2013-00144735-CU-BT

Todd Saccani vs. Gary Saccani

Nature of Proceeding: Hearing on Demurrer

Filed By: Kachmar, James

Defendants Gary and Jill Saccani’s Demurrer to the Complaint is sustained with leave
to amend for failure to state facts sufficient to constitute a cause of action.

Plaintiffs are minority shareholders in Saccani Distributing Company. Plaintiffs allege
that Jill and Gary Saccani “owed Plaintiffs a fiduciary duty not to strip or defraud
Plaintiffs of their rightful shareholder interest in Saccani distributing
company.” (Complaint, ¶ 36.) Plaintiffs allege that the Saccanis breached the alleged
fiduciary duty by “scheming to acquire decedent Donald Saccani’s shares
in Saccani Distributing Co. for themselves … which scheme was designed to increase
defendant Gary Saccanni’s ownership interest in Saccani Distributing Co. from 1/3 to
2/3 and dilute plaintiffs’ ownership interest.” (Complaint, ¶ 36.) Plaintiffs allege that
defendants breached the Second Amended and Restated Stock Purchase Agreement
which controlled the manner in which the shares could be transferred.

Moving defendants challenge only the 2nd cause of action for Breach of Fiduciary
Duty. Defendants contend that the Complaint does not allege the legal basis for the
existence of the fiduciary duty. The alleged duty is based on the Saccanis’ status as
shareholders in Saccani Distributing Co. Defendants concede that Gary is alleged to
be the president and chairman of the Board of Directors of Saccani Distributing, but
the fiduciary duty is not alleged in the Complaint to be derived from this status.

In order to prevail on a claim for breach of fiduciary duty, plaintiffs must establish: “(1)
the existence of a fiduciary relationship; (2) a breach of the fiduciary duty; and (3)
resulting damage.” (Pellegrini v. Weiss (2008) 165 Cal. App.4th 515, 524, citation
omitted; Charnay v. Cobert (2006) 145 Cal. App. 4th 170, 182). As a general rule, equal shareholders do not owe a fiduciary duty to one another.

Plaintiffs contend that they have adequately alleged an exception to the general rule
that shareholders owe no fiduciary duty to one another. Plaintiffs contend that moving
defendants were dominant and controlling shareholders who have a fiduciary duty to
the minority shareholders pursuant to Jones v Ahmanson (1969) 1 Cal.3d 93.
Although plaintiffs have not alleged specifically that defendants were dominant and
controlling, they contend that the allegations clearly establish that Gary and Jill were
the controlling shareholders of Saccani Distributing Company by virtue of their 1/3
stock ownership combined with their control over their alleged “silent partner’s shares.”
They also contend that Gary controlled the company by virtue of his corporate
positions, and that moving defendants used that control to concoct a scheme whereby
they would acquire Donald Saccani’s shares. Defendants rely on the Complaint, ¶¶ 22-
24, 36.) However, in reviewing the cited paragraphs, the Court does not agree that
the facts alleged show that defendants were dominant and controlling shareholders.
The Jones v Ahmanson case does not define dominant or controlling shareholders,
and the cases relied on by plaintiffs concerned parties who in fact owned more than
50% of the shares.

Defendants contend that Gary also has a fiduciary duty as an officer and director of
Saccani Distributing Company. However, the 2nd cause of action in the Complaint
does not address this basis for the fiduciary duty, and the defendants in reply contend
that plaintiff’s father, not plaintiffs, would have been the party who was owed a
fiduciary duty at the time of the alleged breach. A subsequent shareholder generally
cannot sue for the breach of fiduciary duty owed to a prior shareholder. See Daly v
Yessne (2005) 131 Cal.App.4th 52, 63-64. Defendants contend that the allegations
show that the Trust owned only 1/3 of the shares, so the defendants could not be
controlling or dominant shareholders.

The Court finds that the current allegations are not sufficient to allege that moving
defendants were the controlling or dominant shareholders or that the alleged breach of
fiduciary duty occurred at a time when plaintiffs were shareholders. Plaintiffs are given
leave to amend to allege all bases for the fiduciary duty and the facts to support their
contention that defendants were dominant or controlling shareholders.

Plaintiffs may file and serve an Amended Complaint on or before December 6, 2013.
Response to be filed and served within 10 days of service of the Amended Complaint,
15 days if served by mail.

The minute order is effective immediately. No formal order pursuant to CRC Rule
3.1312 or further notice is required.