Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Los Angeles Memorial Coliseum Commission v. Insomniac, Inc.

California Court of Appeals, Second District, Fifth Division

January 27, 2015

LOS ANGELES MEMORIAL COLISEUM COMMISSION et al., Plaintiffs and Appellants,
v.
INSOMNIAC, INC., et al., Defendants and Respondents.

APPEAL from a judgment of the Superior Court of the County of Los Angeles, No. BC472814 Terry A. Green, Judge.

Page 804

[Copyrighted Material Omitted]

Page 805

[Copyrighted Material Omitted]

Page 806

[Copyrighted Material Omitted]

Page 807

[Copyrighted Material Omitted]

Page 808

COUNSEL

Burke, Williams & Sorensen, Charles E. Slyngstad and Brian S. Ginter for Plaintiffs and Appellants.

The Kaufman Law Group, Gary J. Kaufman, Colin A. Hardacre and Natasha L. Hill for Defendants and Respondents Insomniac, Inc. and Pasquale Rotella.

Mennemeier Glassman and Eric J. Glassman for Defendants and Respondents Go Ventures, Inc. and Reza Gerami.

Page 809

OPINION

MOSK, J.

INTRODUCTION

Plaintiffs and appellants Los Angeles Memorial Coliseum Commission (Commission) and Los Angeles Memorial Coliseum Association (Association)[1] appeal from a judgment and order of dismissal entered following the sustaining without leave to amend of demurrers by defendants and respondents Insomniac, Inc. (Insomniac); Pasquale Rotella (Rotella); Go Ventures, Inc. (Ventures); and Reza Gerami (Gerami).[2] According to plaintiffs, the judgment and order of dismissal should be reversed because each of the causes of action as to which the demurrers were sustained stated facts sufficient to constitute a cause of action against defendants. Plaintiffs alleged that defendants, which or who promoted and staged music events at the Coliseum and other related venues, paid an employee of the Commission for services related to those music events and that such payments were inappropriate and not disclosed to plaintiffs. Plaintiffs’ causes of action related to these undisclosed arrangements between defendants and the employee.

Based on our de novo review of the operative complaints, we conclude that plaintiffs adequately stated causes of action under the conflicts of interest prohibition in Government Code section 1090 (section 1090), conspiracy to defraud, violation of the Unfair Competition Law (UCL), [3] and accounting. We further conclude that the trial court properly sustained without leave to amend defendants’ demurrers to the causes of action for violation of the False Claims Act, [4] fraud, and negligence. We therefore reverse the judgment and order of dismissal and remand the matter with instructions.

FACTUAL BACKGROUND

We set forth below the allegations of the complaints in issue. [5]

Page 810

A. First Amended Complaint

1. General Allegations

Patrick Lynch was the general manager of the Commission and an officer of the Association. For years, he profited personally by abusing his position of trust and responsibility, receiving more than his substantial lawful wages and benefits from the Commission.

Todd DeStefano was an employee of the Commission who worked as an event coordinator, senior event and sales manager, director of events, and assistant general manager of events. For years, DeStefano and his wife Carisse profited personally by improperly diverting revenue to themselves and related entities that should have been paid to plaintiffs by, inter alia, Insomniac and Ventures, including money from various promotions, electronic music festivals, film productions, and other events. Insomniac and Ventures manipulated contract terms and accountings of events, thereby diverting material revenue from the services provided by plaintiffs, which revenue Insomniac and Ventures kept for themselves.

Since 1998, the Coliseum and Sports Arena hosted 37 electronic music festivals, with more than one million attendees pursuant to contracts with Insomniac and Ventures. Plaintiffs worked with Insomniac and Ventures on these events and grossed a significant percentage of revenue from them. Despite the rapid growth in popularity of these festivals beginning in or about 2006 and 2007, and continuing to 2010, DeStefano did not maximize rent or other revenue from them. Instead, he used the growing popularity and increased revenue from these events to benefit himself. Between 2006 and 2010, DeStefano approved contractual arrangements in which he and his wife had a financial interest with Insomniac and Ventures, both of which had information that DeStefano was plaintiffs’ employee and public servant.

Between October 2005 and December 2010, Ventures entered into 17 contracts with one or both plaintiffs, the purpose of which was to hold music festivals. Between August 2005 and June 2010, Insomniac entered into seven contracts with one or both plaintiffs, the purpose of which was to hold music festivals.

During the three-year period prior to February 2012, Lynch, DeStefano, and others, including promoters, made or caused cash payments of $955, 000 to be paid to a union shop steward of a theatrical stage employees local in connection with events held at plaintiffs’ public facilities. The purposes of those cash payments included wage payments to the shop steward and stage hands, which payments were outside the ordinary and usual employment compensation practices of plaintiffs and the union.

Page 811

Plaintiffs identified $557, 710 in cash payments made in connection with events promoted by Ventures and $209, 581 in cash payments made in connection with events promoted by Insomniac. The practice of paying cash wages resulted in Insomniac and Ventures paying approximately 29 percent less for employee-related costs and, as a result of the effect of all payroll taxes and federal and state withholding taxes, exposed plaintiffs to liability in an amount of 60 percent more than the cash paid.

2. First Cause of Action for Violation of the False Claims Act

In the first cause of action of the first amended complaint for violation of the False Claims Act, as to which the trial court sustained the demurrers of Insomniac and Ventures without leave to amend, plaintiffs alleged that between 2006 and 2010, Insomniac and Ventures, among others, submitted or conspired to submit claims for money for services or work relating to plaintiffs. In the course of such conduct, and in violation of the False Claims Act, Insomniac and Ventures submitted or conspired to submit false claims for payment (i) that they presented to an officer, employee, or agent of plaintiffs or (ii) that they made to a contractor, grantee, or recipient, where the money claimed was to be spent or used on a program or interest of plaintiffs from funds provided by plaintiffs or from funds that plaintiffs would use to reimburse others.

B. Fourth Amended Complaint

1. General Allegations

In the general allegations of the fourth amended complaint, plaintiffs named as individual defendants Rotella and Gerami[6] in addition to Insomniac and Ventures. The general allegations were similar to those in the first amended complaint set forth above, but incorporated as exhibits copies of the rental agreements entered into between plaintiffs, on the one hand, and Insomniac and Ventures, on the other hand. In addition, plaintiff alleged that the contracts between plaintiffs and Insomniac and Ventures were entered into by and through the efforts of Rotella and Gerami, each of whom, on behalf of Insomniac and Ventures, communicated with officers, employees, or agents of plaintiffs or conspired with Lynch and DeStefano to enter into those contracts.

2. Fifth Cause of Action for Violation of Section 1090

In support of the fifth cause of action for violation of section 1090, as to which the trial court sustained defendants’ demurrers without leave to amend,

Page 812

plaintiffs alleged that Lynch and DeStefano, as public employees, participated in making the contracts with Insomniac and Ventures. Insomniac and Ventures knew that DeStefano had structured his business arrangements with them so that he was financially interested in their contracts with plaintiffs and that DeStefano’s companies, LAC Events and Private Event Management, were receiving money from public contracting activity. Both Lynch and DeStefano knew that DeStefano and his companies would receive money arising out of public contracts.

DeStefano, his wife, his companies, and Lynch participated in making the contracts with Insomniac and Ventures and had a financial interest in those contracts. Revenues received by plaintiffs from events held at their public facilities were public funds that were subject to a final accounting and, for each such event, a settlement statement prepared by plaintiffs’ employees and provided to the promoter and licensee of the event. The compensation paid to plaintiffs’ employees, including managers, event coordinators, stage hands, and other reasonable and necessary personnel working at the events was paid with public funds. Insomniac and Ventures received payments directly and indirectly under their contracts from public funds of plaintiffs and from the millions of dollars in revenue and profits derived from the contracts with plaintiffs.

Insomniac and Ventures received substantial public funds through their use of plaintiffs’ public facilities, generated revenue and earned profits on their music festivals, and saved costs through cash payments to union workers who were employees of plaintiffs on the dates of events, thereby deriving additional excessive net proceeds from the public funds generated by the event. Insomniac and Ventures gave DeStefano “kickbacks” for allowing them to enter into their contracts with plaintiffs and as quid pro quo for their receipt of public funds from plaintiffs.

Insomniac’s and Ventures’s records showed that Insomniac unlawfully received at least $400, 000 from plaintiffs’ public funds in connection with the Electric Daisy Carnival in June 2009, and that Ventures received plaintiffs’ public funds from the following events: $170, 000 in connection with Monster Massive in October 2008; $10, 000 in connection with the Love Festival in August 2009; $20, 970 in connection with Monster Massive in October 2009; and $171, 200 in connection with Together As One in December 2009.

Ventures paid at least $716, 680 of diverted public funds to DeStefano by making at least 10 payments to him through his companies from January 2009 through April 2010. Insomniac paid at least $1, 175, 000 of diverted public funds to DeStefano by making at least five payments to him through his companies from August 2008 through September 2010. In addition,

Page 813

plaintiffs identified cash payroll payments of $557, 710 made in connection with events promoted by Ventures and at least $209, 581 made in connection with events promoted by Insomniac.

3. Tenth Cause of Action for Negligence

In support of the tenth cause of action in the fourth amended complaint for negligence, as to which the trial court sustained the demurrers of Insomniac and Ventures without leave to amend, plaintiffs alleged that Insomniac and Ventures foreseeably induced plaintiffs into believing that Insomniac and Ventures would perform their duties under the contracts with plaintiffs and carry out their actions in furtherance of the contracts in a lawful manner. Plaintiffs reasonably expected that Insomniac and Ventures would do so because those entities knew at the time of the making of the contracts that plaintiffs were public entities. Insomniac and Ventures breached their duty of care owed to plaintiffs by engaging in the acts alleged in the fourth amended complaint, including entering into public contracts with public officials who would receive a financial benefit from those contracts, causing public officials to violate their duties as public employees, and making cash payments to a union shop steward and stage hands that were outside the ordinary and usual employment compensation practices of plaintiffs.

C. Fifth Amended Complaint

1. General Allegations

In the fifth amended complaint, plaintiffs included general allegations that were substantially similar to the general allegations of the first and fourth amended complaints set forth above.

2. Third Cause of Action for Conspiracy to Defraud

In the third cause of action for conspiracy to defraud in the fifth amended complaint, as to which the trial court sustained defendants’ demurrers without leave to amend, plaintiffs repeated certain of the general allegations and specifically alleged that DeStefano committed fraud, did not make basic policy decisions as an officer or employee of plaintiffs, and acted in furtherance of the conspiracy to defraud ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.