Tennessee Business Litigation Law Blog

I recommend an interesting article about corporate hot issues in 2007, highlighting new SEC rules about executive compensation disclosures and the like. If the following introduction to the article piques your interest, then read the rest of it here. Staying ahead of the curve will be harder this year because the “curve will get a lot a steeper in 2007, thanks to pressure from securities regulators, activist shareholders and hedge funds. In addition to complying with the new SEC compensation disclosure rules, companies will also have to cope with shareholders emboldened by two recent developments: a major change to Delaware's law on majority voting in director elections and a federal circuit court decision on shareholder access to proxy statements. One group of shareholders in particular -- hedge funds -- is expected to cause headaches for management well after the 2007 proxy season ends.”

John Day has posted on Day on Torts about a new business litigation case from the Tennessee Supreme Court. In Cambio Health Solutions, LLC v. Reardon, the Supreme Court held that a parent corporation can be liable for intentional interference with a contractual relationship between a partially owned subsidiary and a third party. The key to the case is that the contracting party was a partially owned subsidiary. Under a prior Tennessee Supreme Court holding, a “parent corporation has a privilege pursuant to which it can cause a wholly-owned subsidiary to breach a contract without becoming liable for tortiously interfering with a contractual relationship.”

Here are three news items of interest on the corporate fraud front. Since well before the Sarbanes-Oxley law was passed in 2002, the effort and energy put into investigating and dealing with corporate fraud has produced great changes for the business and government sectors. Prison time, once a rarity, no longer is; and corporate giants who thought the government was either too incompetent, politically disinterested or lazy to regulate and/or investigate them have found out otherwise. In other words, things just keep changing and evolving in this area.

SEC eases Sarbanes-Oxley financial control rules: The SEC voted yesterday to tentatively adopt a plan giving smaller companies more flexibility in how they apply financial controls under the broad 2002 Sarbanes-Oxley law, which was passed to combat corporate fraud. The proposed changes provide new guidelines about how to evaluate internal financial controls and financial reporting, among others. Overall, the changes will ease financial control rules for smaller companies and were brought about by businesses who complained that the rules were overly burdensome and costly. Here is an AP story with more information.

DOJ revises its corporate fraud guidelines: The Justice Department on Tuesday bowed to pressure from the federal bench, Congress and the business sector and relented in its “take no prisoners” stance on waiving the attorney-client privilege, among others, when deciding whether to indict. This is the third in a series of memos written by senior DOJ officials beginning in 1999, again showing just how rapidly the subject of corporate fraud is changing. This week’s memo is referred to as the “McNulty Memo” in honor of its author, Deputy Attorney General Paul McNulty, and replaces the 2003 Thompson Memo (former DAG Larry Thompson), which replaced the Holder Memo (former DAG Eric Holder). The complaints in the last few years have been about the aggressive practice in the pre-indictment phase of prosecutors asking (or expecting) companies to waive the attorney-client privilege or to cut off the payment of legal fees for employees being investigated or charged. As you can imagine, the pressure to cooperate and possibly avoid indictment is heightened when a federal prosecutor requests that the company turn over the results of an internal investigation or the strategic advice of the company’s lawyers. Now, McNulty has told prosecutors that attorney-client communications should be sought only in “rare circumstances” and, once a legitimate need for it is shown, approval must be sought up the chain from the U.S. Attorney to the Assistant Attorney General of the Criminal Division. In certain instances, McNulty will personally approve requests for obtaining privileged information. Also, for added incentive, on December 8, Senator Arlen Specter, R-Pa., outgoing chairman of the Judiciary Committee, introduced a bill that would strictly limit a prosecutor's ability to request attorney-client privileged information. Read an article at law.com

Despite the power of the Tennessee Department of Revenue (TDOR), an outside accountant was able to persuade the courts that he was not a person responsible for unpaid sales taxes of a business for which he performed accounting services. The accountant was not an employee or officer of the company and had no authority over the company’s day to day operations. He paid bills, maintained books, and prepared tax returns. Relating to the tax returns, he prepared the monthly sales tax return, attached the amount owed and sent it to the State. It appears that the accountant’s mistake was in signing some of the returns as an officer of the company, because it was too much trouble to send them to the actual officer who would typically sign. As you can imagine, once the sales taxes were in arrears, TDOR went after the accountant, too, since he had signed previous returns. However, he was able to prove that he did not know that there would be insufficient funds to pay the sales taxes before the business closed. In addition to proving that he was clueless, he was able to tack the requisite knowledge, authority and responsibility on an officer of the company.

Bottom line: lucky accountant; don’t ever, ever, ever sign as an officer of a company if it is not true; in litigation, always try to find someone else to blame—in this case it worked. Read the opinion here.

The Supreme Court of New Jersey ruled that an accounting firm may be liable to shareholders for failing to detect high-level fraud.  In NCP Litigation Trust v. KPMG LLP, a trust representing shareholders of bankrupt corporation Physician Computer Network sued the company's former accounting firm, KPMG. The suit alleged negligence, negligent misrepresentation, breach of contract, and breach of fiduciary duty.  From the case syllabus, among other factual allegations:

According to the Trust, PCN’s 1995 financial records, which KPMG certified, were in such disarray that the successor auditor could not reconstitute them. The Trust also alleged that KPMG failed to verify PCN’s receipt and deposit of a $3.5 million check that was part of a fraudulent asset purchase arranged by Mortell and Wraback. According to the Trust, a simple examination of PCN’s bank records would have revealed that this amount was never deposited. 

The trial court dismissed the lawsuit, concluding that the corporate officers' fraud was imputable to the litigation trust because it was the successor-in-interest to the corporation itself.  The appellate court reversed, and the Supreme Court affirmed with modifications.  The Supreme Court ruled that  when an auditor is negligent within the scope of its engagement, the imputation doctrine does not prevent corporate shareholders who are innocent of corporate wrongdoing from seeking to recover. 

John Day posted on Day on Torts about a new Court of Appeals case dealing with piercing the corporate veil, Cantor v. Ebersole, No. E2005-02388-COA-R3-CV, filed May 13, 2006. Read John's post on piercing the corporate veil under Tennessee law, including a list of the factors to be considered.

A recent case from the Tennessee Court of Appeals, Jerry Duke v. Browning-Ferris Ind., et al., provides a well-analyzed overview of the Tennessee law on monopolies. As noted by the Court, this law is largely codified in the Tennessee Trade Practices Act. T.C.A. § 47-25-101.

This long running case involved allegations that BFI was suppressing competition in the Memphis area waste management industry. The plaintiff alleged that this suppression was evidenced by both the terms of BFI’s customer contracts and its willful acquisition of monopoly power in the Memphis area. The Court summarily dismissed the first allegation dealing with BFI’s contracts noting that "the TTPA only applies to the sale of tangible goods, not intangible services.” However, the Court then went on to take a hard look at the Plaintiff’s claim of monopolization and attempted monopolization.

In order to establish a claim for monopolization, the Court noted that “the plaintiff must show (1) the possession of monopoly power in the relevant market, and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." The Court defined “Monopoly power” as "the power to control prices or exclude competition."

Similarly, to recover for attempted monopolization, the Court noted that the plaintiff must establish "(1) that the defendant has engaged in predatory or anti-competitive conduct with (2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power."

Ultimately, the Court found that there were no barriers to entry into the Memphis commercial waste industry and that, although BFI did possess the lion’s share of the market, there was ample competition and BFI was open to negotiations in contracting with its commercial customers. Accordingly, the Court held that BFI was not liable for either monopolization or attempted monopolization under the TTPA.

This was a well-reasoned opinion from the Court and a valuable point of reference for attorney’s involved in TTPA or monopolization cases.

From the Business Law Prof Blog:

The GAO today issued a report on what it calls "shell" companies. Shell companies are primarily LLCs that take full advantage of the anonymity allowed by state codes. Several states allow "front" nominees in their official filings. Moreover, since state officials never check on the names submitted in registration of any individuals named as officers (or directors, if a corporation), some firms simply submit fake names. The GAO is concerned that shell companies are used for tax cheating and money laundering. The three states named as homes for LLCs that engage in questionable conduct are Delaware, Oregon, and Nevada.

Tenn. R. Civ. P. 23.06 provides that the shareholder must "fairly and adequately represent the interests of the shareholders or members similarly situated." This raises the question of what happens when there are no shareholders similarly situated to the Plaintiff...i.e., where the derivate plaintiff has a unique injury or, as is more often the case, where the plaintiff and defendants are the only shareholders in a close corporation.

This question was answered by the Tennessee Supreme Court in Hall v. Tennessee Dressed Beef Co. 957 S.W.2d 536, 540 (Tenn. 1997)
There, the Court noted that Rule 23.06 refers to "a derivative action brought by one or more shareholders" and that "Rule 23.06 does not require a specific number of similarly situated shareholders." Accordingly, assuming the other requirements of a derivate suit are met, the Court held that a derivative suit may be maintained by a single sharholder despite the fact that there are no other similary situtated individuals.

As pointed out by the Court, one of the more compelling rationales supporting this interpretation is that a contrary rule could effectively bar one shareholder of a closely held corporation from being able to assert the corporation's rights against the other shareholders.

The University of Buffalo School of Engineering Applied Sciences has published a new method for calculating the cost of managerial neglect to a company.

The method, which the UB engineers say can be used with an Excel spreadsheet, finds the net present value of improvements that could be done over a period of time, but are not done. The method factors in the learning rate of a process, which is the rate by which a process would improve naturally, without intervention, through repetition.

I have not seen the published document, the assumptions it relies on, or how peers in the field view its credibility and reliability. Thus, I don't know whether it would (or should) be deemed admissible. Nonetheless, I would expect parties in shareholder derivative suits to attempt to use this method to prove the amount of damages for breach of duty by officers and directors.

As a general rule, a shareholder who initiates a lawsuit derivatively on behalf of a corporation must maintain his ownership in the corporation throughout the life of the litigation. See Denver Area Meat Cutters and Employers Pension Plan ex rel. Clayton Homes, Inc. v. Clayton, 120 S.W.3d 841, 850 (Tenn.Ct.App.,2003) (applying Delaware law). Accordingly, if a derivative plaintiff ceases to own stock in the corportation, his standing to continue pursuing the claim or to appeal the claim on behalf of the corporation usually dissolves.

However, courts have recognized exceptions to the general rule. For example, a merger which terminates stock ownership has been held not to destroy the standing of a derivative plaintiff (1) where the merger itself is the subject of a claim of fraud, or (2) where the merger is in reality a reorganization which does not affect plaintiff's ownership of the business enterprise. Id. (citing Lewis v. Anderson, 477 A.2d 1040, 1046, n. 10 (Del.1982)).

Similarly, in Schilling v. Belcher, 582 F.2d 995, 1003 (5th Cir. 1978), the Fifth Circuit held that former derivative plaintiffs could defend a judgment on appeal supporting an award of attorney’s fees in their favor, but that the plaintiffs, who had ceased to be shareholders, had lost their right to initiate a cross-appeal on behalf of the corporation.

Parties to a derivative action should consult the case law of the relevant jurisdiction to see how those Courts have treated this issue of derivative standing.

There's a post up over at TCS Daily about the business judgment rule. The business judgment rule provides deference to corporate officers' decisions that are made reasonably and in good faith. It is, in essence, a precaution against second guessing with the benefit of hindsight. Instead, courts look to the diligence and competence that directors and officers demonstrated at the time their decisions were made. That said, there's a fine line between deference and ignorance, and the courts need not and can not turn a blind eye when corporate officers carelessly toss away shareholders' money. The Disney shareholder suit over a $140 million severance package paid to Michael Ovitz looks to clarify where that fine line is. (Found via the Modesto Business Law Blog).

In The Matter of: J-Bar Corp. v. Parrish, the Court of Appeals recently underscored the general rule that shareholders may not personally appeal a judgment against the corporation by which they are only indirectly affected. The case involved two sets of business partners who came together to form “J-Bar Corporation,” but who later moved for its dissolution after finding themselves at odds over a number of routine business decisions. Upon motion by the parties, the trial court ordered a sale of the company’s assets. On appeal, one of the parties disuputed the trial court’s decision to grant the other party pre-judgment interest on a debt owed to that party by J-Bar. The Court of Appeals held that this issue could not be challenged by the individual shareholder since the judgment to pay the debt, including pre-judgment interest, was against J-Bar. The Court stated that the responsibility of determining whether a corporation should pursue legal action lies with the corporation itself and not with the individual shareholder.

Read the entire opinion here.

Stanford Law School, the Stanford Center on Ethics and The National Law Journal recently hosted an entertaining panel discussion exploring the challenges and effects of the Sarbanes-Oxley Act. Topics of discussion included the responsibilities of corporate managers and auditors in monitoring internal controls, whistleblower provisions for lawyers, and the ways in which managers and attorneys can unintentionally run afoul of the Act.

Click here for excerpts from the discussion...

Interestingly, Tennessee courts have gone back and forth on this issue over the last few decades. In 1983 our Supreme Court held that closely held stock is not a security and is therefore not governed by the UCC. See Blasingame v. American Materials, Inc., 654 S.W.2d at 664 (Tenn. 1983). More recently, the defendant in Wakefield v. Crawley successfully argued that that the legislature’s adoption of a newer version of the UCC in 1986 superseded the Courts earlier decision. 6 S.W.3d 442 (Tenn. 1999). Accordingly, the court held that the sale of closely held stock is now governed by Chapter 8 of the UCC.

This raises an interesting point. The Wakefield court held that the revised UCC had effectively governed such sales in Tennessee since its adoption in 1986. However, it wasn’t until 13 years later, in 1999, that anyone even thought to make this argument. This just goes to show (a) how the law can change without anyone noticing, and (b) the importance of never taking for granted what you believe to be established law.

In the corporate context, most people associate the term “distribution” with dividends or payments at dissolution. In reality, the term covers almost any allocation of corporate property to a shareholder. See T.C.A. §48-11-201(7). Under Tennessee law, these distributions are unlawful if, after being made, the corporation (1) is unable to pay its debts or (2) has liabilities exceeding the sum of its assets. T.C.A. §48-16-401. Importantly, the recipient of the distribution (i.e. the shareholder) can be forced to contribute to a director who is held personally liable if the recipient knew that the distribution would be unlawful or in violation of the charter. T.C.A. §48-18-304.

How do Tennessee courts value corporate shares that are not traded on a national stock exchange? In Blasingame v. American Materials, the Tennessee Supreme Court adopted the Delaware Block Method for use in such situations. 654 S.W.2d 659, 667 (Tenn. 1983). This method allows the court to take a weighted average of the market price, the asset value, and the the earnings value of the corporation. The weight given to the particular values takes into consideration the type of business, the objective of the corporation, and other factors relevant to the ongoing value of the corporation. Subsequent Tennessee cases have found that the block method may also be appropriate for use in valuing preferred stock. See e.g. Genesco, Inc. v. Scolaro, 871 S.W.2d 487 (Tenn. Ct. App. 1993).

There is a good argument that the de facto corporation doctrine has been revived in Tennessee. In Thompson & Green v. Music City Library Co., 683 S.W.2d 340, 345 (Tenn. Ct. App. 1984) the Tennessee Court of Appeals found that the de facto corporation doctrine had been abolished by the enactment of the Tennessee General Corporations Act of 1968. However, the specific provision of the Act referred to by the court, T.C.A. 48-1-1405, has since been repealed. Alternatively, T.C.A. 48-12-104 now provides that any person who holds themselves out on behalf of a corporation while knowing that the corporation has not been properly formed, is jointly and severally liable for debts incurred. The obvious corollary appears to be that one who acts on behalf of a corporation without knowledge that there is a defect in the corporate form, is not liable for obligations entered into in the name of the corporation. This is basically the same principle behind the de facto corporation doctrine. While there are no reported cases that address the question of whether or not the doctrine has been revived, it is certainly something to think about if the de facto corporation theory would be a helpful defense for your client.

In getting a corporation started up, the founders often enter into a number of contracts before the corporation is offically formed. Before the corporation exists, the founders (or "promotors") are still on the hook themselves for any breach of the contract. At some point after the corporation has been fully created, though, the new corporation is liable for any contract breach, and the promotors are no more responsible for a breach than any other shareholder or corporate officer.

So at what point is the corporation responsible for a breach instead of the promotors? Tennessee courts have held that occurs only after adoption of the contract. The corporation can adopt the contract formally by signing it over, or informally by accepting the benefits of the contract. Once either of those things happens and the corporation has adopted the contract for itself, the corporation can sue or be sued for any breach. (See Windsor Hosiery Mills v. Haren, 413 S.W.2d 676 (Tenn. 1967)). This is always something to take a look at when someone claims breach of a contract that was formed around the same time a corporation was being formed.

Tennessee specifically authorizes a whole host of stock option types. Under T.C.A. 48-16-205, corporations can, among other things, issue stock options that contain restrictions triggered by the issuance of additional shares, provisions for the adjustment of the option exercise price, and provisions concerning rights in the event of reorganization, merger, or asset sale (i.e. the "poison pill option"). When incorporating stock options into any executive incentive package this is a statute that should always be referenced.

Most lawyers are aware that there is a demand requirement attached to shareholder derivative suits. However, the relevent issues in the case will often vary depending on whether or not the demand was "refused" or "excused." Since making a demand prior to filing a derivative suit amounts to a tacit admission that a majority of the board is sufficiently independent and disinterested, the only issues to be examined in a "demand refused" case are the good faith and reasonableness of the board's investigation and response. Lewis on Behalf of Citizens Sav. Bank & Trust Co. v. Boyd, 838 S.W.2d 215, 222 ( Tenn. Ct. App. 1992). By contrast, the focus in a "demand excused" proceeding (i.e. futility) entails a showing that (1) that the board is interested and not independent and (2) that the challenged transaction is not protected by the business judgment rule. Id. A good overview of the factors that should be considered by the court in determining whether these showings have been made in a "demand excused" case can be found in the Lewis case cited above at 224-25.

In Tennessee, as in most other jurisdictions, corporations are required to keep a permanent records. These records must include the charter and bylaws of the corporation, the most recent annual report, minutes from shareholder and director meetings, shareholder lists, appropriate accounting records, and various other documentation as required by statute. T.C.A. 48-26-101. Shareholders have the right to inspect and copy some records (charter, bylaws, minutes, and resolutions) on five days notice. T.C.A 48-26-102. Other records, such as shareholder lists and accounting records, must also be provided for review and reproduction upon five days notice by a shareholder, but only if the demand is made in good faith and for a proper purpose. Id. Tennessee Courts have stated that proper purpose exists where the inspection is (1) germane to the inspector's interest as stockholder, (2) proper and lawful in character, and (3) not inimical to the interests of the corporation. State ex rel. Lowell Wiper Supply Co. v. Helen Shop, Inc., 362, S.W.2d 787, 792 (Tenn. 1962).

"Ultra Vires" activity, or activity outside of the corporate purpose, has three potential consequences in Tennessee. As a result of an ulta vires act, (1) a shareholder may seek to enjoin the act, (2) the corporation may seek damages from the officer, director, or agent involved in the act, or (3) the state has the option of involuntarily dissolving the corporation. T.C.A. 48-13-104. These are the exclusive remedies for an ultra vires act. Id. To the extent that that a corporate purpose is not stated in the charter (which is often the case), the corporation will be presumed to have been formed for the purpose of conducting "any lawful business." T.C.A. 48-13-101
Not suprisingly then, most ultra vires activity ends up coinciding with illegal activity.

What is "oppressive conduct" to allow a shareholder to have a corporation judicially dissolved? The Eastern Section Court of Appeals recently answered that question for closely held corporations in Cochran v. L.V.R. & R.C., Inc. The court recognized that minority shareholders in a closely held corporation can be effectively held hostage by the majority. Majority shareholders have a fiduciary duty to the minority. The majority can "freeze out" a minority shareholder by holding back any payments or value for being a shareholder, and then refusing to buy the stock back for anything resembling a reasonable price. The Court of Appeals adopted a number of definitions of "oppressive conduct" from other jurisdictions, but it boils down to "the objectively reasonable expectations of the complaining shareholder and the actions of the defendants measured in terms of their fiduciary duties and in light of the totality of the circumstances."

Interestingly, one of the shareholders in this case held only 10% of the corporate stock - less than a quarter of the plaintiff's own shares. Still, the plaintiff alleged he combined his shares with the other shareholder - his mother - to give them a controlling interest of 55%. Key point: "oppressive conduct" and the fiduciary duty of a shareholder in a closed corporation do not require one person to be able to outweigh the interests of all the rest. A group of shareholders acting together to "freeze out" another's interest and deprive them of the value of their stock is sufficient.

After a corporation dissolves, are its assets clear from any unfiled lawsuits? Yes and no. In Tennessee, the dissolution of a corporation does not necessarily insulate the corporate form from lawsuits. To the extent that the corporation still has undistributed assets, it may be held liable up to the amount of those assets. See Tenn. Code Ann. 48-24-107(d). Even after the assets have been distributed, each shareholder may face potential liability for their pro-rata share of the claim or for the amount of distributed assets they received in liquidation (whichever is less). However, the Tennessee Code provides procedures for dissolving corporations which, if followed, significantly reduce the time period for these claims to be brought. See Tenn. Code Ann. 48-24-106 and 107.

Lesson: don't count your chickens before they hatch.

Like many states, Tennessee allows corporations to include provisions in the corporate charter which limit the personal liability of directors when faced with a shareholder derivative action. [see T.C.A. 48-12-102(b)(3)]. However, this protection only extends to "duty of care" breaches. By statute, corporations cannot insulate directors from liability for "duty of loyalty" breaches, unlawful distributions, or any other act that evidences either bad faith or an intentional or knowing violation of the law. Id.

The Eastern Section Court of Appeals recently ruled on a textbook example of failing to follow the corporate form. In Dolle v. Fisher, the defendant was president, secretary, and registered agent for a construction corporation. After a judgment was entered against the corporation, he folded it and set out to start anew under a different name. The evidence that his corporation was a sham included:

• He "compiled" corporate minutes only about a month before trial.
• He paid for his own medical and dental bills from the corporate checking account. (He testified that the bylaws allowed for it, but they made no mention of paying for the president's health care.)
• He paid for improvements to his own house from the corporate checking account.
• He paid his own personal income taxes from the corporation's checking account.
• He was uncertain whether he paid for his dog's veterinarian bills from the corporate checking account.

It's difficult to pierce the corporate veil under Tennessee law. If you're paying your dog's vet bills with corporate funds, though, you might as well not waste your money registering with the Secretary of State.

The much heralded Disney opinion is now online at the Delaware Chancery Court's website. There is little, if any, new law here. It is application of existing law to the facts of a specific case. However, it does succinctly summarize the law on the duties of officers and directors of a corporation in a rather brief section - pages 104 to 125, or 21 pages of a 175 page defense verdict. The Chancellor did analyze whether there is an emerging claim for breach of the duty of good faith by an officer or director of a corporation, concluding that an action might exist in Delaware.

The Wired GC has an interesting report on the perils of company executives refusing to cooperate with an investigation of the company. We've already talked about the potential for waiving privilege by cooperating. This article highlights the potential consequences of not cooperating.

The first place to look in a shareholder suit is obviously the company's charter. At common law, shareholders of a corporation had a "preemptive right," or a right to maintain their proportional ownership interest by purchasing a percentage of any new stock issuance where shares were being sold for cash. In other words, before the corporation could sell shares to outsiders, it had to first offer to sell the shares to existing shareholders in proportion to their degree of ownership. While a number of jurisdictions still follow this rule, Tennessee is not one of them. Pursuant to Tenn. Code Ann. 48-16-301, shareholders no longer have preemptive rights except to the extent provided in the charter.

When one shareholder, or a handful of shareholders acting together, has a controlling interest in a corporation, they owe a fiduciary duty to the minority shareholders. Take a look at McRedmond v. Estate of Marianelli for a good summary of the law. A reminder that just because a shareholder is not a named officer or director of a company doesn't mean that person can abuse the company for their own benefit.

The general consensus on the Disney ruling, based on the summaries of the ruling that have circulated in the last two days, is that it's a big win for the business judgment rule. many people have noted that the Chancellor bashed everyone involved at Disney - Michael Ovitz, Michael Eisner, and the board. Still, the Chancellor let them off with a tongue lashing. Over at the Conglomerate, they've got a bit up about what this means for the business judgment rule.

The shareholder suit against Disney over the $140 million severance package is over (for now). The trial court ruled last night that Disney's board of directors did not violate their fiduciary duties to the company's shareholders when they granted the severance deal to Michael Ovitz. The plaintiffs' lawyers have said they will appeal. A few notes:

• According to most of the news reports, the Chancellor's decision was 175 pages long. When's the last time you received a 175 page decision from a trial judge? Are they counting the transcript of oral argument?
• The L.A. Times has some excerpts from the ruling that chastise Disney's board, its CEO Michael Eisner, Ovitz, and the decisions that each made leading to this case.
• Despite the attention the case has gotten (Google News currently shows 340 reports on the ruling), it is just a trial court's decision applying existing law to the facts of a specific case. It carries slightly more precedential value in a Tennessee dispute than the case in My Cousin Vinny - partly because the prosecutor dismissed that case.

The Court of Appeals for the Eastern Section reversed the trial court's decision to pierce the corporate veil in Money & Tax Help, Inc. v. Moody. The Court of Appeals' ruling is premised mainly on the lack of facts, reminding us once again that a plaintiff seeking to pierce the corporate veil has a significant burden to overcome. The corporate form is a legal fiction, but it has been on the bestseller list for more than a century.

3 a.m. is when lawyers have nightmares about filing deadlines and scheduling order due dates. A list of statutes of repose is worth having around at that point – even if you can’t get back to sleep, at least you won’t have to rush to the office for emergency Westlaw research. Here are two statutes of repose to keep on your list: Actions for breach of duty by directors and officers of corporations cannot be brought more than 3 years after the breach occurred, except where there is fraudulent concealment by the defendant. Tenn. Code Ann. secs. 48-18-601 (for-profit corporations) and 48-58-601 (non-profit corporations).

In Boles v. National Develop. Co., Inc., the Court of Appeals again stated that Tennessee law determines whether to pierce the corporate veil of a foreign corporation. Once a defendant has submitted to the laws of the State of Tennessee and engaged in conduct that results in a judgment against the defendant by a Tennessee court, the only remaining question is how to enforce that judgment. Thus, the question centers on enforcing a Tennessee judgment, not the ordinary structure or governance of a foreign corporation.