Corporate partner uses partnership assets: Fraudulently secured releases: Stolen business assets: Economic loss: Verdict

Law Reporter, Sep 1999

Corporate partner uses partnership assets: Fraudulently secured releases: Stolen business assets: Economic loss: Verdict.

DeWald v. Knyal, Cal., Los Angeles County Super. Ct., No. SC044949, Apr. 9, 1999.

Knyal formed a partnership that provided loans to restaurant franchises. DeWald, as a limited partner, invested $167,000 for about a 17-percent interest in the company. Fitzpatrick agreed to work for Knyal for one-third of Knyal's equity in the business. The next year, the business needed capital, and Knyal allegedly secured the consent of all the limited partners to release their interests in the business so he could sell the partnership's assets to a franchise lending company. A few years later, a company that purchased that lending company went public with an initial offering value of $400 million.

DeWald and Fitzpatrick sued Knyal, alleging he had fraudulently secured the releases because he never consummated the sale of assets to the franchise lending company. Suit also alleged defendant had never obtained releases from all the partners and had stolen business assets, including loan servicing fees and intellectual property. Plaintiffs claimed defendant had used loan servicing rights-a partnership asset he reportedly had been required to turn over to the franchise lending company-as his own capital contribution to a company that later purchased the partnership's assets from the lending company. Fitzpatrick also claimed defendant had fraudulently induced him to work for the partnership by promising him partnership profits that defendant later refused to pay.

The jury awarded plaintiffs about $32.3 million, including $8 million punitive damages. DeWald received about $20.5 million, including $6.5 million punitive damages, and Fitzpatrick received about $11.8 million, including $1.5 million punitive damages.

Defendant's expert was Robert Smith, securities, Los Angeles, Cal.

Plaintiffs' Counsel:

*Walter J. Lack, Los Angeles, Cal.

Steven C. Shuman, Los Angeles, Cal.

Robert C. Baker, Santa Monica, Cal.

*Daniel P. Leonard, Santa Monica, Cal.

[Documents in this case are available through the Court Documents section in the back section of this issue, courtesy of Mr. Lack.]