Justia Corporate Compliance Opinion Summaries

Shareholders of Diablo Controls submitted a written demand to inspect Diablo’s accounting books and records; the minutes of proceedings of shareholders, the board, and committees of the board; and certain other records. The demand requested the inspection take place at Diablo’s California office. The requested records were located in a Diablo office in Illinois. Diablo shipped records to California and made them available for inspection at its counsel’s California office. The shareholder found those records to be incomplete and sought a writ of mandate, claiming violation of Corporations Code section 1601. After the petition was filed, Diablo mailed the shareholders copies of additional records and made other records available for inspection at its counsel’s California office. The shareholders claimed the records were still incomplete. Diablo argued that section 1601 only obligated it to make the records available for inspection at its Illinois office. The trial court agreed and dismissed the action. The court of appeal affirmed; section 1601 requires that the records be made available for inspection at the office where such records are kept, even if the office is out of state. View "Innes v. Diablo Controls, Inc." on Justia Law

The Company was organized as a limited liability company in 2007; its sole managing member was another LLC, whose sole members were the Ngs, who controlled and managed the Company. Defendant was one of the Company’s lawyers. The Company’s stated purpose was to serve as an investment company making secured loans to real estate developers. The Managers actually created the Company to perpetrate “a fraudulent scheme” by which the Company transferred the money invested in it to another entity the Managers controlled. Defendant knew that the Managers intended to and did use the Company for this fraudulent purpose and, working with the Managers, helped the Company conceal the nature of its asset transfers. The Company was eventually rendered insolvent and its investors filed an involuntary bankruptcy petition. The bankruptcy trustee filed suit against Defendant, alleging tort claims based on Defendant’s involvement in the Company’s fraud. Defendant argued that the claims are barred by the in pari delicto doctrine. The court of appeal affirmed dismissal, finding that the in pari delicto applies to the trustee and rejecting an argument that the doctrine should not bar her claims because the wrongful acts of the Managers should not be imputed to the Company. View "Uecker v. Zentil" on Justia Law

Plaintiffs held warrants to buy common stock issued by defendant BlueFire Ethanol Fuels, Inc. The warrants included an anti-dilution provision, requiring BlueFire to adjust the exercise price set in the warrants “to equal the consideration paid” by a subsequent investor for equity interests in BlueFire. The anti-dilution provision did not apply to certain issuances of securities, as specified in a list of five categories of exceptions. A few years after issuance of the warrants, BlueFire entered into an agreement with non-party Lincoln Park Capital Fund, LLC, creating an “equity line of credit” or a “standby equity distribution agreement.” Lincoln promised to make up to $10 million available to BlueFire to be accessed at the option of BlueFire over a set period of time. In exchange, BlueFire issued common stock and warrants to Lincoln at the time the agreement was executed, and promised to issue additional common stock in exchange for any future cash received from Lincoln. Plaintiffs sued BlueFire for breach of contract and declaratory relief when BlueFire refused to apply the warrants’ anti-dilution provision to the Lincoln agreement. Plaintiffs also sued individual defendants Arnold Klann and Christopher Scott for breach of fiduciary duty. After a bench trial, the court rejected the breach of fiduciary duty claim against Klann and Scott. But the court ruled the anti-dilution provision applied to the Lincoln transaction and that BlueFire had breached the warrants. The court also reduced the exercise price for the warrants from $2.90 per share to $0 per share, and authorized plaintiffs to immediately exercise the warrants. The court did not award monetary damages to plaintiffs. The parties appealed aspects of the judgment adverse to their respective interests. After review, the Court of Appeal agreed that a corporation’s officers did not have a fiduciary duty to warrant holders. The Court also agreed with the court’s interpretation of plaintiffs’ warrants. The anti-dilution provision applies to the Lincoln agreement and stock issuances to Lincoln resulting from that agreement. But substantial evidence did not support the court’s decision to reduce plaintiffs’ exercise price to $0. The Court therefore reversed the judgment and remanded for retrial solely on the proper remedy for BlueFire’s breach of contract. View "Speirs v. Bluefire Ethanol Fuels, Inc." on Justia Law