Corporate Governance

Internal Affairs and State Sovereignty Principle
Moores v. Friese
No. 05-1590
Supreme Court of the United States

Declining NCLC's request, the Supreme Court rejected review of a California intermediate appellate court's decision to disregard the well-established internal affairs doctrine and instead apply California law to the internal affairs of a Delaware corporation.  In its brief, NCLC argued that the appeals court decision sets a dangerous precedent in exposing officers and directors of corporations to lawsuits brought by non-resident plaintiffs. 

Amicus brief filed 8/14/06.  Cert. denied 10/02/06.

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Internal Affairs Doctrine under California Law
Grosset v. Wenaas
No. S139285
California Supreme Court

Encouraging the California Supreme Court to reaffirm the internal affairs doctrine, NCLC filed a brief explaining that multistate corporations require clarity as to the law which will govern the relationships between the corporate entity and its officers and directors.  In this case, relying on California law, a former shareholder has filed a derivative action against officers and directors of a Delaware corporation.  In its brief, NCLC underscored that the internal affairs doctrine (which looks to the state of incorporation for the substantive law governing a dispute) gives effect to the choices made by both the corporation in its choice of location for incorporation and the state of incorporation in its decisions about the content of its law.

Amicus brief filed 9/18/06. Oral argument to be held 12/4/07.

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SEC Mutual Fund Independent Chair and 75% Independent Director Rule
Chamber of Commerce of the United States of America v. United States Securities and Exchange Commission
No. 04-47
U. S. District Court for the District of Columbia

No. 04-1300
U. S. Court of Appeals for the District of Columbia Circuit

Resolving a challenge brought by NCLC on behalf of the Chamber, the D.C. Circuit vacated the Securities and Exchange Commission's "investment company governance" rule on the grounds that the SEC had not properly considered compliance costs and the adequacy of a full disclosure alternative.  The rule, as promulgated, required that the vast majority of mutual funds change their management structure so that the chairman of the board of directors is not affiliated with the firm that provides advisory services to the fund and that mutual funds be composed of a minimum of 75 percent independent directors.  NCLC contended that the rule exceeds the SEC's statutory authority under the Investment Company Act of 1940 and was adopted in violation of the Administrative Procedure Act.  The Court remanded the matter to the agency for reconsideration and NCLC will monitor further developments.
 
Complaint filed in the U. S. District Court for the District of Columbia 9/2/04.  Petition for review in the U.S. Court of Appeals for the District of Columbia Circuit file 9/2/04.  SEC motion to transfer the Chamber of Commerce's district court rulemaking challenge to the D. C. Circuit filed 9/9/04. Chamber's request for stay denied by SEC 9/9/04.  Plaintiff's statement in response to defendant's motion to transfer filed 9/20/04.  Reply in support of emergency motion for stay, or, alternatively for expedited briefing by petitioner filed 10/7/04.  Chamber's opening brief in support of Petition for Review of the SEC's Final Rule filed 12/13/04.  Chamber's request for stay of Conditions to Reliance upon Certain Exemptive Rules under the Investment Company Act denied 1/13/05.    Chamber's reply brief filed 1/26/05.  Chamber's response to SEC's motion to consider its response to standing filed 2/24/05.  Chamber's opposition to CFA Institute's motion for leave to file amicus brief filed 3/1/05.  Moot court held 4/11/05.  Oral argument held 4/15/05.  Decision 6/21/05.

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