California Corporate & Securities Law https://www.calcorporatelaw.com en-us Wed, 23 Nov 2022 08:15:00 GMT 2022-11-23T08:15:00Z en-us Does A State Have Personal Jurisdiction When The Plaintiff, Defendant And Incident Are Outside The State? https://www.calcorporatelaw.com/does-a-state-have-personal-jurisdiction-when-the-plaintiff-defendant-and-incident-are-outside-the-state <p>After contracting colon cancer, Robert Mallory sued Norfolk Southern in the Pennsylvania Court of Common Pleas under the Federal Employers’ Liability Act, alleging workplace exposure to carcinogens.&nbsp; &nbsp;Even though Mr. Mallory filed suit in Pennsylvania, he did not work for Norfolk Southern in that state nor was he living in there.&nbsp; Norfolk Southern is a Virginia corporation with its principal place of business in that state when the complaint was filed.&nbsp; The lawsuit's only nexus to Pennsylvania was Norfolk Southern's registration as a foreign corporation in Pennsylvania.&nbsp; &nbsp;The jurisdictional hook for the lawsuit was a Pennsylvania statute that provides a company’s registration as a foreign corporation” is deemed “a sufficient basis of jurisdiction to enable the tribunals of this Commonwealth to exercise general personal jurisdiction over” the corporation.&nbsp; 42 Pa. Cons. Stat. § 5301(a)(2)(i).&nbsp; Earlier this month, the United States Supreme Court heard oral arguments on whether the Constitution permits Pennsylvania to require an out-of-state corporation to “consent” to general personal jurisdiction—and thus to being sued for any cause of action, even if the litigation has no relation to the state—as a condition of doing business there.&nbsp;&nbsp;<em>Mallory v. Norfolk Southern Railway Co.,&nbsp;</em>U.S. S. Ct. Case No. No. 21-1168</p> <p>After contracting colon cancer, Robert Mallory sued Norfolk Southern in the Pennsylvania Court of Common Pleas under the Federal Employers’ Liability Act, alleging workplace exposure to carcinogens.&nbsp; &nbsp;Even though Mr. Mallory filed suit in Pennsylvania, he did not work for Norfolk Southern in that state nor was he living in there.&nbsp; Norfolk Southern is a Virginia corporation with its principal place of business in that state when the complaint was filed.&nbsp; The lawsuit's only nexus to Pennsylvania was Norfolk Southern's registration as a foreign corporation in Pennsylvania.&nbsp; &nbsp;The jurisdictional hook for the lawsuit was a Pennsylvania statute that provides a company’s registration as a foreign corporation” is deemed “a sufficient basis of jurisdiction to enable the tribunals of this Commonwealth to exercise general personal jurisdiction over” the corporation.&nbsp; 42 Pa. Cons. Stat. § 5301(a)(2)(i).&nbsp; Earlier this month, the United States Supreme Court heard oral arguments on whether the Constitution permits Pennsylvania to require an out-of-state corporation to “consent” to general personal jurisdiction—and thus to being sued for any cause of action, even if the litigation has no relation to the state—as a condition of doing business there.&nbsp;&nbsp;<em>Mallory v. Norfolk Southern Railway Co.,&nbsp;</em>U.S. S. Ct. Case No. No. 21-1168</p> <p style="text-align: left;">California, like Pennsylvania and other states, prohibits foreign corporations from transacting intrastate business without registering with the Secretary of State.&nbsp; Cal. Corp. Code § 2105.&nbsp; While California's registration form requires the foreign corporation to&nbsp; consent <span style="background-color: transparent;">irrevocably </span><span style="background-color: transparent;">to service of process, the state does not require that they consent to general jurisdiction.&nbsp; </span><em style="background-color: transparent;">AM Trust v. UBS AG</em><span style="background-color: transparent;">, 681 F. App'x. 587, 588-89 (9th Cir. 2017).&nbsp;&nbsp;<em>See </em></span><a href="https://www.calcorporatelaw.com/court-rules-registration-to-transact-intrastate-business-does-not-establish-general-jurisdiction" style="background-color: transparent;">Court Rules Registration To Transact Intrastate Business Does Not Establish General Jurisdiction</a><span style="background-color: transparent;">.</span></p> <p style="text-align: center;"><strong>Is The Failure To Register, Consent?</strong></p> <p style="text-align: left; font-weight: normal;">An adverse ruling in&nbsp;<em>Mallory</em> will likely spell trouble for a different California statute - Corporations Code Section 2203(a).&nbsp; That statute provides that a foreign corporation that transacts intrastate business without registration is deemed to consent to the jurisdiction of California courts.&nbsp; Section 2203 appears to be even more constitutionally questionable than the Pennsylvania statute because Pennsylvania at least requires the affirmative act of registration to establish consent.&nbsp;&nbsp;<span></span></p> <img src="https://track.hubspot.com/__ptq.gif?a=3468962&amp;k=14&amp;r=https%3A%2F%2Fwww.calcorporatelaw.com%2Fdoes-a-state-have-personal-jurisdiction-when-the-plaintiff-defendant-and-incident-are-outside-the-state&amp;bu=https%253A%252F%252Fwww.calcorporatelaw.com&amp;bvt=rss" alt="" width="1" height="1" style="min-height:1px!important;width:1px!important;border-width:0!important;margin-top:0!important;margin-bottom:0!important;margin-right:0!important;margin-left:0!important;padding-top:0!important;padding-bottom:0!important;padding-right:0!important;padding-left:0!important; "> personal jurisdiction foreign corporation General Corporation Law Wed, 23 Nov 2022 08:15:00 GMT kbishop@allenmatkins.com (Keith Paul Bishop) https://www.calcorporatelaw.com/does-a-state-have-personal-jurisdiction-when-the-plaintiff-defendant-and-incident-are-outside-the-state 2022-11-23T08:15:00Z "Black Friday" Is Not On The List Of California State Holidays, So Why Is It A Holiday For California State Employees? https://www.calcorporatelaw.com/black-friday-is-not-on-the-list-of-california-state-holidays-so-why-is-it-a-holiday-for-california-state-employees <p>A few years ago, I happened to be in Dublin, Ireland during Thanksgiving week.&nbsp; Because Thanksgiving is not a traditional Irish holiday, I was surprised to seen that "Black Friday" sales were heavily advertised and that Grafton Street was packed with shoppers on the Friday following the American Thanksgiving holiday.</p> <p>A few years ago, I happened to be in Dublin, Ireland during Thanksgiving week.&nbsp; Because Thanksgiving is not a traditional Irish holiday, I was surprised to seen that "Black Friday" sales were heavily advertised and that Grafton Street was packed with shoppers on the Friday following the American Thanksgiving holiday.</p> <p>Section 6700 of the California Government Code lists Thanksgiving Day as a state holiday in a somewhat backwards manner:</p> <blockquote> <h6 style="font-weight: normal;"><span style="font-size: 18px;">&nbsp;(a) The holidays in this state are:&nbsp; . . .</span></h6> <p>(16)&nbsp;(A)&nbsp;Every day appointed by the President or Governor for a public fast,<span style="font-weight: normal;">&nbsp;thanksgiving</span>, or holiday.</p> <p>(B) Except for the Thursday in November appointed as&nbsp;<span style="font-weight: normal;">Thanksgiving </span>Day, this paragraph and paragraphs (3) and (6) shall not apply to a city, county, or district unless made applicable by charter, or by ordinance or resolution of the governing body thereof.</p> </blockquote> Section 6700 does not identify the Friday after Thanksgiving as a state holiday.&nbsp; &nbsp;Nonetheless, Government Code Section 19583 includes the day after Thanksgiving as a holiday to which all state employees are entitled.&nbsp; &nbsp;In addition, Section 135 of the California Code of Civil Procedure specifies " <span>Every Saturday and the day after&nbsp;</span>Thanksgiving <span> Day are judicial holidays".&nbsp; So it seems that even though Black Friday did not make the Government Code list of state holidays, California state employees and the California judiciary will be enjoying the day off, nonetheless.</span> <img src="https://track.hubspot.com/__ptq.gif?a=3468962&amp;k=14&amp;r=https%3A%2F%2Fwww.calcorporatelaw.com%2Fblack-friday-is-not-on-the-list-of-california-state-holidays-so-why-is-it-a-holiday-for-california-state-employees&amp;bu=https%253A%252F%252Fwww.calcorporatelaw.com&amp;bvt=rss" alt="" width="1" height="1" style="min-height:1px!important;width:1px!important;border-width:0!important;margin-top:0!important;margin-bottom:0!important;margin-right:0!important;margin-left:0!important;padding-top:0!important;padding-bottom:0!important;padding-right:0!important;padding-left:0!important; "> California Tue, 22 Nov 2022 08:15:00 GMT kbishop@allenmatkins.com (Keith Paul Bishop) https://www.calcorporatelaw.com/black-friday-is-not-on-the-list-of-california-state-holidays-so-why-is-it-a-holiday-for-california-state-employees 2022-11-22T08:15:00Z Commissioner Uyeda Urges Questioning Of ESG Trend Sustainability https://www.calcorporatelaw.com/commissioner-uyeda-urges-questioning-of-esg-trend-sustainability <p>In recent <a href="https://www.sec.gov/news/speech/uyeda-remarks-cato-summit-financial-regulation-111722">remarks</a> to the 2022 Cato Summit on Financial Regulation, Securities and Exchange Commissioner Mark Uyeda noted the uncertainty of both costs and benefits of ESG investing.&nbsp; With respect to costs, Commissioner Uyeda pointed out that the significant additional burdens from proposed climate change disclosure requirements (emphasis in original, footnotes omitted):</p> <p>In recent <a href="https://www.sec.gov/news/speech/uyeda-remarks-cato-summit-financial-regulation-111722">remarks</a> to the 2022 Cato Summit on Financial Regulation, Securities and Exchange Commissioner Mark Uyeda noted the uncertainty of both costs and benefits of ESG investing.&nbsp; With respect to costs, Commissioner Uyeda pointed out that the significant additional burdens from proposed climate change disclosure requirements (emphasis in original, footnotes omitted):</p> <blockquote> <p><span>In its March 2022 proposal, the Commission estimated that the total existing external cost burden on companies to register their offerings on Form S-1 and file their annual reports on Form 10-K was a little more than $2 billion.&nbsp; </span><span>The Commission then estimated that the marginal increase from the proposed climate disclosures alone would nearly </span><u>triple </u><span>these costs to over $6.3 billion.&nbsp; </span><span>These estimates were based on the assumption that the cost for external legal advice was $400 per hour – an amount that has remained flat since 2006.&nbsp; </span><span>Recently, the SEC adjusted the assumed cost to $600 per hour – and even this revision may be too low.&nbsp; </span><span>Using this $600 assumption, the total estimated external costs </span><u>quadruples </u><span>to $8.4 billion.</span></p> </blockquote> <p><span>In light of these costs, Commissioner Uyeda warns: </span></p> <blockquote> <p><span>The uncertainty of benefits associated with ESG investing, combined with the certainty of costs for companies undertaking ESG activities, should motivate all market participants – whether public companies, investors, or asset managers – to question whether the ESG trend itself is sustainable over the long term.&nbsp;</span></p> </blockquote> <img src="https://track.hubspot.com/__ptq.gif?a=3468962&amp;k=14&amp;r=https%3A%2F%2Fwww.calcorporatelaw.com%2Fcommissioner-uyeda-urges-questioning-of-esg-trend-sustainability&amp;bu=https%253A%252F%252Fwww.calcorporatelaw.com&amp;bvt=rss" alt="" width="1" height="1" style="min-height:1px!important;width:1px!important;border-width:0!important;margin-top:0!important;margin-bottom:0!important;margin-right:0!important;margin-left:0!important;padding-top:0!important;padding-bottom:0!important;padding-right:0!important;padding-left:0!important; "> Securities and Exchange Commission ESG Mon, 21 Nov 2022 08:15:00 GMT kbishop@allenmatkins.com (Keith Paul Bishop) https://www.calcorporatelaw.com/commissioner-uyeda-urges-questioning-of-esg-trend-sustainability 2022-11-21T08:15:00Z SEC Labels Accountant's Letter "Irrelevant" To Rule 506(c) https://www.calcorporatelaw.com/sec-labels-accountants-letter-irrelevant-to-rule-506c <p>Rule 506(c) under the Securities Act of 1933 allows an issuer to solicit and generally advertise an offering exempt pursuant to Regulation D if:</p> <p>Rule 506(c) under the Securities Act of 1933 allows an issuer to solicit and generally advertise an offering exempt pursuant to Regulation D if:</p> <ul> <li><span style="background-color: transparent;">The investors in the offering are all accredited investors; and</span></li> <li>The issuer takes reasonable steps to verify that the investors are accredited investors.</li> </ul> <p>Recently, PIC Renegade Properties, LLC agreed to the SEC's entry of a <a href="https://business.cch.com/srd/33-11132.pdf">cease and desist order</a> and the payment of a $400,000 civil penalty for violations of Section 5 of the Securities Act of 1933.&nbsp; PIC Renegade Properties is the general partner of a real estate fund that raised $54 million from approximately 140 investors in various states.&nbsp; According to the SEC,</p> <blockquote> <p>Although the fund was purportedly relying on the registration exemption of Rule 506(c) of Regulation D, it failed to comply with the requirements necessary to avail itself of the exemption.&nbsp; Specifically, PIC Renegade Properties failed to take reasonable steps to verify the accreditation of a number of investors and improperly sold interests in the fund to certain unaccredited investors.</p> </blockquote> <p>The SEC alleges that the fund sold to four unaccredited investors.&nbsp; One of these four caught my eye because it was a trust and the rules governing trusts under Regulation D can be confusing, a subject that wrote about 12 years ago.&nbsp; <em>See </em><a href="https://www.calcorporatelaw.com/2010/12/a-brief-rumination-on-metaphysics-trusts-and-accredited-investors"><span style="background-color: transparent;">A Brief Rumination On Metaphysics, Trusts and Accredited Investors</span></a>.&nbsp; In this case, the SEC took the position that the receipt of an accountant's letter was irrelevant:</p> <blockquote> <p>PIC Renegade Properties failed to obtain information or documents about this trust’s assets.&nbsp; PIC Renegade Properties received an accountant’s letter purportedly verifying that the trust was accredited as a natural person with over $1 million in net worth. This letter was irrelevant because the investor was an irrevocable trust, not a natural person.</p> </blockquote> According to the SEC, the trust had only about $600,000 in assets, which is far less than the $5 million required for trusts under Rule 501(a)(7) (which also requires that the purchase be directed by a sophisticated person).&nbsp; <p>&nbsp;</p> <p>&nbsp;</p> <img src="https://track.hubspot.com/__ptq.gif?a=3468962&amp;k=14&amp;r=https%3A%2F%2Fwww.calcorporatelaw.com%2Fsec-labels-accountants-letter-irrelevant-to-rule-506c&amp;bu=https%253A%252F%252Fwww.calcorporatelaw.com&amp;bvt=rss" alt="" width="1" height="1" style="min-height:1px!important;width:1px!important;border-width:0!important;margin-top:0!important;margin-bottom:0!important;margin-right:0!important;margin-left:0!important;padding-top:0!important;padding-bottom:0!important;padding-right:0!important;padding-left:0!important; "> Securities Act of 1933 Fri, 18 Nov 2022 08:15:00 GMT kbishop@allenmatkins.com (Keith Paul Bishop) https://www.calcorporatelaw.com/sec-labels-accountants-letter-irrelevant-to-rule-506c 2022-11-18T08:15:00Z DFPI Says No MTA License Required To Issue Tokenized U.S. Dollars https://www.calcorporatelaw.com/dfpi-says-no-mta-license-required-to-issue-tokenized-u.s.-dollars <p style="text-align: center;"><span style="font-weight: bold;">"Tell me the first token</span><br><span style="font-weight: bold;">That passed between you and me."</span></p> <p style="text-align: center;"><span style="font-weight: bold;">"Tell me the first token</span><br><span style="font-weight: bold;">That passed between you and me."</span></p> <p style="text-align: left; font-weight: normal;">Earlier this month, the California Department of Financial Protection &amp; Innovation issued a quasi interpretive <a href="https://dfpi.ca.gov/2022/11/07/cryptocurrency-exchange-platform-7/">opinion</a> regarding whether the unnamed requestor must be licensed under California's Money Transmission Act to offer platform trading services or to issue tokenized versions of the U.S. Dollar or securities.&nbsp; The MTA requires persons in<span> the business of money transmission in California to be licensed, unless exempt under the act.&nbsp; Cal. Fin. Code § 2030.&nbsp; The MTA</span><span>&nbsp;</span>currently defines "money transmission" as any of the following:</p> <ul> <li> <div> Selling or issuing payment instruments; </div> </li> <li> <div> Selling or issuing stored value; or </div> </li> <li> <div> &nbsp;Receiving money for transmission. </div> </li> </ul> <p>Cal. Fin. Code&nbsp;§ 2003(q).&nbsp; "Stored value" is defined as "<span>monetary value representing a claim against the issuer that is stored on an electronic or digital medium and evidenced by an electronic or digital record, and that is intended and accepted for use as a means of redemption for money or monetary value or payment for goods or services. The term does not include a credit card voucher, letter of credit, or any stored value that is only redeemable by the issuer for goods or services provided by the issuer or its affiliate, except to the extent required by applicable law to be redeemable in cash for its cash value.&nbsp; Cal. Fin. Code&nbsp;§ 2003(x).&nbsp;&nbsp;</span></p> <p><span>I refer to this as a "quasi interpretive opinion" because the DFPI merely states that it does not&nbsp;<em>currently</em> require the requestor to obtain an MTA license because the Department "has not determined whether the issuance of tokenized versions of the U.S. Dollar or securities, or their use to trade cryptocurrencies, is money transmission".&nbsp; The DFPI caution that its conclusion is subject to change and does not address whether any of the requestor's activities are subject to registration under other laws such as the Corporate Securities Law of 1968.&nbsp;&nbsp;</span></p> <p><span>Although the MTA empowers the Commissioner of Financial Protection &amp; Innovation to issue opinions, it does not include a provision providing immunity to persons relying on a written opinion of the Commissioner.&nbsp;&nbsp;<em>Cf.</em> Cal. Fin. Code&nbsp;§§ 5204(b) (Savings Association Law); 22754 (Financing Law), 23063 (Deferred Deposit Transaction Law), and 31002 (Building and Industrial Development Corporation Law); and Cal. Corp. Code&nbsp;§ 25700 (Corporate Securities Law).&nbsp;</span></p> <img src="https://track.hubspot.com/__ptq.gif?a=3468962&amp;k=14&amp;r=https%3A%2F%2Fwww.calcorporatelaw.com%2Fdfpi-says-no-mta-license-required-to-issue-tokenized-u.s.-dollars&amp;bu=https%253A%252F%252Fwww.calcorporatelaw.com&amp;bvt=rss" alt="" width="1" height="1" style="min-height:1px!important;width:1px!important;border-width:0!important;margin-top:0!important;margin-bottom:0!important;margin-right:0!important;margin-left:0!important;padding-top:0!important;padding-bottom:0!important;padding-right:0!important;padding-left:0!important; "> Banking and Financial Institutions Department of Corporations Department of Financial Protection and Innovation Thu, 17 Nov 2022 08:15:00 GMT kbishop@allenmatkins.com (Keith Paul Bishop) https://www.calcorporatelaw.com/dfpi-says-no-mta-license-required-to-issue-tokenized-u.s.-dollars 2022-11-17T08:15:00Z Officer Exculpation Is Old News And Automatic In This State https://www.calcorporatelaw.com/officer-exculpation-is-old-news-and-automatic-in-this-state <p>Delaware's decision last summer to amend Section 102(b)(7) to permit the exculpation of certain officers for direct (but not derivative) stockholder suits for monetary damages for breach of fiduciary duty is attracting a great deal of attention.&nbsp; This is understandable given Delaware's continuing dominance of the market for corporate charters.&nbsp; The idea of exculpating officers is not new and in fact dates back&nbsp; some 35 years.</p> <p>Delaware's decision last summer to amend Section 102(b)(7) to permit the exculpation of certain officers for direct (but not derivative) stockholder suits for monetary damages for breach of fiduciary duty is attracting a great deal of attention.&nbsp; This is understandable given Delaware's continuing dominance of the market for corporate charters.&nbsp; The idea of exculpating officers is not new and in fact dates back&nbsp; some 35 years.</p> <p>Two years after the Delaware Supreme Court's momentous decision in&nbsp;<em>Smith v. Van Gorkum</em>, 488 A.2d 858 (Del. 1985), the Nevada legislature amended the state's corporation law to permit a provision in the articles "eliminating or limiting the personal liability of a director or officer to the corporation or its stockholders for damages for breach of fiduciary duty as a director or officer, but such a provision must not eliminate or limit the liability of a director or officer for: (a) Acts or omissions which involve intentional misconduct, fraud or a knowing violation of law; or&nbsp; (b) The payment of dividends in violation of NRS 78.300.&nbsp; <a href="https://www.leg.state.nv.us/Division/Legal/LawLibrary/Statutes/64th/Stats198701.html#Stats198701page80">1987 Nev. Stat. ch. 28,&nbsp;§ 2</a>.&nbsp; The legislature has since amended the law and exculpation of both directors and officers is now <span style="font-style: italic;">automatic&nbsp;</span><span style="font-style: normal;">pursuant to NRS 78.138, unless the articles include a provision providing for greater liability.&nbsp; Unlike Delaware, this exculpation is not limited to certain officers and does not exclude derivative actions.&nbsp; To establish liability a plaintiff must either establish a statutory exception or (1) rebut the statutory presumption that officers <span>&nbsp;in deciding upon matters of business, are presumed to act in good faith, on an informed basis and with a view to the interests of the corporation;&nbsp;<span style="text-decoration: underline;">and</span><span style="text-decoration: none;"> (2) prove (a) the</span></span></span> officer’s act or failure to act constituted a breach of his or her fiduciary duties as an officer; and (b) the breach involved intentional misconduct, fraud or a knowing violation of law.</p> <p>&nbsp;</p> <img src="https://track.hubspot.com/__ptq.gif?a=3468962&amp;k=14&amp;r=https%3A%2F%2Fwww.calcorporatelaw.com%2Fofficer-exculpation-is-old-news-and-automatic-in-this-state&amp;bu=https%253A%252F%252Fwww.calcorporatelaw.com&amp;bvt=rss" alt="" width="1" height="1" style="min-height:1px!important;width:1px!important;border-width:0!important;margin-top:0!important;margin-bottom:0!important;margin-right:0!important;margin-left:0!important;padding-top:0!important;padding-bottom:0!important;padding-right:0!important;padding-left:0!important; "> Nevada Corporations Nevada General Corporation Law Corporate Governance Wed, 16 Nov 2022 08:15:00 GMT kbishop@allenmatkins.com (Keith Paul Bishop) https://www.calcorporatelaw.com/officer-exculpation-is-old-news-and-automatic-in-this-state 2022-11-16T08:15:00Z Is The Right To Sue Officers A Power, Preference Or Special Right? https://www.calcorporatelaw.com/is-the-right-to-sue-officers-a-power-preference-or-special-right <p>Earlier this month the Electrical Workers Pension Fund, Local 103, I.B.E.W. filed a verified class action complaint in the Delaware Court of Chancery against Fox Corporation.&nbsp; (Case No. 2022-1007-MTZ (filed Nov. 4, 2022)).&nbsp; The complaint challenges the recent amendment of Fox Corporation's Certificate of Incorporation to include a provision exculpating officers.&nbsp; Delaware amended Section 102(b)(7) of the Delaware General Corporation Law last summer to permit<span> Delaware corporations to permit such amendments.&nbsp;</span></p> <p>Earlier this month the Electrical Workers Pension Fund, Local 103, I.B.E.W. filed a verified class action complaint in the Delaware Court of Chancery against Fox Corporation.&nbsp; (Case No. 2022-1007-MTZ (filed Nov. 4, 2022)).&nbsp; The complaint challenges the recent amendment of Fox Corporation's Certificate of Incorporation to include a provision exculpating officers.&nbsp; Delaware amended Section 102(b)(7) of the Delaware General Corporation Law last summer to permit<span> Delaware corporations to permit such amendments.&nbsp;</span></p> <p><span>The complaint does not challenge the statutory amendment.&nbsp; Rather, it challenges the procedure by which Fox Corporation adopted the amendment.&nbsp; According to the complaint, Fox Corporation has a dual class share structure and the amendment was approved by the voting shares but not the non-voting shares.&nbsp; The plaintiff hinges its case on Section 242(b)(2) of the Delaware General Corporation Law which provides that holders of a class of stock are “entitled to vote as a class upon a proposed amendment, whether or not entitled to vote thereon by the certificate of incorporation, if the amendment would . . . alter or change the powers, preferences, or special rights of the shares of such class so as to affect them adversely.”&nbsp; According to the plaintiff, the right to seek judicial relief to hold officers accountable for reckless or grossly negligent behavior is a component of the “bundle of rights” appurtenant to the non-voting stock.&nbsp; Therefore, the amendment required the affirmative vote of the non-voting stock.&nbsp; </span><span>It remains to be seen how the Court of Chancery will deal with this novel theory.&nbsp;</span></p> <p><span> California does not presently permit the articles of incorporation to include a provision exculpating officers.&nbsp; If it did, I don't think that the plaintiff's argument would succeed in the case of a California corporation.&nbsp; &nbsp;Similar to the Delaware General Corporation Law, Section 903(a)(4) of the California Corporations Code requires the approval of a class, whether or not entitled to vote, if an amendment of the articles would "change the rights, preferences, privileges or restrictions of the shares of such class".&nbsp; However, &nbsp;Section 202(3)(3) and Section 400 of the California Corporations Code require that the articles of incorporation set forth the rights, preferences, privileges, and restrictions granted to or imposed upon the respective classes or series of shares or the holders thereof, or that the board, within any limits and restrictions stated, may determine or alter the rights, preferences, privileges, and restrictions granted to or imposed upon any wholly unissued class of shares or wholly unissued series of any class of shares.&nbsp; &nbsp;Because a shareholder's right to sue officers is generally not set forth in the articles, the answer may be for purposes of the California General Corporation Law that the right to sue officers may not constitute a right, preference, or privilege within the meaning of Section 903.</span></p> <img src="https://track.hubspot.com/__ptq.gif?a=3468962&amp;k=14&amp;r=https%3A%2F%2Fwww.calcorporatelaw.com%2Fis-the-right-to-sue-officers-a-power-preference-or-special-right&amp;bu=https%253A%252F%252Fwww.calcorporatelaw.com&amp;bvt=rss" alt="" width="1" height="1" style="min-height:1px!important;width:1px!important;border-width:0!important;margin-top:0!important;margin-bottom:0!important;margin-right:0!important;margin-left:0!important;padding-top:0!important;padding-bottom:0!important;padding-right:0!important;padding-left:0!important; "> officers Corporate Governance Tue, 15 Nov 2022 08:15:00 GMT kbishop@allenmatkins.com (Keith Paul Bishop) https://www.calcorporatelaw.com/is-the-right-to-sue-officers-a-power-preference-or-special-right 2022-11-15T08:15:00Z A Short Course In Insider Trading https://www.calcorporatelaw.com/a-short-course-in-insider-trading <p>Last week, the Securities and Exchange Commission <a href="https://www.sec.gov/news/press-release/2022-204">announced</a> that it had filed a complaint against the <span>Chief Information Officer of pharmaceutical company Viatris Inc. (formerly known as Mylan N.V.).&nbsp; The SEC is alleging that the CTO tipped his friend and former colleague, Dayakar Mallu, material nonpublic information about Mylan’s unannounced drug approval by the U.S. Food &amp; Drug Administration, financial results, and an impending merger with a division of Pfizer Inc.&nbsp; &nbsp;According to the SEC's <a href="https://www.sec.gov/litigation/complaints/2022/comp-pr2002-204.pdf">complaint</a>,&nbsp; Mallu generated gains totaling nearly $8 million and avoided losses by trading Mylan securities based upon these tips and shared a portion of his profits with the CTO through cash payments in India.&nbsp;&nbsp;</span></p> <p>Last week, the Securities and Exchange Commission <a href="https://www.sec.gov/news/press-release/2022-204">announced</a> that it had filed a complaint against the <span>Chief Information Officer of pharmaceutical company Viatris Inc. (formerly known as Mylan N.V.).&nbsp; The SEC is alleging that the CTO tipped his friend and former colleague, Dayakar Mallu, material nonpublic information about Mylan’s unannounced drug approval by the U.S. Food &amp; Drug Administration, financial results, and an impending merger with a division of Pfizer Inc.&nbsp; &nbsp;According to the SEC's <a href="https://www.sec.gov/litigation/complaints/2022/comp-pr2002-204.pdf">complaint</a>,&nbsp; Mallu generated gains totaling nearly $8 million and avoided losses by trading Mylan securities based upon these tips and shared a portion of his profits with the CTO through cash payments in India.&nbsp;&nbsp;</span></p> <p>Also last week, UCLA Law Professor Stephen Bainbridge posted this 45 minute <a href="https://www.professorbainbridge.com/professorbainbridgecom/2022/11/insider-trading-and-corporate-takeovers-a-professorbainbridgecom-video.html">video</a> summarizing the law and theory of insider trading.&nbsp; Among other things, he discusses blatant misappropriation, tipping chains, what constitutes a "personal benefit".&nbsp;&nbsp;</p> <img src="https://track.hubspot.com/__ptq.gif?a=3468962&amp;k=14&amp;r=https%3A%2F%2Fwww.calcorporatelaw.com%2Fa-short-course-in-insider-trading&amp;bu=https%253A%252F%252Fwww.calcorporatelaw.com&amp;bvt=rss" alt="" width="1" height="1" style="min-height:1px!important;width:1px!important;border-width:0!important;margin-top:0!important;margin-bottom:0!important;margin-right:0!important;margin-left:0!important;padding-top:0!important;padding-bottom:0!important;padding-right:0!important;padding-left:0!important; "> Insider Trading Securities and Exchange Commission Mon, 14 Nov 2022 08:15:00 GMT kbishop@allenmatkins.com (Keith Paul Bishop) https://www.calcorporatelaw.com/a-short-course-in-insider-trading 2022-11-14T08:15:00Z Are Directors Employees? https://www.calcorporatelaw.com/are-directors-employees <p>Yesterday's <a href="https://www.calcorporatelaw.com/court-holds-that-arbitrator-must-decide-whether-partner-is-an-employee">post</a> concerned a case in which a California Court of Appeal held that an arbitrator must decide whether a former partner is an employee.&nbsp; This reminded me of this six year old <a href="https://www.calcorporatelaw.com/2016/12/partnership-members-employees">post</a>.&nbsp;</p> <p>Yesterday's <a href="https://www.calcorporatelaw.com/court-holds-that-arbitrator-must-decide-whether-partner-is-an-employee">post</a> concerned a case in which a California Court of Appeal held that an arbitrator must decide whether a former partner is an employee.&nbsp; This reminded me of this six year old <a href="https://www.calcorporatelaw.com/2016/12/partnership-members-employees">post</a>.&nbsp;</p> <p>I was also reminded of a&nbsp; question that I have posed in several prior posts: Is a director an employee?&nbsp; Of course, some directors are also employees of the corporation.&nbsp; The question, however, is whether a director <span style="font-style: italic;">qua&nbsp;</span><span style="font-style: normal;">director is an employee.&nbsp; Here are some my earlier posts on the subject:</span></p> <ul> <li><span style="font-style: normal;"><a href="https://www.calcorporatelaw.com/_hcms/analytics/search/conversion?redirect=aHR0cHM6Ly93d3cuY2FsY29ycG9yYXRlbGF3LmNvbS8yMDE2LzEyL2FyZS1jb3Jwb3JhdGUtZGlyZWN0b3JzLXN1YmplY3QtdG8td29ya2Vycy1jb21wZW5zYXRpb24%3D&amp;ct=SEARCH&amp;pid=3468962&amp;cid=5495119626&amp;t=ZGlyZWN0b3IgZW1wbG95ZWU%3D&amp;d=www.calcorporatelaw.com&amp;c=2&amp;c=3&amp;c=6&amp;rp=1&amp;ab=false&amp;opcid=&amp;rs=UNKNOWN&amp;hs-expires=1699638359&amp;hs-version=1&amp;hs-signature=APUk-v4p0tBAEzTMtaUau16o_M5AM1mK0A" class="hs-search-results__title">Is A Corporate<span>&nbsp;</span><span class="hs-search-highlight hs-highlight-title">Director</span><span>&nbsp;</span>An<span>&nbsp;</span><span class="hs-search-highlight hs-highlight-title">Employee</span><span>&nbsp;</span>Subject To Workers' Compensation?</a></span></li> <li><span style="font-style: normal;"><a href="https://www.calcorporatelaw.com/_hcms/analytics/search/conversion?redirect=aHR0cHM6Ly93d3cuY2FsY29ycG9yYXRlbGF3LmNvbS9oYXMtY2FsaWZvcm5pYS1tYWRlLWRpcmVjdG9ycy1lbXBsb3llZXM%3D&amp;ct=SEARCH&amp;pid=3468962&amp;cid=23062441285&amp;t=ZGlyZWN0b3IgZW1wbG95ZWU%3D&amp;d=www.calcorporatelaw.com&amp;c=2&amp;c=3&amp;c=6&amp;rp=2&amp;ab=false&amp;opcid=&amp;rs=UNKNOWN&amp;hs-expires=1699638359&amp;hs-version=1&amp;hs-signature=APUk-v7p0Y03sqf1xV4hckkEOiINN6_i8w" class="hs-search-results__title">Has California Made<span>&nbsp;</span><span class="hs-search-highlight hs-highlight-title">Directors</span><span>&nbsp;</span><span class="hs-search-highlight hs-highlight-title">Employees</span>?</a></span></li> <li><span style="font-style: normal;"><a href="https://www.calcorporatelaw.com/_hcms/analytics/search/conversion?redirect=aHR0cHM6Ly93d3cuY2FsY29ycG9yYXRlbGF3LmNvbS9jYW4tZGlyZWN0b3JzLWF2b2lkLWVtcGxveWVlLXN0YXR1cy11bmRlci1hYi01&amp;ct=SEARCH&amp;pid=3468962&amp;cid=24653454688&amp;t=ZGlyZWN0b3IgZW1wbG95ZWU%3D&amp;d=www.calcorporatelaw.com&amp;c=2&amp;c=3&amp;c=6&amp;rp=3&amp;ab=false&amp;opcid=&amp;rs=UNKNOWN&amp;hs-expires=1699638359&amp;hs-version=1&amp;hs-signature=APUk-v7UqnRGohNr44u6JbXDEvgac15-jQ" class="hs-search-results__title">Do<span>&nbsp;</span><span class="hs-search-highlight hs-highlight-title">Directors</span><span>&nbsp;</span>Avoid<span>&nbsp;</span><span class="hs-search-highlight hs-highlight-title">Employee</span><span>&nbsp;</span>Status Under AB 5?</a></span></li> <li><span style="font-style: normal;"><a href="https://www.calcorporatelaw.com/_hcms/analytics/search/conversion?redirect=aHR0cHM6Ly93d3cuY2FsY29ycG9yYXRlbGF3LmNvbS9pcy1hLWRpcmVjdG9yLWFuLWVtcGxveWVlLXRoZS1zZWMtaGFzLXNvbWUtY29udHJhZGljdG9yeS1hbnN3ZXJz&amp;ct=SEARCH&amp;pid=3468962&amp;cid=23303074703&amp;t=ZGlyZWN0b3IgZW1wbG95ZWU%3D&amp;d=www.calcorporatelaw.com&amp;c=2&amp;c=3&amp;c=6&amp;rp=4&amp;ab=false&amp;opcid=&amp;rs=UNKNOWN&amp;hs-expires=1699638359&amp;hs-version=1&amp;hs-signature=APUk-v5EiWLjeIG7J8Vy-IMsKFdt0DZbkw" class="hs-search-results__title">Is A<span>&nbsp;</span><span class="hs-search-highlight hs-highlight-title">Director</span><span>&nbsp;</span>An<span>&nbsp;</span><span class="hs-search-highlight hs-highlight-title">Employee</span>?&nbsp; The SEC Has Some Contradictory Answers.</a></span></li> </ul> <p>&nbsp;</p> <img src="https://track.hubspot.com/__ptq.gif?a=3468962&amp;k=14&amp;r=https%3A%2F%2Fwww.calcorporatelaw.com%2Fare-directors-employees&amp;bu=https%253A%252F%252Fwww.calcorporatelaw.com&amp;bvt=rss" alt="" width="1" height="1" style="min-height:1px!important;width:1px!important;border-width:0!important;margin-top:0!important;margin-bottom:0!important;margin-right:0!important;margin-left:0!important;padding-top:0!important;padding-bottom:0!important;padding-right:0!important;padding-left:0!important; "> employees board of directors director Fri, 11 Nov 2022 08:15:00 GMT kbishop@allenmatkins.com (Keith Paul Bishop) https://www.calcorporatelaw.com/are-directors-employees 2022-11-11T08:15:00Z Court Holds That Arbitrator Must Decide Whether Partner Is An Employee https://www.calcorporatelaw.com/court-holds-that-arbitrator-must-decide-whether-partner-is-an-employee <p>As discussed in this <a href="https://www.calcorporatelaw.com/2016/10/new-california-law-threatens-destroy-plan-uniformity">post</a> from 2016, California Labor Code Section 925 prohibits an employer from requiring an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following:</p> <p>As discussed in this <a href="https://www.calcorporatelaw.com/2016/10/new-california-law-threatens-destroy-plan-uniformity">post</a> from 2016, California Labor Code Section 925 prohibits an employer from requiring an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following:</p> <ul> <li>Require the employee to adjudicate or arbitrate outside of California a claim arising in California.</li> <li>Deprive the employee of the substantive protection of California law with respect to a controversy arising in California.</li> </ul> <p>In&nbsp;<em>Zhang v. Superior Court, </em>2022 WL 16832570, the plaintiff was a former "full interest partner" in a law firm who lived and worked in California.&nbsp; He signed a partnership agreement with a broad arbitration clause that required arbitration in Chicago or New York.&nbsp; Under the rules applicable to the arbitration, the arbitrator was authorized to decide issues of arbitrability.&nbsp; After the law firm terminated the partner for cause and initiated arbitration, the erstwhile partner sought to avoid arbitration in New York based on Section 925.&nbsp; The question that became who would decide the arbitrability of the dispute - the New York court or the arbitrator?</p> <p>The Court of Appeal found in favor of the law firm, concluding:</p> <blockquote> <p><span>The parties delegated questions of arbitrability to the arbitrator. The arbitrator in New York must decide if petitioner is an employee. If the arbitrator decides petitioner is an employee, the merits of the dispute must be decided in California. If the arbitrator decides petitioner is not an employee, then the merits of the dispute must be arbitrated in New York, as agreed. These conclusions preserve comity and avoid undermining the freedom of parties to determine the issues they agree to arbitrate, in consonance with longstanding FAA principles.</span></p> <p style="text-align: center; font-weight: bold;"><span>The widening gyre?</span></p> </blockquote> <p>The holding does appear to lead to a bit of a logical gyre.&nbsp; If the arbitrator finds that the partner was an employee, then Section 925 provides that "[a]<span>ny provision of a contract that violates this statute will be voidable by the employee".&nbsp; &nbsp;However, if the partner voids the provision requiring arbitration in New York, he would be relying arbitration in New York to void the requirement to arbitrate outside of California.</span></p> <img src="https://track.hubspot.com/__ptq.gif?a=3468962&amp;k=14&amp;r=https%3A%2F%2Fwww.calcorporatelaw.com%2Fcourt-holds-that-arbitrator-must-decide-whether-partner-is-an-employee&amp;bu=https%253A%252F%252Fwww.calcorporatelaw.com&amp;bvt=rss" alt="" width="1" height="1" style="min-height:1px!important;width:1px!important;border-width:0!important;margin-top:0!important;margin-bottom:0!important;margin-right:0!important;margin-left:0!important;padding-top:0!important;padding-bottom:0!important;padding-right:0!important;padding-left:0!important; "> employees Labor Code Thu, 10 Nov 2022 08:15:00 GMT kbishop@allenmatkins.com (Keith Paul Bishop) https://www.calcorporatelaw.com/court-holds-that-arbitrator-must-decide-whether-partner-is-an-employee 2022-11-10T08:15:00Z