[Acct-Legal] Response to two questions posed in agenda

Wed Apr 1 14:07:29 UTC 2015

In the interest of helping to focus the discussion on our call today, Sidley offers the following observations:

Our ability to provide high-quality legal advice is directly related to our understanding of the concerns that give rise to your questions and the opportunity to undertake research.  The more context that is provided with a question the better able we are to focus our research and our responses in a way that addresses your concern.  We received the agenda this morning and do not fully understand the concerns and implications underlying the questions, nor have we had an opportunity to undertake additional research.  That said, we look forward to the discussion and offer these initial reactions to the questions stated in the agenda to help further focus that discussion.  We note also that additional questions have just been circulated for discussion on the call, and we will review.

A.  Jurisdiction:   What provisions, if any, can be included in the Bylaws or articles of incorporation related to jurisdiction issues? Is that possible under current ICANN’s structure? What extra accountability would changing jurisdiction bring to the community?

1.  Addressing jurisdiction in articles and bylaws and whether possible under ICANN’s structure:  Under concepts of state corporate law in the US, the entity’s articles of incorporation set forth the jurisdiction under which a corporation is formed .  The laws of the jurisdiction of formation (currently for ICANN, California) govern the internal affairs of the corporation (the “ internal affairs doctrine“) .  These internal affairs include issues that one would expect to see expressed in bylaws such as  how the entity is organized internally and the various roles and decision rights and responsibilities of key participants:  members or designators (if any), directors and officers, and other key constituents.   Generally the corporation has to have s a "registered office"  in the state of incorporation but it may have its primary office in another jurisdiction.   There is also flexibility to provide for alternate dispute resolutions and to designate specific choice of law provisions for such dispute resolution.  For example,   the bylaws can set up alternative dispute resolution processes subject to binding international arbitration that follows bespoke rules formulated and agreed to by the community in the bylaws and other core documents.  Although this does not fully allow the community to establish a comprehensive and binding private international law, and some court challenges will remain possible for entities organized under the laws of any jurisdiction, this would allow for the resolution of most disputes in a manner consistent with the legal norms of the multi-stakeholder community, as has long been the case with respect to domain name disputes.  Outside of bylaw provisions, contracting parties typically specify what law shall govern specific contractual arrangements and  provide for specific mechanisms to apply for dispute resolution.  For example CA law need not be the law chosen to rule a particular contractual relation.  And contracts with third parties can define alternate jurisdictions and mechanisms to resolve legal disagreements.

To the extent that this question is intended to relate to  establishing a commitment to review where ICANN should be incorporated in the future, we need more information about what is sought to be accomplished  and the opportunity to undertake specific research.

To the extent that this question is about locking in a jurisdiction  for formation or for dispute resolution or other purposes such that it is very difficult to change in the future, we would need to undertake research and also explore the pros and cons of such an approach and how it might be effectuated for example through a very high threshold for amendment or golden bylaw.

2.   Extra accountability mechanisms in other jurisdictions:  As to  whether extra accountability mechanisms  are available in other jurisdictions, we would have to engage in research  and it would be helpful to have direction as to several jurisdictions of interest rather than canvas the entire set of possibilities.  We are not aware without further research of a jurisdiction that offers extra accountability mechanisms that could not be created in the flexible framework provided by state corporate law in the US Before we  undertake research on this question it would be helpful to better understand the underlying concern that is driving this question.

B.  Liability: Which would be the liability of those persons conforming the proposed bodies? (IRP, Supervisory Board) Has the figure of a supervisory board has been put in practice in California?

1.  Liability of persons participating on proposed bodies:   While directors and officers of a corporation take on certain responsibilities and liabilities as fiduciaries, it is relatively rare for a director or officer of a non-profit corporation to be found liable for breach of duty absent malfeasance – for example engaging in self-dealing.  In addition, the corporation generally can exculpate (hold harmless) and indemnify (promise to pay for a financial liability outcome) so long as the act was not criminal or a breach of the duty of loyalty (self-dealing) or otherwise in bad faith.  As to other persons – for examples members of a review panel, these same protections of exculpation and indemnification are available.  Generally there are a variety of protections available to help protect persons involved in ICANN governance from personal liability.

2.  Supervisory boards:   A two tier board structure – with of a supervisory board and a management board is generally not a specific legal construct under state corporate law in the US.  State corporate law generally contemplates that the board of directors has authority to manage and direct the affairs of the corporation and that the board typically delegates management functions to a group of officers.  Those officers are not typically organized into a “managing board” (but this may be a difference without much specific legal import).   Additionally, a board can delegate to a  board committee in ways that can mimic some aspects of the distinction between a supervisory board and a management board , although if that board committee takes on management tasks there is some risk that its members could be viewed to take on the heightened legal responsibilities and liabilities associated with corporate officers.

Legal Sub-Team Meeting
April 1st, 2015

1-     Welcome & roll call (2 minutes)

2-     Methodology (8 minutes)

3-     Review of Community Empowerment (15 minutes)

a.     Board removal

b.     Budget approval

c.      Bylaw approval

d.     Golden Bylaws

4-     Jurisdiction: What provisions, if any, can be included in the Bylaws or articles of incorporation related to jurisdiction issues? Is that possible under current ICANN’s structure? What extra accountability would changing jurisdiction bring to the community? (10 minutes)

5-     Liability: Which would be the liability of those persons conforming the proposed bodies? (IRP, Supervisory Board) Has the figure of a supervisory board has been put in practice in California? (10 minutes)

6-     Comments on the initial feedback received (10 minutes)

7-     AOB (5 minutes)

HOLLY GREGORY
Partner

Sidley Austin LLP
+1.212.839.5853
holly.gregory at sidley.com<mailto:holly.gregory at sidley.com>

From: ccwg-accountability5-bounces at icann.org [mailto:ccwg-accountability5-bounces at icann.org] On Behalf Of McAuley, David
Sent: Wednesday, April 01, 2015 9:49 AM
To: ccwg-accountability5 at icann.org; León Felipe Sánchez Ambía (leonfelipe at sanchez.mx)
Subject: [Acct-Legal] Some questions

Hi Leon and legal sub-team colleagues,

We have one hour today and loads of questions already. So I will list questions below but understand we will likely not get to these today.

I agree with sentiments expressed in the overnight message traffic that we should spend a bit of time today on organizational issues and I like the idea of creating a central questions repository that might make things a bit easier to follow for ourselves as well as the full CCWG.

Here are the questions I have:

For Adler/Colvin:

What is ICANN presently, member or designator or blended or none of these?

If it is one, can it change to another without a new IRS review of tax status?

What specifically would it mean to structure an SO or AC as an unincorporated association? Does it implicate liability on their part? Is there a chance they are already such status?

Two-tiered board: Can the full board step in and overturn an executive committee decision at any time, say even five years later?

Can a California board be required to keep detailed meeting minutes including vote tallies by member, or can meetings be recorded and open to inspection?

If so, could certain subjects be “walled off” to comply with applicable privacy laws? By “walled off” I mean recorded in some manner but unavailable for inspection absent some threshold showing consistent with applicable privacy law.

Would a board committee be an appropriate tool to keep check on mission creep?

If a hybrid structure is used (combination of corporate and contract law) would the contract be of indefinite duration? Who would the parties be? Would third-party beneficiaries feature in that arrangement? Could termination protections be sufficiently robust to protect the community? Are the remedies of specific performance or mandamus practically speaking remedies that would take years?

While I understand that a board member can be selected for the board by a designator, is it also true that that particular board member may not be removed over the objection of the particular designator who appointed him/her?

Would the community’s present apparent desire for an open records policy of some additional heft over the existing one (currently referred to in ICANN as the Documentary Information Disclosure Policy (DIDP) https://www.icann.org/resources/pages/didp-2012-02-25-en<https://urldefense.proofpoint.com/v2/url?u=https-3A__www.icann.org_resources_pages_didp-2D2012-2D02-2D25-2Den&d=AwMGaQ&c=Od00qP2XTg0tXf_H69-T2w&r=1-1w8mU_eFprE2Nn9QnYf01XIV88MOwkXwHYEbF2Y_8&m=yvJswtagqdJJggtRzBzF-rPlXKnocjXGflRDeZteozc&s=Yzyvt7PsmOIvNUa-PZj-rVkq89fZBaMGx_XrWwGkWVo&e=>) be something that should be handled in a bylaw? Does California have any law respecting access to non-profit organization records that would restrict access or enlarge it?

For Sidley:

Your advice of March 27 says (at page 5) that the member review and approval right over a board decision not to accept the recommendation of a specified group (I am particularly interested in IRP)  is a potential mechanism “to require the Board to take a second look.” Isn’t it more than that, though, if it involves approval – can’t it be a mechanism to require the board to accept the recommendation?

Thank you all,

David McAuley
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