Judge: David J. Cowan, Case: SC120777, Date: 2023-02-07 Tentative Ruling

Case Number: SC120777    Hearing Date: February 7, 2023    Dept: 200

LOS ANGELES SUPERIOR COURT – WEST DISTRICT
BEVERLY HILLS COURTHOUSE – DEPT. 200
JUDGE DAVID J. COWAN

TENTATIVE STATEMENT OF DECISION ON MOTION FOR JUDGMENT AND REVISED RULING ON MOTIONS IN LIMINE

Case: 1169 11th St., et al. v. Tolk, Case No. SC 120777 & related case, Case No. SC125858 - consolidated for trial

Defendants’ Motion for Judgment

Plaintiffs’ Renewed Motion in Limine to exclude expert testimony of Joseph Emanuele

Plaintiffs’ Motion in Limine to exclude expert testimony of Patricia Botoff, Marc E. Hankin, Sean A. O’Keefe and Jon G. Peddie

Hearing Date: February 7, 2023

On January 31, 2023, Plaintiffs rested their case at trial.

On January 31, 2023, Defendants Daqri, LLC (“LLC”), Tarsadia Investments and Greg Casserly filed this motion under Code of Civil Procedure sec. 631.8. Raben, Deputy and Mullins joined in the motion.

On January 31, 2023, by stipulation, Defendants filed a supplement to the motion for judgment to address issues discussed on the record at the hearing on January 31, 2023 on earlier motions made during trial.

On February 1, 2023, by stipulation, Plaintiffs filed Opposition to the motion.

On February 2, 2023, Plaintiffs filed the two above-referenced motions in limine to exclude expert witness testimony.

On February 3, 2023, Defendants filed opposition brief to the renewed motion in limine to exclude Emanuele’s testimony, as well as a separate opposition to the other motion in limine.

The Court has reviewed the above-referenced filings, as well as earlier briefing related to the subjects in issue and considered the evidence presented during plaintiffs’ case. In addition, pursuant to stipulation, the Court reviewed the parties’ designations from the deposition testimony of Lewis Stanton. The Court has already made various written rulings that bear on the issues involved.

1. APPLICABLE EVIDENTIARY STANDARDS UNDER CCP SEC. 631.8 ON MOTION FOR JUDGMENT

A party may bring the motion where the other party has rested – as Defendants did here promptly on plaintiffs having rested.

If the motion is well taken, the Court avoids having to hear the evidence the moving party would put on – that here involves several witnesses as to liability (leaving aside evidence related to damages that the Court previously bifurcated.) Denial of the motion does not preclude the moving party then putting on its own evidence to establish its case.

The Court can weigh the evidence, determine whether a party has met its burden of proof and make credibility calls related to witness testimony. Roth v. Parker (1997) 57 Cal.App.4th 542, 549 -550

The motion can be granted in whole or in part as to a particular defendant or as to a specific cause of action. The Court is required to provide a statement of decision. One judgment shall issue after the entire case is concluded.

2. APPLICABLE UNDERLYING SUBSTANTIVE DELAWARE LAW AS TO LEVEL OF JUDICIAL REVIEW OF ALLEGED BREACH OF FIDUCIARY DUTY

As discussed below, there are three potential levels of review in this context. Metro Storage v. Harron, 275 A.3d 810, 841 (Del. 2022)

Defendants argue the Court should apply the default business judgment rule in determining whether there was any breach of fiduciary duty where plaintiffs have not rebutted that presumption here by showing any good cause here for heightened scrutiny. Reis v. Hazlett Strip-Casting (Del. 2011) 28 A.3d 442, 457 Under the business judgment rule, it is presumed that in making a business decision, a board of directors acted on an informed basis, in good faith and in the honest belief that the action taken was in the company’s best interests. Unless the complaining party can establish interestedness or disloyalty to the corporation, the board’s decision will be upheld unless it cannot be attributed to any rational business purpose. Id.

By contrast, plaintiffs argue the evidence here demonstrates why they have rebutted application of the business judgment rule, for various reasons discussed below, and that therefore the Court should instead apply the strictest standard, the “entire fairness” standard, or in the alternative, the intermediate level of scrutiny, the “enhanced scrutiny” standard. The “entire fairness” standard will apply where the board is acting under an actual conflict of interest. In re Trados S’holder Litig., 73 A.3d 17, 44 (Del. 2013) This will occur where the majority of the members of the board is either (1) not independent and disinterested or (2) a controlling person stands on both sides of a transaction. Id., Tornetta v. Musk 250 A.3d 793, 807 (Del. 2019)

Self-interest of a director will be where he or she receives a personal benefit from a transaction not received by shareholders generally. Cede & Co. v. Technicolor, 634 A.2d 345, 362 (Del. 1993) More specifically, the benefit must be significant enough to the director that it is unlikely that director could perform fiduciary duties without being influenced by his or her overriding personal interest. Orman v. Cullman, 794 A.2d 5, 23 (Del. 2002) Plaintiffs cite to a line of unpublished Delaware cases showing a director receiving continued employment, receiving forgiveness of debt or being beholden to another may make a director “interested.”

Under the entire fairness standard, the defendants must establish that the transaction was the product of both fair price and fair dealing (William Penn Partnership v. Saliba, 13 A.3d 749, 756 (Del. 2011)); fairness determined independent of a board’s beliefs. Trados, supra. On the other hand, if the transaction “has been approved by a fully informed, uncoerced majority of the disinterested stockholders,” the burden is shifted back to plaintiffs to show the transaction was unfair. Weinberger v. UOP, 457 A.2d 701, 703 (Del. 1983), Rosenblatt v. Getty Oil, 493 A.2d 929, 937 (Del. 1985). See also Morrison v. Berry, 191 A.3d 268, 274 (Del. 2018) and Volcano Corp. S’holder Litg., 143 A.3d 727, 741 (Del. 2016) (if the business judgment rule applies and entire fairness is not in question, such consent would give rise to an irrebuttable presumption of validity.)

Under the “enhanced scrutiny” standard, if still a relevant inquiry, again the burden is put on the defendants to establish that the directors’ motivations were proper and not selfish and that their actions were reasonable in relation to their legitimate objective. Intermediate scrutiny applies where a potential conflict may have undermined an independent and disinterested director in the sale of a corporation. (Trados, supra, 73 A.3d at 43-44) It appears “enhanced scrutiny” is now an option in cases only where injunctive relief is sought to stop a transaction, as opposed to here where the transaction has closed and damages are sought. Corwin v. KKR Fin. Holdings, 125 A.3d 304 (Del. 2015)

Defendants also argue that even if the Court were to apply the entire fairness test, there was still no breach of fiduciary duty here.

3. DISCUSSION

A. MOTION FOR JUDGMENT
a. The “Entire Fairness” Standard is controlling

Applying the foregoing rules, the Court finds that plaintiffs have met their burden to show the business judgment rule should not apply here based on the following facts:

i. Mullins, as a controlling shareholder, was on both sides of the transaction:

First, he was a controlling shareholder because he had managerial power as CEO of Daqri Inc. (“Inc.”), was sole member of its board of directors negotiating the APA and as its largest shareholder. (See In re Cysive S’holders Lit’g, 836 A.2d 531, 551-552 (Del. 2003) (finding 35% shareholder who was also CEO a controlling stockholder) Though it does not appear he had to himself hold a majority of Inc. stock to be a controlling shareholder, he had also control over the majority of the stock (even if he did not utilize any proxy to obtain shareholders’ consent). Exhibit 133 shows Mullins had 37.05%. Hudson Capital had 12.08%. Where Mullins recused its principal Bruce Raben from involvement in negotiations, Mullins effectively had control of that stock. Deputy and Shih had 2.01% and 3.22% respectively. The evidence demonstrated they were both beholden to Mullins - where they both reported to him as officers of Inc. - and can be deemed to have been working together and under Mullins’ control for all practical purposes. See also as to Shih’s relation to Mullins, Ex. 121 (Sheldon v. Pinto Tech. Ventures, 220 A.3d 245, 251 (Del. 2019)) The foregoing shareholders owned more than 50% of its stock. (Relatedly, the Court previously addressed the issue of control, at least under California law, and found that Mullins would be a controlling person within the meaning of Corporations Code 160(a)).

Second, as indicated above, Mullins was necessarily on the Inc. side of the transaction. He was also on the other side of the transaction where the APA contemplated that he would be CEO of the acquiring entity, LLC, and would sit as a member of its board of managers. Presumably, for this reason, Inc.’s attorneys at Rutan & Tucker advised Inc. that it would be prudent for Inc. to secure not only the consent of more than half of all shareholders but also of a majority of the minority of shareholders (i.e., as defined on p. 46 of the APA; namely, excluding Mullins.)

ii. Mullins and Deputy were both directors and officers of Inc. Delaware law appears to be unsettled on whether the business judgment rule applies in that context. Chen v. Howard-Anderson, 87 A.3d 648, 666, n. 2 (Del. 2014) Moreover, this Court has ruled previously (by Judge Mandel) that California law does not provide protection where the directors were also officers. See also Gaillard v. Natomas (1989) 208 Cal.App.3d 1250, 1264.

iii. Casserly was in a different way a controlling person on both sides of the transaction: By way of the $2 million loan his trust had extended to Inc. prior to the APA, Casserly had a security interest in all of Inc.’s property, as well as a personal guaranty from Mullins. Inc. would not have been able to repay the short-term loan absent its entering into the APA. Therefore, even if Casserly did not choose to leverage Inc. by reason of this power, as he testified, in theory at least Inc. had no choice but to accept whatever Casserly, Tarsadia’s then President, wanted. In turn, Mullins had no ability to satisfy that guaranty and was again beholden to Casserly. Casserly and or Tarsadia were going to operate Inc. whatever happened. Mullins had already cast the die for Inc. when Inc. borrowed what it did from Casserly.

iv. At least half of the directors who approved the transaction were not disinterested or independent:

a. Mullins was not disinterested: Under the APA he would receive forgiveness of his personal guaranty of a $2 million loan. This was consideration different from other shareholders. He would also continue to have employment at a significantly higher pay ($250,000 as contrasted to $60,000). These would have both been highly material to him in view of his poor financial situation at that time which included a pending foreclosure on his and his family’s home and ongoing need to resort to seek to borrow from people for personal needs, including Raben, Deputy, Shih and Casserly. This is not to now find that Mullins betrayed the interests of Inc; it is just to hold that he had material competing personal interests that would have impacted his decision making. Further, where he elected to be the only director to negotiate with Tarsadia he only exacerbated the effect of that conflict.

b. Deputy was not disinterested, though to a lesser degree. Again, by reason of the provision in the APA for his also receiving an offer of employment this too would have been material in choosing to approve the transaction. He was also seemingly beholden to Tolk on some level, as well as his longtime friend. Again, this is not to find Deputy breached his duties to Inc; only to find that he had an actual conflict.

c. By reason of both Mullins and Deputy having an actual conflict, and they were two of the three directors approving the transaction, this element for finding the need to shift the burden on defendants is also satisfied.

d. The Court does not find however that Raben was not disinterested or independent. Raben was not employed by Inc and received no offer of employment with LLC. He was an “outside” director of Inc. whose advice was sought precisely because of his independence from Inc. as a long-time investment advisor able to reach out to potential investors. Moreover, Mullins recused Raben from negotiating with Tarsadia in view of the incorrect but perceived relationship Hudson Capital had with Tarsadia. While Raben still was part of the meeting to vote on the APA, the contemporaneous e-mail between he and Mullins evidenced that Raben was independent of Mullins and concerned about how the transaction was being handled. (Ex. 783) The Court also did not find the evidence presented implying that Raben and or Hudson Capital might receive referral business in the future to have sufficient foundation and was speculative.

v. Lewis Stanton, an expert designated by plaintiffs, stated at his deposition (p. 13) that the Inc. board should not have allowed Mullins (after the fact) to have had the sole authority to negotiate with Tarsadia (even if he might permissibly been simply the primary negotiator) where he also had his own personal reasons to negotiate it in the way he did. Raben politely gave Mullins the same advice.

vi. For these reasons, the Court also finds intermediate scrutiny would not be applicable. The foregoing facts show Mullins and Casserly both had actual conflicts as opposed to merely potential conflicts. The foregoing is significant because, if for sake of argument, lesser intermediate scrutiny applied, and these were merely potential conflicts, the Court does not find that their conflicting interests in fact undermined their duties of loyalty to their respective corporations.

b. Whether the APA was entirely fair

The Court finds defendants have demonstrated that the APA was for a fair price; essentially $5 million. The Court has found already that Inc. was insolvent. The Court does not need to also hear that Inc. or its assets were not as unique or valuable as claimed or that the assets were sold for less than they should have been. (The Court has also ruled previously that plaintiffs cannot sue here in any event for any such loss as it is a derivative claim.) In fact, Mullins was able to secure an additional $1 million for Inc. based on the concern that otherwise its creditors would not be paid in full and the directors might not have then have met their duties to creditors in the insolvency context. The allegation in the complaint of Inc. that it would have sold for more but for Tolk’s wrongful conduct is not evidence it was undersold and moreover there has been insufficient showing to date that Tolk did engage in wrongdoing.

The remaining issue is whether there was fair dealing. Where the Court has now found above that the burden is on defendants to show that the APA was entirely fair, and defendants have not put on the balance of their case, the Court cannot conclude at least at this time that they will be able to prove that it was fair. Hence, the Court must deny the motion at least as to Mullins, LLC and Tarsadia, as discussed below, and hear their case prior to determining any liability. In hearing the balance of the testimony, the following from what the Court has heard to date is worthy of note so both parties can have an opportunity to put on the relevant evidence and address these concerns:

i. Defendants argue that the consent of the “majority of the minority” of Inc. shareholders (as defined on p. 46 of the APA to mean all shareholders except for Mullins) puts the burden back on plaintiffs under Corwin, supra. By contrast, plaintiffs argue that the definition in the APA is inconsistent with what Corwin requires to reverse the burden of proof where there was not a majority of those who are fully informed, uncoerced and disinterested who voted in favor of the APA. Plaintiffs argue Senthamil (wth 2.01%) was not fully informed given his testimony. Senthamil’s understanding was contrary to what the APA provides. They argue in addition that Deputy and Shih (with 2.01% and 3.22%) were not disinterested and as indicated above the Court concurs. With these people removed from those who voted (see p. 8 of defendants’ brief on this issue filed January 26, 2023), those who voted are no longer the majority of those contemplated as necessary under Corwin. Therefore, the issue becomes which definition should apply. If Corwin is controlling, the burden remains with defendants to show there was fair dealing. If the definition in the APA suffices, the burden is back with plaintiffs.

ii. Plaintiffs contend there was not fair dealing where at least certain shareholders, including Tolk, were not given prior notice of Inc. entering the APA or prompt notice thereafter. Defendants argue that under Del. Corp. Law sec. 228, Inc. had no obligation to notify all shareholders in advance of closing the transaction and could instead promptly thereafter. Initially, the Court is not convinced sec. 228 should be read as broadly as defendants do to apply to a “final stage transaction” as here. Sec. 228 just indicates an annual or special meeting may be taken without a meeting, without proper notice and without a vote if the necessary shareholder consent is later secured. It does not state specifically this applies to an important transaction such as this that will effectively close the corporation. The authorities even defendants provide evidence the interest of Delaware is to spare corporations from inefficiencies, not to abrogate shareholder rights.

Even if sec. 228 does apply to the transaction here, under sec. 228(e), “prompt” notice is still required to be given to those who have not consented. There is substantial question whether such notice was provided: Tolk was not sent notice until six months after the APA was executed. (Exs. 1450, 1451). According to Tolk, Alsbury never received notice.

iii. Moreover, though the internal affairs doctrine is intended to ensure only the law of the state of incorporation should apply to directors, California requires that “pseudo foreign” corporations – which the Court has already found Inc. to be – also need to comply with California law in at least certain respects. California Corporations Code sec. 603 requires advance notice. Whoever has the applicable burden here will need to address what conclusion the Court should reach due to this seeming further conflict in laws.

Given the substantial litigation that has since ensued, the Court finds it unlikely it would not have been material to Tolk or other shareholders to be informed of this proposed transaction beforehand and to have an opportunity to weigh in on whether or how that transaction was finalized or stopped. Delaware law provides shareholders rights to seek injunctive relief related to a final stage transaction and then limits their remedies if they do not do so. A primary issue therefore will now be to what extent LLC and Tarsadia “aided and abetted” any duty breached to Tolk as far as the fairness of the APA.

iv. Plaintiffs’ other principal basis for contending there was not fair dealing is that Tolk was not paid on the promissory note of Inc. (Ex. 51). The Court has several concerns:

Initially, the Court rejects defendants’ attempt to separate the theories pursuant to which Tolk is suing to take advantage of the rule that a person acting only as a creditor may not sue a debtor for breach of fiduciary duty. First, the theories based upon which Tolk is suing are overlapping where they arise out of Tolk’s role at Inc. as both shareholder, vendor and employee. Tolk is not suing the parties here solely as a creditor but as a shareholder for incidental damages. Hence, the cases defendants rely on pertaining to the standing of creditors are not on point. Moreover, where Inc. was insolvent, directors do have duties to creditors. Second, the law defendants rely upon is premised upon the assumption that a fiduciary relation does not arise between parties to most contracts absent a special relationship that is not present here. N. Am. Cath. Educ. Programm. Found v. Gheewalla, 930 A.2d 92, 99 (Del. 2007) Tolk however is not suing Inc. for breach of fiduciary duty.

LLC provided a line of credit to Mullins (that Tarsadia would have funded without having access to other financial means) to facilitate litigation against Tolk (see complaint in Ex. 320) so Inc. did not have to pay the note. This decision seems inconsistent with LLC and Tarsadia having previously accepted Inc. and Mullins’ representation that Inc. would pay Tolk the amounts scheduled for payment. Indeed, implicitly by agreeing to increase what it paid for Inc.’s assets to pay Inc.’s scheduled creditors (see sec. 4.17 of APA) (and the advice of counsel it needed to do so to avoid bankruptcy law concerns as to “reasonably equivalent value”), an inference may be drawn that they had a responsibility to ensure Inc. paid Tolk. The Court will need to hear defendants’ evidence on this issue prior to making any decision as to fair dealing.

The Court was also presented with e-mail appearing to corroborate that Inc. did not dispute that Inc. stood by its liability on the note. Further, that there was a note in the first place is some evidence that the amount owed for the services in question was undisputed and hence the simple promise to pay on a future date given the solvency concerns. Further, at least as to Inc., its liability is now established for the note. Any right of offset or cross-demands Inc. waived by not responding to the cross-complaint and subsequent entry of the judgment against it. (Ex. 1642) It is not clear that third parties can now contest that debt where Inc. elected not to do so – even if those parties are not necessarily bound by the amount of the judgment or are - as plaintiffs seek to find them - as additional judgment debtors. The Court has not heard about whether defendants could or should have contested entry of that default judgment in this case where the underlying claims were also at the heart of the claims against them.

The Court is not persuaded that the language in the note that “in no event shall any officer or director be liable for any amounts due and payable pursuant to the Note” is dispositive. First, at best, this would only help Mullins, Deputy and Raben, not LLC, Casserly or Tarsadia. Second, the language is ambiguous where it is unclear if “pursuant to this Note” is a reference solely to this contractual liability of Inc. that those persons individually by reason of their corporate capacities would not have any responsibility (which would make sense.) The language is unclear whether it would extend to any tortious liability for this amount which would not be pursuant to the note (and would likely be an uninformed waiver of rights.) See Auriga Capital Corp. v. Gatz Prop., 40 A.3d 839, 851, n. 42 and Neubauer v. Goldfarb (2003) 108 Cal.App.4th 47, 56) Further, where the note is now subsumed in the judgment against Inc., it is not clear if the note itself is any longer the controlling document.

v. Defendants argue they should be able to rely pursuant to Delaware General Corporate Law sec. 141(e) on the opinion letter of counsel for Inc. (Rutan & Tucker) (Ex. 222) that the company had satisfied all applicable laws, precluding any liability. There are several issues here:

First, there was no evidence that the appropriate person at Inc. was advised that Rutan & Tucker previously represented a Tarsadia related company on a different matter. While Tarsadia did not believe this created a conflict, according to Coss; the issue was whether Inc. believed it was an issue, not Tarsadia. There was no evidence Inc. shareholders (given that the majority of its board was not disinterested) were advised the law firm representing Inc. in this matter had also represented an entity affiliated with the company facilitating the acquisition or whether that compromised its shareholders’ interests. While the foregoing may not have been grounds to disqualify Rutan & Tucker from representing Inc. in litigation where there was no evidence the law firm had confidential information pertaining to Inc., as defendants argued, the Court still has concern related to the loyalties of Rutan & Tucker to Inc. where a Tarsadia entity had been a client, this transaction was also at Tarsadia’s instigation and Tarsadia had recommended Inc. retain Rutan & Tucker.

The Court will want to hear whether a waiver was required or obtained from Inc. for Rutan & Tucker to have permissibly represented Inc. The Court has not been shown the Rutan & Tucker representation agreement with Inc. or how the law firm was paid – which might answer that question.

Second, the opinion letter does not address specifically how Inc. would satisfy all laws where it was unclear what person’s obligation it was to pay creditors, including Tolk, post-closing where Inc. officers and employees were then to start employment by LLC (and not any other company) as part of the terms of the APA. The opinion letter goes only into whether Inc. met all requirements in entering the APA, not those after. Further, where the letter included a representation by Inc. that it would pay its creditors (which included Tolk on the schedules to the APA), it is unclear whether LLC or Tarsadia bear any responsibility when Inc. did not do so.

Third, it is not clear whether Rutan & Tucker could immediately after closing of the transaction also bring an action for Inc. to seek to excuse Inc. from paying that obligation consistent with its opinion that Inc. would meet its obligations by agreeing to pay Tolk: The allegations the firm asserted on behalf of Inc. against Tolk are inconsistent with its opinion letter that Inc. would pay him. Significantly, Inc. ultimately dismissed that action and Tolk had to bring a cross-complaint to obtain payment of what he was owed, which he secured by way of a default judgment against Inc. (Inc.’s contentions against Tolk remain in question: Mullins contended Tolk should not have been paid for a variety of reasons. Tolk denied seeking to wrongfully charge Inc. for personal matters or in having held Inc.’s code “hostage.” Inc. never undertook the investigation as to whether Tolk’s employment was properly suspended for these or other reasons.)

Finally, the opinion letter indicates Inc. met the requirements of both California and Delaware law. However, as indicated above, those may be inconsistent as far as advance notice to be provided to shareholders. It is not clear therefore what the firm was representing exactly or what LLC or Tarsadia could therefore reasonably rely upon. In addition, to the degree the firm opined that the necessary consents had been secured when the way the APA was drafted it may not have complied with Corwin, supra, raises concern about the validity of the opinion. Further, the parties will need to brief the Court on what consequence should follow as far as fair dealing if the opinion provided was incorrect.

c. Whether each of the parties is in the same position as far as liability / damages

i. Where the Court has found Raben was disinterested, and each party is entitled to individualized analysis, the Court does not find plaintiffs have met their burden that as to Raben he should be subjected to the entire fairness level of scrutiny. The issue is only whether his actions were consistent with the business judgment rule. The Court finds that they were. There was a rational business reason for him to approve the APA where Inc. was otherwise insolvent and would have had to default on its various obligations to creditors – as to whom he also had a duty in this context. Prod. Res. Grp. V. NCT Grp., 863 A.2d 772, 790791 (Del. 2004)

ii. Though the Court found Deputy to be interested, and the burden was therefore placed on Deputy to show the transaction was entirely fair, the Court was satisfied that he did not breach any duty of fair dealing by way of any affirmative misconduct on his part as a director or officer to give rise to any liability. While arguably he also had a duty to take some action if he did not do so when he should have, the Court finds that his duties were peripheral and relatively minor. (A party must have actual knowledge of and substantial participation in the acts constituting a breach of fiduciary duty. AngioScore v. TriReme Medical, 129 A.3d 816 (Del. 2015)) Like Raben, he too was excluded from negotiating the terms of the APA and that by the time the APA came up for approval at a board meeting the APA had already been negotiated and he had little choice but to approve it where Inc. was insolvent, and the APA satisfied Inc.’s obligations to its creditors. In turn, he had no responsibility as an officer for payment of Inc.’s debts or to notify shareholders as to whether they approved the APA.

iii. Casserly was not sued herein as President of Tarsadia or as a member of LLC’s managing board but as trustee of his trust. It is basic that officers of a corporation or of a limited liability company have no liability for acts within the course and scope of their employment. Whatever liability Tarsadia or LLC may have by virtue of conduct of Casserly, plaintiffs have made no claim that as an officer of Tarsadia or managing agent of LLC Casserly should have any liability on an individual basis for entity conduct. Plaintiffs also did not put on any evidence that as trustee of his trust Casserly committed any wrongdoing by making a loan to Inc. or taking any action directly adverse to plaintiffs. Any conduct on his part pertaining to actions on his behalf for Tarsadia or LLC will be their concern not his.

iv. Alsbury had no employment with Inc. as of the APA, was not a creditor and has not sought any incidental damages as has Tolk. The Court has ruled already that plaintiffs cannot sue for derivative claims, whether his equity interest was 2% or 5%. Though Alsbury was not required to himself appear at trial (either in person or remotely) or testify, that he did none is telling. He did not meet his burden of proof for what is at issue at this stage.

B. MOTIONS IN LIMINE

Plaintiffs’ renewed motion in limine pertaining to Joseph Emanuele argues that where the Court previously excluded the expert witness testimony of Christian Tregillis based on his reliance on unreliable projections, so the Court should exclude Emanuele’s testimony on the same basis. Defendants acknowledge in their opposition that there is no need to hear for Emanuele to testify if the Court determines that the price defendants paid was fair. As set forth above, the Court has found based on the testimony put on during Plaintiffs’ case that the price was fair. Therefore, by agreement, the Court will not hear Emanuele’s testimony. The motion is granted on this basis. The Court does not reach the other issues.

Plaintiffs’ other motion in limine seeks to exclude expert witness testimony of Patricia Botoff, Marc E. Hankin, Sean A. O’Keefe and Jon G. Peddie.

Botoff is an expert on compensation issues. Her testimony goes to the issue of whether Mullins’ prospective compensation at LLC was unreasonable in terms of evaluating whether Mullins was disinterested; not as Plaintiffs argued, as to Tolk’s employment. Inasmuch as that issue may go to whether the APA was entirely fair, and may rebut any testimony by plaintiffs’ expert, Stanton, the testimony is relevant and may aid the Court. Where, however, the motion for judgment is granted as to Deputy, the Court would not need to hear from Botoff as to Deputy’s compensation. Therefore, the Court would deny the motion as to Stanton.

Defendants indicate they do not intend to call Hankin as part of the liability phase of trial. Therefore, by agreement, the Court does not need to hear his testimony at this point.

Peddie stated he would provide an opinion related to the value of the Inc. business. However, as indicated above, the Court has found already in defendants’ favor related to the price paid. Therefore, this testimony is no longer relevant. The motion is granted on this basis. The Court does not reach any other issues.

O’Keefe’s proposed testimony concerns Inc.’s insolvency and options at the time, including bankruptcy. Again, the Court has found that the directors made the right decision in the price agreed upon for Inc., and therefore implicitly that this was a better option than filing for bankruptcy. Therefore, this testimony is also no longer relevant. The motion is granted on this basis. The Court does not reach any other issues.

4. CONCLUSION

For these reasons, the Court rules as follows:

1. The motion for judgment is denied as to Mullins, LLC and Tarsadia in Tolk’s case.

2. The motion for judgment is granted as to Raben, Deputy and Casserly in Tolk’s case.

3. The motion for judgment is granted as to all defendants in Alsbury’s case.

4. The Court does not now reach plaintiffs’ claims related to attorneys’ fees and costs – which is premature at least as to the three defendants still involved in Tolk’s case. Any requests for fees or costs by Raben, Deputy or Casserly are deferred until entry of judgment where there is only one judgment to be entered. Those issues may also be intertwined with the outcome of this trial as to the other defendants.

5. The motions in limine are granted as to Emanuele, Hankin, Peddie and O’Keefe and denied as to Botoff.

The Court intends, pursuant to California Rules of Court, Rule 3.1590(c), that this tentative statement of decision will be the Final Statement of Decision (if adopted at the hearing) unless within fifteen days thereafter a party files and serves objections hereto.

DATED: _________________________________
DAVID J. COWAN
Judge of the Superior Court