Judge: Jon R. Takasugi, Case: BC676901, Date: 2022-09-08 Tentative Ruling

Case Number: BC676901    Hearing Date: September 8, 2022    Dept: 17

Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENTATIVE RULING

Defendants’ motion for JNOV is DENIED. Defendants’ motion for new trial is CONTINUED IN PART, DENIED IN PART. Defendants’ motion is continued as to punitive damages to allow supplemental briefing consistent with the ruling below. The motion is denied in all other regards.

On 09/21/17, Plaintiff Ronald Andrew Both filed a Complaint against Jeffrey Scott Liolios and Liolios Group, setting forth claims for 1) breach of fiduciary duty; 2) oppression of minority member; 3) unjust enrichment; 4) violation of Business & Professions Code §§ 17200 et seq.; 5) accounting. 

On 10/25/17, Liolios Group filed a XC against Both, Geoffrey Plank, Grant Stude, and Capital Market Access, LLC (Capital), setting forth claims for 1) breach of contract; 2) misappropriation of trade secrets; 3) intentional interference with contract; and 4) intentional interference with prospective economic advantage. 

On 12/13/17, Both, Plank, and Stude filed a XXC against Liolios and Liolios Group, setting forth claims for 1) breach of contract; 2) quantum meruit; 3) unpaid wages in violation of Labor Code §§ 200, 201; 4) waiting-time penalties pursuant to Labor Code § 203; and 5) violation of Business & Professions Code §§ 17200 et seq. 

Jury trial commenced on May 24, 2022 and continued through June 15, 2022.

            Now, Defendant and Cross-Defendant Jeffrey Scott Liolios (Liolios) and Defendant, Cross-Complainant, and Cross-Defendant Liolios Group, Incorporated (LGI) (collectively, Liolios Defendants) move for a new trial. Defendants also move for a judgment notwithstanding the verdict. 

Legal Standard

A verdict may be vacated and any other decision may be modified or vacated, in whole or in part, and a new or further trial granted on all or part of the issues on the application of the party aggrieved, for any of the following causes, materially affecting the substantial rights of such party:¿ 

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(1)¿Irregularity in the proceedings of the court, jury¿or adverse party, or any order of the court or abuse of discretion by which either party was prevented from having a fair trial;¿ 

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(2)¿Misconduct of the jury;¿and whenever any one or more of the jurors have been induced to assent to any general or special verdict, or to a finding on any question submitted to them by the court, by are sort to the determination of chance, such misconduct may be proved by the affidavit of any one of the jurors;¿ 

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(3) Accident or surprise, which ordinary prudence could not have guarded against;¿ 

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(4) Newly discovered evidence, material for the party making the application, which he could not, with reasonable diligence, have discovered and produced at the trial;¿ 

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(5) Excessive or inadequate damages;¿ 

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(6) Insufficiency of the evidence to justify the verdict or other decision, or the verdict or other decision is against law;¿ 

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(7) Error in¿law, occurring at the trial and¿excepted to by the party making the application.¿ 

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(See CCP § 657.)¿ 

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When ruling on an application for a new trial, the court sits as an independent trier of fact.¿(Lane v. Hughes Aircraft Co. (2000) 22 Cal.4th¿405, 412.)¿The court, therefore, has broad discretion to order new trials, limited only by the obligation to state its reasons for granting a new trial and the existence of substantial evidence in the record to support those reasons.¿(Id.)¿¿In assessing¿the need for a new trial,¿the court must rely on its¿view of the overall record,¿taking into account such factors, among others, as the nature and seriousness of the¿alleged¿misconduct, the general¿atmosphere, including the judge’s control, of the trial, the likelihood of prejudicing the jury, and the efficacy of objection or admonition under all the circumstances.¿(Dominguez v. Pantalone¿(1989) 212 Cal.App.3d¿201, 211.)¿ 

Discussion: Motion for New Trial

            Defendants argue they are entitled to a new trial because the punitive damages award was excessive, there was insufficient evidence to justify the verdict, and the verdict is against the law.

I.                   Punitive Damages

            In awarding punitive damages, three factors are considered: (1) the reprehensibility of the defendants’ conduct; (2) the amount of compensatory damages; and (3) the wealth of the defendant. (Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 933.)

Defendants argue that Both did not meet his burden to prove Defendants’ net worth and that the award is excessive because punitive damages are not permitted to exceed 10 percent of the defendant’s net worth.” (Weeks v. Baker & McKenzie (1998) 63 Cal.App.4th 1128, 1166 (citing Storage Services v. Oosterbaan (1989) 214 Cal.App.3d 498, 515) However, Defendants overstate the standard for the third Neal factor. In Weeks, while the Court did, in fact, affirm that punitive damages are generally capped at 10% of a defendant’s net worth, the Court explained that the rationale for this cap is to prevent punitive damage awards which could “bankrupt [a defendant] or cause [a defendant] such undue hardship as to render his punishment unreasonably disproportionate to his ability to pay.” (Weeks, supra, 63 Cal.App.4^th 1128, 1167.) As such, net worth is not the hard-and-fast rule for evaluating what amount of punitive damages are excessive, though it can be a reliable guide. Rather, the ultimate standard is whether or not the award is unreasonably disproportionate to his ability to pay.  That there is no formula for determining whether a given percentage of net worth is excessive has been confirmed by a number of Courts. For example, the California Supreme Court in Adams v. Murakami (1991) 54 Cal.3d 105, 110 wrote:

Various measures of a defendant’s ability to pay a punitive damages award have been suggested. Defendant in this case contends the best measure of his ability to pay is his net worth.... We decline at present, however, to prescribe any rigid standard for measuring a defendant’s ability to pay.

            (Adams, supra, 54 Cal.3d at p. 116, fn. 7, emphasis.)

            Similarly, in Bankhead v. ArvinMeritor, Inc. (2012) 205 Cal.App.4th 68, the Court wrote:

ArvinMeritor argues these cases establish, as a matter of law, that punitive damages may not exceed 10 percent of the defendant's net worth, which represents a “cap” on allowable punitive damages awards. However, as shown by our summaries in the preceding paragraphs, none of the cited cases actually held that punitive damages exceeding 10 percent of the defendant’s net worth are per se impermissible. . . . Johnson’s caveat about the perils of relying solely on a net worth valuation standard echoed the same concerns expressed by the courts in the relatively more recent Zaxis, Rufo, Lara, and Devlin cases. (Zaxis, supra, 89 Cal.App.4th at p. 582; Rufo, supra, 86 Cal.App.4th at p. 621; Lara, supra, 13 Cal.App.4th at pp. 1064-1065 & fn. 3; Devlin, supra, 155 Cal.App.3d at pp. 391-392.) Thus, we reject the argument that 10 percent of net worth constitutes a ceiling above which juries may not go in setting the amount of punitive damages. The issue before us on review is not whether the award exceeds some specified percentage of the company’s net worth. Rather, it is whether the trial court abused its discretion in determining that the amount of punitive damages awarded by the jury was not the result of passion or prejudice. Our task simply is to determine whether, “[c]onsidering all the factors, the punitive damages award, ‘in light of the defendant’s wealth and the gravity of the particular act,’ ... exceed[s] ‘the level necessary to properly punish and deter.’ [Citation.]” (Rufo, supra, 86 Cal.App.4th at p. 625.)

            (Bankhead, supra, 205 Cal.App.4th at p. 68, 82-83.)

            As such, 10% of net-worth is not the legal standard for punitive damages award. Rather, the Court must determine whether, after reviewing the entire record in the light most favorably to the judgment, the punitive damages award could “bankrupt [a defendant] or cause [a defendant] such undue hardship as to render his punishment unreasonably disproportionate to his ability to pay.” (Weeks, supra, 63 Cal.App.4^th 1128, 1167; Neal, supra, 21 Cal.3d 910, 933.)

Here, Defendants argue that the $2 million dollar award is inadequately supported by evidence because the estimated value of LGI is $2,812,047. As such, a $2 million punitive damage would wipe out the entire value of the company, forcing its liquidation. Moreover, Defendants cited extensive case law to show that evidence of assets and income, alone, is insufficient without evidence of corresponding expenses and liabilities. (Kenly v. Ukegawa (1993) 16 Cal.App.4th 49, 57 (error to use evidence of assets without examining liabilities); Lara v. Cadag (1993) 13 Cal.App.4th 1061, 1062 (where “the evidence is limited to proof of the defendant’s annual income, there is insufficient evidence to support an award of punitive damages.”) As stated in Robert L. Cloud & Associates, Inc. v. Mikesell (1999) 69 Cal.App.4th 1141, 1152: “[C]ourts have clarified that evidence of the defendant’s annual income, standing alone, is not ‘meaningful evidence’” of a defendant’s ability to pay an award. Nor is evidence of profits or assets sufficient without evidence of liabilities. (Id.) (citations omitted.) There, the court found “no evidence” of defendant’s financial condition despite “significant evidence” of his income, concluding this evidence “provides only one side of the financial picture.” (Id.)

In opposition, Both notes the findings of forensic accountant Jackie Smart who aggregated Liolios’ ownership interest in LGI along with several sources of income he and his wife received over the 18-year period from 2003 to 2020 for a total of $19,361,083:

Liolios wage compensation (from LGI interrogatory responses): $8,584,583

Liolios’s LGI distributions (from LGI’s tax returns): $1,983,166

What Liolios testified he made off of the Aspen Bio warrants: $5,000,000

Stacy’s compensation (from LGI interrogatory responses): $1,538,942

The value of Liolios’s 80% of LGI: $2,249,637.60

Total $19,356,328.60

            (Opp., 9: 17-22.)

            Given that the judgment is joint and several, Both argues that these assets are more than sufficient to justify the punitive damages award against LGI. Both also notes that Liolios interfered with Both’s ability to fully assess Defendants’ financial condition, including by failing to produce tax returns.

            After review, the Court concludes that supplemental briefing is warranted on the issue of interference into Both’s investigation of Defendants’ financial condition. While the Court is persuaded by case law that punitive damages must consider more than just income and assets to be adequately supported, Defendants should not be able to benefit from a lack of comprehensive financial evidence if they impeded Both’s ability to obtain that evidence. 

            Accordingly, Defendants’ motion is continued. In filing supplemental briefing, the parties are to follow standard motion filing deadlines. 

II.                Wage Claims

            Defendants argue that there is insufficient evidence to support the jury’s award of $1,707,024 as to Both’s claim for unpaid wages and $33,566.70 in waiting-time penalties.  

In support, Defendants cite a single case Schacter v. Citigroup, Inc. (2009) 47 Cal.4th 610, 620, wherein the Court concluded that an “employee who continues in the employ of the employer after the employer has given notice of changed terms or conditions of employment has accepted the changed terms and conditions.”

 Defendants argue that “Both’s own testimony establishes that he waived his right to pursue any allegedly unpaid wages because he was given notice of the changes to his wages and accepted them.” (Motion, 11: 17-19.) More specifically:  

Both testified that he was aware when his wages were allegedly cut back, including in 2007 when he received 20% rather than 30% of the income from the sale of Aspen Bio Pharma warrants [Transcript dated 5/27/22 at 62:9-63:12], and in 2011 when he received 20% rather than 30% of the profits on an option exercise involving Que Pasa [id. at 68:1-69:3; Transcript dated 5/31/22 at 120:1-24.] Both also conceded Liolios informed him when eliminating Both’s 10% override cut of gross client billings on clients that Both did not manage in May 2014. [Transcript dated 5/27/22 at 75:23-76:20.]

(Motion, 11: 21-27.)

Given that Both nevertheless continued to work for LGI until December 2016, Defendants argues that the evidence indicates that Both was given notice of the changed terms of employment, and accepted these changes.

However, in Schacter, there were no allegations that the employer had misrepresented the reasons for the changed terms and conditions to the employee. Rather, the employee was fully aware of what the changes were and why those changes were made, and the employee actually chose those changes.

Here, Both submitted evidence at trial that that “whenever Liolios told Both that he was cutting his pay, he told Both the reason for it was because Both was a shareholder of LGI, LGI had losses, and Both, as an LGI 20% shareholder, needed to contribute his share of capital contributions to cover those losses. (May 27, 2022 Trial Transcript 61:1-63:12; 65:25-66:11; 68:4-69:27; 72:1-77:18; 78:24-79:9; June 1, 2022 Trial Transcript, 40:14-27.) But LGI never had losses. (May 27 Trial Transcript, 80:26-81:3; June 2, 2022 Trial Transcript, 83:4-87:12; Trial Exhibit 56; June 3, 2022 Trial Transcript, 67:8-14.)” (Opp., 12, 12: 15.)

Defendants did not submit any caselaw wherein a modified employment contract was found to be enforceable where the employee accepted new conditions based on fraudulent misrepresentations. As such, the Court is not persuaded that Both was barred from claiming unpaid wages and waiting time-penalties as a matter of law.

III.            Statute of Limitations

Defendants argue that there was insufficient evidence to support the jury’s finding that “Both did not know of facts that would have caused a reasonable person to suspect that Liolios had breached his fiduciary duty before September 21, 2013; that Both could not have reasonably discovered any facts LGI or Liolios failed to disclose or concealed before September 21, 2014; and that Both did not know facts that would have caused a reasonable person to suspect he had not been paid all wages.” (Motion for New Trial, 7: 6-10.)

            Defendants argue that, “these findings ignore Both’s own testimony that he knew in 2007 that Liolios had breached their agreement as to Both’s wages, and that Both again believed he had been cheated out of a payment on a deal in 2011, after which he was on “high alert” and began taking notes on what he believed to be discrepancies in the wages he received. Both also testified that although he received a stock certificate in 2002, he did not ask to see any financial statements for LGI until 2011, despite his suspicions dating back to at least 2007.” (Motion for New Trial, 7: 10-15.)

            However, as noted it his opposition, Both submitted evidence that from 2002 through the end of 2016, LGI and Liolios affirmatively and continuously lied to Both that LGI had no profits and made no distributions. (See May 27, 2022 Trial Transcript, 67:7-68:3; 79:10-80:25; 91:9-15.) Moreover, Both submitted evidence that he did not discover that LGI had actually had profits and made distributions until after this lawsuit was filed on September 21, 2017. (See May 27 Trial Transcript, 80:26-81:3; June 2, 2022 Trial Transcript, 83:4-87:12; Trial Exhibit 56; June 3, 2022 Trial Transcript, 67:8-14.)

Under the continuing-violation doctrine, a plaintiff can recover not only for the actions that took place during the statute of limitations period, but also for misconduct that occurred outside the period provided it is “sufficiently linked” to the conduct within the limitations period. (Richards v. CH2M Hill, Inc. (2001) 26 Cal.4th 798, 812.) The continuing violation doctrine holds that “where misfeasance is ongoing, a defendant’s claim to repose, the principal justification underlying the limitations defense, is vitiated.” (Aryeh v. Cannon Business Solutions, Inc. (2013)  55 Cal.4th at p. 1198.)

 Here, a jury could have reasonably concluded that Both was entitled to claim all of his compensatory damages based on Both’s evidence that throughout the entirety of his employment at LGI, “Liolios and LGI affirmatively and continuously lied to Both that LGI had no profits and made no distributions, when it always was profitable and made distributions to Liolios; concealed from Both that Liolios was taking distributions; lied to Both that Liolios had not taken any distributions; concealed from Both that Liolios was paying his wife, Stacy Liolios, $1,538,942 in phantom distributions to Liolios; told Both that he was cutting Both’s pay because LGI had losses, which it did not, and Both, as a shareholder of LGI, needed to contribute his share of capital contributions to cover these losses via this cut in Both’s wages, when LGI never needed any such capital contributions.” (Motion, 14: 21-28.)

Discussion: JNOV

            Defendants argue that they are entitled to a judgment notwithstanding the verdict in their favor as a matter of law as to (1) punitive damages in their entirety and (2) on the cause of action for unpaid wages as to Ronald Both.

            In support, Defendants rely on the same arguments set forth above.

 For the same reasons set forth above, the Court concludes that Defendants are not entitled to partial judgment  as to the wage claims. As for punitive damages, while the Court continued the motion for new trial to allow supplemental briefing, the Court finds that punitive damages could be warranted if supported by adequate evidence, and thus declines to enter a partial judgment as to punitive damages in their entirety.

            Based on the foregoing, Defendants’ motion for a judgment notwithstanding the verdict is denied.

It is so ordered.

Dated:  September    , 2022

   Hon. Jon R. Takasugi
   Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the court at smcdept17@lacourt.org by 4 p.m. the day prior as directed by the instructions provided on the court website at www.lacourt.org.  If a party submits on the tentative, the party’s email must include the case number and must identify the party submitting on the tentative.  If all parties to a motion submit, the court will adopt this tentative as the final order.  If the department does not receive an email indicating the parties are submitting on the tentative and there are no appearances at the hearing, the motion may be placed off calendar. 

            Due to Covid-19, the court is strongly discouraging in-person appearances.  Parties, counsel, and court reporters present are subject to temperature checks and health inquiries, and will be denied entry if admission could create a public health risk.  The court encourages the parties wishing to argue to appear via L.A. Court Connect.  For more information, please contact the court clerk at (213) 633-0517.  Your understanding during these difficult times is appreciated.