Costanza v. Simon Equipment Co.

Filed 8/15/06 Costanza v. Simon Equipment Co. CA2/4

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FOUR

APPEAL from a judgment of the Superior Court of Los Angeles County. Owen Lee Kwong, Rodney E. Nelson, Daniel Thomas Oki, and Conrad R. Aragon, Judges. Affirmed in part, reversed in part, and remanded.

Ben-Zvi & Beck and Henry Ben-Zvi for Plaintiff, Cross-defendant and Appellant.

Rosenberg & Koffman and Gregory S. Koffman for Defendants, Cross-complainants and Respondents.

This case arises from a dispute between the Simon and Pickard families over control of the close corporation formed by James L. Pickard, his brother M. Dale Pickard, and Russell J. Simon. After the deaths of James and Dale, Delores Leann Pickard Costanza (Leann), a shareholder, director, and employee, brought suit against the corporation and its other shareholders, Russell J. Simon, Jon Simon, and Rona Simon, alleging, among other things, breach of fiduciary duty, breach of contract, wrongful termination of employment, conversion, intentional infliction of emotional distress, California Corporations Code violations, and discovery violations.[1] The trial court granted motions for summary adjudication on most of the claims; other claims were dismissed without prejudice. Except for the cause of action claiming entitlement to a bonus as a matter of contract and one of the Corporations Code claims, we shall affirm the judgment.

FACTUAL AND PROCEDURAL SUMMARY

In 1968, James, Dale, and Russell formed a closely held corporation called the Jim Russ Corporation, which became Simon Equipment Company, Incorporated (Company). The Company is in the equipment rental business. In 1969, the founders entered into a stock purchase agreement (Agreement) that restricted the alienation of shares by requiring either the Company or the surviving shareholders to redeem the shares of a deceased or disabled shareholder. The Agreement also provided for valuation of the shares upon any transfer. Russell controlled 988 shares of stock, James 988 shares, and Dale 198 shares. In the early 1980s, each of the founders transferred his shares to his own inter vivos trust. Each founder was the trustee of his own trust. Russell, James, and Dale served as the three directors of the Company for the next 31 years.

The directors employed several family members, including James's daughter, Leann, Russell's son, Jon, and Jon's wife Rona. Leann was hired as a bookkeeper in 1980. She and Jon became senior executives and officers in the 1990s. The directors appointed Leann as secretary/treasurer in 1993, and Jon as president in 1997. In 1993, Russell transferred 10 shares of the stock from his trust to Jon. James did the same with Leann.

Dale died in September 2000. Russell and James decided to exercise the Company's option to purchase the 198 shares from Dale's trust. The directors negotiated with Dale's wife Mary to purchase the shares for $1,450 per share in exchange for a waiver of all claims, even though the last formal valuation of shares had fixed the value at $1,250 per share. Shortly after Dale's death, the Simons indicated that they were interested in buying out the Pickards. The families discussed prices for a buy-out, but no agreement was reached.

James died a year later. Leann became the trustee of the Pickard trust, and the sole Pickard shareholder. Russell Simon was the sole remaining director. In an effort to take control of the Company, Russell appointed his wife, Virginia (now deceased) and son, Jon, to the board to fill the vacancies left by Dale and James. The board removed the existing officers, including Leann, and appointed Russell and Jon as sole officers. The board also decided not to exercise the Company's option to purchase James's shares. Russell then tendered an offer to purchase the 978 trust shares from Leann at the price of $1,250 per share. Leann refused the offer.

After learning of the board's actions, Leann began to interfere with Company business. She refused to process a check run that did not comport with the Company's informal policy of requiring a signature from a member of each family. Without informing anyone else at the Company, she had her attorney instruct the Company's bank not to honor checks with one signature. As a result of these actions, Jon issued Leann a written warning. She was also asked to return specific Company property, including keys, credit cards, a wall calendar, and computer notes. She refused to return the calendar and notes, telling Jon that she had shredded them. Leann later admitted that she had lied about destroying these documents, but she still did not return them. She was suspended on October 4, 2001, and terminated on October 9.

At the end of each fiscal year (September 30), the board of directors decided on employee bonuses. In 2001, the board awarded bonuses to all employees except Leann. The directors also decided not to issue dividends to any shareholders.

Leann filed this lawsuit on October 26, 2001. She attended a shareholders' meeting in November, but was not permitted to vote the Pickard trust shares. She used her 10 individually held shares to elect herself to the board of directors. Russell and Jon also were elected.

Leann's first amended complaint, filed in March 2002, alleged 17 causes of action: (1) breach of fiduciary duty; (2) breach of stock purchase agreement; (3) specific performance; (4) conversion; (5) trespass to personal property; (6) violation of Penal Code section 496; (7) wrongful discharge in violation of public policy; (8) breach of implied employment contract; (9) breach of the implied covenant of good faith and fair dealing; (10) intentional infliction of emotional distress; (11) determination of validity of election or appointment of directors, pursuant to Corporations Code section 709; (12) appointment of provisional director under Corporations Code section 308; (13) violation of Corporations Code section 1600 et seq.; (14) removal of directors pursuant to Corporations Code section 304; (15) involuntary dissolution pursuant to Corporations Code section 1800; (16) declaratory relief; and (17) accounting.

Some of the claims were alleged only as to the Simons, others only as to the Company, and others as to all respondents. The parties grouped the causes of action into categories: (1) breach of corporate fiduciary duties; (2) breach of contract and specific performance; (3) employment claims; (4) conversion, trespass, and theft; (5) emotional distress; (6) Corporations Code claims; and (7) discovery violations.

The Company and the Simons filed cross-complaints seeking injunctive and declaratory relief. They also filed motions for summary adjudication (MSAs) directed at all of the claims, excepting Leann's claim for declaratory relief and their own claims for injunctive and declaratory relief. Over the course of the litigation, the case was heard by Judges Rodney Nelson, Daniel Thomas Oki, Owen Lee Kwong, and Conrad R. Aragon. Only one of the MSAs was denied--in September 2002, Judge Kwong denied the MSA directed at breach of contract. Judge Kwong also denied Russell's claim for specific performance of the sale of the Pickard trust shares.

All of the other MSAs were granted. In July 2002, the Company filed an MSA directed at the employment claims, which was heard and granted by Judge Kwong in November. In October 2002, the Company filed an MSA, in which the Simons joined, directed at the conversion, trespass, and Penal Code section 496 claims. Judge Nelson heard and granted that MSA in November. The Company filed, and the Simons joined, an MSA directed at the emotional distress claim in December 2002, which was granted by Judge Kwong in January 2003. The Simons, joined by the Company, filed another MSA in December directed at the breach of fiduciary duty claim, also granted by Judge Kwong. In June, the Simons, joined by the Company, filed a renewed MSA directed at the breach of contract claim and Russell's claim for specific performance. Judge Oki heard and granted the renewed motion in September 2003.

Leann filed a motion to compel the production of documents, which was denied. She also moved, unsuccessfully, to disqualify Judge Kwong when he ordered the parties' valuation experts to determine the value of the Company's shares. Her petition to this court for writ of mandate on the disqualification of Judge Kwong was denied.

In May 2004, a stipulation led to the dismissal of the remaining claims without prejudice. Judge Aragon entered judgment on June 15, 2004. Leann filed this timely appeal.

DISCUSSION

I

Portions of several causes of action flow from the Agreement. For that reason, we address the Agreement itself at the outset. It defined â€