Geller v. Consultants for Pathology CA2/3 ( 2013 )

Filed 11/15/13 Geller v. Consultants for Pathology CA2/3
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION THREE
STEVEN GELLER, B238213
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. BS131568)
v.
CONSULTANTS FOR PATHOLOGY
AND LABORATORY MEDICINE,
A MEDICAL GROUP, INC.,
Defendant and Appellant;
STEVEN GELLER, B239293
Plaintiff and Appellant,
v.
CONSULTANTS FOR PATHOLOGY
AND LABORATORY MEDICINE,
A MEDICAL GROUP, INC.,
Defendant and Respondent.
APPEAL from a judgment and order of the Superior Court of Los Angeles
County, Ann I. Jones, Judge. Affirmed in part, reversed in part, and remanded.
Sheppard, Mullin, Richter & Hampton, James M. Burgess, Karin Dougan Vogel
and Jay Ramsey for Defendant and Appellant and Defendant and Respondent.
Connolly & Finkel and Alan H. Finkel for Plaintiff and Respondent and Plaintiff
and Appellant.
_______________________________________
2
Dr. Stephen Geller, a shareholder of Consultants for Pathology and Laboratory
Medicine, a Medical Group, Inc. (CPLM), requested shareholder and financial records
of CPLM, pursuant to Corporations Code sections 16001 and 1601,2 which allow
shareholders to inspect such documents. When Geller and CPLM could not agree to
terms of a confidentiality and non-disclosure agreement, Geller filed a petition for writ
of mandate to direct CPLM to comply with his inspection requests. Although Geller’s
writ petition was filed in April 2011, it was not heard until December 30, 2011. By the
time of the hearing, CPLM had terminated Geller’s employment, effective
December 31, 2011, which also had the effect of terminating his status as a shareholder.
CPLM therefore argued that Geller could have no legitimate purpose, related to his
shareholder status, to inspect the documents, as his remaining hours of shareholder
status were not sufficient for him to review the documents or pursue any legitimate
shareholder goals with them. The trial court, in order not to deprive Geller of his
statutory inspection rights, directed CPLM to immediately provide the documents to
Geller.
1
Corporations Code section 1600, subdivision (a) provides, in pertinent part,
“A shareholder . . . holding at least 5 percent in the aggregate of the outstanding voting
shares of a corporation . . . shall have an absolute right to . . . inspect and copy the
record of shareholders’ names and addresses and shareholdings during usual business
hours upon five business days’ prior written demand upon the corporation.”
2
Corporations Code section 1601, subdivision (a) provides, in pertinent part, “The
accounting books and records and minutes of proceedings of the shareholders and the
board and committees of the board of any domestic corporation . . . shall be open to
inspection upon the written demand on the corporation of any shareholder . . . at any
reasonable time during usual business hours, for a purpose reasonably related to such
holder’s interests as a shareholder . . . . ”
3
CPLM and Geller then agreed that the inspection would go forward on January 6,
2012, with CPLM agreeing that it would make no argument based on Geller’s
shareholder status having been terminated in the interim. Prior to the scheduled
inspection, however, CPLM filed a notice of appeal and petition for writ of supersedeas.
We granted the writ petition, staying the effect of the trial court’s order.
On appeal, CPLM argues that the trial court erred in granting Geller’s writ
petition when his shareholder status was on the verge of coming to a close. We hold
that Geller had sufficient shareholder status to support his purpose and, in any event,
CPLM should not be permitted to unilaterally terminate Geller’s status to defeat his
right of inspection. We conclude, on Geller’s cross-appeal, that the trial court erred in
reducing his award of attorney fees.
FACTUAL AND PROCEDURAL BACKGROUND3
1. CPLM and Geller
CPLM is a corporation which provides pathology services at Cedars-Sinai
Medical Center (Cedars). Being a shareholder of CPLM is tied to being an employee of
CPLM; shareholder employees must sell their stock back to CPLM when they are no
longer employed by CPLM. Geller originally founded CPLM, and was its original
president. Geller was succeeded as president in 2006 by Dr. Mahul Amin, but remained
an employee and shareholder. Geller and Amin had different management styles, and
3
Our discussion of the factual and procedural background is very lengthy. This
was required in order to provide a complete factual context for our decision. In
addition, it was also necessary in order to explain our rejection of CPLM’s argument
that there are no disputed issues of fact. In fact, CPLM has mischaracterized or simply
overlooked evidence supporting Geller’s view of the facts.
4
the record reflects a certain tension between them regarding the management of the
company. It also appears that Geller discussed some of his concerns regarding CPLM
with non-CPLM employees of Cedars, a fact which CPLM felt was not only a breach of
its confidences, but damaging to its ongoing relationship with Cedars.
2. Geller’s Request for Inspection of Documents
Geller was also concerned about the financial condition of CPLM, as Amin had
not circulated annual financial statements to the shareholders since he had taken control
of CPLM. On February 16, 2011, Geller, through counsel,4 made a written demand on
CPLM for inspection and copying of shareholder and financial information of CPLM.
Geller requested 14 different categories of documents.5 As we shall discuss, although
4
Geller’s counsel was also representing two other CPLM-related individuals in
making the request, at least one of whom was alleged to be a director of CPLM.
Directors’ inspection rights are governed by Corporations Code section 1602. The
inspection rights of any individuals other than Geller, however, are not at issue in this
case.
5
Geller requested: “1. A list of the shareholders and the ownership interest of
each shareholder [¶] 2. Stock record book [¶] [3]. Minutes of meetings of the Board of
Directors, shareholder meetings and committee meeting minutes, including minutes of
meetings of the compensation committee from January 1, 2007 to the present [¶]
4. Copy of articles of incorporation and any amendments thereto [¶] 5. A company
organization chart [¶] 6. All shareholder agreements [¶] 7. Employment contracts for
all doctors and all shareholders from Jan. 1, 2007 to the present [¶] 8. Year end payroll
report of compensation to all professionals for the years 2010, 2009, 2008 [¶] 9. W-2’s
and 1099 forms for shareholders and/or doctors for the years ending December 31,
2010, 2009, 2008. [¶] 10. Any and all schedules, computations and records that
evidence the amount paid as salaries, bonus[es], distributions and or profit allocation to
shareholders and/or doctors for the years 2010, 2009 and 2008. [¶] 11. Any and all
documents that evidence reimbursed expenses paid to shareholders and/or doctors for
the years 2010, 2009 and 2008. [¶] 12. Any and all documents that evidence any loans
to shareholders and/or doctors for the years 2010, 2009 and 2008. [¶] 13. General
5
the trial court ultimately found Geller’s request to be overbroad, the dispute in this case
does not center around which documents Geller may inspect, but whether he may
inspect any CPLM documents at all. Geller’s letter explained, “The purpose of this
inspection [is to] review the financial condition of CPLM based on its income and
expenses and to determine the number of outstanding shares and the names and
address[es] of shareholders in order to give notice of a shareholders meeting.” Geller
requested that the documents be made available to his CPA, for inspection and copying.
3. Negotiations Over a Confidentiality and Non-Disclosure Agreement
There followed a lengthy exchange of correspondence between counsel for
Geller and counsel for CPLM, regarding whether Geller would be required to execute
a confidentiality and non-disclosure agreement. Because CPLM ultimately took the
position that Geller’s refusal to execute such an agreement provided a valid justification
for its refusal to allow him to inspect the documents, it is necessary to discuss these
letters at some length.
On February 24, 2011, counsel for CPLM wrote counsel for Geller, indicating
that once Geller, his CPA, and his counsel executed the attached confidentiality and
non-disclosure agreement, CPLM would make the statutorily-required documents
available. The draft agreement provided that Geller would keep the disclosed
information confidential, and would not disclose it to anyone other than his accountant
and attorneys. Indeed, the document provided that Geller would keep confidential the
ledger for the years ended 12/31/10, 12/31/09, 12/31/08 [¶] 14. Federal and California
tax returns for 2009, 2008 and 2007[.]”
6
fact that information had been provided. It further provided that, on written request of
CPLM, Geller would return all documents, including copies, summaries and analyses,
except those protected by the work-product privilege.
Geller was concerned that this agreement would prohibit him from sharing any
information he received with other shareholders (who, under the statutes, would also be
entitled to inspect the documents). CPLM’s counsel confirmed by e-mail to Geller’s
counsel that “we do intend to limit the information solely to your . . . clients.”
On March 7, 2011, Geller’s counsel again rejected the confidentiality agreement.
She argued that the provisions of the Corporations Code allowing shareholder
inspection “would be meaningless if the shareholder were precluded from sharing the
information with other shareholders.”
On March 16, 2011, CPLM’s counsel indicated that the documents would be
available for review on March 29, but renewed his request that any representatives of
Geller who would be inspecting the documents execute the confidentiality agreement.
On March 18, 2011, Geller’s counsel, by e-mail, indicated that Geller would not sign
the agreement. On March 22, 2011, CPLM’s counsel, who either did not receive, or did
not recall receiving, Geller’s counsel’s e-mail, stated that, having received no response
to his letter, he was rescheduling the inspection to April 26, 2011, and again requested
that Geller’s counsel confirm that the confidentiality agreement would be signed.
On March 24, 2011, Geller’s counsel wrote CPLM’s counsel indicating her
intent that the inspection go ahead on March 29, as previously offered. As to the issue
of confidentiality, she stated, “I have retained an accounting firm to evaluate the
7
financial data. I cannot be precluded from providing a written evaluation with my client
or with other shareholders if requested by my clients. Since the confidentiality
agreement you sent me is overbroad and is not directed only at the representatives, if
you want to tailor a confidentiality agreement accordingly, I will review it.” The
following day, Geller’s counsel wrote again, confirming that her concern was that the
proposed confidentiality agreement was overbroad. She stated, “I am glad to work with
you to draft language to alleviate some of your concerns but will not prohibit my clients
from sharing certain information with other shareholders and directors.”
On April 4, 2011, Geller’s counsel again wrote CPLM’s counsel, attaching her
version of a proposed confidentiality agreement. Her draft provided that Geller would
not disclose the information “to any person whatsoever without the prior written consent
of Corporation other than disclosures to Corporation’s officers, directors, shareholders,
physician-employees or other authorized representatives.” Counsel for CPLM
responded, by e-mail, that the agreement was largely acceptable, but he had a few
changes he would e-mail to counsel for Geller. It does not appear that the proposed
changes were sent as promised.6
6
CPLM’s counsel stated that he told Geller’s counsel “that her changes were
mostly acceptable but that I had a few changes that I had hoped to provide by the
following Monday.” The “following Monday” was April 11, 2011. There is no
indication in the record that the changes were provided by that date.
8
4. Geller’s Petition for Writ of Mandate
On April 12, 2011, Geller filed his petition for writ of mandate.7 Geller sought
a writ directing CPLM to comply with his request to inspect and copy the information
he had sought in his February 16, 2011 letter. He alleged that he sought the information
“to evaluate the economic conditions of CPLM and to communicate with other
shareholders regarding policies of the present management of the company in view of
its economic conditions.” Geller alleged that CPLM had refused to comply unless
Geller “agree[d] to sign a confidentiality agreement precluding him sharing the
information obtained with other shareholders.”
5. Further Negotiations on the Confidentiality Agreement
After the writ petition had been filed, counsel for CPLM sent counsel for Geller
a revised version of Geller’s proposed confidentiality agreement. Counsel for both
parties met in person on April 15, 2011 and reached agreement on the terms of
a confidentiality agreement, subject to their clients’ approval. If the clients agreed, the
inspection would proceed on April 19, 2011. This proposed agreement provided that
7
In a later court filing, CPLM would describe the events preceding the filing of
the writ petition as follows: “On February 16, 2011, Geller requested that CPLM
produce for inspection 14 overly broad categories of business records under
Corporations Code § 1600 et seq. [Citation.] CPLM promptly responded by requesting
that Geller sign a confidentiality agreement. [Citation.] CPLM even provided Geller
with a draft of a proposed confidentiality agreement. [Citation.] Geller refused to sign
CPLM’s confidentiality agreement, and did not provide any alternative language that
would have been acceptable to him. [Citation.] [¶] Without further discussion, on
April 12, 2011, Geller filed a petition for writ of mandate . . . . ” This description is, at
best, revisionist history. Not only had there been “further discussion,” but Geller did, in
fact, “provide . . . alternative language that would have been acceptable to him,” a full
week before filing his writ petition.
9
the signatory agreed to use the information solely in connection with the signatory’s
rights and obligations as a shareholder or director. The agreement provided that the
confidential information could be disclosed to any other shareholder or director who
also executed the agreement.
Geller refused to sign the agreement, for reasons which are unclear.8 It appears,
however, that the sticking point was that Geller did not want to be responsible for
collecting the signatures of every shareholder and director of CPLM. CPLM’s counsel
subsequently offered to obtain the signatures and modify the agreement to provide that
it would. At this point, though, further proceedings had begun in court; and it appears
that negotiations temporarily ceased.9
6. Geller’s Ex Parte Application for Issuance of the Writ
On April 20, 2011, Geller filed an ex parte application for issuance of the writ.
On April 21, 2011, CPLM filed its opposition. CPLM argued that a confidentiality
agreement was necessary because Geller “ha[d] already wrongly disclosed information
to [Cedars].” CPLM argued that Geller “is the former Chairman of [CPLM] who
improperly seeks to regain control over [CPLM] contrary to its bylaws.[10] Dr. Geller
sent inflammatory emails to Cedars . . . which [were] intended to, and did, disrupt
8
The record indicates a reason given by one of the other clients of Geller’s
attorney, but no reason given by Geller.
9
There is, however, a suggestion in the record that, as late as September 2011, the
parties were still attempting to negotiate a confidentiality agreement.
10
CPLM never placed before the trial court, or this court, any of CPLM’s bylaws
which allegedly prohibited Geller from seeking to regain control of CPLM.
10
[CPLM’s] relationship with Cedars. Dr. Geller appears to have the attitude that if he
cannot control [CPLM], then no one can. [Geller is] pursuing [his] own interests over
the interests of the corporation and other shareholders.” CPLM supported this
accusation with an e-mail from CPLM’s counsel to Geller’s counsel, to which CPLM’s
counsel attached an e-mail purportedly sent by Geller to individuals at Cedars, as well
as other CPLM doctors. While we do not concern ourselves with the merits of the
dispute between CPLM and Geller, we note that there is nothing in Geller’s e-mail
which reveals confidential CPLM information to the recipients, and nothing in CPLM’s
counsel’s e-mail which accuses him of doing so.11
Geller’s ex parte request was denied. The court, however, set the matter for an
order to show cause hearing on May 12, 2011.12
11
Instead, CPLM’s counsel’s e-mail states that Geller’s e-mail was troublesome as
it could potentially harm CPLM’s relationship with Cedars. CPLM’s counsel states, “If
Dr. Geller has concerns about CPLM, he should make such concerns known directly to
the CPLM officers or directors, rather than engage in his current course of action of
accusatory emails, burdensome shareholder inspection requests and interference with
CPLM affairs.” We note that CPLM’s counsel overstates the nature of Geller’s
accusations. In Geller’s e-mail, he had stated that he understood that some of his fellow
CPLM members had been urged by CPLM to be “ ‘positive’ ” during an upcoming
review of CPLM by Cedars. Geller encouraged everyone simply to be honest. He
further stated, “I believe (but need to confirm) that the RICO Act mandates against
intimidation prior to fact-finding efforts, such as this survey . . . . ” CPLM’s e-mail
states that, since Geller referred to RICO, “Dr. Geller appears to be accusing CPLM
management of both intimidation and of racketeering or acting like the Mafia.” Indeed,
throughout this litigation, CPLM argued that Geller’s e-mail “outrageously accused
CPLM’s management of intimidation or Mafia-like racketeering.” It is patently clear
that Geller did not “accuse[] CPLM’s management of . . . Mafia-like racketeering.”
12
The court characterized the hearing as an order to show cause on preliminary
injunction. Subsequently, a different judge recharacterized the hearing as an order to
show cause why the writ should not issue. In a subsequent filing, CPLM stated that,
11
7. Noticed Motion for Issuance of the Writ
As directed by the trial court, Geller filed an amended motion for issuance of the
writ, and points and authorities in support thereof. Geller noted that a shareholders’
meeting was now set for May 24, 2011, less than two weeks after the upcoming May 12
hearing. Geller argued that, “[i]t is now blatantly clear that CPLM’s goal is to have the
shareholder[s’] meeting occur before any inspection can occur or in the alternative to
prevent petitioner from being able to share information regarding the financial condition
of CPLM with other shareholders.” Geller requested that, in light of the delay in his
receipt of the information he sought, the shareholders meeting be postponed.13
8. Continuance for Geller’s Deposition
CPLM continued to question whether Geller’s purpose in requesting the
documents was a legitimate purpose related to his interests as a shareholder.14 It
after the ex parte motion was denied, “Judge O’Brien scheduled an OSC for May 12,
2011 which was later vacated by Judge Chalfant as being improper.” This is
a mischaracterization of the record. Judge Chalfant did not vacate the scheduled
hearing on the order to show cause, but simply recharacterized it (and, as we shall
discuss, continued it).
13
Corporations Code section 1600, which provides shareholders with the right to
inspect the record of shareholders’ names, addresses, and shareholdings, further
provides that, “[a]ny delay by the corporation . . . in complying with a demand under
subdivision (a) beyond the time limits specified therein shall give the shareholder or
shareholders properly making the demand a right to obtain from the superior
court . . . an order postponing any shareholders’ meeting previously noticed for a period
equal to the period of such delay. Such right shall be in addition to any other legal or
equitable remedies to which the shareholder may be entitled.” (Corp. Code, § 1600,
subd. (b).)
14
CPLM now argued that Geller “has already . . . disclosed proprietary information
covered by [his] employment agreement’s non-disclosure provisions.” The employment
12
therefore sought to take Geller’s deposition prior to filing its opposition. As Geller was
unavailable when CPLM sought his deposition, CPLM filed an ex parte motion to
compel Geller’s deposition and continue the May 12, 2011 hearing. In its motion,
CPLM argued, “There is no harm in granting the continuance as there is no risk that the
corporate records that are sought will be made unavailable by the passage of time.”
CPLM sought to continue the hearing to June 20, 2011.
Geller opposed the motion, submitting his own declaration confirming his
reasons for seeking the documents. Geller stated that he sought “to determine the
financial health of CPLM and analyze the income and the propriety of the expenses.
My demand to inspect the books and records of CPLM was the only vehicle available to
agreement signed by Geller provides as follows: “Physician will obtain and have access
to confidential information and trade secrets of Corporation, including, without
limitation, Corporation’s . . . physician contracts, financial statements, other financial
and administrative data, and other proprietary information relating to the professional
and general business management, administration, operations and finances of
Corporation (collectively ‘Proprietary Information’) . . . . ” It further provides:
“Physician shall maintain the confidentiality of all Proprietary Information and shall not
disclose or cause the disclosure of any Proprietary Information to any person
whatsoever without the prior written consent of Corporation other than disclosures to
Corporation’s officers, directors, shareholders, physician-employees or other authorized
representatives in connection with the performance of professional medical services and
other related duties or responsibilities on behalf of Corporation. Physician shall not at
any time use or otherwise exploit Proprietary Information for Physician’s personal
benefit or for the benefit of any other person, whether during or after the term of this
Agreement.” Whether Geller’s communications with individuals at Cedars regarding
the review of CPLM violated this provision is beyond the scope of this opinion. We
simply note that CPLM has not clearly established, as a matter of law, that anything
Geller said about CPLM to Cedars constituted “proprietary information relating to the
professional and general business management, administration, operations and finances”
of CPLM, nor that his disclosures to Cedars were not made to “other authorized
representatives in connection with the performance of . . . other related duties or
responsibilities on behalf of Corporation.”
13
me to determine the financial condition of the corporation and whether the funds had
been used appropriately. And I need to be free to share the findings of the accountant
with other shareholders and directors.” He further stated, “The claims made by
CPLM’s counsel that I intend to use this information to harm the corporation or that
I wish to take over Amin’s job are ludicrous. I have no intention of publishing the
information on the internet. I have absolutely no interest in again becoming chairman
and president. I did that for twenty-two (22) years. All I want to do now is to continue
my study of liver diseases, and work on my own personal projects.”
The trial court granted the ex parte petition. Geller’s deposition was to go ahead,
but it was limited in time to one hour. The trial court continued the hearing to June 20,
2011.
9. Proceedings are Stayed to Allow for an Audit
Geller’s deposition did not immediately take place. Instead, the parties reached
a stipulation to stay the action. CPLM agreed to conduct an independent audit, and
provide the results of the audit to Geller.15 The parties agreed to stay the proceedings
until the audit had been completed and Geller had received and reviewed its results.16 It
was not known how long the audit would take, although the parties assumed it would
15
Corporations Code section 1603 provides that, upon a corporation’s refusal of
a lawful demand for inspection, the court may, for good cause shown, appoint an
accountant to audit the books, records, funds, and affairs of the corporation “and to
report thereon in such manner as the court may direct.” In this case, the parties
stipulated to an audit, the results of which would be provided to Geller.
16
CPLM also agreed to postpone the shareholders’ meeting until at least 30 days
after the audit report had been presented to its board or until 45 days after the judgment
on the writ petition had become final.
14
take approximately 120 days. As such, the parties agreed that the matter “shall be
stayed until thirty (30) days after the result of the independent audit is provided to
[Geller] or November 7, 2011, whichever is sooner.” On June 3, 2011, the trial court
approved the stipulation and set the matter for a status conference on November 8,
2011. The hearing on the order to show cause was taken off calendar.
10. Geller’s Employment Contract is Not Renewed
On September 20, 2011, while the matter was stayed and the audit was allegedly
being conducted, CPLM informed Geller that his employment contract would not be
renewed at the end of the year. Geller’s agreement with CPLM provided that if
a shareholder’s employment is terminated, CPLM “shall purchase and such terminated
Shareholder shall sell” all of the shareholder’s stock, within 30 days after the
termination of employment. The purchase would be at the set price of $1 per share.
Thus, Geller’s status as a stockholder would terminate no later than January 30, 2012.
11. The Matter is Returned to Calendar
The status conference was held, as scheduled, on November 8, 2011. The audit
had not been completed,17 and Geller sought to have the matter returned to calendar as
17
CPLM represented that the audit was delayed because its third-party billing
company sent its data to the auditor in a form the auditor could not use. CPLM
represented that it hoped the audit would be completed by mid-December, but now
expected it to be completed “no later than early January.” There is no evidence in the
record that the audit was ever completed. In its reply brief on appeal, CPLM states that
the audit was completed “in 2012” and that it “revealed no financial or other
improprieties.” Obviously, CPLM’s characterization of the findings of the audit is not
properly before us. In any event, the purpose of the stipulation was not merely for an
audit to be conducted and given to CPLM’s board, but for Geller to have an opportunity
to reveal the audit results in lieu of reviewing the financial information he had sought.
15
soon as possible. CPLM argued that there was “no reason to back away from the
parties’ deal at this point, which is in the interests of all shareholders.”18
The trial court agreed that the stay was automatically lifted, so a new trial date
had to be set. Geller’s counsel argued for a hearing date “as soon as possible” in light
of CPLM’s termination of Geller’s employment. The parties were directed to agree on
dates for Geller’s deposition, further briefing, and the hearing. The parties agreed to
dates with the hearing on the writ petition being held on December 22, 2011. The clerk
informed the trial court that there were already two matters set for that date, and the
court indicated that the parties would need to pick another date. CPLM’s counsel
immediately requested “the first available then in January.” The court clerk stated that
January 6 was available. Geller’s counsel explained his concern to the court that
Geller’s contract was not renewed and he would be required to sell back his shares. He
stated that “on January 6th he won’t be a shareholder any longer and my concern is that
[CPLM] will say on January 6th, well, he is no longer a shareholder and this is all moot.
And I discussed that with counsel.” The court asked what Geller’s counsel wanted, and
18
CPLM’s argument is somewhat confusing as the parties’ “deal” was that the case
would be stayed until 30 days after the audit results were provided to Geller or
November 7, 2011, whichever was sooner. Thus, there was no issue of Geller
“back[ing] away from the parties’ deal.” The reporter’s transcript of the status
conference suggests that there was a similar stipulation in the case brought by another
CPLM physician, but that stipulation did not provide that the stay would automatically
be lifted on November 7, 2011. When the terms of the stipulation in the instant case
regarding the termination of the stay were pointed out to CPLM’s counsel at the status
conference, CPLM’s counsel stated, “It certainly is not the spirit of what was intended,”
but ultimately conceded, upon reviewing the language of the stipulation, that, “it is what
it is.”
16
he stated his preference would be to set the hearing in December.19 The court
responded, “Well, we can’t right now. We are going to set it on January 6th. [¶] You
people have had since June to agree on settling and getting an audit and all of that and
you waited all this time. Now it gets down to this point with all the wasted time before,
and that is just the way the cards are la[id].” Geller’s counsel agreed that “it’s taken an
incredible amount of time for this shareholder to be allowed to review the corporation’s
financial records and now the corporation has decided to terminate him. And at the date
of the hearing, he is not going to be a shareholder any longer. That is where we find
ourselves.” The court responded, “I think whatever flows from everybody’s conduct or
lack of conduct during the last few months I think is finally coming to r[oo]st.”20
12. Geller’s Deposition
Geller’s deposition was taken on November 17, 2011. In its subsequent
opposition to the writ petition, CPLM characterized Geller’s deposition as follows:
“[Geller] was not able to state any legitimate reason for seeking the records. Indeed, his
only answer was that his lawyer told him to do it.” This is a mischaracterization of
19
The reporter’s transcript erroneously states that counsel wanted to set the matter
“in the summer.” It is clear from the context that counsel stated, “in December.”
20
In a subsequent filing, CPLM states that, when Geller’s counsel sought an earlier
hearing date, “The Court stated that Geller had only himself to blame and refused to
alter the hearing date.” CPLM also states that “For reasons that are not known, the
transcript is not available for this hearing.” The latter statement is clearly false; the
transcript has been provided as part of the record on appeal. In any event, CPLM’s
characterization of the court’s comments is incorrect. At no time did the court state that
“Geller had only himself to blame”; the court stated that both parties were at fault for
the delay.
17
Geller’s deposition testimony.21 CPLM’s counsel questioned Geller as to why he
sought each category of documents identified in his counsel’s initial letter seeking
inspection of CPLM’s documents. While Geller responded that he sought some of the
categories of information on advice of counsel, he offered other reasons for seeking
other categories of information. When asked why he sought the articles of
incorporation and amendments thereto, he stated he wanted them, “[s]o I understand
what’s going on with the corporation of which I am a shareholder at the present time.”
When asked why he sought documents evidencing salaries, bonus distributions and
profit allocation, he stated, “I believe, as I did when I was the president and chairman, in
as much transparency as possible.” When asked why he sought the general ledger, he
replied, “To see if the organization is being run the way it should be by law, to have
those books opened to the shareholders.” When asked why he sought CPLM’s tax
returns, he responded, “To learn about the organization. To make sure the organization
is following the rules that it states it’s following.”
21
Geller subsequently submitted an errata to his deposition transcript, purporting to
change some of his answers. As to each of the answers in which he had testified that he
sought CPLM’s documents on advice of counsel, Geller changed the answer to read:
“This letter was written by my lawyer and, as I understand it, was based on the
recommendations of a certified public accountant. I am not an accountant and did not
independently create this list and do not know specific reasons for the inclusion of each
item except that I have been informed that I am entitled to this information. If the court
grants me access to the financial information I intend to have it reviewed by an
accountant who has the expertise to understand and analyze financial information that I,
a physician, do not.” The errata is unsigned. In any event, even if Geller’s errata is
disregarded, CPLM is mischaracterizing Geller’s deposition testimony when it states,
“his only answer was that his lawyer told him to do it.”
18
We take particular note of the testimony regarding Geller’s request for the list of
shareholder names. At one point in his deposition, Geller was asked if he knew who the
current shareholders were. He stated that he did, in fact, personally know them. He
added that “if we took an hour,” he could remember them all. He was then asked why
he sought a list of shareholders and their ownership interests; Geller responded that he
was advised by counsel that he was entitled to have that information. When CPLM’s
counsel then asked, “But why do you want it?” Geller responded with a lengthy
explanation indicating that he had repeatedly reminded Dr. Amin to schedule
shareholder meetings and provide financial reports, but had been rebuffed. When
counsel again asked why Geller needed a list of shareholders, he stated, “Well, I don’t
know what they currently are.” CPLM’s counsel suggested that Geller had previously
testified that he knew who the shareholders were. Geller explained that he knew the list
of shareholders up through April 2006, but had not seen a list since.22
13. CPLM’s Opposition to the Writ Petition
On December 9, 2011, CPLM filed its opposition to the writ petition.23 CPLM’s
opposition relied on three24 points: (1) as of the date of the hearing, Geller will no
22
CPLM’s counsel then stated that Geller was “changing [his] answer” as he had
previously stated that he knew the shareholders. Geller attempted to explain that he
misunderstood the earlier question, but his counsel directed him not to argue the point.
23
Because of the procedural history of this matter, in which an ex parte motion led
to the setting of a hearing on an order to show cause why relief should not be granted,
CPLM never actually filed an answer or other responsive pleading.
24
There was a fourth point raised, that Geller has announced that he is adverse to
CPLM and will file a lawsuit. The evidence of this point consisted solely of
19
longer be a shareholder; (2) Geller could not specify a reasonable purpose for obtaining
the information he sought; and (3) Geller has demonstrated that he “will disclose
CPLM’s internal issues” to Cedars, and there is “a real threat” that, if the petition is
granted, Geller would disclose CPLM’s confidential materials “in a vindictive effort to
harm CPLM’s relationship” with Cedars.
As to the first issue, that Geller will no longer be a shareholder as of the hearing
on January 6, 2012, CPLM also argued, “Even if the hearing were held prior to
January 1, 2012, [Geller] still does not have enough of an interest as a shareholder to
require inspection because of his imminent status as a non-shareholder. The purpose of
the inspection must be reasonably related to [his] interest as [a] shareholder.”
As to the second issue, that Geller could not specify a reasonable purpose for
obtaining the information, CPLM relied on Geller’s deposition testimony. As we have
discussed above, CPLM stated that Geller “was not able to state any legitimate reason
for seeking the records. Indeed, his only answer was that his lawyer told him to do it.”
CPLM attached the entirety of Geller’s deposition as an exhibit to its opposition, and, as
we noted, it shows that Geller offered several reasons for seeking the information,
which were not addressed in CPLM’s opposition.
a declaration of CPLM’s counsel stating that Geller “intends to file a claim against
CPLM with the California Department of Fair Employment and Housing. On
November 22, 2011, [Geller]’s counsel sent a letter to Dr. Amin at CPLM making
a demand relating to [Geller]’s purported claims. That letter is not being attached
because it was sent confidentially.” Obviously this statement is hearsay. In any event,
without knowing the nature of Geller’s claims, it is impossible to determine whether
Geller’s request for CPLM documents in February 2011 was an attempt to improperly
obtain evidence for his purported planned November 2011 complaint with the
Department of Fair Employment and Housing.
20
As to the third issue, that Geller had disclosed CPLM’s private information to
Cedars and would do so again, vindictively, CPLM relied on a series of
communications between Geller and individuals at Cedars regarding CPLM and
Cedars’s review of the department. CPLM argued that Geller “has shown that he will
make erroneous and false disclosures to [Cedars] in order to pursue his misguided
vendetta against Dr. Amin” and “has sent inflammatory emails containing defamatory
statements that were intended to disrupt CPLM’s business relationship with [Cedars].”
While CPLM relied on the communications between Geller and individuals at Cedars,
CPLM provided no factual evidence or legal argument demonstrating that any particular
disclosures in Geller’s e-mails were “erroneous and false” or “defamatory.” It further
provided no evidence that Geller’s communications with Cedars were “intended to
disrupt” CPLM’s relationship with Cedars. To be sure, CPLM’s management clearly
believed Geller’s communications were out of line and possibility detrimental to
Cedars’s opinion of Dr. Amin. But as to the issue of whether Geller’s communications
were false or made with the intention of disrupting CPLM’s relationship with Cedars,
CPLM provided no evidence beyond the communications themselves and some
responses to them.25
25
Moreover, there is very little in the way of authentication of the communications.
That is to say, CPLM relies on a series of documents which were attached as exhibits to
Geller’s deposition. One of them, exhibit 9 to the deposition, is the e-mail Geller sent to
a number of individuals in which he indicated that CPLM’s act of urging its doctors to
be positive when participating in the review of CPLM might constitute a violation of
RICO. Yet there is no evidence as to whether any of the individuals who received this
letter were not, in fact, members of CPLM with whom Geller was entitled to
communicate about such matters. In his deposition, Geller was simply asked to admit
21
14. Geller’s Reply
On December 16, 2011, Geller filed a reply in which he argued that CPLM
“never had any intention of ever sharing the documents with Dr. Geller.” He argued
that CPLM intentionally delayed this matter until such time as it could terminate his
employment, which would terminate his shareholder status.
Geller noted, however, that he was not required to sell his shares back to CPLM
until 30 days after his employment terminated, so he would still be a shareholder at the
time of the hearing on January 6, 2012.
15. Geller’s Ex Parte Application to Advance the Hearing
On December 19, 2011, Geller gave notice of an ex parte application (to be heard
on December 21, 2011) to advance the hearing to a date in December. Geller argued
that, since CPLM had attempted to argue that Geller would lose his shareholder status at
the end of December, it was critical that the hearing on the merits be held in December.
The trial court agreed to advance the matter to a December hearing date;
however, since CPLM’s opposition had relied on a January hearing date, CPLM would
be entitled to file a supplemental opposition. CPLM could file its opposition on
December 28, 2011, with the hearing to be held on December 30 (and any supplemental
reply argument could be made at the hearing).
that exhibit 9 “is an e-mail that [he] wrote to a series of people.” Other exhibits to the
deposition on which CPLM relies, including numbers 10, 12, 13, 14, and 15, are not
mentioned at all in Geller’s deposition.
22
16. CPLM’s Supplemental Opposition
CPLM filed a supplemental opposition, arguing that, at the time of the Friday,
December 30, 2011 hearing, set for the afternoon session, Geller would have
3.5 business hours left as a shareholder. As a shareholder can only inspect financial
documents if his purpose is reasonably related to his interests as a shareholder, CPLM
argued that Geller’s 3.5 business hours left as a shareholder could not possibly support
a legitimate purpose to inspect the documents. Even if the court ordered inspection,
Geller would not be a shareholder at the time the records could actually be produced.
In response to Geller’s argument that he would, in fact, be a shareholder for
another 30 days, CPLM noted that it “has opted to tender its repurchase on
December 30, 2011 so that the repurchase becomes effective January 1, 2011.” There
was, however, no evidence submitted in support of this statement.
17. The Hearing and Ruling on the Petition
The hearing was conducted on December 30, 2011. Counsel for CPLM appeared
by telephone, as he was on vacation in another state. At that time, the trial court issued
its tentative ruling in favor of Geller, although limiting the categories of information he
was entitled to inspect.26 Geller made a brief argument for two additional categories of
26
The court’s tentative ruling was as follows on each of the categories of
information sought by Geller: 1. A list of the shareholders and the ownership interest of
each shareholder – granted; 2. Stock record book – denied; 3. Minutes of meetings of
the Board of Directors, shareholder meetings and committee meeting minutes, including
minutes of meetings of the compensation committee from January 1, 2007 to the
present - denied; 4. Copy of articles of incorporation and any amendments thereto –
denied; 5. A company organization chart – omitted from tentative ruling, but ultimately
denied; 6. All shareholder agreements – denied; 7. Employment contracts for all doctors
23
information, which was denied. Beyond that, the parties did not make any arguments
regarding which information was required to be disclosed.
As to the issue of Geller’s intent, the trial court explained that, “I found that
[Geller]’s purpose is sufficient as required under the California Corporations Code and
rejected [CPLM]’s contention that his intention is to harm the corporation.” The court
also indicated, to CPLM’s counsel, that the court would order the inspection forthwith
“because I don’t want it to become an issue two days from now when your contention is
he is no longer a shareholder and no longer has these rights. So, you’re all welcome to
negotiate something reasonable that allows you to return from vacation, an orderly
inspection to take place. If worse comes to worst, this has to be completed
immediately.” The court repeated that it did not want anything to occur which gave rise
to an argument that Geller lost his status as a shareholder, thereby invalidating the
inspection order.
and all shareholders from Jan. 1, 2007 to the present – denied; 8. Year-end payroll
report of compensation to all professionals for the years 2010, 2009, 2008 – granted;
9. W-2’s and 1099 forms for shareholders and/or doctors for the years ending
December 31, 2010, 2009, 2008 – granted; 10. Any and all schedules, computations and
records that evidence the amount paid as salaries, bonus[es], distributions and or profit
allocation to shareholders and/or doctors for the years 2010, 2009 and 2008 – granted,
but limited to records maintained in the ordinary course of business which set out the
information in the clearest and most efficient manner possible; 11. Any and all
documents that evidence reimbursed expenses paid to shareholders and/or doctors for
the years 2010, 2009 and 2008 – granted with the same limitation as category 10;
12. Any and all documents that evidence loans to shareholders and/or doctors for the
years 2010, 2009 and 2008 – granted with the same limitation as category 10;
13. General ledger for the years ending 12/31/10, 12/31/09, 12/31/08 – granted; and
14. Federal and California Income tax returns for 2009, 2008 and 2007 – denied.
24
In response to CPLM’s argument that 3.5 hours of shareholder status did not
support a sufficient shareholder interest, the court explained, “Yeah, here’s the problem.
A more cynical reading of the facts of this case than I have been willing to enter into
would suggest that your client has intended to and has, in fact, deprived the shareholder
of his statutory rights through a very kind of inexplicably long response time. And
I understand the parties hope[d] that an audit would have clarified these things, but the
audit has been inexplicably delayed. So, at this point, while there are no cases, he had
the right back in February, he agreed and participated in what I think we all thought to
be a way to resolve the issues. That did not happen. [¶] I did not want his statutory
rights to expire. He had a general and authentic and reasonable purpose, it continues to
be his reasonable purpose and it doesn’t get vitiated because, frankly, everybody tried to
resolve this issue in another way, untimely, and that’s what I’m left with.”
The court also rejected CPLM’s request for a confidentiality or non-disclosure
order. The court stated that, given its rulings on each of Geller’s specific requests, there
was no need for a confidentiality order for the stockholder lists and financial
information it was ordering CPLM to produce. The court specifically noted that Geller
should have the right to stand up at a shareholders’ meeting and discuss the matters he
discovers in CPLM’s financial documents.
The court stated that, although it was ordering the documents to be produced
forthwith, it hoped the parties could work out an agreement to enable the inspection to
occur without requiring CPLM’s counsel to immediately return from vacation. CPLM’s
counsel proposed that the court, “[i]nclude in the order that we could have until next
25
Thursday or Friday to produce the records. And the mere fact that the production is
happening after January 1st would not be asserted against Dr. Geller. Obviously, I have
my arguments in terms of the fact that he only has three hours of— [interruption with
a discussion of whether December 31 should be considered in Geller’s time as
a shareholder] – but the fact the production is occurring after January 1st, I would not
hold this against him.” Geller’s counsel agreed.
The court adopted its tentative ruling, and noted that the parties had stipulated
that the production would take place on January 6, 2012. The court’s ruling noted, in
a footnote, “As [Geller]’s termination will also terminate his status as a shareholder, it
was necessary to advance the hearing to a date on which he still had standing to bring
the writ. As set forth below, the fact of his impending loss of status as a shareholder
also requires that the writ issued in this case shall be done immediately, without further
notice or delay. Otherwise, defendant will gain from its own failure to perform its
statutory obligations promptly.”
18. CPLM Unilaterally Terminates Geller’s Shareholder Status
On December 30, 2011, the same day as the hearing, CPLM hand-delivered to
Geller a letter buying back his stock. CPLM’s letter acknowledged that its agreement
with Geller required it to buy, and Geller to sell, Geller’s shares within 30 days of the
termination of his employment. CPLM sought to repurchase the shares immediately,
and enclosed a check dated January 1, 2012, in the amount of the contractually
agreed-upon purchase price. CPLM’s letter stated that no stock certificates have ever
been created or issued. As such, CPLM stated that “this letter serves as notice to you
26
that, as of 12:01 am Pacific Time on the date January 1, 2012, (i) CPLM will record the
repurchase of your Shares on its books and records; (ii) you are deemed to have
received consideration for repurchase of the Shares; [and] (iii) you no longer are
a shareholder of CPLM . . . . ” There is no evidence that Geller negotiated the check or
otherwise agreed to the repurchase of his shares taking place on January 1, 2012.27
19. Notice of Appeal and Petition for Writ of Supersedeas
On January 3, 2012, CPLM filed a notice of appeal. On January 4, 2012, CPLM
filed with this court a petition for writ of supersedeas and sought an immediate stay of
the order requiring production on January 6. In its petition, CPLM stated, “Geller will
suffer no prejudice from a stay. Any rights he had to an inspection as of December 30,
2011 would be preserved pending appeal.” We granted an immediate stay on January 5,
2012, and ultimately granted the petition for writ of supersedeas. As a result, the
inspection has not occurred.
20. CPLM’s Ex Parte Request to Allow Redaction
On January 4, 2012, CPLM filed an ex parte application to protect third parties
by allowing the redaction of personal identifying information in the documents to be
inspected.28 Although CPLM had previously argued that the inspection should be
27
We are troubled by the idea that, when Geller was not required to sell his shares
back for 30 days, CPLM could unilaterally determine that the resale would take place at
12:01 a.m. on January 1, 2012, simply because there were no physical share certificates
to transfer. It appears to us that Geller would have to either expressly or impliedly
agree to yield his shareholder rights earlier than he was contractually obligated to do so.
28
The ex parte application also sought a stay pending appeal. It was denied before
CPLM filed its petition for writ of supersedeas.
27
limited by a confidentiality order or a non-disclosure agreement, CPLM had not
previously sought to redact personal identifying information. In support of its
application, CPLM offered the declarations of two of its doctors, who indicated that
they did not want Dr. Geller or other CPLM shareholders to have access to their private
information, including records relating to their compensation, bonuses, social security
numbers, and other private data.
Geller opposed the ex parte motion, stating that he had “no objection to redacting
personal identifying information, such as social security numbers, of the doctors. What
Dr. Geller does object to, is redacting the identity of the doctors which would prevent
him from learning which doctors were receiving what salary or other benefits . . . . This
issue was fully discussed and fully litigated. To the extent CPLM is again seeking to
‘redact’ this information to prevent Dr. Geller from learning how CPLM has
compensated its physician employees, this is nothing more than a motion for
reconsideration improperly brought.”
The ex parte motion was denied. The minute order indicates that it was called
“off the record,” and no reporter’s transcript exists indicating the basis of the court’s
ruling.
21. Judgment
Over the following weeks, there was difficulty finalizing the judgment to reflect
the intent of the court. Ultimately, the parties stipulated to the terms of a judgment,
28
which was filed February 16, 2012, nunc pro tunc as of January 5, 2012. CPLM filed
a second notice of appeal, out of an abundance of caution.29
22. Attorney Fees
Corporations Code section 1604 provides that, in any action or proceeding to
enforce a shareholder’s inspection rights, “if the court finds the failure of the
corporation to comply with a proper demand . . . was without justification, the court
may award an amount sufficient to reimburse the shareholder . . . for the reasonable
expenses incurred by such holder, including attorneys’ fees, in connection with such
action or proceeding.” Geller sought his attorney fees under this provision, arguing that
CPLM’s refusal to comply was “without justification.” Geller sought fees in the
amount of $71,711.50.
CPLM opposed the request for fees on several bases.30 First, CPLM argued that,
since the trial court had denied Geller inspection of several of the categories of
documents he had sought to inspect, CPLM’s refusal to allow inspection had, in fact,
been justified. As such, CPLM argued that Geller was not entitled to fees under the
29
While the judgment indicates that a writ “shall be entered,” directing the
inspection, it does not appear that a writ was ever issued.
30
CPLM’s opposition to Geller’s request for attorney fees, and its counsel’s
declaration in support thereof, are the documents in which CPLM mistakenly or falsely
stated that: (1) Geller filed his petition without ever proposing alternative language for
the confidentiality agreement (see fn. 7, ante); (2) at the November 8, 2011 status
conference, the trial court told Geller he had “only himself to blame” for the delay (see
fn. 20, ante); (3) Judge Chalfant vacated the May 12, 2011 order to show cause “as
being improper” (see fn. 12, ante); and (4) that Geller testified at deposition “that he did
not need [the shareholder list] since he knew all of the shareholders” (see fn. 22 and
accompanying text, ante).
29
statute. Second, CPLM argued that, even if Geller were entitled to fees, he was entitled
to only a fraction of the fees he sought ($11,741.50 or less). CPLM sought to reduce the
fee award on the bases that Geller sought fees which (i) were not incurred in connection
with this action; (ii) were the result of his improper and unnecessary litigation tactics;
(iii) were inflated due to the fact that he changed counsel; and (iv) were incurred either
before the petition was filed or while this action was stayed. CPLM also argued that
(v) the fees awarded should be reduced due to Geller’s partial success.
After a hearing in which the court took the matter under submission, the court
issued an order awarding Geller $31,134.50 in attorney fees. The court concluded pre-
litigation fees were “not warranted,” and struck fee requests for six particular billing
entries which were incurred in matters unconnected to the litigation. The trial court
then reduced the remaining amount by half, on the basis that Geller was unsuccessful in
obtaining half of the categories of documents he had sought.
CPLM filed a notice of appeal from the fee award. Geller filed a notice of cross-
appeal from the same order.
ISSUES RESOLVED ON APPEAL
We first discuss, and reject, CPLM’s contention that this appeal is moot by virtue
of Geller having lost shareholder status. Second, we conclude that Geller had
a sufficient shareholder interest remaining at the time of the hearing to justify an
inspection order. Third, we reject CPLM’s contention that the judgment ordering
inspection must be reversed to the extent that it violates the privacy rights of third
parties. Fourth, we conclude the trial court did not err in making an award of attorney
30
fees in Geller’s favor. Fifth, we reject CPLM’s arguments that the fee award should
have been further reduced for fees allegedly not incurred in connection with this
proceeding and fees unreasonably incurred. Sixth, we reject Geller’s contention that he
should have been awarded pre-litigation fees. Seventh, we conclude the trial court erred
in reducing the fees awarded by half due to Geller’s partial success.
DISCUSSION
1. The Appeal Is Not Moot
As we discuss below, we reject CPLM’s argument that Geller did not have
a sufficient shareholder interest on December 30, 2011, at the time of the hearing and
the trial court’s order that the inspection take place forthwith. To the extent that CPLM
argues that, as a result of actions taken after that date, the appeal is moot, we disagree.
“An action becomes moot when ‘ “pending an appeal from the judgment of
a lower court, and without any fault of the defendant, an event occurs which renders it
impossible for this court, if it should decide the case in favor of plaintiff, to grant him
any effectual relief whatever . . . . ” ’ [Citation.]” (Havlicek v. Coast-to-Coast
Analytical Services, Inc. (1995) 39 Cal. App. 4th 1844, 1850.) “Changed circumstances
render a matter moot only when they occur ‘ “without any fault of the defendant . . . . ” ’
[Citation.]” (Ibid.) When an inspection of corporate documents can no longer occur
because of actions of the defendant, the defendant cannot rely on its own actions to
defeat the inspection. (Id. at pp. 1850-1851 [defendant argued the case was moot as it
had closed its California office and moved the documents out of state].) “This rule is
31
but a variation of the equitable maxim, ‘[n]o one can take advantage of his own wrong.’
[Citation.]” (Id. at p. 1851.)
In this case, Geller’s shareholder status was lost after the court ordered an
immediate inspection of the documents due to actions of CPLM, specifically, its
unilateral termination of Geller’s employment and immediate repurchase of Geller’s
stock. As such, CPLM caused the changed circumstances, and cannot argue that the
appeal is moot.
There is, however, a more important reason why CPLM will not be heard to
argue that the matter is moot. At the December 30, 2011 hearing, the court ordered the
inspection to occur forthwith, in order to prevent CPLM from arguing that Geller lost
his standing if the inspection were to occur in January. CPLM agreed that if the
inspection were delayed to January 6, 2012, it would not raise the issue that Geller lost
standing. Prior to the inspection occurring on January 6, CPLM filed a notice of appeal
and sought an immediate stay and writ of supersedeas from this court. In its petition for
writ of supersedeas, CPLM specifically represented that Geller would “suffer no
prejudice from a stay. Any rights he had to an inspection as of December 30, 2011
would be preserved pending appeal.” In short, CPLM obtained a delay of the inspection
to January 6, 2012 by representing to the trial court that it would not raise the issue that
Geller lost his shareholder status on December 31, and it similarly obtained a writ of
supersedeas from this court by representing the same thing. CPLM is therefore
32
estopped to argue that Geller lost his inspection rights when his shareholder status
terminated.31
2. Geller’s Shareholder Interest was Sufficient on December 30, 2011
Corporations Code section 1600 provides a shareholder with an absolute right to
inspect and copy the list of shareholders’ names, addresses and shareholdings.
Corporations Code section 1601, however, which provides the shareholder the right to
inspect and copy the corporation’s financial records, requires that the shareholder must
seek to inspect the records “for a purpose reasonably related to such holder’s interests as
a shareholder.” CPLM argues that, on December 30, 2011, when the hearing was held
and the inspection ordered, Geller could not have had a purpose reasonably related to
his interests as a shareholder, because his interests as a shareholder would expire in just
a few hours.32 We disagree.
Preliminarily, we address the standard of review. The parties agree that the
issues relating to the interpretation of statutes raise questions of law to be reviewed
de novo (Wolf v. CDS Devco (2010) 185 Cal. App. 4th 903, 913) and that questions
31
CPLM relies on Chantiles v. Lake Forest II Master Homeowners Assn. (1995)
37 Cal. App. 4th 914, 920-922, for the proposition that when a party seeking to inspect
corporate documents loses standing pending appeal, the appeal is moot. However, as
CPLM waived the right to challenge Geller’s standing, it cannot now argue that the
appeal is moot. In the next section, we address and reject CPLM’s argument that, as of
December 30, 2011, Geller did not have a sufficient shareholder interest to justify
inspection.
32
CPLM does not argue that Geller lacked standing on December 30, 2011. As
a shareholder, he clearly had standing under the statutes. CPLM argues, however, that
Geller had no proper purpose due to the limited duration remaining to his shareholder
status.
33
regarding whether a sufficient evidentiary showing was made are reviewed for
substantial evidence (e.g., Hartman v. Bandini Petroleum Co. (1930) 107 Cal. App. 659,
661). However, CPLM argues that the issue can be resolved as a matter of law in its
favor, and fails to address any of the evidence which could have supported the trial
court’s determination to the contrary.
There is little case authority setting forth a standard defining a “purpose
reasonably related to [a shareholder’s] interest as a shareholder.” Under a prior
statute,33 it was held that the intent to see how the corporation was doing financially, to
determine whether to invest further, was an acceptable motivation. (Hartman v.
Bandini Petroleum Co., supra, 107 Cal.App. at pp. 660-661.) When a corporate
director seeks inspection (under Corporations Code section 1602), the inspection may
be denied when a disgruntled director announces his or her intention to violate his or her
fiduciary duties to the corporation, such as by using inspection rights to learn trade
secrets to compete with the corporation. (Tritek Telecom, Inc. v. Superior Court (2009)
169 Cal. App. 4th 1385, 1390.)
The trial court concluded that Geller “had a general and authentic and reasonable
purpose” for seeking the documents and expressly “rejected [CPLM]’s contention that
his intention is to harm the corporation.” Geller testified at his deposition that, as
a shareholder, he wanted to see how the corporation was doing, and to make certain it
was being run properly and complying with its obligations. CPLM argues that this is
33
The prior statute allowed the corporation to deny inspection if the shareholder
had the intent to use the information to the injury of the corporation. (Civil Code,
fmr. § 377.)
34
not a proper purpose, in that there was so little time left to Geller’s tenure as
a shareholder, he would have been unable to act on any information he discovered by
calling a shareholders’ meeting. The point is irrelevant. Geller’s purpose, to learn
about the financial status of the corporation in which he was a shareholder, was proper.
That he might not have been able to act on such knowledge34 does not transform his
purpose into an improper one.35
Moreover, we have serious doubts as to whether CPLM could, equitably, argue
that Geller had too little time left as a shareholder for his purpose to be proper. As we
have set forth at length above, the facts of this matter give rise to an inference that
CPLM was responsible for the delay. Although the trial court, while ruling on the writ
petition, did not specifically find that CPLM had acted in bad faith, the trial court
expressly declined to allow CPLM to “gain from its own failure to perform its statutory
obligations promptly.”36 Geller sought the financial information on February 16, 2011,
34
Even if Geller could not call a shareholders’ meeting, Geller could still
communicate any of his findings with current shareholders.
35
CPLM relies on Capron v. Pacific Southwest Discount Corp. (1935)
6 Cal. App. 2d 436, 441, for its language that “[t]he ‘purpose’ referred to in the
[shareholder inspection] statute is the purpose existing in the mind of the shareholder at
the time of inspection of the records.” The language is taken out of context. The
Capron court was responding to an argument by the shareholder, who was charged by
the corporation with seeking inspection for an improper purpose, that the corporation
must also establish that the shareholder would carry out his improper purpose. The
court responded that the focus is on the purpose itself, not on whether the shareholder
“will succeed in accomplishing the purpose for which he demands” inspection. Thus,
Capron supports, rather than undermines, Geller’s right of inspection.
36
Moreover, the award of attorney fees implies a finding that CPLM’s refusal to
comply with Geller’s demand was “without justification.”
35
when he was, without doubt, a shareholder with a proper shareholder purpose. CPLM
delayed for nearly two months, improperly demanding a confidentiality and
non-disclosure agreement precluding Geller from sharing the information with other
shareholders. Once Geller filed the action, CPLM delayed a hearing on the merits by
baselessly questioning the legitimacy of Geller’s purpose, and demanding his deposition
on the issue. Before the deposition could take place, CPLM convinced Geller to stay
the action, while it obtained an audit. In late September, 2011 (when, coincidentally,
the audit should have been nearly completed), CPLM unilaterally chose not to renew
Geller’s employment contract. At a November status conference, when Geller sought to
return the matter to calendar, CPLM argued to continue waiting for the audit, which it
knew, at that time, might not be completed until January, after Geller’s shareholder
status would be terminated. When the agreed-upon hearing date of December 22, 2011
was unavailable, CPLM immediately requested a date in January, again knowing that it
would argue that Geller no longer had standing. When Geller suggested that, under the
terms of his agreement, he could remain a shareholder for 30 days after his employment
was terminated, CPLM purported to unilaterally buy back its stock back at 12:01 a.m.
on January 1, 2012. In short, if Geller’s reasonable purpose was defeated by his
minimal remaining shareholder status, it was due to CPLM’s delaying the action while
rushing to terminate Geller’s status. The trial court concluded that CPLM should not be
permitted to take advantage of this state of events. We agree. (Civ. Code, § 3517 [“No
one can take advantage of his own wrong.”])
36
Finally, we hold that Geller’s purpose is irrelevant to his request for shareholder
names, addresses and holdings. Geller had an absolute right to this information under
Corporations Code section 1600. CPLM argues that Geller’s right to obtain that
information is “not at issue here for several reasons.” First, CPLM notes that the right is
only held by shareholders with at least a 5% holding; CPLM states that Geller did not
prove he held at least 5% of the outstanding shares of CPLM. But Geller alleged that he
owned such shares, CPLM never disputed the fact before the trial court, and CPLM, in
fact, impliedly conceded it.37 Second, CPLM states that Geller testified that he already
knew the names and contact information for the shareholders, so the issue is moot. But,
Geller testified at his deposition that he only knew the shareholders as of 2006, and that
he did not know the current shareholders. Thus, there is substantial evidence that Geller
did not know this information, and CPLM should have provided it.38 Third, CPLM
argues that “the remedy” for a refusal to disclose the shareholder list is to postpone the
shareholders’ meeting for a period equal to the delay in disclosure. The governing
statute provides, however, that the right to postpone the shareholders’ meeting “shall be
in addition to any other legal or equitable remedies to which the shareholder may be
37
In its ex parte application to compel Geller’s deposition, CPLM stated, that
“Petitioner [Geller] – as a 5% shareholder of [CPLM]– filed an application to compel
the inspection of” the documents. In any event, at Geller’s deposition, he testified to
a total of 15 shareholders of CPLM. He also testified that he believed all shareholders
had equal ownership. As such, each shareholder, including Geller, held 6.67% of the
outstanding shares.
38
In any event, a shareholder’s right under Corporations Code section 1600 is
absolute. There is nothing in the statute indicating that a shareholder, who believes he
could recreate the shareholder list given sufficient time, thereby loses his right to
request the list from the corporation.
37
entitled.” (Corp. Code, § 1600, subd. (b).) In sum, Geller was absolutely entitled to this
information, regardless of the imminent lapse of his shareholder status, and the trial
court did not err in ordering CPLM to provide it.
3. The Order Need Not be Modified to Protect Privacy Rights
CPLM next argues that the trial court’s order must be modified in order to
protect the privacy of rights of third parties. CPLM relies on the declarations of two of
its doctors which indicated they had concerns regarding the disclosure of their private
information to Geller. But CPLM first raised the issue of third-party privacy rights by
an ex parte motion after the trial court had already ordered production. The record does
not indicate the basis on which the trial court denied CPLM’s ex parte motion, but the
court would have been well within its discretion to deny the motion as an improper
motion for reconsideration (Code Civ. Proc., § 1008) which was based on new facts,
with no explanation as to why those facts were not brought to the attention of the trial
court in a timely manner. (Glade v. Glade (1995) 38 Cal. App. 4th 1441, 1457.)
4. The Trial Court Did Not Err in Awarding Geller Attorney Fees
Corporations Code section 1604 provides that, in any action or proceeding under
sections 1600 and 1601, “if the court finds the failure of the corporation to comply with
a proper demand thereunder was without justification,” the court may make an award of
reasonable attorney fees “incurred . . . in connection with such action or proceeding.”
This statute grants a trial court discretion to award attorney fees to a shareholder when
the corporation’s “refusal to allow inspection was unjustified.” (Valtz v. Penta
Investment Corp. (1983) 139 Cal. App. 3d 803, 810.) CPLM argues that the award of
38
fees to Geller was not appropriate in that CPLM’s refusal to allow inspection was
justified. This is because, according to CPLM, it had justification for denying the
demand because: (1) Geller’s request was overbroad; and (2) CPLM was justified in
refusing to comply until such time as Geller signed a confidentiality agreement.39
As to CPLM’s overbreadth argument, we conclude that CPLM cannot pursue the
challenge. CPLM argues that, since inspection was granted only with respect to some of
the categories in Geller’s counsel’s initial inspection request, CPLM acted with
justification in refusing to comply with the overbroad request. This argument would be
persuasive had CPLM complied with the remainder of the request. That is to say, had
CPLM immediately provided Geller with access to the shareholder list and the financial
documents to which he was entitled, this litigation would have involved only categories
of information to which CPLM did, in fact, have a justification for refusing to disclose.
But CPLM did not do this. Instead, CPLM refused to provide even the documents
which it knew were statutorily-required to be disclosed, in reliance on its demand for
a non-disclosure agreement.40 CPLM cannot be heard to argue that it was justified in
39
CPLM also argues that our issuance of a writ of supersedeas establishes the fact
that the appeal raised “substantial questions” as to the correctness of the trial court’s
order. While we may have initially recognized that CPLM’s appeal might well raise
substantial questions, our complete review of the record makes it clear that CPLM acted
entirely without justification, as the trial court found.
40
In fact, CPLM’s counsel’s initial correspondence with Geller’s counsel suggested
that, if Geller signed its proposed confidentiality agreement, CPLM would provide the
documents it was statutorily required to provide. CPLM and Geller never reached the
issue of which documents would be provided, because CPLM continued to demand
a confidentiality agreement for even those documents it knew were within the scope of
the disclosure statutes.
39
refusing to comply with the entire request, when it failed to comply with that portion of
the request which was not overbroad.
We also conclude that the trial court did not err in finding that CPLM’s refusal
was well justified by its concerns regarding confidentiality. For two months, CPLM
demanded that Geller execute a non-disclosure agreement which would have prevented
him from disclosing the information to other shareholders, who, by statute, would have
the same rights to review the financial information as Geller. Thereafter, CPLM agreed
that Geller could share the information with other shareholders, but only if he obtained
the other shareholders’ signatures on the same non-disclosure agreement.41 There is no
justification for such an onerous condition.42 CPLM argues that its confidentiality
concerns regarding Geller were legitimate because of Geller’s “improper purpose to
disclose the records to harm CPLM,” but the trial court rejected this characterization of
Geller’s purpose on the evidence.
5. There is No Basis for the Fee Award to be Further Reduced
CPLM next contends that the attorney fee award must be further reduced because
Geller’s counsel’s billing statements show unreasonable fees. Specifically, CPLM
contends: (1) some of the fees awarded were not incurred in connection with the
41
Moreover, CPLM’s employment agreement, presumably executed by all of the
shareholders, already provided that CPLM’s financial statements and financial data
were considered proprietary information which could not be disclosed other than to
CPLM’s officers, directors, shareholders, physician-employees, or other authorized
representatives.
42
Although CPLM represents that it subsequently offered to obtain the signatures
of the other shareholders on its non-disclosure agreement, there is no evidence that it
ever attempted to do so.
40
proceeding; (2) some of the fees awarded were the result of unreasonable and
unsuccessful litigation conduct by Geller; (3) some of the fees awarded were inflated
because Geller unnecessarily changed lawyers multiple times; and (4) some of the fees
awarded were incurred before the petition was filed43 or while the proceeding was
stayed.
The trial court heard these arguments, reviewed the billing statements, and
refused to award fees for six particular entries found to be unconnected with the present
action. CPLM simply repeats its arguments on appeal and has failed to establish that
the trial court abused its discretion in failing to further reduce the fees awarded.44
6. Geller Was Not Entitled to Pre-Litigation Fees
Corporations Code section 1604 provides that the fees which may be awarded are
those “incurred . . . in connection with [the] action or proceeding.” Geller argues that he
43
The trial court agreed with CPLM on this point and declined to award
pre-litigation fees.
44
In opposition to the attorney fee motion, CPLM copied Geller’s counsel’s billing
records, and marked the great bulk of the entries with a number to indicate its objection.
That is to say, fees labeled “1” were purportedly not incurred in connection with this
proceeding; fees labeled “2” were purportedly incurred by Geller’s unreasonable or
unnecessary litigation conduct, and so forth. CPLM marked as “1” (not incurred in
connection with this proceeding) numerous billing entries, after the start of this
litigation, regarding further attempts to negotiate a confidentiality agreement. While, as
we shall discuss, fees incurred in connection with pre-litigation attempts at resolution
are not incurred “in connection with” the action so as to be included within the scope of
an award under Corporations Code section 1604, attempts at resolution of a pending
action are, in fact, occurred in connection with the action. The court did not err in
awarding these fees. Similarly, CPLM marked as “2” (unreasonably or unnecessarily
incurred) such obviously necessary fees as those incurred by the attorney who
represented Geller at the hearing on the merits for time spent reading CPLM’s
opposition.
41
should be entitled to an award of his pre-litigation fees. The trial court interpreted the
language of this statute as not permitting an award of pre-litigation fees, and we agree.
The statute’s plain language permits an award of fees incurred in connection with the
action or proceeding. Had CPLM complied with Geller’s initial request for documents,
Geller would not have been entitled to any attorney fee award. Had CPLM and Geller
amicably resolved the matter prior to litigation, Geller would similarly not be entitled to
any fee award. Geller’s entitlement to fees is based on the fact that he had to go to court
to obtain the documents; he is entitled only to those fees incurred in connection with
that action.
7. Geller Was Entitled to an Award of All Fees Reasonably Incurred
In Connection With the Action
Finally, Geller argues that the trial court erred in reducing his fee award by 50%
due to his partial success. That is to say, the court concluded that Geller was successful
in seeking only approximately half of the documents he had sought, so awarded only
half of the requested attorney fees.
Apart from whether it is legally permissible to allocate fees in this manner, we
conclude there is no factual basis to do so in this case. It may be that a reduction in fees
due to limited success is permissible when the parties actually litigated the issue of
which categories of documents the shareholder was entitled to inspect. In this case,
however, the issue was not litigated. It was never briefed by the parties and, with the
exception of a brief argument taking up two pages of reporter’s transcript, it was never
argued before the trial court. The issue in this case was always whether Geller was
42
entitled to inspect documents at all, not which documents Geller was entitled to inspect.
Geller was entirely successful on the issue actually litigated – he did, in fact, have
a right to inspect documents, with no confidentiality restriction imposed. As such, no
fee reduction for lack of success was justified, and the trial court abused its discretion
by cutting the fee award in half due to partial success.
8. Geller is Entitled to an Award of Fees Incurred on Appeal
Finally, a shareholder entitled to an award of attorney fees under Corporations
Code section 1604 is entitled to fees incurred “at trial and on appeal.” (Valtz v. Penta
Investment Corp., supra, 139 Cal.App.3d at p. 811.) Geller is therefore entitled to
recover his attorney fees incurred in this appeal.
43
DISPOSITION
The judgment ordering inspection is affirmed. The order awarding attorney fees
is reversed and the matter remanded with directions to the trial court to modify its fee
award to eliminate any reduction based on Geller’s partial success. In addition, the trial
court is directed to consider and rule upon a motion for reasonable attorney fees
incurred on appeal, should Geller seek such relief. Geller shall recover his costs on
appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
CROSKEY, Acting P. J.
WE CONCUR:
KITCHING, J.
ALDRICH, J.
44