Judge: Armen Tamzarian, Case: 23STCV25630, Date: 2024-04-11 Tentative Ruling

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Case Number: 23STCV25630    Hearing Date: April 11, 2024    Dept: 52

Defendants Michelle Presnell, Ashley Presnell, and Peter Presnell’s Demurrer to Second Amended Complaint

Defendants Michelle Presnell, Ashley Presnell, and Peter Presnell demur to both causes of action alleged in plaintiff Heidi Yu Ling Yu’s second amended complaint. 

1. Involuntary Dissolution of Eagle Cargolink Inc.

Plaintiff alleges sufficient facts for this cause of action.  A shareholder who owns at least one third of “any corporation with 35 or fewer shareholders” may bring an action for involuntary dissolution when “liquidation is reasonably necessary for the protection of the rights or interest of the complaining shareholder.”  (Corp. Code, § 1800(b)(5).)  “[T]he grounds for” dissolution under this subdivision “are relatively more liberal than those set out in the other provisions of section 1800.”  (Bauer v. Bauer (1996) 46 Cal.App.4th 1106, 1116.) 

Plaintiff alleges she owns 50% of Eagle Cargolink Inc., which has three shareholders.  She further alleges, “On or about October 8, 2023, defendants Peter and Michelle, at a directors-only meeting voted themselves excessive sign-on bonuses and monthly compensation.”  (SAC, ¶ 12.)  Plaintiff further alleges that her capital investment “is completely controlled by and for the Presnell family and which is being used to finance the cross-complaint against herself, and who is unable to dispose of her shares of stock in Eagle, which is not a publicly traded stock.”  (¶ 16.) 

The court cannot conclude that, as a matter of law, these allegations are insufficient to show that liquidation is reasonably necessary to protect plaintiff’s rights or interest.  The second amended complaint alleges suspect conduct by defendants: as the corporation’s other two shareholders, they made themselves and their daughter the corporation’s directors (which itself was valid), then held a directors-only meeting at which they voted to pay themselves “excessive” bonuses and salary.  That is not a simple matter of, for example, a dispute over the other shareholders’ “business judgment” about operating the corporation’s business.  (Stuparich v. Harbor Furniture Manufacturing, Inc. (2000) 83 Cal.App.4th 1268, 1279.)  A fair trier of fact could reach the conclusion that dissolution is reasonably necessary to protect plaintiff’s rights and interest in the corporation.

The demurrer’s argument regarding Corporations Code section 1800(b)(5) cites only one authority: Swan v. Consolidated Water Co. of Pomona (9th Cir. 1928) 28 F.2d 971, 972.  (Memo, pp. 8-10.)  That opinion does not apply the relevant provision of the Corporations Code or the former section on the same subject.  Moreover, that federal authority is not binding, and the court does not find it persuasive.  The opinion cites no law whatsoever.

2. Declaratory Relief

Defendants demur to this cause of action solely on the grounds that it is barred by res judicata.  (Memo, pp. 10-13.)  Defendants do not establish the fundamental element of this doctrine: a separate prior proceeding or lawsuit.  (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 896.)  “Res judicata, or claim preclusion, prevents relitigation of the same cause of action in a second suit between the same parties or parties in privity with them.  Collateral estoppel, or issue preclusion, ‘precludes relitigation of issues argued and decided in prior proceedings.’ ”  (Ibid.) 

Defendants argue the court’s ruling on their claim for relief under Corporations Code section 709 serves as res judicata for plaintiff’s cause of action for declaratory relief.  That section “ ‘was intended to confer upon the superior court the power to determine in a summary proceeding whether or not a particular director or the entire board was or was not properly elected or appointed in order that the corporation can properly function.’ ”  (Morrical v. Rogers (2013) 220 Cal.App.4th 438, 455.)  Plaintiff initiated this action for dissolution.  Then, in this action, defendants invoked the summary procedure under Corporations Code section 709.  There was no prior action or proceeding as required for res judicata.

Disposition

Defendants Michelle Presnell, Ashley Presnell, and Peter Presnell’s demurrer to plaintiff Heidi Yu Ling Yu’s second amended complaint is overruled.  Defendants shall answer the second amended complaint within 20 days.