Los Angeles Memorial Coliseum Commission v. Insomniac, Inc.
233 Cal. App. 4th 803
| Cal. Ct. App. | 2015Background
- The Los Angeles Memorial Coliseum Commission and Association (plaintiffs) sued music promoters Insomniac, Inc., Go Ventures, and their principals alleging promoters paid a Coliseum employee (Todd DeStefano) and his companies kickbacks/consulting fees tied to event revenues and made undisclosed cash payroll payments that reduced costs and diverted funds.
- Plaintiffs alleged DeStefano negotiated rental/use agreements for public venues while secretly receiving ~10% of gross ticket sales via his companies and that promoters knew of his public employment and payments.
- Plaintiffs pleaded multiple causes: False Claims Act, Gov. Code §1090 (conflict of interest), conspiracy to defraud, common‑law fraud, UCL (Bus. & Prof. Code §17200), negligence, and accounting; defendants demurred and the trial court sustained several demurrers without leave to amend, entered judgment for defendants, and plaintiffs appealed.
- On appeal the Court of Appeal reviewed de novo and held plaintiffs adequately pleaded violations of §1090 (and entitlement to disgorgement), conspiracy to defraud, UCL, and accounting; but lacked standing under the False Claims Act and failed to state negligence and common‑law fraud claims against the promoters.
- The case was reversed in part and remanded with instructions to overrule demurrers as to §1090, conspiracy to defraud, UCL, and accounting; demurrers as to False Claims Act, negligence, and fraud were affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing under the False Claims Act | Plaintiffs (public entities) may sue directly under Gov. Code §12651 and need not proceed as a qui tam relator. | Only the AG, a prosecuting authority, or a qui tam plaintiff may bring suit; plaintiffs did not bring a qui tam and lacked statutory standing. | Plaintiffs lacked standing; demurrer sustained without leave to amend and affirmed on appeal. |
| Gov. Code §1090 liability and disgorgement | §1090 forbids public officials from financially benefiting from contracts they make; remedies (avoidance/disgorgement) extend to private parties who profited even if profits came from private ticket sales. | Remedy applies only where defendant received "public funds" under the contract; profits here were from private ticket revenue not public treasury. | Court held §1090 was implicated and disgorgement is appropriate even where profits derived from private ticket sales; demurrer reversed as to §1090. |
| Negligence (duty) | Promoters knew DeStefano was a public employee and that payments/agreements would foreseeably harm plaintiffs; duty arises from that knowledge. | No special relationship or assumption of duty beyond contractual terms; promoters owed no broader tort duty. | No duty established on pleaded facts; negligence demurrer properly sustained without leave to amend. |
| Fraud / Conspiracy & UCL restitution | Promoters concealed the consulting payments and represented rents as flat fees; conspiracy with DeStefano supports fraud by concealment; UCL unlawful/fraudulent prongs and restitution for unpaid payroll taxes and diverted proceeds. | No fiduciary duty owed by promoters to trigger nondisclosure fraud; affirmative rent statements were not facially false; UCL/restoration claims lack predicate. | Fraud by promoters based on concealment failed (no duty), but conspiracy to defraud survived because DeStefano (agent/principal fiduciary) committed the underlying fraud and promoters conspired; UCL unlawful/fraud prongs and restitution claims survived. |
Key Cases Cited
- Thomson v. Call, 38 Cal.3d 633 (Cal. 1985) (strict enforcement of §1090; remedies including forfeiture/disgorgement justified to deter public‑official self‑dealing)
- County of San Bernardino v. Walsh, 158 Cal.App.4th 533 (Cal. Ct. App. 2007) (disgorgement of profits from a contract tainted by bribery is appropriate even when profits come from third‑party payments)
- Carson Redevelopment Agency v. Padilla, 140 Cal.App.4th 1323 (Cal. Ct. App. 2006) (§1090 violation supports disgorgement; bright‑line rule against benefiting from extortionate/bribed contracts)
- Klistoff v. Superior Court, 157 Cal.App.4th 469 (Cal. Ct. App. 2007) (private parties not public officials cannot be liable under §1090 itself; remedial analysis depends on whether defendant received payments under the tainted contract)
- Applied Equipment Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503 (Cal. 1994) (civil conspiracy doctrine: conspiracy alone is not an independent tort; liability flows from torts committed in furtherance of the conspiracy)