Thompson v. Miller (112 Cal. App. 4th 327, 2003)

Opinion

NICHOLSON, Acting P. J.

Plaintiffs, who were minority shareholders in a closely held corporation, sued the majority shareholder and another shareholder. They alleged that defendants, in convincing plaintiffs to sell their shares, committed a breach of fiduciary duty, fraud, and elder abuse. A jury, however, rejected their claims and returned verdicts in favor of defendants. Thereafter, the trial court denied defendants’ claim for expert witness fees pursuant to Code of Civil Procedure section 998, which defendants requested because they made a pretrial offer of settlement more favorable to plaintiffs than was the eventual judgment. The trial court also denied the motion of one of defendants (the majority shareholder) for attorney fees, entitlement to which he claimed under the agreements executed by plaintiffs when they sold their shares. Plaintiffs appeal, contending the evidence does not support the judgment in defendants’ favor. Defendants also appeal. They assert they are entitled to expert witness fees, and the majority shareholder contends the trial court erred by denying his motion for attorney fees.

In the unpublished portion of our opinion, we conclude plaintiffs waived their assertions that the evidence does not support the judgment, or, in other words, that the trial court should have entered judgment in plaintiffs’ favor as a matter of law, because plaintiffs presented an unacceptable statement of facts in their opening brief. While they give lip service to the proper standard on appeal, they do not, in fact, construe the record in its light most favorable to the judgment. Consequently, their arguments are based on an improper view of the facts.

The argument of the majority shareholder that he was entitled to attorney fees has merit. His agreements with plaintiffs at the time of his purchase of their shares provided for an award of attorney fees to the prevailing party in “any dispute under (the agreements).” Also in the agreement, plaintiffs stated they were not relying on the majority shareholder’s representations. At trial, the majority shareholder asserted this provision of the contract as a defense, thus creating a dispute under the agreements. The trial court therefore erred in determining that the agreements did not provide for an award of attorney fees in this action.

Defendants’ assertion the trial court erred in denying expert witness fees pursuant to Code of Civil Procedure section 998 also has merit. Defendants made a pretrial offer of settlement, proposing to pay plaintiffs an amount within the approximate range defendants would have been required to pay if they had not prevailed. We find the trial court’s refusal to award expert witness fees was an abuse of discretion.

FACTS

Plaintiffs appeal after a jury verdict in favor of defendants. Accordingly, our summary of the significant facts will cast the evidence in its light most favorable to the judgment, drawing all reasonable inferences and resolving all conflicts in favor of defendants. (Howard v. Owens Corning (1999) 72 Cal.App.4th 621, 630-631 [85 Cal.Rptr.2d 386].) In their opening brief, plaintiffs state: “Because this appeal is from a jury verdict in favor of defendants, the facts set forth herein are based upon the testimony of the defendants and defense witnesses.” This statement and, as will be seen, plaintiffs’ statement of facts in their opening brief do not properly reflect the standard of review. We do not limit our review to the evidence presented by the defense; instead, we consider the entire record and construe it, as noted above, in its light most favorable to the verdict. (Kasparian v. County of Los Angeles (1995) 38 Cal.App.4th 242, 259 [45 Cal.Rptr.2d 90].)

The Parties and Deltam

In 1984, defendant Allen B. Miller, Jr., created Deltam Systems, Inc. (Deltam), as a closely held corporation engaged in the Silicon Valley business of placing information technology workers in temporary positions. Defendant Stephen R. Haessler assisted in forming the company but later left to work in Portland, Oregon. Miller and Haessler each received founders’ stock in Deltam for their efforts. At the times relevant to this litigation, Miller owned more than 50 percent of the outstanding shares.

Miller solicited friends, neighbors, and business associates to buy stock and supply funding for the new company. Plaintiffs were among those early shareholders. Plaintiffs Carroll and Priscilla Bravo purchased 20,000 shares at $0.25 per share, for a total investment of $5,000. Plaintiffs Joseph and Patricia George invested $10,000, purchasing 40,000 shares at $0.25 per share. Plaintiffs Douglas and Helen Mahr bought 20,000 shares at $0.25 per share, totaling $5,000. Plaintiffs Gary and Millie Thompson invested at two different prices, buying 60,000 shares at $0.25 per share and 16,666 shares at $0.30 per share, for a total investment of $20,000. Sidney and Mara Diamond invested $20,000, purchasing 80,000 shares at $0.25 per share. While Mara Diamond is a plaintiff in this action, Sidney was not a plaintiff and passed away about two months after the complaint was filed. Before plaintiffs purchased their shares, they certified that they had sufficient knowledge and experience in financial and business matters to evaluate the risk in purchasing stock.

Deltam, with Miller as the chief executive officer, attempted to grow through its first 10 years of existence. Changes in tax laws and other challenges, however, made it difficult for Deltam to prosper. In 1992, the corporation almost collapsed with a severe cash shortage. After 1992, Deltam began placing foreign nationals in information technology jobs. By March 1994, the company posted its largest profit to date, about $200,000 for the prior year.

Plaintiffs’ Sale of Shares

Some Deltam shareholders, including Sidney Diamond, were dissatisfied with the performance of the company and wanted a way to recoup their investment. At a shareholders’ meeting in September 1994, Miller proposed a share repurchase plan that would be made available to all shareholders. Because of legal hurdles, Deltam was unable to offer the repurchase plan, so Miller, personally, offered to buy minority shareholders’ stock. In a letter to shareholders in December 1994, Miller stated he intended to purchase shares from anyone who desired to sell. The letter included Deltam’s financial statements. Miller then called each shareholder, offering to buy the shares for $0.16 per share. He did not tell the shareholders, as plaintiffs alleged, that Deltam was in poor financial condition.

In late December 1994 and early January 1995, plaintiffs sold their shares to Miller. Other shareholders elected not to sell their stock. In a “Share Purchase Agreement,” signed by each plaintiff, they stated: “Seller represents and warrants to Purchaser and the Company . . . that. . . Seller’s decision to sell or otherwise convey the Shares as provided herein was not made in reliance upon any representation made by Purchaser, the Company or its officers, directors, agents or others acting with or on behalf of any of them; and . . . Seller is capable of evaluating the merits and risks of this sale and has the ability to protect Seller’s own interests in this transaction.”

Deltam After Plaintiffs Sold Shares

After Miller completed the purchase of plaintiffs’ shares, Haessler agreed to return to Deltam as a paid consultant. Haessler desired a larger stake in Deltam, so Miller sold or transferred some the stock he obtained from plaintiffs to Haessler for $0.24 per share. Miller also pledged additional stock he obtained from plaintiffs to sell in the future to Haessler for $0.21 per share, conditioned on Haessler meeting specified goals.

In 1996, more than one year after plaintiffs sold their Deltam stock, an economic upturn began in Silicon Valley. After rejecting several acquisition offers, Deltam accepted an offer of acquisition three years after plaintiffs sold their shares, in late 1997, for $7 per share from Corestaff, Inc.

PROCEDURE

Plaintiffs filed suit against Miller and Haessler, alleging fraud, concealment, and breach of fiduciary duty, and seeking rescission of their sale of stock. They also alleged Miller and Haessler conspired to commit these torts. After trial, the jury returned special verdicts in favor of defendants on all causes of action. Plaintiffs filed, but the trial court denied, a motion for new trial in which plaintiffs contended defendants breached their fiduciary duties to plaintiffs as a matter of law. Defendants, as prevailing parties, filed a memorandum of costs. Plaintiffs responded with a motion to tax costs, asserting defendants were not entitled to recover $55,665 in expert witness fees. The trial court granted the motion to tax costs with respect to expert witness fees. Miller moved for $1,183,778.45 in attorney fees pursuant to the Share Purchase Agreements. The trial court denied the motion.

DISCUSSION

I

Plaintiffs’ Statement of Facts

n

Attorney Fees

When plaintiffs sold their stock to Miller, they each signed a document entitled “Share Purchase Agreement.” Contained in that agreement is the following attorney fees provision: “The prevailing party in any dispute under this Agreement shall be entitled to reasonable attorneys fees incurred in such dispute.”

In their original complaint, plaintiffs asserted that venue in Sacramento was proper because the Share Purchase Agreements were entered into there. They alleged they signed the Share Purchase Agreements in reliance on Miller’s representations. And they claimed the right to an award of attorney fees: “As a further direct and legal result of the above described conduct of DEFENDANT, PLAINTIFFS incurred attorney fees, costs and expenses to bring the instant action and prosecute DEFENDANT for his fraud, misrepresentations, deceit and breaches of fiduciary duties to PLAINTIFFS, all to their damage and in an amount to be ascertained at trial. PLAINTIFFS THOMPSONS, BRAVOS, and MAHRS are entitled to attorney fees in accordance with paragraph 6 of the Share Purchase Agreements attached hereto as Exhibits ‘A’, ‘B’ and ‘C’.” Plaintiffs’ two amended complaints made essentially the same allegations with respect to the Share Purchase Agreements and their right to recover attorney fees on every cause of action pursuant to those contracts. Defendants’ answer likewise claimed a right to attorney fees under the Share Purchase Agreements and asserted as a defense plaintiffs’ statements in those agreements that they were not relying on the representations of Miller.

During trial, plaintiffs sought to overcome Miller’s assertion of the Share Purchase Agreements as a defense to the causes of action. They continued to assert their right to attorney fees under those agreements. During the opening statements, plaintiffs conceded Miller’s right to recover attorney fees should he prevail: “And in this lawsuit one of the issues that you will decide is whether this agreement was obtained by fraudulent representations or concealments of known facts because if it was it is not enforceable and that’s one of the issues in this case. [1] (Reading) [‘]The agreement also provides the prevailing party in any dispute under this agreement shall be entitled to reasonable attorneys fees incurred in such dispute. [’] [