Chen v. Stewart
| Decision Date | 21 October 2005 |
| Docket Number | No. 20020777.,20020777. |
| Parties | Jau-Fei CHEN, individually and as the natural guardian of Chi Wei Zhang, E. Lei Zhang, and E.E. Zhang, her minor children, Plaintiff and Appellee, v. Jau-Hwa STEWART, E. Excel International, Inc., a Utah corporation, and Does I through X, Defendants and Appellant. E. Excel International, Inc., a Utah corporation, Third-Party Plaintiff, v. Taig Stewart; Hwan Lan Chen; Beverly Warner; Angela Barclay; Dale Stewart; Sam Tzu; Richard Hu; Apogee, Inc., a Utah corporation; Apogee Essence International Philippines, Inc., a Philippines corporation; Excellent Essentials International Corp., a Philippines corporation; USA Apogee, Ltd., a Hong Kong corporation; Shannon River, Inc., a Utah corporation; Shannon Heaton; Sheue Wen Smith; Bryan Hyman; Paul Cooper; Kim O'Neill; Byron Murray; and Does I through X, Third-Party Defendants and Cross-Appellants. |
| Court | Utah Supreme Court |
Michael R. Carlston, Richard A. Van Wagoner, David L. Pinkston, R. Matthew Cox, Salt Lake City, for Jau-Fei Chen.
Mark A. Larsen, Jon K. Stewart, David S. Hill, Stacy J. McNeill, Salt Lake City, for Jau-Hwa and Taig Stewart.
Daniel L. Berman, Samuel O. Gaufin, Stephen R. Waldron, Eric K. Schnibbe, Salt Lake City, and H. Thomas Stevenson, Ogden, for Hwan Lan Chen.
INTRODUCTION
¶ 1 This case arises from a dispute among members of a traditional Chinese family. The dispute eventually led to sabotage of the family business, protracted litigation, and allegations of conspiracy to commit perjury and obstruction of justice. Following extensive hearings, the district court held defendant Jau-Hwa Stewart ("Ms.Stewart") in criminal and civil contempt for violation of its orders, perjury, subornation of perjury, and obstruction of justice. It is the validity of this contempt order that is at issue in this appeal. For the reasons detailed below, we affirm in part, reverse in part, and remand.
¶ 2 In 1987, Dr. Jau-Fei Chen ("Dr. Chen"), her husband Rui Kang Zhang, and her parents Hwan Lan Chen ("Madame Chen") and Yung-Yeuan Chen incorporated E. Excel USA ("Excel"), a multilevel marketing company that produced nutritional supplements and other health related products. Dr. Chen became Excel's president and sole shareholder, receiving six thousand shares of Excel stock at the time of its incorporation.
¶ 3 In the early 1990s, Ms. Stewart, Dr. Chen's elder sister, was invited to join the company as its vice president, in part to capitalize on the knowledge Ms. Stewart had gained while working for another multilevel marketing company. Ms. Stewart accepted the invitation, was appointed to Excel's board of directors, and thereafter began overseeing Excel's day-to-day operations. In 1995, Dr. Chen transferred 1500 shares of stock to Ms. Stewart in order to ensure that she would be "devoted to the company." At the same time, Dr. Chen transferred her remaining 4500 shares of stock to her three minor children, giving each 1500 shares. As a result of these transfers, the Chen children owned, collectively, a 75% interest in Excel, and Ms. Stewart owned a 25% interest.
¶ 4 As a multilevel marketer, Excel entered into exclusive distributorship contracts with territorial owners in its Asian markets, who would, in turn, distribute Excel products through use of a multilevel marketing network by enlisting "registered distributors" to sell its products to consumers. Through the years, Excel entered into exclusive distributorship contracts with territorial owners located throughout several Asian and Southeast Asian countries, including Malaysia, Taiwan, Hong Kong, and the Philippines.
¶ 5 Working together, Dr. Chen and Ms. Stewart created a successful company with markets throughout the world. But their business and personal relationships deteriorated dramatically during the spring of 2000, when Ms. Stewart and her mother, Madame Chen, learned that Dr. Chen's husband was having an affair and had been diverting company funds to support his mistress. Upon learning this information, Madame Chen and Ms. Stewart confronted Dr. Chen, demanding that she divorce her husband and sever all ties with him. When Dr. Chen refused, Madame Chen and Ms. Stewart designed a Machiavellian scheme to divest Dr. Chen of control of Excel.
¶ 6 On September 1, 2000, while Dr. Chen was out of the country, Ms. Stewart set in place her plan to usurp control of Excel. Her first step was to gain control over the voting shares of stock. She did this by purportedly acting on behalf of Dr. Chen's three minor children, thus giving her a combined 100% ownership of the voting shares of stock. Exercising the voting rights of this stock, Ms. Stewart removed Dr. Chen and Mr. Zhang as directors of Excel, appointing in their stead Ms. Stewart's husband and Madame Chen. With the new board in place, the directors voted to remove both Dr. Chen and her husband from their respective positions at Excel. Finally, the board named Ms. Stewart as Excel's new president and Ms. Stewart's husband as secretary.
¶ 7 During her tenure as president of Excel, Ms. Stewart undertook a series of maneuvers designed to eliminate the influence of, and any loyalty to, Dr. Chen. For instance, during a meeting with the territorial owners of Malaysia and Taiwan, Mr. Tjandra and Mr. Le, respectively, Ms. Stewart falsely reported that Dr. Chen had left Excel in pursuit of other matters. When Mr. Tjandra and Mr. Le refused to believe that Dr. Chen would voluntarily leave the company and asked to speak with Dr. Chen directly, Ms. Stewart responded by attempting to convince the territorial owners that Dr. Chen's presence in the company was not essential to its success. Despite her attempts to persuade the territorial owners, it became evident to Ms. Stewart that Mr. Tjandra and Mr. Le would continue to remain loyal to Dr. Chen. Accordingly, Ms. Stewart terminated Excel's exclusive distributorships with these territorial owners and began new distributorships in the Philippines and Hong Kong with Mr. Hu and Mr. Tzu, individuals loyal to her.
¶ 8 To ensure that these new "rogue" distributorships would prosper, Ms. Stewart arranged to have substantial sums of money sent to Mr. Hu and Mr. Tzu. She also forbade Excel employees to ship Excel products to either Mr. Tjandra or Mr. Le, the consequence of which "was that down-line distributors in the multi-level marketing chain, in order to survive financially, would of necessity defect to the new distribution companies." Furthermore, Ms. Stewart shipped the new distributors Excel products at no charge.
¶ 9 In early January 2001, Dr. Chen filed suit against Ms. Stewart and Excel, alleging, among other things, corporate waste, breach of fiduciary duty, and invalid removal of a corporate director. Additionally, Dr. Chen moved for a temporary restraining order and an order to show cause why the temporary restraining order should not remain in effect as a preliminary injunction during the pendency of the case. The district court granted the temporary restraining order on January 10, 2001. As modified by the district court, the temporary restraining order provided as follows:
The Defendant Stewart, her agents, servants, representatives, and any persons in active concert or participation with her are enjoined and restrained: (1) from acting as a trustee of the [trusts benefitting Dr. Chen's children]; [and] (2) from directly or indirectly causing the Company to violate any of its exclusive contracts with territorial owners or to compete with territorial owners in violation of such contracts. The Court also enjoins and directs [Ms.] Stewart immediately to fill, complete and ship all pending orders for products received from Territorial Owners where such Territorial Owners have complied with the terms of the exclusive contracts.
Ms. Stewart was properly served with the temporary restraining order on January 11, 2001, and on January 24, 2001, the district court extended the temporary restraining order without objection.
¶ 10 In direct violation of the temporary restraining order, Ms. Stewart refused to fill the many orders received from Mr. Tjandra and Mr. Le. Indeed, after the district court granted the temporary restraining order, Ms. Stewart neither informed the employees at Excel of the terms of the temporary restraining order nor rescinded her order forbidding shipment of Excel products to Mr. Tjandra and Mr. Le. At the same time, Ms. Stewart oversaw shipments of Excel products to the rogue distributors. At a time when Ms. Stewart, as president of Excel, had the authority to recall any shipments in transit, she allowed at least two shipments to be sent to Mr. Tzu and Mr. Hu in direct violation of the restraining order.
¶ 11 From January 19, 2001, to February 21, 2001, the district court held evidentiary hearings regarding Dr. Chen's order to show cause why the temporary restraining order should not remain in effect as a preliminary injunction during the pendency of the case. During these proceedings, it became apparent to Ms. Stewart that she would not be allowed to remain as Excel's president. Consequently, she modified her plan to force Dr. Chen out of Excel, opting instead to destroy the entire company by creating a competitor that would force Excel out of its Asian markets.
¶ 12 To this end, Ms. Stewart, with the aid of several accomplices, undertook a number of acts designed to "[d]estroy Excel." These acts included (1) "the removal of Excel ... property," such as computer equipment, office furniture, file cabinets, desks, and chairs; (2) the deletion of e-mails and the removal of other company documents, including laboratory and toxicology reports; (3) the formation of a competing enterprise, Apogee, Inc.; (4) the removal of Excel products and raw materials; and (5) the sabotage of Excel products. Additionally, Ms. Stewart, through her agents,...
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