McLaughlin v. Machen
| Decision Date | 28 May 2021 |
| Docket Number | H045869 |
| Parties | STEVEN MCLAUGHLIN et al., Plaintiffs and Appellants, v. ROGER MACHEN, Defendant and Respondent. |
| Court | California Court of Appeals Court of Appeals |
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Monterey County Super. Ct. No. 16CV003178)
Captain Cook Coffee Company, Ltd. (Captain Cook) was a closely held family corporation that grew and sourced coffee cherry in Hawaii, milled the fruit to remove the coffee beans, and sold the resulting green coffee to retailers and roasters in California and elsewhere. At all times relevant to this appeal, Steven McLaughlin and his wife Flordeliza McLaughlin were the principal shareholders and directors of Captain Cook (together, plaintiffs). Plaintiffs sued the company's former general manager, Roger Kaiwi Machen (Machen) for claims arising from his alleged mismanagement of company operations in Hawaii and other misconduct. With respect to remedies, plaintiffs sought indemnity from Machen for costs incurred to resolve a federal lawsuit over labor violations at their Hawaii operations; rescission of a settlement, release, and indemnity agreement signed by the parties in 2011; and tort damages.
Following a bench trial, the trial court ruled that plaintiffs' causes of action were barred by the applicable statutes of limitations and were not subject to tolling pursuant to Code of Civil Procedure section 351.1 The trial court alternatively found that plaintiffs had failed to meet their burden of proof as to each cause of action. After entering the defense judgment, the trial court awarded attorney fees to Machen based on the application of Hawaii law pursuant to the choice of law provision in the 2011 settlement agreement.
On appeal, plaintiffs challenge each of these rulings by the trial court. For the reasons explained below, we affirm the judgment but reverse the trial court's postjudgment attorney fee order.
Steven M. McLaughlin (McLaughlin)3 entered the coffee business in 1968 and started his own company in 1974 importing specialty green coffees to the San Francisco Bay area. In 1991, McLaughlin and two business partners who also owned coffee companies purchased Captain Cook, which at the time consisted of a small dry mill in Kainaliu, Hawaii.4 In 1993, McLaughlin purchased land and built a wet mill and expanded facilities for the coffee operation. Captain Cook bought coffee cherry from growers around the Kona area, then sold green coffee beans to retail outlets and smallroasters in California and abroad. Captain Cook was headquartered in California, where its sales operation was based.
McLaughlin recognized by 1998 that he needed someone to run the operations in Hawaii. One of his business partners referred him to Machen, who was then living in California and working in construction. Machen was interested in moving to Hawaii. McLaughlin hired Machen in March 1998 as operations manager for Captain Cook. Machen was to oversee the labor force and day-to-day operations of the wet and dry mill. Machen had no prior experience operating a coffee operation.
In February 1999, plaintiffs made Machen the general manager of Captain Cook and, according to the minutes of a special meeting of the board of directors in May 1999, also a director of the company.5 McLaughlin testified that, as a member of the board of directors, Machen could give his opinion and make recommendations to the board but could not vote and was not a shareholder.
As general manager, Machen oversaw Captain Cook's entire operation in Hawaii, including purchasing coffee cherry from other growers, overseeing the day-to-day operations of the wet and dry mills, and shipping to California. Machen oversaw the labor force and the seasonal hiring of additional workers. Machen testified that it was "very difficult" to find coffee pickers during the season because of competing jobs in rival companies or in construction. Machen also was responsible for overseeing the maintenance of the coffee trees during the off season and for procurement and upkeep of the coffee equipment. Machen hired his son, Jesse, to help him oversee the operations of Captain Cook.
Machen was Captain Cook's most senior representative in Hawaii. The shareholders and other directors of the closely held corporation lived and worked in California. McLaughlin was a director and President and CEO of Captain Cook;McLaughlin's wife, Flordeliza, was a shareholder in the company and became a director in May 1999 when an original investor and director stepped down. Flordeliza had no direct involvement in Captain Cook's operations. The McLaughlins' two sons, Steve Jr. and Chris, were each directors in the company and held the titles of vice-president.
McLaughlin generally visited the Hawaii facilities once or twice a year during the off season. He expanded Captain Cook's operation in 2001 by purchasing additional acreage with planted coffee trees, housing, and a warehouse. In 2006, McLaughlin invested $2 million to buy a 50-acre parcel and plant 25 acres of coffee trees. McLaughlin hired an experienced contractor for the project, which was completed in 2008. The coffee trees required specialized maintenance including pruning, fertilization, and irrigation. Machen told McLaughlin the contractor was charging too much for maintenance of the 50-acre parcel and offered the services of a business formed by Machen in 2006 on property adjacent to Captain Cook's farm called Kaiwi Farms. Kaiwi Farms also grew coffee cherry and sold it to Captain Cook.
Various problems arose between 2005 and 2011, during which time Captain Cook's sales fell precipitously. The company lost about a third of its production in 2007 or 2008 when a large windstorm damaged the coffee trees. Machen attributed a decrease in coffee production in 2009 in part to lack of funds to purchase fertilizer and to maintain the irrigation system. However, McLaughlin disputed that low yields were due to any lack of fertilizer or to the water being cut off. He believed that Machen failed to maintain the coffee trees properly and allowed the property to deteriorate and fall into a state of neglect.
In 2008 and 2009, Captain Cook began having cash flow problems and fell months behind in payments to its coffee cherry suppliers. Bad publicity related to charges and an investigation into Captain Cook and other companies by the Equal Employment Opportunity Commission (EEOC), discussed further below (part I.B., post), created additional problems with suppliers.
By February 2010, Captain Cook owed money to Kaiwi Farms and later that year could no longer pay Machen's wages. Machen resigned from Captain Cook in 2011 after obtaining two promissory notes—one for money due to Kaiwi Farms and one to Machen for unpaid wages, as well as a mutual settlement, release and indemnity agreement signed by the McLaughlins and their sons. We discuss the notes and settlement agreement in more detail below (part I.C., post).
Machen left Captain Cook in April 2011 for a position at Hawaii Coffee Company, which, like Captain Cook, purchases and processes coffee cherry. Machen's son Jesse and others from Captain Cook continued to operate and maintain Captain Cook's property in 2011 and 2012. The McLaughlins did not spend significant time on the Hawaii property until 2013 and 2014, when they discovered the property in poor condition and the coffee trees dying from lack of irrigation and maintenance. McLaughlin blamed the property's condition and yield problems on Machen's management when it was under his care, based on reduced yields starting in 2009 or 2010 when Machen took over maintenance. According to McLaughlin, the farm's yield was "okay" in 2011, started to decline in 2012, and was "practically zero" in 2013.
The McLaughlins were eventually forced to liquidate Captain Cook's Hawaii properties and assets. They also had to sell their personal residence in California and were planning on selling the home they had purchased for their intended retirement. McLaughlin testified that his family had lost everything they had. McLaughlin attributed the company's failure to Machen's mismanagement and to the EEOC litigation brought on by Machen's conduct.
In early 2005, Machen informed McLaughlin that they were facing a labor shortage and would need to find workers to pick coffee. Machen attended a local trade show in Kona where he met a representative of Global Horizons, Inc. (Global), a California corporation and farm labor contractor based in Los Angeles, California.Global was the only company at the trade show that could supply coffee pickers. Machen sent the information about Global to McLaughlin. Machen "didn't know anything about the company at that time" but told McLaughlin it was their best or only option to solve the labor shortage. Machen testified that McLaughlin said he would look into it; however, McLaughlin relied on Machen's referral and did not conduct an independent investigation into Global.
McLaughlin signed a farm labor contractor H-2A agreement with Global (the Global contract) to provide workers to Captain Cook from September through November 2005. McLaughlin informed Machen that Global would furnish Thai workers who would be employees of Global and supervised by Global, not Machen, as provided for in the Global contract. Machen had no role in the negotiation of the Global contract.
At McLaughlin's direction, Machen undertook to have onsite housing approved by Hawaii County, which allowed Captain Cook to pay a lower rate for the Global contract workers6 than if they had to...
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