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Thursday, May 23, 2013

Zamora v. Lehman: Court Enforces One-Year Notice Provision In Derivative Action Against Corporate Officers

This is the second time that this case has resulted in a published decision and the second time that I'm discussing it on the blog. In the first decision, Zamora v. Lehman (2010) 186 Cal.App.4th 1 (discussed here), the Court of Appeal held that a corporation's officers, who were sued by the corporation for breach of fiduciary duty, waived their right to compel arbitration by delay in moving to compel and by engaging in discovery not available under their arbitration agreements. It did not matter that they had forgotten about their right to arbitrate because waiver of one's right to arbitrate does not require knowing relinquishment of that right. 

Zamora v. Lehman (3/7/13) --- Cal.App.4th ---, again presents interesting legal questions regarding arbitration:  
Three executives signed employment agreements with their corporate employer. Each agreement contained a provision stating that if either party — the executive or the corporation — had "[a]ny claim" against the other, the claiming party had to present the claim in writing to the other party within one year of the date the claiming party knew or should have known about the facts giving rise to the claim. Otherwise, the claim was forever barred. Subsequently, the employer filed for bankruptcy.  
Plaintiff, the trustee in bankruptcy, filed this action against the three executives, alleging a breach of fiduciary duty. After litigating the breach of fiduciary duty claim in court but before trial, all three executives moved to compel arbitration of the claim pursuant to an arbitration clause in their employment agreements. The trial court granted the motions to compel. On appeal, we reversed as to two of the executives on the ground they had waived the right to arbitration; we concluded the third executive had not waived the right to arbitration, but the trustee declined to arbitrate the claims against him, and he was therefore dismissed from the suit. Litigation proceeded in the trial court as to the other two executives.  
The trial court granted summary judgment in favor of the two executives on the ground that neither the corporation nor the trustee in bankruptcy had satisfied the contractual one-year notice provision. We agree with the trial court and affirm. 
Slip op. at 2. 

The Court held: 

The contracts' one-year notice provision was valid.  "[A] contractual notice provision is enforceable with respect to a claim against a professional or skilled expert as long as the provision incorporates the delayed discovery rule."  Slip op. at 12-18.  

The defendants did not need to make a showing of prejudice in order to invoke the notice provision. Slip op. at 18-21.  

Given that the bankruptcy trustee waited more than two years to request the corporation's records, her ignorance of the notice provision did not excuse her non-compliance with it. Slip op. at 21-23.  

The complaint alleged that the debtor became aware of the facts underlying the breach of fiduciary duty claim on November 22, 2002, and there was no triable issue of fact that neither the corporation nor the trustee gave notice of the claim within a year of that date.  Slip op. at 23.  

The opinion is available here.

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