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West Hills Farms, Inc. v. RCO AG Credit

January 26, 2009


APPEAL from a judgment of the Superior Court of Fresno County. Adolfo M. Corona, Judge. (Super. Ct. No. 05CECG03554).

The opinion of the court was delivered by: Kane, J.



In this derivative action, defendant RCO Ag Credit, Inc. was sued by two of its shareholders, plaintiffs West Hills Farms, Inc. and California Pistachio, LLC, based on allegedly unnecessary fees paid by defendant to a related corporate entity. Defendant made a motion under Corporations Code section 800*fn2 to require plaintiffs to furnish a bond in the amount of $50,000 as security for defendant's anticipated litigation expenses to defend the action. The motion was granted and plaintiffs furnished the required bond. Defendant ultimately prevailed in the action and, following entry of judgment,*fn3 moved for an award of all of its attorney fees and costs incurred, totaling over $350,000. The trial court's order limited the award of attorney fees and costs to $50,000, the amount of the bond. Defendant appeals from that order, contending that under section 800 it was entitled to recover all of its attorney fees and costs, regardless of the amount of the bond. We disagree. As we will explain, we conclude that section 800 simply allows a prevailing defendant to recover its attorney fees and costs out of the bond, if one is posted.*fn4 Accordingly, we affirm the trial court's order.


Plaintiffs' original complaint was filed on November 14, 2005. Defendant demurred on the ground that the complaint failed to allege facts showing that a demand had been made on defendant's board of directors or that such a demand would have been futile. Such allegations were essential to plaintiffs' standing to maintain the derivative action. (See § 800, subd. (b)(2).) Prior to the hearing on the demurrer, plaintiffs filed a first amended complaint. A series of demurrers followed in which defendant successfully challenged the sufficiency of each amended pleading on this same ground. Ultimately, on August 31, 2007, the trial court sustained defendant's demurrer to the third amended complaint without leave to amend. Plaintiffs conceded that no pre-lawsuit demand had been made and the trial court concluded that the plaintiffs' revised pleading -- which represented plaintiffs' best effort -- still failed to adequately allege a basis for demand futility. Judgment was entered on November 8, 2007.

Earlier in the case, defendant made a motion for security, seeking an order that plaintiffs "furnish a security in the amount of $50,000.00 pursuant to Corporations Code section 800, subdivisions (c) through (f)."*fn5 The trial court found that defendant met its evidentiary burden under section 800, subdivision (c), of showing there was no reasonable possibility the prosecution of plaintiffs' shareholder derivative claims would benefit the corporation or its shareholders. Accordingly, the motion was granted. In setting the amount of the bond, the trial court found that defendant's litigation expenses would likely exceed $50,000; therefore, plaintiffs were required to provide a bond in the amount of $50,000, the maximum permitted under the statute. (See § 800, subd. (d).)

After judgment was entered in defendant's favor, defendant filed its motion for attorney fees and costs. The notice of motion stated that defendant was moving the trial court for an award of attorney fees in the amount of $351,478 and costs in the amount of $9,848.71, for a total award against plaintiffs of $361,326.71. Defendant's motion argued that section 800 provided an independent statutory basis for recovery of all of its attorney fees and costs incurred in defending the action.

The trial court disagreed. In ruling on defendant's motion for attorney fees and costs, the trial court awarded defendant only $50,000 in fees and costs because it believed that "[t]he plain language of section 800 expressly limits a prevailing defendant's recovery of fees and costs to the amount of the posted security, in this case $50,000." Defendant's appeal followed.


I. Defendant's Right to Attorney Fees and Costs Under Section 800 Was Limited to the Amount of the Bond

Defendant contends the trial court erred when it interpreted section 800 as limiting the recovery of attorney fees and costs under that section to the amount of the bond. Because this contention involves a question of statutory construction, our review is de novo. (People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 432.)

A. Principles of Statutory Interpretation

"[C]courts must begin with the language of a given statute as the purest expression of legislative intent." (Gunther v. Lin (2006) 144 Cal.App.4th 223, 233.) "'When interpreting a statute, we must ascertain legislative intent so as to effectuate the purpose of a particular law. Of course our first step in determining that intent is to scrutinize the actual words of the statute, giving them a plain and commonsense meaning. [Citation.] When the words are clear and unambiguous, there is no need for statutory construction or resort to other indicia of legislative intent, such as legislative history. [Citation.]'" (Hale v. Southern Cal. IPA Medical Group, Inc. (2001) 86 Cal.App.4th 919, 924, quoting Quarterman v. Kefauver (1997) 55 Cal.App.4th 1366, 1371.)*fn6 "The statute's plain meaning controls the court's interpretation unless its words ...

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