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California Corporate and Securities Law

Blogs 1 - 25 of 1000
californiacorporate&securities 2/22/2018
Delaware Corporation Headquartered In Utah Agrees To Buy Assets Of Another Delaware Corporation For Cash, So Why Does California Law Govern Shareholder Approval?, Inc. is an on-line retailer with its principal executive offices located in Midvale, Utah.  Earlier this month, announced that it had agreed to buy the assets of Houserie, Inc.  Both companies are incorporated in Delaware and the asset purchase agreement provides that the closing will occur in Utah.  The asset purchase agreement provides that it "shall be governed by and construed in accordance with the internal laws of the State of Utah without giving effect to any choice or conflict of law provision or rule, except to the extent that the Laws of the State of Delaware or California are mandatorily applicable".  How is it possible for California law to govern?

californiacorporate&securities 2/21/2018
Supreme Court Holds Whistleblower Must First Blow The Whistle To The SEC

In 2010, the United States Congress included both whistleblower incentives and protections in the Dodd-Frank Act.  If you are going to reward or protect "whistleblowers", it is helpful to know who they are.  Congress helpfully included the following definition:

californiacorporate&securities 2/20/2018
Court Rules California Unincorporated Association Is A South Dakota Citizen

Diversity jurisdiction in the U.S. District courts requires complete diversity of citizenship between the parties.  28 U.S.C. § 1332.  A corporation can be a citizen of its state of incorporation, as well as the state where it has its principal place of business. 28 U.S.C. § 1332(c). 

californiacorporate&securities 2/16/2018
Legislator Seeks To Require Inspection Of Records In California

Corporations Code Section 1601 requires that records "be open to inspection . . . at any reasonable time during usual business hours . . .".  The statute is silent on where the inspection must occur. In Innes v. Diablo Controls, Inc., 248 Cal. App. 4th 139 (2016), the Court of Appeal held that Section 1601 requires that the records be made available for inspection at the office where those records are kept.  The Court of Appeal cautioned, however, that "maintaining the records in a remote location to intentionally impede inspection would be contrary to the purpose of section 1601".  See  Court Holds Inspection Statute Does Not Require That Records Be Brought To California.  

californiacorporate&securities 2/15/2018
Is A Prize-Linked Savings Account A Lottery?

In 2014, the United States Congress enacted the American Savings Promotion Act, P.L. 113–251 (DEC. 18, 2014) permitting financial institutions to offer savings accounts, with the added feature of offering chances to win prizes.  According to this blog post by John P. Feldman and Kimberly Chow, some 26 states now allow for prize-linked savings accounts.

californiacorporate&securities 2/14/2018
California CPAs Report Few Restatements But Many Are Not Reportable 

California's Accountancy Act requires licensees to report to the California Board of Accountancy, among other things, "Any restatement of a financial statement and related disclosures by a client audited by the licensee".  Cal. Bus. & Prof. Code § 5063(b)(1).  This report must be made within 30 days of the date on which the licensee "has knowledge" of the event. 

californiacorporate&securities 2/13/2018
Just Who Are A Corporation's "Regular Officers"?

California declares it unlawful for any person to engage in the business of, act in the capacity of, advertise as, or assume to act as a real estate broker or a real estate salesperson within California without first obtaining a real estate license.  Cal. Bus. & Prof. Code § 10130.  The definition of "real estate broker" is extremely broad.  Thus, a "real estate broker" is any person who for compensation or in expectation of a compensation, regardless of the form or time of payment, does or negotiates to do one or more of a number of enumerated acts "for another or others".  Cal. Bus. & Prof. Code § 10131.  Today's post focuses on corporations and when an act is done "for another or others".

californiacorporate&securities 2/12/2018
Directors Fail To Escape Liability For Approving Dividend

I last wrote about FDIC v. Ching, 2014 U.S. Dist. LEXIS 92687 (E.D. Cal. July 8, 2014) in July of 2014.  That post concerned Judge Kimberly J. Mueller's ruling that California's statutory restrictions on distributions to shareholders preempted the FDIC's common law claims against directors of a failed bank for negligence and breach of fiduciary duty in approving an $8.8 million dividend.  Judge Mueller, however, allowed the FDIC proceed against the directors under Corporations Code Section 309 and 12 U.S.C. § 1821(k).  In the ensuing trial, a jury award damages in the amount of $2.64 million.  As the late Paul Harvey was wont to say, "now, for the rest of the story":

californiacorporate&securities 2/9/2018
Department Of Business Oversight Continues To Grow

On January 10, 2018, Governor Jerry Brown issued his proposed budget for California's 2018/2019 fiscal year.  The proposed budget detail is available here.  The Governor is proposing a modest increase (about 3%) in the total number of program position from the current year.  Compared to the prior 2015/2016 fiscal year, however, the increase is more significant - about 25% (from 468.8 to 584 positions).  Despite significant federal preemption of state securities laws, the biggest increase has been in the Department's investment program which regulates the offer and sale of certain securities, franchises, and licenses and examines broker-dealers and investment advisers.  

californiacorporate&securities 2/8/2018
Was This Interim Final Rule More Final Than Interim?

In this post from July 2016, I took the Securities and Exchange Commission to task for  adding Item 16 to Form 10-K as an "Interim Final Rule".  As I then explained, Interim Final Rules constitute an end-run on the notice and comment requirements of the Administrative Procedure Act.

californiacorporate&securities 2/7/2018
Federal Court Allows Reverse Veil Piercing Of Unincorporated Association

Last August, I published this post about the Fourth District Court of Appeal's decision allowing reverse veil piercing in the case of a Delaware limited liability company even though the court had refused to allow it in the case of a corporation.  Now, U.S. District Court Judge Yvonne Gonzalez Rogers has ruled that reverse veil piercing can be extended to unincorporated associatons.  In her ruling, Judge Rogers considered both of the Fourth District Court of Appeal's earlier decisions:

californiacorporate&securities 2/6/2018
DBO Reports Increase In Adviser Examinations

The California Department of Business Oversight recently issued its annual Broker-Dealer/Investment Adviser report for the fiscal year ended June 30, 2017.  The DBO reports that it had 3,808 investment adviser firms licensed at year end.  These firms reported nearly 54,000 investment adviser representatives. 

californiacorporate&securities 2/5/2018
Does California Place Your Company At Risk?

Is doing business in California risky?  More than a few companies seem to think so.  Below are few California related risks that I noticed in the risk factors section of recently filed Form 10-Ks. 

californiacorporate&securities 2/2/2018
Saints, Sanctions and Cicero

Yesterday's post included the following description of an article about alleged misconduct by a company's CEO:

californiacorporate&securities 2/1/2018
The Board and #MeToo

The following fact pattern should be familiar.  A high-profile news story runs detailing years of sexual harassment by the CEO of a company.  Four women sued, claiming that the CEO repeatedly propositioned or groped female employees, and rewarded or punished them based on whether they complied or complained.  The article questioned the company's culture:  it sanctioned a "best legs" contest for female employees, few women served in high-level positions, and no women served on the board of directors.  While one director would complain that the CEO "can't keep it in his pants," the members of the board of directors admitted in depositions that they never sanctioned the CEO for his alleged conduct.  All told, eight harassment claims were settled for millions of dollars, subject to the employees signing confidentiality agreements.  The company also loaned the CEO the funds to settle the claims.  And in the face of these lawsuits, the company implemented a binding arbitration program to adjudicate future sexual harassment claims in a sealed proceeding.

californiacorporate&securities 1/31/2018
Who Visits The SEC's Public Reference Room Anyway?

I see the following disclosure in many Form 10-Ks:

californiacorporate&securities 1/30/2018
The SEC Shows That It's Never Too Late To Correct Some Mistakes

In 1997, the Securities and Exchange Commission adopted revisions to forms and schedules filed under the Securities Act of 1933, the Securities Exchange Act of 1934, related provisions of the Investment Company Act of 1940 and the Public Utility Holding Company Act of 1935 (RIP), and the Trust Indenture Act of 1939, to eliminate the portion of those forms that requests filers who are natural persons to furnish their Social Security numbers. 

californiacorporate&securities 1/29/2018
Why RULLCA Cabins The Duty Of Loyalty

I always enjoy hearing from readers of this blog, although I must admit that I enjoy it more when they are not pointing out an error.  Last Friday, I noted that Professor Douglas K. Moll was questioning why California's Revised Uniform Limited Liability Company Act cabined the duty of loyalty.  I had no ready answer but that very day a reader wrote to point out the following discussion in Understanding Fiduciary Duties in Business Entities, a new publication of the Continuing Education of the Bar (aka CEB).  With permission, these are copied below:

californiacorporate&securities 1/26/2018
This Professor Asks Why Does CARULLCA Cabin The Duty Of Loyalty?

Professor Douglas K. Moll points out a small, but significant, difference between the duty of loyalty owed by a partner under California's Uniform Partnership Act of 1994 and the duty of loyalty owed by a member or manager under California's Revised Uniform Limited Liability Company Act.  The difference results from the replacement of the word "includes" in the UPA with "limited to" in the CARULLCA.  The former "uncabins" (i.e, does not limit) while the latter is, like Macbeth, "cabin'd, cribb'd, confined, bound in".  Professor Moll asks:

californiacorporate&securities 1/25/2018
California Bill Would Mandate Gender Quotas For Publicly Traded Companies

Earlier this month, California Senators Hannah-Beth Jackson and Toni G. Atkins introduced a bill, SB 826, that would require a publicly held corporation with its principal places of business in California to have a minimum number of women directors.  The bill defines "publicly held corporation" as a "corporation with outstanding shares listed on the New York Stock Exchange, the NYSE Amex, the NASDAQ Global Market, or the NASDAQ Capital Market".  A foreign corporation that meets this definition would be subject to the requirement "to the exclusion of the law of the jurisdiction in which the foreign corporation is incorporated".  

californiacorporate&securities 1/24/2018
Consternation Over Congress' Elimination Of Outside Directors

The "Tax Cuts and Jobs Act" is giving compensation committees and their advisors much to consider.  Readers may recall that the limitation on a public company's ability to deduct compensation of specified officers did not apply to certain qualified performance-based compensation.  One of the many conditions to this exception was that the performance goals be determined by a compensation committee of the board of directors that is comprised solely of 2 or more outside directors.  26 U.S.C. § 162(m)(4)(C)(i).  Consequently, many issuers duly included an "outside director" requirement in their compensation committee charters and performance-based compensation plans.  For example, a compensation committee charter might provide:

californiacorporate&securities 1/23/2018
Mark Twain On Insider Trading
"Is there anything whereof, it may be said, See, this new?"
Roughing It is Samuel L. Clemens' highly engaging account of his time vagabondizing in Nevada, California and Hawaii. The book contains a great deal of information about "the rise,...
californiacorporate&securities 1/22/2018
Why A "Grant" Must, By Definition, Be In Writing 

The word "transfer" is derived from two (what else?) Latin words - trans and ferre.  The former meaning "across" and the latter meaning "to carry".  In a non-technical sense, a "transfer" can involve a simple change in possession.  For example, one might say that he transferred the contents of one package into another.  

californiacorporate&securities 1/19/2018
Where Is A Holding Company's Principal Place Of Business?

Businesses often prefer to have their cases tried in federal court, but the U.S. District Courts are courts of limited jurisdiction.  When there is no federal question at issue, the Court's jurisdiction may depend on whether there is diversity jurisdiction under 28 U.S.C. § 1332.  That statute establishes original jurisdiction for civil actions when the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and the action involves "diverse" parties.  One type of diversity that will establish jurisdiction under the statute exists when the parties are "citizens of different states".  The statute provides that "a corporation shall be deemed to be a citizen of every State . . . by which it has been incorporated and of the State . . . where it has its principal place of business." 28 U.S.C. §1332(c)(1).  

californiacorporate&securities 1/18/2018
Before Filing A Lawsuit, You May Want To Review Your Offering Documents

This post by John O'Brien for Legal Newsline is a reminder to securities issuers that they might want to review their prior offering documents before filing a lawsuit in which they make inconsistent allegations and disclose facts omitted from the offering documents.

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