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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

  • 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 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  4.57
  • 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. 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
      • 1.  Transparency Disputes  6.34
      • 2.  Attorney-Client Privilege Issues  6.34A
      • 3.  Operational and Control Disputes Between Spouses  6.35
    • B.  Fiduciary Duties to Third Parties  6.36
    • C.  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
  • 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)  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.  Receivership  6.59
      • 7.  Equitable Indemnity for Third-Party Liabilities and Equitable Subordination  6.60
      • 8.  Prejudgment Interest  6.61
      • 9.  Attorney Fees  6.62
      • 10.  Punitive Damages and Sanctions  6.63
      • 11.  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
    • 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
    • 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  7.27
    • 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 2018

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 2018 Update

The elements of a cause of action for breach of fiduciary duty are (1) the existence of a fiduciary duty, (2) breach of the fiduciary duty, and (3) damage proximately caused by the breach. Broadway Victoria, LLC v Norminton, Wiita & Fuster (2017) 10 CA5th 1185, 1192. See §§1.5, 8.4.

If the defendant in a case is an attorney, a physician, an investment adviser, or other professional who stands in a fiduciary relationship with the plaintiff, the plaintiff may join a professional negligence (malpractice) claim with a claim for breach of fiduciary duty, depending on the nature of the breach. “Beyond mere allegations of professional negligence, a cause of action for breach of fiduciary duty requires some further violation of the obligation of trust, confidence, and/or loyalty to the client.” Broadway Victoria, LLC v Norminton, Wiita & Fuster (2017) 10 CA5th 1185, 1193. See §1.9.

Applying California law, the federal district court in Strong v Cochran (D Utah, Oct. 13, 2017, No. 2:14-cv-788-TC) 2017 US Dist Lexis 170073, *17, referred to the potential fiduciary obligations of a member in a manager-managed LLC as a “fiduciary duty in fact” concept. Citing GAB Bus. Servs., Inc. v Newsom Claim Servs., Inc. (2000) 83 CA4th 409, 419, overruled in part on other grounds in Reeves v Hanlon (2004) 33 C4th 1140 (see §4.55), the court stated that “[u]nder that approach, an individual, regardless of title, owes a fiduciary duty to a company when the individual ‘participates in management of the corporation’ and ‘exercis[es] some discretionary authority.’” 2017 US Dist Lexis 170073 at *17. See §3.19.

If the LLC operating agreement does not limit or eliminate liability for breach of fiduciary duty, the managers of Delaware LLCs owe the same fiduciary duties as directors of Delaware corporations. McKenna v Singer (Del Ch, July 31, 2017, No. 11371-VCMR) 2017 Del Ch Lexis 138, *41. See chap 4. Only managing members or controlling persons have such fiduciary duties by default. Beach to Bay Real Estate Ctr. LLC v Beach to Bay Realtors Inc. (Del Ch, July 10, 2017, No. 10007-VCG) 2017 Del Ch Lexis 118, *15. The court in Beach to Bay noted that “[i]t is conceivable under certain circumstances a minority member of an LLC, with access to confidential information, could stand in a fiduciary relationship to the entity or to the other members. However, no such relationship exists here.” 2017 Del Ch Lexis 119 at *17. See §3.54.

In Central Laborers’ Pension Fund v McAfee, Inc. (Nov. 15, 2017, No. H039508) ___ CA5th ___, 2017 Cal App Lexis 1008, *95, the court held that, while Delaware law governed the standard of care applicable to the corporate director defendants in the case, the internal affairs doctrine did not extend to “matters properly governed by local forum rules, including form of the action (equitable or legal) and mode of trial (jury or bench).” See §4.4.

Delaware clearly defines a director’s duty of care in terms of gross negligence. See, e.g., Singh v Attenborough (Del 2016) 137 A3d 151, 151 (“[a]bsent a stockholder vote and absent an exculpatory charter provision, the damages liability standard for an independent director or other disinterested fiduciary for breach of the duty of care is gross negligence, even if the transaction was a change-of-control transaction”). See §4.29.

Once “a fully informed vote by a majority of a company’s disinterested, uncoerced stockholders” has been taken, “the business judgment rule irrebuttably applies to a court’s review of the approved transaction,” even if the vote was statutorily required and the transaction would otherwise have been subject to an enhanced standard of review. In re Volcano Corp. Stockholder Litig. (Del Ch 2016) 143 A3d 727, 738, citing Singh v Attenborough (Del 2016) 137 A3d 151. See §§4.31, 4.44.

In Singh v Attenborough (Del 2016) 137 A3d 151, 153, the court held that an advisor whose bad-faith actions cause its board of director clients to breach their situational fiduciary duties was liable for aiding and abetting. See also Malpiede v Townson (Del 2001) 780 A2d 1075, 1096; Buttonwood Tree Value Partners, L.P. v R. L. Polk & Co. (Del Ch, July 24, 2017, No. 9250-VCG) 2017 Del Ch Lexis 126, *24. For a California case applying the Delaware law of aiding and abetting a breach of fiduciary duty, see Central Laborers’ Pension Fund v McAfee, Inc. (Nov. 15, 2017, No. H039508) ___ CA5th ___, 2017 Cal App Lexis 1008. See §§4.58, 4.65.

In Thomson v Canyon (2011) 198 CA4th 594, 606, the court held that a cause of action for breach of fiduciary duty is governed by the residual 4-year statute of limitations because the California Code of Civil Procedure does not specify a limitations period for breach of fiduciary duty claims. The claim was brought against a real estate agent, however, not a corporate officer or director. See §4.89.

In Higgins v Higgins (2017) 11 CA5th 648, 659, the court noted the flexibility of a constructive trust to address “practically any case where there is a wrongful acquisition or detention of property to which another is entitled.” See §6.55.

Family Code §1101(g)–(h) remedies apply only to the concealment, transfer, or impairment of community assets that would be part of the property division in marital dissolution. Accordingly, Fam C §1101(g)–(h) remedies are not available for a failure to disclose income that was earned and spent during the marriage. Marriage of Schleich (2017) 8 CA5th 267, 281 (Fam C §2107 sanctions may be available in these cases). See §6.64.

The Fam C §1101(g)–(h) remedies apply only to improper concealment, transfer, or impairment of community property, not separate assets. Marriage of Schleich (2017) 8 CA5th 267, 278 (“value of the asset” remedies apply only to community assets) (citing Marriage of Simmons (2013) 215 CA4th 584, 588). When a party fails to disclose an account that contains part community and part separate property, a court may award Fam C §1101(g)–(h) remedies only with respect to the community portion. Schleich, 8 CA5th at 280 (Fam C §2107 sanctions may be available with respect to nondisclosure of separate assets). See §§6.64, 6.66.

For claims that are essentially remedies, such as a claim seeking to impose a constructive trust, the statute of limitations is determined by the underlying substantive right. Higgins v Higgins (2017) 11 CA5th 648, 659. See §6.68.

An alternate basis on which parties may elect to have their dispute managed and decided by a party-selected neutral is a “general reference” under CCP §638(a). Similar to when a temporary judge is appointed, when a general referee has decided a case under CCP §638(a) the parties may appeal the general referee’s otherwise appealable judgments and orders directly to the California Court of Appeal. See Lindsey v Conteh (2017) 9 CA5th 1296, 1302. In contrast, the decisions of a “special” or non-consensual referee are submitted to the trial court that referred the case. See §6.71.

Binding arbitration is more rarely used in intrafamily disputes than in commercial cases, due to the absence of preexisting mandatory arbitration clauses in family transactions and the reluctance of parties to waive appeal rights through a voluntary (i.e., non-contractual) submission to binding arbitration after a dispute has arisen. Stipulations to appoint a private temporary judge typically provide that the parties will conduct pretrial and trial proceedings before the private judge, but preserve appellate rights in the public courts. See §6.71.

In Bigler-Engler v Breg, Inc. (2017) 7 CA5th 276, 321, the court held that a breach of fiduciary duty claim against a doctor and medical group, arising out of a lack of informed consent (for use of a surgical wound-cooling medical device), was “based on professional negligence” and was subject to the statutory $250,000 noneconomic damage cap under CC §3333.2. See §7.19.

In February 2017, President Trump issued a memorandum directing the DOL to review the fiduciary rule (which was prepared and issued in full by the Obama administration) and prepare an updated economic and legal analysis of it. In March 2017, the DOL issued a proposed rule calling for a 60-day delay in the rule’s April 2017 applicability date to June 9, 2017, and re-opening the rule to public comment. That proposed rule became final in May 2017. The DOL also issued a field assistance bulletin saying that it will not enforce the rule in the near term. See DOL Field Assistance Bulletin No. 2017-02 (May 22, 2017), available at https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2017-02. See §7.27.

The fiduciary rule was officially implemented, in part, on June 9, 2017. Department of Labor enforcement of the rule, however, is on hold until July 1, 2019—the full implementation date. The extension of the transition period to July 1, 2019, was announced by the DOL on November 27, 2017. During the transition period, according to the DOL, fiduciary advisers are required “to adhere to a best interest standard when making investment recommendations, charge no more than reasonable compensation for their services, and refrain from making misleading statements.” See https://www.dol.gov/newsroom/releases/ebsa/ebsa20171127-0. See §7.27.

An employer may have liability under ERISA to employees or former employees. In Johnson v Fujitsu Technols. & Bus. (ND Cal, Apr. 11, 2017, No. 16-CV-03698 NC) 2017 US Dist Lexis 73132, *10, denying the defendant’s motion to dismiss, the court found that former employees plausibly alleged that their employer directly breached its fiduciary duties related to its employee pension benefit plan in six ways and also incurred ERISA liability by failing to monitor the plan administrator. See §7.33.

A real estate broker acting as a dual agent of both the seller and the buyer owes a fiduciary duty to both the buyer and the seller. Horiike v Coldwell Banker Residential Brokerage Co. (2016) 1 C5th 1024, 1040. See §7.36.

The elements of a cause of action for breach of fiduciary duty are (1) the existence of a fiduciary duty, (2) breach of the fiduciary duty, and (3) damage proximately caused by the breach. Broadway Victoria, LLC v Norminton, Wiita & Fuster (2017) 10 CA5th 1185, 1192. See §8.4.

When the fiduciary duty is based on or arises from a statute, standing to assert a claim for breach of that duty may be defined by the statute. See, e.g., Koeplin v Klotz (ND Cal, Sept. 5, 2017, No. 17cv01530DMR) 2017 US Dist Lexis 143325. The Klotz court dismissed an ERISA plan administrator’s breach of fiduciary duty claim against a participant because ERISA does not provide standing to plan administrators to sue. See §8.9.

A claim may be attacked at the pleading stage if each element of the aiding and abetting claim is not adequately pled. For example, in Namer v Bank of America, N.A. (SD Cal, Mar. 30, 2017, No. 16cv3024JM(WVG)) 2017 US Dist Lexis 48120, an aggrieved party in a corporate takeover bid sued for aiding and abetting a breach of fiduciary duty in connection with the removal of the plaintiff from the corporation’s account with Bank of America. The district court dismissed the aiding and abetting claim under Fed R Civ P 12(b)(6) because “actual knowledge” by the bank of the alleged breaches of fiduciary duty was not sufficiently alleged. See §8.11.

In Laymon v J. Rockcliff, Inc. (2017) 12 CA5th 812, the court held that the real estate sellers’ breach of fiduciary duty claims against brokers and service providers based on alleged kickbacks were subject to arbitration based on arbitration clauses in the real estate listing agreements. See §8.22.

The 1-year statute of limitations was applied broadly in Foxen v Carpenter (2016) 6 CA5th 284. A former client sued her former personal injury attorneys for declaratory relief, breach of contract, unfair business practices, conversion, money had and received, and breach of the implied covenant of good faith and fair dealing, based on a claim that the attorneys had improperly manipulated litigation costs in order to earn a greater recovery. The court of appeal affirmed the trial court’s sustaining of a demurrer based on the 1-year statute of limitations for legal malpractice. The court rejected the plaintiff’s argument that her breach of contract and related claims arose from breaches of “ordinary” and “non-legal” duties, stating, “In this case, plaintiff will not be able to establish her contract claims against defendants without demonstrating they breached professional duties owed to her.” 6 CA5th at 292. See §8.36.

In ESG Capital Partners, LP v Stratos (9th Cir 2016) 828 F3d 1023, the Ninth Circuit allowed non-legal malpractice claims to proceed against an attorney. The plaintiff negotiated an agreement with the defendant and defendant’s lawyer to buy pre-IPO Facebook shares. The Ninth Circuit determined that the conversion, breach of fiduciary duty, unjust enrichment, and unfair competition claims against the attorney were not barred by CCP §340.6(a) so long as they do not depend on proof that the attorney violated professional duties. The court held that the breach of fiduciary duty claims did depend on proof of the attorney’s violation of professional duties, and were therefore barred by the statute of limitations, but the other claims did not depend on the attorney’s violation of professional duties and were not barred. See §8.36.

In Williamson v Brooks (2017) 7 CA5th 1294, the beneficiary of a trust sued the trustee for the failure to distribute trust assets. After a bench trial, the trial court found in favor of the defendant because the beneficiary had not established any damages. The court of appeal affirmed, stating “we agree with the trial court that, even if a breach of fiduciary duty did occur, Beverly suffered no compensable loss.” 7 CA5th at 1302. See §8.37.

According to the economic loss doctrine, conduct amounting to a breach of contract is not also tortious unless the conduct violates an independent duty arising from principles of tort law. See Applied Equip. Corp. v Litton Saudi Arabia, Ltd. (1994) 7 C4th 503, 514. In MH Pillars Ltd. v Realini (ND Cal, Sept. 14, 2017, No. 15cv1383(PJH)) 2017 US Dist Lexis 149539, *50, the district court dismissed breach of fiduciary duty claims under Fed R Civ P 12(b)(6) because “an omission to perform a contract cannot give rise to tort damages when a plaintiff claims only economic loss, as plaintiffs do here.” See §8.37.

In Broadway Victoria, LLC v Norminton, Wiita & Fuster (2017) 10 CA5th 1185, the plaintiff asserted claims against its prior attorneys for legal malpractice and breach of fiduciary duty in connection with the defendants’ handling of a real estate dispute and a related bankruptcy. After the plaintiff rested at trial, the defendant filed a motion for a nonsuit on the breach of fiduciary duty claim. The court of appeal affirmed the trial court’s granting of the nonsuit, stating, “A defendant is entitled to a nonsuit if the trial court determines that, as a matter of law, the evidence presented by plaintiff is insufficient to permit the jury to find in his favor.” 10 CA5th at 1191. The court of appeal said that no California court has explicitly held that a breach of fiduciary duty claim can be asserted even if it is based on the same facts as the legal malpractice claim. The nonsuit was affirmed because “we conclude that, when the basis for a claim of breach of fiduciary duty arises from the same facts and seeks the same relief as the attorney negligence claim for malpractice, the claim for breach of fiduciary duty is duplicative and should be dismissed.” 10 CA5th at 1194. See §8.40.

Punitive damages are not recoverable based solely on the plaintiff’s proof of the prima facie elements of breach of fiduciary duty. “[A] breach of fiduciary duty alone without malice, fraud or oppression does not permit an award of punitive damages. The wrongdoer must act with the intent to vex, injure, or annoy, or with conscious disregard of the plaintiff’s rights.” Lackner v North (2006) 135 CA4th 1188, 1210. In Crowe v Gogineni (ED Cal, Sept. 28, 2017, No. 11dv3438(EFB)) 2017 US Dist Lexis 160237, the district court ruled in favor of the plaintiff on her breach of fiduciary duty claims after a bench trial and awarded more than $2 million in compensatory damages. However, punitive damages were denied because the plaintiff failed to adduce evidence of the defendant’s financial condition, which the court said was a key element in proving the entitlement to punitive damages. See §8.47.

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 co-author 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 co-author 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 co-author 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 co-author 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 co-author 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 co-author 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 co-author 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 co-author of chapter 7.

About the 2018 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 2018 update co-author of chapter 10.

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 2018 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 2018 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 co-author of chapters 4 and 7; and the 2018 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 2018 update author 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 2018 update co-author 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, 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 2018 update co-author 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 co-author and 2018 update co-author 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 2018 update co-author of chapter 10.

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