TheCorporateCounsel.net

On the heels of yesterday’s farewell party for outgoing SEC Enforcement Director Stephen Cutler, Deputy Director Linda Chatman Thomsen has been promoted to take his place. Linda’s roots at the SEC stretch back to 1995, when she joined the Staff as a litigator and she rose through the ranks until becoming Deputy in 2002.

Delaware Supreme Court Limits California’s Long Arms

Thanks to John Jenkins of Calfee Halter for this analysis: With its recent decision in VantagePoint Venture Partners v. Examen, the Delaware Supreme Court soundly rejected California’s controversial efforts to apply its corporate statute to the internal affairs of foreign corporations with substantial ties to the Golden State. This case involved a claim that Section 2115 of the California Corporations Code governed the question of whether a separate class vote by the holders of preferred shares was required to authorize a merger transaction involving a Delaware corporation.

Traditionally, the so-called “internal affairs doctrine” has held that relationships between a corporation and its stockholders are governed by the laws of the state of its incorporation. Section 2115 of the California Corporations Code represents a departure from that traditional approach. That statute purports to apply to corporations that, although they may be incorporated elsewhere, have substantial business activities in California and substantial ownership by California residents.

Section 2115 is sweeping in its scope. As the Delaware Supreme Court noted: “if Section 2115 applies, California law is deemed to control the following: the annual election of directors; removal of directors without cause; removal of directors by court proceedings; the filing of director vacancies where less than a majority in office are elected by shareholders; the director’s standard of care; the liability of directors for unlawful distributions; indemnification of directors, officers, and others; limitations on corporate distributions in cash or property; the liability of shareholders who receive unlawful distributions; the requirement for annual shareholders’ meetings and remedies for the same if not timely held; shareholder’s entitlement to cumulative voting; the conditions when a supermajority vote is required; limitations on the sale of assets; limitations on mergers; limitations on conversions; requirements on conversions; the limitations and conditions for reorganization (including the requirement for class voting); dissenter’s rights; records and reports; actions by the Attorney General and inspection rights.”

Section 2115 would have subjected the merger at issue in this case to a separate class vote by the holders of the company’s preferred stock, notwithstanding the fact that the certificate of designation called for the preferred to vote on an as-converted basis with the common as a single class.

The Delaware Supreme Court rejected the plaintiff’s efforts to invoke Section 2115, holding instead that the internal affairs of a Delaware corporation remain a matter of Delaware law. In so doing, the court reviewed a wide variety of federal, Delaware and California decisions involving the internal affairs doctrine – and concluded that it had no doubt that the California courts would also apply Delaware law under the circumstances of this case. The court opinion and several law firm memos on this case is up in our “California Corporations” Practice Area.

Transcript of Reg FD Webcast is Up!

We have posted the transcript of our popular webcast: “The Latest Regulation FD Practices.”

For Photo Lovers Only

This Flickr Blog contains some very cool photos – new ones added daily. And this Mars Rover Blog has nice photos of Mars – ever wonder what Mars looks like?