Ass'n for L. A. Deputy Sheriffs v. Macias

• Decision Date: 30 April 2021
• Docket Number: B295086
• Citation: 63 Cal.App.5th 1007,278 Cal.Rptr.3d 487
• Court: California Court of Appeals Court of Appeals
• Parties: ASSOCIATION FOR LOS ANGELES DEPUTY SHERIFFS, Plaintiff and Appellant, v. Armando MACIAS et al., Defendants and Appellants.

63 Cal.App.5th 1007

278 Cal.Rptr.3d 487

ASSOCIATION FOR LOS ANGELES DEPUTY SHERIFFS, Plaintiff and Appellant,

v.Armando MACIAS et al., Defendants and Appellants.

B295086

Court of Appeal, Second District, Division 8, California.

Filed April 30, 2021

Coleman Frost, James M. Kilkowski, Tristan F. Mackprang, Los Angeles; Benedon & Serlin, Gerald M. Serlin and Judith E. Posner for Plaintiff and Appellant.

Law Office of Donald R. Hall and Donald R. Hall, Tustin, for Defendants and Appellants.

GRIMES, J.

SUMMARY

In 2014, the Association for Los Angeles Deputy Sheriffs (ALADS) sued Armando Macias and John Nance (collectively, defendants) for breaches of their fiduciary duty to ALADS as members of its board of directors. The breaches of fiduciary duty occurred after the board removed Mr. Macias as a director and president of ALADS, on the ground he was not qualified under the bylaws to be a director (a requirement for holding an executive office). Defendants refused to accept Mr. Macias's removal, taking what they now downplay as merely "ill-advised" steps to contest the removal and remain in charge. These included informing the staff Mr. Macias was still president; obtaining a cashier's check for $100,000 from a political action committee (PAC) account of ALADS to retain a law firm; purporting to conduct board meetings without a quorum; and so on, causing great disruption in ALADS's management.

ALADS obtained a temporary restraining order requiring return of the $100,000, and several weeks later a preliminary injunction preventing Mr. Macias from claiming to be a director. Four years later, the case was tried to the court over seven days in May 2018. ALADS sought several categories of damages caused by defendants’ disruption of ALADS's management, including $7.8 million in compensation for its members, based on a 140-day delay in negotiating a new memorandum of understanding (MOU) with Los Angeles County. ALADS offered lay and expert testimony to prove the $7.8 million of lost salary it sought to recover on behalf of its members. That evidence was admitted without objection from defendants. Defendants then asserted in closing arguments, for the first time in the four-year course of this litigation, that ALADS lacked standing to recover monetary damages on behalf of its members.

The trial court entered judgment for ALADS, awarding damages sustained by ALADS and a permanent injunction, but found ALADS did not have standing to recover monetary compensation for its members. After the judgment was entered, ALADS sought cost-of-proof sanctions ( Code Civ. Proc., § 2033.420 ) from defendants. The court denied the motion.

Both parties appealed. We conclude the trial court did not err in its conclusion defendants breached their fiduciary duties to ALADS, or in its award of damages for harm to ALADS (except in one very minor respect), or in its award of a permanent injunction. The court did err, however, when it concluded ALADS did not have standing to seek the $7.8 million in damages on behalf of its members. ALADS proved those damages without objection from defendants and had standing to do so. We further conclude ALADS was entitled to cost-of-proof sanctions.

Accordingly, we amend the judgment to include the $7.8 million in damages to ALADS's members, affirm the judgment as amended, and remand the matter to the trial court to determine the appropriate amount of cost-of-proof sanctions.

FACTS

1. The Background and the Parties

ALADS is a nonprofit mutual benefit corporation that represents employees of the county sheriff's department and the bureau of investigations in the district attorney's office. Among other things, ALADS represents its more than 7,000 members in contract negotiations that culminate in MOU's governing wages, hours, and other conditions of employment for its members.

ALADS has a seven-member board of directors elected by its voting members. The board in turn selects ALADS's officers from among the board members.

The bylaws specify the qualifications necessary for a voting member to be eligible for election as a director. Section 6.05 provides that any voting member "who is a unit representative in good standing, and has attended 75% of the unit representative meetings for the two (2) years immediately preceding the election, is eligible to be elected" as a director. (The parties refer to this as the 75 percent rule.) A director holds office for a two-year term. Section 6.07 specifies that directors "shall be eligible for re-election provided they continue to meet the qualifications required by Section 6.05."

Section 6.09 provides that a quorum "shall consist of four (4) Directors," and that "no business shall be considered by the Board at any meeting at which a quorum ... is not present."

Section 6.12 governs the removal of directors. Section 6.12 provides in part that the board "may declare vacant the office of a Director ... (vi) if he/she fails or ceases to meet the qualifications of a Director set forth in Section 6.05 in effect at the beginning of that Director's current term of office."

Defendant Macias was re-elected to the board of directors in November 2013, along with Don Jeffrey Steck and Floyd Hayhurst. Defendant Nance was elected for the first time. The other directors (Mark Divis, George Hofstetter, and Joseph McCleary) were continuing their staggered terms. Mr. Hofstetter, as it turned out, had not complied with the 75 percent rule, having attended only 69 percent of unit representative meetings during the relevant period.

The board selected Mr. Macias as president of ALADS, Mr. Nance as vice president, Mr. Hayhurst as secretary, and Mr. Steck as treasurer. Mr. Hayhurst retired from his employment in January 2014, but remained on the board. Whether Mr. Hayhurst was allowed to remain on the board was a point of contention in the trial court but was not raised as an issue on appeal.

In early 2014, four of ALADS's unit representatives, all of them detectives in the sheriff's department, became dissatisfied with Mr. Macias's leadership as ALADS's president. They investigated his qualifications as a director, hoping to find a reason for his removal as director, and consequently as president. They found one. They discovered from attendance records for unit representative meetings that Mr. Macias had attended only 42 percent of the meetings during the two years preceding his reelection to the board. On or around March 5, 2014, they brought this information to the attention of the board and demanded Mr. Macias be removed as a director and president.

After seeking legal advice from an attorney with expertise in corporate law about whether Mr. Macias could properly be removed under the bylaws, the board convened a duly noticed special meeting to consider Mr. Macias's removal on March 7, 2014. The board voted to remove him based on his failure to qualify as a director, holding two votes. The first vote, taken when Mr. Macias had left the meeting, was 4 to 2 in favor of removal (Mr. Nance and Mr. McCleary opposing removal). The second, taken with Mr. Macias voting, was 4 to 3.

2. Post-removal Events: The Board and the Shadow Board

Mr. Macias did not challenge his removal by seeking arbitration as permitted by the bylaws or by initiating a legal action. But he did not go quietly.

Defendants sought the advice of an attorney, Steven Ipsen, who was a former deputy district attorney and whose expertise was criminal law. Then, on March 12, 2014, Mr. Nance, who was acting president, convened a board meeting. He read a statement asserting the March 7 vote to remove Mr. Macias was invalid and Mr. Macias was still a director and president. Mr. Macias entered the room and announced he was president. Immediately after that board meeting, defendants convened a staff meeting and told the staff Mr. Macias was still on the board and still in charge. Mr. Hayhurst tried to apologize to the staff for the conflict among the directors, but defendants "started yelling over the top of [Mr. Hayhurst], sort of to drown him out, and saying he doesn't belong here, that kind of thing."

Two days later, on March 14, 2014, four board members (Messrs. Steck, Hayhurst, Hofstetter and Divis) voted to select Mr. Steck as acting president, and three of them (Mr. Hayhurst abstaining) voted to appoint Travis Kelly to fill the vacant board position.

Also on March 14, a law firm acting for defendants (the Baute firm) sent a letter addressed to "Fellow ALADS Board Members, Members and Employees." (Defendants retained the firm without authority from the board and by improperly gaining access to ALADS funds, as described below.)

The Baute letter said ALADS had retained the firm to ensure compliance with ALADS's bylaws; a "renegade Board member, Floyd Hayhurst," had called the March 14 board meeting without proper notice; defendants would "remain in their respective positions" as duly elected board members and officers; and any board member or officer "who attempts to implement any sort of contrived decision undertaken by Floyd Hayhurst" would "be held fully accountable for any and all misconduct, to the fullest extent of the law." The Baute letter also said Mr. Hayhurst had retired from his position as a deputy sheriff on January 30, 2014, and "has no voting rights vis-à-vis the election or removal of a Director."

On March 20, 2014, defendants convened a meeting at which the only directors or purported directors present were defendants and Mr. McCleary. Acting without a quorum, they purported to elect Scott Frayer as a director. Then the four of them took "a variety of other actions," including hiring Steven Ipsen's firm.

Defendants continued their efforts to maintain what the parties now refer to as a "shadow board," and started an alternative website that showed defendants, Mr. McCleary and Scott Frayer as directors. There was "a lot of chatter among the ALADS members about what was going on," expressing concerns "[t]hat without clear authority to outsiders as...