Patrick v. Alacer Corp.

167 Cal.App. 4th 995 (2008)

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Nature of the Case

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Facts

P and her late husband, founded D to manufacture vitamin supplements. They created the vitamin supplement formulas, served as corporate officers, and financially supported D during their marriage. D obtained a market value of $70 million or more. P alleges the increased value of D, over a fair return on her husband's original investment, is community property. P's husband, the sole record owner of D stock, transferred all of the shares to the James W. Patrick Revocable Trust (the Trust) in 2000. The Trust is D's only shareholder of record. The Trust documents direct the trustees to distribute up to 46 percent of the Trust's D stock to P upon her husband's death to satisfy any community property interest she may have in D. The Trust's trustees held a meeting in February 2003 three weeks before P's 90-year-old husband died. There were five trustees who sought to place themselves on D's board of directors. The Director defendants asked P to support their plan. They represented to P that they would only serve as interim directors until they retained new management. They further represented to P they would accept compensation of only $ 1,000 per meeting. In reliance on the Director defendants' representations, P voted to elect them to D's board. The new board immediately elected themselves as corporate officers. Ps husband died, and the Trust continued to hold all of the D shares, without distributing any to plaintiff. A month later, Ds ousted P from the meeting and voted to remove all of D's officers, including P. The Director defendants then reappointed themselves as corporate officers. P alleges that once the Director defendants assumed control of D, they began looting it. They stole money from it, took bloated salaries, sold corporate assets below market value for personal gain, failed to record transactions properly or at all, added friends and family to the company payroll and forgave loans they owed to D, rejected bona fide arm's-length offers to buy D in favor of pursuing secret sale discussions, and disclosed D's trade secrets to an entity owned by defendant Patrick. P sued Ds on a number of counts. D demurred to the complaint. P appealed.