Friese v. Superior Court
California Court of Appeal, Fourth District
36 Cal.Rptr.3d 558 (2005)
Robert Friese (plaintiff), as trustee for the successor to Peregrine Systems -- a Delaware corporation based in California -- alleged that former directors and managers (defendants) sold Peregrine stock in 1999 knowing the company had deliberately overstated its profit margins, violating California's insider-trading statutes. The defendants moved to dismiss, arguing that a separate California statute codifying the internal affairs doctrine required applying Delaware law, which had no comparable insider-trading ban; the trial court agreed and dismissed the insider-trading claims, and Friese sought appellate review.
Whether the internal affairs doctrine requires a court to apply the law of a corporation's state of incorporation, rather than the forum state's securities law, to insider-trading claims arising from trades made within the forum state.