Judge William A. Crowfoot, Case Number: 20GDCV00922, Date: 2023-10-17 Tentative Ruling

Judge: William A. Crowfoot, Case: 20GDCV00922, Date: 2023-10-17 Tentative Ruling

On October 29, 2020, plaintiffs Topete CPA, LLP (“Topete CPA”) and Claudia Topete (“Ms. Topete”) (collectively, “Plaintiffs”) filed this action against defendants Avo Asdourian (“Mr. Asdourian”), Marlene Asdourian (“Ms. Asdourian”), and Archoog, Inc. (“Archoog”) (collectively, “Defendants”) relating to the purchase and sale of Virtual Tax Accountant (“VTA”). On December 10, 2020, Defendants filed a cross-complaint against Plaintiffs for breach of contract, non-payment of a promissory note, breach of the implied covenant of good faith and fair dealing, fraud, declaratory relief, breach of fiduciary duty, and unauthorized computer access and fraud.

Trial commenced on May 15, 2023. At the conclusion of trial, the jury found for Topete CPA on its breach of contract claim and awarded $584,000 plus interest of $58,400. The jury also awarded $200,000 to Plaintiffs on their fraud cause of action for Ms. Topete’s past and future noneconomic damages.

With respect to Defendants’ cross-complaint, the jury found against Defendants on their causes of action. Specifically, the jury found that Defendants were not harmed by Topete’s non-payment of a promissory note or its breach of contract. The jury also found that neither Avo Asdourian nor Marlene Asdourian were harmed by Ms. Topete’s access of their personal tax returns without their consent.

On September 18, 2023, Defendants filed this motion for judgment notwithstanding the verdict and motion for new trial.

The court must render judgment notwithstanding the verdict whenever a motion for a directed verdict for the aggrieved party should have been granted. (Code Civ. Proc., § 629.) “A motion for judgment notwithstanding the verdict may be granted only if it appears from the evidence, viewed in the light most favorable to the party securing the verdict, that there is no substantial evidence in support.” (Sweatman v. Department of Veterans Affairs (2001) 25 Cal.4th 62, 68.) All evidence supporting the verdict is presumed true, so the issue is whether the facts then constitute a prima facie case or defense as a matter of law. (Fountain Valley Chateau Blanc Homeowner's Ass’n v. Department of Veterans Affairs (1998) 67 Cal.App.4th 743, 750.) “The court may not weigh evidence, draw inferences contrary to the verdict, or assess the credibility of witnesses. The court must deny the motion if there is any substantial evidence to support the verdict.” (Begnal v. Canfield & Assocs., Inc. (2000) 78 Cal.App.4th 66, 72. “Substantial evidence is evidence of ponderable legal significance, evidence that is reasonable, credible and of solid value.” (Markow v. Rosner (2016) 3 Cal.App.5th 1027, 1045.) (Citations omitted.) A JNOV in favor of a defendant is proper “only where, disregarding conflicting evidence on behalf of the defendants and giving to plaintiff's evidence all the value to which it is legally entitled, therein indulging in every legitimate inference which may be drawn from that evidence, the result is a determination that there is no evidence of sufficient substantiality to support a verdict in favor of the plaintiff.” (See Reynolds v. Wilson (1958) 51 Cal.2d 94, 99.)

A motion for new trial is a creature of statute and the Court may grant a new trial only by conforming to the statutory procedures.¿ (Sanchez-Corea v. Bank of America (1985) 38 Cal.3d 892, 899-900.)¿ Further, under Article VI, section 13, of the California Constitution, no judgment shall be set aside or new trial granted unless, after an examination of the entire cause, including the evidence, the Court shall be of the opinion that the error complained of has resulted in a miscarriage of justice.¿ (In re Marriage of Steiner & Hosseini (2004) 117 Cal. App. 4th 519, 526.)¿ A verdict may be vacated and a new trial ordered due to irregularity in the proceedings that prevented a party from having a fair trial, insufficiency of the evidence to justify the verdict, or a verdict that is against law, among other grounds. (Code Civ. Proc., § 657(1), (6).) “A new trial shall not be granted upon the ground of insufficiency of the evidence to justify the verdict . . . unless after weighing the evidence the court is convinced from the entire record, including reasonable inferences therefrom, that the court or jury clearly should have reached a different verdict or decision.” (Code Civ. Proc., § 657.) When a new trial is granted, on all or part of the issues, the court shall specify the ground or grounds upon which it is granted and the court’s reason or reasons for granting the new trial upon each ground stated. (Ibid.)

Defendants argue that JNOV should be granted because there was no evidence to support the jury’s award of $584,000 in lost profits for Topete CPA’s breach of contract claim.

The Court finds there was substantial evidence from which the jury could have reasonably inferred Topete CPA’s lost profits. CACI 3903N states that to decide the amount of damages for lost profits, the jury must determine the gross amount the plaintiff would have received but for the defendant’s conduct and then subtract from that amount the expenses the plaintiff would have had if the defendant’s conduct had not occurred. CACI 3903N specifies that “[t]he amount of the lost profits need not be calculated with mathematical precision, but there must be a reasonable basis for computing the loss.” Here, Plaintiffs introduced evidence of their projected revenue and costs through their expert, Barbara Luna (“Dr. Luna”) and expenses. (Plaintiff’s Ex. J.)

Defendants argue that Plaintiffs’ expert, Barbara Luna (“Dr. Luna”), improperly calculated lost profits of $1.3 million over a five-year period because she: (1) assumed annual revenue of $455,000 for five years even though this amount was only contractually guaranteed for one year, and (2) did not evaluate what the revenue for the business would have been under Plaintiffs’ management, especially since Ms. Topete estimated that she lost $10,000 in client business due to being overwhelmed. However, the Court cannot conclude that Dr. Luna’s opinion lacks any reasonable basis which would render it inadmissible. In ruling on a motion for JNOV, the judge may not weigh the evidence or determine the credibility of the witnesses but must accept the evidence tending to support the verdict as true unless it is inherently incredible on its face. (Cooper v. Takeda Pharmaceuticals America, Inc. (2015) 239 Cal.App.4th 555, 592-593.) That Dr. Luna failed to consider Defendants’ claims that Ms. Topete was unable to run the business does not make her opinion inadmissible. That the jury did not award the entire amount of damages calculated by Dr. Luna indicates that it considered Dr. Luna’s testimony and information in the context of the other testimony provided at trial.

Accordingly, there is substantial evidence supporting the jury’s finding of lost profits.

Defendants argue that Plaintiffs’ fraud claim failed in three respects. First, Defendants argue that there was no substantial evidence that the tax return provided during the due diligence period was fraudulent. Second, Defendants claim there was no substantial evidence that Defendants concealed or misrepresented the fact that VTA performed tax resolution work. Third, Defendants contend there was no substantial evidence that they had any intention to compete with Plaintiffs when they sold her a lucrative and successful business. As further discussed below, the Court agrees with Defendants in all three respects and GRANTS Defendants’ motion for judgment notwithstanding the verdict on this cause of action.

Defendants claim that, at trial, Plaintiffs demonstrated that two versions of the first page of Archoog’s tax returns for 2018 existed, but failed to show that the page of the tax return provided during the due diligence period was false. (JNOV Motion, p. 6.) Defendants argue that Ms. Topete agreed that the $460,107 that was reported on the first page of the tax return that was provided to her during the due diligence period was accurate according to the bank reconciliation she performed. (Defs. Ex. E, at 74:5-8.) Defendants also point out that the first page of the subsequently found tax return was not accurate because Ms. Topete testified that the page of the tax return she later found reflected a high claimed cost of goods ($175,896), whereas Plaintiffs’ expert testified that the cost of goods sold reported on the 2018 profit and loss statement matched the amount reflected on page of the tax return provided to Ms. Topete during the diligence period. (Defs. Ex. G, 175:13-176:18.) Defendants additionally point out that the income on the page of the tax return they provided matches the amount in the account transcript from the Internal Revenue Service. (Defs. Exs. I, N.)

Plaintiffs stress that the tax return that Ms. Topete subsequently found was modified on September 9, 2019, during the due diligence period (because the asset purchase agreement was dated September 16, 2019). (Opp., pp. 4-5.) Plaintiffs argue that the first page of the later-discovered return reflected a profit that was substantially less than the amount on the tax return provided to her earlier in the diligence period. Plaintiffs argue that Defendants, as accountants and bookkeepers, could not have believed that both returns were accurate, and therefore must have known that the one they provided to Plaintiffs was inaccurate. (Opp., p. 5.)

Plaintiffs did not show that the page of the “found” tax return was ever filed or had any significance. The fact of its existence and the date of its modification, without more, is not substantial evidence that the return provided to Ms. Topete during the diligence period was falsified. (Defs.’ Ex. J)

Second, Defendants argue that Ms. Topete’s testimony shows that there was no fraud connected with the tax resolution work performed by VTA because she knew that VTA performed tax resolution work and specifically asked about the amount and nature of the work. Even though “tax resolution” was not listed as an income stream on the profit and loss statement, Ms. Topete testified on cross-examination that she knew $75,000-$80,000 of revenue performed in 2018 was from tax resolution work and testified that she was informed that $75,000 to $80,000 of revenue came from an audit handled for one client. (Defs. Ex. E, 98:18-25; 100:15-101:3.)

Plaintiffs argue that Defendants misrepresented the amount of tax resolution work performed by the business in the profit and loss statement because Ms. Topete did not expect to have to continue to do tax resolution work. (Opp., pp. 5-6.) However, Plaintiffs cite to no substantial evidence that there were any misrepresentations about the percentage of their business that involved tax resolution work. Their cited evidence shows that Ms. Topete was asked if she would have bought the business if she knew that $75,000-80,000 of the $400,000 expected revenue work came from tax resolution; she gave a qualified answer and stated, “If it came from offer and [sic] compromise, no.” But the tax resolution work was an audit, and the revenue came from a percentage of the audit savings; there is no evidence that the audit work involved an offer in compromise. (Pltfs. Ex. D, 100:19-101:3.) The fact that Ms. Topete misinterpreted the information she was given does not logically lead to the conclusion that Defendants made any misrepresentations that she could justifiably rely on.

Last, Defendants argue that Plaintiffs did not prove that they lied about their promise not to compete for five years. Defendants point out that Mr. Asdourian testified that when the contract was executed, he did not intend to do accounting work during the noncompete period. (Defs.’ Ex. E, 137:17-25; 143:4-9.)

Plaintiffs argue that a jury could reasonably infer that Defendants intentionally misrepresented their promise to not compete because they set up Atlas Business Management and were poaching clients in July 2020, less than a year after selling the business. Plaintiffs also emphasize that the Defendants could not define the list of family members which they claim to have given Ms. Topete, to show which clients they would continue to work for. (Pltfs. Ex. E, 33:18,-34; 19; 149:5-7, 180:2-26; 200:12-19.) The Court has reviewed all the citations to the exhibits provided by Plaintiffs and agrees with Defendants. While the evidence shows that Defendants competed with Plaintiff, the timing of their competitive conduct and their inability to identify the pre-negotiated clients they would continue to work for, is not substantial evidence – and does not lead to any reasonable inference – that the competition was intended at the time of the sale.

3. Defendants’ Claim for Non-Payment of Promissory Note and Breach of Contract

With respect to their cross-claims, Defendants argue that the record shows substantial evidence that they were harmed from Topete CPA’s breach of contract and lack of payment on the $60,000 promissory note. Defendants state that there is evidence from Dr. Luna that only $12,455 was paid, therefore, they are entitled to damages of at least $47,545. Defendants claim that the only reasonable explanation for why the jury did not award any damages is because the jury improperly applied an offset after Plaintiffs’ counsel stated that Dr. Luna had already “taken into account” the amounts Ms. Topete that would have owed. (JNOV Motion, pp. 11-12.) Defendants also argue that Dr. Luna’s revenue reconciliation shows that Defendants were owed at least $1,777, and thus Plaintiffs provided evidence of Defendants’ damages which should have been awarded. (Id.)

A motion for JNOV will not be granted if the verdict is so incomprehensible, contradictory or unintelligible that the jury's intent cannot be ascertained. (Mish v. Brockus (1950) 97 Cal.App.2d 770, 776.) Here, it is unclear why the jury failed to find that Defendants were not harmed, and whether it was because they determined that Plaintiffs were excused from performing or because they chose to set off Defendants’ damages from Topete CPA’s lost profits. Therefore, Defendants’ motion for JNOV on these claims is DENIED.

Defendants argue that there was substantial evidence that they were harmed when Ms. Topete accessed and disseminated their tax returns. Specifically, Mr. and Mrs. Asdourian testified only that they felt “really bad” and “not good” when they learned that Ms. Topete accessed their personal tax returns and shared them. Also, when asked if it “fe[lt] like a violation of [their] privacy” because their tax returns were accessed and disseminated, Defendants responded, “Yes.” (JNOV Motion, p. 13.) These vague and brief descriptions of negative emotions do not constitute substantial evidence that Mr. and Mrs. Asdourian suffered emotional distress and were harmed. Contrary to defense counsel’s arguments in closing, his clients did not testify that they were “shocked and surprised.” (Nagashima Reply Decl., Ex. 1.) Therefore, Defendants’ motion for JNOV on these claims is DENIED.

Defendants argue that a new trial should be granted because: (1) Plaintiffs’ counsel referred to Mr. and Mrs. Asdourian’s personal tax returns twice in her closing argument, (2) the damages awarded to Plaintiffs by the jury were excessive and unsupported, (3) the failure to award damages is unsupported by the evidence, (4) the jury’s finding of fraud against Defendants is not supported by the evidence.

The Court previously granted Defendants’ motion in limine to exclude evidence or reference to their personal tax returns. Defendants argue that Plaintiffs’ counsel twice engaged in prejudicial misconduct by alluding to Defendants’ personal tax returns and inviting the jury to speculate why they were not in evidence, even after the Court issued an admonishment after the first instance. (New Trial Motion, pp. 2-3.) Defendants claim that Plaintiffs’ counsel’s statements insinuated that Defendants were hiding documents.

The Court agrees that Plaintiffs’ counsel’s misconduct was prejudicial and affected the jury’s verdict on Plaintiffs’ fraud claim. Even though Plaintiffs argue that any reference to the personal tax returns were fleeting, amounting only to 6 lines in a closing argument of 20 pages, it is reasonably probable that Defendants would have obtained a more favorable result without the alleged misconduct. As discussed more thoroughly above, there was no substantial evidence that the jury could have otherwise relied on to reach their verdict against Defendants on the fraud claim. Given the scant evidence that the page of the later-discovered tax return had any significance, counsel’s remarks insinuated that Defendants were hiding documents or otherwise being dishonest; counsel also improperly suggested, without any basis, that the excluded evidence would reflect facts in Plaintiffs’ favor.

This was an extraordinarily sensitive and seriously litigated issue before trial and there is no possible way that Plaintiffs’ counsel could have thought that this was a mere throw-away line in a closing argument. Counsel knew that the Court had precluded mention of the Defendants’ personal tax returns in question because Plaintiffs’ counsel had failed through their own delay in discovery to seek copies of those tax returns. Plaintiffs’ counsel, did not, in fact have copies of those tax returns, and had no idea whatever about the contents of those returns.

2. Excessive Damages Awarded to Plaintiffs/Inadequate Damages Awarded to Defendants

As discussed more thoroughly above, the Court rejects Defendants’ characterizations of Dr. Luna’s report as speculative. In ruling on Defendants’ motion for new trial, which allows the Court to weigh the evidence in the record, the Court disagrees with Defendants’ contention that the award was excessive considering that Defendants did not provide their own damages calculations. Moreover, the jury’s decision to award $584,000 is not excessive, especially since Dr. Luna concluded that Topete CPA’s lost profits totaled $1.3 million.

Nevertheless, the Court agrees with Defendants that the lost profits awarded to Topete CPA are unsupported by the evidence insofar as they include an offset using Defendant’s damages. Defendants argue that inadequate damages were awarded for their breach of contract and nonpayment claims. The jury specifically found that Topete CPA failed to make all the monthly payments required of it under the promissory note and that Topete CPA breached the contract with Defendants, but also found that Defendants were not harmed by the nonpayment or breach. (Defs. Ex. A.) Defendants argue that the jury improperly collapsed Topete CPA and Defendants’ damages into a single figure at the urging of Plaintiffs’ counsel, instead of separately evaluating whether Defendants are entitled to any damages on their independent claims. (Defs.’ Ex. H, 23:14-27.)

In their moving papers, Defendants argue that they are entitled to a judgment of $47,545 in damages plus interest based on Ms. Topete’s testimony and Schedule 4 of Dr. Luna’s report. In their reply brief, Defendants argue that Schedule 1 of Dr. Luna’s report (Defs. Ex. L) shows that at the very least, they were owed $1,777 plus interest (for a total of $2,266). Based on Dr. Luna’s calculations, which took the timing of Defendants’ breach of contract into consideration, the Court finds that the jury should have awarded $1,777 in damages, plus interest, for a total of $2,266 to Defendants, instead of offsetting the amount from Topete CPA’s lost profits.

The Court thoroughly discussed the lack of substantial evidence supporting the jury’s verdict of fraud and, for the sake of judicial economy, will not repeat its analysis.

Defendants’ motion for JNOV is GRANTED in part and orders judgment notwithstanding the verdict in Defendants’ favor on Plaintiffs’ cause of action for intentional misrepresentation.

In the event that the JNOV is reversed on appeal, because of Plaintiffs’ counsel’s misconduct, Defendants’ motion for a new trial is GRANTED as to Plaintiffs’ cause of action for intentional misrepresentation.

Defendants’ motion for a new trial is otherwise DENIED on the condition that Topete CPA consents to a payment of $1,777 in damages, plus interest, for a total of $2,266, to Defendants, and Defendants consent to an additur of the same amount to Topete CPA. (Code Civ. Proc., §§ 662.5, 663.) If the parties reject this condition, the motion for a new trial is granted only as to the issue of damages on Topete CPA’s claim for breach of contract and Defendants’ claims for breach of contract and nonpayment of promissory note on the grounds that: (1) inadequate damages were awarded to Defendants and (2) the damages awarded in connection with Topete CPA’s breach of contract claim is unsupported.

William A. Crowfoot

Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the Court at ALHDEPT3@lacourt.org indicating intention to submit on the tentative as directed by the instructions provided on the court website at www.lacourt.org. Please be advised that if you submit on the tentative and elect not to appear at the hearing, the opposing party may nevertheless appear at the hearing and argue the matter. Unless you receive a submission from all other parties in the matter, you should assume that others might appear at the hearing to argue. If the Court does not receive emails from the parties indicating submission on this tentative ruling and there are no appearances at the hearing, the Court may, at its discretion, adopt the tentative as the final order or place the motion off calendar.