Metropolitan News-Enterprise


Wednesday, July 7, 2021


Page 1


Court of Appeal:

Beneficial Owner of Stock Has No Inspection Right


By a MetNews Staff Writer


A person who owns shares of stock which are in the name of another person or entity has no right to inspect the company’s books and records, Div. Three of the First District Court of Appeal has held.

The opinion, filed Friday, affirms an order by San Mateo Superior Court Judge George A. Miram denying a Miriam writ of mandate sought by Anthony Ramirez, a beneficial shareholder in Gilead Sciences, Inc., one of the world’s largest biopharmaceutical companies, headquartered in Foster City, California. Retired Fifth District Court of Appeal Justice Rebecca Wiseman, sitting on Assignment, wrote the opinion.

Ramirez sought an inspection pursuant to Corporations Code §1601 which says, in part:

“The accounting books, records, and minutes of proceedings of the shareholders and the board and committees of the board of any domestic corporation…shall be open to inspection at the corporation’s principal office in this state…upon the written demand on the corporation of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to the holder’s interests as a shareholder or as the holder of a voting trust certificate.”

The trial court was correct in denying an inspection to Ramirez, Wiseman said, declaring:

“Ramirez, as a beneficial owner of Gilead shares, lacks standing to assert an inspection demand under section 1601.”

‘Beneficial Owner’

She drew attention to the website of the U.S. Securities and Exchange Commission, which says:

IA registered owner or record holder holds shares directly with the company.

IA beneficial owner holds shares indirectly, through a bank or broker-dealer. Beneficial owners holding their shares at a broker-dealer or bank are sometimes said to be holding shares in ‘street name.’ The majority of U.S. investors own their securities this way.” “Section 1601 extends a right of inspection to ‘any shareholder or holder of a voting trust certificate.’ (Italics added.) Although the provision does not define the term ‘shareholder,’ section 185 of the Corporations Code governs its construction and defines the term as ‘one who is a holder of record of shares.’…

“We are not, as Ramirez’s argument implies, free to ignore that definition….The express definition provided in section 185 compels the conclusion that Ramirez, who undisputedly is not a ‘holder of record of shares,’ lacks standing to demand inspection under section 1601”

In light of the conclusion that Miram ruled correctly, Wiseman said, there is no need to decide whether the appeal is, as Gilad contends, moot. It asserted mootness based on Ramirez (and four other plaintiffs in the action in that state) having obtained a Nov. 24 order from the Chancery Court of the State of Delaware permitting limited access to the company’s books.

Ramirez contended his action in mandate is proper because California law would provide wider access and, he maintained, a forum selection clause, designating Delaware as the forum, was inapplicable to his objective.

The case is Ramirez v. Gilead Sciences, Inc., 2021 S.O.S. 2966.

Action in Delaware

The Delaware court did not deal with the manner in which Ramirez holds his shares, reciting, in a footnote: “Ramirez has held Gilead stock since 2016.” Putting the litigation in perspective, the opinion says:

“[T]he complaint tells a story as replete with inequity as the biblical verse that the Company’s namesake brings to mind. In 2001, Gilead received FDA approval for tenofovir disoproxil fiimarate (‘TDF’), a life-saving medication for persons living with HIV. TDF has generated billions in revenue for Gilead year after year.

These revenues incentivized Gilead to protect the market for TDF by forestalling the market entry of generic TDF and delaying the development of Gilead’s safer TDF-substitute drug called tenofovir alafenamide O’TAF). The plaintiffs say that there is a credible basis to suspect that Gilead violated antitrust laws, committed mass torts, infringed on government patents, and defrauded government programs in its efforts to protect the TDF market.

“In stating their credible basis, the plaintiffs join in chorus with a host of other accusers. Gilead’s activities have drawn lawsuits and investigations from persons living with HIV, activists, regulatory agencies, the Department of Justice, and Congress. As just one example, in 2019, activists and union benefit funds filed a class action complaint in federal court alleging that Gilead and its competitors violated federal and state antitrust laws by engaging in anticompetitive conduct to prevent competition in the market for TDF-based drugs. The plaintiffs in that case seek billions of dollars in damages. In March 2020, the federal court partially denied a motion to dismiss, allowing portions of the case to move forward.” Some actions against Gilead based on side-effects from use of its TDF-based drug Truvada have resulted in settlements.


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