Justia Business Law Opinion Summaries

Articles Posted in California Courts of Appeal
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Plaintiff Rick Fowler sought a writ of mandate against defendant Golden Pacific Bancorp, Inc. (Bancorp), to enforce his statutory rights as a director and majority shareholder to inspect corporate books and records. Bancorp opposed the petition, arguing that the trial court should limit Fowler’s inspection rights because he was involved in ongoing litigation with Bancorp and could use the information to undermine Bancorp’s position in the lawsuit. The trial court granted Fowler’s writ petition. Bancorp appealed. After the Court of Appeal issued an oral argument waiver notice, Bancorp moved to dismiss the appeal as moot, citing that because Bancorp had been acquired by Social Finance, Inc., Fowler was no longer a Bancorp board member, and therefore it was impossible for the Court to grant effective relief. Ultimately, the Court of Appeal found Fowler was indeed no longer a member of Bancorp’s board of directors and therefore had no director’s inspection rights. Nevertheless, exercising discretion, the Court reached the merits of the case because it presented an issue of substantial and continuing public interest: whether a director’s “absolute” right of inspection under California Corporations Code section 1602 could be curtailed because the director and corporation were involved in litigation and there was a possibility the documents could be used to harm the corporation. “[T]he mere possibility that information could be used adversely to the corporation is not by itself sufficient to defeat a director’s inspection rights. Rather, any exception to the general rule favoring unfettered access must be limited to extreme cases, where enforcing an ‘absolute’ right of inspection would produce an absurd result, such as when the evidence establishes the director’s clear intent to use the information to breach fiduciary duties or otherwise commit a tort against the corporation.” The Court declined to reach the other question referenced in the parties’ briefs concerning Fowler’s inspection rights as a shareholder, because that issue was not resolved by the trial court and the record was insufficiently developed for a determination of whether it was moot. The case was remanded for the trial court to consider whether that issue was moot and, if not, to resolve any remaining disputes in the first instance. View "Fowler v. Golden Pacific Bancorp." on Justia Law

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Plaintiff appealed a summary judgment entered in favor of Defendant in her lawsuit for damages against Defendant based on his alter ego liability for a $157,370 judgment against a corporation. Plaintiff claimed that Magnolia Funding, Inc., the subject of a prior lawsuit that provided the original loan, and Magnolia Home Loans, Inc. “were the same company”; and that Defendant was “the sole owner, officer, and director of each.” Magnolia Funding closed when Magnolia Home Loans got up and running.   The Second Appellate district concluded, among other things, that (1) the trial court erred by granting summary judgment in favor of the corporation; there are triable issues of fact concerning Defendant’s alter ego liability, and (2) Plaintiff’s civil action does not violate Defendant’s right to due process.   The court explained that under the alter ego doctrine, the corporate veil may be lifted to show the corporate form is fiction and determine who controls the corporate entity and who is liable for its debts. Courts look to the totality of circumstances to determine who actually owns or controls the corporate entity and who is using it as “a mere shell or conduit” for his or her own personal interests. When Magnolia Funding, Inc. dissolved, Magnolia Home Loans, Inc. received its remaining physical assets. At the end of the fiscal year 2009, Magnolia Home Loans, Inc. held cash and all that money was paid to Defendant. This is a triable issue of fact concerning Escamilla’s alter ego liability. View "Lopez v. Escamilla" on Justia Law

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In 2009, Defendant borrowed $350,000 from a husband and wife (“Plaintiff” and “Co-Plaintiff”). The loan was documented by a promissory note which was secured by a deed of trust on real property belonging to Defendant. In 2009, Co-Defendant borrowed $150,000 from Co-Plaintiff. The loan was documented by a promissory note signed by Co-Defendant; the note was not secured by a deed of trust on real property.   In a court trial on Plaintiffs’ action against Defendants for breach of the obligation to repay the loans, the trial court voided the usurious interest rate on both notes and deemed the principal sum of the notes due at maturity. The Second Appellate Division reversed the trial court’s judgment in part and found Plaintiffs are entitled to prejudgment interest on the unpaid principal of the 2008 loan, but at the prejudgment interest rate set by article XV, section 1.   The court reasoned that even though Civil Code section 3289, subdivision (b) does not apply to the 2008 loan because it was secured by a deed of trust on real property, Plaintiffs were nonetheless entitled to prejudgment interest on the unpaid principal at the date of maturity at the rate of 7 percent which is the default rate of prejudgment interest provided in article XV, section 1 of the California Constitution, which applies except when a statute provides otherwise. View "Soleimany v. Narimanzadeh" on Justia Law

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A judgment creditor seeking to seize funds in bank accounts held by the judgment debtor’s spouse served a notice of levy on the bank’s agent for service of process. The agent misread the form and rejected it. The agent informed the bank of its mistake and the bank then froze the funds, however, the spouse had all but drained the accounts. Plaintiff filed a motion for a court order imposing third-party liability on Defendant for its noncompliance with the notice of levy, which the trial court denied.   The Second Appellate District reversed the trial court’s ruling in the bank’s favor and held that the bank is liable for its agent’s negligence in misreading the service of process form. The court further held that the bank is liable for some of the funds withdrawn. The court reasoned that a third person’s “fail[ure] or refus[al]” to deliver property subject to a levy “without good cause” renders the third person “liable to the judgment creditor” for the amounts withdrawn and covered by the levy. Further, the principal’s failure to deliver property subject to a levy is excused when an agent’s mistake constitutes “good cause.” Here, because the agent, in this case, was negligent in misreading the standardized form it was served with, the agent for service of process—and hence its principal, the bank—had reason to know of the levy, such that the bank is liable to the judgment creditor for some of the withdrawn funds. View "Bergstrom v. Zions Bancorporation" on Justia Law

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EBO filed suit after unsuccessfully seeking to lease a space in a building owned by the Taylor LLC, including derivative claims brought by EBO on behalf of Taylor, alleging that the denial of the lease caused Taylor to suffer economic injury. The defendants argued that EBO lacked standing under Corporations Code section 17709.02 to pursue them because during the litigation it relinquished its interest in and was no longer a member of the Taylor LLC. The court determined that it nonetheless had statutory discretion to allow EBO to maintain the derivative claims.The court of appeal vacated. Section 17709.02 requires a party to maintain continuous membership in a limited liability company to represent it derivatively, just as section 800 requires a party to maintain continuous ownership in a corporation to represent it derivatively. The statutory discretion conferred on trial courts under section 17709.02(a)(1), to permit “[a]ny member [of an LLC] who does not meet these requirements” to maintain a derivative suit does not permit courts to excuse a former member from the continuous membership requirement. While equitable considerations may warrant exceptions to the continuous membership requirement, no such considerations were presented here. View "Sirott v. Superior Court of Contra Costa County" on Justia Law

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Grove, an employee of Juul, a Delaware corporation that was headquartered in San Francisco, received options to acquire company stock. Grove stopped working for Juul in 2017, then exercised those options. In 2019, Grove sought to inspect the company’s books and records under California Corporations Code section 1601 to determine the value of his stock and to investigate potential breaches of fiduciary duty. Juul sought declaratory and injunctive relief in Delaware. Grove filed a shareholder class action and derivative complaint in California. Juul cited a forum selection clause, requiring that derivative and class claims proceed in Delaware. Grove filed an amended complaint, alleging only violations of section 1601. The California court stayed Grove's action, reasoning that the Agreement Grove signed states that Delaware courts have exclusive jurisdiction to enforce the agreement. The Court of Chancery of Delaware then granted Juul judgment on the pleadings; Grove did not waive inspection rights under California law but “[s]tockholder inspection rights are a core matter of internal corporate affairs,” so Grove’s rights as a stockholder are governed by Delaware law; Grove may litigate his inspection rights only in a Delaware court.The California court of appeal affirmed the stay order. It was reasonable to enforce the forum selection clause as to the class and derivative claims. Grove’s claim to inspect the books and records has already been adjudicated in the Delaware court, whose decision is entitled to full faith and credit. View "Grove v. Juul Labs, Inc." on Justia Law

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The owners and operators of six boutique hotels sued San Francisco, seeking refunds of about $1.7 million in penalties that had been assessed for failure to timely file returns and pay certain hotel taxes. The plaintiffs contended they were entitled to refunds because, exercising ordinary care, they had hired and then relied on an employee to file the returns and make the payments, only to learn after the taxes were past due that the employee was dishonest and had never filed the returns or paid the taxes. Section 6.17-4 of the ordinance required the waiver of certain penalties when “[f]ailure to make timely payment or report of tax liability . . . occurred notwithstanding the exercise of ordinary care by the taxpayer.”The court of appeal affirmed a judgment in favor of the plaintiffs. The court rejected San Francisco’s arguments that as a matter of law, reliance on an employee cannot constitute ordinary care under section 6.17-4, no matter how careful the plaintiffs were in hiring and supervising the employee, and that even if the plaintiffs were entitled to refunds of some penalties under section 6.17-4, other penalties had been assessed under section 6.11-3, a Code section to which the refund provision of section 6.17-4 does not apply. View "Gajanan v. City and County of San Francisco" on Justia Law

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While shopping at the Carmel Mountain Ranch location of Costco in San Diego, plaintiff Lilyan Hassaine slipped and fell on a slippery substance that she believed was liquid soap. Claiming serious injuries from the fall, she sued Costco and Club Demonstration Services (CDS), an independent contractor that operated food sample tables within the store. The trial court granted a motion for summary judgment filed by CDS, concluding that the company owed Hassaine no duty of care. In the court’s view, it was dispositive that CDS’s contract with Costco limited its maintenance obligations to a 12-foot perimeter around each sample table, and that Hassaine’s fall occurred outside that boundary. The Court of Appeal reversed, finding the trial court erred in concluding CDS’s contract with Costco delineated the scope of its duty of care to business invitees under general principles of tort law. Businesses have a common law duty of ordinary care to their customers that extends to every area of the store in which they are likely to shop. "While the CDS-Costco agreement may allocate responsibility and liability as a matter of contract between those parties, it does not limit the scope of CDS’s common law duty to customers. ... Breach and causation present triable factual issues here, precluding summary judgment on those grounds." View "Hassaine v. Club Demonstration Services, Inc." on Justia Law

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Plaintiff, a Hollywood restaurant, maintained a business interruption insurance policy through Defendant.  In response to COVID-19, the Governor, Mayor of Los Angeles, and several public health agencies ordered Plaintiff to close its restaurant, resulting in the loss of all its business. Plaintiff filed a claim with Defendant insurance company, which was denied based on the grounds that the policy only covered “direct physical loss of or damage to” the property, and expressly excluded coverage for losses resulting from a government order and losses caused by or resulting from a virus. Plaintiff appealed after Defendant's demurrer was sustained without leave to amend.   The California Court of Appeal affirmed the dismissal and held that Plaintiffs cannot establish a breach of contract.  At issue is whether the clause’s requirement can be construed to cover the pandemic-related closure. The court held that under California law a business interruption policy that covers physical loss and damages does not provide coverage for losses incurred by reason of the COVID-19 pandemic. Moreover, the court explained that the fact that loss and damage requirements are sometimes found in exclusionary provisions does not change the plain meaning of the terms. The court noted that even if Plaintiff could bring itself within the coverage clause, the virus exclusion would bar coverage. View "Musso & Frank Grill v. Mitsui Sumitomo Ins. USA" on Justia Law

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In June 2017, Google engineers alerted Intel’s management to security vulnerabilities affecting Intel’s microprocessors. Intel management formed a “Problem Response Team” but made no public disclosures. In January 2018, media reports described the security vulnerabilities. Intel acknowledged the vulnerabilities, and management’s prior knowledge of them. Intel’s stock price dropped. Tola filed a shareholder derivative complaint, alleging that certain Intel officers and directors breached fiduciary duties. After obtaining records from Intel, Tola filed a third amended complaint, alleging that certain officers “knowingly disregarded industry best practices, material risks to the Company’s reputation and customer base, and their fiduciary duties of care and loyalty … the Board of Directors willfully failed to exercise its fundamental authority and duty to govern Company management and establish standards and controls.”The trial court dismissed, concluding that Tola failed to allege, with the requisite particularity, that it was futile to make a pre-suit demand on Intel’s board of directors. The court of appeal affirmed. Tola does not support his conclusory allegations with sufficient particularized facts that support an inference of bad faith. At most, Tola alleged that two directors received a material personal benefit from alleged insider trading, which still leaves an impartial board majority to consider a demand. View "Tola v. Bryant" on Justia Law