Melancon v. Superior Court

268 P.2d 1050, 42 Cal. 2d 698, 1954 Cal. LEXIS 198

• Court: California Supreme Court
• Decided: April 16, 1954
• Docket: L. A. 22883
• Status: Published

Opinions

SCHAUER, J.

Petitioner seeks mandate to compel the superior court to enforce his claimed right to take the depositions of certain of the individual defendants, and officers of corporate defendants, in connection with a derivative stockholders’ suit filed by petitioner, a stockholder in and as plaintiff on behalf of, defendant corporation Walt Disney Productions. The other defendants named are another corporation and seven individuals. Petitioner¹ also asked for a writ of prohibition restraining the lower court from proceeding with a hearing (pending when the petition was filed but concluded before the alternative writs issued) on defendants’ motions to .require petitioner to furnish security, under the provisions of section 834 of the Corporations Code, for the reasonable expenses, including attorney’s fees, which defendants may incur in defending the derivative stockholders’ suit. The alternative writs issued, but for reasons hereinafter stated we have concluded that the peremptory writs should be denied and the alternative writs discharged.

Prior to our consideration of the petition for the writs the lower court heard the motions for security, granted them as to all except one defendant, and on September 4, 1953, made and signed written findings and conclusions and' an order that plaintiff furnish a total of $65,500 as security within 30 days after service upon plaintiff of written notice of the signing of the order, that plaintiff serve written notice on defendants’ counsel of the deposit of the security within 10 days “after plaintiff has complied with this order,” and that further prosecution of the action by plaintiff “is hereby stayed, and said defendants need not file any pleadings herein” until 30 days after plaintiff shall have served the notice of his compliance with the order for security, with a further stay until 20 days after plaintiff’s sureties have justified in case defendants except to such sureties. Thereafter, on September 10, we ordered issuance of the alternative writs; at that time we had not been informed of the hearing held and order made by the lower court. The writs issued commanding respondent court to show cause why the depositions should not be ordered and prohibiting “any further proceedings with reference to a hearing on said Motions to require security, except as directed hereby, until the further order of this Court thereon.” Thereafter, on September 16, petitioner filed a supplemental petition for the two writs, alleging the hearing in the lower court on the security motions and the written order of September 4 granting them, and asking that such order be set aside and petitioner “be permitted to take the depositions of all party defendants,” or, alternatively, that that court be restrained from dismissing the action if plaintiff fails to furnish the security ordered.

From the petition (as supplemented) for the writs and the return and answer thereto it appears that since 1947 plaintiff has been a shareholder of Walt Disney Productions,² a corporation. He filed his derivative action against that corporation, certain of its alleged officers and directors, and Walt Disney, Incorporated,³ a corporation. He asked that certain contracts between Disney Productions and defendant Walter B. Disney, and between Disney Productions and Disney, Inc., be declared invalid; that Walter E. Disney and Disney, Inc., account for all moneys received by virtue of such contracts; that Walter E. Disney account for sums paid him by Disney Productions as compensation for services rendered since 1940; and that Disney Productions and its officers and directors be enjoined from making further payments under the contracts attacked by plaintiff.

After filing the derivative action, plaintiff gave notices and had served subpoenas duces tecum for the taking of depositions of certain of the defendants and corporate officers; upon their refusals either to be sworn or to answer various questions they were directed to appear for court rulings thereon. Meanwhile all defendants filed motions to require plaintiff to furnish security for expenses, including attorney’s fees, under section 834 of the Corporations Code. Also, the court stayed further proceedings on the depositions until after the hearing and order on the motions for security. This petition (as supplemented) for mandamus and prohibition followed. As above noted, we acted on the petition without having been informed that the lower court had theretofore heard and granted the motions for security⁴ and had stayed further prosecution of the action until the security was furnished.⁵

In support of the order requiring such security the court found, among other things (in the language of § 834), “That there is no reasonable probability that the prosecution of the cause of action alleged . . . will benefit the corporation or its security holders.”

Petitioner in support of his contention that this case is a proper one for the issuance of the jurisdictional writ of prohibition, attacks, on grounds for the most part substantially the same as those recently discussed in Beyerbach v. Juno Oil Co. (1954), ante, p. 11 [265 P.2d 1], the constitutionality of the security provisions here involved. It is now established in this state that where there is no other adequate remedy, such as by appeal, “The constitutionality of a statute or ordinance may be tested by prohibition on the ground that invalidity of the legislation goes to the jurisdiction of the court to proceed to try the case.” (Rescue Army v. Municipal Court (1946), 28 Cal.2d 460, 462-467 [171 P.2d 8] ; see, also, Code Civ. Proc., §§1102, 1103; Hunter v. Justice’s Court (1950), 36 Cal.2d 315, 323 [223 P.2d 465].) By our opinion in the Beyerbaeh case petitioner’s attacks on the statute have been answered adversely to him in most respects.

His remaining- contentions concern the depositions he sought to take. He urges that by refusing to compel completion of the depositions the trial court deprived him of the means of effectively obtaining evidence to oppose the motions for security, particularly with respect to whether there is a “reasonable probability that the prosecution of the cause of action alleged . . . will benefit the corporation or its security holders” (Corp. Code, § 834), and that he was thereby denied equal protection of the law. In this respect, petitioner relies upon section 2021 of the Code of Civil Procedure⁶ and upon cases in which mandamus has issued to compel the lower court to enforce the right to take depositions or to perpetuate testimony. (See McClatchy Newspapers v. Superior Court (1945), 26 Cal.2d 386 [159 P.2d 944] ; Brown v. Superior Court (1949), 34 Cal.2d 559 [212 P.2d 878] ; Superior Ins. Co. v. Superior Court (1951), 37 Cal.2d 749 [235 P.2d 833].)

In none of the cited cases, however, had the hearing or trial in connection with which the testimony or deposition was sought been held and the order or judgment of the trial court been rendered prior to the issuance of an alternative writ or writs by the appellate court. By contrast, in the matter now before us, as already noted, the hearing on the motions for security had been held, over a period of three days, and the order for the furnishing of the security by plaintiff had been made prior to the consideration by this court of the petition for the writs. Under such circumstances it appears that the remedy by appeal from the judgment of dismissal which presumably will follow if the ordered security is not furnished is not only an adequate, but is clearly a more appropriate remedy than the writs here sought.

In the first place, the rule is that prohibition ordinarily issues only to prevent future judicial acts rather than to undo acts already performed. (See State Board of Equalization v. Superior Court (1937), 9 Cal.2d 252, 254 [70 P.2d 482]; 21 Cal.Jur. 581-582, and cases there cited.) Although exceptions to this rule have been made and the writ has been allowed where the act in question is a continuing one and the circumstances are so aggravated as to justify immediate relief, such as where a receiver has been appointed, an injunction has issued, or property has been seized under a void order (see Evans v. Superior Court (1939), 14 Cal.2d 563, 580-581 [96 P.2d 107], and eases there cited), and “where, because of delay, there would be consequential damages” (Golden State Glass Corp. v. Superior Court (1939), 13 Cal.2d 384, 389 [90 P.2d 75]), no such aggravated circumstances or consequential damages would appear to flow from ■the order requiring the furnishing of security by plaintiff in the derivative stockholders’ action, or from the entry of an appealable judgment of dismissal which would follow plaintiff’s failure to comply with the security order. As recently reaffirmed in Jollie v. Superior Court (1951), 38 Cal. 2d 52, 56 [237 P.2d 641], the expense of an appeal is insufficient to justify issuance of the writ of prohibition.

In the second place, petitioner in his third supplemental petition for the writs, complains of rulings by the court on evidence offered by him as plaintiff at the three-day hearing on the security motions, complains that one of the defendants subpoenaed by plaintiff as a witness was excused from testifying at such hearing because of illness, complains that although one eight-day continuance of such hearing was granted plaintiff in order to permit subpoena by him of certain witnesses he was refused a further continuance although he had been unable to serve the subpoenas, and complains that one defendant was allowed more security than he requested. It seems apparent from a mere statement of these various complaints that they do not go to the court’s jurisdiction and may not properly be considered on this application for mandamus and for prohibition but only upon an appeal and a record of the hearing.

Finally, refusal by the court to order completion of the depositions prior to the hearing, even if we assume (we do not so hold) that such refusal was erroneous, would likewise appear not to have violated petitioner’s rights in a constitutional or jurisdictional sense. He was given a full opportunity to subpoena and produce witnesses, and to elicit evidence, both oral and by affidavit, and he did so, at the hearing on the security motions.⁷ As declared in Whitley v. Superior Court (1941), 18 Cal.2d 75, 81 [113 P.2d 449], quoting from 12 American Jurisprudence, Constitutional Law, section 637, page 327, “A hearing before judgment, with full opportunity to present all the evidence and the arguments which the party deems important, is all that can be adjudged vital under the guaranty of due process of law ...” (See also Wood v. Pendola (1934), 1 Cal.2d 435, 444 [35 P.2d 526] ; Dohany v. Rogers (1929), 281 U.S. 362, 369 [50 S.Ct. 299, 74 L.Ed. 904].)

Petitioner cites no authority and we are aware of none which declares opportunity to take depositions of witnesses prior to a trial or hearing to be a requirement of due process. Mere erroneous construction of statutes does not constitute a denial of due process. (Neblett v. Carpenter (1938), 305 U.S. 297, 302 [59 S.Ct. 170, 83 L.Ed. 182].)

Moreover, as pointed out by respondent, under our perpetuation of evidence statutes (Code Civ. Proc., §§2083-2089; see also MacLeod v. Superior Court (1952), 115 Cal. App.2d 180 [251 P.2d 728]) it would seem that plaintiff-petitioner, on proper showing, could have taken the depositions of defendants prior to filing his stockholder’s derivative action, and have thereby discovered whether there was sufficient probability of benefit to the corporation to justify bringing the action at all. Section 834, which provides for the security motions, by its terms appears to apply only to actions already commenced.

In addition, it may be noted that under the New Jersey statute upheld by the United States Supreme Court in Cohen v. Beneficial Industrial Loan Corp.8 (1949), 337 U.S. 541 [69 S.Ct. 1221, 93 L.Ed. 1528], the right of the corporation to require plaintiff to “give security for the reasonable expenses, including counsel fees,” is absolute (when it arises at all, under the terms of the act) and, unlike the California statute, does not depend upon a showing of nonprobability of benefit to the corporation from prosecution of the derivative action. Consequently it is apparent that in the invoked constitutional aspect it is not necessary to the sustaining of the statute now before us that such a showing be made or that plaintiff be accorded the right he claims of taking depositions in order to support his claim of probable benefit.

Petitioner further urges that he is entitled to proceed with the depositions he seeks, in the course of preparing for the eventual trial of the derivative action, even though he has not as yet complied with the order for the posting of security. It seems clear, however, that the taking of depositions for such purpose would constitute a step in the “prosecution” of the action and therefore falls within the stay provisions of section 834.⁹ (See Ray Wong v. Earle C. Anthony, Inc. (1926), 199 Cal. 15, 18 [247 P. 894], in which it is stated that “The term ‘prosecution’ is sufficiently comprehensive to include every step in an action from its commencement to its final determination.”) It therefore appears that the court has properly refused to proceed further with respect to the depositions until such time as petitioner may comply with the order respecting security. The fact that defendants may take such depositions in the meantime, if they be so advised, does not deprive petitioner of equal protection of the law. As declared in the- Hogan and Beyerbach cases the power of the Legislature in this type of litigation is plenary, and it is no more a denial of equal protection to suspend petitioner’s right to take depositions until he deposits the security ordered than it is to require that he furnish such security while not making a reciprocal requirement of defendants. Also, as emphasized in both the Hogan and Beyerbach cases, the cause of action, if any, does not belong to plaintiff. It belongs to the corporation. The statute neither adds one iota to nor subtracts one iota from the cause of action. Such statute, therefore, applied as we have applied it, only to actions instituted since its enactment, is wholly procedural in its effect in a state court; it merely prescribes the conditions on which a volunteer plaintiff may maintain a suit on the corporation’s cause of action. No personal right of plaintiff’s is to be litigated; if he becomes liable for the reasonable expenses of others which he has caused them to incur in successfully defending against his unsuccessful action for the corporation, it is a result of his own volunteer act in subjecting himself and the persons he names as defendants to the procedures of the court.

It may further be noted that if plaintiff does post the security ordered by the court and then proceeds with the securing of evidence by way of depositions he may thereafter, as an incident of the procedural scheme set up by section 834, apply to the trial court for a decrease in the amount of security “upon showing that the security provided . . . is excessive.”

The peremptory writs are denied and the alternative writs discharged.

Gibson, C. J., Shenk, J., Edmonds, J., Traynor, J., and Spence, J., concurred.

1 Sometimes hereinafter referred to as plaintiff.

2 Hereinafter sometimes referred to as Disney Productions.

3 Hereinafter sometimes referred to as Disney, Inc.

4 Except the motion of defendant Disney, Ine., which the court held was “a third party defendant” as to which the court “has no constitutional authority to grant the motion” to require plaintiff to furnish security. For that reason only, the motion of such defendant was denied. In this view the court erred under our holding in Beyerbach v. Juno Oil Co., ante, pp. 11, 23 [265 P.2d 1], filed January 5, 1954, subsequent to the trial court’s ruling herein.

5 From supplemental briefs now on file herein, it further appears that plaintiff has not yet posted the security ordered by the court, but instead, on October 2, 1953, moved the court for an extension of time within which to furnish it. That motion “was heard on the 7th day of October, 1953, and because of the alternative writs having been issued,” the trial court continued the hearing on the motion until January 18, 1954. Meanwhile, plaintiff has served and filed a notice of appeal from the order requiring the security, and defendant Disney, Ine., whose motion for security was denied in the same order, has done likewise. The supplemental briefs also make mention of an “intervener” whom the trial court, “after the security motions had been made,” permitted to appear on the plaintiff’s side; defendants then moved to subject the intervener to the security order and hearing on the motion “was postponed by the trial court.”

6 Section 2021: “The testimony of a witness in this State may be taken by deposition in any action at any time after the service of the summons or the appearance of the defendant. ...”

“1. When the witness is a party to the action or proceeding or an officer, member, agent, or employee of a corporation. ...”

7 We do not have before us and we do not here consider the effect of the security statute with respect to denial of the right to take the deposition of a non-resident witness whose testimony material to the motion is not otherwise available.

8 The ultimate question in that case, as stated by the court (p. 543 of 337 U.S.) "is whether a federal court, having jurisdiction of a stockholders’ derivative action only because the parties are of diverse citizenship, must apply a statute of the forum state which makes the plaintiff, if unsuccessful, liable for the reasonable expenses, including attorney’s fees, of the defense and entitles the corporation to require security for their payment.” The act expressly provided that it should "take effect immediately and shall apply to all such actions [stockholders’ derivative suits by stockholders holding less than five per centum in value (or .350,000.00 market value) of the corporation’s aggregate shares] . . . now pending . . . and to all future actions ...”

In relation to constitutionality, the court held that such statute appeared to be substantially prospective in application: “Its terms do not appear to require an interpretation that it creates new liability against the plaintiff for expenses incurred by the defense previous to its enactment. The statute would admit of a construction that plaintiff’s liability begins only from the time when the Act was passed or perhaps when the corporation’s application for security is granted and that security for expenses and counsel fees which ‘may be incurred’ does not include those which have been incurred before one or the other of these periods.”

As to the ultimate question—whether the statute (which as emphasized by Justices Douglas and Frankfurter is inherently procedural in effect) was so narrowly and exclusively state-court procedural in character as to not be properly enforceable in actions maintained in federal courts because of diversity of citizenship—the court pointed out that (pp. 555-556 of 337 TT.S.) “Buies which lawyers call procedural do not always exhaust their effect by regulating procedure. But this statute is not merely a regulation of procedure. ... [I]t creates a new liability where none existed before, for it makes a stockholder who institutes a derivative action liable for the expense to which he puts the corporation and other defendants, if he does not make good his claims ... If all the Act did was to create this liability, it would clearly be substantive ... We do not think a statute which so conditions the stockholder’s action can be disregarded by the federal court as a mere procedural device.”

9 Section 834, subd. (c): “If any such motion [for security] is filed, no pleadings need be filed by the corporation or any other defendant, and the prosecution of such action shall be stayed, until 10 days after such motion shall have been disposed of.”