Cupps v. Mendelson

Filed 4/7/10 Cupps v. Mendelson CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEALS from a judgment of the Superior Court of San Diego County, John S. Meyer, Judge. Affirmed.

Timothy Cupps and Paul Mendelson formed a small corporation, and agreed Mendelson would hold a 60 percent ownership interest and Cupps would hold a 40 percent ownership interest in the corporation. Several years later, Cupps sued Mendelson asserting numerous claims arising from Mendelson's refusal to recognize Cupps's interest in the corporation and pay him his share of the corporate profits.

In the first phase of the bifurcated trial, the jury found the parties had "enter[ed] into an oral contract for Cupps to be a 40 percent shareholder" of the corporation. In the second phase, a different jury found Cupps proved his promissory fraud claim against Mendelson, but did not prove his breach of contract or breach of fiduciary duty claims. On the fraud claim, the jury awarded Cupps $155,000 in past economic damages, $233,000 in future economic loss, and $160,000 in punitive damages. The court thereafter granted Mendelson's motion for judgment notwithstanding the verdict (JNOV) with respect to the future damages and punitive damages awards, and agreed to strike those amounts from the verdict.

Both parties appeal. Mendelson contends the court erred in instructing the jury on "benefit of the bargain" damages. Cupps contends the court erred in granting Mendelson's JNOV motion on punitive damages. We reject each party's contention, and affirm the judgment.

FACTUAL SUMMARY

We summarize the relevant facts in the light most favorable to the jury's findings. Because the parties designated only portions of the reporter's transcript of the trial, our factual summary is necessarily limited to the facts contained in this abbreviated appellate record.

In early 2000, Mendelson worked for a construction company that performed facility maintenance at Abercrombie & Fitch stores. After he left the company, Mendelson was asked to perform the same maintenance work on an independent contractor basis, and he decided to form a corporation to provide these services.

Mendelson then asked Cupps, a friend and neighbor, to assist him with this venture. Because Mendelson was having financial problems with a prior business entity he had formed, the parties agreed they would form a new corporation with Mendelson owning 60 percent and Cupps owning 40 percent of the corporation. This ownership interest was important to Cupps because he wanted to "make enough money to buy an apartment building and retire." Cupps trusted Mendelson because he had known him for about 8 to 10 months, and Mendelson "came on like he was a friend."

In September 2001, Mendelson formed J&J Retail Services, Inc. (J&J).[1] Based on Mendelson's agreement that Cupps was a 40 percent owner in the business, Cupps left his job and began working full time for J&J, and was paid $52,000 annually. Mendelson served as chief executive officer and Cupps was the chief financial officer. Cupps initially supplied much of the office equipment and funds for the business expenses, but was fully reimbursed for all of these costs. Cupps primarily worked on organizational aspects of the business, and Mendelson handled client matters.

During the next two years, the business did well, and Mendelson hired several additional employees, including a woman who later became Mendelson's wife and then took over many of Cupps's tasks. During this time, Cupps repeatedly asked Mendelson for a written agreement evidencing Cupps's 40 percent interest in the business, and Mendelson would tell him "it's in work" or "it was not done yet" and that Mendelson's father was in the process of preparing it. Mendelson essentially acted as the sole owner and shareholder of the corporation.

In April 2003, Mendelson issued 10,000 shares of J&J stock to Cupps, and paid Cupps a monthly bonus of $133, which Mendelson said was 10 percent of the corporate profits. But Mendelson was taking out a much larger portion of the profits from the corporation for his personal use, without accounting to Cupps for these distributions. In about April 2004, Mendelson terminated Cupps's employment, and refused to recognize Cupps's 40 percent interest in the company.

In November 2005, Cupps sued Mendelson and J&J, alleging that Mendelson's failure to recognize his 40 percent ownership interest constituted a breach of an oral agreement, promissory fraud, breach of fiduciary duty, and conversion. Cupps also sued in his capacity of a shareholder of J&J, alleging mismanagement and excessive compensation and that Mendelson was the alter ego of the corporation, and seeking numerous forms of shareholder relief, including an accounting, access to records, and involuntary dissolution. In defense, Mendelson claimed he never agreed to make Cupps a shareholder and that his issuance of 10,000 shares of stock to Cupps was an inadvertent mistake. Mendelson later transferred all of J&J's assets into his newly formed corporation, known as American Commercial Construction, Inc. (ACC).

Pursuant to Mendelson's request, the court bifurcated the trial to first resolve the issue of whether Cupps was a shareholder of J&J and therefore had standing to assert shareholder claims. At the conclusion of the first phase trial, the jury made two special findings: (1) the parties "enter[ed] into an oral contract for Cupps to be a 40% shareholder of J&J . . ."; and (2) Mendelson's issuance of 10,000 shares of stock to Cupps was not a "mistake."

In response to the verdict, Mendelson voluntarily issued stock to Cupps, reflecting that Cupps owned 40 percent of the stock in J&J/ACC. The parties thereafter stipulated that ACC would be named as a Doe defendant; ACC was a successor in interest to J&J; and Cupps was a 40 percent owner in J&J and ACC.

The court then empanelled a second jury to consider Cupps's remaining legal claims. After the presentation of the evidence, three causes of action against Mendelson (in his individual capacity) remained for the jury's determination: (1) breach of contract, (2) promissory fraud, and (3) breach of fiduciary duty. On the promissory fraud cause of action, Mendelson argued that Cupps could not recover as a matter of law because he did not present evidence that he suffered any out-of-pocket losses. Cupps acknowledged that he was not claiming any out-of-pocket losses, but argued he was entitled to recover "benefit of the bargain" damages on his fraud claim. The court agreed with Cupps, and, over Mendelson's objections, gave the jury an instruction on damages that permitted the

jury to award benefit-of-the-bargain damages on the promissory fraud claim.[2]

In its special verdicts, the jury found Cupps proved his promissory fraud claim. Specifically, the jury found: (1) Mendelson promised to make Cupps a 40 percent shareholder of J&J; (2) Mendelson did not intend to perform this promise; (3) Mendelson intended that Cupps would rely on this promise; (4) Cupps reasonably relied on Mendelson's promise; (5) Mendelson did not perform the promise; and (6) Cupps's reliance on Mendelson's promise was a substantial factor in causing damage to Cupps. With respect to damages, the jury found Cupps suffered $155,000 in past economic damages and $233,000 in future economic loss. The jury also found that Cupps proved "by clear and convincing evidence that Mendelson is guilty of intentional fraud, oppression, or malice" and awarded Cupps $160,000 in punitive damages.

But the jury found Cupps did not prove each element of his breach of contract or breach of fiduciary duty claims. On the contract claim, the jury found the parties entered into an oral agreement for Cupps to be a 40 percent shareholder of J&J, but the conditions did not "occur that were required for Mendelson's performance of the oral agreement." On the breach of fiduciary duty claim, the jury found that "Mendelson, as the controlling shareholder of J&J and ACC, knowingly act[ed] against Cupps' interest as a minority shareholder," but that Cupps gave "informed consent to Mendelson's conduct."[3]

As to Cupps's equitable causes of action, the court found Cupps was not entitled to any additional relief because Cupps did not prove the equitable claim and/or the claim was moot or subsumed by the jury verdict. On the alter ego allegation, the court found Mendelson was the alter ego of J&J and ACC, but Cupps failed to produce any evidence "to show that he was damaged by J&J or ACC's conduct, or that J&J and ACC owe Cupps any money." The court stated: "[t]he jury found that Mendelson, individually, is liable to Cupps. As a result, the issue of whether Mendelson is the alter ego of J&J and/or ACC such that he may be held personally liable for their debts to Cupps is academic."

After the court entered judgment on the jury verdicts and the equitable claims, Mendelson moved for a JNOV, arguing: (1) Cupps could not recover on his fraud claim because he did not prove any out-of-pocket losses; (2) the future damages award was speculative and was duplicative of Cupps's continued status as a shareholder entitled to future profits; and (3) the punitive damages award was unsupported because Cupps failed to produce evidence of Mendelson's net worth or financial condition.

At the JNOV hearing, the court stated it could not recall any evidence being presented on Mendelson's net worth or ability to pay a punitive damages award, and that Cupps's briefing was unhelpful on these issues. Cupps responded that Mendelson's net worth was "about a million dollars," composed primarily of Mendelson's 60 percent interest in the corporate entity (J&J and/or ACC). Cupps argued the value of this business asset was presented to the jury through the testimony of Cupps's expert accountant. After concluding that this evidence was insufficient to establish the value of the business and there was no other evidence establishing Mendelson's ability to pay the punitive damages award, the court provided Cupps a second opportunity to identify evidence of Mendelson's financial condition. After considering the additional briefing and conducting a second hearing, the court adhered to its earlier conclusion that Cupps had not produced evidence at trial of Mendelson's net worth or financial condition to support the punitive damages award.

In its final ruling, the court granted the JNOV motion as to future damages and punitive damages, and denied the motion as to the past damages award.

Both parties appeal. Mendelson contends the court erred in instructing the jury that it could award Cupps damages based on a benefit-of-the-bargain theory. Cupps contends the court erred in granting the JNOV on the punitive damages award. Cupps does not challenge the court's conclusion that the future damages award was speculative and/or duplicative of future compensation Cupps is entitled to receive as a continuing shareholder of J&J/ACC.

DISCUSSION

I. Benefit-of-the-Bargain Damages

Mendelson contends the court erred in instructing the jury on benefit-of-the-bargain damages because the exclusive measure of damages for promissory fraud is out-of-pocket damages. This argument is based on an incorrect understanding of applicable law.

Generally, "[f]or the breach of an obligation not arising from contract," a party is entitled to damages that will provide full compensation "for all the detriment proximately caused thereby, whether it could have been anticipated or not." (Civ. Code,  3333; see Metz v. Soares (2006) 142 Cal.App.4th 1250, 1255.) There are two common methods for measuring these damages: benefit-of-the-bargain and out-of-pocket losses. "The 'out-of-pocket' measure of damages 'is directed to restoring the plaintiff to the financial position enjoyed by him prior to the fraudulent transaction . . . ." (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1240 (Alliance Mortgage).) " 'Benefit of the bargain' is the difference between the actual value of what plaintiff has received and that which he expected to receive." (Overgaard v. Johnson (1977) 68 Cal.App.3d 821, 823; accord Alliance Mortgage, supra, at p. 1240.) "The benefit-of-the-bargain measure places a defrauded plaintiff in the position he would have enjoyed had the false representation been true, awarding him the difference in value between what he actually received and what he was fraudulently led to believe he would receive." (Fragale v. Faulkner (2003) 110 Cal.App.4th 229, 236.)

Generally, the out-of-pocket measure is "more consistent with the logic and purpose of the tort form of action (i.e., compensation for loss sustained rather than satisfaction of contractual expectations)" (Stout v. Turney (1978) 22 Cal.3d 718, 725), while the benefit-of-the-bargain rule is viewed as closer to a contractual remedy, i.e., "it tends to give the injured party the benefit of his bargain and insofar as possible to place him in the same position he would have been in had the promisor performed the contract.' [Citations]" (Pepitone v. Russo (1976) 64 Cal.App.3d 685, 687, italics omitted). However, " '[t]here is no fixed rule for the measure of tort damages,' " and the " 'measure that most appropriately compensates the injured party for the loss sustained should be adopted.' " (Strebel v. Brenlar Investments, Inc. (2006) 135 Cal.App.4th 740, 749; accord Metz v. Soares, supra, 142 Cal.App.4th at p. 1255.) Absent a statute or other rule requiring a particular damage measure, the selection of which measure of damages "is most appropriate is within the sound discretion of the trier of fact." (United States Liab. Insurance Co. v. Haidinger-Hayes, Inc. (1970) 1 Cal.3d 586, 599.)

Relying primarily on decisions interpreting Civil Code section 3343, Mendelson argues that out-of-pocket damages, rather than benefit of the bargain, is the sole measure in a fraud case. (See Kenly v. Ukegawa (1993) 16 Cal.App.4th 49, 53-54; Christiansen v. Roddy (1986) 186 Cal.App.3d 780, 789-791; Overgaard v. Johnson, supra, 68 Cal.App.3d at p. 828.) However, Civil Code section 3343 expressly applies only to fraud cases involving the "purchase, sale or exchange of property." (Civ. Code,  3343, subd. (a); see Alliance Mortgage, supra, 10 Cal.4th at pp. 1240-1241.) And, as Mendelson acknowledges in his reply brief, "this is not a case involving the purchase, sale, or transfer of property." Thus, Civil Code section 3343 is inapplicable, and instead the general tort damages statute (Civ. Code,  3333) governs this case.

Under Civil Code section 3333, a court has discretion and flexibility to instruct a jury on an award that will appropriately compensate the plaintiff for the detriment caused by the defendant's tortious conduct. (See Metz v. Soares, supra, 142 Cal.App.4th at p. 1255; Strebel v. Brenlar Investments, Inc., supra, 135 Cal.App.4th at p. 749.) Under the particular circumstances here, the trial court did not abuse its discretion in determining that Cupps was entitled to the benefit of the bargain to ensure he was fully compensated for Mendelson's wrongful conduct. The first jury specifically found that the parties had reached an agreement that Cupps would hold a 40 percent interest in the corporation, and rejected Mendelson's argument that his issuance of 10,000 shares of stock to Cupps was a mistake. The second jury found Mendelson had made a false promise that Cupps would become a 40 percent owner of the corporation. These verdicts were based on the same factual circumstances, and each verdict was incorporated into the final judgment. Under the circumstances, it was fully appropriate that Cupps receive the benefit of this bargain agreed to by both parties.

Mendelson essentially recognized the validity of this damage measure by his own conduct during the litigation. Immediately after the first jury found the parties had expressly agreed that Cupps would be a 40 percent owner of J&J, Mendelson voluntarily issued to Cupps 40 percent of the stock in J&J and its successor corporation. This action provided Mendelson with the advantage of precluding any future damages award and allowed him to argue in the second trial that he had complied (although belatedly) with his oral agreement. But by electing to transfer these shares to Cupps, Mendelson also necessarily acknowledged that Cupps was entitled to obtain the benefit that had been promised to him in the oral agreement. The benefit promised to Cupps, of course, constituted not only a piece of paper reflecting the 40 percent ownership interest, but also all rights flowing from this ownership. (See Perata v. Oakland Scavenger Co. (1952) 111 Cal.App.2d 378, 387.) One of those rights was Cupps's entitlement to 40 percent of the profits that had been distributed while Cupps was a shareholder of the corporation. These profits were precisely the "benefit-of-the-bargain" damages that Cupps sought at trial. Under these circumstances, Cupps was entitled to seek the value of the benefits he would have received if the representations as to ownership by Mendelson had been true, i.e., that he was a 40 percent owner of the corporation entitling him to the benefits of this ownership.

Moreover, the courts have held that benefit-of-the-bargain damages are appropriate when the false promise was made by a fiduciary. (See Fragale v. Faulkner, supra, 110 Cal.App.4th at pp. 235-239; Salahutdin v. Valley of California, Inc. (1994) 24 Cal.App.4th 555, 564, 566-567; Pepitone v. Russo, supra, 64 Cal.App.3d at pp. 688-689; see also Alliance Mortgage, supra, 10 Cal.4th at p. 1241; but see Hensley v. McSweeney (2001) 90 Cal.App.4th 1081, 1086.) Although these decisions have arisen primarily in the real property context as an exception to Civil Code section 3343's out-of-pocket rule, the logic of these holdingsthe additional degree of blameworthiness when a fiduciary commits fraudapplies to fraud by a fiduciary in other circumstances.

In this case, the evidence shows that Mendelson made the initial false representation at a time the parties had a friendly, but not a fiduciary, relationship. However, after Cupps left his job and began working for the corporation and earning at least some profits, Mendelson continued to represent that he was working on the documents that would reflect Cupps's 40 percent ownership in the business. At the time, Mendelson was a majority shareholder, and Cupps was a minority shareholder. A majority shareholder owes a fiduciary relationship to a minority shareholder. (See Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93, 108.) Although the jury did not find that Cupps proved his fiduciary duty claim, it did expressly find that "Mendelson, as the controlling shareholder of J&J and ACC, knowingly act[ed] against Cupps' interest as a minority shareholder." This finding supported that Mendelson acted as a fiduciary when he made the false promises to Cupps.

Under the circumstances, the court did not err in instructing the jury on benefit-of-the-bargain damages.

II. Punitive Damages Claim

Cupps contends the court erred in granting Mendelson's JNOV motion on the punitive damages claim.

A. Review Standard

In reviewing a defendant's JNOV motion, the trial court must examine the record in the light most favorable to the jury verdict, resolve conflicts in the plaintiff's favor, and give the plaintiff the benefit of all reasonable inferences supporting the jury's original verdict. (Stubblefield Construction Co. v. City of San Bernardino (1995) 32 Cal.App.4th 687, 703.) The motion may be granted only when the verdict lacks support as a matter of law. (Gillan v. City of San Marino(2007) 147 Cal.App.4th 1033, 1043.) On an appeal from a JNOV, we apply the same standards and conduct a de novo review. (Oakland Raiders v. Oakland-Alameda County Coliseum, Inc. (2006) 144 Cal.App.4th 1175, 1194; Borba v. Thomas (1977) 70 Cal.App.3d 144, 151-152.)

It is a fundamental rule of appellate law that a judgment challenged on appeal is presumed correct and it is the appellant's burden to affirmatively demonstrate error. (See Fladeboe v. American Isuzu Motors, Inc. (2007) 150 Cal.App.4th 42, 58.) Thus an appellant challenging a JNOV has the burden of setting forth all the material evidence showing trial court error.

B. Legal Principles Applicable to Punitive Damages Award

The purpose of a punitive damages award is to punish wrongdoers and thereby deter the commission of wrongful acts. (Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 928, fn. 13.) "An award should be no larger than the amount necessary to accomplish this purpose and therefore must be tailored to the defendant's financial status." (Michelson v. Hamada (1994) 29 Cal.App.4th 1566, 1593.)

To ensure a punitive damages award has a " 'deterrent effectwithout being excessive,' " a plaintiff has the burden to establish the defendant's financial condition at trial. (Kelly v. Haag (2006) 145 Cal.App.4th 910, 915.) "[A]ctual evidence of the defendant's financial condition is essential." (Ibid.) On appeal, a punitive damages award "cannot be sustained . . . unless the trial record contains meaningful evidence of the defendant's financial condition." (Adams v. Murakami (1991) 54 Cal.3d 105, 109; accord Baxter v. Peterson (2007) 150 Cal.App.4th 673, 680; Kelly v. Haag, supra, 145 Cal.App.4th at p. 915; City of El Monte v. Superior Court (1994) 29 Cal.App.4th 272, 276; Robert L. Cloud & Associates, Inc. v. Mikesell (1999) 69 Cal.App.4th 1141, 1152.) Further, the punitive damages award must be "based on the defendant's financial condition at the time of trial." (Kelly v. Haag, supra, 145 Cal.App.4th at p. 915, italics added.) Absent this evidence, "a reviewing court can only speculate as to whether the award is appropriate or excessive." (Adams v. Murakami, supra, 54 Cal.3d at p. 112.)

There is no specific measure for determining a defendant's financial condition. (Adams v. Murakami, supra, 54 Cal.3d at p. 116, fn. 7.) "Net worth is the most common measure, but not the exclusive measure. [Citations.] In most cases, evidence of earnings or profit alone are not sufficient 'without examining the liabilities side of the balance sheet.' [Citations.] 'What is required is evidence of the defendant's ability to pay the damage award.' [Citation.] Thus, there should be some evidence of the defendant's actual wealth. Normally, evidence of liabilities should accompany evidence of assets, and evidence of expenses should accompany evidence of income." (Baxter v. Peterson, supra, 150 Cal.App.4th at p. 680; accord Kenly v. Ukegawa, supra, 16 Cal.App.4th at pp. 56-58.)

To assist a plaintiff in meeting its punitive damages burden, the Legislature established a procedure in which the plaintiff "may subpoena documents or witnesses to be available at the trial for the purpose of establishing . . . financial condition . . . , and the defendant may be required to identify documents in the defendant's possession which are relevant and admissible for that purpose . . . ." (Civ. Code,  3295.) Given these beneficial discovery rules and that a punitive damages award is "essentially a windfall for plaintiffs" (Cassim v. Allstate Ins. Co. (2004) 33 Cal.4th 780, 812), "[i]t is not too much to ask of a plaintiff seeking such a windfall to require that he or she introduce evidence that will allow a jury and a reviewing court to determine whether the amount of the award is appropriate and, in particular, whether it is excessive in light of the central goal of deterrence'" (Kelly v. Haag, supra, 145 Cal.App.4th at p. 916).

C. Analysis

In this case, the court granted a JNOV on punitive damages based on its finding there was insufficient evidence to show Mendelson's financial condition and that he had the ability to pay the $160,000 award. Cupps acknowledges he did not present direct evidence of Mendelson's financial condition, nor did he invoke the specific statutory procedures for obtaining discovery of a defendant's net worth in a punitive damages case (see Civ. Code,  3295). Cupps nonetheless argues he presented sufficient evidence for the jury to find Mendelson's net worth was $896,000 and/or that Mendelson otherwise had the ability to pay the award based on the "millions of dollars" that Mendelson earned from the company. On our independent review of the appellate record, we conclude these contentions are unsupported.

1. Net Worth

Cupps's contentions about Mendelson's net worth are based primarily on Mendelson's 60 percent ownership interest in the J&J business. Cupps concedes that without including this asset in the net worth calculation, Mendelson's net worth is less than the punitive damages award, and thus this net worth would not support the award. (See Michelson v. Hamada, supra, 29 Cal.App.4th at p. 1596 [a punitive damages award generally cannot, as a matter of law, exceed 10 percent of a defendant's net worth without being excessive].)

The trial court found there was insufficient evidence to show the value of the J&J business and therefore it could not attach a monetary value to Mendelson's interest in the business. As he did below, Cupps contends that he presented sufficient evidence to show the value of the J&J business through the testimony of his expert, forensic accountant Richard Holstrom, and documents prepared by Holstrom.

Holstrom testified there were numerous missing documents and other irregularities in Mendelson's recordkeeping for the J&J business. But after making adjustments for these problems, Holstrom stated he was able to calculate J&J's past profits and expected future profits. His calculations were summarized in Exhibit 116 as follows:

As reflected in this chart, with respect to past profits, Holstrom opined that Cupps's 40 percent share of income earned by J&J from 2001 to 2007 was $493,435, and he opined that 40 percent of the expected future profits of the business (labeled "Future Value") was $486,101. Holstrom said this latter number is "exactly based on [estimated] future profits . . . discounted and risk affected."

Focusing on the future profits calculation ($486,101) in Exhibit 116, Cupps argues that these future expected profits are the same as the fair market value of the company and therefore the value of the entity can be calculated at about $1.2 million (i.e., if 40 percent of the future value is $486,101, then the total value is about $1.2 million, and Mendelson's interest would be $729,000). In support, Cupps points to two portions of Holstrom's testimony in which he mentioned that the future profits calculation was equivalent to the price at which Cupps could sell his interest if he were to "walk away" from the company.

The trial court found this testimony was insufficient to support a conclusion that the future expected company profits were equivalent to the actual value of the business. At the hearing on the JNOV motion, the court asked Cupps's counsel to identify the basis for Cupps's claim that Mendelson's net worth was "about a million dollars," and Cupps's counsel responded by referring to Holstrom's testimony about Cupps's future damages as equivalent to the value of the business. When the court stated that this method for valuing the business was never explained to the jury, Cupps's counsel responded: "He valued [the business] as a measure of future damages. Accounting people call it the equivalent. Don't ask me; I'm not the forensic accountant. It didn't make sense to me . . . ." The court replied "Mr. Pavone, you hit the nail on the head, it made no sense to me either. I don't think it made any sense [to the jury]." Cupps's counsel then stated: "In accounting circles, it makes sense. If I sat down with my accountant long enough, he would make it clear, and I guess he made it clear enough to the jury, that a future damage award is really an assessment of the value of the company."

The court rejected this contention and found the jury "just speculated" and there was no foundation for Holstrom's opinions on J&J's business value. The court additionally concluded that Holstrom's opinion on the company's future profits (which was the basis for the business value opinion) was speculative because there was no evidence to show Holstrom evaluated the relevant factors for determining the company's future profitability. The court further found no other evidence to support Cupps's counsel's claim that Mendelson owned assets of more than $1 million, or regarding the amount of Mendelson's personal liabilities at the time of trial.

Even when drawing all factual inferences in Cupps's favor, we agree with the trial court that the record was insufficient to establish the value of J&J and/or that Mendelson's 60 percent interest in the company supported the punitive damages award. Holstrom's testimony spans about 180 pages of reporter's transcript, and most of the testimony is directed to Holstrom's conclusions pertaining to his calculations of the company's prior net income and expected future profits. Cupps's counsel never directly asked Holstrom to opine on the value of the business, nor was there any evidence to show that Holstrom was qualified to determine a value of the business or was specifically retained to conduct this type of evaluation. Instead, the primary purpose of Holstrom's testimony was to establish Cupps's compensatory damages, by calculating the income earned by the company before 2007, and the expected income to be earned after 2007. Although at several points in his testimony, Holstrom noted that the expected future income was equivalent to the "future value" of the business and that this figure would be the value if Cupps left the business and sold his interest, he never explained the basis for this conclusion or provided a reasoned explanation as to why the future profits figure is the same as a fair market value of the business.

An expert's opinion that is unsupported by a reasoned explanation is speculative and has no evidentiary value. (Stephen v. Ford Motor Co. (2005) 134 Cal.App.4th 1363, 1371; Jennings v. Palomar Pomerado Health Systems, Inc. (2003) 114 Cal.App.4th 1108, 1116; Lockheed Litigation Cases (2004) 115 Cal.App.4th 558, 564 [the matter relied on by an expert must provide a reasonable basis for his opinion, and opinions based on speculation or conjecture are not admissible]; see also Pacific Gas & Electric Co. v. Zuckerman (1987) 189 Cal.App.3d 1113, 1135.)

Cupps suggests that the use of the traditional willing buyer/seller methodology is not the only method for valuing a business, and it may be appropriate to use other approaches under certain circumstances. We agree with this assertion, but there was no foundation in this case to explain to the jury that the "future income" approach was an accepted or proper methodology for valuing a business generally or in this particular industry. Moreover, there was no foundation showing Holstrom was qualified to provide an opinion as to the value of this particular type of business. Holstrom acknowledged that his conclusion as to the "future value" of J&J was based on his estimate of the potential net income that J&J/ACC might earn over the next few years assuming a five percent growth of the company, but he did not explain the basis for using this five percent growth figure, or identify any specific factors supporting this projection.

Citing to various portions of the record, Cupps contends that "under accounting theory, valuing a 100% future interest in a company is the same as the hypothetical sale price of that company." However, these citations do not support this contention. First, Cupps cites to Holstrom's cross-examination testimony in which he agreed with defense counsel that his opinion on future value was based on an assumption that Mendelson would be "forced" to "buy [Cupps] out," or that "somebody else bought [Cupps] out," and disagreed with defense counsel's statement that his opinions were "not a traditional analysis on valuation of a company." This conclusory testimony is not sufficient to support a reasoned opinion as to the market value of this asset. Cupps additionally cites to his counsel's comments made after the jury rendered its verdict during the hearing on the JNOV motion. These posttrial statements are not evidence that were considered by the jury. Cupps further relies on a declaration submitted by his expert in support of Cupps's supplemental brief after the jury rendered its verdict and after the court initially granted the JNOV motion on punitive damages. Again, because this evidence was not submitted at trial, it cannot serve as a basis to uphold the jury's verdict as to Mendelson's ability to pay the punitive damages award.

2. Ability to Pay Argument

Cupps alternatively contends that even if Holstrom's testimony was insufficient to establish the value of the business, the evidence of the "millions of dollars" in income that Mendelson received from J&J justified a finding that Mendelson had the ability to pay the punitive damage award. Without citing to the record, Cupps claims that, in addition to Mendelson's modest salary, Mendelson was "bringing in $300-$400,000 per month in revenue" from the business.

A fundamental flaw with this argument is that the jury verdict reflects the jury did not agree with Cupps's assertions that Mendelson had received this amount of profits from the company. Cupps's theory at trial was that he was entitled to 40 percent of all profits earned by J&J from 2001 through 2007, and/or at least 40 percent of the money taken out of the company by Mendelson during this time. According to Cupps's expert (Holstrom), this amount was $493,435 (40 percent of the total past profits earned by the company or about $1.2 million). During closing arguments, Cupps's counsel suggested the total past profit figure could have been much higher, possibly as high as $2.9 million, and argued that Cupps was entitled to 40 percent of these profits.

However, the jury awarded Cupps only $155,000 as past damages. This finding necessarily reflects that the jury found the company had earned substantially less profit than had been claimed by Cupps and his expert, and/or that Mendelson had taken out a substantially smaller amount from the company than had been claimed by Cupps. If Mendelson had taken millions of dollars out of the company, Cupps would have been entitled to 40 percent of the total amount as compensation for past economic loss. Based on the jury's findings, there is no reasonable basis for concluding that Mendelson earned any more than about $232,500 from the company in the prior seven years, i.e., if $155,000 is Cupps's share of what he would have earned as a 40 percent shareholder; then the total distributions would have been $387,500, and Mendelson's 60 percent share of this would have been about $232,500.

Moreover, even assuming there was evidence that Mendelson took "millions of dollars" from J&J, the existence of this income is unhelpful without evidence that Mendelson had possession of, or access to, these funds at the time of trial. Without this evidence, the claimed income cannot serve as a basis for concluding Mendelson had the ability to pay the punitive damages award. In this regard, Cupps's reliance on Zaxis Wireless Communications, Inc. v. Motor Sound Corp. (2001) 89 Cal.App.4th 577 is misplaced. In Zaxis Wireless, the defendant business had average annual revenues of "a quarter billion dollars," a $50 million line of credit, and "cash on hand and a checking account balance of over $19 million." (Id. at pp. 579, 583.) The company nonetheless claimed a negative net worth based on a $6 million note owed to the sole owner of the corporation and $4.9 million of accumulated depreciation. On this record, the Zaxis Wireless court found that although the company had a net loss "for accounting purposes," it clearly had available funds to pay the $300,000 punitive damages award. (Id. at p. 583.) There was no similar evidence that Mendelson had potentially available funds to pay the award.

We also find unpersuasive Cupps's reliance on Cummings Medical Corp. v. Occupational Medical Corp. (1992) 10 Cal.App.4th 1292. In Cummings, the court held that a punitive damages award was proper without regard to the defendant's net worth and suggested that such award could be based solely on the amount of profit defendant garnered from the fraud. (Id. at pp. 1299-1301.) However, in Kenly v. Ukegawa, this court criticized this holding and reasoning, stating that "[a]n award based solely on the alleged 'profit' gained by the defendant, in the absence of evidence of net worth, raises the potential of its crippling or destroying the defendant, focusing . . . solely on the assets side of the balance sheet without examining the liabilities side of the balance sheet." (Kenly v. Ukegawa, supra, 16 Cal.App.4th at p. 57.)

Additionally, to the extent that Cupps is basing his arguments on J&J's assets and income, these arguments are unhelpful because shareholders have no right to receive corporate profits except upon liquidation of the corporation or upon the declaration of a dividend by the corporate directors. Under the alter ego doctrine, a court may order that the corporate form be disregarded and the corporate veil pierced so that an individual shareholder may be held personally liable for the corporation's debts. But in California, a finding that a corporate principal is the alter ego of the corporation does not allow a creditor to reach the corporation's assets to satisfy a shareholder's personal liability. (See Postal Instant Press, Inc. v. KaswaCorp. (2008) 162 Cal.App.4th 1510, 1512-1513.) Thus, evidence relating to J&J and ACC's income and/or assets was insufficient to satisfy Cupps's burden, particularly without evidence of the total corporate liabilities.

Viewing all of the evidence pertaining to Mendelson's 60 percent ownership in J&J, the evidence was insufficient to establish Mendelson's financial condition and/or that he had the ability to pay the punitive damages award.

In his appellate briefs, Cupps raises numerous additional arguments in support of his claim that Mendelson had the ability to pay the award. We have reviewed these assertions, and find each of them unpersuasive. For example, Cupps discusses evidence of Mendelson's "lavish spending," but does not show Mendelson necessarily had the assets or income to pay for this spending. Additionally, the fact that Mendelson owns a home cannot support the award, where Cupps acknowledges the evidence shows that Mendelson's equity in the home is no more than $127,000. Further, Cupps's argument that Mendelson was paying his attorneys "in the neighborhood of $400,000 to $500,000" has no support in the record.

Additionally, we find unhelpful Cupps's focus on various comments made by Judge Meyer at the JNOV hearing. Because we are governed by a de novo standard, we review only the court's ruling and not its rationale. (See Bernstein v. Consolidated American Ins. Co. (1995) 37 Cal.App.4th 763, 769, disapproved on other grounds in Vandenberg v. Superior Court (1999) 21 Cal.4th 815, 841, fn. 13.) Further, on our review of the entire transcript of the hearings and considering the court's comments in context, we are satisfied that Judge Meyer understood the legal issue and conducted a proper JNOV analysis to conclude that the record did not contain sufficient evidence to show Mendelson's financial condition at the time of trial.

As he did below, Cupps argues he did not have the burden of presenting the financial condition evidence in a " 'bow tied' " fashion to the jury. We agree with this position. Evidence of a defendant's net worth is not required to be presented in any particular format or procedure (see Adams v. Murakami, supra, 54 Cal.3d at p. 116, fn. 7), and it is sufficient if the various facts, viewed collectively, establish the defendant's ability to pay the award. But this principle is inapplicable here because in this case there were insufficient facts to meet this standard. Without evidence of Mendelson's "actual total financial status," the punitive damages award was not supported. (Kenly v. Ukegawa, supra, 16 Cal.App.4th at p. 58.)

DISPOSITION

We affirm the Amended Judgment, filed May 14, 2008. The parties to bear their own costs on appeal.

HALLER, J.

WE CONCUR:

McCONNELL, P. J.

HUFFMAN, J

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[1] J&J Retail Services, Inc. later changed its name to J&J Management Group, Inc. Because there is no distinction between these entities for purposes of this appeal, we refer to both entities as J&J.

[2] This instruction read in part: "If you decide that [Cupps] has proved his claim for promissory fraud . . . , you also must decide how much money will reasonably compensate [Cupps] for the harm. . . . ' [] The amount of damages must include an award for all harm that [Mendelson] was a substantial factor in causing, even if the particular harm could not have been anticipated. [] [Cupps] must prove the amount of his damages. However, [Cupps] does not have to prove the exact amount of damages that will provide reasonable compensation for the harm. You must not speculate or guess in awarding damages. [] To determine the amount of damages, you must: [] 1. Determine the fair market value that [Cupps] would have received if the representations made by [Mendelson] had been true; and [] 2. Subtract the fair market value of what he did receive. [] The resulting amount is [Cupps's] damages. 'Fair market value' is the highest price that a willing buyer would have paid to a willing seller, assuming: [] 1. That there is no pressure on either one to buy or sell; and [] 2. That the buyer and seller know all the uses and purposes for which the stock of J&J is reasonably capable of being used. [] Fair market value must be determined as of the date that [Cupps] discovered [Mendelson's] false promise. . . ."

[3] Because the parties did not designate defense counsel's opening or closing arguments, or the testimony of several witnesses, it is difficult to discern the factual basis for the jury's findings on the contract and fiduciary duty claims.