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Kalthia v. Chhatrala1/16/2003
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.
This fraud action arose from the sale of stock by Hemant Chhatrala, Shailesh Patel and Bipin Maguna (collectively the defendants) to Mitesh Kalthia and Kishor Virani (together the plaintiffs). On appeal of a $388,870 judgment for the plaintiffs, the defendants contend (1) the court erred by denying their motion in limine to dismiss the action on the ground the plaintiffs assigned their claims to third parties and thus lack standing, (2) no substantial evidence supports the jury's determination the defendants were "corporate promoters," or fiduciaries of the plaintiffs, which allowed them to recover damages measured by the benefit-of-the-bargain, and (3) at any rate, the plaintiffs received the benefit of their bargain because they sold their stock at a substantial profit, and the court abused its discretion by excluding evidence of the sale.
The plaintiffs also appeal. They contend the court erred by granting the defendants' motion for a new trial unless they consented to a reduction in compensatory damages. We affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
The defendants are brothers, one of whom incorporated Natha Assoc., Inc. (Natha) in 1987. The defendants considered Natha a family enterprise because they always worked together and shared investments. Natha was a shell corporation until March 31, 1995, when it purchased a motel, then named the Harborside Inn, in the Point Loma area of San Diego.
The plaintiffs and the defendants had a history of business dealings. The plaintiffs purchased 21 percent of the Natha stock for $133,688, based on the defendants' representations that (1) Natha was being capitalized with $641,000, including $521,000 for the purchase of the motel and $120,000 for renovation and operation costs, and (2) the defendants and another investor, a "doctor," would invest the balance of the required funds in exchange for 79 percent of the stock. The defendants were to manage the motel.
When the plaintiffs invested in Natha, the defendants had already sold 49 percent of its stock to Drs. Parag Patel and Girish Desai (together the dentists) for $314,090, based on the same representation regarding the total investment in the business of $641,000, and the representation the defendants would invest the balance of required funds in exchange for 51 percent of Natha's stock. The defendants did not advise the dentists of the plaintiffs' interest in Natha.
In September 1998 the plaintiffs discovered the actual purchase price of the motel was $171,000, and with $120,000 in renovation and operation costs the total capitalization required was $291,000. The plaintiffs learned the dentists' identities and contacted them. At a January 1999 shareholder meeting, the plaintiffs and the dentists exercised their majority vote to remove the defendants from control of the corporation.
In July 1999 the dentists individually sued the defendants for fraud and related counts. (Patel, et al. v. Chatrala , et al. (Super. Ct. San Diego County (1999) Case No. GIC732329).) The dentists sought all or a majority of Natha's stock on the ground they alone capitalized the corporation.
On August 6, 1999, the plaintiffs filed a shareholder derivative action against the defendants for breach of fiduciary duty, breach of contract and related counts. (Kalthia, et al.
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