Articles Posted in Corporate Compliance

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At issue in this case is whether a court should alter contractual obligations in a corporate reorganization, when the corporation utilized the type of reorganization it used in order to avoid altering its contractual obligations. The type of reorganization used in this case was referred to as a reverse triangular merger. The usefulness of such a merger is to leave the target corporation intact as a subsidiary of the acquiring corporation where the target corporation has contracts or assets that are not easily assignable. The Court of Appeal concluded that where the form of reorganization was not chosen to disadvantage creditors or shareholders, it would not ignore the form of reorganization chosen by the corporation. View "North Valley Mall v. Longs Drug Stores etc." on Justia Law

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Guadalupe Ontiveros, as minority shareholder in Omega Electric, Inc. (Omega), sued majority shareholder Kent Constable, his wife Karen, and Omega, asserting direct and derivative claims arising from a dispute over management of Omega and its assets. In response to Ontiveros's claim of involuntary dissolution of Omega, Appellants filed a motion to stay proceedings and appoint appraisers to fix the value of Ontiveros's stock. The superior court granted the motion, staying the action. Ontiveros then tried to dismiss his claim for involuntary dissolution without prejudice, but the court clerk would not accept his filing because the matter had been stayed. Ontiveros thus filed a motion, asking the court to revoke its order granting Appellants' motion, or in the alternative, to reconsider and then vacate the order. The court treated that motion as a motion for leave to file a dismissal with prejudice under Code of Civil Procedure section 581 (e), granted the motion, and allowed Ontiveros to dismiss his cause of action for involuntary dissolution of Omega. Without the existence of that claim, the court found no basis on which to stay the action and order an appraisal of the stock. As such, the court lifted the stay, terminating the procedure. Appellants appealed, contending the court abused its discretion in granting Ontiveros's motion. In addition, Appellants argued the trial court improperly interpreted section 2000 in granting the motion. Ontiveros countered by arguing the trial court's order was not appealable. The Court of Appeal determined Appellants presented an appealable issue, and was persuaded the trial court abused its discretion here: the superior court relied upon that code section as a mechanism to lift the stay and terminate the section 2000 special proceeding, misapplying the law. Consequently, the trial court's order was reversed. View "Ontiveros v. Constable" on Justia Law

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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