Opinion
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Orange County No. 30-2008-00105140 Peter J. Polos, Judge.
Harrington, Foxx, Dubrow & Canter, Dale B. Goldfarb, Mark W. Norman; Law Offices of Sally Gersten Sopkin and Sally Gersten Sopkin for Plaintiff and Appellant.
Stafford & Associates and Timothy J. Stafford for Defendants and Respondents.
OPINION
ARONSON, J.
Fred Gamm, the sole owner of a corporation, joined with that corporation in filing a civil rights action under 42 United States Code section 1983 (section 1983) alleging defendants violated his and the corporation’s procedural due process rights. The trial court sustained defendants’ demurrer to Gamm’s complaint without leave to amend, finding he lacks standing. Gamm appeals from the ensuing judgment of dismissal.
The sole owner of a corporation generally has no standing to file a section 1983 civil rights action for injuries that are merely derivative of injuries to the corporation. The owner may maintain an individual cause of action only if the complaint pleads facts that show he or she suffered a direct, separate, and independent injury from that suffered by the corporation. (See Pagan v. Calderon (1st Cir. 2006) 448 F.3d 16, 28 29 (Pagan); RK Ventures, Inc. v. City of Seattle (9th Cir. 2002) 307 F.3d 1045, 1057 (RK Ventures).)
Because Gamm did not allege facts showing a direct, nonderivative injury, the trial court properly dismissed him from the action. We affirm.
I
Background Facts and Procedure
The appeal arises from a judgment of dismissal after a demurrer to the second amended complaint was sustained without leave to amend. Consequently, we must accept as true all facts properly pleaded. (Curcini v. County of Alameda (2008) 164 Cal.App.4th 629, 633, fn. 3.)
The Allegations of the Complaint
Fred Gamm is the sole owner of Bacco Industries, Inc. (Bacco Industries), a California corporation. Bacco Industries owns a marine vessel identified as Lady Riva that is docked at the rear of Gamm’s private home.
In both 1988 and 1989, the Office of the Orange County Tax Assessor (the Assessor) levied an ad valorem tax against Lady Riva. Each time, Bacco Industries appealed the assessment and the Assessor later determined the vessel should have been classified as business inventory of Bacco Industries and thus exempt from taxation. (See Rev. & Tax. Code, § 219.)
In 2001, the Assessor, under the direction of the managing assessor, Carl Fine, again levied an ad valorem tax against the vessel. Bacco Industries again appealed the assessment but this time, after conducting an evidentiary hearing, the Assessor sustained the original finding that the Lady Riva was personal property and set the yacht’s value at $261,000. Bacco Industries then filed an action in the superior court challenging the Assessor’s ruling. On August 18, 2003, the parties entered into a settlement in which county counsel, on behalf of the Assessor, stipulated the Assessor “shall grant a business inventory exemption” to Bacco Industries and the Assessor would issue an “‘Assessment Roll Correction’” as to this vessel.
Fine was “embarrassed and furious” that county counsel had settled the case. In violation of the stipulated settlement, Fine ordered the assessment roll correction “not be processed, ” thereby blocking any refund to Bacco Industries of the taxes it paid in response to the erroneous assessment. Additionally, every year thereafter, Fine ordered the reassessment of Lady Riva, “even if there was no material change of circumstances concerning the... vessel, ” and manipulated the assessment process so as to penalize Bacco Industries.
Essentially, the machinations ordered by Fine put Bacco Industries through the expense and trouble of meeting new and different discovery requests each year, thereby ensuring the corporation “would never be in compliance with the business inventory exemption” and “would be forced to... pay yearly assessments it did not have to pay, or face having the... vessel seized by the Orange County Tax Collector[.]” Defendants “ignored evidence and manipulated ASSESSOR’s administrative guidelines” in each yearly reassessment, and when Bacco Industries appealed the inevitable adverse determination, Fine “used his influence to bias members of the... Assessment Appeals Board” so that Bacco Industries’ appeals were “denied on an annual basis.” Since 2001, “under the direction of Carl Fine, BACCO’s... vessel has been assessed every year without cause.”
The complaint also alleged that in ordering the annual reassessments of Lady Riva, Fine ensured “GAMM would be constantly harassed” and “would experience pain and suffering.” The complaint alleged Fine has “personal animus” against Gamm. (Italics added.) In 1985, the Assessor, “without authorization from Plaintiffs, intentionally and unlawfully photographed [Lady Riva] from the rear of [GAMM’s home] where” the yacht is docked, later submitting the photograph at an evidentiary hearing, and on several occasions in 2008, an “uninvited and unannounced vessel” returned repeatedly to the dock area behind Gamm’s house, under Fine’s orders to conduct “surveillance” in order to “harass... GAMM and to cause him mental anguish.”
These “surveillance” allegations appear to be a holdover from an earlier version of the complaint which contained a claim for invasion of privacy. The second amended complaint contains no privacy claim.
The complaint alleges the actions of the Assessor and Fine deprived plaintiffs of the “procedural due process guaranteed” to them under the state and federal Constitutions. Defendants’ conduct caused the plaintiffs “to suffer the following damages: (1) the $13,671.22 BACCO was forced to pay to the Orange County Tax Collector for tax year 2007 because of Defendants’ erroneous and illegal assessment of BACCO’s... vessel; (2) all attorneys fees and costs BACCO has paid arising out of the procedural due process violations perpetrated by Defendants; (3) FRED GAMM’s pain and suffering; and (4) the amounts owed to BACCO pursuant to the 2001-2002 Assessment Roll Correction (refund) that was never processed because of Defendants.”
The Demurrer
Defendants demurred to the complaint on the ground Gamm lacks standing. The trial court sustained the demurrer without leave to amend and entered a judgment of dismissal as to Gamm. It concluded Gamm lacks standing to maintain the section 1983 civil rights action because, not having paid the taxes, he suffered no damages from the tax assessment against Bacco Industries. Because the trial court’s ruling on the demurrer presents a purely legal issue, we review it de novo. (American Internat. Group, Inc. v. Superior Court (1991) 234 Cal.App.3d 749, 755.)
Defendants also demurred to Bacco Industries’ complaint, asserting it failed to state a cause of action. The trial court sustained the demurrer as to the corporation but granted it leave to amend. We are advised by the parties Bacco Industries filed a third amended complaint, which respondents answered; a trial date is pending.
II
Discussion
Gamm challenges his dismissal from the action, asserting he has standing by virtue of his ownership of the corporation, which gives him a “clear property interest in the Lady Riva” and “ultimate responsibility to ensure any taxes assessed against the vessel are paid on behalf of Bacco.” The argument misses the mark.
Gamm’s assertion of standing based on his rights and duties as sole shareholder of Bacco Industries ignores a fundamental principle of law: that corporations have a separate existence from their shareholders. “As a general rule, a corporation and its shareholders are distinct juridical persons.... [Citation.] In terms of standing, this separateness has led to the tenet that ‘[a]ctions to enforce corporate rights or redress injuries to [a] corporation cannot be maintained by a stockholder in his own name... even though the injury to the corporation may incidentally result in the depreciation or destruction of the value of the stock.’ [Citations.] The tenet holds true even if the shareholder is the sole owner of the corporation’s stock. [Citations.]” (Pagan, supra, 448 F.3d at p. 28; Sutter v. General Petroleum Corp. (1946) 28 Cal.2d 525, 530.)
Thus, “[i]n general, shareholders lack standing to assert an individual § 1983 claim based on harm to the corporation in which they own shares. [Citation.]... [¶] A shareholder does have standing, however, when he or she has been ‘injured directly and independently from the corporation.’ [Citation.]” (RK Ventures, supra, 307 F.3d at p. 1057, italics added.) The Pagan court articulated the test for standing as follows: “[A]n individual shareholder’s section 1983 claim ‘can survive only if he has alleged that he personally has suffered a direct, nonderivative injury[.]’” (Pagan, supra, 448 F.3d at p. 29, quoting Potthoff v. Morin (8th Cir. 2001) 245 F.3d 710, 717, italics added.)
Gamm’s allegations do not meet that test. An examination of the complaint reveals that all the alleged due process violations directly impacted only Bacco Industries. Because Gamm experienced no personal violation of his own due process rights, he is unable to allege any direct, nonderivative injury.
Essentially, the complaint lays out a factual scenario in which the Assessor and Fine stubbornly refused to accept that Lady Riva is part of the business inventory of Bacco Industries and thus exempt from taxation. When Bacco Industries exercised its procedural right to challenge in court the Assessor’s adverse determination, and eventually won a favorable stipulated settlement, defendants retaliated against Bacco Industries in numerous ways. For example, defendants defied the settlement agreement by refusing to correct the assessment roll to grant the corporation the agreed business inventory exemption and refund the taxes the corporation had paid. Most significantly, defendants subjected the corporation to a perpetual cycle of illusory due process in which Bacco Industries had to seek its rightful tax exemption through a futile yearly reassessment and appeal process that defendants rigged against the corporation.
None of defendants’ alleged wrongful acts implicated Gamm’s personal due process rights. After all, it was the corporation that paid the wrongful taxes, repeatedly sought the exemption, appealed the adverse determinations, and endured the Kafkaesque annual reassessments. Underscoring that point is the complaint’s statement of damages, consisting almost entirely of money owed to Bacco Industries: the $13,671.22 in taxes the corporation “was forced to pay” in 2007, all of its attorney fees and costs, and the tax refund due it under the 2003 settlement. The only other damage asserted is Gamm’s claim of pain and suffering. That personal injury claim in and of itself, however, does not constitute the sort of direct and nonderivative injury required to confer standing on Gamm.
“The fact that the complaint contains a demand for emotional distress damages... is insufficient to confer individual standing on any of the stockholders.” (Pagan, supra, 448 F.3d at p. 29.) A shareholder’s claim for pain and suffering confers standing only if the shareholder “has been ‘injured directly and independently from the corporation.’ [Citation.]” (RK Ventures, supra, 307 F.3d at p. 1057.) Gamm does not allege any such direct and independent injury. He fails to point to any personal deprivation of his due process rights, notwithstanding his conclusory assertions that Fine, by his actions against Bacco Industries, “ensured” that Gamm “would be constantly harassed” and that Gamm “would experience pain and suffering.” That claimed injury is patently derivative and indirect.
Nor is Gamm’s case helped by his assertions that defendants caused him mental anguish by engaging in covert photography and “surveillance” of the docked Lady Riva from the public waterway behind his house. Gamm’s dismissal of his earlier cause of action for invasion of privacy rendered these allegations irrelevant. He makes no effort to explain how they support his claim of due process violations.
In stark contrast to Gamm’s fatally hollow personal injury allegations, the plaintiff shareholders’ allegations examined in RK Ventures, supra, 307 F.3d 1045, exemplify the sort of direct and independent injury that gives a shareholder standing to assert a section 1983 claim. In RK Ventures, a corporation that owned a former nightclub, and its two principal shareholders, sued a city under section 1983 for civil rights violations arising from the city’s enforcement of a public nuisance ordinance against the nightclub that effectively shut down the business. The complaint alleged the city enforced the ordinance as part of a campaign designed to stop downtown nightclubs from playing rap and hip-hop music because the music supposedly attracted African Americans and crime to the area. The complaint further alleged the city’s efforts, while ostensibly directed at crime control, in fact were racially motivated, in violation of the equal protection rights of plaintiffs and their former patrons. The plaintiffs further alleged the city’s efforts violated their First Amendment rights by impermissibly discriminating against a particular musical viewpoint. (RK Ventures, at p. 1050.)
In upholding the shareholders’ standing to sue, the Ninth Circuit noted that “[i]n addition to asking for compensation for injury to [the corporation, the two shareholders] also allege personal injury. The complaint seeks damages for themselves, as individuals, for intentional infliction of emotional distress and for defamation” as well as for “violations of their First and Fourteenth Amendment rights as individuals.” (RK Ventures, supra, 307 F.3d at p. 1057.) The shareholders’ First Amendment claim consisted of allegations the city’s actions prevented “them from playing the music of their choice[.]” (Id. at p. 1055.) As for their claims of an equal protection violation, the shareholders alleged they “were the direct targets of the City’s alleged racial discrimination due to their association with their African-American patrons. The City’s efforts were aimed at forcing [the two shareholders] to discriminate against members of the protected class.” (Id. at p. 1056.) The court concluded these allegations of direct and independent injuries sufficed to give the shareholders standing to sue. (Ibid.)
Unlike the shareholders in RK Ventures, Gamm does not allege any personal violation of his rights; nor does he allege any cognizable personal injury. Consequently, his allegations fail the “direct, nonderivative injury” test.
We note Gamm asserts one additional basis for finding he has standing. He points to the allegation that Fine’s wrongful conduct “was motivated by his personal animus against [Gamm.]” (Italics added.) But a defendant’s animus does not give a plaintiff standing. “[T]he standing inquiry turns on the plaintiff’s injury, not the defendant’s motive. Thus, when a government actor discriminates against a corporation based on a protected trait of a corporate agent, it is the corporation –– and only the corporation –– that has standing to seek redress. [Citations.] In other words, the fact that animus toward the agent sparked mistreatment of the principal does not create an exception to the rule that an agent’s section 1983 claim can flourish only if he alleges that he personally suffered a direct, nonderivative injury.” (Pagan, supra, 448 F.3d at p. 30, fn. omitted.)
Like the trial court, we conclude Gamm has no standing to pursue his section 1983 claim. Consequently, the trial court properly entered the judgment of dismissal against him.
III
Disposition
The judgment is affirmed.
WE CONCUR: MOORE, ACTING P. J., IKOLA, J.