Judge Michael E. Whitaker, Case Number: 20SMCV01202, Date: 2024-06-26 Tentative Ruling

Judge: Michael E. Whitaker, Case: 20SMCV01202, Date: 2024-06-26 Tentative Ruling

On February 2, 2020, Plaintiff Ardeshir Haerizadeh (“Haerizadeh”), the founder of Yucatan Foods, brought suit against Defendants Landec Corporation and Apio Inc. (collectively, “Landec” or “Defendants”), who acquired Yucatan Foods, alleging four causes of action for (1) breach of employment contract; (2) breach of holdback agreement; (3) declaratory relief (as to whether the non-compete provisions in the Employment Agreement are enforceable in light of Plaintiff’s termination without cause); and (4) accounting.

On November 3, 2020, Landec brought a cross-complaint against Cross-Defendants Haerizadeh, Dan Walton, Warren Schlichting, Robert Hall, Sepand Riahi, Allen Lance Mcinnes, John Barber, Michael F. Baxter, Doug Harmon, George H. Davis Jr., Adam Cardenas, Kevin Gay, Aaron Morris, J.F. Shea Co., Inc. as Nominee 1996-1, and Desarrollos Inmobiliarios Cuga, S.A.P.I. de C.V. (“CUGA”) alleging seven causes of action for (1) fraud; (2) fraudulent inducement; (3) civil conspiracy; (4) contractual indemnity; (5) breach of contract; (6) equitable indemnity; and (7) unjust enrichment.

CUGA now moves for summary judgment, or in the alternative, summary adjudication on the following issues:

1. The third cause of action against CUGA in the Cross-Complaint for civil conspiracy fails because CUGA did not participate in any civil conspiracy; and such claim is barred by the agent’s immunity rule;

2. The fourth cause of action against CUGA in the Cross-Complaint for breach of contractual indemnity fails because: 1) the operative contract prevents LANDEC from pursuing such claim unless and until it has recovered a requisite amount of damages from other named cross-defendants, an event which has not occurred; (2) LANDEC can only recover for breaches of representations and warranties occurring prior to the sale of Yucatan and all of the acts of wrong doing alleged in the Cross-Complaint occurred subsequent to the sale of Yucatan; (3) LANDEC has ratified the alleged acts of wrong doing; and (4) LANDEC cannot prove reliance on environmental representations and warranties because it retained an expert to investigate such matters during its due diligence process;

3. The fifth cause of action against CUGA in the Cross-Complaint for breach of contract fails because: (1) the only obligations undertaken by CUGA in the operative contract are to indemnify LANDEC for any breach of any warranty or representation made by Yucatan; (2) the operative contract prevents LANDEC from pursuing such claim(s) unless and until it has recovered a requisite amount of damages from other named cross-defendants, an event which has not occurred; (3) LANDEC can only recover for breaches of representations and warranties occurring prior to the sale of Yucatan and all of the acts of wrong doing alleged in the Cross-Complaint occurred subsequent to the sale of Yucatan; (4) LANDEC has ratified the alleged acts of wrong doing; and (5) LANDEC cannot prove reliance on environmental representations and warranties because it retained an expert to investigate such matters during its due diligence process;

4. The sixth cause of action against CUGA in the Cross-Complaint for equitable indemnity fails because CUGA engaged in no inequitable conduct towards LANDEC; and a claim for equitable indemnity cannot be made where, as is the case here, a written contract sets forth the parties’ indemnification rights;

5. The seventh cause of action against CUGA in the Cross-Complaint for unjust enrichment fails because CUGA was not unjustly enriched by LANDEC; and no claim for unjust enrichment lies where there is an enforceable written contract between the parties.

29. Sustained as to “with no legal rights in terms of the management and control of Yucatan or Tanok”

“[T]he party moving for summary judgment bears the burden of persuasion that there is no triable issue of material fact and that he is entitled to judgment as a matter of law[.] There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof.” ¿(Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850 (hereafter Aguilar).) ¿“[T]he party moving for summary judgment bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact; if he carries his burden of production, he causes a shift, and the opposing party is then subjected to a burden of production of his own to make a prima facie showing of the existence of a triable issue of material fact.” ¿(Ibid.; Smith v. Wells Fargo Bank, N.A. (2005) 135 Cal.App.4th 1463, 1474 [summary judgment standards held by Aguilar apply to summary adjudication motions].)

Further, “the trial court may not weigh the evidence in the manner of a factfinder to determine whose version is more likely true. Nor may the trial court grant summary judgment based on the court's evaluation of credibility.” (Aguilar, supra, 25 Cal.4th. at p. 840 [cleaned up]; see also Weiss v. People ex rel. Department of Transportation (2020) 9 Cal.5th 840, 864 [“Courts deciding motions for summary judgment or summary adjudication may not weigh the evidence but must instead view it in the light most favorable to the opposing party and draw all reasonable inferences in favor of that party”].)

A party may move for summary adjudication as to one or more causes of action, affirmative defenses, claims for damages, or issues of duty if that party contends that there is no merit to the cause of action, defense, or claim for damages, or if the party contends that there is no duty owed. (See Code Civ. Proc., § 437c, subd. (f)(1).) “A motion for summary adjudication shall be granted only if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty.” (Ibid.) A cause of action has no merit if: (1) one or more elements of the cause of action cannot be separately established, even if that element is separately pleaded, or (2) a defendant establishes an affirmative defense to that cause of action. (See Code Civ. Proc., § 437c, subd. (n); Union Bank v. Superior Court (1995) 31 Cal.App.4th 573, 583.) Once the defendant has shown that a cause of action has no merit, the burden shifts to the plaintiff to show that a triable issue of material fact exists as to that cause of action. (See Code Civ. Proc., § 437c, subd. (o)(2); Union Bank v. Superior Court, supra, 31 Cal.App.4th at p. 583.) Additionally, in line with Aguilar, “[o]n a motion for summary adjudication, the trial court has no discretion to exercise. If a triable issue of material fact exists as to the challenged causes of action, the motion must be denied. If there is no triable issue of fact, the motion must be granted.” (Fisherman's Wharf Bay Cruise Corp. v. Superior Court (2003) 114 Cal.App.4th 309, 320.)

As Landec points out in Opposition, and CUGA concedes in Reply, Landec has already dismissed the third cause of action for civil conspiracy against CUGA as of April 22, 2022.

“To prevail on a cause of action for breach of contract, the plaintiff must prove (1) the contract, (2) the plaintiff's performance of the contract or excuse for nonperformance, (3) the defendant's breach, and (4) the resulting damage to the plaintiff.” (Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1186.)

“Courts interpret contractual indemnity provisions under the same rules governing other contracts, with a view to determining the actual intent of the parties.” (Maryland Casualty Co. v. Bailey & Sons, Inc. (1995) 35 Cal.App.4th 856, 864.)

The fourth cause of action for contractual indemnity alleges that CUGA owes Landec indemnity by virtue of Section 12.02 of the Stock Purchase Agreement (“SPA”). The fifth cause of action for breach of contract alleges CUGA breached the SPA by making misrepresentations and omissions in the SPA.

· In December 2017, CUGA entered into a Yucatan Foods, LP Limited Partnership Interest Subscription Agreement whereby it acquired limited partnership interests in Yucatan. (Corzo Decl. at ¶ 3 and Ex. A.)

· CUGA never had any involvement in Yucatan’s or any of its subsidiaries’ day to day business operations at any point in time. (Corzo Decl. ¶ 4.)

· No one from CUGA ever visited the guacamole plant in Silao, was provided any information on the day to day business operations of Yucatan or any of its subsidiaries, or any information prior to the sale of Yucatan to Landec that Yucatan, its subsidiaries, or any agent thereof violated any laws. (Corzo Decl. ¶ 4.)

· In December 2018, Luis Ramirez Corzo executed the SPA on behalf of CUGA. (Corzo Decl. ¶ 6.)

· At the time Corzo executed the SPA on behalf of CUGA in December 2018, Corzo had no information that any statements made in the SPA were false, misleading, or inaccurate. (Corzo Decl. ¶ 6.)

Except as set forth in the Company Disclosure Schedules (subject to Section 13.03(a)), which schedules shall identify any exceptions to the representations and warranties contained in this Agreement, Yucatan represents and warrants to Buyer that the following statements are true and correct as of the date of this Agreement, except with respect to statements that speak to an earlier date, in which case, they shall be so true and correct as of such earlier date

Section 12.02 Indemnification of Buyer Indemnified Parties. Effective at and after the Closing, subject to the limitations set forth in this ARTICLE 12, each Equityholder severally, but not jointly, in accordance with the terms of this Agreement, including Section 12.03 below, hereby indemnifies Buyer, the Company Parties, their respective Affiliates and their respective officers, directors, managers, employees, agents, successors and assignees (collectively, the “Buyer Indemnified Parties”) against, and agrees to hold each of them harmless from, any and all Damages (whether involving a Third Party Claim or a claim solely between the parties hereto), incurred or suffered by the Buyer Indemnified Parties to the extent arising out of, with respect to or by reason of:

(a) any inaccuracy in or misrepresentation or breach of any representation or warranty (each, a “Warranty Breach”) of (i) Yucatan in ARTICLE 3 of this Agreement or in any certificate delivered by Yucatan at Closing pursuant hereto, (ii) Camden in ARTICLE 4 of this Agreement or in any certificate delivered by Camden at Closing pursuant hereto or (iii) any Equityholder in ARTICLE 6 of this Agreement or in the Mexico Equity Interest Purchase Agreement or in any certificate delivered by such Equityholder at Closing pursuant hereto;

(e) Any Environmental Claim (regardless of, and notwithstanding any, disclosure of any items that are the subject of an Environmental Claim in the Company Disclosure Schedules or the Camden Disclosure Schedules);

(f) Any non-compliance with Applicable Law determined as a result of any audit, review or investigation by Governmental Authorities as to import and export support documentation or procedures, inventory controls, including Mexico’s Annex 24 and Annex 31 requirements, and assets located in Mexico and relating to the activities or period prior to the Closing (regardless of, and notwithstanding any, disclosure of any items that are the subject of such indemnity claim in the Company Disclosure Schedules or the Camden Disclosure Schedules);

Section 12.03 Limitations on Indemnification by Equityholders; Type and Order of Recovery.

(a) Notwithstanding anything to the contrary set forth in this Agreement or any Transaction Document, or any certificates delivered at Closing pursuant thereto, except in the case of Damages for any Warranty Breach for breaches of the Fundamental Representations or Fraud (as to which the limitations set forth in this Section 12.03(a) shall not apply), the Buyer Indemnified Parties shall not be entitled to recover any Damages in respect of any Warranty Breach under Section 12.02(a) in the aggregate, in excess of Six Million Dollars ($6,000,000) (the “Indemnification Cap”). For the avoidance of doubt, any indemnification payments made with respect to a Warranty Breach for breaches of the Fundamental Representations or Fraud shall not be included in the determination of whether the Indemnification Cap has been met.

(b) With respect to indemnification by the Equityholders for Warranty Breaches under Section 12.02(a), except in the case of Damages for any Warranty Breach, for breaches of the Fundamental Representations or Fraud (as to which the limitations set forth in this Section 12.03(b) shall not apply), the Equityholders shall not be liable for any such Warranty Breaches unless and until the aggregate amount of all Damages with respect to all Warranty Breaches covered by this Section 12.03(b) exceeds an amount equal to Four Hundred Thousand Dollars ($400,000) (such amount, the “Equityholders’ Basket”) and then only to the extent of such excess.

(c) A Buyer Indemnified Party shall recover Damages (to the extent in excess of the Equityholders’ Basket if applicable) in respect of any indemnification claim under Section 12.02:

(ii) second, following the release or exhaustion of the Indemnification Escrow, from the Equityholders in accordance with the order of recovery described in Section 12.03(f) and Section 12.03(g) below, as illustrated in the Liability Waterfall.

(f) For the duration of the Initial Lock-Up Period, the Buyer Indemnitees’ sole source of recovery for Damages shall be against the Stock Consideration received by the Camden Stockholders, including any additional Stock Consideration issued as Adjustment Consideration (the “Total Stock Consideration”), unless and until the Buyer Indemnitees have recovered Damages equal the value of the Total Stock Consideration, after which the Buyer Indemnitees’ sole source of recovery for Damages shall be against the Preferred Limited Partners in cash, in each case, subject to the Equityholders’ Basket (to the extent applicable), the Indemnification Cap (to the extent applicable), and the other limitations set forth in this Section 12.03, all as illustrated in the Liability Waterfall.

(g) From and after the expiration of the Initial Lock-Up Period, the Buyer Indemnitees’ sole source of recovery for Damages shall continue to be against the Total Stock Consideration to the extent the same remains held by the Camden Stockholders, and thereafter against the Camden Stockholders in cash, unless and until the Buyer Indemnitees have recovered Damages equal to the value of the Total Stock Consideration still held, after which the Buyer Indemnitees’ sole source of recovery for Damages shall be against the Preferred Limited Partners in cash, in each case, subject to the Equityholders’ Basket (to the extent applicable), the Indemnification Cap (to the extent applicable) and the other limitations set forth in this Section 12.03, all as illustrated in the Liability Waterfall.

(h) Notwithstanding the foregoing or anything to the contrary in this Agreement or any Transaction Document, in no event shall any Equityholder have any liability under Section 12.02 in excess of the portion of the Aggregate Acquisition Consideration received by such Equityholder, whether in respect of a Warranty Breach, a Covenant Breach, Fraud or otherwise. More specifically, each Camden Stockholder shall not have any liability for Damages in excess of the value of the portion of the Total Stock Consideration received by such Camden Stockholder, and each Preferred Limited Partner shall not have any liability for Damages in excess of the Preferred Payout received by such Preferred Limited Partner, all as illustrated in the Liability Waterfall.

8. The sale of Yucatan to Tanok closed on or about December 1, 2018. As of the date of the sale, neither I nor to my knowledge anyone else, had any knowledge, information or belief that Yucatan or Tanok was in violation of, or had previously violated, any law or regulation governing its business operations including but not limited to environmental and anti-corruption laws. I can state for certain that, as of the date of the sale of Yucatan to LANDEC, neither Yucatan nor Tanok had been notified by any governmental body of any violation of environmental or anti-corruption laws nor had any governmental body advised us that they intended to bring claims that Yucatan or Tanok was in violation of any law or regulation. To this date, I am not aware of LANDEC, or any party to be indemnified under the SPA, incurring any damages relating to any violation of law by Yucatan or Tanok occurring prior to the close of the sale of those companies to LANDEC on December 1, 2018.

9. Prior to August 2019, I had been removed from having any operational control over Tanok, including from having any role in its environmental compliance efforts. On or about August 1, 2019, I was told by Dan Walton that he had been informed that LANDEC’s environmental related expenses, including the construction of a wastewater treatment plant, were now expected to be approximately $1,000,000. This was surprising to me and to Mr. Walton, because we as sellers had agreed in the SPA that these expenses would be paid out of the sales proceeds being retained in escrow and these expenses had previously been anticipated to be in the $500,000 range after the construction of the wastewater treatment plant, which to my knowledge had inexplicably not even started yet. I, therefore, sent an email to LANDEC’s controller, Brandon Merlo, asking him to provide me with a copy of the costs incurred as of now. A true and correct copy of an email chain containing my email to Brandon Merlo on August 1, 2019 is attached hereto as Exhibit “A.” (Deposition Exhibit 136)

10. Mr. Merlo responded that same day with a summary of expenses for environmental issues. Mr. Merlo wrote that the total environmental expenses as of July 2019 were $980,000, which included $630,000 for the wastewater treatment facility, $260,000 for monthly water certification (Benjamen Monus) and $90,000 for an ammonia system installation. Mr. Merlo indicated in his email that the $260,000 amount was a monthly charge ($32,500 per month) that LANDEC had and will continue to incur until the wastewater treatment plant that was under construction was completed in what was expected to be December 2019. A true and correct copy of Mr. Merlo’s August 1, 2019, email to me is included within the email chain attached hereto as Exhibit “A.”

11. I did not know who Benjamin Monus was, and inquired, after which I learned it was the same as a company named Ecosani. I also did not understand why the amount being paid was so high and who had authorized the expense of $32,500 monthly payments being made by LANDEC. I, therefore, wrote Mr. Merlo and asked him who authorized and is authorizing the payments to Benjamin Munoz. A true and correct copy of my email to Brandon Merlo on August 2, 2019 is also included in the email chain attached hereto as Exhibit “A.”

12. I then contacted Manuel Perez, who I had previously demoted to maintenance manager while he worked for Yucatan, but Landec had promoted to Plant manager of the Tanok facility. Mr. Perez informed me that these payments were high because the consultant/vendor Mr. Munoz or Ecosani was being asked to obtain daily certificates and that he had to pay someone in the municipal water department to get such certificates . When I obtained this information, I immediately instructed Mr. Perez to cease making any such payments for wastewater certificates. I now have learned in discovery during this lawsuit that, after I instructed Mr. Perez not to make further payments for the wastewater certificates, he emailed a LANDEC operation’s officer and advised him that if the payments were not made there could be serious ramifications including a possible plant shut down. Indeed those email exchanges are also part of the chain in Exhibit “A.”

13. I subsequently had discussions on this subject with and explained to LANDEC’s senior management including Greg Skinner, LANDEC’s Chief Financial Officer, and Brandon Merlo, a LANDEC controller, that I had just learned that part of the payments were in the nature of bribes and must be discontinued. Mr. Skinner told me that as a CFO of a publicly traded corporation he could not be on a call where the subject of bribes made to government officials was being discussed, and he said he would look into it and we would reconvene next week. We never did and in spite of my attempts to speak to Mr. Merlo and Skinner subsequently, they kept cancelling meetings. Subsequent to my communications and protestations about the improper payments being made, I was first put on leave from LANDEC on October 15, 2019, and, my employment with LANDEC was then terminated on February 20, 2020.

CUGA argues that the breach of contract claim is not yet ripe, because Landec admits its total damages do not exceed the $20,000,000 currently held in escrow to satisfy such claims. (UMF No. 57 [Bolles Depo. Transcript at pp. 187:14-188:6.])

However, this argument conflates Landec’s claim for damages incurred as a result of CUGA’s breach of contract with CUGA’s affirmative defense that any amount owed should be offset by or otherwise paid from the amount currently held in escrow. That CUGA has an argument as to where the payment for breach, if any, should come from does not mean that Landec’s claim is unripe.[1]

CUGA also argues that the contract-related claims fail because both Corzo (on behalf of CUGA) and Haerizadeh (on behalf of Yucatan) declared that they had no reason to know that the representations and warranties in the SPA were false in December 2018 when the SPA was signed. Furthermore, the evidence of the bribes (a total of $260,000, representing $32,500 monthly, estimated to end in December 2019) means the bribes would have occurred for 8 months ($32,500 x 8 = $260,000) from April or May 2019 up to/through December 2019, when the wastewater treatment plant was expected to be up and running. But April 2019 was after the acquisition. Nor is there any evidence of an environmental claim.

Thus, CUGA has met its initial burdens of production and persuasion as to Issues 2 and 3 that it did not breach the agreement because the warranties and representations were not false when made.

Landec has provided the Declaration of Adrian Gomez of Ramboll, who visited the Tanok facility to conduct environmental due diligence in October of 2018, regarding Yucatan’s pre-acquisition noncompliance with Mexican law regarding dumping wastewater into the Silao river as follows:

4. In conducting the due diligence, on October 15, 2018, I emailed Plaintiff/Cross-Defendant Ardeshir Haerizadeh (“Haerizadeh”) regarding a list of documents I would need to review at my on-site visit and inspection of Tanok on October 22 and 23, 2018. In response, Haerizadeh put me in touch with Manuel Durah (“Duran”) to accompany me on my site inspection. […]

6. As part of my assessment, on October 22, 2018, I asked Duran about certain documents including those related to water. In response, Duran provided me with certain documents including a contract with Sistema de Agua Potable y Alcantarillado de Silao (“SAPAS”). A true and correct copy of Duran’s email to me with accompanying documents, including the SAPAS contract, is attached to the concurrently filed Appendix of Evidence as Exhibit “B.”

7. With regard to its wastewater, Duran informed me during my visit that the facility treats their process wastewater via a 3-state solid separation process and then discharges the wastewater into the municipal sewer system, SAPAS.

10. At no time before doing so did anyone at Tanok disclose to me that Tanok had vendors create false manifests purporting to haul away Tanok’s process wastewater or paid bribes to expedite permits Tanok needed.

12. I revisited Tanok on September 26, 2019, to evaluate and determine the extent of the issues and the necessary remediations.

13. During this visit, I again met with Duran. I asked him if he had provided misleading information about where Tanok’s wastewater was going during my October 2018 inspection.

14. Duran admitted that he lied to me intentionally and stated that Haerizadeh had told him to not mention that the wastewater was going to the Silao river. Duran said that he gave me the SAPAS contract when he in fact knew that the contract was for discharge of sanitary wastewater and not process wastewater. He admitted he did so to mislead me and to support the lie about the process wastewater going to the municipal sewer system.

15. Duran told me that he told Haerizadeh and Manuel Perez about the misinformation he had given me.

Landec further provides the April 25, 2024 deposition testimony of Manuel Perez, who testifies that prior to the acquisition, he and Haerizadeh decided to unlawfully discharge Tanok’s wastewater into the Silao river because Yucatan lacked the funds to discharge it lawfully. (Ex. E at pp. 20-30.) Perez also testified that they made payments to a company called Eco Sani to obtain fictitious historical manifests documenting that Tanok’s wastewater was hauled away, when in fact it had been illegally dumped into the river. (Ex. E at pp. 42-52.)

Thus, Landec has met its burden of production to create triable issues of material fact (in particular Undisputed Materials Facts Nos. 23 and 26.) that Yucatan had knowingly violated the law by dumping its wastewater into the Silao river and paid for fictitious historical manifests to cover up the illegal discharge.

“The elements of a cause of action for [equitable] indemnity are (1) a showing of fault on the part of the indemnitor and (2) resulting damages to the indemnitee for which the indemnitor is ... equitably responsible.” (C.W. Howe Partners Inc. v. Mooradian (2019) 43 Cal.App.5th 688, 700.)

As discussed above, there is a disputed issue of material fact regarding whether Yucatan knowingly discharged its wastewater in the Silao river illegally and paid for fictitious historical manifests to cover that fact up prior to the acquisition, such that the representations and warranties in the SPA were false when made. Therefore, Landec could demonstrate CUGA’s fault in making the false representations and warranties in the SPA.

However, equitable indemnity may be either implied from a contract not specifically mentioning indemnity, or it can arise from tort. (Rossmore Sanitation, Inc. v. Python, Inc. (1975) 13 Cal.3d 622, 628.) Here, because the contract at issue contains a lengthy indemnification provision, the language of the contract controls and there can be no implied equitable indemnity as a matter of law.

Landec argues that it should be allowed to present both theories of indemnity to the jury – contract and tort. However, while fraud and fraudulent inducement are alleged as to Haerizadeh, there is no allegation or evidence of a tort by CUGA.

Therefore, CUGA has met its burdens of production and persuasion that it is entitled to summary adjudication as to Issue 4, and Landec has not created any triable issue of material fact.

Similar to equitable indemnity, “As a matter of law, an unjust enrichment claim does not lie where the parties have an enforceable express contract.” (Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1370.) In arguing otherwise, Landec cites to Garfield on behalf of ODP Corporation v. Allen (Del. Ch. 2022) 277 A.3d 296, 341.) But Garfield was decided at the pleadings stage, not at the summary judgment stage. Plaintiffs are permitted to “plead in the alternative and make inconsistent allegations.” (Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1388.)

Here, because the evidence demonstrates an enforceable written contract, Landec must recover pursuant to the contractual provisions, as opposed to equitable quasi-contract theories.

Therefore, CUGA has met its burdens of production and persuasion that it is entitled to summary adjudication as to Issue 5 and Landec has not created any triable issue of material fact.

Therefore, the Court grants in part and denies in part CUGA’s motion for summary adjudication. Finding no disputed issue of material fact that Landec’s claims are governed by the contract, such that Landec may not recover for equitable indemnity or unjust enrichment, the Court grants summary adjudication as to Issues 4 and 5.

Finding disputed issues of material fact that Yucatan engaged in pre-acquisition wastewater dumping and the purchase of fictitious manifests to cover up the dumping in violation of Mexican law, such that CUGA breached the SPA by virtue of representing and warranting that Yucatan was not in violation of the law, the Court denies summary adjudication as to Issues 2 and 3. Further, as the third cause of action for civil conspiracy has already been dismissed, the Court denies summary adjudication as to Issue 1 as moot.

Because the Court denies summary adjudication as to Issues 1, 2, and 3, the Court similarly denies summary judgment.

CUGA shall provide notice of the Court’s ruling and file the notice with a proof of service forthwith.

TENTATIVE RULING - NO. 2

DEPARTMENT	207
HEARING DATE	June 26, 2024
CASE NUMBER	20SMCV01202
MOTION	Motion for Summary Judgment/Summary Adjudication
MOVING PARTIES	Defendants and Cross-Claimants Landec Corporation and Curation Foods, Inc., formerly known as Apio, Inc.
OPPOSING PARTY	Plaintiff Ardeshir Haerizadeh

MOVING PAPERS:

Notice of Motion and Motion for Summary Judgment/Adjudication; Memorandum of Points and Authorities
Appendix of Evidence
Separate Statement of Undisputed Material Facts

OPPOSITION PAPERS:

Opposition to Motion for Summary Judgment/Adjudication; Memorandum of Points and Authorities
Compendium of Evidence
Evidentiary Objections
Separate Statement of Disputed Material Facts

REPLY PAPERS:

Reply to Plaintiff’s Opposition to Motion for Summary Judgment/Adjudication
Objections to Evidence

BACKGROUND

On February 2, 2020, Plaintiff Ardeshir Haerizadeh (“Plaintiff”), the founder of Yucatan Foods, brought suit against Defendants Landec Corporation and Apio Inc. (collectively, “Landec” or “Defendants”), who acquired Yucatan Foods, alleging four causes of action for (1) breach of employment contract; (2) breach of holdback agreement; (3) declaratory relief (as to whether the non-compete provisions in the Employment Agreement are enforceable in light of Plaintiff’s termination without cause); and (4) accounting.

On November 3, 2020, Defendants brought a cross-complaint against Cross-Defendants Haerizadeh, Dan Walton, Warren Schlichting, Robert Hall, Sepand Riahi, Allen Lance Mcinnes, John Barber, Michael F. Baxter, Doug Harmon, George H. Davis Jr., Adam Cardenas, Kevin Gay, Aaron Morris, J.F. Shea Co., Inc. as Nominee 1996-1, and Desarrollos Inmobiliarios Cuga, S.A.P.I. de C.V. (collectively, “cross-defendants”) alleging seven causes of action for (1) fraud; (2) fraudulent inducement; (3) civil conspiracy; (4) contractual indemnity; (5) breach of contract; (6) equitable indemnity; and (7) unjust enrichment.

Defendants move for summary judgment, or in the alternative, summary adjudication on the following issues:

1. Haerizadeh’s first cause of action for breach of employment contract fails because Haerizadeh was terminated for cause under section 6(c) of the Executive Employment Agreement, and as a matter of law, Haerizadeh is not entitled to damages as requested.

2. Regarding Haerizadeh’s second cause of action for breach of Holdback Agreement, as a matter of law and because Haerizadeh was terminated for cause, the Holdback Agreement is inapplicable and Section 3(a) of the Holdback Agreement is not invoked. Accordingly, summary adjudication should be granted in Landec’s favor.

3. Regarding Haerizadeh’s third cause of action for declaratory relief, Haerizadeh cannot establish that his termination was without cause under the Executive Employment Agreement or that Section 3(a) of the Holdback Agreement has been invoked. As a matter of law, and as set forth in the Executive Employment Agreement and the Holdback Agreement, Haerizadeh was terminated for cause and Section 3(a) of the Holdback Agreement was not invoked and he is not entitled to recovery under the Employment Agreement. Accordingly, summary adjudication should be granted on this claim.

4. Regarding Haerizadeh’s fourth cause of action for an accounting, as Haerizadeh was terminated with cause, as a matter of law and as set forth in the Executive Employment Agreement and the Holdback Agreement, he is not entitled to any sums thereunder. Accordingly, summary adjudication should be granted in Landec’s favor on this claim.

Plaintiff opposes the motion and Defendants reply.

EVIDENTIARY OBJECTIONS

The Court rules as follows on Plaintiff’s evidentiary objections:

1. Overruled

2. Overruled

3. Overruled

4. Overruled

5. Overruled

6. Overruled – state of mind hearsay exception

7. Overruled – state of mind hearsay exception

8. Overruled

9. Overruled

10. Overruled

11. Overruled

12. Overruled

13. Overruled – state of mind hearsay exception

14. Overruled – state of mind hearsay exception

15. Overruled

16. Overruled – state of mind hearsay exception

17. Overruled

18. Overruled

19. Overruled

20. Overruled

21. Overruled

22. Overruled

23. Overruled

24. Overruled

25. Overruled

26. Overruled

27. Overruled

28. Overruled

29. Overruled

30. Overruled

31. Overruled

32. Overruled

33. Overruled – party admission

34. Overruled

35. Overruled

36. Overruled

37. Overruled

38. Overruled

39. Overruled

40. Overruled

41. Overruled

The Court rules on Defendants’ evidentiary objections as follows:

1. Overruled

2. Overruled

3. Sustained

4. Sustained

5. Overruled

6. Overruled

7. Overruled

8. Overruled

9. Overruled

10. Overruled

11. Overruled

12. Overruled

13. Overruled

14. Overruled

15. Overruled

16. Overruled

17. Overruled

18. Overruled

19. Overruled

20. Overruled

21. Overruled

22. Overruled

23. Overruled – state of mind hearsay exception

24. Overruled

25. Overruled – state of mind & party admission

26. Overruled – state of mind & party admission

27. Overruled

28. Overruled – state of mind hearsay exception

29. Overruled

30. Overruled – state of mind hearsay exception

31. Overruled

32. Overruled

33. Overruled

34. Overruled

35. Sustained – hearsay (misstates documentary evidence)

36. Sustained – foundation

37. Overruled – state of mind hearsay exception

38. Sustained

39. Sustained

40. Overruled

41. Overruled

42. Overruled

43. Overruled

44. Overruled

45. Overruled

46. Sustained

47. Overruled

48. Overruled

49. Overruled

50. Overruled

51. Overruled

52. Overruled

53. Sustained

54. Overruled

55. Overruled

56. Overruled

57. Overruled

58. Overruled

59. Overruled

60. Overruled

61. Overruled

62. Overruled

63. Overruled

64. Overruled

65. Overruled

66. Overruled

67. Overruled

68. Overruled

69. Overruled

70. Overruled

71. Overruled

72. Overruled

73. Overruled

74. Overruled

75. Overruled

76. Overruled

77. Overruled

78. Overruled

79. Overruled

80. Overruled

81. Overruled

82. Overruled

83. Overruled

84. Overruled

85. Overruled

86. Overruled

87. Overruled

88. Overruled

89. Overruled

90. Overruled

91. Overruled

92. Overruled

93. Overruled

94. Overruled

95. Overruled

96. Overruled

97. Overruled

98. Overruled

99. Overruled

100. Overruled

101. Overruled

102. Overruled

103. Overruled

104. Overruled

105. Overruled

106. Overruled

107. Overruled

108. Overruled

109. Overruled

110. Overruled

111. Overruled

112. Overruled

113. Overruled

114. Overruled

115. Overruled

116. Overruled

117. Overruled

118. Overruled

119. Overruled

120. Overruled

121. Overruled

122. Sustained

123. Overruled

124. Overruled

125. Overruled

126. Overruled

127. Overruled

128. Overruled

129. Overruled

130. Overruled

131. Overruled

132. Overruled

133. Overruled

134. Overruled

135. Overruled

136. Overruled

137. Overruled

138. Overruled

139. Overruled

140. Overruled

141. Overruled

142. Overruled

143. Overruled

144. Overruled

145. Overruled

146. Overruled

147. Overruled

148. Overruled

149. Overruled

150. Overruled

151. Overruled

152. Sustained

153. Sustained

154. Overruled

155. Overruled

156. Overruled

157. Overruled

158. Overruled

159. Overruled

160. Overruled

161. Overruled

162. Overruled

163. Overruled

164. Overruled

165. Overruled

166. Overruled

167. Overruled

LEGAL STANDARDS – MOTION FOR SUMMARY JUDGMENT/ADJUDICATION

DISCUSSION

“An action for an accounting has two elements: (1) that a relationship exists between the plaintiff and defendant that requires an accounting” and (2) “that some balance is due the plaintiff that can only be ascertained by an accounting.” (Sass v. Cohen (2020) 10 Cal.5th 861, 869.)

Plaintiff also seeks a declaration, “as to whether the non-compete provisions in the Employment Agreement are enforceable under California law given that Plaintiff was terminated without cause, and neither his shares nor the requisite salary have been paid him, as well as the other circumstances of the transaction which mitigate against enforceability of the provision.” (Complaint ¶ 55.)

1. DEFENDANTS’ EVIDENCE

Defendants contend that all four of Plaintiff’s claims fail because Plaintiff was terminated for cause, and therefore, there was no breach of contract and Plaintiff is not entitled to the relief requested. In support, Defendants have provided the following evidence:

Landec’s Acquisition and Stock Purchase Agreement

· In December 2018, Landec (through Apio) acquired Yucatan Foods, L.P., a guacamole maker, from Plaintiff and the other cross-defendants through a Capital Contribution Stock Purchase Agreement (“SPA”). (UMF No. 60.)

· The SPA held back certain consideration, including certain amounts in an “Indemnification Escrow” as security against indemnification obligations. (UMF No. 4.)

· Section 3(a) of the Escrow Agreement (Exhibit C to the SPA) provides, “The Escrow Agent shall release the Escrow Asset only in accordance with (i) any joint written instructions executed by both Equityholders’ Representative and Purchaser; or (ii) a written notification from Purchaser or Equityholders’ Representative of a final and non-appealable decision, order, judgment or decree of a court of competition jurisdiction or an arbitrator, which notification shall attach a copy of such final and non-appealable decision, order, judgment or decree (a “Final Order”).” (UMF No. 5.)

· Section 3(a) of the Holdback Agreement (Exhibit I to the SPA) states:

o “The Holdback Period shall commence on the date of this Holdback Agreement and (i) with respect to 50% of the Subject Shares held by each Holder, shall continue to and include November 30, 2021, and (ii) with respect to the remaining 50% of the Subject Shares held by each Holder, shall continue to and include November 30, 2022; provided, however, that the Holdback Period shall be subject to earlier termination with respect to:

(a) (x) 50% of the Subject Shares held by each Holder, effective on the date as of which Ardeshir Haerizadeh (“AH”) dies, is terminated by the Company due to a Disability, is terminated by the Company without Cause and/or resigns from the Company for Good Reason provided such date is prior to November 30, 2021 (the “AH Early Termination Trigger Date”), as each such capitalized term is defined in the Employment Agreement executed by and between AH and the Company on the Closing Date, and (y) the remaining 50% of the Subject Shares held by each Holder, effective on the one-year anniversary of the AH Early Termination Trigger Date;” (UMF No. 6.)

The Executive Employment Agreement

· As part of the acquisition, Landec hired Plaintiff as Vice President of Avocado Products pursuant to an Executive Employment Agreement. (UMF No. 61.)

· Paragraph 2 of Plaintiff’s Executive Employment Agreement provides: “The Company agrees to employ the Employee pursuant to the terms of this Agreement for a term of four (4) years commencing as of the Effective Date (the “Initial Term”). Thereafter, the term shall be automatically extended for terms of one (1) year each (each such term, a “Renewal Term”), unless the Board objects to such extension by delivering written notice to the Employee at least sixty (60) days prior to the expiration of the Initial Term or the applicable Renewal Term. The Employee’s employment may also be terminated by the Company with or without Cause or by the Employee for or without Good Reason, all as more fully described herein.” (UMF No. 15, emphasis added.)

· Paragraph 6(c)(ii)-(iii) of the Executive Employment Agreement defines “Cause” as including:

o “gross negligence in connection with the performance of the Employee’s responsibilities hereunder, material willful violation of any duty to the Company or any other material willful misconduct on the part of the Employee, provided the Employee shall have first received written notice from the Board stating the nature of such failure and, if curable, afforded the Employee at least fifteen (15) calendar days to correct the act or omission complained of” and

o “the Employee’s willful failure or refusal to perform the Employee’s duties hereunder, follow material Company policies or follow the lawful directives of the Board, provided the Employee shall have first received written notice from the Board stating the nature of such failure and, if curable, afforded the Employee at least fifteen (15) calendar days to correct the act or omission complained of[.]” (UMF No. 16.)

· Paragraph 7(d) of the Executive Employment Agreement provides that in the event of Company’s termination of Employee “other than for Cause,” Company shall pay Employee various enumerated items. (UMF No. 17.)

Landec’s Investigation of Plaintiff’s Misconduct

· In or around August 2019, Plaintiff requested information regarding indemnification amounts assessed that would reduce the amount of consideration Plaintiff and other cross-defendants would ultimately receive from held-back stock consideration, and Plaintiff also instructed employees to stop making payments to a vendor purportedly providing wastewater treatment services Yucatan’s guacamole production facility in Silao, Mexico (“Tanok.”) (UMF Nos. 3, 20-22.)

· Upon investigating, Landec discovered that when Plaintiff built Tanok, he knew it was illegal under Mexican law to discharge untreated wastewater into the nearby Silao river, but directed employees to do so anyway to save the cost of building a wastewater treatment plant (UMF Nos. 23-25.)

· Landec further discovered that since 2016, under Plaintiff’s direction, Tanok secured certifications from a wastewater management vendor in Mexico purporting to collect and dispose of its waste when Tanok was actually unlawfully discharging it into the nearby Silao River. (UMF No. 26.)

· Landec further discovered Plaintiff had specifically instructed Yucatan employees not to disclose details of the wastewater discharge to Landec during the due diligence and disclosure period of the acquisition. (UMF No. 27.)

· Landec also discovered that between June 2018 and August 2019, Tanok paid a wastewater management vendor to create false, backdated documents purporting to show that the vendor was collecting and transporting Tanok’s wastewater to a municipal sewage treatment facility. (UMF No. 32.)

· Plaintiff also arranged for Mexican government officials to be bribed to stamp and file the wastewater vendor’s false, backdated documents, and arranged for Mexican government officials to be bribed to prevent inspections of Tanok and expedite permits to allow Tanok to legally discharge its wastewater. (UMF No. 33-34.)

· Following Landec’s acquisition, Plaintiff continued to cover up the previous illegal conduct. (UMF No. 36.)

· In the spring of 2019, Plaintiff signed various financial certifications, misrepresenting that he had disclosed all relevant communications with suppliers and growers and liabilities, and was not aware of any fraud. (UMF Nos. 37-38.)

Landec’s Code of Business Conduct

· On December 17, 2018, Plaintiff signed Landec’s Code of Business Conduct (“Code”), certifying that he was “not aware of any violations of the Code as of the date of certification.” (UMF Nos. 18-19.)

· Section (i) of the Code provides, “Violations of this Code can lead to disciplinary action, including immediate discharge, for the persons involved.” and “Further, condoning or simply ignoring questionable business practices of others can affect you, your colleagues and Landec’s business and reputation. You are therefore responsible for reporting all violations, illegal activities and dishonest or questionable behavior of others of which you are aware.” (UMF No. 35, Ex. 3 at p. 224.)

· Section (A) of the Code provides:

o “Obeying the law overrides every other requirement of this Code. Your first consideration in any proposed action must be whether the action is legal. All employees must obey – in letter and spirit – the laws of the cities, states and countries where Landec operates.”

o “The Company’s policy is to deal honestly and fairly with government representatives and agents and to comply with valid, reasonable governmental requests and processes. Be truthful and straightforward in your dealings with governmental representatives and do not direct or encourage another Landec employee (or someone else) to provide false or misleading information to any government agent or representative. Do not direct or encourage anyone to destroy records relevant to a fact-finding process.” (UMF No. 35, Ex. 3 at p. 225.)

· Section (D) of the Code provides:

o “Government and Union Personnel. You may not give, offer, ask for or accept, directly or indirectly, any gift, gratuity or other business courtesy from or to any member of the judiciary, any federal, state or local government employee, any union representative or any representative of a regulator in connection with a commercial transaction or governmental matter involving Landec.” and

o “Bribes and Kickbacks. You may not offer or pay directly or indirectly any “bribe,” “kickback” or other payment of anything of value to any person for the purpose of inducing any favorable action in a commercial transaction or a governmental matter involving Landec.” (UMF No. 35, Ex. 3 at p. 227.)

· Section (F) of the Code provides, “Employees must never execute a document or otherwise commit the Company unless they have clear authority to do so.” (UMF No. 35, Ex. 3 at p. 227.)

· Section (G) of the Code provides:

o “Landec shall make and keep books, invoices, records and accounts that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company. Each employee shall maintain accurate and fair records of transactions, time reports, expense accounts, and other Company records. The Company shall devise and maintain a system of internal controls sufficient to provide reasonable assurances that transactions are properly authorized, executed, and recorded. No entries will be made that intentionally conceal or disguise the true nature of any Company transaction.”

o “Responsibility for compliance with this section does not rest solely with the Company’s accounting employees. All Company employees involved in approving transactions, supplying supporting documentation for transactions and determining account classification of transactions have responsibility for complying with the applicable provisions of this section.

No false or intentionally misleading entries shall be made in the Company’s accounting records. Intentional misclassification of transactions between accounts, between departments or between accounting periods is a violation of this Code. All transactions shall be supported by accurate documentation in reasonable detail, recorded in the proper account and recorded in the proper accounting time period. Compliance with Generally Accepted Accounting Principles (GAAP) and the Company’s systems of internal accounting controls is required at all times.”

o “The same high standards required in the Company’s financial reporting to shareholders, creditors, government entities and others outside the Company shall apply to reports to management. Intentional misstatement of data provided in such reports is a violation of this Code.”

o “All payments and all other dispositions of assets made by or on behalf of the Company must be described accurately and fairly and in reasonable detail in the Company’s accounting records and must be made only for the purpose described in the documents and records supporting the payment or other asset disposition. No payment or other asset disposition by or on behalf of the Company shall be made without supporting documentation. No undisclosed or unrecorded fund or asset of the Company shall be established or maintained for any purpose.” (UMF No. 35, Ex. 3 at pp. 227-228.)

· Section (K) of the Code provides, “In conducting its business, Landec is committed to compliance with all applicable laws and regulations relating to the protection of the environment, and in particular those governing the incineration, treatment, storage, disposal, and discharge of waste. Failure to comply with these laws and regulations, even if unintentional, could result in significant penalties for Landec. If an employee suspects that there is noncompliance or a violation of these laws and regulations, the circumstances should be reported immediately to his or her supervisor, Chief Financial Officer or consult the procedures described under “Administration of the Code”.” (UMF No. 35, Ex. 3 at p. 231.)

· Section (L) of the Code provides:

o “any employee having information or knowledge of any actual or contemplated action or omission which appears to violate this Code shall promptly report such information or knowledge to (i) his or her supervisor, (ii) the Company’s Chief Financial Officer, (iii) a member of the Company’s Audit Committee, or (iv) Landec’s employee complaint and whistleblower program.”

o “Any failure by an employee to report a Code violation in accordance with this Code section shall itself constitute a Code violation.”

o “Failure of any Company employee or officer to comply with this Code may result in disciplinary action which, depending on the circumstances of the matter, may include reprimand, probation, suspension, demotion, salary reduction, bonus elimination or reduction or dismissal. Disciplinary action will also apply to supervisors, managers and senior executives who, with respect to those employees reporting to them:

• know that conduct which is prohibited by this Code is contemplated by such employees and do nothing to prevent it; or

• know that conduct which is prohibited by this Code has been engaged in by such employees and fail to take appropriate corrective action. (UMF No. 35, Ex. 3 at pp. 232-234.)

· Defendants therefore contend that Plaintiff violated these sections of the Code as follows:

o Sections (i), (A), and (D) by failing to comply with the laws of the jurisdictions in which Landec operates, including the Foreign Corrupt Practices Act;

o Sections (i), (A), and (D) by causing bribes to be paid to foreign government officials;

o Sections (i) and (A) by providing false information and causing false information to be provided to government agencies;

o Sections (i), (F), and (L) by committing, or causing the commitment of Landec to financial obligations of third parties without authorization or compliance with Landec’s policies;

o Sections (i) and (G) by intentionally misrepresenting information provided to Company;

o Sections (i) and (L) by failing to report misconduct; and

o Sections (i), (K), and (L) by failing to comply with environmental laws and regulations and failing to report noncompliance.

Landec’s Written Notices to Plaintiff and Opportunity to Cure

· Landec took personnel action against Plaintiff, including placing Plaintiff on paid leave on or around October 15, 2019. (UMF No. 41.)

· On November 13, 2019, Landec disclosed Plaintiff’s misconduct at Tanok to the United States Securities and Exchange Commission and the Department of Justice. (UMF No. 45.)

· On November 19, 2019, Landec asked all employees, including Plaintiff, to collect and preserve electronic and hard copy documents relating to Yucatan and Tanok. (UMF No. 46.)

· From approximately January 10 through January 24, 2020, Landec asked Plaintiff to meet with its counsel to provide Plaintiff the opportunity to present his side of the story. (UMF Nos. 47-49.)

· Ultimately, Plaintiff refused to meet. (UMF NO. 50.)

· On January 24, 2020, Landec wrote to Plaintiff, “we are writing to direct you to meet with outside counsel, Manuel A. Abascal on Monday January 27, 2020 at 3 p.m. . . [sic] During the meetings, Mr. Abascal will be asking you questions regarding compliance matters at the Tanok facility, and we direct you to provide him with truthful information.” (UMF No. 52.)

· Plaintiff did not meet with Landec on January 27, 2020. (UMF No. 53.)

· On January 27, Landec wrote to Plaintiff, stating that

o Plaintiff’s failure to follow their lawful directive breached paragraph 6(c)(iii) of the Employment Agreement. (UMF No. 54.)

o Landec was giving Plaintiff the required chance to cure his failure to follow the lawful directive to meet with outside counsel by instructing him to meet on or before February 11, 2020. (UMF No. 55.)

o Landec was giving Plaintiff written notice of non-curable breaches of sections 6(c)(ii) and (iii) of the Employment Agreement, including (a) false documentation regarding environmental compliance and treatment of wastewater, (b) payments to government officials by third parties, and (c) illegal discharge of wastewater. (UMF No. 56.)

· Plaintiff did not meet with Landec on or before February 11, 2020. (UMF No. 57.)

· On February 11, 2020, Landec terminated Plaintiff’s employment for insubordination, breach of employment duties, and willful material misconduct and policy violations, in violation of sections 6(c)(ii) and (iii) of the Employment Agreement. (UMF No. 59.)

Thus, Defendants have met their initial burdens of production and persuasion as to all four issues.

With respect to Issues 1 and 3, Defendants have met their burdens of production and persuasion that Plaintiff’s inquiries about indemnity payments (which would reduce Plaintiff’s holdback shares) triggered an investigation which uncovered evidence that Plaintiff was involved in an illegal wastewater discharge and bribery scheme in Mexico, after which discovery they terminated Plaintiff for cause, in accordance with the procedures set forth in the Employment Agreement, and therefore, no additional sums are owed to Plaintiff pursuant to that agreement.

With respect to Issue 2, the Holdback Agreement restricts Plaintiff’s ability to transfer or pledge to transfer any of the held-back shares during the “holdback period.” (See Ex. 1 at p. 120.) However, the Holdback Agreement does not govern when the held-back shares shall be payable back to Plaintiff. That is governed by the Escrow Agreement, which provides, “The Escrow Agent shall release the Escrow Asset only in accordance with (i) any joint written instructions executed by both Equityholders’ Representative and Purchaser; or (ii) a written notification from Purchaser or Equityholders’ Representative of a final and non-appealable decision, order, judgment or decree of a court of competition jurisdiction or an arbitrator, which notification shall attach a copy of such final and non-appealable decision, order, judgment or decree (a “Final Order”).” (UMF No. 5.)

Yet there remains a dispute regarding the amount (if any) that is properly deducted from the held back shares in connection with the wastewater-related expenses. As such, the parties have not yet agreed to provide the escrow holder joint written instructions, nor is there a final and non-appealable decision, order, judgment, or decree, such that payment would be triggered. Therefore, Defendants have met their burdens of production and persuasion for Issue 2.

However, for the same reasons, Defendants have not met their burdens of production and persuasion on Issue 4. Plaintiff is still entitled to the held-back shares (less indemnity expenses, etc.) regardless of whether he was terminated with or without cause. Because the parties dispute what amounts (if any) are properly deducted from the held-back shares, an accounting is warranted.

Therefore, Defendants have met their burdens of production and persuasion for Issues 1, 2, and 3, but Defendants have not met their initial burdens regarding Issue 4.

2. PLAINTIFF’S EVIDENCE

Plaintiff has provided a declaration indicating:

· Landec knew in November 2018 (prior to the December 2018 acquisition) there were “risks” in the acquisition due to Yucatan’s “environmental liability” that required “corrective action.” (Haerizadeh Decl. ¶ 5 and Ex. 18.) As a result, Plaintiff was to be employed by Landec, but removed from any involvement in the corrective action process, any environmental decision-making, or any operation oversight of Tanok going forward, instead becoming VP of Avocado Products. (Haerizadeh Decl. ¶ 5 and Exs. 18.)[1]

· Plaintiff was not aware of the bribes to the water vendor, who Plaintiff had no personal communication with, and who was obtained at the advice of Yucatan’s Mexican counsel. (Haerizadeh Decl. ¶ 6.)

· Plaintiff was not involved with the bribes or false paperwork after the acquisition either, and the first Plaintiff heard about it was in August 2019, when he inquired what the large monthly payments were, and upon being told, immediately reported it to Landec’s CFO, Greg Skinner and Brandon Merlo. (Haerizadeh Decl. ¶ 7.)

· The Silao Department of Water (“SAPAS”) told Plaintiff that as long as Yucatan committed to building a wastewater treatment plant and purchased water from SAPAS to use in the Tanok facility, Yucatan could continue to discharge their wastewater. (Haerizadeh Decl. ¶ 8.)

· It should have been obvious to SAPAS that Tanok was discharging its wastewater in the river, because there was no corresponding sewage charge (“DRENAJE”) on its bill for the water to wash the avocados like there was on its bill for the water for its toilets and washing machines. (Haerizadeh Decl. ¶ 8 and Exs. 188-189.)

With respect to Issue 2, Plaintiff has not met his burden of production to create a triable issue of material fact. Plaintiff merely presents argument that Landec has not demonstrated any indemnity amounts that are properly deducted from the held back escrow funds. But as discussed above, the Holdback agreement does not require the release of stock to Plaintiff at the end of the Holdback Period, rather, it governs the restrictions on Plaintiff’s ability to pledge that stock for sale during the Holdback Period. The release of stock is governed by the Escrow Agreement, and there is no disputed issue of material fact that the conditions for the funds to be released have not yet been met. Therefore, the Court grants summary adjudication as to Issue 2.

With respect to Issues 1 and 3, Plaintiff’s evidence is sufficient to create a triable issue of material fact as to whether Plaintiff actually lied on disclosures to Landec, made bribes, or covered up the wrongdoing related to the wastewater discharge at Tanok.

However, Plaintiff has not produced any evidence refuting that Plaintiff failed to follow Landec’s directive to meet with them to tell his side of the story. Instead, Plaintiff argues this directive was not lawful or reasonable because (1) Plaintiff was not being treated as an employee at the time, by virtue of his administrative leave, and therefore was not bound by the policy at the time; (2) the meeting was being used to try to retaliate against Plaintiff for blowing the whistle on the illegal water bribes and to falsely report Plaintiff for the illegal conduct; and (3) because Landec was acting as an agent of the government, Plaintiff had the right not to speak to Landec’s special counsel.

Regarding Plaintiff’s first argument, there is no genuine dispute that Plaintiff was on administrative leave and was still employed at the time he was asked to meet with Landec. As for Plaintiff’s third argument, while Plaintiff had the right not to speak to Landec’s special counsel, he did not necessarily have the right to do that and keep his job, pursuant to the terms of the Employment Agreement.

Regarding Plaintiff’s second argument, however, Plaintiff has produced email evidence demonstrating Landec was aware of the wastewater issue in November 2018 (prior to the December 2018 acquisition). (Exs. 18; 95.) Further, Plaintiff has produced declaratory evidence showing that Plaintiff was the person who blew the whistle on the bribe payments and instructed Yucatan employees to stop making those bribe payments, shortly after which, Landec informed Plaintiff that the City of Silao suddenly approved Tanok’s request to discharge its wastewater into the river (an approval Plaintiff had attempted unsuccessfully to obtain for years). (Haerizadeh Dec. ¶¶ 15-21.) That same evidence calls into question the placement of Plaintiff on administrative leave and the reporting of Plaintiff to the SEC and the DOJ. (Haerizadeh Dec. ¶¶ 27-32.)

As such, Plaintiff has met his burden of production to create triable issues of material fact as to whether Plaintiff was involved in the unlawful bribery and cover-up schemes, and whether the meetings Landec requested with Plaintiff were lawful directives, or unlawful whistleblower retaliation tactics.

Therefore, the Court denies summary adjudication as to Issues 1 and 3.

CONCLUSION AND ORDER

Therefore, the Court grants in part and denies in part Defendants’ motion for summary adjudication. Finding no disputed issue of material fact that Landec’s failure to pay Plaintiff the holdback shares did not breach the Holdback Agreement, which merely restricts Plaintiff’s ability to divest those shares, the Court grants summary adjudication as to Issue 2.

Conversely, having found Defendants did not meet their initial burdens of production and persuasion that no holdback shares are due to warrant an accounting, the Court denies summary adjudication as to Issue 4.

Finding Plaintiff created triable issues of material fact as to whether Plaintiff was involved in the bribery and cover-up schemes and whether Defendants’ request to interview Plaintiff with its special counsel was a lawful request or an unlawful retaliation tactics, the Court denies summary adjudication as to Issues 1 and 3.

Because the Court denies summary adjudication as to Issues 1, 3 and 4, the Court also denies summary judgment.

Defendants shall provide notice of the Court’s ruling and file the notice with a proof of service regarding the same.

DATED: June 26, 2024 ___________________________

Michael E. Whitaker

Judge of the Superior Court

[1] Plaintiff also provides Exhibit 95, which is an email indicating that in November 2018, Landec knew, “it is almost certain [Yucatan is] violating discharge policies” by not having a water treatment system in place. However, Exhibit 95 is not authenticated and therefore holds no evidentiary value.

[1] “The concept of justiciability involves the intertwined criteria of ripeness and standing. Standing derives from the principle that every action must be prosecuted in the name of the real party in interest. A party lacks standing if it does not have an actual and substantial interest in, or would not be benefited or harmed by, the ultimate outcome of an action. Standing is a function not just of a party's stake in a case, but the degree of vigor or intensity with which the presents its arguments. Ripeness refers to the requirements of a current controversy. According to the Supreme Court, an action not founded upon an actual controversy between the parties to it, and brought for the purpose of securing a determination of a point of law will not be entertained. A controversy becomes ripe once it reaches, but has not passed, the point that the facts have sufficiently congealed to permit an intelligent and useful decision to be made.” (City of Santa Monica v. Stewart (2005) 126 Cal.App.4th 43, 59 [cleaned up].)