of failing to strictly comply with the requirements for obtaining authorization for background checks found in the Fair Credit Reporting Act (FCRA). The Court’s decision breathes new life into the putative class action which was remanded to the trial court for further proceedings.

The FCRA is a federal statute that is meant to protect consumer privacy and promote fair and accurate credit reporting. Part of the law contains a number of requirements that employers must follow when performing employment-related background checks. Two of these requirements are found in 15 U.S.C. 1681b and require an “employer who obtains a consumer report about a job applicant first to provide the applicant with a standalone, clear and conspicuous disclosure of its intention to do so, and to obtain the applicant’s consent.” The FCRA further requires that the disclosure be contained in a document that consists solely of the disclosure.

In 2018, the plaintiff applied to work for Barnes & Noble. During the application process, Barnes & Noble’s consumer reporting agency, First Advantage, emailed the plaintiff a link to a website containing the retailer’s consumer report disclosure and asked her to authorize Barnes & Noble to perform a background check. The plaintiff alleges that she clicked the link, viewed the disclosure, and authorized Barnes & Noble to perform the background check.

First Advantage had prepared the consumer report disclosure statement that appeared on Barnes & Noble’s website. Included with the statement was a footnote that stated:

Nothing contained herein should be construed as legal advice or guidance. Employers should consult their own counsel about their compliance responsibilities under the FCRA and applicable state law. First Advantage expressly disclaims any warranties or responsibility or damages associated with or arising out of information provided herein.

Continue reading ›

Recently, the Delaware Court of Chancery refused to dismiss an action for post-closing damages stemming from alleged breaches of fiduciary duty brought by former stockholders of Authentix Acquisition Company, Inc. In doing so, the Court rejected the defendants’ arguments that a provision in a stockholders agreement entered by the plaintiffs waived such claims for breaches of fiduciary duties.

The dispute arose out of the sale of Authentix to Blue Water Energy in 2017. The plaintiffs in the case were holders of common stock in Authentix. In connection with their investment in the company, the plaintiffs entered into a Stockholders Agreement which provided that they would “consent to and raise no objections against” any sale of the company approved by Authentix’s board and holders of at least 50% of outstanding shares. In 2017, the board approved a sale to Blue Water Energy over the objection of one of the plaintiffs, a director stockholder. The sale was also approved by holders of more than 50% of the company’s outstanding shares.

In response to the sale, the plaintiffs filed suit for post-closing damages, alleging various breaches of fiduciary duties by three former directors and officers of Authentix as well as the preferred stockholders of Authentix who plaintiffs alleged controlled the company. In response, the defendants moved to dismiss the plaintiffs’ claims arguing that the plaintiffs had waived any right to bring such claims. According to the defendants, because the sale was approved by Authentix’s board and at least 50% of the outstanding shares, the Stockholders Agreement precluded plaintiffs from raising any objections related to the sale. Continue reading ›

The U.S. Court of Appeals for the Seventh Circuit recently joined the Sixth, Eighth, Ninth, and Eleventh Circuits in ruling in favor of insurers facing COVID-19 business interruption lawsuits. The consolidated appeal dealt with three different claims under Illinois law brought by affected businesses in a diversified range of industries from a dentist office to a hotel.

Each of the plaintiffs was a business that had purchased a commercial-property insurance policy from the Cincinnati Insurance Company. Shortly after the initial outbreak of COVID in Illinois, Governor J.B. Pritzker issued several executive orders that forced each business to shut down or drastically scale back operations. As a result, the businesses claimed to have lost substantial business income and submitted claims to Cincinnati under their policies. Cincinnati denied each of the plaintiff’s insurance claims. Continue reading ›

Back in September the resident-run condo board of 432 Park Avenue in Manhattan sued the developer of the building for $125 million to repair 1,500 alleged defects to the luxury condo building. According to the lawsuit, multiple residents experienced flooding in their units and noise as a result of alleged building defects. They also reported elevators that would get stuck and trap residents for hours.

The lawsuit further alleges that the construction issues have affected the building’s management, causing common charges to go up by 39% and insurance premiums to go up 300%.

The building’s developer denies the allegations made in the September lawsuit, arguing the allegations of safety defects were exaggerated, and that many of the problems it acknowledged were either caused and/or exacerbated by the residents themselves. According to the developer, it tried to address some of the issues listed in the residents’ lawsuit, but it claims the condo association either cancelled appointments or blocked access to the building when repairs were scheduled to be made.

As a result, the developer has filed a counter lawsuit against the condo board for defamation. According to the developer’s lawsuit, 90% of the building’s units were sold at the time the condo association filed its lawsuit, but sales dropped dramatically after the residents started making their allegations against the building’s developer. To back up its point, the developer pointed out that, overall, 2019 was a strong year for luxury condo sales, suggesting the lag in sales at the 432 Park Avenue building was most likely due at least in part to resident complaints. The developer has not specified the amount of damages it is seeking in its lawsuit against its residents, but it’s likely to be tens of millions of dollars.

The president of the condo board denies all the allegations made in the developer’s defamation lawsuit. Continue reading ›

It is not at all uncommon for a company to require individuals to agree to its Terms of Use when they sign up for an online service or when creating an account on a website or mobile app. It is also not uncommon for that service, website, or app to incorporate technology from multiple different providers. Such was the case in a case recently decided by the federal Seventh Circuit Court of Appeals. In its opinion, the Seventh Circuit rebuffed arguments by a technology company that it should be entitled to enforce certain arbitration provisions in a user agreement between OfferUp and its users.

Onfido owns and licenses the TruYou facial recognition software, which is marketed as software aimed at helping online resellers verify their identity. OfferUp, an online marketplace for buying and selling used items, uses the TruYou software in its mobile app to verify the identities of its users.

One of OfferUp’s users, Fredy Sosa, sued Onfido, alleging that its TruYou software violated the Illinois Biometric Information Privacy Act (BIPA). Sosa signed up to become a verified user on OfferUp’s mobile app. The identity verification process involved uploading photographs of his driver’s license and face. OfferUp’s verification process allegedly involved using Onfido’s TruYou software to extract and store biometric identifiers contained in the uploaded photos to verify that the face in the photograph matches the face on the driver’s license. Sosa subsequently filed a putative class action lawsuit against Onfido alleging that the company violated the BIPA by failing to provide him with a biometric data retention policy or to advising him whether and when it will permanently delete the biometric identifiers that it derived from his face. Sosa additionally alleged that Onfido violated the BIPA by failing to require him to sign a written release allowing it to “collect, use, or store his biometric identifiers derived from his face.”

After Onfido removed the case to an Illinois federal court, it sought to have the lawsuit dismissed and to compel arbitration of Sosa’s claims. The company relied on an arbitration provision in OfferUp’s Terms of Service which Sosa agreed to when signing up as a user of the OfferUp marketplace as the basis for seeking to compel arbitration of Sosa’s claims. The district court denied Onfido’s motion to stay Sosa’s complaint and compel individual arbitration, finding that Onfido cannot enforce the arbitration provision because it wasn’t a party to the agreement between OfferUp and its users. Continue reading ›

Amazon is facing a class-action lawsuit filed in the Madison County Circuit Court alleging that Amazon’s Alexa violates the Illinois Biometric Information Privacy Act (BIPA). In setting out its case against Amazon, the Complaint quotes an interview with former Amazon senior editor James Marcus in which he said that “It was made clear from the beginning that data collection was also one of Amazon’s businesses. All customer behavior that flowed through the site was recorded and tracked. And that itself was a valuable commodity.”

The Complaint details the near ubiquity of Amazon’s voice-based virtual assistant Alexa by alleging that Alexa is embedded in numerous Amazon devices such as Echo speakers, Fire tablets, and others. The Complaint goes on to allege that Alexa can additionally be integrated into other devices such as phones, TVs, thermostats, appliances, lights, and many more consumer products.

The Complaint alleges that after Alexa responds to a request, Amazon collects and subsequently stores “voiceprints” of the user, and “transcriptions” of the voiceprints. These voiceprints and transcriptions constitute biometric identifiers or biometric information regulated by BIPA, according to the Complaint. The suit goes on to allege that Amazon does not delete the voiceprint or transcription after Alexa has responded. Instead, the Complaint alleges, Amazon uses these recordings to collect biometric information which it uses to improve the speech and voice recognition capabilities of Alexa.

Although Alexa is supposed to activate only after hearing its “wake word,” the Complaint alleges that Alexa-enabled devices frequently capture conversations by accident without being triggered. The Complaint cites a study conducted by Ruhr-Universität Bochum and the Bochum Max Planck Institute for Cyber Security and Privacy that allegedly discovered more than 1,000 sequences of words that incorrectly trigger smart speakers, such as Alexa. According to the Complaint, the study found that Alexa was inadvertently activated by the words “unacceptable” and “election.” Continue reading ›

 The vast majority of breach of contract lawsuits in commercial litigation involve one party to a contract suing the other party to the contract for failing to perform. Recently, an Illinois Appellate Court was forced to address a less common scenario where the plaintiff alleging a breach of contract was not a party to the original contract. The court ultimately ruled that a non-party property owner could not assert breach of contract or negligence claims against parties to various construction contracts between the tenants of the property and the contractors and architects. The Court based its conclusion on the determination that the property owner was not an intended beneficiary of the contracts at issue.

Navigant Development, LLC owned a restaurant property on Wells Street in downtown Chicago. After two separate tenants completed two separate renovations at the property, defects in the trusses supporting the property’s ceiling were discovered. Further investigation revealed extensive damage to several of the trusses forcing Navigant to shut the building down and make repairs costing nearly a million dollars to fix the structure. Navigant’s insurer paid Navigant for the cost of these repairs and for the income lost during the time the restaurant was closed. As the owner’s subrogee, the insurer then sued various contractors and architects involved in the renovation projects, alleging multiple counts of breach of contract and negligence. In its complaint, the insurer alleged that Navigant was an intended third-party beneficiary because the defendants knew the work was to be performed at a property owned by Navigant.

The defendants sought dismissal of the claims arguing that Navigant was not an intended third-party beneficiary of the contracts at issue. The defendants also argued that the negligence claims were precluded by the economic loss doctrine. The trial court ultimately granted the defendants’ motions with prejudice finding that Navigant could not be an intended third-party beneficiary to the contracts between defendants and Navigant’s tenants. The trial court also found that the negligence claims were barred by the economic loss doctrine and that none of the exceptions to the doctrine applied to the case. After the court denied the insurer’s motion to reconsider the dismissal, the insurer appealed. Continue reading ›

Almost as soon as reality TV gained prominence in our popular culture, it ceased to be reality. Producers and showrunners end up with hours and hours of footage that has to be edited down to fit the time frame of the TV show, but it didn’t take long for them to realize they could also edit the footage to tell a story … even a story that wasn’t there.

Donovan Eckhardt, one of the co-hosts of the hit HGTV show “Windy City Rehab”, alleges the network and the producers sought to create a story for their viewers by making him appear to be the villain in the story of the breakup of his professional relationship with his co-host, Alison Victoria, but Eckhardt alleges they went further than just editing raw footage.

According to the lawsuit, the show filmed scenes when Eckhardt was not present that made it look like Eckhardt was embezzling funds from their rehab projects. The camera would show Victoria looking as though she was trying to figure out where the money had gone, but Eckhardt insists every bill was cleared by Victoria and that she knew their company’s financial situation throughout every step of the process.

The allegations that Victoria was acting when she appeared to be puzzling over financial statements that didn’t add up make one wonder what else she did on the show that was acting for the benefit of the camera and not based in any reality. In one scene in the second season of the show, she teared up while discussing her rocky business relationship with Eckhardt, whose lawsuit alleges the tears were fake. Continue reading ›

There are countless stories of a rock band’s members fighting over music and money, but this time it’s the widow of a band’s recently deceased member who’s fighting with the remaining members of the band over the band’s value.

When the singer Chris Cornell died, his widow, Vicky Cornell, inherited his share of the interest in the band, Soundgarden. The other members have offered to buy Cornell’s share for $278,000, but she alleges that amount represents just a fraction of what her share in the band is worth.

Cornell is suing the remaining members of Soundgarden for allegedly devaluing her share in the band, and has asked a judge to decide on an appropriate buyout price based on the value of Soundgarden’s master recordings. Additionally, Cornell is also asking the court to factor in the potential for future sales, including merchandise, tours, and even new music that could be created with artificial intelligence using extant recordings of Chris Cornell’s vocals.

A representative for Soundgarden said the remaining members of the band have acted in good faith in trying to buy out Cornell’s share of interest in the band. The amount they offered was allegedly based on the value of the band as estimated by Gary Cohen, a valuation expert who they claim is highly regarded and respected in the music industry. In trying to settle their disputes with Cornell, the surviving members of the band have allegedly offered to pay Cohen’s estimated value several times over. They say it’s about their music and their legacy, not about the money. But Cornell tells a different story. Continue reading ›

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