Articles Posted in Business Law

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Paul R. Plante, Jr. brought a shareholder derivative suit against Appellants, directors of Arthrodynamic Technologies Animal Health Division, Inc. (ADT), alleging that Appellants had violated various provisions of ADT’s shareholder agreement with respect to sales of stock. The law firm Miller, Griffin & Marks, PSC (MGM) was retained to represent Appellants. Plante moved to disqualify MGM as the counsel for Appellants, alleging that MGM’s participation in the action created a conflict of interest or at least an appearance of impropriety due to MGM’s representation of two Appellants in another suit and its representation of the board of directors, which included Plante, in giving advice on other litigation. The trial court concluded that disqualification of MGM was required based on the appearance of impropriety. Appellants subsequently sought a writ of prohibition to bar enforcement of the trial court’s order. The Court of Appeals denied the writ because Appellants had not shown irreparable injury. The Supreme Court reversed, holding (1) the trial court applied a disqualification standard that is no longer appropriate under the Rules of Professional Conduct; and (2) the trial court’s factual findings were insufficient to allow disqualification under the proper standard of a showing of actual conflict. View "Marcum v. Hon. Ernesto Scorsone" on Justia Law

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Plaintiffs, former members of the St. Joseph Catholic Orphan Society’s Board of Trustees, sued St. Joseph, challenging the validity of the Board’s action removing them from the Board and seeking reappointment to the Board. St. Joseph moved to dismiss, arguing that the trial court was without subject-matter jurisdiction because of the application of the ecclesiastical-abstention doctrine. The trial court denied the motion. St. Joseph then sought a writ of mandamus requiring the trial court to dismiss the underlying action. The court of appeals denied the writ. The Supreme Court (1) affirmed the denial of the writ, concluding that the ecclesiastical-abstention doctrine does not divest courts of subject-matter jurisdiction to adjudicate cases they are authorized to hear; but (2) reversed the trial court’s order denying St. Joseph’s motion. Specifically, the Court treated St. Joseph’s petition for writ of mandamus as an interlocutory appeal from the trial court’s denial of its motion to dismiss and, on the merits, agreed that the underlying action presented a question of ecclesiastical governance, which meant that the ecclesiastical-abstention doctrine prohibited the underlying action from going forward in the trial court. View "St. Joseph Catholic Orphan Soc’y v. Hon. Brian C. Edwards" on Justia Law

Posted in: Business Law

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Appellant physicians were former employees of The New Lexington Clinic (NLC) who resigned from NLC to practice at a nearby facility opened by Baptist Healthcare System, Inc. through its subsidiary (collectively, Baptist). NLC brought actions against Appellants for breach of fiduciary duties, alleging that Appellants used confidential information and recruited NLC personnel while serving as members of the NLC board of directors. Baptist was joined as a defendant for allegedly aiding and abetting Appellants' breaches. The trial court granted summary judgment for Defendants, concluding that the complaints did not properly invoke Ky. Rev. Stat. 271B.8-300, which the trial court considered controlling as to actions involving breach of a Kentucky corporate director's duties. The court of appeals reversed and remanded, concluding that section 271B.8-300 controlled but that sufficient facts were alleged to state a cause of action. The Supreme Court affirmed but on other grounds, holding (1) section 271B.8-300, which did not abrogate common law fiduciary duty claims against Kentucky directors, did not apply in this case; and (2) NLC properly pled common law fiduciary duty claims on the alleged facts. Remanded.View "Baptist Physicians Lexington, Inc. v. The New Lexington Clinic, PSC" on Justia Law

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Ann Shannon was the sole member of a limited liability company (LLC). In 2004, Shannon signed a lease for commercial space with the property’s owner, Rick Pannell, on behalf of the LLC. In 2005, the LLC was administratively dissolved. In 2006, Shannon and Pannell entered into a release of the old lease and a new lease. The new lease expressly stated that the LLC was the tenant and was signed by Shannon but did not mention Shannon’s company capacity in any direct way. Pannell subsequently sued for breach of the lease, naming the LLC and Shannon individually. Shortly after, the LLC was reinstated. The circuit court concluded that Shannon was entitled to immunity from personal liability and awarded Pannell damages against the LLC under the lease. The court of appeals affirmed. The Supreme Court affirmed, holding (1) based on the facts of this case, Shannon did not directly obligate herself because she clearly signed the lease in her representative capacity and the lease was expressly with the company; and (2) Shannon could not be personally liable under Kentucky’s Limited Liability Company Act or under the theory that she exceeded her authority as an agent of the LLC during the dissolution. View "Pannell v. Shannon" on Justia Law

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Appellants, three physicians, were formerly employed by The New Lexington Clinic (“NLC”) but resigned to practice at a facility opened by Baptist Healthcare System Inc. through its subsidiary (collectively, “Baptist”). NLC subsequently brought actions against Appellants for breach of fiduciary duties owed in their capacity as members of the NLC board of directors. Baptist was joined as a defendant on the ground that it aided and abetted Appellants’ breaches. The trial court dismissed the complaints, concluding that the complaints did not properly invoke Ky. Rev. Stat. 271B.8-300, which the court considered controlling to all actions involving a breach of a corporate director’s duties. The Supreme Court remanded to the trial court, holding (1) section 271B.8-300 does not abrogate common law fiduciary duty claims against Kentucky directors but codifies a standard of conduct and liability for directors derived from business judgment rule principles; (2) section 271B.8-300 did not apply in this case because preparing for and participating in a competing venture does not constitute the type of conduct addressed in the statute; and (3) NLC properly pled common law fiduciary duty claims on the alleged facts. View "Baptist Physicians Lexington, Inc. v. New Lexington Clinic, P.S.C. " on Justia Law

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In March 1991, Appellee's predecessor corporation obtained a default judgment against Appellant for over $13,000. To collect on the judgment, Appellee caused a writ of execution to issue against Appellant in April 1991. Appellee also filed judgment liens, initiated garnishment proceedings, most recently in 2005, and undertook post-judgment discovery examinations. In 2008, Appellant filed a declaration of rights action, contending that Appellee could no longer recover on the judgment against him because the fifteen-year limitations period had expired. The trial court ruled that any enforcement activity by a judgment creditor, including judgment liens and garnishments, keeps a judgment alive for purposes of the statute of limitations, and therefore, limitations did not bar Appellee's attempts to collect on the judgment. The court of appeals (1) upheld the circuit court's rulings with regard to garnishments, finding that the definition of "execution" in Ky. Rev. Stat. 413.090(1) includes a garnishment; and (2) did not reach the question of whether judgment liens are also executions for purposes of the statute of limitations. The Supreme Court affirmed, holding that garnishment proceedings and the filing of judgment liens toll the fifteen-year statute of limitations. View "Wade v. Poma Glass & Specialty Windows, Inc." on Justia Law

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Creditor attempted to collect on debt incurred by a wholly-owned subsidiary, but the subsidiary had been deprived of all income and rendered asset-less by the acts of its parent and grandparent corporations (Appellees). Creditor sued Appellees, seeking to pierce the corporate veil and establish Appellees' liability for the judgment. The trial court granted summary judgment to Creditor and the court of appeals affirmed, finding it appropriate to pierce the corporate veil where the evidence showed the subsidiary was merely an instrumentality or alter ego of Appellees, operated by them to achieve tax benefits and avoid various liabilities. The Supreme Court affirmed, holding the lower courts properly pierced the subsidiary's corporate veil to hold Appellees liable for the debt to Creditor because Appellees exercised complete dominion and control over the subsidiary, depriving it of a separate existence, and both Appellees derived the benefits associated with the lease with Creditor while rendering the subsidiary an income-less and asset-less shell incapable of meeting its lease obligations. View "Inter-Tel Techs., Inc. v. Linn Station Props., LLC" on Justia Law

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General Electric (GE) obtained a judgment against Intra-Med for breach of contract. Thomas Schultz was the president and sole shareholder of Intra-Med. After collecting only a portion of the judgment, GE intervened in another lawsuit and filed a third-party complaint against Schultz seeking to pierce the corporate veil and hold him personally liable for the judgment against Intra-Med. The trial court entered judgment on the pleadings in favor of GE, allowing GE to pierce Intra-Med based upon the instrumentality theory of veil piercing. The court of appeals affirmed, concluding (1) none of Schultz's affirmative defenses negated the fact that he admittedly used corporate funds and property as his own to GE's detriment, and (2) Schultz's admissions fulfilled the requirements for piercing the corporate veil and supported the trial court's judgment on the pleadings. The Supreme Court reversed, holding that the trial court improperly granted GE's motion for judgment on the pleadings, as Schultz's admissions did not conclusively establish harm, fraud, or unjust loss, the three elements that must be established to warrant a piercing of the corporate veil under the instrumentality theory. View "Schultz v. Gen. Elec. Healthcare Fin. Servs., Inc." on Justia Law

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Doctors' Associates, Inc. (DAI) owns the "Subway" trademark and franchises the right to operate Subway sandwich shops nationwide. A claimant sought workers' compensation benefits for a work-related injury sustained while working for an uninsured Subway franchisee. The DAI and Uninsured Employers' Fund (UEF) were later joined as parties. The sole issue submitted for a decision by the ALJ was whether DAI was a contractor and, thus, liable to the employee of its uninsured subcontractor. The ALJ dismissed the UEF's claim against DAI, ruling that Ky. Rev. Stat. 342.610, which provides that a contractor can be liable to the employee of its uninsured subcontractor, imposed no liability on DAI because the statute did not encompass franchise relationships. The workers' compensation board affirmed. The court of appeals reversed, holding that the ALJ committed by legal error by concluding that the legislature did not intend for section 34.610 to encompass the franchisor-franchisee relationship simply because the statute failed to mention the relationship. The Supreme Court reversed, holding (1) the ALJ erroneously interpreted section 342.610, but (2) the error did not require reversal of the ALJ's ruling because the ALJ properly analyzed the facts of the case under the statute. View "Doctors' Assocs. v. Uninsured Employers' Fund " on Justia Law

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In this dissenters' rights action, Shareholder in a closely held corporation withdrew from Company, after which Company tendered to Shareholder $703 per share, equaling $168,840. Shareholder claimed that the fair value of her shares was three times as much. Company sought an appraisal, and the Master Commissioner valued Brown's interest at $353,633. The trial court adopted the Commissioner's report, and both parties appealed. The court of appeals reversed and remanded for a determination of the fair value of Shareholder's shares without reference to Company's net asset value and without any discount for lack of marketability. At issue on appeal was what constituted "fair value" under Subtitle 13 of Kentucky's Business Corporation Act. The Supreme Court agreed that the fair value standard applied in this case was erroneous but on partially different grounds, holding (1) "fair value" is the shareholder's proportionate interest in the value of the company as a whole; (2) any valuation recognized in the business appraisal field, including the net asset method employed in this case, can be appropriate in valuing a given business; and (3) when valuing dissenter's shares, the shareholder-level marketability discount is rejected. View "Shawnee Telecom Res., Inc. v. Brown" on Justia Law