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Video Show Makes the Complex Simple

One of the challenges in this four-week case was finding a clear way to explain it.
VERDICT: $32 million CASE: DeWald v. Knyal TYPE: Corporate Law
In DeWald v. Knyal, SC044949 (Los Angeles Sup. Ct., April 9, 1999), a jury found defendant Wayne L. Knyal liable for fraud and breach of fiduciary duty after he failed to convey business interests he purportedly promised to plaintiffs Maurice J. DeWald and Dennis M. Fitzpatrick. The plaintiffs were awarded $32.4 million, which included $8 million in punitive damages.

DeWald and Fitzpatrick were involved in a mortgage-lending business with Knyal, DeWald an investor and limited partner in Franchise Mortgage Acceptance Co., and Fitzpatrick as the senior adviser of the limited partnership's corporate general partner. The enterprise, known as FMAC, was based on a novel loan-servicing concept that provided loans to fast-food restaurant franchises, secured by the assets of the business.

According to Fitzpatrick, Knyal promised him a one-third portion of Knyal's equity interest in the business as incentive for Fitzpatrick to join FMAC. Later, when the business was being purchased, DeWald maintained that in order to persuade him to sign a release, Knyal orally agreed to set aside a quarter of his own interest in the resulting entity for the benefit of all limited partners.

Fitzpatrick was excluded from the transaction. The purchaser refused to proceed with Fitzpatrick involved, because he was the subject of a federal investigation from a prior affiliation with a failed savings and loan. Knyal had promised, however, to include Fitzpatrick in another, wholly separate business venture to replace the equity Fitzpatrick would be losing.

Despite the fact that Knyal's interest in FMAC was worth roughly $131 million the day it went public after Imperial Credit Inc. purchased the FMAC division from Greenwich Corp. for roughly $4 million, DeWald and Fitzpatrick were not conveyed the interests Knyal purportedly promised them.

According to defense counsel Joseph D. David of Los Angeles, Knyal denied Fitzpatrick's claim that they had promised one-third of the equity in FMAC to either plaintiff, and the claims were barred by the statute of limitations.

"Both plaintiffs alleged oral stock promises, but produced no documents and not one single witness to corroborate the alleged oral promises made by the defendant," says defense counsel Joseph D. Davis of Davis & Thomas in Los Angeles. "The plaintiffs did not even corroborate one another's testimony."

Davis further stated that DeWald's only viable cause of action for breach of fiduciary duty was dismissed by a motion for summary judgement 1 1/2 years before trial, but the cause of action was reinstated on the fourth day of trial following a motion by plaintiff to amend the complaint.

"Even more amazingly," says Davis "was the fact that with regard to Fitzpatrick, the jury found in its special verdict that no promise was made to him and that there was no breach of fiduciary duty, but determined in its general verdict that Knyal committed fraud against him."

Despite defense counsel's argument that these findings were fundamentally inconsistent and that when general and special verdicts are contradictory, the special verdict takes precedence, the judge entered the verdict.

The plaintiffs were represented by the team of Walter J. Lack and Steven C. Shuman, partners in Los Angeles' Engstrom, Lipscomb & Lack, and Robert C. Baker and Daniel P. Leonard of Los Angeles' Baker, Keener & Nahra.

"Knyal was the architect of his own demise," says Leonard. "The unraveling of the case occurred through the defendant's cross-examination."

Says Baker, "Knyal was the first witness, and after the defendant was on the stand for two-and-a-half days, we believe the jury had a full picture of the fraud perpetrated by the defendant, and that they had a clear idea of the lies and misrepresentations made by the defendant to out clients."

However, Davis insists, "[The jury] did not have a clue as to what the trial was about."
The trial in this document-intensive case lasted close to four weeks. The one key trial challenge was making all of the documents, including complex Securities and Exchange Commission filings, understandable to the jury.

Counsel met this challenge by showing the jury all of the important documents on a video monitor. This way, they could follow along as the defendant was cross-examined on the documents the plaintiffs contended established the defendant's misrepresentations.
"In a sense, the case involving Fitzpatrick was even more challenging than the case involving DeWald, because there were fewer documents involved and the case became a clearer credibility battle," explains Shuman.

"Unlike most complex business litigation, the case did ultimately boil down to a credibility contest and the defendant's cross-examination was crucial to prevailing," adds Leonard.
After a day of deliberation, the jury awarded close to $12 million in compensatory and punitive damages to Fitzpatrick and roughly $20.5 million in compensatory and punitive damages to DeWald. The verdict has been appealed.

PLAINTIFFS COUNSEL: Walter J. Lack and Steven C. Shuman from Engstrom, Lipscomb & Lack; Robert C. Baker and Daniel P. Leonard from Baker, Keener & Nahra.
DEFENSE COUNSEL: Joseph D. Davis, Davis & Thomas
CASE CITE: DeWald v. Knyal, SC044949 (Los Angeles Sup. Ct., April 9, 1999)
JUDGE/DEPT.: Judson Morris / Dept. O
STATUS: On appeal