David Fuller et al vs. John M. Heurlin
Filed 8/4/09
Fourth Appellate District
Cite as G040506

CA Holds Shareholders not a Party to Corporate Dissolution

John M. Heurlin, David J. Fuller and Henry P. Schrenker are shareholders of FairWage Law, a professional corporation they formed to prosecute wage and hour class actions.

In February 2005, Fuller and Schrenker voted to voluntarily dissolve FairWage when they discovered Heurlin would be suspended for two years from practicing law. Thus, Heurlin filed notices of attorney liens to the firm in two of FairWage’s class actions in August 2005, claiming an interest in any attorney fee payments.

In response, FairWage petitioned the court to take jurisdiction over the voluntary dissolution. The court granted the petition in October 2005. It ordered FairWage to publish notice to creditors and claimants that they would have six months to present their claims. FairWage served the order granting the petition and the order for notice to creditors on Heurlin.

Heurlin filed several motions to obtain discovery in the voluntary dissolution proceeding as well as compel responses. These were opposed by Schrenker and Fuller on the ground Heurlin was not a named party to the voluntary dissolution proceeding and lacked standing to seek discovery. The court denied Heurlin’s motions.

In March 2006, Heurlin filed two more actions against FairWage, the first being a claim against FairWage in the voluntary dissolution proceeding of not less than $1,091,200.00 and a separate civil action against FairWage and respondents of various direct and derivative claims.

On Heurlin’s motion, the court consolidated Heurlin’s action with the voluntary dissolution in March 2007, while continuing the stay on litigating Heurlin’s complaint.

Heurlin still attempted to request discovery the whole time and even moved for summary judgment on his claim in the voluntary dissolution proceeding. He said his legal work on FairWage amounted to at least $740,000, and that he was entitled to this sum in quantum meruit as a matter of law.

The court again denied Heurlin and later on stated that FairWage has properly rejected the claim “because Heurlin, a shareholder of Fairwage, had no contract to be paid fees and that his compensation, arose exclusively as a shareholder of FairWage.”

The court held a bench trial on the voluntary dissolution in April 2008. It granted several motions in favor of Schrenker and Fuller to the fury of Heurlin who left the courtroom. The trial proceeded without him and a judgment of dissolution was later entered into.

The trial court declared that FairWage was duly wound up and all debts had been paid or provided for. The court said Heurlin’s claim had been rejected earlier because he failed to properly intervene. It also found that he was entitled to one-third of FairWage’s assets as of the date of his suspension, but was not entitled to any legal fees it earned after his suspension. Heurlin’s shareholder interest was approximately $140,000.

But the court assessed Heurlin owed FairWage approximately $160,000 in litigation expenses incurred solely at his instigation. It called his conduct deplorable and alleged that he refused to surrender his shares of stock, negotiate a resolution in good faith, and taking frivolous appeals and his tactics of harassment among others.

Thus, because FairWage’s litigation expenses exceeded Heurlin’s shareholder interest, the court ordered Heurlin to “pay the sum of $19,422.00 to the corporation. It likewise ordered FairWage to reserve $100,000 as legal reserve for any appeals.

Heurlin now appeals the decision entered into by the trial court. He challenged the court’s finding he was not a party to the voluntary dissolution proceeding and claimed that his right to due process was violated by the court.

The Court of Appeals, in its review found that despite the respondents’ contention that Heurlin lacked standing to appeal, it ruled that nonparties who are aggrieved by a judgment may appeal from it.

It found that Heurlin is sufficiently aggrieved by the judgment regardless of whether he is a party to the dissolution proceeding since it held him liable to FairWage for the $19,422 deficiency and adversely affects his “immediate, pecuniary and substantial” shareholder interest.

The CA however, affirmed that Heurlin had no right to serve discovery, file motions, or call witnesses at the dissolution trial as under the law, “Any corporation may elect voluntarily to wind up and dissolve by the vote of shareholders holding shares representing 50 percent or more of the voting power.”

However, it found that since Heurlin is not a party to the voluntary dissolution proceeding, the court violated his right to due process by adjudicating FairWage’s claim against him. While he had no right to serve discovery in the dissolution, he had every right to participate in his separate civil action.

The court should not have adjudicated FairWage’s litigation expense claims against him because Heurlin had no right to be heard in the voluntary dissolution.

FairWage should have proceeded as required in all civil disputes — by filing a complaint, receiving an answer, conducting discovery, litigating any dispositive motions, and having an adversary trial if it believed it had valid claims for damages.