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Court Finds No "Road of Imprudence" or "Chasm of Equity" In Section 25504

Faithful readers of this blog will be familiar with the structure of the California Corporate Securities Law.  Part 5 of the CSL (Cal. Corp. Code §§ 25400 - 25404) proscribes various conduct and Part 6 (Cal. Corp. Code §§ 25500 - 25510) establishes the remedies for violations of Part 5.  See Second Circuit Declines To Apply California Securities Law In Auction Rate Securities Case.

Directors and officers of corporations may not realize the full scope of their exposure under the CSL.  If a plaintiff adequately pleads and proves a violation of Section 25401, then directors and principal executive officers can also be held liable jointly and severally with and to the same extent as the corporation.

This result is illustrated by Judge John A. Mendez' recent ruling in Balkowitsch v. D&M Dev., Inc., 2015 U.S. Dist. LEXIS 68548 (E.D. Cal. May 27, 2015).  In this case, the president sought dismissal of the claims against him even though he did not challenge the sufficiency of the plaintiff's pleading against the corporation.  A major hurdle for the defendant was the California Court of Appeal's holding in Hellum v. Breyer, 194 Cal. App. 4th 1300, 1314 (2011): "the plain language of section 25504 expressly subjects outside directors to collateral liability based solely on their status as directors, without requiring proof of control[.]"  See Court Rejects Control Requirement For Director Liability.  The defendant argued:

[i]n overly hitching itself to 'the rules of grammar' or other constrictive and rigid readings of statutory expression opined in one case, other courts can inadvertently be lead [sic] down the road of imprudence, if not the chasm of inequity."

To which Judge Mendez responded:

Poetics aside, this argument mistakes the role of the Court in applying the plain language of a statute.

Poets and the Law

Judge Mendez correctly dismisses poetics, but the twain of poets and lawyers sometimes meet.  Several renowned American poets were also lawyers, including Wallace Stevens, Edgar Lee Masters, William Cullen Bryant, e.e. cummings, Archibald Macleish and Lawrence Joseph.  Eberle & Grossfeld, Law and Poetry, 11 Roger Williams U. L. Rev. 353 (2005-2006).

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30172DBAB0084D3A8F39D7AF0A8E79BC.ashx Keith Paul Bishop
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