Michaels v. Greenberg Traurig, LLP

Filed 3/26/21
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
JILLIAN MICHAELS et al., B300093
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. SC126100)
v.
GREENBERG TRAURIG, LLP, et al.,
Defendants and Respondents.
APPEAL from an order of the Superior Court of
Los Angeles County, Mark A. Young, Judge. Reversed and
remanded.
King & Ballow, Richard S. Busch and D. Keith Kelly, II, for
Plaintiffs and Appellants.
Jenner & Block, Michael P. McNamara, Kirsten H. Spira
and AnnaMarie A. Van Hoesen for Defendants and Respondents.
__________________________________
Jillian Michaels and Empowered Media, LLC (together
Appellants), filed a complaint against Greenberg Traurig (a law
firm) and its shareholder partner, David Markman (together
Respondents), for nine causes of action including legal
malpractice. The malpractice claim, central to this appeal,
involved negotiating a branding contract with a diet supplement
company called ThinCare International, LLC (“ThinCare”).
Respondents filed a motion for summary adjudication on
six of the nine causes of action. The trial court granted the
motion on all six causes of action finding lack of factual support
for causation and damages, and a lack of factual support on
fraudulent concealment. Several months later, Appellants moved
to dismiss the remaining causes of action which was granted on
August 12, 2019. Thereafter, Appellants timely appealed.
Appellants contend the trial court erred on various legal
bases, including failing to view the evidence in the light most
favorable to them and challenge the trial court’s ruling except on
the eighth cause of action (fraudulent concealment). We hold, the
trial court abused its discretion by excluding portions of
Appellants’ expert witness’s declaration on damages. Further,
the trial court erred in granting the summary adjudication on the
first, second, third, fifth and seventh causes of action.
Accordingly, we reverse.
FACTUAL AND PROCEDURAL BACKGROUND
Jillian Michaels is a fitness celebrity who appeared on
several seasons of the NBC’s television series called The Biggest
Loser. Empowered Media, LLC (Empowered) is a company she
co-owns.
In 2008, Michaels and Empowered hired Greenberg
Traurig and its transactional partner, David Markman, to
2
negotiate various deals. In mid-2009, Markman represented
Michaels and Empowered with two contracts at issue in this case.
The first involved Michaels’ appearance on the television show,
The Biggest Loser. This contract was executed on May 6, 2009,
with a production company called BL4 Productions, Inc. (the
“2009 Biggest Loser Agreement”). The second contract was for
branding and promotional services (to be performed by Michaels)
between a maker of nutraceutical products called ThinCare and
Empowered, executed on May 8, 2009 (the “ThinCare
Agreement”).
The 2009 Biggest Loser Agreement contained certain
specified restrictions on Michaels’ ability to participate in
commercials.1 The ThinCare Agreement executed after the 2009
Biggest Loser Agreement contained warranty provisions
inconsistent with the commercial restrictions in the 2009 Biggest
Loser Agreement.2 The gravamen of the malpractice claim is
1 The restrictive provision in the 2009 Biggest Loser
Agreement specified in pertinent part, “Artist shall not render
services or appear on-camera or off-camera in any commercials
(including infomercials). Notwithstanding the foregoing, subject
to the conditions set forth . . . above, Artist may render services
on one (1) national commercial campaign during each year
hereunder, subject to the reasonable approval of the television
network to which Company has granted the initial broadcast
rights to the Series . . . .”
2 Section 11 of the ThinCare Agreement provided in
pertinent part:
“Section 11 (b)(iii) – [Empowered] has entered into no
other agreement or contract and is not subject to any order,
decree or ruling, which would prohibit [Empowered] from
3
Markman’s alleged failure to advise Appellants on this
inconsistency between the 2009 Biggest Loser Agreement and the
ThinCare Agreement.
Pursuant to the ThinCare Agreement, Empowered was
paid a royalty advance of $2 million and was entitled to royalties
based on a sliding scale between 8 and 11 percent.3 The length of
the ThinCare Agreement was four years from the launch of the
first product until on or about August 1, 2013. ThinCare paid
Empowered a total of $5,531,153 in royalties over the life of the
ThinCare Agreement.
At the start of 2010, ThinCare and the Appellants were
sued in four separate class actions alleging the products were
falsely advertised. These lawsuits were eventually dismissed.
On January 21, 2011, ThinCare filed a complaint against
the Appellants in the federal district court in Utah (ThinCare
Litigation). Among other claims, ThinCare alleged a cause of
action for fraud in the inducement based on the “false”
warranties contained in the ThinCare Agreement. Appellants
performing its obligations under this Agreement or permitting
(ThinCare] to exercise the rights granted herein;
“Section 11 (b)(iv) – (Empowered ]is the sole owner of
the Jillian Michaels identifications, or has the sole and exclusive
right to use the Jillian Michaels Identifications . . . by [ThinCare
]as provided herein, does not and will not infringe the rights of
any third party.”
3 Pursuant to the terms of the ThinCare Agreement,
Empowered was to be paid royalties of 11 percent for the first $25
million in net sales, 10 percent for the next $25 million to $50
million in net sales, 9 percent for the next $50 million to $75
million in net sales, and 8 percent above $75 million in net sales.
4
retained Greenberg Traurig and its litigation partner, Matthew
Steinberg, along with a Utah based law firm, Strong & Hanni, to
defend the suit. As the case progressed, Strong & Hanni became
Appellants’ sole legal representation.
On July 12, 2013, ThinCare and the Appellants settled by
executing a Memorandum of Understanding. The terms of the
Memorandum of Understanding provided: (1) Appellants would
pay ThinCare $2.2 million, (2) Empowered would waive its claim
to the $1,299,814.72 that was held in escrow, and (3) Appellants
agreed to permit ThinCare to sell Michaels’ branded products
until April 30, 2016 without any payment of royalties. Prior to
the termination of the ThinCare Agreement, ThinCare and
Empowered Media Supplements, LLC (affiliated with
Empowered) entered into an “Amended and Restated Licensing
Agreement” for the continued sale of Michaels’ branded products
until June 1, 2018. Under this new agreement, Empowered
Media Supplements, LLC received an advance of $100,000 and
royalties after recoupment of the advance.
On December 16, 2012, during the ThinCare lawsuit,
Appellants and Midtown Equities began discussing the
possibility of a licensing deal to sell Michaels’ branded
supplement products. In May of 2013, Markman drafted a
proposed agreement with Midtown Equities which they reviewed.
The two sides, however, never reached a meeting of the minds
and the deal was never consummated.
Appellants filed the initial complaint in the instant case on
July 7, 2016. The operative second amended complaint, filed on
February of 2017, alleged nine causes of action (1) legal
malpractice, (2) breach of fiduciary duty, (3) breach of contract,
(4) declaratory relief to rescind and void contingent fee contract
5
for services, (5) declaratory relief to rescind and void litigation
agreement, (6) unfair business practice in violation of Business
and Professions Code section 17200 et seq., (7) negligent
misrepresentation, (8) fraudulent concealment, and (9) violation
of the Lanham Act (15 U.S.C. § 1125 et seq.).
On December 10, 2018, Respondents filed their motion for
summary adjudication on six out of the nine causes of action.
The trial court conducted the hearing on January 31, 2019 and
issued its final ruling on February 5, 2019. In its ruling, the trial
court excluded Appellants’ expert witness’s declaration on future
damages as speculative and not supported by the record. The
trial court granted the motion on all six causes of action based on
a lack of factual support on causation and damages (first, second,
third, fifth and seventh causes of action) and a lack of factual
support on the fraudulent concealment cause of action (eighth
cause of action). It denied Respondents’ alternative contentions
based on the doctrine of unclean hands and the relevant statute
of limitations.
On August 12, 2019, Appellants moved to dismiss the
remaining causes of action which the trial court granted on the
same day. This appeal followed.
DISCUSSION
Appellants contend the trial court erred in granting
Respondents’ motion for summary adjudication as to their first,
second, third, fifth, and seventh causes of action. We agree.
I. STANDARD OF REVIEW
A party may move for summary adjudication to resolve
causes of action, affirmative defenses, damages, or issues of duty.
(Code Civ. Proc., § 437c, subd. (f)(1).) Procedurally, a summary
6
adjudication motion is treated the same as a summary judgment
motion. (Id., subd. (f)(2).)
“On appeal after a motion for summary judgment [or
summary adjudication] has been granted, we review the record
de novo, considering all the evidence set forth in the moving and
opposition papers except that to which objections have been made
and sustained. [Citation.]” (Guz v. Bechtel National, Inc. (2000)
24 Cal.4th 317, 334 [100 Cal.Rptr.2d 352, 8 P.3d 1089]; Saelzler
v. Advanced Group 400 (2001) 25 Cal.4th 763, 767 [107
Cal.Rptr.2d 617, 23 P.3d 1143].) “In ruling on the motion, the
court must ‘consider all of the evidence’ and ‘all’ of the ‘inferences’
reasonably drawn therefrom [citation], and must view such
evidence [citations] and such inferences [citations], in the light
most favorable to the opposing party.’ (Aguilar v. Atlantic
Richfield Co. (2001) 25 Cal.4th 826, 843 (Aguilar).)
The moving party, whether the plaintiff or the defendant,
bears the initial burden or production “to make a prima facie
showing of the nonexistence of any trial issue of material fact; if
he carries his burden of production, he causes a shift, and the
opposing party is then subjected to a burden of production of his
own to make a prima facie showing of the existence of a triable
issue of material fact.” (Aguilar, supra, 25 Cal.4th at p. 850.)
The moving party also bears the burden of persuasion
which, unlike the burden of production, never shifts. In Aguilar,
California’s Supreme Court explained, “[o]n summary judgment,
the moving party’s burden is more properly labeled as one of
persuasion rather than proof. That is because, in order to carry
such burden, he must persuade the court that there is no
material fact for a reasonable trier of fact to find, and not prove
any such fact to the satisfaction of the court itself as though it
7
were sitting as the trier of fact.” (Aguilar, supra, 25 Cal.4th at
p. 845, fn. 4.)
“[I]f a defendant moves for summary judgment
against . . . a plaintiff, he must present evidence that would
require a reasonable trier of fact not to find any underlying
material fact more likely than not–otherwise, he would not be
entitled to judgment as a matter of law, but would have to
present his evidence to a trier of fact.” (Aguilar, supra,
25 Cal.4th at p. 851.)
II. TRIAL COURT’S RULING ON OBJECTIONS –
ABUSE OF DISCRETION
Before addressing the merits of Respondent’s summary
adjudication motion, we must determine whether the trial court
abused its discretion by excluding Appellants’ expert witness’s
opinion on future profits. Here, “[a] different analysis is required
for our review of the trial court’s . . . rulings on evidentiary
objections. Although it is often said that an appellate court
reviews a summary judgment motion ‘de novo,’ the weight of
authority holds that an appellate court reviews a court’s final
rulings on evidentiary objections by applying an abuse of
discretion standard. [Citations.]” (Carnes v. Superior Court
(2005) 126 Cal.App.4th 688, 694 [23 Cal.Rptr.3d 915].)
We start by reviewing relevant laws on the trial court’s role
in assessing whether to admit or exclude an expert witness’s
opinion on calculation of damages.
A. Legal Principles
“[U]nder Evidence Code sections 801, subdivision (b),[4] and
802,[5] the trial court acts as a gatekeeper to exclude expert
4 Evidence Code section 801 states:
8
opinion testimony that is (1) based on matter of a type on which
an expert may not reasonably rely, (2) based on reasons
unsupported by the material on which the expert relies, or (3)
speculative. Other provisions of law, including decisional law,
may also provide reasons for excluding expert opinion testimony.”
(Sargon Enterprises, Inc. v. University of Southern California
(2012) 55 Cal.4th 747, 771–772 (Sargon).)
In Sargon, supra, 55 Cal.4th 747, the California Supreme
Court applied these principles to determine whether the trial
“If a witness is testifying as an expert, his testimony in the
form of an opinion is limited to such an opinion as is:
“(a) Related to a subject that is sufficiently beyond common
experience that the opinion of an expert would assist the trier of
fact; and
“(b) Based on matter (including his special knowledge, skill,
experience, training, and education) perceived by or personally
known to the witness or made known to him at or before the
hearing, whether or not admissible, that is of a type that
reasonably may be relied upon by an expert in forming an opinion
upon the subject to which his testimony relates, unless an expert
is precluded by law from using such matter as a basis for his
opinion.”
5 Evidence Code section 802 states:
“A witness testifying in the form of an opinion may state on
direct examination the reasons for his opinion and the matter
(including, in the case of an expert, his special knowledge, skill,
experience, training, and education) upon which it is based,
unless he is precluded by law from using such reasons or matter
as a basis for his opinion. The court in its discretion may require
that a witness before testifying in the form of an opinion be first
examined concerning the matter upon which his opinion is
based.”
9
court erred in sustaining an objection to exclude expert witness’s
opinion on future profits. The Sargon court drew a distinction
between established and unestablished businesses in assessing
the admissibility of such opinions.
Regarding established businesses, “ ‘[l]ost profits . . . may
be recovered if their extent and occurrence can be ascertained
with reasonable certainty; once their existence has been so
established, recovery will not be denied because the amount
cannot be shown with mathematical precision. [Citations.]
Historical data, such as past business volume, supply an
acceptable basis for ascertaining lost future profits. [Citations.]
In some instances, lost profits may be recovered where plaintiff
introduces evidence of the profits lost by similar businesses
operating under similar conditions. [Citations.]’ ” (Sargon,
supra, 55 Cal.4th at p. 774.)
Where an unestablished businesses is “‘prevented or
interrupted, damages for prospective profits that might otherwise
have been made from its operation are not recoverable for the
reason that their occurrence is uncertain, contingent and
speculative. [Citations.] . . . But although generally
objectionable for the reason that their estimation is conjectural
and speculative, anticipated profits dependent upon future events
are allowed where their nature and occurrence can be shown by
evidence of reasonable reliability.’ [Citation.]” (Sargon, supra,
55 Cal.4th at p. 774.)
The question of speculation extends beyond the framework
of analyzing established and unestablished businesses. For
example, the expert witness in Sargon testified that Sargon
Enterprises would develop a research and development
department, like the “Big Six,” to compete with them. The expert
10
further assumed Sargon Enterprises would replace one of the
“Big Six” and that, the competitors would have taken no steps to
contend with their new competitor. (Sargon, supra, 55 Cal.4th at
p. 780.) Such assumptions, unless tethered to appropriate factual
foundation, may also render an opinion speculative.
Additionally, “courts must also be cautious in excluding
expert testimony. The trial court’s gatekeeping role does not
involve choosing between competing expert opinions. The high
court warned that the gatekeeper’s focus ‘must be solely on
principles and methodology, not on the conclusions that they
generate.’ [Citation.]” (Sargon, supra, 55 Cal.4th at p. 772.)
Noting that calculation of lost profits must be certain as to their
occurrence and extent, mathematical precision is not required.
(Id. at p. 774.)
In Garrett v. Howmedica Osteonics Corp. (2013)
214 Cal.App.4th 173 (Garrett), the court discussed the standard
for admitting expert opinions in a motion for summary judgment
or adjudication. Garrett concerned a patient’s products liability
action against designers and manufacturers of prosthetics
devices. In moving for summary adjudication, the defendants
lodged an expert’s declaration that the prosthetic device, used to
replace a portion of the femur, was not defective. (Id. at p. 179.)
The plaintiff, in opposition to the summary adjudication motion,
filed its own expert witness declaration refuting the defendant’s
expert witness opinion. The trial court found the plaintiff’s
expert’s declaration lacking in adequate factual foundation and
excluded the declaration.
The court reversed finding the trial court abused its
discretion. The Garrett court analyzed Sargon and explained,
“Sargon involved the exclusion of expert testimony at trial.
11
[Citation.] Evidence Code section 802 allows the trial court to
inquire into the reasons for an expert’s opinion so as to determine
whether those reasons are supported by the material on which
the expert relies. [Citation.]” (Garrett, supra, 214 Cal.App.4th at
p. 188.)
The court reasoned, “[u]nlike Sargon, [citation] this case
involves the exclusion of expert testimony presented in opposition
to a summary judgment motion. The trial court here did not
conduct an evidentiary hearing, and there was no examination of
an expert witness pursuant to Evidence Code section 802.
Absent more specific information on the testing methods used
and the results obtained, the trial court here could not scrutinize
the reasons for [plaintiff’s expert witness’s] opinion to the same
extent as did the trial court in Sargon. We do not believe,
however, that the absence of such detailed information justified
the exclusion of [plaintiff’s expert witness] testimony.” (Garrett,
supra, 214 Cal.App.4th at p. 189.)
The court further explained, “[t]he rule that a trial court
must liberally construe the evidence submitted in opposition to a
summary judgment motion applies in ruling on both the
admissibility of expert testimony and its sufficiency to create a
triable issue of fact. [Citations.] In light of the rule of liberal
construction, a reasoned explanation required in an expert
declaration filed in opposition to a summary judgment motion
need not be as detailed or extensive as that required in expert
testimony presented in support of a summary judgment motion
or at trial. [Citations.] Liberally construing the [plaintiff’s
expert witness] declaration, we conclude that the explanation
provided for [plaintiff’s expert] opinion was sufficient and that
the trial court could not properly exclude the expert testimony
12
based on [expert witness’s] failure to identify the particular tests
employed or describe the test results.” (Garrett, supra,
214 Cal.App.4th at p. 189.)
Thus a distinction is drawn between the trial court’s
gatekeeping function at a motion in limine, and, the trial court’s
role in ruling on the admissibility of the expert witness who offers
a declaration in opposition to a summary judgment motion. At a
motion in limine before a court or a jury trial, the trial court does
not view the evidence in the light favoring either party. In ruling
on the admissibility of evidence in a summary adjudication
motion, the trial court liberally construes the evidence in favor of
the party opposing the summary adjudication motion.
B. Analysis
On the question of lost profits, Appellants offered the
declaration of their expert, Sidney P. Blum, a certified public
accountant, licensed in California and New York. He worked as a
partner in several accounting firms including KPMG. He also
worked as the Chief Audit Officer for Beats Electronics, LLC, and
currently operates a consulting business on financial damages,
royalty audits, and expert witness services. He has experience
over royalty agreement negotiations which involved over $1
billion in annual sales and hundreds of millions of dollars in
royalties. Blum offered lost profit opinions on (1) the ThinCare
Agreement, and (2) the potential Midtown Equities deal. The
trial court excluded both.6 We analyze each in turn.
6 In the trial court’s final order for the summary
adjudication, the court set forth its objection rulings by noting the
number sequentially. When compared to the Defendants’
Objections to Evidence Submitted in Support of Plaintiffs’
Opposition to Defendant’s Motion for Summary Adjudication, the
13
1. ThinCare Agreement
On the ThinCare Agreement, Blum resorted to the
American Institute of Certified Public Accounts (AICPA) for
guidance on calculating damages. According to Blum’s
declaration, he used a method termed the “Before and After
Method” which “considers the profit the [Appellants] would have
received but for the actions of the [Respondents], and these but
for profits are reduced by any actual benefits that the
[Appellants] did receive through mitigation of damages or other
sources.” Blum divided the contract into two periods
(before/after) with the after periods further subdivided into two
parts. The “Before” period entailed 16 royalty payments from
ThinCare to the Appellants with an average royalty payment of
$351,204. The “Before” period reflected the actual royalties
received from ThinCare up until ThinCare litigation in 2011.
According to Blum, the “Before” period was impacted by
several significant market conditions that affected sales (1) the
class action litigations that started in February of 2010, and (2)
the ThinCare litigation which prevented Michaels from actively
marketing the products. Blum opined sales are a direct result of
marketing and that, had it not been for the ThinCare litigation,
Michaels could have resumed marketing activities thereby
increasing the ThinCare product’s sales.
Regarding the “After” period, Blum broke down the time
periods into (1) November 2011 to July 2013 (time from when the
last class action suit ended until the end of the ThinCare
numbers do not line up. However, both appellants and the
respondents agree in their briefing, the trial court excluded
Blum’s opinions on lost profits.
14
litigation), and (2) August 2013 to April 2016. Blum calculated
the lost profits from the period of November 2011 to July 2013 as
$7,375.279, and from the period of August 2013 to April 2016 as
$11,589,723. This is arrived at by multiplying the average
royalty payment from the “Before” period by the number of
months in each of the “After” periods.
On excluding Blum’s expert opinion, the trial court
reasoned, “Court . . . believes that Mr. Blum’s expert testimony
that Plaintiff lost between $7.3 million and $11.5 million in
royalties from the ThinCare deal is entirely too speculative and
based upon assumptions that are not supported by the record.
(Blum Decl. ¶25).”
A review of Blum’s declaration reveals the assumption the
trial court noted was not supported by the record, namely, that
Michaels was prevented from conducting further promotional and
marketing activities because of the ThinCare Litigation. This
assumption was crucial to Blum’s expert opinion. His entire
opinion on future profits rested on the premise of marketing. In
the same paragraph, Blum opined, “[Appellants’] damage
calculation must consider the lack of active marketing of the
products because sales are a direct result of marketing.” Thus,
the following progression of concepts may be extrapolated from
Blum’s opinion: (1) ThinCare product sales are a direct result of
marketing, (2) level of profits depends on Michaels’ involvement
with marketing, (3) Michaels was prevented from marketing
because of the ThinCare Litigation, and, (4) if the ThinCare
litigation would not have occurred, Michaels would have
continued to market ThinCare products into the “After” period.
Earlier in its final order, the trial court addressed the
question of whether Michaels would have continued marketing by
15
noting, “[Respondents] ha[ve] presented uncontroverted evidence
that [Michaels] had stopped supporting the ThinCare products
before the litigation was filed causing a precipitous decline in
sales. [Michaels] has provided no evidence indicating that she
would have continued supporting the ThinCare products despite
her stated concerns regarding false advertising, damage to her
image, and other matter had the litigation never been filed.” In
support of this conclusion, the trial court listed various exhibits
lodged by the Respondents that together show prior to ThinCare
filing suit against the Appellants on January 11, 2011,
Appellants were dissatisfied with ThinCare’s actions including
(1) failure to comply with the contract’s product approval
procedure, and (2) failure to comply with the royalty reporting
and payment procedure. The trial court referenced another
document which shows, in a deposition taken in connection with
the ThinCare Litigation, Michaels believed ThinCare, on some
occasions, had engaged in false advertising exposing both to the
threat of law suits.
The trial court’s conclusion, however, is contradicted by
Michaels’ declaration filed in opposition to the summary
adjudication motion. There, Michaels indicated “prior to the
filing of the ThinCare Litigation, I continued to actively promote
the products. At the instruction of the litigation firm
representing both ThinCare and [Empowered] in the class action
lawsuits, I limited my promotional and marketing activity during
the class action lawsuits. When the class actions stopped, I
would have continued to meet my marketing and promotional
obligations under the contract, but for the litigation filed by
ThinCare.” This declaration is admittedly self-serving, however,
“[m]odern courts have recognized that all evidence proffered by a
16
party is intended to be self-serving in the sense of supporting the
party’s position, and it cannot be discounted on that basis.”
(Oiye v. Fox (2012) 211 Cal.App.4th 1036, 1050.)
The record contains additional evidence that show Michaels
continued to participate in ThinCare’s marketing activities. For
example, an e-mail from Giancarlo Chersich, the CEO for
Empowered, dated March 17, 2010, after the filing of the class
action suit, highlights an exchange between ThinCare and
Empowered discussing Michaels’ promotional activities as
required under the ThinCare Agreement.
We acknowledge, evidence within the record reveals
Michaels was unhappy in her dealings with ThinCare prior to the
ThinCare litigation. However, in a summary adjudication
motion, the trial court does not weigh the evidence. Instead, the
court is required to “view the evidence in the light most favorable
to plaintiffs as the parties opposing summary judgment, strictly
scrutinizing defendants’ evidence in order to resolve any
evidentiary doubts or ambiguities in plaintiffs’ favor. [Citation.]”
(Dammann v. Golden Gate Bridge, Highway & Transportation
Dist. (2012) 212 Cal.App.4th 335, 340-341.) On this issue of facts
assumed by Blum, the trial court failed to liberally construe the
evidence in the light most favorable to the Appellants.
Another factual assumption, apparent from Blum’s opinion
is that ThinCare and Appellants would have continued with their
contractual relationship beyond the initial ThinCare Agreement.
This relates to the second part of the “After” period, from August
of 2013 to April of 2016. Blum calculated the lost profits from
this period to be $11,589,723.
The four-year time period of the ThinCare Agreement,
which had an expiration date of around August of 2013, was
17
extended based on the Memorandum of Understanding to settle
the ThinCare litigation. To offer an opinion, but for the ThinCare
litigation, Appellants would have earned future profits, and, at
the same time, extend the time period of the ThinCare
Agreement based on the Memorandum of Understanding that
settled the ThinCare Litigation appears inconsistent and
conjectural. We agree with the trial court that this factual
assumption was not properly supported by the record.
However, this alone does not resolve the question on
whether the trial court abused its discretion in excluding the
future profits’ declaration by Blum. We must also determine
whether his opinion was speculative. We analyze this question
through the framework discussed in Sargon.
On calculating lost profits, Sargon drew a dichotomy
between established and unestablished businesses. (Sargon,
supra, 55 Cal.4th at p. 774.) In the case of established
businesses, lost profits may be reasonably ascertained by looking
at the business’s past performance to extrapolate potential future
earnings. For unestablished businesses, past performance may
be objectionable as speculative. However, “ ‘anticipated profits
dependent upon future events are allowed where their nature
and occurrence can be shown by evidence of reasonable
reliability.’ ” (Ibid.)
Blum’s “Before and After Method” applied to the ThinCare
Agreement falls within Sargon’s established business dichotomy.
ThinCare manufactured and sold Michaels branded products for
approximately 16 months until ThinCare filed suit against the
Appellants (the “Before” period).
Here, we note several legal principles that apply. First, the
court’s role in determining the admissibility of expert witness’s
18
opinion “does not involve choosing between competing expert
opinions.” (Sargon, supra, 55 Cal.4th at p. 772.) The court’s role
is limited to analyzing principles and methodologies, not the
conclusions generated. (Ibid.)
The ThinCare business operated for approximately 16
months prior to the ThinCare Litigation, which served as the
basis for Blum’s future profits calculation. He used actual data
from ThinCare’s sale of Michaels’ branded products to arrive at
this calculation. The methodology used, the “Before and After
Method,” is approved by the American Institute of Certified
Public Accountants. While the methodology used must also fit
the facts on which it is applied, Blum had over a year’s worth of
data from ThinCare’s sales to provide his opinion.
Respondent cites Berge v. International Harvester Co.
(1983) 142 Cal.App.3d 152, which held that an award of future
damages for plaintiff’s two-year-old trucking business could not
be sustained after a jury verdict since the business never earned
a consistent profit. Berge, however, may be distinguished on
several grounds. First, the Court of Appeal in Berge was not
dealing with a summary adjudication motion, but instead,
reviewing a jury verdict that awarded lost profits under the
sufficiency of the evidence standard. Second, facts under Berge
do not line up with the instant case. In Berge, the expert offered
an opinion on lost profits based not on the actual profits
generated by the business, but instead, on a national average.
The Berge court found this testimony speculative as it had no
correlation to the plaintiff’s business. (Id. at pp. 162-163.) In the
instant case, Blum relied on data from ThinCare’s business to
calculate lost profits.
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On the ThinCare Agreement, we hold that the trial court
abused its discretion in excluding Blum’s expert opinion on the
“Before” period, and, on the first “After” period from November
2011 to July 2013, calculated as $7,375,279. The trial court did
not abuse its discretion in excluding Blum’s opinion on the second
“After” period as an assumption not supported by the record.
2. Midtown Equities Deal
The trial court also excluded Blum’s expert opinion on lost
profits for the Midtown Equities deal. In excluding this opinion,
the trial court explained, “[t]he Court has further concerns that
any lost profits from the Midtown Equities deal would be entirely
too speculative. The Court . . . does not believe that [Appellants’]
ha[ve] established a basis for its expert witness to opine that
Midtown Equities, which had never operated in this field or
fielded any similar product, would generate profits for
[Appellants] between $10 million and $90 million. [Citation.] At
least part of Mr. Blum’s opinion is based upon terms of draft
agreements that were drafted by [Appellants] and never agreed
to by Midtown Equities.”
Here, the business was literally unestablished. Midtown
Equities is owned by Joe Cayre whose business is in real estate
investments and development, not in the production and sale of
dietary supplements. Cayre declared, “[a]fter many months of
frustrating negotiations, we ultimately decided that we did not
wish to do a deal with [Michaels] anyway because [the CEO of
Empowered] was difficult to work with and taking up too much of
our time.” He further declared, “I did not pass on the deal
because of anything related to the ThinCare litigation.”
Appellants’ evidence fares no better. The evidence shows
Appellants were not interested in pursuing the deal because
20
Midtown had not agreed Michaels would have control over
product formulation. This deal was never consummated.
Again, we apply Sargon’s two-part dichotomy. As a
completely unestablished business, Blum had an uphill task of
attempting to formulate a lost profit analysis. In discussing his
analysis, Blum noted the lost profit calculation was based on
other deals. Blum, however, offered no analysis on the identity or
calculation analysis based on these other deals. Blum then
offered a comparison to the ThinCare Agreement. This was
lacking in any meaningful comparison between the two
companies other than comparing the agreements and noting
superficial similarity of products, time frames, and sales
channels.
We agree with the trial court, this opinion was wholly
speculative. The comparison between ThinCare and Midtown
Equities is more problematic than the comparisons made in
Sargon. Here, unlike Sargon, the Midtown’s proposed business
venture never got off the ground. Attempting to calculate lost
profits of a business that was never created is a difficult
proposition, one that takes much more than what Blum did in the
instant case. The trial court was correct in excluding this opinion
as speculative. On this, the trial court did not err.
III. DE NOVO REVIEW
Having determined the trial court abused its discretion in
excluding Appellants’ expert witness’s opinion on the “Before and
After Method” and on the calculation of lost profits on the “After”
period from November 2011 to July 2013, we next independently
review the evidence.
Respondents insist they are entitled to summary
adjudication on three bases: (1) lack of evidence showing
21
causation and damages, (2) unclean hands, and (3) statute of
limitations.
A. Causation/Damages
Respondents first contend they are entitled to summary
adjudication because the record lacks sufficient evidence showing
causation and damages. We disagree.
1. Legal Principles
Legal malpractice falls into two categories: litigation, and,
transactional. In Viner v. Sweet (2003) 30 Cal.4th 1232 (Viner),
the California Supreme Court held “just as in litigation
malpractice actions, a plaintiff in a transactional malpractice
action must show that but for the alleged malpractice, it is more
likely than not that the plaintiff would have obtained a more
favorable result.” (Id. at p. 1244.) To prove causation in the
“transactional” context, the Viner court explained “[t]he
requirement that the plaintiff prove causation should not be
confused with the method or means of doing so. Phrases such
as . . . ‘no deal’ scenario and ‘better deal’ scenario describe
methods of proving causation, not the causation requirement
itself or the test for determining whether causation has been
established.” (Id. at p. 1240, fn. 4.)
While the terms “no deal” and “better deal” are helpful in
analyzing the question of causation, they are not the actual test
in determining causation. Instead, “California has definitively
adopted the substantial factor test of the Restatement Second of
Torts for cause-in-fact determinations. [Citation.] Under that
standard, a cause in fact is something that is a substantial factor
in bringing about the injury. [Citations.] The substantial factor
standard generally produces the same results as does the ‘but for’
rule of causation which states that a defendant’s conduct is a
22
cause of the injury if the injury would not have occurred ‘but for’
that conduct. [Citations.] The substantial factor standard,
however, has been embraced as a clearer rule of causation—one
which subsumes the ‘but for’ test while reaching beyond it to
satisfactorily address other situations, such as those involving
independent or concurrent causes in fact. [Citations.]”
(Rutherford v. Owens-Illinois, Inc. (1997) 16 Cal.4th 953, 968-
969.) California Civil Jury Instructions (CACI) No. 430 sets forth
the “Substantial Factor” test as follows: “A substantial factor in
causing harm is a factor that a reasonable person would consider
to have contributed to the harm. It must be more than a remote
or trivial factor. It does not have to be the only cause of the
harm. [¶] [Conduct is not a substantial factor in causing harm if
the same harm would have occurred without that conduct.]”
(CACI No. 430.)
“For the breach of an obligation not arising from contract,
the measure of damages . . . is the amount which will compensate
for all the detriment proximately caused thereby, whether it
could have been anticipated or not.” (Civ. Code, § 3333.) Thus,
“an attorney’s ‘liability, as in other negligence cases, is for all
damages directly and proximately caused by his negligence.’ ”
(Smith v. Lewis (1975) 13 Cal.3d 349, 362, disapproved on other
grounds in In re Marriage of Brown (1976) 15 Cal.3d 838.)
The amount of any damages suffered, however, is offset by
any benefits the injured party may have received from the
alleged wrongful conduct. (See In re De Laveaga’s Estate (1958)
50 Cal.2d 480, 488-489; Heckert v. MacDonald (1989) 208
Cal.App.3d 832, 839.) This is referred to as the “Special Benefits”
doctrine. (Heckert, supra, at p. 839.)
23
2. Analysis
The key question on causation is whether Markman’s
alleged legal malpractice was a substantial factor in causing
harm to the Appellants. In business transactions, harm is
necessarily reduced to damages. Both the Appellants and the
Respondents have analyzed this question under the “better deal”
and “no deal” methods discussed in Viner.
Appellants contend that, had Markman properly advised
them on the 2009 Biggest Loser Agreement’s restriction on
external commercial activities, they could have pursued three
better deals: (1) execute only the ThinCare Agreement, (2)
negotiate the 2009 Biggest Loser Agreement with an exception for
the ThinCare commercials, or (3) negotiate with ThinCare with
the 2009 Biggest Loser Agreement restrictions included to form a
different deal. Respondent contends no evidence supports any of
these alternatives. We disagree.
Within Markman’s deposition conducted on February 8,
2018 he indicated Michaels contemplated walking away from the
Biggest Loser deal.
“[Question:] Okay. When was it expressed to you in the
process what Jillian Michaels wanted in order to agree to go back
to ‘the Biggest Loser’?
“[Answer:] Well, when she said why she didn’t want to go.
When she said she didn’t want to go back, she explained why.
“[Question:] Okay. And what was the reason why?
“[Answer:] Well, I think she felt she was being underpaid.
I think she felt she was being paid less than her counterpart and
that they were sort of abusing her time and her interaction with
brands and things like that.”
24
Michaels’ declaration also supports this alternative. In it,
she declared, “[h]ad Markman informed me, that the 2009
Biggest Loser Agreement would have rendered the
representations and warranties in the ThinCare Agreement false,
I may not have entered into the 2009 Biggest Loser Agreement. I
felt the ThinCare Agreement was an incredible opportunity and
worth a minimum of $5 million, while I had been having issues
with the production of the Biggest Loser. Therefore, if I had been
told I needed to choose one or the other I likely would have picked
the ThinCare Agreement.”
This supports the conclusion, had Markman advised the
Appellants about the restriction on external commercial
activities, Michaels could have chosen to execute only the
ThinCare Agreement. While we recognize the ThinCare
Litigation encompassed more than the question of false warranty
in the agreement, our role is not to decide which side has the
better case. When viewed in the light most favorable to the
opposing party, the Appellants have met their burden of
establishing a material factual dispute on causation.
Beyond causation, Appellants must also show they suffered
a harm. On the issue of damages, we earlier determined the trial
court abused its discretion in excluding a part of the Appellant’s
expert witness’s opinion on lost profits for the “Before and After
Method” of calculating lost profits, and, the “After” period from
November 2011 to July 2013 which Blum calculated as
$7,375,279. According to the Respondents, without the lost
profits, Appellants retained a net benefit of $3,085,209. Applying
the “Special Benefits” doctrine with the addition of the lost profits
as claimed damages, the Appellants suffered a potential net loss
25
of $4,290,070. As with causation, the Appellants have met their
burden of establishing materiality on damages.7
B. Unclean Hands
Respondents alternatively contend Appellants are barred
from recovery under the doctrine of unclean hands. The trial
court rejected this contention as do we.
1. Legal Principles
“The doctrine [of unclean hands] demands that a plaintiff
act fairly in the matter for which he seeks a remedy. He must
come into court with clean hands, and keep them clean, or he will
be denied relief, regardless of the merits of his claim. [Citations.]
The defense is available in legal as well as equitable actions.
[Citations.] Whether the doctrine of unclean hands applies is a
question of fact.” (Kendall-Jackson Winery, Ltd. v. Superior
Court (1999) 76 Cal.App.4th 970, 978 (Kendall-Jackson).)
Furthermore, “[t]he unclean hands doctrine protects
judicial integrity and promotes justice. It protects judicial
integrity because allowing a plaintiff with unclean hands to
recover in an action creates doubts as to the justice provided by
the judicial system. Thus, precluding recovery to the unclean
plaintiff protects the court’s, rather than the opposing party’s
interests.” (Kendall-Jackson, supra, 76 Cal.App.4th at p. 978.)
In Blain v. Doctor’s Co. (1990) 222 Cal.App.3d 1048 (Blain),
the court discussed a three-pronged test to determine whether
the equitable defense of unclean hands bars a claim: (1)
analogous case law, (2) the nature of the misconduct, and (3) the
7 Since we have found Appellants have met their burden to
show there are material disputed facts on causation under the
“better deal” scenario, it is unnecessary to analyze the “no deal”
scenario.
26
relationship of the misconduct to the claimed injuries. (Id. at
p. 1060.)
2. Analysis
Respondents claim, when Michaels executed the ThinCare
Agreement, she personally signed an acknowledgment which
stated: “By signing below, Jillian Michaels acknowledges that
she has read this Agreement and confirms all grants,
representations, warranties and agreements made by
[Empowered] and agrees to make the contributions provided for
therein in accordance with the terms and conditions thereof and
if Jillian Michaels fails to do so, Jillian Michaels acknowledges
that [ThinCare] shall have the same rights and remedies against
Jillian Michaels as [ThinCare] has against [Empowered].”
Michaels, however, indicated in a declaration, despite
having signed the acknowledgment to the contrary, she had not
read the ThinCare Agreement before executing it. The ThinCare
Agreement contained a warranty clause that provided Appellants
have not entered into any other agreements that prevented the
Appellants from performing any obligations in the ThinCare
Agreement.
When ThinCare filed suit in 2011 against the appellants in
federal district court in Utah, one of the causes of actions was for
fraud in the inducement. ThinCare filed a partial summary
judgment motion, like a summary adjudication motion in
California, on the fraudulent inducement cause of action. On
July 8, 2013, the district court conducted the hearing and
provided a tentative to grant the motion in favor of ThinCare.
The parties requested a two-day continuance to talk settlement
which ultimately led to the Memorandum of Understanding.
27
The Appellant’s second amended complaint contained a
procedural history that discussed what occurred in the ThinCare
Litigation.8 Respondents claim a sentence within the procedural
history is an admission of fraud by the Appellants (“The Motion
also set forth facts demonstrating that ThinCare had met all
elements of its fraudulent inducement claim in its Complaint.”).
This contention is resolved by looking at the second prong
of the Blain test – nature of the misconduct. In Blain, a medical
doctor sued his attorney for legal malpractice because the
attorney allegedly told the doctor to lie in a medical malpractice
deposition. The attorney defendant demurred on several theories
including the doctrine of unclean hands. The trial court
sustained the demurrer without leave to amend. (Blain, supra,
222 Cal.App.3d at p. 1057.)
The doctor’s misconduct was egregious. It was “designed to
disadvantage an injured patient in pursuing a claim for medical
malpractice, resulting in severe and permanent injuries. This is
8 Paragraph 63 of the Second Amended Complaint stated as
follows:
“ThinCare’s Motion for Partial Summary Judgment re
Count IV (Fraudulent Inducement) of its Second Amended
Complaint, filed April 8, 2013, set forth undisputed facts showing
that the advertising-related exclusivity provisions of the earlier-
signed BL4 Contract rendered false the Warranties made in the
subsequently-signed ThinCare Agreement. The Motion also set
forth facts demonstrating that ThinCare had met all elements of
its fraudulent inducement claim in its Complaint. The Motion
was fully briefed over the following weeks and, along with several
motions filed by Ms. Michaels and Empowered Media, came
before the court at a hearing held on July 8, 2013 (the
“Hearing”).”
28
an ‘act involving dishonesty or corruption which is substantially
related to the qualifications, functions, or duties of a physician
and surgeon’ within the meaning of Business and Professions
Code section 2234, subdivision (e). Such an act is grounds for the
professional discipline of a physician.” (Blain, supra, 222
Cal.App.3d at p. 1064.) The Blain court upheld the trial judge’s
order.
On the nature of the alleged misconduct, our case is
nowhere close. Respondents allege, by including the sentence in
the second amended complaint as discussed above, Appellants
have admitted the fraudulent inducement claim in the ThinCare
litigation. Another paragraph within the same second amended
complaint, however, sheds further light on this issue. In
discussing the tentative ruling given by the Utah District Court,
the second amended complaint states, “Greenberg Traurig and
Markman’s negligence, causing Ms. Michaels to unwittingly
violate the warranties, directly led to this disastrous result.”
This potentially negates the requisite intent.
In denying Respondents summary adjudication motion on
this ground, the trial court observed “that there is a triable
question of fact as to the second element of unclean hands.
Plaintiffs’ admitted misconduct does not necessarily constitute
unclean hands as a matter of law. . . . The language in the
[second amended complaint] cited by Defendants instead
constitutes an admission that Plaintiffs would have lost the fraud
lawsuit against ThinCare – that is not the same as an admission
that the facts underlying the lawsuit were true.” We agree with
this assessment and reach the same conclusion. Viewing these
facts in the light most favorable to the Appellants, there exists a
disputed material fact – the nature and extent of the alleged
29
misconduct – which must be resolved by a jury. As such, we need
not analyze the other two prongs.
C. Statute of Limitations
Respondents contend the causes of action related to the
malpractice claims are barred by the one-year statute of
limitations under Code of Civil Procedure section 340.6.9
Respondents claim Appellants knew, or should have known, the
alleged wrongful act or omission by no later than March of 2011
when they were served with the ThinCare complaint.
Respondents further assert, the statute of limitations began to
run when their litigation attorneys substituted out at the end of
February 2012 making March of 2013 the time frame when the
complaint on the malpractice claims had to have been filed. We
disagree.
1. Legal Principles
“The continuous representation rule, as codified in section
340.6, subdivision (a), is not triggered by the mere existence of an
attorney-client relationship. Instead, the statute’s tolling
language addresses a particular phase of such a relationship—
representation regarding a specific subject matter. Moreover, the
limitations period is not tolled when an attorney’s subsequent
9 Code of Civil Procedure section 340.6, subdivision (a) states
in pertinent part:
“An action against an attorney for a wrongful act or
omission, other than for actual fraud, arising in the performance
of professional services shall be commenced within one year after
the plaintiff discovers, or through the use of reasonable diligence
should have discovered, the facts constituting the wrongful act or
omission, or four years from the date of the wrongful act or
omission, whichever occurs first.”
30
role is only tangentially related to the legal representation the
attorney provided to the plaintiff. [Citations.] Therefore, ‘[t]he
inquiry is not whether an attorney-client relationship still exists
but when the representation of the specific matter terminated.’
[Citation.]” (Foxborough v. Van Atta (1994) 26 Cal.App.4th 217,
228-229.)
In Crouse v. Brobeck, Phleger & Harrison (1998) 67
Cal.App.4th 1509, the court discussed the contours involved in
analyzing continuous representation. The Crouse court
explained, “[a] leading treatise . . . states that to qualify as the
same subject matter ‘[t]he activities allegedly constituting
continuous representation must relate to the main task or
particular undertaking in which the error occurred. . . . [¶] . . .
The focus should be on the objectives of the prior retention and
whether the present activities fall within those objectives.’
[Citation.]” (Id. at p. 1530.)
When an attorney is formally substituted out as counsel,
that usually terminates the attorney/client relationship.
However, “the relationship can continue–notwithstanding the
withdrawal and substitution–if the objective evidence shows that
the attorney continues to provide legal advice or services.
[Citation.]” (Shaoxing City Maolong Wuzhong Down Products,
Ltd. v. Keehn & Associates, APC (2015) 238 Cal.App.4th 1031,
1039.) Acts such as (1) providing advice on the subject matter
involving the alleged wrong act, (2) performing work, (3) billing
for legal services relating to the on-going representation, (4)
making appearances, (5) negotiating on the client’s behalf, and
(6) speaking or communicating on the subject matter of the
representation – may be considered as objective evidence of an
on-going representation. (Ibid.)
31
2. Analysis
Appellants assert that Respondents continued to represent
them on the ThinCare Litigation through Markman until
Appellants formally severed ties on July 8, 2013. Until then,
Appellants contend the Respondents continued to render legal
services which tolled the statute of limitation under Code of Civil
Procedure section 340.6, subdivision (a)(2) which provides for
tolling when, “[t]he attorney continues to represent the plaintiff
regarding the specific subject matter in which the alleged
wrongful act or omission occurred.” (Code Civ. Proc., § 340.6,
subd. (a)(2).) According to the Appellants, with the execution of
the tolling agreement, the statute of limitations was extended for
an additional two years up until July of 2016 when the original
complaint was filed.
A review of the record shows the following facts:
(1) When the ThinCare Litigation was filed in Utah,
Markman recommended Appellants retain Greenberg Traurig
litigation attorneys, Matthew S. Steinberg and Richard G. Merrill
to represent the Appellants.
(2) Utah attorneys from the law firm of Strong & Hanni
made a notice of entry of appearance of counsel in the ThinCare
litigation on July 8, 2011.
(3) The Utah Federal District Court granted Greenberg
Traurig’s litigation attorneys, Matthew S. Steinberg and Richard
G. Merrill, pro hac vice admission on July 12, 2011.
(4) Appellants discharged respondent Greenberg
Traurig’s litigation attorneys, Matthew S. Steinberg and Richard
G. Merrill, reflected in a substitution of counsel filing which
named Stuart Schultz of Strong & Hanni as counselor for the
Appellants on February 29, 2012.
32
(5) Appellants sent a letter dated August 22, 2013 to
Markman which indicated Appellants had instructed Markman
and Greenberg Traurig on July 8, 2013 to suspend all further
services on their behalf.
(6) Respondents and Appellants executed the Tolling
Agreement effective July 8, 2014 for a one-year period.
(7) Respondents and Appellants executed an
Amendment to the Tolling Agreement effective July 8, 2015 for
another one-year period.
(8) Appellants filed the original complaint in the instant
case on July 7, 2016.
On this issue, the factual question is whether between item
(4) and item (5) above, Respondents continued to represent the
Appellants on the specific subject matter in which the alleged
wrongful act or omission occurred.
We note, this is not a case of litigation malpractice. Both
sides agree, the Viner case is controlling because Markman
provided transactional services as a shareholder partner for
Greenberg Traurig. Furthermore, the record shows Respondents
provided both transactional and litigation services which makes
the analysis more complex than a garden variety litigation
representation when counsel substitutes out.
Appellants’ evidence shows they viewed Markman as “their
legal counsel” and he continued to bill them for work performed
until late 2013. For example, invoice number 3518158 for
$59,964.08 shows entries for litigation related work on May 17,
2013, May 20, 2013, May 22, 2013, May 24, 2013, May 30, 2013,
May 31, 2013, June 7, 2013, June 11, 2013, June 13, 2013,
June 18, 2013, June 20, 2013, and June 21, 2013. While a
transactional attorney can sometimes become involved in
33
litigation to render advice on deals they have worked on, and,
while it is possible these billing entries were for work on behalf of
the Appellants on some other litigation, we know for certain, this
billing time period led up to the partial summary judgment
motion hearing date in Utah District Court which occurred on
July 7, 2013.
That Markman communicated and worked on the ThinCare
Litigation after March of 2012 finds further support in the record.
For example, on June 10, 2013, Strong & Hanni requested
Markman’s assistance on legal issues on the ThinCare Litigation
memorialized in a letter sent by Strong & Hanni to the
Appellants. This appears to correspond with Markman’s billing
notation from June 11, 2013. The record also contains an e-mail
sent by Strong & Hanni to Appellants and Markman from May
29, 2013 on the potential impact of the federal court “unsealing”
the case. The inquiry triggered Markman’s involvement with
litigation strategy on the potential impact of such “unsealing” on
Appellants’ federal regulatory concerns.
It remains an open question whether these actions by the
Respondents were tangential to the prior representation or
constitutes evidence of continuous representation. Resolving
statute of limitations issue is normally a question of fact. (Fox v.
Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 810.)
Certainly here, the statute of limitations question involves
materially disputed facts that cannot be resolved by a summary
adjudication motion.
34
DISPOSITION
The order granting the summary adjudication on the first,
second, third, fifth and seventh causes of action is reversed. The
case is remanded for further proceedings. Appellants are entitled
to recover their costs on appeal.
OHTA, J.*
We concur:
BIGELOW, P. J.
GRIMES, J.
* Judge of the Los Angeles Superior Court, assigned by the
Chief Justice pursuant to article VI, section 6 of the California
Constitution.
35