Strategic Concepts, LLC v. Beverly Hills Unified Sch. Dist.

• Decision Date: 10 May 2018
• Docket Number: 2d Civil No. B264478
• Citation: 232 Cal.Rptr.3d 579,23 Cal.App.5th 163
• Court: California Court of Appeals
• Parties: STRATEGIC CONCEPTS, LLC, Plaintiff, Cross-defendant and Respondent, v. BEVERLY HILLS UNIFIED SCHOOL DISTRICT, Defendant, Cross-complainant and Appellant.

23 Cal.App.5th 163

232 Cal.Rptr.3d 579

STRATEGIC CONCEPTS, LLC, Plaintiff, Cross-defendant and Respondent,

v.BEVERLY HILLS UNIFIED SCHOOL DISTRICT, Defendant, Cross-complainant and Appellant.

2d Civil No. B264478

Court of Appeal, Second District, Division 6, California.

Filed May 10, 2018

As Modified on Denial of Rehearing June 6, 2018

Horvitz & Levy LLP, Barry R. Levy, Bradley S. Pauley, Burbank, Scott P. Dixler ; Greenberg Glusker Fields Claman & Machtinger LLP, Fred A. Fenster, Steven A. Stein, Los Angeles, for Defendant, Cross-complainant and Appellant.

Law Offices of Philip Kaufler, Philip Kaufler, Beverly Hills; Law Offices of Jonathan P. Chodos, Jonathan P. Chodos, Los Angeles, for Plaintiff, Cross-defendant and Respondent.

GILBERT, P.J.

A school district employee persuaded the district to convert her position from employee to independent contractor. She formed a limited liability company (LLC). The result: she was no longer an employee to whom the district paid $113,000 per year; she was now the sole owner of an LLC to which the district paid more than $1.3 million a year. Later she persuaded the district to award her LLC a $16 million no-bid contract. The district later declared the contracts void in violation of Government Code section 1090,¹ prohibiting conflicts of interest in the making of public contracts, and section 4525 et seq., requiring competitive bidding for certain public contracts.

The LLC sued the district for breach of contract and the district cross-complained to recover money paid under the alleged void contracts.

The trial court instructed the jury that the LLC's contracts did not violate section 1090 on the theory the statute does not apply to independent contractors. The court did not instruct on the competitive bidding statutes. It also concluded that a "termination for convenience" clause in the contract did not limit damages. The jury awarded millions in damages to the LLC.

We reverse. Section 1090 applies to independent contractors. The trial court misinterpreted section 1090 and erred in not instructing on the competitive bidding statutes. The contract also limits the LLC's damages.

FACTS²

Karen Christiansen was employed as director of planning and facilities for the Beverly Hills Unified School District (District). Among her duties Christiansen administered the planning, construction, and maintenance of the District's school facilities. She received a salary of $113,000 per year plus a $150 per month automobile allowance. Her written employment agreement ran from February 2005 through June 2007.

In 2006, Christiansen lobbied District officials to change her position from an employee to a consultant. A former member of the Board of Education (Board) testified, "Ms. Christiansen lobbied hard to move from the director of facilities and planning to consulting status." In June 2006, Christiansen entered into a new three-year contract with the District terminating her status as an employee and naming her a consultant.

The new contract, however, did not change her duties. The contract provided in part: "It is the intent of The District and Karen Christiansen that the transition be seamless as far as the operations of The District and the responsibilities of Karen Christiansen are concerned and that Karen Christiansen continue to have the same responsibilities she had as the Director of Planning and Facilities except for those duties and responsibilities which would be precluded due to her change in status from employee to consultant."

The contract further provided: "The District shall provide office space, office equipment and supplies in an amount, quantity and quality as is currently being provided to Consultant."

Pursuant to the contract, Christiansen's two minor children were considered children of a District employee for the purpose of attending school in the District. Christiansen was allowed to continue her use of the District's email. The new District Superintendant Kari McVeigh believed for a time that Christiansen was a District employee and a member of her staff.

The contract set Christiansen's compensation at $160 per hour with a maximum compensation of $170,000 per year. Compensation could not exceed the maximum without prior written recommendation by the District staff and prior written approval by the Board.

Christiansen formed Strategic Concepts, LLC (Strategic), of which she was the sole owner. In early 2007, Christiansen assigned her consulting contract to Strategic.

Payments Under the Contract

McVeigh and Assistant Superintendant of Business Services Cheryl Plotkin were required to review and approve Strategic's invoices. McVeigh described her relationship with Christiansen as "friendly, friends." Plotkin frequently socialized with Christiansen. She attended parties at Christiansen's home.

They went on two pleasure trips. At Plotkin's request, Christiansen obtained tickets to a show in Las Vegas for Plotkin and her husband. They reimbursed her. Christiansen hired Plotkin's daughter to work for Strategic.

In spite of the $170,000 per annum contract limitation, Strategic's invoices were approved and paid in the following amounts: $253,520 in 2006; $1,313,035 in 2007; and $1,390,804 in 2008. No one from the District alerted the Board about the over-payments. The invoices simply appeared on the Board’s "consent calendar"; that is, items that the Board does not usually review on an individual basis.

When Christiansen discovered her contract and payments were being questioned by the District's Citizens' Oversight Committee, she emailed Plotkin: "Let's just say that the contract was developed by your attorney .... Please shut this down fast."

2008 New Contract

In June 2008, with one year left on her existing contract, Christiansen negotiated a new contract. She testified that McVeigh wanted a new contract because the existing contract did not contain a "termination for convenience" clause; that is, a clause that would allow the District to terminate her contract without cause.

Christiansen's friend was the District's counsel, David Orbach, and his partner, David Huff. Christiansen, Orbach and Huff were among a group of friends who often met for drinks after work. In emails Orbach referred to Christiansen as "my queen" and she referred to him as "my prince." Christiansen sent Orbach and Huff an unsolicited picture of herself in a black bikini. The attorneys and Christiansen exchanged a number of emails containing sexual innuendo.

On June 3, 2008, the District and Strategic entered into a new consulting contract. The contract terminated on June 30, 2009. The contract it replaced provided for maximum compensation of $170,000 per annum. The new contract provided for compensation per an hourly rate schedule attached as exhibit B to the contract. In addition, the contract provided for a retroactive payment in an amount not to exceed $950,000 for services performed between January 1 and June 30, 2008. The compensation would be updated annually as approved by the Board.

The new contract contained a "termination for convenience" provision. The provision stated in part: "This AGREEMENT may be terminated without cause by DISTRICT upon sixty (60) days' written notice to CONSULTANT.

In the event of a termination without cause, the DISTRICT shall pay CONSULTANT for all SERVICES performed and all expenses incurred under this AGREEMENT supported by documentary evidence, including payroll records, and expense reports up until the date of notice of termination plus any sums due the CONSULTANT for BOARD approved extra SERVICES.... In addition, CONSULTANT will receive a termination fee that shall be the equivalent of one (1) month of payment to CONSULTANT for SERVICES based on the average of the valid invoiced amounts from the three (3) months preceding termination (‘Termination Fee’)." The contract was later amended to require 120 days' notice of termination, and the one-month termination fee was amended to three months' payment.

The new contract further provided in part: "In the event a termination for cause is determined to have been made wrongfully or without cause, then the termination shall be treated as a termination for convenience ..., and CONSULTANT shall have no greater rights than it would have had if a termination for convenience had been effected in the first instance. No other loss, cost, damage, expense or liability may be claimed, requested or recovered by CONSULTANT."

McVeigh signed the contract on behalf of the District. The contract was approved by the Board.

Advocation for School Bond

In Spring 2008, Christiansen advocated for a new school bond issue. She pressed the District to conduct a survey to determine whether voters would favor it. She said the survey could be done without cost to the District.

Christiansen sought McVeigh's permission to address the Board about the bond. McVeigh denied her request. She told Christiansen that the recommendation for a bond issue should come from the superintendent; if it comes from the project management company, it will look like the company is only trying to get business.

Nevertheless, Christiansen persisted. She procured a draft community survey from her bond underwriter on her own initiative. She repeatedly asked McVeigh to present it to the Board. McVeigh resisted.

Christiansen presented McVeigh with her underwriter's bond scenarios. According to the underwriter, the District could issue bonds up to $300 million. Christiansen told McVeigh that if the Board approved the survey at its July 2008 study session, there would be enough time to place the issue on the November 2008 ballot.

Eventually Christiansen got her way. She presented her idea for the bonds at the Board's July 2008 study session. The Board approved the bond survey and approved placing the bond issues on the November 2008 ballot. After the meeting, the bond underwriter emailed Christiansen, "You choreographed the meeting last night perfectly!"

Later in discussing whether to include agreements...