Business Litigation Blog

SEC: Possible insider trading fly in Heinz acquisition ointment


On behalf of Douglas F. Behm, Attorney at Law posted in Business & Commercial Law on Tuesday, February 19, 2013

One of the most notable slogans for Heinz ketchup may be, “Good things come to those who wait.” And many of our Arizona readers may be able to recall how the song “Anticipation” was once used in ads to highlight the value of that tasty wait.

Federal regulators say they suspect there are some in the business world who lacked critical patience in connection with the recent announced acquisition of the H.J. Heinz Company. Officials of the Securities and Exchange Commission say they’ve launched a probe into possible insider trading in connection with the purchase by Berkshire Hathaway and Brazil’s 3G.

Authorities say they believe a brokerage in Switzerland was used to place trade orders on Wednesday of last week — the day before the acquisition deal was announced. Shares rose 20 percent when the announcement was made and officials say whoever was behind the particular trades in question made more than a $1.5 million. Authorities say the trades focused on call options — a vehicle that lets traders pledge to buy stock in a company at a set price on the speculation that the stock’s value will increase beyond that set price for some reason.

A statement from the SEC says it became suspicious because the account that was used hadn’t touched Heinz securities for nearly half a year before Wednesday’s activity. A spokesman says someone must have known something to trigger the trading.

The SEC says there is no allegation of wrongdoing by Berkshire or 3G and that the probe won’t derail the acquisition. The suspect account has been frozen by court order. Representatives of the Zurich bank that hosts the account say they are cooperating with investigators.

Securities fraud charges can carry severe penalties if convictions are obtained. Anyone facing such charges should not face them without the benefit of experienced legal counsel.

Source:, “SEC alleges insider trading ahead of Heinz deal,” Christopher S. Rugaber and Candice Choi, AP, Feb. 15, 2013

Posted in Uncategorized | Tagged , , , |

Judge rejects tribe’s plea to overturn breach of contract finding


On behalf of Douglas F. Behm, Attorney at Law posted in Contract Disputes on Wednesday, February 13, 2013

There is an impression in some corners that if someone enters into a contract with Native American tribes they face the possibility of having the legal rug pulled out from under them if the tribe decides to scrub the deal by invoking its position as a sovereign nation. A decision by a federal judge this week suggests the risk isn’t as great as might be thought.

The judge rejected arguments that had been floated by the Hualapai Tribe of northern Arizona in its effort to wrest management control of the Grand Canyon Skywalk. As a result of the court’s decision, the tribe is looking at having to pay more than $28 million to a Las Vegas developer for breach of contract.

For readers who may not know, the skywalk is a horseshoe shaped glass bridge near the Grand Canyon National Park that extends out over the canyon and gives tourists a sense that they’re suspended in midair about two-thirds of a mile above the Colorado River.

Back in 2003 a Las Vegas developer put up $30 million to create the bridge. He also has handled management of the site. The attraction draws about 300,000 people every year.

From what appears to have been almost from the outset, the tribe and the developer have been at odds over the terms of the management contract. The developer took the tribe to arbitration and the arbitrator ruled in his favor. The matter ended up going to federal court after the tribe refused to acknowledge the award.

In court, the tribe argued that the arbitrator lacked jurisdiction and asked that the award be rejected. It also argued that the award violated a $250,000 maximum ceiling for the tribe on any liability. The judge said none of those claims were backed up in the agreement the tribe had signed with the developer and that the tribe had waived its sovereign immunity rights.

The ruling leaves the tribe in the position of having to decide whether to press the case through further appeal. As for the developer, his attorney says he’ll consider setting up a payment plan based on future Skywalk ticket sales.

Source: Insurance Journal, “Courts Upholds $28 Million Award in Grand Canyon Skywalk Case,” Felicia Fonseca, Feb. 13, 2013

Posted in Uncategorized | Tagged , , , |

AZ joins regulator action against S&P derivative credit ratings


On behalf of Douglas F. Behm, Attorney at Law posted in Regulatory Compliance on Friday, February 8, 2013

There is no shortage of targets in regulator’s crosshairs when it comes to the Great Recession. Some of the major banks settled earlier with federal and state officials on a plan to help victims of out-of-control foreclosure action.

Standard & Poor’s now has the regulator laser beam on its chest and Arizona is among the 13 states that have joined the federal government’s hunt. The Securities and Exchange Commission is also investigating the company and may be looking into other credit rating firms as well.

The core allegation in the case is that the credit rating company violated regulatory rules by knowingly tagging derivative mortgage bundles as being safer credit risks than they were. The claim is that S&P’s behavior amounted to fraud and helped plunge the nation into an economic tailspin.

Negotiations to come to some sort of agreement and to avoid litigation had been in the works between federal officials and S&P, but they fell apart under the credit rating firm’s refusal to buckle to prosecution provisions that they admit wrongdoing and pay some $1 billion in penalties.

The Arizona case filing occurred this week in Maricopa Superior Court. The basis of the state’s case is the Arizona Consumer Fraud Act. That law labels as fraud any deception, misrepresentation or hiding of material facts when selling or advertising goods, property, investments or services.

Arizona Attorney General Tom Horne isn’t able to put an exact dollar figure on the losses suffered in the state. He estimates they were in the hundreds of millions of dollars. He alleges that S&P misled investors, state and federal regulators and other stakeholders in ways that immeasurable harm.

S&P says all the legal action is without merit. It says it did nothing wrong. Considering its size, it would seem likely that its regulatory compliance standards would be well established and regularly audited to be sure they are up to date with the changes that are always taking place. That’s a precaution that nearly all companies and organizations might benefit from taking.

Source: Phoenix Business Journal, “Arizona, other states sue Standard & Poor’s over ratings on mortgage investments,” Kristena Hansen, Feb. 5, 2013

Posted in Uncategorized | Tagged , , |

Financing delays could mean Phoenix Coyotes business disputes


On behalf of Douglas F. Behm, Attorney at Law posted in Business Litigation on Thursday, January 31, 2013

Business can be a complicated endeavor. That’s true whether you are a small proprietor trying to get something up and running in Phoenix or a larger player in the greater Phoenix marketplace. The path to success can be rife with legal risks and issues that can waylay an entrepreneur’s plans. Negotiations are a given and business litigation is always possible.

While disputes can sometimes spell the end of one man’s vision, they sometimes create new opportunities. That appears to be what is happening in connection with the Phoenix Coyotes National Hockey League franchise. It’s been under NHL management since being taken into bankruptcy in 2009. Former San Jose Sharks CEO Greg Jamison has been trying to buy the team but has run into trouble.

A number of issues face Jamison. He’s had some difficulty getting the needed investments into place so that he can complete the purchase of the team. Because of that, a new glitch has appeared. A lease agreement he arranged with the City of Glendale for a venue is reportedly set to expire today, which could leave the team with no place to play.

Media reports, citing an unidentified NHL official, say that the $324 million, 20-year lease deal carried a Jan. 31 deadline for execution, and it appears unlikely that Jamison will be able to close the purchase and meet the lease deadline.

Glendale’s mayor is on record as saying that he’s open to renegotiating the lease deal, but he won’t extend the current terms. By letting the deadline lapse, the city has an opening to negotiate with any other possible buyers of the Coyotes franchise.

As this set of developments shows, business can be a complicated enterprise. There are a lot of balls to keep in play and it takes experience to bring all the different elements into line for a successful conclusion. Solid legal counsel can help.

Source: Bloomberg Businessweek, “Coyotes’ deal in Glendale could be in trouble,” John Marshall, Associated Press, Jan. 31, 2013

Posted in Uncategorized | Tagged , , |

Arizona city ranks eighth for business, population growth


On behalf of Douglas F. Behm, Attorney at Law posted in Business & Commercial Law on Wednesday, January 23, 2013

When it comes to business growth, Arizona readers might think of places like Silicon Valley, the oil-producing states, or Wall Street. However, according to a recent ranking of America’s fastest growing cities, Phoenix placed eighth.

Using data from Moody’s Analytics, the ranking factored in several metrics: population growth, job growth, gross metro product growth, unemployment data, median salaries. The resulting list ranks the twenty fastest growing American cities in terms of population and economy.

According to the data, Arizona is receiving new residents, particularly individuals in their twenties or thirties. The state’s job market may also be making a comeback, especially in construction, the service sector, healthcare and warehousing.

The influx of younger talent may also signal a new wave of startup companies or other entrepreneurial ventures. According to one expert, however, startups should not be viewed as smaller versions of large companies. Rather, such ventures often spend their first year searching for a business model — as well as ways to attract private capital.

Startups also require sound legal planning. A startup venture will have to make many decisions in matters like entity selection and protection of intellectual property through copyright, trademark or other methods. Those decisions, in turn, will impact how the business operates, pays its taxes and divides its profits.

For new Arizona residents who are starting their own business, an attorney will prove to be a valuable resource in matters of drafting contracts and entity selection. An attorney can also advise business operators on which business entity best suits their goals, and ensure that intellectual property assets are protected against potential business disputes.

Source: Forbes, “America’s Fastest Growing Cities,” Morgan Brennan, Jan. 23, 2013

Posted in Uncategorized | Tagged , , , , , |

Landmark Phoenix church seeks cost redemption in contract dispute


These are tough days for a lot of churches. It doesn’t matter what the denomination is. The trend away from regular church attendance has a way of diminishing collections, which in turn eats into a church’s operating budget. Trying to maintain a presence that is viable can be difficult. It doesn’t get any easier if the contracted work doesn’t get finished. For one landmark Phoenix church, that set of circumstances has led to a breach of contract lawsuit.

The claim is being made by Central United Methodist Church. That’s the white edifice at the corner of Central and East Palm Lane. The basis of the claim is a 2009 construction contract. Back then, the church reportedly signed a deal for a major project that was to involve a remodel of the sanctuary and the installation of a new organ.

The church claims it has paid out more than $1.2 on the contract that was only supposed to be for $1.1 million, and contractor has abandoned the unfinished job following a request for more money that was rejected. Last month, the church went to court to sue the contractor and the architect for breach of contract.

Making this case a little stickier, perhaps, is evidence that the contractor, Level 4 LLC, is no longer in business. Its licenses have expired or are reported cancelled. That hasn’t stopped the civil action, however. The church has named a number of the former principals of the company seeking restitution.

One of the things that this story reflects is the importance of obtaining contracts when engaging in any sort of transaction. Imagine how much more difficult this matter might be if no terms had ever been put in writing in the first place.

Another thing this item points to is that there is recourse available when contract disputes arise. They don’t always end up going to court. But resolution should never be pursued without solid legal counsel.

Source: Phoenix Business Journal, “Phoenix’s Central United Methodist Church sues contractor after $1.2M project goes awry,” Mike Sunnucks, Jan. 9, 2013,

Posted in Uncategorized | Tagged , , , |

Businessman scrubs fraud charge plea deal, opts for trial instead


On behalf of Douglas F. Behm, Attorney at Law posted in Regulatory Compliance on Friday, January 11, 2013

Development of online commerce has presented new challenges to those tasked with trying to enforce state and federal regulations. The laws are constantly in a state of flux, expanding and becoming more complicated as new, unexpected, channels of commerce are created and leveraged.

As new methods of trade and business are found, government responds with new rules or efforts to apply old ones in new ways to address suspected fraud. Each twist and turn leaves Arizona businesses struggling to know what they have to do to be in compliance. This is one reason why it’s so important to have confidence provided by an experienced regulatory compliance attorney.

Perhaps that is something that a Utah business man is coming to appreciate now. Readers may already be familiar with his case since part of his story unfolded in Phoenix.

The focal point of the case is Jeremy Johnson, a man who has a reputation as a great philanthropist. Prosecutors also accuse him of mail fraud using his online marketing business to collect $350 million from consumers. The government says he charged clients for products they never ordered.

Johnson was arrested in Phoenix in 2011. Authorities suggest he was in the process of fleeing the country when he was taken into custody. He was scheduled to enter a guilty plea to one count of mail fraud today under an agreement with federal prosecutors, but word following a hearing is that the deal has collapsed. Apparently, there was disagreement over a list of people Johnson wanted to protect from possible prosecution.

Johnson says he now wants to maintain his not guilty plea and seeks to prove his innocence. The case is set to go to trial. Meanwhile, prosecutors say they will file a new indictment related to the case sometime in the next 30 days.

In addition to the criminal charge against him, Johnson is named along with nine others in civil litigation by the Federal Trade Commission.

Johnson remains free on $2.8 million bond.

Source: WGCL-TV, “Utah businessman’s mail fraud case going to trial,” Michelle L. Price, Associated Press, Jan. 11, 2013

Posted in Uncategorized | Tagged , , |

‘Underwater’ real estate holders get tax reprieve extension


On behalf of Douglas F. Behm, Attorney at Law posted in Business Litigation on Friday, January 4, 2013

The last-minute passage of legislation to avoid the so-called “fiscal cliff” seems to have a little bit of something for everyone. But, as most pundits in Arizona and the rest of the country acknowledge, the action taken is only a small step in a longer journey toward more fiscal stability in the country.

One of the significant segments of the population that will likely benefit from action that was taken are those who suffer from real estate with underwater mortgages. Many residential and commercial property owners across Arizona and the nation remain strapped by the fact that the mortgages owed are greater than the properties current values.

In the past this has prompted an array of real estate litigation involving mortgage deficiency actions. And had Congress not decided to include an extension of the Mortgage Forgiveness Debt Relief Act in the recent fiscal cliff action, a lot of property owners might be in for a major tax hit.

The Mortgage Forgiveness Debt Relief Act was a bill that became law in 2007. It gives mortgage holders with underwater properties the ability to avoid paying taxes on deficiency amounts if they wind up obtaining mortgage modifications or succeed in unloading a property through a short sale. The law was set to expire Dec. 31, 2012, and had that happened, struggling property owners would have faced tax liabilities — some of perhaps tens of thousands of dollars. As it is, the law was extended.

The full implication of the extension may be hard to gauge. Certainly, there are enough distressed properties remaining in the marketplace that legal proceedings and litigation will likely continue. But at least the question of tax liability for those who are suffering has been addressed, leaving some market watchers to predict that the housing recovery, slow as it is, will not suffer a setback.

Source: Sun Sentinel, “Mortgage debt relief law extended through 2013,” Paul Owers, Jan. 2, 2013

Posted in Uncategorized | Tagged , , , |

Developer with Arizona links ordered to prison


On behalf of Douglas F. Behm, Attorney at Law posted in Regulatory Compliance on Wednesday, December 26, 2012

Real estate is an industry that is subject to a great deal of regulation. The legal strictures that have been established are a recognition that here in Arizona and the rest of the country, real estate represents a bedrock asset that is attractive to nearly everyone.

When regulators suspect wrongdoing, they do not shy away from bringing the full weight of the law to bear. The penalties that can result in the event of conviction can be harsh and warrant the strongest possible defense should a person be the target of regulatory violations.

A man with apparent links to real estate development efforts in Arizona is facing just such issues now. A federal judge in Alabama recently sentenced the 44-year-old man to 27 months behind bars for conspiracy and wire fraud in connection with an alleged fraudulent land development scheme. That’s on top of a six-year sentence that was issued by a state court on Dec. 3 for securities fraud.

According to prosecutors, the man and a partner based in Utah used forged documents to get nearly $1.5 million in funds from investors for a non-existent industrial park project. Prior to that, the two allegedly received $17 million in bank loans for a townhome project that collapsed. Prosecutors claim the two individuals ran similar operations in sites around the world, including Arizona.

Running afoul of regulatory agencies, whether they are at the federal, state or local levels, is not something to take lightly. The rules businesses must abide by and comply with are always expanding and becoming more complex. To avoid problems, it is always best for legitimate entrepreneurs to consult with experienced legal counsel to ensure they can avoid issues from occurring or correct them if they arise.

Source: Florida Today, “Indian Harbour Beach developer will spend 6 years in prison,” Rick Neale, Dec. 19, 2012

Posted in Uncategorized | Tagged , , |

Why top employees leave


On behalf of Douglas F. Behm, Attorney at Law posted in Contract Disputes on Saturday, December 15, 2012

It’s common for successful businesses to tout their employee development programs. They are usually built on principles of unlocking potential and helping workers become more efficient and effective. Business executives often believe that their programs are stellar, and that the best talent rises to the top of their organizations.

With every successful business, there is the unfortunate underbelly of disgruntled employees who believe their contributions are not recognized. They are stymied in meager roles or feel their ideas are not respected. A recent Forbes article illustrated this point with startling percentages of employees who were largely unhappy with how they were treated by their employers.

The following is a sample of why they were dissatisfied, and more likely to leave their employers for greener pastures.

Failing to engage creativity – Great employees contribute by incorporating their creativity to process improvements and technical innovations. Employers who fail to engage their employees’ creativity do so at their own peril.

Restricting growth – Smart employees will always need new challenges or they will succumb to boredom. When leadership fails to allow room for growth and development, employees will move on.

Limiting responsibility – In the same vein of restricting growth, limiting employees’ responsibility (an autonomy) will also limit their upward mobility. If they feel like there’s no room for increased responsibility, they will look for a way out.

Losing trust – The old adage “promises made are worthless, but promises kept are invaluable” holds true here. Breaking the trust of valued employees will undoubtedly leave to an employee’s departure.

Ultimately, an employee development program will address these issues and help employers avoid potential lawsuits as well.

Source,, 10 Reasons Your Top Talent Will Leave You, November 13, 2012

Posted in Uncategorized | Tagged , |