In 2016, the pharmaceutical company Merck won a $200 million jury verdict against its competitor Gilead, based on Merck’s claim that Gilead infringed Merck’s drug patents. But three months later the judge completely barred Merck from enforcing its patents against Gilead, after concluding that Merck had “unclean hands” as a result of a “pervasive pattern of misconduct” that included “lying,” unethical business conduct,” and “litigation misconduct.” The $200 million verdict vanished in a puff of smoke. That result was affirmed by a federal circuit court of appeals in April 2018, and in January 2019 the United States Supreme Court declined to review the circuit court’s decision, leaving Merck out in the cold with its unclean hands and without its money. What are unclean hands? And how can they cost $200 million?
My previous discussion of the Minnesota Court of Appeals’s opinion in the Lund litigation (here, here, and here) noted that on February 12, 2019, the Lund defendants filed a petition asking the Minnesota Supreme Court to review the decision of the Court of Appeals. On March 27, 2019, the Supreme Court declined to do so. Accordingly, the Court of Appeals’s opinion will remain the final word on the issues it addresses, at least as far as Lund goes. Only time will tell whether, and how, the appellate courts will develop or modify Lund‘s answers concerning the questions Lund addressed about shareholder oppression, the reasonable expectations of shareholders in closely-held businesses, business fair value, and claims against trustees.
In December 2014, Kim Lund, one of four siblings who shared beneficial ownership of Minnesota’s Lund grocery empire, filed a lawsuit against her brother Tres Lund (the CEO of the business entities), the entities themselves, two directors, and a co-trustee of one of Kim’s trusts. In the action Kim sought to divest her Lund business entity interests, and the court decided it would order a buyout. After a trial in February 2017, the district judge entered an order valuing Kim’s business interests and resolving Kim’s request for the removal of certain trustees from her trusts. The district judge’s decision was appealed. On January 14, 2019, the Minnesota Court of Appeals decided the appeal. The Lund appellate opinion touches numerous issues of interest in Minnesota minority shareholder and trust litigation. This post considers the appellate fate of Kim’s claims against the trustees of her trusts. * * * * * Along with her shareholder oppression claims, Kim also asked the Hennepin County court to grant her relief concerning co-trustees who managed trusts that owned Kim’s beneficial shares of the Lund business entities. Kim alleged two co-trustees, attorney Stanley Rein and her brother Tres Lund, had breached their fiduciary duties, and she wanted the court to remove Tres and Rein as trustees. No harm, no foul. The trial court rejected Kim’s claims against Tres and Rein for breach of fiduciary duty. The Court of Appeals, without even discussing the wrongdoing that Kim alleged, agreed. Kim had failed to challenge the trial court’s determination that she offered no evidence of damages, and damages are an essential element of a breach of fiduciary duty claim. Without showing damages, a plaintiff cannot prevail on a breach of fiduciary duty claim, no matter what bad acts the defendant did or did not …
How many times have you agreed to “binding arbitration” in case of a dispute over a product you bought or a service you signed up for? Whether you know it (because you conscientiously read contracts before signing them) or not (you don’t), there’s a good chance your answer should be “a lot.” Arbitration provisions now crop up all over the place, from the terms for computer software to cable TV contracts to bank checking and savings accounts agreements to the purchase agreement for a new car. Arbitration clauses commonly appear in commercial contracts and professional services agreements. They might be included in a shareholder agreement for a closely held company. Sometimes they are used in places they aren’t supposed to be used. What does an arbitration agreement accomplish?
The National Football League won two high-profile legal battles against superstar players in 2016, in both cases winning on appeal after a federal district court judge ruled against them. The legal considerations that proved decisive in the Tom Brady and Adrian Peterson cases were not particularly complicated or new, and without celebrity and salient secondary issues swirling around them, the cases would neither have received nor deserved much attention. But they do provide excellent examples of the process by which American courts handle an arbitration award.