Judge David J. Cowan, Case Number: BC657947, Date: 2023-05-03 Tentative Ruling

TENTATIVE RULING ON SUGGESTION BY ODS FOR RECONSIDERATION OF ORDER DENYING SUMMARY ADJUDICATION OF CROSS-COMPLAINT

O’Neil Digital Solutions, et al. v. James Lucanish, and related cross-complaint, Case No. BC 657947

By this ruling, the Court considers the suggestion of ODS that the Court on its own motion reconsider an order of the previously assigned judge denying summary adjudication of certain causes of action in the first amended cross-complaint (“FACC”). That prior order appears to have relied on contentions that it now appears may be contrary to the evidence and rulings at a subsequent bifurcated bench trial of certain accounting issues. For the reasons stated below, the Court will hold a hearing on reconsideration of only those rulings on the motion for summary adjudication that are directly implicated by what was decided at the bench trial. In this way, the upcoming jury trial as to the remaining issues will only proceed as to matters where there is still a triable issue of fact. The Court is not now deciding whether the prior rulings are erroneous in view of these subsequent circumstances – which will be explored separately.

On August 16, 2017, Lucanish filed the FACC, alleging a first cause of action for wrongful termination in violation of public policy, a second cause of action for breach of contract, third cause of action for breach of the implied covenant of good faith and fair dealing, fourth cause of action for promissory estoppel, fifth cause of action for Labor Code sec. 203 penalties, sixth cause of action for retaliation in violation of public policy, seventh cause of action for an accounting and eighth cause of action for wrongful termination in breach of an oral employment contract.

On May 18, 2021, Judge Duffy-Lewis granted the motion for summary adjudication of the fourth cause of action of the FACC and denied the motion as to the first, second, third, fifth, seventh and eighth causes of action of the FACC.

In ruling on the first and sixth causes of action, the Court found that ODS had met its burden of proof on the motion but that Lucanish “provides this evidence of the discrepancies in accounting,” thereby creating triable issues of fact.

In ruling on the second and third causes of action, the Court found that ODS “meets the burden of showing that it did not breach the MIA. Lucanish provides evidence and argument that the MIA was breached when he was not properly paid and then terminated.”

In ruling on the fifth cause of action, the Court found that ODS met its burden of proof that it “did not violate the Labor Code and they paid Plaintiff properly. Lucanish provides sufficient evidence to support his argument that he was not paid what he should have been paid.”

In ruling on the eighth cause of action, the Court found “Lucanish presents evidence from which a jury could reasonably infer that his lengthy history of work and repeated assurances by both William and Scott that Lucanish could remain at the company until retirement created an implied contract that was breached when he was terminated.”

On May 15, 2023, the Court dismissed Lucanish’s seventh cause of action in the FACC for an accounting, at his request.

On December 11, 2023, the Court filed its Final Ruling on cross-motions for judgment related to the net profits phase of trial. The Court granted ODS’ motion for judgment that Lucanish had not established his claims based upon alleged irregularities in ODS’ financial statements.

“…Lucanish did not prove ODS was reducing its statements to lower the BOI for purposes of the accounting issues in the FACC to be decided in this part of trial. For example, the Court heard no evidence at all related to purported improper freight charges for shipping to customers over and above actual costs (that was the underlying cause for the earlier phase of trial concerning alleged spoliation of that evidence), nor concerning any of the other specific claims alleged in the FACC, including that ODS had changed the way it determined net profits to thereby reduce bonuses.

[Fn. 16: Lucanish argued at the hearing that it did not put on evidence of these issues at trial because of the Court’s ruling as to spoliation. However, the spoliation ruling concerned solely that issue. It did not address allegedly false freight charges. At the end of the day, Lucanish never established and indeed gave up on his claims that ODS’ calculation of net profits was in error.]

What the Court did hear about at trial – related to allocation of rental amounts as between related companies – Lucanish did not ultimately choose to pursue. ODS is entitled to a judgment in its favor as concerns its statement of net profits…. By finding the amount of net profits, the Court is necessarily determining that Lucanish did not establish any irregularities (whether in the amount of $10 million (as alleged in the FACC) or in a lesser amount) in connection with how ODS determined its BOI… While Lucanish may still be able to argue, as he contends, that he had concerns about ODS’ numbers, by the same token, ODS will be able to argue that those concerns proved unfounded as the Court has determined ODS’ numbers were correct.

[Fn. 17]: .…[T]he Court seeks input from the parties at the next FSC concerning what the competing claims will now be on ODS’ complaint and Lucanish’s FACC in the jury trial. The parties’ trial briefs addressed issues that may no longer be at issue or at least may now be put differently, including that any breach of an employment agreement by ODS was based on any intent to pay Lucanish less than it should have by way of having wrongfully changed its NOI. While Lucanish may still be able to technically make that claim, he would face a court determination that ODS had not erroneously reduced its NOI, as alleged in his FACC. A judgment granted under sec. 631.8(c) “operates as an adjudication upon the merits.”…As the Court understands it, when Judge Duffy-Lewis heard the motion for summary judgment, she found certain facts to be in dispute. The Court seeks input of the parties as to how this ruling now makes this case amenable to another summary judgment motion.”

adjudication of the net profits phase of trial to schedule a jury trial of the balance of the remaining issues. The Court set the jury trial to start on August 19, 2024. The Court also ordered briefing on whether the court should reconsider the order denying the summary adjudication motion. If at a hearing on February 29, 2024 the Court found there was good cause for reconsideration, there would then be further briefing on whether the order denying the summary adjudication motion should stand.

On January 10, 2024, the Court also filed its Final Statement of Decision (“SOD”) on the net profits phase of trial, adopting its Tentative SOD filed December 19, 2024 (that in turn was based in part upon the above-referenced Final Ruling on the motions for judgment.)

On January 26, 2024, ODS filed its statement “suggesting” that the Court reconsider the interim order denying the summary adjudication in that the Final SOD establishes that the facts that Lucanish offered in opposition to the summary adjudication motion to indicate there was a triable issue have now been determined after trial to be without basis. Specifically:

- As to the first cause of action, that there was no violation of any “public policy” where only Lucanish’s employment was at issue and that in any event Lucanish cannot have had “reasonably based suspicions of illegal activity,” nor ODS have reason to retaliate (for purposes of the sixth cause of action), where there no accounting irregularities nor therefore any “well established” basis for suspicion or “nexus” between his termination and ODS’ accounting of its net profits. Finally, that Lucanish having accepted ODS’ accounting is a waiver of or inconsistent with any continuing claim to wrongdoing as to ODS’ accounting.

- As to the second cause of action, Lucanish will not be able to establish any right under the Milestone Incentive Agreement (“MIA”) to a bonus premised upon anticipated changes to net profits based upon an accounting containing alleged irregularities given the trial determined those irregularities did not exist. Specifically, the order denying the motion cannot stand where it was premised upon expert testimony of Jamie Holmes who ultimately did not testify at trial and whose opinion is therefore not now relevant. Similarly, testimony of Lucanish would no longer be material where he also elected not to testify and instead accepted ODS’ accounting.

- As to the third cause of action, the elements for breach of the implied covenant are identical to those for breach of the MIA and therefore Lucanish will not be able to establish the condition precedent for this either.

- As to the fifth cause of action, based on the timing and amount of Lucanish’s last paycheck, he will not be able to establish that ODS “willfully” did not pay him what it should have where the trial established that ODS overpaid Lucanish, not underpaid him, and that there was no delay in payment after his last day or if so, it was not in bad faith.

- As to the sixth cause of action, asserting liability based upon alleged termination of Lucanish for his requesting an accounting, is not possible where the Court found that there were no irregularities in ODS’s statement of its net profits. Lucanish was not vindicating any public policy that could give rise as a matter of law to any Tameny claim, or the interests of other employees to a bonus where their bonus was based upon different considerations than those for Lucanish.

- As to the eighth cause of action, for an alleged oral agreement by ODS that it would employ Lucanish until he was seventy-five years old – fourteen years later – that Lucanish would not be able to establish there would be such continuing agreement where he admitted at trial to certain events related to starting another company that would have given ODS cause to terminate him in June 2016 had he advised it of such actions which he acknowledged he had not.

On February 16, 2024, Lucanish filed his responsive statement. In summary, he contends:

- The scope of the bench trial did not reach the issues decided on the motion for summary adjudication.

- The bench trial did not address whether Lucanish was involved in starting a business in competition with ODS – that might excuse ODS’ termination of Lucanish.

- To the extent ODS’ statement seeks a determination of the legal effect of the bench trial on the remaining issues, is a request for an adjudication and or dismissal, these are beyond what this court permitted to be briefed and are procedurally improper.

- What the Court did permit contemplated two phases: first, whether there was “good cause” for reconsideration and if so, second, further briefing as to whether there were triable issues to warrant denial of the motion.

- Since ODS did not argue before either (a) that the termination was not in violation of public policy or (b) as to the effect of Lucanish’s alleged role in starting a competing business, it may not do so now by way of seeking reconsideration. Lucanish would not have addressed what ODS did not then raise.

- Even if Lucanish was mistaken about the 2015 and 2016 profits, that would not mean his suspicions were not reasonable. The bench trial did not address what Lucanish’s state of mind was at the relevant time. Further, where the Deloitte audit was not completed until seven months after Lucanish’s alleged termination, it would have been impossible for him to have then known whether his beliefs were valid.

- ODS has not shown how the summary adjudication analysis would be different now than it was then.

- Even if Lucanish did not meet target goals under the MIA in 2015 and 2016 based on the operating income statements, that does not mean he would not in later years – that were not within the scope of the bench trial. Relatedly, even if admittedly Lucanish cannot rely on Holmes’ analysis for 2016, he can do so for later years.

- ODS’ arguments pertaining to the causes of action for breach of the implied covenant and for retaliation are no different than its arguments based on breach of written contract.

- Even if Lucanish cannot show a Labor Code violation for what Lucanish then received based on operating income, he can still argue that what he received was not timely.

- The oral promises made to Lucanish were not at issue in the bench trial and therefore reconsideration of the order denying summary adjudication of the cause of action for breach of an oral contract would be improper.

A trial court retains the inherent authority to change its decision at any time prior to entry of judgment. CCP sec. 1008 does not govern the court’s ability, on its own motion, to reevaluate its own interim rulings. The only requirement of the court is that it exercise “due consideration” before modifying, amending or revoking its prior orders.” (Darling, Hall & Rae v. Kritt (1999) 75 Cal.App.4^th 1148, 1156-1157)

Consistent therewith, the Calif. Supreme Court ruled that reconsideration of a prior

ruling may be made in response to a party’s “suggestion.” (Le Francois v. Goel (2005) 35 Cal.4^th 1094, 1108-1109)[1] Further, the Court concluded:

“Unless the requirements of section 437c, subdivision (f)(2), or 1008 are satisfied, any action to reconsider a prior interim order must formally begin with the court on its own motion. To be fair to the parties, if the court is seriously concerned that one of its prior interim rulings might have been erroneous, and thus that it might want to reconsider that ruling on its own motion—something we think will happen rather rarely—it should inform the parties of this concern, solicit briefing, and hold a hearing. (Citations omitted) Then, and only then, would a party be expected to respond to another party's suggestion that the court should reconsider a previous ruling. This procedure provides a reasonable balance between the conflicting goals of limiting repetitive litigation and permitting a court to correct its own erroneous interim orders.” (Id.)[2]

Lucanish argues, however, in reliance on IRMO Oliverez (2015) 238 Cal.App.4^th 1242, 1248 that one bench officer may not permissibly reconsider another bench officer’s decision. While as a general proposition this is obviously correct, that does not tell the whole story: As Lucanish notes, one of the narrow exceptions to this rule is “when the judge has considered further evidence and law.” Id. Here, the Court would not presume to find Judge Duffy-Lewis’ order was erroneous or second guess what she considered; the issue here is rather whether with the further evidence this court has received from the bench trial, that was not then available to her, and the rulings ensuing therefrom, whether those subsequent circumstances give rise to a finding that the court could any longer stand on that earlier interim ruling.

Hence, ODS’ action here in making this “suggestion” is proper given the Court’s own earlier concern set forth in its above-referenced December 11, 2023 ruling and as discussed at the January 10, 2024 status conference. In turn, the court follows the procedure outlined in Le Francois, supra, where prior to reconsideration, the Court invites briefing from the parties and holds a hearing – as it will do here on February 29, 2024.

Therefore, Lucanish is correct that what the Court permitted contemplated two phases: first, whether there was “good cause” for reconsideration and if so, second, further briefing as to whether there were still triable issues to warrant denial of the motion. The Court now addresses solely the first of those phases. Whether the order denying summary adjudication is erroneous remains to be seen.

The Court will reconsider the order on these causes of action for wrongful termination in violation of public policy and for retaliatory termination. The FACC reflects that these causes of action are both premised on alleged improprieties by ODS in its accounting. Though Lucanish argues the scope of the bench trial did not reach the issues decided on the motion for summary adjudication, this ignores that in determining what the operating income was for ODS in 2015 and 2016, the Court did consider and ultimately rejected his claims that ODS was engaged in improprieties in connection with its financial statements, as set forth above. Therefore, where it appears Judge Duffy-Lewis denied the motion expressly based on alleged improprieties by ODS in this regard, as noted above, the contentions that served as the basis for that decision may no longer be applicable and potentially lead to a different conclusion.

The Court recognizes that even if Lucanish was mistaken about the 2015 and 2016 profits, that might not necessarily mean his suspicions were not reasonable – and it is the latter that is crucial for these causes of action. In determining reasonableness, on the one hand, it is without dispute that the bench trial did not address what Lucanish’s state of mind was at the relevant time; on the other hand, however, there still is a question whether Lucanish’s suspicion is determined by his subjective state of mind or an objective test. ODS cites in this regard, Orange Co. Water Dist. v. The Arnold Engineering Co. (2018) 31 Cal.App.5^th 96, 116. This can be explored further in Phase two of this process.

Similarly, the parties should address whether the Deloitte audit not having been completed until seven months after Lucanish’s alleged termination is material.

Finally, as Lucanish acknowledges, at least as to analysis provided for 2015 and 2016, any declaration provided by Jamie Holmes asserting inconsistencies may no longer be a basis for denial of the motion: Lucanish elected not to call Holmes as a witness at the bench trial. The Court determined there were no improprieties, notwithstanding what Holmes may have stated in opposition to the summary adjudication motion. On the other hand, as Lucanish argues also, Holmes’ opinions as to later years may still be relevant where the bench trial did not address income during those years. The Court may need to hear whether Holmes’ opinions as to later years depend on opinions he gave as to 2015 and 2016.

The Court will not, however, reconsider the order on the basis that the termination was not in violation of “public policy.” According to Lucanish, this issue was not raised previously, nor was it the subject of the bench trial nor an issue on which the Court ruled. For the same reasons, the Court will not reconsider the order in view of the testimony at the bench trial concerning starting up a business in competition with ODS.

The Court will reconsider the order on these causes of action for breach of the MIA and its implied covenant of good faith and fair dealing. These causes of action appear to turn on similar issues to the first and sixth causes of action.

Though Lucanish appears to acknowledge that he did not meet target goals under the MIA in 2015 and 2016 based on the operating income statements, it is not clear to what extent this would or would not interfere with his claims as to later years – that again were not within the scope of the bench trial. The parties should address this issue in Phase 2.

The Court will not reconsider the order on this cause of action for penalties based on violation of Labor Code section 203. This cause of action concerns both the amount paid to Lucanish on separation, as well as with respect to its timing. Though the findings in the bench trial concerned the amount of operating income – which would dictate what Lucanish received – there was no evidence or findings concerning when payment should have been made or if not on time, whether that was willful or in bad faith. Hence, even were the Court to reconsider any finding implicit in the order denying the motion concerning the amount, this would still not entirely dispose of the cause of action.

The Court will not reconsider the order on this cause of action for breach of an oral agreement. That alleged agreement was not the subject of the bench trial nor an issue on which the Court ruled. To the extent there may have been relevant evidence introduced at the bench trial on this subject – concerning whether Lucanish was involved in trying to set up a business in competition with ODS that would excuse ODs terminating any agreement - the Court still reaches the same conclusion: Where the subject of the bench trial did not concern this alleged agreement, there may well have been other evidence introduced concerning this matter. Hence, use of this limited testimony is an insufficient basis to now serve as a basis for reconsideration.

For these reasons, at ODS’ suggestion, the Court finds there is good cause for the Court on its own motion to reconsider the order denying summary adjudication of the first, second, third and sixth causes of action in the FACC. In doing so, the Court will hear why the motion should be granted based only on evidence, rulings and or findings from the bench trial and then only to the extent the basis for granting the motion was raised previously. Nothing herein is intended to infer that the Court will grant the underlying motion. To date, the Court has not reviewed the papers filed in connection with that motion. The Court will not reconsider the order denying summary adjudication of the fifth and eighth causes of action in the FACC. The Court also denies the other requests of ODS that are beyond the scope of what the Court permitted.

ODS shall file a brief by March 14, 2024 as to why the Court should now grant the motion for summary adjudication as to the above-referenced causes of action. Lucanish shall file a brief by March 28, 2024 as to why the order denying the summary adjudication motion as to these causes of action should stand. The Court shall hold a hearing on its motion for reconsideration of the order denying the motion as to these causes of action on April 4, 2024 at 8:30 a.m.

[1] Though there was a new judge assigned in Le Francois, like here, the Court declined to opine on when a judge may revisit a ruling of another judge as the issue was not raised. (35 Cal.4^th at 097, n. 2)

[2] Here, in the alternative, ODS would have grounds to itself move for reconsideration under CCP sec. 1008(b) based on the new facts and circumstances arising from the subsequent bench trial.