Barton v. RPost International CA2/5 ( 2014 )


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  • Filed 12/24/14 Barton v. RPost International CA2/5
    NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
    California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
    publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
    or ordered published for purposes of rule 8.1115.
    IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
    SECOND APPELLATE DISTRICT
    DIVISION FIVE
    KENNETH BARTON,                                                      B251722
    Plaintiff and Respondent,                                   (Los Angeles County Super. Ct.
    No. YC061581)
    v.
    RPOST INTERNATIONAL LIMITED et                                       ORDER MODIFYING OPINION
    al.,                                                                 [NO CHANGE IN JUDGMENT]
    Defendants and Appellants.
    It is ordered that the opinion filed herein on December 9, 2014, be modified in the
    following particulars:
    On page 19, the first sentence of the second paragraph reads: “In this case,
    defendants’ expert Henry concluded the value of Barton’s common shares at the time of
    conversion was zero, while Barton’s expert d’Almeida concluded the value was $2.43 per
    share for a total value of $98,004,076.” The sentence should be replaced with “In this
    case, defendants’ expert Henry concluded the value of Barton’s common shares at the
    time of conversion was zero, while Barton’s expert d’Almeida concluded the value was
    $2.43 per share for a total value of $14,649,600.”
    On page 23, under the heading “Prejudgment Interest,” the second sentence of the
    first paragraph should be changed from “This is correct” to “This is not correct.”
    There is no change in judgment.
    ________________________________________________________________________
    TURNER, P. J.                                                  KRIEGLER, J.
    2
    Filed 12/9/14 Barton v. RPost International CA2/5 (unmodified version)
    NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
    California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
    publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
    or ordered published for purposes of rule 8.1115.
    IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
    SECOND APPELLATE DISTRICT
    DIVISION FIVE
    KENNETH BARTON,                                                      B251722
    Plaintiff and Respondent,                                   (Los Angeles County Super. Ct.
    No. YC061581)
    v.
    RPOST INTERNATIONAL LIMITED et
    al.,
    Defendants and Appellants.
    APPEAL from a judgment of the Superior Court of Los Angeles County, Stuart
    M. Rice, Judge. Affirmed as modified.
    Ben-Zvi & Associates and Henry Ben-Zvi for Defendants and Appellants.
    McGarrigle, Kenney & Zampiello, Patrick C. McGarrigle, Michael J. Kenney, for
    Plaintiff and Respondent.
    __________________________
    Defendants and appellants RPost International Limited (RIL), Zafar Khan and
    Terrance Tomkow appeal from a judgment following a bench trial in favor of plaintiff
    and respondent Kenneth Barton in this action for conversion of stock. On appeal,
    defendants contend: (1) the statute of limitations began to run when Barton brought
    lawsuits for delivery of stock certificates or suspected the claims; (2) Barton improperly
    split his claims into multiple lawsuits; (3) the trial court should have applied Bermuda
    law and found defendants had no fiduciary duty to shareholders; (4) Barton’s unfair
    competition claim should have been denied, because he was not a consumer or
    competitor of RIL; (5) there is no substantial evidence to support conversion, because
    Barton did not pay for his shares; (6) there is no evidence to support the finding of fraud;
    (7) the amount of compensatory damages is too speculative; (8) damages could not be
    awarded as restitution under Business and Professions Code section 17200; (9) there is no
    evidence of emotional distress to support noneconomic damages; (10) the amounts
    awarded for punitive damages were excessive; and (11) prejudgment interest should not
    have been awarded.
    We conclude the trial court’s finding of liability based on conversion is supported
    by substantial evidence. Barton provided consideration for his shares and discovered the
    conversion of his shares on July 7, 2009. Barton did not split his claims, because he did
    not have a viable claim for conversion when he filed lawsuits in 2005 and 2006. Because
    we conclude the trial court’s finding of liability is supported by substantial evidence of
    conversion, we need not consider whether defendants were additionally liable under
    theories of fraud, breach of fiduciary duty and unfair competition. The trial court’s award
    of compensatory damages is supported by substantial evidence and not unreasonable.
    The punitive damage awards are also supported by substantial evidence of reprehensible
    conduct and defendants’ net worth. No abuse of discretion has been shown with respect
    to the award of prejudgment interest. However, we agree there is no substantial evidence
    of emotional distress to support noneconomic damages.
    2
    Barton appeals from the portion of the judgment in favor of respondents Carole
    Krechman and Ellsworth Roston. He contends the undisputed evidence shows Krechman
    and Roston are equally liable for conversion of his shares of stock. We conclude there is
    no evidence Roston or Krechman are liable for conversion. We modify the judgment by
    deducting emotional distress damages, and as modified, we affirm.
    FACTS AND PROCEDURAL BACKGROUND
    Corporate History and Prior Litigation
    In 1999, Tomkow, Barton and Khan founded the Nevada corporation RPost, Inc.
    to develop and market technology that Tomkow developed for e-mail similar to certified
    mail. Barton’s role was marketing, business development, and raising capital. In
    September 2000, the founders converted their loans to RPost into equity in the company.
    Barton was issued 289,500 shares of RPost stock in exchange for forgiveness of $33,258
    in loans he had made to the company. The number of authorized shares was increased
    and the founders were issued additional shares to retain the same ownership percentages.
    They were also issued additional shares for services rendered and cancellation of loans to
    RPost, Inc. That same month, RPost was reorganized as Bermuda corporation RPost
    International Limited (RIL). RIL’s directors adopted written resolutions allocating shares
    in the new corporation. The founders exchanged their common shares of RPost for
    common shares of RIL.
    On January 2, 2001, RIL’s directors cancelled the allotment of shares made in
    September 2000. The directors clarified the founders’ allotment of shares of RIL in
    exchange for their shares of RPost as follows: 4,822,000 to Tomkow, 3,616,500 to Khan,
    and 3,616,500 to Barton. On May 30, 2001, RIL’s directors adopted a resolution issuing
    an additional 500,000 shares of common stock to each of the founders at a price of $0.01
    per share. $5,000 was deducted from the expenses and deferred compensation owed to
    Barton. On August 21, 2001, RIL’s directors adopted a resolution allotting additional
    3
    shares as follows, in exchange for valuable services rendered and cancellation of loans to
    the company: 2,500,000 shares to Tomkow in exchange for cancellation of a loan for
    $25,000, 1,900,000 shares to Khan for cancellation of a loan for $16,089, and 1,900,000
    to Barton for cancellation of a loan of $8,089. Barton believes his allocation was later
    corrected to reflect a value of $0.001 per share and payment of $1,900. Barton, Khan and
    Tomkow each earned salaries of $8,000 per month, plus expenses of $2,000 per month.
    They received as much of their salaries as the company could afford to pay and deferred
    the rest. The cost of Barton’s shares was charged against Barton’s accrued salary and
    unpaid expenses.
    Barton suffered a stroke in September 2003. In May or June 2004, Symantec
    Corporation invested $1.1 million for preferred shares of RIL. On September 20, 2004,
    Barton’s attorney wrote Khan and Tomkow. He raised several concerns and confirmed
    Barton’s resignation from the RPost entities effective immediately. He requested
    delivery of Barton’s share certificates and equity documentation within three days. He
    wrote additional letters with similar requests.
    In June 2005, Khan, Tomkow and RIL responded to Barton’s lawyer that RIL had
    not issued any common stock certificates to founders and no provision of the by-laws
    required the company to deliver share certificates for founders’ shares. Roston became a
    RIL director in 2005.
    On July 7, 2005, Barton filed an action against RIL, Kahn, Tomkow, and another
    individual, for breach of fiduciary duty and violation of the Labor Code. (Barton v.
    RPost International Limited et al. (Super. Ct. L.A. County, 2005, No. YC051312).)
    Barton alleged defendants had refused to deliver his stock certificates, failed to provide
    accurate corporate financial reports, failed to set aside reserves for legal defense, failed to
    pay deferred salary, and failed to reimburse him for reasonable expenses.
    On July 21, 2005, RPost and RIL filed an action against Barton for specific
    performance, breach of contract, and declaratory relief. (RPost, Inc., et al. v. Barton
    (Super. Ct. L.A. County, 2005, No. YC051416).) The complaint explained the allocation
    of Barton’s shares and alleged Barton held 6,016,500 shares of common stock which
    4
    could not be transferred without notice to the company or without offering the company
    the opportunity to purchase the shares. At some point, the actions were consolidated.
    RIL filed an answer to Barton’s complaint. The individual defendants filed a
    demurrer. When Barton tried to file an amended complaint to address deficiencies raised
    in the demurrer, the court clerk refused to accept it, because RIL had filed an answer.
    The trial court sustained the demurrer without leave to amend and the action against the
    individual defendants was dismissed. Barton appealed.
    At a meeting in January 2006, the RIL directors resolved to issue a call “to those
    shareholders that had not paid for their shares in accordance with Bye-law 10, that this
    call shall be for immediate payment and that notice of this call shall be delivered by
    Registered E-mail on January 31, 2005, and that all unpaid shares as of February 15,
    2006 be liable to be forfeit in accordance with Bye-law 11.” On January 31, 2006, RIL
    sent a lengthy e-mail to shareholders which included a notice that RIL was making a final
    call on all unpaid shares, payable by wire by February 15, 2006, or unpaid shares would
    be liable to be forfeited. Khan wrote three checks totaling $10,500 as additional
    consideration for his shares of common stock. Barton received the e-mail, but did not
    believe it applied to him, because he had paid for his shares.
    Khan, Tomkow, and Roston attended a meeting of RIL directors on April 24,
    2006. Khan recommended RIL revise the allocation of shares in the minutes from 2000
    and 2001, but retain the original signatures, including Barton’s signature. The RIL
    directors resolved to “correct” the mathematics of the share recapitalization adopted
    September 13, 2000, and strike clarifying resolutions from the minutes prepared January
    2, 2001. This action deleted the third page of the January 2, 2001 minutes explaining the
    allocation of shares to the founders, but retained the signature page.
    The directors also struck resolutions reflected in the minutes of February 1, 2001,
    and August 21, 2001, “that contain defects including errors and missing signatures.”
    They added payment terms to the May 30, 2001 resolution. “It was RESOLVED that the
    Board of Directors accept the forfeiture and surrender of unpaid shares liable to be
    5
    forfeited. [¶] It was FURTHER RESOLVED that management would provide a
    proposal on how to dispose of the shares for review by the Board of Directors.”
    On June 8, 2006, Barton filed a new complaint against RIL seeking specific
    performance and damages for failure to issue stock certificates. (Barton v. RPost
    International Limited (Super. Ct. L.A. County, 2006, No. YC053346.) The complaint
    alleged Barton is the registered owner of more than 6,000,000 shares. He had been
    requesting RIL issue and deliver stock certificates representing his shares since
    September 2004, which RIL refused to do. He sought specific performance ordering RIL
    to deliver stock certificates accurately reflecting the number of RIL shares he owned. He
    also sought damages of $5 million for failure to deliver his stock certificates upon written
    demand.
    On August 22, 2006, RIL dismissed its complaint against Barton without
    prejudice. A directors’ meeting was held on October 23, 2006, attended by Khan,
    Tomkow, Roston and others. The minutes reflect RIL’s management hired Bermuda
    counsel to respond to Barton’s request for share certificates. The Bermuda firm provided
    an opinion on October 2, 2006, that Barton had no title to the shares at issue, because
    extrinsic evidence showed his allotment was conditioned on having a degree to practice
    law. The directors accepted the legal opinion.
    On November 22, 2006, RIL filed an answer to Barton’s second lawsuit alleging
    25 affirmative defenses. The thirteenth affirmative defense alleged Barton was not and
    never had been a shareholder of RIL and therefore lacked standing to assert the causes of
    action. On January 30, 2007, RIL’s attorney Robin Crowther sent a letter to Barton’s
    counsel stating, “RPost International’s position in this lawsuit that Barton owns no shares
    and is not entitled to assert any of the rights of RPost International shareholders.”
    On February 5, 2007, Barton sent an e-mail to Roston and another RIL director,
    attaching Crowther’s letter. He stated, “they now take the position that I am not a
    shareholder of RPost and, further, that the board of directors has accepted that position.
    [¶] Please confirm whether a board meeting was called to ‘decide’ such an issue and
    what each of your votes and positions were/are in connection with this issue.”
    6
    On February 7, 2007, Barton’s attorney sent a letter to Crowther, quoting
    Crowther’s statement and noting the affirmative defense in RIL’s answer that Barton
    owns no shares. He requested supporting documents and accused RIL of attempting to
    steal Barton’s shares.
    In December 2007, this appellate court held the trial court should have accepted
    filing of Barton’s amended complaint in his first action or granted him leave to amend.
    (Barton v. Khan (2007) 
    157 Cal.App.4th 1216
    , 1219-1221.) We reversed the judgment
    of dismissal as to the individual defendants and remanded the case with instructions to
    grant Barton leave to file an amended complaint. Barton filed an amended complaint too
    late, however, and the trial court struck the amended complaint.
    Krechman replaced Roston on RIL’s board of directors in early 2008. Barton took
    Khan’s deposition on July 7, 2009. Khan stated that RIL cancelled Barton’s shares and
    returned them to RIL’s treasury. He could not remember the date the event occurred.
    Barton was very angry and livid when he learned his shares had been cancelled.
    Documents at trial showed RIL gave a report to auditor Kabani & Company showing
    6,024,508 shares were forfeited after June 30, 2008, and before June 30, 2009.
    Defendants claimed to have destroyed RIL’s shareholder registries. It was stressful for
    Barton to learn RIL directors forged minutes omitting his allotment of shares.
    Barton’s actions were consolidated. The cause was set for trial on January 25,
    2010, but apparently continued and commenced in April 2010. On May 4, 2010, the trial
    court granted a motion for directed verdict under Code of Civil Procedure section 631.8
    as to the cause of action for delivery of stock certificates. The court found none of the
    contingent events had occurred which would require RIL to deliver stock certificates to
    the founders. RIL’s failure to deliver share documents to Barton was not wrongful. The
    court found Barton’s testimony credible and denied the motion as to the cause of action
    for unpaid wages. The parties settled the consolidated action in 2012.
    7
    The Instant Action
    Barton filed the complaint in the instant case on January 29, 2010, prior to trial in
    his earlier lawsuits. He filed the operative third amended complaint on February 16,
    2011, against several defendants, including Symantec Corporation, RIL, RPost, Khan,
    Tomkow, Krechman and Roston. The complaint alleged causes of action for conversion,
    breach of fiduciary duty, a derivative claim for breach of fiduciary duty, declaratory
    relief, fraud, and violation of Business and Professions Code section 17200.
    Symantec settled Barton’s derivative claim in the instant action. The trial court
    found the settlement was made in good faith. RIL sold its assets to RPost
    Communications Limited (RComm) in March 2011. Trial commenced in the instant
    action on March 1, 2012. The case was tried to the court over several days between
    March 1, 2012, and April 12, 2012. The parties presented documents supporting the facts
    above, as well as testimony from Barton, Khan, Tomkow, former RIL director Richard
    Pryor, individuals who had meetings with Barton early in the company’s history, and
    financial experts. RComm employs approximately 21 people. Defendants’ financial
    expert Kevin Henry concluded the value of Barton’s common shares at the time of
    conversion was zero. Barton’s financial expert Jaime d’Almeida concluded the value
    was $2.43 per share and the total value of Barton’s shares at the time of conversion was
    $98,004,076.
    The court issued a statement of decision on August 3, 2012, finding as follows.
    Barton’s stock was converted on June 30, 2009, or July 7, 2009, when the shares were
    transferred back to the RIL treasury. The date of conversion is well within the three-year
    statute of limitations. Even if the statute of limitations began to run when Barton saw
    attorney Crowther’s letter on February 7, 2007, the lawsuit was timely. Barton did not
    split his cause of action, because the earlier lawsuit involved a different issue concerning
    delivery of the stock certificates. Although Barton did not write a check in consideration
    for issuance of stock, none of the founders paid for their initial stock. Consideration for
    the shares was given in the form of unreimbursed expenses and compensation. After
    8
    Barton no longer worked at the company, Khan and Tomkow wrote checks to RIL to
    document the price paid in cash for their shares and straighten out RIL’s financial record-
    keeping.
    Defendants retroactively created and modified corporate resolutions to revise the
    company’s history to support the result they sought. Particularly egregious was the
    resolution prepared as if executed on January 2, 2001, including Barton’s signature. In
    fact, Barton had executed a corporate resolution confirming issuance of 3,616,500 shares
    of RIL to Barton and Khan. The court did not believe the shareholder registry, which
    was the best evidence of the issuance of RIL stock, had been misplaced or destroyed.
    The failure to produce the shareholder registry cast further doubt on testimony that
    Barton’s shares were properly canceled and returned to the treasury in 2006.
    The court issued a declaration that Barton was at all relevant times an owner of
    6,016,500 common shares of RIL and provided appropriate consideration for the shares
    of stock in the form of unreimbursed expenses and salary owed. The court ordered
    Barton to submit a check to RIL’s treasury in an amount equivalent to Khan’s payment
    for the same number of shares to balance RIL’s financial records. RIL was prohibited
    from taking any action to encumber, forfeit or cancel Barton’s shares without prior
    written approval from the court, Barton or his counsel. In addition, Barton’s shares were
    not subject to amended bylaws, agreements, or other restrictions to which he had not
    personally or through counsel provided written consent. The court declined to order
    additional relief sought in connection with the declaratory relief and unfair competition
    claims, including appointment of a receiver, because it would impose a substantial and
    unjustified burden on defendants.
    The court found Khan was not credible. He was aware of the status of Barton’s
    legal education at all times. Defendants’ financial expert had disputed the “back solve”
    valuation method, but provided no alternative. The court concluded the value of Barton’s
    shares was not zero, because defendants had committed 13 years to the company’s
    success and Khan successfully raised substantial funds to further the company’s long-
    term goals. The court was not persuaded, however, that d’Almeida’s valuation method
    9
    was appropriate. “Although the court recognizes that the experts were retained for a
    particular purpose, their widely divergent opinions support the conclusion that ownership
    of shares in RPost remains a very speculative proposition, the value of which is almost
    impossible to determine.” The court noted there is no liquidation event upcoming. The
    court expressed concern that if a monetary value was assigned to the shares, future events
    could result in an inequity for either side. Therefore, since the shares of stock exist, the
    court ordered the return of the converted property. RIL was ordered to restore 6,016,500
    shares of RIL common stock to Barton. If defendants had made further transfers of their
    stock to other entities since Barton’s resignation, the same process must take place for
    Barton’s shares so they retain the same benefit and potential value.
    The court noted that Khan had written checks to RIL for a total of $10,500 as
    additional consideration for his shares of common stock. Barton was ordered to pay
    RIL’s treasury $10,500 or accept an offset to his monetary damages award to confirm his
    ownership of 6,016,500 shares. The court was satisfied that Barton and Khan provided
    consideration for the issuance of 6,016,500 shares of common stock through
    unreimbursed expenses and salary. To ensure RIL’s books and records would withstand
    scrutiny, since evidence showed Khan and Tomkow wrote personal checks as further
    consideration for their common shares, Barton was ordered to write a personal check as
    additional consideration in exchange for clear title to his shares.
    Barton was entitled to reasonable compensation for time and money spent to
    recover the converted property, as well as damages for emotional distress suffered as a
    result of RIL’s conduct. The court found Barton was involved in the company from the
    beginning and expected to maintain his ownership. After returning to the company
    following his convalescence from a stroke, the situation deteriorated, ending in the other
    founding shareholders conspiring to deprive him of his common shares of stock. The
    court awarded $100,000 in damages for emotional distress.
    The court found Barton had not met his burden of proof to impose liability on
    Krechman and Roston for participating in a conspiracy to convert his common shares of
    stock.
    10
    After the trial court issued its statement of decision, further trial proceedings were
    held on the issue of punitive damages. Evidence of defendants’ finances was presented.
    In March 2011, RIL had $1.26 million in its bank account. As of June 30, 2012, RIL had
    assets of $328,000 and liabilities of $100,000. $850,000 had been transferred from RIL
    to other RPost entities to enable the other entities to take advantage of business
    opportunities. In the initial offering of preferred shares of RComm in 2011, the price was
    $5 per share. Later that year, the price was raised to $5.25 per share for preferred shares.
    In 2012, the price was raised to $5.75 per share. At RComm’s October 2012 shareholder
    meeting, Khan advised shareholders $5 million had been raised. RComm intended to
    raise $18.2 million over two years to expand its business. RComm’s revenues are not
    sufficient to meet its expenses, so it needs to raise funds from investors to continue to
    fund operations. RPost entities were pursuing several patent infringement actions against
    defendants including Amazon and Paypal.
    Khan’s net worth includes a home appraised for approximately $800,000, with net
    equity of $232,000. His personal bank account balance has a minimum of $68,000. He
    earns $132,000 per year, but his expenses are approximately the same amount. A
    promissory note exists from RIL to Khan in the amount of $225,893. He owns 6,000,000
    common shares of RIL, 750,000 common shares of RComm, 250 common shares of
    RMail Limited, and 188,042 preferred shares of RComm. Khan obtained several shares
    through the cancellation of loans made to RIL. If Khan’s preferred shares were valued at
    $5.75, the total value would be $1,081,241.50.
    Tomkow owns a home valued at $800,000, with net equity of approximately
    $355,000. He also earns a salary of $132,000 per year. His expenses are slightly less
    than his net salary. He has a retirement account. As of January 1, 2011, RIL owed
    $208,884 on a promissory note to Tomkow. Tomkow owns 76,000 in preferred shares of
    RComm, as well as common shares of RIL, RMail Limited, and RComm. At $5.75 per
    share, the value of his preferred shares of RComm is $442,307.25.
    11
    Barton suggested an award of $2.8 million in punitive damages against Khan
    would be appropriate. He suggested an award of $2.2 million in punitive damages
    against Tomkow.
    The court reconsidered the appropriate remedy in the case and appointed expert C.
    Paul Wazzan to determine the value of Barton’s shares of RIL at the time of conversion.
    Wazzan used the same Black-Scholes method that d’Almeida had used, but relied on
    more conservative assumptions. Using this method, Wazzan determined the enterprise
    value was between $33.8 million and $37.3 million. His assumptions of a one year time
    to liquidity and 50 percent discount for lack of marketability yielded an enterprise value
    of $33.8 million. Wazzan used an enterprise value of $33.8 million to determine
    Barton’s common stock was worth $0.64 per share.
    On June 18, 2013, the court issued a ruling on punitive damages and revised the
    statement of decision. The court noted that the evidence presented in the second phase of
    trial showed the assets and character of RIL had changed dramatically. Restoring
    Barton’s shares would not provide the remedy the court had intended. The court needed
    a meaningful compensatory damages calculation to determine an appropriate punitive
    damages award.
    The court adopted Wazzan’s testimony that the shares of common stock had a
    value of $0.64 per share as of June 30, 2009. Barton’s 6,016,500 shares had a monetary
    value of $3,850,560. The court modified the original statement of decision and
    determined Barton was entitled to a monetary judgment for the value of his converted
    shares against Tomkow, Khan and RIL in the amount of $3,850,560, less $10,500, for a
    net award of $3,840,060. The court was satisfied Wazzan properly chose and applied the
    “back solve” method in his analysis and made reasonable assumptions to determine the
    value of RIL common shares. The court modified the statement of decision to reflect RIL
    no longer needed to restore shares to Barton.
    The court found Khan’s course of conduct rose to a significant level of
    reprehensibility. Although his purported net worth is modest, he draws a six figure salary
    and attributes no value to his RIL holdings. The court awarded Barton punitive damages
    12
    in the amount of $250,000 as against Khan. Tomkow’s net worth is comparable to Khan,
    but his conduct was less egregious. Although complicit in the conversion of Barton’s
    shares, he was focused on developing the business and deferred to Khan on financial
    matters. The court awarded punitive damages of $150,000 to Barton as against Tomkow.
    On August 30, 2013, the court reduced the award of damages by the amount of the
    settlement paid by Symantec and awarded prejudgment interest of $880,021.91. The
    court entered judgment that day awarding the net sum of $2,840,060 in compensatory
    damages, $100,000 in emotional distress damages, and $880,021 in prejudgment interest,
    for a total of $3,820,081.91 as against RIL, Khan and Tomkow. In addition, Barton was
    awarded $250,000 in punitive damages against Khan and $150,000 against Tomkow.
    Barton recovered nothing from Krechman and Roston, but the court declined to award
    them their costs. RIL, Khan and Tomkow filed a timely notice of appeal. Barton also
    appealed.
    DISCUSSION
    Standard of Review
    We review an appeal from a judgment following trial under the substantial
    evidence standard of review. (Jameson v. Five Feet Restaurant, Inc. (2003) 
    107 Cal.App.4th 138
    , 143.) “‘When a trial court’s factual determination is attacked on the
    ground that there is no substantial evidence to sustain it, the power of an appellate court
    begins and ends with the determination as to whether, on the entire record, there is
    substantial evidence, contradicted or uncontradicted, which will support the
    determination . . . . [W]hen two or more inferences can reasonably be deduced from the
    facts, a reviewing court is without power to substitute its deductions for those of the trial
    court.” (Ibid.) As long as there is substantial evidence, the appellate court must affirm,
    even if the reviewing justices personally would have ruled differently if they had presided
    13
    over the proceedings below and even if other substantial evidence supports a different
    result. (Bowers v. Bernards (1984) 
    150 Cal.App.3d 870
    , 874.)
    Act of Conversion Triggering Statute of Limitations
    Defendants contend their refusal to deliver stock certificates and denial of
    Barton’s shareholder status in pleadings constituted conversion of Barton’s shares, at
    which point the statute of limitations began to run. This is incorrect. Substantial
    evidence supports the trial court’s finding that the shares were not converted until they
    were cancelled in 2009.
    A cause of action for conversion requires “‘“the plaintiff’s ownership or right to
    possession of the property at the time of the conversion; the defendant’s conversion by a
    wrongful act or disposition of property rights; and damages. It is not necessary that there
    be a manual taking of the property; it is only necessary to show an assumption of control
    or ownership over the property, or that the alleged converter has applied the property to
    his own use. [Citations.]” [Citation.]’” (Shopoff & Cavallo LLP v. Hyon (2008) 
    167 Cal.App.4th 1489
    , 1507.) “It is the uniform rule of law that shares of stock in a company
    are subject to an action in conversion. [Citations.]” (Fremont Indemnity Co. v. Fremont
    General Corp. (2007) 
    148 Cal.App.4th 97
    , 122.)
    “The essence of the tort of conversion is not the acquisition of property by the
    wrongdoer, but a wrongful deprivation of it to the owner. The Restatement of the Law of
    Torts (Second) defines conversion as ‘an intentional exercise of dominion or control over
    a chattel which so seriously interferes with the right of another to control it that the actor
    may justly be required to pay the other the full value of the chattel.’” (11 Fletcher
    Cyclopedia of the Law of Corporations (2014) §5114, p. 133, footnotes omitted.)
    “To maintain an action of conversion, the plaintiff must have had title to, or a right
    in, the shares at the time of the conversion. There can be no conversion where the
    plaintiff did not in fact lose any of its control over, or rights in, its shares.” (Id. at pp.
    135-136.) “The plaintiff must show that the defendant wrongfully converted the shares
    14
    and that the defendant’s acts or conduct were such as to deprive the owner of the shares,
    either permanently and absolutely, or partially or temporarily.” (Id. at pp. 136-137.)
    “In general, the conversion dates from the time when the shareholder, being
    entitled to the immediate possession of the shares or of the certificate, makes a demand
    for it that is refused.” (Id. at p. 138.) “An election to recover the shares themselves may
    bar the right to sue for their value as for a conversion, but merely seeking return of the
    shares as alternative relief does not.” (Id. at pp. 140-141.)
    “If a corporation wrongfully refuses to issue a proper share certificate when it has
    the power and is under an obligation to issue it, the corporation may be compelled to do
    so by a suit in equity for specific performance of its express or implied contract, at least
    where there is no adequate remedy at law, such as an action at law to recover for the
    breach. A shareholder seeking such relief must have performed the obligations that
    entitle the shareholder to the certificate or make tender of readiness to make such
    performance as the decree may require.” (11 Fletcher Cyclopedia of the Law of
    Corporations, supra, §5165, pp. 265-266, footnotes omitted.)
    “The shareholder may, instead of suing to compel the issuance and delivery of a
    certificate, have an action against the corporation for the damages sustained by reason of
    the failure or refusal to issue a certificate. Thus, . . . if the shareholder has title to the
    shares, the failure or refusal to deliver a certificate may be treated as a conversion of the
    shares, and the shareholder may maintain an action to recover damages.” (Id. at pp. 268-
    269.)
    In this case, the trial court found defendants converted Barton’s shares when they
    cancelled and returned them to the treasury on June 30, 2009, or July 7, 2009. Cancelling
    the shares clearly interfered with Barton’s ownership rights and constituted conversion.
    The documents RIL provided its auditors showed this action was taken between June 30,
    2008, and June 30, 2009. Barton learned of RIL’s action on July 7, 2009, through Khan’s
    deposition testimony. There is substantial evidence to support the trial court’s finding
    that RPost converted Barton’s shares by cancelling them as of June 30, 2009, and that
    15
    Barton first learned of the conversion on July 7, 2009. Barton filed his action well within
    the statute of limitations for conversion.
    Defendant’s contention that Barton’s shares were converted when RIL refused to
    deliver share certificates is incorrect. Barton had to have the right to immediate
    possession of his share certificates in order to maintain a cause of action for conversion
    based on the failure to deliver certificates. The trial court in the prior case ruled that RIL
    was not required to issue certificates for Barton’s shares. Barton did not have the right to
    possession of his share certificates. RIL’s refusal to deliver share certificates was not
    wrongful, and therefore, it did not constitute conversion. If Barton had sued defendants
    for conversion based on their refusal to deliver share certificates, he would have lost.
    Defendants contend their assertions that Barton was never a shareholder should
    have caused Barton to suspect he had a claim for conversion and started the statute of
    limitations. A simple claim of dominion or intention to interfere under a pretense of
    right, without more, does not constitute conversion. (Kee v. Becker (1942) 
    54 Cal.App.2d 466
    , 472.) Defendants statements did not affect Barton’s dominion over his
    shares. The shareholder registry and RIL’s accounting documents continued to reflect
    that Barton owned the shares allocated to him. Defendants’ statements in legal
    proceedings were simply reflected numerous defenses that they asserted. If Barton had
    sued defendants for conversion based on their statements that he was never a shareholder,
    he would have lost. There is no evidence that defendants exercised dominion over
    Barton’s stock until they cancelled the shares in 2009 and returned them to RIL’s
    treasury. Barton was suspicious and accused RIL of attempting to steal his shares long
    before the act of conversion took place. He did not have a viable cause of action until
    RIL interfered with his dominion over the shares by cancelling them and transferring
    them back to the treasury.
    Substantial evidence supports the trial court’s finding that Barton’s shares were
    converted when RPost cancelled and transferred them, which Barton learned about on
    July 7, 2009. RPost’s contentions concerning the statute of limitations for breach of
    16
    fiduciary duty, fraud, declaratory relief, and unfair competition are based on the same
    arguments and fail for the same reasons.
    Claim Splitting
    Defendants contend Barton improperly split his claims into successive lawsuits
    based on the same cause of action. We disagree.
    “Under [the doctrine of res judicata], all claims based on the same cause of action
    must be decided in a single suit; if not brought initially, they may not be raised at a later
    date. ‘“Res judicata precludes piecemeal litigation by splitting a single cause of action or
    relitigation of the same cause of action on a different legal theory or for different relief.”’
    [Citation.]” (Mycogen Corp. v. Monsanto Co. (2002) 
    28 Cal.4th 888
    , 897.)
    “‘[T]he “cause of action” is based upon the harm suffered, as opposed to the
    particular theory asserted by the litigant . . . . Even where there are multiple legal
    theories upon which recovery might be predicated, one injury gives rise to only one claim
    for relief.’ [Citation.]” (Bay Cities Paving & Grading, Inc. v. Lawyers’ Mutual Ins. Co.
    (1993) 
    5 Cal.4th 854
    , 860.)
    When Barton filed his complaints in 2005 and 2006 seeking the delivery of share
    certificates, no conversion had taken place. The trial court in the earlier action ruled RIL
    was not required to issue share certificates and the parties settled the matter without any
    finding of liability. The failure to deliver share certificates was not wrongful. A cause of
    action for conversion based on the failure to issue share certificates would not have been
    successful. It was not until RIL cancelled Barton’s shares and transferred them back to
    RIL’s treasury that the conversion occurred. The evidence showed Barton discovered
    RIL’s conversion of his shares in 2009. Barton did not have a claim for conversion when
    he filed his earlier actions and did not split his claim.
    Conversion
    17
    Defendants contend the trial court’s finding of conversion is not supported by
    substantial evidence, because Barton did not pay for his shares. Defendants fail to
    demonstrate error.
    The evidence showed Barton provided consideration for his allotments through
    unpaid expenses and salary owed to him. The resolutions state the allotments are made in
    exchange for shares of the previous company, cancellation of loans, and services
    rendered. Shares were allotted based on consideration received from Barton. The fact
    that the other founders paid additional sums several years later in an abundance of
    caution did not mean Barton did not provide consideration for his shares.
    Since we conclude the trial court’s finding of liability is supported by substantial
    evidence of conversion, we need not consider defendants’ additional contentions that
    liability was not supported by substantial evidence of breach of fiduciary duty, fraud, or
    unfair competition under Business and Professions Code section 17200.
    Compensatory Damages
    Defendants contend the amount of compensatory damages is too speculative. We
    disagree.
    “‘“Where the fact of damages is certain, the amount of damages need not be
    calculated with absolute certainty. [Citations.] The law requires only that some
    reasonable basis of computation of damages be used, and the damages may be computed
    even if the result reached is an approximation. [Citation.] This is especially true where .
    . . it is the wrongful acts of the defendant that have created the difficulty in proving the
    amount of loss of profits [citation] or where it is the wrongful acts of the defendant that
    have caused the other party to not realize a profit to which that party is entitled.”
    ([Citation.])’ [Citations.]” (Asahi Kasei Pharma Corporation v. Actelion Ltd. (2013) 
    222 Cal.App.4th 945
    , 972-973.)
    “‘The trier of fact may accept the evidence of any one expert or choose a figure
    between them based on all of the evidence.’ [Citation.] There is insufficient evidence to
    18
    support a verdict ‘only when “no reasonable interpretation of the record” supports the
    figure . . . .’ [Citation.]” (San Diego Metropolitan Transit Development Bd. v. Cushman
    (1997) 
    53 Cal.App.4th 918
    , 931 (San Diego Metropolitan Transit Development).)
    In San Diego Metropolitan Transit Development, supra, 
    53 Cal.App.4th 918
    , “the
    jury had to determine damages based on two diametrically opposed expert opinions that
    varied not only in amounts but also in methodologies and factors considered. (Id. at pp.
    924-925.) The damages the jury awarded fell between the contrasting figures presented
    by the experts. (Id. at p. 931.) In such circumstances, it is well established that ‘“[t]he
    trier of fact may accept the evidence of any one expert or choose a figure between them
    based on all of the evidence.”’ (Id. at p. 931.)” (Maughan v. Correia (2012) 
    210 Cal.App.4th 507
    , 522-523.)
    In this case, defendants’ expert Henry concluded the value of Barton’s common
    shares at the time of conversion was zero, while Barton’s expert d’Almeida concluded the
    value was $2.43 per share for a total value of $98,004,076. Court-appointed expert
    Wazzan, like d’Almeida, determined the value of Barton’s shares using a variation of the
    Black-Scholes option pricing model which the parties referred to as the “back solve”
    formula. Black-Scholes is a standard economic formula used in financial derivatives to
    price options. In order to use the back solve formula to determine the value of Barton’s
    shares, Wazzan explained that the variable for the anticipated positive liquidity event
    must be carefully controlled to account for the nature of the company as a “start-up” and
    avoid overvaluing the enterprise. Wazzan made it clear that a later liquidity date led to
    an unreasonably inflated equity value. Wazzan’s use of the “back solve” formula to
    estimate the value of Barton’s common stock was reasonable and not speculative. Under
    this approach, he determined the enterprise value was between $33.8 million and $37.3
    million. Assuming an enterprise value of $33.8 million, Barton’s common stock was
    worth $0.64 per share. The trial court’s finding that Barton’s common stock had value of
    $0.64 per share as of June 30, 2009, was supported by substantial evidence and not too
    speculative.
    19
    RPost also contends Barton’s shares should have valued based on a conversion
    date in late 2004, early 2005, or no later than October 2006. We disagree. As discussed
    above, substantial evidence supported the trial court’s finding that the act of conversion
    took place in 2009. The court’s calculation of the value of the converted property as of
    that date was correct.
    Because we conclude the award of compensatory damages was fully supported by
    the evidence of conversion, we need not address defendants’ contention that these
    damages could not be awarded as restitution under Business and Professions Code
    section 17200.
    Emotional Distress Damages
    Defendants contends there is no substantial evidence Barton suffered emotional
    harm to support an award of noneconomic damages for emotional distress. We agree.
    “‘Damages for emotional distress have been permitted only where there is some
    means for assuring the validity of the claim. [Citation.] The case law reveals a diversity
    of circumstances in which recovery for emotional distress may be had. They are loosely
    linked in the sense that in each it could be said that a particular form of mental suffering
    naturally ensued from the acts constituting the invasion of another kind of protected
    interest. “The commonest example . . . is probably where the plaintiff suffers personal
    injuries in addition to mental distress as a result of negligent or intentional misconduct by
    the defendant.” [Citation.] Pain and suffering is the natural concomitant of a personal
    injury. [Citation.] “[I]n the case of many torts, such as assault, battery, false
    imprisonment, and defamation, mental suffering will frequently constitute the principal
    element of damages.” [Citations.] Molien [v. Kaiser Foundation Hospitals (1980)] 
    27 Cal.3d 916
    , found sufficient assurance of the validity of a claim of emotional distress in
    the nature of the cause of action for negligent misdiagnosis, predicated as it was upon a
    false imputation of syphilis, which by statute constitutes slander per se, an intentional
    tort. [Citation.] In torts involving extreme and outrageous intentional invasions of
    20
    mental and emotional tranquillity, the outrageous conduct affords the necessary assurance
    of the validity of the claim. [Citation.] Recovery also has been sanctioned for emotional
    distress which could be said naturally to ensue from an act which invaded an interest
    protected by an established tort. (See, Sloane v. Southern Cal. Ry. Co. [(1896)] 
    111 Cal. 668
     [humiliation from wrongful ejection from train]; State Rubbish etc. Assoc. v. Siliznoff
    [(1952)] 
    38 Cal.2d 330
     [intentional infliction of emotional distress]; Crisci v. Security
    Ins. Co. [(1967)] 
    66 Cal.2d 425
     [physical injuries and psychosis resulting from fall
    through opening]; see also Acadia, California, Ltd. v. Herbert (1960) 
    54 Cal.2d 328
    , 337
    [mental suffering occasioned by fear for safety of family caused by trespass]; Kornoff v.
    Kingsburg Cotton Oil Co. (1955) 
    45 Cal.2d 265
    , 271 [discomfort and annoyance caused
    by nuisance]; Herzog v. Grosso (1953) 
    41 Cal.2d 219
    , 225 [annoyance ensuing from
    trespass].)’ [Citation.]” (Gonzales v. Personal Storage, Inc. (1997) 
    56 Cal.App.4th 464
    ,
    472.)
    “[T]he limits imposed with respect to recovery for emotional distress caused by a
    defendant’s negligence do not apply when distress is the result of a defendant’s
    commission of the distinct torts of trespass, nuisance or conversion. Indeed, with respect
    to trespass, the law is clear that ‘. . . damages may be recovered for annoyance and
    distress, including mental anguish, proximately caused by a trespass.’ (Armitage v.
    Decker (1990) 
    218 Cal.App.3d 887
    , 905.) Thus the plaintiffs in Armitage v. Decker were
    allowed to recover for distress they suffered ‘as a result of having their property line
    buried under large amounts of dirt, making it appear that one side of their property abuts
    a quarry, after having spent a long time looking for the best piece of property they could
    afford. The evidence also supported a conclusion that the [plaintiffs] suffered distress
    due to the spillage of dirt onto their property and the threat of interference with drainage
    on their property, as well as concern over appellant’s operation of the bulldozer on the
    berm.’ (Id. at pp. 905-906.)” (Gonzales v. Personal Storage, Inc., supra, 56 Cal.App.4th
    at pp. 474-475.)
    “[I]n the context of a conversion claim there is far less likelihood that allowing
    recovery for emotional distress damages will create liability which is out of proportion to
    21
    the nature of the defendant’s act. It follows that when a defendant is guilty of conversion,
    there is considerably less justification for imposing the limits on emotional distress
    damages which exist in negligence cases[.]” (Gonzales v. Personal Storage, Inc., supra,
    56 Cal.App.4th at p. 477.)
    In this case, however, there is insufficient evidence Barton suffered emotional
    distress to support an award of damages. Barton testified that when he heard Khan’s
    testimony at his deposition that the shares had been cancelled, he was very angry and
    livid. A year later, when he learned in court that his name had been forged on documents
    in order to unwind the transactions, it was very stressful. Standing alone, this evidence is
    insufficient to support an award of emotional distress damages. In most cases where
    there is only a financial loss, no emotional distress damages are recoverable. In
    respondent’s brief on appeal, Barton claims additional evidence of emotional distress was
    presented to the court, but Barton fails to provide any citation to the record for additional
    evidence. Our own review of the record has not uncovered any additional evidence of
    emotional distress. The award of noneconomic damages was not supported by the slim
    testimony that Barton was livid about the cancellation of his shares and stressed by
    discovery during trial that minutes had been forged.
    Punitive Damages
    Defendants contend the awards of punitive damages were excessive, because
    reprehensibility was minimal and the amount was disproportionate to their net worth.
    “An award of punitive damages hinges on three factors: the reprehensibility of the
    defendant’s conduct; the reasonableness of the relationship between the award and the
    plaintiff’s harm; and, in view of the defendant’s financial condition, the amount
    necessary to punish him or her and discourage future wrongful conduct. [Citations.]”
    (Kelley v. Haag (2006) 
    145 Cal.App.4th 910
    , 914.)
    There is substantial evidence of the reprehensible nature of defendants’ conduct.
    Barton had a serious health incident which forced him to work less. His co-founders
    22
    showed indifference to his health when they engaged in their scheme to force him out of
    the company and deny his stock ownership. They took repeated actions to achieve their
    goal, from fabricating minutes with his signature, claiming ownership of his shares was
    contingent on a law degree, destroying the company’s shareholder registries, transferring
    assets to new companies and providing business opportunities to subsidiary companies
    that prevented Barton as a common shareholder of RIL from participating. Barton,
    having suffered a stroke, was financially vulnerable and testified that he worried about
    paying his rent. Barton’s harm resulted from Kahn and Tomkow’s malice and deceit, not
    mere accident.
    There was also substantial evidence of Kahn and Tomkow’s net worth to support
    the amount of the award. Defendants have not presented all of the evidence of their net
    worth in their statement of facts on appeal. The award of $250,000 in punitive damages
    against Khan is supported by evidence that his preferred shares of RComm have a value
    of $5.75 per share, with a total value of $1,081,241.50. The price of the preferred shares
    was their value as of the time of trial. The award of $150,000 in punitive damages
    against Tomkow is similarly supported by the value of the preferred shares he owns in
    RComm, which was shown to be $442,307.25. In addition, both defendants have net
    equity in their homes and bank accounts.
    Prejudgment Interest
    RPost contends Barton was not entitled to prejudgment interest, because Barton’s
    shares were not marketable and he did not suffer any loss. This is correct.
    Civil Code section 3336 provides: “The detriment caused by the wrongful
    conversion of personal property is presumed to be: [¶] First--The value of the property
    at the time of the conversion, with the interest from that time, or, an amount sufficient to
    indemnify the party injured for the loss which is the natural, reasonable and proximate
    result of the wrongful act complained of and which a proper degree of prudence on his
    23
    part would not have averted; and [¶] Second--A fair compensation for the time and
    money properly expended in pursuit of the property.”
    In a successful action for conversion, the plaintiff can recover the market value of
    the converted property, plus interest from the date of conversion. (Crofoot Lumber, Inc.
    v. Ford (1961) 
    191 Cal.App.2d 238
    , 249.)
    In addition, Civil Code section 3288 provides the trial court discretion to award
    interest: “In an action for the breach of an obligation not arising from contract, and in
    every case of oppression, fraud, or malice, interest may be given, in the discretion of the
    jury.”
    We have already concluded the value of the converted property was not overly
    speculative. The award of prejudgment interest based on the value of the property
    properly compensated Barton for the loss of his shares. Defendants have failed to show
    any abuse of discretion by the trial court in awarding prejudgment interest under the
    applicable statutes.
    Barton’s Appeal
    In his appeal, Barton contends the undisputed evidence shows Roston and
    Krechman were equally liable for conversion. He has not set forth facts, however,
    demonstrating their liability. Barton’s brief argues generalities, rather than providing
    citations to the record and authority to demonstrate that the trial court’s rulings were
    wrong. (See Villanueva v. City of Colton (2008) 
    160 Cal.App.4th 1188
    , 1198.) “We are
    not required to search the record to ascertain whether it contains support for [plaintiff’s]
    contentions.” (Mansell v. Board of Administration (1994) 
    30 Cal.App.4th 539
    , 545.)
    The evidence at trial does not support finding liability as to Roston or Krechman.
    Roston was an RIL director until early 2008. There is no evidence Roston participated in
    the act of conversion in 2009. Krechman became a RIL director in 2008, but there was
    no evidence that she was aware of or participated in the act of conversion in 2009. The
    24
    conversion was shown from a document provided to auditors reflecting Barton’s shares
    had been cancelled and Khan’s deposition testimony that the act took place. There was
    no evidence that Krechman was aware of the action, let alone had any meaningful
    participation in that action. The trial court properly found Roston and Krechman were
    not liable under the evidence presented.
    DISPOSITION
    The judgment is modified to reduce the amount of damages by deducting
    emotional distress damages of $100,000. As modified, the judgment is affirmed. The
    parties are to bear their own costs on appeal.
    KRIEGLER, J.
    We concur:
    TURNER, P. J.
    MOSK, J.
    25
    

Document Info

Docket Number: B251722M

Filed Date: 12/24/2014

Precedential Status: Non-Precedential

Modified Date: 4/17/2021