Judge: Gail Killefer, Case: 24STCV10898, Date: 2024-07-26 Tentative Ruling
Case Number: 24STCV10898 Hearing Date: July 26, 2024 Dept: 37
HEARING DATE: Friday, July 26, 2024
CASE NUMBER: 24STCV10898
CASE NAME: Akemi Minami v. Wesley Minami, et al.
MOVING PARTY: Defendants Wesley Minami,
Raquel Minami, and Bekon Corporation
OPPOSING PARTY: Plaintiff Akemi Minami
TRIAL DATE: Not Set
PROOF OF SERVICE: OK
PROCEEDING: Motion for Order Requiring
Plaintiff to Post Bond
OPPOSITION: 11
July 2024
REPLY: 17
July 2024
TENTATIVE: Defendants’ Motion requiring Plaintiff to
Post Bond pursuant to Corp. Code § 800(c) is denied. Defendants to give notice.
Background
On May 1, 2024, Akemi Minami
(“Plaintiff”), individually and derivatively on behalf of the Nominal Defendant
Bekon Corporation, filed a Complaint against Wesley Minami (“Wesley”); Raquel
Minami (“Raquel”), and Bekon Corporation (collectively “Defendants”).
The Complaint alleges the
following ten causes of action:
1)
Breach of Fiduciary Duty (derivatively)
– against Defendants Wesley and Raquel;
2)
Breach of Fiduciary Duty - against
Defendants Wesley and Raquel;
3)
Fraud - against Defendants Wesley and
Raquel;
4)
Conversion - against Defendants Wesley
and Raquel;
5)
Violation of Pen. Code § 496 - against
Defendants Wesley and Raquel;
6)
Violation of corp. Code § 1001 -
against Defendants Wesley and Raquel;
7)
Failure to Permit Inspection of Records
- against Defendants Wesley and Raquel;
8)
Unjust Enrichment (individually and
derivatively) - against Defendants Wesley and Raquel; and
9)
Unfair Competition (Bus. & Prof.
Code § 17200) - against Defendants Wesley and Raquel.
On June 21, 2024, Defendants
filed a motion requiring Plaintiff to Post a Bond pursuant to Corp. Code § 800(d).
Plaintiff opposes the Motion. The matter is now before the court.
I. Legal Standard
Corp. Code § 800 states in relevant
part:
(c) [In a shareholder derivative suit], at
any time within 30 days after service of summons upon the corporation or upon
any defendant who is an officer or director of the corporation, or held such
office at the time of the acts complained of, the corporation or the defendant
may move the court for an order, upon notice and hearing, requiring the
plaintiff to furnish a bond as hereinafter provided. The motion shall be based
upon one or both of the following grounds:
(1) That there is no reasonable
possibility that the prosecution of the cause of action alleged in the
complaint against the moving party will benefit the corporation or its
shareholders.
(2) That the moving party, if other than
the corporation, did not participate in the transaction complained of in any
capacity.
The court on application of the
corporation or any defendant may, for good cause shown, extend the 30-day
period for an additional period or periods not exceeding 60 days.
(d) At the hearing upon any motion
pursuant to subdivision (c), the court shall consider such evidence, written or
oral, by witnesses or affidavit, as may be material (1) to the ground or
grounds upon which the motion is based, or (2) to a determination of the
probable reasonable expenses, including attorneys' fees, of the corporation and
the moving party which will be incurred in the defense of the action. If the
court determines, after hearing the evidence adduced by the parties, that the
moving party has established a probability in support of any of the grounds
upon which the motion is based, the court shall fix the amount of the bond, not
to exceed fifty thousand dollars ($50,000), to be furnished by the plaintiff
for reasonable expenses, including attorneys' fees, which may be incurred by
the moving party and the corporation in connection with the action, including
expenses for which the corporation may become liable pursuant to Section 317. A ruling by the court on the motion
shall not be a determination of any issue in the action or of the merits
thereof. If the court, upon the motion, makes a determination that a bond shall
be furnished by the plaintiff as to any one or more defendants, the action
shall be dismissed as to the defendant or defendants, unless the bond required
by the court has been furnished within such reasonable time as may be fixed by
the court.
III. Discussion
Plaintiff
brought this action to assert her ownership rights in the Bekon Corporation.
The Complaint alleges that after her husband passed away in 2001, his brother,
Masaru Minami (“Masaru”), hid the fact that Plaintiff was the successor in
interest of her husband’s 23.3% shares in the Bekon Corporation. (Corp. Code,
¶¶ 5, 7, 8.)
After
Masaru passed away in December 2023, his wife Raquel Masaru (“Raquel”) and his
son Wesley Minami (“Wesley”) tried to pressure Plaintiff into selling her
ownership interest in the Bekon Corporation and excluded Plaintiff from the
corporation, “failed to give Plaintiff notice of shareholders meetings as the
Bylaws require, failed to permit Plaintiff to exercise votes on corporate
decisions, and paid Masaru and his family members distributions, thinly
disguised as “officer compensation,” without similarly paying Plaintiff
distributions proportionate to her 23.3% interest in the Corporation.” (Compl.
¶¶ 12, 26.) Moreover, Wesley and Raquel hid the sale of Bekon’s sole asset, the
Fairview Property, without Plaintiff’s knowledge or consent and “caused Bekon
to purchase a property in North Carolina as part of a 1031 exchange
transaction” in a manner that placed the interest of Wesley and Raquel ahead of
Plaintiff’s interest. (Compl. ¶ 26.)
Defendants
request that Plaintiff post a bond in the amount of $50,000.00 pursuant to
Corp. Code § 800(c) on the grounds that (1) there is no reasonable possibility
that the prosecution of the purported causes of action alleged in the Complaint
will benefit Defendant Bekon Corporation or its shareholders; and (2) Bekon
Corporation will incur fees and costs more than $200,000.00 defending this
action. “The purpose of the section 800
security provision is to prevent unwarranted shareholder derivative lawsuits.
[Citations.] The justification for the security is derived from the fact that
the cause of action and potential remedy belong to the corporation, not the
shareholder [citation], and the corporation has chosen not to pursue the
litigation.” (Donner Management Co. v. Schaffer (2006) 142
Cal.App.4th 1296, 1305 (Donner).) “In assessing whether there is no
reasonable possibility the action will benefit the corporation, the court ‘must
evaluate the possible defenses which the plaintiffs would have to overcome
before they could prevail at trial.’ ” (Id. at pp. 1303–1304.)
The
burden lies with Defendants to show that this action is not beneficial to the
corporation. (Donner, supra, 142 Cal.App.4th at p. 1307.)
Specifically, “there is no reasonable possibility that the prosecution of the cause[s] of
action alleged in the complaint against the [Defendants] will benefit the
[Bekon Corporation] or its shareholders.” (Corp. Code, § 800(c)(1).)
Defendants
admit that Masaru was the only shareholder in attendance at the 2023 annual
shareholder meeting when he appointed himself, his wife, and his sons as the
sole directors of the Bekon Corporation. (Wesley Minami Decl., ¶ 4; Compl. ¶
23.) Plaintiff’s Complaint alleges that she was never given notice of this
shareholder meeting or Board meeting when the Board of Directors made up
exclusively of Defendants, retroactively approved all corporate actions for the
past 50 years. (Compl., ¶¶ 23, 24.) The Complaint further alleges that on March
13, 2024, Bekon’s sole asset, the Fairview Property was sold, without
Plaintiff’s knowledge or consent. (Compl., ¶ 15.) Defendants admit that it was
not until May 14, 2024, that Plaintiff was allowed to participate in Bekon
Corporation’s annual shareholder meeting, which occurred after the sale of the
Fairview Property and the filing of this action. (Wesley Minami Decl., ¶ 22.)
Moreover,
the Complaint alleges a derivative cause of action on behalf of the corporation
because it alleges that Defendants failed to preserve Bekon’s assets and comply
with its bylaws and engaged in self-dealing by paying themselves an excessive
“officer compensation” thereby depriving Bekon the bulk of its profits. (Comp.,
¶¶ 32, 33, 34.) The Complaint further alleges that Defendants sold the Fairview
Property and purchased the North Carolina Property outside the usual and
regular course of business in violation of Corp. Code § 1001(a). (Compl., ¶¶
63, 64.) The Complaint also alleges that
Bekon Corporation was harmed because Defendants engaged in self-dealing because
they paid themselves dividends disguised as “Officer compensation.” (Compl, ¶
74-77.)
A
shareholder derivative suit seeks to enforce the corporation’s rights and
redress the corporation’s injuries when the board of directors fails or refuses
to do so. (Grosset v. Wenaas (2008)
42 Cal.4th 1100, 1108.) “An action is deemed derivative ‘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.’ [Citation].” (Ibid. [internal quotation
marks omitted].) The court finds that the first, sixth,
eighth, and ninth causes of actions allege facts to show that Plaintiffs seek
recovery of assets in the form of payments made to Defendants under the guise
of “Officer compensation” and to force Defendants to adhere to Bekon’s bylaws
and the Corporations Code.
As
to Plaintiff’s other allegations, such as the fact that Plaintiff has been
prevented from participating in the affairs of the corporation and denied the
right to inspect the books, they are intended to assert Plaintiff’s personal
rights as a shareholder, and not those of the corporation such that a bond is
not required. (See Hagan v. Superior Court of Los Angeles County
(1960) 53 Cal.2d 498, 503 [“This part of the complaint
in intervention asserts rights that are indisputably personal to petitioners .
. . It is therefore in excess of the jurisdiction of respondent court to
condition the vindication of these rights upon a posting of security.”])
In
sum, Defendants failed to meet their burden of showing that this action will
not be beneficial to the Bekon Corporation or its shareholders. To the extent
that Defendants argue that Plaintiff does not assert a derivative claim or
lacks standing to bring a derivative action because she failed to make a
litigation demand to the board pursuant to Corp. Code § 800(b)(2), such a
finding would also compel this court to deny the motion to post a bond because
section 800(c) is only applicable to derivative actions, not individual suits.
For this reason, the court declines to decide the above issues on the merits because
it has no bearing on whether Plaintiff is required to post a bond.
Based
on the above, the Motion is denied.
Conclusion
Defendants’ Motion requiring
Plaintiff to Post Bond pursuant to Corp. Code § 800(c) is denied. Defendants to
give notice.