“No matter which city wins, California will be losing yet another Fortune 500 company…Texas gets Oxy and is looking for more.”, Los Angeles Times, March 13, 2014

“Unfortunately, every prudent California company, who cares about protecting its officers from inappropriate legal liability, must consider a move to a state that makes clear that it honors the Business Judgment Rule for both directors AND officers. To this day, it is unbelievable to me that as an officer of a California-domiciled corporation, I could be sued for ordinary negligence. (Like every other California corporate officer, I had been assured by counsel over the years that my decisions and actions were protected by the Business Judgment Rule; as they are in nearly every other State.) Even more unbelievable is that thanks to the legislature and the courts, California law on this important issue remains unclear to this day. (However, it was made clear in the FDIC’s lawsuit against me. The lower Federal court ruled that in California, as an officer, I was NOT protected by the Business Judgment Rule. However, the judge agreed that the law was unclear; certified his ruling and allowed me to appeal this issue, pre-trial to the 9th Circuit. The 9th Circuit declined to resolve this matter before trial; essentially forcing me to settle a bogus $600 million negligence suit by the FDIC.) It’s a pretty simple issue. Are California officers protected by the Business Judgment Rule or not? If they are not, how in the world can California officers take direction from California directors (The Chairman and CEO is hired by, and can be fired by, the board of directors.), who are being protected by a higher standard of liability; the Business Judgment Rule? This seems like an unacceptable risk for California officers and a serious corporate governance flaw of California-domiciled corporations (and by the way, we were actually a Delaware-corporation, but California law apparently rules when headquartered in California), and therefore an important concern for shareholders. If there is not a compelling reason to be domiciled in California, it seems “almost negligent” to remain with this important legal matter unclear and unresolved?” Mike Perry, former Chairman and CEO, IndyMac Bank

Federal Deposit Insurance Corporation v. Michael W. Perry (Case No. CV 11-5561-ODW)

Covington & Burling’s Motion to Dismiss on Business Judgment Rule, 9/15/2011, Page 8, line 14:

Covington & Burling attorneys’ for Defendant Mr. Perry:

The FDIC’s single cause of action for ordinary negligence is barred by the business judgment rule. The Complaint, filed by the FDIC after an investigation of almost three years, is notable for what it does not say. The FDIC does not allege —nor could it allege — that Mr. Perry acted in bad faith. It does not allege — nor could it allege — that Mr. Perry had a conflict of interest or was otherwise disloyal to IndyMac. It does not allege — nor could it allege — that Mr. Perry engaged in any kind of loan fraud. And it does not allege — nor could it allege — that Mr. Perry lacked adequate information in making his business judgments. Rather, the Complaint focuses solely on IndyMac’s allegedly “negligent” business strategy of generating “risky” residential loans in an unsettled market environment during a roughly five-month period in 2007. The purpose of the business judgment rule is precisely to preclude second-guessing of such good-faith strategic judgments and balancing of risks by corporate decision-makers. Indeed, the Ninth Circuit has expressly held that, where the business judgment rule applies, a defendant sued by the FDIC is “entitled to immunity from personal liability for acts of ordinary negligence under California law.” FDIC v. Castetter, 184 F.3d 1040, 1044 (9th Cir. 1999)

District Court Denial of Motion to Dismiss on Business Judgment Rule, 2/21/2012, Page 7:

Hon. Otis D. Wright II, United States District Judge:

In light of the apparent lack of authority and the California legislature’s expressed intent not to include corporate officers in codifying common law BJR, this Court holds that BJR does not protect officers’ corporate decisions. Accordingly, to the extent Defendant argues that Plaintiff’s Complaint should be dismissed for failure to plead around BJR, the Court DENIES Defendant’s Motion.

Pursuant to 28 U.S.C. § 1292(b), the Court finds the instant order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate interlocutory appeal therefrom may materially advance the ultimate termination of the litigation.

District Court Order Granting Certification and Stay of Action, 2/21/2012, Page 8, line 5:

Hon. Otis D. Wright II, United States District Judge:

[N]either § 1292(b)’s literal text nor controlling precedent requires that the interlocutory appeal have a final, dispositive effect on the litigation, only that it ‘may materially advance’ the litigation.” Reese, 643 F.3d at 688. As Defendant points out, Plaintiff has not pleaded a claim for gross negligence. Thus, a ruling that the BJR does apply to preclude Plaintiff’s sole claim for ordinary negligence would effectively terminate the litigation.

Thus, even to the extent that a reversal of the Court’s December 13, 2011 Order on appeal may not have a final dispositive effect on this litigation, such a ruling nevertheless may materially advance this litigation. Accordingly, the Court GRANTS Defendant’s Motion for Certification pursuant to § 1292(b).

Defendant seeks a stay pending § 1292(b) certification and any subsequent appeal because “resolution of the appeal in [Defendant’s] favor would . . . end the litigation.” (Mot. at 8.) Plaintiff does not contest a stay pending certification and appeal. Because a ruling on appeal in Defendant’s favor would at least re-focus this litigation on whether Defendant acted with gross negligence as opposed to mere ordinary negligence and thereby alter the scope of discovery, the Court finds that a stay of the proceedings in this case pending certification and appeal would “promote economy of time and effort for itself, for counsel, and for litigants.” Filtrol Corp. v. Kelleher, 467 F.2d 242, 244 (9th Cir. 1972). Accordingly, the Court GRANTS Defendant’s Motion to stay the instant action pending resolution of Defendant’s interlocutory appeal.

Ninth Circuit Court of Appeals Declining to Hear Appeal (Before Trial), 5/11/2012:

Before: THOMAS and MURGUIA Circuit Judges:

The petition for permission to appeal pursuant to 28 U.S.C. § 1292(b) is denied.

Texas gets Oxy and is looking for more

Fresh from getting the oil giant to move to Houston, Gov. Rick Perry plans to woo other California firms

By Shan Li

Rick Perry is coming back to town.

The Texas governor will be in Los Angeles next week to try to persuade local corporations to relocate to the Lone Star State. This is his third swing through the Southland since last year, and Texas this time around comes armed with a $300,000 advertising blitz.

He returns with a big victory under his belt: Occidental Petroleum Corp.

The Los Angeles oil giant, whose roots in the region go back nearly a century, announced last month it is relocating to Houston. Perry said Oxy joins some 60 other companies that have expanded or relocated to Texas since July 2012.

“Oxy’s a big deal,” Perry said in an interview. “It is pretty exciting when you think about what that says. I think it’s important to have these conversations about why … companies are relocating.”

As a warmup to his trip, ads will start airing Thursday on TV and radio touting Texas’ business-friendly ways and slamming California as an impediment to companies.

Los Angeles has to worry about more than just Texas. There is now a competition for what city will be home to Oxy’s operations that are still based here after a planned split of the company.

The Houston part of Oxy will include its operations in the Middle East and Colombia, as well as the chemical subsidiary OxyChem. The California assets will be spun off into a separate publicly traded company with about 8,000 employees and contractors in the state. The split is expected to be completed by early 2015.

Long Beach appears to be the biggest challenger to L.A. in trying to win the jobs and tax revenue that come with playing host to a big energy player.

Like L.A., Long Beach’s history with the oil company stretches back decades. Oxy drills around the Port of Long Beach and also controls four man-made islands off its coast to tap into Wilmington Field, one of the largest oil fields in the United States.

Long Beach Councilman Gary DeLong said officials are “looking at every avenue to bring Oxy’s headquarters” to the city.

“We are far more nimble than L.A.,” he said. “We can turn on a dime when necessary. If they need a building permit, that is something we can get very quickly.”

Meanwhile, Los Angeles Mayor Eric Garcetti has reached out to Occidental directors in hopes of keeping the new company in Los Angeles, a spokesman said.

No matter which city wins, California will be losing yet another Fortune 500 company.

By heading to Houston, Occidental is joining a stream of oil companies that have ramped up their presence in Houston, the U.S. oil and gas capital.

Chevron Corp., the San Ramon, Calif., energy giant, announced plans last year to build an office tower in Houston and transfer hundreds of employees from California to Texas. (Chevron later put its building plans on hold to focus resources elsewhere.) Exxon Mobil Corp. is building a vast campus north of Houston, and Phillips 66 is also pouring billions into projects in the area.

Many industry watchers say they were surprised that Occidental, which has large operations in the Permian Basin in Texas and New Mexico, did not move sooner.

“I have always scratched my head — Why would Oxy be comfortable in Los Angeles?” said John Hofmeister, the former president of Shell Oil Co. and now head of the advocacy group Citizens for Affordable Energy. “There is nobody else there.

“When all is said and done, the oil industry, believe it or not, is a people business. Where are the people and workers? The people are in Houston.”

Oxy’s move will position the company to hire workers with experience in the industry and talented graduates from the state’s universities. The company has sought to win goodwill among Houstonians by sponsoring salutes to the military at Astros home games.

But the move signals a huge shift for the long-running Los Angeles company, which had an outsized role in the global oil markets under the helm of Armand Hammer.

Hammer bought the nearly bankrupt company in the 1950s after settling in Los Angeles with the goal of retiring. The lifelong entrepreneur was already a mogul before he bought Occidental, making millions in a wide range of industries such as art and whiskey.

Under his guidance, the company won rich oil concessions in Libya and eventually grew into one of the world’s biggest players in the energy industry. He also founded the Hammer Museum, which showcased his extensive art collection.

“He ran Oxy like a little fiefdom,” one former Oxy executive said. “All the early generations of oil and gas companies had cowboys for chairman.”

Decades later, Oxy is just one oil company among many in the U.S. to focus on growing domestic production. The industry has been boosted by technologies such as hydraulic fracturing that have unlocked previously inaccessible reserves deep underground.

Oxy’s move is “a very dramatic symbol of the kind of major changes that are happening in the oil industry in the United States,” said Daniel Yergin, journalist and author of “The Quest: Energy, Security and the Remaking of the Modern World.”

Experts said that Oxy’s new California company will be able to focus on operations in the Golden State. That could be a boon for the newly formed firm.

“There isn’t anyone who can say today how it’s going to be in California” said Pavel Molchanov, an energy analyst with Raymond James. ” They can run the business as a cash cow and pay out large dividends, or they can be more aggressive and run it as a growth company and invest a great deal.”

Occidental has not given any further details of its plans in the state.

Posted on March 13, 2014, in Postings. Bookmark the permalink. Leave a comment.

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