Mike Davidov Co. v. Issod

Decision Date24 February 2000
Docket NumberNo. B130661.,B130661.
Citation78 Cal.App.4th 597,92 Cal.Rptr.2d 897
CourtCalifornia Court of Appeals Court of Appeals
PartiesMIKE DAVIDOV COMPANY, Plaintiff and Respondent, v. Steven ISSOD, Defendant and Appellant.

Brian P. Simon, Los Angeles, for Defendant and Appellant.

Sherman, Nathanson & Miller, Richard Lloyd Sherman, Ken Nathanson, Beverly Hills, and Craig J. Englander, for Plaintiff and Respondent.

CROSKEY, J.

The defendant Steven Issod, was sued by the Mike Davidov Company, which is owned by Mike Davidov (plaintiff), for fraud and breach of contract after defendant failed to return a diamond to plaintiff. Following a bench trial, the court ruled in favor of plaintiff, and awarded him $20,301 in compensatory damages on the fraud cause of action, and $96,000 in punitive damages. We conclude that the judgment is amply supported by the record, and that the award of punitive damages was proper even though plaintiff did not produce evidence of the defendant's financial condition. As the defendant failed to obey a court order requiring him to produce records of his financial condition, he is estopped to object to the absence of such evidence.

FACTUAL AND PROCEDURAL BACKGROUND1

On February 22, 1995, defendant telephoned plaintiff and asked plaintiff to send over two diamonds. Defendant represented to plaintiff that he had a customer present in his office at the time of the telephone call, and that this customer was interested in buying a diamond of a particular size and quality.

Both plaintiff and defendant are active members of the diamond industry. Plaintiff has been in the diamond business for 35 years and is the founder and past president of the Los Angeles Diamond Club West Coast (the Diamond Club). Business disputes between members of the Diamond Club are generally handled internally. It is unusual that members are required to bring civil actions against each other in connection with diamond transactions. However, the plaintiff had once before been required to file a civil action against the defendant in order to collect money due from an earlier diamond transaction. That transaction involved a situation in which a diamond was purchased and sent out of the country to be cut; defendant and two other men involved in the purchase personally guaranteed payment to plaintiff, and when the other two men did not pay, plaintiff was forced to file suit against defendant.

Understandably, plaintiff was reluctant to provide defendant with stones, and agreed to do so only because defendant represented that, at the time of his call, he had a customer in his office who was interested in a particular size and quality of diamond, and that the diamonds would remain in defendant's possession and would be returned to plaintiff within three hours, in other words, before the end of the day. Defendant agreed to these terms. The stones were handed over to defendant's messenger with a memorandum (No. 4406), a printed receipt from plaintiff which expressly set out the limited character of plaintiffs delivery.2

The memorandum showed that one of the stones, a 3.03 carat diamond, described as worth $20,301, had been received by defendant's business on February 22, 1995. Above the line for the signature showing that the goods had been received, was the statement "Received the above goods in good order on the terms and conditions set out (This is NOT an invoice or bill of sale)". The memorandum was signed by one of defendant's agents who picked up the stones.

Defendant's office was only two or three blocks away from plaintiffs office. At 5:00 p.m., plaintiff called defendant and asked "what's happening with [the] stones?" Defendant told plaintiff he would call him back later because he was busy with other lines, and said that his customer hadn't come yet. The next day, and thereafter, plaintiff tried calling defendant over and over, but defendant would never take his calls. Finally, plaintiff went to defendant's office and told him he wanted the stones back. Defendant told him he could return one of the stones, but the second stone, the 3.03 carat stone, was not in his office. Defendant also told plaintiff that he had sent both stones out of his office without plaintiffs permission, and had gotten only one of the stones back.

Plaintiff sued defendant for breach of contract, open book account, account stated and fraud. Soon thereafter, defendant filed for bankruptcy. The matter went to trial, with the first cause action for breach of contract stayed because of the bankruptcy proceedings.

At trial, plaintiff testified to the facts related above.3 In contrast, defendant testified that he did not tell plaintiff that he had a customer waiting in his office to see the stones but that he had told plaintiff he needed to send the diamond in question out of town. He testified at trial that he did not tell plaintiff where, in particular, he was going to send the diamond; however, during his deposition he testified that he told plaintiff he was sending that stone to someone in New York. Defendant also denied that there was any discussion that he could have the stone for only a three-hour period; moreover, he insisted that he and plaintiff had agreed that defendant would pay for the stone only if the stone was sold. However, this trial testimony was impeached by a declaration from defendant which had been filed earlier in the lawsuit, in which defendant stated that on, February 22, 1995, his company had agreed to receive a diamond for inspection and examination and that 10 days later he and plaintiff entered into an oral agreement that defendant would pay for the diamond upon selling such diamond and receiving the funds for it, neither of which occurred.

Defendant testified that he tried to get the stone back for several months. However, he never wrote letters to the recipient in New York in an attempt to get the stone back, nor did he ever file a lawsuit in New York to get the stone back. Nor did defendant go to the Diamond Club in New York to ask for the club members' assistance in obtaining the stone because, according to defendant, the recipient of the stone was not a member of the club so that would not have done any good. At trial, defendant offered into evidence a memorandum on his own letterhead, dated February 22, 1995, which purported to show that he had sent the diamond in question to Steve Eagel Inc., in New York. However, defendant had failed to produce this document during discovery, and he was badly impeached as to its authenticity during cross-examination. The trial took place on January 13, 1997. After both sides made their closing arguments, the trial court found in favor of the plaintiff and against the defendant on the fourth cause action, for fraud, in the amount of $20, 301, plus interest, as compensatory damages.

The trial court then asked what evidence plaintiff had as to defendant's financial condition or net worth. Plaintiffs counsel replied that he had no evidence, other than defendant's representations that he was judgment-proof. The trial court asked whether it did not need evidence of net worth in order to award punitive damages against defendant. In reply, plaintiff asked for a hearing and the opportunity to conduct discovery on the issue of defendant's financial condition.

The trial court granted that request and ordered defendant to produce all records regarding his net worth by 9 a.m. the next day and to turn over all such records to plaintiffs counsel. Plaintiffs counsel then asked if he would have an opportunity to examine defendant at that hearing to establish his net worth, and the trial court agreed that he would. According to the minute order, the trial court bifurcated the issue of punitive damages, and set a hearing for the next day. Notably, defense counsel initially did not object to these requests or orders at the time, and merely expressed the concern that they would be going over the five hour trial time estimate if they went into the punitive damage issue the next day. However, almost as an afterthought, defense counsel did object to the requirement that defendant be required to bring in his financial records, on the ground that they had not been requested during discovery, nor subpoenaed for trial. Plaintiffs counsel then argued that, until liability for punitive damages had been established, he had been precluded from conducting discovery of the defendant's financial situation; defense counsel argued that, nonetheless, plaintiff should have subpoenaed the records or made a motion to bifurcate. The trial court did not withdraw its order that defendant bring in his financial records, thus implicitly overruling defendant's objections. (See, e.g., People v. Hayes (1990) 52 Cal.3d 577, 619, 276 Cal.Rptr. 874, 802 P.2d 376; People v. Jacobs (1987) 195 Cal.App.3d 1636, 1650-1651, 241 Cal. Rptr. 550.)

The next day, defendant did not bring in his financial records. Plaintiff argued that, pursuant to Weisenburg v. Molina (1976) 58 Cal.App.3d 478, 129 Cal.Rptr. 813, the trial court could award punitive damages without evidence of the defendant's net worth, using a multiplier of the compensatory damages to come up with an appropriate amount. Defendant argued that evidence of net worth was required. The trial court agreed with plaintiff and heard argument on the issue of punitive damages. The court then awarded punitive damages to plaintiff in the sum of $96,000. This was a little over four times the compensatory damages which had already been awarded.4

Judgment was entered on February 14, 1997 and defendant thereafter filed this timely appeal.

CONTENTIONS ON APPEAL

Defendant contends that (1) there was insufficient evidence to support the trial court's finding of fraud; and, even if present, it was not sufficiently clear and convincing to justify an award of punitive damages; (2) it was improper for plaintiff to argue that defendant had lied in his application to be a member of the Diamond...

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