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Gulfstream Retirement Corp. v. Hasso

California Court of Appeals, Fourth District, Third Division
Aug 13, 2008
No. G039901 (Cal. Ct. App. Aug. 13, 2008)

Opinion

NOT TO BE PUBLISHED

Appeal from an order of the Superior Court of Orange County No. 04CC09522, Gregory Munoz, Judge.

Law Office of David K. Palmer and David K. Palmer for Defendant and Appellant.

Latham & Watkins, John D. Anderson, Nicole R. Vanderlann Smith and Kristine L. Wilkes for Plaintiff and Respondent.


OPINION

MOORE, J.

The trial court dismissed an action after granting a discovery motion for terminating sanctions. But the court refused to grant a motion for attorney fees under Corporations Code section 317. We affirm.

I FACTS

Sole shareholder in Gulfsteam Retirement Corporation, Helene Hasso, brought an action against May S. Hasso, a retired officer and director of Gulfstream, asserting breaches of fiduciary duties. May Hasso moved for dismissal of the action based upon alleged discovery abuses. A referee issued a lengthy report recommending the court grant the motion to dismiss.

The trial court granted the motion stating: “The Court, after due consideration and independent review of the totality of the circumstances follows the recommendation of the Referee and orders that the Complaint of Helene and GRC against May, Daniel and Bentley Corporation is dismissed with prejudice. Monetary sanctions are awarded in the sum of $3,650.00 in favor of Daniel Hasso and against Helene and her attorney, Anthony Chavos and in the sum of $5000.00 to May Hasso and against Helene and her attorney, Anthony Chavos.”

May Hasso filed a motion for attorney fees. The trial court denied her motion, explaining: “Recovery under §317(d) must be the result of a ruling that reflects the merits of the defendant’s defense. Dismissal as a discovery sanction does not. The Legislature’s deliberate omission of the term ‘or otherwise’ after ‘successful on the merits’ in §317(d) would have no meaning if this type of dismissal could trigger indemnification.”

In this appeal, May Hasso contends the trial court erred when it denied her motion for fees. She claims she was entitled to “mandatory indemnification” under the Corporations Code and that the court should not have concluded a terminating sanction was not a successful defense on the merits

Gulfstream maintains this court should affirm the order of the trial court. It says May Hasso did not prevail as required by the statute. We affirm.

II DISCUSSION

Regarding whether or not the action was dismissed on its merits, the facts are not in dispute. The parties disagree about the law. The standard of review in analysis and interpretation of a statute is de novo. Groth Bros. Oldsmobile, Inc. v. Gallagher (2002) 97 Cal.App.4th 60, 65.)

Corporations Code section 317, subdivision (c) states: “(c) A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was an agent of the corporation, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of the action if the person acted in good faith, in a manner the person believed to be in the best interests of the corporation and its shareholders. [¶] No indemnification shall be made under this subdivision for any of the following: [¶] (1) In respect of any claim, issue or matter as to which the person shall have been adjudged to be liable to the corporation in the performance of that person's duty to the corporation and its shareholders, unless and only to the extent that the court in which the proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine. [¶] (2) Of amounts paid in settling or otherwise disposing of a pending action without court approval. [¶] (3) Of expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval.” Subdivision (d) states: “To the extent than an agent of a corporation has been successful on the merits in defense of any proceeding referred to in subdivision (b) or (c) or in defense of any claim, issue, or matter therein, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith.”

Corporations Code section 317 “was derived from the Model Business Corporations Act.” (American Nat. Bank & Trust Co. v. Schigur (1978) 83 Cal.App.3d 790, 793.) “The legislative history of the statute indicates . . . [t]he language in the Model Business Corporations Act, from which subdivision (d) was derived, provided for mandatory indemnification to the extent of success ‘on the merits or otherwise.’ (Italics added.) The expression ‘or otherwise’ does not appear in the California enactment; from this omission we infer a legislative intent that mandatory indemnification should depend upon a judicial determination of the actual merits of the agent’s defense . . . .” (Ibid.)

May Hasso cites Kahn v. Kahn (1977) 68 Cal.App.3d 372, for the proposition that refusal to comply with a court order is tantamount to an admission the disobedient party’s case lacks merit. Not only does Kahn not deal with Corporations Code section 317, it concerns whether or not a matter was adjudicated on its merits for res judicata purposes. (Id. at p. 379.) “Res judicata and collateral estoppel . . . are not concerned with the actual merits of a prior adjudication but solely with the need for finality.” (Dalany v. American Pacific Holding Corp. (1996) 42 Cal.App.4th 822, 829.)

May Hasso argues “[t]he central precept upon which the Model Business Corporation Act was established was to enable corporate officers and directors to seek recovery of legal fees and costs without the need to file an action for malicious prosecution.” Since she cites no authority to support this argument, we will not consider it. (Roden v. AmerisourceBergen Corp. (2007) 155 Cal.App.4th 1548, 1576.)

In fact, the only case cited by May Hasso interpreting Corporations Code section 317 is Groth Bros. Oldsmobile, Inc. v. Gallagher, supra, 97 Cal.App.4th 60. That court said the statute “‘by its terms, requires only a showing that the agent has been “successful on the merits in defense of [the] proceeding.” This is a showing that “the disposition reflects the opinion of the court or the prosecuting party that the action would not succeed.” [Citation.]’” (Id. at p. 73.)

III DISPOSITION

The order is affirmed. Respondent shall recover their costs incurred on appeal.

WE CONCUR: O’LEARY, ACTING P. J., IKOLA, J.


Summaries of

Gulfstream Retirement Corp. v. Hasso

California Court of Appeals, Fourth District, Third Division
Aug 13, 2008
No. G039901 (Cal. Ct. App. Aug. 13, 2008)
Case details for

Gulfstream Retirement Corp. v. Hasso

Case Details

Full title:GULFSTREAM RETIREMENT CORPORATION, et al., Plaintiffs and Respondents, v…

Court:California Court of Appeals, Fourth District, Third Division

Date published: Aug 13, 2008

Citations

No. G039901 (Cal. Ct. App. Aug. 13, 2008)