Ontiveros v. Constable

Filed 9/18/18
CERTIFIED FOR PUBLICATION
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
GUADALUPE A. ONTIVEROS, D072437
Plaintiff and Respondent,
v. (Super. Ct. No. ECU07414)
KENT C. CONSTABLE et al.,
Defendants and Appellants.
APPEAL from a judgment of the Superior Court of Imperial County, William D.
Quan, Judge. Reversed; remanded with directions.
Moskowitz Law Group and Karen Moskowitz; Law Offices of Thomas M. Regele
and Thomas M. Regele for Defendant and Appellant Kent C. Constable.
A. Daniel Bacalski, Jr. for Defendant and Appellant Omega Electric, Inc.
Law Office of Charles L. Murray III and Charles L. Murray III for Plaintiff and
Respondent.
Guadalupe Ontiveros, as the minority shareholder in Omega Electric, Inc.
(Omega), sued majority shareholder Kent Constable, his wife (Karen Constable), and
Omega,1 asserting direct and derivative claims arising from a dispute over management
of Omega and its assets. In response to Ontiveros's claim of involuntary dissolution of
Omega, Appellants filed a motion to stay proceedings and appoint appraisers to fix the
value of Ontiveros's stock under Corporations Code2 section 2000. The superior court
granted the motion, staying the action. Ontiveros then tried to dismiss his claim for
involuntary dissolution without prejudice, but the court clerk would not accept his filing
because the matter had been stayed. Ontiveros thus filed a motion, asking the court to
revoke its order granting Appellants' motion, or in the alternative, to reconsider and then
vacate the order. The court treated that motion as a motion for leave to file a dismissal
with prejudice under Code of Civil Procedure section 581, subdivision (e). The court
granted the motion and allowed Ontiveros to dismiss his cause of action for involuntary
dissolution of Omega. Without the existence of that claim, the court found no basis on
which to stay the action and order an appraisal of the stock under section 2000. As such,
the court lifted the stay, terminating the procedure under section 2000.
Appellants appeal the court's order, contending the court abused its discretion in
granting Ontiveros's motion. In addition, Appellants maintain the trial court improperly
interpreted section 2000 in granting the motion. Ontiveros counters that the court's order
1 Karen Constable is not a party to this appeal. To avoid confusion, we will use
Kent to refer to Kent Constable and Karen to refer to Karen Constable. Because Karen is
not a party to this appeal, we refer to Omega and Kent as Appellants. We refer to Kent,
Karen, and Omega collectively as Defendants.
2 Statutory references are to the Corporations Code unless otherwise specified.
2
is not appealable. In the alternative, Ontiveros insists that if we find an appealable issue
exists, the court did not abuse its discretion.
We agree with Appellants that they have presented an appealable issue. In
addition, we are persuaded that the trial court abused its discretion here. In reaching this
conclusion, we determine that the special proceeding under section 2000, once initiated,
"supplants" the cause of action for involuntary dissolution. (See Go v. Pacific Health
Services, Inc. (2009) 179 Cal.App.4th 522, 530 (Go).) At that point, the parties give up
their right to litigate the involuntary dissolution action subject to the special proceeding
outlined in section 2000. As such, a plaintiff, like Ontiveros, can no longer dismiss the
involuntary dissolution claim under Code of Civil Procedure section 581, subdivision (e).
As the superior court relied upon that code section as a mechanism to lift the stay and
terminate the section 2000 special proceeding, it misapplied the law, and therefore,
abused its discretion. (See Prigmore v. City of Redding (2012) 211 Cal.App.4th 1322,
1334 ["It is an abuse of discretion for a trial court to misinterpret or misapply the law."].)
Consequently, we reverse.
FACTUAL AND PROCEDURAL BACKGROUND
On December 19, 2012, Ontiveros filed his initial complaint containing seven
causes of action, including involuntary dissolution. Ontiveros's operative complaint is
the second amended complaint, which he filed on May 31, 2013. It added several causes
of action, but the claim for involuntary dissolution remained. Appellants filed a
cross-complaint and subsequently amended it on March 4, 2014. Both operative
pleadings allege extensive misconduct by the parties that is not directly pertinent to the
3
issues presented here. As such, we need not discuss the parties' mutual allegations in
detail.
The parties have litigated the matter spanning several years, including engaging in
discovery and bringing discovery motions. On April 17, 2014, Ontiveros moved to
disqualify Defendants' counsel. Defendants' appealed the court's order granting
Ontiveros's motion, and this court affirmed in part and reversed in part the order. (See
Ontiveros v. Constable (2016) 245 Cal.App.4th 686, 702.) The remittitur was issued on
April 19, 2016.
Almost seven months later, Appellants moved to stay proceedings and appoint
appraisers to fix the value of Ontiveros's shares under section 2000. This procedure
would allow Omega to avoid dissolution by having Kent purchase Ontiveros's stock in
Omega. (See § 2000, subd. (a).) Appellants asserted that the court should order the
procedure under section 2000 because Kent owned more than 50 percent of Omega's
stock, Ontiveros was a minority shareholder, and Ontiveros had sued to involuntarily
dissolve Omega.
Ontiveros opposed the motion, arguing that the motion was premature, the
derivative portions of the lawsuit needed to be litigated first, Appellants were attempting
to exclude valuation of certain "illegally obtained fees," and an alternative date for
valuation must be set.
After multiple continuances of the hearing date, on March 2, 2017, the court
granted Appellants' motion, staying the proceedings pending determination of the fair
value of Omega pursuant to the procedure set forth in section 2000. The court required
4
Kent, within seven days of the date of the order, to deposit with the court a bond of
$75,000 to secure payment of the reasonable expenses of Ontiveros if Ontiveros's shares
were not purchased within the required time provided in section 2000. Within seven days
of the posting of the bond, the court required Ontiveros, on the one hand, and Kent and
Omega, on the other, to nominate in writing one proposed appraiser to serve on the
appraiser panel per section 2000. Those two appraisers were then to select a third
appraiser within 14 days of their selection.
Four days after the order was entered, Ontiveros attempted to file a request for
dismissal, without prejudice, of his cause of action for involuntary dissolution in the
second amended complaint. The court clerk did not enter dismissal of the involuntary
dissolution cause of action because the March 2, 2017 order stayed the proceeding.
Ontiveros then filed a motion to vacate or reconsider the March 2, 2017 order,
which was calendared to be heard on April 6, 2017. Because of the time frame set forth
in the March 2 order, Ontiveros applied ex parte, on March 9, 2017, to vacate the
March 2, 2017 order, or in the alternative, stay that order to allow a motion for
reconsideration to be heard.3
The court denied Ontiveros's ex parte application. The court also continued the
hearing on Ontiveros's motion to April 14, 2017 and ordered supplemental briefing. In
addition, the court stayed the March 2, 2017 order until April 14, 2017, such that Kent
was not required to deposit a bond with the court, and the parties were not required to
select appraisers by the order's timetable.
3 On March 9, 2017, Appellants served notice of entry of the March 2, 2017 order.
5
The court continued the April 14 hearing date to April 28, 2017. On April 28,
after considering the moving papers, opposition, and reply as well as entertaining oral
argument, the court, treating Ontiveros's motion as a motion for leave to file a dismissal
with prejudice, granted the motion.4 The court found that the initiation of the section
2000 procedure was akin to commencement of trial, and "for all intents and purposes the
involuntary dissolution cause of action was over" upon granting Appellants' motion on
March 2, 2017. However, the court determined that Ontiveros retained "an absolute right
to dismiss the involuntary dissolution cause of action" with prejudice under Code of Civil
Procedure section 581, subdivision (e). The court acknowledged that the court clerk
declined to enter the request for dismissal on March 6, 2017 based on the stay under the
March 2, 2017 order. However, because of Ontiveros's "absolute right to dismiss" the
involuntary dissolution cause of action "at any time, even after the commencement of
trial," the court considered the request for dismissal effective as of March 6, 2017. The
court further made clear that the dismissal was with prejudice "as acknowledged by
[Ontiveros] on the record at the hearing[.]" With the dismissal, there no longer existed a
cause of action for involuntary dissolution; thus, the court found that the procedure under
section 2000 was rendered inapplicable. Accordingly, by way of a written order dated
May 10, 2017, the court vacated the March 2, 2017 order and terminated the proceeding
under section 2000.
4 Although the court treated Ontiveros's motion as a motion for leave to file a
dismissal with prejudice, the court explained: "[E]ven if the court considered this a
Motion for Reconsideration under [Code of Civil Procedure] section 1008, it would find
as a new fact [Ontiveros's] attempt on March 6, 2017 to file and have entered the Request
for Dismissal."
6
Appellants timely appealed. We asked the parties to submit letters addressing
whether the appeal should be dismissed because it was taken from a nonappealable order.
The parties filed the requested letters. We determined that the appeal could proceed, but
suggested that the parties further address the issue in their respective appellate briefs and
informed them that we would further consider the appealability issue.
After hearing oral argument, we requested supplemental briefing addressing the
merits of Appellants' challenge to the superior court's order. The parties submitted the
requested supplemental briefing.
DISCUSSION
I
APPEALABILITY
A section 2000 shareholder buyout is a special proceeding that supplants an action
for involuntary dissolution of a corporation. (Go, supra, 179 Cal.App.4th at pp. 530,
532.) Section 2000 provides that when a shareholder sues for involuntary dissolution, the
corporation, or the holders of 50 percent or more of the voting power of the corporation,
may avoid the dissolution by purchasing for cash the shares owned by plaintiffs at their
"fair value." (§ 2000, subd. (a).) The statute defines "fair value" as the "liquidation value
as of the valuation date but taking into account the possibility, if any, of sale of the entire
business as a going concern in a liquidation." (Ibid.) If the parties cannot agree on a
valuation, the trial court shall appoint three disinterested appraisers to appraise the fair
value of the shares. (§ 2000, subd. (c).) "The order shall prescribe the time and manner
of producing evidence, if evidence is required. The award of the appraisers or of a
7
majority of them, when confirmed by the [superior] court, shall be final and conclusive
upon all parties." (Ibid.)
Below, the court originally granted Appellants' motion under section 2000 in the
March 2, 2017 order. However, after the court allowed Ontiveros to dismiss his cause of
action for involuntary dissolution of Omega, the court found the procedure ordered under
section 2000 to be inapplicable. It then vacated the March 2 order. Accordingly, the
court ultimately denied Appellants' motion under section 2000. The threshold issue
before us is whether such a denial is appealable.
Section 2000, subdivision (c) addresses appealability. At the time of Appellants'
motion, that subdivision provided:
"The court shall appoint three disinterested appraisers to appraise the
fair value of the shares owned by the moving parties, and shall make
an order referring the matter to the appraisers so appointed for the
purpose of ascertaining such value. The order shall prescribe the
time and manner of producing evidence, if evidence is required. The
award of the appraisers or of a majority of them, when confirmed by
the court shall be final, and conclusive upon all parties. The court
shall enter a decree which shall provide in the alternative for
winding up and dissolution of the corporation unless payment is
made for the shares within the time specified by the decree. If the
purchasing parties do not make payment for the shares within the
time specified, judgment shall be entered against them and the surety
or sureties on the bond for the amount of the expenses (including
attorneys' fees) of the moving parties. Any shareholder aggrieved by
the action of the court may appeal therefrom."5 (§ 2000, subd. (c).)
5 On January 1, 2018, the last sentence of section 2000, subdivision (c) was
modified in that the word "therefrom" was amended to state "the court's decision." Thus,
the last sentence now reads, "Any shareholder aggrieved by the action of the court may
appeal the court's decision." (Stats. 2017, ch. 721, § 1.) Appellants argue this change
makes clear that the Legislature intended to provide any aggrieved shareholder the
"immediate right of appeal." Ontiveros does not respond to this argument.
8
Ontiveros asserts the plain language of section 2000, subdivision (c) only allows a
party to appeal after a trial court issues an "alternative decree" for winding up and
dissolution of the corporation. In other words, an aggrieved shareholder may only appeal
after the conclusion of the section 2000 procedure when the court enters its decree
providing, in the alternative for winding up and dissolution of the company, a time by
which the majority shareholder(s) must purchase the minority shareholder's stock at a
certain price. In contrast, Appellants assert a party may appeal an order denying a motion
under section 2000 because it is aggrieved by the action of the court.
Although the parties essentially concede that there is no authority directly
addressing the appealability issue before us here, Ontiveros urges this court to follow
Dickson v. Rehmke (2008) 164 Cal.App.4th 469 (Dickson). Dickson involved a motion
under the former section 17351 for buyout of another member's interest in a limited
liability company.6 (Dickson, supra, at p. 473.) The trial court issued an alternative
decree and the purchasing member made prompt payment per the decree, and the court
entered judgment accordingly. The moving member appealed from the judgment,
contending the trial court erred in valuing his interest in the company. (Id. at p. 473.)
The purchasing member moved to dismiss the appeal on the ground that the notice of
appeal was not timely filed after entry of the alternative decree. The appellate court
6 Former section 17351 provided a buyout procedure for limited liability companies
that was like the one set forth in section 2000. In 2014, section 17531 was repealed and
replaced by section 17707.03. (Stats. 2012, ch. 419, § 19, operative Jan. 1, 2014.)
9
agreed, holding that the appeal should have been taken from the alternative decree and
dismissed the appeal. (Ibid.)
The court in Dickson, supra, 164 Cal.App.4th 469 did not address whether a party
can appeal from an order denying a motion to buyout shares. Thus, that case offers little
guidance here. If anything, the court's holding in Dickson suggests that a party aggrieved
by a ruling on a request for buyout must appeal that ruling rather than a subsequent
judgment. (Panakosta Partners, LP v. Hammer Lane Management, LLC (2011)
199 Cal.App.4th 612, 627 (Panakosta).)
Appellants maintain Panakosta, supra, 199 Cal.App.4th 612 is instructive.7 In
that case, partners in a limited partnership disagreed about selling certain real property
and some of the limited partners (minority partners) sought to wrest control of other
partners who collectively held a majority interest in the partnership (majority partners).
The majority partners filed an action seeking, among other causes of action, a judicial
dissolution of the partnership. The minority partners then sought to avoid dissolution and
petitioned to buy out the majority partners' share of the business in a special proceeding
under section 15908.02.8 In response to the petition, the majority partners dismissed
7 Ontiveros cites Panakosta, supra, 199 Cal.App.4th 612 for its explanation of the
rules of statutory interpretation and its holding that a dismissal of an involuntary
dissolution matter with prejudice removes the remedy provided by section 2000.
However, Ontiveros does not address that the court in Panakosta also found an order
denying a buyout petition under section 15908.02 (dealing with partnerships) was
immediately appealable.
8 Section 15908.02 provides an appraisal and buyout procedure for limited
partnerships that is similar to the shareholder appraisal and buyout procedure for
corporations set forth in section 2000.
10
their judicial dissolution action and filed an anti-SLAPP motion under Code of Civil
Procedure section 425.16. The superior court granted the anti-SLAPP motion and denied
the minority partners' petition for buyout. The minority partners appealed. (Panakosta,
supra, 199 Cal.App.4th at pp. 618-619.)
Among other issues, the appellate court addressed whether the minority partners
could appeal from a denial of a motion to buy out the majority partners' interests under
section 15908.02. In answering that question in the affirmative, the court observed that
subdivision (d) of section 15908.02 provides that " '[a]ny member aggrieved by the action
of the court may appeal therefrom.' "9 (Panakosta, supra, 199 Cal.App.4th at p. 625.)
The court then reasoned that the minority partners were "aggrieved by the trial court's
denial of the motion to buy out the majority partners' interests under section 15908.02. A
party who has an interest recognized by law and who is adversely affected by the
judgment or order is an aggrieved party. [Citation.] [The minority partners'] interest in
vindicating [their] statutory right to buy out [the majority partners] was 'immediate,
pecuniary, and substantial, and not merely a nominal or remote consequence' of the trial
court's ruling. [Citation.] Thus, subdivision (d) of section 15908.02 authorized an appeal
from the court's denial of [the minority partners'] petition." (Panakosta, supra, at p. 625.)
9 The court also noted that section 15908.02, subdivision (d) appeared to contain a
drafting error because it referred to "member" when limited partnerships only have
partners. Despite this error, the court determined "subdivision (d) nonetheless expressly
confers a statutory right to appeal from an action of the court on a request for buyout of
interests by partners who seek judicial dissolution of a partnership." (Panakosta, supra,
199 Cal.App.4th at p. 625.)
11
We find Panakosta helpful here. The language addressing appeals in
subdivision (d) of section 15908.02 is almost identical to the language in section 2000,
subdivision (c). Like the minority partners in Panakosta, supra, 199 Cal.App.4th 612,
Kent was aggrieved by the superior court's May 10, 2017 order, which vacated the
March 2, 2017 order beginning the appraisal and buyout procedure under section 2000.
Kent's interest in vindicating his statutory right to purchase Ontiveros's shares in Omega
was "immediate, pecuniary, and substantial, and not merely a nominal or remote
consequence" of the superior court's ruling. (Howard Contracting, Inc. v. G.A.
MacDonald Construction Co. (1998) 71 Cal.App.4th 38, 58; Panakosta, supra, at p.
625.) Alternatively stated, Kent had a right to purchase Ontiveros's shares under the
procedure set forth in section 2000, which the court acknowledged in its March 2, 2017
order. The court subsequently denied Kent that right after allowing Ontiveros to dismiss
his involuntary dissolution cause of action. At that point, Kent was aggrieved by the
"action of the court" and, under subdivision (c) of section 2000, had the right to appeal
the corresponding order. (Compare § 2000, subd. (c) with § 15908.02, subd. (d); cf.
Panakosta, supra, at p. 625.)
In short, the court's denial of Appellants' motion for an appraisal and buyout under
section 2000 is appealable, and we proceed to consider Appellants' challenge to the
superior court's order.
12
II
THE DENIAL OF THE MOTION TO INVOKE THE
SECTION 2000 SPECIAL PROCEEDING
As we discuss above, the superior court's May 10, 2017 order had the effect of
denying Appellants' motion for appraisal and buyout under section 2000. That motion
was based on the rights afforded by subdivision (a) of section 2000.10
Subdivision (c) of section 2000 expressly provides that the right to purchase the
shares of a plaintiff is an alternative to an involuntary dissolution of a corporation. Put
differently, section 2000, subdivision (c) applies to any suit seeking involuntary
dissolution. "Under those circumstances, the purchasing shareholders 'may avoid the
dissolution of the corporation and the appointment of any receiver' by buying the
plaintiff's shares. Nothing in section 2000, subdivision (a) provides for a buyout
independent of a pending involuntary dissolution suit." (Kennedy v. Kennedy (2015) 235
10 Section 2000, subdivision (a) provides: "Subject to any contrary provision in the
articles, which may include a reference to a separate written agreement between two or
more shareholders pertaining to the purchase of shares: [¶] In any suit for involuntary
dissolution, or in any proceeding for voluntary dissolution initiated by the vote of
shareholders representing only 50 percent of the voting power, the corporation or, if it
does not elect to purchase, the holders of 50 percent or more of the voting power of the
corporation (the 'purchasing parties') may avoid the dissolution of the corporation and the
appointment of any receiver by purchasing for cash the shares owned by the plaintiffs or
by the shareholders so initiating the proceeding (the 'moving parties') at their fair value.
[¶] The fair value shall be determined on the basis of the liquidation value as of the
valuation date but taking into account the possibility, if any, of sale of the entire business
as a going concern in a liquidation. In fixing the value, the amount of any damages
resulting if the initiation of the dissolution is a breach by any moving party or parties of
an agreement with the purchasing party or parties may be deducted from the amount
payable to the moving party or parties, unless the ground for dissolution is that specified
in paragraph (4) of subdivision (b) of Section 1800. The election of the corporation to
purchase may be made by the approval of the outstanding shares (Section 152) excluding
shares held by the moving parties."
13
Cal.App.4th 1474, 1481 (Kennedy).) In short, a party's right under section 2000 depends
entirely on the existence of a cause of action for involuntary dissolution of a corporation.
Without such a cause of action, a party could not bring a motion pursuant to section 2000.
However, the initial allegation of a cause of action for involuntary dissolution in a
complaint does not make the granting of a motion under section 2000 automatic. For
example, in Kennedy, supra, 235 Cal.App.4th 1474, the plaintiff sued the defendants for,
inter alia, involuntary dissolution. (Id. at p. 1478.) To avoid dissolution, the defendants
moved for an appraisal and buyout under section 2000. (Kennedy, supra, at p. 1479.)
Before the hearing on that motion, the plaintiff dismissed with prejudice his claim for
involuntary dissolution. (Ibid.) The superior court denied the section 2000 motion,
finding it lacked jurisdiction because of the dismissal of the involuntary dissolution cause
of action. (Kennedy, supra, at pp. 1479-1480.)
The Court of Appeal affirmed the order denying the motion. The court observed
that a plaintiff generally has an unfettered right to dismiss a cause of action before the
commencement of trial. (Kennedy, supra, 235 Cal.App.4th at p. 1481; see Code Civ.
Proc., § 581, subd. (c).11) The appellate court agreed with the superior court that,
without the existence of a cause of action for involuntary dissolution, a motion under
section 2000 must be denied. (Kennedy, supra, at p. 1483.)
11 Subdivision (c) of Code of Civil Procedure section 581 provides: "A plaintiff may
dismiss his or her complaint, or any cause of action asserted in it, in its entirety, or as to
any defendant or defendants, with or without prejudice prior to the actual commencement
of trial."
14
Thus, Kennedy, supra, 235 Cal.App.4th 1474 stands for the proposition that a
plaintiff can dismiss an involuntary dissolution cause of action before a hearing on a
motion for appraisal and buyout under section 2000, and the court can properly deny that
motion because the prerequisite triggering section 2000 no longer exists. However, in the
instant matter, Ontiveros did not dismiss his claim for involuntary dissolution until after
the superior court granted Appellants' motion under section 2000. According to
Appellants, because of the timing of the dismissal, the superior court lacked authority to
vacate its March 2, 2017 order staying the litigation to proceed with the special
proceeding under section 2000. Alternatively stated, Appellants maintain that once a
superior court grants a section 2000 motion, it cannot stop the special proceeding under
the statute, even if the plaintiff dismisses its cause of action for involuntary dissolution
with prejudice.12
Appellants claim that section 2000 does not give the party seeking involuntary
dissolution of a corporation the right to avoid the statutory election to purchase after the
election process has been commenced by order of the court. Specifically, Appellants
insist that section 2000, subdivision (a) "mandate[s] that once the right to purchase has
been ordered in a pending lawsuit for dissolution, the court must stay the dissolution
action and order the appraisal, and thereafter must issue an alternative decree for
purchase in cash at the appraised value or actual dissolution of the company if not
12 In the respondent's brief, Ontiveros asserts multiple times that courts "have
consistently held for over 50 years that these Appellants have no right to force a buyout
of Respondent's interest." None of the cases cited by Ontiveros, however, address the
issue presented here, where a plaintiff dismisses an involuntary dissolution cause of
action after a court grants a motion to proceed under section 2000.
15
purchased." In support of their position, Appellants focus not on section 2000, but on
section 17707.03, subdivision (c)(6).
Section 17707.03 applies to limited liability companies. Section 17707.03,
subdivision (a) allows for the dissolution of a limited liability company under certain
circumstances. Those circumstances are specified in 17707.03, subdivision (b). Section
17707.03, subdivision (c)(1) through (5) describes how the buyout procedure is
conducted. Subdivision (c)(6) of section 17707.03 states: "A dismissal of any suit for
judicial dissolution by a manager, member, or members shall not affect the other
members' rights to avoid dissolution pursuant to this section."
Appellants claim section 17707.03, subdivision (c)(6) prevents Ontiveros from
dismissing his involuntary dissolution cause of action to avoid the appraisal and buyout
procedures under section 2000. However, as a threshold matter, we observe that section
17707.03 applies to limited liability companies, not corporations like Omega. And there
is no analogous provision in section 2000 comparable to section 17707.03,
subdivision (c)(6). Appellants, undaunted by this distinction, urge us to apply section
17707.03, subdivision (c)(6) here because section 2000 and section 17707.03 are
"functionally identical"; thus, the legislative intent as to section 17707.03 applies to
section 2000. In other words, although section 2000 does not contain any provision
analogous to subdivision (c)(6) of section 17707.03, Appellants contend we must read
that subdivision into section 2000 based on legislative intent. We decline to do so.
Section 17707.03 and section 2000 are not "functionally identical" as Appellants
claim. The former applies to limited liability companies while the latter affects
16
corporations. And limited liability companies are not corporations. " ' "A limited
liability company is a hybrid business entity formed under the Corporations Code . . .
[which] provides members with limited liability to the same extent enjoyed by corporate
shareholders [citation] . . . . " ' [Citation] while maintaining the attributes of a partnership
for federal income tax purposes." (People v. Pacific Landmark (2005) 129 Cal.App.4th
1203, 1211-1212.) It consists of at least two members who own membership interests.
Although the company has a separate legal existence from its members, the members
actively participate in the management and control of the company. (PacLink
Communications Internat., Inc. v. Superior Court (2001) 90 Cal.App.4th 958, 963.)
The Legislature crafted a statute to govern a buyout procedure when one member
sues the other members to dissolve a limited liability company.13 (§ 17707.03.) Also,
the Legislature wrote a different statute to govern a buyout procedure when a shareholder
sues the other shareholders to dissolve a corporation. (§ 2000.) Section 17707.03,
including subdivision (c)(6) was added to the Corporations Code in 2012 and became
effective January 1, 2014. (Stats. 2012, ch. 419, § 20.) Section 2000 was added to the
Corporations Code in 1975 and became effective January 1, 1977. (Stats. 1975, ch. 682,
§ 7.) It was most recently amended in 2017, with the amendment effective January 1,
2018. (Stats. 2017, ch. 721, § 1.) The Legislature did not see fit to add to section 2000 a
subdivision like section 17707.03, subdivision (c)(6) despite amending section 2000 as
13 The statute also allows a court to decree the dissolution of a limited liability
company under certain circumstances in addition to a suit for judicial dissolution.
(§ 17707.03, subds. (a), (b)(1)-(5).)
17
recently as 2017.14 Here, Appellants essentially ask us to add that subdivision to section
2000 although the Legislature did not do so. This is not our role. We do not usurp the
Legislature's law making function by borrowing words from one statute and inserting
those words into another statute. Such an approach is especially true here where we need
not harmonize conflicting statutes. Section 17707.03 and section 2000 are not in
disagreement. Each statute governs a different legal entity. There is no reason for us to
apply both the statutes to a corporation when the Legislature has given us no indication
that we should do so.15
Yet, our conclusion that section 17707.03 does not apply to a dissolution action
involving a corporation is not the death knell for Appellants' contentions. The question
remains whether a plaintiff can dismiss its cause of action for involuntary dissolution
after a special proceeding under section 2000 has commenced. Go, supra, 179
Cal.App.4th 522 provides some guidance on this issue.
In Go, the plaintiff filed a complaint seeking the involuntary dissolution of a close
corporation of which she was a shareholder. The plaintiff also sought damages in her
complaint based on claims of breach of fiduciary duty and fraud. (Go, supra, 179
Cal.App.4th at p. 527.) The defendants, who were the other shareholders of the
14 We note this amendment occurred after section 17707.03, subdivision (c)(6) was
effective.
15 Ontiveros commenced the instant action on December 19, 2012. Because section
17707.03 was not yet operative when the action commenced, its provisions, including
subdivision (c)(6) do not apply to this matter. (See Kennedy, supra, 235 Cal.App.4th at
p. 1491.) For this reason as well, we reject Appellants' argument based on section
17707.03, subdivision (c)(6).
18
corporation, filed a cross-complaint for breach of contract, misappropriation of corporate
opportunities, and breach of duty of loyalty. The defendants subsequently sought to
purchase the plaintiff's shares under section 2000 by moving for a stay of the dissolution
proceedings and requesting that the value of the plaintiff's shares be fixed by the
appraisal process set forth in section 2000. The superior court granted the stay of the
dissolution proceedings, appointed the appraisers, and upon receiving the appraisers'
reports, determined the value of the plaintiff's shares in the corporation. Pursuant to
section 2000, the superior court then issued an alternative decree that the defendants pay
the plaintiff for the value of her shares by a certain date, or, in the alternative, the
involuntary winding up and dissolution " 'shall proceed immediately.' " (Go, supra, at
p. 529.) The defendants, even though they had commenced the appraisal and buyout
proceedings under section 2000, appealed from the alternative decree, claiming they still
had a right to litigate or " 'defend themselves' " on the merits of the plaintiff's claim for
involuntary dissolution. (Go, supra, at p. 529.)
The Court of Appeal rejected the defendants' contention, concluding that when the
defendants obtained a stay of the dissolution proceedings and implemented the appraisal
process of section 2000, they were agreeing to use that summary proceeding in lieu of
litigating their claims in the involuntary dissolution action: "[T]hat is precisely the
concession [the] defendants chose when they elected to proceed under section 2000."
(Go, supra, 179 Cal.App.4th at p. 531.) As the Court of Appeal further explained: "[The
defendants] could have chosen to litigate their cross-complaint and defend the . . . action
for involuntary dissolution on its merits. They chose instead to use the summary
19
procedure afforded by section 2000, which resulted in a stay of the dissolution
proceedings, valuation of the corporation, and an alternative decree to either pay the
plaintiff the designated amount or have judgment of dissolution entered against them. If
this were not the inevitable outcome, then all majority shareholders facing an action for
involuntary dissolution would invoke section 2000 if only for the purpose of delay, with
nothing to lose other than the expense of the appraisal and attorney fees, knowing they
could eventually litigate the action for involuntary dissolution on its merits. The plain
language of section 2000, and the apparent legislative purpose inherent in the language of
the statute, do not permit such an interpretation." (Go, supra, at pp. 531-532.) It was in
this context that the Court of Appeal stated: "The procedure permitted by section 2000,
which is entirely optional, embodies a summary proceeding which supplants the action
for involuntary dissolution pursuant to section 1800." (Go, supra, at p. 530, italics
added.)
We note that there exist some factual differences between Go and the instant
action. In Go, after the defendants moved for the procedure under section 2000 and that
procedure had run its course, they attempted to avoid the consequences of the stay,
appraisal, and buyout by arguing they had the right to litigate the involuntary dissolution
claim. (Go, supra, 179 Cal.App.4th at p. 529.) In the instant action, the defendants are
not seeking to avoid the section 2000 proceeding, but the plaintiff is. Here, Ontiveros
opposed Appellants' motion under section 2000 and attempted to dismiss his cause of
action four days after the court stayed the action and ordered a special proceeding under
20
section 2000. Except having been ordered by the court, the special proceeding has not
run its course like the special proceeding in Go.
Yet, even acknowledging these differences, we must address the appellate court's
conclusion that section 2000's special proceeding "supplants" the action for involuntary
dissolution. (Go, supra, 179 Cal.App.4th at p. 530.) Merriam-Webster's Collegiate
Dictionary provides three definitions for the word "supplant:" (1) "to supersede (another)
esp. by force or treachery"; (2) "to eradicate and supply a substitute for"; and (3) "to take
the place of and serve as a substitute for esp. by reason of superior excellence or
power[.]" (Webster's 11th Collegiate Dict. (2006) p. 1255.) The court's choice of the
word "supplant" in describing the special proceeding under section 2000 indicates that
the court determined that the plaintiff's cause of action for involuntary dissolution was
replaced by the special proceeding. In other words, the involuntary dissolution claim
ceased to exist and was superseded by the special proceeding. At that point, the plaintiff
no longer controlled her cause of action and the defendants gave up their right to litigate
the cause of action by electing to proceed with the special proceeding under section 2000.
(See Go, supra, at pp. 531-532.)
Such a conclusion finds support in section 2000. A cause of action for involuntary
dissolution of a corporation seeks to end the subject corporation's legal existence. (See
§ 1800.) In litigating that cause of action, the plaintiff would have to show that
dissolution of the corporation was warranted while the defendant would fend off such a
claim. Section 2000 allows the parties to avoid such litigation if the corporation or
holders of 50 percent or more of the voting power of the corporation opt to purchase the
21
shares owed by the plaintiff at their "fair value." (§ 2000, subd. (a). ) Subdivision (c) of
section 2000 provides for a procedure to determine the fair value of the shares if the
parties do not agree on a value. As such, section 2000 provides a mechanism to take the
place of a cause of action for involuntary dissolution by allowing the parties to avoid
litigating that claim and providing a means to establish the fair value of the corporation's
shares. In this sense, the court's use of the word "supplants" is particularly apt. (See
Goles v. Sawhney (2016) 5 Cal.App.5th 1014, 1018 ["A section 2000 shareholder buyout
is a special proceeding that supplants an action for involuntary dissolution of a
corporation."].)
In our request for supplemental briefing, we asked the parties to address four
questions in light of the appellate court's quote explaining that section 2000's special
proceeding "supplants" the action for involuntary dissolution. (See Go, supra,
179 Cal.App.4th at p. 530.) In one question, we asked the parties whether Code of Civil
Procedure section 581, subdivision (e) still applies after a section 2000 special
proceeding commences. Not surprisingly, the parties provide different answers to this
question. Appellants respond that it no longer applies. Ontiveros contends that it does.
Appellants have the better argument.
Code of Civil Procedure section 581, subdivision (e) provides: "After the actual
commencement of trial, the court shall dismiss the complaint, or any causes of action
asserted in it, in its entirety or as to any defendants, with prejudice, if the plaintiff
requests a dismissal, unless all affected parties to the trial consent to dismissal without
prejudice or by order of the court dismissing the same without prejudice on a showing of
22
good cause." That subdivision does not mention a special proceeding. Instead, Code of
Civil Procedure section 581, subdivision (a)(1) defines "[a]ction" as "any civil action or
special proceeding." Subdivision (a)(2) of that same section provides that " '[c]omplaint'
means a complaint and a cross-complaint." Thus, at most, Code of Civil Procedure
section 581, subdivision (e) would allow a plaintiff to dismiss a complaint or a cause of
action in that complaint with prejudice after the commencement of a trial.16 But a
special proceeding under section 2000 is not a trial.
In a trial of an involuntary dissolution claim, the parties would be adversaries with
the plaintiff offering evidence showing that grounds exist warranting dissolution of the
corporation and establishing the plaintiff's damages. The defendant, on the other hand,
would offer evidence undercutting the plaintiff's claim that dissolution of the corporation
is necessary. The parties would elicit testimony from witnesses and ask the fact finder to
decide the dispute on the merits, defining the rights and obligations of the parties while
determining liability and damages. In contrast, the special proceeding under section 2000
includes none of the attributes of a trial. There is no resolution of the disputes on the
merits. The special proceeding does not determine whether the corporation should be
dissolved, but instead, provides the plaintiff and defendant with a statutory remedy
without trial. (See Go, supra, 179 Cal.App.4th at p. 532; Brown v. Allied Corrugated
Box Co. (1979) 91 Cal.App.3d 477, 487, 489 [referring to section 2000 as a "buy-out
16 "A trial shall be deemed to actually commence at the beginning of the opening
statement or argument of any party or his or her counsel, or if there is no opening
statement, then at the time of the administering of the oath or affirmation to the first
witness, or the introduction of any evidence." (Code Civ. Proc., § 581, subd. (a)(6).)
23
statute" and as providing a "buy-out remedy"].) A value of the corporation's stock is
determined and then the defendant has a period by which it is to pay the plaintiff for its
stock. If the defendant does not do so, a judicial decree will dissolve the corporation.
(See § 2000, subds. (c), (d).) Consequently, we determine the court's order establishing a
special procedure under section 2000 is not analogous to the commencement of trial.
Thus, the fact that Code of Civil Procedure section 581, subdivision (e) allows a plaintiff
to dismiss a complaint or a cause of action with prejudice after trial commences does not
persuade us that that subdivision is applicable to a section 2000 special proceeding.
We also note that section 2000 does not expressly incorporate Code of Civil
Procedure section 581. (See Veyna v. Orange County Nursery, Inc. (2009) 170
Cal.App.4th 146, 155 (Veyna).) In Veyna, the minority shareholder plaintiffs brought an
action for involuntary dissolution of a corporation. To avoid dissolution, the corporation
elected to buy out the plaintiffs under section 2000. (Veyna, supra, at p. 149.) The trial
court entered a decree fixing the fair value of the plaintiffs' shares and ordered that unless
the corporation made payment for the shares by a particular date, judgment would be
entered winding up and dissolving the corporation. (Id. at pp. 149-150.) Without making
the required payment, the corporation filed a notice of appeal, asserting that the filing of
the appeal automatically stayed the decree's requirement that payment be made for the
shares. (Id. at p. 150.) Thereafter, the corporation petitioned the Court of Appeal for a
writ of supersedeas to stay the decree pending the appeal. (Id. at pp. 150, 154.) The
Court of Appeal gave two reasons for concluding that the automatic stay did not apply.
First, as relevant here, the special procedure under section 2000 is a " 'special
24
proceeding' " to which section 916 does not apply. (Veyna, supra, at pp. 154-155.) To
this end, the court explained: "But 'Part 2 of the Code of Civil Procedure extends
generally only to civil "actions," and not to "special proceedings." Unless the statutes
establishing a "special proceeding" expressly incorporate the appellate-stay provisions of
Part 2, they are inapplicable, and a final order in the "special proceeding" is not
automatically stayed pending appeal. [Citation.]' [Citation.] Nothing in Corporations
Code section 2000 expressly incorporates Part 2 of the Code of Civil Procedure, a point
the purchasing party concedes." (Veyna, supra, at p. 155, quoting Agricultural Labor
Relations Bd. v. Tex-Cal Land Management, Inc. (1987) 43 Cal.3d 696, 707.)17
Code of Civil Procedure section 581 is included in part 2 of the Code of Civil
Procedure. As such, it does not apply to section 2000 because that section does not
expressly incorporate it. (Veyna, supra, 170 Cal.App.4th at p. 155.) Expressed
differently, once a court grants a motion under section 2000, a plaintiff no longer controls
a cause of action for involuntary dissolution, and therefore, cannot dismiss it under Code
of Civil Procedure section 581. At that point, the parties give up their rights to litigate
that cause of action and will abide by the process set forth in section 2000. (Cf. Go,
supra, 179 Cal.App.4th at pp. 530, 532.)
Our conclusion is not undermined by our holding in Conservatorship of Martha P.
(2004) 117 Cal.App.4th 857. In that case, we determined that Code of Civil Procedure
17 The appellate court's second reason for concluding the automatic stay did not
apply was that the trial court's decree was self-executing. (Veyna, supra, 170
Cal.App.4th at p. 156.)
25
section 581, subdivision (b) allowed the San Diego County Health and Human Service's
Agency's Office of the Public Conservator to request dismissal of a petition to reestablish
conservatorship of the appellant under the Lanterman-Petris-Short (LPS) Act.18
(Martha P., supra, at pp. 859-860.) In reaching this conclusion, we explained that the
LPS Act specifically incorporated Code of Civil Procedure part 2 via the Probate Code
(Martha P., supra, at pp. 867-868) and voluntary dismissal was consistent with the LPS
Act's legislative goal of preventing the inappropriate, indefinite commitment of gravely
disabled persons. (Martha P., supra, at p. 868). In contrast, unlike the Probate Code,
section 2000 does not expressly or implicitly incorporate Code of Civil Procedure section
581.
Having concluded that Code of Civil Procedure section 581, subdivision (e) does
not allow a plaintiff to dismiss a cause of action for involuntary dissolution once a court
grants a motion under section 2000, we next turn to whether the superior court abused its
discretion in granting Ontiveros's motion for reconsideration and terminating the special
proceeding under section 2000. Below, the trial court concluded that Ontiveros, under
Code of Civil Procedure section 581, subdivision (e), had the "absolute right to dismiss"
with prejudice the involuntary dissolution cause of action "at any time, even after the
commencement of trial." With the cause of action for involuntary dissolution dismissed,
the court concluded there was no reason to continue the special proceeding under section
2000. Thus, the trial court's conclusion to terminate the special proceeding hinged on its
determination that Ontiveros could dismiss the subject claim under Code of Civil
18 Welfare and Institutions Code section 5000 et seq.
26
Procedure section 581, subdivision (e). In doing so, the trial court abused its discretion
by misapplying and misinterpreting the law. (See Prigmore v. City of Redding, supra,
211 Cal.App.4th at p. 1334.) Once the trial court stayed the action and ordered a special
proceeding under section 2000, that special proceeding supplanted the involuntary
dissolution cause of action. (See Go, supra, 179 Cal.App.4th at p. 530; Goles v.
Sawhney, supra, 5 Cal.App.5th at p. 1018.) The order granting Ontiveros's motion must
be reversed.
Although we establish that Code of Civil Procedure section 581, subdivision (e)
does not allow a plaintiff to dismiss an involuntary dissolution cause of action with
prejudice after a court orders the commencement of a special proceeding under section
2000, we do not suggest that a court does not have discretion to dismiss a special
proceeding under any circumstance. For example, we can imagine a scenario where the
parties settle the dispute rendering the purpose of the special proceeding moot. In
addition, there may be other scenarios where justice or equity would support a court
ending a special proceeding under section 2000. Such a situation might even present
itself as a motion for reconsideration under Code of Civil Procedure section 1008. That
said, a new fact under that statute cannot be the plaintiff dismissing a cause of action for
involuntary dissolution after the court has granted a motion for a special proceeding
under section 2000.
27
DISPOSITION
The order is reversed and the matter is remanded to the superior court with
directions to reinstitute the special proceeding under section 2000. Appellants are
entitled to their costs on appeal.
HUFFMAN, Acting P. J.
WE CONCUR:
AARON, J.
IRION, J.
28