Savoy M. Bellavia vs. Hutton Development Co., Inc.

Opposition

Cal. Super. - 4th Dist.February 24, 2015

AN ~N O N Wn 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ELECTROMICALLY FILED Superior Court of California, John Darling, Esq., SBN 156109 CRahf BF Grange Alison Gibbs, Esq., SBN 257256 10/22/2018 at 09:06:00 PM Paul Rogoff, Esq., SBN 232163 Clerk of the Superior Court HUNT ORTMANN PALFEFY By Cus Hernandez Deputy Clerk NIEVES DARLING & MAH, INC. 301 North Lake Avenue, 7" Floor Pasadena, California 91101-1807 Phone: (626) 440-5200 | Fax: (626) 796-0107 Attorneys for Plaintiffs Hutton Development Co., Inc., Hutton Construction Co., Hutton Management Group, SCF Capital, LLC, La Verne Village, LLC, and The Paseos at Magnolia, LLC and Cross-Defendants Hutton Development Co., Inc., Christopher Felix and Scott Felix SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF ORANGE, CENTRAL JUSTICE CENTER SAVOY M. BELLAVIA, Case No. 30-2015-00773108 related: Plaintiff, 30-2015-00773112, 30-2015-00773283 VS. [Related Case No. 30-2013-00648965-CU-BC- HUTTON DEVELOPMENT CO., INC., and CJC] DOES 1 through 50, inclusive Hon. William D. Claster, Defendants. Dept. CX104 AND RELATED CROSS-ACTIONS HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF 1 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H L A K E A V E N U E , 7 F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 + Fa x (6 26 ) 79 6- 01 07 w i BA W N O© «0 9 O Y 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF CONTENTS Page L TNR TE TERR NRT mmcsosomioniosoincs css SE CA AREA 6 II. THE EVIDENCE: BELLAVIA'S CONCEALMENT AND MISCONDUCT .....ccccocovverenererennees 7 A. Bellavia Lied. Repeatedly. ......cccvviererieriiiiiiniineniiciieniieie cece snsesassneesnens 9 1. Bellavia Lied Regarding the Felixes' Knowledge of Pickart's Outside BUSINESS ACHVILIES 1vevveviieierieerieenieetenir estes sree sinter eeresteesier enn ers sae sr e sbsesnesneens 9 2 Bellavia Lied About What Pickart Development Was......c.cccoccevvivivniinvcininiinnn 10 3, Bellavia Lied About Pickart's Commitment to the Hutton Projects.......c..cc.covvuee 10 4. Bellavia Lied About His Contacts With Subcontractors ........coeecvvvvereveneneeeiennns 11 5. Bellavia Lied About Pickart's Sweat Equity Position in the Bicknell PrOJEC. eevee e 12 6 Bellavia Lied About Pickart Doing a Good Job on the Hutton Projects ............... 12 7 Bellavia Lied About His "Fear" of Scott FeliX........cccovevvvviniiiinininiiniiniinn 13 8. Bellavia Lied About Whether Pickart Owed Him Any Money ..........ccocovvvvnivuenne. 13 9. Bellavia Lied About Signing the Bid Evaluation Sheets..........cccvvniviiniiiviiinnin 14 10. Bellavia Deleted His Hutton-Issued Phone .........cccocviiviviiininiinnininineiinn, 16 B. The Record Evidence Demonstrating Bellavia's Liability .......cccocvvvvviiniiniinnninn, 16 1. Open-Book, Cost-Plus Environment... 17 2s Price and The ProcutemMent PrOGESES aims swwissssvs esssios sis tsa imss seis seas vam se 18 3 Bellavia’s Failure to Properly Train Nate Stum........cccoovviiviniiniiniiniiniennn. 21 4. Bellavia Did Not Disclose Conflicts of Interest and Material Information........... 21 3 Bellavia's Wrongful Acts Done in Contravention of Instructions.........c.ccccevvvenen. 23 IM. ADDITIONAL FACTUAL FINDINGS ......ooocomunessss cise sme os ms sms onssss ess sss sss aes ms 24 IV. BELLAVIA IS NOT ENTITLED TO INDEMNIFICATION PURSUANT TO § 317(d)........... 29 A. Bellavia®s Motivations Ate REEVENT «.commmmmmsmmensemssemmsmespsmsrresmsyarsarsropyons 29 2 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H L A K E A V E N U E , 7 F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 + Fa x (6 26 ) 79 6- 01 07 OO 0 N N N nn hse W R N N N N N N N N N N em m m e m e m e m e m e m pe d e m Bellavia Was Found Liable to HDC For His Bad Acts and Omissions and Thus Cannot Seek Indemnification From HDC ...oooooiiieiiiiitiiiietieeteeeieesiiereesesesieesesesssssinnes HMG Was Not a Real Party in Interest and Thus Bellavia Cannot Seek Indemnification From Defendants For The Two Procurement Claims..........ccvvevrverennnne Bellavia Cannot Seek Indemnification From Defendants For The Two Procurement Claims Because He Disobeyed Direct Orders Which Caused DAIMAZES vvvveeeiieririeeiireereietererreerree ee ere ss esaessireeassbtaesssbanasessreesestaesesaneste ensreessresssassanes Bellavia Cannot Seek Indemnification From HCC Because He Excluded Mark Richardson From Procurement In Contravention of Direct Instructions .......ceovvevvvveveernnns Bellavia Cannot Seek Indemnification From Defendants Because He Did Not Adequately Trak NAS: BONN .covsussmmssesmsmmnssssmmasssmsssms cmo imam si sy V. ALTERNATIVELY, PLAINTIFF'S REQUESTED FEE AWARD IS GROSSLY INFLATED ......cotiittiteieteeieetteieet est eseetestessasssstsse ssa st stestese ess eseeb esse eas eneent est s eneeseesent ese steneesessenessenenne A. Bellavia Failed to Account For His Bad Acts and Omissions Which Triggered LLAAIINIEY em remmnmensmammrmamomais nama mmssmamesmemses os oie i dis 565345 5805514. VE 8 5 FNS 6 ANAT AHR B. Bellavia Failed To Account For the Time Spent Prosecuting His Cross-Claims.............. C. Bellavia Failed To Factor In Time Hutton Needed to Prosecute Its Claims Against PACKET... cucne reponeaommsssnonssnons eres soussossnmsasan sn smenssnsnsano nies 8 50545 5 550 55.455A0 5008585 055350 SSR SHAH D. Bellavia Ignored Pickart's Claims Against Greystone cco smmsssmssmpmemsssmssensssmmars E. The Intertwined Nature of the Claims .....cccucvveriiriieiieiienicnienecieseee n F, The Fees Bellavia Incurred As a Result of His Counsel Out-Sourcing Work Must B38 IIBBOUIIEEI cua. sovins. vnwmssmss masons ssmoss a om 5655 BH AR AA AEA RSS HS SRR VI. CONCLUSION cotter ences erases ese ese sae sare sree bs ets sat esa abs sas srs sas sbeebs sas sas sas sns ens sas ens 3 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H L A K E A V E N U E , 7" F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 « Fa x (6 26 ) 79 6- 01 07 wv BA W N NN 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES Page CASES American Nat'l Bank & Trust Co. of Eau Claire, Wis. v. Schigur, (1978) 83 Cal. APP. 3d 790, 793 ...eeeeereereeecrereetete st erer sees sete eas sre sn s sn see nnebesseor naens 32,33 Arnold v. Society for Sav. Bancorp, Inc., (Del. 1996) 678 A. 2d 533, FAM: 18 uiuoiniunes ininn i inaws ins in mies io 555 5555555 S585545.05055 605550555 45 845550 0 SHR RAHI: 29 Cal. Motor Express, Ltd. v. Chowchilla Union High School Dist., (1962) 202 Cal. APP. 2A 314 ..ceieeieieceeeeeceer esters ete sree esas sre sass beastie ess e bes ate sbe sre sbeeneennens 22 Davidson v. Welch, (1969) 270 Cal. APP.,2d 220 ..iiuiieiiiiieiiieitereeie ere eireesreesie see sre see sre eee sabe ssre sre sre esbesanesiessasronsens 36 Ford v. Cournale, (1973) 36 Cal. APP. 3d 172, 182 1.8. wecuieeiieiiierieiieieeit eter etcetera season sess 21 Melnyk v. Robledo, (1976) 64 Cal. App. 3d 618, 623-624.....cooverieieiieieieresieeeereeee stresses sees ssessesaessessesaesnen 36 Petty v. Bank of Am. of N.M. Holding Co., CLOG 109 IN ILS 28 i mms 0.5.50 5000055005505 50055055. V5 AG SH BAA RASA BA SHOAIB 31 Plate v. Sun-Diamond Growers, (1990) 225 Cal. App. 3d 1115, 1123-24.cvmnmmmsamssasmsss mummers esos 29, 30, 31 Roberts v. Lomanto, (2003) 112 Cal. App. 4th 1553, 1567 ...eoiivieiiiiiiiiiiiiieieciciec ins 21 Rutherford v. Rideout Bank, (1938) 11 Cal. 2d 479, 483-484 ....c.eocuiiiiriiieicicieiien neice 22 TLC Beatrice Int'l Holdings, Inc. v. CIGNA Ins. Co., (SDNY 1999) 1999 WL 33454 *5 (applying Delaware 1aW)....uwumssonssssscssnmvsmmsosnosmmssis oe 29 Warshauer v. Bauer Const. Co., (1960) 179 Cal. APD. 28 BA... un uuissnsomsnsmnsns caiesisnssums 5s Homes sss Ss Se RATE PETE ATS STE 22 Wilshire-Doheny Assoc., Ltd., {2000) 83 Cal. App. 4th 1380, 1390...cnummmmmmsammansmunsssmmanmmmsaisseamens 29, 30, 31,33 STATUTES Cal. Civ: Proc, Code § 831.8 ..cccmmmmsmmsssssmonsvsmsmsmassssssisssanspssssssveossssnssasessrsnssmnsarsasess oins son ss ssasdiis 661555555 33 Cal. COP. CIE § BET ce oneewcomon amines sons 5550 55558 55053 LARS HH 355 SEAS VSS SGA OEY passim Cal. Corp. Code § 31T(D) cevvereererereerirecrcreriiiiiisiiss estas eases esses sb st ste ee nests seese ses sess sE sb sasha nets 6 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H L A K E A V E N U E , 7" F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 « Fa x (6 26 ) 79 6- 01 07 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Cal. Corp. Code § 3TT7(A) cuvveeeriiirieieieieecttere eects ste rs sire sree sbe esate ses esae sbeebs ene nas nese sba snesane passim BOS TICS 5/8.75(C) ceruverrerrerieeieniteneenieetessesiesisessesseesesstessessaessesusesteshesatessessesbesae es seatesse rensessesse nsens nsenseseas 32 DEL. GEN. CORP. LAW § T45(C) cvevuteteiieriiririesiisieeiestestesteseessessesseessessessessessessssssensensessesssenssssensensons 32 N.Y. BUs. Corp. Law § 723(@).ceecueeireeirieeiieeiieeitenreesite sites ste e see e setae sites sate sab essee ess esste ess s ssbeesnseensessees 32 Md. Corps. & AsSSNS Code § 2-418(A)(1).eeriiririeriirienieereereceterte ste rer esterases sses can esae ssa ee 32 Wielde] Bag, Corp, BEE 8 8S mms sussenmsmussmmmsmsnssssossssosimess mis ss me s s i se 32 Pa. Bus. Corp. Law § 1743, Pa. Corp. Law § S18... cece secre snes snes 32 TREATISES REST. OF THE LAW OF AGENCY, 88 201; 262 vu cusoesssmmsmuosssssuesasns cowsmessaes sass sss aiops os ass s oss so e as ssa ssssm esss 22 5 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H LA KE A V E N U E , 7% F L O O R PA SA DE NA , CA LI FO RN IA 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 + Fa x (6 26 ) 79 6- 01 07 10 11 12 13 14 15 16 17 18 19 20 21 22 73 24 25 26 27 28 IL INTRODUCTION As set forth below, there is merit to many of these claims, albeit not to the extent asserted by Hutton. Thus, even though the Court finds that Bellavia breached his employment contract and his fiduciary duty, and that both Bellavia and Pickart engaged in certain conduct properly labeled as fraud, the damages for these actions are far less than the amounts sought. Make no mistake, however, the relatively small amount of damages does not in any way lessen the fact that the Felixes had every right in the world to be upset by what they discovered in April 2013. In the Phase 1 trial, the Court found that Bellavia had a complete defense to Hutton Development's claim of usurpation of corporate opportunities. In the Phase 2 trial, the Court found "in favor of HDC against Bellavia on HDC's claims of breach of contract, breach of fiduciary duty, and fraudulent concealment in the amount of $118,510"; and in favor of HDC and Chris Felix against Bellavia on Bellavia's claims for breach of contract-employment agreement, breach of contract-stock purchase agreement, and fraud.” In the underlying trial, the Court found that Savoy Bellavia's acts, omissions and failures to disclose material information constituted breaches of his employment agreement, breaches of his fiduciary duties, and fraudulent concealment. The fact that the damages ultimately awarded were less than those sought by the Hutton Plaintiffs’ does not change these fundamental findings. Bellavia put his own interests before those of Hutton-repeatedly-and the Court concluded he was liable for this conduct. The Court also reached the correct result with respect to indemnification under Corp. Code § 317. The Court recognized it might have reached this result incorrectly, via § 317(b), but even after applying § 317(d), the result is the same, albeit the analysis required is somewhat different. Bellavia's Indemnity Trial Brief ("ITB"), however, frames the damages award as equivalent to a loss by Hutton, and seeks to recover fully 80% of the attorney's fees he incurred during Phase II of the underlying trial. He seeks varying percentages of the fees incurred during other portions of the litigation. Bellavia, however, is not entitled to any indemnification because his personal motives were the driving force behind his misconduct. He cannot be said to have been purporting to act in his corporate capacity each time he failed to do a task that had been assigned to him; rather, each time he failed to collaborate on creating scopes of work with Pickart, for instance, Bellavia was allowing his personal motivations to protect his own financial interests guide his behavior (or lack thereof). !' Statement of Decision ("SOD") 2:28 - 3:6; emphasis added. 2 Feb. 2, 2018 Minute Order (citations omitted). 3 Hutton Development Co., Inc. (HDC), Hutton Management Group, Inc. (HMG), Hutton Construction Company, Inc. (HCC), SCF Capital, LLC, La Verne Village, LLC and Paseos at Magnolia, LLC. 1063968.1 6 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H L A K E A V E N U E , 7 F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 + Fa x (6 26 ) 79 6- 01 07 S S O X N N nn BB 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Bellavia's position is incorrect and misguided for a number of reasons. To the extent Bellavia was successful on the merits for a given issue, Corporations Code Section 317(d) does not require or warrant indemnification in the circumstances present here. Bellavia must first prove that he was in fact successful on the 4 Issues at play in these indemnity retrials. As the Plaintiff, he bears the burden to establish his success on the merits, and a review of the record shows that this is far from the foregone conclusion that Bellavia frames it as. Furthermore, an indemnification award to Bellavia would be manifestly unjust as it could result in a net monetary recovery for a one-time trusted friend, Hutton fiduciary and employee, who was found to have used deceit, nondisclosure, and inaction to wrongfully put his own interests before Hutton’s.* IL. THE EVIDENCE: BELLAVIA'S CONCEALMENT AND MISCONDUCT The Hutton Defendants’ explain below why motivation is an essential - and proper - factor for the Court to consider when analyzing Bellavia's actions and omissions for indemnification purposes. Bellavia claims that his motivations were pure and, as proof, asserts baldly that he "did not lie," citing to the Court's Statement of Decision ("SOD") to support this non-specific claim. (ITB 10:19-23.) However, Bellavia's reliance on the SOD is misleading, and his assertion is demonstrably false. What Bellavia quotes is a finding by the Court, for the express purpose of analyzing Hutton's fraud claim, that Bellavia did not make "a knowingly false material misrepresentation to Hutton with the intent to cause Hutton to rely on that statement." (SOD 18:8-9.) The Court never found that Bellavia did not lie. In fact, the very next sentence of the SOD provides an example of the Court finding the opposite: "On the other hand, the Court finds that Bellavia's decision not to tell Hutton about his business relationship with Pickart was designed to mislead Hutton about information that was clearly important to Hutton. This concealment by a fiduciary such as Bellavia, combined with Hutton's lack of knowledge about the relationship and the fact that it reasonably would have acted differently if the concealed information had been revealed, supports the * Generally speaking, denial of indemnification to a faithless director is an easy public policy call. Breach of fiduciary duty has already been established, and any net corporate recovery based on the breach becomes close to impossble without the denial of an award. 5 The Hutton Defendants are Hutton Management Group, Inc. ("HMG"), Hutton Construction Company, Inc. ("HCC"), and Hutton Development Co., Inc. ("HDC"). 1063968.1 2 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H L A K E A V E N U E , 7™ F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 « Fa x (6 26 ) 79 6- 01 07 10 1 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 claim for fraudulent concealment." (SOD 18:10-16.) Silence, when employed by a trusted fiduciary with an aim to conceal material information, is deceitful, and it is telling that Bellavia's take-away from the above finding is that the Court concluded he never lied. This was far from the only time Bellavia lied to Hutton; and to the Court for that matter. Bellavia's lies demonstrate his willingness to obscure the truth in service of protecting his personal and familial finances, which were inextricably bound up with his business relationship and investments with Pickart. If Pickart lost his job as project manager on the two Hutton Projects, Bellavia would have had a harder time keeping tabs on Pickart's work at Bicknell and their other investments, thereby threatening Bellavia's personal finances; if Bellavia did not appease Pickart by letting him run procurement without concern for Hutton's interests (Issues 1 & 2), Bellavia's finances would be threatened; if Hutton found out about Bellavia and Pickart's business dealings, Bellavia's finances would be threatened; if Bellavia did not keep Mark Richardson away from the procurement process, Richardson would have discovered Bellavia's hands-off approach and what that allowed Pickart to get away with, and Bellavia's finances would be threatened (Issue 4); if Bellavia did not keep Nate Stum in the dark about his relationship with Pickart, Stum too would have posed a threat to Bellavia's finances as he would have reported any such activity to Chris or Scott Felix (Issue 3). Bellavia's glaring, ongoing conflicts of interest dictated almost all of his decision-making leading up to and during construction on the two Hutton Projects, and continued until the date of his termination. When considered in this light, it is clear that Bellavia's acts and omissions-his refusal to follow direct instructions regarding subcontractor selection despite agreeing to do so (Issue 1)°, his silence when met with questioning by Hutton about Pickart Development (Exs. 801 & 802), his failures to disclose that Pickart would only be devoting 50% of his efforts to the Hutton Projects, his maneuvering to exclude HCC's director of construction Mark Richardson from the procurement process’ (Issue 4), his lack of participation in the scoping of subcontractor-contracts (Issue 2)-were driven by concern for his personal finances. The evidence showed that Bellavia would do whatever it took to keep Pickart-who 6 Ex. 514. All exhibits referenced herein are attached to the concurrently filed Evidence In Support of Hutton's Opposition to Indemnity Trial Brief. Citations to exhibits are to the Trial Exhibit numbers from Phases I & II. 7 See, e.g., Ex. 302. 1063968.1 8 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H LA KE A V E N U E , 7 F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 « Fa x (6 26 ) 79 6- 01 07 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 was managing the seismic retrofit for the Bicknell property, the single largest investment of Bellavia's life - happy and Hutton in the dark. This increased the likelihood that the Bicknell construction would be completed successfully and that the returns from his multiple investments with Pickart and John Acierno would be maximized. It should not be forgotten that Bellavia had additional reasons for putting his interests front and center. By the time the Magnolia contract was awarded, Bellavia had developed a chip on his shoulder because he thought Chris Felix was breaching the employment agreement by not awarding Bellavia a 25% bonus equity interest in other Hutton projects. These allegations, dismissed via the HDC/Felix motion for summary adjudication, formed the basis of Bellavia's initial cross-complaint. As with so many of Bellavia's assertions, these baseless allegations turned out to be nothing more than post hoc rationalizations for Bellavia's wrongful, deceptive conduct. A. Bellavia Lied. Repeatedly. Bellavia lied; unquestionably. He lied leading up to Hutton's engagement of Greystone as the general contractor, and throughout the Hutton Projects. He lied after his termination on April 15, 2013. He lied during discovery, and he lied in front of the Court during trial. 1. Bellavia Lied Regarding the Felixes' Knowledge of Pickart's Outside Business Activities During Bellavia's deposition, Hutton's counsel attempted to establish that Chris and Scott Felix had not known about Pickart's outside business activities when they decided to contract with Greystone. Bellavia was adamant that he had "had several discussions [with Chris Felix] about Dan's performance." Referring to the Felixes, Bellavia also claimed that, "They knew it right up front. They knew it from before Greystone was hired. They were told that by David McMahon. And I'll repeat this again for your benefit, Counselor: David McMahon came into a meeting several times and said that Dan had outside dealings. And they asked how he was going to come onboard. And David said, "We'll figure 8 that out. He may be a consultant. He may be an employee, but we're not sure." This stands in stark contrast to the testimony of Chris Felix, Scott Felix and David McMahon. 8 Bellavia Deposition, Vol. IV, 10/14/2014, 225:9 - 226:9. Excerpts from Deposition Transcripts are attached to the Declaration of John Darling Re: Deposition Transcript Excerpts. 1063968.1 9 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H LA KE A V E N U E , 7™ F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 + Fa x (6 26 ) 79 6- 01 07 © 0 NN S N n A 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 McMahon, for instance, testified as follows: Q: How did you come to know what you just testified about in terms of the business dealings of Mr. Pickart and Mr Bellavia in the March 2012, June of 2012 time period what you knew at that time? A: Dan told me. Q: And did you indicate what you learned in that regard to anybody at Hutton, like Chris Felix or Scott Felix at that time? A: I was unaware of the nature of the relationship between Savoy and Hutton. And felt like Savoy would disclose anything that he felt like his relationship required he disclose to Hutton.” The Court concluded that Bellavia never provided this information to the Felixes: "Regardless of why Bellavia did not provide the Felixes with this information, he plainly left them in the dark. More to the point, because it was in Bellavia's personal financial interest that Pickart perform well on his personal projects at the same time that Bellavia was overseeing Pickart's work for Hutton on La Verne and Magnolia, Bellavia had a conflict of interest." (SOD 14:14-19, emphasis added.) 2. Bellavia Lied About What Pickart Development Was Two days before the La Verne contract was signed, Scott Felix explicitly asked Bellavia who Pickart Development Inc. ("PDI") was and expressed concern that, if Pickart had a rehab business on the side, then Hutton's interests could be severely impacted. (Exs. 801 & 802.) Mr. Felix opined that Pickart might exploit his role at Hutton to leverage better deals or free work on his side projects. As the Court is well aware, Mr. Felix's concerns proved to be entirely correct as Pickart was in fact trying to secure kickbacks and/or free work from numerous subcontractors. (SOD 19:8-15.) Bellavia said nothing. Based on his knowledge at the time, Bellavia should have explained the nature of his dealings with Pickart. It is undisputed that Bellavia did not disclose investing with Pickart on the rehab project, his knowledge about Pickart Development, or that Pickart was managing Bicknell and procuring work on the seismic retrofit project while awarding contracts on the Hutton projects. Bellavia did not disclose these facts in Nov. 2012, nor any time prior to his termination. 3. Bellavia Lied About Pickart's Commitment to the Hutton Projects Prior to execution of the MAG general contract, Bellavia failed to disclose material information regarding Pickart’s disinterest in serving as a full-time project manager on the Hutton Projects. He ° Trial Transcript, 6/20/2016, D. McMahon, 143:17 - 144:4. (All excerpts from Trial Transcripts are included in the Declaration of John Darling Re: Rough Trial Transcripts.) 1063968.1 1 0 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H LA KE A V E N U E , 7" F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 « Fa x (6 26 ) 79 6- 01 07 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 23 26 27 28 subsequently concealed the fact that Pickart wanted to quit his jobs as project manager entirely. Pickart told Bellavia on December 1, 2011 that he did not want to be Hutton’s full-time project manager. This was prior to hiring Greystone as the general contractor. (Ex. 261.) Pickart confirmed at trial that he never intended to be a full-time project manager on the Hutton Projects. (6/14, Pickart, 178:19-26.) The evidence produced at trial, however, demonstrated that Bellavia concealed these facts from Chris and Scott Felix, and gave Nate Stum the impression that Pickart was a committed, full-time project manager. (See 6/20/2016, Nate Stum, 43:12-45:9 & Ex 368.) Hutton and Greystone expected nothing less. Scott Felix testified that had Bellavia disclosed that Pickart had no intention of working as a full-time PM in June 2012 that would have impacted Hutton's decision to select Greystone as the GC on their projects. (6/28/2016, 64:21-65:13.) Bellavia breached his duty to Hutton by not disclosing this fact to the Felixes back in December 2011, plainly breached that duty again by not disclosing this fact before the MAG contract was entered into on June 11, 2012, and did so again before the LAV contract was entered into on November 14, 2012. Further, Bellavia's failure to disclose that Pickart later wanted to quit because he was too busy with the Bicknell seismic retrofit and his real estate brokerage was yet another breach. Pickart testified that he disclosed to Bellavia in the fall of 2012, and again in January 2013, that he “wanted out” of his PM position. Bellavia never disclosed these critical facts concerning Pickart's lack of interest in performing his job on the Hutton Projects to the Felixes. Pickart told Bellavia he wanted to commit at most 50% of his time to Hutton work. At trial he testified that his time commitment never changed nor did he tell Bellavia that it ever changed. Bellavia also knowingly empowered Pickart in March 2012 to be the project manager at the Bicknell property, knowing it would cause an unacceptable conflict of interest if Pickart were to assume the same role for Hutton. As explained below, these nondisclosures were a substantial factor in harming Hutton. 4. Bellavia Lied About His Contacts With Subcontractors Bellavia's testimony regarding his contacts with subcontractors during the procurement process was all over the map. On one day, Bellavia testified he had numerous contacts with the subcontractors bidding on the Hutton Projects; on another day, he testified: "No, I did not. I had no contact with the 1063968.1 1 1 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H L A K E A V E N U E , 7" F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 + Fa x (6 26 ) 79 6- 01 07 wm BA W N N O 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 24 28 subcontractors. That's what Greystone was getting paid to do. I had no contact with them." However, during his deposition, Bellavia testified, "I mean, I got emails from all of the - or a lot of the subcontractors during the bid process." Given that the subcontractors who testified (both at trial and in deposition) said they neither had contact with nor heard from Bellavia - nor did they know who he was - it is apparent that Bellavia did not have any contact or communications with these subcontractors despite Hutton's expectation that he would be involved in this process. 5. Bellavia Lied About Pickart's Sweat Equity Position in the Bicknell Project During attempts to discover how Pickart acquired his 50% equity position in the Bicknell property, Bellavia was asked whether he and/or Acierno loaned or gifted any money to Pickart, who was 29 at the time of the acquisition. Bellavia testified neither of them had done so. When asked how Pickart was able to make a down-payment on the Bicknell property so as to become a 50% owner, Bellavia testified that Pickart, "had his own money." This stands in stark contrast to Acierno's testimony. Acierno was asked, "In terms of the work to be performed on the Bicknell property, was it your understanding that you and Bellavia would pay for it?" Answer: "Yes."'? Acierno also testified that in return for granting Pickart his 50% sweat- equity interest in Bicknell, he and Bellavia expected that Pickart would act as a full time manager of the building and the seismic retrofit construction project that was necessary.'* 6. Bellavia Lied About Pickart Doing a Good Job on the Hutton Projects Bellavia was the only witness to testify that Pickart had done a good job on the Hutton Projects. Even if Bellavia believed this to be true in 2013, which Hutton disputes, there is no way he believed this to be true when he testified at trial in 2016. The testimony of Doug Lindsey, a Greystone employee and job superintendent for the Magnolia b= Trial Transcript, 6/27/2016, Bellavia, 34:13-15. Bellavia Deposition, Vol. 111, 9/22/2014, 637:21 - 638.9. Bellavia Deposition, Vol. II, 9/16/2014, 384:20 - 385:10. Trial Transcript, 6/21/2016, J. Acierno, 133:2-5. Trial Transcript, 6/21/2016, J. Acierno, 143:5-10. 5 o= = 1063968.1 12 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , IN C. 30 1 N O R T H LA KE A V E N U E , 7 F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 + Fa x (6 26 ) 79 6- 01 07 Oo 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 23 26 27 28 Project and for La Verne!®, makes it clear that Pickart was often absent and unreachable, and that numerous people felt he was doing a bad job: Question: And when you went to the Greystone offices and asked Dan, "What's going on," were you, in effect, saying, "Why aren't you doing your job?" Answer: Correct. Question: And what did he tell you? Answer: He told me that he was extremely busy and that he was trying to get some - trying to get some help. Question: Busy with what? Answer: He just said he had other things that he was trying to do. He had other things that he was doing with himself personally in his own business. Question: His own business? Answer: Yeah. .. Question: Well, your take away in that meeting is it fair to say that when you said to him, "What is going on," he said, "I'm really busy with stuff, my non-Greystone stuff. I'm trying to fix it." Answer: Yeah. Question: He never fixed it, did he? Answer: No.'¢ 7. Bellavia Lied About His "Fear" of Scott Felix Bellavia forwarded the Scott Felix emails asking about Pickart Development to his wife. (Exs. 801 & 802.) Bellavia called the emails the “Manuscript of a Madman.” Id. Bellavia testified at his deposition that gave the emails this name, "[b]ecause it was just the way it rambled on." However, at trial, this testimony morphed into a wild assertion that Bellavia forwarded the email and titled it as he did because he was concerned that Scott Felix would shoot him. Bellavia testified that he forwarded the emails to his wife because, "I wanted to have a record of it at home." The Court then followed up, asking why Bellavia was worried about having a record: The Court: "Let me interrupt you. When you say you wanted to have a record of it at home, what did you think was going to happen? My question is did you think he was going to fire you? Bellavia: No, I wasn't worried at that point. The Court: What were you worried about then? In other words, what was it that motivated you to keep it, then? Bellavia: Just his volatile personality. I didn't know what he was going to do. The Court: Did you think he was going to shoot you with his gun? Bellavia: I wasn't sure. The Court: So you actually thought he might shoot you. Bellavia: I had some concern. The Court: And what would keeping an email do to prevent being shot? Bellavia: I don't know at that point, but it was just something to have. 8. Bellavia Lied About Whether Pickart Owed Him Any Money Questions arose during Phases 1 and 2 regarding whether Pickart still owed Bellavia any money, and exactly when any outstanding debts had been repaid. Both Bellavia and Pickart testified that all loans had been repaid as of May 2012. Scott and Chris Felix, and the Court, took them at their word. 15 Bellavia testified that Mr. Lindsey, "did a very good job" on these two Projects, and testified to Mr. Lindsey's honesty. See Excerpt of Bellavia Deposition, Vol. II, 9/16/2014, 360:13-24. 16 Trial Transcript, 6/22/2016, D. Lindsey, 147:6 - 148:18. 17 Deposition Excerpt, Bellavia, Vol IV, 10/14/2014, 242:3-10. 18 See Trial Transcript, 6/27/2016, Bellavia, 162:15 - 163:9; see also 6/28/2016, S. Felix, 73:21 - 76:22. 1063968.1 13 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H L A K E A V E N U E , 7™ F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 + Fa x (6 26 ) 79 6- 01 07 OO N N O 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Subsequent developments demonstrate this was not true. Bellavia testified during Phase II that Pickart did not owe him any money. Bellavia claimed that as of April 2012, there was one outstanding loan in the amount of $175K owing from Renew Investments (Pickart's property investment venture fund) to Bellavia's trust, but that Pickart personally owed him no money." Exhibit 147, created and offered into evidence by Bellavia during Phase 1, purports to be a compilation of various loans Bellavia's trust made to Renew Investments. It shows the date that each and every loan was paid off, including the most recent repayment of $175K in May of 2012. In other words, as of May 2012, supposedly neither Pickart nor Renew Investments owed the Bellavias any money?’ Pickart confirmed this when he testified: Q: AND WERE THEY ALL REPAID IN FULL BY MAY OF 2012? A: YES. Q: AND THAT IS BEFORE THE CONTRACT ... WAS SIGNED? A: CORRECT. Nonetheless, on April 16, 2018, the Bellavias sued Pickart to recover $115K on a February 2014 promissory note which allegedly was to be repaid on or before April 15, 2015.2 During the pendency of the underlying trial, Bellavia now alleges that Pickart was indebted to him for $115K, and this debt was a year overdue prior to the beginning of Phase II in June 2016. The Court has become an unwitting victim of Bellavia's fraudulent concealment along with Chris and Scott Felix. This revelation calls into question the veracity of the entirety of Bellavia's trial testimony.” 9, Bellavia Lied About Signing the Bid Evaluation Sheets Given Bellavia's propensity for concealing material facts, his assertion that he reviewed, signed, and often wrote his analyses on each and every bid evaluation sheet for the trades for both Hutton Projects cannot be believed. Given the competing testimony of Jennifer Armstrong, Hutton's office Trial Transcript, 6/27/2016, Bellavia, 25:23 - 26:13. 20 Trial Transcript, 3/7/2016, Bellavia, 71:14 - 73:3. 2! Trial Transcript, 6/14/2016, Pickart, 174:8-20. Please see the concurrently filed Request for Judicial Notice, to which this new complaint is attached. Relatedly, Bellavia's suggestion that he does not have sufficient funds to satisfy his outstanding balance to Mr. Balmages of $138,182.61 (see Declaration of Savoy Bellavia iso ITB, § 7), and thus has given a $75K security interest on his house to his counsel (/d. § 8) is suspicious; not because it is not true, but because it suggests Bellavia is broke. Without belaboring the point, when Bellavia applied for his loan to purchase his Bicknell equity interest, his application indicated Bellavia had a net worth of +/- $6.5M in 2012 (see Ex. 101.) The Declaration of Michael Balmages re Billings to, and Payments by Bellavia says that the total amount invoiced to Bellavia to-date (not including the current month's billing) is $1.3M (§ 5). Unless Bellavia suffered a crippling loss of $5M, in a steadily rising market, this does not add up. 1063968.1 14 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H L A K E A V E N U E , 7™ F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 « Fa x (6 26 ) 79 6- 01 07 S O 0 N N OY 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 manager and accounting supervisor, and the bid evaluation sheets in evidence, Bellavia's naked assertion was unsubstantiated and not credible in any event.** Armstrong worked with Bellavia since the late 1980s. She worked with Bellavia on all aspects of accounting and operating payables in regard to Hutton's active construction projects, including Magnolia and La Verne. Q: Can you describe to the Court what roles Bellavia played on construction projects as it relates to construction accounting? A: I would get the draws in. I would go through them and check them for accuracy as far as paperwork, license, insurance and so forth. Mr. Bellavia, he would be the one to confirm whether the work was done and done satisfactorily. Q: Did Mr. Bellavia perform those same functions on the Magnolia and La Verne projects up to his date of termination? A: Yes.” Bellavia testified that he reviewed each of the bid evaluation sheets for all trades on both Magnolia and La Verne. He also insisted that he signed or initialed them and then physically handed them to Hutton's accounting department, which is Armstrong. Q: Was there ever a procurement or a subcontractor selection that was made by you that didn't involve you at least looking at a bid evaluation sheet before making a selection? A:No, I never made a decision without looking at a bid evaluation sheet. Q: So, you would have looked at this bid evaluation sheet? A: And I would have signed it, if there was a decision made. This one, I noticed at the bottom, is not signed or initialed. Q: Is there some reason why not all bid evaluation sheets are signed or initialed for all of the procurements? A: I can't tell you that. I don't know. I signed almost every bid evaluation sheet. In fact, if there were issues... on a particular item or a line item...[Dan] would take it back with him. If there was corrections made on it he would email it over if we wanted to get the contract done. I would sign it email it back too, and give it to our accounting department. I would copy the bid evaluation sheets after each meeting and hand them to our accounting department...Q: Who would you give them to? A: Normally Jennifer Armstrong. Armstrong testified that Bellavia never provided her with a copy of any bid evaluation sheets. Instead, she testified that not once did Bellavia provide her with a copy of such a bid spread. Armstrong's testimony established that Bellavia's story about multiple iterations of bid evaluation sheets was fabricated. Another takeaway from this testimony is that Bellavia did not perform his corporate 2 See Exhs. ## 421, 423, 424, 425, 505, 536, 578, 580, 583, 644, 660, 663, 727, 772, 906, 966. 5 Trial Transcript, 7/12 2016, J. Armstrong, 63:26 - 76:19. 26 Trial Transcript, 7/20/2016, Bellavia, 117:9 - 121:18. 1063968.1 15 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 NO RT H LA KE AV EN UE , 7™ FL OO R PA SA DE NA , CA LI FO RN IA 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 « Fa x (6 26 ) 79 6- 01 07 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 23 26 27 28 obligations in regard to the evaluation of subcontractor bids:*’ Q: Ms. Armstrong, during Mr. Bellavia's tenure with Hutton...Do you have any recollection of Mr. Bellavia giving you signed bid evaluation sheets to keep in a file or files? A: I never got [a] bid evaluation. Q: From Mr. Bellavia? A: That's correct. Q: Did you get any from Mr. Stum? A: No. ... Q: And within your office, did Chanda Taylor sometimes get documents from either Nate Stum or from Savoy Bellavia or anybody else that represented to the subcontracts? A: No she would not. Q: How would you know that, ma'am? A: Because I was the point for that. I would receive all of those documents. ... Q: And how long after the bid spreadsheets were signed would you receive them from Jodi Mayer? A: We did not get bid spreadsheets until after Mr. Bellavia and Mr. Pickart were gone. Bellavia’s subsequent testimony attempting to contradict Ms. Armstrong is simply not credible given all of the evidence: Q: By Mr. Balmages: How do you know you gave the bid spreadsheets to Jennifer Armstrong? A: I would hand them to her.?’ 10. Bellavia Deleted His Hutton-Issued Phone Bellavia's willingness to deceive and obfuscate calls into question a number of things he did which the Court may not have previously thought merited consideration. The deletion of his company- issued cell phone, less than 24 hours after his termination on April 15, 2013 is a primary example. Pickart testified that he exchanged text messages with subcontractors and Bellavia. He claimed he could not find them.*® Neither Pickart nor Bellavia produced any text messages despite repeated efforts to discover them. Bellavia wiped clean the one piece of that contained those text messages. No one will ever know what was in those text messages, but Bellavia's testimony that he deleted the entire phone because some of his personal information was stored on it is not believable given the circumstances.” B. The Record Evidence Demonstrating Bellavia's Liability Bellavia's numerous and often ongoing deceptions are relevant to analyzing his right to indemnification. They show the lengths Bellavia was willing to go in order to protect and maximize the return on his investments with Pickart. These lies, for instance, explain why Bellavia's not involving 7 As explained below, Bellavia should have also been reviewing the actual bids, but even he did not try to claim he reviewed those, because Nate Stum had testified that Pickart did not bother to bring the actual bids to their procurement meetings. 2 Trial Transcript, July 20, 2016, J. Armstrong, 132:19 - 135:12 (emphasis added). » Trial Transcript, July 20, 2016, Bellavia, 136:22 - 136:24. 3° The one text message Hutton was able to uncover was provided by Mike Trujillo of Tinco Sheet Metal, from whom Pickart attempted to secure a kickback. (Ex. 1401.) At trial Pickart admitted, "I asked Mr. Trujillo to conduct the work for free at Bicknell," at that his text exchange with Trujillo was evidence of this attempt. 6/14/2016 3:23 - 4:18. 31 See Excerpt from Deposition of Daniel Pickart, 11/4/2015, 960:11 - 963:8. 1063968.1 16 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H L A K E A V E N U E , 7™ F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 + Fa x (6 26 ) 79 6- 01 07 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Mark Richardson in the procurement process demonstrated Bellavia taking affirmative steps to bar Richardson from the process, in direct contravention of instructions from Chris Felix.** (Tr. Ex. 302). Bellavia testified that he knew Chris Felix wanted Richardson involved in all facets of the Hutton Projects, Bellavia's explanation that Richardson "was busy with other things" is not credible.* The evidence demonstrates that Bellavia's misconduct typically involved either (a) concealment or nondisclosure of facts, (b) affirmative actions undertaken in contravention of direct instructions®, or (c) failures to act in instances where a trusted employee and/or fiduciary would be expected to do something. Bellavia, as discussed more fully below, cannot be indemnified for any such actions or omissions. 1 Open-Book, Cost-Plus Environment The general contracts with Greystone were open book, cost-plus agreements. David McMahon, president of Greystone Multi-Family Builders, testified that the open-book nature of the contracts for Magnolia and La Verne meant, "that if the owner wants to see something, they get to see it."*® Chris Felix explained that, "an open book contract, is one where there is collaboration between the contractor, the project executive, the project manager...And if it's done as it is supposed to be done, all three are working actively to make sure that there is a competitive bid process... And that as part of that review, the goal and the objective of all three parties are aligned. And they are all, would go strictly for the benefit of the owner to get the best possible prices." McMahon also confirmed that one goal of operating in an open-book environment is to award subcontracts at a number that is at or below the budgeted line item for any given trade. To the extent change orders arise, the increased costs are typically taken out of the contingency line-item. Thus, preservation of the contingency is an important indicator of an efficient, successful procurement process.”’ Plaintiffs’ expert Jason Nolting testified similarly: "It is my experience, truly, that is the 32 See also, Tr. Ex. 237 - Bellavia's performance evaluation and review; Bellavia was a seasoned and trusted executive of Hutton and knew what was required of him in his role as executive and fiduciary of Hutton. 33° See Excerpt from Deposition of Savoy Bellavia, Vol. II, 9/16/2014, 365:15-22. 3 See, e.g., Ex. 3398. 3 Trial Transcript, 6/20/2016, McMahon, 139:7-24. 3 Trial Transcript, 7/12/2016, C. Felix, 113:18 - 117:8. 37 Trial Transcript, 6/20/2016, McMahon, 139:7-24 & 140:3 - 141:1. 10639681 17 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H LA KE A V E N U E , 7™ F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Tel (6 26 ) 44 0- 52 00 « Fa x (6 26 ) 79 6- 01 07 on oO 0 NN S N Wn 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 owners that are taking this type of agreement are seeking to beat their budgets. They are seeking to maintain their contingencies and are effectively wanting to control costs by participating in the process." 8 Hutton thus retained the ability to control the overall cost of the work and receive the potential cost savings that arose out of its own careful management of the subcontractor buy-out process. Bellavia's duties and responsibilities as the project executive required him to work closely together with Pickart on a daily basis. In order for the Hutton projects to be successful, Pickart and Bellavia had to devote their full time and attention to these projects, a fact they both knew. Both were being paid substantial salaries by Hutton to do so. The evidence showed that Bellavia failed to do these things. 2; Price and The Procurement Process Bellavia's lack of knowledge regarding kickbacks, etc., however, does not end the discussion. Knowing that Pickart was employing various subcontractors at Bicknell, Bellavia should have done more to make sure that Pickart's Magnolia and La Verne subcontractor recommendations were not influenced by Bicknell. Put another way, if Bellavia was truly looking out for Hutton's interests (as he was obligated to do), then he should have asked Pickart during the selection process if he was using any of the subcontractors on Bicknell. (SOD 15:19-25.) This section speaks directly to Issues 1 and 2 as defined by the Court for the indemnity retrials. (5/15/2018 Minute Order.) Issue 1 relates to Bellavia’s failure to follow subcontractor selection instructions, and Issue 2 relates to the question of whether there were excessive change orders resulting from improper scoping of the subcontracts by Bellavia. Bellavia was obligated to oversee the budget and buyout of subcontractors. To Hutton, price was paramount when selecting subcontractors in an open book, cost-plus environment. Bellavia testified that he understood this and agreed: "I think we were all aware of the importance of price, yes." Bellavia's understanding that a final grind would occur after the lowest priced qualified subcontractor was selected further confirms that price was key. (Ex. 487.) The Felixes both testified that Bellavia had a duty to ensure that he and Pickart were (a) obtaining at least three qualified subcontractor bids for each trade, (b) ensuring that each bidder was bidding to the same scope and *% Trial Transcript, 7/18/2016, J. Nolting, 225:25 -226:3. 3% See Excerpt of Trial Transcript, 6/27/2016, Bellavia, 32:17-33:1. 1063968.1 1 8 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H L A K E A V E N U E , 7 F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Tel (6 26 ) 44 0- 52 00 « Fa x (6 26 ) 79 6- 01 07 = WwW NN O N W n 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 schedule, and had sufficient ability, capacity and staffing to do the work, (iii) spreading the three most qualified bids and selecting the lowest priced bid from the evaluation sheet, and (iv) attempting to negotiate, or grind, down the lowest qualified bidder post-selection. The Felixes further testified that Bellavia had a duty to review in detail the bids that were being submitted and work closely with Mark Richardson to make sure that the bids provided by Pickart met the qualifying criteria.*® With respect to Richardson, “Mark has...extensive experience in dealing with the subcontractors in that marketplace. Mark has field experience, which Savoy does not have. They...bring different skills to the table. The whole purpose of their roles is to collaborate...and to bring their separate skills together to the maximum benefit of ownership.” Bellavia was obligated to provide Hutton with all the material facts that might negatively affect the financial soundness of any subcontractor selection decision. Bellavia ignored these obligations and instructions. Instead, in many instances Bellavia approved subcontractor selections without reviewing bids or bid evaluation sheets at all.** When he did look at these sheets long enough to initial them, he approved: 1) the selection of subcontractors after reviewing bid evaluation sheets that contained fewer than 3 qualified bids; and 2) approved higher priced bids even though lower-priced qualified subcontractors had submitted bids for the same trade. Furthermore, the only salient detail that any of the bid evaluation sheets contain is price, further establishing that Bellavia and Pickart knew full well that price was to be the deciding factor in subcontractor selection.’ To the extent Bellavia and Pickart testified at trial that they never intended to spread 3 qualified bids and/or select the lowest qualified bid from the bid spread, that testimony provides further evidence of Bellavia’s knowing disregard of his duties and his willingness to let the Felixes rely on statements Bellavia knew were false at the time they were made. As Hutton's project executive, it was critical that Bellavia review the bids in detail and properly supervise the bid process to ensure the selection of the subcontractors was scope to scope and in 4 See Excerpts of Trial Transcripts, 6/28/2016, Scott Felix, 44:5-15, 165:12-167:15 & 7/13/16, Chris Felix, 39:19-42:3. #1 Trial Transcript, 7/13/2016, C. Felix, 7:9 - 9:12. “2 Trial Transcript, 6/20/2016, N. Stum, 97:14 - 97:21; When asked whether Bellavia reviewed the actual bids as opposed to the bid evaluation sheets, Mr. Stum replied, "Perhaps in some cases but that wouldn't be - but not in most cases, I would say." “ only "qualified" subcontractors bids would be included in the bid evaluation sheets, thus price should have at that point dictated Bellavia's and Pickart's subcontractor selection decisions. 1063968.1 19 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 NO RT H LA KE AV EN UE , 7 FL OO R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 + Fa x (6 26 ) 79 6- 01 07 © 0 uN 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Hutton's best financial interests. As reflected in Nate Stum's 7/9/12 email (Ex. 514, p. 4), Bellavia understood he was supposed to review all the bids. Further, Bellavia's April 2012 email with Pickart confirms that he and Pickart would be reviewing "all bidders and bids." (Ex. 376.) Pickart likewise testified that on an open book contract the Owner's representative is expected to review and opine on the bids before the general contractor contracts with the subcontractors.** On the last day of trial, Bellavia admitted he did not review all the bids." Nate Stum testified Bellavia in most cases did not review the bids.*’ In particular, Bellavia testified that because Pickart did not always bring the bids with him, Bellavia approved subcontractors based solely on review of the bid evaluation sheets. Stum also testified that at the subcontractor selection meetings Bellavia, Pickart and Stum mainly just looked at the bid evaluation sheets prepared by Pickart, as opposed to any of the underlying documentation (such as bids or the scoping): Q: On these meetings on which the bid evaluations were considered and subcontractors selected, I'm a little unclear. Who exactly attended those meetings, generally speaking? A: Savoy, Dan, myself, for the majority of them. Q: And then anyone else ... occasionally? A: Yeah, ... maybe there was someone else involved. But generally speaking, it was the three of us. Q: And then if I understood your testimony correctly, mainly you guys look[ed at] the bid sheet as opposed to any of the underlying documentation? A: That is right. Furthermore, no one, including Hutton’s expert Jason Nolting, saw any emails or other documentation suggesting Pickart emailed or otherwise transmitted the bids to Bellavia. Greystone had no record of these purported emails either. Q: In the record you reviewed, did you see any transmittals from Mr.. Pickart to Mr. Bellavia before these alleged meetings where Mr. Pickart would actually send Mr. Bellavia the bids ahead of time? A: No sir, I did not.*® Bellavia never bothered to ask Pickart for copies of the bids, which constitute violations of his obligation to follow the subcontractor selection instructions contained in Exhibit 514. Bellavia had a fiduciary duty to review the bids and ensure on Hutton's behalf that the bids solicited by Pickart were See Excerpt of Trial Transcript, 6/6/2016, Daniel Pickart, 8:25-9:18. # See Excerpt of Trial Transcript, 7/20/2016, Savoy Bellavia, 114:14 - 115:2. “5 See FN 25. 47 See Excerpt of Trial Transcript, 6/20/2016, Nate Stum, 125:2-13. “8 Excerpt of Trial Transcript, 7/20/2016, Jason Nolting, 4:19-4:26. 1063968.1 2 0 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H L A K E A V E N U E , 7 F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Tel (6 26 ) 44 0- 52 00 + Fa x (6 26 ) 79 6- 01 07 I ~N O N W n 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 being compared objectively and fairly prior to selecting the lowest qualified bidder. Bellavia willfully ignored his contractual and fiduciary duties to review these bids and the underlying scopes.’ 3. Bellavia’s Failure to Properly Train Nate Stum The failure of Bellavia to properly train Nate Stum (Issue #3) ties in with Bellavia’s procurement failures (Issues 1 and 2).>° Stum was young and green, and the Magnolia project was the first time he had ever been involved in a construction job or buyout. Accordingly, Stum did not know what his training was supposed to consist of. The fact that he did not realize that the procurement meetings should have included a detailed review of the underlying bids, and not cursory examination of Pickart's bid evaluation sheets, is evidence that Bellavia did not properly train him. Had he been properly trained, he would have known the absence of the actual bids, and the lack of discussion and analysis of those bids at the procurement meetings, was anything but standard practice. 4. Bellavia Did Not Disclose Conflicts of Interest and Material Information A fiduciary has a duty not only to state truly what he knows, but also not to suppress or conceal any facts known to him that could materially qualify those facts. The disclosure must be full and fair. A fact is material if it is one that would be likely to affect the principal's judgment. Ford v. Cournale, (1973) 36 Cal. App. 3d 172, 182 n.8. Material facts are all facts that “might affect the principal's willingness to enter into or complete a transaction.” Roberts v. Lomanto, (2003) 112 Cal. App. 4th 1553, 1567. Bellavia's breaches of fiduciary duty, his lack of regard for Hutton's interests, his consistent practice of putting his own interests before Hutton's, are fundamental, and central, to all of his questionable actions. Had Bellavia been an honest and loyal fiduciary, the Hutton lawsuit would not have been filed. Instead, Bellavia created a snowball when he entered into the Bicknell tenancy in common agreement with Pickart in early 2012. Bellavia may not have intended that snowball to grow, 4 As discussed in more detail below, Bellavia defended his procurement failures on the ground that the Court found Hutton had no formal subcontractor selection "policy," and the explicit instructions in Exhibit 514 were overlooked by the Court in its Statement of Decision. Whether a formal policy existed was always more relevant to Hutton's claims against Pickart, who was not copied on Ex. 514 and was not an employee of Hutton. As to Bellavia, the Court's finding that no "formal policy" existed should have been irrelevant to the analysis of Bellavia's obligations given the existence of Ex. 514. 5% Hutton agrees with Bellavia that all four indemnity trial issues are in some sense overlapping and related. 1063968.1 21 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H L A K E A V E N U E , 7" F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 + Fa x (6 26 ) 79 6- 01 07 SH W N ~N S Y Wn 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 rolling downhill at a faster and faster speed, but he allowed it to happen, made no efforts to slow it down or temper its impact, and he was well aware of all the damage that now-boulder-size snowball was doing as it continued on its collision course with Hutton and its best interests. Bellavia empowered Pickart via their tenancy-in-common agreement (February 2012 - Ex. 313) to be Bicknell's managing and supervising agent. Bellavia claims blindness to Pickart's fraud, but Bellavia was charged with supervising this man. A principal who puts an agent in a position that enables the agent, while apparently acting within his authority, to commit wrongful acts against third persons is subject to liability to such third persons. The principal is liable even if (i) the agent acts solely for his own purposes, (ii) he is entirely innocent, and (iii) he received no benefit from the agent's acts. The principal is responsible for any act of the agent within the scope of the agent's authority. REST. OF THE LAW OF AGENCY, §§ 261, 262; Rutherford v. Rideout Bank, (1938) 11 Cal. 2d 479, 483-484; Cal. Motor Express, Ltd. v. Chowchilla Union High School Dist., (1962) 202 Cal. App. 2d 314; Warshauer v. Bauer Const. Co., (1960) 179 Cal. App. 2d 44. It is undisputed that Pickart was in charge of procuring work for both the Bicknell and Hutton projects. This fact alone created a fundamental conflict of interest that Bellavia should have disclosed to the Felixes. Procurement on two $20M construction projects ($40M in total) could not be run by a part-time project manager - who was only getting busier with his 50% sweat equity role at Bicknell and his real estate brokerage work. Further, Bellavia knew that Pickart would be engaged with the Bicknell seismic retrofit, along with Pickart’s other outside activities, and had been told that Pickart only wanted to devote 50% of his time and efforts to Hutton/Greystone. Nonetheless, when Bellavia had an opportunity to make this disclosure before Hutton had even awarded the contract to Greystone, he failed to do so. Instead, he represented that he would replicate Hutton’s College Park experience (the previous Hutton project on which Bellavia and Pickart were the leads). Prior to Hutton's selection of Greystone as the GC, Bellavia was well aware that Hutton was in the process of making a $40M decision. Bellavia advocated for Pickart and GS to be awarded this work under the pretense that they would replicate the profitably results Hutton had achieved with College Park. As Scott Felix testified, Hutton had already decided to award the general contract to Western National and Hutton's lender had approved the 1063968.1 22 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H LA KE A V E N U E , 7™ F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 « Fa x (6 26 ) 79 6- 01 07 = Ww N Y 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 23 26 2d 28 financing. Subsequently, Bellavia recommended that Hutton go with Greystone.”! Bellavia did this in furtherance of his own personal interests; no rational executive would have recommended a project owner contract with a GC whose project manager was destined to be, at best, 50% committed. To its detriment, Hutton went with Pickart and Greystone. At trial, Bellavia claimed that Hutton's GC selection was based, not upon Pickart's involvement, but upon the entire GS team that was being assembled for the projects. However, Bellavia's testimony is simply not credible. He had no choice but to admit that Pickart was integral to Hutton's reliance when he was shown his email to Pickart from March 2013 which stated quite clearly that, "Greystone got these jobs because of you." (Ex 1140.) A number of CJF's emails from March and April of 2012, when Hutton was weighing its GC options, also demonstrate the reliance Hutton placed upon Bellavia's recommendations. (See, e.g., Exs. 353 & 381.) The Felixes testified that had they known the truth, Hutton's actions would have been different.” 5 Bellavia's Wrongful Acts Done in Contravention of Instructions Not all of Bellavia's misconduct can be characterized as a failure to disclose or a failure to act. In many situations, Bellavia breached his obligations by action as opposed to omission. This is particularly true with respect to Issue #4 - Whether Bellavia failed to properly manage Mark Richardson, and that plaintiffs were damaged thereby (as defined by the Court’s May 15, 2018 Minute Order). This issue was touched upon above, in the context of Bellavia lying to Chris Felix when he assured him that he would involve Richardson "in all aspects of the project on a go forward basis." (Ex. 302.) Instead of involving Richardson, Bellavia did what he could to keep him away. Bellavia’s excuse for doing so was that Chris Felix told Bellavia not to have Richardson involved in "financial aspects" of the projects.” But this explanation makes no sense. If Bellavia meant Chris Felix did not want Richardson involved in the underwriting of the entire projects (bank loans, credit facilities, etc.), then 31" Trial Transcript, 6/28/2016, S. Felix, 144:24 - 145:21. 52 Bellavia sent the email because he was at that time struggling to protect his own financial interests (without regard to Hutton, as was always the case) by trying to keep Pickart from quitting his job as project manager on the Hutton Projects. 53 Trial Transcript, 6/28/2016, S. Felix 64:21 - 65:13. 54 No doubt owing to the fact that Bellavia sold this same line to Nate Stum as the reason that Richardson was not at the procurement meetings, Stum testified similarly. 1063968.1 23 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H L A K E A V E N U E , 7™ F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Tel (6 26 ) 44 0- 52 00 + Fa x (6 26 ) 79 6- 01 07 Oo 0 93 O y 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 this would have no bearing on subcontractor selection in any event. If Bellavia was suggesting that Chris Felix did not want Mark to see the financial aspects of the trades, such as budgets and bid information, this also makes no sense because it is absurd to think that someone could oversee construction without seeing such details. Thus, whichever meaning Bellavia intended, the explanation is not credible. The truth is that it was in Bellavia’s interest to keep Richardson away to prevent him from learning about Pickart’s obligations at Bicknell, which would have jeopardized Bellavia’s own personal finances. Instead of failing to act, however, Bellavia not only kept Richardson away, but tried to have him fired after Richardson questioned Pickart's absences and lack of job performance.” Bellavia's motivation - again-dictated his maneuvering, which did not involve purporting to act for Hutton. Stum testified that the participants at the procurement meetings were himself, Bellavia and Pickart’® Richardson - the man with the most experience with and knowledge of subcontractors - was not invited to these meetings. III. ADDITIONAL FACTUAL FINDINGS Hutton is correct that Pickart sought and/or accepted kickbacks from subcontractors, and also that one or more subcontractors who performed work on the Bicknell project were paid for this work through invoices submitted...on the La Verne and/or Magnolia projects. While the evidence of this misconduct suggests that it involved only a handful of subcontractors ...both Hutton and Greystone had every right in the world to remove Pickart from his job and thereafter to question everything he did on the two projects." (SOD 10:2-10.) The evidence also suggests that similar situations may have occurred with at least two other subcontractors--Petersen-Dean, a roofing subcontractor, and Constructure...Lest there be any doubt... about Pickart's actions, his email to Leo Vera of VE Companies. ..on February 20, 2013, makes clear his intentions. Specifically, Vera sent an email to Pickart telling him that VE needed a contract for its work on Bicknell, but that if it was awarded a contract on La Verne, then "we will get rid of 202 Bicknell and bill you off of the new contract. (Exh. 1118). (SOD 11:5-18.) ... Thus, even though the Court finds that Bellavia breached his employment contract and his fiduciary duty, and that both Bellavia and Pickart engaged in certain conduct properly labeled as fraud, the damages for these actions are far less than the amounts sought. Make no mistake, however, the relatively small amount of damages does not in any way lessen the fact that the Felixes had every right in the world to be upset by what they discovered in April 2013. (SOD 2:28 - 3:6; emphasis added.) 55 See, e.g., Ex. 3398. As Scott Felix explained at his recent post-trial deposition, Bellavia "neutered Mark. He put himina cage . . . that was his way to continue to manipulate information and isolate Mark." Deposition of S. Felix, 6/15/2018, 147:24 - 148:4. 56 See Excerpt of Trial Transcript, 6/20/2016, Nate Stum, 125:2-13 1063968.1 24 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H L A K E A V E N U E , 7" F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 + Fa x (6 26 ) 79 6- 01 07 wm Rr W N ~N Oy 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The Court's Statement of Decision following Phase II of the underlying trial, concluded that it would not award indemnification to Bellavia because Corp. Code § 317 requires a showing of good faith. The Court later determined it may have misapplied the statute and, on that basis, granted Bellavia’s new trial motions. As a result of the Court initially concluding Bellavia could not be indemnified under § 317, the Court's Statement of Decision is silent as to a number of matters crucial to the retrials of the indemnity actions. Hutton requests the Court make explicit that which is currently implicit in the SOD. a: Bellavia disobeyed direct orders regarding subcontractor selection, and never indicated he would not be following such instructions, to which he had agreed to commit himself - Ex 514. The Statement of Decision demonstrates that the Court concluded Hutton had no formal subcontractor selection "policy," but it is silent regarding the fact that Bellavia nonetheless violated Hutton subcontractor selection procedures despite accepting his obligation to follow such instructions. Q: Do you recall this email [Ex. 514] that you wrote to Scott Felix and Chris Felix on July 26, 2012. We'll do a final grind on every contract? When you wrote that, was that something Mr. Pickart had come up with, term final grind, or you had come up with? A: No, I believe that was Mr. Scott Felix's term. Q: And when you wrote that, what did it mean, "We'll do a final grind on every contract? A: Scott Felix had asked that after we select a contract - a subcontractor, that we go back and grind him for some additional discount on the deal. ... Q: This is Exhibit 487. From Scott Felix to you July 11, 2012, copied to Chris Felix. "Documenting our conversation earlier in our office. Write me back if anything is inaccurate. You stated Dan is crystal clear and we'll do a final squeeze on the lowest qualified sub at contract awarding. You kept assuring me he is a grinder.” Mr. Bellavia, in terms of that email, what did you mean when you told Scott Felix on June 11, 2012, that Dan was a grinder? A: ...Scott wanted us to go back to each of the subcontractors. That was the direction he gave us. I gave that direction to Mr. Pickart. And Dan was to go back and talk to each one of the subcontractors that had been selected through the - through the process and try and grind them down for some additional savings on each one of the - each one of the subcontracts. Q: Was Scott Felix...communicating to you the importance of price in the subcontractor selection process as of June - I'm sorry, July of 2012? A: The importance of price. Q: Yes, sir? A: I think we were all aware of the importance of price, yes... The Court: What do you mean by that term? The Witness: ...It didn't necessarily mean the lowest priced sub. It meant the lowest qualified sub. The Court: The lowest priced qualified sub, is that what you meant? A: Correct ... Q: July 9, 2012 email which is page 4 of this exhibit. Mr. Felix - Scott Felix had asked a question to Mr. Stum what you meant by "selected." Mr. Stum answers his question. You're copied on that. "Selected means that we have reviewed three or more bids from each subtrade and have made sure that each is qualified to do the work." In terms of what Mr. Stum wrote there, did you agree that was your understanding of the procedure at that time? A: Yes. Q: And the "We" includes you and him, Mr. 1063968.1 2 5 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H L A K E A V E N U E , 7% F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 + Fa x (6 26 ) 79 6- 01 07 OO 0 Nu 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 2 26 27 28 Stum, correct? A: Yes.” With respect to his breaches of fiduciary duty, Bellavia primarily asserted that Hutton's claim can be summed up by answering one question: Was there a formal, written "policy" requiring Bellavia to do what Hutton says he failed to do when selecting subcontractors? The evidence Bellavia pointed to in his Phase II closing trial brief consisted almost entirely of others’ testimony regarding whether they - not Bellavia - knew of a Hutton "policy" to solicit 3 qualified bids, spread them and then select the lowest.” However, as just demonstrated, the evidence showed that Bellavia received and committed to carrying out explicit instructions regarding subcontractor selection. (Ex. 514.) Bellavia's "policy" defense, in other words, improperly narrows this issue. Bellavia asserted that after Pickart testified, Hutton did an about-face and lodged an entirely new legal theory regarding Defendants’ intentional failure to properly select subcontractors. This is not accurate. In fact, the argument was made - verbatim - in Hutton's pre-trial brief” and again in Hutton's Opening Statement.” This defensive tactic continues to this day. (See ITB 18:1-5). Nonetheless, the proper analysis does not turn on whether Bellavia's fiduciary duties were defined in a formal policy. The question is: did Bellavia have a duty to do something that he knowingly or recklessly failed to do? The evidence, including Bellavia's own testimony, showed not only that he understood his duties with respect to subcontractor selection, but that he failed to comply with his known duties. The email in Exhibit 514 was sent in direct response to Scott Felix’s request for confirmation - from his fiduciary - regarding how subcontractors were being selected. The email unequivocally represented that 3 bids from subcontractors "qualified to do the work" would be reviewed and the lowest of the qualified bids would be selected. Ex. 514.4. While this may have been insufficient to qualify as a formal "policy," that did not relieve Bellavia of his duty (both contractual and fiduciary) to carry out 57 Excerpt of Trial Transcript, 6/27/2016, Bellavia, 30:17 - 37:26 (emphases added). % Bellavia Responsive Closing Brief 11:11 - 12:22. 5% “Instead, in July 2012, Pickart and Bellavia began awarding subcontracts on Paseos while intentionally 1) failing to obtain three competitively priced bids for all trades that were to perform work, 2) selecting subcontractors that were not the lowest qualified bidder, and 3) hiding lower qualified bids by not including them on the bid evaluation forms." (Plaintiffs’ Opening Trial Brief Re Phase 2 at 5:12-15.) Trial Transcript 6/62016, 39:11-14; 41:10-42:8. 1063968.1 26 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H LA KE A V E N U E , 7™ F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 + Fa x (6 26 ) 79 6- 01 07 EN SO O X N N N Wn 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 the obligations made therein. Jason Nolting affirmed that Hutton's expectation (whether it is policy or not) was for Bellavia to make sure he and Pickart qualify comparable bids before they hit the bid spread and select the lowest qualified bidder from the spread.®! The law does not require that a particular duty be memorialized in a formal written policy.®> To the extent Bellavia believed the agreed-upon subcontractor selection procedures could not be followed, or required modification, se had a duty to disclose that to Hutton. At a minimum, Bellavia had a duty to provide Hutton with the information substantiating the reasons why 3 qualified bids were not being spread or the lowest qualified bid reflected on the bid spreads were not being selected. Bellavia was obligated to oversee the budget and buyout of subcontractors. To Hutton, once subcontractors had been qualified, price was paramount in an open book contract. Bellavia's testimony shows he understood this. That he told Hutton a final grind would occur after the lowest qualified subcontractor was selected further confirms that to Hutton price was key. (Ex 487.) Scott Felix explained that he, "communicated with Bellavia regularly, and what was communicated to him was that price was paramount. We were coming out of a recession. These jobs were incredibly important to me, and we were going to negotiate every contract aggressively."® The Felixes both testified that Bellavia had a duty to ensure that he and Pickart were 1) obtaining 3 qualified bids, at minimum, for each trade, 2) making sure that each bidder was bidding to the same scope and schedule, had sufficient ability and resources to do the work, 3) taking those bids, spreading the 3 most qualified and selecting the lowest priced qualified bid from the bid sheet and, lastly, 4) attempting to negotiate down the lowest qualified bidder post-selection. The Felixes further testified that Bellavia had a duty to review in detail the submitted bids and work with Richardson to ensure the bids ' Excerpt from Trial Transcript, 7/19/2016, J. Nolting, 90:13-92:22. 52 The question of whether a formal policy existed was always more relevant to Pickart's liability, because Pickart was not on the e-mail chain in Ex. 514, and he was an employee of Greystone, and thus subject to the obligations contained in the general contracts for the two Hutton Projects. 5 Bellavia presented no evidence he did this. Instead he testified generally that 95% of the time after his buyout meetings he would meet with CJF to discuss the selections. (See Excerpt of Trial Transcript, 7/20/2016, Bellavia, 104:23 - 105:7.) This is a complete fabrication. CJT testified that other than the selection of Davis on La Verne he did not have discussions with Bellavia about subcontractor selections. (See Excerpt of Trial Transcript, 7/12/2016, 153:24-154:1) Had Bellavia disclosed what he was doing we would not be here. Bellavia also presented no documentary evidence to corroborate his post-litigation story that the subcontractors selected were better for Hutton % Deposition Transcript, S. Felix, 6/15/2018, 50:7-11. 1063968.1 27 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H LA KE A V E N U E , 77 " F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 « Fa x (6 26 ) 79 6- 01 07 ~~ O N nn Br W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 provided by Pickart met the qualifying criteria.®® And as explained above, Bellavia never even looked at the bids. While the SOD concluded that there was no formal subcontractor selection policy, it was silent with respect to Ex. 514 and the fact that Bellavia unequivocally agreed to do specific tasks with respect to the awarding of subcontracts. It is possible that the Court would have reached these issues if its initial analysis of Corp Code § 317 had been different. The Hutton Defendants respectfully request the Court expand upon its prior findings of fact by addressing Bellavia’s promise to perform these tasks during procurement, and his failure (as found by this court and as admitted by him) to do so. Such a finding would not conflict with the Court’s other findings in the SOD, and would make it clear that the misconduct of Bellavia at issue in the case included blanket omissions/failures to act. While the court said it “could not conclude” that subcontractor awards were not done for legitimate business reasons, such a finding would make it clear that Bellavia’s true failures were not questionable subcontractor selection decisions, but the absence of any decision-making itself. It would also demonstrate that Bellavia failed to follow these agreed-upon actions time and time again, because he was doing whatever was necessary to protect his own personal financial interests. This was the primary driver of Bellavia’s actions and, most importantly, his repeated failures to act. b: Bellavia disobeyed direct orders to involve Mark Richardson, Hutton Construction Company's director of construction, in all procurement-related decisions. Prior to the start Magnolia, Bellavia understood Hutton's expectation that Richardson would maintain an active presence on the Projects and report directly to Bellavia, and that Richardson was expected to be fully involved in all procurement decisions.* As Nate Stum (and Chris Felix) testified, Richardson was the most qualified person to actually ensure that the subcontractor bids being solicited were scoped correctly.’ The evidence shows that Richardson would have brought decades of construction experience into this process, including his past interactions with the subcontractors, and would thus have proven an invaluable resource during 5 See Excerpts of Trial Transcripts, 6/28/2016, S. Felix, 44:5-15, 165:12-167:15; 7/13/2016, C. Felix 39:19-42:3. 8 See Ex 302; Trial Transcript, 7/12/2016, C. Felix, 117:13-20; 7/13/2016, C. Felix, 39:19-42:3. 57 Trial Transcript, 7/12/2016, C. Felix, 115:4-24; 7/13/2016, C. Felix, 6:26 - 9:12; 6/20/2016, N. Stum, 97:22 - 98:6; see also, Trial Transcript, 7/29/2016, M. Richardson, 164:6-23 & 168:13 -170:3. 1063968.1 28 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H LA KE A V E N U E , 7 F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 « Fa x (6 26 ) 79 6- 01 07 5 ~~ S Y WD » 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 23 26 ZT 28 procurement, especially with respect to qualifying the subcontractors. Bellavia deliberately breached his duty to involve Richardson in procurement and also breached his corresponding duty to disclose to the Felixes his decision to exclude Richardson. Richardson's absence caused harm to Magnolia and La Verne as his expertise on selecting the lowest qualified bidder was not utilized as described in the damages section below. It is not the original charge that determines whether an act is or is not for the corporate good, but a factual finding. Plate v. Sun-Diamond Growers, (1990) 225 Cal. App. 3d 1115, 1124-25; see also, Wilshire-Doheny Assoc., Ltd., (2000) 83 Cal. App. 4th 1380, 1390 ("the question as to whether section 317 applies is a factual one . . . A trial on the allegations of the complaint is necessary to determine whether appellant's alleged acts . . . were in fact taken on behalf of the corporation, or whether appellants were acting to further their own personal interests.")(emphasis added.) IV. BELLAVIA IS NOT ENTITLED TO INDEMNIFICATION PURSUANT TO § 317(d) Legal authorities agree that director and officer liability risks being rendered meaningless if the company receives damages (or a settlement) from him, only to return the funds to him by way of indemnification. As one court wrote, "To permit a corporation to indemnify an officer or director for amounts paid in settlement or satisfaction of judgment in a derivative action would permit the management of the corporation to deprive the corporation, as ultimate plaintiff, of the very benefit it is meant to receive." TLC Beatrice Int'l Holdings, Inc. v. CIGNA Ins. Co., (SD NY 1999) 1999 WL 33454 *5 (applying Delaware law); see also Arnold v. Society for Sav. Bancorp, Inc., (Del. 1996) 678 A. 2d 533, 540 n. 18 ("Amending Section 145(b) to allow indemnification of judgments or amounts paid in settlement in derivative suits was rejected as circular since the corporation would simply be paying itself for injury caused to it by the very directors being indemnified by the corporation.") Bellavia’s indemnity complaints, given the underlying facts, his misconduct, his consistently putting his own interests before those of Hutton, and the damages awarded to HDC, squarely implicate such public policy concerns. A. Bellavia’s Motivations Are Relevant Corporations Code section 317(d) allows for indemnification only if a party was acting within his corporate function with regard to the transaction in question, not if he was acting for his own 1063968.1 29 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H L A K E A V E N U E , 7 F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 « Fa x (6 26 ) 79 6- 01 07 Oo KR NN 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 ZT 28 personal interests. “[W]here personal motives, not the corporate good, are predominant in a transaction giving rise to an action, indemnification is not warranted.” Plate v. Sun-Diamond Growers, (1990) 225 Cal. App. 3d 1115, 1123-24. This is the threshold question that must be addressed when a party seeks corporate indemnity under Section 317(d). In this case, there has been no judicial determination that Bellavia's actions exalted the corporate good over his personal interests warranting mandatory indemnification. The public policy reasons for Corporations Code section 317 are to allow a corporate agent, performing his or her duties with honesty and integrity, to be indemnified in certain circumstances by the corporation if the agent is sued for corporate acts. Wilshire-Doheny Associates, Ltd. v. Shapiro, (2000) 83 Cal. App. 4th 1380, 1388-1389. The central requirement in a Section 317 action is that “[t/he agent must have been acting to promote the corporate good, not personal profit or interests.” 1d. at 1389. (emphasis added.) The agent's actions must be connected to corporate functions, not personal matters. Id. at 1394. In Plate, two employees of Sun-Diamond growers decided to leave their employment, set up their own marketing organization and market the products of their prior employer. Plate, at 1119-20. They did so, ousting the prior exclusive marketing entity, H.R. Plate & Company Inc. Id. A suit followed, with Plate naming the two former Sun-Diamond employees as well as Sun Diamond. Id. at 1121-22. After trial, a judgment was entered against the former employees in favor of Plate. Id. Sun- Diamond and its remaining employees were exonerated. Id. The former employees sought indemnification under Section 317 and the trial court granted it. Id. Sun-Diamond appealed and the appellate court reversed the indemnity order, finding that the former employees had not been acting on behalf of Sun-Diamond, but for themselves and therefore did not fall within the scope of persons eligible for indemnification under Section 317. Id. at 1126. The Plate Court rejected the notion that a claimant's status as an employee alone could determine the right to indemnity under Section 317. Instead, the court held that if the complaint against the former employees arose from conduct undertaken in their own interest “and not in furtherance of Sun-Diamond's policies or objectives” indemnification is not warranted. Id. at 1126: We conclude the trial court's implicit finding that Branson and McElroy were sued by reason of 1063968.1 30 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H LA KE A V E N U E , 7™ F L O O R PA SA DE NA , CA LI FO RN IA 91 10 1- 18 07 Tel (6 26 ) 44 0- 52 00 « Fa x (6 26 ) 79 6- 01 07 A WL W ~~ O N W n 10 11 12 13 14 15 16 17 18 19 20 21 2 23 24 25 26 27 28 the fact they were agents of Sun-Diamond, and express finding that they acted in good faith, are not supported by substantial evidence. [§] The record establishes these defendants were sued because of activity undertaken to establish their own business entirely independent of Sun- Diamond, for their own personal benefit, and not in furtherance of Sun--Diamond's policies or objectives. Such activity was unrelated to the performance of their corporate duties and responsibilities at Sun-Diamond. The Plate Court also relied upon the New Mexico Supreme Court decision in Petty v. Bank of Am. of N.M. Holding Co., (1990) 109 N.M.524, regarding a party's right to seek indemnification from a corporation: To expand a list of persons entitled to claim the benefit of indemnification to include [persons] who are litigating questions [relating to their private interest] for their own private benefit, would go far beyond th[e] purpose of the statute. (Plate at 1124.) Plate teaches that a claimant's status as an agent is less important for purposes of Section 317 than the specifics of the agent's conduct that gave rise to the suit against the agent. This makes good sense. The rule acknowledges that an agent, whether an officer, director or employee, sometimes acts in his own interest, and sometimes acts in his principal's interest. B. Bellavia Was Found Liable to HDC For His Bad Acts and Omissions and Thus Cannot Seek Indemnification From HDC Bellavia was not "acquitted of any wrongdoing" as required for indemnity under Section 317(d). Plate v. Sun-Diamond Growers, supra, 225 Cal. App. 3d at 1123. Tellingly, after filing several briefs on the issue of indemnity, Bellavia has cited no authority for the proposition that a corporate agent who committed intentional misconduct and is held liable for breach of fiduciary duty, breach of contract, and fraudulent concealment must nonetheless be indemnified under § 317(d) if his principal did not succeed on every theory of recovery against him. This is a dubious proposition that would lead to an absurd result: rewarding a corporate agent for his or her own misconduct. As the Sun-Diamond Growers Court made clear, the public policy behind Section 317 "prohibits" such a result. Plate v. Sun-Diamond Growers, supra, 225 Cal. App. 3d at 1124. As stated by the court in Wilshire-Doheny, “[t]he policy considerations behind Section 317 ‘are that persons who serve the corporation in good faith should, in the absence of certain fraud, breach of fiduciary duties, etc. be free from liability for corporate acts.” ” 83 Cal. App. 4th at 1388-89 (quoting Plate v. Sun-Diamond Growers, 225 Cal. App. 3d 1115, 1122-23 (1990)). The findings of the Court, as 1063968.1 3 1 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H L A K E A V E N U E , 7 F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 « Fa x (6 26 ) 79 6- 01 07 O© «0 NN O N wn Bs 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 29 26 27 28 evidenced by the analysis contained in SOD, require a finding that Bellavia is not entitled to any indemnification under Section 317. C. HMG Was Not a Real Party in Interest and Thus Bellavia Cannot Seek Indemnification From Defendants For The Two Procurement Claims The mandatory indemnification statutes of most states apply whether success comes on the merits or on mere procedural grounds. Typically, provisions require indemnification where the person to be indemnified has been "successful on the merits or otherwise." See DEL. GEN. CORP. LAW § 145(c); N.Y. Bus. Corp. Law § 723(a); Pa. Bus. Corp. Law § 1743, Pa. Corp. Law § 518; Md. Corps. & Ass'ns Code § 2-418(d)(1); 805 ILCS 5/8.75(c). Likewise, the Model Act, with nearly identical language, provides that the person to be indemnified must have been "wholly successful, on the merits or otherwise." Model Bus. Corp. Act § 8.52. Unlike most states, California requires that the person to be indemnified succeed "on the merits" rather than "on the merits or otherwise." 317(d). Due to this omission, California courts have inferred "a legislative intent that mandatory indemnification should depend upon a judicial determination of the actual merits of the agent's defense just as permissible indemnification depends upon a determination by the corporation." See American Nat'l Bank & Trust Co. of Eau Claire, Wis. v. Schigur, (1978) 83 Cal. App. 3d 790, 793. California's provision, therefore, does not extend to success on procedural grounds unrelated to the merits. The procurement-related claims for which Bellavia seeks indemnification (Issues 1 & 2) are not indemnifiable because the real parties in interest were the LLCs, Magnolia and La Verne. Additionally, even if the Court were inclined to award fees to Bellavia as to Hutton Management Group (“HMG?”), they should be de minimus because Bellavia would have incurred his legal fees in defending against the LLCs’ procurement claims. Bellavia's assertion that he was successful on the merits because the Court dismissed HMG and SCF Capital, LLC (“SCF”) from this action on the basis that their claims were derivative of the LLCs' claims asks the Court to stretch § 317(d) beyond its intended purpose. Bellavia is well-aware that the Court found that HMG and SCF's claims were derivative of the LLCs claims and thus granted the motion for nonsuit on that basis: 1063968.1 3 5 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H L A K E A V E N U E , 7" F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 + Fa x (6 26 ) 79 6- 01 07 O e NN DY 10 11 12 13 14 15 16 17 18 19 20 21 39 23 24 25 26 29 28 June 27, 2016, 7:26 - 8:13: Mr. Darling: Yes, the LLCs suffered damages arising from two contracts that we have articulated. The Court: What damages then did Hutton Development Company suffer? Mr. Darling: We are seeking damages against Mr. Bellavia for return of his salary, or disgorgement . . . The Court: Okay, I see. That clarifies it. What you are saying is that the actual losses from the bidding process, for example, really go directly to the two LLCs that worked on Magnolia and La Verne? Mr. Darling: Yes, sir. The Court: I got it. Okay. Understood. That helps. Thank you. And on July 20, 2016, 34:8 - 34:12: The Court: Yes, you did. And I will say, Mr. Darling, my inclination is to grant that motion for nonsuit as to the claims by those two entities which are simply derivative as I read it of the claims of the La Verne Village and the Paseos LLC. The Court determined that HMG and SCF were "simply derivative" claimants and had no effect on the merits of any of the claims in this case. Essentially, HMG and SCF's claims were ‘one in the same’ as the LLCs' claims. Consequently, Bellavia's liability exposure remained the same despite the nonsuit rulings. Mandatory indemnification depends upon a judicial determination of the actual merits of] the agent's defense and not success on a technical defense. Am. Nat'l Bank & Trust Co. v. Schigur, (1978) 83 Cal. App. 3d 790, 793 (dismissal with prejudice was not a determination on the merits for purposes of Corporations Code § 317(d).) A defendant must achieve "success on the merits" to invoke § 317(d) - not merely a dismissal. See Wilshire-Doheny Assocs. Ltd. v. Shapiro, 83 Cal. App. 4th 1380, 1390-92 (2000). Certain dismissals may reflect "a judicial determination of the actual merits of the agent's defense"; others do not. Id. Here, the Court was clear that its dismissal of HMG and SCF did not: "To the contrary, those dismissals were simply the result of the Court concluding that these entities, as members of LLCs, did not have direct claims against Bellavia, only derivative claims." (SOD, p. 32:14- 16.) This was not a dismissal on the merits; it was a procedural dismissal with no effect on the Court's finding that Bellavia committed intentional misconduct. Furthermore, Code of Civ. Pro. § 631.8 empowers a court to rule that a given order for judgment of nonsuit was not on the merits. Here, the Court’s Amended Judgment is silent as to whether these dismissals were on the merits. The Court has the ability to make it clear that the nonsuits of HMG and SCF were not on the merits. Thus, Bellavia is not entitled to indemnity based on the dismissal of HMG. 1063968.1 3 3 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H L A K E A V E N U E , 7™ F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 » Fa x (6 26 ) 79 6- 01 07 a ~ N O N Wn 10 11 12 13 14 15 16 17 18 19 20 2] 22 23 24 25 26 27 28 Furthermore, even if the Court were to decide that Bellavia can be indemnified for his defense against the two procurement Issues, the indemnity award should be extremely limited as Bellavia incurred such fees in order to defend against the claims of the real parties in interest, Magnolia and La Verne. To successfully defend against these same allegations by HMG and SCF, all Bellavia had to prove to establish the claims were derivative was that HMG and SCF were the shareholders of the Magnolia and La Verne LLCs. To prove the claims were derivative, in other words, would not have reasonably involved a significant investment of time or resources. D. Bellavia Cannot Seek Indemnification From Defendants For The Two Procurement Claims Because He Disobeyed Direct Orders Which Caused Damages Even if the Court were to conclude that Bellavia may seek an indemnity award from HMG®, the evidence established that Bellavia accepted the detailed instructions he was explicitly given in regard to subcontractor selection and the scoping of subcontracts. His subsequent behavior amounted to a complete departure from these obligations. Importantly, Bellavia’s failures are not properly categorized as instances of Bellavia purporting to act in his corporate capacity. Rather, Bellavia’s failures were ones of omission, and thus he is not entitled to any indemnification from HMG under Section 317(d). On subcontractor selection, Bellavia essentially let Pickart run hog wild. Bellavia did not review the underlying bids, did not communicate with the subcontractors to negotiate down their prices, did not ensure the lowest priced qualified subcontractors were selected from a pool of three or more. With respect to change orders, this conclusion is even more apparent. This issue involved a claim that the poorly written scopes of work ultimately caused damages to the LLCs because these scopes practically guaranteed more than an average number of change orders. However, the evidence established that Bellavia, his obligations to the contrary notwithstanding, played hardly any role at all in reviewing Pickart’s scopes of work, and did not collaborate with Pickart to draft these scopes of work. Q IN THE RECORD YOU REVIEWED, DID YOU SEE ANY TRANSMITTALS FROM MR. PICKART TO MR. BELLAVIA BEFORE THESE ALLEGED MEETINGS WHERE MR. PICKART WOULD ACTUALLY 8 procurement claims refers to Issues 1 and 2 as defined by the Court. HMG is the only entity from whom Bellavia could seek an indemnity award for these issues. Though his ITB is not clear on this point, to the extent Bellavia may be trying to seek this award from HDC, HDC objects on the grounds that it is not the proper defendant against whom such an award can be assessed. In fact, HDC, having proved its claims against Bellavia, should not be subject to any indemnification award even if the Court were to grant one. 1063968.1 34 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H LA KE A V E N U E , 7™ F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Tel (6 26 )4 40 -5 20 0 « Fa x (6 26 ) 79 6- 01 07 Ww Oo 0 NN 10 11 12 13 14 15 16 17 18 19 20 21 2 23 24 25 26 27 28 SEND MR. BELLAVIA THE BIDS AHEAD OF TIME? ... THE WITNESS: NO, SIRIDID NOT. Q BY MR. DARLING: DID YOU SEE ANY EMAIL BETWEEN MR. PICKART OR MR. BELLAVIA WHICH DESCRIBED -- OR ANYTHING IN WRITING -- QUANTIFICATIONS OTHER THAN PRICE? THE WITNESS: IT WAS RARE. MY MIND JUMPED TO THE LA VERNE APPLIANCE YESTERDAY THAT 1 SHOWED AN EMAIL - 1 SHOWED AN EMAIL THAT I TALKED ABOUT DISCUSSING THE DIFFERENCE BETWEEN GE AND WHIRLPOOL. BUT THAT WAS A RARE INSTANCE IN MY RECOLLECTION.” And there can be no doubt that these failures to act damaged the Hutton entities due to inflated, poorly scoped subcontracts which caused excessive change orders and delays. "I believe there was significant financial overrun when comparing the budgeted cost of work as planned as to as built and that caused m[e] to believe that Hutton didn't receive full benefit of Bellavia's participation and salary during that period."” And with respect to the damages award equating to 50% of Bellavia's salary, the Court made this award based in part on Nolting's testimony that he was, "attempting to estimate essentially the lost value arising out of Bellavia's participation on the projects."”! These failures to act, even in a case where the damages awarded were ultimately much smaller than the damages Hutton had sought, are not indemnifiable pursuant to Section 317(d). E. Bellavia Cannot Seek Indemnification From HCC Because He Excluded Mark Richardson From Procurement In Contravention of Direct Instructions’ "And if Richardson was involved, this would have smoked itself out much sooner, and I think Bellavia organically knew that."” As discussed above, Bellavia was given clear and explicit instructions by Chris Felix to involve Mark Richardson in all aspects of the procurement process. Not only did Bellavia exclude Richardson from the process, he attempted to have him fired because he was concerned that Pickart's dereliction of his project management responsibilities would be discovered by Richardson and, ultimately, by Chris and Scott Felix. F. Bellavia Cannot Seek Indemnification From Defendants Because He Did Not % Trial Transcript, 7/20/2016, J. Nolting, 4:19 - 5:10. ™ Trial Transcript, 7/19/2016, J. Nolting, 69:15-20. "Trial Transcript, 7/19/2016, J. Nolting, 69:2-4. 2 HCC is the only entity from whom Bellavia could seek an indemnity award for Issue 4. To the extent Bellavia seeks this award from HDC, HDC objects on the grounds that it is not the proper defendant against whom such an award can be assessed. . 7 Deposition Transcript, 6/15/2018, S. Felix 148:18-20. 1063968.1 35 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , IN C. 30 1 N O R T H L A K E A V E N U E , 77 " F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Tel (6 26 ) 44 0- 52 00 + Fa x (6 26 ) 79 6- 01 07 = WwW o R 9 O Y W n 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Adequately Train Nate Stum’* Also discussed above, Bellavia’s omissions in his failures to train Stum were so glaring that Stum did not even realize that the procurement meetings he attended with Bellavia and Pickart should have involved an analysis of the actual bids and scopes underlying the bid evaluation sheets prepared by Pickart. Bellavia's nondisclosure of material facts also created a situation where Stum was not able to add the value he otherwise would have had he been trained by a loyal fiduciary. V. ALTERNATIVELY, PLAINTIFF'S REQUESTED FEE AWARD IS GROSSLY INFLATED In the event the Court awards indemnification to Bellavia, it must contend with the fact that Bellavia’s Indemnity Trial Brief wildly over-reaches, and seeks an inflated fee award without consideration for the other issues that must bear upon the Court’s determination of the proper amount. The determination of what constitutes reasonable attorneys’ fees is left to the discretion of the court, which makes its determination after consideration of a number of factors, including “the nature of the litigation, its difficulty, the amount involved, the skill required in its handling, the skill employed, the attention given, the success or failure, and other circumstances in the case.” Melnyk v. Robledo, (1976) 64 Cal. App. 3d 618, 623-624.) A. Bellavia Failed to Account For His Bad Acts and Omissions Which Triggered Liability Claims that the employee committed a breach of fiduciary duty or fraud falls outside of the employee's course and scope of employment. Davidson v. Welch, (1969) 270 Cal. App.,2d 220. Bellavia's attempt to recover 80% of his Phase II legal fees defies logic. The Hutton Plaintiffs successfully prosecuted claims against Bellavia for breach of fiduciary duty, breach of contract and fraudulent concealment. The fact that Bellavia contested everything (including the plain fact that he was a fiduciary)”, and would not admit to any of the misconduct for which the Court ultimately found ™ HCC is the only entity from whom Bellavia could seek an indemnity award for Issue 3. To the extent Bellavia seeks this award from HDC, HDC objects on the grounds that it is not the proper defendant against whom such an award can be assessed. 75 Bellavia’s refusal to stipulate to his obvious fiduciary status ultimately led to an additional round of briefing during Phase (footnote continued) 1063968.1 36 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H LA KE A V E N U E , 7™ F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 « Fa x (6 26 ) 79 6- 01 07 oO 0 3 A 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Zo 26 27 28 him liable, required Hutton to invest more resources to prove up these contested issues. And while Bellavia reduces the percentage of fees he seeks to recover in the other time periods, the percentages sought in the periods prior to Phase II are just as susceptible to challenge on this basis because there were more facts and non-indemnifiable claims at issue during those periods. Especially here, in a case where Bellavia’s misconduct more often than not involved his failures to disclose and failures to act, the time required to prove such misconduct became that much more substantial. When a party has the burden of proof, and is trying to prove that the defendant did not disclose a conflict of interest, for example, it is not sufficient for that party to merely testify that the defendant’s denial is manufactured. The preponderance of the evidence standard requires more. Thus, to ensure it adequately established that Bellavia never disclosed his ongoing conflict of interest with Pickart, Hutton had to question multiple witnesses who could substantiate its claims. It had to introduce documentary evidence establishing that neither Chris nor Scott Felix had knowledge of Bellavia’s conflict; if such evidence existed, Bellavia would most certainly have pointed to it as proof that the information had in fact been disseminated to the Felixes. Practically speaking, it will always take more time, effort and resources to prove inaction or nondisclosure as opposed to proving affirmative acts or misrepresentations. B. Bellavia Failed To Account For the Time Spent Prosecuting His Cross-Claims Other than eliminating the fees he identified as having been incurred wholly due to non- indemnifiable matters, Bellavia makes only a passing attempt to account for the prosecution of his cross- complaint. See Declaration of Michael Balmages re Fees Charged to Bellavia for Defense of the Indemnifiable Matters. Up until the Court’s filing of the Statement of Decision and Amended Judgment, Bellavia was aggressively pursuing his own cross-claims. None of the fees incurred for such efforts are indemnifiable, and it appears an insufficient effort went in to identifying and discounting time entries for which a portion of the entry was devoted to non-indemnifiable matters. C. Bellavia Failed To Factor In Time Hutton Needed to Prosecute Its Claims Against Pickart 11 on the law of fiduciary duties during the pendency of the Phase II trial. (Briefs on 6/26/16 and 7/8/16.) 1063968.1 37 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 NO RT H LA KE AV EN UE , 7 FL OO R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 « Fa x (6 26 ) 79 6- 01 07 wv BA W N SS O X 0 AN 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 "The Parties devoted a great deal of trial time and exhibits to the issue of the quality of Pickart's job performance of the two Projects. In support of this argument, Hutton presented a number of witnesses who testified that Pickart was not available in person or by phone to answer questions from subcontractors and job superintendents." (SOD 7:14-19.) As the Court correctly noted, a significant amount of time was spent on proving the quality of Pickart’s job performance. This was necessary for the prosecution of Hutton’s claims against Pickart, which were not co-extensive with the claims Hutton asserted against Bellavia. Pickart commited fraud. Punitive damages were assessed against Pickart. Though Hutton originally thought Pickart and Bellavia may have conspired with one another to get sweetheart subcontractor deals at Bicknell by leveraging Hutton’s buying power, the Court concluded this had not happened; it found that only Pickart was aware of the Bicknell subcontractors’ identities. But Pickart himself was in fact guilty of engaging in precisely this kind of conduct: seeking free work, kickbacks, and other sweetheart arrangements. The only real evidence Bellavia introduced that distanced himself from Pickart’s conduct was his and Pickart’s testimonial denials.” That does not involve the expenditure of a significant amount of attorney’s fees. The fact that Bellavia’s counsel chose to attend every single subcontractor deposition, despite the fact that he had a joint defense agreement with Pickart and that Pickart’s counsel's attendance would have been sufficient for Bellavia’s purposes, does not mean that Section 317(d) requires indemnification for incurring such fees.”” Each and every one of these depositions, however, was necessary for Hutton to prosecute its claims against Pickart. Any such fees incurred by Bellavia are not subject to a § 317(d) award as they were not reasonably incurred in connection with his successful defense against any indemnifiable claims. D. Bellavia Ignored Pickart's Claims Against Greystone Pickart cross-claimed against Greystone, alleging five causes of action: equitably indemnity, contribution, statutory indemnity, breach of contract, and declaratory relief. Bellavia has not attempted 76 Though Pickart, who Bellavia now claims owed him over $115K throughout the trial, was of course motivated to testify favorably for Bellavia during the trial. "See Darling Declaration Regarding Bellavia’s Alleged Attorney’s Fees. 1063968.1 3 8 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H L A K E A V E N U E , 7™ F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 + Fa x (6 26 ) 79 6- 01 07 A w D ~~ O N Dn 10 11 i5 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 to discount his requested indemnity award for the fees he incurred while these claims were being litigated. E. The Intertwined Nature of the Claims Bellavia argues that the four indemnity claims at issue here are inextricably intertwined. The Hutton Defendants agree. However, Bellavia did not go far enough. Not only are the indemnity claims intertwined, but the Hutton Plaintiffs' claims against Bellavia for breach of fiduciary duty, breach of contract and fraudulent concealment are bound up with his indemnity claims as well. A significant portion of the fees Bellavia incurred to defend against Hutton’s prosecution of its three successful causes of action against him is thus also now being claimed by Bellavia via his indemnity actions. Bellavia fails to make any attempt to account for this, but there is no basis upon which he should be awarded any of these overlapping fees. Again, the amount of damages Hutton was ultimately awarded should have no bearing on this analysis. Bellavia was found to have been dishonest and deceitful, and to have hidden material information from Hutton for well over a year prior to his termination. Throughout trial he insisted he disclosed various material information to Hutton. The Court concluded Bellavia did not make such disclosures. Bellavia incurred a significant amount of fees in attempting to defend against these bad acts and omissions, and he cannot be awarded indemnification in such instances. Such a result would contravene both the letter and the spirit of Section 317(d). There would be no equity in such a result. The Change-Order Related Fees Must Be Drastically Reduced Jason Nolting, who reviewed the roughly 254 change orders stemming from subcontracts awarded prior to Bellavia's termination for Magnolia and La Verne, testified that the Projects involved a much higher than usual number of change orders, and he pointed to Pickart's poor scoping as the cause of the number and size of the change orders.”® Here again, Bellavia's failures were ones of omission. There is no evidence Bellavia involved himself in this process despite the fact that he was obligated to do so. Additionally, as noted above, Nolting confirmed there was no documentary evidence showing that Bellavia played any role in this ™ Trial Transcript, 7/19/2016, J. Nolting, 56:24 - 58:17 & 64:10-18 ("It is my opinion arising out of nearly $2.3M in change orders - again, awarded on subcontracts let before the termination of Mr. Bellavia and Mr. Pickart, that the damages for added scope were $225,780.") 1063968.1 39 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H L A K E A V E N U E , 7" F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 « Fa x (6 26 ) 79 6- 01 07 B W OO 0 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 process. Hutton's difficulty in proving exactly how much Pickart stole while Bellavia was craning his neck in the other direction, or how much money they left on the table during procurement due to Bellavia's failures to act as required, is hardly surprising given the extent and the nature of Pickart's fraud. The law says Bellavia is equally responsible for Pickart's fraud due to his empowering Pickart via their tenancy in common agreement (Ex. 3 13).” Importantly, the Court found that damages had been suffered, even if the amount was speculative. Bellavia did not act. He cannot seek indemnification for this. F. The Fees Bellavia Incurred As a Result of His Counsel Out-Sourcing Work Must Be Discounted Fees incurred due to Bellavia’s use of outside counsel should be heavily discounted because of the lost efficiencies of using lawyers who are “strangers” to the case. See Declaration of Michael Balmages Re Billings To and Payments By Bellavia §{ 8 & 9, and Exhibit E. According to Mr. Balmages, about 12% of the attorney hours billed on Bellavia's behalf were billed by the Montage Legal Group. See Declaration of Michael Balmages re Fees Charged to Bellavia for Defense of the Indemnifiable Matters, 9 2. Bellavia purportedly paid a total of $103,930 to Montage Legal Group for its services. If indemnity is awarded, it should be for a small fraction of this amount. VI. CONCLUSION This is Savoy Bellavia's final attempt to avoid responsibility for his misconduct. Acts and omissions which have already been found to have been deceitful and wrongful. Bellavia has never taken responsibility for his actions. It has long been a maxim that courts will not assist a claimant to recover a benefit from his own wrongdoing. Yet that is exactly what Bellavia is asking this Court to do. For all the reasons detailed above, the Hutton Defendants respectfully request Bellavia be denied an indemnity award because he has not satisfied the requirements of Corporations Code § 317(d), and any award in his favor would contravene longstanding equitable principles. See, e. g., Hutton Closing Trial Brief at 1:8-20. 1063968.1 4 0 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H L A K E A V E N U E , 7" F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 « Fa x (6 26 ) 79 6- 01 07 wn Re W N ~~ ON 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 i) 26 27 28 DATED: October 22,2018 Respectfully submitted, HUNT ORTMANN PALFFY NIEVES DARLING & MAH, INC. 1063968.1 41 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF N I E V E S D A R L I N G & M A H , I N C . 30 1 N O R T H L A K E A V E N U E , 7™ F L O O R P A S A D E N A , C A L I F O R N I A 91 10 1- 18 07 Te l (6 26 ) 44 0- 52 00 + Fa x (6 26 ) 79 6- 01 07 W N ~~ 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PROOF OF SERVICE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES I am employed in the County of Los Angeles, State of California. I am over the age of eighteen years and not a party to the within action; my business address is 301 North Lake Avenue, 7th Floor, Pasadena, CA 91101-1807. On October 22, 2018, I served the following document(s) described as HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF on the interested parties in this action as follows: Michael G. Balmages, Esq. Attorneys for Plaintiff Savoy Bellavia Balmages Law Office 360 E. 1st Street, #896 Tustin, CA 92780 Tel: (714) 838-7000 Fax: (714) 838-7784 Email: mbalmages@balmageslaw.com BY E-MAIL: I caused a copy of the document(s) to be sent from e-mail address coumans@huntortmann.com to the persons at the e-mail addresses listed in the Service List. I did not receive, within a reasonable time after the transmission, any electronic message or other indication that the transmission was unsuccessful. I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed on October 22, 2018, at Pasadena, California. di Leslie Cbumans 1063968.1 42 HUTTON DEVELOPMENT CO., INC.'S OPPOSITION TO SAVOY BELLAVIA'S INDEMNITY TRIAL BRIEF