(PS) Crowe v. Gogineni et al, No. 2:2011cv03438 - Document 101 (E.D. Cal. 2013)
Court Description: FINDINGS and RECOMMENDATIONS signed by Magistrate Judge Dale A. Drozd on 11/26/2013 RECOMMENDING that defendant Gogineni's 76 motion for judgment as a matter of law filed 5/10/2013 be denied. Motion referred to Judge John A. Mendez. Objections to F&R due within 14 days. (Zignago, K.)
Download PDF
<![CDATA[
1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 KELLY CROWE, 12 Plaintiff, 13 14 No. 2:11-cv-3438 JAM DAD PS v. FINDINGS AND RECOMMENDATIONS RAMA GOGINENI, et al., 15 Defendants. 16 This matter came before the court on July 19, 2013, for hearing of defendant Rama 17 18 Gogineni’s motion for judgment on the pleadings. (Doc. No. 76.) Jeff Stone, Esq. appeared for 19 defendant Rama Gogineni. Plaintiff Kelly Crowe appeared on his own behalf. For the reasons 20 set forth below, the undersigned will recommend that defendant’s motion be denied. BACKGROUND 21 Plaintiff Kelly Crowe, proceeding pro se, commenced this action on December 27, 22 23 2011, by filing a complaint and paying the required filing fee. (Doc. No. 1.) In her complaint 24 plaintiff alleged as follows. On February 19, 2000, plaintiff and defendant Rama Gogineni 25 entered into a shareholder agreement in which each party held shares of Cosmic Technologies 26 Corp. (“Cosmic”), a now dissolved California corporation. (Compl. (Doc. No. 1) at 2.1) 27 1 28 Page number citations such as this one are to the page number reflected on the court’s CM/ECF system and not to page numbers assigned by the parties. 1 1 Defendant Gogineni was the director, president, secretary, treasurer and majority shareholder of 2 Cosmic. (Id.) 3 On February 7, 2003, unbeknownst to plaintiff, defendant Gogineni began 4 approving money transfers from Cosmic to Titan Infotech Corp. (“Titan”), a now dissolved 5 California corporation wholly owned by defendant Gogineni. (Id. at 5.) By the end of April of 6 2003, however, Cosmic was generating sufficient profits to make distributions to its shareholders. 7 (Id. at 2.) Gogineni informed plaintiff that a tax professional had advised Gogineni that there 8 were significant tax benefits to making those distributions in the form of salary to plaintiff and 9 Gogineni instead of Cosmic paying formal dividends. (Id.) Plaintiff agreed to permit the 10 11 distributions to be made in the form of unearned salary. (Id.) On May 8, 2003, Cosmic commenced declaring constructive dividends in the form 12 of unearned salary. (Id. at 3.) Around the same time plaintiff and Gogineni began experiencing 13 trouble working together. (Id.) Moreover, the constructive dividends paid and “labeled falsely as 14 salary” were raised, lowered or temporally suspended from time to time, the shareholders roles in 15 Cosmic and their hours worked did not warrant the payments received, the payments grossly 16 exceed compensation paid to similarly situated employees and the condition of Cosmic’s sales 17 and income did not warrant the payments made. (Id. at 6.) 18 On June 20, 2003, plaintiff received a letter from Whitney Washburn, an attorney 19 hired by Gogineni, informing plaintiff that Gogineni was contesting plaintiff’s title to stock held 20 in Cosmic, was alleging that plaintiff was in breach of the shareholders’ agreement and that 21 plaintiff’s employment with Cosmic was therefore terminated. (Id. at 3.) Plaintiff stopped 22 receiving constructive dividends in the form of unearned salary from Cosmic, although Gogineni 23 continued to receive such dividends through 2005. (Id. at 5.) 24 In July of 2003, Bullivant Houser Bailey (“BHB”) was retained by Cosmic to 25 respond to an application for order directing Cosmic to hold an annual shareholders meeting. (Id. 26 at 4.) On August 29, 2003, plaintiff received a letter from BHB informing plaintiff that BHB was 27 retained to serve as Cosmic’s corporate counsel, that BHB had determined that plaintiff was a 28 valid shareholder in Cosmic, that Cosmic would be holding an annual shareholders meeting on 2 1 December 31, 2003, that BHB was aware that Gogineni had retained counsel concerning a 2 pending dispute between the shareholders, that BHB would like to discuss the purchase of 3 plaintiff’s shares in Cosmic and that Cosmic’s board of directors would consider any dividend 4 distributions at the close of the fiscal year after consultation with Cosmic’s accountants. (Id.) 5 BHB also represented Cosmic in an action filed by plaintiff in October of 2003, which concluded 6 in June of 2004. (Id.) On July 27, 2004, BHB sent plaintiff a letter indicating that BHB had 7 again been retained by Cosmic to file an action to quiet title to each shareholder’s stock. (Id. at 8 4.) 9 On December 26, 2008, plaintiff discovered the money transfers from Cosmic to 10 Titan approved by Gogineni. (Id. at 5.) Plaintiff alleges that Gogineni also used Cosmic’s 11 corporate funds to send money to Kantamaneni Rajani in India, who performed no work for 12 Cosmic and who distributed the money sent abroad to Gogineni’s family members. (Id. at 7.) 13 On March 17, 2009, plaintiff wrote Gogineni a letter demanding that Gogineni 14 provide proof that the transactions between Cosmic and Titan were just and reasonable as to 15 Cosmic. (Id. at 5.) On April 1, 2009, plaintiff sent another letter to Gogineni, this one 16 demanding proof that the large and irregular payments to Gogineni from Cosmic labeled as pay 17 were just and reasonable as to Cosmic. (Id. at 6.) Gogineni refused to respond to these letters. 18 (Id.) 19 Based on these allegations, plaintiff instituted this action alleging fraudulent 20 concealment, negligent misrepresentation, breach of fiduciary duty and civil conspiracy against 21 defendant Gogineni and BHB. 22 On May 3, 2012, defendant Gogineni filed a motion to dismiss (Doc. No. 10) and a 23 motion for an order setting amount of security. On June 7, 2012, BHB filed a special motion to 24 strike. (Doc. No. 32.) After hearing argument on defendants’ motions, the undersigned issued 25 findings and recommendations on December 12, 2012, recommending that BHB’s motion to 26 strike be granted and that BHB be dismissed from this action, and that defendant Gogineni’s 27 motion to dismiss and motion for order setting security be denied. (Doc. No. 67.) Those findings 28 ///// 3 1 and recommendations were adopted by the assigned District Judge on April 11, 2013. (Doc. No. 2 69.) 3 On May 10, 2013, defendant Gogineni filed an answer to the complaint, (Doc. No. 4 75), and the motion for judgment on the pleadings now pending before the court. (Doc. No. 76.) 5 Plaintiff filed his opposition on July 5, 2013. (Doc. No. 89.) Defendant Gogineni filed his reply 6 on July 12, 2013. (Doc. No. 93) 7 STANDARDS Rule 12(c) of the Federal Rules of Civil Procedure provides that: “After the 8 9 pleadings are closed–but early enough not to delay trial–a party may move for judgment on the 10 pleadings.” In reviewing a motion brought under Rule 12(c), the court “must accept all factual 11 allegations in the complaint as true and construe them in the light most favorable to the 12 nonmoving party.” Fleming v. Pickard, 581 F.3d 922, 925 (9th Cir. 2009). 13 The same legal standard applicable to a Rule 12(b)(6) motion applies to a Rule 14 12(c) motion.2 Dworkin v. Hustler Magazine, Inc., 867 F.2d 1188, 1192 (9th Cir. 1989). 15 Accordingly, “‘[a] judgment on the pleadings is properly granted when, taking all the allegations 16 in the non-moving party’s pleadings as true, the moving party is entitled to judgment as a matter 17 of law.’” Marshall Naify Revocable Trust v. U.S., 672 F.3d 620, 623 (9th Cir. 2012) (quoting 18 Fajardo v. Cnty. of L.A., 179 F.3d 698, 699 (9th Cir. 1999)). See also Fleming v. Pickard, 581 19 F.3d 922, 925 (9th Cir. 2009) (“Judgment on the pleadings is properly granted when there is no 20 issue of material fact in dispute, and the moving party is entitled to judgment as a matter of 21 law.”). The allegations of the nonmoving party must be accepted as true, while any allegations 22 made by the moving party that have been denied or contradicted are assumed to be false. 23 MacDonald v. Grace Church Seattle, 457 F.3d 1079, 1081 (9th Cir. 2006). The facts are viewed 24 in the light most favorable to the non-moving party and all reasonable inferences are drawn in 25 2 26 27 28 Plaintiff argues in his opposition that defendant’s motion “was filed prematurely” because defendant filed an amended answer after he had filed the motion for judgment on the pleadings. However, “[i]f a party files a Rule 12(c) motion before the answer, the court may treat it as a motion to dismiss under Rule 12(b)(6).” Dale v. Executive Office of President, 164 F. Supp.2d 22, 24 (D. D.C. 2001). In this regard, “Rules 12(b)(6) and 12(c) are substantively identical.” Erickson v. Boston Scientific Corp., 846 F.Supp.2d 1085, 1089 (C.D. Cal. 2011). 4 1 favor of that party. Living Designs, Inc. v. E.I. DuPont de Nemours & Co., 431 F.3d 353, 360 2 (9th Cir. 2005). 3 4 ANALYSIS I. Statute of Limitations 5 Defendant Gogineni argues the plaintiff’s causes of action are barred by the 6 applicable three year statute of limitations set forth in California Code of Civil Procedure ' 7 338(d).3 In this regard, Gogineni notes that the alleged wrongful conduct occurred between 2000 8 and 2006, more than five years prior to the filing of this action. (Def.’s Mot. JOTP (Doc. No. 76) 9 at 12.) “A complaint disclosing on its face that the limitations period has expired in 10 11 connection with one or more counts is subject to demurrer.” Fuller v. First Franklin Financial 12 Corporation, 216 Cal App. 4th 955, ___,163 Cal.Rptr.3d 44, 50 (2013). “The general rule in 13 California is that a ‘statute of limitations begins to run when a cause of action accrues, even 14 though the plaintiff is ignorant of the cause of action or of the identity of the wrongdoer.’” M & 15 F Fishing, Inc. v. Sea-Pac Ins. Managers, Inc., 202 Cal.App.4th 1509, 1531 (2012) (quoting 16 Community Cause v. Boatwright, 124 Cal.App.3d 888, 898 (1981)). “An important exception to 17 the general rule of accrual is the ‘discovery rule,’ which postpones accrual of a cause of action 18 until the plaintiff discovers, or has reason to discover, the cause of action.” Fox v. Ethicon Endo- 19 Surgery, Inc., 35 Cal.4th 797, 807 (2005). See also Jolly v. Eli Lilly & Co., 44 Cal.3d 1103, 1109 20 (1988) (“The discovery rule provides that the accrual date of a cause of action is delayed until the 21 plaintiff is aware of her injury and its negligent cause.”). The plaintiff “has reason to discover the 22 cause of action when he has reason at least to suspect a factual basis for its elements.” Norgart v. 23 Upjohn Co., 21 Cal.4th 383, 398 (1999). “Under the discovery rule, suspicion of one or more of 24 the elements of a cause of action, coupled with knowledge of any remaining elements, will 25 generally trigger the statute of limitations period.” Platt Elec. Supply, Inc. v. EOFF Elec., Inc., 26 27 28 3 Gogineni asserts that although a cause of action for breach of fiduciary duty typically is subject to a four year statute of limitations, where the gravamen of the complaint is fraud, the three year statute of limitations set forth in ' 338(d) applies. (Def.’s Mot. JOTP (Doc. No. 76) at 12.) 5 1 522 F.3d 1049, 1055 (9th Cir. 2008) (quoting V.C. v. Los Angeles Unified School Dist., 139 Cal. 2 App.4th 499, 516 (2006)). 3 Here, defendant Gogineni notes that plaintiff in his complaint alleges that plaintiff 4 stated in his July 2, 2004 letter to defendant that plaintiff suspected Gogineni was using his 5 authority over Cosmic to obtain unearned salary and to funnel money to Titan. (Def.’s Mot. 6 JOTP (Doc. No. 76) at 13.) Defendant Gogineni argues that the allegations of the complaint 7 regarding this point establish that plaintiff was aware of his causes of action as of July 2, 2004. 8 (Id. at 13-14.) 9 Plaintiff argues in his opposition to the pending motion to dismiss that, while he 10 harbored suspicions that Gogineni was engaged in wrongful conduct, he was not aware of facts 11 that would support the causes of action alleged herein until December 26, 2008. (Pl.’s Opp.’n 12 (Doc. No. 89-1) at 12-21.) Plaintiff asserts that defendant responded to his July 2, 2004 letter by 13 providing plaintiff with documents that “omitted the transactions between Cosmic and Titan 14 alleged in the complaint.” (Id. at 19.) Plaintiff, nonetheless, continued to investigate the matter 15 and “subpoenaed without success Cosmic’s banking records no less than 8 times” before plaintiff 16 finally obtained those records on December 26, 2008. (Id. at 18.) Once obtained, according to 17 plaintiff, those records not only confirmed his suspicions, but also “provided plaintiff with the 18 particularity of who, when, how, to whom, and by what means with respect to the fraud 19 committed necessary to institute” this action. (Id. at 17.) 20 “Under the delayed discovery rule, the limitations period does not begin to run 21 until a plaintiff discovers or could have discovered through the exercise of reasonable diligence 22 all facts essential to [his] cause of action.” Sylve v. Riley, 15 Cal.App.4th 23, 26 (1993). See 23 also Fox, 35 Cal.4th at 815 (“It would be contrary to public policy to require plaintiffs to file a 24 lawsuit at a time when the evidence available to them failed to indicate a cause of action.”). 25 26 27 28 [T]o overcome an apparent limitations bar, the plaintiff claiming delayed discovery of the facts constituting the cause of action has the burden of setting forth pleaded facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence. The burden is on the plaintiff to show diligence, and conclusory allegations will not withstand demurrer. 6 1 Czajkowski v. Haskell & White, LLP, 208 Cal.App.4th 166, 174-75 (2012). See also Fox, 35 2 Cal.4th at 809 (“In order to adequately allege facts supporting a theory of delayed discovery, the 3 plaintiff must plead that, despite diligent investigation of the circumstances of the injury, he or 4 she could not have reasonably discovered facts supporting the cause of action within the 5 applicable statute of limitations period.”). 6 Here, plaintiff alleges in his complaint alleges as follows. In response to his July 7 2, 2004 letter he received Cosmic’s “Financial Statements” for fiscal years 2000, 2001, 2002 and 8 2003 and that those documents “omitted the transactions between Cosmic and Titan.”4 (Compl. 9 (Doc. No. 1) at 8.) In 2006, plaintiff sought and obtained Cosmic’s “Financial Statements” for 10 fiscal years 2004, 2005 and the first quarter of 2006, and those statements “also omitted the 11 transactions between Cosmic and Titan.” (Id.) Plaintiff thereafter made several attempts to 12 obtain Cosmic’s banking records to determine if those records “disclosed any factual support for 13 Plaintiff’s suspicions,” but “Gogineni and BHB were able to prevent plaintiff from obtaining” 14 those records. (Id. at 9.) Finally, on December 26, 2008, plaintiff obtained Cosmic’s banking 15 records and discovered that “[a]s a proximate result of transactions with Titan, Gogineni [had] 16 received” over a million dollars in constructive dividends from Cosmic. (Id.) 17 It appears plaintiff has pled sufficient facts to show the time and manner of 18 discovery and his inability to have made earlier discovery despite reasonable diligence. Compare 19 E-Fab, Inc. v. Accountants, Inc. Services, 153 Cal.App.4th 1308, 1324 (2007) (“Given the 20 specificity of the foregoing allegations, we conclude that the factual circumstances of plaintiff’s 21 discovery of defendant’s wrongdoing are sufficiently asserted to meet this first pleading 22 requirement of the delayed discovery rule.”); and Bastian v. County of San Luis Obispo, 199 23 Cal.App.3d 520, 528-29 (1988) (“The survivors’ lawsuit gave Bastian a reason to investigate, but 24 it did not put him on notice that he had a cause of action against the County. To find as a matter 25 4 26 27 28 As noted above, for purposes of this motion, the court must assume that the allegations found in plaintiff’s complaint are true. See Fox, 35 Cal.4th at 811 (“we must assume to be true Fox’s allegations that she did not discover, nor suspect, nor was there any means through which her reasonable diligence would have revealed, or through which she would have suspected the Ethicon GIA-type stapler as a cause of her injury until the deposition of Dr. Gladen was taken on August 13, 2001”). 7 1 of law that Bastian was not diligent because he was unsuccessful in his efforts to discover the 2 truth, would encourage other plaintiffs to file suits against government entities even though a 3 diligent investigation fails to uncover facts that give rise to a cause of action.”); with Saliter v. 4 Pierce Brothers Mortuaries, 81 Cal.App.3d 292, 298-99 (1978) (“Notwithstanding plaintiff’s 5 conceded knowledge of the above mentioned facts, the complaint fails to allege that he made any 6 efforts to determine the cause of his condition or to investigate damages until the ordinarily 7 applicable statute of limitations had elapsed over a year after the alleged breach.”). 8 Moreover, 9 [w]hen a plaintiff reasonably should have discovered facts for purposes of the accrual of a [cause] of action or application of the delayed discovery rule is generally a question of fact, properly decided as a matter of law only if the evidence (or, in this case, the allegations in the complaint and facts properly subject to judicial notice) can support only one reasonable conclusion. 10 11 12 13 Alexander v. Exxon Mobil, 219 Cal.App.4th 1236, 1251-52 (2013) (quoting Broberg v. Guardian 14 Life Ins. Co. of America, 171 Cal.App.4th 912, 921 (2009). See also Ward v. Westinghouse 15 Canada, Inc., 32 F.3d 1405, 1408 (9th Cir. 1994) (“Under California law, the question of when 16 [the plaintiff] was on inquiry notice of potential wrongdoing is a factual question.”); Bastian, 199 17 Cal.App.3d at 527 (“Once belated discovery is pleaded, the issue of whether plaintiff exercised 18 reasonable diligence in discovering the negligent cause of the injury is a question of fact.”). 19 Here, because plaintiff has properly pled belated discovery, the determination of 20 when he discovered, or should have discovered, the facts for purposes of the accrual of his causes 21 of action is a question of fact. In light of the allegations found in the complaint, the facts properly 22 subject to judicial notice and the many unresolved factual issues concerning plaintiff’s discovery 23 of his causes of action - for example, what records plaintiff obtained, when he obtained them and 24 what they revealed - the undersigned cannot find that the allegations found in plaintiff’s 25 complaint support only one reasonable conclusion as to when his causes of action accrued.5 26 5 27 28 Defendant Gogineni has filed multiple, voluminous, requests for judicial notice which he refers to generally in support of his motion for judgment on the pleadings and in reply. The undersigned has reviewed those documents and finds that they do not alter the finding that there is more than one reasonable conclusion as to when plaintiff’s causes of action accrued. 8 1 2 II. Derivative Causes of Action Defendant Gogineni also argues that plaintiff’s causes of action for fraudulent 3 concealment, negligent misrepresentation and breach of fiduciary duty are derivative in that they 4 “legally and factually belong[] to Cosmic and inures to, and for its benefit.” (Def.’s Mot. JOTP 5 (Doc. No. 76) at 16.) Defendant also contends that plaintiff has failed to comply with California 6 Corporations Code ' 800, which requires a shareholder bringing a derivate action to “allege 7 efforts to secure from the board such action as plaintiff desires . . . .” (Id. at 18.) Finally, 8 defendant argues that because these causes of action are derivative, Cosmic must be named as a 9 party to this action. (Id. at 19.) 10 A shareholder may bring one of two types of actions against the corporation, “a 11 direct action filed by the shareholder individually . . . for injury to his or her interest as a 12 shareholder” or “a derivative action filed on behalf of the corporation for injury to the corporation 13 . . . .” Schuster v. Gardner, 127 Cal.App.4th 305, 311-12 (2005). An action is derivative “if the 14 gravamen of the complaint is injury to the corporation, or to the whole body of its stock or 15 property without any severance or distribution among individual holders, or if it seeks to recover 16 assets for the corporation or to prevent the dissipation of its assets.” Jones v. H. F. Ahmanson & 17 Co., 1 Cal.3d 93, 106-07 (1969). See also Bader v. Anderson, 179 Cal.App.4th 775, 793 (2009) 18 (“derivative suit is one in which the shareholder seeks redress of the wrong to the corporation”). 19 With respect to a derivate suit, California Corporations Code § 800(b) provides: 20 No action may be instituted or maintained in right of any domestic ... corporation by any holder of shares or of voting trust certificates of the corporation unless both of the following conditions exist: 21 22 23 24 25 26 27 28 (1) The plaintiff alleges in the complaint that plaintiff was a shareholder, of record or beneficially, or the holder of voting trust certificates at the time of the transaction or any part thereof of which plaintiff complains or that plaintiff’s shares or voting trust certificates thereafter devolved upon plaintiff by operation of law from a holder who was a holder at the time of the transaction or any part thereof complained of; provided, that any shareholder who does not meet these requirements may nevertheless be allowed in the discretion of the court to maintain the action on a preliminary showing to and determination by the court, by motion and after a hearing, at which the court shall consider such evidence, by affidavit or testimony, as it deems material, that (i) there is a strong prima facie case in favor of the claim asserted on behalf of the 9 1 corporation, (ii) no other similar action has been or is likely to be instituted, (iii) the plaintiff acquired the shares before there was disclosure to the public or to the plaintiff of the wrongdoing of which plaintiff complains, (iv) unless the action can be maintained the defendant may retain a gain derived from defendant’s willful breach of a fiduciary duty, and (v) the requested relief will not result in unjust enrichment of the corporation or any shareholder of the corporation; and 2 3 4 5 (2) The plaintiff alleges in the complaint with particularity plaintiff’s efforts to secure from the board such action as plaintiff desires, or the reasons for not making such effort, and further alleges that plaintiff has either informed the corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the corporation or the board a true copy of the complaint which plaintiff proposes to file.6 6 7 8 9 10 Pursuant to ' 800, in order for a shareholder to bring a derivative suit on behalf of 11 the corporation, he must allege ‘with particularity’ either (1) that he made a demand on the board 12 of directors, which the board wrongfully refused, or (2) that such a demand would have been 13 futile.’” Shields v. Singleton, 15 Cal.App.4th 1611, 1616-17 (1993). However, “[w]hile it is the 14 general rule that in a derivative action the plaintiff must plead a demand upon and refusal by the 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6 The demand requirement under federal law is embodied in Rule 23.1 of the Federal Rules of Civil Procedure, which provides: In a derivative action brought by one or more shareholders or members to enforce a right of a corporation or of an unincorporated association, the corporation or association having failed to enforce a right which may properly be asserted by it, the complaint shall be verified and shall allege (1) that the plaintiff was a shareholder or member at the time of the transaction of which the plaintiff complains or that the plaintiff's share or membership thereafter devolved on plaintiff by operation of law, and (2) that the action is not a collusive one to confer jurisdiction on a court of the United States which it would not otherwise have. The complaint shall also allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the directors or comparable authority and, if, necessary, from the shareholders or members, and the reasons for the plaintiff’s failure to obtain the action or for not making the effort. The derivative action may not be maintained if it appears that the plaintiff does not fairly and adequately represent the interests of the shareholders or members similarly situated in enforcing the right of the corporation or association. The action shall not be dismissed or compromised without the approval of the court, and notice of the proposed dismissal or compromise shall be given to shareholders or members in such manner as the court directs. 10 1 directors to act, it is equally well settled that such demand and refusal need not be alleged if the 2 facts pleaded demonstrate such a demand would have been futile.” Reed v. Norman, 152 3 Cal.App.2d 892, 898 (1957). “Without question, futility is demonstrated under California’s 4 substantive law where the directors are involved or not disinterested in the actions for which 5 plaintiff seeks relief.” Country Nat. Bank v. Mayer, 788 F. Supp. 1136, 1144-45 (E.D. Cal. 6 1992). See also Kamen v. Kemper Financial Services, Inc., 500 U.S. 90, 102 (1991) (“demand 7 typically is deemed to be futile when a majority of the directors have participated in or approved 8 the alleged wrongdoing”). 9 Here, in his complaint plaintiff alleges that defendant Gogineni “was the director, 10 president, secretary, and treasurer” of Cosmic at the time of the alleged wrongful conduct. 11 (Compl. (Doc. No. 1) at 2.) Moreover, the complaint alleges that while acting as Cosmic’s 12 director, Gogineni engaged in fraudulent and conspiratorial conduct. (Id. at 7, 17.) “Certainly, no 13 demand is necessary when conspiracy, fraud or criminal conduct of the defendants is charged.” 14 Reed, 152 Cal.App.2d at 898. See also In re First Capital Holdings Corp., 146 B.R. 7, 12 15 (Bkrtcy. C.D. Cal. 1992) (“No demand is necessary when the complaint charges specific 16 instances of conspiracy, fraud, or criminal conduct of the directors or insiders of the 17 corporation.”); Gottesfeld v. Richmaid Ice Cream Co., 115 Cal.App.2d 854, 860 (1953) (“But the 18 complaint alleges that the conduct complained of was the result of a conspiracy among a majority 19 of the directors with others and it is settled corporation law that where a demand upon the 20 directors for corporate action would be useless a stockholder may bring a derivative action 21 without making such demand.”). 22 Moreover, 23 California courts “have often recognized that majority shareholders, either singly or acting in concert to accomplish a joint purpose, have a fiduciary responsibility to the minority and to the corporation to use their ability to control the corporation in a fair, just, and equitable manner. Majority shareholders may not use their power to control corporate activities to benefit themselves alone or in a manner detrimental to the minority.” 24 25 26 27 Jara v. Suprema Meats, Inc., 121 Cal.App.4th 1238, 1253 (2004) (quoting H. F. Ahmanson & 28 Co., 1 Cal.3d at 108). A minority shareholder may “bring a personal action alleging ‘a majority 11 1 stockholders’ breach of a fiduciary duty to minority stockholders, which resulted in the majority 2 stockholders retaining a disproportionate share of the corporation’s ongoing value.’” Jara, 121 3 Cal. App.4th at 1257-58 (quoting Pareto v. F.D.I.C., 139 F.3d 696, 699-700 (9th Cir. 1998)). See 4 also In re Bangerter, 106 B.R. 649, 653 (Bkrtcy. C.D. Cal. 1989) (“The Ahmanson court 5 recognized dual injuries to shareholders and the corporation from a majority shareholder’s breach 6 of fiduciary duties. It, therefore, allowed a minority shareholder to assert an individual claim 7 even though the corporation suffered harm from the same acts. The Smith and Crain decisions 8 support this interpretation of Ahmanson. Accordingly, plaintiff has standing under California law 9 to assert individually his claims against debtor in this proceeding.”); Smith v. Tele- 10 Communications, Inc., 134 Cal. App.3d 338, 343 (1982) (“the gravamen of the causes of action is 11 injury to Smith as the only minority shareholder. Smith suffered sufficient injury to bring this 12 action in his individual capacity.”); Crain v. Electronic Memories & Magnetics Corp., 50 Cal. 13 App.3d 509, 522 (1975) (“If the minority shareholders in Jones suffered individual injury, the 14 minority shareholders in the instant case surely suffered injury which entitled them to bring suit in 15 their individual capacities.”) 16 17 18 In light of these legal principles, defendant’s arguments fail. III. Civil Conspiracy Defendant Gogineni next argues that plaintiff’s cause of action for civil conspiracy 19 is barred because that cause of action “is based on the underlying torts (fraud, misrepresentation, 20 breach of fiduciary duty) that are without merit” because those underlying torts are barred by the 21 statute of limitations. (Def.’s Mot. JOTP (Doc. No. 76) at 19.) For the reasons already set forth 22 above, defendant’s statute of limitations argument fails. 23 24 Defendant also argues that because his alleged co-conspirator, BHB, has been dismissed from this action, “the very nature of a conspiracy” has been severed. (Id. at 19-20.) 25 As one court has observed in rejecting a similar argument, 26 [d]efendant apparently misperceives the effect of a civil conspiracy allegation and its relation to a dismissal of one of the parties. The pleading of civil conspiracy is merely a procedural method of joining defendants and is superfluous when, as here, concurrent or successive acts are alleged, unless the plaintiff cannot show or 12 27 28 1 2 3 4 5 prove each defendant committed a wrongful act or some part of it. The only significance of a civil conspiracy allegation is that it renders each participant responsible as a contributory tortfeasor whether or not he actually committed the wrongful act. Contributory wrongdoers are jointly and severally liable for the same damage. Thus, the effect of dismissal of one of the contributory tortfeasors is the same as that attending the simple joinder of defendants in a single action without benefit of the procedural conspiracy allegation. 6 Barney v. Aetna Casualty & Surety Co., 185 Cal.App.3d 966, 983 (1986). See also Klistoff v. 7 Superior Court, 157 Cal.App.4th 469, 479 (2007) (“The elements of an action for civil conspiracy 8 are (1) formation and operation of the conspiracy, and (2) damage to plaintiff resulting from an 9 act or acts done in furtherance of the common design. The existence of a civil conspiracy makes 10 each participant in the wrongful act responsible as a joint tortfeasor for all damages resulting from 11 the wrong, whether or not a participant was a direct actor and regardless of the degree of his 12 activity.”). Thus, the “dismissal, with or without prejudice, of one of several joint tortfeasors 13 does not release the others.” Barney, 185 Cal. App.3d at 983. CONCLUSION 14 15 16 17 For the reasons stated above, IT IS HEREBY RECOMMENDED that defendant Gogineni’s motion for judgment as a matter of law filed May 10, 2013 (Doc. No. 76), be denied. These findings and recommendations are submitted to the United States District 18 Judge assigned to the case, pursuant to the provisions of 28 U.S.C. § 636(b)(l). Within fourteen 19 days after being served with these findings and recommendations, any party may file written 20 objections with the court and serve a copy on all parties. Such a document should be captioned 21 “Objections to Magistrate Judge’s Findings and Recommendations.” Any reply to the objections 22 shall be served and filed within seven days after service of the objections. The parties are advised 23 that failure to file objections within the specified time may waive the right to appeal the District 24 Court’s order. Martinez v. Ylst, 951 F.2d 1153 (9th Cir. 1991). 25 Dated: November 26, 2013 26 27 DAD:6 Ddad1\orders.pro se\crowe3438.jotp.f&rs.docx 28 13
]]>
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You
should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.
