Top 10 Business Law Cases of the Year (2016)

Business & Corporate Law Section Annual CLE

Top 10 Business Law Cases from the Past Year

May 6, 2016

Wendy Gerwick CoutureAssociate Professor of Law

University of Idaho

***Slides posted on SlideShare.

Contracts Constructive Fraud Assignment of Claims Exclusions from Coverage Forum Selection Clauses Delaware: Pre-Merger Statements Delaware: Disclosure-Only Settlements ERISA Reimbursement Securities Fraud

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1. Campbell v. Parkway Surgery Ctr., LLC, 354 P.3d 1172 (Idaho 2015).

Bingham Memorial Hospital Foundation

Campbell



Campbell

Parkway Surgery

Center, LLC

Orally: “take care of” Campbell’s obligation to Bingham



Campbell

Parkway Surgery

Center, LLC


Quit her job and began working at Parkway

Owes $ to repay loan



Campbell

Parkway Surgery

Center, LLC




Court’s Opinion (J. Burdick): “[T]his Court is astonished that Parkway would attempt to argue on appeal that Campbell received ‘the benefit of her bargain.’ Such an argument is, at a minimum, baseless and disingenuous.”


Court’s Opinion (J. Burdick): “[T]his Court is astonished that Parkway would attempt to argue on appeal that Campbell received ‘the benefit of her bargain.’ Such an argument is, at a minimum, baseless and disingenuous.”

Special Concurrence (J. J. Jones): “Throughout the proceedings, Parkway has professed not to understand what ‘take care of’ means. I would expect that when several people are eating at the same table at a restaurant in Blackfoot and one says he will ‘take care of’ the bill, everyone at the table understands what he means. It means he will pay the bill, rather than sitting around for years hoping that the waitperson will never bring it.”




Campbell

Parkway Surgery

Center, LLC




I.C. § 9-505. Certain agreements to be in writingIn the following cases the agreement is invalid, unless the same or some note or memorandum thereof, be in writing and subscribed by the party charged, or by his agent. Evidence, therefore, of the agreement cannot be received without the writing or secondary evidence of its contents:. . .2. A special promise to answer for the debt . . . of another, except in the cases provided for in section 9-506, Idaho Code.



§ 9-506. Original obligations--Writing not neededA promise to answer for the obligation of another, in any of the following cases, is deemed an original obligation of the promisor, and need not be in writing:. . .3. Where the promise, being for an antecedent obligation of another, is made . . . upon a consideration beneficial to the promisor, whether moving from either party to the antecedent obligation, or from another person.



§ 9-506. Original obligations--Writing not neededA promise to answer for the obligation of another, in any of the following cases, is deemed an original obligation of the promisor, and need not be in writing:. . .3. Where the promise, being for an antecedent obligation of another, is made . . . upon a consideration beneficial to the promisor, whether moving from either party to the antecedent obligation, or from another person.

= “if the promisor obtains a

direct benefit”




Campbell

Parkway Surgery

Center, LLC






Campbell

Parkway Surgery

Center, LLC




$

$

“Parkway cites to two Idaho cases for the proposition that a party must show it suffered economic injury before it can recover damages for a breach of an agreement to pay a debt. See Melaleuca, Inc. v. Foeller, 155 Idaho 920, 924, 318 P.3d 910, 914 (2014); Bergkamp v. Martin, 114 Idaho 650, 653, 759 P.2d 941, 944 (Ct.App.1988).”



“Melaleuca cites to Bergkamp for the proposition that a party must show it has been economically injured before it can recover damages for a breach of contract. . . . Bergkamp, in turn, cites to 5 A. Corbin, Corbin on Contracts § 1003 (1964), for that same proposition. Bergkamp, 114 Idaho at 653, 759 P.2d at 944. However, turning to the relevant section in Corbin, there is nothing that states a party must show an ‘economic injury’ before being able to recover damages.”



“Melaleuca cites to Bergkamp for the proposition that a party must show it has been economically injured before it can recover damages for a breach of contract. . . . Bergkamp, in turn, cites to 5 A. Corbin, Corbin on Contracts § 1003 (1964), for that same proposition. Bergkamp, 114 Idaho at 653, 759 P.2d at 944. However, turning to the relevant section in Corbin, there is nothing that states a party must show an ‘economic injury’ before being able to recover damages.”

“Thus, we want to clarify that, at least for purposes of third-party beneficiary contracts involving a promise to pay another's debt, it is not necessary to show an ‘economic injury’ before a plaintiff can recover damages for a breach.”



“Melaleuca cites to Bergkamp for the proposition that a party must show it has been economically injured before it can recover damages for a breach of contract. . . . Bergkamp, in turn, cites to 5 A. Corbin, Corbin on Contracts § 1003 (1964), for that same proposition. Bergkamp, 114 Idaho at 653, 759 P.2d at 944. However, turning to the relevant section in Corbin, there is nothing that states a party must show an “economic injury” before being able to recover damages.”

“Thus, we want to clarify that, at least for purposes of third-party beneficiary contracts involving a promise to pay another's debt, it is not necessary to show an ‘economic injury’ before a plaintiff can recover damages for a breach.”

???




Campbell

Parkway Surgery

Center, LLC




$

$

Restatement (Second) of Contracts § 305, illus. 4.

A owes C $100. For consideration B promises A to pay the debt to C. On B's breach A may obtain a judgment for $100 against B. But the court may protect B against double payment by permitting joinder of C, by an order that money collected by A is to be applied to reduce A's debt to C, by giving B credit on the judgment for payments to C which reduce A's obligation, or by enjoining enforcement of the judgment to the extent of such payment.


Restatement (Second) of Contracts § 305, illus. 4.

A owes C $100. For consideration B promises A to pay the debt to C. On B's breach A may obtain a judgment for $100 against B. But the court may protect B against double payment by permitting joinder of C, by an order that money collected by A is to be applied to reduce A's debt to C, by giving B credit on the judgment for payments to C which reduce A's obligation, or by enjoining enforcement of the judgment to the extent of such payment.

“Parkway breached its agreement with Campbell when it refused to pay Campbell's loan. Consequently, Campbell was entitled to damages in the amount of the outstanding loan. Thus, the district court erred when it reversed the magistrate's decision so holding. We therefore reverse that aspect of the district court's decision and remand to the district court to reinstate the damage award plus any accrued interest. We note that the court can protect against double recovery by ordering Campbell to pay the money to BMH upon receipt.”




Campbell

Parkway Surgery

Center, LLC




$6,800

Special Concurrence (J. J. Jones):

“Parkway incurred monetary indebtedness in the sum of $76,835.96, plus (1) interest, (2) costs of suit, (3) fees awarded by this Court, and (4) the fees of its own attorneys, in its quest to beat a $6,800 contractual obligation. In addition to tying up court time that could have been devoted to meritorious matters, Parkway's conduct has undoubtedly taken a toll on Campbell, who only wanted Parkway to honor its contractual obligation. It is unfortunate that she had to put up with this course of misconduct. The fee awards may help to relieve the burden and, hopefully, will cause Parkway to conform to more acceptable behavioral norms in the future.”



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3. Doe v. Boy Scouts of America, 356 P.3d 1049 (Idaho 2015).

John DoesBoy Scouts of

America & LDS Church

CONSTRUCTIVE FRAUD


John DoesBoy Scouts of

America & LDS Church

CONSTRUCTIVE FRAUD

• Allegedly knew about the danger but failed to disclose it

• Allegedly affirmatively represented that each scout leader was a “great guy,” a “wonderful man,” or a “friend to whom you can always turn for advice”


§ 5-218. Statutory liabilities, trespass, trover, replevin, and fraud

Within three (3) years:. . .4. An action for relief on the ground of fraud or mistake. The cause of action in such case not to be deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.

§ 5-219. Actions against officers, for penalties, on bonds, and for professional malpractice or for personal injuries

Within two (2) years:. . .4. An action to recover damages for professional malpractice, or for an injury to the person, . . .

§ 5-224. Actions for other relief

An action for relief not hereinbefore provided for must be commenced within four (4) years after the cause of action shall have accrued.







An action for relief not hereinbefore provided for must be commenced within four (4) years after the cause of action shall have accrued.X


ELEMENTS OF ACTUAL FRAUD

ELEMENTS OF CONSTRUCTIVE

FRAUD

Statement or misrepresentation of fact

Its falsity Its materiality The speaker’s knowledge of its

falsity The speaker’s intent that there be

reliance The hearer’s ignorance of the falsity

of the statement Reliance by the hearer Justifiable reliance Resultant injury





of the statement Reliance by the hearer Justifiable reliance Resultant injury Breach of a duty arising from a

relationship of trust & confidence








Breach of fiduciary duty


ELEMENTS OF CONSTRUCTIVE

FRAUD





of the statement Reliance by the hearer Justifiable reliance Resultant injury Breach of a duty arising from a

relationship of trust & confidence

BROADER THAN FIDUCIARY RELATIONSHIP: other examples are members of the same family, partners, attorney and client, principal and agent, & close friends


Breach of Fiduciary Duty

Constructive Fraud








Breach of fiduciary duty

Constructive fraud


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6. JBM, LLC v. Cintorino, 367 P.3d 167 (Idaho 2016).

Fawnwood, LLC(ID)

JBM Company, LLC(WY)

Loan $$$

Cintorino (member)


Fawnwood, LLC(ID)


Cintorino (member)

Promissory note, secured by deed of trust, to “JBM, LLC”

Personal guarantee to “JBM, LLC”

Loan $$$


Fawnwood, LLC(ID)


Cintorino (member)

Loan $$$





Fawnwood, LLC(ID)


Cintorino (member)

Loan $$$



McAdams, LLC(ID)

Assigned all interest in promissory note & property


I.C. § 53-509. Consequences of noncompliance (effective until 7/1/15)

(1) Any person who transacts business in Idaho under an assumed business name without having complied with the requirements of this chapter shall not be entitled to maintain any legal action in the courts of this state until the person has filed a certificate of assumed business name as required by this chapter.




I.C. § 30-6-808. Effect of failure to have certificate of authority (effective until 7/1/17)

(1) A foreign limited liability company transacting business in this state may not maintain an action or proceeding in this state unless it has a certificate of authority to transact business in this state.


“An assignee takes the subject of the assignment with all the rights and remedies possessed by and available to the assignor.”



“An assignee generally acquires no greater right than was possessed by the assignor, and is subject to all defenses and claims that the debtor had against the assignor.”



“An assignee generally acquires no greater right than was possessed by the assignor, and is subject to all defenses and claims that the debtor had against the assignor.”

“An assignee is not subject to just any claim or defense but, rather, is subject only to claims and defenses that go to the validity or enforceability of the right transferred.”






“While IABNA prohibits an entity in violation from filing suit in Idaho, it does not invalidate contracts entered into by that entity.”






“While IABNA prohibits an entity in violation from filing suit in Idaho, it does not invalidate contracts entered into by that entity.”

I.C. § 30-6-808. (2) The failure of a foreign limited liability company to have a certificate of authority to transact business in this state does not impair the validity of a contract or act of the company . . .


Fawnwood, LLC(ID)


Cintorino (member)

Loan $$$



McAdams, LLC(ID)

Assigned all interest in promissory note & property





(1) A foreign limited liability company transacting business in this state may not maintain an action or proceeding in this state unless it has a certificate of authority to transact business in this state.(2) The failure of a foreign limited liability company to have a certificate of authority to transact business in this state does not impair the validity of a contract or act of the company . . .

I.C. § 30-21-810. Consequences of noncompliance (effective 7/1/15)

(a) Any person who transacts business in Idaho under an assumed business name without having complied with the requirements of this chapter shall not be entitled to maintain any legal action in the courts of this state until the person has filed a certificate of assumed business name as required by this chapter.

I.C. § 30-21-502. Registration to do business in this state. . .(b) A foreign filing entity or foreign limited liability partnership doing business in this state may not maintain an action or proceeding in this state unless it is registered to do business in this state.(c) The failure of a foreign filing entity or foreign limited liability partnership to register to do business in this state does not impair the validity of a contract or act of the foreign filing entity . . .


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8. St. Luke’s Health Sys., Ltd. v. Allied World Nat’l Assur. Co., No. 1:14-CV-475-BLW, 2015 WL 5257138 (D. Idaho Sept. 4, 2015).

Section 7 of the Clayton Act violated if “the effect of such acquisition may be substantially to lessen competition.” 15 U.S.C. § 18.


“It is highly likely that St. Luke's will use its bargaining leverage over health plan payers to receive increased reimbursements that the plans will pass on to consumers in the form of higher health care premiums and higher deductibles.”

Saint Alphonsus Med. Ctr. - Nampa, Inc. v. St. Luke's Health Sys., Ltd., No. 1:12-CV-00560-BLW, 2014 WL 407446, at *25 (D. Idaho Jan. 24, 2014), affirming judgment 778 F.3d 775 (9th Cir. 2015).

Section 7 of the Clayton Act violated if “the effect of such acquisition may be substantially to lessen competition.” 15 U.S.C. § 18.


Insurance Policy (Between St. Luke’s and Allied)

Coverage of “Antitrust Activities”

Exclusion A:

Arising out of, based upon or attributable to the gaining of any profit or financial advantage or improper or illegal remuneration by an Insured, if a final judgment or adjudication establishes that such Insured was not legally entitled to such profit or advantage or that such remuneration was improper or illegal.


Exclusion A:


“Bargaining Leverage” = “Financial Advantage” ?


Exclusion A:



“Each of the three terms in Exclusion A – profit, financial advantage, improper/illegal remuneration – pertain to various types of monetary or financial gain.”


Exclusion A:




Bargaining leverage Financial advantage Education Employment


Exclusion A:




Bargaining leverage Financial advantage Education Employment

Appeal to 9th Circuit pending: No. 15-35767


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5. Idaho Pacific Corp. v. Binex Line Corp., No. 4:15-CV-510-CWD, 2016 WL 843254 (D. Idaho March 1, 2016).



Bill of Lading forum selection clause = federal district court in the Central District of California


Carriage of Goods by Sea Act, 46 U.S.C. § 1300*shipments from U.S. ports to foreign countries & vice versa

Carmack Amendment, 49 U.S.C. § 11706*interstate cargo claims against rail & motor carriers


Carriage of Goods by Sea Act, 46 U.S.C. § 1300*shipments from U.S. ports to foreign countries & vice versa

Carmack Amendment, 49 U.S.C. § 11706*interstate cargo claims against rail & motor carriers

Because this was a through bill of lading, COGSA displaces Carmack.


Atlantic Marine Constr. Co. v. U.S. Dist. Court for the W. Dist. of Texas, 134 S. Ct. 568 (2013).

Forum selection clause “given controlling weight in all but the most exceptional circumstances.”




Party seeking to defy forum selection clause bears burden of proof. DO NOT give any weight to plaintiff’s choice of forum. DO NOT consider any of the parties’ private interests. ONLY consider whether any public interest factors rise to the level of exceptional

circumstances.





circumstances.

I.C. § 29-110. (1) Every stipulation or condition in a contract, by which any party thereto is restricted from enforcing his rights under the contract in Idaho tribunals . . . is void as it is against the public policy of Idaho.





circumstances.

I.C. § 29-110. (1) Every stipulation or condition in a contract, by which any party thereto is restricted from enforcing his rights under the contract in Idaho tribunals . . . is void as it is against the public policy of Idaho.

Complete Lack of Bargaining PowerNo evidence of any bargaining between Idaho Pacific & Binex. The customer picked Binex & negotiated with Binex.


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4. RDG Logistics LLC v. A&R Logistics Holdings, Inc., 131 A.3d 842 (Del. Ch. 2016).

Buyer’s Common-Law Fraud Claims against Securityholders re: Pre-Merger Statements

Exclusive Representations ProvisionIntegration Clause




Hold sophisticated

parties to terms of their contracts

Protect against abuses

of fraud




Hold sophisticated

parties to terms of their contracts

Protect against abuses

of fraud

KEY: Did party seeking to rely on extra-contractual statements disclaim such reliance?


Exclusive Representations Provision


5.27. EXCEPT AS EXPRESSLY SET FORTH IN THIS ARTICLE 5, THE COMPANY MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW OR IN EQUITY AND ANY SUCH OTHER REPRESENTATIONS OR WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED . . .

10.7. This Agreement, the Transaction Documents and the documents referred to herein and therein contain the entire agreement between the Parties and supersede any prior understandings, agreements or representations by or between the Parties, written or oral, which may have related to the subject matter hereof in any way.

Integration Clause



“[T]he critical language missing from Sections 5.27 and 10.7 of the Merger Agreement is any affirmative expression by Buyer of (1) specifically what it was relying on when it decided to

enter the Merger Agreement or (2) that it is was not relying on any representations made

outside of the Merger Agreement.”



“[T]he critical language missing from Sections 5.27 and 10.7 of the Merger Agreement is any affirmative expression by Buyer of (1) specifically what it was relying on when it decided to

enter the Merger Agreement or (2) that it is was not relying on any representations made

outside of the Merger Agreement.”

EXAMPLE OF LANGUAGE THAT DOES THIS:

Prairie Capital III, L.P. v. Double E Holding Corp., 132 A.3d 35 (Del. Ch. Nov. 24, 2015).


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10. In re Trulia, Inc. Stockholder Litig., 129 A.3d 884 (Del. Ch. 2016).

Heightened Scrutiny of “Disclosure-Only”

Settlements



Settlements

• “Deal tax”



Settlements

• “Deal tax”• “The most common currency used to procure a settlement is the issuance of

supplemental disclosures to the target’s stockholders before they are asked to vote on the proposed transaction.”



Settlements



• Defendants incentivized to obtain broad releases as “deal insurance.”



Settlements



• Defendants incentivized to obtain broad releases as “deal insurance.”• Plaintiffs’ attorneys incentivized by fee award.



Settlements



• Defendants incentivized to obtain broad releases as “deal insurance.”• Plaintiffs’ attorneys incentivized by fee award.• Non-adversarial process of seeking settlement approval.



Settlements



• Defendants incentivized to obtain broad releases as “deal insurance.”• Plaintiffs’ attorneys incentivized by fee award.• Non-adversarial process of seeking settlement approval.

“[P]ractitioners should expect that disclosure settlements are likely to be met with continued disfavor in the future unless the supplemental disclosures address a plainly material misrepresentation or omission, and the subject matter of the proposed release is narrowly circumscribed to encompass nothing more than disclosure claims and fiduciary duty claims concerning the sale process, if the record shows that such claims have been investigated sufficiently.”

Contracts Constructive Fraud Assignment of Claims Exclusions from Coverage Forum Selection Clauses Delaware: Pre-Merger Statements Delaware: Disclosure-Only Settlements ERISA Reimbursement Securities FraudX

7. Montanile v. Bd. of Trustees of the Nat’l Elev. Indus. Health Benefit Plan, 136 S. Ct. 651 (2016).

Employee benefits plan

ParticipantDrunk driver

Covered medical expenses, with right to reimbursement if participant recovers money from a third party for medical expenses





Settlement





Settlement

Settlement funds spent on non-traceable items


ERISA § 502(a)(3) - authorizes plan fiduciaries to bring suit “to obtain other appropriate equitable relief”



Yes, equitable lien by agreement against settlement funds.




But, only equitable remedy to extent enforced against specifically identifiable funds in the defendant’s possession or against traceable items that the defendant purchased with the funds.





To extent participant spends funds on nontraceable items, it destroys the equitable lien.





To extent participant spends funds on nontraceable items, it destroys the equitable lien.

Incentive to spend on nontraceable

items

Incentive to be vigilant in

seeking reimbursement


2. In re ChinaCast Educ. Corp. Sec. Litig., 809 F.3d 471 (9th Cir. 2015).

Chan – Founder & CEO


$$$

Chan – Founder & CEO


$$$

Investors

Securities fraud Chan – Founder & CEO


Chan – Founder & CEOSCIENTER



General rule: imputed if corporate officer was acting “within the scope of his employment” or “with actual or apparent authority”




Adverse interest exception: a rogue agent’s actions or knowledge is not imputed to the principal if the agent acts adversely to the principal in a transaction or matter, intending to act solely for the agent’s own purposes or those of another person





Exception to exception: if innocent third party relies on representations made with apparent authority.





Exception to exception: if innocent third party relies on representations made with apparent authority.XSkip in

fraud-on-the-

market cases


9. Salman v. United States, No. 15-628 (U.S.) (pending).

Insider or Misappropriator

Duty to disclose or abstain from

trading




trading

Tippee

Inherit duty?




trading

Tippee

Inherit duty?

Dirks v. SEC, 463 U.S. 646 (1983)*Only inherited where tipper has breached fiduciary duty by disclosing information to tippee and tippee knows or should know that there has been such a breach.




trading

Tippee

Inherit duty?


Dirks v. SEC, 463 U.S. 646 (1983)*The test for whether the tipper breached fiduciary duty is whether the tipper will benefit, directly or indirectly, from the disclosure.




trading

Tippee

Inherit duty?


Dirks v. SEC, 463 U.S. 646 (1983)*The test for whether the tipper breached fiduciary duty is whether the tipper will benefit, directly or indirectly, from the disclosure.

Dirks v. SEC, 463 U.S. 646 (1983)*“The elements of fiduciary duty and exploitation of nonpublic information also exist when [a tipper] makes a gift of confidential information to a trading relative or friend. The tip and trade resemble trading by [the tipper] himself followed by a gift of the profits to the recipient.”



Second Circuit (Newman):Requires “proof of a meaningfully close personal relationship that generates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature.”




Ninth Circuit (Salman):Proof of “intent to benefit a trading relative or friend” is sufficient.”




Ninth Circuit (Salman):Proof of “intent to benefit a trading relative or friend” is sufficient.”

Cert Granted on Question:“Does the personal benefit to the insider that is necessary to establish insider trading under Dirks require proof of ‘an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature,’ as the Second Circuit held in Newman, or is it enough that the insider and the tippee shared a close family relationship, as the Ninth Circuit held in this case?

Thank you!Wendy Gerwick Couture

Associate Professor of LawUniversity of Idaho

***Slides posted on SlideShare.