Filed 9/13/24 Wilson v. Interinsurance Exchange of the Automobile Club CA4/1

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COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

SEAN WILSON et al.,

Plaintiffs and Appellants,

v.

INTERINSURANCE EXCHANGE OF 

THE AUTOMOBILE CLUB et al.,

Defendants and Respondents.

 D081856

 (Super. Ct. No. 37-2018-

 00006964-CU-FR-NC)

APPEAL from judgments of the Superior Court of San Diego County, 

Robert P. Dahlquist, Judge. Affirmed.

Quade & Associates, Michael W. Quade and Cheryl L. Gustafson for 

Plaintiffs and Appellants.

Sheppard, Mullin, Richter & Hampton, John T. Brooks, Joseph E. Foss, 

Thomas R. Proctor, and Matthew G. Halgren for Defendants and 

Respondents.
2

I. INTRODUCTION

Sean Wilson and Chet Johnston1 (collectively Appellants) appeal from 

judgments of dismissal of their individual claims entered after the trial court 

granted motions for summary judgment brought by respondents

Interinsurance Exchange of the Automobile Club, Auto Club Enterprises, and 

Automobile Club of Southern California (Auto Club). The trial court

concluded Appellants lacked standing because their personal claims and 

damages were incidental to injuries suffered by corporate plaintiffs, which 

they owned: S&J Builders and Restoration Services, Inc. (S&J), a California 

corporation, and The Home Improvement Company, Inc. (THIC), a dissolved 

California corporation. Further, Auto Club did not owe a duty to Appellants

independent of their status as shareholders of their companies.

According to Appellants, the trial court erred because Auto Club failed 

to establish that Appellants lacked standing to pursue their individual claims 

in the operative complaint for three reasons: (1) Appellants seek to recover 

for injuries separate from the injury to the value of the corporate stock; (2) as 

closely held corporations, case law permits Appellants to retain their own 

personal causes of action against Auto Club; and (3) Appellants retain their 

rights to pursue individual damages under the maxim “for every wrong there 

is a remedy.”

We conclude the trial court properly granted the motions for summary 

judgment and affirm.

1 Mr. Chet Johnston died during the pendency of this action, his son and

successor-in-interest, is prosecuting this matter on Mr. Johnston’s behalf.
3

II. FACTUAL AND PROCEDURAL BACKGROUND

A. The Parties 

S&J and THIC were contracting businesses which worked for many 

years with Auto Club, acting as preferred vendors for homeowners who 

suffered property losses while insured by Auto Club. The companies provided 

repair services to houses damaged in events covered by Auto Club insurance 

policies.

Wilson is the vice president, responsible managing officer, and a 

49 percent shareholder of S&J, and his wife is a 51 percent shareholder and 

the president of S&J. From 1998 to 2015, Wilson, through S&J, worked with 

Auto Club as a preferred vendor.

Johnston was the 100 percent owner of THIC, which did business as 

“ESN.”2 THIC was part of a general partnership formed in January 2012, by 

Johnston and his business partner, Chuck Bellows. Mr. Bellows owned a 

company called CSRM, Inc. The general partnership was split 72 percent to 

THIC and 28 percent to CSRM. From 1997 to 2015, THIC also worked with 

Auto Club as a preferred vendor. Wilson, S&J, Johnston, and THIC contend 

they consistently provided superior service for Auto Club and its insured

homeowners throughout their long-term business partnerships.

B. Auto Club’s Homeowners Repair Programs

As a service to its customers, Auto Club developed a preferred home 

repair provider program. As will be detailed, over the years the program 

would evolve and go through different iterations. S&J and THIC participated 

in all the program versions, except the last.

2 Since THIC, not ESN, is a named plaintiff in this action, we refer to 

Johnston’s business as THIC.
4

In February 2013, Auto Club asked Wilson, on behalf of S&J, and 

Johnston, on behalf of THIC, if they were interested in participating in Auto 

Club’s newest preferred vendor concept called Members Preferred Repair 

program (MPR). Auto Club’s new program asked home repair business 

participants to bid on various geographic areas and provide discounted 

services to homeowners in exchange for a certain volume of referrals in those 

areas. Selected contractors were required to have the ability to scale

operations up for the work required, provide minimum service levels, and 

give competitive discounts for zones in which they bid.

Wilson, on behalf of S&J, and Johnston, on behalf of THIC, responded 

to Auto Club’s request for proposal to participate in the MPR program, and 

Auto Club accepted those proposals in August 2013 via an email containing 

the subject line “MPR RFP-Contract Award.” In the contract award emails, 

Auto Club stated: “We have received approval on the MPR proposed network 

in the last few weeks. I’m happy to inform you, your company was included 

in our recommendation and we will be moving forward in executing a two 

year agreement for the below volumes and discounts for emergency and 

restoration/large loss referrals.” 

In September 2013, Auto Club sent a draft MPR program contract to 

Johnston,3 but never circulated a finalized MPR program contract for all 

vendors’ signatures. The parties to the proposed MPR program contract were

Auto Club and the contracted company. Although S&J, THIC, and Auto 

Club never signed an MPR program contract, all parties moved forward with 

the new home repair program in September 2013. Based on the express 

representations and promises for inclusion in the MPR program, and 

promised referral volumes, Appellants took steps to ensure their companies 

3 Auto Club did not send a draft MPR program contract to Wilson.
5

could meet equipment, personnel, office and other business demands to 

execute their obligations under the agreed arrangement.

C. Auto Club Replaces the Member Preferred Repairs Program with a Pilot 

Program

In February 2014, Auto Club started looking at a new pilot program to 

replace the MPR, and in May 2014, stopped tracking the referral 

commitment with their MPR vendors. 

Additionally, in May 2015, Auto Club sent letters to the MPR 

participating companies, including S&J and THIC, announcing the new pilot 

program starting June 1, 2015, that would result in the MPR vendors 

experiencing a decrease or no referrals in territories where the pilot program 

was being introduced. Wilson, S&J, Johnston, and THIC contend Auto Club 

started this new program with the intention of firing all or most of the MPR 

vendors and beginning fresh with new contractors.

D. Auto Club Terminates its Relationship with THIC

In September 2014, Johnston and Mr. Bellows sold the ESN 

partnership to Response Team 1. The parties dispute whether prior to the 

sale Johnston disclosed to Auto Club that he was selling THIC but would run 

the new operation for at least five years under his employment agreement. 

In October 2014, despite THIC’s positive performance, Auto Club 

suspended THIC. Although Johnston tried to resolve the issue, Auto Club 

terminated THIC from the MPR program in November 2014 and upheld their 

decision in February 2015 after Johnston appealed Auto Club’s decision 

internally. 

E. Auto Club Terminates its Relationship with S&J 

In June 2015, Auto Club emailed Wilson, raising issues with nine of 

S&J’s estimates and that Auto Club planned to discuss those with its 
6

oversight committee. S&J responded to this audit, explaining its position. In 

July 2015, Auto Club informed Wilson that the oversight committee voted not 

to include S&J in the pilot program Auto Club debuted the previous month. 

F. Wilson, S&J, Johnston, and THIC’s Litigation Against Auto Club

In February 2018, Wilson, S&J, Johnston, and THIC filed a complaint 

against Auto Club. The operative complaint is the first amended complaint 

(FAC) filed in July 2021. The FAC alleges that, in ending S&J and THIC’s 

participation in the MPR program, Auto Club breached their agreement 

while concealing and misrepresenting certain information. The FAC alleges 

nine causes of action on behalf of all four plaintiffs, including claims for 

fraud, promissory estoppel, breach of fiduciary duty, and breach of contract. 

In the FAC, Appellants allege Auto Club’s conduct caused them to 

suffer economic damages and emotional distress. Specifically, Wilson seeks 

damages for (a) loss of salary in excess of $200,000 for him and his wife, who 

assigned her salary claims to Wilson, and (b) emotional distress. Johnston 

seeks (a) individual damages related to the employment agreement he 

executed with the company that purchased THIC’s assets, Response Team 1, 

including the loss of $240,000 a year in salary, and (b) emotional distress 

damages. 

Auto Club filed four summary judgment motions (one against each 

plaintiff) attacking the FAC. The trial court granted the motions as to 

Appellants, but denied the motions as to S&J and THIC. 

In granting the summary judgment motion against Wilson, the trial 

court found that Wilson’s purported damages for lost wages and emotional 

distress were incidental to the injury caused by Auto Club severing its

business relationship with S&J. Additionally, the trial court found the 

gravamen of the wrongs alleged in all the causes of action in the FAC relate 
7

to the business relationship between Auto Club and S&J, not a particular 

wrong Auto Club did to Wilson. Finally, the trial court determined Wilson’s 

allegations in the FAC did not establish that Auto Club owed Wilson a special 

duty independent of Wilson’s status as an S&J shareholder. Therefore, the

trial court concluded Wilson did not have standing to bring the claims he 

asserted. On August 26, 2022, the trial court entered judgment dismissing 

Wilson. 

With respect to Johnston, the trial court took the matter under 

submission after hearing oral argument, and subsequently granted Auto 

Club’s summary judgment motion for the same reasons articulated in its 

ruling against Wilson. On September 22, 2022, the trial court entered 

judgment dismissing Johnston’s claims. 

In February 2023, Wilson and Johnston appealed the judgments of 

dismissal. 

III. DISCUSSION 

A. Standard of Review

We review a summary judgment ruling de novo, applying the same 

standards as the trial court. (Birschtein v. New United Motor Manufacturing, 

Inc. (2001) 92 Cal.App.4th 994, 999.) “In reviewing a motion for summary 

judgment, we accept as undisputed fact only those portions of the moving 

party’s evidence that are uncontradicted by the opposing party. In other 

words, the facts alleged in the evidence of the party opposing summary 

judgment and the reasonable inferences that can be drawn therefrom are 

accepted as true.” (Hersant v. Department of Social Services (1997) 57 

Cal.App.4th 997, 1001.)
8

B. Appellants’ Claims are Derivative, Not Individual

On appeal, Appellants argue Auto Club is not entitled to summary 

judgment because Appellants do not seek to recover for injuries to the 

corporate stock or harm suffered by all shareholders, but rather, the harm 

they directly and individually suffered. They contend the trial court erred in 

finding their claims were derivative because a shareholder “may sue as an 

individual where he [or she] is directly and individually injured although the 

corporation may also have a cause of action for the same wrong.” (Sutter v. 

General Petroleum Corp. (1946) 28 Cal.2d 525, 530 (Sutter).) 

We find that while courts have generally recognized that individual 

and derivative claims may coexist in the same action, here Appellants’ 

allegations support only derivative claims. That conclusion, not any per se 

bar against concurrent derivative and individual claims, justified eliminating 

Appellants’ individual claims.

1. The Distinction Between Shareholder Individual and Derivative 

Actions

“Shareholders may bring two types of actions, ‘a direct action filed by 

the shareholder individually . . . for injury to his or her interest as a 

shareholder,’ or a ‘derivative action filed on behalf of the corporation for 

injury to the corporation for which it has failed or refused to sue.’ [Citation.] 

‘The two actions are mutually exclusive: i.e., the right of action and recovery 

belongs either to the shareholders (direct action) or to the corporation 

(derivative action).’ ” (Schuster v. Gardner (2005) 127 Cal.App.4th 305, 

311– 312, italics omitted (Schuster).)

An “ ‘action is derivative, i.e., in the corporate right, if the gravamen of 

the complaint is injury to the corporation, or to the whole body of its stock 

and property without any severance or distribution among individual holders, 
9

or it seeks to recover assets for the corporation or to prevent the dissipation of 

its assets.’ ” (Jones v. H.F. Ahmanson & Co. (1969) 1 Cal.3d. 93, 106 (Jones).) 

On the other hand, an individual action “ ‘is a suit to enforce a right against 

the corporation which the stockholder possesses as an individual.’ ” (Id. at 

p. 107.) “If the injury is not incidental to an injury to the corporation, an 

individual cause of action exists.” (Ibid.) “Examples of direct shareholder 

actions include suits brought to compel the declaration of a dividend, or the 

payment of lawfully declared or mandatory dividends, or to enjoin a 

threatened ultra vires act or enforce shareholder voting rights.” (Schuster, 

supra, 127 Cal.App.4th at p. 313; accord, Sutter, supra, 28 Cal.2d at p. 530 

[“ ‘If the injury is one to the plaintiff as a stockholder and to him individually, 

and not to the corporation, as where the action is based on a contract to 

which he [or she] is a party, or on a right belonging severally to him [or her], 

or on a fraud affecting him [or her] directly, it is an individual action.’ ”].)

2. Analysis

Appellants suggest that because they are not seeking recovery for an 

injury to the value of corporate stock, their claims are individual. But the

court in Nelson v. Anderson (1999) 72 Cal.App.4th 111 (Nelson) specifically 

rejected this argument. In Nelson, the court concluded plaintiff did not have 

standing to pursue an individual claim for breach of fiduciary duty against 

her business partner. (Id. at pp. 125–126.) The court determined 

the plaintiff’s complaint alleged misfeasance or negligence in managing 

the corporation’s business, causing injury to the business itself. (Ibid.) 

Plaintiff argued “that because she did not expressly allege that the value of 

her stock was diminished as the result of an injury to the corporation, she has 

successfully alleged an individual injury. [The plaintiff’s] economic damages 

were lost capital investment, lost earnings, and lost opportunities.” (Id. at 
10

p. 126.) The Nelson court disagreed, stating “[s]hareholders own neither the 

property nor the earnings of the corporation. . . . [The plaintiff] had no 

ownership interest in the profits of [the corporation] and cannot have been 

deprived of them.” (Ibid., citations omitted.) Accordingly, we disagree that a 

shareholder automatically has an individual cause of action if they are not 

seeking injury to the value of corporate stock. 

Instead, to determine whether Appellants have standing to assert their 

individual claims, we rely on Jones. (Auto Equity Sales, Inc. v. Superior 

Court of Santa Clara County (1962) 57 Cal.2d 450, 455 [“The decisions of [the 

California Supreme Court] are binding upon and must be followed by all the 

state courts of California.”].) We therefore examine whether Appellants’ 

alleged injuries are incidental to the injuries S&J and THIC suffered. (See 

Jones, supra, 1 Cal.3d. at pp. 106–108.)

First, the FAC’s core allegation is Auto Club unreasonably and without 

justification terminated S&J and THIC from the MPR program and did not 

honor the promises made with respect to that program. The FAC details, 

among other wrongs, that Auto Club did not provide the promised specific 

percentage referral volume, failed to keep the program estimates to the 

appropriate pricing, failed to provide a written contract, and prematurely 

terminated their business partnership with S&J and THIC. Accordingly, the 

claims alleged in the FAC are Auto Club’s breach of the MPR program 

contract and wrongful termination of its business relationship with S&J and 

THIC, not a particular wrong done to Appellants. 

There is substantial evidence in the record to support this conclusion. 

First, S&J and THIC, not Appellants, contracted with Auto Club to 

participate in the MPR program. In the contract award emails, Auto Club 

informed Appellants that their companies were included in the MPR 
11

program. Also, the parties to the proposed MPR program contract are Auto 

Club and S&J or THIC, i.e., the contracted company, not the individual 

shareholders of that company. 

The FAC also alleges it is because Auto Club breached the MPR

program contract and terminated its relationship with S&J and THIC that

the corporations lost a significant amount of business resulting in Appellants

suffering significant income loss and emotional distress. In discovery, Wilson 

stated at the time Auto Club terminated its relationship with S&J, the work 

Auto Club assigned to S&J comprised an estimated 90 percent of S&J’s 

revenue. Thus, the emotional distress and lost wage damages Appellants

pursue directly result from Auto Club breaching the contract with their 

companies, not a specific injury to themselves that exist outside of the injury 

to the corporation. 

Further, despite Appellants’ claim they are not seeking to recover 

corporate assets, their lost income is a corporate asset so it may only be 

pursued in a derivative action. (See Nelson, supra, 72 Cal.App.4th at p. 126; 

Miller v. McColgan (1941) 17 Cal.2d 432, 436.)

Whether a party has standing in a given legal dispute is a matter we 

review de novo. (Schrage v. Schrage (2021) 69 Cal.App.5th 126, 150–151

(Schrage).) “We review any factual findings underlying a trial court’s ruling 

on standing for substantial evidence.” (Citizens for Amending Proposition L 

v. City of Pomona (2018) 28 Cal.App.5th 1159, 1174.) Here, substantial

evidence supports the trial court’s finding that Appellants lack standing to 

pursue their individual causes of action against Auto Club. Appellants’

purported damages of lost salary and emotional distress are incidental to the

injuries S&J and THIC suffered.
12

C. Appellants Do Not Retain Individual Causes of Action 

Appellants’ second argument on appeal is that case law provides that 

shareholders of closely held corporations retain their own personal causes of 

action. They rely on Tan Jay Internat., Ltd. v. Canadian Indemnity Co.

(1988) 198 Cal.App.3d 695 (Tan Jay) for the proposition that a shareholder in 

a closely held corporation can sue for injuries to himself or herself, such as 

emotional distress damages. Tan Jay is factually distinguishable from this 

case.

In Tan Jay, a woman’s sportswear corporation and its majority 

shareholder sued for damages, breach of contract, emotional distress, and 

declaratory relief against an insurer, alleging bad faith refusal to defend and 

indemnify them in a third-party action. (Tan Jay, supra, 198 Cal.App.3d at 

pp. 699–700.) The court concluded the majority shareholder had standing to 

sue for his own emotional distress damages because he was a named insured 

on the coverage policy at issue in the case. (Id. at p. 707 [“where 

‘shareholders of a closely held corporation are joint insureds with it, the 

insurers’ implied covenant of good faith and fair dealing runs to the 

shareholders as well as to the corporation and the shareholders may pursue a 

cause of action for its breach’ ”.) Unlike in Tan Jay Appellants in this matter 

do not have an independent contract (like an insurance policy) with Auto 

Club on which to base their individual claims. We therefore reject this 

argument.

D. Remedy for Every Wrong

Appellants’ final argument on appeal is that they retain their rights to 

pursue individual damages under the maxim for every wrong there is a 

remedy. Under these circumstances, we disagree.
13

Civil Code section 3523 provides: “For every wrong there is a remedy.” 

“But this statute does not create substantive rights or an unbounded 

right to damages. [Citation.] Instead, ‘[this] wholesome maxim of 

jurisprudence . . . can obviously have no application to any but legal wrongs 

or those wrongs for which the law authorizes or sanctions redress.’ 

[Citations.] ‘A tort . . . involves a violation of a legal duty, imposed by statute, 

contract, or otherwise, owed by the defendant to the person injured. Without 

such a duty, any injury is ‘damnum absque injuria’—injury without wrong.’ 

[Citations.] The proposition that courts should strain to provide remedies for 

every ‘wrong’ in the moral sense flies directly in the face of this longstanding 

authority that only legal wrongs must be redressed.” (The MEGA Life & 

Health Ins. Co. v. Superior Court (2009) 172 Cal.App.4th 1522, 1526–1527, 

italics omitted (MEGA Life); accord, County of San Luis Obispo v. Abalone 

Alliance (1986) 178 Cal.App.3d 848, 864–865.) “Instead, whether to recognize 

a new ‘legal wrong’ or ‘tort’ is often governed by policy factors. [Citation.] In 

making these determinations, both the courts and the Legislature must 

weigh concepts of ‘public policy,’ as well as problems inherent in measuring 

loss, and ‘floodgates’ concerns, in addition to the traditional element of 

foreseeability.” (MEGA Life, at p. 1527.) 

Consequently, Civil Code section 3523 does not allow Appellants to 

recover for their lost wages and emotional distress damages unless existing 

law allows the recovery, or public policy supports recognition of such a right. 

(MEGA Life, supra, 172 Cal. App. 4th at p. 1528.) As discussed, we find no 

legal support for Appellants’ causes of action, so we turn to whether public 

policy supports Appellants’ individual damage claims. 

Jara v. Suprema Meats, Inc. (2004) 121 Cal.App.4th 1238 identified 

three primary policy justifications for requiring derivative actions: 
14

(1) preventing a multiplicity of lawsuits and ensuring equal treatment for

all aggrieved shareholders; (2) protecting the rights of creditors; and 

(3) encouraging resolution within the corporation and promoting managerial 

freedom.4 (Jara, at pp. 1258–1259.) Our Supreme Court in Jones, however, 

did not rely upon such policy considerations in distinguishing individual and 

derivative actions. (Jones, supra, 1 Cal.3d at pp. 106–108.) While Jara’s 

policy justifications are typically attenuated in closely held companies like 

S&J and THIC, that fact does not authorize us to disregard the Jones 

framework. (See Schrage, supra, 69 Cal.App.5th at p. 158.) To allow

Appellants to maintain their individual causes of action based on such policy 

considerations “would essentially eliminate the derivative action rule in the 

context of close corporations and other closely held entities. California law 

does not support that result.” (Ibid.) We therefore reject Appellants’ final 

argument.

4 Another policy justification for derivative actions is to prevent “the risk 

of double recovery—once to the shareholder and once to the corporation.” 

(Vinci v. Waste Management, Inc. (1995) 36 Cal.App.4th 1811, 1815.)
15

IV. DISPOSITION

The trial court’s August 26, 2022 and September 22, 2022 judgments of 

dismissal are affirmed. Auto Club to recover their costs on appeal.

RUBIN, J.

WE CONCUR:

KELETY, Acting P. J.

CASTILLO, J.