Opinion ID: 586986
Heading Depth: 2
Heading Rank: 2

Heading: Defendant Hurley

Text: 7 The Dubravetzes argue they have presented a genuine issue of material fact regarding Hurley's participation in the alleged fraudulent misrepresentations and omissions on which they contend they relied when they bought their franchise. We agree. 8 Under California law, which the parties do not dispute applies to this claim, directors and officers of a corporation do not incur personal liability for the torts of the corporation unless they participate in the wrong or authorize or direct that it be done. United States Liab. Ins. Co. v. Haidinger-Hayes, Inc., 1 Cal.3d 586, 83 Cal.Rptr. 418, 423, 463 P.2d 770, 775 (1970). See also Frances T. v. Village Green Owners Ass'n, 42 Cal.3d 490, 229 Cal.Rptr. 456, 463, 723 P.2d 573, 580 (1986); Wyatt v. Union Mortgage Co., 24 Cal.3d 773, 157 Cal.Rptr. 392, 399, 598 P.2d 45, 52 (1979). Personal liability, if otherwise justified, may rest upon a 'conspiracy' among the officers and directors to injure third parties through the corporation. Wyatt, 157 Cal.Rptr. at 399, 598 P.2d at 52. 9 The district court determined that there were five alleged misrepresentations and omissions on which the Dubravetzes were entitled to go to trial against HDF Liquidating Corp.: 10 1. That the average California Haagen Dazs franchised ice cream shop had annual gross sales well over $300,000, when in fact the average was well below that amount. 11 2. That no California Haagen Dazs franchised ice cream shop had annual gross sales of less than $300,000, when in fact many did. 12 3. That the Dubravetzes should experience better than average gross sales at their Thousand Oaks, California location, when in fact Haagen Dazs's director of real estate had previously rejected a franchise applicant for that location because the location could not be expected to generate annual gross sales in excess of $200,000 to $225,000. 13 4. That the net profit percentages for a Haagen Dazs franchised ice cream shop varied between 21 and 27 percent, when in fact Haagen Dazs did not have information as to the profitability of its franchises. 14 5. That the Haagen Dazs offering circular estimated the costs of opening a franchised ice cream shop at between $55,000 and $105,000, and that its vice president Paley told John Dubravetz that his shop would come in at the low end of this range, when in fact Haagen Dazs did not know the amount of construction costs associated with opening a franchised ice cream shop, and the Dubravetzes spent $175,000 to open their shop. 15 The Dubravetzes contend that Hurley participated in, directed or authorized these alleged misrepresentations and omissions. They point to evidence that Hurley was Haagen Dazs's president and was involved in the day-to-day running of the business; she routinely swore to the truth of franchise offering circulars, which contained false information regarding start-up costs; she was quoted in a Businessweek article as stating that average sales at the Haagen Dazs ice cream shops were $300,000 per year; she knew that Paley made representations to potential franchisees as to the earnings of franchised shops when she knew Haagen Dazs had no data to support representations of earnings; and she assisted in developing an overall average cost figure to open a franchised shop based solely upon data from her own profitable eight Haagen Dazs ice cream shops. 16 Some of this evidence is insufficient to create a genuine issue of material fact as to Hurley's liability for the alleged misrepresentations and omissions. That Hurley was Haagen Dazs's president is insufficient by itself to establish her liability. See Haidinger-Hayes, 83 Cal.Rptr. at 423, 463 P.2d at 775. Nor does the mere fact that Hurley was involved in the day-to-day operation of the Haagen Dazs business tie her to the alleged misrepresentations and omissions. And, with regard to the Businessweek quotation, there is no evidence that the Dubravetzes relied on this representation in buying their franchise. 17 Other evidence, however, is sufficient to create a genuine issue of material fact as to Hurley's liability. Hurley swore to the truth of Haagen Dazs's offering circulars and these circulars contained information as to the start-up costs of a Haagen Dazs franchised ice cream shop, information which, according to evidence presented by the Dubravetzes, was false. A jury could infer that Hurley either knew that the start-up cost figures were false, or that she lacked sufficient information to swear to their accuracy, notwithstanding her deposition testimony that she believed the figures in the offering circulars were true based on data she had collected. 18 A jury could also infer from the evidence presented by the Dubravetzes that Hurley participated in a conspiracy to supply them with misleading profitability information. See Wyatt, 157 Cal.Rptr. at 399, 598 P.2d at 52 (conspiracy in a fraudulent scheme may be inferred from the nature of the acts done, the relation of the parties, the interests of the alleged conspirators, and other circumstances). Tacit consent is enough to prove a conspiracy against a director or officer of a corporation, so long as the director or officer concurred in the tortious scheme with knowledge of its unlawful purpose. Id.; Pacific Tel. & Tel. Co. v. MCI Telecommunications Corp., 649 F.2d 1315, 1319 (9th Cir.1981). 19 In sum, the Dubravetzes' evidence is sufficient to raise genuine issues of material fact as to the extent of Hurley's knowledge and approval of Paley's alleged misrepresentations and omissions, and as to the extent of her participation in the distribution of allegedly false profitability information. 2