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Sayegh v. Two Rivers

California Court of Appeals, Third District, Nevada
Apr 25, 2011
No. C064386 (Cal. Ct. App. Apr. 25, 2011)

Opinion


MITCHELL B. SAYEGH, Cross-complainant and Appellant, v. TWO RIVERS, et al., Cross-defendants and Respondents. C064386 California Court of Appeal, Third District, Nevada April 25, 2011

NOT TO BE PUBLISHED

Super. Ct. No. 72934

BLEASE, Acting P. J.

This appeal centers on the actions of shareholders and directors in a small incorporated printing business, Digital Direct, Inc. (DDI). In response to a lawsuit seeking to collect payment of a promissory note, appellant Mitchell B. Sayegh cross-complained against three other shareholders and directors of DDI (respondents Steven Spiller, David Scinto, and Kenneth Meyers) alleging their breach of fiduciary duties. Sayegh appeals the portion of the judgment denying him any relief, claiming (1) the trial court applied the incorrect standard of proof, and (2) the evidence shows a breach of fiduciary duties. We shall affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

In accord with the usual rules on appeal, we state the facts in the manner most favorable to respondents. (Cassim v. Allstate Ins. Co. (2004) 33 Cal.4th 780, 787.)

Sayegh and his wife Barbara Sayegh started a business known as Information Systems to provide building permit information services. The business later expanded into printing services, including direct mail services done with digital printing. In 1998, the business was incorporated as DDI. The Sayeghs owned shares in the new corporation amounting to over 91 percent of the issued shares. The other issued shares were owned by family members and friends, including Meyers, whose profession is portfolio management. Sayegh was president and chief executive officer (CEO) of DDI. Sayegh was, and continues to be, a member of DDI’s board of directors.

In 2001, DDI retained the services of the law firm Spiller·McProud and David Scinto, a certified public accountant, to assist DDI as its business grew. As DDI did not have cash to pay for these services, Spiller·McProud and Scinto agreed to take stock in exchange for their services.

Between 2001 and March of 2003, Scinto and Spiller·McProud received DDI stock for the work they performed on DDI’s behalf pursuant to their fee agreements. From the record before us, it appears Sayegh, Spiller, Meyers, and Scinto were all members of DDI’s board of directors at least from August 2003.

As of August 2004, Spiller·McProud had 6, 000 shares, Scinto had 5, 372 shares, and Meyers had 3, 928 shares. At the same time, having divorced, Sayegh owned 46, 415 shares and Barbara Sayegh owned 46, 415 shares. Together, the Sayeghs still owned over 80 percent of DDI’s issued and outstanding shares, but individually they each owned less than a majority interest. Barbara Sayegh stopped working for DDI because of her divorce from Sayegh.

In 2004, the business was growing and Sayegh wanted help in running the company. The Sayeghs agreed to sell approximately 29, 000 of their shares of stock to Todd Humphrey and Sayegh insisted DDI employ Humphrey to work alongside Sayegh. It was Sayegh’s management decision to bring Humphrey into the company to manage DDI as managing director and chairman of the board. Spiller, Meyers, and Scinto had nothing to do with the decision and were only notified after the fact. Humphrey loaned DDI $50,000.

According to Sayegh, Humphrey was more work than help. Humphrey demanded some kind of payoff to leave the company and insisted DDI purchase his stock back. Neither DDI nor Sayegh had the cash to buy Humphrey’s shares back. In 2005, Sayegh requested and entered into an agreement with Spiller, Meyers and Scinto whereby the latter agreed to increase their investment in DDI by purchasing Humphrey’s stock. In exchange for their agreement to buy Humphrey’s stock, Sayegh agreed to enter into a stock voting trust agreement granting Meyers, as trustee, the right to vote Sayegh’s stock for two years. As the result of the Humphrey buy-out, Spiller·McProud, Scinto and Meyers owned approximately 38 percent of DDI’s issued stock.

There is some question whether Humphrey’s shares were actually returned to DDI as treasury shares with Spiller, Meyers and Scinto loaning the money to DDI for the buy-back. From the acknowledgements in the voting trust agreement signed by Sayegh as part of the transaction, it appears more likely it was a straight purchase. Either way, the end result was an increase of percentage of ownership by Spiller, Meyers and Scinto.

DDI leased a building in Marysville for the conduct of its printing operations. The lease included an option to purchase the building and property, which expired unless it was exercised before September 2005. The board of directors of DDI determined the corporation was not in a financial position to exercise the option for the building and that, in any case, it was not a good business decision for DDI to own the real property. However, rather than let the option expire, Spiller, Meyers, Scinto and Sayegh exercised the option on their own and then offered to let all other shareholders of DDI participate in the purchase in a percentage equal to their ownership of DDI stock. No other shareholder chose to participate. Two Rivers, LLC (Two Rivers) was formed to hold the legal title to the property. Two Rivers is owned by Spiller, Meyers, Scinto and Sayegh, each owning 25 percent. Sayegh executed a promissory note to Spiller·McProud, Meyers and Scinto for $12,500 as part of this transaction. Eventually this note was assigned to Two Rivers.

In March 2006, DDI had cash flow problems and needed additional capitalization. The board of directors met and discussed the matter. Spiller, Meyers, and Scinto agreed to invest an additional $30,000 in exchange for stock at $1 per share. It was further agreed that existing corporate debt owed to Meyers, Spiller·McProud, Scinto, and Sayegh would be converted to shares at $1 per share. This would remove debt from DDI’s balance sheet. Sayegh agreed to convert an account receivable owing to him in an amount necessary to permit him to maintain his same percentage of ownership. The percentage of ownership of Spiller·McProud, Meyers, and Scinto increased as a result of these transactions. Combined, they ended up holding a majority interest of 53.29 percent, according to their records. According to Sayegh’s records, their combined interest at this point amounted to 45.69 percent.

One of the cash flow problems addressed by the board of directors at its March 2006 meeting was a corporate car that had been provided to Barbara Sayegh when she worked for DDI. She refused to return the car and DDI was forced to continue paying the financing payments, registration and insurance. At the March meeting, the board directed Spiller to take legal action if necessary to recover the vehicle so that it could be sold to reduce ongoing corporate expenditures. At the April 2006 meeting of DDI’s board of directors, Barbara Sayegh offered to transfer all of her stock to the corporation in exchange for DDI’s conveyance of the car to her free from all liens. The board accepted her offer. Barbara Sayegh returned 31, 932.5 shares of stock to the corporation in exchange for the car. All of the remaining shareholders’ percentage of ownership of DDI increased as a result of the transaction. Sayegh’s interest increased to somewhere in the range of 32 to 39 percent. After the transaction, Spiller·McProud, Meyers, and Scinto separately owned stock interests of between 13 and 22 percent. Together, however, they clearly held a majority interest in DDI.

During 2006 and into 2007, Sayegh pursued the possible sale of DDI to a company called Rapid Solutions Group without obtaining prior authorization from DDI’s board of directors. The board was upset and directed Sayegh not to do it again. At some point later, Meyers learned Sayegh had entered into negotiations for the sale of DDI to a company called Metro Mailing Service (also referred to as Metro Print and Mail, hereafter Metro) without prior knowledge of the other board members.

In June 2007, Spiller, Meyers, and Scinto met with Steve Giardina to discuss his possible employment by DDI. The board of directors met to discuss the hiring of Giardina and the terms of his employment at a meeting in August 2007. Sayegh attended the meeting and was the only board member who voted against hiring Giardina. Under the terms of Giardina’s employment, he would be president/CEO of DDI and Sayegh would work under his supervision.

Sayegh refused to work under the direction of Giardina and resigned his DDI employee position in August 2007. Sayegh remained a shareholder and a member of DDI’s board of directors. After he left DDI’s employment, but while he was still a director, Sayegh emailed one of DDI’s newspaper customers and told the customer that he could call and educate them on new opportunities. Shortly thereafter, the customer dropped a portion of its business with DDI and signed up with Sayegh’s new employer - Metro. Sayegh failed to give DDI an opportunity to expand its business with the customer and as a result of his actions, DDI lost profits in excess of $35,000.

Two Rivers filed a complaint against Sayegh for failing to pay the $12,500 promissory note. Sayegh cross-complained against Two Rivers, DDI, Spiller, Meyers, and Scinto. In his cross-complaint, he alleged that Spiller, Meyers, and Scinto committed fraud and breached their fiduciary duties with regard to their alleged roles with DDI. Sayegh complained that their actions diluted his shareholder interest in DDI and eventually forced him out of the business. The cross-complaint contained causes of action for (1) breach of fiduciary duty/constructive fraud as a shareholder derivative suit, (2) breach of fiduciary duty/constructive fraud as Sayegh’s individual action, (3) conspiracy to defraud, (4) cancellation of stock certificates, and (5) declaratory relief. DDI then cross-complained against Sayegh for breach of his fiduciary duties and his failure to pay under another promissory note. The latter claim was subsequently severed.

After a court trial, judgment in the amount of $16,880.54 was entered in favor of Two Rivers and against Sayegh on the complaint. The judgment directed that Sayegh take nothing on his cross-complaint. Judgment in the amount of $35,379.21 was entered in favor of DDI and against Sayegh on DDI’s cross-complaint.

Sayegh appeals, but raises issues only on the judgment entered on his cross-complaint denying him relief on his claims of breach of fiduciary duty.

DISCUSSION

I.

The Trial Court Did Not Apply An Incorrect Standard of Proof

Sayegh claims the trial court committed reversible error by applying incorrect standards of proof. Sayegh does not further explain his claim. He simply refers us to the trial court’s statement of decision, which he asserts “reveals a lack of consideration by the Court of the fiduciary duties owed by Respondents in their professional capacities and as corporate shareholders, officers and directors.” In a later section of his brief, however, Sayegh more specifically argues respondents should bear the burden of proof to justify their actions and establish that such actions are fair and equitable.

Respondents understand Sayegh to be arguing the trial court committed error by failing to address certain issues in the statement of decision. To the extent Sayegh is making such an argument, it is an impermissible “lurking” argument, as it is not clearly presented as required in any heading of the opening brief, which relieves us of the obligation to respond (Imagistics International, Inc. v. Dept. of General Services (2007) 150 Cal.App.4th 581, 593, fn. 10), as does the perfunctory assertion of the issue (id. at p. 592, fn. 8).

In its statement of decision, the trial court stated that “[t]o prove breach of fiduciary duty, Sayegh had to show: (1) a fiduciary duty; (2) failure to exercise that duty in a reasonable manner; (3) plaintiff’s harm; and (4) defendant’s conduct was a substantial factor in causing plaintiff’s harm. (CACI 4101 and 4106.)” The trial court then concluded Sayegh had failed to establish the last three elements and explained why. We see no error in the trial court’s statement of the burden of proof.

In order to recover for breach of a fiduciary duty, a plaintiff must show the existence of a fiduciary relationship, its breach, and damage proximately caused by that breach. (CACI No. 4101; Shopoff & Cavallo LLP v. Hyon (2008) 167 Cal.App.4th 1489, 1509; LaMonte v. Sanwa Bank California (1996) 45 Cal.App.4th 509, 517.) The plaintiff has the initial burden of proving the existence of a fiduciary duty and the failure of the fiduciary to perform it. Once the initial burden is met, the burden then shifts to the fiduciary to justify his or her actions. (LaMonte v. Sanwa Bank California, supra, 45 Cal.App.4th at p. 517.)

Sayegh, however, points us to Probate Code section 16004, subdivision (c) (section 16004(c)), dealing with transactions between a trustee and a beneficiary. Section 16004(c) states, in relevant part: “A transaction between the trustee and a beneficiary which occurs during the existence of the trust or while the trustee’s influence with the beneficiary remains and by which the trustee obtains an advantage from the beneficiary is presumed to be a violation of the trustee’s fiduciary duties. This presumption is a presumption affecting the burden of proof.” (Italics added.) Sayegh notes that this presumption has been applied in the context of the fiduciary relationship between an attorney and client. (Hicks v. Clayton (1977) 67 Cal.App.3d 251 [applying Civil Code section 2235, the predecessor statute to section 16004(c)].)

Sayegh does not cite us, however, to any authority indicating this section applies to officer or directors of a corporation or majority shareholders. Indeed, the case law is to the contrary. Corporate directors are not trustees within the meaning of this section. (Crespinel v. Color Corp. of America (1958) 160 Cal.App.2d 386, 390 [directors are fiduciaries, but not strictly trustees; no automatic presumption of fraud, inadequacy of consideration or unfairness].) We see no reason to reach a different conclusion as to officers or majority shareholders.

As we shall explain, it is respondents’ fiduciary duties as officers, directors, and eventually as majority shareholders, that are at issue here, not their duties as an attorney, accountant or portfolio manager. No presumption of violation was applicable and the trial court did not apply an incorrect standard of proof.

II.

Respondents’ Fiduciary Duties

Sayegh argues that Spiller, Meyers, and Scinto owe fiduciary duties as majority and controlling shareholders of DDI and majority and controlling members of Two Rivers. Sayegh claims that “[i]n addition to the fiduciary duties owed by... Spiller, Scinto, and Meyers as majority and controlling shareholders and directors of [DDI], and in addition to the fiduciary duties owed by them as controlling and managing members of [Two Rivers], each of these three individuals also owes to Sayegh and the shareholders of [DDI] the fiduciary duties attendant to each their respective occupation and relationship with [DDI], including but not limited to those set forth in the attorneys’ Rules of Professional Conduct (Spiller), the Board of Accountancy’s Regulations and Code of Ethics (Scinto), and the security industry’s Investment Advisors Act of 1940 ([15] U.S.C. § 80b-1, et seq.) buttressed by FINRA Regulations, all of which are supplemented by California law.” Sayegh goes on to discuss each of these professional fiduciary duties in more detail before asserting that “[h]ere, the evidence demonstrates that Sayegh’s advisors, Spiller, Scinto, and Meyers, each acted in violation of their respective obligations, and in breach of their fiduciary duties; and did so in concert in a manner which systematically diminished Sayegh’s ownership interests in [DDI], and his role in the business of the corporation as well.”

To address Sayegh’s contentions, it is necessary to consider the specific nature of his claims of breach of fiduciary duties. In his cross-complaint Sayegh alleged causes of action for breach of fiduciary duties as a shareholder derivative suit and as an individual suit. A review of the nature of his claims, however, reveals Sayegh’s action to be an individual suit and not a shareholder derivative suit (with potentially one exception we discuss later relating to the exercise of DDI’s building purchase option).

“A shareholder’s derivative suit seeks to recover for the benefit of the corporation and its whole body of shareholders when injury is caused to the corporation that may not otherwise be redressed because of failure of the corporation to act. Thus, ‘the action is derivative, i.e., in the corporate right, if the gravamen of the complaint is injury to the corporation, or to the whole body of its stock and property without any severance or distribution among individual holders, or it seeks to recover assets for the corporation or to prevent the dissipation of its assets.’ [Citations.] ‘A stockholder’s derivative suit is brought to enforce a cause of action which the corporation itself possesses against some third party, a suit to recompense the corporation for injuries which it has suffered as a result of the acts of third parties.... The stockholder’s individual suit, on the other hand, is a suit to enforce a right against the corporation which the stockholder possess an as individual.’ [Citation.]” (Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93, 106-107.)

Here, Sayegh did not seek to recover on behalf of DDI for injury done to the corporation. Rather, he claimed Spiller, Meyers, and Scinto systematically diluted and reduced Sayegh’s stock interest in DDI, took control of the business, and ultimately forced him out of employment with the company. These are injuries to Sayegh’s individual interests as the founder of DDI, its controlling manager and shareholder. These are not derivative claims.

In fact, Sayegh abandoned any claim of a shareholder derivative action when he failed to identify and pursue any such claim after the trial court stated its view that his action did not include any derivative claims. Moreover, as respondents point out, Sayegh’s cross-complaint fails to properly state a shareholder derivative cause of action because the cross-complaint fails to allege compliance with the requirements of Corporations Code section 800, subdivision (b). Corporations Code section 800, subdivision (b) provides, in pertinent part, that “[n]o action may be instituted or maintained in right of any domestic or foreign corporation by any holder of shares or of voting trust certificates of the corporation unless both of the following conditions exist: [¶]... [¶] (2) The plaintiff alleges in the complaint with particularity plaintiff’s efforts to secure from the board such action as plaintiff desires, or the reasons for not making such effort, and alleges further that plaintiff has either informed the corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the corporation or the board a true copy of the complaint which plaintiff proposes to file.” (Italics added.) Sayegh’s cross-complaint fails to include these necessary allegations.

Sayegh cannot assert any fiduciary duty owed by respondents to him individually based on their professional occupations. The evidence showed Spiller·McProud was retained to provide legal services to DDI. There is no evidence Spiller or Spiller·McProud ever had an attorney/client relationship with Sayegh. Similarly, Scinto was retained by DDI to provide accounting services for the corporation. There is no evidence Scinto provided any accounting services to Sayegh. Meyers was apparently a personal friend of Sayegh’s in previous years, but there is no evidence he was acting in his professional capacity on behalf of Sayegh when he was a shareholder and director of DDI. Thus, Sayegh may not base his claim of breach of fiduciary duties by respondents on the duties they owe when acting in their professional roles.

This does not mean respondents did not owe any fiduciary duty to Sayegh. “California law clearly recognizes that officers and directors owe a fiduciary duty to stockholders and controlling stockholders owe a fiduciary duty to minority stockholders. [Citations.] ‘The rule that has developed in California is a comprehensive rule of “inherent fairness from the viewpoint of the corporation and those interested therein.” [Citations.] The rule applies alike to officers, directors, and controlling shareholders in the exercise of powers that are theirs by virtue of their position and to transactions wherein controlling shareholders seek to gain an advantage in the sale or transfer or use of their controlling block of shares.’ [Citation.]” (Singhania v. Uttarwar (2006) 136 Cal.App.4th 416, 426; accord Stephenson v. Drever (1997) 16 Cal.4th 1167, 1178.)

III.

Respondents Did Not Breach Their Fiduciary Duties

Sayegh claims the evidence establishes respondents breached their fiduciary duties to him in a number of transactions from 2001 to 2007. We will review them separately to consider whether the trial court erred in determining respondents did not breach any fiduciary duty owed to Sayegh. We conclude the trial court did not.

A. The Initial Fee Agreements Between DDI and Scinto/DDI and Spiller·McProud

Sayegh complains about Spiller·McProud and Scinto acquiring shares of DDI in exchange for their services. Sayegh contends the fee agreements were inadequate and presumptively unfair.

Sayegh has waived the right to raise any issues regarding the initial fee transactions. In his opening statement at trial, counsel for Sayegh expressly represented to the trial court that there was no problem with those initial transactions and even if there was some question regarding their propriety, Sayegh regarded the transactions “as matters which were agreed to.” The trial proceeded on that basis and Sayegh may not now challenge the agreements after leading the court and respondents to believe they were not being litigated at trial.

Moreover, even if the issues had not been waived, Sayegh could not establish a breach of fiduciary duties owed to him by Spiller and Scinto accepting shares of DDI stock as their fees for providing their professional services to DDI. Again, no shareholder derivative action was properly alleged or pursued. Neither Spiller nor Scinto were providing their professional services to Sayegh individually. In agreeing to accept shares in exchange for their services, they were not acting as directors, officers, or majority shareholders.

B. The Humphrey Buy-Out

In 2004, Sayegh and his ex-wife agreed to sell approximately 29, 000 of their shares of stock to Todd Humphrey and Sayegh insisted DDI employ Humphrey to work alongside Sayegh. Unfortunately, Humphrey turned out to be more work for Sayegh than help. Sayegh wanted him removed from his position. In 2005, an agreement was reached for Humphrey to leave DDI. Spiller, Meyers, and Scinto ended up increasing their investment in DDI by purchasing Humphrey’s stock. In exchange for their agreement to buy Humphrey’s stock, Sayegh agreed to enter into a stock voting trust agreement granting Meyers, as trustee, the right to vote Sayegh’s stock for two years. As the result of the Humphrey buy-out, Spiller·McProud, Scinto, and Meyers together owned approximately 38 percent of DDI’s issued stock.

Nothing suggests Spiller, Meyers, or Scinto breached any fiduciary duty owed to Sayegh in this transaction.

The record reflects that at the time of this decision, Sayegh had already become a minority shareholder by reason of his divorce. It was Sayegh’s decision alone to bring Humphrey into the company to manage DDI as managing director and chairman of the board. The Sayeghs sold approximately 29, 000 of their shares of stock to Humphrey as part of this decision and only notified respondents after the fact. When Humphrey’s employment with DDI did not work out, Sayegh wanted DDI to get rid of Humphrey. Humphrey, however, demanded some kind of payoff to leave the company. Humphrey insisted DDI purchase his stock back. Neither DDI nor Sayegh had the cash to buy Humphrey’s shares back. Sayegh requested and entered into the agreement with respondents whereby the latter agreed to increase their investment in DDI by purchasing Humphrey’s stock. Apparently concerned with the additional risk they were undertaking by making the additional investment in the company, respondents conditioned their agreement to further invest in the company on Sayegh’s execution of the two-year voting trust giving Meyers the right to vote Sayegh’s shares.

From these facts, it appears Sayegh invited respondents’ purchase of Humphrey’s stock and increase in their shareholder position. Sayegh needed to make the request as a consequence of his and his ex-wife’s earlier choice to sell Humphrey a portion of their stock, the failed experiment of Humphrey’s employment, and Sayegh’s financial inability to buy back Humphrey’s shares. Respondents’ increase in share ownership was not based on their professional advice to Sayegh. It was not a transaction respondents sought from their positions as corporate directors or officers. Respondents were not majority shareholders before or after they acceded to Sayegh’s request for them to increase their stake in DDI. Sayegh freely agreed to the voting trust allowing Meyers to vote his shares for a limited period of time in exchange for the help in getting Humphrey removed from the business. The other respondents were not trustees of the voting trust. This evidence does not establish a basis for Sayegh to complain about respondents agreeing to help him out.

C. The Two Rivers Transaction

Sayegh complains that DDI lost its interest in the building it was occupying when the property was transferred to Two Rivers. He claims “[t]his transaction was conducted without inquiry from the point of view of [DDI], as the decision had been made to transfer the property to the majority shareholders, who would then lease the property back to [DDI]. Thus, there was no showing at trial of any reasonable inquiry, nor was there any evidence that the shareholders acted as an ordinarily prudent person would do in like circumstances.”

These claims appear to assert an injury to DDI. Sayegh, however, did not adequately allege or pursue a shareholder derivative action. (See fn. 3, ante.) It is unclear if Sayegh claims he was also individually injured by this transaction.

Whatever the nature of his action, however, Sayegh’s claims are not supported by the evidence. DDI leased a building in Marysville for the conduct of its printing operations. The lease included an option to purchase the building and property, which expired unless it was exercised before September 2005. Sayegh fails to acknowledge that the board of directors of DDI determined the corporation was not in a financial position to exercise the option for the building and that, in any case, it was not a good business decision for DDI to own the real property. There is no evidence in the record providing a basis to question such determinations.

Rather than let the option expire, Spiller, Meyers, Scinto, and Sayegh exercised the option on their own and then offered to let all other shareholders of DDI participate in the purchase in a percentage equal to their ownership of DDI stock. No other shareholder chose to participate. Two Rivers was formed to hold the legal title to the property. Spiller, Meyers, Scinto, and Sayegh each own a 25 percent share of Two Rivers.

There is no evidence showing a breach of fiduciary duty by respondents in this transaction.

D. Respondents 2006 Increase In Ownership

In March 2006, DDI had cash flow problems and needed additional capitalization. The corporation was barely breaking even. DDI was on credit hold with its paper supplier and needed to purchase postage. The board of directors met and discussed what could be done, including raising prices and working receivables. Respondents agreed to invest an additional $30,000 in DDI in exchange for stock at $1 per share. It was further agreed that existing corporate debt owed to Meyers, Spiller·McProud, Scinto, and Sayegh would be converted to shares at $1 per share. This would improve DDI’s balance sheet by removing debt. Sayegh agreed to convert an account receivable owing to him in an amount necessary to permit him to maintain his same percentage of ownership. The minutes of the meeting of the board of directors does not reflect any objection by Sayegh. Inasmuch as the minutes reflect the actions of the directors, in the absence of contrary evidence, it can be inferred he agreed with the actions.

The percentage of ownership of Spiller·McProud, Meyers, and Scinto increased as a result of these transactions. According to their records, respondents ended up holding a combined majority interest of 53.29 percent. According to Sayegh’s records, their combined interest at this point amounted to 45.69 percent.

The facts suggest no manipulation by respondents as directors, officers, or shareholders to reach this outcome. Nothing suggests the transaction was unfair. DDI was in financial difficulty. It can reasonably be inferred from the fact that DDI was on credit hold with its paper supplier that DDI was not in a position where it could borrow operating capital. Respondents agreed to invest an additional $30,000 in the company in exchange for stock. In addition, an effort was made to improve DDI’s balance sheet by removing debt. Respondents and Sayegh all received $1 per share for conversion of the debt DDI owed to them. Indeed, Sayegh was authorized to convert an account receivable owing to him specifically so that he could maintain his same percentage of ownership. Sayegh apparently agreed to all of these actions. In light of these circumstances, the evidence does not establish any breach of fiduciary duty owed to Sayegh by respondents.

E. Barbara Sayegh’s Exchange Of Her Stock For A Car

A corporate car was provided to Barbara Sayegh when she worked for DDI. The Sayeghs divorced and Barbara Sayegh stopped working for DDI, but she refused to return the car. DDI was forced to continue paying the financing payments, registration, and insurance for the car. The board directed Spiller to take legal action if necessary to recover the vehicle so that it could be sold to reduce ongoing corporate expenditures.

At the April 2006 meeting of DDI’s board of directors, Barbara Sayegh offered to transfer all of her stock to the corporation in exchange for DDI’s conveyance of the car to her free from all liens. The board accepted her offer. Barbara Sayegh returned 31, 932.5 shares of stock to the corporation in exchange for the car. All of the remaining shareholders’ percentage of ownership of DDI increased as a result of the transaction. Sayegh’s interest increased to somewhere in the range of 32 to 39 percent. After the transaction, Spiller·McProud, Meyers, and Scinto separately owned stock interests of between 13 and 22 percent. Combined, they clearly held a majority interest in DDI.

We note it was Barbara Sayegh who proposed this exchange of her stock for the car. Although Spiller had been authorized to pursue legal action to recover the car for DDI, there is no evidence that any respondent suggested to Barbara Sayegh that she offer her stock in exchange for the car as a method of resolving the matter. There is no evidence in the record of either the car’s value, the amount DDI was spending to maintain it, the anticipated cost of a legal action to recover the car, or the value of DDI’s stock at the time of the exchange. As a result, we have no basis on which to evaluate the reasonableness of the exchange. We do know that when the board accepted her offer, all of the remaining shareholders’ percentage of interest in DDI increased, including Sayegh’s. All shareholders benefitted proportionately. (See Stephenson v. Drever, supra, 16 Cal.4th at p. 1178.) On this evidence, the trial court did not err in failing to find a breach of fiduciary duty by respondents.

We recognize Sayegh’s presentation of evidence regarding his ex-wife’s exchange of stock for the car was cut off when the trial court sustained respondents’ objection to it. Sayegh, however, offers no argument on appeal that the trial court erred in its evidentiary ruling.

F. The Hiring of Giardina

Sayegh appears to complain about the hiring of Giardina in 2007. His argument lacks clarity and he fails to cite us to any evidence in the record that suggests the terms of Giardina’s employment were unreasonable. Rather, Sayegh is unhappy with what appears to be a good faith business decision of the board of directors to bring in a new president/CEO for DDI when the corporation was having business difficulties and after Sayegh had twice pursued the sale of DDI without board authorization and against its wishes. Sayegh was not fired but assigned to work under Giardina’s supervision. Sayegh chose to resign. He remained, however, a shareholder and director of the company. To the extent Giardina succeeds in making DDI successful, Sayegh still stands to gain as a shareholder owning a significant percent of DDI’s stock.

The record does not support Sayegh’s claim of breach of fiduciary duty by respondents in hiring Giardina.

Conclusion

Having reviewed each of these transactions, we conclude there was no trial court error.

DISPOSITION

The judgment is affirmed. Costs on appeal are awarded to respondents. (Cal. Rules of Court, rule 8.278(a).)

We concur: HULL, J., ROBIE, J.


Summaries of

Sayegh v. Two Rivers

California Court of Appeals, Third District, Nevada
Apr 25, 2011
No. C064386 (Cal. Ct. App. Apr. 25, 2011)
Case details for

Sayegh v. Two Rivers

Case Details

Full title:MITCHELL B. SAYEGH, Cross-complainant and Appellant, v. TWO RIVERS, et…

Court:California Court of Appeals, Third District, Nevada

Date published: Apr 25, 2011

Citations

No. C064386 (Cal. Ct. App. Apr. 25, 2011)