• Recent Appellate Decisions
  • November 1, 2014 | Author: Jonathan P. Geen
  • Law Firm: Borton Petrini, LLP - San Diego Office
  • Federal

    In the case of Reese v. Malone (2014) 747 F.3d 557, the Ninth Circuit reversed the part of a decision of the trial court that dismissed the plaintiff shareholders' putative class action which alleged that the corporation knowingly or with deliberate recklessness made false and misleading statements about the conditions of pipelines. The Ninth Circuit held that the shareholders had adequately alleged falseness and materiality against the company's officers who had described the pipeline's corrosion rate as "low" and "manageable," especially because the complaint had alleged that the officer had a technical background, which the Ninth Circuit stated created a strong inference of scienter. The Ninth Circuit agreed with the trial court, however, that the plaintiffs had not sufficiently alleged scienter with respect to the CEO and his statement regarding the company's "world-class corrosion monitoring and leak detection systems."

    In the case of World Trade Financial Corp. v. U.S. Securities & Exchange Commission (2014) 739 F.3d 1243, the court upheld the decision by the SEC ordering payment of sanctions by a broker-dealer and its principals imposed by the Financial Industry Regulatory Authority (FINRA) for unregistered securities from which a restrictive legend had been improperly removed. The court of appeals rejected the broker-dealer's assertion that it had conducted a reasonable inquiry before selling the securities. Therefore, the Ninth Circuit held that the broker-dealer was not entitled to the broker's exemption from liability under the Securities Act. The Court of Appeals further determined that fines and sanctions were not an abuse of discretion by the SEC.


    In the case of Busse v. United Panam Financial Corp. (2014) 222 Cal.App.4th 1028, the Fourth District affirmed in part and reversed in part the trial court's order sustaining defendant's demurrer without leave to amend in an action brought by minority shareholders against majority shareholders for breach of fiduciary duty. The Fourth District agreed with the trial court that the plaintiffs as dissenting minority shareholders could not make common-law claims for damages against the majority shareholders. However, the Fourth District reversed the trial court's granting of a demurrer with regard to the plaintiff's causes of action for rescinding a buyout. The Court of Appeal found that the chairman's control of the corporation was sufficient to support the remedy of rescission as provided by California Corporations Code section 1312(b).

    In the case of Powerhouse Motor Sports Group, Inc. v. Yamaha Motor Corp. (2013) 221 Cal.App.4th 867, the Court of Appeal affirmed the judgment of the trial court in favor of the plaintiff automobile franchisee and against the manufacturer, Yahama, for unreasonably withholding its consent to the sale of the dealership and franchise in violation of the California Vehicle Code section 11713.3. The Second District agreed with the trial court that Powerhouse's ability to assert damages against its franchisor, and the award of $1.3 million in compensatory and punitive damages, was not lost when the dealer failed to comply with Yamaha's internal procedure for challenging termination of the franchise agreement.

    In Leyte-Vidal v. Semel (2013) 220 Cal.App.4th 1001, the Court of Appeal affirmed the trial court's order sustaining defendant's demurrer without leave to amend with regard to a derivative action a shareholder plaintiff had brought against the corporation's officers and directors. The complaint puported to state claims for breach of fiduciary duty for improper financial reporting, insider selling, abuse of control, and related claims. The Court of Appeal agreed that the shareholder had failed to plead with particularity that the directors were so interested so as to excuse a shareholder demand before filing suit. The Court of Appeal further agreed with the trial court that the plaintiff failed to plead with particularity that the directors were "dominated and controlled" by the founder. The court found the trial court's order sustaining defendant's demurrer without leave to amend was justified when the plaintiff had been granted an opportunity to amend on three separate occasions.