Court of Appeal Applies Delaware Law to Sustain Demurrer to California Action

In the last few weeks, the various appellate districts of the Court of Appeal have been pumping out corporate law opinions.   The most recent, Fox v. JAMDAT Mobile, Inc., involves a stockholder lawsuit against a Delaware corporation, JAMDAT, and its directors for breach of fiduciary duty.  Unlike Kruss v. Booth (See June 22, 2010 Blog), the issue was not whether the court should have applied California or Delaware law.  The parties and the Court of Appeal all agreed that under the internal affairs doctrine, Delaware law governed the case.

The case arose out of the acquisition of JAMDAT by Electronic Arts, Inc.  The directors demurred to the complaint on the basis, among others, that the doctrine of shareholder ratification precluded the plaintiff's action.  The trial court agreed, relying on the Chancery Court opinion in Gantler v. Stephens, C.A. 2392 (Del. Ch. February 14, 2008).  However, the Delaware Supreme Court subsequently reversed the Chancery Court.  Thus, the California Court of Appeal relied on the Delaware Supreme Court's opinion which held "the shareholder ratification doctrine must be limited to its so-called 'classic' form; that is, to circumstances where a fully informed shareholder vote approves director action that does not legally require shareholder approval in order to become legally effective".    Because the acquisition of JAMDAT involved a merger that is required to be submitted to shareholders under Section 251(c) of the Delaware General Corporation Law, the California Court of Appeal held that the defense of shareholder ratification was not available to the JAMDAT directors.

This case was originally not certified for publication.  However, the plaintiff (NECA-IBEW Pension Fund) filed a request for publication and the Court of Appeal recently issued an order certifying the case for partial publication.  The portion of the opinion certified for partial publication includes the court's discussion of the shareholder ratification doctrine.