Filed 11/22/16

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SIX

MARK GOLES et al., 

 Plaintiffs and Appellants,

v.

UDAY SAWHNEY et al., 

 Defendants and Respondents.

2d Civil No. B268990

(Super. Ct. No. 56-2013-00446212-CUMC-VTA)

(Ventura County)

Mark and Karen Goles appeal from an order 

specifying $139,666.67 as the buyout value of their 36.7% 

minority shareholder interest in Katana Software, Inc. (Katana)

pursuant to Corporations Code section 2000, subd. (c).1The 

statutory buyout provision is a special proceeding. We construe 

the order as an alternative decree which is appealable pursuant 

to section 2000, subdivision (c). (Cotton v. Expo Power Systems,

Inc. (2009) 170 Cal.App.4th 1371, 1380, fn. 4.) Appellants 

contend that the trial court undervalued their shares when it 

“confirmed” three disparate court-ordered appraisals and

 

1

All statutory references are to the Corporations Code. 
2

averaged the appraisals to determine the fair value of the 

company. We reverse.

Procedural History 

Katana, a closely held corporation, is a software 

development company. As indicated, appellants owned 36.7 

percent of the company. Respondent Robert F. Woodward owned 

31.7 percent, and respondent Uday Sawhney owned 31.6 percent.

Appellants were founding shareholders and employed by Katana 

in key positions. In 2013, appellants were terminated after they 

solicited a company executive to take Katana‟s intellectual 

property and client lists for a new start-up company. 

Appellants sued for the involuntary dissolution of 

Katana (§ 1800) and sought an accounting, injunctive relief, 

damages for breach of fiduciary duty, and $60,000 due on a 

promissory note. To avoid dissolution, respondents brought a 

motion to appraise the fair value of the company and buy out 

appellants‟ shareholder interest pursuant to section 2000. 

Respondents requested a stay of the dissolution action and the 

causes of action for breach of fiduciary duty.2 The trial court 

stayed the proceedings and appointed three disinterested 

appraisers to ascertain the fair value of Katana and appellants‟ 

shares. The order stated: “There shall be no direct or indirect 

 

2

The complaint includes personal actions for negligent 

preparation of appellants‟ tax returns (sixth cause of action) and 

$60,000 due on the promissory note obligation (seventh cause of 

action). The trial court granted appellants‟ request to bifurcate 

the sixth and seventh causes of action for trial. Respondents, in 

their motion to stay the other causes of action, argued that the 

breach of fiduciary duty claims (third, fourth, and fifth causes of 

action) were not personal claims and should be stayed with the 

dissolution action until the appraisals were completed. 
3

contact or communication between any appraiser, on the one 

hand, and any party or their counsel, on the other hand, without 

a showing of good cause and prior order of the Court.” The 

appraisers were instructed to base the appraisals on the 

company‟s “„liquidated value as of December 20, 2013 but taking 

into account the possibility, if any, of the sale of the entire 

business as a going concern in liquidation.‟” 

Appraisers Carl L. Sheeler, Jason E. Forsyth, and 

Burton H. Marcus submitted appraisal reports valuing 

appellants‟ shares at $69,000, $150,000, and $200,000 

respectively. Respondents requested a hearing to finalize the 

valuation and shareholder buyout. Appellants questioned the 

appraisals and requested that the trial court set a briefing 

schedule. The trial court denied the request and found that the 

fair value of appellants‟ interest in Katana “is $139,666.67, which 

sum is calculated by averaging the three appraisal report 

valuations together.” 

Respondents tendered full payment. Appellants 

deposited the funds in a trust account and appealed. The trial 

court denied a motion to stay the judgment pending the appeal 

and ordered appellants to deliver the Katana stock certificates to 

respondents. They did so. (§ 2000, subd. (d).) 

Shareholder Buyout 

A section 2000 shareholder buyout is a special 

proceeding that supplants an action for involuntary dissolution of 

a corporation. (Go v. Pacific Health Services, Inc. (2009) 179 

Cal.App.4th 522, 532.) Section 2000 provides that when a 

shareholder sues for involuntary dissolution, the corporation, or 

the holders of 50 percent or more of the voting power of the 

corporation, may avoid the dissolution by purchasing for cash the 
4

shares owned by plaintiffs at their “fair value.” (§ 2000, subd. 

(a).) The statute defines “fair value” as the “liquidation value as 

of the valuation date but taking into account the possibility, if 

any, of sale of the entire business as a going concern in a 

liquidation.” (Ibid.) If the parties cannot agree on a valuation, 

the trial court shall appoint three disinterested appraisers to 

appraise the fair value of the shares. (§ 2000, subd. (c).) “The 

order shall prescribe the time and manner of producing evidence,

if evidence is required. The award of the appraisers or of a 

majority of them, when confirmed by the [trial] court, shall be 

final and conclusive upon all parties.” (Ibid.) 

Here the appraisers could not reach a consensus on 

the fair value of the company or appellants‟ shares. The trial 

court nonetheless “confirmed” the appraisal reports, averaged the 

three appraisals, and found that the fair value of appellants‟ 

shareholder interest was $139,666.67. 

Standard of Review

Appellants contend that the buyout order must be 

reversed because the trial court‟s determination of the fair value 

of appellants‟ shareholder interest was erroneous as a matter of 

law. The factual aspects of the fair value determination are 

reviewed under the substantial evidence standard. (Mart v. 

Severson (2002) 95 Cal.App.4th 521, 530.) “However, the 

superior court‟s interpretation of the statutory standard set forth 

in section 2000 is subject to de novo review on appeal. 

[Citations.]” (Ibid.; Cotton v. Expo Power Systems, Inc., supra,

170 Cal.App.4th at p. 1380.)
5

Derivative Claims as a Fair Value Factor

Appellants‟ complaint includes derivative claims for 

breach of fiduciary duty.

3

 It alleges that respondents “looted” the 

corporation by taking unauthorized loans, employed family 

members, used corporate funds to pay personal expenses, and 

purposefully neglected corporate governance. Paragraph 51 of 

the third cause of action prays for $53,100 damages on behalf of 

Katana based on an unauthorized loan of corporate funds. The 

claim is re-alleged in the fourth and fifth causes of action for 

breach of fiduciary duty by board members and controlling 

shareholders. 

“A derivative claim (or other claim that may yield a 

potential recovery for the corporation) is a corporate asset that 

must be considered when determining „fair value.‟” (Friedman et 

al., Cal. Practice Guide: Corporations (The Rutter Group 2016) 

¶ 8:873.6, p. 8-176; see Cotton v. Expo Power Systems, Inc.,

supra, 170 Cal.App.4th at p. 1380.) “If successful, a derivative 

claim will accrue to the direct benefit of the corporation and not 

to the stockholder who litigated it. [Citations.]” (Grosset v. 

Wenaas (2008) 42 Cal.4th 1100, 1114.) 

None of the derivative claims were considered by the 

appraisers or the trial court in determining the fair value of 

Katana. This was erroneous. (See Cotton v. Expo Power Systems,

 

3

A single cause of action by a shareholder can give rise to 

derivative claims, individual claims, or both. (Denevi v. LGCC, 

LLC (2004) 121 Cal.App.4th 1211, 1222.) “The claims are 

derivative where the injury alleged is one inflicted on the 

corporate entity or on the „whole body of its stock.‟ [Citation.]” 

(Ibid., citing Jones v. H.F. Ahmanson & Co. (1969) 1 Cal.3d 93, 

106.)
6

Inc., supra, 170 Cal.App.4th at p. 1374; Kennedy v. Kennedy 

(2015) 235 Cal.App.4th 1474, 1485 [dismissal of derivative claim 

requires court approval].) Where a minority shareholder claims 

that his shares were undervalued because of self-dealing and 

misconduct by corporate directors and officers, he should be 

afforded the opportunity to demonstrate that the alleged 

misconduct in fact occurred. (See, e.g., Steinberg v. Amplica, Inc. 

(1986) 42 Cal.3d 1198, 1208-1209 [fraud and breach of fiduciary 

duty claims must be considered by appraiser in determining fair 

value of dissenting shareholder‟s interest in corporate merger].) 

“[A] determination of the fair value of the shares of a corporation 

under section 2000 includes an assessment of the value, if any, of 

pending derivative actions and their effect on the fair value of the 

shares. The trial court‟s order in this case did not comply with 

the provisions of section 2000, and therefore, must be reversed.” 

(Cotton v. Expo Power Systems, Inc., supra, 170 Cal.App.4th at p. 

1374.) 

Discount for Lack of Control 

The Marcus and Forsyth appraisals discounted the 

fair value of appellants‟ shareholder interest by 20 percent and 

15 percent for lack of control. Section 2000, however, does not 

permit a lack-of-control discount when determining the fair value 

of a minority shareholder interest. (Friedman et al., Cal. Practice 

Guide: Corporations, supra, ¶ 8:876, p. 8-178; Ronald v. 4-C’s 

Elec. Packaging (1985) 168 Cal.App.3d 290, 298.) “[T]he rule 

justifying the devaluation of minority shares in closely held 

corporations for their lack of control has little validity when the 

shares are to be purchased by someone who is already in control 

of the corporation. In such a situation, it can hardly be said that 

the shares are worth less to the purchaser because they are 
7

noncontrolling. [Citation.]” (Brown v. Allied Corrugated Box Co. 

(1979) 91 Cal.App.3d 477, 486.) The trial court erroneously did 

not follow section 2000 because it averaged the three appraisals, 

two of which used a lack-of-control discount to determine the fair 

value of appellants‟ shareholder interest. 

De Novo Determination of Fair Value

Respondents argue that the trial court was not bound 

by the appraisals and was authorized to examine the matter de 

novo and set the correct value. (See Friedman et al., Cal. 

Practice Guide: Corporations, supra, ¶ 8:885, p. 8-179; Cotton v. 

Expo Power Systems, Inc., supra, 170 Cal.App.4th at p. 1376; 

Venables v. Credential Ins. Agency, Inc. (1956) 140 Cal.App.2d 

724, 727 [trial court rejected unanimous appraisal report and 

determined fair value de novo].) But that did not happen. The 

trial court “confirmed” the appraisal reports “in their entirety” 

and found that the fair value of appellants‟ interest in Katana is 

calculated by averaging the three appraisal report valuations 

together. There is no provision in the Corporations Code for this 

averaging methodology. 

Section 2000, subdivision (c) provides that “[t]he 

award of the appraisers or of a majority of them, when confirmed 

by the court, shall be final and conclusive upon all parties.” 

(Italics added.) But such an award requires that at least two of 

the appraisals reach a consensus on fair value. (See, e.g., Abrams 

v. Abrams-Rubaloff & Associates, Inc. (1980) 114 Cal.App.3d 240, 

248; Brown v. Allied Corrugated Box Co., supra, 91 Cal.App.3d at 

pp. 489, 491.) Here, the trial court confirmed all three appraisal 

reports even though there was no consensus. If the trial court 

intended to determine fair value de novo, it could not do so by 

“confirming” the appraisals and taking the mathematical average 
8

of defective appraisals that use a lack-of-control discount and do 

not consider the derivative claims. 

In Dickson v. Rehmke (2008) 164 Cal.App.4th 469, 

defendant invoked the appraisal provisions of section 17351 to 

buy out plaintiff‟s interest in a limited liability company. Section 

17351, which is identical to section 2000, provided that the trial 

court could appoint three appraisers and that the unanimous or 

majority award of the appraisers would be final and conclusive on 

all parties upon its confirmation by the court. (§ 17351, subd. 

(b)(3).) Because the appraisals were $0, $56,000 and $286,000, 

there was no award by a majority of the appraisers to confirm. 

(Id., at p. 479, fn. 2.) The trial court took the mean value of the 

three appraisals and found that the fair value was $147,333.33. 

(Ibid.) The Court of Appeal dismissed the appeal as untimely 

but, in dicta, stated that the trial court was “free to select among 

conflicting appraisals or decide the matter de novo. [Citations.]” 

(Id., at p. 475.) We need not, and do not, decide whether this 

dictum is “good law.”

Unlike Dickson, the trial court could not select among 

conflicting appraisals or decide the matter de novo unless 1. the 

derivative claim was considered, and 2. the “lack of control” 

discount was removed from consideration. 

Respondents seek solace in the traditional appellate 

rule that a trial court‟s unsound reasoning should not be utilized 

to impeach its result if the result is correct. Phrased otherwise, 

“[i]t is established that on appeal we review the decision of the 

trial court rather than its reasoning, and thus „. . . a ruling or 

decision correct in law will not be disturbed on appeal merely 

because it was given for the wrong reason. If correct upon any 

theory of law applicable to the case, the judgment will be 
9

sustained regardless of the considerations that moved the lower 

court to its conclusion.‟” (Belair v. Riverside County Flood 

Control Dist. (1988) 47 Cal.3d 550, 568.) We ourselves have 

applied this rule. (Lewow v. Surfside III Condominium Owners 

Assn., Inc. (2012) 203 Cal.App.4th 128, 129.) Based upon this 

record, we cannot say that the result was correct.

Disposition

The judgment is reversed. On remand, the trial court 

is ordered to obtain a majority fair value appraisal that takes into 

account the derivative claims and does not use a lack-of-control 

discount. In the alternative, the trial court may take evidence on 

the derivative claims and make a de novo determination of the 

fair value of appellants‟ shareholder interest, consistent with 

section 2000. (Cotton v. Expo Power Systems, Inc., supra, 170 

Cal.App.4th at p. 1383.) Appellants are awarded costs on appeal.

CERTIFIED FOR PUBLICATION.

YEGAN, Acting P. J.

We concur:

PERREN, J.

TANGEMAN, J.
Vincent J. O‟Neill, Jr., Judge

Superior Court County of Ventura

______________________________

Ferguson Case Orr Paterson, John A. Hribar and 

Wendy C. Lascher; Law Offices of Larry D. Webb, Larry D. Webb, 

for Appellants.

Glaser Weil Fink Howard Avchen & Shapiro, Andrew 

Baum, Elizabeth G. Chilton, for Respondents.