210 Cal. App. 4th 507
Cal. Ct. App.2012Background
- Family dispute over Royal Hospitality, Inc. (RHI), an S-corp owned by six Correia siblings, and the Maughans; Maurice claimed sole initial ownership with later equity adjustments; Maureen alleged an oral one-third ownership agreement and a stock option to acquire up to one-third; Maurice allegedly breached the stock option by refusing to honor Maureen’s exercise; trial court found an enforceable oral stock option and awarded damages; appellate court later modified damages for proper minority-discount application.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity of the stock option agreement | Maureen; asserts a valid oral stock option existed. | Maurice; contends no enforceable agreement existed. | Oral stock option agreement found valid and binding. |
| Claims not properly preserved for appeal | Maureen seeks adjudication of related issues. | Maurice argues those issues were not raised in trial court. | Other enforceability challenges not properly raised on appeal; merit contested. |
| Proper application of the minority discount in damages | Maureen urges discount applied to value of minority interest or not at all. | Maurice argues discount properly applied to contract price or value; court erred. | Discount misapplied; must be applied to value of minority interest; damages reduced. |
| Damages amount and method of calculation | Maureen seeks higher damages reflecting true minority value. | Maurice argues lower damages should be used. | Damages reduced to $1,126,159 on correct application of discount. |
Key Cases Cited
- Lawson Mardon Wheaton, Inc. v. Smith, 160 N.J. 383 (N.J. 1999) (minority discount vs marketability discount guidance; discount applies to pro rata value)
- Scully v. US WATS, Inc., 238 F.3d 497 (3d Cir. 2001) (damages measured as difference between market value and option price; minority discount relevance)
- Oldenkott v. American Electric, Inc., 14 Cal.App.3d 198 (Cal. Ct. App. 1971) (damages for option breach typically based on loss of option value)
- Cassim v. Allstate Ins. Co., 33 Cal.4th 780 (Cal. 2004) (judicial error in damages awards can be corrected on appeal)
- Kajima/Ray Wilson v. Los Angeles County Metropolitan Transportation Authority, 23 Cal.4th 305 (Cal. 2000) (legal standard for review of discount application in valuation)
- Swope v. Siegel-Robert, Inc., 74 F.Supp.2d 876 (E.D. Mo. 1999) (discounts—whether to apply and impact on damages; discretion at district court level)