Filed 9/2/21 Schrage v. Schrage CA2/7

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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

LEONARD SCHRAGE,

Plaintiff and Respondent,

v.

MICHAEL SCHRAGE et al.,

Defendants and Appellants.

B298119

(Los Angeles County

Super. Ct. No. BC579623)

APPEAL from orders and a judgment of the Superior Court 

of Los Angeles County, Yvette M. Palazuelos and Daniel J. 

Buckley, Judges. Affirmed as modified in part and reversed in 

part.

Randall S. Waier for Defendants and Appellants.

Manatt, Phelps & Phillips, Benjamin G. Shatz, Kishan H. 

Barot; Markun Zusman Freniere Compton and Steven M. 

Goldberg for Plaintiff and Respondent. 
2

INTRODUCTION

Michael and Joseph Schrage appeal from the judgment and

several orders entered in an action filed by their brother, Leonard 

Schrage, for involuntary dissolution of the family business and 

breach of fiduciary duty. After Michael and Joseph invoked their 

statutory right under the Corporations Code to buy Leonard’s 

interests in the business pursuant to a court-ordered appraisal, 

the parties stipulated to add five limited liability companies to 

the eight limited liability companies, five corporations, and one 

limited partnership that were already subject to the appraisal 

and buyout proceeding. The trial court confirmed a valuation of 

Leonard’s interests determined by appraisers and a courtappointed referee. The court also issued an alternative decree 

ordering that Michael and Joseph had to pay the appraised 

amount by a certain date and that, if they did not, the entities 

would be wound up and dissolved. Michael and Joseph appealed 

from that order, but voluntarily dismissed the appeal. They did 

not pay the buyout amount, and the court proceeded to wind up 

and dissolve the family business, including the five additional 

limited liability companies. 

Meanwhile, Leonard proceeded on his cause of action for 

breach of fiduciary duty against Michael and Joseph. Following a 

court trial, the court found in favor of Leonard on that cause of 

action, awarded Leonard compensatory and punitive damages, 

and entered judgment in favor of Leonard and against Michael 

and Joseph. The court also denied various postjudgment 

motions.

Michael and Joseph argue the alternative decree to wind 

up and dissolve the family business and the “follow-up judgments
3

and orders” are void as a matter of law because the trial court 

lacked jurisdiction to dissolve the five limited liability companies

the parties stipulated to include in the appraisal and buyout 

proceeding. We reject this argument because the trial court had 

fundamental jurisdiction and Michael and Joseph are estopped 

from collaterally attacking the alternative decree. Michael and 

Joseph also argue Leonard lacked standing to assert his cause of 

action for breach of fiduciary duty. We agree with this argument

because Leonard’s cause of action was derivative, not individual. 

Therefore, we affirm the order of dissolution (with a 

modification), reverse the award of damages for breach of 

fiduciary duty, and dismiss the appeals from nonappealable 

orders.

FACTUAL AND PROCEDURAL BACKGROUND

A. Leonard Sues His Brothers To Dissolve the Family 

Business and for Breach of Fiduciary Duty

We pick up with the story in this (the parties’ third) appeal 

where we left off following Michael and Joseph’s appeal from an 

order awarding Leonard fees and expenses he incurred in a courtordered appraisal under Corporations Code section 1800.

1 (See 

Schrage v. Schrage (Aug. 19, 2020, B288478) [nonpub. opn.]

(Schrage I); see also Schrage v. Schrage (May 14, 2021, B307539) 

[nonpub. opn.] (Schrage II).) But first we repeat some of the basic 

facts of the case summarized in Schrage I. 

1 Undesignated statutory references are to the Corporations 

Code.
4

Leonard, Michael, and Joseph each owned a one-third 

interest in the Sage Automotive Group, a family-owned car 

dealership business founded by their father. In April 2015 

Leonard filed this action against Michael, Joseph, and 

14 corporate entities in the Sage Automotive Group to dissolve 

and wind up those entities. Leonard alleged Michael and Joseph 

engaged in a pattern of self-dealing and mismanaged the 

business by, among other things, misappropriating company 

assets to fund a separately owned car dealership and to pay for 

lavish personal expenses, making business decisions without 

Leonard’s consent, and denying Leonard access to corporate 

books and records. Leonard sought to dissolve five corporations 

under section 1800, eight limited liability companies under 

section 17707.03, and one limited partnership under section 

15908.02. Leonard also sought compensatory and punitive 

damages against Michael and Joseph for breach of fiduciary duty.

(Schrage I, supra, B288478.) 

In June 2016 Michael and Joseph filed a motion under 

sections 2000, 15908.02, and 17707.03 (collectively, the buyout 

statutes) to stay the dissolution causes of action and determine 

the value of Leonard’s interest in the entity defendants. On 

August 23, 2016 the trial court stayed Leonard’s three dissolution 

causes of action (one for each legal form of business entity) to 

allow Michael and Joseph to proceed on their election to purchase 

Leonard’s interests in the business. The court did not stay 

Leonard’s breach of fiduciary duty cause of action or Michael and 

Joseph’s causes of action in their cross-complaint for breach of 

fiduciary duty, conversion, and recording confidential 

communications in violation of Penal Code sections 630 and 632. 

(Schrage I, supra, B288478.) The trial court also denied Michael 
5

and Joseph’s motion for judgment on the pleadings on Leonard’s 

cause of action for breach of fiduciary duty, ruling Leonard had 

alleged an individual cause of action against his brothers, not a 

derivative cause of action on behalf of the entities in the Sage 

Automotive Group. 

On September 19, 2016 the parties entered into a 

stipulation, approved by the court, to appoint retired judge

Louis M. Meisinger as the referee to oversee and adjudicate all 

aspects of the appraisal process, including selecting the 

appraisers, determining the buyout price, and setting a deadline 

for Michael and Joseph to pay the buyout price. The order stated 

that “Judge Meisinger’s determinations in this regard will be 

final, and all parties expressly waive any right to contest, 

challenge, or object to such rulings . . . .”

The parties entered into another stipulated order on 

January 5, 2017 to govern the appraisal and buyout proceeding. 

That order provided, among other things, the appraisal and 

buyout process would include the 14 entity defendants named in 

the first amended complaint, plus five additional limited liability 

companies (collectively, the buyout entities). The five limited 

liability companies that were not named defendants in any of the 

three causes of action for involuntary dissolution, but that were 

subject to the appraisal and buyout process by stipulation, were 

UCNP 3, UCNP 4, UCNP 5, UCNP 6, and UCNP 8 (collectively, 

the UCNP entities). To allow the appraisers to value each entity,

the order required the parties to give the appraisers a variety of 

information, including organizational agreements, historical and 

projected financial data, and real estate holdings. The 

stipulation provided that, after the appraisers submitted their 

written reports to the parties and Judge Meisinger, the parties 
6

would meet and confer to try to reach agreement on the valuation 

assigned to each entity and the overall value of Leonard’s onethird interest in the buyout entities, “which shall constitute the 

buy-out price to be paid by Michael and Joseph to Leonard.” If 

the parties were unable to agree on a buyout price, Judge 

Meisinger would set the price following a hearing. 

On July 25, 2017, following a contested appraisal process, 

Judge Meisinger submitted a recommendation and proposed 

order confirming the value of Leonard’s interests in the buyout 

entities was $40,237,000 and stating that, if Michael and Joseph 

did not pay Leonard that amount by September 11, 2017, the 

buyout entities (including the UCNP entities) would be wound up 

and dissolved. Judge Meisinger’s recommendation also stated 

that, under the September 19, 2016 stipulation and order, his

findings were “‘final’ and ‘all parties expressly waive any right to 

contest, challenge, or object to such rulings before’” the court. On 

July 28, 2017 the trial court approved the referee’s 

recommendation and entered it as the court’s order and 

alternative decree.

Michael and Joseph did not pay Leonard by September 11, 

2017, but they did file a notice of appeal from the July 28, 2017 

order and alternative decree. Michael and Joseph subsequently 

filed requests to dismiss that appeal, and on May 31, 2018 this 

court granted those requests and dismissed the appeal.

2 

Meanwhile, on September 27, 2017 the trial court appointed a 

2 We take judicial notice of the May 31, 2018 order of 

dismissal in Schrage v. Schrage (B285049) under Evidence Code 

sections 452, subdivision (d), and 459. The notice of appeal in 

this case purports to appeal again from the July 28, 2017 order. 

We dismiss the second appeal from that order as untimely.
7

receiver to wind up and dissolve the buyout entities. In Schrage I 

we modified and affirmed an order granting Leonard’s motion for

attorneys’ fees and other expenses incurred in the appraisal 

process and in obtaining certain injunctive relief during that 

process. (Schrage I, supra, B288478.)

B. The Trial Court Enters a Net Judgment of 

Approximately $31 Million in Favor of Leonard and 

Against Michael and Joseph

A bifurcated court trial began in April 2018 on Leonard’s 

cause of action for breach of fiduciary duty and on Michael and 

Joseph’s cross-complaint. Following almost two months of 

testimony, the court on October 12, 2018 issued a tentative 

decision finding Michael and Joseph breached their fiduciary 

duties to Leonard, awarding Leonard compensatory damages

offset by an amount for Leonard’s unclean hands, finding Michael 

and Joseph acted with malice, oppression, and fraud, and ruling

against Michael and Joseph on their cross-complaint. The court 

began the punitive damages phase of the trial on November 26, 

2018. 

On March 12, 2019 the court entered judgment in favor of 

Leonard and against Michael and Joseph in the amount of 

approximately $31 million. The judgment consisted of 

$962,903.13 on the first, second, and third causes of action for 

involuntary dissolution,3 $24,418,473 in compensatory damages 

3 Michael and Joseph appealed from this portion of the 

judgment in Schrage I, and we modified the amount to strike 

$561,393.63 in injunction-related attorneys’ fees, leaving an 
8

on Leonard’s cause of action for breach of fiduciary duty offset by 

$3,506,412 for Leonard’s unclean hands, and punitive damages of 

$5 million against Michael and $5 million against Joseph. 

Michael and Joseph filed motions to vacate and amend the 

judgment and for a new trial. Michael and Joseph argued the 

trial court lacked subject matter jurisdiction and personal 

jurisdiction over the UCNP entities for the July 28, 2017 

alternative decree and the September 27, 2017 order appointing a 

receiver to wind up and dissolve the buyout entities, which made 

those orders void as a matter of law; the “one judgment rule” and 

claim preclusion (which they referred to as res judicata) barred

Leonard’s cause of action for breach of fiduciary duty because the 

appraisal and buyout process should have included the value of 

that cause of action; the trial court erred in awarding 

compensatory and punitive damages on Leonard’s cause of action 

for breach of fiduciary duty; and Michael and Joseph’s affirmative 

defense of unclean hands precluded any recovery by Leonard on

his cause of action for breach of fiduciary duty. 

The trial judge was unavailable to hear Michael’s and 

Joseph’s postjudgment motions, and another judge heard them.

Following a hearing, the court denied the motions, and Michael 

and Joseph timely appealed from the judgment and the 

postjudgment orders.

4

award of $401,509.50 for referee fees and appraisal-related 

attorneys’ fees. (Schrage I, supra, B288478.)

4 Joseph Schrage died after the trial court entered judgment 

in this action, and the executor of his estate filed the notice of 

appeal.
9

DISCUSSION

Michael and Joseph argue the alternative decree and 

subsequent orders and judgment are void as a matter of law 

because the trial court lacked jurisdiction to order the appraisal 

and dissolution of the UCNP entities; Leonard lacked standing to 

assert his cause of action for breach of fiduciary duty because his 

claims were derivative, not individual; the trial court exceeded its 

jurisdiction by failing in the appraisal and buyout process to 

assess the economic impact of the cause of action for breach of 

fiduciary duty; the election of remedies doctrine, the “one 

judgment rule,” and claim preclusion barred Leonard’s cause of 

action for breach of fiduciary duty; the trial court erred in 

awarding compensatory and punitive damages for Leonard’s 

cause of action for breach of fiduciary duty; and Michael and

Joseph’s affirmative defense of unclean hands precluded any 

recovery by Leonard for his cause of action for breach of fiduciary 

duty. We conclude the standing argument has merit, the 

jurisdictional argument does not, and we do not reach the other 

issues.

A. The Buyout Statutes

As we explained in Schrage I, the “statutory buyout 

provisions of the Corporations Code provide a defendant in an 

involuntary dissolution action with a mechanism for avoiding 

dissolution by purchasing the plaintiff’s shares or other interests. 

[Citations.] Section 2000, subdivision (a), which applies to 

corporations, states that, ‘[i]n any suit for involuntary 

dissolution, . . . the corporation or, if it does not elect to purchase, 

the holders of 50 percent or more of the voting power of the 
10

corporation (the “purchasing parties”) may avoid the dissolution 

of the corporation and the appointment of any receiver by 

purchasing for cash the shares owned by the plaintiffs or by the 

shareholders so initiating the proceeding (the “moving parties”) 

at their fair value.’ If the parties are unable to agree on the fair 

value of the shares, and the purchasing parties post a bond with 

sufficient security to pay the moving parties’ estimated 

reasonable expenses, ‘the court upon application of the 

purchasing parties . . . shall stay the winding up and dissolution 

proceeding and shall proceed to ascertain and fix the fair value of 

the shares owned by the moving parties.’” (Schrage I, supra, 

B288478.)

“Section 2000, subdivision (c), prescribes the procedure for 

determining the fair value of the shares and the relief available 

to the moving parties if the shares are not purchased. That 

provision states in relevant part: ‘The court shall appoint three 

disinterested appraisers to appraise the fair value of the shares 

owned by the moving parties, and shall make an order referring 

the matter to the appraisers so appointed for the purpose of 

ascertaining the value. . . . The award of the appraisers or of a 

majority of them, when confirmed by the court, shall be final and 

conclusive upon all parties. The court shall enter a decree, which 

shall provide in the alternative for winding up and dissolution of 

the corporation unless payment is made for the shares within the 

time specified by the decree.’ Sections 17707.03 and 15908.02 

contain substantively identical buyout provisions for limited 

liability companies and limited partnerships, respectively.” 

(Schrage I, supra, B288478.)

“The statutory buyout procedure is ‘a special proceeding’

that, ‘once initiated, “supplants” a cause of action for involuntary 
11

dissolution.’ [Citations.] ‘In such a proceeding, [the] purchasing 

parties aspire to buy out the moving party, with minimal 

expenditure of time and money that would otherwise be spent in 

litigation, in order to preserve the corporation. If they . . . cannot 

pay the purchase price, or decide not to do so, then both sides 

must walk away, receiving pro rata the proceeds resulting from 

dissolution of the corporation. On the other hand, if the 

purchasing parties tender the amount determined by the court, 

the moving party cannot reject the share price as being too low.’

[Citation.] The buyout procedure ‘does not determine whether 

the corporation should be dissolved, but instead, provides the 

plaintiff and defendant with a statutory remedy without [a] trial’

on the merits.” (Schrage I, supra, B288478; see Ontiveros v. 

Constable (2018) 27 Cal.App.5th 259, 277 [“A value of the 

corporation’s stock is determined and then the defendant has a 

period by which it is to pay the plaintiff for its stock. If the 

defendant does not do so, a judicial decree will dissolve the 

corporation.”].)

B. Michael and Joseph Cannot Collaterally Attack the 

Alternative Decree 

Michael and Joseph contend the alternative decree and 

“confirming judgments and orders” are void and unenforceable 

because the trial court lacked subject matter jurisdiction to order 

the appraisal and buyout of the five UCNP entities.5 The 

5 Michael and Joseph do not argue the trial court lacked 

personal jurisdiction over the UCNP entities, even though the 

two brothers claim they made that argument in their motions for 

a new trial and for an order vacating the judgment, and even 
12

alternative decree, however, was an appealable order. (See 

§ 2000, subd. (c); Cotton v. Expo Power Systems, Inc. (2009) 

170 Cal.App.4th 1371, 1376; Dickson v. Rehmke (2008) 

164 Cal.App.4th 469, 476.) Michael and Joseph had an

opportunity to challenge that order in their appeal from the 

alternative decree, but they dismissed the appeal, making that 

order final. (See Code Civ. Proc., § 913; Estate of Sapp (2019) 

36 Cal.App.5th 86, 100; Patchett v. Bergamot Station, Ltd. (2006) 

143 Cal.App.4th 1390, 1396; Schrage I, supra, B288478.) 

Nevertheless, Michael and Joseph can challenge it in this appeal 

if it is a void order, because a party may collaterally attack a void 

judgment or order at any time. (Falahati v. Kondo (2005) 

127 Cal.App.4th 823, 830, fn. 9; accord, Deutsche Bank National 

Trust Co. v. Pyle (2017) 13 Cal.App.5th 513, 526-527; see Code

Civ. Proc., § 473, subd. (d) [“[t]he court . . . may, on motion of 

either party after notice to the other party, set aside any void 

judgment or order”].) 

A judgment or order that is not void but “merely” voidable, 

however, is generally not subject to collateral attack. (See People 

v. American Contractors Indemnity Co. (2004) 33 Cal.4th 653, 661

(American Contractors); Adoption of Myah M. (2011) 

201 Cal.App.4th 1518, 1531.) “When a court has fundamental 

jurisdiction, but acts in excess of its jurisdiction, its act or 

judgment is merely voidable. [Citations.] That is, its act or 

judgment is valid until it is set aside, and a party may be 

precluded from setting it aside by ‘principles of estoppel, disfavor 

of collateral attack or res judicata.’ [Citation.] Errors which are 

merely in excess of jurisdiction should be challenged directly, for 

though their opening brief on appeal cites law that a judgment is 

void if the trial court lacked personal jurisdiction. 
13

example by motion to vacate the judgment, or on appeal, and are 

generally not subject to collateral attack once the judgment is 

final unless ‘unusual circumstances were present which 

prevented an earlier and more appropriate attack.’” (American 

Contractors, at p. 661; see Adoption of Myah M., at p. 1531 [“A 

claim that does not concern the trial court’s fundamental subject 

matter jurisdiction is waived if not timely asserted.”].) We review 

de novo the trial court’s ruling that neither the alternative decree 

nor the judgment is void for lack of subject matter jurisdiction. 

(See Mack v. All Counties Trustee Services, Inc. (2018) 

26 Cal.App.5th 935, 940; Talley v. Valuation Counselors Group, 

Inc. (2010) 191 Cal.App.4th 132, 146.) 

1. Michael and Joseph Cannot Collaterally Attack 

the Alternative Decree as a Void Order Because 

the Trial Court Had Fundamental Jurisdiction 

To Adjudicate the Buyout Proceeding

a. Applicable Law

“A judgment or order is void when there is an absence of 

fundamental jurisdiction. However, an act in excess of 

jurisdiction simply renders an order of judgment voidable. ‘Lack 

of jurisdiction in its most fundamental or strict sense means an 

entire absence of . . . authority over the subject matter or the 

parties. . . .’ [Citation.] In contrast, a court acts in excess of 

jurisdiction in the broader sense ‘where, though the court has 

jurisdiction over the subject matter and the parties in the 

fundamental sense, it has no “jurisdiction” (or power) to act 

except in a particular manner, or to give certain kinds of relief, or 

to act without the occurrence of certain procedural prerequisites.’
14

[Citation.] ‘Action “in excess of jurisdiction” by a court that has 

jurisdiction in the “fundamental sense” . . . is not void, but only

voidable.’” (Adoption of Myah M., supra, 201 Cal.App.4th at 

p. 1531; see In re Marriage of Goddard (2004) 33 Cal.4th 49, 56 

[“A court can lack fundamental authority over the subject matter, 

question presented, or party, making its judgment void, or it can 

merely act in excess of its jurisdiction or defined power, rendering 

the judgment voidable.”]; see also American Contractors, supra,

33 Cal.4th at pp. 660-661; People v. North River Ins. Co. (2020) 

58 Cal.App.5th 300, 311-313; Torjesen v. Mansdorf (2016) 

1 Cal.App.5th 111, 117 (Torjesen).) 

“Subject matter jurisdiction . . . is the power of the court 

over a cause of action or to act in a particular way.” (Greener v. 

Workers’ Comp. Appeals Bd. (1993) 6 Cal.4th 1028, 1035; see

People v. Superior Court (Mitchell) (2010) 184 Cal.App.4th 451, 

458.) “[L]ack of subject matter jurisdiction means the entire 

absence of power to hear or determine a case; i.e., an absence of 

authority over the subject matter.” (Guardianship of Ariana K.

(2004) 120 Cal.App.4th 690, 701; see Abelleira v. District Court of 

Appeal (1941) 17 Cal.2d 280, 288 (Abelleira) [“A court has no 

jurisdiction to hear or determine a case where the type of 

proceeding or the amount in controversy is beyond the 

jurisdiction defined for that particular court by statute or 

constitutional provision.”]; 2 Witkin, Cal. Procedure (2020 supp.)

Jurisdiction, § 44 [“A court without authority to try actions of the 

type or class to which the action belongs is ‘not competent,’ i.e., it 

has no jurisdiction of the subject matter.”].) 

“Subject matter jurisdiction is conferred by constitutional 

or statutory law.” (Guardianship of Ariana K., supra, 

120 Cal.App.4th at p. 701.) In general, article VI, section 10 of 
15

the California Constitution confers broad authority on the 

superior courts. (Donaldson v. National Marine, Inc. (2005) 

35 Cal.4th 503, 512; see Cal. Const., art. VI, § 10 [except as 

otherwise provided, “[s]uperior courts have original jurisdiction 

in all other causes”]; see also Code Civ. Proc., § 410.10 [a “court of 

this state may exercise jurisdiction on any basis not inconsistent 

with the Constitution of this state or of the United States”].) 

“A court does not necessarily act without subject matter 

jurisdiction merely by issuing a judgment going beyond the 

sphere of action prescribed by law. ‘Speaking generally, any acts 

which exceed the defined power of a court in any instance, 

whether that power be defined by constitutional provision, 

express statutory declaration, or rules developed by the courts 

and followed under the doctrine of stare decisis, are in excess of 

jurisdiction.’” (Pajaro Valley Water Management Agency v. 

McGrath (2005) 128 Cal.App.4th 1093, 1101; see American 

Contractors, supra, 33 Cal.4th at p. 661 [“‘“[W]hen a statute 

authorizes [a] prescribed procedure, and the court acts contrary 

to the authority thus conferred, it has exceeded its 

jurisdiction.”’”].)

b. The Buyout Statutes Conferred Subject 

Matter Jurisdiction for the Buyout

Proceeding

Michael and Joseph do not argue the trial court lacked 

subject matter jurisdiction over Leonard’s causes of action for 

involuntary dissolution. Nor do they contend the court lacked 

subject matter jurisdiction to adjudicate the appraisal and buyout 

proceeding for the 14 entity defendants Leonard named in those 

causes of action or to dissolve them. They argue only that the 
16

“addition of the UCNP entities in the buyout proceedings, when 

they were not the subjects of a pending judicial dissolution cause 

of action, rendered the alternative decree, and ensuing judgments 

and orders,” void.6

To determine whether an error is jurisdictional in a 

fundamental sense, courts “look first to the language of the 

statute.” (American Contractors, supra, 33 Cal.4th at p. 661; see 

In re Marriage of Goddard, supra, 33 Cal.4th at p. 54; People v.

North River Ins. Co., supra, 58 Cal.App.5th at p. 313.) For 

6 We do not address Michael and Joseph’s argument the trial 

court lacked subject matter and personal jurisdiction to order 

“post judgment, Sage Vermont, nunc pro tunc, as a ‘dissolved 

entity’ under the control of the receiver to be wound up.” There is 

no indication in the record Michael and Joseph appealed from 

that order, which was issued on August 16, 2019, after Michael 

and Joseph filed their notices of appeal in this action, and which 

is not included in the record of this appeal. Even assuming the 

August 16, 2019 order was appealable, we do not have

jurisdiction to review it in this appeal. (See In re Baycol 

Cases I & II (2011) 51 Cal.4th 751, 761, fn. 8 [“if an order is 

appealable, [an] appeal must be taken or the right to appellate 

review is forfeited”];Williams v. Impax Laboratories, Inc. (2019) 

41 Cal.App.5th 1060, 1071 [same].) In addition, the vast majority 

of Michael and Joseph’s argument appears in a footnote. (See 

Sabi v. Sterling (2010) 183 Cal.App.4th 916, 947 [“Footnotes are 

not the appropriate vehicle for stating contentions on appeal.”]; 

Evans v. Centerstone Development Co. (2005) 134 Cal.App.4th 

151, 160 [raising an issue in a two-page footnote “is a violation of 

court rules that require arguments to be contained in discrete 

sections with headings summarizing the point”]; see also Holden 

v. City of San Diego (2019) 43 Cal.App.5th 404, 419-420 [an 

“appellant cannot bury a substantive legal argument in a footnote 

and hope to avoid waiver of that argument”].) 
17

example, in American Contractors the Supreme Court considered 

whether the trial court lacked fundamental jurisdiction when it 

declared a bond forfeited without complying with two 

“jurisdictional prerequisites” in Penal Code sections 1305 and 

1306. (See generally People v. Safety National Casualty Corp. 

(2016) 62 Cal.4th 703, 710 [describing the jurisdictional

prerequisites of Penal Code sections 1305 and 1306].) The

Supreme Court observed that neither statute declared the surety 

released or the bond exonerated if the court failed to comply with 

those prerequisites under the circumstances in that case. 

(American Contractors, at p. 661.) “Based on what sections 1305 

and 1306 said and did not say, the Supreme Court [in American 

Contractors] concluded the failure ‘to follow the procedural 

requirements to enter judgment properly did not affect the court’s 

statutory control and jurisdiction over the bond.’ [Citation.]

Accordingly, the court held the trial ‘court’s failure to comply 

with section 1306 . . . “does not effect a fundamental loss of 

jurisdiction, i.e., ‘an entire absence of power to hear or determine 

the case, an absence of authority over the subject matter of the 

parties.’”’” (North River Ins. Co., at p. 314, quoting American 

Contractors, at pp. 662-663.)

The buyout statutes established the court’s subject matter 

jurisdiction to conduct and adjudicate the buyout proceeding and 

to dissolve the entities subject to that proceeding. As discussed, 

the relevant language of section 2000 states: “In any suit for 

involuntary dissolution, . . . the holders of 50 percent or more of 

the voting power of the corporation (the ‘purchasing parties’) may 

avoid the dissolution of the corporation and the appointment of 

any receiver by purchasing for cash the shares owned by the 

plaintiffs . . . (the ‘moving parties’) at their fair value. [¶] . . . [¶] 
18

. . . [T]he court upon application of the purchasing parties, . . . in 

the pending action . . . , shall stay the winding up and dissolution 

proceeding and shall proceed to ascertain and fix the fair value of 

the shares owned by the moving parties. [¶] . . . The court shall 

enter a decree, which shall provide in the alternative for winding 

up and dissolution of the corporation unless payment is made for 

the shares within the time specified by the decree. If the 

purchasing parties do not make payment for the shares within 

the time specified, judgment shall be entered against them and 

the surety or sureties on the bond for the amount of the expenses 

(including attorneys’ fees) of the moving parties.” (§ 2000, 

subds. (a)-(c), italics added; see §§ 15908.02, 17707.03.) Thus, if 

the purchasing parties follow through on buying out the minority 

shareholder (or member or partner), the buyout proceeding 

successfully avoids litigation and the dissolution of the 

corporation. But if the purchasing parties are unable or 

unwilling to buy out the minority shareholder, the entity subject 

to the proceeding is wound up and dissolved. 

In compliance with the buyout statutes, the trial court on 

August 23, 2016 granted Michael and Joseph’s motion to stay 

Leonard’s involuntary dissolution causes of action, thereby 

establishing subject matter jurisdiction for the buyout

proceeding. The court still had subject matter jurisdiction over 

the proceeding on January 5, 2017, when Michael, Joseph, and 

Leonard stipulated to include the UCNP entities in the 

proceeding. And the court had subject matter jurisdiction on 

July 28, 2017, when it issued the alternative decree providing 

that the entity defendants and the UCNP entities would be 

wound up and dissolved if Michael and Joseph did not pay

Leonard by September 11, 2017. 
19

The buyout statutes do not address circumstances where, 

as here, the owners of an entity all agree to submit that entity

(or, here, several entities) to an existing buyout proceeding over 

which the trial court undoubtedly had authority. But considering

the statutes’ silence on this issue, the broad authority conferred 

on superior courts (including the power to dissolve companies 

organized under the laws of California), and cases holding that 

neither the addition of nonparties to an action nor the violation of 

certain statutory requirements (even where “jurisdictional”) 

divests a court of its subject matter jurisdiction, we conclude the 

addition of the UCNP entities to the existing buyout proceeding

did not undermine the court’s “inherent authority to deal with 

the case or matter before it.” (Law Offices of Ian Herzog v. Law 

Offices of Joseph M. Fredrics (1998) 61 Cal.App.4th 672, 680; see 

American Contractors, supra, 33 Cal.4th at p. 661; Abelleira, 

supra, 17 Cal.2d at p. 288; Conservatorship of O’Connor (1996) 

48 Cal.App.4th 1076, 1087-1088.)

For example, in Serrano v. Stefan Merli Plastering Co., Inc.

(2008) 162 Cal.App.4th 1014 the court held the trial court 

adjudicating a personal injury action had subject matter 

jurisdiction to adjudicate a fee dispute between the plaintiff and a 

nonparty court reporting company. Even though the dispute 

“was not within the scope of the pleadings and pertained to a 

third party” (id. at p. 1028), the matter involved a right created 

by California discovery statutes and the court’s authority to 

control the conduct of its ministerial officers, and the dispute was 

“typical of those commonly adjudicated in California courts” (id.

at pp. 1029-1030). Similarly, in Lovett v. Carrasco (1998) 

63 Cal.App.4th 48 the court held the trial court had subject 

matter jurisdiction to adjudicate third parties’ medical lien 
20

claims in an underlying personal injury action. (Id. at p. 54.) 

The court in Lovett stated that “adjudication of claimants’

medical lien claims is clearly within the general subject matter 

jurisdiction of the superior court.” (Ibid.) Thus, the 

“jurisdictional issue [was] whether the court acted in excess of its 

jurisdiction by adjudicating the liens in the [underlying] action,”

not whether the court had fundamental jurisdiction. (Ibid.; see 

Law Offices of Stanley J. Bell v. Shine, Browne & Diamond

(1995) 36 Cal.App.4th 1011, 1021-1023 [trial court in an 

underlying personal injury action had subject matter jurisdiction 

to issue an order denying a claim under an attorney’s lien, even 

though contractual liens generally are enforced in an 

independent action by the attorney against the client].)

Nor did the fact the trial court arguably acted contrary to 

the authority conferred by the buyout statutes divest the court of 

subject matter jurisdiction. In Torjesen the plaintiff judgment 

creditor filed a petition under the Enforcement of Judgments Law

(Code Civ. Proc., §§ 680.010 et seq.) to invalidate a third party 

claim on a deceased judgment debtor’s property. (Torjesen, 

supra, 1 Cal.App.5th at p. 113.) The Enforcement of Judgments 

Law, however, provides that, “[a]fter the death of the judgment 

debtor, enforcement of a judgment against property in the 

judgment debtor’s estate is governed by the Probate Code, and 

not by this title.” (Code Civ. Proc., § 686.020.) The trial court 

nevertheless granted the judgment creditor’s petition under the 

wrong statute. (Torjesen, at p. 113.) The third party claimant 

did not appeal from that ruling, but two years later filed a motion 

to vacate the order, arguing the trial court did not have 

jurisdiction to proceed under the Enforcement of Judgments Law. 

(Ibid.) The court in Torjesen rejected that argument: “Without 
21

question, the superior court has jurisdiction over disputes related 

to the enforcement of judgments and the validity of claims to 

property that has been levied upon. [Citations.] The statutory 

scheme does not deprive the superior court of jurisdiction over 

these matters. It simply limits the manner in which a judgment 

creditor may enforce a judgment against a deceased judgment 

debtor’s property.” (Id. at p. 118.) The court in Torjesen agreed 

that the superior court erred in allowing the judgment creditor to 

proceed under the Enforcement of Judgments Law, but the court 

held “that error was an act in excess of jurisdiction” rendering the 

order voidable, not void for lack of subject matter jurisdiction. 

(Ibid.; see Barquis v. Merchants Collection Assn. (1972) 7 Cal.3d 

94, 97-98, 99 [default judgments erroneously entered in favor of a 

collection agency that knowingly filed “statutorily inadequate 

complaints” in the wrong counties were not void for lack of

“‘jurisdiction’ in the fundamental sense”]; Law Offices of Ian 

Herzog v. Law Offices of Joseph M. Fredrics, supra,

61 Cal.App.4th at p. 680 [order compelling arbitration in the 

absence of an arbitration agreement, in violation of Code of Civil 

Procedure section 1281, was only an act in excess of jurisdiction]; 

In re Marriage of Hinman (1992) 6 Cal.App.4th 711, 718 [“while 

the court’s award [granting joint custody to a nonbiological 

parent] may have been beyond its statutory authority, the court 

did not lack jurisdiction in the fundamental sense”].) 

Thus, even if the trial court erred by including the five 

UCNP entities in the appraisal and buyout proceeding, the trial 

court undoubtedly had subject matter jurisdiction over the 

proceeding. Michael and Joseph do not contest the court’s 

jurisdiction to hear and determine the case with regard to the 

14 entity defendants. Neither the voluntary addition of the five 
22

UCNP entities to the buyout proceeding nor the trial court’s 

purported error in issuing the alternative decree over entities 

that were not parties to the involuntary dissolution causes of 

action disturbed or eliminated the court’s subject matter 

jurisdiction. At most, the alternative decree was an act in excess 

of the statutory authority conferred by the buyout statutes. (See 

Barquis v. Merchants Collection Assn., supra, 7 Cal.3d at p. 99; 

People v. North River Ins. Co., supra, 58 Cal.App.5th at p. 314.)

The cases cited by Michael and Joseph do not hold 

otherwise. In general, those cases stand for the proposition that 

the court’s power to conduct a special proceeding under the 

buyout statutes depends on the existence of a cause of action for 

involuntary dissolution. (See Boschetti v. Pacific Bay 

Investments, Inc. (2019) 32 Cal.App.5th 1059, 1066 [“‘the right of 

buyout under section 15908.02 is dependent upon a cause of 

action for judicial dissolution’”]; Ontiveros v. Constable, supra, 

27 Cal.App.5th at p. 271 [“a party’s right under section 2000 

depends entirely on the existence of a cause of action for 

involuntary dissolution of a corporation”]; Kennedy v. Kennedy

(2015) 235 Cal.App.4th 1474, 1481 [“[u]pon dismissal of [a]

dissolution cause of action, there is no dissolution to avoid and, 

thus, no right to buy out plaintiff’s interests” under section 2000]; 

Panakosta, Partners, LP v. Hammer Lane Management, LLC

(2011) 199 Cal.App.4th 612, 635 [“[w]ithout a pending judicial 

dissolution action, the trial court was without jurisdiction to 

allow the buyout petition to proceed”]; Dabney v. Dabney (2002) 

104 Cal.App.4th 379, 383 [“no court has inherent authority to 

decide a matter for which there is no legally recognized cause of 

action”]; Housing Group v. United Nat. Ins. Co. (2001) 

90 Cal.App.4th 1106, 1107-1108 [pending litigation is required 
23

before parties may stipulate to the appointment of a judicial 

referee or temporary judge to secure a settlement enforceable by 

the court].) Unlike those cases, here there were causes of action 

for involuntary dissolution pending at the time Michael and 

Joseph moved to stay them and initiate the buyout proceeding 

and at the time Michael, Joseph, and Leonard agreed to add the 

five UCNP entities to the pending proceeding. 

Michael and Joseph also argue the trial court could not 

have subject matter jurisdiction unless Leonard added the UCNP 

entities as defendants to a pending cause of action. But third 

parties may appear and be bound by a judgment without being 

named in a complaint. (See People ex rel. Becerra v. Superior 

Court (2018) 29 Cal.App.5th 486, 493; Fireman’s Fund Ins. Co. v. 

Sparks Construction, Inc. (2004) 114 Cal.App.4th 1135, 

1145-1147; In re Marriage of Williams (1985) 163 Cal.App.3d 753, 

759-760.) As stated, Michael and Joseph do not argue the trial 

court lacked personal jurisdiction over the five UCNP entities, 

and in any event the UCNP entities’ participation in the 

appraisal and buyout proceeding without objection (to this day) 

acknowledged the authority of the court in that proceeding. (See 

Rockefeller Technology Investments (Asia) VII v. Changzhou 

SinoType Technology Co., Ltd. (2020) 9 Cal.5th 125, 139 [“‘a party 

may voluntarily submit himself to the jurisdiction of the court, or 

may, by failing to seasonably object thereto, waive his right to 

question jurisdiction over him’”]; Becerra, at p. 493 [“a person can 

become a party to an action, even if not named in the complaint, 

by appearing and participating without any objection by the 

other parties”]; Thomson v. Anderson (2003) 113 Cal.App.4th 258, 

266 [“‘because the personal jurisdiction requirement is a waivable 

right, there are a “variety of legal arrangements” by which a 
24

litigant may give “express or implied consent to the personal

jurisdiction of the court”’”].)7

7 We also question whether Michael and Joseph have 

standing to assert this argument on behalf of the UCNP entities. 

(See City of Riverside v. Horspool (2014) 223 Cal.App.4th 670, 

678 [a party may appeal “only that portion of the judgment 

adverse to the appealing party’s interest”]; In re Marriage of 

Hinman, supra, 6 Cal.App.4th at p. 719, fn. 3 [an “appellant may 

only complain of errors which injuriously affect her”]; Nichols v. 

Nichols (1933) 135 Cal.App. 488, 491 [an appellant cannot “urge 

errors which affect only his coparties who do not appeal, and such 

errors can be reviewed only at the instance of the parties affected 

thereby”]; see also Brenner v. Universal Health Services of 

Rancho Springs, Inc. (2017) 12 Cal.App.5th 589, 605 [“As a 

general rule, a third party does not have standing to bring a 

claim asserting a violation of someone else’s rights.”].) After all, 

as we will discuss, Michael and Joseph argue Leonard lacked 

standing to assert his cause of action for breach of fiduciary duty 

for the very reason the alleged violations harmed only the entity 

defendants, not Leonard. Similarly, Michael and Joseph 

arguably lack standing to argue on behalf of the UCNP entities 

that the alternative decree and judgment cannot bind the UCNP 

entities. Although the buyout statutes give any shareholder 

aggrieved by an alternative decree standing to appeal the court’s 

decision (§ 2000, subd. (c); § 17707.03, subd. (c)(3); § 15908.02, 

subd. (d)), Michael and Joseph dismissed their appeal from the 

alternative decree. And they do not argue on appeal they were 

injured by the court’s exercise of jurisdiction over the UCNP 

entities. 
25

2. Michael and Joseph Cannot Collaterally Attack 

the Alternative Decree as a Voidable Order 

As discussed, a party generally may not collaterally attack 

errors in excess of jurisdiction once the judgment or order is final 

unless there are “unusual circumstances” that prevented the 

party from making an “earlier and more appropriate attack.” 

(American Contractors, supra, 33 Cal.4th at p. 661; see People v.

North River Ins. Co., supra, 58 Cal.App.5th at p. 311; Torjesen, 

supra, 1 Cal.App.5th at p. 118.) No unusual circumstances 

prevented Michael and Joseph from an earlier attack on the 

alternative decree.

8 Indeed, Michael and Joseph could have

appealed, and did appeal, from the alternative decree, but they 

dismissed their appeal. And the UCNP entities never objected to 

their inclusion in the buyout proceeding or appealed from the 

alternative decree or judgment. (See Travis v. Brand (2021) 

62 Cal.App.5th 240, 254 [nonparties have standing to appeal 

where “the judgment has a ‘res judicata effect’” or is otherwise 

binding on the nonparty], review granted June 23, 2021, 

8 The January 5, 2017 stipulated order gave Michael and 

Joseph the right to raise any dispute concerning the proceedings 

with Judge Meisinger. According to the alternative decree, after 

the appraisal and valuation process was complete Michael and 

Joseph asked Judge Meisinger for the first time to make discrete 

findings on the value of the constituent entities comprising the 

Sage Automotive Group (which included the UCNP entities). 

Judge Meisinger denied Michael and Joseph’s request “for the 

reasons stated in the transcript of that hearing.” Michael and 

Joseph do not challenge that aspect of Judge Meisinger’s decision 

or the alternative decree, nor did they include the transcript of 

the hearing before Judge Meisinger in the record on appeal. 
26

S268480; Marsh v. Mountain Zephyr, Inc. (1996) 43 Cal.App.4th 

289, 295 [same].) 

Moreover, a “party may be precluded from setting aside a 

voidable act or judgment made in excess of jurisdiction by 

‘“principles of estoppel.”’ [Citation.] ‘When . . . the court has 

jurisdiction of the subject, a party who seeks or consents to action 

beyond the court’s power as defined by statute or decisional rule 

may be estopped to complain of the ensuing action in excess of

jurisdiction. [Citations.] Whether he shall be estopped depends 

on the importance of the irregularity not only to the parties but to 

the functioning of the courts and in some instances on other

considerations of public policy. A litigant who has stipulated to a 

procedure in excess of jurisdiction may be estopped to question it 

when “[t]o hold otherwise would permit the parties to trifle with 

the courts.”’” (Mt. Holyoke Homes, LP v. California Coastal Com.

(2008) 167 Cal.App.4th 830, 842; see Garibotti v. Hinkle (2015) 

243 Cal.App.4th 470, 481 [“‘The doctrine of estoppel to contest 

jurisdiction . . . “provides that when a court has subject matter 

jurisdiction over an action, ‘a party who seeks or consents to 

action beyond the court’s power as defined by statute or 

decisional rule may be estopped to complain of the ensuing action 

in excess of jurisdiction.’”’”].)

Michael and Joseph agreed to include the five UCNP 

entities in the buyout proceeding and did not question the 

validity of the court’s alternative decree for 18 months (when 

they first raised the issue on appeal from the award of attorneys’

fees and costs in Schrage I).

9 They are estopped from arguing the 

9 In Schrage I we rejected Michael and Joseph’s argument 

the alternative decree was void for lack of jurisdiction because 
27

trial court acted in excess of its jurisdiction by including the 

UCNP entities in the alternative decree. (See Kristine H. v. 

Lisa R. (2005) 37 Cal.4th 156, 166 [“Given that the court had 

subject matter jurisdiction to determine the parentage of the 

unborn child, and that [the plaintiff] invoked that jurisdiction, 

stipulated to the issuance of a judgment, and enjoyed the benefits 

of that judgment for nearly two years, it would be unfair both to 

[the defendant] and the child to permit [the plaintiff] to challenge

the validity of that judgment.”]; Torjesen, supra, 1 Cal.App.5th at 

p. 116 [a court order in excess of jurisdiction “was not subject to 

collateral attack two years after it was entered”]; Mt. Holyoke 

Homes, LP v. California Coastal Com., supra, 167 Cal.App.4th at 

p. 842 [applicants could not set aside a voidable judgment where 

the applicants did not question jurisdiction until three and a half 

years after the latest date on which it contended the Coastal 

Commission lost jurisdiction].)

Michael and Joseph attempt to salvage their collateral 

attack on the alternative decree by asserting they “forewarned 

the trial court of this jurisdictional impediment” and agreed only 

to include the UNCP entities in the appraisal, not for purposes of 

the winding up and dissolution that followed their failure to buy 

Leonard’s interest in the appraised entities. This assertion does 

not persuade. First, Michael and Joseph’s so-called forewarning 

appeared in their motion to stay the involuntary dissolution 

causes of action filed six months before their stipulation to 

include the UCNP entities in the appraisal and buyout

they failed to appeal directly from the order, file a motion under 

Code of Civil Procedure section 473, subdivision (d), or file a 

collateral action challenging the order. (Schrage I, supra, 

B288478.)
28

proceeding, and it made no mention of the UCNP entities. 

Second, the plain language of the stipulated order undermines 

Michael and Joseph’s position. It is true the stipulated order lists 

the UCNP entities as “Entities to be Valued as Part of the 

Appraisal Engagement,” which in turn is defined as “the 

engagement and qualifications of the appraisers and the 

appraisal process.” But the stipulated order also provides Judge 

Meisinger was to issue an order stating the cumulative value of 

Leonard’s one-third interest in the Sage Automotive Group, 

“which shall constitute the buy-out price to be paid by Michael 

and Joseph to Leonard (the ‘Buy-Out Value’),” and the order 

defines the Sage Automotive Group to include the UCNP entities. 

Thus, Michael and Joseph agreed the amount they had to pay to 

prevent the winding up and dissolution of the Sage Automotive 

Group included the value of the UCNP entities. If Michael and 

Joseph intended only to submit the UCNP entities to the 

appraisal process, they would not have agreed to an aggregate 

buyout value that did not differentiate among individual entities,

or at least among the entity defendants and the UCNP entities.

10

10 Michael and Joseph recognize their collateral attack on the 

consent decree is limited to jurisdictional arguments. (See 

Kabran v. Sharp Memorial Hospital (2017) 2 Cal.5th 330, 339; 

Armstrong v. Armstrong (1976) 15 Cal.3d 942, 950-951.) In a nod 

to that limitation, Michael and Joseph argue the trial court 

“exceeded its jurisdiction” by failing to include in the buyout 

value “the economic impact of Leonard’s derivative allegations 

and prayer in his verified complaint.” This is not a jurisdictional 

argument; it is an argument the trial court made a substantive 

error in determining the value of the buyout entities. A 

“mistaken application of law” cannot be collaterally attacked. 
29

Michael and Joseph are attempting to unwind the 

alternative decree on the basis the trial court erred in doing the 

very thing Michael and Joseph asked the court to do. To approve

their belated request would invite the very trifling with the 

courts the doctrine of estoppel to contest jurisdiction seeks to 

prevent. (See Lovett v. Carrasco, supra, 63 Cal.App.4th at 

pp. 54-55 [allowing a litigant to stipulate to a procedure in excess 

of jurisdiction and then challenge the procedure on appeal, would 

permit the parties “‘“‘to trifle with the courts’”’”]; Law Offices of 

Ian Herzog v. Law Offices of Joseph M. Fredrics, supra,

61 Cal.App.4th at p. 680 [defendant’s stipulation the court could 

order the parties to arbitration estopped him from attacking 

arbitration award on that basis]; see also Kristine H. v. Lisa R., 

supra, 37 Cal.4th at p. 166; Mt. Holyoke Homes, LP v. California 

Coastal Com., supra, 167 Cal.App.4th at p. 842; In re Marriage of 

Jackson (2006) 136 Cal.App.4th 980, 989; Conservatorship of 

O’Connor, supra, 48 Cal.App.4th at p. 1092.)11

(Armstrong, at pp. 950-951; see Fireman’s Fund Ins. Co. v. 

Workers’ Comp. Appeals Bd. (2010) 181 Cal.App.4th 752, 767

[“Errors of substantive law are within the jurisdiction of a court 

and are not typically acts beyond the court’s fundamental 

authority to act.”].)

11 Michael and Joseph listed in their notices of appeal a “Void 

Judgment” dated September 27, 2017, which was actually the 

trial court’s order appointing a receiver. That order was 

appealable, and Michael and Joseph did not file a timely notice of 

appeal. (See Code Civ. Proc., § 904.1, subd. (a)(7); Wells Fargo 

Financial Leasing, Inc. v. D & M Cabinets (2009) 177 Cal.App.4th 

59, 66.) Because Michael and Joseph do not argue the order was 

void, except as a consequence of the court’s lack of jurisdiction to 
30

C. Leonard Lacked Standing To Assert His Cause of 

Action for Breach of Fiduciary Duty 

Michael and Joseph contend Leonard did not have standing 

to assert an individual cause of action against them for breach of 

fiduciary duty because Leonard sought and received an award of 

damages to the Sage Automotive Group and not to himself. 

Leonard contends that he suffered an individual injury and that, 

in any event, close corporations like those comprising the Sage 

Automotive Group are not subject to the derivative action rule. 

Michael and Joseph have the better argument: The allegations 

in Leonard’s complaint, the evidence at trial, and the court’s 

findings show Leonard’s causes of action were derivative.

enter the alternative decree, we do not have jurisdiction to 

consider any appeal from the September 27, 2017 order and must 

dismiss the appeal from that order. (See City of Calexico v. 

Bergeson (2021) 64 Cal.App.5th 180, 189.) And even if we had 

jurisdiction, Michael and Joseph forfeited the argument by failing 

to support it in their briefs with any argument or citation to 

authority. (See Rios v. Singh (2021) 65 Cal.App.5th 871, 881; 

Cal. Rules of Court, rule 8.204(a)(1)(B) [briefs must support each 

point by argument and, if possible, by citation of authority].) 

And, even if we considered the argument on the merits, it would 

fail for the same reasons the argument concerning the alternative 

decree fails. 

Michael and Joseph also appeal from the trial court’s 

postjudgment order denying their motion to set aside the 

judgment under Code of Civil Procedure sections 663 and 663a on 

the same grounds. That order is appealable. (See Ryan v.

Rosenfeld (2017) 3 Cal.5th 124, 131-135.) We affirm it for the 

same reasons we affirm the judgment of dissolution.
31

1. Applicable Law

“[M]ajority shareholders, either singly or acting in concert 

to accomplish a joint purpose, have a fiduciary responsibility to 

the minority and to the corporation to use their ability to control 

the corporation in a fair, just, and equitable manner. Majority 

shareholders may not use their power to control corporate 

activities to benefit themselves alone or in a manner detrimental 

to the minority. Any use to which they put the corporation or 

their power to control the corporation must benefit all 

shareholders proportionately and must not conflict with the 

proper conduct of the corporation’s business.” (Jones v. H. F. 

Ahmanson & Co. (1969) 1 Cal.3d 93, 108 (Jones); accord, Sheley v. 

Harrop (2017) 9 Cal.App.5th 1147, 1171; see § 17704.09

[describing the fiduciary duties of members and managers of a 

limited liability company]; Feresi v. The Livery, LLC (2014) 

232 Cal.App.4th 419, 425 [same]; Everest Investors 8 v. McNeil 

Partners (2003) 114 Cal.App.4th 411, 424-425 [describing the 

fiduciary obligations in a partnership].)

A minority shareholder may bring a cause of action for 

breach of fiduciary duty against majority shareholders as an 

individual claim or as a derivative claim, depending on the 

circumstances. (See Daly v. Yessne (2005) 131 Cal.App.4th 52, 

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

1252-1253, 1257-1258 (Jara); see also Sutter v. General 

Petroleum Corp. (1946) 28 Cal.2d 525, 530 [“a stockholder may 

sue as an individual where he is directly and individually injured 

although the corporation may also have a cause of action for the 

same wrong”]; Goles v. Sawhney (2016) 5 Cal.App.5th 1014, 1018, 

fn. 3 [“A single cause of action by a shareholder can give rise to 

derivative claims, individual claims, or both.”]; Denevi v. LGCC, 
32

LLC (2004) 121 Cal.App.4th 1211, 1222 [same].) But where a 

cause of action seeks to recover for harms to the corporation, the 

shareholders have no direct cause of action “[b]ecause a 

corporation exists as a separate legal entity” (Grosset v. Wenaas

(2008) 42 Cal.4th 1100, 1108 (Grosset)) and “is the ultimate 

beneficiary of such a derivative suit” (Patrick v. Alacer Corp. 

(2008) 167 Cal.App.4th 995, 1003). (See Cotton v. Expo Power 

Systems, Inc., supra, 170 Cal.App.4th at p. 1380 [“A derivative 

claim is a property right that belongs to the corporation.”].) 

“The shareholders may, however, bring a derivative suit to 

enforce the corporation’s rights and redress its injuries when the 

board of directors fails or refuses to do so. When a derivative suit 

is brought to litigate the rights of the corporation, the corporation 

is an indispensable party and must be joined as a nominal 

defendant.” (Grosset, supra, 42 Cal.4th at p. 1108; accord, Jones, 

supra, 1 Cal.3d at pp. 106-107; see Patrick v. Alacer Corp., supra,

167 Cal.App.4th at p. 1004 [“Though the corporation is 

essentially the plaintiff in a derivative action, ‘[w]hen a 

derivative suit is brought to litigate the rights of the corporation, 

the corporation . . . must be joined as a nominal defendant.’”].)

“An action is deemed derivative ‘“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, or it seeks to recover assets for the 

corporation or to prevent the dissipation of its assets.”’

[Citation.] When a derivative action is successful, the corporation 

is the only party that benefits from any recovery; the 

shareholders derive no benefit ‘“except the indirect benefit 

resulting from a realization upon the corporation’s assets.”’” 

(Grosset, supra, 42 Cal.4th at p. 1108, fn. omitted; see Bader v. 
33

Anderson (2009) 179 Cal.App.4th 775, 793 [“a derivative suit is 

one in which the shareholder seeks ‘redress of the wrong to the 

corporation’”].) 

“‘The stockholder’s individual suit, on the other hand, is a 

suit to enforce a right against the corporation which the 

stockholder possesses as an individual.’” (Jones, supra, 1 Cal.3d 

at p. 107; see Bader v. Anderson, supra, 179 Cal.App.4th at 

p. 793; Denevi v. LGCC, LLC, supra, 121 Cal.App.4th at p. 1222.) 

For example, “‘[i]f 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 is a party, 

or on a right belonging severally to him, or on a fraud affecting 

him directly, it is an individual action.’” (Sutter v. General 

Petroleum Corp., supra, 28 Cal.2d at p. 530.) “The individual 

wrong necessary to support a suit by a shareholder need not be 

unique to that plaintiff. The same injury may affect a substantial 

number of shareholders. If the injury is not incidental to an 

injury to the corporation, an individual cause of action exists.” 

(Jones, supra, 1 Cal.3d at p. 107; see Bader, at p. 793 [“A direct 

(as opposed to a derivative) action is maintainable ‘only if the 

damages [are] not incidental to an injury to the corporation.’”];

see also Schuster v. Gardner (2005) 127 Cal.App.4th 305, 313;

Denevi, at p. 1222; Nelson v. Anderson (1999) 72 Cal.App.4th 111,

124 (Nelson).)

The principles governing derivative actions in the context 

of corporations apply to limited liability companies and limited 

partnerships. (See Sprengel v. Zbylut (2019) 40 Cal.App.5th 

1028, 1040-1041 [limited liability company]; Everest Investors 8 v. 

McNeil Partners, supra, 114 Cal.App.4th at pp. 425-426 [limited 

partnership].) We review de novo the trial court’s ruling Leonard
34

had standing to maintain his cause of action for breach of 

fiduciary duty as an individual claim, rather than a derivative 

claim. (See A.J. Fistes Corp. v. GDL Best Contractors, Inc. (2019) 

38 Cal.App.5th 677, 687 [standing is a question of law to which 

we apply a de novo standard of review]; Citizens for Amending 

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

[same].)

2. Leonard Sought and Recovered Damages for 

Injuries to the Sage Automotive Group

Leonard alleged Michael and Joseph committed a wide 

variety of misdeeds, including “misappropriat[ing] at least 

$1.7 million of company funds” to open, advertise, and operate a 

Lotus dealership without Leonard’s consent or participation;

mismanaging the Sage Automotive Group by engaging in 

“dishonest and manipulative accounting practices”; using Sage 

Automotive Group assets for personal gain; undermining 

Leonard’s authority with Sage Automotive Group employees;

denying Leonard access to Sage Automotive Group’s books, 

records, and bank accounts; ceasing payment for directors and 

officers insurance coverage; and rebranding the Sage Automotive 

Group without Leonard’s consent. Leonard alleged these acts 

“significantly impeded Leonard’s ability to manage or participate 

in the affairs of the [Sage Automotive Group],” “caused damage to

the [Sage Automotive Group,] and devalued his interest in turn.” 

At trial, Leonard’s expert witness on damages, Gordon 

Klein, calculated Leonard’s damages as one-third the difference 

between the 2015 court-approved valuation in the alternative 

decree and the value of the Sage Automotive Group at the time of 

trial, adjusted for market changes. Klein reviewed the 
35

dealerships’ financial statements “to ascertain the diminution in 

value which ha[d] occurred” and concluded they collectively had

declined in value over $65 million since April 2015. Klein 

attributed additional losses to a $3.6 million settlement with the 

Federal Trade Commission that arose from alleged misconduct by 

Michael and Joseph, “[e]xcess payments” to accountants and 

lawyers, and a reserve of $6 million for the anticipated 

settlement of a warranty fraud case brought by Nissan Motor 

Company against Michael and Joseph. Klein opined the total 

“loss in value” of the Sage Automotive Group was over 

$75 million, of which one-third, or approximately $25 million,

was “[s]uffered by [Leonard]” because he owned one-third of the 

businesses. Klein estimated that, depending on the court’s 

findings, losses due to market forces not attributable to Michael 

and Joseph’s “alleged mismanagement” could reduce Leonard’s 

damages to about $18 million. For this reason, Klein determined 

Leonard’s damages were between $18,311,746 and $24,418,473. 

Klein also testified he did not include in his analysis any 

amounts for Leonard’s claims against Michael and Joseph for 

“‘personal misappropriations’” or “personal aggrandizement,” 

which Klein defined as “taking economic benefits or sums that 

are outside the ordinary course of business and/or were not 

expenses incurred for the economic benefit of the business or its 

partners.” Klein also said he did not analyze whether using Sage 

Automotive Group funds to seed the Lotus dealership caused 

specific losses to the Group. Klein said the scope of his 

assignment was to focus on, “at the core, the diminution in the 

value of the dealerships, plus . . . avoidable liabilities and 

payments that, but for alleged misconduct . . . , should not have 

happened and, therefore, result[ed] in damages.” 
36

The trial court, in its statement of decision, found Michael 

and Joseph “pushed [Leonard] out” of the Sage Automotive 

Group, leaving him no “meaningful control over its operations”;

engaged in self-dealing by diverting Sage Automotive Group 

funds to the separately held Lotus dealership; expended Sage 

Automotive Group assets without authorization; engaged in false

advertising that led to the settlement with the Federal Trade 

Commission and a “dramatic drop in profit[s]”; and left the Sage 

Automotive Group in such “financial turmoil” that some of its 

assets had to be sold to a competitor. The trial court credited 

Klein’s damages analysis and awarded Leonard the upper end of 

Klein’s range (i.e., $24,418,472), “given the defense’s total failure 

to substantiate market causes for the precipitous and undisputed 

decline” in the Sage Automotive Group’s value, offset by losses 

attributable to Leonard’s unclean hands. 

The allegations in Leonard’s first amended complaint, the 

basis and calculation of Leonard’s damages at trial, and the 

court’s findings show that the gravamen of Leonard’s action was 

injury to the Sage Automotive Group and the “whole body of its 

stock and property” and that Leonard sought to, and ultimately 

did, recover damages for injuries to the entities. (Grosset, supra,

42 Cal.4th at p. 1108; see Avikian v. WTC Financial Corp. (2002)

98 Cal.App.4th 1108, 1115 (Avikian) [plaintiffs’ “core claim” of 

mismanagement that caused the corporation’s demise 

“amount[ed] to a claim of injury to [the corporation] itself”]; 

Nelson, supra, 72 Cal.App.4th at p. 127 [“the action must be 

derivative” where the defendant’s actions caused the corporation 

to lose “earnings, profits, and opportunities, rendering all the 

shares valueless”].) Leonard did not allege, and the trial court 

did not award, damages for any injury that was not “incidental to 
37

an injury to the corporation.” (Jones, supra, 1 Cal.3d at p. 107; 

see ibid. [although the plaintiff alleged “the value of her stock 

[was] diminished by defendants’ actions,” she did not allege “the 

diminished value reflect[ed] an injury to the corporation and 

resultant depreciation in the value of the stock”]; Avikian, at 

p. 1116 [the plaintiffs’ “own damages, the loss in value of their 

investments in [the corporation], were merely incidental to the 

alleged harm inflicted upon [the corporation] and all its 

shareholders,” italics omitted].) 

Indeed, Leonard’s primary complaint was that his brothers’ 

mismanagement (including by driving him out of the Sage 

Automotive Group) squandered the Sage Automotive Group’s

assets and ultimately led to its demise. That is a derivative 

claim. “[W]here conduct, including mismanagement by corporate 

officers, causes damage to the corporation, it is the entity that 

must bring suit; the individual shareholder may not bring an 

action for indirect personal losses (i.e., decrease in stock value) 

sustained as a result of the overall harm to the entity.” (Bader v. 

Anderson, supra, 179 Cal.App.4th at p. 788; see Heshejin v. 

Rostami (2020) 54 Cal.App.5th 984, 994, fn. 10 [“‘“a shareholder 

cannot bring a direct action for damages against management on 

the theory their alleged wrongdoing decreased the value of his or 

her stock (e.g., by reducing corporate assets and net worth)”’”; 

instead, the “‘“corporation itself must bring such an action, or a 

derivative suit may be brought on the corporation’s behalf”’”]; 

Oakland Raiders v. National Football League (2005) 

131 Cal.App.4th 621, 651 [plaintiff’s breach of fiduciary duty 

claim for corporate mismanagement and diverting corporate 

assets was derivative]; PacLink Communications Internat., Inc. v. 

Superior Court (2001) 90 Cal.App.4th 958, 964 [minority 
38

members’ fraudulent transfer claim was derivative where the 

“injury was essentially a diminution in the value of their 

membership interest in the [limited liability company] occasioned 

by the loss of the company’s assets”]; Nelson, supra,

72 Cal.App.4th at pp. 125-126 [minority shareholder’s breach of 

fiduciary duty claim alleging the other shareholder of the 

corporation negligently managed the business was derivative]; 

Marsh et al., Marsh’s Cal. Corp. Law (2021 supp.) Derivative 

Action, § 15.11[A][1] [“The clearest cases [of derivative actions] 

are those involving situations where the alleged wrongful actions 

of the defendants have reduced the corporate assets and net 

worth.”].)

Leonard makes two arguments to show his cause of action 

for breach of fiduciary duty was an individual claim. First, 

Leonard lists 10 injuries that he says “hurt [him] alone.” None of 

the listed injuries, however, caused a discrete injury or damages

to Leonard. Five of the listed injuries affected or reduced 

corporate assets or value without creating any nonincidental 

injuries to Leonard: (1) destruction of a document “related to 

personal spending using [Sage Automotive Group] funds”; 

(2) exclusion of Leonard from operational decisions; 

(3) falsification of corporate records and decisionmaking without 

Leonard’s input; (4) falsification of Leonard’s signature on an 

application to purchase a Hyundai dealership;12 and (5) the 

purchase of the Hyundai dealership without consulting 

12 Leonard presumably could allege an individual injury as a 

result of identity theft, but he did not, and the court did not 

award any damages for identity theft or similar injury. 
39

Leonard.13 Two injuries listed by Leonard—(6) instruction to

Sage Automotive Group’s counsel to file a cross-complaint against 

Leonard, requiring Leonard “to ‘pay for a lawsuit against 

himself,’” and (7) use of the cross-complaint “as a ‘pretextual 

threat to remove Leonard as a board member’”—were cited by the 

trial court as evidence of Michael and Joseph’s oppression in 

support of the award of punitive damages; they were not bases 

for the compensatory damages award. 

Another listed injury—(8) failure to honor the wish of the 

brothers’ father to make Leonard the majority owner of the Sage 

Automotive Group—is conduct ascribed to Sage Automotive 

Group’s (or their father’s) lawyer, not to Michael and Joseph; and 

another—(9) issuance of unequal distribution checks—is 

contradicted by the court’s statement of decision, which 

acknowledged that Leonard eventually received the missing 

distribution check, albeit six weeks after Michael and Joseph 

received theirs. That leaves (10), Leonard’s claim he suffered 

discrete injuries when Michael and Joseph reneged on their 

promise “‘to “indemnify” Leonard’” for losses related to the Lotus 

dealership separately held by Michael and Joseph. The promise 

apparently flowed from the two brothers’ recognition they used 

Sage Automotive Group funds to seed the new Lotus dealership.

Even if Michael and Joseph’s failure to indemnify Leonard and 

13 In connection with the withholding of books and records, 

Leonard did not allege his inability to inspect company records 

precluded him from discharging his fiduciary duty or attempting

to enforce his inspection rights under section 1601 or 1602. (See 

generally Wolf v. CDS Devco (2010) 185 Cal.App.4th 903, 916;

Havlicek v. Coast-to-Coast Analytical Services, Inc. (1995) 

39 Cal.App.4th 1844, 1856.) 
40

make him whole created an individual injury, the court awarded 

Leonard damages based on the overall diminution in value to the 

Sage Automotive Group, not the amount Michael and Joseph 

owed Leonard from funds used to start a separately owned 

venture. 

Second, Leonard argues we should follow the decision in 

Jara, which, according to Leonard, “support[ed] the notion that 

the policy reasons undergirding the rule requiring shareholder 

lawsuits to proceed derivatively do not apply to actions involving 

closely held businesses” like the Sage Automotive Group. In Jara 

the minority shareholder of a corporation alleged the two other 

shareholders breached their fiduciary obligations by paying 

themselves excessive executive compensation without the 

plaintiff’s approval and for the purpose of reducing the amount of 

profit to be shared with the plaintiff. (Jara, supra,

121 Cal.App.4th at pp. 1248, 1258.) The plaintiff did not allege 

the two majority shareholders mismanaged the corporation; in 

fact, the corporation’s success enabled the majority shareholders 

to increase their executive compensation. (Id. at p. 1247.) 

The court in Jara held that, while “the alleged payment of 

excessive compensation did have the potential of damaging the 

business,” the plaintiff stated an individual cause of action 

against the majority shareholders because he alleged the 

payment of executive compensation “was a device to distribute a 

disproportionate share of the profits to the two officer 

shareholders during a period of business success.” (Jara, supra, 

121 Cal.App.4th at p. 1258.) The court read the Supreme Court’s 

decision in Jones to allow “a minority shareholder to bring a 

personal action alleging ‘a majority stockholders’ breach of a 

fiduciary duty to minority stockholders, which resulted in the 
41

majority stockholders retaining a disproportionate share of the 

corporation’s ongoing value.’” (Jara, at pp. 1257-1258; see Jones, 

supra, 1 Cal.3d at p. 107; see also Crain v. Electronic Memories & 

Magnetics Corp. (1975) 50 Cal.App.3d 509, 521-522 [breach of 

fiduciary cause of action against a majority shareholder for selfdealing that enriched the majority shareholder and left minority 

shares “valueless and unsalable” was an individual claim].) 

We have some doubt whether Jara was correctly decided. 

At a minimum, however, it is distinguishable. The court in Jara 

characterized the plaintiff’s claim as “tantamount to a 

discriminatory payment of dividends” and cited cases allowing 

individual causes of action to recover the value of 

disproportionate payments to majority shareholders. (Jara, 

supra, 121 Cal.App.4th at pp. 1256-1257, citing Smith v. TeleCommunication, Inc. (1982) 134 Cal.App.3d 338, 341-342

[majority shareholders retained disproportionate value of tax 

savings]; Crain v. Electronic Memories & Magnetics Corp., supra,

50 Cal.App.3d at p. 521 [majority shareholder “deprived plaintiffs 

of their ownership interests in an ongoing and potentially 

profitable business without any compensation whatsoever”]; Low 

v. Wheeler (1962) 207 Cal.App.2d 477, 479 [majority shareholders 

“refused to declare dividends” to minority shareholder]; De 

Martini v. Scavenger’s Protective Assn. (1935) 3 Cal.App.2d 691, 

698 [majority shareholders deprived the minority shareholders of 

their “‘share of the profits of the business’”].) 

The Jara court distinguished the circumstances in these 

cases from those in cases “dealing with mismanagement,” such as 

Avikian, supra, 98 Cal.App.4th 1108 and Nelson, supra, 

72 Cal.App.4th 111. (Jara, supra, 121 Cal.App.4th at p. 1258.)

In Avikian a group of minority shareholders alleged the majority 
42

shareholders improperly bought and sold assets of the 

corporation and, with the corporation in financial distress, chose 

to pursue a “self-serving arrangement[ ] causing the demise of 

[the corporation],” rather than accepting an investor who was

“willing to rescue” the corporation. (Avikian, at pp. 1115-1116.) 

The court in Avikian held that these alleged acts harmed the 

corporation rather than merely “affect[ing] the way in which the 

parties owned it” (id. at p. 1115) and that, because the plaintiffs’ 

damages were “the loss in value of their investments in [the 

corporation],” their damages were “merely incidental to the 

alleged harm inflicted upon [the corporation] and all its 

shareholders” (id. at pp. 1115-1116). In Nelson a minority 

shareholder sued the majority shareholder for breach of fiduciary 

duty after the majority shareholder made “improper management 

decisions,” causing the minority shareholder “to lose her 

investment and prospective profits.” (Nelson, at p. 124.) The 

minority shareholder argued she could bring an individual cause 

of action because she “suffered injury to her reputation and 

emotional distress, and lost her out-of-pocket expenses, as well as 

other employment opportunities.” (Ibid.) The court in Nelson

disagreed: “Because all of the acts alleged to have caused [the 

plaintiff’s] injury amount to alleged misfeasance or negligence in 

managing the corporation’s business, causing the business to be a 

total failure, any [fiduciary] obligations so violated were duties 

owed directly and immediately to the corporation.” (Id. at 

p. 125.) Moreover, “[t]he economic damages proven at trial were 

lost profits to the corporation as the result of rejected 

opportunities.” (Id. at p. 126.) 

This case is more like Avikian and Nelson than Jara. 

Unlike the plaintiff in Jara, Leonard did not allege Michael and 
43

Joseph retained a disproportionate share of the Sage Automotive 

Group’s value; he alleged Michael and Joseph destroyed the value 

of the businesses for all of the shareholders (and members and 

partners). The court awarded Leonard damages based on the 

overall diminution in value of the Sage Automotive Group, not 

the difference in value between Leonard’s shares in the Group 

and those of Michael and Joseph. (Cf. Jara, supra, 

121 Cal.App.4th at p. 1258 [describing the plaintiff’s damages as 

his “fair share of the corporation’s profits”]; see also Jones, supra, 

1 Cal.3d at p. 107 [the diminution in value of the minority 

shareholders’ stock did not “reflect[ ] an injury to the 

corporation,” but instead resulted from the majority shareholders’ 

self-serving scheme to increase the value of their shares]; Smith

v. Tele-Communication, Inc., supra, 134 Cal.App.3d at p. 342 

[plaintiff was “deprived of a portion of his distributive share of 

[the corporation]”].) Similar to the plaintiffs’ allegations in

Avikian and Nelson, Leonard alleged that his brothers’ 

mismanagement diminished the value of the Sage Automotive 

Group overall and that the value of each of their interests, “in 

turn,” suffered accordingly. That Klein computed Leonard’s 

damages by dividing the Sage Automotive Group’s overall 

diminution of value by three confirms the gravamen of Leonard’s 

complaint was injury to the corporation as a whole, “‘“without 

any severance or distribution among individual holders,”’” and 

not to Leonard individually. (Grosset, supra, 42 Cal.4th at 

p. 1108; see Avikian, supra, 98 Cal.App.4th at p. 1116.)

The court in Jara also relied on the absence of policy 

considerations favoring a derivative action in the context of that 

case, including preventing “‘a multiplicity of actions by each 

individual shareholder,’” protecting creditors “‘who have first call 
44

on the corporate assets,’” and complying with procedural 

prerequisites for bringing a derivative action under section 800.14

(Jara, supra, 121 Cal.App.4th at pp. 1258-1259.) Section 800, the 

court stated, “shield[s] the corporation from meritless lawsuits by 

requiring the plaintiffs to have contemporaneous stock ownership 

and by giving the defendants the right to move the court for an 

order requiring a bond” and “requires the plaintiffs to submit a 

demand to the board of directors before filing suit” to encourage 

the “‘intracorporate resolution of disputes’” and protect 

“‘managerial freedom.’” (Jara, at p. 1259; see § 800, 

subds. (b) & (c).) The court in Jara observed: “The objective of 

preventing a multiplicity of lawsuits and assuring equal 

treatment for all aggrieved shareholders does not arise at all 

when there is only one minority shareholder. The objective of 

encouraging intracorporate resolution of disputes and protecting 

managerial freedom is entirely meaningless where the 

defendants constitute the entire complement of the board of 

directors and all the corporate officers. And the policy of 

14 Section 800 states the procedural prerequisites to bringing

a derivative action against a corporation. In general, section 800, 

subdivision (b), requires a shareholder to inform the directors 

about the action and to “make a reasonable effort to induce them 

to commence suit themselves or otherwise redress the wrong, 

unless such efforts would be ‘useless’ or ‘futile.’” (Friedman et al., 

Cal. Practice Guide: Corporations (The Rutter Group 2021 supp.) 

¶ 6:622; see § 800, subd. (b)(2).) Section 800, subdivision (c), 

gives the corporation and its directors the right to ask the court 

to require a bond under certain circumstances. Sections 17709.02 

and 15910.02 provide similar procedural requirements for 

derivative actions on behalf of limited liability companies and 

limited partnerships, respectively.
45

preserving corporate assets for the benefit of creditors has, at 

best, a very weak application where the corporation remains a 

viable business.” (Jara, at p. 1259.)

The court in Nelson also considered whether the policies 

advanced by the derivative action rule applied in the context of 

close corporations and reached the opposite conclusion. The court 

stated: “A derivative action may appear to [the plaintiff] to be an 

empty formality when there are only two shareholders, and one 

of them is the alleged wrongdoer. However, the law demands 

certain prerequisites to bringing a derivative action which have 

not been alleged or proven in this case, such as alleging ‘in the 

complaint with particularity[, the] plaintiff’s efforts to secure 

from the board such action as plaintiff desires, or the reasons for 

not making such effort, and . . . 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.’” (Nelson, supra, 72 Cal.App.4th at 

p. 127.) 

We acknowledge the policies underlying the derivative 

action rule do not apply with equal force in actions involving 

closely held companies. Requiring Leonard to name the entities 

that comprise the Sage Automotive Group (and the UCNP

entities) as nominal defendants in this action will not prevent a 

multiplicity of lawsuits or assure equal treatment for all 

aggrieved shareholders. And the objective of encouraging 

intracorporate resolution of disputes and protecting managerial 

freedom has less meaning where Michael, Joseph, and Leonard 

constitute the board of directors and corporate officers. (See 

Jara, supra, 121 Cal.App.4th at p. 1259.) But the plain language 
46

of sections 800, 15910.02, and 17709.02 does not exclude close 

corporations or small partnerships or companies from the 

procedural prerequisites before a shareholder, limited partner, or 

member may file a derivative action. (See Nelson, supra, 

72 Cal.App.4th at p. 127.) To allow Leonard to maintain his 

cause of action for breach of fiduciary duty as an individual 

action 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.

3. Leonard Did Not Allege a Derivative Cause of 

Action or Comply with the Statutory 

Prerequisites To Bring Such an Action

Leonard did not allege a derivative cause of action on 

behalf of the Sage Automotive Group (or any of its constituent 

entities) or attempt to comply with the requirements of sections

800, 15910.02, or 17709.02 to do so. Therefore, Leonard did not 

have standing to bring such an action, and the judgment on the 

cause of action for breach of fiduciary duty must be reversed. 

(See Bader v. Anderson, supra, 179 Cal.App.4th at p. 793; Nelson, 

supra, 72 Cal.App.4th at pp. 127-128.)
47

DISPOSITION

The judgment on the causes of action for involuntary 

dissolution is modified, consistent with Schrage I, to correct the 

amount in favor of Leonard Schrage to $401,509.50 and, as 

modified, is affirmed. The order denying Michael and Joseph’s 

motion to set aside the judgment is affirmed. The appeals from 

the alternative decree and the order appointing the referee are 

dismissed. The judgment on the cause of action for breach of 

fiduciary duty is reversed. The parties are to bear their costs on 

appeal. 

SEGAL, J.

We concur:

PERLUSS, P. J.

FEUER, J.