Judge: Michael Shultz, Case: 20STCV45276, Date: 2025-03-04 Tentative Ruling
DEPARTMENT 40 - MICHAEL J. SHULTZ - LAW AND MOTION RULINGS
The Court issues tentative rulings on certain motions.The tentative ruling will not become the final ruling until the hearing [see CRC 3.1308(a)(2)]. If the parties wish to submit on the tentative ruling and avoid a court appearance, all counsel must agree and choose which counsel will give notice. That counsel must 1) email Dept 40 by 8:30 a.m. on the day of the hearing (smcdept40@lacourt.org) with a copy to the other party(ies) and state that all parties will submit on the tentative ruling, and 2) serve notice of the ruling on all parties. If any party declines to submit on the tentative ruling, then no email is necessary and all parties should appear at the hearing in person or by Court Call.
Case Number: 20STCV45276 Hearing Date: March 4, 2025 Dept: 40
20STCV45276
Alida L. Ross v. Spec Tool Company, et al.
Tuesday,
March 4, 2025
[TENTATIVE] ORDER GRANTING
I.
BACKGROUND
The
amended complaint filed on June 13, 2023,
alleges Plaintiff is and has been a shareholder in Spec Tool Company (“STC”
or “Defendant”) for 18 years. Defendants are also shareholders of STC.
Plaintiff alleges that Defendants, collectively, engaged in a conspiracy to
enrich themselves to Plaintiff’s detriment. Plaintiff alleges five causes of
action for voluntary dissolution and related claims.
II.
ARGUMENTS
A.
Motion filed November 27, 2024.
Defendant
STC moves for judgment or alternatively, adjudication of issues in its favor as
to the two causes of action remaining against Defendant for (1) dissolution (3)
failure to permit inspection. All other claims have been dismissed pursuant to
the court’s sustaining of various demurrers without leave to amend.
Plaintiff
lacks standing to assert a claim for involuntary dissolution because she owns
less than 33.33 percent of STC’s outstanding shares. To prevail, Plaintiff must
establish Defendant’s persistent and pervasive fraud, mismanagement or abuse of
authority. Plaintiff will not be able to overcome the Business Judgment Rule (“BJR”)
which presumes that directors decisions are based on sound business judgment. Nor
can Plaintiff establish that dissolution is reasonably necessary.
Defendant
argues it has satisfied its obligation to produce records for Plaintiff’s
inspection. Defendant withheld licensing agreements with Boeing because
Plaintiff failed to sign a non-disclosure agreement and stipulated protective
order.
B.
Opposition filed February 18, 2025.
Plaintiff
argues that Defendant is precluded from invoking the business judgment rule
which does not apply to the conduct of inside directors. Even if the rule were
applied, Plaintiff’s evidence of persistent and pervasive fraud, mismanagement
or abuse create triable issues of fact. Defendant failed to provide Plaintiff
with full and meaningful access to STC’s books and records.
C.
Reply filed February 27, 2025.
The
opposition was filed late and should be disregarded. The vast majority of
Plaintiff’s opposition improperly relies on Plaintiff’s unfounded allegations
which the court has categorically stricken from the third amended complaint,
deemed irrelevant and barred and dismissed from the action. Plaintiff’s evidence fails to create triable
issues of fact. Plaintiff’s separate statement in opposition is defective.
III.
LEGAL STANDARDS
Summary judgment is proper “if all the
papers submitted 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.” Until
the moving defendant has discharged its burden of proof, the opposing plaintiff
has no burden to come forward with any evidence. Once the moving party has
discharged its burden as to a particular claim, however, the plaintiff may
defeat the motion by producing evidence showing that a triable issue of one or
more material facts exists as to that cause of action. (Code Civ. Proc., §437c(p)(2).)
The court strictly construes the moving
party's supporting evidence while the opposing party’s evidence is liberally
construed. Doubts as to the propriety of the motion should be resolved against
granting the motion. (D’Amico
v. Board of Medical Examiners
(1974) 11 Cal.3d 1, 20.)
The court does not evaluate the credibility of testimony. (Binder
v. Aetna Life Ins. Co. (1999)
75 Cal. App. 4th 832, 840.) The court applies the three-step analysis to
motions for summary judgment or adjudication: (1) identify the issues framed by
the pleading, (2) determine whether the moving party established facts which
negate the opponents’ claim, (3) if a defendant meets its threshold burden of
persuasion and the burden shifts, determine whether the opposing party has
controverted those facts with admissible evidence. (Torres
v. Reardon (1992) 3 Cal.App.4th
831, 836.)
A party can move for summary adjudication
as to one or more causes of action within an action or one or more claims for
damages if the party contends that there is no affirmative defense to any cause
of action. A motion for summary adjudication shall be granted only if it
completely disposes of a cause of action, an affirmative defense, a claim for
damages, or an issue of duty. (Code Civ. Proc., § 437c(f)(1).)
In ruling on the motion, the court
considers the material issues defined by the allegations of the complaint. (Lewinter
v. Genmar Industries, Inc. (1994) 26 Cal.App.4th 1214, 1223.) The
court strictly construes the moving party’s evidence and liberally construes
those of the opposing party. All doubts are resolved in favor of the opposing
party. (Stationers
Corp. v. Dun & Bradstreet, Inc. (1965) 62 Cal. 2d 412, 417.)
IV.
DISCUSSION
A.
The
court has considered Plaintiff’s late opposition.
The court has considered Plaintiff’s late opposition
in favor of the strong policy favoring disposition of the case on the merits. (Kapitanski
v. Von’s (1983) 146 Cal.App.3d 29, 32, [“Judges are well aware of the
unnecessary burdens placed on courts and counsel when strict compliance with
local procedural rules results in the expenditure of unnecessary time and money
for the preparation of later section 473 motions.”].) Defendant has not shown
any prejudice resulting from late opposition. Defendant was able to file a
reply brief, which the court has considered.
B.
Allegations
of the complaint.
Plaintiff alleges she has standing to seek
involuntary dissolution as a shareholder of STC. Plaintiff alleges that David
Fink (“David”) and Albert Fink Jr. (“Albert Jr.”) have been in control of STC
and are guilty of persistent fraud, mismanagement, or abuse of authority
warranting a dissolution of STC. Plaintiff alleges STC refuses to allow
Plaintiff’s inspection of all the books and records in violation of
Corporations Code § 1600, et seq.
Plaintiff alleges she owns at least 22.26
percent of the outstanding shares in STC although she contends, she owns 31.02
percent of the outstanding shares. (TAC ¶ 2.) STC was founded by Plaintiff’s
parents Albert Sr. and Alice Fink (“Alice”). (TAC ¶ 17.) Alida would inherit
1/3 of Alice shares. (TAC ¶ 29.)
C.
First
cause of action for involuntary dissolution.
1)
There
is no dispute that Plaintiff does not have the required threshold shares to
have standing to sue
In pertinent part, a verified application
for involuntary dissolution of a corporation may be brought by one half or more
of the directors in office or by a shareholder who holds shares not less than
33 1/3 percent of the total number of outstanding shares “exclusive … of shares
owned by persons who have personally participated in any of the transactions
enumerated in paragraph (4) of subdivision (b).” Subpart 4 (b) identifies those
in control of the corporation who have been guilty of pervasive fraud,
mismanagement, or abuse of authority or persistent unfairness. (Corp. Code, § 1800 subd. (a)(1), (2).) In other words, the total number of
outstanding shares does not include David and Albert Jr.’s shares if they
engaged in fraud and mismanagement.
There
is no dispute that Plaintiff holds 22.26% of shares. (DF 6.) Plaintiff’s
opposition concedes that this issue as articulated by Defendant does not
reference the BJR, however Plaintiff argues that “the MSJ takes the position
that it precludes Alida from making the showing needed to establish standing
under subdivision (b)(4).”(Opp. 3:22-23.)
Plaintiff argues that if the shares of the
officers who committed the wrongful acts are excluded from the total
outstanding shares, Plaintiff is a 50 percent shareholder. (Opp. 13:13-15.) As previously stated, Plaintiff is
entitled to discount David’s and Albert Jr.’s shares if they engaged in fraud,
mismanagement and abuse of authority. Defendant argues that Plaintiff cannot
make that showing because of the business judgment rule.
2)
The
Business Judgment Rule
Assuming Plaintiff had the required shares
to demonstrate standing, Defendant argues that Plaintiff cannot show that those
in control of STC were guilty of pervasive fraud, mismanagement or abuse of
authority or persistent unfairness towards any shareholders or are committing
waste because those in control of STC are entitled to the presumption in favor
of supporting corporate decision making. (Mot.
16:10-14.)
The rule is summarized as follows:
The BJR "refers
to a judicial policy of deference to the business judgment of corporate
directors in the exercise of their broad discretion in making corporate
decisions. The business judgment rule is premised on the notion that those to
whom the management of the corporation has been entrusted, and not the courts,
are best able to judge whether a particular act or transaction is one which is
' ” '... helpful to the conduct of corporate affairs or expedient for the
attainment of corporate purposes ...,' “ ' and establishes a presumption that
directors' decisions are based on sound business judgment. [Citation.] Under
this rule, a director is not liable for a mistake in business judgment which is
made in good faith and in what he or she believes to be the best interests of
the corporation, where no conflict of interest exists." (Barnes
v. State Farm Mut. Auto. Ins. Co.
(1993) 16 Cal.App.4th 365, 378–379.)
The rule is codified in the Corporations
Code:
“A director shall
perform the duties of a director, including duties as a member of any committee
of the board upon which the director may serve, in good faith, in a manner such
director believes to be in the best interests of the corporation and its shareholders
and with such care, including reasonable inquiry, as an ordinarily prudent
person in a like position would use under similar circumstances." (Corp. Code, § 309 subd (a).)
A “hallmark” of the rule is
that “a court will not substitute its judgment for that of the board if the
latter's decision can be ‘attributed to any rational business purpose. (Katz
v. Chevron Corp. (1994) 22
Cal.App.4th 1352, 1366.) To
rebut the presumption which arises as a matter of law, Plaintiff must show that
the directors acted fraudulently, illegally, or without becoming sufficiently
informed to make an independent business decision. (State
Farm Mutual Automobile Ins. Co. v. Superior Court (2003) 114 Cal.App.4th 434, 450.)
Plaintiff argues that Defendant is not
entitled to the presumption of the BJR under Gaillard
v. Natomas Co. (1989) 208
Cal.App.3d 1250, which held
that the BJR does not apply to judicial review of “inside directors.” (Id.) “Inside directors” are directors who are also acting as officer
employees of the corporation. (Gaillard
at 1265, [“Courts should defer to the business
judgment of disinterested directors, who are presumably acting in the best
interests of the corporation.”].) In Gaillard, the inside directors, director employees
of the corporation, secured the payment of golden parachute benefits for
themselves as part of a merger, and were not entitled to the presumption under
the BJR because they did not perform director duties with respect to the golden
parachute agreements.
As Defendant observes in its reply, Gaillard, a derivative action brought by minority shareholders, is
distinguished from involuntary dissolution actions. (Stuparich
v. Harbor Furniture Manufacturing, Inc. (2000) 83 Cal.App.4th 1268, 1276,
[ "The Court of Appeal held that in enacting subdivision (b)(4) and (5) of
section 1800, ‘the Legislature clearly distinguished between a cause of action
for involuntary dissolution based on the controlling shareholders' misconduct,
and one based specifically on protection of the rights, interests and
expectations of complaining minority shareholders."].)
Guillard
involved shareholders that
challenged “golden parachute” agreements that provided benefits for five inside
directors as part of a merger. (Gaillard
at 1256.) “Golden parachutes” shelter executives
from the effects of a corporate takeover. (Id.) The court
concluded that the BJR did not apply to the inside directors as they were not
acting as directors; they did not approve the golden parachute agreements.
Rather they were acting as officer employees. (Gaillard
at 1265.)
Plaintiff implies that Gaillard provides for a bright-line rule precluding application of the BJR for
inside directors, as are the directors here, as it is a family corporation.
Here, Plaintiff seeks dissolution of the corporation. The BJR requires a director
to perform duties as a director in good faith and in the best interests of the
corporation and its shareholders. (Bus. & Prof Code § 309.) The BJR did not
apply in Gaillard because the inside directors were not
performing director duties to which the BJR applies.
STC maintains that it has continued to be
run by STC’s Board of Directors David B. Fink, his wife Susan Fuhs, Kevin
Gassman. (DF 12.) Plaintiff’s evidence does not materially dispute this fact,
but points out the dates of appointment of certain officers. Plaintiff points
out that Albert, Jr. was a director, but he died in December 2019. (DF 11.)
This does not create a material dispute as to who are current members of the Board of Directors.
Defendant contends that Plaintiff has not
identified any acts of pervasive and persistent fraud committed by Albert Jr.
between January 1, 2016, to the present.
Plaintiff disputes this by raising the 2002-2003 purchase of shares by
David and Albert, Jr., who acquired Wilber Cox’s 250 shares for their own
account, thereby consolidating their power, at a time when Alice was suffering
from dementia, and which had the effect of diluting Alice’s shares, and
therefore, Plaintiff’s 1/3 inherited share. (PF 27.)
The court grants Defendant’s request to
take judicial notice of minute orders issued in this matter, and the probate
matter, in particular, the order issued by the Hon. Anne Richardson sustaining
David Fink’s demurrer without leave to amend. There, the court determined that
the statute of limitations began to run on April 20-28, 2005, the date of
discovery of the alleged misconduct. (RJN, Ex. 9/1/23.) Justice Richardson
determined that the statute of limitations expired May 1, 2009, or at the
latest May 2010. Equitable estoppel did not apply to avoid the statute of
limitations. The court agreed that Plaintiff’s delay in bringing suit caused
prejudice to Defendant Fink. (Id.)
The claims that were barred by the statute
of limitations are the same claims that Plaintiff demonstrates that Fink and
Albert, Jr., engaged in misconduct by consolidating their shares, and their
power, in 2002-2003 to Alice’s and Alida’s detriment. Moreover, the court
determined that the 2003 transaction complained of was “irrelevant” to the
remaining claims against Defendant for involuntary dissolution and the claim to
permit inspection. (Id., p. 11.) The court granted Spec Tool’s
motion to strike the allegations related to the 2003 transaction. (Id.) Accordingly, for purposes of summary judgment, the 2003 transaction is
not material to Plaintiff’s claims.
Plaintiff continues to raise the same 2003
transaction to dispute Defendant’s contention that Plaintiff has not identified
any acts of pervasive and persistent fraud committed by Albert Jr. or David
between January 1, 2016, to the present. Raising the 2003
transaction, which Justice Richardson previously struck from the complaint
because of the statute of limitations, does not create a triable issue.
Defendant’s Facts 27, 28, 29, 30, 31, 32, 33, 34, are all undisputed.
The remaining acts on which Plaintiff
depends to demonstrate Defendant’s misconduct to support the claim for
involuntary dissolution are that Defendant violated its own policy of hiring
family shareholders by refusing to hire Plaintiff for over 20 years, preventing
Defendant from paying Plaintiff dividends over a 20-year period, preventing
Plaintiff from enjoying the salary bonus and benefits that come with employment
by Defendant, and withholding Plaintiff’s inspection of books and records (PF
38, 40.)
There is no dispute that Plaintiff never
requested payment of dividends, nor did she complain about and/or raise the
issue of not being paid corporate dividends during 2006 through 2020. (DF 21.)
Defendant contends that STC has never paid dividends to any of its shareholders
since its incorporation in 1963. (DF 24.) Plaintiff attempts to create a
triable issue by citing financial statements from 2002 – 2005, which
demonstrate that STC gave Albert Jr a “disguised dividend.” This contention is
not alleged in the pleading. Plaintiff’s evidence does not raise a triable issue,
and it also relies on conduct considered irrelevant because it concerned
conduct barred by the statute of limitations.
This leaves Defendant’s conduct in hiring family
members but not Plaintiff. This conduct, standing alone, or even combined with
the alleged failure to inspect records (discussed below) does not rise to
misconduct that was fraudulent, illegal, or made without becoming sufficiently
informed to make an independent business decision. (State
Farm Mutual Automobile Ins. Co. v. Superior Court (2003) 114 Cal.App.4th 434, 450.)
Defendant provides evidence that during
the period between January 1, 2008, to the present, Plaintiff did not seek,
inquire about, and/or apply for employment with Spec Tool in any capacity. (DF
18.) Plaintiff provides evidence that she asked Albert Jr. if she could work
remotely for Spec Tool on April 7, 2005. This does not create a triable issue
because the material fact relates to the period from January 1, 2008. In any
event, Judge Richardson determined that the statute of limitations ran at the
latest in 2010.
Plaintiff also declares that she had
worked for Defendant on a limited part-time basis during her senior year of
high school and the summer months while she attended college, undermining her
contention that Spec Tool violated its own policy to hire family members and
deprived her of salary and bonuses.
This leaves the alleged failure to permit
Plaintiff to inspect books and records.
D.
Third
cause of action for failure to permit inspection of books and records.
Plaintiff alleges that Defendant refused
to allow Plaintiff to inspect all of the books and records in violation of
Corporations Code § 1600, et seq. (TAC ¶ 57.) Plaintiff alleges she sent
Defendant a letter requesting inspection on May 1, 2020.
Defendant’s material fact 73 conforms to
the allegations of the complaint. Plaintiff attempts to dispute this by
claiming that Defendant “mischaracterizes” the letter. There is no dispute that
Plaintiff sent a letter on May 1, 2020, requesting inspection as alleged.
Defendant agreed to produce all documents reasonably related to Plaintiff’s
interest as a shareholder and for the purpose of valuing her interest in STC.
(DF 74.) Plaintiff’s claim that the letter is “mischaracterized” does not
controvert the material fact.
Plaintiff does not dispute the records
that defendant made available. (DF 75.) There is no dispute that Defendant
withheld documents that were not relevant to Plaintiff’s stated purpose.
Defendant produced share issuance documents, minutes of the shareholder and
Board of Directors meetings from 2005 to the present, all share certificate
stubs of STC from 2005 to the present, Defendant’s record of shareholders as of
May 21, 2020, and Defendant’s annual financial reports from 2005 through 2020.
Plaintiff does not provide facts to dispute what Defendant produced.
Defendant later provided Plaintiff with
share stubs going back to 1975, financial reports for 2001 through 2003 and
reports of a compensation analysis of Defendant’s Board of Directors. (DF 76.) Plaintiff
contends these documents were not provided on May 21, 2020. Defendant does not
assert these documents were provided on that date but “later.” (DF 76.)
On June 22, 2020, Defendant sent a letter
indicating that all documents relating to certain categories had been produced,
but Defendant objected to financial records during the 1970s as they were not
reasonably related to Plaintiff’s interest as a shareholder, which came into
existence 30 years later in 2005.
Defendant also objected to producing documents that would violate the
privacy of the individuals and for confidential and proprietary information.
(DF 78.) Plaintiff does not submit evidence in dispute, but rather asserts that
Defendant “mischaracterizes” the letter.
The remaining undisputed facts establish
that Defendant continued to provide Plaintiff with additional documents
relating to compensation, and that it had obtained Boeing’s agreement to
disclose its licensing agreement with Plaintiff on condition that she sign an
NDA and a SPO. (DF 8-81.) Plaintiff does not provide any evidence to controvert
these facts. Plaintiff contends these facts are irrelevant, however, they are
relevant to Defendant’s compliance with her request to inspect records as
required by statute.
In short, there is no dispute that
Defendant did permit inspection of records related to Plaintiff’s valuation of
her shares. The undisputed evidence that Defendant’s production of records it
considered relevant while withholding others that were not, does not amount to
misconduct that was fraudulent, illegal, or made without becoming sufficiently
informed to make an independent business decision. (State
Farm Mutual Automobile Ins. Co. v. Superior Court (2003) 114 Cal.App.4th 434, 450.) Plaintiff has not proffered facts to dispute this ultimate
conclusion which is based on Defendant’s undisputed facts.
V. CONCLUSION
Based on the foregoing,
Defendant’s motion for summary judgment of the remaining causes of action
against it for involuntary dissolution and failure to inspect records is
GRANTED.