Paul v. Destito

Decision Date22 June 2001
Docket Number No. A01A0186., No. A01A0185
Citation550 S.E.2d 739,250 Ga. App. 631
PartiesPAUL et al. v. DESTITO. Destito v. Paul et al.
CourtGeorgia Court of Appeals


Smith, Gambrell & Russell, Rex M. Lamb III, Nations, Toman & Nutter, Michael T. Nations, David C. Nutter, Atlanta, for appellants.

Lawrence E. Newlin, Frank R. Olson, Atlanta, for appellee. RUFFIN, Judge.

Ralph Destito sued Douglas Paul, Sharon Paul, Catspaw Productions, Inc. ("CPI"), Catspaw, Inc. ("Catspaw"), Atlanta Catco, Inc. ("Catco"), and Recording Studio, Inc. ("RSI") for fraud, negligent misrepresentation, conspiracy to breach fiduciary duty, negligent breach of fiduciary duty, alter ego liability, amounts due on a promissory note, attorney fees, costs, and punitive damages. CPI counterclaimed, asserting that Destito owed it in excess of $44,000.

A jury found for Destito on each count and against CPI on its counterclaim. With respect to punitive damages, the jury further concluded that defendants "acted, or failed to act, with a specific intent to harm Plaintiff Ralph Destito." The trial court denied the majority of defendants' motions for directed verdict and judgment notwithstanding the verdict ("j.n.o.v."). As to Destito's claim for litigation expenses, however, the trial judge granted defendants' j.n.o.v. motion. The parties filed cross-appeals, challenging various aspects of the trial court's decision on the motions for directed verdict and j.n.o.v. For reasons that follow, we affirm and remand for further proceedings.

On appeal from a trial court's rulings on motions for directed verdict and j.n.o.v.,

we review and resolve the evidence and any doubts or ambiguities in favor of the verdict; directed verdicts and judgments n.o.v. are not proper unless there is no conflict in the evidence as to any material issue and the evidence introduced, with all reasonable deductions therefrom [,] demands a certain verdict. Thus, a judgment n.o.v. may be granted only when, without weighing the credibility of the evidence, there can be but one reasonable conclusion as to the proper judgment. If the evidence is conflicting, or if insufficient evidence exists to make a "one-way" verdict proper, judgment n.o.v. should not be granted. Further, when considering these motions, trial and appellate courts must view the evidence in the light most favorable to the party securing the jury verdict.1

Viewed in this light, the evidence shows that Douglas Paul provides "voice-over" services for television commercials, radio advertisements, and other broadcasts. In 1984, Paul created Catspaw to market his voice-over talent. Although he was the sole shareholder, his wife, Sharon Paul, was an officer and a director of the company. In April 1986, Douglas and Sharon Paul, along with Sarah Cotton, formed CPI to produce and sell radio and television commercials, audio-visual productions, and voice-overs for clients. Destito joined CPI as an employee in 1986, earning up to $100,000 per year as the company's sales manager. The evidence showed that the Pauls were officers and directors of CPI.

Shortly after CPI began operations, the Pauls, Cotton, and Destito formed RSI. Although the parties originally intended RSI to be a state-of-the-art recording studio, in actuality, it simply leased recording equipment to CPI. Destito invested $750 into RSI and loaned it $2,375 in return for a promissory note from the company. Like Cotton, Destito became a 24.5 percent shareholder in RSI. The Pauls each received 25.5 percent of the stock. All four shareholders became directors of the corporation, and Destito was named vice president.

In 1987, the Pauls loaned RSI $130,000 for the purchase of recording equipment to lease to CPI. Under the lease arrangement, CPI paid RSI $25 per hour for use of the studio recording equipment. Destito agreed to that rental rate in 1987, finding it "reasonable" and "appropriate" at the time. He also understood that RSI would be paid the rental rate regardless of which company actually owned particular pieces of equipment in the studio.

In 1989, the Pauls formed Catco, which they wholly owned, to purchase and hold title to real estate that became a production studio for CPI. At that time, RSI's assets were pledged as collateral for the loan Catco obtained to purchase the property, a fact Destito did not discover until after this litigation began. CPI eventually moved into the studio and paid rent to Catco. CPI also bought new recording equipment for the studio in 1989. When he learned about this purchase, Destito became concerned:

When I ultimately discovered that we were purchasing that equipment through CPI versus RSI, I asked Sharon [Paul] about that because I was a little confused. We were making the move to the big building. There was a lot of excitement. We started to get some traction with the business; and I asked her, why aren't we doing this through RSI? I was told RSI couldn't qualify for the loan.

At that point, Destito began questioning the $25 rental rate and suggesting that RSI charge CPI more for using the recording equipment. In 1989, Destito raised this issue with Sharon Paul, who told him that "it wouldn't make any difference to [raise the rate]. RSI wouldn't make any money anyway; and ... as we build these companies up, everybody will be taken care of." Destito also began questioning certain intercompany expenses allocated against RSI. Again, Sharon Paul told him "[RSI] wouldn't make any money. Don't worry about it." According to Destito, Sharon Paul referred to the various companies as "one big pie."

In 1991, CPI and RSI experienced cash flow problems. RSI's management—including Destito—agreed to suspend all payments from CPI to RSI so that CPI could pay vendors and employees, such as Destito. At the end of 1991, Cotton left the business, surrendering her RSI stock. Effective January 1, 1992, her stock was redistributed and Destito, Sharon Paul, and Douglas Paul each became thirty-three and one-third percent shareholders in RSI. Destito testified that the companies "made it through" the financial crisis and CPI began making money. In 1993, he thought "the studio" was doing very well. Nevertheless, CPI did not pay RSI any of the money that it owed the company, and RSI continued to show business losses.

At the end of 1994, Destito was promoted from sales manager to Senior Vice President of New Business Development at CPI. The Pauls also changed Destito's compensation package from a salary to straight commission. Douglas Paul told him, "we're going to give you accounts. We'll assign accounts to you so as to ... not put you at a financial disadvantage." Under the new compensation scheme, Destito received a $6,000 "draw" or advance each month, which he then "earned" by generating monthly sales commissions of at least $6,000. If he generated less than $6,000 in monthly commissions, he owed the difference to CPI.

According to Destito, his new position did not work out as planned. Despite the Pauls' promises, accounts were not assigned to him, and he saw decreases in his pay. Although the Pauls told Destito to take the accounts he wanted from other salesmen, Destito believed that Douglas Paul, the new sales manager, should reassign accounts to him to avoid conflicts with the sales team. Eventually, Destito wrote to the Pauls, suggesting that he be compensated on a salary/commission, rather than a draw/commission, basis, and that any deficit of unearned draw be erased. At a subsequent meeting about compensation, Sharon Paul stated "we'll keep it going."

In early 1996, Destito learned that the Pauls had executed documents in 1995 merging RSI into CPI. Destito, who had not been informed of the merger, demanded to know how it could proceed without his knowledge or consent. The evidence showed that, before the merger, the Pauls told their attorneys that Destito had "abandoned" his stock, wanted nothing more to do with the company, and did not object to the merger. After Destito raised objections, a certificate of correction was filed with the Secretary of State purporting to " undo" the merger.

Relations between Destito and the Pauls continued to deteriorate, and CPI fired Destito on February 16, 1996. At that time, CPI demanded that Destito repay $44,107.77 in unearned draw that he had received from CPI. In April 1996, Destito was removed from RSI's Board of Directors, and he was no longer an officer of the corporation.

Destito filed this lawsuit in May 1996 and proceeded to trial, claiming, among other things, that the defendants siphoned money from RSI, concealed improper financial dealings from him, and used recording equipment without paying RSI rental fees. The jury found against all defendants on Destito's claims for fraud, negligent misrepresentation, conspiracy to breach fiduciary duty, negligent breach of fiduciary duty, suit on promissory note, alter ego liability, punitive damages, and litigation expenses. The jury also found for Destito on CPI's counterclaim for the $44,107.77 Destito allegedly owed in unearned draw. It awarded Destito $489,727 in actual damages, $90,000 in litigation costs and expenses, and $450,000 in punitive damages.

The trial court upheld the jury's verdict on all counts except Destito's claim for litigation expenses. As to that claim, the trial judge concluded that Destito presented insufficient evidence to support the award.

In Case No. A01A0185, defendants appeal the trial court's denial of their motions for directed verdict and j.n.o.v. on Destito's claims for fraud, negligent misrepresentation, conspiracy to breach fiduciary duty, negligent breach of fiduciary duty, amounts due on a promissory note, alter ego liability, and punitive damages. In Case No. A01A0186, Destito appeals the trial court's order granting defendants' motion for j.n.o.v. on his litigation expense claim.

Case No. A01A0185

In their brief on appeal, defendants...

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