OLSON v. SOUTHERN CALIFORNIA,

Filed 4/21/06; partial pub. & mod. order 5/16/06 (see end of opn.)

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION TWO

APPEAL from a judgment of the Superior Court of Los Angeles County.

James R. Dunn, Judge. Modified and affirmed.

Law Office of Thomas K. Bourke, Thomas K. Bourke, Rizwan R. Ramji for Plaintiffs and Appellants.

Morrison & Foerster, Charles E. Patterson, John Sobieski, Howard B. Soloway, Phillip Bronson for Defendant and Appellant.

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Plaintiffs Carl Olson and Mark Seidenberg sued defendant Automobile Club of Southern California (the Auto Club), a nonprofit mutual benefit corporation (Corp. Code, § 7110 et seq.),^[1] primarily seeking various reforms in the Auto Club's election of its board of directors. Olson and Seidenberg obtained a judgment mandating some of the various election reforms sought and were awarded approximately $1.2 million in attorney fees and costs, including expert witness fees.

Olson and Seidenberg appeal, seeking yet more changes regarding the Auto Club's election procedures and other matters, as well as additional attorney fees and costs. The Auto Club cross-appeals, urging that the award of expert witness fees was not authorized, and that the Auto Club was the prevailing party on most of the more important issues and thus should be entitled to costs. We modify the judgment to eliminate the award of expert witness fees and to add appropriate attorney fees for work performed during 2003, but otherwise affirm the judgment.^[2]

BACKGROUND AND PROCEDURAL SUMMARY

Introduction

Olson and Seidenberg, both members of the Auto Club, ran for a seat on its board of directors in the Auto Club's 2000 election, but they did not qualify as nominees. In the Auto Club's 2001 election, they did qualify as nominees, conducted their campaign, and lost the election.

The Auto Club engages in various lobbying activities in Sacramento relating to transportation and the interests of its vehicle-driving members. Olson and Seidenberg ran for seats on the board, apparently to have the Auto Club lobby their positions on certain issues (i.e., the DMV vehicle tax, and the so-called double taxation on gasoline and diesel fuel via sales tax on top of excise tax), and to have the Auto Club investigate the high price of fuel by holding public hearings for its members.

The action underlying the present appeal challenges under various statutory provisions and case law the Auto Club's election procedures for its board of directors and asserts other related violations of rights. The case was tried without a jury over the course of approximately six weeks.

Summary of the pleadings

As framed by the first amended complaint, the case started out focusing exclusively on allegations of unfair and unreasonable election procedures for the Auto Club's board of directors. As time passed and extensive discovery ensued, allegations were added and theories of recovery expanded. The second amended complaint, containing extensive evidentiary facts and case citations, evolved into a broad attack on many aspects of the Auto Club's operations. The myriad items complained of included the Auto Club's procedures for electing its board of directors, corporate governance and accountability, perceived management failures, enforcement of statutory provisions regarding certain inspection rights, alleged misleading financial statements and accounting matters, the structure of the Auto Club and the Interinsurance Exchange (its affiliate insurance company), the alleged fraudulent concealment of the acquisition of Pleasant Holidays (a travel company), and alleged violations of the Auto Club's bylaws.

The second amended complaint

The second amended complaint had the following five causes of action: (1) alleged violations of common law rights, disregard for the judgment in prior litigation involving the Auto Club and its election procedures, and actions contrary to sections 7110-8910 by having election procedures that are unreasonable; (2) alleged denial of access to accounting books and records and minutes in violation of common law and sections 8310-8324 inspection rights; (3) alleged violations of the common law and sections 8215 and 8321 by failing to provide members their annual notice and providing misleading financial statements that lack appropriate detail; (4) alleged breach of the contract formed by the articles and bylaws of the Club; and (5) alleged violations of Business and Professions Code section 17200 by illegal, unethical and fraudulent acts and practices, such as minimizing and avoiding the accountability of management to members, failing to disclose its ownership of Pleasant Holidays, maintaining unlawful inspection practices, and engaging in various acts and practices in violation of the Federal Trade Commission guidelines.

The relief sought by Olson and Seidenberg included declaratory relief, expansive injunctive relief, punitive damages and costs, emotional distress damages, and attorney fees. They sought attorney fees under sections 8323 and 8337, under the private attorney general statute (Code Civ. Proc., § 1021.5), and any other applicable statute or common law.

The Auto Club's cross-complaint

The Auto Club's cross-complaint alleged five causes of action seeking declaratory relief. The Auto Club sought declaratory relief establishing (1) that its election procedures comply with the provisions of the Corporations Code governing mutual benefit corporations; (2) that no annual meeting is required where the election is not contested; (3) that the Auto Club's nomination and election procedures must be deemed reasonable because they comply with statutory safe harbor provisions (§ 7420, subd.(b)); (4) that Business and Professions Code section 17200 et seq. (prohibiting, in part, any unfair or fraudulent business practice and any unfair or misleading advertising) is not applicable and cannot, consistent with freedom of speech, be constitutionally applied to contested elections in a nonprofit mutual benefit corporation; and (5) that the Auto Club's audited financial statements for calendar years 1999 and 2000 contain adequate detail and otherwise conform to generally accepted accounting principles.

Overview of the trial litigation

The trial lasted 24 days, and 30 witnesses testified. However, many of the salient facts were undisputed. For example, at the outset of trial the parties stipulated that 781 out of 931 exhibits could be admitted. What the parties disputed was the legal effect of the facts, which are in part summarized here and addressed more fully hereinafter in the context of the discussion of various issues raised on appeal.

Olson and Seidenberg sought to establish, in essence, that the Auto Club had self-perpetuating elections that both (1) violated standards imposed by case law and (2) were contrary to the statutory mandate that there be â€