Thursday, January 22, 2026
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C.A.: Denial of Bond Request in Derivative Suit Does Not Bar Cost Award to Prevailing Party
Opinion Rejects Plaintiff’s Assertion That Defendant’s Loss on Bond Request Precludes Later Recovery of Litigation Costs After Success on Merits
By a MetNews Staff Writer
Div. Eight of this district’s Court of Appeal has held that a trial court’s denial of a request that a plaintiff in a derivative lawsuit be required to post a bond, in accordance with Corporations Code sections designed to protect against meritless lawsuits by stakeholders, has no preclusive effect on the recovery of litigation costs after a defense judgment and success on appeal.
At issue in Tuesday’s opinion is the interplay between Corporations Code §17709.02(b), governing the posting of bond, and Code of Civil Procedure §1032(b), which provides that “[e]xcept as otherwise expressly provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding.”
Sec. 17709.02 specifies that, in derivative lawsuits filed by members of a limited liability company, “any defendant…may move…for an order…requiring the plaintiff to furnish security” within 30 days after service of summons if “there is no reasonable possibility that the prosecution of the…action…will benefit the limited liability company or its members” or if “the moving party…did not participate in the transaction” in question.
Rejecting the plaintiff’s assertion that the court’s ruling on the bond matter insulated him from any award of costs after a successful defense on the merits, Justice John Shepard Wiley Jr., writing for the court, declared:
“To guard against frivolous derivative suits, defendants can move to require the plaintiff to post a bond early in the litigation….If the plaintiff loses the derivative suit, the defendant can collect its costs against the bond. This case presents an unusual twist on this bond situation. A losing plaintiff in a derivative lawsuit claims the bond statute blocks the defense ability to collect the costs that ordinarily go to victors.
“This claim is invalid.”
Investor Assertion
Asserting that the defendant’s failure to obtain an order requiring the posting of bond barred the party from any award of litigation costs was Albert Barrios, who claimed that he invested in the property development firm, 123 Los Robles LLC, which owned two adjacent properties in Pasadena that were slotted for mixed-use construction.
In December 2015, he filed a complaint against two managers of 123 Los Robles, Joel Leebove and Patrick Chraghchian, alleging that they acquired an adjacent property “for their own benefit” and in violation of their fiduciary duty to the company. After a 2022 bench trial, Los Angeles Superior Court Judge Theresa M. Traber ruled in favor of the defendants; Div. Eight affirmed the ensuing judgment in Dec. 2023.
Both defendants filed memoranda of trial costs. On Sept. 13, 2024, Traber rejected Barrios’ assertion that the defendants were not entitled to any post-litigation recovery, saying in an order awarding costs of $57,401.07 to Chraghchian and $1,057 to Leebove that “there is no basis for a ruling that Corporations Code section 17709.02 should be read as the exclusive means of recovery [of] cost[s].”
Tuesday’s decision, joined in by Presiding Justice Maria E. Stratton and Justice Victor Viramontes, affirms the amended judgment reflecting the cost awards.
Motion Denied
Wiley noted that the appellate record was unclear as to “[h]ow exactly” Barrios defeated the defendants’ motion for a bond, but Los Angeles Superior Court records reveal that the request was denied in May 2016 as “untimely” due to it falling outside of the 30-day statutory window. Undeterred by the unanswered question, the jurist opined:
“Barrios’s argument—that his victory about the bond shields him from a cost award—is doubly flawed: it lacks a statutory basis, and contrary case law forecloses it.”
Remarking that, “[t]o provide a basis for Barrios’s argument, [the statute] would have to say something like when defendants lose a bond motion, these defendants are not entitled to costs, even if they ultimately prevail in the lawsuit,” he said that “the statute on which Barrios relies…does not say that.”
He continued:
“How can we prove this negative? Our method will be tedious but definitive: we will quote the statute as Barrios quotes it to us, and we will observe the necessary statutory words do not exist.”
Nothing Even Close
After spending more than two pages of his succinct opinion on quoting the statute, he declared that “[t]here is nothing even close” in the statutory language to a declaration that a bond denial will operate as a bar to a later recovery of costs against an unsuccessful plaintiff.
Pointing out that subdivision (c)(2), which provides in relevant part that “[a] ruling by the court on the motion shall not be a determination of any issue in the action or of the merits of the action,” runs afoul of the plaintiff’s position, he noted:
“Chraghchian’s brief makes exactly this point. Barrios’s reply fails to respond, which effectively concedes the point.”
Distinguishing the jurisprudence cited by the plaintiff as “irrelevant,” he pointed to a case dealing with Corporations Code §800, which applies in a case against a corporation as opposed to a limited liability company. Saying that the section is “materially identical to § 17709.02,” he said the court’s holding that the statute did not create an exception to a statutory right to attorney fees was “sound” and “[a]pplied to this case,…bars Barrios’s argument.”
The case is Barrios v. Chraghchian, 2026 S.O.S. 186.
Acting for the plaintiff was Los Angeles attorney Bruce Altschuld. Representing Chraghchian were Edwin C. Schreiber of the Encino-based Schreiber & Schreiber Inc., Barry MacNaughton of the Beverly Hills firm Ervin, Cohen & Jessup LLP, and Robyn K. Bacon of the Los Angeles office of Munger, Tolles & Olson LLP.
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