Chen v. Stewart

Decision Date08 October 2004
Docket NumberNo. 20020927.,20020927.
Citation100 P.3d 1177,2004 UT 82
PartiesJau-Fei Chen, individually and as the natural guardian of Chi Wei Zhang, E. Lei Zhang, and E. E. Zhang, her minor children, Rui-Kang Zhang, Plaintiffs and Appellees, v. Jau-Hwa Stewart, et al., Defendants. E. Excel International, Inc., Cross-Claimant, v. Jau-Hwa Stewart, Cross-Defendant and Appellant. E. Excel International, Inc., Third-Party Plaintiff and Appellee, v. Taig Stewart; Beverly Warner; Angela Barclay; Dale Stewart; Hwan Lan Chen; Sheue Wen Smith; Kim O'Neill; Byron Murray; Apogee, Inc., a Utah corporation; Apogee Essence International Philippines, Inc., a Philippine corporation; Excellent Essentials International Corporation, a Philippine Corporation; USA Apogee, Ltd., a Hong Kong corporation; Shannon River, Inc., a Utah corporation; Shannon Heaton; Sam Tzu; Richard Hu; Bryan Hyman; Paul Cooper; and John Does I through X, Third-Party Defendants and Appellants.
CourtUtah Supreme Court

Michael R. Carlston, Richard A. VanWagoner, David L. Pinkston, Ryan M. Harris, James S. Lowrie, Michael D. Zimmerman, Todd M. Shaughnessy, James D. Gardner, Kimberly Neville, Salt Lake City, for plaintiffs.

Mark A. Larsen, David S. Hill, Jon K. Stewart, Stacy McNeill, Daniel L. Berman, Stephen R. Waldron, H. Thomas Stevenson, Salt Lake City, for defendants.

Kim O'Neill, defendant pro se.

Byron Murray, defendant pro se.

DURHAM, Chief Justice:

INTRODUCTION

¶1 On January 10, 2001, plaintiff Jau-Fei Chen brought suit against her sister, defendant Jau-Hwa Stewart, and the family corporation, E. Excel, of which Jau-Hwa was president at that time. In the suit Jau-Fei claimed corporate waste, breach of fiduciary duty, and improper removal of a director. On March 13, 2001, the parties stipulated to the removal of Jau-Hwa Stewart from her position as president of E. Excel and agreed to the appointment of an interim CEO, Larry Holman, to run the company during the pendency of the lawsuit. On October 29, 2001, the interim CEO filed a cross-claim against Jau-Hwa Stewart and third-party defendants Hwan Lan Chen (Jau-Hwa and Jau-Fei's mother) and Taig Stewart, (Jau-Hwa Stewart's husband) as well as other individuals the court later found to have been working in concert with Hwan Lan Chen and Jau-Hwa Stewart. On October 16, 2002, the trial court entered a preliminary injunction barring all defendants from worldwide competition with E. Excel. Within ten days, Hwan Lan Chen filed a motion, in which Jau-Hwa and Taig Stewart joined, to vacate the trial court's orders relating to Mr. Holman's appointment as interim CEO. The trial court denied Hwan Lan Chen's motion to vacate. This court granted defendants' petition for an interlocutory appeal from the trial court's decision. We affirm.

BACKGROUND

¶2 The respective parties tell two different stories about the events that gave rise to this lawsuit; the facts, however, tell only one. Over 200 pages of findings of fact and conclusions of law entered by the trial court narrate a tale of intrigue, deceit, and family strife of surprising proportions.

¶3 The trial court's findings directly contradict defendants' characterization of the underlying dispute. Because defendants have failed to properly marshal the evidence in support of the trial court's findings of fact, we do not consider those findings properly challenged and, therefore, assume the evidence supports them. Utah Med. Prods., Inc. v. Searcy, 958 P.2d 228, 233 (Utah 1998). As a result, we rely on those findings in reciting the facts here.

¶4 E. Excel International, Inc. (E. Excel) is a manufacturer of nutritional supplements and skin care products sold both nationally and internationally. In the United States and Canada, the products are sold directly through multilevel marketers. In Asia, the products are sold to a single territorial owner in each of the major markets, who in turn sells the products through a multilevel marketing network. Members of the Chen family control the corporation and have served in various roles as directors, officers, or employees of E. Excel. Prior to the events that form the basis of the present litigation, E. Excel was run by Jau-Fei Chen (Dr. Chen) as president and her sister Jau-Hwa Stewart (Ms. Stewart) as vice president.

¶5 Although this is not the Chen family's first serious internal feud,1 in 2000 a particularly vicious dispute arose. In the early part of that year, Ms. Stewart and her mother, Hwan Lan Chen (Madame Chen), came to believe that Dr. Chen's husband, Rui-Kang Zhang, had been using company funds to support a mistress in California. They insisted that Dr. Chen immediately divorce her husband and give up custody of her children. When Dr. Chen refused, Ms. Stewart and Madame Chen demanded that both Dr. Chen and her husband end their affiliation with E. Excel. Dr. Chen again refused. Unable to convince Dr. Chen to remove herself voluntarily, Ms. Stewart and Madame Chen turned to more aggressive measures.

¶6 At the time the present dispute arose, the ownership of the company rested with Ms. Stewart, who possessed a 25% minority share in the company, and the three minor children of Dr. Chen, who possessed a combined 75% share. In September 2001, purporting to act as trustee for Dr. Chen's children, Ms. Stewart claimed control of 100% of the outstanding shares and removed Dr. Chen from the board of directors. She then installed her husband, Taig Stewart, and Madame Chen as new directors.2 The new board voted to remove Dr. Chen as president of E. Excel, appointing Ms. Stewart in her place. Acting as president of E. Excel, without authorization from the board or any justifiable business reason, Ms. Stewart transferred nearly $2 million from E. Excel to her personal account. Ms. Stewart and Madame Chen then proceeded to attack the long-term distributors still loyal to Dr. Chen by stopping the shipment of supplies and transferring millions of dollars to Asian markets to establish new distribution networks.

¶7 On January 10, 2001, Dr. Chen brought derivative claims against Ms. Stewart and E. Excel, alleging corporate waste, breach of fiduciary duty, and improper removal of a director. That same day, the court granted a temporary restraining order prohibiting Ms. Stewart from violating E. Excel's exclusive contracts with the territorial owners and from acting as president and spokesperson of E. Excel. The order also required Ms. Stewart to fulfill all pending orders from the territorial owners. The court held evidentiary hearings from January 19, 2001, to February 21, 2001, in order to determine whether the temporary restraining order should be converted into a preliminary injunction. During that time a series of increasingly bizarre events unfolded, manifesting Ms. Stewart and Madame Chen's intent to either squeeze Dr. Chen out of the corporation or destroy it entirely. In defiance of the temporary restraining order, Ms. Stewart continued to ship products to the new distributors, using "front" companies rather than shipping directly to them, and omitting the names of recipients from the shipping orders. Orders in transit to the new distributors were not stopped, and the only order shipped to a long-term distributor was rejected by the recipient country's government as adulterated. As it became increasingly clear that the court would grant a preliminary injunction in Dr. Chen's favor and remove Ms. Stewart as president of the company, defendants set out to disable E. Excel and set up a competing enterprise, Apogee, in its place. To this end, Ms. Stewart and the third-party defendants who assisted in the scheme disabled the surveillance system that monitored activities at E. Excel's warehouse and offices. They stole, converted, and destroyed millions of dollars worth of E. Excel's inventory, equipment, business records, and computer files. In one of the more bizarre episodes of this case, the defendants purchased mice at a pet store and released them into the warehouse, thereafter claiming that it was necessary to remove the product from the warehouse due to a rodent infestation.

¶8 Matters came to a head when, on February 13, 2001, a tape of a recorded conversation between Ms. Stewart and two new distributors located in Asia was anonymously delivered to Dr. Chen and her attorneys. During the conversation, Ms. Stewart and the distributors agreed to deny knowledge of certain critical matters during the evidentiary hearings and blame Dr. Chen for harmful events caused by Ms. Stewart or others. The trial court entered the tape into evidence and referred the recording and a transcript of testimony before the court to the county attorney.

¶9 On February 21, 2001, following the trial court's evidentiary hearings, all parties stipulated to an interim order. Among other things, the order prohibited Ms. Stewart from interfering with any contract between E. Excel and its distributors or third parties and required her to return to E. Excel's corporate headquarters any corporate assets in her custody. It also provided for the removal of Ms. Stewart as president of E. Excel, the removal of Madame Chen and Taig Stewart from the board, and the reinstatement of Dr. Chen and her husband to the board. Finally, the interim order directed the appointment of an interim CEO to conserve the remaining assets of E. Excel and to operate the company pending the outcome of the suit. The order provided that the parties would be allowed to choose the interim CEO; however, if they could not reach an agreement, the CEO would be appointed by the court. After the parties failed to agree on an individual, the court appointed Larry Holman on March 13, 2001, empowering him as interim CEO/special master with "full executive authority to act on behalf of the company, and conduct its business, subject to the continuing oversight of the board of directors and the Court."

¶10 When...

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