Judge: David J. Cowan, Case: BC657947, Date: 2023-05-16 Tentative Ruling

Case Number: BC657947    Hearing Date: May 16, 2023    Dept: 200

LOS ANGELES SUPERIOR COURT – WEST DISTRICT

BEVERLY HILLS COURTHOUSE – DEPT. 200

JUDGE DAVID J. COWAN

TENTATIVE FURTHER RULING ON PLAINTIFF’S MOTIONS IN LIMINE Nos. 1-3 AND OSC RE: AMENDMENT OF COMPLAINT AND BIFURCATION AT TRIAL OF ACCOUNTING CAUSE OF ACTION

O’Neil Digital Solutions, et al. v. James Lucanish, Case No. BC 657947

Hearing Date: May 16, 2023, 8:30 a.m.

BACKGROUND

On February 23, 2023, this case was assigned to the undersigned for long cause trial.

On March 16, 2023, the Court set this case to start trial on July 24, 2023. The Court also set the hearing on the above-referenced motions – each seeking Evidence Code sec. 402 hearings - for May 3, 2023 and the balance of the motions in limine (“MIL”) for hearing on June 28, 2023.

In preparation for the May 3 hearing, the Court reviewed the parties’ trial briefs, as well as each of the three motions, and the opposition to and reply in support of each motion.

Further, prior to the May 3 hearing, the Court issued a tentative ruling on the motions and an OSC re: amendment of complaint and bifurcation at trial of accounting cause of action.

On May 3, the Court heard oral argument, continued the motions to May 16 for consideration in the interim of authorities cited at the hearing, set a further briefing schedule on the OSC, and continued the OSC to May 16.

On May 5, 2023, defendant and cross-complainant James Lucanish (“Lucanish”) filed a 9-page response to the Court’s tentative ruling and proposed Evid. Code sec. 402 hearing on ODS’ MIL No. 1.

On May 8, 2023, plaintiff and cross-defendant O’Neil Digital Solutions (“ODS”) filed an Objection to request to strike the unauthorized Lucanish Supplemental Briefing on MIL No. 1.

On May 11, 2023, Lucanish filed a request for dismissal of the accounting cause of action in his cross-complaint, as well as a Response to OSC re: bifurcation.

On May 12, 2023, ODS filed a Reply to Lucanish’s Response to OSC; Objection to request for dismissal without prejudice, as well as its Statement of position re: bifurcated cause of action following meet and confer.

DISCUSSION

MOTION IN LIMINE No. 1

Evidence Code sec. 310 provides for the court to decide issues of fact preliminary to the admission of evidence. In turn, Evid. Code sec. 402 provides the vehicle by which that determination is made.

By this motion, ODS seeks an order related to whether an “Acknowledgment of At-Will Status and Receipt of Associate Handbook and California Supplement” will be admissible at trial and for a hearing to that end before the start of the jury trial. The Court understands that there is no dispute this document was signed and dated (July 13, 2015) by Joanna Cannon, an assistant to Lucanish, using a stamp with his name on his behalf. It appears, however, there are disputed “preliminary facts” related to the circumstances of her signing this document, whether she was authorized to do so and whether her signing the document may properly be imputed to him as his agent, prior to the Court being able to rule on its admissibility. There is also no question that the admissibility of this document is important to this case as a key ingredient in determining the employment relationship and whether it does or does not come in will have a significant impact on how this case is tried. The issue should be decided as soon as possible. The Court hearing these preliminary facts during trial will also interfere with the jury hearing the trial and therefore it makes sense for it to be decided prior to calling in the jurors.

The Court rejects Lucanish’s argument that the Court should not hold this hearing in view of the earlier ruling denying ODS’ motion for summary judgment and finding there was triable issue as to a long-term employment relationship that would need to be heard by a jury at trial. First, this is not a motion for reconsideration of that ruling. The Court is not reaching the merits of the employment relationship - which would be for a jury. It is just a discrete issue pertaining to admissibility of a document. Judge Duffy-Lewis saying the case was one for a jury was surely not also saying that admissibility of the document was for the jury. Moreover, whether there is a triable issue for purposes of summary judgment does not mean the document is inadmissible. The papers do not reflect that Judge Duffy-Lewis sustained any evidentiary objection to consideration of the document. If the document is received into evidence at trial, as is Lucanish’s concern, the Court recognizes that he has other arguments why he might still prevail on the merits. He can therefore focus on those reasons. By the same token, if the document is not received into evidence, as Lucanish argued (at least initially), this would assist his case.1

By his supplement, however, Lucanish now argues he agrees to the admission of this document so long as the Court permits him to make several arguments to the jury about why it should not accept the document. He also continues to argue that holding a 402 hearing would do more than determine admissibility of the document, notwithstanding the Court having advised him previously it would not do so.

ODS argues the Court should not consider this document at all and argues that Lucanish is improperly not abiding by the rules of this Court when this motion had already been heard and was under submission.

The Court concurs with ODS’ general point and admonishes counsel for Lucanish not to continue to file documents not permitted by the rules unless this Court has agreed he may do so beforehand. That said, the Court has considered Lucanish’s argument and rejects it: The conditions Lucanish places on his agreement for the document to be admitted are not acceptable to the Court: First, Lucanish would effectively leave the decision for the document to be considered to the jury when that is for the court to decide. Second, it would create the potential to confuse the jury over what it should make of this document. Again, if the document is received, Lucanish can still argue it should be disregarded for the reasons he identified. At the same time, the jurors will not have to address the foundational issues about how the document came about that are for the court to act on as gatekeeper, i.e., related to whether Cannon was authorized to sign the letter for Lucanish. In turn, if the document is not received into evidence, these issues will be moot since the jury will not know about the document.

MOTION IN LIMINE No. 2

By this motion, ODS requests the Court determine by way of a 402 hearing whether Lucanish communicated to Scott O’Neil any statement of reasonable suspicion concerning the validity of ODS’ accounting records or practices. ODS contends that any such statement is a preliminary fact to Lucanish’s claim that his termination by ODS was in retaliation for having communicated wrongdoing to his employer. In turn, ODS argues that if the Court finds Lucanish did not communicate that suspicion to ODS – as it asserts - that the Court exclude any argument to the jury that his termination was retaliatory.

In opposition, Lucanish asserts he did communicate this concern to ODS and moreover that this fact would not be foundational to a retaliation claim in any event. Further, he argues that this motion is effectively an untimely motion for reconsideration of the order denying ODS’ motion for summary adjudication of the retaliation cause of action, which found he had provided evidence of accounting discrepancies.2

In contrast to MIL No. 1, here ODS is not seeking merely a necessary determination of foundation prior to being able to rule on admissibility of a document. Rather, ODS much more significantly is seeking a determination as to the merits of the retaliation claim – an issue for the jury – by making a factual finding as to one of its elements. Making such determination will likely require making a credibility determination after evaluating the testimony of several witnesses – not something that can be done separately in a 402 hearing when that same evidence will need to be presented to the jury. This request also goes beyond what is permitted on a MIL and is effectively seeking a non-suit – which cannot be brought prior to trial and is moreover governed by a different standard; namely, in the light most favorable to the non-moving party. (Kinda v. Carpenter (2016) 247 Cal.App.4th 1268, 1281. See also Amtower v. Photon Dynamics (2008) 158 Cal.App.4th 1582, 1595) ODS does not bring the motion on that basis or show how it would meet that burden.

MOTION IN LIMINE No. 3

By this motion, ODS requests that the Court hold a further 402 hearing to determine whether Lucanish took actions to establish a competing company while still employed by ODS. ODS couches this request in terms of determining this fact as preliminary to deciding whether he breached his duty of loyalty to ODS – in turn implicating various causes of action and or potentially excusing performance by ODS under any applicable employment agreement with Lucanish.

Lucanish makes similar arguments to those made in opposition to MIL No. 2. In particular, he argues that this motion is again a disguised impermissible motion to reconsider the order denying summary judgment on the cross-complaint. As discussed below, while other of his arguments have validity, Lucanich does not point, however, to where Judge Duffy-Lewis ruled specifically on the events connected to meeting with the ODS competitor. Finally, he argues that this fact would not provide a defense in any event where ODS allegedly did not know about the meeting with the competitor until after it had already terminated him.

Again, in the same way MIL No. 2 sought to expansively adjudicate a cause of action by framing an element of a cause of action as a “preliminary fact,” so here also ODS goes beyond what is permitted on a MIL. If all elements of a cause of action were “preliminary facts,” there would be no need for a jury trial. See R & B Auto Ctr. v. Farmers Group (2006) 140 Cal.App.4th 327, 333 (cautioning against “wholesale disposition of a case through motions in limine”) Even more than was true with MIL No. 2, which arguably concerned only one communication, here deciding what is truly the ultimate fact in question will be based on a series of different disputed facts (as the motion itself demonstrates) and will require hearing from numerous people. It will also require applying the legal distinction as between permissibly seeking other employment with a competitor (see Hooked Media Group v. Apple (2020) 55 Cal.App.5th 323,334 and Bancroft-Whitney v. Glen (1966) 64 Cal.2d 327, 346) and impermissibly providing valuable information of an employer to procure that other employment. (See Fowler v. Varian Assoc. (1987) 196 Cal.App.3d 34, Stokes v. Dole Nut Co. (1995) 41 Cal.App.4th 285, 295) In turn, there is an additional layer related to what consequence this fact would have if ODS was not aware of it until after it had already terminated him. These are questions for a jury.

OSC

Amendment of Complaint

On January 25, 2022, Judge Duffy-Lewis deferred ruling concerning the request by ODS to amend its complaint in view of the ruling on the motion for judgment on the pleadings. The minute order indicates ODS should discuss this matter in the long cause trial court.

The proposed amendments to paragraphs 84, 88 and 93 of the complaint are not controversial. They do not add any new allegations and omit the allegations that are inconsistent with the ruling on the motion for judgment on the pleadings. The complaint is hereby deemed amended accordingly.

ODS’ request to amend its complaint according to proof at time is trial is denied without prejudice. Whether ODS is permitted to do so at trial will depend on what allegations it seeks to add and what prejudice there might be to Lucanish. The request does not identify those allegations. As Lucanish argues, this issue is premature.

Bifurcation at trial of accounting issues / 7th cause of action in cross-complaint for equitable accounting

It was apparent from the trial briefs, as well as the rulings of the discovery referee related to an audit by Deloitte, that many of the issues herein at trial may turn on how ODS accounts for its income and expenses: ODS contends that one of the reasons for termination of Lucanish’s employment was Lucanish having obtained undue advances on his bonus that were more than that which an accounting of ODS records showed he was entitled based on ODS’ “operating income.” By contrast, Lucanish contends that his termination by ODS was in violation of public policy due to his having complained to ODS that the amounts he was entitled to as a bonus would be justified were ODS to have properly accounted for how it calculated its income and expenses. Specifically, there appears to be a dispute related to “freight revenue” and transfer of funds between affiliated entities and what impact those may have on net income of ODS that in turn is the basis for any bonus. Further, the witness list anticipates numerous witnesses related to ODS accounting practices, as well as several experts testifying on this subject.

A cause of action for an accounting is an equitable proceeding to which no right to jury trial attaches. De Guere v. Univ. City Studios (1997) 56 Cal.App.4th 482, 507-508 A claim of damages for breach of contract is not determinative of the right to jury trial. Id., citing Van de Kamp v. Bank of America (1988) 204 Cal.App.3d 819, 863-865 In De Guere, the Court concluded that the “gist” of the action pertained to allegations related to whether certain charges were costs that would define net profits – the identical issue here.

Equitable issues are generally required to be heard before legal issues. In Van de Kamp, the Court stated that where a complaint states both legal and equitable causes of action, there is a right to a jury trial on the legal causes of action; however, the court also concluded that an accounting was required

where the amount of liability was not definite and clear. Id. 204 Cal.App.3d at 863-865 As noted in Dills v. Delira Corp. (1956) 145 Cal.App.2d 124, 129 (concerning advancement of money for share of lost profits), “[t]his procedure is particularly useful where, as here, a determination of the equitable issue may determine the lawsuit and prevent a more costly jury trial.” If the court’s determination of those issues is also dispositive of the legal issues, nothing further remains to be tried by a jury. Raedeke v. Gibralter Sav. & Loan Assoc. (1974) 10 Cal.3d 665, 671 To this end, courts may bifurcate an action to try the equitable action first. Nat’l Electrical Supply v. Mount Diablo Unified School Dist. (1960) 187 Cal.App.2d 418, 422. See also Foley v. U.S. Paving Co. (1968) 262 Cal.App.2d 499 (concerning accounting action for determining employment bonus)

The Court had sought the input of the parties on why the accounting cause of action in the cross-complaint should not be bifurcated and tried on the scheduled trial date of July 24, 2023 -- prior to start of a jury trial on the remaining legal issues.3 Analysis of ODS’ financial records is a distinct subject separate from the circumstances that led to the termination -- which are for the jury to decide what conclusion to draw from. By contrast, review of a company’s accounting is for a judge to make the relevant findings concerning that the jury can than later utilize in assessing the facts surrounding the termination of employment and whether parties are entitled to damages. In this way, the Court can also better manage what is otherwise scheduled to be thirty-five days of trial - putting a significant burden on prospective jurors.

At the May 3 hearing, both sides tentatively concurred in the proposed bifurcation - subject to a meet and confer as to the parameters of that trial. Since then, Lucanish has elected to dismiss his accounting cause of action – thereby he argues making bifurcation of the accounting issues moot. Specifically, he asserts that due to discovery undertaken herein that he no longer needs the relief requested by the seventh cause of action; namely, an order authorizing a third-party auditor to have access to ODS’ records. In response, ODS argues bifurcation is still required to address the accounting issues identified above – which bifurcation of “issues” is permitted by CCP sec. 1048(b).

The Court concurs with ODS that the reason for the proposed bifurcation of the accounting cause of action did not turn on the relief sought by Lucanish.4 Indeed, the Court had not focused on that issue at all. The issue is rather the complex accounting disputes for purposes of determination of net income. (Accounting is an equitable remedy and the “right to money [is] secondary to and flow[s] from the …accounting determinations.” Hillman v. Stults (1968) 263 Cal.App.2d 848, 876-77; accord Prakashpalan v. Enngstrom (2014) 223 Cal.App.4th 1105, 1137 (accounting is an equitable remedy))

Consistent with CCP sec. 598, trial of the discrete issue of determining net income during the relevant time will allow for the more efficient handling of this long cause trial by separating that part which is reserved for a judge to be heard first.5 See Orange Co. Water Dist. v. Alcoa Global Fasteners

(2017) 12 Cal.App.5th 352, 354 (in a case involving both legal and equitable issues, the plaintiff retains his jury trial right, but the extent of the issues tried by the jury could be impacted by the trial court’s findings in equity); Durban Enterprises v. San Fernando Community Hospital (2015) 239 Cal.App.4th 399, 409 (to same effect) Lucanish’s claims rest upon a determination that ODS’ accounting was false and inaccurate. If the Court makes that determination, that evidence would then be available for the jury to consider in assessing liability and damages for the relevant causes of action.

That said, the Court disagrees with ODS that the Court should at the same time decide whether Lucanish is guilty of “unclean hands.” Since the Court is no longer deciding a cause of action, that defense no longer needs to be tried at the same time. This issue is more properly made to the jury.

In summary, the point here in focusing solely on the net income issue is hearing the significant amount of lay and expert testimony pertaining to the relevant financial records, consistent with the cases providing for a judge rather than a jury making a “net profits” determination (see e.g., Wolf v. Walt Disney Pics. (2008) 162 Cal.App.4th 1107 (reversing order submitting to jury claims for breach of contract, declaratory relief and accounting based on claim of unreported income);6 everything else, including the conduct of the parties, would then be for the jury. (See Nationwide Biweekly Admin. v. Sup. Ct. (2020) 9 Cal.5th 279, 317)

CONCLUSION

For these reasons:

1. The first motion in limine is granted and the second and third motions are denied. As indicated previously, the Evid. Code 402 hearing will be on June 5 and 6.

2. The proposed amendment of the complaint is granted.

3. The request to amend the complaint to conform to proof is denied without prejudice.

4. The accounting issues referenced above are bifurcated for trial. Those issues will be tried first as a bench trial. That trial will commence on July 24, 2023.


1 Indeed, Lucanish filed his own MIL (No. 5) to prevent ODS showing this document to the jury as to do so would be misleading for various reasons. In his reply in support of that motion, he requests that the Court hold an Evid. Code sec. 402 hearing – precisely what ODS is seeking. The Court moves the hearing on that motion from June 28, 2023 to the date scheduled for a 402 hearing and will hear both motions concurrently.

2 The order does not state specifically that Lucanish communicated suspicion of those irregularities to ODS; only that there was evidence of irregularities. However, that he did so is a reasonable inference to draw where otherwise the Court would have granted summary adjudication.

3 The “gist” of the relief sought in the complaint, however, does not appear such that a separate “accounting” is required for purposes of the ninth cause of action for accounting / constructive trust.”

4 Whether a cause of action is one in law or equity “is not fixed by the prayer.” Paularena v. Sup. Ct. (1965) 231 Cal.App.2d 906, 911

5 Determination of this issue may also impact what claims are made thereafter, if at all; in turn, shortening trial. See European Beverage v. Sup. Ct. (1996) 43 Cal.App.4th 1211, 1215 (Bifurcation improves judicial economy because “determination of certain issues may alleviate the need for trial on any others” and Horton v. Jones (1972) 26 Cal.App.3d 952, 954 (affirming bifurcation of claims into two trials because second trial on damages could have been prevented of defendant not liable in first trial)

6 Lucanish’s reliance on St. James Church v. Sup. Ct. (1955) 135 Cal.App.2d 352 is misplaced. That case concerned whether the gist of an action was one for just for damages but also for injunctive relief for purposes of the Superior Court having jurisdiction rather than the Municipal Court. The Court found that the issue when determining what amount was due requires an accounting – this was one in equity. Whether a jury was required to hear accounting issues was not involved.