Filed 1/21/15 Favila v. Souther CA2/7 NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

SANDRA CORRALES FAVILA, as Executor, etc., et al.,
Plaintiffs and Respondents,

v.
RALEIGH SOUTHER et al.,
Defendants and Appellants. B253740
(Los Angeles County Super. Ct. No. BC379462)

APPEAL from a judgment of the Superi or Court of Los Angeles County, Deirdre Hill, Judge. Affirmed as modified. Law Offices of Carlos F. Negrete a nd Carlos F. Negrete for Defendants and Appellants. James K. Cameron & Associates, James K. Cameron; Law Offices of Gary R. Wallace and Gary R. Wallace, for Plaintiffs and Respondents.

_____________ ___________2 Raleigh Souther appeals from an amende d judgment, entered following remand by
this court in Sandra Corrales Favila, as Executor etc. v. Souther (Oct. 23, 2012, B230264) (nonpub. opn.) ( Souther I ), awarding the Estate of Richard Corrales (Estate), through its executor Sandra Corrales Favila , $1,169,514 in compen satory damages for lost income generated by the use of assets of Motion Graphix, Inc. that had been wrongfully transferred by Sout her to Get Flipped, Inc., as well as $2,125,238.70 in punitive damages, and imposing a constructive trust in favor of the Estate and against Souther and Get Flipped on all the assets of Motion Graphix transferred to Get Flipped. On appeal Souther contends , having elected imposition of a constructive trust as a remedy for the misappropriation of the Motion Gr aphix assets, the Esta te is not entitled to any award of compensatory damages with resp ect to those assets. In addition, Souther contends the constructive trust imposed by the trial court improperly applies to 100 percent of the assets of Motion Graphix wrongfu lly transferred to Get Flipped, rather than just the 51 percent to wh ich the Estate is entitled. We di sagree with Sout her’s first point, but agree (as does the Estate) with the second . Accordingly, we modify the judgment to
limit the reach of the constructive trust and affirm the judgment as modified.
FACTUAL AND PROCED URAL BACKGROUND The history of the business relationship between Souther and Richard Corrales, a photographer and inventor, their joint foundi ng and operation of Motion Graphix, and the two men’s ultimate estrangement, including Souther’s creation of Get Flipped (wholly owned by Souther and his wife) and the sale of Motion Graphix’s assets, including its intellectual property, to the new company is detailed in Souther I. As we discussed, in a complaint filed in October 2007 against S outher and Get Flipped, the Estate alleged Corrales still owned 51 percent of the shar es of Motion Graphix when he died in November 2005; those shares passed to the Estate; the Estate never approved Souther’s February 2007 sale of Motion Graphix’s a ssets to Get Flipped or the March 2007 dissolution of Motion Graphix; the fair market value of Motion Graphix’s intellectual property was between $8 and $12 million; and Sout her had engaged in various acts of3 wrongdoing by orchestrating the fraudulent a nd unauthorized sale of Motion Graphix’s assets to Get Flipped for $5,000. At the bench trial ultimately held in th e matter the Estate presented the opinion testimony of certified public accountant Michae l Sovik to support its damage claims. Sovik testified his computatio n of damages in the event Souther and Get Flipped were found liable for improperly transferring and utilizing Motion Graphix’s assets had two basic elements: a valuation of the ongoing bu siness itself (what he referred to as the “fair value” of the company) and a calculation of the income generated by the business from
which Corrales and the Estate had been excl uded. Based on his review of financial records and tax returns for Motion Graphi x, Get Flipped and Souther from 2004 and 2008, Sovik opined the Estate was entitled to compensato ry damages of $1,700,191, comprised of 51 percent of the net inco me that Souther had diverted from Motion Graphix to Get Flipped plus 10 percent intere st ($1,169,514) and 51 percent of a fouryear average fair value derive d by applying a multiple of f our to Motion Graphix and Get Flipped’s earnings before interest, tax, de preciation and amortization, discounted by 25 percent for the lack of marketability of Motion Gr aphix ($530,677). Sovik’s
calculation of diverted net income included sala ries paid to Souther and his wife, rent for office space and business expenses that excee ded the amount paid by Motion Graphix
in 2004. At the conclusion of the lengthy trial, the court found in favor of the Estate on its claims for breach of contract, conversion, fra ud and breach of fiduci ary duty and awarded it $4,003,311.70 in damages: $1,700,191 in compensatory damages, which included both
the value of the Estate’s inte rest in the wrongfully transf erred assets of Motion Graphix and the Estate’s share of the income genera ted by those assets from which it had been excluded; $2,125,238.70 in punitive damages; a nd $177,882 in prejudgm ent interest. The court also imposed both a cons tructive trust and resulting trus t in favor of the Estate on all the Motion Graphix assets fraudulently tran sferred to Get Flipped including computer equipment, software code, trademarks, copyrights and license agreements.4 In Souther I we rejected Souther’s contention s, among others, that the Estate lacked standing to assert a direct action beca use its injury, devaluation of its shares in Motion Graphix, was only incide ntal to the injury to the company itself; Sovik was not qualified to offer his valuation opinion; the c ourt’s legal rulings and factual findings were not supported by substantial evidence; and punitive damages were improperly awarded. However, we agreed with Souther that th e trial court had erroneously imposed a constructive/resulting trust on 10 0 percent of the assets im properly transferred to Get Flipped, rather than 51 percen t. In addition, we held the Estate was not entitled to both damages to compensate it for the improper tr ansfer of assets to Get Flipped and a
constructive trust on those same assets: The Estate was required to elect its remedy. 1 Accordingly, we remanded the matter for furthe r proceedings, directing the trial court to determine whether the Estate had already elec ted imposition of a constructive trust, rather than compensato ry damages, for the wrong ful acquisition of its asse ts, as Souther and Get Flipped had argued; and instructing the trial c ourt, if the Estate had so elected or if it subsequently chose that equitable remedy, to a llocate only 51 percent, not 100 percent, of
the assets to the Estate. Following additional briefing and oral ar gument, on November 14, 2013 the trial court entered an amended judgment that re duced the compensatory damage award by $530,677, the valuation of the Estate’s 51 pe rcent interest in the assets wrongfully transferred to Get Flipped (with a correspon ding reduction in the amount of prejudgment interest awarded), eliminated the resulting trus t at the request of the Estate, and imposed a
constructive trust on all assets of Motion Graphix held by Get Flipped. There was no change in the punitive damage award. Th e amended judgment also maintained the

1 We also briefly discussed the differenc e between a constructive and resulting trust and explained why imposition of a resulting trust was not an appropriate equitable remedy in this case. (See Fidelity National Title In s. Co. v. Schroeder (2009) 179 Cal.App.4th 834, 848 [“‘[t]he resulting trus t carries out the inferred intent of the parties; the constructive trust defeats or preven ts the wrongful act of one of them’”].)5 previously awarded sums for atto rney fees and costs of suit. Souther filed a timely notice of appeal. 2
DISCUSSION
1. The Trial Court Did Not E rr in Both Awarding Dama ges for the Estate’s Loss of Use of Improperly Transferred Asse ts and Imposing a Constructive Trust over Those Assets Although his appellant’s openi ng brief is not a model of clarity and no reply brief was filed, Souther appears to challenge the amended judgment’s award of compensatory damages on two related grounds: First, in Souther I we held the Estate was entitled to either compensatory damage s based on Souther and Get Flipped’s misappropriation of Motion Graphix’s assets or imposition of a co nstructive trust, but not both. Second, whatever we may have said in Souther I , as a matter of governing California law, having elected imposition of a constructive trust, the Estate is not en titled to any award of compensatory damages. Neith er argument has merit.

a. The amended judgment is consistent with the remand order in Souther I
In Souther I we carefully explained the damages claimed by the Estate as a result of the misappropriation of Motion Graphis’s asse ts had two aspects: Sovik’s valuation of Motion Graphix (or its assets) as an ongoi ng business and his determination of lost
income as a result of Souther’s exclusion of Corrales and the Estate from the business during the relevant time period. The trial court accepted Sovik’ s testimony and awarded compensatory damages for both damage elements in the precise sums he had calculated. In addressing the problem of double recovery in Souther I , we focused solely on the valuation component of that compensatory damage award: “After obtaining an award of compensatory damages predicated in part on its loss of a 51 percent interest in the value of Motion Graphix, it would be an improper windfall (a double recovery) to the
Estate to also receive the asse ts themselves.” Thus, we inst ructed the trial court that the

2 Although a defendant in the trial court proceedings, Ge t Flipped has abandoned its appeal from the amended judgment because of its status as a suspended corporation.6 Estate would have to elect (if it had not already done so) 3 between “damages for the value of the wrongfully transferred assets” and im position of a constructiv e trust on those same assets. The trial court prop erly read our opinion in Souther I to permit the imposition of a
constructive trust to effect a re turn of the unlawfully transferred assets and also an award of incidental or consequential damages for th e Estate’s loss of use of those assets while
under Souther and Get Flipped’s control.
b. It was proper for the trial court both to impose a constructive trust on the assets Souther had misappropriated from Motion Graphix and to award consequential damages fo r the Estate’s lost income during the period Souther and Get Flipped held and us ed the misappropriated assets “The purpose of the constructive trust re medy is to prevent unjust enrichment and to prevent a person from taking ad vantage of his own wrong.” ( Heckmann v. Ahmanson (1985) 168 Cal.App.3d 119, 135.) Because it would otherwise unf airly “reward the defendant for his wrongdoing,” a plaintiff entitled to imposition of a constructive trust may recover not only the property improperly ac quired but also the pr ofits earned by the defendant from the use of that property. ( Ibid. ; see Civ. Code, § 1692 [claim for damages not inconsistent with equitable claim for re scission; “[t]he aggrieved party shall be awarded complete relief, including restitution of benefits, if any, conferred by him as a
result of the transaction and an y consequential damages to wh ich he is entitled; but such relief shall not include duplicat e or inconsistent items of recovery”]; Rest.3d Restitution and Unjust Enrichment, § 55, Restitution via Rights in Identifiable Property, comment l
, p. 315 [“[i]f the defendant has had possession of the constructive trust property for any length of time, the defendant may be liable fo r rent or another measure of use value, subject to credits for taxes or similar e xpenses paid by the defendant”].) The net income lost by th e Estate while Get Flipped wrongfully held and used Motion Graphix’s intellectual property and other assets (that is, 51 percent of Get

3 Souther has argued throughout these procee dings that the Estate impliedly elected imposition of a constructive trust, rather than an award of da mages, by seeking to recover the Motion Grahix assets held by Get Flipped. Given the Esta te’s express election of the constructive trust remedy on remand, that issue is moot.7 Flipped’s net income during the relevant peri od) was properly considered by the trial court as an item of incidental or consequen tial damages separate from the current value of
the assets themselves. While the constructive trust imposed by the court duplicated the award of damages for the fair value of thos e assets—a plaintiff is not entitled both to
“sell” the assets to the defe ndant and to recover the same assets from it—that equitable device, standing alone, did not provide for an y recovery of the income lost while Souther maintained those assets. Having estab lished Souther’s liability for wrongfully transferring Motion Graphix’s as sets, the Estate was entitled to complete relief, including an award of incidental damages. ( Meister v. Mensinger (2014) 230 Cal.App.4th 381, 396 [“‘[w]here a breach of fiducia ry duty occurs, a variety of equitable remedies are available, including imposition of a constructive trust, rescis sion, and restitution, as well as incidental damages’”]; Hicks v. Clayton (1977) 67 Cal.App.3d 251, 264 [same];
cf. Lane v. Hughes Aircraft Co. (2000) 22 Cal.4th 405, 4 17 [“the primary purpose of compensatory damages is . . . to make plaintiffs whole”]; Fair v. Bakhtiari (2011) 195 Cal.App.4th 1135, 1153 [“[t]he purpose of compensatory da mages is to make plaintiffs whole for harm caused by defendants”].)
2. The Trial Court Improperly Imposed the Constructive Trust over All of Get Flipped’s Assets
We held in Souther I that a constructive trust could properly apply only to 51 percent of the assets improperly transfe rred by Souther from Motion Graphix to Get Flipped. As we stated, “There is simply no basis for the court’s finding all the wrongfully acquired assets should be awarded to the Estate.” ( Souther I
, supra , at fn. 24.) Nonetheless, the amended ju dgment makes the same error, imposing a
constructive trust “on all of th e assets of [Motion Graphix 4 ] that Souther and [Get Flipped] fraudulently transferred to [Get Flipped] . . . .”

4 The amended judgment actually refers to “all of the asse ts of GFI that Souther and GFI fraudulently transferred to GFI . . . .” The first reference to GFI—the abbreviation for Get Flipped, Inc. used by the trial court—was obviously an error since all parties8 The Estate acknowledges this error, as it must, and has consented in its respondent’s brief to a modification of the am ended judgment “to insert ‘51% of’ prior to ‘all’” in the appropriate place in the amende d judgment. Accordingly, we modify the judgment to reflect that amendment. (See Meister v. Mensinger, supra, 230 Cal.App.4th at p. 400 [equitable relief awarded plaintiffs must be reduced to reflect their partial ownership interest].)
DISPOSITION The November 14, 2013 am ended judgment is modifi ed to reflect that the constructive trust imposed in favor of the Estate and against S outher and Get Flipped covers an undivided 51 percen t (not 100 percent) of all the assets of Motion Graphix fraudulently transferred to Get Flipped. In all other respects the amended judgment is affirmed. The parties are to bear their own costs on appeal.

PERLUSS, P. J.

We concur:

WOODS, J.

ZELON, J.

recognize it was assets orig inally held by Motion Graphix and transferred to, not from, Get Flipped that are at issue in the lawsuit.