[atrt2] Staff follow-up on "Bylaws amendment" discussion

Denise Michel denise.michel at icann.org
Tue Dec 3 01:08:19 UTC 2013

Dear ATRT2 members:

Below is staff's response on this issue. Larisa will return from vacation
on Thursday. Please let me know if you need additional information before




First, it is important to recall the explanations that staff has previously
provided to the ATRT2 regarding the timing of the passage of the Bylaws
amendments.  In the attached note from 16 September 2013, we explained that
the characterization that the Bylaws amendments were passed "without
discussion" in April 2013 is a misrepresentation of the documented history.
 The Bylaws amendments were actually approved in December 2012, after Board
discussion and documented briefing, and following from that discussion and
decision, the April 2013 action was setting an effective date for the
previously approved Bylaws.  While this does not fully address the
discussion below, having a clear understanding of the process as it
occurred is important.

The incorporation of a standard of review into the Independent Review
Process does not, as the commenter states below, create a limitation that a
claimant will only be successful where "a 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.'"  To be clear, those
words do NOT appear in the Bylaws .  Indeed, there is no reference for the
quote as provided by the commenter.

While the commenter is correct that the Bylaws revision do incorporate a
standard of review into the IRP proceedings, it is important to note that
the grounds for bringing an IRP *have not been changed in any way, and have
not been restricted.*  As a California corporation, the business judgment
rule does apply to the acts of the Board.  That's a reality that ICANN
cannot change, just as ICANN cannot cede its decision making to a third
party.  What the experts recommended, and ICANN implemented, is that there
is a place for the business judgment rule considerations to be brought
into the IRP proceedings, as opposed to wasting millions of dollars in
attorney time and panelist time (and the requester's and ICANN's money)
fighting about what an appropriate standard of review could be in an IRP
proceeding.  By incorporating a standard of review – a similar standard
that would be applicable in any court challenge to the Board's action – the
IRP can then focus on the substantive issues posed by the IRP filing,
instead of trying to design a standard of review in each proceeding, and
risking that each would differ.

In the IRP, there is no requirement for deference to the Board's decisions,
as the commenter states below.  There is guidance on how those decisions
that are challenged should be reviewed.

In the end, no IRPs have gone through to determination since the Bylaws
were adopted.  Instead of surmising about what the potential outcome of
future IRP proceedings could be because of the Bylaws amendments, there
should be an opportunity for the Bylaws revisions to be utilized, to see if
there is any change to ICANN's accountability while allowing for more
efficient proceedings.  It is not clear what the commenter would request be
put in place in the alternative, as it does not appear to enhance ICANN's
accountability or community access to proceedings if each person seeking
to file an IRP believes that it is necessary to have a protracted fight
about the standard against which Board actions are to be measured – as seen
in the ICM matter, that is an extremely costly endeavor.  We've seen how
the previous version of the Bylaws function; it is now time to allow for
the ASEP-recommended changes to be utilized, and then further review can
take place.


Samantha Eisner

Senior Counsel, ICANN

Amy A. Stathos

Deputy General Counsel

On Tue, Nov 19, 2013 at 2:55 PM, Paul Diaz <pdiaz at pir.org> 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
> <http://www.davis-stirling.com/tabid/835/Default.aspx>*, (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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