JOSEPH BRUTTO v. KENNETH CHIN (2010)

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

Joseph D. Brutto, the former president and CEO of Radiology Practice Management, Inc., appeals from the trial court's judgment sustaining without leave to amend the demurrer to his cause of action for intentional interference with contract against five of the corporation's minority shareholders:  respondents Drs. Kenneth Chin, Scott Lipson, Robert Marcus, Zareh Ounjian, and Angela Sie. We affirm.

FACTS AND PROCEEDINGS

MEMRAD Medical Group, Inc. (MEMRAD) is a medical services corporation;  only licensed physicians may own its stock.   In 1998, Radiology Practice Management, Inc. (RPM) entered into a contract to provide management services to MEMRAD.   RPM's shareholders were the physicians who owned MEMRAD's stock, plus appellant Joseph Brutto and two other former plaintiffs who are no longer parties to these proceedings.   Appellant was RPM's president and CEO.

A. The First Amended Complaint and the First Appeal

In the fall of 2004, MEMRAD owed RPM several million dollars for RPM's services.   MEMRAD's debt to RPM constituted the “vast majority” of RPM's assets.   Appellant alleges a conspiracy arose against him and RPM in the fall of 2004 among three groups of defendants on MEMRAD's side of the business relationship.   The conspiracy's aim, appellant alleges, was to terminate him in order to remove him as an obstacle to the transfer of corporate value from RPM to MEMRAD by forgiving MEMRAD's debt to RPM. Appellant alleges MEMRAD hired two consultants - defendants Thomas Pederson and Patricia Aubort who are not parties to this appeal - to write a false report about appellant's purported mismanagement of RPM. Based on that report, appellant alleges respondents Drs. Chin, Lipson, Marcus, Ounjian and Sie, all of whom sat on MEMRAD's board of directors, voted their shares in RPM to remove RPM's then-current board of directors in order to install three new directors (defendant Drs. William S.M. Shanahan, Jhemon Lee, and Richard Sullivan, who are not parties to this appeal).   The new directors terminated Brutto and his coplaintiffs, and replaced them with defendant consultants Pederson and Aubort.   RPM's new directors and officers forgave MEMRAD's contractual obligations and debt to RPM, which made RPM virtually worthless.

Appellant filed a complaint, followed by a first amended complaint.   He alleged RPM's minority shareholders (consisting of about two dozen physicians, including respondents) had breached their fiduciary duty to appellant, who was a fellow minority shareholder, by facilitating through their shareholder votes RPM's forgiveness of MEMRAD's debt.   Additionally, appellant alleged solely against the defendant consultants a cause of action for interfering with his employment contract with RPM by writing a report that RPM used as a pretext to fire him.   Central to each cause of action was appellant's allegation that the shareholders' installation of RPM's new board of directors was unlawful for multiple reasons, among them that it allegedly violated but state laws of corporate governance and RPM's by-laws.   The trial court sustained without leave to amend the demurrer of all defendants, finding that casting votes and writing a report were not actionable.   The trial court dismissed appellant's first amended complaint.

“Generally speaking, shareholders have no fiduciary duty to other shareholders of the corporation they own.  [Citation.]  We accept, however, as did the trial court, that majority shareholders acting together to control a corporation owe a fiduciary duty to minority shareholders.  [Citation.]  But the duty is not an abstract one, untied to any particular act or conduct.   To breach the duty, the majority must exercise control in a wrongful way.   The alleged wrongful conduct here was, broadly speaking, wasting corporate assets that left RPM a valueless hulk.   But the actors who hollowed out RPM were the new officers and board, not respondent doctors.  [¶] The only conduct appellants properly pleaded against the majority is voting their shares to install a new board.   Appellants cite no authority making shareholders liable for electing directors who waste corporate assets.   Appellants state that ‘the defendants' conduct in merely voting for the prohibited result is sufficient,’ but they cite no authority to support that statement - a statement that may very well be the vital, but missing, link in the chain of liability they hope to forge between respondent doctors and RPM's management and board.  (Brutto v. Chin, supra, B194350, slip opn. at p. 10.)

We further found appellant failed to state a cause of action for interference with contract because he alleged no facts showing causation between the consultants' writing a false report and RPM's termination of him.   We found, however, that the trial court erred in denying him leave to amend to allege causation.   Accordingly, in a divided opinion we remanded the matter to permit appellant to amend his complaint.  (Brutto v. Chin, supra, B194350, slip opn. at pp. 13-14.)

B. The Operative Second Amended Complaint and Respondents' Demurrer

After remand, appellant filed his second amended complaint, which is the operative complaint here.   He alleges a single cause of action for intentional interference with contract, which he has expanded to include RPM's new directors and selected shareholders, not just, as in his first amended complaint, the consultants.   The second amended complaint's defendants fall into three groups.   The first group is respondents:  five physicians who sat on MEMRAD's board of directors who were minority shareholders in RPM - Drs. Chin, Lipson, Marcus, Ounjian, and Sie. The members of the second group, who are not parties to this appeal, are RPM's purported new directors:  Drs. Shanahan, Lee, and Sullivan.   And the members of the third group, who are not parties to this appeal, are consultants Pederson and Aubort.¹  Appellant's second amended complaint asserts respondents conspired with the consultants and RPM's new directors.   The conspiracy involved the consultants knowingly writing a report falsely accusing appellant of mismanaging RPM. According to appellant, respondents adopted the report “knowing that it[ ] was knowingly and intentionally false with the intention ․ of using it as a part of the defendants' scheme to transfer RPM's assets to MEMRAD.”   In furtherance of the conspiracy, and in violation of state corporate law and RPM's by-laws, respondents removed RPM's old board of directors and replaced it with a new board.   The new board then terminated appellant's employment contract with RPM.

All three groups of defendants demurred to the second amended complaint.   Respondents asserted that the second amended complaint alleged no acts by them that interfered with appellant's employment contract.   The trial court sustained respondents' demurrer without leave to amend.²  The court entered judgment for respondents.   This appeal followed.

DISCUSSION

The elements of a cause of action for interference with contract are well-established.   They include “the defendants intentional acts designed to induce a breach or disruption of the contractual relationship․  (Sole Energy Co. v. Petrominerals Corp. (2005) 128 Cal.App.4th 212, 237-238;  see Reeves v. Hanlon (2004) 33 Cal.4th 1140, 1148;  Imperial Ice Co. v. Rossier (1941) 18 Cal.2d 33, 35-37.)   Appellant must allege respondents intended that RPM terminate his employment contract, and that respondents' acts, in fact, caused RPM to terminate his contract.  (Franklin v. Dynamic Details, Inc. (2004) 116 Cal.App.4th 375, 391 [defendant's intentional act must have caused the termination].)  “It is the settled rule in actions for wrongful interference with contract rights that an essential element of the cause of action is that the conduct charged be the procuring cause of the interference and the harm.   (Beckner v. Sears, Roebuck & Co. (1970) 4 Cal.App.3d 504, 507.)

Appellant's cause of action for interference with contract fails because he does not allege intentional acts by respondents that induced RPM's termination of his employment contract.   Respondents' purported wrongful act was voting their shares in RPM to remove RPM's old board of directors to replace it with new board members.   But, as we explained above in our quotation from our first opinion in these proceedings, appellant cannot state a cause of action based on how respondents voted their shares, even if installation of the new board violated laws of corporate governance or RPM's by-laws.   It was the vote by the RPM board that caused appellant's contract to be terminated.³

Appellant tries to attach liability to respondents by alleging they conspired with the consultants and RPM's new board of directors to use the consultants' false report as a pretext for RPM's termination of his employment contract.   Asserting the conspiracy ties all the defendants together, appellant alleges all the defendants are liable for each others' acts.   Civil conspiracy allows vicarious liability regardless of a defendant's lack of direct involvement in the act that injured the plaintiff, but it is not an independent tort.   (Favila v. Katten Muchin Rosenman LLP (2010) 188 Cal.App.4th 189, 206.)   Because it is not an independent tort, a conspiracy “ ‘[s]tanding alone ․ engenders no tort liability.   It must be activated by the commission of an actual tort.’  [Citation.]”  (Ibid.) Furthermore, “ ‘bare legal conclusions, inferences, generalities, presumptions, and conclusions are insufficient’ “ to support a conspiracy claim.  (State of California ex rel. Metz v. CCC Information Services, Inc. (2007) 149 Cal.App.4th 402, 419, citations omitted.)

Reduced to its essence, the alleged conspiracy unfolded as follows:  consultants wrote, respondents voted, and RPM terminated.   RPM, itself a party to appellant's employment contract, cannot be liable for inducing, or conspiring to induce, the breach of his contract.  (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 514;  Short v. Nevada Joint Union High School Dist. (1985) 163 Cal.App.3d 1087, 1102.)   Furthermore, it is a legal truism that corporations such as RPM act through their directors and officers.  (Burdette v. Carrier Corp. (2008) 158 Cal.App.4th 1668, 1689;  Norman v. Department of Real Estate (1979) 93 Cal.App.3d 768, 774.)   But despite RPM's legal incapacity to conspire to induce the termination of appellant's contract, appellant alleges respondents are liable in the conspiracy for having voted to install RPM's new board.   Appellant cites no authority for his proposition that respondents may be liable for how they voted their shares, a proposition we rejected in our first opinion in these proceedings.   No independent tort having been properly alleged, appellant's allegation that respondents conspired to commit a tort collapses.

Finally, appellant points to what he sees as irreconcilable inconsistency between the trial court's sustaining of respondents' demurrer and its overruling the demurrers of the consultant defendants and the new-board-of-director defendants.   He reasons that his allegations of conspiracy make them equally liable for each others' acts.   Hence, he concludes, if any are liable, all are liable.   Apart from his bare conclusion, appellant offers no legal authority and reasoned argument that such seeming inconsistency (assuming it exists at all) in sustaining the demurrers of some defendants, while overruling the demurrers of others, constitutes legal error by the trial court.   Our task is to review the ruling of the trial court on the matter currently before us.   As it involves a matter of law, our analysis is absolute, not comparative with other rulings.

DISPOSITION

The judgment is affirmed.   Respondents to recover their costs on appeal.

WE CONCUR:

FOOTNOTES

FN1. The parties' briefs state the trial court earlier this year granted summary judgment in favor of RPM's new board members, and appellant settled his claims against defendant consultants Pederson and Aubort..  FN1. The parties' briefs state the trial court earlier this year granted summary judgment in favor of RPM's new board members, and appellant settled his claims against defendant consultants Pederson and Aubort.

FN2. The court overruled the demurrers of the consultant defendants and new-board-of-directors defendants..  FN2. The court overruled the demurrers of the consultant defendants and new-board-of-directors defendants.

FN3. As we said in our first opinion, there is no authority that shareholders who vote a board of directors into office induce the breach of a contract that the new board chooses not to honor..  FN3. As we said in our first opinion, there is no authority that shareholders who vote a board of directors into office induce the breach of a contract that the new board chooses not to honor.

FLIER, J. GRIMES, J.