Jara v. Suprema Meats, Inc.

• Decision Date: 30 August 2004
• Docket Number: No. A104666.,No. A102820.,No. A105119.,A102820.,A104666.,A105119.
• Court: California Court of Appeals Court of Appeals
• Parties: Miguel JARA, Sr., Plaintiff and Appellant, v. SUPREMA MEATS, INC., et al., Defendants and Appellants. Miguel Jara, Sr., Plaintiff and Respondent, v. Suprema Meats, Inc., Defendant and Appellant.

18 Cal.Rptr.3d 187

121 Cal.App.4th 1238

Miguel JARA, Sr., Plaintiff and Appellant, v. SUPREMA MEATS, INC., et al., Defendants and Appellants.

Miguel Jara, Sr., Plaintiff and Respondent, v. Suprema Meats, Inc., Defendant and Appellant.

No. A102820.

No. A104666.

No. A105119.

Court of Appeal, First District, Division 1.

August 30, 2004.

Rehearing Denied September 27, 2004.

Thelen Reid & Priest, Kenneth L. Nissly, Esq., Christine E. Stephens, Esq., San Jose, for Plaintiff and Appellant and for Plaintiff and Respondent Miguel Jara, Sr.

Keker & Van Nest, Steven A. Hirsch, Esq., San Francisco, for Defendants and Appellants Miguel Jara, Jr., and Gonzalo Rodriguez.

Law Offices of Steven J. Hassing, Steven J. Hassing, Esq., Roseville, for Defendant and Appellant Supreme Meats, Inc.

SWAGER, J.

Miguel Jara, Sr. (hereafter Jara, Sr., or plaintiff), a minority shareholder of Suprema Meats, Inc., a California corporation (hereafter Suprema), brought suit against the corporation and its two other shareholders, his son, Miguel Jara, Jr. (hereafter Jara, Jr.) and Gonzalo Rodriguez (hereafter Rodriguez). The judgment awarded Suprema damages to be paid by Jara, Jr., and Rodriguez but also ordered Suprema to comply with the disclosure requirements of Corporations Code section 1601 and to pay Jara, Sr., reasonable attorney fees in enforcing his rights of disclosure. Suprema, Jara, Jr., and Rodriguez appeal from the judgment. Jara, Sr., separately appeals from the portion of the judgment awarding damages only to the corporation and from intermediate orders denying his individual causes of action for damages. The appeal is consolidated with separate appeals from an order awarding attorney fees under Corporations Code section 1604 and an order enforcing judgment. We reverse the judgment and postjudgment orders.

PROCEDURAL HISTORY

Jara, Sr., filed a complaint against Suprema, Jara, Jr., and Rodriguez on November 7, 2000, which was later twice amended.¹ The second amended complaint alleged four causes of action. The first cause of action alleges that Jara, Jr., and Rodriguez, as majority shareholders and officers of Suprema, breached an oral contract not to increase their salaries or bonuses unless all shareholders agreed on the amount of the increase. The second cause of action alleged that Jara, Jr., and Rodriguez, as majority shareholders, breached a fiduciary duty to the minority shareholder, Jara, Sr., by paying themselves excessive compensation and denying Jara, Sr., a fair share of the corporate profits. The third cause of action claimed that the defendants refused the requests of Jara, Sr., under Corporations Code sections 1601 et seq., to inspect and copy corporate records. The last cause of action sought an accounting.

The matter came up for a court trial on January 16, 2003, before a temporary judge appointed by stipulation of the parties. On the day before trial, defendants filed a motion in limine to exclude all evidence seeking to establish that Suprema paid Jara, Jr., and Rodriguez excessive compensation. The motion contended that damages for excessive compensation could be recovered only by the corporation itself through a derivative action based on breach of fiduciary duty and that Jara, Sr., had failed to bring such an action. Deferring a ruling on the motion, the trial court received expert testimony of both parties concerning the reasonableness of the compensation paid to Jara, Jr., and Rodriguez. Shortly after presentation of evidence, the court granted the motion in limine, thereby effectively denying Jara, Sr.'s claim to recover individual damages pursuant to his second cause of action for breach of fiduciary duty. Jara, Sr., moved to amend the complaint to state a derivative cause of action in conformance to proof, but the motion was denied.

The court trial, which spanned seven days of testimony and arguments, created an extensive record concerning the short history and remarkable success of Suprema and the conflictive relationship between Jara, Sr., and the other shareholders. The court issued a statement of tentative decision approximately two months after conclusion of the trial and a substantially identical final statement of decision on May 15, 2003. The statement of decision noted that the cause of action for breach of fiduciary duty had been dismissed by the court, and found that the cause of action for an accounting was "no longer relevant" in the absence of a derivative cause of action but granted relief on the breach of contract and corporate disclosure causes of action.

The trial court found that "an agreement was reached that no compensation in excess of $800 per week could be received by [Jara, Jr.] or [Rodriguez] at any time without the unanimous approval of all three shareholders." Jara, Jr., and Rodriguez breached this contract by paying Jara, Jr., compensation that exceeded the agreed $800-per-week salary in the amount of $1,392,643 and paying Rodriguez compensation that exceeded this amount by $873,792. Adding interest to these amounts, the court found contract damages to be $2,620,851, plus daily interest accruing until the judgment is paid in full. The court found, however, that the injury was "suffered by the corporation" rather than the plaintiff, Jara, Sr., because "the corporation [was] deprived of funds which would, except for the acts of Defendants, have remained with the corporation. In effect, Suprema was the third party beneficiary of the Jara-Rodriguez contract." Accordingly, the court awarded the damages solely to Suprema.

In the remaining cause of action, the court found that all defendants failed to comply with Corporations Code section 1601 by refusing to give Jara, Sr., monthly financial statements. The court therefore ordered Suprema to provide Jara, Sr., "access to its monthly financial statements upon written request for review and copying" and awarded Jara, Sr., "attorney fees and costs relative to enforcement of his rights under Section 1601 pursuant to Section 1604 of the Corporations Code."

Defendants, Suprema, Jara, Jr., and Rodriguez, filed a notice of appeal from the judgment entered on the statement of decision. Jara, Sr., separately appealed from the judgment and certain intermediate orders. The brief in support of his cross-appeal raises issues with respect to the portion of the judgment awarding damages to Suprema for breach of contract and from the intermediate orders granting defendants' motion in limine and denying Jara, Sr.'s motion to amend the complaint to conform to proof. The appeal has been consolidated with separate appeals from the award of attorney fees under Corporations Code section 1604 and from an order compelling Suprema's enforcement of the judgment.

STATEMENT OF FACTS

Jara, Sr., a native of Mexico, has lived in this country continuously since 1961, when he acquired legal immigration status. In 1973, he opened a taco restaurant in the Mission District of San Francisco and five years later opened a second restaurant in San Jose. The restaurants were successful and provided the financial resources for other investments in real estate. Jara, Jr., claims to have been raised by his grandparents since the age of four. His first work experience was as a butcher, but he moved to a series of short-term jobs before finding a job as a meat salesman for a wholesale meat distributor. In this position, he became friends with Rodriguez, another meat salesman. Together they formed plans to launch their own wholesale meat distribution business to serve Hispanic restaurants. Rodriguez was able to contribute $20,000 to the venture, but Jara, Jr., had no funds of his own. When they were rebuffed in an attempt to get a commercial loan, Jara, Jr., approached his father for financial backing sometime early in 1996.

Since the trial court found the testimony of Jara, Sr., to be credible, we will rely on his account of what ensued without attempting to weigh or evaluate the conflicting trial testimony. According to Jara, Sr., he agreed to obtain a $150,000 line of credit in return for a 20 percent stock interest in the new company. He actually succeeded in securing a larger line of credit for $250,000 from Bank of the West and made the full amount available to the business. As preparations proceeded for opening the business, Jara, Sr., made a series of other financial contributions: he helped negotiate leases on refrigerated trucks and paid first and last months' lease payments amounting to a total of $12,000, and he paid $3,000 to lease some forklifts and $2,000 in legal fees for the incorporation of the business. In addition, he cosigned a warehouse lease and claimed at trial to have made payments on the lease.² In recognition for this support, Jara, Jr., and Rodriguez decided to give Jara, Sr., another 10 percent ownership interest in the business.³

Suprema was incorporated on June 7, 1996. Jara, Jr., and Rodriguez were each issued 35,000 shares of stock and Jara, Sr., was issued 30,000 shares. Jara, Jr., was president and treasurer; Rodriguez was vice-president and secretary; and Jara, Sr., was vice-president. All three shareholders were members of the board of directors.

Suprema opened for business on June 10, 1996. During the first months, Jara, Jr., often called his father for business advice. On one of these occasions near the "beginning of the company," Jara, Jr., called in the evening for advice on the salary that the corporation should pay him and Rodriguez. Jara, Sr., suggested that they begin by paying themselves no more than what they needed to live and asked what the son was making as a meat salesman. Jara, Jr., replied that he was making $800 per week. Jara, Sr., recalled that he advised, "You know, if you want to do that, you know, if you think that you work more or you earn more money than the $800, why don't you put it in the books and when there's some money, you pull the money out, you know." Jara, Sr., added that his son should...