Macris v. Sevea International, Inc.
2013 UT App 176
Utah Ct. App.2013Background
- Macris and Christina McNally formed Sevea International in 2006 to market artificial fingernails using ANT patents assigned to Sevea, with a condition to issue ANT ten million shares.
- ANT terminated the asset contribution agreement in 2006, leading to a federal suit by ANT seeking return of IP and termination of the agreement.
- Disputes among Macris, Jerry and Katie Saxton, and McNally escalated; Saxton moved assets to Texas and formed Sevea Productions with ongoing operations, creating a deadlock under a Voting Agreement that allowed Macris and Saxton to control decisions but lacked deadlock procedures.
- Macris filed a derivative action in 2007 alleging breach of fiduciary duties, conversion, and interference; interim injunctions and a custodian were appointed to preserve Sevea assets.
- Appellants repeatedly violated court orders (removing assets, suppressing evidence, spoliation) leading to numerous contempt findings and, ultimately, a default judgment against them in 2011.
- Damages were awarded: Macris received awards for derivative-related losses (later found to belong to Sevea and not Macris personally), plus damages for malicious prosecution, slander per se, punitive damages, and attorney fees on appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the sanctions strike and default judgment were improper | Macris contends sanctions were proper given willful misconduct. | Appellants argue the court abused discretion and that sanctions were too severe. | Sanctions upheld; court did not abuse discretion. |
| Whether derivative claims were properly pursued given demand requirements | Macris alleges futility of making a demand due to control by Macris and Saxton. | Saxtons contend demand requirements were not satisfied or futile. | Derivatives viable under futility exception; demand not required. |
| Whether derivative damages were properly awarded to Macris personally or to Sevea | Macris argues damages for derivative claims were his personal recovery. | Saxtons argue damages belong to Sevea as corporate assets. | Damages for derivative claims must be awarded to Sevea; remand for distribution by custodian. |
| Whether the punitive damages award was excessive | Macroartha argues punitive damages were justified given egregious misconduct. | Appellants claim the amount and ratio are excessive and inadequately reasoned. | Punitive damages presumptively excessive; remand for justification and recalculation, with possible reduction. |
Key Cases Cited
- Chen v. Stewart, 123 P.3d 416 (Utah 2005) (inherent authority to strike pleadings and enter default judgment)
- Kilpatrick v. Bullough Abatement, Inc., 199 P.3d 957 (Utah 2008) (sanctions standards for discovery violations; abuse of discretion reviewed for clear error)
- Richardson v. Arizona Fuels Corp., 614 P.2d 636 (Utah 1980) (derivative damages belong to the corporation, not the stockholders individually)
- Diversified Holdings, LC v. Turner, the sequence provided in the opinion (Utah 2002) (Crookston factors for punitive damages; relation to truthfulness and deterrence)
- Crookston v. Fire Insurance Exchange, 817 P.2d 789 (Utah 1991) (seven factors for determining punitive damages; ratio considerations)
- Smith v. Fairfax Realty, Inc., 2003 UT 41, 82 P.3d 1064 (Utah 2003) (upholding punitive damages with ratio considerations under Crookston framework)
- Allred v. Cook, 590 P.2d 318 (Utah 1979) (elements of slander per se and damages without showing special harm)