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californiacorporate&securities 6/21/2018
Why The Right To A Jury Trial May Depend On The Year

Yesterday's post discussed the Court of Appeal's holding in  Nationwide Biweekly Administration, Inc. v. Superior Court, 2018 Cal. App. LEXIS 541, that a defendant in a civil proceeding by the Department of Business Oversight for statutory penalties is entitled to a jury trial on the question of liability.  If liability is found, then the amount of damages may be determined by the court in its discretion.  In the course of analyzing federal and state precedent, the Court of Appeal noted:

californiacorporate&securities 6/20/2018
Department Of Business Oversight Fails In Bid To Deny The Right To A Jury Trial

Article I, Section 16 of the California Constitution "Trial by jury is an inviolate right and shall be secured to all. . . ."  The right may be "inviolate" but it does have limits.  Thus, it is limited to the right as it existed in 1850, when California became a state.  Shaw v. Superior Court, 2 Cal. 5th 983, 994-95 (2017).  The Department of Business Oversight did not then exist.  Thus, there could be no precedent from 1850 establishing a right to a jury trial in an enforcement action brought by the DBO.  Does this mean that when the DBO goes to court in quest of statutory penalties, the target has no right to a jury trial?

californiacorporate&securities 6/19/2018
Do Limited Liability Corporations Exist In California Law?

If you skimmed the title of today's post, you might have concluded that it asks a question with an obvious answer: Do limited liability companies exist in California law?  The answer is that they have been statutorily recognized since at least 1994 when the former Beverly-Killea Limited Liability Company Act took effect.  My question, however, related to "limited liability corporations", not "limited liability companies". 

californiacorporate&securities 6/18/2018
Whom Do You Serve (Part 2)?

The point of last Friday's post is that Section 1502 of the California Corporations Code does not apply to foreign limited liability companies.  That statute requires a "corporation", as defined in Section 162, to file a statement with the Secretary of State that, among other things, designates "as the agent of the corporation for the purpose of service of process, a natural person residing in this state or a corporation that has complied with Section 1505 and whose capacity to act as an agent has not terminated".  

californiacorporate&securities 6/15/2018
Whom Do You Serve?

Suppose you were asked to serve Nation Credit Adjusters, L.L.C.  Your first step would likely be to try to identify the LLC's agent for service of process.  If you perform a business entity search on the California Secretary of State's website, you will find the following:

californiacorporate&securities 6/14/2018
Why Not Let The Market Decide The Fate Of Quarterly Reporting?

Yesterday, Liz Dunshee revisited the debate over quarterly reporting of financial results. In her post, she notes "the Business Roundtable (BRT) (press release), the National Association of Corporate Directors (NACD) (press release) and the National Investor Relations Institute (NIRI) (press release) have joined the chorus – calling for an end to short-termism by eliminating quarterly earnings guidance." 

californiacorporate&securities 6/13/2018
"The Strongest Corporate Accountability Law In The Nation" Is Officially In Desuetude

In 2003, The California legislature enacted SB 523 to subject certain corporations to civil penalties of up to $1 million if the corporation has knowledge of certain acts and fails to notify the Attorney General or the "appropriate government agency" and shareholders or investors.  The bill's sponsor, the Foundation for Taxpayer and Consumer Rights (now known as Consumer Watchdog), hailed the legislation as the strongest corporate accountability law in the nation.

californiacorporate&securities 6/12/2018
Have You Ever Been Plussed?

Recently, I came to consider the potential ambiguity in the word "nonplussed".  The word originally meant to be confused or perplexed, as in:

californiacorporate&securities 6/8/2018
Memo To The Legislature: The Beverly-Killea Act Hasn't Been Law Since 2014

California's first limited liability company act was known as the Beverly-Killea Limited Liability Company Act, former Corporations Code Section 17000 et seq.  In 2012, the legislature replaced it with the ill conceived California Revised Uniform Limited Liability Company Act that took effect on January 1, 2014.  The legislature enacted both of these acts and thus might reasonably be expected to know that the Beverly-Killea Act is no more.  

californiacorporate&securities 6/7/2018
An Entity Named "Sue"?

Recently, I proposed that it may be a Sisyphean job to get courts to recognize that a limited liability company is not a limited liability corporation much less a corporation.  Judicial confusion over nomenclature has been a favorite topic of Professor Joshua Fershee.  While he is willing to continue the struggle, he recently proposed a number of alternative names, many of which are quite creative and would certainly reduce the risk of confusion.  However, I don't expect that California will be renaming the California Revised Uniform Limited Liability Company Act (CARULLCA) any time soon.  Therefore, we should continue the fight for accuracy in entity nomenclature.  After all, the Hundred Years War wasn't won in a day (and lasted longer than 100 years).

californiacorporate&securities 6/6/2018
Face It, Court Rules Plaintiff Must Be An Actual Seller To Maintain Securities Fraud Action

A recent ruling by U.S. District Court Judge Cynthia Bashant reminds us that when it comes to securities fraud claims, a plaintiff is generally required to have either bought or sold a security.  Melcher v. Fried, 2018 U.S. Dist. LEXIS 89353. 

californiacorporate&securities 6/5/2018
Courts Order Divorces, What About Dissociations?

californiacorporate&securities 6/4/2018
I Beg Your Pardon, Martha Stewart

Last week, President Donald Trump intimated that he may pardon Martha Stewart who was famously convicted and served time in prison for obstruction of justice.  Ms. Stewart's notorious conviction arose out of an insider trading investigation of her sale of 3,928 shares of ImClone Systems Incorporated stock in 2001.  Although she was also charged with lying about the reason for selling, she was acquitted of that count.  United States v. Stewart, 305 F. Supp. 2d 368 (S.D.N.Y. 2004).  See Joan Macleod Heminway, Martha Stewart Saved! Insider Violations of Rule lOb-5 for Misrepresented or Undisclosed Personal Facts65 Md. L. Rev. 380 (2006).

californiacorporate&securities 6/1/2018
Is It Time To Change The Name of LLCs?

Professor Joshua Fershee has been fighting the good fight on limited liability company nomenclature, but I fear that he is losing.  For example, the following appeared in a recent U.S. Magistrate's ruling denying a plaintiff's application to serve a defendant LLC by serving the California Secretary of State:

californiacorporate&securities 5/31/2018
Court Of Appeal Dismisses Case Based Certificate Of Incorporation' Forum Selection Clause

NantKwest, Inc. describes itself as "a pioneering clinical-stage immunotherapy biotechnology company headquartered in San Diego, California with certain operations in Culver City and El Segundo, California and Woburn, Massachusetts".  It also happens to be incorporated in the State of Delaware.  The company's certificate of incorporation includes the following forum selection provision:

californiacorporate&securities 5/30/2018
Will North Korea Be Able To Sell Bonds In California Without Qualification?

The offer and sale of securities in California must be qualified unless the securities or transaction is exempt.  Corporations Code Section 25100(b) exempts any security "issued or guaranteed . . .  by any other foreign government with which the United States currently maintains diplomatic relations, if the security is recognized as a valid obligation by the issuer or guarantor; or any certificate of deposit for any of the foregoing". 

californiacorporate&securities 5/29/2018
More On Post Cards As Securities

Recently, I wrote about how the famed polar explorer Roald Amundsen raised money by selling post cards and stamps.  This raised the question of whether the cards and stamps might be considered a security under the Supreme Court's definition of investment contract.  S.E.C. v. W.J. Howey Co., 328 U.S. 293 (1946).  Although the Securities and Exchange Commission and the Howey was decades in the future, using stamps to raise funds was controversial even in Amundsen's time:

californiacorporate&securities 5/25/2018
Do Mandatory Retirement Age Requirements For Directors Violate California Law?

While the Securities and Exchange Commission requires disclosure of the ages of directors (Item 401(a), Regulation S-K), it does not impose any age limitations on directors.  Nonetheless, many public companies have adopted mandatory retirement age policies.  According to,

californiacorporate&securities 5/24/2018
Did The Last Viking Sell Securities?

I have recently been reading Stephen R. Bown's book, The Last Viking: The Life of Roald Amundsen.  Readers may recall that it was the Norwegian Amundsen who famously beat the Englishman Robert Falcon Scott to the South Pole in what the press ex post facto reported as a race.  Tragically, Scott and four of his companions died on their own return from the Pole.

californiacorporate&securities 5/23/2018
Judge Juxtaposes California And Delaware Insider Trading Law

Yesterday, I wrote about Judge Claudia Wilken's recent ruling that the internal affairs doctrine does not supplant California's insider trading statute, Corp. Code § 25402. In re McKesson Corp. Derivative Litig., 2018 U.S. Dist. LEXIS 81049.  While the plaintiffs prevailed on that point, Judge Wilken nonetheless dismissed the plaintiffs' insider trading claims under both California and Delaware law, finding that their generalized allegations failed to state with particularity a plausible theory supporting their claims.

californiacorporate&securities 5/22/2018
Federal Judge Applies California Insider Trading Statute To Delaware Corporation

Attentive readers of this blog should be aware that California included an insider trading statute (Corp. Code § 25402) as part of the Corporate Securities Law of 1968.  More than a dozen years ago, a California Court of Appeal held that the internal affairs doctrine does not supplant this statute. Friese v. Superior Court, 134 Cal.App.4th 693, 36 Cal. Rptr. 3d 558 (2005).  The Court rejected an earlier federal court decision, In re Sagent Technology, Inc. Derivative Litigation, 278 F.Supp.2d 1079 (N.D.Cal.2003), as "not persuasive authority".  Then, last fall, U.S. District Court Judge Jon Tigar ruled:

californiacorporate&securities 5/21/2018
A Field Guide To Corporations And Domestic Corporations

Some may be surprised to learn that a corporation need not be formed under the California General Corporation Law to qualify as a "domestic corporation".  Corporations Code Section 167 defines "domestic corporation" to be "a corporation formed under the laws of this state" and many other laws provide for the formation.  It turns out that California has enacted numerous other laws providing for the formation of corporations, including three nonprofit corporation laws.  In contrast, the GCL defines "corporation" to be a subset of "domestic corporation".  As somewhat circularly defined in Section 162, "corporation" generally means a corporation formed under the GCL or made subject to the GCL pursuant to Section 102(a).

californiacorporate&securities 5/18/2018
Has The DBO Misstated This Statute?

The California Department of Business Oversight administers and enforces the California Financing Law (fka Finance Lenders Law).  Visitors to the DBO's website will find a basic description of the CFL, including the following statement:

californiacorporate&securities 5/17/2018
Why "Transfer or Hypothecate"?

Section 204(b) permits the articles of incorporation to include reasonable restrictions upon the right to transfer or hypothecate shares of any class or classes or series.  This is the only time the word "hypothecate" appears in the General Corporation Law (it can also be found in Corporations Code Sections 2603 and 25102(j)(2)).  

californiacorporate&securities 5/16/2018
Caremark Claims And California

A popular claim for plaintiffs in derivative litigation against directors of Delaware corporations has been that the directors breached their duty of oversight.  This theory has its genesis in Chancellor William T. Allen's decision in In re Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996).  These claims remain popular notwithstanding Chancellor Allen's oft-quoted (by defendants) observation that "The theory here advanced is possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment."

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