Judge: Wesley L. Hsu, Case: 22PSCV00134, Date: 2023-03-23 Tentative Ruling
Case Number: 22PSCV00134 Hearing Date: March 23, 2023 Dept: L
Procedural History
Case No. 21PSCV00336
Plaintiff Hyung Su Ryu dba Alex Ryu (“Hyung”) alleges as follows: Hyung was forced out from his own company
that he founded and built up, TeeHee Socks, Inc. (“TSI”). Hyung was fired and
deprived of his salary and stock dividends. TSI is being relocated to Nevada.
On January
10, 2022, the court related this instant case to Case No. 21PSCV01072; this
instant case was designated the lead case.
On April 12, 2022,
the court sustained Jong Won Bok (“Bok”), Taijin USA’s (“Taijin”), TJ International Co., Ltd.’s
(“TJ International”), and TSI’s demurrer to the fourth and fifth causes of
action in Hyung’s Third Amended Complaint, without leave to amend.
On April 22, 2022, Hyung filed a Fourth Amended Complaint
(“4AC”), asserting causes of action against Bok, Taijin, TJ International, TSI
and Does 1-100 for:
1.
Breach
of Contract—Stock Purchase Agreement
2.
Breach
of Contract—Salary Agreement
3.
Fraud
4.
Breach
of Fiduciary Duty
5.
Involuntary
Dissolution
On May 19,
2022, the court related Case Nos. 21PSCV00336, 21PSCV01072 and 22PSCV00134;
this instant case was designated the lead case.
On September
8, 2022, the court related this instant case to Case No. 22PSCV00901; this
instant case was designated the lead case.
On September
26, 2022, the court sustained Bok’s, Taijin’s, TJ International’s and TSI’s
demurrer to the first cause of action in Hyung’s 4AC, without leave to amend.
On March 8,
2023, TSI, Taijin and TJ International filed a First Amended Cross-Complaint,
asserting causes of action against Hyung, Miri P. Ryu (“Miri”), Soxnet, Inc.
(“Soxnet”) and Roes 1-50 for:
1. Breach of Contract
2. Breach of the Implied Covenant of Good
Faith and Fair Dealing
3. Fraud
4. Unfair Business Practices
A Case
Management Conference is set for March 23, 2023.
Case No. 21PSCV01072
Plaintiff
Soxnet alleges as follows: In approximately January 2015, Soxnet began
manufacturing, importing and selling socks at wholesale to TSI. TSI would sell
said socks at retail and would then pay Soxnet for the inventory it had been
sold. This pattern and practice continued into May 2019 when Bok, Taijin and TJ
International acquired a majority stake in TSI and became involved in its
management and operations. As of April 1, 2021, TSI stopped making payments for
unpaid wholesale inventory; the balance owed is $197,555.91. TSI also
discontinued using Soxnet as its wholesaler/supplier, which was shortly after
TSI, Bok, Taijin and TJ International terminated Hyung from his officer and
director positions at TSI.
Again, on
January 10, 2022, the court related this instant case to Case No. 21PSCV00336; Case No. 21PSCV00336
was designated the lead
case.
On April 22,
2022, Soxnet filed a First Amended Complaint (“FAC”), asserting causes of
action against TSI, Bok, TJ International, Taijin and Does 1-10 for:
1. Account Stated
2. Open Book Account
3. Work, Labor, Services, and Materials
Rendered
4. Breach of Contract
5. Intentional Interference with
Contractual Relations
On May 19,
2022, the court related Case Nos. 21PSCV00336, 21PSCV01072 and 22PSCV00134;
Case No. 21PSCV00336 was designated the lead case.
On September
26, 2022, the court sustained Bok’s, TJ International’s and Taijin’s demurrer
to the fifth cause of action in Soxnet’s FAC, without leave to amend.
A Case
Management Conference is set for March 23, 2023.
Case No. 22PSCV00134
TSI alleges as
follows: Hyung was the sole shareholder of TSI, as well as a director and
officer, at the time of TSI’s January 13, 2015 incorporation. On or about May
10, 2019, Hyung agreed in writing to sell 51% of the outstanding shares of TSI
to Taijin for $1,000,000.00; consequently, Hyung’s ownership interests
in TSI was reduced to 49%. Hyung continued to act as TSI’s officer and
director. Hyung was to be in charge of sales and inventory commencing June 1,
2019. On or about February 3, 2021, there was a dispute between TSI’s
shareholders. Hyung has, within the last four years, misappropriated the sales
of socks from TSI to Soxnet, which is a company wholly owned by Hyung and/or
his wife, Miri.
On May 19,
2022, the court related Case Nos. 21PSCV00336, 21PSCV01072 and 22PSCV00134;
Case No. 21PSCV00336 was designated the lead case.
On July 7, 2022,
Miri filed a cross-complaint, asserting causes of action against TSI, Bok, TJ International, Taijin and Roes
1-100 for:
1.
Determination
of Status and of Fair Market Value for Dissenting Shares, and Appointment of
Appraiser
2.
Failure
to Produce Employment Records Under Labor Code § 226(b)
3.
Failure
to Produce Personnel Records Under Labor Code § 1198.5
4.
Trademark
Infringement Under 15 U.S.C. § 1114(1)
5.
False
Designation of Origin Under 15 U.S.C. § 1125(a)
6.
Unfair
Competition Under Bus. & Prof. Code § 17200 et seq.
7.
Common
Law Trademark Infringement
8.
Common
Law Unfair Competition
On August 22, 2022,
Miri dismissed the fourth through eighth causes of action in her cross-complaint,
without prejudice.
On August 22, 2022,
Hyung filed a First Amended Cross-Complaint, alleging causes of action against
TSI, Bok, TJ
International, Taijin and Roes 1-100 for:
1. Determination of Status and of Fair Market
Value for Dissenting Shares, and Appointment of Appraiser
2. Failure to Produce Employment Records Under
Labor Code § 226(b)
On October 27,
2022, TSI filed a First Amended Complaint, asserting causes of action against
Hyung and Does 1-100 for:
1. Breach of Duty of Loyalty
2. Intentional Interference with Prospective
Economic Advantage
3. Negligent Interference with Prospective
Economic Advantage
4. Unfair Business Practices
A Case
Management Conference is set for March 23, 2023.
Case No.
22PSCV00901
Miri alleges
as follows: Miri owns the trademark known as “Teehee Kids” (“Mark”). TSI, Bok,
TJ International and Taijin have used and are using the Mark in commerce
to sell children’s socks in the United States and internationally via online
services such as Amazon.com without Miri’s consent.
On August 22,
2022, Miri filed a complaint, asserting causes of action against TSI, Bok, TJ
International, Taijin and DOES 1-100 for:
1. Trademark Infringement Under 15 U.S.C.
§ 1114(1)
2. False Designation of Origin Under 15
U.S.C. § 1125(a)
3. Unfair Competition Under Bus. &
Prof. Code §§ 17200 et seq.
4. Common Law Trademark Infringement
5. Common Law Unfair Competition
On September
8, 2022, the court related this instant case to Case No. 21PSCV00336; Case No.
21PSCV00336 was designated the lead case.
A Case
Management Conference is set for March 23, 2023.
“A writ of mandate may be issued by any court
to any inferior tribunal, corporation, board, or person, to compel the
performance of an act which the law specially enjoins, as a duty resulting from
an office, trust, or station, or to compel the admission of a party to the use
and enjoyment of a right or office to which the party is entitled, and from
which the party is unlawfully precluded by that inferior tribunal, corporation,
board, or person.” (Code Civ. Proc., § 1085, subd. (a).)
“The writ must be issued in all cases where there is not a
plain, speedy, and adequate remedy, in the ordinary course of law. It must be
issued upon the verified petition of the party beneficially interested.”
(Code Civ. Proc., § 1086.)
“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 office in California, 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 California, 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 an alternative
to the procedure in subdivision (a), the shareholder or holder of a voting
trust certificate may elect to request that the corporation produce the books,
records, and minutes by mail or electronically, if the shareholder or holder of
a voting trust certificate pays for the reasonable costs for copying or
converting the requested documents to electronic format.” (Corp. Code, §
1601, subd. (a)(2).) “The inspection by a shareholder or holder of a voting trust
certificate may be made in person or by agent or attorney, and the right of
inspection includes the right to copy and make extracts. The right of the
shareholders to inspect the corporate records may not be limited by the
articles or bylaws.” (Corp. Code, § 1601, subd. (b).)
“Upon refusal of a lawful demand for
inspection, the superior court of the proper county, may enforce the right of inspection with just and proper conditions or may, for good
cause shown, appoint one or more competent inspectors or accountants to audit
the books and records kept in this state and investigate the property, funds
and affairs of any domestic corporation or any foreign corporation keeping
records in this state and of any subsidiary corporation thereof, domestic or
foreign, keeping records in this state and to report thereon in such manner as
the court may direct.” (Corp. Code, § 1603, subd. (a).)
“All officers and agents of the corporation shall produce to the inspectors
or accountants so appointed all books and documents in their custody or power,
under penalty of punishment for contempt of court.” (Corp. Code, § 1603, subd. (b).)
“All expenses of the investigation or audit shall be defrayed by the applicant
unless the court orders them to be paid or shared by the corporation.” (Corp.
Code, § 1603, subd. (c).)
Discussion
Hyung requests that the court issue a peremptory writ of
mandate (1) commanding TSI and Bok (together, “Respondents”), and each of them,
to make available to Hyung, in person or by Hyung’s agent or attorney, at TSI’s
principal office for inspection, including the making of abstracts, the
following records of TSI: the accounting books, records, and minutes of
proceedings of the shareholders, the board, and committees of the board and to
deliver to Hyung a copy of TSI’s balance sheet for the full 12-month period of
the fiscal year for 2021 and a profit and loss statement for such fiscal year
and (2) appointing Certified Public Accountants, subject to Hyung’s approval,
to audit TSI’s books and records, to investigate TSI’s property, funds and
affairs, and to report thereon in such a manner as the court may direct. Hyung
further requests that the court order that the expense of the investigation and
audit be defrayed by TSI, award Hyung his costs incurred, including attorney’s
fees, in this proceeding and for such other relief as the court may deem
proper.
Service
At the outset, Respondents assert that Hyung did not
effectuate proper service of the petition pursuant to Code of Civil Procedure §
1096 (i.e., requiring service “in the same manner as a summons in a civil
action, except when expressly directed by order of the Court”); with that said,
Respondents have filed an opposition on the merits and have not expressed
having sustained any prejudice as a result of the improper service. The court,
then, will proceed to the merits.
Merits
Hyung is the owner of record of 49,000 shares of capital
stock of TSI, which constitutes at least 5% of the issued and outstanding
shares of TSI. (Petition, ¶ 4.) Section 11.1.1 of TSI’s Bylaws states, in
relevant part, as follows: :
“11.1.1 Inspection
of Corporate Records. . . Any person who is he holder of a
voting trust certificate or who is
the holder of record of at least five percent
(5%) of the outstanding voting
shares of the corporation shall have the right to
examine and copy, in person or by
agent or attorney, at any reasonable time or
times, for any proper purpose, the
books and records of account of the
corporation, the minutes, and the
record of shareholders. On the written request
of any shareholder, the corporation
shall mail to such shareholder written
fourteen (14) days after receipt of
such request, a balance sheet as of the close
of its latest fiscal year and a
profit and loss statement for such fiscal year. If such
request is received by the
corporation before such financial statements are
available for its latest fiscal
year, the corporation shall mail such financial
statements within fourteen (14)
days after they become available, but in any
event within one hundred and twenty
(120) days after the close of its latest fiscal
year.” (Id., Exh. A.)
On January 19, 2022, Hyung, as a 49% shareholder of stock in
TSI, requested in writing to Respondents, through the parties’ respective
counsel, that Hyung be permitted to inspect and make copies of the accounting
books, records, and minutes of Teehee for the purpose of ascertaining TSI’s
financial status and its impact on his interests in TSI. (Id., ¶ 10,
Exh. 2). Hyung also requested that he be provided with a copy of a balance
sheet of TSI as of the close of the latest fiscal year, plus a profit and loss
statement for such fiscal year. (Id.)
On January 26, 2022, Respondents’ counsel responded to
Hyung’s January 19, 2022 letter, claiming that Hyung’s request was invalid
because it was not for a proper purpose and the request was not reasonably
related to a proper purpose since Hyung has a separate lawsuit pending against
Respondents (i.e., Case No. 21PSCV00336). (Id., ¶ 11, Exh. 3.) Counsel
also claimed that the request for a copy of TSI’s balance sheet as of the close
of the latest fiscal year and for a copy of the profit and loss statement for
such year was improper because the proposed date of inspection was shorter than
the 14-day period noted above. (Id.)
As of the date of the petition, Respondents have not
permitted Hyung to inspect TSI’s accounting books, records, or minutes, nor
have they mailed a copy of the requested balance sheet or profit and loss
statement. (Id., ¶ 12).
Respondents, in turn, assert that “Petitioner did not file a
separate proceeding and instead filed in the instant action.” (Opp., 3:23).
Respondents, however, have failed to provide the court with any legal authority
which mandates a denial of the petition on this basis.
Respondents then assert that the petition is improperly
directed against Bok individually. (Opp. 3:20-21). The court agrees in this
regard.
Respondents next assert that Hyung has failed to establish
that he has no adequate remedy at law. The court disagrees. (See Petition, ¶
18). The fact that Hyung may have attempted to obtain these records from
Respondents via discovery is irrelevant, as he remains entitled as a
shareholder to inspect and make copies of TSI’s accounting books, records, and
minutes under Corporations Code § 1601.
Respondents then assert that Hyung has failed to establish
that his demand is for a purpose reasonably related to his interests as a
shareholder. Not so. Hyung expressly stated in his demand that he sought “to
inquire further into [TSI’s] financial status and its impact on his interests
in the company.” (Petition, ¶ 10, Exh. 2.) “[A] stockholder has an interest in
the assets and business of the corporation and . . . such inspection may be
necessary or proper for the protection of his interest or for his information
as to the condition of the corporation and the value of his interests therein.”
Respondents’ untimeliness argument (i.e., that the proposed
date of inspection for TSI’s balance sheet and profit and loss statement was
shorter than the 14-day period noted in the Bylaws), raised in response to
Hyung’s demand letter, lacks merit. Respondents could have offered up an
alternate time and date, but they did not do so. Second, Respondents have not
provided any legal authority which stands for the proposition that proposing an
inspection within the 14-day period cited in the Bylaws somehow invalidates the
request; on the contrary, by the plain language of bylaw 11.1.1, the duty is to
disclose the materials at any reasonable time or 14-days later, if available,
or within 120 if not yet available, regardless of what date the request may
have set forth. Third, what triggers any obligation by Respondents is the
making of the request itself.
Finally, Respondents’ assertion that “[t]here is no proper
basis for” Hyung’s requests for the appointment of Certified Public Accountants
is incorrect, inasmuch as this is authorized by Corporations Code § 1603. Nevertheless,
the court declines Hyung’s request for the appointment of Certified Public
Accountants to audit TSI’s books and records at this juncture, on the basis
that Hyung has not shown good cause for such relief. The court, then, also
declines Hyung’s request that TSI to defray the expense of an investigation and
audit, inasmuch as no investigation and audit has been ordered. Lastly, the
court declines Hyung’s request for costs, including attorney’s fees, as
unsupported.
The petition is granted in part, as against TSI only. TSI is
ordered to make available, within 14 days of this order, to Hyung, in person or
by Hyung’s agent or attorney, at TSI’s principal office, for inspection,
including the making of abstracts, the following records of TSI: the accounting
books, records, and minutes of proceedings of the shareholders, the board, and
committees of the board. TSI is further ordered to deliver to Hyung a copy of TSI’s
balance sheet for the full 12-month period of the fiscal year for 2021 and a
profit and loss statement for such fiscal year. The petition is otherwise
denied.