Fletcher v. A. J. Indus., Inc.

266 Cal. App. 2d 313, 72 Cal. Rptr. 146 (1968)

 

RULE:

Under the substantial benefit rule, a variant of the common-fund doctrine, the successful plaintiff in a stockholder's derivative action may be awarded attorneys' fees against the corporation if the latter received substantial benefits from the litigation, although the benefits were not pecuniary and the action had not produced a fund from which they might be paid.

FACTS:

Appellant, a corporation on whose behalf respondent stockholders sued respondent officers for misconduct, argued that it was not responsible for the stockholders' fees and costs because no statute authorized such an award, and no common fund existed from which the award could be taken. The stockholders argued, and the court agreed, that they were entitled to fees even without a common fund because their action had "substantially benefited" appellant by maintaining its health and raising the standards of fiduciary relationships. Appellant also argued that it need not indemnify the officers because they did not incur liability in the proper exercise of their duties. The court agreed, noting that Cal. Corp. Code §830 required such indemnification only if an officer's conduct merited it, and that the district court did not so find with respect to the officers.

ISSUE:

Even though a corporation receives no money from a derivative suit, are attorney fees properly awarded if the corporation has substantially benefited from the action?

ANSWER:

Yes.

CONCLUSION:

The court affirmed the judgment as to respondent stockholders, but denied it as to respondent officers, holding that the former were entitled to fees even in the absence of a common fund because the suit substantially benefited appellant, but that the latter's misconduct did not warrant indemnity.

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