Howden-Goetzl v. Superior Court

Opinion

CHRISTIAN, J.

Petitioners seek a writ of mandate to compel respondent court to set aside its order expunging a notice of lis pendens or to increase the amount of the undertaking from $10,000 to $670,000.

[137]

Petitioners are plaintiffs in a shareholders’ derivative action on behalf of Educational Securities Corporation (ESC), attacking a refinancing transaction and foreclosure proceeding whereby the defendants (real parties herein) obtained title to ESC’s major asset, a proprietary hospital.

Under the refinancing transaction, real party Western Urban Redevelopment Corporation and High-Far Corporation purchased 416,000 shares of ESC’s $1 par value stock for one cent per share, taking control of ESC. Western and High-Far also loaned ESC $160,000, taking promissory notes secured by second deeds of trust. The plan was approved by the Corporations Commissioner.

Despite the refinancing transaction the hospital continued in financial difficulty. Additional sums were loaned to ESC by Western Urban and High-Far. A default occurred' under the first deed of trust; Western Urban cured the default and purchased the property at a trustee’s sale under the second deed of trust. The bid was $232,754.86, the total debt then owed by ESC to Western Urban and High-Far.

After the sale, the hospital was reopened as Brookdale General Hospital. Title was subsequently transferred to a corporation of that name, owned 75 percent by Western Urban and 25 percent by High-Far’s successor, William C. Abeel.

Petitioners brought suit alleging breach of fiduciary' duty by its controlling shareholders and Western Urban, misrepresentation and nondisclosure of facts to the Corporations Commissioner in obtaining a stock permit and issuance of securities in violation of the terms of the permit. Petitioners sought damages and other relief, including imposition of a constructive trust upon the hospital. Petitioners recorded a notice of lis pendens as to the hospital property.

Trial of the action resulted in a judgment for the defendants; an appeal from the judgment is pending. After judgment, but before notice of appeal was filed, the court on motion of real parties ordered the notice of lis pen-dens expunged upon real parties’ posting a $10,000 bond, “which sum the Court determines and adjudges to be the value of the interest of the plaintiffs ... in the property affected by the action.” There had been a showing that the hospital was continuing to lose money, that the hospital corporation wanted to sell, and that unless the notice of lis pendens were removed to allow a sale the corporation would become insolvent, losing the property by foreclosure.