Court Of Appeal Finally Notices That Section 2116 Says Not A Word About Officers

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Court Of Appeal Finally Notices That Section 2116 Says Not A Word About Officers

by: Keith Paul Bishop of Allen Matkins Leck Gamble Mallory & Natsis LLP - California Corporate and Securities Law

Tuesday, July 24, 2018

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Section 2116 of the California Corporations Code generally provides that the directors of a foreign corporation transacting intrastate business in California will be liable for a violation of official duty according to any applicable laws of the state or place of incorporation, whether committed or done in California or elsewhere. In 2006, long before the birth of this blog, I observed:

"Furthermore, Corporations Code § 2116 is concerned with the liability of directors. It does not address the liability of officers."

"California Appellate Court Holds that the Internal Affairs Doctrine Does Not Trump California's Insider Trading Law", 20 Insights 15 (2006). Since then, I have reiterated the observation in numerous blog posts over the years. See, e.g., Another Fissure In The Internal Affairs Doctrine?, Court Rejects Challenge To Internal Affairs Doctrine, , Why An Understanding Of Officers As Agents May Be Important, and Shareholders Sues Officer Of Delaware Corporation In California State Court, Should Texas Law Apply?

Having made this point so often, I was very pleased to see that it had not become my "nemesis bird". In an opinion issued earlier this month, Justice Richard M. Aronson wrote:

"More importantly, section 2116's plain language only applies to claims against a corporation's directors, not to claims against a corporation's officers. Colaco cites no authority that would allow us to read the term officer into the statute. (Code Civ. Proc. § 1858 ["In the construction of a statute or instrument, the office of the Judge is simply to ascertain and declare what is in terms or in substance contained therein, not to insert what has been omitted, or to omit what has been inserted"]; People v. Guzman (2005) 35 Cal.4th 577, 587 ["'insert[ing]' additional language into a statute 'violate[s] the cardinal rule of statutory construction that courts must not add provisions to statutes'"].) The Legislature's omission of officers from section 2116 appears consistent with the Legislature's determination to define directors' duties by statute, but to leave an officer's duties to the common law and the corporation's bylaws and resolutions."

Colaco v. Cavotec Sa, 2018 Cal. App. Unpub. LEXIS 4752. Unfortunately, this is an unpublished opinion and as such may generally not be cited per Rule rule 8.1115(a) of the California Rules of Court.