Shaw Fishman http://www.shawfishman.com Wed, 17 May 2017 17:44:30 +0000 en-US hourly 1 Sometimes “the Man on Five” Ends Up With Zero http://www.shawfishman.com/sometimes-the-man-on-five-ends-up-with-zero/ http://www.shawfishman.com/sometimes-the-man-on-five-ends-up-with-zero/#respond Fri, 12 May 2017 03:11:11 +0000 http://www.shawfishman.com/?p=1264 In his latest installment of “From a Litigation Perspective …” published in Pratt’s Journal of Bankruptcy Law, Firm Member Terence G. Banich explains why principles of collateral estoppel can bind the federal government in a prosecuting a criminal case after it lost an earlier civil case against the same parties.

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Seventh Circuit rules that Title VII Protects Against Discrimination Based on Sexual Orientation http://www.shawfishman.com/seventh-circuit-rules-that-title-vii-protects-discrimination-based-on-sexual-orientation/ http://www.shawfishman.com/seventh-circuit-rules-that-title-vii-protects-discrimination-based-on-sexual-orientation/#respond Tue, 18 Apr 2017 22:52:14 +0000 http://www.shawfishman.com/?p=1247 On April 4, 2017, the Seventh Circuit became the first appellate court in the country to rule that Title VII of the Civil Rights Act of 1964 makes it unlawful to discriminate against a person based on their sexual orientation.  The Act prohibits discrimination based on “race, color, sex, or national origin.” Prior to Hively, appellate courts uniformly dismissed actions brought under Title VII for discrimination based on sexual orientation on the basis that “sexual orientation” simply was not a protected class identified by Congress in the Act.    However, in Hively v. Ivy Tech Community College of Indiana, 2017 WL 1230393 (7th Cir. April 4, 2017), the court reversed its prior dismissal of a complaint brought by an openly lesbian professor at a community college, ruling that discrimination based on “sex” includes one’s “sexual orientation.”

In so ruling, the Seventh Circuit pointed to multiple factors for creating new law.  First, it recognized that ever since the Supreme Court’s recognition that the Due Process and Equal Protection Clauses protect the right of same sex couples to get married, a paradox now exists whereby “a person can be married on a Sunday and then fired on Monday for just that act.”

Second, the court drew parallels to the Supreme Court’s landmark decision in Loving v. Virginia, 388 U.S. 1 which address race discrimination.  There, the court held that employees who were discriminated against based on their association with another race (i.e. interracial marriages) suffered discrimination based on the employee’s own race.  In conducting this analysis, the Seventh Circuit utilized a comparative approach, as the Supreme Court did in Loving, by isolating the plaintiff’s sex in the employer’s decision.  In other words, did the plaintiff describe a situation in which, holding all other factors constant, and changing only her sex, would she have been treated the same way?  The court thus found that if it were to change Hively’s sex to male, then she would no longer have been in a lesbian relationship and, therefore, the outcome would have been different.  Accordingly, the court held that, accepting the allegations in the complaint was true, Hively stated a claim for discrimination based on her sex.

In the end, the Seventh Circuit ruled 8-3 in plaintiff’s favor. Predictably, the dissent was critical of the majority’s judicial activism, arguing that Title VII does not, on its face, provide a remedy for this kind of discrimination; an argument Judge Sykes noted that should be made to Congress.  However, in his concurrence with the majority, Judge Posner noted that statutory and constitutional provisions are frequently interpreted based on the needs and understanding of modern society.  As an example, Posner cited to Texas v. Johnson in which the Supreme Court, including the late Justice Scalia, ruled that the burning of the American flag was protected by the First Amendment’s free speech clause despite the fact that such an act doesn’t necessarily involve speech at all.

Clearly, this is not the last word on the issue. A split amongst federal appellate courts now exists and the Supreme Court will likely take up the issue at some point.  It remains to be seen, however, how soon that will be.

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Robert M. Fishman to speak at 2017 American Bankruptcy Institute’s Central States Bankruptcy Conference http://www.shawfishman.com/robert-fishman-to-speak-at-2017-american-bankruptcy-institute-conference/ http://www.shawfishman.com/robert-fishman-to-speak-at-2017-american-bankruptcy-institute-conference/#respond Thu, 13 Apr 2017 01:26:02 +0000 http://www.shawfishman.com/?p=1238 Robert M. Fishman will be speaking at the 2017 American Bankruptcy Institute’s Central States Bankruptcy Conference on June 10, 2017 in Traverse City, Michigan on the topic of Fraudulent Transfers and Pre-Bankruptcy Planning.

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Robert M. Fishman to speak at 2017 National Association of Credit Management’s Credit Congress http://www.shawfishman.com/robert-fishman-to-speak-at-2017-national-association-of-credit-managements-credit-congress/ http://www.shawfishman.com/robert-fishman-to-speak-at-2017-national-association-of-credit-managements-credit-congress/#respond Thu, 13 Apr 2017 01:23:56 +0000 http://www.shawfishman.com/?p=1236 Robert M. Fishman will be speaking at the 2017 National Association of Credit Management’s Credit Congress on June 14, 2017 in Grapevine, Texas on “Bankruptcy Mediation: Why Do You Care?”

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Terence G. Banich Named to Editorial Board of Scholarly Publication http://www.shawfishman.com/terence-g-banich-named-to-editorial-board-of-scholarly-publication/ http://www.shawfishman.com/terence-g-banich-named-to-editorial-board-of-scholarly-publication/#respond Wed, 29 Mar 2017 17:45:11 +0000 http://www.shawfishman.com/?p=1230 Pratt’s Journal of Bankruptcy Law, a national publication by Lexis-Nexis, recently named Firm Member Terence G. Banich to its Board of Editors. Mr. Banich publishes a column in the Journal called “From a Litigation Perspective …” that explores interesting or quirky issues that may come up in bankruptcy litigation or creditor’ rights lawsuit, as well as new decisions or developments in or affecting bankruptcy and creditors’ rights law.

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The Barton Doctrine Has Its Limits http://www.shawfishman.com/the-barton-doctrine-has-its-limits/ http://www.shawfishman.com/the-barton-doctrine-has-its-limits/#respond Wed, 29 Mar 2017 17:41:14 +0000 http://www.shawfishman.com/?p=1225 Pratt’s Journal of Bankruptcy Law just published the latest installment of Firm Member Terence G. Banich’s column “From a Litigation Perspective …” in which Mr. Banich discusses why the Barton Doctrine is a “penetrable shield.”

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Shaw Fishman Secures $1m Preference Action Settlement http://www.shawfishman.com/shaw-fishman-secures-1m-preference-action-settlement/ http://www.shawfishman.com/shaw-fishman-secures-1m-preference-action-settlement/#respond Mon, 13 Mar 2017 20:10:13 +0000 http://www.shawfishman.com/?p=1222 On March 8, 2017, the Shaw Fishman team of Ira Bodenstein and John Guzzardo secured bankruptcy court approval of a $1 million dollar agreed settlement with the United States Department of Defense in a preference action under 11 U.S.C. sec. 547.  Shaw Fishman represents Thomas Springer, as chapter 7 trustee of Ryan International Airlines, Inc., Case No. 12-80802 in the Northern District of Illinois, Western Division.  The Department of Defense settlement is the final matter for Shaw Fishman as special avoidance action counsel to the trustee.  This engagement began in January of 2014 with a review of thousands of potential transfers and demands to over 300 potential defendants.  In just three years, the Shaw Fishman team has completed its representation and recovered nearly $4.4 million for the estate.

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It Depends Upon What the Meaning of the Word “Is” is: Court of Chancery Defines the Meaning of “Is” in 8 Del. C. § 220(c), an Issue of First Impression http://www.shawfishman.com/it-depends-upon-what-the-meaning-of-the-word-is-is-court-of-chancery-defines-the-meaning-of-is-in-8-del-c-%c2%a7-220c-an-issue-of-first-impression/ http://www.shawfishman.com/it-depends-upon-what-the-meaning-of-the-word-is-is-court-of-chancery-defines-the-meaning-of-is-in-8-del-c-%c2%a7-220c-an-issue-of-first-impression/#respond Thu, 09 Mar 2017 16:26:26 +0000 http://www.shawfishman.com/?p=1214 Tell me if you have heard this one:  a stockholder walks into the Court of Chancery and files a complaint seeking inspection of Company A’s books and records pursuant to 8 Del. C. § 220.  While the § 220 action was pending, Company A merges with Company B, thereby terminating the stockholder’s ownership interest in Company A.  Does stockholder still have standing to continue his § 220 action?  

The Court of Chancery had not heard this one before, characterizing it as an issue of first impression in Weingarten v. Monster Worldwide, Inc., C.A. No. 12931-VCG (Del. Ch. Feb. 27, 2017).   The Court concluded that a stockholder who no longer holds stock post-merger lacks standing to pursue a § 220 books and records action.  

As is true with most things, timing is everything so here is a chart outlining some of the relevant facts:

DATE DESCRIPTION
8/8/2016 Monster Worldwide, Inc. (“Monster”) enters into a Plan of Merger with Ranstad Holding nv (“Ranstad”) and Merlin Global Acquisition Inc. (“Merger Sub”).
9/6/2016 Randstad’s cash tender offer commences.
10/19/2016 Plaintiff sends Monster a demand to inspect books and records.
10/26/2016 Monster rejects Plaintiff’s demand but may agree to a narrow production.
10/26/2016 Plaintiff responds to Monster’s expression.  Among other issues, Plaintiff states he will refrain from filing a complaint while the parties are negotiating a production, but Monster must let Plaintiff know by 10:00 a.m. on 10/27/2016 if Monster will take the position that Plaintiff no longer has standing to assert his § 220 inspection rights if the merger closes before the complaint is filed.  
10/27/2016, 10:01 a.m. No response is received from Monster.
10/28/2016 Monster responds to Plaintiff’s 10/26/2016 communication.  Monster would not commit to what, if any, position it would take.  
10/28/2016 Tender offer expired at midnight and consummated.  45M+ shares were tendered
11/1/2016 The transaction closes:  Ranstad acquires Monster.  Plaintiff’s shares (not previously tendered) were cancelled and converted to a right to receive cash.
11/4/2016 Monster informs Plaintiff that the transaction closing mooted Plaintiff’s § 220 demand.
11/4/2016 Plaintiff responds that the closing did not affect his standing to assert his § 220 inspection rights and that Monster waived any contrary argument because it did not respond by 10/27/2016 at 10:00 a.m.
11/22/2016 Plaintiff files his Verified Complaint to Compel Inspection of Books and Records per 8 Del. C. § 220.

 

Plaintiff argued that Monster was equitably estopped from asserting his lack of standing, because it did not respond by the 10/27/2016 10:00 a.m. deadline.  The Court concluded that the doctrine of equitable estoppel did not apply:  there was no “conduct” by Monster upon which Plaintiff could rely; Monster did not timely reply; and Plaintiff did not file his complaint before the transaction closed.  Reliance on Monster’s silence, the Court concluded, was not reasonable.  

Turning next to the statutory language of 8 Del. C. § 220, the Court concluded that the statute’s clear and unambiguous language compelled the conclusion that a stockholder must be a stockholder at the time he files a complaint seeking to assert the inspection rights contained in 8 Del. C. § 220.  Specifically, the Court found that 8 Del. C. § 220(c)’s use of the present tense “is” supports the conclusion that Plaintiff must be a stockholder on the date the complaint is filed.  On these facts, Plaintiff’s shares were cancelled and converted to a right to cash on November 1, 2016; he filed his complaint 21 days later, on November 22, 2016, at a time when he no longer held his stock.  Therefore, Plaintiff lacked standing to proceed with his § 220 action, and the Court dismissed the complaint.  

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Much Ado about Nothing: Delaware Supreme Court Affirms Court of Chancery’s Unremarkable Appointment of Custodian to Sell a Company http://www.shawfishman.com/much-ado-about-nothing-delaware-supreme-court-affirms-court-of-chancerys-unremarkable-appointment-of-custodian-to-sell-a-company/ http://www.shawfishman.com/much-ado-about-nothing-delaware-supreme-court-affirms-court-of-chancerys-unremarkable-appointment-of-custodian-to-sell-a-company/#respond Mon, 27 Feb 2017 21:48:07 +0000 http://www.shawfishman.com/?p=1210 In Shawe v. Elting, No. 423, 2016 (Del. Feb. 13, 2017), the Delaware Supreme Court affirmed the Court of Chancery’s unremarkable decision, pursuant to 8 Del. C. § 226, authorizing a custodian to sell a company when faced with deadlock. It is unremarkable in the sense that the Court of Chancery has exercised this authority in other cases with much less fanfare. Id. at 19, n.36.

The majority opinion, authored by Justice Seitz, affirmed the Court of Chancery. First, it rejected the Shawes’ attempts to raise issues for the first time on appeal as violative of Delaware Supreme Court Rule 8 and, therefore, waived. Those arguments were that (1) the Court of Chancery exceeded its statutory authority when it ordered the appointed custodian to sell the solvent Transperfect; (2) alternatively, the trial court should have considered less intrusive measures to deal with the deadlock; and (3) the sale of the Transperfect may result in an unconstitutional taking in violation of Takings and Due Process Clauses of the United States and Delaware Constitutions.

The Court of Chancery did not exceed its authority when it ordered the sale of the company, the Court found, because 8 Del. C. § 226 provides for the appointment of a custodian when the parties are unable to elect new directors to replace those directors whose terms have expired (to which these parties stipulated); the record below was replete with facts that the directors were deadlocked (to which the parties stipulated) and the business was suffering or threatened with irreparable injury; and the trial court attempted other possible intermediate measures (e.g., attempts to mediate resolution) before ordering the sale of the Company.

The Court further held that its long-standing rules prevented consideration of the issues raised by the Shawes for the first time on appeal. But, in an interesting move, the Court responded to the dissent’s contention that the statutory argument should be addressed for the first time on appeal. The majority disagreed with the dissent’s contention that the Court should engage in statutory interpretation when faced with a clear and unambiguous statute, requiring the plain meaning of the statute to control obviating the need for “judicial interpretation.” Id. at 21-28. The difference between these two approaches has far-reaching implications: engaging in statutory interpretation in the face of a clear and unambiguous statute would place the Court in the position of legislating from the bench, whereas allowing the plain meaning of the statute to control honors the separation between the legislative and judicial branches of government. As suggested by the majority, the Court should engage in statutory interpretation in situations where a statute is unclear and ambiguous.

The Court refused the invitation to address the constitutional issues raised for the first time on appeal. The Court reasoned that the Court of Chancery was not given an opportunity to develop the record and issue a ruling regarding these issues. Therefore, it was not plain error for the Court of Chancery to fail to rule on the takings issue. Id. at 28-31.

In a separate opinion issued the same day, the Supreme Court affirmed the Court of Chancery’s sanction award of $7.1M+ against Philip Shawe. It found that, on the record before it, the Court of Chancery committed no errors and acted within its discretion by awarding the sanction.

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Illinois Appellate Court Hands Down Cautionary Tale To Employers In Drafting Their Non-Compete Agreements http://www.shawfishman.com/shaillinois-appellate-court-hands-down-cautionary-tale-to-employers-in-drafting-their-non-compete-agreements/ http://www.shawfishman.com/shaillinois-appellate-court-hands-down-cautionary-tale-to-employers-in-drafting-their-non-compete-agreements/#respond Wed, 08 Feb 2017 23:53:25 +0000 http://www.shawfishman.com/?p=1204 They say “an ounce of prevention is worth a pound of cure” and that old adage recently held true in Illinois when the Appellate Court, in Reed v. Getco, LLC, 2016 IL App (1st) 151801, upheld an award of $1,000,000 for Zachariah Reed against his former employer, Getco, LLC, pursuant to the terms of that company’s non-compete agreement. While the agreement required Getco to pay Reed $1,000,000 in exchange for a six month post-employment non-competition period, the agreement also stated elsewhere that Getco, under certain circumstances, had the “sole and absolute discretion” to modify these same provisions. Here, following Reed’s resignation, Getco stated that it did not intend to enforce any non-competition restrictions and that Reed was free to work for any new employer immediately and without limitation. As a result, Getco also informed Reed that there would be no non-compete payment made to him. Clearly, the Appellate Court’s decision to uphold the $1,000,000 award against Getco under these circumstances was not the company’s intention. What caused this unintended windfall to Reed? A simple defect in the language of Getco’s non-compete agreement, which could have easily been avoided with proper drafting.

Non-compete Agreements: A Brief Overview

Entrepreneurs and business owners heavily invest their time and resources into starting, growing and maintaining their businesses and so it is understandable why they would want to protect all of that hard work. A commonplace way to protect those efforts is to have employees sign non-compete agreements as a condition of employment. In determining whether to uphold such agreements, Illinois courts will analyze whether the scope, duration and geographical restrictions are reasonably formulated to protect a former employer’s legitimate business interests.

One mechanism that can go a long way to satisfy a court’s potential reservations concerning such agreements is for the employer to pay a former employee to stay out of the marketplace for the length of time the employer believes is sufficient to protect its business interests. The reasoning behind this approach is to eliminate the employee’s claim of damages due to restrictions on post-termination employment and the ability to earn a living, since the employee is paid an amount equal to at least the amount of money he or she would have earned during that same time period if the employment relationship had not been terminated. This goal was Getco’s presumed intention for paying Reed $1,000,000 to stay out of the marketplace for six months under the agreement.

Reed v. Getco

While Reed received many offers from Getco’s competitors following his resignation, he voluntarily elected not to accept any offers until the six-month restriction period had expired. As a result, Reed argued, he had upheld his end of the bargain and was automatically entitled to the $1,000,000 payment. Both the lower court and the Appellate Court agreed with Reed based on the plain construction and express language of the agreement, as drafted by Getco.

Specifically, the agreement clearly required payment of the $1,000,000 in exchange for Reed not working for a competitor for six months. It was uncontested that Reed did not accept any employment offers until after the restriction period had expired. Under the agreement, Getco could stop the payment to Reed if he was in violation of the agreement, which Reed was not. Getco also had the “sole and absolute discretion” to modify the restrictions in the event that Reed requested an accommodation to ease those restrictions in light of prospective new employment. Reed made no such request. While the agreement did allow for a waiver or modification of its terms, no such waiver or modification was effective “unless made pursuant to a writing signed by the party against whom the waiver or modification is enforced (i.e. Reed).” Here, Getco’s desire to waive the restrictive period and the $1,000,000 payment was to no effect because Reed had never agreed to waive them in writing, as required by the agreement’s express language. The Appellate Court recognized that it could not cherry pick certain provisions of the agreement but, rather, was obligated to read the entire agreement as a whole and as written. Unfortunately for Getco, the non-compete agreement had not been carefully drafted to give the company the unrestricted, unilateral ability to waive the non-compete restrictions without Reed’s written agreement. As a result, Getco owed its former employee the $1,000,000 payment.

This case is a stark reminder that careful, competent drafting of non-compete agreements can go a long way in protecting your business while avoiding unintended and expensive consequences.   For more information about creating, reviewing, or updating your company’s non-compete agreements or other protective measures, please contact Genevieve Daniels at (312) 980-3865 or gdaniels@nullshawfishman.com.

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