Barber v. Lewis and Kaufman, Inc.

California Court of Appeal May 10, 1954 No. Civ. 15856Published

Before: Kaufman

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Holding. The court held that the trial court did not abuse its discretion in ordering plaintiffs to furnish security under Corporations Code section 834, and that the subsequent dismissal of the action for failure to post such security was proper. The court further held that all proceedings, including depositions and motions for receivers, are stayed pending compliance with the security order.

Issues

Whether the trial court abused its discretion in ordering plaintiffs to furnish security under Corporations Code section 834.
Whether the taking of a deposition constitutes a 'prosecution' of an action subject to the stay provisions of section 834.
Whether the trial court erred in its procedural handling of the motion for security and related motions.

Disposition. affirmed

Quotations verified verbatim against the opinion

“The granting of the motion to require security was well within the discretion of the trial court and it did not deprive appellants of the right to proceed with their action after posting the security.”

“To permit the taking of depositions before the determination by the court as to whether the security provided for by section 834 of the Corporations Code should be furnished would defeat the purposes of that section.”

KAUFMAN, J.

This is an appeal by plaintiffs and appellants from a judgment dismissing their shareholders’ suit by reason of their failure to furnish security as required by an order of the trial court made pursuant to section 834 of the Corporations Code of the State of California.

This case presents a suit by certain minority stockholders of a California corporation to rescind a sale of substantially all of the assets of the corporation for a price exactly equivalent to the book value of the outstanding shares.

The defendant Lewis and Kaufman, Inc., is the selling corporation, the defendant Pacific Electronics Corporation is the buyer, the defendants Jack Kaufman, Eleanor M. Lewis, Alvin B. Campbell, and Y. N. Lundy, are directors of the selling corporation, and the defendant Ray C. Wilcox is the president of the buying corporation.

The original complaint, praying for a rescission of the sale in question and a removal of the named directors of Lewis and Kaufman, Inc., makes no charge that the sale was made other than in full compliance with the provisions of section 3901, Corporations Code. The adopting of the appropriate resolutions by the board of directors and by the shareholders are all admitted.

The basic charge of the complaint appears to be that the sale is “fraudulent” because (a) the price is inadequate, and (b) stockholders Kaufman and Lewis became employed by Pacific Electronics and were given options to purchase a minority stock interest in Pacific Electronics for cash at the book value of such stock at such time as the options might be exercised.

The defendant Lewis and Kaufman, Inc., and the named directors of Lewis and Kaufman, Inc., filed a motion for an order requiring plaintiffs to furnish security pursuant

[97]

to section 834, Corporations Code, and based upon the affidavits and eounteraffidavits on file, and the oral argument had, and the briefs submitted by respective counsel, the court below made its order granting the defendants’ motion and requiring plaintiffs to furnish security in the amount of $5,000. Plaintiffs having failed to comply with this order within the time allowed, and as extended, a judgment of dismissal was duly entered.

Barber v. Lewis and Kaufman, Inc.

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KAUFMAN, J.

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