Appellants, minority shareholders, challenged an award of attorney’s fees granted to respondents, majority shareholders, from the Superior Court of San Bernardino County (California). Appellants argued that Cal. Corp. Code § 800, which created the shareholders’ derivative right of action, exclusively governed the award of attorney’s fees and entitled appellants to an award of fees.
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Overview
Appellants, minority shareholders, sued respondents, majority shareholders, in a shareholder derivative action, alleging, among other things, breach of contract. Respondents cross-claimed against appellants. After a consolidated trial, the trial court ruled for respondents on the complaint and for appellants on the cross-complaint. The trial court awarded attorney’s fees to respondents, and appellants challenged that award. The court affirmed. The court held that respondents were sued on contracts containing attorney’s fees provisions and were forced to defend the contract causes of action. The court held that it would be extraordinarily inequitable to deny respondents attorney’s fees where appellants, who were not signatories, chose to sue on the contracts in an action on behalf of the corporation when the corporation would not bring suit itself. The court found that the suit was an action for breach of three contracts, all of which contained reciprocal provisions granting attorney’s fees to the prevailing party. Additionally, the court found that respondents brought two motions for bonds, which were denied, and which would have covered their costs and fees.
Outcome
The court affirmed the award of attorney’s fees to respondent majority shareholders because they prevailed in an action for breach of contracts that contained reciprocal provisions granting attorney’s fees to the prevailing party.