Filed 1/27/15

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FIVE

LOS ANGELES MEMORIAL 

COLISEUM COMMISSION et al.,

Plaintiffs and Appellants,

v.

INSOMNIAC, INC., et al.,

Defendants and Respondents.

 B252838

 (Los Angeles County

 Super. Ct. No. BC472814)

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

Terry A. Green, Judge. Affirmed in part, reversed, in part and remanded with 

instructions.

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

and Appellants.

The Kaufman Law Group, Gary J. Kaufman, Colin A. Hardacre, Natasha L. Hill 

for Defendants and Respondents Insomniac, Inc. and Pasquale Rotella.

Mennemeier Glassman, Eric J. Glassman for Defendants and Respondents Go 

Ventures, Inc. and Reza Gerami.
2

INTRODUCTION

Plaintiffs and appellants Los Angeles Memorial Coliseum Commission 

(Commission) and Los Angeles Memorial Coliseum Association (Association)1appeal 

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),3and accounting. We further conclude that the trial 

court properly sustained without leave to amend defendants‟ demurrers to the causes of 

 

1

The Commission operates the Los Angeles Memorial Coliseum (Coliseum) and, 

apparently, the Los Angeles Sports Arena (Sports Arena). Commission and Association 

are sometimes collectively referred to as plaintiffs.

2

Insomniac, Rotella, Ventures, and Gerami are sometimes collectively referred to 

as defendants.

3 Business and Professions Code section 17200 et seq.
3

action for violation of the False Claims Act,4fraud, 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

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. 

 

4 Government Code section 12650 et seq.

5 As explained in detail below, defendants‟ demurrers were sustained without leave 

to amend as to certain causes of action in the first, fourth, and fifth amended complaints. 

Therefore, the factual allegations relevant to each order sustaining the demurrers without 

leave to amend are taken from the pleadings to which the orders were applied.
4

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. 

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, 
5

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 Gerami6in 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, 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 

 

6 As discussed below, Rotella and Gerami were originally named in the third 

amended complaint.
6

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. 
7

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, 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. 
8

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 plaintiffs 

when he entered into an agreement with Insomniac and Ventures through his company, 

LAC Events, Inc.7

In or about June 2008, DeStefano, Insomniac, Rotella, Ventures, and Gerami 

entered into a plan, conspiracy, and design to pay at least 10 percent of gross ticket sales 

to DeStefano through his alter ego, LAC Events, in exchange for Insomniac‟s and 

Ventures‟ use of the plaintiffs‟ public facilities and DeStefano‟s commitment to keep 

building expenses limited. DeStefano kept the stated rent in the contractual 

documentation at a falsely stated flat fee to deceive plaintiffs into believing that the rent 

was a flat fee. Plaintiffs and plaintiffs‟ management employee, Lynch, did not know and 

could not have known that the stated rent in the contracts was false, nor did they know, 

nor could they have known, that DeStefano and his alter ego had entered into the plan, 

conspiracy and design with Insomniac, Rotella, Ventures, and Gerami. Those defendants 

knew that the plan to which they agreed included payments to an employee of a 

 

7 DeStefano deleted his agreement with Insomniac and Ventures from his office 

computer‟s hard drive before January 19, 2011. 
9

governmental organization in exchange and as a quid pro quo for the “corruption” of his 

loyalty to his employer and the unlawful diversion of public funds to defendants. 

An executive producer for Insomniac and Rotella testified under immunity to the 

Los Angeles Grand Jury that DeStefano‟s job involved politicking or lobbying for the 

benefit of defendants. DeStefano‟s politicking and lobbying took place without 

plaintiffs‟ knowledge. In that role, in planning sessions for events, and during and after 

events, DeStefano spoke on behalf of the interests of Insomniac, Rotella, Ventures, and 

Gerami to Los Angeles Police Department personnel, Los Angeles Fire Department

personnel, private security company personnel, off-duty police officers, emergency 

medical technicians and medical personnel, and plaintiffs‟ employees, without those 

persons knowing that DeStefano owed allegiance to the promoters and was being paid by 

them to support their interests when he spoke. 

Representatives of Insomniac and Ventures gave DeStefano advice and direction 

regarding how to represent facts to authorities. DeStefano in his role for defendants also 

limited expenses at electronic music festivals for private security, off-duty police, and 

medical personnel, to the detriment of plaintiffs‟ interests. He also provided defendants 

with confidential information that they were not entitled to know, including attorneyclient information and internal communications by plaintiffs and their representatives. 

DeStefano‟s wife knew that he received improper payments from Insomniac and 

Ventures for their use of the facilities of DeStefano‟s governmental employer in conflict 

with his duties to that employer, and she received payments for her assistance in the 

continuing plan through DeStefano‟s alter egos, LAC Events and Private Events 

Management. During the relevant periods of time, DeStefano approved contractual 

arrangements in which he and his wife had a financial interest with Insomniac and

Ventures with the knowledge of defendants. Insomniac and Ventures also knew that 

DeStefano was an employee and public servant of plaintiffs.

The plan and conspiracy continued for more than two years, as shown by 

documents that explained the means by which DeStefano appropriated to himself through 

the company he owned, LAC Events, a consulting fee, representing 10 percent of gross 
10

ticket sales and other compensation that should have been paid to or retained by 

plaintiffs. Some of the consulting fee paid to De Stefano through LAC Events explicitly

was noted as “venue rent” on checks issued by Ventures and as a “venue use fee” and a 

“venue fee” on a check and documentation of a wire transfer, respectively, by Insomniac, 

pursuant to the unlawful agreement. 

Lynch learned of DeStefano‟s conflicting use of a company DeStefano owned and 

controlled to make money unlawfully performing plaintiffs‟ event coordinator business 

for DeStefano‟s personal gain. Specifically, DeStefano told Lynch in early 2010 that 

DeStefano had set up a company to work with promoters on his own time and that 

DeStefano‟s work would have no financial impact on the Commission or the Coliseum or 

the Sports Arena. DeStefano did not disclose to Lynch that DeStefano had been paid to 

that date at least $999,000 by Insomniac and Ventures, DeStefano‟s work had financially 

affected plaintiffs, and DeStefano‟s work for defendants directly related to the events 

being held at plaintiffs‟ public facilities. Lynch, despite knowing that DeStefano as a 

public employee could not serve two masters, condoned the continuation of the 

conflicting and unlawful conduct by DeStefano and did not stop DeStefano from 

profiting from it, thereby unlawfully aiding in the plan and conspiracy with knowledge of 

its unlawful purpose. Lynch did not inform any of the Commission‟s commissioners, or 

anyone else, regarding DeStefano‟s conflicting work as an event coordinator for 

defendants until January 2011. On January 19, 2011, the conflict was terminated at the

direction of the commissioners when DeStefano chose to resign from the Commission 

and work solely for the promoters. DeStefano‟s wife knew in 2009 that DeStefano was 

taking unlawful advantage of his public employment and breaching his fiduciary duties to

plaintiffs for the benefit of DeStefano and his wife by engaging in conduct for their

personal gain, and she knowingly received payments and proceeds of the unlawful 

activity from LAC Events in 2009 and from LAC Events and Private Event Management 

in 2010, thereby unlawfully aiding in the plan and conspiracy with knowledge of its 

unlawful purpose.
11

Plaintiffs were induced to pay from their public funds Insomniac‟s and Ventures‟s

net proceeds for events from 2008 into 2010 that were excessive due to (i) the buildingrelated expenses kept to a minimum by DeStefano to the detriment of plaintiffs; and (ii) 

the difference between the stated false fixed rent in the written agreements and the rental 

or use fees based on gross receipts that Insomniac and Ventures subsequently paid to the 

DeStefanos through LAC Events and Private Event Management. 

3. Fourth Cause of Action for Fraud

In the fourth cause of action for fraud in the fifth amended complaint, as to which 

the trial court sustained defendants‟ demurrers without leave to amend, plaintiffs alleged 

facts substantially similar to those alleged in support of the third cause of action for 

conspiracy to defraud. In addition, plaintiffs alleged that defendants Insomniac, Rotella, 

Ventures, and Gerami deceived plaintiffs by concealing their agreement with DeStefano 

and by paying DeStefano‟s companies money to use plaintiffs‟ public facilities, which 

monies defendants knew should have been paid to plaintiffs and retained by plaintiffs in 

the public funds generated by the events at the public facilities. In furtherance of their 

fraud, defendants kept the stated rent in the contractual documentation at a falsely stated 

flat fee to deceive plaintiffs into a continuing belief that the rent was a flat fee, thereby 

concealing defendants‟ fraudulent dealings with DeStefano. Plaintiffs and plaintiffs‟ 

management employee, Lynch, did not know and could not have known that the stated 

rent in the contracts was false, nor did they know, nor could they have known, that 

DeStefano and his alter ego had an agreement with Insomniac, Rotella, Ventures, and 

Gerami. Defendants‟ payments to an employee of a governmental organization and his 

alter ego company were in exchange and as a quid pro quo for the corruption of his 

loyalty to his employer and the unlawful diversion of public funds to defendants.

Defendants represented in each contractual document that the rent for their events 

was a flat fee when in truth the rent was being calculated based on a percentage of gross 

receipts that was taken from the public funds generated by the events and distributed to 

defendants for subsequent payoffs to DeStefano and his wife through DeStefano‟s
12

companies. Defendants concealed their fraudulent activity—including that defendants 

entered into an agreement with DeStefano to pay him through his companies money that 

should have been paid to plaintiffs and retained by plaintiffs in the public funds generated 

by the events at the public facilities—with the intent that plaintiffs would proceed with

the events by defendants to take place at the plaintiffs‟ venues—thereby enriching

defendants. Defendants knew that their events would not have been held if plaintiffs 

knew that defendants had “bribed” plaintiffs‟ public employee. Defendants knew 

plaintiffs were unaware of their fraudulent activity, including that defendants entered into 

an agreement with DeStefano to pay him through his companies money that should have 

been paid to plaintiffs and retained by plaintiffs in the public funds generated by the 

events at the public facilities, and that the truth was not readily accessible to plaintiffs.

4. Sixth Cause of Action for Violation of the UCL

In their sixth cause of action for violation of the UCL in the fifth amended 

complaint, as to which the trial court sustained defendants‟ demurrers without leave to 

amend, plaintiffs alleged that Insomniac and Ventures entered into an agreement with 

DeStefano under which they would pay less than market value for the rent of plaintiffs‟ 

public venues. Although DeStefano could have charged rent on a receipts basis, he 

instead provided for Insomniac and Ventures to pay rent on a flat fee basis, which 

provision resulted in less than fair market value rent being paid to the Commission. 

Insomniac‟s and Venture‟s conduct was anticompetitive and injured the public because 

defendants obtained use of plaintiffs‟ public facilities on a preferential basis and at less 

than market value. As a result, others who were unwilling to pay a kickback to a public 

official could not obtain the right to use plaintiffs‟ public facilities on the same terms 

enjoyed by Insomniac and Ventures.

5. Ninth Cause of Action for an Accounting

In their ninth cause of action for an accounting in the fifth amended complaint, as 

to which the trial court sustained defendants‟ demurrers without leave to amend, 
13

plaintiffs alleged that Insomniac and Ventures misappropriated and misused funds that 

were held in trust by them or paid to them for a specific purpose. Each of the defendants 

was either a fiduciary or acted in concert with a fiduciary in breaching their obligations to 

plaintiffs as alleged in the other causes of action in the fifth amended complaint. The 

exact amount of money misappropriated was unknown to plaintiffs and could only be 

determined by an accounting. There were both unliquidated and unascertained sums 

owed by Insomniac and Ventures to plaintiffs. Insomniac and Ventures remained in 

possession of public funds.

PROCEDURAL BACKGROUND

Plaintiffs filed an original complaint in this action, asserting 12 causes of action 

against eight defendants, including Insomniac and Ventures. As to Insomniac and 

Ventures, the plaintiffs alleged causes of action for violation of the False Claims Act, 

violation of section 1090, violation of the UCL, breach of the implied covenant of good 

faith and fair dealing, accounting, and negligence. 

In response to demurrers filed by Insomniac, Ventures, and others, plaintiffs filed 

a first amended complaint. It asserted the same causes of action against the same 

defendants. Insomniac, Ventures, and others filed demurrers to the first amended 

complaint. After argument, the trial court, Judge Gregory Alarcon, sustained the 

demurrers of Insomniac and Ventures with leave to amend each claim, except the False 

Claims Act cause of action, as to which the trial court sustained the demurrers without 

leave to amend.8

In their second amended complaint, plaintiffs alleged the same causes of action 

against Insomniac and Ventures as they had in the first amended complaint. Plaintiffs 

 

8

Plaintiffs filed a petition for a writ of mandate challenging the ruling on their False 

Claims Act cause of action, which petition this court denied because plaintiffs had an 

adequate remedy at law. 
14

attached as exhibits the rental agreements with Insomniac and Ventures and the 

consulting agreement with DeStefano. In response to the second amended complaint, 

Insomniac and Ventures filed demurrers. Plaintiffs then moved for leave to file a third 

amended complaint, which motion the trial court granted

In a third amended complaint, plaintiffs named Rotella and Gerami as defendants.9

In addition to asserting all of the causes of action that had been asserted against 

Insomniac and Ventures in the second amended complaint, plaintiffs added causes of 

action for fraud and conspiracy to defraud against defendants. The trial court sustained 

defendants‟ demurrers as to all causes of action with leave to amend, except as to the 

False Claims Act cause of action10 as to which the court sustained the demurrer without 

leave to amend.

Plaintiffs filed a fourth amended complaint against defendants and others. As 

against defendants, plaintiffs alleged all of their prior causes of action, except their False 

Claims Act cause of action.11 The trial court, Judge Terry Green, sustained without leave 

to amend defendants‟ demurrers to the causes of action for violation of section 1090, 

negligence, and breach of the implied covenant of good faith and fair dealing. The trial 

court granted leave to amend the remaining causes of action against defendants for 

conspiracy to defraud and fraud and against Insomniac and Ventures for violation of the 

UCL and an accounting. 

Plaintiffs filed a fifth amended complaint asserting the causes of action as to 

which the trial court had granted leave to amend—conspiracy to defraud, fraud, violation 

of the UCL, and an accounting. The trial court sustained defendants‟ demurrers to the 

 

9 Rotella and Gerami were only named in the causes of action for violation of the 

False Claims Act, conspiracy to defraud, and fraud.

10

 Notwithstanding the trial court‟s prior ruling on their False Claims Act cause of 

action, plaintiffs realleged it in the third amended complaint.

11 Rotella and Gerami were only named in the causes of action for conspiracy to 

defraud and fraud.
15

fifth amended complaint without leave to amend. The trial court thereafter entered a 

judgment and order of dismissal in favor of defendants. Plaintiffs filed a timely appeal.

DISCUSSION

A. Standard of Review

On review of a trial court‟s order sustaining a demurrer, we examine the complaint 

de novo to determine if it states a cause of action. (Committee for Green Foothills v. 

Santa Clara County Bd. of Supervisors (2010) 48 Cal.4th 32, 42.) As the Supreme Court 

has observed, “In reviewing the sufficiency of a complaint against a general demurrer, we 

are guided by long-settled rules. „We treat the demurrer as admitting all material facts 

properly pleaded, but not contentions, deductions or conclusions of fact or law. 

[Citation.] We also consider matters which may be judicially noticed.‟ [Citation.] 

Further, we give the complaint a reasonable interpretation, reading it as a whole and its 

parts in their context. [Citation.] When a demurrer is sustained, we determine whether 

the complaint states facts sufficient to constitute a cause of action. [Citation.] And when 

it is sustained without leave to amend, we decide whether there is a reasonable possibility 

that the defect can be cured by amendment: if it can be, the trial court has abused its 

discretion and we reverse; if not, there has been no abuse of discretion and we affirm. 

[Citations.] The burden of proving such reasonable possibility is squarely on the 

plaintiff. [Citation.]” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

B. Cause of Action for Violation of False Claims Act

In sustaining defendants‟ demurrers to the cause of action for violation of the 

False Claims Act, the trial court ruled that plaintiffs lacked standing to sue under the Act 

because Government Code section 12652 provides that claims under the Act can only be

brought by the Attorney General, the prosecuting authority of a political subdivision, or a 
16

private party in a qui tam action.

12

 The trial court concluded that plaintiffs, who sued in 

their own names and were represented by private counsel and did not file a qui tam

action, were not authorized under the False Claims Act to maintain the action for its 

violation.

1. Background

In the operative first amended complaint, plaintiffs alleged that the Coliseum was 

“a public entity organized and operating under the California Joint Exercise of Powers 

Act . . .” and that the Association was “a California non-profit public benefit corporation, 

which was created by the Commission, and is controlled by and under the direction of the 

Commission. It is operated as a public entity . . . .” Plaintiffs did not allege that either 

the Coliseum or the Association was a “prosecuting authority” or “person” for purposes 

of being a qui tam plaintiff, as those terms are used in Government Code section 12652 

discussed below.

At the hearing on the demurrer to the first amended complaint, plaintiffs argued 

that they had standing to bring an action under the False Claims Act because Government 

Code section 12651, subdivision (a) created an implied right of action in any public entity 

harmed by the submission of a false claim, which right of action was independent of and 

in addition to the rights of action created in the Attorney General, a prosecuting authority, 

and a qui tam plaintiff under Government Code section 12652. Plaintiffs also stipulated 

on the record that neither the Coliseum nor the Association was “bringing a qui tam

 

12 “A qui tam action has been defined as follows, „An action brought under a statute 

that allows a private person to sue for a penalty, part of which the government or some 

specified public institution will receive.‟ (Black‟s Law Dict. (7th ed. 1999) p. 1262, col. 

1; United States ex rel. Aflatooni v. Kitsap Physicians Service (9th Cir. 2002) 314 F.3d 

995, 997, fn. 1.) The term „qui tam‟ comes from the Latin expression „qui tam pro 

domino rege quam pro se ipso in hac parte sequitur,‟ which means, “„who pursues this 

action on our Lord the King‟s behalf as well as his own.”‟ (Vermont Agency of Natural 

Resources v. United States ex rel. Stevens (2001) 529 U.S. 765, 768, fn. 1 [146 L.Ed.2d 

836, 120 S.Ct. 1858]; City of Pomona v. Superior Court (2001) 89 Cal.App.4th 793, 797, 

fn. 1 [107 Cal.Rptr.2d 710].)” (People ex rel. Allstate Ins. Co. v. Weitzman (2003) 107 

Cal.App.4th 534, 538.)
17

action now or ever regarding these facts in this lawsuit.” Specifically, plaintiffs conceded 

that the Association did not have standing to assert a claim as a qui tam plaintiff because 

it was operated as a public entity. Similarly, plaintiffs emphasized that “there is no 

requirement for [plaintiffs] to go under a qui tam statute . . . for a claim [plaintiffs 

themselves] have. There‟s no requirement for [plaintiffs] to have original source 

information. That‟s a qui tam standard. Those are qui tam procedures. This is not that 

kind of case. It was never said to be. [Plaintiffs] stipulated that it‟s not. It‟s not a qui 

tam case. [¶] [Plaintiffs] are directly able to collect monies that were either defrauded 

from [them] by one means or another as charged under the False Claims Act . . . .” 

2. Analysis

Plaintiffs contend that the trial court misconstrued Government Code section 

12652. According to plaintiffs, Government Code section 12651, subdivision (a)

13

 

13 Government Code section 12651, subdivision (a) provides: “(a) Any person who 

commits any of the following enumerated acts in this subdivision shall have violated this 

article and shall be liable to the state or to the political subdivision for three times the 

amount of damages that the state or political subdivision sustains because of the act of 

that person. A person who commits any of the following enumerated acts shall also be 

liable to the state or to the political subdivision for the costs of a civil action brought to 

recover any of those penalties or damages, and shall be liable to the state or political 

subdivision for a civil penalty of not less than five thousand five hundred dollars ($5,500) 

and not more than eleven thousand dollars ($11,000) for each violation: [¶] (1) 

Knowingly presents or causes to be presented a false or fraudulent claim for payment or 

approval. [¶] (2) Knowingly makes, uses, or causes to be made or used a false record or 

statement material to a false or fraudulent claim. [¶] (3) Conspires to commit a violation 

of this subdivision. [¶] (4) Has possession, custody, or control of public property or 

money used or to be used by the state or by any political subdivision and knowingly 

delivers or causes to be delivered less than all of that property. [¶] (5) Is authorized to 

make or deliver a document certifying receipt of property used or to be used by the state 

or by any political subdivision and knowingly makes or delivers a receipt that falsely 

represents the property used or to be used. [¶] (6) Knowingly buys, or receives as a 

pledge of an obligation or debt, public property from any person who lawfully may not 

sell or pledge the property. [¶] (7) Knowingly makes, uses, or causes to be made or 

used a false record or statement material to an obligation to pay or transmit money or 

property to the state or to any political subdivision, or knowingly conceals or knowingly 
18

expresses a clear legislative intent “to have „persons‟ held liable to the state or political 

subdivision for acts in violation of the [False Claims Act].” Therefore, plaintiffs argue, 

the Act does not limit them to using only prosecutorial authorities to pursue their claims.

Under the False Claims Act, any person who submits a false claim to the state or a 

political subdivision may be sued for damages and civil penalties. (Gov. Code, § 12651,

subd. (a); State Ex Rel. Harris v. PricewaterhouseCoopers, LLP (2006) 39 Cal.4th 1220, 

1227.) Government Code section 12652, however, provides, in pertinent part: “(a) (1) 

The Attorney General shall diligently investigate violations under Section 12651 

involving state funds. If the Attorney General finds that a person has violated or is 

violating Section 12651, the Attorney General may bring a civil action under this section 

against that person. [¶] . . . [¶] (b) (1) The prosecuting authority[14]of a political 

subdivision shall diligently investigate violations under Section 12651 involving political 

subdivision funds. If the prosecuting authority finds that a person has violated or is 

violating Section 12651, the prosecuting authority may bring a civil action under this 

section against that person. [¶] . . . [¶] (c) (1) A person may bring a civil action for a 

violation of this article for the person and either for the State of California in the name of 

the state, if any state funds are involved, or for a political subdivision in the name of the 

political subdivision, if political subdivision funds are exclusively involved. The person 

bringing the action shall be referred to as the qui tam plaintiff. . . .” (Italics added.)

It is undisputed that this action was not brought by either the Attorney General or 

a prosecuting authority, such as County Counsel or the City Attorney, nor do the

 

and improperly avoids, or decreases an obligation to pay or transmit money or property to 

the state or to any political subdivision. [¶] (8) Is a beneficiary of an inadvertent 

submission of a false claim, subsequently discovers the falsity of the claim, and fails to 

disclose the false claim to the state or the political subdivision within a reasonable time 

after discovery of the false claim.”

14 In Government Code section 12650, subdivision (b)(8), a “prosecuting authority” 

is defined as “the county counsel, city attorney, or other local government official 

charged with investigating, filing, and conducting civil legal proceedings on behalf of, in 

the name of, a particular political subdivision.”
19

allegations of the operative first amended complaint suggest or imply that either the 

Coliseum or the Association were otherwise “charged with the investigating, filing, and 

conducting civil legal proceedings on behalf of, or in the name of, a particular political 

subdivision.” (Gov. Code, § 12650, subd. (b)(8).)15 Moreover, plaintiffs stipulated that 

the action was not brought by a “person” as a qui tam action. We therefore agree with 

the trial court that because plaintiffs were not alleged to be among the governmental

persons or entities specifically authorized to bring suit under the False Claims Act, 

plaintiffs lacked standing to prosecute a cause of action against defendants for violation 

of that law. Accordingly, the trial court did not err in sustaining defendants‟ demurrers to 

that cause of action.

Plaintiffs, in their reply brief, argue that the trial court should have granted them 

leave to amend their complaint to cure the standing defect. It does not appear, however, 

that plaintiffs requested such leave from the trial court or that they specified for the trial 

court the amendment they proposed. Similarly, they have not proposed a specific 

amendment on appeal, if one could even be made. Moreover, because plaintiffs raised 

the amendment issue for the first time in their reply brief, we may reject it on that basis. 

(See Shimmon v. Franchise Tax Bd. (2010) 189 Cal.App.4th 688, 694 fn. 3.)

C. Cause of Action for Violation of Section 1090

In their cause of action for violation of section 1090,

16 plaintiffs contend that the 

trial court “made a fundamental error by ruling that Insomniac and Ventures must have 

 

15 We do not have to deal with whether attorneys working in a government agency or 

subdivision are or can be “charged with the investigating, filing, and conducting civil 

legal proceedings” on behalf of or in the name of such a government agency or 

subdivision for purposes of the False Claims Act because that is not what occurred here.

16 Section 1090 provides, in pertinent part, “Members of the Legislature, state, 

county, district, judicial district, and city officers or employees shall not be financially 

interested in any contract made by them in their official capacity, or by anybody or board 

of which they are members. Nor shall state, county, district, judicial district, and city 
20

received „public funds‟ in order to be reached by the conflict of interest statutes at issue 

here.” According to plaintiffs, “case law dictates that persons who receive any benefit 

flowing from a contract that was gained through bribing a public official must disgorge 

those profits.” As explained below, we agree that the trial court erred in sustaining 

defendants‟ demurrers to plaintiffs‟ cause of action for violation of section 1090.

1. Legal Principles

As stated by the court in Carson Redevelopment Agency v. Padilla (2006) 140 

Cal.App.4th 1323, 1329-1330 (Carson), “[T]here has long been a common law 

proscription against public officials having a financial interest in contracts created by 

them in their official capacities. [Citation.] In 1951, the Legislature codified the 

proscription when it enacted section 1090 to curb conflicts of interest with respect to 

contracts, purchases and sales made by public officials. [Citation.] Section 1090 is 

triggered when a public official has a direct financial interest in a contract. Even when a 

public official‟s financial interest is indirect, section 1090 will still apply unless the 

interest is too remote and speculative. [Citation.]”

The court in County of San Bernardino v. Walsh (2007) 158 Cal.App.4th 533, 

549-551 (San Bernardino), further amplified on the purpose and application of section 

1090 as follows: “In order to fulfill the fundamental public policy underlying section 

1090, the County may obtain a forfeiture of the proceeds of a tainted contract, even when 

the proceeds were received from a third party rather than the public entity itself. [¶] 

Section 1090 prohibits public officials from being financially interested in any contract 

made by them in their official capacity. [Citation.] Section 1090 embodies the principle 

that the duties of public office demand the absolute loyalty and undivided allegiance of 

the individual who holds the office. [Citations.] More basically, section 1090 applies 

„[t]he truism that a person cannot serve two masters simultaneously.‟ [Citation.] [¶] 

 

officers or employees be purchasers at any sale or vendors at any purchase made by them 

in their official capacity.”
21

Section 1090 has been interpreted liberally to prohibit any form of self-dealing.

[Citations.] The statute cannot be given „a narrow and technical interpretation that would 

limit [its] scope and defeat the legislative purpose.‟ [Citations.] Section 1090 is 

triggered when a public official receives any profit from a public contract and includes 

the acceptance of a bribe in return for influencing the public entity to enter into a 

particular contract. [Citations.]” (Italics added.)

The court in San Bernardino, supra, 158 Cal.App.4th 533 added, “[c]ourts also 

have liberally interpreted the remedies available for a violation of section 1090 to permit 

the public entity to recover compensation without restoring the benefits it received under 

the contract. [Citations.] Because contracts in violation of section 1090 are against 

fundamental public policy, parties who participate in the unlawful making of the contract 

should forfeit all interest flowing from the contract to avoid the prospect of unjust 

enrichment. [Citations.] An actual loss to the public entity is not necessary. [Citations.] 

[¶] . . . [¶] As with the principle of unjust enrichment, section 1090 focuses on the 

wrongdoer rather than the victim. Disgorgement of profits is a logical extension of the 

rationale of section 1090 that public officials cannot profit by a breach of their duty or 

take advantage of their own wrongdoing. [¶] In Thomson [v. Call (1985) 38 Cal.3d 633 

(Thomson)], the Supreme Court stated that the facts of that case „represent but one of 

endless permutations generated by the basic conflict-of-interest situation, and a different 

remedy could be tailored for each.‟ (Thomson, supra, 38 Cal.3d at p. 652.) The court 

emphasized that there must be a policy of strict enforcement to create „a strong 

disincentive for those officers who might be tempted to take personal advantage of their 

public offices.‟ (Ibid.)” (Id. at pp. 550-551, italics added.)

2. Analysis

Plaintiffs alleged that their employee, DeStefano—in his official capacity—

negotiated on their behalf the rental agreements with Insomniac and Ventures that are at 

issue in this action. Plaintiffs also alleged that, by virtue of DeStefano‟s consulting 

agreement with Insomniac and Ventures—under which DeStefano would receive 10 
22

percent of the revenues from the events held pursuant to the rental agreements—

DeStefano had a financial interest in the rental agreements. Plaintiffs therefore 

adequately pleaded a violation of section 1090.

The issue on appeal is whether the violation of section 1090 entitled plaintiffs to 

void the rental agreements under Government Code section 1092 (section 1092)17 and to 

compel Insomniac and Ventures to disgorge the profits that they earned on events held 

under the rental agreements. Referring to, inter alia, Thomson, supra, 38 Cal.3d 633, San 

Bernardino, supra, 158 Cal.App.4th 533, and Carson, supra, 140 Cal.App.4th 1323,

plaintiffs contend that sections 1090 and 1092 are not limited in scope to transactions in 

which a private party defendant received public funds directly from a plaintiff that is a 

public entity. Based on these authorities, plaintiffs argue that they are entitled to recover 

from Insomniac and Ventures any and all benefits those defendants derived from the 

rental agreements because the agreements were made by DeStefano, a public employee,

in his official capacity while he had a financial interest in them, i.e., the agreements were 

tainted with corruption in violation of section 1090. As our analysis of plaintiffs‟ 

authorities demonstrates, plaintiffs‟ construction of sections 1090 and 1092 is correct.

In Thomson, supra, 38 Cal.3d 633, the defendant city council member sold a 

parcel of land to an intermediary, which thereafter sold the parcel to the city. (Id. at p. 

637.) The plaintiffs filed a taxpayers suit challenging the validity of the transaction. 

(Ibid.) The trial court found, inter alia, that the city council member was interested in the 

transaction in violation of section 1090, that the city council member was liable to the 

city for the purchase price, and that the city was entitled to retain title to the parcel. 

(Thomson, supra, 38 Cal.3d at p. 637.) In affirming the trial court‟s judgment, the 

Supreme Court in Thomson explained that “the trial court‟s remedy—allowing the city to 

keep the land and imposing a money judgment against the [the city council member]—is 

 

17 Section 1092, subdivision (a) provides, in pertinent part, “Every contract made in 

violation of any of the provisions of Section 1090 may be avoided at the instance of any 

party except the officer interested therein. No such contract may be avoided because of 

the interest of an officer therein unless the contract is made in the official capacity of the 

officer, or by a board or body of which he or she is a member.”
23

consistent with California law and with the primary policy concern that every public 

officer be guided solely by the public interest, rather than by personal interest, when 

dealing with contracts in an official capacity. Resulting in a substantial forfeiture, this 

remedy provides public officials with a strong incentive to avoid conflict-of-interest 

situations scrupulously.” (Id. at p. 650.)

In San Bernardino, supra, 158 Cal.App.4th 533, the defendants, a corporation and 

its owner, entered into a lease transaction with the plaintiff county granting them a 

leasehold interest in billboard sites along certain county highways and requiring them to 

complete construction of billboards on the sites within 12 months. (Id. at p. 548.) After 

three extensions of the 12-month construction time limit, the defendants completed 12 

billboards at a cost to them of $600,000. (Ibid.) The defendants thereafter agreed to 

assign the lease and sell five of the billboards to a third party for $4.4 million, which 

assignment required the approval of the county. (Ibid.) In return for a $20,000 bribe 

from the defendants, the county‟s chief administrative officer expedited the issuance of 

the county‟s consent to the assignment of the lease. (Ibid.) The defendants received $4.4 

million as a result of the assignment, $3.8 million of which was profit. (Ibid.) The 

county sued the defendants for, inter alia, violation of section 1090. (San Bernardino, 

supra, 158 Cal.App.4th at p. 549.) Following a trial, the trial court found the defendants 

liable for violation of section 1090 and awarded the county $3.8 million in damages 

representing the proceeds from the lease assignment to the third party, less the cost of 

constructing the billboards. (San Bernardino, supra, 158 Cal.App.4th at p. 549.) 

In affirming the trial court‟s ruling on the cause of action for violation of section 

1090, the court in San Bernardino, supra, 158 Cal.App.4th 533 concluded that “under the 

circumstances of this case, an award of damages representing the price paid by a third 

party to obtain benefits under a contract that violates section 1090 is warranted. Such a 

remedy is consistent with the purpose of section 1090 to prevent an offending party from 

benefiting from a contract that involves self-dealing by a public official. (See Carson,

supra, 140 Cal.App.4th at pp. 1335-1336.) [¶] . . . [¶] This is not a situation where the 

County bought something and could be made whole by a judgment requiring defendant to 
24

return the money paid by the County. Under the facts of the instant case, the goal of the 

statute cannot be achieved with a lesser remedy that would provide no disincentive to the 

misconduct. As the trial court stated, the absence of a judgment requiring [the 

defendants] to disgorge the profits [they] received from [the third-party assignee of the 

lease] would leave „a powerful incentive to pay small bribes for big public contracts.‟ [¶] 

The only remedy that would redress the injury to the people of the County is to unravel 

the deceit and require [the defendants] to pay the County the profit from their and [the 

chief administrative officer‟s] misdeeds. (See Carson, supra, 140 Cal.App.4th at pp. 

1335-1336.)” (Id. at pp. 550-551.)

In Carson, supra, 140 Cal.App.4th 1323, the defendants, owners of a senior 

housing complex, entered into an agreement with a municipal redevelopment agency 

under which the defendants would receive rental assistance. (Id. at p. 1327.) When the 

defendants thereafter requested an extension of the agreement and an increase in the 

rental assistance, the agency proposed instead making a low-interest loan to the 

defendants that would be used by them to pay down the mortgage on their senior housing 

complex. (Id. at pp. 1327-1328.) The defendants were told by a city official—the 

mayor—that they would need to pay him $50,000 if they wanted the city council to 

approve the loan. (Id. at p. 1328.) The defendants paid the mayor $50,000 for city 

council approval, plus another $25,000 to have the agency sign the agreement. (Ibid.) 

The municipal redevelopment agency sued the defendants to void the loan 

agreement pursuant to sections 1090 and 1092. (Carson, supra, 140 Cal.App.4th at p. 

1328.) The trial court granted summary adjudication in favor of the agency and entered a 

judgment requiring the defendants to pay the agency the entire amount of the loan 

proceeds. (Ibid.)

In affirming the trial court‟s ruling on the cause of action for violation of section 

1090, the court in Carson, supra, 140 Cal.App.4th 1323 reviewed the authorities on the 

appropriate remedy for a violation of section 1090 and concluded that the disgorgement 

remedy was “automatic.” (Id. at pp. 1335-1336.) According to the court, “Our holding 

sends a message. If a corrupt public official demands an extortion payment in exchange 
25

for a public contract, the victim should not pay. Instead, the victim should report the 

corrupt public official to local, state or federal law enforcement. If the victim pays and 

the extortion is discovered, the victim will not be permitted to retain any consideration 

received. The reason is simple. A public contract obtained through an extortion payment 

is not valid, and no one should believe that it is valid. A bright-line rule is required.” (Id.

at p. 1337, italics added.)

These authorities suggest that the equitable remedy for a violation of section 1090 

is not limited to cases in which the defendant receives public funds directly from the 

plaintiff public entity. As the Supreme Court in Thomson, supra, 38 Cal.3d 633 

emphasized, the policy goals underlying section 1090 mandate strict enforcement of the 

conflict of interest statutes and justify harsh remedies, such as the result in that case—

forfeiture to the city of the title to the city council member‟s parcel of land and 

disgorgement of the purchase price. (Thomson, supra, 38 Cal.3d at p. 652 [“because of 

the significant public policy goals which mandate strict enforcement of conflict-ofinterest statutes such as section 1090, we conclude that the remedy applied by the trial 

court was justified, supported by both California case law and public policy”].)

Moreover, the Court of Appeal in San Bernardino, supra, 158 Cal.App.4th 533 

explicitly rejected the “public funds” limitation on the remedy for a violation of section 

1090 when it affirmed the remedy imposed by the trial court there—disgorgement of the 

profits the defendants had derived from the lease assignment, which assignment was 

tainted by the bribery of a public official. As the court in that case observed, “The 

remedy fashioned by the trial court is an equitable form of forfeiture that is utilitarian in 

its design and serves the community by strongly discouraging the avarice of corrupt 

politicians and the burden of contracts tainted by conflicts of interest. [Citation omitted.] 

The damages may reflect money paid by [the third-party assignee of the lease] and not 

from the County treasury, but the County‟s residents were harmed by the corruption and 

self-dealing and, in a broader sense, the lease and lease assignment were made „at the 

expense‟ of those residents.” (San Bernardino, supra, 158 Cal.App.4th at pp. 551-552, 

italics added.)
26

In addition, the court in Carson, supra, 140 Cal.App.4th 1323 left no doubt about 

whether disgorgement for a violation of section 1090 was an appropriate remedy. 

According to the court in that case, once a violation of section 1090 is shown to have 

occurred, disgorgement is “automatic” because, “as a policy matter, it is the most 

effective way to give section 1090 all the teeth that it needs.” (Carson, supra, 140 

Cal.App.4th at p. 1336.)

Here, as in San Bernardino, supra, 158 Cal.App.4th 533, Insomniac and Ventures 

entered into agreements with plaintiffs to use public property for commercial purposes,

and they derived significant profits from that use. Because plaintiffs adequately alleged 

that DeStefano, a public official, had violated section 1090 by making those contracts 

with Insomniac and Ventures when he held an economic interest in them, the contracts 

were tainted with the alleged bribery scheme. Therefore, under the reasoning of San 

Bernardino, it does not matter that the profits to be disgorged came from ticket sales to 

the public,18 as opposed to the “public funds” of plaintiffs. In either case, disgorgement 

of profits made from the tainted agreements is necessary and appropriate to serve the 

policies underlying sections 1090 and 1092, including deterring the corruption of public 

officials and avoiding the appearance of impropriety.

Insomniac nevertheless maintains that the disgorgement remedy for violations of 

section 1090 is only triggered if a defendant who has contracted with a public entity has 

received “public funds” under the contract. According to Insomniac, because the profits 

it made from the events it staged under its rental agreements with plaintiffs were paid by 

private ticket purchasers, the disgorgement remedy sought by plaintiffs was not available. 

In a related argument, Ventures contends that the profits it made from events held under 

the rental agreements were not the product of those agreements. Rather, Ventures argues, 

its profits were derived solely from its promotional, planning, and staging efforts.

In support of its contention, Insomniac relies on the decision in Klistoff v. Superior 

Court (2007) 157 Cal.App.4th 469 (Klistoff). In that case, the complaint alleged that 

 

18 Actually, the ticket sale proceeds went to the Coliseum or Sports Arena and then, 

after an accounting, a portion of those proceeds was remitted to Insomniac and Ventures.
27

Michael Klistoff and his company, All City Services, bribed a city official in exchange 

for the official‟s efforts to ensure that another company in which Klistoff was vice 

president and manager, Klistoff & Sons, obtained a lucrative, long-term franchise 

agreement19 from the city to provide refuse collection and recycling services. (Id. at p. 

474.) The city‟s complaint alleged in the first cause of action that Klistoff had violated 

section 1090 because he had a financial interest in and received benefits from the contract 

between the city and Klistoff & Sons. (Klistoff, supra, 157 Cal.App.4th at p. 476.) In the 

second cause of action, the city alleged that Klistoff and his shell company, All City 

Services, conspired to violate section 1090. (Klistoff, supra, 157 Cal.App.4th at p. 476.) 

When the trial court overruled the demurrers of Klistoff and All City Services to 

the second cause of action for conspiracy to violate section 1090, those defendants filed a 

petition for writ of mandate directing the trial court to enter a new order sustaining the 

demurrer. (Klistoff, supra, 157 Cal.App.4th at pp. 477-478.) The Court of Appeal in 

Klistoff granted the petition on the grounds that (i) Klistoff and All City Services were 

not legally capable of violating section 1090 because they were not public officials or 

employees and, therefore, could not be liable for conspiracy to violate that section

(Klistoff, supra, 157 Cal.App.4th at p. 479); and (ii) the remedy in section 1092, 

avoidance of the tainted contract, did not apply to Klistoff and All City Services because 

they were not parties to the agreement20 and did not receive payments from the city under

the agreement. (Klistoff, supra, 157 Cal.App.4th at p. 481.)

Although the decision in Klistoff, supra, 157 Cal.App.4th 469 made references to 

the receipt of “public funds” in analyzing the conspiracy theory before it, that case did 

not state or imply that when a private party to an agreement made in violation of section 

1090 does not receive public funds under the contract directly from a public entity, 

disgorgement is not available. Rather, because in that case the benefit derived from the 

 

19 The franchise agreement had a contract value of $48 million over a 10-year period, 

and between 2002 and 2005, the city paid Klistoff & Sons “substantial sums” under the 

agreement. (Klistoff, supra, 157 Cal.App.4th at p. 476.) 

20 As noted, Klistoff & Sons was the party to the agreement with the city.
28

tainted franchise agreement—the “substantial sums” paid by the city under it to a 

separate entity—came from public funds, the court analyzed the issue within that 

framework. Thus, the proposition for which Insomniac claims Klistoff stands was not 

even before the court, i.e., the court was not called upon to decide whether profits from a 

tainted contract could be disgorged when they were paid to the defendant from a private 

source. Because the facts in Klistoff did not require the court to decide the issue, Klistoff

does not support Insomniac‟s “public funds” limitation on the disgorgement remedy 

under sections 1090 and 1092.

Ventures‟ related argument—that its profits from events held under the rental 

agreements were unrelated to those agreements—fares no better than Insomniac‟s “public 

funds” contention. Ventures‟ profits, like the profit the defendants received from the 

tainted lease assignment in San Bernardino, supra, 158 Cal.App.4th 533, were the direct 

result of Ventures‟ use of plaintiffs‟ public property under the tainted rental agreements. 

To the extent Ventures expended time and effort promoting, planning, and staging its 

events, the costs related thereto, as the $600,000 billboard construction cost incurred by 

the defendants in San Bernardino, would not be included in the profits to be disgorged 

under sections 1090 and 1092.

D. Cause of Action for Negligence

Plaintiffs contend that Insomniac and Ventures were aware that DeStefano was a 

Commission employee at the time they made cash payments to a union shop steward and 

at the time they entered into the consulting agreement with DeStefano. According to 

plaintiffs, it was reasonably foreseeable that their cash payments and performance under 

the consulting agreement could damage plaintiffs. Plaintiffs therefore conclude that they 

adequately pleaded all the necessary elements of a negligence cause of action, including 

duty of care.

“In order to establish liability on a negligence theory, a plaintiff must prove duty, 

breach, causation and damages. [Citations.]” (Ortega v. Kmart Corp. (2001) 26 Cal.4th 

1200, 1205.) “„The threshold element of a cause of action for negligence is the existence 
29

of a duty to use due care toward an interest of another that enjoys legal protection against 

unintentional invasion. [Citations.] Whether this essential prerequisite to a negligence 

cause of action has been satisfied in a particular case is a question of law to be resolved 

by the court.‟ [Citations.]” (Artiglio v. Corning Inc. (1998) 18 Cal.4th 604, 614.) “„To 

say that someone owes another a duty of care “„is a shorthand statement of a conclusion, 

rather than an aid to analysis in itself. . . . “[D]uty” is not sacrosanct in itself, but only an 

expression of the sum total of those considerations of policy which lead the law to say 

that the particular plaintiff is entitled to protection.‟ [Citation.]” [Citation.] “[L]egal 

duties are not discoverable facts of nature, but merely conclusory expressions that, in 

cases of a particular type, liability should be imposed for damage done.” [Citation.]‟ 

[Citation.]” (Paz v. State of California (2000) 22 Cal.4th 550, 559.)

The operative complaint alleged commercial agreements to rent public facilities 

for private use, but did not allege specific facts or circumstances that might give rise to a 

duty of care based on the relationship arising out of those agreements. Thus, the facts 

pleaded by plaintiffs were not sufficient to give rise to a duty of care. Although 

Insomniac and Ventures allegedly knew DeStefano was employed by the Commission, 

that fact, by itself, did not expand the parties‟ contractual relationship and impose duties 

on Insomniac and Ventures beyond those voluntarily assumed in the rental agreements. 

(See Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 992 [“„“[c]ourts 

should be careful to apply tort remedies only when the conduct in question is so clear in 

its deviation from socially useful business practices that the effect of enforcing such tort 

duties will be . . . to aid rather than discourage commerce”‟”].) Thus, the trial court 

correctly concluded that plaintiffs had not stated a negligence cause of action.

E. Fraud-Based Causes of Action

1. Fraud

Plaintiffs contend that they adequately pleaded common law fraud causes of action 

against defendants. According to plaintiffs, defendants misrepresented in the rental 
30

agreements that the rent would be a flat fee when, in fact, the rent included the additional 

10 percent of gross revenues paid to DeStefano under the consulting agreement. 

Therefore, plaintiffs argue, that allegation was sufficient to state a fraud cause of action 

based on an affirmative misrepresentation. Also, plaintiffs assert that their allegation that 

defendants “hid” their consulting agreement with DeStefano from plaintiffs was 

sufficient to state a fraud cause of action based on concealment. 

“„“The elements of fraud, which give[] rise to the tort action for deceit, are (a) 

misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of 

falsity (or „scienter‟); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; 

and (e) resulting damage.”‟ [Citation.]” (Small v. Fritz Companies, Inc. (2003) 30 

Cal.4th 167, 173.) To allege fraud based on an affirmative misrepresentation, a plaintiff 

must allege a misrepresentation—normally an affirmation of fact. (Lonely Maiden 

Productions, LLC v. Golden Tree Asset Management, LP (2011) 201 Cal.App.4th 368, 

375.)

To maintain a cause of action for fraud through nondisclosure or concealment of 

facts, there must be allegations demonstrating that the defendant was under a legal duty 

to disclose those facts. (OCM Principal Opportunities Fund, L.P. v. CIBC World 

Markets Corp. (2007) 157 Cal.App.4th 835, 845.) “„There are “four circumstances in 

which nondisclosure or concealment may constitute actionable fraud: (1) when the 

defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had 

exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant 

actively conceals a material fact from the plaintiff; and (4) when the defendant makes 

partial representations but also suppresses some material facts. [Citation.]”‟ (LiMandri 

v. Judkins (1997) 52 Cal.App.4th 326, 336 [60 Cal.Rptr.2d 539], quoting Heliotis v. 

Schuman (1986) 181 Cal.App.3d 646, 651 [226 Cal.Rptr. 509].) Where . . . there is no 

fiduciary relationship, the duty to disclose generally presupposes a relationship grounded 

in „some sort of transaction between the parties. [Citations.] Thus, a duty to disclose 

may arise from the relationship between seller and buyer, employer and prospective 
31

employee, doctor and patient, or parties entering into any kind of contractual agreement.

[Citation.]‟ (LiMandri, at p. 337, fn. omitted.)” (Id. at p. 859.)

The affirmative representation upon which plaintiffs rely was stated in the rental 

agreements, each of which was approved by Lynch—the general manager of Coliseum—

who presumably gave such approval in reliance on the amount of rent stated. Plaintiffs 

did not allege that the flat fee rent amount was the result of the tainted consulting 

agreement with DeStefano or that it was otherwise below market value for similar venues 

and facilities. Therefore, that stated amount was not, on its face, false or misleading. 

Insomniac and Ventures represented that they would pay that stated amount and, 

presumably, they performed in accordance with that representation. According to 

defendants, that amount only became a misrepresentation by virtue of the additional fact 

that defendants had agreed to pay DeStefano 10 percent of the gross revenues from 

events held pursuant to the rental agreements—a fact that defendants failed to disclose to 

plaintiffs. Thus, the facts pleaded by plaintiffs do not state a fraud claim based on an 

affirmative misrepresentation, but rather attempt to state a claim for fraud by 

concealment. 

In order to state a claim based on concealment, plaintiffs were required to allege

facts that showed defendants were under an affirmative duty to disclose the concealed 

fact to plaintiffs. As discussed above, ordinarily, such a duty arises only from fiduciary 

or fiduciary-like relationships. The facts alleged here, however, show only a commercial 

relationship between Insomniac and Ventures,

21 on the one hand, and plaintiffs, on the 

other hand, without more. Because there is nothing alleged about that relationship that 

would give rise to fiduciary-like duties, plaintiffs have failed to state a claim against 

defendants for fraud by concealment. Accordingly, the trial court did not err by 

sustaining the demurrers to plaintiffs‟ fraud causes of action against defendants.

 

21 According to the operative complaint, Insomniac and Ventures were in a 

contractual relationship with plaintiffs. Individual defendants Rotella and Gerami had no 

cognizable legal relationship with plaintiffs, making the fraud by concealment claim 

against them even more attenuated than the claim against Insomniac and Ventures.
32

2. Conspiracy to Defraud

In support of plaintiffs‟ cause of action against defendants for conspiracy to 

defraud, plaintiffs alleged the same essential facts as they alleged in support of their fraud 

claims. In addition, they alleged that defendants conspired with DeStefano to defraud 

plaintiffs by agreeing to conceal DeStefano‟s consulting agreement with Insomniac and 

Ventures. According to plaintiffs, those facts were sufficient to state a theory of liability 

against defendants based on conspiracy. 

The California Supreme Court has stated, “Conspiracy is not a cause of action, but 

a legal doctrine that imposes liability on persons who, although not actually committing a 

tort themselves, share with the immediate tortfeasors a common plan or design in its 

perpetration. [Citation.] By participation in a civil conspiracy, a coconspirator 

effectively adopts as his or her own the torts of other coconspirators within the ambit of 

the conspiracy. [Citation.] In this way, a coconspirator incurs tort liability co-equal with 

the immediate tortfeasors. [¶] Standing alone, a conspiracy does no harm and engenders 

no tort liability. It must be activated by the commission of an actual tort. „“A civil 

conspiracy, however atrocious, does not per se give rise to a cause of action unless a civil 

wrong has been committed resulting in damage.”‟ [Citations.] „A bare agreement among 

two or more persons to harm a third person cannot injure the latter unless and until acts 

are actually performed pursuant to the agreement. Therefore, it is the acts done and not 

the conspiracy to do them which should be regarded as the essence of the civil action.‟ 

[Citation.] [¶] We have summarized the elements and significance of a civil conspiracy: 

„“The elements of an action for civil conspiracy are the formation and operation of the 

conspiracy and damage resulting to plaintiff from an act or acts done in furtherance of the 

common design. . . . In such an action the major significance of the conspiracy lies in the 

fact that it renders each participant in the wrongful act responsible as a joint tortfeasor for 

all damages ensuing from the wrong, irrespective of whether or not he was a direct actor 

and regardless of the degree of his activity.”‟ [Citation.]” (Applied Equipment Corp. v. 

Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 510-511.)
33

Unlike Insomniac and Ventures, who were only in a contractual relationship with 

plaintiffs, DeStefano—as an employee and agent of plaintiffs—was in an employment 

and agency relationship with them. Thus, the issue becomes whether his relationship 

with plaintiffs was the type that would give rise to an affirmative duty to disclose 

material facts. (See Weiner v. Fleischman (1991) 54 Cal.3d 476, 483 [to show fraud by 

concealment, the plaintiff “had to establish the existence of some type of legal 

relationship giving rise to a duty to disclose. „Although material facts are known to one 

party and not to the other, failure to disclose them is ordinarily not actionable fraud 

unless there is some fiduciary relationship giving rise to a duty to disclose‟”].) 

In negotiating the rental agreements with defendants, DeStefano was acting on 

behalf of plaintiffs as their authorized agent, a relationship that can give rise to fiduciary 

responsibilities. “[B]efore a person can be charged with a fiduciary obligation, he must 

either knowingly undertake to act on behalf and for the benefit of another, or must enter 

into a relationship which imposes that undertaking as a matter of law.” (Committee on 

Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 221.) “A 

fiduciary relationship is „“any relation existing between parties to a transaction wherein 

one of the parties is in duty bound to act with the utmost good faith for the benefit of the 

other party. Such a relation ordinarily arises where a confidence is reposed by one person 

in the integrity of another, and in such a relation the party in whom the confidence is 

reposed, if he voluntarily accepts or assumes to accept the confidence, can take no 

advantage from his acts relating to the interest of the other party without the latter‟s 

knowledge or consent. . . .”‟ (Herbert v. Lankershim (1937) 9 Cal.2d 409, 483 [71 P.2d 

220]; In re Marriage of Varner (1997) 55 Cal.App.4th 128, 141 [63 Cal.Rptr.2d 894]; see 

also Rickel v. Schwinn Bicycle Co. (1983) 144 Cal.App.3d 648, 654 [192 Cal.Rptr. 732]

[„“A „fiduciary relation‟ in law is ordinarily synonymous with a „confidential relation.‟ It 

is . . . founded upon the trust or confidence reposed by one person in the integrity and 

fidelity of another, and likewise precludes the idea of profit or advantage resulting from 

the dealings of the parties and the person in whom the confidence is reposed.”‟].)” (Wolf 

v. Superior Court (2003) 107 Cal.App.4th 25, 29-30.) 
34

A “traditional” example of a fiduciary relationship in the commercial context is 

one of an agent and principal. (Wolf v. Superior Court, supra, 107 Cal.App.4th at p. 30.) 

Moreover, officers of corporations who participate in the management of the corporation 

are considered fiduciaries as a matter of law. (See GAB Business Services, Inc. v. 

Lindsey & Newsom Claim Services, Inc. (2000) 83 Cal.App.4th 409, 421.)

DeStefano‟s employment and agency relationship with plaintiffs was fiduciary in 

nature because he had voluntarily undertaken to act on their behalf and for their benefit in 

negotiating the rental agreements with defendants. Based on that relationship, he was 

required to disclose to his principals the consulting agreement with Insomniac and 

Ventures, and his alleged failure to do so was sufficient to state a fraud by concealment 

as to him. 

Given that the alleged facts showed the commission of an underlying tort by one 

of the alleged coconspirators, the allegations that defendants conspired with DeStefano to 

conceal the existence of the consulting agreement from plaintiffs were sufficient to state a 

cause of action against defendants for fraud based on a conspiracy theory of liability. 

Thus, the trial court erred by sustaining the demurrers to the conspiracy to defraud claim 

against defendants. 

F. Cause of Action for Violation of the UCL

Plaintiffs maintain that they adequately stated facts constituting violations of the 

UCL by alleging that Insomniac and Ventures made cash payments to a union shop 

steward for employee wages without paying payroll taxes in violation of state and federal 

law, and that Insomniac and Ventures engaged in a fraud and a conspiracy to defraud. 

The California Supreme Court has said, “The UCL defines „unfair competition‟ as 

„any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue 

or misleading advertising.‟ (Bus. & Prof. Code, § 17200.) By proscribing „any unlawful‟

business act or practice (ibid.), the UCL „“borrows”‟ rules set out in other laws and 

makes violations of those rules independently actionable. [Citation.] However, a 

practice may violate the UCL even if it is not prohibited by another statute. Unfair and 
35

fraudulent practices are alternate grounds for relief. [Citation.] . . . [¶] We have made it 

clear that „an action under the UCL “is not an all-purpose substitute for a tort or contract 

action.” [Citation.] Instead, the act provides an equitable means through which both 

public prosecutors and private individuals can bring suit to prevent unfair business 

practices and restore money or property to victims of these practices. As we have said, 

the “overarching legislative concern [was] to provide a streamlined procedure for the 

prevention of ongoing or threatened acts of unfair competition.” [Citation.] Because of 

this objective, the remedies provided are limited.‟ [Citation.] Accordingly, while UCL 

remedies are „cumulative . . . to the remedies or penalties available under all other laws of 

this state‟ (Bus. & Prof. Code, § 17205), they are narrow in scope.” (Zhang v. Superior 

Court (2013) 57 Cal.4th 364, 370-371.) The Supreme Court has also explained that 

“[v]iolations of federal statutes, including those governing the financial industry, may 

serve as the predicate for a UCL cause of action. [Citations.]” (Rose v. Bank of America 

(2013) 57 Cal.4th 390, 394.) “[U]nder the unlawful prong, the UCL ““„borrows‟

violations of other laws and treats them as unlawful practices” that the unfair competition 

law makes independently actionable.‟ [Citation.] Depending upon which prong is 

invoked, a UCL claim may most closely resemble, in terms of the right asserted, an 

action for misrepresentation [citations], or any of countless other common law and 

statutory claims.” (Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 

1196.)

Plaintiff‟s allegations that Insomniac and Ventures made cash payments of wages 

without paying the payroll taxes associated with those wages were sufficient to state a 

violation of the UCL under the unlawful prong of that statutory scheme. Those 

allegations, when fairly construed, describe a violation of an underlying federal law, i.e., 

26 U.S.C. sections 3101 and 3102,

22 which violation can serve as a predicate for a UCL 

 

22 Section 3101 of title 26 of the United States Code provides in pertinent part, 

“Old-age, survivors, and disability insurance. In addition to other taxes, there is hereby 

imposed on the income of every individual a tax equal to the following percentages of the 

wages (as defined in section 3121(a) [26 USCS § 3121(a)]) received by him with respect 
36

cause of action seeking restitution of the amount of unpaid tax liability to which plaintiffs 

were allegedly exposed.23 Similarly, because we have concluded that plaintiffs have 

adequately alleged that defendants engaged in a conspiracy to defraud, plaintiffs have 

also adequately alleged a cause of action for violation of the UCL under the fraud prong

seeking restitution of the amounts Insomniac and Ventures paid to DeStefano under the 

undisclosed consulting agreement.

G. Cause of Action for Accounting 

The parties agree that because plaintiffs‟ accounting cause of action is derivative 

of their other causes of action, the viability of that claim is dependent upon whether 

plaintiffs have adequately pleaded one or more of their other claims. Therefore, we 

conclude that plaintiffs accounting cause of action is adequately stated as to the causes of 

action that were adequately pleaded, i.e., the causes of action for violation of section 

1090, conspiracy to defraud, and violation of the UCL.

H. Proposed Cause of Action for Inducing Breach of Fiduciary Duties

Although plaintiffs did not plead a cause of action for inducing a breach of 

fiduciary duties, they argue that they alleged sufficient facts to support such a claim. 

Because we are reversing the judgment of dismissal and remanding the matter to the trial 

court, we do not need to resolve this issue. (See Genesis Environmental Services v. San 

Joaquin Valley Unified Air Pollution Control Dist. (2003) 113 Cal.App.4th 597, 603 [in 

ruling on a demurrer, “our inquiry ends and reversal is required once we determine a 

complaint has stated a cause of action under any legal theory”].) Instead, the issue should 

 

to employment (as defined in section 3121(b) [26 USCS § 3121(b)]) . . . .” Section 3102 

provides in pertinent part: “The tax imposed by section 3101 [26 USCS § 3101] shall be 

collected by the employer of the taxpayer, by deducting the amount of the tax from the 

wages as and when paid.”

23 Defendants do not contend that the pleadings fail to state adequately what amounts 

are subject to restitution based on the alleged violation of federal law.
37

be raised with the trial court in a motion for leave to amend the operative complaint to 

state a cause of action for inducing a breach of fiduciary duties.

DISPOSITION

The judgment of dismissal in favor of defendants is reversed and the matter is 

remanded to the trial court with instructions to enter new orders overruling defendants‟ 

demurrers as to the causes of action for violation of section 1090, conspiracy to defraud, 

violation of the UCL, and an accounting. The orders sustaining without leave to amend 

defendants‟ demurrers to the causes of actions for violation of the False Claims Act, 

negligence, and fraud are affirmed. No costs are awarded on appeal.

CERTIFIED FOR PUBLICATION

MOSK, J.

We concur:

TURNER, P. J

GOODMAN, J.

 



Judge of the Superior Court of the County of Los Angeles, assigned by the Chief 

Justice pursuant to article VI, section 6 of the California Constitution.