## Facts

- A shareholder (Donner Management Company) filed a shareholder derivative action on behalf of Asia Web Holdings, Inc. against Michael Schaffer, Asia Web’s director and CEO.
- The complaint alleged breach of fiduciary duty, conversion, and sought an accounting.
- Asia Web moved for security under California Corporations Code § 800 to cover reasonable expenses, including attorney’s fees.
- To avoid a discovery stay while the security request was litigated, Donner voluntarily deposited $50,000 as security.
- Asia Web’s board later appointed a special litigation committee (SLC) of disinterested members to evaluate the derivative claims.
- The SLC concluded, under its business judgment, that continuing the litigation was not in the company’s best interests.
- Donner moved to dismiss the derivative complaint and stated an evidentiary hearing on the SLC issue was unnecessary.
- The trial court dismissed the action without prejudice.
- Schaffer then sought attorney’s fees and costs from the $50,000 security, asserting he was the prevailing party; the trial court agreed and awarded fees from the security.
- Donner appealed the fee award.

## Issues

1. When a shareholder-plaintiff voluntarily posts § 800 security at the outset, must a prevailing defendant later prove the action had “no reasonable possibility” of benefiting the corporation to recover fees from that security?
2. Must a prevailing defendant show the derivative action was frivolous to recover attorney’s fees from § 800 security?
3. Can a defendant be deemed a “prevailing party” for § 800 fee purposes when the derivative action is voluntarily dismissed without prejudice?

## Decision

- The Court of Appeal affirmed the order awarding Schaffer attorney’s fees from the deposited § 800 security.
- A prevailing defendant seeking fees from voluntarily posted § 800 security need not make a retrospective showing that the suit had “no reasonable possibility” of benefiting the corporation.
- Section 800 does not impose a frivolousness prerequisite for a prevailing defendant’s recovery from the security.
- Applying a practical, results-based standard, the trial court did not abuse its discretion in finding Schaffer was the prevailing party despite a dismissal without prejudice.

## Legal Principles

- Under Corporations Code § 800, security for expenses in a derivative action may be used to pay a prevailing defendant’s reasonable expenses, including attorney’s fees.
- When a shareholder voluntarily posts § 800 security (including cash-equivalent security), the defendant’s later recovery from that security is not conditioned on a post-dismissal “no reasonable possibility” determination.
- Courts will not add a frivolousness requirement to § 800 fee recovery absent statutory text imposing that condition.
- “Prevailing party” for § 800 purposes may be determined under a practical standard; termination of the action in the defendant’s favor can support prevailing-party status even if the dismissal is without prejudice.

## Conclusion

The court upheld a fee award against § 800 security after a derivative action was voluntarily dismissed following an SLC recommendation, holding that a prevailing defendant may recover reasonable fees from voluntarily posted security without proving frivolousness or a retrospective lack of corporate benefit, and that prevailing-party status may rest on practical litigation success.


Donner Mgmt. Co. v. Schaffer, 139 Cal. App. 4th 615, 43 Cal. Rptr. 3d 140 (Ct. App. 2006)