Important New Decision Regarding Challenges to Corporate Elections in California

Section 709 of the Corporations Code establishes a summary proceeding for addressing disputes over corporate elections.  The disputes which may be resolved are limited to corporate elections:  notice of elections, who is entitled to vote, and the like are the issues that are resolved by this summary mechanism.  Importantly, Section 709 applies not just to corporations incorporated in California, but also to elections in foreign corporations where the election occurs in California. A recent Court of Appeal decision grappled with the question of whether broader issues, such as breach of fiduciary duty and conflicts of interest, can be decided in a Section 709 proceeding, provided those issues affected a corporate election.  See Morrical v. Rogers (http://www.metnews.com/sos.cgi?1013//A137011).  Despite the summary proceeding (taking place in short order after the complaint is filed with presumably limited discovery), the Court of Appeal held that there is no limit to the issues that may be addressed in a Section 709 proceeding, provided that those issues affect the validity of a corporate election.  Accordingly, Section 709 can become a very powerful tool where a corporate election is at issue.  As mentioned above, the Section 709 process may be available in the context of foreign corporations where they are based in California and therefore the election occurs here in California.