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Shareholders Sues Officer Of Delaware Corporation In California State Court, Should Texas Law Apply?

Yesterday's post discussed one aspect of the California Court of Appeal's opinion in Central Laborers' Pension Fund v. McAfee, Inc., 2017 Cal. App. LEXIS 1008.  The case arose from Intel Corporation's acquisition of McAfee, Inc., a Delaware corporation.  Among other things, the plaintiff complained that David DeWalt, McAfee's erstwhile president and CEO, in pursuit of his own self-interest withheld material information about negotiations with Intel management from McAfee's board of directors, whose members failed to safeguard the process and who consequently approved an undervalued price per share. The trial court, applying Delaware law, granted summary judgment for the defendants.  The Court of Appeal affirmed the judgment as to nine outside director defendants and reversed the judgment as to Mr. DeWalt and the corporate defendants.

The Court of Appeal reversed as to Mr. DeWalt because it found that the plaintiff had raised a triable issue of fact as to whether Mr. DeWalt's failure to disclose a higher priced "overture" constituted a breach of his fiduciary duty.  I found two aspects of the Court of Appeal's decision to be confusing.  First, it evaluated Mr. DeWalt's under Delaware law principles applicable to directors.  The Court doesn't seem to consider whether Mr. DeWalt's conduct was in the role of an officer.

This leads to the second point.  What law should be applied to Mr. DeWalt's conduct?  California Corporations Code Section 2116 explicitly provides that the law of the jurisdiction of incorporation applies to the duties of directors.  Conspicuously absent is any mention of officers.  Under Section 291 of the Restatement (Second) Conflict of Laws, the rights and duties of a principal and agent toward each other are determined by the local law of the state which, with respect to the particular issue, has the most significant relationship to the parties and the transaction under the principles stated in Section 6 of the Restatement.  I took a look at McAfee's SEC filings and found this employment letter agreement between McAfee and Mr. DeWalt.  Interestingly, it provides "This offer letter agreement will be governed by and construed in accordance with the internal substantive laws, but not the choice of law rules, of the State of Texas."  Is there an argument that Texas law should govern this case?

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McAfee, officers, Corporate Governance, Central Laborers, Choice of Law/Conflict of Law, Section 2116


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30172DBAB0084D3A8F39D7AF0A8E79BC.ashx Keith Paul Bishop
Partner at Allen Matkins
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