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californiacorporate&securities 8/24/2016
Chevron Deference In California

In mid July, the House of Representatives passed the Separation of Powers Restoration Act of 2016, H.R. 4768 (SOPRA).  If enacted, the SOPRA would amend the federal Administrative Procedure Act to require a reviewing court to decide “de novo all relevant questions of law, including the interpretation of constitutional and  statutory provisions, and rules made by agencies”.   The

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californiacorporate&securities 8/23/2016
What, If Anything, Impedes The SEC’s Whistleblower Rule?

As I suspected, law firms are churning out memoranda on the SEC’s recent enforcement actions involving alleged impediments to whistleblowers. While accurately, summarizing these actions, I’m not sure that some of the authors have adequately captured the breadth of the rule and the SEC’s even broader reading of the rule. First, the rule itself: (a)

The post What, If Anything, Impedes The SEC’s Whistleblower Rule? appeared first on CALIFORNIA CORPORATE & SECURITIES LAW.

 
californiacorporate&securities 8/22/2016
Who Signs The Bylaws?

I am occasionally asked who should sign the bylaws.  The question presumes that bylaws must be signed.  Although the California General Corporation Law requires that the original or a copy of the bylaws be available to shareholders (Section 213), it does not require that corporate bylaws be signed.  Indeed, it could be argued that the

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californiacorporate&securities 8/19/2016
Ouch! Proxy Statement Argues That Resolving Dispute In California Court Was “Costly And Time Consuming”

As Ralph Waldo Emerson once famously told Oliver Wendell Holmes, Jr.: ““Holmes, when you strike at a king, you must kill him.”  For the full story, see The Corporations Code Can Make Suing Your Former Employees Costly.  I was reminded of this advice when reading the following in the proxy statement of a California-based company in favor

The post Ouch! Proxy Statement Argues That Resolving Dispute In California Court Was “Costly And Time Consuming” appeared first on CALIFORNIA CORPORATE & SECURITIES LAW.

 
californiacorporate&securities 8/18/2016
How Much Is A Whistleblower Waiver Really Worth?

The Securities and Exchange Commission is aggressively interpreting and enforcing its rule against impeding whistleblowers.  Rule 21F-17(a) provides: No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement (other than agreements dealing with

The post How Much Is A Whistleblower Waiver Really Worth? appeared first on CALIFORNIA CORPORATE & SECURITIES LAW.

 
californiacorporate&securities 8/17/2016
Which Code Applies When A Stock Certificate Has Been Lost, Destroyed Or Wrongfully Taken?

Earlier this week, I wrote about Judge Edward M. Chen’s ruling in Sender v. Franklin Res., Inc., 2015 U.S. Dist. LEXIS 171453, 3-4 (N.D. Cal. Dec. 22, 2015).  Judge Chen applied California Corporations Code Section 419 to a Delaware corporation on the basis that the replacement of a lost or stolen stock certificate was not governed

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californiacorporate&securities 8/16/2016
A Whistleblower Isn’t Impeded By The Want Of A Reward

Quite some time ago, I fabulated that airline delays might constitute a violation of Securities and Exchange Commission Rule 21F-17.  That rule provides that no person “may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation”.  My theory, albeit fanciful, was that a delayed

The post A Whistleblower Isn’t Impeded By The Want Of A Reward appeared first on CALIFORNIA CORPORATE & SECURITIES LAW.

 
californiacorporate&securities 8/15/2016
Replacement Of Lost Stock Certificate Is Not An Internal Affair, But So What?

U.S. District Court Judge Edward M. Chen recently ruled that a stockholder could maintain an action under California Corporations Code Section 419 for replacement of a lost, stolen or destroyed certificate.  As just described, the ruling shouldn’t be a surprise.  Section 419 provides that if “a corporation refuses to issue a new share certificate or other certificate in

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californiacorporate&securities 8/12/2016
Suspended And Dissolved Corporation Still Defaulted

The story is straightforward; the legal ramifications are not: The plaintiff sued a corporation.  Before the lawsuit was filed, the Secretary of State had suspended the corporation and then the corporation was voluntarily dissolved.  The plaintiff effected service on the designated agent who happened to be an attorney.  The attorney didn’t notify either his erstwhile client

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californiacorporate&securities 8/11/2016
Has The California State Treasurer’s Office Gone Underground?

Late last month, the California State Treasurer’s Office announced a “move to stop ‘Pay-to-Play’ school bond campaigns”.  According to the announcement: [M]unicipal finance firms seeking state business will be required to certify that they make no contributions to bond election campaigns. Firms that fail to do so will be removed from the state’s official list

The post Has The California State Treasurer’s Office Gone Underground? appeared first on CALIFORNIA CORPORATE & SECURITIES LAW.

 
californiacorporate&securities 8/10/2016
Rescission And The California Corporations Code

Yesterday, I wrote about an attempt, albeit unsuccessful, to avoid a forum selection clause by a claim of rescission.  The plaintiffs’ in that case, Hatteras Enterprises, Inc. v. Forsythe Cosmetic Group, Ltd., 2016 U.S. Dist. LEXIS 100352 (July 30, 2016), invoked California Civil Code Section 1691, which specifies how a party may rescind.  The grounds for

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californiacorporate&securities 8/9/2016
Which Comes First, Rescission Or Choice Of Forum?

A recent ruling by U.S. District Court Judge Arthur D. Spatt raises the interesting question of whether a choice of law provision can be vitiated by rescission.  The case, Hatteras Enterprises, Inc. v. Forsythe Cosmetic Group, Ltd., 2016 U.S. Dist. LEXIS 100352 (July 30, 2016), involved six separate agreements, each containing a New York choice of law

The post Which Comes First, Rescission Or Choice Of Forum? appeared first on CALIFORNIA CORPORATE & SECURITIES LAW.

 
californiacorporate&securities 8/8/2016
This Case Caused Me To Take Stock

I recently came across Fukuda v. Nethercott, 2016 U.S. Dist. LEXIS 92462 (D. Utah, July 15, 2016).  The case involved claims by the plaintiff that the defendants had sold him securities in violation of the registration requirements of the Securities Act of 1933 and the Utah Uniform Securities Act.  The issuer of the security was

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californiacorporate&securities 8/5/2016
Donald Trump’s Contribution To Nevada Corporate Law (And My Book)

A signature block in a contract seems like a small thing, but sometimes it can lead to litigation.  When an officer signs a contract, is he signing solely as agent for the corporation or might he also be signing in his individual capacity?  In 1993, future presidential candidate Donald J. Trump faced just that question

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californiacorporate&securities 8/4/2016
California, Delaware And Nevada Differ On Committee Composition

In this prior post, I compared the differing limitations on committee authority under California and Delaware law.  Today’s post focuses on differences in committee composition among California, Delaware and Nevada.  These are summarized in the chart below.  In this post, I’m referring to committees of the board of directors; these are committees that have the power to

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californiacorporate&securities 8/3/2016
Is “Whistle-Blow” A Bad Word?

If someone send an email stating that they hope that they might whistle-blow on you, have you been libeled?  Los Angeles County Superior Court Judge Terry A. Green thought so, reasoning that “People don’t whistle-blow fun, nice things that are meaningless. People whistle-blow wrongdoing. . . . And the word whistle-blow . . . causes me to read it in a

The post Is “Whistle-Blow” A Bad Word? appeared first on CALIFORNIA CORPORATE & SECURITIES LAW.

 
californiacorporate&securities 8/2/2016
Giving A Hand To Mandamus

“Mandamus” is the first person plural present indicative active form of the Latin word meaning to command.  It is most likely the result of combining the Latin word for “hand”, manus, with the Latin word “to give”, do.  Some readers may be familiar with the religious holiday with the unusual name of Maundy Thursday.  The word “maundy” is

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californiacorporate&securities 8/1/2016
Shares May Have Voting Rights But Not Voting Power

Section 400 of the California Corporations Code establishes the following ground rules with respect to the voting rights of shares: Classes or series of shares may have full, limited or no voting rights; A denial or limitation on voting rights is not effective unless at the time one or more classes or series of outstanding

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californiacorporate&securities 7/29/2016
Which Do You Use: Decisionmaking, Decision Making, or Decision-Making?

Recently, UCLA Law School Professor Stephen Bainbridge wrote about his allegiance to writing “decision making” as two words.  In support, he cites the Chicago Manual of Style.  I think that the Manual actually makes a distinction based on usage.  When the compound is used as a noun, the two words are separate (e.g., “future decision making by lenders and homeowners”

The post Which Do You Use: Decisionmaking, Decision Making, or Decision-Making? appeared first on CALIFORNIA CORPORATE & SECURITIES LAW.

 
californiacorporate&securities 7/28/2016
“Interim Final Temporary Rules”, Say What?

Visitors to the Securities and Exchange Commission’s website will find a pull-down menu entitled “Regulation”.  One of the items on that menu has the oxymoronic title of “Interim Final Temporary Rules”.  How can a rule be both interim (meaning provisional or for an intervening time period) and final (meaning, coming at the end)?  The nomenclature makes no

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californiacorporate&securities 7/27/2016
CARULLCA Amendment Purporting To Eliminate Surprise May Do The Opposite

Readers will know that I’m no fan of California’s Revised Uniform Limited Liability Company Act (aka CARULLCA).  As originally enacted, the law was rife with technical errors.  As the legislature continues to tinker with the CARULLCA, it creates even more problems for existing California LLCs.  The legislature’s recent enactment of AB 1722 (Wagner) is yet another dispiriting legislative “fix” that is likely to increase, rather than

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californiacorporate&securities 7/26/2016
Is Rescission Ever Legal?

Yesterday’s post concerned when a corporation’s rescission of the issuance of shares does not constitute a “distribution to its shareholders” as defined in Section 166 of the California Corporations Code.  I noted that one of the three conditions is that “it is reasonably likely that the holder or holders of the shares in question could

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californiacorporate&securities 7/25/2016
When A Share Rescission Is Not A Distribution

Section 166 of the California Corporations Code defines “distribution to its shareholders”.  Knowing what constitutes a distribution to shareholders is important because Chapter 5 of the General Corporation Law imposes various restrictions on such distributions.  Shareholders and directors may be liable when these restrictions are violated.  Cal. Corp. Code §§ 316 & 506.  Under Section

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californiacorporate&securities 7/22/2016
Nevada Supreme Court Refuses To “Blue Pencil” Unreasonable Non-Compete

Nevada, unlike California, applies a reasonableness test to non-compete agreements.  Although the Nevada courts haven’t identified a specific heuristic to be followed, a covenant not to compete will be found to be unreasonable when in the absence of statutory authorization or dominant social or economic justification, “it is greater than is required for protection of the person for whose

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californiacorporate&securities 7/21/2016
In The DBO’s World, Money, Money, Money Transmitters

Many may not realize that the Money Transmitter Division of the California Department of Business Oversight licenses and regulates money transmitters.  Money transmitters include issuers of payment instruments (money orders), travelers checks and stored value.  California’s Money Transmission Act codified at Financial Code § 2000 et seq. Western Union is among the best known money transmitters (a

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