Opinion
A117309
9-5-2008
ROSE ANN OHAGIN, Plaintiff and Appellant, v. OHAGINS, INC., Defendant and Respondent.
Not to be Published
In this action to quiet title to shares in a family corporation, the corporation moved for summary judgment on the ground the shares were void because they were issued without consideration. The trial court refused to consider the plaintiffs untimely opposition and granted the motion. We reverse because the corporations moving papers, even considered alone, fail to demonstrate that it is entitled to judgment as a matter of law.
BACKGROUND
The following factual background is based on the allegations of the first amended complaint. In about June 2001, Rose Ann OHagin was working as an employee of OHagins, Inc. (Corporation); her natural father Harry OHagin was the corporate president; and her stepmother Carolina OHagin was the corporate secretary. In June 2001, she was issued 1,500 shares in the Corporation. Attached to the complaint is a copy of the Corporations Stock Certificate No. 21, dated June 29, 2001, which certifies that Rose is the owner of 1,500 shares of the capital stock of the Corporation.
For purposes of clarity, we refer to the OHagins as Rose, Harry, and Carolina.
When marital differences arose between Harry and Carolina later in 2001, Harry resigned as president of the Corporation, and Carolina became chairperson of the board of directors. In about May 2002, Carolina began to demand that Rose return her shares to Harry. In about 2004, the Corporations attorney sent demand letters to Rose, making claims that Rose did not have a valid ownership interest in the shares.
In an April 9, 2004 letter, the Corporations attorney informed Rose that the Corporation had canceled her shares. The letter cited several reasons the Corporation believed the shares were invalid: the Corporation issued the shares to Rose without consideration; an unsecured promissory note executed by Harry and Carolina for the shares was insufficient consideration; the shares were issued without complying with the Buy/Sell Restrictions in the Corporations Bylaws; the resolutions approving issuance of the shares were procedurally invalid; and the shares were issued with an implied condition that Rose continue to work for the Corporation as a long-term employee, a condition Rose did not fulfill.
In her quiet title action against the Corporation, filed on March 4, 2005, Rose alleged that the shares were validly issued, that the dispute over her ownership of the shares arose only as a result of the marital difficulties between Carolina and Harry, that she attempted to continue to perform her duties as an employee of the Corporation until her severance was forced by Carolina, and that the Corporation had waived all technical and procedural problems concerning the issuance of her shares.
The Corporation filed a motion for summary judgment on the following ground: "Any purported transfer of the 1,500 shares of OHagins stock to Plaintiff was in clear and direct violation of California Corporations Code § 409(a)(1) as a matter of law. As shown herein, in order for shares to be legally issued pursuant to California Corporations Code § 409, which governs the issuance of shares, they may only be issued for consideration. . . ."
Rose filed a late opposition to the summary judgment motion. The trial court initially considered the late opposition and issued a tentative ruling in Roses favor. After hearing argument, the court exercised its discretion pursuant to Code of Civil Procedure section 437c, subdivision (b) to not consider the late opposition. Considering only the Corporations evidence, the court granted the motion. Rose filed a motion for reconsideration and for relief pursuant to section 473. The court denied the motion and entered judgment for the Corporation.
DISCUSSION
The parties vigorously dispute whether the trial court abused its discretion by refusing to consider Roses untimely opposition to the summary judgment motion and by denying her motion for reconsideration or relief under Code of Civil Procedure section 473. We need not address these issues because we conclude that, considering only the Corporations moving papers, summary judgment should have been denied.
Summary judgment is appropriate "if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." (Code Civ. Proc., § 437c, subd. (c).) "[F]rom commencement to conclusion, the party moving for summary judgment bears the burden of persuasion . . . ." (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850 (Aguilar).) "There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof." (Ibid., fn. omitted.) A defendant moving for summary judgment "has met his or her burden of showing that a cause of action has no merit if that party has shown that one or more elements of the cause of action . . . cannot be established, or that there is a complete defense to that cause of action." (Code Civ. Proc., § 437c, subd. (p)(2).) The moving party must establish all of the facts necessary to support a judgment in its favor even if the opposing party makes no objections to the moving partys evidence and produces no evidence of its own. (Rincon v. Burbank Unified School Dist. (1986) 178 Cal.App.3d 949, 954, 956.) An order granting or denying summary judgment is reviewed de novo. (Aguilar, at p. 860.)
The Corporations sole argument in support of its motion for summary judgment is that the shares issued to Rose are invalid under Corporations Code section 409, subdivision (a)(1) (hereafter, section 409(a)(1)). That statute provides that "[s]hares may be issued" for certain specified types of consideration. (§ 409(a)(1).) The parties agree that section 409(a)(1) implicitly prohibits corporations from issuing shares without consideration. (See also Kellerman v. Maier (1897) 116 Cal. 416, 423-424 [holding shares issued without consideration were void, applying former Civil Code section 359, which provided, "`No corporation shall issue stock or bonds except for money paid, labor done, or property actually received "].)
All statutory references are to the Corporations Code unless otherwise indicated.
A few observations are helpful at the outset. Issuance of corporate securities "is the process by which a corporation fulfills its obligation to sell its authorized shares (or other securities)" consistent with its articles of incorporation and the resolutions of its board of directors. (Friedman, Cal. Practice Guide: Corporations (The Rutter Group 2008) ¶¶ 5:2-5:5, p. 5-1.) A transfer of shares by a shareholder is distinct from issuance of shares by the corporation. (Id. at ¶ 5:1, p. 5-1.) A certificate of stock ownership "is merely evidence of share ownership." (Id. at ¶ 5:445, p. 5-152.2; see also Jean v. Jean (1929) 207 Cal. 115, 120.) Every shareholder is entitled to a certificate verifying the number and class of shares he or she owns. (§ 416, subd. (a).)
Section 409(a)(1) applies to the issuance of shares by a corporation, not to the issuance of stock certificates by the corporation or to transfers of shares by shareholders. These distinctions are critical to our analysis of the Corporations summary judgment motion. The Corporation sought summary judgment based solely on a violation of section 409, not a violation of a statute (or a corporate bylaw) that would apply to the transfer of shares from Harry to Rose. As explained further below, the Corporation failed to demonstrate that there were no factual disputes about whether the Corporation itself issued shares to Rose without consideration, in violation of section 409. Neither the facts set forth in the Corporations Statement of Undisputed Facts, nor the evidence the Corporation submitted in support of its motion, makes the required showing.
A. Corporations Statement of Undisputed Facts
A party moving for summary judgment must file a separate statement setting forth "all material facts" the moving party contends are undisputed. (Code Civ. Proc., § 437c, subd. (b)(1).) Ordinarily, the moving party must demonstrate that it is entitled to summary judgment based only on those facts. (San Diego Watercrafts, Inc. v. Wells Fargo Bank (2002) 102 Cal.App.4th 308, 313.) " ` "This is the Golden Rule of Summary Adjudication: if it is not set forth in the separate statement, it does not exist." [Citation.]" (Ibid.) We review the Corporations statement to determine whether it supports the grant of summary judgment.
In its Statement of Undisputed Facts, the Corporation first states that the "issuance of Stock Certificate No. 21" was made by the Corporation. However, as just explained, section 409(a)(1) does not govern the issuance of stock certificates; it governs the issuance of shares. All shareholders have a right to a stock certificate, regardless of whether their shares were issued to them by the corporation or transferred to them by another shareholder. (See generally regarding transfers, Friedman, Cal. Practice Guide: Corporations, supra, ¶¶ 6:574-6:597, pp. 6-116.4 to 6-123) Rose might have received her shares by way of a transfer from a shareholder such as Harry. Stock Certificate No. 21 acknowledges that, subject to certain restrictions, the 1,500 shares of capital stock in dispute were transferable: it states, "These shares are subject to restrictions upon transfer." The fact that the Corporation issued the stock certificate to Rose, therefore, is not evidence that the Corporation was also simultaneously issuing the shares represented by the stock certificate to her.
Although Rose alleges in her complaint that the shares were "issued" to her, she does not allege they were issued to her by the Corporation.
The second and third facts in the Corporations Statement of Undisputed Facts state that the issuance of the shares was made as a gift and that no consideration had been given for the shares at the time of the issuance. The person or entity who "issued" the shares, however, is not identified. For the reasons stated above, Roses shares may have been transferred to her from another shareholder rather than issued to her by the Corporation. The Corporation does not argue that the transfer of shares without consideration is void, and as explained, section 409(a)(1) does not prohibit the transfer of shares without consideration. Therefore, the fact that no consideration was provided for the shares, in the absence of a representation that the shares were issued by the Corporation to Rose, does not establish a violation of section 409(a)(1).
B. Corporations Evidence in Support of Summary Judgment
Even if we disregard the inadequacy of the facts set forth in the Statement of Undisputed Facts and consider all of the evidence submitted in support of the motion (see San Diego Watercrafts, Inc. v. Wells Fargo Bank, supra, 102 Cal.App.4th at pp. 315-316), the Corporation fails to establish that it is entitled to judgment as a matter of law. The Corporation submitted three items of evidence: the Stock Certificate; averments by David Mutter, president and chief executive officer (CEO) of the Corporation in August 2006; and excerpts from Roses deposition testimony.
As explained above, the Stock Certificate simply "certifies that Rose Ann OHagin is the owner of Fifteen hundred Shares of the Capital Stock of OHagins, Inc. . . . ." The Stock Certificate does not state that the Corporation issued the shares to Rose, either with or without consideration.
Mutter avers that the shares represented by the Stock Certificate were "issued to Plaintiff by OHagins as a gift without consideration." This averment is inadequate to support summary judgment for two reasons. First, Mutter does not establish that he had personal knowledge of this fact. His conclusory statement, "I have personal knowledge of the facts set forth herein which are known by me to be true and correct," is insufficient to establish his personal knowledge and competence to testify to this fact. An affidavit submitted on a summary judgment motion must "show affirmatively that the affiant is competent to testify to the matters stated." (Code Civ. Proc., § 437c, subd. (d), italics added; see also Snider v. Snider (1962) 200 Cal.App.2d 741, 754.) Although Mutter averred that he was the president and CEO of the Corporation as of the date he signed the declaration, August 21, 2006, he did not aver that he held that position at the time either the stock certificate or the shares were issued. Even assuming he held those positions in June 2001, his declaration does not state that he personally issued the certificate or the shares, that he was present when they were issued, or that there were other circumstances showing he had personal knowledge of the way they were issued and whether consideration was paid for the shares.
Second, Mutters averment is conclusory. It states the ultimate fact that the shares were issued without consideration. To support the grant of summary judgment, however, the moving partys affidavits must provide evidentiary facts, not just conclusions or ultimate facts. (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2008) ¶¶ 10:119-10:123.2, pp. 10-46.1 to 10-48; Rincon v. Burbank Unified School Dist., supra, 178 Cal.App.3d at p. 955.) Mutter provides no supporting details such as who owned the shares before they became Roses shares, whether anything of value ever changed hands in relation to Roses assumption of ownership over the shares, or the circumstances in which the stock certificate was issued.
Mutter also avers that Roses stock "was voided by action of the Board of Directors on August 5, 2004." That the board took action to cancel the shares is undisputed. Rose alleges that fact in her complaint. The parties dispute is whether that action is valid. Even if we construed Mutters averment as an assertion that the boards action was legally valid, it would be a legal conclusion that has no evidentiary value.
Finally, the Corporation cites Roses deposition testimony that her father told her he was going to give her his shares in the Corporation. Rose also testified that Carolina told her "they had gotten the [Finnila] stock back and he was going to gift it to me." These comments are evidence that Harry intended to give Rose his shares in the Corporation. They are not evidence that Harry intended to have the Corporation give shares to Rose without consideration or, for that matter, that either Harry or the Corporation ever gave shares to Rose. Not only do these comments fail to support the Corporations argument on summary judgment, they tend to raise a material factual dispute about whether Harry or the Corporation issued the shares to Rose.
We note that the Corporations reply papers included no additional evidence in support of the motion. The only evidence submitted with the Corporations reply related to the untimeliness of Roses opposition papers.
DISPOSITION
The judgment is reversed. Appellant shall receive her costs on appeal.
We concur:
JONES, P. J.
NEEDHAM, J.