Corporations

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It has been kind of a unique end of the semester, and I am working feverously to get through my Business Organizations exams. I’m getting there.  So far, I have had zero exams reference a “limited liability corporation.”  If this holds, it will be at least three years in a row.  

I have had a couple of folks refer to LLC veil piercing as piercing the “corporate” veil (another no-no), and I did have some other “corporate” references to LLCs (e.g., “an LLC’s corporate formalities”), so we’re not all the way there. But so far, I am seeing improvement, and I appreciate the effort.  

Here’s hoping for 48 of 48 describing the LLC (as an entity) correctly.  I hope the rest of my colleagues are holding up well here in the home stretch. Good luck to all. 

 

 

 

Join me in Miami, June 26-28.

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Managing Compliance Across Borders

June 26-28, 2019

Managing Compliance Across Borders is a program for world-wide compliance, risk and audit professionals to discuss current developments and hot topics (e.g. cybersecurity, data protection, privacy, data analytics, regulation, FCPA and more) affecting compliance practice in the U.S., Canada, Europe, and Latin America. Learn more

See a Snapshot: Who Will Be There?
You will have extensive networking opportunities with high-level compliance professionals and access to panel discussions with major firms, banks, government offices and corporations, including:

  • BRF Brazil
  • Carnival Corporation
  • Central Bank of Brazil
  • Endeavor
  • Equal Employment Opportunity Commission
  • Eversheds Sutherland
  • Fidelity Investments
  • Hilton Grand Vacations
  • Ingram Micro
  • Jones Day
  • Kaufman Rossin
  • LATAM Airlines
  • Laureate Education, Inc.

 
  • MasterCard Worldwide
  • MDO Partners
  • Olin Corporation
  • PwC
  • Royal Caribbean Cruises
  • Tech Data
  • The SEC
  • TracFone Wireless
  • U.S. Department of Justice
  • Univision
  • UPS
  • XO Logistics
  • Zenith Source

 

Location
Donna E. Shalala Student Center
1330 Miller Drive
Miami, FL 33146

 

CLE Credit
Upwards of 10 general CLE credits in ethics and technology applied for with The Florida Bar

 

Program Fee: $2,500 

A recent report and recommendation from a U.S. magistrate recommends that the referring court find that a plaintiff did not provide the facts needed to support taking diversity jurisdiction.  The magistrate is correct, but the recommendation is a little ironic in that it seems to be chiding the plaintiff for a lack of precision, and well, this: 

Here, Peeples’ amended complaint contains the bare assertions that the address for Xlibris Publishing is in Bloomington, Indiana, while his address is in Mobile, Alabama. The bare allegation respecting the Defendant is insufficient as it does not identify whether Xlibris is a corporation or, instead, an unincorporated entity such as a limited liability corporation. Moreover, if Xlibris is a corporation, the complaint does not delineate its state(s) of incorporation and the state where it has its principal place of business. See Flintlock Constr. Servs., LLC v. Well-Come Holdings, LLC, 710 F.3d 1221, 1224 (11th Cir. 2013) (“A corporation is considered a citizen of every state in which it has been incorporated and where it has its principal place of business.”). And, if an unincorporated entity such as a limited liability corporation,3 the amended complaint does not allege every

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Okay, not really. But my daily Westlaw search for “limited liability corporation” recently started delivering contract award announcements from the Department of Health and Human Services (DHHS) related to contract awards. DHHS reconds many “business types” for their records, such as “Minority Owned Business” and “For Profit Organization. And now, apparently, “limited liability coroporation” is one of them.  ARRRRRGHH! LLCs are “limited liability companies” and are not corporations.  An internet search shows that there are at least 78 of these DHHS designations out there (and I’ll wager there are more).  

Following is an excerpt of one such announcement.  You’ll note that, according to the announcement, Seba Professional Services LLC is both a “Partnership or Limited Liability Partnership” and a “Limited Liability Corporation.”  Sigh.  Really, they’re making my stomach hurt: 

Department of Health and Human Services awarded contract of IGF::CT::IGF PATIENT MESSENGER AND TRANSPORT SERVICES to SEBA PROFESSIONAL SERVICES LLC

Washington: This contract was awarded to seba professional services llc with a potential award amount of $6,117,056. Of this amount, 100% ($6,117,056) has been obligated.
 
Awarding Agency:
Department of Health and Human Services
 
. . . .
 
Recipient:
SEBA PROFESSIONAL SERVICES LLC
. . . .

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Prof. Justin Pace, Haworth College of Business,  Western Michigan University recently sent me his paper, Rogue Corporations: Unlawful Corporate Conduct and Fiduciary Duty. In it, he discusses Delaware’s “per se doctrine where the board directs the corporation to violate the law. A knowing violation of positive law is bad faith, which falls under the duty of loyalty. The business judgment rule will not apply and exculpation will not be available under Section 102(b)(7). The shareholders may not even need to show harm.” 

In the paper, he considers this concept from a moral and ethical perspective, which are interesting in their own right, though I remain more interested in the doctrine itself.  The paper is worth a look.  A few comments of my own, after the abstract:

Abstract

On February 28, 2018, Dick’s Sporting Goods announced that it would no longer sell long guns to 18- to 20-year-olds. On March 8, 2018, Dick’s was sued for violating the Michigan Elliott-Larsen Civil Rights Act, which prohibits discrimination on the basis of age in public accommodations. Dick’s and Walmart were also sued for violating Oregon’s ban on age discrimination. In addition to corporate liability under various state civil rights acts, directors of…

As a former compliance officer who is now an academic, I’ve been obsessed with the $25 million Varsity Blues college admissions scandal. Compliance officers are always looking for titillating stories for training and illustration purposes, and this one has it all– bribery, Hollywood stars, a BigLaw partner, Instagram influencers, and big name schools. Over fifty people face charges or have already pled guilty, and the fallout will continue for some time. We’ve seen bribery in the university setting before but those cases concerned recruitment of actual athletes. 

Although Operation Varsity Blues concerns elite colleges, it provides a wake up call for all universities and an even better cautionary tale for businesses of all types that think of  bribery as something that happens overseas. As former Justice Department compliance counsel, Hui Chen, wrote, “bribery. . .  is not an act confined by geographies. Like most frauds, it is a product of motive, opportunity, and rationalization. Where there are power and benefits to be traded, there would be bribes.” 

My former colleague and a rising star in the compliance world, AP Capaldo, has some great insights on the scandal in this podcast. I recommend that…

A 2017 opinion related to successor liability just posted to Westlaw.  The case is an EEOC claim “against the Hospital of St. Raphael School of Nurse Anesthesia (“HSR School”) and Anesthesia Associates of New Haven (“AANH”), alleging gender discrimination and retaliation in violation of Title VII of the Civil Rights Act of 1964 . . . .” The plaintiff was seeking to join Yale New Haven Hospital (“YNHH”). MARGARITE CONSOLMAGNO v. HOSPITAL OF ST. RAPHAEL SCHOOL OF NURSE ANESTHESIA and ANESTHESIA ASSOCIATES OF NEW HAVEN, P.C., 3:11CV109 (DJS), 2017 WL 10966446, at *1 (D. Conn. Mar. 27, 2017). 

 
 
Apparently, the HSR School trained nurse anesthetists was owned and run by AANH a Connecticut “professional corporation.”  The plaintiff was in the HSR School for about six months before she was dismissed, she claimed, because of ” gender discrimination and retaliation for reporting a staff member’s inappropriate sexual conduct.” Id. The plaintiff sought to join YNHH because that entity took over running an anesthesia school that had been, in some form, the HSR school.  
 
The successor liability part is rather interesting, though largely devoid of facts from the transaction.  The court ultimately concludes that even though YNHH resumed a similar school,

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A new case from the Southern District of Texas recently appeared, and it is yet another case in which the entity type descriptions are, well, flawed. The case opens: 

Before the Court is the defendant’s, Arnold Development Group, LLC (the “defendant”) motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(2) and (3) (Dkt. No. 5), the plaintiff’s, Conesco Industries, LTD.; d/b/a DOKA USA, LTD. (the “plaintiff”) response to the defendant’s motion to dismiss (Dkt. No. 18) and the defendant’s reply in support of its motion (Dkt. No. 20).
 . . . .
The plaintiff is a New Jersey limited partnership doing business in Texas and throughout the United States. The defendant is a Missouri limited liability corporation.
CONESCO INDUSTRIES, LTD. d/b/a DOKA USA, LTD., Pl., v. ARNOLD DEVELOPMENT GROUP, LLC, Def.., 4:18-CV-02851, 2019 WL 1430112, at *1 (S.D. Tex. Mar. 29, 2019) (emphasis added). 
 
Everybody who reads this blog knew that was coming because I am writing about the case. Arnold Development Group, LLC, is not a limited liability corporation. It is a limited liability company.
 
So, fine, this kind of error is not remarkable, given my numerous posts on the subject.

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This Michael Avenatti extortion case is fascinating to me. I am not really sure why, other than it seems so absurd.  You may recall Avenatti as the lawyer who represented Stormy Daniels in her lawsuits against President Trump. He is a big personality and known for being outlandish at times.  
 
According to federal prosecutors, Avenatti tried to extort Nike for millions of dollars because he claimed to have evidence that Nike employees were illegally paying people to help recruit college basketball players.  Apparently, Avenatti believed he would be able to get Nike to pay him millions of dollars in exchange for the evidence. Instead, he ended up with the FBI. 
 
The New York Time reports:
According to people with knowledge of the cases, once Nike heard Mr. Avenatti’s claims, it acted to inform federal officials of the allegation that the company’s employees were paying players. The nature of the discussion with Mr. Avenatti raised the possibility that extortion was taking place.
That is, as soon as Nike was on notice of a potential problem right to the authorities.  How very Allis-Chalmers of them.  I am a fan of that old business judgment rule case, which

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Get this, from a March 15 ruling and order on a motion for summary judgment: 

Greenwich Hotel Limited Partnership [GHLP] is a limited partnership organized under the laws of Connecticut, and is the owner of the Hyatt Regency Greenwich hotel. Answer to First Amended Complaint, dated Dec. 16, 2016 (“Am. Ans.”), ECF NO. 62, at 8. Hyatt Equities, L.L.C. (“Hyatt Equities”) is a limited liability corporation incorporated in Delaware, and is the general partner of Greenwich Hotel Limited Partnership. Id. at 9. The Hyatt Corporation (“Hyatt Corp.”) is a limited liability corporation incorporated in Delaware, and is the agent of Greenwich Hotel Limited Partnership. Id. at 9.

Benavidez v. Greenwich Hotel LP, 3:16-CV-191 (VAB), 2019 WL 1230357, at *1 (D. Conn. Mar. 15, 2019). 
 
Once more, for the people in back: LLCs are “limited liability companies,” not “limited liability corporations.”As such, LLCs are not “incorporated.” LLCs are formed or organized. In addition, corporations are entities that provide shareholders limited liability, but they are generally not referred to as “limited liability corporations” because they might be confused with a separate and distinct entity type, the LLC.  
 
Whenever I read a case with this kind of language,

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