Kanter v. Reed
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Plaintiffs were stockholders of Sempra when the Aliso Canyon Natural Gas Storage Facility (Aliso Canyon facility) experienced a natural gas leak (Aliso gas leak). Sempra was a California corporation “whose operating units invest[ed] in, develop[ed], and operate[d] energy infrastructure, and provide[d] gas and electricity services to [its] customers in North and South America.” One of Sempra’s wholly-owned subsidiaries, Southern California Gas Company (SoCalGas), maintained the Aliso Canyon facility. Defendants were either officer of Sempra or members of the Board or officers or members of the board of directors of SoCalGas at the time of the Aliso gas leak. When Plaintiffs filed the operative amended complaint, eight of the Board members had also been Board members at the time of the leak. The trial court issued the judgment of dismissal, which Plaintiffs timely appealed.
The Second Appellate District affirmed. The court concluded that a director acts with “reckless disregard” of his duties, within the meaning of section 204, subdivision (a)(10)(iv), when the director (1) does an intentional act or intentionally fails to act in accordance with those duties, (2) with knowledge, or with reason to have knowledge, that (3) the director’s conduct creates a substantial risk of serious harm to the corporation or its shareholders. The court held that Plaintiffs have not alleged particularized facts supporting their Caremark theory of liability and thus have failed to plead to demand futility as required under section 800, subdivision (b)(2).
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