Opinion
E075927
03-04-2022
GAMAL F. GHALY, Plaintiff and Appellant, v. GURVINDER S. UPPAL, M.D., aka SUNNY UPPAL, M.D. et al., Defendants and Respondents.
Brower Law Group, Steven Brower and Tae J. Im for Plaintiff and Appellant. Dorsey & Whitney and Kent J. Schmidt for Defendants and Respondents.
NOT TO BE PUBLISHED
APPEAL from the Superior Court of Riverside County. No. RIC2000580 Carol A. Greene, Judge. Affirmed.
Brower Law Group, Steven Brower and Tae J. Im for Plaintiff and Appellant.
Dorsey & Whitney and Kent J. Schmidt for Defendants and Respondents.
OPINION
FIELDS, J.
I. INTRODUCTION
In 2019, plaintiff and appellant Gamal F. Ghaly, M.D. (Dr. Ghaly) owned one of 75 outstanding shares of a corporation-defendant Riverside Community Healthplan Medical Group, Inc., also known as Riverside Physician Network (RPN). That year, RPN was sold for $18 million and merged with another entity. In connection with the merger, RPN paid $12,082,500 of the $18 million purchase price to its directors, officers, and others as "transaction bonuses." Dr. Ghaly did not receive a bonus and did not approve the merger. RPN offered Dr. Ghaly $34,140 for his share, but Dr. Ghaly rejected the offer and refused to relinquish his share certificate, claiming his share was worth substantially more than $34,140.
In a first amended complaint (the FAC), Dr. Ghaly sued RPN and four members of the executive committee of its board of directors, namely, defendants and respondents, Gurvinder S. Uppal, M.D., aka Sunny Uppal, M.D.; Raj Sindher, M.D.; Ramesh Karody, M.D.; and Mark Allison, M.D. (the board defendants). In its first through fourth causes of action, the FAC alleges common law claims; it alleges that, by approving the $12,082,500 in transaction bonuses in connection with the merger, defendants breached their fiduciary duties to Dr. Ghaly and engaged in constructive fraud, and that the board defendants also unjustly enriched themselves.
In a fifth cause of action, Dr. Ghaly sued RPN pursuant to the dissenters' rights law (Corp. Code, §§ 1300-1313), seeking an appraisal of his RPN share, a determination that the value of his RPN share exceeds $240,000, and a judgment requiring RPN to purchase the share at its fair market value.
Undesignated statutory references are to the Corporations Code.
On August 12, 2020, the trial court sustained defendants' general demurrer to the FAC's first through fourth causes of action, without leave to amend, and dismissed the board defendants from the action, with prejudice. RPN did not demur to the FAC's fifth cause of action for dissenters' rights (§§ 1300-1304), and that cause of action is still pending against RPN. Dr. Ghaly appeals from the judgment dismissing the board defendants, with prejudice. We affirm.
As we explain, we agree with the trial court that Dr. Ghaly's common law misconduct claims against defendants are barred by the exclusive appraisal remedy of section 1312, subdivision (a), of the dissenters' rights law. (Steinberg v. Amplica, Inc. (1986) 42 Cal.3d 1198, 1214 (Steinberg).) Through the FAC's fifth cause of action for an appraisal of his share under the dissenters' rights law (§§ 1300-1304), Dr. Ghaly may vindicate his common law claims against defendants, by arguing that their self-dealing or other misconduct in approving the transaction bonuses reduced the value of his RPN share. (Steinberg, at pp. 1209-1210 [An "appraisal is as adequate a remedy for a shareholder who bases his claim of undervaluation on breach of fiduciary duty as to one who argues that his shares were undervalued due to a good faith dispute of their worth, provided that the issue of misconduct may be litigated in an appraisal proceeding."].)
II. FACTS AND PROCEDURE
A. The Allegations of Dr. Ghaly's FAC
Dr. Ghaly owned one of RPN's 75 outstanding shares. In 2019, RPN was purchased for approximately $18 million (the equivalent of $240,000 a share), merged with another corporation, and became a wholly owned subsidiary of NAMM Medical Holding, Inc. (NAMM). The FAC does not allege that RPN and NAMM were controlled by the same persons before the merger. (See § 1312, subd. (b).)
In February 2019, before the merger closed, RPN notified Dr. Ghaly and its other shareholders of the proposed merger and that, upon the completion of the merger, RPN's board would pay, as "transaction bonuses," $12,082,500 of the $18 million purchase price to "certain RPN service providers" including some of RPN's shareholders. The notice stated that the bonuses were being paid "in recognition of efforts of the recipients in getting RPN to a position to be acquired," and that "[t]he amounts of the bonuses vary based on a number of factors, including whether the recipient is an exclusive or nonexclusive provider, whether the recipient is a primary care physician or a specialist, and the years of service such recipient has provided to RPN."
The notice advised that the $12,082,500 in bonuses included a $200,000 payment to RPN's chief executive officer (CEO), a $250,0000 payment to RPN's chief financial officer (CFO), and $35,000 payments to each member of RPN's board of directors. The notice further advised that the CEO and CFO would be entering into employment agreements with the buyer "in connection with the merger." Additional $15,000 payments were to be made to each of the board defendants. The "majority" of the bonuses ($7,725,000) were to be paid to primary care physicians.
Based on the bonuses to be paid to the directors, CEO, and CFO, the notice stated that, "the interests of RPN's directors and officers may be different from, or in conflict with, your interests as a Securityholder with respect to the Merger. The members of our board of directors were aware of these additional interests, and considered them when they approved the Merger and the Merger Agreement."
The notice did not disclose which primary care physicians would receive bonuses, or in what amounts, and the notice also did not state who would receive "the rest of the $4,357,500 in bonuses other [than] the amounts being paid to the Executive Committee, the CEO, and the CFO. . . ." The notice stated that, after the $12,082,500 in bonuses was paid, and adjustments were made, RPN's shareholders would receive approximately $30,000 a share.
Regarding adjustments to the RPN share price, the notice stated that the buyer would pay "approximately $18,000,000 [for RPN], plus the amount, if any, by which Estimated Net Working Capital exceeds Target Net Working Capital, less the amount, if any, by which Target Net Working Capital exceeds Estimated Net Working Capital, less Company Indebtedness, and less the Transaction Expenses, which includes transaction bonuses (collectively the 'Net Purchase Price'), for all of the RPN shares outstanding immediately prior to the merger. The Net Purchase Price will be reduced by (i) $3,000,000 (the 'Escrow Amount'), to be deposited into an escrow account, and (ii) $250,000 to be deposited into an account (the 'Representative Account') available to pay the expenses of the Representatives. At the closing of the Merger, the holders of RPN Shares (the 'Securityholders') will be entitled to receive merger consideration of $30,000.00 for his/her RPN Share held as of immediately prior to the Merger (subject to adjustments as described herein.)"
Dr. Ghaly was not notified whether or not he would receive a bonus, and he did not vote to approve the merger. In February 2020, after the merger closed, Dr. Ghaly filed this action against RPN and the board defendants. The FAC alleges five causes of action based on RPN's and the board defendants' approval and payment of the $12,082,500 in bonuses: (1) breach of fiduciary duty against the board defendants (first cause of action); (2) constructive fraud against RPN and the board defendants (second); (3) unjust enrichment against the board defendants (third); (4) "breach of fiduciary duty and aiding and abetting breach of fiduciary duty" against RPN (fourth); and (5) "dissenters' rights under Corporations Code section 1304" against RPN (fifth).
The FAC seeks punitive damages in its first, second, and fourth causes of action. In its fifth cause of action, the FAC asks the court to appoint one or more "impartial appraisers" to determine the fair market value of Dr. Ghaly's dissenting share and to determine that the value of the share exceeded $240,000.
The FAC alleges that, at the time RPN notified its shareholders of the proposed merger, defendants knew how RPN intended to distribute the entire $12,082,500 in transaction bonuses but "deliberately concealed" this information from the shareholders, "with the intention that shareholders would believe that they were receiving an equitable share of the bonus money based on [their] length of service with RPN."
The FAC further alleges that defendants violated section 1301, subdivision (a), by failing to give Dr. Ghaly: (1) "any formal notification indicating the actual vote" for and against the merger by RPN's outstanding shares, (2) notice that, as a dissenting shareholder, Dr. Ghaly had the right to require RPN to repurchase his share at its fair market value, determined as of the day before the merger was first announced, (3) RPN's determination of the fair market value of dissenting shares, and (4) copies of sections 1300 to 1304, setting forth the rights of the dissenting shareholders in a reorganization or merger, and RPN's obligation to purchase the dissenting shares.
The FAC alleges that defendants intentionally did not mail Dr. Ghaly the notice required by section 1301, or copies of sections 1300 through 1304, in order to prevent Dr. Ghaly from seeking an appraisal of the value of his share, and in order to allow defendants to raise the defense of the statute of limitations if Dr. Ghaly later sought an appraisal or filed suit. Around October 22, 2019, Dr. Ghaly wrote to RPN's counsel and the board's executive committee, demanding $400,000 for his share, "as opposed to the $34,140 [that] RPN offered" for the share. Around December 3, 2019, RPN's counsel and the executive committee advised Dr. Ghaly that they did not believe he was entitled to any additional amount for his share.
B. Defendants' Demurrer
RPN and the board defendants demurred to the FAC's first through fourth causes of action on the ground that the claims failed to state facts sufficient to constitute a cause of action. (Code Civ. Proc., § 430.10, subd. (e) [general demurrer].) Defendants argued that the fifth cause of action for statutory dissenters' rights (see Corp. Code, §§ 1300-1304, 1312, subd. (a)) against RPN, was the FAC's only viable cause of action, and asked the court to dismiss the board defendants, with prejudice. Defendants also moved to strike the FAC's punitive damages allegations and prayers for punitive damages. (Code Civ. Proc., §§ 435, 436.)
Defendants also demurred to the third cause of action for constructive fraud on the ground it was not pleaded with sufficient specificity.
In support of their demurrer, defendants asked the court to take judicial notice of an" 'Information Statement and Consent Solicitation'" (Information Statement), which they claimed was the notice that RPN provided to all of its shareholders, before the merger, and which the FAC quoted. (Evid. Code, § 452, subd. (h).) Defendants argued that, contrary to the FAC's allegations, and before the merger was completed, RPN notified Dr. Ghaly of his dissenters' rights, through the Information Statement, and gave Dr. Ghaly copies of Corporations Code sections 1300 to 1304.
Defendants also pointed out that, even if there had been "some failure or omission" in notifying Dr. Ghaly of the proposed merger, or of the merger's approval by a majority of RPN's shareholders, Dr. Ghaly's sole remedy as a dissenting shareholder was to "cash out" his dissenting share for its fair market value. (Steinberg, supra, 42 Cal.3d 1198, 1214; Sturgeon Petroleums v. Merchs. Petroleum Co. (1983) 147 Cal.App.3d 134, 139-140 (Sturgeon); Singhania v. Uttarwar (2006) 136 Cal.App.4th 416, 427-430 (Singhania).) Defendants argued that the common law claims alleged in the FAC's first through fourth causes of action could be remedied through its fifth cause of action for dissenters' rights, which included a right to an appraisal of the fair market value of Dr. Ghaly's dissenting share, determined as of the day before the merger was first announced. (§§ 1300-1304, 1312, subd. (a).)
In opposition, Dr. Ghaly argued that the FAC pleaded sufficient facts to support its first through fourth causes of action. Dr. Ghaly objected to the request for judicial notice on the ground that defendants' counsel, who purported to authenticate the Information Statement, lacked personal knowledge of its authenticity. Dr. Ghaly further objected to the request on the ground that the "pre-merger" Information Statement did not refute the FAC's allegations that RPN did not provide "post-merger" notice to its shareholders, including Dr. Ghaly, of the information required by section 1301, subdivision (a), namely: (1) the dissenting shareholders' rights to have RPN purchase their shares at their fair market value, determined as of the day before the merger was first announced, (2) RPN's estimate of the fair market value of the dissenting shares, and (3) that RPN's estimate of the fair market value of the dissenting shares constituted an offer to purchase the dissenting shares at that price.
In reply, defendants emphasized that the FAC's allegations did not show that its first through fourth causes of action fell outside of the exclusive statutory appraisal and purchase remedy for dissenting shareholders. (§§ 1300-1304, 1312, subd. (a).)
C. The Trial Court's Ruling
The trial court sustained the demurrer to the FAC's first through fourth causes of action (Code Civ. Proc., § 430.10, subd. (e)), without leave to amend, and dismissed the board defendants from the action, with prejudice. The court ruled that, under section 1312, subdivision (a), as interpreted by our Supreme Court in Steinberg, supra, 42 Cal.3d 1198, and based on the history of the statute as explained in Busse v. United PanAm Financial Corp. (2014) 222 Cal.App.4th 1028 (Busse), Dr. Ghaly's exclusive remedy, as a dissenting shareholder to the merger, was to recover the fair market value of his share, as determined by an appraisal, and that the claims alleged in the first through fourth causes of action could be raised in the context of the appraisal, but not as separate claims for damages. The court explained: "Defendants are correct that the history and interpretation of section 1312 make it the exclusive remedy for a disgruntled minority shareholder dissatisfied with the value of his shares, regardless of whether fraud, breach of fiduciary duty, or other similar claims are alleged."
The court denied defendants' request to take judicial notice of the Information Statement, on the grounds that (1) defendants' counsel did not have personal knowledge that the Information Statement had been sent to RPN's shareholders, and (2) because it was a premerger document, the Information Statement did not contradict the FAC's allegations that RPN shareholders were not notified that the merger had been approved and completed. (§ 1301, subd. (a).) Still, the court ruled that, even if he did not receive "the required notice confirming the merger," Dr. Ghaly was provided, before the merger, with "sufficient information to assert any right he may have," including his statutory dissenters' rights. The court struck the FAC's prayer for punitive damages, given that there was no cause of action to support a punitive damages award against RPN, the only remaining defendant. Dr. Ghaly timely appealed from the judgment of dismissal.
III. DISCUSSION
Dr. Ghaly claims that the FAC's first through fourth causes of action are not barred by the exclusive appraisal remedy of section 1312, subdivision (a), as interpreted by our Supreme Court in Steinberg, supra, 42 Cal.3d 1198. We disagree.
A. Standard of Review
In reviewing an order sustaining a general demurrer to a complaint-that is, in reviewing a claim that the complaint fails to state facts sufficient to constitute a cause of action (Code Civ. Proc., § 430.10, subd. (e))-we examine the complaint de novo to determine whether it alleges facts sufficient to state a cause of action under any legal theory. (Mathews v. Becerra (2019) 8 Cal.5th 756, 768.) The rules by which we test the sufficiency of the complaint are well settled:" '" 'We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.'" '" (Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc. (2016) 1 Cal.5th 994, 1010.) We also consider matters that may be judicially noticed, and we give the complaint a reasonable interpretation by reading it as a whole and its parts in their context. (Ibid.) And when, as here, the general demurrer was sustained without leave to amend, we determine whether there is a reasonable possibility that the defect can be cured by amending the complaint. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) If so, the trial court abused its discretion in sustaining the demurrer without leave to amend, and we reverse; if not, there has been no abuse of discretion, and we affirm. (Ibid.) It is the plaintiff's burden to prove there is a reasonable possibility that the defect in the complaint can be cured by amendment. (Ibid.)
B. The Exclusive Appraisal Remedy of Dissenting Shareholder s
Under California's dissenters' rights law (§§ 1300-1313), the holders of shares in certain types of corporations are entitled to vote on proposed reorganizations of the corporation, including mergers and acquisitions. (§§ 181, 1201, 1300.) Such shareholders have "dissenters' rights"-that is, if they dissent to the proposed reorganization, they can require the corporation to purchase their "dissenting shares" for cash at the shares' fair market value, determined on the day before the proposed reorganization was first announced. (§ 1301, subd. (a); Singhania, supra, 136 Cal.App.4th at p. 426 [describing the steps a shareholder must take to perfect the shareholder's dissenters' rights]; §§ 1300-1305.)
If a dissenting shareholder and the corporation cannot agree on the fair market value of the shareholders' dissenting shares, either of them may file an action to have the superior court determine the fair market value of the dissenting shares, and the court may appoint one or more appraisers to determine the fair market value. (§§ 1304, 1305.)
When any shareholder has dissenters' rights, the corporation is required to mail those dissenting shareholders notice of the approval of the reorganization by the corporation's outstanding shares. (§§ 152, 1301, subd. (a).) The notice must be mailed "within 10 days after the date of that approval" and must be accompanied by a copy of sections 1300 through 1304, setting forth the rights and obligations of the corporation and the holders of dissenting shares, concerning the corporation's purchase of the dissenting shares, together with "a statement of the price determined by the corporation to represent the fair market value of the dissenting shares, and a brief description of the procedure to be followed if the shareholder desires to exercise the shareholders' right under those sections." (§ 1301, subd. (a).) The corporation's statement of the fair market value of the dissenting shares "constitutes an offer by the corporation to purchase" the dissenting shares at that price. (Ibid; Singhania, supra, 136 Cal.App.4th at p. 426-427.)
Section 1312 addresses the rights of dissenting shareholders to attack the validity of or to set aside or rescind a corporate reorganization. Subdivision (a) of the statute provides: "No shareholder of a corporation who has a right under this chapter to demand payment of cash for the shares held by the shareholder shall have any right at law or in equity to attack the validity of the reorganization or short-form merger, or to have the reorganization or short-form merger set aside or rescinded, except in an action to test whether the number of shares required to authorize or approve the reorganization have been legally voted in favor thereof . . . ." (§ 1312, subd. (a), added italics.)
In Steinberg, our Supreme Court held that, in light of section 1312, subdivision (a), an action against the corporation for an appraisal of the fair market value of a shareholders' dissenting shares is the exclusive remedy of a shareholder who is entitled to have the corporation purchase the shareholder's dissenting shares. (Steinberg, supra, 42 Cal.3d at p. 1214.) That is, section 1312 subdivision (a), bars a shareholder's claim that the corporation undervalued the shareholder's dissenting shares due to fraud, breach of fiduciary duty, or other misconduct by the corporation, its majority shareholders, directors, officers, or others, in connection with the reorganization-at least when the shareholder is aware of the facts underlying the shareholder's misconduct claims before the reorganization was consummated, but the shareholder deliberately opted to sue for damages instead of seeking an appraisal. (Id. at pp. 1209-1211, 1214.)
Steinberg reasoned that nothing in the appraisal statutes (§§ 1304, 1305) "prevent[s] vindication of a shareholders' claim of misconduct in an appraisal proceeding . . . . [¶] . . . [A]ppraisal is as adequate a remedy for a shareholder who bases his claim of undervaluation on breach of fiduciary duty as to one who argues that his shares were undervalued due to a good faith dispute of their worth . . . ." (Steinberg, supra, 42 Cal.3d at p. 1209.) Steinberg noted with approval that the court in Sturgeon, supra, 147 Cal.App.3d 134, had held that section 1312, subdivision (a), barred actions for damages by dissenting shareholders and limited dissenting shareholders' remedy to an action for an appraisal. (Steinberg, at p. 1212; Sturgeon, at pp. 139-140.)
Sturgeon reasoned that, under prior but substantially similar versions of section 1312, subdivision (a), "it was the general rule that 'recovery of the fair market value of shares is the only remedy of a dissenting stockholder except that he may bring an action to test whether the merger or consolidation was approved by the required number of shares.'" (Sturgeon, supra, 147 Cal.App.4th at pp. 139-140.)
Steinberg also relied on public policy considerations. (Steinberg, supra, 42 Cal.3d at pp. 1210-1212.) On the one hand, the court recognized that corporate officers, directors, majority shareholders, and others have fiduciary obligations to minority shareholders. (Ibid.) Confining a dissenting shareholder to an action for an appraisal, when the shareholder claims that the dissenting shares were undervalued due to breaches of fiduciary duty by corporate insiders, means that "the wrongdoers" go "unpunished" because only the corporation is liable for the fair market value of the shares. (Id. at p. 1211.) Exemplary damages are also not available, and there is no deterrent to individual misconduct, "since the corporation [is] liable for the fair value of the shares no matter what the cause of their undervaluation." (Ibid.)
On the other hand, if a dissenting shareholder, who is "fully informed as to the facts underlying his claim for breach of fiduciary duty," could deliberately forgo an action for an appraisal and, instead, sue the corporation and others for damages in excess of the fair market value of the shares, then the threat of such litigation "could, like an action to set aside a merger, prevent the consummation of reorganizations which would benefit the majority and the corporation as a whole. Or the corporation might be pressured into making concessions to the minority which would be unwarranted absent such a threat. The so-called 'strike suit' would be encouraged. The prospect of personal liability of those who arranged the merger, including liability for punitive damages, would be almost as powerful a disincentive to legitimate mergers as a threat to unwind the merger." (Steinberg, supra, 42 Cal.3d at p. 1210.)
Thus, Steinberg concluded that "at least in a case such as this, where the plaintiff was aware of all the facts leading to his cause of action for alleged misconduct in connection with the terms of the merger prior to the time the merger was consummated but deliberately opted to sue for damages instead of seeking appraisal, section 1312(a) acts as a bar." (Steinberg, supra, 42 Cal.3d at p. 1214.)
Following Steinberg, the court in Singhania concluded that section 1312, subdivision (a), barred the plaintiff shareholders' claims for damages for breaches of fiduciary duty against the defendants in their capacities as the corporation's controlling shareholders, directors, and executive officers, where the corporation's notice of approval of a proposed merger failed to state a fair market value price for the dissenting shares, and also failed to state that such price constituted an offer by the corporation to purchase the dissenting shares at that price. (Singhania, supra, 136 Cal.App.4th at pp. 421-423, 430-432.) The notice of approval also erroneously advised the shareholders that, if they wished to exercise their statutory dissenters' rights and have the corporation purchase their dissenting shares, they had to make a written demand upon the corporation to purchase their dissenting shares at a "specified price," even though the notice did not include the corporation's determination of the dissenting shares' fair market value. (Singhania, at pp. 422-423.)
The Singhania plaintiffs first argued that a corporation's statement of the fair market value of its dissenting shares is a prerequisite to the application of the dissenters' rights law (§§ 1300-1313), and that the defendants' refusal to state a price for the dissenting shares in the notice of the approval meant that the plaintiffs were not restricted to an appraisal action but could sue the defendants for damages based on their breaches of their fiduciary duties to the plaintiffs as dissenting shareholders. (Singhania, supra, 136 Cal.App.4th at p. 430.) The plaintiffs further argued that the defective notice of approval, along with other information the defendants concealed from the corporation's other shareholders, precluded the plaintiffs from making an informed decision whether to retain their shares and participate in the merger, or to pursue their statutory dissenters' rights-their rights to require the corporation to purchase their shares at their fair market value. (Ibid.; § 1300.)
In concluding that section 1312, subdivision (a), barred the plaintiffs' common law claims, the Singhania court noted that the plaintiffs did not allege that they were unaware of the corporation's obligation to state a fair market value price for the dissenting shares in the notice approval (§ 1301, subd. (a)) nor did the plaintiffs allege that they were unaware of their dissenters' rights before the merger was consummated. (Singhania, supra, 136 Cal.App.4th at p. 430.) To the contrary, the complaint showed that the corporation provided the plaintiffs with copies of the applicable statutes (§§ 1300-1304) setting forth the plaintiffs' "shareholder rights and the corporation's obligations" concerning the corporation's obligation to purchase dissenting shares. (Singhania, at pp. 430, 432.) The court noted that "the same concerns are at issue whether the corporation to be acquired offers a price below the true fair market value or fails to state a price altogether," and concluded that, although "the procedures for cashing out contemplate that the corporation will make an initial determination of fair market value before dissenters make their demand for purchase, we do not perceive a sound reason for completely derailing the statutory buyout procedure where a notice of a reorganization's approval omits a statement of price but provides the full statutory text of sections 1300 to 1304, as was done in this case." (Id. at pp. 431, 432.)
In Busse, Division Three of this court reviewed the entire history of Corporations Code section 1312, subdivision (a), beginning with the 1931 enactment of its predecessor statute, former Civil Code section 369. (Busse, supra, 222 Cal.App.4th at pp. 1039-1047.) Based on this history, Busse observed that the meaning of section 1312, subdivision (a), both in its current and former forms, was "unmistakable: Disappointed minority shareholders cannot sue to stop or rescind a merger, and are limited to the remedy of appraisal. That is an adequate remedy because the appraisal can take into account breaches of fiduciary duty by corporate insiders." (Busse, at pp. 1046-1047, italics added.)
Busse acknowledged that section 1312, subdivision (b), authorizes dissenting shareholders to sue to rescind or set aside a reorganization in lieu of filing an action for an appraisal when the parties to the reorganization were under common control before the reorganization, but it concluded that dissenting shareholders in common control situations may not sue for monetary damages based on common law breaches of fiduciary duty, in light of the history of section 1312, subdivision (a), and the dissenters' rights law as a whole (§§ 1300-1313). (Busse, supra, 222 Cal.App.4th at pp. 1047-1049.) Busse observed that, in common control situations, the Legislature determined that set aside actions are necessary "to keep management honest," because management controls both the buyer and the seller, and has "better and quicker access to information about a company's prospects than its stockholders." (Id. at p. 1050; § 1312, subd. (b).)
Busse discerned the following "unified theory" of how the Legislature elected to treat dissenting minority shareholders in corporate reorganizations: "In non-common-control situations, dissenting minority shareholders have the remedy of appraisal but do not have the remedy of stopping or rescinding the reorganization. In common control situations, dissenting minority shareholders still have the remedy of appraisal unless they elect the remedy of stopping or rescinding the reorganization. But they never have the remedy of seeking monetary damages." (Busse, supra, 222 Cal.App.4th at p. 1048.)
In sum, the case law interpreting section 1312, subdivision (a), is clear: even in common control situations, holders of dissenting shares (§ 1300) may not sue the corporation, its officers, directors, other shareholders, or others for monetary damages based on common law claims for breach of fiduciary duty and similar claims because such claims may be vindicated in an action for an appraisal (§ 1304), at least when the dissenting shareholder is aware of the facts underlying the misconduct claims before the reorganization is consummated. (Steinberg, supra, 42 Cal.3d at pp. 1209, 1214; Busse, supra, 222 Cal.App.4th at pp. 1046, 1048.)
C. Dr. Ghaly's Claims on Appeal Lack Merit
Dr. Ghaly argues Steinberg, Sturgeon, Singhania, and Busse are not controlling, and do not require the dismissal of the FAC's first through fourth common law causes of action because, unlike this case, these cases "involved claims that the price per share offered by the buyer as part of the merger was too low." The cases are distinguishable, he argues, because he agrees that $18 million was a fair price for RPN's 75 shares, and he is not seeking to set aside or rescind the RPN merger.
Thus, he argues, his fifth cause of action for an appraisal of the fair market value of his RPN share (§ 1304) should not be his exclusive remedy for defendants' "fraudulent[]" misconduct in distributing $12,082,500 of the $18 million purchase price to themselves and others, rather than to RPN's 75 shareholders, pro rata. We disagree.
To be sure, the FAC alleges that when defendants notified RPN's shareholders of the proposed merger, defendants knew how they intended to distribute the $12,082,500 in bonuses, and how much each shareholder would receive in bonuses, but "deliberately concealed this information with the intention that shareholders would believe they were receiving an equitable share of the bonus money based on their length of service with RPN." The FAC further alleges that RPN did not mail Dr. Ghaly any notice of the approval of the merger, his dissenters' rights, and RPN's obligation to purchase his share at its fair market value. (§ 1301, subd. (a).) Nor did RPN mail Dr. Ghaly copies of sections 1300 to 1304, at any time.
None of these allegations are sufficient to avoid the exclusive appraisal remedy of section 1312, subdivision (a). (Steinberg, supra, 42 Cal.3d at pp. 1209-1211, 1214.) Dr. Ghaly asks this court to "narrowly construe" Steinberg, but there is no basis for distinguishing Steinberg and its progeny from this case.
The FAC shows that, in its notice of the proposed merger, RPN advised Dr. Ghaly of his dissenters' rights, including RPN's obligation to purchase Dr. Ghaly's dissenting share at its fair market value, and Dr. Ghaly's right to file an action for an appraisal of his share.
The FAC alleges: "One of the documents provided by RPN as part of the pre-merger documentation stated: [¶] Pursuant to Sections 1300 through 1304 . . . Securityholders who elect to dissent from the Merger (referred to as 'dissenting shareholders') may require RPN to repurchase their shares (referred to as 'dissenting shares') at their fair market value, determine[d] as of the day before the first announcement of the Merger. [¶] Within 10 days following approval of the Merger by the Securityholders, RPN is required to mail each person who did not consent to the approval of the Merger a notice indicating that the Merger has been approved by the Securityholders. The notice must also set forth the price determined by RPN to represent the fair market value of all dissenting shares . . . at that stated price. In addition, the notice must contain a copy of Sections 1300 through 1304 . . . and a description of the procedures that must be followed by a Securityholder who has not consented to the approval of the Merger if that Securityholder elects to exercise his, her or its dissenters' rights."
Thus, the FAC shows that Dr. Ghaly was aware of his dissenters' rights to require RPN to purchase his share for its fair market value and was aware of his right to file this action for an appraisal of his share (§§ 1300-1304) before the merger was approved. (Singhania, supra, 136 Cal.App.4th at p. 430.) Thus here, as in Singhania, there is no sound reason to disregard the dissenters' rights law (§§ 1300-1313) and the exclusive appraisal remedy of section 1312, subdivision (a) (Steinberg, supra, 42 Cal.3d at p. 1214), even though the FAC alleges that RPN violated section 1301, subdivision (a), by not sending Dr. Ghaly notice of the merger's approval, together with copies of sections 1300 to 1304, and the other information required by section 1301, subdivision (a). (Singhania, supra, 222 Cal.App.4th at p. 432.) As in Singhania, RPN's failure to comply with section 1301, subdivision (a), did not prejudice Dr. Ghaly's dissenters' rights.
The FAC also shows that Dr. Ghaly was aware, before the merger was approved, that RPN intended to distribute $12,082,500 of the $18 million purchase price for RPN to RPN''s directors, certain officers, and others, because RPN's notice of the proposed merger advised its shareholders of the $12,082,500 in bonuses. Dr. Ghaly may vindicate his misconduct claims against defendants for breach of fiduciary duty and constructive fraud, based on defendants' decision to distribute the $12,082,500 in bonuses, through his fifth cause of action for dissenters' rights. (Steinberg, supra, 42 Cal.3d at p. 1209 ["appraisal is as adequate a remedy for a shareholder who bases his claim of undervaluation on breach of fiduciary duty as to one who argues that his shares were undervalued due to a good faith dispute of their worth . . . ."]; Busse, supra, 222 Cal.App.4th at pp. 1046-1047 [appraisal is an adequate remedy because it can account for breaches of fiduciary duty by corporate insiders].)
Dr. Ghaly's appraisal rights are not compromised by RPN's failure to advise Dr. Ghaly of who received most of the $12,082,500 in bonus money, for what services, and in what amounts. This information is discoverable in this action for an appraisal of Dr. Ghaly's share. To the extent that any of the bonuses were unwarranted or excessive, Dr. Ghaly may argue that their payment diluted the value of his share.
Lastly, Dr. Ghaly argues that defendants' failure to send him a notice of the merger's approval (§ 1301, subd. (a)) has "damaged" his ability to recover prejudgment interest from RPN on the fair market value of his share, in the event the trial court determines that the value of the share exceeded 125 percent of the $34,140 amount that RPN offered him for his share. (§ 1305, subd. (e).) We discern no "damage" to Dr. Ghaly's right, if any, to recover prejudgment interest.
Section 1305, subdivision (e), authorizes the court to assess or apportion the costs of the dissenters' rights action "as the court considers equitable," but "if the appraisal exceeds the price offered by the corporation, the corporation shall pay the costs (including in the discretion of the court attorney's fees, fees of expert witnesses and interest at the legal rate on judgments from the date of compliance with Sections 1300, 1301 and 1302 if the value awarded by the court is more than 125 percent of the price offered by the corporation under subdivision (a) of section 1301)." (Italics added.)
Dr. Ghaly argues that, because RPN did not comply with section 1301, subdivision (a), as he alleges in his complaint, he will be unable to recover prejudgment interest on the fair market value of his share from RPN's "date of compliance" with section 1301, which did not happen, if he is awarded more than 125 percent of the $34,140 amount that RPN offered him for his share. (§ 1305, subd. (e).) We disagree. The court's authority to assess and apportion costs of suit "as the court considers equitable" (§ 1305, subd. (e)) authorizes the court to award Dr. Ghaly prejudgment interest on the value his share, from the date RPN was required to give Dr. Ghaly notice of the merger's approval-10 days after the merger was approved (§ 1301, subd. (a))-in the event the court awards Dr. Ghaly at least 125 percent of the $34,140 amount that RPN offered him for his share. (§ 1305, subd. (e).)
IV. DISPOSITION
The judgment dismissing the FAC's first through fourth causes of action, without leave to amend, against the board defendants, and dismissing the board defendants from the action, with prejudice, is affirmed. The board defendants shall recover their costs on appeal. (Cal. Rules of Court, rule 8.278.)
We concur: SLOUGH Acting P. J., MENETREZ J.