September 20, 2021

Volume XI, Number 263

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September 17, 2021

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When The Parent Is A Blue Hen And The Subsidiary Is A 49er, What Law Governs? Re: Conflict of Law

With most publicly traded companies choosing to incorporate in Delaware, corporate officers are likely to assume that they have the benefit of Delaware law.  Assumptions sometimes can be wrong.

FDIC v. Faigin2013 U.S. Dist. LEXIS 94899 (C.D. Cal. July 8, 2013) involved a suit by the Federal Deposit Insurance Corporation (which is identified as “Company” in the order) to recover over $100 million from the former officers and directors of the First Bank of Beverly Hills (FBBH).  Although FBBH was incorporated and has its principal place of business in California.  The officers, however, argued that FBBH’s was so intertwined with its corporate parent, a Delaware corporation, that Delaware law should apply.  Judge Dean D. Pregerson didn’t agree.  Citing the internal affairs doctrine, he applied the law of FBBH’s state of incorporation.

There is an important lesson here.  Organizational structure matters.  In companies with a holding company structure and operations being conducted at the subsidiary level, the officers of the subsidiaries may be subject to different standards of liability even though they perceive themselves to be working for the Delaware parent.

I’ll have more to say about FDIC v. Faigin in future postings. Note today’s post is in the form of a priamel in the manner of Sappho 16 (as are many prior posts).

© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume III, Number 199
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

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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