Judge Walter P. Schwarm, Case 30-2022-01260098 2023-05-18 Tentative Ruling

Judge: Walter P. Schwarm, Case: 30-2022-01260098, Date: 2023-05-18 Tentative Ruling

Motion No. 1:

Moving Party’s (Juan Carlos Orellana) Motion Requiring Defendant and Cross-Complainant Victor Manuel Orellana to Post Bond Pursuant to Corporations Code § 800(c) and (f) (Motion), filed on 11-7-22 under ROA No. 159, is GRANTED.

The court DENIES Moving Party’s Request for Judicial Notice, filed on 11-7-22 under ROA No. 157, as immaterial to the court’s ruling as set forth below. (Silverado Modjeska Recreation & Parks District v. County of Orange (2011) 197 Cal.App.4th 282, 307, fn. 18.)

The court GRANTS Responding Party’s (RP), Victor Manuel Orellana, Request for Judicial Notice (RPRJN), filed on 3-15-23 under ROA No. 253, pursuant to Evidence Code section 452, subdivision (c), and Belen v. Ryan Seacrest Productions, LLC (2021), 65 Cal.App.5th 1145, 1160 at footnote 2 (Belen) as to Exhibit Nos. 14, 15, 16, 17, 18, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, and 32. The court DENIES the RPRJN Exhibit No. 20. The court GRANTS the RJN as to Exhibit No. 38 pursuant to Evidence Code section 452, subdivision (d).

Moving Party’s Objection to the Declaration of Timothy F. Shields, filed on 3-21-23 under ROA No. 262: The court OVERRULES Objection Nos. 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 19, 20, 21, 22, 23, 24, 25, 26, 28, 29, 30, and SUSTAINS the remaining objections based on hearsay. (See, Belen v. Ryan Seacrest Productions, LLC (2021), 65 Cal.App.5th 1145, 1160 at footnote 2, People v. Thacker (1985) 175 Cal.App.3d 597-598, Ojavan Investors, Inc. v. California Coastal Commission (1994) 26 Cal.App.4th 516, 527, and Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1564-1570.)

The court OVERRULES Moving Party’s Objections to the Declaration of Defendant Victor Orellana filed on 3-21-23 under ROA No. 263.

The court SUSTAINS all of the objections contained in RP’s Objections to the Declaration of Terrence Green filed on 4-11-23 under ROA No. 274. The declarant’s statement that declarant is “. . . the accountant for Defendant Paramount Intermodal Systems, Inc. . . .”
does not provide sufficient foundation for the statements in the declaration.

Corporations Code section 800 states in part, “. . . (c) In any action referred to in subdivision (b), at any time within 30 days after service of summons upon the corporation or upon any defendant who is an officer or director of the corporation, or held such office at the time of the acts complained of, the corporation or the defendant may move the court for an order, upon notice and hearing, requiring the plaintiff to furnish a bond as hereinafter provided. The motion shall be based upon one or both of the following grounds: [¶] (1) That there is no reasonable possibility that the prosecution of the cause of action alleged in the complaint against the moving party will benefit the corporation or its shareholders. [¶] (2) That the moving party, if other than the corporation, did not participate in the transaction complained of in any capacity. [¶](d) At the hearing upon any motion pursuant to subdivision (c), the court shall consider such evidence, written or oral, by witnesses or affidavit, as may be material (1) to the ground or grounds upon which the motion is based, or (2) to a determination of the probable reasonable expenses, including attorneys' fees, of the corporation and the moving party which will be incurred in the defense of the action. If the court determines, after hearing the evidence adduced by the parties, that the moving party has established a probability in support of any of the grounds upon which the motion is based, the court shall fix the amount of the bond, not to exceed fifty thousand dollars ($50,000), to be furnished by the plaintiff for reasonable expenses, including attorneys' fees, which may be incurred by the moving party and the corporation in connection with the action, including expenses for which the corporation may become liable pursuant to Section 317. A ruling by the court on the motion shall not be a determination of any issue in the action or of the merits thereof. . . . [¶] (f) If a motion is filed pursuant to subdivision (c), no pleadings need be filed by the corporation or any other defendant and the prosecution of the action shall be stayed until 10 days after the motion has been disposed of.”

Donner Management Company v. Schaffer (2006) 142 Cal.App.4th 1296, 1303-1304 (Donner), states, “To compel a plaintiff-shareholder in a derivative lawsuit to furnish a bond securing payment of the defendant's attorney fees, section 800 requires that the defendant ‘establish[ ] a probability,’ based on affidavits or oral testimony, (1) ‘[t]hat there is no reasonable possibility that the prosecution of the cause of action alleged in the complaint against the moving party will benefit the corporation or its shareholders[,] [or] (2) [t]hat the [defendant] moving party, if other than the corporation, did not participate in the transaction complained of in any capacity.’ (§ 800, subds. (c)(2), (d), italics added.) In assessing whether there is no reasonable possibility the action will benefit the corporation, the court ‘must evaluate the possible defenses which the plaintiffs would have to overcome before they could prevail at trial.’ [Citation.] [¶] If the defendant does not satisfy one of the section 800 grounds for a bond and accordingly no bond or other security is posted, the defendant will not be entitled to section 800 attorney fees even if he or she prevails at the end of the litigation. [Citations.] On the other hand, if the defendant does establish one of the section 800 grounds, the court fixes the amount of the bond (not to exceed $50,000) ‘to be furnished by the plaintiff for reasonable expenses, including attorneys' fees, which may be incurred by the moving party and the corporation in connection with the action, including expenses for which the corporation may become liable pursuant to Section 317.’ (§ 800, subd. (d).)” (Footnote 9 omitted; Italics in Donner.)

Grosset v. Wenass (2008) 42 Cal.4th 1100, 1108 (Grosset), explains, “It is fundamental that a corporation is a legal entity that is distinct from its shareholders. [Citation.] The authority to manage the business and affairs of a corporation is vested in its board of directors, not in its shareholders. [Citations.] This includes the authority to commence, defend, and control actions on behalf of the corporation. [Citations.] [¶] Because a corporation exists as a separate legal entity, the shareholders have no direct cause of action or right of recovery against those who have harmed it. The shareholders may, however, bring a derivative suit to enforce the corporation's rights and redress its injuries when the board of directors fails or refuses to do so. When a derivative suit is brought to litigate the rights of the corporation, the corporation is an indispensable party and must be joined as a nominal defendant. [Citations.] [¶] An action is deemed derivative ‘ “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.” ’ [Citation.] When a derivative action is successful, the corporation is the only party that benefits from any recovery; the shareholders derive no benefit ‘ “except the indirect benefit resulting from a realization upon the corporation's assets.” ’ [Citation.]” (Footnote 5 omitted; See also, Patrick v. Alacer Corporation (2008) 167 Cal.App.4th 995, 1016 (Patrick).)

Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1037 (Berg), states, “It is without dispute that in California, corporate directors owe a fiduciary duty to the corporation and its shareholders and now as set out by statute, must serve ‘in good faith, in a manner such director believes to be in the best interests of the corporation and its shareholders.’ (Corp. Code, § 309, subd. (a).) This duty—generally to act with honesty, loyalty, and good faith—derived from the common law. [Citations.]” (Footnote 17 omitted.) Schuster v. Gardner (2005) 127 Cal.App.4th 305, 313 (Schuster), states, “Shareholders may bring a derivative suit to, for example, enjoin or recover damages for breaches of fiduciary duty directors and officers owe the corporation. [Citation.]”

The Cross-Complaint (CC), filed on 10-7-22 under ROA No. 140, alleges a derivative action brought by RP. The CC makes the following allegations: (1) “. . . That statement of information identifies cross-defendant Juan Carlos as Paramount's chief executive officer, secretary, chief financial officer, and as a corporate director.” (CC, ¶ 7.); (2) “Both Juan Carlos and Paramount have repeatedly acknowledged that Victor owns 30% of the stock in Paramount. Cross-complainant is informed and believes, and thereon alleges that Juan Carlos owns 55% of all the issued and outstanding stock of Paramount and that, by virtue of such ownership, Victor is the majority and controlling shareholder. Cross-complainant is informed and believes, and thereon alleges that no action, instruction, directive or decision can be made by the Corporation without Victor's affirmative consent and approval. As one of Paramount's two corporate directors, no other corporate director has sufficient votes to outvote Juan Carlos and cause the Corporation to take affirmative action to seek redress for damages to Paramount caused by Juan Carlos.” (CC, ¶ 8.); (3) “Paramount is, and at all times herein mentioned has been, actively involved in the trucking, transportation, shipping, and logistics industry and business. . . .” (CC, ¶ 9.); (4) “. . . Juan Carlos has, and at all times herein mentioned has had, a fiduciary duty owing to Paramount. Cross-complainant is informed and believes, and thereon alleges that this fiduciary duty owed by Juan Carlos to Paramount includes, but is not limited to, the duties to be completely honest, forthright, and scrupulously fair with Paramount, to avoid or disclose any conflicts of interest involving Paramount . . . .” (CC, ¶ 13.); (5); “Cross-complainant is informed and believes and thereon alleges that Seacool, Inc. (‘Seacool’) is a Nevada corporation engaged in the transportation, shipping, and logistics industries; the same industry and business as Paramount. . . .” (CC, ¶ 14.); (6) “. . . The statement of information by Seacool identifies cross-defendant Juan Carlos as the chief executive officer, secretary, and chief financial officer of Seacool. Cross-complainant is informed and believes and thereon alleges that cross-defendant Juan Carlos is also a shareholder and corporate director of Seacool.” (CC, ¶ 15.); and (7) “Cross-complainant is informed and believes and thereon alleges that Seacool is a competitor in the same business, territory, and industry as Paramount.” (CC, ¶ 16.); and (8) “Cross-complainant is informed and believes and thereon alleges that cross-defendant Juan Carlos never gave Paramount notice of the business opportunity that Seacool is pursuing, nor disclosed the conflict of interest that he has as an officer and/or director of both Seacool and Paramount, and never sought or obtained any vote or authorization from independent and disinterested directors or shareholders of Paramount in relation to the Seacool business opportunity. . . .” (CC, ¶ 17.)

The CC alleges a derivative action brought by RP, a minority shareholder, to recover damages on behalf of Paramount for MP’s alleged breach of fiduciary duty involving MP’s duty of loyalty.

The Motion states, “Here, there is simply no reasonable possibility that the prosecution of the cause of action concerning Seacool, Inc. alleged in the Cross-Complaint will benefit Defendant Paramount and Defendant and Cross-Complaint Victor Orellana knows this as evidenced by his sworn deposition testimony. . . [¶] . . . As is more fully set forth in Plaintiff and Cross-Defendant Carlos Orellana's attached declarations and from Defendant and Cross-Complaint Victor Orellana' s own deposition testimony, the sole purpose of Seacool, Inc. is to pay the drivers of Defendant Paramount. Seacool, Inc. is not taking any business from Defendant Paramount and Defendant and Cross-Complaint Victor Orellana's derivative suit is meritless. . . .” (Motion; 7:3-16.)

RP’s Opposition to MP’s Motion to Compel Posting of a Bond (Opposition), filed on 3-15-23 under ROA No. 247, asserts, “This Motion should be denied because cross-defendant . . . cannot carry the burden of proof on either of the two prongs of Corpoations Code §800(c). Cross-defendant cannot claim he did not participate in transferring over $33 million dollars away from Paramount to other companies he and his brother owned or controlled. Neither can he claim he is not an officer, director or manager of Seacool, Inc. . . . .” (Opposition; 9:2-6.)

The declaration from MP states, “As Defendant Victor Manuel Orellana testified, I informed Victor of the existence of Seacool, Inc. I also told Victor that the purpose of Seacool, Inc. was to pay the drivers carrying loads for Defendant Paramount Intermodal Systems, Inc. as he acknowledged. Seacool, Inc. serves no other purpose, does no other business and is not used ‘to take business’ from Defendant Paramount Intermodal Systems, Inc. The website set up for Seacool, Inc., is for drivers that are being paid through Seacool, Inc. for the loads they are carrying for Defendant Paramount Intermodal Systems, Inc. Again, Seacool, Inc. serves no other purpose other than paying drivers.” (MP Decl., ¶¶ 2, 3.)

The declaration of Victor Orellana states, “Prior to the time this lawsuit was filed, I inquired to Juan Carlos Orellana about Seacoo, Inc. . . . He told me only that it was used to pay Paramount’s drivers. I was not provided any additional information and was certainly not aware that there were millions of dollars flowing from Paramount to Seacool. I was not informed that Seacool was not owned by Paramount. I was also not advised that Seacool had a website advertising for new trucking and shipping customers, that Seacool had its own license and registration with the U.S. Department of Transportation, that Seacool had its own insurance, nor whether it had independent trucking operations.” (RP Decl., ¶ 9.) At RP’s deposition, RP testified that RP was using Seacool, Inc. “. . . to pay for drivers . . .” and that he did not “. . . have a problem with that.” (Kernan Decl., ¶ 2 and Exhibit A (RP Depo; 201:18-202:10.)

Although RP declared that millions of dollars flowed from Paramount to Seacool, the court has sustained MP’s Objection No. 1 regarding the bank records of Paramount. (Moving Party’s Objection to the Declaration of Timothy F. Shields, filed on 3-21-23 under ROA No. 262.) RP relies on these records to demonstrate the transfers of money from Paramount to Seacool, Inc. and transfers of money from Paramount to other entities. (Shields Decl., ¶¶ 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, and 50.) Without the bank records, RP does not have foundation for RP’s analysis of the transfers of money from Paramount to Seacool, Inc. and the other entities.

Therefore, the court finds that RP has not presented admissible evidence that MP misappropriated money belonging to Paramount by transferring that money to other entities. Based on the admissible evidence, MP has sufficiently demonstrated a probablity that “. . . there is no reasonable possibility that the prosecution of the cause of action alleged in the [CC] against the moving party will benefit the corporation or shareholders.” (Corp., Code, § 800, subds. (c)(1) and (d).) MP has The evidence does not sufficiently demonstrate that Seacool, Inc. is taking business opportunities available to Paramount.

On 4-18-23, the court continued the Motion for “. . . the limited purposes of explaining why the Court should not have sustained the objection to bank records. . . .” (4-18-23 Minute Order.) Having reviewed and considered both parties’ supplemental briefs (filed on 4-25-23 and 5-2-23 under ROA Nos. 290, and 294) and regarding the court’s ruling on MP’s objection to bank records, the court confirms its ruling as to the objections as stated above. (See also, Serri v. Santa Clara University (2014) 226 Cal.App.4th 830, 855 (Serri) and Hooked Media Group, Inc. v. Apple, Inc. (2020) 55 Cal.App.5th 323, 337-338 (Hooked Media).)

Based on the above, the court GRANTS Moving Party’s (Juan Carlos Orellana) Motion Requiring Defendant and Cross-Complainant Victor Manuel Orellana to Post Bond Pursuant to Corporations Code § 800(c) and (f) filed on 11-7-22 under ROA No. 159. The court fixes the amount of the bond at $50,000.00 (Corp. Code, § 800, subd. (d) and Kernan Decl., ¶¶ 5, 6, and 7) ORDERS RP to furnish a bond in this amount.

MP is to give notice.

Motion No. 2:

Plaintiff’s (Juan Carlos Orellana) Motion for Order Compelling Production of Documents from Defendant’s Deposition and For Another Deposition of Defendant, filed on 11-28-22 under ROA No. 178, is CONTINUED to a date and time to be determined at the hearing on 4-18-23.

Corporations Code section 800 provides in part: “(f) If a motion is filed pursuant to subdivision (c), no pleadings need be filed by the corporation or any other defendant and the prosecution of the action shall be stayed until 10 days after the motion has been disposed of.” Based on Corporations Code section 800, subdivision (f), the court cannot take action on this Motion until 10 days after the court has disposed of Motion No. 1.