Bezirdjian v. O'Reilly, A124859.

• Decision Date: 30 March 2010
• Docket Number: No. A124859.,A124859.
• Citation: 183 Cal.App.4th 316
• Court: California Court of Appeals Court of Appeals
• Parties: LAWRENCE BEZIRDJIAN, Plaintiff and Appellant, v. DAVID J. O'REILLY et al., Defendants and Respondents.

183 Cal.App.4th 316

LAWRENCE BEZIRDJIAN, Plaintiff and Appellant, v. DAVID J. O'REILLY et al., Defendants and Respondents.

No. A124859.

Court of Appeals of California, First District, Division One.

March 30, 2010.

[183 Cal.App.4th 318]

Glancy Binkow & Goldberg, Lionel Z. Glancy, Michael M. Goldberg, Sarah C. Marriott; Harwood Feffer and Samuel K. Rosen for Plaintiff and Appellant.

Jones Day, Craig E. Stewart and Philip E. Cook for Defendants and Respondents.

[183 Cal.App.4th 319]

OPINION

DONDERO, J.

In this shareholder derivative action, plaintiff Lawrence Bezirdjian appeals the trial court's orders granting nominal defendant Chevron Corporation's motion for judgment on the pleadings and dismissing his lawsuit. We affirm.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

On May 22, 2007, plaintiff filed a shareholder derivative complaint on behalf of Chevron Corporation (Chevron) against current and certain former members of its board of directors (Board).¹ The complaint contains counts for breach of fiduciary duties, gross mismanagement, constructive fraud, and waste of corporate assets, in connection with illicit payments Chevron allegedly made to Saddam Hussein in exchange for Iraqi oil from 2000 to 2003. In the complaint, plaintiff acknowledged that the majority of his factual allegations were derived from an article published by The New York Times on May 8, 2007, entitled Chevron Seen Settling Case on Iraq Oil. He also alleged that he was excused from making a prefiling demand on the Board to institute this action because such demand would be futile. Specifically, he stated "the [Board] cannot exercise independent objective judgment in deciding whether to bring this action or whether to vigorously prosecute this action because each of its members participated personally in the wrongdoing or are dependent upon other Defendants who did."

On August 9, 2007, the trial court filed its order staying the action. The order includes a stipulation from the parties deeming the complaint to be a stockholder's demand to pursue the claims alleged therein, and giving the Board until December 1, 2007, to act on the demand. Plaintiff was granted leave to amend the complaint within 15 days upon the lifting of the stay. The matter was subsequently continued several times.

On June 17, 2008, plaintiff filed an amended shareholder derivative complaint. The amended complaint repeats the original complaint's allegations concerning the illicit payments, deletes the allegation excusing a prefiling demand, and adds the following: "Plaintiff made demand on Chevron to commence legal action .... Plaintiff's demand was refused. Accordingly, plaintiff has made sufficient effort to get Chevron to bring this action and need do no more." This portion of the complaint goes on to state that the Board had formed a special committee of directors (Committee) to consider and respond to plaintiff's demand. On April 30, 2008, the Committee reported to the Board "that it had concluded its investigation and ... had determined it not to be in the best interests of Chevron or its stockholders to pursue the claims asserted herein." Thereafter, Chevron management was directed to seek dismissal of the action.

Attached to the complaint as an exhibit is a letter dated June 11, 2008, from Chevron's attorney. The letter states that the Board had granted the Committee "the power to investigate, analyze, deliberate upon, and respond to the demand," and had further resolved that the Committee's conclusions would be binding on the Board without further review. The letter goes on to state that the Committee and its counsel interviewed 34 individuals and reviewed over 150,000 pages of documents in the course of its investigation into the complaint's allegations.

On July 21, 2008, Chevron filed a demurrer to the amended complaint.²

On August 20, 2008, the trial court overruled the demurrer but advised the parties that it would entertain a motion to dismiss.

On January 7, 2009, Chevron filed a motion for judgment on the pleadings. In its motion, Chevron sought to make a prima facie showing that the directors who comprised the Committee were independent, and that they had acted reasonably and in good faith in declining to pursue the underlying lawsuit. Chevron also asked the court to take judicial notice of certain court records, Chevron's 2008 proxy statement, and a set of facts stipulated to by the parties.

On March 11, 2009, the trial court granted Chevron's motion and dismissed the action.

Judgment in favor of Chevron was filed on April 27, 2009. This appeal followed.

DISCUSSION

I. Standard of Review

We review de novo a trial court's judgment on an order granting a motion for judgment on the pleadings. (Gerawan Farming, Inc. v. Lyons (2000) 24 Cal.4th 468, 515 [101 Cal.Rptr.2d 470, 12 P.3d 720] (Gerawan).) "On appeal from a judgment on the pleadings, the court assumes the truth of, and liberally construes, all properly pleaded factual allegations in the complaint. [Citation.] The court may also consider evidence outside of the pleadings that was considered by the trial court without objection [citation], and it may consider matters subject to judicial notice." (Stone Street Capital, LLC v. California State Lottery Com. (2008) 165 Cal.App.4th 109, 116 .)

II. Motion for Judgment on the Pleadings

Chevron's motion for judgment on the pleadings does not indicate that it was brought pursuant to statute. "Since 1994, motions for judgment on the pleadings have been authorized by statute. [Citations.] Previously, they were allowed by common law. [Citations.] Generally, as such motions were, so they remain." (Gerawan, supra, 24 Cal.4th 468, 482, fn. 2.) Code of Civil Procedure section 438, subdivision (c)(1)(B)(i) and (ii), provide that a motion for judgment on the pleadings may be brought by a defendant on the grounds that the court "has no jurisdiction of the subject of the cause of action alleged in the complaint" or that the complaint "does not state facts sufficient to constitute a cause of action against that defendant."³

"The standard for granting a motion for judgment on the pleadings is essentially the same as that applicable to a general demurrer, that is, under the state of the pleadings, together with matters that may be judicially noticed, it appears that a party is entitled to judgment as a matter of law." (Schabarum v. California Legislature (1998) 60 Cal.App.4th 1205, 1216 .) "Matters which are subject to mandatory judicial notice may be treated as part of the complaint and may be considered without notice to the parties. [Citation.] Matters which are subject to permissive judicial notice must be specified in the notice of motion, the supporting points and authorities, or as the court otherwise permits." (Id. at fn. 5.) "Judgment on the pleadings does not depend upon a resolution of questions of witness credibility or evidentiary conflicts. In fact, judgment on the pleadings must be denied where there are material factual issues that require evidentiary resolution. [Citation.] In determining whether the pleadings, together with matters that may be judicially noticed, entitle a party to judgment, a reviewing court can itself conduct the appropriate analysis and need not defer to the trial court." (Id. at p. 1216.)

III. Delaware Law on Derivative Actions

(1) Before proceeding to plaintiff's contentions, we review some basic principles regarding shareholder derivative actions. Chevron is incorporated in the state of Delaware, and both parties agree that Delaware law applies in this lawsuit. "A basic principle of the General Corporation Law of the State of Delaware is that directors, rather than shareholders, manage the business and affairs of the corporation. [Citations.] `The exercise of this managerial power is tempered by fundamental fiduciary obligations owed by the directors to the corporation and its shareholders.' [Citation.] The decision to bring a law suit or to refrain from litigating a claim on behalf of a corporation is a decision concerning the management of the corporation. [Citation.] Consequently, such decisions are part of the responsibility of the board of directors." (Spiegel v. Buntrock (Del. 1990) 571 A.2d 767, 772-773 (Spiegel).)

(2) "`Because the shareholders' ability to institute an action on behalf of the corporation inherently impinges upon the directors' power to manage the affairs of the corporation the law imposes certain prerequisites on a stockholder's right to sue derivatively.' [Citations.] Chancery Court Rule 23.1⁴ requires that shareholders seeking to assert a claim on behalf of the corporation must first exhaust intracorporate remedies by making a demand on the directors to obtain the action desired, or to plead with particularity why demand is excused. [Citations.] [¶] The purpose of pre-suit demand is to assure that the stockholder affords the corporation the opportunity to address an alleged wrong without litigation, to decide whether to invest the resources of the corporation in litigation, and to control any litigation which does occur." (Spiegel, supra, 571 A.2d 767, 773, fn. omitted.)⁵

(3) Courts generally accord some deference to a corporation's decision to refuse a shareholder's demand: "Since a conscious decision by a board of directors to refrain from acting may be a valid exercise of business judgment, `where demand on a board has been made and refused, [courts] apply the business judgment rule in reviewing the board's refusal to act pursuant to a stockholder's demand' to file a lawsuit. [Citation.] The business judgment rule is a presumption that in making a business decision, not involving self-interest, the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company. [Citations.] `The burden is on the party challenging the decision to establish facts rebutting th[is] presumption.' [Citation.] ...