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Understanding Fiduciary Duties in Business Entities

Expertly advise clients using this title's clear, practical, up-to-date guidance on fiduciary duties in the most frequently encountered business contexts. This reference is essential for business and commercial litigators, business attorneys, and anyone advising California-based business entities.

“Offers practical guidance for expanding or limiting fiduciary duties under existing law for the entities covered. I particularly liked the sections that distinguished between Delaware and California law. ”

April Frisby, Of Counsel at Newmeyer & Dillion LLP, Orange County

Expertly advise clients using this title's clear, practical, up-to-date guidance on fiduciary duties in the most frequently encountered business contexts. This reference is essential for business and commercial litigators, business attorneys, and anyone advising California-based business entities.

  • What fiduciary duties apply in California-based partnerships, for-profit and non-profit corporations, and limited liability companies
  • Fiduciary obligations of different types of individual professionals
  • Fiduciary duties in family businesses and family transactions
  • How to comply with fiduciary duties
  • Possible protections from liability for those subject to fiduciary duties
  • Initiation or defense of breach of fiduciary duty claims in litigation
  • Extensive coverage of California law plus limited coverage of Delaware law
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“Offers practical guidance for expanding or limiting fiduciary duties under existing law for the entities covered. I particularly liked the sections that distinguished between Delaware and California law. ”

April Frisby, Of Counsel at Newmeyer & Dillion LLP, Orange County

Expertly advise clients using this title's clear, practical, up-to-date guidance on fiduciary duties in the most frequently encountered business contexts. This reference is essential for business and commercial litigators, business attorneys, and anyone advising California-based business entities.

  • What fiduciary duties apply in California-based partnerships, for-profit and non-profit corporations, and limited liability companies
  • Fiduciary obligations of different types of individual professionals
  • Fiduciary duties in family businesses and family transactions
  • How to comply with fiduciary duties
  • Possible protections from liability for those subject to fiduciary duties
  • Initiation or defense of breach of fiduciary duty claims in litigation
  • Extensive coverage of California law plus limited coverage of Delaware law

1

Introduction to Fiduciary Relationships

Phillip L. Jelsma

  • I.  SCOPE OF TITLE  1.1
  • II.  SCOPE OF CHAPTER  1.2
  • III.  NATURE OF FIDUCIARY RELATIONSHIPS
    • A.  Characteristics of Fiduciary Relationships  1.3
    • B.  Sources of Fiduciary Duty Law  1.4
    • C.  Fiduciary Duty Analysis  1.5
  • IV.  FIDUCIARY RELATIONSHIPS AND CONFIDENTIAL RELATIONSHIPS DISTINGUISHED  1.6
  • V.  FIDUCIARY DUTIES DISTINGUISHED FROM CERTAIN OTHER OBLIGATIONS
    • A.  Obligation of Good Faith and Fair Dealing  1.7
    • B.  Duty of Due Care; Negligence  1.8
    • C.  Professional Duty of Care; Malpractice  1.9
    • D.  Duty of Disclosure; Fraud, Constructive Fraud  1.10
  • VI.  RELATIONSHIPS THAT ARE NORMALLY NOT FIDUCIARY RELATIONSHIPS
    • A.  Creditor-Debtor Generally  1.11
      • 1.  Lender-Borrower  1.12
      • 2.  Corporation-Bondholders and Corporation-Holders of Warrants or Options  1.13
      • 3.  Holder of Right to Profits Interest or Contingent Compensation  1.14
    • B.  Insurer-Insured  1.15
    • C.  Insurance Agent- or Broker-Insured  1.16
    • D.  Intellectual Property Licensee-Licensor  1.17
    • E.  Franchisor-Franchisee  1.18
    • F.  Employer-Employee  1.19
    • G.  Other Non-Fiduciary Relationships  1.20

2

Fiduciary Duties in General and Limited Partnerships

Edward Gartenberg

Milena Dolukhanyan

  • I.  SCOPE OF CHAPTER  2.1
  • II.  FACTUAL EXAMPLES  2.2
    • A.  Example 1  2.3
    • B.  Example 2  2.4
  • III.  PARTNERSHIPS: AN OVERVIEW
    • A.  Does a Partnership Exist?  2.5
      • 1.  Definition of General Partnership  2.6
      • 2.  Evidence of Partnership Status; Statutory Rules  2.7
    • B.  Types of Partnerships
      • 1.  General Partnerships; Joint Ventures  2.8
      • 2.  Limited Partnerships  2.9
      • 3.  Limited Liability Partnerships  2.10
  • IV.  SOURCES OF FIDUCIARY DUTY LAW FOR PARTNERSHIPS  2.11
    • A.  Common Law Trustee Concept  2.12
    • B.  Partnership Acts
      • 1.  Role of NCCUSL  2.13
        • a.  NCCUSL’s Model Partnership Act  2.14
        • b.  NCCUSL’s Model Limited Partnership Act  2.15
      • 2.  California’s Uniform Partnership Act of 1994  2.16
      • 3.  California’s Uniform Limited Partnership Act of 2008  2.17
      • 4.  Codification of Partners’ Fiduciary Duties
        • a.  General Partnerships  2.18
        • b.  Limited Partnerships  2.19
    • C.  Other Potentially Relevant Law  2.20
      • 1.  Noncompetition Laws  2.21
      • 2.  Agency Law  2.22
      • 3.  Securities Laws  2.23
      • 4.  Mining Partnerships  2.24
      • 5.  Fraud, Fraudulent Transfers, Undue Influence, Deceit  2.25
  • V.  PARTICULAR FIDUCIARY DUTIES IN GENERAL PARTNERSHIPS  2.26
    • A.  Duty of Loyalty  2.27
      • 1.  Duty to Account  2.28
      • 2.  Duty to Refrain From Self-Dealing  2.29
      • 3.  Duty Not to Compete  2.30
    • B.  Duty of Care  2.31
    • C.  Additional Fiduciary Duties
      • 1.  Duty of Disclosure; Right of Access to Information  2.32
      • 2.  Potential for Additional Fiduciary Duties  2.33
    • D.  Obligation of Good Faith and Fair Dealing  2.34
    • E.  Permitted Transactions  2.35
  • VI.  FIDUCIARY DUTIES IN LIMITED PARTNERSHIPS
    • A.  Duties of General Partners  2.36
    • B.  Duties of Limited Partners  2.37
  • VII.  FIDUCIARY DUTIES IN LIMITED LIABILITY PARTNERSHIPS  2.38
  • VIII.  LIMITING FIDUCIARY DUTIES
    • A.  Disclaiming Partnership Status
      • 1.  Disclaimer of Partnership Status  2.39
      • 2.  Form: Disclaimer  2.40
    • B.  Permitted Limitations in General Partnership Agreements
      • 1.  Overview of Statutory Restrictions  2.41
      • 2.  “Manifestly Unreasonable” Standard  2.42
      • 3.  “Contractarian” Approach to Partnership Relationships  2.43
      • 4.  Limiting the Duty of Loyalty  2.44
      • 5.  Reducing the Duty of Care  2.45
      • 6.  Prescribing Standards for Performance of the Obligation of Good Faith and Fair Dealing  2.46
      • 7.  Limiting Other Potential Fiduciary Duties  2.47
    • C.  Permitted Limitations in Limited Partnership Agreements  2.48
    • D.  Sample Provisions for Partnership Agreements  2.49
      • 1.  Restricting the Scope of Fiduciary Duties
        • a.  Drafting Considerations  2.50
        • b.  Form: Introductory Clause  2.51
      • 2.  Limiting the Duty of Loyalty
        • a.  Drafting Considerations  2.52
        • b.  Form: Limitations on Duty of Loyalty  2.53
        • c.  Form: Clarification of Duties  2.54
      • 3.  Limiting the Duty of Care
        • a.  Drafting Considerations  2.55
        • b.  Form: Duty of Care: Alternative 1  2.56
        • c.  Form: Duty of Care: Alternative 2  2.57
        • d.  Form: Duty of Care: Alternative 3  2.58
        • e.  Form: General Partner Protections  2.59
      • 4.  Form: Ratification of Partner Conduct  2.60
      • 5.  Limiting the Obligation of Good Faith and Fair Dealing  2.61
    • E.  Other Ways of Limiting Fiduciary Liability  2.62
  • IX.  FIDUCIARY DUTIES UNDER OTHER STATES’ LAWS
    • A.  Operating a Foreign Partnership in California  2.63
    • B.  Delaware  2.64
    • C.  Other States  2.65

3

Fiduciary Duties in Limited Liability Companies

Edward Gartenberg

  • I.  SCOPE OF CHAPTER  3.1
  • II.  FACTUAL EXAMPLES  3.2
    • A.  Example 1  3.3
    • B.  Example 2  3.4
  • III.  LIMITED LIABILITY COMPANIES (LLCs): AN OVERVIEW
    • A.  What Is a Limited Liability Company?  3.5
    • B.  Governing Law  3.6
    • C.  Types of LLCs  3.7
      • 1.  Member-Managed LLCs  3.8
      • 2.  Manager-Managed LLCs  3.9
  • IV.  SOURCES OF FIDUCIARY DUTY LAW FOR LLCs
    • A.  NCCUSL’s Uniform Act
      • 1.  Role of NCCUSL  3.10
      • 2.  NCCUSL’s Model LLC Act  3.11
    • B.  California’s LLC Acts
      • 1.  Beverly-Killea Limited Liability Company Act (Beverly-Killea)  3.12
      • 2.  Revised Uniform Limited Liability Company Act (RULLCA)  3.13
        • a.  RULLCA’s Treatment of Fiduciary Duties  3.14
        • b.  RULLCA’s Transition Rules  3.15
    • C.  Other Potentially Relevant Law  3.16
  • V.  PARTICULAR FIDUCIARY DUTIES
    • A.  Status as Member or Manager
      • 1.  Members in Member-Managed LLCs; Managers in Manager-Managed LLCs  3.17
      • 2.  Members in Manager-Managed LLCs  3.18
        • a.  Potential Fiduciary Duties as Controlling Member  3.19
        • b.  Liability for Aiding and Abetting  3.20
    • B.  Duty of Loyalty  3.21
    • C.  Duty of Care  3.22
    • D.  Additional Fiduciary Duties
      • 1.  Duty of Disclosure; Right of Access to Information  3.23
      • 2.  Potential for Additional Fiduciary Duties  3.24
    • E.  Obligation of Good Faith and Fair Dealing  3.25
    • F.  Permitted Transactions  3.26
  • VI.  LIMITING FIDUCIARY DUTIES
    • A.  Limited Freedom of Contract  3.27
    • B.  Overview of Statutory Restrictions  3.28
    • C.  “Informed Consent” Requirement  3.29
    • D.  “Manifestly Unreasonable” Standard  3.30
    • E.  Limiting the Duty of Loyalty  3.31
    • F.  Reducing the Duty of Care  3.32
    • G.  Prescribing Standards for Performance of the Obligation of Good Faith and Fair Dealing  3.33
    • H.  Limiting Other Potential Fiduciary Duties  3.34
    • I.  Sample Provisions for Operating Agreements  3.35
      • 1.  Restricting the Scope of Fiduciary Duties
        • a.  Drafting Considerations  3.36
        • b.  Form: Introductory Clause  3.37
        • c.  Form: Corporate Fiduciary Duties  3.38
      • 2.  Limiting the Duty of Loyalty
        • a.  Drafting Considerations  3.39
        • b.  Form: Limitations on Duty of Loyalty  3.40
        • c.  Form: Transactions With the LLC  3.41
        • d.  Form: Clarification of Duties  3.42
      • 3.  Limiting the Duty of Care
        • a.  Drafting Considerations  3.43
        • b.  Form: Duty of Care: Alternative 1  3.44
        • c.  Form: Duty of Care: Alternative 2  3.45
        • d.  Form: Duty of Care: Alternative 3  3.46
      • 4.  Ratification of Member or Manager Conduct
        • a.  Drafting Considerations  3.47
        • b.  Form: Ratification  3.48
      • 5.  Prescribing Standards for Performance of Obligation of Good Faith and Fair Dealing
        • a.  Drafting Considerations  3.49
        • b.  Form: NCCUSL Performance Standards for Obligation of Good Faith and Fair Dealing  3.50
    • J.  Other Ways of Limiting Fiduciary Liability
      • 1.  Indemnification and Insurance  3.51
      • 2.  Limitation of Liability for Money Damages  3.52
  • VII.  FIDUCIARY DUTIES UNDER OTHER STATES’ LAWS
    • A.  Operating a Foreign LLC in California  3.53
    • B.  Delaware  3.54
    • C.  Other States  3.55

4

Fiduciary Duties in For-Profit Corporations

Chad R. Ensz

James F. Fotenos

Phillip L. Jelsma

  • I.  SCOPE OF CHAPTER  4.1
  • II.  FACTUAL EXAMPLES
    • A.  Example 1  4.2
    • B.  Example 2  4.3
  • III.  WHICH STATE’S LAW GOVERNS?
    • A.  Internal Affairs Doctrine  4.4
    • B.  Corporations Code §2115  4.5
    • C.  Comparing Delaware and California Law  4.6
  • IV.  PRINCIPAL SOURCES OF FIDUCIARY DUTIES
    • A.  Common Law Fiduciary Duty Principles  4.7
    • B.  Duty of Care  4.8
    • C.  Duty of Loyalty  4.9
    • D.  Duty of Good Faith  4.10
    • E.  Statutory Liabilities Related to Fiduciary Liability
      • 1.  Federal and State Securities Laws  4.11
      • 2.  Director Liability for Unlawful Distributions
        • a.  California Law: Corp C §316  4.12
        • b.  Delaware Law: 8 Del Code Ann §174  4.13
      • 3.  Director Liability for Unauthorized Loans or Guaranties  4.14
      • 4.  Liability for False Reports and Financial Statements  4.15
      • 5.  Criminal Liability; Other Liability  4.16
  • V.  DUTY OF CARE
    • A.  What Is Due Care?  4.17
      • 1.  Due Care in Decision Making; Practical Advice  4.18
      • 2.  Due Care in Oversight
        • a.  Oversight Obligation; Caremark Claims  4.19
        • b.  Compliance With Duty of Oversight  4.20
      • 3.  Prudence/Diligence Distinction  4.21
      • 4.  “Reasonable Inquiry”  4.22
      • 5.  Duty of Disclosure  4.23
    • B.  Is There More Than One Standard?  4.24
      • 1.  Managing Versus Nonmanaging Directors  4.25
      • 2.  Committee Members Versus Nonmembers  4.26
    • C.  Ordinary Negligence Versus Gross Negligence  4.27
      • 1.  Ordinary Negligence  4.28
      • 2.  Gross Negligence  4.29
    • D.  Requirement of Causation for Liability  4.30
    • E.  Standard of Conduct Versus Standard of Review; “Enhanced Scrutiny,” “Entire Fairness”  4.31
  • VI.  DUTY OF LOYALTY
    • A.  What Is the Duty of Loyalty?  4.32
      • 1.  Duty of Loyalty in California  4.33
      • 2.  Duty of Loyalty in Delaware  4.34
    • B.  Breach of Duty of Loyalty
      • 1.  Competing With the Corporation  4.35
      • 2.  Corporate Opportunity Doctrine  4.36
      • 3.  Interested Director Transactions
        • a.  Director and Officer Compensation  4.37
        • b.  Loans to and Guaranties of Obligations of Directors or Officers  4.38
    • C.  Approval of Interested Director Transactions
      • 1.  Statutory Safe Harbors
        • a.  California Law: Corp C §310(a)  4.39
        • b.  Delaware Law: 8 Del Code Ann §144(a)  4.40
      • 2.  Director or Shareholder Approval: Voting and Other Issues
        • a.  When Director Is Also Majority Stockholder  4.41
        • b.  “Material Financial Interest”  4.42
        • c.  Duty of Disclosure of Material Facts  4.43
      • 3.  Fairness; “Entire Fairness” Test  4.44
    • D.  Interlocking Boards of Directors
      • 1.  General Rule  4.45
      • 2.  Approval of Transactions
        • a.  California Law: Corp C §310(b)  4.46
        • b.  Delaware Law: 8 Del Code Ann §144(a)  4.47
  • VII.  DUTIES IN CHANGE-OF-CONTROL TRANSACTIONS
    • A.  Response to Unsolicited Takeover Attempts
      • 1.  Delaware Approach: Unocal Test  4.48
      • 2.  California Approach  4.49
    • B.  Sale of Control
      • 1.  Delaware Approach: Revlon Duty  4.50
      • 2.  California Approach  4.51
    • C.  Interfering With Shareholder Vote: Blasius Rule  4.52
    • D.  Controlled Merger Transactions  4.53
    • E.  Practical Advice for Directors  4.54
  • VIII.  FIDUCIARY DUTIES OF CORPORATE OFFICERS
    • A.  Corporate Officers Under California Law  4.55
    • B.  Corporate Officers Under Delaware Law  4.56
  • IX.  FIDUCIARY DUTIES OF CONTROLLING SHAREHOLDERS
    • A.  Controlling Shareholders in California  4.57
    • B.  Controlling Shareholders in Delaware  4.57A
  • X.  AIDING AND ABETTING BREACHES OF FIDUCIARY DUTY  4.58
  • XI.  TO WHOM ARE DUTIES OWED?
    • A.  Corporation and Shareholders  4.59
    • B.  Preferred Stockholders  4.60
    • C.  Fiduciary Duties in Insolvent Corporations
      • 1.  California: “Trust Fund” Doctrine  4.61
      • 2.  Delaware: No More “Zone of Insolvency”  4.62
      • 3.  Directors and Officers Under the Bankruptcy Code  4.63
  • XII.  PRINCIPAL SOURCES OF DIRECTOR PROTECTION
    • A.  Business Judgment Rule  4.64
      • 1.  Business Judgment Rule in Delaware  4.65
      • 2.  Business Judgment Rule in California  4.66
      • 3.  Elements of the Business Judgment Rule
        • a.  Requirement of Business Decision  4.67
        • b.  Requirement of Due Care  4.68
        • c.  Requirement of Good Faith  4.69
        • d.  Requirement of Some Basis in Rationality  4.70
      • 4.  Application to Actions by Officers  4.71
      • 5.  Misuse of Corporate Funds and Waste  4.72
    • B.  Exculpation From Monetary Liability  4.73
      • 1.  Requires Provision in Articles of Incorporation  4.74
      • 2.  Limitation Applies Only to Directors Acting as Directors  4.75
      • 3.  Limitation Applies Only to Monetary Damages in Derivative Actions  4.76
      • 4.  Limitation Does Not Apply to Certain Specified Acts; “Seven Deadly Sins”  4.77
    • C.  Statutory Safe Harbors for Disinterested Board or Shareholder Approval  4.78
    • D.  Indemnification  4.79
    • E.  Insurance  4.80
    • F.  Statutory Right to Delegate
      • 1.  Overview  4.81
      • 2.  What Cannot Be Delegated  4.82
      • 3.  Special Committees; Guidelines for Appointment  4.83
      • 4.  Audit Committees  4.84
    • G.  Statutory Right to Rely on Reports and Advice  4.85
      • 1.  Right to Rely on Reports  4.86
      • 2.  Right to Rely on Advice of Others  4.87
    • H.  Contractual Waivers of Claims Against Officers and Directors  4.88
    • I.  Statutes of Limitations  4.89
  • XIII.  PRACTICAL GUIDELINES
    • A.  Fulfilling the Duty of Care  4.90
    • B.  Dealing With Potential Conflicts of Interest  4.91
    • C.  Operating in “Zone of Insolvency”  4.92

5

Fiduciary Duties in Nonprofit, Social Purpose, and Benefit Corporations

Phillip L. Jelsma

  • I.  SCOPE OF CHAPTER  5.1
  • II.  FACTUAL EXAMPLES
    • A.  Example 1  5.2
    • B.  Example 2  5.3
  • III.  NONPROFIT CORPORATIONS
    • A.  Types of Nonprofits  5.4
    • B.  Overview of Directors’ Duties and Responsibilities  5.5
    • C.  To Whom Directors Owe Duties  5.6
    • D.  Duty of Care  5.7
      • 1.  Duty of “Reasonable Inquiry” and Director’s Reliance Right  5.8
      • 2.  Duty of Obedience  5.9
      • 3.  Statutory Duty to Comply With Investment Standards
        • a.  Public Benefit Corporations  5.10
        • b.  Mutual Benefit and Religious Corporations  5.11
    • E.  Duty of Loyalty  5.12
      • 1.  Duty to Avoid Self-Dealing
        • a.  Public Benefit and Religious Corporations  5.13
          • (1)  Transactions Excluded From Definition of Self-Dealing Transactions  5.14
          • (2)  Approving Self-Dealing Transactions  5.15
            • (a)  Attorney General Approval  5.16
            • (b)  Court Approval  5.17
            • (c)  Board Approval  5.18
            • (d)  Approval by Other Authorized Persons  5.19
            • (e)  Approval by Members of Religious Corporations  5.20
          • (3)  Checklist: Board Approval of Transactions With Interested Directors  5.21
          • (4)  Form: Minutes Reflecting Approval of Transaction—Public Benefit and Religious Corporations  5.22
          • (5)  Actions Challenging Self-Dealing Transactions; Defenses  5.23
          • (6)  Remedies for Self-Dealing Transactions  5.24
        • b.  Mutual Benefit Corporations  5.25
      • 2.  Duties Regarding Loans and Guaranties
        • a.  Public Benefit Corporations  5.26
        • b.  Mutual Benefit Corporations  5.27
        • c.  Religious Corporations  5.28
      • 3.  Liability for Illegal Distributions, Loans, and Guaranties  5.29
      • 4.  Doctrine of Corporate Opportunity  5.30
    • F.  Effect of Compliance With Standard of Care
      • 1.  No Personal Liability; Business Judgment Rule  5.31
      • 2.  Liability for Tortious Conduct  5.32
      • 3.  Statutory Liability for Falsehood or Fraud  5.33
      • 4.  Liability Regarding Employment Matters  5.34
    • G.  Standing to Bring Actions for Breach of Fiduciary Duty
      • 1.  Attorney General  5.35
      • 2.  Members of Corporation  5.36
      • 3.  Directors and Officers  5.37
      • 4.  Persons Granted Relator Status  5.38
  • IV.  PRACTICAL ADVICE FOR NONPROFIT DIRECTORS
    • A.  Comport With Duty of Care  5.39
    • B.  Be Familiar With Governing Documents  5.40
    • C.  Follow Corporate Formalities  5.41
      • 1.  Attendance  5.42
      • 2.  Quorum  5.43
      • 3.  Participation  5.44
      • 4.  Rules for Conduct of Meetings  5.45
      • 5.  Voting  5.46
      • 6.  Minutes  5.47
    • D.  Stay Informed  5.48
    • E.  Understand Legal Requirements Concerning Tax-Exempt Organizations
      • 1.  Internal Revenue Code §501(c)(3) Requirements  5.49
        • a.  Organizational Test  5.50
        • b.  Operational Test  5.51
        • c.  No Private Inurement  5.52
          • (1)  No Private Benefit  5.53
          • (2)  Excess Benefit Transactions  5.54
        • d.  No Substantial Lobbying  5.55
        • e.  No Electioneering  5.56
      • 2.  Charitable Trust Requirements  5.57
      • 3.  Charitable Fund-raising Regulation  5.58
        • a.  California Regulations
          • (1)  Disclosure Requirements  5.59
          • (2)  Phone or Internet Solicitations  5.60
          • (3)  Professional Fund-raisers  5.61
          • (4)  Disclosure to California Attorney General  5.62
        • b.  Federal Regulations  5.63
  • V.  STATUTORY PROTECTIONS FOR NONPROFIT DIRECTORS
    • A.  General Good Samaritan Statutes  5.64
    • B.  Corporations Code §5239  5.65
    • C.  Code of Civil Procedure §425.15  5.66
    • D.  Federal Volunteer Protection Act  5.67
  • VI.  SOCIAL PURPOSE AND BENEFIT CORPORATIONS  5.68
    • A.  Social Purpose Corporation
      • 1.  What Is a Social Purpose Corporation?  5.69
      • 2.  Directors’ Duties and Liabilities  5.70
    • B.  Benefit Corporations
      • 1.  What Is a Benefit Corporation?  5.71
      • 2.  Directors’ Duties and Liabilities  5.72

6

Fiduciary Duties in Family Businesses and Transactions

Jeffrey T. MakoffRoxanne E. Makoff

  • I.  OVERVIEW; SCOPE OF CHAPTER  6.1
  • II.  FACTUAL EXAMPLES  6.2
    • A.  Example 1: Family Investor  6.3
    • B.  Example 2: Manager and Houseparent  6.4
  • III.  SOURCES OF FIDUCIARY DUTIES IN PERSONAL RELATIONSHIPS  6.5
    • A.  Fiduciary Duties of Spouses and Registered Domestic Partners  6.6
      • 1.  No Fiduciary Duties During Negotiation of Premarital Agreement  6.7
      • 2.  Fiduciary Duties Continue During Separation and Dissolution Proceedings  6.8
      • 3.  Postdissolution Fiduciary Duties  6.9
    • B.  Fiduciary Duties Undertaken by Nonmarital Intimate Partners  6.10
    • C.  Fiduciary Duties Between Parents and Children
      • 1.  Presumption of Duties Between Parents and Children  6.11
      • 2.  Adult Children’s “Filial Responsibility” to Support Indigent Parents  6.12
      • 3.  No Presumption of Fiduciary Duty Between Siblings  6.13
    • D.  Fiduciary Duties Arising From Other Confidential or Family Relationships  6.14
  • IV.  SPECIFIC FIDUCIARY DUTIES IN FAMILY RELATIONSHIPS  6.15
    • A.  Duty of Loyalty and Conflicts of Interest  6.16
      • 1.  Conflicts in Marital Community and Separate “Estates”  6.17
      • 2.  Conflicts in Parent and Child Interests  6.18
      • 3.  Conflicts in Community and Family-Owned Business Entity Interests  6.19
      • 4.  Conflicts in Accessing and Using Confidential Information  6.20
    • B.  Duty of Care
      • 1.  Nonmarital Fiduciary Duty of Care  6.21
      • 2.  Duty of Care Between Spouses Under Fam C §§721 and 1100  6.22
    • C.  Duties of Disclosure and Rights to Information  6.23
      • 1.  Nonmarital Fiduciary Disclosure Duties  6.24
      • 2.  Marital Fiduciary Disclosure Duties Under Family Code  6.25
      • 3.  Interaction Between Family Code and Business Information Rights  6.26
        • a.  Factual Example: Private Company  6.27
        • b.  Factual Example: Public Company  6.28
    • D.  Duties of Good Faith and Fair Dealing  6.29
      • 1.  Proving or Disproving Good Faith  6.30
      • 2.  Proving or Disproving Fairness  6.31
  • V.  FIDUCIARY ISSUES IN OWNERSHIP, MANAGEMENT, AND CONTROL OF A FAMILY-OWNED BUSINESS  6.32
    • A.  Business Management Disputes Between Spouses  6.33
    • B.  Legislative History of Fam C §1100(d)  6.33A
      • 1.  Transparency Disputes  6.34
      • 2.  Attorney-Client Privilege Issues  6.34A
      • 3.  Operational and Control Disputes Between Spouses  6.35
    • C.  Fiduciary Duties to Third Parties  6.36
    • D.  Management and Control Agreements  6.37
  • VI.  FIDUCIARY ISSUES IN FAMILY FINANCIAL TRANSACTIONS  6.38
    • A.  Management of Family Investment Assets  6.39
      • 1.  Application of Prudent Investor Rule to Family Investments (Other Than Community Assets)  6.40
        • a.  Prudent Investor Rule  6.41
        • b.  Factual Example: Great Recession Investor  6.42
      • 2.  Special Considerations for High-Net-Worth Individuals Who Invest Community Property in Higher-Risk Assets  6.43
    • B.  Common Fiduciary Issues in Transactions Between Spouses
      • 1.  Interspousal Business and Property Transactions  6.44
      • 2.  Fiduciary Duties and Financial Aspects of Marital Infidelity  6.45
        • a.  Family Code §§721 and 1100  6.46
        • b.  Civil Code §43.5 (“Anti-Heartbalm” Statute)  6.47
        • c.  Impact of No-Fault Divorce Policy  6.48
        • d.  Admissibility of Marital Infidelity Evidence on Fiduciary Claims  6.49
        • e.  Discoverability of Marital Infidelity Evidence on Fiduciary Claims  6.49A
    • C.  Management of Marital and Family Member Liabilities  6.49B
  • VII.  COURT SELECTION, REMEDIES, AND PROCEDURAL ISSUES IN FAMILY FIDUCIARY LITIGATION
    • A.  Choice of Court Divisions or Departments  6.50
      • 1.  Family Courts  6.51
      • 2.  Probate Courts  6.52
      • 3.  General Civil Division  6.53
    • B.  Fiduciary Duty Remedies and Divisional Limitations
      • 1.  Monetary Relief (Damages, Disgorgement, Restitution, and Reallocation)  6.54
      • 2.  Constructive Trust (or Involuntary Trust)  6.55
      • 3.  Court-Ordered Accounting  6.56
      • 4.  Injunctions  6.57
      • 5.  Rescission, Invalidation, Voiding, or Set-Aside of Transactions  6.58
      • 6.  Intervention and Intercession Against Improper Defense of a Liability  6.58A
      • 7.  Monitors  6.58B
      • 8.  Receivership  6.59
      • 9.  Equitable Indemnity for Third-Party Liabilities and Equitable Subordination  6.60
      • 10.  Prejudgment Interest  6.61
      • 11.  Attorney Fees  6.62
      • 12.  Punitive Damages and Sanctions  6.63
      • 13.  Other Family Code Remedies for Breach of Fiduciary Duties Between Spouses
        • a.  “Value of Asset” Awards Under Fam C §1101(g)–(h)  6.64
        • b.  Retitling of Assets Under Fam C §1101(c)  6.65
        • c.  Family Code §2107 Sanctions  6.66
        • d.  Alternate Valuation Date Under Fam C §2552  6.67
        • e.  Fam C §2602: Additional Award in Case of Misappropriation  6.67A
    • C.  Statutes of Limitations
      • 1.  General Principles in Fiduciary Cases  6.68
      • 2.  Tolling During Marriage  6.69
      • 3.  Tolling During Minority  6.70
    • D.  Role of Private Judging and Mediation in Family Fiduciary Disputes
      • 1.  Legal Powers of Private Judge Pro Tem or Referee  6.71
      • 2.  Benefits and Disadvantages of Private Judging  6.72
      • 3.  Intrafamily Mediation  6.73
  • VIII.  FIDUCIARY ISSUE IDENTIFICATION CHECKLIST FOR FAMILY BUSINESSES AND TRANSACTIONS  6.74

7

Fiduciary Duties of Individual Professionals

Phillip L. Jelsma

Peter Z. Stockburger

John D. Vaughn

  • I.  SCOPE OF CHAPTER  7.1
  • II.  FACTUAL EXAMPLES
    • A.  Example 1  7.2
    • B.  Example 2  7.3
  • III.  FIDUCIARY DUTIES OF INDIVIDUAL PROFESSIONALS
    • A.  Overview of Fiduciary Relationships  7.4
    • B.  Attorneys at Law
      • 1.  Nature of Attorney-Client Relationship
        • a.  Regulatory Framework  7.5
        • b.  Attorney-Client Relationship: Formation, Duration  7.6
      • 2.  Fiduciary Duties  7.7
        • a.  Duty of Confidentiality  7.8
        • b.  Duty of Loyalty  7.9
          • (1)  Duty to Avoid Conflicts of Interest  7.10
          • (2)  Business Transactions With Clients  7.11
          • (3)  Duty to Withdraw  7.12
          • (4)  Duty to Communicate With Client  7.13
          • (5)  Duties With Regard to Attorney Fees  7.14
          • (6)  Duties With Regard to Client Funds  7.15
      • 3.  Professional Duty of Care Distinguished  7.16
      • 4.  Intentional Versus Negligent Breach of Fiduciary Duty  7.16A
    • C.  Health Care Providers  7.17
      • 1.  Physicians  7.18
      • 2.  Duty to Obtain Informed Consent  7.19
      • 3.  Duty to Warn  7.20
    • D.  Accountants and Auditors
      • 1.  Accountants  7.21
      • 2.  Auditors  7.22
    • E.  Mortgage Brokers  7.23
    • F.  Securities Brokers, Investment Advisers
      • 1.  Differing Legal Standards  7.24
      • 2.  Investment Advisers  7.25
      • 3.  Broker-Dealers  7.26
      • 4.  Uniform Fiduciary Standards
        • a.  Securities and Exchange Commission Actions  7.27
        • b.  U.S. Department of Labor Actions  7.27A
    • G.  Promoters  7.28
    • H.  Escrow Agents
      • 1.  Scope of Regulation in California  7.29
      • 2.  Limited Dual Agency Relationship  7.30
      • 3.  Particular Duties  7.31
    • I.  Attorneys-in-Fact Under Powers of Attorney  7.32
    • J.  Employee Benefit Plan Trustees or Board Members
      • 1.  ERISA Fiduciaries  7.33
      • 2.  Public Pension Plans Administrators  7.34
    • K.  Real Estate Brokers and Salespersons  7.35
      • 1.  Primary Fiduciary Duties  7.36
      • 2.  Additional Fiduciary and Other Duties  7.37
    • L.  Architects  7.38
    • M.  Homeowners’ Associations and Their Directors  7.39
    • N.  Employees and Independent Contractors
      • 1.  Employees  7.40
      • 2.  Independent Contractors  7.41
    • O.  Trustees of Express Trusts  7.42
    • P.  Bankruptcy Trustees, Receivers  7.43
    • Q.  Personal Representatives, Guardians, Conservators  7.44
    • R.  Priests or Pastors  7.45
    • S.  Agents; Other Fiduciaries
      • 1.  Agents  7.46
      • 2.  Other Fiduciaries  7.47

8

Litigation of Breach of Fiduciary Duty Claims

Jeffrey L. Fillerup

  • I.  SCOPE OF CHAPTER  8.1
  • II.  PRELITIGATION CONSIDERATIONS IN A BREACH OF FIDUCIARY DUTY CASE
    • A.  Checklist: Plaintiff’s Considerations  8.2
    • B.  Checklist: Defendant’s Considerations  8.3
  • III.  INITIATION OF A BREACH OF FIDUCIARY DUTY COMPLAINT
    • A.  Pleading a Breach of Fiduciary Duty Claim
      • 1.  Elements of Cause of Action  8.4
      • 2.  When Fiduciary Relationship Arises  8.5
    • B.  Pleading a Fiduciary Relationship in a Nontraditional Setting
      • 1.  Pleading Considerations  8.6
      • 2.  Examples of Confidential Relationships That Give Rise to Fiduciary Duties  8.7
    • C.  Pleading Additional Claims  8.8
    • D.  Plaintiff’s Standing to Assert a Breach of Fiduciary Duty Claim  8.9
    • E.  Potential Defendants: Aiding and Abetting Breach of Fiduciary Duty  8.10
      • 1.  Elements of Aiding and Abetting Claim  8.11
      • 2.  Relationship to Breach of Fiduciary Duty Claim  8.12
      • 3.  Civil Conspiracy Claim Distinguished  8.13
      • 4.  No Fiduciary Duty to Plaintiff Required  8.14
    • F.  Conditions to Filing a Breach of Fiduciary Duty Complaint  8.15
    • G.  The Forum: Federal Subject Matter Jurisdiction  8.16
    • H.  Right to Jury Trial  8.17
      • 1.  General Rule  8.18
      • 2.  California Jury Instructions  8.19
        • a.  Breach of Loyalty  8.20
        • b.  Breach of Confidentiality-Based Fiduciary Duty  8.21
      • 3.  When There Is No Right to Jury Trial  8.22
  • IV.  FIDUCIARY DUTY DEFENSES IN LITIGATION
    • A.  Assertion of Fiduciary Duty Defenses  8.23
      • 1.  At the Pleading Stage  8.24
      • 2.  In the Answer  8.25
      • 3.  Affirmative Defenses  8.26
    • B.  Ruling on Fiduciary Duty Defenses Before Trial  8.27
      • 1.  Defenses Raised by Demurrer or Rule 12(b)(6) Motion to Dismiss
        • a.  Demurrer Standard  8.28
        • b.  Federal Rules of Civil Procedure 12(b)(6) Standard  8.29
      • 2.  Defenses Raised by Summary Judgment Motion
        • a.  California Code of Civil Procedure §437c  8.30
        • b.  Federal Rules of Civil Procedure 56 Standard  8.31
      • 3.  Defenses Raised by Motion for Judgment on the Pleadings
        • a.  California Code of Civil Procedure §438 Standard  8.32
        • b.  Federal Rules of Civil Procedure 12(c) Standard  8.33
      • 4.  Defenses Raised by Special Motion to Strike Under Anti-SLAPP Statute  8.34
    • C.  Defense of Non-Existence of a Fiduciary Relationship  8.35
    • D.  Affirmative Defense of Statute of Limitations  8.36
    • E.  Other Defenses and Affirmative Defenses  8.37
    • F.  Asserting Claims and Defenses at Time of Trial  8.38
      • 1.  Motions in Limine  8.39
      • 2.  Motion for Nonsuit  8.40
      • 3.  Jury Instructions  8.41
      • 4.  Motion for Directed Verdict  8.42
      • 5.  Motion for Judgment Notwithstanding the Verdict  8.43
      • 6.  Motion for New Trial  8.44
  • V.  DAMAGES AND EQUITABLE REMEDIES  8.45
    • A.  Compensatory Damages  8.46
    • B.  Punitive Damages  8.47
    • C.  Restitution
      • 1.  Unjust Enrichment  8.48
      • 2.  Disgorgement  8.49
      • 3.  Evidence of Wrongdoer’s Benefit  8.50
    • D.  Constructive Trust  8.51
    • E.  Accounting  8.52

9

Indemnification

Phillip L. Jelsma

  • I.  OVERVIEW; SCOPE OF CHAPTER  9.1
  • II.  FACTUAL EXAMPLE  9.2
  • III.  CORPORATIONS  9.3
    • A.  Persons Entitled to Indemnification
      • 1.  Persons Entitled  9.4
      • 2.  Service “At the Request of”  9.5
      • 3.  “A Party to Any Proceeding”  9.6
    • B.  Amount of Indemnification
      • 1.  Reasonableness Requirement  9.7
      • 2.  Expense Advances  9.8
    • C.  Types of Proceedings Covered  9.9
    • D.  Mandatory Indemnification
      • 1.  When Applicable  9.10
      • 2.  Partial Mandatory Indemnification  9.11
      • 3.  Success “On the Merits”  9.12
      • 4.  Settlements  9.13
      • 5.  Indemnification Alternatives  9.14
    • E.  Permissive Indemnification  9.15
      • 1.  Third-Party (Nonderivative) Actions
        • a.  Civil Proceedings  9.16
        • b.  Criminal Proceedings  9.17
      • 2.  Derivative Actions  9.18
    • F.  Indemnification Authorization Procedures  9.19
      • 1.  By Disinterested Directors  9.20
      • 2.  By Independent Legal Counsel  9.21
      • 3.  By Shareholders  9.22
      • 4.  By the Court  9.23
    • G.  Expansion of Indemnification Rights  9.24
    • H.  Effect of Bankruptcy on Indemnification  9.25
  • IV.  NONPROFIT CORPORATIONS
    • A.  Permissive Indemnification
      • 1.  Persons Entitled to Indemnification  9.26
      • 2.  Who May Authorize Indemnification  9.27
      • 3.  Minimum Standards of Conduct  9.28
        • a.  Third Party Actions  9.29
        • b.  Derivative and Certain Other Actions  9.30
      • 4.  Amount of Indemnification  9.31
    • B.  Mandatory Indemnification  9.32
    • C.  Litigation Expense Advances  9.33
    • D.  Expansion of Indemnification Rights Prohibited  9.34
  • V.  LIMITED LIABILITY COMPANIES
    • A.  Indemnification Under RULLCA
      • 1.  Mandatory Indemnification Under Corp C §17704.08(a)  9.35
      • 2.  Permissive Indemnification Under Corp C §17704.08(b)  9.36
      • 3.  Mandatory Indemnification Under Corp C §17704.08(d)  9.37
    • B.  Indemnification Under Beverly-Killea  9.38
  • VI.  GENERAL PARTNERSHIPS  9.39
  • VII.  LIMITED PARTNERSHIPS  9.40
  • VIII.  MANDATORY INDEMNIFICATION OF EMPLOYEES UNDER LAB C §2802  9.41
  • IX.  SAMPLE INDEMNIFICATION PROVISIONS
    • A.  Corporations
      • 1.  Form: Indemnification Clauses: Articles of Incorporation  9.42
      • 2.  Form: Short-Form Indemnification Clause: Bylaws  9.43
      • 3.  Form: Long-Form Indemnification Clause: Bylaws  9.44
      • 4.  Sample Stand-Alone Indemnification Agreement
        • a.  Drafting Considerations  9.45
        • b.  Form: Indemnification Agreement  9.46
    • B.  Nonprofit Corporations
      • 1.  Drafting Considerations  9.47
      • 2.  Form: Indemnification Clause: Bylaws  9.48
    • C.  Limited Liability Companies, Partnerships
      • 1.  Form: Indemnification Clause: LLC Operating Agreement  9.49
      • 2.  Form: Short-Form Indemnification Clause: Limited Partnership Agreement  9.50
      • 3.  Form: Long-Form Indemnification Clause: Limited Partnership Agreement  9.51
      • 4.  Form: Short-Form Indemnification Clause: General Partnership Agreement  9.52
      • 5.  Form: Long-Form Indemnification Clause: General Partnership Agreement  9.53

10

Overview of Directors’ and Officers’ Liability Insurance Policies

David B. Parker

Justin D. Denlinger

Steven S. Wang

  • I.  OVERVIEW; SCOPE OF CHAPTER  10.1
  • II.  VARIATIONS AMONG D&O POLICY FORMS  10.2
  • III.  PERSONS INSURED: THE DUAL POLICY FORMAT
    • A.  Individual Director and Officer and Company Reimbursement Coverage  10.3
    • B.  Entity Coverage  10.4
    • C.  Principal Differences in Coverage
      • 1.  Retention and Co-Insurance  10.5
      • 2.  Scope of Coverage  10.6
    • D.  Other Types of Policies  10.7
  • IV.  POLICY TERMINOLOGY
    • A.  “Wrongful Acts”  10.8
    • B.  “Loss”  10.9
      • 1.  Limitations Imposed by Statutes and Public Policy  10.10
      • 2.  Punitive Damages, Fines, and Penalties  10.11
      • 3.  Treble Damages  10.12
      • 4.  Administrative and Criminal Proceedings; Injunctive Relief  10.13
      • 5.  Amounts That Insured Is Not Obligated to Pay  10.14
      • 6.  Single Loss or Multiple Loss  10.15
    • C.  “Claims-Made” Coverage  10.16
      • 1.  Notice of Claims  10.17
      • 2.  Extended Reporting (ER) Option  10.18
      • 3.  Continuity  10.19
      • 4.  Retentions  10.20
      • 5.  Policy Limits and “Stacking” Issues  10.21
  • V.  STANDARD POLICY EXCLUSIONS  10.22
    • A.  Exclusions From Company Reimbursement Coverage  10.23
      • 1.  Other Insurance  10.24
      • 2.  Prior Insurance  10.25
      • 3.  Bodily Injury and Property Damage  10.26
      • 4.  Pollution Exclusion  10.27
      • 5.  ERISA Liability  10.28
    • B.  Exclusions From Directors’ and Officers’ Liability Coverage  10.29
      • 1.  Corporate Indemnification  10.30
      • 2.  Libel and Slander  10.31
      • 3.  Personal Gain  10.32
      • 4.  Unauthorized Remuneration  10.33
      • 5.  Dishonesty  10.34
      • 6.  “Willful Acts”  10.35
      • 7.  Insider Trading; Short-Swing Profits  10.36
      • 8.  Severability Provisions  10.37
      • 9.  Other Exclusions  10.38
  • VI.  SPECIAL EXCLUSIONARY ENDORSEMENTS  10.39
    • A.  Insured Versus Insured  10.40
    • B.  Regulatory Exclusion  10.41
    • C.  Exclusions Relating to Mergers and Acquisitions  10.42
    • D.  Securities Offering Exclusions
      • 1.  Purpose and Frequency  10.43
      • 2.  Analysis of Impact  10.44
    • E.  Prior-Acts Exclusion  10.45
    • F.  Pending or Prior Litigation Exclusion  10.46
    • G.  Questionable Payments Exclusion  10.47
    • H.  Discrimination Exclusion  10.48
    • I.  Antitrust Exclusion  10.49
    • J.  Failure to Maintain Insurance Exclusion  10.50
  • VII.  FINANCING DEFENSE OF LITIGATION: DUTY TO DEFEND AND INTERIM PAYMENTS
    • A.  Policy Provisions Relating to Payment of Defense Costs
      • 1.  Directors’ and Officers’ Liability Coverage  10.51
      • 2.  Company Reimbursement Coverage  10.52
    • B.  Duty to Defend  10.53
    • C.  Right to Control Defense  10.54
    • D.  Interim Payments
      • 1.  Must Insurer Finance Ongoing Costs of Defense?  10.55
      • 2.  Analysis of Policy Provisions Relating to Defense Costs  10.56
  • VIII.  ROLE OF COUNSEL
    • A.  Counsel for Insured  10.57
      • 1.  Counseling in Connection With Purchase of D&O Insurance
        • a.  Selection of D&O Insurer  10.58
        • b.  Applications for Insurance  10.59
        • c.  Reviewing and Drafting Proposed Endorsements  10.60
      • 2.  Reacting to Cancellation or Nonrenewal
        • a.  Prior to Policy Termination  10.61
        • b.  Exercise of Extended Reporting (ER) Option  10.62
        • c.  Obtaining Replacement Coverage  10.63
      • 3.  Reporting and Handling of Claims
        • a.  Notices of Actual and Potential Claims  10.64
        • b.  Company Reimbursement and Advancing Costs of Defense  10.65
        • c.  Responding to Reservation of Rights by Insurer  10.66
    • B.  Counsel for Claimants  10.67
  • IX.  EMPLOYEE BENEFIT PLAN FIDUCIARY LIABILITY POLICIES  10.68

UNDERSTANDING FIDUCIARY DUTIES IN BUSINESS ENTITIES

(1st Edition)

March 2019

TABLE OF CONTENTS

 

File Name

Book Section

Title

CH02

Chapter 2

Fiduciary Duties in General and Limited Partnerships

02-040

§2.40

Disclaimer

02-051

§2.51

Introductory Clause

02-053

§2.53

Limitations on Duty of Loyalty

02-054

§2.54

Clarification of Duties

02-056

§2.56

Duty of Care: Alternative 1

02-057

§2.57

Duty of Care: Alternative 2

02-058

§2.58

Duty of Care: Alternative 3

02-059

§2.59

General Partner Protections

02-060

§2.60

Ratification of Partner Conduct

CH03

Chapter 3

Fiduciary Duties in Limited Liability Companies

03-037

§3.37

Introductory Clause

03-038

§3.38

Corporate Fiduciary Duties

03-040

§3.40

Limitations on Duty of Loyalty

03-041

§3.41

Transactions With the LLC

03-042

§3.42

Clarification of Duties

03-044

§3.44

Duty of Care: Alternative 1

03-045

§3.45

Duty of Care: Alternative 2

03-046

§3.46

Duty of Care: Alternative 3

03-048

§3.48

Ratification

03-050

§3.50

NCCUSL Performance Standards for Obligation of Good Faith and Fair Dealing

CH05

Chapter 5

Fiduciary Duties in Nonprofit, Social Purpose, and Benefit Corporations

05-021

§5.21

Checklist: Board Approval of Transactions With Interested Directors

05-022

§5.22

Minutes Reflecting Approval of Transaction—Public Benefit and Religious Corporations

CH06

Chapter 6

Fiduciary Duties in Family Businesses and Transactions

06-074

§6.74

FIDUCIARY ISSUE IDENTIFICATION CHECKLIST FOR FAMILY BUSINESSES AND TRANSACTIONS

CH08

Chapter 8

Litigation of Breach of Fiduciary Duty Claims

08-002

§8.2

Checklist: Plaintiff’s Considerations

08-003

§8.3

Checklist: Defendant’s Considerations

CH09

Chapter 9

Indemnification

09-042

§9.42

Indemnification Clauses: Articles of Incorporation

09-043

§9.43

Short-Form Indemnification Clause: Bylaws

09-044

§9.44

Long-Form Indemnification Clause: Bylaws

09-046

§9.46

Indemnification Agreement

09-048

§9.48

Indemnification Clause: Bylaws

09-049

§9.49

Indemnification Clause: LLC Operating Agreement

09-050

§9.50

Short-Form Indemnification Clause: Limited Partnership Agreement

09-051

§9.51

Long-Form Indemnification Clause: Limited Partnership Agreement

09-052

§9.52

Short-Form Indemnification Clause: General Partnership Agreement

09-053

§9.53

Long-Form Indemnification Clause: General Partnership Agreement

 

Selected Developments

March 2020 Update

The internal affairs doctrine is a long-standing conflicts-of-law principle that recognizes that only one state should have the authority to regulate a corporation’s internal affairs—namely, the state of incorporation. Internal affairs are matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders. Drulias v 1st Century Bancshares, Inc. (2018) 30 CA5th 696, 705 (forum selection clause for intracorporate disputes in bylaws of Delaware corporation enforced; no California public policy implicated); The Police Retirement Sys. of St. Louis v Page (2018) 22 CA5th 336, 340. See §4.4.

In In re Pilgrim’s Pride Corp. Derivative Litig. (Del Ch, Mar. 15, 2019) 2019 Del Ch Lexis 89, the court held that it had personal jurisdiction over a controlling shareholder based on a forum selection bylaw that made Delaware courts the exclusive forum for breach of fiduciary duty litigation. See §4.4.

In Avande, Inc. v Evans (Del Ch, Aug. 13, 2019, No. 2018-0203-AGB) 2019 Del Ch Lexis 305, *22, the court provided additional examples of bad faith conduct: “where the fiduciary intentionally acts with a purpose other than that of advancing the best interests of the corporation, where the fiduciary acts with the intent to violate applicable positive law, or where the fiduciary intentionally fails to act in the face of a known duty to act, demonstrating a conscious disregard for his duties.” See §§4.10, 4.34.

When there has been a systemic failure by the board to ensure that a reasonable information and reporting system exists, Delaware courts will find bad faith and a breach of the duty of care. In Marchand v Barnhill (Del 2019) 212 A3d 805, 809, the Delaware Supreme Court held that the facts of the case supported fair inferences that the company had established no reasonable compliance system or protocols, that as a result of the board’s lack of effort, the board did not receive official notices of food safety deficiencies, and that by failing to take remedial action, the company exposed consumers to listeria-infected ice cream, resulting in death and injury to company customers. See also In re Clovis Oncology, Inc. Derivative Litig. (Del Ch, Oct. 1, 2019, No. 2017-0222-JRS) 2019 Del Ch Lexis 1293 (board ignored reports that their flagship anti-cancer drug would not receive FDA approval; court emphasized that oversight system especially important in regulated industry). See §4.19.

In Personal Touch Holding Corp. v Glaubach (Del Ch, Feb. 25, 2019, No. 11199-CB) 2019 Del Ch Lexis 66, the court held that the corporate president breached his fiduciary duty of loyalty in several ways, including by usurpation of opportunity to acquire the building at issue and purchasing it himself. See §4.36.

In Morrison v Berry (Del 2018) 191 A3d 268, the Delaware Supreme Court set forth an expansive definition of materiality with respect to omitted information, as follows (191 A3d at 286):

Omitted information is material if there is a substantial likelihood that a reasonable stockholder would have considered the omitted information important when deciding whether to tender her shares or seek appraisal. This is any information that an investor would consider important. Such information could make a stockholder less likely to tender. But it also may be material if it is the sort of information that would make a stockholder more likely to tender, or just information that a reasonable stockholder would generally want to know in making the decision, regardless of whether it actually sways a stockholder one way or the other, as a single piece of information rarely drives a stockholder’s vote.

The Morrison court also emphasized that disclosures cannot be materially misleading and that “even a non-material fact can, in some instances, trigger an obligation to disclose additional, otherwise non-material facts in order to prevent the initial disclosure from materially misleading the stockholders.” 191 A3d at 283 (citation omitted). See §4.43.

Under the entire fairness test, an interested director must establish to the satisfaction of the court that the transaction was the product of both fair dealing and a fair price. Avande, Inc. v Evans (Del Ch, Aug. 13, 2019, No. 2018-0203-AGB) 2019 Del Ch Lexis 305, *21. See §4.44.

In Kahn v M&F Worldwide Corp. (MFW) (Del 2014) 88 A3d 635, 644, a case involving a merger between a controlling stockholder and its corporate subsidiary, the Delaware Supreme Court held that the business judgment rule, rather than the entire fairness test, was the standard of review that should apply in circumstances where the merger was conditioned from the beginning on both (1) approval of an independent, adequately empowered special committee that fulfilled its duty of care and (2) the uncoerced, informed vote of a majority of the minority stockholders. The MFW test was followed in Olenik v Lodzinski (Del 2019) 208 A3d 704 (case remanded because it was not clear whether MFW conditions had been met); Flood v Synutra Int’l, Inc. (Del 2018) 195 A3d 754 (business judgment rule applied, MFW conditions met). See §§4.44, 4.53.

On August 19, 2019, the Business Roundtable released a new Statement on the Purpose of a Corporation, signed by 181 chief executive officers of leading American companies, who have each committed to lead their companies for the benefit of all stakeholders, including customers, employees, suppliers, and communities as well as shareholders. See https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans. Neither California nor Delaware has a constituency statute. See §4.59.

In Corwin v KKR Fin. Holdings LLC (Del 2015) 125 A3d 304, the Delaware Supreme Court articulated an important limitation on the business judgment rule. Under the Corwin doctrine, the “business judgment rule is invoked as the appropriate standard of review for a post-closing damages action when a merger that is not subject to the entire fairness standard of review has been approved by a fully informed, uncoerced majority of the disinterested stockholders.” 125 A3d at 305. As the court in Morrison v Berry (Del 2018) 191 A3d 268, 274, explained (citations omitted):

The Corwin doctrine is premised on the view that, “[w]hen the real parties in interest—the disinterested equity owners—can easily protect themselves at the ballot box by simply voting no, the utility of a litigation-intrusive standard of review promises more costs to stockholders in the form of litigation rents and inhibitions on risk-taking than it promises in terms of benefits to them.” The same is true of stockholders deciding whether to tender their shares, and the Corwin doctrine has been extended to these circumstances. However, those same stockholders cannot possibly protect themselves when left to vote on an existential question in the life of a corporation based on materially incomplete or misleading information. Careful application of Corwin is important due to its potentially case-dispositive impacts.

See §4.65.

In Avande, Inc. v Evans (Del Ch, Aug. 13, 2019, No. 2018-0203-AGB) 2019 Del Ch Lexis 305, *22, the court explained that “[c]orporate waste occurs when a corporation is caused to effect a transaction on terms that no person of ordinary, sound business judgment could conclude represent a fair exchange.” See §4.72.

In Marriage of Ciprari (2019) 32 CA5th 83, 99, the court held that a husband’s choice to purchase publicly traded stocks and bonds with his separate property when community funds, which he also managed, were available was not an “appropriation of a corporate opportunity” because the investment opportunity was not “unique.” See §6.17.

Outside the marital context, the authority to transact business on behalf of a family member is governed by agency principles. To be bound to a transaction entered into by a family member, the family member to be bound (the principal) must have authorized, either expressly or by implication, the other family member (the agent) to enter into the transaction on the principal’s behalf. An agency relationship cannot be created by conduct of the agent alone; conduct by the principal is essential. Lopez v Bartlett Care Center, LLC (2019) 39 CA5th 311 (arbitration agreement signed by daughter was not binding on mother for lack of authority to execute agreement). See §6.49B.

Tracing may be achieved by either “direct tracing,” “exhaustion tracing,” or by an alternative method, depending on the facts of the case. Marriage of Ciprari (2019) 32 CA5th 83, 97 (“trial courts are free to consider and credit reasonable, well-supported, and nonspeculative expert testimony, when determining whether the proponent has successfully traced commingled assets to a separate property source”). See §6.54.

An investment adviser’s fiduciary duty under the Investment Advisers Act of 1940 (Advisers Act) (15 USC §§80b–1—80b–21) is twofold: (1) a duty of care (see §7.25A), and (2) a duty of loyalty (see §7.25B). Interpretation Regarding Standard of Conduct for Investment Advisers, Advisers Act Release No. 5248 (July 12, 2019) (SEC Release No. 5248), 17 CFR pt 276, available at https://www.sec.gov/rules/interp/2019/ia-5248.pdf. To carry out these duties, an investment adviser must adopt the principal’s goals, objectives, or ends, and, at all times, serve the client’s best interest and not subordinate the client’s interest to the adviser’s own. See §7.25.

The duty of care includes, among other things: (1) the duty to provide advice that is in the best interest of the client, (2) the duty to seek best execution of a client’s transactions when the investment adviser has the responsibility to select broker-dealers to execute client trades, and (3) the duty to provide advice and monitoring over the course of the relationship. Interpretation Regarding Standard of Conduct for Investment Advisers, Advisers Act Release No. 5248 (July 12, 2019) (SEC Release No. 5248), 17 CFR pt 276, available at https://www.sec.gov/rules/interp/2019/ia-5248.pdf. See §7.25A.

The duty of loyalty requires that an investment adviser not place its own interest ahead of its client’s interest. Interpretation Regarding Standard of Conduct for Investment Advisers, Advisers Act Release No. 5248 (July 12, 2019) (SEC Release No. 5248), 17 CFR pt 276, available at https://www.sec.gov/rules/interp/2019/ia-5248.pdf; Amendments to Form ADV, Advisers Act Release No. 3060 (Oct. 12, 2010) (SEC Release No. 3060), 17 CFR pts 275 and 279, available at https://www.sec.gov/rules/final/2010/ia-3060.pdf. For example, an investment adviser cannot favor its own interests over those of a client, whether by favoring its own accounts or by favoring certain client accounts that pay higher fee rates to the investment adviser over other client accounts. See §7.25B.

In April and May 2018, the SEC released a package of proposed rulemakings relating to the standards for investment advisers and broker-dealers. In June 2019, those proposals were finalized and approved by the SEC. The proposals included a new Regulation Best Interest (Regulation Best Interest: The Broker-Dealer Standard of Conduct, Exchange Act Release No. 34-86031, 17 CFR Part 240 (Sept. 10, 2019), available at https://www.sec.gov/rules/final/2019/34-86032.pdf), consisting of a new short-form disclosure document that would provide retail investors with simple, easy-to-understand information about the nature of their relationship with their investment professional (Form CRS Relationship Summary; Amendments to Form ADV, Exchange Act Release No. 34-86032, Advisers Act Release No. 5247, 17 CFR pts 200, 240, 249, 275, and 279 (Sept. 10, 2019), available at https://www.sec.gov/rules/final/2019/34-86032.pdf) and an interpretation to reaffirm and, in some cases, clarify the SEC’s views of the fiduciary duty that investment advisers owe to their clients (Interpretation Regarding Standard of Conduct for Investment Advisers, Advisers Act Release No. 5248 (July 12, 2019) (SEC Release No. 5248), 17 CFR pt 276, available at https://www.sec.gov/rules/interp/2019/ia-5248.pdf), which is discussed in §§7.25–7.26. See §7.27.

Although the most common element attacked by a defendant in a breach of fiduciary duty case is whether there is a fiduciary relationship, the other prima facie elements are necessary and can be the basis for successfully defending a claim. See, e.g., Tae Youn Shim v Lawler (ND Cal, July 9, 2019, No. 17-cv-04920-EMC) 2019 US Dist Lexis 113935 (summary judgment granted for defendant because defendant did not show causation; i.e., how plaintiff was damaged by breach of fiduciary duty). See §8.4.

When a plaintiff alleges one of these traditional relationships that create a fiduciary relationship, the breach of fiduciary claim will most likely not be subject to attack at the pleading stage of a suit. See, e.g., The Depot, Inc. v Caring for Montanans, Inc. (9th Cir 2019) 915 F3d 643 (ERISA provides for two types of fiduciaries: a named fiduciary or a functional fiduciary); AlterG, Inc. v Boost Treadmills LLC (ND Cal 2019) 388 F Supp 3d 11330 (corporate officers’ fiduciary duty regarding protection of confidential information extends after officer leaves company); Marriage of Ciprari (2019) 32 CA5th 83, 101 (fiduciary relationship between spouses). See §8.6.

Under the Federal Arbitration Act (FAA) (9 USC §§1–16), the court will apply the same analysis to a breach of fiduciary duty claim as it would to any other claim in deciding whether to compel arbitration, namely, did the parties agree to arbitrate the dispute at issue? Munro v University of S. Cal. (9th Cir 2018) 896 F3d 1088, 1090 (arbitration denied because ERISA contract did not require arbitration of dispute at issue). See §8.22.

In Kogler v State Farm Gen. Ins. Co. (ND Cal 2018) 291 F Supp 3d 1054, aff’d (9th Cir, Oct. 15, 2019, No. 18-15298) 2019 US App Lexis 30661, the district court held that an umbrella policy’s exclusion providing for no coverage for personal injury “when the insured acts with specific intent to cause any harm” applied to preclude coverage for false imprisonment claims by focusing on the facts alleged. The court used an objective lens to view the insured’s conduct to support the application of an exclusion and finding that the carrier owed no duty to defend. See §10.10.

In Millennium Labs v Allied World Assur. Co., (U.S.) (9th Cir 2018) 726 Fed Appx 571, the court held that D&O policies only concern indemnity; defense costs are reimbursed by insurers only after they are incurred and invoices are submitted to the carrier. See §§10.14, 10.53.

In Lind-Hernandez v Hospital Episcopal San Lucas Guayama (1st Cir 2018) 898 F3d 99, the court held that pre-policy claims against a hospital were separate from claims filed during the policy period in an amended complaint against an officer of the hospital. See §10.16.

The materiality inquiry concerning misrepresentations in an insurance application is a subjective test viewed from the insurer’s perspective. Western World Ins. Co. v Professional Collection Consultants (9th Cir 2018) 721 Fed Appx 621 (insurer was entitled to rescission because federal investigation of company was not disclosed in application notwithstanding that application question was grammatically confusing). See §10.59.

About the Authors

PHILLIP L. JELSMA received his B.S. degree from the University of Southern California and his J.D. from Stanford Law School, where he was a member of the Stanford Law Review. Mr. Jelsma is a partner in Crosbie Gliner Schiffman Southard & Swanson LLP (or cgs3), a San Diego law firm specializing in real estate transactions. He is an adjunct professor at the University of San Diego School of Law, where he teaches the Taxation of Property Transactions course. He has served as member of the State Bar of California Drafting Committees for the Beverly-Killea Limited Liability Company Act, the California Revised Uniform Limited Liability Company Act, the Revised Uniform Limited Partnership Act, and the Revised Uniform Partnership Act. Mr. Jelsma is the Executive Editor of this title; the author of chapters 1, 5, and 9; and a coauthor of chapters 4 and 7.

CHAD R. ENSZ received his B.A. degree from Wheaton College, his M.B.A. degree from the University of San Diego, and his J.D. degree from the University of San Diego School of Law, where he was a member of the law review and graduated summa cum laude. Mr. Ensz is a partner in the Corporate Group at Dentons, a global top-20 law firm with 3000 lawyers and professionals in more than 80 locations spanning more than 50 countries. His practice focuses on general corporate transactional matters and regulatory compliance, including the representation of financial institutions and public and private companies in capital market transactions, mergers and acquisitions, licensing, joint venture and commercial transactions, and ongoing public company representation. He also has significant experience with general business matters, including the establishment of corporations, partnerships, and limited liability companies; corporate governance; and general contractual drafting and negotiation. Mr. Ensz is a coauthor of chapter 4.

JEFFREY L. FILLERUP is a business litigation partner in the San Francisco office of Rincon Law LLP. Since clerking for a federal district judge in 1984–1985, he has specialized in litigating and arbitrating business cases, including fiduciary duty cases involving bankruptcy trustees, corporate officers and directors, financial institutions, FINRA, and ERISA. He has significant discovery and motion practice experience, including preliminary injunctions and other pre-judgment procedures, and he has taken and defended more than 1000 depositions. He is a Certified Legal Specialist in Franchise and Distribution Law by the State Bar of California, he served on the State Bar of California Board of Legal Specialization in 2014, and he served as the Chair of the State Bar of California Franchise and Distribution Law Advisory Commission in 2014. Mr. Fillerup is the author of chapter 8.

EDWARD GARTENBERG received his B.A. degree from Columbia University in 1971 and his J.D. degree from Columbia Law School in 1974. His practice experience encompasses complex business and securities litigation; arbitration; and federal, state, and regulatory investigations. He is experienced as counsel and as an expert witness in partnership, LLC, and securities issues. Mr. Gartenberg was formerly a Special Counsel at the Division of Enforcement of the SEC and a Special Assistant United States Attorney. He has served as an arbitrator for AAA and FINRA. Before co-founding his current firm, Gartenberg Gelfand Hayton LLP, he served as Chair of the SEC Defense and Securities Litigation practice of a major international law firm. Mr. Gartenberg also served as Chair of the Partnerships and Limited Liability Companies Committee of the State Bar of California. He has lectured numerous times at law schools, continuing legal education programs, and professional organizations. He has also written extensively on partnership, LLC, fiduciary duty, and ethics issues. Mr. Gartenberg is the author of chapters 2 and 3.

MELISSA M. KURATA received her B.A. from Northwestern University in 2007 and her J.D. degree in 2012 from Loyola Law School in Los Angeles. She is an associate with Parker Mills LLP and a business litigator with experience in legal malpractice and labor and employment law. Ms. Kurata is a coauthor of chapter 10.

JEFFREY T. MAKOFF is a Senior Trial Partner with Valle Makoff LLP, a San Francisco and Los Angeles law firm. He received his A.B. degree in 1981 from the University of California, Los Angeles (Political Science, cum laude) and his J.D. degree in 1985 from the University of California, Hastings College of the Law. He is admitted to practice in California and the District of Columbia and is the Co-Chair of the Business Litigation Committee, Business Law Section of the State Bar of California (2015–2016). His practice encompasses a wide range of fiduciary cases and issues involving trustees and beneficiaries; corporate and LLC directors, officers, shareholders, and members; partners and joint venturers; spouses; parties who have Marvin issues (property claims between unmarried intimate partners); broker-dealers; and investment advisors. Before forming Valle Makoff’s predecessor firm in 1992, Mr. Makoff was an associate with Skadden, Arps, Slate, Meagher & Flom, where he primarily handled securities and fiduciary matters. Mr. Makoff is the author of chapter 6.

WILLIAM K. MILLS is a 1979 graduate of Harvard College, with a concentration in American Government. Mr. Mills received his J.D. from the University of California, Los Angeles, School of Law in 1982. He is also a founding partner of Parker Mills LLP; a Certified Specialist in Legal Malpractice Law by the State Bar of California Board of Legal Specialization; and a former member of the State Bar of California Standing Committee on Professional Responsibility and Conduct (COPRAC). He has published articles in the California Bar Journal, the Los Angeles Lawyer, and the Los Angeles Daily Journal, and he frequently lectures for the State Bar of California, the Los Angeles County Bar Association, and other legal and business groups. Mr. Mills is a coauthor of chapter 10.

DAVID B. PARKER graduated summa cum laude and Phi Beta Kappa from the University of California, Los Angeles, in 1972, where he also obtained his law degree in 1976, graduating Order of the Coif. He is a founding partner of Parker Mills LLP, a Los Angeles law firm that emphasizes business litigation, insurance coverage, law firm risk management, professional liability, and legal ethics. He is a Certified Specialist in Legal Malpractice Law by the State Bar of California Board of Legal Specialization, a former member of the State Bar of California Standing Committee on Professional Responsibility and Conduct (COPRAC), and a current member of the American Board of Trial Advocates (ABOTA). He has published numerous articles in the California Bar Journal, related California bar publications, and the Los Angeles Lawyer. He lectures frequently for the State Bar of California, the Los Angeles County Bar Association, and other legal and business groups. Mr. Parker is a coauthor of chapter 10.

PETER Z. STOCKBURGER received his B.A. degree from Texas State University, where he graduated magna cum laude, and his J.D. degree from the University of San Diego School of Law, where he graduated cum laude and was admitted to the National Order of the Barristers. Mr. Stockburger is a Managing Associate at Dentons, where he specializes in global labor and employment law. He is also an adjunct professor at the University of San Diego School of Law, where he teaches appellate advocacy and public international law, and is currently serving as a “Virtual Fellow” with the United States Department of State, advising the State Department on various international labor issues. Mr. Stockburger was recognized as a 2015 “Rising Star” by Southern California Super Lawyers. Mr. Stockburger is a coauthor of chapter 7.

ANDREW A. TALEBI is a 2009 graduate, with a B.A. cum laude, of Loyola Marymount University and a 2014 graduate of Loyola Law School in Los Angeles. He is an associate with Parker Mills LLP and a litigator with experience in complex business and entertainment disputes and professional liability. Mr. Talebi is a coauthor of chapter 10.

JOHN D. VAUGHN obtained his J.D. degree from Santa Clara University, where he was a member of the Law Review. From 2000 through 2015, Mr. Vaughn was a litigation partner with Luce Forward Hamilton & Scripps LLP (Luce) and then with McKenna Long & Aldridge LLP (MLA), where he founded and chaired the firm’s FINRA/SEC Dispute Resolution Practice Group. Mr. Vaughn left MLA to found a boutique trial law firm, Perez, Wilson, Vaughn & Feasby, with former Luce partners. Mr. Vaughn has a diverse national trial and arbitration practice representing clients in complex commercial litigation matters, securities fraud claims, FINRA arbitration, FINRA/SEC investigations, employment disputes, suitability claims and broker disciplinary actions, injunction cases, unfair business practices, and trade secret cases. Mr. Vaughn is a coauthor of chapter 7.

About the 2019 Update Authors

JUSTIN D. DENLINGER received his B.A. in Music from James Madison University in 1997 and his J.D. from Loyola Law School of Los Angeles in 2002. He is an associate attorney at Parker Mills LLP, with a practice that focuses on business litigation, legal malpractice, and entertainment law. Mr. Denlinger is a 2019 update coauthor of chapter 10.

MILENA DOLUKHANYAN received her B.S. degree from California State University, Northridge in 2008 and her J.D. degree from the University of West Los Angeles in 2015. Ms. Dolukhanyan is an associate at Gartenberg Gelfand Hayton LLP, with a practice that focuses on complex business and securities litigation, arbitration, and federal, state, and regulatory investigations. Ms. Dolukhanyan is a 2019 update coauthor of chapters 2 and 3.

JEFFREY L. FILLERUP is a business litigation partner in the San Francisco office of Rincon Law LLP. Since clerking for a federal district judge in 1984–1985, he has specialized in litigating and arbitrating business cases, including fiduciary duty cases involving bankruptcy trustees, corporate officers and directors, financial institutions, FINRA, and ERISA. He has significant discovery and motion practice experience, including preliminary injunctions and other pre-judgment procedures, and he has taken and defended more than 1000 depositions. He is a Certified Legal Specialist in Franchise and Distribution Law by the State Bar of California, he served on the State Bar of California Board of Legal Specialization in 2014, and he served as the Chair of the State Bar of California Franchise and Distribution Law Advisory Commission in 2014. Mr. Fillerup is the author and 2019 update author of chapter 8.

EDWARD GARTENBERG received his B.A. degree from Columbia University in 1971 and his J.D. degree from Columbia Law School in 1974. His practice experience encompasses complex business and securities litigation; arbitration; and federal, state, and regulatory investigations. He is experienced as counsel and as an expert witness in partnership, LLC, and securities issues. Mr. Gartenberg was formerly a Special Counsel at the Division of Enforcement of the SEC and a Special Assistant United States Attorney. He has served as an arbitrator for AAA and FINRA. Before co-founding his current firm, Gartenberg Gelfand Hayton LLP, Los Angeles, he served as Chair of the SEC Defense and Securities Litigation practice of a major international law firm. Mr. Gartenberg also served as Chair of the Partnerships and Limited Liability Companies Committee of the State Bar of California. He has lectured numerous times at law schools, continuing legal education programs, and professional organizations. He has also written extensively on partnership, LLC, fiduciary duty, and ethics issues. Mr. Gartenberg is the author and 2019 update author of chapters 2 and 3.

PHILLIP L. JELSMA received his B.S. degree from the University of Southern California and his J.D. from Stanford Law School, where he was a member of the Stanford Law Review. Mr. Jelsma is a partner in Crosbie Gliner Schiffman Southard & Swanson LLP (cgs3), a San Diego law firm specializing in real estate transactions. He is an adjunct professor at the University of San Diego Law School, where he teaches the Taxation of Real Property Transactions. He has served as member of the State Bar of California Drafting Committees for the Beverly-Killea Limited Liability Company Act, the California Revised Uniform Limited Liability Company Act, the Revised Uniform Limited Partnership Act, and the Revised Uniform Partnership Act. Mr. Jelsma is the Executive Editor of this title; the author of chapters 1, 5, and 9; a coauthor of chapters 4 and 7; and the 2019 update author of chapters 5 and 9.

JEFFREY T. MAKOFF is a Senior Trial Partner with Valle Makoff LLP, a San Francisco and Los Angeles law firm. He received his A.B. degree in 1981 from the University of California, Los Angeles (Political Science, cum laude) and his J.D. degree in 1985 from the University of California, Hastings College of the Law. He is admitted to practice in California and the District of Columbia and is the Co-Chair of the Business Litigation Committee, Business Law Section of the State Bar of California (2015–2016). His practice encompasses a wide range of fiduciary cases and issues involving trustees and beneficiaries; corporate and LLC directors, officers, shareholders, and members; partners and joint venturers; spouses; parties who have Marvin issues (property claims between unmarried intimate partners); broker-dealers; and investment advisors. Before forming Valle Makoff’s predecessor firm in 1992, Mr. Makoff was an associate with Skadden, Arps, Slate, Meagher & Flom, where he primarily handled securities and fiduciary matters. Mr. Makoff is the author and 2019 update author of chapter 6.

ROXANNE E. MAKOFFis an associate with Valle Makoff LLP, a San Francisco and Los Angeles law firm. She received her B.A. degree in 2012 from Hamilton College (Public Policy) and her J.D. degree in 2017 from Benjamin N. Cardozo School of Law in New York. Ms. Makoff was an editor of the Cardozo Law Review with a published Note on judicial dissolutions under New York’s limited liability company law. She is admitted to practice in California and practices in commercial litigation and fiduciary duties related to management, control, and operations of private and family business enterprises, business owner buyouts, and the management and disposition of complex assets, related negotiations, and trial practice. Prior to law school, Ms. Makoff worked at Clyde & Co. U.S. LLP in San Francisco and at the U.S. Fund for UNICEF. Ms. Makoff is a 2019 update coauthor of chapter 6.

DAVID B. PARKER graduated summa cum laude and Phi Beta Kappa from the University of California, Los Angeles, in 1972, where he also obtained his law degree in 1976, graduating Order of the Coif. He is a founding partner of Parker Mills LLP, a Los Angeles law firm that emphasizes business litigation, insurance coverage, law firm risk management, professional liability, and legal ethics. He is a Certified Specialist in Legal Malpractice Law by the State Bar of California Board of Legal Specialization, a former member of the State Bar of California Standing Committee on Professional Responsibility and Conduct (COPRAC), and a current member of the American Board of Trial Advocates (ABOTA). He has published numerous articles in the California Bar Journal, related California bar publications, and the Los Angeles Lawyer. He lectures frequently for the State Bar of California, the Los Angeles County Bar Association, and other legal and business groups. Mr. Parker is a co-author and 2019 update coauthor of chapter 10.

PETER Z. STOCKBURGER received his B.A. degree from Texas State University, where he graduated magna cum laude, and his J.D. degree from the University of San Diego School of Law, where he graduated cum laude and was admitted to the National Order of the Barristers. Mr. Stockburger is a Managing Associate at the San Diego office of Dentons US LLP, where he specializes in global labor and employment law. He is also an adjunct professor at the University of San Diego School of Law, where he teaches appellate advocacy and public international law, and is currently serving as a “Virtual Fellow” with the United States Department of State, advising the State Department on various international labor issues. Mr. Stockburger was recognized as a 2015 “Rising Star” by Southern California Super Lawyers. Mr. Stockburger is a co-author and 2019 update coauthor of chapter 7.

JOHN D. VAUGHN obtained his J.D. degree from Santa Clara University, where he was a member of the Law Review. From 2000 through 2015, Mr. Vaughn was a litigation partner with Luce Forward Hamilton & Scripps LLP (Luce) and then with McKenna Long & Aldridge LLP (MLA), where he founded and chaired the firm’s FINRA/SEC Dispute Resolution Practice Group. Mr. Vaughn left MLA to found a boutique trial law firm, Perez, Wilson, Vaughn & Feasby, with former Luce partners. Mr. Vaughn has a diverse national trial and arbitration practice representing clients in complex commercial litigation matters, securities fraud claims, FINRA arbitration, FINRA/SEC investigations, employment disputes, suitability claims and broker disciplinary actions, injunction cases, unfair business practices, and trade secret cases. Mr. Vaughn is a coauthor and 2019 update coauthor of chapter 7.

STEVEN S. WANG received his B.A. degree in History from the University of California, Irvine, in 1993 and his J.D. from Pepperdine University School of Law in 1996. He is a Senior Counsel at Parker Mills LLP, focusing his practice on complex business litigation, professional liability litigation, financial services litigation and arbitration, and appeals. Mr. Wang is a 2019 update coauthor of chapter 10.

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