Quarterly State Compliance Review - January 2017

Quarterly State Compliance Review - January 2017

Originally published in the January 2017 issue of The Corporate Counselor, the Quarterly State Compliance Review surveyed legislation and case law affecting business entity law. The following is a summary of notable changes to business entity statutes, as well as several significant state court decisions. 

Amendments to Business Entity Statutes

These amendments to business entity statutes went into effect on January 1, 2017.

  • Alabama House Bill 202 enacted a new limited partnership act.
  • California Assembly Bill 1722 required a 50 percent or more member vote for LLC dissolution.
  • Indiana House Bill 1336 approved series LLC formation and foreign series LLC qualification.
  • New York Assembly Bills 8072 and 7461 provided that a not-for-profit corporation’s employee cannot serve as chairperson of the board.
  • Nebraska Legislative Bills 749 and 796 enacted a new business corporation law. 

State Court Decisions

Delaware’s Supreme Court ruled on setoff and recoupment defenses in Finger Lakes Capital Partners, LLC v. Honeoye Lake Acquisition, LLC. In a dispute involving the distribution of proceeds from the sale of a portfolio company, the Court ruled that management fees earned by a defendant could not be claimed as a setoff because the three-year statute of limitations expired, nor was the defendant entitled to recoupment because its counterclaim arose from a different transaction from the plaintiff’s claim.    

The Delaware Chancery Court made its own assessment of the fair value of a regional bank rather than using the merger price or the valuation of either side’s experts. In Dunmire v. Farmers & Merchants Bancorp of Western Pennsylvania, Inc. the Court found the merger price was not the best evidence of fair value given that the same family owned both banks, no auction took place, and there was no evidence of arm’s length negotiations.  The Court also found flaws in the experts’ valuations.

A New York appellate court denied certain claims that arose from the Bernie Madoff ponzi scheme in New Greenwich Litigation Trustee, LLC v. Citcofund Services (Europe). The case was a derivative suit brought on behalf of feeder funds that experienced losses under the scheme. The Court, finding that the complaint pleaded extensive management wrongdoing, affirmed the lower court’s dismissal on grounds of in pari delicto—a doctrine stating that courts will not interfere in the disputes of two wrongdoers. 

A California appellate court rejected the reverse agency theory of general jurisdiction in Strasner v. Touchstone Wireless Repair and Logistics, LP.  The court ruled that out-of-state entities are not subject to personal jurisdiction in California solely due to their status as wholly-owned subsidiaries of a California parent.

Finally, the Pennsylvania Supreme Court ruled on a nonprofit’s authority to act in Zampogna v. Law Enforcement Health Benefits, Inc. The corporation mailed postcards to union members endorsing a candidate for union presidency. The Pennsylvania Supreme Court found the postcard mailing to be authorized as there was no language in either the corporation law or articles of incorporation prohibiting the act and it was not clearly unrelated to the corporation’s purpose.

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