A High-Tech Shared Battle Over Prop. 211

There is just one thing executives at high-tech companies fear more than a shareholder lawsuit: a ballot measure that could lead to even more shareholder suits.

With that in mind, high-tech companies in Orange County and across California are engaged in a feverish fight against Proposition 211, a Nov. 5 ballot measure that would make it easier for shareholders to sue public companies in California courts over unexpected stock price slides. “I don’t know of an issue that has resulted in this intensive an effort,” said Philip Beaudoin, a local representative of the American Electronics Assn., a technology trade group. “Companies are very nervous.”

Executives at Odetics Inc. in Anaheim and other local companies have met with their employees to discuss the potential impact of the proposition. Others are also contacting their suppliers and customers. Many companies are contributing heavily to Taxpayers Against Frivolous Lawsuits, an organization behind the anti-Proposition 211 drive that had collected $32 million through last week.

FileNet Corp. in Costa Mesa, for example, has sent letters to all of its 650 California employees describing the potential consequences of the proposition, and has contributed $150,000 to the anti-211 organization, Chief Executive Ted Smith said.

FileNet has faced two shareholder suits in the past five years. The first was settled for less than $100,000, and the second for about $2 million, Smith said.

The company admitted no wrongdoing in either case.

Shareholder suits are typically filed after a stock price falls, and generally allege that a company misled investors or withheld information.

Companies often settle the suits rather than engage in costly legal battles that often require firms to surrender thousands of internal documents such as sales projections or executive memos.

Technology companies are particularly vulnerable to shareholder suits because their stock prices tend to be more volatile than in other industries.

Congress placed restrictions on such suits in federal courts earlier this year.

But trial lawyers responded by launching Proposition 211, arguing that investors need greater protection from fraud and deception by public companies.

Greg Miller covers high technology for The Times. He can be reached at (714) 966-7830 and at greg.miller@latimes.com.