## Facts

- Suprema Meats, Inc. was a closely held corporation controlled by two majority shareholders who served as officers and directors; the plaintiff was a minority shareholder.
- At formation, the majority principals discussed officer compensation with the minority shareholder and initially set salaries at $800 per week.
- The majority later adopted a practice that officer pay increases would require unanimous shareholder consent, reflected as a “policy” in a footnote to annual financial statements.
- As the business became profitable, the majority principals increased their compensation substantially, ultimately taking compensation equal to 20% of corporate profits, without the minority shareholder’s approval.
- The minority shareholder alleged (1) breach of an oral agreement requiring unanimous consent for pay increases and (2) breach of fiduciary duty based on excessive compensation that diverted profits from the minority.
- The minority shareholder also demanded corporate financial records, requesting that information be provided to him rather than made available for inspection at the corporate office.
- The trial court found an enforceable oral contract but awarded damages to the corporation; dismissed the fiduciary duty claim as derivative-only; found a violation of Corporations Code § 1601 and ordered compliance and attorney’s fees under § 1604.
- Both sides appealed; the appeals were consolidated.

## Issues

1. Whether an alleged oral agreement requiring unanimous consent for officer compensation increases was supported by consideration and enforceable.
2. Whether a minority shareholder’s claim that controlling shareholders diverted corporate profits through excessive compensation may be brought as a direct action rather than only derivatively.
3. Whether the corporation violated Corporations Code § 1601 by not providing records in the manner demanded, and whether related disclosure orders and attorney’s fees were proper.

## Decision

- The Court of Appeal reversed the judgment and postjudgment orders and remanded.
- The oral compensation-limitation agreement was unenforceable for lack of consideration.
- The excessive-compensation fiduciary duty claim was not categorically derivative; it could proceed as a direct claim where the majority allegedly appropriated a disproportionate share of corporate gains.
- No § 1601 violation was shown because the statute requires records be available for inspection at the principal office, not transmitted to a shareholder upon demand; the disclosure orders and attorney’s fees were therefore improper.

## Legal Principles

- An oral agreement is unenforceable absent consideration; a gratuitous promise or internal “policy” not exchanged for a bargained-for benefit or detriment does not form a contract.
- Controlling shareholders owe fiduciary duties not to use control to secure advantages not shared proportionately with minority shareholders; when majority conduct reallocates corporate value to the majority (such as through excessive compensation), a minority shareholder may suffer a special injury supporting a direct action.
- Under Corporations Code § 1601, a corporation must keep specified records at its principal office and make them available for inspection and copying upon proper demand; the statute does not require mailing, delivering, or otherwise providing records in a shareholder-selected format.
- Attorney’s fees under Corporations Code § 1604 depend on an established statutory inspection-rights violation.

## Conclusion

The court held that the alleged unanimous-consent pay arrangement failed for lack of consideration, that a minority shareholder may sue directly for fiduciary-duty breaches based on majority self-dealing via excessive compensation, and that § 1601 confers an inspection right at the corporate office rather than a right to receive records by delivery.


Jara v. Suprema Meats, Inc., 121 Cal. App. 4th 1238 (Cal. Ct. App. 2004)