The Ninth Circuit today, in Li v. ArcSoft, Inc., asked the California how to interpret a Corporations Code statute in an action for fraud and breach of fiduciary duty by shareholders of a software company that had been bought out. The defendants are the company and its founder.
The question asked is: “Do the appraisal requirements of California Corporations Code § 1312(a) and the California Supreme Court’s decision in Steinberg v. Amplica, Inc., 729 P.2d 683 (Cal. 1986) (Mosk, J.) [42 Cal.3d 1198], preclude a shareholder from seeking buyout-related damages when the facts leading to the shareholder’s cause of action were not known until after the buyout was consummated?” (Link added.)
In Steinberg, a 4-3 Supreme Court held section 1312 made appraisal of his shares’ value the sole remedy for a shareholder who could have dissented from a merger and been entitled to have the corporation purchase his shares for fair market value, but who instead, aware of the facts underlying his claim of breach of fiduciary duty, chose to allow the merger to proceed without dissent and then sued not only for the fair market value of his shares, but also for punitive damages.
The Ninth Circuit’s order says the Supreme Court’s help is necessary because the Steinberg court “did not foreclose the possibility that there is a non-statutory exception to § 1312(a) for a shareholder who does not become aware of a manager’s unlawful conduct until after the fact, but it also did not endorse such an exception.”
Video of the October 22 Li oral argument is here.
This is the first Ninth Circuit request for Supreme Court help since February.
The Supreme Court should let the Ninth Circuit know by early February 2026 — give or take — whether it will answer the question. The Supreme Court historically says “yes” in most cases, but it has gotten a bit pickier of late. It has turned down two of the last four Ninth Circuit requests. In the long run, however, the court has been extremely accommodating, having granted 22 of the last 25 requests, dating back to July 2018. Before the most recent rejections (in August 2023 and April 2024), the lone denial over the past five years had been in October 2019.
