Metropolitan News-Enterprise


Thursday, December 24, 2009


Page 3


Court of Appeal Revives Suit Over Medical Group’s Internal Fight




A group of doctors who claim they were improperly forced out of their medical group can sue without paying an assessment they claim was illegally levied, the Court of Appeal for this district ruled yesterday.

The plaintiffs, former members of Associated Hispanic Physicians of Southern California, adequately pled equitable exceptions to the normal rules that a shareholder cannot challenge an assessment that they have not paid, and that only a current shareholder can bring a derivative cause of action, Div. One held.

The plaintiffs—Carlos Haro, Carlos Meza, Marcos Lemor, Antonio Alarcon, Miguel Rodriguez and Jose Delgado—claim that the assessment of nearly $58,000 per share was illegal because it was not levied at a properly noticed meeting and because it was not levied on all shareholders.

The defendants include Fernando Ibarra, Alfonso Barragan, Manuel Figueroa, Maria Christina Hernandez and Omar Perez—all officers, directors and/or shareholders of AHP—as well as Alpha Medical Management, LLC, which manages AHP, and Medical Management Consultants LLC, which is the parent company of Alpha and is owned by Ibarra and Barragan.

Unfair Dealing Alleged

The plaintiffs allege that they collectively owned nearly 30 percent of AHP’s stock, that they had objected to what they believe was unfair dealing by Barragan and Ibarra—who owned one-third of AHP’s shares—and that Barragan and Ibarra had schemed to oust them from the corporation. To that end, they say, the pair declared Alarcon’s shares to be forfeited—without cause—and levied the assessment, warning the plaintiffs that they would be forced to sell their shares if they did not comply.

The stated purpose of the assessment, according to the pleading, was to fund the purchase of a medical practice in Mexico, which the plaintiffs alleged to be “a radical departure from the normal business of AHP.” They characterized the assessment as a violation of the corporation’s articles and bylaws, and as imprudent and fraudulent, and claimed that material information about the proposed acquisition was being withheld.

They also alleged derivative causes of action, charging that Ibarra and Barragan had damaged AHP through their control of its management company, and raised personal claims for conversion of their shares and for diminution of the value of the shares through manipulation of earnings and expenses.

Los Angeles Superior Court Judge Maureen Duffy-Lewis sustained demurrers to all causes of action, reasoning that since they no longer owned shares, the plaintiffs could not plead derivative claims, and that the remaining claims were barred by Corporations Code Sec. 423(m).

Statutory Language

The statute provides that “[n]o action shall be maintained to recover shares sold for delinquent assessments, upon the ground of irregularity in the assessment, irregularity or defect of the notice of sale, or defect or irregularity in the sale, unless the party seeking to maintain the action first pays or tenders to the corporation, or the party holding the shares sold, the sum for which the shares were sold, together with all subsequent assessments which may have been paid thereon and interest on such sums from the time they were paid.”

Justice Victoria G. Chaney, writing for the Court of Appeal, said that with respect to the personal causes of action, the plaintiffs adequately pled an exception to the statute by alleging that the assessment was void.

She cited Herbert Kraft Co. Bank v. Bank of Orland (1901) 133 Cal. 64 and Cheney v. Canfield (1910) 158 Cal. 342.

In Kraft, the high court held that Sec. 423(m)’s predecessor did not apply to a claim that the plaintiff’s stock in a bank was forfeited when he failed to pay an assessment that was not levied on any other stock. The justices reasoned that if the allegation was correct, the assessment was void, and thus the plaintiff did not have to pay it as a prerequisite to bringing the action.

Cheney, similarly, declined to apply the statute to a claim that an assessment had been levied at a board meeting at which a quorum was not present.

The justice declined to limit Kraft to the situation in which forfeited shares are sold to the directors who caused the shares to be forfeited. That argument, she said, was based on an out-of-context reading of the case.

Derivative Causes

With respect to the derivative causes of action, Chaney also concluded that it was error to sustain the demurrers. While the usual rule is that the plaintiff must own the shares continuously from the time the cause of action arises to the time it is adjudicated, there are equitable exceptions, she said, concluding:

“Appellants have alleged equitable considerations that warrant an exception to the continuous ownership requirement, such as the allegations in the [second amended complaint] that other shareholders were not required to pay the assessment and yet did not have their shares forfeited.”

The case was argued on appeal by Tom A. Nunziato of Nunziato Buckley Weber for the plaintiffs, by Craig L. Winterman of Herzfeld & Rubin for the individual defendants, and by Robert C. Reback of Reback, McAndrews, Kjar, Warford & Stockalper for AHP.

The case is Haro v. Ibarra, B213499.


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