Court Opinion

ID: 9928096
Source: CourtListenerOpinion
Date Created: 2024-01-30 20:05:29.208401+00
Date Added: 2024-06-11T09:48:49.132063
License: Public Domain

Filed 1/30/24 Stahl v. Cross CA4/1
                 NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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or ordered published for purposes of rule 8.1115.

                COURT OF APPEAL, FOURTH APPELLATE DISTRICT

                                                 DIVISION ONE

                                         STATE OF CALIFORNIA

BRIAN STAHL et al.,                                                  D081095, D081995

         Plaintiffs and Appellants,

         v.                                                          (Super. Ct. No. 37-2020-
                                                                     00005564-CU-BT-CTL)
FENN CROSS, as Personal
Representative, etc., et al.,

         Defendants and Respondents.

FENN CROSS, as Personal
Representative, etc.,

     Cross-complainant and
Respondent,

         v.

BRIAN STAHL et al.,

         Cross-defendants and Appellants.

         CONSOLIDATED APPEALS from a judgment of the Superior Court of
San Diego County, Keri G. Katz, Judge. Affirmed.
      Webb Law Group, Lenden F. Webb; Worthington Law, and Brian P.
Worthington, for Plaintiffs, Cross-defendants, and Appellants.
      Gupta Evans & Ayers, Ajay Gupta, Jacob A. Ayres, and Aurora
Gallardo, for Defendants, Cross-complainants, and Respondents.

      After a bench trial, the superior court found, among other things, that
Fenn Cross as personal representative of the Estate of Terry M. Cross
successfully brought a cross-complaint as a derivative action on behalf of the

Range of Motion Products, LLC (Company).1 In this consolidated appeal,
Brian Stahl, Nic Bartolotta, All Together Assets, LLC (ATA), and the
Company (Stahl, Bartolotta, ATA, and the Company collectively Appellants)
challenge only that finding, arguing the trial court erred in construing the
cross-complaint as a derivative action and awarding nominal damages to the
Company. To this end, Appellants contend the cross-complaint was an
individual action only.
      We are not persuaded by Appellants’ arguments; thus, we affirm the
judgment.
              FACTUAL AND PROCEDURAL BACKGROUND
      In this matter, Appellants raise a single issue: Whether the trial court
erred in construing the second amended cross-complaint as a derivative
action on behalf of the Company. Appellants do not dispute any of the trial
court’s factual findings regarding liability. Nor do they raise any substantial
evidence challenge whatsoever. As such, the underlying facts of the various
disputes between the parties are not particularly germane to our resolution of
the issue presented. Thus, there is no need for a robust discussion of the

1     To avoid confusion, we shall refer to Fenn Cross as Fenn, Terry Cross
as Terry, and the estate of Terry M. Cross as Estate. Also, there is an
additional respondent in this matter, the Armaid Company. When necessary,
we shall refer to Fenn and the Armaid Company together as Respondents.
                                       2
facts, and we shall provide a brief factual background, to provide context,
taken primarily from the detailed statement of decision.
      This case arises from a dispute between members of the Company. The

Company’s voting members were Stahl, Bartolotta, ATA,2 and Terry. The
members formed the Company in 2016 by entering into an Operating
Agreement (Agreement) to promote, sell, and market the Rolflex, a self-
massage therapy device that Terry invented. Per the Agreement, Terry
assigned all of his intellectual property in the Rolflex to the Company in
exchange for a $345,000 inventor’s fee.
      The Agreement provides that its members may engage in their own
business activities: “During the term of the Company, each Member may
engage in any business activity for his own profit or advantage without the
other Members’ consent.” Under section 4.5, the Agreement also provides
that each member owes a fiduciary duty not only to the Company but to the
other members as well.
      In section 2.6 of the Agreement, it states: “No Member shall lend or
advance money to or for the Company’s benefit without all of the other
Member’s prior written consent.” Similarly, section 4.2 of the Agreement
lists a variety of “Major Decisions” that require written approval of all
members. Included in that list is “[c]ausing or allowing the Company to
accept a loan from any Member.”
      At the time Terry signed the Agreement, he owned and operated the
Armaid Company. From 1999 through January 2020, the Armaid Company
sold a product called Armaid1, a device designed to massage the arms.

2   ATA is a California limited liability company, and Stahl serves as its
manager.
                                       3
      Soon after the Agreement was executed, a dispute arose between the
members. Stahl and Bartolotta demanded that Terry forfeit 10 percent of his
interest in the Company and “take a back seat” within the Company or Stahl
would leave. Apparently, Stahl and Bartolotta needed some of Terry’s equity
in the Company to raise capital. Terry agreed to forfeit a portion of his
ownership of the Company, and Stahl made a $30,000 loan to the Company
at 10 percent interest. All voting members agreed in writing to Stahl’s loan.
      However, Stahl and Bartolotta were not finished obtaining loans for the
Company. In all, they obtained over $500,000 in loans to the Company that
were not approved by Terry as required under the Agreement. The lenders
included Stahl, ATA, and Jambri Investments, LLC (Jambri) (a company
controlled by Stahl and his ex-wife).
      Additionally, another dispute arose between Appellants and Terry
when Terry showed Stahl drawings for the Armaid2. Terry told Stahl he was
seeking a patent for an upgraded Armaid1. Stahl, however, was concerned
about possible patent infringement with the Rolflex.
      To address Stahl’s concerns, Terry contacted a patent attorney to ask
her to determine whether Armaid2 would infringe on the expected Rolflex
patent. The patent attorney sent a memorandum to Terry and Stahl that
inferred that the Armaid2 did not appear to infringe on the pending Rolflex
patent. She also recommended that the parties reach an agreement
regarding having both the Armaid2 and the Rolflex on the market. The
parties could not reach any such agreement.
      Terry continued to develop the Armaid2 and ultimately filed a
provisional utility patent in March 2019. The Company then sent a cease-
and-desist letter to Terry and the Armaid Company claiming the Armaid2
infringed on the Rolflex design patent. When Terry did not agree to stop the

                                        4
development of Armaid2, Appellants filed suit against Terry.3 The complaint
included seven causes of action primarily based on Terry’s attempts to

develop and market the Armaid2.4
      Terry filed a cross-complaint against Appellants and the Company that

included three causes of action.5 Before the matter preceded to trial, Terry
dismissed all causes of action except for his breach of contract claim. The
gravamen of that cross-complaint was that Appellants and the Company
breached multiple provisions of the Agreement by facilitating unauthorized
insider loans and breaching their fiduciary duties.
      A bench trial began on December 13, 2021, and, after a settlement
conference was held on December 14, the trial preceded on
December 15, 16, 20, and 21. The court then continued the trial until
January 5, 2022.
      Unfortunately, Terry unexpectedly passed away during the
continuance. On January 5, 2022, the trial court expressed concern about the
status of the litigation following Terry’s death. Appellants’ counsel stated
that Appellants needed to amend their complaint, and the cross-complaint
would need to be amended as well. Ultimately, the court agreed and ordered

3     Appellants later added the Armaid Company as a Doe defendant.

4     In April 2021, the Company filed a patent infringement suit in the
United States District Court of the District of Maine where they sought an
injunction to restrain Armaid from selling the Armaid2. The District Court
denied the Company’s request for a preliminary injunction. The Company
subsequently dismissed its federal suit. The trial court below stated it did
not rely on the District Court’s rulings for its determinations in the
statement of decision. In April 2022, the Company filed a second patent
infringement suit in federal court.

5     Terry filed a first amended cross-complaint three days after filing the
original cross-complaint.
                                       5
“that counsel serve and file an amended complaint and serve and file an
amended cross-complaint if you think you’re going to amend the Cross-
Complaint.” The court informed the parties that any amended complaint or
cross-complaint “should conform to what the evidence has presented so far”
and be filed by the next hearing date (February 10).
      Appellants’ counsel then asked the court if the amended pleading
“would be to address the derivative issues?” That question led to the
following exchange:
         “THE COURT: Counsel, you can’t see me. I’m smiling
         underneath the mask. I didn’t even get to that issue. I
         just—you know the legal issues are kind of intense because
         I’m not sure if the fiduciary duty in your Complaint
         survives and go to the representative. I don’t know the
         answer to that.

         “[Appellant’s counsel]: So just amend to make sure we’re
         suiting the facts as best we can.

         “THE COURT: Right, yes.

         “[Terry’s counsel]: Well, Your Honor, I think what
         [Appellants’ counsel] is trying to get at is the derivative
         action. I think that the Court is trying to get at is you want
         the parties to amend the Complaint to essentially add
         [Terry’s] estate to the pleadings. And I think [Appellants’
         counsel] is trying to get at is adding [the Company] as a
         party to the Complaint, and that’s something that isn’t
         really at issue in the court. The only reason we’re really
         having this discussion is because of [Terry’s] death. And I’m
         not trying to—

         “THE COURT: No, I know. And that would be – yeah,
         there’s so many legal issues with that because it’s like it
         is—I mean, it’s—[Terry’s] death has disadvantaged both
         sides. There’s no advantage to be gained by any party.
         They have lost a lot of causes of actions if they don’t
         survive. You have lost—I don’t know whether the legal
         representative can bring [Terry’s] complaint—Cross-

                                       6
         Complaint. I don’t know the answer to this, folks, I have
         not done the legal research. I need some more direction.
         [¶] . . . [¶] . . . . So, I mean counsel, they have a right—
         during the trial, you can amend your pleadings to—

         “[Appellants’ counsel]: Conform to proof.

         “THE COURT: Conform to proof. So, I mean, if they
         amend and they add [the Company] and you want to argue
         or file a demurrer or whatever, you’re welcome to do so. . . .
         [¶] Okay. So all amendments to complaints need to be
         filed by February 10th at 1:30 to conform to proof.”

      Appellants’ timely filed a first amended complaint; a second amended
cross-complaint was timely filed, purporting to substitute the Estate through
its personal representative Fenn in place of Terry. In the first amended
complaint, Appellants sought to add the Company as a plaintiff and sought
damages on its behalf.
      Appellants then filed a memorandum of points and authorities
regarding amending the complaint according to proof, specifically addressing
the propriety of including the Company as a named plaintiff. There, they
argued the Company should be added as a plaintiff because it was already
named as a cross-defendant, the amendment was based on the same facts
already alleged and would not prejudice the Estate or Fenn.
      The Estate filed an opposition to Appellants’ memorandum of points
and authorities, arguing that, in Terry’s trial brief, he had pointed out that
Appellants lacked standing and that the Company was the real party in
interest. Moreover, the Estate emphasized that the trial court had previously
highlighted Appellants’ standing issues. And the Estate maintained it would
be prejudiced by Appellants’ proposed amendment so late in the litigation.

                                       7
      In a minute order dated February 15, 2022 (and subsequently amended
on February 17), the trial court denied Appellants’ motion to amend the
complaint to add the Company as a plaintiff. The court explained:
         “Clearly, [Appellants] have delay[ed] in bringing this
         amendment. The court inquired months ago as to whether
         this was a derivative action or an individual action.
         [Appellants] announced a personal action. In fact,
         [Appellants] filed a brief explaining their choice of action in
         this case. . . .

         “The Court further finds that allowing such an amendment
         is highly prejudicial to [Respondents’] defense of
         this . . . action. The whole of [Respondents’] defense is that
         [Appellants] do not have standing and/or separate damages
         to allow [Appellants] to maintain or prevail on an
         individual action as opposed to a derivative action. This
         proposed amendment would fundamentally change the
         overall theory of this case.”

      The court then made clear that the first amended complaint, filed on
February 8, 2022, was denied by the court, and the original complaint would
remain the operative complaint.
      Appellants then filed a petition for a writ of mandate in this court,
arguing: (1) the trial court erred in denying the filing of the first amended
complaint to the extent it added Fenn as the named defendant in place of
Terry, and (2) the trial court abused its discretion by denying Appellants’
attempt to add the Company as a plaintiff. On April 8, 2022, we informed the
parties and the trial court that we were considering issuing a preemptory
writ of mandate regarding Appellants’ claim that the trial court erred in
denying Appellants’ request to substitute in Fenn as the personal
representative of the Estate in place of Terry as the named defendant. We
further stated that if the court chooses to change its order and allow
Appellants’ to substitute Fenn in place of Terry as the named defendant, we

                                        8
would dismiss the aspect of the petition challenging the denial of the request
to substitute Fenn. We did not address Appellants’ claim as to the adding of
the Company as a plaintiff.
      In a minute order dated April 12, 2022, the trial court denied/struck
the first amended complaint, except to substitute Fenn as the personal

representative of the Estate in place of Terry.6
      The trial resumed on April 12, 2022. At the conclusion of evidence, the
court granted a motion for a directed verdict as to the Armaid Company.
After closing arguments, the court requested additional briefing on two
issues: the Estate’s standing only as it related to Terry’s death and the
remedies applicable for breach of a contract as to the second amended-cross-
complaint.
      In its brief addressing the Estate’s standing, Appellants maintained the
second amended cross-complaint could not be a derivative action because the
operative cross-complaint did not satisfy the requirements of Corporations
Code section 17709.02. That statute requires the cross-complainant to be a
member of the limited liability company at the time of the alleged injury and
remain a member throughout the litigation of the derivative claim. (Corp.
Code, § 17709.02, subd. (a)(1); Sirott v. Superior Court (2022) 78 Cal.App.5th
371, 381-382.) The cross-complainant must also allege with particularity its

6     This court subsequently dismissed Appellants’ petition for writ of
mandate as moot regarding the denial of leave to amend to substitute Fenn
as the personal representative of the Estate in place of Terry. In addition, we
denied the petition as to the challenge to the denial of leave to amend to add
the Company as a plaintiff.
                                       9
efforts to demand that the limited liability company pursue the action or its

reasons for not doing so. (Corp. Code, § 17709.02, subd. (a)(2).)7
      The court then issued a proposed statement of decision. There, the
trial court found that the Estate had standing to proceed with the cross-
complaint and concluded that the Estate was seeking a derivative action on
behalf of the Company. Appellants objected to the proposed statement of
decision only to the extent that the trial court relied on the district court’s
denial of the Company’s request for a preliminary injunction in the federal
patent infringement case. Appellants did not object or otherwise address the
court’s conclusion that the cross-complaint was a derivative action.
      Seven days later, the trial court issued the statement of decision, which
was substantially similar to the proposed statement of decision. In that
statement, the court found that Appellants had not carried their burden to
prove that the Estate was liable regarding any of the alleged claims in the

operative complaint.8 The court also concluded that the Estate had standing
to pursue the cross-complaint. Moreover, the court explicitly addressed
Appellants’ claim that the Estate could not maintain a derivative action. In
rejecting Appellants’ arguments, the court found that the Estate held a
continuous ownership in the Company, first through Terry and then the
Estate upon Terry’s death.
      Additionally, the court disagreed with Appellants that the Estate could
not bring a derivative suit because it did not comply with the required
demand under Corporations Code section 17709.02, subdivision (a)(2) before

7     Any brief the Estate might have filed relating to these issues is not
included in the record before us.

8     Because Appellants do not challenge the court’s findings as to their
claims against the Estate, we do not discuss those issues in more detail here.
                                        10
filing the cross-complaint. To this end, the trial court noted that Appellants’
argument was late and any such demand would have been futile.
      After concluding that the Estate had properly brought a derivative
action, the court determined that “[t]he evidence establishe[d] without any
doubt, [Appellants] breached section 2.6 and 4.2 of the . . . Agreement by
causing [the Company] to accept loans from . . . Members (i.e. . . . Stahl and
Stahl member entities, ATA and Jambri) without [Terry’s] written consent
and beforehand knowledge.” The court also found that “[i]t [was] undisputed
that Stahl, ATA and Bartolotta violated [section 4.5] of the . . . Agreement by
misrepresenting and/or concealing the extent of the loans. It is also clear
these actions were calculated to seek an advantage in the company affairs.”
      The court then reiterated “[i]t [was] an unequivocal fact that there
[was] a breach of the . . . Agreement.” The court found that the Estate was
“unable to place a monetary value on . . . [the] loss” caused by the breach of
contract. As such, it concluded “an award of nominal damages [was] proper.”
      The court summarized:
         “On the Second Amended Cross-Complaint, the Court finds
         Cross-Complainant, Estate of Terry Cross[,] met its burden
         of proof establishing Stahl, Bartolotta and ATA breached
         Sections 2.6, 4.2(h), and 4.5 of the . . . Agreement. The
         evidence is overwhelming that Cross-Defendants Stahl,
         Bartolotta and ATA breached their fiduciary duties by
         knowingly concealing and/or misrepresenting the existence
         of at least sixteen (16) separate insider loans in direct
         violation of the . . . Agreement.

         “The Court, therefore, finds in favor of the
         Defendant/Cross-Complainant, Estate of Terry Cross and
         against Plaintiff/Cross-Defendants, Stahl, Bartolotta and
         ATA on the Second Amended Cross-Complaint. Stahl,
         Bartolotta and ATA are each ordered to pay [the Company]
         the nominal damages of $1.00 each.”

                                       11
      The court subsequently entered judgment on August 24, 2022.
Appellants timely appealed that judgment. Respondents then filed a motion
to correct a clerical error in the judgment and amend the judgment nunc pro
tunc. The court granted the motion. A corrected judgment was entered that
replaced “Nic Bartolotta” with “Nicolas Bartolotta aka Nic Bartolotta” and
“the Estate of Terry Michael Cross” with “Fenn Cross as the Personal
Representative of the Estate of Terry Michael Cross” as requested by
Respondents. Moreover, the corrected judgment included an award of costs
in the amount of $32,402.32 and attorney fees in the amount of $380,612.85

in favor of the Estate and the Armaid Company.9 Appellants timely
appealed the corrected judgment.
      We granted Appellants’ unopposed motion to consolidate their two
appeals.
                                DISCUSSION
      As a threshold matter, we note there seems to be some disagreement
among the parties regarding the appropriate standard of review. Appellants
maintain a court makes a legal determination whether a complaint presents
a derivative or individual cause of action. Here, they argue the trial court
made the incorrect legal conclusion, which is subject to de novo review.
      Respondents, for their part, acknowledge that de novo review is
appropriate if all the issues raised on appeal involve only questions of law.
However, in the context of the standard of review, they contend that a trial
court’s prevailing party determination is reviewed for abuse of discretion.
Then they argue throughout the Respondents’ brief that the trial court did
not err in determining that the Estate was the prevailing party.

9     The court awarded the attorney fees after a noticed motion. Appellants
do not challenge the award or amount of attorney fees here.
                                       12
Acknowledging that Appellants did not directly challenge the trial court’s
prevailing party determination, Respondents nonetheless claim that a
“strand of Appellants’ theory appears to be a ‘stealth appeal’ of the real issue
driving continued litigation of this case—the sizable award of attorneys’ fees
in favor of the Estate.”
      In their reply brief, Appellants emphasize that they did not raise the
issue of the determination of the prevailing party in their opening brief.
They then reiterate that the only issue before this court is the trial court’s
determination that Respondents pled and pursued a derivative action.
      We take Appellants at their word. The only issue before this court is
whether the trial court committed reversable error by finding that the second
amended cross-complaint was a derivative action. Further, we observe that
the corrected judgment included an award of costs and attorney fees in favor
of Respondents. Appellants had the opportunity to appeal that portion of the
judgment. They opted not to do so. That issue therefore is not before us.
      Typically, a challenge to a derivative suit is brought via demurrer. As
such, in challenging a court’s conclusion that a complaint has properly
alleged a derivative suit, an appellate court often applies a de novo standard
of review. (Kanter v. Reed (2023) 92 Cal.App.5th 191, 203.) Here, however,
we are dealing with a different procedural posture. Below, the trial court
found that the operative cross-complaint was a derivative action after trial

                                       13
concluded. Moreover, the operative cross-complaint was filed during trial.

And Appellants did not demur to the second amended cross-complaint.10
      Nonetheless, the trial court determined that the second amended cross-
complaint was a derivative suit as part of its statement of decision, which
contains both findings of fact and conclusions of law. “ ‘We review the trial
court’s findings of fact to determine whether they are supported by
substantial evidence. [Citation.] To the extent the trial court drew
conclusions of law based upon its findings of fact, we review those conclusions
of law de novo. [Citation.]’ ” (ASP Properties Group, L.P. v. Fard, Inc. (2005)
133 Cal.App.4th 1257, 1266.)
      Yet, regardless of what standard of review we employ, even if we
conclude that the trial court erred in finding the operative cross-complaint
was a derivative action, we only will reverse the judgment if Appellants
persuade us that the error was prejudicial. “It is a fundamental principle of
appellate jurisprudence in this state that a judgment will not be reversed
unless it can be shown that a trial court error in the case affected the result.”
(In re Sophia B. (1988) 203 Cal.App.3d 1436, 1439.) “ ‘The burden is on the
appellant, not alone to show error, but to show injury from the error.’ ”
(Douglas v. Ostermeier (1991) 1 Cal.App.4th 729, 740, citation omitted.)
“Only when an error has resulted in a miscarriage of justice will it be deemed
to be prejudicial so as to require reversal.” (Osborn v. Mission Ready Mix
(1990) 224 Cal.App.3d 104, 114.) A miscarriage of justice is not found “unless

10    Respondents argue Appellants waived their challenge here by failing to
demur to the operative cross-complaint. We disagree. One of Appellants’
arguments in the instant matter is that they did not believe they needed to
demur to the second amended cross-complaint because it did not include any
allegations that could be construed as derivative in nature. In other words,
consistent with other arguments raised here, Appellants claim the
allegations in the complaint did not even hint at a derivative cause of action.
                                       14
it appears reasonably probable that, absent the error, the appellant would
have obtained a more favorable result.” (Khan v. Medical Board (1993) 12
Cal.App.4th 1834, 1841; see Mike Davidov Co. v. Issod (2000) 78 Cal.App.4th
597, 606.) “Injury is not presumed from error, but injury must appear
affirmatively upon the court’s examination of the entire record.” (In re
Marriage of McLaughlin (2000) 82 Cal.App.4th 327, 337; see Paterno v. State
of California (1999) 74 Cal.App.4th 68, 105; People v. Bell (1998) 61
Cal.App.4th 282, 291.)
      Here, on the record before us, we determine that Appellants have not
shown that they have been prejudiced by the court’s alleged error. In their
31-page opening brief, Appellants only dedicate a single paragraph to argue
they were prejudiced. There, Appellants insist, in cursory fashion, they were
prejudiced because they did not know the Estate was bringing a derivative
action. Thus, “[t]hey could not conduct discovery based on the case being
presented as such, and they could not know to conduct trial and present
evidence and arguments with knowledge that they were defending a
derivative action, not [an] individual action.” We are not persuaded by this
conclusory argument.
      We observe that Appellants’ contention directly contradicts their
arguments to the trial court in support of their attempt to add the Company
as a named plaintiff to their first amended complaint, which was to be filed
during trial. There, Appellants claimed the Estate would suffer no prejudice
because “no new facts were being added to the pleading. The original
pleading already alleged the same conduct of Defendant that was damaging
all Plaintiffs including [the Company]. There is no surprise or prejudice to
the Defendants, as they have been aware of the allegations that the

                                      15
Defendant’s conduct harmed Plaintiffs since the very outset. No new
transactions, factual scenarios, or evidence is required by this amendment.”
      Based on these representations to the trial court, we struggle to
contemplate how Appellants can now claim they were prejudiced by the
court’s finding that the operative cross-complaint was a derivative action.
After all, the wrongdoing alleged and proved at trial remained the same
under the cross-complaint whether it was a derivative or individual action.
Appellants “breached their fiduciary duties by knowingly concealing and/or
misrepresenting the existence of at least sixteen (16) separate insider loans
in direct violation of the . . . Agreement.” Alternatively stated, Appellants’
acts breaching the Agreement and violating their fiduciary duties were
identical whether the Estate or the Company was the cross-complainant.
Moreover, Appellants have not explained what additional discovery they
would have conducted or evidence and argument they would have presented
at trial if they were aware that the cross-complaint was a derivative action.
Without such a showing, they have not persuaded us that they were

prejudiced by the trial court’s alleged error.11
      In their reply brief, Appellants advance new arguments regarding
prejudice. To this end, they claim that had the error not occurred, it is
reasonably probable they would have obtained a better result. We will not

11    We acknowledge that the trial court found that the Estate and the
Armaid Company would be prejudiced by a first amended complaint that
added the Company as named plaintiff. However, it made that finding of
prejudice on different grounds than what Appellants advance here, namely
that, months before the requested amendment, the Appellants, in response to
a question from the court, announced they were proceeding on an individual
action, not a derivative suit. And the court found that the Estate and the
Armaid Company had been defending Appellants’ action on the grounds that
Appellants lacked standing. The amendment would have fundamentally
changed the case as to the Estate and the Armaid Company.
                                       16
ordinarily consider issues raised for the first time in a reply brief.
(Kovacevic v. Avalon at Eagles’ Crossing Homeowners Assn. (2010) 189
Cal.App.4th 677, 680, fn. 2.) An issue is new if it does more than elaborate on
issues raised in the opening brief or rebut arguments made by the respondent
in respondent’s brief. Fairness militates against allowing an appellant to
raise an issue for the first time in a reply brief because consideration of the
issue deprives the respondent of the opportunity to counter the appellant by
raising opposing arguments about the new issue. (Reichardt v. Hoffman
(1997) 52 Cal.App.4th 754, 764.)
      Appellants characterize their argument as a response to Respondents’
incorrect argument that the error was not prejudicial. We think the
argument that Appellants would have obtained a more favorable result
absent the error is fundamental to their burden on appeal here and question
why they did not devote more time to that argument in the opening brief.
(See Khan v. Medical Board, supra, 12 Cal.App.4th at p. 1841.)
Nevertheless, we shall exercise our discretion and address this additional
argument on the merits.
      Appellants point out that there was no evidence presented that Terry
or the Estate suffered any damages from Appellants’ breaches. Therefore,
they assume the court would not have found in favor of the Estate on the
cross-complaint unless it construed the cross-complaint as a derivative
action. We disagree.
      Appellants’ argument hinges on the contention that neither Terry nor
the Estate suffered any damages. In this sense, Appellants’ primary (if not
only) claim of prejudice is that the court awarded the Company nominal
damages but would not have done so if the operative cross-complaint was an
individual action. Yet, the court found that the Estate did not prove that the

                                        17
Company was damaged either. It nonetheless awarded the Company
nominal damages. And the court explained why it did so: “For instance, a
plaintiff is entitled to recover nominal damages for the breach of a contract,
despite [the] inability to show that actual damage was inflicted upon him,
since the defendant’s failure to perform a contractual duty is a legal wrong
that is fully distinct from actual damages. Sweet v. Johnson (1959) 169
Cal.App.2d 630, 632.” (Italics added.) Thus, the absence of actual damages
was not the determinative factor in the court finding in favor of the Estate on
the operative cross-complaint.
      Against this background, Appellants have not persuaded us that it is
reasonably probable they would have obtained a more favorable result absent
the error. Whether a derivative or individual action, the conduct at issue was
the same. The evidence showing the breaches was the same. The arguments
for and against liability was the same. Moreover, the court found the
evidence “overwhelming that . . . Stahl, Bartolotta and ATA breached their
fiduciary duties . . . [under] the . . . Agreement.” The court emphasized the
overpowering evidence of the breaches throughout the statement of decision:
“The evidence establishes without any doubt, [Appellants] breached
sections 2.6 and 4.2 of the . . . Agreement by causing [the Company] to accept
loans from . . . Members (i.e., Cross-Defendant Stahl and Stahl member
entities, ATA and Jambri) without [Terry’s] written consent and beforehand
knowledge.” “At trial, surprisingly, Stahl initially did not disclose the
additional loans, however, after being asked in cross-examination about
additional loans, he indicated his confusion in his early testimony (of not
disclosing the additional loans) was related to a ‘whirlwind’ of a year. This
exchange raises a concern regarding Stahl’s understanding of his role as [the
Company’s] Chief Operating officer and puts his credibility at issue.” “It is

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undisputed that Stahl, ATA and Bartolotta violated this provision of
the . . . Agreement by misrepresenting and/or concealing the extent of the
loans. It is also clear these actions were calculated to seek an advantage in
the company affairs.”
      Considering the monstrous amount of evidence of Appellants’ multiple
breaches of contract and the trial court’s willingness to award nominal
damages to the Company even though the Estate did not prove the Company
suffered actual damages from the breaches, we conclude that Appellants have
not proven it reasonably probable that they would have obtained a more
favorable result absent the error. Had the trial court found that the cross-
complaint was an individual action, we are confident on the record before us
that it would have awarded nominal damages to the Estate as it ultimately
did to the Company. Whether the Estate or the Company was the actual
cross-complainant, actual damages was not proved. In that situation, a court
may properly award nominal damages for the violation of a contractual right
because “failure to perform a contractual duty is, in itself, a legal wrong that
is fully distinct from the actual damages.” (Sweet v. Johnson, supra, 169
Cal.App.2d at p. 632; Elation Systems, Inc. v. Fenn Bridge LLC (2021) 71
Cal.App.5th 958, 965.) Such an award for nominal damages seems
particularly appropriate here where the court found evidence of Appellants’
multiple breaches of contract “overwhelming,” “unequivocal,” and
“establishe[d] without any doubt.”

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                             DISPOSITION
     The judgment is affirmed. Respondents are awarded their costs on
appeal.

                                                  HUFFMAN, Acting P. J.

WE CONCUR:

DATO, J.

DO, J.

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