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. ; " ,. e I J \ < '" 'Qr'llit:!!'f~~=i;~"2eJ~~~1l",;,','"",Fh,~"",i,.",,,,:eAir, bCslio'luntetsly?~tn;(o"t~"y'o':iu{'sa,~.!.(f,~r,t,." . " " ! ~ , J , . ' " " , s ; ~ r , : , i , ! , n { ! ! ~ ltee~'~,stillha~'eno~,'qf~~.lefF tb,~ake thisntual;W9rth-~) " y:hile),' shower, dress and-glide intorny library athome to see .'?"i The New York Times thinks so. On August 15, '2002 it h,~whatinateI1alhas arrived while'I was sleeping: The virtual office'," ,to say by way of edltoriak'The shock was magnified!becauofthe,:yeai;;~027(is, remarkably, not an office at all. Instead, my, ,guardians of shareholder and public iJ;lterests ,~;.i.aP.!tb,, ' , , ' thom~'s library has been transformed , ,tors, bankers, and lawyers - did not, '.','' into a bustling twenty-four hour law prevent, and in some cases enabled, ,practice. Sure, we still have our "the chicanery at companieslike:building onWIlshire Boulevard. After, ',Enron and Worldcom." , r , 'all,I need a place to meet clients, ' ' Of course, there are280 milliontake depositions and, quite, frankly, people in the United States and only, get away from home. That being 1.1 million read the New York Timessaid, the law firm of 2027 has lost daily (2.6 million Sunday), so logical-,the separation that told you "ok, ly, more than 275 million peoplenow I'm at work, and NOW I'm at don't give a damn what the New, home," The convenience of the law York Times thinks, And a good thingfirm of 2027 requires more self-disci- that is because it's not the law thatpline, more effort, to maintain the will get you - the law has not,division between home and office. 'changed that much regarding law-:

In her ground-breaking book of yers' responsibilities -'- it's the press. '" over two decades ago, "The Over- Arthur Anderson had one bad apple, Thom88J.Itt:~Del'mo~:",; worked American," author Juliet in 80 years of practice and the press' ': ,"" "chor revealed how Americans; unlike any other nation, work ' put it, and its 80;000 employees, out of work in two m, harder and perhaps less happily than their counterparts 'When the press decides some law firm should go, say goodroughout the industrialized world. This is now truer than ever. Gracie. The Los Angeles Times weighed in on the same theBack to my story; I walk into the library and flip a switch that September 23, 2002. Nightly news shows treat lawyers muowlybrings the lights up to the perfect, scientifically engineered the Saturday matinee westerns: you knew the lawyer shot Pevels to work by. Millions of federal research dollars were spent his gold claim before the first reel ended.

(Continued on page 2) The various scandals of the day (which seem no differen---------------~---,-~~---, larger than, the scandals of yesterday) target not only the---INSIDE --- rate executives (a shiftylot) but also the accountants (wethey'd get those scalawags) and the lawyers (must bemistake). 'Why are the lawyers becoming targets? Didn't the SupCourt let them off the hook when it ruled there's no such sties tort as "aiding and abetting?" Not quite. In Congresswhere there's crime, where there's a victim, there must beprit. As in all detective stories, who was present? Let's seexecutives, the accountants, the employees (no, too many v,and the lawyers. Voila!Time to get them.Why has the lawyer's time come? Two reasons, which agood to lawyers but bad to government and the public: Toomoney and too many clients. The advent of the mega-firmbrought on both poxes, Making a lot of money makes anychoice target and, a lot of clients means conflicts that a

harmless but turn out not to be.

The Demand Requirement in Derivative ACtions - Part 1by Eric S. Waxman """",,,,,.,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,.,,,,,,,p 3'One Day One Trial'; LA County's Jury System

by Hon, James A. Bascue.i..,.: ... "", ..""", .. ,,,,,:,,.,,.,,.,,,, ..p, 5From Prestige to Penury: Increased Scrutiny ofDirectors and Officers

by Will Jay Pirkey """"."""."""."""",.,.""",.""" ..,.",,,p, 7Dispute Resolution; 25 Years of Experimentation

by Hon. L,C. Waddington. """ ... "", ..",.,., ..""""", .."."",p. 9The "Reasonable Particularity" Requirement in Trade Secret Actions, by Michael J. Kump""".""",,,,,,,,,,,,.,,.,,,, ..,,,,,,,,,,,,,,,,,,,,.p, 10Successful Complex Resolution: Follow-Up Is Key

by Charles G . Bakaly, Jr. """,.""", .."",., ,, ,,,.,,";"'p, 11Letter from the President

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V ~ ~_vv~_ V~ ~ _ .v_. ~ _~ ~ ~_inuedfrom page 7 .:::" , 's, sought to sue in California. The court overruled Diamond'srrerfinding that the use of "in this state" in Corporationssection 25500 was to be broadly interpreted to include' domiciled in California even. though no sale had actuallyplace in California. . "

a, near companion case; Store Media Inc. v. SuperiorQal.4th 449 (1999), the Supreme Court further ex- ,ed theapplication of the' CSL. Store Media involved the pri-stock option plan for employees of plaintiff and select per-:Employees 'sued claiming they had been rnisleadby false iorate financialstatements whenthey exercised their optionS.. 'mployer's demurrer was also overruled because "sale" asCorporations o.ode section 25500 inclUdedanysale,public. ',!t:Ffi'\'!i"ii!: "., . ! '" '. ...,.. ',.. ' '

l:theapplication of the CSLhas been expanded to includesale lofstock' involving a California resident, the .extent of a."participation" in that sale is still in flux. "l direct participation in the illegal activity remains thetive basis for suing a D&O. In Central Bank of Denver v.tIruerstateBomk of Denver, 511 US 164 (1994), a publicing authority defaulted on secured bonds and was sued forgand abetting the fraudulent scheme that caused the loss ofecurity. Though the court narrowly decided (5 to 4) thatwas no secondary liability for aiding and abetting a lOb-5ion,the majority warned that anyone who uses a "manipula-device" o~makes a material misstatement or omission, uponh a buyer of securities relies, may be liable. 'rrently, "participation" for purposes of the CSL is limited towho are actively involved in the management of the corpo-n or who have insider status, Kamen v. Lindly, 94 Cal. App.97 (2001). In Kamen, plaintiff named all corporate execu-including outside directors as defendants in the marketipulation scheme. A demurrer was sustained without leave toas to the outside directors.e court citing Denver held that outside directors who didngage in the "day to day management" of the portion of theany actually committing the false act or who did not have aial relationship with the company did not "participate" in themanipulation, because the outside directors' only involve-was having signed a false Form 10-Kwith the SEC. In lighte new SEC attestation requirements for CEOs and CFOs fil--ksKamen's rationale may be short lived.e flurry of federal securities legislation follows every "crisis".isions of pending legislation, S 1933 and HR 3829, proposering aiding and abetting in 10b-5 actions, and reinstatingand several liability.nsequently, we can expect California legislation to mirroral law increasing D&Opersonal liability by limiting previousle judicial decisions.

.

AQuestion of Indemnificationlegislatures increase corporate executives' potential expo-for fraud or for a knowing violation of law, the durability ofrporate veil and the availability of indemnification for legaland the resulting civil penalties remain ongoing questions.rstandably, advertisements or asset protection by incorpo-in Nevada abound.has been the SEC's position for over 25 years that it isst public policy for a corporation to inderrmify its directorsficers for violations of federal securities laws. However, thedoes not invoke this rule when there is settlement. See D."SecuritiesLitigation R efo rm : T he GrouiinqImportanceofter,"The ACE Report (October 1999). California has taken ar position by making any insurance coverage for fraudulent

, .....,......"Size of D&O Settlements Exploding," The ACE Re(November 2001). . .Tomeet the need of D&Osfor personal asset protection iers have created "wrap around" punitive damage policies andshore affiliates that provide coverage for what is typically exced. See D. Bailey, "Benefits of side- A D&Ocoueraqe/' TheReport (January 2001). However, recent financial discloshave induced insurers to return unearned premiums andrescission of their policies through declaratory relief. ThoBrown, "In House, Full Disclosure", California Lawyer (tember 2002) p.33. , ' . " I 'As indemnity becomes limited and personal exposure inc

es D&Os should become more cautious. With the enactmensection307 oftheSarbanes-Oxley Act of 2002, D&Os rnaybecome more suspicious of their own counsel,who isrequired to disclose the executives' management miscond.Whether the recent bad press and new laws result in better jment by D&Osand more concern for their investors. and emees has yet to be seen. What is certain is'that the price ofprehas significantly increased.- W ill Jay Pi

The New Ge'f'fJemw Lawyer ResponsibilityContinued from page 1As the accounting profession merged from hundreds offirms into fivemega firms, fewer and fewer firms fought forand more clients. This led to moral and professional lapses iservice of maintaining and increasing an income stream. Nonew here, but only a couple of arguably slight such lapses awrong place and the wrong time, toppled the giant ArAnderson.I'm not commenting on Enron or Worldcom because I wthere (although in full disclosure I did represent Worldcom obut in 42 years of practice I've never been asked to devise or

a dishonest act by a client save once. When I refused, the ccalled me a "chicken shit," discarded the idea and went ostraight Way.Didn't even fire me.There seem to be four ways. a lawyer might violate a laconnection with corporate malfeasance: devise a scheme, blscheme, devise a way to secrete a scheme, or fail to uncovscheme. With the first three, the lawyer's major risk is a failurealize that something is corporate malfeasance. Laws, retions, and accounting conventions change so fast and ararcane Learned Hand couldn't keep up. Here the watchwordssimply "do your best" and "don't represent flakes." We asslawyers are honest. Dishonest ones should be tagged.It's number four that is unfair and it's where we are going.legislation, both enacted and proceeding through Congresintended to place greater burdens on lawyers. The SarbaOxley Act of 2002 requires SEC rules yet to be promulgatedappears to state that a lawyer must report "evidence of a maviolation of securities laws or breach of fiduciary duty ...vague enough to require extensive court interpretation. H.R.requires disgorgement of profits and fees for the lawyer "aand abetting any ...violation of the securities laws... "The final battle will be fought in the arena of public opithat's the media. Everything converged on Arthur Andersoonce and it was crushed. What Congress seems to be suggesand what the press seems to be insisting upon, is lawyermoles, snooping to snitch on the one hand or accepting the pbility of civil or crirninalliability on the other hand. I say: Actsclient are not the acts of a lawyer unless the lawyer enablesclient to act.