Passante v. McWilliam

• Decision Date: 27 March 1997
• Docket Number: No. G014752,G014752
• Citation: 62 Cal.Rptr.2d 298,53 Cal.App.4th 1240
• Court: California Court of Appeals Court of Appeals
• Parties: , 97 Cal. Daily Op. Serv. 2419, 97 Daily Journal D.A.R. 4304 Anthony J. PASSANTE, Jr., et al., Plaintiffs and Appellants, v. Richard P. McWILLIAM et al., Defendants and Respondents.

Page 298

62 Cal.Rptr.2d 298

53 Cal.App.4th 1240, 97 Cal. Daily Op. Serv. 2419,

97 Daily Journal D.A.R. 4304

Anthony J. PASSANTE, Jr., et al., Plaintiffs and Appellants, v. Richard P. McWILLIAM et al., Defendants and Respondents.

No. G014752.

Court of Appeal, Fourth District, Division 3, California.

March 27, 1997.

Crosby, Heafey, Roach & May, Gideon Kanner, James C. Martin, Benjamin G. Shatz, Los Angeles, Thorsnes, Bartolotta, McGuire & Padilla, Vincent J. Bartolotta, Jr., C. Brant Noziska, Eugene P. Yale and Gastone Bebi, San Diego, for Plaintiffs and Appellants.

Brobeck, Phleger & Harrison, Franklin Brockway Gowdy, Rollin B. Chippey, Martin L. Fineman, Raifman & Edwards, Jon L. Edwards, San Francisco, Greines, Martin, Stein & Richland, Marc J. Poster, Beverly Hills, and John A. Barclay, Newport Beach, for Defendants and Respondents.

SILLS, Presiding Justice.

As someone once said, if you build it they will come. And by the same token, if you make a baseball card that can't be counterfeited, they will buy it. Which brings us to the case at hand.

In 1988 the Upper Deck Company was a rookie baseball card company with an idea for a better baseball card: one that had a hologram on it. Holograms protect credit cards from counterfeiting, and the promoters of the company thought they could protect baseball cards as well. By the 1990's the Upper Deck would become a major corporation whose value was at least a quarter of a billion dollars. Collecting baseball cards, like baseball itself, is big business. ¹

But the outlook wasn't brilliant for the Upper Deck back in the summer of 1988. It lacked the funds for a $100,000 deposit it needed to buy some special paper by August 1, and without that deposit its contract with the major league baseball players association would have been jeopardized.

The Upper Deck's corporate attorney, Anthony Passante, then came through in the clutch. Passante found the money from the brother of his law partner, and, on the morning of July 29, had it wired to a company controlled by one of the directors. That evening, the directors of the company accepted the loan and, in gratitude, agreed among At this point, if we may be forgiven the mixed metaphor, we must change gears. No good deed goes unpunished. Anthony Passante never sought to collect the inchoate gift of stock, and later, the company just outright reneged on its promise. Passante sued for breach of oral contract, and the jury awarded him close to $33 million--the value of three percent of the Upper Deck at the time of trial in 1993.

themselves that the corporate attorney should have three percent of the firm's stock. The rest is history. Instead of striking out, the Upper Deck struck it rich.

The trial judge, however, granted a judgment notwithstanding the verdict, largely because he concluded that Passante had violated his ethical duty as a lawyer to his client. There was no dispute that Passante did not tell the board that it might want to consult with another lawyer before it made its promise. Nor did Passante advise the board of the complications which might arise from his being given three percent of the stock.

The board had a clear moral obligation to honor its promise to Passante. He had, as the baseball cliche goes, stepped up to the plate and homered on the Upper Deck's behalf. And if this court could enforce such moral obligations, we would advise the company even yet to pay something in honor of its promise.

But the trial judge was right. If the promise was bargained for, it was obtained in violation of Passante's ethical obligations as an attorney. If, on the other hand, it was not bargained for--as the record here clearly shows--it was gratuitous. It was therefore legally unenforceable, even though it might have moral force. We must therefore, with perhaps a degree of reluctance, affirm the judgment of the trial court.

FACTS AND PROCEDURAL HISTORY

The Upper Deck Company was formed in March 1988 to produce baseball cards with holograms. The initial directors were Paul Sumner, William Hemrick, Boris Korbel, Richard P. McWilliam, Angels' pitcher DeWayne Buice and Anthony Passante. Passante, who was already the personal attorney for Korbel and McWilliam, was appointed corporate attorney and secretary. McWilliam, an accountant with contacts to a number of investors, had the responsibility of obtaining start-up financing for the company. Passante made no investment in the company and owned no stock.

Upper Deck needed $100,000 to put on deposit with an Italian paper company by August 1, 1988, so the paper would be available for the inaugural run of baseball cards planned for December. Without the paper, the company risked losing its license with major league baseball. ² However, as of July 26, 1988, the company had not obtained financing. To make matters worse, McWilliam was demanding more stock in return for the financing he was supposed to obtain. Board members instructed Passante to demand the return of McWilliam's 11 percent stock if he would not change his demands.

When Passante found out that McWilliam would not be coming up with the money, he told his law partner, Andy Prendiville that "there was really no hope for the company to make it." ³ Prendiville asked Passante if he should talk to his brother, who was a doctor and might be able to make a loan of $100,000. Passante told Prendiville to call his brother, who said that he "was in a position to loan the money and would do so." ⁴ Both Passante and Prendiville spoke to Korbel concerning the availability of "those funds." They told Korbel "that the funds were available."

Korbel then requested that Passante come to a special board meeting to be held on the Dr. Kevin Prendiville wired $100,000 to an account controlled by Korbel just a little after 11 a.m. on July 29, 1988, though Passante still understood that if the board did not approve the loan "it wasn't going to be made."

                evening of July 29, 1988 "in order to talk to the other two shareholders about that loan."   Korbel said he wanted the other shareholders to be a party to the loan.  And, because the shareholders would be guaranteeing the repayment of the funds, Korbel "wanted to make sure that he had the agreement of his co-shareholders for that type of an arrangement."
                

At the board meeting that evening, Passante told the assembled board members (assembled without notice to McWilliam) "about the availability of the funds." He asked them "if they would be interested in obtaining the money from Dr. Prendiville." The board members agreed.

The board members were "all quite excited about the availability of those funds." Korbel "brought up" the idea that the board should consider giving Passante some ownership interest if he got the loan, and Hemrick said, "Look, if you can get that money for us then I think you're entitled to three percent of the company." There was "general agreement" among the board members "that that would be the case." Passante said, "Okay. We'll do the loan," and then went back to his office.

Passante drafted a note which did not have an interest rate on it. However, at Korbel's insistence, an extra $10,000 was paid to Dr. Prendiville for the 90-day loan. The Upper Deck made its deposit.

The day after the deadline, the board members were "quite happy people." At a meeting held that day, the board members discussed how McWilliam's 11 percent would be divided; "it was determined" that Passante would receive 3 percent from McWilliam's 11 percent, and Korbel would receive the 8 percent balance.

Passante's three percent, however, was "to be held by Boris Korbel." The idea was that Korbel would hold Passante's interest in the company until McWilliam returned his stock certificate, and, when a new investor was brought in and new certificates were issued, Passante would receive his stock.

But the Upper Deck still needed financing, and, after an unsuccessful attempt to enlist a New York firm, Korbel told Passante that maybe McWilliam should be brought back into the company after all. Passante told Korbel that he "should do whatever he thought necessary to make the company go forward."

What Korbel thought necessary was to contact McWilliam. On August 31, 1988, Korbel told Passante about Korbel's conversation with McWilliam. McWilliam, it seemed, was "extremely upset" at Passante "because of what had occurred at the end of July." Accordingly, McWilliam would only "invest in Upper Deck" on the condition that Passante "not participate as an owner of the company." Korbel told Passante that "in order to get the company going" Korbel would hold Passante's three percent for him and "we wouldn't tell Mr. McWilliam or any of the other shareholders about this interest." After McWilliam "cool[ed] off" and everything was "smooth again," Korbel would discuss Passante's three percent interest and either "get a stock certificate representing that interest from the corporation," or Korbel would at least make sure Passante "obtained the benefit of that three percent through him" by way of profit distributions from the company.

In early fall McWilliam came back into the company; McWilliam soon brought in Richard Kughn, a Chicago investor. As a result, the shares of the company were redistributed, leaving Korbel, McWilliam and Kughn each with 26 percent. After Kughn made his investment, Passante was fired as corporate attorney because Kughn wanted the company represented by a large law firm.

In 1988 and early 1989, Korbel told Passante that he need not be concerned about the three percent--that Korbel "had it" and he "would take care of it" for Passante. In November 1990, however, at a restaurant in Orange, Korbel told Passante that he wasn't going to get his three percent. In essence, Kughn had been given Passante's three percent The next month Passante filed this lawsuit. Andy Prendiville was also named as a plaintiff because Passante told him, after the August 2 meeting, that "because...