[atrt2] Bylaws amendment

Avri Doria avri at acm.org
Fri Nov 22 03:03:56 UTC 2013


Seems like we should get a Staff response on this.  Seems convincing.
And like something that we should considered adding to the report as a step in the wrong direction.


On 19 Nov 2013, at 19:55, Paul Diaz wrote:

> This is Becky Burr's support for her claim, backed by the RySG, that the ICANN Bylaws change related to Reconsideration Requests reduced the accountability protections of the IRP.
> Begin forwarded message:
>> From: "Burr, Becky" <Becky.Burr at neustar.biz>
>> Subject: Bylaws amendment
>> Date: November 19, 2013 6:23:36 PM GMT-03:00
>> To: Paul Diaz <pdiaz at pir.org>, "bcute at pir.org" <bcute at pir.org>
>> Summary.  The 11 April 2013 Bylaws amendment replaced the substantive requirements of its Articles of Incorporation and Bylaws with California’s “Deferential Business Judgment Rule” as the yardstick against which Board Actions should be measured in an IRP.  In ICANN’s own words, this standard would require IRP Panelists to dismiss IRP Requests unless the claimant can prove that the Board’s decision involved “fraud, bad faith, overreaching or an unreasonable failure to investigate material facts.”  See ICM v. ICANN, ICANN’s Response to Claimants Memorial on the Merits, §128. 
>> Discussion.  The Bylaws amendment, adopted by the Board without discussion on 11 April 2013, significantly narrows the scope of the IRP and profoundly diminishes the measure of accountability it provides.  Under the new standard, ICANN will not be held accountable for any violation of its Bylaws unless the claimant in an IRP can prove that the violation was the result of “fraud, bad faith, overreaching or an unreasonable failure to investigate material facts.”  As ICANN staff is well aware, there is no credible basis for arguing that this change preserves – let alone expands – accountability protections. 
>> The Pre-Amendment Bylaws provided that request for independent review: 
>> shall be referred to an Independent Review Process Panel ("IRP Panel"), which shall be charged with comparing contested actions of the Board to the Articles of Incorporation and Bylaws, and with declaring whether the Board has acted consistently with the provisions of those Articles of Incorporation and Bylaws.   
>> The Amended Bylaws contain the following new language: 
>> The IRP Panel must apply a defined standard of review to the IRP request, focusing on: did the Board act without conflict of interest in taking its decision?; did the Board exercise due diligence and care in having a reasonable amount of facts in front of them?; and did the Board members exercise independent judgment in taking the decision, believed to be in the best interests of the company.
>> This new language is a restatement of California’s “Deferential Business Judgment Rule.”   Under that rule, a California court will protect individual directors from liability for Board actions “even if a reasonable person would have acted differently, provided the board acted (i) in good faith, (ii) in the best interests of the association, and (iii) upon reasonable investigation. Lamden v. La Jolla Shores, (1999) 21 Cal.4th 249.   The Business Judgment Rule, however, "provides protection from personal liability for the individual directors of a non-profit [ ] association. It does not follow and is not true that the same rule of judicial deference will also automatically provide cover to the entity itself.”  Ritter and Ritter v. Churchill, (2008) 166 Cal.App.4th 103  
>> ICANN urged the Panelists in ICM v. ICANN to evaluate the Board’s liability under the deferential business judgment rule.  In ICANN’s view, ICM claims should be dismissed unless it could prove that the Board’s decision reflected “fraud, bad faith, overreaching or an unreasonable failure to investigate material facts.”  See ICANN’s Response to Claimants Memorial on the Merits, §128. 
>> A majority of the Panel rejected firmly rejected ICANN’s argument.  Instead, it conducted a de novo review of the facts, and applied the Bylaw requirements without significant deference to the Board.   The Majority declared that ICANN is bound by its Articles of Incorporation and Bylaws, which “require ICANN to carry out its activities in conformity with relevant principles of international law,” and
>> do not specify or imply that the International Review Process provided for shall (or shall not) accord deference to the decisions of the ICANN Board. The fact that the Board is empowered to exercise its judgment in the application of ICANN’s sometimes competing core values does not necessarily import that that judgment must be treated deferentially by the IRP. In the view of the Panel, the judgments of the ICANN Board are to be reviewed and appraised by the Panel objectively, not deferentially. The business judgment rule of the law of California, applicable to directors of California corporations, profit and nonprofit, in the case of ICANN is to be treated as a default rule that might be called upon in the absence of relevant provisions of ICANN’s Articles and Bylaws and of specific representations of ICANN – as in the RFP – that bear on the propriety of its conduct. In the instant case, it is those Articles and Bylaws, and those representations, measured against the facts as the Panel finds them, which are determinative.  
>> J. Beckwith Burr
>> Neustar, Inc. / Deputy General Counsel and Chief Privacy Officer
>> 1775 Pennsylvania Avenue NW, Washington, DC 20006
>> Office: + 1.202.533.2932  Mobile:  +1.202.352.6367  / becky.burr at neustar.biz / www.neustar.biz
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