Plate v. Sun-Diamond Growers

• Court: California Court of Appeals
• Writing for the Court: STRANKMAN; WHITE, P.J., and MERRILL
• Citation: Plate v. Sun-Diamond Growers, 275 Cal.Rptr. 667, 225 Cal.App.3d 1115 (Cal. App. 1990)
• Decision Date: 30 November 1990
• Docket Number: No. A044137,SUN-DIAMOND,A044137
• Parties: H.R. PLATE et al., Plaintiffs, v.GROWERS OF CALIFORNIA, Defendant and Appellant; Robert McElroy et al., Defendants and Respondents.

Page 667

275 Cal.Rptr. 667

225 Cal.App.3d 1115

H.R. PLATE et al., Plaintiffs, v. SUN-DIAMOND GROWERS OF CALIFORNIA, Defendant and Appellant Robert McElroy et al., Defendants and Respondents.

No. A044137.

Court of Appeal, First District, Division 3, California.

Nov. 30, 1990.

Review Denied Feb. 28, 1991.

Janet F. Bentley, Lydia A. Ochoa, Thelen, Marrin, Johnson & Bridges, San Francisco, for defendant and appellant.

Michael F. Babitzke, Michael F. Babitzke, Inc., Stockton, for defendants and respondents.

STRANKMAN, Associate Justice.

The subject of this appeal is the application of Corporations Code section 317, subdivision (e)(4), ¹ providing for court-ordered indemnification of an agent of a corporation against any judgment arising from the agent's performance of his or her corporate duties. By this action, plaintiffs, H.R. Plate and H.R. Plate & Company, Inc. (Plate), sought damages for breach of contract and unfair competition against appellant, Sun-Diamond Growers of California (Sun-Diamond), a corporation, and Robert McElroy and Richard Branson (respondents here), who were former employees of Sun-Diamond, among others. A jury rendered a verdict in favor of Sun-Diamond but against McElroy and Branson. Thereafter, upon application of McElroy and Branson pursuant to section 317, subdivisions (b) and (e)(4), the trial court ordered Sun-Diamond to indemnify these former employees against the judgment. Sun-Diamond appeals from the order of indemnification.

We conclude the record fails to support the trial court's findings that the prerequisites for indemnification under section 317 were met. We accordingly reverse. ²

I. Background Facts

Sun-Diamond is a corporation owned by four food cooperatives, which serves as an administrative and sales organization for approximately sixty thousand growers who comprise the four cooperatives. Plate is an industrial commodity food broker and was the exclusive broker for Sun-Diamond products in Northern California. Between 1977 and 1985, Plate developed his Sun-Diamond brokerage account from five to one hundred eighteen customers. In late 1984, Plate was the number two Sun-Diamond broker in the United States, measured by volume of business developed and dollar sales.

McElroy was a sales manager with Sun-Diamond who acted as a liaison between Sun-Diamond management and the brokers. Plate was one of approximately 14 brokers who reported to McElroy. Branson was the industrial marketing manager for all of Sun-Diamond's products.

Donald Soetaert and James Santo, defendants in the underlying litigation, were Sun-Diamond's vice-president of sales and marketing, and director of sales and marketing for industrial products, respectively. Branson and McElroy reported to Santo.

Plate's "broker profile" listing his customers' names, addresses, products used and approximate volume of each of those products, was maintained in the industrial sales department where Branson and McElroy both worked. McElroy regularly conferred with Plate and met with Plate's major customers.

Until 1983, Plate had never received any criticism of his brokerage services from anyone at Sun-Diamond. In July 1983, McElroy delivered a letter reprimanding Plate for making sales for competitors of Sun-Diamond. Plate responded to the letter, stating that there were special circumstances justifying each of the sales listed in the letter.

Because of McElroy's letter, Plate was placed on six months' probation ending January 1984. He successfully cleared the probationary period. At that time, McElroy met with Plate and told him he wanted to become a partner in Plate's business. Plate told him the business was too small.

In January 1985, McElroy discussed with Plate's son the possibility of his leaving Sun-Diamond and taking the Sun-Diamond account away from Plate. Thereafter, making use of information regarding Plate's accounts to which they had access, Branson and McElroy began planning to establish their own brokerage business. Branson testified that he took a look at Plate's broker profile in February 1985, once he began considering going into the brokerage business.

In the first week of April 1985, Branson and McElroy both took vacations to finalize their plans to set up their own brokerage business. They did not want to reveal their plans to anyone at Sun-Diamond until they were ready to ask for the Sun-Diamond account. Branson testified that between January 1985 and May 1985 he did not discuss his desire to go into the brokerage business with anyone at Sun-Diamond "[b]ecause it would be considered by [Sun] Diamond management a conflict of my interest and probably they would think that I was not wholeheartedly behind my work at Sun Diamond. And therefore I suspect I would have been fired or that sort of thing."

On April 29, 1985, McElroy wrote a letter to Plate in which he accused Plate of having "play[ed] games instead of trying to work within the system," and other criticisms. Plate testified that McElroy made these accusations for the first time in this letter.

In the latter part of May 1985, McElroy and Branson told Santo for the first time that they were going into the brokerage business and asked if Sun-Diamond would appoint them as its industrial brokers for Northern California. After Branson and McElroy gave Sun-Diamond a firm departure date, Santo and Soetaert discussed the benefits and detriments of replacing Plate. They decided that McElroy and Branson would be better representatives for Sun-Diamond in Northern California, as they had more knowledge of the products than any other brokers Santo and Soetaert knew. In addition, they did not want Branson and McElroy working for the competition.

On June 6, 1985, Santo terminated Plate. Branson and McElroy remained at Sun-Diamond until June 28, 1985. In July 1985, Branson and McElroy began their brokerage business with Sun-Diamond as their only account.

II. Procedural Background

On March 21, 1986, Plate initiated this action against Sun-Diamond, McElroy, Branson, Santo, and Soetaert. The first amended complaint stated a cause of action against Sun-Diamond for breach of contract; causes of action against McElroy and Branson for intentional interference with contract and intentional interference with prospective economic advantage; and causes of action against all defendants for conspiracy to induce breach of contract and conspiracy to interfere with prospective economic advantage.

As discussed in more detail, infra, in June 1986, it was determined that counsel for Sun-Diamond would undertake representation of all five defendants, and Sun-Diamond would bear the costs of litigation. Branson and McElroy inquired as to who would be responsible for an adverse judgment rendered against them. Counsel for Sun-Diamond responded with a letter stating that Sun-Diamond would indemnify them to the extent required by section 317 against liabilities arising from the litigation.

The case proceeded to jury trial. Following the submission of the case to the jury, the jury returned a special verdict exonerating Sun-Diamond, Santo, and Soetaert as against all claims, but finding Branson and McElroy liable for intentional interference with contract, intentional interference with prospective economic advantage, and conspiracy to interfere with prospective economic advantage. The jury awarded damages against these two defendants in the amount of $275,968. On February 8, 1988, a judgment was entered accordingly.

Following the entry of judgment, Branson and McElroy sought indemnification from Sun-Diamond against the judgment. On April 27, 1988, the Sun-Diamond board of directors advised them that Sun-Diamond declined to indemnify. Branson and McElroy then filed a motion for indemnification pursuant to section 317, subdivision (e)(4). Following a hearing, the trial court ordered indemnification, stating in its written decision: "The motion of defendants Branson and McElroy for indemnification is granted. [p] The Court finds each of said defendants was an agent of Sun Diamond within the meaning of Section 317 of the Corporations Code, and each acted in good faith and in a manner each believed to be [in] the best interests of the corporation." Sun-Diamond filed a motion for reconsideration of this order, which was denied on October 5, 1988.

III. Section 317

Section 317, added to the Corporations Code in 1975, provides in pertinent part: "(a) For the purposes of this section, 'agent' means any person who is or was a director, officer, employee or other agent of the corporation ...; 'proceeding' means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative; and 'expenses' includes without limitation attorneys' fees and any expenses of establishing a right to indemnification under subdivision (d) or paragraph (4) of subdivision (e). [p] (b) A corporation shall have power to indemnify any person who was ... a party to any proceeding ... by reason of the fact that the person is or was an agent of the corporation, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with the proceeding if that person acted in good faith and in a manner the person reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of the person was unlawful...."

Subdivision (d) of section 317 provides that a corporation must indemnify an agent if he or she has been successful on the merits in defense of a proceeding arising out of his or her performance of corporate duties.

Subdivision (e) prescribes four different methods by which a corporation may obtain authorization to make an indemnification payment to a person entitled to indemnity under the statute (even if that person did not prevail in the defense of an action), including court authorization, as follows: "(e) [A]ny...