Judge Mitchell L. Beckloff, Case 22STCP02039 2023-04-19 Tentative Ruling

Judge: Mitchell L. Beckloff, Case: 22STCP02039, Date: 2023-04-19 Tentative Ruling

Respondents and Defendants, Stuart Lee Zubrick, an individual, and Stuart L. Zubrick, Marriage, Family and Child Counseling, a Professional Corporation (collectively, Respondents), demur to the petition.[1] Petitioners, Herbert Marshak, M.D., and Champion Medical Group (Petitioners), oppose the demurrer.

The demurrer is overruled in part—as to the first and second causes of action to enforce corporate record inspection rights.[2] The court stays the remaining civil causes of action and does not hear the demurrer to the third, fourth, fifth, sixth, seventh and eighth causes of action. After the court addresses the first and second causes of action, this matter will be transferred to Department 1 for reassignment to an independent calendar court. Upon reassignment, Respondents may re-calendar their demurrer to the third, fourth, fifth, sixth, seventh and eighth causes of action.

Respondents’ unopposed request for judicial notice of Exhibit A to the Declaration of David D. Fu is denied. Exhibit A appears irrelevant to these proceedings in this department. Respondents’ unopposed request for judicial notice of Exhibit C to Second Declaration (attached to the reply brief) is granted. (Evid. Code, § 452, subd. (d).)

In 2000, Respondent Zubrick and Petitioner Marshak formed a medical corporation to provide psychiatric services in workers’ compensation cases. (Pet., ¶ 10.) The parties agreed Petitioner Marshak would hold 51 percent of the corporation’s stock, and Respondent Zubrick would hold the other 49 percent. In addition, the parties agreed they would both serve as directors of the corporation. (Pet., ¶ 10.)

The parties thereafter formed Petitioner Champion Medical Group. (Pet., ¶ 11.) Respondent Zubrick served as the Chief Financial Officer, while Petitioner Marshak served as the Chief Executive Officer. (Pet., ¶ 12.)

Petitioner Champion Medical Group operated under its own name. It also operated under several fictious business names, including Industrial Health Care. (Pet., ¶ 13.)

According to the petition, at some point, Respondent “Zubrick [] allowed the fictitious name filing for Industrial Health Care to lapse for failure to renew the filing and then, while Champion Medical Group was still doing business as Industrial Health Care, claimed the fictitious name for himself by filing a Fictious Name Statement under his wholly owned corporation, [Respondent] Stuart L. Zubrick, Marriage, Family and Child Counseling, a Professional Corporation.” (Pet., ¶ 15.) In 2011, “a number of the billings of Champion Medical Group, including a number of billings under said fictitious names were factored and sold.” (Pet., ¶ 16.)

In March 2012, Respondent Zubrick announced to Petitioner Marshak that Champion Medical Group was ceasing operations and that he would no longer have any medical appointments. Respondent Zubrick also instructed all the employees of Champion Medical Group medical offices that they were to no longer to use the name Champion Medical Group but would continue to exclusively use the name Industrial Health Care—which had been one of the fictitious business names of Champion Medical Group. (Pet., ¶ 17.)

The petition alleges after February 2, 2012, Respondent Zubrick continued to receive payments for services by Champion Medical Group, including for operations under the several fictitious business names, including Industrial Health Care. (Pet., ¶ 18.)

A demurrer tests the sufficiency of a pleading, and the grounds for a demurrer must appear on the face of the pleading or from judicially noticeable matters. (Code Civil Proc., § 430.30, subd. (a); Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “We assume the truth of the allegations in the complaint, but do not assume the truth of contentions, deductions, or conclusions of law.” (California Logistics, Inc. v. State (2008) 161 Cal.App.4th 242, 247.)

A demurrer may be sustained without leave to amend when there is no reasonable possibility that the defect can be cured by amendment. (Blank v. Kirwan, supra, 39 Cal.3d at 318.) Indeed, where the facts are not in dispute and the nature of the plaintiff's claim is clear, but no liability exists under substantive law and no amendment would change the result, the sustaining of a demurrer without leave to amend is proper. (City of Ceres v. City of Modesto (1969) 274 Cal. App. 2d 545, 554.) The burden is on the plaintiff to show how the complaint might be amended so as to cure the defect. (Association of Community Organizations for Reform Now v. Department of Industrial Relations (1995) 41 Cal.App.4th 298, 302.)

The first and second causes of action seek to compel Respondents to disclose certain corporate records to Petitioners pursuant to Corporations Code sections 309[3] and 1601. (Pet., ¶¶ 24-26.)

Respondents demur to the first and second causes of action claiming the allegations contradict themselves such that the court must find no records subject to inspection exist. Their argument is brief. (Demurrer 6:26-7:18.) Specifically, Respondents assert the petition admits that Champion Medical Group ceased operations after selling the accounts receivable. (Pet., ¶ 12.) As such, “is not clear what books and records the Plaintiffs expect when CMG has not operated for several years.” (Demurrer 6:8-9.) That is, “CMG has not been operational, and there are no books or records to produce.” (Demurrer 6:17-18.)

“Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation of which such person is a director and also of its subsidiary corporations, domestic or foreign. Such inspection by a director may be made in person or by agent or attorney and the right of inspection includes the right to copy and make extracts. This section applies to a director of any foreign corporation having its principal office in California or customarily holding meetings of its board in California.”

“The accounting books, records, and minutes of proceedings of the shareholders and the board and committees of the board of any domestic corporation, and of any foreign corporation keeping any records in this state or having its principal executive office in this state, or a true and accurate copy thereof if the original has been lost, destroyed, or is not normally physically located within this state shall be open to inspection at the corporation's principal office in this state, or if none, at the physical location for the corporation's registered agent for service of process in this state, upon the written demand on the corporation of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate.” (Corp. Code, § 1601, subd. (a)(1).)

As alleged in the petition, Petitioner Marshak is a director and shareholder of Petitioner Champion Medical Group. Corporations Code sections 1602 and 1601 provides him with inspection rights over the “documents and records of every kind . . . .” (Corp. Code, § 1602.) Respondents do not dispute Petitioner Marshak’s status as a director. That CMG may have ceased operations does not inform on Petitioner Marshak’s inspection rights. Respondents contend it is “not clear what books and records [Petitioner Marshak] expect[s] when CMG has not operated for years.” (Demurrer 7:8-9.) The Corporations Code entitles Petitioner Marshak to inspect any “books, records and documents of every kind . . . .” (Corp. Code, § 1602.) Thus, to the extent such records exist—and the court cannot find such records do not exist on the pleadings and judicially noticeable documents—Petitioner Marshak may inspect them.[4]

Respondents also advise Petitioners are “estopped” from making certain arguments in this litigation. Respondents have attached a final statement of decision issued on February 23, 2023 in Stuart Zubrick, et al. v. Sahibzada Aasim Akhtar, et al., No. BC651071 to support their position. (RJN Ex. C.) Respondents assert: “The finding of the Court in the Akhtar Action and [Petitioner] Marshak’s admission in his Complaint do not support his allegations that he was denied access to existing corporate records.” (Reply 2:18.)

Respondents fail to demonstrate the legal effect, if any, of the final statement of decision on Petitioners’ first and second causes of action here.[5] Respondents do not suggest how issue or claim preclusion operates here. Attaching a final statement of decision without more does not demonstrate how Petitioner Marshak is not entitled to inspect whatever corporate records that may exist for Champion Medical Group. Moreover, whether Champion Medical Group sold its accounts receivable does not inform on Petitioner Marshak’s inspection rights.

Petitioners have alleged Petitioner Marshak is a director and shareholder of Champion Medical Group. (Pet., ¶¶ 10, 12.) Petitioner also allege Petitioner Marshak demanded an inspection of the records on September 16, 2021. (Pet., ¶ 21.) Finally, Petitioners allege Respondent Zubrick failed to permit the inspection. (Pet., ¶ 22.) Petitioners’ allegations state a cause of action under Corporations Code sections 1601 and 1602.

Based on the foregoing, the demurrer is overruled as to the first and second causes of action.

[1] The petition is styled as both a petition and complaint. The first cause of action addresses the right to inspect corporate books and records. The remaining causes of action, including for breach of fiduciary duty, monies had and received and accounting are civil claims.

[2] The second cause of action is for an injunction, a remedy, and relates to corporate books and records.

[3] The petition cites Corporations Code section 309. Its applicability under these facts is unclear. A director’s inspection rights are provide through Corporations Code section 1602.

[4] Respondents’ claim “there are no books or records to produce” is neither alleged in the petition nor demonstrated by judicially noticeable documents. (Demurrer 7:17-18.)

[5] It appears neither party has filed a notice of related case in Case No. BC651071.