Caroline McIntyre and Sara Graves Win Appeal for Publicly Traded Company and its President and CEO

Bergeson, LLP partners Caroline McIntyre and Sara Graves secured an appellate victory for publicly traded company, Littelfuse, Inc. (“Littelfuse”) and its President and CEO, David Heinzmann (“Heinzmann”).  On February 14, 2019, the Court of Appeal for the State of California, Sixth Appellate District, filed its opinion affirming the trial court’s order sustaining, without leave to amend, the demurrers of Littelfuse and Heinzmann to a complaint filed by Zurvan Mahamedi (“Mahamedi”).   The action arose out of a defunct corporation’s (Shocking Technologies, Inc.) nonpayment of legal fees and costs to its patent counsel Mahamedi.  The complaint alleged causes of action including breach of fiduciary duty and negligence against Heinzmann, who had been an outside director for Shocking, and concealment against Heinzmann and Littelfuse, an investor in Shocking.  Regarding the breach of fiduciary duty claim, the Court of Appeal found that the allegations of the Complaint do not support Mahamedi’s claim that Heinzmann breached a fiduciary duty, and that claim additionally was defective because it was barred by the business judgment rule.  The Court of Appeal also agreed with the trial court that Mahamedi failed to state a cause of action for negligence because the allegations of his negligence cause of action “all relate to fiduciary duty,” and Mahamedi failed to allege sufficient facts to support a claim against Heinzmann for breach of the limited fiduciary duty owed to creditors of an insolvent corporation.  In addition, the Court of Appeal noted that the order sustaining the demurrer as to the negligence cause of action was proper for the additional reason that it was barred by a two-year statute of limitations.  Regarding the fraudulent concealment cause of action, the Court of Appeal found Mahamedi failed to plead a fiduciary duty owed by Heinzmann to disclose the allegedly concealed information, and failed to plead a nondisclosure claim against either Heinzmann or Littelfuse based on exceptions to the necessity of a fiduciary duty or other confidential relationship.  The Court of Appeal found that Mahamedi’s conspiracy allegations lacked the required specificity, and that the Complaint failed to allege sufficient facts to support aider and abettor liability.  Moreover, the Court of Appeal noted that Mahamedi’s opposition to the demurrer contained no discussion concerning how he might cure any pleading defect if he were allowed further leave to amend his complaint (which had already been amended twice), and, in any event, Mahamedi failed to argue that the trial court erred in denying leave to amend when it sustained the demurrer to the Complaint.