Friday, January 24, 2020

You Wanted It, You Got It

You Wanted It, You Got It

      In a decision from Delaware decided last year, the court held that, where the controlling shareholder caused a corporation to adopt a forum selection by-law, that majority shareholder consented to venue in that jurisdiction. In re: Pilgrim’s Pride Corp. Derivative Litigation, C.A. No. 2018-0058-GTL, 2019 WL 1224556 (Del. Ch. March 15, 2019). 

      The controlling shareholder of Pilgrim’s Pride orchestrated the sale of the company. Coincident with the approval of that sale, Pilgrim’s Pride’s Board of Directors amended its by-laws to provide, inter alia, that disputes with respect to the internal governance of the company must be heard in Delaware. When, after the transaction was approved, certain of the shareholders brought a derivative action in Delaware against that controlling shareholder, the controlling shareholder sought to have the suit dismissed on the basis of lack of jurisdiction. This assertion the Chancery Court rejected, observing: 

On the same day that the Acquisition was approved, the Board voted unanimously to adopt a forum-selection bylaw, with the Director Defendants whom Parent controlled constituting a five-member majority of the nine-member Board. The bylaw made the Delaware courts exclusive forum for breach of fiduciary litigation involving the Company. This decision holds that on the facts alleged, Parent implicitly consented to personal jurisdiction in this court for the purposes of claims falling within the forum-selection bylaw.

Thursday, January 23, 2020

An All-To-Familiar Gesture With Her Hand and Without Four of Her Fingers Showing

An All-To-Familiar Gesture With Her Hand and Without Four of Her Fingers Showing

      While this decision from 2019 by the Sixth Circuit Cout of Appeals has nothing to do with business law, it is at least entertaining. In this case, the Sixth Circuit Court of Appeals considered whether a police officer violated a driver’s civil rights by pulling her over after she flipped him off. The court found that indeed her rights were violated. Cruise-Gulyas v. Minard, 918 F.3d 494 (6th Cir. 2019).

      Minard, a police officer in Michigan, stopped Cruise-Gulyas for speeding. He however, wrote the ticket for a non-moving violation. Cruise-Gulyas, as she pulled away from the traffic stop, as described by the Sixth Circuit “made in all-to-familiar gesture to Minard with her hand and without four of her fingers showing.” Minard pulled her over again and wrote out a ticket for a moving violation. 

      Cruise-Gulyas sued Minard under § 1983, alleging that by pulling her over a second time and changing the non-moving moving violation ticket to a moving violation, he violated her constitutional rights. Specifically, she claimed violation of the Fourth Amendment against unreasonable search and seizure, as well as retaliation for having engaged in protected speech under the First Amendment and restriction of her liberty in violation of the Due Process Clause of the 14th Amendment. Minard sought to have the suit dismissed on the basis that he had qualified immunity for his actions. When the federal district court denied that effort, he brought this appeal to the Sixth Circuit Court of Appeals.

      The Sixth Circuit would hold that Minard was in the wrong. 

      In pulling Cruise-Gulyas over a second time, Minard violated her rights against unreasonable search and seizure. While he may have had probable cause for pulling her over the first time, his authority to do so in connection with her having been speeding ended when that first stop concluded. Relying on prior law, flipping off a police officer is not illegal or indicative of an illegal violation. 

      With respect to the First Amendment issue, the court observed, again in reliance upon prior law, that “Any reasonable officer would know that a citizen who raises her middle finger engages in speech protected by the First Amendment.”

       Having denied Minard qualified immunity, the case would have gone back to the District Court for further fact-finding and a decision on the merits.

Wednesday, January 22, 2020

New York Expands Member Liability for Unpaid Wages

New York Expands Member Liability for Unpaid Wages

      New York has long had a statute applicable to both domestic and foreign corporations providing for the imposition of liability on the 10 largest shareholders for failure to pay wages. See New York Business Corporation Law § 630. In the same vein, in 2014 New York adopted a statute providing, inter alia, that the member that the 10 largest members of an LLC bear joint and several liability for certain unpaid wages. In order for an employee to move against the members, they must satisfy certain notice requirements and, as well obtain a judgment against the LLC that remains unsatisfied for 90 days. N.Y. LLC Act § 609(c).

      As drafted, this statute has been applicable only to LLCs organized in New York. Looking at the issue from the opposite perspective, it has not been applicable to the members of a foreign LLC transacting business in New York.

      Well, that is the case until February 20, 2020. That day an amendment to § 609 of the New York LLC Act will go effective, it providing, in effect, that the same rule applicable previously to the 10 largest members of the domestic LLC will be equally applicable to the 10 largest members of a foreign LLC. With this change, foreign LLCs doing business in New York need to pay even more attention to compliance with wage and hour laws. At the same time, ne'er-do-wells will not be able to use foreign LLCs as a “planning opportunity” with which to engage in wage-theft activities.

Business Planning Class at UK College of Law

Business Planning Class at UK College of Law

      Again in the spring of 2020, I am teaching the Business Planning class at the University of Kentucky College of Law. HERE IS A LINK to the announcement made by Stoll Keenon Ogden PLLC.

Tuesday, January 21, 2020

Illinois Makes Organization of LLCs More Complicated

Illinois Makes Organization of LLCs More Complicated

      Consequent to changes in administrative regulations effective January 1, 2020, it is now more complicated to either organize an LLC in Illinois or to qualify a foreign LLC to transact business in that jurisdiction.

      With respect to LLCs organized in Illinois, if the articles of organization identify as a manager a business entity (i.e., not a natural person), the articles of organization must be accompanied by a good standing certificate issued by the state, whether that be Illinois or foreign, under which the manager-entity is organized.  There is a similar filing requirement when the articles of organization are amended or an annual report is filed that adds a new entity-manager that is not already either organized or qualified to transact business in Illinois.

      With respect to foreign LLCs seeking to qualify to transact business in Illinois, again, if the company has an entity-manager, the application for the certificate of authority to transact business must include a good standing certificate issued with respect to that entity-manager, whether organized in Illinois or in a foreign jurisdiction. When the application for certificate of authority is amended to add a new entity-manager, a good standing certificate from its jurisdiction of organization will likewise be required.

Saturday, January 18, 2020

Lancaster and York United

Lancaster and York United

Today marks the anniversary of the marriage in 1486 of the marriage of Henry VII (House of Lancaster) and Elizabeth of York.

      King Henry VII, the first of the Tudor monarchs, was, as described by the great Tudor historian G.R. Elton, “a political solution to a dynastic problem”; he was clearly not the closest claimant to the throne. Some would even argue that he had no dynastic claim on the throne.  He was, however, the successful leader at the Battle of Bosworth at which Richard III, who had seized the throne from the never-crowned Edward V (one of the two “Princes of the Tower”), was killed. 

            The House of York had similar problems in its claim to the throne. Henry V, the victor of Agincourt, died young. His only child, also named Henry, was nine months old at the time of his father’s death. Upon his father’s death, and subject of course to a Regency, young Henry, now Henry VI, was elevated to the English throne. Henry VI’s mother was Catherine of Valois, a French princess who after Agincourt married Henry V; under the Treaty of Troyes, Henry V was to inherit the French throne. Of course, that did not come to pass as the civil war aspect of the Hundred Years War was ultimately resolved (the enemy of my enemy is my friend). So now sitting on the throne was Henry VI, whose mother was a member of the house in Valois. That particular house was troubled with some sort (today it cannot be entirely diagnosed) of mental instability. At various times in his life this instability would manifest in Henry VI. In some of the later experiences he would be effectively catatonic while at other times he would appear to have no appreciation of where he was or what he was doing. Regardless of the degree of expression from time to time, these were not characteristics of an effective medieval king. In addition, Henry VI would go on to marry Margaret of Anjou. Being French, she brought no natural allies to Henry’s household and, for herself, was generally disliked.

      And so the stage was set; following the highly effective and well liked war hero Henry V, the country was plunged into a minority kingship with a regency and all of the instability that flows therefrom. The Duke of York, who had aspirations to the throne, served as a regent. Meanwhile nothing to bring stability to Henry VI’s position flowed from his marriage to Margaret of Anjou.

     Ultimately, the Cousins War would erupt. York would, in one of its earlier battles, be killed (Wakefield in 1460), but ultimately his son, Edward IV, would prevail in that conflict (Towton, 1461), taking the throne and then protecting it (except when he lost it for a period) through the balance of the War of the Roses.

            So out of Bosworth we have Henry VII (Tudor) whose claim to the crown was based on having won it at battle over the incumbent Richard III (York), even as York’s claim was on shaky footing, it having been based upon the usurpation of Henry VI.

            So in order to support the legitimacy of the Tudor (while claiming to be of Lancaster) line to the throne, a marriage to the eldest daughter of the late Edward IV was arranged.  Neither had a great claim to the throne, but together (it was hoped, ultimately successfully) there was a better political argument that the matter was resolved.  Henry VII’s reign would be punctuated with several significant rebellions, but none came close to prevailing. 

Thursday, January 16, 2020

Burford Abstention

Burford Abstention

      Peter Mahler, in his blog New York Business Divorce, has reviewed a recent New York decision on Buford Abstention in the context of the dissolution of a non-profit corporation.

      Under Burford Abstention, federal courts, although they would have the jurisdictional capability to do so, will defer to state courts with respect to matters particular to the organization of business organizations. The intent is to avoid creating conflicting law between state and federal courts. In this instance, where the common law dissolution of a non-profit membership corporation was sought, the federal court decided that it would be best for a state court to consider that question. This holding is consistent with prior New York law, reviewed by Peter, with respect to actions for a statutory judicial hearing.

      The title of the posting is Another Door Closes to Federal Court in Judicial Dissolution Cases; HERE IS A LINK to it.

      This decision stands in opposition to a 2019 decision of Judge Van Tatenhove of the Federal District Court for the Eastern District of Kentucky, wherein he held, on reconsideration, that Burford Abstention did not preclude him from ruling on a suit seeking judicial dissolution of a business corporation. That case was Henley Mining, Inc. v. Parton, Civ. No. 6:17-CV-00092-GFVT, 2019 WL 1048839 (E.D. Ky. March 5, 2019).  HERE IS A LINK to my review of it. It, in turn, includes a link to the decision rendered prior to Judge Van Tatenhove’s reconsideration of the matter and reversal of his prior decision.