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Haro v. Ibarra

December 23, 2009

CARLOS HARO ET AL., PLAINTIFFS AND APPELLANTS,
v.
FERNANDO IBARRA ET AL., DEFENDANTS AND RESPONDENTS.



APPEAL from a judgment of the Superior Court of Los Angeles County. Maureen Duffy-Lewis, Judge. Reversed and remanded. (Los Angeles County Super. Ct. No. BC379491).

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

CERTIFIED FOR PUBLICATION

We address in this opinion two issues. The first is the sufficiency of the allegations in a complaint to survive demurrer. Second, we address whether equitable considerations might warrant an exception to the requirement that a shareholder maintain continuous ownership of stock in order to maintain standing to bring a shareholder derivative action. We will hold that the allegations here were sufficient to survive the demurrers and that equitable considerations bear upon shareholder standing.

Plaintiffs/Appellants, Carlos Haro, Carlos Meza, Marcos Lemor, Antonio Alarcon, Miguel Rodriguez, and Jose Delgado (collectively "Appellants"), are physicians who are former shareholders of Defendant/Respondent, Associated Hispanic Physicians of Southern California, Inc. ("AHP"), a medical corporation. Defendants/Respondents Fernando Ibarra, Alfonso Barragan, Manuel Figueroa, Maria Christina Hernandez, and Omar Perez (collectively "Individual Respondents") are physicians who are officers, directors, and other shareholders in AHP. Defendant/Respondent Alpha Medical Management, LLC ("Alpha") is a medical management company that provides management services to AHP. Ibarra and Barragan own Defendant/Respondent Medical Management Consultants, LLC ("MMC"), which in turn owns Alpha.

Appellants objected when Ibarra, Barragan, and AHP levied an assessment of $57,291.67 per share against Appellants. Appellants refused to pay the assessment, and the controlling directors consequently declared Appellants' shares to be forfeited. Appellants then filed suit, seeking declaratory relief that the stock forfeiture was improper and, in the alternative, damages for conversion. Appellants also alleged derivative causes of action for harm to the corporation.

The trial court sustained demurrers to the First Amended Complaint ("FAC") and the Second Amended Complaint ("SAC") on the grounds that Appellants lacked standing because they had not paid the assessment and were no longer shareholders. The court thus dismissed the complaint. Assuming, as we must, "the truth of the complaint's properly pleaded or implied factual allegations," we will reverse because the SAC states a cause of action. (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.) We further will hold that equitable circumstances alleged here warrant an exception to the requirement that Appellants maintain continuous ownership of the shares in order to bring a shareholder derivative action.

BACKGROUND

Appellants were shareholders of AHP, a medical corporation that Appellants describe as an Independent Practice Association ("IPA"). Appellants' shares in AHP were forfeited when they refused to pay an assessment that they believed was part of a scheme by Ibarra and Barragan to force them out.

I. First Amended Complaint

Appellants filed a complaint in October 2007. The parties subsequently stipulated to the filing of the FAC, which was filed in March 2008. In the FAC, Appellants stated that they collectively owned 16 of the 54 shares (29.62%) of AHP; Barragan and Ibarra together owned 18 shares (33 1/3 %). Appellants alleged that Barragan and Ibarra had controlled AHP improperly and breached their fiduciary obligations to AHP and its shareholders. When Appellants objected to Barragan and Ibarra's improper conduct, Barragan and Ibarra devised a scheme to "deny [Appellants] their rights as fully vested shareholders of AHP." The FAC alleged six causes of action. First, Appellants sought declaratory relief, asking for "a judicial determination of their rights and a declaration as to whether the forfeiture of their shares of AHP stock was ultra vires and wrongful."

A. First Cause of Action

As to the first cause of action, the FAC alleged that Barragan and Ibarra declared that Appellant Alarcon's two shares of AHP were forfeited, with no basis or authority for the forfeiture.*fn1 Barragan and Ibarra then "levied an assessment of $57,291.67 per share of AHP's stock and warned Haro, Meza, Lemor, Rodriguez and Delgado that failure to pay said levy would result in the forced sale of the shares." The "stated purpose of the assessment was to fund the purchase of an IPA in Mexico," which Appellants alleged was "a radical departure from the normal business of AHP." The FAC further alleged that the assessment was improper and ultra vires because it was not approved in accordance with AHP's articles and by-laws; the AHP directors had not disclosed "all the material terms of the transaction to purchase a foreign business"; the acquisition of a foreign business was contrary to the stated purposes and by-laws of AHP; and the assessment was not made for the reasonable needs of AHP, was not prudent, and was fraudulent. When Appellants refused to pay the assessment, Ibarra and Barragan forfeited their shares and ousted them as shareholders. Appellants contended that Figueroa, Hernandez, and Perez were not actively involved in the wrongful conduct, but they were aware of the misconduct and failed to take any corrective action. Appellants contended that, despite the forfeiture of their shares, they had standing to bring a shareholder derivative action because the assessment was void, fraudulent, and ultra vires.

B. Second Cause of Action

The second cause of action was a derivative action, alleging breach of fiduciary duty based on Alpha's contract to provide management services to AHP. Appellants alleged that Alpha had acquired or merged with MMC, and that Alpha and MMC were owned by Barragan and Ibarra, who had "enjoyed substantial personal gain" from the arrangement. The FAC alleged that "AHP had the financial ability and economic incentive to provide for its own management services through an entity owned and controlled by itself and the pursuit of such an opportunity would have been a natural and reasonable expansion of AHP's business." The second cause of action accordingly was a derivative action for breach of fiduciary duty, misappropriation of corporate opportunities, constructive fraud, and accounting.

C. Remaining Causes of Action

The third cause of action, also a derivative claim, alleged breach of fiduciary duty by constructive fraud, on the bases that Alpha and MMC overcharged AHP for management services and that Barragan and Ibarra were knowingly overcharging AHP for rent. The fourth cause of action, a derivative claim, was for breach of fiduciary duty and sought an accounting of AHP's earnings and expenses. The fifth cause of action was a personal action for conversion, in the alternative to the derivative claims. Appellants alleged that AHP, Barragan, and Ibarra wrongly converted Appellants' AHP shares and sought an accounting of AHP's earnings and expenses so that Appellants could determine the value of the shares. Sixth, Appellants asked to be allowed to inspect AHP's records, pursuant to Corporations Code section 1601.*fn2

D. Demurrers

Respondents filed demurrers to the FAC. Individual Respondents filed a general demurrer to the entire FAC. AHP demurred to Appellants' second, third, and fourth derivative causes of action on the ground that Appellants lacked standing to bring a derivative suit because they had failed to comply with section 423, subdivision (m), which requires that a delinquent assessment be paid in order to bring an action to recover the shares sold for the delinquent assessment.*fn3 AHP further argued that Appellants lacked standing because they had not maintained continuous ownership of the stock. AHP also contended that the fifth cause of action, for conversion, and the sixth cause of action, for failure to produce records, were uncertain.

Alpha and MMC demurred to the second and third causes of action on the basis that Appellants did not have standing to bring a derivative suit because they had ceased to be shareholders. Alpha and MMC demurred to the fifth and sixth causes of action, arguing that ...


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