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Will Delaware's New Voluntary Certification Act Lead To California Lawsuits?

As explained in this memorandum by Richards, Layton & Finger, PA, Delaware recently enacted the Delaware Certification of Adoption of Transparency and Sustainability Standards Act.  This legislation will allow a Delaware entity to signal its commitment to global sustainability.  The law takes effect October 1, 2018.

Of course, no good deed or protestation of a good deed is free from criticism or possible legal challenge.  Anticipating this, the Delaware legislature expressly abjured the creation of any private rights of action:

"Neither the failure by an Entity to satisfy any of its Standards, nor the selection of specific Assessment Measures, nor any other action taken by or on behalf of the Entity pursuant to this chapter or any omission to take any action required by this chapter to seek, obtain or maintain status as a Reporting Entity, shall, in and of itself, create any right of action on the part of any person or entity or otherwise give rise to any claim for breach of any fiduciary or similar duty owed to any person or entity."

Although this provision may preclude litigation in Delaware, Delaware entities availing themselves of the new law may nonetheless find themselves targets of litigation in California.

California has enacted an extremely broad unfair competition law, Bus. & Prof. Code § 17200, that seeks to protect both consumers and competitors from any unlawful, unfair or fraudulent business act or practice.  By proscribing unlawful competition, California's UCL does not enforce the borrowed statute, but treats them as unlawful practices that the UCL makes independently actionable.  Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal. 4th 163, 180 (1999). 

When the inevitable UCL suit is filed in California against a Delaware corporation for allegedly false or misleading "virtue signaling" under the Delaware statute, the California courts will face interesting questions of conflict of laws and comity.

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30172DBAB0084D3A8F39D7AF0A8E79BC.ashx Keith Paul Bishop
Partner at Allen Matkins
(949) 353-6328
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