Opinion
B321888
03-04-2024
MORRIS MATLOUBIAN, Plaintiff and Appellant, v. ZAHAL MANSUR et al., Defendants and Respondents.
Walton Law Group and John R. Walton for Plaintiff and Appellant. Beaudoin & Krause-Leemon and David R. Krause-Leemon for Defendants and Respondents, Zahal Mansur, Michal Mansur and Superior Home Design, Inc. Robert M. Ungar for Defendants and Respondents Zahal Mansur and Michal Mansur.
NOT TO BE PUBLISHED
Order Filed Date 3/25/24
APPEALS from judgments of the Superior Court of Los Angeles County No. 20STCV00173 Curtis A. Kin and Ruth Ann Kwan, Judges. Reversed and remanded with instructions.
Walton Law Group and John R. Walton for Plaintiff and Appellant.
Beaudoin & Krause-Leemon and David R. Krause-Leemon for Defendants and Respondents, Zahal Mansur, Michal Mansur and Superior Home Design, Inc.
Robert M. Ungar for Defendants and Respondents Zahal Mansur and Michal Mansur.
ORDER MODIFYING OPINION AND DENYING RESPONDENTS' PETITION FOR REHEARING
THE COURT:
The opinion in the above-entitled matter filed on March 4, 2024 is modified as follows:
1. On page 28, a new footnote (i.e., fn. 18) is appended to the sentence that currently reads: "Because Matloubian was not compensated for his loss of use of the sales proceeds (a) from March 2014 to the date of the initial payment sometime in 2015 (as to the $700,000 payment) and (b) from March 2014 to September 2019 (as to the remaining $3.4 million balance), allowing him to recover damages on his breach of fiduciary duty claim would not constitute double recovery." The text of new footnote 18 is as follows: "In their rehearing petition, respondents argue we erred in failing to address whether 'Matloubian's claims for additional compensation were barred because they were not raised in connection with the Section 2000 proceeding[,]' which argument they claim to have raised in their respondents' brief. Respondents claim they did not conflate this issue (which they call the 'Section 2000 bar' issue) with whether allowing Matloubian to recover would amount to double recovery. Yet, respondents fail to clarify whether they are arguing that Corporations Code section 2000, subdivision (f) or some other body of law (e.g., res judicata) bars Matloubian's recovery, let alone provide any cogent analysis on that point. Accordingly, we do not address that issue further. (See In re D.N. (2020) 56 Cal.App.5th 741, 767 (D.N.) ['" 'Although it is the appellant's task to show error, there is a corresponding obligation on the part of the respondent to aid the appellate court in sustaining the judgment. "[I]t is as much the duty of the respondent to assist the [appellate] court upon the appeal as it is to properly present a case in the first instance, in the court below." '" '].)" All subsequent footnote call numbers are renumbered accordingly.
2. On page 36, the citation to In re D.N. (2020) 56 Cal.App.5th 741, is changed to the following short cite: "(See D.N., supra, 56 Cal.App.5th at p. 767 ['" 'Although it is the appellant's task to show error, there is a corresponding obligation on the part of the respondent to aid the appellate court in sustaining the judgment. "[I]t is as much the duty of the respondent to assist the [appellate] court upon the appeal as it is to properly present a case in the first instance, in the court below." '" '].)"
3. On page 37, a new footnote (i.e., fn. 23) is appended to the sentence that currently reads: "As explained above, the double recovery doctrine does not preclude Matloubian from recovering at least some portion of Superior's postvaluation distributions." The text of new footnote 23 is as follows: "In their petition for rehearing, respondents argue that our opinion 'omits the fact that in the 2015 On-The-Record Settlement, Matloubian released any claim to Superior's postvaluation distributions accruing between the valuation date (March 11, 2014) and April 1, 2015.' In their appellate brief, respondents vaguely asserted that the 'parties reached an in-court settlement on all the damage claims with mutual general releases' on April 1, 2015, but they did not address the scope of those releases. Therefore, respondents failed timely to raise their argument that Matloubian released any claim to distributions made between March 11, 2014 and April 1, 2015. (See In re Foster (2022) 85 Cal.App.5th 499, 512, fn. 8 ['It is a fundamental principle of appellate practice that "[n]ew arguments and authorities generally cannot be asserted for the first time in a petition for rehearing and will be disregarded by the court." '].)" All subsequent footnote call numbers are renumbered accordingly.
There is no change in the judgment. Respondents' petition for rehearing is denied.
BENDIX, ACTING P. J.
Before the court are two appeals filed by appellant Morris Matloubian, a former owner of one-third of the shares of respondent Superior Home Design, Inc. (Superior), a closely-held California corporation. Matloubian challenges the trial court's order granting a motion for judgment on the pleadings, without leave to amend, as to a breach of fiduciary duty cause of action he alleged against Superior. Matloubian also contests a portion of that order granting judgment on the pleadings without leave to amend as to certain derivative claims he asserted on behalf of Superior, along with the court's subsequent order granting summary judgment in favor of respondent Zahal Mansur and respondent Michal Mansur. Zahal is the sole shareholder of Superior, and Michal is Zahal's wife and an officer of Superior. According to Matloubian, before he sold his shares to Zahal pursuant to a court order, Superior distributed disguised dividends to the Mansurs, but did not pay Matloubian a pro rata share of those distributions.
For the sake of clarity, and meaning no disrespect, we refer to the individual respondents by their first names, and we refer to them collectively as "the Mansurs." We refer to Superior, Zahal, and Michal collectively as "respondents."
Respondents move to dismiss, for lack of jurisdiction, Matloubian's appeal concerning the order granting judgment on the pleadings as to his breach of fiduciary duty cause of action against Superior. Although the trial court clerk entered a dismissal of Superior without prejudice at Matloubian's request, the order granting judgment on the pleadings as to Matloubian's claim against Superior and the subsequent entry of dismissal together constitute what is effectively a final, appealable judgment. Additionally, the appeal is timely because the record demonstrates the trial court clerk did not formally serve Matloubian with notice of Superior's dismissal from the action, and Matloubian filed his notice of appeal within 180 days of the entry of that dismissal.
Turning to the merits, Matloubian fails to demonstrate the trial court erred in granting judgment on the pleadings as to his derivative claims. The court, however, erred in concluding that any damages Matloubian would recover on his breach of fiduciary duty claims for the disguised dividends would amount to double recovery. Although the purchase price Zahal paid to Matloubian for his shares was based on a valuation that took into account estimated future distributions from Superior, Matloubian was not compensated for his loss of use of the proceeds from the sale of stock during the several years between the valuation date and full payment to Matloubian for those shares. At bottom, respondents would have us sanction their failure to pay Matloubian any profit distributions during the several years between the valuation date and the date of the bulk of the payment for Matloubian's shares, and also bar Matloubian from recovering for loss of the economic use of those sales proceeds during that timeframe. This unfair and diseconomic result is not supported by the case law.
We also disagree with the trial court's ruling that Matloubian lost standing to maintain his breach of fiduciary duty claims against the Mansurs because he had assigned his shares to Zahal.
We thus reverse and remand the matter to the trial court for further proceedings.
FACTUAL AND PROCEDURAL BACKGROUND
We derive our Factual and Procedural Background primarily from undisputed aspects of the trial court's rulings, admissions the parties make in their filings, and assertions made by respondents that Matloubian does not contest in his briefing. (See Baxter v. State Teachers' Retirement System (2017) 18 Cal.App.5th 340, 349, fn. 2 [utilizing the summary of facts provided in the trial court's ruling]; Artal v. Allen (2003) 111 Cal.App.4th 273, 275, fn. 2 [" '[A] reviewing court may make use of statements [in briefs and argument] . . . as admissions against the party [advancing them].' "]; Association for Los Angeles Deputy Sheriffs v. County of Los Angeles (2023) 94 Cal.App.5th 764, 773-774 (Association for Los Angeles Deputy Sheriffs) [concluding that appellants "tacitly conceded" a point raised by respondents by failing to dispute it].)
We summarize only those facts pertinent to the instant appeals.
Matloubian and his cousin, Zahal, were co-owners of Superior, a flooring business. Superior is a California corporation and an S-Corporation. Matloubian owned one-third and Zahal two-thirds of the shares. Michal is an officer of Superior and is Zahal's wife.
On March 11, 2014, Matloubian sued for involuntary dissolution of Superior (Matloubian I). On April 1, 2015, the parties to Matloubian I agreed to a settlement, the terms of which were stated in open court.
The settlement called for a modified Corporations Code section 2000 procedure. The settlement set March 11, 2014 as the date of valuation for Matloubian's stocks in Superior, and required Zahal to make an initial payment to Matloubian of $700,000 that would be credited toward either the purchase price for Matloubian's stocks or his share of the proceeds from liquidating Superior. "[T]he valuation would be based on data up to March 11, 2014, as opposed to April 1, 2015, the date that the settlement between the parties was entered into the record ...." Additionally, "the Appraisers would consider Superior's accounting records to be correct [citation]; the Appraisers could not review or rely on any other records or information for the correctness of the information in Superior's . . . files [citation]; and[ ] the Appraisers would not consider loans by Superior to shareholders nor claims by Superior against shareholders [citation]."
"In response to a corporate shareholder filing for involuntary dissolution, [Corporations Code] section 2000 prescribes the procedure for a shareholder defendant, or the corporation, to avoid dissolution by purchasing the shares of the party who initiated dissolution. [Citations.] . . . 'In such a [section 2000] proceeding, purchasing parties aspire to buy out the moving party, with minimal expenditure of time and money that would otherwise be spent in litigation, in order to preserve the corporation. If they (or the corporation) cannot pay the purchase price, or decide not to do so, then both sides must walk away, receiving pro rata the proceeds resulting from dissolution of the corporation....' [Citation.] . . . [¶] [The purchase price required by the statute is] 'the liquidation value as of the valuation date but taking into account the possibility, if any, of sale of the entire business as a going concern in a liquidation.'" (See Crane v. R. R. Crane Investment Corp. (2022) 82 Cal.App.5th 748, 756-757, fn. omitted.)
Matloubian asserts that the settlement in Matloubian I prohibited Zahal from using Superior's funds to pay Matloubian the purchase price for his shares. Respondents insist this was "not a term of the settlement." We need not resolve this dispute to dispose of the instant appeals.
At some point in 2015, Matloubian received the $700,000 initial payment. In the spring of 2019, the trial court in Matloubian I issued an order appraising Matloubian's shares at $4.1 million based upon Superior's value as a going concern on March 11, 2014. On September 17, 2019, Zahal tendered the $3.4 million balance of the purchase price to Matloubian, and Matloubian assigned his shares in Superior to Zahal. The claim for dissolution in Matloubian I was thereafter dismissed with prejudice.
Matloubian asserts that "[b]etween April 1, 2015 and September 17, 2019, i.e., while the appraisal and purchase/liquidation process was pending, [the] Mansur[s] took for themselves $17 million to $21 million [in] . . . direct or disguised distributions without giving . . . Matloubian his pro-rata one-third share." Respondents admit: (1) after the April 2015 settlement in Matloubian I, the Mansurs received certain profit distributions from Superior, and (2) Matloubian did not receive any share of those distributions.
Specifically, respondents state on appeal: "There is no doubt that Matloubian knew he was not receiving profit distributions and the Mansurs were receiving profit distributions after the 2015 Settlement." Similarly, in another portion of their brief, respondents appear to concede that in 2018, "Matloubian discover[ed] the Mansurs [had] receiv[ed] profits from Superior" after the settlement. (Boldface & some capitalization omitted.)
On January 2, 2020, Matloubian, directly and derivatively on behalf of Superior, commenced the instant action by filing a complaint averring two causes of action against respondents, breach of fiduciary duty and accounting.
After answering Matloubian's complaint, respondents moved for judgment on the pleadings. On June 25, 2020, the trial court granted respondents' motion. The court afforded Matloubian leave to amend as to (1) his causes of action against the Mansurs for breach of fiduciary duty and accounting, and (2) his cause of action for accounting against Superior. The court did not grant Matloubian leave to replead his derivative claims or his cause of action against Superior for breach of fiduciary duty.
We describe the trial court's rulings in greater detail in Discussion, parts B & C, post.
Matloubian filed a first amended complaint alleging causes of action for breach of fiduciary duty and accounting; he named Superior as a defendant only on the cause of action for accounting. The trial court later overruled respondents' demurrer to the first amended complaint.
On April 21, 2022, Matloubian filed a request to dismiss Superior from the action without prejudice. The trial court clerk entered the dismissal of Superior without prejudice the following day.
On June 7, 2022, the trial court granted the Mansurs' motion for summary judgment. On June 27, 2022, Matloubian filed a notice of appeal in which he sought review of the trial court's order granting respondents' motion for judgment on the pleadings as to the breach of fiduciary duty claim against Superior. On June 29, 2022, the trial court entered judgment in favor of the Mansurs and against Matloubian in accordance with the court's summary judgment ruling. On July 20, 2022, Matloubian appealed the judgment.
Although Matloubian erroneously stated in this notice of appeal that the trial court granted the motion for judgment on the pleadings on April 26, 2022 instead of on June 25, 2020, respondents concede they "understood the order being referred to in the . . . Notice of Appeal" and "do not raise this defect as additional grounds for th[eir] motion" to dismiss that appeal. (See also Cal. Rules of Court, rule 8.100(a)(2) ["The notice of appeal must be liberally construed."].) All unspecified rule references are to the California Rules of Court.
DISCUSSION
A. We Deny Respondents' Motion To Dismiss
Respondents move to dismiss the appeal filed on
June 27, 2022 by which Matloubian seeks review of the trial court's order granting the motion for judgment on the pleadings as to his breach of fiduciary duty claim against Superior. First, respondents contend we lack appellate jurisdiction because Matloubian voluntarily dismissed Superior from the action without prejudice, and neither the voluntary dismissal nor the prior order granting judgment on the pleadings is appealable. Second, respondents argue the appeal is untimely because Matloubian filed the notice of appeal on June 27, 2022, which was more than 60 days after the trial court clerk allegedly notified Matloubian of the entry of Superior's dismissal. Respondents do not seek dismissal of Matloubian's appeal of the judgment entered in favor of the Mansurs on June 29, 2022.
We conclude that the trial court's order granting the motion for judgment on the pleadings and Mansur's voluntary dismissal collectively give rise to a final, appealable judgment in favor of Superior, and that Matloubian timely appealed that judgment. We thus deny respondents' motion to dismiss.
1. The trial court's order granting the motion for judgment on the pleadings, combined with the voluntary dismissal of Superior without prejudice, had the legal effect of a final, appealable judgment
The trial court granted judgment on the pleadings, without leave to amend, as to Matloubian's cause of action against Superior for breach of fiduciary duty. (Factual &Procedural Background, ante.) Upon amending his pleading, Matloubian's only pending cause of action against Superior was an accounting claim. (See ibid.) Nearly two years after the court issued its ruling on the motion for judgment on the pleadings, the trial court clerk entered dismissal of Superior without prejudice at Matloubian's request. (See ibid.)
At first blush, it would appear we lack jurisdiction to review the trial court's order granting judgment on the pleadings as to the breach of fiduciary duty claim against Superior. An order granting a motion for judgment on the pleadings is, as such, not an appealable order. (See Singhania v. Uttarwar (2006) 136 Cal.App.4th 416, 425.) Additionally, as a general rule," '[a] wilful dismissal terminates the action for all time and affords the appellate court no jurisdiction to review . . . motions made prior to the dismissal.' [Citation.]" (See Gutkin v. University of Southern California (2002) 101 Cal.App.4th 967, 975 (Gutkin).)
But not always." '[M]any courts have allowed appeals by plaintiffs who dismissed their complaints after an adverse ruling by the trial court, on the theory the dismissals were not really voluntary, but only done to expedite an appeal.' [Citations.]" (Gutkin, supra, 101 Cal.App.4th at pp. 974-975.) For instance, a trial "court's order sustaining . . . demurrers without leave to amend, combined with the dismissal of the action [at the plaintiff's request, has] the legal effect of a final, appealable judgment." (See id. at pp. 973-974.)
The instant case falls within this exception to the general rule that no appeal lies from a voluntary dismissal. The trial court's order granting the motion for judgment on the pleadings and denying leave to amend as to the breach of fiduciary duty claim against Superior is an adverse ruling that is reviewable via this exception. (See Kapsimallis v. Allstate Ins. Co. (2002) 104 Cal.App.4th 667, 672 (Kapsimallis) ["A motion for judgment on the pleadings is equivalent to a demurrer."].) Furthermore, although the court clerk entered dismissal of Superior without prejudice at Matloubian's request, the dismissal of Matloubian's claim for breach of fiduciary duty against Superior was" 'not really voluntary ....' [Citations.]" (See Gutkin, supra, 101 Cal.App.4th at pp. 974-975.) The Gutkin court explained that after a trial court sustains a demurrer without leave to amend as to certain causes of action," 'the plaintiff's power to voluntarily dismiss those . . . causes of action [is] terminated[,]'" given that "[t]hose counts ha[ve] been effectively 'tried' by the court, and a voluntary dismissal cannot be taken after 'trial' commences." (See Gutkin, at p. 974.) Because Matloubian could no longer pursue that cause of action against Superior, the clerk's entry of dismissal of Superior "had the legal effect of a final, appealable judgment" as to that claim. (See Gutkin, at p. 974; see also Ashland Chemical Co. v. Provence (1982) 129 Cal.App.3d 790, 792-793 (Ashland Chemical Co.) [finding jurisdiction because the appellant's "request for dismissal was tantamount to a request to enter judgment on [the respondent's] demurrer" that had been sustained without leave to amend].)
Notwithstanding respondents' apparent suggestion to the contrary, the fact the trial court clerk dismissed from the action only Superior, but not the Mansurs, does not deprive us of jurisdiction over Matloubian's appeal. (See Ram v. OneWest Bank, FSB (2015) 234 Cal.App.4th 1, 9 [" 'Under the "one final judgment" rule, an order or judgment that fails to dispose of all claims between the litigants is not appealable ....' [Citation.] This rule does not apply, however,' "when the case involves multiple parties and a judgment is entered which leaves no issue to be determined as to one party."' "]).
Respondents rely heavily on language from Gutkin and Ashland Chemical Co. they insist establishes that appealability of a voluntary dismissal hinges on whether it was "entered 'only for the purpose of expediting appeal.' " Respondents maintain that Matloubian did not dismiss Superior only to expedite an appeal. They argue that Matloubian never stated he filed the request for dismissal of Superior to expedite an appeal, and that "Matloubian's purpose for dismissing Superior . . . was to dodge Superior's four pending discovery motions and thousands of dollars in requested discovery sanctions that would undoubtedly have been awarded against Matloubian" if Superior had not been dismissed. Respondents claim Superior had filed four motions to compel Matloubian to serve further discovery responses, and that Matloubian filed his request for voluntary dismissal on "the deadline for filing opposition to those discovery motions." Respondents maintain Matloubian's decision to "continue to prosecute his accounting cause of action against Superior" for nearly two years after the trial court ruled on the motion for judgment on the pleadings also demonstrates he did not request dismissal "to expedite an appeal."
(Quoting Gutkin, supra, 101 Cal.App.4th at p. 974, which in turn quotes Ashland Chemical Co., supra, 129 Cal.App.3d at p. 792, boldface & underscoring added by respondents.)
The quoted language from Gutkin and Ashland Chemical Co. cannot bear the weight respondents place upon it. "The rationale for th[e] exception [recognized by those cases] is that such dismissals are' "not really voluntary...."' [Citation.]" (See Flowers v. Prasad (2015) 238 Cal.App.4th 930, 935 (Flowers).) We read Gutkin's and Ashland Chemical Co.'s language in keeping with that rationale and not as a requirement that the appellant explicitly request dismissal for the exclusive purpose of expediting an appeal. (See Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130, 1158 [" 'It is axiomatic that language in a judicial opinion is to be understood in accordance with the facts and issues before the court.' "].) As explained above, once the trial court granted the motion for judgment on the pleadings on the breach of fiduciary duty cause of action against Superior without leave to amend, Matloubian lost his right to voluntarily dismiss that claim. Thus, the clerk's entry of dismissal of Superior could serve only one purpose as to that claim- expediting appellate review.
Respondents' effort to distinguish Gutkin is not convincing because the dismissal in that case seems to have allowed the plaintiff to avoid discovery and sanctions. More specifically, after the trial court had sustained demurrers to five of the plaintiff's seven causes of action without leave to amend, the court compelled the plaintiff to provide further responses to a request for production of documents and awarded monetary sanctions against the plaintiff. (See Gutkin, supra, 101 Cal.App.4th at pp. 970-973.) The plaintiff thereafter "produced some of the documents the court had ordered produced, but indicated that he was continuing to withhold additional responsive documents, which he did not intend to produce." (See id. at p. 973.) One of the defendants, a university that previously employed the plaintiff, "threatened to move for an award of further sanctions, including terminating sanctions," and "noticed [the plaintiff's] deposition to take place" just days before the plaintiff ultimately "filed a voluntary request for dismissal of his complaint 'without prejudice[,]'" which dismissal the court clerk entered. (See id. at pp. 970, 973.) Even though the plaintiff's request for dismissal of his complaint appears to have prevented the university from undertaking further discovery or seeking additional sanctions in the trial court, the Court of Appeal held it had jurisdiction to review the order sustaining the demurrers to five of the plaintiff's seven causes of action without leave to amend. (See id. at pp. 973-975 [indicating that the plaintiff's request for dismissal resulted in "the dismissal of the action"].)
Respondents argue that Gutkin is distinguishable because the plaintiff in that case had unsuccessfully sought writ review of the order sustaining the demurrers, whereas Matloubian did not file a writ petition challenging the trial court's order granting the motion for judgment on the pleadings. (See Gutkin, supra, 101 Cal.App.4th at pp. 972-973.) They also argue the plaintiff in Gutkin "filed a request for dismissal three months and ten days after the trial court sustained a demurrer to five of seven causes of action," whereas Matloubian "continued to aggressively prosecute his remaining claim against Superior" for nearly two years after the trial court granted the motion for judgment on the pleadings. (See Gutkin, at pp. 972-973.) Because these distinctions have no apparent bearing on whether Matloubian's dismissal of his breach of fiduciary duty claim against Superior was"' "really voluntary" '" (see Flowers, supra, 238 Cal.App.4th at p. 935), we decline to consider them further.
In sum, we hold (1) the trial court's order granting the motion for judgment on the pleadings without leave to amend as to Matloubian's claim for breach of fiduciary duty against Superior and (2) the trial court clerk's entry of dismissal of Superior at Matloubian's request gives rise to appellate jurisdiction to review the court's ruling on that cause of action.
2. Matloubian timely appealed from the clerk's entry of dismissal of Matloubian's claims against Superior
" 'Compliance with the time for filing a notice of appeal is mandatory and jurisdictional. [Citations.] If a notice of appeal is not timely, the appellate court must dismiss the appeal.' [Citations.] [R]ule 8.104(a)(1)[ ] contains the applicable time period for filing a notice of appeal." (Ellis v. Ellis (2015) 235 Cal.App.4th 837, 842.) Rule 8.104(a)(1) provides in pertinent part: "[A] notice of appeal must be filed on or before the earliest of: [¶] (A) 60 days after the superior court clerk serves on the party filing the notice of appeal a document entitled 'Notice of Entry' of judgment or a filed-endorsed copy of the judgment,showing the date either was served; [¶] (B) 60 days after the party filing the notice of appeal serves or is served by a party with a document entitled 'Notice of Entry' of judgment or a filed-endorsed copy of the judgment, accompanied by proof of service; or [¶] (C) 180 days after entry of judgment." (Rule 8.104(a)(1).)
As we explained in Discussion, part A.1, ante, we deem the trial court's order granting the motion for judgment on the pleadings, combined with the trial court clerk's entry of dismissal of Superior, to be a final judgment as to that respondent.
" 'Because the time limits for filing a notice of appeal are jurisdictional, we must apply [rule 8.104(a)(1)] . . . strictly and literally according to its terms; the rules "must stand by themselves without embroidery."' [Citations.]" (See Alan v. American Honda Motor Co., Inc. (2007) 40 Cal.4th 894, 902-903.) For instance, "courts have consistently held that the required 'document entitled "Notice of Entry"' [citation] must bear precisely that title .... [Citations.]" (Id. at p. 903.)
Respondents argue, "[T]he voluntary dismissal [of Superior] was entered by the [trial court] clerk on April 22, 2022, and the clerk notified Matloubian's counsel of entry of the dismissal that same day." To support their assertion that the trial court clerk "notified" Matloubian's counsel of the entry of Superior's dismissal, respondents direct us to Exhibit 9 to their counsel's declaration (Exhibit 9), which contains the dismissal entered by the clerk on April 22, 2022. Respondents maintain the clerk's "notif[ication to] Matloubian that the dismissal had been entered" started the "60-day time limit for filing Matloubian's June 27, 2022 Notice of Appeal . . . under Rule 8.104(a)(1)(A)." Because Matloubian filed the notice of appeal 66 days after April 22, 2022, respondents claim that Matloubian's appeal of Superior's dismissal is time-barred.
Respondents also suggest that rule 8.104(a)(1)(A)'s 60-day deadline commenced "when Matloubian filed his Request for Dismissal of Superior on April 21, 2022 ...." We reject this contention because the trial court's order granting the motion for judgment on the pleadings and the clerk's entry of the dismissal-and not Matloubian's mere request to dismiss Superior-collectively constitute an appealable judgment. (See Discussion, part A.1, ante; fn. 10, ante; rule 8.104(a)(1)(A) [providing that the 60-day deadline for filing a notice of appeal commences with the trial court clerk's service of notice of entry of a judgment or a filed-endorsed copy thereof].)
Turning to Exhibit 9, we note that the first page of the dismissal entered by the trial court clerk reveals that the clerk checked boxes indicating "[d]ismissal [was] entered as requested on . . . 04/22/2022" and an "[a]ttorney or party without attorney [was] notified on . . . 04/22/2022." Although Exhibit 9 contains a proof of service showing that respondents' counsel were served with a copy of Matloubian's underlying request for dismissal on April 21, 2022, absent from Exhibit 9 is proof that the trial court clerk formally served the entry of dismissal on Matloubian's counsel.
Additionally, Matloubian's counsel submitted a declaration in support of his opposition to the motion to dismiss the appeal. He attests, "At no time did my firm receive from the clerk or anyone else at the Superior Court a copy of the entered dismissal, much less a copy that was actually served." The attorney declares he is "counsel of record to . . . Matloubian" and "was also counsel to [Matloubian] in the trial court action below ...."
Matloubian's attorney further testifies, "The only source by which [Matloubian] received a copy of the entered dismissal was an email from the attorney service that [the attorney] hired to effectuate the filing in the first place. Even that email did not contain a copy of the actual dismissal, but instead merely a link to where [counsel] could electronically go to find a copy for [himself]."
The e-mail from the attorney service, which is attached to counsel's declaration, is dated April 22, 2022 and states in pertinent part: "Your eFile order has been accepted and electronically filed with the court. Please click on the link(s) below to view, download or print your Notice of Confirmation and conformed copy(s) and confirmation documents completed on Fri, Apr 22, 2022." Although two of the links below that text reference the request for dismissal, none of them explicitly refers to the trial court clerk's entry of dismissal.
Tellingly, in their unauthorized reply to Matloubian's opposition to their motion to dismiss, respondents do not contest Matloubian's counsel's testimony that the trial court clerk did not serve him with a copy of the dismissal entered by the clerk.
We observe that respondents did not request leave to file their reply to Matloubian's opposition. (See Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2023) ¶ 5:254, p. 5-99 ["The Rules of Court do not expressly authorize the filing of a written reply to an opposition. In rare circumstances, however, a reply may be appropriate; and, assuming there is good cause for a reply, the court probably will allow it."].) We decline to exercise our discretion to strike their unauthorized reply. (See id. at ¶ 5:194, p. 5-76 ["When a brief . . . fails to comply with the Rules of Court[,] . . . the court of appeal may order the brief stricken . . . on its own motion."].)
Because the record reveals that the trial court clerk did not serve Matloubian's counsel with the entry of Superior's dismissal, rule 8.104(a)(1)(A)'s 60-day deadline is inapplicable. (See rule 8.104(a)(1)(A) [providing that the 60-day deadline commences with the trial court clerk's service of a notice of entry of the judgment or a filed-endorsed copy of the judgment].) Although Matloubian's attorney served notice of the dismissal on the Mansurs' counsel on May 3, 2022, the dismissal entered by the court clerk was not attached to that notice. Consequently, Matloubian's service of that notice did not trigger rule 8.104(a)(1)(B)'s 60-day deadline either. (See rule 8.104(a)(1)(B) [providing that the 60-day deadline is triggered by a party's service of a notice of entry of the judgment or a filed-endorsed copy of the judgment, accompanied by a proof of service].) Given that Matloubian filed his notice of appeal as to the entry of dismissal within 180 days of April 22, 2022 (i.e., he filed the notice of appeal on June 27, 2022), the appeal is timely under rule 8.104(a)(1)(C).
B. Although Matloubian Fails To Demonstrate the Trial Court Erred In Granting Respondents' Motion for Judgment on the Pleadings as to His Derivative Claims, the Trial Court Should Have Denied the Motion as to Matloubian's Claim for Breach of Fiduciary Duty Against Superior
The trial court granted respondents' motion for judgment on the pleadings without leave to amend as to Matloubian's derivative claims and his breach of fiduciary duty claim against Superior. Matloubian fails to establish the trial court erred in granting the motion without leave to amend vis-a-vis his derivative claims. (Discussion, part B.3, post.) The trial court, however, erroneously found that "[a]ny damages arising from Superior's" breach of fiduciary duty "would amount to an impermissible double recovery as a matter of law." (Discussion, part B.2, post.)
Although the trial court's concern regarding double recovery was the sole basis of its decision to grant judgment on the pleadings as to Matloubian's breach of fiduciary duty claim against Superior, respondents advance several additional justifications for the court's ruling. In particular, respondents argue all of Matloubian's claims belong to Superior, and Superior did not owe a fiduciary duty to Matloubian. We are unpersuaded. (See Discussion, parts B.3 &B.4, post.)
Respondents also seem to argue that Matloubian's breach of fiduciary duty claim against Superior fails because, by assigning his shares in Superior to Zahal, Matloubian transferred that cause of action to Zahal. We reject respondents' assignment theory in Discussion, part C.2, post.
1. Standard of review
"A judgment on the pleadings in favor of the defendant is appropriate when the complaint fails to allege facts sufficient to state a cause of action. [Citation.] A motion for judgment on the pleadings is equivalent to a demurrer and is governed by the same de novo standard of review. [Citations.] All properly pleaded, material facts are deemed true, but not contentions, deductions, or conclusions of fact or law ...." (Kapsimallis, supra, 104 Cal.App.4th at p. 672.) The motion" 'searches the complaint for all defects going to the existence of a cause of action and places at issue the legal merits of the action on assumed facts.' [Citation.]" (See Sanowicz v. Bacal (2015) 234 Cal.App.4th 1027, 1035.) We review for abuse of discretion the trial court's decision to grant a motion for judgment on the pleadings without leave to amend. (See ibid.) The plaintiff bears "the burden to establish how the complaint can be amended to state a valid cause of action." (See id. at p. 1044.)
Additionally, "we can reach a ground for [judgment on the pleadings] not raised below if it presents a pure question of law and the parties have been given an opportunity to address it." (See Ivanoff v. Bank of America, N.A. (2017) 9 Cal.App.5th 719, 732, fn. 2.)
2. The trial court erred in concluding that any damages arising from Superior's failure to pay dividends would constitute double recovery
The trial court observed that "Matloubian alleges he was entitled to a 33.3% share of all of Superior's dividends, including . . . disguised dividends" Matloubian claims Superior paid to the Mansurs "between April 2015, when the parties arrived at their settlement[,] . . . and September 2019, when [Zahal] finally bought out Matloubian's share [of the corporation]." The court noted, "Matloubian argues[ that] each time the Mansurs withdrew a disguised dividend, Superior became a fiduciary with respect to Matloubian's share of that dividend, and it breached that fiduciary duty when it failed to remit that share to Matloubian."
In granting judgment on the pleadings as to Matloubian's breach of fiduciary duty claim against Superior, the trial court ruled that "there are no compensable damages arising from" that claim because "[a]ny damages arising from Superior's failure to pay dividends would constitute a double recovery as a matter of law ...." (Italics added.) The court found "the payment for the buyout of [Matloubian's] shares, which was based on a valuation dated March 11, 2014, necessarily included and accounted for any right to future distributions." In arriving at this conclusion, the court cited California Shoppers, Inc. v. Royal Globe Ins. Co. (1985) 175 Cal.App.3d 1 (California Shoppers), "for the proposition that the current market value of a business as a going concern includes the discounted present value of its estimated flow of future earnings." (Citing California Shoppers, supra, at p. 61.) Similarly, in its subsequent ruling granting summary judgment, the court stated that Stephenson v. Drever (1997) 16 Cal.4th 1167 (Stephenson), "f[ound] that [the] principle in California Shoppers applies when valuation is 'wholly prospective, in which case all the earnings accruing after the valuation date will be "future" earnings that can only be "estimated[.]"' " (Quoting Stephenson, supra, at p. 1183.)
The trial judge who ruled on the Mansurs' summary judgment motion was not the same judicial officer who had ruled on the motion for judgment on the pleadings.
Although the trial court did not rely upon this aspect of Stephenson in its ruling granting the motion for judgment on the pleadings, we discuss Stephenson in this section because our review of the court's ruling is de novo. (Discussion, part B.1, ante.)
We do not agree that "awarding Matloubian any dividends would amount to a double recovery." (Italics added.) We acknowledge that "the current market value of a business as a going concern includes the discounted present value of its estimated flow of future earnings." (California Shoppers, supra, 175 Cal.App.3d at p. 61, italics added.) Yet, Zahal made the initial payment of $700,000 to Matloubian approximately one year after the valuation date, and Zahal paid the remainder of the price to Matloubian more than five years after the valuation date. (See Factual &Procedural Background, ante.)
If the trial court in Matloubian I had ordered Zahal to pay Matloubian interest on the purchase price to account for the discrepancy between the date of valuation (March 11, 2014) and the dates of payment for Matloubian's shares of Superior (i.e., some point in 2015 for the initial payment and September 2019 for the remainder) and Zahal in fact paid that interest, then Zahal's buyout of Matloubian potentially could have fully compensated him for the alleged disguised dividends.
(See Lakin v. Watkins Associated Industries (1993) 6 Cal.4th 644, 663 ["[O]ne purpose of . . . prejudgment interest . . . is to provide just compensation to the injured party for loss of use of the award during the prejudgment period-in other words, to make the plaintiff whole."].)
Matloubian never received interest on the purchase price. (See Factual &Procedural Background, ante [noting that Matloubian was paid a total of $4.1 million for the value of his shares as of Mar. 11, 2014]). Presumably this is because "Civil Code section 3287, subdivision (a), [which] provide[s] for interest on an award of damages, is inapplicable" to a buyout under Corporations Code section 2000. (See Abrams v. Abrams-Rubaloff &Associates, Inc. (1980) 114 Cal.App.3d 240, 244, 247, 250-251 (Abrams).) Consequently, a shareholder "is not entitled to interest on the value of his shares from the date of valuation to the date of the [trial court] decree" requiring that the corporation be wound up and dissolved if the purchase price is not paid. (See id. at pp. 250-251.)
The Abrams court explained, "[T]he election [to buy out a shareholder] pursuant to [Corporations Code] section 2000 does not amount to a firm commitment to purchase, and the corporation could still be dissolved" if the purchase price is not paid by the statutory deadline. (See Abrams, supra, 114 Cal.App.3d at pp. 244-245, 250; see also Corp. Code, § 2000, subd. (d) ["If the purchasing parties desire to prevent the winding up and dissolution, they shall pay to the moving parties the value of their shares ascertained and decreed within the time specified pursuant to this section," italics added].) Accordingly, there is no "entitle[ment] to recover damages" that is "vested . . . upon a particular day," as would be necessary for an award of prejudgment interest under Civil Code section 3287, subdivision (a). (See Civ. Code, § 3287, subd. (a).)
The Abrams court intimated that the unavailability of interest to the bought-out shareholder was not unfair because "[u]ntil [the other shareholders] or the corporation actually purchased [the] stock, [the bought-out shareholder] would continue to enjoy any benefits accruing to him as a . . . shareholder, including the receipt of any dividends." (See Abrams, supra, 114 Cal.App.3d at p. 250.) Matloubian maintains that respondents denied him those benefits.
In its order granting the motion for judgment on the pleadings, the trial court found that Abrams was of no assistance to Matloubian because "[o]nce the valuation is made" under Corporations Code section 2000, "the valuation is fixed and includes the possibility of future dividends ...." The court seems to have overlooked Abrams's holding that a shareholder who is bought out under Corporations Code section 2000 is not entitled to prejudgment interest because an election under the statute "does not amount to a firm commitment to purchase ...." (See Abrams, supra, 114 Cal.App.3d at pp. 250-251.) Furthermore, although we acknowledge that the Abrams court awarded some interest to the shareholder in that case, that interest began accruing as of the deadline specified in the trial court's decree for payment of the purchase price. (See Abrams, supra, 114 Cal.App.3d at pp. 247, 251.) In its disposition, the Court of Appeal stated that the corporation would be "wound up and dissolved unless" the shareholder was paid that interest and the purchase price. (See id. at p. 251.) This portion of the Abrams decision has no apparent bearing on the instant case because neither side claims that Zahal failed to make payment by a court-imposed deadline for doing so.
California Shoppers and Stephenson do not detract from our conclusion that Matloubian was not fully compensated for the alleged disguised dividends at issue. In California Shoppers, the plaintiff claimed that because the defendant-insurer breached its duty to defend the plaintiff from a lawsuit, the plaintiff was "forced to sell [its] publishing enterprise for $1.5 million ...." (See California Shoppers, supra, 175 Cal.App.3d at p. 60.) Because "it was undisputed that the business was sold for its fair market value" "as a going concern," the Court of Appeal concluded that "(1) the sale price received implicitly compensated [the plaintiff] for any expected future earnings; and (2) [the plaintiff] had the use of the sale proceeds for investment dating from the time of the sale." (See id. at p. 61, italics added to third quotation.) Under those circumstances, the California Shoppers court agreed with the insurer that an "award of damages [to the plaintiff] for . . . economic or business loss" resulting from the insurer's failure to defend the plaintiff "represent[ed] a double recovery." (See ibid.) Conversely, because Matloubian could not invest the sales proceeds for a considerable length of time after the date of valuation, the buyout price did not fully compensate Matloubian for all disguised dividends paid to the Mansurs after the April 2015 settlement.
In Stephenson, an employee had an agreement with a closely-held corporation requiring the entity to repurchase the employee's shares if he were terminated. (See Stephenson, supra, 16 Cal.4th at p. 1170.) The stock repurchase agreement was "silent as to [the employee's] shareholder rights during the postemployment period necessary to determine the value of his shares . . . ." (See id. at pp. 1170-1171.) Several years later, the employee and the majority shareholder of the corporation agreed on the termination date for the employee and the date of valuation for the purpose of the stock repurchase agreement, but they were unable to agree on the fair market value of the employee's shares. (See id. at p. 1171.) Our high court held that because the employee had "not delivered his shares" to the corporation during the interim valuation period and the "agreement [did not] impl[y] on its face an intention by the parties to deny [him] minority shareholder . . . rights during that period," the employee "remain[ed] a shareholder of record of the corporation with all the rights appurtenant to that status," including "entitle[ment] to the dividends paid on the shares." (See id. at pp. 1170, 1173-1174.)
In arriving at that conclusion, the Stephenson court found unpersuasive the contention that allowing the employee to recover "his proportionate share of distributions from corporate profits earned after his separation from employment . . . would result in an impermissible 'double recovery' because those earnings w[ould] also be included in the calculation of the fair market value of his shares ...." (See Stephenson, supra, 16 Cal.4th at p. 1183.) The Supreme Court acknowledged "the general rule" stated in California Shoppers that" 'the current market value of a business as a going concern includes the discounted present value of its estimated flow of future earnings.'" (See Stephenson, supra, at p. 1183, quoting California Shoppers, supra, 175 Cal.App.3d at p. 61.) The court further acknowledged, "To the extent that any such actual earnings are distributed to the shareholder . . . before the appraiser determines the fair market value of the shares, it is true that double recovery could result from a mechanical application of the foregoing general rule." (Stephenson, at p. 1183.) The Supreme Court found the employee was nonetheless entitled to his proportionate share of dividends until the employee relinquished legal title to the stock because "the appraiser [could] avoid such double recovery by the simple expedient of crediting any actual distributions received against the fair market value otherwise determined." (See id. at pp. 1173-1174, 1183.)
Stephenson did not hold that a shareholder who is paid the fair market value of his shares years after the valuation date, but is excluded from dividends during that interim period, is nevertheless fully compensated for those dividends. (See Stephenson, supra, 16 Cal.4th at p. 1183.) Indeed, the Stephenson court had no occasion to consider that issue, given that the employee therein "ha[d] not delivered his shares to [the corporation] because their fair market value ha[d] not been determined and tendered to him." (See id. at p. 1174.) Therefore, Stephenson does not support the trial court's conclusion that any damages awarded to Matloubian would constitute a double recovery. (See Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73, 85, fn. 4 [" '[C]ases are not authority for propositions that are not considered.' "].) Furthermore, we note that because the corporation in Stephenson had a contractual obligation to pay the employee the repurchase price (see Stephenson, supra, at pp. 1170-1171), the employee may have been entitled to prejudgment interest to compensate him for the delay between the valuation date and the date of payment. (See Civ. Code, § 3287, subd. (a) [applying to a "right to recover which is vested in the person upon a particular day"].) In contrast, as we explained above, Abrams held that prejudgment interest is not available to a shareholder in a Corporations Code section 2000 proceeding.
Respondents argue that "Matloubian could have asked [the trial court in Matloubian I] to advance the valuation date, modify [its] order appointing the appraisers accordingly, and have interim distributed profits accounted for." Because the valuation date was set by the settlement agreement, we question whether the Matloubian I court had authority to change it. In any event, Matloubian's supposed ability to ask the court to modify the valuation date to account for interim distributed profits has no bearing on whether allowing Matloubian to recover damages on his breach of fiduciary duty claim would constitute double recovery. Zahal paid Matloubian a total of $4.1 million for the value of Matloubian's shares as of March 2014, and as we explained above, Matloubian was not paid interest on that price. Because Matloubian was not compensated for his loss of use of the sales proceeds (a) from March 2014 to the date of the initial payment sometime in 2015 (as to the $700,000 payment) and (b) from March 2014 to September 2019 (as to the remaining $3.4 million balance), allowing him to recover damages on his breach of fiduciary duty claim would not constitute double recovery.
Furthermore, we note that the trial court granted judgment on the pleadings with leave to amend as to (a) Matloubian's breach of fiduciary duty and accounting causes of action against the Mansurs, and (b) Matloubian's accounting cause of action against Superior, on the ground that "there is no amount . . . that can be awarded without awarding a double recovery ...." Because that conclusion is erroneous for the reasons discussed above, the trial court shall, upon remand, modify its order to deny the motion for judgment on the pleadings as to these claims.
3. Matloubian fails to establish the trial court erred in granting judgment on the pleadings as to his derivative claims, and respondents fail to show that all of Matloubian's claims belong to Superior
"An action is derivative, that is, 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."' [Citation.]" (See Everest Investors 8 v. McNeil Partners (2003) 114 Cal.App.4th 411, 425 (Everest Investors 8).) "On the other hand, California cases recognize that a stockholder's individual suit' "is a suit to enforce a right against the corporation which the stockholder possesses as an individual."' [Citation.]" (Id. at p. 426.)
In its ruling granting the motion for judgment on the pleadings, the trial court agreed with respondents that "Matloubian does not have standing to maintain a shareholder derivative suit on behalf of Superior" because he is no longer a shareholder. The court also rejected Matloubian's argument that he may maintain a derivative suit as a creditor of Superior under Corporations Code sections 316 and 506. The trial court reasoned, "[T]he goal of an action under either section is to return wrongfully taken funds to the corporation[, and] Matloubian may not ask the Court to return any funds to Superior[, given that] Matloubian's share in Superior was bought out in September 2019 ...."
Additionally, the court cited Everest Investors 8's "gravamen" test for assessing derivative claims and found "this is not a derivative action of any type" because "Matloubian is not asking the Court to return any wrongfully taken funds to Superior[, but is i]nstead . . . asking for a personal judgment in the amount of $3,000,000." (Citing Everest Investors 8, supra, 114 Cal.App.4th at p. 425.) The court also explained that Matloubian's breach of fiduciary duty claims against Superior and the Mansurs proceed on the theory that "the Mansurs withdrew funds from Superior in several ways that Matloubian characterizes as disguised dividends" to which "he was entitled to a 33.3% share ...."
In his opening brief, Matloubian argues, "The trial court erroneously dismissed [his] creditor derivative claims ...." He contends that "[c]ontinued ownership of stock is a requirement of standing only for shareholder derivative actions," and that "neither continued share ownership nor any share ownership ever is required for a creditor derivative claim as pleaded by Matloubian." Matloubian does not address the court's independent ground for granting judgment on the pleadings on his derivative claims, that is, under the "gravamen" test, "this is not a derivative action of any type."
Respondents also appear to argue that because Matloubian's allegations supposedly give rise to only derivative claims on Superior's behalf, "Matloubian does not have individual standing to directly prosecute his claims against any of the [r]espondents." They contend, "The gravamen of the alleged wrong is that the Mansurs, as Superior's officers, directors and controlling shareholder, allegedly misappropriated and misused Superior's employees, money and other assets, including all of Superior's profits, that resulted in Superior's insolvency and inability to pay its creditors. The gravamen of the Mansurs' alleged wrongful actions was injury to Superior and the whole body of its stock and property."
In raising this argument, respondents rely on allegations from Matloubian's complaint and his first amended complaint. Respondents do not explain what relevance, if any, the first amended complaint's allegations have on whether the trial court erred in granting the motion for judgment on the pleadings as to Matloubian's original complaint. Regardless, we conclude respondents have failed to establish that all of Matloubian's claims belong to Superior.
Although respondents acknowledge that "[t]he trial court . . . concluded that Matloubian's claims were not derivative claims because Matloubian was seeking to keep all the money for himself," they do not claim the court erred in this respect. (Italics added.) Indeed, they remark that "[t]he trial court was correct that . . . Matloubian had not stated a cognizable derivative claim."
General principles of appellate procedure dispose of the parties' arguments."' "A judgment or order of a lower court is presumed to be correct on appeal, and all intendments and presumptions are indulged in favor of its correctness." [Citation.]' [Citation.] Thus, '" 'it is the appellant's responsibility to affirmatively demonstrate error'"' by '" 'supply[ing] the reviewing court with some cogent argument supported by legal analysis and citation to the record.'" [Citation.]' [Citations.] The appellant bears this burden of rebutting the presumption of correctness accorded to the trial court's decision, regardless of the applicable standard of review." (Association for Los Angeles Deputy Sheriffs, supra, 94 Cal.App.5th at pp. 776-777.) Because respondents advance a contention that is inconsistent with a trial court ruling, i.e., they claim that all of Matloubian's claims are derivative under the gravamen test, they bear the burden of overcoming the presumption of correctness as well. (See Tokio Marine &Fire Ins. Corp. v. Western Pacific Roofing Corp. (1999) 75 Cal.App.4th 110, 118 [holding that the presumption of correctness refuted a contention raised by respondents].)
We presume the trial court correctly identified the gravamen of Matloubian's allegations as respondents' refusal to pay Matloubian the disguised dividends that were owed to him as a shareholder of the corporation. Thus, Matloubian appears to be"' "enforc[ing] a right against the corporation which the stockholder possesses as an individual."' [Citation.]" (See Everest Investors 8, supra, 114 Cal.App.4th at p. 426.) Because Matloubian and respondents fail to argue cogently that the court erred in finding that Matloubian does not raise any derivative claims, they do not overcome the presumption of correctness afforded to that conclusion. For that reason, we reject Matloubian's challenge to the ruling granting the motion for judgment on the pleadings as to his derivative claims against Superior and respondents' argument that all of Matloubian's claims belong to Superior. Furthermore, Matloubian fails to establish the court abused its discretion in denying him leave to amend because he does not identify any new allegations he could have added to cure this defect.
Under the heading "Matloubian can not maintain a derivative suit" (underscoring & some capitalization omitted), respondents argue, "Superior never declared dividends" and "[i]n the absence of a dividend lawfully declared by the board of directors of Superior, no debt was created in favor of Matloubian." If respondents are arguing that Matloubian's disguised dividend theory fails as a matter of law because Superior never formally declared dividends, they fail to provide Matloubian and this court with adequate notice of that argument. (See Tilbury Constructors, Inc. v. State Comp. Ins. Fund (2006) 137 Cal.App.4th 466, 482 [" '[E]ach point in an appellate brief should appear under a separate heading, and we need not address contentions not properly briefed.' "]; People v. Evans (2011) 200 Cal.App.4th 735, 756, fn. 12 [rejecting a contention advanced by a respondent in support of the judgment because that party failed to adequately raise it].)
4. We reject respondents' argument that Superior did not owe any fiduciary duty to Matloubian
Respondents contend the order granting judgment on the pleadings as to Matloubian's breach of fiduciary duty claim against Superior "should be affirmed because Superior did not owe a fiduciary duty to Matloubian." (Boldface &some capitalization omitted.) Respondents' arguments on this point are puzzling.
Initially, respondents suggest that a California corporation does not owe "any fiduciary duty . . . to its shareholders," and seem to rely upon corporate law from other states to advance that proposition.
Later in their appellate brief, however, respondents acknowledge that, in the course of "relax[ing] the time when a shareholder has sufficient notice to start the statute of limitations running," our high court in Bennett v. Hibernia Bank (1956) 47 Cal.2d 540, "likened a corporation to a trustee and said the shareholder would not expect a corporation-fiduciary to advance an interest contrary to the shareholder." In that case, our high court explained that "a corporation holds its property in trust for the benefit of its shareholders and occupies a fiduciary position with respect to them; as a result the shareholder is entitled to assume that the corporation will not assert any adverse claim against him." (See Bennett, supra, at p. 559.) The Bennett court held that this principle has implications for the accrual of a cause of action against a corporation, explaining that if "the existence of [such] a fiduciary relationship [is alleged]," then, "a plaintiff need not disprove that an earlier discovery could have been made upon a diligent inquiry but need show only that he made an actual discovery of hitherto unknown information within the statutory period before filing the action." (See Bennett, at pp. 559-560, 563.)
Contrary to respondents' assertion, Bennett actually involved a suit brought by alleged members of a corporation, and not a suit instituted by a shareholder of a corporation. (See Bennett, supra, 47 Cal.2d at p. 546 ["[Plaintiffs] claim as successors of . . . a member of [the corporation]."]) Nevertheless, the Bennett decision indicates that its holding applies to members and shareholders alike. (See id. at p. 559 [noting that the general principles discussed in the opinion concern when "the statutory period . . . commence[s]" in "an action by a member or stockholder to establish his interest in a corporation"].)
Respondents further acknowledge that the Court of Appeal in Baxter v. Boston-Pacific Co. (1927) 81 Cal.App. 187 stated," '[a] corporation occupies a fiduciary relation with its shareholders in holding and transferring title to shares of stock'" (quoting Baxter, supra, at p. 191), and they recognize that the decision establishes "when a corporation is acting as a stock custodian it does so as a fiduciary of the shareholder." Respondents nonetheless claim that "[Bennett] and Baxter are a far cry from a corporation owing a shareholder fiduciary duties to safeguard disguised dividends or transfer disguised dividends allegedly misappropriated by the corporation's officers, directors, and controlling shareholder."
Notwithstanding respondents' acknowledgement that Bennett and Baxter support the proposition that California corporations can owe fiduciary duties to their shareholders, respondents seem to argue that only "officers, directors and controlling shareholders," but "not . . . corporation[s]," "owe fiduciary duties to . . . shareholders ...." Although their briefing on this point is not altogether clear, respondents appear to support this position with assertions that "[o]fficers, directors and controlling shareholders exercise management and control over the corporation and its property" and that "[r]ules applied to 19th Century common law business trusts are incongruous to modern statutory schemes governing today's California corporations."
Next, respondents contend, "There would be no point to the director indemnification limitations in Corporations Code section 317 if the corporation has fiduciary liability to a shareholder for acts of directors that are not in good faith and in the best interest of the corporation." They provide no analysis of the statute to support this contention. Lastly, respondents seem to imply, but do not clearly argue, that a shareholder derivative action is the exclusive means for obtaining relief "from fiduciaries who have not acted in good faith and in the best interest of the corporation."
Respondents' briefing on these points is opaque and underdeveloped. Although we may affirm the judgment in favor of Superior based upon a legal ground differing from that relied upon by the trial court (see Discussion, part B.1, ante), we are not obligated to construct respondents' arguments for them. We thus reject respondents' contention that Superior did not owe a fiduciary duty to Matloubian to distribute to him his share of dividends that he claims were disguised from him but provided to the Mansurs. (See In re D.N. (2020) 56 Cal.App.5th 741, 767 ["' "Although it is the appellant's task to show error, there is a corresponding obligation on the part of the respondent to aid the appellate court in sustaining the judgment. '[I]t is as much the duty of the respondent to assist the [appellate] court upon the appeal as it is to properly present a case in the first instance, in the court below.'"' "].)
C. The Trial Court Erred In Granting the Mansurs' Summary Judgment Motion
" 'Summary judgment is appropriate only "where no triable issue of material fact exists and the moving party is entitled to judgment as a matter of law."' [Citation.]" (Barenborg v. Sigma Alpha Epsilon Fraternity (2019) 33 Cal.App.5th 70, 76.)" 'We review the ruling on a motion for summary judgment de novo, applying the same standard as the trial court.' [Citation.]" (Ibid.)
The trial court granted the Mansurs' summary judgment motion on two grounds: "(1) [Matloubian] cannot show any entitlement to damages or equitable relief because [Matloubian's] buyout of his shares in Superior . . . as of the valuation date of March 11, 2014 included all future profits; [and] (2) [Matloubian's] assignment of his shares on September 17, 2019 divested him of standing to sue for breach of fiduciary duty ...."
As explained below, the trial court erred in arriving at both these conclusions, and in concluding that Matloubian's "accounting cause of action . . . fails" simply because his "breach of fiduciary duty cause of action fails."
1. The double recovery doctrine does not bar Matloubian's claims against the Mansurs
Regarding the first ground, the trial court found, "[Matloubian] is barred from recovering twice for earnings incurred after the valuation date." The court reasoned, "Because the appraisers valued [Matloubian's] shares in Superior . . . as a going concern, their valuation as of March 11, 20[1]4 per the parties' agreement accounted for future profits." As explained above, the double recovery doctrine does not preclude Matloubian from recovering at least some portion of Superior's postvaluation distributions. (See Discussion, part B.2, ante.) The trial court thus erred in granting summary judgment on that basis.
Although the trial court stated at certain points in its ruling that the valuation date was March 11, 2004, this is a typographical error because it is undisputed that the valuation date was in 2014.
2. The trial court erred in concluding that Matloubian transferred his breach of fiduciary duty claim to Zahal
Concerning its second ground for granting summary judgment, the trial court reasoned, "Once Zahal . . . fully compensated [Matloubian] for his shares and [Matloubian] assigned his shares, ....[Matloubian] lost his right to invoke the fiduciary duty owed by a majority shareholder to a minority shareholder." In arriving at this conclusion, the court relied upon Commercial Code section 8302, subdivision (a), which provides in pertinent part: "[A] purchaser of a certificated or uncertificated security acquires all rights in the security that the transferor had or had power to transfer." (Com. Code, § 8302, subd. (a).) Thus, implicit in the court's decision is the premise that Matloubian's claim for breach of fiduciary duty is a "right[ ] in the security" that Zahal "acquire[d]" for the purpose of the statute. (See ibid.) The trial court did not support its reading of the statute with any further analysis or citation to authority.
Respondents represent that they "have not found reported California opinions discussing the statute's phrase 'rights in the security[,]'" and our research has not uncovered any such authority either. Because Commercial Code section 8302 is a Uniform Commercial Code (UCC) provision (i.e., UCC § 8-302), we may consider decisions from other jurisdictions construing the statutory text. (See Severin Mobile Towing, Inc. v. JPMorgan Chase Bank, N.A. (2021) 65 Cal.App.5th 292, 303 ["[B]ecause 'one important purpose of the Uniform Commercial Code is to make uniform the law among the various jurisdictions . . . we generally afford great deference to the decisions of our sister jurisdictions interpreting its provisions.' "].)
In his reply brief, Matloubian asserts Stephenson recognized "[t]he longstanding rule . . . that when shares are sold, the rights to past dividends remain with the seller unless the agreement expressly provides they go to the buyer." (Citing Stephenson, supra, 16 Cal.4th at pp. 1173-1174.) As we noted in Discussion, part B.2, ante, however, the employee in Stephenson had not transferred his shares to the corporation because he had not been paid the purchase price. The Stephenson court thus had no occasion to determine whether the employee would have lost his right to receive prior dividends upon assigning his shares.
(See 40 Cal.Jur.3d (2022) Investment Securities, § 1 & fn. 2 [noting that "Division 8 of the Uniform Commercial Code" governs "the issuance, transfer, and registration of investment securities," and indicating that Com. Code, § 8302 is in Div. 8 of the UCC]; compare Com. Code, § 8302, with U. Com. Code, § 8302 [identical to Com. Code, § 8302, except the UCC provision employs the term "subsection" instead of "subdivision"].)
Matloubian relies upon the Ohio Supreme Court's decision in Paul Cheatham I.R.A. v. Huntington Nat'l Bank (2019) 157 Ohio St.3d 358, which held that the statute does not "provide[ ] for the automatic assignment of" "all causes of action the seller [of a security] had the right to bring relating to the" security. (See Paul Cheatham I.R.A., supra, at pp. 358, 362-363.) On the other hand, respondents ask us to follow Urdan v. WR Capital Partners, LLC (Del. 2020) 244 A.3d 668 (Urdan). In that case, the Delaware Supreme Court held that under this UCC provision, "[a] breach of fiduciary duty claim for dilution" of a party's equity interest in a corporation "travel[s] with the sale of [the] stock" because the claim" 'aris[es] from the relationship among stockholder, stock and the company.'" (See Urdan, supra, at pp. 677-678.)
As explained below, we conclude that even under Urdan's interpretation of the statute, Matloubian did not transfer his breach of fiduciary duty claim to Zahal in the course of selling his shares and the trial court thus erred in finding that Matloubian lost his right to pursue that claim.
In Urdan, certain plaintiff-shareholders of a closely-held corporation brought suit in the Court of Chancery against the corporation, certain board members, the chief executive officer, and two entities managed by the defendant-board members that provided financing for the corporation. (See Urdan, supra, 244 A.3d at pp. 670-673.) With regard to the two board memberdefendants and the financing entities they managed, the plaintiffs alleged those defendants "breached their fiduciary duties by approving financing transactions that diluted the plaintiffs' equity interest in" the corporation. (See id. at pp. 670, 673, 678.) During the pendency of the suit, the plaintiffs settled with the corporation and the chief executive officer and, pursuant to the settlement, the plaintiffs released their claims against the corporation and the officer and sold" 'all of [the plaintiffs'] right, title and interest' in their stock" back to the corporation via repurchase agreements. (See id. at pp. 670, 673.) The remaining defendants thereafter successfully moved to dismiss the breach of fiduciary duty claims against them on the ground that "the plaintiffs lost standing to pursue th[ose] . . . claims when they sold their . . . stock." (See id. at pp. 670-671.)
In affirming the Court of Chancery's decision, the Urdan court construed" '[t]he [statutory] phrase "all rights in the security" '" in 6 Delaware Code section 8-302, subdivision (a), (Delaware's codification of UCC § 8-302, subd. (a)) as" 'distinguishing between personal rights of the holder, on the one hand,'" which "do not travel with the sale of a security," and "rights that inhere in the security itself, on the other.'" (See Urdan, supra, 244 A.3d at pp. 671, 677, 681; compare 6 Del. C., § 8-302, with U. Com. Code, § 8-302 [both statutes are identical].)
According to Urdan, "[t]he rights in the security are rights 'arising from the relationship among stockholder, stock and the company.'" (Urdan, supra, 244 A.3d at p. 677.) The Urdan court identified certain examples of rights in the security, including "[a] corporate charter violation claim" and "a challenge to executive compensation awards ...." (See ibid.) "[E]xamples of personal claims" provided by Urdan were "a contract claim for breach of an agreement to purchase or sell shares or a tort claim for fraud in connection with the purchase or sale of shares." (See ibid.) Urdan stated that "[o]ne major distinction between" the two types of claims "is that for the personal claims, the nature of the underlying property does not matter," that is, "[t]he property happens to be shares, but the cause of action is not a property right carried by the shares, nor does it arise out of the relationship between the stockholder and the corporation..... The underlying property could just as easily be land or a car." (See id. at pp. 677-678.)
Next, the Urdan court rejected the plaintiffs' argument that "their breach of fiduciary duty claims for economic dilution ....were personal and did not follow the . . . stock sale." (See Urdan, supra, 244 A.3d at pp. 676-677, 678.) The Delaware Supreme Court reasoned that the plaintiffs alleged the defendants had "diluted the plaintiffs' equity interest," and that "[a] breach of fiduciary duty claim for dilution is not a wrong personal to the stockholder." (See id. at p. 678.) Instead, the Urdan court found this type of claim "arises from 'the relationship among stockholder, stock and the company.'" (Ibid.) Based on its conclusion that "[t]he plaintiffs' . . . claims were . . . part of the rights accompanying the . . . stock sale," the court ruled that "the plaintiffs no longer had standing to bring these claims." (See id. at p. 671.)
Respondents contend that under Urdan, "Matloubian's breach of fiduciary duty claim is based upon 'rights in the security' that travel with the shares under" the UCC provision in question. (Underscoring &some capitalization omitted.) They argue, "Matloubian's fiduciary [duty] claims depend on the relationship between Matloubian, Matloubian's shares, and Superior, and the existence of Matloubian's shares (before he transferred the shares)." Respondents further maintain, "Matloubian is claiming that the Mansurs diverted, misappropriated, and misused Superior's assets and all economic benefit of Superior's success, diluting the economic value of Matloubian's shares, and leaving Superior insolvent and unable to pay its debts." Consequently, respondents maintain that Matloubian's claim is not predicated upon "personal rights" described in Urdan. We disagree.
The breach of fiduciary duty claims at issue in Urdan arose out of the "approv[al of] financing transactions that diluted the plaintiffs' equity interest in" the corporation. (See Urdan, supra, 244 A.3d at p. 678.) Because this alleged malfeasance impacted the value of the shares to any subsequent owner, it concerned" 'the relationship among stockholder, stock and the company' " and did not give rise to a "personal" claim under Urdan's legal framework. (See ibid.)
In contrast, although Matloubian's claim for breach of fiduciary duty admittedly relates to his status as a former shareholder of Superior, it nonetheless constitutes a personal claim under Urdan. Just as "a tort claim for fraud in connection with the . . . sale of shares" "arises out of the false representations made by the buyer" that cause "the counterparty" to suffer damages (see Urdan, supra, 244 A.3d at p. 677), Matloubian's claims arise out of respondents' concealment of, and refusal to pay, dividends to him, which misconduct resulted in compensable damages. (See Discussion, parts B.2-B.3, ante [describing Matloubian's disguised dividend theory, and explaining that Zahal's payment of the March 2014 sales price did not fully compensate Matloubian for the value of the disguised dividends]; see also Lovejoy v. AT&T Corp. (2004) 119 Cal.App.4th 151, 157-158 [indicating that concealment is a species of fraud in which the defendant was "under a duty to disclose [a material] fact to the plaintiff"].) Furthermore, in both cases, if the claim were deemed to run with the securities, then the buyer would profit from its malfeasance by being absolved of liability upon consummation of the sale. We do not believe that Urdan's interpretation of the statutory phrase "rights in the security" compels such an outcome. (See People v. Lofchie (2014) 229 Cal.App.4th 240, 251 ["' "We must . . . avoid an interpretation [of a statute] that would lead to absurd consequences."' "].)
In sum, the trial court erred in finding that Matloubian lost standing to raise his breach of fiduciary duty claim.
DISPOSITION
We deny respondents' motion to dismiss the appeal filed on June 27, 2022. We reverse (1) the judgment entered in favor of respondent Superior Home Design, Inc. (Superior), and (2) the judgment entered in favor of respondents Zahal Mansur and Michal Mansur (collectively, the Mansurs). We remand this matter to the trial court with instructions to (1) vacate the court's June 25, 2020 order granting respondents' motion for judgment on the pleadings; (2) issue a new order (a) denying the motion for judgment on the pleadings as to appellant Morris Matloubian's breach of fiduciary duty and accounting causes of action against Superior, (b) denying the motion for judgment on the pleadings as to Matloubian's breach of fiduciary duty and accounting causes of action against the Mansurs, and (c) granting the motion for judgment on the pleadings as to Matloubian's derivative claims; (3) vacate the court's June 7, 2022 order granting the Mansurs' motion for summary judgment; (4) issue a new order denying the summary judgment motion; and (5) conduct further proceedings consistent with this opinion. Matloubian is awarded his costs on appeal.
We concur: CHANEY, J., WEINGART, J.