Judge Stephen I. Goorvitch, Case Number: 21STCV09778, Date: 2025-02-26 Tentative Ruling

Judge: Stephen I. Goorvitch, Case: 21STCV09778, Date: 2025-02-26 Tentative Ruling

Plaintiff Nadine Oddo (“Plaintiff”) moves for a writ of attachment against Defendant S & H Packing & Sales Co., Inc. (“Defendant” or “SHP”) in the amount of $350,342.15. Plaintiff contends that she is entitled to indemnification from SHP under an indemnity agreement for attorney’s fees and costs in connection with an action SHP filed against her. In that case, SHP alleged that Plaintiff breached her fiduciary duty and sought to remove her as a director of SHP. In opposition, SHP contends that Plaintiff seeks indemnification for acts or omissions that show a reckless disregard for her duties of loyalty, care, and confidentiality to SHP, such that indemnification is prohibited by California law. The court denies the application. Plaintiff does not establish probable validity of her claim because indemnification likely is prohibited under California law under these circumstances. The court need not reach Defendant’s remaining arguments to resolve this application.

For decades, brothers Timothy (“Tim”), Patrick (“Pat”), and Daniel (“Dan”) Horwath have jointly owned businesses that operate in the produce and agriculture business, including Defendant SHP. (Artukovich Decl. ¶ 2.) The brothers and their respective wives own equal one-third interests in SHP. (Horwath Decl. ¶ 3.) In or about 2014, Dan, as plaintiff, commenced various lawsuits against Tim and Pat concerning the businesses. (Id. ¶¶ 4-5, Exh. 1 [settlement agreement recitals].) In July 2017, the brothers, their wives, and the companies entered into a settlement agreement to resolve the litigation and to end all business ties by selling or liquidating their jointly owned companies. (Ibid.)

In the settlement agreement, the parties agreed to appoint three outside directors to serve on the boards of SHP and other companies. (Horwath Decl. ¶ 7.) In late 2017, Dan appointed Plaintiff to act as an independent director of the companies (other than Violet Street). Tim appointed Vido Artukovich and Pat appointed Roberts Underwood to act as directors of all the Companies. (Artukovich Decl. ¶ 5.) On or about January 3, 2018, the shareholders of SHP formally adopted the action by Written Consent of the Shareholders of S & H Packing (the “Unanimous Written Consent”) appointing the three directors and agreeing on behalf of the company to indemnify each of them pursuant to the terms of the attached indemnity agreement (“Indemnity Agreement”). (Horwath Decl. ¶ 14, Exh. 4.)

On May 11, 2018, the companies sued Plaintiff in S & H Packing & Sales Co. Inc., et al. v. Nadine Oddo, LASC Case No. BC705449 (the “Prior Action”), alleging breach of fiduciary duty and seeking her removal as a director. (Carvalho Decl. Exh. 1.) In January 2021, the companies dismissed the Prior Action. (Tomasulo Decl. ¶ 5, Exh. B.) In exchange for the dismissal, Plaintiff “waive[d] the right to claim in connection with any subsequent effort to assert indemnity rights . . . under the terms of the indemnity agreement . . . that the dismissal creates a presumption that [Plaintiff] was successful on the merits of the Action.” (Ibid.)

“Except as otherwise provided by statute, an attachment may be issued only in an action on a claim or claims for money, each of which is based upon a contract, express or implied, where the total amount of the claim or claims is a fixed or readily ascertainable amount not less than five hundred dollars ($500) exclusive of costs, interest, and attorney’s fees.” (Code Civ. Proc. § 483.010.) The court shall issue a right to attach order if the court finds all of the following:

(1) The claim upon which the attachment is based is one upon which an attachment may be issued.

(2) The plaintiff has established the probable validity of the claim upon which the attachment is based.

(3) The attachment is not sought for a purpose other than the recovery on the claim upon which the attachment is based.

A claim has “probable validity” where it is more likely than not that the plaintiff will obtain a judgment against the defendant on that claim. (Code Civ. Proc. § 481.190.) The application shall be supported by an affidavit showing that the plaintiff would be entitled to a judgment on the claim. (Code Civ. Proc. § 484.030.)¿“In contested applications, the court must consider the relative merits of the positions of the respective parties and make a determination of¿the probable outcome of the litigation.”¿ (Hobbs v. Weiss (1999) 73 Cal.App.4th 76, 80.) “The Attachment Law statutes are subject to strict construction.” (Epstein v. Abrams (1997) 57 Cal.App.4th 1159, 1168.)

Plaintiff requests judicial notice of five exhibits: (1) The complaint in SHP’s case against Plaintiff, (2) Plaintiff’s answer to the complaint, (3) SHP’s request for dismissal of that case,

(4) A declaration filed in that case, and (5) A reply brief in that case. There is no objection to this request. The request is granted under Evidence Code section 452(c).

Defendant requests judicial notice of four exhibits: (1) The judgment in the dissolution action, (2) A notice of appeal, (3) An acknowledgment of satisfaction of judgment in the dissolution case, and (4) A stipulation exonerating the appeal bond in that case. There is no objection to this request. The request is granted under Evidence Code section 452(c).

Objections to Declaration of Stephen J. Tomasulo – The court need not rule on these objections because the court did not rely on these statements in ruling on the application. (Code Civ. Proc. § 437c(q).)

The court will assume without deciding that there is a valid indemnity agreement, and that Plaintiff has standing to enforce the agreement. Nevertheless, Plaintiff is not entitled to a writ of attachment because she has not established probable validity of the claim. SHP argues that Plaintiff’s claim for indemnification is barred by Corporations Code section 204(a)(11) because Plaintiff seeks indemnity for acts or omissions that show a reckless disregard for her duties as a director to SHP and its shareholders. (See Oppo. 12-19.)

It is hornbook law that directors, while not strictly trustees, are fiduciaries, and bear a fiduciary relationship to the corporation, and to all the stockholders. They owe a duty to all stockholders, including the minority stockholders, and must administer their duties for the common benefit. . . . Directors owe a duty of highest good faith to the corporation and its stockholders.

(Remillard Brick Co. v. Remillard-Dandini Co. (1952) 109 Cal. App. 2d 405, 419.)

Corporations Code section 317(c) authorizes a corporation to indemnify a director who has been sued by the company, but only when the director “acted in good faith, in a manner the person believed to be in the best interests of the corporation and its shareholders.” In other words, section 317 “allows indemnification of an agent who is negligent or has made a mistake, but not one who has acted in bad faith or is guilty of intentional misconduct.” (Wilshire-Doheny Assocs. Ltd. v. Shapiro (2000) 83 Cal.App.4th 1380, 1389.)

In this case, Plaintiff seeks indemnification under contract, not statute.[1] In that regard, Corporations Code section 204(a)(11) permits a corporation to provide indemnification greater than permitted by Corporations Code section 317, but with one important exception: The corporation cannot indemnify a director for any of the categories of conduct expressly listed in Corporations Code section 204(a)(10). As relevant here, section 204(a)(10) provides:

[S]uch a provision may not eliminate or limit the liability of directors (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) for acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director, (iii) for any transaction from which a director derived an improper personal benefit, (iv) for acts or omissions that show a reckless disregard for the director's duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to the corporation or its shareholders….

(Corp. Code § 204(a)(10).) “[A] director acts with ‘reckless disregard’ of his duties, within the meaning of section 204, subdivision (a)(10)(iv) when the director (1) does an intentional act or intentionally fails to act in accordance with those duties, (2) with knowledge, or with reason to have knowledge, that (3) the director’s conduct creates a substantial risk of serious harm to the corporation or its shareholders.” (Kanter v. Reed (2023) 92 Cal.App.5th 191, 208.)

In the application, Plaintiff contends that “[t]he principal charging allegation in the [Prior] Action is that [Plaintiff] surreptitiously took payments from Dan.” (Plaintiff’s Memorandum 12:6-8.) The complaint in the Prior Action alleged that Plaintiff breached her fiduciary duties to SHP when she accepted payments from Dan to serve as director. (Carvalho Decl. Exh. 1 at ¶ 15.) However, the complaint also alleged:

Presumably operating at the behest of Dan, [Plaintiff] has undermined majority decisions made by the Boards, has engaged in activities that increased the cost of legal representation and operation of the businesses, and has engaged in additional activities that served to diminish the values of the businesses and interfered with the sale of the businesses…. As a director, [Plaintiff] owed a fiduciary duty to Plaintiffs. She breached this duty … [and] should accordingly be terminated and held liable for the damages she has caused.

(Id. ¶¶ 16-17.) Consistent with these allegations, SHP has submitted evidence that it brought the Prior Action as a result of acts that Plaintiff took in reckless disregard for her duties to the Companies, to wit:

· Dan independently paid Plaintiff $5,000 to serve as a director of SHP, but he did not make such payments to the other two directors. This payment arrangement was disclosed to the other board members and SHP’s corporate counsel, Marcus Williams. (Oddo Decl. ¶ 9; Horwath Decl. ¶ 16, Exh. 5; Williams Decl. ¶ 7.) However, it was an unusual payment arrangement that raised concerns about Plaintiff’s independence as a director. (Williams Decl. ¶ 7.)

· Without informing SHP, Plaintiff communicated privately with Dan’s personal attorney, John Furutani, all while knowing that Furutani was representing Dan in legal actions that were adverse to the companies. (Tomasulo Decl. Exh. H [Oddo Depo.] 63:22-64:16; 70:23-71:7; Tomasulo Decl. Exh. J at 127-130.) On January 4, 2018, Plaintiff emailed eight agenda items to Williams, SHP’s corporate counsel, for the upcoming board meeting. Though she introduced the agenda items as her own, Plaintiff admitted at deposition that Furutani, Dan’s private attorney, had drafted the substance of the agenda items. (Tomasulo Decl. Exh. H [Oddo Depo.] 63-64, 67-68, 74-76.) Plaintiff also admitted that she sent the copied-and-pasted demands without knowing of the truth or falsity of the representations in them, and without inquiring into their veracity. (Id. at 67-68, 74-75.) Plaintiff did not inform Williams or the other board members that Furutani had written emails that she forwarded to him as if they were her own. (Williams Decl. ¶ 14.)

· Without authorization, Plaintiff disclosed confidential accounting information of SHP to Dan and his attorney, Furutani. Specifically, on January 11, 2018, in response to her request, the companies’ CFO, Brandon Slavik, sent Plaintiff financial information for one of the companies, including a balance sheet and profit and loss statement. In his email, Mr. Slavik noted that the financial information was “internal use only-unaudited.” (Tomasulo Decl. ¶ 7, Exh. D at 48 [emphasis in original]; Tomasulo Decl. Exh. C [Furutani Depo.] at 8-10.) Plaintiff immediately forwarded these records to Furutani without informing Williams or the board. (Ibid.) That same day, Furutani cited his discussions with Plaintiff in making accusations against the companies for breach of the Settlement Agreement. (Furutani Depo., 39:6–41:6; Tomasulo Decl., Exh. E [“From my discussions with Ms. Oddo, the Collectively Owned Entities are making no effort to present accurate financial information for prospective brokers/investment bankers/purchasers …. The conduct of your respective clients constitutes a serious breach of the Settlement Agreement…”].) On January 31, 2018, in an email to Williams and the other board members, Plaintiff acknowledged that the financial records of the companies are “confidential.” (Williams Decl. Exh. D at 53.) Eleven months later, Dan filed suit against the Companies, accusing them of fraudulent accounting, among other things, and he attached the “internal use only-unaudited” financials received from Plaintiff as an exhibit to his complaint. (Tomasulo Decl. Exh. K, and Id. at Exh. B.)

· On January 17, 2018, Plaintiff emailed to Dan, Furutani, and her current attorney, Arthur Carvalho, an eight-page document titled “HORWATH TIME LINE & NARRATIVE,” in which she summarized numerous events and emails relating to ongoing board disputes. (Tomasulo Decl. Exh. H [Oddo Depo.] 100-101; Id. Exh. I.) There is evidence that several of the items Plaintiff summarized in the narrative were privileged emails from Williams to the board. (Id. Exh. I at 120 [“DECEMBER 1, 2017, 10:23AM: EMAIL FROM MARCUS WILLIAMS TO ME, VIDO AND BOB RESPONDING TO MY CONCERNS ABOUT THE FINANCIAL CONDITION OF THE COMPANY…. You will note Marc’s rational (sic) on personal expenses or assets being run through the family businesses.”)].) At her deposition, Plaintiff testified that she provided the narrative document to Dan and Furutani to “give them backgrounds on my concerns.” (Oddo Depo. 101:11–15.) Neither Furutani nor Carvalho advised Williams of the disclosure of privileged material, which was not discovered until SHP took discovery in the Prior Action. (Williams Decl. ¶ 13.)

In light of the foregoing evidence, Plaintiff has not established a probably valid claim for indemnification.

Plaintiff argues that she is entitled to indemnification because SHP allegedly failed to decide her demand for indemnity within 45 days, as required by section 7(f) of the Indemnity Agreement. (Mot. 10-11.) Plaintiff made a demand for indemnification in February 2020, about 18 months after SHP sued to remove her for breaching fiduciary duties and while that litigation was ongoing. (Ibid.; Carvalho Decl. Exh. 3.) The lawsuit served as notice that SHP determined that her conduct was not indemnifiable. Even if not, Plaintiff does not show that she can be indemnified under section 7(f) for conduct for which indemnification is prohibited by California law.

The court has considered Plaintiff’s remaining arguments, none of which is persuasive. In particular, the court is not persuaded that SHP or Williams directed Plaintiff to engage in the acts summarized in the bullets points above. (See Reply 5-6; Suppl. Oddo Decl. ¶¶ 2-5, Exh. A-B.) Contrary to Plaintiff’s assertion, neither of the cited emails from Williams instructed the board members to share confidential financial records or attorney-client-privileged materials with their “constituent shareholder;” to communicate privately with legal counsel of a shareholder who was engaged in extensive litigation with SHP and had interests adverse to the other shareholders (who Plaintiff also represented on the board); or to pass on agenda items, as her own, that were written by legal counsel for the adverse shareholder. (Oddo Decl. ¶¶ 2-5, Exh. A-B.)

Plaintiff declares that “[a]t no time did I ever provide to Dan Horwath or his counsel information that I was informed or understood was not to be communicated to our ‘constituent shareholders.’” (Suppl. Oddo Decl. ¶ 5.) This declaration does not establish probable validity of her claim. As an independent director, Plaintiff did not need to be “informed” that confidential financials or attorney-client-privileged information should not be disclosed to a shareholder with interests adverse to SHP or the other shareholders, or that shareholder’s legal counsel.

Contrary to Plaintiff’s assertion, paragraph 16 of the complaint in the Prior Action is written broadly and reasonably encompasses the alleged breaches of duty of Plaintiff summarized above. (Reply 5.) SHP also submits evidence, which Plaintiff has not rebutted, that evidence produced in the Prior Action supports paragraph 16 of the complaint. (See Artukovich Decl. ¶ 11.)

Based on the foregoing, Plaintiff has not established that her claim has probable validity. The court need not reach Defendant’s remaining arguments.

Based upon the foregoing, Plaintiff’s application for a writ of attachment is denied. Plaintiff’s counsel shall provide notice and file proof of service with the court.

[1] Alternatively, Plaintiff seeks indemnification under section 7.3 of SHP’s bylaws. (Plaintiff’s Memorandum 11-12.) The analysis for this motion, however, is the same regardless of whether indemnification is sought under contract or the bylaws.