Case Law Update

A help or hinderance?

On July 1, 2013, FASB issued exposure drafts calling for public commentary on three proposals that address private company stakeholder concerns. Two proposals involve accounting for identifiable intangible assets and goodwill acquired in business combinations. In this article, Mark Zyla analyzes the proposed changes, including potential concerns, and their far-reaching impact on the industry, as well as private and (in 2014) public companies.

Dash v. Mayweather
2013 U.S. App. LEXIS 19675
September 26, 2013
Judge Davis
United States Court of Appeals for the Fourth Circuit

Summary:

The district court properly granted defendants’ summary judgment on a copyright holder’s request for actual damages under 17 U.S.C.S. § 504(b), where an expert report’s estimation of the lost licensing fee was too speculative.  There was no evidence that the holder had ever sold, offered for sale, or licensed one of his song beats, and the holder’s song beat was not comparable to the benchmarks used in the report; [2]-the district court properly granted defendants’ summary judgment on a copyright holder’s request for profit damages, as the holder failed to present evidence that defendants’ revenues bore any causal link to the infringement.

 

Nuveen v. City of Alameda
2013 U.S. App. LEXIS 19319
September 19, 2013
Judge McKeown
United States Court of Appeals for the Ninth Circuit

Summary:

Securities fraud claims brought under the Securities Exchange Act of 1934 by investors in municipal bonds failed because the investors did not establish loss causation; the investors did not show a link between the city’s alleged misrepresentations regarding the risks of the bonds and the loss the investors suffered when the city sold the cable and Internet system financed by the bonds; [2]-Cal. Gov’t Code § 818.8 immunized the city from liability for misrepresentations sanctioned by the city, and the California Corporate Securities Act did not override that immunity; [3]-the city was not entitled to defense costs under Cal. Code Civ. Proc. § 1038(a) as the investors had reasonable cause to bring suit.  The judgment of the lower court was affirmed. 

 

WS&A Holdings v. Malino
2013 U.S. Dist LEXIS 134970
September 20, 2013
Judge Fox
United States District Court for the Southern District of New York

Summary:

Since a lender was a corporation’s creditor, and a holding company for the corporation’s assets was the lender’s designee, they had standing to assert a breach of fiduciary duty claim under Oklahoma law against the corporation’s officer, as that claim belonged to the corporation, not its creditors; [2]-since the corporation’s payment to its officer was reimbursement for expenses as provided for in his employment contract, it was not a fraudulent transfer under Okla. Stat. tit.  24, § 116(A) (2); [3]-for the same reason, it was not a fraudulent transfer under Okla. Stat. tit. 24, § 117(A); [4]-28 U.S.C.S. § 2201(a)’s express language, which barred federal courts from rendering a declaratory judgment as to federal tax liability. Thus, the lender and holding company’s request for a declaratory judgment against the director and officer for payment of tax arrears to the Internal Revenue Service (IRS) was baseless.

 

BSER Partnership v. United States
2013 U.S. Claims LEXIS 1452
September 30, 2013
Judge Braden
United States Court of Federal Claims

Summary:

The meaning of “intent to evade tax,” as that text is used in I.R.C. § 6501(c), is limited to instances in which the taxpayer has the requisite intent to commit fraud; [2]-because the government conceded that the taxpayers in this case did not have that intent, § 6501(a) governed the time period in which the IRS could assess federal tax by a final partnership administrative adjustment (FPAA) in this instance. That assessment must have taken place within three years, i.e., by 2003; [3]-notwithstanding concerns articulated by the government, the references in § 6501 to fraudulent intent were solely those of the “taxpayer,” and as such, the court had to interpret the plain and unambiguous meaning of the statute.

 

Friedberg v. Commissioner
T.C. Memo 2013-224
September 23, 2013
Judge Wells
United States Tax Court

Summary:

Because a decision by the Second Circuit in Scheidelman II specifically altered underlying law, the prior opinion here holding that taxpayers were not entitled to a charitable contribution deduction with respect to a facade easement was subject to reconsideration under U.S. Tax Ct. R. 161; [2]-the appraisal provided sufficient information to enable the IRS to evaluate its underlying methodology.  Accordingly, the appraisal included a method of valuation as required by Treas. Reg. § 1.170A-13(c)(3)(ii)(J) with respect to the facade easement and development rights, and a specific basis for the valuation as required by Treas. Reg. § 1.170A-13(c)(3)(ii)(K); [3]-because the appraiser signed an appraisal summary containing the necessary declaration, the appraiser was a qualified appraiser pursuant to Treas. Reg. § 1.170A-13(c)(5).

 

ASB Allegiance Real Estate Fund v. Scion Brekenridge
2013 Del. Ch. LEXIS 236
September 16, 2013
Judge Laster
Court of Chancery of Delaware

Summary:

In extensive litigation over three joint venture agreements, the promoter was entitled to legal fees and expenses for bad faith litigation conduct of the sponsor’s expert, because the expert produced conflicting information  that  was at odds with every real estate joint venture he had been involved in during 25 years of industry experience.  Further, the sponsor acted in bad faith by presenting and relying on his testimony; [2]-an award of fees and expenses was appropriate for the sponsor’s three-front federal litigation strategy because the sponsor did not file the actions for a legitimate purpose; [3]-an award of fees and expenses was not warranted for the pre-litigation silence by one of the sponsor’s principals about a drafting mistake in the parties’ agreements because the principal’s “knowing silence” fell short of “fraud or trickery” that constituted bad faith conduct.

Peter Agrapides is shareholder of Western Valuation Advisors, a Salt Lake City-based valuation advisory firm.