December 23, 2009
YA-PING LIU, XIAO-HUA HU, AND DONG CHEOL SHIN, PLAINTIFFS-RESPONDENTS,
CHANG-SHENG LIU AND STAR PACIFIC CORPORATION, DEFENDANTS-APPELLANTS, AND WANG-REN FEI, DEFENDANT, AND STAR PACIFIC CORPORATION, THIRD-PARTY PLAINTIFF,
JING HU, THIRD-PARTY DEFENDANT.
On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. C-397-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted September 24, 2009
Before Judges Fuentes, Gilroy and Simonelli.
This action concerns a dispute among shareholders of Star Pacific Corporation (SPC), a closely held corporation of New Jersey. Defendants Chang-Sheng Liu (Chang Liu) and SPC appeal from the June 27, 2008 order that, among other things: 1) determined the respective ownership interests of Chang Liu and plaintiffs Ya-Ping Liu (Frank Liu), Xiao-Hua Hu (Emma Hu), and Dong Cheol Shin (Douglas Shin)*fn1 in SPC as 40%, 35%, 10%, and 15%, respectively; and 2) awarded plaintiffs consequential and punitive damages. We affirm the judgment of liability. We affirm the award of damages in part and remand in part for further proceedings consistent with this opinion.
On November 14, 2006, plaintiffs filed a three-count complaint against defendants Chang Liu, Wang Fei and SPC. Count one alleged that Chang Liu and Wang Fei had wrongfully taken control of SPC "through illegal, improper, and corrupt means." Under that count plaintiffs sought: 1) an appointment of a custodian or provisional director to exercise the powers of SPC's board of directors and officers; 2) a declaration that Wang Fei does not possess an ownership interest in SPC; and 3) a judgment dissolving SPC and distributing the proceeds of its sale in accordance with the parties' ownership interests. Counts two and three alleged breaches of fiduciary duties by Chang Liu and Wang Fei owed to plaintiffs, and that defendants conspired to gain control of SPC by not only diluting plaintiffs' ownership interests in the corporation, but also dissipating the corporation's assets. Under those two counts, plaintiffs sought compensatory and punitive damages.
On December 8, 2006, SPC filed an answer and asserted a counterclaim against plaintiffs for: breach of a shareholder's agreement; breach of fiduciary duties as SPC's officers and directors; fraud and deceit; and Douglas Shin's intentional and negligent misrepresentations. SPC's answer also included a third-party complaint against Jing Hu, SPC's accountant.
Neither Chang Liu nor Wang Fei filed answers to the complaint. On January 17, 2007, the trial court entered an order directing that Chang Liu continue as President of SPC with the necessary "legal authority to act or transact business on behalf of SPC without interference from" the remaining shareholders, pending further order of court.
On January 23, 2008, the court transferred the Special Civil Part case of Advanta Bank Corp. v. Star Pacific Corp. and Ya[-]Ping Liu, (Docket No. DC-15567-07) to the Chancery Division, and consolidated that case with the Chancery action for trial. The consolidated matters were tried to the court on February 4, 5, 6, 11, and 12, 2008.
At commencement of the trial, the court dismissed plaintiffs' complaint against Wang Fei and SPC's third-party complaint against Jing Hu because neither party had been served. Although Chang Liu had not formally filed an answer, he appeared throughout the scheduled proceedings; therefore, the court deemed Chang Liu as having denied all allegations of the complaint and permitted him to appear at trial through counsel. Also at the start of trial, the court denied SPC's counsel's application to withdraw as attorney for the corporation, and the corporation consented to having judgment entered against it on plaintiffs' complaint and in the Advanta Bank collection matter.
SPC's counsel next informed the court that he would not be able to attend the balance of the trial because he needed to travel to China to attend to an ill relative. Accordingly, counsel requested that the court permit Chang Liu's attorney to prosecute SPC's counterclaim. At the start of the second day of trial, Chang Liu's attorney renewed the request to prosecute SPC's counterclaim, advising the court that SPC, through Chang Liu, had assigned the counterclaim to Chang Liu. Plaintiffs objected. Because the claim had "been in the case from the beginning," the court did not immediately dismiss the counterclaim, but rather permitted Chang Liu's attorney to prosecute the claim, advising that the court would rule on the merits of the application at the end of trial.*fn2
The following individuals testified at trial. Thomas Hartzell, Advanta Bank Corporation's litigation coordinator, testified on behalf of the bank in support of its claim to collect on SPC's credit card account against Frank Liu who denied personal liability on the debt. As to the claims among the shareholders, Frank Liu, Emma Hu, and Douglas Shin testified on behalf of plaintiffs; Chang Liu testified on behalf of defendants. Because their facts differ, we recite the facts based on each witness's testimony.
Hartzell testified that SPC, the corporate credit card holder, and Frank Liu, the individual who signed the account on behalf of SPC, had defaulted on the credit card account, leaving a balance owed to the bank of $9,813.76, $7,799.81 for principal and accumulated interest; $1,949.95 in attorney fees; and $64 in court costs. According to Hartzell, Frank Liu individually guaranteed the debt, having signed the credit card account on behalf of SPC with the account contract providing in pertinent part: "The signing individual is personally liable for such amounts due even if the business of such other card members do not pay as agreed." Frank Liu testified that the monies borrowed on the credit card account went into the corporation.
Accordingly, he requested that the court enter judgment on the credit card account against SPC, and not against him personally.
Based on SPC having previously admitted liability and on the language of the account contract, the court entered judgment against SPC and Frank Liu jointly in the amount of $9,813.76. However, the court prohibited enforcement of that judgment against Frank Liu pending final disposition of the Chancery action, acknowledging whether Chang Liu was required to indemnify and hold Frank Liu harmless, in whole or in part, for that debt "remains to be seen as we go forward."
Frank Liu testified as follows. SPC is a closely held corporation that engages in the business of importing and exporting rugs, carpets and other sundries. During its initial years of operation, SPC maintained an office in Hackensack and warehouses in Hackensack and Englewood.
Frank Liu incorporated SPC in April 2001, with only him and Chang Liu as shareholders. At time of incorporation, Frank Liu received 700 shares of stock, representing 35% of the authorized shares of SPC; Chang Liu received 800 shares of stock, representing 40% of the authorized shares of SPC. The remaining 25% of the authorized shares were retained for future investors. According to Frank Liu, at the time of incorporation, Chang Liu discussed the possibility of allowing Wang Fei to purchase an interest in the corporation. However, after they showed "the business proposal" to Wang Fei, he "backed off" and never made an investment in the corporation. The following year, Frank Liu learned that Wang Fei had loaned $40,000 to one of SPC's Chinese suppliers.
According to Frank Liu, he and Chang Liu were president and vice president of SPC, respectively; nonetheless, Frank Liu also acknowledged that during the years he had signed several documents identifying him as the vice president of the corporation. SPC opened banking accounts at Chase Bank, Wachovia Bank, and the Bank of China, with both he and Chang Liu having authority to draw checks on SPC's accounts.
In early 2002, Emma Hu became a shareholder in SPC, investing $200,000 in exchange for 10% of SPC's authorized shares.*fn3 After becoming a shareholder, Emma Hu sat on the Board of Directors, became the Hackensack office manager, and handled the shipping responsibilities, including custom clearances, and contacting shipping and trucking companies.
In March 2005, Frank Liu and Chang Liu decided to expand SPC and open up a branch in California. They asked Douglas Shin, an individual with whom SPC had done business, if he wanted to invest in SPC. Douglas Shin invested $300,000 in cash and inventory, and received 300 shares or a 15% interest in SPC. After joining SPC, Douglas Shin became the general manager of SPC's California office, and a member of the corporation's board of directors. In 2005, SPC also opened up a store in Florida (the Florida outlet), called SPC Rug & Linen Outlet, Inc., a corporation wholly owned by SPC.
On December 25, 2005, Frank Liu traveled to China to place orders and conduct inspections. Because this business trip was for approximately twenty days, Frank Liu made arrangements for Chang Liu to fill in as president until his return. Unfortunately, a problem arose in China preventing Frank Liu from leaving the country as scheduled. One of SPC's suppliers had sued SPC, and a Chinese court required Frank Liu to remain in China, pending resolution of the matter. According to Frank Liu, he and Chang Liu communicated by phone "almost every day" while he was detained in China. During those telephone conferences, Chang Liu advised Frank Liu of SPC's daily occurrences; and Frank Liu gave Chang Liu necessary instructions on behalf of the corporation.
In May 2006, third parties had stolen a delivery shipment valued at approximately $40,000, from SPC's California place of business. Chang Liu blamed Emma Hu, alleging that the loss occurred because Emma Hu had failed to follow company policies by permitting the shipment to be delivered to SPC's office after 3:00 p.m. when workers were not available to unload the shipment. After this incident, Chang Liu spoke with Frank Liu about terminating Emma Hu as office manager, but Frank Liu opposed the idea. Chang Liu brought up the subject again in September 2006, but again Frank Liu voiced his opposition.
Toward the end of September 2006 while still in China, Frank Liu received notice of a special shareholders' meeting from Chang Liu. Frank Liu requested that this meeting be delayed until his return because the lawsuit in China would soon be resolved, as his wife had raised the money to pay the supplier's claim against SPC. On October 13, 2006, Frank Liu returned to the United States.
On October 18, 2006, the shareholders' meeting was held at SPC's Hackensack office. In attendance at the meeting were Frank Liu; Gary Poplaski, Frank Liu's attorney; Emma Hu; Douglas Shin; Chang Liu; Bing Xu, Chang Liu's and SPC's attorney; and Wang Fei (via telephone). The notice of the meeting indicated three purposes: to discuss possible solutions to Frank Liu's situation in China; to consider and vote on new members for the Board of Directors; and to discuss other unspecified matters. The notice listed Wang Fei as a 20% shareholder of SPC. During this meeting Chang Liu produced a stock certificate that he had issued to Wang Fei on September 28, 2006, for 400 shares of SPC. Plaintiffs contested Wang Fei's status as a shareholder. According to Frank Liu, the shareholders did not pass any resolutions at that meeting.
Frank Liu testified that on October 19, 2006, Chang Liu presented to SPC's banks a copy of a "Certificate of Resolution" of the special meeting of the Board of Directors of SPC dated October 18, 2006, stating that the Board of Directors had removed Frank Liu as an officer of the corporation. Based on that certificate, the banks removed Frank Liu as a signor on SPC's accounts. The certificate referenced two resolutions, one of the special meetings of shareholders, and one of the special meetings of the Board of Directors. Frank Liu denied prior knowledge of these two resolutions, having only obtained a copy from Chase Bank.
According to Frank Liu, on March 26, 2007, Chang Liu; WaFei Zhao (Alfred Zhao), SPC's sales manager; and Zheng Li (Mike Li), the manager of SPC's Florida outlet, incorporated a competing business in Florida named Star Atlantic Corporation (SAC-FL). Frank Liu testified that SAC-FL listed the address of SPC's company apartment in Florida as its place of business. He also testified that representatives of SAC-FL attended a merchandise tradeshow in Las Vegas in August 2007, using SPC's New York checking account to pay SAC-FL's booth fees.
On October 29, 2007, SAC-FL was incorporated in New Jersey (SAC-NJ) and gave its address as 550 Industrial Road, Carlstadt, New Jersey. Frank Liu testified that in September 2007, although the Hackensack warehouse had been stripped of its inventory and assets, he had observed SPC's truck located outside SAC-NJ's Carlstadt office.
Emma Hu testified as follows. Emma met Frank Liu and Chang Liu in 2001. After discussing the nature of SPC's business at Emma Hu's home, Chang Liu informed her that only he and Frank Liu were shareholders but that they did welcome new investors. According to Emma Hu, Chang Liu told her that he owned 40% of the corporation and Frank Liu owned 35%. On assurance of receiving a 10% ownership interest in the corporation, Emma Hu invested $200,000. In July 2002, SPC issued three stock certificates to Frank Liu, Chang Liu and herself, each certificate bearing two of their signatures.
In May 2002, Emma Hu commenced working as SPC's manager. In that position she worked primarily with Frank Liu, whom she considered the "chief officer in the company." As to Frank Liu's detainment in China, she confirmed that she communicated with him on a daily basis via e-mails, faxes and telephone calls. According to Emma Hu, Chang Liu interpreted her daily contacts with Frank Liu as "making secret reports on him." Because SPC was having a cash flow problem, it was not in a position to forward the necessary funds to China to satisfy its suppliers. Accordingly, Emma Hu worked with Frank Liu's wife to raise the necessary funds to pay the supplier. At the same time, according to Emma Hu, Chang Liu was trying to prove that the Chinese supplier had sold defective products to SPC to avoid payment. Emma Hu later ascertained that if Frank Liu had been held in China for more than one year, his "green card would [have] expire[d,] and he would never come back to the U.S."
On October 10, 2006, Emma Hu found on her desk a copy of the notice of the special meeting of shareholders signed by Chang Liu. The notice indicated that Wang Fei was a 20% shareholder, while Frank Liu was only a 25% shareholder. The notice also indicated that Emma Hu's interest was that of 5%, not 10%. Emma Hu attended the October 18, 2006 special meeting of shareholders, along with Frank Liu, Douglas Shin, and Chang Liu. Wang Fei attended the meeting via telephone after Chang Liu had called him. According to Emma Hu, the police were called to the meeting after Chang Liu threatened to kill her when she "firmly denied any knowledge of [Wang Fei's] existence as a 20 percent shareholder." When she left the meeting, the shareholders had not passed any resolutions. Nor did those present discuss the incident concerning the stolen container from the California office site.
Emma Hu also testified concerning her 2003 personal loan to Chang Liu. She stated that she lent Chang Liu $30,000 in separate advances, and Chang Liu acknowledged the loan by executing and delivering to her on October 21, 2003, a "loan receipt" stating: "I borrowed from Hu, Xiao-[H]ua a temporary loan of $30,000.00 cash."
Lastly, Emma Hu testified as to her ownership in SPC as of the time of trial. According to Emma Hu, after her initial investment, she and her husband divorced. As part of the property settlement agreement, she transferred to him one-half of her 10% interest, or 100 shares, of SPC. However, she never formally submitted her original stock certificate to SPC for the company to reissue new stock certificates to her and her husband.
Douglas Shin testified that he joined SPC in March 2005 upon investing $300,000 inventory and cash. In exchange, he received a 15% interest in the corporation. On becoming a shareholder, Frank Liu, Chang Liu, Emma Hu and he conducted a shareholder meeting. Wang Fei did not attend. In fact, Wang Fei was unknown to him until the special meeting of the shareholders in October 2006.
In September 2006, Chang Liu and Alfred Zhao, SPC's sales manager, visited Douglas Shin in California. Chang Liu informed Douglas Shin that Frank Liu was not going to be able to return to the United States and that "[f]rom now on I will control [SPC]." Chang Liu then asked Douglas Shin if he wanted to stay on with SPC and, if so, Chang Liu could make him vice president and let him control SPC's finances. If not, he could leave the company "with some money" Chang Liu would give him.
On November 26, 2006, Alfred Zhao and another individual returned to California "to take over [the] California warehouse." Alfred Zhao presented himself as vice president of SPC, stating that he had been appointed to that position by the Board of Directors. Alfred Zhao asked Douglas Shin to return the warehouse key and leave the office site. Douglas Shin refused. Alfred Zhao summoned the police, but the police refused to take any action without a New Jersey court order.
Douglas Shin further testified that in September 2007 he discovered an unpaid invoice of SPC under his name related to the "ASD/AMD" tradeshow. Douglas Shin visited the tradeshow's office in Los Angeles and found that Alfred Zhao had registered two booths "with that tradeshow under the name of Star Atlantic Corporation on April 15, 2007. The application and contract for this trade event show[,] showed new company's product line is mere image of [SPC's] product line." The investigation also disclosed that Alfred Zhao had paid the $750 deposit for the tradeshow booths by issuing an SPC check.
Douglas Shin also testified as to the operation of the California office during the term of litigation. In November 2006, Douglas Shin stated that the California office had approximately $500,000 in inventory. Between then and the time of trial, Douglas Shin used the proceeds from the sale of goods in the California warehouse to operate the California office by paying rent, salaries, etc., reducing the amount of inventory to approximately $109,000. He also deposited funds into a new SPC account that Frank Liu had opened in New York.
Chang Liu's testimony as to the version of events differed from plaintiffs. According to Chang Liu, he initially registered a company named "Star Pacific" in New York in April 1998 with two other individuals. In the spring of 2001, Chang Liu met Frank Liu, and they agreed to move the company to New Jersey. According to Chang Liu, he, Frank Liu and Wang Fei formed the New Jersey corporation with Chang Liu receiving a 40% interest, Frank Liu a 25% interest, and Wang Fei a 20% interest. Chang Liu denied that Frank Liu invested in the corporation at the time the shares were issued; rather, he stated that Frank Liu loaned the company $30,000. As to Wang Fei, Chang Liu testified that Wang Fei invested $40,000 in SPC, but remained in China to work on behalf of SPC with the corporation's suppliers.
Chang Liu testified that while Frank Liu was detained in China he and Frank Liu disputed whether Emma Hu's operation of the company's office caused the loss of a container of merchandise from the California office. Because Frank Liu refused to terminate Emma Hu's employment, Chang Liu requested SPC's attorney to call a meeting of the shareholders and Board of Directors. According to Chang Liu, at that meeting, he and Wang Fei adopted a resolution to remove Frank Liu, Emma Hu and Douglas Shin as directors of SPC.
Chang Liu disputed the value of the inventory in the California office as testified to by Douglas Shin. According to Chang Liu, in the fall of 2006, the California office had corporate assets of $840,000, and the New Jersey office had assets of approximately $1,140,000 of which $700,000 was inventory. Chang Liu also testified that between the time of the filing of the complaint and trial, Frank Liu and Emma Hu, told SPC's customers not to pay SPC's invoices; Douglas Shin refused his instructions to move the California inventory to a different location; and Frank Liu had stolen $20,000 from SPC. Chang Liu further testified that subsequent to the court's November 22, 2006 order, plaintiffs opened a secret bank account for SPC's California office at a bank in New York. According to Chang Liu, Douglas Shin's deposit of proceeds from the sale of the California inventory into that secret account reduced SPC's corporate assets by approximately one third.
In February 2007, Chang Liu moved $700,000 of rugs and linens from the Englewood warehouse into the Hackensack warehouse. On February 16, 2007, the landlord for the Hackensack warehouse sued SPC for rent and locked SPC out of the warehouse. On April 16, 2007, a severe rainstorm caused the Hackensack warehouse to flood but because the warehouse was locked, Chang Liu could not remove any of the inventory. Chang Liu settled the rent action by turning over approximately $260,000 worth of merchandise to the landlord. According to Chang Liu, the remaining inventory, as well as all of SPC's records, files and computers, were destroyed by the flood.
Chang Liu testified that, although the Florida outlet was originally owned by SPC, the ownership of the Florida outlet was transferred to him in 2005 by Frank Liu and himself because the outlet was operating at a loss. In fact, as of time of trial, Chang Liu stated that the Florida outlet owed SPC approximately $200,000 to $300,000. As to SPC itself, Chang Liu testified that after the April 2007 rainstorm, it was no longer "capable of doing business." Concerning the formation of SAC-FL, Chang Liu testified that he was neither aware that Alfred Zhao had designated SPC's Florida address as the address for the new corporation, nor that Alfred Zhao had used SPC's New York address as the contact address for SAC-NJ. However, Chang Liu did admit that after the 2007 storm damage, Alfred Zhao and Mike Li left SPC and worked for SAC-NJ and SAC-FL.
Lastly, Chang Liu admitted that he borrowed $30,000 from Emma Hu in 2001, but testified that the money was invested into SPC, not used for his personal use. As to the value of the corporation, Chang Liu stated that in January 2007 SPC had accounts receivable of $800,000 and inventory in its two New Jersey warehouses totaling $700,000. It was against these disputed facts that the trial court considered the claims presented.
On June 27, 2008, the court issued an order, supported by a fourteen-page written decision, entering judgment in favor of plaintiffs and against defendants Chang Liu and SPC. In so doing, the court reasoned:
The [c]court determines that the defendant Chang [Liu] implemented a coup of the company [SPC] in the fall of 2006, when he fabricated the existence of a shareholder, [Wang Fei], who never was a shareholder. This fabrication vested Chang [Liu] (and the non-shareholder [Wang Fei]) with apparent majority shareholder status as to [SPC]. On the strength of this, Chang [Liu] wrongfully wrested control of the company from its President, Frank Liu, and began to run the company, on this illegitimate basis, propped up with documents forged at his direction, to the exclusion of proper shareholders Frank Liu, Emma Hu, and [Douglas] Shin. Trial exposed [Chang Liu's] complete lack of credibility, and validated the plaintiffs' claims that Chang [Liu] perpetrated a fraud upon the company, and its shareholders, which misconduct was perpetrated throughout this litigation and up to the time of trial and during the trial.
Emma Hu lent Chang [Liu] $30,000, as evidenced by the receipt of October 21, 2003... which acknowledges "I borrowed from Hu, Xiao-[Hua] a temporary loan of $30,000 cash." None of the funds have been repaid. This was a personal loan, by [Emma Hu], not a corporate loan, as Chang [Liu] would have it. Judgment on that debt shall be entered forthwith.
The only shareholders of [SPC] are, as alleged by plaintiffs,
Frank Liu 700 shares, 35% ownership
Emma Hu  shares, 10% ownership
[Douglas] Shin 300 shares, 15% ownership
Chang Liu 800 shares, 40% ownership
Defendant Chang [Liu] forfeits the office fraudulently procured (President), forfeits a seat on the Board of Directors, and will be enjoined from taking any actions on behalf of the company. Frank Liu is restored as President.
A Constructive Trust is hereby granted in favor of plaintiffs, upon Chang Liu's 800 shares, to be voted hereafter by plaintiffs in proportion to their interests, or sold or acquired by them, as they may elect.
SPC Rug & Linen Outlet, Inc.[,] is a Florida subsidiary, wholly owned by [SPC]. Chang [Liu] is to be deprived of all management roles with respect thereto, and has and shall have no individual ownership interest in said entity.
Chang [Liu] shall immediately surrender all assets of both companies, including all documents, books, records, computers, keys, passwords and cash, inventories and other records.
No judgment or relief can be granted as against X. Bing Xu, attorney for [SPC], as he is not a named party in the within action.
The [c]court declines to appoint a receiver or fiscal agent for the [SPC], as control of same shall now vest in plaintiffs, to pursue in the name of the company such claims as they may deem in the best interests of the corporation to pursue.
I find that Chang [Liu] has breached his fiduciary duties to [SPC] and to his fellow shareholders, by high-jacking control of the company on the strength of forged documents and manufactured proofs and claims of majority shareholder status (with [Wang Fei]). Chang Liu has diverted over one million dollars in assets and inventory of the company for his own benefit. The exact amount of the damages was not quantifiable at trial, owing to the defendant's destruction of the records relating thereto. The claim that this inventory was largely destroyed in the rain storm is disbelieved, as is the claim that the records and computers of the company were destroyed in that same storm. The flood was used as the occasion for Chang [Liu] to falsely assert that the inventory he wrongfully diverted, and failed to account for, was destroyed in the rain storm. Chang [Liu] artfully and continuously failed to provide access to the books and records of the company, despite a fiduciary obligation to do so and despite a court-ordered obligation to do so, and the rain storm provided a convenient cover for the non-production of the records at trial, all in a deliberate effort to conceal his misconduct.
Defendant Chang [Liu] had in New Jersey, under his control, by December 31, 2006, some $1,140,000 in goods and assets by the company, inclusive of $700,000 in inventory. Defendant Chang [Liu] failed and refused to account for these assets, or for the income and expenses of the company under his stewardship. He stripped the company assets and inventory under his control to the bone, diverting [the] same for his own personal benefit. Judgment shall be entered in favor of the plaintiffs for the full value of this fraudulently converted property.
The fraudulent action of the defendant [has] caused the plaintiffs to lose their investments in [SPC]: $282,233.69, by plaintiff Frank Liu[;] $200,000 by plaintiff Emma Hu[;] and $300,000 by plaintiff [Douglas] Shin. Judgment shall be entered against Chang [Liu] in said amounts.
Plaintiff Frank Liu personally guaranteed some $300,000 in company debt. Upon fraudulently assuming control of the company, Chang Liu, in bad faith and without proper business purpose, ceased paying said guaranteed obligations, and has now stripped the corporation of its ability to repay them. However, the [c]court denies the request of [plaintiff] Frank Liu to shift responsibility for these guarantees to defendant Chang [Liu]. Such relief would be entirely equitable, but the rights of the third-party creditors [cannot] be compromised, in law, under the circumstances presented.
The aforesaid actions of defendant Chang Liu were outrageous, calculated to inflict personal harm, entirely beyond the pale of acceptable behavior. Proofs in this regard were clear and convincing. This was a deliberate high-jacking of a corporation, a diversion of its assets and opportunities, bleeding the company dry, and reliance on a rain storm to cover his tracks. As a result of these outrageous actions, the company is either insolvent, or nearly insolvent, and the investments of his co-shareholders lost, or nearly lost.
The destruction of the company is not owing to any breach of duty or obligation by the California facility. That facility, under the care of [Douglas] Shin, continued and, and to some extent, continues to attempt to operate and, contrary to [Chang Liu's] claims, it did, by and large, provide the required, court-ordered financial transparency throughout this litigation. It was the election of Chang [Liu] to strip the eastern operations of all its assets and inventory, and to divert [them] for his benefit, that has brought the company to the point of insolvency, if not beyond that point.
Punitive damages, then, are hereby assessed against Chang [Liu] in favor of his fellow shareholder Frank Liu in the amount of $250,000; against Chang [Liu] in favor of Emma Hu in the amount of $100,000; and against Chang [Liu] in favor of [Douglas Shin] in the amount of $100,000.
On the same day, the court entered a confirming order that, among other things:
(1) dismissed SPC's counterclaim and third-party complaint;
(2) removed Chang Liu as president of SPC and permanently enjoined him from acting on behalf of the corporation;
(3) determined the respective ownership interests of Chang Liu, Frank Liu, Emma Hu and Douglas Shin in SPC as 40%, 35%, 10%, and 15%, respectively;
(4) imposed a constructive trust on Chang Liu's interest in SPC;
(5) determined that the Florida outlet is a wholly-owned subsidiary of SPC, and enjoined Chang Liu from acting in any capacity on behalf of that entity;
(6) entered judgment in favor of Frank Liu and against Chang Liu in the amount of $282,232.69 for monies owed to Frank Liu by SPC;
(7) entered judgment in favor of Emma Hu and against Chang Liu in the amount of $30,000 for Chang Liu's failure to repay a personal loan;
(8) entered judgment in favor of plaintiffs and against Chang Liu in the amount of $1,140,000*fn4 for Chang Liu's wrongful diversion of assets and inventory from SPC; and
(9) awarded Frank Liu, Emma Hu and Douglas Shinn punitive damages against Chang Liu in the amounts of $250,000; $100,000; and $100,000 respectively.
On appeal, appellant*fn5 argues:
THE TRIAL JUDGE ABUSED HIS DISCRETION AND ERRED BY CONSIDERING EXHIBITS NOT MOVED INTO EVIDENCE TO MAKE HIS RULING AND THEREBY IMPROPERLY FINDING IN FAVOR OF PLAINTIFFS DURING THE BENCH TRIAL.
THE COURT ERRED BY FINDING IN FAVOR OF PLAINTIFFS BECAUSE THE PLAINTIFFS BY THEIR OWN ADMISSION CAME INTO COURT WITH UNCLEAN HANDS THEREFORE PLAINTIFF[S'] RELIEFS SHOULD HAVE BEEN DENIED.
DEFENDANT ACTED IN GOOD FAITH FOR THE BEST INTEREST OF SPC AND COMMITTED NO FRAUD, THEREFORE[,] THE TRIAL JUDGE ERRED IN AWARDING PLAINTIFFS['] PUNITIVE DAMAGES AGAINST DEFENDANT "CHANG [LIU"] PERSONALLY BY PIERCING THE CORPORATE VEIL.
THE JUDGE SITTING ON THE NON-JURY TRIAL ERRED IN THE CALCULATION OF DAMAGES AWARDED TO PLAINTIFFS BASED ON THE FACTS AND PROOFS SUBMITTED BY DEFENDANT.
THE TRIAL JUDGE ERRED BY PERMITTING THE PRO SE PLAINTIFFS TOO MUCH LEEWAY WITHIN THE RULES OF COURT.
A judgment shall not be overturned except where, after a careful review of the record and weighing of the evidence, the appellate court determines that "'continued viability of the judgment would constitute a manifest denial of justice.'" In re Adoption of a Child by P.F.R., 308 N.J. Super. 250, 255 (App. Div. 1998) (quoting Baxter v. Fairmont Food Co., 74 N.J. 588, 597-98 (1977)). We will not disturb the factual findings and legal conclusions of a trial court unless they are "'so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice.'" Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 484 (1974) (quoting Fagliarone v. Twp. of N. Bergen, 78 N.J. Super. 154, 155 (App. Div. 1963)). Consequently, "the appellate court should exercise its original fact finding jurisdiction sparingly and in none but a clear case where there is no doubt about the matter." Ibid. "'That the case may be a close one or that the trial court decided all evidence or inference conflicts in favor of one side has no special effect.'" Czoch v. Freeman, 317 N.J. Super. 273, 283 (App. Div.) (quoting State v. Johnson, 42 N.J. 146, 162 (1964)), certif. denied, 161 N.J. 149 (1999).
The rationale underlying this limited scope of appellate review is that "a trial judge's findings are substantially influenced by his or her opportunity to hear and see the witnesses and to get a 'feel' for the case that the reviewing court [cannot] enjoy." Twp. of W. Windsor v. Nierenberg, 150 N.J. 111, 132 (1997). For this reason, credibility determinations are entitled to particular deference because the trial judge has a superior perspective "in evaluating the veracity of witnesses." Id. at 133. However, the same level of deference is not required when we are reviewing a legal conclusion. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).
We have considered appellant's arguments in Points I, II, and IV in light of the record and applicable law. We are satisfied that those arguments are without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E). Nevertheless, we add the following comments.
Appellant argues in Point I that the trial court erred in considering plaintiffs' trial exhibits, asserting that the exhibits were neither authenticated nor admitted into evidence. We disagree.
We defer to a trial court's evidentiary rulings absent an abuse of discretion. Green v. N.J. Mfrs. Ins. Co., 160 N.J. 480, 492 (1999); Dinter v. Sears, Roebuck & Co., 252 N.J. Super. 84, 92 (App. Div. 1991). Our role is not to substitute our judgment for that of the trial judge, but to decide whether the judge pursued a manifestly unjust course. Green, supra, 160 N.J. at 492. The existence of other evidence in the record, properly admitted, may render error, otherwise committed in either the exclusion or admission of specific evidence, harmless. State v. Doyle, 77 N.J. Super. 328, 344 (App. Div. 1962), aff'd, 42 N.J. 334 (1964).
"The requirement of authentication or identification as a condition precedent to admissibility is satisfied by evidence sufficient to support a finding that the matter is what its proponent claims." N.J.R.E. 901. "The rule does not require absolute certainty or conclusive proof. The proponent of the evidence is only required to make a prima facie showing of authenticity." State v. Mays, 321 N.J. Super. 619, 628 (App. Div.), certif. denied, 162 N.J. 132 (1999). Once the proponent makes a prima facie showing, the writing is admissible, "and the ultimate question of authenticity of the evidence" is left to the factfinder. Ibid.
Here, at the outset of the trial, the court explained to plaintiffs that it was their responsibility to place into evidence whatever documents they wanted the court to consider. "If you don't put it into evidence, it's not in evidence....
I want to make it clear, you need to put whatever evidence you think you have in the record or it's not going to be in the record and it won't be considered." Each exhibit was marked for identification as the trial proceeded, with plaintiffs showing each exhibit to defense counsel. The exhibits were individually reviewed by the court, and the court rejected those exhibits it deemed inadmissible. For example, the court sustained defense counsel's objection to Frank Liu's request that the court admit a certification from SPC's outside accountant that referenced the names of the shareholders and their respective interests in SPC determining that the certification violated the hearsay rule.
Additionally, prior to closing statements, the court asked "[a]ll the evidence is in[?]" In response, defense counsel answered "correct." At the end of the closing statements, Frank Liu sought to introduce an additional exhibit into evidence. Before ruling on the request, the court stated: "Well, the only evidence is what's already in the record. So was it already in the record?" After Frank Liu responded in the negative, the court denied the request stating that: "I would not allow [defense counsel] to start introducing evidence against you today, and I'm not going to permit you to introduce evidence against [defense counsel's] client today."
We are satisfied from our review of the record that the individual trial exhibits, although not having been individually marked into evidence, except for the exhibits specifically excluded by the court, were admitted into evidence, albeit informally. We also determine that the admitted exhibits were sufficiently authenticated pursuant to N.J.R.E. 901. Accordingly, we conclude that the trial court's retention of the exhibits at close of trial, and any consideration the court may have given those exhibits in reaching its decision, do not require reversal. What is more, the exhibits complained of are cumulative to the testimony of the witnesses. It is clear from a review of the court's opinion that it primarily relied upon the testimony of the witnesses in reaching its decision, not upon the exhibits.
Appellant argues in Point III that the trial court improperly awarded punitive damages against him individually. Appellant contends that in so doing the court erroneously pierced the corporate veil and placed personal liability upon him for the corporation's fraudulent or wrongful acts, when in fact, he had acted in the best interest of SPC. Not so.
Appellant argues "that a corporation is a separate entity from its shareholders and that a primary reason for incorporation is the insulation of shareholders from the liabilities of the corporate enterprise." State of N.J., Dep't of Envtl. Prot. v. Ventron Corp., 94 N.J. 473, 500 (1983) (citation omitted). The general "purpose of the doctrine of piercing the corporate veil is to prevent an independent corporation from being used to defeat the ends of justice, to perpetrate fraud, to accomplish a crime, or otherwise to evade the law." Ibid. (citations omitted). "In the absence of fraud or injustice, courts generally will not pierce the corporate veil to impose liability on the corporate principals." Lyon v. Barrett, 89 N.J. 294, 300 (1982). Although appellant correctly states the general principle of corporate jurisprudence, we disagree that the principle is applicable to this matter.
Plaintiffs sued Chang Liu individually pursuant to N.J.S.A. 14A:12-7, asserting that he had breached his fiduciary duty to them by: delivering a stock certificate to Wang Fei; diluting their shareholder interests; improperly assuming control of SPC; and depleting SPC of its assets and inventory. Here, after determining plaintiffs credible and Chang Liu not credible, the court found that Chang Liu had "implemented a coup of [SPC] in the fall of 2006, when he fabricated the existence of a shareholder, [Wang Fei], who was never a shareholder." The judge concluded that this fabrication gave Chang Liu and Wang Fei "apparent majority shareholder status[,]" and allowed Chang Liu to wrongfully seize control of SPC. The judge found that Chang Liu had breached his fiduciary duty not only to SPC, but to plaintiffs. Additionally, the court determined that Chang Liu had "diverted over one million dollars in assets and inventory of the company for his own benefit." We are satisfied that the trial court correctly awarded plaintiffs' punitive damages based on the court's factual findings, which are based on substantial credible evidence in the record. See Balsamides v. Perle, 313 N.J. Super. 7, 31 (App. Div.) (stating that "the right to award such damages in the context of actions brought pursuant to N.J.S.A. 14A:12-7 has been clearly established"), aff'd in part and reversed in part on other grounds, Balsamides v. Protameen Chems., Inc., 160 N.J. 352 (1992). IV-C.
We now turn to appellant's challenge to the quantum of damages. Initially, although appellant challenged the award of punitive damages, he does not challenge the quantum of punitive damages assessed. Nor does appellant challenge the award of $30,000 to Emma Hu for his failure to repay the personal loan. With that said, we turn to appellant's remaining arguments pertaining to the damage awards.
Appellant argues that the trial court's $282,233.69 award to Frank Liu individually was excessive. Appellant further contends that the court improperly awarded Emma Hu $200,000 for the return of her initial investment when, in fact, at the time of trial Emma Hu was no longer a 10% owner of the corporation, having transferred one half of her interest to her husband during their divorce proceeding. We agree.
The purpose of compensatory damages is to compensate the plaintiff for his or her actual loss. Nappe v. Anschelewitz, Barr, Ansell & Bonello, 97 N.J. 37, 48 (1984). "It is well-settled that the 'law abhors damages based on mere speculation.'" Mosely v. Femina Fashions, Inc., 356 N.J. Super. 118, 128 (App. Div. 2002) (quoting Caldwell v. Haynes, 136 N.J. 422, 442 (1994)), certif. denied, 176 N.J. 279 (2003). However, "[w]here a wrong has been committed, and it is certain that damages have resulted, mere uncertainty as to the amount will not preclude recovery -- courts will fashion a remedy even though the proof on damages is inexact." Kozlowski v. Kozlowski, 80 N.J. 378, 388 (1979). A plaintiff is only required to "prove damages with such certainty as the nature of the case may permit, laying a foundation which will enable the trier of the facts to make a fair and reasonable estimate." Lane v. Oil Delivery, 216 N.J. Super. 413, 420 (App. Div. 1987).
In its written decision, the court stated that "[t]he fraudulent [actions of Chang Liu] have caused the plaintiffs to lose their investments in [SPC]: $282,233.69, by plaintiff Frank Liu[;] $200,000, by plaintiff Emma Hu[;] and $300,000, by plaintiff [Douglas] Shin. Judgment shall be entered against [Chang Liu] in said amounts." Plaintiffs correctly argue that the court misstated the amount of Frank Liu's initial investment. The testimony was un-contradicted that Frank Liu invested $108,000, not $282,233.69. Additionally, we note that the order of judgment is devoid of an entry of an award to the plaintiffs for the return of their initial investments. See Taylor v. Int'l Maytex Tank Terminal Corp., 355 N.J. Super. 482, 498 (App. Div. 2002) (stating that when a trial court's written or oral opinion conflicts with a subsequent written order, the opinion controls). Accordingly, we remand for the trial court to amend the judgment to correctly state the amounts of plaintiffs' individual awards for the return of their initial investments after adjusting for Emma Hu's interest in SPC as discussed infra.
Paragraph 8 of the June 27, 2008 judgment states that "[j]udgment is hereby entered in favor of [p]laintiff Frank Liu, against [Chang Liu], in the amount of $282,233.69, being the amount loaned by said plaintiff, to the corporation." The court's written opinion is devoid of any finding or conclusion that Chang Liu was responsible for the corporation's failure to repay an outstanding corporate loan owed to Frank Liu. Because that individual award is not supported by the trial court's opinion and no cross-appeal has been filed, we remand for the court to amend the order of judgment by deleting that individual award to Frank Liu.
Under Paragraph 3 of the order, the court determined Emma Hu's interest in SPC as of June 27, 2008, was 10% based on her ownership of 200 shares in the corporation. Although Emma Hu never surrendered her original stock certificate to SPC, after having agreed to transfer one half of her interest, or 100 shares, to her former husband, the record shows that SPC recognized Emma Hu's former husband as the equitable owner of 100 shares. Indeed, SPC agreed to redeem Emma Hu's former husband's interest for the sum of $130,000; and as of the time of trial, had paid him $50,000. Nevertheless, Emma Hu never surrendered her original stock certificate to SPC, and SPC and Emma Hu's former husband agreed that he would not surrender his ownership interest in SPC until SPC paid him the full amount of the redemption price.
Because Emma Hu remained the owner of record of 200 shares in SPC, we do not find any error in the court's determination that she remained a 10% owner at the time of trial. However, SPC had already paid $50,000 toward the redemption of 100 of those shares. Therefore, appellant is entitled to have the $50,000 previously paid by SPC credited against Emma Hu's original investment in SPC reducing that amount to $150,000. On payment of the judgment, Emma Hu shall be responsible to pay her former husband the balance of the value of his interest in the 100 shares she had agreed to transfer to him at the time of their divorce.
Paragraph 7 of the judgment entered an award in favor of plaintiffs and against Chang Liu in the amount of $1,140,000 for compensatory damages for breach of his fiduciary duty, fraud and conversion of SPC's assets. As noted earlier, the numerical amount of the judgment incorrectly reflects the award as $1,400,000. The judgment must be amended accordingly. Additionally, that award does not reflect any credit appellant may be entitled to for amounts plaintiffs may have received from SPC's assets and inventory in California and Florida, and from any funds remaining in SPC's bank accounts. The failure to grant appellant credit for those amounts would result in plaintiffs receiving a double recovery, i.e., the return of their investments as well as the value of any remaining corporate assets.
Accordingly, we affirm the judgment of liability in favor of plaintiffs; affirm the awards of punitive damages, the award of $30,000 to Emma Hu for Chang Liu's failure to repay a personal loan, and the awards to plaintiffs for the return of their original investments as modified herein. We remand the award of compensatory damages for Chang Liu's breach of his fiduciary duty, fraud and conversion of SPC's assets for reconsideration as to any credits appellant may be entitled to for the value of any corporate assets retained or received by him; and for the trial court to enter an amended judgment in accordance with this opinion.
Affirmed in part; modified in part; and remanded for further proceedings in accordance with this opinion.