Economic Theory Shows that People Will Make Choices that Worsen the Pandemic

NEIL H. BUCHANAN

UF Levin College of Law professor and economist Neil H. Buchanan points out some of the ways in which congressional Republicans misunderstand economics to justify withholding unemployment payments from Americans during the COVID-19 pandemic. Buchanan argues that economic theory soundly demonstrates that given the opportunity, people will make choices that worsen the toll of the pandemic.

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Sherwin Williams Co. v. County of Delaware

Court: US Court of Appeals for the Third Circuit

Docket: 19-3561

Opinion Date: July 31, 2020

Judge: Hardiman

Areas of Law: Business Law, Civil Procedure, Civil Rights, Constitutional Law, Government & Administrative Law, Legal Ethics

Two counties sued Sherwin-Williams in state court, seeking abatement of the public nuisance caused by lead-based paint. Anticipating suits by other counties, Sherwin-Williams sued in federal court under 42 U.S.C. 1983. Sherwin-Williams claimed that “[i]t is likely that the fee agreement between [Delaware County] and the outside trial lawyers [is] or will be substantively similar to an agreement struck by the same attorneys and Lehigh County to pursue what appears to be identical litigation” and that “the Count[y] ha[s] effectively and impermissibly delegated [its] exercise of police power to the private trial attorneys” by vesting the prosecutorial function in someone who has a financial interest in using the government’s police power to hold a defendant liable. The complaint pleaded a First Amendment violation, citing the company’s membership in trade associations, Sherwin-Williams’ purported petitioning of federal, state, and local governments, and its commercial speech. The complaint also argued that the public nuisance theory would seek to impose liability “that is grossly disproportionate,” arbitrary, retroactive, vague, and “after an unexplainable, prejudicial, and extraordinarily long delay, in violation of the Due Process Clause.” The Third Circuit affirmed the dismissal of the suit. Sherwin-Williams failed to plead an injury in fact or a ripe case or controversy because the alleged harms hinged on the County actually filing suit.

Ixchel Pharma, LLC v. Biogen, Inc.

Court: Supreme Court of California

Docket: S256927

Opinion Date: August 3, 2020

Judge: Goodwin Liu

Areas of Law: Business Law, Contracts

The Supreme Court held that tortious interference with at-will contracts requires independent wrongfulness and that a rule of reason applies to determine the validity of a settlement provision requiring Forward Pharma to terminate its agreement with Ixchel Pharma, LLC under Cal. Bus. & Prof. Code 16600. Ixchel, a biotechnology company, entered into an agreement with Forward jointly to develop a drug for the treatment of Friedreich's ataxia. Forward later withdrew from the agreement, which was allowed by the agreement's terms. Pursuant to a settlement with Biogen, Inc., another biotechnology company, Forward agreed to terminate its contract with Ixchel. Ixchel sued Biogen in federal court for tortiously interfering with Ixchel's contractual and prospective economic relationship with Forward in violation of section 16600. On appeal, the federal appeals court certified two questions to the Supreme Court. The Supreme Court held (1) tortious interference with at-will contracts requires independent wrongfulness, and therefore, Ixchel must allege that Biogen interfered with its at-will contract through wrongful means; and (2) the validity of the settlement provision at issue must be evaluated based on a rule of reason.

Granny Purps, Inc. v. County of Santa Cruz

Court: California Courts of Appeal

Docket: H045387(Sixth Appellate District)

Opinion Date: August 5, 2020

Judge: Adrienne M. Grover

Areas of Law: Business Law, Drugs & Biotech, Real Estate & Property Law, Zoning, Planning & Land Use

Granny Purps grows and provides medical marijuana to its 20,000 members, in compliance with state laws governing the production and distribution of marijuana for medical purposes. Santa Cruz County’s ordinance prohibits any medical cannabis operation from cultivating more than 99 plants; Granny’s dispensary was growing thousands of marijuana plants. The sheriff’s office went to the dispensary in June 2015, seized about 1,800 plants, and issued a notice of ordinance violation. Several months later, officers again went to the dispensary and took about 400 more marijuana plants. Granny sued, alleging conversion, trespass, and inverse condemnation and sought an order requiring the county to return the seized cannabis plants, The trial court dismissed. The court of appeal reversed. A government entity does not have to return seized property if the property itself is illegal but the Santa Cruz ordinance ultimately regulates land use within the county; it does not (nor could it) render illegal a substance that is legal under state law.

Graylee v. Castro

Court: California Courts of Appeal

Docket: G057901(Fourth Appellate District)

Opinion Date: August 4, 2020

Judge: Moore

Areas of Law: Business Law, Civil Procedure, Contracts, Landlord - Tenant

Defendants-tenants John and Rosa Castro (the tenants) leased a residential property from plaintiff-landlord Fred Graylee. The landlord brought an unlawful detainer action against the tenants, alleging they owed him $27,100 in unpaid rent. The day of trial, the parties entered into a stipulated judgment in which the tenants agreed to vacate the property by a certain date and time. If they failed to do so, the landlord would be entitled to enter a $28,970 judgment against them. The tenants missed their move-out deadline by a few hours and the landlord filed a motion seeking entry of judgment. The trial court granted the motion and entered a $28,970 judgment against the tenants under the terms of the stipulation. The tenants appealed, arguing the judgment constituted an unenforceable penalty because it bore no reasonable relationship to the range of actual damages the parties could have anticipated would flow from a breach of the stipulation. To this, the Court of Appeal agreed, and reversed and remanded this matter for further proceedings.

Spanakos v. Page, et al.

Court: Delaware Supreme Court

Docket: 532, 2019

Opinion Date: July 31, 2020

Judge: Montgomery-Reeves

Areas of Law: Business Law, Civil Procedure, Corporate Compliance

Since 2010, appellant Mark Spanakos has tried to gain control over and revive Hawk Systems, Inc., a void Delaware corporation, by filing a series of direct and derivative actions in Florida against former Hawk Systems insiders and taking several steps outside of court to establish himself as the Company’s majority stockholder and sole director. Spanakos was successful in his direct Florida litigation, having won a Partial Final Judgment in one action and favorable Summary Judgment rulings in another. Spanakos’s derivative claims in the third Florida action, however, were stayed to allow Spanakos to clarify his standing to pursue those claims. Accordingly, in 2018 Spanakos filed suit in the Delaware Court of Chancery seeking: (1) a declaration that he controlled a majority of the voting shares of Hawk Systems and that he was the validly elected, sole director and officer of Hawk Systems; or (2) in the alternative, an order compelling the company to hold an annual election of directors under 8 Del. C. sections 223(a) and 211(c). Following a trial, briefing, and post-trial argument, the Court of Chancery denied both of Spanakos’s requests for relief, ruling that he had not carried his burden of proof to obtain any of the relief that he sought. On appeal, Spanakos argues that the Court of Chancery abused its discretion when it declined to order a stockholders’ meeting for the election of directors despite the fact that Spanakos satisfied the elements of Section 211. Having reviewed the record on appeal and the court’s opinion below, the Delaware Supreme Court found the Court of Chancery did not abuse its discretion when it declined to compel a stockholders’ meeting given the unique facts of this case.

Applied Energetics, Inc. v. Farley

Court: Delaware Court of Chancery

Docket: C.A. No. 2018-0489-JTL

Opinion Date: August 3, 2020

Judge: Laster

Areas of Law: Business Law, Contracts

The Court of Chancery granted in part and denied in part the motion for partial summary judgment filed by Applied Energetics, Inc. (the Company) on its claims against George Farley, the Company's former director and principal executive officer, and AnneMarieCo, LLC, holding that Farley lacked authority to issue himself twenty-five million shares and grant himself an annual salary of $150,000 per year but that the Company was not entitled to summary judgment on Farley's counterclaims. The Company asserted several claims based on Farley's actions. Farley filed counterclaims against the Company for breach of contract, for unjust enrichment, and to validate his actions under section 205 of the Delaware General Corporation Law. The Company moved for partial summary judgment. The Court of Chancery granted the motion in part and denied it in part, holding (1) because Farley was the Company's sole remaining director when he issued himself stock and granted himself compensation, Farley's actions were invalid; (2) because the Company had the corporate power to issue shares and compensate its officers and directors Farley's acts could be validated under section 205; (3) the Court had the power to validate Farley's decision to grant himself a salary; and (4) evidence could support Farley's claim for compensation under a theory of quantum merit.

Cianchette v. Cianchette

Court: Maine Supreme Judicial Court

Citation: 2020 ME 101

Opinion Date: August 4, 2020

Judge: Andrew M. Mead

Areas of Law: Business Law, Contracts

The Supreme Judicial Court affirmed the judgment of the superior court in favor of Tucker Cianchette and CBF Associates, LLC (collectively, Tucker) and against Peggy Cianchette, Eric Cianchette, PET, LLC and Cianchette Family, LLC (collectively, Peggy and Eric) on Tucker's claims against Peggy and Eric and on Peggy and Eric's counterclaim against Tucker, holding that the superior court did not err in clarifying that post-judgment interest began to run on March 15, 2018. In this second appeal before the Supreme Court, the parties sought resolution of two legal issues regarding post-judgment interest: (1) whether the trial court had jurisdiction to issue an order on post-judgment interest, and (2) on what date prejudgment interest ceased and post-judgment interest began to accrue. The Supreme Judicial Court held (1) the trial court had authority to act and did not abuse its discretion in clarifying its judgments to resolve the parties' uncertainty surrounding post-judgment interest; and (2) post-judgment interest did not begin to run until the court entered the final judgment on March 15, 2018.

Lembo v. Marchese

Court: Supreme Court of New Jersey

Docket: a-92-18

Opinion Date: June 17, 2020

Judge: Barry T. Albin

Areas of Law: Banking, Business Law, Civil Procedure

Dr. Dominick Lembo employed Arlene Marchese in his dental practice as his office manager, and Karen Wright, a dental hygienist. Sometime before December 2011, Marchese and Wright unlawfully took possession of numerous checks totaling several hundred thousand dollars, forged Lembo’s indorsement on the checks, and deposited the proceeds from the forged checks into their personal accounts at TD Bank. In February 2015, Lembo filed a complaint against TD Bank, alleging that “TD Bank knew or should have known that Marchese and/or Wright were not permitted to negotiate checks made payable to [Lembo].” The complaint also alleged that by permitting them to negotiate checks with forged indorsements, TD Bank “aided and abetted Marchese and Wright in their fraudulent scheme and conduct.” The complaint did not assert that Lembo had a banking relationship with TD Bank. And Lembo did not file an action for conversion under the Uniform Commercial Code (UCC) within the three-year limitations period. Had Lembo done so, TD Bank would have been strictly liable for depositing or cashing those checks, subject to the defenses in N.J.S.A. 12A:3-405 or N.J.S.A. 12A:3-406. The trial court granted the Bank's motion to dismiss, finding that the UCC governed Lembo's remedies against the Bank, and “common law negligence is not such a remedy” in the absence of a “special relationship” between Lembo and the bank. The court also rejected Lembo’s argument that the Uniform Fiduciaries Law (UFL) provided an affirmative cause of action against the bank. The Appellate Division reversed, reading into the complaint the basis for an affirmative UFL claim, and remanded to allow Lembo to amend the complaint to assert such a claim. The New Jersey Supreme Court concluded the Appellate Division misconstrued the purpose of the UFL, finding the Legislature enacted the UFL not to create an affirmative cause of action against a bank but to provide a defense when the bank is sued for failing to take notice of and action on the breach of a fiduciary’s obligation. "The UFL confers a limited immunity on a bank, unless the bank acts in bad faith or has actual knowledge of a fiduciary breach." The Supreme Court found no affirmative cause of action arose under the statute; whether a UFL claim was adequately pled was therefore moot. Recognizing the predominant role the UCC plays in assigning liability for the handling of checks, the Supreme Court also found Lembo had no “special relationship” with the bank to sustain the common law causes of action.

Sutton et al. v. Vermont Regional Center et al.

Court: Vermont Supreme Court

Citation: 2019 VT 71

Opinion Date: July 31, 2020

Judge: Beth Robinson

Areas of Law: Business Law, Government & Administrative Law, Securities Law

Plaintiff-investors appealed the dismissal of their claims against the Vermont Agency of Commerce and Community Development (ACCD) and current and former state employees arising from the operation of a federally licensed regional center in the United States Customs and Immigration Services (USCIS) EB-5 program. USCIS designated ACCD as a regional center in 1997, and ACCD began operating the Vermont Regional Center (VRC). It was not the only state-affiliated regional center, but it was the only one that represented itself as a “state-run agency.” The VRC billed itself as an attractive option for development and foreign investment due to its superlative “oversight powers,” the overwhelming investor confidence that came from its “stamp of approval,” and the State of Vermont’s backing that would result in a “faster path to approval.” ACCD employees represented to prospective investors, including plaintiffs, that the added protections of state approval and oversight made the "Jay Peak Projects" a particularly sound investment. They told prospective investors that the VRC conducted quarterly reviews to ensure that projects complied with all applicable laws and regulations and “engag[ed] in the financial monitoring and auditing of projects to ensure legitimacy,” and they represented that MOUs imposed “strict covenants and obligations on the project to ensure compliance with all applicable laws and regulations.” Unbeknownst to the investors, but known to the VRC officials, no such state oversight by the VRC existed. The VRC never issued any of the quarterly reports contemplated in the MOUs. In April 2016, the U.S. Securities and Exchange Commission filed a lawsuit alleging securities fraud, wire fraud, and mail fraud against the Jay Peak Projects developers. On the basis of these and other allegations, plaintiffs, all foreign nationals who invested in the Jay Peak Projects, filed a multi-count claim against ACCD and several individual defendants. The trial court granted plaintiffs’ motion to amend their complaint for a third time to a Fourth Amended Complaint, and then dismissed all thirteen counts on various grounds. Plaintiffs appealed. After review, the Vermont Supreme Court reversed the dismissal of plaintiffs’ claims of negligence against ACCD, gross negligence against defendants Brent Raymond and James Candido, and breach of contract and the implied covenant of good faith and fair dealing against ACCD. The Court affirmed the dismissal of plaintiffs' remaining claims.