By Bruce V. Bigelow
UNION-TRIBUNE STAFF WRITER

December 6, 2005

A California appellate court has reversed a ruling that dismissed Padres owner John Moores and other former Peregrine Systems board members from a lawsuit filed on behalf of investors in the San Diego software company.

The unanimous opinion in effect ordered San Diego Superior Judge Joan M. Lewis to start over in the high-stakes case against Moores and others who were on duty during an extended period of accounting fraud at Peregrine.

The 25-page opinion was published Friday by a three-judge panel of the Fourth District Court of Appeal in Los Angeles.

The case was brought by an independent litigation trust overseen by Robert C. Friese, a San Francisco lawyer.

As part of Peregrine's 2003 bankruptcy reorganization, the software company conveyed its legal claims against former Peregrine directors and others to the trust, and directed that any proceeds generated by the case go to Peregrine's former shareholders.

The suit alleges extensive insider trading by certain former senior executives and board members, including Moores. The trust also alleges that Peregrine's former officers and directors failed to perform their fiduciary duty to protect shareholders and ignored the few corporate governance controls that existed at the time.

Lawyers for Moores and other ex-directors have argued that most board members were unaware of the fraud that mounted at Peregrine from 1999 to 2002, when its stock plunged to less than $1 a share.

In April, Moores' lawyers convinced Lewis that California law could not be used to press insider trading claims and other allegations against Peregrine's former executives and directors.

The San Diego judge ruled such claims must be made under Delaware law, where Peregrine Systems was incorporated.

But the appellate court said the trial judge was interpreting California's corporate securities laws too narrowly.

The issue is how state securities laws that prohibit insider trading should be applied to companies like Peregrine, that are based in California and operate here but were incorporated someplace else.

"The history of (the law) and its provisions make it clear that it is very much a part of California's corporate securities regulation scheme and serves broad public interests," wrote Acting Presiding Judge Patricia D. Benke.

John Quinn, a Los Angeles trial lawyer representing Moores, could not be reached for comment yesterday.

"We're obviously extremely pleased," Friese said. "It's a very significant ruling, and it's a very strong opinion, strong not only for our case but for the state of California in controlling insider trading activity."

In general, Delaware law is more favorable for corporations. Another key difference is that under California law, shareholders who prevail in such cases are entitled to collect triple damages.

"Our position was that California law as it now reads properly would control these transactions, not only the insider trading transactions but the breach of duty allegations," Friese said.

In her opinion, Benke also noted that it was appropriate for the appellate court to intercede because the case raises an important issue "that has not yet been confronted by either this court or our (state) Supreme Court."

Her opinion was joined by Associate Justices Alex C. McDonald and James A. McIntyre.