Yang v. Zhu CA1/5 — Fear Not Law

Filed 6/23/26 Yang v. Zhu CA1/5

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for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 FIVE

WEN YANG et al.,
Plaintiffs, Cross-defendants and
Appellants, A172055, A173090
v.
YUN ZHU,
(Alameda County Super. Ct.
Defendant, Cross-complainant No. RG15794796)
and Appellant.
WEN YANG et al.,
Plaintiffs, Cross-defendants and
Respondents, A172602
v.
YUN ZHU,
Defendant, Cross-complainant (Alameda County Super. Ct.
and Appellant. No. RG15794796)

Wen Yang and Yun Zhu formed a corporation, Y&Y
Educare Development, Inc. (Y&Y), for the purpose of establishing
a preschool. After their relationship deteriorated, Yang filed
papers to dissolve Y&Y, initiated this lawsuit against Zhu,
established a new preschool business (LWY Educare, Inc.), and
negotiated with Y&Y’s lessor to take over the space Y&Y had
obtained for its preschool. Yang and LWY Educare, Inc.
(collectively “Yang”), appeal from the trial court’s entry of

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judgment for Zhu based on Zhu’s cross claim against Yang for
breach of fiduciary duty. Zhu also appeals, challenging the trial
court’s decision as to remedy. We conditionally vacate the
judgment and remand for the trial court to consider the merits of
Yang’s affirmative defense of unclean hands.

BACKGROUND

Yang was a teacher at Zhu’s daughter’s former preschool.
A few years after they met, the two decided to establish a
preschool or afterschool care business together, leveraging Yang’s
teaching background and Zhu’s background in architectural
design, including her experience designing buildings for preschool
and afterschool projects. They agreed that Zhu would be
primarily responsible for managing the site selection and
construction/renovation process, and Yang would be responsible
for obtaining a license to operate the preschool and setting up
and running the school.

The pair filed articles of incorporation to form Y&Y. Yang
and Zhu were its only officers and directors. They selected the
name “Laughter Educare” for their school and registered the
name for use by Y&Y. The pair agreed to be 50/50 shareholders,
contributing equal cash investments, time, and labor into the
project. Neither would be compensated for the work they
performed prior to the opening of the preschool.

The two agreed on a location in Fremont that used to house
another preschool, owned by a company called Yo-Yo Learning
Center, that had suffered an accident in which a cabinet fell and
injured two children. Although the location needed substantial
work to address numerous building code violations, the site was
attractive due to its outdoor playground and its proximity to a
Tesla factory, planned housing developments, public
transportation, and elementary schools.

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Zhu and Yang negotiated with Nangyau Tay, the owner of
Yo-Yo Learning Center, to purchase Yo-Yo and the right to
sublease its preschool site (units seven and eight). Tay accepted
an offer of $100,000, which included $70,000 for the site and
$30,000 for the cost of the renovation permit Tay had applied for
from the City of Fremont.

Zhu and Yang’s relationship began deteriorating after Yang
learned that Zhu had engaged in separate dealings with Tay that
would result in Zhu receiving thousands of dollars in income.
Yang believed that Zhu was receiving “kickback[s]” for referring
business from Y&Y. According to Zhu, Tay had contracted her to
do work on another unit (unit six) not being leased by Y&Y. Zhu
had also contracted with Tay to prepare plans to fix code
violations in units six, seven, and eight and submit them to the
City in exchange for $25,000. Yang believed that any work Zhu
did on units seven and eight belonged to Y&Y.

The situation was further complicated when Tay’s permit
application was denied. Yang insisted that the agreed-upon
$100,000 purchase price be reduced by $30,000. Zhu agreed to
use $15,000 she would have received for her contract work on
units seven and eight to reduce the Yo-Yo purchase price from
$100,000 to $85,000. As a result, the parties signed a sales
agreement to purchase Yo-Yo for $85,000, including the right to
sublease its premises. Y&Y subsequently entered into a sublease
agreement with Tay under which it would pay monthly rent for
units seven and eight.1

In the meantime, Zhu completed the renovation plans for
units six, seven, and eight, obtained the necessary building
permit from the City, and solicited contractor bids for the

1 Zhu and Yang later reached an agreement with Tay to

sublease unit six for Y&Y as well, which resulted in lowering the
purchase price of Yo-Yo from $85,000 to $70,000 to account for
the amount that Tay owed for remodeling unit six.
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renovation work. Rather than hire any of the contractors from
whom Zhu had obtained bids, however, the parties hired a
contractor named Jack Li who had been recommended to Yang by
a friend. Zhu and Yang agreed to hire Li despite concerns about
his low bid and lack of a contractor’s license; the contract with Li
was never reduced to writing.

Unfortunately, Li’s work was substandard. Li lacked
knowledge necessary to complete the work, mistakenly
demolished a wall that was not supposed to be removed, and
disputed the scope of the work. Zhu and Yang fired Li and hired
a different contractor, John Bui, to compete the remaining work,
again with no written contract. Bui paid Zhu $1,000, which Yang
understood was a “kickback” for giving the business to him. Bui
successfully completed the work, which was then approved by the
City.

Despite the setbacks during the renovation process, Yang
and Zhu were able to obtain the license necessary to open their
preschool. However, Yang blamed Zhu for delays in the
construction process and accused her of taking “secret kickbacks”
and breaching her fiduciary duties to the corporation. The
relationship between the two broke down, and they began
discussing the possibility that Y&Y would have to be dissolved.
They were unable to agree on how to proceed. After suing Zhu in
November 2015, Yang filed paperwork with the Secretary of
State to wind up and dissolve Y&Y. Yang incorporated a new
company (“LWY”) without Zhu, negotiated with Tay on behalf of
her new business, took over Y&Y’s sublease and “Laughter
Educare” business name, applied for a new preschool license, and
ultimately operated a new preschool out of the space that Y&Y
had planned to use. Yang also locked Zhu out of the preschool
site and denied her access to Y&Y’s bank account by changing the
login credentials.

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While Yang was moving ahead with her new business, Y&Y
had run out of money, and Zhu was unwilling to contribute more
money to pay her half of the sublease rent because Yang had
already filed paperwork to dissolve Y&Y. After Tay served Y&Y
with a three-day notice to pay rent or quit, Y&Y ultimately did
not complete its purchase of Yo-Yo.

Yang’s lawsuit against Zhu asserted claims for intentional
misrepresentation, fraudulent concealment, breach of fiduciary
duty, intentional infliction of emotional distress, conversion,
contract rescission, and accounting of equity. Yang alleged in
part that Zhu had misrepresented herself as an architect, caused
unnecessary delays, engaged in and concealed double-dealing
with Tay, and received and concealed kickbacks from Tay and
other contractors that should have passed to Y&Y. However, the
trial court ultimately dismissed Yang’s suit for failure to bring it
to trial within five years, as required by Code of Civil Procedure
section 583.310.

Zhu also filed a cross-complaint against Yang and her new
company, LWY, alleging that Yang misappropriated Y&Y’s assets
and started her own company in direct competition with Y&Y.
She asserted derivative claims on behalf of Y&Y, as well as her
own individual claims, for breach of fiduciary duty, conversion,
fraud, unfair competition, an accounting, imposition of a
constructive trust, and declaratory relief. Zhu dismissed her
individual claims so that by the time of trial, the only remaining
claims were derivative.

After a bench trial, the trial court ruled in Zhu’s favor on
her derivative claim for breach of fiduciary duty. The court found
that Yang had harmed Y&Y by unilaterally filing dissolution
papers for Y&Y and negotiating with Tay to obtain Y&Y’s
sublease on behalf of her new business. Although Yang had
raised affirmative defenses including unclean hands, the trial
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court held that her unclean hands defense was not relevant
because her complaint against Zhu had had already been
dismissed, and the only remaining questions were about whether
Yang had acted wrongfully.

Based on Zhu’s expert’s valuation of Y&Y’s reasonable fair
market value in or around February 2016, the trial court
awarded Y&Y damages in the amount of $461,000 and declined
to award two equitable remedies sought by Zhu, disgorgement of
profits and imposition of a constructive trust. In addition, the
court granted Zhu’s request for attorney fees. The court ordered
that “[a]fter collection of th[e] judgment and payment of any
outstanding debts,” Y&Y’s “assets shall be distributed to its two
shareholders according to their agreed upon 50% interest in said
company in accordance with the dissolution” of Y&Y.

Subsequently, both Yang and Zhu filed motions to vacate
the judgment. The trial court denied Yang’s motion. Granting
Zhu’s motion in part, the court corrected a typographical error,
deleted a sentence stating that Zhu had abandoned her request
for an accounting, and added a sentence indicating that the
court’s decision made no determination about the proper
distribution of the attorney fee award as between Y&Y’s
shareholders.

DISCUSSION

1.
In her appeal, Yang challenges the sufficiency of the
evidence that she harmed Y&Y by breaching her fiduciary duties.
She also challenges the sufficiency of the evidence supporting the
trial court’s valuation of Y&Y for purposes of the damage award.
Her challenges lack merit.

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Yang does not dispute that an officer of a corporation may
not misappropriate a business opportunity or establish a
competing enterprise to the corporation’s detriment. (See
Sequoia Vacuum Systems v. Stransky (1964) 229 Cal.App.2d 281,
286; see also Center for Healthcare Education & Research, Inc. v.
International Congress for Joint Reconstruction, Inc. (2020) 57
Cal.App.5th 1108, 1132 (Center for Healthcare).) Instead, she
contends that the trial court “ignored” evidence that her actions
were “emergency remedial measures . . . triggered by Zhu’s
misconduct.” Whether Yang violated her duty of loyalty is a
question of fact, so we review the trial court’s decision for
substantial evidence. (See Kelegian v. Mgrdichian (1995) 33 Cal.
App.4th 982, 988-990.)

Substantial evidence supports the trial court’s findings.
The trial court found that beginning in December 2015, Yang
sought to dissolve Y&Y and took multiple steps to establish a
competing business that would take over Y&Y’s site. The court
found that she filed a fictitious business name statement on
behalf of her new business, taking Y&Y’s Laughter Educare
name; solicited students for her new preschool; negotiated with
Tay to sublease the same space that, at that time, was still leased
to Y&Y; and urged Tay to serve Y&Y with a three-day notice to
quit. The court further found that Yang remained an officer of
Y&Y throughout this period and that her actions, which
culminated in Y&Y’s sublease being taken over by LWY, harmed
Y&Y. And the court found, based on an extensive analysis of
expert evidence, that Y&Y was valued at $461,000.

Moreover, Yang fails to discuss the evidence supporting the
trial court’s decision. Her briefing discusses only the evidence
favorable to her position, without addressing the evidence to the
contrary, upon which the court relied. A party challenging the
sufficiency of the evidence must summarize the key evidence,
both favorable and unfavorable—a requirement that is even more

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important in cases that, like this one, involve an extensive record.
(See In re Marriage of Fink (1979) 25 Cal.3d 877, 887-888; Estes
v. Eaton Corp. (2020) 51 Cal.App.5th 636, 650; Cal. Rules of
Court, rule 8.204(a)(2)(C).) Yang thus forfeits her argument. (In
re Marriage of Fink, at pp. 887-888.)

2.
a.
Yang correctly contends that the trial court committed
legal error in declining to consider her unclean hands defense
because, in the court’s words, it was “irrelevant” to the derivative
shareholders’ claims.

The doctrine of unclean hands is a defense that precludes a
party who has engaged in misconduct from obtaining equitable or
legal relief. (See Meridian Financial Services, Inc. v. Phan (2021)
67 Cal.App.5th 657, 685.) Unclean hands “ ‘is an equitable
rationale for refusing a plaintiff relief where principles of fairness
dictate that the plaintiff should not recover, regardless of the
merits of his claim.’ ” (Ibid.) The doctrine applies only when the
misconduct at issue is closely related to the same party’s claimed
injuries, such that the misconduct has “infect[ed] the cause of
action involved and affect[ed] the equitable relations between the
litigants.” (Kendall-Jackson Winery, Ltd. v. Superior Court
(1999) 76 Cal.App.4th 970, 979, 984, as modified on denial of
rehg. Jan. 3, 2000.) This assessment is “a question of fact.” (Id.
at p. 978; see also Padideh v. Moradi (2023) 89 Cal.App.5th 418,
436, 438.) Further, “the decision whether to apply the [unclean
hands] defense based on the facts presented is a matter within
the trial court’s discretion.” (See Garcia v. World Savings, FSB
(2010) 183 Cal.App.4th 1031, 1044 (Garcia).)

Contrary to the trial court’s conclusion, the unclean hands
defense is not irrelevant here, as the doctrine has long been
applied to shareholder’s derivative actions. (See DeGarmo v.

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Goldman (1942) 19 Cal.2d 755, 764-765; Rosenfeld v. Zimmer
(1953) 116 Cal.App.2d 719, 723; see also, e.g., Sirott v. Superior
Court (2022) 78 Cal.App.5th 371, 380.)

Zhu argues that Yang’s unclean hands defense lacks merit
in any event because the wrongdoing Yang alleges is not
sufficiently related to Zhu’s claim. But whether or not Yang’s
allegations are factually supported and whether, based on the
facts found, the unclean hands defense ought to be applied here
are decisions for the trial court in the first instance. (Cf. Garcia,
supra, 183 Cal.App.4th at p. 1044 [stating that where “[t]he trial
court issued no ruling on” a party’s unclean hands argument, the
court of appeal “will not do so for the first time on appeal”].) We
will therefore order a conditional remand for the trial court to
assess Yang’s unclean hands defense.

We note that the trial court made some factual findings
that appear to contradict or reject some of Yang’s allegations of
Zhu’s wrongdoing, even though the court did not reach the merits
of the unclean hands defense. We shall leave it to the trial court
to determine, on remand, the scope of the remaining issues. The
court should make any necessary further factual findings and
exercise its discretion to determine whether to deny recovery here
based on fairness principles.

Because the trial court may determine on remand that
Yang’s unclean hands defense lacks merit, we will address the
parties’ remaining contentions.

Yang contends that she is entitled to a remand for the trial
court to consider her affirmative defense that the amount of any
recovery should be offset by amounts allegedly owed by Zhu to
“either Y&Y or Yang.” We are unpersuaded.

A defendant may raise a claim for relief as an affirmative
defense, alleging, “in effect, that the defense claim constituted
9
prior payment for the plaintiff's claim and therefore should be set
off against any award in the plaintiff's favor.” (Construction
Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29
Cal.4th 189, 192, 197-198; see also Code Civ. Proc., § 431.70.) A
setoff does not change the amount of the damages award for the
plaintiff’s claim, but it affects the plaintiff’s right to recover the
full amount of the award. (See McMillin Companies, LLC v.
American Safety Indemnity Co. (2015) 233 Cal.App.4th 518, 534;
see also Los Angeles Unified School Dist. v. Torres Construction
Corp. (2020) 57 Cal.App.5th 480, 500.) A trial court has
discretion to determine whether allowing a setoff would be
equitable under the circumstances. (See Wm. R. Clarke Corp. v.
Safeco Ins. Co. of Am. (2000) 78 Cal.App.4th 355, 358-359.)

Here, the trial court’s statement of decision did not mention
Yang’s setoff claim, nor did its tentative decision. Although Yang
submitted numerous objections to the tentative decision and,
after the decision was issued, filed a motion to vacate the
judgment, our review of the record has not identified any point at
which she brought the omission of the setoff claim to the trial
court’s attention.

Where an objection could have been, but was not, made to
the trial court’s error, an appellate court will not ordinarily
consider the assertion of error. (See Cabrini Villas Homeowners
Assn. v. Haghverdian (2003) 111 Cal.App.4th 683, 693 (Cabrini
Villas); see also San Mateo Union High School Dist. v. County of
San Mateo (2013) 213 Cal.App.4th 418, 436 [“ ‘ “ ‘The critical
point for preservation of claims on appeal is that the asserted
error must have been brought to the attention of the trial
court.’ ” ’ ”].) It is inefficient and unfair to the trial court, as well
as to the other party, for the appellant to exploit an alleged error
on appeal that could have easily been corrected in the trial court.
(Cabrini Villas, at p. 693.) Further, it is the appellant’s burden
to establish, by citation to the record, that the error was raised to

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the trial court. (See Mattson Technology, Inc. v. Applied
Materials, Inc. (2023) 96 Cal.App.5th 1149, 1160; In re S.C.
(2006) 138 Cal.App.4th 396, 406.) Because Yang has not met this
burden, we will not consider her contentions concerning her setoff
claim. (See In re S.B. (2004) 32 Cal.4th 1287, 1293 [“the
appellate court’s discretion to excuse forfeiture should be
exercised rarely and only in cases presenting an important legal
issue”].)

3.
Yang contends that the trial court erred in awarding
attorney fees pursuant to two equitable doctrines known as the
common fund and substantial benefit doctrines. We discern no
error.

Although the default rule is that each litigant bears her
own attorney fees unless provided for by contract or statute, the
common fund and substantial benefit doctrines are equitable
exceptions to that rule. (See Code Civ. Proc., § 1021; Abouab v.
City and County of San Francisco (2006) 141 Cal.App.4th 643,
661-662 (Abouab).) Under the common fund theory, a winning
party whose litigation creates or preserves a fund benefitting a
group of passive beneficiaries may receive an attorney fee award
out of that fund, which serves to spread the litigation costs
amongst the beneficiaries. (Abouab, at p. 662; see also Serrano v.
Priest (1977) 20 Cal.3d 25, 34-35.) Under the related substantial
benefit theory, “the law is settled that derivative plaintiffs may
recover their expenses” from the corporation “upon showing their
efforts resulted in a monetary recovery for the corporation or
otherwise conferred a ‘ “substantial benefit” ’ upon the
corporation.” (Grosset v. Wenaas (2008) 42 Cal.4th 1100, 1118
(Grosset); see also Woodland Hills Residents Assn., Inc. v. City
Council (1979) 23 Cal.3d 917, 943 (Woodland Hills); Abouab, at p.
662; Fletcher v. A. J. Industries Inc. (1968) 266 Cal.App.2d 313,
320.)

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Both doctrines are based “on the principle that those who
have been ‘unjustly enriched’ at another’s expense should under
some circumstances bear their fair share of the costs entailed in
producing the benefits they have obtained.” (Woodland Hills,
supra, 23 Cal.3d at pp. 943, 945; Abouab, supra, 141 Cal.App.4th
at p. 662.) The substantial benefit doctrine also rests on the
notion that “ ‘the corporation which has received the benefit of
the attorney’s services should pay the reasonable value thereof.’ ”
(Mills v. Elec. Auto-Lite Co. (1970) 396 U.S. 375, 390 (Mills); see
also Save El Toro Assn. v. Days (1979) 98 Cal.App.3d 544, 549.)
Where the litigation resulted only in a personal benefit to the
plaintiff, however, a fee award is not appropriate under either
doctrine. (See Baker v. Pratt (1986) 176 Cal.App.3d 370, 379-380
(Baker); Cziraki v. Thunder Cats, Inc. (2003) 111 Cal.App.4th
552, 558 (Cziraki).) In deciding whether to award fees, the trial
court must “[e]xercis[e] its equitable discretion . . . [to]
determine[] whether the interests of justice require those who
received a benefit to contribute to the legal expenses of those who
secured the benefit.” (Pipefitters Local No. 636 Defined Benefit
Plan v. Oakley, Inc. (2010) 180 Cal.App.4th 1542, 1547
(Pipefitters); see also Woodland Hills, at p. 943.) We
independently review legal questions as to the proper criteria for
an attorney fee award, but “we defer to the trial court’s discretion
in determining how they are to be exercised” under the
circumstances. (Pipefitters, at p. 1547.)

Yang contends that the trial court committed a legal error
because the common fund and substantial benefit doctrines can
never be applied in derivative suits involving only two
shareholders. She relies on Baker, supra, 176 Cal.App.3d 370, a
case that considered whether a successful shareholder in a
derivative action for involuntary dissolution against the
corporation’s only other shareholder was entitled to have his
attorney fees paid out of the corporation’s recovery. The court’s
judgment included an award of nearly $400,000 to the
12
corporation, as well as an award of $53,500 to the plaintiff
individually. (Id. at pp. 376-377.) Concluding that an attorney
fee award was not appropriate, Baker reasoned that under the
circumstances, the defendant shareholder’s misappropriation of
corporate assets harmed only the plaintiff, and the plaintiff’s
objective was “ ‘not to secure or preserve a common fund but to
establish personal adverse interests therein.’ ” (Id. at p. 379.)
Nor was there a class of identifiable persons, apart from the
parties already represented in the litigation, who would stand to
receive a substantial benefit. (Id. at pp. 379-380.)

Zhu urges us to follow Cziraki, supra, 111 Cal.App.4th 552,
which disagreed with Baker. Cziraki affirmed an attorney fee
award to a successful plaintiff in a derivative action involving a
corporation with only three shareholders, two of whom were the
defendants. (See id. at pp. 554-555, 559-565.) As a result of the
judgment obtained by the plaintiff, the corporation in Cziraki
gained certain patent interests, the chance to take advantage of
those interests, the preservation of company resources, and an
interest in potential future profits. (Id. at p. 560.) The trial court
did not award any individual damages to the plaintiff. (Id. at p.
555.) Rejecting the argument that the plaintiff was the only
person who would benefit from the judgment, Cziraki reasoned
that the plaintiff had obtained no individual benefit, and that the
benefits he had won for the corporation would be shared equally
by the shareholders. (Id. at p. 559.) Even though the judgment
would be paid by the other two shareholders, the corporation
“benefits regardless of the effect of the judgment on individual
shareholders.” (Id. at p. 564.) Unlike in Baker, the case did not
involve the dissolution of the corporation, so “any award to [the
corporation] would not be immediately passed on to individual
shareholders through a dissolution proceeding.” (Cziraki, at p.
561.) Further, there was no finding that the plaintiff in Cziraki
was “in reality” pursuing a personal interest. (Ibid.)

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Cziraki also reviewed case law from numerous jurisdictions
concerning attorney fees in derivative suits involving
corporations with only two or three shareholders, and it
concluded that the weight of authority favored the availability of
attorney fees in such cases. (See Cziraki, supra, 111 Cal.App.4th
at pp. 561-564; see also, e.g., Jones v. Uris Sales Corp. (2d Cir.
1967) 373 F.2d 644, 648 [holding that the corporation was liable
for the plaintiff’s attorney fees where it had two shareholders
because “the reason for the award of such fees in a stockholder's
derivative suit [is] that the plaintiff's efforts have conferred on
the corporation a benefit for which the corporation would
otherwise have had to pay itself”].) Cziraki held that, contrary to
the conclusion in Baker, “[w]hen a corporation is the sole
beneficiary of a derivative shareholder suit, . . . it should bear the
costs associated with obtaining that benefit.” (Cziraki, at p. 563.)
Cziraki declined to treat “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.” (Cziraki, at p. 565.)

We agree with Cziraki that Baker should not be understood
as establishing a categorical rule that would preclude an award of
fees in derivative actions involving close corporations. In the
circumstances here, the trial court had equitable discretion to
determine whether a fee award in this derivative action would
best serve the interests of justice. (See Pipefitters, supra, 180
Cal.App.4th at p. 1547; see also Grosset, supra, 42 Cal.4th at p.
1118.) Unlike in Baker, the trial court found that Zhu was not
litigating to vindicate personal interests, noting that she had
dismissed any individual claims. Further, the court reasoned
that, under its ruling, Yang was entitled to a 50 percent share of
the judgment, so “all shareholders benefit from the litigation
advanced on behalf of Y & Y.” The trial court’s fee award is fully
consistent with the substantial benefit doctrine, under which the
corporation receiving the benefit of the litigation should bear the
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cost of securing it. (See Mills, supra, 396 U.S. at p. 390;
Woodland Hills, supra, 23 Cal.3d at pp. 943, 945.) Pursuant to
that doctrine, it is Y&Y—rather than Yang individually—that
pays the fees. (See Cziraki, supra, 111 Cal.App.4th at p. 563.)
Although the corporation has been dissolved, the cost-spreading
purpose underlying the doctrine is still served: the award does
not shift the winner’s fees to the losing party; instead, both
shareholders of Y&Y will split the bill equally. (See Glenn v.
Hoteltron Sys., Inc. (NY 1989) 74 N.Y.2d 386, 390, 393 [holding
that, where the defendant shareholder of a two-shareholder
corporation had breached his fiduciary duties by looting the
corporation’s assets to benefit another corporation wholly owned
by the defendant, the plaintiff shareholder’s attorney fees should
be paid out of the corporation’s damages award].) We discern no
abuse of discretion in the trial court’s fee award.

Finally, Yang’s appeal seeks to clarify that the trial court’s
fee award did not run against her personally, but instead ran
against her newly formed corporation, LWY. The fee award runs
against Y&Y, however, not against Yang personally or her new
corporation. Zhu concedes that the fee award should be paid out
of the damages judgment awarded to Y&Y. Because we affirm
the trial court’s fee award based on the substantial benefit
doctrine, we agree with Zhu that the fee award must be paid by
Y&Y, the corporation that received the benefit. (See Cziraki,
supra, 111 Cal.App.4th at p. 563.) We will therefore direct the
trial court to modify the fee award accordingly.

As for Zhu’s cross appeal, she contends that the trial court
“misapplied the law” when it awarded compensatory damages
rather than imposing a constructive trust or ordering
disgorgement of profits. We are unpersuaded.

The available remedies for breach of a fiduciary duty
include damages as well as the equitable remedies Zhu seeks
15
here, disgorgement and imposition of a constructive trust. (See
Meister v. Mensinger (2014) 230 Cal.App.4th 381, 396-399
(Meister).) Disgorgement of profits is a remedy that forces a
wrongdoer to surrender profits from conscious wrongdoing. (Id.
at p. 398; see also County of San Bernardino v. Walsh (2007) 158
Cal.App.4th 533, 542-543, as modified on denial of rehg. Jan 25,
2008, as modified Jan. 28, 2008.) “ ‘A constructive trust is an
involuntary equitable trust created by operation of law as a
remedy to compel the transfer of property from the person
wrongfully holding it to the rightful owner.’ ” (Meister, at p. 399.)
Both remedies are based on the principle that a wrongdoer
should not be permitted to be unjustly enriched at another’s
expense. (See id. at pp. 398-399.)

In the trial court, Zhu’s post-trial brief asserted that she
was “entitled to” an award of compensatory damages, the
disgorgement of profits, “and/or” the imposition of a constructive
trust. She argued that she was entitled to damages, as measured
by the fair market value of the business that was lost, and that
the court “may also award” disgorgement. And she asserted that
the imposition of a constructive trust was another available
remedy, acknowledging that “ ‘[t]he issue of whether to impose a
constructive trust is an equitable issue for the court.’ ” Zhu did
not take the position, as she does in her cross appeal, that
disgorgement of profits and the imposition of a constructive trust
are required as the only appropriate remedies. Nor did she take
that position in her objections to the trial court’s tentative
statement of decision, or in her post-trial supplemental briefing.
As we have explained, a party may not assert an alleged error on
appeal that has not been brought to the attention of the trial
court. (See Cabrini Villas, supra, 111 Cal.App.4th at p. 693; San
Mateo Union High School Dist. v. County of San Mateo, supra,
213 Cal.App.4th at p. 436.)

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Even assuming Zhu has not forfeited the issue, she has
failed to meet her burden of demonstrating error. As she
concedes, the selection of an appropriate remedy from amongst
authorized remedies is a matter entrusted to the trial court’s
discretion. (See GHK Associates v. Mayer Group, Inc. (1990) 224
Cal.App.3d 856, 874; see also, e.g., Center for Healthcare, supra,
57 Cal.App.5th at p. 1130 [“The trial court possesses substantial
discretion to balance the equities and fashion the award it deems
appropriate.”]; Meister, supra, 230 Cal.App.4th at p. 401 [“It is up
to the trial court to decide if . . . a [constructive] trust is
preferable to the other available remedies” for breach of fiduciary
duty]; Hicks v. Clayton (1977) 67 Cal.App.3d 251, 265 [“the
propriety of granting equitable relief in a particular case by way
of . . . restitution or impressment of a constructive trust[]
generally rests upon the sound discretion of the trial court
exercised in accord with the facts and circumstances of the
case”].)
Zhu has shown no abuse of discretion by the trial court.
Adopting the valuation of Zhu’s expert, the trial court awarded
damages that would reimburse Y&Y for its fair market value in
February 2016, including “the value of the tenant improvements,
the right to lease space, [and] generally any goodwill of the
corporation.” The court reasoned that reimbursing Y&Y for its
fair market value was appropriate “in light of the evidence
presented in this case.” The trial court found that “Zhu and Yang
had come to a point in their relationship where they agreed that
it would not be reasonable for them to continue in business
together” and Yang used her own funds to finance her new
business and “did not convert monies from any Y&Y account” for
that purpose. Further, the ongoing operation of Yang’s new
preschool relied on her own childcare expertise, as “Zhu did not
have the training or experience to actually operate a preschool.”
Particularly given the court’s finding that the parties had agreed
they could no longer continue in business together at the time of

17
Yang’s wrongful actions, it was reasonable for the trial court to
conclude that requiring Yang to essentially purchase Y&Y by
paying for its fair market value, rather than imposing a
constructive trust on, or forcing her to disgorge profits from, her
new business, was an appropriate remedy.

DISPOSITION

The judgment is conditionally vacated and the case is
remanded for the trial court to consider Yang’s unclean hands
defense. If the court concludes that the affirmative defense bars
recovery to any extent, then the judgment is reversed and the
court shall enter a new judgment in accordance with its findings.
If, instead, the trial court rejects the affirmative defense, then
the judgment is affirmed except that the attorney fee award shall
first be modified to reflect that Zhu’s attorney fees are to be paid
out of the damages awarded to Y&Y. Each party shall bear its
own costs on appeal. (See Cal. Rules of Court, rule 8.278(a)(3),
(5).)

BURNS, J.
WE CONCUR:

JACKSON, P. J.
SIMONS, J.

Yang v. Zhu (A172055, A173090)
Yang v. Zhu (A172602)