Wednesday, January 1, 2014

Friese v. Superior Court case brief

Friese v. Superior Court case brief summary
36 Cal.Rptr.3d 558 (2005)

Plaintiff successor trustee sought a writ of mandate after the trial court sustained demurrers filed by defendants, former officers and directors of a Delaware corporation, to the trustee's insider trading causes of action under Corp. Code, §§ 25402 and 25502.5.

The publicly traded corporation had its headquarters and principal place of business in California and did substantial business there. The trustee alleged that defendants sold over 5 million shares of stock after overstating the corporation's profits and failing to disclose they were negotiating a merger.

The trial court held that, because the issuer was a Delaware corporation and Delaware had no statute analogous to § 25502.5, the internal affairs doctrine as codified in Corp. Code, § 2116, prevented defendants from being held liable under Corp. Code, § 25502.5.


  • The court agreed that the duties officers and directors owed a corporation were in the first instance defined by the state of incorporation. 
  • Such duties were not the subject of California's corporate securities laws in general or §25502.5 in particular. 
  • Given the broad public and regulatory interests that §25502.5, served, it was not subject to the internal affairs doctrine as codified in Corp. Code, §2116. 
  • Because a substantial portion of California's marketplace included transactions involving securities issued by foreign corporations, the corporate securities laws had been consistently applied to such transactions.
The court issued a writ of mandate, directing the trial court to vacate its order sustaining defendants' demurrers to the trustee's insider trading claims and enter an order overruling the demurrers to the inside trading claims.

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