Topanga Corp. v. Gentile

Opinion

THOMPSON, J.

Defendants appeal from a judgment granting $50,000 exemplary damages secured by a lien upon their personal property. In an earlier proceeding, defendants, promoters and shareholders of plaintiff Topanga Corporation, were found guilty of defrauding Topanga.

(Topanga Corp.

v.

Gentile,

249 Cal.App.2d 681 [58 Cal.Rptr. 713].) This appeal is from a rehearing granted solely to determine the issue of punitive damages.

Topanga Corporation initially brought an action seeking a determination and declaration of the respective share interests of its stockholders or, in the alternative, for recission and reformation of those interests; to cancel a void issuance of shares because of the fraud of appellants; and for punitive damages. Appellants, who had previously been sued by the shareholders of Topanga Corporation, asserted

res judicata

as a defense. The trial court held that the prior adjudication barred Topanga from suing. The judgment was reversed on appeal and remanded for a determination on the merits.

(Topanga Corp.

v.

Gentile,

219 Cal.App.2d 274 [33 Cal.Rptr. 56].)

On retrial Mr. and Mrs. Gentile were found to have defrauded Topanga Corporation with respect to its original issuance of stock. The trial court ordered the original issue of stock to be cancelled and reissued in proportion to the actual contributions of the various stockholders. That order reduced the Gentiles’ ownership of the corporation from 33.3 percent

[575]

to 6.6 percent. The trial court also ruled that it had no authority to grant punitive damages.

Both parties appealed the trial court’s decision. The Court of Appeal affirmed the lower court’s judgment ordering the cancellation and reissuance of stock. However, it ruled that the trial court had the authority to award exemplary damages. The case was remanded to the trial court “solely for the purpose of rehearing and redetermining whether plaintiff should recover exemplary damages and, if so, the amount thereof.”