Superior Court of California 

County of Los Angeles – West District  

Beverly Hills Courthouse / Department 205 

 

 

MOVING PARTY: Defendants Daryosh Molayem and American Sanitary Products, Inc. 

RESPONDING PARTY: Plaintiff Kambiz Jahanbigloo 

 

BACKGROUND 

This case arises from a dispute between shareholders.  Plaintiff Kambiz Jahanbigloo is a minority shareholder of Defendant American Sanitary Products Inc. (“ASP”), a privately held corporation.  (Compl. ¶ 1.)  Defendants David Molayem (“David”) and Daryoosh Molayem (“Dar”), who each own 37.5% of the shares, are alleged to be controlling shareholders and officers and directors of ASP.  (Ibid.)     

Plaintiff alleges that in June 2006, he loaned ASP $40,000 for initial start up costs and other business expenses, which has never been repaid.  (Compl. ¶ 18.)  Plaintiff also claims he was employed by ASP as a corporate secretary and CFO, and he is owed backpay and unused vacation and sick leave, which he did not receive when Defendants terminated his employment in December 2017.  (Compl. ¶ 21.)   

The parties held settlement discussions to resolve their disputes in February 2018, and the Molayem Defendants agreed to pay Plaintiff $84,000.  (Compl. ¶¶ 23-24.)  However, the amount was never paid.            

Instead, Plaintiff alleges that within months of this settlement meeting, in May 2018, the Molayem Defendants sold all of ASP’s assets to another company, leaving ASP with only liabilities.  (Compl. ¶ 27.)  Plaintiff alleges the sale was without his knowledge or consent and stripped his ASP shares of all value.  (Compl. ¶¶ 1, 2.) 

The operative complaint alleges claims for (1) derivative relief, (2) derivative claim – mismanagement, (3) constructive fraud, (4) breach of fiduciary duties and (5) accounting.  Since the complaint was filed, David has passed away.     

This hearing is on Defendants Dar and ASP’s motion for summary judgment or in the alternative for summary adjudication.  Defendants argue that (1) Plaintiff’s claims against Dar for derivative relief, derivative claim-mismanagement, breach of fiduciary duty and accounting fail because Dar is not an officer, director, controlling shareholder or manager of ASP and therefore owes no fiduciary duty to Plaintiff; (2) Plaintiff’s claim for constructive fraud against Dar and ASP fails because Plaintiff’s allegations support at most, an alleged breach of a purported promise and alleged failure to perform, not fraud; (3) Plaintiff’s claims for repayment of the loan and unused vacation and sick leave are barred under the applicable statute of limitations; and (4) there is no promissory note or employment agreement evidencing Plaintiff’s entitlement to repayment of the $40,000 loan or unused vacation and sick leave.     

LEGAL STANDARD     

The function of a motion for summary judgment or adjudication is to allow a determination as to whether an opposing party cannot show evidentiary support for a pleading or claim and to enable an order of summary dismissal without the need for trial.  (Aguilar v. Atlantic Ritchfield Co. (2001) 25 Cal.4th 826, 843.)  Code Civ. Proc. §437c(c) “requires the trial judge to grant summary judgment if all the evidence submitted and ‘all inferences reasonably deducible from the evidence’ and uncontradicted by other inferences or evidence, show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” (Adler v. Minor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1119.)  “The function of the pleadings in a motion for summary judgment is to delimit the scope of the issues; the function of the affidavits or declarations is to disclose whether there is any triable issue of fact within the issues delimited by the pleadings.”  (Juge v. County of Sacramento (1993) 12 Cal.App.4th 59, 67).   

As to each claim as framed by the complaint, the defendant moving for summary judgment must satisfy the initial burden of proof by presenting facts to negate an essential element or to establish a defense.  (Code Civ. Proc. §437c(p)(2); Scalf v. D.B. Log Homes, Inc. (2005) 128 Cal.App.4th 1510, 1520.)  Courts “liberally construe the evidence in support of the party opposing summary judgment and resolve doubts concerning the evidence in favor of that party.”  (Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 389.)  

Once the defendant has met that burden, the burden shifts to the plaintiff to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto.  To establish a triable issue of material fact, the party opposing the motion must produce substantial responsive evidence.  (Sangster v. Paetkau (1998) 68 Cal.App.4th 151, 166.)  

EVIDENTIARY OBJECTIONS 

The Court sustains Defendants’ Evidentiary Objection No. 1 and overrules Defendants’ Evidentiary Objection Nos. 2-5. 

TIMELINESS 

Defendants argue the Opposition is untimely and should be disregarded as it was filed less than 14 days preceding the noticed date of the hearing on March 2, 2023.  (See Code Civ. Proc. § 437c(b)(2).)  The Opposition was due by February 16 and was filed on February 17.  As the opposition is only one day late, the Court will exercise its discretion to consider it.  But counsel for Plaintiff is cautioned that in the future the Court may refuse to consider papers not filed in compliance the applicable rules, statutes, and deadlines.     

DISCUSSION 

Derivative Claims Against Dar 

Plaintiff has alleged a claim for derivative relief and a derivative claim against Dar.  

A shareholder (stockholder) derivative suit is a lawsuit brought by a shareholder or group of shareholders on behalf of the corporation against the corporation’s directors, officers, or other third parties who breach their duties.  The claim of the suit is not personal but belongs to the corporation.  A shareholder can only sue when the corporation has a valid cause of action but has refused to pursue it, and the damage awards of the suit go to the corporation instead of the shareholder.  (Grosset v. Wenaas (2008) 42 Cal.4th 1100, 1114 (“If successful, a derivative claim will accrue to the direct benefit of the corporation and not to the stockholder who litigated it.”).)  But the shareholder may ask for a reasonable cost paid for litigation. 

Whether a cause of action is derivative or can be asserted by an individual shareholder is determined by considering the wrong alleged. “‘[T]he action is derivative, i.e., in the corporate right, if the gravamen of the complaint is injury to the corporation, or to the whole body of its stock and property without any severance or distribution among individual holders, or it seeks to recover assets for the corporation or to prevent the dissipation of its assets.’ [Citations.] ‘… The stockholder’s individual suit, on the other hand, is a suit to enforce a right against the corporation which the stockholder possesses as an individual.’” (Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93, 106–107; see also Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal.App.4th 282, 297.)   

Plaintiff’s claims are not derivative or on behalf of the corporation.  Instead, he alleges an individual injury – loss of the value of his shares as a result of the sale of all of ASP’s assets leaving the company with only its debts.  He seeks damages for himself and not on behalf of the corporation.  (Compl. ¶¶ 54, 60.)   

Moreover, to assert a derivative claim, Plaintiff was required to have first made a demand on the corporation to pursue the claim.  California law precludes the filing of a derivative shareholder action unless the “plaintiff alleges in the complaint with particularity plaintiff's efforts to secure from the board such action as plaintiff desires, or the reasons for not making such effort, and alleges further that plaintiff has either informed the corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the corporation or the board a true copy of the complaint which plaintiff proposes to file.” (Corp. Code, § 800, subd. (b)(2).)   While Plaintiff alleges a demand would have been futile (Compl. ¶59.), he fails to show he informed the corporation in writing of the ultimate facts of each cause of action or delivered to the corporation or board a copy of the complaint which he was planning to file.     

Accordingly, the Court grants a summary adjudication on these derivative claims.   

Breach of Fiduciary Duty Claim Against Dar 

The elements of a claim for breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) its breach, and (3) damages proximately caused by the breach.  (Oasis West Realty LLC v. Goldman (2011) 51 Cal.4th 811, 820.)   

Officers and directors owe fiduciary obligations to individual shareholders, and controlling shareholders owe fiduciary duties to minority shareholders.  (Jones v. H.F. Ahmanson & Co. (1969) 1 Cal.3d 93, 108-109.)   

Plaintiff has alleged a breach of fiduciary duty claim against Dar.  Dar has never been an officer or director of ASP.  (Undisputed Material Fact (“UMF”) Nos. 4-5.)  He also held only a 37.5% ownership interest in ASP.  (UMF Nos. 2-3.)  “Generally, a shareholder who owns less than 50% of a corporation’s outstanding stock does not, without more, become a controlling shareholder of the corporation, with a concomitant fiduciary status.”  (Flying Disc Invs. LP v. Baker Communs. Fund II, L.P., 2009 Cal. Super. LEXIS 6371 at *47.) 

However, Plaintiff avers Dar acted in concert with his brother, David, who also owned 37.5%, and together, they were quasi-controlling shareholders.  (Jahanbigloo Decl. ¶¶ 2-3.)  “The Courts of Appeal have often recognized that majority shareholders, either singly or acting in concert to accomplish a joint purpose, have a fiduciary responsibility to the minority and to the corporation to use their ability to control the corporation in a fair, just, and equitable manner.”  (Jones v. H. F. Ahmanson & Co. (1969) 1 Cal. 3d 93, 108 (emphasis added).) 

Moreover, a minority shareholder may be found to control a corporation if it “exercised day-to-day control over the corporation's conduct, or over the decisions with respect to the specific transactions at issue.”  (Flying Disc, 2009 Cal. Super. LEXIS 6371 at *47.)  Dar avers he did not exercise such control, while Plaintiff disputes this fact.  However, Plaintiff’s declaration is insufficient to create a triable issue on this fact.  Plaintiff only avers that both Dar and his brother terminated him, and they also both were in attendance at the settlement meeting.  This is insufficient to support a finding that Dar exercised day to day control of ASP.              

Notwithstanding, there is still a disputed issue as to whether Dar was a quasi-controlling shareholder by virtue of his actions in concert with his brother.  Accordingly, the Court denies summary adjudication of Plaintiff’s breach of fiduciary duty claim against Dar.    

Constructive Fraud Claim Against Dar and ASP 

“Constructive fraud is a unique species of fraud applicable only to a fiduciary or confidential relationship.” (Michel v. Moore & Associates, Inc. (2007) 156 Cal.App.4th 756, 763.) “Constructive fraud ‘arises on a breach of duty by one in a confidential or fiduciary relationship to another which induces justifiable reliance by the latter to his prejudice.’ [Citation.]  Actual reliance and causation of injury must be shown.” (Tyler v. Children's Home Society (1994) 29 Cal.App.4th 511, 548 (italics omitted); see also Younan v. Equifax Inc. (1980) 111 Cal.App.3d 498, 516, fn. 14 (elements of constructive fraud cause of action are “(1) a fiduciary or confidential relationship; (2) nondisclosure (breach of fiduciary duty); (3) intent to deceive, and (4) reliance and resulting injury (causation)”].)  

Plaintiff alleges a constructive fraud claim against ASP.  But a corporation does not owe a fiduciary duty to its shareholders.  (See Aslanian v. Frainier, 2018 Cal. Super. LEXIS 78994 at *13 (“As a matter of corporate law, the directors and officers of a corporation owe fiduciary duties to the corporation and to its stockholders, but a corporation does not owe fiduciary duties to its stockholders.”); see also Buttonwood Tree Value Partners, L.P. v. R.l Polk & Co., 2014 Del. Ch. LEXIS 141 at *12 (“[A] corporation does not owe fiduciary duties to its stockholders.”).)  Accordingly, because there is no fiduciary relationship between Plaintiff and ASP, the constructive fraud claim against ASP fails.      

Plaintiff also alleges a constructive fraud claim against Dar, based on the alleged settlement agreement reached between the parties in February 2018, whereby Plaintiff was to receive $84,000 to resolve his claim for a $40,000 loan, backpay, and unused vacation and sick leave.  (Compl. ¶¶ 62-67.).  At the time of the purported fraud, Dar is alleged to have been a fiduciary of Plaintiff by virtue of his role as a controlling shareholder (together with his brother).  As discussed above, there is a disputed issue as to whether there is a fiduciary relationship between Dar and Plaintiff.   

Irrespective of whether there is a fiduciary relationship, Defendants argue that at most, the failed settlement agreement gives rise to a claim for breach of contract, not fraud.  The court disagrees.  A promise to do something in the future can be fraud where there was no intent to perform at the time the promise was made.  (See, e.g., Rossberg v. Bank of America, N.A. (2013) 219 Cal. App. 4th 1481, 1498.)  Defendants have not met their burden to show there is no disputed issue on their intent to perform.   

Defendants also argue that the settlement discussions are inadmissible under Evid. Code § 1152 (a).  Evidence Code section 1152, subdivision (a), provides, “Evidence that a person has, in compromise or from humanitarian motives, furnished or offered or promised to furnish money or any other thing, act, or service to another who has sustained or will sustain or claims that he or she has sustained or will sustain loss or damage, as well as any conduct or statements made in negotiation thereof, is inadmissible to prove his or her liability for the loss or damage or any part of it.”  Evidence Code section 1152 provides that evidence that a party has offered to compromise a claim is inadmissible to prove liability for that claim.  (Fieldson Associates, Inc. v. Whitecliff Laboratories, Inc. (1969) 276 Cal.App.2d 770, 772.)  That is, Plaintiff cannot use the statements to prove liability for the claims which the parties were seeking to settle.  It does not preclude Plaintiff from suing for fraud based on the settlement negotiations.      

Accordingly, the Court denies the motion for summary adjudication on Plaintiff’s constructive fraud claim against Dar.   

Accounting Claim Against ASP and Dar 

An action for an accounting is a suit in equity for a determination of the amount owed to the plaintiff when the amount to which the plaintiff is entitled is uncertain and cannot be calculated based on the information available to the plaintiff.  The essential elements of a cause of action for an accounting are (1) a relationship between the plaintiff and the defendant or other circumstances that demonstrate that the plaintiff’s legal remedies are inadequate; and (2) a showing that the amount due the plaintiff is unknown and cannot be ascertained without an accounting, since the information necessary to determine that amount is within the exclusive knowledge of the defendant.  (Teselle v. McLaughlin (2009) 173 Cal.App.4th 156, 179.)  

Typically, the essential elements of a claim for an accounting can be met when there is a fiduciary relationship between the parties, or the accounts between the parties are so complicated that the plaintiff cannot assert a specific sum due, and there is no legal remedy available.  (San Pedro Lumber Co. v. Reynolds (1896) 111 Cal. 588, 596 (“The instances in which the legal remedies are held to be inadequate, and, therefore, a suit in equity for an accounting proper, are: … Where the accounts are all on one side, but these are circumstances of great complications, or difficulties in the way of adequate relief at law; [] Where a fiduciary relation exists between the parties, and a duty rests upon the defendant  to render an account; and it is said in a note that where the relation is such that a confidence is reposed by the principal in his agent, and the matters for which an accounting is sought are peculiarly within the knowledge of the latter, equity will assume jurisdiction.”) 

Plaintiff has alleged a claim for accounting on the ground “he has a right to know how his investment of the $40,000 was spent, why no payments were made to Plaintiff on that loan by Defendant ASP since 2006, what monies were received by Defendant ASP since 2006 and how much was received by Defendant ASP from the sale of its assets … in May of 2018.”  (Compl. ¶73.)   

Defendants argue the claim is not properly made against Dar because he is not an officer, director or controlling shareholder of ASP.  But Defendants have not cited to any authority that a claim for accounting can only be made against an officer, director or controlling shareholder.  As explained above, a claim of accounting is not limited to situations involving a fiduciary relationship.  (Teselle, 173 Cal.App.4th at 179-180 (“[A] fiduciary relationship between the parties is not required to state a cause of action for accounting. All that is required is that some relationship exists that requires an accounting. The right to an accounting can arise from the possession by the defendant of money or property which, because of the defendant’s relationship with the plaintiff, the defendant is obliged to surrender.”).)  And in any event, there is a disputed issue as to whether Dar was Plaintiff’s fiduciary.  

However, some underlying misconduct on the part of the defendant must be shown to invoke the right to an accounting.  (Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal.App.4th 1105, 1136–1137; Green Valley Landowners Assn. v. City of Vallejo (2015) 241 Cal. App.4th 425, 442.)  As we have already concluded, Plaintiff has not stated any viable claims against ASP.  Accordingly, the accounting claim against ASP must fail.  (Green Valley, 241 Cal.App.4th at 442 (accounting claim fails where plaintiff has not stated any viable claims alleging misconduct against defendant).  But the accounting claim against Dar survives, as the Court has concluded there are disputed issues as to Plaintiff’s claims against Dar.   

Accordingly, the Court grants Defendants’ motion for summary adjudication as to Plaintiff’s accounting claim against ASP but denies the motion as to Dar.   

Statute of Limitations 

Defendants argue that Plaintiff’s claim for repayment of the $40,000 loan and for backpay and unpaid vacation and sick leave accrued as early as 2004, as Plaintiff alleges he requested repayment “at all times during his employment at ASP” which started in 2004.  Defendants then make the unsupported leap that “all claims” are therefore time-barred because they accrued more than four years before the filing of this Complaint on December 14, 2018.  But not all of Plaintiff’s claims are based on the failure to repay the loan or for backpay and unused vacation and sick leave.  Moreover, the causes of actions that do reference these allegations (breach of fiduciary duty, constructive fraud and accounting) are also based on other allegations (the failed settlement negotiations and the sale of ASP in 2018), and a motion for summary adjudication cannot be granted as to only part of a claim.  (Loeffler v. Ass'n Lien Servs., 2018 Cal. Super. LEXIS 55953 at *13 “Summary adjudication cannot be granted as to only a part of a cause of action.”).)  For the same reason, Defendants’ argument that there is no promissory note or employment agreement evidencing Plaintiff’s entitlement to repayment of the $40,000 loan or unused vacation and sick leave does not dispose of an entire cause of action and therefore cannot form the basis of a motion for summary adjudication.   Accordingly, the Court rejects these arguments as a basis to grant summary adjudication.   

CONCLUSION 

Based on the foregoing, the Court GRANTS IN PART and DENIES IN PART Defendants Dar and ASP’s motion for summary adjudication.