Top 10 Business Cases From the Past Year

Idaho State Bar
Business & Corporate Section Annual Meeting
Civil Litigation in a Down Economy

Top 10 Business Cases
From the Past Year
Wendy Gerwick Couture
May 11, 2012

McCann v. McCann,
No. 37547, 2012 WL 798581 (Idaho March 13, 2012).

CLOSE
CORPORATION

26.6%
TRUST, for 36.7%
36.7%
benefit of
founder’s wife
SON 1 SON 2
and sons’
mother President &
CEO

McCann v. McCann,
No. 37547, 2012 WL 798581 (Idaho March 13, 2012).

CLOSE
CORPORATION

26.6%
TRUST, for 36.7%
36.7%
benefit of
founder’s wife
SON 1 SON 2
and sons’
mother President &
CEO

Claim: Breach of Fiduciary Duty for “Squeeze Out” or “Freeze Out”

McCann v. McCann,
No. 37547, 2012 WL 798581 (Idaho March 13, 2012).

FIRST: Court characterizes claim as direct, rather than derivative.

KEY: harm to shareholder distinct from that suffered by other shareholders

McCann v. McCann,
No. 37547, 2012 WL 798581 (Idaho March 13, 2012).



SECOND: Court quotes and applies the fiduciary duty standard from Wilkes v.
Springside Nursing Home, Inc., 353 N.E.2d 657, 663 (Mass. 1976).

McCann v. McCann,
No. 37547, 2012 WL 798581 (Idaho March 13, 2012).



SECOND: Court quotes and applies the fiduciary duty standard from Wilkes v.
Springside Nursing Home, Inc., 353 N.E.2d 657, 663 (Mass. 1976).

Wilkes: Two-step test:
(1) Can controlling group demonstrate a legitimate business purpose for
its action?
(2) If so, can minority stockholder demonstrate that the same legitimate
objective could have been achieved through an alternative course of
action less harmful to the minority’s interest?

The court must then “weigh the legitimate business purpose . . .
against the practicability of a less harmful alternative.”

Trotter v. Bank of New York Mellon,
No. 38022, 2012 WL 975493 (Idaho March 23, 2012).

No. 38022, 2012 WL 975493 (Idaho March 23, 2012).

Non-Judicial Foreclosure

No. 38022, 2012 WL 975493 (Idaho March 23, 2012).

TRUSTEE

TROTTER Deed of
•Maker of Trust
Note
•Grantor
of Deed
of Trust MERS
Beneficiary of
Deed of Trust
Note (as nominee
of Lender)

COUNTRYWIDE
HOME LOANS
Lender

No. 38022, 2012 WL 975493 (Idaho March 23, 2012).

TRUSTEE

TROTTER Deed of
•Maker of Trust
Note
•Grantor
of Deed
of Trust MERS BANK OF
Beneficiary of Records NEW YORK
Deed of Trust assignment of MELLON
Note (as nominee Deed of Trust Beneficiary
of Lender) of Deed of
Trust
COUNTRYWIDE
HOME LOANS
Lender

No. 38022, 2012 WL 975493 (Idaho March 23, 2012).

RECONTRUST
TRUSTEE Trustee

TROTTER Deed of
Records
•Maker of Trust
appointment of
Note
successor trustee
•Grantor
of Deed
of Trust MERS
Beneficiary of Records BANK OF
Deed of Trust assignment of NEW YORK
Note (as nominee Deed of Trust MELLON
of Lender) Beneficiary
of Deed of
COUNTRYWIDE
Trust
HOME LOANS
Lender

No. 38022, 2012 WL 975493 (Idaho March 23, 2012). Non-
Institutes
Judicial Foreclosure
RECONTRUST
TRUSTEE Trustee

TROTTER Deed of
Records
•Maker of Trust
appointment of
Note
successor trustee
•Grantor
of Deed
of Trust MERS
of Deed of
COUNTRYWIDE
Trust
HOME LOANS
Lender

No. 38022, 2012 WL 975493 (Idaho March 23, 2012). Non-
Institutes
Judicial Foreclosure
RECONTRUST
TRUSTEE Trustee

TROTTER Deed of
Records
•Maker of Trust
appointment of
Note
successor trustee
•Grantor
of Deed Authorize
Assign
initiation?
of Trust MERS interest?
of Deed of
COUNTRYWIDE Assign
Trust
HOME LOANS Note?
Lender

No. 38022, 2012 WL 975493 (Idaho March 23, 2012).

“We hold that, pursuant to I.C. § 45-1505, a
trustee may initiate nonjudicial foreclosure
proceedings on a deed of trust without first
proving ownership of the underlying note or
demonstrating that the deed of trust
beneficiary has requested or authorized the
trustee to initiate those proceedings.”

No. 38022, 2012 WL 975493 (Idaho March 23, 2012).

Contra (predating Trotter):

Armacost v. HSBC Bank USA, No. 10-CV-274-EJL-LMB, 2011 WL 825151 (D.
Idaho Feb. 9, 2011) (Larry M. Boyle, United States Magistrate Judge)
(emphasis added).

“This Court does not believe, however, that the inquiry ends with
Defendant's compliance with the Idaho non-judicial foreclosure statute. . . .
One could not reasonably contend that compliance with a procedure gives
substantive rights not otherwise possessed. The question remains whether
Defendant's right or authority to foreclose on the Property remains.”

Idaho Development, LLC v. Teton View Golf Estates, LLC,
152 Idaho 401, 272 P.3d 373 (Dec. 12, 2011).
TETON VIEW
GOLF ESTATES,
LLC

33.3%

IDAHO
DEVELOPMENT,
LLC

152 Idaho 401, 272 P.3d 373 (Dec. 12, 2011).
TETON VIEW
GOLF ESTATES,
LLC
• promissory
note
$1,100,000 33.3% • partially
secured by
deed of trust

IDAHO
DEVELOPMENT,
LLC

152 Idaho 401, 272 P.3d 373 (Dec. 12, 2011).
TETON VIEW
GOLF ESTATES,
LLC
• promissory
note
$1,100,000 33.3% • partially
secured by
deed of trust

IDAHO
DEVELOPMENT,
LLC

Loan or
Capital
Contribution
?

152 Idaho 401, 272 P.3d 373 (Dec. 12, 2011).
TETON VIEW
GOLF ESTATES,
Priority if
LLC Loan
• promissory
note
$1,100,000 33.3% • partially Idaho
secured by Development,
deed of trust LLC

IDAHO
DEVELOPMENT, Subsequently
LLC recorded
lienholders

Loan or
Capital
Contribution
?

152 Idaho 401, 272 P.3d 373 (Dec. 12, 2011).
Priority if
TETON VIEW
GOLF ESTATES,
Priority if Capital
LLC Loan Contribution
• promissory
note
$1,100,000 33.3% • partially Idaho Subsequently
secured by Development, recorded
deed of trust LLC lienholders

IDAHO
DEVELOPMENT, Subsequently Idaho
LLC recorded Development,
lienholders LLC

Loan or
Capital
Contribution
?

152 Idaho 401, 272 P.3d 373 (Dec. 12, 2011).
“DEBT RECHARACTERIZATION”
• KEY: intent of the parties at the time of the transaction
• Question of fact
• Party seeking to recharacterize carries the burden of proof

152 Idaho 401, 272 P.3d 373 (Dec. 12, 2011).

DEBT CAPITAL
• listed in corporate records as creditors • not listed in corporate records as
creditors

152 Idaho 401, 272 P.3d 373 (Dec. 12, 2011).

DEBT CAPITAL
• documentation surrounding creditors
transaction refers to the advance as a
loan
• documentation calls for regular
payments and interest

152 Idaho 401, 272 P.3d 373 (Dec. 12, 2011).

DEBT CAPITAL
• documentation surrounding creditors
transaction refers to the advance as a • no capital outside of advance
loan • portion of loan was unsecured
• documentation calls for regular
payments and interest

CML V, LLC v. Bax,
28 A.3d 1037 (Del. Sep. 2, 2011).

May the creditor of an
insolvent LLC assert a
derivative claim on
behalf of the LLC?

INSOLVENT
DELAWARE
CORPORATION

Assert Breach of Fiduciary Duty Claim
Officers &
Derivatively on Behalf of Corporation
Directors

N. Am. Catholic Educ. Programming Found., Inc. v. Gheewalla, Creditors
930 A.2d 92, 101 (Del. 2007).

“Individual creditors of an insolvent corporation have the same
incentive to pursue valid derivative claims on its behalf that
shareholders have when the corporation is solvent.”

CML V, LLC v. Bax,
28 A.3d 1037 (Del. Sep. 2, 2011).
6 Del. C. § 18-1001 Right to bring action

A member or an assignee of a limited liability
company interest may bring an action in the
Court of Chancery in the right of a limited
liability company to recover a judgment in its
favor . . .

6 Del. C. § 18-1002 Proper plaintiff

In a derivative action, the plaintiff must be a
member or an assignee of a limited liability
company interest at the time of bringing the
action and . . .

CML V, LLC v. Bax,
28 A.3d 1037 (Del. Sep. 2, 2011).
This section
authorizes
members and
assignees to
assert derivative
claims.
favor . . .


In a derivative action, the plaintiff must be a
member or an assignee of a limited liability
company interest at the time of bringing the
action and . . .

CML V, LLC v. Bax,
28 A.3d 1037 (Del. Sep. 2, 2011).
This section
authorizes
members and
assignees to
assert derivative
claims.
favor . . .

This section limits
In a derivative action, the plaintiff must be a the plaintiffs in ALL
member or an assignee of a limited liability derivative actions
company interest at the time of bringing the to members and
action and . . . assignees.

CML V, LLC v. Bax,
28 A.3d 1037 (Del. Sep. 2, 2011).

“Ultimately, LLCs and corporations are different; investors can choose to
invest in an LLC, which offers one bundle of rights, or in a corporation, which
offers an entirely separate bundle of rights.”

CML V, LLC v. Bax,
28 A.3d 1037 (Del. Sep. 2, 2011).

“Ultimately, LLCs and corporations are different; investors can choose to
invest in an LLC, which offers one bundle of rights, or in a corporation, which
offers an entirely separate bundle of rights.”

“CML could have negotiated for a provision that would convert its interests
to that of an ‘assignee’ in the event of insolvency. Or, it could have
negotiated for a term that would give CML control of the LLC’s governing
body in such an event. These are but two examples.”

Achaian, Inc. v. Leemon Family LLC,
25 A.3d 800 (Del. Ch. May 23, 2011).

Omniglow,
LLC

50% 20%
30%

Achaian,
Leeman
Holland Inc.
Family, LLC
Trust

25 A.3d 800 (Del. Ch. May 23, 2011).

Omniglow,
LLC

50% 20%
30%

Achaian,
Leeman
Holland Inc.
Family, LLC
Trust
Without Leeman’s
consent, purported
to transfer/assign
entire interest

25 A.3d 800 (Del. Ch. May 23, 2011).

Omniglow,
LLC

50% 20%
30%

Achaian,
Leeman
Holland Inc.
Family, LLC
Trust
Did this
assignment Without Leeman’s
include consent, purported
voting to transfer/assign
rights? entire interest

25 A.3d 800 (Del. Ch. May 23, 2011).

Default: Voting rights not assigned.

6 Del. C. §17-702 – “The assignee of a member’s
limited liability company interest shall have no
right to participate in the management of the
business and affairs of a limited liability
company except as provided in a limited liability
company agreement.”

BUT, the default can be altered in the LLC
agreement.

25 A.3d 800 (Del. Ch. May 23, 2011).

7.1 Transfer of Interest. [A]
Member may transfer all or any
portion of its Interest in Omniglow
to any Person at any time. . . .

25 A.3d 800 (Del. Ch. May 23, 2011).
Defined as “the entire
ownership interest of
the Member”

7.1 Transfer of Interest. [A]
Member may transfer all or any
portion of its Interest in Omniglow

25 A.3d 800 (Del. Ch. May 23, 2011).
Permits free
the Member” transfer of the
“entire” Interest,
7.1 Transfer of Interest. [A] including that
Member may transfer all or any Interest’s
portion of its Interest in Omniglow associated voting
rights.

25 A.3d 800 (Del. Ch. May 23, 2011).
Permits free
rights.

7.2 Admission of New Members.
No Person shall be admitted as a
Member . . . without the written
consent of the Member[s]. . . .

25 A.3d 800 (Del. Ch. May 23, 2011).
Permits free
rights.

7.2 Admission of New Members.
Consent only
No Person shall be admitted as a required if the
Member . . . without the written transferee is not
consent of the Member[s]. . . . already a Member.

25 A.3d 800 (Del. Ch. May 23, 2011).

Omniglow,
LLC

50% 50%

Leeman Achaian,
Family, LLC Inc.

Gerber v. Enter. Prods. Holdings, LLC,
No. 5989-VCN, 2012 WL 34442 (Del. Ch. Jan. 6, 2012).

EPE, L.P.

Enterprise
Products
GP
(General
Limited
Partner)
Partners


“A limited partnership agreement may expand, restrict, or eliminate the duties
(including fiduciary duties) that any person may owe to either the limited
partnership or any other party to the limited partnership agreement,
‘provided that the partnership agreement may not eliminate the implied
contractual covenant of good faith and fair dealing.’”

Quoting 6 Del. C. § 17-1101.

Section 7.9(a) of the Limited Partnership
Agreement:

“ … any resolution or course of action by
[Enterprise Products GP] or its Affiliated in respect
of such conflict of interest shall be permitted and
deemed approved by all Partners, and shall not
constitute a breach . . . of any duty stated or
implied by law or equity, if the resolution or course
of action in respect of such conflict of interest is
i. approved by Special Approval,
ii. approved by a majority of the Units . . .,
iii. on terms no less favorable to [EPE] than those
generally being provided to or available from
unrelated third parties, or
iv. fair and reasonable to [EPE] . . .

(emphasis added)

Section 7.9(a) of the Limited Partnership
Agreement:

implied by law or equity, if the resolution or course Approval by a majority of the
of action in respect of such conflict of interest is members of the Audit and
i. approved by Special Approval, Conflicts Committee
ii. approved by a majority of the Units . . ., (composed of 3 or more
iii. on terms no less favorable to [EPE] than those independent directors)

(emphasis added)



Quoting 6 Del. C. § 17-1101.

“When a contract confers discretion on
one party, the implied covenant requires
that the discretion be used reasonably
and in good faith. . . . Thus, Enterprise
Products GP had a duty, under the implied
covenant, to act in good faith if it took
advantage of the Special Approval
process.”

Section 7.9(a) of the Limited Partnership Duty to act in good faith in
Agreement: using the Special Approval
process.
implied by law or equity, if the resolution or course
of action in respect of such conflict of interest is
i. approved by Special Approval,
ii. approved by a majority of the Units . . .,
iii. on terms no less favorable to [EPE] than those

(emphasis added)

Section 7.9(a) of the Limited Partnership Duty to act in good faith in
Agreement: using the Special Approval
process.
[Enterprise Products GP] or its Affiliated in respect Section 7.10(b) of the Limited
of such conflict of interest shall be permitted and Partnership Agreement:
constitute a breach . . . of any duty stated or “[Enterprise Products GP] may consult
implied by law or equity, if the resolution or course with legal counsel, . . . investment
of action in respect of such conflict of interest is bankers and other consultants and
i. approved by Special Approval, advisors . . ., and any act taken . . . in
ii. approved by a majority of the Units . . ., reliance upon the opinion . . . as to
iii. on terms no less favorable to [EPE] than those matters that [Enterprise Products GP]
generally being provided to or available from reasonably believes to be within such
unrelated third parties, or Person’s professional or expert
iv. fair and reasonable to [EPE] . . . competence shall be conclusively
(emphasis added) presumed to have been done . . . in
good faith . . .”
(emphasis added)



Quoting 6 Del. C. § 17-1101. “A limited partnership
agreement may not validly state
that ‘the implied covenant is not
part of this agreement,’ but if a
limited partnership agreement
simply has no gaps, then the
implied covenant will never
apply to that agreement.”

Momot v. Mastro,
652 F.3d 982 (9th Cir. June 22, 2011).
ARBITRATION CLAUSES

Are the merits of this
dispute within the scope of
the arbitration clause?

Doubts resolved in favor of
arbitration.

Momot v. Mastro,
652 F.3d 982 (9th Cir. June 22, 2011).
ARBITRATION CLAUSES
Who decides – the court or
the arbitrators?

the arbitration clause?

arbitration.

Momot v. Mastro,
652 F.3d 982 (9th Cir. June 22, 2011).
ARBITRATION CLAUSES
Who decides – the court or
the arbitrators?

Left to the court unless the arbitration clause?
parties clearly and
unmistakably provide
otherwise.
arbitration.

Momot v. Mastro,
652 F.3d 982 (9th Cir. June 22, 2011).
In the following arbitration clause, the parties clearly and unmistakably agreed
to arbitrate the question of arbitrability:

4. Resolution of Disputes.

(a) Arbitration. If a dispute arises out of or relates to this
Agreement, the relationships that result from this Agreement,
the breach of this Agreement or the validity or application of
any of the provisions of this Section 4, and, if the dispute
cannot be settled through negotiation, the dispute shall be
resolved exclusively by binding arbitration.

(Emphasis added)

Business Roundtable v. SEC,
647 F.3d 1144 (D.C. Cir. July 22, 2011).

Exchange Act
Rule 14a-11
(proxy access for
shareholder-
nominated
candidates)

647 F.3d 1144 (D.C. Cir. July 22, 2011).

SEC has statutory duty to consider the effect of a new rule on
“efficiency, competition, and capital formation.” 15 U.S.C. §§
77b(b), 78c(f) & 80a-2(c).

647 F.3d 1144 (D.C. Cir. July 22, 2011).

SEC has statutory duty to consider the effect of a new rule on
“efficiency, competition, and capital formation.” 15 U.S.C. §§
77b(b), 78c(f) & 80a-2(c).

“Here the Commission inconsistently and opportunistically
framed the costs and benefits of the rule; failed adequately to
quantify the certain costs or to explain why those costs could
not be quantified; neglected to support its predictive
judgments; contradicted itself; and failed to respond to
substantial problems raised by commenters.”

647 F.3d 1144 (D.C. Cir. July 22, 2011).

Dodd-Frank Act JOBS Act

647 F.3d 1144 (D.C. Cir. July 22, 2011).

Dodd-Frank Act JOBS Act

Congressional Testimony of Mary L. Schapiro,
Chairman of the SEC
April 17, 2012

“[T]he SEC’s Chief Economist and General Counsel have jointly developed
new guidance for conducting economic analysis, taking into account the
recommendations made in the reports from the GAO and OIG as well as
comments from others, including Members of Congress and the courts.”

Gibson v. Credit Suisse AG, RS-AND Fund, LP v. KMP
1:10-CV-001-EJL-REB, 2012 SPE LLC, No. 4:11-CV-00175,
WL 1253007 (D. Idaho 2012 WL 1288762 (D. Idaho
March 30, 2012) (Lodge, J.). April 16, 2012) (Winmill, J.).

Developer’s lender did not owe fiduciary Investors selling part of their profit
duty to purchasers of real property and participation interest in a venture did not
homes in resort-style developments. owe fiduciary duty to purchaser.

Gibson v. Credit Suisse AG, RS-AND Fund, LP v. KMP
1:10-CV-001-EJL-REB, 2012 SPE LLC, No. 4:11-CV-00175,
WL 1253007 (D. Idaho 2012 WL 1288762 (D. Idaho
March 30, 2012) (Lodge, J.). April 16, 2012) (Winmill, J.).

Developer’s lender did not owe fiduciary Investors selling part of their profit
duty to purchasers of real property and participation interest in a venture did not
homes in resort-style developments. owe fiduciary duty to purchaser.

“[T]he allegations only go to show, at “A bare allegation of control over
best, that Credit Suisse acted as a lender consideration paid cannot supply the
to the developers in an arms-length factual indicia required for a finding of a
lender-borrower relationship.” fiduciary duty between parties to a
contract negotiated at arms-length, even
if the transaction involves an ‘investment
opportunity.’”

Thank you!

Wendy Gerwick Couture

wgcouture@uidaho.com

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