Justia U.S. 9th Circuit Court of Appeals Opinion SummariesArticles Posted in Corporate Compliance
Strategic Diversity, Inc., et al. v. Alchemix Corp., et al.
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.
Chevron U.S.A. Inc. v. M&M Petroleum Servs, Inc.
Chevron, the franchisor, brought suit for declaratory judgment against one of its franchised dealers, M&M Petroleum Services, Inc. M&M responded with a counterclaim of its own, a counterclaim that was not only found to be frivolous, but the product of perjury and other misconduct. The court held that had M&M merely defended Chevron's suit, it could not have been held liable for attorneys' fees. The court held, however, that in affirmatively bringing a counterclaim that was reasonably found to be frivilous, M&M opened itself up to liability for attorneys' fees under the Petroleum Marketing Practices Act, 15 U.S.C. 2805(d)(3). Therefore, the district court did not err in determining that Chevron was eligible to recover attorneys' fees, nor did the district court abuse its discretion in determining that M&M's counterclaim was frivolous and awarding attorneys' fees to Chevron under section 2805(d)(3).
WPP Luxembourg Gamma Three Sarl, et al. v. Spot Runner, Inc., et al.
WPP Luxembourg Gamma Three Sarl (WPP) appealed from the district court's dismissal of the amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Defendant and cross-appellants cross-appealed the district court's decision to dismiss some of WPP's claims without prejudice. WPP generally alleged violations of the Securities and Exchange Act of 1934, 15 U.S.C. 78(a), that amidst large operating losses unknown to investors, Spot Runner executives solicited WPP to buy shares in it at the same time that executives of the company were selling personally owned shares. The court affirmed the dismissal of the Rule 10b-5(a) and (c) fraudulent scheme against all of the defendants, the dismissal of the Rule 10b-5(b) fraudulent omissions claim against the general counsel for Spot Runner and Spot Runner, and the dismissal of the Rule 10b-5 insider trading claim against Spot Runner. The court reversed the dismissal of the Rule 10b-5(b) omission claims against the founders of Spot Runner.
Napoliello v. Commissioner of Internal Revenue
This case arose from the IRS's investigation of a type of tax shelter known as a "Son-of-Boss" (a variant of the Bond and Options Sales Strategy (BOSS) shelter). Petitioner appealed the Tax Court's decision in favor of the Commissioner of Internal Revenue. The court held that the IRS properly sent petitioner an affected item notice of deficiency because the deficiency required a partner-level determination. The court also held that the Tax Court had jurisdiction to redetermine affected items based on the partnership item determinations in the Final Partnership Administrative Adjustment (FPAA). Therefore, the court affirmed the judgment of the Tax Court.
In Re: Bluetooth Headset Product Liability Litig.
Plaintiffs filed 26 putative class actions against defendants, alleging that defendants knowingly failed to disclose the potential risk of noise-induced hearing loss associated with extended use of their wireless Bluetooth headsets at high volumes, in violation of state consumer fraud protection and unfair business practice laws. The subsequent settlement agreement provided the class $100,000 in cy pres awards and zero dollars for economic injury, while setting aside up to $800,000 for class counsel and $12,000 for the class representatives. William Brennan and other class members (Objectors) challenged the fairness and reasonableness of the settlement and appealed both the approval and fee orders, arguing that the district court abused its discretion in failing to consider whether the gross disproportion between the class award and the negotiated fee award was reasonable. The court agreed that the disparity between the value of the class recovery and class counsel's compensation raised at least an inference of unfairness, and that the current record did not adequately dispel the possibility that class counsel bargained away a benefit to the class in exchange for their own interests. Therefore, the court vacated both orders and remanded so that the district court could conduct a more searching inquiry into the fairness of the negotiated distribution of funds, as well as consider the substantive reasonableness of the attorneys' fee request in light of the degree of success attained.
Commissioner of Internal Revenue v. Estate of Anne Y. Petter, et al.
This case arose when taxpayer transferred membership units in a family-owned LLC partly as a gift and partly by a sale to two trusts and coupled the transfers with simultaneous gifts of LLC units to two charitable foundations. Subsequent to an IRS audit, which determined that the units had been undervalued, the foundations discovered they would receive additional units. At issue was whether the taxpayer was entitled to a charitable deduction equal to the value of the additional units the foundations would receive. The court held that Treasury Regulation 25.2522(c)-3(b)(1) did not bar a charitable deduction equal to the value of the additional units the foundations would receive. Therefore, the court affirmed the judgment.
Palmdale Hills Property, LLC v. Lehman Commercial Paper, Inc.
This case stemmed from credit agreements Lehman entities entered into with Palmdale Hills, LLC entities. Palmdale filed for chapter 11 bankruptcy in November 2008 and Lehman subsequently filed eight motions for relief from Palmdale's stay to foreclose on the collateral securing the loans that were in default. The court held that the Bankruptcy Appellate Panel (BAP) correctly held that Lehman had standing to appeal the bankruptcy court's finding that the automatic stay did not prevent equitably subordinating Lehman's claims. The court also held that the BAP correctly determined that the appeal was not moot. The court further held that the BAP correctly determined that Lehman's automatic stay prevented Lehman's claims from being subordinated. Accordingly the court affirmed the BAP's judgment.
TrafficSchool.com, Inc., et al. v. Edriver Inc., et al.
Plaintiffs claimed that defendants, owners and managers of a for-profit website called DMV.org, violated federal and state unfair competition and false advertising laws by actively fostering the belief that DMV.org was an official state DMV website, or was affiliated or endorsed by a state DMV. The district court held that defendants violated section 43(a) of the Lanham Act, 15 U.S.C. 1125(a), but rejected plaintiffs' claim under California's unfair competition statute. The district court issued an injunction ordering DMV.org to present every site visitor with a splash screen bearing a disclaimer and denied monetary relief and an award of attorney's fees to plaintiffs. Both sides appealed. The court held that plaintiffs had established sufficient injury for Article III standing and that plaintiffs had met both prongs of the test in Jack Russell Terrier Network of Northern California v. American Kennel Club, Inc. for Lanham Act standing. The court held that the district court committed no error in holding that defendants violated the Lanham Act but remanded for the district court to reconsider the duration of the splash screen in light of any intervening changes in the website's content and marketing practices, as well as the dissipation of the deception resulting from past practices. The court held that the district court did not err in denying damages. The court held that because the district court erred in finding that defendants'c conduct was not exceptional and that plaintiffs had unclean hands, its denial of attorney's fees was an abuse of discretion. Therefore, the court remanded for the district court to consider the award of attorney's fees anew. The court held that the district court's findings that defendants were jointly and severally liable were not clearly erroneous. The court held that the district court did not abuse its discretion by refusing to hold DMV.org in contempt for technical breaches of the injunction. Accordingly, the court affirmed in part and reversed in part, remanding with instructions.
United States v. Quinzon
Defendant was convicted of possession of child pornography and appealed a judgment that included, as a condition of supervised release, a requirement that monitoring technology be installed on his computer-related devices. The court rejected defendant's argument that his conditions of supervised release should be vacated because he was not afforded adequate notice that the district court was considering imposing them where his procedural rights were not violated. The court also rejected defendant's claims that the computer monitoring condition imposed on him occasioned a greater deprivation of liberty than was reasonably necessary because the term "monitoring" was imprecise and encompassed a broad swath of surveillance methods, some of which would be unnecessary or intrusive. The court noted, however, that in situations like this one, where technological considerations prevent specifying in detail years in advance how a condition was to be effectuated, district courts should be flexible in revisiting conditions imposed to ensure they remain tailored and effective. Accordingly, the court affirmed defendant's sentence.
Securities and Exchange Commission v. Todd, et al.
The SEC brought suit against senior officers of Gateway Incorporated ("Gateway") claiming that they unlawfully misrepresented Gateway's financial condition in the third quarter of 2000 in order to meet financial analysts' earnings and revenue expectations. After a three week trial, a jury found former Gateway financial executives, John J. Todd and Robert D. Manza, liable on all claims by the SEC. All parties appealed the district court's order in part. The court reversed the district court's order granting in part Todd's and Manza's motions for judgment as a matter of law on the antifraud claims under the Securities and Exchange Act of 1934, 15 U.S.C. 78a et seq., because substantial evidence supported the jury's verdict that Todd and Manza at least recklessly misrepresented revenue related to the Lockheed transaction, and that Todd recklessly misrepresented revenue as to the VenServ transaction, in the third quarter of 2000. The court also reversed the district court's order granting Jeffrey Weitzen's, former Gateway President and CEO, motion for summary judgment as to the Section 10(b) and Rule 10b-5 violations because there were genuine issues of material fact regarding whether Weitzen knowingly misrepresented Gateway's financial growth as "accelerated" given his knowledge of the unusual Lockheed and AOL transactions. There were also issues of material fact as to whether Weitzen was a "control person" under Section 20(a). The court affirmed Weitzen's motion for summary judgment as to the Rule 13b2-2 claim because there was no evidence that Weitzen signed a letter to Gateway's auditors knowing that it misrepresented Gateway's financial position. The court also affirmed the district court's order denying in part Todd's and Manza's motions for judgment as a matter of law on the aiding and abetting claims and their motions for a new trial.