Opinion
C078381
12-08-2017
DAVID HILBURN et al., Plaintiffs and Appellants, v. JOHN LUND, Defendant and Appellant.
NOT TO BE PUBLISHED California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. SCV0029734)
John Lund and David Hilburn are business partners who formed corporations that own and operate five skilled nursing facilities in Northern California, to which we refer as Sherwood, College Oak, Saylor Lane, Woodside, and Oak Ridge. We refer to plaintiffs, including Hilburn, collectively as the corporate plaintiffs. Lund solely owns two additional nursing facilities, to which we refer as Asbury and Pacific Grove. As to their jointly owned nursing facilities, Lund and Hilburn, on his own behalf, engaged in a division of labor. Lund took care of accounts payable, payroll, insurance management, maintaining patient census documents, and preparation of documents used for annual cost reports. Hilburn assumed responsibility for management of the day-to-day operations of the nursing facilities. This arrangement worked until an audit by the Department of Health Care Services (DHCS) uncovered improper cost reports submitted by Lund that resulted in criminal charges against Lund. The criminal charges threatened the downfall of all the nursing facilities in which Lund was even a part owner.
DHCS determined Lund had intentionally hidden personal expenses for such things as his home remodel and vacation trips in the cost reports submitted for Medi-Cal reimbursement payments. Lund escaped a felony conviction and the nursing facilities avoided being shut down when DHCS agreed to allow Lund to plead guilty to a misdemeanor. Lund nearly derailed this agreement by improperly including legal fees in 2009 cost reports even though he was expressly warned by DHCS the fees were not claimable items in a cost report. Along the way, Lund broke a deadlock with Hilburn over corporate decisions for the nursing facilities by appointing his wife, Christina Lund, as a director. The Lunds outvoted Hilburn with the effect that Lund made some of the jointly owned nursing facilities pay for legal fees incurred solely due to Lund's self-dealing billing practices.
Hilburn sued Lund on his own behalf and on behalf of Sherwood, College Oak, Saylor Lane, Woodside, and Oak Ridge, the corporate plaintiffs. The matter proceeded to a bench trial, during which the trial court allowed the corporate plaintiffs to amend their operative complaint to allege a breach of fiduciary duty in the filing of the 2003 and 2005 cost reports. After a six-day trial, the trial court issued a statement of decision finding that "but for Lund's misconduct and breaches, none of the plaintiffs would have been subject to investigation, criminal charges or any of the resulting attorney's fees, costs, or fines." The trial court entered judgment in favor of the corporate plaintiffs totaling almost exactly $1 million. From the judgment, Lund appeals and the corporate plaintiffs cross-appeal.
On appeal, Lund contends (1) he was not liable for breach of fiduciary duty to the corporate plaintiffs for his management of Asbury because he is sole owner of that nursing facility, (2) even if he owed a fiduciary duty to the corporate plaintiffs, he did not breach any duty in submitting the 2003, 2005, or 2009 cost reports to DHCS, there was no expert testimony establishing the standard of care, and the claim regarding the 2003 and 2005 cost reports was time-barred, (3) the trial court erred in allowing the corporate plaintiffs to amend their complaint in the middle of trial, (4) the corporate plaintiffs' claims were equitably barred by the doctrines of unclean hands and estoppel, and (5) the trial court miscalculated damages.
On cross-appeal, the corporate plaintiffs contend (6) the trial court erred in refusing to award prejudgment interest even though damages were certain, and (7) Hilburn separately contends the trial court erred in dismissing his cause of action for declaratory judgment on grounds it was barred by the statute of limitations.
As to Lund's appeal, we conclude he breached his fiduciary duty to the corporate plaintiffs when he engaged in criminal behavior that threatened the continued viability of the nursing facilities owned by the corporate plaintiffs. We deem forfeited Lund's contention the evidence was insufficient to establish a breach of fiduciary duty because Lund provides no legal authority in support of this contention. We reject Lund's argument expert testimony was necessary to establish the duty of care. Expert testimony was not necessary to establish criminal conduct resulting from fraud on the state also fell below the standard of care owed to the corporate plaintiffs. As to the statute of limitations for breach of fiduciary duty, we conclude the corporate plaintiffs timely filed their claims within four years of accrual of their cause of action. We determine Lund's attempt to deny he knowingly submitted fraudulent cost reports to the state distorts the record - ignoring even his signature on his plea agreement. The trial court did not err in granting the corporate plaintiffs leave to amend their complaint during trial because the amendment conformed to evidence that had already been admitted. We reject Lund's arguments the corporate plaintiffs are barred on grounds of unclean hands, equitable estoppel, and waiver from recovering damages because Hilburn, on his own behalf, also took personal draws from the corporate plaintiffs' accounts. Lund's fraud on the state is not comparable to Hilburn's personal draws that Hilburn announced to Lund and expected Lund to properly code as personal draws.
As to the corporate plaintiffs' cross-appeal, we conclude the trial court erred in refusing to award mandatory prejudgment interest on damages even though they were proven as to both the dates and amounts incurred. However, we determine the trial court properly dismissed Hilburn's cause of action for declaratory judgment based on the statute of limitations.
Accordingly, we reverse the judgment insofar as it denies prejudgment interest to the corporate plaintiffs and remand the matter for award of prejudgment interest as required by Civil Code section 3287.
FACTUAL AND PROCEDURAL HISTORY
Lund and Hilburn Acquire Nursing Facilities in Northern California
In 1997, Lund acquired Asbury, a skilled nursing facility through his corporation, J.D.L. Healthcare Inc. From 1998 until 2003, Lund and Hilburn, on his own behalf, jointly acquired five nursing facilities in Northern California. They formed S.H.C.C., Inc., in 1998 to acquire and own Sherwood Healthcare Center; formed C.O.N.R., Inc., in 2000 to acquire and own College Oak Nursing and Rehabilitation Center; formed S.L.H.C.C., Inc., in 2001 to acquire and own Saylor Lane Healthcare Center; formed W.H.C., Inc., in 2002 to acquire and own Woodside Healthcare; and formed S.C.A.R.C., Inc., in 2003 to acquire and own Oak Ridge Healthcare Center.
In connection with a 1999 insurance renewal of Sherwood, Lund informed Hilburn the insurer required one of them " 'on paper,' to be a 51% shareholder so that it looked like there could never be a corporate deadlock." According to Hilburn, Lund "said in reality we would always stay 50/50 partners, and we would always split the net profits of our companies 50/50." Over the next 14 years, the corporate plaintiffs and Lund split net profits equally among themselves. However, all of the corporate plaintiffs eventually had stock certificate ownership reflecting a 51/49 percent split with Lund being majority shareholder.
In managing the corporate plaintiffs, Lund took responsibility for "home office" duties, including payroll processing, payment of vendors, insurance procurement, cost reports, and spearheading capital improvements. Hilburn, on his own behalf, took responsibility for the day-to-day operations of the nursing facilities. As to their abilities, the trial court found "[t]he evidence shows both Hilburn and Lund are well-educated, sophisticated and savvy businessmen."
Lund and Hilburn, on his own behalf, set up a separate corporation, Centurian Healthcare, Inc. (Centurian), to operate as the corporate center with each of their corporations paying a management fee to handle corporate functions such as managing worker's compensation, paying vendors, overseeing capital expenditures, and preparing cost reports. However, Centurian never hired employees and was dissolved within a few years.
In 2006, Lund personally acquired another nursing facility, Pacific Grove.
Additional pertinent facts are established by the trial court's thorough statement of decision in which the court made the following findings: "Generally, the evidence established that Medi-Cal reimbursement payments are the financial lifeblood of nursing facilities such as those operated by plaintiffs here. Overwhelmingly, the revenue received by such provider facilities comes from Medi-Cal reimbursement for services provided by the facilities to its patients, with smaller amounts from Medicare and private payors. Provider facilities are paid a daily rate for providing care to nursing home residents who are Medi-Cal beneficiaries. In order to receive reimbursements from Medi-Cal, the provider facilities must submit annual reports to . . . DHCS. It is safe to say that the cost reports are technical in nature, with facilities often relying on cost report preparers, accountants and others to compile the necessary data and final reports.
"DHCS uses cost reports to calculate the patient services daily reimbursement rate for Medi-Cal provider facilities. The reimbursement rates for services provided by the nursing facilities can change yearly. Before August 2005, Medi-Cal rates were set according to geographical region. The reimbursement methodology has since changed so that Medi-Cal providers are reimbursed at a daily rate based on each provider's actual patient care cost. 'Provider manuals' and other materials are provided to Medi-Cal providers, such as the nursing facilities here, including explanations of what types of expenses are allowable for reimbursement under the Medi-Cal program. Personal expenses of the operators, unrelated to patient care, are not allowable expenses to be included in cost reports for purposes of rate-setting. As reimbursement rates are based on a facility's actual cost of providing care, the inclusion of personal expenses would artificially inflate a facility's applicable reimbursement rate. Annual cost reports must be signed under penalty of perjury by the providers, certifying that the statements and amounts in the report are accurate, and that the report complies with certain state law.
"Cost reports also require an authorized person to certify that he or she believes each statement in the cost report is true. In turn, witness testimony and documentary evidence established that cost reports contain statements made by the providers as to many categories of expenses, including a host of expense categories related to routine services provided to patients, expenses for 'property, plant and equipment,' and for other categories. . . . Therefore, for example, it would be untrue to state that expenses listed under the category of 'property, plant and equipment' are accurate when the expenses are comprised of personal expenses unrelated to the property, plant or equipment of a facility.
"Cost reports for the corporate plaintiffs were prepared by outside firms or preparers, using financial data supplied by Lund as part of his 'home office' functions. Lund provided data to accountants, who generated profit and loss statements, general ledgers and balance sheets. This information was used in preparing the annual cost reports. The preparers did not make independent determinations as to whether expenses included in the financial data received from Lund were allowable for Medi-Cal rate-setting purposes.
"The general practice for preparation of the annual cost reports afforded Lund an opportunity to review a draft cost report before its submission to DCHS. Pursuant to their agreed division of labor, Hilburn [on his own behalf] was not responsible for providing financial information to the cost report preparers. Hilburn testified he did not see or sign any of the cost reports that were prepared for the corporations. Lund signed all of the cost reports submitted to DCHS on behalf of the corporate plaintiffs."
Lund Included His Personal Expenses in Medi-Cal Cost Reports
The trial court found: "Both Hilburn [on his own behalf] and Lund concede they understood that claiming personal expenses as corporate expenses could provide personal tax benefits.
"John Truscott performed financial services for clients in the healthcare industry, including preparation of timely financial reports. He was hired by Lund to perform services for some of the corporate plaintiffs. Although not a CPA, his role was to prepare accounting records, utilizing data provided by Lund. Truscott testified that he assumed if expenses for any of the corporations were charged on a corporate credit card and paid from corporate funds, those expenses must have some relation to the business. He never discussed with Lund the correct reporting standards and applicable regulations for cost reports. Truscott attended multiple audit interviews, including the 2005 Asbury audit interview. He was unaware until 2005 that Lund was including impermissible personal expenses in the cost reports. When he learned Lund was running personal expenses through Asbury, he told Lund to 'clean up your act.'
"As to Lund's understanding of signing cost reports, when asked whether he agreed he signed cost reports under penalty of perjury, Lund testified he would not agree. However, oral and documentary evidence clearly establishes that cost reports are signed under the penalty of perjury." The trial court expressly found that "Lund attempted in his testimony to downplay his role in signing cost reports under penalty of perjury." The trial court "specifically disbelieve[d] any testimony by Lund in which he stated or implied that he did not understand and know that he signed cost reports under penalty of perjury." And the trial court "also [gave] no weight to any testimony by Lund that suggests or implies he was unaware of the significance or requirement that cost reports be certified in this fashion. As one with training in accounting and finance, it would be unreasonable to find either that Lund was unaware he was signing under penalty of perjury or that he failed to appreciate the importance of submitting accurate reports. Lund knew that running his personal expenses (such as for his personal home remodeling and for retail purchases) allowed him to gain a personal tax advantage by lowering his taxable income. After the Medi-Cal rate-setting methodology changed in August 2005, Lund knew it was possible to achieve another advantage by including impermissible personal expenses in a cost report - higher expenses for a facility could translate to higher Medi-Cal reimbursement rates for patient services."
The trial court also found the evidence "clearly establishes the importance of submitting accurate cost reports in order to avoid the potential consequences that a finding of Medi-Cal fraud would cause. Generally, if a person with a requisite ownership interest in a regulated nursing facility is convicted of Medi-Cal program-related fraud, the conviction could result in the suspension or exclusion from the Medi-Cal program of any facility in which the convicted person held ownership. Further, as described by one witness, suspension from the Medi-Cal provider program and/or exclusion from the Medicare program is tantamount to a 'death sentence' in that a suspended and/or excluded facility could not survive financially - its lifeblood of Medi-Cal and Medicare payments would be gone.
"DHCS, through its Financial Audits Branch, conducts periodic financial audits of Medi-Cal providers, such as the long-term nursing facilities here. As part of its oversight function, DHCS audits cost reports, including examinations of expenses, to determine whether expenses listed for a given nursing facility are allowable under Medi-Cal guidelines. After conducting audits, DHCS auditors may have an 'exit conference' whereby providers are informed of the auditor's findings, including whether expenses claimed are to be disallowed as improper personal expenses or for other reasons. Depending on the claimed expenses, an auditor may recommend adjustments to the expenses claimed, resulting in a lower amount of allowable expenses in determining a facility's reimbursement rate. Typically, after providing the opportunity to submit further documentation or justification for expenses claimed for a facility, a cost report is adjusted to exclude any expenses that are not allowed under Medi-Cal or Medicare guidelines, such as personal expenses of facility owners not related to patient care.
"Until recently, Allison Clinton was a Health Program Auditor for DHCS who conducted audits of long-term facilities, such as those involved here. [Clinton] testified she obtained a bachelor's degree from University of the Pacific in 2000 and has been a certified public accountant since 2006. [Clinton] reviewed the 2003 cost reports for Asbury, Saylor Lane, and Sherwood. This was the first time DHCS audited any of the facilities jointly operated and owned by Lund and Hilburn.
"[Clinton] testified credibly as to all parts of her audit and review of the 2003 and 2005 cost reports and expenses related to Asbury, Saylor Lane and Sherwood. [Clinton]'s thorough audit of the expenses listed in the Asbury cost report for 2003 revealed $242,730 in impermissible personal expenses for Lund, including remodel expenses for Lund's home, retail purchases as Nordstrom's, and other improper expenses. [Clinton] conducted an exit conference with Lund on December 29, 2004. [Clinton] informed Lund his personal expenses were not allowable and the cost report was adjusted to reflect the disallowance of Lund's personal expenses. Lund signed an 'Exit Conference Acknowledgement' on that date, acknowledging the proposed audit adjustments and the rationales for the adjustments. [Clinton] testified DCHS auditors frequently identify impermissible expenses in their audits, which can sometimes be attributed to innocent mistakes.
"Lund also submitted and certified 2005 cost reports for Asbury, Saylor Lane and Sherwood that contained improper personal expenses from Lund. The 2005 cost report for Asbury included approximately $127,000 in Lund's personal expenses, Sherwood's cost report contained approximately $24,000 in personal expenses from Lund, and Saylor Lane's cost report included approximately $7,900 in personal expenses.
"The California Department of Justice [(DOJ)], Bureau of Medi-Cal Fraud and Elder Abuse ('BMFEA') investigates cases of possible Medi-Cal fraud, and did so here after the DCHS auditors alerted them to the case. Delores Reynolds was employed by DOJ as an investigative auditor with BMFEA beginning in 2001. . . .
"[Reynolds] testified credibly as to all aspects of her thorough investigation of personal expenses submitted in cost reports for 2003 and 2005 for Asbury, Sherwood, and Saylor Lane. She concluded Lund had improperly included personal expenses in the cost reports. Reynolds determined Lund included personal expenses on Asbury's 2003 cost report related to his home remodeling, vacations, various retail purchases, and other expenses unrelated to patient care. The 2005 cost report for Asbury likewise included large personal expenses for Lund, such as expenses for home remodeling, vacation and retail purchases. [Reynolds] testified Lund recorded the remodeling expenses as relating to patient care, listing the expenses as either administrative expenses or plant and building operations expenses. The entry of expenses in this manner increased the difficulty in detecting whether unallowable personal expenses were being submitted.
"[Reynolds] also concluded the 2003 Sherwood cost report contained $9,931 in personal expenses of Hilburn for his Granite Bay home. Hilburn testified he had a longstanding arrangement with Lund whereby they were entitled to take equalizing draws from profits earned by the corporations, but that any draws (whether taken for personal expenses or by straight draw) would be coded as draws for accounting purposes. Hilburn explained that when he took draws in this fashion his expectation was that Lund would see to it that his draw was reflected as such, and not included as an expense in a cost report. Hilburn explained that Lund, as part of his 'home office' role was responsible for this function. As to the 2005 cost report for Sherwood, [Reynolds] found that Lund included unallowable personal expenses.
"[Reynolds] also found Lund included approximately $19,000 in unallowable personal expenses in the 2003 Saylor Lane cost report. Lund included a lesser amount of such expenses in the 2005 Saylor Lane cost report.
"After more than a year-long investigation, [Reynolds] prepared a declaration in support of an arrest warrant, and a felony complaint was also filed on December 8, 2008 in Sacramento Superior Court. The 18-count complaint charged 'John Lund, Centurion Healthcare, Inc., JDL Healthcare Inc. dba Ashbury (sic) Park Nursing and Rehabilitation, S.H.C.C., Inc. dba Sherwood Health Care Center, and S.L.H.C.C., Inc. dba Saylor Land Health Care Center' as defendants. The remaining corporate plaintiffs here were not named as defendants in the criminal case. Nor was Hilburn charged.
"Generally, the criminal complaint charged Lund and his co-defendants with violations of Welfare and Institutions Code [section] 14107(b)(4) (Medi-Cal fraud), Penal Code section 550(a)(5) (fraudulent cost reports), and Penal Code section 118(a) (perjury as to the cost reports) arising from cost reports submitted for Asbury, Sherwood and Saylor Lane. Thus, in summary, the charges were directed towards Lund individually and two facilities operated by both Lund and Hilburn (Sherwood and Saylor). The charges also were directed to Centurion, the corporation Lund and Hilburn formed to perform the 'home office' functions, which did not operate a nursing facility. The complaint alleged Centurion aided or conspired to commit the underlying acts alleged in the complaint. Finally, the charges also were alleged against an entity (Asbury) connected only to Lund, and to which Hilburn had no formal relationship or role.
"The filing of the felony complaint posed a risk to each nursing facility in which either Lund or Hilburn had an ownership interest. In addition to potential criminal liability, Lund was concerned that if he pleaded guilty or was convicted of any of the felony charges, he would be required to divest himself of ownership interests in any entity in which he held an interest. Thus, there was a risk that a felony conviction on the charges would have led to the facilities no longer being able to operate.
"Hilburn and Lund discussed the criminal allegations in December 2008, Hilburn testified credibly that Lund, without admitting any criminal wrongdoing, made admission to him to the effect that 'I should never have run my personal construction expenses through Asbury Park.' Hilburn felt the majority of the concerns raised by the administrative investigation and criminal case related directly to Lund, personally, and to Lund's solely-owned facility, Asbury. Hilburn urged Lund to enter a guilty plea, which Lund steadfastly refused to do.
"As their respective interests appeared to diverge and relations between Lund and Hilburn became strained as a result of the criminal charges, Lund called special meetings of boards of directors of the corporate plaintiffs in August 2010. Under the bylaws of the respective corporations, a majority of shareholders was authorized to increase the size of the boards from two (Lund and Hilburn) to three. Under Lund's presumption that he was a 51% majority shareholder and Hilburn was a 49% minority shareholder of the corporate plaintiffs, the shareholders voted to approve the appointment of Christina Lund as a director of the respective corporate plaintiffs. This was accomplished over the objection of Hilburn, who continues to contend he has been an equal shareholder with Lund at all times and, therefore, [Christina Lund]'s appointment was invalid. With the appointment of [Christina] Lund as director of the corporations, she became a tiebreaker - the directors then voted 2-1 (John and Christina Lund voting yes, Hilburn voting no) to ratify or authorize the appointment of counsel, specifically the firms of Hooper, Lundy & Bookman and Stein & Lubin. Also by 2-1 vote, the directors authorized Lund to execute the then-proposed settlement agreement between DHCS and Lund, JDL Healthcare, Asbury, Sherwood and Saylor Lane.
"To defend the regulatory interests of his own corporations and those of the corporate plaintiffs, as well as to defend against the pending criminal charges, Lund and the corporate plaintiffs retained various attorneys, discussed further below. Generally, the attorneys worked diligently to minimize the risk of criminal liability to Lund and the co-defendants, as well as to protect the interests of the corporations in continuing to operate nursing facilities. By all accounts, the work and negotiations to resolve the administrative and criminal aspects of the dispute overlapped and was protracted. As characterized by attorney Mark Reagan, there were lots of 'fits and starts' in the negotiations.
Mark Reagan represented the interests of the corporate defendants in the criminal case - Centurion, Asbury, Sherwood and Saylor Lane.
"The success of the pending negotiations was severely jeopardized when Lund certified and submitted 2009 cost reports containing attorney's fees and costs that had been incurred by the various attorneys in connection with the criminal charges and administrative investigation. The inclusion of these expenses became known to DCHS after a draft settlement agreement had already been prepared. Lund was previously advised such expenses would not be allowed. As testified to at trial by attorney Reagan, the inclusion of these expenses had the potential to 'blow up the deal' that was being negotiated with DHCS. As Lund's attorneys were informed by DCHS senior attorney Steven Picco: 'My Financial Audits Branch auditors determined last week that three and possibly more of John Lund's SNF's [skilled nursing facilities] entered legal costs into FY 2009 Cost Reports, claiming as reimbursable the costs of attorney's services related to the criminal and administrative matters with which we have dealt for about 2 years. John Lund signed the reports. Without knowing all of the details, this appears at minimum to be at a minimum a violation of CMS Pub. 15-1 provisions as well as a violation of the draft Settlement Agreement terms on recovery of attorney costs.' [Citation.] Lund's attempt to include attorney's fees as allowable costs in the 2009 cost reports caused a nearly year-long delay in the negotiations for a global resolution of the matter, which was not reached until August 2011.
The trial court took judicial notice that " 'CMS Pub. 15-1' is a 'provider reimbursement manual' published by the Centers for Medicare and Medicaid Services, a federal agency. Facilities such as the nursing facilities in this case that receive Medicare reimbursement for services provided to patients must comply with Medicare reimbursement standards."
"Lund denied intentionally including attorney's fees in the 2009 cost reports. Instead, Lund testified he directed an unnamed employee or agent not to include the expenses in the 2009 cost reports but, nonetheless the expenses somehow were included inadvertently. Even so, Lund certified the reports. No testimony was provided by any employee or agent of Lund or the corporate plaintiffs to corroborate Lund's testimony that he directed someone not to include the attorney's fees in the cost reports. The same process for preparation of the 2009 cost reports was used as with previous years' cost reports. Financial data was gathered, given to the cost report preparers, and then certified by Lund before submission to DHCS.
"With criminal charges confronting Lund and his co-defendants, and settlement negotiations still ongoing, the review and submission in 2010 of the 2009 cost reports - and the monitoring of expenses included in the cost reports - should have occurred with high levels of scrutiny and vigilance. Given Lund's historical pattern of submitting impermissible personal expenses in cost reports, the evidence establishes his submission of these cost reports was either the result of gross negligence or his willful misconduct in attempting to gain a personal tax advantage or enhanced reimbursement rates for the facilities." On this point, the trial court stated it "specifically disbelieve[d] Lund's testimony that the inclusion of the attorney fees and costs was the result of mere inadvertence by an unnamed employee or agent. Lund presumably had the ability to call his employee or agent to testify at trial; however, he did not. If a party provides weaker evidence when it could have provided stronger evidence, the weaker evidence may be distrusted." (Fn. omitted.) The trial court specifically "distrust[ed] Lund's testimony on this point as weaker evidence."
The trial court further found, "Given prior incidents of submitting impermissible personal expenses - highlighted by the seemingly unabashed manner in which Lund had included several hundred thousand dollars of personal home-remodeling and other costs in prior Asbury cost reports - it is not unreasonable to conclude Lund simply believed he could successfully include attorney fees and costs as facility-related expenses in the 2009 cost reports, despite warnings not to do so.
"In early August 2011, after negotiations arising from the inclusion of attorney fees and costs in the 2009 cost reports, a comprehensive settlement agreement [citation] was reached whereby DHCS agreed to resolve certain issues arising from its investigation. The agreement was purportedly entered into by DHCS, on the one hand, and all facilities owned and operated by Lund and Hilburn, on the other. Hilburn was not a signatory to the agreement, although he is included as an 'Owner,' 'Provider' and 'Party' in the agreement. DHCS agreed to settle its regulatory issues with all of the 'Facilities,' 'Owners' and 'Providers' listed in the agreement, premised on the understanding that Lund and Centurion would enter into plea agreements in the criminal case. Without reciting all features of the agreement, it required Lund and the corporations to resubmit cost reports; to reimburse DHCS overpayments of Medi-Cal payments; to pay $200,000 to DCHS as reimbursement for time spent by its personnel in its investigation and follow-up in this matter; and to pay a $100,000 fine to DHCS. By its terms, this fine was for 'settlement of the dispute of the issue of knowing submission of non-allowable legal expenses found submitted in Providers FY 2009 Cost Reports.' The agreement also contemplated Lund would plead guilty to an amended charge of violating Revenue and Taxation Code section 19701 (tax evasion), a misdemeanor. Additionally, the agreement called for Centurion to plead guilty to an amended charge of a single felony violation of Penal Code section 487(a), grand theft. In exchange for these plea agreements, DCHS would not invoke the potential automatic suspension provision of Welfare and Institutions Code section 14123(a), and would refrain from finding that suspensions of the listed providers would be in the best interest of the Medi-Cal program. It also was agreed charges against Sherwood and Saylor Lane would be dismissed, leaving both of those jointly-owned facilities without a disqualifying blemish for purposes of their continued Medi-Cal provider status. As for its part, the evidence established DCHS was motivated to negotiate a settlement agreement that would leave the various nursing facilities in operation, so that nursing patients in the facilities would not have to relocate or suffer interruptions in care. Pursuant to authority granted him by votes of the reconstituted boards of directors of the corporate plaintiffs, Lund signed the agreement 'on behalf of Providers.' Pleas to the amended criminal charges were entered by Lund and Centurion. Thus, the evidence established Lund avoided conviction of any felony, entered a plea to a single misdemeanor charge that allowed the nursing facilities to remain operational; Centurion pleaded guilty to a felony; and charges were dismissed as to Saylor Lane and Sherwood.
"Hilburn testified credibly that he was frozen out of the settlement negotiations. The interactions with attorneys and DCHS were taken over by Lund. Hilburn takes great exception to the fact that he was included as a 'Provider' in the agreement, as he feels it amounts to an admission of wrongdoing on his part that might jeopardize his future ability to operate other nursing facilities. Hilburn testified he did not agree either to the settlement agreement or to the plea arrangements reached.
"As noted above, various attorneys and law firms were engaged to defend against the criminal charges and to protect the administrative interests of the corporate providers. Attorney Win Richey had expertise in healthcare regulatory matters and, as relevant here, in representing clients whose ability to participate as Medi-Cal providers was threatened. [Richey] testified he believed the corporate entities listed in the felony complaint were his clients, including Asbury, Sherwood and Saylor Lane, but excluding Centurion since it did not operate a nursing facility. [Richey] acknowledged his efforts benefitted all of the corporate plaintiffs. [Richey] retired in 2010 and was not involved in the final resolution of the administrative issues.
"From the [trial] court's perspective, all of the attorneys were paid handsomely for their services. [Richey]'s total charges were $77,434.52 and he was paid as follows: $600.58 by College Oak; $1,762 by Oak Ridge; $10,034.95 by Asbury; $45,226.87 by Sherwood; $10,209.26 by Saylor Lane; and $9,400.95 by Woodside. Lund determined which entities would pay [Richey]'s fees and costs.
"Attorney Lynn Keslar was a criminal defense attorney retained to represent criminal defendants Sherwood, Saylor Lane and Centurion in negotiating a resolution of the criminal charges alleged against the entities. Charges for [Keslar]'s services totaled $120,235.19. Pursuant to allocation determined by Lund, Sherwood paid $60,117.61 and Saylor Lane paid $60,117.58.
"Attorney Mark Reagan, a health law attorney with Hooper Lundy and Bookman, was retained in January 2009 to represent the interests of the corporate defendants in the criminal case - Centurion, Asbury, Sherwood and Saylor Lane. [Reagan] specializes in the regulatory consequences of healthcare facilities, including issues relating to Medi-Cal and Medicare. As [Reagan] explained, a 'program-related offense' resulting in a conviction would subject a healthcare facility to an automatic suspension as a Medi-Cal provider and to exclusion as a provider under the Medicare program. In the event of such a program-related offense, any nursing facility sharing common ownership with another is equally at risk of suspension or exclusion, even if not charged with a criminal offense. As [Reagan] explained, his advice and efforts benefitted all of the facilities that were at risk, whether charged or uncharged. Although not retained by Lund personally, [Reagan] testified his legal services for the corporations overlapped with protecting the interests of individuals, including Lund and Hilburn. [Reagan]'s goal, quite simply, was to keep all of the nursing facilities in business and to protect them from the 'death sentence' of being excluded or suspended as Medicare or Medi-Cal providers, respectively. He was the primary attorney for the corporations in negotiating the final settlement with DCHS. Attorney Paul Deeringer, another health law attorney at Hooper Lundy and Bookman, also performed services. [Reagan] spent time interacting with attorneys Keslar and Paul Wolfe, Lund's personal criminal attorney, to resolve the intertwined administrative investigation and criminal charges.
"The charges for services by [Reagan]'s firm totaled $614,215.70. [Reagan] did not determine how payments should be allocated among the entities that benefitted from his services. Lund unilaterally allocated the charges between the plaintiff corporations and his wholly-owned corporations. Hilburn had no input. Attorney's fees were allocated to the corporations charged in the felony complaint as follows: Asbury - $99,776.87; Saylor Lane - $102,661.85; and Sherwood - $102,662.10. Lund allocated a small amount of [Reagan]'s charges ($1,128.59) to Pacific Grove, an entity in which Hilburn had no interest. Lund unilaterally allocated attorney fees to the corporate entities he owned jointly with Hilburn as follows: Woodside - $102,662.10; Oak Ridge - $102,662.10; and College Oak - $102,662.10. Thus, Lund independently determined three entities (Woodside, Oak Ridge and College Oak) that were not charged criminally, and which he owned and operated jointly with Hilburn, should pay over $300,000 of [Reagan]'s charges. By comparison, Lund determined that two entities he owned separately (Pacific Grove and Asbury) would pay only an approximate total of $100,000, even though Asbury was a named defendant in the criminal case and the primary impetus to the State's investigation. Allocating fees in this fashion resulted in a lower financial burden on Lund's corporations when compared to the nursing facilities he operated and owned jointly with Hilburn. Lund testified his rationale for allocating attorney's fees was that every corporation - whether charged in the criminal case or not - benefitted equally to the extent that their ability to continue operating nursing facilities was preserved."
The trial court further found that "the global resolution of the administrative and criminal matters required reimbursements to DCHS for Medi-Cal overpayments received as a result of Lund's inclusion of personal expenses on cost reports. Lund paid $136,749 to DHCS for overpayments received by his corporation, Asbury. Additionally, the settlement agreement called for payment of a $100,000 fine as a result of impermissibly including attorney's fees in the 2009 cost reports. This was paid in equal shares by Sherwood, Saylor Lane and College Oak. In order to pay the additional $200,000 for costs assessed by DCHS under the settlement agreement for investigative costs incurred by DCHS, Lund transferred funds from College Oak accounts to Asbury and then paid DCHS by check from Asbury. Lund used journal entries on Saylor Lane, Sherwood and College Oak to make each entity equally responsible for payment for the $200,000 assessment."
Hilburn and the Corporate Plaintiffs Sue Lund
In August 2011, Hilburn on his own behalf and on behalf of the corporate plaintiffs sued Lund and his wife. The original complaint alleged tort causes of action against Lund for, among other things, "using corporate assets to purchase, construct and/or renovate his personal residence," "paying for the defense of the Criminal Complaint with corporate funds and all other costs associated with settling the Criminal Complaint," and because "[t]he Criminal Complaint arose almost exclusively from the Lunds' personal actions." On these grounds, the corporate plaintiffs asserted that "Lund should be required to indemnify and hold them harmless from any and all attorney's fees and costs, fines, penalties, costs of oversight, and any and all other remedies secured by the government in connection with the allegations in the Criminal Complaint . . . ." Subsequent amended complaints focused on the cost reports submitted by Lund. Thus, the third amended complaint alleges that "on or about April 2010, Lund, on information and belief, included on one or more of the Corporate Plaintiffs' Cost Reports the attorney's fees and costs incurred in the defense of the Criminal Complaint, which he knew he could not do. This alleged action was done to benefit Lund personally . . . ."
The case proceeded to a bench trial on the corporate plaintiffs' cause of action for breach of fiduciary duty, with Hilburn's individual fraud claim being bifurcated for a later trial by jury. On the first day of the bench trial, the court commented on "an excursion" in the testimony regarding the submission of false cost reports that did "not constitute entirely probative evidence on the charges that [were] made in the Complaint." On the second day of the bench trial, the corporate plaintiffs moved for leave to amend in order add a claim to the fourth cause of action to allege Lund breached his fiduciary duty by filing the fraudulent 2003 and 2005 cost reports. The trial court found that "[t]he proposed fourth cause of action refines - not expands - plaintiffs' claim that defendant breached fiduciary duties owed to the corporate plaintiffs." Thus, the trial court granted leave to amend.
After it received the evidence and post-trial briefing, the trial court issued a 51-page statement of decision finding Lund breached his fiduciary duty to the corporate defendants. Lund breached his fiduciary duty by (1) submitting personal expenses on Asbury cost reports because that fraud also jeopardized the corporate plaintiffs' survival that is dependent on Medi-Cal reimbursements, (2) submitting personal expenses on Saylor Land and Sherwood cost reports, (3) submitting unallowable legal expenses on 2009 cost reports even after having been warned not to do so, and (4) allocating payment of the criminal fines and attorney fees due to Lund's wrongdoing to the corporate plaintiffs. Moreover, the trial court found Lund to be the sole cause of the corporate plaintiff's damages in the form of the attorney fees, costs, and fines that resulted from DHCS's criminal complaint. As a result, Lund was liable for damages of $203,262.68 to College Oak, $102,424.10 to Oak Ridge, $112,063.05 to Woodside, $308,006.58 to Sherwood, and $272,988.69 to Saylor Lane. However, the trial court also determined the statute of limitations barred the cause of action for declaratory judgment.
Ultimately, the trial court entered judgment in favor of plaintiffs that totaled almost exactly $1 million. The award of damages in the judgment does not include prejudgment interest.
APPEAL BY LUND
I
Lund's Breach of Fiduciary Duty to the Corporate Plaintiffs
Lund argues he did not engage in a breach of fiduciary duty to the corporate plaintiffs. Specifically, he contends his management of Asbury did not implicate any fiduciary duty to any other corporation. Lund further contends that, even if he owed a fiduciary duty to the corporate plaintiffs in his management of Asbury, no substantial evidence supported the trial court's finding of his breach. Lund also argues the corporate plaintiffs' failure to introduce expert testimony left them bereft of evidence to prove Lund "conducted himself in a manner that fell below the applicable standard of behavior for a corporate official." And Lund argues the corporate plaintiffs' claims regarding his submission of the 2003 and 2005 cost reports were time-barred. Finally on the issue of breach of fiduciary duty, Lund asserts he did not breach his duty to the corporate plaintiffs in submitting the 2009 cost reports that included his criminal defense attorney fees. All of these contentions lack merit.
A.
Lund's Management of Asbury
Lund argues the trial court erred in awarding damages for breach of fiduciary duty because his management of Asbury "was not subject to a fiduciary duty owed to the corporate plaintiffs." We disagree.
1. The Trial Court's Findings
In its statement of decision, the trial court found Lund was a director of Asbury and all of the corporate plaintiffs. The trial court further found Lund breached his fiduciary duty to the corporate plaintiffs in four separate ways:
First, "Lund's act of submitting cost reports for Asbury that impermissibly contained his substantial unallowable personal expenses jeopardized and detrimentally interfered with the plaintiff corporations." The trial court found that if Lund's wrongdoing caused any one of the corporations from being providers under Medi-Cal or Medicare, "the effect on all of the other nursing facilities in which he held an ownership interest would be equally direct and detrimental."
Second, Lund submitted his personal expenses on cost reports for Sherwood and Saylor Lane. The trial court explained that "whether the answer is that he engaged in willful misconduct or that his actions of certifying and submitting the Sherwood and Saylor Lane cost reports represented extreme departures from the ordinary standard of care, his actions constitute a breach of his fiduciary duty owed to the corporate plaintiffs." This breach constitutes "a separate basis for the relief . . . granted by" the trial court.
Third, Lund breached his fiduciary duty to the corporate plaintiffs by nearly derailing the negotiated plea when he included attorney fees in the 2009 cost reports after being specifically warned not do so. As the trial court noted, "The context in which this occurred underscores the egregiousness of the conduct."
Fourth, Lund allocated the criminal penalties and legal defense fees arising out of his criminal conduct among the corporate plaintiffs. The court found that "by shifting fees, fines and costs away from himself, Asbury or Pacific Grove, [Lund] required innocent plaintiff corporations to bear freight they were not obligated to bear."
2. Fiduciary Duty of a Corporate Officer
The California Supreme Court has explained that " ' "[c]orporate officers and directors are not permitted to use their position of trust and confidence to further their private interests. While technically not trustees, they stand in a fiduciary relation to the corporation and its stockholders. A public policy, existing through the years, derived from a profound knowledge of human characteristics and motives, has established a rule that demands of a corporate officer or director, peremptorily and inexorably, the most scrupulous observance of his [or her] duty, not only affirmatively to protect the interests of the corporation committed to his [or her] charge, but also to refrain from doing anything that would work injury to the corporation, or to deprive it of profit or advantage which his [or her] skill and ability might properly bring to it, or to enable it to make in the reasonable and lawful exercise of its powers." ' " (Bancroft-Whitney Co. v. Glen (1966) 64 Cal.2d 327, 345, quoting Guth v. Loft (1939) 5 A.2d 503, 510, italics added.)
A cause of action for breach of fiduciary duty constitutes an equitable claim. "The fiduciary duty of a controlling shareholder or director to a minority shareholder is based on 'powers in trust.' (Jones v. H.F. Ahmanson & Co. (1969) 1 Cal.3d 93, 107.) ' "For that power is at all times subject to the equitable limitation that it may not be exercised for the aggrandizement, preference, or advantage of the fiduciary. . . . Where there is a violation of these principles, equity will undo the wrong or intervene to prevent its consummation." ' (Id. at p. 109, quoting Remillard Brick Co. v. Remillard-Dandini Co. (1952) 109 Cal.App.2d 405, 420-421, emphasis added.)" (Interactive Multimedia Artists, Inc. v. Superior Court (Allstate Ins. Co.) (1998) 62 Cal.App.4th 1546, 1555.)
3. Lund's Breach of his Fiduciary Duty
We reject Lund's argument he owed no fiduciary duty to the corporate plaintiffs. The undisputed evidence established Lund was a director of each of the corporate plaintiffs. In that capacity, Lund jeopardized the viability of all of the corporate plaintiffs with his criminal conduct. As the trial court found, Lund's wrongdoing in submitting his personal expenses for Medi-Cal reimbursement threatened the continued existence of each of the corporate plaintiffs even though they and Hilburn, on his own behalf, had done nothing wrong. A corporate officer "may not enter into a competing enterprise which cripples or injures a business or corporation of which he [or she] remains an officer or director [citation]." (Sequoia Vacuum Systems v. Stransky (1964) 229 Cal.App.2d 281, 286.) Thus, in his capacity as director of each of the corporate plaintiffs, Lund had a fiduciary duty to refrain from conduct that would injure or cripple the corporate plaintiffs even with respect to his management of Asbury.
B.
Evidence of Lund's Breach of Fiduciary Duty
Lund next argues insufficient evidence supports the trial court's findings his misconduct in filing Asbury cost reports breached his fiduciary duty to the corporate plaintiffs. We deem the argument forfeited.
"To demonstrate error, appellant must present meaningful legal analysis supported by citations to authority and citations to facts in the record that support the claim of error. (City of Lincoln v. Barringer (2002) 102 Cal.App.4th 1211, 1239, fn. 16; In re Marriage of Nichols (1994) 27 Cal.App.4th 661, 672-673, fn. 3.) When a point is asserted without argument and authority for the proposition, 'it is deemed to be without foundation and requires no discussion by the reviewing court.' (Atchley v. City of Fresno [(1984)] 151 Cal.App.3d [635,] 647; accord, Berger v. Godden [(1985)] 163 Cal.App.3d [1113,] 1117 ['failure of appellant to advance any pertinent or intelligible legal argument . . . constitute[s] an abandonment of the [claim of error'].)" (In re S.C. (2006) 138 Cal.App.4th 396, 408.)
Lund does not cite any legal authority regarding the appropriate standard of review for an insufficiency of the evidence claim. Lund's argument invites this court to reweigh the evidence and reassess witness credibility in contravention to the well-settled rule that " '[w]e do not reweigh evidence or reevaluate a witness's credibility.' " (People v. Alexander (2010) 49 Cal.4th 846, 917, quoting People v. Guerra (20060 37 Cal.4th at 1067, 1129.). Although Lund cites Diaz v. Carcamo (2011) 51 Cal.4th 1148 on the issue of prejudice, his citation does not support his claim of error. Thus, Lund's reliance on Diaz v. Carcamo neither develops nor supports his insufficiency of the evidence argument. Accordingly, we deem the argument forfeited.
C.
Lack of Expert Testimony Regarding Industry Standards for Proper Discharge of
Fiduciary Duty
Lund argues that even if he had a fiduciary duty to the corporate plaintiffs, they failed to prove the applicable standard of care through expert testimony. We disagree.
1. Lund Admitted He Engaged in Criminal Conduct Regarding the Cost Reports
For his wrongful inclusion of personal expenses in Asbury's cost reports, Lund admitted committing misdemeanor tax evasion. (Rev. & Tax Code, § 19701.) Based on the negotiated plea, DHCS imposed a fine "for 'settlement of the dispute of the issue of knowing submission of non-allowable legal expenses found submitted in Providers FY 2009 Cost Reports.' " (Italics added.) Lund certified under penalty of perjury that the information in the cost reports was truthful. And, at trial, Lund admitted his "purpose, I guess, was to save a little on taxes."
On this evidence, the trial court determined "Lund's conduct with respect to submitting cost reports with unallowable personal expenses are acts that involved a knowing and culpable violation of law." In making this determination, the trial court rejected Lund's assertion that his breach of fiduciary duty had not been proven for lack of expert testimony. The trial court reasoned that "there is no magic here. At minimum, as implied by several witnesses, any acceptable standard of care or industry practice must start with the principle that a nursing facility owner must comply with the reporting guidelines established for providers under the Medi-Cal or Medicare programs. To that end, DHCS offers 'provider manuals' and other publications that instruct providers how to submit an appropriate annual cost report. Nor was expert testimony or industry practice evidence needed to understand that a nursing facility owner should not claim unallowable personal expenses, or look askance when certifying under penalty of perjury that he believes the statements in the report are accurate."
2. When Breach of Fiduciary Duty Claims Require Expert Testimony
Claims of breach of fiduciary duty in the performance of professional services generally require proof the alleged conduct fell below the applicable standard of care. (Wilkinson v. Rives (1981) 116 Cal.App.3d 641, 647.) "In negligence cases arising from the rendering of professional services, as a general rule the standard of care against which the professional's acts are measured remains a matter peculiarly within the knowledge of experts. Only their testimony can prove it, unless the lay person's common knowledge includes the conduct required by the particular circumstances." (Unigard Ins. Group v. O'Flaherty & Belgum (1995) 38 Cal.App.4th 1229, 1239, italics added.)
When a breach of fiduciary duty is premised on criminal conduct, expert testimony is not required to establish the standard of care was not met. (Day v. Rosenthal (1985) 170 Cal.App.3d 1125, 1147, superseded by statute on other grounds as noted in Englebrick v. Worthington Industries, Inc. (C.D. Cal. Aug. 12, 2016) [U.S. Dist. 2016 Lexis 184453, 2016 WL6637712 at *1].) Day involved legal malpractice claims relating to conduct by attorney Jerome B. Rosenthal that violated the California Rules of Professional Conduct. (Day at p. 1148.) From a judgment exceeding $27 million, Rosenthal appealed and raised numerous arguments including the contention that the lack of expert testimony meant the malpractice claims were not proven. (Id. at p. 1143.) The Day court rejected the argument, explaining that "[t]he standards governing an attorney's ethical duties are conclusively established by the Rules of Professional Conduct. They cannot be changed by expert testimony. If an expert testifies contrary to the Rules of Professional Conduct, the standards established by the rules govern and the expert testimony is disregarded." (Id. at p. 1147.) "Expert testimony is needed when it will assist the trier of fact. It is not appropriate in all cases." (Id. at p. 1146.)
Expert testimony regarding the standard of care for submitting Medi-Cal cost reports was not necessary to establish Lund breached his fiduciary duty to the corporate plaintiffs. The trial court properly determined it did not need expert testimony to determine that hiding personal expenses under the guise of legitimate nursing home costs violated the standard of care. Crediting Lund's contention would mean he could have relied upon expert testimony to show his criminal conduct comported with his fiduciary duty. We reject the proposition criminal fraud requires expert testimony to establish its wrongfulness.
We also reject Lund's argument his criminal conduct regarding Asbury's cost reports comported with his fiduciary duty simply because audits invariably have at least one adjustment. Lund's argument erroneously conflates unintentional errors with his intentional fraud on the state in order to "save a little on taxes." Moreover, Lund's assertion the "evidence failed to establish that the 2003 and 2005 cost reports were inconsistent with industry practice" distorts the record. As the trial court found, DHCS "audits will often uncover some improper expenses in Cost Reports—but not to the magnitude and consistency of unallowable personal expenses Lund included in Cost Reports he certified and submitted . . . ." Lund's conduct was sufficiently egregious that DHCS charged him with felony conduct and eventually accepted a misdemeanor plea to prevent the simultaneous closure of multiple nursing facilities. Expert testimony was not required to find Lund's criminal conduct breached his fiduciary duty to the corporate plaintiffs.
D.
Timeliness of Claims Involving the 2003 and 2005 Cost Reports
Lund argues the corporate plaintiffs' claims regarding the 2003 and 2005 cost reports were barred by the statute of limitations. Although Lund does not identify the corporations to which these cost reports pertain, as the trial court found, these cost reports were submitted by Lund on behalf of Asbury, Sherwood, and Saylor Lane. We are not persuaded by Lund's argument.
1. Evidence Regarding Asbury's 2003 and 2005 Cost Reports
In pertinent part, the trial court found the "evidence here is that Lund primarily used funds from Asbury, his wholly owned corporation, for his residence, as reflected in Asbury's 2003, 2004 and 2005 cost reports." A state audit eventually revealed in 2005 that "Lund included approximately $19,000 in unallowable personal expenses in the 2003 Saylor Lane cost report." Both Lund and Hilburn attended the exit conference for the state's audit of the 2003 Saylor Lane cost report.
Based on evidence of the exit conference, the trial court found "Hilburn was present at an exit conference with the auditor in 2005 relative to the Saylor Lane 2003 cost report. The auditor instructed - or reminded - both Lund and Hilburn that their personal expenses included in that cost report were not allowable costs. Thus, at minimum, as a director of the corporate plaintiffs, Hilburn should have been suspicious that Lund was paying for personal expenses through a corporation, and that Lund was the one responsible for coding of corporate expenses and for cost reports for all of the other corporate plaintiffs. Armed with such suspicion - or knowledge - Hilburn was on notice to inquire whether the plaintiff corporations' funds were being used for improper, non-corporate purposes so that the corporate plaintiffs could seek reimbursement or other relief."
A key issue presented at trial was whether the corporate plaintiffs' cause of action for breach of fiduciary duty was barred by the four-year statute of limitations imposed by Code of Civil Procedure section 343. The trial court found the cause of action was not time-barred and explained:
"This claim is not time-barred. It is the payment of fees, costs and fines by plaintiffs that constitute 'the occurrence of the last element essential to the cause of action' for breach of fiduciary duty based on these events. The attorney's fees, costs and fines resulting from the criminal complaint were not incurred until at or near the time the criminal case was brought in December 2008. Thus, although cost reports containing unallowable personal expenses for Lund's home construction were prepared and submitted many years before the criminal case was filed, the cause of action as to these events did not accrue until 2008. In other words, in terms of triggering the statute of limitations for this alleged breach, it was a case of 'no harm, no foul' until the plaintiff corporations allegedly were harmed by having to pay for attorney's fees, costs and/or fines. [¶] Accordingly, it is irrelevant for purposes of determining the date of accrual for this part of the claim that Hilburn and Lund were both present in March 2005 at an exit conference with auditor [Reynolds] for the 2003 Saylor Lane cost report. It is not necessary here for plaintiffs to rely on the discovery rule for delayed accrual of a cause of action. The action was filed in 2011, well within the four-year statute of limitation for a claim that accrued upon the payment of attorney's fees, costs or fines."
2. Statute of Limitations for Breach of Fiduciary Duty
To establish a claim for breach of fiduciary duty, a plaintiff must prove the "(1) existence of a fiduciary duty; (2) breach of the fiduciary duty; and (3) damage proximately caused by the breach." (Stanley v. Richmond (1995) 35 Cal.App.4th 1070, 1086-1087, italics added.)
"The Code of Civil Procedure does not specify a statute of limitations for breach of fiduciary duty. The cause of action is therefore governed by the residual four-year statute of limitations in Code of Civil Procedure section 343 governing '[a]n action for relief not hereinbefore provided for' in the code." (Thomson v. Canyon (2011) 198 Cal.App.4th 594, 606.) The parties agree this four-year statute of limitations for breach of fiduciary duty applies to the corporate plaintiffs' claims.
The corporate plaintiffs filed their action in a timely manner only if they brought their complaint within four years of the occurrence of the last element of the cause of action. As the California Supreme Court has explained, "The limitations period, the period in which a plaintiff must bring suit or be barred, runs from the moment a claim accrues. [Citations.] Traditionally at common law, a 'cause of action accrues "when [it] is complete with all of its elements"—those elements being wrongdoing, harm, and causation.' (Pooshs [v. Philip Morris USA, Inc. (2011) 51 Cal.4th 788,] 797, quoting Norgart [v. Upjohn Co. (1999) 21 Cal.4th 383,] 397.) This is the 'last element' accrual rule: ordinarily, the statute of limitations runs from "the occurrence of the last element essential to the cause of action.' " (Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1191-1192, quoting Neel v. Magana, Olney, Levy, Cathcart & Gelfand (1971) 6 Cal.3d 176, 187.) Notably, "[t]he plaintiff's ignorance of the cause of action . . . does not toll the statute." (April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d 805, 826 (April Enterprises), quoting Neel, supra, 6 Cal.3d at p. 187.)
The statute of limitations for breach of fiduciary duty also can begin to accrue under the discovery rule. (April Enterprises, supra, 147 Cal.App.3d at p. 827.) " '[A] cause of action under the discovery rule accrues when the plaintiff discovers or should have discovered all facts essential to his [or her] cause of action . . . ; this has been interpreted under the discovery rule to be when "plaintiff either (1) actually discovered his [or her] injury and its negligent cause or (2) could have discovered injury and cause through the exercise of reasonable diligence." ' ([Leaf v. City of San Mateo (1980) 104 Cal.App.3d 398,] 407, citations and emphasis omitted.) Thus, the discovery rule reflects concern for the practical needs of plaintiffs. It avoids dismissing a suit on grounds of limitation when a plaintiff is blamelessly ignorant of his [or her] cause of action." (April Enterprises, supra, at pp. 826-827.) Thus, "mere breach of a professional duty, causing only nominal damages, speculative harm, or the threat of future harm—not yet realized—does not suffice to create a cause of action for negligence." (Sahadi v. Scheaffer (2007) 155 Cal.App.4th 704, 715, quoting Budd v. Nixen (1971) 6 Cal.3d 195, 200.)
3. Accrual of the Corporate Plaintiffs' Claim
Lund argues the statue of limitations accrued in 2005 when the state disallowed "identified unallowable expenses" in 2003 cost reports filed by Lund. Lund contends these unallowable expenses should have put the corporate plaintiffs on notice they risked losing Medi-Cal reimbursements so that the running of the statute of limitations was triggered. We disagree.
Notably, Lund elsewhere argues that "[i]mproper expenses were identified in every State audit of a nursing facility. [Clinton], the State auditor, testified that she had audited forty or fifty facilities, and that every audit she completed identified improper charges. John Truscott, the financial services professional who assisted both the Corporate Plaintiffs and unrelated skilled nursing facilities, testified to the same effect." (Citations omitted.) And Lund testified at trial that he disagreed with "with many of the adjustments that the government proposed for Asbury, Saylor, and Sherwood in '03 and '05." Hilburn testified there were several expenses that were business related but might appear to be personal in nature. For example, Sherwood paid for Hilburn's lunches with employees, for sporting event tickets given to employees as incentives, and perhaps for a ski rental where Hilburn and Lund discussed business.
The state audit's finding of improper charges in the 2003 and 2005 cost reports did not put the corporate plaintiffs on notice their continued existences were threatened by Lund's conduct. The fact the state auditor "instructed - or reminded - both Lund and Hilburn" personal expenses could not be submitted in cost reports did not trigger the discovery rule. This instruction or reminder did not signal criminal activity. Instead, the criminal nature of Lund's conduct and resulting damages became manifest only in December 2008 when the criminal complaint was filed against Lund and the costs associated with his criminal defense began to be incurred. The corporate plaintiffs' attorney fees, costs and fines resulting from the criminal complaint did not materialize until after the criminal case was brought in December 2008. Having brought their action within four years of the filing of the criminal case against Lund, the corporate plaintiffs' claim for breach of fiduciary duty was timely.
E.
2009 Cost Reports
Lund contends the trial court "erred in finding that Lund knowingly included the legal expenses associated with the State proceeding on several of the Corporate Plaintiffs' 2009 cost reports, or was grossly negligent in failing to prevent the inclusion of those expenses." The contention is devoid of merit.
1. Improper Inclusion of Attorney Fees in the 2009 Cost Reports
The trial court found the following: "In early August 2011, after further negotiations arising from the inclusion of attorney fees and costs in the 2009 cost reports, a comprehensive settlement agreement was reached whereby DHCS agreed to resolve certain issues arising from its investigation. . . . Without reciting all features of the agreement, it required Lund and the corporations to resubmit cost reports; to reimburse DCHS overpayments of Medi-Cal payments; to pay $200,000 to DCHS as reimbursement for time spent by its personnel in its investigation and follow-up in this matter; and to pay a $100,000 fine to DCHS. By its terms, this fine was for 'settlement of the dispute of the issue of knowing submission of non-allowable legal expenses found submitted in Providers FY 2009 Cost Reports.' " (Italics added and citation omitted.) Lund entered his plea under this negotiated settlement agreement. The trial court's finding mirrors the express terms of the settlement agreement between DHCS and Lund - an agreement Lund personally signed on August 2, 2011. Thus, Lund expressly agreed the fines were for his knowing submission of fraudulent cost reports.
Based on the settlement agreement and Lund's testimony, the trial court rejected his claim that he did not knowingly include attorney fees in the 2009 cost reports. The trial court found, "Lund denied intentionally including attorney's fees in the 2009 cost reports. Instead, Lund testified he directed an unnamed employee or agent not to include the expenses in the 2009 cost reports but, nonetheless, the expenses somehow were included inadvertently. Even so, Lund certified the reports. . . . [¶] . . . [¶] . . . Given Lund's historical pattern of submitting impermissible personal expenses in cost reports, the evidence establishes his submission of these cost reports was either the result of his gross negligence or his willful misconduct in attempting to gain a personal tax advantage or enhanced reimbursement rates for the facilities. The court specifically disbelieves Lund's testimony that the inclusion of the attorney fees and costs was the result of mere inadvertence by an unnamed employee or agent." (Italics added.)
2. Substantial Evidence Standard of Review
We evaluate Lund's contention the evidence was insufficient to establish he knowingly included his personal expenses in the 2009 cost reports under the substantial evidence test. "We apply a substantial evidence standard of review to the trial court's findings of fact. (Niko v. Foreman (2006) 144 Cal.App.4th 344, 364 (Foreman).) Under this deferential standard of review, findings of fact are liberally construed to support the judgment and we consider the evidence in the light most favorable to the prevailing party, drawing all reasonable inferences in support of the findings. (Citizens Business Bank v. Gevorgian (2013) 218 Cal.App.4th 602, 613 (Gevorgian).)
"A single witness's testimony may constitute substantial evidence to support a finding. (Gevorgian, supra, 218 Cal.App.4th at p. 613.) It is not our role as a reviewing court to reweigh the evidence or to assess witness credibility. (Foreman, supra, 144 Cal.App.4th at p. 365.) 'A judgment or order of a lower court is presumed to be correct on appeal, and all intendments and presumptions are indulged in favor of its correctness.' (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133 (Arceneaux).) Specifically, '[u]nder the doctrine of implied findings, the reviewing court must infer, following a bench trial, that the trial court impliedly made every factual finding necessary to support its decision.' (Fladeboe v. American Isuzu Motors Inc. (2007) 150 Cal.App.4th 42, 48 (Fladeboe).)" (Thompson v. Asimos (2016) 6 Cal.App.5th 970, 981.)
3. Lund's Knowing Inclusion of Attorney Fees in the 2009 Cost Reports
We reject Lund's argument the trial court erred in finding he breached his fiduciary duty by knowingly including improper expenses on the 2009 cost reports. Lund's signature on the 2011 settlement agreement conclusively establishes he knowingly and improperly included attorneys fees in the 2009 cost reports. We also reject Lund's continued attempt to blame the improper expenses in the 2009 cost reports on other preparers. The trial court expressly noted Lund was not credible in his testimony that blamed the improper inclusion of the attorney fees on others. Under the substantial evidence standard of review, Lund is foreclosed from attempting to undermine the judgment based on self-serving testimony the trail court deemed non-credible. (Thompson v. Asimos, supra, 6 Cal.App.5th at p. 981) The evidence supported the trial court's finding Lund knowingly included improper attorney fees in the 2009 cost reports despite Lund's being specifically warned not to do so.
II
Amendment of Corporate Plaintiffs' Complaint During Trial
Lund argues the trial court erred in granting the corporate plaintiffs leave to amend their complaint during trial in order to add a cause of action for breach of fiduciary duty. We are not persuaded.
A.
Midtrial Amendment
The corporate plaintiffs' original complaint contained various causes of action against Lund, including that for breach of fiduciary duty. The original complaint alleged that (1) Lund covertly and improperly included his personal expenses in Asbury's cost reports, (2) his conduct resulted in criminal charges against him and some of the corporate plaintiffs, and (3) Lund used the assets of the corporate plaintiffs to fund his personal criminal defense. As a result, Lund caused the corporate plaintiffs to incur fines and expenses so that his actions regarding Asbury worked "to the detriment of all of the Plaintiffs." The third amended complaint was filed nearly a year before the trial and contained the same allegations. The corporate plaintiffs' third amended complaint added the cause of action for breach of fiduciary duty. Specifically, the third amended complaint alleged Lund breached his fiduciary duty (1) to Hilburn by using the corporate plaintiffs' assets for his personal expenses, and (2) to the corporate plaintiffs by using corporate assets to pay his personal expenses and by making the corporate plaintiffs bear the cost of Lund's criminal defense and fines caused by his actions. Lund does not challenge the corporate plaintiffs' third amendment of their complaint.
The record does not contain the second amended complaint.
During trial, the court granted the corporate plaintiffs leave to file a fourth amended complaint. The trial court explained that "the operative facts in the fourth cause of action of the proposed fourth amended complaint remain substantially similar to those in the third amended complaint. The proposed fourth cause of action refines - not expands - plaintiffs' claim that defendant breached fiduciary duties owed to the corporate plaintiffs. . . . [¶] . . . The [new] allegations in the proposed fourth cause of action arise from the same essential facts the parties have litigated throughout the case. Defendants contend that permitting plaintiffs to amend the complaint to permit allegations relating to (1) cost reports submitted in 2003 and 2005 and (2) that the cost reports were submitted when defendant Lund 'knew they were false,' would 'inject new issues' into the trial. The court disagrees. Those matters have been the subject of the trial."
The corporate plaintiffs filed their fourth amended complaint to add the allegations that they sustained damages based on Lund's knowing and wrongful inclusion of personal expenses in the 2003 and 2005 cost reports.
B.
Discretion to Grant Leave to Amend a Complaint During Trial
A motion for leave to amend a complaint or cross-complaint is addressed to the sound discretion of the trial court, which we review under the abuse of discretion standard of review. (Garcia v. Roberts (2009) 173 Cal.App.4th 900, 909.) As the California Supreme Court has explained, "Code of Civil Procedure section 473 states the governing rule: 'The court may, in furtherance of justice, and on any terms as may be proper, allow a party to amend any pleading or proceeding by adding or striking out the name of any party. . . .' (Id., subd. (a)(1).) 'Leave to amend a complaint is thus entrusted to the sound discretion of the trial court. ". . . The exercise of that discretion will not be disturbed on appeal absent a clear showing of abuse. More importantly, the discretion to be exercised is that of the trial court, not that of the reviewing court. Thus, even if the reviewing court might have ruled otherwise in the first instance, the trial court's order will yet not be reversed unless, as a matter of law, it is not supported by the record." ' (Haley v. Dow Lewis Motors, Inc. (1999) 72 Cal.App.4th 497, 506, italics added [permitting plaintiffs to substitute their trustee in bankruptcy]; see generally Klopstock v. Superior Court (1941) 17 Cal.2d 13, 19-21.)" (Branick v. Downey Savings & Loan Assn. (2006) 39 Cal.4th 235, 242.)
" 'The cases on amending pleadings during trial suggest trial courts should be guided by two general principles: (1) whether facts or legal theories are being changed and (2) whether the opposing party will be prejudiced by the proposed amendment. Frequently, each principle represents a different side of the same coin: If new facts are being alleged, prejudice may easily result because of the inability of the other party to investigate the validity of the factual allegations while engaged in trial or to call rebuttal witnesses. If the same set of facts supports merely a different theory—for example, an easement as opposed to a fee—no prejudice can result.' " (Garcia v. Roberts, supra, 173 Cal.App.4th at pp. 909-910, quoting City of Stanton v. Cox (1989) 207 Cal.App.3d 1557, 1563.)
C.
Granting Leave to Amend
The trial court did not abuse its discretion in granting the corporate plaintiffs leave to amend their cause of action for breach of fiduciary duty to conform to proof during trial. The amendment did not cause any actual surprise because the corporate plaintiffs' earlier complaints had already alleged Lund breached his fiduciary duty to them by his wrongful conduct in managing Asbury. Approximately six months before trial, the corporate plaintiffs moved for summary adjudication on grounds Lund's inclusion of personal expenses in Asbury's cost reports caused them to suffer damages.
Before leave to file the fourth amended complaint was granted, the trial court had heard testimony by Dolores Reynolds, the state auditor who wrote the criminal complaint against Lund. Reynolds testified about Lund's wrongful inclusion of his personal expenses in the cost reports submitted in 2003 and 2005 for Asbury, Saylor, and Sherwood. Thus, the trial court had already received the evidence upon which the corporate plaintiffs premised their amendment of the cause of action for Lund's breach of fiduciary duty. The trial court noted as much in granting leave to amend when it stated the corporate "plaintiffs' proposed amendment will not result in new evidence or additional witnesses - plaintiffs' will rest upon completion of testimony from one additional witness today, for whom plaintiffs' counsel already has stated an offer of proof. Thus, the proposed amendment does not create unfair surprise to defendants in the form of new witnesses."
In short, the trial court did not abuse its discretion in granting the corporate defendants leave to amend their complaint to conform to proof. The evidence regarding Lund's wrongdoing in filing the 2003 and 2005 was already in evidence at the time leave to amend was granted. Notably, Lund does not challenge the admission of Reynold's testimony about the criminal conduct involved in his submission of the 2003 and 2005 cost reports. Thus, we reject Lund's argument the trial court erred in granting leave to amend to conform to already admitted evidence.
III
Unclean Hands , Equitable Estoppel , Waiver
Lund argues the corporate plaintiffs were barred from recovery due to Hilburn's unclean hands on grounds Hilburn, on his own behalf, also charged personal expenses to the corporate plaintiffs. Lund further argues Hilburn was estopped from recovering from Lund for the same conduct - namely, charging personal expenses to the corporate plaintiffs. We reject these arguments. We also deem forfeited Lund's undeveloped assertion Hilburn waived his claims.
A.
The Doctrine of Unclean Hands
Under the doctrine of unclean hands, a court sitting in equity may deny relief to plaintiffs who have committed the same or similar wrongdoing as those for which they seek relief. "The defense of unclean hands arises from the maxim, ' "He [or she] who comes into Equity must come with clean hands." ' (Blain v. Doctor's Co. (1990) 222 Cal.App.3d 1048, 1059 (Blain).) The doctrine demands that a plaintiff act fairly in the matter for which he [or she] seeks a remedy. He [or she] must come into court with clean hands, and keep them clean, or he [or she] will be denied relief, regardless of the merits of his [or her] claim. (Precision Co. v. Automotive Co. (1945) 324 U.S. 806, 814-815, 89 L.Ed. 1381; Hall v. Wright (9th Cir. 1957) 240 F.2d 787, 794-795.) The defense is available in legal as well as equitable actions. (Fibreboard Paper Products Corp. v. East Bay Union of Machinists (1964) 227 Cal.App.2d 675, 728 (Fibreboard); Burton v. Sosinsky (1988) 203 Cal.App.3d 562, 574.) Whether the doctrine of unclean hands applies is a question of fact. (CrossTalk Productions, Inc. v. Jacobson (1998) 65 Cal.App.4th 631, 639.) [¶] The unclean hands doctrine protects judicial integrity and promotes justice. It protects judicial integrity because allowing a plaintiff with unclean hands to recover in an action creates doubts as to the justice provided by the judicial system." (Kendall-Jackson Winery, Ltd. v. Superior Court (1999) 76 Cal.App.4th 970, 978.)
As this court has previously explained, "A trial court sitting in equity has broad discretion to fashion relief. (Bechtel v. Wier (1907) 152 Cal. 443, 446; Hirshfield v. Schwartz (2001) 91 Cal.App.4th 749, 770-771 (Hirshfield).) An equitable decree is reviewed under the abuse of discretion standard, under which 'we resolve all evidentiary conflicts in favor of the judgment and determine whether the court's decision " 'falls within the permissible range of options set by the legal criteria.' " ' (Hirshfield, supra, 91 Cal.App.4th at p. 77; see Wurzl v. Holloway (1996) 46 Cal.App.4th 1740, 1753-1754 (Wurzl); Common Wealth Ins. Systems, Inc. v. Kersten (1974) 40 Cal.App.3d 1014, 1027, [finding of estoppel to deny a forgery 'binding on appeal unless the contrary conclusion is the only one to be reasonably drawn' from facts].)" (In re Estates of Collins (2012) 205 Cal.App.4th 1238, 1246-1247.)
In the trial court, Lund argued the corporate "plaintiffs' claims should be barred here since the evidence shows Hilburn used corporate checks to pay some personal expenses for his residence. Thus, defendants claim Hilburn is guilty of the same type of misconduct alleged against Lund." The trial court rejected Lund's argument for the following reasons:
"First, the personal expenses of Hilburn are relatively de minimus in total amount, and absolutely pale in comparison to the personal expenses included by Lund in cost reports he submitted. The court's sense of the evidence is that DHCS audits will often uncover some improper expenses in cost reports - but not to the magnitude and consistency of unallowable personal expenses Lund included in cost reports he certified and submitted. The testimony at trial suggests that minor errors inevitably occur in cost reports which can be cured by routine audit adjustments - but auditors and criminal investigators will not turn their backs when large-scale fraud becomes apparent. Second, the evidence establishes that Lund, at the earliest stage of his business relationship with Hilburn, assumed control for the overall preparation and submission of cost reports. Hilburn did not have control of the process. He reasonably relied on Lund to review and submit cost reports reflecting allowable expenses. Hilburn's expectation was that Lund would correctly code draws and corporate expenses and that Lund would not attempt to submit cost reports containing unallowable personal expenses, especially after Lund knew it was improper to do so. Third, it was Lund's inclusion of unallowable expenses on cost reports that led to the investigation by [the DOJ's BMFEA] and to criminal charges being filed against Lund and several corporate co-defendants. In turn, it was the investigation and criminal charges that caused the need for legal counsel, and the substantial attorney's fees that followed. Hilburn was never charged criminally. The attorneys' fees were incurred as a result of Lund's willful misconduct or gross negligence . . . . Fourth, the unclean hands defense is particularly inapplicable to the breach of fiduciary duty claim arising from Lund's improper inclusion of attorney's fees in the 2009 cost reports. That fiasco was entirely of Lund's own making."
The trial court's findings are supported by Hilburn's testimony that "Lund was keeping track very carefully because any money that I would have received as a personal expense, he would have been entitled to an equalizing draw." Hilburn further explained Lund was informed and kept track of Hilburn's personal draws, testifying: "We had many discussions about it. And I informed him on a regular basis when a check would come through that was a personal draw and should be coded as a draw." (Italics added.) Thus, Hilburn's personal draws were "well-known" to Lund and Hilburn.
Lund's argument regarding unclean hands mischaracterizes the record. Lund asserts the undisputed evidence showed Hilburn acted wrongfully in using "corporate funds to pay his personal expenses." Hilburn did indeed draw upon corporate funds to pay his personal expenses. But Hilburn did so intending to convert business assets into his personal income - as does any business owner who takes an owner's draw. The fundamental difference between Hilburn's draws and Lund's wrongful conduct is Hilburn informed Lund on a regular basis the draws should be coded as personal draws. Thus, Hilburn's draws were not intended to be reimbursed by Medi-Cal as nursing home costs. Lund, by contrast, hid his personal expenses under the guise of legitimate nursing home costs. In other words, Lund intended to hide his personal expenses while Hilburn intended his personal expenses to be properly disclosed. Accordingly, the trial court did not err in rejecting Lund's assertion of unclean hands against Hilburn.
B.
Equitable Estoppel
Lund next argues Hilburn is equitably estopped "from asserting claims relating to the inclusion of unallowable personal expenses in the cost reports." We disagree.
Like the doctrine of unclean hands, the applicability of equitable estoppel generally poses a question of fact. (Feduniak v. California Coastal Com'n (2007) 148 Cal.App.4th 1346, 1360.) The doctrine " 'rests firmly upon a foundation of conscience and fair dealing, finds its classical statement in the words of Lord Denman: "[T]he rule of law is clear, that, where one by his [or her] words or conduct willfully causes another to believe the existence of a certain state of things, and induces him [or her] to act on that belief, so as to alter his [or her] own previous position, the former is [precluded] from averring against the latter a different state of things as existing at the same time; . . ." [Citation.]' (City of Long Beach v. Mansell (1970) 3 Cal.3d 462, 488 (Mansell); see Evid. Code, § 623.)" (Feduniak, supra, at p. 1359, fn. omitted.)
The doctrine of equitable estoppel does not apply to Hilburn for the same reason the defense of unclean hands does not lie against him. Hilburn did not intend to mislead Lund about taking a personal draw from the accounts of the corporate plaintiffs. Hilburn communicated to Lund that his personal draws should be coded as such is consistent with his claim Lund erred by failing to code personal draws properly. Consequently, Lund was not entitled to assert the defense of equitable estoppel against Hilburn.
C.
Waiver
In a footnote, Lund asserts the trial court erred in rejecting his affirmative defense of waiver. The assertion is deemed forfeited.
This court recently reiterated the rule that an "appellant must present each point separately in the opening brief under an appropriate heading, showing the nature of the question to be presented and the point to be made; otherwise, the point will be forfeited." (People ex rel. Reisig v. Acuna (2017) 9 Cal.App.5th 1, 25, quoting Keyes v. Bowen (2010) 189 Cal.App.4th 647, 655-656.) Lund's assertion in a footnote does not meet this requirement. Moreover, Lund's assertion regarding waiver is unsupported by any citation to the appellate record even though he has the burden to provide an argument "supported by appropriate citations to the material facts in the record." (Ibid.) For these reasons, we deem Lund's assertion of waiver to be forfeited.
IV
Scope of Damages
Lund contends the trial court's award of damages was excessive based on two arguments. He argues (1) the trial court erred in failing to reduce damages "on the basis of Hilburn's comparative fault," and (2) damages "lacked substantial evidence and [were] calculated in disregard of the parties' stipulation." These contentions have not been preserved for review.
Lund did not bring a motion for new trial after the trial court awarded damages to the corporate plaintiffs. However, a motion for new trial on grounds of excessive damages is a prerequisite to preserving a challenge to the scope of damages for appellate review. "A failure to timely move for a new trial ordinarily precludes a party from complaining on appeal that the damages awarded were either excessive or inadequate, whether the case was tried by a jury or by the court. (Glendale Fed. Sav. & Loan Assn. v. Marina View Heights Dev. Co. (1977) 66 Cal.App.3d 101, 122.) The power to weigh the evidence and resolve issues of credibility is vested in the trial court, not the reviewing court. (Schroeder v. Auto Driveaway Co. (1974) 11 Cal.3d 908, 919.) Thus, a party who first challenges the damage award on appeal, without a motion for a new trial, unnecessarily burdens the appellate court with issues that can and should be resolved at the trial level. (Ibid.) Consequently, if ascertainment of the amount of damages turns on the credibility of witnesses, conflicting evidence, or other factual questions, the award may not be challenged for inadequacy or excessiveness for the first time on appeal." (Jamison v. Jamison (2008) 164 Cal.App.4th 714, 719-720.)
Apportionment of damages presents an issue for the trier of fact to resolve in "its allocation of fault among concurrent or alternative tortfeasors." (Sparks v. Owens-Illinois, Inc. (1995) 32 Cal.App.4th 461, 476.) As a question of fact concerning the scope of damages, Lund was required to bring a motion for new trial to preserve the issue for review. (Schroeder v. Auto Driveaway Co. (1974) 11 Cal.3d 908, 919.)
Lund was also required to bring a motion for new trial to preserve his argument that the trial court miscalculated the damages. A motion for new trial is required whenever the appellant wishes to argue on appeal that the court made a factual error in calculating damages. (Baker v. Pratt (1986) 176 Cal.App.3d 370, 382.)
Accordingly, Lund has not preserved his arguments regarding the scope of damages awarded by the trial court to the corporate plaintiffs.
CROSS-APPEAL BY THE CORPORATE PLAINTIFFS AND HILBURN, ON HIS
OWN BEHALF
V
Prejudgment Interest
On cross-appeal, the corporate plaintiffs argue the trial court erred in denying their motion for prejudgment interest on their damages award. We agree.
A.
The Corporate Plaintiffs' Requests for Prejudgment Interest
The corporate plaintiffs' operative complaint requested relief that expressly included "prejudgment interest on all liquidated sums." There was no dispute at trial regarding the amount of the corporate plaintiffs' payments that formed the basis of the damages award.
Attorney Lynn Keslar served as criminal defense counsel during the negotiations regarding the criminal charges filed against Lund and some of the corporations. The dates and amounts paid to Keslar by the corporate plaintiffs was shown in the general ledgers for the corporate plaintiffs and in Keslar's invoices. Health law attorney, Mark Reagan, worked on Lund's legal defense team and provided a spreadsheet that listed all dates and amounts for payments received from the corporate plaintiffs for his legal services. Attorney Win Richey provided legal services "as counsel in connection with the potential decertification of the facilities that were involved in the allegations alleged in the [criminal c]omplaint." Payments made to Richey were reflected in the corporate plaintiffs' general ledgers. Testimony at trial established all legal fees were paid in full.
Although Lund asserts some of Richey's fees were erroneously included in the trial court's calculation of damages, he did not raise the issue in a motion for new trial based on excessive damages. (See part IV, ante.) Accordingly, his claim of error is not cognizable on appeal.
Based on the evidence, the trial court made the following calculations: "Attorney's fees were allocated to the corporations charged in the felony complaint as follows: Asbury - $99,776.87; Saylor Lane - $102,661.85; and Sherwood - $102,662.10. Lund allocated a small amount of [Reagan]'s charges for ($1,128.59) to Pacific Grove, an entity in which Hilburn had no interest. Lund unilaterally allocated attorney's fees to the corporate entities he owned jointly with Hilburn as follows: Woodside - $102,662.10; Oak Ridge - $102,662.10; and College Oak- $102,662.10. Thus, Lund independently determined three entities (Woodside, Oak Ridge and College Oak) that were not charged criminally, and which he owned and operated jointly with Hilburn, should pay over $300,000 of [Reagan]'s charges." Moreover, the trial court noted, "[t]here is no apparent dispute over the reasonableness of the fees - only as to whether defendant should be responsible to the corporate plaintiffs for the fees incurred."
In addition to Lund's legal fees, the trial court found Lund wrongfully allocated the responsibility for paying portions of the criminal fines: "Lund paid $136,749 to DHCS for overpayments received by his corporation, Asbury. Additionally, the settlement agreement called for payment of a $100,000 fine as a result of [Lund's] impermissibly including attorney's fees in the 2009 cost reports. This was paid in equal shares by Sherwood, Saylor Lane and College Oak. In order to pay the additional $200,000 for costs assessed by DHCS under the settlement agreement for investigative costs incurred by DHCS, Lund transferred funds from College Oak accounts to Asbury and then paid DCHS by check from Asbury. Lund used journal entries on Saylor Lane, Sherwood and College Oak to make each entity equally responsible for payment of the $200,000 assessment."
Based on these findings, the trial court concluded, "When judgment is finally entered in this matter, the corporate plaintiffs will be entitled to recover as restitution and damages from Lund all of the attorney's fees, costs and fines they were forced to pay. This will include: College Oak - $103,262.68 for attorney's fees and costs paid, and $100,000 for fines paid; Oak Ridge - $102,424.10 for attorney's fees and costs paid; and Woodside - $112,063.05 for attorney's fees and costs paid. [T]he judgment against Lund also will include restitution and damages for the attorney's fees, costs and fines they paid, as follows: Sherwood - $208,006.58 for attorney's fees and costs paid, and $100,000 for fines paid; and Saylor Lane - $172,988.69 for attorney's fees and costs paid, and $100,000 for fines paid."
In their closing argument brief filed at the conclusion of the trial, the corporate plaintiffs again requested prejudgment interest on all of the damages. And the corporate plaintiffs objected when the trial court's judgment did not include prejudgment interest. The corporate plaintiffs suggested for the sake of simplicity, the trial court use the date of the filing of their original complaint to allow for a single calculation instead of a large number of calculations based on different dates and amounts of damages incurred.
The trial court vacated the judgment and considered the corporate plaintiffs' request for prejudgment interest. The trial court ultimately denied prejudgment interest, stating: "Plaintiffs did not bring a motion for prejudgment interest prior to the entry of judgment. In fact, the issue of prejudgment interest was not raised by plaintiffs until after the court attempted to resolve disputes between the parties over the form of judgment and without defendants being afforded an opportunity to respond to the issue."
As an additional reason for denying prejudgment interest, the trial court stated: "Plaintiffs . . . have not sufficiently established the certainty of the damages vested upon a particular day in order to accurately determine an award for prejudgment interest. First, plaintiffs' motion does not submit declarations to support the ascertainability of the damages. Second, plaintiffs do not provide the actual vesting date for their right to recover damages. Plaintiffs, instead, refer to the filing date of the original complaint 'to make things simple'. [Citation.] Such an approach is improper in light of the language of [Civil Code s]ection 3287."
B.
Prejudgment Interest
Civil Code section 3287, subdivision (a), provides that "[a] person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in the person upon a particular day, is entitled also to recover interest thereon from that day, except when the debtor is prevented by law, or by the act of the creditor from paying the debt." Under section 3287, "[d]amages are certain or capable of being made certain by calculation, or ascertainable, for purposes of the statute if the defendant actually knows the amount of damages or could calculate that amount from information reasonably available to the defendant. (Uzyel v. Kadisha (2010) 188 Cal.App.4th 866, 919.) In contrast, damages that must be determined by the trier of fact based on conflicting evidence are not ascertainable. (Ibid.) A legal dispute concerning the defendant's liability or the proper measure of damages, however, does not render damages unascertainable." (Collins v. City of Los Angeles (2012) 205 Cal.App.4th 140, 150-151.)
Under Civil Code section 3287, subdivision (a), "the court has no discretion, but must award prejudgment interest upon request, from the first day there exists both a breach and a liquidated claim. (See Wegner, Fairbank & Epstein, Cal. Practice Guide: Civil Trials and Evidence (The Rutter Group 1997) §§ 17:185, 17:189, pp. 17-40.23, 17-40.24.) (Hereafter 'Wegner, Civil Trials.')" (North Oakland Medical Clinic v. Rogers (1998) 65 Cal.App.4th 824, 828 (North Oakland), italics added.)
As the North Oakland court further explained, "there is no authority mandating any particular procedure for securing an award of prejudgment interest. However, certain general principles apply: [¶] That a party is entitled to prejudgment interest does not make an award automatic (except in the case of postjudgment interest). . . . A general prayer in the complaint is adequate to support an award of prejudgment interest. 'No specific request for interest need be included in the complaint; a prayer seeking "such other and further relief as may be proper" is sufficient for the court to invoke its power to award prejudgment interest. [Citations.]' (Wegner, Civil Trials, supra, § 17:194.1, p. 17.40.26; Segura v. McBride [(1992)] 5 Cal.App.4th 1028, 1041; Newby v. Vroman (1992) 11 Cal.App.4th 283, 286.)" (North Oakland, supra, 65 Cal.App.4th at p. 829.)
C.
Certainty of the Corporate Plaintiffs' Damages
The trial court erred in denying prejudgment interest on grounds the corporate plaintiffs had not filed a separate motion for prejudgment interest before entry of judgment. The corporate plaintiffs made requests for prejudgment interest throughout the litigation. The corporate plaintiffs' multiple requests sufficed for claiming prejudgment interest because Civil Code section 3287 does not require a separate motion or any particular form for a request for prejudgment interest. (North Oakland, supra, 65 Cal.App.4th at p. 828.)
The trial court also erred in denying prejudgment interest on grounds the corporate plaintiffs failed to submit declarations in support of their request. Civil Code section 3287 does not make the filing of declarations a prerequisite for recovery of prejudgment interest. In this case, declarations would have been merely redundant with the evidence introduced during the bench trial and for which the trial court was able to calculate exactly the amount of damages awarded to the corporate plaintiffs. The evidence at trial established the certainty of the damages because it was undisputed that legal fees and fines were fully paid. The legal bills, expenses, and fines were itemized in the corporate plaintiffs' general ledgers and in attorney billing statements. Thus the date and amount of each payment encompassed with the damage award was established during the trial. In requesting post-trial award of prejudgment interest, the corporate plaintiffs relied on the trial court's own findings in its statement of decision where the court calculated the damages due. Declarations and exhibits in support of the request for prejudgment interest would have been unnecessarily redundant to evidence already relied upon by the trial court in calculating damages.
Granted, the calculation of prejudgment interest on each component of the damages award involves the sum total of numerous payments for legal fees and fines. However, the complexity of the calculus does not constitute an exception to the mandatory nature of prejudgment interest under Civil Code section 3287. The California Supreme Court upheld prejudgment interest assessed on each withdrawal made over the course of four years in Bullis v. Security Pac. Nat. Bank (1978) 21 Cal.3d 801 (Bullis). And in Stein v. Southern Cal. Edison Co. (1992) 7 Cal.App.4th 565, the Second District Court of Appeal rejected a contention prejudgment interest could not be awarded in "piecemeal fashion" for damages based on varying dates of rents and labor costs that comprised the damages award. (Id. at p. 573.) Prejudgment interest under Civil Code section 3287, subdivision (a), is properly calculated from the dates when each component of the damages award became certain. (Ibid.)
Because prejudgment interest was erroneously denied under Civil Code section 3287, subdivision (a), we remand the matter for the trial court to award prejudgment interest to the corporate plaintiffs.
Our conclusion the corporate plaintiffs are entitled to prejudgment interest under the mandatory provision of Civil Code section 3287 obviates the need to consider the issue of whether the trial court abused its discretion in denying prejudgment interest under the discretionary provision of Civil Code section 3288.
VI
Dismissal of Cause of Action for Declaratory Relief
Hilburn contends the trial court erred in dismissing his cause of action for declaratory relief regarding ownership percentages of the corporate plaintiffs. Specifically, Hilburn argues his cause of action for declaratory relief was not barred by the statute of limitations as determined by the trial court. We are not persuaded.
A.
Statute of Limitations
A defendant may defeat a cause of action by establishing a complete affirmative defense to the claim. (Code Civ. Proc., § 437c, subd. (o)(2).) "The statute of limitations operates in an action as an affirmative defense." (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 396 (Norgart).) Thus, under the applicable statute of limitations, "a plaintiff must bring a cause of action within the limitations period applicable thereto after accrual of the cause of action." (Id. at p. 397.) "While resolution of the statute of limitations issue is normally a question of fact, where the uncontradicted facts established through discovery are susceptible of only one legitimate inference, summary judgment is proper." (Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1112 (Jolly).)
The statute of limitations for declaratory judgment is the limitations period for the underlying substantive claim. (Howard Jarvis Taxpayers Ass'n v. City of La Habra (2001) 25 Cal.4th 809, 821.) Here, the parties agree the underlying substantive claim for Hilburn's cause of action for declaratory judgment was fraud, which is subject to a three-year statute of limitations. (Code Civ. Proc., § 338, subd. (d) [providing a three-year period for "[a]n action for relief on the ground of fraud or mistake"].) Thus, Hilburn's cause of action for declaratory relief was timely if he filed it within three years of its accrual. (Norgart, supra, 21 Cal.4th at p. 397.)
As to accrual of a cause of action, the Norgart court explained: "The general rule for defining the accrual of a cause of action sets the date as the time 'when, under the substantive law, the wrongful act is done,' or the wrongful result occurs, and the consequent 'liability arises. . . .' (3 Witkin, Cal. Procedure [(4th ed. 1996)] Actions, § 459, p. 580, italics omitted.) In other words, it sets the date as the time when the cause of action is complete with all of its elements (see Neel v. Magana, Olney, Levy, Cathcart & Gelfand (1971) 6 Cal.3d 176, 187 [stating that, '[i]n ordinary . . . actions, the statute of limitations . . . begins to run upon the occurrence of the last element essential to the cause of action']; Gutierrez v. Mofid [(1985)] 39 Cal.3d [892,] 899 [quoting the foregoing statement approvingly]) — the elements being generically referred to by sets of terms such as 'wrongdoing' or 'wrongful conduct,' 'cause' or 'causation,' and 'harm' or 'injury' (Jolly v. Eli Lilly & Co., supra, 44 Cal.3d at pp. 1107, 1109, 1110, 1112, 1113, & 1114; accord, Bernson v. Browning-Ferris Industries [(1994)] 7 Cal.4th [926,] 931 & 932; Gutierrez v. Mofid, supra, 39 Cal.3d at pp. 897-898). [¶] An exception to the general rule for defining the accrual of a cause of action — indeed, the 'most important' one — is the discovery rule. (3 Witkin, Cal. Procedure, supra, Actions, § 463, p. 583.) It may be expressed by the Legislature or implied by the courts. (Ibid.) It postpones accrual of a cause of action until the plaintiff discovers, or has reason to discover, the cause of action. (Ibid.; see Neel v. Magana, Olney, Levy, Cathcart & Gelfand, supra, 6 Cal.3d at p. 179 [postponing accrual 'until the [plaintiff] discovers, or should discover, his [or her] cause of action'].)" (Norgart, supra, 21 Cal.4th at p. 397.)
B.
Dispute Over Ownership of the Corporate Plaintiff Facilities
In January 2006, Hilburn sent an e-mail to Lund in which he expressed disappointment over Lund's acquisition for himself of Pacific Grove, a nursing facility Hilburn and Lund appeared to have toured together. In February 2006, Hilburn sent a follow-up e-mail that asserted Lund breached their agreement to acquire nursing facilities together. In March 2006, Hilburn's attorney wrote to Lund in order to demand information regarding Lund's acquisition of Pacific Grove. Hilburn's attorney asserted that if the information was not forthcoming, Hilburn would file "claims for breach of your fiduciary duty to the company and [Hilburn], the improper taking of a corporate opportunity for your own benefit and a declaratory judgment that the company is owned 50-50."
Several days later, Lund's attorney rejected Hilburn's demand for information in a letter. In the letter, Lund's attorney asserted: "In fact, [Lund] has a 51 percent ownership in each of their five corporations and in their two LLCs which hold jointly owned real property based on the parties' understanding that [Lund] would be able to control the timing of the dissolution and winding up of any or all of the five businesses." The letter concluded, "In light of [Hilburn]'s refusal to negotiate any cooperative dissolution, [Lund] has been given no alternative but to act unilaterally to dissolve the five corporations, which would necessarily result in the sale of the assets." (Italics added.)
In August 2011, Hilburn first filed his cause of action for declaratory judgment based on the assertion of equal ownership of the corporate plaintiff facilities.
C.
Timeliness of Hilburn's Declaratory Relief Claim
Hilburn contends his declaratory relief cause of action was timely and encompasses separate claims (1) relating to ownership and control of the corporations, and (2) involving Lund's appointment of his wife as a board member and out-voting Hilburn. We are not persuaded.
Regarding ownership of the corporate plaintiff facilities, the trial court properly dismissed Hilburn's cause of action for declaratory relief as untimely. Hilburn's claim is based on allegations of fraud and breach of fiduciary duty relating to Lund's assertion he enjoyed majority ownership of the corporate plaintiffs. However, Hilburn did not file his cause of action for declaratory judgment until more than three years after Lund's attorney asserted Lund would rely on his 51 percent ownership of the corporate plaintiffs to unilaterally begin dissolving the corporate plaintiffs. Thus, Hilburn's declaratory relief action began to accrue. Accordingly, Hilburn's filing of the original complaint in 2011 was untimely as to the claim for declaratory relief regarding ownership of the corporations.
As to control of the corporate plaintiff facilities, Hilburn's claim for declaratory relief is also untimely. Hilburn's original complaint alleged "that the only directors of the Corporate Plaintiffs are Hilburn and Lund" and Lund acted wrongfully in seizing control by appointing his wife as a director. In the March 2006 letter, Lund's attorney stated Lund no longer wanted Hilburn as a business partner and he had reached an impasse with Hilburn over how to end their business relationship. The letter stated several times that Lund intended to act unilaterally in dissolving the corporate plaintiffs even if Hilburn objected. The letter asserted that "[Lund] has attempted to be patient in the face of [Hilburn]'s unreasonableness regarding their five businesses . . . ." The tone of the letter unmistakably signaled the partners' estrangement and Lund's intent to act unilaterally as to matters regarding the corporate plaintiffs.
Hilburn's declaratory relief claim regarding control of the companies is based on Lund's unilateral exercise of control over the corporate plaintiffs as foreshadowed in the March 2006 letter. That Lund facilitated his control by first appointing his wife as director to outvote Hilburn does not prevent Lund's assertion of control over the corporate plaintiffs was a mere implementation of Lund's earlier announced plan to act unilaterally. The March 2006 letter by Lund's attorney clearly indicated the exercise of unilateral control by Lund for which Hilburn waited more than three years to seek judicial relief. Accordingly, Hilburn's cause of action for declaratory relief was untimely.
DISPOSITION
The judgment is reversed insofar as it denies prejudgment interest to David Hilburn, S.H.C.C., Inc. (Sherwood Healthcare Center), C.O.N.R., Inc. (College Oak Nursing and Rehabilitation Center), S.L.H.C.C., Inc. (Saylor Lane Healthcare Center), W.H.C., Inc. (Woodside Healthcare), and S.C.A.R.C., Inc. (Oak Ridge Healthcare Center). The matter is remanded to the trial court with directions to award prejudgment interest under Civil Code section 3287. In all other respects, the judgment is affirmed. David Hilburn, S.H.C.C., Inc., C.O.N.R., Inc., S.L.H.C.C., Inc., W.H.C., Inc., and S.C.A.R.C., Inc., shall recover their costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1) & (5).)
/s/_________
HOCH, J. We concur: /s/_________
HULL, Acting P. J. /s/_________
ROBIE, J.