Business Law Corporations Committee

Corporate practitioners are confronting many legal issues arising from the COVID-19 coronavirus pandemic. It is worth remembering that the California Corporations Code (“Code”) provides some flexibility in corporate governance during a state of emergency. As a result of legislation that was spearheaded by the Corporations Committee, effective January 1, 2014 the Corporations Code was amended in three important ways. First, section 212 (c)(1) was added to the Code to specifically acknowledge that bylaws may contain any provision, not in conflict with the articles of incorporation, to manage and conduct the ordinary business affairs of a corporation during an “emergency,” including but not limited to procedures for calling, and quorum requirements for, board meetings and designation of additional or substitute directors. Read more

The Corporations Committee is proposing two important changes to the California Corporations Code. These were introduced in the Senate on January 21, 2020 as SB 870 and on February 3, 2020 as SB 913. Read more

On January 23, 2020, the California Court of Appeal, First Appellate District, in the case of Jensen v. iShares Trust, 2020 Cal. App. LEXIS 61, affirmed a lower court ruling that individual investors who purchased shares in exchange-traded funds (“ETFs”) through the secondary market and then incurred losses lacked standing to pursue their claims for violations of various provisions of the federal Securities Act of 1933 (the “Securities Act”) against the issuer and associated entities principally because the investors purchased… Read more

On January 21, 2020, the California Court of Appeal, Second Appellate District, in the case of Techno Lite, Inc. v. EMCOD, LLC, 2020 Cal. App. LEXIS 41, in the portion of the decision certified for publication, upheld the trial court and rejected the defendants’ contention that they could not be liable for fraud because their false promise not to compete against their employer while employed was void because the noncompete agreement violated section 16600 of the California Business and Professions Code prohibiting restraints of trade. Read more

In Magic Carpet Ride LLC v. Rugger Investment Group, L.L.C. (Oct. 25, 2019),a California Court of Appeal addressed the question whether untimely performance under a contract containing a time-is-of-the-essence clause always constitutes a material breach. Although this case involves the purchase and sale of an airplane, the principles discussed in the opinion could apply to an asset or stock purchase agreement. Read more

On November 13, 2019, another lawsuit was brought in California (in this case in the United States District Court in the Eastern District) challenging California’s gender quota law for boards of directors (SB 826). This lawsuit seeks (i) a declaratory judgment that SB 826 violates the Equal Protection Clause of the 14th amendment to the U.S. Constitution, and (ii) a permanent injunction to halt California’s Secretary of State (Alex Padilla) from enforcing or taking further action to enforce the law. SB 826 is a California law that went into effect on January 1, 2019 requiring publicly-held corporations--those with outstanding shares listed on a major United States stock exchange--that are incorporated in California or that have their principal executive offices here, to have at least one female director on their board by December 31, 2019. No later than December 31, 2021, these corporations must have at least one female director if their number of directors is four or fewer, at least two female directors if their number of directors is five, and at least three female directors if their number of directors is six or more. Read more

On October 31, 2019, the California Court of Appeal, First Appellate District, in the case of Handoush v. Lease Finance Group, LLC, 2019 Cal. App. LEXIS 1078, Cal. Ct. Appeal Case No. A150863 (Oct. 31, 2019), reversed the decision of the trial court and held that a New York forum selection clause and choice of law clause in the parties’ lease agreement for equipment deprived plaintiff of his substantive right to a jury trial and was thus unenforceable under California law. Read more

In a malpractice action brought by a 50% member of an LLC against the LLC’s outside legal counsel, the California Court of Appeal, Second Appellate District, confirmed a lower court’s holding that the member did not have standing to pursue her claims of (among other things) malpractice and breach of fiduciary duties for services provided by such legal counsel. Additionally, the court held that the member had no basis for claiming an attorney-client relationship with her, which might otherwise have precluded the attorneys from advising the company in a manner adverse to her personal interests. Read more

California Appellate Court Declines to Extend the Holding in Edwards v. Arthur Andersen LLP Invalidating Noncompete Provisions in the Employment Context to an Exclusive Dealing Business Arrangement On August 29, 2019, the California Court of Appeal, Fourth Appellate District, in the case of Quidel Corporation v. The Superior Court of San Diego County/Beckman Coulter, Inc., 2019 Cal. App. LEXIS 815, Cal. Ct. Appeal Case No. D075217 (Aug. 29, 2019), granted the petition of Quidel Corporation and issued a writ instructing… Read more

The Corporations Committee of the Business Law Section (BLS) is accepting Applications for Appointment. The next term starts upon adjournment of the California Lawyers Association annual meeting in October 2019 and will end upon adjournment of the annual meeting in 2023. Read more