Lacagnina v. Comprehend Sys., Inc.

The court thereafter entered an amended judgment in Lacagnina's favor in the amount of $255,000. This timely appeal followed.

A. The Trial Court Erred in Granting JNOV as to the Fraud Claim.^[11]

B. The Penal Code Claim Lacks Merit.

Lacagnina appeals from the trial court's nonsuit on his cause of action under Penal Code, section 496.^[12] Lacagnina makes the novel claim that he is entitled to recover treble damages and attorneys' fees under that statute, which makes it a crime to receive stolen property, because Comprehend and its executives engaged in the "theft" or "receipt" of "stolen property," in the form of his labor. We are not persuaded.

" 'A motion for nonsuit allows a defendant to test the sufficiency of the plaintiff's evidence before presenting his or her case. Because a successful nonsuit motion precludes submission of plaintiff's case to the jury, courts grant motions for nonsuit only under very limited circumstances.' [Citation.] 'A defendant is entitled to a nonsuit if the trial court determines that, as a matter of law, the evidence presented by plaintiff is insufficient to permit a jury to find in his favor. [Citation.]' [Citation]." ( Welco Electronics, Inc. v. Mora (2014) 223 Cal.App.4th 202 , 208, 166 Cal.Rptr.3d 877 .) Where "motions for nonsuit raise issues of law [citation], we review the rulings on those motions de novo, employing the same standard which governs the trial court [citation]." ( Saunders v. Taylor (1996) 42 Cal.App.4th 1538 , 1541-1542, 50 Cal.Rptr.2d 395 .) Here, the trial court's ruling on Comprehend's motion for nonsuit raises an issue of statutory interpretation on undisputed facts, which we review de novo. (

Lacagnina's argument is twofold. First, he points out that Bell v. Feibush (2013) 212 Cal.App.4th 1041 , 151 Cal.Rptr.3d 546 ( Bell ) held that a criminal conviction under section 496, subdivision (a), is not a prerequisite to recovery of treble damages under section 496, subdivision (c). Second, he asserts that his labor was taken by "fraudulent representation" or "false ... pretense" within the meaning of a second statute, section 484, which defines theft, and therefore (he claims) falls within the definition of "property which may be obtained in a manner constituting theft" under section 496, subdivision (a). Thus, Lacagnina contends, he is entitled to treble damages and attorneys' fees for the "theft" of his "labor" by Comprehend. While we agree with the trial court that Lacagnina's novel theory is "creativ[e]", we find it inconsistent with the plain language and structure of the Penal Code, the legislative purpose, and the likely consequences of Lacagnina's interpretation. (See People v. Prunty , supra , 62 Cal.4th at p. 76, fn. 4, 192 Cal.Rptr.3d 309 , 355 P.3d 480 [in interpreting statute, court focuses on "the statutory language, the legislative purpose, and the likely consequences of a particular interpretation"].)

We start, as we must, with the plain statutory language. Lacagnina contends that section 496"contains a civil remedy for, among other things, 'theft' of 'labor' procured by misrepresentation or false pretense." But it does

In an email dated May 31, 2012, entitled "My understanding of your offer," Morrison forwarded comments to Lacagnina on his employment offer, stating, "Please take a look at them and let me know what you think, and I'll resend the offer letter." In the email, Morrison proposed two options for Lacagnina's compensation, a $50,000 non-recoverable draw plus 20 percent commission, or a straight $50,000 base salary with 15 percent commission. Under the heading "Commission," the email stated, "You will currently receive commission on all accounts. However, we are going to bring on additional salespeople, at which point we will split up some accounts based on everybody's strengths/connections. You will obviously be involved in all of these decisions, and help us figure out how best to navigate." Under "Building the team," Morrison said, "I cannot promise you anything regarding your management position as we grow. Like I said on the phone, you and I are going to start building the sales team and developing a repeatable sales process. I will do my best to make sure that you get to go in whatever direction you're interested in, whether that's developing new markets or managing a group of salespeople. I can promise won't [sic] be any surprises and that we very much look to decide using objective metrics about what's best for the company." Lacagnina relied on the statements in the offer letter in accepting employment with Comprehend.

The next day, June 1, 2012,^[3] Lacagnina signed a written employment agreement with Comprehend by which he became director of business development, reporting to Morrison. It stated that he would receive a base salary of $50,000, plus a 20 percent commission "on the customer sales

C. Lacagnina's Tenure with Comprehend

For the next year, Lacagnina worked to promote and sell Comprehend's product to his former e-Clinical contacts (such as Knopp Biosciences, LLC and Boston Scientific), as well as to develop new accounts (with companies such as Atlantic Research Group and Versartis). He also transferred ("exported") prospective customers' contact and other information from e-Clinical's Salesforce.com database into Comprehend's database for its use.

Through Lacagnina's efforts, Comprehend secured its first sales, and one of Lacagnina's former e-Clinical contacts, Knopp Biosciences, became Comprehend's first referenceable customer, providing it with a case study describing how Comprehend's product had addressed a problem it was having and asserting, "Comprehend was worth its weight in gold." Later, Knopp and other companies that Lacagnina was cultivating agreed, at Lacagnina's request, to speak with venture capital firms, such as Sequoia Capital, to generate "Series A" investment interest in Comprehend's product. Lacagnina's efforts were successful, and in mid-2013, Sequoia agreed to invest $5.5 million in Comprehend-an amount that was subsequently increased.

In late May or early June 2013, following Sequoia's commitment, Lacagnina met with Morrison and Gardner for his annual review and a discussion of his compensation. In his review, Lacagnina gave Morrison and Gardner a list of things he felt that he had accomplished, and asked them if they disagreed; they did not, and said, "We love what you're doing. Just keep doing what you're doing." Neither said anything negative in his review. In a June 10, 2013 follow-up email, Lacagnina wrote to them, "I'm happy you

B. Comprehend's Motion for Summary Judgment

Defendants moved for summary judgment or, in the alternative, for summary adjudication of issues as to the entire complaint. As to Lacagnina's fraud claim, defendants contended that the purported misrepresentations were not actionable fraud and were not justifiably relied upon by Lacagnina, who was bound by the terms of his at-will employment agreement with Comprehend. In response, Lacagnina argued that defendants had engaged in promissory fraud by, among other things, concealing their intent to employ him at Comprehend no longer than it took to attract enough customers to obtain needed

A ten-day jury trial commenced on July 20, 2015. Following the close of evidence, Comprehend brought a motion for nonsuit on Lacagnina's claims for fraud, violation of the Penal Code, breach of contract, quantum meruit, age discrimination, and intentional and negligent interference with prospective advantage.^[7]

Comprehend's motion for nonsuit as to the fraud claim was based on the assertion that Lacagnina had "admitted during his trial testimony that his reliance on the alleged promise to revisit the amended offer letter was not, in fact, reasonable." The trial court, observing that Comprehend's argument was based on a portion of testimony taken out of context, found there was sufficient evidence to submit the claim to the jury, and denied the motion.^[8]

As to Lacagnina's claim under the Penal Code, Comprehend asserted that "there certainly hasn't been any evidence offered during trial that anybody stole anything from anybody." In response, Lacagnina asserted-apparently for the first time-the theory that "the fraudulent obtaining of labor would be theft of labor by false pretense" within the meaning of Penal Code, section 484. Asserting that section 496, subdivision (a) permits the recovery of treble damages for receiving stolen property, Lacagnina's counsel contended that "the way the two code sections [ Penal Code, sections 484 and 496, subdivision (a) ] work is that one person-and, in this case, it would be Richard Morrison-obtained labor by false pretense, and another person-and, in this case, Comprehend since Comprehend is considered a person under the law-received it." The trial court, finding that "there's no evidence to support this at all," granted the motion for nonsuit.^[9]

The jury awarded Lacagnina economic damages due to fraud and deceit in the amount of $226,446; economic damages due to breach of contract in the amount of $5,000, specifying this amount included 40,000 stock options; economic damages due to breach of the covenant of good faith and fair dealing in the amount of $250,000; and emotional distress damages in the amount of $75,000, for a total of $556,446. The jury unanimously found that Lacagnina failed to prove that any of the defendants "acted with malice, oppression, despicable conduct or fraud with regard to any of the above conduct," thus defeating the predicate for an award of punitive damages.^[10]

E. Comprehend's Motion for Judgment Notwithstanding the Verdict

Comprehend brought a motion for judgment notwithstanding the verdict (JNOV) asserting, among other things, that Lacagnina "failed to produce substantial evidence that there was actionable fraud by Defendants." In particular, Comprehend claimed that Lacagnina had "unequivocally admitted that his reliance on the purported misrepresentations was not reasonable." Comprehend asserted that Lacagnina's purported failure to produce substantial evidence of fraud also mandated setting aside the jury's award of emotional distress damages. Comprehend did not assert that there was no substantial evidence that Lacagnina had suffered compensable harm.

At the hearing on the motion, Comprehend argued principally that because Lacagnina was always an at-will employee who was entitled to commissions only on sales that he closed, he was not harmed by entering into the amended offer letter. The trial court observed that "there was contradictory testimony about whether the statements [made by Morrison and Gardner] were false or not .... and I'm not going to substitute my judgment, nor can I in this motion, for what the jury perceived." Asked to identify the harm Lacagnina had suffered from the alleged misrepresentations, his counsel asserted, "had Mr. Lacagnina known the true facts, he would not have signed the amended offer letter." He also asserted that Lacagnina had changed his position by leaving his position with e-Clinical and joining Comprehend, thereby foregoing larger commissions that he would have earned at e-Clinical.

Section 496, subdivision (a) makes buying or receiving "any property that has been stolen or that has been obtained in any manner constituting theft or extortion, knowing the property to be so stolen or obtained," a criminal offense punishable by imprisonment.^[13] Subdivision (c) provides,

Second, Lacagnina's labor was not "stolen" at the time Comprehend allegedly defrauded him out of the disputed compensation. Section 496, subdivision (a) refers to "property that has been stolen or that has been obtained in any manner constituting theft." ( § 496, subd. (a), italics added.) "Which is to say, when the property in question comes into the defendant's hands, it must already have the character of having been stolen ." ( Grouse River Outfitters Ltd v. NetSuite, Inc. (N.D. Cal. Oct. 12, 2016) 2016 WL 5930273 at *14 ( Grouse River ) [dismissing § 496, subd. (c) claim with prejudice].)^[16] But Lacagnina's entitlement to the lost commissions that the jury apparently awarded as damages^[17] did not arise until Comprehend completed sales to the relevant customers, which necessarily was after he had exerted efforts to obtain those sales.

Third and finally, an essential element of a section 496 violation is the defendant's knowledge that the property was stolen. Whatever it may mean to say that an employer "know[s]" that an employee's labor is "stolen," we doubt that a dispute over unpaid commissions and other compensation qualifies. ( Grouse River , supra, 2016 WL 5930273 at *16.) In short, while we reinstate the jury's award of damages for fraud, "[t]he plain language of § 496(a) prevents [plaintiff] from leveraging that alleged fraud into a damages-trebling § 496(a) violation." ( Id. at *15.)

For these reasons, we find no ambiguity in the statutory language, and therefore no need to consult its legislative history. (See Delaney v. Superior Court (1990) 50 Cal.3d 785 , 798, 268 Cal.Rptr. 753 , 789 P.2d 934 [if statutory language is clear and unambiguous, no need to resort to indicia of the intent of the Legislature].) We nevertheless have scrutinized the legislative history, which does not support Lacagnina's position. Senate Bill No. 1068 (1972 Reg. Sess.), which ultimately created section 496, subdivision (c), " 'was introduced at the request of the California Trucking Association, with the goal of eliminating markets for stolen property, in order to substantially reduce the incentive to hijack cargo from common carriers.' " ( Bell , supra , 212 Cal.App.4th at p. 1047, 151 Cal.Rptr.3d 546 , quoting