Meister v. Mensinger
230 Cal. App. 4th 381
Cal. Ct. App.2014Background
- Plaintiffs Robert, Janice, and Kathryn Meister were non‑voting preferred shareholders who invested over $2.1 million in Sesame Technologies and held ~38% ownership; their preferred shares had liquidation and dividend preferences and a right of first refusal.
- By 2003–2004 Sesame was insolvent or near‑insolvent, owed back payroll taxes, and struggled to raise capital; Duane Mensinger became CFO, loaned Sesame $125,000 secured by its assets, and later perfected that security interest.
- In mid‑2004 Mensinger formed ExtraView (initially with Koppel), and Sesame’s controlling officers (Koppel and Mensinger) approved an asset purchase agreement transferring Sesame’s assets to ExtraView; Sesame then dissolved and filed Chapter 7 bankruptcy, leaving the Meisters’ preferred shares valueless.
- The Meisters sued for breaches of fiduciary duty, seeking damages, disgorgement, an accounting, and a constructive trust; after a bench trial the court found fiduciary breaches but concluded the Meisters failed to prove damages and entered judgment for defendants.
- On appeal the Court of Appeal reversed and remanded limited to remedies, holding the trial court erred by refusing to craft a remedy and by conducting an in camera accounting of ExtraView’s records without expert assistance; discovery issues over native QuickBooks files were mooted because records were later produced.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether trial court erred by finding breach but awarding no remedy | Meisters: breach caused certain loss (investment wiped out); court must craft equitable relief (damages, disgorgement, or constructive trust) and order accounting | Mensinger/Koppel: Meisters failed to prove damages; Sesame had minimal value and no unjust enrichment to compute | Reversed and remanded for retrial limited to remedies; liability stands and court must revisit damages/unjust enrichment and may consider constructive trust |
| Whether the court properly performed an in camera accounting of ExtraView financials | Meisters: records should be analyzed by parties’ experts or a referee, not solely by judge in camera | Defendants: court’s in camera review was acceptable; experts already had access | Court held in camera review without expert input was improper; accounting and complex financial review should involve forensic experts or a referee |
| Whether defendants had to produce ExtraView financials in native format during discovery | Meisters: QuickBooks (native) production necessary for expert analysis; PDFs/Excel insufficient | Defendants: Excel production sufficed; native format not required | Discovery dispute moot on appeal because records were produced; trial court’s earlier refusal to compel native production is not dispositive now |
| Proper measure of recovery for fiduciary breach involving asset transfer | Meisters: value of transferred assets (or disgorgement of defendants’ profits), reduced by Meisters’ 38% interest | Defendants: Sesame had little or no value at transfer and defendants reinvested/forwent compensation so no recoverable profit | Court instructs trial court on remedies: damages may be awarded based on reasonable approximation; disgorgement/unjust enrichment available (measuring net profit and allowing credits); remedy must be tied to timing of the breach and may include constructive trust; burden of proving net profit rests on plaintiffs, uncertainty shifts to wrongdoer |
Key Cases Cited
- Shaw v. County of Santa Cruz, 170 Cal.App.4th 229 (discussing standard when appeal challenges failure of proof)
- City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 68 Cal.App.4th 445 (elements of breach of fiduciary duty)
- Steinberg v. Amplica, Inc., 42 Cal.3d 1198 (public interest in enforcing fiduciary duties to minority shareholders)
- Jones v. H. F. Ahmanson & Co., 1 Cal.3d 93 (courts must thoroughly scrutinize self‑dealing transactions)
- Hicks v. Clayton, 67 Cal.App.3d 251 (equitable remedies for fiduciary breach; courts’ duty to grant relief in some circumstances)
- AIU Ins. Co. v. Superior Court, 51 Cal.3d 807 (distinguishing equitable and legal remedies)
- GHK Associates v. Mayer Group, Inc., 224 Cal.App.3d 856 (damages may be approximated when exact calculation is impracticable)
- Parlour Enterprises, Inc. v. Kirin Group, Inc., 152 Cal.App.4th 281 (business damages focus on net profits)
- Piscitelli v. Friedenberg, 87 Cal.App.4th 953 (lost‑profits proof for established businesses)
- Kids' Universe v. In2Labs, 95 Cal.App.4th 870 (use of expert evidence and business data to establish speculative damages)
- Uzyel v. Kadisha, 188 Cal.App.4th 866 (burden for disgorgement calculations; residual uncertainty shifts to wrongdoer)
- County of San Bernardino v. Walsh, 158 Cal.App.4th 533 (disgorgement and unjust enrichment principles)
- Feitelberg v. Credit Suisse First Boston, LLC, 134 Cal.App.4th 997 (disgorgement broader than restitution)
- Colgan v. Leatherman Tool Group, Inc., 135 Cal.App.4th 663 (measure of recovery for property wrongfully acquired)
- Ajaxo Inc. v. E*Trade Financial Corp., 187 Cal.App.4th 1295 (no fixed formula for unjust enrichment; reasonable basis required for computation)