Judge: Joel L. Lofton, Case: EC064009, Date: 2023-05-18 Tentative Ruling

Case Number: EC064009    Hearing Date: May 18, 2023    Dept: X

   Tentative Ruling

Judge Joel L. Lofton, Department X

HEARING DATE:     May 18, 2023                          TRIAL DATE: August 24, 2022

CASE:                         PASQUALE ZAZA v. PETER STOJANOV, as Administrator of the Estate of Maria Nagy; GABORATORY, INC.; AND DOES 1 THROUGH 10

CASE NO.:                 EC064009

MOTION TO SET ASIDE VACATE JUDGMENT

MOVING PARTY:               Defendant Peter Stojanov, as administrator of the estate of Maria Nagy

RESPONDING PARTY:      Plaintiff Pasquale Zaza

SERVICE:                              Filed February 17, 2023

OPPOSITION:                       Filed February 27, 2023

REPLY:                                   Filed March 3, 2023

RELIEF REQUESTED

            Defendant moves to set aside judgment.

BACKGROUND

This case arises out of Plaintiff Pasquale Zaza’s (“Plaintiff”) claim that Maria Nagy (“Maria”), who is now deceased, had deprived him of profits relating to the sale of copyrighted jewelry by selling the products through a different company. Plaintiff filed the original complaint on August 24, 2015. Plaintiff filed this fourth amended complaint (“FAC”) on August 12, 2021, alleging four causes of action for (1) breach of contract, (2) fraud, (3) conversion, and (4) accounting.

TENTATIVE RULING

            Defendant’s motion to set aside judgment is GRANTED.

LEGAL STANDARD

            “A judgment or decree, when based upon a decision by the court, or the special verdict of a jury, may, upon motion of the party aggrieved, be set aside and vacated by the same court, and another and different judgment entered, for either of the following causes, materially affecting the substantial rights of the party and entitling the party to a different judgment: [¶] 1. Incorrect or erroneous legal basis for the decision, not consistent with or not supported by the facts; and in such case when the judgment is set aside, the statement of decision shall be amended and corrected. [¶] 2. A judgment or decree not consistent with or not supported by the special verdict.” (Code Civ. Proc section 663.)

DISCUSSION

            The court previously issued a tentative decision in this matter granting Defendant’s motion to set aside judgment. The court allowed the parties to submit additional briefing on the issues presented by Defendant’s motion.

             “Standing is a threshold issue necessary to maintain a cause of action, and the burden to allege and establish standing lies with the plaintiff.” [Citation.] “Standing goes to the existence of a cause of action [citation], and the lack of standing may be raised at any time in the proceedings.” (Spotlight on Coastal Corruption v. Kinsey (2020) 57 Cal.App.5th 874, 882.) “Lack of standing may be raised at any time in the proceeding, including at trial or in an appeal.” (Blumhorst v. Jewish Family Services of Los Angeles (2005) 126 Cal.App.4th 993, 1000.)

            “Shareholders may bring two types of actions, ‘a direct action filed by the shareholder individually (or on behalf of a class of shareholders to which he or she belongs) for injury to his or her interest as a shareholder,’ or a ‘derivative action filed on behalf of the corporation for injury to the corporation for which it has failed or refused to sue.’ ” (Schuster v. Gardner (2005) 127 Cal.App.4th 305, 311-12.)

            Plaintiff primarily relies on three cases to argue that his claim is an individual claim as opposed to a derivative claim.

            The first is Jones v. H.F. Ahmanson & Co. (1969) 1 Cal.3d 93,107, where the California Supreme Court held that “[i]t is clear from the stipulated facts and plaintiff's allegations that she does not seek to recover on behalf of the corporation for injury done to the corporation by defendants. Although she does allege that the value of her stock has been diminished by defendants' actions, she does not contend that the diminished value reflects an injury to the corporation and resultant depreciation in the value of the stock. Thus the gravamen of her cause of action is injury to herself and the other minority stockholders.”

            However, the facts in Jones are distinguishable from the present case. In Jones, supra, majority shareholders of a loan association transferred their shares to a separate financial entity. (1 Cal.3d at pp. 102-103.) The plaintiff’s claim was that the majority shareholders “used their control of the Association for their own advantage to the detriment of the minority when they created United Financial, made a public market for its shares that rendered Association stock unmarketable except to United Financial, and then refused either to purchase plaintiff's Association stock at a fair price or exchange the stock on the same basis afforded to the majority.” (Id. at p. 105.)

            In the present case, Plaintiff’s claim for breach of contract is based on the shareholders agreement which apportions the stock ownership for Gaboratory, Inc. Plaintiff argues that he is seeking “to receive his share of the profits from sales which were withheld from him”. (Plaintiff’s Brief at p. 5:16-17.) However, Plaintiff’s claim for breach of contract is predicated and reliant on the valuation of his stock in the company. To recover for the harm he suffered personally, Plaintiff first had to establish that Gaboratory, Inc. was harmed by Maria Nagy’s transfer of Gaboratory assets to a separate corporation. In other words, Plaintiff’s claim for breach of contract is reliant on his claim that Maria Nagy’s action caused harm to the whole body of Gaboratory, Inc.’s stock.

“ ‘[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.’ ” (Jara v. Supreme Meats, Inc. (2004) 121 Cal.App.4th 1238, 1254.) “In contrast, a stockholder's individual suit is ‘ “a suit to enforce a right against the corporation which the stockholder possesses as an individual.” ’ ” (Ibid.)

            Plaintiff also relies on Jara to support his contention that his claim is an individual claim. In Jara, supra, the trial court had ruled that the plaintiff’s claim for breach of fiduciary duty based on his claim that the majority shareholders had paid themselves excessive compensation was a derivative claim. (121 Cal.App.4th at pp. 1242-43.) The Jara Court held that the decision in “Jones [allows] a minority shareholder to bring a personal action alleging ‘a majority stockholders' breach of a fiduciary duty to minority stockholders, which resulted in the majority stockholders retaining a disproportionate share of the corporation's ongoing value.’ ” (Id. at pp. 1257-58.) The Court stated that the gravamen of the plaintiff’s claim was that “he was deprived of a fair share of the corporation's profits as a result of defendants' generous payment of executive compensation to themselves.” (Id. at p. 1258.) The Court then analyzed the impact on the corporation based on the breach alleged, and it held that although “the alleged payment of excessive compensation did have the potential of damaging the business” the company experienced extraordinary growth. (Ibid.)

            The present case is markedly distinguishable because Plaintiff’s claim is based on the fact that Gaboratory, Inc. suffered great harm because Maria Nagy sold Gaboratory products through a separate entity, essentially bringing Gaboratory’s business transactions to nothing. As previously stated, Plaintiff’s claim for breach of contract is based on the fact that Gaboratory, first and foremost, suffered injury based on Maria Nagy’s actions.

            Lastly, Plaintiff cites to Schrage, supra, for the proposition that “ ‘ “[i]f the injury is one to the plaintiff as a stockholder and to him individually, and not to the corporation, as where the action is based on a contract to which he is a party, or on a right belonging severally to him, or on a fraud affecting him directly, it is an individual action.” ’ ” (69 Cal.App.5th at p.150.) However, Plaintiff’s argument here fails because he seeks to recover damages based on a contract for stock ownership. Plaintiff does not argue or establish that the shareholder agreement provides him a specific remedy for damages separate to the harm suffered by Gaboratory, Inc.  “If the injury is not incidental to an injury to the corporation, an individual cause of action exists.” (Ibid.) Plaintiff’s claim for breach of contract is more than incidental to an injury to Gaboratory, it is wholly reliant on that injury.

            Plaintiff’s claim for breach of contract is a derivative suit because it seeks recovery of harm Gaboratory, Inc. suffered.

CONCLUSION

            Defendant’s motion to set aside judgment is GRANTED.

            Moving Party to give notice.

Dated:   May 18, 2023                                                ___________________________________

                                                                                    Joel L. Lofton

                                                                                    Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the court indicating their

intention to submit.  Parties intending to appear are strongly encouraged to appear remotely.  alhdeptx@lacourt.org