Case Number: EC058994 Hearing Date: February 13, 2015 Dept: NCD
MOTION FOR SUMMARY ADJUDICATION

TENTATIVE RULING (2/13/15)
#2
EC 058994
MESERKHANIv. HACOPIAN

Cross-Defendant Vahik Meserdhani’s Motion for Summary Adjudication of Issues
Tentative:

Cross-Defendant’s UNOPPOSED Request for Judicial Notice is GRANTED.
Cross-Complainant’s UNOPPOSED Request for Judicial Notice is GRANTED.

Motion for summary adjudication is DENIED in part and GRANTED in part.

Issue 1. The first cause of action for breach of fiduciary duty has no merit because by Defendant’s own admission, Defendant has been sole director of PALAD, INC. since 2003
Motion for summary adjudication is DENIED. Moving party, cross-defendant Meserkhani has failed to meet his initial burden of establishing that no fiduciary duty can be established here. Evidence establishing that on Meserkhani resigned as sole director of Palad, Inc. in December 2003 does not establish that a fiduciary duty cannot be established, as alleged in the cross-complaint, and as supported by the corporate minutes relied upon by the moving party, that Meserkhani owed fiduciary duties as an officer of the corporation. See Cross-Complaint, RFJN, Ex. A, para. 19; Meserkhani Decl., Ex. 5, para. 3. The moving papers have accordingly failed to establish that no fiduciary duty was owed, and the burden has not shifted to cross-complainant to raise triable issues of material fact.

Issue 2. The second cause of action for indemnification of defense costs pursuant to Corp. Code §317 has no merit because only a corporation, not an individual such as plaintiff, may be held liable for defense costs
Motion for summary adjudication is GRANTED. Cross-defendant Meserkhani has established that the statutory relief requested can be sought against the corporation, not Meserkhani as an individual. The opposition does not dispute this point, but argues that the claim is so brought. This is not supported by the pleading itself. [See RFJN, Ex. A, Cross-Complaint, 9:10-11]. The motion is granted without prejudice to cross-complainant seeking the requested relief pursuant to a post-judgment application.

Issue 3—Attorney’s Fees
Motion is DENIED on the ground the motion in this respect does not completely dispose of a cause of action, an affirmative defense, a claim for damages, or an issue of duty. CCP § 437c(f)

BACKGROUND:
MOVING PARTY: Cross-Defendant Vahik Meserkhani

RESPONDING PARTY: Cross-Complainant Armen Hacopian

RELIEF REQUESTED:
Summary adjudication of issues:
1. The first cause of action for breach of fiduciary duty has no merit because by Defendant’s own admission, Defendant has been sole director of PALAD, INC. since 2003
2. The second cause of action for indemnification of defense costs pursuant to Corp. Code §317 has no merit because only a corporation, not an individual such as plaintiff, may be held liable for defense costs

Summary adjudication of issues against defendant’s requests for attorney’s fees

Causes of Action: from Cross-Complaint
1. Breach of Fiduciary Duty
2. Indemnity (Corp. Code § 317)
3. Equitable Indemnity
4. Contribution and Apportionment of Fault
5. Declaratory Relief

SUMMARY OF FACTS:
Plaintiff Vahik Meserkhani brings this action alleging that defendants Armen Hacopian, Silva Hacopian and Edwin Hacopian are diverting monies from two companies, Palad, Inc. and 1219 Glenoaks Investment, in which plaintiff owns 50% of the common stock.

Armen Hacopian, in his representative capacity and derivatively on behalf of Palad, Inc. and 1219 Glenoaks Investment, Inc. has filed a cross-complaint against Meserkhani, alleging that Meserkhani breached his fiduciary duties while acting as sole director and president of Palad, Inc. by destroying the business and forcing sale of the corporations real property and forcing dissolution, as well as commingling funds with his own assets, diverting funds, failing to disclose financial information, and failing to maintain adequate corporate records.

ANALYSIS:
Under CCP § 437c(p)(1) a cross-defendant “has met his or her burden of showing that a cause of action has no merit if that party has shown that one or more elements of the cause of action, even if not separately pleaded, cannot be established, or that there is a complete defense to that cause of action. Once the …cross-defendant has met that burden, the burden shifts to the …cross-complainant to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto.”

CCP § 437c(f) provides that “a motion for summary adjudication shall be granted only if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty.”

Issue 1. The first cause of action for breach of fiduciary duty has no merit because by Defendant’s own admission, Defendant has been sole director of PALAD, INC. since 2003
Cross-defendant Meserkhani argues here that Cross-Complainant Hacopian has admitted that he has been the sole director of Palad, Inc, since 2003, when Meserkhani resigned as director, so that Hacopian will be unable to establish that Meserkhani owed any fiduciary duty after 2003, and that any conduct prior to that time is not actionable as barred by the statute of limitations.

To establish a cause of action for breach of fiduciary duty, plaintiff must prove the following elements; 1) the existence of a fiduciary duty ; 2) breach of the duty ; 3) and damage proximately resulting from the breach. Corporations Code § 309(a), 1507

Meserkhani focuses on the element of the existence of a fiduciary duty, and submits evidence that
On December 16, 2003, Meserkhani resigned as the sole director of Palad, Inc. and Hacopian assumed the role of sole director. [UMF No. 14, and evidence cited]. The minutes of the meeting attached show that this occurred. [Ex. 5]. In addition, Meserkhani submits responses to requests for admissions, in which Hacopian admits several RFAs, stating, “Admit to the extent that Vahik Meserkhani was not the sole director of Palad, Inc. after December 16, 2003.” [See Ex. 4, Response to RFAs 279-281].

As argued by Hacopian, however, this argument does not foreclose the establishment of a fiduciary duty. The crosss-complaint also alleges that Meserkhani owed fiduciary duties as an officer of Palad, alleging that “Cross-Defendant, MESERKHANI, as the Director, President and Vice-President of PALAD, exercised authority over the corporation and owed a fiduciary duty of loyalty to the corporation under, inter alia, GAB Business Services, Inc. v. Lindsey & Newsom Claim Services, Inc. (2000) 83 Cal.App.4th 409…” [RFJN, Ex. A, para. 19]. In GAB, the court reversed the judgment on a cause of action for breach of fiduciary duty where the jury found no duty despite evidence the defendant was a corporate officer. The court set forth the standard as follows:
“We conclude an officer who participates in
management of the corporation, exercising some discretionary authority, is a
fiduciary of the corporation as a matter of law. Conversely, a “nominal”
officer with no management authority is not a fiduciary. Whether a particular
officer participates in management is a question of fact. We expect that in most
cases this test will be easily met. And, as in all legally recognized fiduciary
relationships, once this factual prerequisite is established, the law imposes a
fiduciary duty.”
GAB, at 420-421.

The Minutes of the Annual Shareholders Meeting of Palad relied upon by Meserkhani here to show he resigned as director, also show that on that date he was elected to the office of “President.” [Additional Fact No. 4, Hacopian Decl., para 3, Ex. 1, p. 2, See Also Meserkhani Decl., Ex. 5, para. 3]. The moving papers have accordingly failed to establish that no fiduciary duty was owed. Even if the burden is found to have shifted to cross-complainant, there are triable issues of fact raised which could support a reasonable inference that Meserkhani was an officer participating in management, and so owed a fiduciary duty to the corporation. [See Additional Facts 4, 6, 9, and evidence cited]. The motion should accordingly be denied.

Issue 2. The second cause of action for indemnification of defense costs pursuant to Corp. Code §317 has no merit because only a corporation, not an individual such as plaintiff, may be held liable for defense costs
Cross-defendant Meserkhani argues that the second cause of action has no merit because only a corporation, and not an individual such as Meserkhani, can be held liable for defense costs under Corporations Code § 317.

Corporations Code § 317 provides, in pertinent part:
“(c) A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was an agent of the corporation, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of the action if the person acted in good faith, in a manner the person believed to be in the best interests of the corporation and its shareholders.

No indemnification shall be made under this subdivision for any of the following:

(1) In respect of any claim, issue or matter as to which the person shall have been adjudged to be liable to the corporation in the performance of that person’s duty to the corporation and its shareholders, unless and only to the extent that the court in which the proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine.

(2) Of amounts paid in settling or otherwise disposing of a pending action without court approval.

(3) Of expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval.

(d) To the extent that an agent of a corporation has been successful on the merits in defense of any proceeding referred to in subdivision (b) or (c) or in defense of any claim, issue, or matter therein, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith.

(e) Except as provided in subdivision (d), any indemnification under this section shall be made by the corporation only if authorized in the specific case, upon a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in subdivision (b) or (c), by any of the following:

(1) A majority vote of a quorum consisting of directors who are not parties to such proceeding.

(2) If such a quorum of directors is not obtainable, by independent legal counsel in a written opinion.

(3) Approval of the shareholders (Section 153), with the shares owned by the person to be indemnified not being entitled to vote thereon.

(4) The court in which the proceeding is or was pending upon application made by the corporation or the agent or the attorney or other person rendering services in connection with the defense, whether or not the application by the agent, attorney or other person is opposed by the corporation.”

The cause of action is a bit confusing, as it is asserted against “VAHIK MESERKHANI, and DOES 1 through 50, inclusive.” [RFJN, Ex. A, Cross-Complaint, 9:10-11]. It appears the cause of action should be asserted against the corporation, not against Meserkhani. The opposition argues that the cross-complaint is asserted “derivatively on behalf of Palad,” which is true, but it is not clear from the pleading that the cause of action is being brought against Palad, which, as the moving papers establish, is still a currently active corporation. [UMF No. 17, and evidence cited, Undisputed].

Cross-defendant also argues that the statute is not designed to provide a cause of action, but a post-judgment remedy once a derivative action has been resolved. The cases cited do not foreclose bringing a claim as a cause of action, and I was able to locate a case, not cited by the parties, in which the Second District, in applying the predecessor to Section 317, found that the trial court had erred in sustaining a demurrer to a cause of action seeking declaratory relief under the statute without leave to amend:

“No actual award for costs may be made by the court until the indemnitee’s success in whole or in part is determined and there has been an adjudication of the prerequisites set forth in (1) and (2) of section 830, subdivision (a). ( New Capital for Small Businesses, Inc. v. Saunders, 215 Cal.App.2d 728, 733 [30 Cal.Rptr. 563].) This rule, in our opinion, does not prevent a corporate officer from cross-complaining for declaratory relief pending the outcome of an action.”
Brokate v. Hehr Manufacturing Co. (1966) 243 Cal.App.2d 133, 137.

It is accordingly not persuasive that in an abundance of caution a person potentially entitled to relief under the statute cannot affirmatively seek such relief in a pleading, rather than risking being foreclosed from such recovery for failure to request it, the problem here remains that the cause of action is not asserted against the proper party. The motion should accordingly be granted, but without prejudice to cross-complainant invoking the statute against the appropriate party post-judgment.

Attorneys’ Fees
As noted above, CCP § 437c(f) provides that “a motion for summary adjudication shall be granted only if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty.”

The motion to the extent it seeks to adjudicate the claims for attorneys’ fees with respect to each cause of action does not completely dispose of a cause of action, a claim for damages or an issue of duty. The motion must accordingly be denied.