Assn. for L.A. Deputy Sheriffs v. Macias

Filed 4/30/21
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
ASSOCIATION FOR LOS B295086
ANGELES DEPUTY
SHERIFFS, (Los Angeles County
Super. Ct. No. BC540789)
Plaintiff and Appellant,
v.
ARMANDO MACIAS et al.,
Defendants and Appellants.
APPEALS from a judgment and a postjudgment order of
the Superior Court of Los Angeles County. Victor E. Chavez,
Judge. Judgment amended and affirmed as amended;
postjudgment order reversed and remanded.
Coleman Frost, James M. Kilkowski, Tristan F.
Mackprang; Benedon & Serlin, Gerald M. Serlin and Judith E.
Posner for Plaintiff and Appellant.
Law Office of Donald R. Hall and Donald R. Hall for
Defendants and Appellants.
__________________________
SUMMARY
In 2014, the Association for Los Angeles Deputy Sheriffs
(ALADS) sued Armando Macias and John Nance (collectively,
defendants) for breaches of their fiduciary duty to ALADS as
members of its board of directors. The breaches of fiduciary duty
occurred after the board removed Mr. Macias as a director and
president of ALADS, on the ground he was not qualified under
the bylaws to be a director (a requirement for holding an
executive office). Defendants refused to accept Mr. Macias’s
removal, taking what they now downplay as merely “ill-advised”
steps to contest the removal and remain in charge. These
included informing the staff Mr. Macias was still president;
obtaining a cashier’s check for $100,000 from a political action
committee (PAC) account of ALADS to retain a law firm;
purporting to conduct board meetings without a quorum; and so
on, causing great disruption in ALADS’s management.
ALADS obtained a temporary restraining order requiring
return of the $100,000, and several weeks later a preliminary
injunction preventing Mr. Macias from claiming to be a director.
Four years later, the case was tried to the court over seven days
in May 2018. ALADS sought several categories of damages
caused by defendants’ disruption of ALADS’s management,
including $7.8 million in compensation for its members, based on
a 140-day delay in negotiating a new memorandum of
understanding (MOU) with Los Angeles County. ALADS offered
lay and expert testimony to prove the $7.8 million of lost salary it
sought to recover on behalf of its members. That evidence was
admitted without objection from defendants. Defendants then
asserted in closing arguments, for the first time in the four-year
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course of this litigation, that ALADS lacked standing to recover
monetary damages on behalf of its members.
The trial court entered judgment for ALADS, awarding
damages sustained by ALADS and a permanent injunction, but
found ALADS did not have standing to recover monetary
compensation for its members. After the judgment was entered,
ALADS sought cost-of-proof sanctions (Code Civ. Proc.,
§ 2033.420) from defendants. The court denied the motion.
Both parties appealed. We conclude the trial court did not
err in its conclusion defendants breached their fiduciary duties to
ALADS, or in its award of damages for harm to ALADS (except in
one very minor respect), or in its award of a permanent
injunction. The court did err, however, when it concluded
ALADS did not have standing to seek the $7.8 million in damages
on behalf of its members. ALADS proved those damages without
objection from defendants and had standing to do so. We further
conclude ALADS was entitled to cost-of-proof sanctions.
Accordingly, we amend the judgment to include the
$7.8 million in damages to ALADS’s members, affirm the
judgment as amended, and remand the matter to the trial court
to determine the appropriate amount of cost-of-proof sanctions.
FACTS
1. The Background and the Parties
ALADS is a nonprofit mutual benefit corporation that
represents employees of the county sheriff’s department and the
bureau of investigations in the district attorney’s office. Among
other things, ALADS represents its more than 7,000 members in
contract negotiations that culminate in MOU’s governing wages,
hours, and other conditions of employment for its members.
3
ALADS has a seven-member board of directors elected by
its voting members. The board in turn selects ALADS’s officers
from among the board members.
The bylaws specify the qualifications necessary for a voting
member to be eligible for election as a director. Section 6.05
provides that any voting member “who is a unit representative in
good standing, and has attended 75% of the unit representative
meetings for the two (2) years immediately preceding the
election, is eligible to be elected” as a director. (The parties refer
to this as the 75 percent rule.) A director holds office for a two-
year term. Section 6.07 specifies that directors “shall be eligible
for re-election provided they continue to meet the qualifications
required by Section 6.05.”
Section 6.09 provides that a quorum “shall consist of
four (4) Directors,” and that “no business shall be considered by
the Board at any meeting at which a quorum . . . is not present.”
Section 6.12 governs the removal of directors. Section 6.12
provides in part that the board “may declare vacant the office of a
Director . . . (vi) if he/she fails or ceases to meet the qualifications
of a Director set forth in Section 6.05 in effect at the beginning of
that Director’s current term of office.”
Defendant Macias was re-elected to the board of directors
in November 2013, along with Don Jeffrey Steck and Floyd
Hayhurst. Defendant Nance was elected for the first time. The
other directors (Mark Divis, George Hofstetter, and Joseph
McCleary) were continuing their staggered terms.
Mr. Hofstetter, as it turned out, had not complied with the
75 percent rule, having attended only 69 percent of unit
representative meetings during the relevant period.
4
The board selected Mr. Macias as president of ALADS,
Mr. Nance as vice president, Mr. Hayhurst as secretary, and
Mr. Steck as treasurer. Mr. Hayhurst retired from his
employment in January 2014, but remained on the board.
Whether Mr. Hayhurst was allowed to remain on the board was a
point of contention in the trial court but was not raised as an
issue on appeal.
In early 2014, four of ALADS’s unit representatives, all of
them detectives in the sheriff’s department, became dissatisfied
with Mr. Macias’s leadership as ALADS’s president. They
investigated his qualifications as a director, hoping to find a
reason for his removal as director, and consequently as president.
They found one. They discovered from attendance records for
unit representative meetings that Mr. Macias had attended only
42 percent of the meetings during the two years preceding his
reelection to the board. On or around March 5, 2014, they
brought this information to the attention of the board and
demanded Mr. Macias be removed as a director and president.
After seeking legal advice from an attorney with expertise
in corporate law about whether Mr. Macias could properly be
removed under the bylaws, the board convened a duly noticed
special meeting to consider Mr. Macias’s removal on March 7,
2014. The board voted to remove him based on his failure to
qualify as a director, holding two votes. The first vote, taken
when Mr. Macias had left the meeting, was 4 to 2 in favor of
removal (Mr. Nance and Mr. McCleary opposing removal). The
second, taken with Mr. Macias voting, was 4 to 3.
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2. Post-removal Events: The Board and the Shadow
Board
Mr. Macias did not challenge his removal by seeking
arbitration as permitted by the bylaws or by initiating a legal
action. But he did not go quietly.
Defendants sought the advice of an attorney, Steven Ipsen,
who was a former deputy district attorney and whose expertise
was criminal law. Then, on March 12, 2014, Mr. Nance, who was
acting president, convened a board meeting. He read a statement
asserting the March 7 vote to remove Mr. Macias was invalid and
Mr. Macias was still a director and president. Mr. Macias
entered the room and announced he was president. Immediately
after that board meeting, defendants convened a staff meeting
and told the staff Mr. Macias was still on the board and still in
charge. Mr. Hayhurst tried to apologize to the staff for the
conflict among the directors, but defendants “started yelling over
the top of [Mr. Hayhurst], sort of to drown him out, and saying he
doesn’t belong here, that kind of thing.”
Two days later, on March 14, 2014, four board members
(Messrs. Steck, Hayhurst, Hofstetter and Divis) voted to select
Mr. Steck as acting president, and three of them (Mr. Hayhurst
abstaining) voted to appoint Travis Kelly to fill the vacant board
position.
Also on March 14, a law firm acting for defendants (the
Baute firm) sent a letter addressed to “Fellow ALADS Board
Members, Members and Employees.” (Defendants retained the
firm without authority from the board and by improperly gaining
access to ALADS funds, as described below.)
The Baute letter said ALADS had retained the firm to
ensure compliance with ALADS’s bylaws; a “renegade Board
6
member, Floyd Hayhurst,” had called the March 14 board
meeting without proper notice; defendants would “remain in their
respective positions” as duly elected board members and officers;
and any board member or officer “who attempts to implement any
sort of contrived decision undertaken by Floyd Hayhurst” would
“be held fully accountable for any and all misconduct, to the
fullest extent of the law.” The Baute letter also said
Mr. Hayhurst had retired from his position as a deputy sheriff on
January 30, 2014, and “has no voting rights vis-à-vis the election
or removal of a Director.”
On March 20, 2014, defendants convened a meeting at
which the only directors or purported directors present were
defendants and Mr. McCleary. Acting without a quorum, they
purported to elect Scott Frayer as a director. Then the four of
them took “a variety of other actions,” including hiring Steven
Ipsen’s firm.
Defendants continued their efforts to maintain what the
parties now refer to as a “shadow board,” and started an
alternative website that showed defendants, Mr. McCleary and
Scott Frayer as directors. There was “a lot of chatter among the
ALADS members about what was going on,” expressing concerns
“[t]hat without clear authority to outsiders as to who the true
board was, that ALADS wouldn’t get any respect and we wouldn’t
be able to accomplish anything, which was what our main goal
was, and that was representing its members.”
On March 25, 2014, Mr. Ipsen wrote to the sheriff’s
department, claiming to be ALADS’s general counsel and acting
on behalf of ALADS. Among many other things, Mr. Ipsen
recited allegedly “ultra vires” and unlawful actions taken by the
board in removing Mr. Macias and warned the department not to
7
interfere with the internal business of the union. Among other
demands, Mr. Ipsen demanded no change be made in
Mr. Macias’s “release time” status. (Under “release time”
provisions, ALADS reimburses the county for certain officers’
salaries, allowing them to work full-time as officers of ALADS.)
The letter shows carbon copies to a raft of county, state, and
federal officials.
3. Post-removal Events: the $100,000 Retainer
Meanwhile, on March 17, 2014, defendants began their
efforts to obtain $100,000 from ALADS’s bank accounts to use as
a retainer for the Baute firm. They went to the ALADS office of
Maria Cecilia Silvestre, ALADS’s accountant, who was in charge
of issuing checks. They closed the door of the small office,
blocking it, and told her they wanted a $100,000 check payable to
the Baute firm. Ms. Silvestre told them board authorization and
an approved contract were required for a check of that size.
Mr. Macias continued demanding the check. Ms. Silvestre felt
scared and intimidated and thought she was going to lose her job
if she did not give them what they wanted. She “couldn’t think of
any other way to make them leave my office,” so she offered them
a blank check on ALADS’s operating account on the condition
they would get approval from the acting executive director, John
Rees, whose office was a few steps away. They promised they
would do so but they did not.
After defendants left her office, Ms. Silvestre went to
Mr. Rees’s office and told him what had happened. Mr. Rees sent
defendants an e-mail advising that board approval was required
for an ALADS president to obligate association funds over $1,000,
and that expenditures must be for legitimate association
purposes. ALADS issued a stop payment on the check, which had
8
been filled out and endorsed by defendants, and the check was
not paid by the bank.
The next day, Mr. Macias and attorney Ipsen went to
Ms. Silvestre’s office, saying they wanted the signature cards for
all of ALADS’s Wells Fargo accounts. She refused and told them
to go to Mr. Rees. Mr. Ipsen said “that we shouldn’t involve
Mr. John Rees.” After they left her office, Ms. Silvestre was
trembling, nauseous, and worried about losing her job. She went
home early and did not return to work for the next two days. She
felt sick and her doctor advised her not to go to work “for a couple
of days, at least.”
After leaving Ms. Silvestre’s office, defendants went to
Wells Fargo, and Mr. Nance withdrew $100,000 from one of
ALADS’s accounts—its state PAC account. With those funds,
defendants obtained a cashier’s check payable to the Baute firm,
and the check was processed that day. There was no board
resolution authorizing withdrawal of the funds, and the check
was not signed by ALADS’s treasurer, as required by its bylaws.
When ALADS discovered the withdrawal, it demanded the funds
be returned, but they were not returned.
4. This Lawsuit
On March 27, 2014, ALADS filed this lawsuit against
defendants, alleging causes of action for breach of fiduciary duty,
fraud, constructive fraud, conversion, and declaratory relief.
On April 2, 2014, the trial court entered a temporary
restraining order that, among other things, required defendants
immediately to cause the Baute firm to return the $100,000 to
the ALADS PAC account. The Baute firm returned the funds the
next day.
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On May 6, 2014, the trial court granted a preliminary
injunction. The order prevented defendants from accessing any
funds belonging to ALADS and from taking any action with
respect to ALADS affairs without approval of the board
(consisting of Messrs. Steck, Hayhurst, Nance, McCleary,
Hofstetter, Divis and Kelly); and enjoined Mr. Macias from
entering ALADS’s headquarters and from claiming to be a
director.
The case went to a seven-day court trial four years later, in
May 2018. The trial included Mr. Nance’s cross-complaint for
indemnity under the bylaws for his costs and attorney fees
incurred in defending the action.
ALADS presented evidence establishing the facts we have
described, as well as evidence of damages caused by defendants’
breaches of fiduciary duty. The most substantial damages claim
was for $7.8 million in lost salary increases due to the disruption
defendants caused to ALADS’s operations, which in turn delayed
its negotiation of a new MOU with the county. Defendants had
never contended ALADS could not recover monetary damages on
behalf of its members and did not object to ALADS’s lay and
expert evidence to prove these damages. In closing argument,
defendants contended for the first time that ALADS did not have
standing to assert the claims of its members for the delay in the
pay raise.
On June 8, 2018, after receiving posttrial briefs, the trial
court issued a minute order. The court concluded ALADS had
standing, proved liability and causation with respect to the
damages for the delay in negotiation, and could recover all the
other items of damages ALADS itself had incurred. The court
ordered ALADS to file a computation of damages, and later ruled
10
that defendants had not identified any defects in the
computation.
Both parties requested a statement of decision, the court
ordered ALADS to prepare it, and ALADS did so. Defendants
filed objections, including that an association does not have
standing to assert a claim for money damages on behalf of its
members, and that ALADS could recover damages only for harm
to itself.
On November 13, 2018, the court sustained defendants’
objection to ALADS’s recovery of the $7.8 million in damages to
its members, concluding that an association has standing to sue
on behalf of its members only if it brings a class action, and
ALADS had not done so. The court deleted paragraphs from the
proposed statement of decision in support of the $7.8 million
damages award and reduced the award in favor of ALADS to
$75,190.98.
The court entered judgment for ALADS the same day on all
causes of action, in the amount of $75,190.98, plus postjudgment
interest. The judgment decreed that Mr. Macias was properly
removed, and that neither defendant was entitled to
indemnification under the bylaws. Both defendants were
enjoined from representing they are officers or directors of
ALADS, from entering the ALADS offices, and from accessing
any financial accounts held by or for the benefit of ALADS.
On January 9 and 10, 2019, both ALADS and defendants
filed timely appeals from the judgment.
Before the appeals were filed, on December 4, 2018, ALADS
filed a motion for costs of proof under Code of Civil Procedure
section 2033.420. ALADS had served defendants with requests
for admissions in May 2014. ALADS sought costs of proof based
11
on defendants’ failure to admit, in their responses served in 2015,
the truth of basic matters. Most of the requests related to the
$100,000 withdrawal, and Mr. Macias also failed to admit the
genuineness of the bylaws, the $100,000 Wells Fargo withdrawal
slip, and the cashier’s check.
The trial court denied the motion, and ALADS filed an
appeal from that postjudgment order. We consolidated the two
appeals. We will address ALADS’s appeal first, as it presents the
most significant issue, whether ALADS has standing to recover
the $7.8 million in lost salary on behalf of its members.
DISCUSSION
1. ALADS’s Appeal
We begin by highlighting what is not in dispute in ALADS’s
appeal. Defendants do not contend on appeal there was no
substantial evidence to support a finding that ALADS’s members
sustained $7.8 million in damages. As we summarized above,
after hearing the evidence and arguments at trial, the court
initially made findings of fact in support of a judgment for
ALADS including the $7.8 million to compensate its members.
The court found in its proposed statement of decision that
ALADS was about to begin preparations for negotiating a new
MOU with the county before Mr. Macias’s removal. The trial
court initially found ALADS proved the following.
Will Aitchison, John Rees, and Derek Hsieh (ALADS’s
then-current executive director) “testified credibly that
[defendants’] breaches of their fiduciary duties disrupted ALADS’
ability to prepare for and engage in those negotiations, causing a
delay of at least six months in the signing of a new MOU. The
net result of Defendants’ breaches of their fiduciary duty was
that ALADS’ members lost increases in salary and benefits for
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six months. Among other things, [defendants’] actions and the
very public letters sent by their attorneys on March 14, 2014 and
March 25, 2014 challenging the validity of ALADS’ Board’s
authority created confusion among ALADS’ own staff, made it
difficult to recruit a new executive director to head the
negotiation process, and disrupted ALADS’ relationships with the
other parties in the negotiation process . . . .”
Mr. Aitchison, Mr. Rees and Mr. Hsieh “all testified that
the same increase in salary benefits ultimately obtained by
ALADS . . . could have been obtained six months earlier if
ALADS’ operations had not been disrupted by [defendants’]
conduct in breach of their fiduciary duties.” The court
summarized the testimony of ALADS’s forensic economist, Ted
Vavoulis, stating “Mr. Vavoulis calculated the amount of salary
that ALADS’ members ultimately lost as a result of the delay in
negotiations caused by [defendants]. Based on a detailed
analysis of the salaries of each of ALADS’ members, Mr. Vavoulis
calculated the aggregate loss to ALADS’ 7,440 members at
$55,813.00 per day, which represents the differential between
their salaries under the new MOU and the prior MOU.” While
Mr. Aitchison testified the delay was at least six months,
“Mr. Vavoulis conservatively calculated the damages caused by a
140-day delay. The total damages suffered by ALADS’ members
during the 140-day delay . . . is $7,813,833.00.”
With the testimony of Mr. Vavoulis, ALADS established the
exact amount of the damages its members incurred in lost salary
increases. ALADS’s proof did not require any member’s
participation. In its posttrial minute order, following closing
briefs and preceding the proposed statement of decision, the court
observed that ALADS supported its claim for damages by offering
13
expert evidence calculating the losses, and defendants made no
contrary showing. Defendants never objected to the expert’s
testimony or to the documentation he presented.
After issuing its proposed statement of decision, as we have
described, the court was persuaded by defendants’ late claim that
ALADS lacked standing to recover damages on behalf of its
members. The trial court concluded an association has standing
to sue on behalf of its members only if it acts as a class
representative. Since ALADS did not bring a class action, the
court concluded it did not have the right to bring a claim for loss
of the $7.8 million in salary benefits to its members. In this
respect, the court erred. The class action analysis the court used
is not the proper test for associational standing.
a. Associational standing
The federal rule on an association’s standing to sue on
behalf of its members is stated in Hunt v. Washington State
Apple Advertising Com. (1977) 432 U.S. 333 (Hunt), which has
been cited thousands of times: “[A]n association has standing to
bring suit on behalf of its members when: (a) its members would
otherwise have standing to sue in their own right; (b) the
interests it seeks to protect are germane to the organization’s
purpose; and (c) neither the claim asserted nor the relief
requested requires the participation of individual members in the
lawsuit.” (Id. at p. 343.)
California courts have used the same test. In Brotherhood
of Teamsters & Auto Truck Drivers v. Unemployment Ins. Appeals
Bd. (1987) 190 Cal.App.3d 1515 (Teamsters), several unions
sought a writ of mandate to compel the defendant board to set
aside a decision to deny unemployment insurance benefits to
individual union members. (Id. at p. 1518.) Teamsters rejected
14
the defendant’s contention the unions lacked standing to bring
the action on behalf of their members, quoting and applying the
Hunt decision. (Teamsters, at pp. 1522–1523.) The court found
the three Hunt criteria were satisfied. (Teamsters, at pp. 1522–
1523; id. at p. 1523 [stating, as to the third criterion, that “the
unions may litigate this case without the participation of its
members and still insure that the remedy, if granted, will inure
to the benefit of those union members who have been injured”];
see generally United Farmers Agents Assn., Inc. v. Farmers
Group, Inc. (2019) 32 Cal.App.5th 478, 488 [“California courts
have applied the doctrine [of associational standing], including
the three Hunt requirements,” citing cases].)
In this case, defendants do not challenge the existence of
the first two Hunt criteria, nor could they. Plainly, the members
of ALADS “would otherwise have standing to sue in their own
right” for the loss of their salary increases and, just as plainly,
the interest ALADS seeks to protect is “germane to the
organization's purpose.” (Hunt, supra, 432 U.S. at p. 343.)
Defendants contend, however, that ALADS has not
satisfied the third prong of the Hunt test. Under Hunt, if the
first two criteria are met, an association does have standing if
“neither the claim asserted nor the relief requested requires the
participation of individual members in the lawsuit.” (Hunt,
supra, 432 U.S. at p. 343; Teamsters, supra, 190 Cal.App.3d at
p. 1522.) As summarized above, ALADS proved its lost
compensation damages without calling any individual ALADS
member. ALADS relied on lay and expert testimony, which was
admitted in evidence without objection, and which the court
initially found was sufficient to prove causation and the
$7.8 million amount of damages.
15
Defendants now tell us ALADS cannot “use a formula
presented through the testimony of a valuation expert to avoid
the third prong of the Hunt test.” We are dumbfounded by this.
The short answer to defendants is, that ship already sailed.
Defendants made no objection at any time before closing
argument to ALADS’s proof in support of the relief requested on
behalf of its individual members, and defendants do not claim on
appeal there is no substantial evidence to support the award of
$7.8 million in lost compensation. By the time the trial had
proceeded to closing argument, it was far too late—and it
remains far too late—for defendants to say ALADS cannot do
what it has already done.
Defendants cite a raft of federal and sister state cases
which they say establish an association can never seek damages
on behalf of its members. We find it incongruous to engage in an
extended discussion of any of those cases, since none of them, of
course, found an association lacked standing to prove damages
that the association had already proved after a trial without
individual testimony. We will address a few of defendants’
authorities, however, to show they would not have supported
defendants’ position even if defendants had challenged ALADS’s
standing before trial.
In Telecommunications Research & Action Center v. Allnet
Communication Services, Inc. (D.C.Cir. 1986) 806 F.2d 1093(Allnet), the plaintiff was a nonprofit association concerned with
promoting fair rates for communications services. The
association alleged the defendant had charged customers
different rates for the same service and changed its rates without
public notice. The association sought damages on behalf of its
allegedly overcharged members. (Id. at pp. 1093–1094.) The
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court found the association lacked standing because “the money
damages claims [the association] seeks to advance are the kind
that ordinarily require individual participation, so that [the
association] may not proceed in the format it has selected.” (Id.
at p. 1095.) But the court explained how it reached that
conclusion, and its reasons show how different this case is from
Allnet.
Allnet observed the association had identified only five or
six of its 12,000 members with a concrete stake in the outcome
and reasoned it would be inequitable to permit the association to
avoid the responsibilities and safeguards of a class action.
(Allnet, supra, 806 F.2d at p. 1096; ibid. [“It asks to be declared
representative of the few (five or six), not the many, whether the
comparison group is all [association] members or all [defendant]
subscribers.”].)
The court then expressly “reiterate[d] that our decision
establishes no per se rule that associations may never represent
their members when monetary relief is immediately at stake.”
(Allnet, supra, 806 F.2d at p. 1096.) And, the court stated its
decision did not “prejudge a case for damages in which the
association possesses a special representational responsibility to
the members on whose behalf it sues,” citing cases involving labor
unions. (Ibid.; see id. at pp. 1096–1097.)
This is not a case where ALADS is seeking damages for
only a few of its members, as in Allnet. Every member was
affected by the loss in salary, and ALADS has the “special
representational responsibility” Allnet mentions. (Allnet, supra,
17
806 F.2d at p. 1096.) In short, defendants’ reliance on Allnet does
not advance their position.1
Defendants also discuss and distinguish United Automobile
Workers v. Brock (1986) 477 U.S. 274 (Brock). There, applying
the Hunt criteria, the high court held the UAW had standing to
challenge the Secretary of Labor’s policy directive allegedly
resulting in denial of benefits to thousands of union members.
(Brock, at pp. 281, 287–288.) The court found neither the claims
nor the relief sought required the trial court “to consider the
individual circumstances of any aggrieved UAW member.” (Id. at
p. 287.)
In Brock, the lawsuit raised “a pure question of law:
whether the Secretary properly interpreted the [statute’s]
eligibility provisions.” (Brock, supra, 477 U.S. at p. 287.) Brock
1 Defendants cite two other federal cases that have repeated
the mantra that “no federal court has allowed an association
standing to seek monetary relief on behalf of its members.”
(United Union of Roofers v. Insurance Corp. of America (9th Cir.
1990) 919 F.2d 1398, 1400; see also Committee To Protect Our
Agricultural Water v. Occidental Oil & Gas Corp. (E.D.Cal. 2017)
235 F.Supp.3d 1132, 1169.) But these are cases where the
participation of individual members was required and so the
third Hunt factor was not met. In Roofers, for example, the court
held the union did not have standing to assert the rights of
members who sought payment of past wages from a payment
bond issued by the defendant. (Roofers, at p. 1399.) The court
was explicit: “In this case, it is clear that individual Union
members will have to participate at the proof of damages stage.
There is no escaping the fact that the Union in this case cannot
overcome the third hurdle placed before it by Supreme Court
precedent.” (Id. at p. 1400.) Occidental simply followed Roofers.
(Occidental, at p. 1170.)
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concluded: “Thus, though the unique facts of each UAW
member’s claim will have to be considered by the proper state
authorities before any member will be able to receive the benefits
allegedly due him, the UAW can litigate this case without the
participation of those individual claimants and still ensure that
‘the remedy, if granted, will inure to the benefit of those members
of the association actually injured.’ ” (Id. at p. 288.)
Defendants point out that, unlike Brock, this case does not
involve a “pure question of law” or any “third-party administrator
to determine and distribute the appropriate amount of money for
each member’s claim.” That is true but, so far as we can see,
irrelevant. The circumstances here and in Brock are entirely
different, but the principles to be applied to the circumstances
are not. Brock does not stand for the proposition that standing is
proper only where a pure question of law is at issue. And Brock
does not tell us that a “third party administrator” is necessarily
required. What is the same here as in Brock is that ALADS could
and did litigate this case without the participation of any
individual claimants, and there is no basis on which we might
find ALADS cannot ensure that the remedy “ ‘will inure to the
benefit of those members of the association actually injured.’ ”
(Brock, supra, 477 U.S. at p. 288.)
In another argument, defendants shift course and rely, as
the trial court did, on National Solar Equipment Owners’ Assn.,
Inc. v. Grumman Corp. (1991) 235 Cal.App.3d 1273 (National
Solar). In National Solar, the court stated that “[a]n association
which has not itself been injured has standing to sue on behalf of
its members only if it acts as a class representative.” (Id. at
p. 1280.) While that was so under the facts in National Solar, it
is not so as a universally applied principle.
19
National Solar was an appeal by an association (a nonprofit
corporation whose members were investors in solar equipment)
from a trial court order denying class certification. (National
Solar, supra, 235 Cal.App.3d at p. 1276.) The trial court had
ruled that the case should proceed as a class action, rather than
as a representative action, and then denied class certification.
(Id. at pp. 1278, 1279.) The Court of Appeal agreed the case had
to proceed as a class action, making the statement quoted above,
and then reversed the order denying class certification. (Id. at
pp. 1280, 1286.)
National Solar does not discuss or mention the Hunt
criteria that govern associational standing. And we do not
disagree with the court’s conclusion the circumstances in
National Solar required a class action: the plaintiff sought
damages on behalf of its members that included tax penalties and
down payments by its members (National Solar, supra,
235 Cal.App.3d at p. 1278), thus requiring the individualized
proof of damages that is permitted in a class action. The plaintiff
would not have had standing under Hunt to sue on behalf of its
members in any event.
In short, National Solar is not inconsistent with Hunt, and
its statement that an association has standing only if it acts as a
class representative, when extracted from its context, is simply
inapt and overbroad, as the Hunt and Teamsters lines of cases, as
well as other cases arising in different contexts, clearly establish.
(See, e.g., Association for Los Angeles Deputy Sheriffs v. County of
Los Angeles (2021) 60 Cal.App.5th 327, 337 [“a union may bring a
representative action on behalf of its members”].) The Hunt and
20
Teamsters standard applies here, and that standard has been
met.2
Finally, defendants tell us that, even if ALADS has
standing, “the trial court found in favor of [defendants] on
causation and damages” for the delayed salary negotiations.
That is patently not the case. The trial court struck its findings
on causation and damages only because the court erroneously
determined ALADS did not have standing to sue on behalf of its
members. This is clear from the trial court’s ruling itself, as well
as from the court’s earlier rulings.
To recap those rulings: In its June 8, 2018 minute order
following closing briefs, the court stated that ALADS provided
evidence defendants’ breaches of fiduciary caused a six-month
delay in obtaining increased salary benefits; ALADS supported
its claim for damages by offering expert evidence calculating the
losses; and defendants made no contrary showing. In its
subsequent findings concerning the computation of damages, the
court described the expert’s evidence; concluded the evidence
showed “$7,813,833 is the damages suffered by [ALADS’s]
members” and “a proper value for the damages caused by the
2 ALADS also refers us to a line of Washington state cases
that take a slightly different approach to Hunt’s third criteria.
These authorities find unions have standing to seek monetary
relief on behalf of their members in cases where “the amount of
monetary damages sought on behalf of those members is certain,
easily ascertainable, and within the knowledge of the defendant.”
(E.g., International Assn. of Firefighters, Local 1789 v. Spokane
Airports (Wash. 2002) 45 P.3d 186, 190.) We see no need to
consider these authorities.
21
Defendants’ breach of their fiduciary duties”; and defendants
“have not identified any defects” in the computation of damages.
And finally, in its ruling on defendants’ objections to the
proposed statement of decision, the court once again described
ALADS’s evidence and concluded ALADS “provided evidence that
the aggregate loss to the members was $55,813.00 per day and
that the total damages would be $7,813,833 for the 140-day
delay.” Then the court concluded that, since ALADS did not have
standing to bring the claim, ALADS “may not recover the
$7,813,833.00,” and stated “[t]his will remove” the portions of the
statement of decision discussing causation and damages for the
delay in salary negotiations.
In sum, there is no doubt the court found both causation
and $7,813,833 in damages from the delayed negotiations. We
have reviewed defendants’ remaining arguments (that ALADS
cannot disburse any monetary award to its members, and is a
corporation that cannot assert the rights of others), and conclude
they are equally without merit.
b. Costs of proof
Under Code of Civil Procedure section 2033.420, “[i]f a
party fails to admit the genuineness of any document or the truth
of any matter when requested to do so . . . , and if the party
requesting that admission thereafter proves the genuineness of
that document or the truth of that matter, the party requesting
the admission may move the court for an order requiring the
party to whom the request was directed to pay the reasonable
expenses incurred in making that proof, including reasonable
attorney’s fees.” (Id., subd. (a).)
The court “shall make this order” unless it finds any of the
following: “(1) An objection to the request was sustained or a
22
response to it was waived . . . . [¶] (2) The admission sought was
of no substantial importance. [¶] (3) The party failing to make
the admission had reasonable ground to believe that that party
would prevail on the matter. [¶] (4) There was other good
reason for the failure to admit.” (Code Civ. Proc., § 2033.420,
subd. (b).)
We review the trial court’s denial of a motion for costs of
proof for abuse of discretion, and we find abuse of discretion in
this case.
i. The requests
ALADS served both defendants with 28 requests for
admission of the truth of matters and served Mr. Macias with
three requests to admit the genuineness of documents. Most of
the requests involved defendants’ conduct relating to their
withdrawal of $100,000 from ALADS’s PAC account. Mr. Macias
denied 14 of them and stated he lacked sufficient information to
enable him to admit or deny 14 of them. Mr. Nance denied
11 requests, and admitted or partially denied or lacked sufficient
information to respond to the others. By way of example, both
defendants denied their withdrawal of the $100,000 violated
sections 11.01 and 11.02 of the bylaws, which it clearly did.3
3 Section 11.01 provides the board of directors may “by
resolution authorize any officer or agent” to enter into any
contract or execute and deliver any instrument. Section 11.02
provides that, except as specifically determined by resolution as
provided in section 11.01, checks and other evidences of
indebtedness of the corporation “shall be signed by the Treasurer
or the Assistant Treasurer and countersigned by the President or
the Vice President of the Corporation.” (There were no board
resolutions and the treasurer signed nothing relating to the
$100,000.)
23
Both denied they returned the money they withdrew after
April 2, 2014 (when the temporary restraining order was issued).
Both denied requests to admit they had no board resolution, and
sought none, allowing them to retain the Baute law firm and give
it the $100,000 check. They denied this was a breach of their
fiduciary duties to ALADS.
Both defendants also denied that voting to appoint Scott
Frayer as a director was a breach of their fiduciary duty.
(Defendants and Mr. McCleary voted to appoint Mr. Frayer at a
meeting they held without the necessary quorum of
four directors.) Mr. Macias also responded he lacked sufficient
information to admit or deny the genuineness of the bylaws, the
$100,000 Wells Fargo withdrawal slip, and the cashier’s check for
$100,000 to the Baute firm. A recitation of the other requests
and responses appears in the next footnote.4
4 Mr. Macias denied a request to admit he converted the
$100,000 (as did Mr. Nance). Mr. Macias denied requests to
admit that “there was no resolution by a majority of ALADS’s
Board of Directors allowing [him] to withdraw $100,000 from
ALADS’s PAC on March 18, 2014” (Mr. Nance admitted this);
Mr. Macias denied that Mr. McCleary (another director and
Macias supporter) “never sought to obtain a resolution from a
majority of ALADS’s Board” before he (Mr. Macias) withdrew the
$100,000 (Mr. Nance admitted Mr. McCleary never sought a
resolution but denied “withdrawing” money). Mr. Macias denied
that ALADS owns all funds in the PAC (Mr. Nance said he had
insufficient information), and denied that ALADS owns the
$100,000 he withdrew (Mr. Nance’s response is unclear).
In addition, Mr. Macias responded he was unable to admit
or deny 14 requests, including requests to admit that he “served
as ALADS’s President from December 2013 to May 6, 2014”; that
he served as a director during that time; that he owed ALADS a
24
ii. ALADS’s motion
After the judgment was entered, ALADS sought to recover
its costs to prove the truth of the matters defendants failed to
admit. ALADS’s motion asked for costs of proof “in a range from
$248,354.13 to $683,382.69,” and proposed three different ways
the court could quantify the costs, none of them involving
allocation to any particular requests for admissions.
fiduciary duty when he served as president and director; and that
the only members of the board “to vote to appoint Scott Frayer as
a director of ALADS” were defendants and Mr. McCleary.
(Mr. Nance admitted similar requests.) Other responses in the
insufficient information category involved the $100,000.
Mr. Macias lacked sufficient information to admit or deny that he
“never sought to obtain a resolution from a majority of ALADS’s
Board of Directors before [he] withdrew $100,000 from ALADS’s
PAC on March 18, 2014” (Mr. Nance admitted never seeking a
resolution but denied he “withdrew” money). Mr. Macias lacked
sufficient information to admit or deny that ALADS’s treasurer
did not sign the check he paid to the Baute law firm, and that he
did not request the treasurer to do so (Mr. Nance admitted these);
that he withdrew $100,000 from ALADS’s PAC on March 18,
2014 to retain the Baute firm (Mr. Nance denied as to
“withdrawing” money but admitted the $100,000 was being used
to retain the firm); that he gave the firm a cashier’s check for
$100,000 from ALADS’s PAC (Mr. Nance admitted this); that he
did not own the $100,000 (Mr. Nance admitted he did not own it
in his individual capacity); that “Bruce Nance does not own the
$100,000 you withdrew” from the PAC (Mr. Nance lacked
sufficient information to admit that Mr. Macias did not “own” the
funds); and that he “did not receive any advice from legal counsel
stating that [he was] authorized to withdraw $100,000” from the
PAC (Mr. Nance denied this).
25
ALADS submitted declarations from counsel Tristan
Mackprang (one as to Mr. Macias and one as to Mr. Nance).
Mr. Mackprang attached to both declarations Exhibit M, a 54-
page summary containing 1,127 billing entries for fees he stated
were attributable to Mr. Macias’s (or Mr. Nance’s) refusal to
admit requests for admissions.
Mr. Mackprang explained that his office manager identified
all cost and time entries billed to ALADS from March 20, 2015
(the date of Mr. Macias’s final responses) through October 31,
2018 (the last billing before the court’s November 13, 2018
statement of decision). These cost and time entries totaled about
$830,000. Mr. Mackprang “evaluated the time entries . . . and
removed all charges unrelated to proving the admissions sought
from Nance . . . and [Mr. Macias] that are the subject [of the]
motion.” Mr. Mackprang “further revised this Excel file by
allocating each time entry . . . to either Macias or Nance, or to
both defendants as appropriate, based on [Mr. Mackprang’s]
particularized review of each such entry to determine to what
matter it related.”
Mr. Mackprang’s allocations resulted in fees and costs
attributable to Mr. Macias individually ($45,975.92); those
attributable to Mr. Nance individually ($224,514.49); and those
attributable to both defendants ($458,868.20). Consequently,
Mr. Mackprang stated, fees and costs to prove facts that
Mr. Macias improperly refused to admit totaled $504,844.12.
Fees and costs to prove the facts that Mr. Nance improperly
refused to admit totaled $683,382.69. ALADS then halved these
figures to account for commonality of issues, and asked for
$252,422.06 in costs and fees for Mr. Macias’s refusals, and
$341,691.35 in costs and fees for Mr. Nance’s refusals.
26
Mr. Mackprang also offered the trial court two alternatives
for calculating costs and fees attributable to each defendant. The
first alternative calculation consisted of fees and costs incurred
by ALADS from August 24, 2016 (“when ALADS’s counsels’
preparation for the trial . . . started in earnest”) to October 31,
2018. For both defendants, this total was $454,233.36. Then,
ALADS calculated 93 percent of that total ($422,437.02), and
offered that figure as the amount of fees caused by defendants’
refusals to admit. This calculation was based on the portion of
the 46-page statement of decision (93 percent) that remained
intact after the court crossed out the parts concerning the
$7.8 million in damages from delayed MOU negotiations. “In
other words, ALADS prevailed on 93% of the issues in the
Statement of Decision. As such, ALADS should be entitled to
93% of the costs and fees incurred from at least August 24, 2016
forward.” The other alternative (third scenario) was the same as
the second scenario, except it began the calculation from April 26,
2018, a month before trial. This total was $267,047.45,
93 percent of which is $248,354.13.
Thus, in its motion for costs of proof from Mr. Macias,
ALADS sought an award “in the amount from $248,354.13 [third
scenario] to $504,844.12 [first scenario].” From Mr. Nance,
ALADS sought an award “in the amount from $248,354.13 [third
scenario] to $683,382.69 [first scenario].”
iii. Defendants’ opposition
Defendants’ opposition argued, among other things, that
costs of proof must be segregated and tied directly to each specific
request for admission; defendants had reasonable grounds to
believe they would prevail on the conversion claim; and it was not
27
unreasonable for Mr. Macias to believe he had not been lawfully
removed from the board.
Defendants also argued Mr. Mackprang’s summary was
inadmissible hearsay and was based on impermissible
conclusions, opinions and argument.
iv. The trial court’s ruling
The court denied ALADS’s motion on three different
grounds. The first was that it had no jurisdiction after the
parties filed notices of appeal on January 9 and January 10,
2019. The second was that some of defendants’ denials (the
statements of insufficient information) were not unequivocal
denials, and that while other denials were unequivocal, ALADS’s
motion did not identify the specific fees and costs incurred to
prove the matters that were unequivocally denied. The third
ground was the exception stated in Code of Civil Procedure
section 2033.420, subdivision (b)(3), that defendants had
reasonable grounds to believe they would prevail on two issues:
the conversion claim (because of their asserted belief ALADS had
no standing to make the claim on behalf of its PAC), and their
refusal to admit it was a breach of fiduciary duty to appoint Scott
Frayer to the board (which they purported to do without a
quorum).
As noted at the outset, we conclude the trial court abused
its discretion in denying costs of proof on each of the grounds
stated.
First, the court erred in finding it had no jurisdiction
because notices of appeal had been filed before the hearing was
held on the motion. ALADS correctly points out that an appeal
does not stay proceedings on “ ‘ancillary or collateral matters
which do not affect the judgment [or order] on appeal’ even
28
though the proceedings may render the appeal moot.” (Varian
Medical Systems, Inc. v. Delfino (2005) 35 Cal.4th 180, 191.)
Defendants do not argue otherwise. The court retained
jurisdiction to rule on the motion.
Second, we disagree with the trial court’s view that costs of
proof are unauthorized as to responses to requests for admission
that indicate a lack of sufficient information. That may be so in
some cases, but it is not so here.
The trial court appears to have reasoned that, where a
response is incomplete, the party requesting the admission must
make a motion to compel further responses, or else that party
waives any right to compel a further response.5 Here, there was
no motion to compel after the operative responses were filed.6
Defendants’ response that they had insufficient information to
admit or deny matters that they clearly knew or should have
known is a complete (and sanctionable) response. If a party has
provided “complete responses to the requests,” then there is
5 Costs are not awarded if the court finds an objection to a
request was sustained “or a response to it was waived under
Section 2033.290.” (Code Civ. Proc., § 2033.420, subd. (b)(1).)
Section 2033.290 authorizes motions to compel if an answer is
deemed evasive or incomplete, and if a motion is not made within
the specified time, the requesting party waives any right to
compel further responses. (§ 2033.290, subds. (a) & (c).)
6 The operative responses are Mr. Macias’s first amended
supplemental responses on March 20, 2015, and his July 8, 2015
responses to the requests to admit the genuineness of documents.
Mr. Nance’s operative responses are his third supplemental
responses on October 29, 2015. There were no motions to compel
further responses (there had been motions and even sanctions
awarded with respect to defendants’ previous responses).
29
“nothing to address in a motion to compel,” so “no motion to
compel further responses [is] necessary,” and the requesting
party does not waive its right to cost-of-proof fees. (American
Federation of State, County & Municipal Employees v.
Metropolitan Water District (2005) 126 Cal.App.4th 247, 269.)
An “insufficient information” response may constitute a
“failure to admit” as specified in the statute. The statute does not
use the term “denial”; it allows a party to seek costs of proof for
the other party’s “failure to admit.” (Code Civ. Proc., § 2033.420,
subd. (a) [“fails to admit”] & (b)(4) [“failure to admit”].)
Defendants had a duty to make a reasonable investigation
of the facts. As one court has explained, “where it becomes clear
from evidence introduced by either party at trial that the party
who denied for lack of information or belief had access to the
information at the time requests for admissions were
propounded, sanctions are justified because that party has a duty
to investigate [citations]. In the absence of investigation, it
becomes apparent the denial is without good reason and/or that
the statement as to lack of information was false.” (Smith v.
Circle P Ranch Co., Inc. (1978) 87 Cal.App.3d 267, 275; see also
Doe v. Los Angeles County Dept. of Children & Family
Services (2019) 37 Cal.App.5th 675, 691 [“Since RFAs are not
limited to matters within the personal knowledge of the
responding party, that party has a duty to make a reasonable
investigation of the facts.”].)
The trial court gave two examples of “insufficient
information” responses for which it concluded costs of proof were
not authorized. One was Mr. Macias’s response that he had
“insufficient information” as to the genuineness of the bylaws, on
the basis that the request was “unclear, vague and ambiguous” as
30
to the date the bylaws were “adopted, ratified, implemented or
promulgated.” The other was Mr. Nance’s response that he had
insufficient information to admit that Mr. Macias did not “own”
the $100,000.
Both of these are “failure[s] to admit” matters that
obviously should have been admitted—at the very least,
defendants had a duty to investigate and, had they done so, they
would have known the bylaws were genuine and Mr. Macias did
not own the $100,000. Accordingly, the trial court abused its
discretion in concluding costs of proof were not authorized as to
the responses it identified.
The court’s third reason for denying sanctions was also
error. The court found defendants had a reasonable ground to
believe they would prevail on the conversion claim “because they
believed that ALADS did not have standing to assert the claim on
behalf of the PAC, which is a political action committee.” In
addition, the court found defendants had a reasonable ground to
deny the request to admit that voting to appoint Scott Frayer a
director was a breach of fiduciary duty, because the evidence at
trial showed the 75 percent rule had not been enforced uniformly.
Neither of these conclusions survives scrutiny.
Defendants presented no evidence to dispute that the PAC
account belonged to ALADS. “To justify denial of a request, a
party must have a ‘reasonable ground’ to believe he would prevail
on the issue. [Citations.] That means more than a hope or a roll
of the dice.” (Grace v. Mansourian (2015) 240 Cal.App.4th 523,
532.) Whatever defendants may have believed about their
contention ALADS lacked standing to recover the funds in its
own PAC account, nothing prevented them from admitting the
31
facts they were asked to admit related to their taking $100,000
from the PAC account and returning it 17 days later.
Defendants had no reasonable ground to deny that voting
to appoint Scott Frayer to the board was a breach of fiduciary
duty (or to deny, as Mr. Macias did, that only defendants and
Mr. McCleary had voted to appoint Mr. Frayer). The trial court’s
reference to evidence that the 75 percent rule was not uniformly
applied does not change this. Failure to apply the 75 percent rule
uniformly might arguably justify defendants’ belief that
Mr. Macias should not have been removed, but it does not justify
conduct in brazen violation of ALADS’s bylaws. The vote to
appoint Mr. Frayer as director was taken by only three directors,
and under the bylaws, no business may be considered without a
quorum, which “shall consist of four (4) Directors.” As the trial
court later concluded, the purported election of Mr. Frayer and
ensuing actions after his supposed election were in violation of
clear provisions of the bylaws, and “breached [defendants’] duties
of due care and loyalty.”
In sum, the trial court abused its discretion when it denied
costs of proof, as each ground for denial was legally unsound.
Defendants insist that ALADS did not carry its burden of
proof in the first instance, and that the decision to deny costs of
proof should be upheld on that basis. They say the trial court
was correct when it observed that ALADS’s motions did not
identify “the specific attorney’s fees and costs incurred to prove
the matters in each, specific request for admission that was
denied by the Defendants.” In addition, they contend the 54-page
summary Mr. Mackprang prepared, listing the billing entries for
fees he stated were attributable to Mr. Macias’s (or Mr. Nance’s)
32
refusal to admit ALADS’s requests, was inadmissible hearsay to
which they objected. We disagree on both points.
The statute does not require that fees and costs must be
separately allocated to each specific request for admission,
particularly not where, as here, virtually all the requests relate
to a single issue: liability for defendants’ breaches of fiduciary
duty in connection with the $100,000 withdrawal and use of
ALADS’s funds. The rule is that a party cannot recover costs of
proof for other issues. In Garcia, for example, the defendant’s
evidence seeking costs of proof for 15 requests for admissions
appeared to include fees for issues that “were completely outside
the scope of the request for admissions.” (Garcia v. Hyster Co.
(1994) 28 Cal.App.4th 724, 736, 737.) The court remanded the
matter for redetermination of the costs and fees. (Id. at pp. 737–
738.)
We also reject defendants’ claim that Mr. Mackprang’s
summary, listing all the billing entries he asserted were
attributable to defendants’ failures to admit, was inadmissible
hearsay. Declarations of counsel are regularly presented as
evidence supporting attorney fee requests. The information in
Exhibit M to Mr. Mackprang’s declaration, provided under oath
and compiled under his direction from his personal review of his
firm’s billing records, was admissible.
In sum, the trial court was required by Code of Civil
Procedure section 2033.420 to award ALADS its reasonable
expenses incurred in proving matters defendants failed to admit
without reasonable grounds to do so. On remand, the trial court
has the discretion to determine whether defendants had
reasonable grounds for failing to admit any specific request for
admission not otherwise disposed of in this opinion. And the
33
court has the discretion to determine the amount of reasonable
expenses, to receive further evidence should it choose to do so,
and to exclude any claimed expenses to the extent they relate to
issues outside the scope of the requests for admission. What it
cannot do is deny costs of proof that are mandated by statute.
2. Defendants’ Appeal
Defendants assert error in six categories.
They contend that, as a matter of law, they did not violate
their fiduciary duty to ALADS when they refused to acquiesce to
Mr. Macias’s removal from the board based on the 75 percent
rule.
They contend their conduct after Mr. Macias’s refusal to
acquiesce to his removal did not breach any fiduciary duty or
cause any damage.
They contend the court erred in awarding each of the items
of damages to ALADS.
They contend ALADS does not have standing to assert any
claims concerning their withdrawal of money from ALADS’s PAC
because those claims belong to the PAC.
They contend ALADS is not entitled to a permanent
injunction or to declaratory relief.
They contend the trial court erred in deciding defendants
were not entitled under the bylaws to indemnity for their
expenses in defending this case.
With one (exceedingly minor) exception, none of these
claims has merit.
a. Defendants’ “refusal to acquiesce” in
Mr. Macias’s removal
Defendants contend Mr. Macias’s removal was invalid, and
therefore they did not breach their fiduciary duty to ALADS by
34
refusing to acquiesce. The removal was invalid, they say,
because the 75 percent rule does not apply to sitting directors
running for reelection, and because only three of the
four directors who voted to remove him were qualified to vote.
We are not persuaded by defendants’ claim the 75 percent
rule did not apply to sitting directors. Defendants cite evidence
they say proves this claim but the trial court did not have to
credit that evidence. The trial court concluded otherwise, and the
bylaws clearly support the trial court’s conclusion.
Nor was Mr. Macias’s removal invalid, as defendants claim,
for lack of sufficient votes from qualified directors. Defendants
focus on Mr. Hofstetter, who had also failed to comply with the
75 percent rule when he was reelected in 2012. But the bylaws
give the board the discretion to remove a director; it is not
required to do so. Section 6.12 provides that the board “may
declare vacant the office of a Director . . . (vi) if he/she fails or
ceases to meet the qualifications . . . .” Moreover, under the
Corporations Code, if no action challenging the validity of the
election of a director is brought, “in the absence of fraud, any
election . . . of a director is conclusively presumed valid nine
months thereafter.” (Corp. Code, § 7527.) That rule applied to
Mr. Hofstetter.
More to the point, defendants’ belief that Mr. Macias’s
removal from the board was invalid did not justify their egregious
behavior. Defendants characterize their conduct after
Mr. Macias’s removal as a passive “refusal to acquiesce” in the
removal. A mere “refusal to acquiesce” is not necessarily a
breach of fiduciary duty. But the form that refusal takes may
well be a breach. Defendants could have challenged Mr. Macias’s
removal by taking the avenue provided in the bylaws—
35
arbitration, or, if they believed that provision did not apply, they
could have filed a legal challenge.7 Instead, defendants engaged
in egregious conduct that was not in the best interests of
ALADS—and indeed that ultimately caused, as witnesses
testified and the trial court found, salary losses for every member
of ALADS.
The trial court found defendants ignored the expert legal
advice given to the board that Mr. Macias’s removal was proper.
They ignored the clear terms of the bylaws. They sought
contrary legal advice from Mr. Ipsen, a criminal lawyer, without
investigating his qualifications to give them advice on matters
related to corporate governance.8 They convened a board meeting
and a contentious staff meeting at which Mr. Macias insisted he
was in charge of ALADS. Through their attorneys, Mr. Ipsen and
7 Article IV (Membership) of the bylaws states in section 4.13
that “[a]ll controversies arising from these Bylaws including, but
not limited to . . . any dispute which may give rise to a cause of
action in contract or tort or based on any theory or statute . . . are
to be resolved exclusively by final and binding arbitration.” The
Corporations Code also recognizes actions to challenge the
validity of the removal of a director. (Corp. Code, § 7527 [“An
action challenging the validity of any election, appointment or
removal of a director or directors must be commenced within nine
months after the election, appointment or removal. If no such
action is commenced, in the absence of fraud, any election,
appointment or removal of a director is conclusively presumed
valid nine months thereafter.”].)
8 The trial court found “the most reasonable inference from
the evidence is that neither Mr. Nance nor Mr. Macias cared
whether the advice given by Mr. Ipsen was competent so long as
it was what they wanted to hear and furthered their desire to
promote their own authority and positions within ALADS.”
36
Mr. Baute, they published letters to third parties, in one case
including the sheriff’s department and other county, state and
federal officials misrepresenting, among other things, that
Mr. Macias was the president of ALADS. They held a board
meeting without a quorum and purported to elect another
director, creating a “shadow board.” They created an alternative
website for ALADS. And, of course, they illegally withdrew
$100,000 of ALADS’s funds to retain attorneys to assist them in
advancing Mr. Macias’s claims. These actions are not fairly
viewed as some passive “refusal to acquiesce.” These actions
violated defendants’ fiduciary duty to ALADS.
b. Conduct after removal
Defendants argue their conduct “did not breach any
fiduciary duty or cause any damage to ALADS.” They say there
is no substantial evidence that forming the shadow board and the
competing website caused any damage to ALADS, and they say
Attorney Baute’s letter was protected by the litigation privilege.
The evidence clearly established the duty, its breach and
resulting damage. The creation of the shadow board and the
competing website were part of the disarray and disruption
defendants created for months. ALADS did not have to prove
specific damages attributable to each disruptive action
defendants undertook, as defendants appear to think.
The Baute letter was not protected by the litigation
privilege. Defense counsel made no objection to its receipt in
evidence. The privilege applies “to communications with ‘some
relation to a proceeding that is actually contemplated in good
faith and under serious consideration . . . .’ ” (Rubin v. Green
(1993) 4 Cal.4th 1187, 1194.) Defendants say this standard is
met based on evidence of “the $100,000 retainer[] paid to Baute
37
and the admonition that board members or officers would be ‘held
[fully] accountable for any and all misconduct, to the fullest
extent of the law.’ ” The illegally obtained $100,000 retainer does
not establish the necessary “good faith” contemplation of
litigation.
c. Damages to ALADS Apart From the $7.8 Million
ALADS sought and obtained six categories of damages it
incurred caused by defendants’ breaches of fiduciary duty (apart
from the damages caused to its members). These were $46,677 in
payments to acting executive director John Rees for work caused
by defendants’ misconduct; $25,769.20 in release time payments
to the sheriff’s department for Mr. Macias after his removal;
$1,825.67 paid to three employees for time off taken as a result of
defendants’ actions; $465.75 in interest on the $100,000; $295.05
for staff time spent recovering the $100,000; and $158.31 for time
spent by Mr. Rees and Mr. Steck stopping payment on the blank
check.
Defendants challenge each item, contending each one is
not recoverable as a matter of law and, if it is, there is no
substantial evidence supporting the award. We disagree.
i. Mr. Rees’s consulting fees
In late January 2014, ALADS hired John Rees as a
consultant to temporarily act as executive director of ALADS. He
had previously worked for ALADS for many years and served as
executive director for five years, before retiring and moving to
San Diego in 2008. He had anticipated his work would not
extend beyond 60 days. The day before Mr. Macias’s removal, he
was about to embark on preparations for negotiating a new MOU
with the county. All that changed after Mr. Macias’s removal on
March 7, 2014.
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Mr. Rees’s expected short stint with ALADS was extended
through August 2014, during which time he acted as the “damage
control person,” to repair the damage to ALADS’s relationships
with the community, the staff, and the sheriff’s office. (Will
Aitchison, ALADS’s expert on public safety labor organizations,
testified this was the worst management dispute he had seen in
any law enforcement labor organization; while he had seen many,
“I’ve never seen anything like this.”)
The trial court found that approximately 50 percent of
Mr. Rees’s time between March 17 and May 31, 2014, and
25 percent of his time between June 1 and December 31, 2014,
“was spent attempting to manage the problems created by
disruptions caused [by defendants’] breach of fiduciary duty.”
While Mr. Rees did not testify to those precise percentages, his
testimony established that a substantial part of his time after
Mr. Macias’s removal was occupied, as the trial court put it,
“trying to keep staff on task despite the difficulty of dealing with
Defendants’ conflicting demands and the confusion and stress
caused by not knowing whose directives they were to follow and
trying to maintain ALADS’ essential relationships with third
parties despite the confusion, turmoil and conflict created by
[defendants’] efforts to seize control from the duly elected Board.”
Mr. Rees testified that during the power struggle with the
shadow board, he was almost continuously “out on the floor and
in offices talking to people,” trying to reassure employees and
encourage them to come to him if they had any problems with
conflicting directions and the like. He testified performing that
task “definitely” took him away from his other duties, and this
was so “[t]o a very significant degree.” He described the “very
long list” of duties from which he was taken away, including
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preparation for the MOU negotiation. The damages expert, Ted
Vavoulis, testified to his calculation of the costs of Mr. Rees’s
salary and expenses for time devoted to mitigating the problems
caused by defendants’ conduct, assuming the 50 percent and
25 percent time allocations found by the trial court.
Defendants contend the expense of Mr. Rees’s salary is not
recoverable because it is “associated with corporate staffing
decisions” and “related to litigation” and improper for the period
after ALADS sued defendants. Defendants cite no pertinent
authority for these claims. Defendants cite no evidence showing
Mr. Rees’s time was spent on litigation.
Then defendants contend there was no substantial evidence
to support the 50 percent and 25 percent time allocations that
Mr. Vavoulis used in his calculations, because he was told to
assume those percentages. But the trial court was entitled to
conclude those were reasonable assumptions, given the testimony
it heard about defendants’ conduct and the nature and scope of
Mr. Rees’s work. (See Meister v. Mensinger (2014) 230
Cal.App.4th 381, 396–397 [“ ‘Where the fact of damages is
certain, the amount of damages need not be calculated with
absolute certainty.’ [Citation.] ‘The law requires only that some
reasonable basis of computation of damages be used, and the
damages may be computed even if the result reached is an
approximation.’ ”].)
Finally, defendants say there was no substantial evidence
of causation, contending “there is no legal certainty” that their
breaches of fiduciary duty caused ALADS to incur the Rees
consulting fees that were awarded. We agree with ALADS that
this claim is “almost comical,” given the evidence we have
described.
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ii. Mr. Macias’s release time
ALADS reimburses the county for the salaries of certain
ALADS officers, to allow them to function full-time in that
capacity (referred to as release time because they are released
from their duties as deputy sheriffs). ALADS paid the county
$25,769.20 in release time for Mr. Macias for the period from his
March 7 removal until the May 6, 2014 preliminary injunction
preventing him from claiming to be president of ALADS.
Mr. Ipsen, purporting to act as general counsel for ALADS, had
demanded those payments continue in his March 25, 2014 letter
to the sheriff’s department, copies of which he sent to many
county, state and federal officials. The county acquiesced.
Defendants claim there was no legal basis for awarding
those damages, for several reasons.
Defendants say ALADS did not plead a claim for
interference with contractual relations between ALADS and the
county, and therefore cannot recover for the release time.
ALADS did not have to plead any other claim than breach of
fiduciary duty to recover these damages. As the trial court found,
these were “payments that would not have been incurred by
ALADS if [defendants] had not refused to comply with ALADS’
Board’s actions on March 7, 2014 removing Mr. Macias as a
director and president and had not further breached their
fiduciary duty in the conduct subsequent to his removal.”
Defendants say the award results in an impermissible
forfeiture of Mr. Macias’s wages. They are again mistaken.
(Service Employees International Union, Local 250 v.
Colcord (2008) 160 Cal.App.4th 362, 371 [referring to “the
employer’s legal right to recover salary and benefits previously
paid to a faithless employee as damages or as restitution in a civil
41
lawsuit for breach of fiduciary duty”; the defendants’ salaries and
benefits were “ ‘damages directly flowing from the breach of
defendants’ fiduciary duties’ ”; affirming award to the union “of
the costs it incurred in providing salary and benefits to
[defendant employee] during the time he was organizing a
competing union”].)
Defendants claim the demand for release time “was
petitioning activity to the government and immune from liability
under the Noerr-Pennington doctrine.” Defendants do not trouble
to explain the doctrine or make a reasoned argument about its
application here, and we will not explain it for them. In any
event, defendants hired Mr. Ipsen without board approval, and
Mr. Ipsen demanded ALADS continue to reimburse the county
for Mr. Macias’s wages, misrepresenting that he (Mr. Ipsen) was
acting on ALADS’s behalf as its general counsel. These were not
protected actions; they were breaches of fiduciary duty.
Finally, defendants argue Mr. Nance cannot be liable for
release time payments for Mr. Macias because there was no
evidence he (Mr. Nance) authorized or knew about the Ipsen
letter. The trial court found otherwise, concluding both
defendants “authorized and/or ratified Mr. Ipsen’s sending of the
March 25, 2014 letter.” The trial court could readily infer from
all the evidence that Mr. Ipsen was acting for both defendants,
and that Mr. Nance authorized the Ipsen letter. Mr. Nance
participated in all the conduct preceding the Ipsen letter,
including the misappropriation of ALADS’s funds and creating
the shadow board by purportedly electing a new director in a
meeting without a quorum. The Ipsen letter, in addition to
requesting confirmation of Mr. Macias’s release time, likewise
demands Mr. Nance’s “full time ‘release time’ not be changed.”
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The trial court reasonably concluded Mr. Nance was equally
responsible for the breaches of fiduciary duty that caused ALADS
to incur the release time damages.
iii. Sick leave
The trial court found that “at least three employees,
[Ms.] Silvestre, Ms. Zamudio, and Lucy Hayhurst, took paid time
off at ALADS’s expense . . . as [a] direct result of the threats and
stressful environment created by Defendants’ conduct in refusing
to acknowledge Mr. Macias’s removal . . . and Defendants’
subsequent efforts to seize control of ALADS in violation of its
Bylaws.” The total amount was $1,825.67.
Defendants argue that “[e]mployee expenses are not
recoverable as damages.” They cite no authority for this
proposition, and we are aware of none. Damages incurred as a
result of a breach of fiduciary duty are recoverable. (Meister v.
Mensinger, supra, 230 Cal.App.4th at p. 396.)
Defendants say the award is not supported by substantial
evidence. This is wrong, too. We have already recounted
Ms. Silvestre’s testimony that after defendants’ demand for
signature cards, she felt sick, went home early, and did not
return to work for the next two days. Her doctor advised her not
to go to work “for a couple of days, at least.” She attributed this
to worry about losing her job. Records showed Ms. Hayhurst
“went home sick,” and Mr. Rees testified to his understanding
that “[t]he stress was too much for [Ms. Hayhurst] to stay at
work,” accounting for her absences in April 2014. Office manager
Cindy Flores presented records showing Ms. Zamudio’s absences
in March 2014, annotated “stress.” ALADS’s damages expert
calculated the cost to ALADS for paying the employees despite
the work time lost. All this constitutes substantial evidence.
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iv. Damages for stopping payment ($158.31)
and recovering the $100,000 ($295.05)
The trial court stated that “ALADS presented evidence that
it spent $158.31 for both Mr. Rees’s time and for ALADS’ then-
President Don Jeffery Steck’s time stopping payment on the
blank check that [defendants] attempted to use in retaining
Mr. Baute’s services to assist them. ALADS also incurred costs
associated with [defendants’] misappropriation of the $100,000
from ALADS’ State PAC account. ALADS presented evidence
that it incurred costs of $295.05 for staff time spent recovering
the $100,000.”
Defendants say neither of these two amounts was
supported by substantial evidence. Derek Hsieh (executive
director at the time of trial) presented Mr. Rees’s time sheet,
showing an entry on March 17, 2014 (the date defendants took
the blank check), for a 44-minute telephone conference with
Mr. Steck. Mr. Hsieh also testified to a 38-minute telephone call
the following day between Mr. Rees and Mr. Steck. Mr. Hsieh
calculated the costs for Mr. Steck’s and Mr. Rees’s time for both
conversations (March 17 relating to the stop-payment, and
March 18 relating to recovering the $100,000). The total cost for
Mr. Steck’s time for both conversations was $124.19, and for
Mr. Rees the total for both was $170.24, “so it would be the
summation of those two,” which he said was $295.05.
Our review of the evidence shows that the time spent on
stopping payment on the blank check (the March 17 conversation,
totaling $158.31 for time spent by Mr. Rees and Mr. Steck), was
mistakenly also added to the time they spent the following day on
recovering the $100,000, thus double-counting $158.31. The time
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they spent recovering the $100,000 amounted to $136.74, not
$295.05.
Defendants argue there was no evidence about the subject
matter of the telephone conferences Mr. Rees and Mr. Steck had
on March 17 and March 18. That is not the case. Mr. Hsieh
testified, under questioning by defense counsel, that he knew
Mr. Rees and Mr. Steck had both conversations and what they
were about, because he asked Mr. Rees about them.
In sum, substantial evidence supports these items of
damages to ALADS, but we will deduct the double-counted
$158.31 from the award.
d. ALADS’s PAC account: standing
Defendants contend ALADS did not own the PAC account
and therefore did not have standing to sue to recover the
$100,000 withdrawn from that account. So, they say, ALADS
was not entitled to the award of interest ($465.75) or the award of
the cost of staff time spent recovering the funds.
Defendants cite Killian v. Millard (1991) 228 Cal.App.3d
1601, 1605, which tells us that “only parties with a real interest
in a dispute have standing to seek its adjudication.” Defendants
do not explain why we should conclude ALADS has no “real
interest in [this] dispute.” (Ibid.) The evidence showed that
ALADS owns and controls the funds. Mr. Hayhurst testified to
the effect that the PAC is funded by contributions from ALADS
members. Ms. Silvestre testified the PAC account was “one of
ALADS’ accounts.” ALADS’s complaint, which defendants
themselves quote, describes the PAC, “through which ALADS
makes various contributions to state political candidates and
causes.” No evidence was presented to suggest that ALADS did
not control the account. The fact that the funds were designated
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for use by the PAC does not change ALADS’s ownership and
control of the funds. ALADS clearly had standing to recover
them.
e. Injunctive and declaratory relief
In addition to the award of damages, the judgment declared
that Mr. Macias was properly removed on March 7, 2014, and
that neither defendant is entitled to indemnification under
section 6.14 of the ALADS bylaws for any costs or fees they
incurred in defending this lawsuit. As mentioned earlier, both
defendants were enjoined from representing they are officers or
directors of ALADS, from entering the ALADS offices, and from
accessing any financial accounts held by or for the benefit of
ALADS. The conduct enjoined essentially reflects similar terms
in the preliminary injunction issued in May 2014.
“ ‘A permanent injunction is a determination on the merits
that a plaintiff has prevailed on a cause of action . . . against a
defendant and that equitable relief is appropriate.’ ” (Horsford v.
Board of Trustees of California State University (2005)
132 Cal.App.4th 359, 390 (Horsford).) Its grant or denial “will
not be disturbed on appeal absent a showing of a clear abuse of
discretion.” (Ibid.)
Defendants argue the court abused its discretion in
granting a permanent injunction and the declaratory relief on
which the injunction was based. They point out that defendants
are retired, and at the time of trial, “there was no evidence of an
ongoing controversy or recurring conduct,” so there was no
likelihood of future harm in the absence of a permanent
injunction.
ALADS was forced to seek, and obtained, a preliminary
injunction to prevent defendants’ conduct. The case was hard
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fought before and during trial. We see nothing inappropriate or
inequitable about making the preliminary relief ALADS obtained
a part of the judgment, even if it is unlikely that defendants will
engage in the prohibited conduct in the future. As ALADS points
out, the evidence showed defendants caused substantial
detriment to the organization, and the equitable relief granted is
directly tied to the facts and breaches of fiduciary duty
established at trial. Under these circumstances, we will not
disturb the trial court’s implicit determination that “ ‘equitable
relief is appropriate.’ ” (Horsford, supra, 132 Cal.App.4th at
p. 390.)9
f. The indemnity claim
Mr. Nance filed a cross-complaint seeking indemnity under
section 6.14 of the ALADS bylaws for his costs and attorney fees
incurred in defending the action. Section 6.14 provides for
indemnity of a director, officer or employee who is sued “if:
(1), the person sued is successful in whole or in part . . . ; and
(2), the court finds that his/her conduct fairly and equitably
merits such indemnity.” (Italics added.) The trial court
concluded that neither of those requirements was met, and
further concluded that “[t]here would be nothing fair or equitable
in permitting Mr. Nance to further injure ALADS and its
members by insisting that ALADS now bear the financial costs of
his conduct.”
The trial court did not err in entering judgment against
9 Defendants also contend the injunctive relief is an
impermissible prior restraint on speech. It is not. Defendants
are enjoined from representing they are officers or directors of
ALADS; the judgment does not (as they assert) “restrict[] what
[they] could say about their tenure at ALADS.”
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Mr. Nance on his cross-complaint for indemnity, as his defense of
the suit was unsuccessful.
Defendants also contend the trial court erred in decreeing
in the judgment that Mr. Macias is not entitled to
indemnification because, unlike Mr. Nance, Mr. Macias did not
assert a claim for indemnity. We see no reason to amend the
judgment on that account. Under the circumstances of this case,
it was neither unjust nor improper for the court to decree that
Mr. Macias cannot be indemnified for his costs and fees defending
this case. Clearly, he cannot be indemnified, and a decree stating
the obvious is an appropriate exercise of the trial court’s equity
powers. (Cf. People v. Superior Court (1973) 9 Cal.3d 283, 286
[“a court of equity may exercise the full range of its inherent
powers in order to accomplish complete justice between the
parties”].)
DISPOSITION
The judgment is amended to change the amount of
damages awarded, adding $7,813,833 in damages for the
compensation lost by ALADS’s members due to the delay in
negotiations caused by defendants’ breach of fiduciary duty, and
subtracting $158.31 for which there was no evidence. The
judgment as amended is affirmed. The postjudgment order
denying costs of proof is reversed and the cause is remanded for
determination of the reasonable fees and costs incurred to prove
matters defendants failed to admit without reasonable ground to
believe they would prevail. ALADS shall recover its costs on
appeal.
GRIMES, J.
WE CONCUR:
BIGELOW, P. J. WILEY, J.
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