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CALIFORNIA CORPORATE & SECURITIES LAW

Want To File A Derivative Suit? You May Soon Be Required To Read Statutes

I have been writing recently about SB 203, a bill that is now pending in the Nevada legislature.  As introduced, the bill would, among other things, require the following: In an action involving or relating to a domestic corporation that is subject to the provisions of NRS 41.520 or alleges a breach of a fiduciary duty by a director…

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Why An Understanding Of Officers As Agents May Be Important

In several recent posts, I have noted that officers, unlike directors, are agents of the corporation.  Recognizing the agency status of officers can affect the legal analysis in a number of significant ways, including: Choice of law.  California Corporations Code Section 2116 explicitly provides that the law of the jurisdiction of incorporation applies to the…

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Court Rules Coequal Stockholders Owe Fiduciary Duties To Each Other

Stockholders in closely held corporations often operate their companies as if they were partnerships.  Does that mean that the stockholders, like partners, owe fiduciary duties to each other? In Jones v. H. F. Ahmanson & Co., 1 Cal. 3d 93 (1969), the California Supreme Court famously held: Majority shareholders may not use their power to…

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California, Delaware And Nevada Differ On Committee Composition

In this prior post, I compared the differing limitations on committee authority under California and Delaware law.  Today’s post focuses on differences in committee composition among California, Delaware and Nevada.  These are summarized in the chart below.  In this post, I’m referring to committees of the board of directors; these are committees that have the power to…

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California’s New “Thermal Coal” Divestment Law Forces Fiduciary Duty Question

Public pension funds exist to provide retirement benefits to public employees.  Cal. Const. Art. XVI, § 17(a).  In 1992, the voters of California tried to eliminate political interference with the state’s retirement funds by enacting Proposition 162, the California Pension Protection Act of 1992.  One of the express purposes of the Pension Protection Act was to…

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Do De Facto Officers Owe Fiduciary Duties?

A recent ruling by Magistrate Judge Jacqueline Scott Corley addressed the interesting question of whether a consultant might owe a fiduciary duty as a de facto officer.  Music Grp. Macao Commer. Offshore, Ltd. v. Foote, 2015 U.S. Dist. LEXIS 81415 (N.D. Cal. June 22, 2015).  The ruling came in a lawsuit by a corporation against a…

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Should Directors Be Required To Have Valid Passports?

Lately, I’ve had occasion to think about director qualifications.  Section 212(b)(4) of the California Corporations Code permits the bylaws to to specify the qualifications of directors.  In Section 141(b),the Delaware General Corporation Law similarly authorizes the certificate of incorporation or bylaws to prescribe director qualifications.  Qualifications should be appropriate to the corporation’s business and purpose.…

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Muzzling Directors Who Don’t Agree

In September, the California Public Employees’ Retirement System (CalPERS) selected Theodore “Ted” Eliopoulos as its Chief Investment Officer.  This appointment was unanimously approved by the members of the Board of Administration who voted.  One member, J.J. Jelincic, did not vote because he is on paid leave from the CIO post while serving on the CalPERS board.…

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Court Holds Promoters May Owe Fiduciary Duties To Non-Shareholder Investors And A Lamentable Example Of Notice

Yesterday, the California Court of Appeal issued an opinion addressing two important questions involving the liability of corporations and promoters  Cleveland v. Johnson, Cal. Ct. of Appeal Case No. B233762 (Oct. 11, 2012).  The facts of the case are somewhat complicated, but can be distilled to the following elements.  The plaintiffs invested money in a proposed…

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Reasonable Efforts May Be A Promisor’s Best Efforts

Contracts often include clauses requiring the parties to exercise their “best efforts” but don’t say what exactly this means.  For example, a merger agreement may require parties to use their best efforts to secure all necessary regulatory approvals. Does a “best efforts” clause require a party to subordinate its interests to the other party or…

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