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californiacorporate&securities 8/21/2018
Why I Disagree With A Semi-Annual Reporting Mandate (And It Probably Isn't The Reason That You Expect)

Last Friday, President Trump tweeted that he has asked the Securities and Exchange Commission to study stopping quarterly reporting and going to a six-month reporting system.  A few years back, I proposed a more free market approach:

 
californiacorporate&securities 8/20/2018
Is Section 17200 A Case of "Ex Nihilo Nonnihil Fit"?

Last week, I devoted several posts to the California Supreme Court's decision in  De La Torre v. Cashcall Inc., 2018 Cal. LEXIS 5749.  In that opinion, the Court was responding to a question certified to it by the Ninth Circuit Court of Appeals.  De La Torre v. CashCall, Inc., 854 F.3d 1082, 1085 (9th Cir. 2017).  The plaintiffs in the underlying class action did not allege that the defendant's advertising was deceptive nor did they allege that the defendant had failed to disclose accurately the terms of the loan as required by federal law.  Instead, the plaintiffs alleged that the defendants made consumer loans with unconscionably high interest rates and thus violated California's Unfair Competition Law, Cal. Bus. & Prof. Code § 17200.  The UCL defines “unfair competition” to include “any unlawful, unfair or fraudulent business act or practice.”

 
californiacorporate&securities 8/17/2018
California Court Applies California Law To Officer Of Delaware Corporation

Not quite three years ago, I penned the following lines:

 
californiacorporate&securities 8/16/2018
Today The Suspense Will Be Over (Mostly)

Followers of California legislation will note that many bills are now in either the "suspense file" of the Appropriations Committees of the Senate and the Assembly.  These two committees have jurisdiction over fiscal bills.  A bill with a significant fiscal impact is typically assigned to the suspense file.  This year, the Joint Rules of the Assembly and Senate require that bills be passed out of fiscal committee by tomorrow (August 17).  J.R. 61(b)(15).  That means that a bill that fails to pass out of committee by that date will be dead unless the author can obtain a rule waiver.

 
californiacorporate&securities 8/15/2018
Supreme Court Shows No Deference To The DBO

For U.S. Supreme Court followers, a hot topic is whether the Court will continue to apply "Chevron deference".  Under Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984), a court will uphold an agency's interpretation of an ambiguous statute if that interpretation is reasonable or permissible even though the court does not believe the agency's interpretation is the best interpretation.  In this post from two years ago, I noted California courts do not apply such a high degree of deference.  

 
californiacorporate&securities 8/14/2018
California Supreme Court Empowers The DBO And The Courts To Regulate Interest Rates

Section 22303 of the California Financial Code establishes the maximum interest rates applicable to loans less than $2,500.  The preceding section incorporates by reference the general Civil Code provision about contract unconscionability, Section 1670.5(a).  Does this mean that a lender may charge interest rates usque ad caelum or may a court determine the interest rate on consumer loans of $2,500 to be unconscionable?  That was in effect the question certified by the Ninth Circuit Court of Appeals to the California Supreme Court last year.  I found the certified question to be a bit more confusing: 

 
californiacorporate&securities 8/13/2018
The End Of The 2017-2018 Is Nigh!

The California legislature meets annually but the legislative session is biennial.  Nevada's legislature in contrast meets every other year.  See Happy New Biennium!  The second year of California's current session comes to a close at the end of this month.  The last few weeks of the session when legislators typically make last minute amendments and sometimes a bill can be completely gutted and amended.  

 
californiacorporate&securities 8/10/2018
Nevada Supreme Court Addresses Nationwide Non-Compete

Given California's hostility to non-compete agreements, it is easy to lose sight of the fact that other states don't have the same attitude.  In neighboring Nevada, the courts will look to whether the restraint on competition in reasonable.  A restriction is reasonable when it is "reasonably necessary to protect the business and goodwill of the employer."  Jones v. Deeter, 112 Nev. 291, 296 (1996).  Nevada courts evaluate post-employment non-compete agreements with a higher degree of scrutiny than other kinds of non-compete agreements because of the seriousness of restricting an individual's ability to earn an income.  Ellis v. McDaniel, 95 Nev. 455, 459 (1979).

 
californiacorporate&securities 8/9/2018
Fairness Hearings Are Not Just For Merger Transactions

Section 3(a)(10) of the Securities Act provides an exemption from Securities Act registration for offers and sales of securities in specified exchange transactions.  There are several conditions to the exemption, including the requirement that a court or other authorized governmental entity approve the fairness of the terms and conditions of the exchange.  Because the California Commissioner of Business Oversight has statutory authority to conduct fairness hearings (Cal. Corp. Code § 25142), fairness hearings before the Commissioner have proven to be a cost-effective alternative in California to registration of shares exchanges in connection with merger transactions.  See this post from 2012.

 
californiacorporate&securities 8/8/2018
LLCs Are Found In The Corporations Code But They Are Not Corporations

As one might expect, the California Corporations Code includes California General Corporation Law.  The Corporations Code covers a lot more than corporations, however.  It includes, for example, California's partnership, limited partnership, and limited liability companies.  This doesn't mean that partnerships or LLCs are corporations and it certainly doesn't mean that the General Corporation Law governs their affairs.  

 
californiacorporate&securities 8/7/2018
Can An Employee's Labor Be Stolen Property?

Section 496 of the California Penal Code makes it a crime to receive stolen property.  Any person who has been injured by a violation of the statute may bring an action for three times the amount of actual damages, if any, costs of suit, and reasonable attorney’s fees.  But what constitutes "property" for purposes of the statute? 

 
californiacorporate&securities 8/6/2018
Six Years Ago, I Said This Was A Mistake And Now The Legislature Agrees

Six years ago, I opposed Governor Brown's reorganization plan that, among other things, resulted in the creation of the Bureau of Real Estate within the Department of Consumer Affairs:

 
californiacorporate&securities 8/3/2018
How An $80 Mistake Led To $2,250 In Damages And More Than $86,000 In Attorney's Fees

Section 202(a) of the California Labor Code requires an employer to pay all wages within 72 hours when an employee resigns without notice.  In one recent case, the employer sent the requisite check on time, and the amount stated in numerals on the check was correct.  The amount written out in words was $80 less.  This meant that the employer had shorted the employee by $80.  (See Cal. Comm. Code § 3114 ("If an instrument contains contradictory terms, typewritten terms prevail over printed terms, handwritten terms prevail over both, and words prevail over numbers.")).  By the time that the erstwhile employer sorted things out, that $80 error resulted in $2,250 in penalties (9 days late at the employee's daily wage of $250 per day).

 
californiacorporate&securities 8/2/2018
What Can Be Done When Shareholders Can't Be Found Or Creditors Won't Accept Payment

What is a corporation to do when:

 
californiacorporate&securities 8/1/2018
In California, Even Infants Can Vote!

The 26th Amendment to the United States Constitution provides: "The right of citizens of the United States, who are 18 years of age or older, to vote, shall not be denied or abridged by the United States or any state on account of age".  The amendment, however, says nothing about minors voting corporate shares.  The California General Corporation Law, however, does.  Section 702(d) of the Corporations Code provides: 

 
californiacorporate&securities 7/31/2018
Ninth Circuit Finds California's Ban On Non-Compete Agreement Can Extend To Substantial Professional Restraints

California, unlike other states, takes an absolutist view of covenants not to compete.  Section 16600 of the Business and Professions Code declares, with certain exceptions, "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void". 

What about a covenant that allows one to continue in his or her chosen profession, but not work for one or more specified employers?  The Ninth Circuit Court of Appeals recently tackled this question in Golden v. Cal. Emergency Physicians Med. Grp., 2018 U.S. App. LEXIS 20519.

 
californiacorporate&securities 7/30/2018
Will Delaware's New Voluntary Certification Act Lead To California Lawsuits?

As explained in this memorandum by Richards, Layton & Finger, PA, Delaware recently enacted the Delaware Certification of Adoption of Transparency and Sustainability Standards Act.  This legislation will allow a Delaware entity to signal its commitment to global sustainability.  The law takes effect October 1, 2018.

Of course, no good deed or protestation of a good deed is free from criticism or possible legal challenge.  Anticipating this, the Delaware legislature expressly abjured the creation of any private rights of action:

 
californiacorporate&securities 7/27/2018
In California, Corporations Can Be Individuals Too

Many were upset with the U.S. Supreme Court's decision in Citizens United v. Federal Election Commission,  Citizens United v. FEC, 558 U.S. 310 (2010).  The California legislature was so upset that it passed a resolution memorializing its disagreement and asseverating that "Corporations are not people but, instead, are entities created by the laws of states and nations".  AJR No. 22

 
californiacorporate&securities 7/26/2018
Drinking May Have Dethroned His Reason And His Gaming Debt

Suppose you had just lost a $1 million gambling in Las Vegas.  The wise thing to do would be to stop, but you don't.  The house accommodates you by extending another million dollars in "credit" for which you sign markers.  Unfortunately, luck is not a lady and you promptly lose another million bucks.  You fly home and hope that the casino will be understanding.

 
californiacorporate&securities 7/25/2018
Implied Private Right Of Action And The Corporate Securities Law of 1968

Section 25235 of the California Corporations Code declares that is unlawful for an investment adviser to engage in a number of specified activities, including employing "any device, scheme, or artifice to defraud any client or prospective client".  The fact that an activity is "unlawful" does not necessarily mean that a private right of action exists.  In fact, Corporations Code Section 25510 expressly negates implied civil liability under the Corporate Securities Law:

 
californiacorporate&securities 7/24/2018
Court Of Appeal Finally Notices That Section 2116 Says Not A Word About Officers

Section 2116 of the California Corporations Code generally provides that the directors of a foreign corporation transacting intrastate business in California will be liable for a violation of official duty according to any applicable laws of the state or place of incorporation, whether committed or done in California or elsewhere.  In 2006, long before the birth of this blog, I observed:

 
californiacorporate&securities 7/23/2018
These Officials Live On In Statute

I always find outdated statutory references to be annoying, particularly when I'm dealing with a statutory scheme for the first time.  I recognize that the fun of legislation lies in writing new laws, but with the power to make law should come the responsibility of keeping those laws current.  Below are just a few examples of offices that no longer exist:

 
californiacorporate&securities 7/20/2018
For What Possible Reason Did The SEC Eschew All Consistency In Rule 144?

Like Agur, I find some things are beyond my ken.  It is, for example, beyond my understanding why the Securities and Exchange Commission thought it would be a good idea to use three different measures of time in Rule 144.   

 
californiacorporate&securities 7/19/2018
Franchise Tax Board Loses LLC Class Certification Battle

When the legislature enacted the former Beverly-Killea Limited Liability Company Act in 1994 it included a levy on LLCs equal to specified dollar amounts based on the total income from all sources reportable to this state for the taxable year.  In 2008, two Courts of Appeal found this provision (former Corporations Code Section 17942)  to be unconstitutional. Northwest Energetic Services, LLC v. California Franchise Tax Bd., 159 Cal.App.4th 841 (2008) and Ventas Finance I, LLC v. Franchise Tax Bd., 165 Cal.App.4th 1207 (2008).  By June of the following year, over 43,000 LLCs had filed claims for refunds.

 
californiacorporate&securities 7/18/2018
By Adding Commas, Did The Legislature Expand Shareholder Inspection Rights?

Section 1601(a) of the California Corporations Code currently subjects to shareholder inspection the "accounting books and records and minutes of proceedings of the shareholders and the board and committees of the board".  Professor Marsh's treatise asserts:

 
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