In Anderson v Krafft-Murphy Co. Inc., 2013 Del. LEXIS 597 (Del. Nov. 26, 2013), the Delaware Supreme Court held that Sections 278 and 279 of the Delaware General Corporation Law, 8 Del. C. §§ 278-279, require a dissolved corporation to act through a court-appointed trustee or receiver after the corporation winds-up its business. Further, the Court held that Sections 278-279 contain no generally applicable statute of limitation for third party lawsuits against dissolved corporations. This decision signals that long-tail tort liability can follow a dissolved corporation for decades under Delaware law, underscoring the importance of properly handling a corporation’s dissolution.
In Atlantic Marine Construction Co., Inc. v. United States Dist. Ct. for W.D. Tex., No. 12-929, 2013 U.S. LEXIS 8775 (U.S. Dec. 3, 2013), the Supreme Court of the United States held unanimously that when parties have agreed contractually to a valid forum-selection clause, the analysis for a motion to transfer venue under 28 U.S.C. § 1404(a) is adjusted as follows: (1) a court should give no weight to the plaintiff’s choice of forum; (2) a court should not consider arguments about the parties’ private interests; and (3) if a court transfers a case to the parties’ preselected venue, the transferee court will not carry with it the transferring venue’s choice-of-law rules. This adjusted Section 1404(a) analysis requires near absolute deference to the forum designated in a valid contractual forum-selection clause. As a result, in all but the most unusual cases a district court will transfer venue to the preselected forum.
In Morrical v. Rogers, No. A137011, 2013 Cal. App. LEXIS 811 (Cal. App. Oct. 10, 2013), the California Court of Appeal, First District, held that the summary procedures set forth in California Corporations Code § 709 may be used to contest corporate elections predicated upon complex and substantive allegations of corporate or directorial misconduct, such as conflicts of interest and breaches of fiduciary duty. The Court rejected defendants’ argument that the California Legislature intended to limit Section 709 proceedings to challenges predicated upon technical or procedural irregularities in the corporate election process. This decision reinforces the broad authority of California state courts to adjudicate even complex matters in summary proceedings in order to determine the validity of corporate elections.
On October 24, 2013, in accordance with Title III of the Jumpstart Our Business Startups Act (the “JOBS Act”), the Securities and Exchange Commission (the “SEC”) issued a press release and published long-awaited proposed rules (Release Nos. 33-9470; 34-70741) (the “Proposed Rules”) to permit companies to offer and sell securities through crowdfunding (“Regulation Crowdfunding”).
In United States v. Vilar, Case Nos. 10-521(L), 10-580(CON), 10-4639(CON), 2013 WL 4608948 (2d Cir. Aug. 30, 2013), the United States Court of Appeals for the Second Circuit held that Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Securities & Exchange Commission (“SEC”) Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder, do not apply to extraterritorial conduct in both the civil and criminal context. In so holding, the Second Circuit made clear that the United States Supreme Court’s ruling in Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010) [blog article here], that civil liability under Section 10(b) does not apply extraterritorially, extends to criminal conduct as well. In light of that ruling, a criminal conviction for securities fraud can only be found if the defendant “engaged in fraud in connection with (1) a security listed on a U.S. exchange, or (2) a security purchased or sold in the United States.” While this holding did not disturb the defendants’ convictions in this case, the ruling provides guidance for future prosecutions under Section 10(b), which now require proof of a domestic sale or listing as a necessary element for conviction.
In Trezziova v. Kohn (In re Herald, Primeo & Thema Sec. Litig.), No. 12-156-cv, 2013 U.S. App. LEXIS 19132 (2d Cir. Sept. 16, 2013), the United States Court of Appeals for the Second Circuit affirmed the dismissal of state law class action claims alleging, among other claims, that defendants had aided and abetted Bernard Madoff Investment Securities’ (“BMIS”) Ponzi scheme. Plaintiffs were investors in the defendant investment companies and funds, which had, in turn, invested large sums of money in BMIS. The Court held the claims were precluded by the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), 15 U.S.C. § 78bb(f), even though plaintiffs did not actually purchase any “covered securities” under SLUSA and did not style their claims as securities fraud allegations. The fact that plaintiffs’ allegations centered on purported sales of covered securities by BMIS was sufficient to trigger SLUSA.
In Pension Trust Fund for Operating Engineers v. Mortgage Asset Securitization Transactions, Inc., No. 12-3454, 2013 WL 5184064 (3d Cir. Sept. 17, 2013), the United States Court of Appeals for the Third Circuit joined the Seventh, Ninth and Eleventh Circuits, holding that Section 13 of the Securities Act of 1933 (“1933 Act”), 15 U.S.C. § 77m, does not require plaintiffs asserting a claim under the 1933 Act to plead with particularity compliance with the statute of limitations. In doing so, the Third Circuit split from the First, Eighth and Tenth Circuits, potentially triggering review by the United States Supreme Court.
In United States v. McKye, No. 12-6108, 2013 U.S. App. LEXIS 17297 (10th Cir. Aug. 20, 2013), the United States Court of Appeals for the Tenth Circuit reversed the conviction of Brian William McKye for securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b). The Tenth Circuit held that in a criminal action for securities fraud, the jury must be permitted to determine whether a “security” actually exists. The Tenth Circuit held that the United States District Court for the Western District of Oklahoma erred in not leaving this issue for the jury to decide and instead giving the jury an instruction that “notes” are “securities.”
On Friday October 3, 2013, Governor Brown signed into law AB 1412, which provides full relief for individuals affected by the decision in Cutler v. Franchise Tax Board, where the California Court of Appeal held that the California tax incentives relating to the sale of qualified small business stock discriminated against interstate commerce and were therefore unconstitutional.
The recent United States Supreme Court ruling in United States v. Windsor (see prior blog article here) invalidated Section 3 of the Defense of Marriage Act, which had defined marriage as a union between a man and a woman. The ruling greatly expands the estate and tax planning techniques available for married same-sex couples who live in a state like California that recognizes same-sex marriage.