Wednesday, September 19, 2018
Court of Appeal:
Party Couldn’t Dismiss Cause of Action After Special Proceeding Was Instituted
By a MetNews Staff Writer
The Fourth District Court of Appeal held yesterday that it was an error for a judge to allow a minority shareholder to dismiss his cause of action for involuntary dissolution of a corporation after the judge had ordered a special proceeding, on request of the majority shareholders, under which they would be permitted to buy out the plaintiff.
Authored by Div. One Acting Presiding Justice Richard D. Huffman, the opinion reverses Imperial County Judge William D. Quan’s order terminating the special proceeding authorized by Corporations Code §2000.
Guadalupe Ontiveros, minority shareholder of Omega Electric, Inc., sued Kent Constable—the corporation’s majority shareholder—as well as Constable’s wife Karen Constable and Omega Electric, for a number of alleged misdeeds and for involuntary dissolution of the corporation.
Trial Court Proceedings
Constable and Omega Electric asked Quan to initiate the §2000 proceeding, which involves three impartial appraisers determining the value of the suing shareholder’s shares, after which the majority shareholder or the corporation itself can pay cash for the shares and avoid dissolution.
Quan ordered the hearing and granted a stay in the case while the parties each appointed an appraiser. Ontiveros then asked Quan to lift the stay so that he could dismiss the cause of action which prompted the §2000 motion.
The trial judge determined that Ontiveros had “an absolute right to dismiss the involuntary dissolution cause of action” pursuant to Code of Civil Procedure §581(e), which sets forth:
“After the actual commencement of trial, the court shall dismiss the complaint, or any causes of action asserted in it, in its entirety or as to any defendants, with prejudice, if the plaintiff requests a dismissal, unless all affected parties to the trial consent to dismissal without prejudice or by order of the court dismissing the same without prejudice on a showing of good cause.”
Not a Trial
Explaining the reversal, Huffman said:
“[W]e determine that the special proceeding under section 2000, once initiated, ‘supplants’ the cause of action for involuntary dissolution….At that point, the parties give up their right to litigate the involuntary dissolution action subject to the special proceeding outlined in section 2000. As such, a plaintiff, like Ontiveros, can no longer dismiss the involuntary dissolution claim under Code of Civil Procedure section 581, subdivision (e). As the superior court relied upon that code section as a mechanism to lift the stay and terminate the section 2000 special proceeding, it misapplied the law, and therefore, abused its discretion.”
“[Although we establish that Code of Civil Procedure section 581, subdivision (e) does not allow a plaintiff to dismiss an involuntary dissolution cause of action with prejudice after a court orders the commencement of a special proceeding under section 2000, we do not suggest that a court does not have discretion to dismiss a special proceeding under any circumstance. For example, we can imagine a scenario where the parties settle the dispute rendering the purpose of the special proceeding moot. In addition, there may be other scenarios where justice or equity would support a court ending a special proceeding under section 2000. Such a situation might even present itself as a motion for reconsideration under Code of Civil Procedure section 1008. That said, a new fact under that statute cannot be the plaintiff dismissing a cause of action for involuntary dissolution after the court has granted a motion for a special proceeding under section 2000.”
Reinstitution of Proceeding
The trial court was ordered, on remand, to reinstitute the proceeding under §2000.
The case is Ontiveros v. Constable, 2018 S.O.S. 4582.
Charles L. Murray III of Los Angeles represented Ontiveros; Karen Moskowitz of Studio City and Thomas M. Regele of Beverly Hills were counsel for Constable; A. Daniel Bacalski Jr. of San Diego acted for Omega Electric.
Yesterday’s opinion was the court’s second one in the case. In 2016, it affirmed an order disqualifying Omega’s counsel, holding that joint representation of the corporation and the Constables was impermissible in light of divergent interests, but reversed the disqualification order as to the Constables.
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