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California, Nevada and 38 Other States Have These, But Delaware Doesn't

According to the National Center for State Courts, forty states, including California and Nevada, have established intermediate courts of appeal.  California's Court of Appeal was established by a constitutional amendment adopted by the voters in November 1904.  Originally, the Court of Appeal was comprised of three districts, with the First District sitting in San Francisco, the Second District sitting in Los Angeles, and the Third District sitting in Sacramento.  In 1929, the Fourth Appellate District was added.  The Fifth and Sixth Districts were added in 1961 and 1981, respectively.  As described in this post from last December, Nevada only recently created an intermediate appellate court.

The name of California's appellate court is a bit tricky.  Unlike the Ninth Circuit and Nevada's new intermediate appellate court, is simply the Court of Appeal (no "s").  Now retired Justice James A. Ardaiz of the Fifth District Court of Appeal reportedly explained the missing consonant as follows: "All things considered, my guess would be that we couldn't afford as many letters in our title as the federal court."

Delaware doesn't have an intermediate appellate court, although the Second Circuit Court of Appeals apparently thinks otherwise:

Several Delaware intermediate appellate court cases also cited by the district court expound further on this principle that a board has wide latitude over how it chooses to investigate a demand.

Espinoza v. Dimon, 2015 U.S. App. LEXIS 14432 (Aug. 12, 2015).

The other 9 states with no intermediate appellate courts are: Maine, Montana, New Hampshire, New Mexico, Rhode Island, South Dakota, Vermont, West Virginia, and Wyoming.

Sua Sponte De Novo Review

Some readers may be familiar with an earlier version of the Espinoza opinion that Anne Sherry discussed in this post from Jim Hamilton's World of Securities Litigation.  That opinion reviewed a district court ruling dismissing a derivative suit under an abuse of discretion standard.  Regrettably, that Court of Appeals withdrew that opinion sua sponte and replaced it with the August 12 opinion cited above.  The substituted opinion applies the de novo standard of review.

Espinoza is a demand refusal case.  Under Delaware law, these cases are reviewed under the business-judgment rule, meaning that the court does not review the ultimate conclusion of the board of directors not to pursue the litigation.  To achieve standing, a plaintiff must overcome the significant obstacle of rebutting the presumption of the business-judgment rule.  Given that the trial court is required to defer to the board of directors, why should the trial court's ruling be given less deference than the board's decision?  The effect of the Second Circuit's reversal will be to encourage plaintiffs to appeal because they won't need to persuade the Court of Appeals that the trial judge applied the wrong law or made an irrational decision.  They can simply ask the appellate court to make its own call.   The change in the standard of review will prolong litigation, raise the workload of the Court of Appeals, and increase the costs of doing business.

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30172DBAB0084D3A8F39D7AF0A8E79BC.ashx Keith Paul Bishop
Partner at Allen Matkins
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