Opinion
NOT TO BE PUBLISHED
Monterey County Super. Ct. No. M74394
ELIA, J.In this action for voluntary dissolution of a medical corporation, appellant Steven Mangar seeks review of the trial court's findings and orders related to his liability to both the corporation and respondent Brad Carpentier. Carpentier also appeals, challenging the denial of his request for attorney fees in the proceeding. We will modify the judgment.
The same facts underlie both this case and a related dispute in Mangar v. Carpentier, H033263, and the two cases have been considered together on appeal. We relate the entire procedural history to lend perspective to the overlapping issues.
In September 2001 the parties formed a medical corporation to provide medical care to their patients, operating under the name Pacific Pain Care Institute. Originally, they agreed to share revenue equally. Toward the end of 2002, however, a problem arose concerning Mangar's insufficient documentation of his patients' care, which impeded billing and revenue collection as well as effective follow-up care. In October 2003, the parties adopted a system in which each would receive the revenue generated from the care of his own patients, and each would contribute half of the corporate expenses of the practice. Mangar continued to fall behind, however, and in March 2004 Carpentier warned him that he might be forced to end the relationship. Kenneth Chappell, the corporation's accountant, was asked to perform an accounting to assist in resolving the parties' conflict.
In September 2004, Mangar promised to repay Carpentier $55,000 to avoid dissolution of the corporation, a promise on which Carpentier relied in continuing the relationship. Mangar did not pay the promised amount, however. During his review Kenneth Chappell found $70,000 that could not be accounted for without certain documents that Mangar had failed to produce. Another $7,823.63 in Medicare checks had been deposited into Mangar's personal account. Between September and November of 2004 the situation continued to deteriorate and Carpentier moved out of the practice. Mangar had not only failed to generate sufficient income to pay his share of expenses, but had taken insurance payments intended for Carpentier and deposited the checks in his own personal bank account.
On May 13, 2005, Carpentier filed a Petition for Court Supervision of the Voluntary Winding Up of the Corporation. Carpentier alleged that in spite of their resolution in October 2003, Mangar had been "taking more than his share of cash" from the corporation— in particular, money received for services provided by Carpentier, while failing to contribute equally to the corporate expenses. He also had taken checks made payable to Carpentier or to the practice itself, and deposited them into his own personal account. Carpentier sought supervision to protect his interests, an injunction to safeguard assets and prevent Mangar from misappropriating funds and other property, and an order directing Mangar to assume liability for all "losses, injuries and damages occasioned by his wrongful conduct, breach of duty or legal responsibility."
Mangar consented to a decree winding up the corporation. He disputed Carpentier's factual allegations, however. He alleged that while he had promised to reimburse Carpentier for the amounts he owed, the condition was that Carpentier stop making "disparaging and incendiary remarks" about him to third parties. Carpentier had continued making these remarks, however. Carpentier also allegedly "stole" patients from Mangar, by taking referrals intended for Mangar or the corporation, especially the lucrative ones. According to Mangar, after Carpentier left the practice in November 2004, Carpentier took more than his agreed share of the corporate equipment, failed to contribute his share of the corporate expenses, failed to make the payments on bank loans to the corporation, and diverted the corporation's mail to himself. Finally, Mangar opposed the request for a preliminary injunction and requested a stay on any damages award until Chappell had completed his accounting. Mangar followed his response with a counter-petition in which he requested an injunction against diverting mail and other communication services, making defamatory remarks about him, seizing referrals intended for Mangar or the corporation, and sending public officials to retrieve corporate assets. He also requested damages and punitive damages occasioned by Carpentier's "wrongful conduct and breach of duty or legal responsibility."
Protracted litigation followed these pleadings, but the matter was finally tried on November 13 and 14, 2006. Mangar dismissed his counter-petition. In opposition to the petition, he asserted that neither party had the right to damages because neither had "complied with the corporation's code [sic] for a derivative lawsuit against the corporation, and neither party ha[d] a right to damages against the other, personally." Both parties requested a statement of decision.
On January 25, 2007, the court issued its "Minute Order: ORDER AFTER SUBMISSION," in which it set forth its findings of fact and ordered dissolution of the corporation. The court found support for the claim that Mangar had "underperformed primarily by not keeping proper and timely records of the patients he [had] treated. Even after repeated promises to improve his practice, the evidence established that the decline continued, even to the point of having his hospital privileges terminated at the Community Hospital of the Monterey Peninsula." The court credited the accountant's conclusions regarding Mangar's lack of cooperation and retention of corporate revenue. It then ordered "dissolution of the corporation in accordance with the procedural requirements of the [C]orporations [C]ode."
The wording of the court's January 25, 2007 order provoked a dispute that persists on appeal. Although the evidence had established Mangar's unfulfilled promise to pay $55,000 to Carpentier, the court stated: "Steven Mangar is ordered to reimburse the corporation as follows:
$55,000.00
Promised payment
$70,000.00
Unaccounted funds
$7,823.63
Medicare checks
Total
$132,823.63"
(Italics added.)
On February 6, 2007, Carpentier obtained a writ of execution for $132,823.63 plus interest and fees. On the Judicial Council form he checked the box identifying himself as a judgment creditor. The next day he applied to the court for an ex parte application for a turnover order for Mangar’s shares of the Las Ventanas Surgery Center, Inc. (Surgery Center), which both parties owned. Carpentier stated that the January 25 order was effectively a money judgment which could be paid from Mangar’s shares of the Surgery Center, since Mangar had not paid any of the $132,823.63 debt. Mangar opposed the request and urged the court to quash the writ of execution sua sponte, arguing that it was "fatally flawed." In particular Mangar complained that (a) no judgment had yet been entered in the matter; and (b) even if there had been a judgment, the corporation, not Carpentier, was the judgment creditor.
The court denied the turnover order but did not quash the writ of execution. On March 21, 2007, however, Carpentier again applied for a turnover order. This time Carpentier pointed out that the Legislature had defined "judgment" to include any "order or decree entered in a court of this state," and that " 'Judgment debtor' means the person against whom a judgment is rendered." (Code Civ. Proc., §§ 680.230, 680.250.) It was not necessary for the order to be a final appealable judgment. Thus, he argued, as the person who obtained the requested relief, "or as one acting on behalf of the dissolved corporation and winding it up," he was entitled to pursue collection of the judgment. Carpentier noted that transferring 1,300 shares of the Surgery Center would yield $7,800 toward the total amount due under the January 25 order.
Mangar again opposed the application and renewed his request that the court quash the writ on its own motion. Mangar argued that the writ of execution had been based on "glaring misrepresentations," since it listed him as a judgment debtor when there had been no "money judgment" entered and it listed Carpentier rather than the corporation as a judgment creditor. Without comment the court denied Carpentier's second application on March 29, 2007.
In early April 2007 Carpentier obtained an Order to Appear for Examination, requiring Mangar as "judgment debtor" to "furnish information to aid in enforcement of [the] money judgment." On July 27, 2007, Carpentier's attorney requested a levy on Mangar's 1,300 shares of the Surgery Center. He did not mention the denial of the turnover order, but attached the writ of execution. The sheriff issued the notice of levy.
In September 2007 Carpentier moved for an order and decree declaring the parties' corporation to be "duly wound up and dissolved," within the meaning of Corporations Code section 1808. In the motion Carpentier's attorney mentioned that the Surgery Center shares were "scheduled to be sold" by the sheriff in an effort to collect part of the corporation's outstanding debts. That sale took place on October 12, 2007. The bid sheet reflected an $800 "creditor's bid" by Carpentier "as a credit toward the reduction of the amount of [the] writ, interest and costs."
Mangar expressly stated his "Non-Opposition" to an order winding up and dissolving the corporation, and his attorney approved the form of the proposed judgment. After discussions between counsel at the October 19, 2007 hearing, the parties agreed that there were no further unresolved issues and that the judgment would "clos[e] the loop on the proceedings."
In November 2007, however, Mangar obtained a substitution of counsel, who raised several objections to the terms of the proposed judgment. Even the $55,000 debt to Carpentier was disputed as beyond the court's jurisdiction. Mangar's new counsel also demanded the immediate return of Mangar's interest in the Surgery Center. When Carpentier's attorney refused, Mangar moved for a temporary restraining order (TRO) to prevent the sale of the seized shares. He also moved to quash the writ and set aside the levy and sale of the Surgery Center shares.
On November 29, 2007, the same day he filed the motion to quash and application for a TRO, Mangar filed a complaint to set aside the "fraudulently obtained writ of execution," the "fraudulently obtained Order to Appear for Examination," and the sale of the Surgery Center shares (Case No. M87797). In the first amended complaint filed the next day, Mangar alleged that as no judgment had been entered, the writ of execution had been obtained "by false representations to the Court," because Carpentier was not a judgment creditor nor Mangar a judgment debtor. The absence of a judgment also made the sheriff's levy "wrongful." Mangar sought an order quashing the writ and setting aside the execution sale, return of the shares and any distributions Carpentier had received from the Surgery Center, and "all damages occasioned by defendant's conduct." Mangar filed his second amended complaint on January 31, 2008.
On December 6, 2007, the court found there were "questions as to the appropriateness of the writ of execution" and granted the TRO request, "pending hearing on [Mangar's] motion to quash, set for December 21, 2007." The next day, however, it filed the judgment and decree of corporate dissolution. The decree stated that the corporation was duly wound up and that no assets remained other than as set forth in the January 25, 2007 order. Mangar was specifically ordered to assume personal liability for the payment of all existing liabilities, including the $55,000 debt to Carpentier. Remaining amounts were to be distributed to the parties on a 50/50 basis.
Mangar asked the court to stay enforcement of the December 7 judgment and moved for a new trial. Carpentier opposed both requests. On January 10, 2008, the court granted the stay pending a decision on both the motion for new trial and the motion to quash to set aside the levy and turnover of shares in M87797. On January 24, 2008, the court denied Mangar's motion for a new trial.
On December 21, 2007, Carpentier moved for an award of attorney fees, citing Civil Code section 1717, Code of Civil Procedure section 1021, and Corporations Code section 1904. The trial court denied the motion, agreeing with Mangar that actions for corporate dissolution normally did not provide for attorney fees and did not result in a prevailing party.
The court heard the motion to quash the writ on December 21, 2007. In an amended order on February 19, 2008, the court granted the motion, noting that Carpentier had "obtained a writ of execution as a judgment creditor, but was not a judgment creditor." The court further recalled the sheriff's levy and set aside the execution sale.
On the same day the motion to quash was heard, Carpentier obtained a new writ of execution. The Notice of Levy, which the sheriff delivered to Carpentier himself at the Surgery Center in late January 2008, again described the property as the 1300 shares issued to Mangar. On February 15, 2008, Mangar moved to quash this second writ of execution or alternatively, for collection of the shares, contending that Carpentier had violated the court's stay order and that the shares were in any event not transferable under the corporate Shareholders Agreement. Carpentier responded that the TRO had expired, since the motion to quash the first writ had been heard. He also pointed out that after granting the first motion to quash at the December 21, 2007 hearing, the court had suggested to Carpentier, "maybe you can go back and get another writ." The merits of this second motion were addressed in an order resolving disputes over the amounts required to satisfy the judgment.
In its April 18, 2008 order the court ruled that upon "full satisfaction of the judgment" in M87797, the second writ of execution "shall be quashed," the subsequent notice of levy "shall be recalled," and the Surgery Center shares "shall be returned to Dr. Mangar."
Mangar's lawsuit challenging the first writ of execution (Case No. M87797) survived demurrer to both the first and second amended complaints. In early May of 2008, however, Carpentier moved to strike the second amended complaint as a Strategic Lawsuit Against Public Participation (SLAPP) under Code of Civil Procedure section 425.16. Mangar opposed the motion, arguing (1) it was untimely; (2) his action was based on "irregularities" in a statutory procedure for an execution sale, for which the litigation privilege was inapplicable; (3) Carpentier's act in "fraudulently procuring the execution sale" was illegal and therefore unprotected by the anti-SLAPP statute; and (4) he had a probability of prevailing on his complaint, in light of the court's prior order quashing the writ of execution and setting aside the sale and levy. In a supplemental argument, Mangar asserted that the sheriff's sale was a "purely business" event, not an act in furtherance of his right to petition or free speech.
The trial court granted Carpentier's anti-SLAPP motion on June 6, 2008. The court found that Mangar's complaint contained allegations of both protected and unprotected activity, but the gravamen of his claim was Carpentier's petitioning activity in procuring the eventual sheriff's sale. The court further found that Mangar's repeated allegation that Carpentier was not a judgment creditor constituted a judicial admission which precluded the remedy of an action to set aside the sale under Code of Civil Procedure section 701.680. Finally, the court found that the litigation privilege did apply in these circumstances, as all of the communicative acts challenged in the complaint formed "almost the entire factual basis for [Mangar's] claim." Without those communications, Mangar would be "unlikely [to] substantiate the alleged irregularities in the execution sale."
Mangar moved for reconsideration on the ground that the SLAPP ruling fatally conflicted with the February 19 order quashing the writ of execution and setting aside the sale of his Surgery Center shares. Mangar insisted that he wished "to fully satisfy the judgment." In order to do so, however, he needed to use his income-producing shares of the Surgery Center. Mangar therefore asked the court at least to clarify the June 6 order so that Carpentier could not maintain the position that the Surgery Center assets were unavailable to satisfy the judgment. On July 30, 2008, however, the motion for reconsideration was denied. The trial court found no new facts or circumstances within the meaning of Code of Civil Procedure section 1008. The court further acknowledged subdivision (c) of Code of Civil Procedure section 425.16, which authorized an award of attorney fees to Carpentier as the prevailing party in the anti-SLAPP motion.
Discussion
A. Mangar's Appeal
1. Jurisdiction to Determine Personal Damages Claim in a Corporate Dissolution Case
Mangar first contends that the court exceeded its jurisdiction by adjudicating Carpentier's claim for damages in a statutory proceeding for corporate dissolution. In his view, this was a special proceeding for which the statutory provisions must be strictly construed. Carpentier did not file a civil complaint with his petition for dissolution, and the petition itself did not state a cause of action for damages; consequently, he argues, it was error to try individual damage claims. Mangar further contends that to the extent that damages were awarded to the corporation, Carpentier lacked standing to pursue them, as he failed to bring a shareholder's derivative action.
The parties agree that proceedings to dissolve a corporation are governed by specific provisions of the Corporations Code. Their disagreement lies in the scope of the power these provisions accord trial courts in voluntary dissolution proceedings. Our review of the governing statutes redounds in favor of the broader authority exercised by the trial court in this case.
Corporations Code section 1904 permits a court to take jurisdiction over the voluntary winding up of a corporation "if that appears necessary for the protection of any parties in interest." If the court does assume jurisdiction, the court "may make such orders as to any and all matters concerning the winding up of the affairs of the corporation and for the protection of its shareholders and creditors as justice and equity may require." Clearly the Legislature intended a wide range of options for the court to do "justice and equity" in voluntary dissolution proceedings. Specific guidance is afforded by the statutes applicable to involuntary dissolutions, including sections 1804, 1806, and 1808. The parties focus on these provisions in addressing the court's exercise of its jurisdiction in this case.
All further statutory references are to the Corporations Code except as otherwise specified.
Those provisions, however, reinforce the broad authority conferred on trial courts by the Legislature. Section 1804, for example, states: "After hearing the court may decree a winding up and dissolution of the corporation if cause therefor is shown or, with or without winding up and dissolution, may make such orders and decrees and issue such injunctions in the case as justice and equity require." Once the court has assumed jurisdiction, section 1806 enables it to make various orders and findings, including the "determination or compromise of all claims of every nature against the corporation or any of its property, and the determination of the amount of money or assets required to be retained to pay or provide for the payment of claims." (§ 1806, subd. (b).) The court may also determine "whether adequate provision has been made for payment or satisfaction of all debts and liabilities not actually paid." (§ 1806, subd. (i).)
The powers enumerated in section 1806 are not exclusive, as Mangar suggests. The statute expressly states that the court's jurisdiction "includes" those listed acts, which themselves are delineated in broad terms to encompass any number of relevant circumstances. While the statute does not specifically address damages claims between shareholders, its language does allow for claims that one party is liable for certain losses suffered by the corporation or its members. The Legislature's priority appears to have been to accord finality and comprehensiveness to corporate dissolution proceedings. Piecemeal litigation that delays the winding up of the corporation would be incompatible with these legislative purposes.
Howard v. Data Storage Associates, Inc. (1981) 125 Cal.App.3d 689, cited by Carpentier, illustrates the breadth of the superior court's authority in a dissolution case. There, the appellate court held that trial courts had jurisdiction under section 1806 to add necessary parties to an action for involuntary dissolution, by resorting to the Code of Civil Procedure for guidance on the specific procedure to follow. (Id. at p. 696.) Baker v. Pratt (1986) 176 Cal.App.3d 370, on the other hand, is of limited usefulness. That appeal involved six consolidated lawsuits, including actions for breach of contract and misappropriation as well as two actions for involuntary dissolution. The court did state, however, that as to the two dissolution actions, the corporation could recover from a shareholder who had diverted corporate profits for his personal benefit. But it was the existence of the separate actions that was cited to justify the recovery by the two individual shareholders from each other.
Mangar argues that the applicable provisions must be construed strictly, and as such do not allow the adjudication of damage claims between individual shareholders. The cases he cites, however, do not support his position. Barber v. Irving (1964) 226 Cal.App.2d 560, for example, merely concerned an unauthorized act decreeing the nonexistence of a corporation. The appellate court emphasized that in litigation between private parties "the court may not inquire into the legal existence of a corporation which is acting under a charter which the Secretary of State has accepted for filing under the provisions of the General Corporation Law." (Id. at p. 565.) Mangar's comparison of this case to Weisman v. Odell (1970) 3 Cal.App.3d 494 is also faulty. There the minority shareholders of a corporation filed a dissolution action charging the respondents with operating the corporation for Odell's personal benefit. The complaint, however, sought only dissolution, without requesting "direct relief or damages for any act of respondents." (Id. at p. 496.) Noting that involuntary dissolution proceedings are "created by statute" (ibid.), the appellate court held that the plaintiff was not permitted to join shareholders from whom no direct relief had been sought. The court explained, "Although majority shareholders could be held liable for damages for breach of a fiduciary obligation to minority shareholders [citations], no such cause was alleged by the instant complaint." (Id. at pp. 497-498.) Thus, it was proper for the trial court to sustain the individual respondents' demurrer without leave to amend.
Here, by contrast, Carpentier sought not only dissolution but an order directing Mangar "to bear personal responsibility for the payment of all losses, injuries and damages for which he has assumed liability and for the payment of those losses, injuries and damages occasioned by his wrongful conduct, breach of duty or legal responsibility." In his counter-petition (which he later dismissed), Mangar likewise requested damages for Carpentier's alleged "wrongful conduct and breach of duty or legal responsibility." Mangar agreed that the referee could determine which corporate assets and liabilities were attributable to him, Carpentier, and the corporation. Further, while Mangar disputed the factual premise of the petition, he did not object to Carpentier's claim for damages on any legal ground. On the contrary, in his response he alleged that Carpentier was not entitled to an injunction because "monetary damages afford[ed] adequate relief."
Mangar inadequately distinguishes Chapin v. Gritton (1969) 178 Cal.App.2d 551, cited by Carpentier. There the appellate court upheld a judgment requiring the plaintiff to pay money to the individual defendants, though they had not filed a cross-complaint to the plaintiff's action for an accounting and corporate dissolution. The court held that the trial court's determination of the debts of the corporation, requested by the plaintiff himself, could include obligations to the respondents for the profits the plaintiff had secretly taken for himself. (178 Cal.App.2d at p. 566; see also Rankin v. Frebank Co. (1975) 47 Cal.App.3d 75, 92 [although " 'suit for dissolution or to wind up the corporation is an individual (and representative) suit for damage to him as an individual, directly and independently of any damage to the corporation,' " plaintiff has no right to a jury trial].)
We thus conclude that the trial court acted properly by imposing personal liability on Mangar for his conduct in mismanaging corporate assets. For the same reasons, it was not error to impose such liability in the absence of a shareholder's derivative suit. Mangar did not oppose the petition on this ground, but consented to a determination of personal liability by the referee as a function of the winding-up process. As discussed above, the Corporations Code provisions governing dissolutions authorized the court to assign responsibility to Mangar for the shortfall he created by failing to generate and share corporate income.
2. Liability for Corporate Debts
Mangar next contends that the corporation's debts should not have been assigned to him as a personal obligation. Alternatively, he argues, the court was not permitted to "treat equal shareholders disparately" by requiring him to absorb all of the corporate debt rather than requiring the parties to share it equally. The outcome Mangar advocates, however, would not have been equitable in light of the court's findings, consistent with those of the referee, that Mangar had an unpaid obligation of $132,823.63. On the record before us, no error appears in the order requiring Mangar to assume personal responsibility for the debts of the corporation so as to reduce Mangar's outstanding liability.
3. Statutory Prerequisites for Dissolution
Under Corporations Code section 1808, once the court has determined that the corporation before it is in a condition to be dissolved, it may declare the corporation "duly wound up and dissolved." The order must contain a declaration to that effect. It must also declare that a final franchise tax return has been filed and that the known debts and liabilities of the corporation have been "paid or adequately provided for." (§ 1808.)
This section states: "(a) Upon the final settlement of the accounts of the directors or other persons appointed pursuant to Section 1805 and the determination that the corporation's affairs are in condition for it to be dissolved, the court may make an order declaring the corporation duly wound up and dissolved. The order shall declare: [¶] (1) That the corporation has been duly wound up, that a final franchise tax return, as described by Section 23332 of the Revenue and Taxation Code, has been filed with the Franchise Tax Board as required under Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code, and that its known debts and liabilities have been paid or adequately provided for, or that those debts and liabilities have been paid as far as its assets permitted, as the case may be. If there are known debts or liabilities for payment of which adequate provision has been made, the order shall state what provision has been made, setting forth the name and address of the corporation, person or governmental agency that has assumed or guaranteed the payment, or the name and address of the depositary with which deposit has been made or such other information as may be necessary to enable the creditor or other person to whom payment is to be made to appear and claim payment of the debt or liability. [¶] (2) That its known assets have been distributed to the persons entitled thereto or that it acquired no known assets, as the case may be. [¶] (3) That the accounts of directors or such other persons have been settled and that they are discharged from their duties and liabilities to creditors and shareholders. [¶] (4) That the corporation is dissolved. [¶] The court may make such additional orders and grant such further relief as it deems proper upon the evidence submitted. [¶] (b) Upon the making of the order declaring the corporation dissolved, corporate existence shall cease except for the purposes of further winding up if needed; and the directors or such other persons shall be discharged from their duties and liabilities, except in respect to completion of the winding up."
The judgment of December 7, 2007 did include a finding that the parties' corporation was in a condition to be wound up and dissolved, and it declared that the corporation was "duly wound up." It also provided for the payment of the corporation's debts by assigning them to Mangar. The court did not, however, declare that a final franchise tax return had been filed; instead it ordered that one be filed and that Mangar pay any tax due.
Mangar asserts error in entering the decree of dissolution before the corporate tax return was filed and other debts remained unpaid. The second point, that there were unpaid debts outstanding, is of no significance, since the judgment adequately provided for their payment. The filing of the tax return, however, is a matter of concern. The statute no longer requires the order to declare that any tax due "has been paid or secured" (former § 1808); since its amendment in 2006 it requires a declaration that a final tax return has been filed. The judgment did not comply with that mandate.
Carpentier responds that the lack of a final tax return was due to Mangar's own conduct in delaying the filing of the return and Mangar therefore should not be allowed to "take advantage of his own wrong." He further attempts to discredit Mangar's position by suggesting that Mangar has confused dissolution with winding up. He emphasizes that a court may dissolve a corporation but leave certain tasks to be completed during the final winding up. Carpentier's argument is specious when examined in light of the judgment language. The judgment, drafted by Carpentier, does not only dissolve the corporation; it decrees the corporation "duly wound up." The judgment follows the language of section 1808 by finding the corporation to be in a condition to be dissolved, but then also declares it "duly wound up" even though it had outstanding obligations.
Also without merit is Carpentier's assertion that Mangar waived this issue by agreeing to the form of the judgment. Mangar initially did stipulate to the winding up and acknowledged a corporate tax liability of $800. Before the judgment was filed, however, he retained new counsel who did protest that judgment could not be entered until the tax return was filed. He renewed this assertion in his motion for a new trial.
Carpentier suggests that postponement of the tax return is permitted by subdivision (b) of section 1808, which contemplates "further winding up if needed." This provision, retained after the 2006 amendment, is inconsistent with the post-amendment language that appears to presume finality of the winding-up process. In any event, the Legislature's mandate that the order declare that a final franchise tax return has been filed is explicit and offers no option for postponement. If the return has not been filed, the corporation certainly may be dissolved, but cannot be deemed to have been wound up.
Carpentier suggests in a supplemental letter brief that the court did comply with the statute, because the corporation was "duly wound up" as distinguishable from "completely wound up." We are not convinced. With respect to a corporation being "duly organized," the word "duly" "means 'in a proper way, or regularly, or according to law.' " (Robertson v. Perkins (1889) 129 U.S. 233, 236; see also Sphinx Intern., Inc. v. National Union Fire Ins. Co. of Pittsburgh, Pa (M.D. Fla. 2002) 226 F.Supp.2d 1326, 1332 ["in a due manner, time, or degree.") "The word 'duly' has a definite significance in the language of the law. It means 'according to legal requirements.' Black's Law Dictionary. It 'implies the existence of every fact essential to perfect regularity of procedure.' " (Cheshire v. First Presbyterian Church of Raleigh ( N.C. 1941) 17 S.E.2d 344, 345.) " 'It does not relate to form merely, but includes form and substance both.' " (Benedict v. Clarke (N.Y.A.D. 1910) 123 N.Y.S. 964, 965 -966 [for matter to be "duly adjudged," all of the preliminary steps upon which judgment is based must have been "duly taken"].)
The corporation clearly was not "duly wound up" at the time of the judgment. Reversal is not necessary, however. The judgment clearly anticipates the filing of the tax return, as did the parties themselves. The necessity of that act was not controversial, and indeed it has already occurred, according to recent filings. The court found that in the circumstances presented, dissolution was appropriate, and it properly declared the corporation dissolved. That judgment may stand without the additional declaration that the corporation had been wound up. The judgment may therefore be modified to reflect the actual state of affairs as of December 7, 2007, without prejudice to the trial court's ability to enter a further order declaring the corporation "duly wound up" within the meaning of section 1808. This result should not affect the disposition of the remaining issues.
This court has taken judicial notice of the filed tax return and payment to the Franchise Tax Board, both in August of 2008.
4. Carpentier as Creditor
Mangar next asserts error in the treatment of Carpentier as a creditor of the corporation. Missing in his argument, however, is any showing as to how the asserted error affected the validity of the judgment or constituted a miscarriage of justice. Mangar did not contest the finding that he personally owed Carpentier $55,000, and the judgment clearly reflects that debt. As Mangar does not establish a basis for reversal, further discussion of this issue is unnecessary.
5. Statement of Decision
Mangar next argues that reversible error occurred when the court failed to honor the parties' requests for a statement of decision at the conclusion of the November 2006 hearing. The record reveals this contention to be somewhat misleading, however. The court did not disregard the request; at the conclusion of the trial on November 14 it asked both parties to submit proposals for a dissolution order. Those proposals, the parties agreed, could reflect their suggestions for a statement of decision. The court allowed Mangar's attorney extra time, three weeks, to submit the proposal. The judge explained that what he wanted was not a brief, but "something that addresses the pragmatics that I have to be concerned about in ruling on a petition of dissolution."
Thereafter the parties submitted their proposed orders. Both contained findings of fact and dispositions of the competing claims. Mangar opposed Carpentier's proposal, acknowledging that it "might be considered a statement of decision, but for the fact there is no decision and it is impossible to determine the specifics of the Court's Order."
Having received both parties' proposed judgments, the court filed its "Minute Order: ORDER AFTER SUBMISSION" on January 25, 2007. Mangar had 15 days in which to file objections to the decision. Not until December 5, 2007, did he complain that no statement of decision had been provided. At the hearing on the motion for a new trial in January 2008, the court explained that "[w]hat was written was the statement of decision. [¶] Certainly, in my opinion, if I [had been] requested to write a statement of decision, I would have simply label[ed] the top 'Statement of Decision.' " The court further noted that "[e]verybody treated [the order] that way... nobody asked for anything further."
On appeal, Mangar avoids the question of whether he waived his objection to the asserted defect in the court's compliance with rule 3.1590. Even disregarding this question and assuming error, we find no prejudice. The January 25, 2007 order was superseded by the December 7 judgment from which Mangar appeals. He had ample opportunity both before and after the judgment to complain about its content and form and propose his own version, and he unquestionably availed himself of that opportunity. No harm resulted from any perceived procedural error in the minute order several months earlier.
6. Postjudgment Rulings
In the December 7, 2007 judgment the court stated that Mangar was to "reimburse the Corporation $132,823.63 as directed in the Order of January 25, 2007." Mangar complains that in the judgment the court "treat[ed] Carpentier as a creditor of the corporation, not as a creditor of Mangar," but then contradicted itself by describing the judgment "as one in which $55,000 was a 'personal obligation ' from appellant Mangar to respondent Carpentier," though Carpentier was permitted to treat the debt as a corporate responsibility.
We see no basis for reversal here. This appeal is from the December 2007 judgment. Any opinions the court expressed after that are not relevant to the disposition of this matter. In any event, it is clear that regardless of what labels were used at various times, the judgment requires Mangar to pay Carpentier $55,000. The existence of that debt should invite no confusion, as it is consistent with the underlying facts as determined by the referee and sustained by the court in the January 25, 2007 order. Thus, even if the court's post-judgment reflections on its earlier rulings presented a cognizable issue in this appeal, they would not offer any ground for reversal of the judgment.
B. Carpentier's Appeal
Carpentier filed his motion for attorney fees on December 21, 2007, claiming $148,906.50. Carpentier argued that throughout the litigation both parties, especially Mangar, had relied on the parties' September 2001 "Buy-Sell Agreement," which set forth the terms of their business relationship to each other and the corporation. Paragraph 23 of the Agreement contained a provision for attorney fees in the event of litigation to enforce any of the contract rights. Because the litigation "involved a determination of rights under the Buy-Sell" Agreement," Carpentier sought contractual attorney fees under Civil Code section 1717 and Code of Civil Procedure sections 1021 and 1033.5, subdivision (a)(10)(A). He also cited section 1904 as an equitable basis for recovering such fees.
This paragraph stated: "In any action at law or in equity to enforce any of the provisions or rights under this Agreement, the unsuccessful party to such litigation, as determined by the Court in a final judgment or decree, shall pay the successful party or parties all costs, expenses and reasonable attorney's fees incurred by the successful party or parties (including without limitation costs, expenses, and fees on any appeals), and if the successful party recovers judgment in any such action or proceeding, such costs, expenses and attorney's fees shall be included as part of the judgment."
In response, Mangar argued that this was a dissolution proceeding, not an action on a contract. The petition for dissolution had not included a request for attorney fees, nor had the January 25, 2007 order awarded them. The judgment, however, provides that "[c]osts pursuant to a cost bill and motion for attorneys' fees shall be awarded to petitioner." Mangar suggested three prerequisites for compliance with Civil Code section 1717 and paragraph 23 of the Buy-Sell agreement: The action must be "on a contract" (Civ. Code, § 1717); the action must be in law or equity; and the action must be to enforce the provisions of the agreement.
The trial court agreed with Mangar that the proceeding was in essence an action for corporate dissolution, for which attorney fees were not available. Carpentier now contends that the court erred by applying the three-part test Mangar had proposed. We review his contention de novo, as it challenges the trial court's application of relevant fee statutes and language of the contract on which he relies, without reference to conflicting extrinsic evidence. (See Carver v. Chevron U.S.A., Inc. (2002) 97 Cal.App.4th 132, 142 [legal basis for an attorney fee award is a question of law to be reviewed de novo].)
The record does not support Carpentier's premise. At the hearing Carpentier's attorney explained the weaknesses of Mangar's proposed test and opposing counsel responded simply that this was not an action to enforce the Buy-Sell Agreement. Carpentier insisted that the only requirement was that the action involve a contract. Nothing in the ensuing orders on the motion indicated that the court believed it must follow a three-part test. The court simply stated that this was not the kind of matter that results in a prevailing party or that normally permits attorney fees. Even if it had relied on Mangar's proposal, it would make no difference, as we review the court's ruling, not its rationale.
That ruling was correct. The Buy-Sell Agreement was not a source of attorney fees; it provided that such fees could be recovered from the "unsuccessful party" in "any action at law or in equity to enforce any of the provisions or rights under this Agreement." This action was brought in the name of the corporation, for voluntary dissolution, not to enforce any of the provisions or rights under the Agreement. That fact was not altered by Mangar's invoking the contract at various points during the litigation to ensure correct valuation of shares and distribution of assets.
Civil Code section 1717 does not transform the parties' contract into a source of fees when they voluntarily dissolve the corporation. This statute provides: "(a) In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs." Our Supreme Court has made it clear that this statute "applies only to actions that contain at least one contract claim." (Santisas v. Goodin (1998) 17 Cal.4th 599, 615.)
Neither party would have recovered attorney fees under this statute regardless of the outcome. As the court found, there was no prevailing party. Secondly, this was not an action on a contract. None of the cases on which Carpentier relies instructs otherwise; each involved an effort to enforce the terms of a contract containing an attorney fees clause. (See, e.g. Dell Merk, Inc. v. Franzia (2005) 132 Cal.App.4th 443 [suit to enforce obligation under security agreement]; Hastings v. Matlock (1985) 171 Cal.App.3d 826 [action to enforce oral rescission of written land sale contract containing attorney fee clause]; California Wholesale Material Supply, Inc. v. Wilson & Sons (2002) 96 Cal.App.4th 598 [unsuccessful suit by assignee of rights under subcontract providing for attorney fees]; Wong v. Davidian (1988) 206 Cal.App.3d 264, 271 [clause allowing fees in action "for the enforcement or breach" broad enough to encompass suit for reformation and breach].) The mere existence of a contract defining the parties' business relationship does not mean that dissolution of that relationship necessarily involves the contract even if no enforcement is sought by either party. The language of those decisions emphasizing the principle that a lawsuit need only involve a contract addresses the mutuality of the remedy ensured by Civil Code section 1717; that is, "[a]s long as an action 'involves' a contract, and one of the parties would be entitled to recover attorney fees under the contract if that party prevails in its lawsuit, the other party should also be entitled to attorney fees if it prevails, even if it does so by successfully arguing the inapplicability, invalidity, unenforceability, or nonexistence of the same contract." (North Associates v. Bell (1986) 184 Cal.App.3d 860, 865; accord, California Wholesale Material Supply, Inc. v. Wilson & Sons, supra, 96 Cal.App.4th at p. 605; Milman v. Shukhat (1994) 22 Cal.App.4th 538, 545 [action "involved" a contract, and plaintiffs would have been entitled to recover attorney fees under the contract had they prevailed]; see also Exxess Electronixx v. Heger Realty Corp. (1998) 64 Cal.App.4th 698, 707 [claim is "on the contract" where it requested determination of rights under the contract].) Thus, Carpentier's insistence that any action that "involves a contract" is "on the contract" for purposes of applying Civil Code section 1717 is an incomplete statement of the law and is inapposite in these procedural circumstances. Neither the Buy-Sell Agreement nor Civil Code 1717 would offer a basis for attorney fees to either party in this action.
Code of Civil Procedure section 1021 does not offer Carpentier a more favorable outcome. This statute represents the principle that each party to a litigation must pay his or her own attorney fees unless they agree otherwise. According to Carpentier, the Buy-Sell Agreement constituted the agreement necessary to entitle him, as the "successful party," to recover attorney fees from Mangar, the "unsuccessful party." He points to the introductory language of Paragraph 23 in the Agreement, which allows attorney fees in "any action at law or in equity to enforce any of the provisions or rights under this Agreement." Carpentier maintains that proceedings for dissolution accounting are actions "at law or in equity" and thus must be considered actions for which attorney fees may be available. His argument suffers from two defects. First, the contract provision on which he relies does not stop at "action at law or in equity" but continues with the modifying clause "to enforce any of the provisions or rights under this Agreement." This was not an action brought to enforce the provisions or rights under the Buy-Sell Agreement; it was a petition to dissolve the corporation, safeguard its assets, and wind up its affairs. Nor will we recharacterize the petition or the outcome to amount to Carpentier's having "defeated Mangar's claims under the Buy-Sell Agreement." Secondly, as Mangar points out, this was a special proceeding, not an action as the Legislature has defined that term. (See, e.g. Merlino v. Fresno Macaroni Mfg. Co. (1946) 74 Cal.App.2d 120, 124 ["An action for dissolution of a corporation is a special proceeding [citation], although the relief sought is equitable in character"].) Because the availability of attorney fees under Code of Civil Procedure section 1021 depends on an inapposite contract provision, Carpentier's resort to this statute is unavailing.
Code of Civil Procedure section 22 defines "action" as "an ordinary proceeding in a court of justice by which one party prosecutes another for the declaration, enforcement, or protection...." "Every other remedy is a special proceeding." (Code Civ. Proc., § 23.)
Disposition
The judgment is modified to reflect that the corporation was dissolved, not "duly wound up." As so modified, the judgment is affirmed. The postjudgment order of February 5, 2008 is also affirmed. The parties shall bear their own costs on appeal.
WE CONCUR: RUSHING, P. J., PREMO, J.