Behnam Heshejuin v. Rami Rostami

Los Angeles, CA - Trusts and Estates Lawyer

MoreLaw Marketing

Cost Effective Internet Marketing for Legal Professionals

Info@MoreLaw.com - 855-853-4800

Behnam Heshejin, Eric Anvari, the Hestfam Family Trust,

and trustee David A. Enzmann (plaintiffs) appeal from an order

of dismissal entered as to American Investment Group, LLC

(AIG), Avalon Cold Storage, LLC (Avalon), and AIG’s director and

managing member Rami Rostami (collectively, AIG defendants)

after the trial court sustained without leave to amend the AIG

defendants’ demurrer to plaintiffs’ second amended complaint.

The second amended complaint asserted derivative causes of

action on behalf of American Logistics International, LLC (ALI)

against AIG for conspiracy to commit fraud, fraud by

concealment, breach of fiduciary duty, declaratory relief,

conversion, and accounting.

The trial court held plaintiffs lacked standing to assert

double derivative claims1 on behalf of ALI based on their

minority ownership interest in ALI’s parent company and sole

owner, Mazkat Ventures, LP (Mazkat); plaintiffs failed to assert

the claims on behalf of ALI in a compulsory cross-complaint

(Code Civ. Proc., § 426.30, subd. (a))

2 in American Investment

Group, LLC et al. v. Alireza Mahdavi et al. (Super. Ct. L.A.

1 “A ‘double derivative’ suit has been defined as an action

brought by a shareholder of a holding or parent company, on

behalf of that corporation, to enforce a cause of action in favor of

the subsidiary company. The shareholder is, in effect,

maintaining a derivative action on behalf of the subsidiary, since

the holding or parent company has derivative rights to the cause

of action possessed by the subsidiary.” (Gaillard v. Natomas Co.

(1985) 173 Cal.App.3d 410, 419, fn. 7, disapproved on another

ground by Grosset v. Wenaas (2008) 42 Cal.4th 1100, 1119, fn.

16.)

2 All further undesignated statutory references are to the

Code of Civil Procedure.

3

County, 2020, No. BC662347) (AIG v. Mahdavi); and plaintiffs

failed to state facts sufficient to constitute causes of action

against the AIG defendants. Because ALI (or plaintiffs on behalf

of ALI) failed to file a compulsory cross-complaint in the AIG v.

Mahdavi action, we affirm.

3

FACTUAL AND PROCEDURAL BACKGROUND

A. Plaintiffs’ Second Amended Complaint

Plaintiffs initiated this action against the AIG defendants

and others on February 7, 2018. After the trial court sustained

the AIG defendants’ demurrer to the first amended complaint

with leave to amend, plaintiffs filed the operative second

amended complaint on November 1, 2018. The second amended

complaint alleged 12 causes of action, six of which were asserted

as derivative causes of action on behalf of ALI against AIG for

conspiracy to commit fraud (first cause of action); fraud by

concealment (second cause of action); breach of fiduciary duty

(third cause of action); declaratory relief (fifth cause of action);

conversion (sixth cause of action), and accounting (seventh cause

of action).

4

The second amended complaint alleged plaintiffs are

limited partners in Mazkat, with a combined ownership interest

of about 19.5 percent. Mazkat in turn wholly owns ALI.

3 We therefore do not reach whether plaintiffs have standing

to assert double derivative claims on behalf of ALI by virtue of

their minority ownership in Mazkat.

4 Plaintiffs also asserted their first, second, fifth, sixth, and

seventh derivative causes of action against Rostami. Plaintiffs

did not assert any causes of action against Avalon.

4

American Logistics Advisors, LLC (ALA), is a general partner

with a controlling interest in Mazkat. Defendants Ramin

Bagherzadeh and Alireza Mahdavi manage and control ALA.5

The second amended complaint designated ALI and Mazkat as

“nominal defendant[s] for jurisdictional purposes, in a derivative

capacity” under Corporations Code section 17709.02.

B. The Joint Venture6

In February 2009 ALI received approval to operate as a

regional center within the immigrant investor pilot program,

known as EB-5. Between February 2009 and November 2018,

ALI received about $25 million in investments from individual

immigrants ($500,000 each from 50 EB-5 investors) seeking to

obtain residence visas for the United States under the program.

Between 2009 and 2013, Bagherzadeh formed 10 or more

limited partnerships or limited liability companies, including

American Logistics International Warehousing & Distribution,

LLC (ALIWD), in July 2011; American Logistics International

Cold Storage, LLC (which later became Avalon), American

Logistics International Cold Storage, LP (ALI Cold Storage), and

American Logistics International Fulfillment, LLC, in May 2013;

and American Logistics International Fulfillment, LP (ALI

Fulfillment), in July 2013. ALI is the sole owner and general

partner of ALI Cold Storage. Since its creation, Bagherzadeh has

managed ALIWD. From May 2013 until February 2015

5 The second amended complaint also named as defendants

Bagherzadeh, Mahdavi, American Logistics International

Warehousing & Distribution, LLC, and others.

6 The facts concerning the joint venture are taken from the

second amended complaint.

5

Bagherzadeh was also chief executive officer of Avalon’s

predecessor company, and he was in charge of operations,

marketing, and accounting.

In November 2012 Rostami and Bagherzadeh started

discussing a joint venture between ALI and AIG for the creation

of a cold storage and fulfillment business (joint venture). The

facility would be in the name of ALI Cold Storage with a

fulfillment facility under the name of ALI Fulfillment. In May

2013 ALI began to sell partnership interests in ALI Cold Storage

and ALI Fulfillment to EB-5 investors for the creation of a cold

storage business.

On July 30, 2013 Rostami and Bagherzadeh signed a joint

venture agreement on behalf of AIG and ALI, respectively.

7

Under the agreement, AIG was to invest $6 million in the joint

venture. If ALI Cold Storage and ALI Fulfillment failed to

generate enough capital from EB-5 investors, then $4.5 million of

AIG’s investment would be considered a loan to ALI Cold Storage

and ALI Fulfillment. In October 2013 Rostami created an

operating agreement for Avalon, designating ALI Cold Storage as

Avalon’s sole owner.

Between July 2013 and January 2015, Rostami caused AIG

to invest more than $6 million in the joint venture. In January

2015 Rostami discovered federal immigration authorities had

denied the visa applications of many of the EB-5 investors in ALI

and the related companies, jeopardizing the joint venture’s

success. In response, Rostami (for AIG) and Bagherzadeh (for

ALIWD) secretly executed three documents: a unit purchase

7 Plaintiffs attached the joint venture agreement and the

amended agreement as exhibits to the second amended

complaint.

6

agreement that restructured the joint venture and converted

AIG’s investment into “equity purchase of shares into [Avalon],”

giving AIG a 75 percent ownership interest in Avalon; a second

unit purchase agreement under which ALIWD purchased the

remaining 25 percent membership interest in Avalon for $2.5

million; and a new operating agreement for Avalon designating

AIG and ALIWD as Avalon’s only members, in place of ALI Cold

Storage.

The second amended complaint alleged these actions were

taken by Rostami, Bagherzadeh, AIG, and ALIWD as part of a

conspiracy to divest ALI of its partnership interest and rights in

the joint venture, and they concealed those efforts from the

owners and managers of ALI and Mazkat. Further, Bagherzadeh

acted in the interest of AIG, not ALA, Mazkat, or ALI.

C. AIG v. Mahdavi8

On May 22, 2017 AIG, Avalon, and American Logistics

International Fulfillment, LLC, filed the AIG v. Mahdavi action

against Mahdavi, ALI, ALIWD, and others, asserting claims in

connection with the joint venture. AIG asserted a cause of action

against ALI for breach of contract, and Avalon asserted causes of

action against Mahdavi, ALI, and the other defendants for unjust

enrichment, allocation and contribution, equitable indemnity,

and declaratory relief. The complaint alleged Mahdavi induced

AIG to invest in the joint venture, ALI breached the terms of the

July 2013 joint venture agreement between AIG and ALI and

Avalon’s October 2013 operating agreement, and Mahdavi used

8 The facts concerning the AIG v. Mahdavi action are taken

from the second amended complaint and the judicially noticed

complaint and ALI’s answer filed in the AIG v. Mahdavi action.

7

his position as de facto manager of Avalon to transfer Avalon’s

assets to himself, ALI, ALIWD, and others.

ALI and Mahdavi, through their attorney, Martin Jacobs,

filed an answer on August 1, 2017. Mahdavi did not inform

Mazkat or its partners that ALI had been sued. Plaintiffs first

learned of the AIG v. Mahdavi action on January 22, 2018 from

Rostami’s deposition testimony in another lawsuit. On

January 23 Jacobs filed a motion to be relieved as counsel. The

second amended complaint alleged that even if ALI had informed

plaintiffs of the AIG v. Mahdavi action, because of the alleged

misconduct of its managers Bagherzadeh and Mahdavi, plaintiffs

could not have convinced Bagherzadeh and Mahdavi to direct

ALI to file a cross-complaint and any demand would have been

futile.

D. Defendants’ Demurrer

The AIG defendants demurred to the first, second, third,

fifth, sixth, and seventh causes of action alleged in the second

amended complaint, arguing plaintiffs lacked standing to bring

derivative claims; plaintiffs’ derivative claims were barred by

ALI’s failure to file a cross-complaint in the AIG v. Mahdavi

action; and the second amended complaint failed to state facts

sufficient to constitute the challenged causes of action. The AIG

defendants requested judicial notice of the May 22, 2017

complaint filed in AIG v. Mahdavi and ALI’s August 1, 2017

answer.

After a hearing, on December 21, 2018 the trial court

sustained the AIG defendants’ demurrer without leave to amend.

The court also granted the AIG defendants’ request for judicial

notice of the complaint and ALI’s answer filed in AIG v. Mahdavi

8

action. In its written ruling, the court found plaintiffs lacked

standing to assert double derivative claims on behalf of ALI as

minority partners of Mazkat; plaintiffs failed adequately to plead

their efforts to secure action from ALI’s managers or the reasons

for not making that effort; plaintiffs’ derivative claims on behalf

of ALI were barred by the compulsory cross-complaint rule

because ALI filed an answer in the AIG v. Mahdavi action; and

plaintiffs’ derivative causes of action were not adequately

pleaded.

Plaintiffs timely appealed.

DISCUSSION

A. Plaintiffs’ Appeal Is Timely

On April 15, 2019 plaintiffs filed a notice of appeal

purporting to appeal from the trial court’s December 21, 2018

“judgment of dismissal” sustaining the demurrer. On June 6,

2019 the AIG defendants filed a motion to dismiss the appeal as

untimely, arguing plaintiffs filed their appeal more than 60 days

after the AIG defendants served plaintiffs with notice of the trial

court’s December 21, 2018 order sustaining the demurrer. (See

Cal. Rules of Court, rule 8.104(a)(1)(A), (B) [where a party serves

the notice of entry of judgment, the notice of appeal must be filed

on or before “60 days after the party filing the notice of appeal

serves or is served by a party with a document entitled ‘Notice of

Entry’ of judgment or a filed-endorsed copy of the judgment,

accompanied by proof of service,” unless the superior court clerk

had earlier served a notice of entry of judgment].) In opposition,

plaintiffs argued they electronically filed notices of appeal on

9

February 19, 2019 and March 19, 2019, but both were rejected by

the clerk of the superior court due to missing information.

On July 17, 2019 this court denied the AIG defendants’

motion to dismiss this appeal as untimely but stated “the appeal

will be dismissed as taken from a non-appealable order unless

[plaintiffs] provide a signed order of dismissal on or before

August 6, 2019.” On July 22, 2019 plaintiffs filed an order of

dismissal entered that day, dismissing plaintiffs’ action as to the

AIG defendants with prejudice and ordering that plaintiffs “take

nothing as against those defendants.”

In their respondents’ brief, the AIG defendants argue for

dismissal of the appeal, contending the appeal is taken from a

nonappealable order because the underlying action is ongoing as

to the remaining defendants. Alternatively, the AIG defendants

renew their assertion plaintiffs’ appeal is untimely because it was

filed more than 60 days after the AIG defendants served

plaintiffs with a file-stamped order sustaining the demurrer

without leave to amend. Neither contention has merit.

As to the AIG defendants’ first contention, “it has long been

the settled rule that in a case involving multiple parties, a

judgment is final and appealable when it leaves no issues to be

determined as to one party.” (Dakota Payphone, LLC v. Alcaraz

(2011) 192 Cal.App.4th 493, 506; accord, Justus v. Atchison

(1977) 19 Cal.3d 564, 568 [“the rule requiring dismissal [of an

interlocutory appeal] does not apply when the case involves

multiple parties and a judgment is entered which leaves no issue

to be determined as to one party”], disapproved on another

ground by Ochoa v. Superior Court (1985) 39 Cal.3d 159, 171;

Millsap v. Federal Express Corp. (1991) 227 Cal.App.3d 425, 430.)

Thus, the rule that an appeal may not be taken from

10

interlocutory judgment does not apply in this case where the

July 22, 2019 signed order of dismissal left no issue to be

determined as to the AIG defendants.

As to the AIG defendants’ second contention, plaintiffs’

April 15, 2019 notice of appeal purported to appeal from the

minute order sustaining the demurrer without leave to amend,

which was not an appealable order. But we treat the notice of

appeal as a premature but valid appeal from the subsequent

order of dismissal, “as filed immediately after entry of

judgment.”

9 (Cal. Rules of Court, rule 8.104(d)(2); see Maxwell v.

Dolezal (2014) 231 Cal.App.4th 93, 96, fn. 1; In re Social Services

Payment Cases (2008) 166 Cal.App.4th 1249, 1262, fn. 4.)

B. Standard of Review

“In reviewing an order sustaining a demurrer, we examine

the operative complaint de novo to determine whether it alleges

facts sufficient to state a cause of action under any legal theory.

[Citation.] Where the demurrer was sustained without leave to

amend, we consider whether the plaintiff could cure the defect by

an amendment.” (T.H. v. Novartis Pharmaceuticals Corp. (2017)

4 Cal.5th 145, 162; accord, Centinela Freeman Emergency

Medical Associates v. Health Net of California, Inc. (2016)

1 Cal.5th 994, 1010.) When evaluating the complaint, “we

assume the truth of the allegations.” (Lee v. Hanley (2015)

61 Cal.4th 1225, 1230; accord, McCall v. PacifiCare of Cal., Inc.

(2001) 25 Cal.4th 412, 415.) “A judgment of dismissal after a

9 “The order of dismissal, signed by the trial court and

entered by the court clerk, constitutes a judgment under . . .

section 581d.” (Moorer v. Noble L.A. Events, Inc. (2019)

32 Cal.App.5th 736, 741, fn. 3.)

11

demurrer has been sustained without leave to amend will be

affirmed if proper on any grounds stated in the demurrer,

whether or not the court acted on that ground.” (Carman v.

Alvord (1982) 31 Cal.3d 318, 324; accord, Summers v. Colette

(2019) 34 Cal.App.5th 361, 367.)

A trial court abuses its discretion by sustaining a demurrer

without leave to amend where “‘there is a reasonable possibility

that the defect can be cured by amendment.’” (Loeffler v. Target

Corp. (2014) 58 Cal.4th 1081, 1100; accord, City of Dinuba v.

County of Tulare (2007) 41 Cal.4th 859, 865.) “‘The plaintiff has

the burden of proving that [an] amendment would cure the legal

defect, and may [even] meet this burden [for the first time] on

appeal.’” (Sierra Palms Homeowners Assn. v. Metro Gold Line

Foothill Extension Construction Authority (2018) 19 Cal.App.5th

1127, 1132; accord, Aubry v. Tri-City Hospital Dist. (1992)

2 Cal.4th 962, 971.)

“‘[A] demurrer based on an affirmative defense will be

sustained only where the face of the complaint discloses that the

action is necessarily barred by the defense.’” (Stella v. Asset

Management Consultants, Inc. (2017) 8 Cal.App.5th 181, 191;

accord, Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th

1185, 1191 [application on demurrer of affirmative defense of

statute of limitations based on facts alleged in a complaint is a

legal question subject to de novo review]; Favila v. Katten Muchin

Rosenman LLP (2010) 188 Cal.App.4th 189, 224 [“‘It must appear

clearly and affirmatively that, upon the face of the complaint

[and matters of which the court may properly take judicial

notice], the right of action is necessarily barred.’”].)

12

C. Plaintiffs’ Derivative Claims Are Barred by the Compulsory

Cross-complaint Rule

Section 426.30, subdivision (a), provides “if a party against

whom a complaint has been filed and served fails to allege in a

cross-complaint any related cause of action which (at the time of

serving his answer to the complaint) he has against the plaintiff,

such party may not thereafter in any other action assert against

the plaintiff the related cause of action not pleaded.” “Section

426.30 is an affirmative defense that completely disposes of any

cause of action to which it applies.” (Chao Fu, Inc. v. Chen (2012)

206 Cal.App.4th 48, 56; accord, Hulsey v. Koehler (1990)

218 Cal.App.3d 1150, 1153 [“section 426.30 . . . must be specially

pleaded as an affirmative defense”].)

“The compulsory cross-complaint statute is designed to

prevent ‘piecemeal litigation.’” (Wittenberg v. Bornstein (2020)

51 Cal.App.5th 556, 564; accord, Align Technology, Inc. v. Tran

(2009) 179 Cal.App.4th 949, 959 (Align Technology).) As the

Wittenberg court explained, “‘The law abhors a multiplicity of

actions, and the obvious intent of the Legislature in enacting the

counterclaim statutes [citations] was to provide for the

settlement, in a single action, of all conflicting claims between

the parties arising out of the same transaction. [Citation.] Thus,

a party cannot by negligence or design withhold issues and

litigate them in successive actions; he may not split his demands

or defenses; he may not submit his case in piecemeal fashion.’”

(Wittenberg, at p. 564; accord, Align Technology, at p. 959.) The

statute is to be liberally construed to advance its purpose. (Chao

Fu, Inc. v. Chen, supra, 206 Cal.App.4th at p. 56; accord, Align

Technology, at p. 959.)

13

“The related cause of action must be one that was in

existence at the time of service of the answer (§ 426.30, subd. (a));

otherwise, the failure to assert it in prior litigation is not a bar

under the statute.” (Align Technology, supra, 179 Cal.App.4th at

p. 960.) The phrase “related cause of action” in section 426.30 is

defined as “a cause of action which arises out of the same

transaction, occurrence, or series of transactions or occurrences

as the cause of action which the plaintiff alleges in his

complaint.” (§ 426.10, subd. (c).) “Because of the liberal

construction given to the statute to accomplish its purpose of

avoiding a multiplicity of actions, ‘transaction’ is construed

broadly; it is ‘not confined to a single, isolated act or

occurrence . . . but may embrace a series of acts or occurrences

logically interrelated [citations].’” (Align Technology, at p. 960

[employer’s claims against former employee for misappropriation

of patents were barred by compulsory cross-complaint rule

because employer failed to cross-claim against employee in

response to employee’s prior cross-complaint for wrongful

termination and breach of contract because all claims arose out of

employment relationship]; accord, ZF Micro Devices, Inc. v. TAT

Capital Partners, Ltd. (2016) 5 Cal.App.5th 69, 83-84 [construing

relatedness requirement of § 426.30, subd. (a), “broadly to

effectuate its purpose to avoid a multiplicity of actions,” but

concluding claims against successor company for breach of

contract were not logically related to claims against predecessor

company for breaches of fiduciary duty in earlier time period]; see

Saunders v. New Capital for Small Businesses, Inc. (1964)

231 Cal.App.2d 324, 338 [counterclaim was compulsory because it

arose out of same fiduciary relationship between the parties even

though they involved different transactions].) “In the breach of

14

contract context, the rule means any claims the defendant has

against the plaintiff based on the same contract generally must

be asserted in a cross-complaint, even if the claims are unrelated

to the specific breach or breaches that underlie the plaintiff's

complaint.” (Frog Creek Partners, LLC v. Vance Brown, Inc.

(2012) 206 Cal.App.4th 515, 538.)

Plaintiffs do not dispute the derivative claims10 they assert

on behalf of ALI existed at the time ALI served and filed its

answer in AIG v. Mahdavi. Nor do plaintiffs dispute their

derivative claims relate to the causes of action AIG alleged

against ALI in the AIG v. Mahdavi complaint, which arose from

the same joint venture. Rather, plaintiffs argue section 426.30

does not apply because they were not parties to the prior action.

Plaintiffs’ argument misreads the statute’s text and purpose.

ALI is “a party against whom a complaint” was filed in AIG v.

10 “Under California law, ‘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). The corporation

itself must bring such an action, or a derivative suit may be

brought on the corporation’s behalf.’ [Citations.] A different rule

would ‘authorize multitudinous litigation and ignore the

corporate entity.’” (Schuster v. Gardner (2005) 127 Cal.App.4th

305, 312; accord, Grosset v. Wenaas, supra, 42 Cal.4th at p. 1108

[“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.”’”].)

Plaintiffs do not dispute the second amended complaint’s first,

second, third, fifth, sixth, and seventh cause of action are

derivative, not direct claims.

15

Mahdavi. (§ 426.30, subd. (a).) Further, ALI “serv[ed] [its]

answer to the complaint” but “fail[ed] to allege in a crosscomplaint any related cause of action” that ALI then had against

AIG. (Ibid.) Therefore, ALI may not now assert against AIG the

related causes of action not pleaded in the AIG v. Mahdavi

action.

Because ALI is barred from asserting the related causes of

action against AIG in this action, so are plaintiffs.11 A derivative

cause of action belongs to the corporation, and the corporation is

the true plaintiff. (Beachcomber Management Crystal Cove, LLC

v. Superior Court (2017) 13 Cal.App.5th 1105, 1118

(Beachcomber) [“The shareholder or member bringing the

derivative lawsuit is the plaintiff in name only because the

lawsuit seeks redress for injury the company suffered and any

recovery belongs to the company. Hence, although the company

is named as a nominal defendant based on the insiders’ refusal to

bring the lawsuit on the company’s behalf, the company is the

true plaintiff.”]; Patrick v. Alacer Corp. (2008) 167 Cal.App.4th

995, 1004 (Patrick) [“The corporation must be joined [in a

derivative suit] because ‘its rights, not those of the nominal

plaintiff, are to be litigated . . . .’”]; McDermott, Will & Emery v.

Superior Court (2000) 83 Cal.App.4th 378, 382 [“A derivative

11 Because plaintiffs do not assert any arguments on appeal

specific to Rostami, we do not reach whether plaintiffs’ claims

against Rostami as the managing member of AIG should be

treated differently from those asserted against AIG. (See People

v. Duff (2014) 58 Cal.4th 527, 550, fn. 9 [“the claim is omitted

from the opening brief and thus waived”]; Aptos Council v.

County of Santa Cruz (2017) 10 Cal.App.5th 266, 296, fn. 7

[“Issues not raised in the appellant’s opening brief are deemed

waived or abandoned.”].)

16

action . . . does not transfer the cause of action from the

corporation to the shareholders. Rather, the cause of action in a

shareholder derivative suit belongs to and remains with the

corporation. Such a lawsuit is derivative, i.e., brought in the

‘corporate right,’ to recompense the corporation for injuries done

to it.”]; Scarbourough v. Briggs (1947) 81 Cal.App.2d 161, 166

(Scarbourough) [“The corporation, being the ultimate beneficiary

of such a suit, is the real party plaintiff, and the particular

stockholders who bring the action are mere nominal parties.”].)

Because plaintiffs “‘stand in the shoes’” of ALI in seeking redress

for ALI’s injuries, they are generally subject to the procedural

rules that would apply to ALI as plaintiff in a direct action.

(McDermott, Will & Emery, at p. 383 [“It is the corporation, and

not the shareholder, who is the holder of the [corporation’s

attorney-client] privilege.”].)

Because the right of action belongs to the corporation, not

its shareholders or members, it may be forfeited, waived, or

adjudicated by the direct actions of the corporation.

Scarbourough, supra, 81 Cal.App.2d 161 is instructive. There,

plaintiffs brought a derivative shareholder action on behalf of the

corporate entity, Security Home Estates, against individual

defendant N.A. Ross, Jr., seeking to declare void the sale of real

property. (Id. at pp. 162-164.) Ross asserted res judicata as an

affirmative defense, and following a trial, the trial court entered

judgment for Ross based on evidence of a consolidated judgment

in two previous actions between Security and Ross adjudicating

the validity of the sale of the same real property. (Id. at pp. 162,

164.) On appeal, plaintiffs contended the previous consolidated

judgment was “not res judicata as to them because the parties in

the within action are not the same as in the two previous cases.”

17

(Id. at p. 166.) The Court of Appeal rejected the argument,

reasoning “[t]he present action is concededly brought by

plaintiffs, not individually but as shareholders of Security as a

derivative or representative action against Ross, other

shareholders and the corporation itself. . . . [Citations.] Under

such circumstances plaintiffs herein are brought within the rule

that shareholders of a corporation are in privity with it and, in

the absence of fraud, are bound by all judgments rendered

against the corporation.” (Id. at p. 166.)12

Section 426.30’s purpose to “avoid[] a multiplicity of

actions” (Align Technology, supra, 179 Cal.App.4th at p. 960) is

also served by this interpretation. We are sympathetic to

plaintiffs’ arguments it is inequitable to find forfeiture where

plaintiffs allege they lacked knowledge of the prior suit until

after ALI filed its answer and the insiders who controlled ALI

would have refused to bring a lawsuit on the company’s behalf

against themselves. But it would also be inequitable to AIG to

allow plaintiffs to assert claims ALI failed to assert by

compulsory cross-complaint in the earlier-filed action, subjecting

AIG to the precise “‘piecemeal litigation’” section 426.30 was

designed to prevent. (Wittenberg v. Bornstein, supra,

51 Cal.App.5th at p. 564.)

Plaintiffs’ attempts to distinguish the reasoning of Patrick,

supra, 167 Cal.App.4th at page 1004 and Beachcomber,

supra, 13 Cal.App.5th at page 1118 are not persuasive. In

Patrick, the Court of Appeal held a nominal defendant

corporation may not demur to a derivative action filed on its

12 Plaintiffs do not allege AIG’s failure to file a compulsory

cross-complaint in the AIG v. Mahdavi action was itself

fraudulent.

18

behalf “except on limited grounds such as the shareholder

plaintiff’s lack of standing” because “the corporation has no

ground to challenge the merits of a derivative claim filed on its

behalf and from which it stands to benefit.” (Patrick, at pp. 999,

1005.) In Beachcomber, shareholder plaintiffs brought a

derivative action on behalf of a nominal defendant corporation

against its managers. (Beachcomber, at p. 1113.) The trial court

disqualified the attorney for the corporation’s managers based on

a presumption the attorney possessed confidential information

obtained during the attorney’s representation of the corporation

in an earlier action. (Id. at p. 1114.) The Court of Appeal

granted a petition for writ of mandate and directed the trial court

to vacate its disqualification order in light of new authority

supplanting application in a derivative action of a presumption

the attorney possesses confidential information from prior

representation of the corporation, and to determine whether on

the facts of the case the attorney could continue to represent the

managers. (Id. at p. 1124.) Neither case involved the compulsory

counter-complaint rule, but both illustrate, rather than

undermine, that a derivative action belongs to the corporation,

not the shareholder or member. (See Beachcomber, at p. 1118;

Patrick, at p. 1004.)

The judgment is affirmed. The AIG defendants are to recover their costs on appeal.