Case Number: BS164497 Hearing Date: January 16, 2018 Dept: 85

Eurocom Networks S.A. v. Chol Enterprises, Inc., BS 164497

Tentative decision on motion to enforce judgment: granted in part

Petitioner Eurocom Networks S.A. (“Eurocom”) seeks to enforce the Writ issued on May 18, 2017 against Respondent Chol Enterprises, Inc. (“CEI”).

The court has read and considered the moving papers and reply (no opposition was filed), and renders the following tentative decision.

A. Statement of the Case

1. Petition

Petitioner Eurocom commenced this proceeding on August 22, 2016. The operative pleading is the First Amended Petition (“FAP”) filed on February 14, 2017. The FAP alleges in pertinent part as follows.

Eurocom is a minority shareholder in Respondent CEI. On August 1, 2016, Eurocom requested that CEI allow inspection and copying of its accounting records, tax records, shareholders’ list, minutes, bylaws, and the Articles of Incorporation, Amendments, and Statement of Information. Eurocom also requested that CEI hold annual meetings of shareholders in accordance with the bylaws. Finally, Eurocom sought an election of three directors in order to comply with California law.

On August 7, 2016, CEI stated that it would not respond to the request until resolution of a lawsuit filed in France which questioned the validity of the shares of CEI held by Eurocom. On August 10, 2016, Eurocom reiterated its request and responded that the lawsuits in France had no bearing on Eurocom’s lawful request for access to documents and enforcement of corporate rules regarding the election of directors. CEI continued to refuse to produce the documents requested or follow the appropriate corporate procedures.

CEI is required to comply with Corporations Code section 1500 by keeping minutes of the proceedings of its shareholders, board and committees, and keeping a record of its shareholders. Corporations Code section 213 requires CEI to keep a copy of its bylaws and furnish shareholders with a copy of the bylaws as amended. CEI must provide notice and hold annual meetings of shareholders for the election of directors under Corporations Code section 600. Corporations Code section 212 requires that CEI have at least three director positions, since there are more than three shareholders, and at the present time, there is only one director position stated in the bylaws. Finally, CEI must provide a list of shareholders and access to the accounting books and records and minutes of proceedings of the shareholders and the board and committees of the board under Corporations Code sections 1600 and 1601.

2. Course of Proceedings

On August 31, 2016, Petitioner Eurocom filed a motion for judgment on the petition. On November 29, 2016, Eurocom withdrew the motion and it was placed off calendar.

On February 9, 2017, the court sustained CEI’s demurrer to the Petition with leave to amend as to the shareholder meeting claim. Otherwise, the demurrer was overruled in its entirety. At the same hearing, the court denied CEI’s motion for an order requiring Eurocom to file an undertaking pursuant to CCP section 1030.

On May 4, 2017, the court granted Eurocom’s petition. The court ruled that Eurocom was a shareholder of CEI. As a shareholder, Eurocom was entitled to inspection under Corporations Code sections 213 and 1601. As Eurocom owned more than 5% of CEI, it was also entitled to inspection under Corporations Code section 1600. Eurocom had demonstrated that it sought inspection for a proper purpose of assessing CEI’s financial position, and was therefore entitled to a writ of mandate compelling CEI to permit inspection of its books and records under section 1601. The court additionally ruled that Eurocom was entitled to a writ of mandate to compel CEI to hold an annual meeting, and to compel CEI to amend its bylaws to comply with Corporations Code section 212(a).

Respondent CEI moved for reconsideration of the court’s May 4, 2017 order. On July 13, 2017, the court denied the motion for reconsideration. On October 3, 2017, the court granted Eurocom’s motion for attorneys’ fees in the amount of $47,116.50.

On October 18, 2017, CEI filed a notice of appeal.

B. Applicable Law

The court that issues a writ of mandate retains continuing jurisdiction to make any order necessary to its enforcement. CCP §§ 1097, 1105; County of Inyo v. City of Los Angeles, (1977) 71 Cal.App.3d 185, 205; see also, Professional Engineers in Cal. Govt. v. State Personnel Bd., (1980) 114 Cal.App.3d 101, 109. This authority is codified in Code of Civil Procedure (“CCP”) section 1097, which provides, in part, that when a peremptory writ has issued and is disobeyed, the court “… may make any orders necessary and proper for the complete enforcement of the writ,” but it is also an inherent power of the court. Kings v. Woods, (1983) 144 Cal.App.3d 571, 578. Upon motion, the court may also impose a fine not exceeding one thousand dollars. CCP §1097.

C. Statement of Facts

David A. Robinson (“Robinson”) is an attorney representing Eurocom. Robinson Decl. ¶1. Robinson was contacted by Eurocom, a shareholder in CEI, because Eurocom had not received any information from CEI concerning financial results, shareholder meetings, appointment of directors, and voting rights. Robinson Decl. ¶2.

On August 1, 2016, Robinson wrote a letter to Eric Chol (“Chol”), CEI’s CEO, requesting a copy of CEI’s accounting records, tax records, shareholder list, minutes, bylaws, and all articles of incorporation, amendments, and statements of information. Robinson Decl. ¶3. Robinson also requested that the corporation hold annual meetings of shareholders to elect directors on a date and time specified in the bylaws. Id.

On August 7, 2016, CEI responded via its counsel that it was resolving a lawsuit filed in France by a shareholder which jeopardized the validity of shares held by Robinson’s clients. Robinson Decl. ¶5. On August 10, 2016, Robinson reiterated his request for access to the corporate documentation and noted that the lawsuit in France had no bearing on this request. Robinson Decl. ¶6.

On August 22, 2016, Eurocom filed the instant Petition. Robinson Decl. ¶8. On August 15, 2017, the Court issued a writ of mandate in Eurocom’s favor. Robinson Decl. ¶16.

As to shareholder rights, the Writ mandates that CEI allow Eurocom to inspect the bylaws of CEI, to inspect and copy the records of CEI’s shareholders’ names and addresses and shareholdings, and to inspect, copy, and make extracts of CEI’s accounting books and records and minutes of proceedings of the shareholders and the board and committees of the board of any domestic corporation. Robinson Decl. Ex. 2. As to annual meetings, the Writ mandates that CEI hold an annual meeting of shareholders at the office of CEI’s corporate counsel on September 15, 2017. Id. As to directors, the Writ mandates that CEI amend its bylaws to require the appointment of at least three directors. Id.

Contravening the plain terms of the Writ, a meeting of shareholders did not take place on September 15, 2017. Robinson Decl. ¶25. CEI also has failed to allow any inspection of the bylaws of CEI, failed to allow Eurocom to inspect and copy the records of CEI’s shareholders’ names and addresses and shareholdings, and has failed to allow Eurocom to “fully” inspect, copy, and make extracts of CEI’s accounting books, records, and minutes of proceedings. Robinson Decl. ¶26.

CEI’s counsel initially stated that CEI would allow Eurocom to inspect corporate records. Robinson Decl. ¶27. After being sent an email from Robinson asking CEI to set a date for inspection, CEI’s counsel told Robinson that CEI was “amenable to allow the inspection.” Id. CEI’s counsel further stated that, pursuant to a request, CEI would send the records via email. Id.

On November 8, 2017, Robinson responded that Eurocom both wanted the records sent via email and to inspect the physical records on November 20, 2017. Robinson Decl. ¶28. Eurocom’s consulting accountant, Barbara Uzzan (“Uzzan”) followed up Robinson’s email requesting “documents for the years 2015, 2016, and 2017 year to date: 1. Income Tax Returns; 2. Financial Statements (Balance Sheet, P&L); 3. General Ledger; 4. Payroll Annual Statements.” Robinson Decl. ¶29.

In response, on November 16, 2017, Eurocom’s counsel emailed Robinson the 2015 Balance Sheet, 2015 Annual Payroll, 2016 Tax Returns, and 2016 General Ledger. Robinson Decl. ¶31. On the same day, Robinson responded with a request for the missing documents. Despite multiple requests to set an inspection date on November 20, 2017, Eurocom’s counsel never responded back with confirmation and the inspection never took place. Robinson Decl. ¶35.

Since the moving papers were filed on December 8, 2017, CEI’s counsel provided Robinson with additional accounting documents. Robinson Reply Decl. ¶2. According to Uzzan, CEI has still not provided all of the missing documents. Id. To date, there is no scheduled shareholder meeting date or inspection date. Robinson Reply Decl. ¶9.

D. Analysis

Petitioner Eurocom seeks to enforce the entirety of the Writ against Respondent CEI. The Writ entitled Eurocom as a shareholder to inspection under Corporations Code sections 213 and 1601. As Eurocom owned more than 5% of CEI, it was also entitled to inspection under Corporations Code section 1600. Eurocom demonstrated that it sought inspection for a proper purpose of assessing CEI’s financial position, and was therefore entitled to a writ of mandate compelling CEI to permit inspection of its books and records under section 1601.

The Writ additionally compelled CEI to hold an annual meeting pursuant to Corporations Code section 600, and compelled CEI to amend its bylaws to comply with Corporations Code section 212(a).

1. Automatic Stay

The perfecting of an appeal stays proceedings in the trial court upon the judgment or order appealed from or upon the matters embraced therein or affected thereby. CCP §916. Conversely, the trial court may proceed upon any other matter embraced in the action not affected by the judgment or order appealed from. Id.

An exception to this rule applies when the judgment or order directs a corporation to give to a person adjudged to be a stockholder a reasonable opportunity to inspect or make copies of the books, papers, or documents of the corporation if the trial court found the member entitled by law to inspect or copy them. CCP §917.8. In this event, the perfecting of an appeal does not stay proceedings. Id.

Additionally, the stay rule does not apply in a “special proceeding.” Veyna v. Orange County Nursery, Inc., (“Veyna”) (2009) 170 Cal.App.4th 146, 155; see also Agricultural Labor Relations Bd. v. Tex-Cal Land Management, Inc., (“Tex-Cal”) (1987) 43 Cal.3d 696, 707. Unless statutes establishing special proceedings expressly incorporate the appellate-stay provisions of CCP section 996 et seq., they are not bound by them. Tex-Cal, supra, 43 Cal.3d at 707; Veyna, supra, 170 Cal.App.4th at 155.

The CCP essentially defines a “special proceeding” by what it is not. Whereas an “action” is defined as “an ordinary proceeding in a court of justice by which one party prosecutes another for the declaration, enforcement, or protection of a right, the redress or prevention of a wrong, or the punishment of a public offense,” a “special proceeding” is defined as providing “every other remedy” apart from those provided by an action. CCP §§ 22-23; Tex-Cal, supra 43 Cal.3d at 707.

In Tide Water Associated Oil Co. v. Superior Court of Los Angeles County, (1955) 43 Cal.2d 815, 822, the California Supreme Court addressed whether a suit to enjoin unreasonable emissions of gas was an action or special proceeding. The court stated that, as a general rule, a special proceeding is “confined to the type of case which was not, under the common law equity practice, either an action at law or a suit in equity.” Id. Because the court was examining a suit by the People to obtain an injunction against the unreasonable waste of gas designed to protect the interests of the public and to preserve the rights of owners and operators, it was essentially the same as any suit in equity to enjoin a wrong. Thus, the suit was an “action” and not a “special proceeding.” Id. at 822-23.

Certain statutes have been recognized as establishing special proceedings. California Corporations Code section 2000 (“section 2000”) establishes a special proceeding which enables a 50% shareholder to avoid dissolution of the corporation by purchasing the stock of the shareholders seeking to dissolve the corporation. Abrams v. Abrams-Rubaloff & Associates, Inc. (1980) 114 Cal.App.3d 240, 247. This special proceeding is governed by the provisions of section 2000 and not the CCP, unless the latter is expressly is made applicable. In concluding that a section 2000 lawsuit is a special proceeding, the Abrams court stated that it is a summary proceeding in which the trial court refers the matter to appraisers who prescribe the time and manner of producing evidence and, if the party seeking the appraisal of stock is dissatisfied, he may then choose to proceed with dissolution. Id. at 248. See also Veyna, supra, 170 Cal.App.4th at 155 (section 2000’s statutory buy-out procedure is special proceeding not subject to automatic stay for civil actions).

It is undisputed that CCP section 917.8 exempts the Writ’s direction to CEI to provide Eurocom’s shareholder inspection from a stay on appeal. Eurocom was adjudged to be a shareholder of CEI and entitled to inspect and copy CEI’s corporate documents. Part I of the Writ effectuates these findings and can be enforced.

The same unequivocal conclusion cannot be made for the Writ’s mandates for an annual meetings and amendment of the bylaws. These aspects are not expressly exempted by CCP section 916 et seq. Thus, the CCP section’s 916 stay provision will apply to these aspects of the Writ unless they are deemed to be special proceedings.

Eurocom analogizes Corporations Code sections 600 (annual meeting) and 212(a) (bylaws) to section 2000. Pet. Op. Br. at 9-12. Eurocom contends that the similarities between these statutes render their procedures “special proceedings.” Id. Because these statutes do not expressly contain appellate-stay provisions, Eurocom contends that the appellate-stay provisions do not apply. Id.

Corporations Code section 600 states that an annual meeting of shareholders shall be held for the election of directors. Corp. Code §600(b). It also states that, in the event that an annual meeting is not held, the superior court may summarily order a meeting to be held upon the application of any shareholder after notice to the corporation. Corp. Code §600(c). Under the statute, the superior court may issue appropriate orders, such as designating the time and place of the meeting, the record for determination of shareholders entitled to vote, and the form of notice of the meeting. Id.

Eurocom does not explain the similarities between section 2000 and 600. Section 600 exists to provide a legal right to shareholders by allowing them to ensure that annual meetings are held. The statute provides a summary procedure in which the court may order a meeting and may also issue appropriate orders to effectuate the meeting. Thus, suits brought to remedy section 600 are special proceedings not governed by the appellate-stay provisions. Section 600 contains no other provision incorporating the appellate-stay provisions of CCP section 996 et seq.

Corporations Code section 212 provides for amendment of the corporate bylaws changing the number of directors to the minimum of three unless certain exceptions apply. Corp. Code §212(a). Nothing in section 212 provides a court procedure to enforce its terms. Thus, Eurocom’s enforcement was through ordinary mandamus. The general rule is that a mandamus writ is stayed pending appeal. Private Investors v. Homestake Mining Co., (1936) 11 Cal.App.2d 488, 491. A special proceeding generally is “confined to the type of case which was not, under the common law equity practice, either an action at law or a suit in equity.” Tide Water, supra, 43 Cal.2d at 822. In light of section 212’s creation of a legal right enforced through mandamus, the suit brought to remedy section 212 is best characterized as an action, not a special proceeding, and governed by the appellate-stay provisions of CCP section 996 et seq.

2. Violation of the Writ

The issue becomes whether CEI has violated the non-stayed portions of the Writ pertaining to shareholder inspection and annual meeting.

Eurocom has presented unopposed evidence that it repeatedly requested CEI to choose a date for physical inspection. Robinson Decl. ¶¶ 27, 30, 34. CEI’s counsel did not respond to this request and the physical inspection never occurred. Robinson Decl. ¶35. Additionally, Eurocom has presented evidence that CEI’s counsel emailed Robinson an incomplete list of corporate documents. Robinson Decl. ¶31. Eurocom requested income tax returns, financial statements, general ledgers, and payroll annual statements for the years 2015, 2016, and 2017. Robinson Decl. ¶29. This request would require the production of at least 12 documents; CEI only produced four. Robinson Decl. ¶31. While CEI’s counsel has provided further documents since December 8, 2017, other requested corporate documents remain missing. Robinson Reply Decl. ¶2. CEI has violated the shareholder inspection portion of the Writ.

As for an annual meeting of shareholders, CEI failed to hold such a meeting at its counsel’s offices on September 15, 2017 at 9:00 a.m. as required. CEI has violated this portion of the Writ.

E. Conclusion

The motion to enforce the writ is granted in part. Eurocom is entitled to an order enforcing the portions of the Writ concerning the annual meeting and shareholder’s inspection.

Eurocom seeks an additional remedy of the appointment of an accountant to audit CEI’s books and records, paid for by CEI. Mot. at 17. Eurocom’s request is made pursuant to Corporations Code section 1603(a), but that remedy applies to a judgment after a “lawful demand for inspection” has been refused and enforced through a lawsuit. It is unclear that this remedy can be imposed post-judgment as a result of a failure to comply with a writ. On the other hand, the court may make any order necessary to enforce its judgment and writ. See CCP §1097. The court will discuss this issue with counsel at hearing.