57 Cal.App.5th 1108
Cal. Ct. App.2020Background
- ICJR, a nonprofit started by orthopedic surgeons to run continuing-education conferences, retained Mark Sacaris in 2009 (informal ‘‘handshake’’ agreement) to manage conferences; Sacaris performed services through his for‑profit companies Tier One and CHE.
- Sacaris had exclusive control of ICJR bank accounts and approved payments; he routed all work through CHE, set hourly rates unilaterally, and applied undisclosed markups (overhead + profit) to labor charges.
- Over time CHE expanded services (web development, live‑surgery broadcasts via a Tier One subsidiary “Live Surgery,” and management of pharmaceutical symposia), sometimes despite lack of expertise; some services were overbilled or low quality.
- In 2016 ICJR learned it owed CHE roughly $2 million, terminated CHE/Sacaris, and ICJR cross‑complained alleging breaches of fiduciary duty, fraud, conversion, and sought disgorgement of four categories of secret profits (management markups, web development overbilling, symposia profits, Live Surgery profits).
- At bench trial the court awarded CHE breach‑of‑contract damages but found fiduciary breaches by CHE/Sacaris; it awarded disgorgement for web overbilling ($800,000) and Live Surgery ($73,310), but denied disgorgement for the undisclosed management markups and for symposia.
- On appeal the court held the trial court erred in requiring proof of principal’s monetary harm to award disgorgement of secret profits (management markups), reversed that portion and remanded to determine disgorgement amount; it affirmed the denial as to pharmaceutical symposia (not a corporate opportunity).
Issues
| Issue | Plaintiff's Argument (ICJR) | Defendant's Argument (CHE/Sacaris) | Held |
|---|---|---|---|
| Whether disgorgement of a fiduciary’s secret profits requires proof the principal suffered monetary harm | No — disgorgement is an equitable remedy focused on the fiduciary’s wrongful gain; proof of reasonable approximation of profit suffices | Yes — plaintiff must prove it was overcharged or harmed; profits here were not "secret" and rates reasonable | Court: No. Disgorgement need not be tied to principal’s pecuniary loss; ICJR met burden to show approximate wrongful gain and trial court must fashion remedy (remanded) |
| Whether CHE/Sacaris’s undisclosed markups and billing practices produced "secret profits" subject to disgorgement | Markups were undisclosed bottom‑line charges that produced $1,430,260 in profits (uncontradicted CPA testimony) and are recoverable as secret profits | Markups are ordinary professional billing practices and not secret; rates were reasonable | Court: The markups were secret profits because CHE/Sacaris failed to disclose bottom‑line rates/charges; ICJR proved a reasonable approximation and is entitled to equitable relief — remand to quantify disgorgement |
| Whether pharmaceutical symposia were an ICJR corporate opportunity that CHE/Sacaris usurped | Yes — CHE used ICJR resources (rooms, faculty) and the symposia were presented during ICJR events, so ICJR would have had an interest/capacity | No — ICJR lacked in‑house capacity/expertise and would have outsourced; symposia were not within ICJR’s line of business or corporate interest | Court: Substantial evidence supports trial court: symposia were not an ICJR corporate opportunity; denial of recovery on that theory affirmed |
Key Cases Cited
- Meister v. Mensinger, 230 Cal.App.4th 381 (disgorgement remedy; plaintiff must show reasonable approximation of fiduciary’s wrongful gain)
- County of San Bernardino v. Walsh, 158 Cal.App.4th 533 (disgorgement focuses on wrongdoer’s enrichment rather than plaintiff’s loss)
- Uzyel v. Kadisha, 188 Cal.App.4th 866 (burden shifting: plaintiff approximates profit, fiduciary must prove costs/offsets)
- J.C. Peacock, Inc. v. Hasko, 196 Cal.App.2d 353 (agent who conceals gains may forfeit right to compensation; no showing of principal’s injury required)
- Trafton v. Youngblood, 69 Cal.2d 17 (fiduciary breached duty by unilaterally fixing fee and using trust funds without notice)
- Van de Kamp v. Bank of America, 204 Cal.App.3d 819 (trustee/agent owes duty of fullest disclosure; undisclosed benefits are secret profits)
- Bardis v. Oates, 119 Cal.App.4th 1 (undisclosed middleman marks up partner invoices; secret profit doctrine)
- Feresi v. The Livery, LLC, 232 Cal.App.4th 419 (describing high standard of fiduciary loyalty and equitable remedies)
- Hicks v. Clayton, 67 Cal.App.3d 251 (principal may elect equitable remedies including disgorgement)