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Lack Of Knowledge Defeats Breach Of Fiduciary Duty Claim

Yesterday's post discussed Judge Mary Kay Vyskocil's ruling in Barenbaum v. Palleschi, 2020 U.S. Dist. LEXIS 180624 that the plaintiff's derivative claims were not "validly in litigation".  The case involved allegations that several executives and directors of FTE Networks, Inc. purported to issue convertible notes "without proper authorization from the FTE Board of Directors, by using forged signatures on the issuing documents".  

Under the laws of a different jurisdiction, the plaintiff's breach of fiduciary claim may have withstood a motion to dismiss.  The corporation, however, was incorporated in Nevada.  Under Nevada law, a director will not be liable to the corporation for a breach of fiduciary duty unless, among other things, the breach involved intentional misconduct, fraud or a knowing violation of law.  NRS 78.138(7)(b)(2).  The plaintiff's problem in Barenbaum was that he admitted that the notes had been issued without board approval.  This defeated any inference of intentional misconduct by the board members sufficient to sustain a claim under Nevada law.

© 2010-2020 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume X, Number 294
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Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
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Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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