Corporations

The lawyers at Mark Anchor Albert and Associates are seasoned business litigation lawyers who have successfully litigated cases involving corporate disputes in state and federal courts, and complex arbitrations. Their procedural and substantive experience and expertise in matters of corporate law are well recognized.

For purposes of corporate litigation, it is important to note that agents or employees of a corporation cannot conspire with the corporation while acting in their official capacities on behalf of the corporation rather than as individuals acting for their individual advantage. See Zumbrun v. University of Southern California (1972) 25 Cal.App.3d 1, 12. The rule is said to derive from the principle that ordinarily corporate agents and employees acting for or on behalf of the corporation cannot be held liable for inducing a breach of the corporation’s contract since being in a confidential relationship to the corporation their action in this respect is privileged. See Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal. 4th 503, 512, fn. 4.

It perhaps goes without saying that a corporation is, of course, a legal fiction that cannot act at all except through its employees and agents. When a corporate employee acts in the course of his or her employment, on behalf of the corporation, there is no entity apart from the employee with whom the employee can conspire. This is due to basic rule of the law of conspiracy: you must have two persons or entities to have a conspiracy. A corporation cannot conspire with itself any more than a private individual can, and it is the general rule that the acts of the agent are the acts of the corporation. “To hold that a subordinate employee of a corporation can be liable for conspiring with the corporate principal would destroy what has heretofore been the settled rule that a corporation cannot conspire with itself.” Black v. Bank of America N.T. & S.A. (1994) 30 Cal.App.4th 1, 6.

Under California Corporations Code section 207, a corporation “shall have all of the powers of a natural person in carrying out its business activities.” California Civil Code section 14 defines the word “person,” for purposes of that code, to include corporations as well as natural persons. As a general rule, a corporation is considered to be a legal entity that has an existence separate from that of its shareholders. See Erkenbrecher v. Grant (1921) 187 Cal. 7, 9.

In general, any person or entity has capacity to sue or defend a civil action in the California courts. This includes artificial “persons” such as corporations, partnerships, and associations. See American Alternative Energy Partners II, 1985 v. Windridge, Inc. (1996) 42 Cal.App.4th 551, 559.

In corporate litigatio seeking punitive or exemplary damages, “corporate policy” refers to the general principles which guide a corporation, or rules intended to be followed consistently over time in corporate operations. A “managing agent” refers to a director, officer, or employee with substantial authority over decisions that set these general principles and rules. See Cruz v. Homebase (2000) 83 Cal.App.4th 160, 167–168.

In California, corporate directors owe a duty of care to the corporation and its shareholders and must serve in good faith in a manner such director believes to be in the best interest of the corporation and its shareholders. A director typically is not liable for a mistake in business judgment, absent conflict of interest, so long as it is made in good faith and is believed to be in the best interest of the corporation. However, a director cannot “abdicate” the director’s responsibilities by “closing his eyes” to what is going on around the director and then claim to be exercising business judgment.

Majority shareholders, either singly or acting in concert to perform a joint purpose, have a fiduciary duty to minority shareholders and to the corporation to use their power to control the corporation in a fair, just, and equitable manner. Directors, as well as majority shareholders in this situation, are fiduciaries whose powers are in trust. Their dealings with the corporation are subject to rigorous scrutiny, and the burden is on the director or challenged shareholder to show decisions are made in good faith and there is inherent fairness in the transaction. If a decision is challenged on the basis of improper motive, it must be shown that the improper motive was the sole or primary reason that the decision was made.

So long as a director acts in good faith, in a manner such director believes to be in the best interests of the corporation, and with such care, including reasonable inquiry, that an ordinarily prudent person in a like situation would exercise, a director of a California corporation typically cannot be held personally liable. See Cal. Corp. Code § 309.

In a corporation’s articles of incorporation, director personal liability can be limited or altogether eliminated unless the conduct falls within the following exceptions: acts or omissions the director believes are not in the best interest of the corporation; when a director receives improper personal benefit; when there is a reckless disregard of the director’s duties to the corporation or shareholders and the director knew or should have known that the act or omission could cause serious harm to the corporation or its shareholders; or when there is an unexcused pattern of inattention by a director that amounts to his or her abdication of the duties owed by the director to the corporation or its shareholders. See Cal. Corp. Code § 204.

A prima facie showing of good faith and reasonable investigation is shown when a majority of the board is comprised of outside directors and the board has received the advice of independent consultants. If this showing is made, without rebuttal, directors can rely on the business judgment rule as a defense to claims of ordinary negligence. See F.D.I.C. v. Castetter (9th Cir. 1999) 184 F.3d 1040.

When your dispute involves one or more corporations and complicated issues of corporate law, including issues of corporate governance and control, contractual claims, breach of fiduciary duties, employment disputes, and oppression of minority interests in the close corporation context, you can count on Mark Anchor Albert and Associates to represent you well.