Justia California Court of Appeals Opinion Summaries

In the case of a contested divorce between Quin Whitman and Douglas F. Whitman, the founder of a once successful hedge fund, the Court of Appeal of the State of California ruled on several issues. The court affirmed that Doug failed to prove he retained any separate property interest in the hedge fund at the time of dissolution, despite an initial $300,000 investment of his own separate funds. The court also ruled that the community was not financially responsible for any of the legal fees Doug incurred to defend against criminal charges brought against him for insider trading or the $250,000 fine imposed on him in that case. However, the court erred in holding the community responsible for the $935,000 penalty imposed by the Securities and Exchange Commission for illegal insider trading. Quin did not demonstrate that the court erred in holding the community responsible for legal fees expended by the hedge fund when it intervened as a third party into these proceedings. The court also concluded that Quin failed to prove her claim that Doug breached his fiduciary duty in connection with the sale of the couple’s luxury home. The court concluded that the couple’s entire interest in the hedge fund is community property, subject to equal division. The court also found that Doug's legal expenses incurred in defending against insider trading charges and the $250,000 fine imposed on him were his separate debts. View "In re Whitman" on Justia Law

After the enactment of AB 5 and the filing of Proposition 22 but before the effective date of AB 2257—Plaintiff filed suit against LPL Financial LLC under the Private Attorneys General Act (PAGA). LPL is a registered broker-dealer and registered investment adviser registered with Financial Industry Regulatory Authority, Inc. (‘FINRA’) and the Securities Exchange Commission. Plaintiff and all allegedly aggrieved individuals (the ‘Financial Professionals’) were ‘securities broker-dealers or investment advisers or their agents and representatives that are registered with the Securities and Exchange Commission or the Financial Industry Regulatory Authority. The parties stipulated that on its face, Labor Code Section 2750.3(i)(2) makes the exemption set forth in Section 2750.3(b)(4) retroactive, such that it would cover the entire proposed PAGA period in this action. However, Plaintiff claimed both of those sections are unconstitutional and thus unenforceable. The parties did not stipulate the results of these two tests—the ABC test versus the Borello test. LPL moved for summary adjudication. The trial court upheld the statute as constitutional.   The Second Appellate District affirmed and held that the challenged provisions are constitutional. The court explained that Plaintiff maintains the registration aspect of the exemption creates a nonsensically narrow classification. The court held that legislation may recognize different categories of people within a larger classification who present varying degrees of risk of harm and properly may limit regulation to those classes for whom the need for regulation is thought to be more important. Further, the court wrote that, unlike the situation with equal protection law, there may be a large divergence between state and federal substantive due process doctrines. View "Quinn v. LPL Financial LLC" on Justia Law

Edelweiss brought a qui tam action against financial institutions (California False Claims Act (Gov. Code 12650) (CFCA)), alleging that the defendants contracted to serve as remarketing agents (RMAs) to manage California variable rate demand obligations (VRDOs): tax-exempt municipal bonds with interest rates periodically reset by RMAs. Edelweiss claims that the defendants submitted false claims for payment for these remarketing services, knowing they had failed their obligation to reset the interest rate at the lowest possible rate that would enable them to sell the series at par (face value), and “engaged in a coordinated ‘Robo-Resetting’ scheme where they mechanically set the rates en masse without any consideration of the individual characteristics of the bonds or the associated market conditions or investor demand” and “impose[d] artificially high interest rates on California VRDOs.” Edelweiss alleged that it performed a forensic analysis of rate resetting during a four-year period and that former employees of the defendants “stated and corroborated” this robo-resetting scheme.The trial court dismissed the complaint, concluding that the allegations lacked particularized allegations about how the defendants set their VRDO rates and did not support a reasonable inference that the observed conditions were caused by fraud, rather than other factors.The court of appeal reversed. While allegations of a CFCA claim must be pleaded with particularity, the court required too much to satisfy this standard. The court rejected an alternative argument that Edelweiss’s claims are foreclosed by CFCA’s public disclosure bar. View "Edelweiss Fund LLC v. JPMorgan Chase & Co." on Justia Law

The value of shares of stock in Restoration Robotics, a Delaware corporation, dropped within months of the company’s 2017 initial public stock offering. Wong, having purchased the stock, sued Restoration in San Mateo County Superior Court, alleging that the company’s offering documents contained materially false and misleading statements in violation of the Securities Act of 1933 (15 U.S.C. 77). Although the 1933 Act generally allows a plaintiff to choose whether to file suit in state or federal court, and bars the removal to federal courts of a suit filed in state court, a “federal forum provision” (FFP) in Restoration’s certificate of incorporation states that 1933 Act claims must be brought in federal court unless Restoration consents to a different forum.The trial court declined jurisdiction on the basis of the FFP. The court of appeal affirmed, rejecting arguments that the FFP violates the 1933 Act, which states that both state and federal courts have jurisdiction over 1933 Act causes of action, that the Delaware statutory scheme permitting the FFP violates the Commerce Clause and the Supremacy Clause, and that the FFP is invalid and should not be enforced in any event because it is unfair and unreasonable. View "Wong v. Restoration Robotics, Inc." on Justia Law

In June 2017, Google engineers alerted Intel’s management to security vulnerabilities affecting Intel’s microprocessors. Intel management formed a “Problem Response Team” but made no public disclosures. In January 2018, media reports described the security vulnerabilities. Intel acknowledged the vulnerabilities, and management’s prior knowledge of them. Intel’s stock price dropped. Tola filed a shareholder derivative complaint, alleging that certain Intel officers and directors breached fiduciary duties. After obtaining records from Intel, Tola filed a third amended complaint, alleging that certain officers “knowingly disregarded industry best practices, material risks to the Company’s reputation and customer base, and their fiduciary duties of care and loyalty … the Board of Directors willfully failed to exercise its fundamental authority and duty to govern Company management and establish standards and controls.”The trial court dismissed, concluding that Tola failed to allege, with the requisite particularity, that it was futile to make a pre-suit demand on Intel’s board of directors. The court of appeal affirmed. Tola does not support his conclusory allegations with sufficient particularized facts that support an inference of bad faith. At most, Tola alleged that two directors received a material personal benefit from alleged insider trading, which still leaves an impartial board majority to consider a demand. View "Tola v. Bryant" on Justia Law

After a scandal that led to plaintiff's resignation from his positions at Banc of California, plaintiff filed suit against Banc, several individual directors and Banc executives, and Banc's lead auditor. Defendant filed anti-SLAPP (strategic lawsuits against public participation, Code Civ. Proc., 425.16) motions to strike various of the causes of action plaintiff alleged.In the published portion of the opinion, the Court of Appeal affirmed the Brown order granting Defendant Brown's motion in part. The court held that statements in an annual 10-K report filed with the SEC constitute statements "made in connection with an issue under consideration or review by [an] official proceeding" under section 425.16, subdivision (e)(2). View "Sugarman v. Brown" on Justia Law

After a scandal that led to plaintiff's resignation from his positions at Banc of California, plaintiff filed suit against Banc, several individual directors and Banc executives, and Banc's lead auditor. Defendant filed anti-SLAPP (strategic lawsuits against public participation, Code Civ. Proc., 425.16) motions to strike various of the causes of action plaintiff alleged.In the published portion of the opinion, the Court of Appeal held that statements Banc made in its Forms 8-K and 10-Q filed with the SEC, as well as related investor presentations and conversations, are protected activity under section 425.16, subdivision (e)(2) as matters under review and consideration by the SEC. Furthermore, statements related to financial projections were also protected under section 425.16, subdivision (e)(4), as matters of public interest. View "Sugarman v. Benett" on Justia Law

Natera's primary product is Panorama, a screening test for fetal chromosomal abnormalities, based on a blood draw, rather than amniocentesis. A class action under the Securities Act of 1933 (15 U.S.C. 77a), alleged that documents issued in connection with Natera’s initial public offering omitted material facts that were required by regulations or necessary to make the documents not misleading. It alleged that the documents, which became effective on July 1, 2015, improperly touted Natera as "rapidly growing," amid a quarterly revenue growth trend with year-over-year revenue increases, while omitting Natera’s “material negative financial results” for the second quarter of 2015, which had ended on June 30, 2015; second-quarter financial results were not yet public.The court of appeal affirmed the dismissal of the claims. In the context of the Registration Statement as a whole, there is nothing false or misleading about the statements that Natera is “rapidly growing” or that its “rapid growth of revenues” was based on the success of Panorama. The Statement clearly stated that revenues declined from 4Q 2014 to 1Q 2015 and attributed that decline to decreased average reimbursement for Panorama due to a new billing code and delayed revenue recognition. The Statement itself refutes any argument that defendants failed to disclose the negative trend of declining reimbursements and revenues with increasing costs and losses. View "City of Warren Police and Fire Retirement System v. Natera Inc." on Justia Law

Investors purchased shares of BlackRock iShares Exchange-Traded Funds (ETFs) and suffered financial losses when their shares were sold pursuant to “market orders” or “stop-loss orders” during a “flash crash” in August 2015, when ETF trading prices fell dramatically. The investors claim that BlackRock’s registration statements, prospectuses, and amendments thereto issued or filed between 2012 and 2015, were false or misleading in that they failed to sufficiently disclose the risks associated with flash crashes. The investors sued, alleging violations of disclosure requirements under the Securities Act of 1933. 15 U.S.C. 77k.The court of appeal affirmed that the investors lacked standing. Liability under sections 11 and 12(a)(2) of the 1933 Act applies only to initial offerings; the investors purchased their ETF shares on the secondary market. The court rejected claims citing section 11, under which a plaintiff has standing if shares purchased in the secondary market can be traced back to an offering made under a misleading registration statement. Given the greater availability of information about potential investments to secondary market investors, limiting the stricter liability imposed by the 1933 Act to primary market transactions is not necessarily unreasonable. In contrast to the “catchall” provisions of the Exchange Act, 15 U.S.C. 77j(b)[ 22]—sections 11 and 12(a)(2) of the Securities Act “apply more narrowly but give rise to liability more readily.” View "Jensen v. iShares Trust" on Justia Law

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