Preview
Quinn J. Chevalier (SBN 255934)
10/16/2020
THE CHEVALIER LAW FIRM
5657 Kirkhill Dr.
Marysville, CA 95901
Tel.: (916) 888-1069
chevalier@chevalierlawfirm.com
Attorney for plaintiffs Diane Love and Deborah Edwards
SUPERIOR COURT OF CALIFORNIA
PLACER COUNTY
DIANE LOVE and DEBORAH EDWARDS Case No.: S-CV-0037732
Plaintiffs PLAINTIFFS’ TRIAL BRIEF
v. Trial date: October 26, 2020
KEITH MOSS; Civil trial conf.: October 16, 2020
BRADLEY JAY BRIDGES; Time: 8:30 a.m.
WORLDWIDE ATHLETICS, INC. (DBA Address: 10820 Justice Center Dr.
Signature Athletic Tape); and Roseville, CA 95678
DOES 1-100, inclusive. Dept.: 42
Defendants
1 ///
2 ///
3 ///
4 ///
5 ///
6 ///
7 ///
8 ///
9 ///
10 ///
11 ///
12 ///
PLAINTIFFS’ TRIAL BRIEF
Case no.: S-CV-0037732 1
1 STATEMENT OF FACTS
2 Defendants Keith Moss (“Moss”) and Bradley Jay Bridges (“Bridges”) (collectively,
3 “Defendants”) founded the company Worldwide Athletics, Inc. (“WWA”) for the purpose of
4 designing, marketing, and selling customized athletic tape.
5 Defendants sought outside investors to raise capital for WWA. Two such investors were
6 plaintiffs Diane Love (“Love”) and Deborah Edwards (“Edwards”) (collectively, “Plaintiffs”).
7 Around February 2013, Love purchased 450,000 shares of WWA stock for an investment of
8 $100,000, and Edwards purchased 225,000 shares of WWA stock for an investment of
9 $50,000. Around September 2013, Defendants sought a $50,000 loan from Love to WWA,
10 thereby increasing Love’s financial contributions to $150,000. Defendants executed
11 personal guarantees of the debts owed to Plaintiffs.
12 At the time of their investments in WWA, Plaintiffs had no reason to believe that
13 Defendants intended to ignore proper corporate governance, hide inventory and sales, and
14 divert WWA capital and profits, all for the personal use and enjoyment of Defendants.
15 From the point of taking on Plaintiffs as investors until the date this complaint was filed
16 in 2016, Plaintiffs allege that, at all times, Defendants never intended to operate WWA in a
17 manner that would protect Plaintiffs’ interests as shareholders in and lenders to WWA.
18 Plaintiffs further allege that Defendants used and diverted all funds, assets, and income of
19 WWA for their own personal gain and to support their other business interests, all in
20 violation of California law and the obligations that they owed to Plaintiffs.
21 For example, on or about April 11, 2016, Edwards discovered that approximately half of
22 WWA’s product inventory was missing. After conducting an investigation, Edwards
23 discovered that tens of thousands of dollars’ worth of WWA inventory had been sold by
24 Defendants and that Defendants had intentionally hidden the sales and revenue from
25 Plaintiffs.
26 Edwards further discovered that Defendants had started a marijuana business using the
27 “Sig Tape” name (a trade name of WWA) to enter into a $5,500 monthly lease for a
28 warehouse to grow marijuana. Plaintiffs allege that Defendants used WWA funds to start
29 that business.
30 Edwards further discovered that Defendants had commingled WWA funds with other
PLAINTIFFS’ TRIAL BRIEF
Case no.: S-CV-0037732 2
1 businesses unrelated to WWA; that Defendants had hidden WWA sales and revenue from
2 Plaintiffs; and that Defendants had set up other, secret bank accounts with WWA funds
3 without Plaintiffs’ knowledge.
4 In addition, on or about April 17, 2016, Edwards requested from Defendants copies of all
5 purchase orders for tape from the Chinese factory that was producing the tape for WWA.
6 Defendants refused. Edwards later discovered that -- in an effort to prevent Plaintiffs from
7 discovering the truth -- Defendants had instructed the factory not to provide any
8 information to Edwards under any circumstances because, as falsely stated by Defendants,
9 she was an ex-employee of WWA and a “very bad person.” In fact, at the time, Edwards
10 was a full-time employee of WWA, and she was entitled to this information from the factory
11 in order to do her job as treasurer of WWA.
12 Defendants further represented to Edwards that WWA was no longer dealing with UPI
13 Marketing, the holder of the NFL license that is required for WWA to sell athletic tape and
14 the business to which WWA paid NFL royalties. According to Defendants, UPI Marketing
15 had dropped WWA for non-payment. The reality is that Defendants had been continuing to
16 work with UPI Marketing on their own after entering into new contracts with UPI
17 Marketing so that they could continue selling WWA inventory without Plaintiffs’
18 knowledge.
19 It became apparent to Plaintiffs that Defendants never intended to operate WWA in a
20 manner that would produce profits for its shareholders -- other than for themselves.
21 Defendants had always intended to operate WWA for their sole benefit and to the detriment
22 of all other shareholders -- that is, Plaintiffs.
23 LEGAL ARGUMENT
24 (a) First and Second Causes of Action: Fraud Committed by Defendants Against
25 Plaintiffs.
26 “ ‘The elements of fraud, which give rise to the tort action for deceit, are (a) misrepre-
27 sentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity
28 (or “scienter”); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e)
29 resulting damage.’ ” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638; see also Civ. Code
30 sections 1709, 1710; Service by Medallion, Inc. v. Clorox Co. (1996) 44 Cal.App.4th 1807,
PLAINTIFFS’ TRIAL BRIEF
Case no.: S-CV-0037732 3
1 1816.)
2 “Promissory fraud” is a subspecies of fraud and deceit. “A promise to do something
3 necessarily implies the intention to perform; hence, where a promise is made without such
4 intention, there is an implied misrepresentation of fact that may be actionable fraud.”
5 (Lazar, supra, at p. 638; Civ. Code section 1710(4)). An action for promissory fraud may lie
6 where a defendant fraudulently induces the plaintiff to enter into a contract. (Ibid.)
7 Here, Plaintiffs were both induced to purchase stock in WWA based upon the
8 representations Moss and Bridges made to them in 2013. Love only invested in WWA on
9 the condition that Edwards would keep WWA’s books, approve of all corporate spending,
10 and that Moss and Bridges would provide Edwards with all of the data necessary for
11 Edwards to provide accurate bookkeeping and prepare accurate tax returns for WWA. Love
12 only agreed to purchase the $100,000 stock in WWA after Moss and Bridges agreed to these
13 conditions.
14 Edwards, likewise, only agreed to invest after Moss and Bridges agreed that they would
15 adhere to proper corporate governance; that they would provide Edwards with all corporate
16 data necessary for her to keep an accurate accounting of WWA’s books; that all WWA
17 transactions would go through, and be approved by, Edwards; that WWA would make
18 millions of dollars in annual revenue and profit; that Edwards would share in the profits of
19 the company; and that Edwards would be reimbursed for her purchase of WWA stock.
20 At the time, Love had no reason to believe that Moss and Bridges would intentionally
21 fail to follow corporate governance procedures, use WWA’s funds to start businesses and
22 open bank accounts, and hide transactions and funds from both Love and Edwards, as later
23 turned out to be the case. Hence, their reliance was justifiable. Only three years later did
24 it become clear that Moss and Bridges never intended to keep their promises to Love and
25 Edwards.
26 Furthermore, Love was also fraudulently induced to put up the $50,000 inventory loan,
27 ostensibly to WWA, in September 2013. Pursuant to the Promissory Note, that $50,000
28 was to be held in a separate account used exclusively for the purchase of WWA inventory
29 and would be repaid to Love through sales of WWA inventory. Both Moss and Bridges
30 personally guaranteed that loan, agreeing to be jointly and severally liable for the full
PLAINTIFFS’ TRIAL BRIEF
Case no.: S-CV-0037732 4
1 amount should the corporation default. When Moss and Bridges induced Love to lend
2 $50,000 to WWA, they knew that their representations were false. Their actions, which
3 came to light in 2016, showed that they never intended for WWA to fully repay Love, and
4 they never intended for WWA to make a profit, other than for themselves. Rather, Moss
5 and Bridges always intended to convert the loan money Love lent to WWA by using the
6 inventory and revenue generated through WWA inventory sales for their own personal
7 purposes. Love had no reason to suspect as much when she made the loan, and she would
8 not have made it but for the representations regarding repayment in both the Promissory
9 Note and the Personal Guarantee documents, which have not been honored.
10 As explained further below with respect to the fiduciary duty claims, Moss and Bridges
11 never intended to make good on their promises to Love and Edwards and, rather, intended
12 all along to generate revenue for themselves and hide that revenue from their fellow
13 shareholders, Love and Edwards. Love and Edwards have suffered substantial harm as a
14 result.
15 (b) Third Cause of Action: Breach of Fiduciary Duty Committed by Defendants
16 Against Plaintiffs.
17 In California, directors of corporations such as WWA owe the corporation and its
18 shareholders certain fiduciary duties, including the duties of obedience, diligence and
19 loyalty, in their management of corporate affairs. (Professional Hockey Corp. v. World
20 Hockey Assn. (1983) 143 Cal.App.3d 410, 414. “In performance of their official duties,
21 directors are under obligations of trust and confidence to the corporation and its
22 stockholders.” (Ibid.; see also Federal Deposit Insurance Corp. v. Ching (E.D. Cal. 2016)
23 189 F.Supp.3d 978, 993.) Directors must act in good faith for the interests of the
24 corporation or its stockholders with due care and diligence; moreover “the duty of loyalty
25 requires the directors/trustees not to act in their own self-interest when the interest of their
26 corporation will be damaged thereby.” (Professional Hockey Corp., supra, 143 Cal.App.3d
27 at p. 414.) Any breach of these duties, including the duty of loyalty, gives rise to a cause of
28 action for breach of fiduciary duty.
29 The elements of a cause of action for breach of fiduciary duty are: (1) existence of a
30 fiduciary duty; (2) breach of the fiduciary duty; and (3) damage proximately caused by the
PLAINTIFFS’ TRIAL BRIEF
Case no.: S-CV-0037732 5
1 breach. (Tribeca Companies, LLC v. First American Title Insurance Company (2015) 239
2 Cal.App.4th 1088, 1114 (citing Gutierrez v. Girardi (2011) 194 Cal.App.4th 925, 932).) The
3 breach of fiduciary duty can be based upon either negligence or fraud, depending on the
4 circumstances. (See Salahutdin v. Valley of California, Inc. (1994) 24 Cal.App.4th 555,
5 563.)
6 In this case, Love, Edwards, Moss, and Bridges were all shareholders in and directors of
7 WWA. As such, all were subject to the fiduciary duties applicable to corporate directors to
8 act in the best interests of the corporation and its shareholders, including the duties of
9 obedience, diligence, and loyalty, in their management of corporate affair, and importantly,
10 the duty to refrain from self-dealing at the expense of the corporation and its
11 shareholders. (Professional Hockey Corp., supra, 143 Cal.App.3d at p. 414.)
12 The evidence here clearly shows that Moss and Bridges breached their duties to the
13 detriment of Love and Edwards. In April 2016, Edwards, while performing her duties as
14 treasurer, discovered that about half of WWA’s inventory was missing. After investigating
15 this discrepancy, she only then learned that tens of thousands of dollars’ worth of inventory
16 had been sold by Moss and Bridges and that they had intentionally hidden the sales and
17 revenues from Edwards, a shareholder, director, and treasurer of the corporation. Among
18 the many hidden transactions and revenue streams that had been intentionally kept from
19 her, Edwards discovered that:
20 (i) Moss and Bridges had started a marijuana growing business, using
21 the “Sig Tape” name to lease, at just under $5,000 a month, a warehouse to grow
22 marijuana, and that Moss and Bridges had likely used WWA revenue to start that
23 business;
24 (ii) Moss and Bridges had commingled WWA funds with other businesses
25 begun by Moss and Bridges that were unrelated to WWA; and that Moss and
26 Bridges had hidden sales and revenue from WWA’s tape sales and “Wallet/Sig Tape”
27 products, without Edwards’ knowledge;
28 (iii) Moss and Bridges had set up other WWA bank accounts without her
29 knowledge;
30 (iv) Moss and Bridges affirmatively advised representatives from the
PLAINTIFFS’ TRIAL BRIEF
Case no.: S-CV-0037732 6
1 Chinese factory that produced athletic tape for WWA to avoid all contact with
2 Edwards, falsely claiming that she was a disgruntled ex-employee and a “bad
3 person”;
4 (v) Numerous sales of WWA product to new WWA clients, totaling tens of
5 thousands of dollars in revenue, had been made pursuant to agreements entered
6 into without the knowledge and consent of WWA’s board, the transactions for which
7 were never reported to Edwards or the board -- and were intentionally hidden from
8 Edwards, even after she requested such information multiple times;
9 (vi) Moss and Bridges falsely represented that WWA had ceased working
10 with UPI Marketing, while documents later discovered show that Moss and Bridges
11 were in fact still working with UPI Marketing; and
12 (vii) At the same time all of the above was occurring, Moss and Bridges
13 represented to Edwards and Love that WWA would need to file bankruptcy because
14 things “just didn’t work out.”
15 This appalling behavior constitutes a clear breach of fiduciary duty to the shareholders.
16 Moss and Bridges are not permitted to seize business opportunities for themselves
17 using WWA’s funds. California law is clear that “[a]n officer or director may not seize for
18 himself, to the detriment of his company, business opportunities in the company’s line of
19 activities which his company has an interest and prior claim to obtain.” (Xum Speegle, Inc.
20 v. Fields (1963) 216 Cal.App.2d 546, 554.) Such conduct violates the director’s fiduciary
21 duty to the corporation and shareholders, so that “the corporation may claim for itself all
22 benefits so obtained.” (Ibid.)
23 Further, Bridges cannot argue that Edwards and Love had an obligation to investigate
24 these transactions sooner. They were entitled to rely on Moss and Bridges’ representations
25 -- which were made repeatedly in response to Edwards’ repeated queries -- that the sales
26 she knew about were all the sales that had occurred. It was only after Edwards
27 investigated to account for the missing inventory that she uncovered these transactions
28 that had long been hidden from the corporation and its shareholders, including herself and
29 Love, neither of whom has ever recouped any of their initial investments despite these
30 apparently productive transactions. Furthermore, Moss’ conduct after Edwards began
PLAINTIFFS’ TRIAL BRIEF
Case no.: S-CV-0037732 7
1 asking questions -- including his instructions to the factory to avoid all contact with
2 Edwards -- only show his and Bridges’ intentions to continue their fraudulent scheme at the
3 expense of Love and Edwards.
4 As a direct result of these breaches, Love and Edwards have been substantially harmed,
5 having suffered, among other things (1) financial loss in the amount of at least $189,994.00,
6 based on their initial investments and including the balance on Love’s inventory loan;
7 (2) financial loss to Edwards for having never been compensated for the services she
8 provided as WWA’s treasurer and bookkeeper, which Moss and Bridges had originally
9 agreed to pay; and (3) general damages to both Plaintiffs, including emotional distress.
10 These harms are the direct result of the fraudulent actions and conduct by Moss and
11 Bridges as detailed above.
12 As discussed further below, Plaintiffs are entitled to recover these damages, as well as
13 punitive damages under Civ. Code section 3294 or treble damages under Penal Code section
14 496, pre-judgment interest, attorney fees, costs of suit, and other damages as the Court
15 deems just and proper.
16 DAMAGES
17 (a) Special damages, general damages, and pre-judgment interest.
18 (i) Plaintiffs are each entitled to the amount of their initial
19 stock purchases and Love is entitled to the remaining balance
20 owed on her inventory loan.
21 Love’s initial investment in WWA was $100,000 under the 2013 Stock Purchase
22 Agreement. To date, she has never received any of that money back, and owing to Moss
23 and Bridges’ conversion of that money to their own personal use, coupled with the use of
24 those funds to generate revenue in connection with WWA’s operations and then channeling
25 that revenue to themselves and concealing it from Love and Edwards, Plaintiff Love has
26 suffered the loss of that $100,000 investment. This was not a business that “just didn't
27 work out” as Moss represented. This was a fraudulent scheme and a blatant violation of
28 fiduciary duties that wrongfully deprived Love and Edwards of their investments. As such,
29 both Plaintiffs are entitled to recover the amounts of their initial investments.
30 Love’s $50,000 inventory loan is likewise recoverable under the terms of the Promissory
PLAINTIFFS’ TRIAL BRIEF
Case no.: S-CV-0037732 8
1 Note and as secured by the Personal Guarantee signed by both Moss and Bridges. WWA
2 made three interest payments to Love on the Promissory Note: the first in
3 November 2013 in the amount of $800, representing two $400 monthly interest payments;
4 the second in January 2014 in the amount of $400; and the third in February 2014 in the
5 amount of $400. Then, around May 2016, WWA paid Love another $13,306.80
6 toward that balance. As such, Love has been reimbursed $2,506 in principal, and received
7 an additional $10,800.00 in interest payment on the Promissory Note, leaving a principal
8 balance of $47,494 still owed by Moss and Bridges on the Promissory Note. Love has
9 received no other payments or consideration of any nature from Moss, Bridges, or WWA.
10 Plaintiffs note that the tort damages claimed here are economic in nature, which makes
11 liability against the Defendants joint and several. (Baird v. Jones (1993) 21 Cal.App.4th
12 684, 689-90 (joint and several principles among multiple tortfeasors applies in actions
13 involving intentional torts, including breach of fiduciary duty claims).)
14 Accordingly, Love and Edwards request an order that Bridges pay them $189,994.00,
15 representing the full amount of the outstanding principal and the debt still owed to them by
16 Moss and Bridges, and in particular Bridges pursuant to principles of joint and several
17 liability.
18 Plaintiffs also are entitled, under Civ. Code section 3287, to recover interest at the legal
19 rate. Plaintiffs request that the Court award interest as accruing from April 2016, when
20 Plaintiffs first learned of their injuries.
21 (ii) Edwards is entitled to recover reasonable compensation
22 for the accounting services she rendered for WWA.
23 To date, Edwards has not been compensated for her work as WWA’s treasurer,
24 accountant, and bookkeeper, despite the original agreement among the parties that she
25 would be paid. As recounted above, Moss and Bridges’ covert transactions have netted
26 enough revenue to compensate Edwards for the reasonable value of her services to WWA
27 during her tenure. As such, Edwards seeks a judgment that she is entitled to recover for
28 her services rendered, in an amount to be determined at trial.
29 ///
30 ///
PLAINTIFFS’ TRIAL BRIEF
Case no.: S-CV-0037732 9
1 (iii) Plaintiffs may recover their general damages for
2 emotional distress.
3 In their responses to Form Interrogatories, both Plaintiffs described emotional distress
4 damages resulting from the events at issue in this case. As a direct result of Moss and
5 Bridges’ actions, Edwards has suffered extreme mental distress, and severe, stress-induced
6 migraine headaches. She has consulted with physicians and was prescribed Sumatriptan
7 for these headaches, and she was advised that she will need to continue her treatments.
8 Furthermore, as a direct result of Moss and Bridges’ actions, Love has suffered extreme
9 mental distress due to the stress she has been under, concentrated in her nervous system,
10 and which is ongoing.
11 Plaintiffs are entitled to recover against Bridges for these non-economic damages,
12 subject to the limitations of Calif. Proposition 51, eliminating joint and several liability for
13 general damages in personal injury cases, such that Bridges will be liable only for his share
14 of the emotional distress claimed. (Civ. Code 1431.2.) As such, Plaintiffs seek a judgment
15 that each of them is entitled to recover for their respective general damages claims, in an
16 amount to be determined at trial.
17 (b) Punitive damages under Civ. Code section 3294 or treble damages and
18 attorney fees under Penal Code section 496.
19 Plaintiffs are entitled to recover punitive damages due to Moss and Bridges’ willful
20 misconduct. Under Civ. Code section 3294(a), “[i]n an action for the breach of an obligation
21 not arising from contract, where it is proven by clear and convincing evidence that the
22 defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the
23 actual damages, may recover damages for the sake of example and by way of punishing the
24 defendant.” (Ibid.) In this case, punitive damages are available for fraud: “ ‘Fraud’ means
25 an intentional misrepresentation, deceit, or concealment of a material fact known to the
26 defendant with the intention on the part of the defendant of thereby depriving a person of
27 property or legal rights or otherwise causing injury.” (Civ. Code section 3294(c)(3).)
28 As the evidence here shows, Moss and Bridges routinely abused their positions in the
29 corporation by failing to adhere to proper corporate governance; hiding corporate inventory
30 and revenue from Edwards (which caused Edwards to submit inaccurate tax returns); and
PLAINTIFFS’ TRIAL BRIEF
Case no.: S-CV-0037732 10
1 converting the money Plaintiffs paid for WWA stock, and the money from hidden corporate
2 revenue, for Moss and Bridges’ own personal use and enjoyment. As a result
3 of their acts, and their intentional deception, Plaintiffs have lost substantial amounts of
4 money, including their initial investments and Love’s inventory loan for at least
5 $189,994.00 (not including interest), unpaid salary to Edwards for her bookkeeping
6 services, and attorney fees for Plaintiffs to bring this action to recover their money. For
7 these reasons and other as stated above, Plaintiffs are entitled to recover punitive damages.
8 Any punitive damages award must be in an amount sufficient so that it deters any
9 future fraudulent conduct and can’t simply be written off as a cost of doing business.
10 (Bardis v. Oates (2004) 119 Cal. App.4th 1, 25.) Punitive damages awards vary widely, but
11 when determining them the Court must consider “(1) the reprehensibility of the defendant’s
12 misdeeds; (2) the amount of compensatory damages, though there is no fixed [compensatory
13 vs. punitive damages] ratio . . .; and (3) the defendant’s financial condition. . . . The
14 wealthier the wrongdoer, the larger the punitive damage[s] award must be to meet the
15 goals of punishment and deterrence.” (Ibid.)
16 Alternatively, Plaintiffs are entitled to recover treble damages under Penal
17 Code section 496(a), which states:
18 Every person who buys or receives any property that has been stolen or that has
19 been obtained in any manner constituting theft or extortion, knowing the property
20 to be so stolen or obtained, or who conceals, sells, withholds, or aids in concealing,
21 selling, or withholding any property from the owner, knowing the property to be so
22 stolen or obtained, shall be punished by imprisonment in a county jail for not more
23 than one year, or imprisonment pursuant to subdivision (h) of section 1170.
24 Moreover, Penal Code section 496(c) states:
25 Any person who has been injured by a violation of subdivision (a) or (b) may bring
26 an action for three times the amount of actual damages, if any, sustained by the
27 plaintiff, costs of suit, and reasonable attorney's fees.
28 Under section 496(a), it is a crime to knowingly receive property obtained by theft. Theft
29 is broadly defined, encompassing false pretense. Violations of section 496(a) expose the
30 wrongdoer to treble damages under section 496(c). Under this subsection, any person who
PLAINTIFFS’ TRIAL BRIEF
Case no.: S-CV-0037732 11
1 has been damaged by a violation of the statute may bring an action for three times the
2 amount of actual damages sustained, costs of suit, and reasonable attorney fees.
3 A criminal conviction is not a prerequisite for recovery of damages in a civil action
4 pursuant to Penal Code section 496(c). As such, Plaintiffs are entitled to treble damages,
5 costs of suit, and reasonable attorney fees under Bell v. Feibush (2013) 212 Cal.App.4th
6 1041.
7
8 Respectfully submitted,
9
10 Date: October 15, 2020 THE CHEVALIER LAW FIRM
By: _________________________________
Quinn J. Chevalier
Attorney for plaintiffs Diane Love and
Deborah Edwards
PLAINTIFFS’ TRIAL BRIEF
Case no.: S-CV-0037732 12
Preview
Quinn J. Chevalier (SBN 255934) 10/16/2020 THE CHEVALIER LAW FIRM 5657 Kirkhill Dr. Marysville, CA 95901 Tel.: (916) 888-1069 chevalier@chevalierlawfirm.com Attorney for plaintiffs Diane Love and Deborah Edwards SUPERIOR COURT OF CALIFORNIA PLACER COUNTY DIANE LOVE and DEBORAH EDWARDS Case No.: S-CV-0037732 Plaintiffs PLAINTIFFS’ TRIAL BRIEF v. Trial date: October 26, 2020 KEITH MOSS; Civil trial conf.: October 16, 2020 BRADLEY JAY BRIDGES; Time: 8:30 a.m. WORLDWIDE ATHLETICS, INC. (DBA Address: 10820 Justice Center Dr. Signature Athletic Tape); and Roseville, CA 95678 DOES 1-100, inclusive. Dept.: 42 Defendants 1 /// 2 /// 3 /// 4 /// 5 /// 6 /// 7 /// 8 /// 9 /// 10 /// 11 /// 12 /// PLAINTIFFS’ TRIAL BRIEF Case no.: S-CV-0037732 1 1 STATEMENT OF FACTS 2 Defendants Keith Moss (“Moss”) and Bradley Jay Bridges (“Bridges”) (collectively, 3 “Defendants”) founded the company Worldwide Athletics, Inc. (“WWA”) for the purpose of 4 designing, marketing, and selling customized athletic tape. 5 Defendants sought outside investors to raise capital for WWA. Two such investors were 6 plaintiffs Diane Love (“Love”) and Deborah Edwards (“Edwards”) (collectively, “Plaintiffs”). 7 Around February 2013, Love purchased 450,000 shares of WWA stock for an investment of 8 $100,000, and Edwards purchased 225,000 shares of WWA stock for an investment of 9 $50,000. Around September 2013, Defendants sought a $50,000 loan from Love to WWA, 10 thereby increasing Love’s financial contributions to $150,000. Defendants executed 11 personal guarantees of the debts owed to Plaintiffs. 12 At the time of their investments in WWA, Plaintiffs had no reason to believe that 13 Defendants intended to ignore proper corporate governance, hide inventory and sales, and 14 divert WWA capital and profits, all for the personal use and enjoyment of Defendants. 15 From the point of taking on Plaintiffs as investors until the date this complaint was filed 16 in 2016, Plaintiffs allege that, at all times, Defendants never intended to operate WWA in a 17 manner that would protect Plaintiffs’ interests as shareholders in and lenders to WWA. 18 Plaintiffs further allege that Defendants used and diverted all funds, assets, and income of 19 WWA for their own personal gain and to support their other business interests, all in 20 violation of California law and the obligations that they owed to Plaintiffs. 21 For example, on or about April 11, 2016, Edwards discovered that approximately half of 22 WWA’s product inventory was missing. After conducting an investigation, Edwards 23 discovered that tens of thousands of dollars’ worth of WWA inventory had been sold by 24 Defendants and that Defendants had intentionally hidden the sales and revenue from 25 Plaintiffs. 26 Edwards further discovered that Defendants had started a marijuana business using the 27 “Sig Tape” name (a trade name of WWA) to enter into a $5,500 monthly lease for a 28 warehouse to grow marijuana. Plaintiffs allege that Defendants used WWA funds to start 29 that business. 30 Edwards further discovered that Defendants had commingled WWA funds with other PLAINTIFFS’ TRIAL BRIEF Case no.: S-CV-0037732 2 1 businesses unrelated to WWA; that Defendants had hidden WWA sales and revenue from 2 Plaintiffs; and that Defendants had set up other, secret bank accounts with WWA funds 3 without Plaintiffs’ knowledge. 4 In addition, on or about April 17, 2016, Edwards requested from Defendants copies of all 5 purchase orders for tape from the Chinese factory that was producing the tape for WWA. 6 Defendants refused. Edwards later discovered that -- in an effort to prevent Plaintiffs from 7 discovering the truth -- Defendants had instructed the factory not to provide any 8 information to Edwards under any circumstances because, as falsely stated by Defendants, 9 she was an ex-employee of WWA and a “very bad person.” In fact, at the time, Edwards 10 was a full-time employee of WWA, and she was entitled to this information from the factory 11 in order to do her job as treasurer of WWA. 12 Defendants further represented to Edwards that WWA was no longer dealing with UPI 13 Marketing, the holder of the NFL license that is required for WWA to sell athletic tape and 14 the business to which WWA paid NFL royalties. According to Defendants, UPI Marketing 15 had dropped WWA for non-payment. The reality is that Defendants had been continuing to 16 work with UPI Marketing on their own after entering into new contracts with UPI 17 Marketing so that they could continue selling WWA inventory without Plaintiffs’ 18 knowledge. 19 It became apparent to Plaintiffs that Defendants never intended to operate WWA in a 20 manner that would produce profits for its shareholders -- other than for themselves. 21 Defendants had always intended to operate WWA for their sole benefit and to the detriment 22 of all other shareholders -- that is, Plaintiffs. 23 LEGAL ARGUMENT 24 (a) First and Second Causes of Action: Fraud Committed by Defendants Against 25 Plaintiffs. 26 “ ‘The elements of fraud, which give rise to the tort action for deceit, are (a) misrepre- 27 sentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity 28 (or “scienter”); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) 29 resulting damage.’ ” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638; see also Civ. Code 30 sections 1709, 1710; Service by Medallion, Inc. v. Clorox Co. (1996) 44 Cal.App.4th 1807, PLAINTIFFS’ TRIAL BRIEF Case no.: S-CV-0037732 3 1 1816.) 2 “Promissory fraud” is a subspecies of fraud and deceit. “A promise to do something 3 necessarily implies the intention to perform; hence, where a promise is made without such 4 intention, there is an implied misrepresentation of fact that may be actionable fraud.” 5 (Lazar, supra, at p. 638; Civ. Code section 1710(4)). An action for promissory fraud may lie 6 where a defendant fraudulently induces the plaintiff to enter into a contract. (Ibid.) 7 Here, Plaintiffs were both induced to purchase stock in WWA based upon the 8 representations Moss and Bridges made to them in 2013. Love only invested in WWA on 9 the condition that Edwards would keep WWA’s books, approve of all corporate spending, 10 and that Moss and Bridges would provide Edwards with all of the data necessary for 11 Edwards to provide accurate bookkeeping and prepare accurate tax returns for WWA. Love 12 only agreed to purchase the $100,000 stock in WWA after Moss and Bridges agreed to these 13 conditions. 14 Edwards, likewise, only agreed to invest after Moss and Bridges agreed that they would 15 adhere to proper corporate governance; that they would provide Edwards with all corporate 16 data necessary for her to keep an accurate accounting of WWA’s books; that all WWA 17 transactions would go through, and be approved by, Edwards; that WWA would make 18 millions of dollars in annual revenue and profit; that Edwards would share in the profits of 19 the company; and that Edwards would be reimbursed for her purchase of WWA stock. 20 At the time, Love had no reason to believe that Moss and Bridges would intentionally 21 fail to follow corporate governance procedures, use WWA’s funds to start businesses and 22 open bank accounts, and hide transactions and funds from both Love and Edwards, as later 23 turned out to be the case. Hence, their reliance was justifiable. Only three years later did 24 it become clear that Moss and Bridges never intended to keep their promises to Love and 25 Edwards. 26 Furthermore, Love was also fraudulently induced to put up the $50,000 inventory loan, 27 ostensibly to WWA, in September 2013. Pursuant to the Promissory Note, that $50,000 28 was to be held in a separate account used exclusively for the purchase of WWA inventory 29 and would be repaid to Love through sales of WWA inventory. Both Moss and Bridges 30 personally guaranteed that loan, agreeing to be jointly and severally liable for the full PLAINTIFFS’ TRIAL BRIEF Case no.: S-CV-0037732 4 1 amount should the corporation default. When Moss and Bridges induced Love to lend 2 $50,000 to WWA, they knew that their representations were false. Their actions, which 3 came to light in 2016, showed that they never intended for WWA to fully repay Love, and 4 they never intended for WWA to make a profit, other than for themselves. Rather, Moss 5 and Bridges always intended to convert the loan money Love lent to WWA by using the 6 inventory and revenue generated through WWA inventory sales for their own personal 7 purposes. Love had no reason to suspect as much when she made the loan, and she would 8 not have made it but for the representations regarding repayment in both the Promissory 9 Note and the Personal Guarantee documents, which have not been honored. 10 As explained further below with respect to the fiduciary duty claims, Moss and Bridges 11 never intended to make good on their promises to Love and Edwards and, rather, intended 12 all along to generate revenue for themselves and hide that revenue from their fellow 13 shareholders, Love and Edwards. Love and Edwards have suffered substantial harm as a 14 result. 15 (b) Third Cause of Action: Breach of Fiduciary Duty Committed by Defendants 16 Against Plaintiffs. 17 In California, directors of corporations such as WWA owe the corporation and its 18 shareholders certain fiduciary duties, including the duties of obedience, diligence and 19 loyalty, in their management of corporate affairs. (Professional Hockey Corp. v. World 20 Hockey Assn. (1983) 143 Cal.App.3d 410, 414. “In performance of their official duties, 21 directors are under obligations of trust and confidence to the corporation and its 22 stockholders.” (Ibid.; see also Federal Deposit Insurance Corp. v. Ching (E.D. Cal. 2016) 23 189 F.Supp.3d 978, 993.) Directors must act in good faith for the interests of the 24 corporation or its stockholders with due care and diligence; moreover “the duty of loyalty 25 requires the directors/trustees not to act in their own self-interest when the interest of their 26 corporation will be damaged thereby.” (Professional Hockey Corp., supra, 143 Cal.App.3d 27 at p. 414.) Any breach of these duties, including the duty of loyalty, gives rise to a cause of 28 action for breach of fiduciary duty. 29 The elements of a cause of action for breach of fiduciary duty are: (1) existence of a 30 fiduciary duty; (2) breach of the fiduciary duty; and (3) damage proximately caused by the PLAINTIFFS’ TRIAL BRIEF Case no.: S-CV-0037732 5 1 breach. (Tribeca Companies, LLC v. First American Title Insurance Company (2015) 239 2 Cal.App.4th 1088, 1114 (citing Gutierrez v. Girardi (2011) 194 Cal.App.4th 925, 932).) The 3 breach of fiduciary duty can be based upon either negligence or fraud, depending on the 4 circumstances. (See Salahutdin v. Valley of California, Inc. (1994) 24 Cal.App.4th 555, 5 563.) 6 In this case, Love, Edwards, Moss, and Bridges were all shareholders in and directors of 7 WWA. As such, all were subject to the fiduciary duties applicable to corporate directors to 8 act in the best interests of the corporation and its shareholders, including the duties of 9 obedience, diligence, and loyalty, in their management of corporate affair, and importantly, 10 the duty to refrain from self-dealing at the expense of the corporation and its 11 shareholders. (Professional Hockey Corp., supra, 143 Cal.App.3d at p. 414.) 12 The evidence here clearly shows that Moss and Bridges breached their duties to the 13 detriment of Love and Edwards. In April 2016, Edwards, while performing her duties as 14 treasurer, discovered that about half of WWA’s inventory was missing. After investigating 15 this discrepancy, she only then learned that tens of thousands of dollars’ worth of inventory 16 had been sold by Moss and Bridges and that they had intentionally hidden the sales and 17 revenues from Edwards, a shareholder, director, and treasurer of the corporation. Among 18 the many hidden transactions and revenue streams that had been intentionally kept from 19 her, Edwards discovered that: 20 (i) Moss and Bridges had started a marijuana growing business, using 21 the “Sig Tape” name to lease, at just under $5,000 a month, a warehouse to grow 22 marijuana, and that Moss and Bridges had likely used WWA revenue to start that 23 business; 24 (ii) Moss and Bridges had commingled WWA funds with other businesses 25 begun by Moss and Bridges that were unrelated to WWA; and that Moss and 26 Bridges had hidden sales and revenue from WWA’s tape sales and “Wallet/Sig Tape” 27 products, without Edwards’ knowledge; 28 (iii) Moss and Bridges had set up other WWA bank accounts without her 29 knowledge; 30 (iv) Moss and Bridges affirmatively advised representatives from the PLAINTIFFS’ TRIAL BRIEF Case no.: S-CV-0037732 6 1 Chinese factory that produced athletic tape for WWA to avoid all contact with 2 Edwards, falsely claiming that she was a disgruntled ex-employee and a “bad 3 person”; 4 (v) Numerous sales of WWA product to new WWA clients, totaling tens of 5 thousands of dollars in revenue, had been made pursuant to agreements entered 6 into without the knowledge and consent of WWA’s board, the transactions for which 7 were never reported to Edwards or the board -- and were intentionally hidden from 8 Edwards, even after she requested such information multiple times; 9 (vi) Moss and Bridges falsely represented that WWA had ceased working 10 with UPI Marketing, while documents later discovered show that Moss and Bridges 11 were in fact still working with UPI Marketing; and 12 (vii) At the same time all of the above was occurring, Moss and Bridges 13 represented to Edwards and Love that WWA would need to file bankruptcy because 14 things “just didn’t work out.” 15 This appalling behavior constitutes a clear breach of fiduciary duty to the shareholders. 16 Moss and Bridges are not permitted to seize business opportunities for themselves 17 using WWA’s funds. California law is clear that “[a]n officer or director may not seize for 18 himself, to the detriment of his company, business opportunities in the company’s line of 19 activities which his company has an interest and prior claim to obtain.” (Xum Speegle, Inc. 20 v. Fields (1963) 216 Cal.App.2d 546, 554.) Such conduct violates the director’s fiduciary 21 duty to the corporation and shareholders, so that “the corporation may claim for itself all 22 benefits so obtained.” (Ibid.) 23 Further, Bridges cannot argue that Edwards and Love had an obligation to investigate 24 these transactions sooner. They were entitled to rely on Moss and Bridges’ representations 25 -- which were made repeatedly in response to Edwards’ repeated queries -- that the sales 26 she knew about were all the sales that had occurred. It was only after Edwards 27 investigated to account for the missing inventory that she uncovered these transactions 28 that had long been hidden from the corporation and its shareholders, including herself and 29 Love, neither of whom has ever recouped any of their initial investments despite these 30 apparently productive transactions. Furthermore, Moss’ conduct after Edwards began PLAINTIFFS’ TRIAL BRIEF Case no.: S-CV-0037732 7 1 asking questions -- including his instructions to the factory to avoid all contact with 2 Edwards -- only show his and Bridges’ intentions to continue their fraudulent scheme at the 3 expense of Love and Edwards. 4 As a direct result of these breaches, Love and Edwards have been substantially harmed, 5 having suffered, among other things (1) financial loss in the amount of at least $189,994.00, 6 based on their initial investments and including the balance on Love’s inventory loan; 7 (2) financial loss to Edwards for having never been compensated for the services she 8 provided as WWA’s treasurer and bookkeeper, which Moss and Bridges had originally 9 agreed to pay; and (3) general damages to both Plaintiffs, including emotional distress. 10 These harms are the direct result of the fraudulent actions and conduct by Moss and 11 Bridges as detailed above. 12 As discussed further below, Plaintiffs are entitled to recover these damages, as well as 13 punitive damages under Civ. Code section 3294 or treble damages under Penal Code section 14 496, pre-judgment interest, attorney fees, costs of suit, and other damages as the Court 15 deems just and proper. 16 DAMAGES 17 (a) Special damages, general damages, and pre-judgment interest. 18 (i) Plaintiffs are each entitled to the amount of their initial 19 stock purchases and Love is entitled to the remaining balance 20 owed on her inventory loan. 21 Love’s initial investment in WWA was $100,000 under the 2013 Stock Purchase 22 Agreement. To date, she has never received any of that money back, and owing to Moss 23 and Bridges’ conversion of that money to their own personal use, coupled with the use of 24 those funds to generate revenue in connection with WWA’s operations and then channeling 25 that revenue to themselves and concealing it from Love and Edwards, Plaintiff Love has 26 suffered the loss of that $100,000 investment. This was not a business that “just didn't 27 work out” as Moss represented. This was a fraudulent scheme and a blatant violation of 28 fiduciary duties that wrongfully deprived Love and Edwards of their investments. As such, 29 both Plaintiffs are entitled to recover the amounts of their initial investments. 30 Love’s $50,000 inventory loan is likewise recoverable under the terms of the Promissory PLAINTIFFS’ TRIAL BRIEF Case no.: S-CV-0037732 8 1 Note and as secured by the Personal Guarantee signed by both Moss and Bridges. WWA 2 made three interest payments to Love on the Promissory Note: the first in 3 November 2013 in the amount of $800, representing two $400 monthly interest payments; 4 the second in January 2014 in the amount of $400; and the third in February 2014 in the 5 amount of $400. Then, around May 2016, WWA paid Love another $13,306.80 6 toward that balance. As such, Love has been reimbursed $2,506 in principal, and received 7 an additional $10,800.00 in interest payment on the Promissory Note, leaving a principal 8 balance of $47,494 still owed by Moss and Bridges on the Promissory Note. Love has 9 received no other payments or consideration of any nature from Moss, Bridges, or WWA. 10 Plaintiffs note that the tort damages claimed here are economic in nature, which makes 11 liability against the Defendants joint and several. (Baird v. Jones (1993) 21 Cal.App.4th 12 684, 689-90 (joint and several principles among multiple tortfeasors applies in actions 13 involving intentional torts, including breach of fiduciary duty claims).) 14 Accordingly, Love and Edwards request an order that Bridges pay them $189,994.00, 15 representing the full amount of the outstanding principal and the debt still owed to them by 16 Moss and Bridges, and in particular Bridges pursuant to principles of joint and several 17 liability. 18 Plaintiffs also are entitled, under Civ. Code section 3287, to recover interest at the legal 19 rate. Plaintiffs request that the Court award interest as accruing from April 2016, when 20 Plaintiffs first learned of their injuries. 21 (ii) Edwards is entitled to recover reasonable compensation 22 for the accounting services she rendered for WWA. 23 To date, Edwards has not been compensated for her work as WWA’s treasurer, 24 accountant, and bookkeeper, despite the original agreement among the parties that she 25 would be paid. As recounted above, Moss and Bridges’ covert transactions have netted 26 enough revenue to compensate Edwards for the reasonable value of her services to WWA 27 during her tenure. As such, Edwards seeks a judgment that she is entitled to recover for 28 her services rendered, in an amount to be determined at trial. 29 /// 30 /// PLAINTIFFS’ TRIAL BRIEF Case no.: S-CV-0037732 9 1 (iii) Plaintiffs may recover their general damages for 2 emotional distress. 3 In their responses to Form Interrogatories, both Plaintiffs described emotional distress 4 damages resulting from the events at issue in this case. As a direct result of Moss and 5 Bridges’ actions, Edwards has suffered extreme mental distress, and severe, stress-induced 6 migraine headaches. She has consulted with physicians and was prescribed Sumatriptan 7 for these headaches, and she was advised that she will need to continue her treatments. 8 Furthermore, as a direct result of Moss and Bridges’ actions, Love has suffered extreme 9 mental distress due to the stress she has been under, concentrated in her nervous system, 10 and which is ongoing. 11 Plaintiffs are entitled to recover against Bridges for these non-economic damages, 12 subject to the limitations of Calif. Proposition 51, eliminating joint and several liability for 13 general damages in personal injury cases, such that Bridges will be liable only for his share 14 of the emotional distress claimed. (Civ. Code 1431.2.) As such, Plaintiffs seek a judgment 15 that each of them is entitled to recover for their respective general damages claims, in an 16 amount to be determined at trial. 17 (b) Punitive damages under Civ. Code section 3294 or treble damages and 18 attorney fees under Penal Code section 496. 19 Plaintiffs are entitled to recover punitive damages due to Moss and Bridges’ willful 20 misconduct. Under Civ. Code section 3294(a), “[i]n an action for the breach of an obligation 21 not arising from contract, where it is proven by clear and convincing evidence that the 22 defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the 23 actual damages, may recover damages for the sake of example and by way of punishing the 24 defendant.” (Ibid.) In this case, punitive damages are available for fraud: “ ‘Fraud’ means 25 an intentional misrepresentation, deceit, or concealment of a material fact known to the 26 defendant with the intention on the part of the defendant of thereby depriving a person of 27 property or legal rights or otherwise causing injury.” (Civ. Code section 3294(c)(3).) 28 As the evidence here shows, Moss and Bridges routinely abused their positions in the 29 corporation by failing to adhere to proper corporate governance; hiding corporate inventory 30 and revenue from Edwards (which caused Edwards to submit inaccurate tax returns); and PLAINTIFFS’ TRIAL BRIEF Case no.: S-CV-0037732 10 1 converting the money Plaintiffs paid for WWA stock, and the money from hidden corporate 2 revenue, for Moss and Bridges’ own personal use and enjoyment. As a result 3 of their acts, and their intentional deception, Plaintiffs have lost substantial amounts of 4 money, including their initial investments and Love’s inventory loan for at least 5 $189,994.00 (not including interest), unpaid salary to Edwards for her bookkeeping 6 services, and attorney fees for Plaintiffs to bring this action to recover their money. For 7 these reasons and other as stated above, Plaintiffs are entitled to recover punitive damages. 8 Any punitive damages award must be in an amount sufficient so that it deters any 9 future fraudulent conduct and can’t simply be written off as a cost of doing business. 10 (Bardis v. Oates (2004) 119 Cal. App.4th 1, 25.) Punitive damages awards vary widely, but 11 when determining them the Court must consider “(1) the reprehensibility of the defendant’s 12 misdeeds; (2) the amount of compensatory damages, though there is no fixed [compensatory 13 vs. punitive damages] ratio . . .; and (3) the defendant’s financial condition. . . . The 14 wealthier the wrongdoer, the larger the punitive damage[s] award must be to meet the 15 goals of punishment and deterrence.” (Ibid.) 16 Alternatively, Plaintiffs are entitled to recover treble damages under Penal 17 Code section 496(a), which states: 18 Every person who buys or receives any property that has been stolen or that has 19 been obtained in any manner constituting theft or extortion, knowing the property 20 to be so stolen or obtained, or who conceals, sells, withholds, or aids in concealing, 21 selling, or withholding any property from the owner, knowing the property to be so 22 stolen or obtained, shall be punished by imprisonment in a county jail for not more 23 than one year, or imprisonment pursuant to subdivision (h) of section 1170. 24 Moreover, Penal Code section 496(c) states: 25 Any person who has been injured by a violation of subdivision (a) or (b) may bring 26 an action for three times the amount of actual damages, if any, sustained by the 27 plaintiff, costs of suit, and reasonable attorney's fees. 28 Under section 496(a), it is a crime to knowingly receive property obtained by theft. Theft 29 is broadly defined, encompassing false pretense. Violations of section 496(a) expose the 30 wrongdoer to treble damages under section 496(c). Under this subsection, any person who PLAINTIFFS’ TRIAL BRIEF Case no.: S-CV-0037732 11 1 has been damaged by a violation of the statute may bring an action for three times the 2 amount of actual damages sustained, costs of suit, and reasonable attorney fees. 3 A criminal conviction is not a prerequisite for recovery of damages in a civil action 4 pursuant to Penal Code section 496(c). As such, Plaintiffs are entitled to treble damages, 5 costs of suit, and reasonable attorney fees under Bell v. Feibush (2013) 212 Cal.App.4th 6 1041. 7 8 Respectfully submitted, 9 10 Date: October 15, 2020 THE CHEVALIER LAW FIRM By: _________________________________ Quinn J. Chevalier Attorney for plaintiffs Diane Love and Deborah Edwards PLAINTIFFS’ TRIAL BRIEF Case no.: S-CV-0037732 12