Opinion
2d Civ. B330327
04-17-2024
GARY A. GORIAN, Plaintiff and Appellant, v. ELISE SINAY SPILKER et al., Defendants and Respondents
Manfredi, Levine, Eccles, Miller &Lanson, Mark F. Miller, and David V. Hadek, for Plaintiff and Appellant. Greenberg, Glusker, Fields, Claman &Machtinger, Norman H. Levine, for Defendants and Respondents Elise Sinay Spilker (as an individual only) and LASIV, LLC. Chapman Glucksman, J. Andrew Wright, and Steven J. Pearse, for Defendant and Respondent Janet Halbert.
NOT TO BE PUBLISHED
Superior Court County of Ventura No. 56-2020-00542038-CU-BC-VTA, Matthew P. Guasco, Judge.
Manfredi, Levine, Eccles, Miller &Lanson, Mark F. Miller, and David V. Hadek, for Plaintiff and Appellant.
Greenberg, Glusker, Fields, Claman &Machtinger, Norman H. Levine, for Defendants and Respondents Elise Sinay Spilker (as an individual only) and LASIV, LLC.
Chapman Glucksman, J. Andrew Wright, and Steven J. Pearse, for Defendant and Respondent Janet Halbert.
CODY, J.
Plaintiff Gary Gorian appeals both a trial court order and judgment of dismissal that, taken together, disposed of all his individual claims against Defendants Elise Sinay Spilker, Janet Halbert, and LASIV, LLC. The court ruled plaintiff's fourth amended complaint supported only derivative shareholder claims, not individual claims. Plaintiff contends the trial court erred. We disagree and will affirm both the trial court's (1) order granting, in part, Defendant Halbert's motion to strike; and (2) judgment of dismissal as to Defendants Elise Sinay Spilker and LASIV, LLC.
FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff owned a 50 percent interest in Old Parker Ranch, LLC (OPR), which Defendant Elise Sinay Spilker (Spilker) managed. While Spilker was not a member of OPR, she served as trustee of three trusts that held the remaining interest in OPR: the Spilker Trust (25 percent interest), the Audrey Trust (12.50 percent interest), and the Joanna Trust (12.50 percent interest.) Spilker is the beneficiary of the Spilker Trust. Spilker was the settlor of both the Joanna Trust and the Audrey Trust, which Spilker created for the respective benefit of her two daughters. Spilker or her family also owned all membership interest in a separate limited liability company, Defendant LASIV, LLC (LASIV). Defendant Janet Halbert (Halbert), a certified public accountant and longtime friend of Spilker and her family, performed professional accounting and business consulting services for both OPR and LASIV.
As we explain in the main text below, our review is de novo, and we assume the truth of plaintiff's factual allegations. Accordingly, we draw our factual summary from plaintiff's fourth amended complaint.
OPR held a 25 percent interest in ESG Properties I, LLC (ESG), the owner of a multifamily apartment project. Essex Portfolio, L.P., held a 49 percent interest in ESG, and Essex Management Corporation held a 1 percent interest (collectively, Essex). At one point, LASIV owned a "put" right that effectively granted LASIV a time-limited right to redeem a 25 percent interest in ESG via the acquisition of stock in Essex Portfolio, L.P. However, LASIV failed to exercise this right before its expiration. The fair market value of the Essex Portfolio, L.P., stock LASIV would have received under the "put" right was approximately $5 million.
Spilker (for LASIV) and Essex reached an understanding. Essentially, Essex would agree to honor the expired LASIV "put" right. In exchange, Spilker would accept a below-market price for OPR's interest in ESG without either (1) triggering the "buysell clause" in the ESG operating agreement as amended or (2) attempting to negotiate a higher price than offered. Halbert helped facilitate the deal, which went through despite plaintiff's repeated objections.
In his most recent fourth amended complaint, plaintiff brought claims both as an individual and derivatively through his interest in OPR. Halbert, Spilker, and LASIV filed motions to strike plaintiff's individual claims. Subsequently, the court signed an order granting, in part, Halbert's motion to strike, which eliminated plaintiff's individual claim against Halbert. The court likewise entered judgment of dismissal as to plaintiff's individual claims against Spilker and LASIV. Plaintiff appeals both the order and the judgment.
DISCUSSION
Standard of Review
Generally, parties may not appeal the granting of a motion to strike. (Walnut Producers of California v. Diamond Foods, Inc. (2010) 187 Cal.App.4th 634, 641.) Here, however, the trial court's order and judgment disposed of all claims plaintiff had brought individually against Spilker, LASIV, and Halbert. While plaintiff maintains derivative claims in his representative capacity, plaintiff no longer maintains any claims in his individual capacity. Thus, the appeal is proper. (First Security Bank of Cal. v. Paquet (2002) 98 Cal.App.4th 468.)
We agree with the parties that our review is de novo. In their motions to strike plaintiff's individual claims, Halbert, Spilker, and LASIV did not contradict the complaint's factual allegations. Instead, they essentially argued the complaint failed to state individual, as opposed to derivative, causes of action. Thus, "[t]he motion was akin to a general demurrer, the sustaining of which without leave to amend we would review as a question of law after assuming all factual allegations to be true." (Walnut Producers of California v. Diamond Foods, Inc., supra, 187 Cal.App.4th at p. 641.)
Analysis
A corporation is a legal entity distinct from its shareholders. (Merco Constr. Engineers, Inc. v. Municipal Court (1978) 21 Cal.3d 724, 729.) "Because a corporation exists as a separate legal entity, the shareholders have no direct cause of action or right of recovery against those who have harmed it. The shareholders may, however, bring a derivative suit to enforce the corporation's rights and redress its injuries when the board of directors fails or refuses to do so." (Grosset v. Wenaas (2008) 42 Cal.4th 1100, 1108.) If a derivative action succeeds, "the corporation is the only party that benefits from any recovery; the shareholders derive no benefit "'except the indirect benefit resulting from a realization upon the corporation's assets."'" (Ibid.) "The principles governing derivative actions in the context of corporations apply to limited liability companies ...." (Schrage v. Schrage (2021) 69 Cal.App.5th 126, 150.)
In the seminal case Jones v. H.F. Ahmanson &Co. (1969) 1 Cal.3d 93 (Jones), our Supreme Court distinguished individual and derivative actions. In Jones, certain majority shareholders in United Savings and Loan Association of California (Association) had created a holding company, United Financial Corporation of California (United Financial). (Id. at pp. 102-103.) A group of majority shareholders exchanged their Association shares for United Financial shares without offering the Association minority shareholders the same opportunity. (Ibid.) United Financial subsequently created "a public market for its shares that rendered Association stock unmarketable except to United Financial, and then refused either to purchase plaintiff's [minority] Association stock at a fair price or exchange the stock on the same basis afforded to the majority." (Ibid.)
In rejecting the defendants' claim that the plaintiff minority shareholder could maintain only a derivative action, the Jones Court held that "'the action is derivative, i.e., in the corporate right, if the gravamen of the complaint is injury to the corporation, or to the whole body of its stock and property without any severance or distribution among individual holders, or it seeks to recover assets for the corporation or to prevent the dissipation of its assets.'" (Jones, supra, 1 Cal.3d at p. 106.) Conversely, "[i]f the injury is not incidental to an injury to the corporation, an individual cause of action exists." (Id. at p. 107.) The Jones plaintiff alleged the defendants' actions had diminished the value of her stock as minority shareholder, but she did not "contend that the diminished value reflects an injury to the corporation and resultant depreciation in the value of the stock." (Ibid.) Therefore, "the gravamen of her cause of action [was] injury to herself and the other minority stockholders," and an individual cause of action was appropriate. (Ibid.)
Jones limits plaintiff to derivative actions because the gravamen of his complaint is injury to the entirety of OPR. Plaintiff asserts that Spilker, with Halbert's aid, sold OPR's interest in ESG at below market value. Unlike the Jones plaintiff, who alleged an injury unique to the minority interests, here plaintiff does not assert that only his 50 percent interest in OPR sustained harm. Rather, the below-market sale to Essex injured all OPR interests equivalently. Plaintiff's attempts to cast the injury as personal to him are unavailing. His claimed injury is incidental to the injury OPR, as a distinct legal entity, suffered. Thus, plaintiff may bring only derivative, not individual, claims. (See Nelson v. Anderson (1999) 72 Cal.App.4th 111, 124 ["[A]n individual cause of action exists only if the damages were not incidental to an injury to the corporation"].)
That the Spilker family, through its LASIV interest, benefitted collaterally from the below-market sale of OPR does not change the analysis. All OPR interests suffered proportionally. OPR, not LASIV nor any natural person, is the proper focus when considering whether an action is derivative of an OPR interest. (See Avikian v. WTC Financial Corp. (2002) 98 Cal.App.4th 1108, 1115, fn. omitted ["[A]ppellants' core claim is that defendants mismanaged World, and entered into self-serving deals to sell World's assets to third parties. Those assertions- both the improper selling and purchasing of assets-amount to a claim of injury to World itself."].) Any other focal point would undermine OPR's status as a distinct legal entity.
Plaintiff's claimed loss of an income stream likewise does not permit individual claims. Plaintiff owned an interest in OPR, a limited liability company. However, "shareholders . . . neither own the corporate property nor the corporate earnings." (Miller v. McColgan (1941) 17 Cal.2d 432, 436.) The same holds true for owning a limited liability company interest. In the first instance, OPR-not plaintiff-owned any income stream from ESG. The revenue plaintiff denominates the "Gorian Income Stream" is derived directly from OPR's income stream. Therefore, any assertion of harm to the derived "Gorian Income Stream" necessarily supports only derivative claims.
Plaintiff's remaining arguments do not persuade us. Plaintiff asserts he may pursue both individual and derivative claims simultaneously. While courts have generally recognized that individual and derivative claims may coexist in the same action, plaintiff's allegations support only derivative claims. (See, e.g., Goles v. Sawhney (2016) 5 Cal.App.5th 1014, 1018, fn. 3 ["A single cause of action by a shareholder can give rise to derivative claims, individual claims, or both"].) That conclusion, not any per se bar against concurrent derivative and individual claims, justified eliminating plaintiff's individual claims.
We decline plaintiff's invitation to weigh any impact on the jury trial right. Although the California Constitution generally provides a right to trial by jury in civil cases, "'California entertains no right to jury trial in stockholders' derivative actions.'" (Caira v. Offner (2005) 126 Cal.App.4th 12, 38; Cal. Const., art. 1, § 16.) The presence or absence of a jury trial right, however, has no bearing on whether plaintiff can maintain individual causes of action. Instead, the law regarding derivative shareholders' actions, as established in Jones, governs.
Nor do policy considerations justify a ruling to reinstate plaintiff's individual causes of action. Plaintiff relies on Jara v. Suprema Meats, Inc. (2004) 121 Cal.App.4th 1238, which identified three primary policy justifications for requiring derivative actions: (1) preventing a multiplicity of lawsuits and ensuring equal treatment for all aggrieved shareholders; (2) protecting the rights of creditors; and (3) encouraging resolution within the corporation and promoting managerial freedom. (Id. at pp. 1258-1259.) Our Supreme Court in Jones, however, did not rely upon such policy considerations in distinguishing individual and derivative actions. While Jara's policy justifications are typically attenuated in closely held companies like OPR, that fact does not authorize us to disregard the Jones framework. To allow plaintiff to maintain his individual causes of action based on such policy considerations "would essentially eliminate the derivative action rule in the context of close corporations and other closely held entities. California law does not support that result." (Schrage v. Schrage, supra, 69 Cal.App.5th at p. 158.)
DISPOSITION
The trial court's (1) order granting, in part, Defendant Halbert's motion to strike (filed May 11, 2023); and (2) judgment of dismissal as to Defendants Elise Sinay Spilker and LASIV, LLC, (filed June 29, 2023) are both affirmed. Defendants shall recover their costs on appeal.
We concur: YEGAN, Acting P.J., BALTODANO, J.