Nelson v. Anderson

• Decision Date: 17 May 1999
• Docket Number: No. B107992,B107992
• Citation: 84 Cal.Rptr.2d 753,72 Cal.App.4th 111
• Court: California Court of Appeals Court of Appeals
• Parties: , 73 Cal.App.4th 41C, 99 Cal. Daily Op. Serv. 3628, 1999 Daily Journal D.A.R. 4605 Nancy NELSON, Plaintiff and Respondent, v. Loni ANDERSON et al., Defendants and Appellants.

Page 753

84 Cal.Rptr.2d 753

72 Cal.App.4th 111, 73 Cal.App.4th 41C,

99 Cal. Daily Op. Serv. 3628,

1999 Daily Journal D.A.R. 4605

Nancy NELSON, Plaintiff and Respondent, v. Loni ANDERSON et al., Defendants and Appellants.

No. B107992.

Court of Appeal, Second District, Division 7, California.

May 17, 1999.

As Modified on Denial of Rehearing June 14, 1999.

Review Denied Sept. 15, 1999.

Law Office of James T. Duff, James T. Duff, Los Angeles, Howard, Rice, Nemerovski, Canady, Falk & Rabkin, Jerome B. Falk, Jr., and Eve H. Shapiro, San Francisco, for Defendant and Appellant Loni Anderson.

Gibson, Dunn & Crutcher, John H. Sharer and James P. Fogelman, Los Angeles, and Seth M.M. Stodder, Washington, DC, for Defendants and Appellants Musick, Peeler & Garrett and Geoffrey C. Brown.

Law Offices of James R. Rosen, James R. Rosen, Beverly Hills, and Donald B. Rosen, for Plaintiff and Respondent.

WOODS, J.

Appellant Loni Anderson contends respondent had no standing to bring this action as an individual, but should have brought a derivative action on behalf of the corporation of which the two were the sole shareholders. We agree, and reverse the judgment. The corporation's attorneys, Musick, Peeler & Garrett, who obtained a defense verdict in respondent's action against them for malpractice, appeal from an order taxing costs. We reverse the order in part and affirm in part.

FACTUAL AND PROCEDURAL BACKGROUND

Respondent Nancy Nelson formed a corporation, Lonan, Inc., with appellant, television actress Loni Anderson, for the purpose of marketing skin care products. When the business venture failed, Nelson sued Anderson and the corporation's attorneys, Musick, Peeler & Garrett, and one of its partners, Geoffrey C. Brown, for intentional and negligent interference with contract and prospective economic advantage, and attorney malpractice as to the attorneys. The Second Amended Complaint, filed July 19, 1996, also alleged that the failure of the corporation was caused by Anderson's breach of her fiduciary duties as the majority shareholder. Nelson dismissed the interference with contract claims before trial.

In furtherance of the venture, Lonan had formed business relationships with Levlad Incorporated and Television Marketing Group, Inc. ("TMG"), which were also plaintiffs in the action. Levlad and TMG settled prior to jury selection, and the matter proceeded to jury trial with Nelson as the sole plaintiff. (Nelson RA, Tab 2)

Nelson had been a television personality for many years, and eventually became one of the best "infomercial" hosts in the country. ¹ In early 1993, Nelson decided to concentrate her efforts on developing her own product, a women's skin care line. Recognizing she was not glamorous or pretty enough to sell such a product, although she was very well known nationally from her infomercials, Nelson wanted a celebrity signature for it, and decided to approach Anderson, whom she had known many years ago in Minneapolis.

Anderson invited Nelson to her home to make a presentation, which she did in March, 1993. Also invited were Anderson's business managers and her attorneys, Mark Grushkin and Geoff Brown, partners in the firm of Musick, Peeler & Garrett, whom Anderson had retained to represent her with regard to the FBI's investigation of Elan, a company which had sold inferior cosmetics, using Anderson's name without authorization. Nelson proposed to market nine types of cosmetic product lines, packaged with a "free gift" and an instructional videotape with Anderson or a model demonstrating the products. She suggested several marketing approaches, among them, telemarketing, retail, mail order, and television, including half hour infomercials. She promised that Anderson's name and reputation would be "protected and guarded."

Nelson knew that because of the Elan problem, Anderson wanted to have control of the business, to be in the "driver's seat." It had been Anderson's intention to form her own corporation, so that she would have complete control of it. However, on April 2, 1993, they agreed to form a corporation together. On June 7, 1993, Musick, Peeler & Garrett formed the corporation, called "Lonan," to market the products. Anderson and Nelson were the only shareholders and directors of the corporation. Anderson owned 75 percent of the outstanding shares, and Nelson owned 25 percent. Anderson was elected president and chief executive officer, and Nelson was elected chief operating officer, vice president, treasurer, and secretary. In a separate agreement, Musick, Peeler & Garrett agreed to provide legal services in exchange for a 2-1/2 percent share in the gross revenue of Lonan.

Actor Burt Reynolds filed for a dissolution of the his marriage to Anderson on June 10, 1993. ² In July, 1993, Anderson began filming a television series, which caused her to be very busy. In late August, 1993, Anderson told Nelson she "had a crush on" Musick, Peeler & Garrett partner, Geoff Brown, and a few days later Nelson learned from Grushkin that Brown and Anderson were involved in a romantic relationship. About a week later, an article about the relationship appeared in the National Enquirer.

Since late June, 1993, Nelson had felt that Brown was interfering with the operation of the company. The first instance of what she considered to be interference occurred when he brought in artist, Sachi Kuwahara, in place of the artist selected by Levlad. Then he interfered in a meeting on October 1, 1993, called to plan the infomercial, by arriving unexpectedly with his former girlfriend, Vickie Walls, who worked for an advertising agency, and two of her associates. Nelson felt that they took over the meeting, and in and "one of the most disturbing of [her] professional career," they told those present how they felt the infomercial should be put together. Eventually, Nelson thought Brown's interference was destroying the project, and often complained to Grushkin about his involvement.

During March or April, 1993, Nelson had approached Levlad, Incorporated, a cosmetics manufacturing firm, to provide the products for the venture. On October 6, 1993, Lonan formed a partnership with Levlad, under a partnership agreement drafted by Musick, Peeler & Garrett. The agreement provided that Anderson would "use her best efforts to be available for advertising and promotional activities."

On October 11, 1993, Nelson learned that Anderson had replaced her as hostess of the planned infomercial, because she thought Nelson looked too old, and that her other projects had not been "classy" enough. Nelson felt devastated, betrayed, and humiliated. She had expected to appear as the hostess of the infomercial, perceived her on-camera selling ability to be the greatest asset she could bring to the project, and would not have participated in it had she known that she would be denied an on-screen role. The next day, Nelson spoke to Anderson by telephone for about a minute or so about her exclusion, but she did not argue with her because she believed Brown was on the extension. Nelson then telephoned Grushkin, and complained to him.

Sometime between October 22 and October 26, 1993, L & L entered into a contract with TMG which required TMG to produce a "how-to video" to include in the product packaging, and an "infomercial" to test-market the products. The contract provided that if both L & L Enterprises and TMG determined the test was successful, TMG was to develop a national direct-response advertising strategy.

Nelson continued with her other work as chief operating officer for Lonan, getting the video box finished, obtaining still photographs and the brochure copy, delivering, picking up, and attending constant meetings. There were "a million things to do." She worked on the enterprise nearly fifteen or sixteen hours per day, seven days a week, for several months, without an assistant and without any compensation. She worked with Levlad on nearly a daily basis to develop the packaging and look of the product. She also selected a shipper and supervised it. She investigated various markets for the products, as well, and traveled to New York, Philadelphia, Las Vegas, Arizona, and Santa Barbara at her own expense, to meet with several television shopping networks and mail order companies. She spent between $20,000 and $33,000 of her own money on marketing activities.

On approximately October 21, 1993, TMG brought Grushkin a proposal from the National Enquirer to run advertisements for the products in its publication on a weekly basis for up to one year in exchange for Anderson's permission to publish stories about her personal life. A representative of the National Enquirer promised not to say anything negative about Anderson, but would print negative stories only about Reynolds, with whom she was still involved in divorce and child custody proceedings. However, if she turned the deal down, negative stories would be printed. Anderson rejected the proposal, because she believed it would destroy her image and her credibility with her public, even though she had cooperated with the publication the previous May.

The infomercial was taped on October 26, 1993. As Nelson watched the taping from a control booth, she could tell it was a "disaster." She thought it was "terrible," and did not have a "snowball's chance" of successfully generating sales. However, she kept her opinion to herself. Instead, she sent to Anderson, Brown, and Levlad a memorandum in which she stated, "Now that we have completed our beautiful infomercial, and even before we go to air, I think we are all feeling the impending success we'll be realizing.... " She did not think her true opinion had any relevance.

On November 19, 1993, Nelson wrote to Anderson and Brown, "This is always an exciting and frightening time. After all this incredibly hard work we are finally there. And while we know we have a winner, until they show us the numbers, it is really scary. Cross all of...