Filed 12/31/14 Ehrlichman v. Heart Tronics CA2/8 

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS 

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for 

publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication 

or ordered published for purposes of rule 8.1115. 

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA 

SECOND APPELLATE DISTRICT 

DIVISION EIGHT 

LEE B. EHRLICHMAN, 

 Plaintiff and Respondent. 

 v. 

HEART TRONICS, INC., 

 Defendant and Appellant. 

 B251805 

 (Los Angeles County 

 Super. Ct. No. BC408322) 

 APPEAL from a judgment of the Superior Court of Los Angeles County. 

Mary H. Strobel, Judge. Affirmed. 

Spire Law Group, LLP, and James N. Fiedler, for Defendant and Appellant. 

Law Offices of Lisa L. Maki and Lisa L. Maki for Plaintiff and Respondent. 

__________________________ 
2 

 Heart Tronics, Inc., appeals from the judgment awarding former chief operating 

officer Lee B. Ehrlichman more than $1.2 million for breach of contract, wrongful 

termination, and related statutory wage violations after the trial court found that Heart 

Tronics fired Ehrlichman without cause. We reject Heart Tronics’ contention that there 

was insufficient evidence to support the judgment and therefore affirm. 

FACTS AND PROCEDURAL HISTORY

 In June 2008 Lee B. Ehrlichman was hired as chief operating officer of Heart 

Tronics, Inc., a start-up business that had developed improved electrocardiogram 

technology.1 The parties’ written employment agreement provided Ehrlichman an annual 

salary of $500,000, along with relocation expenses and other benefits. Ehrlichman took 

the job after working for several weeks as a consultant for the company, in part so he 

could determine whether the company was viable. 

 Under the agreement Ehrlichman was entitled to two-year’ severance pay if he 

were fired without good cause. The agreement defined good cause as follows: conduct 

that led to Heart Tronics being convicted of a crime or incurring criminal penalties; 

directives by appropriate government entities that Ehrlichman be terminated; 

Ehrlichman’s conviction of a felony offense or a misdemeanor involving a crime of 

dishonesty or moral turpitude; and the falsity of any of Ehrlichman’s representations and 

warranties contained in the agreement. The agreement contained three representations 

and warranties applicable to Ehrlichman – concerning advice of counsel and the absence 

of duress and coercion in the negotiation and execution of the agreement, and that he was 

not disabled at the time of execution. 

 The employment agreement provided that Ehrlichman would be paid at least semimonthly. Although Ehrlichman was paid during July and August 2008, he was not paid 

during September or October. On October 28, 2008, Ehrlichman sent a letter to Heart 

Tronics’ board of directors stating that he would be forced to resign unless he was paid. 

 

1 Heart Tronics was a dba of Signalife, Inc. When we refer to Heart Tronics we 

include Signalife where applicable. 
3 

In response Heart Tronics’ in-house counsel Mitchell J. Stein sent Ehrlichman a letter on 

October 29, 2008, that declared the employment agreement void from the start based on 

numerous alleged acts of fraud and other misconduct by Ehrlichman. These included: 

taking a two-week vacation two days after signing the employment agreement; making 

false sales forecasts and then not making any sales; and failing to draw against the 

company’s line of credit in order to pay his own salary.2

 Ehrlichman sued Heart Tronics and Stein, alleging the following causes of action: 

fraudulently inducing him to relocate from Pennsylvania in violation of Labor Code 

section 970, along with common law claims for fraud and negligent misrepresentation 

based on the same conduct; breach of written and oral agreements to provide two years’ 

severance pay and other damages for firing him without cause; Labor Code violations for 

unpaid wages and waiting time penalties; wrongful termination in violation of public 

policy based on firing him in retaliation for his demand that he be paid; and defamation.3

 A bench trial was held where Ehrlichman and Heart Tronics’ President James 

Fiedler testified and the deposition testimony of former company chairman Rowland 

Perkins was admitted. Heart Tronics did not dispute that it failed to pay Ehrlichman. 

Instead, Heart Tronics argued that it was excused from doing so for several reasons: 

(1) Ehrlichman could have simply drawn against the company’s line of credit to pay 

himself, but failed to do so; (2) he should have requested payment in stock in lieu of 

cash, as authorized by the agreement; (3) as set forth in Stein’s October 29, 2008, letter, 

Ehrlichman was fired for cause; and (4) Ehrlichman’s claims were barred under the 

equitable doctrine of unclean hands because he violated federal securities law by 

borrowing money from a board member. 

 

2 Stein’s letter is a nine-page rant with accusations posed Jeopardy style in the form 

of questions that Ehrlichman was dared to deny. Its petty tone reads more like 

schoolyard threats and taunting and was, at a minimum, unprofessional. 

3 Because the complaint is not in the record, our description of Ehrlichman’s causes 

of action comes from the trial court’s minute orders and statement of decision. 
4 

The trial court – in a fairly detailed statement of decision – rejected these defenses. 

Concerning Ehrlichman’s supposed failure to simply pay himself by drawing on the 

company’s line of credit, the trial court noted a conflict in the evidence: While Board 

Chairman Perkins testified that Ehrlichman could have drawn on the credit line, 

Ehrlichman testified that he had no control over the line of credit, and that his attempts to 

draw on it were rebuffed by Perkins and in-house counsel Stein. The trial court resolved 

this conflict in favor of Ehrlichman, finding his testimony credible. 

Concerning Ehrlichman’s failure to request payment in shares of stock, the trial 

court noted that the employment agreement left that option solely in the company’s hands 

and found no evidence to show that the company ever exercised that option. 

Concerning Ehrlichman’s alleged breaches of contract, the trial court noted that 

Ehrlichman testified that the accusatory questions in Stein’s October 29 letter were either 

untrue or half-truths and that nobody had previously raised those issues. The trial court 

found that the alleged breaches were “not supported by any evidence.” Stein’s October 

29 letter was not sworn testimony and Stein did not testify regarding the bases of his 

accusations. Although Perkins testified that he was disappointed in Ehrlichman’s sales 

efforts, the employment agreement did not link his compensation to any stated sales 

goals. Perkins did not testify that Ehrlichman had been fired for cause and instead said 

that the company had accepted his resignation. Based on the evidence, the trial court 

found the company was not excused from paying Ehrlichman’s salary. 

Concerning the unclean hands defense and Ehrlichman’s supposed violation of 

federal securities law by accepting a $5,000 loan from a board member, the trial court 

found that the company presented no evidence it suffered any consequences from 

Ehrlichman’s actions. The trial court also found that Ehrlichman did not act 

unconscionably or in bad faith, thereby precluding application of the unclean hands 

doctrine. 

Summing up, the trial court found that Heart Tronics fired Ehrlichman without 

good cause. The trial court also found that the company fired Ehrlichman in violation of 

public policy by drawing the inference that Ehrlichman had been fired in retaliation for 
5 

having demanded payment of his wages. The company’s willful failure to pay 

Ehrlichman’s wages violated the Labor Code, entitling him to both his wages and waiting 

time penalties. The trial court awarded Ehrlichman damages of nearly $1.3 million as 

follows: (1) $1 million, representing two years of contractual severance pay; and 

(2) nearly $282,000 in unpaid wages, liquidated damages and waiting time penalties. 

(Lab. Code, §§ 203, 1194.2.)4

Heart Tronics contends there was insufficient evidence to support any of the trial 

court’s findings. 

DISCUSSION

1. Heart Tronics Has Waived Its Substantial Evidence Challenge

The purpose of a statement of decision is to provide an explanation of the factual 

and legal basis for the trial court’s decision. (Wallis v. PHL Associates, Inc. (2013) 

220 Cal.App.4th 814, 825.) It gives the parties and the appellate court a clear 

understanding of the facts and law relied on by the trial court to reach its decision and 

serves as the touchstone for determining whether the facts and the law support the trial 

court’s decision. (Ibid.; Slavin v. Borinstein (1994) 25 Cal.App.4th 713, 718.) We 

review the trial court’s factual findings under the substantial evidence standard of review. 

(Central Valley General Hospital v. Smith (2008) 162 Cal.App.4th 501, 513.) 

Because Heart Tronics raises substantial evidence challenges to the judgment, it 

was subject to certain rules and principles governing the presentation of facts and 

arguments in its appellate briefs. These include: presenting the facts fully and 

completely, and not in a one-sided manner; providing an adequate record to permit 

meaningful appellate review; and proper citation to the record and applicable legal 

authority. (Gombiner v. Swartz (2008) 167 Cal.App.4th 1365, 1374.) 

 

4 The trial court found for the company on Ehrlichman’s misrepresentation and 

Labor Code section 970 causes of action, as well as his causes of action for defamation 

and breach of oral contract. 
6 

Heart Tronics has failed to meet these obligations. It has provided only a partial 

reporter’s transcript, omitting the last day of testimony, where company president Fiedler 

testified for both parties. The statement of facts in its opening appellate brief makes 

numerous factual assertions without record citations. Heart Tronics gives at most a 

passing nod to the trial court’s statement of decision and provides only those facts 

favorable to itself, without discussing the adverse evidence described in the statement of 

decision. As discussed in section 2, it has not cited proper authority to support its 

contentions that it had good cause to fire Ehrlichman and that Ehrlichman had unclean 

hands for violating federal securities law. Accordingly, Heart Tronics’ substantial 

evidence challenges are waived. (Gombiner v. Swartz, supra, 167 Cal.App.4th at 

p. 1374.) As set forth next, we alternatively hold on the merits that the judgment is 

supported by substantial evidence. 

2. Substantial Evidence Supports the Judgment

Heart Tronics contends there was insufficient evidence to support the judgment for 

the following reasons: (1) Stein’s October 29 letter of accusations cannot be secondguessed, pursuant to Cotran v. Rollins Hudig Hall Internat., Inc. (1998) 17 Cal.4th 93, 

100-101 (Cotran); (2) Ehrlichman did not deny and failed to disprove the accusations in 

Stein’s letter; (3) Ehrlichman had a corporate duty to draw on the company’s line of 

credit and failed to disprove his ability to have done so; (4) Ehrlichman was not entitled 

to Labor Code waiting time penalties because there was no evidence that Heart Tronics 

intentionally failed to pay his wages; and (5) the unclean hands doctrine was established 

by the evidence. We begin with the first two contentions, and then take the others in turn. 

Cotran, supra, 17 Cal.4th 93 concerned the scope of the fact-finder’s inquiry in a 

wrongful discharge case based on an implied-in-fact contract to terminate only for cause. 

In such cases, the Cotran court held, the test is not whether the employee’s misconduct 

actually occurred. Instead, the proper inquiry focuses on whether the employer 

concluded in good faith, albeit mistakenly, that the misconduct occurred, as opposed to 

firing the employee arbitrarily or on a pretext. (Id. at p. 107.) 
7 

Heart Tronics fails to mention the distinction between express and implied-in-fact 

contracts drawn by the Cotran court. When an express contract to terminate only for 

cause is involved, a different standard may apply, “depending on the precise terms of the 

contract provision.” (Cotran, supra, 17 Cal.4th at p. 96, fn. 1.) 

As noted earlier, the employment agreement defined what constituted a good 

cause termination: the falsity of any of Ehrlichman’s representations and warranties 

contained in the agreement; conduct that led to Heart Tronics being convicted of a crime 

or incurring criminal penalties; directives by appropriate government entities that 

Ehrlichman be terminated; and Ehrlichman’s conviction of a felony offense or a 

misdemeanor involving a crime of dishonesty or moral turpitude. The trial court relied 

on these provisions and found that none of the designated instances of good cause had 

occurred. Signalife does not address this issue at all, leading us to deem it waived. 

Alternatively, nothing in the record indicates that any of the specified instances of good 

cause ever occurred. 

Furthermore, even if Cotran applies and the actions described in Stein’s letter 

could constitute good cause, Heart Tronics has never addressed the other component of 

the Cotran test: whether it acted arbitrarily or on a pretext. Ehrlichman denied that the 

conduct described in Stein’s letter ever occurred. As a result, there was substantial 

evidence to support a finding that Stein was fired on a pretext. 

As for the unclean hands defense, it is based on Heart Tronics’ contention that 

Ehrlichman violated section 402 of the Public Company Accounting Reform and 

Corporate Responsibility Act of 2002 (15 U.S.C. § 7201, et seq. (the Sarbanes-Oxley 

Act)) by accepting a $5,000 loan from a board member. That section applies only when a 

person who issues or proposes to issue any security makes a loan to a company director 

or executive officer. (15 U.S.C. §§ 78c(a)(8), 78m(k)(1) & 7201(7).) Ehrlichman 

testified that Board Member Jennifer Black loaned him $5,000 because she felt bad that 

he had not been paid. There is no evidence that Black was an “issuer” as defined by 

Sarbanes-Oxley, an issue that Heart Tronics has failed to acknowledge or address. 

Accordingly, we see no evidence that the requisite violation of law occurred. 
8 

As for Ehrlichman’s supposed failure to draw on the company’s line of credit and 

the supposed absence of evidence that Heart Tronics intentionally failed to pay his wages, 

we simply note the following: (1) Ehrlichman testified that he was prevented from 

drawing on the line of credit; and (2) the circumstances surrounding his termination 

without cause at least create an inference that the company intentionally withheld his 

wages. To suggest that when an employer fails to pay its COO his salary contract, the 

COO has a contractual duty to draw down on the employer’s credit line strikes us as 

ludicrous. 

Finally, Heart Tronics contends that the damage award was excessive because it 

did not account for the fact that Ehrlichman took another job soon after he was fired, 

meaning that the amount of his damages should have been offset by the amount of the 

salary from his new job. We reject this contention for two reasons. First, apart from a 

citation to Ehrlichman’s opening statement concerning the fact that he took a new job, 

Heart Tronics does not cite to any portion of the record to substantiate that assertion or 

show the amount of salary Ehrlichman earned from his new job. (Guthrey v. State of 

California (1998) 63 Cal.App.4th 1108, 1115 [reviewing court has no obligation to 

search the record and points not supported by appropriate record citations are waived].) 

Second, Heart Tronics does not contend, and the record does not show, that it ever moved 

for a new trial on the ground that the damage award was excessive. The contention is 

therefore waived for that reason as well. (Zaxis Wireless Communications, Inc. v. Motor 

Sound Corp. (2001) 89 Cal.App.4th 577, 581, fn. 3.) 

DISPOSITION

The judgment is affirmed. Respondent shall recover his costs on appeal. 

 RUBIN, J. 

WE CONCUR: 

 BIGELOW, P. J. FLIER, J .