Filed 6/2/23

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FIVE

RHODA A. KANTER et al.,

Plaintiffs and Appellants,

v.

DEBRA L. REED et al.,

Defendants and 

Respondents.

 B312129

 (Los Angeles County

 Super. Ct. Nos. JCCP4861,

 BC611319, BC617444, 

 BC664302, 

 37-2-16-000058421)

APPEAL from a judgment of the Superior Court of Los 

Angeles County, Daniel J. Buckley, Judge. Affirmed.

Westerman, Jeff S. Westerman and Guido E. Toscano for 

Plaintiffs and Appellants.

Complex Appellate Litigation Group, Rex S. Heinke, 

Jessica M. Weisel; Gardy & Notis and Jennifer Sarnelli for 

Plaintiff and Appellant Rhoda A. Kanter.

Bottini & Bottini, Francis A. Bottini, Jr., Albert Y. Chang, 

and Yury A. Kolesnikov for Plaintiff and Appellant Arlander 

Favors.
2

Robbins, George Aguilar and Brian Robbins for Plaintiff 

and Appellant Nancy F. Lewis, as Trustee for the Nancy F. Lewis 

Trust.

Bragar Eagel & Squire, W. Scott Holleman, Marion C. 

Passmore, and Melissa Fortunato; Glancy Prongay & Murray, 

Robert V. Prongay and Ex Kano S. Sams, II for Plaintiff and 

Appellant Erste Asset Management GmbH.

Morgan, Lewis & Bockius, Thomas M. Peterson, Robert H. 

O’Leary, and J. Warren Rissier for Defendant and Respondent 

Sempra Energy.

O’Melveny & Myers, Matthew W. Close, Brittany Rogers,

and Kelly McDonnell for Defendants and Respondents Dennis V. 

Arriola, Steven D. Davis, Joseph A. Householder, Jessie J. 

Knight, Jr., J. Bret Lane, and Martha B. Wyrsch.

Skadden, Arps, Slate, Meagher, & Flom and Allen L. 

Lanstra for Defendants and Respondents Alan L. Boeckmann, 

James G. Brocksmith, Jr., Kathleen L. Brown, Pablo A. Ferrero, 

William D. Jones, William G. Ouchi, Debra L. Reed, William C. 

Rusnack, William P. Rutledge, Lynn Schenk, Jack T. Taylor, and 

James C. Yardley.
3

I. INTRODUCTION

In this shareholders’ derivative action, plaintiffs

1 appeal 

from a dismissal entered after the trial court sustained a 

demurrer on the grounds that plaintiffs failed to allege facts 

sufficient to show that a presuit demand on the board of directors

(Board) of nominal defendant Sempra Energy (Sempra) was 

excused by futility.

2 We affirm.

1 Plaintiffs are Arlander Favors, Rhoda A. Kanter, Nancy F.

Lewis, as trustee for the Nancy F. Lewis Trust, and Erste Asset

Management GmbH.

2 As explained below, Corporations Code section 800, 

subdivision (b)(2) requires a shareholder bringing a derivative 

action to allege “with particularity” the “efforts [made] to secure 

from the board such action as [the shareholder] desires, or the 

reasons for not making such effort . . . .” Further statutory

references are to the Corporations Code unless otherwise 

indicated.
4

II. BACKGROUND

A. Factual Background3

Plaintiffs were stockholders of Sempra when the Aliso 

Canyon Natural Gas Storage facility (Aliso Canyon facility) 

experienced a natural gas leak (Aliso gas leak).

4 Sempra was a 

California corporation “whose operating units invest[ed] in, 

develop[ed], and operate[d] energy infrastructure, and provide[d]

gas and electricity services to [its] customers in North and South 

America.” One of Sempra’s wholly-owned subsidiaries, Southern 

California Gas Company (SoCalGas), maintained the Aliso 

Canyon facility.

Defendants5 were either officers of Sempra or members of 

the Board or officers or members of the board of directors of 

3 “In this appeal following the sustaining of a demurrer, we 

assume the truth of the properly pleaded factual allegations, 

facts that reasonably can be inferred from those expressly 

pleaded and matters of which judicial notice has been taken.” 

(Fierro v. Landry’s Restaurant Inc. (2019) 32 Cal.App.5th 276, 

281.)

4 See generally Southern California Gas Leak Cases (2019) 7 

Cal.5th 391, 395–396.

5 Defendants William C. Rusnack, William D. Jones, Lynn

Schenk, Alan L. Boeckmann, Jack T. Taylor, James C. Yardley, 

Kathleen L. Brown, Pablo A. Ferrero, Debra L. Reed, William G. 

Ouchi, James G. Brocksmith, Jr., and William P. Rutledge were 

members of the Board at the time of the Aliso gas leak (Director 

defendants). Defendants Dennis V. Arriola, J. Bret Lane, Joseph 

A. Householder, Steven D. Davis, Martha B. Wyrsch, and Jesse J. 
5

SoCalGas at the time of the Aliso gas leak. When plaintiffs filed

the operative amended complaint, eight of the 15 Board members 

had also been Board members at the time of the leak.

6

The Aliso Canyon facility was “the largest natural gas 

storage reservoir in California[,] . . . one of the largest reservoirs 

in the United States,” and the largest of Sempra’s four 

underground natural gas storage facilities. The Aliso gas leak 

occurred in the gas storage well designated SS-25 (Well). The

Board had actual knowledge of the substantial environmental, 

public health, and economic risks posed by the Aliso Canyon

facility and the Well.

In 2000, the Board implemented a Board-level committee 

named the Environmental, Health, Safety, and Technology 

Committee (Committee). The responsibilities of the Committee 

“included monitoring safety issues, including storage well safety 

. . . .” Pursuant to its charter, the Committee “[was] responsible 

for reviewing ‘environmental, health and safety laws, regulations 

and developments at the global, national, regional and local level 

and evaluation of ways to address these matters as part of 

Sempra’s business strategy and operations.’” Further, the

Committee’s “focus on environmental, health, safety and 

technology issues [was] consistent with the [B]oard’s oversight 

role of corporate responsibility and stewardship.”

Knight, Jr. were either officers of Sempra or SoCalGas, or 

directors of SoCalGas, at the time the Aliso gas leak occurred.

6 The eight Board members remaining from the time of the 

Aliso gas leak were Rusnack, Jones, Schenk, Boeckmann, Taylor, 

Yardley, Brown, and Ferrero.
6

Between January 2013 and October 2015, the Committee

met 10 times and regularly reported to the Board.

On June 17, 2013, the Committee members discussed

among themselves “‘SoCalGas’[s] environmental and safety 

compliance management program,’” as well as a gas discharge 

incident at the Playa del Rey gas storage facility. The members

also discussed “SoCalGas’[s] emergency response structure, 

training program, communication processes[,] . . . drills and 

simulations used to replicate emergency scenarios and reviewed 

lessons learned.”

The Board received “periodic presentations from 

management and attempted to inform itself regarding risks to 

[Sempra] posed by potential problems with the pipelines.”

And, on May 9, 2014, at a Board meeting, the Board members

discussed SoCalGas’s “‘state of the art’” natural gas pipeline 

safety enhancement program.

In June 2014, an executive attended the Board meeting and 

advised the Board about several factors to be included in 

SoCalGas’s general rate case presentation to the California 

Public Utilities Commission (CPUC), including “cybersecurity 

protections, enterprise risk management, physical security and 

improved service, safety and reliability.” At the meeting, “[t]he 

Board asked questions of management, all of which were 

answered to its satisfaction.” The Board then expressed that 

SoCalGas should proceed with filing a notice of intent for the 

general rate case presentation with the CPUC.

As part of the general rate case presentation submitted in 

November 2014, SoCalGas sought a rate increase for a proposed 

“Storage Integrity Management Program” (SIMP) which was to

be implemented in 2015. SoCalGas’s executives had identified 
7

significant deterioration of the underground storage wells at the 

Aliso Canyon and three other facilities. The SIMP proposed that 

all of SoCalGas’s active gas injection wells, including the Well, be 

tested immediately in order to avoid unsafe conditions or an 

uncontrolled failure. The SIMP anticipated that following an 

inspection, additional repairs would be recommended.

On December 9, 2014, the Board received its annual riskmanagement report, which discussed, among other things, “‘gas 

infrastructure safety and reliability risks.’”

In May 2015, a SoCalGas executive updated the Board on 

the general rate case and “outlined SoCalGas’s focus on safety, 

reliability, customer service and the estimated timeframe for the 

rate case proceeding.”

In September 2015, the Board received other general rate 

case updates from SoCalGas executives who described “the major 

cost drivers for the increases being requested by SoCalGas,

including costs associated with maintaining and improving 

infrastructure and safety-related and compliance programs.” 

“The Board asked questions” of the SoCalGas executives, “all of 

which were answered to the Board’s satisfaction.”

The combined total of meetings held by either the Board or 

the Committee between 2013 and 2015 was approximately 90.

On October 23, 2015, SoCalGas employees discovered the 

Aliso gas leak during a twice-daily observation of the Well. On 

October 26, 2015, SoCalGas reported the leak to several

government agencies, including the California Emergency 

Management Agency. The gas leak continued until 

February 18, 2016. In a quarterly financial form submitted to

the Securities and Exchange Commission on November 11, 2019, 
8

Sempra disclosed that it had suffered at least $1.1 billion in 

damages as a result of the leak.

B. Procedural Background

Beginning in February 2016, plaintiffs filed individual 

shareholder derivative actions against defendants for breach of 

fiduciary duty.

On August 10, 2017, plaintiffs filed a consolidated 

shareholder derivative complaint, alleging that defendants 

breached their fiduciary duties “by failing to take steps to 

maintain an adequate inspection program, documentation, 

monitoring, and risk management plan to ensure safety at [the]

Aliso Canyon [facility], including [the Well].” Plaintiffs also 

alleged that defendants aided and abetted the breach of fiduciary 

duty. Plaintiffs did not serve a demand on the Board prior to 

filing suit and instead alleged that it would be futile to do so.

Defendants demurred, and, on November 4, 2019, the trial

court sustained the demurrer with leave to amend, finding that 

plaintiffs failed sufficiently to allege that serving a demand on 

the Board would have been futile.

On February 5, 2020, plaintiffs filed the operative first

amended complaint. In support of the breach of fiduciary duty 

cause of action, plaintiffs alleged that defendants failed to be 

informed of “serious safety issues at Aliso Canyon” and “either 

knew, were reckless, or were grossly negligent in not knowing or 

acting upon the matters alleged . . . .” According to plaintiffs, 

“[d]efendants completely abdicated their duty to receive 

information from management and regular reporting to ensure

safety at [the] Aliso Canyon [facility], including [the Well] in the 
9

years leading up to the leak.” Plaintiffs also alleged defendants’

“reckless approach to natural gas well safety, and their 

intentional decision to not adopt and implement a modern, 

effective and comprehensive risk assessment program for 

[Sempra’s] natural gas wells, despite knowledge of increasing

actual physical integrity problems at the wells, constitutes bad 

faith and disloyal conduct . . . .” Defendants again demurred.

On December 30, 2020, the trial court issued its ruling 

sustaining the demurrers, concluding that plaintiffs again failed 

sufficiently to allege demand futility. The court found instructive 

In re Caremark International Inc. (Del. Ch. 1996) 698 A.2d 959 

(Caremark) and Marchand v. Barnhill (Del. 2019) 212 A.3d 805

(Marchand), Delaware cases involving claims that directors failed 

to exercise oversight. According to the court, plaintiffs had failed 

to state demand futility under Marchand, which required them to 

plead facts demonstrating “an utter failure by [d]efendants to 

attempt to assure a reasonable information and reporting system 

exists.” At a subsequent hearing, plaintiffs indicated they would 

not seek leave to amend. On February 4, 2021, the court issued

the judgment of dismissal from which plaintiffs timely appealed.

III. DISCUSSION

A. Standard of Review

We review the trial court’s sustaining of a demurrer de 

novo. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “In reviewing 

the sufficiency of a complaint against a general demurrer, we are

guided by long-settled rules. ‘We treat the demurrer as 

admitting all material facts properly pleaded, but not 
10

contentions, deductions or conclusions of fact or law. [Citation.] 

We also consider matters which may be judicially noticed.’ 

[Citation.] Further, we give the complaint a reasonable

interpretation, reading it as a whole and its parts in their 

context. [Citation.]” (Ibid.)

7

“[In ruling on a demurrer, a] court generally confines itself 

to the pleading but, as appropriate, may extend its consideration 

to matters subject to judicial notice. [Citation.] ‘[W]hen the 

allegations of the complaint contradict or are inconsistent with 

such facts, we accept the latter and reject the former. 

[Citations.]’ [Citation.] We give the same precedence to facts 

evident from exhibits attached to the pleading. [Citations.] 

Efforts to show reasoning errors are beside the point. ‘“Our only 

task in reviewing a ruling on a demurrer is to determine whether 

the complaint states a cause of action.”’ [Citations.] We do that

independently [citation], regardless of reasons stated by the trial 

court. [Citation.]” (Hill v. Roll Internat. Corp. (2011) 195 

Cal.App.4th 1295, 1300 (Hill).)

8

7 Plaintiffs do not argue there is a reasonable possibility that 

any defects can be cured by amendment.

8 In ruling on the demurrer, the trial court took judicial 

notice of certain Board and Committee minutes, a ruling

plaintiffs do not challenge on appeal. Plaintiffs contend, 

however, that the court did not just take judicial notice of the 

minutes but assumed the truth of the matters asserted therein. 

As plaintiffs’ contention, at bottom, is a challenge to the court’s 

reasoning, we need not address it. (Hill, supra, 195 Cal.App.4th 

at p. 1300.) In any event, because we conduct an independent 

review of the court’s order, we do not rely on the court’s 

interpretation of the minutes.
11

B. Shareholders’ Derivative Actions and Demand Futility

“It is a fundamental principle of corporate governance that

the role of managing the business of the corporation is vested in 

its board of directors, not in its shareholders. (Grosset v. Wenaas

(2008) 42 Cal.4th 1100, 1108.) This responsibility includes the 

prosecution, defense, and control of corporate litigation. (Ibid.)

Judicial deference is accorded to directors under the ‘business 

judgment rule,’ which recognizes that where decisions are 

without fraud or breach of trust, ‘management of the corporation 

is best left to those to whom it has been entrusted, not to the 

courts. [Citation.]’ (Desaigoudar v. Meyercord (2003) 108 

Cal.App.4th 173, 183.) As codified in section 309, the business 

judgment rule obligates a director to perform his or her duties ‘in 

good faith, in a manner such director believes to be in the best 

interests of the corporation and its shareholders and with such 

care, including reasonable inquiry, as an ordinarily prudent 

person in a like position would use under similar circumstances’

(§ 309, subd. (a)); and it insulates a director from liability when 

he or she performs those obligations in the manner provided in 

the statute (§ 309, subd. (c)).” (Bader v. Anderson (2009) 179 

Cal.App.4th 775, 787–788, fn. omitted (Bader).)

“This principle that the corporation must bring suit on its 

own behalf notwithstanding, where the directors fail or refuse to 

act, a shareholder has a sufficient interest in the entity ‘to justify

the bringing of a “propulsive” action, designed to set in motion 

the judicial machinery for the redress of the wrong to the

corporation. [Citations.]’ (Klopstock v. Superior Court (1941) 17 

Cal.2d 13, 16–17 . . . .) ‘[T]he corporation is the ultimate 

beneficiary of such a derivative suit . . . .’ (Id. at p. 21.) A 
12

derivative lawsuit is in essence a consolidation in equity of two 

suits, one by the shareholder against the directors seeking an 

order that they sue those who have wronged the corporation, and 

the other by the corporation against the wrongdoers. (Daily 

Income Fund, Inc. v. Fox (1984) 464 U.S. 523, 529, fn. 4.) A 

presuit demand on the directors, however, is ordinarily required 

for the bringing of a derivative action.” (Bader, supra, 179 

Cal.App.4th at pp. 788–789.)

“This requirement that a shareholder establish that he or 

she made a ‘“suitable demand, unless excused by extraordinary 

conditions . . .” [citation]’ (Kamen v. Kemper Financial Services,

Inc. (1991) 500 U.S. 90, 96 (Kamen)), ‘“is to encourage 

intracorporate resolution of disputes and to protect the

managerial freedom of those to whom the responsibility of 

running the business is delegated . . . .”’ (Shields v. Singleton

(1993) 15 Cal.App.4th 1611, 1619 (Shields).) The demand 

requirement is also intended to prevent the abuse of the 

derivative suit remedy. (Kamen, [supra, 500 U.S.] at pp. 95–96.) 

. . . California’s demand requirement under section 

800[, subdivision ](b)(2) is similar to the federal rule and requires

that the plaintiff in a shareholder derivative suit ‘allege[] in the 

complaint with particularity plaintiff’s efforts to secure from the

board such action as plaintiff desires, or the reasons for not 

making such effort, and allege[] further that plaintiff has either 

informed the corporation or the board in writing of the ultimate

facts of each cause of action against each defendant or delivered 

to the corporation or the board a true copy of the complaint which 

plaintiff proposes to file.’” (Bader, supra, 179 Cal.App.4th at 

pp. 789–790.)
13

“‘Although “jurisdictions differ widely in defining the 

circumstances under which demand on directors will be excused,”

[citation], demand typically is deemed futile when a majority of 

the directors have participated in or approved the alleged 

wrongdoing, [citation], or are otherwise financially interested in 

the challenged transactions, [citation].’ (Kamen, supra, 500 U.S. 

at pp. 101–102, fn. omitted.) . . . [G]iven the requirement under 

section 800[, subdivision ](b)(2) that allegations be made ‘with 

particularity,’ it is clear that general averments that the directors 

were involved in a conspiracy or aided and abetted the wrongful 

acts complained of will not suffice to show demand futility. 

(Shields, supra, 15 Cal.App.4th at p. 1621.) Likewise, a general 

claim that there is nationwide structural bias common to 

corporate boards will not excuse the making of a demand before 

bringing a derivative suit. (Oakland Raiders v. National Football 

League (2001) 93 Cal.App.4th 572, 587 [(Oakland Raiders)].) 

Rather, ‘the court must be apprised of facts specific to each

director from which it can conclude that that particular director 

could or could not be expected to fairly evaluate the claims of the 

shareholder plaintiff.’ (Shields, [supra, 15 Cal.App.4th] at 

p. 1622.) Thus, the court, in reviewing the allegations to support

demand futility, must be able to determine on a director-bydirector basis whether or not each possesses independence or 

disinterest such that he or she may fairly evaluate the challenged 

transaction. (Oakland Raiders[, supra, 93 Cal.App.4th] at

p. 587.)” (Bader, supra, 179 Cal.App.4th at p. 790.)

“California courts commonly look to two tests enunciated by

the Delaware Supreme Court for determining the adequacy of the

pleading of demand futility. Where a decision of the board of 

directors is challenged in the derivative suit, the Aronson test 
14

asks ‘whether, under the particularized facts alleged, a 

reasonable doubt is created that: (1) the directors are

disinterested and independent [or] (2) the challenged transaction 

was otherwise the product of a valid exercise of business 

judgment.’ (Aronson v. Lewis (Del. 1984) 473 A.2d 805, 814 

(Aronson); accord Bader, supra, 179 Cal.App.4th at p. 791; 

Oakland Raiders[, supra,] 93 Cal.App.4th [at p.] 587 . . .) But 

where ‘the board that would be considering the demand did not

make a business decision which is being challenged in the 

derivative suit’ (Rales v. Blasband (Del. 1993) 634 A.2d 927, 933–

934 (Rales)), the Rales test asks whether ‘the particularized

factual allegations of a derivative stockholder complaint create a 

reasonable doubt that, as of the time the complaint is filed, the 

board of directors could have properly exercised its independent

and disinterested business judgment in responding to a demand. 

If the derivative plaintiff satisfies this burden, then demand will 

be excused as futile’ (Rales, supra, [634 A.2d] at p. 934; accord 

Bader, supra, [179 Cal.App.4th] at pp. 791–792 [summarizing 

Rales]).” (Apple Inc. v. Superior Court (2017) 18 Cal.App.5th 222,

233, fn. omitted (Apple).)9 Here, the parties agree that the Rales 

test applies to plaintiffs’ allegation of demand futility.

9 Aronson was overruled on another point not relevant here. 

(Brehm v. Eisner (Del. 2000) 746 A.2d 244, 254–255.)

The Delaware Supreme Court recently combined the Rales

and Aronson tests. (United Food & Commercial Workers Union v. 

Zuckerberg (Del. 2021) 262 A.3d 1038, 1058; see Tola v. Bryant

(2022) 76 Cal.App.5th 746, 752.)
15

C. Substantial Likelihood of Liability

1. Applicability of Caremark Standard in California

Under the Rales test, “[d]irectorial interest . . . exists where 

a corporate decision will have a materially detrimental impact on 

a director, but not on the corporation and the stockholders. In 

such circumstances, a director cannot be expected to exercise his 

or her independent business judgment without being influenced 

by the adverse personal consequences resulting from the 

decision.” (Rales, supra, 634 A.2d at p. 936.)10 Directors are not 

impartial or disinterested if they face a “‘“substantial likelihood”’” 

of personal liability. (See Apple, supra, 18 Cal.App.5th at p. 256; 

Bader, supra, 179 Cal.App.4th at p. 798; see also Rales, supra, 

634 A.2d at p. 936; Aronson, supra, 473 A.2d at p. 815.)

Under Delaware law, “Caremark articulates the necessary 

conditions for assessing director oversight liability.” (Stone v. 

Ritter (2006) 911 A.2d 362, 365, fn. omitted (Stone).) “[T]he 

stockholders must allege ‘that a director acted inconsistent with 

his fiduciary duties and, most importantly, that the director knew

he was so acting.’ This is because a Caremark claim ‘is rooted in 

concepts of bad faith; indeed, a showing of bad faith is a necessary 

condition to director oversight liability.’ . . . Because of the 

difficulties in proving bad faith director action, a Caremark claim 

10 Plaintiffs do not allege that a demand would have been 

futile because a director (1) received an improper benefit or (2) 

lacked independence because the director was beholden to an

interested director, officer, or controlling shareholder. (See 

Bader, supra, 179 Cal.App.4th at p. 792; Rales, supra, 634 A.2d 

at p. 936.)
16

is ‘possibly the most difficult theory in corporation law upon 

which a plaintiff might hope to win a judgment.’” (City of 

Birmingham Retirement and Relief System v. Good (Del. 2017) 

177 A.3d 47, 55, fns. omitted.)

Plaintiffs concede that under both California and Delaware

law, a substantial likelihood of liability is a ground for finding

that a director is partial or interested. They contend, however, 

that whether directors face a substantial likelihood of liability is 

“a question of substantive law,” governed by California law, 

which materially differs from the law of Delaware. In their view, 

the trial court therefore erred in following Caremark and its 

progeny.

a. Limitations on Director Liability

According to plaintiffs, in California, unlike in Delaware, 

directors have a duty of “reasonable inquiry,” as set forth in 

section 309, subdivision (a). That section requires, among other 

things, that a director engage in “reasonable inquiry, as an

ordinarily prudent person in a like position would use under 

similar circumstances.” According to plaintiffs, the trial court 

erred by relying on Delaware law and failing to apply section 309, 

subdivision (a). We disagree.

Although section 309, subdivision (a) describes the general 

duty of directors, it does not address the question at issue here, 

that is, whether these Director defendants faced a substantial

likelihood of personal liability for their conduct. And, on this 

question, California corporations may elect to limit director 

liability. (§ 204.5, subd. (a).)
17

Specifically, section 204, subdivision (a)(10) provides, in 

pertinent part, that articles of incorporation may set forth: 

“Provisions eliminating or limiting the personal liability of a 

director for monetary damages in an action brought by or in the 

right of the corporation for breach of a director’s duties to the 

corporation and its shareholders, as set forth in Section 309, 

provided, however, that (A) such a provision may not eliminate or

limit the liability of directors (i) for acts or omissions that involve

intentional misconduct or a knowing and culpable violation of 

law, (ii) for acts or omissions that a director believes to be 

contrary to the best interests of the corporation or its 

shareholders or that involve the absence of good faith on the part 

of the director, (iii) for any transaction from which a director 

derived an improper personal benefit, (iv) for acts or omissions 

that show a reckless disregard for the director’s duty to the 

corporation or its shareholders in circumstances in which the 

director was aware, or should have been aware, in the ordinary 

course of performing a director’s duties, of a risk of serious injury 

to the corporation or its shareholders, (v) for acts or omissions 

that constitute an unexcused pattern of inattention that amounts 

to an abdication of the director’s duty to the corporation or its 

shareholders . . . .” (§ 204, subd. (a)(10).)

Here, Sempra’s articles of incorporation provide: “The 

liability of the directors of the Corporation for monetary damages 

shall be eliminated to the fullest extent under California law.” 

Sempra therefore adopted the limiting provisions for director 

liability set forth at section 204, subdivision (a)(10). (§ 204.5, 

subd. (a).)

Plaintiffs do not allege that defendants engaged in 

intentional misconduct or knowing violations of the law. Nor do 
18

they allege that defendants derived an improper benefit from a 

transaction. Instead, plaintiffs allege that defendants engaged in 

acts or omissions that: show a reckless disregard of a director’s

duties to the corporation or shareholders (§ 204, subd. (a)(10)(iv))

and constitute an unexcused pattern of inattention that amounts

to an abdication of duty (§ 204, subd. (a)(10)(v)). “Where, as here, 

there is no published California decision that addresses the

precise issue before us, out-of-state decisions may provide ‘useful 

guidance.’” (Jackson v. Superior Court (2018) 25 Cal.App.5th 

515, 532, fn. 11.) California courts have routinely relied “on 

corporate law developed in the State of Delaware given that it is 

identical to California corporate law for all practical purposes.” 

(Oakland Raiders, supra, 93 Cal.App.4th at p. 586, fn. 5; accord,

Apple, supra, 18 Cal.App.5th at p. 244, fn. 9.) Thus, we next 

consider whether the definitions of director liability set forth at 

section 204, subdivisions (a)(10)(iv) and (a)(10)(v) are consistent 

with Caremark and its progeny.

b. Reckless Disregard of Duties

The Corporations Code does not define the term “reckless 

disregard.” We therefore construe that term in accordance with 

its ordinary legal meaning. (Civ. Code, § 13; Brown v. Superior 

Court (2016) 63 Cal.4th 335, 351 [“It is a venerable principle that 

when a word or phrase appearing in a statute ‘has a wellestablished legal meaning, it will be given that meaning in 

construing the statute’”].) “Reckless disregard” is a “[c]onscious 

indifference to the consequences of an act” or “[t]he intentional 

commission of a harmful act or failure to do a required act when 

the actor knows or has reason to know of facts that would lead a 
19

reasonable person to realize that the actor’s conduct both creates 

an unreasonable risk of harm to someone and involves a high 

degree of probability that substantial harm will result.” (Black’s 

Law Dict. (11th ed. 2019).)

Applying this definition, we conclude that a director acts 

with “reckless disregard” of his duties, within the meaning of 

section 204, subdivision (a)(10)(iv) when the director (1) does an 

intentional act or intentionally fails to act in accordance with 

those duties, (2) with knowledge, or with reason to have 

knowledge, that (3) the director’s conduct creates a substantial 

risk of serious harm to the corporation or its shareholders.

Similarly, in Delaware, an “intentional dereliction of duty,

a conscious disregard for one’s responsibilities” is akin to “acts or

omissions not in good faith” (Brehm v. Eisner (In re Walt Disney 

Co. Derivative Litigation) (Del. 2006) 906 A.2d 27, 65–66 (Walt 

Disney)), and therefore Caremark is consistent with section 204, 

subdivision (a)(10)(iv). Contrary to plaintiffs’ contention,

supported by their citation to an unpublished Court of Chancery 

opinion (McElrath v. Kalanick (Del. Ch. Apr. 1, 2019) 2019 Del. 

Ch. LEXIS 107, *28), Delaware case authority does not exclude 

from liability a director’s reckless disregard of his or her duties. 

(See Walt Disney, supra, 906 A.2d at p. 67, fn. 111 [transaction 

that results from a director’s “‘reckless indifference to or a 

deliberate disregard of the interests of the whole body of

stockholders’” requires further judicial scrutiny for bad faith 

conduct].)
20

c. Unexcused Inattention Amounting to

Abdication of Duty

We next consider the meaning of the term “abdication of 

duty” as set forth in section 204, subdivision (a)(10)(v). Again, 

the Corporations Code provides no definition.

11 Thus, we again 

apply the plain and ordinary meaning of the word. (Civ. Code,

§ 13.) “Abdication” is “[t]he act of renouncing or abandoning 

privileges or duties.” (Black’s Law Dict. (11th ed. 2019).) The act 

of renouncing or abandoning one’s duties requires an intentional

decision because, in order to renounce or abandon it, one must be 

aware of the duty owed in the first instance. (See Del Giorgio v. 

Powers (1938) 27 Cal.App.2d 668, 680 [“there can be no 

abandonment without an intention to abandon”].)

Delaware deems “the intention[al] fail[ure] to act in the 

face of a known duty to act” as “describ[ing], and [being] fully 

consistent with, the lack of good faith conduct that the Caremark

court held was a ‘necessary condition’ for director oversight 

11 Plaintiffs cite Gaillard v. Natomas Co. (1989) 208 

Cal.App.3d 1250 (Gaillard), to argue that a director’s abdication 

of duties is a violation of the business judgment rule and the 

reasonable inquiry duty under section 309. The Court of Appeal 

held, “Notwithstanding the deference to a director’s business 

judgment, the rule does not immunize a director from liability in 

the case of his or her abdication of corporate responsibilities . . . .” 

(Gaillard, supra, 208 Cal.App.3d at p. 1263.) Plaintiffs’ assertion

is correct that a director’s abdication of corporate duty violates

section 309. Gaillard, however, does not discuss the meaning of 

“abdication of duty” in the context of section 204, subdivision 

(a)(10)(v), and thus does not assist in interpreting the term. (B.B. 

v. County of Los Angeles (2020) 10 Cal.5th 1, 11 [“‘“cases are not 

authority for propositions not considered”’”].)
21

liability, i.e., ‘a sustained or systematic failure of the board to 

exercise oversight—such as an utter failure to attempt to assure 

a reasonable information and reporting system exists . . . .’” 

(Stone, supra, 911 A.2d at p. 369, fn. omitted.) An “intention[al]

fail[ure] to act in the face of a known duty to act” expresses the 

same concept as an “unexcused pattern of inattention that 

amounts to an abdication of the director’s duty.” Accordingly, the 

Caremark standard is consistent with section 204, subdivision

(a)(10)(v).

2. Application of Caremark

Having found that Delaware corporation law provides 

useful guidance to the issues presented here, we now address 

plaintiffs’ alternative argument that they have alleged a 

substantial likelihood of liability under Caremark against the 

Director defendants.

“Bad faith is established, under Caremark, when ‘the 

directors [completely] fail[] to implement any reporting or 

information system or controls[,] or . . . having implemented such

a system or controls, consciously fail[] to monitor or oversee its 

operations thus disabling themselves from being informed of 

risks or problems requiring their attention.’ In short, to satisfy 

their duty of loyalty, directors must make a good faith effort to 

implement an oversight system and then monitor it.” 

(Marchand, supra, 212 A.3d at p. 821, fn. omitted.)

Plaintiffs contend that they have alleged conduct similar to 

that at issue in Marchand, supra, 212 A.3d 805. In Marchand, 

nominal defendant Blue Bell produced one product, ice cream. 

(Id. at p. 809.) Over a five-year period, federal and state 
22

regulators cited several of Blue Bell’s factories for food safety 

violations. (Id. at pp. 811–812.) And, over a two-year period, the 

company’s own inspectors and regulators found listeria in

multiple factories across several states. (Id. at pp. 813–815.) 

Blue Bell’s ice cream eventually became contaminated with 

listeria, resulting in a complete recall and the initiation of a 

federal investigation. (Id. at pp. 814–815.)

After reviewing Blue Bell’s books and records, the plaintiff, 

a Blue Bell stockholder, sued the company’s board for failing, 

under Caremark, to implement any reporting system and failing 

to be informed about Blue Bell’s food safety compliance. 

(Marchand, supra, 212 A.3d at pp. 815–816.) The Court of 

Chancery granted Blue Bell’s motion to dismiss. (Id. at p. 816.) 

The Delaware Supreme Court reversed, finding the plaintiff had 

alleged bad faith conduct by the board: “no board committee that 

addressed food safety existed”; “no regular process or protocols 

that required management to keep the board apprised of food 

safety compliance practices, risks, or reports existed”; “no 

schedule for the board to consider on a regular basis, such as 

quarterly or biannually, any key food safety risks existed”; 

“during a key period leading up to the deaths of three customers, 

management received reports that contained what could be 

considered red, or at least yellow, flags, and the board minutes of 

the relevant period revealed no evidence that these were 

disclosed to the board”; “the board was given certain favorable

information about food safety by management, but was not given

important reports that presented a much different picture”; and 

“the board meetings are devoid of any suggestion that there was

any regular discussion of food safety issues.” (Id. at p. 822.)
23

Here, the judicially-noticed Board minutes demonstrate the 

existence of some oversight by the Board over SoCalGas’s gas

storage infrastructure. For example, the December 2014 Board 

minutes reflect that the Board received an annual risk 

management report regarding, among other things, “‘gas 

infrastructure safety and reliability risks.’” Additionally, in 2000, 

Sempra formed the Committee, which was obligated to monitor

well safety and conducted 10 meetings from January 2013 to 

October 2015. The Committee also reported to the Board on a 

gas discharge at the Playa del Rey storage facility.

Plaintiffs, however, assert that the Board minutes failed to 

demonstrate that defendants discussed gas storage

infrastructure, as compared to pipeline infrastructure, and argue

that all reasonable inferences should be construed in their favor. 

Plaintiffs also dispute whether the Board was aware of the 

purpose of the general rate case presentation and the SIMP. At 

bottom, plaintiffs’ allegations challenge the efficacy of the 

monitoring system in place and “general averments that the 

directors were involved . . . in a conspiracy or aided and abetted

the wrongful acts complained of will not suffice to show demand 

futility.” (Bader, supra, 179 Cal.App.4th at p. 790.) Such 

allegations do not constitute particularized facts that create a 

reasonable doubt as to whether the Director defendants here face 

a substantial likelihood of liability for, in this case, intentionally 

abandoning or abdicating their duties to monitor. “[O]ur focus 

here is on the key issue of whether [plaintiffs have] pled facts 

from which we can infer that [the] board made no effort to put in 

place a board-level compliance system. That is, we are not 

examining the effectiveness of a board-level compliance and 

reporting system after the fact. Rather, we are focusing on 
24

whether the complaint pleads facts supporting a reasonable 

inference that the board did not undertake good faith efforts to 

put a board-level system of monitoring and reporting in place.” 

(Marchand, supra, 212 A.3d at p. 821.)

As alleged, and contrary to plaintiffs’ allegations that there 

was no reporting mechanism in place for safety issues regarding

gas storage, the Board formed the Committee, which provided 

regular reports to the Board, and whose purpose included, among 

other things, monitoring SoCalGas’s storage infrastructure for 

safety. Additionally, the Board received annual risk 

management reports. The Board also approved SoCalGas’s

notice of intent to file a general rate case and received updates 

regarding it. And, the general rate case presentation included a 

rate increase for the SIMP in order to investigate potential well 

integrity issues. In short, plaintiffs have not alleged

particularized facts supporting their Caremark theory of liability,

and thus have failed to plead demand futility as required under 

section 800, subdivision (b)(2).

D. The Fazio Action

Plaintiffs also assert an alternative theory of demand 

futility, arguing that the Board’s response to a demand made by a 

shareholder prior to filing an individual derivative action against 

the Board (the Fazio action) demonstrates that any demand that 

they would have made on the Board would have been met with a 

similar response and would therefore have been futile. We 

disagree.
25

1. Background

On April 13, 2016, Charles Fazio, another Sempra 

shareholder, submitted a demand that the Board pursue claims 

against certain directors and officers for alleged breaches of 

fiduciary duty based on their conduct prior to and during the 

Aliso gas leak. On June 24, 2016, the Board created a demand 

review committee to investigate and make recommendations 

about what, if any, actions to take in response.

On March 1, 2017, Fazio filed a shareholder derivative 

action against the Board.

On November 4, 2019, the trial court sustained defendants’ 

demurrer to the Fazio action with leave to amend. The court 

concluded that Fazio failed to allege facts showing his demand

had been refused because the Board needed more time to analyze 

the demand due, in part, to the complexity of the litigation 

pending against Sempra and SoCalGas.

On June 23, 2022, while this appeal was pending, Fazio 

filed an amended complaint alleging that he had received a 

demand refusal from the demand review committee. On 

November 30, 2022, the trial court sustained Sempra’s demurrer 

to Fazio’s amended complaint without leave to amend.12

2. Analysis

Plaintiffs contend that they sufficiently alleged demand 

futility because the Board, by failing to act on Fazio’s demand, 

12 We judicially notice Fazio’s amended complaint and the 

trial court’s order sustaining Sempra’s demurrer. (Evid. Code, 

§ 452, subd. (d).)
26

demonstrated that any similar demand made by plaintiffs would 

have been futile.

As noted, while this appeal was pending, the Board acted 

on Fazio’s demand and refused it. Thus, plaintiffs’ contention 

that the Board failed to act on Fazio’s demand is now moot. 

(Association of Irritated Residents v. Department of Conservation 

(2017) 11 Cal.App.5th 1202, 1221–1222.) Moreover, the Board’s 

eventual refusal of the Fazio demand does not, by itself, 

demonstrate that any demand would have been futile. At best,

the eventual refusal of Fazio’s demand made it more probable

that the Board would have also refused plaintiffs’ demand. But it 

does not demonstrate that it would have been futile for plaintiffs

to make such a demand. (Rales, supra, 634 A.2d at pp. 933–934.)

Accordingly, the cases cited in plaintiffs’ brief that address when 

a complaint sufficiently alleges that a plaintiff has filed a 

demand that a board of directors has refused (see Rich ex rel. 

Fuqi Int’l, Inc. v. Yu Kwai Chong (Del. Ch. 2013) 66 A.3d 963, 

977; Thorpe v. CERBCO, Inc. (Del. Ch. 1991) 611 A.2d 5, 11) are 

inapposite. And, for the reasons we discuss above, plaintiffs’

allegations do not otherwise sufficiently allege a substantial 

likelihood of director liability.
27

IV. DISPOSITION

The judgment of dismissal is affirmed. Defendants are 

entitled to costs on appeal.

CERTIFIED FOR PUBLICATION

KIM, J.

I concur:

MOOR, J.
Kanter et al. v. Reed et al. – B312129

RUBIN, P. J. – Dissenting:

I respectfully dissent.

The majority agrees that, at the time the plaintiffs filed the

operative complaint, eight of the fifteen board members – a 

majority – had been on the Board at the time of the gas leak. 

(Maj. Opn. at p. 5 & fn. 6.) The issue presented by this appeal, 

simply, is whether plaintiffs have alleged facts sufficient to raise 

a reasonable doubt that the Board could have properly exercised 

its independent and disinterested business judgment in 

responding to a demand that it authorize a corporate suit 

against, among others, a majority of its current members. (Rales 

v. Blasband (Del. 1993) 634 A.2d 927, 934.) This, in turn, 

depends on whether the majority of board members, who had 

been on the board at the time of the leak, face a substantial 

likelihood of personal liability in the action. (Id. at p. 936.)

In this way, the “futility” requirement turns into an 

evaluation of the merits of the action. If the action has merit, the 

individual defendants face a substantial likelihood of personal 

liability, and the futility requirement is satisfied. That brings me 

to In re Caremark International (Del. Ch. 1996) 698 A.2d 959, 

969–970 (Caremark), which acknowledged a cause of action for 

director liability for failure to be reasonably informed concerning 

the corporation; and Marchand v. Barnhill (Del. 2019) 212 A.3d 

805 (Marchand), which explained the standard for a Caremark

claim.

The majority agrees that the Marchand test applies: “Bad 

faith is established, under Caremark, when ‘the directors 
2

[completely] fail[ ] to implement any reporting or information 

system or controls[,] or . . . having implemented such a system or 

controls, consciously fail[ ] to monitor or oversee its operations 

thus disabling themselves from being informed of risks or 

problems requiring their attention.’ In short, to satisfy their duty 

of loyalty, directors must make a good faith effort to implement 

an oversight system and then monitor it.” (Marchand, supra, 

212 A.3d at p. 821, fn. omitted.)

Bearing in mind that the case is only at the pleading stage, 

I believe we need consider only the first alternative – complete 

failure to implement any reporting or information system or 

controls. In their operative complaint, plaintiffs repeatedly allege 

that the Board members “completely failed to adopt and 

implement a board-level reporting system with respect to the 

company’s underground storage wells.” Although somewhat 

conclusory, the complaint goes on to flesh out the details. For 

example, plaintiffs allege that SoCalGas Storage Engineering 

Manager James Mansdorfer repeatedly warned management 

regarding safety concerns, but “[t]here was no mechanism for 

reporting [his] safety concerns and remediation recommendations 

to the Board.” Plaintiffs further allege that, in 2013, leaks were 

discovered in two wells at Aliso Canyon. Although individuals at 

SoCalGas were concerned that capital well work repairs were 

behind schedule, resulting in multiple wells with “ ‘some type of 

well integrity issue,’ ” there is no indication that any of the Board 

directors “learned about, discussed, or inquired about, those two 

2013 leaks or the maintenance issues and safety work backlog 

raised by management and a senior storage engineer. There is 

no indication that those Director Defendants had any system or 

reporting mechanism for learning about these two leaks or the 
3

safety concerns of senior knowledgeable corporate personnel . . . .” 

Plaintiffs allege that, as to above-ground gas transmission 

pipelines, the Board received periodic presentations from 

management regarding risks; but, when it came to underground 

storage wells, “the Board received no reports, failed to inform 

itself about the risks posed by the wells, and failed to discuss any 

germane matters regarding gas storage at Board meetings.”

According to plaintiffs, Board and Committee minutes

revealed “that the Board and the [Committee] periodically 

discussed safety issues relating to pipeline safety (as opposed to 

well safety).” There was only one mention of gas storage wells –

following a discharge at the Playa del Rey SoCalGas storage 

facility. This, according to plaintiffs, reflects “the failure to adopt 

or implement any Board-level reporting process regarding the 

significant risks posed by the Company’s underground storage 

wells . . . .”

Defendants’ demurrer argued that the Board did, in fact, 

discuss safety of gas storage practices, relying on (1) an excerpt 

from December 8-9, 2014 Board minutes reflecting a discussion of 

“ ‘gas infrastructure safety and reliability risks’ ” in the context of 

Sempra’s “ ‘overall risk management philosophy’ ”; (2) June 17,

2013 minutes of the Committee meeting which discussed 

“ ‘emergency response practices’ ” following the “gas storage 

incident” at Playa del Rey; and (3) the operative complaint’s 

reference to the Board’s awareness of a May 2, 2014 Aliso Canyon 

Safety Plan.

As to the first, the December 8-9, 2014 Board meeting

minutes show the relevant discussion under the heading, 

“Annual Risk Management Report.” Kathryn Collier, identified 

only as a representative of Sempra, “described various risks 
4

facing [Sempra] including regulatory environment and political 

risks, gas infrastructure safety and reliability risks, electric 

infrastructure safety and reliability risks, cybersecurity, 

infrastructure project execution and employee/customer safety 

and workplace violence. She discussed the nature of these risks 

and the ways [Sempra] mitigates such risks.” There is no 

indication that this brief mention of “gas infrastructure safety” 

specifically addressed SoCalGas’s underground well storage, or 

that the Board expected Sempra’s “Annual Risk Management 

Report” to do so.

As to the second, the June 17, 2013 Committee meeting 

minutes reflect the relevant discussion under the heading of

“Environmental, Worker Safety, Pipeline Integrity and 

Emergency Response Programs,” and the subheading

“SoCalGas.” As part of its report, SoCalGas discussed its 

“environmental and safety compliance management program,” 

with specific mention of “certain occurrences during the prior 

year, including a gas discharge incident at SoCalGas’s Playa del 

Rey storage facility, and discussed corrective actions taken by 

management in response to those occurrences.” In addition, 

SoCalGas reported on its “gas system safety and pipeline 

integrity management program and its pipeline safety plan. 

[SoCalGas] noted that the safety plan included more than ten 

individual plans and discussed safety values and principles that 

are incorporated into each plan. The report included assessments 

of how technology is being used to create additional safeguards.” 

While these minutes specifically mention the gas discharge at 

Playa del Rey, safety plans in general and pipeline integrity in 

particular, they make no specific mention of gas well storage 

integrity, and therefore do not establish that the Board, through 
5

the Committee, had a reporting system by which it was aware of 

the safety risks presented by SoCalGas’s gas storage wells.

As to the third, plaintiffs’ complaint alleged that the May 

2014 Aliso Canyon Safety Plan “did not call for the involvement 

of any senior Company executives in the safety plan, and instead 

ensconced an electrical engineer as the lead member of the Aliso 

Canyon Safety Committee. The main purpose of the safety plan 

seems to have been to ‘meet the needs of the high fire dangers 

and unique conditions of Aliso Canyon’ and thus primarily 

addresses fire hazards at Aliso Canyon. The safety plan, while 

lengthy, mostly encouraged employees to pay lip service to safety 

by always ‘dress[ing] appropriately for work [and] perform[ing] 

the circle of safety.’ The safety plan, while well-intentioned, did 

absolutely nothing to address the infrastructure problems and 

lack of functioning safety valves and other problems at Aliso 

Canyon. Further, while the safety plan purports to incorporate 

storage policies and procedures, these referenced policies either 

did not address the infrastructure problems at Aliso Canyon or 

were not monitored or implemented to ensure safety at Aliso 

Canyon.” Plaintiffs allege this was nothing more than a “feel 

good” safety plan intended to provide only “an appearance of 

safety preparation.” This, too, fails to establish a Board-level 

reporting plan regarding the safety risks of underground gas 

storage wells.

1

1 Defendants also rely on proceedings before the CPUC 

wherein SoCalGas sought a rate hike to address the safety risks 

posed by the storage wells at Aliso Canyon. But plaintiffs allege 

that defendants did not review the testimony of SoCalGas prior 

to its submission to the CPUC, and the Board did not make itself 

aware of the specific safety risks encompassed in SoCalGas’s 

request for a rate hike. Knowing broadly that SoCalGas sought a 
6

In short, plaintiffs’ complaint paints a picture of a Board 

that had its head in the sand about the danger of SoCalGas’s 

wells in the ground. Individuals who were aware of the dangers 

were repeatedly sounding the alarm bell, but there was no means 

for the Board to hear it. In response to these allegations, the 

Board combed through the minutes of its own meetings and those 

of the Committee, only to find references to infrastructure safety 

that are, at best, ambiguous as to whether they encompassed 

underground storage wells.

The majority sees this as an irrelevant difference of degree 

– concluding that the Board had “some” oversight over gas 

storage infrastructure, which it holds is sufficient under 

Marchand. (Maj. Opn., pp. 22–23.) I do not share that view. A 

brief mention of “gas infrastructure safety” in the course of

overall risk management; a discussion of remedies taken after a 

gas discharge at another facility and a pipeline safety plan; and 

Board awareness of a “feel good” Aliso Canyon plan do not add up 

to proof of the existence of a system of Board oversight over aging 

gas storage wells at Aliso Canyon. Marchand requires a good 

faith effort to implement an oversight system; these sporadic 

references do not indicate, as a matter of law, that either the 

Board itself or its Committee had implemented such an oversight 

apparatus.

On this record, I would conclude plaintiffs have raised a 

reasonable doubt that the Board would have addressed a demand 

rate hike to address safety risks is different from knowing what 

those safety risks were, and even further different from having a 

reporting program in place to receive timely notice about the

risks as they arose. This is particularly so because, if the risks 

were critical, they should have been remediated regardless of 

whether SoCalGas’s proposed rate hike was approved.
7

independently; therefore, plaintiffs’ failure to make a demand

was excused on ground of futility. For the same reasons, I would 

conclude defendants’ demurrer should have been overruled on the 

merits. I would therefore reverse.

RUBIN, P. J.