International Space Optics v. Hamasaki























Filed 12/14/12 International Space Optics v.
Hamasaki CA4/3









NOT TO BE PUBLISHED IN OFFICIAL REPORTS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opinion has not been certified for publication or ordered published for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.





IN THE COURT OF
APPEAL OF THE STATE OF CALIFORNIA



FOURTH APPELLATE
DISTRICT



DIVISION THREE




>

INTERNATIONAL SPACE OPTICS, S.A., Plaintiff, Cross-defendant and Appellant, v. DONALD HAMASAKI, Defendants, Cross-complainant and Appellant; PAUL HAMASAKI et al., Defendants and Respondents; ROBERT FOX et al., Cross-defendants and Appellants.

G045656 (Super. Ct. No. 07CC04325) O P I N I O N

Appeal from a judgment
and postjudgment order of the Superior
Court of Orange
County, David C. Velasquez,
Judge. Affirmed.

Law
Office of Richard A. Harvey and Richard A. Harvey for Plaintiff,
Cross-defendant, and Appellant International Space Optics, S.A., and for
Cross-Defendants and Appellants Robert Fox and Yoshiko Oswald.

Law
Offices of Stephen M. McNamara and Stephen M. McNamara for Defendant,
Cross-Complainant, and Appellant Donald Hamasaki.

Alpert,
Barr & Grant and Adam D.H. Grant for Defendants and Respondents Paul
Hamasaki and Scott Hamasaki.

Law
Office of Diane Goldman and Diane Goldman for Defendant and Respondent Joni
Hamasaki.



*
* *



Plaintiff
International Space Optics, S.A. (ISO) alleged that defendant Donald Hamasaki
breached his fiduciary duty to ISO by directing business opportunities to
entities in which Donald had a material financial interest.href="#_ftn1" name="_ftnref1" title="">[1] Moreover, ISO alleged Donald and several of
Donald’s relatives who had obtained employment at ISO (defendants Paul
Hamasaki, Scott Hamasaki, and Joni Hamasaki) utilized petty cash, company
credit cards, and company travel advances for their own personal expenses. The Hamasakis countered that there was no
wrongdoing, that ISO consented to all transactions at issue, and that the
instant lawsuit was really about controlling shareholder Yoshiko Oswald trying
to wrest control of Donald’s shares in ISO.
Donald filed a cross-complaint for defamation, breach of fiduciary duty,
and unjust enrichment against ISO, Yoshiko, and Yoshiko’s son, Robert Fox.

A
jury returned a special verdict resulting in a spectacular victory for the
Hamasakis: (1) a defense verdict on the
complaint; and (2) approximately $2 million in damages to Donald on the
cross-complaint. The court reduced
Donald’s damages to approximately $300,000 and refused to rule that Yoshiko was
an alter ego of ISO, but awarded the Hamasakis their attorney fees pursuant to
Corporations Code section 317. ISO,
Yoshiko, and Fox appealed the judgment and Donald cross-appealed the judgment. We affirm the judgment in all respects and
affirm the order denying an amendment of the judgment to name Yoshiko as an
alter ego judgment debtor.



FACTS



>Operative Pleadings

ISO
filed its initial complaint in March 2007.href="#_ftn2" name="_ftnref2" title="">[2] In the operative fourth amended complaint,
filed in April 2008, ISO claimed the Hamasakis “systematically looted
ISO.” ISO alleged it suffered
$2,336,787.38 in damages as a result of conversion by the Hamasakis. ISO also alleged that Donald breached his
fiduciary duty to ISO, resulting in unspecified damages that apparently overlapped
with the alleged harm specified in the conversion cause of action. ISO named additional defendants and stated
causes of action for constructive trust
and unfair competition, but these parties and causes of action do not
appear to be relevant on appeal.

After
a series of partly successful demurrers by various defendants to ISO’s
successive complaints, Donald filed an answer and cross-complaint on December
4, 2008. The cross-complaint named as
cross-defendants ISO, Yoshiko, and Fox.
Donald asserted multiple causes of action, including defamation against
Fox, breach of fiduciary duty against Fox and Yoshiko, and unjust enrichment
against ISO. In June 2009, Donald filed
his operative second amended cross-complaint, which contained similar
allegations of defamation, breach of
fiduciary duty, and unjust enrichment.

>Establishment and Operation of ISO

Yoshiko
wrote down (at some unspecified point in time) a description of meetings from
1983 to 1998 about the creation and management of ISO. These notes were subsequently typed and
labeled as corporate minutes.href="#_ftn3"
name="_ftnref3" title="">[3] The initial entry in the minutes indicates
Yoshiko and her husband Robert Oswald, along with businessman Hirosuke
Fujiwara, contemplated teaming up to sell lenses in the United States; Donald
was not mentioned at this initial March 1983 meeting. Instead, the Oswalds thought they would use
their preexisting Thorobred Photo Service company (Thorobred) as headquarters. A few months later, it was noted that “Bob
Oswald recommends not using [the] Thorobred . . . office as headquarters. He suggests bringing in Don[ald] and using
his office in Southern California as headquarters.” Robert based this recommendation on repair
work done for Thorobred by Donald. In
1984, the Oswalds and Fujiwara discussed offering Donald 30 percent of the
company stock to participate in ISO, with the sales office to be located in
Huntington Beach, California. At a June
12, 1984 meeting, the shareholders agreed to terms with regard to their
responsibilities and duties. Fujiwara
would purchase lenses from a Japanese firm.
Yoshiko would handle issues pertaining to credit, customs,
communications with Japan, and financial start-up costs. Donald would open and manage a sales office in
Huntington Beach.

Thus,
in 1984, four individual shareholders — Robert and Yoshiko Oswald (40 percent),
Donald Hamasaki (30 percent) and Hirosuke Fujiwara (30 percent) — established
ISO. When her husband Robert died in
1998, Yoshiko took control of 40 percent of ISO. At some unspecified point in time, Yoshiko
purchased Fujiwara’s shares. Thus, at
the time of trial, Yoshiko owned 70 percent and Donald owned 30 percent of
ISO. According to notes taken by an
accountant during a meeting with ISO representatives during the litigation, “A
goal is to get Don’s stock back.”

The
Oswalds were officers and directors of ISO.
Donald was a director and the sole employee of ISO in California for
several years, working without pay to establish ISO as a successful
business. In 1990, Donald hired Paul to
run the day-to-day operations at ISO.
Paul reported to Donald and Yoshiko.
Joni was hired in the late 1980s and rose to the position of office
manager in 1995. Scott started working
at ISO in 2000 as international sales manager.
In 2005, Yoshiko replaced Paul with her son, Fox, as general manager of
ISO. Yoshiko and Fujiwara removed Donald
as a director in November 2005. Scott
resigned from ISO in February 2006.

The
minutes from 1984 to 1998 (written by Yoshiko, not necessarily
contemporaneously with the purported meetings) consistently expressed concern
with two issues: (1) Donald not paying
his required $30,000 initial capital contribution; and (2) the separation of
ISO operations from those of Imtek Corporation (Imtek) and FaxPress Corporation
(FaxPress). The minutes clearly reflect
an awareness on the part of ISO that the operations of ISO were intertwined
with Imtek and FaxPress (e.g., 1985 – “ISO operations must be separated from
that of the IMTEK Corporation”; 1987 — “The IMTEK Corporation’s bookkeeper is
the same as ISO’s”; 1989 — “Fax press, Inc. and Sun Utility Corporation (owned
by Don[ald], Paul . . ., and others) occupied 40% of the ISO building”; 1989 —
“The ISO Corporation must be separated from IMTEK and Fax press”; 1996 — “ISO
should not co-mingle with companies Don[ald] and
Paul . . . own”).



>Imtek and FaxPress

Imtek
was established in 1974. Through 2005
(at which point Imtek was sold), Donald and Paul (along with another
individual) were the principal shareholders, officers, and directors of
Imtek. Imtek modified and repaired
lenses and cameras to ensure compatibility with a customer’s equipment. Imtek was the firm that provided services to
Thorobred, bringing Donald to the attention of the Oswalds as a potential
business partner in the creation of ISO.

FaxPress
sold office supplies. Donald and Paul
were FaxPress shareholders; Paul was the President of FaxPress. ISO purchased office supplies from
FaxPress. Indeed, Yoshiko received
direct shipments of FaxPress thermal paper whenever she asked Joni to order fax
paper for Yoshiko’s home office in Nevada.

ISO’s
minutes (prepared by Yoshiko) from 1988 and 1989 acknowledged that Paul owned
shares in and managed Imtek and FaxPress, and that Donald and Paul owned
FaxPress. A 1988 letter written by Paul
to Yoshiko on Imtek letterhead asked Yoshiko to approve of the following
arrangement: “ISO compensate 1/4 of
Don[ald]’s salary ($1500.00/month) to relieve IMTEK of some burden.”

According
to Donald’s testimony, ISO began its operations at Imtek’s headquarters and
used Imtek’s offices and warehouses (rent free initially) to conduct
business. Imtek did all lens repair and
lens modification work for ISO. Imtek
also performed other administrative and promotional services for ISO during
ISO’s start-up period. ISO operated for
10 years before it hired any of its own employees capable of making repairs to
the products sold by ISO. This
arrangement would have been apparent to anyone visiting ISO. The Oswalds visited ISO during this early
time period and Yoshiko walked through the facilities. For nearly 10 years, Imtek provided repair
services to ISO without charge.

ISO
(by the authority of Paul) and Imtek (by an individual named Lindy Nagayama)
entered into service agreements in 1994, 1995, and 1996. These service agreements set out fee
schedules and Imtek’s responsibilities in providing modification and repair services
for ISO. Even when Imtek began charging
ISO, Imtek charged ISO less for its services than Imtek charged its other
customers.



>ISO’s Alleged Damages

ISO’s
case amounted to presenting an accounting of more than a decade of ISO
expenditures and casting doubt on the propriety of the expenditures by noting
the Hamasakis were in a position to benefit thereby. ISO pointed to five different categories of
expenditures by ISO under the authority of the various Hamasakis.

Most
of ISO’s alleged damages pertained to $1,615,754.17 paid by ISO to Imtek from
1993 (which is apparently when Imtek began charging ISO for services rendered)
through 2005. Exhibit 3, compiled by
ISO, features a spreadsheet cataloging the payments to Imtek as well as backup
copies of the checks. For the most part,
Donald and an individual named Pat Takamoto signed the checks from 1993 through
2002, while Joni signed the checks from 2002 to 2005. Other voluminous exhibits feature invoices
for work performed by Imtek for ISO, as well as some invoices sent by ISO to
its customers for repairs/modifications that match up with some of the work
done by Imtek. There is no summary
exhibit linking the Imtek or ISO invoices to particular checks made out to
Imtek by ISO. ISO did not introduce
evidence suggesting the rates paid by ISO were not fair and reasonable or that
Imtek did not actually perform technical work for ISO. Yoshiko testified that her first awareness of
the Imtek transactions came in 2006.

ISO
also asserted it was harmed by $81,800.09 paid by checks to FaxPress from 1993
to 2000. Exhibit 9 features a
spreadsheet cataloging the payments and copies of the checks. For the most part, Donald and Takamoto signed
these checks. There is no effort in the
record by either party to delve into particular ISO-FaxPress transactions to
evaluate the fairness and reasonableness of each transaction. In her testimony, Yoshiko claimed she first
became aware of the FaxPress transactions in 2006.

Next,
ISO identified $126,455.37 in checks written to petty cash from 1993 to
2004. These checks were signed by
Takamoto, Donald, and Joni at various times.
The gist of ISO’s argument with regard to these expenditures is that the
petty cash fund was abused by the Hamasakis.
But there is no proof that any particular petty cash was used by the
Hamasakis for personal expenditures.
Joni testified she used petty cash to pay for business expenses. Employee Raymond Hui testified he prepared
checks from petty cash to pay for Yoshiko’s expenses, to pay for informal
employee cash bonuses (“spiffs”), to buy lunches for employees, and to pay for
employee birthday party expenses. In his
deposition, Hui testified there was backup documentation for every petty cash
expenditure.

The
jury also was presented with voluminous documents detailing Joni’s use of the
company credit card. These documents
include numerous entries in which the expenditures appear to be personal rather
than business related (e.g., charges incurred at restaurants, clothing stores,
and grocery stores). But there are also
copies of some checks from Joni to ISO reimbursing ISO for personal
expenditures on her company credit card.
According to Fox’s accounting, he questioned $84,064.81 of Joni’s
expenditures. Joni testified she used
the company credit card to purchase office supplies, food for the ISO office,
and gifts for ISO employees. Joni also
made vendor payments on the credit card.
Joni used the credit card for personal expenses, but no one ever informed
her that this was improper. Joni wrote a
monthly check to ISO each time she made personal purchases on the company
credit card. Yoshiko signed the
application for the credit card account.
Yoshiko was told about Joni’s use of the credit card; Yoshiko raised no
objections to Joni’s practices.

Finally,
ISO submitted an exhibit demonstrating that $77,236.70 was paid to Scott from
2000 to 2005 for travel expenses. Joni
signed almost all of these checks.
Scott’s duties at ISO required extensive travel. Employee Hui testified that he had not
received receipts from Scott to support the reimbursement of $41,041.83 of
these expenses. Hui kept detailed
records of all of Scott’s travel expenditures and reimbursements. Hui followed Joni’s order to simply continue
waiting until Scott turned in the necessary receipts. As far as Scott remembers, he turned in all
necessary receipts.



>Evidence Pertaining to Donald’s Defamation
Claim

As
noted above, ISO’s initial complaint was filed in March 2007. In April 2007, ISO issued two press releases
entitled “Orange Co. Embezzlement/Conspiracy Suit Seeks $1.95 Million” and
“Rainbow CCTV Sues Former Management For $1.95 Million.”href="#_ftn4" name="_ftnref4" title="">[4] Fox prepared these documents, which are
identical with the exception of the titles.
The text of the press releases purports to summarize the contents of the
initial complaint,href="#_ftn5" name="_ftnref5"
title="">[5] names the various
defendants (including Donald), and provides information about ISO. The press releases describe the factual
allegations of the complaint as allegations, not established facts. For instance, the press releases state: “The suit alleges that the defendants
conspired to falsify, manipulate, and exploit ISO/Rainbow’s financial records,
statements, accounts, reports, invoices, payroll, petty cash, rent, expenses,
income, assets, liabilities, personal/business expenses, and inventory to their
own advantage.” The press releases
conclude with the following two sentences:
“The suit is the result of a 17 month internal investigation by current
ISO/Rainbow General Manager Bob Fox and Controller Doug Bailey and an
independent forensic audit conducted by . . . Haynie &
Company, CPA’s of Newport Beach. Both
the internal investigation and forensic audit are expected to continue.”

The
June 2007 issue of Security Systems News, the self-proclaimed “newspaper of
record for the security system integrator & installer,” featured an article
entitled “Rainbow CCTV sues former management.”
In addition to describing the lawsuit (in much the same terms as the
press releases), the article featured an interview of Fox. We quote this portion of the article in
detail: “Robert Fox, currently Rainbow
general manager, said ‘we made the decision to file the lawsuit pretty much
when I took over the company [in January 2006], but you have to have evidence
to file a lawsuit. So then we started
going through the process of doing an audit.’
[¶] He said, ‘our financial
records were a mess, so we had to sort that all out. The computer system was basically inadequate,
then we had boxes and boxes of paper to go through. Then we have to run a company at the same
time.’ [¶] Fox was very businesslike about the lawsuit,
and said he wasn’t about to speculate regarding a possible motivation for a
stockholder and his family to embezzle from his own company. ‘I can’t really say it was malicious or
anything like that,’ said Fox. [¶] The business continues to go forward . . .
. ‘Business has been pretty good,’ said
Fox. ‘It has its ups and downs, but
overall it’s been pretty good. The
business has actually had to be very strong to be able to survive this type of
thing and keep going.’”

With
regard to the article’s statement about Fox not speculating about “‘a possible
motivation for a stockholder and his family to embezzle from his own company,’”
Fox testified that “[t]hose were not my words.
Those were the interviewer’s or the writer . . . of this article.”

Donald
first saw the press release “way after the suit was filed.” Donald saw the article in the trade
publication sometime in the summer of 2007.
He learned about the article from a business acquaintance. Donald denied he took part in any of the
alleged misconduct mentioned in the press releases and article. He specifically noted he has “never
embezzled.” Donald was “angry,
humiliated, [and felt like his] life was ruined” when he read the article. “It’s like someone accusing you of doing
something that you’ve never done and put it in a national publication.”

ISO
moved for directed verdict on the defamation cause of action. ISO’s counsel asserted, “There is absolutely
no evidence that Mr. Fox ever uttered anything other than the truth. . . . [T]he document itself is a mirror image of
the allegations of the complaint.
There’s no evidence whatsoever that Mr. Bob Fox ever indicated anyone
actually committed a tort or a crime of embezzlement.” Counsel for Donald focused on Fox’s alleged
use of the word “embezzle” in his interview with the trade publication. Counsel for Donald also indicated he thought
the jury should be able to “look at the totality of evidence and decide whether
this was just a statement of allegations or whether it was trial by press.”

The
court denied the motion for directed verdict.
“[T]he theory of the cross-action is not malicious prosecution, so it’s
not based on the facts of the complaint.
It’s on the publication of remarks and as reflected in the press release
and the newspaper. So I’m not really
sure why there was an attempt to compare the . . . complaint to the press
release or the newspaper article, although there was an attempt to do so.” “I think, based upon the fact that [the trade
publication article] is in evidence, there is evidence from which the jury
could conclude that Mr. Fox is not believable with respect to his denial on the
witness stand that he was the source of the information or the statements that
‘he wasn’t about to speculate regarding a possible motivation for a stockholder
and his family to embezzle from its own company.’ [¶]
The inference there is that the personalities mentioned in the article,
which are the defendants, engaged in criminal or criminal-like behavior which
would be, per se, defamatory, and so it’s a question for the jury to decide who
they believe.”

In
his closing argument, counsel for Donald explained that Donald could not prove
actual damages, but that Donald was hurt and humiliated. Counsel asked for $1.9 million in assumed
damages “because apparently that number was good enough for [Yoshiko] and . . .
Fox to start this lawsuit with no proof, with no basis for suing Don[ald]
Hamasaki and no basis for saying he embezzled.
And four years later they have no proof on that stand.”



>Evidence Regarding Donald’s Unjust
Enrichment Claim

In
January 2002, Donald loaned ISO $30,000 by way of a personal check with the
word “loan” written in the memo line.
ISO was having a cash flow problem at the time. As of 2009, ISO’s balance sheet still showed
the $30,000 loan as a liability of ISO.

Although
he had been repaid in the past for other loans to ISO, this $30,000 loan was
never repaid to Donald. There was no
deadline for repayment affixed to the loan.
But in February 2010, Fox wrote a letter to Donald indicating the loan
would not be paid back to Donald because any claim for the debt was barred by
the passage of time in which Donald was not repaid principal or interest.



>Special Verdict

The
jury answered a series of questions contained within a 40-page special verdict
form. As to ISO’s conversion cause of
action, the jury answered “no” to questions asking whether money was
“wrongfully paid to” Imtek and FaxPress.
The jury answered “yes” to the question of whether money was “wrongfully
utilized from checks payable to petty cash,” but then answered “yes” to a
question asking, “Did ISO give consent to the money wrongfully utilized from
checks payable to petty cash.”
Similarly, the jury found money was wrongfully paid for unreimbursed
personal credit card expenses and travel expenses, but found ISO consented to
the money being wrongfully paid.

As
to ISO’s breach of fiduciary duty cause of action, the jury answered “no” to
questions asking whether Donald “knowingly act[ed] against the interests of ISO
in connection with the payments to” Imtek, FaxPress, the petty cash fund, the
personal credit card charges, and the unreimbursed travel expenses.

As
a result of its responses to the special verdict questions, which indicate
there was no liability on the part of the Hamasakis, the jury did not reach
special verdict questions pertaining to damages for conversion and breach of
fiduciary duty. Nonetheless, the jury
answered the following question: “If you
found that ISO suffered economic damages due to the conduct of any of the
Defendants, is ISO prohibited from recovering any portion of those damages from
any of the following Defendants because the statute of limitations had expired
prior to the filing of the lawsuit on March 28, 2007?” For each of the Hamasakis, the jury answered
“yes.” In a follow up question, the jury
indicated that “all” of ISO’s damages were precluded by the statute of
limitations. The jury also found ISO
waived its right to any damages as to all defendants and failed to mitigate its
damages as to all defendants. The jury
then specifically stated it was awarding $0 in damages to ISO as to each of the
Hamasakis.

As
to Donald’s defamation claim, the jury found Fox made false statements of fact
about Donald; such statements were made while Fox was an agent, employee, or
representative of ISO; Fox was acting within the scope of his agency,
employment, or representation when he made the statements; and Yoshiko intended
for Fox to make the statements. The jury
found Donald suffered no actual damages, but awarded $1.9 million “for the
assumed harm to his reputation and for shame, mortification or hurt
feelings.” The jury found Fox acted with
malice, oppression, or fraud in making the false statements.

As
to Donald’s breach of fiduciary duty claim, the jury found Yoshiko and Fox had
breached their fiduciary duties and by doing so had injured Donald in the
amount of $49,000. As to Donald’s unjust
enrichment claim, the jury found ISO had been unjustly enriched in the amount
of $49,000 at the expense of Donald.



>Judgment

The
court entered judgment on June 6, 2011, upon the jury’s special verdict. But the court later conditionally granted a
motion for new trial on Donald’s cause of action for defamation unless Donald
agreed to a reduction of the jury’s verdict from $1.9 million to $250,000. The court found these damages to be “clearly
excessive.” The court made this finding
because the jury’s special verdict indicated Donald suffered no actual damages. The court also ruled that “the sole basis for
the defamation claim found true by the jury was that Mr. Fox accused [Donald]
of embezzlement which, although defamatory, was listed within a string of
accusations stated in the plaintiff’s complaint so as to mute its
[effect].” The court denied Donald’s
motion to add Yoshiko as a judgment debtor on the defamation cause of action as
an alter ego of ISO.

The
court ultimately (on August 16, 2011) entered an amended judgment with the
following pertinent language: “1. ISO take nothing by way of its complaint
against Donald Hamasaki, Paul Hamasaki, Scott Hamasaki, or Joni Hamasaki; [¶]
2. Donald Hamasaki is awarded $250,000
against ISO . . . for defamation; [¶] 3.
Donald Hamasaki is awarded $49,000 against ISO, Yoshiko Oswald and
Robert Fox, jointly and severally . . . for breach of fiduciary duty and unjust
enrichment, respectively; [¶] . . . [¶] 5.
Donald Hamasaki have and recover against ISO, Robert Fox and Yoshiko
Oswald, jointly and severally, costs and disbursements in the amount of
$21,349.20; [¶] 6. Donald Hamasaki have
and recover against ISO attorney’s fees in the amount of $269,327.50; [¶]
7. Paul Hamasaki and Scott Hamasaki have
and recover against ISO costs and disbursements in the amount of $44,181.64;
[¶] 8. Paul Hamasaki and Scott Hamasaki
have and recover against ISO attororney’s fees in the amount of $693,376.99;
[¶] 9. Joni Hamasaki have and recover
against ISO costs and disbursements in the amount of $11,226.00 . . . .”



DISCUSSION



This
case involves: (1) ISO’s appeal of the
defense judgment on the complaint; (2) ISO’s, Fox’s, and Yoshiko’s appeal of
the damages awarded to Donald on the cross-complaint; (3) Donald’s cross-appeal
of the court’s denial of a motion to amend the judgment to deem Yoshiko an
alter ego of ISO; and (4) various parties’ assertions with regard to the award
of attorney fees and costs that depend upon the resolution of the foregoing
issues, as well as motions for sanctions
filed by the Hamasakis.

Before
addressing each of the issues properly before us, we mention several relevant
general rules of appellate practice. “‘A
judgment . . . is presumed correct. All intendments and presumptions are indulged
to support it on matters as to which the record is silent, and error must be
affirmatively shown. This is not only a
general principle of appellate practice but an ingredient of the constitutional
doctrine of reversible error.’” (>Denham v. Superior Court (1970) 2 Cal.3d 557,
564.) To demonstrate prejudicial error,
an appellant must provide an adequate record of the trial court proceedings and
include specific page citations in its briefs illustrating the error. (Aguilar
v. Avis Rent A Car System, Inc. (1999) 21 Cal.4th 121, 132; >Duarte v. Chino Community Hospital
(1999) 72 Cal.App.4th 849, 856.)
Issues not specifically raised at trial are forfeited on appeal. (Premier
Medical Management Systems, Inc. v. California Ins. Guarantee Assn. (2008)
163 Cal.App.4th 550, 564.)
Moreover, issues not specifically raised in the appellate briefs are
waived. (Roberts v. Assurance Co. of America (2008) 163
Cal.App.4th 1398, 1410.)

With
regard to the parties’ multiple claims that the evidentiary record is
insufficient to support factual findings underlying the judgment or posttrial
orders, we apply the substantial evidence
standard of review. “Under the
substantial evidence standard of review, ‘we must consider all of the evidence
in the light most favorable to the prevailing party, giving it the benefit of
every reasonable inference, and resolving conflicts in support of the
[findings]. [Citations.] [¶] It
is not our task to weigh conflicts and disputes in the evidence; that is the province
of the trier of fact. Our authority begins and ends with a determination as to
whether, on the entire record, there is any
substantial evidence, contradicted or uncontradicted, in support of the
judgment.’” (ASP Properties Group, L.P. v. Fard, Inc. (2005) 133
Cal.App.4th 1257, 1266.) We note
other applicable standards of review below.



I.

ISO’S APPEAL OF DEFENSE JUDGMENT ON THE COMPLAINT



>Instruction of Jury With Regard to
Corporations Code Section 310

ISO
first contends the court erred by refusing to instruct the jury with special
instructions prepared by ISO based on Corporations Code section 310 (section
310). “‘A party is entitled upon request
to correct, nonargumentative instructions on every theory of the case advanced
by him which is supported by substantial evidence.’” (Major
v. Western Home Ins. Co. (2009) 169 Cal.App.4th 1197, 1217.) “‘Instructions should state rules of law in
general terms and should not be calculated to amount to an argument to the jury
in the guise of a statement of law.
[Citations.] Moreover, it is
error to give, and proper to refuse, instructions that unduly overemphasize
issues, theories or defenses either by repetition or singling them out or
making them unduly prominent although the instruction may be a legal proposition.’” (Ibid.)

“Section
310 governs situations where a matter before a board of directors is one in
which a director has an interest.” (>Sammis v. Stafford (1996) 48
Cal.App.4th 1935, 1941.) “Under
section 310, subdivision (a), a contract is automatically void or voidable on
the ground a director is a party to the contract, unless certain alternative
requirements are met. If these
requirements . . . are met, the contract is no longer void or voidable on the ground
the director is a party thereto.” (>Gaillard v. Natomas Co. (1989) 208
Cal.App.3d 1250, 1273.) Section
310, subdivision (a), states in relevant part:
“No contract . . . between . . . a corporation and any corporation, firm
or association in which one or more of its directors has a material financial
interest, is either void or voidable
. . . if” one of the following three
conditions is satisfied: (1) >formal approval of disinterested
shareholders is obtained after full disclosure of the director’s interest;
(2) disinterested directors approve
of the transaction after full disclosure of the interested director’s interest
and the transaction is “just and reasonable as to the corporation”; >or (3) “As to contracts or transactions
not approved as provided in paragraph (1) or (2) of this subdivision, >the person asserting the validity of the
contract or transaction sustains the burden of proving that the contract or
transaction was just and reasonable as to the corporation at the time it was
authorized, approved or ratified.”href="#_ftn6" name="_ftnref6" title="">[6] (Italics added.)

Although
section 310 contemplates formal shareholder or director approval of interested
transactions, case law suggests more informal approval can be sufficient in
cases involving closely held corporations.
“Where the full details of the entire transaction are known and approved
by all persons concerned and the transaction is just and reasonable in the
light of the circumstances appearing at the time it was made, no person can
properly complain.” (>Armstrong Manors v. Burris (1961) 193
Cal.App.2d 447, 455-456 [shareholder and director approval can occur
despite lack of formal meetings or resolutions for purposes of predecessor
statute to section 310].)

ISO
claims it was entitled to its proffered instructions, which were based on
section 310, because substantial evidence supported findings that: (1) Donald, a director of ISO, was
financially interested in Imtek and FaxPress; (2) ISO engaged in a series of
transactions with Imtek and FaxPress; and (3) Donald did not sufficiently
disclose all material facts to the other shareholders and directors of ISO or
obtain formal approval of these transactions.
ISO’s proposed instructions shifted part of the burden of proof to
Donald, specifically on the question of whether the Imtek/FaxPress transactions
were “just and reasonable.” The burden
of proof question was important to ISO precisely because it did not present
specific evidence that any particular transaction was unreasonable or unfair.

ISO’s
first proposed instruction indicated ISO was required to prove: (1) transactions occurred between ISO and
Imtek/FaxPress (which was undisputed); (2) Donald acted as a director of ISO
and simultaneously had a material financial interest in Imtek/FaxPress (which
was largely undisputed, at least with regard to most of the relevant time
period); and (3) “[t]he material facts as to the transaction or as to
Donald[s’] . . . interest in Imtek and FaxPress, were not fully disclosed, or
such contract or transaction was not approved by the other directors or
shareholders” (an issue that was disputed by the parties). ISO’s second proposed instruction
indicated: “A director, who authorizes,
approves or ratifies a transaction between the corporation and another entity
in which that director has a material financial interest, has the burden of
proving that each transaction was just and reasonable as to the corporation at
the time it was authorized, approved or ratified, unless the material facts of
the transaction and the director’s financial interest were (a) fully disclosed
or known by the other shareholders and (b) the transactions were approved by
the shareholders with the shares owned by the interested director not entitled
to vote. If the director fails to meet
that burden, the transactions are void.”href="#_ftn7" name="_ftnref7" title="">[7]

The
court rejected ISO’s proposed instructions and instead provided the jury with
its own modified version of CACI No. 4102, the standard duty of loyalty
instruction: “ISO claims that it was
harmed by Donald Y. Hamasaki’s breach of the fiduciary duty of loyalty. To establish this claim, ISO must prove all
of the following: [¶] 1. That Donald . . . owed
ISO a fiduciary duty; [¶] 2. That
Donald . . . knowingly acted against ISO’s interests; [¶]
3. That ISO did not give informed
consent to Donald[’s] . . . conduct; [¶] 4. That ISO was harmed; and [¶] 5. That
Donald[’s] . . . conduct was a substantial factor in
causing ISO’s harm.” The primary
modification was an addendum to the end of the instruction, which appears to
have been inspired by section 310: “If
Plaintiff has proven the above, Donald . . . must prove it
is more likely tha[n] not that the contract or transaction was just and
reasonable as to the corporation at the time the transaction occurred.”

According
to the court, the case as presented to the jury was in some ways a “run-of
the-mill breach of fiduciary duty case.”
ISO pursued Donald for damages based on an alleged breach of the
fiduciary duty of loyalty to ISO. ISO
did not seek to void its contracts with Imtek and FaxPress and recover from
those entities. (See, e.g., >Remillard Brick Co. v. Remillard-Dandini
(1952) 109 Cal.App.2d 405, 416-424.)
But at the same time, the court recognized section 310 had some bearing
on the case, as the court modified CACI No. 4102 to include a statement that
Donald had the burden to prove the Imtek/FaxPress transactions were just and
reasonable, if ISO proved the elements of its cause of action against
Donald. Although ISO clearly objected to
the court’s refusal to provide ISO’s proffered instructions, ISO did not
specifically object on the record to the court’s modified version of CACI No.
4102 or explain on the trial record why the court’s chosen instruction was not
sufficient with regard to section 310’s burden-shifting mechanism.

The
court was correct to base its instruction on CACI No. 4102. To prove Donald breached his fiduciary duty
of loyalty, it was necessary for ISO to prove Donald acted against ISO’s
interests (not merely that there were contracts with Imtek, a company in which
Donald held a material financial interest). The transactions at issue occurred from 1993
to 2005, a time period in which Paul was running ISO’s operations, not
Donald. To hold Donald liable for
damages (as opposed to voiding ISO’s contracts with Imtek in an action against
Imtek), ISO needed to prove wrongdoing by Donald and ensuing damages caused by
Donald’s wrongdoing. ISO’s proposed
instructions did not accurately state the law based on the theory of the case
pursued by ISO at trial. Thus, the court
did not err by refusing to provide ISO’s instructions.

It
is true that the court’s modified CACI No. 4102 instruction, when viewed in
tandem with the special verdict form, is unclear. The special verdict form does not include a
question asking whether the contracts or transactions with Imtek/FaxPress were
just and reasonable. The first question
asked of the jury in the fiduciary duty section of the special verdict is
whether Donald knowingly acted against the interests of ISO in connection with
the payments to Imtek/FaxPress. The jury
answered “no” and did not reach any of the other questions. How was the jury supposed to view its task
with regard to answering the first question on the special verdict form (i.e.,
did Donald knowingly act against ISO’s interests), in light of Donald’s burden
to prove the transactions were just and reasonable? Did the jury consider the justness and
reasonableness of the transactions in deciding Donald did not knowingly act
against the interests of ISO? If so, how
did the jury allocate the burden of proof on this question?

In
its appellate briefs, ISO claims the jury would have viewed the case
differently had it been given an instruction more closely approximating section
310, like those proposed by ISO. ISO’s
assignment of instructional error is only coherent when combined with a
challenge to the instruction provided by the court (modified CACI No. 4102) and
the special verdict form. But ISO does
not directly argue on appeal that the modified CACI No. 4102 instruction or the
special verdict form were given in error.
Nor did ISO specifically argue to the trial court that the breach of
loyalty instruction and special verdict form were confusing or incomplete. Instead, ISO’s argument (both at trial and on
appeal) was and is that the court was obligated to give ISO’s proposed jury
instructions. From the trial court’s
perspective, ISO’s instructions were wrong (and to the extent they were
correct, duplicative). ISO never
explained to the court on the record why the court’s instruction and the
special verdict form would be potentially unclear in establishing the burden of
proof for the justness and reasonableness of the transactions. Because ISO did not properly preserve a
viable argument at trial or advance such an argument on appeal, we need not
answer whether instructional/special verdict form error occurred in the
abstract.

Even
if we were to decide the jury was improperly instructed, we would not reverse
the judgment. “[I]nstructional error in
a civil case is not grounds for reversal unless it is probable the error
prejudicially affected the verdict.
[Citation.] In determining
whether instructional error was prejudicial, a reviewing court must evaluate
‘(1) the state of the evidence, (2) the effect of other instructions, (3) the
effect of counsel’s arguments, and (4) any indications by the jury itself that
it was misled.’” (Major v. Western Home Ins. Co., supra,
169 Cal.App.4th at p. 1217.) Even
assuming the court should have provided ISO’s proposed instructions, any error
was harmless.

ISO
claims the instructional error was prejudicial because the jury “may have very
well answered special verdict question nos. 1 and 18 differently, forcing the
jury to proceed with” answering the remainder of the special verdict form as to
breach of fiduciary duty. It is true
that “giving the wrong party the burden of proof on a dispositive issue . . .
when the evidence on that issue is in dispute, is a major instructional
error.” (Buzgheia v. Leasco Sierra Grove (1997) 60 Cal.App.4th 374,
393.) But even in the face of such an
error, “we may not reverse a judgment . . . absent a miscarriage of
justice.” (Ibid.; see In re Marriage of
Burkle (2006) 139 Cal.App.4th 712, 736 [even if court misallocated
burden of proof, error was harmless].)
ISO spends only about one paragraph in its opening brief on the question
of whether the error was prejudicial, and ISO’s arguments are conclusory and
lack citations to the record. ISO simply
does not make the case that the jury thought the evidence was in equipoise as
to whether the disputed transactions were just and reasonable, which is the
only way shifting the burden of persuasion on this issue would have
mattered. (Buzgheia, at p. 394 [error was not harmless in part because it was
“quite probable that the jury utilized the tie-breaking tool necessary to our
system of factfinding: When in doubt,
find against the party with the burden of proof”].)

To
the extent the specific transactions between ISO and Imtek/FaxPress were
examined, the only evidence in the record suggests ISO was obtaining favorable
treatment from these entities as a result of the influence of the
Hamasakis. As previously noted, the jury
answered only the first question on each section of the breach of fiduciary
duty cause of action: Donald did not
knowingly act against the interests of ISO in connection with the payments to
Imtek, the payments to FaxPress, the petty cash management, the payment of
unreimbursed personal credit card expenses, and the payment of unreimbursed
travel advances. The jury clearly
rejected ISO’s theory of the case, as partly illustrated by the jury’s findings
on the conversion cause of action that no wrongful payments were made to
Imtek/FaxPress and that ISO consented to all other allegedly wrongful
payments. The jury apparently believed
Donald’s relationship with Imtek, his utilization of Imtek’s resources, and his
utilization of his family members as employees was essential to the formation
and development of ISO. The jury also
apparently disbelieved Yoshiko’s assertions that she was kept in the dark by
the Hamasakis with regard to ISO’s transactions and expenditures, as the jury
found the affirmative defenses (consent, mitigation of damages) had been
proven.

Although
not required to do so, the jury also found the statute of limitations precluded
ISO from recovering any damages, which further illustrates that any error in
the instructions was harmless. The jury
was instructed that if it found ISO “suffered damage before March 28, 2004,
then [ISO] must prove that its failure to discover the alleged damage before
March 28, 2004 was reasonable and that it had no actual or constructive
knowledge of facts sufficient to put a reasonable person on notice to
inquire.” ISO’s own documents make clear
that all of the payments to FaxPress occurred before 2004 and all but
approximately $10,000 of the payments to Imtek occurred before 2004. The jury’s findings indicate they thought ISO
was on notice of the payments made by ISO to Imtek and FaxPress, and was aware
of the relationship between the Hamasakis and Imtek and FaxPress, before March
28, 2004.

Moreover,
we see no evidence the jury was confused or that counsel’s argument unfairly
took advantage of the lack of clarity in the instructions/verdict form. ISO’s counsel vigorously argued to the jury
that it was Donald’s burden to prove each transaction with Imtek and FaxPress
was fair and reasonable. In sum, we do
not think it reasonably probable that a clearer explanation to the jury that
Donald had the burden to demonstrate these transactions were just and
reasonable would have changed the jury’s verdict.



>Sufficiency of the Evidence Supporting the
Jury’s Special Verdict Findings of Consent

ISO
next contends there was insufficient evidence to support the jury’s findings
that ISO consented to the use of ISO’s funds for personal expenses via the
petty cash fund, company credit cards, and travel expense reimbursements.href="#_ftn8" name="_ftnref8" title="">[8] “‘“Conversion is the wrongful exercise of
dominion over the property of another.
The elements of a conversion are the plaintiff’s ownership or right to
possession of the property at the time of the conversion; the defendant’s
conversion by a wrongful act or disposition of property rights; and
damages.”’” (Plummer v. Day/Eisenberg, LLP (2010) 184 Cal.App.4th 38,
45.) “[T]he law is well settled that
there can be no conversion where an owner either expressly or impliedly assents
to or ratifies the taking, use or disposition of his property.” (Farrington
v. A. Teichert & Son (1943) 59 Cal.App.2d 468, 474; see CACI No.
2100 [including lack of consent as element of plaintiff’s case of conversion].)

There
is substantial evidence supporting the jury’s finding that ISO consented to
these transfers. (See >Bank of New York v. Fremont General Corp.
(9th Cir. 2008) 523 F.3d 902, 914-915.)
Longstanding practice at ISO included a lack of careful procedures to
differentiate between personal and business expenses in the management of the
petty cash fund, the company credit cards, and the travel reimbursement
program. At all relevant times, ISO was
a small company. Records were available
at all times for officers and directors of ISO to examine. There is no evidence that the information
relied on by ISO in its case-in-chief was hidden from officers and directors of
ISO. At no relevant time were measures taken
by corporate representatives to change the policies employed at ISO. (See Virtanen
v. O’Connell (2006) 140 Cal.App.4th 688, 707 [consent can be
demonstrated by failure to stop taking of property of which plaintiff was
aware].) The jury’s verdict reflects its
apparent view that although some abuses of sound corporate accounting practices
occurred, ISO consented to these abuses or at least failed to show that it did
not consent.



>Sufficiency of Evidence With Regard to
Affirmative Defenses to ISO’s Claims

ISO
also contends there was insufficient evidence to support the jury’s findings as
to the Hamasakis’ affirmative defenses (statute of limitations, failure to
mitigate damages, waiver of damages).
The jury found no liability or damages with regard to any of ISO’s
causes of action, irrespective of the Hamasakis’ affirmative defenses. The jury therefore was not obligated to
answer questions pertaining to the affirmative defenses. Each of the special verdict questions
pertaining to affirmative defenses was prefaced by the following conditional
clause: “If you found that ISO suffered
economic damages due to the conduct of any of the Defendants . . . .” Despite this logical and explicit negation of
the relevance of the affirmative defense questions, the jury answered each
affirmative defense question and found ISO was precluded from recovering any
damages by each of the affirmative defenses.
The jury’s findings with regard to affirmative defenses were unnecessary
to the judgment and therefore need not be addressed in this appeal (except as
noted above in the harmless error analysis of the jury instruction issue).



II.

APPEAL OF JUDGMENT ON CROSS-COMPLAINT



>Effect of Statute of Limitations on
Defamation Claim Against ISO

The
statute of limitations for libel or slander actions is one year. (Code Civ. Proc., § 340, subd.
(c).) Donald did not file his initial
cross-complaint until December 2008, more than one year after the publication
of the April 2007 press release and June 2007 article, which provided the factual
basis for Donald’s defamation claim against ISO. Donald testified he first saw the article in
the summer of 2007. Based on the
timeline of events, ISO claims Donald should have been barred from pursuing his
defamation action.href="#_ftn9" name="_ftnref9"
title="">[9] According to Donald, his defamation claim
against ISO was preserved because ISO had filed a complaint against Donald,
thereby tolling the statute of limitations with regard to Donald’s claims
against ISO. (See, e.g., >Boyer v. Jensen (2005) 129
Cal.App.4th 62, 69-70 (Boyer).)

ISO’s
contention on appeal is two-fold: (1)
the statute of limitations for unrelated causes of action, i.e., permissive
rather than compulsory cross-complaints, is not tolled by the filing of a
complaint; and (2) Donald’s defamation cause of action was permissive because
it was not related to ISO’s complaint. A
“‘related cause of action’” — i.e., “a cause of action which arises out of the
same transaction, occurrence, or series of transactions or occurrences as the
cause of action which the plaintiff alleges in his complaint” (Code Civ. Proc.,
§ 426.10, subd. (c)) — must be pleaded in a cross-complaint or not at all
(hence, it is a compulsory cross-complaint).
(Code Civ. Proc., § 426.30, subd. (a).) The word “‘transaction’ is construed broadly”
to include claims that have a “‘logical relationship’” between them such that
the litigation of both claims in a single case would avoid the “‘duplication of
time and effort.’” (Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 960
(Align).) Even if a cause of action is unrelated to the
complaint, a defendant may file a permissive cross-complaint against the
plaintiff(s): “A party against whom a
cause of action has been asserted in a complaint or cross-complaint >may file a cross-complaint setting forth
either or both of the following:
[¶] (a) Any cause of action he
has against any of the parties who filed the complaint . . . against him. . .
.” (Code Civ. Proc., § 428.10,
italics added.)

It
is clear, at a minimum, that the filing of a complaint tolls the statute of
limitations for any cause of action required to be brought by the defendant
against a plaintiff in a compulsory
cross-complaint. (See Rylaarsdam and
Turner, Cal. Practice Guide: Civil
Procedure Before Trial Statutes of Limitations (The Rutter Group 2012) ¶ 8:240,
p. 8-30; Weil and Brown, Cal. Practice Guide:
Civil Procedure Before Trial (The Rutter Group 2012) ¶ 6:592, p. 6-152
[“A cross-complaint that is subject-matter
related to the plaintiff’s complaint (i.e., a compulsory cross-complaint)
‘relates back’ to when the action was commenced for statute of limitations
purposes”].) The principle underlying
the rule is that “‘“‘the plaintiff
has [by filing the complaint] thereby waived the [statute of limitations] claim
and permitted the defendant to make all proper defenses to the cause of action
pleaded.’”’ [Citations.] Since new parties cannot be said to have
engaged in any sort of waiver, the rule does not apply to them.” (Boyer,> supra, 129 Cal.App.4th at pp. 69-70.) Thus, the court ruled that the statute of
limitations had run with regard to a claim against Fox and Yoshiko, but not
against ISO.

According
to some authorities, “[i]t is not clear whether the . . . rule [tolling the
running of the statute of limitations upon filing of a complaint] applies to
cross-complaints against plaintiff unrelated
to ‘the contract, transaction, matter, happening or accident’ alleged in the
complaint ([Code Civ. Proc., § 428.10, subd. (a)]) (so-called ‘permissive’
cross-complaints).” (Rylaarsdam and Turner,
supra, ¶ 8:250, p. 8-31; see also
Weil and Brown, supra, ¶ 6:595, p.
6-153.)

The
leading case cited for the proposition that the filing of a complaint tolls the
statute of limitations only for related actions is Trindade v. Superior Court, supra,
(1973) 29 Cal.App.3d 857 (Trindade). Quoting former Code of Civil Procedure
section 442, a since repealed statute pertaining to cross-complaints, >Trindade observed: “It has consistently been held that the
commencement of an action tolls the statute of limitations as to a defendant’s
then unbarred cause of action against the plaintiff, ‘relating to or depending
upon the contract, transaction, matter, happening or accident upon which the
action is brought, . . .’” (>Trindade, at p. 860; see Weil and Brown,
supra, ¶ 6:595, p. 6-153 [citing >Trindade for proposition that “[n]o
‘waiver’ of the statute of limitations can be inferred as to >unrelated cross-complaints”].)

Other
appellate courts have also stated the rule to seemingly restrict its
applicability to related causes of action.
(Boyer, supra, 129 Cal.App.4th at p. 69 [by filing complaint,
plaintiff “tolled or suspended [the statute of limitations] as to causes of
action arising out of the same set of facts alleged in the complaint”]; >Sidney v. Superior Court (1988) 198
Cal.App.3d 710, 714 [“Such a cross-complaint need only be subject-matter
related to the plaintiff’s complaint — i.e., arise out of the same occurrence
(see §§ 426.10, 428.10) — to relate back to the date of filing the
complaint for statute of limitation purposes”]; Electronic Equipment Express, Inc. v. Donald H. Seiler & Co.
(1981) 122 Cal.App.3d 834, 844 [“the courts have fashioned a rule that a
statute of limitations is suspended or tolled as to a defendant’s then unbarred causes of action against the plaintiff
arising out of the same transaction by the filing of the plaintiff’s
complaint”].) But neither >Trindade nor any other case has actually
had cause to decide whether the waiver-by-complaint rule applies to claims that
could only be brought as permissive (rather than compulsory) cross-complaints.

Our
Supreme Court has arguably stated the rule more broadly. (See Jones
v. Mortimer (1946) 28 Cal.2d 627, 633 [“The statute of limitations is
not available to plaintiff as to defendants’ counterclaim if the period has not
run on it at the time of commencement of plaintiff’s action even though it has
run when the counterclaim is pleaded”]; Union
Sugar Co. v. Hollister Estate Co. (1935) 3 Cal.2d 740, 746 [“‘The filing of
the complaint . . . operated to suspend the running of the statute of
limitations as to any counterclaim existing at that date in favor of
respondent, and therefore the counterclaim . . . was not barred”].) These cases, of course, had no cause to
consider the modern distinction between compulsory and permissive
cross-complaints. But by referring to
“counterclaims” (a category “abolished” in 1971 in favor of the cross-complaint
(Code Civ. Proc., § 428.80)), our Supreme Court’s statement of the rule
included claims with a “scope . . . much broader than that of the
cross-complaint” defined under former Code of Civil Procedure section 442. (5 Witkin, Cal. Procedure (5th ed. 2008)
Pleading, § 1155, p. 582.) Under
prior versions of the Code of Civil Procedure, “[a] cross-complaint [could] be
filed only when the affirmative relief sought by defendant constitute[d] a
claim ‘relating to or depending upon the contract, transaction, matter,
happening or accident upon which the action is brought.’ [Citation.]
Since 1927 [and until it was abolished in 1971] there [was] no
comparable limitation upon the counterclaim, which merely need tend to diminish
or defeat plaintiff’s recovery and must exist in favor of a defendant and
against a plaintiff between whom a several judgment might be had in the
action.” (Holtzendorff v. Housing Authority (1967) 250 Cal.App.2d 596,
635-636.) Thus, under prior law,
“counterclaims” included actions that might now be classified as permissive
cross-complaints.

A
broader statement of the waiver-by-complaint rule is also reflected in some
treatises, although these treatises do not explicitly consider whether the rule
is limited to compulsory cross-complaints.
(30 Cal. Forms of Pleading and Practice (Matthew Bender 2012) § 345.20(5)(h)
[“If, when a complaint is filed, an action that may be raised on a cross
complaint is not already time barred, the filing of the complaint suspends the
running of the statute of limitations as to the action that may be raised as a
cross complaint”]; 3 Witkin, Cal. Procedure (5th ed. 2008) Actions, § 448,
p. 571 [“The statute is a bar to the defendant’s affirmative claim only if the
period has already run when the complaint is filed. The filing of the complaint suspends the
statute during the pendency of the action, and the defendant may set up his or
her claim by appropriate pleading at any time”].)

Given
the arguably broader statement of the rule by the California Supreme Court and
the lack of a clear holding in any case that the rule is restricted to
compulsory cross-complaints, we conclude the statute of limitations tolled with
regard to Donald’s defamation cause of action against ISO, regardless of
whether the defamation cause of action should be deemed compulsory or
permissive.href="#_ftn10" name="_ftnref10"
title="">[10]



Obtaining
Defamation Judgment Against ISO Based on Fox’s Statements

ISO
also claims it cannot be held vicariously liable for Fox’s statements because
the statute of limitations had run
against Fox. (See Civ. Code, § 2338
[“a principal is responsible to third persons for the negligence of his agent
in the transaction of the business of the agency, including wrongful acts
committed by such agent in and as a part of the transaction of such business”];
Lehmuth v. Long Beach Unified Sch. Dist.
(1960) 53 Cal.2d 544, 550 [“where recovery of damages is sought against a
principal and an agent, and the negligence of the agent is the cause of the
injury, a verdict releasing the agent from liability releases the principal”].)

ISO’s
argument is off base. The judgment
supports a conclusion that ISO was held directly
liable (rather than merely vicariously liable) for defamation. The evidence supports a finding that Fox was
ISO’s general manager as of November 2005.
The jury found Yoshiko (a director and the controlling shareholder of
ISO) was aware of and authorized Fox’s press releases and public
statements. This suggests the judgment
against ISO was not dependent on respondeat superior principles of vicarious
liability. Instead, ISO was directly
liable for defamation because it authorized the wrong committed by Fox. (Civ. Code, § 2339 [“A principal is
responsible for no other wrongs committed by his agent than those mentioned in
the last section, unless he has authorized or ratified them”]; >Benson v. Southern Pacific Co. (1918)
177 Cal. 777, 779-780 [“All intendments being in favor of the verdict, it must
be considered that the jury” found the corporate entity to be directly liable
even though the agent was not held liable, thereby precluding vicarious
liability].)



>Reasonableness of $250,000 in Defamation
Damages

ISO
does not contend on appeal that there is insufficient evidence to support the
jury’s finding of liability for defamation per se (i.e., matter which is
libelous on its face for which a plaintiff need not prove special
damages). (See Civ. Code,
§§ 44-47.) We therefore assume,
without deciding, that Fox’s statements were sufficient as a matter of law to
support a finding of defamation liability.

ISO
does contend that $250,000 was an unreasonable amount of damages for the
allegedly defamatory statements at issue, notwithstanding the trial court’s
reduction of the damage award from $1.9 million. ISO claims the evidence supported only an
award of nominal damages. (See Civ. Code, §§ 3359 [“Damages must, in
all cases, be reasonable, and where an obligation of any kind appears to create
a right to unconscionable and grossly oppressive damages, contrary to
substantial justice, no more than reasonable damages can be recovered”], 3360
[“When a breach of duty has caused no appreciable detriment to the party
affected, he may yet recover nominal damages”].)

“‘It
is well settled that damages are excessive only where the recovery is so
grossly disproportionate to the injury that the award may be presumed to have
been the result of passion or prejudice.
Then the reviewing court must act.
[Citations.] The reviewing court
does not act de novo, however. . . .
[T]he trial court’s determination of whether damages were excessive “is
entitled to great weight” because it is bound by the “more demanding test of
weighing conflicting evidence than our standard of review under the href="http://www.mcmillanlaw.com/">substantial evidence rule. . . .”’” (Sommer
v. Gabor (1995) 40 Cal.App.4th 1455, 1470-1471 (Sommer).)

ISO
does not contend the jury instruction pertaining to the issue of assumed
damages (a modified version of CACI No. 1704) was provided in error. As to assumed damages, this jury instruction
provided: “Even if Donald Hamasaki has
not proved any actual damages for harm to reputation or shame, mortification,
or hurt feelings, the law assumes that he has suffered this harm. Without presenting evidence of damage, Donald
Hamasaki is entitled to receive compensation for this assumed harm in whatever
sum yo