Court Opinion

ID: 6335630
Source: CourtListenerOpinion
Date Created: 2022-04-27 22:01:45.195689+00
Date Added: 2024-06-11T09:23:59.321507
License: Public Domain

Filed 4/27/22 Max v. 8E6 Corp. CA2/1
   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
                         SECOND APPELLATE DISTRICT
                                        DIVISION ONE

DAVID MAX,                                                        B307406
                                                                  (Los Angeles County
         Plaintiff and Appellant,                                 Super. Ct. No. 19STCV11560)

                                                                  ORDER MODIFYING
         v.                                                       OPINION AND DENYING
                                                                  PETITION FOR REHEARING
8E6 CORP. et al.,                                                 (NO CHANGE IN JUDGMENT)

         Defendants and Respondents.

THE COURT:
     The opinion in the above-entitled matter filed on
March 29, 2022 is modified as follows:

       1.   On page 4, the second to last sentence in the
last paragraph on that page is deleted and replaced with
the following:
An individual fraud cause of action would not require a bond,
and no other issue raised in the demurrer would render it futile
to permit Max leave to assert such a claim.
      2.     On page 6, in the first sentence of the first paragraph
of part A.3, the phrase “and a majority of the shareholders” is
deleted.

      3.    On page 22, in the first complete sentence at the top
of that page, the phrase “the minority shareholders” is replaced
with “other minority shareholders.”

       4.   Beginning at the bottom of page 27 through page 28,
the following sentences and citation are deleted: But the
purported amended complaint does not allege fraudulent
misrepresentations to all shareholders—only to minority
shareholders like Max. As such, Max need not plead reliance
with heightened specificity in order to “stand out from the mass
of stockholders who rely on the market.” (Id. at pp. 184−185.)
       Those deleted sentences and citation are replaced with
the following sentences:
Reading the proposed allegations in the light most favorable to
Max, it is unclear whether all misrepresentations on which Max
relies were made to all shareholders or only to Max and/or some
subset of the shareholders, and thus whether Max must meet
the Small personal reliance requirement. We express no opinion
as to whether, with additional clarifying allegations, Max could
establish this requirement does not apply or that it has been
satisfied. But in light of the currently proposed allegations, we
cannot say that it would be impossible for Max to allege facts that
make either of these showings, and thus that it would be futile to
grant him leave to amend.

                                 2
      These modifications do not constitute a change in the
judgment.
      Respondents’ petition for rehearing filed on April 12, 2022
is denied.

____________________________________________________________
 ROTHSCHILD, P. J.             CHANEY, J.            BENDIX, J.

                                3
Filed 3/29/22 Max v. 8E6 Corp. CA2/1
   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
                         SECOND APPELLATE DISTRICT
                                        DIVISION ONE

DAVID MAX,                                                        B307406

         Plaintiff and Appellant,                                 (Los Angeles County
                                                                  Super. Ct. No. 19STCV11560)

         v.

8E6 CORP. et al.,

         Defendants and Respondents.

      APPEAL from orders of the Superior Court of Los Angeles
County, William F. Fahey, Judge. Affirmed in part and reversed
in part.
      Rogari Law Firm and Ralph Rogari for Plaintiff and
Appellant.
      Holland and Knight, Benjamin P. Pugh, David A. Robinson,
Andrew M. Cummings for Defendant and Respondent 8e6 Corp.
      Law Office of Stephen J. Riggs and Stephen J. Riggs for
Defendants and Respondents George Shih, Frank Wood, Rodney
Miller, Mahendra Vora, and Vora Ventures, LLC.
       Appellant David Max challenges the trial court’s
order requiring him to post a bond under Corporations Code1
section 800 and the ultimate dismissal of his lawsuit after the
court sustained, without leave to amend, a demurrer to Max’s
complaint against 8e6 Corp. (8e6), 8e6 agents George Shih,
Frank Wood, Mahendra Vora, and Rodney Miller (the individual
respondents), and several entities owned or controlled by the
individual respondents.2
       Max’s complaint alleges three causes of action: a derivative
breach of fiduciary duty cause of action regarding the individual
respondents’ improper use of corporate funds to pay their legal
fees in both this and a previous lawsuit; an individual cause of
action to recover the attorney fees Max incurred in a previous
lawsuit seeking inspection of 8e6 corporate records; and a
“mixed” cause of action containing both an individual fraud
claim and a derivative breach of fiduciary duty claim. The
court, pursuant to section 800, required Max to post a bond
as a condition of proceeding with his derivative cause of action
and “mixed” cause of action. Max contends this was error.
Specifically, he contends that the court erred in applying
section 800 to the mixed cause of action, because section 800
only applies to derivative claims. But as pleaded, the mixed
cause of action included a derivative claim that was subject to
bonding. In response to the bond motion, Max did not request

      1 Unless otherwise indicated, all statutory references and
citations are to the Corporations Code.
      2These entities are Vora Ventures LLC, Darwin Group
LLP, Secret Communications II LLC, Log-On Darwin LLC and
Darwin Filter.

                                2
leave to amend or identify the portion of the mixed cause of
action that constituted an individual claim, nor did he request
the ability to prosecute such an individual claim without posting
a bond. Instead, Max appears to have argued that the mixed
cause of action contained no derivative claim at all, a contention
the court correctly rejected. The court was not required,
sua sponte, to parse the mixed cause of action, particularly in
a way contrary to Max’s characterization of it. On the record
before us, the court correctly required Max to post a bond in
order to proceed with the mixed cause of action.
       In addition, Max contends that section 800 cannot
apply to his derivative cause of action regarding the individual
respondents’ use of corporate funds to pay their legal fees,
because the individual respondents did not post an adequate
undertaking pursuant to section 317, subdivision (f), before
the corporation advanced those fees. This argument is
unpersuasive. The lack of an undertaking does not necessarily
establish that the indemnification cause of action would benefit
the corporation, as Max argues. Indeed, in the earlier case in
which the individual respondents incurred the majority of the
attorney fees at issue, the individual respondents prevailed,
entitling them to indemnification by 8e6 and obviating the need
for an undertaking. Accordingly, we conclude that the trial court
did not err in granting the bond motion as to either the derivative
cause of action or mixed cause of action.
       Max also argues that, because he timely filed a purported
amended complaint before the hearing on the demurrer to the
original complaint, the court acted beyond its authority in ruling
on the demurrer to the original complaint. We disagree. Because
the court’s bond order correctly stayed the action as to the claims

                                3
he sought to amend, he had no right to file an amended complaint
without leave of court.
      Max next contends that the court erred in sustaining,
without leave to amend, respondents’ demurrer to all three
causes of action and dismissing the complaint with prejudice.
We conclude that the court did not err in sustaining the
demurrer. As to the two causes of action that required a bond,
the court correctly dismissed them for failure to post one. As
to Max’s individual cause of action seeking the attorney fees
he incurred in a previous lawsuit, the court correctly concluded
Max had failed to state a cognizable cause of action.
      The court, however, abused its discretion in denying Max
leave to amend the mixed cause of action to separately state
an individual fraud claim.3 An individual fraud cause of action
would not require a bond, and would not fail to state a legally
cognizable claim on any other basis raised in the demurrer.
Accordingly, we reverse in part with instructions to the trial
court to allow Max to amend his complaint to state only such
a claim.

      3 Max’s notice of appeal lists not only the bond order
and order sustaining the demurrer and dismissing the
complaint, but also a “post[-]dismissal order” in a related case,
Los Angeles Superior Court case No. 19STCV30623, “staying
the determination of . . . Max’s motion for attorney fees filed
July 9, 2020.” On February 1, 2022, Max requested his appeal
from this order be dismissed. We hereby grant the request.

                                 4
FACTUAL ALLEGATIONS AND PROCEDURAL HISTORY
      A.    Underlying Factual Allegations
       The complaint alleges, and we accept as true for the
purposes of our demurrer analysis (see Small v. Fritz Companies,
Inc. (2003) 30 Cal.4th 167, 171 (Small)), the following facts:

            1.    1996−2006: Formation and Initial
                  Funding of 8e6
      Michael Bradshaw and respondent George Shih formed
8e6 to develop and market filtering software. In 1996, Max
became one of the company’s first common shareholders. The
company obtained approximately $1.5 million in friends and
family investments, and in 1998 began raising venture capital.
Respondents Frank Wood and Mahendra Vora led a venture
capital group that invested $6.5 million in 8e6 in exchange for
class C preferred stock.

            2.    2006-2008: The Individual Respondents
                  Mislead Shareholders Regarding 8e6’s
                  Financial Health and Prospects
       Between 2006 and 2008, Wood, Vora, and Shih misled
shareholders about 8e6’s ongoing operations, financial health,
and future prospects, and concealed material information about
the company. The 2006 annual report to shareholders, authored
by Shih, represented that 2006 had been an “ ‘extraordinary
year’ with some of the greatest accomplishments in the history
of the company.” According to the report, “virtually every month
in 2006 was a record month for sales,” “market share [was
increased] by adding 300 new customers and 1.5 million seats”
and 2007 was expected to be “an even stronger year of growth
and accomplishment.”

                                5
       In truth, in 2006, “the cash generated from operations
was not sufficient to cover expenses.” “ The company was
struggling to continue its operations” and respondents Wood
and Vora, through their owned and controlled entities Secret
Communications and Vora Ventures, LLC had lent 8e6 millions
of dollars “and were looking to exit the company.” These loans
were not disclosed to Max or other shareholders.
       The annual report for 2007 painted a similarly positive
picture of 8e6’s finances and operations. Specifically, it
represented that “every month in 2007 was a record sales month,
and that cash flow went from a negative $3.9 million in 2006
to a positive $3 million in 2007.” In truth, the cash generated
by operations was again insufficient to cover expenses, and the
company was still struggling to continue operations. The annual
report also failed to disclose that Wood and Vora, through their
controlled entities, had lent the company “more than $2.5 million
at very high interest rates.”

           3.    October 2008: The Individual Respondents
                 Conceal Information Regarding the
                 Marshal8e6 Inc. Transaction
      In October 2008, the individual respondents informed Max
that the board and a majority of shareholders had authorized
the sale of 8e6’s filtering business to a newly formed entity,
Marshal8e6 Inc. (M86), in exchange for stock. M86 would include
the consolidated businesses and assets of 8e6 and a company
called Marshal Group, as well as outside capital investment.
      In “written communications dated [October 18, 2008] and
circulated to common shareholders,” respondents indicated that
the new entity would be worth $90 million, that 8e6 would have
a 42 percent interest in the entity, and that “the new entity had

                                6
refinanced the existing debt of 8e6 and Marshal Group, including
shareholder loans, which resulted in the new company carrying
$5 million less debt.” The individual respondents concealed that
all third party refinancing had actually fallen through. They
further “concealed that [M86] was assuming the debt obligations
8e6 owed to Wood and Vora,” and that Wood and Vora had
“secured repayment of the debt by preferred stock options in the
new company,” and “[c]onsequently, . . . 8e6’s interest in the new
entity [was] less than 46 [percent and] the interests of . . . Wood
and Vora were ahead of 8e6’s interests.”

            4.    2012: The Individual Respondents Conceal
                  Information Regarding the Trustwave
                  Transaction
       After the transfer of 8e6’s filtering business to the new M86
entity, respondents Shih, Wood and Vora accepted director or
officer positions in M86 and continued as directors of 8e6. Shih
continued as its CEO as well.
       In early 2012, Shih, Wood, and Vora approved the sale
of 8e6’s stock in M86 to Trustwave, in exchange for stock in
Trustwave. The shareholders report through which Max learned
of this transaction was misleading and did not disclose that
8e6’s interest in M86 had declined from 46 percent to 17 percent.
“As part of the Trustwave transaction, the secret preferred
stock interests Wood and Vora . . . held were converted into
common stock in Trustwave,” giving “Wood and Vora, and their
entities, even more profit at the expense of 8e6.” Specifically,
“[t]he $2.4 million debt interests that were concealed in
2008 . . . [became] a stock interest in Trustwave worth more
than $6.5 million.” None of this was disclosed to shareholders,
including Max, despite Max’s efforts to obtain “additional

                                 7
information about the transaction with Trustwave and value
of 8e6’s holdings from . . . Wood, Vora and Shih.”

            5.    2015: The Individual Respondents Sell
                  the Business to Singtel
       In 2015, a company named Singtel purchased Trustwave
in a transaction approved by the individual respondents. “[Max]
requested information from [the individual respondents] about
the amount of money 8e6 was due from Singtel and how the
receipt of that money would affect his investment,” but to no
avail.

            6.    December 2016: Max Sues 8e6 and the
                  Individual Respondents for the First Time
      On December 28, 2016, Max filed his first lawsuit (Max v.
Shih et al. (Super. Ct. L.A. County, 2019, No. BC645117) (Max I))
against 8e6, Shih, Wood, Rodney Miller, Vora, Vora Ventures,
LLC and others (the Max I defendants). In Max I, Max alleged
three causes of action: (1) failure to permit inspection of books
and records; (2) breach of fiduciary duty; and (3) conversion.
The factual allegations in the complaint focused on how,
beginning in 2012, the Max I defendants failed to obtain a fair
market value for 8e6’s stock in the transaction between M86 and
Trustwave by structuring that transaction to benefit the Max I
defendants and preferred shareholders above the interests of
common shareholders. Max also alleged the Max I defendants
further breached their fiduciary duties and converted 8e6’s assets
by wrongfully distributing the proceeds from the 2015 sale of
Trustwave to Singtel to themselves and preferred shareholders of
8e6.

                                8
            7.    2018: Max Learns of the Individual
                  Respondents’ Misleading and False
                  Statements Regarding the M86
                  Transaction
      In 2018, through discovery in Max I, Max learned of the
individual respondents’ misleading statements regarding, and
concealment of facts relevant to, the M86 transaction in 2008.
Max asked the trial court for leave to amend his complaint
in Max I to assert claims based upon the evidence of this
newly-discovered misconduct by the Max I defendants, but the
court denied leave to amend.

      B.    Relevant Procedural History in Max I
       Max initially named 8e6 as a defendant in Max I, but
for reasons that are not clear on the current record, voluntarily
dismissed it as a defendant on July 1, 2017. As a result, Max
voluntarily dismissed in its entirety his section 1601 cause of
action seeking inspection of corporate records, as the corporation
was the only defendant against whom that cause of action was
alleged.
       Thereafter, in April 2019, the trial court granted summary
judgment in favor of the remaining defendants in Max I. At that
point in the litigation, the only remaining claim was a breach
of fiduciary duty claim against the individual defendants. This
ruling was ultimately upheld on appeal in an unpublished
decision of this court. (Max v. Shih (Nov. 30, 2020, B301010)
[nonpub. opn.].)

      C.    Complaint in the Instant Action
      Shortly before the court granted summary judgment in
favor of the defendants in Max I, Max filed a new lawsuit—the

                                9
action against respondents underlying this appeal—alleging
three causes of action: the first for “fraud and breach of
fiduciary obligations” (the fraud / breach of fiduciary duty cause
of action), the second requesting the attorney fees Max incurred
in connection with his inspection of corporate records claim in
Max I (the attorney fees cause of action) and the third, styled as
a “derivative action for breach of fiduciary duty,” challenging the
individual respondents’ improper use of corporate funds to pay
their legal fees in Max I (the indemnification cause of action).
       The complaint alleges that the individual respondents’
misrepresentations and nondisclosures regarding the M86
transaction breached their fiduciary duties and were intended
“[t]o induce [Max] and other stockholders in the company to
remain shareholders and not exercise redemption rights” under
which “minority shareholders like [Max]” could require 8e6 to
“purchase their common shares at fair market value.” It also
alleges that Max “relied” on these misrepresentations and
nondisclosures “in remaining a shareholder and not exercising
his redemption rights” following the M86 transaction, and that,
absent individual respondents’ conduct, Max would have required
respondents to redeem his shares in October 2008 at fair market
value.
       The complaint further alleges that, as a result of the
alleged fraud and breaches, instead of receiving the 2008 fair
market value of his shares, Max now holds stock in a company
that is “worthless.” As to why the stock is worthless, the
complaint alleges that, from 2008 to 2012, “the value of 8e6’s
stock in [M86] [s]teadily declined” due to “bad management”
and because “Wood and Vora put their own interests in securing
a return on the undisclosed debt interest they had taken in

                                10
[M86] ahead of the interests of 8e6 and its shareholders.” In
addition, “in breach of their fiduciary duties they took no action
to stem the losses [to the company] and failed to perform their
obligation to keep 8e6’s shareholders advised of its financial
condition.” Further, in connection with the Trustwave and
Singtel transactions between approximately 2012 and 2015,
“[a]s set forth in the . . . related lawsuit, [the individual
respondents] continued to conceal and fail to disclose material
information to [Max] and ultimately caused 8e6 to become
bankrupt, and Max’s shares to become worthless by distributing
all the funds received from Singtel to the preferred shareholders
of the company and themselves to pay for the expenses of their
unlawful actions.”
       The complaint further alleges that these same fraudulent
acts and breaches of duty allowed certain respondents to
be unjustly enriched. Specifically, through the Trustwave
transaction, certain respondents were able to obtain “profit at
the expense of 8e6.” Thus, the fraud / fiduciary duty cause of
action in the complaint sought both damages to recover Max’s
personal losses and disgorgement (from certain respondents)
of the $6.3 million with which they had unjustly enriched
themselves.
       The attorney fees cause of action alleges that, in 2015, Max
made multiple demands under section 1601 to inspect corporate
documents in connection with the Singtel transaction, with
which 8e6 unreasonably refused to fully comply. The complaint
acknowledges that “after court orders [in Max I] compelling the
production of [8e6’s] records, . . . 8e6 began making its books and
records available to Max.” This cause of action thus does not seek

                                11
inspection of records, but only seeks to recover attorney fees and
costs Max incurred in connection with Max I.
      Through the indemnification cause of action, Max sought
recovery on behalf of the corporation based on the individual
respondents “engag[ing] in self-dealing by using the remaining
[corporate] funds to pay their [own] attorney fees and costs” in
Max I in breach of their fiduciary duties to the company. The
complaint also alleges the individual respondents did not provide
8e6 “an undertaking that would reimburse it for all sums that
were paid on their behalf.” The indemnification cause of action
sought to recover, on behalf of the corporation, all legal fees the
corporation has paid and “continues to pay” on the individual
respondents’ behalf.

      D.    Procedural Background in the Instant Action
            1.    Respondents’ Section 800 Bond Motion
       Respondents did not answer the complaint in this action,
and instead timely moved to require Max to post a bond pursuant
to section 800.

                  a.    Section 800
      Section 800 provides that, “within 30 days after service
of summons upon the corporation or [an officer or director
defendant]” in a shareholder derivative suit, “the corporation
or the defendant may move the court for an order, upon notice
and hearing, requiring the plaintiff to furnish a bond” (§ 800,
subd. (c)), based, inter alia, on “there [being] no reasonable
possibility that the prosecution of the cause of action alleged
in the complaint against the moving party will benefit the
corporation or its shareholders.” (§ 800, subd. (c)(1).) If the
court finds the moving party has made the requisite showing

                                12
to support such a request, the court “shall fix the amount of
the bond, not to exceed fifty thousand dollars ($50,000), to be
furnished by the plaintiff for reasonable expenses, including
attorneys’ fees, which may be incurred by the moving party
and the corporation in connection with the action, including
expenses for which the corporation may become liable pursuant
to Section 317.” (§ 800, subd. (d).) Section 317 expenses are
those a corporation may incur by indemnifying corporate officers
and directors named as defendants in an action “by reason of
the fact that [they] [are] or [were] an agent of the corporation . . .
for expenses actually and reasonably incurred by that person
in connection with the defense or settlement of the action if the
person acted in good faith, in a manner the person believed to
be in the best interests of the corporation and its shareholders.”
(§ 317, subd. (c) [permitting such recover in actions “by or in
the right of the corporation”]; id., subd. (b) [permitting the same
recovery, as well as recovery of “judgments, fines, settlements”
in a proceeding other than an action “by or in the right of the
corporation”].)
       If a court grants a section 800 motion for a bond,
prosecution of the plaintiff ’s action is automatically stayed until
10 days after the motion is fully “disposed of ” (§ 800, subd. (f)),
meaning the plaintiff either posts the bond, or properly dismisses
the derivative causes of action that are the subject of the motion.
(See Woodman v. Ackerman (1967) 249 Cal.App.2d 644, 651
(Woodman).)

                   b.    Respondents’ Motion
       Respondents’ section 800 bond motion argued that Max’s
fraud / fiduciary duty and indemnification causes of action are
of questionable merit and derivative, and requested that the

                                  13
court order Max to post a $50,000 bond “as a condition to Max’s
further prosecution of this derivative action.” (Capitalization
omitted.)
       Max raised with opposing counsel that, although
respondents had indicated the corporation had been advancing
the individual respondents’ legal expenses since Max I,
respondents had not included in their bond motion any mention
that the individual respondents had made the undertaking
described in section 317, subdivision (f). Section 317,
subdivision (f) permits a corporation to advance the costs of
defending an agent in a lawsuit, upon receipt of an “undertaking
by or on behalf of the agent to repay that amount if it shall
be determined ultimately that the agent is not entitled to be
indemnified as authorized in this section.” (§ 317, subd. (f).)
Respondents provided Max with documents signed by all
individual respondents in August 2017 (in connection with
Max I), entitled “request for advancement of expenses and
undertaking to repay advanced expenses.” (Boldface &
capitalization omitted.) Each of these provided, in pertinent part:
“I hereby request that the company advance such expenses that
I incur in connection with defending the action [Max I] (‘advanced
expenses’) or that the company pay such advanced expenses
directly. In connection with this request, I hereby undertake
to repay the advanced expenses if it is ultimately determined
that I am not entitled to indemnification under the California
Corporations Code, the company’s articles or bylaws, or
otherwise.” (Capitalization omitted.)
       On February 5, 2020, the court granted respondents’
section 800 bond motion and “ordered [Max] to post a bond in
the amount of $50,000.00.” The court’s minute order (the bond

                                14
order) further instructed that “[t]he parties may meet and confer
regarding a . . . stipulation and (proposed) order re[garding]
dismissal of claims” and “[i]f the parties are unable to agree to
a stipulation and (proposed) order, parties may file and serve a
properly noticed motion to be heard in this department.”

            2.     Max’s Attempted Dismissal of Derivative
                   Claims
       Max never filed a bond, nor did he seek leave to separate
the derivative and individual claims in the fraud / fiduciary
duty cause of action. Instead, eight days after the bond order,
Max filed a “request for dismissal” form. (Boldface omitted.)
This form contains the disclaimer that it “may not be used
for dismissal of a derivative action.” (Boldface omitted.)
Nevertheless, Max used it to purportedly dismiss an action he
described in an attachment to the form as follows: “To the extent
plaintiff ’s first cause of action could reasonably be interpreted as
including a derivative claim, a proposition which is denied, such
derivative claim only is dismissed.” (Capitalization omitted.)
Max did not request dismissal of the indemnification cause of
action, either via this form or any other means.

            3.     Respondents’ Demurrer and Max’s Attempt
                   to File an Amended Complaint
       On March 16, 2020, respondents filed a demurrer to
Max’s complaint. Max never filed an opposition to the demurrer.
Instead, on June 17, 2020, Max purported to file a first amended
complaint, as well as a notice declaring that, as a result of that
amended pleading, the demurrer was moot. The amended
complaint alleged the breach of fiduciary duty / fraud cause
of action as two separate causes of action (one for breach of

                                 15
fiduciary duty and one for fraud), and alleged with more
specificity the deceptive conduct underlying the fraud cause
of action.
       The trial court ultimately determined that Max’s purported
amended complaint was “improperly filed” and an “attempt to
circumvent the automatic stay” resulting from the bond order,
and proceeded to rule on the demurrer to the original complaint.
The court, however, considered Max’s purported amended
complaint as a proffer in support of Max’s request that, should
the court sustain respondents’ demurrer, he be permitted leave
to amend.
       The court sustained the demurrer without leave to amend.
The court did so with respect to the fraud / fiduciary duty and
indemnification causes of action on the grounds that, per the
bond order, they were derivative causes of action for which
Max had not posted the required bond. The court sustained the
demurrer to the attorney fees cause of action on the basis that
it reflected “an attempt by Max to recover his attorney’s fees
from the earlier dismissed case, . . . [b]ut [section] 1604 does not
permit the recovery of fees by filing a new case.”
       The court also denied Max’s request for leave to amend
on the basis that the purported amended complaint did not
address the deficiencies the court had identified in the original
complaint. The trial court thus dismissed the action with
prejudice. The trial court also ordered Max’s first amended
complaint dismissed with prejudice. Max timely appealed.

                                16
                         DISCUSSION
       On appeal, Max challenges both the bond order and the
dismissal following the demurrer ruling. Max challenges the
dismissal on the broad basis that the court erred in refusing to
consider his purported first amended complaint as the operative
pleading. He also argues the court should not have sustained
the demurrer for reasons specific to each cause of action.
       We first address Max’s arguments regarding the demurrer
to the attorney fees cause of action. The parties agree that
this cause of action is individual, and that Max did not need to
post a bond to pursue it, but disagree as to whether it states a
cognizable claim under section 1601.
       Next, we address Max’s arguments that the court erred in
issuing the bond order. We then consider the court’s refusal to
treat Max’s first amended complaint as the operative pleading.
       We then address Max’s arguments regarding the
demurrer to the fraud / fiduciary duty cause of action and the
indemnification cause of action, both of which the court dismissed
based on Max’s failure to post a bond.

      A.    The Demurrer Ruling on the Attorney Fees
            Cause of Action
       Section 1601 requires, inter alia, that a corporation make
available for inspection by any shareholder the corporation’s
“accounting books, records, and minutes of proceedings” “upon
the written demand on [a] corporation of any shareholder . . .
for a purpose reasonably related to the holder’s interests as a
shareholder.” (§ 1601, subd. (a)(1).) Section 1603 addresses the
enforcement of this right by providing that, “[u]pon refusal of
a lawful demand for inspection, the superior court of the proper

                                17
county . . . may enforce the right of inspection with just and
proper conditions.” (§ 1603, subd. (a).) Section 1604 addresses
the recovery of attorney fees incurred by a shareholder seeking
inspection of records through court proceedings as follows: “In
any action or proceeding under Section 1600 or Section 1601,
if the court finds the failure of the corporation to comply with
a proper demand thereunder was without justification, the court
may award an amount sufficient to reimburse the shareholder . . .
for the reasonable expenses incurred by such holder, including
attorneys’ fees, in connection with such action or proceeding.”
(§ 1604.)
       In Max I, Max sought inspection of 8e6 records based on
his section 1601 right to do so. In the instant action, he seeks
only to recover the attorney fees he incurred through these
(ultimately successful) efforts in Max I to inspect 8e6 records.
Respondents argue that although Max could have sought such
attorney fees in Max I, section 1604 does not grant him a right
to seek them in the instant action, because this action, unlike
Max I, is not an “action or proceeding under Section 1600 or
Section 1601.” (§ 1604.) We agree.
       The plain meaning of the phrase “action or proceeding
under Section 1600 or Section 1601” is an action that seeks
inspection of corporate records as permitted by those sections.
The instant action does not do so. Thus, that section 1604
permits a plaintiff to recover attorney fees “[i]n any action . . .
under Section 1600 or Section 1601” is inapplicable to the
attorney fees cause of action. We note that section 1604 twice
employs the phrase “action or proceeding under Section 1600
or Section 1601”: Once in referring to the action in which the
attorney fees at issue were incurred, and once in referring to

                                18
the action in which such fees may be recovered. Were we to
read section 1604 as requiring only that the fees be incurred in
such an action, we would render superfluous the statute’s second
instance of the phrase. In interpreting statutes, “ ‘a construction
making some words surplusage is to be avoided.’ ” (Steketee v.
Lintz, Williams & Rothberg (1985) 38 Cal.3d 46, 52.)
       Max was entitled to seek attorney fees in Max I, chose not
to do so, and instead voluntarily dismissed his section 1601 claim
in that action. He cannot recover those fees in this new action.
Further, Max has not identified how he could amend the
complaint to address this deficiency, and the court thus correctly
denied him leave to amend it with respect to the attorney fees
cause of action.

      B.    The Bond Order
            1.    The Purported Lack of An “Undertaking”
                  by the Individual Respondents
       Max argues that the failure of the individual respondents
to provide a valid undertaking in compliance with section 317,
subdivision (f) prevented respondents from showing that
there was “no reasonable possibility that the prosecution of
the [indemnification] cause of action . . . [would] benefit the
corporation or its shareholders.” (§ 800, subd. (c)(1).) On this
basis, Max argues the court erred in requiring respondents
to post a section 800 bond to proceed with the indemnification
cause of action. We disagree.
       Section 317, subdivision (f) provides that “[e]xpenses
incurred in defending any proceeding [on behalf of a corporate
agent] may be advanced by the corporation prior to the final
disposition of the proceeding upon receipt of an undertaking

                                19
by or on behalf of the agent to repay that amount if it shall
be determined ultimately that the agent is not entitled to
be indemnified as authorized in this section.” Max does not
attempt to explain why the lack of a section 317, subdivision (f)
undertaking provides a basis for concluding the indemnification
cause of action benefits the corporation, or why substantial
evidence does not support the court’s conclusion to the contrary.
(See Olson v. Basin Oil Co. (1955) 136 Cal.App.2d 543, 555
[applying substantial evidence standard of review to this issue].)
Rather, Max argues that, because the indemnification cause of
action seeks to recoup legal fees the corporation has “unlawfully
advanc[ed],” the indemnification cause of action is necessarily
in the corporation’s best interest. We disagree. The corporation
would not benefit from such an undertaking regarding the
legal fees incurred in Max I, because the individual respondents
prevailed in that action, and were therefore entitled to
indemnification. (See § 317, subd. (d) [“ [t]o the extent that
an agent of a corporation has been successful on the merits in
defense of any proceeding referred to in subdivision (b) or (c) . . .
the agent shall be indemnified against expenses actually and
reasonably incurred by the agent in connection therewith”].) And
Max neither offers any argument nor identifies any allegations
suggesting that, as the indemnification cause of action alleges,
the individual respondents breached their fiduciary duties to
the company by using corporate funds to pay the individual
respondents’ legal fees in the instant action. Therefore, even
assuming, arguendo, that the individual respondents did not
provide undertakings satisfying section 317, subdivision (f), Max
has failed to “affirmatively demonstrate . . . through reasoned
argument, citation to the appellate record, and discussion of

                                 20
legal authority” that the trial court erred in concluding the
indemnification cause of action was not reasonably likely to
benefit the corporation. (Bullock v. Philip Morris USA, Inc.
(2008) 159 Cal.App.4th 655, 685.) The lack of a section 317,
subdivision (f) undertaking is thus not a basis on which Max
can challenge the bond order. The court properly required
Max to post a bond in order to proceed with the indemnification
cause of action.

            2.    Applicability of Section 800 to the
                  Fraud / Fiduciary Duty Cause of Action
        Max next argues that section 800 does not apply to
the fraud / fiduciary duty cause of action because it is not a
shareholder derivative action and contains, partially if not
entirely, an individual claim for fraud. An action is derivative
if it involves “ ‘injury to the corporation, or to the whole body
of its stock and property without any severance or distribution
among individual holders.’ ” (Jones v. H. F. Ahmanson & Co.
(1969) 1 Cal.3d 93, 106.) “A personal claim, in contrast, asserts a
right against the corporation which the shareholder possesses as
an individual apart from the corporate entity.” (Denevi v. LGCC,
LLC (2004) 121 Cal.App.4th 1211, 1222.)
        The fraud / fiduciary duty cause of action includes
allegations describing two categories of conduct by the individual
respondents: (1) breaches of fiduciary duties owed to the
corporation and other misconduct and mismanagement that
reduced the value of the corporation and shares therein, and
(2) fraudulent nondisclosures and misrepresentations to Max and
other minority shareholders that induced them not to sell back
their shares following the M86 transaction. The first category
of conduct is plainly conduct harming the corporation as a whole

                                21
and all shareholders equally. The second category is conduct
aimed at and uniquely injuring Max and the minority
shareholders. Only Max and other minority shareholders could
have relinquished the opportunity to sell back their shares
following the M86 transaction, and such forbearance did not
harm the corporation. Thus, Max alleges in the fraud / fiduciary
duty cause of action both (1) a derivative claim for breaches
of fiduciary duty owed the corporation and (2) a personal fraud
claim based on concealment of material facts from Max and
other minority shareholders. This cause of action thus states a
derivative claim (albeit in part), and the trial court did not err
in concluding that, as pleaded, it was subject to section 800.
       Max correctly points out that, as the California Supreme
Court held in Hagan v. Superior Court (1960) 53 Cal.2d 498
(Hagan), when a complaint alleges a personal cause of action
and a derivative cause of action in the same complaint, a court
cannot impose a section 800 bond as a condition of prosecuting
the personal cause of action. (See Hagan, supra, pp. 502−503.)
On appeal, Max argues that the court thus should have permitted
him to continue to prosecute the individual fraud claim contained
in the fraud / breach of fiduciary duty cause of action without
posting a bond. But it was not up to the court, on its own motion,
to parse out the individual and derivative claims contained in the
fraud / fiduciary duty cause of action. It was up to Max to identify
the individual fraud claim contained in the fraud / fiduciary
duty cause of action and ask for leave to amend his complaint
accordingly. Max did not do so in his written opposition to the
bond motion, and nothing in the record before us supports, nor
does Max contend, that he did so at the bond hearing or at any

                                22
other time before the court ruled on the bond motion.4 To
the contrary, the record suggests that he refused to even
acknowledge that the fraud / fiduciary duty cause of action
contained any derivative claim whatsoever. Thus, the court
did not err in imposing a section 800 bond requirement on the
entirety of the fraud / fiduciary duty cause of action.

      C.    The Court’s Refusal to Treat the Purported
            Amended Complaint as the Operative Pleading
      Max argues that the court should not have ruled on the
demurrer to the original complaint at all, because it was no
longer the operative pleading. Specifically, he argues Code
of Civil Procedure section 472 affords him an absolute right to
amend his original complaint within a certain time frame, with
which his proposed amendment complied, and therefore Max’s
proposed first amended complaint superseded the original
complaint.
      Max’s argument ignores that the section 800 bond order
triggered a stay that prohibited him from “ ‘ “prosecut[ing]” ’ ”
his action—meaning “ ‘every step in an action from its
commencement to its final determination’ ” (Melancon v. Superior
Court (1954) 42 Cal.2d 698, 707–708)—until 10 days after the
motion is “disposed of.” (§ 800, subd. (f).) “The point at which
the motion is ‘disposed of,’ or finalized, is not the time at which

      4 The record on appeal does not contain a transcript of
the bond motion hearing. It is Max’s burden as the appellant to
provide an adequate record to support his claim for relief, and to
seek augmentation thereof, should “a clerk or reporter omit[ ] a
required or designated portion of the record.” (Cal. Rules Court,
rule 8.155(b)(1); see id., rule 8.155(b)(2).)

                                23
the court rules that security is to be furnished, but rather occurs
when the plaintiff either furnishes the required security or
refuses to do so and suffers a dismissal.” (Woodman, supra, 249
Cal.App.2d at p. 651; accord, Melancon, supra, at pp. 707–708.)
Neither had occurred at the time Max attempted to “prosecute”
his action by filing an amended complaint (and, for that matter,
at the time the court ruled on the demurrer to the original
complaint).
       As discussed above, Max did not argue in opposing the
bond motion that some portion of the fraud / fiduciary duty cause
of action should be exempt from any section 800 bond order and
resulting stay. Absent such a request and a related request
for leave to amend, the mere presence of an individual claim
alongside a derivative claim in the fraud / fiduciary duty cause
of action did not exempt that cause from the stay imposed by
the bond order.5 Max thus could not amend it as of right, and
the court properly rejected Max’s purported amended complaint
as violating the stay.6

      5 Max does not argue that his filing of the purported
amended complaint constituted an effort to prosecute the one
cause of action in the complaint unaffected by the bond order
(the attorney fees cause of action) and stay. (See Hagan, supra,
53 Cal.2d at pp. 502–503.)
      6 Max argues that the bond order was disposed of on
February 5, 2020 (i.e., before Max attempted to file an amended
complaint) because the parties filed a stipulation stating, “Since
the bond motion was disposed of on February 5, 2020, the due
date for parties served with the complaint to respond thereto
is February 18, 2020.” (Capitalization omitted.) But the parties
cannot change the definition of “ ‘disposed of ’ ” via stipulation.

                                 24
      D.    The Demurrer Ruling on the Indemnification
            Cause of Action
       Max next argues that the court erred in dismissing the
fraud / fiduciary duty and indemnification causes of actions,
because these dismissals were based on Max’s failure to post
a bond, which Max should never have been required to do.
       As discussed above, the court correctly required Max to
post a bond in order to proceed with the indemnification cause of
action, which Max acknowledges was entirely derivative. After
Max failed to do so, section 800 required the court to dismiss it.
(See § 800, subd. (d) [“[i]f the court . . . makes a determination
that a bond shall be furnished by the plaintiff as to any one
or more defendants, the action shall be dismissed as to the
defendant or defendants, unless the bond required by the court
has been furnished within such reasonable time as may be fixed
by the court,” italics added].)
       Further, Max has not identified how he could amend the
complaint to avoid this outcome. The proposed first amended
complaint, which the court considered as a proffer as to how
Max would amend, if granted leave, makes no new allegations
relevant to that claim. Thus, the court correctly denied him
leave to amend that cause of action.

      E.    The Demurrer Ruling on the Fraud / Fiduciary
            Duty Cause of Action
      As we discuss in part B.2., ante, the court correctly required
Max to post a bond in order to proceed with the fraud / fiduciary
duty cause of action, given Max’s failure to request that the court
permit him to proceed separately with the individual fraud claim
contained therein. Accordingly, Max’s failure to file a bond or

                                25
request leave to amend required the court to sustain the
demurrer to that cause of action.
       Nonetheless, Max could have addressed this and all other
deficiencies in his complaint by amending it to allege only the
individual fraud claim contained in the fraud / fiduciary duty
cause of action. The court should have granted Max leave to
amend in this limited way. We acknowledge Max’s proffer as
to how he might amend did not jettison the derivative breach
of fiduciary duty claim from the fraud / fiduciary duty cause
of action, but rather alleged it as a separate cause of action
alongside a standalone individual fraud cause of action. Still,
this proffer sufficiently identified for the court how Max could
separately state an individual claim for fraud that would not
be barred by the bond order and Max’s failure to post a bond.7
       We also disagree with respondents’ merits-based
arguments as to why permitting Max leave to amend the

      7 We disagree with respondents’ argument that the
continuing request for disgorgement in the proffered amended
complaint renders the proposed individual fraud cause of action
derivative. Disgorgement is a remedy, not a type of injury or
wrong. Nor does requesting disgorgement as a remedy change
the nature of the injury or wrong to be remedied. (See Korea
Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134,
1145 [disgorgement “ ‘may compel . . . surrender of all profits . . .
whether those profits represent money taken directly from
persons who were victims of the [challenged] unfair practice’ ”].)
We need not and do not consider whether Max may obtain
disgorgement as a remedy for his individual fraud cause of
action. We conclude only that his request for such a remedy
does not change the individual nature of that cause of action.

                                 26
fraud / fiduciary duty cause of action in this manner would be
futile.
        First, respondents argued below that the applicable
three-year statute of limitations bars Max’s proposed individual
fraud cause of action. But such a cause of action is “not deemed
to have accrued until the discovery, by the aggrieved party,
of the facts constituting the fraud.” (See Code Civ. Proc., § 338,
subd. (d); see Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th
797, 807 [limitations period begins when cause of action accrues,
and “ ‘discovery rule’ . . . postpones accrual of a cause of action
until the plaintiff discovers, or has reason to discover, the cause
of action”].) The complaint alleges that Max was unaware of the
alleged fraudulent conduct until August 2018, an allegation we
must accept as true at the demurrer stage. (See Zelig v. County
of Los Angeles (2002) 27 Cal.4th 1112, 1126.) Respondents do not
identify any basis on which we could conclude that Max could
or should have made this discovery earlier. (See Fox, supra,
35 Cal.4th at p. 807.)
        Respondents next argue that the proposed individual
fraud cause of action does not allege fraud with sufficient
specificity. Respondents note that a stockholder plaintiff
asserting an individual claim for fraud based on actions affecting
all shareholders must plead unique personal reliance with
specificity. (See Small, supra, 30 Cal.4th at pp. 172, 184–185
[court correctly sustained demurrer to minority shareholders’
individual fraud claim because minority shareholders did not
specifically allege personal reliance on inaccurate press releases
and quarterly reports circulated to all shareholders].) But
the purported amended complaint does not allege fraudulent
misrepresentations to all shareholders—only to minority

                                27
shareholders like Max. As such, Max need not plead reliance
with heightened specificity in order to “stand out from the mass
of stockholders who rely on the market.” (Id. at pp. 184−185.)
       Respondents next argue that the individual fraud cause
of action Max proposes would be barred by Max I, in which
Max’s fraud claim was dismissed following a demurrer and he
declined to amend. In order for the doctrine of res judicata to
bar “ ‘ “either an entire cause of action or one or more issues” ’ ”
the “ ‘ “claim or issue raised in the present action [must be]
identical to a claim or issue litigated in a prior proceeding.” ’ ”
(Hong Sang Market, Inc. v. Peng (2018) 20 Cal.App.5th 474, 489.)
“California courts apply the ‘primary rights’ theory in assessing
whether two proceedings involve identical causes of action.
[Citation.] ‘. . . The scope of the primary right . . . depends
on how the injury is defined. A cause of action comprises the
plaintiff ’s primary right, the defendant’s corresponding primary
duty, and the defendant’s wrongful act in breach of that duty.’ ”
(Id. at p. 490.) The fraud claim in Max I was based on the
individual respondents’ self-dealing with respect to the funds
that 8e6 received from Singtel in late 2015 and the concealment
of information in connection with the sale to Trustwave in 2012.
It did not mention or involve the basis of the instant lawsuit:
fraudulent misrepresentations regarding the M86 transaction
in 2008. Thus, both the injury and the individual respondents’
offending conduct at issue in the two fraud claims are distinct,
and they do not involve the same primary right. Nor can
respondents successfully argue that res judicata bars Max’s
currently proposed individual fraud claim because he could have
included it in his original or first amended complaint in Max I.
“[W]here it cannot be said that plaintiff knew or should have

                                 28
known of the claim when the first action was filed, res judicata
should not bar the second action.” (Allied Fire Protection v. Diede
Construction, Inc. (2005) 127 Cal.App.4th 150, 156.) Max alleges
he did not discover and could not have discovered respondents’
misrepresentations regarding the M86 transaction until after
he filed his complaints in Max I. At the demurrer stage, we must
accept these allegations as true.
       Finally, respondents argue that Max’s proposed individual
fraud cause of action must fail because it is based on fraud
perpetrated in connection with the M86 transaction, and “the
exclusive remedy of a shareholder claiming damages due to
a corporate merger is the appraisal process pursuant to . . .
section 1300 et seq.” But appraisal is not the exclusive remedy
when a plaintiff alleges, as does Max, “that [he] would have
exercised [his] dissenters’ rights had defendants timely disclosed
their alleged [misconduct].” (Singhania v. Uttarwar (2006) 136
Cal.App.4th 416, 434 [concluding appraisal was the exclusive
remedy and noting plaintiff had made no such allegations or
arguments].) Under the very authority on which respondents
rely, “only, or at least, where the plaintiff was ‘aware of all
facts leading up to his cause of action for alleged misconduct
in connection with the terms of the merger prior to the time
the merger was consummated but deliberately opted to sue
for damages instead of seeking appraisal, [does] section 1312,
[subdivision] (a) act[ ] as a bar.’ ” (Busse v. United PanAm
Financial Corp. (2014) 222 Cal.App.4th 1028, 1045, quoting
Steinberg v. Amplica, Inc. (1986) 42 Cal.3d 1198, 1214; accord,
Singhania, supra, 136 Cal.App.4th at p. 434 [noting in dicta
that “an action for damages might be available where fraud or
breaches of fiduciary duty cause a shareholder to go along with

                                29
a reorganization, based upon misinformation or nondisclosures
material to a decision whether to exercise dissenters’ rights, and
the shareholder would have cashed out as provided by dissenters’
rights law had the shareholder known the true facts”].)
       Thus, the respondents’ demurrer did not identify
deficiencies in the Max’s proposed individual fraud cause of
action that would have justified denying leave to amend.8

      8  Max does not argue that the court erred in denying him
leave to amend his complaint to assert an individual breach of
fiduciary duty cause of action. Nor could he, as the breach of
fiduciary duty cause of action included in the proposed amended
complaint continued to allege breaches of fiduciary duties owed to
all shareholders and the company, and was thus derivative. Our
conclusion that the court improperly denied leave to amend the
fraud / fiduciary duty cause of action is thus limited to the denial
of an opportunity to assert an individual fraud claim, not an
individual breach of fiduciary duty claim.

                                30
                        DISPOSITION
       The order granting respondents’ section 800 bond motion
is affirmed. The judgment of dismissal is reversed and the court
is to allow Max to amend his complaint to allege a stand-alone
individual fraud claim.
       The parties shall bear their own costs on appeal.
     NOT TO BE PUBLISHED.

                                    ROTHSCHILD, P. J.
We concur:

                 CHANEY, J.

                 BENDIX, J.

                               31