On 08/29/2016 MODERN VIDEOFILM HOLDINGS LLC filed a Property - Other Property Fraud lawsuit against MEDLEY CAPITAL CORPORATION. This case was filed in Los Angeles County Superior Courts, Stanley Mosk Courthouse located in Los Angeles, California. The case status is Other.
Los Angeles County Superior Courts
Stanley Mosk Courthouse
Los Angeles, California
MODERN VIDEOFILM HOLDINGS LLC
CONGRUENT INVESTMENT PARTNERS LLC
MEDLEY CAPITAL CORPORATION
MEDLEY OPPORTUNITY FUND II LP
CONGRUENT CREDIT OPPORTUNITIES FUND II
MCC ADVISORS LLC
MAIN STREET CAPITAL CORPORATION
MILLER BARONDESS LLP
SOLTMAN LEVITT FLAHERTY & WATTLES LLP
ALLEN MATKINS LECK GAMBLE & MALLORY
1/19/2018: DEFENDANTS' APPENDIX OF EVIDENCE IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT
9/14/2016: PROOF OF SERVICE SUMMONS & COMPLAINT
10/12/2016: Minute Order
10/12/2016: PROOF OF SERVICE SUMMONS & COMPLAINT
10/19/2016: CIVIL DEPOSIT
10/19/2016: CIVIL DEPOSIT
11/28/2016: MOVING DEFENDANTS' NOTICE OF HEARING ON DEMURRER AND DEMURRERS TO COMPLAINT; ETC.
11/28/2016: REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF MOVING DEFENDANTS' DEMURRER TO COMPLAINT AND MOTION TO STRIKE
12/8/2016: DECLARATION OF MICHAEL J. BETZ, ESQ IN SUPPORT OF DEFENDANTS' MOTION FOR A PROTECTIVE ORDER
12/16/2016: DEFENDANTS MANAGEASE, INC., AND CHRISTINA WOODWARD'S NOTICE OF ERRATA AND FILING OF REVISED CASE MANAGEMENT CONFERENCE STATEMENT
12/29/2016: REPLY BRIEF IN SUPPORT OF DEMURRER TO COMPLAINT
3/6/2017: NOTICE OF DEMURRER AND DEMURRER TO FIRST AMENDED COMPLAINT; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF; MEET AND CONFER DECLARATION OF THOMAS RITTENBURG, ESQ.
5/3/2017: NOTICE OF CASE MANAGEMENT CONFERENCE
6/19/2017: REQUEST FOR REFUND
6/23/2017: PLAINTIFF?S OPPOSITION TO DEFENDANTS MANAGEASE, INC. AND CHRISTINA WOODWARD'S MOTION FOR PROTECTIVE ORDER
MOVING DEFENDANTS' REPLY IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT, OR IN THE ALTERNATIVE, SUMMARY ADJUDICATIONRead MoreRead Less
DECLARATION OF SCOTT AVILA IN SUPPORT OF MOVING DEFENDANTS' MOTION FOR SUMMARY JUDGMENTRead MoreRead Less
DECLARATION OF MICHAEL J. BETZ. IN SUPPORT OF MOVING DEFENDANTS' MOTION FOR SUMMARY JUDGMENTRead MoreRead Less
NOTICE OF MOTION AND MOTION BY MOVING DEFENDANTS FOR SUMMARY JUDGMENT, OR IN THE ALTERNATIVE, SUMMARY ADJUDICATIONRead MoreRead Less
DEFENDANTS' APPENDIX OF EVIDENCE IN SUPPORT OF MOTION FOR SUMMARY JUDGMENTRead MoreRead Less
DECLARATION OF CHARLES SWEET IN SUPPORT OF MOVING DEFENDANTS' M0TION FOR SUMMARY JUDGMENTRead MoreRead Less
MOVING DEFENDANTS' SEPARATE STATEMENT OF UNDISPUTED FACTS IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT OR IN THE ALTERNATIVE SUMMARY ADJUDICATIONRead MoreRead Less
MEMORANDUM IN SUPPORT OF MOVING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT, OR IN THE ALTERNATIVE, SUMMARY ADJUDICATIONRead MoreRead Less
DECLARATION OF RICHARD CRAYBAS IN SUPPORT OF MOVING DEFENDANTS' MOTION FOR SUMMARY JUDGMENTRead MoreRead Less
REQUEST FOR ENTRY OF DEFAULTRead MoreRead Less
PROOF OF SERVICE SUMMONS & COMPLAINTRead MoreRead Less
PROOF OF SERVICE SUMMONS & COMPLAINTRead MoreRead Less
Minute OrderRead MoreRead Less
NOTICE OF CASE MANAGEMENT CONFERENCE ETC.Read MoreRead Less
Notice of Case Management Conference; Filed by ClerkRead MoreRead Less
NOTICE OF RELATED CASERead MoreRead Less
Notice of Related Case; Filed by Modern Videofilm Holdings, LLC (Plaintiff)Read MoreRead Less
SUMMONSRead MoreRead Less
Complaint; Filed by Modern Videofilm Holdings, LLC (Plaintiff)Read MoreRead Less
COMPLAINT DERIVATIVE CLAIMS FOR: (1) BREACH OF FIDUCIARY DUTY; ETCRead MoreRead Less
Case Number: BC631888 Hearing Date: October 16, 2020 Dept: 32
modern videofilm holdings, llc,
MEDLEY CAPITAL CORPORATION, et al.
Case No.: BC631888
Hearing Date: October 16, 2020
[TENTATIVE] order RE:
(1) motion FOR SUMMARY JUDGMENT
(2) motion in limine no. 1
(3) motion in limine no. 2
Plaintiff Modern Videofilm Holdings, LLC (Holdings), derivatively on behalf of Modern Videofilm, Inc. (MVF), commenced this action against Defendants Medley Capital Corporation (Medley Capital); Medley Opportunity Fund II LP (Medley Opportunity); MCC Advisors LLC (MCC); Richard Craybas (Craybas); James Feeley (Feeley); Congruent Credit Opportunities Fund II, LP (Congruent Credit); Congruent Investment Partners, LLC (Congruent Investment) (collectively, Congruent); Preston Massey (Massey); Main Street Capital Corporation (Main Street); ManagEase, Inc. (ManagEase); and Christina Woodward (Woodward) on August 29, 2016.
The operative pleading is the First Amended Complaint (FAC) filed on January 30, 2017. The FAC asserts causes of action for:
breach of fiduciary duty against Medley Capital, Medley Opportunity, MCC, Congruent, and Main Street;
aiding and abetting breach of fiduciary duty against Medley Capital, Medley Opportunity, MCC, Craybas, Feeley, Massey, Congruent, and Main Street;
aiding and abetting breach of fiduciary duty against Medley Opportunity, MCC, Massey, Congruent, and Main Street;
aiding and abetting breach of fiduciary duty against Woodward and ManagEase;
unfair competition against Medley Capital, Medley Opportunity, Congruent, and Main Street;
breach of the implied covenant of good faith and fair dealing against Medley Capital
intentional interference with prospective economic advantage against Medley Capital, Medley Opportunity, MCC, Congruent, and Main Street;
fraud against Medley Capital, Medley Opportunity, MCC, Craybas, Feeley, Massey, Congruent, and Main Street; and
declaratory relief against Medley Capital, Medley Opportunity, MCC, Craybas, Feeley, Massey, Congruent, and Main Street.
The FAC alleges in pertinent part as follows.
1. Medley Loan
Moshe Barkat (Barkat) founded MVF in 1979 and acted as the company’s CEO for over 30 years. MVF is a preeminent Hollywood post-production, distribution and content management company. More than 60% of MVF’s revenues came from its Content Management Division.
In 2012, MVF wanted to pay off its existing debt and locate a lender that would support the company’s expansion. Medley Capital, a billion dollar fund, offered to loan MVF approximately $50 million. The loan terms offered by Medley Capital included financial covenants, such as minimum revenue and EBITDA requirements, which would be tested each quarter. Through these financial covenants, MVF had to grow in order to avoid default. MVF expressed its concern to Medley Capital about these financial covenants. Medley Capital, through two employees, assured MVF that the financial covenants would not be problematic and that, in the event of default, Medley Capital would work with MVF and be flexible.
In reliance on these representations, MVF accepted Medley Capital’s loan offer and executed a credit agreement (Credit Agreement). As part of the loan, MVF entered into a pledge agreement (Pledge Agreement) with Medley Capital by which MVF pledged all its assets as security for the loan.
Shortly after the Credit Agreement’s execution, Medley Capital claimed that MVF defaulted on the financial covenants even though MVF did not miss a payment. Based on this purported default, Medley Capital took control of MVF.
2. Technicolor Venture
In mid-2013, Technicolor, MVF’s competitor in the content management industry, approached MVF with a proposition: the merger of Technicolor’s and MVF’s Content Management Divisions (Technicolor Venture). The potential value of the venture was in excess of $100 million. MVF and Technicolor came to terms on the merger. MVF intended to use the cash generated by the venture to pay off the Medley loan.
To complete the deal, MVF had to contribute certain fixed assets. MVF could only contribute these assets with Medley Capital’s consent because of the Pledge Agreement. Medley Capital was initially receptive, representing that releasing the fixed assets would not be a problem. After Medley Capital saw projections of the merger, however, Medley Capital “got greedy” and insisted on acquisition of equity in MVF. Barkat rejected the idea, asserting that Medley Capital was only entitled to repayment of its loan. Because Barkat would not give MVF equity to Medley Capital, Medley Capital manufactured excuses for why the deal could not be approved. Medley Capital also took it upon itself to demand terms and concessions directly from Technicolor. Due to Medley Capital’s involvement, the Technicolor Venture fell apart in early 2014 resulting in significant financial damages to MVF.
3. Medley Capital’s Takeover of MVF
In July 2014, Medley Capital, purporting to exercise its rights as a lender under the Pledge Agreement, (1) fired MVF’s board of directors, (2) appointed Charles Sweet (Sweet) as MVF’s sole director, (3) appointed Scott Avila (Avila) as MVF’s Chief Restructuring Officer, and (4) appointed Cooper Crouse (Crouse) as MVF’s Assistant Chief Restructuring Officer. Everyone at MVF, including Barkat, was required to report to Avila and Crouse. With no experience or knowledge in the business, Avila and Crouse could not run a post-production company effectively.
In September 2014, Avila, at Medley Capital’s behest, terminated Barkat for pretextual reasons. Medley Capital wanted to prevent Barkat from being in a position to scrutinize its conduct in running the company.
The decision to terminate Barkat proved destructive. Barkat’s unique talents and connections kept the company alive, and Medley Capital and its agents failed to bring executives to MVF who knew how to run the company. Almost immediately after Barkat’s termination, MVF’s employees quit and major clients, such as HBO, took their business elsewhere.
On May 22, 2017, Defendants ManagEase and Woodward filed a cross-complaint (ManagEase Cross-Complaint) against MVF. The ManagEase Cross-Complaint asserts causes of action for (1) express contractual indemnity, (2) implied indemnity, (3) equitable indemnity, (4) comparative contribution, and (5) declaratory relief. The ManagEase Cross-Complaint is based in part on a written contract executed between ManagEase and MVF pursuant to which MVF agreed to protect and indemnify ManagEase from actions brought against ManagEase for services rendered to MVF.
On May 30, 2017, Defendant Medley Capital filed a cross-complaint (Medley Cross-Complaint) against Barkat, Hugh Miller, and ColorTime, LLC. The Medley Cross-Complaint asserts causes of action for (1) breach of fiduciary duty, (2) corporate waste, (3) breach of employment agreement, (4) misappropriation of trade secrets – statutory, (5) misappropriation of trade secrets – common law, (6) unlawful business practices, (7) temporary restraining order, preliminary injunction, and permanent injunction, (8) conversion, and (9) constructive trust. In its cross-action, Medley Capital alleges that Barkat’s own gross mismanagement of MVF and fraudulent conduct led to the company’s collapse and caused millions of dollars of damages to the company’s creditors.
C. Course of Proceedings
On May 28, 2017, the Court consolidated this action (Derivative Action) with another civil action filed in Los Angeles Superior Court entitled Barkat & Modern Videofilm Holdings, LLC v. Medley Capital Corporation, et al. (Case No. BC583437) (Barkat Action). The Barkat Action was designated the lead case.
On January 19, 2018, Defendants Medley Capital, Medley Opportunity, MCC, Craybas, Feeley, Congruent, Massey, and Main Street (collectively, Medley) moved for summary judgment on the Derivative Action’s FAC and, in the alternative, summary adjudication of each cause of action asserted against them.
In the motion, Medley asserted entitlement to summary judgment on the grounds that MVF had released any derivative claims against Medley by executing several amendments to the loan agreement and subsequent forbearance agreements. In opposition to the motion, Holdings responded that releases executed prior to July 2014 were (1) immaterial because they preceded Medley’s termination of Barkat and (2) voidable due to fraud because Medley induced Barkat to sign the releases with the promise that he could maintain control of MVF even though Medley already had the power to take it over and had already decided to do so. Holdings argued that subsequent releases — those executed between July 2014 and June 2015 and signed by Avila on behalf of MVF— were voidable due to a conflict of interest. Holdings claimed that Avila had a conflict of interest because he was serving as both MVF’s CEO and Medley’s agent and the releases purported to insulate Medley from derivative liability to MVF’s detriment.
In its summary judgment motion, Medley also argued that Holdings could not establish “special damages caused by the alleged business injury.” Holdings responded that damages could be inferred from the following evidence: (1) Medley’s initial assessment of MVF’s value exceeded $80 million, (2) a Medley memorandum indicated that the Technicolor Venture would have produced $96 million a year in revenue and over $20 million in cash in its first year, and (3) Barkat’s termination led to an exodus of MVF employees and clients.
On April 11, 2018, the Court denied Medley’s summary judgment motion. The Court concluded that there was a triable issue of material fact as to whether the releases were induced by fraud and are enforceable as a result of Avila’s conflict of interest. The Court concluded that a triable issue of material fact existed as to whether Medley obstructed the Technicolor Venture resulting in financial harm to MVF.
MSJ / MSA
Medley moves for summary judgment on the FAC or, in the alternative, summary adjudication of each cause of action asserted therein. Medley contends that these causes of action fail for two reasons: (1) Holdings released each claim which it purports to make on MVF’s behalf and (2) Holdings cannot establish lost profits.
A. Showing of Newly Discovered Facts
“A party shall not move for summary judgment based on issues asserted in a prior motion for summary adjudication and denied by the court unless that party establishes, to the satisfaction of the court, newly discovered facts or circumstances or a change of law supporting the issues reasserted in the summary judgment motion.” (CCP § 437c(f)(2).)
Holdings asserts that this motion is barred by CCP section 437c(f)(2). To validate this assertion, Holdings must show that (1) Medley asserted the issues raised in this motion in its prior summary judgment motion and (2) Medley failed to present “newly discovered facts or circumstances or a change of law supporting the issues reasserted in” this motion.
As noted ante, Medley maintains this summary judgment motion on two grounds: (1) Holdings released each claim which it purports to make on MVF’s behalf and (2) Holdings cannot establish lost profits.
Holdings claims that Medley is reasserting the release issue because, in its prior summary judgment motion, Medley sought a determination that “MVF released Defendants from the causes of action set forth in the FAC.” The Court disagrees. As Holdings recognizes (Opp. at 9-10), the prior summary judgment motion was predicated on releases signed by MVF’s then-CEO, Avila, whereas the instant summary judgment motion is predicated on releases signed by Howard Grobstein (Grobstein). While the legal theories advanced by the two motions are similar — the theory that a release bars Holdings from bringing its claims — the material facts underlying those theories are distinct. As a matter of law, this second motion therefore raises different issues within the meaning of the summary judgment statue. (See Patterson v. Sacramento City Unified School Dist. (2007) 155 Cal.App.4th 821, 827 (examining the argument whether a second summary judgment motion is proper and concluding that the motion is proper because “[a] comparison of the arguments and material facts show that the … second motion for summary judgment is not simply a ‘reformatted, condensed, and cosmetically repackaged’ version of its first motion” (Emphasis added)).)
Holdings claims that Medley is reasserting the lost profits issue because, in the prior motion, Medley argued that Holdings’ claims had no merit because MVF suffered no damages. The Court disagrees. In its prior summary judgment motion, Medley attacked each cause of action based on the claim that MVF could not show “proximate damages.” Medley argued that Holdings “repeatedly asserts over $100 million in damages, but has never provided any support for any special damages caused by the alleged business injury. [Citation.] Plaintiff entirely fails to establish where this $100 million came from, or how Defendants caused it.” (Prior MSJ Mot. at 22.) While this argument is similar to Medley’s present argument about lost profits, the arguments are not the same because they rest on different legal authorities — e.g., Sargon — and different material evidence — namely, Walston’s expert evidence.
Because this summary judgment motion raises different release and lost profit issues, Medley need not present newly discovered facts in support of the same.
B. Release of Claims
In July 2017 and January 2018, Medley and Grobstein, acting on behalf of MVF, executed amendments to the Credit Agreement. (Allorto Decl. Exs. M, N.) The amendments contain releases stating in pertinent part: “To the extent not otherwise set forth herein, each Credit Party hereby remises, releases, acquits, satisfies and forever discharges the Agent and each Lender … from any and all manner of actions [and] causes of action …. which any of such parties ever had, now has or, to the extent arising from or in connection with any act, omission or state of facts taken or existing on or prior to the date hereof, may have after the date hereof against any Releasee, for, upon or by reason of any matter, cause or thing whatsoever relating to or arising out of the Credit Agreement or the other Credit Documents through the date hereof.” (Ibid.)
Medley maintains that these releases bar Holdings from maintaining this derivative lawsuit. As Medley notes, the preclusive effect of the releases is governed by New York law. (Allorto Decl. Exs. M-N (“Each Credit Party hereby agrees that the Credit Agreement shall govern with respect to governing law….”); see Grobstein Decl. Ex. 7 (Credit Agreement) (“This Agreement shall be governed by, and construed and interpreted in accordance with, the law of the State of New York….”).) Under New York law, “a valid release constitutes a complete bar to an action on a claim which is the subject of the release.” (Centro Empresarial Cempresa S.A. v. America Movil, S.A.B. de C.V. (2011) 17 N.Y.3d 269, 276 (internal quotations omitted).) “If ‘the language of a release is clear and unambiguous, the signing of a release is a “jural act” binding on the parties.’ ” (Ibid.)
In this case, the releases are broad and unambiguous. Pursuant to the releases, MVF released Medley from “any and all actions … arising from or in connection with” the Credit Agreement. This broad language clearly encompasses this derivative action pursued by Holdings on MVF’s behalf. (See FAC ¶¶ 1-11.)
After a defendant carries “the initial burden of establishing that it has been released from any claims,” the burden shifts to the plaintiff “to show that there has been fraud, duress or some other fact which will be sufficient to void the release.” (Centro Empresarial, supra, 17 N.Y.3d at 276.) Holdings claims that there is a triable issue of fact as to whether these releases are enforceable because Grobstein faced a conflict of interest. Holdings cites to Genger v. Genger (N.Y. App. Div. 2014) 120 A.D.3d 1102, 1104: “When a fiduciary has a conflict of interest in entering a transaction and does not disclose that conflict to his/her principal, the transaction is ‘voidable at the option of’ the principal [Citation]. Moreover, ‘an agent cannot bind his principal . . . where he is known to be acting for himself, or to have an adverse interest’ [Citation].”
In the Court’s view, Genger sets forth two exceptions to the general rule that an agent’s acts bind his principal: (1) a conflict of interest exception and (2) an adverse interest exception.
The conflict of interest exception does not support Holdings’ position. The conflict of interest exception applies only if (1) Grobstein had a conflict of interest in executing the amendments, (2) Grobstein failed to disclose that conflict of interest to MVF, and (3) MVF voids the amendments. Holdings has not substantiated the second and third elements. That is, even assuming Grobstein had a conflict of interest in executing the amendments, that conflict of interest was known to MVF and MVF has not elected to void the amendments. As such, Holding’s reliance on this exception is misplaced.
As Medley notes in reply, New York courts have narrowly construed the adverse interest exception to agent imputation.
In New York, “a fundamental principle that has informed the law of agency and corporations for centuries” is that “the acts of agents, and the knowledge they acquire while acting within the scope of their authority are presumptively imputed to their principals.” (Kirschner v. KPMG LLP (2010) 15 N.Y.3d 446, 465.) New York “[a]gency law presumes imputation even where the agent acts less than admirably, exhibits poor business judgment, or commits fraud.” (Ibid.)
According to New York’s highest court, “ ‘[t]o come within the [adverse interest] exception, the agent must have totally abandoned his principal’s interests and be acting entirely for his own or another’s purposes. It cannot be invoked merely because he has a conflict of interest or because he is not acting primarily for his principal.’ [Citation.] This rule avoids ambiguity where there is a benefit to both the insider and the corporation, and reserves this most narrow of exceptions for those cases — outright theft or looting or embezzlement — where the insider’s misconduct benefits only himself or a third party; i.e., where the fraud is committed against a corporation rather than on its behalf.” (Kirschner, supra, 15 N.Y.3d at 466.)
To establish a triable issue of material fact on this point, Holdings points to various evidence submitted in the prior summary judgment motion: (1) Medley interviewed Grobstein for the MVF director position and appointed him, (2) Grobstein signed MVF board documents on behalf of Medley, (3) Medley paid Grobstein for his work as an MVF director, and (4) Grobstein, at times, coordinated with Medley’s outside counsel and general counsel. (PUMF 56.) At deposition, Grobstein testified that he believed he was working for Medley at the time he signed the releases. (PUMF 57.) Grobstein testified that he did not evaluate MVF’s claims against Medley when he signed the amendments because he was not asked by Medley to perform that task. (Ibid.) Grobstein further testified that he believed “Medley controlled everything at that time.” (PUMF 58.)
The Court concludes that this evidence establishes a triable issue of material fact as to whether the adverse interest exception applies. A reasonable trier of fact could conclude that Grobstein totally abandoned MVF’s interest in executing the amendments because (1) Grobstein owed fiduciary duties to Medley and acted (at times) on its behalf, (2) Grobstein believed that he was working for Medley, (3) Grobstein did not evaluate MVF’s claims in signing the amendments, and (4) Medley greatly benefitted from Grobstein’s execution of these releases. (See Conway v. Marcum & Kliegman LLP (N.Y. App. Div. 2019) 176 A.D.3d 477, 478 (reversing trial court’s grant of summary judgment because plaintiffs “raised issues of fact as to the adverse nature of their agents”).)
In reply, Medley argues that Grobstein did not have a conflict of interest. This argument is not persuasive. Grobstein owed fiduciary duties to Medley and MVF. Medley hired Grobstein, paid Grobstein, and consulted with Grobstein. Grobstein also believed that he worked for Medley. The evidence shows that Grobstein had a conflict of interest between his duties to Medley and MVF. Whether this conflict of interest sufficiently tainted the underlying transaction is a triable issue of material fact.
Medley’s argument that Grobstein had to personally benefit from the amendments is also without merit. For one, Grobstein does personally benefit from conveying benefits to Medley because Medley pays Grobstein. For another, the question is whether Grobstein has “an adverse interest,” not whether he has an adverse personal interest. In executing the releases, Grobstein’s fiduciary duty to serve Medley was adverse to his fiduciary duty to serve MVF. (See Kirschner, supra, 15 N.Y.3d at 466 (noting that “the presumption that an agent will communicate all material information to the principal operates except in the narrow circumstance where the corporation is actually the victim of a scheme undertaken by the agent to benefit himself or a third party personally, which is therefore entirely opposed (i.e., ‘adverse’) to the corporation’s own interests”) (Emphasis added).)
Medley argues that Grobstein did not “totally abandon” MVF because the amendments provided needed funding to MVF. The Court finds two flaws with this argument. First, there is a difference between corporate benefits derived from the credit agreement amendments and corporate benefits derived from the releases. The releases provide no cognizable benefit to MVF. To the extent that Medley asserts that it would not have consented to the amendments absent inclusion of the releases, this assertion raises a question of fact which must be resolved by a trier of fact in light of the incentives and circumstances set forth ante. Second and relatedly, the Court believes that a sham corporate benefit would not take this matter outside the ambit of the adverse exception rule. That is, if Medley orchestrated the execution of these releases under the pretext of furnishing necessary funding in order to achieve its actual goal of insulating itself from liability, such an attempt remains a fraud against the corporation and remains subject to the adverse interest exception. As relevant to this latter point, the Court notes the substantial discrepancy in loan amounts between Medley’s initial loan ($50 million) and the additional amounts advanced by the amendments in question ($39,798 and $41,160, respectively). (Allorto Decl. Exs. M-N.) Moreover, the Court notes that the amendments in question were executed in July 2017 and January 2018, that is, during the pendency of this derivative lawsuit.
Finally, Medley argues that Holdings should be judicially estopped from claiming that the releases are invalid because Holdings lauded Grobstein’s “business judgment” in the Bankruptcy Court proceeding. The Court agrees with Holdings that this argument is makeweight.
The doctrine of judicial estoppel applies where (1) the same party has taken two positions; (2) the positions were taken in judicial or quasi-judicial administrative proceedings; (3) the party was successful in asserting the first position (i.e., the tribunal adopted the position or accepted it as true); (4) the two positions are totally inconsistent; and (5) the first position was not taken as a result of ignorance, fraud, or mistake. (Rea v. Blue Shield of California (2014) 226 Cal.App.4th 1209, 1228-29.)
Holdings has not taken two inconsistent positions. In the bankruptcy proceeding, Holdings argued that Grobstein had properly exercised his “business judgment” in approving the joint stipulation providing for relief from the automatic stay so that this derivative lawsuit could progress. (See Betz Decl. Ex. Q, p. 22; RJN Ex. I.) This argument is not inconsistent with its present stance that Grobstein failed to exercise his business judgment in executing the amendments and acted merely for Medley’s benefit.
C. Lost Profits
Medley argues that lost profits are the sole damages which MVF can recover in this action and that Holdings cannot establish lost profits as a matter of law because MVF was insolvent for decades.
In response, Holdings does not attempt to show damages based on lost profits. Instead, Holdings attempts to show damages based on lost business value using an enterprise valuation method. (Opp. at 2-3.)
Holdings’ response raises two questions: (1) whether Holdings’ theory of damages based on lost business value and, more specifically, the enterprise valuation method is viable as a matter of law and (2) whether Holdings has established a triable issue of material fact as to whether such damages exist.
1. Viability of Enterprise Valuation Theory
Medley contends that Holdings’ novel theory of damages is not viable because “ ‘[d]amage awards in injury to business cases are based on net profits.’ ” (Parlour Enterprises, Inc. v. Kirin Group, Inc. (2007) 152 Cal.App.4th 281, 287 (citing Electronic Funds Solutions, LLC v. Murphy (2005) 134 Cal.App.4th 1161).) The Court disagrees.
“Cases are not authority for propositions not considered therein.” (State Farm Fire & Casualty Co. v. Pietak (2001) 90 Cal.App.4th 600, 614.) Parlour Enterprises did not involve discussion of whether a plaintiff’s claim for lost business value is viable as a matter of law. Parlour Enterprises therefore does not foreclose plaintiff’s claim.
Electronic Funds, a case not cited by Medley, is more apropos. There, three individuals — Barry, Bishop, and Murphy — orally agreed to form a company, EFS, designed to assist merchants in electronically recovering funds from customers’ bank accounts when their checks were dishonored. EFS was successful and had contracts with at least 51 merchant customers within a year. Bishop and Murphy no longer wished to do business with Barry and announced their withdrawal from EFS. Instead of leaving the EFS’s office, Bishop and Murphy changed the locks and converted EFS’s assets to their use. Bishop and Murphy adopted a new company name, EPS, and misled EFS’s customers into believing that EPS was merely a new name for EFS.
EFS and Barry brought suit against Bishop and Murphy. Due to discovery misuse, the trial court struck Bishop’s and Murphy’s answers and entered default judgment against them. The default judgment included compensatory damages of $8,040,272.19.
On appeal, Bishop and Murphy argued that “the trial court erred in awarding as damages the estimated value of EPT, instead of awarding EFS its lost profits.” The Court of Appeal agreed. The Court of Appeal ruled in pertinent part:
Plaintiffs premise their damages on the theory that because EPT took all of EFS’s clients, equipment, and trade secrets, the value of EPT should approximate what EFS has lost. This presumes virtually all of EPT’s current clients are either former clients or prospective clients of EFS, and the scope of EPT’s current business is no broader than that of EFS. The lack of such evidence in the record aside, plaintiffs have cited no legal authority to support a damage award equaling the current value of defendants’ business, and we are aware of none. In their default prove-up papers, plaintiffs cited Brandon Tibbs v. George Kevorkian Accountancy Corp. (1990) 226 Cal.App.3d 442 [277 Cal.Rptr. 40] (Brandon Tibbs) as setting forth the appropriate legal standard for “loss of an entire business.” Brandon Tibbs, however, held the plaintiff may recover only the profits lost, not the value of the lost business. (Id. at pp. 456-459; see also Elsbach v. Mulligan (1943) 58 Cal.App.2d 354, 365-367 [136 P.2d 651] [“The measure of damages for the diminution of the value of business due to a wrongful act is ‘reflected by loss of profits, expenses incurred or similar concrete evidences of injury’ ”].)
Damage awards in injury to business cases are based on net profits. (See, e.g., Kuffel v. Seaside Oil Co. (1970) 11 Cal.App.3d 354, 366 [90 Cal.Rptr. 209] [“It is fundamental that in awarding damages for the loss of profits, net profits, not gross profits, are the proper measure of recovery”].)
(Electronic Funds, supra, 134 Cal.App.4th at 1180.)
While Electronic Funds does indicate hostility to premising a business injury case on lost business value, the Court concludes that the opinion, read in context, does not foreclose Holdings’ theory of damages. (Caliber Paving Company, Inc. v. Rexford Industrial Realty and Management, Inc. (2020) 54 Cal.App.5th 175 (“[W]hen interpreting an opinion, any one sentence must be viewed in the context of the entire opinion [citation], and language must be construed in the context of the entire opinion [citation].”).) First, Electronic Funds did not involve a derivative action in which the plaintiff sought damages for loss of business value in the subject company. Electronic Funds involved a damages claim grounded in a valuation of the defendants’ business because the defendants had allegedly usurped the plaintiffs’ clients, equipment, and trade secrets. There is no indication that the plaintiffs contended or that the appellate court considered whether damages in the form of the plaintiff company’s lost business value was compensable. Second, the appellate court remarked in Electronic Funds that plaintiffs “have cited no legal authority to support a damage award equaling the current value of defendants’ business, and we are aware of none.” The same is not true here. Holdings has cited legal authorities, albeit nonbinding ones, that support the proposition that (1) lost business value is a proper measure of business injury where tortious conduct results in the complete destruction of a business (1 Joel W. Mohrman & Robert J. Caldwell, Handling Business Tort Cases § 11:10 (Nov. 2015 Update)) and (2) lost business value can be measured by way of an enterprise valuation (GATX/Airlog Co. v. Evergreen Intern. Airlines Inc. (9th Cir. 2002) 52 Fed.Appx. 940, 941 (endorsing enterprise valuation method to assess lost business value)).
In this derivative action, Holdings on behalf of MVF alleges that Medley’s actions destroyed the company’s value. Holdings argues that the company could have been sold as a going concern for profit notwithstanding its negative book value. (See Walston Decl. ¶¶ 24-25 (noting that a company with negative book value does not mean that the company lacks success or value and pointing out that Medley valued MVF at $80 million despite the company’s negative book value).) Given the circumstances, the Court believes that lost business value is a measure that may appropriately compensate MVF for losses allegedly imputable to Medley.
2. Triable Issue of Material Fact with Respect to Damages
To establish a triable issue of material fact as to lost business value, Holdings submits a declaration from Robert T. Walston (Walston). Walston has over 26 years of experience working with and valuing production and post-production companies. (Walston Decl. ¶ 2.)
Walston’s career began in finance. (Walston Decl. ¶ 3.) Walston started his career at Texas Commerce Bank, N.A., where he originated and executed numerous senior debt financings for Texas-based Fortune 1000 companies. (Ibid.) Thereafter, Walston worked for investment banks and was a principal for a private equity branch of a firm. (Ibid.)
In 1993, Walston joined Four Media Company, a post-production company, where he served as CEO and Chairman. (Walston Decl. ¶ 4.) During Walston’s seven-year tenure there, Four Media Company completed 22 acquisitions. (Ibid.) Since 2002, Walston has been a managing member of a company which provides strategic advice and assistance to businesses operating in the media and entertainment industry, including media-related technology companies. (Walston Decl. ¶ 7.) Walston presently serves on the Board of Deluxe Entertainment Services and is the Executive Chairman of the company. (Walston Decl. ¶ 8.) Deluxe Entertainment Services is one of the two largest post-production companies in the world. (Ibid.) The other is Technicolor. (Ibid.) Over the span of his career, Walston has acquired 25 post-production companies. (Walston Decl. ¶ 2.)
Walston is well-acquainted with MVF and Barkat due to his experience in the media and entertainment industry. (Walston Decl. ¶ 11.) According to Walston, “[t]he entertainment industry is a relationship industry. Barkat held key relationships with clients and employees. MVF had state of the art technology for digital distribution and post-production, as well as physical duplication capabilities. Barkat also had a license for Warner Brothers’ Digital End-to-End (DETE) system. MVF and Barkat had strong reputations in the industry, and particularly in the post-production space. Barkat was a master at building and developing relationships.” (Walston Decl. ¶ 11.)
Walston reviewed extensive documentation in this case, including (1) MVF’s audited financial statements from 2002 to 2015, (2) Medley’s own valuations before and after making the loan, (3) documentation relating to the Technicolor Venture, (4) MVF management’s valuations and projections, and (5) correspondence between Medley and MVF management. (Walston Decl. ¶¶ 12, 19.) In making his valuations, Walston relied on these documents as well as his expertise valuing post-production companies which he has conducted over 100 times. (Walston Decl. ¶ 19.) Walston states that he performed his valuations in the same way that he would have if he were acquiring MVF for himself. (Ibid.)
In 2012, when Medley made its loan to MVF, Walston valued MVF at $136.6 million. Walston’s valuation was based on the value of the traditional core business ($80 million), the value of the additional capacity added in MVF’s Santa Monica and Burbank facilities ($30 million), and the incremental value of the DETE system optimized for multi-client operations ($20 million). (Walston Decl. ¶¶ 13-14.)
Had the Technicolor Venture been consummated, Walston valued MVF at $163.6 million. (Walston Decl. ¶ 15.) This valuation was similarly based on the traditional core business ($62 million), the value of the additional capacity ($30 million), and the incremental value of the DETE system paired with the financial impact of the joint venture ($70 million). (Walston Decl. ¶¶ 15-16.)
Had Medley approved the “Plan B” that Barkat presented, Walston valued MVF at $102 million. (Walston Decl. ¶ 17.) This valuation was based on the core business ($52 million), additional capacity ($30 million), and the DETE system ($20 million). (Walston Decl. ¶¶ 17-18.)
Walston opines that Barkat’s termination destroyed MVF’s value. (Walston Decl. ¶ 20.) Walston viewed the press release announcing Barkat’s departure to be a public announcement of MVF’s death. (Ibid.) Walston opines that clients no longer wanted to work with MVF because of Barkat’s absence and the installation of restructuring professionals indicated to the industry that the company was in trouble. (Ibid.)
In addition to the Walston Declaration, Holdings points to a memorandum from a Medley representative, Craybas, projecting that the Technicolor Venture would generate $96 million in 2014. (Opp. Ex. 36.)
The Court concludes that the Walston Declaration and this Medley correspondence, liberally construed, establish a triable issue of material fact in this matter. Walston has demonstrated that he is qualified to testify as an expert on the matter of MVF’s valuation because Walston has extensive experience with acquiring and managing post-production companies. Walston has reviewed the relevant documentation and provided valuations of MVF based on his expertise and the documentations. These valuations indicate that Medley’s actions caused MVF’s business value to decline by millions of dollars.
Medley replies that Walston’s testimony is speculative. Medley fails to identify any specific aspect of Walston’s testimony as speculative. In any event, characterizing expert testimony on this subject as speculative does not necessarily render the evidence inadmissible. The Court finds lost profit case law instructive: “[T]he lost profit inquiry is always speculative to some degree. Inevitably, there will always be an element of uncertainty.” (Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747, 774.) (emphasis added).) Nonetheless, “ ‘[w]here the fact of damage is certain, the amount of damages need not be calculated with absolute certainty. [Citations.] The law requires only that some reasonable basis of computation of damages be used, and the damages may be computed even if the result reached is an approximation. [Citation.] This is especially true where … it is the wrongful acts of the defendant that have created the difficulty in proving the amount of loss of profits [citation] or where it is the wrongful acts of the defendant that have caused the other party to not realize a profit to which that party is entitled.’ ” (Id. at 774-75.) In this case, Walston has relevant expertise, has reviewed the relevant documents, and furnishes valuations of MVF at three different points in time. While Walston’s valuations, particularly those based on the counterfactuals, are speculative, the Court concludes that Medley has not proven that the valuations are unduly speculative. A determination of the valuations’ weight will be made at trial, at which time the foundations of Walston’s opinion can be fully explored and contextualized.
Medley also argues that Holdings cannot establish that Medley caused MVF to suffer lost profits. Medley claims that Technicolor walked away from the joint venture due to MVF’s financial state. This argument is barred by CCP section 437c(f)(2) because it was asserted in MVF’s prior summary judgment motion. In any event, the Court repeats that there is conflicting evidence on this point which precludes summary judgment. For example, Technicolor’s then-Head of the Entertainment Services Group, Lanny Raimondo (Raimondo), avers that the companies agreed upon and signed a term sheet with respect to the joint venture and were negotiating a final agreement. (Raimondo Decl. ¶ 6.) During the negotiations, Medley became involved. (Ibid.) Raimondo avers that Medley’s demands caused Technicolor to stop pursuing the Technicolor Venture because (1) Medley’s involvement would likely impact the joint venture’s financial independence, (2) Barkat’s reputation and expertise were the primary reason for the joint venture and Medley’s demands opened the door for a change in control, and (3) Medley’s involvement caused unwanted delays in the negotiation process. (Raimondo Decl. ¶¶ 7-10.)
Because Holdings has established a triable issue of material fact as to its theory of damages, Medley is not entitled to summary judgment.
Medley’s motion for summary judgment and summary adjudication is denied.
MIL No. 1
Medley moves to preclude Walston from offering his expert opinion in this case.
Medley contends that Walston’s testimony is inadmissible because (1) the methodology employed by Walston is unreliable and (2) the foundation underlying his expert testimony is speculative.
In ruling on this motion, the Court is mindful of two related legal principles.
The first principal is that the purpose of a motion in limine is “to avoid the unfairness caused by the presentation or prejudicial or objectionable evidence to the jury, and the ‘obviously futile attempt to “unring the bell,” ’ ” (Peat, Marwick, Mitchell & Co. v. Superior Court (1988) 200 Cal.App.3d 272, 288.) The second principle is that the trial court’s gatekeeping responsibility — such as the duty to exclude speculative expert testimony — is grounded in protecting juries “from being satisfied by matters of slight value, capable of being exaggerated by prejudice and hasty reasoning.” (Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747, 769.) Because this action is set for a bench trial, these concerns about prejudice are not present here. As such, the Court believes that Medley must make a strong showing that Walston’s testimony is speculative and unfounded in order to warrant exclusion of his testimony at trial. The preferred method — in light of due process, the importance of Walston’s testimony, and the numerous pieces of evidence contextualizing his testimony — is for Walston to testify at trial so the Court can more thoroughly assess the weight of his testimony. The Court finds support for this conclusion in Sargon where the trial court elected to conduct an eight-day evidentiary hearing before barring expert testimony on lost profits even though the testimony was patently speculative.
A. Reliable Methodology
Medley contends that Walston’s valuations are not based on a reliable methodology. The Court disagrees. This issue is much simpler than Medley lets on. Holdings seeks to establish damages based on lost business value. Holdings attempts to show the lost business value of the company by fixing the company’s enterprise value at three points in time. Medley makes no showing — evidentiary or legal — that an enterprise value is an inappropriate means of establishing business value. According to Walston, a person with appreciable experience in this industry and, more specifically, in acquiring post-production companies, “[e]nterprise value is what controls when you are valuing companies for purposes of acquisition or sale.” (Walston Decl. ¶ 25.) If Walston were determining whether to acquire MVF, Walston would use enterprise value and perform the valuations in the manner that he has espoused. (Walston Decl. ¶ 19.) The Court concludes that employing this methodology is sound because it reasonably tends to capture the fair market value of MVF at different points in time. (Orozco v. WPV San Jose, LLC (2019) 36 Cal.App.5th 375, 397 (“The trial court’s gatekeeping role as to expert testimony, including as to lost profits, is to determine ‘whether the expert opinion is founded on sound logic,’ rather than to assess its ‘persuasiveness.’ ”).) Substantive quarrels with the methodology go to its weight, not its admissibility. (In re Marriage of Honer (2015) 236 Cal.App.4th 687, 699 (“Any substantive quarrel … with … valuation methodology goes to the weight, not the admissibility, of [the expert’s] testimony.”).)
Medley contends that Walston has ignored a basic tenet of enterprise valuation by ignoring MVF’s outstanding debt. According to Medley, an enterprise valuation must be calculated by adding a corporation’s market capitalization, preferred stock, and outstanding debt together and then subtracting out the cash and cash equivalents found on the balance sheet.
The Court is unpersuaded. Medley has failed to prove that enterprise valuation is always so rigidly construed. Because the purpose of enterprise value is to measure the market value of the company, different methods have been adopted. (See S.E.C. v. Mannion (N.D. Ga., Mar. 25, 2013, No. 1:10-CV-3374-WSD) 2013 WL 1291621, at *8 (noting that another method of measuring enterprise value is “comparing similar companies”).) Moreover, regardless of the label attached to Walston’s valuations, the point remains that Walston is valuing MVF based on what he believes the company would command on the open market at various points in time. This makes the valuations probative on the issue of lost business value.
Medley also argues that Walston’s methodology is flawed because his valuations are based on the sum of three purportedly arbitrary components: (1) outdated and incorrect projections of the company in 2012, (2) the assumption that DETE work would return and be worth $20 to $70 million, and (3) the assumption that the expensive facility that MVF purchased would be filled and become a $30 million asset. The Court disagrees. In terms of methodology, it cannot be seriously argued that calculating and summing the assets of the company — such as the DETE license and facility — is an improper method of valuing the company. Further, the Court rejects Medley’s argument that the 2012 projections are unusable because the projections ultimately proved inaccurate. (See Mot. at 12 (noting that the projected figures were substantially lower than the company’s actual revenue).) The projections’ ultimate inaccuracy does not mean that the projections were inaccurate estimations of the company’s value at that time and, more importantly, that a purchaser would not have been willing to purchase the company at that time at that price. Medley’s decision to invest in the company based on these projections is proof that the projections were not completely unrealistic.
Walston’s methodology in valuing MVF’s worth is sufficiently sound.
B. Matters Reasonably Relied Upon
In preparing his expert opinion, Walston reviewed extensive documentation including audited financial statements of MVF from 2002 to 2015, due diligence performed by Medley, MVF management’s valuations and projections, emails between Medley and MVF, and the Technicolor Joint Venture term sheet. (Walston Decl. ¶¶ 12, 19.) Walston created a spreadsheet setting forth the timeline of key events and documents associated with each event. (Walston Decl. ¶ 12, Ex. C.) Walston based his expert opinion on this documentation as well as his expertise valuing post-production companies which he has performed over 100 times. (Walston Decl. ¶ 19.) Walston states that he performed these valuations in the same way that he would have if he were acquiring MVF for himself. (Ibid.) The Court concludes that these are matters — relevant financial documentation and relevant expertise in the industry — which an expert would reasonably rely upon in forming an enterprise valuation of MVF.
Medley takes issue with assumptions made by Walston in calculating MVF’s value. “Walston rests … his valuations on ‘assumptions’ untethered to the actual facts of the case: that two of the ‘perfect storm’ issues that destroyed MVF — DETE work that left, and expanded facilities that were not filled — would come back and be wildly profitable. In this regard, Sargon’s discussion of historic ‘what ifs’ is an apt evaluation of the ‘what if’ theory that Plaintiffs hope to present: ‘What if’ Barkat’s projections were right? ‘What if’ the DETE business returned? ‘What if’ MVF had some use for $30 Million new facility?” (Mot. at 27.)
While Medley is correct that these assumptions entail some degree of speculation, the Court does not believe that Medley has proven these assumptions to be unduly speculative.
First, this is Medley’s motion in limine, so Medley bears the burden of proving that these assumptions in this industry are too speculative. Because the assumptions are intertwined with the state of the postproduction industry, Medley should have produced some industry-based evidence that the assumptions cannot reasonably be drawn. Medley has not done so. Because Medley has failed to do so, the Court is unconvinced that Walston’s valuations are totally bereft of supporting evidence and reasonable inferences.
Second, Walston has offered some testimony to support the assumptions. Walston testified that the DETE license possessed by MVF was a valuable asset that could be scaled up to produce massive revenue. (Walston Depo. pp. 156-57, 296-97.) Walston further testified that his assumption about the new facility involved “a very tiny amount of speculation based on [MVF’s] track record. I mean, I can’t say it was there the day that the facility was built, but it was built to grow into a rapidly expanding production market, and I think [Barkat] called the market correctly…. If you just look at the impact of streaming on production and postproduction, it’s truly in its golden years right now.” (Walston Depo. p. 154.) Liberally construed, Walston’s testimony indicates that these assets were highly regarded in the industry and would fetch a higher company value on the open market.
Medley also takes issue with similar assumptions made by Walston with respect to the Technicolor Joint Venture and the Plan B presented by Barkat. Medley notes that Walston’s valuations based on the consummation of these events are “speculation layered upon speculation.” Be that as it may, the Court still concludes that these valuations are admissible at a bench trial. A bench trial is likely to shed more light on the evidence supporting (or not supporting) the assumptions that Walston has made and other evidence presented by the parties may contextualize the assumptions. Moreover, the speculation complained of by Medley is allegedly a byproduct of Medley’s own misconduct. This lowers the bar for admissibility of lost business value evidence: “ ‘[W]here the fact of damage is certain, the amount of damages need not be calculated with absolute certainty. [Citations.] The law requires only that some reasonable basis of computation of damages be used, and the damages may be computed even if the result reached is an approximation. [Citation.] This is especially true where … it is the wrongful acts of the defendant that have created the difficulty in proving the amount of loss of profits [citation] or where it is the wrongful acts of the defendant that have caused the other party to not realize a profit to which that party is entitled.’ ” (Sargon, supra, 55 Cal.4th at 774.)
Medley’s motion in limine no. 1 is denied.
MIL No. 2
Medley moves to determine the legitimacy of the claim of privilege made by MVF with respect to several documents that appear on Medley’s joint exhibit list.
A. Legal Standard
“If [ESI] produced in discovery is subject to a claim of privilege or of protection as attorney work product, the party making the claim may notify any party that received the information of the claim and the basis for the claim.” (CCP § 2031.285(a).) “After being notified of a claim of privilege or of protection under subdivision (a), a party that received the information shall immediately sequester the information and either return the specified information and any copies that may exist or present the information to the court conditionally under seal for a determination of the claim.” (CCP § 2031.285(b).) “Until the legitimacy of the claim of privilege or protection is resolved, the receiving party shall preserve the information and keep it confidential and shall be precluded from using the information in any manner.” (CCP § 2031.285(d)(2).)
Medley argues that MVF’s claim of privilege is without merit because (1) MVF explicitly waived its claim of privilege, (2) MVF implicitly waived its claim of privilege, and (3) several of the communications in question are not attorney-client privileged.
“A waiver [of the attorney-client privilege] results when the holder, without coercion, (1) has disclosed a significant part of the communication, or (2) has consented to the disclosure made by anyone else. [Citation.] Under the second method of waiver, ‘Consent to disclosure is manifested by any statement or other conduct of the holder of the privilege indicating consent to the disclosure, including failure to claim the privilege in any proceeding in which the holder has legal standing and the opportunity to claim the privilege.’ ” (McDermott Will & Emery LLP v. Superior Court (2017) 10 Cal.App.5th 1083, 1101.)
“[C]ourts have consistently held that inadvertent disclosures do not” create a waiver. (McDermott, supra, 10 Cal.App.5th at 1101.) Rather, “a waiver of the attorney-client privilege occurs only when there is an ‘intention to voluntarily relinquish a known right.’ ” (Ibid.) “The privilege holder’s characterization of his or her intent in disclosing a privileged communication is an important consideration in determining whether the holder waived the privilege but is no necessarily dispositive. When determining whether an inadvertent disclosure waived the attorney-client privilege, a trial court must examine both the subjective intent of the privilege holder and any manifestation of the holder’s intent to disclose the information. [Citations.] Other relevant considerations include the precautions the holder took to maintain the privilege and the promptness with which the holder sought return of the inadvertently disclosed document.” (Id. at 1101-02.)
Medley contends that MVF explicitly waived any claim of privilege in 2016 when it voluntarily produced the documents to Medley without objections. Medley points to an email from MVF’s attorney stating that her “client has approved us turning the documents over.” (Betz Decl. Ex. B.)
This showing is insufficient. In this representation, MVF’s attorney is not explicitly or implicitly consenting to disclosure of MVF’s privileged communications with respect to the production. MVF’s attorney is simply stating that her client has approved production of the documents generally. Corroborating this, Grobstein avers that he did not waive the attorney-client privilege with respect to any of MVF’s documents at any time between October 2015 and the present. (Grobstein Decl. ¶ 3.) Given the sheer number of documents turned over in the production (over 60,000 pages), this is a situation where the privilege holder can credibly preserve the attorney-client privilege based on a claim of inadvertent disclosure.
Medley contends that MVF implicitly waived any claim of privilege by failing to take reasonable steps to protect the privilege since the documents’ production in 2016. Medley explains that MVF failed to raise this privilege claim when (1) the documents were produced in 2016, (2) Medley’s counsel Michael Betz (Betz) made MVF’s counsel Garrick Hollander (Hollander) aware that Medley had all of MVF’s documents in 2018, and (3) Barkat made a motion for terminating sanctions in 2018.
The evidence on this issue is mixed.
In 2016, the privileged documents were inadvertently produced without MVF’s knowledge. MVF could not have been reasonably expected to assert a claim of privilege with respect to documents which MVF did not know had been disclosed.
In 2018, Betz and Hollander had discussions about “themes” in this case, and Betz allegedly told Hollander about Barkat’s attempt to assert a privilege belonging to MVF in a motion for terminating sanctions filed in April 2018. (Betz Decl. ¶ 5.) Hollander denies that Betz told him that the production contained MVF’s attorney-client privileged communications. (Hollander Decl. ¶ 8.) Hollander points out that he was retained by MVF to represent the company in insolvency and bankruptcy related legal matters, not as acting litigation counsel in this case. (Hollander Decl. ¶ 5.)
In 2018, Barkat also filed a motion for terminating sanctions based on Medley’s use of attorney-client privileged materials belonging to MVF. However, the motion was not served on MVF, and the Court did not have an opportunity to rule on the motion because of the bankruptcy stay.
Given this conflicting evidence of efforts to preserve the privilege, the Court looks to whether Medley complied with its State Fund duty: “When a lawyer who receives materials that obviously appear to be subject to an attorney-client privilege or otherwise clearly appear to be confidential and privileged and where it is reasonably apparent that the materials were provided or made available through inadvertence, the lawyer receiving such materials should refrain from examining the materials any more than is essential to ascertain if the materials are privileged, and shall immediately notify the sender that he or she possesses material that appears to be privileged. The parties may then proceed to resolve the situation by agreement or may resort to the court for guidance with the benefit of protective orders and other judicial intervention as may be justified.” (State Compensation Ins. Fund v. WPS, Inc. (1999) 70 Cal.App.4th 644, 651.) In this case, Medley failed to notify MVF of its inadvertent disclosure of attorney-client privileged materials, elected to examine the materials, and placed the communications on its exhibit list. Because Medley failed to comply with its State Fund duty and provide clear evidence of waiver, Medley has not established waiver.
2. Validity of Privilege
Medley contends that six of the ten documents at issue — Exhibits 40, 42, 45, 56, 407, and 408 — are not attorney-client privileged. The Court disagrees. Each of the exhibits contain correspondence between Cary Epstein (MVF’s counsel) and MVF, and each of the correspondence “bear[s] some relationship to the attorney’s provision of legal consultation.” (Los Angeles County Bd. of Supervisors v. Superior Court (2016) 2 Cal.5th 282, 294 (“[T]he heartland of the privilege protects those communications that bear some relationship to the attorney’s provision of legal consultation.”).) As such, the documents are attorney-client privileged.
Medley’s motion in limine no. 2 is denied. The documents are privileged and cannot be used at trial.
 Medley’s requests for judicial notice are granted in full. (Evid. Code §452(d).)
The Court has not ruled on Holdings’ objections because the objections were not material to the disposition of this motion. (CCP § 437c(q).)
 The Court would point out that Kirschner, New York’s leading case on the adverse interest exception, examined imputation of the agent’s knowledge to the principal and did not involve the purportedly fraudulent execution of a release. Kirschner involved a derivative lawsuit brought by shareholders against the corporation’s management and its outside professional advisers for financial fraud.
 The Court finds Ramiro Aviles v. S & P Global, Inc. (S.D.N.Y. 2019) 380 F.Supp.3d 221, 302 instructive insofar as it articulates a viable theory of the adverse interest exception in the context of a release: “The complaint establishes that this [adverse interest] exception could plausibly apply here. Although the Wells Fargo Defendants argue that Lifetrade benefitted from the Settlement Agreement ‘by having its debt extinguished’ [Citation], the complaint — construed in the light most favorable to Plaintiffs — alleges that Lifetrade could have achieved the same result by holding the Wells Fargo Defendants to the foreclosure procedures already set out in the Loan Agreement. [Citation.] And, Plaintiffs further allege, had Smith and Marcum taken that path, hundreds of millions of dollars would have flowed back into Lifetrade’s coffers. [Citation.] Instead, motivated by personal concerns, Smith and Marcum elected to negotiate a new agreement — the Settlement Agreement — that allegedly ‘rendered the Lifetrade [Funds] insolvent’ and produced no commensurate benefit for the company.”
 Medley’s requests for judicial notice are granted. (Evid. Code § 452(d).)
 Medley also moves to preclude “any evidence, argument, references or questioning regarding Plaintiff’s purported damages claim.” (Mot. at 2.) The Court is not entertaining this request because a motion in limine is not a substitute for a motion for summary judgment. (Amtower v. Photon Dynamics, Inc. (2008) 158 Cal.App.4th 1582, 1593.) The Court has concluded that Holdings’ damages claim is viable as a matter of law and its merits shall be considered at trial.
For the same reason, the Court rejects Medley’s first argument that Holdings cannot prove any act by Medley harmed MVF’s prospects of future profits. This argument is flawed because (1) it should have been raised and has been raised in a summary judgment motion and (2) Holdings seeks damages based on lost business value, not lost profits.
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