Plaintiff seller sought review of an order of the Superior Court of Riverside County (California), which entered a judgment for defendant buyers in the seller's suit seeking to set aside the sale and transfer of one share of stock.
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After denying its agent's authority to bind it to a stock sale contract, the seller filed a suit against the buyers seeking to set the sale aside. After the parties submitted to a lie detector test, the superior court entered a judgment for the buyers. On appeal, the court affirmed the judgment of the superior court. The court held that the evidence supported the superior court's finding of the absence of a fiduciary relationship between the agent and one buyer. The court further held that the fact that the agent had deposited the check for the sale of the stock into the seller's corporate account evidenced the seller's consent to the sale. The court also held that the fact that the seller had not agreed to the sale by formal resolution was of no consequence in light of the fact that its agent had bound it to the terms of the sale. Finally, the court held that the superior court had correctly determined that the seller was guilty of laches in its attempt to set aside the transfer of the stock because of the amount of time that had passed from the time of the sale until the attempted rescission.
The court affirmed an order of the superior court, which entered a judgment for the buyers in a seller's suit seeking to set aside the sale and transfer of one share of stock in a company.
Defendants, a corporation and its remaining shareholder, appealed from judgments and orders of the Superior Court for the County of Los Angeles (California), in favor of plaintiff redeemed shareholder in his action asserting claims of fraud and breach of fiduciary duty.
On the day a buyout agreement was executed, the corporation began test marketing of a product that was an instant success and generated millions of dollars in revenue. The court held that the remaining shareholder owed no fiduciary duty to the redeemed shareholder, either by virtue of de facto partnership or by voluntarily assuming a fiduciary duty. The rights and obligations of a partnership could not exist contemporaneously with the rights and obligations of shareholders, and a confidential relationship giving rise to a fiduciary duty did not otherwise arise during arms-length business negotiations. The jury verdict awarding damages for fraudulent concealment, however, was supported by the evidence. A reasonable investor would have considered the existence of the new product important in deciding whether and at what price to sell his shares. The jury was justified in finding that the remaining shareholder intentionally concealed this information. The trial court properly concluded that the contingency agreement between the redeemed shareholder and his attorney did not bar the redeemed shareholder's recovery of reasonable attorney fees under the stock redemption agreement.
The court reversed the judgment against the remaining shareholder to the extent it awarded damages for breach of fiduciary duty and otherwise affirmed the judgment. The court affirmed the judgment against the corporation on the cause of action for fraud by concealment. The court reversed the order awarding attorney fees and remanded the cause to the trial court for further proceedings.