Pala Band v. Arand

PALA BAND OF MISSION INDIANS, Plaintiff and Respondent, v. ANTHONY J. ARAND et al., Defendants and Appellants.

D057433

Super. Ct. No. 37-2009-00055806-CU-CO-NC

COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA

Filed: September 29, 2011

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

APPEAL from a judgment of the Superior Court of San Diego County, Earl H. Maas, III, Judge. Dismissed as to appellant Envirepel, Inc.; reversed and remanded with directions as to remaining appellants.

Defendants¹ appeal from a default judgment awarding $2 million in compensatory damages to plaintiff Pala Band of Mission Indians (Pala). We dismiss the appeal as to defendant EI because EI is a suspended corporation. As to each remaining appellant, wedetermine the judgment, or a portion of the judgment, is void because it exceeded the damage amount specifically sought in the complaint. (Code of Civ. Proc., § 580, subd. (a).)² We reverse and remand with directions.

FACTUAL AND PROCEDURAL BACKGROUND

A. The Complaint

On June 1, 2009, Pala filed a complaint against four defendants: (1) EI, a corporation with which Pala had contractual relationships; (2) Energy, a corporation allegedly wholly owned by EI; (3) Anthony Arand, an alleged director and president of EI and Energy; and (4) A&A, a California partnership of which Arand is a partner. The complaint alleged the following facts.

On June 1, 2005, Pala and EI entered into a stock purchase agreement in which Pala agreed to purchase one million shares of EI common stock for one dollar per share. Before the shares were issued, Arand signed a "Repurchase Agreement," promising to repurchase Pala's one million shares at the purchase price if Pala "desired to liquidate" the shares. Arand signed this agreement in his capacity as an individual and as EI's president.

Eight months later, in February 2006, Pala informed Arand it wanted to sell its EI stock back to EI "pursuant to the Repurchase Agreement." Arand responded that "there would be no performance under the Repurchase Agreement until [Pala] released EI from its obligations" under an earlier agreement.

After several months of negotiations, in July 2006, a tentative agreement was reached by the parties. Under the proposed agreement, EI agreed to repurchase Pala's EI stock at one dollar per share, for a total of $1 million, in return for Pala releasing its claims against EI and its affiliates based on the Repurchase Agreement. Although Arand signed the proposed settlement agreement, Pala's governing representatives decided not to sign the agreement.

Less than two years later, in May 2008, Pala informed Arand it was now willing to sign an updated version of the proposed settlement agreement containing essentially the same terms as the original proposed agreement (whereby EI would repurchase Pala's shares for $1 million).

The next month, Arand's attorney informed Pala that EI was "no longer interested" in repurchasing Pala's shares and "that EI had not achieved the capitalization goals originally intended but was still a functioning entity." But Arand's attorney said Arand wanted to meet with Pala representatives "to discuss a proposed exchange of the Tribe's EI shares for shares of Energy," a corporation that was wholly owned by EI.

Pala expressed a willingness to discuss the proposed stock exchange but demanded that Pala's representatives be allowed to inspect and copy EI's accounting records. When Arand ignored this demand, in September 2008, Pala sent another letter repeating its request to inspect EI's books.

Several weeks later, Arand notified Pala that "Energy was the corporation he was using to pursue utility contracts" and invited Pala representatives to visit Energy's offices. In response, Pala "reminded" Arand of the statutory requirements that Pala (as an EIshareholder) be permitted to inspect EI's books and of Pala's intention to bring legal action if Arand refused this request. Several days later, Pala advised Arand that Pala representatives planned to visit EI's office to inspect and copy EI records.

On November 18, 2008, Pala representatives met with Arand at Energy's offices after finding EI offices closed. During the meeting, Pala representatives renewed their demand to inspect and copy the EI documents. Arand responded that the documents were not available, but promised to provide copies to Pala's attorney at a later date. Arand also stated that Pala's EI shares had been converted to shares in Energy, but produced no documentation to support this claim and provided no explanation as to the manner in which this purported conversion occurred. At this meeting, Arand said Pala's "shares of Energy were then worth about $2.00 per share."

Three days later, Arand sent Pala's counsel an email stating that "Pala is not currently a stock holder [of Energy]." (Italics added.) The complaint alleges: "This statement directly contradicted Arand's representation at the November 18, 2008 meeting that [Pala's] shares in EI previously had been converted to shares in Energy." Shortly after, Arand sent numerous documents to Pala, including a list of Energy's shareholders as of October 20, 2008 (which did not include Pala). These documents "contained no information regarding the status of [Pala's] EI shares, other than showing that [Pala] was not included on the list of Energy shareholders."

Pala's complaint also contained allegations about Energy's September 2005 confidential private placement memorandum ("Memorandum") offering 2.5 million shares of Energy common stock at $1.50 per share. According to the Memorandum,these stock shares would be sold to investors under "a procedure whereby EI, the parent company of Energy would tender for cancellation an equal number of its shares of Energy common stock[.]" The Memorandum also stated that Energy proposed to exchange shares of Energy common stock for stock in various other companies. The Memorandum stated that at the successful conclusion of the proposed exchanges and offerings, EI would own 3,260,583 shares of Energy common stock, and that its percentage ownership of Energy was to be diluted from 100 percent ownership to 32.6 percent ownership. The complaint alleged "the current list of shareholders of Energy do not include either EI or [Pala]," but that "all other former shareholders of EI have been issued one share of Energy common stock for every share of EI common stock owned by each of them as of the termination date of the offering of shares pursuant to the [Memorandum]."

Based on these alleged facts, the complaint asserted six causes of action.

In the first cause of action ("Breach of Contract"), Pala alleged defendants Arand and EI agreed to repurchase Pala's one million shares at the "purchase price" ($1 per share) and these defendants "breached and repudiated the Repurchase Agreement by failing to tender the purchase price as required by that agreement . . . ." Pala alleged it "has been damaged by Defendants' breach of the Repurchase Agreement in an amount to be proven at trial." (Italics added.) In the prayer for relief, Pala sought "compensatory damages in an amount according to proof" against the two contracting parties: (1) "Arand, in his individual capacity"; and (2) EI.

In the second cause of action ("Deceit"), Pala alleged that on November 18, 2008, Arand falsely represented that Pala's one million shares of EI stock had been converted to one million shares of Energy stock, and that Arand's misrepresentations were made on behalf of himself and each defendant. Pala alleged that Arand made these representations to "induce [Pala] to forbear in its efforts to obtain the EI corporate books of account and records." Pala further alleged that "Arand made the representations with the intent to deceive [Pala] as to the disposition and true value of its 1,000,000 shares of EI stock and to conceal illegal conduct by Arand, EI and Energy in converting [Pala's] shares to another purpose, and to thereby induce [Pala] not to pursue its demand" for a repurchase under the Repurchase Agreement. Pala alleged it "has been damaged by Arand's actions in an amount to be proven at trial." In the prayer for relief, Pala sought "compensatory damages in an amount according to proof" against each of the four defendants.

In the third cause of action ("Breach of Oral Agreement"), Pala alleged that "Arand's statements to [Pala] representatives during the November 18, 2008 meeting . . . constituted promises made by Arand, in his individual capacity and on behalf of A&A, EI and Energy that the Tribe's shares of EI had been or would be converted to shares of Energy." Pala further alleged that Arand failed to provide "evidence that [Pala's] shares of EI common stock have been converted to shares of Energy . . . and instead has provided information that is either contradictory or indicates that no such conversion has occurred." Pala alleged it relied on Arand's representations that its "EI shares had been or would be converted to Energy shares by deferring legal action and incurring legal andother costs and expenses in seeking to determine the current status of the Tribe's shares of EI." Pala alleged it "has been damaged in an amount to be proven at trial." In the prayer for relief, Pala sought "compensatory damages in an amount according to proof" against each of the four defendants.

In the fourth cause of action ("Fraud"), Pala alleged "Arand's actions, in his individual capacity and on behalf of A&A, EI and Energy constitute fraud in that he suppressed or concealed material facts" pertaining to "the true disposition of its shares of EI stock." Pala alleged it "has been damaged by Arand's actions in...