Friese v. Superior Court

134 Cal.App.4th 693, 36 Cal.Rptr.3d 558 (2005)

Purchase the Printed Copy at bsmsphd.com

Nature of the Case

To access this section all you need to do is click here and register.

Facts

Friese (P) is the successor in interest to a Delaware corporation, which has its headquarters and principal place of business in California doing substantial business in California. California sections 25402 and 25502.5 prohibits so-called 'insider trading' by the issuer of securities or by any person who is an officer, director or controlling person of an issuer. The Legislature added section 25502.5, which allows the issuer or anyone acting in the name of the issuer to recover from an officer, director or controlling person who has violated section 25402 up to three times the amount such a violator earned by virtue of his or her insider trading. Section 25502.5 is a disgorgement statute, and the issuer does not need to show that it was harmed by the activities of the inside trader. Section 25402 governs only securities transactions which occur in California. Section 2116, which is not a part of the Corporate Securities Law of 1968, provides that a director's liability to a corporation is a matter of internal governance of the corporation and is governed by the laws of the state in which it is incorporated. Ds are a group of former officers and directors of the corporation. P alleges Ds violated section 25402 and are liable under section 25502.5. Ds claim that the internal affairs doctrine as codified in section 2116 prevents them from being held liable under section 25502.5. The trial court agreed and sustained D's demurrers to P's insider trading causes of action without leave to amend.