2009-00055591-CU-BT

The TDS Group Inc vs. The IRA Center

Nature of Proceeding: Motion for Summary Judgment and/or Adjudication

Filed By: Carlucci, Thomas F.

**If any party requests oral argument, then at the time the request is made, the
requesting party must inform the court and opposing counsel of the specific
issue(s) on which oral argument is sought.**

The motion of Defendants Cetera Advisor Networks LLC (“Cetera”), Pension Planners
Security, Inc., Gina Duryea, BAR Financial, LLC, Anthony Tarantino, John Brackett
and Eric A. Huck (collectively “Defendants”) for summary judgment or, in the
alternative, summary adjudication of issues is DENIED.

The applications to seal records are GRANTED.

Factual/Procedural Overview

This case presents a commercial dispute in the field of retirement services provided to
school districts. In the sixth amended complaint (“6AC”), Plaintiff The TDS Group, Inc.,
as successor in interest to Tax Deferred Services, Inc., (“TDS”) alleges that it served
school districts as a contractual third-party administrator of employee retirement
programs as well as a contractual common remitter (employee-contribution
coordinator). According to TDS, it also possessed contracts (the “Franchise
Agreements”) with dozens of individuals and entities who served as its representatives
in this regard. To the extent TDS provided financial products to school district
employees, its representatives were required to work under a third-party securities
broker’s license. TDS alleges that Defendants interfered with its contracts in various respects in order to
steer TDS business and TDS representatives to themselves. One of TDS’ principal
charges is that Defendants wrongfully induced its principals and representatives to
switch to Cetera as their securities broker.

The 6AC contains causes of action for intentional interference with contractual
relations, inducing breach of contract, intentional misrepresentation, “concealment,”
intentional interference with prospective economic relations and negligent interference
with prospective economic relations. Defendant move for summary adjudication of
each cause of action and, therefore, summary judgment.

Discussion

The court’s analysis roughly tracks the order of issues presented in Defendants’
Moving Separate Statement of Material Facts.

The Third Cause of Action for Intentional Misrepresentation

Summary adjudication is DENIED.

First, Defendants argue that the third cause of action should be summarily adjudicated
because, contrary to TDS’ allegations, Defendants did not reduce commission payouts
to TDS’ principals or representatives during the first year. To support this argument,
Defendants have produced specific evidence that some TDS representatives did not
see their commissions reduced during this time period. (See Undisputed Material Fact
(“UMF”) 6.) Defendants have also produced evidence that average commissions were
not reduced during the same period. (Id.) Defendants’ evidence, however, does not
preclude a reasonable inference that at least some commissions were reduced.

In this regard, Defendants counter that their evidence of average payouts corresponds
to TDS’ allegation that “Defendant knew that the collective payout to the TDS
Representatives and [TDS Principal] Al Wickers would be reduced… .” (See Reply at
6:15-17 [quoting the 6AC] [brackets and ellipsis added].) In other words, Defendants
argue that evidence of sustained average payouts precludes any reasonable inference
that total payouts were reduced. Defendants offer no evidence for this mathematical
proposition and instead gloss over the issue in a footnote. (See Reply at 6, fn. 5.) The
court, which must resolve all doubts in TDS’ favor at this juncture, is not persuaded.
(See Maxwell v. Colburn (1980) 105 Cal.App.3d 180, 186.)

Next, Defendants argue that the third cause of action is time-barred given the three-
year statute of limitations at CCP § 338(d) governing fraud. The court rejects this
argument as well because Defendants have not properly discharged their initial burden
of production.

Defendants contend that, because TDS was aware of the allegedly fraudulent
statements in 2008, and because TDS filed its original complaint in 2009, the statute of
limitations must have expired in 2012. (See UMF 9-13.) In advancing this contention,
Defendants rely on Jolly v. Eli Lilly & Co. (1998) 44 Cal.3d 1103. The court in that
case noted that statutes of limitations start to run from the time a plaintiff knew or
should have known from reasonably available sources that (s)he possessed a cause
th
of action. (44 Cal.4 at 1109; see id. at 1110 [“Under the discovery rule, the statute of
limitations begins to run when the plaintiff suspects or should suspect that her injury was caused by wrongdoing, that someone has done something wrong to her”]
[footnote omitted].)

The problem with Defendants’ argument is that it is not supported with specific
evidence. UMF 9 establishes that TDS heard the allegedly fraudulent
misrepresentations in October 2008. However, Defendants do not direct the court to
specific evidence of the point at which TDS became aware of wrongdoing, i.e.,
damaging conduct at odds with the misrepresentations. With UMF 10 and 12,
Defendants appear to assert that TDS alleged somewhere in its previous complaints
facts demonstrating such awareness. However, Defendants have failed to cite any
specific allegations in the previous complaints and instead invite the court to search
the pleadings for the allegations in question. Such an approach violates Rule of Court
3.1350(d), which requires the party moving for summary judgment to cite its evidence
by page and line, and would impose upon the court a task that it lacks the resources to
undertake and which belongs to the moving party.

The fact that TDS filed its initial complaint (without any fraud causes of action) in 2009,
and thus was entitled to engage in discovery as to other causes of action, does not
alter the court’s conclusion. (See UMF 11.) In Defendants’ view, any failure on TDS’
part to discover the facts supporting its current third cause of action was unreasonable
as a matter of law and, therefore, does not entitle it to the benefit of the discovery rule.
Whether a party relying on the discovery rule was reasonably diligent in discovering its
causes of action is generally a question of fact, (Ovando v. County of Los Angeles
(2008) 159 Cal.App.4th 42, 61), and Defendants’ evidence does not persuade the
court that this factual matter may be resolved as a matter of law in the instant case.

Given its ruling, the court need not address the parties’ further dispute over application
of the relation-back doctrine.

Finally, Defendants argue that the third cause of action should be summarily
adjudicated because TDS cannot establish the element of damages. In support of this
argument, Defendants have produced evidence that (1) TDS has produced scant
evidence of damages during discovery, (2) TDS made no profit in 2007 or 2008, and
(3) TDS made a profit in 2011, after the events about which it complains in this case.
(See UMF 14-16.) The court agrees with TDS that this evidence does not discharge
Defendants’ initial burden.

First, Defendants’ evidence that TDS has produced limited evidence of damages is
does not preclude an inference that TDS was in fact damaged. It is for a jury to weigh
the evidence, not this court. (See Mast v. Magpusao (App. 3 Dist. 1986) 180
Cal.App.3d 775, 776.) Furthermore, evidence that TDS’ profits increased during the
relevant period does not preclude an inference that TDS suffered detriment, i.e., in the
form of diminished increases. Gerwin v. Southeastern Calif. Ass’n of Seventh Day
Adventists (1971) 14 Cal.App.3d 209 is not to the contrary. That case, unlike the
instant one, involved a contract for goods under the Commercial Code, a purchaser
who concealed his expectations for profit, and a new commercial venture. Because
Defendants have not discharged their initial burden of production, they are not entitled
to adjudication of the third cause of action as a matter of law.

The Fourth Cause of Action for [Fraudulent] Concealment

Summary adjudication is DENIED. In arguing for summary adjudication of the fourth cause of action, Defendants advance
several of the arguments addressed above. The court rejects these arguments for
reasons previously stated.

Defendants advance a new argument as well, namely that the evidence precludes an
inference that Defendants owed TDS a duty to disclose. The fourth cause of action is
based on TDS’ allegations that Defendants failed to make several material disclosures,
including that they planned to reduce payouts. (See 6AC, ¶ 41.) In cursory fashion,
Defendants argue that they were under no duty to make such a disclosure because no
reduction in payouts ever materialized. As noted previously, however, Defendants’
evidence does not preclude an inference that payouts were reduced. Thus,
Defendants’ no-duty argument fails.

The First and Second Causes of Action for Intentional Interference with
Contractual Relations and Inducing Breach of Contracts

Summary adjudication is DENIED.

Defendants argue first that they are entitled to summary adjudication because they
were not aware of one category of TDS contracts upon which the first and second
causes of action are predicated. The court rejects this argument at the outset
because, even if it is meritorious, it does not completely dispose of either cause of
action. As TDS observes, the subject causes of action are predicated on three
categories of contracts, (6AC, ¶¶ 17, 22), and summary adjudication is only
appropriate of it disposes of an entire cause of action. (See CCP § 437c(f)(1).)
Because Defendants’ first argument cannot dispose of all the predicates supporting
the first or second causes of action, Defendants are not entitled to summary
adjudication.

Next, Defendants argue that there is no triable issue whether they committed
contractual interference, induced breach, or caused any damage. Again, however,
Defendants have not addressed all the allegations supporting the first and second
causes of action: whereas Defendants asserts that they did not commit some of the
allegedly interfering acts, they do not address all such alleged acts. (See, e.g., Opp.
Sep. Stmt., UMF 36, 38, 52, 54.) Likewise, whereas Defendants assert that some
alleged interference did not cause damage, they do not extinguish all potential
causation. Having failed to address all of the interference/breach-inducing conduct
alleged to have caused damage, Defendants cannot obtain summary adjudication.
(CCP § 437c(f)(1).) In reaching this conclusion, the court notes that, even if it were to
credit Defendants’ no-interference and no-causation arguments together, Defendants
would still not be entitled to summary adjudication because these combined arguments
do not dispose of the seventh form of interference alleged at paragraph 17 of the 6AC.

Lastly, Defendants reiterate their no-damage argument, i.e., that TDS did not suffer
damage as the result of any contractual interference. The court continues to reject this
argument for reasons previously stated.

The Fifth and Sixth Causes of Action for Intentional and Negligent Interference
with Prospective Economic Relations

Summary adjudication is DENIED.
Defendants argue that the fifth and sixth causes of action should be summarily
adjudicated for the same reasons supporting the requests for summary adjudication of
the first and second causes of action. (See Moving Memo. at 23:22-25.) As discussed
above, those reasons do not entitle Defendants to summary adjudication.

Defendants’ further argument that their “opposition to the 457 transfers was justified by
law,” (Moving Memo. at 24:1-3), does not alter the court’s conclusion since, even if
meritorious, that argument would not dispose of an entire cause of action. (CCP §
437c(f)(1).)

TDS’ Objections to Evidence

Objection No. 1: Overruled
Objection No. 2: Overruled
Objection No. 3: Overruled
Objection No. 4: Sustained
Objection No. 5: Overruled
Objection N0. 6: Overruled
Objection No. 7: Sustained
Objection No. 8: Overruled; see CCP § 2013; Kulshrestha v. First
th
Union Comm. Corp. (2004) 33 Cal.4 601, 609
[comparing affidavits and declarations]
Objection No. 9: Overruled
Objection No. 10-13: Sustained; court takes judicial notice that articles
were printed, not that their contents are accurate
Objection No. 14: Overruled
Objection No. 15: Overruled (See Reply at 9:26-10:2)

The balance of TDS’ objections are OVERRULED.

Defendants’ Objections to Evidence

Defendants’ objections are SUSTAINED.

Judicial Notice

Except as otherwise indicated above, Defendants’ request for judicial notice is
GRANTED.

Conditionally Lodged Records and Motion to Seal

Both sides conditionally lodged their appendices of evidence under seal. Both sides
have applied for an order sealing such records. The applications are UNOPPOSED
and GRANTED.

Good cause to seal exists since the records contained within the appendices contain
private and sensitive information which warrants protection from public disclosure, the
right of public access to this information does not outweigh the parties’ interests in
protecting the information, the value of the information being shielded will likely be
prejudiced if disclosure is not limited, the proposed limit on access is narrowly tailored
to only the private and sensitive information contained in the appendices, and there are no less restrictive means to protect the value of the private and sensitive
information.

The Clerk of the Court is directed to file, and seal from public view, the following
documents conditionally lodged under seal: (1) Defendants’ Appendix of Evidence
lodged with the moving papers; (2) TDS’ Appendix of Evidence lodged with the
Opposition; (3) Defendants’ Supplemental Appendix of Evidence lodged with the
Reply; and (4) TDS’ Supplemental Appendix lodged with the Sur Reply documents.

Conclusion

The motion for summary judgment/summary adjudication of issues is denied.

The applications for orders sealing records are granted.

The minute order is effective immediately. No formal order pursuant to CRC 3.1312 or
further notice is required.