Court Opinion

ID: 9881437
Source: CourtListenerOpinion
Date Created: 2023-10-02 17:03:22.38896+00
Date Added: 2024-06-11T14:08:37.810834
License: Public Domain

Filed 10/2/23 Happy Kids Food v. Happy Kids Nutrition CA4/3

                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS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
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 This opinion has not been certified for publication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

                                     FOURTH APPELLATE DISTRICT

                                                DIVISION THREE

 HAPPY KIDS FOOD, INC.,

    Plaintiff, Cross-defendant and                                     G060808
 Respondent,
                                                                       (Super. Ct. No. 30-2016-00889297)
           v.
                                                                       OPINION
 HAPPY KIDS NUTRITION, INC. et al.,

      Defendants and Appellants;

 SHAHER ADASSI,

    Defendant, Cross-complainant and
 Appellant;

 ASHRAF SULAIMAN, et al.,

      Cross-defendants and Respondents.

                   Appeal from a judgment of the Superior Court of Orange County, Richard
Y. Lee, Judge. Affirmed.
              The Appellate Law Firm, Aaron Myers; Mark Kuntze for Defendants,
Cross-complainant and Appellants.
              Diem Law and Robin L. Diem for Plaintiff, Cross-defendant and
Respondent Happy Kids Food.
              Loe Law Group and David C. Loe for Cross-defendants and Respondents
Ashraf Sulaiman, Mohamad Odeh, and Best Baby Love Wholesale.
                                  *          *           *
              Happy Kids Nutrition, Inc. (HK Nutrition), Majid Adassi, and Wijdan
Adassi, as successor-in-interest to the estate of Shaher Adassi (collectively Appellants),1
appeal from a judgment against them. The trial court, sitting as trier of fact, found them
jointly and severally liable to Happy Kids Food, Inc. (HK Food) for unpaid goods and
determined Shaher did not have any ownership interest in HK Food. Appellants contend
the court failed to make certain factual findings, made other findings that were not
supported by substantial evidence, and awarded excessive damages. We affirm.
                                          FACTS
              In 2015, Shaher and Ashraf Sulaiman began discussions about creating a
new entity named HK Food. They agreed generally to contribute $326,000 each for a
50/50 interest in HK Food. Specific terms of the agreement were hotly disputed at trial,
including the type of consideration (money, equipment, goodwill, etc.) each was to
contribute.
              In December 2015, HK Food was formed. It was a wholesale business
providing children’s food products to stores. It took over a warehouse occupied by HK
Nutrition. HK Nutrition’s shares were owned by Shaher and Majid. HK Nutrition had

1             For clarity, we will refer to members of the Adassi family by their first
name. Their names, as well as those of other individuals, are spelled multiple ways in the
appellate record and briefs. We use what we think is the most likely spelling for each
person. For Majid, we use the spelling from his answer to the operative complaint. For
Shaher, who passed away before trial, we use the spelling from his death certificate.

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existing customers, i.e., stores that ordered children’s food products. Some stores were
owned by or affiliated with HK Nutrition, Shaher, or Shaher’s children–Majid, Magda,
Adassi, and Yasser.2 Those stores, along with HK Nutrition’s other customers, became
customers of HK Food.
              By May 2016, things went south between Sulaiman and Shaher concerning
HK Food. Around May 20, the HK Food warehouse was “emptied” of product. Three
weeks later, Mohamad Odeh,3 HK Food’s chief operating officer, left to become the chief
operating officer of a company owned by Sulaiman, Best Baby Love Wholesale, Inc.
(BBL Wholesale).
              HK Food sued first, seeking payment for nearly $240,000 of product
delivered to 14 stores affiliated with HK Nutrition. HK Food sued HK Nutrition, Shaher,
his daughter Magda, and his sons Magid, Adassi, and Yasser. According to the original
complaint, HK Nutrition co-owned and co-operated each store with at least one Adassi
family member such that HK Nutrition and the respective family members were liable for
their stores’ unpaid invoices. These invoices underlie all causes of action in the original
complaint.
              Shaher cross-complained against HK Food, Sulaiman, Odeh, and BBL
Wholesale (collectively Respondents). Shaher had two main grievances. First, Shaher
alleged Sulaiman mismanaged HK Food, engaged in self-dealing, and converted HK
Food’s assets to his own businesses, including BBL Wholesale. These actions underlie
Shaher’s claims of dissolution and accounting, breach of fiduciary duty of director to
shareholder, and negligence. Second, Shaher brought shareholder derivative claims
against Sulaiman for negligence and breaches of fiduciary duty for unlawful distribution

2            We use the spelling Magda gave at trial and the spellings Adassi and
Yasser provided in answering the operative complaint.

3             We use the spelling Odeh gave at trial.

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of corporate assets and usurpation of corporate opportunity, and alleged conversion
against all cross-defendants.
              HK Food amended its complaint, in part, to refute Shaher’s 50% ownership
claim of HK Food. The second amended complaint, the operative pleading, broke down
claims into two categories: “product purchase” and “corporate organization.” The
product-purchase claims included breach of oral contract, breach of implied-in-fact
contract, book account, breach of the covenant of good faith and fair dealing, quantum
valebant, and indebitatus assumpsit. All six causes of action boiled down to one general
allegation: HK Nutrition, Shaher, and his children failed to pay their respective stores’
invoices. The corporate-organization claims included two claims for breach of contract,
two for fraud, indebitatus assumpsit, and declaratory relief. These causes of action
alleged Shaher hadn’t paid for—and thus wasn’t entitled to—shares of HK Food.
              Before trial, Yasser filed for bankruptcy and was dismissed from the case.
At the four-day bench trial, Odeh, HK Food employee Carolina Hormachea, Magda, and
Majid testified. The trial court also considered dozens of exhibits, excerpts from
Sulaiman’s deposition transcript, and select responses to requests for admissions.
              After taking the matter under submission, the trial court issued a “Tentative
Ruling/Statement of Decision.” It was received by the parties on the date it was issued,
July 15, 2021, and “be[came] the final ruling of the [c]ourt” on that day.
              In the statement of decision, the trial court made credibility findings:
Hormachea and Odeh were credible; Majid was not. On the operative complaint, the
court found Appellants, jointly and severally, owed HK Food $335,552.41. It found
Appellants jointly and severally liable to HK Food for the unpaid invoices connected to
their respective stores and for payments that had been diverted from HK Food to HK
Nutrition. But it determined HK Food had failed to prove Shaher’s agreement to repay
HK Food about $187,000 for payments it made on his accounts payable. On the cross-
complaint, the court found against Shaher on all claims. The court found Shaher had no

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ownership interest in HK Food because he did not contribute $326,000 of money, goods,
or other value; was not a shareholder of HK Food for this reason; and thus could not
prevail on his cross-complaint. Finally, the court answered eight controverted issues
submitted jointly by the parties.
              Nineteen days after the statement of decision was issued, Appellants filed a
request for statement of decision identifying 20 additional controverted issues. Two days
after that, they filed 28 objections to the statement of decision.
              The trial court denied as moot Appellants’ request for another statement of
decision. As for the objections, the court responded to Appellants’ complaint that it had
not made a finding either way on their claim of a $75,618.60 offset. The court stated the
evidence did not support any offset. The court did not respond specifically to the other
27 objections and noted that most of them were “reargu[ments of] the merits of the case,
which are improper and unhelpful.”

              After entry of judgment, Appellants moved for new trial. (Code Civ. Proc.,
§ 657(1), (3), (4), (6), (7).) The court denied the motion in its entirety. It further made
additional findings about the alter-ego claim. The court stated it “did not misunderstand
the burden of proof or the law as it relates to alter ego. Rather, the court disagrees with
defendants’ view of the evidence and the reasonable inferences to be drawn from such
evidence.” The court then found HK Food had proven Shaher and Majid were also liable
under an alter ego theory.
                                       DISCUSSION
              Appellants argue the trial court erred in five ways: (1) failing to find Shaher
had a 50% partnership share in HK Food; (2) finding without sufficient evidence that
Majid co-owned certain stores; (3) awarding damages to HK Food for its unpleaded and

                                              5
unsupported claim of diverted payments; (4) finding Appellants were alter egos of one
another; and (5) refusing to award Appellants certain offsets.4 We are unpersuaded.
I.     Standard of Review
               We begin with a bedrock principle of appellate law—which we will revisit
in this opinion: A trial court’s judgment “is presumed to be correct on appeal, and all
intendments and presumptions are indulged in favor of its correctness.” (In re Marriage
of Arceneaux (1990) 51 Cal.3d 1130, 1133 (Arceneaux).) The appellant has the
“affirmative duty to show error by an adequate record.” (Osgood v. Landon (2005) 127
Cal.App.4th 425, 435 (Osgood).) “‘[A] record is inadequate, and appellant defaults, if
the appellant predicates error only on the part of the record he provides the trial court, but
ignores or does not present to the appellate court portions of the proceedings below which
may provide grounds upon which the decision of the trial court could be affirmed.’”
(Ibid.) And “‘[u]nder the doctrine of implied findings, the reviewing court must infer,
following a bench trial, that the trial court impliedly made every factual finding necessary
to support its decision.’” (Thompson v. Asimos (2016) 6 Cal.App.5th 970, 981
(Thompson).)
               On appeal from a judgment based upon a statement of decision, we review
questions of law de novo and findings of fact for substantial evidence. (Thompson,
supra, 6 Cal.App.5th at p. 981.) “‘Substantial evidence means evidence which is of
ponderable legal significance—evidence which is reasonable in nature, credible and of
solid value’” (Lui v. City and County of San Francisco (2012) 211 Cal.App.4th 962, 969
(Lui).) ‘““[A]ny conflict in the evidence or reasonable inferences to be drawn from the
facts will be resolved in support of the determination of the trial court decision.’’”’ (Ibid.)
“‘We may not reweigh the evidence and are bound by the trial court’s credibility

4            Although the appeal is taken from the judgment on the operative complaint
and cross-complaint, Appellants do not separately address any issue raised in the cross-
complaint that is not already subsumed in the complaint. Accordingly, neither do we.

                                              6
determinations. . . . The testimony of a single witness may be sufficient to constitute
substantial evidence.’” (Ibid.)
II.    Incomplete Record on Appeal
              An incomplete record of the underlying proceedings limits our review of
this appeal. Appellants opted for a reporter’s transcript, but there was no court reporter
on the first day of trial and they didn’t obtain a suitable substitute, such an agreed or
settled statement, for that day. (Cal. Rules of Court, rules 8.134, 8.137.) They chose to
proceed with a clerk’s transcript, but they didn’t ask for any of the dozens of trial exhibits
to be included. We located copies of some trial exhibits elsewhere in the appellate record
but were not entirely successful. Those we could not find we could not consider. (See
Padideh v. Moradi (2023) 89 Cal.App.5th 418, 430, fn. 6 [exercising discretion not to
consider trial exhibits that were not transmitted for appellate review.) To the extent a
missing exhibit may be relevant to the disposition of this appeal, we have noted it.

III.   Shaher’s Partnership Claim
              The trial court found Shaher hadn’t given enough consideration for, and
thus was not entitled to, any shares of HK Food; the shares were never issued to him; and
even if they had been issued, they would be void for lack of consideration. Instead of
tackling this ruling, Appellants attempt to reframe the issue. According to them, the
court found “the parties agreed to form a partnership” but that Shaher and his children
“were not entitled to a 50% ownership share in the [HK Food] partnership.” (Italics
added.) Appellants contend the court committed legal error when it deprived Shaher of
his partnership interest. But that’s not what the court found or did.
              Because Appellants did not adequately plead the partnership theory at the
trial level, they may not now complain that the trial court failed to address it. “‘The rule
is well settled that the theory upon which a case is tried must be adhered to on appeal. A
party is not permitted to change his position and adopt a new and different theory on
appeal. To permit him to do so would not only be unfair to the trial court, but manifestly

                                              7
unjust to the opposing litigant.’ [Citations.] And this rule ‘is to be stringently applied
when the new theory depends on controverted factual questions whose relevance thereto
was not made to appear at trial.’” (Koehl v. Verio, Inc. (2006) 142 Cal.App.4th 1313,
1339.)
              The HK Food partnership theory was not identified in the pleadings or as a
controverted issue at trial. To the contrary, Shaher’s cross-complaint alleged HK Food
was a “close corporation” and Shaher was a “director,” “officer,” and/or “shareholder” of
HK Food, “holding 50% of common stock.” Indeed, Appellants included “an affirmative
defense of corporate veil” in their answer to the operative complaint. Although the
parties had raised the “ownership” of HK Food as a controverted issue, Appellants never
asked the court to find the existence of a partnership. Nor did Appellants object that the
court failed to make specific findings as to Shaher’s partnership interest.5
              Appellants correctly note the partnership theory was mentioned in trial
testimony and their closing argument. But while these references might permit the trial
court to consider and rule on the theory,6 Appellants provide no authority compelling the
court to do so. Simply put, Appellants did not place the court or HK Food on sufficient
notice it was advancing a partnership theory at trial. Even if the trial evidence could
support such a finding, “a ruling by this court that a partnership could be inferred from
the evidence would deny [HK Food its] day in court relative to this issue.” (Halperin v.

5             The only mention of a “partnership” was in objection no. 26, in which
Appellants complained “the court did not make a finding on whether Cross-Defendants
provided sufficient evidence to rebut a finding of failing to account for [HK Food]’s
corporate property, profits and benefits; or seizing business opportunity for himself; or
converting partnership assets for their personal gain.”

6             ‘“‘‘Where (1) a case is tried on the merits, (2) the issues are thoroughly
explored during the course of the trial and (3) the theory of the trial is well known to
court and counsel, the fact that the issues were not pleaded does not preclude an
adjudication of such litigated issues and a review thereof on appeal.”’” (Cameron v. Las
Orchidias Properties, LLC (2022) 82 Cal.App.5th 481, 502 (Cameron).)

                                              8
Raville (1986) 176 Cal.App.3d 765, 773 [partnership theory not permitted on appeal
when it wasn’t pleaded or raised at trial]; see Heaps v. Heaps (2004) 124 Cal.App.4th
286, 293 [trial court need not issue findings on defense identified as controverted issue in
request for statement of decision where defense not asserted in pleadings].)
              For the same reason, Appellants cannot now argue on appeal that Shaher
was both a partner and a shareholder of HK Food. At trial, Appellants’ counsel argued in
closing that it was one or the other: “So either Shaher’s a 50/50 shareholder or he’s a
50/50 business partner.”
IV.    Majid’s Store Ownership
              Appellants contend insufficient evidence supports the finding Majid co-
owned four stores and thus is individually liable for their unpaid invoices. The contention
fails for lack of a complete record.
              We cannot review a finding for substantial evidence if all pertinent
evidence presented at trial isn’t included in the record on appeal. (Lui, supra, 211
Cal.App.4th at p. 969; Osgood, supra, 127 Cal.App.4th at p. 435.) To the extent a partial
record does not reveal substantial evidence in support of the judgment, we must presume
such evidence was contained in the missing portion. (Arceneaux, supra, 51 Cal.3d at
p. 1133; Osgood, at p. 435.)
              Here, Appellants acknowledge the trial court relied on Hormachea’s
testimony on the issue of store ownership. The court found her testimony on this issue to
be credible, and “[t]he testimony of a single witness may be sufficient to constitute
substantial evidence” (Lui, supra, 211 Cal.App.4th at p. 969). Missing from our record,
however, is a transcript or suitable substitute for the first day of trial—when Hormachea
testified on direct examination and began her cross-examination. Because the record is
incomplete, we presume evidence necessary to support the court’s finding on store
ownership was adduced on the first day of trial. (Arceneaux, supra, 51 Cal.3d at p. 1133;
Osgood, supra, 127 Cal.App.4th at p. 435.)

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V.     Diverted Payments
               At trial, HK Food alleged HK Nutrition diverted payments owed to HK
Food, by either depositing checks meant to go to HK Food or directing customers to
make checks out to HK Nutrition instead of HK Food (the “diverted-payment claim”).
The court agreed and found HK Nutrition diverted a total of $63,846.34 owed to HK
Food from five customers: Nutritional Fundamental ($18,913.50); Valley Nutrition
($19,838.39); Health Nutrition Mo’men ($2,006.42); Henry and Sherry Stores
($15,315.71); and Rich Eggs ($7,772.32). The court found HK Nutrition, Shaher, and
Majid jointly and severally liable for the diverted payments.
               Appellants argue this ruling was error for three reasons: (1) the claim was
not alleged in the operative complaint or identified in discovery responses and its
presentation at trial was a surprise; (2) evidence on the claim should have been excluded
pursuant to Appellants’ motion in limine; and (3) the court’s findings relied upon
inadmissible hearsay and thus are not supported by substantial evidence. We are
unpersuaded.
               First, even though the diverted-payment claim was not raised in the
pleadings, Appellants fail to preserve this claim for appeal. “‘The general and
longstanding rule is that a party must recover on the cause of action he has alleged in his
complaint and not on another cause of action disclosed by the evidence. [Citations.]
However, the general rule may yield where a case is tried on the theory that a matter is in
issue and evidence is received thereon without objection. [Citations.] [¶] ‘“‘“It has long
been settled law that where (1) a case is tried on the merits, (2) the issues are thoroughly
explored during the course of the trial and (3) the theory of the trial is well known to
court and counsel, the fact that the issues were not pleaded does not preclude an
adjudication of such litigated issues and a review thereof on appeal.’”’”’” (Cameron,
supra, 82 Cal.App.5th at p. 502.)

                                             10
              Here, Appellants’ briefs do not point to any objection they made at trial that
the diverted-payment claim had not been pleaded. To the contrary, the record shows they
actively defended against the merits of the claim. Their trial brief acknowledges the
claim as an issue to be tried. They made no objection of an unpleaded claim when Odeh
and Majid were asked about the diverted checks. And their counsel addressed the claim,
without objection, in closing argument. Because no trial objection appears in the record,7
the claimed error is forfeited. (Cameron, supra, 82 Cal.App.5th at p. 502.)
              Second, Appellants fail to show that evidence of the diverted payments
should have been excluded pursuant to their two motions in limine. Both motions asked
the court to exclude witnesses and documents not disclosed in discovery, but neither
asked specifically to exclude evidence of payments. Given these facts, the trial court did
not err by failing to exclude evidence it was not specifically asked to exclude.
              Third, even assuming the trial court relied on inadmissible hearsay in ruling
on the diverted-payment claim, Appellants fail to show they suffered prejudice sufficient
to warrant reversal. (Code Civ. Proc., § 475; IIG Wireless, Inc. v. Yi (2018) 22
Cal.App.5th 630, 655.) To meet this “exceedingly high bar” (IIG Wireless, Inc., at p.
655), Appellants had to show “a different result would have been probable” if the
inadmissible hearsay evidence had not been admitted. (Code Civ. Proc., § 475.)
Unfortunately for Appellants, we cannot determine whether the court would have reached
a different result on this issue because we do not have all the evidence presented to it.
According to counsel for HK Food in closing argument, Hormachea gave relevant

7             It does not matter that Appellants raised the issue in their motion for new
trial. “‘“[T]he question of the sufficiency of the complaint to support the findings and
judgment in any given case cannot be raised or reviewed upon an appeal from an order
denying a motion for a new trial.”’” (Cameron, supra, 82 Cal.App.5th at p. 503.)

                                             11
testimony about the diverted-payment claim.8 But missing from the appellate record is
Hormachea’s first day of testimony. Also, the court relied on trial exhibit no. 123 to
decide the claim, yet none of the trial exhibits were transmitted to us and we could not
locate—despite searching the record for— a copy of exhibit no. 123. Faced with an
incomplete record, we must presume the missing evidence supports the trial court’s
findings. (Arceneaux, supra, 51 Cal.3d at p. 1133; Osgood, supra, 127 Cal.App.4th at p.
435.)
VI.     Alter Ego
                 Appellants argue the trial court misapplied the alter-ego doctrine by shifting
the burden of proof from HK Food to them and the court’s alter-ego finding was not
supported by substantial evidence. But the alter-ego claim is just an alternative theory to
direct liability. The trial court found Shaher and Majid directly liable alongside HK
Nutrition. Because we conclude Appellants failed to show on appeal that this finding
was error, we need not address their alter-ego argument.
VII.    Offset
                 Appellants contend the trial court failed to credit them with three items of
value HK Food received: (1) about $54,000 of HK Nutrition’s accounts receivables;
(2) use of HK Nutrition’s warehouse equipment and trucks; and (3) about $75,000 of
product that was billed to HK Nutrition. We disagree.
                 “The party ‘seeking an offset against a money judgment has the burden of
proving the offset.’” (David S. Karton, a Law Corp. v. Musick, Peeler Garrett LLP
(2022) 83 Cal.App.5th 1027, 1040; Evid. Code, § 500.) We review the denial of offset

8             In closing, HK Foods’ counsel referred to “Ms. Armatella” and “Carolina
Armatella.” No witness by the name of Armatella testified, according to the trial minutes
and reporter’s transcript. We thus regard these references as being about Carolina
Hormachea.

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for abuse of discretion.9 (Fassberg Construction Co. v. Housing Authority of City of Los
Angeles (2007) 152 Cal.App.4th 720, 762–763.)
               As to the first contention, the trial court expressly found Appellants were
not entitled to an offset for the $54,000 in accounts receivables because HK Food had
paid about $187,000 of Shaher’s accounts payables—which left HK Food paying for
more than it received. According to Appellants, this finding is at odds with the court’s
ruling that HK Food failed to prove its payables-agreement claim. Not so. The payables-
agreement claim alleged that HK Food paid about $187,000 of Shaher’s accounts
payable, which was to be fully repaid from his accounts receivable, and that HK Food
recovered only $45,714.65. The court found HK Food “failed to establish what the terms
of that agreement were and how [Shaher] is or was in breach of that agreement.” There is
nothing contradictory about these findings. The court could—and apparently did—find
HK Food paid $187,000 for Shaher’s debts, recouped only about $45,000, yet failed to
show it was owed the balance pursuant to the so-called payables agreement.
               Second, although there was evidence HK Nutrition had provided trucks and
equipment to HK Food, the court found “no evidence other than Majid Adassi’s
speculative valuation as to what the value of [the equipment] were.” We find no abuse of
discretion in this ruling.
               Third, while Majid testified HK Nutrition paid about $75,000 in invoices
on behalf of HK Food, “[c]redibility determinations . . . are subject to extremely
deferential review” (Jennifer K. v. Shane K. (2020) 47 Cal.App.5th 558, 579), and “[a]
trier of fact is free to disbelieve a witness . . . if there is any rational ground for doing so”
(In re Jessica C. (2001) 93 Cal.App.4th 1027, 1043). Here, the trial court stated it had
observed Majid testify, found his “recollection alone, without more, [to be]

9              The parties do not identify the standard of review for this claim.

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unpersuasive,” and found he “was not credible and provided convenient and evasive
testimony, at times.” These are rational grounds for discounting Majid’s testimony.
              In sum, Appellants have failed to show the trial court erred in its rulings or
factual findings.
                                      DISPOSITION
              The judgment is affirmed. Respondents shall recover costs on appeal.

                                                  DELANEY, J.

WE CONCUR:

BEDSWORTH, ACTING P. J.

SANCHEZ, J.

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