James v. Leavitt Group Agency of San Diego CA4/1
D077353
| Cal. Ct. App. | Jan 5, 2022Background
- Thomas James was president and a minority shareholder (initially 25%) of Leavitt Group Agency of San Diego; parent Leavitt Group Enterprises (LGE) was majority shareholder and exercised operational control.
- In 2012–2013 two stock issuances (financing and debt restructure) diluted James’ ownership to 14% based on valuations prepared by LGE employee Kelly Russell; James later paid contributions consistent with those valuations.
- James signed an express employment agreement (effective Nov. 12, 2009) permitting termination only for specified "good cause" (defined in the contract as gross dereliction of duties or persistent refusal to follow instructions).
- In late 2013/early 2014 LGE replaced James with Ed Nokes and terminated James for "good cause;" James learned in discovery LGE had valued the 14% interest far higher in pro forma materials given to Nokes and sued for breach of the employment agreement (Agency), intentional interference (LGE), breach of fiduciary duty, reformation of the stock issuance agreements, and declaratory relief.
- A bifurcated trial: jury found breach of contract for James vs. Agency and found no intentional interference by LGE; a short bench phase produced a tentative statement of decision (Judge Hayes) granting reformation and finding LGE breached fiduciary duties; Judge Hayes retired before ruling on objections, case reassigned, Judge Medel entered judgment on the tentative decision.
- On appeal the court affirmed: it held the trial court erred in giving a Cotran/CACI instruction (applicable to implied agreements) for an express contract but the error was not prejudicial; Judge Hayes’s failure to finalize the statement of decision did not mandate a new bench trial because Defendants failed to show prejudice; the equitable findings (reformation, fiduciary breach) were supported by substantial evidence.
Issues
| Issue | Plaintiff's Argument (James) | Defendant's Argument (LGE/Agency) | Held |
|---|---|---|---|
| 1. Was it error to give the Cotran/CACI No. 2405 instruction (procedure-focused good-cause standard)? | Cotran protections apply broadly and the jury should be instructed to consider investigative procedure and notice. | Cotran applies only to implied-in-fact no-termination-except-for-good-cause agreements; here there was an express contract with its own definition of "good cause." | Court: Giving Cotran-style instruction for an express contract was erroneous but harmless (nonprejudicial). |
| 2. Did Judge Hayes’s retirement and failure to finalize the statement of decision require a new bench trial on equitable claims? | The reassignment and lack of final ruling on objections was an irregularity mandating a new trial. | The tentative statement adequately set out findings; reassignment was harmless absent prejudice. | Court: No abuse of discretion; harmless-error review applies and Defendants failed to show prejudice, so no new trial required. |
| 3. Do the bench findings (fiduciary breach, reformation) conflict with the jury’s verdict on intentional interference, warranting JNOV? | The trial court’s wording (e.g., "manipulation") implies intentional acts, conflicting with the jury’s finding LGE did not intend to induce breach. | The judge’s equitable findings concerned different transactions (stock valuations) and distinct facts; no conflict exists. | Court: No irreconcilable conflict; equitable findings were based on different facts and did not require intent. |
| 4. Was reformation and the award of adjusted shares supported by substantial evidence? | Reformation not proper because no mutual intent to a specific correct valuation; valuation errors were reasonable or not shown. | The stock agreements recited the recitals as "correct," and expert Burkholder supported plaintiff’s valuation; court correctly found mutual mistake and adopted Burkholder. | Court: Substantial evidence supported reformation (mutual mistake as to correct valuation) and the adjusted ownership remedy. |
Key Cases Cited
- Cotran v. Rollins Hudig Hall Internat., Inc., 17 Cal.4th 93 (Cal. 1998) (establishes the Cotran/Scott‑Pugh procedure-focused standard for reviewing terminations under implied-in-fact good-cause agreements)
- Guz v. Bechtel National, Inc., 24 Cal.4th 317 (Cal. 2000) (at-will employment presumption and parties’ freedom to contract around termination rights)
- Scott v. Pacific Gas & Electric Co., 11 Cal.4th 454 (Cal. 1995) (defines what good/just cause is not: trivial, capricious, unrelated to business needs, or pretextual)
- Pugh v. See’s Candies, Inc., 116 Cal.App.3d 311 (Cal. Ct. App. 1981) (good/just cause connotes fair and honest cause regulated by good faith)
- Khajavi v. Feather River Anesthesia Medical Group, 84 Cal.App.4th 32 (Cal. Ct. App. 2000) (Cotran analysis limited to implied employment agreements; express contract may warrant different standard)
- Monier v. F.P., 3 Cal.5th 1099 (Cal. 2017) (procedural failures re statement of decision are subject to harmless-error review)
- Leiserson v. City of San Diego, 184 Cal.App.3d 41 (Cal. Ct. App. 1986) (tentative or intended decision may suffice for entry of judgment where it provides a complete basis for appellate review)
- Richter v. Walker, 36 Cal.2d 634 (Cal. 1951) (findings should be construed to support the judgment where reasonably possible)