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CALIFORNIA CORPORATE & SECURITIES LAW

Which Comes First, Rescission Or Choice Of Forum?

A recent ruling by U.S. District Court Judge Arthur D. Spatt raises the interesting question of whether a choice of law provision can be vitiated by rescission.  The case, Hatteras Enterprises, Inc. v. Forsythe Cosmetic Group, Ltd., 2016 U.S. Dist. LEXIS 100352 (July 30, 2016), involved six separate agreements, each containing a New York choice of law…

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Is Rescission Ever Legal?

Yesterday’s post concerned when a corporation’s rescission of the issuance of shares does not constitute a “distribution to its shareholders” as defined in Section 166 of the California Corporations Code.  I noted that one of the three conditions is that “it is reasonably likely that the holder or holders of the shares in question could…

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Why Delaware Corporations Should Worry About California Law When Making Dividends

When paying a dividend to shareholders, California corporations are subject to Chapter 5 of the California Corporations Code.  Corporations incorporated in Delaware and other states may also be subject to Chapter 5 if they meet the conditions of Corporations Code Section 2115, California’s pseudo-foreign corporation statute.  Section 2115 excepts companies with outstanding companies listed on…

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More On Inspecting The Shareholder List And The Regulation Of Alien Implants

Yesterday’s post discussed California’s “absolute” right of shareholders to inspect the shareholder list established by Section 1600 of the California Corporations Code.  Some additional points are briefly worth noting: Neither the articles of incorporation or bylaws may limit this statutory inspection right.  Cal. Corp. Code § 1600(d). The right to inspect the shareholder list is…

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Court Of Appeal Finds Indemnity Includes First Party Claims

Three years ago, I wrote this brief post about how to interpret an indemnity claim.  I wrote that post to remind readers that the California Civil Code not only defines “indemnity”, it provides a series of interpretational rules.  According to the Code, “indemnity” is “a contract by which one engages to save another from a…

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There Two Ways To Create An Obligation And Six Ways To Extinguish It

California defines an “obligation” as “a legal duty, by which a person is bound to do or not to do a certain thing.”  Cal. Civ. Code § 1427.  An obligation is created in one of two ways: by contract or by operation of law.  Cal. Civ. Code § 1428.  The Civil Code, however, provides six different means…

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Oracular Utterances From California’s Civil Code

In prior posts, I’ve mentioned the Etruscans who were the northern neighbors of the Latins and the erstwhile kings of Rome.  The last of these kings was Tarquinius Superbus, also known as Tarquin the Proud.  According to the ancient sources, Tarquinius Superbus was induced, or tricked, into buying a set of books (actually scrolls) from the Sybil…

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Are Charter Indemnification Provisions Contracts?

Public companies typically include provisions in their articles and bylaws that mandate indemnification of directors and officers.  Often, these provisions include a statement to the effect that the rights to indemnification are a contract right.  However, declaring that a contract exists does not necessarily establish a contract.  Fortunately, the California Civil Code provides some rules for…

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Is An Immoral Contract Unlawful?

Last week, I wrote about a proposal by the Nevada Secretary of State to ban the establishment of  a corporation for an “illicit purpose“.  Currently, Nevada specifically authorizes the formation of corporations to transact any “lawful” business and for “legitimate” purposes, NRS 78.030(1), while California permits corporations to be formed for “lawful” purposes, Cal. Corp. Code §…

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Can Officers Contract For The Business Judgment Rule?

Yesterday, I wrote about a recent memorandum opinion by U.S. District Court Judge Dale S. Fischer that led to a jury verdict awarding nearly $169 million in damages against three former corporate officers.  Among other things, Judge Fischer ruled that the business judgment rule is not available to corporate officers under California law. Nearly four years ago, the…

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