Youngevity International, Corp. v. Smith et al

Filing 619

ORDER DENYING PLAINTIFFS AND DEFENDANTS MOTIONS FOR SUMMARY JUDGMENT AS TO PLAINTIFFS NINTH CAUSE OF ACTION ECF Nos. 292 , 322 . Signed by Judge Barry Ted Moskowitz on 3/11/2019. (sjm)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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Youngevity International, et al.,

Case No.: 16-CV-704-BTM-JLB

Plaintiffs,

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v.

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Todd Smith, et al.,

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Defendants.

ORDER DENYING PLAINTIFF’S
AND DEFENDANT’S MOTIONS
FOR SUMMARY JUDGMENT AS
TO PLAINTIFF’S NINTH CAUSE
OF ACTION [ECF Nos. 292, 322]

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Presently before the Court are Plaintiff Youngevity’s and Defendant William

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Andreoli’s cross motions for summary judgment as to Youngevity’s ninth cause of

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action for breach of fiduciary duty against Defendant William Andreoli. (ECF

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Nos. 292 (“Pl.’s MSJ IX”), 322 (“Def.’s MSJ IX”).) For the reasons discussed

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below, the Court denies both and Plaintiff Youngevity’s and Defendant Andreoli’s

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motions for summary judgment.

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I. STANDARD

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Summary judgment is appropriate under Rule 56 of the Federal Rules of

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Civil Procedure if the moving party demonstrates the absence of a genuine issue

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of material fact and entitlement to judgment as a matter of law. Celotex Corp. v.

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Catrett, 477 U.S. 317, 322 (1986). A fact is material when, under the governing
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substantive law, it could affect the outcome of the case. Anderson v. Liberty Lobby,

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Inc., 477 U.S. 242, 248 (1986); Freeman v. Arpaio, 125 F.3d 732, 735 (9th Cir.

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1997). A dispute as to a material fact is genuine if there is sufficient evidence for

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a reasonable jury to return a verdict for the nonmoving party. Anderson, 477 U.S.

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at 323.

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On cross motions for summary judgment, a court “evaluate[s] each motion

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separately, giving the nonmoving party in each instance the benefit of all

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reasonable inferences.” ACLU v. City of Las Vegas, 466 F.3d 784, 790–91 (9th

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Cir. 2006) (internal citations omitted). The burdens faced by the opposing parties

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vary with the burden of proof they will face at trial. When the moving party bears

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the burden of proof at trial, “‘his showing must be sufficient for the court to hold

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that no reasonable trier of fact could find other than for the moving party.” Indep.

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Cellular Tel., Inc. v. Daniels & Assocs., 868 F. Supp. 1009, 1113 (N.D. Cal. 1994)

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(quoting Schwarzer, Summary Judgment Under the Federal Rules: Defining

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Genuine Issues of Material Fact, 99 F.R.D. 465, 487–488 (1984)). By contrast,

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when the moving party does not bear the burden of proof at trial, “the [moving

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party] need only point to the insufficiency of the [nonmoving party’s] evidence to

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shift the burden to the [nonmoving party] to raise genuine issues of fact as to each

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claim by substantial evidence. Id. If the nonmoving party then fails to raise a

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genuine issue of fact, the court should grant summary judgment in favor of the

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moving party. Id.

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The court must view all inferences drawn from the underlying facts in the

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light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v.

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Zenith Radio Corp., 475 U.S. 574, 587 (1986). “Credibility determinations, the

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weighing of evidence, and the drawing of legitimate inferences from the facts are

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jury functions, not those of a judge, [when] he [or she] is ruling on a motion for

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summary judgment.” Anderson, 477 U.S. at 255.

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II. DISCUSSION
Both Plaintiff Youngevity and Defendant Andreoli move for summary

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judgment on Plaintiff’s ninth cause of action for breach of fiduciary duty.

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A. Choice of Law

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The parties appear to dispute whether California or Delaware law applies.

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Plaintiff argues that California law applies because Andreoli’s fiduciary duty is

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governed by the Equity Purchase Agreement (“EPA”) and Employment

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Agreement (“EA”), which contain choice-of-law provisions designating California

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law as the governing law. (Pl.’s MSJ IX, Ex. A § 10.10; Ex. B. §14(h).) Andreoli,

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on the other hand, argues that Delaware law applies pursuant to California’s

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internal affairs doctrine because Youngevity is incorporated under the laws of

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Delaware. Under the internal affairs doctrine, as codified by California

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Corporations Code § 2116, courts will in most cases apply the laws of the state

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of incorporation with respect to matters involving the regulation of a corporation’s

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internal affairs. State Farm Mut. Auto. Ins. Co. v. Superior Court, 8 Cal. Rptr. 3d

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56, 442 (2003).

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Though case law concerning a conflict between an internal affairs doctrine

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and a contractual choice-of-law provision is scarce, it appears that the Ninth

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Circuit and California Supreme Court both have deferred to choice-of-law

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provisions before the internal affairs doctrine. Johnson v. Myers, No. CV-11-

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00092-JF-PSG, 2011 WL 4533198, at * 8–9 (N.D. Cal. Sept. 30, 2011)

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(analyzing the Ninth Circuit’s and California Supreme Court’s approach to

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conflicting choice-of-law provisions and internal affairs doctrine arguments).

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Here, Defendant has provided no reason why the Court should set aside the

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choice-of-law provision. There is a strong presumption in favor of enforcing

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contractual choice-of-law. Nedlloyd Lines B.V. v. Superior Court, 3 Cal. 4th 459,

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464–71 (1992) (recognizing strong policy considerations favoring the
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enforcement of freely negotiated choice-of-law clauses). Additionally, because

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California is Youngevity’s principal place of business, it has a substantial

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relationship to the parties and their disputes. As such, the Court will enforce the

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EPA’s contractual choice-of-law provision and apply California law.

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B. Fiduciary Duty

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To state a claim for breach of fiduciary duty, a plaintiff must prove the

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existence of a fiduciary duty, its breach, and damages resulting therefrom. City

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of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 68 Cal. App. 4th

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445, 483 (1998). Here, there is no dispute that Defendant Andreoli owed

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Youngevity fiduciary duties as Youngevity’s President. Therefore, the motions

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turn on the second and third elements.

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1. Defendant’s MSJ

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Defendant Andreoli moves for summary judgment arguing that there is no

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evidence to support that he breached a fiduciary duty or that a breach resulted in

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damages.

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a. Breach
Under California law, a director must perform his duties “in a manner such

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director believes to be in the best interest of the corporation . . . .” Cal. Corps.

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Code § 309(a). A fiduciary duty demands that an officer “not only

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affirmatively . . . protect the interests of the corporation committed to his charge,

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but also . . . refrain from doing anything that would work injury to the corporation,

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or to deprive it of profit or advantage which his skill and ability might properly

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bring to it, or to enable it to make in the reasonable and lawful exercise of its

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powers.” Bancroft-Whitney Co. v. Glen, 64 Cal. 2d 327, 345 (1966) (internal

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quotation omitted). The Supreme Court of California has made it clear that “[t]he

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mere fact that [an] officer makes preparations to compete before he resigns his

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office is not sufficient to constitute a breach of [fiduciary] duty.” Id. at 345-46. It

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is instead “the nature of [those] preparations which is significant.” Id. at 346.
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The Supreme Court has also clarified that “[t]here is no requirement that an

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officer disclose his preparations to compete with the corporation in every case,

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and failure to disclose such acts will render the officer liable for a breach of his

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fiduciary duties only where particular circumstances render nondisclosure

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harmful to the corporation.” Id. at 347.

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Plaintiff Youngevity has presented sufficient evidence to establish a

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genuine issue of material fact as to breach. Though a substantial amount of the

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evidence does nothing more than demonstrate that Defendant Andreoli

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communicated with Todd Smith about Wakaya without disclosure to Youngevity,

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Plaintiff points to several instances from which a jury could infer that Andreoli

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took more than mere preparatory steps to compete with Youngevity before

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resigning. See Bancroft-Whitney Co., 64 Cal. 2d at 346.

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For example, Plaintiff has submitted evidence of Andreoli and Smith

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negotiating a business agreement with Xocai, Inc., a competitor Youngevity had

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previously attempted to buy out. (See Pl.’s MSJ IX, Ex. G.) Youngevity also

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offers evidence that Andreoli attended a meeting in Utah with other Youngevity

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officers and distributors, including Todd Smith, Brytt Cloward, and Mike

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Randolph, to discuss Wakaya. (See id. at Ex. J 58:1–12; Ex. L 136:15–138:15,

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144:17–145:9; Ex. C 176:13–181:2.) Moreover, there is disputed evidence that

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Andreoli introduced Mike Randolph, Mike Kolinski, Brytt Cloward, and Patti

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Gardner to Wakaya and that they subsequently left Youngevity to join Wakaya.

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(See id. at Ex. K; Ex. J 56:9-63:24; Ex. M 77:7-90:13-17; Exs. N-S; see also ECF

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No. 601 (“Pl.’s Suppl. Br.”), Ex. E; Ex. F.) Lastly, there is also evidence of

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Andreoli forwarding Wakaya compensation plan information to then Youngevity

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distributors Dave and Barb Pitcock, Andre Vaughn, and Maxandra Desrosiers.

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(See Pl.’s MSJ IX, Exs. T–U). There is further evidence that Andreoli discussed

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Wakaya compensation plan information with Todd Smith, (see id. at Ex. S 32:22-

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Patti Gardner, Brytt Cloward, and Mike Kolinski (see Pl.’s Suppl. Br., Ex. H; Ex. I;

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Ex. J).

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Construing these facts in the light most favorable to Plaintiff, the Court

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cannot find as a matter of law that Defendant Andreoli would prevail on the

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element of breach. See e.g., Sonista, Inc. v. Hsieh, 2005 WL 3113083, at *4

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(N.D. Cal. Nov. 21, 2005) (“Assisting in the creation of a rival to [the company]

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while still a [company] director and officer would be a clear-cut violation of [the

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officer’s] fiduciary duties to [the company].”); Bancroft-Whitney Co., 64 Cal. 2d at

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352 (holding that a defendant’s assistance in recruiting and soliciting a plaintiff’s

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employees can constitute a breach of fiduciary duty).

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b. Damages

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Defendant also argues that Youngevity has failed to prove that Andreoli’s

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alleged breach resulted in damages. Under California Civil Code section 3333,

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“the measure of damages . . . is the amount which will compensate for all the

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detriment proximately caused” by the breach. Cal. Civ. Code § 3333. Relying on

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Richard Hoffman’s expert report, Youngevity argues that it suffered lost sales

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during the time Andreoli allegedly breached his fiduciary duties. (See Pl.’s MSJ

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IX, Ex. CC, 17, 20.) At this stage, the Court cannot say as a matter of law that a

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reasonable jury would not find that Youngevity suffered damages as a result of

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Andreoli’s alleged breach, including the alleged recruitment of other Youngevity

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employees to Wakaya. Therefore, Defendant’s motion for summary judgment is

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denied.

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2. Plaintiff’s MSJ

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Plaintiff moves for summary judgment arguing that it has submitted

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sufficient evidence as to each element of this claim. As noted above, however,

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there remain genuine issues of material fact as to whether Andreoli breached his

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fiduciary duties, specifically by inducing other Youngevity officers to join Wakaya.

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For example, Defendant Andreoli has offered evidence that his introduction of
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Wakaya to then Youngevity distributors was done within the context of his job as

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President of Youngevity, not with the intentions of recruiting them. (See ECF No.

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361 (“Def.s’ Opp’n to Pl.’s MSJ IX”), Ex. 7 42:17–44:9; Ex. 3 60:7–19.)

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Defendant also claims that Andreoli’s participation in discussions about

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Wakaya’s compensation plan were nothing more than mere preparatory steps to

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compete. (See ECF No. 604 (“Def.’s Suppl. Br.”), 2:19-3:6.) Therefore,

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Youngevity has not sufficiently met its burden for the Court to hold that no

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reasonable trier of fact could find other than for Plaintiff. Thus, a jury should

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resolve these material factual disputes.

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III. CONCLUSION
For the reasons discussed above, the Court denies both Plaintiff

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Yougevity’s motion for summary judgment (ECF No. 292) and Defendant

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Andreoli’s motion for summary judgment (ECF No. 322).

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IT IS SO ORDERED.

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Dated: March, 11, 2019

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