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Federico v. MOST-U.S.A Constr. Co.

Feb 11, 2020
A151701 (Cal. Ct. App. Feb. 11, 2020)




LAWRENCE PAUL FEDERICO, Plaintiff and Appellant, v. MOST-USA CONSTRUCTION COMPANY, LLC et al., Defendants and Respondents.


California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Alameda County Super. Ct. No. RG15760457)

In this breach of contract and fraud action brought by Lawrence Paul Federico against MOST-USA Construction Company, LLC (MOST), Lotus General Contractors, Inc. (Lotus), and Vadim Bocharov (collectively, respondents), the trial court concluded following a bench trial that Federico did not meet his burden of proof on either claim. The court similarly rejected MOST's cross-complaint against Federico. Federico contends on appeal that the trial court erred by (1) taking judicial notice of an order in a federal criminal action involving his brother, Brian Federico, (2) refusing to allow amendment of his complaint during trial to add a cause of action for quantum meruit, (3) improperly admitting certain expert opinion testimony, (4) failing to find that sufficient evidence supported Federico's breach of contract claim, and (5) failing to recognize him as a third-party beneficiary under MOST's operating agreement. Federico argues that these errors were both individually and cumulatively prejudicial. Seeing no error, we affirm.


This action arose out of a dispute between Federico and Bocharov related to their business relationship at MOST and Lotus, two construction contracting companies. MOST was formed in August 2006 pursuant to an Operating Agreement of MOST-USA Construction Co., LLC (Operating Agreement). The Operating Agreement was executed by the five members of MOST, including Bocharov and C.E.M.S., LLC. (CEMS), a company founded by Brian Federico. Pursuant to its terms, CEMS received a 15 percent ownership interest in MOST in return for a member contribution of $150,000 in equipment. Federico executed the Operating Agreement on behalf of CEMS. MOST acquired Lotus shortly thereafter. Federico provided management services to MOST and Lotus from 2006 to 2014. The core dispute of this litigation is whether Federico was a member-owner of MOST or worked for MOST as an employee-manager pursuant to contract.

After the parties separated professionally in 2014, litigation ensued. According to Federico, the parties had agreed he would receive $150,000 annually to perform general management responsibilities at MOST and Lotus. Federico's breach of contract and fraud claims are premised on respondents' failure to pay Federico all amounts due under this written and/or oral arrangement, despite representations that they would do so. Respondents, in contrast, asserted that Federico (through CEMS) was a member of MOST and was only entitled to payments if MOST or Lotus showed a profit, which never happened. MOST filed counterclaims against Federico for fraud, alleging that Federico had misrepresented to them that he (rather than his brother Brian) owned CEMS, had improperly received money from MOST and Lotus to cover personal expenses, and had conspired with Brian to defraud MOST. MOST further counterclaimed for breach of contract and conversion, claiming that Federico had usurped MOST funds and company property.

In support of his claims at trial, Federico offered a copy of an unsigned one-page term sheet indicating that Federico would be compensated at a rate of $3,000 a week for his first four weeks at MOST as an independent vendor. The money was to be made payable to CEMS based on weekly invoicing. The term sheet additionally provided that Federico would use his own credit cards for "minor daily expenses" until company credit cards were issued but that "prompt reimbursements, payable to the credit card companies for company related expense" would need to be issued. Bocharov testified that this agreement was limited to the first few weeks while the company was being formed.

According to Federico, the copy of this document that had been signed by both parties was lost in a company move.

Federico also introduced MOST board minutes and a meeting discussion item form dated September 16, 2010, stating that Federico "should receive Guaranteed Draws from the Company in the amount of 150,000 per annum." Based on these materials, Federico explained that he had "postponed receiving full amounts because his share had not been paid to the company." The action plan for the item indicated: "Starting immediately [Federico] should receive monthly guaranteed payments equal to the annual amount stated above including those expenses paid by Amex Credit Card which can not be coded as company's operation/overhead expenses." According to Bocharov, however, these were member payments conditioned on company profitability, and they were discussed in 2010 because it appeared at that time that the company might turn a profit and the member payments could actually be made.

Federico testified at trial that, when MOST experienced cash flow issues shortly after he joined the company, he and Bocharov orally agreed to temporarily decrease his compensation to $2,500 per month, plus payment of his personal credit card expenses, with the understanding that he would receive the balance of any amounts earned when money became available. This monthly payment was later increased to $4,000 under similar terms. According to Federico, Bocharov also represented to him that he would be paid the amounts due to him once money was obtained by Lotus from pending litigation with a company called Mitchell Engineering. Although a sizeable settlement was eventually received by Lotus in the case, no monies were allocated to Federico.

Federico additionally testified that CEMS was his brother Brian's company and that he never told Bocharov that he owned CEMS or the equipment promised by CEMS as a capital contribution. Federico claimed that he signed the Operating Agreement on CEMS's behalf because Brian authorized him to do so. Bocharov testified, in contrast, that it was the understanding of all the members of MOST that CEMS was Federico's company and that they were all manager-members.

Respondents presented other evidence to support their claim that Federico was a member of MOST, not simply an employee. Board minutes dated August 22, 2006, prepared and signed by Federico, stated that "[t]he . . . formation of [MOST], started by Vadim [Bocharov] and Paul [Federico] should continue" and that "Vadim Bocharov, Paul Federico, and Alex Volozhin will also be member-owners." Board meeting minutes dated March 7, 2012, stated "[i]t has been discovered that [Paul Federico] gets less amount of guaranteed payments than the other Members" and the "Action Plan" to address this discrepancy called for Federico, "[w]hen finances allow, [to] change the distribution of corporate profits to equalize the draws between Members." In several written and oral communications between Federico and others, including company accountants, corporate counsel, and the former owner of Lotus, Federico held himself out as a partner and member-owner of MOST.

Respondents also sought to impeach Federico's testimony that he had an expectation of additional income as an employee-manager of MOST and to highlight Federico's irregular payment methods. Federico's trial testimony that he was owed additional payments from respondents was contradicted by a bankruptcy petition Federico filed April 4, 2007, in which he declared under penalty of perjury that he had no present or future income to report. Federico also testified that he was to be paid through CEMS because Bocharov did not have payroll set up for MOST. However, Federico admitted that he did not have an active checking account and he had unpaid tax liabilities and bankruptcy issues at the time MOST was established. On cross-examination, he acknowledged that one of the reasons the money was passed through CEMS was to protect it from an existing IRS tax lien.

Respondents also offered testimony from Mark Newton, a forensic accounting and economic damages expert. After reviewing company records and categorizing credit card expenses for which Federico was reimbursed as either business or personal, Newton opined that Federico had received compensation of $917,128 from MOST and Lotus. He further opined, based on his record review, that Federico appeared to have been treated more like a member of MOST during his tenure with the company than like an employee or independent contractor. Finally, assuming Federico was a member of MOST and had never made his required capital contribution (thereby generating interest due to the company), Newton calculated that—even assuming Federico was owed $1,250,000 over the course of his management of MOST and Lotus—Federico would actually owe MOST approximately $12,000.

The trial court issued a statement of decision and judgment dated April 3, 2017 (Statement of Decision), rejecting Federico's claims of breach of contract and fraud. The court concluded there was insufficient evidence to establish any kind of actionable agreement to pay Federico $150,000 annually for his general managerial responsibilities at MOST and Lotus. The court found that there was an almost complete lack of written evidence to support Federico's claim. It additionally found Federico's testimony with respect to the alleged contractual agreement not credible, noting in particular Federico's April 2007 bankruptcy filing, which contradicted his claim at trial that he was owed future income. The court further concluded that references to payments owed to Federico in MOST board minutes were at best ambiguous, and saw no credible evidence of any promise to pay Federico using proceeds from the Lotus litigation settlement. Finally, although it found respondents' expert generally credible, the trial court also rejected MOST's counterclaims based on insufficient proof. Federico appeals, citing error in several of the trial court's determinations.


A. Judicial Notice of Brother's Federal Criminal Action

During trial, respondents asked the trial court to take judicial notice of the findings of fact and conclusions of law issued by a federal district court in a separate criminal prosecution involving Brian Federico and CEMS. (See United States v. Federico & Laney (N.D.Cal. July 23, 2015, Civ. A. Nos. 12- cr-00862-YGR-2 & 12-cr-00862-YGR-3) 2015 WL 4498749, revd. & remanded on unrelated grounds in United States v. Laney (9th Cir. 2018) 881 F.3d 1100.) Federico's attorney objected, arguing that the trial court could take judicial notice of the date and fact of conviction, but not of any factual matters in the document. The trial court disagreed, indicating that it was "a finding of fact and conclusion of law from a judge in federal court" and that the court was "taking notice of the facts as well." The court explained: "I mean, it is what it is. It's like disregarding a Court decision, I'm not doing that." Federico now asserts that the trial court improperly considered the findings of fact in this federal criminal action for their truth and, by doing so, "unavoidably poisoned" its view of his credibility and conduct in the instant action. We are not persuaded.

" 'Judicial notice is the recognition and acceptance by the court, for use by the trier of fact or by the court, of the existence of a matter of law or fact that is relevant to an issue in the action without requiring formal proof of the matter.' [Citation.] The court may in its discretion take judicial notice of any court record in the United States. [Citation.] This includes any orders, findings of facts and conclusions of law, and judgments within court records." (Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 882 (Lockley); see Evid. Code, §§ 451, subd. (a) [mandatory judicial notice of the "decisional . . . law of this state and of the United States"] & 452 [permissive judicial notice of the records of any state or federal court].)

However, taking judicial notice of the existence of a court record must be distinguished from taking judicial notice of the truth of matters contained in such records. A number of courts, including our high court, have opined that "while courts are free to take judicial notice of the existence of each document in a court file, including the truth of results reached, they may not take judicial notice of the truth of hearsay statements in decisions and court files." (See, e.g., In re Vicks (2013) 56 Cal.4th 274, 314 (Vicks); People v. Hernandez (2011) 51 Cal.4th 733, 741, fn.3; Richtek USA, Inc. v. uPI Semiconductor Corp. (2015) 242 Cal.App.4th 651, 658; Kilroy v. State of California (2004) 119 Cal.App.4th 140, 145; Lockley, supra, 91 Cal.App.4th at p. 882.) That is because "[t]he underlying theory of judicial notice is that the matter being judicially noticed is a law or fact that is not reasonably subject to dispute." (Lockley, at p. 882.) Thus, for example, "[c]ourts may not take judicial notice of allegations in affidavits, declarations and probation reports in court records because such matters are reasonably subject to dispute and therefore require formal proof." (Ibid.)

It is a closer question whether findings of fact made in another court proceeding should be considered part of the "results reached" and therefore noticeable for their truth. (See Day v. Sharp (1975) 50 Cal.App.3d 904, 914 [" '[a] court may take judicial notice of the existence of each document in a court file, but can only take judicial notice of the truth of facts asserted in documents such as orders, findings of fact and conclusions of law, and judgments.' "]; see People v. Franklin (2016) 63 Cal.4th 261, 280 [quoting Day as basis for refusal to take judicial notice of amicus curiae briefs filed in other cases]; but see Lockley, supra, 91 Cal.App.4th at p. 882 [it is "improper for courts to take judicial notice of any facts that are not the product of an adversary hearing which involved the question of their existence or nonexistence"]; Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1568 (Sosinsky) ["Taking judicial notice of the truth of a judge's factual finding would appear to us to be tantamount to taking judicial notice that the judge's factual finding must necessarily have been correct and that the judge is therefore infallible. We resist the temptation to do so."].)

We need not weigh in on this debate, however, because there is no indication in the record before us that the trial court took judicial notice of the district court's findings of fact in the federal criminal action for their truth. The trial court, in granting respondents' judicial notice request, stated it was "taking notice of the facts" because it was not going to disregard the federal court's decision. It did not, however, indicate that it was noticing those facts for their truth. The trial court mentioned the federal criminal action only once in its Statement of Decision by noting that Federico signed the MOST Operating Agreement "purportedly as a representative of CEMS, a construction contractor found by the U.S. District Court in a separate criminal prosecution to be a 'bogus corporation' set up to defraud contractors." The trial court's action here was entirely proper, as it was only taking judicial notice of the clearly relevant fact that a federal tribunal had previously found CEMS to be a corporation set up as a vehicle for defrauding contractors. (See Vicks, supra, 56 Cal.4th at p. 314 ["courts are free to take judicial notice of . . . the truth of results reached"]; Sosinsky, supra, 6 Cal.App.4th at p. 1565 [noting it may be proper to take judicial notice that a previous judge did in fact make a particular finding].)

Moreover, we see no indication that the trial court was "poisoned" against Federico by its consideration of the district court's conclusions in the federal criminal action. On the contrary, the court repeatedly made clear it was not interested in the specifics of any of Brian's or CEMS's alleged misdeeds that did not directly involve Federico. In discussing the appropriate scope of respondents' cross-examination of Brian, the trial court stated: "I'm not interested really in hearing prior testimony about a general kickback scheme involving CEMS. If the kickback scheme involved [Federico], then that's one thing. If it didn't, I'm not really—I mean, yes, CEMS—I mean, just assume for the sake of argument, say that the trial judge at the federal court found that there was a kickback scheme involving CEMS involving like X, Y and Z, but that's not [Federico], I don't want to go into that." Later, the court reiterated: "I'm going to say this for the last time, I'm not interested in a full-blown exploration of whether CEMS is or is not a sham company because, A, it's not at all relevant and, B, there's only one aspect of CEMS that's relevant to this inquiry, which is the CEMS relationship with [Federico] and what the activity was there." Most telling, the trial court ultimately determined that MOST failed to prove that Federico committed fraud based on his representations concerning CEMS and his relationship to CEMS and ruled against MOST's counterclaims. The trial court's ruling hardly suggests that it was "poisoned" by its recognition of the federal action. We find no error in the trial court's decision to judicially notice the findings of fact in the federal criminal matter. B. Refusal to Allow Amendment of the Complaint

After Federico dropped his employment claims on the eve of trial, Lotus's counsel requested clarification as to what theory he was proceeding under with respect to his breach of contract claim. Federico's counsel stated he could envision making claims based on either a written agreement or an implied contract theory. He additionally commented: "[T]he other thing that is occurring to me is . . . I don't think there's an employment claim left, but there may be a quantum meruit claim that perhaps I want to amend to conform to prove or seek leave to amend to conform to prove." MOST's attorney acknowledged that Federico would be entitled to amend according to proof at trial but stressed that it was difficult to defend against rapidly changing theories. The court stated: "Well, sometimes those things happen during trial, I mean, they develop." Lotus's counsel responded: "Our concern is . . . a contradictory theory will be alleged and that we don't have time to meet with our clients and prepare for that."

After the close of evidence in the case, Federico orally requested leave to amend his complaint to include an allegation of quantum meruit. The trial court denied his request "based on a lack of due diligence and that allowing such an amendment would result in undue prejudice to the opposing parties." The court elaborated: "[Q]uantum meruit is a major—to me, quantum meruit is a major cause of action. It's not something—it's not something that can be construed just based on new facts or something that arises during the trial where the amendment is to conform just to the evidence. That's a completely different cause of—I'm not allowing that." Federico argues on appeal that the trial court's refusal to allow amendment of the complaint constituted an abuse of discretion. We disagree.

" ' "[T]he trial court has wide discretion in allowing the amendment of any pleading [citations], [and] as a matter of policy the ruling of the trial court in such matters will be upheld unless a manifest or gross abuse of discretion is shown." ' " (Melican v. Regents of University of California (2007) 151 Cal.App.4th 168, 175.) It is true that, generally speaking, "courts are bound to apply a policy of great liberality in permitting amendments to the complaint at any stage of the proceedings, up to and including trial." (Magpali v. Farmers Group, Inc. (1996) 48 Cal.App.4th 471, 487 (Magpali); see Code Civ. Proc., § 473, subd. (a)(1) [permitting a court to "allow, upon any terms as may be just, an amendment to any pleading"]; id., § 576 ["[a]ny judge, at any time before or after commencement of trial, in the furtherance of justice, and upon such terms as may be proper, may allow the amendment of any pleading"].) However, this policy should not be applied " 'where inexcusable delay and probable prejudice to the opposing party' " is shown. (Magpali, at p. 487.)

All statutory references are to the Code of Civil Procedure unless otherwise specified.

In Magpali, the request to amend the complaint came on the eve of trial, nearly two years after the complaint was originally filed, and Magpali gave no explanation for leaving the claim out of the original complaint or bringing the request to amend so late. (Magpali, supra, 48 Cal.App.4th at p. 486.) Moreover, the defendant "had not discovered or deposed many of the witnesses who would support the new allegations, and had not marshaled evidence to oppose the contention." (Id. at p. 487.) Under such circumstances, denial of the request to amend was not an abuse of the trial court's discretion. (Id. at p. 486.) Indeed, the appellate court declared: "Where the trial date is set, the jury is about to be impaneled, counsel, the parties, the trial court, and the witnesses have blocked the time, and the only way to avoid prejudice to the opposing party is to continue the trial date to allow further discovery, refusal of leave to amend cannot be an abuse of discretion." (Id. at p. 488, italics added; see P&D Consultants, Inc. v. City of Carlsbad (2010) 190 Cal.App.4th 1332, 1345 (P&D Consultants) [no abuse of discretion denying request to amend complaint after trial readiness conference where amendment would require additional discovery and no explanation was given for delay]; City of Stanton v. Cox (1989) 207 Cal.App.3d 1557, 1564 ["A party who waits 18 months before attempting to amend, and then does so only after trial has commenced, and who offers no excuse for the failure, can hardly complain when the request to amend is denied."]; Estate of Murphy (1978) 82 Cal.App.3d 304, 311 [denial of leave to amend appropriate where "the proposed amendment opened up an entirely new field of inquiry without any satisfactory explanation as to why this major change in point of attack had not been made long before trial"].)

Requests to amend made at trial to conform to proof, like the request made in these proceedings, can also be permitted in accordance with section 469, which provides that "[v]ariance between the allegation in a pleading and the proof shall not be deemed material, unless it has actually misled the adverse party to his or her prejudice in maintaining his or her action or defense upon the merits.") As our high court explained in Trafton v. Youngblood (1968) 69 Cal.2d 17, 31 (Youngblood): "[T]he allowance of amendments to conform to the proof rests largely in the discretion of the trial court and its determination will not be disturbed on appeal unless it clearly appears that such discretion has been abused. [Citations.] Such amendments have been allowed with great liberality 'and no abuse of discretion is shown unless by permitting the amendment new and substantially different issues are introduced in the case or the rights of the adverse party prejudiced.' " Put another way, " 'amendments of pleadings to conform to the proofs should not be allowed when they raise new issues not included in the original pleadings and upon which the adverse party had no opportunity to defend.' " (Ibid.)

In determining whether a requested amendment raises a new issue, " '[t]he cases on amending pleadings during trial suggest trial courts should be guided by two general principles: (1) whether facts or legal theories are being changed and (2) whether the opposing party will be prejudiced by the proposed amendment. Frequently, each principle represents a different side of the same coin: If new facts are being alleged, prejudice may easily result because of the inability of the other party to investigate the validity of the factual allegations while engaged in trial or to call rebuttal witnesses. If the same set of facts supports merely a different theory . . . no prejudice can result." (Garcia v. Roberts (2009) 173 Cal.App.4th 900, 910 (Garcia).)

Federico argues that the requested amendment would not have prejudiced respondents because the questions of whether he had been promised compensation, the amount of that compensation, the extent of his duties, and the performance of those duties had already been placed at issue by his breach of contract and fraud claims. He further contends that he presented sufficient evidence at trial to prevail on a quantum meruit claim. Both of these arguments miss the mark.

While it may be true that Federico presented some evidence at trial with respect to the services he rendered to MOST and Lotus which would support a quantum meruit claim, this does not address the prejudice that may result as respondents had no opportunity to prepare a defense against such a claim. (See Youngblood, supra, 69 Cal.2d at p. 32 [where issue of reasonable value of services was not before the court, it was "manifest . . . that the allowance of defendant's purported amendment to conform to the proof would have substantially prejudiced [the other party] who had no opportunity to offer evidence on such issue during the trial"]; Garcia, supra, 173 Cal.App.4th at p. 910 [noting that "prejudice may easily result" where the other party is unable "to investigate the validity of the factual allegations while engaged in trial or to call rebuttal witnesses"].) As respondents note, defense against a quantum meruit claim would have required evidence relating to the specific services provided by Federico from 2006 through 2014 and discovery regarding Federico's day-to-day activities and the extent to which he actually performed the work requested by respondents.

Finally, Federico offers no explanation for the unwarranted delay in raising the issue. No reason was given why this issue had not previously been pursued. (P&D Consultants, supra, 190 Cal.App.4th at p. 1345 [ " ' " 'even if a good amendment is proposed in proper form, unwarranted delay in presenting it may—of itself—be a valid reason for denial' " ' "].) Under the circumstances, we see no error in denying Federico's requested amendment and certainly no abuse of discretion. C. Admissibility of Expert Testimony

Because we find no abuse of discretion on these facts, we do not consider respondents' additional arguments that amendment would have been improper or that any error would be harmless because Federico was compensated for his work.

Federico next challenges the trial court's decision to allow respondents' economic damages and forensic accounting expert to opine that, during his tenure at MOST, Federico was treated as a member of MOST, rather than as an employee or independent contractor. Federico argues that the trial court erred as a "gatekeeper" in this matter by allowing this and other opinions from Newton that were speculative or unfounded. (See Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747, 771-772 (Sargon).) We review a trial court's admission of expert opinion for abuse of discretion and find no abuse on this record. (Id. at p. 773.)

Mark Newton testified at trial that he had previously qualified as an economic damages and forensic accounting expert approximately 150 times. After reviewing his qualifications and experience, counsel for MOST asked to have Newton qualified as an expert to give opinions in this case as follows: "One, as a CPA and forensic accountant as [to] the amount of compensation Paul Federico received directly and indirectly from MOST and Lotus and whether those were in accordance with GAAF and other standard accounting principles; two, how Mr. Federico was characterized and treated from the accounting perspective while he was at MOST and Lotus; and, third, the offset and the damages MOST and Lotus are entitled to in this matter." Federico objected to the second area of inquiry, arguing that it was not covered by the expert designation previously filed in the matter. The trial court overruled the objection and designated Newton an expert as requested.

Later in his testimony, Newton opined that, during Federico's time with MOST, he appeared to be treated like a member-owner of MOST and not an employee. Newton based his opinion on his review of company records. He noted the absence of any W-2 or 1099 forms or other invoices which would evidence an employee or independent contractor relationship. Newton also pointed to the Operating Agreement signed by Federico on CEMS's behalf, and Federico's signature on MOST board minutes. Newton also found that, in 2009, CEMS received a K-1 tax form indicating guaranteed payments of $40,882 and, in the same timeframe, Federico received checks totaling exactly that amount. Federico's counsel objected to this testimony as exceeding the scope of Newton's expert designation and going beyond his area of expertise. After the court confirmed that Newton's answers would be limited to observations from his review of the records, it allowed Newton to answer.

"Under section 2034.210, subdivision (a), a party may demand a mutual and simultaneous exchange of each expert witness that any party 'expects to offer in evidence at . . . trial.' " (Du-All Safety, LLC v. Superior Court (2019) 34 Cal.App.5th 485, 496.) The exchange must be accompanied by an expert witness declaration which provides, among other things, "[a] brief narrative statement of the general substance of the testimony that the expert is expected to give." (§ 2034.260, subd. (c)(1); see Bonds v. Roy (1999) 20 Cal.4th 140, 146 [noting that the "purpose of the expert witness discovery statute is to give fair notice of what an expert will say at trial"].) Disclosure of specific facts and opinions, however, is not required. (Williams v. Volkswagenwerk Aktiengesellschaft (1986) 180 Cal.App.3d 1244, 1258.)

Newton's expert declaration provided: "Defendants have retained Mr. Newton to analyze the damages defendants have sustained as a result of Paul Federico's unlawful conduct as set forth in the Cross-Complaint. Defendants have also retained Mr. Newton to analyze the damages Plaintiff has asserted with respect to the amended Complaint. Mr. Newton will use his accounting and economic education, experience and expertise to testify as to the damages Defendants have sustained as set forth in their Cross-Complaint as well as to refute the damages Plaintiff claims to have sustained in the Second Amended Complaint." Federico's contention that Newton's opinion exceeds the scope of the expert declaration is misplaced. This litigation turns on how Federico's services to respondents should be characterized. Newton's opinion that Federico appeared to be treated more like a member than an employee or independent contractor was certainly relevant to refute Federico's claims that he was entitled to damages pursuant to contract. As such, it was within the scope of anticipated testimony described in the expert declaration.

We also reject Federico's argument that the trial court failed to exercise its "gatekeeping" function appropriately because it admitted Newton's "inherently incredible" opinion that Federico was treated like a member of MOST. In Sargon, supra, 55 Cal.4th 747, the Supreme Court held that the trial court acts as a gatekeeper to exclude unfounded or speculative expert opinion testimony. (Sargon, supra, 55 Cal.4th at pp. 771-772.) In attacking Newton's opinion as unfounded under Sargon, Federico fails to recognize the limited scope of this testimony. Newton did not testify generally that Federico was a member of MOST. Rather, as the trial court emphasized, Newton used his relevant background and expertise to review company documents (or the lack thereof) and render an opinion that, based on those documents, it appeared that Federico was treated more like a member than an employee or independent contractor. His opinion was thus based on matter of a type reasonably relied upon by forensic accountants and was appropriately supported by that material. There was no Sargon error in its admission.

Finally, Federico argues that the trial court failed in its gatekeeping role by allowing Newton to opine whether numerous payments made to him via check or credit card reimbursement were personal rather than business-related without the proper forensic analysis. However, as respondents made clear at trial when discussing Newton's proposed testimony: "[F]irst of all, there has to be an agreement found, right, before we get to this whole analysis. . . . [I]f there's no agreement found, your Honor, then obviously a lot of this may not be relevant because there's nothing going to be owed to Mr. Federico." Since the trial court found the evidence insufficient as to the formation of a contract between the parties and rejected MOST's counterclaims, any error in admitting this challenged testimony was necessarily harmless. D. Substantial Evidence Challenge

Federico contends the trial court erred in failing to find that the evidence supported the existence of an implied agreement to pay for his services as general manager of MOST and Lotus, citing to evidence which arguably supports the existence of such a contract. Federico misunderstands the limited nature of our review of a trial court's factual determinations and decisions. " '[W]hen a trial court's factual determination is attacked on the ground that there is no substantial evidence to sustain it, the power of an appellate court begins and ends with the determination as to whether, on the entire record, there is substantial evidence, contradicted or uncontradicted, which will support the determination, and when two or more inferences can reasonably be deduced from the facts, a reviewing court is without power to substitute its deductions for those of the trial court. If such substantial evidence be found, it is of no consequence that the trial court believing other evidence, or drawing other reasonable inferences, might have reached a contrary conclusion.' " (Sander v. Superior Court (2018) 26 Cal.App.5th 651, 669-670.) It is thus irrelevant for our purposes that substantial evidence might, as Federico suggests, support the existence of an implied contract in this matter.

Instead, the question before us is whether substantial evidence supports the trial court's ruling that the existence of a contract was not sufficiently proven. In conducting our substantial evidence review, we are cognizant of the fact that " '[c]redibility is an issue for the fact finder . . . ; we do not reweigh evidence or reassess the credibility of witnesses.' " (Cowan v. Krayzman (2011) 196 Cal.App.4th 907, 915.) Moreover, we must "consider the evidence in the light most favorable to the judgment, and resolve all conflicts in favor of the judgement." (County of San Bernardino v. Walsh (2007) 158 Cal.App.4th 533, 540.) Finally, where, as here, "the interpretation of the contract turns upon the credibility of conflicting extrinsic evidence which was properly admitted at trial, an appellate court will uphold any reasonable construction of the contract by the trial court." (Morey v. Vannucci (1998) 64 Cal.App.4th 904, 913.) Applying these principles, we find the trial court's conclusion that the existence of a contract was not sufficiently proven both reasonable and amply supported by the evidence.

Federico relies on the unsigned term sheet and September 2010 board minutes discussed above as written evidence supporting his claim of an implied contract. However, as the trial court concluded, the meaning of these documents is at best ambiguous, especially in light of Bocharov's testimony regarding their import. And although Federico testified regarding various oral agreements with Bocharov as to when and how he would be compensated, the trial court expressly found his testimony not credible. Finally, the evidence regarding whether Federico represented himself as the owner of CEMS and thus a member of MOST is also mixed. Viewed in the light most favorable to the judgment it does little to support Federico's contractual claim.

The trial court's view of the evidence in this matter is best described by the following passage from its Statement of Decision: "It is apparent to the court that the transactional relationship between MOST and [Federico] was highly irregular. The murky and confused relations between MOST and [Federico] is compounded by a lack of straightforward and clear communications, oral or written. Because of this, it is ambiguous to the court not only what the exact nature of any agreements were between MOST and [Federico], as well as to what extent MOST, and in particular Bocharov, willingly agreed to, or at least accepted, any arrangements." Given the court's credibility findings and the state of the documentary evidence presented in this case, substantial evidence supported the trial court's conclusion that there was insufficient evidence to support the existence of a specific agreement between the parties. E. Third Party Beneficiary and Cumulative Error Claims

At oral argument, Federico's counsel asserted that under Code of Civil Procedure section 634 and In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, a trial court's failure to address factual omissions in its statement of decision that were timely raised below relieves the appellate court of its obligation to review factual findings for substantial evidence. His argument is misplaced. Code of Civil Procedure section 634 addresses when a statement of decision does not resolve a controverted issue or is ambiguous. It "declares that if omissions or ambiguities in the statement are timely brought to the trial court's attention, the appellate court will not imply findings in favor of the prevailing party." (Arceneaux, at p. 1133; see Fladeboe v. American Isuzu Motors Inc. (2007) 150 Cal.App.4th 42, 48 ["Under the doctrine of implied findings, the reviewing court must infer, following a bench trial, that the trial court impliedly made every factual finding necessary to support its decision."].) Whether an appellate court may or may not imply findings favorable to the judgment below, these authorities do not purport to alter our standard of review. (See Thompson v. Asimos (2016) 6 Cal.App.5th 970, 981 ["In reviewing a judgment based upon a statement of decision following a bench trial, . . . [w]e apply a substantial evidence standard of review to the trial court's findings of fact."].) There was, in any event, no need to imply a finding here because the trial court's statement of decision addressed the dearth of evidence in support of Federico's contract claim and it expressly found that the company minutes presented were "inconclusive" on this point. --------

Federico also argues that, although he was not named as a party to the Operating Agreement, its provisions show an intent to benefit him and thus he should be allowed to assert his right to payment under a third-party beneficiary theory. Whatever the merits of Federico's claim, he failed to properly raise the issue in the trial court and therefore may not pursue it here. (Cinnamon Square Shopping Center v. Meadowlark Enterprises (1994) 24 Cal.App.4th 1837, 1844 [" As a general rule an appellate court will consider only such points as were raised in the trial court, and this rule precludes a party from asserting, on appeal, claims to relief not asserted or asked for in the court below.' "].) Finally, we need not consider Federico's assertion that cumulative error requires reversal. As Federico has identified no error in the trial court's handling of this matter, there is nothing to cumulate. (Evans v. Hood Corp. (2016) 5 Cal.App.5th 1022, 1053-1054.)


The judgment is affirmed. Respondents are entitled to their costs on appeal.


Sanchez, J, WE CONCUR: /s/_________
Humes, P. J. /s/_________
Banke, J.

Summaries of

Federico v. MOST-U.S.A Constr. Co.

Feb 11, 2020
A151701 (Cal. Ct. App. Feb. 11, 2020)
Case details for

Federico v. MOST-U.S.A Constr. Co.

Case Details

Full title:LAWRENCE PAUL FEDERICO, Plaintiff and Appellant, v. MOST-USA CONSTRUCTION…


Date published: Feb 11, 2020


A151701 (Cal. Ct. App. Feb. 11, 2020)