Justia Professional Malpractice & Ethics Opinion Summaries

This case involved the dispute between Gila Dweck, the CEO, director, and 30% stockholder in Kids International Corporation (Kids) and Albert Nasser, the Chairman and controlling stockholder of Kids. Dweck and Nasser accused each other of breaching their fiduciary duties and Nasser asserted third-party claims for breach of fiduciary duty against Dweck's colleagues Kevin Taxin, Kids' President, and Bruce Fine, Kids' CFO and corporate secretary. The court found that Dweck and Taxin breached their fiduciary duties to Kids by establishing competing companies that usurped Kids' corporate opportunities and converted Kids' resources; Dweck further breached her fiduciary duties by causing Kids to reimburse her for personal expenses; Fine breached his fiduciary duties by abdicating his responsibility to review Dweck's expenses and signing off on them wholesale; Dweck, Taxin, and Fine breached their duties by, inter alia, transferring Kids' customer relationships and business expectancies to their competing companies; and Dweck, Taxin, and Fine were liable to Kids for the damages they caused by their breaches of duty. The court largely rejected Dweck's breach of fiduciary duty claims against Nasser. Nevertheless, Nasser failed to carry his burden of proving that it was entirely fair for Kids to pay him a consulting fee that compensated him equally with Dweck when he performed no work for kids. Nasser was liable to Kids for those fees. Dweck also established her entitlement to an accounting from Nasser for some of the amount in cash that Kids had on hand at the time of the split. View "Dweck, et al. v. Nasser, et al." on Justia Law

Plaintiffs filed this lawsuit on behalf of a class of stockholders of Occam. Defendants moved for sanctions against all plaintiffs other than Derek Sheeler for trading on the basis of confidential information obtained in this litigation. With respect to Michael Steinhardt and the funds, the motion was granted. Consistent with prior rulings by this court when confronted with representative plaintiffs who have traded while serving in a fiduciary capacity, Steinhardt and the funds were dismissed from the case with prejudice, barred from receiving any recovery from the litigation, required to self-report to the SEC, directed to disclose their improper trading in any future application to serve as lead plaintiff, and ordered to disgorge profits. With respect to Herbert Chen, the motion was denied. View "Steinhardt, et al. v. Howard-Anderson, et al." on Justia Law

Appellant, a former shareholder in Wachovia, sought to recover personally for the decline in value of his shares of Wachovia stock during the recent financial crisis. The district court dismissed the suit, concluding that appellant's complaint stated a claim derivative of injury to the corporation and that he was therefore barred from bringing a direct or individual cause of action against defendants. The court held that because appellant's varied attempts to recast his derivative claim as individual were unavailing, the judgment of the district court was affirmed. View "Rivers, Jr. v. Wachovia Corp., et al." on Justia Law

This case involved a claim for breach of the fiduciary duty of loyalty that stemmed from a dispute regarding assets of IFCT, a now defunct tech startup company founded by Stephen Marsh to develop potentially revolutionary micro fuel cell technology. The crux of plaintiff's argument was that the Director Defendants conducted an unfair and disloyal bidding process, whereby they favored the Echelon-backed bid and refused to follow up on or negotiate with other superior bids. As a result, IFCT missed its chance to sell its assets at the peak of their value and was forced to sell its assets at a discount in bankruptcy. Given that the Director Defendants have conceded the applicability of entire fairness review and given the fact-intensive nature of that review, the court found that the Director Defendants have not met their burden at this stage to achieve summary judgment against Encite. The court also found that material facts remained as to the liability of Echelon for aiding and abetting the alleged breach of fiduciary duty by the Director Defendants and therefore, the court denied Echelon's motion for summary judgment on that claim. The court finally found that material facts also remained regarding Echelon's third party claims, and so denied Marsh's motion for summary judgment. View "Encite, LLC v. Soni, et al." on Justia Law

This case involved a dispute over earn-out payments related to a merger between Viacom and Harmonix where plaintiff was one of the selling stockholders of Harmonix. Plaintiff sued on behalf of the selling stockholders, alleging that Viacom and Harmonix purposefully renegotiated the distribution contract with EA so as to reduce the earn-out payments payable to the Harmonix stockholders, and thus breached the covenant of good faith and fair dealing implied in the Merger Agreement. The court dismissed plaintiff's claim and held that it would be inequitable for the court to imply a duty on Viacom and Harmonix's part to share with the selling stockholders the benefits of a renegotiated contract addressing EA's right to distribute Harmonix products after the expiration of the earn-out period. View "Winshall v. Viacom Int'l, Inc., et al." on Justia Law

First National Keystone Bank retained an independent accounting firm to audit its records at a time that members of the bank's management were fraudulently concealing the bank's financial condition. The accounting firm issued a clean audit concerning the bank. It was later discovered that the bank had overstated its assets by over $500 million. Upon investigation, the FDIC concluded that the law firm that represented the bank had engaged in legal malpractice. The FDIC settled its claims against the law firm. The accounting firm was later found liable to the FDIC in federal district court for a negligent bank audit. The accounting firm subsequently sued the law firm, alleging fraud, negligent misrepresentation, and tortious interference with the accounting firm's contract to perform the audit. The circuit court granted summary judgment in favor of the law firm. The Supreme Court affirmed, holding that the claims of the accounting firm against the law firm were, in reality, contribution claims rather than direct or independent claims and were, therefore, barred by the settlement agreement between the law firm and the FDIC. View "Grant Thornton, LLP v. Kutak Rock, LLP" on Justia Law

This case was a class action brought on behalf of the former shareholders of Alloy, challenging a going-private transaction (Merger) that cashed out the company's public shareholders for allegedly inadequate consideration. Although the shareholders voted to approve the Merger, two of Alloy's nine directors retained their senior management positions at and received an equity interest in the now privately-held company. The former shareholders claimed that those two directors thus unfairly extracted for themselves an opportunity to share in Alloy's continued growth without offering the same opportunity to the public shareholders. Regarding the alleged breaches of fiduciary duty by the directors in negotiating and approving the Merger, the court found that the complaint failed to state a claim for damages. The court also found that the complaint failed to allege sufficient facts to support an inference that the alleged disclosure violations were the product of anything other than good faith omissions by the directors who authorized them. Because of the exculpatory provision of Alloy's certificate of incorporation, the complaint thus failed to state a claim for damages against the Alloy directors for beach of their duty of disclosure. Finally, the court also dismissed the claims for aiding and abetting against defendants who were not affiliated with Alloy. Therefore, the court granted defendants' motions to dismiss in all respects. View "In re Alloy, Inc. Shareholder Litigation" on Justia Law

This case involved a legal malpractice claim brought by Plaintiff MB Industries, LLC (MBI) against attorneys Steven Durio and John Weinstein. The attorneys represented MBI in an ultimately unsuccessful lawsuit against former MBI employees. Rather than appeal the unfavorable judgment, MBI chose to sue its former attorneys. The issues before the Supreme Court were: (1) whether a party's failure to appeal an underlying judgment waived any right to bring a legal malpractice claim based on that judgment; and (2) whether summary judgment was properly granted in light of MBI's failure to introduce expert testimony to establish the applicable standard of care which would have demonstrated the attorneys' actions fell below that standard. After careful review, the Court found that Louisiana law does not impose a "per se" rule requiring an appeal before a client can sue his former attorney. Furthermore, the Court found that a party alleging legal malpractice must introduce expert testimony to establish a standard of care "except in those rare cases involving malpractice so egregious that a lay jury could infer the defendant's actions fell below any reasonable standard." The Court found that under the particular facts of this case, there were no genuine issues of material fact, and that MBI failed to establish it could satisfy its evidentiary burden of proof at trial. The attorneys were entitled to judgment as a matter of law. Accordingly, the Court reversed the appellate court and reinstated the trial court's original judgment in favor of the attorneys. View " MB Industries, LLC v. CNA Insurance Co." on Justia Law

This matter was before the court on a motion to dismiss, pursuant to Court of Chancery Rule 23.1, for failure to make a pre-suit demand upon the board, and Court of Chancery Rule 12(b)(6) for failure to state a claim. At issue was whether actions taken by certain director defendants fell outside of the fiduciary boundaries existing under Delaware case law - and were therefore subject to judicial oversight - or whether the acts complained of were within those broad boundaries, where a law-trained judge should refrain from acting. The court held that the facts pled in support of allegations that the director defendants violated fiduciary duties in setting compensation levels and failing to oversee the risks created thereby, if true, only supported a conclusion that the directors made poor business decisions. Thus, plaintiffs have failed to allege facts sufficient to state a claim. Consequently, the court need not reach the Rule 12(b)(6) issue. View "In re: The Goldman Sachs Group, Inc. Shareholder Litigation" on Justia Law

In this action brought pursuant to 8 Del. C. 225, plaintiffs sought a determination that certain written consents validly removed defendant directors and replaced them with a new slate. Defendant directors contended that they could not be removed or a new slate elected without the consent of a majority of the Series B Preferred Stock. Applying enhanced scrutiny, the court held that defendant directors breached their fiduciary duties when issuing the Series B Preferred Stock where, although they honestly believed they were acting in the best interests of the company, they breached their duty of loyalty by structuring the stock issuance to prevent an insurgent group from waging a successful proxy contest. Therefore, the class provision could not be given effect and the written consents validly elected a new board. View "Johnston, et al. v. Pedersen, et al." on Justia Law