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CALIFORNIA CORPORATE & SECURITIES LAW

Agreement To Arbitrate “Any Disputes” Doesn’t Reach Derivative Claims

Corn v. Superior Court, 2016 Cal. App. Unpub. LEXIS 6182 (Cal. App. 2d Dist. Aug. 22, 2016) is a case about the meaning of one sentence in a settlement agreement consisting of just seven words – “The Parties agree to arbitrate any disputes”.  The precise question was whether these seven words barred the petitioner from instituting a derivative action.  The real parties in interest argued that an individual is capable of waiving his or her rights to bring a derivative action.  The petitioner argued, among other things, that the settlement agreement did not apply to his derivative claims.  The trial court agreed with the petitioner and issued an order compelling arbitration.

The Second District Court of Appeal disagreed.  Writing for the court, Justice Lamar W. Baker noted that while the entity must be joined as a nominal defendant in a derivative action, it is the only party that benefits from any recovery.  Thus, the Court found that the derivative claims in petitioner’s lawsuit were not between him and the company but between the company and the other defendants.  Justice Baker emphasized that petitioner could contract away his right to institute a derivative action but that would have required different language in the settlement agreement.  Thus, he distinguished Elf Atochem North America, Inc. v. Jaffari, 727 A.2d 286 (Del. 1999) on the basis that the waiver in that case applied to any claim “instituted” by a member.

Corn is an unpublished opinion.  Under Rule 8.115(a) of the California Rules of Court, an unpublished opinion, with certain exceptions, “must not be cited or relied on by a court or a party in any other action”.

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