Articles Posted in Corporate Compliance

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Google agreed with competitors, such as Apple, not to initiate contact to recruit each others' employees. In 2010, the Department of Justice filed a civil antitrust action, alleging that the agreements illegally diminished competition for tech employees, denying them job opportunities and suppressing wages. On the same day, the companies entered into a stipulated judgment, admitting no liability but agreeing to an injunction prohibiting the "no cold call" arrangements. Google posted a statement online announcing the settlement and denying any wrongdoing, with a link to a Department of Justice press release, describing the settlement terms. There was widespread media coverage. In 2011, class action lawsuits were filed against the companies by employees who alleged that the cold calling restrictions had caused them wage losses. A consolidated action sought over $3 billion in damages on behalf of more than 100,000 employees. A derivative suit, filed by shareholders in 2014, claimed that the company suffered financial losses resulting from the antitrust and class action suits and that the agreements harmed the company’s reputation and stifled innovation. Based on a three-year statute of limitations, the trial court dismissed. The court of appeal affirmed, finding the suit untimely because plaintiffs should have been aware of the facts giving rise to their claims by at least the time of the Department of Justice antitrust action in 2010. View "Police Retirement System of St. Louis v. Page" on Justia Law

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Plaintiff Franklin Eng appealed a judgment in favor of defendants Michael Patrick Brown and Gerald Levy following a jury trial. Eng claimed that Brown and Levy breached their fiduciary duties to him as purported partners or joint venturers in the ownership and operation of the Tin Fish Gaslamp, a seafood restaurant in San Diego. The jury found that Eng, Brown, and Levy entered into a partnership or joint venture, but it was terminated when they formed a corporation, B.L.E. Fish, Inc. to purchase and operate the restaurant. Eng's claim for breach of fiduciary duty based on a partnership or joint venture was therefore unsupportable. Eng argued on appeal that, among other things:(1) the trial court erred by denying his request, in a motion in limine, that the court find that the parties created a partnership as a matter of law; (2) the court erred by denying his motion in limine seeking to exclude any evidence or argument that B.L.E. Fish merged with or superseded the partnership; (3) the court erred by granting Brown and Levy's motion to amend their answer to assert an affirmative defense based on merger or supersession; (4) the court erred by denying Eng's motion for directed verdict; (5) the court committed instructional error (and a related error in the special verdict) regarding merger and supersession; (6) the court erred in its response to a juror question during deliberations; (7) the court erred by denying Eng's motion to amend his complaint to add a claim for breach of fiduciary duties based on the parties' corporate relationship; (8) the court erred by denying Eng's motion to strike the testimony of a defense expert witness; and (9) the court erred by denying Eng's ex parte application for the release of juror contact information. Finding no reversible errors, the Court of Appeal affirmed. View "Eng v. Brown" on Justia Law

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The 2016 amendment to Corporations Code section 17707.06 applied to a certificate of cancellation filed by plaintiff in 2014. The Court of Appeal held that plaintiff concealed the certificate of cancellation and then unsuccessfully challenged its authenticity, prolonging the proceedings into 2016 when the changes to section 17707.06 took effect. The court reasoned that, had plaintiff been forthcoming, the case would have been dismissed under the prior law. In this case, it would be unfair to reward plaintiff's delay by allowing it to take advantage of the 2016 law. View "DD Hair Lounge v. St. Farm General Insurance Co." on Justia Law

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The 2016 amendment to Corporations Code section 17707.06 applied to a certificate of cancellation filed by plaintiff in 2014. The Court of Appeal held that plaintiff concealed the certificate of cancellation and then unsuccessfully challenged its authenticity, prolonging the proceedings into 2016 when the changes to section 17707.06 took effect. The court reasoned that, had plaintiff been forthcoming, the case would have been dismissed under the prior law. In this case, it would be unfair to reward plaintiff's delay by allowing it to take advantage of the 2016 law. View "DD Hair Lounge v. St. Farm General Insurance Co." on Justia Law

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Apple shareholders filed a consolidated derivative action concerning Apple’s alleged pursuit and enforcement of anticompetitive agreements with other Silicon Valley companies to prohibit the recruitment of each other’s employees. Plaintiffs alleged that certain current and former members of Apple’s board of directors were aware of or tacitly approved of Apple’s practices and breached their fiduciary duties by permitting the illegal agreements over many years. Plaintiffs alleged that the Apple board never disclosed settlements of an earlier action filed by the Department of Justice based on violations of the federal antitrust laws and several federal class action lawsuits brought by employees of Apple and other technology companies. Given each board member’s alleged role in participating in or allowing the illegal agreements, plaintiffs claimed that any demand on Apple's board to institute the derivative action against the individual defendants should be excused as a futile and useless act. The superior court found that an amended complaint adequately alleged demand futility as to the board in place when the original action was filed. The composition of the board of directors had changed in the interim. The court of appeal disagreed. The court was required to assess demand futility as to the board in place when the amended complaint was filed. View "Apple, Inc. v. Superior Court" on Justia Law

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Intel acquired McAfee, in a cash sale at $48 per share. Plaintiff, a pension fund, on behalf of itself and a class, alleged that McAfee, Intel, and former members of McAfee’s board of directors, consisting of nine outside directors and the former president and CEO, DeWalt (defendants), engaged in an unfair merger process contaminated by conflicts; that DeWalt withheld material information about negotiations from McAfee’s directors, who failed to safeguard the process and approved an undervalued price; and that defendants omitted material information from the merger proxy statement on which McAfee’s shareholders relied in voting for the merger. The trial court, applying Delaware law, granted the defendants summary judgment, finding no triable issue of material fact regarding the individual defendants’ alleged breaches of fiduciary duty, and concomitantly no liability on behalf of the corporation for aiding and abetting. The court of appeal affirmed as to the nine directors and reversed as to DeWalt and the corporations. Plaintiff raised triable issues of material fact related to DeWalt’s apparent nondisclosure of arguably material information about a $50-per-share overture. DeWalt bears the burden under the enhanced scrutiny standard to show that he exercised his fiduciary duties in furtherance of the obligation “to secure the transaction offering the best value reasonably available.” View "Central Laborers' Pension Fund v. McAfee, Inc." on Justia Law

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After Thomas, a member of the Board of Directors of Applied Medical Corporation, was removed from the Board in January 2012, Applied exercised its right to repurchase shares of its stock issued to Thomas as part of stock incentive plans. Thomas objected to the repurchase price, and in August 2012 Applied filed suit. In June, 2015, the trial court granted summary judgment against Applied. The court of appeal affirmed as to Applied’s fraud-based claims, but reversed as to Applied’s claims based on breach of contract and conversion. A conversion claim may be based on either ownership or the right to possession at the time of conversion. Applied’s fraud claims were barred by the applicable statute of limitations; the court rejected Applied’s argument that those claims, first alleged in 2014, were timely under either the discovery rule or the relation back doctrine. View "Applied Medical Corp. v. Thomas" on Justia Law

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Shareholders of Diablo Controls submitted a written demand to inspect Diablo’s accounting books and records; the minutes of proceedings of shareholders, the board, and committees of the board; and certain other records. The demand requested the inspection take place at Diablo’s California office. The requested records were located in a Diablo office in Illinois. Diablo shipped records to California and made them available for inspection at its counsel’s California office. The shareholder found those records to be incomplete and sought a writ of mandate, claiming violation of Corporations Code section 1601. After the petition was filed, Diablo mailed the shareholders copies of additional records and made other records available for inspection at its counsel’s California office. The shareholders claimed the records were still incomplete. Diablo argued that section 1601 only obligated it to make the records available for inspection at its Illinois office. The trial court agreed and dismissed the action. The court of appeal affirmed; section 1601 requires that the records be made available for inspection at the office where such records are kept, even if the office is out of state. View "Innes v. Diablo Controls, Inc." on Justia Law

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The Company was organized as a limited liability company in 2007; its sole managing member was another LLC, whose sole members were the Ngs, who controlled and managed the Company. Defendant was one of the Company’s lawyers. The Company’s stated purpose was to serve as an investment company making secured loans to real estate developers. The Managers actually created the Company to perpetrate “a fraudulent scheme” by which the Company transferred the money invested in it to another entity the Managers controlled. Defendant knew that the Managers intended to and did use the Company for this fraudulent purpose and, working with the Managers, helped the Company conceal the nature of its asset transfers. The Company was eventually rendered insolvent and its investors filed an involuntary bankruptcy petition. The bankruptcy trustee filed suit against Defendant, alleging tort claims based on Defendant’s involvement in the Company’s fraud. Defendant argued that the claims are barred by the in pari delicto doctrine. The court of appeal affirmed dismissal, finding that the in pari delicto applies to the trustee and rejecting an argument that the doctrine should not bar her claims because the wrongful acts of the Managers should not be imputed to the Company. View "Uecker v. Zentil" on Justia Law

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Plaintiffs held warrants to buy common stock issued by defendant BlueFire Ethanol Fuels, Inc. The warrants included an anti-dilution provision, requiring BlueFire to adjust the exercise price set in the warrants “to equal the consideration paid” by a subsequent investor for equity interests in BlueFire. The anti-dilution provision did not apply to certain issuances of securities, as specified in a list of five categories of exceptions. A few years after issuance of the warrants, BlueFire entered into an agreement with non-party Lincoln Park Capital Fund, LLC, creating an “equity line of credit” or a “standby equity distribution agreement.” Lincoln promised to make up to $10 million available to BlueFire to be accessed at the option of BlueFire over a set period of time. In exchange, BlueFire issued common stock and warrants to Lincoln at the time the agreement was executed, and promised to issue additional common stock in exchange for any future cash received from Lincoln. Plaintiffs sued BlueFire for breach of contract and declaratory relief when BlueFire refused to apply the warrants’ anti-dilution provision to the Lincoln agreement. Plaintiffs also sued individual defendants Arnold Klann and Christopher Scott for breach of fiduciary duty. After a bench trial, the court rejected the breach of fiduciary duty claim against Klann and Scott. But the court ruled the anti-dilution provision applied to the Lincoln transaction and that BlueFire had breached the warrants. The court also reduced the exercise price for the warrants from $2.90 per share to $0 per share, and authorized plaintiffs to immediately exercise the warrants. The court did not award monetary damages to plaintiffs. The parties appealed aspects of the judgment adverse to their respective interests. After review, the Court of Appeal agreed that a corporation’s officers did not have a fiduciary duty to warrant holders. The Court also agreed with the court’s interpretation of plaintiffs’ warrants. The anti-dilution provision applies to the Lincoln agreement and stock issuances to Lincoln resulting from that agreement. But substantial evidence did not support the court’s decision to reduce plaintiffs’ exercise price to $0. The Court therefore reversed the judgment and remanded for retrial solely on the proper remedy for BlueFire’s breach of contract. View "Speirs v. Bluefire Ethanol Fuels, Inc." on Justia Law