Ensher v. Ensher, Alexander & Barsoom, Inc.

• Decision Date: 15 December 1960
• Citation: 9 Cal.Rptr. 732,187 Cal.App.2d 407
• Court: California Court of Appeals Court of Appeals
• Parties: Martha ENSHER, Individually and as Executrix of the Estate of H. E. Ensher, Deceased, Plaintiff and Appellant, v. ENSHER, ALEXANDER & BARSOOM, INC., a California corporation, Elliott Alexander, Albert Alexander, Henry Alexander, Margaret E. Barsoom and Harold Barsoom, Defendants and Respondents. Civ. 9930.

Page 732

9 Cal.Rptr. 732

187 Cal.App.2d 407

Martha ENSHER, Individually and as Executrix of the Estate of H. E. Ensher, Deceased, Plaintiff and Appellant, v. ENSHER, ALEXANDER & BARSOOM, INC., a California corporation, Elliott Alexander, Albert Alexander, Henry Alexander, Margaret E. Barsoom and Harold Barsoom, Defendants and Respondents.

Civ. 9930.

District Court of Appeal, Third District, California.

Dec. 15, 1960.

Hearing Denied Feb. 8, 1961.

Steel & Arostegui, Marysville, for appellant.

McCarthy & Crow, Sacramento, and Dodge & Evans, Oakland, for respondent.

WARNE, Justice pro tem.

Appellant commenced this action against Ensher, Alexander & Barsoom, Inc., a California corporation, and five directors of the corporation. Four causes of action were alleged. The first three causes of action were in the nature of a shareholders' derivative suit in which appellant, in her fiduciary capacity as a shareholder representing the corporation, sought to recover damages from the individual defendants on behalf of the corporation. The fourth cause of action was brought under section 811 of the Corporations Code to remove the individual defendants from office as directors of the corporation.

Respondents subsequently moved the trial court for an order requiring appellant to furnish security, pursuant to section 834 of the Corporations Code. This motion was heard by the trial court in a contested hearing at which time affidavits were filed, testimony was adduced and oral argument was heard. The trial court, in substance, found that the remedy prescribed by section 834 of the Corporations Code was properly invoked by the respondents and that the appellant should be required to give adequate security to the respondent corporation for the privilege of maintaining the first three causes of action set forth in the complaint. It required the appellant to give a surety bond in the sum of $40,000, or a personal bond in the sum of $80,000, for security for expenses, including attorneys' fees, of the corporation and the individual defendants in connection with each of the first three causes of action. The order was based on a determination that the defendants, and each of them, 'have established that there is no reasonable probability that the prosecution of each and all of the first three causes of action alleged in the Complaint * * * will benefit the defendant corporation or its security holders, * * *' The formal order also provided that if the security required was not furnished within 30 days the first three causes of action set forth in appellant's complaint would be dismissed. The findings incorporated in the court's order are not challenged on this appeal.

The appellant elected not to furnish the security required by the order and, on May 21, 1959, the respondents filed a notice of motion to dismiss the first three causes of action with prejudice. After this notice was filed, but before it was heard, appellant filed a voluntary dismissal of the first three causes of action with the clerk of the court in which the action was pending, and the clerk entered a dismissal in the clerk's register. On June 2, 1959, the motion for dismissal with prejudice was heard, counsel for appellant failing to appear, and on June 5, 1959, the trial court entered a formal judgment of dismissal with prejudice of the first three causes of action.

On June 16, 1959, appellant filed a notice of motion to set aside the judgment of dismissal with prejudice. The motion was denied and this appeal followed.

Appellant contends that her action in filing a written request with the clerk of the court, pursuant to section 581, subd. 1 of the Code of Civil Procedure, (a) is without prejudice and a valid dismissal; or (b) that appellant's act was an amendment to the complaint under section 472 of the Code of Civil Procedure. Appellant's contention is that in either event the causes of action were removed from the case before the court made its order of dismissal and that therefore the court's order was ineffective.

The error in appellant's argument lies in the fact that whatever the law may be generally as to a plaintiff's right to dismiss an action under section 581, subd. 1 or amend it under section 472 of the Code of Civil Procedure, the action in the present case is a derivative suit and, as such, special rules apply. The present situation falls directly under the rule stated in Spellacy v. Superior Court, 23 Cal.App.2d 142, 147, 72 P.2d 262, where it was held that a stockholder bringing such a derivative suit is a trustee for the corporation's cause of action and as such cannot dismiss the action without the consent of the trial court. It is apparent in the present case that appellant did not have the trial court's consent, as the trial court subsequently refused to set aside its order of dismissal. Furthermore, the appellant cannot, in the alternative, claim that her act was an amendment to the complaint, since to allow this would be to allow a...