Willis Carto archive

Including information about his associates

Respondent’s Brief (March 4, 1998)


Court of Appeal of the State of California
for the Fourth Appellate District
Division One

Willis Carto aka Frank Tompkins aka E. L. Anderson, Ph.D.; Henry Fischer aka Henry Fischer; Liberty Lobby, Inc., a corporation; and Does 1 through 50, inclusive.

Defendants/Appellants

v.

Legion for the Survival of Freedom, Inc., a Texas corporation

Plaintiff/Respondent

Appeal from the Superior Court of the San Diego County

The Honorable Runston Maino and The Honorable Lisa Guy-Schall, Judges

Respondent’s Brief


TABLE OF CONTENTS

I. Statement of Case and Procedural History. . . . . . . . . 1

II. Statement of Facts. . . . . . . . . . . . . . . . . . . . 5

 Testimony of Thomas Marcellus . . . . . . . . . . . . . . 5

 Testimony of Willis Carto . . . . . . . . . . . . . . . . 13

 Testimony of Mark Weber . . . . . . . . . . . . . . . . . 21

 Testimony of Thomas Kerr. . . . . . . . . . . . . . . . . 23

 Testimony of Elisabeth Carto. . . . . . . . . . . . . . . 23

 Testimony of Harvey Taylor. . . . . . . . . . . . . . . . 25

 The Lavonne Furr Deposition . . . . . . . . . . . . . . . 26

 The Lewis Furr Deposition . . . . . . . . . . . . . . . . 31

III. Discussion of Issues. . . . . . . . . . . . . . . . . . . 32

 The Trial Court Exercised No Improper Visitorial
			 Jurisdiction Over The Legion For the Survival Of
 Freedom . . . . . . . . . . . . . . . . . . . . . . . . . 32

 Subject Matter Jurisdiction Subsists in a
 California Court to Litigate the Misapplication
 of Proceeds of an Estate Destined to a Non-
 Profit Corporation Domiciled in California. . . . . . . . 38

 Failure to Comply With Code of Civil Procedure
			 Section 425.15 Is Not Fatal To Respondent . . . . . . . . 39

 There Was Sufficient Evidence In The Record
 To Support The Verdict. . . . . . . . . . . . . . . . . . 41

 Other Issues Raised By The Defense Regarding
			 Accounting, Injunction and Declaratory Relief
			 are Without Merit . . . . . . . . . . . . . . . . . . . . 48

 The Statement of Decision Is Sufficient . . . . . . . . . 49

 No Error Was Committed By The Court In Denying
 Relief From Default to the Furrs. . . . . . . . . . . . . 49

IV. Conclusion. . . . . . . . . . . . . . . . . . . . . . . . 50

TABLE OF AUTHORITIES

STATE CASES

American Center for Education Inc. v. Cavnar
(1978) 80 C.A.3d 476 . . . . . . . . . . . . . . . . . . . 34, 37

Brown v. Memorial Nat. Home Foundation
(1958) 162 Cal.App.2d 513, 521 [329 P.2d 118,
75 A.L.R.2d 427] . . . . . . . . . . . . . . . . . . . . . . . 35
i
Communist Party of the United States of America
v. 522 Valencia, Inc.
Cal.Ct.App.1st June 14, 1995 . . . . . . . . . . . . . . . . . 46

Hardy v. Hardy
(1958) 164 Cal.app.2d 77, 79-80 [330 P.2d 278] . . . . . . . . 35

Holt v. College of Osteopathic Physicians and Surgeons
(1964) 61 Cal.2d 750, 756-757 [40 Cal.Rptr. 244,
394 P.2d 932]. . . . . . . . . . . . . . . . . . . . . . . . . 35

Kenerrson v. Burbank Amusement Co.
120 Ca.App.3d 157, 170-173 . . . . . . . . . . . . . . . . . . 46

Lynch v. John M. Redfield Foundation
(1970) 9 Cal.App.3d 293, 298 [88 Cal.Rptr. 86,
51 A.L.R.3d 1284]. . . . . . . . . . . . . . . . . . . . . . . 35

McDermott v. Bear Film Co. (1963) 219 Cal.App.2d 607,
60 [33 Cal.Rptr. 486]. . . . . . . . . . . . . . . . . . . . . 34

River Farms v. Superior Court of San Bernardino
(1967) 252 Cal.App.2d 604. . . . . . . . . . . . . . . . . . . 38

FEDERAL CASES

Gilbert v. Beach (D.D.C. 1941) 42 F.Supp. 168, affd.
(D.C.Cir. 1943) 133 F.2d 50. . . . . . . . . . . . . . . . . . 35

STATE STATUTES

California Civil Code Section 6215 . . . . . . . . . . . . . . 4

California Code of Civil Procedure Section 418.10. . . . . . . 37

California Code of Civil Procedure Section 425.15. . . . . 39, 40

California Code of Civil Procedure Section 473 . . . . . . . . 50

California Code of Civil Procedure Section 632 . . . . . . . . 49

California Corporations Code Section 5110. . . . . . . . . . . 40

California Corporations Code Section 5142. . . . . . . . . . . 22

California Corporations Code Section 5151(c) . . . . . . . . . 43

California Corporations Code Section 5211(a)(b)(c) . . . . . . 44

California Corporations Code Section 5911. . . . . . . . . . . 43

California Corporations Code Section 5911(c) . . . . . . . . . 44

California Corporations Code Section 5913. . . . . . . . . . . 44

California Corporations Code Section 6215. . . . . . . . . . . 45

California Corporations Code Section 7110. . . . . . . . . . . 40

California Corporations Code Section 9110. . . . . . . . . . . 40

GOVERNMENT STATUTES

Government Code Section 12582.1. . . . . . . . . . . . . . . . 34

OTHER AUTHORITIES

Corpus Juris Secundum. . . . . . . . . . . . . . . . . . . . . 33

Witkin, California Procedure, 4th Volume 4, Pleading,
Section 660-663. . . . . . . . . . . . . . . . . . . . . . . . 41

Witkin, Summary of California Law, 9th, Torts Section 610. . . 41

Karst, The Efficiency of the Charitable Dollar: An
Unfulfilled State Responsibility
(1960) 73 Harv.L.Rev. 433. . . . . . . . . . . . . . . . . . . 34

4 Scott on Trusts (967) 348.1, p. 2770 . . . . . . . . . . . .

4 Scott on Trusts (967) 348.1, p. 2778 . . . . . . . . . . . . 35

Accord, Rest.2d Conf. of Laws, 272, com.b. . . . . . . . . . . 35

Trusts-Gifts to Charitable Corporations-Nature
of Interest Created-Duties of Trustee
(1952) 26 Co.Cal.L.Rev. 80, 83-85. . . . . . . . . . . . . . . 36



			

STATEMENT OF CASE AND PROCEDURAL HISTORY

This case involves a dispute over the rights to proceeds from the estate of a Swiss decedent, Jean Farrell.

Mrs. Farrell had been an avid supporter of the Legion for the Survival of Freedom, Inc. (Legion) which did business in California as the Institute for Historical Review (IHR).

The Legion was chartered in 1952 in the State of Texas as a non-profit corporation. In 1966 defendant Willis Carto (hereinafter Carto) became involved with the Legion and from that date to this, all business and assets of the corporation have been employed exclusively in California. The Legion is a tax exempt charitable corporation (501 C(4)).

The Legion became embroiled in litigation twice in California with a Mel Mermelstein. The settlement of the first case spawned the second.

Carto had for years been clandestinely operating the Legion through a dummy directorate consisting of an elderly and credulous couple living in the Ozarks, Lewis and Lavonne Furr.

Meanwhile, the Legion, headquartered in Costa Mesa, California, with several employees generated a variety of books on controversial subjects, published the revisionist Journal of Historical Review, and held periodic conferences.

Willis Carto was publicly known as the chief executive officer of the Liberty Lobby, Inc., a political lobby in Washington, D.C. which publishes the weekly tabloid Spotlight.

Mrs. Farrell, intending that the Legion (IHR) inherit her fortune, set up a corporation called NECA and spread bearer certificates to this corporation around the world in safe deposit boxes. Carto had the keys to these boxes.

Mrs. Farrell, having given NECA to the Legion, left a will leaving the rest of her worldly belongings to a friend, Joan Althaus.

On Mrs. Farrell’s death in 1985, Althaus attempted to exercise dominion and control over the NECA assets.

The Legion gave powers of attorney to Willis Carto and Henri Fischer to authorize them to litigate on behalf of the Legion for control of NECA.

At Farrell’s death, the NECA assets may have been worth sixteen (16) million dollars.

Carto used funding from the Liberty Lobby to finance the fight in Europe for the NECA assets.

By the time that the Farrell Estate was ready for settlement, the Legion was again involved in litigation with Mermelstein, and Carto feared that the NECA assets might fall into Mermelstein’s hands in the event of an adverse result in court. So, Carto persuaded the Furrs to have the Legion disclaim the Farrell bequest, which they believed was less than one million dollars ($1,000,000). In actuality it was seven million five hundred thousand dollars ($7,500,000).

Carto, with the complicity of Henri Fischer, and with the compliance of the Furrs and Carto’s wife, Elisabeth, set up a couple of offshore corporations, International Legion for the Survival of Freedom, Inc. and Vibet, Inc. After the assets were transferred to the offshore corporations, Carto and Fischer proceeded to loot these funds for their own use.

Fischer got $250,000 - $300,000. Mrs. Carto got twenty thousand dollars ($20,000). Mrs. Furr got five thousand dollars ($5,000). Carto diverted the rest to various entities which he controls, which lend money back and forth to each other, including the Liberty Lobby (from which he draws a salary) which got two million six hundred fifty thousand dollars ($2,650,000).

The Legion, the intended beneficiary of the Farrell gift, settled for forty-five percent (45%) of the estate, and, then, only received a very small percentage of those Farrell funds intended for the Legion.

In 1993 Willis Carto attempted to change the editorial direction of the Legion and the employees encouraged the Furrs to expand the Legion Board of Directors to include true revisionists to checkmate Carto. Instead, the Furrs resigned and a remaining director appointed additional directors who terminated Willis and Elisabeth Carto from their ostensible agency positions.

Carto proxies, Thomas Kerr and Elisabeth Carto, filed suit to invalidate the appointments of additional directors and the termination of the Cartos in Kerr, Carto v. Legion, case #720953 in the Orange County Superior Court. The defendants prevailed and the plaintiffs appealed to this court. This court dismissed the appeal in case # G016137.

In spite of the finality of the above case, Willis and Elisabeth Carto, and the Furrs continued to hold themselves out as the true Legion, raise money, maintain bank accounts, and make official filings. They refused to turn over Legion assets and records. They refused to account for the Farrell millions.

The newly constituted Legion board then brought this suit naming Willis Carto, Henri Fischer, Vibet, Inc., Liberty Lobby, Inc. and later Elisabeth Carto and the Furrs as defendants.

The suit alleged causes of action for declaratory relief, imposition of a constructive trust, for an accounting for money received, and for damages for civil conspiracy to defraud, conversion, negligence and violation of Civil Code Section 6215.

The Cartos, Liberty Lobby and Henri Fischer appeared and answered. Vibet, Inc. defaulted. The default of the Furrs was taken and their motion to set aside the default was denied.

A bench trial was held before the Honorable Ruston Maino. After hearing the evidence, he reached judgment in favor of the Plaintiff Legion for two million six hundred fifty thousand dollars ($2,650,000) plus legal interest from January 1, 1993 as against Liberty Lobby, Inc. and in favor of Plaintiff Legion against Willis Carto, Elisabeth Carto, Henri Fischer, Lewis Furr, Lavonne Furr and Vibet, Inc., jointly and severally, for six million four hundred thirty thousand dollars ($6,430,000) plus interest from January 1, 1991.

The Cartos, the Furrs, Fischer and Vibet, Inc. were further restrained from holding themselves out as the Legion and from transferring Legion property and were ordered to account for gems, diamonds and gold from the Farrell Estate. Constructive trusts were imposed.

All defendants have appealed. The defendants assign eleven (11) grounds of alleged error.

STATEMENT OF FACTS

Testimony of Thomas Marcellus

Tom Marcellus was called by the Plaintiffs and testified that the Legion for the Survival of Freedom (hereinafter Legion or LSF) is a non-profit corporation, originally incorporated in the 1950s which has been operated solely in California since 1966. It publishes books, newsletters, a journal and promotes historical revisionism (R.T. Vol 1, page 45).

Marcellus first affiliated with the Legion in 1978 as an assistant director and was continuously employed by the Legion (except for an eighteen (18) month hiatus) from 1978 until February of 1994 (R.T. Vol 1, page 47). Marcellus served for most of this time as the executive director of the Legion but became a member of the board of directors and President in September 1993 (R.T. Vol 1, page 48).

The Foundation for Defense of the First Amendment (hereinafter FDFA) is a non-profit corporation operated out of the Liberty Building (belonging to the Liberty Lobby) in Washington, D.C. which is controlled by Willis Carto. In 1984, because the Legion was in litigation, Willis Carto directed Thomas Marcellus to direct contributions intended for the Legion to FDFA (R.T. Vol 1, page 48-50).

Liberty Lobby is an entity controlled by Willis Carto in Washington, D.C. It bought books from the Legion and Legion staffers wrote articles which were published in Liberty Lobby weekly tabloid The Spotlight. Liberty Lobby faxes reached Carto at the Legion office. Marcellus had direct dealing with the employees of the Liberty Lobby. Carto was the treasurer and founder of Liberty Lobby (R.T. Vol 1, page 50-52).

Willis Carto told Marcellus that Vibet, Inc. was an entity set up to hold the Legion assets from the settlement of the Farrell Estate business in Europe (R.T. Vol 1, page 52-53).

Carto told Marcellus that the Legion was the Plaintiff in the Farrell Estate litigation (R.T. Vol 1, page 53).

Exhibit 1, the Charter of the Legion for the Survival of Freedom, Inc. was identified. Marcellus had never heard or seen any other document purporting to be the Legion charter or articles of incorporation (R.T. Vol 1, page 56-56).

Willis Carto never said that he was an incorporator of the Legion nor a member of the Legion. Carto never said Lewis or Lavonne Furr were either members or incorporators of the Legion (R.T. Vol 1, page 56-57).

Marcellus met Lavonne Furr in 1978. He never discussed her corporate role with her. Carto said that the Furrs were directors and officers of the Legion (R.T. Vol 1, page 57-58).

Exhibit 2, the by-laws of the Legion were seen by Marcellus in 1989 and were kept on file at Legion headquarters (R.T. Vol 1, page 59).

In reviewing all Legion records in the Legion headquarters, Marcellus never saw a record of a members meeting and saw no documents electing Willis Carto, Elisabeth Carto, and/or Lavonne Furr as substitute incorporators (R.T. Vol 1, page 60-61).

Marcellus met Jean Farrell at Torrance in spring of 1984 (R.T. Vol1, page 67). She had contacted the LSF, made contributions, said she was going to continue to make contributions to the Legion and was going to visit the Legion headquarters. Marcellus reported this to Carto. He directed Marcellus to continue his correspondence and seek further contributions (R.T. Vol 1, page 64).

Marcellus first advised Carto of the identity of Jean Farrell, not vice versa.

Mel Mermelstein was a litigant who sued the Legion, among others, in 1982 and again in 1987 (R.T. Vol 1, page 66).

Carto advised Marcellus that Jean Farrell had founded NECA Corporation. NECA was said by Carto and his wife, Elisabeth, to Marcellus to have been created solely to benefit the Legion. Mrs. Farrell died in 1985 (R.T. Vol 1, page 68)

Carto told Marcellus that he visited Switzerland as the business agent of the Legion in 1987 and that the significance of Jean Farrell’s death was that control of NECA passed to the Legion (R.T. Vol 1, page 70).

In 1985 and 1986 ninety thousand dollars ($90,000.00) of Legion donations went to FDFA (R.T. Vol 1, page 126).

Marcellus had a vigorous correspondence with Jean Farrell prior to first meeting her in person. She had contacted the Legion (IHR) (R.T. Vol 1, page 126-127).

In 1984 the Legion offices were firebombed. Marcellus raised one hundred twenty thousand dollars ($120,000) for a building fund (R.T. 127).

Marcellus testified that the Legion had inventory and cash in the end of 1984, 1985, 1987, 1988 and 1989 of $150,000 - $200,000 (R.T. Vol 1, page 128-129). In 1990 - 1992 the Legion had inventory and cash in the amount of two hundred thousand dollars ($200,000) (R.T. Vol 1, page 129).

Carto revealed the value of the NECA assets to Marcellus in 1985 and several times thereafter. He never said that it was necessary to borrow to finance the litigation nor did he order a fundraising campaign for that purpose (R.T. Vol 1, page 129).

Carto never told Marcellus that he had been empowered to secure the NECA assets for his own benefit. Also, prior to 1993 (when Carto was ousted) Carto never said that he could distribute the Farrell assets as he saw fit (R.T. Vol 1, page 131).

Henri Fischer came to the Legion office with Carto who identified him as his friend (R.T. Vol 1, page 131).

Exhibit 11 was identified (R.T. Vol 1, page 131). Carto never said to Marcellus that the Legion was heavily in debt as a result of the Farrell litigation (R.T. Vol 1, page 133).

Carto has only given a rough verbal accounting of the Farrell Estate funds (R.T. Vol 1, page 136).

Exhibit 48, board minutes of March 10, 1992 were produced in discovery. Marcellus was not present at the board meeting as represented in said minutes (R.T. Vol 1, page 140).

In July 1993 Carto told Marcellus that the Farrell Estate assets were going to good causes (R.T. Vol 1, page 141).

From July to September 1993 Marcellus talked several times to Lavonne Furr (R.T. Vol 1, page 141). When Carto said that he wanted to fire Legion editor, Mark Weber, Marcellus called Mrs. Furr to inquire into Carto’s standing to take such action. He wanted her advice. He wanted to know Carto’s legal standing (R.T. Vol 1, page 145-146).

Elisabeth Carto told Marcellus that a debt on the Legion books to Vibet was really Legion money from the Farrell Estate and that by Vibet loaning it to the Legion it would make the Legion look nearly bankrupt.

Lavonne Furr told Marcellus that she had no inkling of the amount of the Farrell Estate, its location, or plans for its disbursement (R.T. Vol 1, page 149). She did tell Marcellus that Carto could not spend it on good causes as it is not his. Willis Carto did not have such power (R.T. Vol 1, page 150).

Elisabeth Carto said to Marcellus that originally there were fifteen (15) million dollars in the Farrell Estate. The Legion was to get four (4) million. But that only 2.75 million dollars was available after taxes (R.T. Vol 1, page 151).

Mr. and Mrs. Furr told Marcellus that they were manipulated by Willis Carto as members of the Board of Directors of the Legion. Mr. Furr said they had been treated by Willis Carto as puppets. They were planning on resigning (R.T. Vol 1, page 154).

Marcellus became concerned in 1993 that Carto would change the editorial direction of the Legion and fire Weber (R.T. Vol 2, page 163).

On October 1, 1993 Marcellus demanded of Carto that Legion assets be turned over. Carto never did (R.T. Vol 1, page 155-156).

Elisabeth Carto reconciled the Legion monthly bank statements. She sent financial information to the accountant (R.T. Vol 2, page 169).

In 1984 Carto directed Marcellus to ask Legion supporters to send their contributions to the FDFA. Also, one hundred thousand dollars ($100.000) of Legion money in the Historical Education Foundation account mysteriously was transferred to FDFA. These were funds raised for a building fund (R.T. Vol 2, page 170).

Marcellus acknowledged sending a letter, dated January 14, 1985, to Jean Farrell asking her to make her contributions to the FDFA. This was at Carto’s suggestion. She mailed the contribution to the Legion office and it was forwarded to FDFA. Carto said to Marcellus that FDFA would ultimately repay the Legion for the diverted contributions. Said representation was oral (R.T. Vol 2, page 174-176).

Marcellus did not know who the other directors of the Legion were other than the Furrs. Carto was essentially running the Legion (R.T. Vol 2, page 177-178).

Carto kept as few dollars as possible in the Legion accounts (R.T. Vol 2, page 180).

In 1991 the Legion assets were falsely encumbered. A UCC 1 was signed by Marcellus but not filed (R.T. Vol 2, page 200). That encumbrance, in favor of the Historical Education Foundation was signed in July, 1991 at the direction of Willis Carto.

Elisabeth Carto and Pete Radnovitch, an accountant, did the Legion books. In 1986-1987 Robert Fenchel did the books. After that it was Elisabeth Carto and Radnovitch (R.T. Vol 3, page 220).

Marcellus learned, after the fact, that there were people supposedly on the Board of Directors of the Legion who had been dead for years (R.T. Vol 3, page 246).

Marcellus had one conversation with Mrs. Furr in which she denied emphatically any agreement with Carto. Carto was not a general agent but only an agent for special things according to Mrs. Furr (R.T. Vol 3, page 248).

Marcellus discovered Henri Fischer’s involvement in the diversion of Farrell Estate proceeds when a check was discovered, drawn on the Legion account, payable to Mr. Carto’s organization Liberty Lobby, that was enclosed with a cover letter to Mr. Fischer which arrived at the Legion office (R.T. Vol 3, page 292).

Marcellus saw a letter from Carto to a Fritz Berg in summer of 1993 which disclosed the existence of an International Legion for the Survival of Freedom, Inc. Exhibit 45 (R.T. Vol 3, page 292).

Mrs. Carto disclosed to Marcellus that the purpose of Vibet Corporation was to channel the Farrell Estate funds of the Legion into an other organization. She said this in 1991 (R.T. Vol 3, page 293-294).

Both Willis Carto and Elisabeth Carto said some funds from the Farrell Estate would be available to the Legion (R.T. Vol 3, page 303).

Marcellus testified, in support of the cause of action for conversion, that Carto had been handling getting the Farrell Estate gift for the Legion. Carto controlled Liberty Lobby. Legion employees discovered evidence that one hundred thousand dollars ($100,000) of Legion money from a Swiss Bank was being transferred to Liberty Lobby (R.T. Vol 3, page 317).

Marcellus met with Willis and Elisabeth Carto and attorney Hooper from Great Britain in 1986 regarding the Farrell Estate. Marcellus gave an affidavit on his contacts with Jean Farrell to present in the British Court (R.T. Vol 3, page 319-320). Mrs. Farrell had always expressed an intention to Marcellus to continue supporting the Legion with future substantial gifts (R.T. Vol 3, page 321-322).

Marcellus first heard of Vibet in 1993. He first had authority to sue on behalf of the Legion in September 1993 (R.T. Vol 3, page 323).

Testimony of Willis Carto

Willis Carto acknowledged that he stated in a faxed letter to William S. Hulsy, Esquire that I am an officer and director of Liberty Lobby but have no position whatsoever with LSF except that of sympathizer and friend of the board of directors (R.T. Vol 1, page 86).

Prior to 1985 Carto knew that the value of NECA was substantial but told the Furrs he had no idea of the value (R.T. Vol 1, page 90-91). Carto did not tell the directors of the Legion the value of NECA prior to January 1, 1991 (R.T. Vol 1, page 92).

In North Carolina documents Carto signed a verified complaint stating the value of NECA was sixteen (16) million dollars (R.T. Vol 1, page 95). Further, the Plaintiff in the North Carolina litigation was the Legion, not Carto.

Carto acknowledged signing a declaration stating that Legion directors are self executing appointments and are automatic (R.T. Vol 1, page 98-99).

Carto regarded the Legion Board of Directors as a legal backstop and a mere frontispiece (R.T. Vol 1, page 99).

Carto said in actuality that the Legion Board of Directors was not consulted and he and Mrs. Furr made all the decisions (R.T. Vol 1, page 100).

Prior to 1993, Carto said the Legion did not rely on the Board of Directors to decide its business affairs (R.T. Vol 1, page 104).

At the conclusion of the Farrell litigation Carto put forty-five percent (45%) of the Farrell Estate into Vibet and he hired attorney Patrick Foetisch to accomplish this. Foetisch organized Vibet, Inc. (R.T. Vol 1, page 105).

The job of gathering the Farrell assets was done by a notary named Rochat. Rochat was employed by and took orders from Foetisch (R.T. Vol 1, page 107).

Carto claimed one hundred percent (100%) ownership of the forty-five percent (45%) of the Farrell Estate (R.T. Vol 1, page 110).

Carto never prepared an accounting of the Farrell Estate (R.T. Vol 1, page 111).

Carto confirmed that the copy of the distribution agreement of the Farrell Estate (Exhibit 20) is authentic. He authorized someone to sign for him. He also acknowledges the authenticity of Exhibit 29, the settlement agreement, the original of which was signed by Lavonne Furr (R.T. Vol 1, page 117-118).

All the money put in Vibet was from the Farrell estate (R.T. Vol 1, page 125).

Carto testified Vibet, Inc. was organized to put Farrell dollars elsewhere than Legion accounts (R.T. Vol 3, page 336). Carto acknowledged that he never discussed setting up Vibet or any organization like Vibet with Jean Farrell (R.T. Vol 3, page 340).

Carto acknowledged stating in a verified complaint filed in North Carolina as follows:

FIVE: THAT NECA CORPORATION, WHICH IS PRINCIPALLY THE SUBJECT OF THIS ACTION, IS A CORPORATION FORMED BY THE DECEASED, JEAN FARREL, E., AS A LIBERIAN, L-I-B-E-R-I-A-N, CORPORATION ON OR ABOUT NOVEMBER 25, 1983.

SIX: THAT NECA CORPORATION HAS SUBSTANTIAL ASSETS, HAVING A VALUE IN EXCESS OF 16 MILLION DOLLARS, U.S., WHICH ASSETS ARE HELD IN MANY DIFFERENT COUNTRIES AND CITIES IN THE WORLD. NECA CORPORATION STOCK WAS COMPOSED OF 20 BEARER CERTIFICATES, ALL OF WHICH CERTIFICATES OF STOCK WERE GIFTED TO THE LEGION FOR THE SURVIVAL OF FREEDOM, INC. DURING A LIFETIME WITH JEAN FARREL, E., IN WHICH CERTIFICATES ARE STILL PROPERTY OF THE LEGION FOR THE SURVIVAL OF FREEDOM, INC. (R.T. Vol 3, page 342).

At R.T. Vol 4, page 345 the Court took judicial notice of the entirety of Exhibit 183, the North Carolina court file.

Carto insisted that all dollars that went into Vibet were his (R.T. Vol 3, page 345).

Carto claimed that as of March, 1987 there was an agreement between Mrs. Furr and Mr. Carto that the Legion relinquished its interest in the Farrell Estate. It was relinquished on behalf of Willis Carto (R.T. Vol 3, page 347-348).

Carto put up personally only a few thousand dollars to pursue the litigation. The bulk of the funds came from Liberty Lobby and FDFA (R.T. Vol 3, page 348).

From Carto’s deposition, read into the record, he denied having authority to direct attorney Foetisch to withdraw funds from Banque Contrade, however, in court he acknowledged that he did have that authority (R.T. Vol 3, page 351-352).

Carto acknowledged that Vibet was organized in the Bahamas but does not know its nominee or board of directors. The International Legion for the Survival of Freedom, Inc. is the mother corporation for Vibet (R.T. Vol 3, page 353-355).

Carto did not recall in trial under which law Vibet was formed, did not know if it is offshore, and did not know if it even still existed. He could not recall the directors. From his deposition his recollection was refreshed that the International Legion for the Survival of Freedom was a Virgin Islands corporation (R.T. Vol 3, page 355-356).

Carto is the Chief Financial Officer and director of Liberty Lobby. He has been Chief Executive Officer and board member since 1955. A note was produced at trial which Carto acknowledged signing on behalf of Liberty Lobby and acknowledged that Liberty Lobby has not repaid the note. Liberty Lobby received two hundred thousand dollars ($200,000) on December 10, 1991 from Vibet. Liberty Lobby borrowed two hundred thousand dollars ($200,000) on January 3, 1992. It was not repaid. On February 3, 1992 Liberty Lobby borrowed another two hundred thousand dollars ($200,000) from Vibet and it has not been repaid. On March 3, 1992 Liberty Lobby borrowed another two hundred thousand dollars ($200,000) from Vibet. It has not been repaid. On April 1, 1992 Liberty Lobby borrowed another two hundred thousand dollars ($200,000) which was not repaid. All funds came through Banque Contrade (R.T. Vol 3, page 357-360).

Carto acknowledged that four hundred fifty thousand dollars ($450,000) of Vibet funds were transferred to FDFA. FDFA’s offices are at the Liberty Lobby headquarters. That has been true since 1983 (R.T. Vol 3, page 362-365). FDFA has no employees (R.T. Vol 3, page 365).

Loans for litigation expenses from Liberty Lobby and FDFA were made to Carto without collateral (R.T. Vol 3, page 367).

Carto testified that Henri Fischer assisted Carto in the recovery of the Farrell Estate. Fischer received a power of attorney from the Legion Board of Directors which enabled him to sign checks and open bank accounts (R.T. Vol 5, page 580).

Fischer advanced costs but never provided a written accounting of those costs. Carto could not say if he kept track of those expenses (R.T. Vol 5, page 581).

Fischer’s payment was to reimburse him for what he did. What he did was considerable. He was reimbursed from the Farrell recovery (R.T. Vol 5, page 581-582).

Fischer travelled the world, talked to banks, and lawyers, and was the one responsible for putting Carto in touch with all the attorneys in the case. He was paid maybe three hundred thousand dollars ($300.000) for his seven years of work. Fischer never presented a time sheet (R.T. Vol 5, page 583-584).

Carto contended that he purchased control of the Legion (R.T. Vol 6, page 655).

Carto mainly discussed Legion business with Mrs. Furr as she was the other member of the corporation (R.T. Vol 6, page 671). Mrs. Furr joined the Legion board in 1965 and Mr. Furr came on the board in 1966 or 1967. According to Carto they are still on the board (R.T. Vol 6, page 672).

In 1968-1969 the Legion merged with another entity (R.T. vol 6, page 675). Carto contends that he is now President of the Legion and a substitute incorporator. In the past Carto never sought to make public his close working relationship with the Legion because he did not want to be associated publicly with the controversial historical positions taken by the Legion (IHR) which could damage his public position with Liberty Lobby. Carto was only a director of the Legion for two years, 1966-1968. He was never an officer until 1995 (R.T. Vol 6, page 676-677).

Elisabeth Carto spent more than eight to ten hours a week on Legion business (R.T. Vol 6, page 679).

Willis Carto met Jean Farrell once. Elisabeth Carto met her in California and Elisabeth Carto and her mother saw Jean Farrell in Europe on a tour (R.T. Vol 6, page 683-685).

Carto claimed to be empowered to act as trustee of the Jean Farrell dollars which she left in NECA (R.T. Vol 6, page 686).

Jean Farrell sent keys to Willis Carto to safety deposit boxes wherein were lodged bearer certificates of NECA stock (R.T. Vol 6, page 697). The boxes were in Lutry, Switzerland, Herford, Germany, London, North Carolina, Singapore and Tokyo (R.T. Vol 6, page 711).

Mrs. Furr gave Carto the okay to go ahead in an attempt to retrieve the NECA shares. Minutes were drawn up and a power of attorney given to Carto. Also, Henri Fischer was consulted. Fischer’s assistance was what made Carto’s conduct possible, because of his Swiss schooling and fluency in French. Fischer retained the attorneys in Switzerland and England (R.T. Vol 6, page 713).

Carto claimed that the Legion was effectively bankrupt at the time he undertook to recover the Farrell Estate (R.T. Vol 6, page 715).

Mr. Henri Fischer also was given a power of attorney from the Legion board to assist in recovering the Legion funds (R.T. Vol 6, page 720).

Fischer found a lawyer, devoted seven years to the project. He made four to five trips. He went to Tokyo and Singapore. He went to London twice. He coordinated the moving parts (R.T. Vol 6, page 721-722).

Carto took Farrell Estate funds and turned them over to Liberty Lobby and the funds were commingled. He says that Liberty Lobby was the vehicle to accept funds from Vibet for investment into an ambitious radio project which went bankrupt (R.T. Vol 6, page 734-736).

Carto says that he did not have total control of the Farrell Estate funds. Mrs. Lavonne Furr as the second member of the Legion, also had control and properly nothing could be done without her consent (R.T. Vol 6, page 738).

Mrs. Furr had said verbally and in writing that Carto could do whatever he wanted with the Farrell Estate money without putting it into the Legion (R.T. Vol 6, page 738).

Carto claims to have told Lavonne Furr about the payments to Sun Radio (R.T. Vol 6, page 739).

Carto testified that his share of the Farrell Estate was 7.5 million dollars. Mrs. Carto got twenty thousand dollars ($20,000) out of the funds. Mr. Henri Fischer received two hundred fifty thousand dollars ($250,000). Some money went to Mrs. Furr. Liberty Lobby got two million six hundred thousand dollars ($2,600,000) (R.T. Vol 7, page 748-750).

Mr. Fischer retained an expediter who was paid eight hundred thousand dollars ($800,000). After Mr. Fischer retained the expeditor everything fell into place magically. Carto would only reveal the expeditor’s name in camera (R.T. Vol 7, page 750-751).

Carto acknowledged that he did send a draft of minutes to Lavonne Furr for her to copy and sign. That occurred September 21, 1993 (R.T. Vol 7, page 768).

Elisabeth Carto and Henri Fischer were elected to the Legion Board of Directors (R.T. Vol 7, page 768).

Carto authenticated Exhibit 208 as the memorandum of distribution (R.T. Vol 7, page 774).

Carto acknowledged that as of September 20, 1985 he believed that the Farrell gift of NECA stock was partially for the benefit of the Legion (R.T. Vol 7, page 778).

Carto was not present when Marcia Hoyt allegedly became a substitute incorporator of the Legion (R.T. Vol 7, page 781).

Fischer had power of attorney and control over Vibet, Inc. as of October, 1995 (R.T. Vol 7, page 786).

Prior to March 5, 1991 Willis Carto had not told Thomas Kerr how much had been recovered from the Farrell Estate (R.T. Vol 7, page 791).

Exhibit 209 is acknowledged by Carto as prepared by Liberty Lobby controller, Blayne Hutzel (R.T. Vol 7, page 782-785).

Testimony of Mark Weber

Mark Weber testified that Carto contacted Weber in 1986 to ask if he would consent to be a member of the Board of Directors of the LSF. Weber gave him his tentative agreement but asked Carto to call the next day to confirm his agreement. Carto never did. Carto never advised Weber that he was elected to the board. Weber never attended a board meeting in 1985 or 1986. Weber saw in 1993 that he was purportedly elected to the board in 1986. He never got notice of a meeting, participated by telephone, attended, or got minutes (R.T. Vol 3, page 374-376).

Prior to September 1993 Weber had no involvement with the Estate of Jean Farrell (R.T. Vol 3, page 378). Weber asked Carto in the summer of 1992 about the Farrell Estate money and he said, There’s money coming but it is sort of tied up (R.T. Vol 3, 380). Prior to September 1993, Weber did not know that the Farrell Estate was settled (R.T. Vol 3, page 382).

Weber first learned of the 45/65 split of the Farrell proceeds from attorney Hooper in June of 1994 (R.T. Vol 4, page 407).

Weber gave notice to the California Attorney General in compliance with Corporations Code Section 5142 on January 9, 1996 (R.T. Vol 4, page 416).

Weber had a conversation with Lewis Furr in early September, 1993. It lasted thirty (30) to forty (40) minutes. Weber asked him the source of Carto’s authority. Lewis Furr stated that he and his wife had no authority. Willis Carto had all the authority. Lewis Furr wanted nothing to do with the corporation. He wanted no legal responsibility (R.T. Vol 4, page 426).

In Weber’s conversation with Lewis Furr, Weber determined that Furr had only the vaguest idea of what the Legion was doing. Furr said that Carto was legally responsible for the corporation. He did not know or care to know what was going on (R.T. Vol 4, page 432-433).

Weber commented that there were two sets of minutes for the alleged board meeting of March 5, 1991 (R.T. Vol 4, page 495).

Testimony of Thomas Kerr

Thomas Kerr testified that he was a member of the Legion Board of Directors prior to September 1993. His best recollection was that he had been on the board since 1984. Prior to September 24, 1993 he never attended or participated in person or telephonically in a meeting of the board. He had never met Lewis or Lavonne Furr prior to September 1993. He had also never spoken to them on the phone. He had never reviewed or signed minutes of a meeting of the Board of Directors (R.T. Vol 4, page 437-443).

Kerr does not remember discussing the Farrell bequest with Willis Carto (R.T. Vol 4, page 444-445). He never signed any document turning over the Farrell bequest to Willis Carto. Prior to September 1993 he did not discuss the Farrell Estate with anyone. He did not attend or participate in any way in a board meeting on March 5, 1991 (R.T. Vol 4, page 445-446).

Kerr resigned from the Legion Board of Directors in March 1994 (R.T. Vol 4, page 461).

Testimony of Elisabeth Carto

Elisabeth Carto testified that she contends that she is currently a director of the Legion. She claims to have become a director in the early 1980s (R.T. Vol 4, page 526).

Elisabeth Carto was not a director on March 5, 1991. She never recalls reviewing any minutes that abandoned the Farrell bequest to Willis Carto (R.T. Vol 4, page 528).

When Mrs. Carto was on the board in 1985-1986 she recalls no board meeting where the members were present in one room (R.T. Vol 4, page 529).

Mrs. Carto claimed to know nothing about Defendant Vibet, its nature, its origination, or its bank accounts (R.T. Vol 4, page 531).

Mrs. Carto claims not to know how much the forty-five percent (45%) of the Farrell Estate was in dollars, nor does she know if the International LSF had bank accounts, nor who currently controls Vibet, Inc. or the International LSF. She also does not know if Vibet has any funds (R.T. Vol 4, page 532-533).

Mrs. Carto was treasurer for the Legion for some years. She cannot recall how many. When Mrs. Carto was treasurer of the Legion, she kept the checking accounts, paid bills, took care of filings and taxes and consulted with the accountants. She never questioned a Legion tax return (R.T. Vol 4, page 534-535).

She noted a loan on the Legion books to Vibet in the sum of two hundred fifty thousand dollars ($250,000) (R.T. Vol 4, page 536).

The Board of Directors on which Mrs. Carto sits which purports to be the real Legion and has maintained a bank account.

According to Elisabeth Carto, Jean Farrell didn’t want anything bad to happen to the IHR (Legion), obviously (R.T. Vol 7, page 819).

In pursuing the Farrell Estate Elisabeth Carto had discussions with people in Europe. She spoke with attorneys. She went five or six times to Europe on the case. She interviewed four or five attorneys. She attended proceedings three times including a jurisdictional hearing in London (R.T. Vol 7, page 826-829).

Elisabeth Carto kept the Legion checkbook during the Farrell litigation (R.T. Vol 7, page 831).

Elisabeth Carto put three thousand (3,000) hours into this thing (the Farrell litigation). She also helped with the paperwork with which they were inundated. She did the work because her husband did not have time.

Testimony of Harvey Taylor

Harvey Taylor testified that he has been serving as a member of the Legion Board of Directors since Carto left the Legion (R.T. Vol 5, page 541).

In the past Carto had asked Taylor to be a member of the Board of Directors but had never heard anything more of it. He never attended a meeting, was never provided with minutes, and never heard of the Farrell Estate prior to September 1993 (R.T. Vol 5, page 543-544).

Taylor testified that he did not attend a meeting of the Board of Directors purportedly held on March 5, 1991. He was not advised prior to September of 1993 that the Farrell Estate was turned down by the Legion (R.T. Vol 5, page 544).

Taylor never met the Furrs and never has spoken to them (R.T. Vol 5, page 548).

Taylor never had a telephone conversation with Willis Carto where 7.5 million dollars was discussed (R.T. Vol 5, page 555).

The trial court after argument of counsel admitted both depositions of Lewis and Lavonne Furr (Exhibits 203 and 204) (R.T. Vol 5, page 572).

The court admitted over objection Exhibit 60 and 63 (R.T. Vol 7, page 856).

The Lavonne Furr Deposition

The deposition of Lavonne Furr was admitted in evidence as Exhibit 203. According to Mrs. Furr, since 1969 to the present, most of the time Willis Carto would type out the minutes of Board of Directors meetings. He would send them to her and she would retype them and send them back (R.A. Vol 1, page 168).

The Legion Board of Directors were self executing meaning members were automatically reappointed each year (R.A. Vol 1, page 169).

She made the minutes look like actual meetings occurred when they really did not (R.A. Vol 1, page 170).

Carto told Lavonne Furr that Jean Farrell wanted him to have the organization called NECA (R.A. Vol 1, page 182).

Lewis and Lavonne Furr agreed that Willis Carto was to have a free hand to decide all distributions and investments (R.A. Vol 1, page 189).

Lavonne and Lewis Furr gave Carto permission to do whatever - he financed it (R.A. Vol 1, page 195).

Lavonne Furr met Henri Fischer several times. She spoke to Fischer in two to three long conversations. He had the time and dollars to help out Carto (R.A. Vol 1, page 196 and 200).

Lewis and Lavonne Furr suggested to Carto to set up the International Legion for the Survival of Freedom, Inc. for the Farrell money (R.A. Vol 1, page 202).

Lewis and Lavonne Furr agreed with the settlement and discussed the terms with Willis Carto prior to settlement (R.A. Vol 1, page 205).

The Furrs authorized the hiring of Rochat (the notary) and Foetisch (the attorney). Foetisch was authorized to set up the International Legion for the Survival of Freedom, Inc. (R.A. Vol 1, page 208).

Regarding the alleged meeting of March 5, 1991, Mr. and Mrs. Furr had no conversation with Mr. Taylor (R.A. Vol 1, page 221-222).

In April of 1991 Willis Carto resigned as agent for the Legion but Mr. Fischer continued in that capacity (R.A. Vol 1, page 231).

As of July 25, 1991 a letter was sent to Mr. Hooper in England stating that Fischer was now the agent and that Carto was no longer the agent (R.A. Vol 1, page 233).

Lavonne Furr acknowledged receiving papers from a sheriff regarding this lawsuit. She was personally served (R.A. Vol 1, page 233).

According to Mrs. Furr, the forty-five percent (45%) of the Farrell Estate went to International Legion for the Survival of Freedom, Inc. and Vibet was not over a million dollars (R.A. Vol 1, page 237-239).

Mrs. Furr had not seen any bank records on the Farrell distribution (R.A. Vol 1, page 244). She had not seen any Vibet records.

Willis Carto never said to Lavonne Furr that the litigation funds for the Farrell Estate came from the Liberty Lobby. To her knowledge Henri Fischer received nothing from the Farrell Estate funds. She has no idea of what the Vibet and International Legion for the Survival of Freedom, Inc. received (R.A. Vol 1, page 245-247).

Mrs. Furr knows nothing of the management or control of the International Legion for the Survival of Freedom or Vibet. She has never seen their books. She has no recollection of seeing any minutes of board meetings prior to March 5, 1991 where in the Legion declined the Farrell bequest (R.A. Vol 1, page 248-251).

Neither Lewis nor Lavonne Furr gave notice of the March 5, 1991 meeting to Henry Taylor or Thomas Kerr. She only knows of their participation in the meeting of March 5, 1991 by what Carto said (R.A. Vol 1, page 253-255).

Mrs. Furr was not present when Jason Matthews appointed Marcia Hoyt as a substitute incorporator of the Legion (R.A. Vol 1, page 261).

Willis Carto said that NECA was a wholly owned subsidiary of the Legion (R.A. Vol 1, page 266).

According to Mrs. Furr, the Vibet money is the property of the Legion (R.A. Vol 1, page 268).

No inventory or accounting of the Farrell Estate was ever provided by Willis Carto, Henri Fischer, or any of the attorneys or notary (R.A. Vol 2, page 338).

Mrs. Furr cannot recall ever discussing using a contingency fee to recover the Farrell Estate, discussing fund raising to pursue the Farrell Estate, or borrowing to pursue the Farrell Estate (R.A. Vol 2, page 341-342).

Mrs. Furr, as secretary-treasurer of the Legion since 1991, never contacted the Secretary of State of either Texas or California regarding turning down the Farrell bequest (R.A. Vol 2, page 343-344).

Mrs. Furr did authenticate minutes of March 25, 1966 and March 5, 1985 (R.A. Vol 2, page 346-348).

Mrs. Furr could not recall whether the Legion was doing or worse in 1988 or 1991 (R.A. Vol 2, page 350).

Written notice of meetings of Legion Board of Directors was never given (R.A. Vol 2, page 351).

Mrs. Furr acknowledged that the Legion was reporting Bruce Holman to be its president as late as 1991 (R.A. Vol 2, page 437) and yet he was dead in 1986 (R.A. Vol 2, page 439). It was an honest mistake (R.A. Vol 2, page 355).

When Mrs. Furr signed the power of attorney for Mr. Carto, Mr. Carto told her what to write and Mrs. Furr signed (R.A. Vol 2, page 356).

Mrs. Furr was paid five thousand dollars ($5,000) from the Farrell Estate proceeds (R.A. Vol 2, page 359).

According to Mrs. Furr the alleged board meetings of March 10, 1992 and December 9, 1992 were held without notice. The meetings were held with Willis Carto only on the phone. Willis Carto took care of the other directors whose names she cannot recall (R.A. Vol 2, page 359-363).

Willis Carto did prepare the new by-laws in 1966 (R.A. Vol 2, page 364-365).

Although Mrs. Furr swore that she never signed blank checks (R.A. Vol 2, page 368), Exhibits at R.A. Vol 2, page 451-455 demonstrate that that statement was untruthful.

Mrs. Furr, since March 25, 1991, has given no instructions to anyone regarding Vibet or the International Legion for the Survival of Freedom, Inc. and does not know who owns or controls these entities (R.A. Vol 2, page 373-375).

Willis Carto never told Lavonne Furr that Liberty Lobby received funds from the Farrell Estate (R.A. Vol 2, page 394).

When Mrs. Furr was served with papers in this lawsuit by a uniformed officer, she first called Willis Carto. She then called counsel Randy Waier to ask, What should I do with them? She had previously consulted with Waier (R.A. Vol 2, page 399-407).

The Lewis Furr Deposition

Lewis Furr is a college graduate with a bachelor of science degree. He was a clerk of court in the Judicial Court in Louisiana from 1948 to 1960. In that capacity he kept court minutes, sold marriage licenses and recorded deeds and mortgages (R.A. Vol 2, page 515-517).

When he received the court papers in this matter, he wrote served on the documents and within a few days of receipt sent the papers to Carto or attorney Waier (R.A. Vol 2, page 518).

After mailing off the documents he did nothing more. That is true, even after receiving the Notice of Entry of Default. He never called the sheriff or the plaintiff’s attorney (R.A. Vol 2, page 520-523). He did call Waier’s office after receipt of the Notice of Default (R.A. Vol 2, page 521).

Lewis Furr did sign Board of Directors minutes dated March 5, 1991 (R.A. Vol 2, page 528-529), which appear at R.A. Vol 2, page 540.

Mr. Furr recalls no conversation with either Mr. Taylor or Mr. Kerr prior to the meeting of March 5, 1991 (R.A. Vol 2, page 530-531), and no conversation with Mr. Kerr or Mr. Riner prior to the meeting of January 9, 1991 (R.A. Vol 2, page 531).

Regarding a meeting purportedly held on September 16, 1993, this was held by telephone and Lewis Furr cannot recall who was on the telephone other than his wife (R.A Vol 2, page 531-532).

DISCUSSION OF ISSUES

The Trial Court Exercised No Improper Visitorial Jurisdiction Over The Legion For The Survival of Freedom

The defendants invest sixteen (16) pages of their brief raising an issue of so-called visitorial jurisdiction without making a single reference to the record.

The point seems to be that because the Legion for the Survival of Freedom, Inc. was incorporated in Texas as a non-profit corporation some forty-six (46) years ago, although it has been exclusively operated and headquartered in California since 1966, that 1) Texas law applies as to internal affairs and further 2) that a California court has no subject matter jurisdiction to try matters implicated by the internal affairs of a non-profit corporation incorporated in Texas.

Also mentioned as makeweights are the assertion that the Superior Court lacked personal jurisdiction over certain of the defendants such as Henri Fischer and Vibet… (Page 28 of the Appellants Opening Brief (hereinafter AOB)).

Finally, the appellants contend that this court also lacks jurisdiction to adjudicate the appeal. They urge that this matter be remanded for mandatory dismissal (AOB page 30).

We will deal with these three issues seriatim.

The relevant facts to bear in mind are that while the Legion was incorporated in Texas forty-six (46) years ago, it has been exclusively headquartered and operated in California since 1966 or thirty-two (32) years (as appears from corporate filings).

Willis and Elisabeth Carto are California residents as is Henri Fischer (as appears from the powers of attorney). The Legion is a non-profit 501(c)(4) corporation engaged in charitable educational publications. Only the defaulting defendants appear to reside outside of California (Furrs in Arkansas and Vibet, Inc. which may no longer exist).

California had already, at the behest of the Carto plaintiffs, litigated Legion Board of Director membership issues in California (Kerr, Carto v. Legion, Orange County Superior Court case #720953) which is now final by virtue of dismissal of the appeal by this court in Kerr, Carto v. Legion, case #G016137.

Interestingly, subject matter jurisdiction was never even raised in any filed answer (Clerks Transcript (hereinafter C.T.), page 70-78, 80-88, and 126-135).

Further, in addition to not citing to the record, the appellants’ discussion of so-called visitation jurisdiction reads like a vast excerpt from Corpus Juris Secundum.

Each California case cited has absolutely nothing to do with the factual setting in this case or the point at legal issue.

There is, however, controlling California authority which, not surprisingly, is not discussed by the appellants. That is American Center for Education Inc. v. Cavnar (1978) 80 C.A.3d 476.

In Cavnar, supra, the subject corporation was, as here, a non-profit corporation, incorporated out of state, but which had exclusively been in business in California for many years. There, as here, a founder had been ousted and one of the issues to be decided was what law to apply. There, as here, the operators were all California residents.

In Cavnar, supra, the court elected to use California law to analyze the ouster of the founder in terms of compliance with procedural corporate law.

There at page 485 the Cavnar court discusses these issues in relevant part as follows:

[2a] Another threshold question is what law should govern our decision in this case. The election and removal of officers are matters involving the internal affairs of a corporation, and California courts generally apply the laws of the place of incorporation in such instances. (E.g., McDermott v. Bear Film Co. (1963) 219 Cal.App.2d 607, 60 [33 Cal.Rptr. 486]

Other considerations, however, bear on this choice of law question. As a nonprofit corporation with no stockholders and no members, organized for educational purposes and supporting itself through charitable contributions, ACE may properly be considered a private charitable corporation. (See Gov. Code, 12582.1; Karst, The Efficiency of the Charitable Dollar: An Unfulfilled State Responsibility (1960) 73 Harv.L.Rev. 433; 4 Scott on Trusts (967) 348.1, p. 2770) [3] Moreover, gifts to charitable corporations are deemed given in trust to carry out the objects of the corporation, and the assets of charitable corporations are deemed to be impressed with a charitable trust by virtue of the declaration of corporate purposes. (Brown v. Memorial Nat. Home Foundation (1958) 162 Cal.App.2d 513, 521 [329 P.2d 118, 75 A.L.R.2d 427]; Lynch v. John M. Redfield Foundation (1970) 9 Cal.App.3d 293, 298 [88 Cal.Rptr. 86, 51 A.L.R.3d 1284].) Accordingly, charitable corporations are generally governed by the same rules as those applicable to charitable trusts. (Holt v. College of Osteopathic Physicians & Surgeons (1964) 61 Cal.2d 750, 756-757 [40 Cal.Rptr. 244, 394 P.2d 932]; 4 Scott on Trusts (1967) 348.1, p. 2778.)

Charitable trusts are usually governed by the laws of the state in which the trust is administered. (5 Scott on Trusts (1967) 608, pp. 3945-3948.) This appears to be the rule in the District of Columbia, where ACE is incorporated. (See Gilbert v. Beach (D.D.C. 1941) 42 F.Supp. 168, affd. (D.C.Cir. 1943) 133 F.2d 50; Accord, Rest.2d Conf. of Laws, 272, com.b.) [4] Factors to be considered in determining the place of administration are the domiciles of the trustees, the physical location of the assets constituting the res of the trust, and the place in which the business of the trust is carried on. (Gilbert v. Beach, supra, 42 F.Supp. at p. 171.) In cases dealing with noncharitable trusts, California courts have emphasized the location of the res as the major factor determining which law to apply. (E.G., Hardy v. Hardy (1958) 164 Cal.app.2d 77, 79-80 [330 P.2d 278].) [2b] But we need not weigh these factors in the case at bench because the domiciles of all of ACE’s directors, and the sole place of its business were in California where all of its assets were also located.

Under California law the directors of a charitable corporation are considered to be trustees in many respects. (Holt v. College of Osteopathic Physicians & Surgeons, supra, 61 Cal.2d at pp. 756-757; Lynch v. John M. Redfield Foundation, supra, 9 Cal.App.3d at p. 298.) This is particularly true with regard to their performance of their duties. (See Trusts-Gifts to Charitable Corporations-Nature of Interest Created-Duties of Trustee (1952) 26 Co.Cal.L.Rev. 80, 83-85.) Furthermore, this state has a significant interest in scrutinizing the activities of charitable corporations which carry on their business here and solicit contributions from among our residents.

[2c] Where a charity has been organized by California residents, is located in this state and has all of its assets and most of its activity here, we believe that actions taken in California concerning the administration of that charity should not escape the scrutiny of California law merely because the founders chose to incorporate elsewhere. Consequently, we hold that the law of California, to the extent it exists, is controlling.

Thus, Cavnar, would be controlling authority in the matter sub judice. Here, we have California residents running a corporation operated exclusively in California for thirty-two (32) years, with its headquarters in California. Thus, California law would apply, not Texas law.

The appellants do not even contend that the decision is unjust under California law but rather that Texas law would apply.

However, assuming, arguendo, that Texas law would apply, there is no showing that a different result would have obtained. How, for example, is Texas law different from California. So far as we can tell from the appellants brief, it is not.

Choice of law issues are not the same as subject matter jurisdiction. The thrust of the appellants’ brief is that only a Texas court can apply Texas law. Again, Cavnar, comes to our aid. If that proposition were true, then, the American Center for Education v. Cavnar, supra, case would have had to be brought in Washington, D.C. Of course, that is nonsensical.

The second sub-issue mentioned pari passu by the appellants (AOB page 28) is that there is an issue of personal jurisdiction over Henri Fischer and Vibet, Inc. To begin with, Fischer answered thereby submitting himself to California personal jurisdiction (See C.T. page 126-135).

Regarding Vibet, Inc. at C.T. 192 default was entered against that entity. It appears that no effort was made to relieve that entity of its default.

Of interest is that the appellants attempted to raise both subject matter jurisdiction and personal jurisdiction by writ of mandate before this court. This court in Willis Carto v. Superior Court of San Diego County, et al., case #D029122 summarily denied that writ as to personal jurisdiction noting not only the personal appearances waiving the issue but failure to comply with Code of Civil Procedure Section 418.10.

The appellants’ final point on subject matter jurisdiction is that this court only has jurisdiction to remand for dismissal (AOB page 30). Respondents again rely on American Center for Education v. Cavnar, supra, which implicitly establishes subject matter jurisdiction in the court of appeal to review adjudication of internal matters regarding a foreign non-profit corporation domiciled in this state.

The issue of subject matter jurisdiction over the corporate matters is not an occasion of error.

Subject Matter Jurisdiction Subsists in a California Court to Litigate the Misapplication of Proceeds of an Estate Destined to a Non-Profit Corporation Domiciled in California

Contrary to the representations of the appellants, the record in this case (see Distribution Agreement R.A. page 33) establishes beyond peradventure of a doubt that the forty-five percent (45%) share of the Farrell Estate (NECA was merged into this Swiss estate) was intended for Legion, domiciled in California. This disbursement was misdirected and converted by Willis Carto and Henri Fischer, both California residents, aided and abetted by Elisabeth Carto, also a California resident.

Personal jurisdiction was obtained over these three individuals who all answered.

No authority is cited by the appellants as to why this matter may not be litigated here. The River Farms v. Superior Court of San Bernardino case cited by appellants is completely inapposite dealing, as it does, with a quiet title action over land formerly in California but now in Arizona.

There is no merit to the issue of alleged lack of subject matter jurisdiction over conversion of assets by California residents when the victim is a California corporate domiciliary and personal jurisdiction has been obtained in California over the defendants.

Failure to Comply With Code of Civil Procedure Section 425.15 Is Not Fatal To Respondent

The appellants contend that Code of Civil Procedure Section 425.15 applies to this case. We contend that it does not.

To begin with, the complaint in this matter named as defendants Willis Carto, Henri Fischer, Liberty Lobby, Inc. and Vibet, Inc. Code of Civil Procedure Section 425.15 applies by its express terms to a person serving without compensation as a director or officer of a non-profit corporation described in this section… (emphasis added)

Vibet, Inc. and Liberty Lobby, Inc. are not persons. Willis Carto and Henri Fischer are persons but they have been neither alleged to be nor proven to have been either officers or directors of the Legion.

Furthermore, there is substantial evidence that both fulfilled their functions as agents for compensation. Henri Fischer made off with $250,000 to $300,000 in fees. Willis Carto diverted two million six hundred fifty thousand dollars ($2,650,000) to Liberty Lobby which he controls and from which he draws a salary.

Thus, there was absolutely no problem with this case being filed. Later, the plaintiff designated as Doe defendants, Elisabeth Carto and Lewis and Lavonne Furr.

Elisabeth Carto was neither an officer nor director and also she received twenty thousand dollars ($20,000) for her trouble.

The statute by its terms applies only to California corporations covered by the sections commencing with 5110, 7110 and 9110 of the Corporations Code. Legion is a foreign non-profit corporation so it is not covered by this statute.

The Furrs were supposedly officers and directors but the complaint sounds against them mainly in intentional tort (conversion). Also, Lavonne Furr received five thousand dollars ($5,000) so she was not uncompensated. Presumably, these funds were community earnings so they benefitted Lewis Furr as well. That makes him compensated as well.

Then, of course, the Furrs slept on their rights and their default was taken. Lewis Furr knew better as he had been a clerk of the court for twelve (12) years.

Considering the foregoing, it is not surprising that the court specifically found that no defendant met its burden to show that they were serving without compensation as a director or officer (C.T. Vol 4, page 1002). It is a fact issue, resolved against the appellants. Thus, there is no fatal defect. For the abundant above cited reasons, therefore, Code of Civil Procedure Section 425.15 is neither a procedural nor jurisdictional error.

There Was Sufficient Evidence In The Record To Support The Verdict

The appellants spend twenty-one (21) pages (35-56) arguing that there was insufficient evidence in the record to support the judgment. To help along this cause the appellants generated a record devoid of any of the documentary evidence record. However, the respondent has provided that evidence in Respondents’ Augmentation and Supplemental Augmentation to the Record.

Witkin writes in Summary of California Law, 9th, Torts Section 610 Conversion of Personal Property, In General, Nature of Tort in relevant part as follows:

Conversion is the wrongful exercise of dominion over personal property of another (citing cases)

… The action for conversion properly lies only where there is some substantial interference with possession or the right thereto, and the plaintiff in a conversion suit recovers the full value of the property, in effect forcing the defendant to buy it.

A plaintiff must plead and prove ownership of the converted property, a substantial interference by the defendant and damages. Witkin, California Procedure, 4th Volume 4, Pleading, Section 660-663.

The Legion was the owner of forty-five percent (45%) of the Farrell Estate.

The distribution agreement (Respondents’ Augment, page 33) provides as follows:

IV.

It is hereby agreed that Me Rochat will distribute the net assets of Neca as to 55% to JA and as to 45% to the Legion.

Carto was a signatory of that agreement (R.A. Vol 1, page 39). Mrs. Furr stated in her deposition that the Legion Board of Directors approved the distribution agreement. Also, it is clear that Carto knew that these assets (NECA) belonged to the Legion because of his verified pleading in North Carolina (R.S.A. page 3-59), and the recitals in various minutes and powers of attorney in evidence up to 1991. See R.A. Vol 1, page 25-26 where NECA is referred to as a wholly owned subsidiary of the Legion and R.A. Vol 1, page 27 where NECA is also referred to as a wholly owned subsidiary. See Settlement Agreement R.A. Vol 1, page 45 and 45% for the Legion for the Survival of Freedom. R.A. Vol 1, page 50 to secure the property of the corporation as described from the Estate of Miss Jean Farrell… and R.A. Vol 1, page 51 to secure the Lawful portion of the estate and property of Miss Jean Farrell for this corporation… and R.A. Vol 1, page 52, etc.

The next issue is whether this asset of seven million five hundred thousand dollars ($7,500,000), belonging to the Legion as of July, 1990 (See Distribution Agreement), could legally be disposed by the Legion Board on March 5, 1991 without consideration (See R.A. Vol 1, page 58-59).

This purportedly occurred at a Board of Directors meeting on March 5, 1991. To begin with, this meeting never happened. Both Mr. Taylor and Mr. Kerr, whose presence purportedly constituted a quorum, testified that they did not attend such a meeting. If no quorum was present then no meeting could be held.

No notice of this meeting was ever given according to Mrs. Furr’s deposition testimony.

California Corporations Code Section 5911 prohibits a corporation from disposing of all or substantially all of its assets unless such disposal is approved by the Board of Directors. Here the Farrell assets constituted substantially all of Legion’s assets (95%+), yet no board approval was obtained, since such approval would have required a vote by the directors besides the Furrs, yet they were never asked about such issue let alone voted on it.

Directors never attended any board meeting at which a transfer of the Farrell estate proceeds was discussed, let alone voted on, nor were they asked to participate in such a board meeting by telephone, nor did they grant anyone a proxy to vote for them, nor did they provide a written ballot, nor did they sign a waiver of notice of such a meeting, nor did they vote in favor of such a transfer after the fact. The two Furrs having a telephone call with Carto did not constitute a duly-noticed directors meeting.

California law allows by-laws to specify, interalia: the time, place and manner of calling board meetings; the duties of directors, the time of their election, and what is a quorum of the board; and the appointment and duties of officers. California Corporations Code Section 5151(c).

In the absence of contrary provisions in the Charter or by-laws, or unanimous written consent, or written waivers of notices from each person entitled to vote, Legion was prohibited by law from having regular director meetings (as set by the by-laws or board) unless prior notice was first given. California Corporations Code Section 5211(a), (b), (c).

Notice was never given nor unanimously waived in the corporate record before us.

It is apparent that such meeting never occurred and never caused a transfer of the Farrell Estate for the additional reason that California Corporations Code Section 5911(c) states that [t]he consideration [for a transfer of substantially all of the asset of a corporation] may be money, property, or securities…or any of them. Here there was no consideration whatsoever.

In addition, such a transfer requires a twenty (20) day advance notice to the Attorney General’s Office, since disposing of substantially all of Legion’s assets obviously was not in the ordinary course of its business. California Corporations Code Section 5913. No such notice was ever given. Mrs. Furr testified that no notice was ever given. Also, Exhibit 200 (R.A. Vol 1, page 120-124) establishes that no notice was given to the California Attorney General.

Thus, substantial evidence was before the court to establish ownership of forty-five percent (45%) of the Farrell Estate in the Legion, and to establish the fact that the Board of Directors of the Legion could not and did not dispossess itself of this bequest.

The evidence is also clear that Carto and his confederates substantially interfered with the Legion having the bequest.

Corporations Code Section 6215 states:

Any directors, officers, employees or agents of the corporation who do any of the following are liable jointly and severally for all damages resulting therefrom to the corporation.

Part B, Make or cause to be made in the books, minutes, or records or accounts of a corporation any entry which is false in any material particular — in any material particular knowing such entry is false.

Carto and the Furrs over the years have been making up false minutes. Exhibit 60 (R.S.A. page 1) is just such an example. Exhibit 63 (R.S.A. page 2) are the instructions on how to make up the false minutes which are Exhibit 60.

The Furrs fully aided and abetted Willis Carto in looting the Legion. They continue to hold themselves out as officers and directors even after their resignations and a final adjudication of their status.

Elisabeth Carto handled the paperwork in the Farrell Estate litigation. She knew the Legion received forty-five percent (45%). She actively was involved in putting false debt on the Legion books to make the Legion look judgment proof. She knew (and cooperated with the accountant) that a loan from Vibet, Inc. was really the Legion’s own money. Now, she lies about not knowing anything when she, until her ouster, kept the Legion books. She falsely holds herself out as a director.

Fischer, as a fiduciary for the Legion holding a power of attorney, was totally instrumental in facilitating the recovery of the Legion assets and held the power of attorney after April of 1991 when Carto resigned his. He was the agent who diverted the funds that he knew to be the Legion’s to entities entirely in Carto’s control. He has failed to account. He failed to appear at trial and explain his conduct.

Carto’s conduct as the Chief Executive Officer of Liberty Lobby, Inc. is fully attributable to that organization.

Carto’s claim of right in this action is in wilful disregard of the law. The board could not delegate its authority over corporate officers to Carto.

A contract purporting to delegate ultimate authority and control over a corporation from the board of directors to outside parties…is void and unenforceable…Directors are prohibited from delegating such control and management to others, and any contract so providing is void. Communist Party of the United States of America v. 522 Valencia, Inc. Cal.Ct.App. 1st June 14, 1995, quoting from Kenerrson v. Burbank Amusement Co. 120 Ca.App.2d 157, 170-173

If the Furrs had attempted to enter into a contract with Carto giving him power to dispose of the majority of Legion’s assets as he saw fit, such a contract would thus have been void.

Thus, no directors meeting was ever held giving Carto power to dispose of the Farrell Estate settlement proceeds; if had, it would have been an illegal act.

Exhibit 208 (R.A. Vol 2, page 550) both supplies evidence of substantial interference and damages. This remarkable document coming at the very end of the Carto testimony and trial, even if approximately true, shows that the Legion got only ten percent (10%) of the legacy. It also shows that Liberty Lobby got two million six hundred fifty thousand dollars ($2,650,000). Fischer got two hundred fifty thousand dollars ($250,000). Elisabeth Carto got twenty thousand dollars ($20,000). Payments to Lavonne [Furr] are included in the purported payments to the Legion.

The evidence is disputed as how much was realized by the Legion but no competent proof was ever presented by the defendants to substantiate that seven hundred sixty thousand dollars ($760,000) figure.

Exhibit 209 (at R.A. page 552) shows how Willis Carto treats all his various organizations as so many pockets in his coat, picking one for the benefit of the other as need or whim dictates.

Thus, there is substantial evidence that all elements of conversion are present to support the judgment.

Theories of negligence and money received are irrelevant as the judgment is fully supported by substantial and credible evidence of conversion.

Carto’s claim that a membership duality controlled the Legion (he and Mrs. Furr) is refuted by substantial evidence that the Legion had no members. The Charter established no members (R.A. Vol 1, page 1-3). The June 1966 by-laws state There shall be no members of this corporation. (R.A. Vol 1, page 8). The merger documents stated at R.A. Vol 1, page 13 as follows, The Plan of merger was adopted at a meeting of the Board of Directors held on June 16, 1966, and received the vote of the majority of the directors in office, there being no members having voting rights in respect thereof. (emphasis added)

Also, no members minutes ever materialized.

Thus, substantial evidence exists to support the judgment on a conversion theory advanced by the plaintiff as the gravamen of this complaint. The defenses to this then are meritless.

The appellants’ treatment of the conversion issue seems not to comprehend the rule of substantial evidence in California. They attempt to be asking this court to reweigh the evidence to find some ownership interest in Willis Carto. That issue is decided and the only question is whether the record supports the judgment with substantial evidence.

Other Issues Raised By The Defense Regarding Accounting, Injunction and Declaratory Relief are Without Merit

The appellants briefly discuss accounting, injunction and declaratory relief. The discussion on the alleged impropriety of the order for accounting stems from the purported ownership of the Farrell Estate in Willis Carto. That issue was discussed above and dispatched by the establishment of substantial evidence of ownership of the res in the Legion, not Carto. The injunction is criticized by the appellants on the basis that the court had no visitorial jurisdiction over the corporation. That was also discussed above and disposed of.

The declaratory relief remedy is supposedly based on findings contrary to the law and evidence. What law and evidence are referred to is unstated. This falls of its own fetid weight.

The Statement of Decision Is Sufficient

The appellant states at AOB page 59 that The Statement of Decision filed by Judge Maino did not comply with Code of Civil Procedure Section 632. However, the appellant fails to state in what way the Statement of Decision is improper herein and in what way they are prejudiced thereby. Since we do not know the basis of the grievance, we cannot respond thereto.

No Error Was Committed By The Court In Denying Relief From Default to the Furrs

The appellants complain that the Furrs’ default should have been set aside. They fail to cite any authority to support said contention. They also fail to show how they were prejudiced.

Judge Lisa Guy-Schall laid out a rather complete statement of the reasons for denying said motion for relief. While refuting a technicality, the appellants in no way refute the time delay issue on which the court relies for its ruling (C.T. Vol 2, page 464-465).

In fact, we now know even more how proper the court’s ruling on the untimeliness issue was. It was disclosed in Mr. Furr’s deposition that he was in touch with Mr. Carto and Mr. Waier after receipt of service of process and after receipt of the notice of default. Lewis Furr had been a clerk of the court for twelve years in Louisiana. He, of all people, is not to be heard pleading excusable neglect under Code of Civil Procedure 473.

Not only was the court’s ruling correct, but, the Furrs’ position was fully litigated and their depositions read by the trial court. They were in no way prejudiced.

Conclusion

For all the foregoing reasons, this court should affirm the decision of the trial court.

Respectfully submitted,

WILLIAM S. HULSY
Attorney for Respondents