Todd Wooten, et al. v. Ron Donaire, et al

Case Number

22CV01147

Case Type

Hearing Date / Time

Wed, 12/27/2023 - 10:00

Nature of Proceedings

Defendants’ Motion For Sanctions Against Plaintiff Todd Wooten and Foley Bezek Behle & Curtis, LLP Pursuant To Code of Civil Procedure section 128.5

Tentative Ruling

For Plaintiff and Cross-Defendant Todd Wooten and Cross-Defendants Maureen Wooten and VRTCAL Markets, Inc.: Robert A. Curtis, Aaron L. Arndt, Jordan A. Liebman, Foley Bezek Behle & Curtis, LLP 

For Defendants Jeff Pescatello, John Williams, and Ron Donaire: Robert B. Forouzandeh, Andrew Hazlett, Reicker, Pfau, Pyle & McRoy LLP

For Defendant (as nominal Defendant) and Cross-Complainant DelPlaya Media, Inc.: John J. Thyne III, Thyne Taylor Fox Howard, LLP

Emails: rcurtis@foleybezek.com; aarndt@foleybezek.com; liebman@foleybezek.com; rforouzandeh@rppmh.com; ahazlett@rppmh.com; jthyne@ttfhlaw.com;  

RULING

For all reasons discussed herein, Defendants’ motion for sanctions is denied.

Background

This is a derivative action filed on March 23, 2022, by Plaintiff Todd Wooten (Wooten) against Defendants Ron Donaire (Donaire), Jeff Pescatello (Pescatello), John Williams (Williams) (collectively, Defendants), and DelPlaya Media, Inc. (DelPlaya). Plaintiff’s complaint alleges four causes of action: (1) breach of fiduciary duty; (2) conversion; (3) misappropriation of trade secrets; and (4) usurpation of corporate opportunity. As alleged in the complaint:

DelPlaya is a digital media advertising business founded in 2011 by Wooten, Pescatello, and Williams. In 2016, Wooten left DelPlaya but remained a shareholder. After Wooten left DelPlaya, he discovered that, while Defendants were directors and officers of DelPlaya, they founded and developed Intuizi, Inc. by using DelPlaya’s confidential and proprietary assets and data. Intuizi is a digital media advertising company in direct competition with DelPlaya.

On October 4, 2022, Defendants filed their answer to Wooten’s complaint. On the same date, DelPlaya filed a cross-complaint against Wooten, Wooten’s wife Maureen Wooten (Maureen) and VRTCAL Markets, Inc. (VRTCAL) alleging five causes of action: (1) conversion; (2) misappropriation of trade secrets; (3) breach of fiduciary duty; (4) copyright infringement; and (5) breach of settlement agreement. (Note: Due to common last names and to avoid confusion, the Court will refer to Maureen by her first name. No disrespect is intended.)

On November 14, 2022, DelPlaya filed a first amended cross-complaint (FACC).

On February 24, 2023, DelPlaya filed a second amended cross-complaint (the SACC) alleging causes of action for conversion (against Wooten, Maureen, and VRTCAL), misappropriation of trade secrets (against Wooten, Maureen, and VRTCAL), breach of fiduciary duty (against Wooten), and breach of settlement agreement (against Wooten). As alleged in the SACC:

Wooten was employed by DelPlaya to develop ad technology. Wooten failed to deliver the technology to DelPlaya and failed to register a copyright for the technology on DelPlaya’s behalf. At the direction of Maureen who is an officer, director, and shareholder of VRTCAL, Wooten formed VRTCAL and diverted and transferred DelPlaya’s ad technology, among other things, to VRTCAL. 

On March 30, 2023, Wooten, Maureen, and VRTCAL filed an answer to the SACC generally denying its allegations and asserting thirty-five affirmative defenses.

On June 22, 2023, Wooten filed a motion for an order disqualifying Robert Forouzandeh (Forouzandeh) and his law firm from representing Defendants in this matter (the disqualification motion) on the grounds that during the course of a consultation while Wooten was a prospective client, Wooten disclosed confidential information to Forouzandeh that is material to the present action. Defendants opposed the disqualification motion.

On July 21, 2023, Wooten filed a motion to seal Defendants’ opposition to the disqualification motion and the Forouzandeh declaration submitted in support of that opposition (the motion to seal) on the grounds that the opposition and declaration each contained privileged material. Defendants opposed the motion to seal.

On August 23, 2023, the Court denied the disqualification motion and the motion to seal (collectively, the Wooten motions). Considering due process concerns, the Court declined to consider a request for sanctions under Code of Civil Procedure section 128.5, subdivision (b), generally asserted in Defendants’ opposition to the disqualification motion, noting that Defendants must file and serve a procedurally appropriate motion to the extent Defendants request the Court consider issuing sanctions. (See Aug. 23, 2023, Minute Order.)

On October 4, 2023, the Court granted the motion of Wooten, Maureen, and VRTCAL for summary judgment, or in the alternative, summary adjudication as to the SACC filed by DelPlaya, finding that the causes of action alleged in the SACC were barred under the applicable statutes of limitations.

On November 6, 2023, Defendants filed and served a motion for sanctions against Wooten and Wooten’s counsel under Code of Civil Procedure section 128.5 (the sanctions motion). In the sanctions motion, Defendants request that the Court impose monetary sanctions against Wooten and his counsel in the amount of $40,738.30 on the grounds that, by filing the Wooten motions, Wooten and his counsel engaged in bad faith actions or tactics that were frivolous or solely intended to cause unnecessary delay. Wooten opposes the sanctions motion.

Analysis

Under Code of Civil Procedure section 128.5, subdivision (a), a trial Court has broad discretion to order “a party, the party’s attorney, or both, to pay the reasonable expenses, including attorney’s fees, incurred by another party as a result of actions or tactics, made in bad faith, that are frivolous or solely intended to cause unnecessary delay.” (Code Civ. Proc., § 128.5, subd. (a); De la Carriere v. Greene (2019) 39 Cal.App.5th 270, 278.) For purposes of section 128.5, “ ‘[a]ctions or tactics’ include … the making … of motions….” (Code Civ. Proc., § 128.5, subd. (b)(1).) (Note: Undesignated statutory references shall be to the Code of Civil Procedure unless otherwise indicated.)

Under section 128.5, “[i]f the alleged action or tactic is the making … of a written motion … that can be withdrawn or appropriately corrected, a notice of motion shall be served as provided in Section 1010, but shall not be filed with or presented to the Court, unless 21 days after service of the motion or any other period as the Court may prescribe, the challenged action or tactic is not withdrawn or appropriately corrected.” (Code Civ. Proc., § 128.5, subd. (f)(1)(B); see also Nutrition Distribution, LLC v. Southern SARMs, Inc. (2018) 20 Cal.App.5th 117, 130 [safe harbor provision of section 128.5 applies if the motion for sanctions is based on a “written motion … that could be withdrawn”].)

“[A] party seeking sanctions under section[] 128.5 … must follow a two-step procedure.” (Transcon Financial, Inc. v. Reid & Hellyer, APC (2022) 81 Cal.App.5th 547, 550 (Transcon).) The moving must first serve a motion for sanctions on the offending party, which triggers a 21-day safe harbor period under section 128.5, subdivision (f)(1)(B), and during which the offending party may avoid sanctions by withdrawing or correcting the challenged action. (Ibid.) If the offending party does not withdraw or correct the challenged action during the 21-day safe harbor period, the moving party may then file the motion for sanctions. (Ibid.; see also Zarate v. McDaniel (2023) ___ Cal.App.5th ____ [2023 WL 8182862, at *3] (Zarate) [describing two-step procedure to obtain sanctions under section 128.5].)

Compliance with the 21-day safe harbor provision of section 128.5, subdivision (f)(1)(B), is mandatory, and a failure to comply with the provision “ ‘precludes an award of sanctions’ [Citation.]”. (Transcon, supra, 81 Cal.App.5th at p. 551.)

Defendants do not dispute that they did not follow the two-step procedure required under section 128.5, subdivision (f)(1)(B). Moreover, available information demonstrates that the sanctions motion was served on Wooten or his counsel on November 6, 2023, after the Court issued its ruling on the Wooten motions. Therefore, available information demonstrates that Defendants have failed to comply with the safe harbor provision of section 128.5, subdivision (f), prior to filing the sanctions motion.

Defendants contend that, pursuant to the Court’s holding in Changsha Metro Group Co., Ltd. v. Peng Xufeng (2020) 57 Cal.App.5th 1 (Changsha), they are excused from complying with the safe harbor provision of section 128.5 because Defendants would not have had sufficient time to send a safe harbor notice or to prepare and serve the sanctions motion either prior to Defendants’ statutory deadline to file oppositions to or sufficiently prior to the hearing on the Wooten motions. Therefore, Defendants argue, the Wooten motions could not have been withdrawn or corrected once the Court issued its ruling.

In Changsha, the Court considered whether the safe harbor provision in section 128.5, subdivision (f), applied to an attorney fee request under Code of Civil Procedure section 425.16 (the anti-SLAPP statute). (Changsha, supra, 57 Cal.App.5th at p. 7; see also Code Civ. Proc., § 425.16, subd. (c)(1) [a Court “shall” award reasonable attorney’s fees to a prevailing Plaintiff pursuant to section 128.5 “[i]f the Court finds that a special motion to strike is frivolous or is solely intended to cause unnecessary delay”].) In an effort to harmonize the attorney fee provisions of the anti-SLAPP statute with the safe harbor provision under section 128.5, the Court noted that section 128.5, subdivision (f), was intended to apply expansively and “as much as possible” to all actions that can be withdrawn or corrected. (Changsha, supra, 57 Cal.App.5th at p. 18.)

The Court in Changsha further held that there existed “one exception” in situations in which withdrawal or correction of the challenged action “would not be practical.” (Changsha, supra, 57 Cal.App.5th at p. 18.) Under this exception, under circumstances where a party seeks attorney fees under section 128.5 and “it is not possible to comply with the safe harbor and separate motion requirements of section 128.5, subdivision (f) …, then one should use the procedures set forth in subdivisions (a) and (c).” (Ibid.)

In reaching its conclusion, the Court noted that the anti-SLAPP statute requires that a hearing be scheduled not more than 30 days after service of a motion under that statute. (Changsha, supra, 57 Cal.App.5th at p. 19.) Based on the expedited hearing and briefing schedule applicable to motions brought under the anti-SLAPP statute, and the statute’s express purpose of providing an efficient means to quickly dispose of strategic lawsuits against public participation or “SLAPP’s,” the Court noted that permitting a continuance of an anti-SLAPP hearing to permit a party to wait for the safe harbor period to expire before preparing an opposition was “not a reasonable solution.” (Id. at pp. 19-20.) Because, under the circumstances present in Changsha, it would not have been practical for Plaintiff in that case to comply with the safe harbor provision due to the nature of the anti-SLAPP motion at issue, the Court noted that “section 128.5, subdivision (f) does not work with the anti-SLAPP statute.” (Ibid.)

The present matter is distinguishable from Changsha. Here, Defendants do not seek attorney’s fees under the anti-SLAPP statute. As section 128.5 is the sole statutory basis upon which Defendants request an order imposing sanctions against Wooten, including reasonable attorney’s fees and expenses incurred in opposing the Wooten motions, Defendants must strictly comply with the safe harbor provision of subdivision (f). (Transcon, supra, 81 Cal.App.5th at p. 551.)

In addition, unlike the circumstances present in Changsha, nothing here prevented Defendants from requesting a continuance of the hearing on the Wooten motions to the extent Defendants required additional time to comply with the safe harbor provision of section 128.5, subdivision (f), or to prepare their oppositions or the sanctions motion. (See Li v. Majestic Industry Hills LLC (2009) 177 Cal.App.4th 585, 594 (Li) [moving party “could have sought a continuance of the underlying hearing or an order shortening time”].) Additionally, Defendants have failed to demonstrate that Wooten could not have withdrawn or corrected the Wooten motions, to the extent appropriate or necessary, had Defendants strictly complied with the safe harbor provision.

Furthermore, Defendants have not demonstrated that a continuance of the Wooten motions would have raised the same concerns that were present in Changsha due to the expedited nature of the anti-SLAPP proceeding at issue in that case. (See., e.g., Zarate, supra, 2023 WL 8182862, at *4 & fn. 6] [noting that moving party did not establish that the purportedly frivolous anti-SLAPP motion at issue could not have been withdrawn or corrected].) The Court further notes that requests for continuances are routinely granted under circumstances present here.

The purpose of the safe harbor provision in section 128.5 is “to conserve judicial resources otherwise spent adjudicating a sanctions motion by affording a prescribed period of time during which a party may correct or withdraw a frivolous or improper pleading or motion without any penalty.” (Li, supra, 177 Cal.App.4th at pp. 593-594.) By failing to serve a copy of the sanctions motion in compliance with section 128.5, subdivision (f), Defendants have effectively denied Wooten the opportunity to either correct or withdraw the Wooten motions during the prescribed period of time, thereby “undermining the remedial purpose of the safe harbor provision.” (Id. at p. 594.) For this additional reason, Defendants’ arguments are untenable.

Defendants also appear to suggest that in its August 23, 2023, Minute Order, the Court implicitly intended to modify the safe harbor provision in section 128.5, subdivision (f). Defendants misinterpret the Court’s statement, which noted that “[i]f Defendants want the Court to consider issuing sanctions, they must file and serve a procedurally appropriate motion” and that “[n]othing herein shall be construed as indicative of whether the Court would or would not award sanctions upon the filing of an appropriate motion.” (See Aug. 23, 2023, Minute Order, italics added.) A procedurally appropriate sanctions motion requires strict compliance with the safe harbor provision under section 128.5, subdivision (f), for all reasons discussed above.

The timing and practicality concerns asserted by Defendants in the sanctions motion routinely exist upon the filing of any written motion that a party contends is frivolous. Should the Court find that Defendants’ contentions were sufficient to justify dispensing with the safe harbor provision of section 128.5, which by its clear and unambiguous language applies to written motions, this would result in the Court effectively writing out the safe harbor provision from the statute and rendering it meaningless. As noted by the Court in Changsha, “ ‘[i]mpossibility can occasionally excuse noncompliance with a statute, but in such circumstances, the excusal constitutes an interpretation of the statute in accordance with the Legislature’s intent, not an invalidation of the statute.’ [Citation].” (Changsha, supra, 57 Cal.App.5th at p. 12, original italics.) For reasons discussed above, the remedial purpose of the safe harbor provision requires that Wooten be afforded the 21-day prescribed period of time to, if warranted, correct or withdraw the purportedly frivolous Wooten motions without penalty. (Li, supra, 177 Cal.App.4th at p. 591.)

As Defendants have failed to comply with the safe harbor provision of section 128.5, subdivision (f), and for all reasons discussed above, the Court will deny the sanctions motion.

Wooten’s request for judicial notice:

In support of his opposition to the sanctions motion, Wooten has filed a request for judicial notice of a Minute Order dated June 23, 2023, issued in case number 22CV02886 entitled Fleury v. Tarnutzer, et al. (RFJN, ¶ 1 & Exh. 1.)

“[A] written trial Court ruling has no precedential value. [Citation.]” (Santa Ana Hospital Medical Center v. Belshe (1997) 56 Cal.App.4th 819, 831.) While the Court may take judicial notice of the existence of the Minute Order cited by Wooten, it cannot take judicial notice of the truth of hearsay statements contained in that order. (Johnson & Johnson v. Superior Court (2011) 192 Cal.App.4th 757, 768; see also, Gilmore v Superior Court (1991) 230 Cal.App.3d 416, 418 [trial Court erred in taking judicial notice of statement of facts in unpublished opinion involving same Defendant and facts].) Further, as the Minute Order was issued in a matter wholly unrelated to the present action, it is not relevant to the present motion. (See Mangini v. R.J. Reynolds Tobacco Co. (1994) 7 Cal.4th 1057, 1063, overruled on other grounds in In re Tobacco Cases II (2007) 41 Cal.4th 1257, 1276.)

The isolated ruling included in Wooten’s request for judicial notice has no precedential value, is not citable authority, and has no demonstrated relevance to the present motion. For these reasons, the Court denies Wooten’s request for judicial notice.