Court Opinion

ID: 9387437
Source: CourtListenerOpinion
Date Created: 2023-04-17 22:02:42.448925+00
Date Added: 2024-06-11T17:18:13.484046
License: Public Domain

Filed 4/17/23 Sail Exit Partners v. Schindler 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                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS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
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or ordered published for purposes of rule 8.1115.

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     FOURTH APPELLATE DISTRICT

                                                DIVISION THREE

 SAIL EXIT PARTNERS, LLC,

      Plaintiff and Respondent,                                        G060431

           v.                                                          (Super. Ct. No. 30-2018-00994978)

 WALTER L. SCHINDLER,                                                  OPINION

      Defendant and Appellant.

                   Appeal from a judgment of the Superior Court of Orange County, Robert J.
Moss, Judge. Affirmed.
                   Estes Law Group and Polly J. Estes for Defendant and Appellant.
                   Troutman Pepper Hamilton Sanders, Peter N. Villar and Elizabeth Holt
Andrews for Plaintiff and Respondent.
                                          *                  *                  *
              Walter Schindler appeals from the trial court’s entry of judgment after a
one-day bench trial in which the court found in favor of Sail Exit Partners, LLC (SEP) on
its conversion causes of action. In an argument raised for the first time on appeal,
Schindler contends SEP lacked standing to sue him because he never effectively resigned
as one of SEP’s two managers. According to Schindler, SEP’s standing therefore falters
because he (Schindler) did not authorize filing or continuing the suit against him.
              Schindler also challenges the sufficiency of the evidence to support the
damage award amount, which the trial court based on the value of stock at the time
Schindler converted it. (Civ. Code, § 3336.) According to Schindler, the damages, if
any, should have been calculated based on the stock’s declining value at some
unspecified point before he returned it (after it had lost 90 percent of its value), and only
if SEP proved it intended to sell the stock during the period he controlled it; Schindler
asserts no evidence suggests SEP tried to do so.
              Preliminarily, we deny SEP’s motion to dismiss the appeal for failure to
provide an adequate record, including basic components such as SEP’s complaint, and for
corresponding briefing deficiencies including failure to provide citations to the record.
As we explain, we find no merit in Schindler’s appellate claims and therefore affirm the
judgment.

                  FACTUAL AND PROCEDURAL BACKGROUND
              As the law requires, we set out the facts in the light most favorable to the
trier of fact’s decision, “resolving all conflicts and indulging all reasonable inferences to
support the judgment.” (Green Wood Industrial Co. v. Forceman Internat. Development
Group, Inc. (2007) 156 Cal.App.4th 766, 770, fn. 2.)
              Formed in June 2014, SEP held a portfolio of interests in several renewable
energy technology companies. A related investment company, Sail Venture Partners II

                                              2
(SVP II), served as SEP’s managing member, and SVP II’s managing members,
Schindler and Hank Habicht, therefore also managed SEP.
                 Testimony at trial indicated Schindler “was forced to resign” as a manager
in April 2015 “because he had mismanaged SEP” and allegedly “was caught
misappropriating funds” totaling about $261,000. According to Schindler, who
represented himself at trial, the “mismanagement” was simply a difference of opinion
with an influential member with whom he “butted heads a lot.” Schindler denied
misappropriating any funds; he asserted the disputed amounts were his ordinary
compensation and not, as SEP’s complaint alleged, a diversion of SEP portfolio
distributions.
                 The testimony also showed that in July 2017, Habicht “and the majority of
the members of SEP believed it was in SEP’s best interest to wind up [its] affairs and
liquidate [its] assets at that time.” They therefore arranged the appointment of a
“liquidating trustee” to wind up SEP’s operations—a third-party entity known as Carlton
Klein, LLC, which was run by its president, Carlton Klein.
                 Soon after his appointment, Klein learned that Schindler was interfering in
his efforts to manage SEP’s dissolution. He received calls from SEP portfolio companies
alerting him that Schindler “was continuing to represent to them that he controlled the
portfolio investments, that he controlled SEP, and that he had threatened to sue them if
they would transact any business with SEP through . . . the trustee.” Klein heard that in
“several” instances Schindler instructed portfolio companies to change their bank-wiring
instructions to divert funds from SEP. Schindler also formed an entity by the name of
“Sail Capital, LLC” in May 2016, more than a year after he resigned from SEP, and then
amended the name so that it was the same as SEP’s, albeit registered in a different state:
“Sail Exit Partners, LLC.” Worried that this would “mislead investors and others that he
[i.e., Schindler] was still the manager of [SEP],” Klein continued his investigation.

                                               3
               Klein testified that in April 2017 Schindler contacted the brokerage firm,
Roth Capital in Newport Beach, that held SEP’s stock shares in three companies: Ener-
Core, Inc. (Ener-Core), Enerpulse Technologies, Inc. (Enerpulse), and Mynd Analytics,
Inc. (Mynd). Klein testified all three companies were “publicly traded”; he expressly
stated that Ener-Core shares traded on the NASDAQ stock exchange.
               Schindler persuaded Roth Capital to transfer SEP’s physical stock
certificates to him in April and May of 2017, including 586,005 shares of Ener-Core
stock on April 28, 2017. At the time of the transfer, the Ener-Core stock was worth about
$950,000 based on the shares’ NASDAQ closing price ($1.62 per share) that day.
               Klein testified Schindler later conceded as to the Ener-Core shares that he
“transformed SEP’s stock certificate[s] to unrestricted digital shares” and transferred
them to a foreign brokerage firm, Schneider Brothers, “to be held at Kaiser Partner
Privatbank in Liechtenstein.” Schindler, on behalf of his Sail Capital company, entered
into an agreement with Schneider Brothers to sell the shares on the European market on
July 19, 2017. The agreement identified the value of the shares on the agreement date as
$879,007.50.
               Unbeknownst to SEP, Schneider Brothers eventually sold about one-third
of the Ener-Core shares (187,549 shares), netting $110,988.23, which neither Schneider
Brothers nor Schindler ever forwarded to SEP.
               Schindler returned the remaining 398,456 Ener-Core shares to SEP in
September 2018, but by then the stock had lost 90 percent of its value, plummeting to
$0.08 per share by the time of trial.
               SEP filed a complaint in May 2018 against five defendants alleging eight
causes of action, including three against Schindler for conversion. The first was for
“misappropriating and wrongfully taking possession of $261,000 from SEP’s bank
account.” The second for “misappropriat[ing] and wrongfully interfer[ing] with SEP’s
rights of ownership and possession by taking possession of 586,005 shares of

                                              4
Ener-Core,” for which SEP sought $950,000 in damages. And the third for similarly
converting SEP’s 80 shares of Mynd Analytics stock and 275,350 shares of Enerpulse
stock, which were never returned and for which SEP claimed approximately $5,000 in
damages.
              At trial, SEP refined its damages calculation for conversion of the Ener-
Core stock to $917,451.62 to account for the diminished value of the returned shares.
Including losses related to the other causes of action, SEP’s damages claim totaled
approximately $1.2 million. The trial court found in favor of SEP on all three causes of
action and, including prejudgment interest, entered a damages award of just over
$1.5 million ($1,550,879.88).

                                       DISCUSSION
       1.     Standing; Motions to Augment
              Schindler contends we must reverse the judgment because SEP lacked
standing to sue him. He acknowledges he did not raise this argument below, but relies on
authority that “standing can be raised at any time in the litigation, even for the first time
on appeal.” (Applera Corp. v. MP Biomedicals, LLC (2009) 173 Cal.App.4th 769, 785.)
This general principle does not aid Schindler for several reasons, but first we briefly set
out the premise for his claim.
              On the day SEP’s respondent’s brief was due on appeal, Schindler filed a
motion to augment the record with documents said to support his contention SEP lacked
                     1
standing to sue him. Chief among the documents was Schindler’s April 2015 letter in
which he resigned as one of SEP’s managing members. Schindler contends SEP lacked
standing to sue him because his resignation was ineffective. He argues his resignation
letter included a condition precedent and, because that condition (a release of SEP’s

       1
              As discussed below, we deny Schindler’s motion.

                                               5
claims against him) was not satisfied, he never actually resigned from SEP, contrary to
                              2
Klein’s testimony at trial.
              Schindler did not introduce his resignation letter at trial, nor did he deny he
resigned or suggest his resignation was ineffective. Instead, he claimed below that he
“was trying to facilitate the sale of shares” that “were unmarketable in the United
States”—impliedly doing so in SEP’s best interests and expressly claiming it was not for
his own financial interest.
              On appeal, Schindler relies on the general proposition that a corporate
entity acts only through its agents and, while he concedes Klein authorized SEP’s
initiation of the lawsuit against him, he asserts that he—Schindler—held veto power over
that decision: “In sum, SEP had no right to file this lawsuit because (1) the condition
precedent to Schindler’s resignation from the management of SEP was never satisfied

       2
               In support of his augmentation motion, Schindler states that his resignation,
as communicated by this letter, included “the following crucial provision: ‘This letter of
resignation is effective upon and subject to the signing by all parties of a mutually
satisfactory settlement agreement and full release, including a release of all liability and
claims against me [Walter Schindler] by SAIL Exit Partners LLC and all affiliates,
including Christopher P. Ryan.’” (Brackets included in Schindler’s brief.) Ryan was the
investor with whom Schindler “butted heads,” as mentioned above.

               In addition to opposing Schindler’s augmentation motion, SEP filed its own
motion to augment the record in response and as part of its motion to dismiss Schindler’s
appeal. We grant SEP’s motion as it is properly made to complete the record of the trial
proceedings and does not include any of the defects of Schindler’s motion. (Cal. Rules of
Court, rule 8.155.) The exhibits to the motion include a “Tolling Agreement” between
SEP and Schindler that was admitted at trial. As Klein testified, the first recital includes
Schindler’s acknowledgment of Klein’s “sole authority to manage Sail Exit Partners’
assets without any interference from him.” And in the fourth paragraph, Schindler
“agree[d] to refrain from any interference with [Klein’s] management of Sail Exit
Partners and that he would not challenge [Klein’s] sole authority to manage the business
affairs of Sail Exit Partners.” Schindler in his reply brief attempts to deflect these
concessions with extrinsic evidence regarding his beliefs about the scope of the
agreement.

                                              6
and (2) Schindler did not agree to the filing of this suit.” In other words, Schindler now
claims he was still a managing member of SEP through the pendency of the lawsuit, and
he therefore had authority to countermand its filing. Schindler asserts that absent his
consent, SEP had no standing to initiate the case, nor to continue to pursue it on appeal.
We are not persuaded.
              In his reply brief Schindler for the first time analogizes Klein’s position in
authorizing SEP’s lawsuit against him to that of Michael Newdow, who challenged a
school district policy requiring the ‘“Pledge of Allegiance to the Flag of the United States
of America”’ to fulfill mandated “‘appropriate patriotic exercises’” in elementary school
under a California statute. (Elk Grove Unified School Dist. v. Newdow (2004)
542 U.S. 1, 7 (Newdow); see Educ. Code, § 52720.) Newdow contended that including
the words ‘“under God”’ in the Pledge amounted to religious indoctrination in violation
of the Establishment and Free Exercise Clauses. (Newdow, at pp. 5, 8; see U.S. Const.,
1st Amend.) The analogy is not only inapt, it actually demonstrates why Schindler’s
standing challenge has no merit.
              According to Schindler, the high court in Newdow “ruled that a father
bringing suit on behalf of his daughter lacked standing because he did not have legal
custody of his daughter.” (Italics added.)
              Schindler sees the same flaw here. Specifically, he argues Klein acted on
behalf of SEP just as Schindler suggests Newdow attempted to act on behalf of his minor
daughter. Schindler thus reasons that because the high court concluded Newdow did not
have standing under the facts of that case, SEP (Schindler says nothing of Klein’s
standing) does not have standing here. Careful attention to the parallel Schindler
attempts to draw between Klein and Newdow reveals that his syllogism should be: if
Newdow lacked standing, so does Klein. But unlike Newdow, Klein is not a party in this
case, so the analogy fails.

                                              7
              As the Supreme Court explained, “the party bringing the suit must establish
standing to prosecute the action. ‘In essence the question of standing is whether the
litigant is entitled to have the court decide the merits of the dispute or of particular
issues.’” (Newdow, supra, 542 U.S. at p. 11, italics added.) “At its core, standing
concerns a specific party’s interest in the outcome of a lawsuit.” (Weatherford v. City of
San Rafael (2017) 2 Cal.5th 1241, 1247, italics added.) Standing is a component of
justiciability, a doctrine related to separation of powers under which unelected courts will
not decide matters unnecessarily. (People ex rel. Becerra v. Superior Court (2018)
29 Cal.App.5th 486, 495; see Newdow, supra, 542 U.S. at p. 11.)
              Consequently, ‘“standing to invoke the judicial process requires an actual
justiciable controversy as to which the complainant has a real interest in the ultimate
adjudication because he or she has either suffered or is about to suffer an injury of
sufficient magnitude reasonably to assure that all of the relevant facts and issues will be
adequately presented to the adjudicator.”’ (Teal v. Superior Court (2014) 60 Cal.4th 595,
599.) Standing arises when the plaintiff “‘has “‘an actual and substantial interest in the
subject matter of the action,’ and stands to be ‘benefited or injured’ by a judgment in the
action.”’” (Turner v. Seterus, Inc. (2018) 27 Cal.App.5th 516, 525.)
              Standing thus “derives from the principle that ‘[e]very action must be
prosecuted in the name of the real party in interest.’” (City of Santa Monica v. Stewart
(2005) 126 Cal.App.4th 43, 59; Code Civ. Proc., § 367.) “[T]he real party in interest is
the party who has title to the cause of action, i.e., the one who has the right to maintain
the cause of action.” (Vaughn v. Dame Construction Co. (1990) 223 Cal.App.3d 144,
147.) A real party in interest “is the owner of the cause of action.” (Id. at p. 148.)
              These fundamental precepts lead to the inescapable conclusion that SEP has
standing here. SEP is the owner of the assets that Schindler allegedly converted. That
actual and substantial interest in the subject matter of the action is the essence of
standing. No more is required.

                                               8
              Schindler mistakenly conflates control of an entity by individuals who
themselves need not have standing with the necessity that the entity—as the party in the
case—must have standing. While the latter issue, a party’s standing, may be raised at any
time under well-established precedent, there is no similar authority related to raising the
right of control of an entity. That issue—the right of control—is a question of law and
fact like any other trial issue; it is not a proper subject for new evidence on appeal.
              Newdow again illustrates the difference. The issue the Supreme Court
decided there was not Newdow’s standing to sue on behalf of his daughter, as Schindler
characterizes it. To the contrary, Newdow “no longer claimed” to be acting on her behalf
once the child’s mother intervened on appeal in the suit and explained that “a state-court
order granted her ‘exclusive legal custody’ of the child, ‘including the sole right to
represent [the daughter’s] legal interests and make all decision[s] about her education’
and welfare.” (Newdow, supra, 542 U.S. at p. 9.)
              Instead, the high court addressed Newdow’s claimed “right to seek redress
for an alleged injury to his own parental interests,” rather than his daughter’s interest in a
representative capacity. (Newdow, supra, 542 U.S. at p. 10, italics added.) The Supreme
Court reversed the Ninth Circuit’s conclusion that Newdow had standing to vindicate a
personal right there, where his right as a noncustodial parent to engage his daughter
regarding his religious beliefs, or lack thereof, was not restricted by the school district’s
policy. (Id. at pp. 16-17.) To the extent Newdow’s interest in his parental relationship
with his daughter could be said to be impacted by third party actions—like the district’s
Pledge policy—he did not have the right “to reach outside the private parent-child sphere
to restrain the acts of a third party.” (Id. at p. 17.) The mother’s evidence showed as
much since she had final authority for education decisions, and the family court’s orders
were considered on appeal precisely because they were relevant to the issue of a party’s
standing in the case, i.e., Newdow’s.

                                              9
               Newdow offers no support for Schindler’s claim that evidence regarding
who does or does not control a corporate entity is relevant to whether the entity, as the
named party and real party in interest, has standing. This brings us to Schindler’s
augmentation motion, which we deferred by an earlier order for resolution in conjunction
with our decision on appeal. We deny the motion for several reasons.
               First, it is improper. The documents Schindler submits to augment the
record to support his bid for reversal, such as his resignation letter, were not part of the
record below. By rule, augmentation is the means to make “document[s] filed or lodged
in the case in superior court” part of the appellate record (Cal. Rules of Court,
rule 8.155(a)(1)(A)) when earlier “omitted by the parties, through mistake or neglect” in
designating the record at the outset of an appeal. (State Comp. Ins. Fund v. WallDesign
Inc. (2011) 199 Cal.App.4th 1525, 1528, fn. 1; see also Maria P. v. Riles (1987)
43 Cal.3d 1281, 1295 [appellant bears burden to provide adequate record to assess his or
her claim of trial court error].)
               Second, Schindler does not request that we take new evidence on appeal
under the established procedures for doing so. (Code Civ. Proc., § 909 [appellate court
may “for the purpose of making . . . factual determinations . . . take additional evidence”];
Cal. Rules of Court, rule 8.252(c)(1) [“a party may move that the reviewing court take
evidence”].) Nor would we do so had he brought his motion under those provisions.
               “The power created by the statute [Code Civ. Proc., § 909] is discretionary
and should be invoked sparingly, and only to affirm the case.” (Golden West Baseball
Co. v. City of Anaheim (1994) 25 Cal.App.4th 11, 42.) “The power to take evidence in
the Court of Appeal is never used where there is conflicting evidence in the record and
substantial evidence supports the trial court’s findings.” (Philippine Export & Foreign
Loan Guarantee Corp. v. Chuidian (1990) 218 Cal.App.3d 1058, 1090.)
               Here, to the extent the question of corporate control has any relevance in
this litigation, the evidence presented and the doctrine of implied findings requires us to

                                              10
conclude the trial court’s judgment resolved the issue against Schindler. “The doctrine of
implied findings requires the appellate court to infer the trial court made all factual
findings necessary to support the judgment.” (Fladeboe v. American Isuzu Motors Inc.
(2007) 150 Cal.App.4th 42, 58.)
              Klein addressed the issue of control when he testified Schindler resigned;
he also said Habicht and SEP’s members had grounds to “force” Schindler’s resignation
and to appoint Klein to manage SEP through its dissolution. Klein recounted the terms of
the tolling agreement he entered into on behalf of SEP with Schindler, which included
Schindler’s acknowledgment of Klein’s sole control of SEP. That agreement was
admitted into evidence.
              Schindler did not dispute at trial that he resigned or suggest there were any
impediments to Klein exercising sole control over SEP. The trial court’s judgment in
favor of SEP and against Schindler resolved the issue of corporate control against him.
We are bound by that conclusion under the standard of review. On appeal we must make
all inferences in favor of the judgment and resolve all conflicts in the evidence in favor of
the judgment. (Shneer v. Llaurado (2015) 242 Cal.App.4th 1276, 1286-1287 (Shneer).)
              The course of this appeal, in which Schindler’s augmentation motion has
spawned a motion by respondent to augment the record and provide documentary
evidence to respond to Schindler’s corporate control claims, illustrates why an appellate
court’s power to take additional evidence is limited, to be exercised only in exceptional
circumstances. At some point, litigation must end; otherwise the appellate process
becomes a hall of mirrors in which the same underlying issues are endlessly retried.
              Schindler had the opportunity to present his evidence regarding corporate
control at trial; he failed to do so. He has therefore forfeited his right to present such
evidence on appeal. The forfeiture rule fosters efficiency and deters gamesmanship:
‘“‘“‘“In the hurry of the trial many things may be, and are, overlooked which would
readily have been rectified had attention been called to them. The law casts upon the

                                              11
party the duty of looking after his legal rights and of calling the judge’s attention to any
infringement of them. If any other rule were to obtain, the party would in most cases be
careful to be silent as to his objections until it would be too late to obviate them, and the
result would be that few judgments would stand the test of an appeal.”’”’”’ (Keener v.
Jeld-Wen, Inc. (2009) 46 Cal.4th 247, 264-265.) These observations are just as
applicable to evidence not presented as they are to objections not made. Forfeiture
                                                                 3
precludes Schindler from presenting new evidence on appeal.
              The well-established law related to standing fails to furnish Schindler with
a basis for a second bite at the apple to present new or additional evidence regarding
managerial control of SEP. The evidence Schindler seeks to present for the first time on
appeal on that issue does not undermine SEP’s standing.
       2.     Damages
              Schindler challenges the sufficiency of the evidence to support the trial
court’s damages award based on the value of the converted stock. “When conducting a
substantial evidence review, we must review the entire record in the light most favorable
to the prevailing party, resolve all conflicts in the evidence in favor of the ruling or
judgment being reviewed, and indulge all reasonable inferences in support of the [trial]
court’s findings.” (Shneer, supra, 242 Cal.App.4th at pp. 1286-1287.)

       3
              Forfeiture similarly disposes of Schindler’s belated ethical claims against
SEP’s attorneys. He now claims prosecution of the action against him was fatally flawed,
and reversal of the judgment is required, because SEP’s lawyers had, and have, an
obligation to withdraw from representing SEP based on the dispute over who controls the
company, and they must also disgorge any fees received. Schindler did not raise this
contention below and has not filed a motion to disqualify the lawyers, which requires that
the movant demonstrate standing to do so. (In re Marriage of Murchison (2016)
245 Cal.App.4th 847, 851; Great Lakes Construction, Inc. v. Burman (2010)
186 Cal.App.4th 1347, 1356.) In light of these deficiencies, we treat Schindler’s stray
appellate demands for reversal, withdrawal, offset, and disgorgement as waived.

                                              12
              Schindler contends the value the trial court placed on the stock—its price
per share on the date of conversion—was speculative because SEP failed to present
evidence “that there was a market for the stock.” According to Schindler, that is why he
tried to sell the shares on the European market. The trial court as sole judge of witness
credibility was not required to credit Schindler’s explanation for his actions. (Antelope
Valley Groundwater Cases (2020) 59 Cal.App.5th 241, 260.) The court reasonably could
conclude Schindler lacked authority to move the shares out of SEP’s account into his own
possession and control.
              As to the value of the stock, Schindler’s contention is without merit
because when, as here, a company’s stock is “publicly traded on an exchange, the
‘market value’ of its shares [is] easy to determine”—namely its price per share on the
exchange. (Steiner Corp. v. Benninghoff (D.Nev. 1998) 5 F.Supp.2d 1117, 1126.)
Schindler himself in his brokerage agreement with Schneider Brothers assigned a value to
the shares that still closely approximated the damages figure despite what he claimed was
a declining market, i.e., about $880,000 for the Ener-Core stock alone vs. $950,000 on its
conversion date three months earlier. Ample evidence therefore supports the damage
award amount.
              Schindler also attacks the damages award as speculative since SEP “failed
to present any evidence that it would have sold [the] stock.” Schindler argues that absent
evidence SEP “would have sold the shares of stock [he] transferred to Schneider Brothers
during the time Schneider Brothers held onto it, SEP’s evidence of damages for the
unsold shares is entirely speculative.” We disagree. Schindler’s contention founders
because evidence at trial supported the court’s finding that Klein was appointed as SEP’s
trustee precisely to liquidate its assets. Even before Klein took control, the members’
intention to dispose of SEP’s portfolio holdings was evident in the company’s very name:
Sail Exit Partners.

                                            13
              It would be nonsensical to require the victim of conversion to attempt to
sell shares it no longer controls because a tortfeasor has converted them. By statute, the
victim’s damages are “presumed to be . . . [t]he value of the property at the time of the
conversion.” (Civ. Code, § 3336.) The tortfeasor thus bears the risk of loss in value of a
converted asset during the time he or she has taken it. Schindler’s damages challenges
are without merit.

                                     DISPOSITION
              The judgment is affirmed. SEP is entitled to its costs on appeal.

                                                  GOETHALS, J.

WE CONCUR:

BEDSWORTH, ACTING P. J.

MOORE, J.

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