Brown v. Leckrone CA6 ( 2014 )

Filed 9/10/14 Brown v. Leckrone CA6
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH APPELLATE DISTRICT
CHESTER A. BROWN, JR., et al., H039389
(Santa Clara County
Plaintiffs and Appellants, Super. Ct. No. 1-09-CV-159452)
v.
DANIEL E. LECKRONE,
Defendant and Respondent.
Plaintiffs Chester and Marcie Brown appeal from a judgment after a bifurcated
trial in which the trial court determined that defendant and respondent Daniel Leckrone
was not the alter ego of his wholly owned company, Technology Properties Limited,
LLC (TPL). Plaintiffs contend that the trial court ignored substantial undisputed
evidence that supported a finding of alter ego liability. Plaintiffs further argue that they
should have been granted a new trial because (1) they had newly discovered evidence
supporting their alter ego theory; and (2) at trial the court had improperly accepted expert
testimony from a lay witness. As an additional ground for a new trial and for reversal of
the judgment plaintiffs contend that the court erroneously refused to impose sanctions on
defendants for their failure to produce documents during discovery. We find no basis for
reversal and must therefore affirm the judgment.
Background
Leckrone, an attorney, founded TPL in 1988 and was its chairman, chief executive
officer (CEO), and sole owner. His objective was to assist in developing technologies
1
and products by contributing funding in exchange for “rights to use the result.” Chester
A. Brown, Jr. (Brown) was at various times a consultant to and an employee of TPL, as
well as an investor in patent portfolios which TPL had the right to commercialize.
In 1999 Leckrone was seeking funding for the commercialization of a portfolio of
“Hearing Health Care” (HHC) patents. Brown and his wife, Marcie Brown, invested
$50,000 in the HHC portfolio, in exchange for one percent of the gross proceeds of any
licensing of the portfolio. Plaintiffs invested another $50,000 in 2000 and then again in
2001.
In 2003 Brown became a consultant to TPL, serving as Chief Operating Officer on
a project to commercialize the AsyncArray Devices (AAD) technology. The AAD entity
was later renamed IntellaSys Corporation (IntellaSys). By 2006 Brown was functioning
as the CEO of IntellaSys.
In August 2003 plaintiffs agreed to contribute another $25,000 for the HHC
portfolio. This time the consideration was 3.5 percent of the gross proceeds of the
licensing of both the HHC portfolio and another portfolio consisting of Moore
Microprocessor Patents, based on technology developed by Charles Moore and Russell
Fish. Leckrone drafted the resulting contract, the Assignment Agreement, which TPL
and both plaintiffs executed in early 2004, but which was backdated to August 4, 2003.
In February 2006 everyone associated with TPL, including Brown, became a TPL
employee. Later that year IntellaSys was merged into TPL.
Plaintiffs received payments from TPL under the Assignment Agreement through
May 10, 2007. When Brown inquired about the failure to make further payments, no one
denied that TPL owed him money. It was understood that TPL was unable to pay anyone
who was entitled to payment. According to Dwayne Hannah, TPL’s Chief Financial
Officer (CFO), by the end of the second quarter of 2009 TPL’s books showed that the
company owed plaintiffs $1.801 million.
2
On December 15, 2009, plaintiffs brought this action against both TPL and
Leckrone, primarily alleging breach of the Assignment Agreement. In November 2010
the court held a bench trial limited to interpretation of the “gross proceeds” and
modification terms of the Assignment Agreement, and in July 2011 it agreed with
plaintiffs’ interpretation.
Meanwhile, the superior court addressed a first amended cross-complaint TPL had
filed against plaintiffs. On September 27, 2011, the court issued an order granting in part
plaintiffs’ anti-SLAPP motion under Code of Civil Procedure section 425.16. This court
affirmed that order on July 1, 2013. (H037664.) TPL filed a second amended
cross-complaint on October 7, 2011.
The superior court bifurcated the causes of action against Leckrone, and the claims
against TPL were tried before a jury. On April 18, 2012 the jury found TPL liable for
breach of the Assignment Agreement and awarded plaintiffs $8,887,732.00. TPL
received nothing on its cross-complaint. After calculating prejudgment interest, costs,
and attorney fees, the court entered judgment for plaintiffs in the amount of
$10,129,741.77.
On May 7, 8, and 21, 2012, the court took up the remaining issue, whether
Leckrone could be held individually liable under an alter ego theory. On December 27,
2012, the court issued its statement of decision and judgment, finding that Leckrone was
not the alter ego of TPL. After their motions to vacate the judgment and for a new trial
were denied, plaintiffs brought this appeal.
Discussion
1. Substantial Evidence of Alter-Ego Liability
Plaintiffs first contend that the “undisputed, substantial evidence showed that Dan
Leckrone is the alter ego of TPL.” They mention the familiar substantial evidence rule,
which requires the appellate court to view all factual matters in the light most favorable
to the prevailing party and draw all reasonable inferences to uphold the verdict if
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possible. The reviewing court may not reweigh the evidence, redetermine the credibility
of the witnesses, or resolve conflicts in the testimony. (Munoz v. Olin (1979) 24 Cal.3d
629, 635-36; Associated Builders and Contractors, Inc. v. San Francisco Airports Com.
(1999) 21 Cal.4th 352, 374.)
“But this test is typically implicated when a defendant contends that the plaintiff
succeeded at trial in spite of insufficient evidence. In the case where the trier of fact has
expressly or implicitly concluded that the party with the burden of proof did not carry the
burden and that party appeals, it is misleading to characterize the failure-of-proof issue as
whether substantial evidence supports the judgment. This follows because such a
characterization is conceptually one that allows an attack on (1) the evidence supporting
the party who had no burden of proof, and (2) the trier of fact’s unassailable conclusion
that the party with the burden did not prove one or more elements of the case . . . . [¶]
Thus, where the issue on appeal turns on a failure of proof at trial, the question for a
reviewing court becomes whether the evidence compels a finding in favor of the
appellant as a matter of law. [Citations.] Specifically, the question becomes whether the
appellant’s evidence was (1) ‘uncontradicted and unimpeached’ and (2) ‘of such a
character and weight as to leave no room for a judicial determination that it was
insufficient to support a finding.’ ” (In re I.W. (2009) 180 Cal.App.4th 1517, 1528;
accord, Valero v. Board of Retirement of Tulare County Employees’ Retirement Assn.
(2012) 205 Cal.App.4th 960, 966.)
To the extent that plaintiffs’ argument revisits the trial evidence to show that
“substantial undisputed evidence” supports a finding of alter ego liability, we must apply
the principle articulated in In re I.W., quoted above. We will not indulge in a reweighing
of the evidence to determine whether we would have found the facts in plaintiffs’ favor.
On the other hand, to the extent that plaintiffs are contending that their alter-ego evidence
was uncontradicted, unimpeached, and “ ‘of such a character and weight as to leave no
room for a judicial determination that it was insufficient to support a finding,’ ” we
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address the issue to determine whether a judgment in plaintiffs’ favor was compelled as a
matter of law. (Ibid; see Roesch v. De Mota (1944) 24 Cal.2d 563, 571 [even if plaintiffs’
evidence was “uncontradicted and unimpeached . . . it would not necessarily follow that it
was of such a character and weight as to leave no room for a judicial determination that it
was insufficient to support a finding in favor of [plaintiffs]”].)
“ ‘Alter ego is a limited doctrine, invoked only where recognition of the corporate
form would work an injustice to a third person.’ [Citation.] ‘The essence of the alter ego
doctrine is that justice be done . . . . Thus the corporate form will be disregarded only in
narrowly defined circumstances and only when the ends of justice so require.’
[Citation.]” (Zoran Corp. v. Chen (2010) 185 Cal.App.4th 799, 810; see also Sonora
Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 539 [alter ego is “an
extreme remedy, sparingly used”].)
“The conditions under which the corporate entity may be disregarded, or the
corporation be regarded as the alter ego of the stockholders, necessarily vary according to
the circumstances in each case inasmuch as the doctrine is essentially an equitable one
and for that reason is particularly within the province of the trial court.” (Stark v. Coker
(1942) 20 Cal.2d 839, 846.) Nevertheless, courts have generally applied two
requirements for application of this doctrine: (1) that there be such unity of interest and
ownership that the separate personalities of the corporation and the individual no longer
exist and (2) that, if the acts are treated as those of the corporation alone, an inequitable
result will follow. (Misik v. D’Arco (2011) 197 Cal.App.4th 1065, 1072, citing Webber
v. Inland Empire Investments, Inc. (1999) 74 Cal.App.4th 884, 900; Automotriz Del Golfo
De California S. A. De C. V. v. Resnick (1957) 47 Cal.2d 792, 796.) “ ‘Both of these
requirements must be found to exist before the corporate existence will be disregarded,
and since this determination is primarily one for the trial court and is not a question of
law, the conclusion of the trier of fact will not be disturbed if it is supported by
substantial evidence.’ [Citation.]” (Misik v. D’Arco, supra, 197 Cal.App.4th at p. 1072.)
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Determining the first requirement for applying the alter ego doctrine—a
“sufficient unity of interest and ownership that the separate personalities of the individual
and the corporation no longer exist”— involves consideration of a variety of factors, none
of which is necessarily conclusive. (Misik v. D’Arco, supra, 197 Cal.App.4th at p. 1073;
Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.App.2d 825, 840
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(Associated Vendors).) The list, though extensive, is not exhaustive; “these enumerated
factors may be considered with others under the particular circumstances of each case.”
(Misik v. D’Arco, supra, 197 Cal.App.4th at p. 1073, citing Zoran Corp. v. Chen, supra,
185 Cal.App.4th at p. 812; Associated Vendors, supra, 210 Cal.App.2d at p. 840.)
1
Many of these were listed in Associated Vendors, supra, 210 Cal.App.2d at pp. 839-40:
“Commingling of funds and other assets, failure to segregate funds of the separate
entities, and the unauthorized diversion of corporate funds or assets to other than
corporate uses [citations]; the treatment by an individual of the assets of the corporation
as his own [citations] . . . the failure to maintain minutes or adequate corporate records,
and the confusion of the records of the separate entities [citations]; the identical equitable
ownership in the two entities; the identification of the equitable owners thereof with the
domination and control of the two entities; identification of the directors and officers of
the two entities in the responsible supervision and management; sole ownership of all of
the stock in a corporation by one individual or the members of a family [citations]; the
use of the same office or business location; the employment of the same employees
and/or attorney [citations]; the failure to adequately capitalize a corporation; the total
absence of corporate assets, and undercapitalization [citations]; the use of a corporation
as a mere shell, instrumentality or conduit for a single venture or the business of an
individual or another corporation [citations]; the concealment and misrepresentation of
the identity of the responsible ownership, management and financial interest, or
concealment of personal business activities [citations]; the disregard of legal formalities
and the failure to maintain arm’s length relationships among related entities [citations];
the use of the corporate entity to procure labor, services or merchandise for another
person or entity [citations]; the diversion of assets from a corporation by or to a
stockholder or other person or entity, to the detriment of creditors, or the manipulation of
assets and liabilities between entities so as to concentrate the assets in one and the
liabilities in another [citations]; the contracting with another with intent to avoid
performance by use of a corporate entity as a shield against personal liability, or the use
of a corporation as a subterfuge of illegal transactions [citations]; and the formation and
use of a corporation to transfer to it the existing liability of another person or entity.”
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Plaintiffs contend that “[s]ubstantial, undisputed evidence” demonstrated that “at
least ten” of these factors were present here, particularly the commingling of assets and
the disregard of corporate formalities. They first maintain that Leckrone commingled
TPL’s assets with his own, by directing TPL to pay him large amounts which were
recorded as payment to his adult children but which they had not authorized, and which
were made pursuant to unsigned contracts that had not been seen by Dwayne Hannah,
TPL’s CFO. In plaintiffs’ view, “[t]his transaction alone is the essence of commingling
funds, as Dan Leckrone simply treated TPL’s bank account as his personal bank
account.” Plaintiffs further emphasize the payments TPL made in order for Leckrone to
acquire three companies (OnSpec, Chipscale, and Indigita) and TPL’s payment of the
operating expenses of those companies along with those of Alliacense, also Leckrone’s
2
wholly owned company.
The evidence on this point, however, was not undisputed. Susan Anhalt,
Leckrone’s daughter and a TPL employee, not only served as vice president of TPL’s law
department, but also handled Leckrone’s personal bank accounts and his one investment
account. She testified that there had been no commingling of her father’s personal
accounts with any account of TPL or of any other “operating entity.” And Hannah
testified that when he joined TPL in September 2005 he instituted procedures to make
sure that the company was keeping its books and records in accordance with “accounting
policies.” He had never found a transfer of funds from TPL to Leckrone “for a purely
personal reason” or without a “proper, thorough explanation of the purpose for those
2
Hannah explained the function of Alliacense: “A. Alliacense is primarily the entity that
manages the [TPL] portfolio. They seek to gain value from the portfolio by analyzing
portfolio, technical analysis, [and] business analysis and they have a sales force which
works with entities that are using the technology. I mean they are the entity that really
drives the revenue for the company. . . . I mean without Alliacense there would be-- there
probably would not be any moneys coming into the organization.”
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funds”; and he had never found any indication that any of Leckrone’s family members
had improperly used TPL funds. Hannah was asked whether Leckrone had ever
commingled his personal funds with those of TPL, whether Leckrone had instructed him
to do anything in his job that he thought was improper, and whether Leckrone had
directed him to transfer money in an improper way or improperly account for a transfer
of money. Hannah answered “no” to questions about all of these circumstances.
As the trier of fact, the superior court was entitled to credit these witnesses’
testimony and consider it in determining the issue of commingling; it is not for us to
decide on appeal that we would have drawn a different conclusion on the evidence
presented. As discussed earlier, that substantial evidence supported plaintiffs’ position
does not mean that the verdict must be overturned, because this is a case in which
plaintiffs simply failed to meet their burden of proof at trial. Because we cannot say that
on this record the court below was compelled to find commingling of assets as a matter of
law, reversal is not warranted on this ground.
Plaintiffs devote a significant part of their appellate briefs to the argument that the
“unity of interest and ownership” condition was met by “undisputed evidence” that TPL
distributed “tens of millions of dollars to Dan Leckrone at a time when TPL was not able
to pay its debts, such as funds owed to the Browns.” According to plaintiffs, TPL thus
violated both its own corporate rules and sections 501 and 17254 of the Corporations
3
Code. The superior court acknowledged that “it can be presumed that Leckrone made
3
Corporations Code section 501 states, “Neither a corporation nor any of its subsidiaries
shall make any distribution to the corporation’s shareholders (Section 166) if the
corporation or the subsidiary making the distribution is, or as a result thereof would be,
likely to be unable to meet its liabilities (except those whose payment is otherwise
adequately provided for) as they mature.”
Before its repeal in 2013, former Corporations Code section 17254, subdivision (a),
the provision cited by plaintiffs, stated, “(a) No distribution shall be made if, after giving
effect to the distribution, either of the following occurs: [¶] (1) The limited liability
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the major decisions relating to the organization including distributions to himself,
assignees, operating companies and others.” The court viewed Leckrone’s ownership
and control as insufficient alone to deem him the alter ego of TPL. It also found no
evidence that the challenged distributions amounted to a violation of either the
Corporations Code or TPL’s own bylaws and operating agreement. Addressing the
distributions themselves, the court found that Leckrone’s family members who were
employed by TPL were not disproportionately compensated.
Distributions to Leckrone himself for acquisition and operating expenses of
companies he owned were also explained by the court. Those payments to purchase
OnSpec, Chipscale, and Indigita were made directly to the companies, with distributions
credited to Leckrone. It was significant to the court that TPL held exclusive licenses with
each of these companies; thus, all aspects of ownership and use were under TPL’s
control, though “naked legal title lies with an LLC owned by Leckrone.” The acquisition
of these licenses “was compl[e]mentary with [IntellaSys], the chip division of TPL
headed by Chester Brown [and was] commercially prudent and provided operational
flexibility. . . . At best [their acquisition] resulted in a gain to the company; at worst the
acquisition may have been a failure or, so far, unproductive but that simply leaves it as a
business judgment issue and not a misdirection of funds. Plaintiff[s] introduced no
evidence to suggest that the amounts actually paid for the patent rights owned by these
several companies was out of line or untoward regardless of distribution or ownership.”
Thus, the court saw no actionable conduct involving these licenses, even if Leckrone was
in charge of directing TPL to make the purchases.
company would not be able to pay its debts as they become due in the usual course of
business. [¶] (2) The limited liability company’s total assets would be less than the sum
of its total liabilities plus, unless the operating agreement provides otherwise, the amount
that would be needed, if the limited liability company were to be dissolved at the time of
the distribution, to satisfy the preferential rights of other members upon dissolution that
are superior to the rights of the member receiving the distribution.”
9
Likewise, the court found no evidence that TPL’s payments to Alliacense were
improper, whether they were payments under their service contract or loans made to
4
cover Alliacense’s operating expenses. We cannot impose on the judgment our
independent view of the evidence by reweighing the testimony and exhibits presented at
trial.
We reach the same conclusion regarding plaintiffs’ claim that distributions of at
least $3.2 million to Leckrone family members were improper, as they were made
without signed assignment contracts and at a time when TPL was experiencing a “ ‘cash
crisis’ ” in 2007 and 2008. In rejecting this contention the court apparently credited
Hannah’s testimony that he found no improper use or accounting of funds by Leckrone or
any of his family members. The court also heard, and apparently believed, Anhalt’s
testimony that she paid $154,000 in cash and stock for a percentage interest in the
disputed assignment contract. The court concluded that similar assignment contracts with
Leckrone’s other two children were, like Anhalt’s, “valid and enforceable” even though
5
none of the three was signed by the assignee.
In short, the trial court, after hearing several days of testimony and receiving
numerous exhibits into evidence, applied the Associated Vendors criteria and found that
plaintiffs had not shown a unity of interest and ownership between Leckrone and TPL.
The standard by which this court has reviewed the trial evidence does not permit us to
reweigh the testimony and exhibits and revisit conflicts in the evidence that the lower
4
Alliacense was paid 15 percent of licensing revenues plus additional amounts for
operating expenses. Alliacense also received financial assistance from TPL, which was
reflected as an obligation to TPL on Alliacense’s books. Hannah described some
payments that were accounted for as distributions to Leckrone and then a contribution by
him to Alliacense.
5
All three assignment contracts were dated January 5, 2003 and signed by Leckrone as
chairman of TPL. No assignee signatures were on the three documents.
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court resolved as trier of fact. In this case we cannot say that the evidence of unity of
interest and ownership was “ ‘of such a character and weight as to leave no room for a
judicial determination’ ” that Leckrone was not the alter ego of TPL. (In re I.W., supra,
180 Cal.App.4th at p. 1528.) Because plaintiffs failed to meet their burden of proof on
this prong of the alter ego test, it is unnecessary to address the trial court’s additional
finding that the evidence was “insufficient to establish . . . that an inequitable result
6
would occur if the acts in question were treated as those of TPL alone.”
2. Expert Testimony
In its statement of decision the court observed that the testimony of CFO Dwayne
7
Hannah, the only witness with “accounting expertise,” was uncontradicted, thus
demonstrating to the court that “strict accounting and financial policies were established
and followed consistent with generally accepted accounting principles.” One of the
grounds on which plaintiffs moved for a new trial was that the court had improperly
treated Hannah as an expert witness without his being designated and qualified as such.
In their motion plaintiffs contended that in a new trial they would produce the testimony
of their own experts, and they submitted those experts’ declarations, in which one stated
that “characterizing a payment of $2.2 million as a payment to Daniel E. Leckrone’s adult
children was inconsistent with the principles underlying Generally Accepted Accounting
Policies (GAAP).”
On appeal, plaintiffs assert error in the court’s refusal to grant a new trial “to allow
them to litigate fairly.” We examine this issue in accordance with the abuse-of-discretion
6
It is also unnecessary to address Leckrone’s assertion that, based on the evidence at
trial, plaintiffs are estopped to pursue alter ego liability against Leckrone.
7
Hannah held an MBA and was a certified public accountant. When he joined TPL he
tried to improve the accounting procedures so that the books and records were kept “in
accord with accounting policies.”
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standard of review. Addressing questions calling for lay opinion testimony, the Supreme
Court explained nearly 100 hundred years ago, “The true rule is simple and, so far as this
state is concerned, well established: to permit, or to refuse to permit, such questions is a
matter resting largely in the discretion of the trial court, which discretion will not here be
reviewed unless it is made plain that the court’s ruling in admitting the evidence has
worked an injury. Generally speaking, the admission of the [testimony] cannot work an
injury where a fair latitude upon cross-examination is allowed, for under such
cross-examination the facts are certain to be adduced. It will be found frequently that an
appellate tribunal upholds the rulings of the trial court in sustaining an objection to such
questions, but the cases are far less numerous where it has felt compelled to reverse the
inferior tribunal for permitting them.” (Nolan v. Nolan (1909) 155 Cal. 476, 480-481; see
Evid. Code, § 800 [lay opinion testimony must be rationally based on the perception of
the witness and helpful to a clear understanding of his testimony].)
Leckrone dismisses plaintiffs’ contention as meritless because plaintiffs
themselves “elicited the only testimony from Mr. Hannah on whether TPL complied with
generally accepted accounting principles.” That statement misrepresents the record. It is
true that plaintiffs’ counsel asked Hannah to explain his “understanding under generally
accepted accounting principles of what the term ‘contribution’ means.” But that question
was confined to the definition of a term contained in the Corporations Code, and it was
posed to Hannah after the witness had mentioned GAAP under questioning by defense
counsel. On that prior occasion Hannah was asked about the procedural changes he had
made when he took over the books and records of TPL in September 2005. Hannah
explained that he had found it necessary to “institute some policies to formalize certain
procedures within the finance accounting group . . . to make sure that we clearly kept the
books and records in accordance . . . with accounting policies.[Q]: Generally accepted
accounting principles, is that – [A.] Yes, that’s correct.”
12
This line of questioning, however, was not met with a timely objection by
plaintiffs. They did not complain about the witness’s “expert opinion” in relation to
GAAP until after both sides had submitted their posttrial briefs and after the court had
issued its tentative decision. Had they objected when GAAP was first mentioned in the
course of Hannah’s testimony, they could have requested an opportunity to present their
own rebuttal experts. In any event, whatever reliance the court placed on Hannah’s
opinion regarding GAAP was at most harmless error, because Hannah’s testimony in this
vein was confined to his efforts to “clean things up” in TPL’s books and records-- and
later, in response to questioning by plaintiffs’ counsel, his understanding of the term
“contribution.” In testifying that no impropriety had occurred with regard to improper
transfers, accounting, and personal use of funds, Hannah did not state that his opinion
was based on GAAP. Consequently, even if their objection was not forfeited, the
reference to GAAP was a relatively insignificant part of Hannah’s testimony. Moreover,
reopening the trial to present plaintiffs’ own experts would have permitted them to
introduce testimony on different subjects than those on which Hannah had been
questioned in relation to the GAAP. The court did not err in denying plaintiffs that
opportunity to belatedly introduce new evidence.
3. Newly Discovered Evidence
Another ground of plaintiffs’ January 2013 motion for new trial (and a
concomitant motion to vacate judgment) was their discovery that in July 2012, after the
close of the alter ego trial, TPL submitted a complaint to the Court of International Trade
for the United States International Trade Commission (ITC) which, according to
plaintiffs, demonstrated that Leckrone was the alter ego of TPL. In that verified pleading
TPL and two other complainants accused numerous companies of patent infringement.
13
One of the paragraphs stated that TPL had “teams of employees” for licensing and never
8
mentioned Alliacense.
Plaintiffs noted that this description represented TPL, rather than Alliacense, as
the entity that was “conducting TPL’ s licensing activities.” It assertedly contradicted
testimony by Leckrone’s son “Mac” Leckrone, president of Alliacense, that Alliacense
did the licensing for TPL and no longer relied on any of TPL’s employees for assistance.
In his opposition Leckrone pointed out that the identical allegations had been
made in a prior ITC complaint filed on August 24, 2011 and in another filed on March
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27, 2012. Consequently, Leckrone argued, this evidence was not newly discovered, nor
was it material within the meaning of the governing statute, Code of Civil Procedure
section 657. That provision permits the court to grant a new trial for newly discovered
evidence “material for the party making the application, which he could not, with
reasonable diligence, have discovered and produced at the trial.”
“Applications for new trials upon the ground of newly discovered evidence must
be looked upon with suspicion and disfavor, because the temptation to make a favorable
showing after having sustained a defeat is great. A party who relies upon that ground
must make a strong case, both in respect to diligence on his part in preparing for the trial,
and as to the truth and materiality of the newly discovered evidence, and that, too, by the
best evidence which can be obtained. If he fails in either respect, his motion must be
denied.” (Arnold v. Skaggs (1868) 35 Cal. 684, 688.) “[T]he party seeking relief has the
8
The complaint included the following statement: “TPL also employs teams of many
other specialists to: (a) procure products of potential licensees; (b) deconstruct and ‘tear
down’ products of potential licensees (including detailed photography of the products);
(c) analyze ‘tear down’ reports and prepare claim charts; (d) correspond with potential
licensees; ( e) make in-person presentations and negotiate licenses, and (f) ensure
licensee compliance with royalty and reporting obligations.”
9
Defense counsel advised the trial court that he had found copies of these publicly
available complaints by entering “tpl” and “itc” in a Google search.
14
burden to prove that he exercised reasonable diligence to discover and produce the
evidence at trial. If he does not make this showing, the motion must be denied.” (In re
Marriage of Liu (1987) 197 Cal.App.3d 143, 153-154; see also Slemons v. Paterson
(1939) 14 Cal.2d 612, 616 [“It is a matter of public interest that there be an end to
litigation and that a new trial should not be granted for the purpose of enabling a party to
produce further evidence unless he has shown some legally justifiable excuse for not
having produced such evidence at the former trial.”])
Even if we were to disagree with Leckrone that the evidence was immaterial, we
would not find reversal appropriate. A motion for new trial based on newly discovered
evidence is a matter within the trial court’s broad discretion, and its ruling on the motion
“will not be disturbed unless an abuse of discretion is clearly shown.” (Maloof v. Maloof
(1917) 175 Cal. 571, 574; Plancarte v. Guardsmark (2004) 118 Cal.App.4th 640,
645-46.) In this case, because the evidence was publicly accessible before trial on the
alter ego allegations, the superior court could have concluded tPhat with reasonable
diligence TPL’s representations to the ITC could have been discovered earlier and
produced at trial. Thus, on this record we cannot say that the court clearly abused its
discretion by denying plaintiffs’ motion.
4. Discovery Sanctions
Plaintiffs further challenge the trial court’s denial of their request for a new trial
and sanctions against Leckrone based on TPL’s failure to produce certain documents
during discovery. For example, plaintiffs had requested contracts between TPL and
companies in which Leckrone had a financial or ownership interest. On May 4, 2012, the
Friday before the alter ego portion of the trial, TPL belatedly produced an “Agreement
and Plan or Merger between Dan Leckrone, TPL, Oban Acquisition Corp. and OnSpec
Electronic, Inc.” The first day of the alter ego portion of the trial, plaintiffs moved for
15
10
“terminating sanctions or issue preclusion sanctions” against Leckrone. In opposition
to the sanctions motion Susan Anhalt, Leckrone’s daughter and TPL’s attorney, declared
that “TPL’s only involvement in the agreement was to provide representations and
warranties and guarantee to the OnSpec selling shareholders.” Anhalt also stated that
“the OnSpec Merger Agreement was well known to Mr. Brown as early as April 2006.”
In the ITC pleading, however, TPL alleged that it had “participated in the
acquisition of OnSpec in April 2006.” Plaintiffs highlighted this statement in their
motion for new trial, claiming that it contradicted their statements in opposition to the
sanctions motion. Plaintiffs take the same position on appeal. Had TPL produced the
agreement before the discovery cutoff on December 29, 2011, plaintiffs “could have
retained an expert witness to discuss the way in which the OnSpec agreement was further
evidence of commingling of Dan Leckrone’s and TPL’s funds.” Plaintiffs thus contend
that the court erred in denying its motion for discovery sanctions.
Like an order denying a new trial, an order denying sanctions for discovery abuse
is within the court’s broad discretion. (Cf. Colgate-Palmolive Co. v. Franchise Tax Bd.
(1992) 10 Cal.App.4th 1768, 1788 aff’d sub nom. Barclays Bank PLC v. Franchise Tax
Bd. of California (1994) 512 U.S. 298.) “An abuse of discretion occurs only where it is
shown that the trial court exceeded the bounds of reason. [Citation.] It is a deferential
standard of review that requires us to uphold the trial court’s determination, even if we
disagree with it, so long as it is reasonable.” (Stull v. Sparrow (2001) 92 Cal.App.4th
860, 864.)
We cannot find such abuse here. This case is not comparable to Sherman v.
Kinetic Concepts, Inc. (1998) 67 Cal.App.4th 1152, 1163, on which plaintiffs rely. There
10
On June 13, 2012, by stipulation of the parties, the court reset the hearing on the
sanctions motion to August 3, 2012. Leckrone’s written opposition and plaintiffs’ reply
were filed on July 23 and 27, 2012, respectively.
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the trial court denied the motion for sanctions in the belief that it was not authorized to
grant relief after the conclusion of the trial; consequently, it did not consider the merits of
the request. Given the multiple instances of the defendant’s admitted deception and
intentional concealment of material evidence during discovery, the appellate court held
that the lower court “should have reached the merits and found monetary sanctions
absolutely mandated.” (Id. at p. 1163, italics omitted.) In this case, the trial court could
have determined that TPL and Leckrone had not engaged in a material abuse of the
discovery process because TPL’s opposition to the sanctions motion had not “directly
contradicted” the ITC filing. In the ITC pleading TPL claimed only that it “participated”
in the acquisition of OnSpec, which the court could have found was consistent with its
more detailed assertion that it provided “certain representations and warranties and a
guarantee to the selling shareholders of OnSpec.” An abuse of discretion is not clearly
evident in this instance.
Our conclusion is the same with respect to Exhibit 1583, a summary of TPL’s
distributions to various recipients (including plaintiffs and Leckrone) between July 2004
and February 2012. During discovery plaintiffs had requested all documents “that
discuss, refer, or relate to any distributions” from TPL to Leckrone. On December 19,
2011, the trial court ordered TPL and Leckrone to provide documents responsive to this
and other document requests. Only on May 7, 2012, the first day of the alter ego trial, did
TPL provide plaintiffs a copy of Exhibit 1583. During Hannah’s testimony the court
admitted Exhibit 1583 over plaintiffs’ objection. Plaintiffs’ motion for “terminating
sanctions or issue preclusion sanctions” asserted that the failure to provide this and other
documents was a willful act of disobeying the court’s order and justified a finding that
Leckrone was the alter ego of TPL.
On appeal, plaintiffs contend that the denial of their sanctions motion was
prejudicial error, because Exhibit 1583 was “a summary of other documents that TPL
never produced. Had TPL produced Trial Exhibit 1583 and the underlying support, the
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Browns would have been able to examine witnesses on this key issue of the tens of
millions of dollars that TPL diverted to Dan Leckrone.” Defendants established,
however, that the challenged exhibit could not have been produced during discovery,
because it was a document prepared by Hannah on May 2, 2012, at the direction of
defense counsel. This fact, derived from Hannah’s declaration in opposition to the
motion, suggested an absence of bad faith or willfulness and thus constituted a sufficient
ground for the trial court’s implied finding that the requested sanctions were not
warranted. (Cf. Bookout v. State ex rel. Dept. of Transportation (2010) 186 Cal.App.4th
1478, 1485 [no abuse of discretion in refusing to impose discovery sanctions where
failure to produce documents was not in bad faith.])
5. Motion for Judicial Notice
Plaintiffs have moved in this court for judicial notice of two documents filed in the
United States Bankruptcy Court, TPL’s “Summary of Schedules” and its “Summary of
Financial Status,” in order to provide further evidence of the following facts. First,
plaintiffs contend that the Summary of Schedules demonstrates that TPL concealed the
entire OnSpec agreement, which showed that, contrary to Anhalt’s declaration, “TPL not
only paid for and guaranteed the personal purchase by [Leckrone], but . . . also provided a
security interest in TPL’s assets for the purchase.” Plaintiffs specifically seek “to show
that the On[S]pec selling shareholders have filed a claim for that debt as one secured by
TPL’s assets, and that TPL has not disputed that debt. This information is further
evidence of Respondent’s commingling.” Second, plaintiffs contend, the Summary of
Schedules lists claims made by Leckrone’s adult children, thus contradicting Leckrone’s
argument that TPL’s payments of $3.2 million to Leckrone under alleged contracts with
the children were valid and enforceable. In plaintiffs’ view, these claims, which are
listed in the schedule as “disputed,” reveal the transactions as fraudulent. The Summary
of Schedules also lists Leckrone’s own claim for $3,845,000, which TPL has not
disputed. According to plaintiffs, “this security interest shows that [Leckrone] has placed
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his debts above the debts of other unsecured creditors, including . . . Appellants, and thus
this document is further evidence of the inequity that results if the Court fails to find that
Respondent is the alter ego of TPL.”
Finally, the Summary of Schedules lists an undisputed claim of Alliacense of only
$1,708,641. The schedule did not list the debt of $15 million that Hannah had testified
was owed to TPL by Alliacense. Plaintiffs cite this discrepancy as “further evidence that
Respondent has commingled funds by instructing TPL to pay Alliacense tens of millions
of dollars without a signed, written contract and by paying $15 million in operating
expenses listed as a debt that mysteriously disappeared after the alter ego trial.”
We will take judicial notice of the existence of those pleadings in the Bankruptcy
Court (Evid. Code, § 452, subd. (d)(2)), but we decline to take new evidence on appeal in
the form of the facts stated or suggested in those documents. It is beyond question that
“[t]he truth of any factual matters that might be deduced from official records is not the
proper subject of judicial notice.” (Lockley v. Law Office of Cantrell, Green, Pekich,
Cruz & McCort (2001) 91 Cal.App.4th 875, 885.) That statement is all the more
applicable to statements made by debtors in bankruptcy. “The circumstances under
which an appellate court can receive new evidence after judgment . . . are very
rare. . . The power to take evidence in the Court of Appeal is never used where there is
conflicting evidence in the record and substantial evidence supports the trial court’s
findings. [Citations.] Plainly the above-described evidence does not meet these tests.”
(Philippine Export & Foreign Loan Guarantee Corp. v. Chuidian (1990) 218 Cal.App.3d
1058, 1090.)
In summary, the trial court performed its duty as factfinder in determining that
plaintiffs had not met their burden to prove Leckrone’s status as alter ego of TPL.
Whether this court would have reached the same conclusion is immaterial, because the
established standard of review does not permit us to reweigh the evidence presented at
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trial. We further find no abuse of discretion in the court’s rulings on plaintiffs’ motions
for new trial and discovery sanctions. Reversal is not required.
Disposition
The judgment is affirmed.
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_________________________________
ELIA, J.
WE CONCUR:
_______________________________
RUSHING, P. J.
_______________________________
PREMO, J.