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<p class="MsoNormal" style="background-repeat:initial initial"><font face="Calibri">Dear ATRT2 members:</font></p><p class="MsoNormal" style="background-repeat:initial initial"><font face="Calibri"><br></font></p><p class="MsoNormal" style="background-repeat:initial initial">
<font face="Calibri">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 then.</font></p><p class="MsoNormal" style="background-repeat:initial initial">
<font face="Calibri"><br></font></p><p class="MsoNormal" style="background-repeat:initial initial"><font face="Calibri">Regards,</font></p><p class="MsoNormal" style="background-repeat:initial initial"><font face="Calibri">Denise</font></p>
<p class="MsoNormal" style="background-repeat:initial initial"><font face="Calibri"><br></font></p><p class="MsoNormal" style="background-repeat:initial initial"><font face="Calibri">---------------------------------</font></p>
<p class="MsoNormal" style="background-repeat:initial initial"><font face="Calibri"><br></font></p><p class="MsoNormal" style="background-repeat:initial initial"><span style="font-family:Calibri">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.</span></p>
<p class="MsoNormal" style="background-repeat:initial initial"><span style="font-family:Calibri"> </span></p>
<p class="MsoNormal" style="background-repeat:initial initial"><span style="font-family:Calibri">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. </span></p>
<p class="MsoNormal" style="background-repeat:initial initial"><span style="font-family:Calibri"> </span></p>
<p class="MsoNormal" style="background-repeat:initial initial"><span style="font-family:Calibri">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 <i>have not
been changed in any way, and have not been restricted.</i> 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. </span></p>
<p class="MsoNormal" style="background-repeat:initial initial"><span style="font-family:Calibri"> </span></p>
<p class="MsoNormal" style="background-repeat:initial initial"><span style="font-family:Calibri">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.</span></p>
<p class="MsoNormal" style="background-repeat:initial initial"><span style="font-family:Calibri"> </span></p>
<p class="MsoNormal" style="background-repeat:initial initial"><span style="font-family:Calibri">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.</span></p>
<p class="MsoNormal" style="background-repeat:initial initial"><span style="font-family:Calibri"> </span></p>
<p class="MsoNormal" style="background-repeat:initial initial"><span style="font-family:Calibri">-- </span></p>
<p class="MsoNormal" style="background-repeat:initial initial"><span style="font-family:Calibri">Samantha Eisner</span></p>
<p class="MsoNormal" style="background-repeat:initial initial"><span style="font-family:Calibri">Senior Counsel, ICANN</span></p>
<p class="MsoNormal" style="background-repeat:initial initial"><span style="font-family:Calibri"> </span></p>
<p class="MsoNormal" style="background-repeat:initial initial"><span style="font-family:Calibri">Amy A. Stathos</span></p>
<p class="MsoNormal" style="background-repeat:initial initial"><span style="font-family:Calibri">Deputy General Counsel</span></p>
<p class="MsoNormal" style="background-repeat:initial initial"><span style="font-family:Calibri"> </span></p>
<p class="MsoNormal"> </p>
<div class="gmail_extra"><br><br><div class="gmail_quote">On Tue, Nov 19, 2013 at 2:55 PM, Paul Diaz <span dir="ltr"><<a href="mailto:pdiaz@pir.org" target="_blank">pdiaz@pir.org</a>></span> wrote:<br><blockquote class="gmail_quote" style="margin:0 0 0 .8ex;border-left:1px #ccc solid;padding-left:1ex">
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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.
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<div>Begin forwarded message:</div>
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<span style="font-family:'Helvetica';font-size:medium;color:rgba(0,0,0,1.0)"><b>From:
</b></span><span style="font-family:'Helvetica';font-size:medium">"Burr, Becky" <<a href="mailto:Becky.Burr@neustar.biz" target="_blank">Becky.Burr@neustar.biz</a>><br>
</span></div>
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<span style="font-family:'Helvetica';font-size:medium;color:rgba(0,0,0,1.0)"><b>Subject:
</b></span><span style="font-family:'Helvetica';font-size:medium"><b>Bylaws amendment</b><br>
</span></div>
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<span style="font-family:'Helvetica';font-size:medium;color:rgba(0,0,0,1.0)"><b>Date:
</b></span><span style="font-family:'Helvetica';font-size:medium">November 19, 2013 6:23:36 PM GMT-03:00<br>
</span></div>
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<span style="font-family:'Helvetica';font-size:medium;color:rgba(0,0,0,1.0)"><b>To:
</b></span><span style="font-family:'Helvetica';font-size:medium">Paul Diaz <<a href="mailto:pdiaz@pir.org" target="_blank">pdiaz@pir.org</a>>, "<a href="mailto:bcute@pir.org" target="_blank">bcute@pir.org</a>" <<a href="mailto:bcute@pir.org" target="_blank">bcute@pir.org</a>><br>
</span></div>
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<p class="MsoNormal" style="margin:0in 0in 3.75pt;font-size:12pt;font-family:Cambria">
<u><span style="font-size:11pt">Summary</span></u><span style="font-size:11pt">. 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<span> </span><i>ICM v. ICANN</i>, ICANN’s Response to Claimants Memorial on the Merits, §128. <u></u><u></u></span></p>
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<u><span style="font-size:11pt"><br>
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<u><span style="font-size:11pt">Discussion</span></u><span style="font-size:11pt">. 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. <u></u><u></u></span></p>
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</span></p>
<p class="MsoNormal" style="margin:0in 52.5pt 3.75pt 0in;font-size:12pt;font-family:Cambria">
<span style="font-size:11pt">The Pre-Amendment Bylaws provided that request for independent review: <u></u><u></u></span></p>
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<p class="MsoNormal" style="margin:0in 52.5pt 3.75pt 0.5in;font-size:12pt;font-family:Cambria">
<i><span style="font-size:11pt">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.<span> </span></span></i><i><span style="font-size:11pt"> </span></i><span style="font-size:11pt"> <u></u><u></u></span></p>
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<p class="MsoNormal" style="margin:0in 52.5pt 3.75pt 0in;font-size:12pt;font-family:Cambria">
<span style="font-size:11pt">The Amended Bylaws contain the following new language: <u></u><u></u></span></p>
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<p class="MsoNormal" style="margin:0in 52.5pt 3.75pt 0.5in;font-size:12pt;font-family:Cambria">
<i><span style="font-size:11pt">The IRP Panel must apply a defined standard of review to the IRP request, focusing on:<span> </span></span></i><a name="14272937b2ca9d75_IV-3.4a"></a><i><span style="font-size:11pt">did the Board act without
conflict of interest in taking its decision?;<a name="14272937b2ca9d75_IV-3.4b"></a><span> </span>did the Board exercise due diligence and care in having a reasonable amount of facts in front of them?; and<a name="14272937b2ca9d75_IV-3.4c"></a><span> </span>did
the Board members exercise independent judgment in taking the decision, believed to be in the best interests of the company.<u></u><u></u></span></i></p>
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<i><span style="font-size:11pt"><br>
</span></i></p>
<p class="MsoNormal" style="margin:0in 0in 3.75pt;font-size:12pt;font-family:Cambria">
<span style="font-size:11pt;background-repeat:initial initial">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<i>.<span> </span></i></span><i><span style="font-size:11pt"><a href="http://www.davis-stirling.com/tabid/835/Default.aspx" target="_blank"><span style="color:windowtext;text-decoration:none">Lamden
v. La Jolla Shores</span></a></span></i><span style="font-size:11pt;background-repeat:initial initial">, (1999) 21 Cal.4th 249.</span><span style="font-size:11pt"><span> </span> The
Business Judgment Rule, however,<span> </span><span style="background-repeat:initial initial">"provides protection from personal liability for the<span> </span><i>individual
directors</i><span> </span>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.</span>” <span> </span><i>Ritter
and Ritter v. Churchill,<span> </span></i><span style="background-repeat:initial initial">(2008) 166 Cal.App.4th 103</span> <u></u><u></u></span></p>
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<p class="MsoNormal" style="margin:0in 0in 3.75pt;font-size:12pt;font-family:Cambria">
<span style="font-size:11pt">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. <u></u><u></u></span></p>
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<span style="font-size:11pt">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<span> </span></span><span style="font-size:11pt">Articles of Incorporation and Bylaws, which “require ICANN to carry out its activities in conformity with relevant principles of international law,” and<u></u><u></u></span></p>
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<p class="MsoNormal" style="margin:0in 40.5pt 3.75pt 0.5in;font-size:12pt;font-family:Cambria">
<span style="font-size:11pt">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.<span> </span><i>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.</i><span> </span><i>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.<span> </span></i></span><i><span style="font-size:11pt"> <u></u><u></u></span></i></p>
<div style="margin:0in 52.5pt 3.75pt 0in;font-size:12pt;font-family:Cambria">
<span style="font-size:11pt"> </span><br>
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<div>
<div style="margin:0in 0in 0.0001pt;font-size:11pt;font-family:Cambria"><span style="font-size:9pt;font-family:Arial,sans-serif">J. Beckwith Burr<u></u><u></u></span></div>
<div style="margin:0in 0in 0.0001pt;font-size:11pt;font-family:Cambria"><b><span style="font-size:9pt;font-family:Arial,sans-serif;color:rgb(6,134,88)">Neustar, Inc. /</span></b><span style="font-size:9pt;font-family:Arial,sans-serif"> Deputy
General Counsel and Chief Privacy Officer<u></u><u></u></span></div>
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