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Cunningham v. Magidow

California Court of Appeals, Second District, First Division

August 30, 2013

KATHLEEN CUNNINGHAM, Plaintiff and Appellant,
v.
NORMAN MAGIDOW, Defendant and Respondent.

APPEAL from an order of the Superior Court of Los Angeles County No. YC 060725, Dudley W. Gray II, Judge. Reversed with directions.

Spierer, Woodward, Corbalis & Goldberg and Stephen B. Goldberg for Plaintiff and Appellant.

Law Office of Shula Roth-Barash, Shula Roth-Barash; Greines, Martin, Stein & Richland LLP, Cynthia E. Tobisman, and Meehan Rasch for Defendant and Respondent.

ROTHSCHILD, J.

Kathleen Cunningham brought this shareholder derivative action on behalf of Royal Airline Linen, Inc. (Royal) against Norman Magidow. The trial court found Magidow liable for breach of fiduciary duty, awarded compensatory and punitive damages, and entered judgment accordingly. Magidow then forgave $452, 000 of a loan he had made to Royal and moved for an order compelling Cunningham to acknowledge that the judgment had been partially satisfied in the amount of $452, 000. The trial court granted the motion. Cunningham appeals, and we reverse.

BACKGROUND

Cunningham owns half the stock of Royal. Magidow owns the other half and is also an officer and director. Cunningham filed this shareholder derivative action against Magidow and other defendants, alleging claims for breach of fiduciary duty, usurpation of corporate opportunity, and conversion. Cunningham alleged that Magidow arranged for Royal to purchase certain supplies at inflated prices from a separate business owned by Magidow and that he failed to disclose his conflict of interest.

The breach of fiduciary duty claim against Magidow was tried to the court, which found in favor of Cunningham. The court found that Magidow “didn’t disclose” his conflict of interest to Cunningham and “always substantially marked up the prices he charged [Royal].” The court also found that Magidow was not a credible witness and that his statements were “repeatedly impeached” and “proven to be false.” The court awarded $226, 000 in compensatory damages and an additional $226, 000 in punitive damages, for a total award (exclusive of interest and costs) of $452, 000.

The trial court entered judgment on November 30, 2011. Cunningham obtained a writ of execution and attempted to enforce the judgment.

On June 28, 2012, Magidow served on Cunningham a demand for acknowledgement of partial satisfaction of judgment. In it, Magidow claimed that he had satisfied the $452, 000 principal amount of the judgment by forgiving $452, 000 of a loan he had previously made to Royal in the amount of $599, 472. He demanded that Cunningham execute and deliver a partial satisfaction of judgment, and he cautioned her that if he was forced to go to court to compel her to comply with his demand, then she would be liable for attorney fees and possibly additional damages.

Cunningham refused to acknowledge partial satisfaction of the judgment, and Magidow then moved to compel acknowledgement. One of the documents submitted in support of the motion was a declaration by Magidow, in which he stated that he had instructed Royal’s accountant “to reduce the debt owed by Royal to [Magidow] of $599, 472 by the principal amount of the [j]udg[]ment of $452, 000.” Magidow provided no additional information about the loan, such as an interest rate, a repayment schedule, or a repayment deadline.

Cunningham opposed Magidow’s motion. In support of her opposition, Cunningham submitted a declaration stating that she and Magidow had each made loans to Royal “in the excess of $500, 000” and that the funds for the loans “were proceeds from company mandated life insurance policies held against our late partner.” She further explained that those loans “have been on the books for approximately six years. During that time, no periodic payments have been made on the loans, and none are due. The loans do not have a specified payment date.” Cunningham went on to describe facts suggesting that Royal is in dire financial condition, and she expressed the belief “that there is a reasonable possibility that the shareholder loans will never be repaid.” She also stated that, in addition to owing her more than $500, 000 on the loan, Royal owed her $182, 000 in attorney fees for the derivative action. Magidow did not introduce evidence contradicting Cunningham’s characterization of the loan in any respect.

The court granted Magidow’s motion. The court directed Cunningham to acknowledge the partial satisfaction of the judgment within 14 days; if Cunningham did not do so, the clerk was instructed to enter a partial satisfaction of judgment pursuant to Code of Civil Procedure section 724.050, subdivision (d). The record does not reflect whether Cunningham timely acknowledged the partial satisfaction of the judgment or the clerk entered the ...


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