Justia U.S. 9th Circuit Court of Appeals Opinion Summaries

Articles Posted in Business Law

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Plaintiffs, shareholders of Wynn Resorts, challenged two actions the board took on behalf of its subsidiary Wynn Macau: a 2011 decision to donate $135 million to the University of Macau Development Foundation, and a 2012 decision to redeem the shares held by a former director named Kazuo Okada, who was the only director to vote against the donation. Plaintiffs filed a derivative action, alleging that the director defendants breached their fiduciary duties and committed corporate waste by approving the Macau donation because the donation caused the company to incur legal expenses and be exposed to potential liability. Plaintiffs also allege that defendants breached their fiduciary duties by redeeming Okada’s shares because such action had no legitimate purpose and merely encumbered the company with a higher debt load. The district court dismissed the amended complaint. At issue is whether shareholders may pursue a derivative lawsuit against a corporation’s board of directors despite their failure to demand that the board initiate this litigation itself. Plaintiffs argued that demand would be futile. As a preliminary matter, the court concluded that jurisdiction is improper under 28 U.S.C. 1332(a)(2) because both plaintiffs and some defendants are American citizens; one of the defendants is neither a citizen of a State nor a citizen of a foreign state for jurisdiction under section 1332(a)(3); but, the court dismissed that defendant as a dispensable party under Rule 19 in order to make jurisdiction under section 1332(a)(3) proper. On the merits, the court concluded that the district court did not abuse its discretion in determining that the shareholders failed to comply with Rule 23.1 or state law governing demand futility. The court concluded that plaintiffs' broad-based domination theory is simply too speculative and insufficiently particularized to satisfy the heightened pleading requirements of Rule 23.1; the court rejected plaintiffs' theory that demand is excused based on allegations that the directors face a substantial likelihood of liability for approving the Macau donation; and the court rejected plaintiffs' theory that demand is futile because there is a reasonable doubt that the directors will be entitled to the business judgment rule if the Okada redemption is challenged in court. Finally, the court rejected plaintiffs' claim that the district court illicitly considered materials extraneous to the complaint. Accordingly, the court affirmed the judgment. View "LMPERS v. Wynn" on Justia Law
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Marcus Katz contributed stock to MK Hillside, a partnership between him and his wholly owned corporation. After the IRS issued a Final Partnership Administrative Adjustment (FPAA) to MK Hillside on January 2, 2008, finding that MK Hillside was a sham, lacked economic substance, and was formed and used principally to avoid taxes, Katz petitioned the tax court contesting the finding and asserting the statute of limitations. The IRS determined that 26 U.S.C. 6501(e)(1)'s six-year statute of limitations applied because Katz’s omission of the $198,000 credit from a collar termination on his 1999 return constituted more than 25% of the gross income reported on the return. The tax court denied summary judgment, holding that a trial would be necessary to determine whether Katz in fact omitted substantial income from his 1999 return. To avoid a trial, the parties agreed to a Stipulation of Facts and a Second Stipulation of Settled Issues. Based on those stipulations, the tax court held that the period for assessing tax on the 1999 MK Hillside partnership items was open as to Katz. The court concluded that, because the tax court had jurisdiction to consider Katz's argument, it necessarily had jurisdiction to reject it, at least for purposes of the partnership proceeding. Accordingly, the court affirmed the judgment. View "MK Hillside Partners v. Commissioner" on Justia Law
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Millennium filed suit against Ameritox, alleging claims of trade dress infringement under the Lanham Act, 15 U.S.C. 1125(a), and unfair competition under California Business and Professions Code section 17200. Millennium and Ameritox compete in the medication monitoring industry, and sell urine-testing services to healthcare providers who treat chronic pain patients with powerful pain medications. The district court granted Ameritox summary judgment. At issue is whether a product’s visual layout is functional, defeating a claim for trade dress infringement. The court concluded that, under the Au-Tomotive Gold two-step test, the district court erred by granting summary judgment to Ameritox on Millennium’s trade dress claim. In regard to the first step, genuine issues of material fact remain regarding whether Millennium's claimed trade dress has any utilitarian advantages. Under the second step, because Millennium has presented evidence that the graphical format served in part a source identifying function, Millennium has presented enough evidence to allow a jury to assess the question of aesthetic functionality. Accordingly, the court reversed and remanded. View "Millennium Labs. v. Ameritox, Ltd." on Justia Law

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Plaintiffs filed a putative class action against defendants, a group of developers and their agents or affiliates, claiming that defendants' business practices violated California's Unfair Competition Law (UCL), Cal. Bus. & Prof. Code 17200 et seq. Plaintiffs specifically alleged that defendants failed to make certain disclosures as required by the Interstate Land Sales Full Disclosure Act (ILSA), 15 U.S.C. 1701 et seq. Although defendants concede that they failed to comply with the disclosure requirements, they raise certain affirmative defenses. The district court rejected defendants' claims and granted partial summary judgment for plaintiffs. In this interlocutory appeal, the court affirmed the judgment. The court concluded that, because the UCL's four-year statute of limitations and its accompanying accrual rules apply, the district court properly concluded that plaintiffs’ UCL claim is not time-barred; defendants failed to overcome the strong presumption against preemption, and ILSA’s three-year statute of limitations does not bar plaintiffs’ UCL claim; plaintiffs' units are "lots" and are therefore subject to ILSA's disclosure requirements; the Improved Lot Exemption does not extinguish plaintiffs’ claims; the text and interpretive history of the statute lead to the conclusion that the agency’s interpretation of “lot” is reasonable and entitled to Chevron deference; and the 2014 Amendment to ILSA does not retroactively apply to the present action where the amendment was a substantive change in the law. Accordingly, the court affirmed the judgment. View "Beaver v. Tarsadia Hotels" on Justia Law

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Plaintiff, the court appointed receiver for PEMGroup, filed suit against Stonefield, the CPAs who audited the financial statements for six of PEMGroup's fraudulent offerings, contending that Stonefield’s reports and related conduct materially misrepresented PEMGroup’s financial condition, allowing PEMGroup’s management to prolong the life of their scheme and to loot and to dissipate assets from PEMGroup. The district court dismissed plaintiff's claims of professional negligence and aiding and abetting the wrongful conversion of PEMGroup's assets. The court concluded that the district court properly concluded that to survive summary judgment, plaintiff would have to offer substantial evidence – meaning sufficient evidence to justify a verdict in his favor – that investors reasonably relied on Stonefield’s audits in order to show causation. In this case, before the district court and at oral argument, plaintiff admitted he did not submit direct evidence that investors relied on Stonefield’s audit reports or how PEMGroup used them. Further, the court concluded that the district court did not err in sua sponte dismissing plaintiff’s unjust enrichment claim. Accordingly, the court affirmed the judgment. View "Mosier v. Stonefield Josephson, Inc." on Justia Law
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WCI was owned by WB Acquisition, which was owned by WBPartners, which in turn was owned by Daren Barone’s and Gregory Watkins’s holding corporations. WCI and WB Partners formed a joint venture called the NTC Joint Venture. The joint venture’s structure had significant federal income tax consequences. While the NTC project was ongoing, WCI sold its assets to Kuranda. WB Partners, WB Acquisition, and Barone's holding corporation (collectively, Taxpayers) challenged certain tax deficiencies identified by the Commissioner. In three consolidated decisions, the Tax Court found that the NTC Joint Venture was not a valid partnership for tax purposes, and therefore that all of the joint venture’s profits were taxable income to WCI. The Tax Court determined that all of the proceeds from the noncompetition agreement were income to WCI as well. Because WCI had substantially understated its income, the Tax Court upheld the Commissioner’s assessment of accuracy-related penalties. The court concluded that income from the NTC Project attributed to WB Partners was in fact income to WCL; proceeds from the noncompetition agreement were income to WCI rather than WB Partners; and the Tax Court properly assessed accuracy-related penalties. Accordingly, the court affirmed the judgment. View "DJB Holding Corp. v. Commissioner" on Justia Law
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Seismic Reservoir 2020, Inc. (Seismic), a California company, brought suit against Bjorn Paulsson. Paulsson counterclaimed against two Canadian directors of Seismic arising from his status as a shareholder and director of Seismic’s parent company, a corporation existing under the laws of Province of Alberta, Canada. Paulsson sought damages for breach of fiduciary duties owed by directors of the Alberta company under section 242 of the Alberta Business Corporations Act. The district court dismissed the counterclaim pursuant to Fed. R. Civ. P. 12(b)(1) for lack of jurisdiction, concluding that it could not issue a remedy under the Alberta statute. A panel of the Ninth Circuit affirmed, holding (1) the district court had jurisdiction to entertain the controversy; and (2) the district court should have dismissed Paulsson’s counterclaim under Fed. R. Civ. P. 12(b)(6) for failure to state a cause of action rather than under Rule 12(b)(1) because Paulsson’s counterclaim arising under the Alberta Act did not raise a cause of action for which the district court could grant relief. View "Paulsson v. Dorosz" on Justia Law
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The government filed a civil complaint seeking forfeiture of funds held in a brokerage account. The clerk entered a default against Appellants and all other potential claimants. The district court granted the government’s motion for entry of default and, concluding that Appellants could not allege a meritorious defense, refused to grant their motion to set aside the default judgment under Fed. R. Civ. P. 60(b)(1). The court did not specifically articulate any “extreme circumstances” justifying entry of default and default judgment. A panel of the Ninth Circuit affirmed, holding (1) courts reviewing a Rule 60(b) motion must apply the factors outlined in Falk v. Allen to ensure that the “extreme circumstances” policy is recognized, but nothing in Rule 60(b) nor the Court’s precedent requires a district court to articulate on the record particular “extreme circumstances” before it denies a motion to set aside a default judgment; and (2) after applying the Falk factors, it is clear that Appellants had no meritorious defense, and therefore, the district court did not abuse its discretion in denying Appellants’ Rule 60(b)(1) motion. View "United States v. Aguilar" on Justia Law

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At issue in this shareholder class action was the Schwab Total Bond Market, a mutual fund (the Fund). The Fund was created by Schwab Investments (“Schwab Trust”), and its investment adviser was Charles Schwab Investment Management, Inc. (“Schwab Advisor”). The named plaintiff, a registered investment advisery and financial planning firm that had over 200,000 shares of the Fund under its management, filed the class action on behalf of investors who alleged that the managers of the Fund failed to adhere to the Fund’s fundamental investment objectives. The district court dismissed the complaint. The Ninth Circuit reversed in part, vacated in part, and remanded, holding (1) Northstar had standing to prosecute this case; (2) the district judge erred in dismissing Northstar’s breach of contract claims, as Northstar adequately alleged the formation of a contract between the investors and the trustees; (3) the district judge erred in concluding that Northstar failed to successfully allege a breach of any duty owed directly to Fund investors and that those claims would have to be asserted derivatively; and (4) the district judge erred in dismissing Northstar’s third-party beneficiary breach of contract claim, as Northstar adequately alleged that the investors were third-party beneficiaries of the Investment Advisory and Administration Agreement between Schwab Trust and Schwab Advisor. View "Northstar Fin. Advisors v. Schwab Investments" on Justia Law

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Shareholders are required to make a “demand” on the corporation’s board of directors before filing a derivative suit, unless they sufficiently allege that demand would be futile. Before Arduini filed his derivative action against IGT and its board, four shareholders filed derivative suits that were consolidated. They argued that a demand was excused because: the IGT board extended the employment contract of IGT’s former CEO and chairman of IGT’s board of directors, and allowed him to resign rather than terminating him for cause; three directors received such high compensation from IGT that their ability to impartially consider a demand was compromised; six directors faced a substantial likelihood of liability for breaches of their fiduciary duties as committee members; and that other members had engaged in insider trading. The district court dismissed the consolidated suit for failure to make a demand or sufficiently allege futility; the Ninth Circuit affirmed. The district court then dismissed Arduini’s action, holding that Arduini had failed to make a demand and could not allege demand futility based on issue preclusion due to its ruling in the prior suit. The Ninth Circuit affirmed, holding that under Nevada law and these facts, issue preclusion barred relitigation of futility. View "Arduini v. Int'l Gaming Tech." on Justia Law