Cziraki v. Thunder Cats Inc.

IMRE CZIRAKI, Plaintiff and Appellant, v. THUNDER CATS, INC., Defendant and Respondent.
No. B159413 (Super. Ct. No. BC182918) California Court of Appeal Second Appellate District Division Seven Filed August 20, 2003
CERTIFIED FOR PARTIAL PUBLICATION*

        APPEAL from an order of the Superior Court of Los Angeles County. Helen I. Bendix, Judge. Reversed in part and remanded in part.
        Westrup, Click & Associates, R. Duane Westrup, Lawrence R. Cagney and Mark L. Van Buskirk for Plaintiff and Appellant.
        Thompson & King and Wayne T. King for Defendant and Respondent.

        A successful plaintiff in a minority shareholder's derivative action appeals the trial court's denial of his motion for attorney fees. He contends the court's judgment created a common fund and substantial benefit for defendant corporation, and thus the court should have awarded him fees. The trial court did not believe it could apply the common fund or substantial benefit doctrine in a derivative suit involving a close corporation with a small number of shareholders. The corporation argues the trial court was correct on that issue and even if it erred in refusing to apply these equitable doctrines, the court properly denied the motion because plaintiff failed to present competent evidence enabling the court to determine the amount of a reasonable fee award.
        We conclude the trial court erred in failing to apply the common fund and substantial benefit doctrines. In an unpublished portion of the opinion, however, we find appellant's counsel failed to produce sufficient evidence as to the amount of the fees properly attributable to the successful derivative claim as opposed to his individual causes of action. Accordingly, we reverse the order as it pertains to the application of the common fund and substantial benefit doctrines and remand the matter for a determination of a reasonable attorney fees award.

FACTS AND PROCEEDINGS BELOW         In September 1995, Imre Cziraki (appellant), Lawrence R. Phillis, and Eugene W. Van Den Berg II held the first incorporators and board of directors meeting of Thunder Cats, Inc. (respondent), their newly-formed "small business" or close corporation. Phillis and Van Den Berg had recently applied for patents on their design for cylinder heads used in recreational watercraft engines. They also had approached Cziraki, who owned a machining company, about forming a corporation to manufacture and sell parts based on their design. In discussions prior to the meeting, Phillis and Van Den Berg offered to assign their patent interests to Thunder Cats with the understanding Cziraki would oversee the manufacture of the parts. The parties memorialized this commitment to assign the patents to Thunder Cats in the minutes of the first board of directors meeting. The minutes do not mention any corresponding obligation by Cziraki.
        The minutes also contain the parties' confirmation each of them would invest $2,000 in Thunder Cats in exchange for 200 shares of common stock per shareholder, in effect creating a three-way ownership stake in the company. After formalizing their officer roles, the parties deferred any discussion of officers' salary or other compensation until such time as the company generated enough revenue to warrant this discussion. The minutes do not mention any other profit-sharing or similar shareholder distribution strategies.
        Shortly after they formed Thunder Cats with Cziraki, Phillis and Van Den Berg formed Vanlar, a separate company in which they held the only shareholder interests. Phillis and Van Den Berg never assigned their patent interests to Thunder Cats and instead exploited the patents on Vanlar's behalf. As a minority shareholder, Cziraki had limited power to enforce the original promise to assign the patents to Thunder Cats. Cziraki's relationship with Phillis and Van Den Berg deteriorated.
        In December 1997, Cziraki filed derivative and individual claims against Thunder Cats, Phillis, and Van Den Berg. In his first amended complaint, Cziraki asserted derivative claims against Phillis and Van Den Berg for breach of fiduciary duty and usurpation of corporate opportunity, and prayed for assignment of the patents to Thunder Cats plus the imposition of a constructive trust to account for the company's lost profits and related business opportunities. Cziraki asserted individual claims against Phillis and Van Den Berg for breach of fiduciary duty, fraud, and negligent misrepresentation.
        The trial court found Phillis and Van Den Berg had breached their fiduciary duties to Thunder Cats and ordered them to assign their patents to Thunder Cats and to make payments of $172,000 and $86,000, respectively, to compensate the company for economic damages attributable to their failure to assign the patents as originally promised. The court also found Phillis and Van Den Berg had breached their fiduciary duties to Cziraki, as majority stockholders to a minority stockholder, but the court did not enter any damage award in favor of Cziraki as an individual stockholder.
        Post-judgment, Cziraki filed a motion to recover attorney fees incurred in the prosecution of his successful derivative claim, invoking the common fund and substantial benefit doctrines. Because the trial judge had transferred to another court, a different judge heard the motion for attorney fees. The new judge pointed to portions of the record indicating the trial judge believed Cziraki's successful cause of action might justify an award of attorney fees.
        At the hearing on the motion, the trial court commented it had never heard of applying either the common fund or substantial benefit doctrine to a suit concerning a close corporation. The court expressed doubt it had latitude to invoke either doctrine under circumstances in which all three of the shareholders had participated in the litigation. The court indicated it was relying on what little precedent was available to guide it.
        In considering Cziraki's motion, the trial court also evaluated the feasibility of granting an award which would compensate Cziraki for the attorney fees incurred in the prosecution of the successful derivative claim, without including the fees associated with the individual claims. The court expressed concern over its ability to make such a distinction absent any direct observation of counsel's efforts. The court stated its reluctance to rely exclusively on the motion and supporting declaration of Cziraki's counsel.
        The trial court requested supplemental briefing further addressing application of the equitable doctrines at issue and the apportionment of legal fees. The court specifically instructed Cziraki's counsel to provide more helpful and competent evidence to facilitate the court's determination of the total time and effort spent in pursuit of the successful derivative claim, and the amount of a reasonable fee award, should the court decide to grant the motion. After a second hearing, the court denied the motion.         
        The minute order does not reflect the trial court's rationale for denying the motion. The record supports the inference the court believed neither equitable doctrine applied and, even if the court had decided to award fees, Cziraki and his counsel had not provided competent evidence to support a determination of a reasonable fee award.

DISCUSSION         I.        THE TRIAL COURT ERRED IN CONCLUDING THE COMMON FUND AND SUBSTANTIAL BENEFIT DOCTRINES DO NOT APPLY.
        Cziraki contends the trial court should have applied the common fund and substantial benefit doctrines to award him legal fees incurred in the prosecution of the successful derivative claim on the corporation's behalf. He argues the facts in this matter are different from those in the case law upon which the trial court relied.        
        In deciding Cziraki's motion, the trial court relied primarily on Baker v. Pratt ¹ (a case we discuss below) to support its determination the common fund and substantial benefit doctrines do not permit an award of attorney fees in a derivative suit involving a close corporation with a small number of shareholders. Both Cziraki and Thunder Cats also focus primarily on the Baker case in their appellate briefs. We note there is a surprising dearth of California cases factually similar to the one currently before this court. Therefore, we expand the scope of our inquiry and consider the application of the equitable doctrines at issue in both California and out-of-state decisions.        

        A.        Courts Historically Have Applied the Common Fund And Substantial Benefit Doctrines to Shareholder Derivative Suits.
        "Under the American rule, which is embodied in Code of Civil Procedure section 1021 in California, as a general proposition each party to a litigation must pay his or her own attorneys fees. There are statutory exceptions to this rule, and the courts have created several exceptions pursuant to their inherent equitable powers." ² Exceptions to the American rule created under the courts' equitable powers include the "common fund" and "substantial benefit" doctrines. ³
        "[I]f the litigation has succeeded in creating or preserving a common fund for the benefit of a number of persons, the plaintiff may be awarded attorney fees out of that fund. [Citation.] Likewise, if a judgment confers a substantial benefit on a defendant, such as in a corporate derivative action, the defendant may be required to pay the attorney fees incurred by the plaintiff." ⁴ In Fletcher v. A. J. Industries, ⁵ a California appellate court concluded a "substantial benefit" warranting an award of attorney fees to a successful plaintiff in a shareholder derivative action exists where "the results of the action 'maintain the health of the corporation and raise the standards of "fiduciary relationships and other economic behavior,"' or 'prevent[s] [sic] an abuse which would be prejudicial to the rights and interests of the corporation or affect the enjoyment or protection of an essential right to the stockholder's interest.'" ⁶ We agree with Cziraki's position the present case created for Thunder Cats both a common fund in the form of the monetary judgment against the majority shareholders and a substantial benefit in the form of the patent assignment, which preserved the corporation's main asset.
        Courts generally apply the common fund and substantial benefit theories to cases involving a distinct class of beneficiaries, ⁷ among whom the costs of litigation can be fairly spread to prevent the unjust enrichment of class members at the expense of the successful litigant. ⁸ In a derivative action, the corporation represents the class of beneficiary shareholders. When the corporation pays attorney fees to the successful plaintiff, all shareholders indirectly share the cost of the beneficial litigation with the shareholder who brought the action. In contrast, when a shareholder brings a derivative suit for the true purpose of advancing his or her "personal adverse interests," neither equitable doctrine allows an award of attorney fees. ⁹
        As set forth above, many California cases discuss the common fund and substantial benefit doctrines in general. ¹⁰ We have found no California case, however, which has considered the application of these doctrines in a situation involving a representative or non-individual judgment in favor of a close and extant corporation which is even remotely similar to the situation involved in the present action.

        B.        Cziraki Pursued a Proper Derivative Claim and the Litigation Did Not Confer Any Individual Benefit to Him.
        Cziraki argues there is no legal or doctrinal restriction on applying the common fund or substantial benefit doctrine to recover legal fees incurred in pursuit of a derivative claim against a close corporation. Cziraki urges this court to rule the doctrines apply whenever (1) a shareholder derivative suit results in a substantial benefit to the corporation on whose behalf the plaintiff has brought suit, and (2) the judgment confers upon the plaintiff no individual benefit separate from that received by all of the shareholders. For the reasons discussed below, we are inclined to agree.
        As a starting point in our analysis, we discuss Baker v. Pratt ¹¹ and our view this decision represents a more narrow holding than the trial court's and Thunder Cats' interpretations would suggest. Baker and Pratt were the only two shareholders of two construction companies and they also co-owned other business entities. After a falling out between them, they agreed to sever all of their business relationships and form separate construction companies. The agreement the parties reached "(which was later determined to be legally improper) broke down, and [Baker] was thereafter effectively shut out of the corporate enterprises." ¹² The dispute resulted in the filing of six separate lawsuits which the trial court consolidated. The lawsuits involved claims by Baker against Pratt, claims by Baker's solely owned construction company against one of the companies the parties jointly owned, and claims by Baker for involuntary dissolution of the two jointly owned construction companies. The litigation also involved various cross-actions.
        The trial court entered a monetary judgment against Pratt in favor of Baker and each of the jointly owned construction companies. Applying the common fund and substantial benefit doctrines, the court ordered one of the jointly owned companies to pay Baker's attorney fees. ¹³ The Court of Appeal reversed the award of attorney fees on the ground "a class of passive beneficiaries" must exist to justify an award of attorney fees under a common fund or substantial benefit theory. ¹⁴ The appellate court indicated a successful representative plaintiff could not invoke either doctrine to recover fees when all of the shareholders, in this instance only two, were parties to the litigation at issue and one shareholder benefited to the other's detriment. ¹⁵
         In Avikian v. WTC Financial Corporation, ¹⁶ the Court of Appeal interpreted the passive beneficiary or identifiable class requirement in Baker as a way to assist the court's determination of whether the representative litigation in reality concerned a direct (individual) claim, which would rightfully bar recovery of attorney fees: "Thus, Baker makes clear that if corporate shareholders are seeking to advance their individual interests, rather than the interests of the corporation generally, no fees should be awarded on a common fund or substantial benefit theory. Consequently, to the extent appellants in this case were seeking to vindicate individual as opposed to derivative rights . . . they could not recover fees as a matter of law." ¹⁷
        Cziraki convincingly argues his derivative claims served a discernible interest separate from any individual adverse interest he may otherwise have sought to benefit. He pursued his "personal adverse interests" through separate individual claims rather than through his derivative claims, and judgment at trial conferred no benefit on Cziraki as an individual claimant. ¹⁸ Cziraki concedes he brought individual claims, which proved unsuccessful, alongside his successful derivative claim, but insists Thunder Cats was the only party to benefit from the litigation. ¹⁹ The benefits resulting from the litigation were Thunder Cats' acquisition of the promised patent interests, the potential to exploit those interests, the preservation of the company's wherewithal, and an interest in any future profits should they materialize-all equally shared among the other shareholders. In no sense, did Cziraki derive any individual benefit from the litigation. Neither the trial court nor Thunder Cats identified any evidence to suggest Cziraki pursued his derivative claims in the hopes of receiving an individual benefit or adverse personal interest.
        Cziraki's litigation conferred a substantial benefit on Thunder Cats, and the class of shareholders-albeit tiny-benefits as a result of Cziraki's action. Unlike the ultimate outcome in Baker, any award to Thunder Cats would not be immediately passed on to individual shareholders through a dissolution proceeding. The judgment in the present case reveals a clear distinction between the derivative interests of the shareholders and their individual adverse interests.
        Like Baker, all of the shareholders in Thunder Cats participated in the litigation. Unlike Baker, however, the judgment in the present case did not award Cziraki any individual award or benefit, nor did the present case involve the dissolution of the corporate entity. ²⁰ Because the Baker court conflated the ultimate interests of individual shareholders with those of the dissolved corporations, its holding does not provide any guidance for distinguishing an individual's adverse interest from a generalized shareholder interest where a derivative suit involves a surviving close corporation and all of its shareholders. Absent a trial court finding Cziraki in reality was pursuing a personal adverse interest through his derivative claims, we see no reason to apply Baker to the present case.

        C.        The Weight Of Out-of-State Authority Militates Against Applying Baker in This Case.
        We have found a number of out-of-state decisions which involve derivative shareholder suits concerning close corporations with two or three total shareholders. ²¹ These cases were decided in five different states over three decades, and every one of the courts directly or indirectly invoked the common fund or substantial benefit doctrine in support of its order the corporation pay attorney fees to the successful derivative plaintiff. The cases discussed below each touch upon (and defeat) some aspect of Thunder Cats' argument in favor of applying Baker to the present case.
        In De Fontaine v. Passalino, the defendant majority shareholder unsuccessfully cited Baker in its attempt to persuade the Appellate Court of Illinois to overturn the trial court's award of attorney fees in a shareholder derivative suit involving the two sole shareholders of the corporation. ²² The court concluded: "If we were to adopt defendant's reasoning [the court should follow Baker], we are confronted with the question of just how many beneficiaries are needed for the common-fund doctrine to apply. In small, closely held corporations, those who own the majority interests and control the corporation and are found liable to the corporation for certain damages could argue that they are penalized by an award of attorney fees from the corporation. . . . We find the better approach is to award plaintiff reasonable attorney fees from the corporation's common fund despite the fact that there are only two shareholders in this case." ²³ The appellate court endorsed the trial court's rationale for awarding attorney fees: "The trial court in the instant case noted that the common-fund doctrine was not applicable solely for 'passive beneficiaries.' It found that the doctrine encouraged meritorious derivative actions by small shareholders and that this purpose . . . [was] applicable whether there were two shareholders or hundreds. The other purpose cited by the [trial] court was the benefit to the corporation for which it would have had to pay for itself." ²⁴
        In Lasday v. Weiner, another Illinois appellate court cited De Fontaine with approval four years later in a derivative action involving the two sole shareholders of a close corporation: "Illinois law is clear that attorney's fees may be properly awarded in a derivative action even where there are only two shareholders." ²⁵
        In DRW Builders, Inc. v. Richardson, the Indiana Court of Appeals affirmed in part a trial court's award of attorney fees to a minority shareholder who won a derivative suit against the two other shareholders of a close corporation. ²⁶ The appellate court addressed the defendants' contention the case did not warrant an award of fees because the plaintiff also had brought direct (individual) claims in the same action: "[T]o the extent that the attorney fee award represents reimbursement for time expended pursuing [the plaintiff's] direct action, it cannot stand. . . . Nonetheless, because the corporation is the beneficiary of the recovery of funds or of the corrective benefit of a derivative action, the corporation bears the expense of attorneys' fees in shareholder derivative suits." ²⁷
        Courts in New York, Washington, and Arkansas have reached similar results for similar reasons in close corporation cases involving two or three shareholders. ²⁸ We did not find any out-of-state cases disallowing attorney fee awards under these circumstances.
        In applying the common fund and substantial benefit doctrines, the courts in the matters discussed above did not focus on the size or type of corporation or the number of shareholders participating in the litigation. The courts directed their attention to whether or not the derivative litigation had conferred a discernable benefit on the corporation and whether or not equity demanded the corporation reimburse the party whose action brought about the benefit. We find the rationale of these cases persuasive. When a corporation is the sole beneficiary of a derivative shareholder suit, we conclude it should bear the costs associated with obtaining that benefit.

        D.        To Interpret Baker as Disallowing an Attorney Fee Award in This Case Would Undermine the Equitable Purposes Served by the Common Fund And Substantial Benefit Doctrines In Derivative Suits.
        Strict adherence to the criteria suggested in Baker for when the common fund and substantial benefit doctrines apply would make it virtually impossible for a minority shareholder in a close corporation with few shareholders to recover attorney fees in a successful derivative suit in which another shareholder has injured the corporation. In its discussion of the evolution of the substantial benefit doctrine in California, Baker describes Fletcher as the "seminal case" establishing the substantial benefit doctrine as an outgrowth of the common fund doctrine. ²⁹ Nowhere in Fletcher, however, does the court suggest either doctrine should not apply where all of the shareholders were party to the suit or when one (or all but one) shareholder must compensate the corporation for harmful misconduct. According to Fletcher, the primary purpose for extending the substantial benefit doctrine to representative suits which do not create a common fund is to encourage minority shareholders to pursue their rights and thereby promote responsible corporate governance. ³⁰ As illustrated in the preceding discussion, we see no reason why this rationale should not apply to cases involving disputes among a small class of shareholders. ³¹
        We are not persuaded by Thunder Cats' argument Cziraki is the only member of the shareholder class who actually benefits from the derivative claim. Like the losing party in Baker, Thunder Cats contends because the non-prevailing class members must pay damages for harming the company and therefore suffer personal losses, they do not benefit from Cziraki's litigation. ³² But Thunder Cats, the corporation, benefits regardless of the effect of the judgment on individual shareholders, and, absent Cziraki's lawsuit, would still be without its main asset, the patent interests promised by Phillis and Van Den Berg.
        To accept Thunder Cats' interpretation of the holding in Baker and apply it to deny Cziraki an attorney fee award would undermine the equitable principles articulated in Fletcher. According to this interpretation, the only time a plaintiff in a derivative suit involving a close corporation could properly invoke an equitable doctrine in seeking attorney fees would be in a successful suit which benefited a shareholder class of a certain, unspecified size or when at least one shareholder had not participated in the litigation. ³³ A broad reading of Baker would create a negative incentive for a shareholder in a close corporation with few other shareholders to seek a legal remedy or to join a suit on behalf of a company in which he or she has any interest. It would have the same effect on any attorney who might otherwise represent such a shareholder in the hope of recovering fees from a better-funded company on whose behalf he or she has litigated.
        We would not encourage any court to invoke an equitable doctrine to award attorney fees where the judgment only confers a benefit on an individual shareholder's personal interests. Just the same, we are reluctant to abrogate the rights of shareholders in close corporations. Accordingly, we decline to extend Baker as a blanket rule disallowing attorney fee awards in any derivative suit merely because the litigation involves the entire class of shareholders in a close corporation. Thus, we conclude the trial court erred in refusing to apply the common fund and substantial benefit doctrines in this case.

        II.        BASED ON THE EVIDENCE PRESENTED BELOW, THE TRIAL COURT DID NOT ABUSE ITS DISCRETION IN DENYING CZIRAKI'S MOTION FOR ATTORNEY FEES, BUT WE REMAND THE MATTER TO GIVE CZIRAKI ANOTHER OPPORTUNITY TO PROPERLY SUPPORT HIS MOTION.
        Cziraki contends the trial court erred in failing to consider the materials his counsel submitted in support of the claim for attorney fees. In response, Thunder Cats argues Cziraki's evidence was inadmissible and properly rejected by the trial court. In light of the insufficient evidence submitted below, we find the trial court did not abuse its discretion in denying Cziraki's motion for attorney fees. Consistent with our conclusion the trial court erred in its failure to apply the common fund and substantial benefit doctrines, however, we remand the matter to allow the trial court to make a final determination of a reasonable attorney fees award, and to allow Cziraki another opportunity to properly support his motion.
        "[T]he value of the services which created or preserved the 'common fund' must be assessed so as to provide a basis for adjudicating what constitutes a fair award." ³⁴ "Traditionally, when the trial courts have been called upon to award attorneys fees from a 'common fund' it has been held that such awards, 'reasonable' in nature, are nevertheless within the discretion of the trial courts." ³⁵ We will not reverse the trial court's decision as to the amount of an award absent a clear abuse of discretion. ³⁶ In this case, we consider the trial court's refusal to issue an award at all rather than the amount of its award. This requires us to review the trial court's findings regarding its ability to determine a reasonable amount for an award of attorney fees. ³⁷
        The trial court's challenge in determining a reasonable fee award is further complicated where the court must first separate counsel's time and effort spent on derivative claims which justify an award, from time and effort spent on individual claims which do not. ³⁸ The task becomes even more difficult when a judge who has not seen the plaintiff and his or her counsel "in action" must make this determination.
        Restricting an attorney fee award to those claims which allow such an award is not required when the claims are so interrelated it is impractical to allocate counsel's time among the various claims. ³⁹ We find no such difficulty in the present case. Cziraki's prayer for relief on the individual claims sought damages distinct from those sought on behalf of the corporation. Moreover, his counsel submitted evidence in support of the motion for attorney fees which purportedly omitted any reference to work preformed in the prosecution of the individual claims.
        To determine a reasonable fee award in this case, the trial court not only had to separate out counsel's time and effort expended on the individual claims, it had to do so without the benefit of any direct observation of counsel's efforts in prosecuting the claims. The court also had to rely on counsel's own apportionment of how he and his colleagues had spent their time pursuing the various claims in the litigation.
        In Long Beach City Employees Association v. City of Long Beach, the parties resolved their dispute before trial and the settlement allowed both prevailing parties-a class of union members and a class of nonunion members-to recover an award of attorney fees. ⁴⁰ The trial court based its award on the terms of the union members' contract, and issued the same award to both prevailing parties, even though the nonunion members were not bound by the terms of the contract. ⁴¹ The Court of Appeal found the trial court erred in granting the same award to both parties and, moreover, the trial court did not have sufficient evidence to determine a reasonable amount to award the nonunion members. ⁴²
        The appellate court concluded: "It seems to us the better rule to require a trial judge, who was not afforded the advantage of firsthand observation of a significant portion of the attorney services rendered, to exercise his discretion in the light of a presentation of evidence, whether by affidavit or courtroom testimony, concerning the precise nature and extent of the services rendered." ⁴³ The court remanded the case "solely for the purpose of taking evidence concerning services rendered by the law firms involved to nonunion members in creating and preserving the 'common fund,' followed by a determination of what constitutes a reasonable attorneys fee to be imposed on the nonunion members." ⁴⁴ We follow the court's reasoning in Long Beach City Employees Association and remand for the same purpose. Unlike the court in that case, however, we issue this decision with some reservations, discussed below.
        Four years after Cziraki filed this action, the trial court heard his motion for an award of attorney fees incurred in the prosecution of the successful derivative claim. Included with counsel's declaration in support of the motion was a redacted accounting of time spent by counsel, his associates and paralegals. At the first hearing, the trial court expressed concern about its inability to determine a reasonable award based on the information contained in Cziraki's brief and supporting exhibits. In response, Cziraki's counsel indicated he "had to try the whole case on all theories and all of the same work had to be done on every theory." But he never explicitly stated he could not allocate his fees if so required. The court then continued the hearing to allow the parties to file supplemental briefs.
        At the second hearing, the trial court described Cziraki's evidence as "incompetent." The court concluded it could not determine a reasonable fee award based on counsel's declaration and redacted accounting because this prevented the court from comparing counsel's time and effort spent on Cziraki's individual claims. Counsel insisted the redacted accounting only represented time spent on Cziraki's derivative claims and did not include any costs associated with the individual claims. Cziraki's counsel added to the court's confusion by submitting "revised" exhibits which contained the same total amount as the original accounting, prompting the court to question, "How can I evaluate the credibility of a bunch of redacted lines . . . .[?]" The court also commented: "It is basically presented to me as a take it or leave it. I have no way to evaluate whether there has been a fair apportionment."
        Based on the record, we agree with the trial court's finding Cziraki failed to present sufficient and competent evidence to enable the trial court to determine a reasonable award of fees incurred in prosecution of the successful derivative claim. Given the ample time counsel had to compile sufficient and competent evidence to support this motion, we are troubled by counsel's inability or unwillingness to provide such evidence, even after the trial court expressly requested it. ⁴⁵         
        We are mindful of the fact the trial court may have been disinclined to undertake an exhaustive review of Cziraki's exhibits because it already was leaning toward denying Cziraki's motion based upon its interpretation of Baker. Therefore, we remand the matter to allow the trial court to determine a reasonable attorney fee award. And we give Cziraki the benefit of the doubt, but with the following admonition: Cziraki must conclusively demonstrate either (1) the impracticality of separating the time and effort spent on the successful derivative claim from the time and effort expended on the other claims, or (2) the exact amount of the fees directly incurred in the prosecution of the successful derivative claim. Furthermore, the trial court retains its traditional discretion to determine what it considers to be a reasonable amount for an attorney fee award under the circumstances of this case.

DISPOSITION         The order is reversed as to the application of the common fund and substantial benefit doctrines, and the cause is remanded to the trial court for a determination of a reasonable attorney fees award, consistent with the views expressed in this opinion. Each
party is to bear his/its own costs on appeal. ⁴⁶


We concur:
        WOODS, J.
        MUNOZ (AURELIO), J.*


*         Pursuant to California Rules of Court, rules 976(b) and 976.1, this opinion is certified for publication with the exception of part II.

¹          Baker v. Pratt (1986) 176 Cal.App.3d 370.

²          Baker v. Pratt, supra, 176 Cal.App.3d at page 378.

³          For general discussions of the common fund and substantial benefit doctrines, see 20 Am.Jur.2d (1995) Costs, sections 66-68; 19 Am.Jur.2d (1986) Corporations, sections 2487-2488; 16 Cal.Jur.3d (2002) Costs, section 115; 15 Cal.Jur.3d (1983) Corporations, section 526.

⁴          Baker v. Pratt, supra, 176 Cal.App.3d at page 378.

⁵          Fletcher v. A. J. Industries (1968) 266 Cal.App.2d 313.

⁶          Fletcher v. A. J. Industries, supra, 266 Cal.App.2d at page 324, quoting Bosch v. Meeker Co-op. Light & Power Association (1960) 257 Minn. 362 [101 N.W.2d 423, 426, 427].

⁷          See, e.g., Long Beach City Employees Association, Inc. v. City of Long Beach (1981) 120 Cal.App.3d 950 (nonunion members); Mandel v. Hodges (1976) 54 Cal.App.3d 596 (California taxpayers); In re California Mutual Building and Loan Association of San Jose (1945) 68 Cal.App.2d 82 (investors and mutual shareholders in an insolvent building and loan association).

⁸          See Fletcher v. A. J. Industries, supra, 266 Cal.App.2d at page 324.

⁹          See 7 Witkin, California Procedure (4th ed. 1997) Judgment, section 215, page 748, citing Baker v. Pratt, supra, 176 Cal.App.3d at page 379 ("fees will be denied where the ultimate objective of the suit is not to secure or preserve a common fund but to establish the plaintiff's personal adverse interests therein").

¹⁰          See footnote 6, ante.

¹¹          Baker v. Pratt, supra, 176 Cal.App.3d 370.

¹²          Baker v. Pratt, supra, 176 Cal.App.3d at page 376.

¹³          Baker v. Pratt, supra, 176 Cal.App.3d at page 377.

¹⁴          Baker v. Pratt, supra, 176 Cal.App.3d at pages 379-380.

¹⁵          Baker v. Pratt, supra, 176 Cal.App.3d at pages 379-380. The Baker court cited Gabrielson v. City of Long Beach (1961) 56 Cal.2d 224 in support of its decision. In that case, the trial court denied attorney fees to a plaintiff who had initiated litigation against the City of Long Beach, ostensibly to prevent the city from claiming revenue rightfully owed to the state for off-shore mineral leases. The plaintiff argued the judgment preserved a common fund for the state, which warranted an award of attorney fees under the common fund theory. (56 Cal.2d at pp. 228-229.) In denying the plaintiff's claim, the trial court pointed to competent and reliable evidence indicating the plaintiff (and her counsel) secretly hoped to profit from their pending mineral lease applications for the lands at issue in the case, and had pursued the litigation for their own benefit. (56 Cal.2d at pp. 230-231.) The Supreme Court affirmed. (56 Cal.2d at p. 234.)

¹⁶          Avikian v. WTC Financial Corp, supra, 98 Cal.App.4th 1108.

¹⁷          Avikian v. WTC Financial Corp, supra, 98 Cal.App.4th at page 1118. For an application of this principle in a more general context, see Thompson, The Shareholder's Cause of Action for Oppression (1993) 48 Bus.Law 699, 732-733.

¹⁸          Indeed, nowhere in its appellate brief does Thunder Cats contend Cziraki's successful claim was improperly classified as a derivative claim.

¹⁹          Cziraki prevailed on his individual claim against Phillis and Van Den Berg for breach of fiduciary duty, but the court did not award him any damages.

²⁰          It is clear from the record no party sought dissolution at any stage of the proceedings.

²¹          Jones v. Uris Sales Corporation (2d Cir. 1967) 373 F.2d 644; Millsap v. Lane (1986) 288 Ark. 439 [706 S.W.2d 378]; Lasday v. Weiner (1995) 273 Ill.App.3d 461 [652 N.E.2d 1198]; De Fontaine v. Passalino (1991) 222 Ill.App.3d 1018 [584 N.E.2d 933]; DRW Builders, Inc. v. Richardson (Ind.App. 1997) 679 N.E.2d 902; Cole Real Estate Corporation v. Peoples Bank and Trust Company (Ind.App. 1974) 310 N.E.2d 275; Glenn v. Hoteltron Systems, Inc. (1989) 74 N.Y.2d 386 [547 N.E.2d 71]; Interlake Porsche & Audi, Inc. v. Bucholz (1986) 45 Wash.App. 502 [728 P.2d 597].

²²          De Fontaine v. Passalino, supra, 584 N.E.2d at page 943, 944 (the defendant "argue[d] that since only plaintiff and defendant share in the fund, it is inequitable to award fees. (Baker v. Pratt (1986), 176 Cal.App.3d 370; [citation])").

²³          De Fontaine v. Passalino, supra, 584 N.E.2d at pages 946-947.

²⁴          De Fontaine v. Passalino, supra, 584 N.E.2d at page 946.

²⁵          Lasday v. Weiner, supra, 652 N.E.2d at page 1201.

²⁶          DRW Builders, Inc. v. Richardson, supra, 679 N.E.2d at page 909. The court affirmed the trial court's application of the common fund doctrine but remanded the cause "for an entry of judgment entitling [the plaintiff] to recover [attorney] fees from DRW" rather than directly from the other two shareholders who had harmed the corporation.

²⁷          DRW Builders, Inc. v. Richardson, supra, 679 N.E.2d at page 909.

²⁸          For similar discussions and outcomes, see, e.g., Glenn v. Hoteltron Systems, Inc., supra, 547 N.E.2d 71; Interlake Porsche & Audi, Inc. v. Bucholz, supra, 728 P.2d 597; Millsap v. Lane, supra, 706 S.W.2d 378.

²⁹          Baker v. Pratt, supra, 176 Cal.App.3d at page 379.

³⁰          Fletcher v. A. J. Industries, supra, 266 Cal.App.2d at page 324.

³¹          Failure to apply the equitable doctrines in this case would suggest a minority shareholder in a close corporation should be treated like any other individual trying to enforce a duty owed him by another, even though he and those owing the duty to him and the corporation had previously chosen to organize their affairs not as among individuals but as a corporation. Perhaps in reality disputes among shareholders in close corporations more closely resemble common contract disputes among individuals than those arising among shareholders in larger corporations, but the fact remains no individual interests benefited from Cziraki's lawsuit.

³²          See Lasday v. Weiner, supra, 652 N.E.2d at page 1201, where the court rejected a strikingly similar argument; see also Glenn v. Hoteltron Systems, Inc., supra, 547 N.E.2d at page 74, for a related discussion of the potentially questionable deterrent effect of assessing damages (to be paid to the corporation) against a shareholder, who suffers from the damage award as an individual but benefits from it as a shareholder. The court viewed the incidental gain to the shareholder as a tolerable side effect of making whole the corporation whose interests the shareholder has harmed and preferred this side effect to having a different damages rule for close corporations.

³³          See previous discussion of De Fontaine, supra, 584 N.E.2d 933 at pages 11-12, ante.

³⁴          Long Beach City Employees Association, Inc. v. City of Long Beach (1981) 120 Cal.App.3d 950, 960, citing Quinn v. State of California (1975) 15 Cal.3d 162.

³⁵          Long Beach City Employees Association, Inc. v. City of Long Beach, supra, 120 Cal.App.3d at pages 960-961.

³⁶          PLCM Group, Inc., v. Drexler (2000) 22 Cal.4th 1084, 1095 ("'The experienced trial judge is the best judge of the value of professional services rendered in his court, and while his judgment is of course subject to review, it will not be disturbed unless the appellate court is convinced that it is clearly wrong'-meaning that it abused its discretion").

³⁷          See, e.g., Long Beach City Employees Association, Inc. v. City of Long Beach, supra, 120 Cal.App.3d at page 962, a case involving the common fund doctrine in which the Court of Appeal remanded for "a determination of what constitutes a reasonable attorneys fee . . . ."
        For a general discussion of the process by which a court determines a proper amount of attorney fees, see 19 Am.Jur.2d (1986) Corporations, sections 2496-2498.

³⁸          Akins v. Enterprise Rent-A-Car Company of San Francisco (2000) 79 Cal.App.4th 1127, 1133. ("When a cause of action for which attorney fees are provided by statute is joined with other causes of action for which attorney fees are not permitted, the prevailing party may recover only on the statutory cause of action"). The same rationale applies to attorney fees awarded under the common fund and substantial benefit doctrines.

³⁹          Akins v. Enterprise Rent-A-Car Co., supra, 79 Cal.App.4th at page 1133 ("When the liability issues are so interrelated that it would have been impossible to separate them into claims for which attorney fees are properly awarded and claims for which they are not, then allocation is not required").

⁴⁰          Long Beach City Employees Association, Inc. v. City of Long Beach, supra, 120 Cal.App.3d at page 956.

⁴¹          Long Beach City Employees Association, Inc. v. City of Long Beach, supra, 120 Cal.App.3d at page 957.

⁴²          Long Beach City Employees Association, Inc. v. City of Long Beach, supra, 120 Cal.App.3d at page 959, 961 ("[The judge's] general observations and awareness, however, were not in our view sufficient to enable him to assess the reasonableness of the attorneys fees sought from the nonunion members, in that a major part of the attorneys [sic] activities did not occur in his courtroom as they would have had a trial before him actually taken place").

⁴³          Long Beach City Employees Association, Inc. v. City of Long Beach, supra, 120 Cal.App.3d at page 961.

⁴⁴          Long Beach City Employees Association, Inc. v. City of Long Beach, supra, 120 Cal.App.3d at page 962.

⁴⁵          In our view, while Cziraki's counsel had no way to know the original trial judge would be replaced, he had more than ample time to prepare adequate records to satisfy the new judge. He failed to do so.

⁴⁶          In accordance with our decision reversing the order in part, respondent's motion to dismiss the appeal as frivolous and its request for sanctions are denied.

*         Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.