Res Judicata: Trial Court Awarding Fees To Director Under Corporate Indemnification Statute Reversed On Res Judicata Grounds

Prior Adjudication Precluded the Subsequent Award.

     In South Bay Rod and Gun Club v. Dashiell, Case No. D053658 (4^th Dist., Div. 1 Dec. 4, 2009) (unpublished), director/real estate broker won a lawsuit against non-profit Club over a real estate option transaction. Winning director then sought fees in connection with his slander of title claim (Civil Code section 880.36) or under corporate indemnification statutes (certain Corporations Code sections). The court found no entitlement to fees and entered judgment, which was appealed by Club(but with no cross-appeal filed by director). Eventually, director filed a new motion for fees that was stayed while the Club’s appeal was decided—with Club losing its appeal. Director then brought his amended motion, seeking attorney’ fees under Corporations Code sections 317, 5047.5, 5238, and 7237. This time around, the lower court found that director was entitled to be indemnified for fees under the relevant Corporations Code provisions. Club then appealed.

     Anyone want to guess what happened?

     Reversed.

     The appellate panel initially did find that director was entitled to indemnification under Corporations Code section 7237, with the relevant provisions substantively identical to the language of section 317 that has been the subject of judicial examination. (No courts have yet construed section 7237.) Using the section 317 jurisprudence, the Court of Appeal found that the fact that it was the corporation which sued director was no barrier to recovery. (Wilshire-Doheny Associates, Ltd. v. Shapiro, 83 Cal.App.4^th 1380, 1390 (2000).) Director did have two avenues in which to seek indemnification under section 7237, either (1) relief by way of cross-complaint in the underlying action against him, or (2) a posttrial application to the trial court in the underlying action (the route director chose). [The appellate court questioned whether director could raise the issue through an independent action for indemnity after a successful conclusion of the prior suit. See Slip Opn., at p. 10-11 n. 5.]

     However, the reversal was based on the fact that director’s subsequent fee motion was barred by res judicata principles. (Cf. Mark v. Spencer, 166 Cal.App.4^th 219, 229-230 (2008).) The lower court had specifically rejected director’s fee claim in the first action, a determination never appealed by director. Easy case because the issue had been raised and it involved an adjudication involving the same parties.