Davis v. Anten
Filed 4/3/06 Davis v. Anten CA2/1
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
| JERROLD DAVIS, Cross-complainant and Respondent, v. LEWIS ANTEN et al., Cross-defendants and Appellants. | B118437 (Los Angeles County Super. Ct. No. BC060434) |
APPEAL from a judgment of the Superior Court of Los Angeles County. Daniel A. Curry, Judge. Affirmed.
Gelfand Rappaport & Glaser, Marvin Gelfand, Steven Glaser; Karpman & Associates and Diane L. Karpman for Cross-defendants and Appellants.
No appearance for Cross-complainant and Respondent.
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This appeal arises out of a dispute among shareholders and officers of Funrise, Inc., a company which sells toys. In the main action against defendant Jerrold Davis, a shareholder and former officer of Funrise, a jury found that Davis had embezzled funds from Funrise and caused other losses, awarding Funrise approximately $2.6 million from Davis. A cross-complaint by Davis asserted, among other claims, shareholder derivative causes of action on behalf of Funrise for diversion of corporate assets and usurpation of corporate opportunity against the two other Funrise shareholders, Lewis Anten and Arnold Rubin, and Funrise Toys, Ltd., a corporation owned by Rubin and Anten. After a court trial on the cross-complaint, Anten, Rubin and Funrise Toys were found liable to Funrise on certain derivative causes of action and ordered to pay certain sums as damages to Funrise.
Anten, Rubin, and Funrise Toys appeal from the portion of the judgment on the cross-complaint finding them liable on the shareholder derivative claims. They contend: (1) the trial court erred as a matter of law in failing to dismiss the derivative claims based on the equitable defense of Davis's unclean hands and (2) a purported malpractice judgment against Anten (Funrise's intellectual property lawyer) must be reversed because there is insufficient evidence that any conflict of interest caused harm to Funrise.
We conclude that appellants fail to establish the trial court erred in permitting Davis to assert the derivative claims on behalf of Funrise. With respect to the malpractice claim against Anten, we agree with appellants that there is insufficient evidence of causation, but the judgment against Anten should not be reversed because the judgment can be upheld on the alternative ground of Anten's breach of fiduciary duty as an officer and director of Funrise.
BACKGROUND
In 1987, Arnold Rubin, Jerrold Davis, Lewis Anten and Herbert Binder formed Funrise, a closely held corporation, to sell toys manufactured in Asia to retailers in the United States. Each owned a 25 percent interest in Funrise and each was an officer and director of Funrise. Funrise became profitable in 1988, but its business skyrocketed in 1989 when one of its product lines became popular. In late 1991, the other shareholders learned that Davis, who was employed by Funrise to manage its finances, had charged personal expenses on Funrise's credit cards and had taken money belonging to Funrise. At a board meeting in May 2002, Davis was terminated from employment with Funrise and he resigned his positions as officer and director.
In July 2002, Funrise filed an action against Davis for damages based on fraud, embezzlement, and other theories. Davis, who still held a 25 percent share in Funrise, filed a cross-complaint against Rubin, Anten, and others asserting derivative shareholder claims on behalf of Funrise, based on transactions after May 2002 which Davis claimed diverted assets and usurped corporate opportunities of Funrise. Davis also asserted a derivative cause of action against Anten for legal malpractice based on the same underlying transactions.
In May 1993, Binder sold his shares in Funrise to Rubin and Anten; Davis was not afforded the option to purchase a portion of Binder's shares. In connection with the sale of Binder's shares, Funrise paid $250,000 to Binder for Binder's covenant not to compete with Funrise. After the termination of Davis's employment with Funrise, Rubin and Anten transferred Funrise assets and formed other entities, including Funrise Toys, Ltd., to take over business formerly conducted by Funrise.[1] Anten, who was employed as Funrise's intellectual property lawyer, did not represent Funrise on the transactions which were the basis for the derivative action; Funrise was represented by outside counsel on those transactions.
The trial was conducted in two phases. In the first phase in October and November 1996, a jury found Davis liable to Funrise for about $2.6 million based on Davis's embezzlement and other conduct. In the second phase, a bench trial in November and December 1996, the trial court found against cross-defendants on certain shareholder derivative claims and ordered them to pay damages to Funrise in connection with those claims. With respect to the Binder transaction, the trial court found that Rubin and Anten â€
