Community Action Employee Assistance Program v. Bruner CA2/5 ( 2023 )

Filed 5/19/23 Community Action Employee Assistance Program v. Bruner CA2/5
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
COMMUNITY ACTION B319234
EMPLOYEE ASSISTANCE
PROGRAM, INC., et al., (Los Angeles County Super.
Ct. No. 19STCV13664)
Plaintiffs and Appellants,
v.
KATHLEEN A. BRUNER et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of Los
Angeles County, Terry A. Green, Judge. Affirmed.
The Griffith Firm, Edward Griffith; Law Office of Steven E.
Creamer and Steven E. Creamer for Plaintiffs and Appellants.
Robison, Sharp, Sullivan & Brust, Frank C. Gilmore and
Hannah E. Winston for Defendants and Respondents.
___________________________
We are presented with an appeal by a litigant who has filed
several related lawsuits described by one state and one federal
judge as “absurd.” The trial court in the current appeal found the
litigation a “sham” that had “devolved into a slow-motion train
wreck” by the time it had resolved. We do not take a position on
the correctness of these descriptors, holding only that the appeal
is without merit. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
By way of introduction, plaintiff and appellant Community
Action Employee Assistance Program, Inc. (CAEAP), a nonprofit
organization, brought suit against its founders and former
managers, Kathleen and Robert Bruner (Founders) for breach of
fiduciary duty; and against attorney Robert Burke (Founders’
Attorney) for aiding and abetting Founders’ breach. Founders
and Founders’ Attorney separately obtained summary judgment
based on CAEAP not having suffered damages arising from the
alleged breach.1
1. Underlying Facts
Founders established CAEAP in 1990, and managed it
until 2016. As a non-profit, CAEAP provided employee
assistance programs to employers around the nation and Canada.
CAEAP generated its revenue through flat-rate contracts with
companies and municipalities. Through these contracts, CAEAP
1 As we shall discuss, there have been multiple lawsuits
between the parties. The first action resulted in a summary
judgment in favor of Founders. (LUX EAP, LLC v. Bruner
(C.D.Cal. 2018) 2018 WL 6016973, aff’d. (9th Cir. 2020)
811 Fed.Appx. 405 (Fed 1).) While CAEAP disagrees with the
ruling in that case, we take our discussion of undisputed
background facts from the district court’s opinion in Fed 1. (Id.
at pp. *3-*5.)
2
provided various human resource-like services to the employees
of the contracting parties. CAEAP provided quarterly “utilization
reports” that described how many of each client’s employees used
CAEAP’s services.
In 2016, management of CAEAP was transferred to a new
entity, Lux EAP, LLC (New Manager). According to the
allegations of the complaint, this was essentially a “sale” of
CAEAP, but non-profits cannot be owned or sold in California, so
the transaction was arranged as a transfer of control. The
arrangement was effectuated by two agreements – a
management agreement transferring control of CAEAP to New
Manager, and a consulting agreement with Founders, pursuant
to which they would assist with the transition. New Manager
placed Colin Conner and John Gorzynski in control of CAEAP, in
place of Founders. As part of the deal, New Manager would pay
Founders $3.1 million over five years.
New Manager was unable to operate CAEAP successfully.
New Manager blamed Founders for this. New Manager alleged
that, when Founders operated CAEAP, they issued inflated
utilization reports to its clients, which fraudulently induced the
clients to renew their contracts with CAEAP. When the true
numbers were discovered, New Manager concluded the business
was not viable.2
2 Founders take a different view. In one of their pleadings
against New Manager in federal court, Founders asserted that
the flat rates CAEAP charged its clients had no relationship to
the utilization reports. Founders alleged that New Manager had
never intended to manage and grow CAEAP; its purpose had
been to simply raid CAEAP’s assets and leave it as an empty
shell. The district court did not resolve this dispute, nor do we.
3
2. Federal Lawsuit No. 1
In July 2017, New Manager filed suit in United States
District Court against CAEAP and Founders, alleging, among
other things: (1) New Manager was fraudulently induced to enter
into the agreement by CAEAP’s misrepresentation of its revenue
and the fraudulent utilization reports; and (2) Founders had
breached their fiduciary duties to CAEAP, by issuance of inflated
utilization reports to its clients. Because Founders claimed they
had not been paid under the consulting agreement, Founders
counterclaimed for breach of the consulting agreement. They also
sued for defamation. (Fed 1, supra, 2018 WL 6016973 at pp. *6,
*10, *11.)
On July 31, 2018, District Court Judge Dolly Gee granted
partial summary judgment in favor of Founders – specifically
defeating the entirety of New Manager’s complaint against them,
and leaving Founders’ counterclaims for resolution. (Fed 1,
supra, 2018 WL 6016973 at p. *13.) As relevant to the current
action, the court concluded New Manager’s claim for fraudulent
inducement failed because the utilization reports had no bearing
on CAEAP’s revenue. The court found there was no triable issue
because – based on a failure to timely serve responses to requests
for admissions – the court deemed New Manager to have
admitted that fact. (Id. at p. *11.)
As to New Manager’s claim that Founders had breached
their fiduciary duties to CAEAP by issuing fraudulent utilization
reports to CAEAP’s clients, the district court concluded that New
Manager was the wrong entity to pursue this claim. If any party
was injured by the alleged breach, it was CAEAP (and/or its
clients), not New Manager. The court granted summary
judgment. (Fed 1, supra, 2018 WL 6016973 at pp. *11-*12.)
4
The Ninth Circuit affirmed, with a dissent. (LUX EAP,
LLC v. Bruner, supra, 811 Fed.Appx. at pp. 405, 407.)
At some point following the grant of summary judgment on
New Manager’s federal claims, Founders prevailed on their
counterclaim for breach of the consulting agreement and obtained
a judgment against New Manager for $3.1 million.
3. The Current Suit
Because the District Court in Fed 1 had concluded New
Manager was the wrong entity to pursue a breach of fiduciary
duty claim against Founders, CAEAP, now managed by New
Manager, brought the present action against Founders. CAEAP
also sued Founders’ Attorney for aiding and abetting the breach
of fiduciary duty. The operative complaint is the second amended
complaint.3
As we shall discuss, the record provided by CAEAP on the
current appeal is missing some key documents. Our discussion of
the procedural background from this point onward is hampered
by their absence.
4. Demurrer
The operative second amended complaint followed the trial
court’s ruling on a demurrer. The record on appeal does not
contain the demurrer, the complaint to which it was directed, the
3 The complaint was filed on behalf of CAEAP and two
individuals, Conner and Gorzynski. The record does not clearly
disclose the disposition of individuals’ complaint. The notice of
appeal was filed on behalf of CAEAP “et als.,” and CAEAP’s
opening brief identifies the individual plaintiffs as additional
appellants. Appellants’ briefs do not contain any arguments
specific to the individual plaintiffs. To the extent Conner and
Gorzynski are appellants here, references to CAEAP include
them.
5
briefs on the demurrer, or the trial court’s order. We only know
the ruling on the demurrer through later descriptions of it.
This much is clear: CAEAP’s original complaint had
attempted to reallege a cause of action for fraudulent
inducement, similar to the claim New Manager had lost in the
Fed 1 suit. Founders successfully demurred on the basis of res
judicata. In its brief on appeal, CAEAP expressly states that it is
not challenging this ruling. We therefore consider it binding on
CAEAP.
5. Founders’ Motion for Summary Judgment
A. The Motion
By the time Founders moved for summary judgment, the
only cause of action remaining was for breach of their fiduciary
duty to CAEAP.4 CAEAP alleged its damages for this breach
consisted of “liability to its clients and its clients’ employees for
fraud based on the inflated utilization report(s) . . . .” Founders
sought summary judgment because CAEAP suffered no damages.
Specifically, Founders submitted declarations stating they were
unaware of any claims asserted by any CAEAP clients (or clients’
employees) for liability against CAEAP. They took the position
that, since CAEAP had conducted no discovery in the case, it
possessed no evidence of any so-called client claims.
B. The Opposition
CAEAP opposed the motion on two grounds. First, in an
implicit concession that it had no evidence that CAEAP’s clients
had ever complained about the allegedly inflated utilization
reports, CAEAP sought an extension to conduct discovery of its
clients. Second, CAEAP took the position that the Fed 1
4 As we later discuss, Founders’ Attorney’s motion for
summary judgment was heard separately.
6
judgment, by which Founders were awarded $3.1 million for New
Manager’s breach of the consulting agreement, actually
constituted damages sustained by CAEAP itself, arising from
Founders’ breach of their fiduciary duty when they had managed
CAEAP. CAEAP relied on a clause in the management
agreement, by which CAEAP had agreed to indemnify New
Manager for certain losses. As for how the alleged breach of
fiduciary duty purportedly caused these particular damages,
CAEAP explained: “[Founders’ use] of fraudulent utilization
reports breached their fiduciary duty to operate CAEAP in an
honest, nonfraudulent manner. When [New Manager] discovered
that CAEAP’s business was not viable without continuing to
defraud [its] clients, it had no choice but to stop operating, which
prevented [New Manager] from paying [Founders’] consulting
fees. Thus, the [Founders’] breach of their fiduciary duty is the
proximate cause of the [Founders’] judgment against [New
Manager] and [New Manager’s] indemnification claim against
CAEAP.”
C. Founders’ Reply
Founders challenged this damages-by-indemnification
argument on multiple grounds, including res judicata. Based on
the trial court’s previous ruling on demurrer, Founders argued
that CAEAP was impermissibly attempting to re-litigate New
Manager’s fraud in the inducement claim as their theory of
damages for CAEAP’s breach of fiduciary duty cause of action.
D. Orders Granting Summary Judgment
Originally set for September 11, 2020, the summary
judgment motion was continued to February 22, 2021, and again
to March 15, 2021, to allow CAEAP to conduct additional
discovery.
7
There followed additional briefing, which is not part of the
record on appeal.5 The order the court issued on March 15, 2021,
fills in some of the blanks. It appears that, during the time
CAEAP was supposed to be conducting discovery in the state
litigation, it conducted none. Instead, CAEAP put all its eggs in
the damages-by-indemnification basket. Specifically, New
Manager brought another suit against CAEAP, this time in
federal court in the District of Nevada. The complaint sought
indemnity for the $3.1 million Fed 1 judgment in favor of
Founders. Back in the state court, CAEAP moved to stay the
summary judgment motion until the new federal indemnity
action was resolved.
The trial court in the present action was not impressed.
Recognizing that the same individuals who controlled New
Manager also controlled CAEAP, the court stated, “But the
Nevada case wasn’t brought by one of CAEAP’s customers; it is
not one of the potential claims featured in the [complaint]. The
Nevada case is an action for indemnity. [New Manager] (an
entity controlled by Plaintiffs Conner and Gorzynski), the
plaintiff and cross-defendant in the prior federal action, is now
asking CAEAP (also controlled by Plaintiffs Conner and
Gorzynski) to indemnify [it] for the judgment obtained by
[Founders] in that prior action. Put more plainly, it appears that
Plaintiffs are suing themselves for indemnity in the hopes that
5 On the day of the hearing, CAEAP filed an ex parte motion
to continue the already-twice-continued summary judgment
motion. This was supported by a declaration. An opposition was
filed, with a supporting declaration. A reply and reply
declaration followed. None of these documents are part of our
record on appeal; nor is the reporter’s transcript of the hearing.
The trial court denied the ex parte motion.
8
this will transmute the federal judgment favoring [Founders] into
a state court damages award against [Founders]. [¶] These
machinations have plunged this case into absurdity.”
The trial court denied the request to stay or continue the
summary judgment motion. It then granted Founders summary
judgment, concluding no triable issue existed as to damages. The
court explained, “Plaintiffs have effectively conceded that, as of
this moment, they have no damages. As explained above,
Plaintiff’s lack of discovery in a two-year-old case is nobody’s
fault but their own. And the Nevada case does not presently
represent damages in this case. [¶] This appears to be sham
litigation. CAEAP and [New Manager] are controlled by the
same people and have been represented by the same counsel [ ].
Further, the Nevada case is an attempt to undermine the ruling
issued by [District] Judge Gee. She resolved the fraud and
contract claims in favor of [Founders]. A chain of indemnity
claims between now-sister entities cannot be used to re-litigate
those claims and cancel out the judgment already issued and
affirmed.”
6. Fed 2 Suit and Indemnification Agreement
New Manager eventually dismissed the Nevada
indemnification suit against CAEAP and refiled it in the Central
District of California, where it was assigned to Judge Gee (LUX
EAP, LLC v. Community Action Employment Assistance Program
(C.D.Cal. 2021) 2021 WL 5024390 (Fed 2).) Founders were not
named parties. CAEAP filed an answer, agreeing that it owed
New Manager a duty to indemnify it for the Fed 1 judgment and
consenting to the entry of judgment against itself.
Founders eventually intervened in Fed 2, and successfully
moved to dismiss the suit on the ground that there was no case or
9
controversy – CAEAP had agreed that it did, in fact, have a duty
to indemnify New Manager. Judge Gee did not mince words in
her dismissal order: “This action is indeed absurd. There is no
actual controversy between [New Manager] and CAEAP. The
parties are clearly acting in concert at the direction of the same
people, as CAEAP’s Answer and [Attorney] Griffith’s concurrent
representation of both sides reveals.”6 (Fed 2, supra, 2021 WL
5024390 at p. *2, italics added.) She added, “This is not a proper
use of the judicial system. [New Manager] openly admits to this
plan. [Citation.] . . . But CAEAP does not need a judgment
against it because it already agrees to indemnify [New
Manager]—it can simply produce an agreement of
indemnification in the state court action and let [Founders]
challenge the import of it in that forum.” (Ibid.)
Perceiving this language as an “instruction,” from the
District Court, CAEAP signed a contract specifically agreeing to
indemnify New Manager for the $3.1 million Fed 1 judgment in
favor of Founders.
7. Founders’ Attorney’s Motion for Summary Judgment
in the State Court Action
A. The Motion
Back in state court, Founders’ Attorney, who was also a
named defendant, moved for summary judgment on the grounds
that: (1) he cannot be liable for aiding and abetting Founders’
breach of fiduciary duty when the court had already determined
that Founders did not breach any fiduciary duty; and (2) as
established in connection with Founders’ motion for summary
judgment, CAEAP had suffered no damages.
6 Attorney Griffith is representing CAEAP in this appeal.
10
B. The Opposition
CAEAP opposed the motion, arguing that the indemnity
agreement it had recently signed with New Manager was the
only evidence of damages it needed. CAEAP argued that the
indemnity agreement evidenced damages and was not, in fact, an
impermissible collateral attack on the Fed 1 judgment. This
argument was unsupported by any citation to authority.7 CAEAP
simply argued that this case was “unusual” because New
Manager lost its fraudulent inducement cause of action in Fed 1
not “on the merits,” but due to counsel’s service error in
connection with New Manager’s response to requests for
admissions. It sought its day in court to prove Founders had
committed fraud.
C. The Reply
In its reply, Founders’ Attorney argued that CAEAP’s only
theory of damages was an impermissible collateral attack on
Founders’ judgment against New Manager in Fed 1.
D. Trial Court’s Order
Following the hearing, the trial court granted summary
judgment.8 The trial court rejected CAEAP’s attempt to create
damages by means of the indemnity agreement, calling it “absurd
7 CAEAP purported to incorporate an opposition brief on this
issue it had filed in the Fed 2 action. It claimed the document
was “annexed as Exhibit xx and is hereby adopted as part of
CAEAP’s opposition . . . .” The document is not part of the record
on appeal.
8 As with Founders’ motion for summary judgment, the
record contains no reporter’s transcript of the hearing on
Founders’ Attorney’s motion.
11
on its face.” The court explained, “Even if Defendants had
committed breaches of their fiduciary duties as [CAEAP]
allege[s], an agreement voluntarily signed years later after a
change in ownership cannot constitute damages arising out of
that breach. That is especially true when the agreement is
obviously not an arm’s length transaction . . . .”
8. Judgment and Notice of Appeal
Final judgment was entered in favor of Founders and
Founders’ Attorney on January 6, 2022. CAEAP filed a timely
notice of appeal.
DISCUSSION
From this lengthy and somewhat tortured procedural
history, a simple result follows: the judgment must be affirmed.
1. CAEAP Has Provided an Inadequate Record on
Appeal
The appellant has the burden of providing an adequate
record on appeal. Failure to provide a record sufficient for
meaningful appellate review requires resolution of the issue
against appellant. (Jameson v. Desta (2018) 5 Cal.5th 594, 609.)
In setting forth the procedural history, we have identified
numerous documents missing from the record on appeal. We are
at a distinct disadvantage in reviewing the two summary
judgment rulings without the complete briefing which led to
those orders. Nor do we have the reporter’s transcripts. The lack
of the order on demurrer is also critical, as the trial court’s res
judicata ruling informed its decisions on summary judgment.
Taken together, the record is inadequate, and the judgment can
be affirmed on that basis alone.
12
2. Summary Judgment Was Properly Granted
We nevertheless turn to the merits of the two summary
judgment rulings. We review summary judgment de novo
“applying the same legal standard as the trial court in
determining whether there are any genuine issues of material
fact or whether the moving party is entitled to judgment as a
matter of law.” (Iverson v. Muroc Unified School Dist. (1995) 32
Cal.App.4th 218, 222.) Here, CAEAP’s attempt to establish a
triable issue of fact on breach of fiduciary duty damages fails on
two bases – one factual and one legal.
A. CAEAP’s Argument Fails on the Facts
CAEAP takes the position that the Fed 1 judgment against
New Manager, which CAEAP agreed to pay, constitutes damages
for Founders’ breach of their fiduciary duty. The trial court
plainly stated that the indemnification agreement itself was a
sham. We reject CAEAP’s argument on a somewhat different
basis: these damages do not arise from the alleged breach of
Founders’ fiduciary duty to CAEAP.
CAEAP’s theory, as explained in its opposition to Founders’
summary judgment motion, and repeated again in its briefs on
appeal, is as follows: Founders breached their fiduciary duty to
CAEAP by inflating utilization reports. New Manager discovered
CAEAP’s business was not viable unless New Manager similarly
inflated the reports, which it would not do. It therefore stopped
operating. Without funds, New Manager argues it had no
alternative but to breach the consulting agreement with
Founders, leading to the Fed 1 judgment. In the admitted
absence of any evidence of conduct adverse to CAEAP’s clients,
there is no link between the alleged false utilization reports and
New Manager’s decision to shut down CAEAP. CAEAP
13
presented no evidence that, for example, any clients left CAEAP
when it was under new management because they had learned of
the inflated utilization reports. Without any evidence about
CAEAP’s clients, the trial court was correct that no triable issue
of fact existed that it was Founders’ inflated reports that put
CAEAP out of business. Rather, it was New Manager’s apparent
anticipation of lower revenues. Under this theory, the trial court
was correct that any CAEAP business losses were not caused by
the Founders’ purported issuance of fraudulent utilization
reports, but by New Manager’s operation of the business.
B. CAEAP’s Argument Fails on the Law
If anyone suffered from Founders’ alleged use of inflated
utilization reports, it was not CAEAP, but New Manager, who
claims to have been deceived by the reports when it took over the
management of CAEAP in the first place. But any effort to
transform New Manager’s fraudulent inducement damages into
CAEAP’s breach of fiduciary duty damages runs afoul of the
Fed 1 judgment itself.
Lurking behind CAEAP’s novel theory of damages is that
the Fed 1 judgment is not entitled to full res judicata effect
because it arose, in part, from New Manager’s failure to timely
respond to discovery. Indeed, CAEAP concedes that Fed 1 “would
appear to preclude an action challenging [Founders] for conduct
that ordinarily would have been resolved as part of the action
leading to the federal judgment.” But CAEAP argues that since
there was no trial on the merits of Founders’ allegedly fraudulent
conduct, there is no bar to raising the claim a second time in this
case. CAEAP cites no authority for this proposition. When a
discussion on appeal is conclusory and fails to cite any authority,
it amounts to an abandonment of the issue. (People ex rel. 20th
14
Century Ins. Co. v. Building Permit Consultants, Inc. (2000) 86
Cal.App.4th 280, 284.) In any event, a dismissal as a sanction for
failure to comply with discovery rules may constitute a dismissal
on the merits for res judicata purposes. (See Kahn v. Kahn
(1977) 68 Cal.App.3d 372, 378.)
DISPOSITION
The judgment is affirmed. CAEAP is to pay Founders’ and
Founders’ Attorney’s costs on appeal.
RUBIN, P. J.
WE CONCUR:
BAKER, J.
KIM, J.
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