Request Judicial NoticeCal. Super. - 6th Dist.May 30, 20181 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CAET’S REQUEST FOR JUDICIAL NOTICE 18CV329051 1 WILLIAM J. FRIMEL (Bar No. 160287) SEUBERT FRENCH FRIMEL & WARNER LLP 1075 Curtis Street Menlo Park, CA 94025 Tel: 650.322.3048 Bill@sffwlaw.com Attorneys for Plaintiff Capital Asset Exchange and Trading, LLC SUPERIOR COURT OF CALIFORNIA COUNTY OF SANTA CLARA (UNLIMITED CASE) CAPITAL ASSET EXCHANGE AND TRADING, LLC, a California limited liability company, Plaintiff, v. OOLONG, LLC, a Delaware limited liability company, and DOES 1-20, Defendants. CASE NO. 18CV329051 PLAINTIFF CAPITAL ASSET EXCHANGE AND TRADING, LLC’s REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF OPPOSITION TO MOTION BY DEFENDANT OOLONG, LLC, FOR LEAVE TO FILE CROSS-COMPLAINT FOR BREACH OF CONTRACT AND FRAUD AND NAME KYLE HANSON AND MARK MURPHY AS PARTIES TO THE ACTION Date: February 14, 2019 Time: 9:00 a.m. Dept. 19 Judge: Hon. Peter H. Kirwan Electronically Filed by Superior Court of CA, County of Santa Clara, on 1/31/2019 11:59 AM Reviewed By: S. Vera Case #18CV329051 Envelope: 2456947 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CAET’S REQUEST FOR JUDICIAL NOTICE 18CV329051 2 Pursuant to Evidence Code § 452(d) and § 453, Plaintiff Capital Asset Exchange and Trading, LLC requests that the Court take judicial notice of the following records of the Superior of Court of San Francisco County in the case of Jean-Yves Lendormy v. Kyle Hanson, et. al., Case No. CGC-16-550897 (the “Lendormy Action”). Exhibit 1: Defendants [Kyle Hanson’s and Mark Murphy’s] Opposition to Plaintiff’s Petition to Confirm Arbitration Award and Enter Judgment, filed September 14, 2018, in the Lendormy Action. For ease of reference to the citations in CAET’s Opposition, this exhibit has been consecutively numbered 001-025. Exhibit 2: Petition to Vacate Contractual Arbitration Award, filed September 14, 2018, in the Lendormy Action. Exhibit 3: Defendants’ Petition to Vacate Arbitration Award Pursuant to California Code of Civil Procedure §§ 1285 and 1286.2, filed November 26, 2018, in the Lendormy Action. For ease of reference to the citations in CAET’s Opposition, the pages of this exhibit have been consecutively numbered 001-021. Exhibit 4: Defendants’ Petition to Continue All Hearings And/Or Proceedinsg (sic) Until Scheduled Motion to Stay All Hearings Pending Underlying Litigation Can Be Heard, filed December 26, 2018, in the Lendormy Action. Exhibit 5: Order Denying Defendants’ Petition to Vacate Arbitration Award, filed January 4, 2019, in the Lendormy Action. DATED: January 30, 2019 SEUBERT FRENCH FRIMEL & WARNER LLP By: __/s/ William J. Frimel_____________ William J. Frimel Attorneys for Plaintiff Capital Asset Exchange and Trading, LLC Exhibit “1” 001 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Marcus McElhenney (SBN 303468) Marcus.McElhenney@gmail.com 158 Third Avenue San Francisco, CA 94118 Telephone: (215) 888-0772 Attorney for Defendants Kyle Hanson and Mark Murphy ELECTRON ICA LY FILE BY:VANESSA WU SUPERIOR COURT OF CALIFORNIA CITY AND COUNTY OF SAN FRANCISCO JEAN-YVES LENDORMY, Plaintiff, vs. KYLE HANSON AND MARK MURPHY, Defendants. ) Case No.: CGC-16-550897 ) ) DEFENDANTS OPPOSITION TO ) PLAINTIFF'S PETITION TO CONFIRM ) ARBITRATION AWARD AND ENTER ) JUDGMENT ) ) DATE: SEPTEMBER 21, 2018 ) TIME: 9:30 AM ) DEPT.: 302 ) JUDGE: HON. HAROLD E. KAHN ) ) RESERVATION No. 08240921-10 20 Defendants Hanson and Murphy reply to Plaintiff Jean Lendormy's Petition to Confirm 21 Arbitration A ward and Ender Judgment. The court should grant deny Plaintiff's petition because 22 the facts are not yet ripe for the awarding of attorneys' fees as the underlying issues/cases are not 23 yet resolved. Further, the arbitrator was systematically biased against Defendants throughout the 24 arbitration and deviated, disregarded, or completely ignored California law and authority in each 25 and every decision against Defendants. As such, the arbitration award should be set aside in its 26 entirety, or in the alternative, stayed from implementation until the underlying wage and hour 27 claims at issue are resolved. 28 DEFENDANTS OPPOSITION TO PLAINTIFF'S PETITION TO CONFIRM ARBITRATION AW ARD AND CONFIRM JUDGMENT CASE NO. CGC-16-550897 - 1 - 002 Additionally, Defendants humbly request that the court, and Plaintiff, accept this 2 untimely opposition and believe there is good cause to warrant this untimely filing. Plaintiffs 3 filed their Petition on August 2 7, 2018 and emailed courtesy copies to Defense counsel. Defense 4 counsel had an away on vacation message which notified Plaintiffs counsel that they would be 5 out of the country and out or internet reach until after the labor Day weekend on September 3, 6 2018. Due to unforeseen circumstances, that trip was extended and Defense counsel was delaye 7 in responding/viewing all correspondences that came in while on vacation and only discovered 8 Plaintiffs petition this week, after the due date for an opposition of a noticed motion. Defense 9 counsel then quickly drafted this opposition in an attempt to keep Plaintiffs requested hearing 10 date, but if the court is unwilling to review and consider this filing then they seek to meet and 11 confer with Plaintiff to continue the hearing date, and/or seek court intervention to continue to 12 date if necessary due to Defendants not receiving Plaintiffs petition during the common summer 13 vacation. But again, Defendants hope that Plaintiff and the court will accept this filing, as to 14 assist in moving the case forward and thanks all parties in accommodating Defense counsel. 15 (Declaration of Marcus N. McElhenney ("McElhenney Deel.") at~ 2.) 16 I. Statement of Facts. 1 7 The underlying dispute between the parties stems from Plaintiff representing Defendants 18 under a contingency fee agreement for their wage and hour claims against their former employer 19 CAET. Plaintiff agreed that he would only receive payment if and when Defendants received a 20 monetary aware and/or fee shifting occurred from CAET to them. It was originally believed that 21 on December 18, 2014, Defendants settled their wage and hour claims with CAET for a walk 22 away settlement and there was no monetary award or fee shifting in this agreement. In or around 23 December 2017 CAETs counsel notified Defendants that there were contemplating rescinding 24 the settlement agreement and continue to pursue their respective claims against Defendants. 25 (Declaration of Marcus N. McElhenney ("McElhenney Deel.") at~ 2.) On May 10, 2017, CAET, 26 through their counsel, sent Defendants a Document Preservation Letter and a notice of pending 27 litigation. Id. On or about May 30, 2018, CAET filed their lawsuit against Defendants, 28 DEFENDANTS OPPOSITION TO PLAINTIFF'S PETITION TO CONFIRM ARBITRATION A WARD AND CONFIRM JUDGMENT CASE NO. CGC-16-550897 - 2 - 003 reopening the litigation between Defendants and CAET which includes Defendants wage and 2 hour claims against CAET. ("McElhenney Deel." at~ 3.) On or about July 24, 2018, 3 Defendants, via e-mail through their counsel, notified Plaintiff that the settlement agreement had 4 been disregarded and that they would be seeking their wage and hour claims against CAET. 5 ("McElhenney Deel." at~ 4.) This letter also notified Plaintiff that the arbitration was no longer 6 necessary as California code specifically spelled out how Plaintiff would get paid under a 7 contingency fee agreement. Id. On July 26, 2018, Defendant Kyle Hanson followed up via 8 telephone to notify Plaintiff that there was no more settlement agreement, that the arbitration 9 between them was no longer necessary, and to and seek his counsel on how he wanted to move 10 forward on the wage and hour claims contained in their original agreement. ("McElhenney 11 Deel." at~ 5.) Plaintiff has yet to respond/address these development. Hearing nothing from 12 Plaintiff on this issue, Defendants notified JAMS that the arbitration was no longer necessary 13 and sought a stay. The Arbitrator originally requested, and gave Defendants 7 days to file a 14 motion seeking a stay of proceedings and argument schedule, but abruptly and without reason or 15 notice, withdrew that permission the following day. Than more than two weeks after Plaintiff 16 was notified that Defendants were seeking their wage and hour claims, and several months after 17 the underlying case which will address those wage and hour claims was filed making Plaintiffs 18 claims against Defendant moot for the time being, did the arbitrator released his Final award 19 where he creates new authority as to the value of claims without support from any California 20 authority. 21 II. PLAINTIFF'S CLAIMS ARE NOT RIPE AS DEFENDANTS HA VE NOT 22 RESOLVED THEIR WAGE AND HORU CLAIMS AGAINST CAET 23 It is well settled law in California that an Attorney does not recover costs and fees under 24 a Contingency Fee Agreement, unless and until the client wins a recovery. Fracasse v. Brent 25 (1972) 6 Cal.3d 784. Further, when addressing a previously discharged attorney, the Court in 26 Fracasse specifically stated that they "believe it would be improper to burden the client with and 27 absolute obligation to pay his former attorney regardless of the outcome of the litigation." And 28 DEFENDANTS OPPOSITION TO PLAINTIFF'S PETITION TO CONFIRM ARBITRATION AW ARD AND CONFIRM JUDGMENT CASE NO. CGC-16-550897 - 3 - 004 1 that they "believe that the attorney's action for reasonable compensation accrues only when the 2 contingency stated in the original agreement has occurred -- i.e., the client has had a recovery by 3 settlement or judgement. It follows that the attorney will be denied compensation in the event 4 such recovery is not obtained." Simply put, if there is no award for the client, there is no fee 5 paid to the attorney. This is the whole premise behind the Contingency Fee Agreements. 6 The California courts have clearly established that when an attorney is fired by his client 7 on a contingency fee basis that they may be entitled to quantum meruit, or that they are entitled 8 to recover for the reasonable amount of services provided before they were terminated, with or 9 without cause. Fracasse. Regardless if Plaintiff was actually terminated or not, this argument 10 will also fail. The California courts have stated that the calculation of the reasonable value of 11 services rendered by a lawyer under a contingent fee contract requires a court to quantify the 12 value of the lawyer's services and prorate that amount against the value of the services rendered 13 by all lawyers on the case. Cazares v. Saenz (1989) 208 Cal.App.3d 279. Further the courts have 14 said that "it is sometimes assumed that the quantum meruit standard applied to legal services 15 includes nothing more than a reasonable hourly rate multiplied by the amount of time spent on 16 the case. (See, e.g., Paolillo v. American Export Isbrandtsen Lines, Inc. (S.D.N.Y. 1969) 305 17 F.Supp. 250, 253-254.) ... however, this is an overly narrow view of the quantum meruit 18 standard applied in the context of a contingent fee agreement ... lawyer[ s] runs the risk that even 19 if successful, the amount recovered will yield a percentage fee which does not provide adequate 20 compensation." Id. Thus, while Plaintiff will continue to support and push for a flat hourly rate 21 fee be paid to them, under a valid Contingency Fee Agreement system, they would only be 22 entitled to their prorated share of the monetary award that they won for their client. 23 "To the extent that such discharge is followed by the retention of another attorney, the 24 client will in any event be required, out of any recovery, to pay the former attorney for the 25 reasonable value of his services." Fracasse. To the extent that such discharge occurs "on the 26 courthouse steps," where the client executes a settlement obtained after much work by the 27 attorney, the factors involved in a determination ofreasonableness would certainly justify a 28 DEFENDANTS OPPOSITION TO PLAINTIFF'S PETITION TO CONFIRM ARBITRATION A WARD AND CONFIRM JUDGMENT CASE NO. CGC-16-550897 - 4 - 005 finding that the entire fee was the reasonable value of the attorney's services. ( Oliver v. 2 Campbell, 43 Cal.2d 298 [273 P.2d 15]; see Los Angeles v. Los Angeles-Inyo Farms Co., 134 3 Cal. App. 268, 276 [25 P.2d 224], Additionally, "Unless a rule is adopted allowing an attorney as 4 full compensation the reasonable value of services rendered to the time of discharge, clients will 5 often feel required to continue in their service attorneys in whose integrity, judgment or capacity 6 they have lost confidence." (Salopek v. Schoemann, supra, at pp. 156-157; seeDenio v. City of 7 Huntington Beach, supra, 22 Cal.2d 580, 603-604.). 8 In the present case we have Plaintiff, an attorney, who agreed to represent Defendants in 9 their wage and hour claims against CAET under a contingency fee agreement. The relationship 10 between the parties soured and for one reason or another Plaintiff choses to no longer represent 11 Defendants. California law dictates that Plaintiff is entitled to payment under his agreement with 12 Defendants from the monetary award, or fee shifting that will come from CAET for Defendants 13 wage and hour claims. The authority above is clear that Plaintiff is not entitled to this payment 14 until this payment is received by Defendants or their claims are resolved. In the present case, we 15 believed that the wage and hour claims between Defendants and CAET were resolved. But as so 16 often happens in litigation, there are a lot of ups and downs and that tenuous agreement to 17 resolve the claims has been dismissed by all the parties involved and Defendants are now 18 seeking their wage and hour claims against CAET. The courts have found that an attorney can 19 only collect after resolution in order to stay out of the messy calculations of what is reasonable 20 for attorney's fees. Instead they can point and rely on the agreement between the parties. 21 Additionally, the courts do not want to wade in and speculate at the amount of fees should be 22 awarded based on claims that have not been fully adjudicated to attorneys before the final award. 23 This could create a windfall for some parties and unjustly hurt others when there is no evidence 24 to support or back either position. As such, Plaintiff should, and will get paid from the final 25 financial award that Defendants receive from the wage and hour claims that Plaintiff believes are 26 valid and valuable. 27 28 DEFENDANTS OPPOSITION TO PLAINTIFF'S PETITION TO CONFIRM ARBITRATION A WARD AND CONFIRM JUDGMENT CASE NO. CGC-16-550897 - 5 - 006 Since Defendants are still seeking their wage and hour claims against CAET, then 2 Plaintiffs claim for legal fees is not currently ripe and should be stayed or disregarded at this 3 time. 4 III. CONCLUSION 5 As explained above, the court should grant deny Plaintiffs petition because the facts are 6 not yet ripe for the awarding of attorneys' fees as the underlying issues/cases are not yet 7 resolved. Further, a simple review of the arbitration award shows that the arbitrator created a 8 new rule/authority not based on any California law or code and is biased against Defendants. As 9 such, the arbitration award should be set aside in its entirety, or in the alternative, stayed from 10 implementation until the underlying wage and hour claims at issue are resolved between 11 Defendants and CAET. 12 13 Dated: September 14 2018 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Respectfully submitted, Attorney for Defendants Kyle Hanson and Mark Murphy 28 DEFENDANTS OPPOSITION TO PLAINTIFF'S PETITION TO CONFIRM ARBITRATION A WARD AND CONFIRM JUDGMENT CASE NO. CGC-16-550897 -6- 007 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Marcus McElhenney (SBN 303468) Marcus.McElhenney@gmail.com 15 8 Third A venue San Francisco, CA 94118 Telephone: (215) 888-0772 Attorney for Defendants Kyle Hanson and Mark Murphy IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY SAN FRANCISCO JEAN-YVES LENDORMY, ) Case No.: CGC-16-550897 ) ) DECLARATION OF MARCUS N. Plaintiff, ) MCELHENNEY IN SUPPORT OF ) DEFENDNATS OPPOSITION TO vs. ) PLAINTIFF'S PETITION TO CONFIR ) ARBITRATION AW ARD AND ENTE KYLE HANSON AND MARK MURPHY, ) JUDGMENT Defendants. ) ) DATE: SEPTEMBER21,2018 ) TIME: 9:30 AM ) DEPT.: 302 ) JUDGE: HON. HAROLD E. KAHN ) ) RESERVATION o. 08240921-10 I, Marcus N. McElhenney, declare as follows: 1. I am an attorney licensed to practice law in the State of California and I am the attorney of record for Defendants Kyle Hanson and Mark Murphy ("Defendants"). I have personal knowledge of each fact stated in this declaration and, if called upon to testify, could and would competently testify thereto. 2. In or around December 2017 CAETs counsel notified Defendants that there were contemplating rescinding the settlement agreement and continue to pursue their respective claims against Defendants. Several emails exchanges and phone calls took place regarding litigating the issues between the parties. On May 10, 2017, CAET, DECLARATION OF MARCUS N. McELHENNEY IN SUPPORT OF DEFENDNATS OPPOSITION TO CONFIRM ARBITRATION AWARD AND ENTER JUDGMENT 008 through their counsel, sent Defendants a Document Preservation Letter and a notice of 2 pending litigation. A true a correct copy of CAET's May 10, 2017 Document 3 Preservation letter is hereto attached as Exhibit A. 4 3. On or about May 30, 2018, CAET filed their lawsuit against Defendants, 5 reopening the litigation between Defendants and CAET which includes Defendants wage 6 and hour claims against CAET. A true and correct copy of the cover page of the May 30, 7 2018 court stamped Complaint is hereto attached as Exhibit B. 8 4. On or about July 24, 2018, Defendants, via e-mail through their counsel, 9 notified Plaintiff that the settlement agreement had been disregarded and that they would 1 o be seeking their wage and hour claims against CAET. This letter also notified Plaintiff 11 that the arbitration was no longer necessary as California code specifically spelled out 12 how Plaintiff would get paid under a contingency fee agreement. A true and correct copy 13 of the e-mail correspondence from Marchs N. McElhenney to Sidney Luscutoff dated 14 July 24, 2018 is hereto attached as Exhibit C. 15 5. On July 26, 2018, Defendant Kyle Hanson followed up via telephone to 16 notify Plaintiff that there was no more settlement agreement, that the arbitration between 17 them was no longer necessary, and to and seek his counsel on how he wanted to move 18 forward on the wage and hour claims contained in their original agreement. A true and 19 correct copy of Mr. Sidney Luscutoffs e-mail to Marcus McElhenney acknowledging 20 Mr. Hanson's phone call is hereto attached as Exhibit D. 21 I declare under penalty of perjury of the laws of the State of California that the 22 foregoing is true and correct. Executed on September 14, 2017, at San Francisco, 23 California. 24 25 26 27 28 2 DECLARATION OF MARCUS N. McELHENNEY IN SUPPORT OF DEFENDNATS OPPOSITION TO CONFIRM ARBITRATION AWARD AND ENTER JUDGMENT 009 EXHIBIT A I T 010 May 10, 2017 Kyle Hanson Mark Murphy Oolong, LLC c/o Michael Solomon, Esq. Fenwick & West, LLP 1191 Second Ave., 10th Floor Seattle, WA 98101 via email: msolomon@fenwick.com Re: Document Preservation Notice Michael, Bill Frimel 1075 Curtis Street Menlo Park, CA 94025 Tele: (650) 322-3048 bill@sffwlaw.com For the reasons set forth in my letters of April 26 and May 4, 2017, Capital Asset Exchange and Trading, LLC ("CAET") reasonably anticipates litigation and/or contemplates filing a lawsuit against the Oolong Litigants 1, as that term is defined in the parties December, 2014 Settlement Agreement ("Agreement"). As a result, the Oolong Litigants are obligated to preserve documents, data, tangible things and electronically stored information potentially relevant to the issues in this anticipated case. This letter serves as a discovery hold notice and advises concerning a party's duty to preserve all manner of evidence. The duty to preserve is referenced as a "demand" even though this is an advisement from counsel. This demand is broad and is a duty that arises under the law even though such materials may never be produced or demanded by the other counsel during litigation. As used in this document, "you" and "your" means the Oolong Litigants as defined in the Agreement, as well as their predecessors, successors, parents, subsidiaries, divisions and affiliates, and their respective officers, directors, agents, attorneys, accountants, employees, partners and other persons occupying similar positions or performing similar functions. 1 We understand that you are in direct communication with Messrs. Murphy and Hanson and assume that you represent them as well as Oolong, LLC. Therefore, we have only sent this letter to you. Please confirm the scope of your representation. Regardless, please forward this letter to Messrs. Murphy and Hanson. If you prefer that I send it to them directly, please advise. 011 Kyle Hanson Mark Murphy Oolong, LLC c/o Michael Solomon, Esq. May 10, 2017 Page 2 The definition of "documents," "data," and "tangible things" may include: writings; records; files; correspondence; reports; memoranda; calendars; diaries; minutes; electronic messages; voicemail; e-mail; telephone message records or logs; text messages; computer and network activity logs; hard drives; backup data; removable computer storage media such as tapes, disks, and cards; printouts; document image files; Web pages, cache and temporary Internet files; databases; spreadsheets; software; books; ledgers; journals; orders; invoices; bills; vouchers; checks; statements; worksheets; summaries; compilations; computations; charts; diagrams; graphic presentations; drawings; films; charts; digital or chemical process photographs; video; phonographic tape; or digital recordings or transcripts thereof; drafts; jottings; and notes. Information that serves to identify, locate, or link such material, such as file inventories, file folders, indices, and metadata, is also included in this definition. You should anticipate that much of the information subject to disclosure or responsive to discovery in this matter is stored on your current and former computer systems and other media and devices (including personal digital assistants, voice-messaging systems, online repositories and cell phones). Electronically stored information (hereinafter "ESI") should be afforded the broadest possible meaning and includes (by way of example and not as an exclusive list) potentially relevant information electronically, magnetically, optically or otherwise stored as: • Digital communications ( e.g., e-mail, voice mail, instant messaging); • E-Mail Server Stores (e.g., Lotus Domino NSF or Microsoft Exchange .EDB) • Word processed documents (e.g., Word or WordPerfect files and drafts); • Spreadsheets and tables ( e.g., Excel or Lotus 123 worksheets); • Accounting Application Data (e.g., QuickBooks, Money, Peachtree data); • Image and Facsimile Files (e.g., PDF. TIFF. JPG, .GIF images); • Sound Recordings (e.g., WAY and .MP3 files); • Video and Animation (e.g., .AVI and .MOY files); • Databases (e.g., Access, Oracle, SQL Server data, SAP); • Contact and Relationship Management Data (e.g., Outlook, ACT!); • Calendar and Diary Application Data (e.g., Outlook PST. blog entries); Online Access Data (e.g., Temporary Internet Files, History, Cookies); • Presentations (e.g., PowerPoint, Corel Presentations); • Network Access and Server Activity Logs; • Project Management Application Data; • Computer Aided Design/Drawing Files; and • Backup and Archival Files (e.g., Veritas, Zip, .GHO) ESI resides not only in areas of electronic, magnetic and optical storage media reasonably accessible to you, but also in areas you may deem not reasonably accessible. You are obliged to 012 Kyle Hanson Mark Murphy Oolong, LLC c/o Michael Solomon, Esq. Mayl0,2017 Page 3 preserve potentially relevant evidence from both sources of ESI, even if you do not anticipate producing such ESL The demand that you preserve both accessible and inaccessible ESI is reasonable and necessary. Pursuant to the rules of civil procedure, you must identity all sources of ESI you decline to produce and demonstrate to the court why such sources are not reasonably accessible. For good cause shown, the court may order production of the ESI, even if it is not reasonably accessible. Accordingly, you must preserve ESI that you deem inaccessible so as not to preempt the court's authority. PLEASE TAKE NOTICE: Preservation Requires Immediate Intervention. You must act immediately to preserve potentially relevant ESI, including, without limitation, information with the earlier of a Created or Last Modified date on or after December 18, 2014 through the date of this demand and going forward, concerning: 1. any and all transactions, whether consummated or not, with any actual or potential customer; 2. CAET; 3. The Specified Information as that term is defined in the Agreement; 4. the full email addresses for Oolong's actual or potential customers; 5. the Agreement, including but not limited to compliance with or breach of the same; 6. any and all customers of Oolong, whether actual or potential; and 7. any and all known customers of CAET, whether actual or potential. Adequate preservation of ESI requires more than simply refraining from efforts to destroy or dispose of such evidence. You must intervene to prevent loss due to routine operations or malfeasance and employ proper techniques and protocols to preserve ESI Booting a drive, examining its contents or running any application may irretrievably alter the evidence it contains and constitute unlawful spoliation of evidence. Preservation requires action. Nothing in this demand for preservation of ESI should be understood to diminish your concurrent obligation to preserve documents, tangible things and other potentially relevant evidence. 013 Kyle Hanson Mark Murphy Oolong, LLC c/o Michael Solomon, Esq. May 10, 2017 Page4 Suspension of Routine Destruction. You are directed to immediately initiate a hold for potentially relevant ESI, documents and tangible things and to act diligently and in good faith to secure and audit compliance with such hold. You are further directed to immediately identify and modify or suspend features of your information systems and devices that, in routine operation, operate to cause the loss of potentially relevant EST. Examples of such features and operations include: • Purging the contents of e-mail repositories by age, capacity or other criteria; • Using data or media wiping, disposal, erasure or encryption utilities or devices; • Overwriting, erasing, destroying or discarding backup media; • Re-assigning, re-imaging or disposing of systems, servers, devices or media; • Running anti virus or other programs effecting wholesale metadata alteration; Releasing or purging online storage repositories; • Using metadata stripper utilities; • Disabling server, packet or local instant messaging logging; and, • Executing drive or file defragmentation or compression programs. Guard Against Deletion. You should anticipate that your officers, employees or others may seek to hide, destroy or alter ESL You must act to prevent and guard against such actions. Especially where company machines were used for Internet access or personal communications, you should anticipate that users may seek to delete or destroy information they regard as personal, confidential or embarrassing, and in so doing, they may also delete or destroy potentially relevant ESI This concern is not unique to you. It is simply conduct that occurs with such regularity that any custodian of ESI and their counsel must anticipate and guard against its occurrence. Preservation of Backup Tapes. You are directed to preserve complete backup tape sets (including differentials and incrementals) containing e-mail and ESI for all dates from December 18, 2014 to the present. Act to Prevent Spoliation. You should take affirmative steps to prevent anyone with access to your data, systems, and archives from seeking to modify, destroy or hide ESI on network or local hard drives and on other media or devices (such as by deleting or overwriting files, using data shredding and overwriting applications, defragmentation, re-imaging, damaging or replacing media, encryption, compression, steganography or the like). 014 Kyle Hanson Mark Murphy Oolong, LLC c/o Michael Solomon, Esq. May 10, 2017 Page 5 System Sequestration or Forensically Sound Imaging. As an appropriate and cost-effective means of preservation, you should remove from service and securely sequester the systems, media and devices housing potentially relevant ESL In the event you deem it impractical to sequester systems, media and devices, we believe that the breadth of preservation required, coupled with the modest number of systems implicated, dictates that forensically sound imaging of the systems, media and devices of those named above is expedient and cost effective. As we may anticipate the need for forensic examination of one or more of the systems and the presence ofrelevant evidence in forensically accessible areas of the drives, we demand that you employ forensically sound ESI preservation methods. Failure to use such methods poses a significant threat of spoliation and data loss. "Forensically sound ESI preservation" means duplication of all data stored on the evidence media while employing a proper chain of custody and using tools and methods that make no changes to the evidence and support authentication of the duplicate as a true and complete bit- for-bit image of the original. The products of forensically sound duplication are called, inter alia, "bitstream images" or "clones" of the evidence media. A forensically sound preservation method guards against changes to metadata evidence and preserves all parts of the electronic evidence, including deleted evidence within "unallocated clusters" and "slack space." Be advised that a conventional copy, backup or "Ghosting" of a hard drive does not produce a forensically sound image because it only captures active, unlocked data files and fails to preserve forensically significant data existing in, e.g., unallocated clusters and slack space. Further Preservation by Imaging. With respect to the hard drives and storage devices of the Oolong Litigants, demand is made that you immediately obtain, authenticate and preserve forensically sound images of the hard drives in any computer system (including portable and home computers) used by the Oolong Litigants at any time from December 18, 2014 to the present, as well as recording and preserving the system time and date of each such computer. Once obtained, each such forensically sound image should be labeled to identify the date of acquisition, the person or entity acquiring the image and the system and medium from which it was obtained. Each such image should be preserved without alteration. Preservation in Native Form. You should anticipate that certain ESI, including but not limited to spreadsheets and databases, will be sought in the form or forms in which it is ordinarily maintained (i.e., native form). 015 Kyle Hanson Mark Murphy Oolong, LLC c/o Michael Solomon, Esq. May 10, 2017 Page 6 Accordingly, you should preserve ESI in such native forms, and you should not employ methods to preserve ESI that remove or degrade the ability to search the ESI by electronic means or that make it difficult or burdensome to access or use the information. You should additionally refrain from actions that shift ESI from reasonably accessible media and forms to less accessible media and forms if the effect of such actions is to make such ESI not reasonably accessible. Metadata. You should further anticipate the need to disclose and produce system and application metadata and act to preserve it. System metadata is information describing the history and characteristics of other ESI This information is typically associated with tracking or managing an electronic file and often includes data reflecting a file's name, size, custodian, location and dates of creation and last modification or access. Application metadata is information automatically included or embedded in electronic files, but which may not be apparent to a user, including deleted content, draft language, commentary, collaboration and distribution data and dates of creation and printing. For electronic mail, metadata includes all header routing data and Base 64 encoded attachment data, in addition to the To, From, Subject, Received Date, CC and BCC fields. Metadata may be overwritten or corrupted by careless handling or improper preservation, including by moving, copying or examining the contents of files. Servers. With respect to servers used to manage e-mail (e.g., Microsoft Exchange, Lotus Domino) and network storage (often called a "network share"), the complete contents of each user's network share and e-mail account should be preserved. There are several ways to preserve the contents of a server. If you are uncertain whether the preservation method you plan to employ is one that we will accept as sufficient, please immediately contact the undersigned. Home Systems, Laptops, Online Accounts and Other ESI Venues. Though we expect that you will act swiftly to preserve data on office workstations and servers, you should also determine if any home or portable systems or devices may contain potentially relevant data. To the extent that you have sent or received potentially relevant e-mails or created or reviewed potentially relevant documents away from the office, you must preserve the contents of systems, devices and media used for these purposes (including not only potentially relevant data from portable and home computers, but also from portable thumb drives, CDR/DVD-R disks and the user's PDA, smart phone, voice mailbox or other forms of ESI storage.). 016 Kyle Hanson Mark Murphy Oolong, LLC c/o Michael Solomon, Esq. May 10, 2017 Page 7 Similarly, if you used online or browser-based e-mail accounts or services (such as Gmail, AOL, Yahoo Mail or the like) to send or receive potentially relevant messages and attachments, the contents of these account mailboxes (including Sent, Deleted and Archived Message folders) should be preserved. Ancillary Preservation. You must preserve documents and other tangible items that may be required to access, interpret or search potentially relevant ESI, including logs, control sheets, specifications, indices, naming protocols, file lists, network diagrams, flow charts, instruction sheets, data entry forms, abbreviation keys, user ID and password rosters and the like. You must preserve passwords, keys and other authenticators required to access encrypted files or run applications, along with the installation disks, user manuals and license keys for applications required to access the ESI You must preserve cabling, drivers and hardware, other than a standard 3.5" floppy disk drive or standard CD or DVD optical disk drive, if needed to access or interpret media on which EST is stored. This includes tape drives, bar code readers, Zip drives and other legacy or proprietary devices. Paper Preservation of ESI is Inadequate. As hard copies do not preserve electronic searchability or metadata, they are not an adequate substitute for, or cumulative of, electronically stored versions. If information exists in both electronic and paper forms, you should preserve both forms. Agents, Attorneys and Third Parties. Your preservation obligation extends beyond ESI in your care, possession or custody and includes ESI in the custody of others that is subject to your direction or control. Accordingly, you must notify any current or former agent, attorney, employee, custodian and contractor in possession of potentially relevant ESI to preserve such ESI to the full extent of your obligation to do so, and you must take reasonable steps to secure their compliance. Preservation Protocols. We are desirous of working with you to agree upon an acceptable protocol for forensically sound preservation and can supply a suitable protocol if you will furnish an inventory and description of the systems and media to be preserved. Alternatively, if you promptly disclose the preservation protocol you intend to employ, perhaps we can assist. A successful and compliant 017 Kyle Hanson Mark Murphy Oolong, LLC c/o Michael Solomon, Esq. May 10, 2017 Page 8 ESI preservation effort requires expertise. If you do not currently have such expertise at your disposal, we urge you to engage the services of an expert in electronic evidence and computer forensics. Perhaps our respective experts can work cooperatively to secure a balance between evidence preservation and burden that is fair to both sides and acceptable to the court. Do Not Delay Preservation. We are available to discuss reasonable preservation steps; however, you should not defer preservation steps pending such discussions if ES/ may be lost or corrupted as a consequence of delay. Should your failure to preserve potentially relevant evidence result in the corruption, loss or delay in production of evidence to which we are entitled, such failure would constitute spoliation of evidence, and we will not hesitate to seek sanctions. Confirmation of Compliance. Please confirm within the next ten (10) days that you have taken action to follow the steps outlined in this letter to preserve ESI and tangible documents potentially relevant to this action. If you have not undertaken action to follow the steps outlined above, or have taken other actions, please describe what you have done to preserve potentially relevant evidence. If you have any questions, please do not hesitate to contact us. Sincerely, SEUBERT FRENCH FRIMEL & WARNER LLP dlLI Bill Frimel bill@sffwlaw.com 018 EXHIBIT B I T 019 2 3 4 5 6 7 8 9 10 WILLIAM J. FRIMEL (Bar No. 160287) SEUBERT FRENCH FRIMEL & WARNER LLP 1075 Curtis Street Menlo Park, CA 94025 Tel: 650.322.3048 Fax: 650.322.2976 bill(a),sffwlaw.com Attorneys for Plaintiff Capital Asset Exchange and Trading, LLC E-FILED 5/30/2018 8:38 AM Clerk of Court Superior Court of CA, County of Santa Clara 18CV329051 Reviewed By: A. Hwang SUPERIOR COURT OF CALIFORNIA COUNTY OF SANTA CLARA (UNLIMITED CASE) 11 CAPITAL ASSET EXCHANGE AND TRADING, LLC, a California limited CASE NO. 18CV329051 12 liability company, 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Plaintiff, V. OOLONG, LLC, a Delaware limited liability company, and DOES 1-20, Defendants. COMPLAINT COMPLAINT 1. Breach of Contract 2. Injunctive Relief 020 EXHIBIT C I T 021 9/14/2018 Gmail - Hanson & Murphy Unresolved Wage & Hour Claims I LLA Representation Agreement M Gmail Marcus McElhenney Hanson & Murphy Unresolved Wage & Hour Claims I LLA Representation Agreement Marcus Mc Elhenney Tue, Jul 24, 2018 at 10:39 AM To: Sidney Luscutoff Cc: eric.garcia@lla-law.com, Malika Price , Marcus McElhenney , Kyle Hanson Dear Mr. Luscutoff: As you are well aware your firm, Luscutoff, Lendormy & Associates ("LLA"), though your partner, Mr. Lendormy have agreed to represent Mr. Kyle Hanson and Mr. Mark Murphy on a contingency fee basis where the legal services agreement between the parties was to "prosecute a lawsuit on Client's behalf against Capital Asset Exchange and Trading, LLC." for certain wage and hour claims. These agreements were entered into on December 14, 2012 for Mr. Hanson and December 6, 2013 for Mr. Murphy. It was previously believed that those claims were resolved with Capital Asset Exchange and Trading ("CAET") on December 18, 2014. Due to recent developments Mr. Hanson and Mr. Murphy have become aware that the agreement to waive those claims has been voided, the case against CAET is in fact not resolved and they will be seeking damages against CAET for all lost wage and hour claims that Mr. Lendormy has been so adamant were valid and due to Mr. Hanson and Mr. Murphy. As such, and what has been the position of Mr. Hanson and Mr. Murphy all along, Mr. Lendormy and LLA are and will be entitled to their contingency fee from the monies that they receive from CAET for their wage and hour claims. Due to the agreements between the parties and the rules of ethics, we feel it necessary to notify LLA and seek clarification of LLA's choice of involvement in the litigation going forward against CAET as LLA has significant financial interest in any settlement or award. Time is an issue as claims have already been filed, so please confirm if LLA will be seeking active engagement per the agreement between the parties or if they do not want to participate and/or represent Mr. Hanson and Mr. Murphy. Additionally, the fact that Mr. Hanson and Mr. Murphy will pursue these claims renders the fee dispute issue between them and LLA moot. As all parties are aware, it is well settled law in California that an Attorney does not recover costs and fees under a Contingency Fee Agreement, until the client wins a recovery. Fracasse v. Brent (1972) 6 Cal.3d 784. In the present case, the wage and hour claims brought by Mr. Lendormy on behalf of Mr. Murphy and Mr. Hanson will in fact be addressed and resolved by the court, and are not currently resolved, as had been previously throught by all parties. From that judgment or financial settlement, LLA will be paid the monies due to them that has been laid out in the agreements between the parties. In the event that LLA chooses not to participate and/or represent Mr. Hanson and Mr. Murphy in their seeking their wage and hour claims per their respective agreements, then as has been outlined by the California courts, the calculation of the reasonable value of services rendered by Mr. Lendormy and LLA under their contingent fee contract requires one to quantify the value of the lawyer's services and prorate that amount against the value of the services rendered by all lawyers on the case. Cazares v. Saenz (1989) 208 Cal.App.3d 279. As such, Mr. Hanson and Mr. Murphy wanted to let LLA know that they will be compensated per the agreements between the parties, and dictated by California authority cited above, once they receive their monetary award from CAET for the wage and hour claims that Mr. Lendormy was so certain of obtaining. Finally, if LLA chooses not to materially participate, please be aware that we will be in contact soon to obtain all of the documents produced by CAET to LLA during LLA's joint representation of Mr. Hanson, Mr. Murphy and the other CAET litigants of which numerous documents have been produced to LLA, but https://mail.google.com/mail/u/0/?ui=2&ik=f21 0ad1 e6f&jsver=K8SpjNhSmRc.en.&cbl=gmail_fe_ 180909.14_p3&view=pt&msg=164cd604dc20ec9d&q=... 1/2 022 9/14/2018 Gmail - Hanson & Murphy Unresolved Wage & Hour Claims I LLA Representation Agreement not yet produced to Mr. Hanson and Mr. Murphy. We kindly seek your assistance in obtaining and preserving these documents with as little inconvenience to your offices as possible. Again, as time is an issue as claims have already been filed, please confirm LLA's level of participation by end of business on July 26, 2018, so we know how to best include LLA moving forward in Mr. Hanson and Mr. Murphy's wage and hour claims. We will assume no response will mean that LLA chooses not to participate and will therefore be entitled to the monies and fees outlined in the fee agreement between the parties and rules outlined above. If you have any questions, please feel free to reach out to me at your nearest convenience. We look forward to your response. Regards, Marcus N. McElhenney Unless otherwise indicated, this transmission is intended only for the confidential use of the individual or entity to which it is addressed. If the reader of this message is not the intended recipient, you are hereby notified that any disclosure, distribution, dissemination, or copying of this message and/or its contents is strictly prohibited. This transmission cannot be guaranteed to be secure or error-free. All information is subject to change, with or without notice. If you have received this transmission in error, please notify us immediately and delete the message and any attachments from your computer. https://mail.google.com/mail/u/0/?ui=2&ik=f21 0ad 1 e6f&jsver=K8SpjNhSmRc.en.&cbl=gmail_fe_ 180909.14_p3&view=pt&msg=164cd604dc20ec9d&q=... 2/2 023 EXHIBIT D I T 024 9/14/2018 Gmail - JAMS Ref.# 1100087386 - Lendormy v. Hanson, Murphy M Marcus McElhenney JAMS Ref. # 1100087386 - Lendormy v. Hanson, Murphy Sidney Luscutoff To: Marcus Elhenney Cc: eric.garcia@lla-law.com Mr. McElhenney: Thu, Jul 26, 2018 at 9:13 AM Be advised that your client, Kyle Hanson, telephoned our office yesterday afternoon asking to speak with Mr. Lendormy. Mr. Lendormy did not take the call. Sidney A. Luscutoff Luscutoff, Lendormy & Associates 601 Montgomery Street, Suite 1088 San Francisco, California 94111 Tel: +1 (415) 989-7500 Fax: +1 (415)989-1465 Confidentiality Notice: This email is intended only for the individual or entity to whom it is addressed and may be a confidential communication privileged by law. Any unauthorized use, dissemination, distribution, disclosure or copying is strictly prohibited. If you have received this communication in error, please notify us immediately by return email and kindly delete this message from your system. Thank you in advance for your cooperation. https://mail.google.com/mail/u/0/?ui=2&ik=f21 0ad1 e6f&jsver=K8SpjNhSmRc.en.&cbl=gmail_fe_ 180909.14_p3&view=pt&msg=164d75e0811 b7abb&q.. 1/1 025 9/14/2018 Gmail - JAMS Ref.# 1100087386 - Lendormy v. Hanson, Murphy Marcus McElhenney JAMS Ref. # 1100087386 - Lendormy v. Hanson, Murphy Marcus Mc Elhenney To: Sidney Luscutoff Cc: eric.garcia@lla-law.com Sidney, Thu, Aug 2, 2018 at 11:13 AM Yes I am aware, he told me that he wanted to speak with Mr. Lendormy about Mr. Hanson's wage and hour claims that are now being pursued against CAET. Again, Mr. Lendormy and LLA has a significant interest in those claims so Mr. Hanson wanted to make Mr. Lendormy aware and get his input. He has Respondents permission to call Mr. Hanson back at his leisure. I can also be made available should you wish to discuss the issue. Marcus [Quoted text hidden] Unless otherwise indicated, this transmission is intended only for the confidential use of the individual or entity to which it is addressed. If the reader of this message is not the intended recipient, you are hereby notified that any disclosure, distribution, dissemination, or copying of this message and/or its contents is strictly prohibited. This transmission cannot be guaranteed to be secure or error-free. All information is subject to change, with or without notice. If you have received this transmission in error, please notify us immediately and delete the message and any attachments from your computer. https://mail.google.com/mail/u/0/?ui=2&ik=f21 Dad 1 e6f&jsver=K8SpjNhSmRc.en.&cbl=gmail_fe_ 180909.14_p3&view=pt&msg= 164fbd8a876bd373&q=.. 1 /1 Exhibit “2” ADR-106 ~a~cL ~ r-rMc~h~~~Reyy (§'§~at~ia~4'&a r address) FOR COURT USE ONLY r--158 Third Avenue San Francisco CA 94118 TELEPHONE NO.: 215.888.0772 FAX NO. (Optional): E-MAIL ADDRESS (Optional).· marcus.mcelhenney@gmail.com ELECTRONICALLY ATTORNEY FOR (Name): Defendants Kyle Hanson and Mark Murphy FILED SUPERIOR COURT OF CALIFORNIA, COUNTY OF San Francisco Superior Court of California, srnEEr ADDREss 400 McAllister Street County of San Francisco MAILING ADDRESS: 09/14/2018 c1rv AND zip coDE, San Francisco CA 94102 Clerk of the Court BRANCH NAME, Civil BY:CAROL BALISTRERI PETITIONER: Jean-Yves Lendormy Deputy Clerk RESPONDENT: Kyle Hanson and Mark Murphy PETITION TO D CONFIRM D CORRECT 0 VACATE CONTRACTUAL ARBITRATION AWARD Jurisdiction (check all that apply): D Action is a limited civil case Amount demanded D does not exceed $10,000 D exceeds $10,000, but does not exceed $25,000 CASE NUMBER: 0 Action is an unlimited civil case (exceeds $25,000) CGC-16-550897 NOTICE: You may use this form to request that the court confirm, correct, or vacate an award in an arbitration conducted . pursuant to an agreement between the parties that is subject to Code of Civil Procedure section 1285 et seq. and that does not involve an attorney-client fee dispute. If you are requesting court action after an attorney-client fee arbitration award, please read Alternative Dispute Resolution form ADR-105, Information Regarding Rights After Attorney-Client Fee Arbitration. 1. Petitioner and respondent. Petitioner (name each): Jean-Yves Lendormy alleges and requests relief against respondent (name each): Kyle Hanson and Marki Murphy 2. Contractual arbitration. This petition requests the court to confirm, correct, or vacate an award in an arbitration conducted according to an agreement between the parties that is subject to Code of Civil Procedure section 1285 et seq. 3. Pending or new action. a. 0 A court case is already pending, and this is a petition filed in that action. (If so, proceed to item 4.) b. D This petition commences a new action. (If so, complete items 3b(1) through 3b(4).) (1) Petitioner's capacity. Each petitioner named in item 1 is an individual, D except petitioner (state name and complete one or more of the following): (a) D is a corporation qualified to do business in California. (b) D is an unincorporated entity (specify): (c) D is a representative (specify): (d) D is (specify other capacity): (2) Respondent's capacity. Each respondent named in item 1 is an individual, D except respondent (state name and complete one or more of the following): (a) D is a business organization, form unknown. {b) D is a corporation. (c) D is an unincorporated entity (specify): (d) D is a representative (specify): (e) D is (specify other capacity): Page 1 ol 3 Form Approved for Optional Use Judicial Council of California ADR-106 [New January 1, 2004] PETITION TO CONFIRM, CORRECT, OR VACATE CONTRACTUAL ARBITRATION AWARD (Alternative Dispute Resolution) Code of Civil Procedure, § 1285 et seq. _PETITIONER: Jean-Yves Lendormy RESPONDENT: Kyle Hanson and Mark Murphy CASE NUMBER: CGC-16-550897 3. b. (3) Amount or property in dispute. This petition involves a dispute over (check and complete all that apply): (a) D the following amount of money (specify amount): $ (b) D property (if the dispute involves property, complete both of the following): (i) consisting of (identify property in dispute): (ii) having a value of (specify value of property in dispute): $ (4) D Venue. This court is the proper court because {check (a) or (b)): (a) D this is the court in the county in which the arbitration was held. (b) D the arbitration was not held exclusively in any county of California, or was held outside of California, and (check one or more of the following): (i) D this is the court in the county where the agreement was made. (ii) D this is the court in the county where the agreement is to be performed. (iii) D the agreement does not specify a county where it is to be performed and was not made in any county in California, and the following party resides or has a place of business in this county (name of party): (iv) D the agreement does not specify a county where it is to be performed and was not made in any county in California, and no party to this action resides or has a place of business in California. 4. Agreement to arbitrate. a. Date. Petitioner and respondent entered into a written agreement on or about (date): 12/14/2012 and 12/6/2013 b. D Attachment. A copy of the agreement is submitted as Attachment 4(b) and incorporated herein by this reference. c. Arbitration provision. Paragraph _JL of the agreement provides for arbitration of disputes arising out of the agreement as follows (either copy the arbitration provision in full or summarize the provision): "Any other dispute arising out of this Agreement or in connection with teh previous legal services by Attorneys, ... shall be resolved by binding arbitration ... " 5. Dispute subject to arbitration. A dispute arose between petitioner and respondent concerning the following matter covered by the agreement to arbitrate (summarize the dispute): Plaintiff believes he is entitled to legal costs and fees when there has been no fee shifting in the underlying claims and there is a contigency fee agreement between the parties that was not met. Additionally the underlying claims have yet to be fully resolved. 6. Arbitrator. The following person was duly selected or appointed as arbitrator (name of each arbitrator): Judge Patrick J. Mahoney of JAMS 7. Arbitration hearing. The arbitration hearing was conducted as follows (complete both of the following): a. Date (each date of arbitration):January 22-23, 2018 b. Location (city and state where arbitration was conducted): San Francisco 8. Arbitration award. a. Date of award. The arbitration award was made on (date): August 15, 2018 b. Terms of award. The arbitration award (check one or more of the following): (1) D requires D petitioner 0 respondent to pay the other party this amount: $ 221,359.01 (2) D requires neither party to pay the other anything. (3) D is different as to different petitioners and respondents. (4) D provides (specify other terms or check item B(c) and attach a copy of the award): c. 0 Attachment of Award. A copy of the award is submitted as Attachment B(c). 9. Service of award. a. The signed award or an accompanying document indicates that the award was served on petitioner on (date): b. D Petitioner alleges that a signed copy of the award was actually served on (date): ADR· 106 [New January 1, 2004] PETITION TO CONFIRM, CORRECT, OR VACATE CONTRACTUAL ARBITRATION AWARD (Alternative Dispute Resolution) Page 2 ol 3 _PETITIONER: Jean-Yves Lendormy RESPONDENT: Kyle Hanson and Mark Murphy CASE NUMBER: 10. Petitioner requests that the court (check all that apply): a.D Confirm the award, and enter Judgment according to It. b.D Correct the award and enter judgment according to the corrected award, as follows: (1) The award should be corrected because (check all that apply): CGC-16-550897 (a) D the amount of the award was not calculated correctly, or a person, thing, or property was not described correctly. (b) D the arbitrator exceeded his or her authority. (c) D the award is imperfect as a matter of form. (2) The facts supporting the grounds for correcting the award alleged in item 1 Ob(1) are as follows (if additional space is required, check here D and submit facts on an attachment labeled 10b(2)): (3) The award should be corrected as follows (if additional space is required, check here D and describe requested correction on an attachment labeled 10b(3)): c. 0 Vacate (cancel) the award. (1) The award should be vacated because (check all that apply): (a) [i'.'.J the award was obtained by corruption, fraud, or other unfair means. (b) D an arbitrator was corrupt. (c) [i'.'.J the misconduct of a neutral arbitrator substantially prejudiced petitioner's rights. (d) [i'.'.J the arbitrator exceeded his or her authority, and the award cannot be fairly corrected. (e) D the arbitrator unfairly refused to postpone the hearing or to hear evidence useful to settle the dispute. (f) D an arbitrator failed to disclose within the time for disclosure a ground for disqualification of which the arbitrator was then aware. (g) [i'.'.J an arbitrator should have disqualified himself or herself after petitioner made a demand to do so. (2) The facts supporting ~rounds for vacating the award alleged in item 1 Oc(1) are as follows (if additional space is required, check here LJ and submit facts on an attachment labeled 10c(2)): Judge regularly exceded his authority and disregarded california authority. (3) Petitioner D does 0 does not d.0 Award petitioner interest from (date): (1) D at the statutory rate. (2) D at rate of __ % per year. e.0 Award petitioner costs of suit: (1) D in the amount of: $ (2) 0 according to proof. request a new arbitration hearing. f. D Award petitioner attorney fees incurred in this action (check only if attorney fees are recoverable in this action according to statute or the parties' agreement): (1) D in the amount of: $ (2) D according to proof. g.0 Award petitioner the following other relief (describe relief requested; if additional space is required, check here D and describe relief on an attachment labeled 10g): Fees. 11. Pages and attachments. Number of pages attached: 20 Date: September 17, 2018 Marcus N. McElhenney ► (TYPE OR PRINT NAME) ADR-106 [New January 1, 2004] PETITION TO CONFIRM, CORRECT, OR VACATE CONTRACTUAL ARBITRATION AWARD (Alternative Dispute Resolution) Page 3 of 3 JAMS Arbitration Case No. 1100087386 JEAN-YVES LENDORMY Claimant, and KYLE HANSON and MARK MURPHY Respondents. FINAL AWARD On January 22 and 23, 2018, evidence is taken in this matter. Claimant, Jean-Yves Lendormy, is represented by Sidney Luscutoff and Respondents, Kyle Hanson and Mark Murphy, are represented by Marcus N. McElhenney. The following witnesses testify: Mr. Lendormy, Conor Mack, Ann Liroff, Mr. Hanson and Mr. Murphy. An Amended Interim Award is issued on March 28, 2018, and Claimant is directed to provide additional information to facilitate the calculation of the award of damages. Having received the parties' submissions, the Final Award issues. PROCEEDINGS TO DATE The Arbitration begins by the Demand for Arbitration filed by Mr. Lendormy. Prior to the Demand, a state court action is filed in the San Francisco Superior Court on March 10, 2016, by Mr. Lendormy against Mr. Hanson and Mr. Murphy. An amended complaint is filed on August 9, 2016, that includes a Demand for Arbitration. On September 28, 2016, Mr. Hanson and Mr. Murphy file an Answer and Cross-Complaint for legal malpractice. A trial date is set in the case. Then on November 17, Mr. Hanson and Mr. Murphy file a Petition to Compel Arbitration, which Mr. Lendormy opposes. On December 9, 2016, the Superior Court rules that the motion to compel arbitration is denied as to the first cause of action for breach of contract and granted as to the second and third causes of action for common counts and fraud as well as the cross-claims of Mr. Hanson and Mr. Murphy. The Court stays the first cause of action until the conclusion of the Arbitration. After the Demand for Arbitration is filed, a series of motions are filed, heard and addressed including a dispute over the interpretation of the Order of the Superior Court related to the payment of the Arbitration fees; a motion to strike the Demand; a demurrer to the Demand; a motion to disqualify Claimant's counsel; discovery disputes; cross motions for summary judgment and a motion to disqualify the Arbitrator, the latter being denied after consideration by JAMS without the involvement of the undersigned Arbitrator. The Arbitrator's rulings reject Respondents' interpretation of the Superior Court's order, the demurrer, the motion to strike and the motion to disqualify; the discovery issues result in rulings for and against the respective parties; and Claimant's motion for summaryjudgment based on the statute oflimitations is granted based on the decision in Lee v. Hanley (2015) 61 Cal. 4th 536 and Respondents' motion is denied based on disputed facts. What remain to be resolved at the Hearing are Petitioner's common count and fraud claims and Respondents' affirmative defenses, principally the claims of malpractice. THE PARTIES' CONTENTIONS Despite all of the litigation that precedes the evidentiary hearing, the central issues in this case are quite clear. Mr. Lendormy contends that he is entitled to fees incurred in prosecuting a case for Mr. Hanson, as plaintiff, and a separate case as cross complainant for Mr. Murphy. In support of the claim, Mr. Lendormy relies on the language of the fee agreement he enters into with each Respondent. In opposition, Respondents also rely on the fee agreements and in the alternative, assert Mr. Lendormy's claim is subject to the affirmative malpractice defense alleging a conflict of interest. THE TERMS OF THE FEE AGREEMENTS It is undisputed that the parties enter into written Legal Services Agreements ("Agreement") with identical terms. The parties reference the following terms and, in tum, rely on some but not all of the language in support of their respective competing positions. What follows is language from the Agreement in the order in which it appears. 2 • Attorneys intend to pursue Client's claims as well as those of some other current and former CAET 1 employees, who are or may also become clients of Attorneys pursuant to separate agreements. These claims and actions will be separate although a court may subsequently order to consolidate or coordinate them. • Attorneys will at all times endeavor to serve the Client's interests. Attorneys' services are subject to rules of professional conduct. • Client agrees to cooperate with Attorneys and understands that such cooperation is critical to the success of the Matter. Client agrees to be truthful ... promptly responding to Attorneys' requests for documents and information .... • Client further agrees not to dismiss or abandon the action, or settle the action, without Attorneys' prior written consent, or to take other acts that would defeat or frustrate Attorneys' right and expectation to receive compensation for services they will provide to client. • Attorneys' agree to present claims and pursue litigation on a contingent fee basis. This means that Attorneys will not expect or seek any compensation for their Services from Client if CAET is not ordered to pay or does not agree to pay any Monetary Recovery ... • For purposes of this Agreement also, "Contingent Recovery" means the recovery of money and the monetary value of all benefits received by or on behalf of Client in the Matter, by way of settlement, arbitration award, judgment or otherwise. • Client will not be obligated to reimburse Attorneys for any of the costs and expenses they have advanced in the prosecution of this Matter unless there is a Monetary Recovery. • Client understands that several current and former CAET employees have retained Attorneys to prosecute similar claims and others may do likewise in the future. At the present time, these include Kyle Hanson, Lev Ingman and Mira Zaslove. 1 Capital Asset Exchange & Trading, LLC ("CAET") is the defendant in a series of wage and hour cases filed by Attorneys including the actions filed on behalf of Mr. Hanson and Mr. Murphy. 3 • Prior to Client's retaining Attorneys in this matter, Attorneys performed an analysis to determine if their representation of Client would create a conflict of interest with their representation of any of their other clients. • The information provided by Client indicates there are no disputes among them. Client understands that if a dispute arises among the clients, Attorneys will not be able to represent or side with any client against another, in litigation or otherwise, and may have to discontinue representation of one or both clients in the event of such dispute. Client also understands that if a difference of opinion arises between Client and Attorneys on a significant issue, Attorneys shall have the right to withdraw as Client counsel of record. • Attorney's further reserve the right to withdraw from the representation if Client does not fulfill the terms and conditions of the Agreement by cooperating with counsel and fulfilling their other duties. 2 • If Attorneys believe an actual conflict exist between any of their clients, Attorneys will bring this to the clients' attention so that they can decide whether each client wishes to obtain independent counsel. Client agrees to do likewise. Client agrees that, if Client believes there are conflicts in interest between his or her interests and those of others, Client will bring any such conflicts to Attorneys attention. Attorneys similarly will bring, to the best of their ability, any perceived or actual conflicts of interest to the attention of Client, so that Client may make informed decisions at all times. • Client may discharge Attorneys as their own counsel at any time. If Client discharges Attorneys, then Client shall still be liable to pay the compensation provided in this Agreement to the full extent consistent with the law, and in no event less than the total amount then-earned by Attorneys at their regular hourly rate, as well as all costs and expenses incurred by Attorneys. • Attorneys reserve the right to cease performing legal services and to terminate their representation of Client for any reason consistent with applicable ethics rules, including without limitation, conflicts of interest, misrepresentation or failure to disclose material 2 The Agreement is silent with respect to compensation, if any, for the Attorney's services as of the date of withdrawal. 4 facts, because Attorneys determine, in their sole discretion, that the case is no longer viable or worth prosecuting. • Attorneys' services are subject to the rules and regulations of the State Bar of California and the Bar Association of San Francisco .... Mr. Hanson's agreement is executed on December 14, 2012 and Mr. Murphy's is executed on December 6, 2013. THE FILING OF CLAIMS ON BEHALF OF RESPONDENTS Prior CAET Litigation: Prior to the filing of the Hanson complaint, Mr. Lendormy files claims against CAET on behalf of fourteen plaintiffs and recovers several million dollars for alleged wage and hour violations and tort claims. In 2012, other individuals approach Mr. Lendormy to file claims on their behalf, including Lev Ingman and Mira Zaslove. The Hanson Complaint: Mr. Hanson retains the firm of Luscutoff, Lendormy & Associates on December 14, 2012 to prosecute a claim against his employer, CAET. On February 25, 2013, Mr. Lendormy sends a letter to CAET detailing Mr. Hanson's claims for wage and hour violations, sexual harassment and threatened assault. The letter offers to settle the claims for $800,000 plus unpaid wages, penalties and interest of $44,086.5?3. It gives CAET 72 hours to accept the offer and advises that a complaint is drafted in the event the offer is not accepted. On October 29, 2013, Mr. Hanson's complaint is filed in San Mateo County alleging wage and hour claims and sexual harassment and related employment claims. Among the allegations is the assertion that given the alleged "intolerable conditions", Mr. Hanson is constructively discharged. CAET Complaint: Mr. Hanson leaves CAET on March 15, 2013, Mr. Murphy on March 18, 2013 and before then, Mr. Ingman departs. Thereafter, Mr. Hanson forms Oolong LLC to engage in the business of facilitating trades of capital asset equipment. Mr. Murphy and Mr. Ingman join Oolong. 3 Mr. Hanson testifies that he believes the wage and hour claim is valid but the sexual harassment claim is not. He believes the value of the "legitimate claims" is in the range of $50,000 to $100,000 and was very skeptical of the $800,000 demand. 5 Mr. Lendormy testifies that he counsels Mr. Hanson not to take CAET proprietary information and Mr. Hanson represents that he will not and has not done so. On or about April 3, 2014, CAET files an amended complaint in the Santa Clara Superior Court against Mr. Hanson, Mr. Murphy, Mr. Ingman and Oolong alleging trade secret violations based on their employment agreements with CAET. The complaint's expansive allegations include taking present and prospective customer and seller lists, prices to buy and sell equipment, and proprietary records. The defendants in the Santa Clara action retain the firm of Swanson & McNamara to defend the case and deny the allegations. CAET and Oolong are competitors in the business of buying and selling secondary capital equipment in a worldwide market with the focus on technology products. Mr. Hanson testifies that the businesses differ in that CAET acts as a broker and Oolong invests in technology and provides expertise to assist clients in the purchase of equipment. Mr. Hanson testifies that he uses independent research to put together a data base and that all of the information he possesses is from publicly available sources. For that reason, Mr. Hanson verifies CAET Requests for Admissions that he has names of CAET customers in his possession, the names of prospective customers, and information relating to those who bought equipment from or through CAET. Mr. Hanson admits he retains a couple of emails and other records that support his wage and hour and harassment claims against CAET and asserts this is based on Mr. Lendormy's advise. The Murphy Cross Complaint: In response to the CAET trade secret complaint, Mr. Lendormy is asked to and files a cross complaint in the Santa Clara action alleging wage and hour and employment claims on behalf of Mr. Murphy. The cross complaint is based on information provided by Mr. Murphy. (See Exhibits 40-51) Mr. Lendormy and the Swanson & McNamara attorneys strategize on whether to file this complaint in San Mateo where the other wage and hour employment cases are filed or in Santa Clara County. The decision is made to file the claim as a cross complaint in Santa Clara County, in the words of Mr. Lendormy, as counterweight to the trade secret case. 6 THE SETTLEMENT NEGOTIATIONS The record reflects a proposal by CAET in the spring of 2014 to mediate the cases that is rejected by the Lendormy firm because no response has been made to previously sent demand letters and the lack of ESI discovery. The Respondents contend they are unaware of the overtures. The June Negotiations: In June of 2014, settlement discussions resume in CAET's Santa Clara County case and the best record of what transpires is set forth in various email strings in Exhibits 51 through 73. The salient points are as follows: • On June 4, 2014 Mira Zaslove states to Mr. Lendormy that Mr. Hanson is desperate to settle but she is "not prepared to take a low offer for the sake of litigation fatigue". On June 5, Ms. Zaslove describes Mr. Hanson as believing "his company is more important to him than lawsuits". • On June I 1, counsel from the Swanson firm outlines the CAET settlement proposal to Mr. Hanson, Mr. Murphy and Mr. Ingman: • The individuals are to drop their cases against CAET; sign releases; sign declarations in Ms. Zaslove case that certain allegations are not true; affirm neither the individuals nor the company are using CAET trade secrets. • Mr. Lendormy receives the proposal from Mr. Ingman. Mr. Lendormy sends it along to Ms. Zaslove stating: "The plot thickens. Keep this to yourself. Obviously you are viewed as the main threat. I like it." • On June 12, Mr. Lendormy emails the Swanson attorneys and asks for details on the settlement. He receives the terms previously sent to Mr. Ingman, who in tum has already sent the terms to Mr. Lendormy. 7 • On June 16, Mr. Ingman asks Mr. Lendormy's opinion on a counteroffer demand of" 1 M USD" with $150k to Oolong for litigation expenses and $850k to Mr. lngman with Mr. Lendormy receiving 33%. Mr. Lendormy responds: "This will never fly." He confirms that Mr. Hanson has confirmed that CAET will not pay any money. • On June 22, Mr. Lendormy emails Mr. Hanson expressing concern about the request for declarations by pointing out that Mr. Hanson's verified complaint and discovery responses and any declaration to the contrary "invites subornation of perjury". Mr. Lendormy then proposes to have the Swanson lawyers negotiate with CAET and "we don't and won't get involved". • On June 23, there are a stream of emails among the parties and counsel seeking a consensus on a counteroffer to CAET. The counter proposal offers the dismissal of the claims of Mr. Hanson, Mr. Murphy and Mr. Ingman; releases ofCAET; declarations by Murphy, Hanson and Ingman; testimony consistent with the declarations; confirmation of the lack of possession and use of CAET trade secrets; dismissal of the trade secret case; and an injunction prohibiting the use of CAET trade secrets. • Mr. Ingman agrees to the counteroffer if Mr. Lendormy "is ok with it". • Mr. Murphy agrees. • At 5:12 p.m. Mr. Hanson advises the Swanson lawyers that parties want the counteroffer to include a demand for $950,000 with Mr. Ingman to receive 100% of the proceeds and Respondents nothing after payment of" all legal expenses paid and left to be paid for both Swanson &McNamara and Lendormy & Associates". Mr. Hanson notes that Oolong has incurred over $ 150,000 in attorney fees and is concerned that further expenditures will impact the business. His willingness to give Mr. Ingman the balance of what is received is premised on all of the past and outstanding legal fees first being covered. 8 • Mr. Hanson expresses his frustration at not being able to get Mr. Lendormy's input by the 5:00 p.m. deadline for a response to the CAET offer. • Swanson attorney August Gugelmann emails: "Don't sweat the 5pm thing". • At 6:01 p.m. Mr. Lendormy responds that he is talking with the Swanson lawyers and that he is not concerned about the deadline. • At 8:51 p.m. after Mr. Lendormy's input, the counteroffer sent by the Swanson lawyers now demands a $950,000 payment from CAET and the proposed declarations are not part of the counteroffer. • On June 24, CAET responds and emphasizes that CAET will pay no money to settle the cases with these parties and declarations by the parties must be part of the agreement. • On July 3, the Swanson counsel send a proposed email to Mr. Lendormy that proposes to advise CAET that "two clients [Hanson and Murphy] and Oolong are prepared to agree to a no-money settlement in exchange for a dismissal with prejudice of all claims". Mr. Lendormy responds: "This settlement, were it to happen, will be made without our advice or consent". Mr. Lendormy notes this is "very complicated and quite delicate"; asserts that Mr. Hanson has exposed himself to significant risks from CAET and that [n]one of these risks were disclosed to us at the outset of our representation or as we pursued litigation in San Mateo"; and references the "San Mateo actions" and "their obligations to our firm". • On July 7, Swanson counsel report that CAET is insisting that any settlement include everyone. The time records of the Lendormy firm confirm its knowledge of and involvement in the negotiations with CAET. At a minimum, Mr. Lendormy and Mr. Mack collectively bill over 16 hours oftime on the effort to settle the Santa Clara case in the above time frame." Mr. Lendormy is aware of the "back channel settlement discussions" on or about June 4, 2014. By June I 1, Mr. 9 Lendormy receives and reviews the proposed settlement; on June 16, there are meetings with the Swanson attorneys and a lengthy call between Mr. Lendormy and Mr. Hanson "re: current issues affecting client's claims in CAET lawsuit including Oolong claims against client in Oolong". On the 1 ?1h of June, two plus hours are recorded receiving and reviewing emails from the Swanson firm, Mr. Ingman and Mr. Murphy, and a lengthy telephone call with Mr. Murphy "re: all aspects of settlement of claims in Oolong and San Mateo cases". There are calls on June 19, with the Swanson attorneys and Mr. Murphy regarding a response to the CAET "walk away" proposal. CAET's refusal to pay money is addressed on June 25 and Mr. Lendormy is advised of Oolong's continuing obligation to indemnify employees ( even those who leave as did Mr. Ingman). On August 15, Mr. Mack is researching "enforceability of CCP 998 offers requiring a release of all claims and offers made on behalf of multiple clients". Fenwick & West Engagement: On September 5, 2014, Mr. Murphy emails Mr. Lendormy to advise that Oolong and some but not all of its employees retain Laurence Pulgram from the Fenwick & West firm "to try and come to an overall resolution with CAE[T]" and direct Mr. Lendormy's firm to "pause all work on our behalf. Conor Mack, an attorney in Mr. Lendormy's firm, replies that a Case Management Statement must be filed and failure to do so may result in monetary sanctions, the need to discuss discovery issues and advises that the clients are obligated to keep the Lendormy firm appris~d of developments. Mr. Murphy requests that the filing be stayed and if not to send him a draft. He also advises that Mr. Pulgram is available to answer questions and that Mr. Ingman is not part of the continuing settlement discussions. Mr. Lendormy then sends a very lengthy email to Mr. Hanson regarding these developments. He begins by asking if the proposed settlement includes dismissal of the San Mateo case, states his firm is not providing advice to Mr. Hanson or Oolong regarding the settlement of the Santa Clara action, asserts that Mr. Hanson has not kept him informed of important factual developments and his firm's request for information. Mr. Lendormy references Mr. Hanson's failure to provide documents and other responses to discovery requests in the San Mateo case. Mr. Lendormy writes: "The ongoing delay is particularly frustrating in 10 light of the history of your lack of cooperation and communications in initially responding to discovery." Further along, he writes: Our agreement requires you to cooperate with us and provide information upon request....We have demonstrably upheld our end of the bargain in our representation of you. The time for you to do so has long since passed. Based on everything I know about your personal risk in the Santa Clara lawsuit and that of Oolong, it is clear that your ability to leverage our work and expense of the prosecution of your claims in the San Mateo case are of significant benefit to you and Oolong in the Santa Clara case. Obviously, we want to be paid for the valuable services we have been rendering you and the expenses we have incurred on your behalf for more than a year and a half. By this email, I ask that you confirm that you intend pay our fees and expenses in the San Mateo case in the event you decide to dismiss your claims against CAET and the individual defendants. This results in a September 10, 2014 reply by Mr. Hanson. He states that Mr. Lendormy "has always been notified of any material facts on our case, in addition to any information that we believe is necessary to LLA representation". Mr. Hanson disputes Mr. Lendormy's description of the San Mateo discovery noting: "l do not agree with your accusatory posturing, but I have a company to run and don't have time to rehash with anything productive." Mr. Hanson acknowledges that Mr. Lendormy's advice to obtain written offers from CAET in the prior round of negotiations was "a very good point". Mr. Hanson goes on to note that Mr. Lendormy has described the litigation as "very complicated and there are a lot of moving parts, with a lot of people involved, and different interests among different people". He then states: Because of the strong conflicts of interest and multiple previous compromising events of leaked and/or unauthorized sharing of sensitive and confidential information through your firm, certain parties have retained separate counsel to represent us in all matters involving settlement discussions and (hopefully) opportunities with CAET. If we are able to settle, we will let you know promptly. We expect to continue full compliance with all prior and ongoing obligations. 11 The communications that your firm had with Swanson & McNamara several weeks ago took place without our prior or subsequent knowledge. Nor was it done with any instruction or communication by myself or Oolong executive and partner whom you represent on the cross-complaints. On October 6, Mr. Hanson advices that the parties still are in settlement discussions in response to a request from Mr. Lendormy for an update. The Dismissal of the Actions: On December 16, Mr. Lendormy receives a letter from Mr. Pulgram requesting that he voluntarily "end your engagement as counsel for Kyle and Mark. "4 The request is premised on the belief that conflicts issues exist and those were "exacerbate[d] ... by urging Ingman not to settle". Mr. Lendormy is advised that Mark and Kyle are being asked to and are expected to "cooperate as percipient witnesses to truthful information (limited to non-privileged facts) that will assist CAET in its dispute with Ingman and other clients of yours." The letter goes on to state: "Mark and Kyle intend to abide fully by the terms of their agreements with you (including resolution of any issues regarding any fees that may be payable to your firm under the circumstances). Mr. Lendormy responds on December 17, stating that the accusations are "without foundation". Regarding the CAET negotiations, Mr. Lendormy writes: "We have neither received any settlement offers from CAET's counsel nor responded to any such offers as our clients were represented by their own defense counsel". Mr. Lendormy concludes: "It is [Kyle's and Mark'] privilege to end their relationship with our firm for any reason or no reason at all, and they may do so at any time of their choosing. If such is the case, feel free to forward to us Substitution of Attorney forms signed by each of them." On December 19, Mr. Pulgram emails asking that the dismissals of the San Mateo and Santa Clara cases on behalf of Respondents be returned given that Mr. Lendormy declines to file the dismissals as requested by the clients. Given that, Substitution of Attorney forms are sent designating Mr. Hanson and Mr. Murphy as counsel in their respective actions. Thereafter, the 4 Mr. Pulgram references section 8 of the parties' Agreement that addresses the representation of multiple clients and how conflicts are to be handled. 12 San Mateo complaint on behalf of Mr. Hanson is dismissed and the Santa Clara cross complaint on behalf of Mr. Murphy is dismissed. A Settlement Agreement and Mutual General Release is executed on December 18, between CAET and Oolong, Mr. Hanson and Mr. Murphy among others. It provides in relevant part: • Mutual releases and waiver of known and unknown claims. • Declarations by Hanson and Murphy and others "concerning, among other things, their employment and working environment at CAET". • Dismissal of the CAET complaint and the Murphy cross complaint in Santa Clara and the Hanson complaint in San Mateo. • A representation and warranty that Oolong litigants are not using and will not use unique confidential documents or reports created by CAET not publicly available. • Ingman is being dismissed and is no longer an Oolong employee. There is no admission of wrongdoing. The Fees and Costs Claimed: Claimant seeks $99,405.64 from Mr. Hanson and $68,018.92 from Mr. Murphy. The amounts are based on time records of Mr. Lendormy's firm, Exhibits 10 and 83 or K. On June 30, 2014 during the course of the CAET settlement negotiations, Mr. Murphy requests a "summary" of the hours the firm. In response on July 7, Mr. Lendormy advises that "an issue has arisen about the allocation of time spent and expenses incurred for activities that incur to benefit to the benefit of all of you in each of your respective lawsuits, for example ESI discovery. (That's for the five plaintiffs vs. CAET plus the cross-complaint of Mark Murphy in the Oolong case.)" Mr. Lendormy proposes allocating such costs based on duration of employment at CAET. Mr. Murphy proposes an allocation based on the time involved in the litigation and that is the formula used in seeking compensation from Respondents. On July 10, Mr. Murphy receives a draft summary of fees and costs to date. In response, Mr. Murphy writes: "Thanks for the estimate, although I still don't necessarily agree with calculation method. We don't plan to pay this because we won't be able to settle the case." 13 Mr. Lendormy's letter of January 14, 2015 describes how Mr. Hanson's fees are calculated - (1) "fees, costs and expenses uniquely attributable to your representation" in the amount of $71,963.61 and (2) "the fractional share of those items that are (or were) beneficial to all of our clients in their various concurrent litigations against CAE [T], such as legal research ... and ESI (electronically stored information) discovery in the amount of $26,395.76.5 At the time of the evidentiary hearing, Claimant does not quantify the allocation from the ESI and general accounts to Mr. Murphy. LEGAL ANALYSIS Claimant relies on Section 9 of the Agreement obligating Respondents to pay an hourly fee based on the discharge of the Lendormy firm and the dismissal of the San Mateo complaint and the Santa Clara cross complaint. Mr. Lendormy contends that the complaint and cross complaint are a counterweight to the CAET trade secret claims. He points to the demand on behalf of Mr. Hanson of $844,000 and Mr. Hanson's testimony that his wage and hour claims were worth in the range of to $100,000 and settlements achieved for other plaintiffs in the San Mateo cases - $1.1 million for Mira Zaslove (a long time CAET employee), $700,000 for Mr. Ingman, and Mr. Crystal $100,000 and Ms. Ryu $200,000 as shorter term employees. Mr. Lcndormy contends the evidence supports a common count finding based on (I ) the statement of indebtedness in a certain sum, (2) consideration, work done and (3) nonpayment. 6 Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 460. The classic formulation concerning the measure ofrecovery in quantum meruit is found in Palmer v. Gregg (1967) 65 Cal.2d 657. "The measure ofrecovery in quantum meruit is the reasonable value of the services rendered provided they were of direct benefit to the lefendant." (Id. at 660), sec also Producers Cotton Oil Co. v. Amstar Corp. (1988) 197 Cal.App.3d 638,659. Mr. Lendormy also contends that Mr. Hanson ignores Claimant's admonitions not to take proprietary information when leaving CAET and engages in unlawful activities in forming and 5 Based on the records submitted, it appears that the total ESI discovery for all parties is $110,423.40 and $42,544.04 is billed to the general account. (Exhibit 10.) 6 Mr. Lendormy also asserts a breach of contract claim. The Superior Court severed that claim when ordering the case to arbitration. 14 running Oolong as evidenced by his discovery admissions in the Santa Clara case. Mr. Lendormy insists that his firm would not have rendered legal services to Mr. Hanson but for his representations. Moreover had Mr. Hanson not engaged in such conduct he would not have abandoned his valuable wage and hour/harassment claim thereby depriving Claimant a contingent fee in excess of the time recorded. Respondents counter by reliance on the fact that the Agreement is a contingent fee agreement and because no affirmative recovery results from the litigation, Respondents owe Claimant nothing. Under paragraph 4, subsection B, "Attorney Fees and Cost Award" is defined by reference to violations of specific Government Code and Labor Code sections. Section 6 states: "Client will not be obligated to reimburse Attorneys for any costs and expenses they have advanced ... unless there is a monetary recovery ... Contingent Recovery means the recovery of money and the monetary value of all benefits received by or on behalf of Client in the Matter, whether by way of settlement, arbitration award, judgment or otherwise." In addition, Respondents contend Claimant cannot recover legal fees because of statutory and ethical violations. Respondents refer to charging costs and expenses not disclosed in the fee Agreement, referring to the ESI charges. Respondents also assert that an attorney cannot recover if the services are in contradiction to the requirements of professional responsibility. Goldstein v. Lees (1975) 46 Cal.App.3d 614. Respondents cite Jeffry v. Pounds (1977) 67 Cal.App.3d 6 as holding that fees and costs are not recoverable where a conflict of interest is shown. Respondents contend the record is replete with conflict of interest evidence. 7 As a consequence, Respondents argue that Mr. Lendormy was required to withdraw from representing Mr. Hanson and Mr. Murphy absent their informed consent. The failure to acknowledge the conflict and obtain the consent event means there is no basis for recovery under the parties' Agreement. Respondents also argue that Mr. Lendormy interferes with the June settlement negotiations with the result that the costs of the Oolong litigation continue to be incurred for the company and its employees until the December settlement. In response, Claimant notes that the fees and costs are paid by Oolong, not Mr. Hanson or Mr. Murphy. 7 Respondents are asked to produce the declarations called for in the CAET settlement and apparently do not do so. 15 The record supports the conclusion that in June of 2014, Mr. Lendormy is confronted with conflicting objectives among his CAET client group. Both Mr. lngman and Ms. Zaslove seek a monetary recovery from CAET and Mr. Hanson and Mr. Murphy desire to settle the Santa Clara action by obtaining releases from CAET in exchange for dismissing their respective wage and hour/employment claims and executing declarations relating to their employment experience and/or observations of what transpires at CAET. The conflict consists of both the competing financial objectives of Mr. Lendormy's clients but also the prospect of conflicting testimony. When this occurs, Mr. Lendormy has an affirmative obligation to review this problem with Mr. Hanson and Mr. Murphy and obtain their written consent. Rule of Professional Conduct 3-31 O; Woods v. Superior Court (1983) 149 Cal.App.3d 931. This did not happen. Absent the affirmative consent of Mr. Hanson and Mr. Murphy, Mr. Lendormy is obligated to withdraw as their counsel. At the same time, the record supports the finding that the work of Mr. Lendormy in preparing and litigating the claims against CAET of Mr. Hanson and Mr. Murphy is of material value. This is evidenced by the substantial settlements achieved by Mr. Lendormy on behalf of other CAET former employees; the costs being incurred by Oolong to defend against the CAET claims given the uncertainty of the outcome; Mr. Hanson's estimate of the value of his wage and hour claim; and the insistence by CAET that the consideration for dismissal be both of the claims of Mr. Murphy and Mr. Hanson along with the declarations. Respondents' contention that there can be no recovery because the parties' Agreement is a contingent fee arrangement ignores the reality of the obvious value of the wage and hour/employment claims as well as the very language of the parties' Agreement. Specifically, "Contingent Recovery means ... the monetary value of all benefits received by or on behalf of Client". (Emphasis added.) The dismissal of the Santa Clara action and the accompany release of the trade secret claims freed Oolong, Mr. Hanson and Mr. Murphy from the risk of the demise of their business venture as well as put an end to defense costs. The parties' Agreement does not address the compensation to be received, if any, where counsel must withdraw as a consequence of a conflict. However, this claim is not based on the written agreement; it is a quantum meruit claim. The conservative calculation of the value of the 16 services provided is the time recorded. The testimony supports the care taken by the record keepers and the ESI allocation is a reasonable way to address costs beneficial to all of the CAET complaints and is agreed to by Mr. Hanson and Mr. Murphy. Accordingly, Mr. Lendormy is entitled to recover from Mr. Hanson and Mr. Murphy the dollar value of the time recorded 8 from the date ofretention to June 4, 2014. This is consistent with the decision in Jeffry v Pounds, supra, cited by Respondents. 9 · Consideration is given to the contention that the conduct of Mr. Lendormy causes Respondents and Oolong to incur unnecessary expenses as reflected in the legal services bills of the Fenwick & West firm. However, Respondents' evidence does not establish by a preponderance of the evidence that a settlement would have been consummated if Mr. Lendormy ceased his representation on June 4, 2014. Respondents do agree to the $850,000 counteroffer to CAET and the final settlement does not include Mr. Ingman. The record is undisputed that CAET would pay no money and it is speculative to assume what CAET would have done if Mr. Ingman ceases to be a part of the June negotiations. For the reasons stated, Claimant, Mr. Lendormy, is entitled to recover from Mr. Hanson and Mr. Murphy the time recorded from the date of the retention until June 4, 2014 and the Respondents' share of ESI costs. Mr. Lendormy seeks $143,566.05 from Mr. Hanson and $89,623.35 from Mr. Murphy. Respondents contest Claimant's calculation of the amount due. Specifically, they allege "inaccurate information and improper billing entries" and the allocation of the ESI and the general billing account. Respondents contend that Mr. Hanson should only be obligated to pay $28,185.06 and Mr. Murphy $10,835.12. The issue of inaccurate information and improper billing is addressed at the evidentiary hearing. Each party is given the opportunity to call witnesses and review the billing statements and does so. This is addressed in both the Interim Award and the Amended Interim Award. The previous challenge is confirmed in Respondents' letter of June 20, 2018 in this matter. Respondents latest belated critique is without merit given the fact Respondents are given the opportunity to this issue with the witnesses who recorded the time. Once again after weighing 8 The hourly rates recorded are not challenged. · 9 The fraud claim of Mr. Lendormy lacks merit for several reasons that need not be addressed. 17 the evidence, the finding is that the billing records of the Claimant accurately reflect the services performed and the rates are reasonable. Mr. Hanson and Mr. Murphy note the total amount Mr. Lendormy seeks exceeds the amount sought in the Complaint for damages. That is true and the reason is the accruing interest on the debt. As Claimant notes, an award of pre-judgment interest is supported by case · law. George v. Double-D Foods, Inc. (1984) 155 Cal.App.3d 36, 46-47; see also California Judges Benchbook, Ci vii Procedure, Trial section 16.13 7 (2018). As described above, there is an issue as to how to address attorneys' fees and costs that benefit the collective group of clients represented by Mr. Lendormy. After considering the evidence, the finding is made the allocation is to be based on the time involved in the litigation. In Claimant's supplemental filing, there is a summary and breakdown chart of General Matters and ESI Discovery invoices and a calculation that attributes $22,221.96 to Mr. Hanson and $22,218.39 to Mr. Murphy. On behalfofMr. Murphy, Respondents note he does not participate in the common litigation effort until the end and believe that only the costs incurred after he joins the effort should be considered in the allocation formula. This contention is consistent with the evidence presented. Claimant also seeks an additional award of $5,880.32 plus interest to cover fees advanced by Mr. Lendormy to enable the Hearing to go forward and the issuance of the Final Award. The record is undisputed that Respondents decline to pay the fees claiming financial inability to do so and that Mr. Lendormy advances the fees. Had Mr. Lendormy not done so the Arbitration could not have been concluded. JAMS Rule 3 l(c) expressly authorizes such an award. Accordingly, each Respondent is jointly and severally liable to Mr. Lendormy for the sum of $5,880.32. In addition, the record supports the finding that it is reasonable to award interest from the dates of the respective advances: the payment of $4,040.32 on December 29, 2017 and $1,840.00 on August 8, 2018 at the legal rate of interest. REQUEST TO STAY On the eve of issuing the Final Award, Respondents' counsel sends a letter to the undersigned requesting a Stay on the ground that the CAET settlement with Respondents is no longer in effect. Petitioner objects to any further costs being incurred and posits that 18 Respondents merely seek to delay the issuance of the Award. Over Petitioner's objection, Respondents are directed to file a formal request for a stay if that is what is being sought. One is submitted on August 15, 2018. It provides no supporting Declaration for the factual contentions in support of the Request and asserts that the CAET settlement agreement "has been withdrawn by the parties (Respondents and CAET)" as a result of negotiations in 2018. In the course of the Arbitration, no mention is made of this. Moreover, it does not change the above analysis since Respondents voluntarily gave up the benefits of Mr. Lendormy's work. The Request for the Stay is denied. No fees will be charged for this review so as not to delay the issuance of the Final Award. AWARD For the reasons stated, Claimant is entitled to recover from Mr. Hanson the sum of $143,566.05. This consists of the direct billing for Mr. Hanson's San Mateo case of $121,344.09 that represents the fees, costs and interest due on that amount from June 4, 2014 through May 21, 2018 and the allocation of common fees and costs of$22,221.96. Claimant is entitled to recover from Mr. Murphy the sum of $77,792.96. This consists of the direct billing to Mr. Murphy of $67,404.96 related to the Santa Clara cross complaint for fees, costs and interest from June 4, 2014 through May 21, 2018 and the allocation of common fees and costs of $10,388. Mr. Hanson and Mr. Murphy are jointly and severally liable to Mr. Lendormy for the sum of $5,880.32 plus the accruing interest on that sum in accordance with the parties' fee agreement. August! 5, 2018 Ju~ Arbitrator 19 PROOF OF SERVICE BY EMAIL & U.S. MAIL Re: Lendormy, Jean-Yves vs. Hanson, Kyle., et al. Reference No. 1100087386 I, Amy Thornton, not a party to the within action, hereby declare that on August 15, 2018, I served the attached Final Award on the parties in the within action by Email and by depositing true copies thereof enclosed in sealed envelopes with postage thereon fully prepaid, in the United States Mail, at San Francisco, CALIFORNIA, addressed as follows: Sidney A. LuscutoffEsq. Luscutoff, Lendormy & Associates 601 Montgomery Street Suite 1088 San Francisco, CA 94111 Phone:415-989-7500 sidney.luscutoff@lla-law.com Parties Represented: Jean-Yves Lendormy Marcus Nicholas McElhenney Esq. Wilson Elser Moskowitz, et al. LLP 158 Third Ave. San Francisco, CA 94118 Phone:415-433-0990 marcus.mcelhenney@gmail.com Parties Represented: Kyle Hanson Mark Murphy I declare under penalty of perjury the foregoing to be true and correct. Executed at San Francisco, CALIFORNIA on August 15, 2018. Exhibit “3” 001 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Marcus N. McElhenney (SBN 303468) Marcus.McElhenney@gmai I .com 158 Third Avenue San Francisco, CA 94118 Telephone: (215) 888-0772 Attorney for Defendant Kyle Hanson and Mark Murphy ELECTRONICALLY FILED Superior Court of California, County of San Francisco 11/26/2018 Clerk of the Court BY:REGINA DENNIS Deputy Clerk SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SAN FRANCISCO JEAN-YVES LENDORMEY, Plaintiff, V. KYLE HANSON AND MARK MURPHY, Defendant. Case No.: CGC-16-550897 EFENDANTS PETITION TO VACATE RBITRATION AWARD PURSUANT TO CALIFORNIA CODE OF CIVIL PROCEDUR §§ 1285 and 1286.2 Reservation No.: 11201227-14 Date: Thursday December 27, 2018 Time: 9:30 am Dept: 302 TO ALL PARTIES HEREIN AND TO THEIR COUNSEL OF RECORD: PLEASE TAKE NOTICE that on December 27, 2018, at 9:30 a.m., in Department 302 of the above entitled Court, located at 400 McAllister Street, San Francisco, CA, Defendants Kyle Hanson and Mark Murphy ("Defendants") will and hereby does petition the court to vacate Judge Patrick J. Mahoney's (ret.) August 15, 2018 arbitration award. This Motion is made pursuant to California Code of Civil Procedure Sections 1285 and 1286.2, on the grounds that the arbitrator exceeded his authority, that there was inappropriate PETITION TO VACA TE ARBITRATION AW ARD 002 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 conduct, and that the award was obtained through fraud by the conduct of the Plaintiff only discovered after the arbitration award. Plaintiff is seeking and the award grants attorneys fees for representation under a contingency fee agreement for wage and hour claims when Defendants are still pursuing those claims. This award then is in violation of California law. This Petition is based upon this Notice, the attached Memorandum of Points and Authorities, the Declaration ofMarcusN. McElhenney, the records and files of this action, and upon such oral and documentary evidence as may be presented at the hearing of this Motion. DATED: November 26, 2018 PETITION TO VACA TE ARBITRATION AW ARD 003 Marcus McElhenney (SBN 303468) 2 Marcus.McElhenney@gmail.com 15 8 Third A venue 3 San Francisco, CA 94118 Telephone: (215) 888-0772 4 5 Attorney for Defendants 6 7 Kyle Hanson and Mark Murphy 8 9 SUPERIOR COURT OF THE ST ATE OF CALIFORNIA CITY AND COUNTY OF SAN FRANCISCO 10 11 JEAN-YVES LENDORMY, 12 Plaintiff, 13 V. 14 KYLE HANSON AND MARK MURPHY, 15 Defendants. 16 17 18 19 20 21 22 23 24 25 26 27 28 Case No. CGC-16-550897 DEFENDANTS'S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF IT'S PETITION TO VACATE ARBITRATION AWARD PURSUANT TO CALIFORNIA CODE OF CIVIL PROCEDURE §§ 1285 and 1286.2 Reservation No.: 11201227-14 Date: Time: Dept: December 27, 2018 9:30 a.m. 302 DEFENDANT'S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS PETITION TO VACATE THE ARVITRATION AWARD 004 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 I. II. III. IV. V. TABLE OF CONTENTS INTRODUCTION ............................................................................................................ 1 STATEMENT OF FACTS ............................................................................................... 2 A. The Dispute .......................................................................................................... 4 B. The August 15, 2018 Award ................................................................................ 5 APPLICABLE LEGAL STANDARD FOR VACATING A CONTRACTUAL ARBITRATION AW ARD ............................................................................................... 6 THE COURT SHOULD VACATE THE AUGUST 15, 2018 AW ARD BECAUSE THE ARBITRATOR EXCEEDED HIS POWERS BY COMMITTING ERRORS OF LAW AND LEGAL REASONING ........................................................................... 6 A. The Arbitrator Failed to Apply the Correct Law to the Question of Contigency Fee Agreements and Pending Underlying Litigation ........................ 6 B. The Award Should Be Vacated As it was Obtained by Corruption and Fraud .... 9 C. Misconduct of Neutral Arbitrator Substantially Prejudiced Petitioner's Rights 10 CONCLUSION .............................................................................................................. 10 DEFENDANT'S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS PETITION TO VACATE THE ARVITRATION AWARD 1785150V.2 005 2 3 4 5 6 7 8 9 TABLE OF AUTHORITIES CASES Cable Connection, Inc. v. DIRECTV, Inc., 44 Cal.4 th 1334 (2008) ................................................ 6 Cazares v. Saenz, 208 Cal. App. 3d 279 (1989) ............................................................................... 7 Fracasse v. Brent, "Cal. 3d 784 (1972) ............................................ .-............................................ 7 Paoillo v. American Export lsbrandtsen Lines, Inc. 305 F. Suppp. 250, 253-254 (1969) ............... 7 STATUTES 10 Cal. Code Civ. P. § 1286.2(a)(4) ..................................................................................................... 6 11 California Code of Civil Procedure section 1286.2 ........................................................................ 6 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ii DEFENDANT'S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS PETITION TO VACATE THE ARVITRATION AWARD 006 DEFENDANTS KYLE HANSON AND MARK MURPHY ("Defendants or 2 Respondents"), hereby submits this Memorandum of Points and Authorities in Support of its 3 Petition to Vacate the Arbitration Award that is being filed concurrently with this memorandum. 4 I. INTRODUCTION 5 Defendants Kyle Hanson and Mark Murphy ("Defendants" or "the Respondents") and 6 Plaintiff engaged in an arbitration in which Judge Patrick J. Mahoney (ret) acted as the arbitrator. 7 Judge Mahoney entered a final Judgment on August 15, 2018 ("Arbitration Award"). (Declaration 8 of Marcus N. McElhenney at paragraph 3 Exhibit One. "McElhenney Deel.") In that award, Judge 9 Mahoney found that Plaintiff Jean Lendormy had violated the rules of professional responsibility 1 O and represented conflicted parties from which he failed to gain written consent and reducing any 11 fees that may be owed to him under a contingency fee agreement from the time of that conflict, June 12 4, 2014, onward. Id. The award reasoned that Mr. Lendormy should not and could not have 13 represented Defendants after June 4, 2018 and he was not entitled to fees before that date. Id. 14 Without any supporting case law or authority, Judge Mahoney created new authority and ruled that 15 Plaintiff was entitled to fees and costs under the contingency fee agreement, even though 16 Defendants never received any monetary award or fee shifting as required under the contingency fee 17 contract. Id. Judge Mahoney reasoned and created this rule and established an unknown value as to 18 an off-set stating that other cases that were part of the litigation and should be considered, against 19 the protest of Defendants and their request for any authority to supports the Judge's position. Id. 20 As there was no monetary award or fee shifting, Judge Mahoney instead determined that an hourly 21 rate was available to Plaintiff, even though he failed to garner any monetary award for Defendants 22 and awarded him costs and fees in the amount of$143,566.05 as to Mr. Hanson and $77,792.96 as 23 to Mr. Murphy. Id. 24 The underlying issue between the parties wa~ one for legal fees based on Plaintiff 25 representing Defendants in their wage an hour claims against their former employer, Capital Asset 26 Exchange and Trading ("CAET"). McElhenney Deel. 14. The parties entered into an agreement in 27 which Plaintiff agreed not to accept any payment for costs and fees until and unless he obtained a 28 monetary award for Defendants. Id. CAET on the other hand had claims against Defendants for DEFENDANT'S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS PETITION TO VACATE THE ARVITRATION AWARD 007 trade secret theft. Id. Mr. Lendormy knew about all claims and participated in their litigation on 2 behalf of Defendants and other third parties. On December 18, 2014, it was believed that CAET and 3 Defendants had settled all of their claims against one another, where it was a walk away settlement 4 and there was no fee shifting. Id. Mr. Lendormy, unhappy that his clients took a walk away 5 settlement for no money, filed suit against them. Originally believing that the claims with CAET 6 were resolved, Defendants defended themselves against Mr. Lendormy's suit against them for legal 7 costs and fees which led to the Judge Mahoney arbitration. During the course of Mr. Lendormy's 8 suit against Defendants, it was determined between them and CAET that their claims were not in 9 fact resolved and that CAET were continuing to pursue their trade secret claims against Defendants 1 O and that Defendants would continue to pursue their wage an hour claims against CAET. This suit 11 was commenced by CAET before Judge Mahoney issued his arbitration award and all parties were 12 made aware of these developments. (McElhenney Deel. at~ 5 Exhibit Two.) On July 24, 2018, 13 Defendants reminded Mr. Lendormy that he was entitled to his portion of award as required by 14 California authority and sought a stay in the arbitration to allow for the underlying necessary 15 litigation to unfold. (McElhenney Deel. at~ 6 Exhibit Three.) Mr. Lendormy denied Defendants 16 request. Id. Defendants also requested a Motion from Judge Mahoney on the same issue of allowing 17 a stay based on the underlying legal uses no longer being resolved. While Judge Mahoney initially 18 granted Defendants request to hear such a motion and a motion was drafted, within 24 hours of 19 establishing a timeline to hear such a motion, without explanation, reasoning or further deliberation, 20 went back on his own decision and issued the current arbitration award. (McElhenney Deel. at ~ 7 21 Exhibit Four.) 22 This Court should vacate the Arbitration A ward because Judge Mahoney committed legal 23 error in reaching his conclusions that an attorney can obtain costs and fees under a contingency fee 24 agreement, when 1.) the contingency has never been obtained and 2.) the underlying issues 25 regarding those fees have not been resolved. 26 II. STATEMENT OF FACTS 27 In or around December 2012, Defendant Hanson approached Plaintiff, Mr. Jean-Yves 28 Lendormy and his firm, about legal representation in possible wage and hour claims against his 2 DEFENDANT'S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS PETITION TO VACATE THE ARVITRA TION A WARD 008 then employer, CAET. At that time, Mr. Lendormy was representing and pursuing similar claims 2 for other CAET employees. On December 14, 2012, Mr. Hanson engaged Mr. Lendormy and the 3 parties signed a contingency fee agreement. The pertinent part of the agreement stated that Mr. 4 Lendormy will not expect or seek any compensation for the services from Mr. Hanson if CAET is 5 not ordered to pay or does not agree to pay any monetary recovery and if fee shifting does not 6 occur through settlement or ruling. (McElhenney Deel. at 1 8 Exhibit Five.) The agreement also 7 states that the client will not be obligated to reimburse attorneys for any of the costs and expenses 8 they have advanced in the prosecution of that matter unless there is a monetary recovery. Id. This 9 language is located several places throughout the contract in bold font. In or around December of 10 2013, Plaintiff Murphy approached LLA about legal representation for certain wage and 11 employment claims. On December 6, 2013, Plaintiff Murphy signed a contingency fee agreement 12 with almost identical language to the Hanson agreement. Id. This also included balded language 13 that stated that Mr. Lendormy would not receive fees and costs unless there was a monetary 14 recovery for Mr. Murphy and fee shifting occurred. At the time, Mr. Murphy was a Defendant in a 15 case from CAET where they were alleging he committed trade secret theft from them. 16 (McElhenney Deel. at 19.) Mr. Lendormy was aware of these claims and cases against both of his 1 7 clients and used them in his joint representation of them and other parties. Id. 18 Mr. Lendormy pursued Defendants wage and hour claims against CAET for several months 19 until approximately June 1, 2014 when Defendants learned that CAET wanted to settle their claims 20 with Defendants. Mr. Lendormy and several other third party defendants were not agreeable to the 21 settlement at this time and a conflict between the parties arose. Mr. Lendormy did not obtain any 22 written or vocal waiver of conflict from Defendants Hanson and Murphy who pursued settling their 23 cases separate from Mr. Lendormy' s other cases. On December 18, 2014, without the assistance 24 from Mr. Lendormy and against his wishes Defendants signed a settlement agreement with CAET 25 believing that all their claims were resolved. (McElhenney Deel. at 1 11, Exhibit Six.) On or 26 around December 19, 2018, Mr. Lendormy, upset with this decision, requested that he be 27 substituted as counsel for Defendants, of which they obliged. McElhenney Deel. at 1 11. 28 3 DEFENDANT'S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS PETITION TO VACATE THE ARVITRATION AWARD 009 Mr. Lendormy, under the mistaken belief that Messrs. Hanson and Murphy received a 2 substantial financial sum in their confidential settlement, sent a demand letter and bill for their 3 costs and fees. Again Mr. Hanson tried to inform Mr. Lendormy of the lack of any monetary award 4 or fee shifting which means he was not entitled to any fees, but Mr. Lendormy would not cooperate 5 or listen to anything Defendants had to day. Mr. Hanson reminded Mr. Lendormy of their contract 6 through the contingency fee agreement and that Mr. Lendormy would only receive costs and fees in 7 the event of a monetary award through judgement by the court or through settlement. Messrs. 8 Hanson and Murphy made good faith settlement offers to avoid any unnecessary litigation, but 9 those were denied. 10 PROCEDURAL HISTORY 11 A. The Dispute 12 The dispute on legal costs and fees continued between the parties which eventually led 13 Plaintiff to file his first amended complaint for breach of contract claims, common counts and fraud 14 against Defendants on or about August 19, 2016. On or about September 28, 2018 Defendants filed 15 cross-claims for breach of contract and fraud against Plaintiff. The parties filed cross motions 16 petitioning the court to Order arbitration based on their contingency fee agreement, which is did on 17 January 12, 2017. During preparations for the arbitration it was discovered that the settlement 18 agreement between CAET and Defendants was not tenable and that the parties would in fact have to 19 litigate their claims after all. On May 30, 2018 CAET filed their Complaint against Defendants 20 addressing and alleging the same misappropriation of trade secrets and use as in the previous 21 underlying case between CAET and Defendants, and Defendants have since filed their cross claims 22 for wage and hour against CAET. (McElhenney Deel. at ,r 5, Exhibit Two.) Defendants attempted 23 to resolve these issues with CAET regarding the trade secret theft and their wage and hour cross- 24 claims to no avail. Approximately one month before the arbitration award was finalized, 25 Defendants notified Mr. Lendormy that he was entitled to payment for legal services and fees once 26 these wage and hour claims were finally settled. (McElhenney Deel. at~ 5, Exhibit Three.) Once, 27 Mr. Lendormy stated that they were not interested in participating in pursuing those claims, 28 Defendants brought the issue to the arbitrator and requested a stay of proceedings so that they may 4 DEFENDANT'S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS PETITION TO VACATE THE ARVITRATION AWARD 010 continue to pursue their wage and hour claims which was governed by the contingency fee 2 agreement and California law. While the Judge initially agreed to hear such a motion to stay 3 proceedings, without explanation backtracked about one day later. On August 15, 2018 Judge 4 Mahoney issued his arbitration award. (McElhenney Deel. at 17, Exhibit Four.) 5 B. The August 15, 2018 Award 6 On August 15, 2018, the Arbitrator issued his Final Award. In reaching this decision, the 7 Arbitrator addresses the fact that the parties did enter into a contingency fee agreement and that 8 there was no fee shifting or monetary award for Defendants. The arbitrator then addresses the 9 definition of a contingency fee agreement and states that it includes "the monetary value of all 1 O benefits received on behalf of Client." While this normally means the monetary value of a 11 particular item or property, the arbitrator improperly assumes without any factual evidence or legal 12 authority that CAET's trade mark claims against Defendants inherently had value and that should be 13 considered an off-set against their wage and hour claims. The Arbitrator specifically states in his 14 award that "The dismissal of the Santa Clara action and the accompany release of the trade secret 15 claims freed Oolong, Mr. Hanson and Mr. Murphy from the risk of demise of their business venture 16 as well as put an end to defense costs." While this off set is not supported by law, it currently is also 17 not supported by fact as Defendants are currently involved in that same trade secret litigation with 18 CAET which commenced approximately three months before the arbitration award was granted. 19 The Arbitrator then argued because there was essentially no way to measure this offset and 20 follow the contingency fee agreement that this was a quantum merit claim and that Plaintiff is 21 entitled to hourly rates and fees. Again, the Arbitrator ignores all California authority raised by 22 Defendants that specifically states that the courts should not ignore the fact that quantum merit 23 claims under contingency fee agreements should not follow strict hourly rates and need to take into 24 account the circumstances, facts and the facts that there was a contingency fee agreement. 25 On September 14, 2018 Defendants filed with the court and served on Plaintiff their initial 26 petition to vacate the arbitration award based on the Arbitrators failure to conform to California 27 authority and exceeding his authority. (McElhenney Deel. at 1 12, Exhibit Seven.) 28 5 DEFENDANT'S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS PETITION TO VACA TE THE ARVITRA TION AW ARD 011 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 III. APPLICABLE LEGAL STANDARD FOR VACATING A CONTRACTUAL ARBITRATION AWARD California Code of Civil Procedure section 1286.2 empowers this Court to vacate a contractual arbitration award if the Court determines that the arbitrator "exceeded [his] powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted." Cal. Code Civ. P. § 1286.2(a)(4). California law also provides that a contractual arbitration award is judicially reviewable for errors of law and legal reasoning if the parties to the arbitration agreement have agreed to such review. Cable Connection, Inc. v. DIRECTV, Inc., 44 Cal.4 th 1334, 1361 (2008). To make an arbitration award judicially reviewable for errors of law and legal reasoning, "the parties must clearly agree that legal errors are an excess of arbitral authority that is reviewable by the court." Id. In other words, if the parties to the arbitration agreement deprive the arbitrator of power to commit legal error, any awards issued by that arbitrator are subject to judicial review and may be vacated if the Court concludes that the Arbitrator has made errors of law. The Parties' Arbitration Agreement did not grant the Arbitrator the power to make errors of law or legal reasoning so that the Awards would be subject to judicial review for errors oflaw and legal reasoning. The California Supreme Court determined what was sufficient to permit the reviewing court to review an arbitration award for legal errors. Cable Connection, Inc., 44 Cal.4 th at 1340, 1361 n 20. Consequently, the Court is authorized to review the Awards and to vacate them if the Court determines that the Arbitrator committed errors of law or legal reasoning. IV. THE COURT SHOULD VACATE THE AUGUST 15, 2018 AWARD BECAUSE THE ARBITRATOR EXCEEDED HIS POWERS BY COMMITTING ERRORS OF LAW AND LEGAL REASONING A. The Arbitrator Failed to Apply the Correct Law to the Question of Contingency Fee Agreements and Pending Underlying Litigation 24 In delivering his award, the Arbitrator argued that this was a quantum merit case because it 25 could not be determined what the monetary value was in the off set of CAETs claims against 26 Defendants and their company Oolong. Instead of trying to determine that value, ifany, he assumed 27 that there was some, that it could not be determined and that we instead should just use an hourly 28 rate for Mr. Lendormy's claims against defendants. This argument fails for several reasons. It is 6 DEFENDANT'S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS PETITION TO VACATE THE ARVITRATION AWARD 012 well settled law in California that an Attorney does not recover costs and fees under a Contingency 2 Fee Agreement, unless and until the client wins a recovery. Fracasse v. Brent (1972) 6 Cal.3d 784. 3 Further, when addressing a previously discharged attorney, the Court in Fracasse specifically stated 4 that they "believe it would be improper to burden the client with and absolute obligation to pay his 5 former attorney regardless of the outcome of the litigation." And that they "believe that the 6 attorney's action for reasonable compensation accrues only when the contingency stated in the 7 original agreement has occurred -- i.e., the client has had a recovery by settlement or judgement. It 8 follows that the attorney will be denied compensation in the event such recovery is not obtained." 9 Simply put, if there is no award for the client, there is no fee paid to the attorney. This is the whole 1 0 premise behind the Contingency Fee Agreements. The California courts have clearly established 11 that when an attorney is fired by his client on a contingency fee basis that they may be entitled to 12 quantum merit, or that they are entitled to recover for the reasonable amount of services provided 13 before they were terminated, with or without cause. Id. Regardless if Plaintiff was actually 14 terminated or not, this argument will also fail. The California courts have stated that the calculation 15 of the reasonable value of services rendered by a lawyer under a contingent fee contract requires a 16 court to quantify the value of the lawyer's services and prorate that amount against the value of the 17 services rendered by all lawyers on the case. Cazares v. Saenz ( 1989) 208 Cal.App.3d 279. Further 18 the courts have said that "it is sometimes assumed that the quantum merit standard applied to legal 19 services includes nothing more than a reasonable hourly rate multiplied by the amount of time spent 20 on the case. (See, e.g., Paolillo v. American Export Isbrandtsen Lines, Inc. (S.D.N.Y. 1969) 305 21 F.Supp. 250, 253-254.) ... however, this is an overly narrow view of the quantum merit standard 22 applied in the context of a contingent fee agreement. .. lawyer[ s] runs the risk that even if successful, 23 the amount recovered will yield a percentage fee which does not provide adequate compensation." 24 Id. Thus, while LLA will continue to support and push for a flat hourly rate fee be paid to them, 25 under a valid Contingency Fee Agreement system, they would only be entitled to their prorated 26 share of the monetary award that they won for their client. 27 The California courts have also made the issue clear of what an attorney is entitled to 28 whether they are terminated with or without cause. "It has long been recognized in this state that the 7 DEFENDANT'S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS PETITION TO VACATE THEARVITRATION AWARD 013 client's power to discharge an attorney, with or without cause, is absolute ( Code Civ. Proc., § 284). 2 We have concluded that a client should have both the power and the right at any time to discharge 3 his attorney with or without cause ... the client may terminate that contract at will. It would be 4 anomalous and unjust to hold the client liable in damages for exercising that basic implied right." 5 Fracasse. "To the extent that such discharge is followed by the retention of another attorney, the 6 client will in any event be required, out of any recovery, to pay the former attorney for the 7 reasonable value of his services." Feacasse. To the extent that such discharge occurs "on the 8 courthouse steps," where the client executes a settlement obtained after much work by the attorney, 9 the factors involved in a determination of reasonableness would certainly justify a finding that the 1 0 entire fee was the reasonable value of the attorney's services. ( Oliver v. Campbell, 43 Cal.2d 298 11 [273 P.2d 151: see Los Angeles v. Los Angeles-Inyo Farms Co., 134 Cal. App. 268, 276 [25 P.2d 12 2241, Additionally, "Unless a rule is adopted allowing an attorney as full compensation the 13 reasonable value of services rendered to the time of discharge, clients will often feel required to 14 continue in their service attorneys in whose integrity, judgment or capacity they have lost 15 confidence." (Salopek v. Schoemann, supra, at pp. 156-157; seeDenio v. City of Huntington Beach, 16 supra, 22 Cal.2d 580, 603-604.)." Id. 17 As established above, the Arbitrator never took the time to determine the actual value in the 18 "off set" or trade secret claims against Defendants and CAET. Defendants believe that those claims 19 were zero as there was no trade secret theft. If that is the case, then Mr. Lendormy is receiving a 20 wind fall and Defendant at Defendants expense. Regardless, the Arbitrator never took the time to 21 determine the value of those claims, and his ruling is in direct contradiction of the case law which 22 makes it a necessity for the courts to determine those values and not speculate as to harm one party 23 unnecessarily. Though in the present case, the arbitrator would not even have to make that 24 assumption or transgress the authority of the California Supreme Court, but instead should have just 25 stayed the proceedings until the value of those trade secret theft claims, which had already 26 commenced, and the wage and hour claims were resolved. So not only did the arbitrator make a 27 leap out of the pool of legal logic and not follow California authority by making his own rules, but 28 he made that decision prematurely in violation of those rules. Regardless of when and/or why Mr. 8 DEFENDANT'S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS PETITION TO VACATE THE ARVITRA TION A WARD 014 Lendormy was removed from the services of representing Defendants, according to California case 2 law, he is only entitled to his proportion of services regarding his work against their wage and hour 3 claims if and when they obtain those judgments. Here we have those wage and hour claims that 4 need to be resolved against CAET for Defendants and Mr. Lendormy needs to wait until those 5 claims are resolved. It is the whole premise behind wage an hour claims in the first place, and why 6 he was retained by two young and struggling youths to pursue their claims. 7 B. The Award Should Be Vacated As it was Obtained by Corruption and Fraud 8 In footnote 5 on page 14 of the Arbitrators award, he notes that Mr. Lendormy incurred 9 $152,967.44 in damages for ESI discovery for all parties of which Mr. Hanson and Mr. Murphy are 1 O "billed" one sixth each, or approximately $25,494.57 each. While Defendants have repeatedly 11 requested the production of the documents from this extremely expensive ESI discovery so that they 12 may pursue their wage and hour claims against CAET and not have to "re-do" this discovery, Mr. 13 Lendormy only responded on October 23, 2018 with a USB drive addressing this ESI discovery and 14 document production. (McElhenney Deel. at~ 13, Exhibit 8.) Note that this was after the 15 arbitration and representations were made to Judge Mahoney that ESI discovery was conducted on 16 behalfof Mr. Hanson and Mr. Murphy. After full review of this USB drive it was discovered that 17 CAET only produced 453 pages of documents and not a single one pertains to Defendants Mr. 18 Hanson or Mr. Murphy. Further, there is a correspondence on this USB drive between Mr. 19 Lendormey and CAET in which they address the coordination of discovery of the three cases 20 together which include the production of documents for third party co-litigants Ingman, Zaslove and 21 Ryu. This correspondence and accompanying 453 page production is evidence that Mr. Lendormy 22 actually never took on any ESI discovery on behalf of Defendants Hanson and Murphy, and lied to 23 the arbitrator and Defendants during the arbitration about the costs associated with their representing 24 Defendants. No doubt Mr. Lendormy only produced these documents after the award was granted 25 and not prior in the hope of hiding their unethical and illicit means of squeezing more money from 26 Defendants for work never performed for them. $152,967.44 worth of billing including billing to 27 two Defendants who were not part of the production for only 452 pages is prima facia fraud as 28 similar costing productions should have produced documents numbering will into the millions 9 DEFENDANT'S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS PETITION TO VACATE THE ARVITRATION AWARD 015 C. Misconduct of Neutral Arbitrator Substantially Prejudiced Petitioner's Rights 2 Throughout the arbitration the Arbitrator was extremely cordial with Plaintiff that his 3 behavior could be considered inappropriate. Defendants reluctantly have to point out that the 4 Arbitrator would regularly make comments to Plaintiff and his attorney regarding their similarities 5 in training and age while disparaging the age/youth of Defendants and their attorney. The 6 arbitrators "back in the day" comments were so common that he even defended and joked about 7 Plaintiffs employees testifying at the arbitration regarding Mr. Lendormy's excessive drinking 8 during work hours and claimed it was common for people of their age to have "three martini 9 lunches." The arbitrator showed a disregard for Plaintiff billing for time that he could not remember 1 O and/or was inebriated while working on Defendants cases. This one sided favoritism was so great 11 that Defendants were compelled to seek reprieve from JAMS from continuing with the arbitrator, 12 but were rejected within one day after their request without any formal hearing or legal reasoning to 13 deny their request. The Arbitrator was made aware of this request and Defendants believe he should 14 have recused himself at the time and/or addressed their concerns which he never did. Defendants 15 believe that this favoritism and protectionism, while disregarding California authority, impacted the 16 arbitration and their right to a fair and impartial arbitration. (McElhenney Deel. at 1 15.) 17 V. CONCLUSION 18 As outlined above, the Arbitrator clearly exceeded his authority when he disregarded case 19 law regarding contingency fee agreements and that the underlying claims that gave rise to the 20 contingency fee agreements need to be resolved in the first place. While this was initially thought 21 to be true, the cases developed and the arbitrator should have taken this into account. By law 22 therefore, Defendants are allowed and Plaintiff is required to wait until Defendants wage and hour 23 claims are resolved before any attorney's fees and costs may be obtained. Additionally, the 24 arbitrator erred because he exceeded his authority by not relying on any case law but created this 25 "off set" rule which ignored the California authority that would have required him to determine the 26 value of the trade secret claims CAET had against Defendants before making any ruling or granting 27 any fees. Additionally, Plaintiff committed blatant fraud in their claims of ESI discovery costs 28 which were only discovered after the arbitration hearing. These damages were awarded to Plaintiff 10 DEFENDANT'S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS PETITION TO VACA TE THE ARVITRA TION AW ARD 016 but only after the hearing did Plaintiff reveal that he did not actually incur these costs for 2 Defendants, if at all. Finally, the Judge's protectionism attitude toward what seemed to be a 3 personal friend, while denying his excessive alcohol consumption, and even condoning it, 4 significantly prejudiced Defendants from getting a fair hearing. As such, the Motion to vacate the 5 arbitration ruling should be granted and a stay be granted until the Defendants underlying wage and 6 hour claims against CAET are resolved. 7 8 DATED: November 26, 2018 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11 DEFENDANT'S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS PETITION TO VACATE THE ARVITRATION AWARD 017 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Marcus McElhenney (SBN 303468) Marcus.McElhenney@gmail.com 15 8 Third A venue San Francisco, CA 94118 Telephone: (215) 888-0772 Attorney for Defendants Kyle Hanson and Mark Murphy SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SAN FRANCISCO JEAN-YVES LENDORMY, Plaintiff, V. KYLE HANSON AND MARK MURPHY, et al., Defendants. Case No.: CGC-16-550897 DECLARATION OF MARCUS N. MCELHENNEY IN SUPPORT OF DEFENDANT PETITION TO VACATE RBITRATIO AWARD PURSUANT TO CALIFORNIA CODE OF CIVIL PROCEDUR §§ 1285 and 1286.2 eservation No.: 11201227-14 Date: December 27, 2018 Time: 9:30 am Dept: 302 I, Marcus N. McElhenney, being duly sworn, states as follows: 1. I am an attorney admitted to practice before all of the Courts of the State of California, and am one of the counsel of record for Kyle Hanson, Mark Murphy and Oolong, LLC. ("Defendants"), herein. 2. This declaration is made in support of Defendants Petition to Vacate Arbitration Award Pursuant to California Code of Civil Procedure § § 1285 and 1286.2. The following facts are true of my own knowledge, and if called as a witness herein, I could and would testify competently thereto. DECLARATION OF MARCUS N. MCELHENNEY IN SUPPORT OF DEFENDANTS PETIITON TO VACA TE ARBITRATION AW ARD 1 018 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3. Attached as Exhibit One hereto is a true copy of the final August 15, 2018 Arbitration Award. 4. I am familiar with the files and records, both in this matter, and in the underlying original lawsuit between CAET, and the Oolong litigants including Defendants Kyle Hanson and Marky Murphy which was believed to be resolved on December 18, 2014, the settlement agreement of which has snice been abandoned by the parties. 5. On May 30, 2018, CAET filed their complaint against Defendants alleging breach of contract for the misappropriation of trade secrets in the same acquisition and manner as in their first claims against Oolong litigants including Mr. Hanson and Mr. Murphy. The full extent of CAETs claims regarding misappropriation of trade secrets was not discovered until after several meet and confer correspondences, meetings and discovery was engaged with CAETs attorneys. A copy of CAETs complaint file in Santa Clara Superior Court Case No. l 8CV32905 l is hereto attached as Exhibit Two. Defendants have subsequently filed and served their wage and hour cross-claims against CAET. 6. On or about July 24, 2018, I notified Counsel for Plaintiff that Defendants would be pursuing their wage and hour claims against CAET and requested guidance from Plaintiff as to their requested level of participation and reminded them that case law dictates that no payment should be made to them regarding wage and hour claims until those wage and hour claims are resolved. A true and correct copy of that e-mail notification is hereto attached at Exhibit Three. On or around the same day, Defendant Kyle Hanson called and left a message with Plaintiff Lendormy to discuss those same issues, and confirmation of that phone call was sent from Plaintiffs counsel to Defense counsel. DECLARATION OF MARCUS N. MCELHENNEY IN SUPPORT OF DEFENDANTS PETIITON TO VACA TE ARBITRATION AW ARD 2 019 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7. A true and correct copy of Defendants August 15, 2018 "Motion to Stay Proceedings" sent to Judge Mahoney, which was never considered by Judge Mahoney is hereto attached as Exhibit Four. 8. On December 14, 2012, Mr. Hanson engaged Mr. Lendormy and the parties signed a contingency fee agreement. The pertinent part of the agreement stated that Mr. Lendormy will not expect or seek any compensation for the services from Mr. Hanson if CAET is not ordered to pay or does not agree to pay any monetary recovery and if fee shifting does not occur through settlement or ruling. A true and correct copy is hereto attached as Exhibit Five. During the arbitration and at all other times it is agreed by all parties that Mr. Hanson and Mr. Murphy's contingency fee agreements are essentially identical. 9. During the arbitration proceeding, Mr. Lendormy recognized that Mr. Murphy was a Defendant in a case from CAET where they were alleging he committed trade secret theft from them before he retained Mr. Murphy as a client. Mr. Lendormy was aware of these claims and cases against both of his clients and used them in his joint representation of them and other parties according to his employee and attorney Conor Mack who testified at the arbitration. 10. Mr. Lendormy pursued Defendants wage and hour claims against CAET for several months until approximately June 1, 2014 when Defendants learned that CAET wanted to settle their claims with Defendants. Mr. Lendormy and several other third party defendants were not agreeable to the settlement at this time and a conflict between the parties arose. Mr. Lendormy did not obtain any written or vocal waiver of conflict from Defendants Hanson and Murphy who pursued settling their cases separate from Mr. Lendormy's other cases. On December 18, 2014, without the assistanc from Mr. Lendormy and against his wishes Defendants signed a settlement agreement with CAET DECLARATION OF MARCUS N. MCELHENNEY IN SUPPORT OF DEFENDANTS PETIITON TO VACATE ARBITRATION AW ARD 3 020 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 believing that all their claims were resolved. A true and correct copy of the Oolong litigants and CAET settlement agreement is hereto attached as Exhibit Six. 11. On or about December 19, 2018 at the instruction of Mr. Lendormy, Defendants signed substitution of counsel forms appointing themselves as their attorney as he would not submit their dismissal of their actions against CAET. Throughout the dispute between the parties, Mr. Lendormy has contended that he was terminated or fired due to this substitution, while Defendants believe that he quit due to his refusal to follow their instructions and instructing them to substitute him. 12. On September 14, 2018 Defendants filed with the court and served on Plaintiff their initial petition to vacate the arbitration award based on the Arbitrators failure to conform to Califomi authority and exceeding his authority, a true and correct copy of the first page with the courts endorsed stamp is hereto attached as Exhibit Seven. 13. While Defendants have repeatedly requested the production of the documents from this extremely expensive ESI discovery so that they may pursue their wage and hour claims against CAET and not have to "re-do" this discovery, Mr. Lendormy only responded on October 23, 2018 with a USB drive addressing this ESI discovery and document production. A copy of the letter October 23, 2018 letter accompanying the USB drive is hereto attached at Exhibit Eight. 14. After full review of this USB drive it was discovered that CAET only produced 453 pages of documents and not a single one pertains to Defendants Mr. Hanson or Mr. Murphy. Further, there is a correspondence on this USB drive between Mr. Lendormy and CAET in which they addres the coordination of discovery of the three cases together which include the production of documents for third party co-litigants Ingman, Zaslove and Ryu. $152,967.44 worth of billing including billing to two Defendants who were not part of the production for only 452 pages is prima facia fraud as similar costing productions should have produced documents numbering will into the millions. A DECLARATION OF MARCUS N. MCELHENNEY IN SUPPORT OF DEFENDANTS PETIITON TO VACATE ARBITRATION AW ARD 4 021 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 true and correct copy of the correspondence from Mr. Lendormy's firm recognizing this document production without including production for Defendants Hanson and Murphy are hereto attached as Exhibit Nine. 15. Throughout the arbitration the Arbitrator was extremely cordial with Plaintiff that his behavior could be considered inappropriate. Defendants reluctantly have to point out that the Arbitrator would regularly make comments to Plaintiff and his attorney regarding their similarities in training and age while disparaging the age/youth of Defendants and their attorney. The arbitrators "back in the day" comments were so common that he even defended and joked about Plaintiffs employees testifying at the arbitration regarding Mr. Lendormy's excessive drinking during work hours and claimed it was common for people of their age to have "three martini lunches." The arbitrator showed a disregard for Plaintiff billing for time that he could not remember and/or was inebriated while working on Defendants cases. This one sided favoritism was so great that Defendants were compelled to seek reprieve from JAMS from continuing with the arbitrator, but were rejected within one day after their request without any formal hearing or legal reasoning to deny their request. The Arbitrator was made aware of this request and Defendants believe he should have recused himself at the time and/or addressed their concerns which he never did. Defendants believe that this favoritism and protectionism, while disregarding California authority, impacted the arbitration and their right to a fair and impartial arbitration. I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed this 26th day of November, 2018, at San Francisco, California. ~t«~-5~ ARCUSN.CLHENNEY ~. DECLARATION OF MARCUS N. MCELHENNEY INS ORT OF DEFENDANTS PETIITON TO VACATE ARBITRATION A RD 5 Exhibit “4” 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Marcus McElhenney (SBN 303468) 158 Third Avenue San Francisco, CA 94118 Telephone: (215) 888-0772 Attorney for Respondents Kyle Hanson and Mark Murphy ELECTRON ICA LY FILE BY:VANESSA WU Deputy Clerk STATE OF CALIFORNIA CITY AND COUNTY OF SAN FRANCISCO JEAN-YVES LENDORMY, Plaintiff, vs. KYLEHANSONANDMARKMURPHY, Defendants. ) CASE NO.: CGC-16-550897 ) ) DEFENDANTS' PETITION TO ) CONTINUE ALL HEARIGS AND/OR ) PROCEEDINSG UNTIL SCHEDULED ) MOTION TO STAY ALL HEARINGS ) PENDING UNDERLYING LITIGATION ) CAN BE HEARD ) ) ) 1----------------) TO THE COURT, PARTIES, AND THEIR RESPECTIVE ATTORNEYS OF RECORD: Please take notice that on December 26, 2018 at 11 :00 a.m. or soon thereafter as the matter may be heard in Department 302 of the San Francisco County Superior Court, located at 400 McCallister Street, San Francisco CA 94102, Defendant's Kyle Hanson and Mark Murphy (hereinafter "Defendants") will apply ex parte for an Order to Continue all Hearings and Proceedings pending motion to stay all hearings pending underlying litigation can be heard. The ex parte application is made on the grounds that good cause exists to support an order continuing the hearing, as more fully set forth in the moving papers. Currently Defendants have a petition to vacate an arbitration award scheduled and Plaintiff has an opposition to exemption for writ of execution oflevy also scheduled. Plaintiff's DEFENDANTS EXP ARTE APPLICATION - l - underlying claims are based on attorney's fees for his representation of Defendants' of wage and 2 hour claims against their former employer CAET. It was believed that these wage and hour 3 claims were resolved, but Defendants and their former employers settlement agreement was 4 essentially dissolved in the beginning of 2018. As such, Defendants are now pursuing their wage 5 and hour claims against CAET. Defendants have notified Plaintiff that they are pursuing these 6 claims against CAET. The agreement/contract between Plaintiff and Defendants is specifically 7 contingent upon these wage and hour claims. 8 Defendants have notified Plaintiff about their continued pursuit of these wage and hour 9 claims and of the relevant California case law regulating payment of attorney's fees under 10 contingency fee contracts, and requested their assistance and/or a stay of proceedings between 11 them. Plaintiff has refused and it is believes wishes only to proceed currently with their own 12 claim. Defendants have then scheduled their Motion to stay all proceedings based on their 13 underlying wage and hour claims, in this court, for February 1, 2019 under reservation No. 14 12240201-08 to be heard at 9:30 am in this court. 15 Defendants have sought and do seek a stay/continuance of all proceedings so that they 16 may show the court that a continuance is warranted due to their pursuit of their underlying wage 17 and hour claims which California authority dictates must be resolved before Plaintiffs claims 18 may be resolved and so that they may focus on their wage and hour claims so that they may be 19 able to obtain the attorney's fees from the wage and hour claims that Plaintiff has repeatedly 20 stated were so valuable and so that he may get paid and so that they can pay Plaintiff. 21 Defendants are currently suffering harm and prejudice because they have limited resources that 22 are being focused on Plaintiff instead of pursuing their wage and hour claims which would be 23 used to pay Plaintiff. This includes the time, money and fees for their current motions, appeals, 24 appearances and attorney's fees. Defendants will also be directly and immediately harmed if 25 they are required to satisfy a Judgment and arbitration ruling that is not based on relevant and up 26 to date facts, authority and law. If payment is made to Plaintiff which is not due at this time, 27 then it is almost certain that Defendants will not be able to recover those monies from Plaintiff 28 regardless of the outcome of the underlying wage and hour claims against CAET of which the DEFENDANTS EXP ARTE APPLICATION -2 - underlying contract between Plaintiff and Defendants relies. Defendants would have to retain 2 attorneys and suffer the consequences of those costs, as well as being without those monies to 3 mount their current lawsuit against CAET (the underlying Defendant) so that they would not be 4 able to defend themselves against the current claims against them. 5 This ex parte application is based upon this notice, the Declaration of Marcus N. 6 McElhenney, the Memoranda of Points and Authorities in support thereof, all attached exhibits, 7 and upon all papers and pleadings on file. Defendants respectfully request that the court 8 continue all hearings until their motion to stay all proceedings scheduled for February 1, 2019, 9 can be heard. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Dated: December 25, 2017 Respectfully submitted, Isl Marcus N. McElhenne MARCUS MCELHENNEY Attorney for Defendants/Respondents Kyle Hanson and Mark Murphy DEFENDANTS EXP ARTE APPLICATION - 3 - Exhibit “5” - \ 1 2 3 4 5 Sidney A. Luscutoff (096943) LUSCUTOFF, LENDORMY & AsSOCIATES 601 Montgomery Street, Suite 1088 San Francisco, California 94111 Tel: (415) 989-7500 Fax: (415) 989-1465 Email: sidney.luscutoff@lla-law.com 6 Attorneys for Plaintiff and · Judgment Creditor Jean-Yves Lendormy 7 8 9 SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SAN FRANCISCO 10 11 Jean-Yves Lendormy, 12 13 vs. Plaintiff, 14 Kyle Hanson aka Kyle E. Hanson, Mark Murphy aka Mark A. Murphy 15 16 Defendants. 17 18 19 20 21 22 23 24 25 26 27 28 Case No. CGC-16-550897 ORDER DENYING DEFENDANTS' PETITION TO VACATE ARBITRATION AWARD Hearing Date: Hearing Time: Department: Judge: January 4, 2018 9:30A.M. 302 Hon. Richard B. Ulmer, Jr. ORDER DENYING DEFENDANTS' PETITION TO VACATE ARBITRATION AWARD CASE No. CGC-16-550897 \ -,· ~ 1 The defendants' petition to vacate the arbitration award in this case came on for hearing on the 2 Court's calendar on January 4, 2019 at 9:30 AM. Marcus McElhenney appeared for the moving parties. 3 Sidney A. Luscutoff appeared for the plaintiff and opposed the motion. 4 Upon review of the parties' papers, argument having been heard, and good cause appearing 5 therefor, 6 Defendants Kyle Hanson and Mark Murphy's "Petition To Vacate Arbitration Award" pursuant to 7 California Code of Civil Procedure Section 1285 and 1286.2 is DENIED. 8 First, the court lacks jurisdiction to entertain the petition because the court already entered 9 judgment in this case. "The entry of judgment ordinarily terminates a trial court's jurisdiction to rule on the 10 merits of a case, apart from ruling on a new trial motion, a motion to vacate the judgment or a similar 11 motion." (Ballona Wetlands Land Trust v. City of Los Angeles (2011) 201 Cal.App.4th 455, 479.) 12 Second, on November 20, 2018, Hanson and Murphy appealed this court's order confirming the 13 arbitration award and the ensuing judgment. Per CCP § 916, this court no longer has jurisdiction to grant 14 the petition to vacate. The petition to vacate is a proceeding "embraced therein or affected" by the order 15 confirming arbitration award and judgment. (CCP § 916(a).) 16 Dated: January_!:/__, 2019 17 18 19 20 21 22 23 24 25 26 27 28 Hon. Richard B. Ulmer, Jr. Judge of the Superior Court ORDER DENYING DEFENDANTS' PETITION TO VACATE ARBITRATION AW ARD CASE No. CGC-16-550897 -----------------------------'---------