Judge: Teresa A. Beaudet, Case: 22STCP02372, Date: 2022-09-20 Tentative Ruling

Case Number: 22STCP02372    Hearing Date: September 20, 2022    Dept: 50

Superior Court of California

County of Los Angeles

Department 50

Background

            Plaintiff Andrew Clapkin (“Plaintiff”) filed this action against Defendant JosLevin Realty Corp. of L.A. (“JLR”) on June 23, 2022. The operative First Amended Complaint (“FAC”) was filed on July 22, 2022, and asserts causes of action for (1) violation of Corp. Code, § 1601,        et seq., (2) conversion, and (3) declaratory relief (Corporations Code § 709).   

            In the FAC, Plaintiff alleges that JLR is a closely-held, family-run company; and it is a California corporation with its principal place of business located in the County of Los Angeles.

(FAC, ¶¶ 2, 5.) Plaintiff alleges that at all relevant times herein, he was, and continues to be, a shareholder of JLR. (FAC, ¶ 5.) Plaintiff served as the President of JLR and maintained an office in the JLR offices where he kept certain personal items belonging to him. (FAC, ¶ 6.) On February 8, 2022, a newly elected board of directors resolved to remove Plaintiff from office. (FAC, ¶ 6.) Although Plaintiff made multiple requests thereafter to retrieve his personal items from the JLR offices, JLR refused to return Plaintiff’s personal items. (FAC, ¶ 9.)   

            Plaintiff also alleges that on May 5, 2022, he submitted a written request to perform an inspection of corporate documents, but JLR failed to provide such records to Plaintiff. (FAC,      ¶ 10.) On or about July 20, 19,[sic] 2022, JLR sent to Plaintiff a letter entitled “Cease and Desist, JosLevin Realty Corp. of L.A,” which asserted that a “fraudulent special meeting” of JLR was conducted, during which Plaintiff was appointed as corporate Secretary. (FAC, ¶ 11.) At a subsequent July 6, 2022 special meeting of the board of directors, the President of JLR characterized the previous special meetings of the board of directors as “fraudulent” and refused to recognize the appointment of Plaintiff as corporate Secretary. (FAC, ¶ 12.) Plaintiff alleges that a dispute has arisen between Plaintiff and JLR as to the validity of a special meeting of directors noticed on May 20, 2022, and the actions undertaken by the corporate directors at that meeting. (FAC, ¶ 13.)

            On August 29, 2022, Plaintiff filed an “Ex Parte Application for an Order Advancing Hearing Date on Plaintiff Andrew Clapkin’s Challenge to the Validity of Corporation’s Vote Pursuant to Corporations Code § 709.” On August 30, 2022, the Court issued a minute order which indicates, inter alia, that Plaintiff’s ex parte application was granted in part. The August 30, 2022 minute order also provides that, “[o]n or before 09/06/22, Plaintiff will file and email serve a memorandum of points and authorities of no more than 10 pages on the issue of Plaintiff’s standing to seek the remedy set forth in the Petition. On or before 09/13/22, Defendant will file and email serve a responsive memorandum.”

            On September 6, 2022, Plaintiff filed a “Supplemental Memorandum of Points and Authorities on Plaintiff Andrew Clapkin’s Challenge to the Validity of Corporation’s Vote Pursuant to Corporations Code § 709.” On September 13, 2022, JLR filed a “Memorandum of Points and Authorities Regarding Plaintiff’s Lack of Standing to Bring a Claim Under   Corporations Code Section 709.” The Court addresses the briefing by the parties herein.

            Discussion

            Corporations Code section 709 provides as follows:

“(a) Upon the filing of an action therefor by any shareholder or by any person who claims to have been denied the right to vote, the superior court of the proper county shall try and determine the validity of any election or appointment of any director of any domestic corporation, or of any foreign corporation if the election was held or the appointment was made in this state. In the case of a foreign corporation the action may be brought at the option of the plaintiff in the county in which the corporation has its principal office in this state or in the county in which the election was held or the appointment was made.

(b) Upon the filing of the complaint, and before any further proceedings are had, the court shall enter an order fixing a date for the hearing, which shall be within five days unless for good cause shown a later date is fixed, and requiring notice of the date for the hearing and a copy of the complaint to be served upon the corporation and upon the person whose purported election or appointment is questioned and upon any person (other than the plaintiff) whom the plaintiff alleges to have been elected or appointed, in the manner in which a summons is required to be served, or, if the court so directs, by registered mail; and the court may make such further requirements as to notice as appear to be proper under the circumstances.

(c) The court may determine the person entitled to the office of director or may order a new election to be held or appointment to be made, may determine the validity, effectiveness and construction of voting agreements and voting trusts, the validity of the issuance of shares and the right of persons to vote and may direct such other relief as may be just and proper.”

            Plaintiff asserts that as a shareholder of JLR, he has standing to pursue a hearing under Corporations Code section 709. In the FAC, Plaintiff alleges that at all relevant times, he was and continues to be a shareholder of JLR. (FAC, ¶ 5.)

JLR does not dispute that Plaintiff alleges he is a shareholder of JLR. (Response at p. 3:7-8.) However, JLR asserts that Plaintiff still lacks standing to invoke Corporations Code section 709. As set forth above, Corporations Code section 709, subdivision (a) provides in part that, “[u]pon the filing of an action therefor by any shareholder or by any person who claims to have been denied the right to vote, the superior court of the proper county shall try and determine the validity of any election or appointment of any director of any domestic corporation…” (Emphasis added.) JLR asserts that standing thus also requires a proper request for relief, which is limited to a determination regarding “the validity of any election or appointment of any director…” (Corp. Code, § 709, subd. (a).) 

As JLR notes, Plaintiff does not appear to challenge the alleged action taken by JLR’s newly-elected board of directors to vote Plaintiff out of his role as JLR’s President on February 8, 2022. (FAC, ¶¶ 6, 22.) Rather, in connection with his third cause of action for declaratory relief pursuant to Corporations Code section 709, Plaintiff seeks “[a] determination as to the validity of the special meeting of the board of directors on May 20, 2022, and the actions undertaken during that meeting, including the appointment of [Plaintiff] as corporate Secretary.” (FAC, p. 7, ¶ 9, emphasis added) JLR asserts that a corporate secretary is an “officer” position distinct from a “director,” and that Plaintiff accordingly lacks standing under Corporations Code section 709.[1] In his memorandum, Plaintiff does not assert that he challenges the appointment of any “director” of JLR.  

In Morrical v. Rogers (2013) 220 Cal.App.4th 438, 452, cited to by Plaintiff, the Court of Appeal noted that “the central function of section 709 is to determine the validity or invalidity of an election or appointment of a corporate director…” (Emphasis added.) In Morrical, “[t]he primary issue presented in [the] appeal [was] whether an action brought under section 709, which allows the court to determine the validity of an election of corporate directors, may be based on an alleged breach of fiduciary duty or more specifically a violation of section 310, which governs corporate transactions with companies in which one or more corporate directors have a material financial interest.” (Id. at p. 441.) The Court of Appeal found that “[a]fter reviewing the plain text of the statute, its statutory context, its legislative history, and the case law interpreting the statute, we conclude that section 709 permits a corporate electoral challenge on such grounds.” (Ibid.) Here, by contrast, Plaintiff does not appear to challenge the validity of an election of corporate directors.

Plaintiff also cites to Kauffman v. Meyberg (1943) 59 Cal.App.2d 730, 732-733, where “[t]wo appeals [were] consolidated for the purpose of decision. The first action [was] to enjoin the defendants from interfering with plaintiff’s right to vote 2,500 shares…The second action was to nullify the election of directors effected at the meeting of the stockholders to which plaintiff’s right to vote 2,500 shares was obstructed by defendants in spite of the restraining order issued at the inception of the first action.” The Kauffman Court noted that “plaintiff filed his second action under section 315, Civil Code, to annul the declared results.” (Id. at p. 734.)[2] Here, by contrast, Plaintiff does not seek to nullify an election of directors and appears to acknowledge that Corporations Code section 709 concerns the election or appointment of a “director.” (See Plaintiff’s Memorandum at p. 6:5-8, “[b]efore section 709 was enacted in 1975, actions to challenge the election or appointment of a director of a domestic corporation were governed by Civil Code former section 315…and then by Corporations Code sections 2236 to 2238…”)

Conclusion

Based on the foregoing, the Court does not find that Plaintiff has shown that his request for a determination as to the validity of his alleged appointment as corporate Secretary is an “action” that falls under the scope of Corporations Code section 709.

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            JLR is ordered to give notice of this ruling.

DATED:  September 20, 2022                       ________________________________

Hon. Teresa A. Beaudet

Judge, Los Angeles Superior Court