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Archive for the ‘Commercial Litigation/Directors & Officers’ Category

Let’s Eat Grandma! Punctuation Matters

Posted on: July 19th, 2018

By: Ted Peters

California Corporations Code Section 1601 provides certain rights to shareholders of corporations doing business in California.  Specifically, as the statute currently reads, corporations are required to open their books and records upon written demand from any shareholder as long as the purpose of the demand is “reasonably related” to the shareholder’s interests.  In 2016, the California Court of Appeal in Innes v. Diablo controls, Inc., 248 Cal.App.4th 139 (2016), held that Section 1601 did not require a corporation to produce records in any particular place; rather, the corporation was required only to produce records in the state where they were located, even if outside of California.

On February 13, 2018, California Representative Brian Maienschein (R) sponsored a bill that would amend Section 1601.  In June, and without a single “no” vote against it, the California Legislature enacted the bill, AB 2237 (Maienschein).  Governor Jerry Brown signed the bill into law on July 9, 2018.

A redlined version of the changes to Section 1601 clearly illustrates that the amendments, which go into effect next year, effectively reverse the holding from Innes.  Specifically, when a shareholder demands an inspection, the records are to be made available for inspection “at the corporation’s principal office in [California], or if none, at the physical location for the corporation’s registered agent for service of process in [California].”  The amendment also provides an alternative procedure which would permit the shareholder to elect to receive the corporation’s books, records, and minutes by mail or electronically, as long as the shareholder agrees to pay the reasonable costs for copying or converting the requested documents to electronic format.

Thus, it is now clear that corporations doing business in the State of California will be required to produce records in California, regardless of where the records are maintained.  The significance of this change is obvious enough, but wait, there’s more… When amending the statute, the legislature made another minor change to the first sentence of the statute.

Previously, what was open to inspection were “The accounting books and records and minutes of proceedings…”  As amended, what will be open to inspection will be “The accounting books, records, and minutes of proceedings…”  The insertion of two commas seems innocent enough, but could lead to a heated debate as to the scope of shareholder inspections in general.  The term “accounting” in the original statute could have been interpreted to modify just “books” or both “books and records.” With the amendment, however, it would seem that “accounting books” and “records” are two separate things and a corporation might be justified in refusing to produce “accounting records” to the extent they differed from “accounting books.”

Maybe the drafters of the amendment were simply sticklers for the proper use of punctuation and thought it best to tidy the statute up.  Or maybe they intended to narrow the scope of what records corporations are required to produce.  Or perhaps the change was intended to send no message at all.  Why does it matter and who really cares?  Well, punctuation does matter, even one little comma.  At least grandmothers around the globe think so; there is a world of difference between  “Let’s eat Grandma” and “Let’s eat, Grandma.”

If you have questions or would like more information, please contact Ted Peters at [email protected].

New York High Court Narrows Statute of Limitations Under Martin Act

Posted on: June 22nd, 2018

By: Ali Sabzevari

New York’s primary weapon aimed at fraud entitled the Martin Act was drastically hindered by New York’s high court, which found that the law’s statute of limitations was three years, not six years.  The case is People v. Credit Suisse Sec. (USA) LLC, 2018 NY Slip Op 04272, ¶ 1 (New York State Court of Appeals).

The Martin Act has been used to police the securities markets since the 1920s. This Act regulates the advertisement, issuance, exchange, purchase or sale of securities, commodities and certain other investments within or from New York.  It is one of the country’s oldest anti-fraud laws and is used by the New York Attorney General to file both civil suits and criminal charges against alleged violators of the Act.

In the Credit Suisse Sec. (USA) LLC opinion, the Court of Appeals noted that it had never before considered the law’s statute of limitations. Contemplating whether claims were governed by a three-year period or a six-year period, the Court ultimately held that the three-year term applies because of the fraudulent nature of the claims brought under the Martin Act.

This decision will have a big impact on claims brought under the Martin Act as well as the defense of such claims.  If you have any questions or would like more information, please contact Ali Sabzevari at [email protected].

Google, The Supremes & Cy Pres

Posted on: June 14th, 2018

By: Samantha Skolnick

At the end of April, the U.S. Supreme Court accepted a certiorari petition in the case Frank v. Gaos, No. 17-961, 2018 WL 324121 (U.S. Apr. 30, 2018). The Supreme Court will determine if a class-action settlement involving Google met federal law requirements when $5.3 million of the $8.5 million settlement fund was given to outside groups. The question presented: “Whether, or in what circumstances, a cy pres award of class action proceeds that provides no direct relief to class members supports class certification and comports with the requirement that a settlement binding class member must be ‘fair, reasonable, and adequate.’”

Cy pres is a doctrine where the original objective of the settlor or testator becomes impracticable, impossible and in some instances illegal to perform. Cy pres allows the Court to alter terms of the charitable trust to get as close to the original intention of the testator or settlor as to allow the trust to remain and not flounder.

The core issue in this case is whether this settlement complied with Rule 23(e)(2) which sets the requirement that proposed class action settlements be “fair, reasonable and adequate.” In certain class action situations, funds can be unclaimed when the members claims are small or the process is difficult. To prevent the unclaimed amounts from entering the defendant’s pocket, the money can be directed to other causes, charities and foundations.

Here, the class action stems from allegations that web browsers disclosed Google searches to third-party websites. Three of the named plaintiffs received $15,000 incentive awards, and the rest of the class received nothing. The cy pres award was allegedly given to organizations who promised to use the money to protect internet privacy.  The cy pres recipients included:  World Privacy Forum; Carnegie Mellon University; the Center for Information, Society and Policy at Chicago-Kent College of Law; the Berkman Center for Internet and Society at Harvard University; the Stanford Center for Internet and Society; and AARP. According to the cert petition, class members that were absent received “no relief at all in exchange for their claims—no money, no alteration of the defendant’s allegedly injurious conduct, not even coupons.”

The implications of this decision and how settlement funds are distributed particularly in class actions can be huge. Class actions span from internet privacy to self-driving cars to the on-going tobacco litigation. For now, we wait and see.

If you have any questions or would like more information, please contact Samantha Skolnick at [email protected].

Where Are They Now: The “Selfie Monkey” Naruto?

Posted on: June 1st, 2018

By: Shaun Daugherty 

Acknowledgment to the monkey that took the photo, public domain.

Remember Naruto?  No?  Well he received his 15-minute flash-in-the-pan fame over a picture very similar to the one that you see above.  (The photo is in the public domain for reasons explained below.)  The issue started when the question of whether a selfie taken by a monkey had any copyright protection attached.

See, what happened was, nature photographer David Slater had been traveling to Indonesia trying to get some good pictures of the indigenous Celebes crested macaques.  During an excursion, one, maybe more, of the furry pranksters snapped several close-up selfies.  Unconfirmed rumors claim that the frisky macaque was going to use the best photo on his MDate.com dating profile.  In any event, Slater thought that the photos were fantastic and considered himself the owner.  He licensed the photos to be published in July 2011 to several publications.  Shortly thereafter, Wikimedia Commons caught wind of the unusual artist and published the photographs without asking permission.  Slater demanded that they be taken down.  Initially Wikimedia complied, but then decided that the images were in the public domain because the copyright could not be vested in a non-human.

A blog, Techdirt, picked up the story and published the photos too.  Slater continued to demand that the pictures be removed insisting that he owned the photographs because he had made “significant contributions” to their creations.  After all, it was his equipment.  In the midst of this row, the United States Copyright Office published its 2014 “Compendium of U.S. Copyright Office Practices.”  The publication confirmed the Copyright Office’s long-standing policy that “materials produced solely by nature, by plants, or by animals are not copyrightable.”  In the 2014 edition, they specifically listed examples of what could not be registered, including a photograph taken by a monkey and a painting made by an elephant.  As an aside, the Copyright Office will also not register any work purportedly created by divine or supernatural beings or generated purely by a machine.  Sorry Thor, sorry Ultron.

In 2015, Slater published the “monkey selfies,” in a book titled “Wildlife Personalities” through publisher Blurb, Inc.  Here is where it gets interesting.  PETA (People for the Ethical Treatment of Animals) sued Slater on behalf of Naruto seeking to have the Northern District of California Court do what the US Copyright Office would not, essentially grant copyright protection to a non-human.  If they won, PETA graciously volunteered to administer any proceeds received, on behalf of Naruto and other similarly situated macaques, of course.

The District Judge declined to extend copyright law protections to animals citing the clear lack of intent in the plain language of the law to allow monkeys to sue humans.  PETA appealed to the Ninth Circuit and oral arguments were held.  Shortly thereafter Slater and PETA came to a settlement of the claims wherein Slater agreed to “donate” 25% of all future proceeds from the use of the photos to wildlife charities.  The parties informed the Ninth Circuit of their settlement and asked that the court not issue a ruling and sought vacatur.  It is an interesting legal concept that would nullify the record of the lower court.

The Ninth Circuit declined to dismiss or vacate and issued their ruling on April 23, 2018 in favor of Slater finding that animals have no right to sue under copyright law.  The court also openly questioned the motives of PETA in the case and the purported settlement as Natuto was not a party to the same.

Much of the majority and dissenting analysis involved standing to sue in general.  Based on the 2004 precedent of Cetacean Community v. Bush, surely you remember that one, the court was bound to find Article III standing for the animal.  However, even though there was Constitutional standing, there was no statutory standing as there has been a lack of specific intent in the Copyright Law to allow non-humans to sue for infringement.  It turns out that on May 25, 2018, a Ninth Circuit judge has called for an en banc review of Cetacean Community to revisit the issue of standing for animals under Article III.

If you have any questions or would like more information, please contact Shaun Daugherty at [email protected].

9th Circuit Holds Inadmissible Evidence May Support Class Cert

Posted on: May 17th, 2018

By: Ted Peters

Courts around the country are split over whether admissible evidence is needed to support a class certification.  The Fifth Circuit requires it, and the Seventh and Third Circuits appear to be of the same opinion.  In contrast, the Eighth Circuit has indicated that inadmissible evidence can be considered.  On May 3, 2018, the Ninth Circuit join ranks with the Eighth Circuit when it issued an opinion indicating that certification of a class action can be supported by inadmissible evidence.

The case arises out of the district court’s decision to deny class certification to a group of nurses based, in part, on the finding that two of the named plaintiffs had not offered evidence that they were underpaid.  Their only evidence consisted of a paralegal’s analysis of time cards reflecting that hours were not properly calculated.  While perhaps not sufficiently trustworthy to be admitted at trial, the Ninth Circuit concluded that the district court prematurely rejected such evidence when ruling on whether the class could be certified.  The Court stated: “Notably, the evidence needed to prove a class’s case often lies in a defendant’s possession and may be obtained only through discovery.  Limiting class-certification-state proof to admissible evidence risks terminating actions before a putative class may gather crucial admissible evidence.”

The Court also concluded that, because there was no consideration as to whether the employer controlled the nurses after they clocked in, the district court misapplied the definition of “work” under California jurisprudence.  Lastly, the Court was critical of the finding that the law firm representing the putative class action was incapable of properly representing the class, focusing on “apparent errors by counsel with no mention of the evidence in the record demonstrating class counsel’s substantial and competent work on [the] case.”

If you have questions or would like more information, please contact Ted Peters at [email protected].