Jara v. Supreme Meats, Inc.

Filed 2/13/08 Jara v. Supreme Meats, Inc. CA1/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION ONE

Miguel Jara, Sr., (hereafter Jara, Sr.), a minority shareholder of Suprema Meats, Inc., a California corporation (hereafter Suprema), brought suit against the corporation and its two other shareholders, his son, Miguel Jara, Jr., (hereafter Jara, Jr.) and Gonzalo Rodriguez (hereafter Rodriguez). Jara, Sr.s central allegation was that Jara, Jr., and Rodriguez had breached their fiduciary duty to him by taking excessive compensation from the corporation, thereby reducing its assets and, accordingly, reducing his share of corporate profits. Judgment was entered in favor of the respondents. Jara, Sr., appeals from the judgment. We affirm.

PROCEDURAL HISTORY

This is the second time that this dispute has come before us. The present case concerns two actions, which were consolidated at trial. In our prior opinion, (Jara v. Suprema Meats, Inc. (2004) 121 Cal.App.4th 1238, (Jara I), we summarized the first action as follows: Jara, Sr., filed a complaint against Suprema, Jara, Jr., and Rodriguez on November 7, 2000, which was later twice amended. The second amended complaint alleged four causes of action. The first cause of action alleges that Jara, Jr., and Rodriguez, as majority shareholders and officers of Suprema, breached an oral contract not to increase their salaries or bonuses unless all shareholders agreed on the amount of the increase. The second cause of action alleged that Jara, Jr., and Rodriguez, as majority shareholders, breached a fiduciary duty to the minority shareholder, Jara, Sr., by paying themselves excessive compensation and denying Jara, Sr., a fair share of the corporate profits. The third cause of action claimed that defendants refused the requests of Jara, Sr., under Corporations Code sections 1601 et seq., to inspect and copy corporate records. The last cause of action sought an accounting. (Id. at p. 1242, fn. omitted.)

In Jara I, we reversed the trial courts judgment awarding damages for breach of contract, holding that the oral agreement regarding compensation was unenforceable due to lack of consideration. (Jara I, supra, 121 Cal.App.4th 1238, 12481252.) We also reversed an order requiring respondents to provide access to monthly financial statements, holding that the request did not conform to Corporations Code section 1601. (Jara I, supra, at pp. 12611265.) As to the claim for breach of fiduciary duty, we found that the court had erroneously concluded that the claim could only be asserted in a derivative action. (Id. at pp. 12591260.)

On July 3, 2003, Jara, Sr., filed a second lawsuit against respondents.

On February 1, 2005, Jara, Sr., filed his first amended complaint in the second lawsuit for breach of fiduciary duty and for accounting. The complaint seeks relief for alleged wrongs committed after the acts that were the subject of the trial that lead to Jara I. Specifically, the complaint alleges that Jara, Jr., and Rodriguez breached their fiduciary duties by denying Jara, Sr., access to the books and records of Suprema, failing to hold shareholder meetings, excluding him from directors meetings, and taking excessive salaries while refusing to pay him his fair share of corporate profits.

On May 4, 2005, the claims still at issue after the appeal in Jara I were consolidated with Jara, Sr.s second action. The matter was tried by the court sitting without a jury.

On July 27, 2006, the trial court issued a comprehensive 35-page statement of decision, denying Jara, Sr., relief. This appeal followed.

FACTUAL BACKGROUND[1]

Suprema is a wholesale meat distributor catering to the Hispanic market in the San Francisco Bay Area. The business was incorporated on June 7, 1996. Jara, Sr., Jara, Jr., and Rodriguez were named as the corporations sole shareholders. Jara, Jr., and Rodriguez were appointed as Supremas directors, though they treated Jara, Sr., as a de facto director until July 12, 2002.

Jara, Sr., is the owner of two successful Mexican restaurants. Jara, Jr., and Rodriguez both worked for the same meat distribution business prior to deciding to start their own company, Suprema. Jara, Sr., agreed to support his sons efforts by arranging for Suprema to have a $250,000 letter of credit so that it could buy meat for distribution.[2] He also arranged for Suprema to lease trucks and forklifts. He signed the lease for the companys building, and assisted in getting permits and in forming the corporation. In return, Jara, Sr., was made a 30 percent shareholder, with Jara, Jr., and Rodriguez as the other two shareholders at 35 percent each.

After consulting with Jara, Sr., Jara, Jr., and Rodriguez settled on a salary of $800 per week. They agreed that they would defer taking additional compensation so that profits could be retained by Suprema to help it grow as a business. In 1998, this understanding was documented in a note recorded on a financial statement: The Board of Directors has agreed in principal [sic] to compensate the officers who maintain customer accounts in accord with normal industry practice. In normal industry practice, sales personnel are compensated at an agreed percentage of product sold. Subject to the restriction in the following paragraph, Management has elected not to pay such compensation currently in order to conserve working capital and provide for growth. [] The compensation to be paid is undetermined as of the date of this report, and, before payment may be made, it must be approved by all current shareholder-directors.

At trial, Jara, Sr., testified that it was his understanding that any additional compensation for Jara, Jr., and Rodriguez would be approved by all three of Supremas directors. While he denied agreeing to a specific percentage of profits as the measure of compensation, he admitted that he agreed to the concept of paying minimal draws until the company could afford to pay more. What I told Mikey, I said: You guys are going to work really hard, but there is no money in the company right now, so why dont you pay yourself what you said you were going towhat you were making [with your former employer] and then when there is some money, if you feel you deserve more, just take whatever you earn, when there is some money there.

Jara, Jr., testified to a somewhat different version of this discussion. He stated that his father agreed that he and Rodriguez would eventually be paid a salary in the amount 24 percent of gross profits. He also testified that his father agreed that they would defer taking their compensation until the company had earned enough money to pay them back.

Jara, Jr., and Rodriguez earned $800 per week from 1996 through 1999. During that time the company thrived registering gross annual sales of $22,392,896 and a gross annual margin of $1,995,402 by the end of September 1999.

In April 1998, Suprema converted from a C corporation to an S corporation. Generally speaking, federal subchapter S election allows a qualifying small business corporation to avoid paying income tax at the corporate level. [Citation.] Instead, each item of corporate income and expense is passed through the S corporation unchanged and reported on a pro rata basis on the tax returns of the individual shareholders of the S corporation.  (Handlery Hotels, Inc. v. Franchise Tax Bd. (1995) 39 Cal.App.4th 1360, 1363.) As a result of this change, Supremas shareholders became responsible for paying taxes on their allocable share of Supremas reported income, regardless of whether that income was distributed to the shareholders.

Jara, Sr., testified that he recommended this change in response to concerns that Jara, Jr., had expressed regarding double taxation. However, Supremas former accountant, Bruce Maddox, testified that Jara, Sr., wanted the company to become an S corporation so that he could take his share of Supremas income out of the company. Maddox testified that he did not think it was a good idea for Suprema to convert to an S corporation at that time because the company needed to retain money in order to expand. Jara, Sr., indicated that if the other two shareholders wanted to retain money inside the corporation, they could loan it back to Suprema. In 1998, Jara, Sr.s subchapter S profit distribution was $105,513.[3]

Jara, Jr., and Rodriguez also received their profit distributions. After paying the taxes owed on his distribution, Jara, Jr., loaned the remainder of his share, over $73,000, back to Suprema. Rodriguez also loaned his share to the corporation. They loaned their after-tax shares to Suprema again in 1999. In contrast, the trial court found that Jara, Sr., did not loan or otherwise advance any significant additional funds to the corporation.

Sometime in 1999, the three shareholders agreed to look for a larger property on which to locate the business. They found a suitable property, but they did not purchase it. According to Jara, Jr., his father wanted him to buy out Rodriguez first, so that father and son could own the property together. Jara, Jr., was troubled because he felt loyal to Rodriguez. Jara, Sr., also told Jara, Jr., and Rodriguez that if Suprema bought the property both of them would have to continue deferring their salaries for the next five years.

Shortly thereafter, Jara, Jr., and Rodriguez called a directors meeting because they wanted to begin taking a percentage of Supremas gross profits as their compensation, rather than just their $800 per week draw. The exact date of the meeting is unclear, but it occurred in the later part of 1999. As noted above, by this time the company was showing a gross yearly profit of almost $2 million.

The parties testified differently regarding the amount of compensation that Jara, Jr., and Rodriguez wanted to receive. Jara, Sr., testified that they each wanted 25 percent of gross profits, while Jara, Jr., testified that he and Rodriguez proposed to split a 24 percent share between them. Jara, Sr., testified that he told his son the corporation could not afford to pay them that much and that they would be milking the cow. At that point, Jara, Jr., suggested that they take only 20 percent of the gross profits for 1999 and forgo any deferred compensation for prior years. Jara, Sr., was also against this proposal. The meeting ended without an agreement. Jara, Sr., admitted at trial that he understood at the time of the 1999 meeting that his son and Rodriguez were owed back pay.

The next day, Maddox told Jara, Jr., that he had received a telephone call from Jara, Sr.s lawyer, who was requesting information about company finances.[4] He told Jara, Jr., that he could no longer serve as Supremas accountant because his longstanding relationship with Jara, Sr., created a conflict of interest.

On April 18, 2000, Jara, Sr.s attorney wrote a letter to Jara, Jr., stating that a financial analysis done by a retained accountant indicated that $135,000 was likely to be a good number for executive compensation. The letter further stated: As you know there can be no adjustment of the compensation figures for you and Mr. Rodriguez for the 1999 fiscal year; however $135,000 each for you and Mr. Rodriguez for the current year is acceptable based on the information we have now. Jara, Jr., interpreted this letter as a repudiation of Jara, Sr.s agreement that the two working shareholders would be entitled to the compensation that they had deferred from prior years. It also contradicted his earlier understanding that he and Rodriguez would be entitled to 24 percent of gross profits once the company could afford to pay them that amount.

On July 5, 2000, Jara, Jr., and Rodriguez called a directors meeting and voted a $220,000 bonus for Jara, Jr., and an $180,000 bonus for Rodriguez. The bonuses represented 24 percent of gross profits earned by Suprema in 1999, less their weekly draws. They intentionally did not invite Jara, Sr., to attend that meeting.

Another result of this meeting was the decision to change Suprema back to a C corporation. Rodriguez testified that this change was made for the benefit of the corporation on the advice of Supremas current accountant Mr. Barry Goldstein. Rodriguez also testified that he understood that by making this change Jara, Sr., would no longer be entitled to an allocation of 30 percent of the companys profits. Jara, Sr., filed his initial complaint shortly thereafter.

Rodriguez sold his shares of Suprema to Jara, Jr., in 2002 for $1 million. This transaction occurred without any notice to Jara, Sr. Suprema continued to be successful. In 2005, it recorded $52,995,967 in revenue, $5,469,869 in gross profits, and had $3,847,673 in owner equity. That year, Jara, Jr., received a salary of $611,968.[5]

DISCUSSION

I. The Court Did Not Err in Failing to Order an Accounting

The trial court denied Jara, Sr.s request for an accounting, finding that he failed to establish that Jara Jr. and Rodriguez breached any legally or equitably enforceable fiduciary duty to him. Jara, Sr., contends the court erred. We disagree.

A. Standard of Review

Without citing to any authority, Jara, Sr., claims that we must review the trial courts failure to order an accounting under the de novo standard of review. However, the assertions that he makes on appeal are not primarily questions of law but factual questions that were resolved adversely to him by the trial court and therefore must be upheld if supported by substantial evidence. (Reddy v. Gonzalez (1992) 8 Cal.App.4th 118, 123.) With respect to the courts decision not to order an accounting, we agree with respondents that the appropriate standard of review is abuse of discretion. (See Heller v. Pillsbury Madison & Sutro (1996) 50 Cal.App.4th 1367, 1392.)

B. Basis for an Action for Accounting

Where an accounting is required, the action is equitable. [Citations.] An accounting is necessary where the fiduciary becomes liable for various sums of money and plaintiffs do not know what money is due them. [Citations.] Where there is a fiduciary relationship . . . and the facts are peculiarly within the knowledge of one of the parties . . . an accounting lies. [Citations.] (Van de Kamp v. Bank of America (1988) 204 Cal.App.3d 819, 864.)

Jara, Sr., claims that an accounting was warranted because [t]here is undisputed evidence in the record revealing numerous past and continuing breaches of fiduciary duty by defendants. While Jara, Sr., leveled many allegations regarding breaches of fiduciary duty, the trial court found that no breaches occurred and that Jara, Jr., and Rodriguez did not wrongfully deprive Suprema of any corporate assets. Accordingly, the court found an accounting was not warranted.

C. Breach of Fiduciary Duty

This case concerns the fiduciary duties that majority shareholders in a corporation owe to minority shareholders. In Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93 (Jones), the Supreme Court at page 108 addressed the issue of the fiduciary duties of majority shareholders in the following manner: majority shareholders, either singly or acting in concert to accomplish a joint purpose, have a fiduciary responsibility to the minority and to the corporation to use their ability to control the corporation in a fair, just, and equitable manner. Majority shareholders may not use their power to control corporate activities to benefit themselves or in a manner detrimental to the minority. Any use to which they put the corporation or their power to control the corporation must benefit all shareholders proportionately and must not conflict with the proper conduct of the corporations business.

In Jara I, we observed that the trial court had failed to rule on Jara, Sr.s cause of action for breach of fiduciary duty. (Jara I, supra, 121 Cal.App.4th 1238, 1260.) We disagreed with the courts determination that the claim should have been brought as a derivative action.[6] And we interpreted the complaint as seeking a share of disguised dividends paid to Jara, Jr., and Rodriguez in the form of excessive compensation. (Id. at pp. 12591260.) With respect to damages, we noted that it would be possible to calculate the amount of such disguised dividends and to award Jara, Sr., his fair share after taking into account the $129,000 dividend that he did receive. (Id. at p. 1260.) We expressed no opinion as to whether [the] compensation paid to Jara, Jr., and Rodriguez was in fact excessive. (Ibid., fn. 5.) We also found that Jara, Jr.s alleged promise not to take extra compensation without Jara, Sr.s concurrence was unenforceable: It is relevant only that Jara, Jr.s promise was unsolicited and gratuitous; it was neither induced by promises or conduct of his father nor given to induce a return promise or performance. (Id. at p. 1251.)

1. Executive Compensation

The issues regarding the alleged breaches fiduciary duties were fully addressed in the second trial. As to excess compensation, the trial courts statement of decision concludes: Based upon a review of all of the evidence pertaining to the amount of Jara Jr., and Rodriguezs compensation, the Court concludes that, taken as a whole, they have sustained their burden of showing that the compensation they were paid was reasonable and not a breach of their fiduciary duty to Jara Sr.

The trial court also observed that respondents bore the burden of proof to show that the compensation paid to them was just and reasonable as to the corporation at the time it was authorized.  The court further noted that if this test was satisfied then the fiduciary duty to Jara, Sr., was also satisfied under Jones. After summarizing the increase in owner equity from 2003 to 2005, the court concluded: With [Supremas] record of performance, Jara Sr. has no basis to complain about the amount of his sons compensation. It was fair and reasonable, and did not amount to a breach of fiduciary duty.

We believe the trial courts determinations are supported by substantial evidence, including expert testimony and the testimony of the parties. The court discredited the testimony offered by Jara, Sr.s expert witnesses, Dr. Barbara Estes and Frank Lyons, who based their estimates of executive compensation on market data and on information obtained from the proxy statements of eight food services companies with about $40 million in annual revenue. The court faulted the comparables that these experts relied on because they did not factor in profitability and did not account for the full value of the work actually performed by Jara, Jr., and Rodriguez. The court also noted that, while Jara, Jr.s compensation exceeded the median figure provided by Estes, she could not say that his compensation exceeded the upper range of compensation received by other meat industry executives.

In contrast, Jara, Jr.s executive compensation expert, Joseph Richard, who had previously worked with Estes and another consultant in preparing a report that proposed a methodology for setting Jara, Jr.s compensation for 2003 to 2005, testified that amounts paid to Jara, Jr., during those years were at the lower end of the salary ranges recommended in their report. He also testified that Jara, Jr., had met the threshold necessary to receive annual bonuses in 2004 and 2005.

In addition, Daniel Harper, a retired general manager for a local meat distributor, testified that he was amazed by Supremas success, which he attributed to the efforts of Jara, Jr. He testified that in his position as general manager he was compensated at a rate of about $170,000 per year, plus benefits, during the last five years of the job from which he retired in 2001. Moreover, his corporate employer provided management services valued at approximately $250,000 per year. He testified that Jara, Jr., was providing Suprema with the equivalent of these contracted-out services at no additional cost to the corporation. Thus, there is substantial evidence in the record to support the trial courts conclusion that the executive compensation paid to Jara, Jr., and Rodriguez was not excessive.

2. Other Alleged Breaches of Fiduciary Duty

Jara, Sr., does not challenge the trial courts reliance on the testimony regarding executive compensation that was provided by respondents expert witnesses. Thus, he effectively concedes that substantial evidence supports the courts conclusion that the compensation paid to Jara, Jr., and Rodriguez was reasonable. Instead, he argues that the court failed to make specific findings on other alleged breaches, such as the exclusion of Jara, Sr., from board of directors meetings, the denial of access to financial records, and the refusal to hold shareholder meetings. With respect to several of these allegations, however, the trial court clearly found that the decisions made by Jara, Jr., and Rodriguez were protected by the business judgment rule.[7] (Corp. Code, 309, subd. (a).)

Jara, Sr., also faults the trial court for excusing respondents violations of corporate formalities and duties. However, it appears to us that the parties essentially conceded to a certain amount of informality. This seems appropriate to us, given that this was a closely-held corporation and that two of the three original shareholders were family members.

More importantly, however, Jara, Sr., has not shown that he suffered a legally compensable injury as a result of the lack of corporate formalities. While it is true that he was excluded from the July 2000 meeting wherein Jara, Jr., and Rodriguez voted to give themselves bonuses, it appears highly unlikely that the result would have been different if Jara, Sr., had participated in the voting. Moreover, as the analysis above demonstrates, we see no indication that these bonuses were unfair to Suprema or Jara, Sr.

Jara, Sr., also complains that Jara, Jr.s buyout of Rodriguez was improper because Jara, Jr., used money from Suprema to purchase some of Rodriguezs shares. The trial court found that that Jara, Jr.s use of money that resided in Suprema was not improper because at that time Suprema owed him money in compensation. While the courts statement of decision does not set forth its exact findings on how much money was owed to Jara, Jr., the relevant information was made available to the court and there is no basis upon which we can infer that the court did not fully consider the evidence before it.

In spite of the trial courts clear and detailed findings, Jara, Sr., insists that the trial court failed to make findings on, or otherwise explain its reasoning regarding, the issue of whether any defendant breached a fiduciary duty to Jara, Sr. or to Suprema. The court plainly made findings. It appears that the findings are simply not the findings that Jara, Sr., would prefer.

Moreover, Jara, Sr., cannot complain that he has not received substantial income from Suprema. In addition to the subchapter S distributions discussed above, Jara, Sr., received a total of $325,500 in dividends from Suprema from September 11, 2002, through September 23, 2005. Thus, he has received a total of $587,013, a substantial sum considering his initial investment in Suprema was $14,435.10.

D. An Accounting is Not Warranted

Jara, Sr., claims that this trial should have led to an accounting that would reveal the true value of the corporation. He posits that the ultimate result of such a trial might have been that one shareholder would buy out the other, based upon objectively verifiable accounting information. He asserts that if the trial court truly wished for the parties to agree to a buy out, the court should have ordered an accounting.

In the absence of a viable cause of action, we question whether this states judicial resources should be used to foster corporate buyouts that, presumably, the parties can negotiate for themselves. Buyouts are not a foreign concept to this corporation, as Jara, Jr., has already bought out Rodriguez. Clearly, father and son have an acrimonious relationship. It is unlikely that this relationship will be improved by further litigation. In this respect, we fully agree with the trial courts recommendation that the parties agree to an appraisal and buy out. We also empathize with the courts evident distress over its inability to order the parties to do so.

Finally, Jara, Sr.s reliance on Nelson v. Abraham (1947) 29 Cal.2d 745 is inapposite. In that case, the trial court refused to order an accounting after it erroneously found that the parties did not have a fiduciary relationship. While the defendant had also alleged that no money was owed to the plaintiff because the business had operated at a net loss, the Supreme Court found evidence in the record to show that a profit had been earned. (Id. at p. 752.) Thus, Nelson does not stand for the proposition that a plaintiff is entitled to an accounting even if there is no evidence that money is owed.

In sum, we find that the trial court did not err in refusing to order an accounting. Jara, Sr., did not show that money was owing to him in the form of corporate profits as Jara, Jr., and Rodriguez successfully demonstrated that they did not breach their fiduciary duties to him as a minority shareholder.

II. Unclean Hands Doctrine

Jara, Sr., also claims that the trial court erred in relying on the unclean hands doctrine to deny him relief. He claims the only findings made by the court regarding this doctrine were that he had made an unreasonable salary proposal to respondents and that he reneged on his prior agreement to allow Jara, Jr., and Rodriguez to receive delayed compensation. He argues his proposal regarding director compensation was made in good faith and that, in any event, this court has already found the agreement to be unenforceable.

We deal here with a suit for an accounting, an equitable proceeding [citation], to which equitable doctrines are applicable. [Citation.] One of these is the rule that he who comes into equity must come with clean hands. [Citation.] The force of the doctrine in a particular case must depend on the circumstances of that case, and on proof that the misconduct is material to the subject matter of the litigation to which it is a defense. (Rosenfeld, Meyer & Susman v. Cohen (1987) 191 Cal.App.3d 1035, 1061.)

The decision on whether to apply the defense of unclean hands is a matter within the trial courts discretion. (Dickson, Carlson & Campillo v. Pole (2000) 83 Cal.App.4th 436, 447.) However, A courts discretion to grant an equitable defense such as unclean hands is not unlimited. The court must consider the material facts affecting the equities between the parties; the failure to do so is an abuse of discretion. (Ibid.)

While much of Jara, Sr.s briefing is devoted to challenging the trial courts finding of unclean hands, the doctrine appears to have played a minor role in the courts decision. Within the courts 35-page statement of decision, only one sentence is devoted to this issue. Under the heading entitled Failure to Follow Corporate Formalities, the trial court observed that Jara, Sr.s failure to suggest, much less agree upon reasonable compensation for Jara Jr., and Rodriguez prior to July 2000, his attorneys letter reneging on the agreement that Jara Jr., and Rodriguez would be paid their deferred compensation for 1996 through 1999 (for which he is responsible), and the proposal for year 2000 compensation at a figure without the benefit of any executive compensation consultant which was far below any range of reasonableness, all operated to the detriment of Suprema. It is thus completely understandable that Jara Jr., and Rodriguez hoped that Jara Sr., would not come to the meeting. From an equitable point of view, these facts also support a finding of unclean hands on Jara Sr.s part which precludes him from obtaining any remedy for defendants breach of fiduciary duty in this respect. (Italics added.)

We believe that this passage is intended to apply solely to Jara, Sr.s complaint that he was wrongfully excluded from the July 2000 meeting that resulted in the bonus payments to Jara, Jr., and Rodriguez. And we believe the courts conclusion is justified. At the first trial, Jara, Sr.s expert witness stated that $268,266 would be a market median calculation for a CEO position comparable to the one held by Jara, Jr., for the year 1999. She found that $178,000 would be a comparable median salary for the position held by Rodriguez. Thus, we agree with the trial courts conclusion that the $135,000 figure suggested by Jara, Sr., through his attorney in the April 18, 2000 letter was patently unreasonable as it is less than Jara, Sr.s own expert suggested would be fair to either Jara, Jr., or Rodriguez.

Also without merit is Jara, Sr.s contention that the doctrine of unclean hands should not apply because there was purportedly no evidence that respondents suffered any prejudice. It is settled that the act upon which equity may refuse relief to a plaintiff because he does not come into court with clean hands must prejudicially affect the rights of the person against whom the relief is sought so that it would be inequitable to grant such relief. (Wiley v. Wiley (1943) 59 Cal.App.2d 840, 842; see also Dickson, Carlson & Campillo v. Pole, supra, 83 Cal.App.4th 436, 447.) As noted above, the trial court found that Jara, Sr.s conduct was detrimental to Suprema. We find sufficient evidence, and reasonable inferences therefrom, of the requisite prejudice to respondents from Jara, Sr.s conduct.

Even if the court did err in applying the unclean hands doctrine, the fact remains that Jara, Sr., did not prevail on his claim for breach of fiduciary duty. Thus, even if the court had found that Jara, Sr., had clean hands, it would not have changed the outcome of this case with respect to his action for an accounting.

III. Statement of Decision

Finally, we find no merit to Jara, Sr.s contention that we must reverse the judgment because the trial court failed to make his requested factual and legal findings. Code of Civil Procedure section 632 requires the court to explain the factual and legal basis for its decision.[8]

In rendering a statement of decision under Code of Civil Procedure section 632, a trial court is required only to state ultimate rather than evidentiary facts; only when it fails to make findings on a material issue which would fairly disclose the trial courts determination would reversible error result. [Citations.] Even then, if the judgment is otherwise supported, the omission to make such findings is harmless error unless the evidence is sufficient to sustain a finding in the complaining partys favor which would have the effect of countervailing or destroying other findings. [Citation.] A failure to find on an immaterial issue is not error. [Citations.] The trial court need not discuss each question listed in a partys request; all that is required is an explanation of the factual and legal basis for the courts decision regarding the principal controverted issues at trial as are listed in the request. (Hellman v. La Cumbre Golf & Country Club (1992) 6 Cal.App.4th 1224, 1230.)

Jara, Sr., claims that the trial courts statement of decision fails to address all issues. He claims that the court did not make any findings on the issue of whether any of the respondents breached a fiduciary duty to him. He acknowledges that the court found he was not entitled to any relief, but complains that the court did not explicitly find that respondents did not breach their duties. He also complains that even if there is substantial evidence supporting the finding that respondents were entitled to significant compensation, he was entitled to damages for other alleged breaches, specifically: 1) the manner of documentation of loans made by Jara, Jr., and Rodriquez to Suprema, 2) that they took money from Suprema without seeking Jara Sr.s permission, 3) deceptive reporting of financial results, and 4) failure to give Jara, Sr., notice of the annual directors meeting. While acknowledging that the courts statement hints that there was no harm from these alleged breaches, Jara, Sr., complains that the court did not so specify.

We believe the statement of decision is more than sufficient. Regarding the subject of loans, for example, the trial court observed that while the manner and documentation of loans made by Jara Jr. and Rodriguez to Suprema in order to maximize its working capital could have been much improved, Jara Sr. had encouraged them to leave portions of their salary in the corporation and to loan back portions of their Subchapter S distributions. Moreover, the court observed that Jara, Sr., had also taken a $30,000 loan from Suprema.

Jara, Sr., also complains that the trial courts decision is deficient with respect to the transaction whereby Jara, Jr., became the owner of Rodriguezs stock. However, this issue is fully addressed as the court found Jara, Jr., did not improperly use Supremas money to buy stock and concluded that his failure to disclose the transaction to Jara, Sr., was not illegal, though it may have been ill advised.

The trial court was troubled by the fact that Jara, Jr., and Rodriguez held the meeting on July 5, 2000, without providing notice to Jara, Sr. However, the court found that there was no evidence that anything improper occurred during the meeting, or that a different result would have occurred if Jara, Sr., and his attorney had attended the meeting. Jara, Sr., claims the court unreasonably assumed that the other two shareholders would vote together as a block. We have reviewed both Jara, Jr.s and Rodriguezs testimony on this point, and believe that the trial courts conclusion is fully supported.

Finally, Jara, Sr., asserts that regardless of the actual end results, Jara, Jr., and Rodriguez took money from Suprema with the intent to deprive him of his rightful profits. He argues that this intent means that Jara, Jr., and Rodriguez necessarily caused damage. As we find that the trial courts rulings with respect to executive compensation and other financial dealings are supported by substantial evidence, we believe this argument is without merit.

The trial court is not required to make an express finding of fact on every factual matter controverted at trial, where the statement of decision sufficiently disposes of all the basic issues in the case. (Bauer v. Bauer (1996) 46 Cal.App.4th 1106, 1118.) We conclude the trial courts statement of decision addresses the substance of all of the matters raised by Jara, Sr.s request for specific findings.

DISPOSITION

The judgment is affirmed.

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Analysis and review provided by La Mesa Property line attorney.

Jara v. Suprema Meats, Inc., et al., A115423

[1] In view of the standard of review applicable to this case, we find it necessary to repeat many of the facts set forth in our prior opinion.

[2] Jara, Jr., testified that this line of credit was paid off after three years.

[3] In 2000, Jara, Sr., received a profit distribution of $156,000.

[4] By this time, unbeknownst to respondents, Jara, Sr., had signed a UCC financing statement securing Supremas line of credit with Supremas assets only.

[5] Rodriguez received a salary of $107,050. By this time, he was working only as an employee of Suprema.

[6] At oral argument, Jara, Sr., asserted that the alleged excessive executive compensation is not the issue before us. Rather, he argued that an accounting is required solely on the basis of Jara, Jr. and Rodriguezs failure to adhere to corporate formalities. In Jara I, we reversed the trial courts dismissal of Jara, Sr.s breach of fiduciary duty claim, holding that the allegation he was deprived of a fair share of corporate profits due to the excessive compensation paid to the majority shareholders fell outside of the general rule that claims of corporate injury may be brought in a derivative action only. We observed that The gravamen of Jara, Sr.s complaint is that he was deprived of a fair share of the corporations profits as a result of defendants generous payment of executive compensation to themselves. (Jara I, supra, 121 Cal.App.4th 1238, 1258.) In retreating from his compensation-based claim, Jara Sr.s current position appears to us to be somewhat inconsistent with the successful argument he made to this court in Jara I that he was not required to bring a derivative action due to the individual nature of his claim.

[7] The court found that Suprema was under no obligation to send financial records to Jara, Sr., as long as the records were made available to him at Supremas office.

[8] Code of Civil Procedure section 632 provides, in part: In superior courts, upon the trial of a question of fact by the court, written findings of fact and conclusions of law shall not be required. The court shall issue a statement of decision explaining the factual and legal basis for its decision as to each of the principal controverted issues at trial upon the request of any party appearing at the trial. The request must be made within 10 days after the court announces a tentative decision unless the trial is concluded within one calendar day or in less than eight hours over more than one day in which event the request must be made prior to the submission of the matter for decision. The request for a statement of decision shall specify those controverted issues as to which the party is requesting a statement of decision. After a party has requested the statement, any party may make proposals as to the content of the statement of decision.