Chiu v. Kim, A119756 (Cal. App. 6/30/2009)

Decision Date30 June 2009
Docket NumberA119756.
PartiesELAINE CHIU, Plaintiff and Appellant, v. SHI HYUN KIM, Defendant and Respondent.
CourtCalifornia Court of Appeals Court of Appeals

GRAHAM, J.*

The present appeal is before us following a trial before the court and judgment in favor of defendant in plaintiff's action for breach of contract, conversion, fraudulent concealment, and an accounting. Plaintiff claims that the evidence fails to support the trial court's findings. She also objects to evidentiary rulings by the trial court. We conclude that the trial court's findings on the various causes of action brought by defendant are supported by substantial evidence. We also conclude that plaintiff has failed to establish any errors associated with the admission or exclusion of evidence by the court. We therefore affirm the judgment.

STATEMENT OF FACTS

Plaintiff and defendant were both involved in other business ventures when, in 1996, they entered into an informal oral agreement (the oral agreement) to become partners in the sale of merchandise, primarily clothing, imported from China. By October of 1997, they formed a corporation known as Big K International, Inc. (Big K),1 to import products acquired through plaintiff's trusting business contacts in China. The merchandise was then sold through Big K and a preexisting separate clothing wholesale outlet defendant alone owned called BK Sportswear. Pursuant to the agreement between the parties, defendant became the president of Big K and owned 51 percent of the stock of the company. He also maintained all the financial records for the company. Plaintiff was the vice-president and secretary of the corporation, and owned the remainder of the stock. Plaintiff and defendant agreed to split equally the proceeds from the sale of the merchandise by Big K after payment to the Chinese manufacturers. BK Sportswear remained "solely" defendant's business.

Between October of 1997 and the beginning of 2004, Big K and BK Sportswear operated at the same location at 2565 Third Street in San Francisco,2 although they remained distinct business entities, with separate printing and embroidery rooms within the building, as well as separate inventory, records, employees, and tax returns.3 BK Sportswear sold imported T-shirts and sweatshirts, and operated a silk-screening or printing business associated with importation and sale of the T-shirts. The T-shirts were then sold in tourist shops in Chinatown and Fisherman's Wharf. Big K imported "completely different merchandise" for sale, primarily polar fleece jackets and other sportswear. Big K also performed "embroidery work" on the imported merchandise and for local clothing fabricators such as SFO Apparel in San Francisco. Imported inventory was received from China at a warehouse at the Third Street location, stored there, then distributed by defendant through Big K. Plaintiff arranged for the importation of products from China and guaranteed the payments to the merchants in China. The merchants, being relatives or acquaintances of plaintiff, shipped the products on credit. Defendant was responsible for making payments to the Chinese merchants through plaintiff. Defendant also paid all of the Big K employees through an account at Bank of America.

Evidence was presented that the merchandise imported through plaintiff's contacts in China was also delivered by a freight forwarder to a corporation owned by plaintiff known as "Cherry Way" or "Cheery Way" at 2565 Third Street in San Francisco.4 Plaintiff arranged for the deliveries, but defendant was named as the primary contact person for delivery to the Cherry Way business at the Third Street address. Shipments of merchandise imported by Cherry Way for delivery to other clients or business associates of plaintiff did not have defendant as the "contact person for delivery." Some shipments were also sent by Cherry Way to a warehouse in Redwood City for storage there. The payments for all of these shipments of merchandise were made by Cherry Way rather than defendant.

Defendant's wife, Mrs. Kim,5 performed most of the accounting and bookkeeping services for both Big K and BK Sportswear. Mrs. Kim testified that defendant provided her with invoices for "all cash sales and checks" that were entered into the computer and recorded in the separate books for Big K and BK Sportswear. The invoices for purchases by Big K were often not recorded until the end of each year. Plaintiff complained that she repeatedly asked defendant for an accounting and corporate records of the businesses, which he never provided to her. Defendant asserted in his testimony that plaintiff intimately participated in the business and was regularly on the premises.

According to Mrs. Kim, between 1997 and 2004, BK Sportswear was operating with a net profit of between 45 and 50 percent, whereas Big K was "continuing to lose" money. The costs for the embroidery operation of Big K were greater than the costs of printing incurred by BK Sportswear, so BK Sportswear had a greater profit margin. By 2004, Big K was not operating profitably, and owed money to the Chinese vendors. Instead of making timely payments as he had done in the past, defendant attempted to pay the balances due to the vendors slowly, "over time." Both defendant and plaintiff ultimately took out personal loans to make payments on the accounts of Big K.

By the end of 2004, the parties were embroiled in a dispute over the continued losses of Big K and payment of the outstanding debts owed to the Chinese merchants. Plaintiff testified that she was asked by the Chinese merchants to collect money from defendant to pay them for the imported products. After defendant moved the business to Oakland in April of 2004, he stopped making any payments to plaintiff. Defendant testified that he believed, based on representations by plaintiff, that the payments he made satisfied all of the outstanding debts to the Chinese merchants.

By late in 2004, plaintiff and defendant decided to dissolve their partnership and terminate the Big K partnership business. Defendant prepared a document entitled "Assets & Liabilities Split Agreement" (the dissolution agreement), which they both signed on December 28, 2004. According to the dissolution agreement, Big K was dissolved and the parties "split" the assets and liabilities of the company as follows: defendant took possession of the embroidery machines and assumed financial responsibility for the outstanding loan from Washington Mutual Bank in the amount of $34,203.97; plaintiff took possession of 500 boxes of merchandise and was responsible for repayment of a loan from Bank of the West in the amount of $65,053.60.

Plaintiff testified that during their dissolution negotiations defendant orally represented to her that he would be "responsible for all the debt in China." According to plaintiff, she did not realize until her husband told her after the agreement was signed that it failed to obligate defendant to repay all the still-outstanding debts to the Chinese merchants. Plaintiff's husband told her that defendant "cheated" her. At plaintiff's request, her husband then added a provision to her copy of the agreement that specified defendant was responsible for all business transactions or money owed by Big K to two named Chinese business entities. Plaintiff testified that she sent the modified agreement to defendant for his approval. Defendant testified that he never approved the modification nor even received it until after the present action was filed. According to defendant's testimony, he "paid off" all the known debts to Chinese manufacturers for products supplied to Big K and BK Sportswear.

Plaintiff presented expert opinion testimony from accountant Robert Mazur following his review of the books, statements, contracts and other financial records of Big K and BK Sportswear from 1995 through 2003. Mazur also compared the records to the invoices and purchases of those companies to determine if all expenses and revenues had been reported. His examination revealed that some cash sales were not reflected on the books of the companies. Mazur offered several opinions based on his examination of the records: the total of the recorded invoices for purchases from China was $905,580, while the total of the invoices that "should have been recorded" was $1,342,720; the total of the "unrecorded China invoices" was $437,141, so that plaintiff was entitled to $218,808 as her "proportional share of that;" a total of $358,131 of "additional purchases" were not recorded on the books of either company, of which plaintiff was entitled to a proportional share of $175,484; and, plaintiff was entitled to damages of $113,778 for lost or unstated profits using combined income and expense ratios for both companies. Thus, Mazur testified, plaintiff was damaged in the total amount of $508,070.

Hak Chon Lee testified as an accounting expert for defendant. He acted as defendant's accountant, and reviewed the tax returns, ledgers and accounts for Big K and BK Sportswear for the years 1994 through 2004. He also reviewed the financial records for the Cherry Way business operated by plaintiff. Lee testified that Big K had a gross profit of 25 to 30 percent for the years in operation, but suffered a net loss of an average of $10,000 per year, and a net negative cash flow each year. His opinion was that the losses incurred by Big K were primarily attributable to heavy capital expenditures for embroidery equipment and a more labor intensive business operation. He also testified that the income of Big K dropped considerably beginning in 2003 due to the termination of a critical embroidery contract with SFO Apparel, and by 2004 Big K was operating at a "significant loss." Lee testified that in contrast BK Sportswear was separately operated...

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