Opinion
MDL Case No.: 02-ML-1475 DT, Consolidated with Cases: CV 01-5752 DT (RCx), CV 02-382 DT (RCx), CV 02-993 DT (RCx), CV 02-2745 DT (RCx), CV 02-6484 DT (RCx), CV 02-6841 DT (RCx), CV 02-9221 DT (RCx), Companion Case: CV 02-6512 DT (RCx), This Document Relates to: CV 02-382 DT (RCx).
June 28, 2004
ORDER
(1) GRANTING REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT, OR ALTERNATIVELY FOR SUMMARY ADJUDICATION OF ISSUES, ON FIFTH CAUSE OF ACTION (NEGLIGENCE) AGAINST DEFENDANT VIRGIL LIM;
(2) GRANTING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT, OR ALTERNATIVELY, FOR SUMMARY ADJUDICATION OF ISSUES, ON FIFTH CAUSE OF ACTION (NEGLIGENCE) AGAINST DEFENDANT VIRGIL LIM
I. Background
Because the parties are generally familiar with the factual and procedural history of this case, the Court does not recount it here except as necessary to explain its decision with response to the issues raised herein.
A. Factual Summary
The following facts are undisputed:
Heritage Housing Development, Inc. ("HHD") was the parent corporation of the Heritage facilities. From 1997 to 2000, defendant Virgil Lim's ("Defendant") corporate positions at HHD and all affiliated Heritage entities (hereinafter collectively referred to as "HHD") included Treasurer, Secretary and Controller. During his corporate tenures, Defendant personally prepared, signed, and submitted to U.S. Trust Company of Texas, N.A., the bond trustee ("U.S. Trust") numerous requisition certificates. The money (bond proceeds) obtained from U.S. Trust would often then be transferred among the various Heritage facilities (the "inter-company transfers"). The inter-company transfers were utilized because the bank accounts of the other Heritage facilities were overdrawn. Checks to vendors either bounced or were issued without sufficient funds. In addition, there was often no money to cover payroll. Beginning in January 1998, the parent company HHD served as the corporate conduit for the inter-company transfers among the Heritage facilities.
Defendant, on his own initiative, recommended that HHD serve as the corporate conduit for the improper inter-company transfers among the Heritage facilities. Defendant knew that the inter-company transfers of the bond proceeds were improper and impermissible because he knew that the proceeds from each Heritage bond offering were earmarked for a specific Heritage facility and for specific uses within the facility. He nevertheless prepared, signed and submitted to U.S. Trust requisition certificates which were used to obtain bond proceeds, which were then used to fund the improper inter-company transfers. Defendant also created and submitted "dummy" invoices to U.S. Trust on behalf of HHD in order to obtain bond proceeds to fund the improper inter-company transfers.
Defendant did not review the Official Statements issued in connection with the Heritage bond offerings and did not question anyone at HHD about the legitimacy or legality of the inter-company transfers. Defendant simply "presumed" that the HHD board authorized the inter-company transfers. Defendant also, on multiple occasions, signed the minutes of the HHD board meetings, yet he rarely attended. The inter-company transfers which Defendant actively facilitated were never repaid by the recipient Heritage facilities, and thereby effectively diverted and divested Plaintiffs' investments.
Plaintiffs now move for partial summary judgment on the Fifth Cause of Action (negligence) pleaded in the Fourth Amended Consolidated Class Action Complaint (FAC) against Defendant, and on the issue of Defendant's liability for negligence alone ("Motion").
If for any reason summary judgment on Defendant's liability for negligence is not available to Plaintiffs, Plaintiffs further move, pursuant to Fed.R.Civ.P. 56(d) and the California Central District Local Rules, Rule 56-4, for a summary judgment order deeming any or all of the following issues conclusively established at trial:
(1). Defendant in his capacity as an officer owed a duty of reasonable care to HHD.
(2). Defendant in his personal capacity owed a duty of reasonable care to Plaintiffs.
(3). Defendant actively participated in tortious acts.
(4). Defendant breached his duty of care to HHD.
(5). Defendant breached his duty of care to Plaintiffs.
(6). Defendant's breach of his duty to HHD and Plaintiffs was actual cause of Plaintiffs' injury.
(7). Defendant's breach of his duty to HHD and Plaintiffs was legal cause of Plaintiffs' injury.
(8). Plaintiffs suffered damages as a result of Defendant's tortious acts and omissions.
B. Procedural History
On June 7, 2004, Plaintiffs filed a Motion for Partial Summary Judgment, or in the Alternative, for Summary Adjudication of Issues, on Fifth Cause of Action (Negligence) against Defendant Virgil Lim, which is currently before this Court.
On June 21, 2004, Plaintiffs filed their Reply brief Regarding the Failure to File Opposition to Motion for Partial Summary Judgment, or in the Alternative, for Summary Adjudication of Issues, on Fifth Cause of Action (Negligence) against Defendant Virgil Lim.
On June 23, 2004, Plaintiffs filed a Stipulation and Order Allowing Answer of Defendant Virgil Lim to Second Amended Consolidated Class Action Complaint to Serve as Answer to Fourth Amended Consolidated Class Action Complaint.
On June 23, 2004, Defendant Virgil Lim filed a Memorandum of Points and Authorities in Opposition to Plaintiffs' Motion for Partial Summary Judgment, or in the Alternative, for Summary Adjudication of Issues, on Fifth Cause of Action (Negligence) against Defendant Virgil Lim. II. Discussion
This Court notes that Defendant Virgil Lim's cursory Opposition and Statement of Genuine Issues was submitted nine (9) days late and basically two (2) court days before the scheduled hearing after Plaintiffs had already filed their Reply brief. This Court notes the difficult position Defendant put this Court by his late filing and strongly cautions Defendant to be timely in the future. However, given the nature of this Motion and the fact that Defendant's Opposition and Statement of Genuine Issues are important, the Court will consider the contentions set forth therein. This Court will further assume that the material facts, as claimed and adequately supported by the moving party, are admitted to exist without controversy except to the extent that such material facts are included in the Statement of Genuine Issues and controverted by declaration.
A. Standards
1. Request for Judicial Notice
A court must take judicial notice if a party requests it and supplies the court with the requisite information. Fed.R.Evid. 201(d). "A judicially noticed fact must be one not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Fed.R.Evid. 201(b). This Court may take judicial notice of facts outside the pleadings without converting the motion to one for summary judgment. See Mack v. South Bay Beer Distributors, 798 F.2d 1279, 1282 (9th Cir. 1986) (citing Sears, Roebuck Co. v. Metropolitan Engravers, Ltd., 245 F.2d 67, 70 (9th Cir. 1956)). In addition, documents whose contents are alleged in a complaint and whose authenticity is not in question may be considered in a motion to dismiss. See Branch v. Tunnell, 14 F.3d 449, 453-54 (9th Cir. 1994).
This Court may take judicial notice of its own records, and documents that are public records and capable of accurate and ready confirmation by sources that cannot reasonably be questioned. See MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986) (courts may take judicial notice of matters of public record outside the pleadings); United States v. Wilson, 631 F.2d 118, 119 (9th Cir. 1980) ("In particular, a court may take judicial notice of its own records in other cases, as well as the records of an inferior court in other cases.").
2. Motion for Summary Adjudication
Under the Federal Rules of Civil Procedure, summary judgment is proper only where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party has the burden of demonstrating the absence of a genuine issue of fact for trial. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S. Ct. 2505, 2514 (1986). If the moving party satisfies the burden, the party opposing the motion must set forth specific facts showing that there remains a genuine issue for trial. See id.; Fed.R.Civ.P. 56(e).
A non-moving party who bears the burden of proof at trial to an element essential to its case must make a showing sufficient to establish a genuine dispute of fact with respect to the existence of that element of the case or be subject to summary judgment.See Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552 (1986). Such an issue of fact is a genuine issue if it reasonably can be resolved in favor of either party. See Anderson, 477 U.S. at 250-51, 106 S. Ct. at 2511. The non-movant's burden to demonstrate a genuine issue of material fact increases when the factual context renders her claim implausible. See Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 1356 (1986). Thus, mere disagreement or the bald assertion that a genuine issue of material fact exists no longer precludes the use of summary judgment. See Harper v. Wallingford, 877 F.2d 728 (9th Cir. 1989); California Architectural Building Prods., Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th Cir. 1987).
If the moving party seeks summary judgment on a claim or defense on which it bears the burden of proof at trial, it must satisfy its burden by showing affirmative, admissible evidence. Unauthenticated documents cannot be considered on a motion for summary judgment. See Hal Roach Studios v. Richard Feiner and Co., 896 F.2d 1542, 1550 (9th Cir. 1990).
On a motion for summary judgment, admissible declarations or affidavits must be based on personal knowledge, must set forth facts that would be admissible evidence at trial, and must show that the declarant or affiant is competent to testify as to the facts at issue. See Fed.R.Civ.P. 56(e). Declarations on "information and belief" are inappropriate to demonstrate a genuine issue of fact. See Taylor v. List, 880 F.2d 1040, 1045 (9th Cir. 1989).
B. Analysis
1. Plaintiffs' Request for Judicial Notice is Granted
Plaintiffs request this Court take judicial notice of the Order Granting in Part and Denying in Part Defendant Jerold V. Goldstein's Motion to Dismiss Third Amended Complaint, or for a More Definite Statement, entered by this Court on August 19, 2003.
Because said document constitutes a public record capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned, have not been opposed by Defendant, and bear a direct relation to matters at issue in the present proceeding, Plaintiffs' Request for Judicial Notice is granted as to the aforementioned material in Support of Motion for Summary Judgment.
2. Defendant Owed a Duty of Reasonable Care to HHD and Plaintiffs
It is understood that duty is a question of law. Merill v. Navegar, Inc., 26 Cal.4th 465, 477 (2001). An officer owes the corporation fiduciary duties as a matter of law. GAB Business Services, Inc. v. Lindsey Newsom Claim Services, Inc., 83 Cal.App.4th 409, 417 (2000). Hence, to the extent that officers are corporate agents, the fiduciary duties they owe the corporation include, at a minimum, a duty of reasonable care, diligence, and skill in their work. Poile v. Stockton Merchants Assn., 176 C.A.2d 100, 104 (1959). From 1997 to 2000, Defendant's corporate positions at HHD included Treasurer, Secretary and Controller. Thus, Defendant was a corporate officer of HHD, and therefore owed HHD a duty of reasonable care.
Plaintiffs contend that Defendant also owed Plaintiffs a duty of reasonable care. Plaintiffs argue that the California Supreme Court has concluded as a matter of law that corporate directors and officers personally owe third persons a duty of ordinary care under the common-law principle of negligence, which is independent of, and separate from, their fiduciary duties owed to the corporation. See Frances T. v. Village Green Owners Assn., 42 Cal.3d 490, 505-06 (1986). In reaching this conclusion, the Frances T. court reasoned that "Like any other citizen, corporate officers [and directors] have a societal duty to refrain from acts that are unreasonably risky to third persons. . . ." Id. at 506. Furthermore, the Frances T. Court analyzed the "distinction between a director's institutional duty to corporate insiders and the duty every person owes to the world," noting:
"Unlike ordinary employees or other subordinate agents under their control, a corporate officer is under no compulsion to take action unreasonably injurious to third parties. But like any other employee, [officers] individually owe a duty of care, independent of the corporate entity's own duty, to refrain from acting in a manner that creates an unreasonable risk of personal injury to third parties. The reason for this rule is that otherwise, a[n officer] could inflict injuries upon others and then escape liability behind the shield of his or her representative character, even though the corporation might be insolvent or irresponsible."Id. at 505, 506 n. 12. In order to hold a corporate director or officer personally liable to third persons for negligence, a plaintiff must show that the "director specifically authorized, directed or participated in the allegedly tortious conduct. Id. at 508. "Directors are liable to third persons injured by their own tortious conduct regardless of whether they acted on behalf of the corporation and regardless of whether the corporation is also liable." Id. at 504. "This liability does not depend on the same grounds as `piercing the corporate veil,' on account of inadequate capitalization for instance, but rather on the officer or director's personal participation or specific authorization of the tortious act." Id. at 492.
Defendant neither disputes the Frances T. ruling nor cites to any contrary authority. Defendant merely argues that Defendant held insubstantial positions and performed simple tasks such as "opening bank accounts, coordinating with banks, depositing money for the facilities in Texas, etc." (Opposition, p. 3.) Defendant also contends that he just stumbled into the position of Secretary/Treasurer and was mostly ordered and instructed by corporate officers with higher positions. In brief, Defendant alleges that he was a "mere employee of the HHD with no substantial powers and responsibilities calling for the exercise of any individual discretion." (Opposition, p. 4.) This Court disagrees.
Plaintiffs have demonstrated that Defendant owed Plaintiffs a duty of reasonable care under the California Supreme Court's holding in Frances T. because Defendant actively participated in numerous tortious acts during his employment as Treasurer, Secretary and Controller of HHD. Specifically, the undisputed facts evidence that Defendant, on his own initiative, recommended that HHD serve as the corporate conduit for the improper inter-company transfers among the Heritage facilities. (Plaintiffs' SUF ¶ 8.) Defendant knew that the inter-company transfers were improper and impermissible, he nevertheless prepared, signed and submitted to U.S. Trust requisition certificates which were used to obtain bond proceeds, which were then used to fund the improper inter-company transfers. (Plaintiffs' SUF ¶ 10). In fact, Defendant even created and submitted numerous "dummy" invoices to U.S. Trust to facilitate the improper and impermissible inter-company transfers. (Plaintiffs' SUF ¶ 9). Finally, Defendant signed the minutes of the HHD board meetings, yet he rarely attended.
Defendant's affirmative acts, certain omissions and personal participation definitely created an unreasonable risk of injury to the third party Plaintiffs sufficient to create a duty as a matter of law and separate from Defendant's fiduciary duties owed to the corporation.
3. Defendant Breached his Duty of Reasonable Care to HHD and Plaintiffs
Breach may be determined as a matter of law on a summary judgment motion where reasonable jurors could draw only one conclusion from the evidence presented. See Lindstrom v. Hertz Corp., 81 Cal.App.4th 644, 652 (2000). Breach denotes acts or omissions that are "clearly unreasonable under the circumstances known to them at that time." Frances T., 42 Cal.3d at 509. Here, Plaintiffs contend and this Court agrees that the undisputed evidence of the unreasonableness of Defendant's tortious acts or omissions is of such a character that reasonable jurors could not differ on Defendant's breach of his duty to HHD and Plaintiffs.
As pointed out by Plaintiffs, the undisputed evidence clearly demonstrates that Defendant breached his duty of care to HHD and Plaintiffs for two distinct reasons. First, Defendant violated Cal. Corp. Code § 1507. Second, Defendant failed to exercise due diligence to investigate the propriety of the inter-company transfers he actively participated in and facilitated.
Defendant contends that breach is disputed without offering any facts to controvert those of Plaintiffs. Rather, Defendant simply argues that officers and directors are "generally not liable for mere errors of business judgment." (Opposition, p. 4.) However, as evidenced below, Defendant's acts were far beyond mere errors of business judgment.
a. Cal. Corp. Code § 1507
Under the doctrine for negligence per se, breach is presumed if (1) a person violated the statute; (2) the resultant harm was the type of harm that the statute was designed to prevent; and (3) the person suffering the harm was one of the class of persons whose protection the statute was adopted. Nunneley v. Edgar Hotel, 36 Cal.2d 493 (1950); Cal. Evid. Code § 669(a).
Cal. Corp. Code § 1507 provides in pertinent part:
Any officers, directors, employees or agents of a corporation who do any of the following are liable jointly and severally for all the damages resulting therefrom to the corporation or any person injured thereby who relied thereon or to both:
(a) Make, issue, deliver or publish any prospectus, report, circular, certificate, financial statement, balance sheet, public notice or document respecting the corporation or its shares, assets, liabilities, capital, dividends, business, earnings or accounts which is false in any material respect, knowing it to be false, or participate in the making, issuance, delivery or publication thereof with knowledge that the same is false in a material respect.
Cal. Corp. Code § 1507 (emphasis added).
Plaintiffs sufficiently argue that by creating and submitting numerous "dummy" invoices to U.S. Trust in order to obtain proceeds to fund the improper inter-company transfers, Defendant squarely violated Cal. Corp. Code § 1507. Defendant's testimony is instructive here and clearly demonstrates his knowing falsification of corporate invoices. For example, when questioned by the S.E.C. attorney, Defendant states the following:
Q. Okay. Because it just sounded to me like you weren't totally comfortable with preparing these invoices saying construction advance. Is that correct?
A. Right, yes.
Q. And why were you not comfortable with that?
A. First, to me, this is a dummy invoice because if — a draw request to me is an invoice coming from the supplier itself or vendor that I have to attach.
Q. Okay. So that's the first reason?
A. Yes.
Q. Anything else? Any other reason you were uncomfortable with —
A. Not really.
Q. With respect to Exhibit 66, the third page, the invoice that is attached —
A. Uh-huh.
Q. — did you draft this invoice?
A. Yes.
(Lim S.E.C. Depo I, 240:6-24.) (Emphasis added).
First, these "dummy" invoices were clearly "document[s] respecting the corporation" because Defendant falsified them in his corporate capacities as Treasurer, Secretary and Controller, and submitted them to U.S. Trust on behalf of HHD. Second, the "dummy" invoices were "false" in a "material respect" because they were not issued by third-party vendors, but created by Defendant. Third, Defendant "knowingly" falsified the "dummy" invoices because Defendant himself "drafted" and "created" them. (Plaintiffs' SUF ¶ 9.) Defendant's contention that Plaintiffs have failed to substantiate said allegations with evidence is directly contradicted by Defendant's own testimony on record.
Moreover, it appears that the resultant harm was the type of harm that Cal. Corp. Code § 1507 was designed to prevent (i.e. prohibiting corporate insiders from knowingly falsifying corporate documents). Here, Defendant submitted corporate invoices to U.S. Trust requesting the improper inter-company transfers and U.S. Trust released the requested funds as a result of its reliance on Defendant's "dummy" invoices. (Plaintiffs' SUF ¶ 9.)
Furthermore, HHD and Plaintiffs were within the class of persons Cal. Corp. Code § 1507 was designed to protect because it expressly authorizes statutory recovery by a corporation or individual plaintiffs. Accordingly, under the doctrine of negligence per se, this Court presumes Defendant's breach of his duty owed to HHD and Plaintiffs from his violation of Cal. Corp. Code § 1507. This Court further notes that Defendant has not presented any argument whatsoever rebutting this presumption.
b. Failure to exercise due diligence
Aside from his violation of Cal. Corp. Code § 1507, this Court also concludes that Defendant's failure to exercise even minimal due diligence is an independent basis sufficient to constitute breach. While actively participating in and facilitating the improper inter-company transfers, Defendant did nothing to investing the propriety of the inter-company transfers. Despite having no prior experience with bond funds (Plaintiffs' SUF ¶ 11), Defendant never reviewed any of the Official Statements issued in connection with the Heritage bond offerings. (Plaintiffs' SUF ¶ 12). Defendant never consulted any auditor on the propriety of the inter-company transfers. (Plaintiffs' SUF ¶ 14.) In fact, Defendant did not even question anyone about the legality or legitimacy of the inter-company transfers. (Plaintiffs' SUF ¶ 13, 15.) Instead, Defendant simply "presumed" that the HHD board authorized the inter-company transfers. (Plaintiffs' SUF ¶ 16.) The evidence is uncontroverted that Defendant wholly failed to conduct any inquiry into the propriety of the inter-company transfers. Furthermore, Defendant's creation of numerous "dummy" invoices exposed Plaintiffs to an unreasonable risk of harm because it caused the bond proceeds to be released from U.S. Trust under false pretenses, and then used in the improper and impermissible inter-company transfers which were never repaid by the recipient Heritage entities. (Plaintiffs' SUF ¶¶ 3-18.) It is evident that "an ordinarily prudent person, knowing what [Defendant] knew at the time, would not have acted similarly under the circumstances." Frances T., 42 Cal.3d at 509.
Therefore, this Court concludes as a matter of law that Defendant unquestionably breached his duty to HHD and Plaintiffs.Burt v. Irvine Co., 237 Cal.App.2d 828, 852 (1965) (holding that directors and officers are liable for negligence for their failure to exercise the proper care, skill, and diligence in the management of the corporation's affairs, as opposed to mere mistakes and errors in judgment.)
4. Defendant's Breach of his Duty to HHD and Plaintiffs Caused Plaintiffs' Injury
"Although causation is a question of fact, it may be decided as a matter of law if, under undisputed facts, reasonable minds could not differ." Iolab Corp. V. Seaboard Sur. Co., 15 F.3d 1500, 1506, fn. 4 (9th Cir. 1994); Starr v. Mooslin, 14 Cal.App.3d 988, 998 (holding that "where reasonable men will not dispute . . . causality, the court may take the decision from the jury and treat the question as one of law."). To establish causation, a plaintiff must show that the defendant's actions or omissions were both actual and legal cause of his or her injury.Hutchison v. S. Cal. First Nat. Bank, 27 Cal.App.3d 572, 578 (1972).
a. Actual cause
A plaintiff is not required to prove that the defendant's conduct was the sole cause of his or her injury. American Motorcyle Assn. v. Superior Court, 20 Cal.3d 578, 586 (1978). Rather, the proper test for determining actual cause is the "substantial factor" test, under which the defendant's conduct will be regarded as an actual cause of the plaintiff's harm if it was a substantial factor in bringing about the harm. Mitchell v. Gonzales, 54 Cal.3d 1041, 1054 (1991). "`While there is no judicially approved definition of what is a substantial factor for causation purposes, it seems to be something which is more than a slight, trivial, negligible, or theoretical factor in producing a particular result.'" Espinosa v. Little Co. of Mary Hosp., 31 Cal.App.4th 1304, 1314 (1995) (quoting Com. to BAJI No. 3.76 (8th ed. 1994 bound vol.) p. 99.). Another court of appeal has held that conduct can be considered a substantial factor if the effects of the negligent conduct actively and continuously operate to bring about the harm. Osborn v. Irwin Mem'l Blood Bank, 5 Cal.App.4th 234, 253 (1992). Such causation exists in the present case.It is important to note the way the bond issues were structured. Proceeds from each Heritage Bond offering were earmarked for a specific Heritage facility and for specific uses within the facility. (Plaintiffs' SUF ¶ 7.) Thus, transfers of the bond proceeds among the Heritage facilities were unquestionably improper and impermissible, as they violated the Heritage Bond Indentures. (Plaintiffs' SUF ¶ 6.) In any regard, the bond proceeds were utilized to fund the inter-company transfers, which were then used to cover overdrafts of delinquent Heritage facilities. (Plaintiffs' SUF ¶ 4.) Moreover, these inter-company transfers effectively diverted and diluted Plaintiffs' investments because they were never repaid by the recipient Heritage facilities. (Plaintiffs' SUF ¶ 18.) According to Defendant, "[i]t's still sitting there as a receivable and payable." (Lim S.E.C. Depo I, 163:8-21.)
During his employment as Treasurer, Secretary and Controller at HHD, Defendant actively participated in and facilitated the inter-company transfers. Defendant admittedly took the initiative to recommend that HHD serve as the corporate conduit for the improper inter-company transfers among the Heritage facilities. (Plaintiffs' SUF ¶ 8.) Although Defendant attempts to dispute these facts, Defendant's own testimony below clearly undermines this argument:
Q. Before we move on, I just have one more question about the — when Heritage started serving as an intermediary between the transfers between the projects, was that idea suggested by you, by Sobelman, Cohen, and Sullivan?
A. I don't know who suggested. It may be I suggested it.
Q. It was your initiative?
A. I think it's I suggested it.
Q. And did you discuss it with —
A. I first brought it up with — with Jerry Goldstein. I said, "What about doing this, you know?" "Let me think about it," he said. And then he — just one day he came back to me and "Let's do that."
(Lim S.E.C. Depo I, 172:14-173:1.) (Emphasis added).
Additionally, Defendant prepared, signed and submitted to U.S. Trust requisition certificates which were used to obtain bond proceeds and used to fund the improper inter-company transfers. (Plaintiffs' SUF ¶ 10.) It is also uncontested that Defendant submitted numerous "dummy" invoices to U.S. Trust on behalf of HHD in order to obtain bond proceeds to fund the improper inter-company transfers. (Plaintiffs' SUF ¶ 9.) As stated above, these inter-company transfers were never repaid by the Heritage facilities, and thereby effectively diverted and divested Plaintiffs' investments. (Plaintiffs' SUF ¶ 16.)
Based on the foregoing facts, Plaintiffs argue and this Court agrees that Defendant's active role, in his capacity as HHD's Treasurer, Secretary and Controller, was integral to bringing about the illegal inter-company transfers such that reasonable jurors could only conclude that Defendant's acts caused Plaintiffs' injury.
b. Legal cause
Legal or proximate cause involves a policy determination as to whether the defendant should be held legally responsible for the consequences of his or her acts. Mosely v. Arden Farms Co., 26 Cal.2d 213, 220-221 (1945); Valdez v. J.D. Diffenbaugh Co., 51 Cal. App.3d 494, 509 (1975) (noting that where a defendant is found to owe a duty of care, and that the injury and manner in which it occurred were reasonably foreseeable, the conclusion that defendant's negligence was the proximate cause of plaintiff's injury was "inescapable.").
Here, this Court has already determined that Defendant owed HHD and Plaintiffs a duty of care. Furthermore, in the preceding section, this Court determined that Defendant's breach of duty to both HHD and Plaintiffs was an actual cause of Plaintiffs' injury. As the Valdez court succinctly stated, the conclusion that Defendant's breach of duty was a legal or proximate cause of Plaintiffs' injury is simply "inescapable." Valdez, 51 Cal. App.3d at 509. Accordingly, this Court concludes that legal causation exists as a matter of law.
5. Plaintiffs Suffered Damages as a Result of Defendant's Tortious Acts and Omissions
Finally, Plaintiffs suffered economic damages as a result of Defendant's negligence. The improper and impermissible inter-company transfers were never repaid by the recipient Heritage facilities. (Plaintiffs' SUF ¶ 18.)
California case law has recognized that economic loss is a legally cognizable injury sufficient to meet the element of damage in a negligence claim. See Union Oil Co. v. Oppen, 501 F.2d 558, 565-566 (9th Cir. 1974) (identifying numerous cases where pure economic losses may be recovered for negligence attributable to professionals). Accordingly, this Court concludes as a matter of law that Plaintiffs have satisfied the damages element of their negligence claim against Defendant.
III. Conclusion
In light of the foregoing, this Court grants Plaintiffs' Motion for Partial Summary Judgment, or in the Alternative, for Summary Adjudication of Issues, on Fifth Cause of Action (Negligence) Against Defendant Virgil Lim.
IT IS SO ORDERED.