Opinion
NOT TO BE PUBLISHED
APPEAL from judgments of the Superior Court of Los Angeles County, No. BC 349925 Terry A. Green, Judge.
Keith A. Fink and Associates, Keith A. Fink, S. Keven Steinberg and Andrew C. Pongracz for Plaintiffs and Appellants.
Law Office of Joseph C. Maher and Joseph C. Maher II for Defendant and Respondent Atlas Stock Transfer Corporation.
Phillip M. Dezen and Mitchell Stein for Defendants and Respondents Rowland Perkins and Norma Provencio.
FLIER, J.
Marvin Fink appeals from judgments of dismissal after the trial court sustained without leave to amend demurrers of respondents Atlas Stock Transfer Corporation (AST), Rowland Perkins and Norma Provencio to his second amended complaint. Fink contends respondents, the stock transfer agent of the corporate defendant in which he held stock and two of its directors, owed him a legal duty to affirmatively remove a restrictive legend on his stock so that he could sell it publicly. He further asserts the court erred in failing to allow him leave to cure any pleading deficiencies. We disagree and affirm the judgments.
Fink sues individually and as trustee of a family trust; we collectively refer to Fink and the trust as “Fink.”
FACTS AND PROCEDURAL HISTORY
This is the second time this case has been before this court. In Fink v. Signalife, Inc. (July 14, 2008, B193587) (nonpub. opn.), we affirmed the trial court’s denial of a special motion to strike appellant’s complaint under the anti-SLAPP (strategic lawsuit against public participation) statute brought by defendant Signalife, Inc. (Signalife), and other defendants. We quote portions of our prior opinion respecting the facts and procedural history of this case.
Signalife was formerly known as Recom Managed Systems, Inc. Although a party to this action, Signalife is not part of this appeal, the court having overruled its demurrer.
“Marvin Fink was the Chief Executive Officer [(CEO)] and Chairman of the Board of Signalife... from October 12, 2002 until March 21, 2005, when he was removed from his position on the Board by vote of the company’s majority shareholder and forced from his position as CEO. Signalife is a life science products company in the business of researching and developing medical technology. In 2002, Signalife had just emerged from bankruptcy and sought Fink’s services to spearhead its operations. In June 2005, a few months after Fink’s termination, Signalife began trading on the American Stock Exchange.
“Under Fink’s employment agreement with Signalife, his base salary was $1.00 annually, but the agreement provided for Fink’s participation in a management bonus plan and granted him 700, 000 shares of restricted common stock, as well as other employee benefits and perquisites. The stock (which split and amounted to 2, 100, 000 shares when Fink’s employment ended) vested at a rate of 8.33% per quarter, and all of it fully vested on his termination.
“After his termination, Fink wanted to sell his restricted stock to the public under the registration exemption provisions of the SEC’s [Security and Exchange Commission] Rule 144. (17 C.F.R. § 230.144 (2007).) [The] general conditions [of Rule 144] include a holding period of at least one year; compliance by the issuer (Signalife) with periodic reporting requirements of the securities laws; volume restrictions; the handling of sales as routine trading transactions; and filing notice with the SEC. A person who is not an affiliate (one in a control relationship) of the issuer and has held the securities for two years can sell them without regard to the Rule 144 conditions. (Also, according to the SEC’s web site, the SEC does not allow a ‘blank check’ company--a development stage company that has no specific business plan or purpose--to use some of the SEC’s registration exemptions when its securities are sold.) In any event, restricted securities cannot be sold to the public until the restrictive legend has been removed by a transfer agent, who will not remove the legend without the consent of the issuer--usually in the form of an opinion letter from the issuer’s counsel.
“In May 2005, Fink filed a Rule 144 notice of his intention to sell some of his Signalife securities, and submitted a Rule 144 form to his stockbroker, Bear Stearns and Co. [(Bear Stearns)], stating his compliance with all the necessary requirements of Rule 144. Bear Stearns asked Signalife for an opinion letter stating that the restrictive legend could be lifted; Fink requested outside counsel for Signalife, Richardson & Patel, to prepare such an opinion; and Richardson & Patel did so. Signalife ignored the opinion letter, and the transfer agent, [AST], refused to remove the restrictive legend absent an opinion letter satisfactory to Signalife. Thereafter, Fink and representatives of Signalife met to discuss other methods of selling Fink’s shares, such as to private buyers. Fink was told the reason for Signalife’s refusal to allow Fink to trade his shares publicly was that the market would negatively perceive a sale of so much stock by Signalife’s former CEO, and the public value would decline. Signalife took no further action, however, and Fink then sought to have the restrictive legend lifted from all his stock. [Fink engaged another law firm, Troy & Gould, to prepare another opinion letter stating Fink had complied with Rule 144. Fink delivered the letter to AST, but the letter was rejected by Signalife.] Signalife refused to permit the restriction to be lifted. Meanwhile, Signalife facilitated the sale of stock by its majority shareholder by registering four million of its shares.
“In March 2006, Fink sued Signalife, [AST], Arc Finance Group, LLC (Signalife’s majority shareholder [(Arc Finance)]) and several individuals [including Perkins and Provencio, two of Signalife’s directors. As to all defendants, Fink alleged a breach of fiduciary duty. As to [AST], Fink in addition alleged claims for violation of Delaware Commercial Code § 8-401... and negligence.] [Fink] sought general, special and punitive damages, and a mandatory injunction directing Signalife to accept an opinion letter satisfactory to the court stating that the restrictive legend could be lifted from Fink’s shares, and directing [AST] to reissue shares to Fink without the restrictive legend. The essence of Fink’s claim, as he described it in his complaint, was this:
“‘Defendants induced Mr. Fink to labor on their behalf for two and a half years by promising to compensate him with restricted Signalife stock, which he would be permitted to sell as soon as he qualified to lift the restriction, but have refused to lift the restriction so that Ms. Hampton-Stein [sole owner of Arc Finance], the majority shareholder, may offer her shares to the market without competition. As a result of Defendants’ actions, Signalife has essentially frozen Mr. Fink’s shares while they have allowed Signalife’s majority shareholder to avail itself of the public market without competition from Mr. Fink.’
The operative second amended complaint, the pleading now at issue, almost identically alleged: “Defendants induced Mr. Fink to labor on their behalf for two and a half years by promising to compensate him with restricted Signalife stock, which he would be permitted to sell subject to certain enumerated restrictions, but have refused to lift the restriction so that Ms. Hampton-Stein, the majority shareholder, may offer her shares to the market without competition. As a result, Signalife, its controlling shareholder, and its board of directors have essentially frozen Mr. Fink’s shares while at the same time allowing Ms. Hampton-Stein to sell her shares to the public without competition from Mr. Fink. Simply stated, Mr. Fink has been defrauded.”
“Signalife and the other defendants... filed special motions to strike the complaint under Code of Civil Procedure section 425.16, the anti-SLAPP statute.... [¶] The trial court denied [the] anti-SLAPP motion.... [¶] [Defendants] filed a timely appeal from the trial court’s denial of [the] special motion to strike....” (Fns. omitted.) As noted, we affirmed the trial court’s denial of the anti-SLAPP motion.
The defendants also demurred to the original complaint. Fink responded by filing a first amended complaint. The defendants, including AST, Perkins and Provencio, again demurred. The trial court sustained the demurrers but granted Fink leave to amend.
The court found that Fink’s focus on the share transfer issue clearly formed the entire basis for the breach of fiduciary duty claim, as well as Fink’s claims for negligence and violation of 6 Delaware Code Annotated § 8-401 (§ 8-401) against AST. AST argued it had a reasonable basis for not transferring the stock.
The court determined AST’s argument in effect was an attempt to argue matters beyond the face of the first amended complaint that would be “better addressed on a motion for summary judgment or at trial.” Nonetheless, the court sustained AST’s demurrer to this claim with leave to amend, concluding that Fink’s bare allegation that “‘[a]ll of the conditions listed in §8-401... have been satisfied’” was “at least somewhat conclusory.”
As to Perkins and Provencio, the court took judicial notice of Signalife’s 2005 annual report filed with the SEC. That report reflected that they did not become members of Signalife’s board of directors until July 29, 2005, and August 23, 2005, respectively. The court found Fink had not clearly alleged any acts taken by Perkins or Provencio regarding the failure to remove stock restrictions or the favoring of the majority shareholder. The court therefore sustained their demurrer to the claim for breach of fiduciary duty and granted Fink leave to amend his complaint.
The proceedings were suspended for about two years while the case was on appeal.
Apparently, however, substantial discovery was taken at some time during the case’s pendency.
In September 2008, following the issuance of the remittitur, Fink filed a second amended complaint.
The second amended complaint made a general claim for breach of fiduciary duty against all defendants. The only substantively new allegation was a claim that “Signalife is, and has been since May 2005, on notice of Mr. Fink’s request for a letter from Signalife directing [AST] to remove the Restrictive Legend from his shares.” Fink alleged only in general terms that “Signalife, its agents, officers, directors and managers have failed, and continue to fail, to act on Mr. Fink’s request despite being in possession of at least two legal opinions stating that all requirements or conditions precedent for removal have been met or excused. This failure to act by Signalife, its board of directors, its majority shareholder or anyone else is a continuing breach of their fiduciary duties.”
The second amended complaint claimed that AST violated § 8-401, in that, in and around May 2005, Fink submitted Bear Stearns a Rule 144 form indicating he had complied with all of the Rule 144 requirements. The second amended complaint described Fink’s securing from Signalife’s outside counsel, Richardson & Patel, an opinion letter that stated the restrictive legend on his stock could be lifted. Fink alleged that “[d]espite [his] having complied with all of the requirements under Rule 144, Signalife refused to authorize [AST] lifting the restriction and refused to authorize the sale of the stock.”
Fink renewed a claim for negligence against AST, stating it breached a duty of care owed him by “failing to reissue and/or facilitate” the reissuance of his stock without the restrictive legend. The price of the stock allegedly dropped, and Fink lost the opportunity to sell his shares on the open market before the price drop.
Respondents demurred to the second amended complaint.
AST asserted that each of Fink’s causes of action against it (i.e., violation of § 8-401, negligence and breach of fiduciary duty) assumed as an essential premise that a Rule 144 exemption was available to Fink to permit him to sell his restricted shares in the public markets without registering them with the SEC. AST contended such an exemption was not available to Fink under the circumstances as a matter of law.
Perkins and Provencio contended the only conduct at issue purportedly occurred before they were ever involved with Signalife. Moreover, they argued, each individual director comprised only one-sevenths of Signalife’s board, and Fink failed to show either had any power on their own or any duty to take affirmative action to lift the restrictions on Fink’s stock.
At respondents’ request, the trial court took judicial notice of Signalife’s annual report for 2005 reflecting that Provencio became a director of Signalife on July 29, 2005, and Perkins on August 23, 2005. The court also took judicial notice of Signalife’s June 29, 2005 registration statement filed with the SEC printed from its “Edgar Online” database of filings. However, the court declined to take judicial notice of other materials, such as letters.
The trial court sustained respondents’ demurrers to the second amended complaint without leave to amend.
Fink conceded AST was “hired” by Signalife.
With respect to Perkins and Provencio, the court cited Fink’s failure to allege “any wrongdoing on behalf of the individuals and... the board.” Although the court had granted Fink leave to amend so he could plead with specificity, it noted the second amended complaint only “plead[ed] in the negative.”
With respect to AST, the trial court noted among other things that the second amended complaint itself stated certain conditions had to occur before AST was obliged to reissue the stock with the restrictive legend removed, and the pleading on its face showed those conditions were not satisfied. At the hearing, the court invited Fink to articulate any duty AST owed directly to Fink rather than to Signalife. When Fink could not do so, the court sustained AST’s demurrer without leave to amend. The order of dismissal stated that AST did not owe Fink any duty as a matter of law, and the lack of privity between Fink and AST negated any duty allegedly running from it to Fink.
STANDARD OF REVIEW
On appeal from a judgment dismissing an action after the trial court has sustained a demurrer without leave to amend, we give the complaint a reasonable interpretation and treat the demurrer as admitting all properly pleaded material facts. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318; Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.) We further consider matters that may be judicially noticed. (Schifando, at p. 1081.) We do not assume the truth of contentions, deductions or conclusions of law. (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125.) On review, we determine whether the complaint states facts sufficient to constitute a cause of action. (Blank, at p. 318; Schifando, at p. 1081.) Because the second amended complaint was sustained without leave to amend, we must decide whether there is a reasonable possibility the defect can be cured by amendment. If it can be cured, the trial court has abused its discretion, and we reverse. If it cannot be cured, the trial court has not abused its discretion, and we affirm. (Schifando, at p. 1081.) The burden of proving a reasonable possibility of amending the complaint rests squarely on the plaintiff. (Ibid.)
DISCUSSION
1. AST
On appeal, Fink contends the trial court erred in sustaining AST’s demurrer to the second amended complaint because he adequately stated causes of action for violation of § 8-401, negligence and breach of fiduciary duty. He argues that the court erred in finding as a matter of law that AST does not owe Fink any duty because of the lack of any privity between them. Fink asserts under § 8-401 a stock transfer agent (AST) and the issuing company (Signalife) each owes shareholders (Fink) the same duties. Moreover, he argues, stock transfer agents can be liable for common law negligence and breach of fiduciary duty. Under the specific facts of this case, we disagree.
Fink refers to the Uniform Commercial Code and the Delaware Commercial Code, of which § 8-401 is a part, interchangeably in his brief.
A. Delaware Law
Fink argues that Delaware law, in particular § 8-401, controls. AST apparently does not dispute that proposition.
B. Violation of § 8-401
Fink contends under Delaware law a stock transfer agent and the issuing corporation owe shareholders the same duties. Fink asserts both Signalife and AST owed him a duty to remove the restrictive legend on his shares, and the court’s dismissal of AST was error.
We conclude that although a transfer agent might be liable for the failure to remove a restrictive legend on stocks when the prerequisites under § 8-401 are satisfied, when the complaint acknowledges a condition precedent for registering the transfer of uncertificated stocks and on its face concedes the condition has yet to be satisfied, no duty or obligation arises for the transfer agent to register the transfer of stock or to issue new stock certificates without the legend.
The Securities Act of 1933 “generally makes it unlawful for any person to sell any security that is not registered unless an exemption from registration is applicable. 15 U.S.C. § 77e(a) and § 77d. Section 4(1) of the Act (15 U.S.C. § 77d(1)) provides an exemption for sales made by persons other than an ‘issuer, underwriter or dealer’. Because of the Act’s broad definition of the term ‘underwriter’, Rule 144 was adopted to provide a ‘safe harbor’ exemption in certain circumstances in which the seller might otherwise be considered to be an ‘underwriter’. Under that Rule, a sale is exempt if it meets all the requirements of Rule 144.” (Bender v. Memory Metals, Inc. (Del. Ch. 1986) 514 A.2d 1109, 1112, fn. 5 (Bender).)
Pursuant to § 8-401, an issuer has a duty to register a transfer of stock presented to the issuer in registered form if (1) it is requested to do so, (2) the security is properly endorsed by the appropriate person, (3) there is reasonable assurance that the endorsements are genuine and effective, (4) the issuer has no duty as to adverse claims, (5) the applicable taxes have been paid, and (6) the transfer is “in fact rightful” or is to a bona fide purchaser. Fink contends that under the Delaware Commercial Code a stock transfer agent and the issuing company each owe shareholders the same duties. (6 Del. Code Ann. § 8-407 (§ 8-407).)
Under § 8-407, “A person acting as... transfer agent... for an issuer in the registration of a transfer of its securities... has the same obligation to the holder or owner of a certificated or uncertificated security with regard to the particular functions performed as the issuer has in regard to those functions.”
The comment to § 8-407 of the Uniform Commercial Code indicates transfer agents thereby are expressly held liable both to the issuer and to the owner for the wrongful refusal to register a transfer “within the scope of their respective functions where the issuer would itself be liable.” Thus, the comment notes, prior cases that have regarded transfer agents “solely as agents of the issuer and have therefore refused to recognize their liability to the owner for mere non-feasance, i.e., refusal to register a transfer, are rejected.” (See discussion, post, with respect to a transfer agent’s liability under the common law.)
Under the law of Delaware, a request to issue a new certificate is equivalent to a request to register a transfer of the underlying stock. As the court in Bender, supra, 514 A.2d at page 1115 has explained, a claim “that the registration of a transfer is not equivalent to the issuance of a new certificate ignores the realities of the securities transfer process. Where certificated stock is transferred, the issuance of a new certificate to the transferee is normally an integral step in that process. And where the stock is restricted, the issuance of a new, clean certificate to the transferor is normally the essential first step. Given those commercial realities, it is reasonable to construe the term ‘register the transfer’, as used in § 8-401..., to include those ministerial acts that normally accompany such registration, including, where applicable, the issuance of a new certificate.”
It therefore is of no moment that Fink in this case requested reissuance of his stock without the restrictive legend, and not the registration of a transfer, as the issuance of a new certificate would be the essential first step in the transfer of unregistered stock as described in Bender.
Fink asserts in this case that he satisfied all of the conditions required by § 8-401, and he was entitled to have his unregistered stock reissued without a restrictive legend. The second amended complaint alleged: (1) Fink presented his shares to Signalife through Bear Stearns accompanied by a request to register the stocks; (2) Fink was eligible to sell his shares under his employment agreement having been fired by Signalife without cause; (3) Signalife received two opinion letters stating the restrictive legend should be removed; and (4) removal of the legend would not have violated any applicable laws or restrictions on transfer.
Under the allegations of the second amended complaint, however, Fink admits and recognizes that AST, as the transfer agent, required an opinion letter from Signalife as a condition precedent in order to act and such a letter was not forthcoming from Signalife. Section (a)(7) of § 8-401 expressly provides that a transfer must be “in fact rightful” before the issuer (or transfer agent) may register an uncertificated security. Thus, a transfer that violates the 1933 act would not be “rightful.” Accordingly, when reasonable grounds exist to believe a proposed transfer might be a wrongful transfer under the 1933 act, a transfer agent is justified in refusing to make a requested transfer until it has received an explanation or showing the proposed transfer would not violate the 1933 act. (Charter Oak Bank & Trust Co. v. Registrar & Transfer Co., Inc. ( N.J.Super.L. 1976) 358 A.2d 505, 509-510 [construing Delaware law]; see also Catizone v. Memry Corp. (S.D.N.Y. 1995) 897 F.Supp. 732, 738 [same]; see U.S. Securities and Exchange Commission, Rule 144: Selling Restricted and Control Securities at [“Even if you have met the conditions of Rule 144, you can’t sell your restricted securities to the public until you’ve gotten the legend removed from the certificate. [The] transfer agent won’t remove the legend unless you’ve obtained the consent of the issuer -- usually in the form of an opinion letter from the issuer’s counsel -- that the restricted legend can be removed. Unless this happens, the transfer agent doesn’t have the authority to remove the legend and execute the trade in the market place”] [as of Nov. 30, 2010].)
Consistent with that procedure, the second amended complaint alleges that Fink had “directed the paperwork be submitted to Signalife for Mr. Taylor [its counsel] to write the opinion letter required by [AST] from Signalife to actually remove the legend per the terms of the legend....” (Italics added.) The pleading further alleges that “Signalife refused to provide an opinion letter to the transfer agent [AST] lifting the restriction and authorizing the sale of the stock.” (Italics added.) In addition, Fink alleges that “[w]hen Signalife refused to provide [AST] the opinion letter they required in order to remove the Restricted Legend, ” Fink retained the law firm of Troy & Gould to prepare such an opinion letter; the letter allegedly was delivered to AST but was rejected by Signalife. (Italics added.) Elsewhere, Fink alleged Signalife was on notice since May 2005 of Fink’s “request for a letter from Signalife directing [AST]to remove the Restrictive Legend from his shares.” (Italics added.)
Neither party has indicated the precise wording of the restrictive legend on Fink’s stock.
AST contends under the facts a Rule 144 exemption was not available to Fink as a matter of law because Signalife was a “blank check company” for which Rule 144 is not available. AST also contends Fink submitted prior sworn declarations to courts in other litigation admitting that a Rule 144 exemption is not available for stock issued under similar circumstances. Fink rejoins that AST’s brief amounts to multiple requests for judicial notice without proper basis or an appropriate separate motion, that the documents in question do not establish Signalife is a “blank check company” for which no Rule 144 exemption is available, that admissions made in other litigation are irrelevant and, in any case, his pleading an entitlement to a Rule 144 exemption in itself is sufficient to state a cause of action.
We need not decide these issues. The pleaded allegations concede an opinion letter from Signalife’s counsel was necessary before any obligation by AST to reissue the certificates or to register the transfer of stock could arise. Under the specific facts alleged, absent any showing that the alleged necessary condition was accomplished, AST had no duty to register a transfer of Fink’s stock or to reissue the stock with the restrictive legend removed.
C. Negligence
Fink further contends that his second amended complaint states a valid cause of action against AST for negligence. In particular, Fink states case law affirms judgments in favor of stockholders based on negligence against transfer agents, and the trial court below improperly found a lack of privity defeated the duty element for a negligence claim against AST.
Under the common law a transfer agent is not liable to a stockholder for damages for wrongful refusal to transfer shares. The theory underlying this principle is that the transfer agent serves only as agent for the issuing corporation. (See Faro v. Corporate Stock Transfer, Inc. (Fla. App. 2004) 883 So.2d 896, 898; Kenler v. Canal National Bank (1st Cir. 1973) 489 F.2d 482, 485 & fn. 3; Welland Inv. Corp. v. First Nat. Bank ( N.J.Super.Ch. 1963) 195 A.2d 210, 214; see 12 William Meade Fletcher et al., Fletcher Cyclopedia of the Law of Private Corporations (2009-2010 Cum. Supp.) § 5525, pp. 15-16.) Accordingly, at common law a transfer agent is not liable to a stockholder in damages for mere “nonfeasance, ” such as a failure to act to remove restrictive legends on stock. (See Mears v. Crocker First Nat. Bank (1950) 97 Cal.App.2d 482, 485 (Mears); Lacoe v. Wolfe (1933) 133 Cal.App. 159, 161; Yuen v. U.S. Stock Transfer Co. (C.D.Cal. 1997) 966 F.Supp. 944, 950; see also Kenler, supra, 489 F.2d at p. 485 & fn. 3; Hulse v. Consolidated Quicksilver Mining Corp. (Idaho 1944) 154 P.2d 149, 154; Palmer v. O’Bannon Corp. (Mass. 1925) 149 N.E. 112, 113-114; Nicholson v. Morgan (N.Y. Mun.Ct. 1922) 196 N.Y.S. 147, 150.)
Cases on which Fink relies are distinguishable. New Jersey Bank, N.A. v. Bradford Securities Operations, Inc. (3d Cir. 1982) 690 F.2d 339, 347, for example, held a bank had a common law claim for negligence for damages caused by a brokerage’s negligent handling of securities, i.e., misfeasance. In Flying Diamond Corp. v. Pennaluna & Co., Inc. (9th Cir. 1978) 586 F.2d 707, the issuing corporation entrusted to its transfer agent blank, signed stock certificate forms, which the transfer agent wrongfully appropriated and placed into the stream of commerce. (Id. at pp. 709, 710.) Upon the issuer’s suing to recover for resulting losses, the court held the issuer itself was responsible for the loss because it had negligently entrusted the stock certificates to the transfer agent and then failed to take proper precautions to prevent the certificates from being transferred illegally. (Id. at p. 710.) Flying Diamond thus also presented a case of misfeasance rather than nonfeasance by the transfer agent.
Other cases Fink cites involve strict products liability, injury from mass produced consumer products and the evolving concept of duty in that context. Hence, Fink has failed to support his contentions with appropriate authority.
The trial court’s sustaining AST’s demurrer to the negligence cause of action was therefore proper.
D. Breach of Fiduciary Duty
Fink states that the second amended complaint alleged a valid cause of action against AST for breach of fiduciary duty owed Fink as a stockholder. He further claims that AST breached its duties by failing to act or to respond to Fink’s request and such breaches caused him damage.
The second amended complaint alleges no direct relationship between Fink and AST. Fink claims any fiduciary duty owed him by AST flows from its role as transfer agent for Signalife, i.e., AST owes him the same fiduciary duty as Signalife would owe him. Under Delaware law, it is well established that the issuing corporation does not owe fiduciary duties to its stockholders. (Arnold v. Society for Savings Bancorp, Inc. (Del. 1996) 678 A.2d 533, 539; Alessi v. Beracha (Del.Ch. 2004) 849 A.2d 939, 950; see also A.W. Financial Services, S.A. v. Empire Resources, Inc. (Del. 2009) 981 A.2d 1114, 1127 & fn. 36; see Gaffin v. Teledyne, Inc. (Del. 1992) 611 A.2d 467, 472 [corporation owed no fiduciary duty to shareholders].) It is the board of directors of a corporation that has the ultimate responsibility to manage or to direct the management of the business and affairs of the corporation, not the corporation itself. (Arnold, supra, 678 A.2d at p. 540.) Because Signalife owed Fink no fiduciary duty, by Fink’s own assessment AST likewise owed him no fiduciary duty as Signalife’s transfer agent. This result is consistent with California law. (See Mears, supra, 97 Cal.App.2d at p. 485 [stock transfer agent not liable to shareholder at common law for wrongful delay or refusal to transfer stock].)
The trial court properly sustained AST’s demurrer to Fink’s claim of breach of fiduciary duty.
2. Perkins and Provencio
Fink argues that his second amended complaint adequately states a cause of action for breach of fiduciary duty against Perkins and Provencio. He states that both California and Delaware law are clear that Perkins and Provencio owed him fiduciary duties as directors of the corporation, that they breached their duties and that the breach caused him damage. Fink further asserts he adequately pleaded around the business judgment rule.
Both the original complaint and the first amended complaint alleged that Perkins and Provencio joined Signalife’s board of directors after Fink was terminated. In sustaining Perkins and Provencio’s original demurrer, the trial court also took judicial notice that they did not become members of Signalife’s board of directors until July 29, 2005, and August 23, 2005, respectively, which dates were after the purported wrongdoing. The court, however, allowed Fink to amend his pleading to attempt to remedy the defect.
In his second amended complaint, Fink failed to address the court’s concerns. He merely deleted the allegation that Perkins and Provencio joined the board after his termination. Instead of furnishing specific additional facts, Fink substituted a vague and generalized allegation that Perkins and Provencio “participated in and/or voted on corporate actions relevant to the acts or omissions giving rise to Mr. Fink’s complaint for damages.” The trial court not surprisingly found this attempt to retract the prior admission inadequate. When a pleading contains allegations that are destructive of a cause of action, the defect cannot be cured in later filed pleadings merely by omitting the allegations without explanation. (Hendy v. Losse (1991) 54 Cal.3d 723, 742.) The “‘“original defect infects the subsequent pleading so as to render it vulnerable to a demurrer.”’” (Id. at p. 743.) In the absence of inadvertence, mistake or discovery of new facts to justify an amendment to the complaint, the plaintiff is bound by his prior admission. (Banis Restaurant Design, Inc. v. Serrano (2005) 134 Cal.App.4th 1035, 1044.)
A. Breach of Fiduciary Duty
The only new allegations the second amended complaint included in the claim for breach of fiduciary duty state that “Signalife is, and has been since May 2005, on notice of Mr. Fink’s request for a letter from Signalife directing [AST] to remove Restrictive Legend from his shares.” (Italics added.) It pleads in solely conclusory terms that “Signalife, its agents, officers, directors and managers have failed, and continue to fail, to act on Mr. Fink’s request....” (Italics added.) Fink then further alleges in generalities that “[t]his failure to act by Signalife, its board of directors, its majority shareholder or anyone else” constitutes a continuing breach of their fiduciary duties.
Fink contends this is an adequate pleading of a breach of fiduciary duty. He notes, correctly, that directors of corporations owe the company’s shareholders fiduciary duties, as we discuss below. But, in response to the demurrer to the second amended complaint, Fink was unable to cite to the trial court any legal authority imposing a duty or obligation on a corporation’s director to take affirmative action with regard to restrictions on a shareholder’s stock. The trial court noted that the amended allegations still failed to allege “any wrongdoing on behalf of the individuals... [or] any wrongdoing on behalf of the board, ” such as that the matter came before the board and the board told Fink in essence he should “drop dead.”
B. Business Judgment Rule
On appeal, Fink now relies primarily on the case of McMullin v. Beran (Del. 2000) 765 A.2d 910, 919 (McMullin), which makes clear that the “business judgment rule” applies in these situations. McMullin explains that “[o]ne of the fundamental principles of the Delaware General Corporation Law statute is that the business affairs of a corporation are managed by or under the direction of its board of directors. The business judgment rule is a corollary common law precept to this statutory provision. The business judgment rule, therefore, combines a judicial acknowledgment of the managerial prerogatives that are vested in the directors of a Delaware corporation by statute with a judicial recognition that the directors are acting as fiduciaries in discharging their statutory responsibilities to the corporation and its shareholders. The business judgment rule ‘is a presumption that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.” (Id. at p. 916, fns. omitted.)
The business judgment rule therefore has both a procedural and a substantive element. (McMullin, supra, 765 A.2d at pp. 916-917.) “Procedurally, the initial burden is on the shareholder plaintiff to rebut the presumption of the business judgment rule. To meet that burden, the shareholder plaintiff must effectively provide evidence that the defendant board of directors, in reaching its challenged decision, breached any one of its ‘triad of fiduciary duties, loyalty, good faith or due care.’ Substantively, ‘if the shareholder plaintiff fails to meet that evidentiary burden, the business judgment rule attaches’ and operates to protect the individual director-defendants from personal liability for making the board decision at issue.” (Id. at p. 917, fns. omitted, italics omitted and added.)
Thus, “unless effectively pled factual allegations in the shareholder plaintiff’s... [c]omplaint successfully rebut the procedural presumption of the business judgment rule, the... [d]irectors would be protected by the substantive operation of the business judgment rule.” (McMullin, supra, 765 A.2d at p. 918.)
i. Inadequate Rebuttal of Presumption
Fink’s allegations of director misconduct are woefully inadequate to overcome the presumption of regularity under the business judgment rule. It is clear under the rule that some “board decision” must be alleged. Fink’s second amended complaint fails to point to any specific board decision taken with respect to restrictions on his stock. Moreover, even if it is assumed a board action or decision was adequately alleged, Fink has not shown Perkins or Provencio participated in it. The complaint and first amended complaint simply alleged these two directors “joined the Board of Directors” after Fink’s termination. An inference may be drawn from this allegation that the two directors had no participation in any board action regarding Fink. Fink’s omission of the allegation and replacement of it with a conclusory allegation in the second amended complaint that they “participated in and/or voted on [unspecified] corporate actions” that were “relevant to” the acts or omissions purportedly giving rise to Fink’s complaint utterly fails to overcome the inference.
Further, there is no showing Perkins or Provencio had any knowledge of Fink’s circumstances. All that Fink could allege was that Signalife obtained knowledge in May 2005 of his request to lift restrictions on his stock. There is no showing Perkins or Provencio in particular as opposed to Signalife ever obtained that knowledge. Indeed, the second amended complaint alleges Fink discussed his request solely with Ms. Hampton-Stein, Mr. Stein and Signalife director Ellsworth Roston.
ii. No Duty to Take Affirmative Action
Relying on McMullin, Fink asserts the Supreme Court of Delaware ruled it was error to dismiss a shareholder lawsuit against directors of a corporation for breach of their fiduciary duties to shareholders “where the gravamen of the complaint was the directors’ failure to carry out their ‘affirmative duty to protect the interests of the minority, as well as majority, stockholders.’” (McMullin, supra, 765 A.2d at p. 919.)
The facts in McMullin, however, are clearly distinguishable from the facts at hand. In McMullin, the court conducted “an examination of the [board of directors’] statutory duty and fiduciary responsibilities to minority shareholders in the specific context of evaluating a proposal for a sale of the entire corporation to a third party at the behest of the majority shareholder.” (McMullin, supra, 765 A.2d at pp. 918-919.) Members of the board of directors in McMullin voted to sell the company under circumstances in which the interests of the majority shareholder and the company were in conflict. (Id. at p. 921.) The plaintiffs, minority shareholders, alleged the board of directors initially voted to delegate the management of the sale process to a conflicted majority shareholder and then voted to recommend the approval of the sale without adequately informing themselves about the transaction and without determining whether the sale price equaled or exceeded the company’s value. (Id. at pp. 922-924.) Although the Delaware court mentioned the directors’ “affirmative responsibility” to protect the minority shareholders’ interests, it was in context of the directors’ duty to make an “informed decision” in approving the sale. (Id. at pp. 919-920.) In the present case, unlike as shown in McMullin, Fink never articulated any specific act or wrongdoing by Perkins or Provencio.
Perkins and Provencio further argue that the critical act giving rise to the alleged breach of fiduciary duty the registering of the majority shareholder’s shares had already occurred before they joined the board, and they also note by that time Signalife’s counsel had already rendered an opinion that Fink’s attempt to sell his shares was illegal. As they acknowledged in their respondents’ brief, however, those matters are outside the record and are not appropriately considered in this appeal.
We conclude the trial court did not err in sustaining the demurrer of Perkins and Provencio to the second amended complaint.
3. Leave to Amend
Fink argues the trial court abused its discretion by sustaining the demurrers without leave to amend. We disagree.
A. AST
Counsel for AST argued the second amended complaint specifically alleged that Fink directed that paperwork “be submitted to Signalife for Mr. Taylor [i.e., Signalife’s counsel] to write the opinion letter required by [AST] from Signalife to actually remove the legend per the terms of the legend itself.” (Italics added.) Moreover, counsel argued, the pleading further alleged, “Despite having complied with all of the requirements under Rule 144, Signalife refused to provide an opinion letter to the transfer agent lifting the restriction and authorizing the sale of the stock.” (Italics added.) The second amended complaint additionally alleged that “[o]nce Signalife had all required paperwork, Mr. Fink’s right to sell all 2, 100, 000 should have been perfected.” (Boldface omitted.) Fink expressly pleaded that “the only remaining obsticle [sic] to Mr. Fink’s sale of all his stock was an opinion letter from Signalife to [AST] verifying Mr. Fink’s compliance.” (Italics added.)
AST’s counsel particularly noted that the second amended complaint alleged that Signalife had been on notice since May 2005 of Fink’s “request for a letter from Signalife directing [AST] to remove the Restrictive Legend from his shares.” (Italics added.) Counsel for AST argued the alleged facts constituted a judicial admission that a necessary condition to remove the restrictive legend had not occurred and therefore no duty owed Fink by his client ever arose. Fink’s counsel conceded that “we’re not addressing the merits of [§] 144 right now” and that AST had received “conflicting legal opinions.” However, Fink asserted that AST at that point had a “duty” to hire independent counsel to make a determination on its own. When queried by the judge, Fink’s counsel agreed Fink and AST were “strangers” but claimed AST nevertheless had “some [unspecified] duty” as holders of Finks shares because it was hired by Signalife to handle the shares. Fink contended the second amended complaint sufficiently pleaded this duty. It is clear that Fink had no further facts he could plead to remedy the deficiencies in his pleading as to AST.
B. Perkins and Provencio
There was an extended colloquy between the court and counsel regarding whether Fink could plead any additional facts showing Perkins or Provencio committed acts in breach of their fiduciary duties to Fink as a stockholder. The court noted the second amended complaint “doesn’t allege any wrongdoing on behalf of the individuals and it doesn’t allege any wrongdoing on behalf of the board.” The trial court stated it had sustained the demurrers to the first amended complaint with leave to amend to allow Fink to specifically plead “everything... done or not done at the board level, [such as] granting stock options, granting bonuses, selling divisions of the company, ” i.e., “things [that Perkins and Provencio] did and voted on at the board level.”
The court referred to particular actions Fink potentially might have identified in the second amended complaint, such as the board’s passing a resolution affirming wholesale “everything... done in the past.” But Fink made no such allegation. The court observed that Fink failed to plead the board of directors in general, and the individual respondents in particular, took any action in breach of their fiduciary duties. Fink’s counsel simply argued the general allegation that “defendants... engaged in, facilitated, or otherwise [has] been complicit in [Signalife’s] sale so that Ms. Hampton[ ]Stein would receive the full value of her shares to the detriment of Mr. Fink” was sufficient to state a cause of action against the two individuals. The court disagreed. It was apparent Fink could plead no board action occurred during Perkins and Provencio’s tenure.
C. No Proposed Amendment
The trial court gave Fink ample opportunity to indicate what, if any, additional facts he could plead to cure the deficiencies. Fink’s counsel could not articulate any additional facts he could incorporate into a new pleading. The case had been pending for two and a half years and, as counsel informed the court, Fink had already undertaken extensive discovery.
DISPOSITION
The judgments are affirmed. Respondents are to recover costs on appeal.
We concur: GRIMES, J.
RUBIN, Acting P. J., concurrence
I concur in the judgment.