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CALIFORNIA CORPORATE & SECURITIES LAW

Officers Of Foreign Corporations And The California Courts

Yesterday’s post concerned Section 2116 of the California Corporations Code.  Courts sometimes describe Section 2116 as codifying the internal affairs doctrine.  See, e.g., Vaughn v. LJ Internat., Inc., 174 Cal. App. 4th 213, 223 (2009) and Voss v. Sutardja, 2015 U.S. Dist. LEXIS 8795 (N.D. Cal. Jan. 26, 2015).  To the extent that Section 2116 codifies the internal affairs doctrine, it does so only incompletely as it refers only to directors.   The Supreme Court, however, has taken a broader view of the doctrine, extending it to officers and shareholders:

“The internal affairs doctrine is a conflict of laws principle which recognizes that only one State should have the authority to regulate a corporation’s internal affairs—matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders—because otherwise a corporation could be faced with conflicting demands.”

Edgar v. MITE Corp., 457 U.S. 624, 645 (1982) quoted with approval in Havlicek v. Coast-to-Coast Analytical Services, Inc., 39 Cal.App.4th 1844, 1854 (1995).

As discussed yesterday, the last sentence of Section 2116 is “Such liability may be enforced in the courts of this state”.  Because the only liability mentioned in Section 2116 is the liability of directors, Section 2116 does not confer jurisdiction on California courts to enforce the liability of officers to the corporation or its shareholders.  Of course, there may be other reasons that a court will have jurisdiction.  Indeed, California’s “long-arm statute”, Section 410.10 of the Code of Civil Procedure, allows courts of the state to exercise jurisdiction “on any basis not inconsistent with the Constitution of this state or the United States”.  However, the omission of officers from Section 2116 does mean that officers won’t be able to claim that exclusive forum bylaw provisions are invalid because the courts have conferred jurisdiction on the California courts and that jurisdiction may not be ousted by private agreement.

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