N O T FO R PUB L ICAT IO N UNITED STATES C OUR T OF APPEALS FOR THE NINTH C IR C UIT
THOM AS HUB B A R D, Pla intiff - Appe lle e ,
v. PHIL’ S B B Q OF POINT LOM A, INC ., e t a l., De fe nda

nts - Appe lla

nts. No. 13-55861

M EM O R ANDUM *

THOM AS HUB B A R D, Pla intiff - Appe lle e ,
v. PHIL’ S B B Q OF POINT LOM A, INC ., e t a l., De fe nda

nts - Appe lla

nts. No. 13-56131

M EM O R ANDUM * 

# FIL E D

JUL 08 2015
M OLLY C. DW Y ER, CLERK U. S. CO URT O F APPEALS

* This disposition is not a ppropria te for public a t ion a

nd is not pre c e de nt e xc e pt a s provide d

by 9th C ir. R . 36-3.Appe a l from the Unite d

Sta t e s Distric t C ourt for the Southe rn Distric t of C a lifornia Hon. La rry A. B urns, Distric t

Judge , Pre siding Argue d a nd Subm itte d June 3, 2015 Pa sa de n a , C a l ifornia B e fore : THOM AS, C hie f Judge , a nd C ALLAHAN, C irc u it Judge , a nd KOR M AN, Se nior Distric t Judge

. ** In April 20 0 6 , Thom a s Hubba rd, Phillip Pa c e , a nd Je ffre y Loy a signe d a sha re holde rs a g r eem e nt, form e d Phil’ s B B Q of Point Lom a , Inc ., a nd e le c te d “ S

c orpora tion” s ta tus. In suc h a c orpora tion sha re h o lde rs m

ust pa y pe rsona l inc om e ta x
o n c orpora te profits, e ve n if no p rofits or othe r inc om e is disburs ed t o t h e sha re holde rs. To e n sure tha t Pa c e , Loy a , a nd H ubba rd c ould m e e t this obliga

tion, the

s h ar eh olde rs a gre e m e nt provide d tha t Phil’ s B B Q would issue divide nds to sha re holde rs e qua l to 25% of Phil’ s B B Q’ s qua rte rly profits. The pa rtie s a l so e nte re d into a c on s ulting a gre e m e nt, pursua nt to whic h Hubba rd would p er f

o r m ce rta in ta sks re la te d to t he ope ra tion o f t

he c orpora tion in

e xc ha nge for a spe c ifie d m onthly c om pe nsa t ion. The a gre e m e nt furthe r provide d for

a ttorne y ’ s fe e s to the “ pre v a iling pa rty ” in the e ve nt of a dispute “ a rising unde r, o r in

c onne c tion with, the

Agre e m e nt.”

** The Honora

ble Edwa rd R . Korm a n, Se n i or Unite d Sta te s Distric t Judge for the Ea ste rn Distric t of Ne w York, sitting by de signa tion. 2Re la tions be twe e n the p a rtie s ultim a te ly broke d own. W he n Ph il ’s BBQ

stoppe d pa

y ing Hubba

rd in a c c orda

nc e with the c onsulting ag re e m e nt, he file d the insta nt c om pla i nt a ga inst Pa c e , Loy a , a nd Phil’ s B B Q

. As subse que ntly a m e nde d, the

c om pla i nt sought d a m a g e s for bre a c h of the pa rtie s’ c onsulting a gre e m e nt a n d

s h a re holde rs a g re e m e nt. Afte r a be nc h t ria l , the distric t judge a wa rde d H u b b ar d da m a ge s a n d a ttorne y ’ s fe e s for bre a c h of the c onsulting a gre e m e nt. The dis t r i ct judge a lso gra nte d H ubba rd’ s m otion for sum

m a ry judgm e nt, a wa rding h im da m a ge s ba se d on the d e fe nda

nts’ fa ilure t o i s s u e divide n ds in a c c orda nc e w ith the sha re holde rs a gre e m e nt. In holding tha t H u

bba rd wa s e ntitle d to c ounse l fe e s be c a use h e p r eva ile d o n his cl ai m for bre a c h of the c onsulting a gre e m e nt, the judge a na ly z e d a pplic a ble C a lifornia l a w a nd obse rve d tha t Hubba rd won o n n e a rly e ve ry issue litiga te d. Se e Hsu v . Abbara , 9 C a l. 4 th 863, 873-77 (1995). W e do not a gre e with the de fe nda nts tha t , unde r the c i rc um sta

nc e s he re , H u b b ard’ s a

w a rd o n his c la im s for b re a c h of the

c onsulting a gre e m e n t wa s insuffic ie nt t o j ustify a n a wa rd of c ounse l fe e s. Se e , e .g. , Sc ott C o. of C al. v . Blount, Inc

. , 20 C a l. 4th 1103, 1108-09 (1999). Nor did the d istric t judge e rr in a wa rding da m a ge s u nde r t he sha re holde rs

a gre e m e nt. The a wa rd of da m a ge s re pre se nte d t he a m o unt of ta xe s tha t Hubba rd pa id

on profits e a rne d b y Phil’ s B B Q

. The thre e de fe nda nts c h a lle nge the e nforc e m e n t of

3the p rovision in the sha re holde rs a g re e m e nt m a nda ting d i v ide nd disburse m e nt to offse t ta x lia

bility

. The y re ly on C a lifornia C orpora ti o ns C ode § 3 0 0(b), whic h p r ovide s tha t sha

re holde rs a gre e m e nts in “ s e c tion 158 c lose c orpora tions” a re pe rm itte d to inte rfe re with the powe rs t y pic a lly a fforde d t o a boa

rd of d ire c tors, suc h

a s the b oa rd’ s p owe r to de c la

re divide nds in its disc re tion. The ne ga tive im plic a tion, the y sugge st, is tha t sha

re holde rs a gre e m e nts in n on “ se c tion 158 c lose c orpora tions”

a re not pe rm itte d t o m an d at e divide n d disburse m e nt. B e c a use Phil’ s B B Q wa s not te c hnic a lly a “ se c tion 158 c lose c orpora tion,” the de fe n da nts a rgue tha t the m a nda ta

ry provision in the pa

rtie s’ sha re holde rs a gre e m e nt viola te s public polic y . The de fe nda

nts c ite no c a se holding tha t sha re holde rs a g re e m e nt provisions of the kind a t i ssue he re viola t e the public polic y of C a lifornia

. Inde e d, C a lifornia c ourts ha ve historic a lly he ld, “ unle ss it is e ntire ly pla in tha t a c o ntra c t i s viol a tive of sound pub l i c p o l i c y , a c o u rt will ne ve r so de c la re . . . . ‘ No c ourt o ught to re fuse its a i d to

e nforc e a c ontra c t on d oubtful a nd unc e rta in te rm s.’ ” Moran v . Harris , 131 C a l. App. 3d 913, 9 19-20 (C a l. C t. App. 1982) (quoting Ste phe n s v . So. Pac

. C

o. , 109 C a l. 86, 89 ( 18 9 5) )

. Ev en whe re a c ontra c t is p la inly ille g a l , the rule tha t suc h a c ontra c t is void “ is not a n infle xible on e t o b e ap pl ie d in its fulle st rigor u nde r a ny a nd a l l

c irc um s ta nc e s . A wide ra nge o f e xc e ptions ha s be e n re c ogniz e d.” Asdourian v . Araj ,

4696 P.2d 95, 105 (C a l. 1 9 8 5) , s u p er se de d on othe r grounds C a l. B us. & Prof. C o de § 7031. Phil’ s B B Q wa s, for pra c tic a l purpose s, a c lose c orpora tion be c a use it ha d only thre e s ha re holde rs a s we ll a s s e ve re lim ita tions on the t

r an s f er ability of its sha

re s. Inde e d , a s c onc e de d a t ora l a rgum e nt, only one f o r m al i t y pre ve nts Phil’ s B B Q from fa lling squa

re ly within § 158: Phil’ s B B Q ’ s a rtic l e s of i nc orpora tion fa ile d to inc lude

a short sta

te m e nt t ha t the n um be r of s h ar eholde rs c a nnot e xc e e d 35 a nd tha t “ [t] his

c orpora tion is a c lose c orpora t ion.” C a l. C orp. C ode § 158. Unde r a ll of the se
c irc um s ta nc e s , w e a

re una b le to co n cl u de tha t the c o ntra c t would be he ld

une nforc e a

ble a s c ontra

ry to public polic y . AFFIRM E D.

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