In a recent decision, the Delaware Court of Chancery granted a motion to dismiss filed by the defendants in response to a shareholder’s lawsuit requesting to compel the company to pay a dividend and also seeking to find that the board of directors breached their fiduciary duty of care.

The plaintiff in the case of Buckley Family Trust v. Charles Patrick McCleary, was the Buckley Family Trust. The trust was one of seven stockholders of McCleary, Inc., a privately held snack food company headquartered in South Beloit, Illinois near Rockford, and only one of two stockholders that were not family members of the Company’s founder, Eugene “Mac” McCleary. Neither of the two non-family member shareholders served on the Company’s board of directors.

Unhappy with the direction of the Company and the decisions being made by the Company’s board of directors, the Plaintiff filed a two-count complaint against the Company and the five family members who served on the Company’s board of directors. In its first count, the Trust alleged that the board of directors engaged in minority shareholder oppression by failing to declare a dividend for seven years. In its complaint, the Trust argued that the Company had the funds to pay a dividend but refused to in an effort to squeeze-out the Trust and force it to sell its shares to the defendants at a steep discount.

In its second count, the Trust sought to bring a shareholder derivative action against the board of directors for allegedly breaching their fiduciary duties when it approved certain actions and failed to act on other occasions. In particular, the Trust sought to challenge the Company’s decisions to transition away from the grocer Aldi, a key customer; to authorize building a new warehouse; and to improve the Company’s production facilities to do business with a competitor. The Trust also challenged various non-actions by the board members including their failure to authorize improvements to the Company’s existing food production facilities or to manage the Company’s tax obligations and to observe corporate formalities.

In deciding the motion to dismiss, it reviewed the requirements for adequately pleading each of the Trust’s claims. With regard to the shareholder oppression claim, the Court found that the Trust failed to demonstrate that the board member’s actions were part of a squeeze-out scheme. For one, the Court pointed to the fact that the decision affected the Trust and the members of the board equally as they were all holders of common stock and would share equally on a pro rata basis any dividend paid by the Company. The Court also pointed to the fact that the “steep discount” referenced by the Trust in the Complaint was a contractually agreed to “discount of thirty (30%) percent applicable to all non-voting shares for lack of marketability and control” found in the Common Stock Purchase and Restriction Agreement to which the shareholders were a party. Consequently, the Court dismissed the claim concluding that the lack of dividend was not an abuse of discretion and that there was no evidence of self-interest.

In turning to the second claim, the Court noted that the Trust did not make a pre-suit demand on the board members before filing the derivative action on behalf of the Company. Consequently, the Court was required to analyze whether failing to make such a demand was excused under the demand futility exception to the demand requirement, which excuses the failure to make such a demand if it would have been futile to do so. The Trust argued that a demand would have been futile because the board members faced significant likelihood of personal liability under any such suit brought by the Company, a recognized exception to the demand requirement.

The Court reviewed various board meeting minutes and other documents presented by the parties to determine if the board members sought to properly educate themselves before making decisions or whether they acted with reckless indifference or without the bounds of reason, which would open them up to a substantial risk of personal liability. The Court determined that this evidence did not establish that the board acted recklessly or outside the ordinary bounds of reason. As such, the Court concluded that the Trust failed to demonstrate that making a demand on the board before filing the lawsuit would have been futile, and dismissed the Trust’s derivative claim.

The Court’s full opinion can be found here. Continue reading ›

The Americans with Disabilities Act requires employers to provide reasonable accommodation to qualified employees with disabilities. The key phrase in that sentence that is so often the subject of litigation is “reasonable accommodation.” In a recent decision, the Seventh Circuit considered whether a two-pound lifting limit and a restriction on repetitive grasping and lifting arms more than 5% above the shoulder were reasonable accommodations for an employee of a regional sporting goods retailer. In affirming an order of summary judgment in favor of the sporting goods store, the Seventh Circuit found that such accommodations were unreasonable and left the employee unable to perform her essential job functions.

The plaintiff in the case, Angela Tonyan, was employed as a store manager at a Dunham’s Sports store in Wisconsin. During her employment, Tonyan sustained a series of injuries to both shoulders and left arm. After multiple surgeries and various temporary restrictions failed to remedy her condition, her doctor imposed several permanent restrictions including a two-pound lifting limit and restricting her from having to raise her arms above her head.

In response to these restrictions, Dunham’s fired Tonyan. The sporting goods retailer contended that its “lean” staffing model made physical work such as unloading and shelving merchandise essential job functions of its store managers like Tonyan. Following her termination, Tonyan sued claiming that the company violated her rights to reasonable accommodation under the ADA. The District Court found that the store did not violate her rights under the ADA and granted summary judgment to her former employer. Continue reading ›

After the plaintiff purchased an economic interest in an LLC at a UCC sale, she brought claims for breach of fiduciary duty and breach of good faith and fair dealing against the manager of the LLC. The plaintiff alleged that she was entitled to inspect the books and financial documents of the LLC under the membership agreement, and that the LLC had not properly distributed her share of the profits of the sale of its sole asset. The trial court rejected the plaintiff’s arguments, finding that she had only an economic interest, and not a membership interest, in the LLC. The appellate court affirmed, finding that the plaintiff lacked the standing to bring her claims as she was not a member of the LLC under the LLC Act or the amended operating agreement

CFC is an Illinois limited liability corporation created to manage, convert, and sell an apartment complex in Grayslake. The original members of CFC executed an operating agreement which provided that each member’s ownership interest depended on their capital contributions. The Stanley A. Smagala Revocable Trust contributed $3,465,000 and owned 45%, the McGlynn Trust and Grayslake Investments each contributed $1,925,000 and each owned 25%, and John R. Kelly contributed $385,000 and owned a 5% interest.

Smagala was the manager of CFC and had full authority to direct, manage, and control the business of CFC and also to employ accountants, legal counsel, managing agents, and other experts to perform services for CFC. At the end of 2006, the members signed an amended agreement changing their interests from a capital contribution interest to an “economic interest” in the company’s profits and losses.

To fund its $1,925,000 contribution, Grayslake Investments had borrowed $1,500,000 from Founders Bank. Founders Bank filed a UCC-1 to secure its interest in CFC. In July 2009, the Illinois Department of Financial and Professional Regulation of Banking closed Founders Bank, and the Federal Deposit Insurance Company was named receiver. Some assets, including the loan made to Grayslake and its security interest, were sold to Private Bank. Private Bank then renewed its UCC-1 and the note matured in January 2010. Grayslake was unable to refinance or repay the balance of the note, and Private Bank began foreclosure proceedings. Continue reading ›

A collection of car dealerships operated through independent LLCs but received management services from the same company. The management services company was owned by the same person who owned the majority interest in each of the dealership LLCs. Each dealership had fewer than fifteen employees individually. A salesman with one of the dealership was fired, and later sued the dealership for racial discrimination. The salesman claimed that the dealerships were subject to Title VII because, in aggregate, they employed more than 15 people. The salesman argued that the corporate veil should be pierced because the dealerships were not actually independent entities. The district court rejected these arguments, and the appellate court affirmed. The appellate court found that the management company and the dealerships observed proper corporate formalities and did not demonstrate the degree of integration that would justify piercing the corporate veil for employee aggregation purposes.

Shannon Prince worked as a salesman with Applecars, LLC for several months in 2017 until he was fired. Applecars claimed that Prince was fired for performance issues, while Prince maintained that the defendants discriminated against him because of his race.

Applecars operated a used car dealership in Appleton, Wisconsin. The dealership was affiliated with four other dealerships throughout Wisconsin: in Wausau, Antigo, Green Bay, and La Crosse. Each of the dealerships was independently owned by a separate Wisconsin limited liability company. Robert McCormick owned a majority or outright share in each of the LLCs. Each of the dealerships also received management services from Capital M, Inc., which McCormick also owned. Applecars had fewer than fifteen employees, but in aggregate the dealerships employed more.

The overlap between the dealerships was substantial, as Capital M provided many services to each dealership, and also tracked dealership inventory, held personal employee records, and issued identical employee handbooks for each dealership. Capital M’s operations manager hired, fired, and promoted each dealership’s general manager. The employees for each dealership gathered as one for events and parties several times per year. Each dealership and LLC, however, properly maintained corporate formalities and records. Capital M billed each dealership separately and each paid Capital M individually for services and for the use of the single website and its associated trademark. Each dealership also filed and paid their own taxes, paid their own employees, and entered into their own contracts for business purposes. Continue reading ›

We talked about the lawsuit between Promega Corp., a biotech company based in Madison, Wisconsin, and its shareholders a couple months ago in this blog post. At the time, Circuit Judge Valerie Bailey-Rihn said she was convinced minority shareholders had been oppressed by the company and its founder and CEO, Bill Linton, but she was unsure of the best way to remedy the situation and make sure the oppressed shareholders received a fair return on their investment. If she accepts the settlement agreement reached by both parties, she might not have to spend any more time deliberating.

Over the summer, both parties had said they were willing to have a third party buy the shares from the minority investors. All that was needed was to define the terms of the settlement, which they did. Afterwards, they submitted an order to dismiss the case.

The third party is Eppendorf AG, a German company that makes life science instruments. Having a third party buy the shares off the minority investors is a solution that works for everyone because the minority shareholders get a return on their investment without the company having to liquidate any assets to come up with the money to buy the shares back. The judge had mentioned the option of dissolving the company in order to come up with the funds to pay back the minority shareholders, but that would have been a drastic option.

The amount of the settlement has not been made public, but Karen Burkhartzmeyer, a spokesperson for Promega, has said the settlement is fair to all parties and affirms Promega’s commitment to remaining a private company. Continue reading ›

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 ›

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