Judge Malcolm Mackey, Case 19STCV31043 2022-09-16 Tentative Ruling

Judge: Malcolm Mackey, Case: 19STCV31043, Date: 2022-09-16 Tentative Ruling

Case Number: 19STCV31043 Hearing Date: September 16, 2022 Dept: 55

FATCH v. VASQUEZ & COMPANY LLP 19STCV31043

Hearing Date: 9/16/22, Dept. 55

#5:

1. MOTION TO COMPEL FURTHER DISCOVERY RESPONSES.

2. MOTION TO COMPEL FURTHER DISCOVERY RESPONSES.

3. MOTION TO COMPEL DISCOVERY (NOT "FURTHER DISCOVERY").

4. MOTION TO COMPEL DISCOVERY (NOT "FURTHER DISCOVERY").

5. MOTION FOR SUMMARY JUDGMENT.

Notice: Okay

Opposition (re S.J., only)

MP: Defendant

RP: Plaintiffs

Summary

On 8/30/19, plaintiffs’ filed this action.

On 1/6/21, plaintiffs CASEY FATCH and ALEXANDER YU filed a Second Amended Complaint alleging that Defendant VASQUEZ & COMPANY LLP (employer’s outside auditor) failed to properly investigate fraud and misconduct of CENTRAL CITY COMMUNITY HEALTH CENTER, INC. (e.g., theft of public funds), and issued an incorrect audit opinion in September 2017, as to which plaintiffs, as corporate officers and whistleblowers, had provided plentiful contrary proof to Defendant, which caused the corporate bad actors to remain in power, to fire plaintiffs in March 2017, and plaintiffs not to be later reinstated.

The causes of action are:

1. INTENTIONAL INTERFERENCE WITH PROSPECTIVE ECONOMIC RELATIONS

2. NEGLIGENT INTERFERENCE WITH PROSPECTIVE ECONOMIC RELATIONS.

MP Positions

Moving party requests an order granting summary judgment, as to the Second Amended Complaint, on bases including the following:

· Plaintiffs cite no cases in which courts have ever found an "existing economic relationship" under circumstances such as this case.

· On June 12, 2017 - months before Vasquez issued its audit report- Plaintiffs sued Central City for wrongful employment termination, and never sought reinstatement as a remedy.

· By the time Vasquez completed the audit, Plaintiffs no longer had any economic relationship with Central Cit to interfere with.

· Both Mr. Fatch and Mr. Yu admit that they never applied to be re-employed by the Company.

· Central City never would have rehired them under any circumstances.

· Plaintiffs filed no admissible evidence to show that there was anything wrong with the audit work done by Vasquez. Plaintiffs opined that Vasquez failed to perform a "proper audit," without a required, designated expert.

RP Positions

Opposing party advocates denying summary judgment, for reasons including the following:

· Plaintiffs did and still do have a prospective economic relationship with their former employer, and there is a reasonable probability that their former employer would rehire them, but for Defendant’s conduct.

· It is generally accepted that the duty of the external auditor is not to detect fraud during the course of the year end audit. (Yu Decl., ¶ 15.) However, when the external auditor is given specific information regarding fraudulent activity, auditing standards dictate that testing be expanded to detect and report fraud. (id.) Yu (like an expert) declares to this based upon his training and experience as an external auditor at Ernst & Whinney (id.).

· If Vasquez had conducted a proper audit of Central City, done a proper job of following up on and investigating the massive fraud and other significant misconduct, then the bad actors on Central City’s Board and in Central City’s C-Suite level of executives would have been forced out.

· Central City suspended and fired Fatch and Yu based on plaintiffs’ reporting the numerous financial improprieties, fraudulent activity, misappropriation and theft of funds, including public funds, that had taken place at Central City. (Fatch Decl., ¶ 23-27; Yu Decl., ¶ 21-25.) Central City fired Fatch and Yu and suspended Fatch and Yu without ever engaging in any type of progressive discipline.

· The firing did not end the prospective economic relationships. The employment contracts had limitations on how Central City could terminate Fatch’s and Yu’s employment prior to the 5-year term ending.

· Central City’s purported reasons for suspending and firing Fatch and Yu are demonstrably false. (Fatch Decl., ¶¶ 24-29; Yu Decl., ¶¶ 22-27.) Central City’s Board decided to terminate Fatch’s and Yu’s Central City employment “based entirely on the breach of fiduciary duties they owed to Central City and the violation of [his] employment agreement[].

· Plaintiffs’ prior employment termination case was resolved, and reinstatement was not a part of that resolution, but, theoretically, plaintiffs could have requested and obtained leave to amend the prior complaint to include the cognizable remedy of reinstatement.

Tentative Ruling

All four discovery motions are granted, as unopposed.

The motion for summary judgment is granted.

The Court sustains all of the evidentiary objections filed with the reply papers.

Once a moving party has satisfied the initial burden of proof, the burden “shifts to the opposing party to show, by responsive separate statement and admissible evidence, that triable issues of fact exist.” Ostayan v. Serrano Reconveyance Co. (2000) 77 Cal. App. 4th 1411, 1418, disapproved on other grounds by Black Sky Cap., LLC v. Cobb (2019) 7 Cal. 5th 156, 165. Parties opposing motions for summary judgment cannot rely upon “assertions that are ‘conclusionary, argumentative or based on conjecture and speculation,’” but instead must “‘make an independent showing by a proper declaration or by reference to a deposition or another discovery product that there is sufficient proof of the matters alleged to raise a triable question of fact ….’” Roberts v. Assurance Co. of America (2008) 163 Cal.App.4th 1398, 1404. Accord Hollywood Screentest of America, Inc. v. NBC Universal, Inc. (2007) 151 Cal.App.4th 631, 648. A “mere expression of opinion” is “insufficient to raise triable issue of fact.” Lockhart v. MVM, Inc. (2009) 175 Cal.App.4th 1452, 1457.

Primarily, the Court determines moving party’s separate statement references evidence that Defendant did not interfere with any existing economic relationship, but that plaintiffs’ declarations are excessively conclusory, argumentative and lacking in foundation, including as to any documentation plaintiffs only generally described, purportedly showing fraud and misconduct of CENTRAL CITY COMMUNITY HEALTH CENTER, INC. (e.g., theft of public funds). In effect, those declarations would require the factfinder to accept plaintiffs’ hearsay and opinions that the documents that plaintiffs provided for auditing, but not placed in evidence for analyzing, really supported those types of audit conclusions.

Further, plaintiffs declarations fail to show an existing relationship with the corporation at the time of the audit opinion in September 2017, or any intentional wrongful act by Defendant at the time the corporate actors fired plaintiffs in March 2017. Additionally, opposing parties have shown no duty for Defendant to audit any faster so as to get favorable effects before the firings.

Moreover, plaintiffs’ and counsel’s declarations incompetently speculate that some members of the Board of Directors at Central City would have kept or reinstated plaintiffs’ in employment, without any evidence coming from such members themselves. An existing economic relationship does not include a speculative one. Roth v. Rhodes (1994) 25 Cal. App. 4th 530, 546 (as to interference with prospective economic advantage, the nature of particular allegations revealed a failure to allege an existing relationship beyond speculative future relations).

In addition, law providing courts with authority to order job reinstatement in a case for wrongful employment termination, is not any probable economic benefit from a disrupted relationship, but instead merely a theoretically possible court ruling to regain a lost economic benefit—the job position.

The elements of a claim for Intentional Interference With Prospective Economic Relations are:

Economic relationship existing between the plaintiff and third party;
probability of future economic benefit to the plaintiff;
defendant's knowledge of the relationship;
defendant's intentional acts designed to disrupt the relationship;
defendant engaged in an independently wrongful act in disrupting the relationship beyond just inducing disruption of economic advantage;
actual disruption of the relationship; and
economic harm to the plaintiff caused by the acts.

Salma v. Capon (2008) 161 Cal.App.4th 1275, 1290; Overstock.com, Inc. v. Gradient Analytics, Inc. (2007) 101 Cal.App.4th 688, 713; Sole Energy Co. v. Petrominerals Corp. (2005) 128 Cal. App. 4th 212, 241; Reeves v. Hanlon (2004) 33 Cal. 4th 1140, 1152 n. 6. See also Smith v. Pust (1993) 19 Cal. App. 4th 263, 274 (the act must have been intentionally directed at the plaintiff or done in the plaintiff’s presence); SC Manufactured Homes, Inc. v. Liebert (2008) 162 Cal.App.4th 68, 92 (“‘an act is independently wrongful if it is unlawful, that is, if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.’”); Blank v. Kirwan (1985) 39 Cal. 3d 311, 330 (“The tort has traditionally protected the expectancies involved in ordinary commercial dealings….”)).

The elements of a claim for Negligent Interference With Prospective Economic Relations are:

Economic relationship between the plaintiff and a third party;
that contained a reasonably probable future economic benefit or advantage to plaintiff;
defendant knew of the existence of the relationship and was aware, or should have been, that if it did not act with due care, its actions would interfere with the relationship and cause plaintiff to lose in whole or in part the probable future economic benefit or advantage;
the defendant was negligent;
the negligence caused damage to plaintiff because of actual interference or disruption; and
plaintiff lost in whole or in part the economic benefits or advantage reasonably expected from the relationship.

North Amer. Chem. Co. v. Sup. Ct. (1997) 59 Cal. App. 4th 764, 786. See also J'Aire Corp. v. Gregory (1979) 24 Cal. 3d 799, 804 (duty depends on “(1) the extent to which the transaction was intended to affect the plaintiff, (2) the foreseeability of harm to the plaintiff, (3) the degree of certainty that the plaintiff suffered injury, (4) the closeness of the connection between the defendant's conduct and the injury suffered, (5) the moral blame attached to the defendant's conduct and (6) the policy of preventing future harm.”); Venhaus v. Shultz (2007) 155 Cal. App. 4th 1072, 1080 (duty owed in negligence was based on statutory requirement).

In sum, the opposing evidence is not competent to show essential elements of those causes of action, including an existing relationship associated with a probable economic advantage that Defendant disrupted because some breach of duty in auditing causing firings or failures of reinstatement.