A jury recommended Wednesday that $30,000 in damages be awarded to a former Orange County chocolatier who named some of her recipes after her late father, television talk show host Morton Downey Jr., and alleged that her business partners cheated her out of her share of profits.
Tracey Downey-Racen had asked for $601,000 in damages. On Tuesday, the jury found that Susan D. Johnson and her daughter, Kerry Johnson Anthony, owners of Susan’s Healthy Gourmet in Irvine, were in breach of fiduciary duty.
The defendants claimed their business venture with Downey-Racen, Xan Confections, never earned a dime so they could not pay her any profits.
Orange County Superior Court Judge Theodore Howard ruled that the jury’s damages verdict would be only advisory and that he would make the final determination following the 18-day trial.
“The most important thing is the jury came back with a liability verdict,” said Downey-Racen, who has since relocated from Orange County to Missouri. “To me, that was vindication.”
Attorney Vasko Mitzev, who represents Susan’s Healthy Gourmet, declined comment, as did Johnson and her daughter.
The two teamed up with Downey-Racen in 2009.
Downey-Racen’s attorney, Rose Amezcua-Moll, told jurors that her client’s ex-partners were guilty of “roundtripping,” in which they allegedly offloaded debts from their meal delivery service into Xan Confections to keep it from yielding a profit and to get a tax write-off.
The two had to put substantial loans into Xan Confections to keep it afloat, but Amezcua-Moll asked the jury to consider: “Was it truly a loan? Where did some of the money come from? The defendants have actively tried to withhold this information.”
If Johnson and Johnson Anthony “did nothing wrong, then the quickest out is to show the financials,” said Amezcua-Moll, who claimed “no invoices were ever created to show a proper paper trail on how these businesses were run.”
Downey-Racen alleged a breach of fiduciary trust, contending her partners did not attempt to help Xan Confections, but Susan’s Healthy Gourmet instead. When Downey-Racen originally filed suit, she alleged her recipes were stolen, but the judge has since ruled those belong to Xan Confections.
Downey-Racen also originally claimed she was cheated out of her one- third share in Xan Confections, but a judge ruled she is an equal partner.
Mitzev alleged in his opening statement that Downey-Racen was the deceitful one in the partnership. He said the plaintiff was on the brink of her third bankruptcy when she teamed up with Susan’s Healthy Gourmet. It was supposed to be a “turn-key business” as Downey-Racen said she had the chocolate-making equipment, Mitzev said.
Mitzev accused Downey-Racen of failing to alert the Small Business Administration of her bankruptcies when filling out loan applications, which allowed her to buy the chocolate-making equipment.
At the time the three met through local women’s business groups, it seemed like a “good marriage,” Mitzev said. Susan’s Healthy Gourmet was moving to a bigger space and had room for Downey-Racen and her chocolate-making crew.
The reason Downey-Racen wasn’t issued stock shares right away was because Johnson and Johnson Anthony were concerned that Downey-Racen’s bankruptcy would affect Xan Confections, Mitzev said.
Downey-Racen is a “chocolate genius,” who also had a knack for clever products, but she was no money maker, Mitzev said.
The reason Xan Confections never made a profit was Downey-Racen underestimated the labor cost of making her healthy and gourmet chocolates, Mitzev said.
“They’re extremely costly to make,” he said.
By the time Johnson and Johnson Anthony figured that out, they could not immediately correct it because retailers wouldn’t swallow a steep increase in the cost of the chocolates, Mitzev said.
–City News Service