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Nancy Hoffmeier Zamora, As Trustee In Bankruptcy, Etc v. Stephen C. Lehman et al

March 7, 2013

NANCY HOFFMEIER ZAMORA, AS TRUSTEE IN BANKRUPTCY, ETC., PLAINTIFF AND APPELLANT,
v.
STEPHEN C. LEHMAN ET AL., DEFENDANTS AND RESPONDENTS.



(Los Angeles County Super. Ct. No. BC344804) APPEAL from a judgment of the Superior Court of Los Angeles County, Mary H. Strobel, Judge.

The opinion of the court was delivered by: Mallano, P. J.

CERTIFIED FOR PUBLICATION

Affirmed.

Three executives signed employment agreements with their corporate employer. Each agreement contained a provision stating that if either party -- the executive or the corporation -- had "[a]ny claim" against the other, the claiming party had to present the claim in writing to the other party within one year of the date the claiming party knew or should have known about the facts giving rise to the claim. Otherwise, the claim was forever barred. Subsequently, the employer filed for bankruptcy.

Plaintiff, the trustee in bankruptcy, filed this action against the three executives, alleging a breach of fiduciary duty. After litigating the breach of fiduciary duty claim in court but before trial, all three executives moved to compel arbitration of the claim pursuant to an arbitration clause in their employment agreements. The trial court granted the motions to compel. On appeal, we reversed as to two of the executives on the ground they had waived the right to arbitration; we concluded the third executive had not waived the right to arbitration, but the trustee declined to arbitrate the claims against him, and he was therefore dismissed from the suit (Zamora v. Lehman (2010) 186 Cal.App.4th 1, 8-9,17-20, 22). Litigation proceeded in the trial court as to the other two executives.

The trial court granted summary judgment in favor of the two executives on the ground that neither the corporation nor the trustee in bankruptcy had satisfied the contractual one-year notice provision. We agree with the trial court and affirm.

I

BACKGROUND

The allegations and facts in this case are taken from the complaint and the papers submitted on the motion for summary judgment as well as our two prior opinions in this case. We accept as true the following facts and reasonable inferences supported by plaintiff's evidence and by defendants' undisputed evidence. (See Jackson v. County of Los Angeles (1997) 60 Cal.App.4th 171, 178-179.)

A. Complaint

"The original complaint was filed on December 19, 2005 [by the trustee in bankruptcy, Nancy Zamora]. A first amended complaint (complaint) was filed on May 4, 2006. It alleged as follows.

"e4L, Inc. (e4L), was a direct marketing company that promoted a wide variety of products via television, radio, and the Internet. Each week, e4L broadcast more than 3,000 half-hour television programs, commonly known as infomercials, around the world. The infomercials reached 100 percent of the 'television homes' in the United States and 370 million 'television households' in more than 70 countries worldwide.

"Stephen C. Lehman was the chairman and chief executive officer of e4L. Eric R. Weiss was the vice-chairman and chief operating officer. Daniel M. Yukelson was the chief financial officer. All three were [executives and] directors." (Zamora v. Lehman, supra, 186 Cal.App.4th at p. 6.)

"The [executives] controlled and dominated e4L for their own personal benefit by issuing misleading press releases announcing that e4L (1) had raised $22 million 'when the money was in fact required to repay investments' and (2) had retained Donaldson, Luftkin & Jennerette as financial consultants. The [executives] also caused or allowed e4L to engage in improper billing procedures. They did not disclose any of these acts.

"The [executives] caused one of e4L's subsidiaries[, Quantum North America (QNA),] to enter into a loan and security agreement [with Foothill Capital Corporation (Foothill)] under which [QNA] obtained a $20 million 'credit facility' in exchange for a promise to maintain a minimum net worth of $11.7 million. The [executives] caused or permitted [QNA's] net worth to fall below $11.7 million. As a result, [QNA] defaulted under the agreement [with Foothill].

"e4L acquired a 50 percent interest in BuyItNow.com (BuyItNow), a leading Internet retailer featuring a large selection of brand name products and specialty items. The [executives] transferred more than $6.5 million from BuyItNow to e4L 'with no invoices [or] management committee consent,' commingled the two companies' funds, failed to hold proper board meetings, '[f]ail[ed] to obtain unanimous board consent on several corporate transactions including stock issuances,' advertised products for BuyItNow 'as seen on TV' when e4L could not fulfill the orders in a timely manner, caused e4L to show a $1.1 million accounts receivable from BuyItNow without providing any accounting or billing information to BuyItNow, and improperly billed BuyItNow 'to manipulate e4L's EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization).' These actions diminished e4L's investment in BuyItNow, exposed e4L to substantial liability, and harmed its reputation and creditworthiness.

"The [executives] caused or permitted e4L and its subsidiaries to inflate e4L's earnings and net worth artificially by charging customers' credit cards multiple times for a single purchase and by charging customers' credit cards for merchandise e4L did not have in stock. In so doing, the [executives] violated the 'chargeback' limits of the credit card company.

"e4L attempted to sell its Asian subsidiaries but that effort failed when the [executives] allowed the subsidiaries to fall significantly off their operating budgets.

"Eventually, e4L lost its ability to fill and ship orders. The [executives] caused or permitted e4L to sell and transfer its computers to employees for nominal sums.

"On or about March 5, 2001, e4L filed for chapter 11 protection under the Bankruptcy Code (11 U.S.C. [§§ 1101-1174]). The chapter 11 proceeding was [later] converted to a chapter 7 case (11 U.S.C. [§§ 701-784]).

"The [executives] concealed their wrongful acts and omissions. e4L did not discover the acts and omissions until November 22, 2002.

"[As stated, on] December 19, 2005, the chapter 7 trustee, Nancy Hoffmeier Zamora . . . , filed [this] action . . . , alleging the foregoing facts and a cause of action for breach of fiduciary duty against the [three executives]." (Lehman v. Superior Court (2006) 145 Cal.App.4th 109, 113-114, italics added.)

B. Motion to Compel Arbitration

"On November 30, 2007, Yukelson filed a motion to compel arbitration and stay the action pending the outcome of arbitration. In a supporting declaration, he stated: 'Because more than five years had passed between the time I left e4L and the time I received notice of this lawsuit, I did not remember any of the terms of my employment agreement.' Similarly, Yukelson's attorney did not know that Yukelson had a written employment agreement until November 27, 2007. In the motion, Yukelson argued e4L, while still in business, had been engaged in interstate commerce, and thus the [Federal Arbitration Act (FAA) (9 U.S.C. §§ 1-16)] applied. Yukelson asserted that, under the FAA, he had not waived the right to arbitrate because he 'had no knowledge of his contractual right to compel arbitration at the time [the] litigation began and only discovered that right [three days ago].'

"On December 4, 2007, Lehman and Weiss jointly filed a motion to compel arbitration based on the arbitration provision in their respective employment agreements. That provision was identical to the one in Yukelson's agreement. Lehman and Weiss stated in declarations that they 'had forgotten about the arbitration provision in [their] employment agreement[s]' until the week before the motion was filed. They, too, argued the FAA applied and, under the FAA, they had not waived the right to arbitrate because they did not know about the arbitration provision during the litigation.

"Zamora filed opposition papers contending the [California Arbitration Act (CAA) (Code Civ. Proc., §§ 1280 1294.2], not the FAA, governed the case and, under the CAA, defendants had waived the right to arbitrate by delay in bringing their motions and by engaging in discovery not available under the arbitration provision. Zamora asserted that the discovery conducted by defendants had prejudiced her ability to pursue the case in arbitration.

"The motions to compel were heard on February 14, 2008[, and were granted by Judge William F. Highberger]." (Zamora v. Lehman, supra, 186 Cal.App.4th at pp. 9-10.) On appeal, we concluded that Lehman and Weiss had waived their right to arbitration by engaging in discovery, and we reversed the trial court's order as to them. We concluded that Yukelson had not waived his right to arbitration because he had attempted to settle the case and had not engaged in discovery to the same extent as the other two ...


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