Case Name: Dan Ferguson v. Advantel, Inc., et al.
Case No.: 15CV289278

This is an action for breach of fiduciary duties and wrongful termination among other claims. Currently before the Court is the demurrer by Defendant Advantel, Inc. (“Advantel”) to the first cause of action for breach of fiduciary duty as alleged against it in Plaintiff’s First Amended Complaint (“FAC”), on the ground that it fails to state sufficient facts.

As an initial matter, while the Court has reviewed the declaration of Defense Counsel Molly Sundstrom and finds that adequate meet and confer discussions took place between counsel, CCP §430.41(a) clearly states that in the context of a demurrer the parties “shall meet and confer in person or by telephone.” Initiating and conducting meet and confer discussions solely through email or some other form of writing does not satisfy this requirement. Counsel are directed to comply with the statute in the future.

The Court in ruling on a demurrer treats it “as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.” (Piccinini v. Cal. Emergency Management Agency (2014) 226 Cal.App.4th 685, 688, citing Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “A demurrer tests only the legal sufficiency of the pleading. It admits the truth of all material factual allegations in the complaint; the question of plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213-214.)

As noted in the Court’s prior order “[t]he elements of a cause of action for breach of fiduciary duty are the existence of a fiduciary relationship, its breach, and damage proximately caused by the breach.” (Knox v. Dean (2012) 205 Cal.App.4th 417, 432, citing City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 483.) “While breach of fiduciary duty is a question of fact, the existence of legal duty in the first instance and its scope are questions of law.” (Kirschner Brothers Oil, Inc. v. Natomas Co. (1986) 185 Cal.App.3d 784, 790.) As was also previously noted, “[t]he allegation of a fiduciary relationship must be supported by either a contract or a relationship that imposes it as a matter of law.” (Berryman v. Merit Property Management, Inc. (2007) 152 Cal.App.4th 1544, 1558.)

Defendant’s demurrer to the FAC’s first cause of action on the grounds that it fails to state sufficient facts as alleged against it is SUSTAINED.

The amended allegations in the FAC at 14-15 fail to describe any breach of a fiduciary duty owed to Plaintiff by Defendant Alcatel itself as opposed to a duty owed by the majority shareholder(s) and/or individual officers and directors. No California authority recognizes a general fiduciary duty from a corporation to its individual shareholders, and to the extent that any such duty has been found to be owed by a corporation to shareholders, it has been in a very limited set of circumstances. (See Baxter v. Boston-Pacific Oil Co. (1927) 81 Cal.App.187, 191 [“A corporation occupies a fiduciary relation with its shareholders in holding and transferring title to shares of stock and is required to act in good faith and with care in making such transfers.”]; Bennett v. Hibernia Bank (1956) 47 Cal.2d 540, 559 [“a corporation holds its property in trust for the benefit of its shareholders and occupies a fiduciary position with respect to them”].) Similarly, in Schneider v. Union Oil Co. (1970) 6 Cal.App.3d 987, 992-994, the court upheld a claim for breach of fiduciary duty against a corporation where a plaintiff shareholder sued that corporation for wrongful transfer to the title of her shares when it refused her demand for recognition and confirmation of her stock ownership. The duty, however, was expressly limited to the corporation’s refusal to recognize the plaintiff as a shareholder of the corporation, i.e., to do an act that it was required as a corporation to do.

Contrary to Plaintiff’s arguments in opposition, decisions such as Baxter do not stand for the proposition that a corporation owes a general, all-encompassing fiduciary duty to all shareholders. It states only than when holding and transferring shares to or from a specific shareholder the corporation owes a duty to that shareholder similar to that owed by a trustee. There is no fiduciary duty owed to individual shareholders regarding the transfer of shares generally rather than shares held by a specific shareholder (much less a planned transfer that has not even taken place yet).

Nor can the FAC’s general allegations of a conspiracy involving Defendant Alcatel provide support for stating a breach of fiduciary duty claim against it. “Conspiracy is not an independent tort; it cannot create a duty or abrogate an immunity. It allows tort recovery only against a party who already owes the duty and is not immune from liability based on applicable substantive tort law principles.” (Applied Equipment Corp. v. Litton Saudi Arabia, Ltd. (1994) 7 Cal.4th 503, 514.) “As we read Applied Equipment and the antecedent case authorities on which it builds, in California a civil conspiracy to commit tortious acts can, as a matter of law, only be formed by parties who are already under a duty to the plaintiff, the breach of which will support a cause of action against them—individually and not as conspirators—in tort. Restated, in cases where the plaintiff alleges the existence of a civil conspiracy among the defendants to commit tortious acts, the source of substantive liability cannot arise out of participation in the conspiracy alone. Moreover, according to these authorities, it makes no difference in the analysis whether the underlying duty is imposed by statute (as in Doctors’ Co.) or by the common law (as in Applied Equipment). A duty, however, independent of the conspiracy itself, must exist in order for substantive liability to attach.” (Chavers v. Gatke Corp. (2003) 107 Cal.App.4th 606, 614, emphasis in original, internal citations omitted.)

As the existence of a fiduciary duty is a question of law and there is no indication that Plaintiff can amend to plead a breach of such a duty owed to him by Defendant Alcatel itself, further leave to amend is DENIED. “Leave should be denied where the facts are not in dispute and the nature of the claim is clear, but no liability exists under substantive law.” (Lawrence v. Bank of America (1985) 163 Cal.App.3d 431, 436; Schonfeldt v. State of Calif. (1998) 61 Cal.App.4th 1462, 1465 [if no liability as a matter of law, leave to amend should not be granted]; Jenkins v. JP Morgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, 535.)