Blawgletter today proudly welcomes as guest blawger a fellow Texan — Gerald E. Hawxhurst.
Jerry practiced law in New York and Los Angeles at Simpson Thacher and Quinn Emanuel before co-founding Baker Marquart Crone & Hawxhurst LLP in LA.
A Texan by birth/stays a Texan/anywhere on earth.
California Court of Appeal Holds that Home State “Permission To Sue” Procedures Are Substantive Rules After All
In a case of first impression, the California Court of Appeal in Vaughn v. LJ Int’l, Inc., No. B208192 (Cal. Ct. App. May 26, 2009), held that a shareholder seeking to bring a derivative suit in California must first comply with the “permission to sue” procedures under the laws of company's state of incorporation—in that case, the British Virgin Islands—in order to bring a derivative action in California.
The court reasoned that because permission to sue rules determine whether a party has standing, they are “most appropriately” characterized as a substantive right, and therefore must be applied under California’s “internal affairs” statute, Corporations Code section 2116 (the “internal affairs” doctrine provides that the internal affairs of a company will be governed by the laws of the state in which the company is incorporated). The Court of Appeal noted that companies and their shareholders should be entitled to rely on the laws of the company’s state of incorporation and that consistent application of those laws gives them greater predictability in how disputes concerning internal affairs will be resolved.
I predict more difficulty in bringing derivative suits in California.