IP: ICANN: Auerbach's Allegations Off Target

[Dave Farber <dave@farber.net>]

I remind folks that I am a long time Trustee of EFF djf

------ Forwarded Message
From: Cindy Cohn <Cindy@eff.org>
Date: Tue, 19 Mar 2002 20:30:24 -0800
To: dave@farber.net
Subject: Fwd: Re: ICANN: Auerbach's Allegations Off Target


Hi Dave,

Feel free to post this to IP with attribution.  As you know, EFF is serving
as co-counsel to Mr. Auerbach.

I think a little legal context could be helpful to IPers considering Karl
Auerbach's lawsuit against ICANN and ICANN's published response.  I
apologize in advance for the repeated use of the term "fiduciary duty;" I
don't think I've ever used it so many times in a single message.

First, as a Director of ICANN, Karl has a fiduciary duty to the corporation
under California law. The duty is also repeated in the ICANN Bylaws
(Article V, section 8). Karl has repeatedly acknowledged his fiduciary duty
in his correspondence with ICANN, so the characterization of this dispute
as arising from Karl's failure to "acknowledge" his fiduciary duty is
misleading.

Second, Karl's fiduciary duty includes ensuring that the corporate records
are in order. It is in furtherance of this duty that Karl first sought the
records in November, 2000. This duty also includes keeping confidential
corporate information confidential, so the claim that a separate
contractual agreement is required to ensure this is unfounded.  Karl has
always been willing to abide by his fiduciary duties concerning corporate
privacy and has repeatedly affirmed this to ICANN management.

Third, in addition to his duty, California law gives Karl an "absolute
right at any reasonable time to inspect and copy all books records and
documents of every kind . . ."  California Corporations Code sec.
6334.  This right is also repeated in the ICANN  Bylaws (Article V, section
21).

So with this in mind, here are a few responses to ICANN's specific claims:


>According to Lynn, Auerbach has only been asked to affirm that he will
>abide by reasonable procedures for access


What ICANN's management wanted Karl to do contractually was different than
simply affirming his fiduciary duties.  It was to agree that the decision
to grant him any access or use of corporate records rests in the first
instance with ICANN management.  Then, if he disagreed with management, it
set up an appeal process first to a small subset of the Board and then to
the entire Board.

>endorsed by ICANN's Audit Committee (composed of three independent
>Directors) and shared with the entire Board. "He could have had access
>months ago but prefers to file lawsuits instead," noted Lynn.

This wording is interesting. Note that Mr. Lynn does not say that the
procedures were "adopted" by the Board.  This is because they
weren't.  They were merely "shared" with it.

The lawsuit is about whether it is proper for management to impose such
procedures on Board members, as well as whether the procedures management
put into place were "reasonable" in light of Mr. Auerbach's legal rights
and duties as a member of the Board and ICANN's own Bylaws.


>Among ICANN's 19-member Board of Directors, only Mr. Auerbach has objected
>to those procedures, refusing to acknowledge that all ICANN Directors owe
>a fiduciary duty to ICANN. He claims that he alone, and not the whole
>Board, will determine whether to disclose personnel and other information
>normally kept confidential or privileged.

As noted above, the Board has not passed any resolution concerning Board
member access to corporate records.

Note that although it is not at issue here, I do not think that California
law would allow a Board-adopted policy that placed each Board member's
individually ability to review and use records at the discretion of the
entire Board.  I think this would violate the Corporations Code, which
creates *individual* rights and duties for each Board member. Put another
way, I do not believe the Board as a whole could not eliminate the
fiduciary duty placed on individual Board members by law.

More importantly, this is a dispute about access, not over public
disclosure.  Karl's disclosure of information "normally kept confidential
or privileged" is already subject to his independent fiduciary duty under
law and he has never indicated that he intends to "disclose" any of the
information he reviews.


>  "This lawsuit is misplaced and can only result in a total waste of
> valuable time and resources," Lynn summarized. "ICANN will defend itself
> vigorously to protect the rights of the corporation, and the legitimate
> best interests of all of ICANN's directors and of the stakeholder community."

This lawsuit resulted from the sixteen months that ICANN refused to accede
to Mr. Auerbach's repeated requests to review basic corporate records.  If
there has been any waste, it is caused by ICANN management.

EFF believes that the Internet community should be served by an Internet
naming authority that is open, transparent, and accountable. ICANN
management's behavior overall has been closed, opaque, and arbitrary. We
decided to assist Karl because it now appears that ICANN has failed to
abide by even the most basic standards of California law -- the placement
of ultimate control of a corporation with the Board, not the management.

While this would be a problem in any corporation, it is especially
distressing when it concerns one of the only publicly elected members of a
nonprofit corporation that has been entrusted with control over such a
vital part of the Internet.

Cindy



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