Indy Litigation Update

The following is the complete ruling issued this week by Santa Barbara Judge Denise DeBellefeuille regarding the ongoing litigation between Independent Publisher Randy Campbell and Independent Editor-in-Chief Marianne Partridge. The two are currently suing each other and the outcome of this dispute could go to trial this December.

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The court will grant cross-complainant Randy Campbell’s motion for leave to file a first amended cross-complaint. Campbell shall file and serve the cross-complaint no later than November 12, 2010.

On February 11, 2010, plaintiff Marianne Partridge filed her complaint against defendant Randy Campbell for breach of contract: specific performance, breach of the implied covenant of good faith and fair dealing and breach of fiduciary duty. Campbell filed a cross-complaint for breach of contract, breach of fiduciary duty and breach of the implied covenant of good faith and fair dealing.

Partridge is a minority shareholder and secretary of the board of directors of The Santa Barbara Independent, Inc. (the Independent), the eponymous owner of a weekly newspaper. Defendant Randy Campbell is the majority shareholder (1,530 shares or 51 percent) and president of the board. Richard Grand-Jean and Richard Parker are the other two shareholders of the corporation. Campbell and Grand-Jean entered into a formation agreement on November 17, 1986. On December 22, 1986, the Independent, Campbell and Grand-Jean entered into a Stock Purchase Buy-Sell Agreement. Partridge is the successor and permitted assignee of Grand-Jean.

Pursuant to the Buy-Sell Agreement, before a shareholder may sell shares, he/she must first offer them to the Independent and, if the Independent declines to purchase them, to the other shareholders. On November 10, 2009, Campbell submitted an offering notice to Partridge and other minority shareholders on November 10, 2009. He indicated he would accept $1,377,000 for his 1,530 shares on terms as outlined in an offer from Southland Publishing. Partridge claims she exercised her option to purchase Campbell’s shares under the Buy-Sell Agreement.

Campbell contends that the November 4, 2009 Southland offer was for 100% of all shares of the company for a total purchase price of $2,700,000, though it was not a binding offer as Southland was entitled to conduct due diligence and material terms were not included in the proposal. He says that, on November 10, 2009, he communicated his intention to vote his 51% of shares in favor of the purchase of 100% of the Independent. He claims that the offering notice regarding his shares was a notice that he intended to sell his shares as part of the Southland 100% offer, but this did not trigger any right of refusal by the Independent or any individual shareholders because there was no Southland offer to buy only Campbell’s shares. Campbell alleges that the Buy Sell Agreement requires a shareholder who acquires shares pursuant to it to use his or her own funds. Partridge had notified Campbell that she did not have the funds to purchase the shares so, he is informed and believes, Partridge breached the Buy Sell Agreement by obtaining funds from an outside source. He alleges Partridge has breached her fiduciary duty as secretary of the board by refusing to draft minutes and sending a notice inaccurately stating the board had voted not to purchase his shares when, in fact, the company voted not to accept the terms of the Southland proposal.

On March 18, 2010, the court granted Partridge’s motion for a preliminary injunction and ordered that Campbell shall not, directly or indirectly, sell or otherwise dispose of his shares of stock in The Santa Barbara Independent, Inc., as long as the order is in effect. The court ordered Partridge to post an undertaking in the amount of $250,000, which she did on March 26.

Trial is set for December 2, 2010. In a stipulation filed on October 6, 2010, the parties agreed to waive their right to a jury trial.

Campbell proposes to add Joseph L. Cole as a defendant. He proposes two new causes of action against Cole only: breach of fiduciary duty and injunctive relief prohibiting Cole from participating in, financing or advising Partridge in her attempt to purchase Campbell’s shares. Campbell says he learned of Cole’s involvement in Partridge’s proposed purchase of Campbell’s shares when Partridge produced documents on May 28, 2010. On June 10, Campbell’s counsel first proposed taking Cole’s deposition. (Cole is represented by the same counsel as Partridge.) Partridge’s/Cole’s counsel informed Campbell’s counsel that Cole was recovering slowly from a medical condition. In August and September, counsel tried to schedule Cole’s deposition, which commenced on October 1, 2010. As of October 26, the deposition had not been completed.

Campbell says that, in Cole’s deposition, he learned that Cole loaned Partridge $1,200,000 without repayment terms, is paying for Partridge’s attorney fees, and financed the $250,000 undertaking in this case. Campbell says that, in 1997, a dispute arose between him and Partridge, Grand-Jean and Parker over whether to continue publishing the Ventura Independent. Campbell retained Cole as his attorney. He alleges that he provided Cole with his thoughts, strategies, theories on litigation and opinions of the other shareholders. He alleges that Cole also provided legal assistance to the Santa Barbara Independent on various matters. He alleges that, starting in November 2009, Cole began taking actions in conflict with his former client by financing Partridge’s buyout of Campbell’s shares in exchange for Cole obtaining the shares. Campbell alleges that this scheme was kept secret from him.

Campbell argues that his proposed causes of action against Cole are closely related to the causes of action against Partridge and, even if filed as a separate action, would likely be consolidated for trial.

Partridge prefaces her opposition with a recitation of Campbell’s secret deal with the owner of Southland Publishing under which Southland, after purchasing all of the shares in the Independent, would rescind the purchase of all but 2% of Campbell’s shares, giving him $50,000 for that 2% and a guaranteed contract as publisher for three years at $110,000 per year. Partridge also recounts her allegations regarding the November 2009 offer.

Partridge contends that Campbell should be seeking leave to file a new cross-complaint under CCP 428.50(c). In any event, she argues that Campbell has unreasonably delayed in seeking to amend as Partridge produced all of the documents revealing Cole’s involvement in Partridge’s attempted exercise of her option to purchase Campbell’s shares under the Buy-Sell Agreement on May 28. Cole’s involvement was the principal subject of Partridge’s deposition on June 30 and July 1. All material facts regarding the new claims against Cole were known before the CMC on June 15, 2010. Campbell does not explain his failure to file a cross-complaint at that time or advise the court of its intention to do so at the CMC.

Partridge argues that allowing the proposed amendment now will require a continuance of the trial and will result in substantial prejudice to Partridge.

A court may allow an amendment to a pleading in the furtherance of justice at any time. CCP 576. The court may, in furtherance of justice, and on any terms as may be proper, allow a party to amend any pleading or proceeding by adding or striking out the name of any party. The court may likewise, in its discretion, after notice to the adverse party, allow, upon any terms as may be just, an amendment to any pleading or proceeding in other particulars; and may upon like terms allow an answer to be made after the time limited by this code. CCP 473(a)(1). Courts exercise their discretion to allow amendments liberally. Nestle v. Santa Monica, 6 Cal.3d 920, 939 (1972).

Partridge says the court should apply CCP 428.50(c), which governs filing a cross-complaint against a third party. But that section deals with new cross-complaints, not amended cross-complaints. CCP 473 governs amendments of cross-complaints, even when the cross-complainant seeks to add new parties. See People ex rel. Dept. Pub. Wks. v. Clausen, 248 Cal.App.2d 770, 782 (1967) (discussing former CCP 442, which has been superseded by CCP 428.10, et seq.).

Leave may be denied where (1) the party opposing the amendment demonstrates prejudice from the amendment or (2) the party seeking leave has delayed inordinately in seeking relief and has not provided an adequate explanation for the delay. Record v. Reason, 73 Cal.App.4th 472, 486 (1999). A combination of these two is particularly persuasive. E.g., Winding Creek v. McGlashan, 44 Cal.App.4th 933, 942 (1996) [unreasonable delay is a ground for denying leave to amend if the plaintiff has been dilatory and the defendant is prejudiced]. A long unexcused delay is sufficient to uphold a trial judge’s decision to deny the opportunity to amend pleadings, particularly where the new amendment would interject a new issue which requires further discovery. Green v. Rancho Santa Margarita Mortgage Co. (1994) 28 Cal.App.4th 686, 692. Although leave to amend is available even on the eve of trial, the requisite lack of prejudice is normally found only when the issues added in the amended pleading are already known to all parties and have been adequately explored in discovery. Mesler v. Bragg Management Co., 39 Cal.3d 290, 297 (1985).

Here, trial is set for December 2, 2010. The current parties have engaged in discovery on the issues of Mr. Cole’s involvement in the transaction. Cole, however, has conducted no discovery. Currently he is represented by the same counsel representing Partridge.

Partridge contends that allowing the amendment will require a further continuance of trial and will result in substantial injustice to her. She says she has $250,000 of borrowed money on deposit with the court and must go to work each day with the uncertainty of her future and the future of the newspaper. She says the lawsuit has affected other employees of the paper, who have taken 6% pay cuts. She also states that Campbell has been distributing dividends from the corporation, taking 51% of the monies for himself, without board approval. Partridge says, in her declaration, that it is her understanding that board approval is required for these distributions under California law and corporate bylaws. However, she does not cite to any law or bylaw provision. She also states that Campbell has effectively abandoned his job as publisher, creating a hardship for the paper.

Partridge contends that Campbell is attempting to shift the focus from what happened in November 2009 to what happened in 1997 and 1998. While the relationship of attorney and client from that earlier period will be an issue in the new causes of action, it is not fair to characterize that relationship as the focus. The actions of all parties, including Cole, in November 2009 will still be the primary focus of the litigation.

Discovery has progressed such that the parties and Cole are very familiar with the details of the November 2009 transaction. To the extent that discovery needs to be conducted to look into the nature of Cole’s representation of Campbell 12 years ago, that can be expedited. It does not appear that a substantial delay in the trial date will be necessary.

It is not clear why Campbell waited five months from the receipt of the information regarding Cole’s involvement and four months from Partridge’s deposition regarding Cole to seek to amend the cross-complaint. Cole’s deposition was not necessary to determine the issues his involvement raised and it would have been more appropriate to depose him as a party rather than as a percipient witness.

Weighing the delay and the prejudice, however, the court believes that, in the interest of justice and efficiency, these closely related causes of action should be tried together. It would not be workable to try the cases separately, since part of the relief Campbell seeks against Cole is to enjoin his participation in the Partridge purchase.

The court will grant the motion for leave to file a first amended cross-complaint. Campbell shall file and serve the cross-complaint no later than November 12, 2010. The court recently moved the trial date and indicated that it intended to give the parties the time they needed to prepare for trial. At the hearing on this motion, the court will hear from the parties regarding an appropriate trial date. If necessary to accommodate Cole’s involvement, the court will set a case management conference for mid-December.

Campbell’s Reply to oppo to App for Leave to File FAXC [PDF]

Dcl of Campbell in Supp to Reply for Leave to File FAXC [PDF]