Court Opinion

ID: 2720052
Source: CourtListenerOpinion
Date Created: 2014-08-22 00:01:49.605155+00
Date Added: 2024-06-11T10:06:01.423663
License: Public Domain

Filed 8/21/14 Pricaspian Development v. Ficeto CA2/3
                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115.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 THREE

PRICASPIAN DEVELOPMENT                                                     B239435
CORPORATION,
                                                                           (Los Angeles County
         Plaintiff and Appellant,                                          Super. Ct. No. BC396756)

         v.

TODD FICETO et al.,

         Defendants and Respondents.

         APPEAL from a judgment of the Superior Court of Los Angeles County,

Michael C. Solner, Judge. Affirmed.

         Baker, Keener & Nahra, Robert C. Baker and R. Jeffrey Neer for Plaintiff and

Appellant.

         Bird, Marella, Boxer, Wolpert, Nessim, Drooks & Lincenberg,

Gary S. Lincenberg and Thomas V. Reichert for Defendants and Respondents.

                            _______________________________________
       Plaintiff and appellant Pricaspian Development Corporation (Pricaspian)

invested $12 million in three offshore hedge funds managed by Absolute Capital

Management Holdings Limited (Absolute), a company for which Florian Homm was

the Chief Investment Officer. Unbeknownst to Pricaspian, Homm also a partner with

Todd Ficeto in a broker-dealer in California called Hunter World Markets (HWM).

HWM not only traded stocks; it also did business as an investment banker. Homm,

Ficeto, Absolute, and HWM were allegedly engaged in a complicated fraud scheme in

which they used the Absolute funds to invest in small thinly-traded over-the-counter

stocks, for which they themselves possessed warrants. Homm, Ficeto and HWM

allegedly engaged in numerous trades of the stocks with Absolute funds on both sides of

the same trade, designed to artificially inflate the prices of the stocks while also

generating commissions. Defendants were then able to exercise their warrants to obtain

high quantities of the stocks at prices far lower than the inflated prices at which the

stocks were trading. They then sold the stocks to the Absolute funds, realizing profits.

       Eventually, the scheme collapsed in September 2007, when Homm suddenly

resigned from Absolute and disappeared. At that time, it was discovered that the

Absolute Funds were invested in highly-overvalued positions in the small corporations.

When the dust cleared, all of the Absolute funds had lost more than 50% of their value.

Pricaspian had lost nearly $7 million of its $12 million investment.

                                              2
       Pricaspian brought the instant action against Homm, Ficeto, and HWM. Homm

did not appear at trial and is not a party to this appeal.1 The jury returned a special

verdict, concluding that Homm had committed fraud. The jury also found that HWM

had conspired with Homm, and was equally liable for the fraud. As we shall discuss,

the jury’s verdict was inconsistent as to Ficeto, and prompted the trial court to

tentatively grant a new trial as to him.

       However, at the request of HWM and Ficeto, the trial court delayed ruling on the

new trial motion until it could hear the motion of HWM and Ficeto for judgment

notwithstanding the verdict (JNOV) on the basis of insufficient evidence. Ultimately,

the trial court granted that JNOV motion, on the basis that Pricaspian had failed to

establish that any of the losses it had suffered were due to the defendants’ wrongdoing,

as opposed to market factors or other non-fraudulent causes of loss. The court denied

Pricaspian’s motion for new trial as moot.

       Pricaspian appeals. We conclude the trial court did not err in granting JNOV.

We therefore affirm.

                  FACTUAL AND PROCEDURAL BACKGROUND

       1.     Pricaspian Invests in the Absolute Funds

       Pricaspian is an oil and gas company; its president and chief executive officer is

Jack Grynberg. Grynberg sought to invest some of Pricaspian’s capital, and a friend

recommended that he speak with Homm. Grynberg met with Homm, who made a

1
       For this reason, references to “defendants” refer only to Ficeto and HWM.

                                             3
lengthy presentation to him regarding Absolute and some of the Absolute funds.

Subsequently, Homm sent Grynberg various offering memoranda and disclosures

regarding the funds. Grynberg agreed to invest.

         While it was alleged that several misrepresentations or concealments of material

facts induced Grynberg to invest, key for our purposes was that Homm had failed to

disclose that he was a 50% partner, with Ficeto, in HWM. On the contrary, Homm

specifically assured Grynberg that he had no interest in any broker-dealer whatsoever.

Grynberg testified that he would not have invested any of Pricaspian’s money in the

Absolute funds had he known of Homm’s interest in a broker-dealer – specifically, an

interest in a broker-dealer which would be used to perform trades for the Absolute

funds.

         In August 2005, Pricaspian invested $3 million in the Absolute Octane Fund,

$4 million in Absolute’s European Catalyst Fund, and $3 million in the Absolute

East/West Fund. There were several other Absolute funds which Homm managed;

Pricaspian invested only in the three identified funds. In April 2006, after Pricaspian

received statements indicating its investments were doing well, Pricaspian invested an

additional $2 million in the Absolute Octane Fund, giving it a total investment of

$5 million in that fund.

               2.     Pricaspian’s Losses

         We need not discuss the evidence of fraud in any great detail, beyond the

evidence relevant to the causation of damages. The following facts, however, are not in

dispute: (1) Pricaspian received regular statements indicating that the investments were

                                             4
doing well;2 (2) in September 2007, Grynberg learned that Homm had resigned from

Absolute; (3) the stock for Absolute itself immediately dropped 70% in value;

(4) Pricaspian sought to liquidate its investments in the Absolute funds; (5) this did not

occur – the funds held many illiquid positions and Absolute could not cash out the

investments; and (6) over the course of two years, Pricaspian received payments from

the funds which totaled $5,245,239.16.

       It was not until early 2009 that Grynberg learned that Homm had been

a 50% partner in HWM. Thereafter, Pricaspian filed the instant action3 and engaged in

discovery to determine exactly what had become of its investment. The documentary

evidence is far from complete.4 Nonetheless, a picture of flagrant market manipulation

emerges.

       3.     The Market Manipulation

       The fraud occurred with respect to stocks in small corporations, known

colloquially as “microcaps,” which Ficeto defined as companies with capitalizations

2
       In May 2006, it received a statement indicating its $12 million investment had
increased in value to over $16 million.
3
       In February 2011, the Securities and Exchange Commission brought suit against
Ficeto, Homm, HWM, and others for violations of federal securities laws. At the trial in
the instant matter, out of the presence of the jury, two individuals who had worked for
HWM asserted their Fifth Amendment privilege against self-incrimination, due to
ongoing criminal investigations.
4
      Pricaspian, in a motion in limine, sought terminating sanctions against Ficeto and
HWM for failing to disclose documents ultimately determined to be in their possession.
The motion was denied, but the jury was instructed that if a party intentionally
concealed or destroyed evidence, the jury could decide the evidence would have been
unfavorable to that party.

                                             5
under $1 billion.5 These microcap stocks were not traded on any exchange. Instead,

they were considered over-the-counter stocks. When such stocks were traded, each

trade needed a specific buyer and a specific seller. The prices for these stocks are listed

on a quotation medium, such as the “Pink Sheet” or “OTC Bulletin Board.” HWM was

considered a “market maker” in the microcap stocks at issue in this case. This means

that HWM itself maintained an inventory in the stocks, and always posted prices to buy

and sell each of these stocks.

       While the prices at which the microcap stocks were quoted each day were

relevant to the next day’s trading, the prices at which they closed at the end of every

month were significant for other reasons. Specifically, the Absolute funds, which were

invested in these stocks, were valued at the end of each month. High prices at the end

of the month enabled Homm to report to investors in the Absolute funds that the values

of those funds were increasing. More than that, though, manipulating the prices of the

microcaps enabled HWM to profit by the exercise of warrants.

       The market manipulation scheme generally operated as follows: (1) HWM, as

investment banker, would agree to obtain funding for a new microcap; (2) HWM would

obtain the funding by eliciting investments from the Absolute funds; (3) in exchange for

obtaining this funding, HWM would receive a substantial commission, and warrants to

obtain future stock in the corporation; (4) HWM and Absolute, together, would have the

5
      Ficeto testified that the term “penny stock” would be incorrect in this case, as
penny stocks are defined as those worth less than $5 per share, and some of the stocks
with which we are concerned traded for more than that.

                                             6
Absolute funds engage in many trades6 of the microcap’s stock, in order to raise the

price of the stock and generate commissions for HWM; (5) when the stock price was

high enough, HWM would exercise its warrants, obtaining more stock in the microcap

at a price much lower than the “market price” which HWM itself had set; (6) HWM

would then sell the stock to the Absolute funds, generating a profit.7

       This manipulation was executed by means of a secret line of communication

between HWM and Absolute. Broker-dealers are required to monitor and keep records

of all of their correspondence with clients. HWM had a system to properly monitor and

record all of its electronic communications. However, HWM also had a second,

unmonitored, instant message system by which it communicated with Absolute. Colin

Heatherington was the individual at Absolute who used the secret instant messaging

system; he communicated with Tony Ahn at HWM. Frequently, at the end of the

month, Heatherington would indicate to Ahn the closing prices he wanted for each of

6
        Ficeto testified that a “cross trade” is when the same party buys and sells shares
of the same stock – in other words, when the same party is on both sides of the
transaction. Interestingly, the individuals at HWM and Absolute who were involved in
the trades referred to trades between Absolute funds as “cross” trades. In other words,
those individuals did not consider trades between Absolute funds as arm’s-length
transactions between different legal entities (the different funds), but instead, as
cross-trades in which the same party (Absolute) was on both sides of the transaction.
7
       Ficeto testified that when HWM sold its shares to the Absolute funds, it always
did so at a reduced price. For example, if HWM exercised its warrant at $1.33, while
the market price of the stock was $3.82, HWM would sell its shares to the Absolute
funds at $1.50 or $1.75. This assumes, however, that $3.82 is a real market price, and
not a price falsely inflated by HWM and Absolute. Indeed, if the true value of the stock
was less than $1.50, HWM would still have profited at the expense of the Absolute
funds – selling them a worthless stock at an inflated price.

                                             7
the microcaps; Ahn would then perform the trades necessary to reach those prices. By

means of this instant messaging system, Heatherington and Ahn also discussed

increasing commissions on certain trades, and decreasing the commissions when other

individuals at Absolute complained. It is apparent, from reviewing excerpts from the

instant message records, that Heatherington and Ahn believed these instant messages

would never be reviewed by regulators or made public, as their discussions of the

market manipulation therein are blatant.8

       Further details of the fraudulent scheme are unnecessary to our analysis, as we

are concerned solely with the issue of damages.

       4.     Evidence of Damages

       At trial, Pricaspian proceeded on the theory that, since Grynberg would not have

invested in the Absolute funds at all had Homm’s involvement in HWM been disclosed,

Pricaspian should be entitled to recover the entire amount of its lost investment in the

Absolute funds. Defendants argued, however, that Pricaspian should recover only the

8
       For example, on July 30, 2007, Heatherington gave Ahn a list of closing prices to
be obtained. He told Ahn to “buy whatever it takes” to drive the prices up. The
purchases were all made by one of the Absolute funds. At one point, Ahn said he was
having difficulty reaching the requested closing price of 37 cents for one of the stocks,
stating, “I have bought over 150k,” and that the price was not increasing. When Ahn
asked if he should keep going, Heatherington said, “sure.” On October 12, 2006, after
Ahn informed Heatherington that a microcap had last traded at $1.75, Heatherington
requested a “3 close.” Ahn stated he “would probably need to do a cross [¶] is that ok?”
Heatherington said it was “not a problem” and Ahn agreed to have the trade done before
the close. About a week later, that same stock was trading at $4. Heatherington stated
“we will need to move it back down,” and Ahn agreed to “put a small cross to get it
back to 3.” At another time, when Ahn was having difficulty obtaining a closing price
Heatherington requested, Ahn asked, “how much stock can I cross, I need to make it
seem some[wh]at believable . . . . ”

                                            8
losses related to the fraud. Defendants elicited testimony that neither Grynberg nor

Pricaspian’s expert could testify as to whether the Absolute funds in which Pricaspian

had invested had gained or lost money on the microcap stocks in which the funds had

invested through HWM. Indeed, Pricaspian’s expert admitted that he could not

determine whether the Absolute funds gained or lost money from the market

manipulation.9

       This much is clear: the Absolute funds were invested in many stocks other than

the microcaps they had invested in through HWM. Thus, some of Pricaspian’s losses

may have been due to a decrease in the value of other, legitimate, investments. At trial,

there was no attempt to either determine the precise losses attributable to the market

manipulation or to make a reasonable estimate as to the percentage of the Absolute

funds’ losses which were related to the manipulation.

       5.     The Trial and Verdict

       Pricaspian brought the instant action against Homm, Ficeto, and HWM. The

case was tried to a jury on Pricaspian’s causes of action against Homm for fraud by

9
        As we shall discuss, both parties had mistaken the proper measure of damages.
While Pricaspian was incorrect in believing it could recover all of the damages lost by
its investment in Absolute funds, defendants were equally incorrect in believing
Pricaspian could (if supported by the evidence) recover its share of the losses the
Absolute funds, in which he invested, had suffered as a result of the market
manipulation. As we shall explain, Pricaspian was only entitled to recover its out of
pocket losses for the fraud – measured by the difference between what Pricaspian had
invested and the value of what Pricaspian received at the time of its investment. Losses
to the value of the Absolute funds as a whole were losses that could only be recovered
by the funds themselves (or the shareholders in a derivative action), not by Pricaspian in
an individual action.

                                            9
misrepresentation, fraud by concealment, and conversion; the jury was also asked

whether Ficeto and/or HWM were co-conspirators with Homm, such that they were

equally responsible for Homm’s torts. Finally, the jury was asked to determine whether

there was clear and convincing evidence that any of the defendants had acted with

malice, fraud or oppression sufficient to warrant an award of punitive damages.

       The jury concluded that Homm was liable for fraud by misrepresentation, fraud

by concealment, and conversion. It concluded that HWM, but not Ficeto, had conspired

with Homm with respect to the fraud by misrepresentation and fraud by concealment,

but not the conversion. The jury calculated Pricaspian’s compensatory damages to be

$1,200,000. The jury also concluded that all three defendants were liable for punitive

damages – even though Ficeto had been exonerated from liability for compensatory

damages. Because of this disparity, the trial court chose to solicit, and grant, Ficeto’s

motion for JNOV with respect to punitive damages. After a brief trial on punitive

damages; the jury awarded $2 million each against Homm and HWM.

       6.     Post-Trial Motions

       On August 11, 2011, Pricaspian filed a notice of intention to move for a new trial

on several bases, including that the trial court erred in its disposition of the inconsistent

verdicts against Ficeto. Ficeto and HWM opposed the motion. In addition, on

August 29, 2011, Ficeto and HWM moved for JNOV, on the basis of insufficient

evidence with respect to damages.10

10
       Pricaspian suggests that defendants’ motion for JNOV was untimely, as it was
filed more than 15 days after Pricaspian’s motion for new trial. This is incorrect.

                                             10
       The trial court initially indicated its tentative view that Pricaspian’s motion for

new trial against Ficeto should be granted. The court correctly recognized that, when

the jury’s verdict is inconsistent, the proper remedy is for the court to reinstruct the jury

and seek clarification. (Mendoza v. Club Car, Inc. (2000) 81 Cal.App.4th 287, 301.)

Having failed to do so, the court is not permitted to choose which of two inconsistent

jury findings should be disregarded. (Shaw v. Hughes Aircraft Co. (2000)

83 Cal.App.4th 1336, 1346.) Instead, the matter must be retried. (Lambert v. General

Motors (1998) 67 Cal.App.4th 1179, 1186.)

       When the trial court indicated its intention to grant the new trial, defendants

requested that the trial court first rule on their motion for JNOV, as the grant of JNOV

would moot the need for a new trial. The trial court agreed, and stated that it would

resolve both motions together.

       Thereafter, the trial court granted defendants’ motion for JNOV, on the basis that

the evidence “adduced at trial, through both the plaintiff and [its] expert, did not

establish that [Pricaspian] suffered any dam[a]ges due to the wrongoing of either [Ficeto

A motion for JNOV “shall be made within the period specified by [Code of Civil
Procedure s]ection 659 . . . in respect of the filing and serving of a notice of intention to
move for a new trial.” (Code Civ. Proc., § 629.) Code of Civil Procedure section 659
provides that a such a notice is to be filed and served either before the entry of judgment
or within 15 days after mailing or service of notice of entry of judgment, “provided, that
upon the filing of the first notice of intention to move for a new trial by a party, each
other party shall have 15 days after the service of that notice” to also file a notice.
(Code Civ. Proc., § 659, subd. (a).) The 15-day period in which a party may file
a notice of intention after another party has so filed is an extension of the statutory
period, not a limitation thereof. Defendants’ motion for JNOV was filed before entry of
judgment; it was therefore timely under the statutory language.

                                             11
or HWM].” Judgment was therefore entered in favor of Pricaspian against only Homm.

Pricaspian filed a timely notice of appeal.

                                   ISSUE ON APPEAL

       The sole issue necessary for the resolution of the instant appeal is whether the

trial court erred in granting JNOV for defendants. As we conclude Pricaspian failed to

prove any legally cognizable damages it suffered on an individual basis, as opposed to

damages suffered as a shareholder in the Absolute funds, we affirm.

                                       DISCUSSION

       1.     Standard of Review

       On appeal from a court’s grant of JNOV, “ ‘ “the trial court may not weigh the

evidence or judge the credibility of the witnesses, as it may do on a motion for a new

trial, but must accept the evidence tending to support the verdict as true, unless on its

face it should be inherently incredible. Such order may be granted only when,

disregarding conflicting evidence and indulging in every legitimate inference which

may be drawn from plaintiff’s evidence, the result is no evidence sufficiently substantial

to support the verdict. [¶] On an appeal from the judgment for defendant

notwithstanding the verdict, the appellate court must read the record in the light most

advantageous to the plaintiff, resolve all conflicts in his favor, and give him the benefit

of all reasonable inferences in support of the original verdict. . . .” ’ ” (Stubblefield

Construction Co. v. City of San Bernardino (1995) 32 Cal.App.4th 687, 703.)

       In the instant case, the jury concluded that HWM had conspired with Homm and

was therefore liable for his fraud. Because of the inconsistent verdict with respect to

                                              12
Ficeto, we consider the verdict as though the jury had concluded that Ficeto was also

liable for Homm’s fraud.11 Specifically, we consider whether there is any evidence

sufficient to support an award of damages against HWM and Ficeto in connection with

Homm’s fraud by misrepresentation or concealment.

       2.     Damages for Fraud

       “Under California law, a party asserting fraud must establish that its damages are

the ‘proximate’ or ‘legal’ result of the fraudulent conduct. [Citations.] Moreover,

California law generally limits a defrauded party to recovering out-of-pocket damages,

as stated in Civil Code section 3343. [Citation.] The out-of-pocket rule ‘ “is directed to

restoring the plaintiff to the financial position enjoyed by him prior to the fraudulent

transaction, and thus awards the difference in actual value at the time of the transaction

between what the plaintiff gave and what he received.” ’ [Citation.]” (OCM Principal

Opportunities Fund, L.P. v. CIBC World Markets Corp. (2007) 157 Cal.App.4th 835,

869-870.)

       When a plaintiff alleges that it has suffered damages because the defendants

manipulated the price of a stock in which the plaintiff invested, the plaintiff may not

recover the entire purchase price of the stock less any money it received from selling the

stock. Instead, the plaintiff is entitled to damages measured by the difference in value

between the price paid by the plaintiff for the stock and its value when it was purchased.

11
       Putting it another way, we consider whether any evidence could have supported
a jury verdict against Ficeto for fraud, even though the jury’s verdict was inconsistent
on this issue.

                                            13
(Gutterman v. Gally (1933) 131 Cal.App. 647, 652.) This is a straightforward

application of the out-of-pocket rule discussed above; it is the difference in actual value

at the time of the transaction that determines damages. If the stock purchased by the

plaintiff in reliance on the fraudulent misrepresentation (or concealment) was, at the

time of the purchase, actually worth what the plaintiff paid for it, the plaintiff was not

damaged by the purchase “for even though [it] would not have bought [the shares] had

[it] known the truth, [it] nevertheless received property as valuable as that with which

[it] parted.” (Gagne v. Bertran (1954) 43 Cal.2d 481, 491 [discussing the rule in the

context of a purchase of land].)

       In this case, Pricaspian failed to establish recoverable damages for Homm’s fraud

(which would be imputed to Ficeto and HWM through the conspiracy finding).

Pricaspian submitted evidence that it was induced to invest in the Absolute funds by

Homm’s fraud; Pricaspian could therefore recover the difference between the

$12 million it invested and the actual value of the shares of the Absolute funds

purchased at the time of the purchase. Pricaspian made no attempt to introduce

evidence of this second amount. Instead, Pricaspian took the position that, since it

received only $5,245,239.16 when the funds were liquidated, its damages could be

measured by the difference between those two figures. This is incorrect. There is no

evidence that Pricaspian’s shares in the Absolute funds were only worth $5,245,239.16

at the time of the investment; indeed, all of the evidence indicates that the loss in value

to those shares occurred years later. Moreover, Pricaspian introduced no evidence

                                             14
supporting the conclusion that, at the time of its investment, the Absolute funds’ shares

were not worth the $12 million paid for them.

       Pricaspian argues, however, that any failure of proof on the issue of damages

should be charged against defendants, as they failed in discovery to disclose the

evidence which would have enabled Pricaspian to establish specific damages.

Specifically, Pricaspian argues that defendants failed to disclose the “trade tickets” for

all of the trades in the microcap stocks at issue. Had the trade tickets been disclosed,

Pricaspian could have determined “the exact detail for each and every trade made by

HWM on behalf of [the Absolute funds] for each of the [microcaps] at issue.”

       Yet this argument raises a further issue. Pricaspian did not invest in the

microcaps; Pricaspian invested in the Absolute funds, which, in turn, invested in the

microcaps. Can Pricaspian recover, as fraud damages, its proportionate share of the

losses the Absolute funds incurred through their investments in the microcaps or, in the

alternative, can those damages only be recovered by the Absolute funds themselves (or

in a derivative action on behalf of the funds)? The answer is indisputably the latter.

       “Shareholders may bring two types of actions, ‘a direct action filed by the

shareholder individually (or on behalf of a class of shareholders to which he or she

belongs) for injury to his or her interest as a shareholder,’ or a ‘derivative action filed

on behalf of the corporation for injury to the corporation for which it has failed or

refused to sue.’ [Citation.] ‘The two actions are mutually exclusive: i.e., the right of

action and recovery belongs either to the shareholders (direct action) or to the

                                             15
corporation (derivative action).’ [Citation.]” (Schuster v. Gardner (2005)

127 Cal.App.4th 305, 311-312.)

       “An action is deemed derivative ‘ “if the gravamen of the complaint is injury to

the corporation, or to the whole body of its stock and property without any severance or

distribution among individual holders . . . . ” ’ ” (Grosset v. Wenaas (2008) 42 Cal.4th

1100, 1108.) “The cause of action is individual, not derivative, only ‘ “where it appears

that the injury resulted from the violation of some special duty owed the stockholder by

the wrongdoer and having its origin in circumstances independent of the plaintiff’s

status as a shareholder.” ’ [Citation.]” (Nelson v. Anderson (1999) 72 Cal.App.4th 111,

124.) “ ‘Generally, a stockholder may not maintain an action in his own behalf for

a wrong done by a third person to the corporation on the theory that such wrong

devalued his stock and the stock of the other shareholders, for such an action would

authorize multitudinous litigation and ignore the corporate entity.’ [Citations.]”

(Grosset v. Wenaas, supra, 42 Cal.4th at p. 1108, fn. 5.)

       Thus, while we emphasize that Pricaspian did not, in fact, offer any evidence that

its investments in the three Absolute funds were devalued by the trades performed in the

microcaps,12 any losses suffered by the Absolute funds could not be pursued by

Pricaspian in this individual action; those losses must be pursued by the Absolute Funds

12
       There was evidence that the Absolute funds were charged unnecessary
commissions by HWM’s numerous trades in the microcap stocks among the different
Absolute funds. There was, however, no evidence that any of the three funds in which
Pricaspian was invested ultimately lost money on the investments in the microcaps
themselves.

                                            16
themselves, or by a shareholder in a derivative action. Thus, even if the jury could have

properly inferred that the missing trade tickets would have established that the Absolute

funds lost money on their investments in the microcaps, this would not have established

damages Pricaspian could recover in this action.13 JNOV was therefore appropriately

entered.

13
       Pricaspian notes that defendants did not argue before the trial court that
Pricaspian could not recover its proportionate share of the diminution in value of the
Absolute funds as a result of the microcap trades on the basis that such damages could
only be recovered in a derivative action. Pricaspian argues that defendants have
therefore waived the right to contest damages based on this theory. The purported right
of an individual to recover damages which may only be recovered in a derivative action
is a pure issue of law. We have discretion to consider pure questions of law for the first
time on appeal. (Sheller v. Superior Court (2008) 158 Cal.App.4th 1697, 1709.) It is
appropriate to exercise our discretion to do so in this case, in which the strongest piece
of evidence on which Pricaspian relied to prove damages on this theory was the
inference which arises from the lack of trading tickets. In other words, Pricaspian
would have us uphold a verdict of $1.2 million in compensatory damages on an
untenable legal theory based on an utter absence of evidence. We decline to do so.

                                            17
                                 DISPOSITION

    The judgment is affirmed. Defendants shall recover their costs on appeal.

    NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

                                                                 CROSKEY, J.

WE CONCUR:

    KLEIN, P. J.

    KITCHING, J.

                                       18