FLASH: As predicted, SAG prevails in legal action; UPDATED Friday 2/06 PM

Variety reports that SAG President Alan Rosenberg has, indeed, failed in his effort to secure an injunction against the ouster of SAG NED Doug Allen and the replacement of the SAG Negotiating Committee by a new task force. The judge found the written assent procedure used by the Guild’s New Board Majority last week to be valid, as was predicted here and here on King Harvest.

While the judge apparently found that the move would harm Rosenberg et. al, the probability that he would succeed on the merits of the claim were seen as non-existent. No doubt the balance of harms prong and the public interest prong also fell in favor of SAG itself. More details as they become available.

UPDATE: Based on press reports it appears that one key argument made by SAG and accepted by the Judge is that SAG is free to draft its by laws as it sees fit and therefore can legitimately use a “majority written assent” process.

SAG’s lawyers made one claim in their papers (available courtesy of Jonathan Handel here) that is correct about this and one that is not.

The first is that if the California statute that governs SAG is silent on an issue that SAG wishes to write a by law about it is free to do that. Legal scholars call this “gap filling.” True enough and that is precisely what I argued prior to today’s hearing was what had happened here: SAG uses the MWA procedure either where a board meeting has taken place but there is not a floor vote (as in the recent 30 hour marathon) or where a meeting (and thus “collegiality”) is not required. Most of the ten uses of the MWA procedure by SAG appear to have fallen into this latter category.

But it appears SAG’s lawyers also contended that the Unanimous Written Consent provision of 7211(b) is an optional provision that SAG can contract around in its By Laws.

This is not true.

7211(b) requires unanimity and a writing from board members whenever a meeting would ordinarily be required for a decision but is, for one reason or another, not held. The reasoning is that unanimity gives a single board member “hold out” power that helps force other board members to consider their views in order to secure unanimity. This acts as a substitute for the “collegiality” (i.e., the free exchange of ideas in a board meeting) that would occur in a regular board meeting.

Unlike 7211(a), 7211(b) is not an optional provision and a By Law cannot contravene the statute. (See Sec. 7151(c): “The bylaws may contain any provision…not in conflict with law….”)

In fact, there is really no reason for SAG to have made this latter incorrect argument because it is not necessary in order to save the MWA provision in their Constitution and By Laws, as explained. The MWA should be understood as complementary to 7211(b) not in contradiction with it.

Unfortunately, SAG’s lawyers rely for support of their argument on this point on a quote from a leading treatise on California corporate law that says the By Laws with respect to directors’ meetings can differ from the statute. That is an accurate quote. The only problem is that it is 7211(a) that discusses directors’ meetings. Sec. 7211(b) is what happens when there is no meeting.

These are the kinds of issues that might come up if the denial of the preliminary injunction is overturned on the appeal that SAG President Rosenberg’s lawyers say they are intent on filing. Their only problem is that this line of attack is only one part of the several reasons that likely led the Judge to deny the request for a preliminary injunction. As I pointed out several days ago, the standard for a TRO or Preliminary Injunction is very high and it was not likely that he would prevail.

If Rosenberg thought the lower court would be a tough audience, wait until he gets to the Court of Appeals. The standard for an appeal of either the grant or denial of a preliminary injunction was set forth recently in another case coming out of Los Angeles Superior Court (citations omitted):

“The ultimate goal of any test to be used in deciding whether a preliminary injunction should issue is to minimize the harm which an erroneous interim decision may cause.” … “[A]s a general matter, the question whether a preliminary injunction should be granted involves two interrelated factors: (1) the likelihood that the plaintiff will prevail on the merits, and (2) the relative balance of harms that is likely to result from the granting or denial of interim injunctive relief.” …“The party challenging an order granting or denying a preliminary injunction has the burden of making a clear showing of an abuse of discretion. [Citation.] An abuse of discretion will be found only where the trial court’s decision exceeds the bounds of reason or contravenes the uncontradicted evidence. [Citation.]” … “Where the evidence with respect to the right to a preliminary injunction is conflicting, the reviewing court must ‘interpret the facts in the light most favorable to the prevailing party and indulge in all reasonable inferences in support of the trial court’s order.’” … When the matter raised on appeal is solely a question of law, the standard of review is not abuse of discretion “but whether statutory or constitutional law was correctly interpreted and applied by the trial court.” …

Since the basis of the appeal is not yet clear we can’t say for certain which standard – abuse of discretion or correct interpretation and application of the law – will apply. But certainly if the original barriers to success for Rosenberg et. al were high, they are higher now.

If the appeal rests solely on the application of 7211(b) and if the lower court relied solely on that issue to hold against Rosenberg and if the lower court relied only on the second of the two arguments raised by SAG counsel – the argument that 7211(b) is optional – then there might be a possibility of success. But as this appellate opinion points out, in addition to a chance of prevailing on the merits Rosenberg must prevail on the “balance of harms” prong and there was only a hint from the judge that that balance favored Rosenberg.