Articles Posted in Business Law

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Rothe filed suit alleging that the statutory basis of the Small Business Administration’s (SBA) 8(a) business development program, Amendments to the Small Business Act, 15 U.S.C. 637, violates its right to equal protection under the Due Process Clause of the Fifth Amendment. Rothe is a small business that bids on Defense Department contracts, including the types of subcontracts that the SBA awards to economically and socially disadvantaged businesses through the 8(a) program. The court rejected Rothe's claim that the statute contains an unconstitutional racial classification that prevents Rothe from competing for Department of Defense contracts on an equal footing with minority-owned businesses. The court concluded that the provisions of the Small Business Act that Rothe challenges do not on their face classify individuals by race. In contrast to the statute, the SBA’s regulation implementing the 8(a) program does contain a racial classification in the form of a presumption that an individual who is a member of one of five designated racial groups (and within them, 37 subgroups) is socially disadvantaged. Because the statute lacks a racial classification, and because Rothe has not alleged that the statute is otherwise subject to strict scrutiny, the court applied rational-basis review. Under rational-basis review, the court concluded that the statutory scheme is rationally related to the legitimate, and in some instances compelling, interest of counteracting discrimination. Finally, Rothe's evidentiary and nondelegation challenges failed. Accordingly, the court affirmed the district court's judgment granting summary judgment to the SBA and DOD. View "Rothe Development v. DOD" on Justia Law

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The Government sought to recover a $1.3 million judgment debt pursuant to the Federal Debt Collect Procedures Act (FDCPA), 28 U.S.C. 3001 et seq., by garnishing funds owed to WDG, a company T. Conrad Monts and his wife owned as tenants by the entireties. The court reversed the district court's holding that Monts had a sufficient property interest in WDG’s assets to permit garnishing them under the FDCPA in satisfaction of his debts. The court remanded for the district court to evaluate the Government’s alternative argument that it may garnish WDG’s assets by piercing the corporate veil between WDG and Monts. View "United States v. TDC Mgmt. Corp." on Justia Law

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Plaintiff, a real estate developer, alleged that WMATA signed a contractually binding Term Sheet preliminarily selecting plaintiff to develop property above a Metrorail station and giving plaintiff the exclusive right to negotiate a final development agreement. Plaintiff filed suit raising claims related to its allegation that one of WMATA's Board Members, Jim Graham, abused his position and his seat on the Council of the District of Columbia to work behind the scenes with one of plaintiff’s rival bidders to derail WMATA's negotiations with plaintiff. The court concluded that plaintiff adequately stated both contract claims for breach of the exclusivity provision and breach of the implied covenant of good faith and fair dealing. Further, plaintiff adequately stated its claim of tortious interference and conspiracy against plaintiff's rival bidder. The court reversed as to these claims. The court affirmed the district court’s dismissal of plaintiff’s claim for fraud against WMATA because it is barred by sovereign immunity. The court held that Graham failed to bear his burden to establish the scope of his official duties and to situate his conduct within its outer perimeter. Therefore, the court vacated the district court’s dismissal and remanded for the district court to consider in the first instance which of Graham’s other actions fell beyond the outer perimeter of his official duties and whether those actions that did fall beyond the outer perimeter, taken together, state claims against Graham for tortious interference and civil conspiracy. The court vacated the district court’s dismissal of plaintiff's claims against Graham and remanded for further consideration. View "Banneker Ventures, LLC v. Graham" on Justia Law

Posted in: Business Law, Contracts

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Plaintiffs, two Kazakh businessmen, filed suit alleging that defendants violated the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. 1962(c) - (d), by engaging in criminal activity through the Krull Corporation. The specific predicate racketeering crimes alleged are money laundering, in violation of 18 U.S.C. 1956, and extortion, in violation of the Hobbs Act, 18 U.S.C. 1951. The amended complaint also alleged a defamation claim. The district court dismissed the case with prejudice. Determining that it has jurisdiction over the appeal, the court concluded that plaintiffs' allegations failed to state a RICO claim where plaintiffs do not contend that their complaint states a claim of domestic Hobbs Act extortion by defendants; plaintiffs do not assert that the actual extortion of their assets in Kazakhstan was itself in any way a violation of the Hobbs Act; and defendants only argue that Defendant Mirtchev's agreement in D.C. to Dariga Nazarbayeva’s extraterritorial, non-Hobbs-Act extortion scheme in Kazakhstan constituted a conspiracy in the United States to violate the Hobbs Act. The court also concluded that the complaint fails to state a claim for defamation or for conspiracy to defame. Finally, the district court did not abuse its discretion in declining to impose Rule 11 sanctions. Accordingly, the court affirmed the judgment. View "Hourani v. Mirtchev" on Justia Law

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This case arose out of the Tax Court’s determination that Petaluma was a sham entity and so would be disregarded for tax purposes, resulting in the potential imposition of penalties against individual partners for underreporting their taxable income. At issue in this third appeal was whether the Tax Court had jurisdiction at the current, partnership-level stage to determine the applicability of the penalties to the individual partners, or whether that determination instead must await the commencement of separate, partner-level proceedings against each partner. Assuming that a regulation in fact is necessary to create jurisdiction in the Tax Court, the court concluded that a different (and permanent) regulation is the operative one for purposes of conferring jurisdiction. Therefore, the court concluded that the Tax Court had jurisdiction to decide the applicability of penalties to Petaluma's partners. View "Petaluma FX Partners v. Commissioner" on Justia Law

Posted in: Business Law, Tax Law

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This appeal involves a Son of BOSS tax shelter, which abuses the partnership form of doing business by “employ[ing] a series of transactions to create artificial financial losses that are used to offset real financial gains, thereby reducing tax liability.” At issue was whether and when the Tax Court may apply a penalty to a taxpayer who underpays his taxes by participating in a partnership that was nothing more than an intricate tax shelter. In this case, the parties recognize that United States v. Woods answered the questions about the Tax Court’s jurisdiction over penalties and outside basis. Taxpayer concedes rightly that the Tax Court properly applied his penalty when that court conducted its review of the partnership and its items, and the court affirmed the Tax Court on this point. In turn, the IRS acknowledges correctly that the Tax Court lacked jurisdiction to determine that the Tigers Eye partners had no basis in the partnership, and the court reversed the portion of the Tax Court’s decision that did so. The court remanded for further proceedings. View "Logan Trust v. Commissioner" on Justia Law

Posted in: Business Law, Tax Law

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Validus, a foreign corporation, filed suit seeking a refund of excise taxes imposed under 26 U.S.C. 4371, which taxes certain types of "reinsurance." The government contends that “the best reading of the statute” establishes its applicability to reinsurance purchased by a reinsurer because such policies (known as “retrocessions”) are “a type of reinsurance,” and also that interpretation carries out Congress’s intent “to level the playing field” between domestic (U.S.) insurance companies subject to U.S. income taxes and foreign insurance companies that are not so burdened. Validus responds, however, that the plain text, considered in the context of reinsurance, and the statutory structure make clear that the excise tax does not apply to retrocessions, and further, the presumption against extraterritoriality resolves any doubt that the tax is inapplicable to Validus’s purchases of reinsurance from a foreign reinsurer. The court concluded that the text of the statute is ambiguous with respect to its application to wholly foreign retrocessions, and the ambiguity is resolved upon applying the presumption against extraterritoriality because there is no clear indication by Congress that it intended the excise tax to apply to premiums on wholly foreign retrocessions. Therefore, the court affirmed the district court's grant of summary judgment on Validus's refund claims. View "Validus Reinsurance v. United States" on Justia Law

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Ralls, an American corporation whose owners are Chinese nationals, purchased four American limited liability companies (Project Companies) previously formed to develop windfarms in north-central Oregon. CFIUS determined that Ralls' acquisition of the Project Companies threatened national security and issued temporary mitigation orders restricting Ralls' access to, and preventing further construction at, the Project Companies' windfarm sites. The President also concluded that the transaction posed a threat to national security. On appeal, Ralls challenged CFIUS's final order and the Presidential Order, which prohibited the transaction and required Ralls to divest itself of the Project Companies. The court concluded that the Presidential Order deprived Ralls of constitutionally protected property interests without due process of law; the court remanded to the district court with instructions that Ralls be provided the requisite process which should include access to unclassified evidence on which the President relied and an opportunity to respond; and the court left it to the district court to address the merits of Ralls' remaining claims in the first instance since the CFIUS Order claims were dismissed on a jurisdictional ground and given the scant merits briefing. View "Ralls Corp. v. Committee on Foreign Investments, et al." on Justia Law

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Michael Queen, an NBC Employee, claimed an entitlement to a portion of Ed Schultz's income from the "The Ed Show" on MSNBC based on their alleged agreement to co-develop a show. Queen sued Schultz in district court, and Schultz counterclaimed against Queen for fraud, slander, and liable. On cross-motions for summary judgment, the district court ruled that neither Queen nor Schultz was liable to the other for anything. Queen appealed. The court concluded that the district court correctly granted summary judgment to Schultz on Queen's claim that he, Max Schindler, and Schultz entered into an enforceable contract to divide the profits from a potential television show 50/25/25. However, the court concluded that there existed a genuine issue of material fact as to whether Queen and Schultz formed a partnership to develop a television show and, if so, whether Schultz was liable to Queen for breach of partnership duties. Therefore, the court reversed that portion of the district court's judgment and remanded to enable Queen to present his partnership theory to a jury. View "Queen v. Schultz" on Justia Law

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Indiana Boxcar, a holding company that owns several railroads, petitioned for review of the Board's determination that Indiana Boxcar was an "employer" for purposes of the Railroad Retirement Act and the Railroad Unemployment Insurance Act, 45 U.S.C. 231, 351. To be an employer under those two Acts, a company such as Indiana Boxcar must be "under common control" with a railroad. Before this case, the Board repeatedly held that parent corporations like Indiana Boxcar were not under common control with their railroad subsidiaries. Under Board precedent, the term "common control" did not usually apply to two companies in a parent-subsidiary relationship. Here, however, the Board did not adhere to that precedent and did not reasonably explain and justify its deviation from its precedent. Therefore, the court held that the Board's decision was arbitrary and capricious under the Administrative Procedure Act, 5 U.S.C. 706(2)(A). Accordingly, the court vacated and remanded to the Board. View "Indiana Boxcar Corp. v. RRRB" on Justia Law