Rockroller v. Koljonen CA4/1 (2015) · DecisionDepot
Rockroller v. Koljonen CA4/1
California Court of Appeal Mar 30, 2015 No. D062504Unpublished
Filed 3/30/15 Rockroller v. Koljonen 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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
ROCKROLLER, LLC, D062504
Plaintiff and Respondent and Cross- Appellant, (Super. Ct. No. 37-2008-00097061- v. CU-NP-CTL)
ALLAN KOLJONEN, et al.,
Defendants and Appellants and Cross- Respondents.
APPEALS from a judgment of the Superior Court of San Diego County, Ronald
Styn, Judge. Affirmed in part; reversed in part with directions.
Joel P. Schiff for Plaintiff and Respondent and Cross-Appellant.
Boudreau Williams for Defendants and Appellants and Cross-Respondents.
This is a conversion action by Rockroller, LLC (Rockroller), in which Allan
Koljonen, Constance Chandler Englert, Tom Pancheri, Vince Severino, and Gerald P.
LaFlamme (collectively, the Investor Group or Investor Group members) appeal a
judgment entered against each of them for $50,000 after a jury trial.1 The Investor
Group members contend the trial court erred by allowing the jury to determine whether
ownership interests they purchased in Rockroller were exempt from qualification under
Corporations Code2 section 25102, subdivision (f), as the issue was a legal one for the
court, and by excluding their expert's testimony on the issue after allowing Rockroller's
attorney to testify. The Investor Group also challenges the sufficiency of the evidence to
support the exemption and conversion findings.
Rockroller also appeals, contending the court erred by denying its request to enter
a judgment imposing joint and several liability on each of the Investor Group members
based on a conspiracy theory. Further, Rockroller contends the court erred by denying its
request for prejudgment interest.
We conclude the Investor Group's appeal lacks merit, as does Rockroller's appeal
insofar as it pertains to joint and several liability. We agree the court erred by denying
1 Jerry Englert and Gerald T. LaFlamme were Investor Group members, but they died during the pendency of this appeal. Constance Chandler Englert has been substituted in her husband's place as a successor trustee of a family trust, and Gerald P. LaFlamme has been substituted in his father's place as a successor trustee of a family trust. When we refer to Englert or LaFlamme individually, we mean Jerry Englert and Gerald T. LaFlamme.
2 Future undesignated statutory references are to the Corporations Code.
2
Rockroller's request for prejudgment interest. Accordingly, we affirm the judgment in
part and reverse it in part with directions.
FACTUAL AND PROCEDURAL BACKGROUND
Rockroller was formed in 2004 by Bradley Adams and Jim Flood to develop and
sell golf training aids. Its "Series A" investors were Adams, whose role was business
operations oversight; Flood, whose role was product development; and Bion Wilcox, a
silent investor. Adams contributed $1,000, Bion contributed $40,000, and Flood
contributed his rights to a putting device he invented called the Rockroller.
Rockroller hired Ernie Els to promote the Rockroller. In early 2005, to pay for an
infomercial with Els, Rockroller raised approximately $500,000 through a "Series B"
offering, in which about 20 investors paid $25,000 each for a one percent interest in the
company. The infomercial ran in April or May 2005, and the results were "marginal."
In the summer of 2005, Rockroller hired W. Charles Pullen, an advertiser, to head
marketing in exchange for a fee and "five percent stake in the company for two years'
worth of work." Pullen and Flood knew each other from living in Del Mar, and Pullen
was one of the investors in Series B.
In the fall of 2005, Pullen's duties expanded. Rockroller's financial records were
in disarray and Adams wanted to concentrate on recruiting tour golfers to use the
Rockroller. Rockroller provided Pullen with its business records and checkbooks and
made him a signatory on its accounts and "responsible for . . . all the day-to-day
3
business" and "corporate compliance." Rockroller presented Pullen to potential investors
as a director and chief operating officer.
Rockroller also decided to raise additional funds, primarily to update the
infomercial to include new products. Rockroller issued a "Series C" offering to sell one
percent interests in the business for $50,000, in the hope of raising a minimum of
$500,000 and a maximum of $1,000,000.3 At the time, Rockroller had purchased
approximately $220,000 in inventory, and it had a retail value of between $700,000 and
$750,000. The inventory was stored in a third party's warehouse.
In the spring of 2006, the Investor Group members, and Pullen, each invested
$50,000 in Series C.4 In doing so, the members dealt exclusively with Pullen, who had
full authority to negotiate on Rockroller's behalf. The Investor Group members were also
from Del Mar, and at least some of them and Pullen were acquainted. Pullen described
LaFlamme as his best friend. The Investor Group insisted that Pullen invest in Series C
so he would have "skin in the game."
It is undisputed that the Investor Group's investments were contingent on
Rockroller raising a threshold amount on Series C. According to Pullen and the Investor
3 The Series A and Series B ownership interests already exceeded 100 percent. To solve the problem, the interests of the three Series A investors, Adams, Flood, and Wilcox, were diluted by the interests of the Series B and C investors.
4 Some of the investments were through family trusts.
4
Group members, the threshold amount was $1,000,000.5 According to Rockroller, the
threshold amount was $500,000. Pullen deposited the funds into Rockroller's money
market account and agreed to return them if the threshold was not met.
In June 2006, Pullen discovered that approximately one-half of Rockroller's
inventory was missing from the warehouse, an uninsured loss. What remained was
"remnants of the full product line" from which Rockroller could not fill existing orders.
Rockroller had by then raised $625,000 on Series C from 12 investors and, given the
inventory loss, Pullen could not solicit additional funds.
Pullen told Adams he wanted to return the Investor Group's money because of the
missing inventory. Pullen also claimed the Series C threshold was unmet. According to
Pullen, Adams gave him permission to return the money and Flood deferred to Adams.6
According to Adams, he disagreed that the threshold amount was unmet, but he did not
explicitly forbid Pullen from returning the money. Flood confirmed that he deferred to
Adams.
On June 30, 2006, Pullen obtained five $50,000 cashier checks from Rockroller's
account and delivered them to the Investor Group members. In July and August 2006,
5 Pullen acknowledged signing a declaration that stated the threshold amount was $800,000, but that is immaterial as the outcome is the same regardless of whether it was $800,000 or $1,000,000. Because Pullen testified to the $1,000,000 amount, we use it here.
6 In response to an interrogatory, however, Pullen stated Flood gave him permission. He did not mention Adams.
5
Pullen wrote checks to himself totaling $85,000, for a total withdrawal of $335,000.
Pullen resigned from the company and it became defunct.
In December 2008, Rockroller sued Pullen and the Investor Group members. The
first amended complaint included a cause of action against Pullen for breach of fiduciary
duty and a cause of action against all defendants for conversion. As to the conversion
claim, Rockroller argued defendants were guilty of conspiracy.
Trial was held in July 2011. The Investor Group members argued they were
legally entitled to the return of their funds because Rockroller violated the Corporations
Code by selling unregistered securities. Rockroller countered that the Series C offering
was exempt from registration under the private securities exception set forth in section
25102, subdivision (f).
The jury was instructed that Rockroller was claiming prejudgment interest on any
damages awarded. The jury was presented with separate special verdicts on conversion,
conspiracy, breach of fiduciary duty, and affirmative defenses. None of the verdicts
mentioned prejudgment interest. During deliberations, Rockroller advised the court of
the omission, and asked, "Are you going to take over that function?" The court
responded, "That would be fine," and, "I can do that post-trial."
The jury found Rockroller was the rightful owner of the $335,000 in dispute, the
defendants intentionally took possession of Rockroller's money without its consent,
Rockroller's damages were $335,000, and each of the Investment Group members
"agree[d] to take possession of the $50,000.00 he received from . . . Pullen." Defendants'
6
conduct, however, was not malicious, oppressive, or fraudulent. The jury found Pullen
was a fiduciary of Rockroller, and he breached his fiduciary duty.
The jury also found the Investor Group members delivered their funds
conditionally, the condition was communicated to Rockroller, and it satisfied the
condition. Further, the jury found the Series C transactions were exempt from securities
law.
Further, the jury determined Pullen and the Investor Group members were guilty
of conspiracy. On the conspiracy, the jury determined Pullen caused $85,000 in damages
and each of the Investor Group members caused $50,000 in damages.
In September 2011, the court ruled in Rockroller's favor on defendants' equitable
defenses. In November 2011, the court rejected Rockroller's first proposed judgment,
which included prejudgment interest and imposed joint and several liability on each of
the Investor Group members for the full $335,000 in damages. The court's minute order
states the proposed judgment "is inconsistent with the jury verdict" because "[o]nly . . .
Pullen is liable for the $335,000." The court directed Rockroller to "correct and re-
submit."
In December 2011, Rockroller presented a second proposed judgment, which
included prejudgment interest. It stated Pullen was liable for $335,000 in damages and
each of the Investment Group members was liable for $50,000 in damages. The court
rejected the submission "for format issues, etc." The court's minutes directed Rockroller
7
to submit a "judgment that has the verdicts copied verbatim within the text of the
judgment."
Pullen then filed for bankruptcy, which stayed the proceedings as to him.7
Rockroller submitted a third proposed judgment, which included prejudgment interest,
incorporated the special verdicts, and again imposed joint and several liability on the
Investment Group members for the full $335,000 in damages. Because of the stay,
Rockroller omitted Pullen from the proposed judgment.
In a February 2012 hearing, the court stated Rockroller "is asking me to make
substantive decisions, specifically to increase the damages for the individuals from
[$50,000] to [$335,000] and [for] pre-judgment interest. [Rockroller] has indicated that
the pre-judgment interest is automatic, and I'm not sure about that."
The court found Rockroller had made a "request" for prejudgment interest, and it agreed
"the amounts are [liquidated]."
The Investors Group conceded the damages were liquidated. It argued, however,
that because prejudgment interest is an element of damage, not a cost, Rockroller "was
required to include that in the verdict for the jury to find," and since it did not do so the
court could not add interest to the judgment. The court continued the matter.
At a May 2012 hearing, the court noted relief from stay was granted in Pullen's
bankruptcy, and thus it could sign a judgment as to all defendants. Rockroller argued the
7 We deny Rockroller's request that we take notice of an order issued in the bankruptcy action, as it is unnecessary to our analysis of the issues on appeal.
8
judgment should include prejudgment interest, and the court agreed the damages were
liquidated. Rockroller also argued the judgment should impose joint and several liability
because the jury determined all defendants were guilty of conspiracy. The Investment
Group members disagreed, arguing the verdict indicated the jury found Pullen conspired
with all of the Investment Group members, but they each conspired separately with
Pullen for the return of his $50,000 investment, and "this is most appropriately decided in
a new trial of a JNOV [judgment notwithstanding the verdict] motion where the Court
can look at the record evidence."
The court believed it could not sign a judgment that differed in any aspect from
the jury verdicts. It determined Rockroller must address the issues of joint and several
liability and prejudgment interest in a formal motion addressing the evidence and
applicable law.
Judgment was finally entered on June 1, 2012, and it ordered Pullen to pay
Rockroller $335,000, and each of the Investor Group members to pay $50,000. The
judgment included blank lines for the potential later addition of prejudgment interest and
joint and several liability, but Rockroller never brought a motion on the issues.
9
DISCUSSION
I.
Private Security Exemption
A.
Under section 25110, "[i]t is unlawful for any person to offer or sell in this state
any security in an issuer transaction . . . unless such sale has been qualified . . . or unless
such security or transaction is exempted." "[P]urchasers of securities that have not been
qualified may sue for return of the consideration paid, less any income received, or for
damages if the purchaser no longer owns the security." (Spielman v. Ex'pression Center
for New Media (2010) 191 Cal.App.4th 420, 432; § 25503.)
Section 25102 identifies transactions that are exempt from the provisions of
section 25110. The party claiming an exemption has the burden of proof on the issue.
(§ 25163.) Rockroller, whose Series C offering was admittedly unqualified, claimed an
exemption under subdivision (f) of section 25102, which exempts "[a]ny offer or sale of
any security in a transaction . . . that meets each of the following criteria: [¶] (1) Sales
of the security are not made to more than 35 persons, including persons not in this state.
[¶] (2) All purchasers either have a preexisting personal or business relationship with the
offeror or any of its partners, officers, directors or controlling persons, or managers . . .,
or by reason of their business or financial experience . . . could be reasonably assumed to
have the capacity to protect their own interests in connection with the transaction. [¶] (3)
Each purchaser represents that the purchaser is purchasing for the purchaser's own
10
account . . . and not with a view to or for sale in connection with any distribution of the
security. [¶] (4) The offer and sale of the security is not accomplished by the
publication of any advertisement." "This is known as the 'private' security exemption."
(People ex rel. DuFauchard v. O'Neal (2009) 179 Cal.App.4th 1494, 1501.)
B.
1.
The Investor Group contends the court erred by allowing the jury to determine
whether Rockroller satisfied the criteria of section 25102, subdivision (f), as the
exemption issue was strictly one of law for the trial court's resolution. It is well settled,
however, that the issue is a factual one for the jury. (See, e.g., People v. Salas (2006) 37
Cal.4th 967, 973-974; People v. Simon (1995) 9 Cal.4th 493, 500; People v. Cuccia
(2002) 97 Cal.App.4th 785, 796; People v. Graham (1985) 163 Cal.App.3d 1159, 1170-
1174.) It is true that the court vacillated between finding the issue was one of law or of
fact, but ultimately it instructed the jury with the elements of section 25102, subdivision
(f).
To upset the jury's verdict, the Investor Group is required to successfully challenge
the sufficiency of the evidence to support it. " 'We view all of the evidence in the light
most favorable to the judgment, drawing every reasonable inference and resolving every
conflict to support the judgment. [Citation.] "Even in cases where the evidence is
undisputed or uncontradicted, if two or more different inferences can reasonably be
drawn from the evidence this court is without power to substitute its own inferences or
11
deductions for those of the trier of fact. . . ." ' [Citation.] 'The term "substantial
evidence" means such relevant evidence as a reasonable mind would accept as adequate
to support a conclusion; it is evidence which is reasonable in nature, credible, and of solid
"The substantial evidence standard of review is generally considered the most
difficult standard of review to meet, as it should be, because it is not the function of the
reviewing court to determine the facts." (In re Michael G. (2012) 203 Cal.App.4th 580,
589.) "Defendants raising a claim of insufficiency of the evidence assume a 'daunting
burden.' " (Whiteley v. Phillip Morris, Inc. (2004) 117 Cal.App.4th 635, 678.)
The Investor Group does not discuss the sufficiency of the evidence standard of
review in conjunction with the exemption issue. " 'Arguments should be tailored
according to the applicable standard of review.' [Citation.] Failure to acknowledge the
proper scope of review is a concession of a lack of merit." (Sonic Mfg. Technologies,
Inc. v. AAE Systems, Inc. (2011) 196 Cal.App.4th 456, 465.)
Further, when the sufficiency of the evidence is at issue, it is the appellants' duty
to "present and discuss all the evidence, both favorable and unfavorable, and show why it
was insufficient." (Mendoza v. City of West Covina (2012) 206 Cal.App.4th 702, 713.)
" 'Failure to set forth [all of] the material evidence on an issue waives a claim of
insufficiency of the evidence.' " (Clark v. Superior Court (2011) 196 Cal.App.4th 37,
52.)
12
The Investor Group fails to cite any of the evidence supporting the verdict. For
instance, Rockroller cites Adams's testimony that Series C had 12 investors, well below
the threshold of 35 for the exemption under section 25102, subdivision (f). Adams also
testified Rockroller did not advertise for Series C, another criteria for application of the
exemption. Further, there was significant testimony that Investor Group members had
preexisting relationships with Pullen, because they all lived in Del Mar, and they were
sophisticated businessmen with investment experience in private and startup companies.
The Investor Group members concede they "did have a preexisting relationship with
Pullen."
We need go no further, because it was the Investor Group's duty to specify the
evidence. "It is not our job to comb through the record in search of grounds to upset the
[judgment]." (Center for Biological Diversity v. County of San Bernardino (2010) 185
Cal.App.4th 866, 899.) The presentation in the Investor Group's briefing constitutes a
waiver or forfeiture of the exemption issue.
2.
In fact, the Investor Group does not assert the evidence was insufficient to show
the section 25102, subdivision (f), exemption was applicable to the Series C offering. Its
only contention as to the state of the evidence is that it was insufficient to show the Series
A, Series B, and Series C offerings, considered together, were exempt. The Investor
Group submits that as a matter of law, all offerings by a private company over time are a
single transaction for purposes of securities law. The Investor Group asserts that because
13
Rockroller did not prove, for instance, that all three series were not offered to more than
35 persons, it did not meet its burden.
The Investor Group, however, does not cite the record to show it raised this
argument at the trial court. " As a general rule a party is not permitted to . . . raise new
issues not presented in the trial court." (B & P Developement Corp. v. City of Saratoga
(1986) 185 Cal.App.3d 949, 959.)
In any event, the Investor Group does not present a cogent argument on the issue,
and thus this is not the appropriate time to address it. " 'Appellate briefs must provide
argument and legal authority for the positions taken. "When an appellant fails to raise a
point, or asserts it but fails to support it with reasoned argument and citations to
authority, we treat the point as waived." [Citation.] 'We are not bound to develop
appellants' arguments for them.' " (Cahill v. San Diego Gas & Elec. Co. (2011) 194
Cal.App.4th 939, 956.) The Investor Group's lone assertion is that consideration of
Series A, Series B, and Series C independently "would be contrary to the regulatory
objective of the Corporate Securities act meant to create a balanced regulatory scheme 'to
cope with problems of modern securities law in California.' " This is not persuasive.
3.
Additionally, the Investor Group complains that Rockroller's corporate attorney,
Rachelle Cohen, was allowed to testify the Series C offering was exempt from securities
requirements, but the court excluded the rebuttal testimony of the Investor Group's
undesignated securities expert. The Investor Group cites Cohen's testimony that the
14
Series C offering was exempt under section 25102, subdivision (f). She clarified,
however, that Series C was only exempt if Rockroller complied with the statutory
criteria. She was asked, "[C]an you say categorically today whether or not Rockroller
actually met the requirements to maintain an unregistered security in the way they
promoted and collected money in this Series C investment?" She responded, "No, I don't
think I could say that about any client cause I'm not involved in the securities selling."
Thus, no rebuttal testimony was needed on the issue from the Investor Group's
expert. Further, there is no indication the expert knew anything about Rockroller's
compliance, and thus the testimony would have been immaterial to the exemption issue.
The court correctly determined the issue was a factual matter for the jury, not a matter for
expert testimony.
" 'The trial court's determinations on the admissibility of expert evidence are
subject to review under the deferential abuse of discretion standard. [Citation.] The
erroneous admission of evidence requires reversal of a judgment only when it results in a
"miscarriage of justice." [Citation.] The admission of improper evidence results in a
miscarriage of justice only if " 'it is reasonably probable that a result more favorable to
the appealing party would have been reached in the absence of the error.' " ' " (Burton v.
Sanner (2012) 207 Cal.App.4th 12, 22.) The Investor Group has not shown any abuse of
discretion or prejudice.
15
II.
Conversion
A.
" ' "Conversion is the wrongful exercise of dominion over the property of another.
The elements of a conversion claim are: (1) the plaintiff's ownership or right to
possession of the property; (2) the defendant's conversion by a wrongful act or
disposition of property rights; and (3) damages. . . ." [Citation.]' " (Welco Electronics,
Inc. v. Mora (2014) 223 Cal.App.4th 202, 208.)
" ' "Conversion is a strict liability tort. The foundation of the action rests neither
in the knowledge nor the intent of the defendant. Instead, the tort consists in the breach
of an absolute duty; the act of conversion itself is tortious. Therefore, questions of the
defendant's good faith, lack of knowledge, and motive are ordinarily immaterial.
[Citations.]" [Citation.] The basis of a conversion action " 'rests upon the unwarranted
interference by defendant with the dominion over the property of the plaintiff from which
injury to the latter results.' " ' " Welco Electronics, Inc. v. Mora, supra, 223 Cal.App.4th
at p. 208.)
16
B.
The Investor Group challenges the sufficiency of the evidence to support the jury's
finding that the threshold for closing the Series C investments was $500,000 rather than
$1,000,000. It cites evidence its members dealt only with Pullen, and the testimony of
the members and Pullen that they agreed to a $1,000,000 threshold.
The Investor Group asserts its evidence was uncontradicted, and thus the jury was
bound by it. However, " '[u]ncontradicted testimony in appellant's favor does not
necessarily conclusively establish the pertinent factual matter: The trier of fact is free to
reject any witness' uncontradicted testimony; and the court of appeal will affirm so long
as the rejection was not arbitrary.' [Citations.] The jury 'had the benefit of observing the
demeanor of witnesses and [is] therefore in a better position than the appellate court to
assess credibility.' [Citation.] In assessing . . . credibility, the jury may consider
[appellants'] interest in the case." (Goehring v. Chapman University (2004) 121
Cal.App.4th 353, 368.)
The jury obviously rejected testimony of a $1,000,000 threshold, and the record
does not indicate it acted arbitrarily. On June 22, 2006, Pullen sent Adams an e-mail,
which stated: "I am getting serious flack from the Del Mar guys [Investor Group
members]. . . about total investment dollars. We are nowhere close to the [$]500,000 we
were supposed to [raise] to take their money." The e-mail undermines testimony that the
agreed threshold was $1,000,000.
17
Further, in deposition Pullen confirmed the Investor Group was giving him
"serious flack," but at trial he denied having any communication with the Investor Group
before sending the e-mail. He said the "serious flack" comment was a deliberate
misstatement to prompt Adams to return the Investor Group's money. The jury may have
determined Pullen's e-mail and deposition testimony were accurate, and his trial
testimony was false, and thus it could reject his testimony as a general matter. The jury
was instructed: "[I]f you decide that a witness deliberately testified untruthfully about
something important, you may choose not to believe anything that witness said."
The Investor Group members also ignore other evidence supporting the verdict.
Pullen described LaFlamme as his best friend, and the evidence shows LaFlamme was
privy to Pullen's dealings on Series C. For instance, on March 14, 2006, Pullen sent
LaFlamme a letter on Rockroller letterhead, in which he stated: "With the need for
capital in mind, [Adams], [Flood] and I [Pullen] began making presentations to potential
investors to raise at least $500,000 and at the most $1,000,000 to use for marketing,
merchandising, advertising and other specific company requirements." Pullen asked
LaFlamme to "[p]lease review this final effort."
Rockroller's legal counsel also kept LaFlamme in the loop. In a March 15, 2006,
e-mail to Pullen, Adams, and LaFlamme, attorney Robert Kehr stated: "I want all of you
to know that Rachelle [Cohen] should have a complete redraft of the operating agreement
to you this afternoon. It will arrive with a number of comments and questions from us
that I hope you will take the time to consider carefully. There are several details that
18
need to be decided on in order to turn the concepts we discussed into reliable contract
language. This redraft is only a draft, so please don't hesitate to ask any questions you
might have and to suggest any corrections or improvements that you think might add to
the accuracy or completeness of the document."
On April 3, 2006, Cohen sent Pullen drafts of an Amended and Restated Operating
Agreement and a Subscription Agreement. The Subscription Agreement refers to the
Operating Agreement, which states Rockroller's fundraising goal was between $500,000
and $1,000,000. A reasonable inference can be drawn Pullen likely provided Koljonen
with the documents, because on April 27, Pullen forwarded Koljonen's comments on the
Subscription Agreement to Cohen and asked for her guidance because he was preparing
for a meeting "with these gentlemen tomorrow." Koljonen also indicated he intended to
get input from Severino and Pancheri.
The Investor Group members were friends and acquaintances from Del Mar, and
they had prior investment experience together. Indeed, Englert testified that customarily,
the Investor Group relied on Koljonen to "vet[] the agreements." He explained, "We get
legal documents. Someone has to go through them and say this is B.S. and this is
legitimate, this is that, this is this, and you mark them up. That's vetting. That's because
you don't have eight or nine guys doing the same thing 'cause you never get anything
done, so he typically -- he and Vince [Severino] typically vet things for us.' "
Terrill McCabe testified that LaFlamme was present during a dinner meeting when
Pullen told McCabe that Rockroller was "looking to raise between $500,000 and
19
$1,000,000." Pullen also provided McCabe with written material stating that goal.
McCabe testified, "I think it was generally understood that [Rockroller] had to reach the
$500,000 portion." Based on that understanding, on April 28, 2006, McCabe invested
$100,000 in Series C. On the same date, April 28, Koljonen, Englert, Severino and
Pancheri, each gave Pullen a check for $50,000.
On May 1, 2006, Pullen sent an e-mail to Adams and Cohen, which states: "I just
received [$]200,000 from the [Investor Group,] however[,] the money came with a
caveat, if we did not raise the whole million that we were selling 20% for did we then re-
proportion the 20% based on what we did raise i.e. $825[,]000 which would put a 'unit' at
$41,250 and also how long would the offering be open? Their very valid argument is that
those that came in early have more risk then [sic] one that sits on the sidelines and waits
to see how much we raise before they will get in. Additionally[,] if I am unable to
convince [Adams] of the need for this money under these terms then we also miss out on
another $150,000 in capital from other investors that have said they will get in if we pass
the $500,000 mark. And last but not least I will need to give the $200,000 back by this
Friday [May 5]. What are your thoughts?" Englert and Severino testified the e-mail
accurately represented the condition the Investor Group sought to extract from
Rockroller.
In a May 2, 2006 e-mail, Cohen advised Pullen that the Series C terms would not
change, and if the Investor Group was opposed, it "should not make the investment."
May 5 passed without any of the Investment Group members asking for a refund or
20
seeking to impose any other contingency. On May 19 and 24, respectively, Pullen and
LaFlamme each deposited $50,000 with Rockroller. On May 24, LaFlamme and
Pancheri attended a meeting with Pullen. LaFlamme was asked to be a director, and he
said he would consider it.
"Although a finding . . . may not be based on mere speculation or conjecture, such
finding may be predicated on reasonable inferences drawn from circumstantial evidence."
(Smith v. Lockheed Propulsion Co. (1967) 247 Cal.App.2d 774, 780.) "Our obligation is
to indulge every reasonable inference which would support the verdict rather than
impeach it." (Da Silva v. Pacific King, Inc. (1987) 195 Cal.App.3d 1, 11, fn. 5.) " 'The
fact that it is possible to draw some inference other than that drawn by the trier of fact is
of no consequence.' " (Bloxham v. Saldinger (2014) 228 Cal.App.4th 729, 739.) "When
a reviewing court applies the substantial evidence standard, it must review the whole
record to determine whether it supports the judgment." (Dreyer's Grand Ice Cream, Inc.
v. County of Kern (2013) 218 Cal.App.4th 828, 840.)
The evidence is not overwhelming, but considered as a whole it amply supports
the verdict. The jury could reasonably find it unlikely that Pullen cut one deal with
McCabe, for a $500,000 threshold, and another with the Investor Group members.
Pullen's May 1, 2006 e-mail to Cohen belies the notion he and the Investment Group
members agreed they were entitled to a refund unless Rockroller raised a minimum of
$1,000,000. To the contrary, it refers to a $500,000 threshold and states that if less than
$1,000,000 was raised they intended to close the deal, but sought a commensurate
21
adjustment in the price of a one percent interest in the company. On this record, we
cannot upset the verdict.8
C.
The Investor Group members contend that if we affirm, we "should . . . order that
[they] are therefore members of Rockroller, each entitled to their 1% share interest in
exchange for their investments." Rockroller agreed on the record that when the Investor
Group members pay the judgment, they "will become members again." The judgment,
however, is silent on the issue.
Rockroller advises us that it "stands by its offer to do equity as found by the trial
court," but "it believes that the mechanics of accomplishing equity should be left to the
trial court," particularly since "[m]embership cannot be calculated until the judgment . . .
is satisfied." We agree this is not the correct forum to address the matter, and any further
proceedings must be pursued in the trial court.9
8 The Investment Group members assert the May 1, 2006 e-mail "conditioned [their] investment on Rockroller raising the full $1 million for Series C investments and further required if that full amount was not raised, whether the shares for that investment would be reallocated." The e-mail, however, does not show their investments were conditioned "on Rockroller raising the full $1 million."
9 Given our holding, we are not required to address Rockroller's contention that Pullen lacked actual or apparent authority to bind the company.
22
III.
Civil Conspiracy/Joint and Several Liability
In its appeal, Rockroller contends the court erred by not construing the special
verdicts to impose joint and several liability on all Investor Group members for the entire
$335,000 in damages for conversion, based on a conspiracy theory, and instead requiring
a formal motion on the issue. This is a legal matter we review de novo.
"There is no separate tort of civil conspiracy and no action for conspiracy to
commit a tort unless the underlying tort is committed and damage results therefrom.
[Citation.] The significance of a conspiracy theory of liability is that each member may
be held jointly liable as a tortfeasor, even though he or she may not have participated
directly in the underlying tort." (Prakashpalan v. Engstrom, Lipscomb and Lack (2014)
223 Cal.App.4th 1105, 1136.) "The elements of a civil conspiracy are (1) the formation
of a group of two or more persons who agreed to a common plan or design to commit a
tortious act; (2) a wrongful act committed pursuant to the agreement; and (3) resulting
damages." (City of Industry v. City of Fillmore (2011) 198 Cal.App.4th 191, 212.)
As to economic damages, the liability of joint tortfeasors "is joint and several, and
damages cannot be apportioned among them. [Citation.] Hence, the jury should return
one verdict in a single sum for the plaintiff . . . against all defendants found liable." (7
Witkin, Cal. Procedure (5th ed. 2008) Trial, § 356, p. 415), citing Mixon v. Riverview
Hospital (1967) 254 Cal.App.2d 364, 375 (Mixon).)
23
The special verdict form for conspiracy, to which Rockroller agreed, essentially
invited the jury to assess individual damage amounts against each defendant rather than a
single sum. As an example, we quote the first four questions.
"If you find conversion, answer the following:
"1. Did W. CHARLES PULLEN conspire to wrongfully take money from Rockroller?
"Yes ______ No ______
"If you answer 'Yes' answer question 2. If you answer 'No,' answer question 3.
"2. What are Rockroller's damages?
"$ ________
"3. Did TOM PANCHERI conspire to wrongfully take money from Rockroller?
"Yes ______ No ______
"If you answer 'Yes,' answer question 4. If you answer 'No,' answer question 5.
"4. What are Rockroller's damages?
"$ ________"
The verdict form includes eight additional questions, two per remaining Investor Club
member.
"Prior approval of the form of a verdict or a failure to object to the form of verdict
submitted to a jury has often been held to be a waiver of any defect in the form." (Mixon,
supra, 254 Cal.App.2d at p. 376.) The rule, however, is not inflexible or automatic. A
24
party may seek clarification of a special verdict after the jury is dismissed if it brings a
motion for a new trial or other relief pertaining to damages. (See, e.g., Singh v. Southland
Stone, U.S.A., Inc. (2010) 186 Cal.App.4th 338, 358 [proper remedy for an inconsistent
special verdict is a new trial]; All-West Design, Inc. v. Boozer (1986) 183 Cal.App.3d
1212, 1220; Mixon, supra, 254 Cal.App.2d at pp. 377, 380 [motion for new trial after jury
apportioned damages among joint tortfeasors]; Marshall v. Brown (1983) 141 Cal.App.3d
408, 415 [same]; Dauenhauer v. Sullivan (1963) 215 Cal.App.2d 231, 233 [motion for
entry of joint and several judgment]; 7 Witkin, Cal. Procedure (5th ed. 2008) Trial, § 356,
pp. 415-416.)10 "In the absence of a motion by one of the litigants, or a request by the
clerk, the trial court is not called upon to construe the verdict. . . ." (Phipps v. Superior
Court (1939) 32 Cal.App.2d 371, 375.)
In Rockroller's view, by requiring it to bring a motion to challenge the jury's
apportionment of damages on the special verdict for conspiracy, the court merely caused
delay and shirked its duty to interpret the verdict. Rockroller cites Orthopedic Systems,
Inc. v. Schlein (2011) 202 Cal.App.4th 529 (Orthopedic Systems), which explains:
"When no objection is made that a special verdict is ambiguous or incomplete before the
jury is discharged, 'it falls to "the trial judge to interpret the verdict from its language
10 A party may bring a motion for a new trial based on "[e]xcessive or inadequate damages" or "[i]nsufficiency of the evidence to justify the verdict." (Code Civ. Proc., § 657, subds. 5, 6, 7.) "The party intending to move for a new trial shall file with the clerk and serve upon each adverse party a notice of his or her intention to move for a new trial, designating the grounds upon which the motion will be made and whether the same will be made upon affidavits of the minutes of the court, or both. . . ." (Code Civ. Proc., § 659, subd. (a).)
25
considered in connection with the pleadings, evidence and instructions." ' " (Id. at p.
542.)
Rockroller, however, ignores that in Orthopedic Systems, the plaintiff, who
prevailed on breach of contract and misappropriation claims, brought a partial motion for
JNOV, arguing the special verdict form led the jury to improperly exclude $1,220,000 in
profits from the total damage award. (Orthopedic Systems, supra, 202 Cal.App.4th at pp.
540-542.) Rockroller's reliance on Woodcock v. Fontana Scaffolding & Equipment Co.
(1968) 69 Cal.2d 452, is also misplaced because it pertains to a motion to correct a
verdict based on excessive damages. (Id. at pp. 455-457.)
Rockroller merely presented the court with a proposed judgment imposing joint
and several liability. Rockroller argued a motion was unnecessary because "[t]hat's a
legal theory that's a function of law. It's not a fact-finding mission." On appeal,
however, Rockroller acknowledges the issue is largely factual. Rockroller states the
"conclusion that defendants had as a group converted the entire $335,000 is amply
supported by a review of the entire record." It cites a significant amount of evidence,
including the following testimony by Englert: "The group is not singular; the group is a
plural bunch; in other words we do things collectively, and if we're getting cheated or not
treated correctly, we collectively will correct the problem."
The Investment Group counters that since the jury was properly instructed on the
elements of conspiracy, "it must be concluded that the jury, at very most, found that each
Appellant somehow 'conspired' individually with Pullen to convert Rockroller's funds
26
when each Appellant accepted the return of their respective $50,000 investment deposit."
The Investment Group cites testimony its members were shocked and surprised when
Pullen returned their investments. During trial, the court characterized the conspiracy
evidence as "very, very thin."
We conclude the court did not err. The evidence should have been presented to
the trial court in the first instance in a proper motion. The court had the inherent power
to control the proceedings (Nazir v. United Airlines, Inc. (2009) 178 Cal.App.4th 243,
289-290), and it was not required to accept Rockroller's argument on the joint and several
issue without reviewing the evidence and other pertinent information and giving the
Investors Group the opportunity to formally respond. Further, a proper motion was
required to make a record for appeal.11
IV.
Prejudgment Interest
A.
We agree with Rockroller, however, that the court erred by not including
prejudgment interest in the judgment absent a formal motion. We review the issue
11 Rockroller asserts that before advising that a motion was required, the court had already "made the needed interpretation." Rockroller cites a comment in the court's order denying affirmative defenses, that "[t]his case was tried to a jury and the jury made certain findings regarding the affirmative defenses as well as a verdict finding that the Defendants had, as a group, converted $335,000." The special verdict on conspiracy, however, does not state that, and the court was not bound by the comment.
27
independently for legal error. (Employers Mutual Casualty Co. v. Philadelphia
"A person who is entitled to recover damages [that are] certain, or capable of
being made certain by calculation" is also entitled to recover prejudgment interest on that
amount from the date that the right to recover arose. (Civ. Code, § 3287, subd. (a).)
"Under [Civil Code] section 3287, subdivision (a) the court has no discretion, but must
award prejudgment interest upon request, from the first day there exists both a breach and
a liquidated claim." (North Oakland Medical Clinic v. Rogers (1998) 65 Cal.App.4th
824, 828 (North Oakland).)
"Damages are certain or capable of being made certain by calculation, or
ascertainable, for purposes of the statute if the defendant actually knows the amount of
damages or could calculate that amount from information reasonably available to the
defendant. [Citation.] In contrast, damages that must be determined by the trier of fact
based on conflicting evidence are not ascertainable." (Collins v. City of Los Angeles
(2012) 205 Cal.App.4th 140, 151.) Under subdivision (b) of Civil Code section 3287, the
court has discretion to award prejudgment interest on unliquidated damages.
"[N]o statute or rule of court establishes a procedure for requesting an award of
prejudgment interest, or a time limit therefor, in the superior court." (North Oakland,
supra, 65 Cal.App.4th at pp. 829-830.) The parties cite North Oakland, which adopts a
rule on the proper procedure and time limit "in circumstances where damages had been
awarded but no interest was included in the verdict and where neither court nor jury had
28
determined whether the damages were liquidated or unliquidated." (Id. at p. 829, italics
added.)
North Oakland states: "That a party is entitled to prejudgment interest does not
make an award automatic (except in the case of postjudgment interest). A request for
interest must be made in the trial court; it cannot be made for the first time on appeal.
[Citations.] [¶] A general prayer in the complaint is adequate to support an award of
prejudgment interest. 'No specific request for interest need be included in the complaint;
a prayer seeking "such other and further relief as may be proper" is sufficient for the
court to invoke its power to award prejudgment interest.' " (North Oakland, supra, 65
Cal.App.4th at p. 829.)
North Oakland rejected the notion prejudgment interest may be requested in a cost
bill. The court reasoned that since prejudgment interest is an element of damages, rather
than a cost, it "should be awarded in the judgment on the basis of a specific request
therefore made before entry of judgment." (North Oakland, supra, 65 Cal.App.4th at p.
830.)12 North Oakland held: "Pending the promulgation of a rule by the Judicial
Council, which we think appropriate, requests for prejudgment interest under [Civil
Code] section 3287 by a successful plaintiff must be made by way of motion prior to
entry of judgment, or the request must be made in the form of a motion for new trial no
later than the time allowed for filing such a motion." (North Oakland, supra, at p. 831.)
12 "There is an inherent distinction between an award of interest and an award of costs. 'If allowable, interest is an element of damages provided by statute.' " (North Oakland, supra, 65 Cal.App.4th at p. 830, fn. 4.)
29
Rockroller's first amended complaint prayed for "[l]egal interest," which was
sufficient to invoke the court's authority to award prejudgment interest. Further,
Rockroller repeatedly requested that prejudgment interest be included in the judgment,
beginning during jury deliberations and continuing throughout proceedings on the form
of the judgment. At a February 2012 hearing, the court found the damages were
liquidated, and the Investor Group conceded the finding was correct. At a May 2012
hearing, Rockroller urged the court to include prejudgment interest in the judgment.
The Investor Group contends Rockroller cannot recover prejudgment interest
because it did not bring a formal motion, as required by North Oakland, supra, 65
Cal.App.4th at p. 831. As North Oakland observes, however, the procedure it adopted
applies when neither the jury nor the court has determined whether the damages were
liquidated or unliquidated. (Id. at p. 829.) In that scenario, a motion is required to
resolve a key factual issue on the defendant's knowledge. (See SFPP v. Burlington
Northern & Santa Fe Ry. Co. (2004) 121 Cal.App.4th 452, 462; Wisper Corp. v.
California Commerce Bank (1996) 49 Cal.App.4th 948, 958.) Here, the Investment
Group members could unquestionably ascertain the amount of damages.
Additionally, this case does not present the "extreme facts" presented in North
Oakland, supra, 65 Cal.App.4th 824. (Steiny & Co. v. California Elec. Supply Co.
(2000) 79 Cal.App.4th 285, 294.) In North Oakland, without any notice to the
defendants, the plaintiffs submitted a cost bill that included $39,025.43 in interest.
(North Oakland, supra, 65 Cal.App.4th at p. 827.) The defendants moved to set aside the
30
order awarding interest, and at the hearing the plaintiffs' counsel represented he had
orally requested interest during a hearing on the defendants' motion to tax costs. The
court ordered a transcript of the hearing, and it did not include any reference to interest.
(Id. at pp. 827-828.)
The trial court set aside the order awarding prejudgment interest, and the appellate
court affirmed. North Oakland explains: "[A]t virtually the last minute, [the] plaintiffs
inserted an interest award in the order awarding costs which they presented to the court,
in clear violation of [the defendants'] due process right to notice and an opportunity for
hearing. [Citations.] Although this due process defect was cured by the subsequent
action by the court in reconsidering its ruling following briefing and hearing on the
matter, we may consider this egregious conduct together with the extreme lateness of
plaintiffs' request for interest as warranting the denial of prejudgment interest." (North
Oakland, supra, 65 Cal.App.4th at p. 831.) Here, the court determined North Oakland
had "nothing to do with what's happened in this case" because "we're still . . . trying to get
a judgment signed."
Under the particular facts here, we conclude a formal motion was not required and
Rockroller's request was sufficient. Neither the Legislature nor the Judicial Council has
prescribed a noticed motion procedure for recovery of prejudgment interest, and we
decline to impose one when the damages are undisputedly liquidated. A noticed motion
would not have added anything to the analysis, it would have been a mere formality.
(See Civ. Code, § 3528 ["The law respects form less than substance"].) Rockroller was
31
entitled to prejudgment interest under Civil Code section 3287, subdivision (a), and the
court's refusal to include it in the judgment absent a formal motion was error.13
B.
Rockroller contends we should modify the judgment to include prejudgment
interest. Rockroller cites Code of Civil Procedure section 43, which states: "The
Supreme Court, and the courts of appeal, may affirm, reverse, or modify any judgment or
order appealed from, and may direct the proper judgment or order to be entered, or direct
a new trial or further proceedings to be had." The Investor Group asserts we should
remand the matter to the trial court "for a proper and equitable calculation of prejudgment
interest that does not penalize [it] for the lengthy 10 month delay in the entry of the
court's final [j]udgment resulting from either Pullen's interim bankruptcy filing, or
Rockroller's persistent inability to submit a form of judgment which both conformed to
the jury's verdict and was acceptable to the trial court."
We elect to reverse in part and remand the matter to the trial court for its
calculation of prejudgment interest and entry of a new judgment to include interest. The
Investor Group has not cited any supporting authority for an equitable reduction of
prejudgment interest, but it may raise the issue on remand.
13 It appears Rockroller is also entitled to prejudgment interest under Civil Code section 3336, which pertains specifically to conversion claims.
32
DISPOSITION
The judgment is reversed insofar as it does not award Rockroller prejudgment
interest. The matter is remanded for further proceedings on that issue. In all other
respects, the judgment is affirmed.
McCONNELL, P. J.
WE CONCUR:
AARON, J.
IRION, J.
33
AI Brief
AI-generated · verify before citing
Holding. The court held that the jury properly determined the factual issues regarding the securities exemption and conversion, and that the trial court erred in denying the plaintiff's request for prejudgment interest. The judgment was affirmed in part regarding the liability findings and reversed in part with directions to award prejudgment interest.
Issues
Whether the trial court erred in allowing the jury to determine if the securities were exempt under Corporations Code section 25102, subdivision (f).
Whether there was sufficient evidence to support the jury's findings on the securities exemption and conversion.
Whether the trial court erred in denying the plaintiff's request for prejudgment interest.
Whether the trial court erred in denying the plaintiff's request to impose joint and several liability on the Investor Group members.
Disposition. Affirmed in part; reversed in part with directions.
Quotations verified verbatim against the opinion
“It is well settled, however, that the issue is a factual one for the jury.”
“The trial court's determinations on the admissibility of expert evidence are subject to review under the deferential abuse of discretion standard.”