Maudlin

When plaintiff Melvin J. Maudlin retired from his full-time employment with Pacific Decision Sciences Corporation (PDSC), he negotiated a deal with his longtime business partner, Hark Vasa, by which PDSC would pay him $2.9 million over a period of nearly 23 years. Their agreement allocated $150,000 for the redemption of Maudlin’s 300,000 shares of stock (about 30 percent of the outstanding shares), with the balance of $2.75 million, designated by the transaction’s documents as “deferred compensation,” to be paid at the rate of $10,000 per month. The monies were paid as agreed for nearly five and one-half years. Payment stopped, however, when PDSC’s new management expressed concerns about the legitimacy of the “deferred compensation” arrangement. Maudlin sued, inter alia, to recover the balance of the payments he claimed he was owed. The court denied Maudlin any relief, concluding the contract was a disguised stock redemption that violated the California Corporations Code and evaded taxes. The court further found Maudlin was in pari delicto with Vasa and PDSC.

We reverse the judgment. By comparing the total payments under the contract with the amount of PDSC’s retained…