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

Fitness Holdings, the debtor in this bankruptcy case, was a home fitness corporation. At issue was whether debtor's pre-bankruptcy transfer of funds to its sole shareholder, in repayment of a purported loan, could be a constructively fraudulent transfer under 11 U.S.C. 548(a)(1)(B). The court held that a court has the authority to determine whether a transaction created a debt if it created a right to payment under state law. Because the district court concluded that it lacked authority to make this determination, the court vacated the decision and remanded for further proceedings. View "In re: Fitness Holdings Int'l" on Justia Law

National Elevator, lead plaintiff on behalf of investors who purchased VeriFone stock, appealed the dismissal of its securities fraud class action. National Elevator alleged that VeriFone, the CEO and former Chairman of the Board of Directors, and the company's former CFO and Executive Vice President, violated sections 10(b), 20(a), and 20A of the Securities and Exchange Act of 1934, 15 U.S.C. 78j(b), 78t-1(a), and 78t(a), and Securities and Exchange Commission Rule 10-b, 17 C.F.R. 240.10b-5(b), in connection with a December 2007 restatement of financial results. The court held that National Elevator adequately pleaded violations of section 10B and Rule 10b as to all defendants; its section 20A claim against the individual defendants was sufficiently pled; but the section 20(a) claim was properly dismissed. Accordingly, the court affirmed in part and dismissed in part. View "National Elevator Industry Pension Fund v. VeriFone Holdings, Inc., et al" on Justia Law

CIRI filed suit against defendants, shareholders of CIRI, alleging that they had violated the Alaska Native Claims Settlement Act (ANCSA), 43 U.S.C. 1601-1629(h), and Alaska law. On appeal, defendants challenged the district court's holding that it had subject matter jurisdiction over the ANCSA claims. The court held that there was federal jurisdiction under the general federal question jurisdiction statute, 28 U.S.C. 1331, over plaintiff's ANCSA claims because federal law created the cause of action in the claims and because the claims were not frivolous. Accordingly, the court affirmed the judgment of the district court. View "Cook Inlet Region, Inc. v. Rude, et al." on Justia Law

The IRS issued a Notice of Deficiency (NOD) to Alex and Liset Meruelo a few days before the three-year statute of limitations expired. Alex was a partner in a partnership. The Meruelos petitioned the tax court challenging the deficiency contained in the NOD and subsequently moved to dismiss for lack of jurisdiction on the ground that the IRS issued the NOD prematurely, making it invalid. The tax court held that the NOD was valid and not premature and that the items were affected items. The parties later reached an agreement as to all issues, except the validity of the NOD. The tax court then entered a final decision holding that the Meruelos were liable for $1,387,006 in additional income tax and $277,401 in penalties. The Ninth Circuit Court of Appeals affirmed, holding that (1) a NOD issued when no partnership-level proceeding or final partnership administrative adjustment have been issued is valid; (2) a NOD issued when the normal three-year statute of limitations has not expired is valid; and (3) therefore, the tax court had jurisdiction. View "Meruelo v. Comm'r of Internal Revenue" on Justia Law

The Scotts Company, an Ohio LLC, brought a diversity action against Seeds, Inc., a Washington corporation, in federal district court. Thereafter, Millhorn Farmers, Maple Leaf Farms, Mica Creek, and Tim Freeburg (Growers) sued Seeds and Scotts in Washington state court. Maple Leaf Farms and Mica Creek were Washington corporations, Millhorn Farms was an Idaho corporation, and Tim Freeburg was a citizen of Idaho. Scotts subsequently filed an amended complaint in federal court adding the Growers as defendants and seeking declaratory relief. The district court subsequently realigned the Growers and plaintiffs and Seeds and Scotts as defendants and held, alternatively, that it would stay the federal proceedings in favor of the related state court proceedings under either the Brillhart doctrine or the Colorado River doctrine. Because the parties' realignment resulted in the absence of complete diversity of citizenship between defendant Seeds and newly-aligned plaintiffs-Growers, the district court dismissed the action for lack of subject matter jurisdiction. The Ninth Circuit Court of Appeals reversed, holding that the district court should not have declined to entertain the claim for declaratory relief under the Brillhart doctrine, and instead, the claims should have been evaluated under the Colorado River doctrine. Remanded. View "Scotts Co., LLC v. Seeds, Inc." on Justia Law

This case involved a dispute over the proceeds of a life insurance policy. At issue was whether the federal interpleader remedy shields a negligent stakeholder from tort liability for its creation of a conflict over entitlement to the interpleaded funds. After analyzing the Supreme Court's reasoning in State Farm Fire & Cas. Co. v. Tashire, the Ninth Circuit Court of Appeals held that it did not, and that a claimant may seek to recover all damages directly and proximately caused by the negligent stakeholder's conduct. In so holding, the Court reversed the district court and remanded for further proceedings. View "Lee v. W. Coast Life Ins. Co." on Justia Law

Plaintiffs filed suit in district court under 28 U.S.C. 1332(a)(2). Plaintiffs subsequently appealed from the district court's dismissal without prejudice of their first amended complaint for lack of subject matter jurisdiction. The district court, citing Hertz Corp. v. Friend, dismissed the complaint because plaintiffs failed to provide factual support for their allegations of diversity. But Hertz did not impose a heightened pleading standard and, in two orders issued before its order of dismissal, the district court requested that plaintiffs provide further allegations of the corporate parties' principal place of business, not further proof. The district court did not abuse its discretion by requesting proof of the parties' principal places of business, but the court found that the district court's order was inconsistent. Accordingly, the court vacated the order and dismissed the first amended complaint, and remanded.

Under Internal Revenue Code 1361(a) and 1362(a)(1), qualifying small business corporations could affirmatively elect S corporation status for federal income tax purposes. Under Internal Revenue Code 1363(a) and 1366(a)(1)(A), an S corporation's "profits pass through directly to its shareholders on a pro rata basis and are reported on the shareholders' individual tax returns." At issue was whether a corporate taxpayer was ineligible for S corporation status, and therefore must be taxed as a C corporation, because its sole shareholder was a custodial Roth IRA. Taproot contended that a Roth IRA could not be distinguished from its individual owner under a reasonable interpretation of the governing statute. Adhering to this construction, Taproot thus argued that it satisfied the S corporation requirements. The court agreed with the Tax Court that Revenue Ruling 92-73 provided persuasive guidance that IRAs were ineligible for S corporation shareholders. Here, the 2004 amendment, coupled with the prior legislative history, unequivocally supported the IRS's interpretation of the S corporation statute and promulgation of Revenue Ruling 92-73. The court also agreed with the IRS's narrow interpretation of Treasury Regulation 1.1361-1(e)(1), restricting its application of custodial accounts in which corporate dividends were taxed in the year received. Moreover, the court found persuasive the IRS's opinion that ownership of custodial IRAs and Roth IRAs should not be attributed to the underlying individual for purposes of S corporation eligibility. Accordingly, the decision of the Tax Court was affirmed.

This appeal concerned the maintenance of a suit for rescission under section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. 78a et seq., by plaintiffs Kenneth Weiss and his wholly-owned corporation. The district court granted summary judgment to defendants on all claims and awarded defendants attorneys' fees. The court held that a plaintiff suing under section 10(b) seeking rescission must demonstrate economic loss and that the misrepresentation or fraud conduct caused the loss. The court found that the record revealed that rescission was not feasible in the instant case. Yet employing a rescissionary measure of damages, Weiss would be able to convince the finder of fact that he was entitled to relief. On that basis, the court reversed the district court's grant of summary judgment of Weiss's federal and state securities claims and remanded for consideration under a rescissionary measure of damages. With respect to the statue of limitations issue, the court remanded for consideration in light of Merck & Co., Inc. v. Reynolds. The court affirmed the district court's judgment on Weiss's state law claims of common law fraud, negligent misrepresentation, mutual mistake, and unjust enrichment. The court vacated the district court's attorneys' fee award and dismissed the appeal of this award as moot.

This litigation arose out of a franchise agreement between West Coast Hotels and Mahmoud Karimi. The successor in interest to West Coast Hotels was Red Lion, both were incorporated in Washington state. Karimi and his hotel management company (collectively, Karimi) operated a Red Lion franchise in Modesto, California. Red Lion subsequently terminated the franchise and sued Karimi for breach of contract and Karimi counterclaimed, asserting state-law claims, including a claim based on the "franchise bill of rights" of the Washington Franchise Investment Protection Act (FIPA), Wash. Rev. Code 19.100.180, 19.86.020. At issue on appeal was whether a non-Washington franchisee could assert a claim against a Washington franchisor under FIPA's bill of rights. The court concluded that an out-of-state franchisee could assert such a claim. Because FIPA's bill of rights applied to the franchise agreement at issue, the court remanded to the district court for further proceedings. The court agreed with the district court's conclusion that Red Lion was not equitably estopped from terminating the franchise agreement. The court remanded for consideration by the district court of the entry of judgment against Karimi's wife.