Judge: Michael Shultz, Case: TC029210, Date: 2023-11-30 Tentative Ruling
Case Number: TC029210 Hearing Date: March 12, 2024 Dept: A
Tuesday,
March 12, 2024, at 8:30 a.m.
[TENTATIVE] ORDER
I.
BACKGROUND
This action originally commenced as a derivative action filed
by Plaintiff, Kris Park (“Park”), on behalf of SIWY Denim, Inc. (“SIWY”).
Plaintiff alleges that Defendants conspired to embezzle funds from SIWY. In the
related matter, BC714096 SIWY Denim, Inc, Raven Denim, Inc, Kiwi Media Group,
USA, Inc. v. Kris Park, Defendants alleged claims for breach of contract breach
of the implied covenant of good faith and fair dealing, fraud, negligence
misrepresentation, conversion, and breach of fiduciary duty. On July 31, 2023,
the jury rendered its verdict in favor of Plaintiffs, Kris Park (“Park”) and
SIWY (collectively, “Plaintiffs”).
At trial, the parties agreed to consolidate both cases in a
Master Complaint. The operative pleading is the Second Amended Master Complaint
(“SAMC”). Park added claims for breach of contract against Kiwi Company (“Kiwi
Co.”) and intentional and negligent misrepresentation against Kiwi Co. and
Chung. (SAMC, filed 7/25/23.)
II. ARGUMENTS
Defendants argue that the award in favor of Plaintiff Park for
$14.4 million on the claim for breach of the asset assignment agreement is unsupported
by the weight of the evidence. The jury’s award in favor of SIWY and against
Chung for $15.8 million for breach of fiduciary duty is contrary to the jury’s
findings. The verdict in favor of Plaintiffs for $4 million against Defendants Chung
and Kim for punitive damages is not supported by evidence of malice, fraud, or
oppression. The damages awarded are excessive. There were significant
evidentiary errors, technical failures, and instructional error that
necessitates a new trial. The jury was confused.
In opposition, Plaintiffs argue that sufficient evidence
supported the jury’s verdict. There was ample evidence to support the punitive
damages award. Defendants failed to provide affidavits or a declaration to
support their motion.
Defendants did not file a reply brief by January 24, 2024 (five
days after Plaintiffs served their opposition.) (Code
Civ. Proc., § 659a.)
III. LEGAL
STANDARDS
A new
trial may be granted where there are irregularity in the proceedings, excessive
or inadequate damages, or insufficiency of the evidence to justify the verdict
(among other enumerated causes), if the asserted causes materially
affected the substantial rights of the moving party. (Id.; Code
Civ. Proc., § 657.) The motion can’t be granted "unless after weighing the evidence
the court is convinced from the entire record, including reasonable inferences
therefrom, that the court or jury clearly should have reached a different
verdict or decision."
A new trial is "a re-examination
of an issue of fact in the same court after a trial and decision by a jury,
court, or referee.” (Code
Civ. Proc., § 656.) The error must have been prejudicial. The
Court is bound to deny the motion “[i]f it clearly appears that the error could
not have affected the result of the trial.” (Bristow
v. Ferguson (1981) 121 Cal.App.3d 823, 826.) The
motion must be made upon affidavits or on the minutes of the court. (Code
Civ. Proc., §658.)
IV.
DISCUSSION
A.
The weight of the evidence supports the
existence of an agreement.
Defendants
argue, without citation to the record, that Park never transferred shares to
Kiwi Co., as required by the agreement. (Mot. 9:20-23.) Defendants made the
identical argument in their JNOV motion, which was unpersuasive. Here, Park
testified to the existence of the asset agreement (Agreement 1) between
Plaintiff Park and Kiwi Co., calling for an exchange of shares. Park testified
that she performed her part of the agreement by transferring shares to Kiwi Co.
(7/20/23 R.T. 54:28-55:1-16; 57:4-16; 58:11-14, 58:28 – 59:1-6.) Defendant
Chung testified that the contract was binding. (7/21/23 R.T. 8:22-27; 9:4-5.)
The
evidence supported a finding that Kiwi Co., benefited from Agreement 1 when
they transferred and assigned the Overseas Distribution Agreement to a third
party. (Beck decl., ¶¶ 7, 10.) Defendants’ contention that the jury was
“confused” is not a basis for a new trial given the weight of evidence.
B.
Breach of Fiduciary Duty
The
evidence was sufficient to support a breach of fiduciary duty owed by Chung to
SIWY. The law recognizes that "officers and directors owe a fiduciary duty
to stockholders and controlling stockholders owe a fiduciary duty to minority
stockholders." (Singhania
v. Uttarwar (2006) 136 Cal.App.4th 416, 426.) Chung testified that he
was a registered director with the authority to operate the business with a
legal responsibility. (Beck decl., TT 7/20/23 86:24-27; 89:23-28; 90:1-17.) Chung
argues, without citation to the trial transcript, that Park never acknowledged
him to be an officer. However, the Statement of Information for SIWY dated
April 6, 2017, identified Chung as an additional director. (Beck decl., Ex. 6.)
With
respect to the breach, Park testified that Kiwi Co., never made the minimum
purchase of product from SIWY totaling $25.7 million dollars within the
required 5-year time period as required by the Overseas Distribution Agreement.
(Beck Decl., ¶ 22, TT 7/29/23 111:5-9; 112:6-9.) Instead, SIWY’s purchases for that
period totaled $1 million. (Beck decl., TT 7/20/23 11:3-20; 12:17-13:9.)
The
evidence also supported a finding that Chung breached his fiduciary duty by
failing to sell and actively create demand for SIWY products as required by the
party’s agreement. Moreover, Defendant transferred the rights to that agreement
to a third party without Plaintiffs’ written consent, among other things. (Beck
decl., Ex. 12.)
The
weight of evidence supported the jury’s finding that Chung breached his
fiduciary duty by failing to make the minimum purchase requirements of SIWY
product that would be used to fund SIWY’s business operations.
C.
The damage award was supported by the evidence
and is not excessive.
With
respect to the jury’s award of $15.8 million in damages for Defendants’ breach,
the award was supported by substantial evidence of Defendants’ failure to
adhere to the minimum purchase schedule. Plaintiff’s evidence established the
scheduled minimum purchase amounts required of Chung which he failed to pay,
and the damage arising therefrom totaling $17,116.666.66. (Beck decl., Ex. 13.)
D.
The evidence supported a finding that Defendant
Chung acted with malice, fraud, or oppression.
Defendants
argue that the jury’s verdict was internally inconsistent as they did not find
damages arising from an alleged misrepresentation. Defendants argue that their transferring of
its overseas distribution rights or failure to meet its minimum purchase
obligations cannot support recovery of punitive damages. (Mot. 10:10-21.)
Notwithstanding
Defendants’ view of the evidence, the jury’s determination that Defendants
engaged in the predicate acts supporting the underlying claims is supported by
the weight of the evidence. The jury found
that Defendants engaged in conduct with malice, fraud, or oppression in
connection with Park’s and SIWY’s claim for breach of fiduciary duty, conversion,
or constructive fraud. (Beck decl., ¶ 24.)
The
evidence adduced at trial supports Plaintiffs’ contention that Chung transferred
the Overseas Distribution Agreement to another company, Deco & E, who paid $3.5
million as a security deposit. (Beck decl., ¶ 24, TT 7/20/23, 6:22-24;
11:17-18.) Chung testified that he did not receive cash and that if he had, it
would have been paid to SIWY. (Id.) He later affirmed
Kiwi Co., received the deposit and used the money. (Beck decl., ¶ 25, 7/24/23
RT 20:19-21; 21:18-22:8.) The evidence supports a finding of despicable
conduct.
V.
CONCLUSION
Defendants
have not met their burden of showing that based on the entire record, “the jury
clearly should have reached a different verdict or decision." (Code
Civ. Proc., § 657.) Accordingly, Defendants’ motion is DENIED.