E-FILED
1 WILLIAM H. CURTIS (State Bar No. 139920)
FRY’S ELECTRONICS, INC.
2 600 E. Brokaw Road
San Jose, California 95112
3 Telephone:
(408) 487-4748
Facsimile:
(408) 852-3316
4 Email:
whc@i.frys.com
Aug 2, 2013 5:00 PM
David H. Yamasaki
Chief Executive Officer/Clerk
Superior Court of CA, County of Santa Clara
Case #1-09-CV-143298 Filing #G-56056
By G. Duarte, Deputy
5 JAMES M. CHADWICK (State Bar No. 157114)
GREGORY P. BARBEE (State Bar No. 185156)
6 SHEPPARD, MULLIN, RICHTER & HAMPTON LLP
379 Lytton Avenue
7 Palo Alto, California 94301-1479
Telephone:
(650) 815-2600
8 Facsimile:
(650) 815-2601
Email:
jchadwick@sheppardmullin.com
9
gbarbee@sheppardmullin.com
10 Attorneys for FRY’S ELECTRONICS, INC.
11
SUPERIOR COURT OF THE STATE OF CALIFORNIA
12
COUNTY OF SANTA CLARA
13
Coordination Proceedings Special Title
14 (Rule 3.550)
15 FRY’S ELECTRONICS PURCHASING CASES
Included Actions:
16 Fry’s Electronics Inc. v. Elitegroup Computer
Inc.
17 Systems,
Superior Court of California
of Santa Clara
18 County
Case No. 1-09-CV-143298
19 Lead Data International, Inc. v. Fry’s Electronics,
Inc.
20 Superior Court of California,
County of Santa Clara
21 Case No. 1-09-CV-133292
22 Phoebe Micro Inc. v. Fry’s Electronics, Inc.
Superior Court of California
of Santa Clara
23 County
Case No. 1-09-CV-137828
24 Promedia Technologies, Inc. v. Fry’s Electronics,
Inc.
25 Superior Court of California
County of San Diego
26 Case No. 37-2009-00085407-CU-BC-CTL
Judicial Council Coordination Proceedings
Case No. 4589
JAMS Reference No. 1110013749
MEMORANDUM OF POINTS AND
AUTHORITIES IN OPPOSITION TO
PLAINTIFF AND CROSS-DEFENDANT
PROMEDIA TECHNOLOGIES, INC.’S
MOTION FOR SUMMARY JUDGMENT
ON DEFENDANT AND CROSSCOMPLAINANT FRY’S ELECTRONICS,
INC.’S SECOND AMENDED CROSSCOMPLAINT
Date:
Time:
Dept.
Judge:
August 16, 2013
9:00 a.m.
1 (Complex Civil Litigation)
Honorable James P. Kleinberg
Trial Date: February 24, 2014
27 AND RELATED CROSS-ACTIONS
28
FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
SMRH:409721619.8
S
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT
E-FILED: Aug 2, 2013 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-143298 Filing #G-56056
1
TABLE OF CONTENTS
2
Page
3 I.
INTRODUCTION ................................................................................................................. 1
4 II.
THE UNDISPUTED ADMISSIBLE EVIDENCE PROMEDIA RELIES ON IS
INSUFFICIENT TO ESTABLISH A COMPLETE DEFENSE TO FRY’S
CLAIMS ................................................................................................................................ 2
5
6 III.
PROMEDIA HAS OMITTED ADMISSIBLE MATERIAL FACTS THAT
PRECLUDE SUMMARY JUDGMENT .............................................................................. 4
7
A.
The Plea Agreement and Transcript of the Plea Hearing .......................................... 4
B.
Additional Material Facts .......................................................................................... 6
C.
The Omitted Material Facts Preclude Summary Judgment ...................................... 9
8
9
10
IV.
PROMEDIA’S MOTION SHOULD BE DENIED .............................................................. 9
11
12
ProMedia Has Not Shown That Siddiqui’s Knowledge and Conduct Must
Be Imputed to Fry’s Under Respondeat Superior or Agency Principles .................. 9
13
1.
Respondeat Superior ..................................................................................... 9
14
2.
Agency ........................................................................................................ 12
A.
15
B.
ProMedia Has Not Shown That It Cannot Be Held Liable for Colluding
with Siddiqui In the Scheme to Defraud Fry’s ........................................................ 15
C.
17
ProMedia’s Arguments Regarding Specific Causes of Action Fail to
Establish a Basis for Summary Judgment ............................................................... 18
18
1.
ProMedia’s Assertion That the Fraud Cause of Action Fails Because
It Had No Duty to Disclose Is Specious ...................................................... 18
2.
Fry’s Common Counts Are Not Barred ...................................................... 19
3.
Fry’s Is Entitled to Enforce the Vendor Agreement.................................... 19
4.
ProMedia Has Not Established That the Vendors Are Not Alter
Egos and Co-Conspirators ........................................................................... 20
16
19
20
21
22
23 V.
CONCLUSION ................................................................................................................... 20
24
25
26
27
28
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FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT
E-FILED: Aug 2, 2013 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-143298 Filing #G-56056
TABLE OF AUTHORITIES
1
2 CASES
Page(s)
3 Beck v. Arthur Murray, Inc. (1966)
245 Cal.App.2d 976 ................................................................................................................ 16
4
5 Blackburn v. Witter (1962)
201 Cal.App.2d 518 ................................................................................................................ 16
6
Capitol City Foods, Inc. v. Superior Court (1992)
7
5 Cal.App.4th 1042 ................................................................................................................. 12
8 Farmers Ins. Group v. County of Santa Clara (1995)
11 Cal.4th 992 ................................................................................................................... 10, 11
9
Granberry v. Islay Investments (1995)
10
9 Cal.4th 738 ........................................................................................................................... 19
11
Harnischfeger Sales Corp. v. Coats (1935)
4 Cal.2d 319 ............................................................................................................................ 14
12
13 Harrison v. Adams (1942)
20 Cal.2d 646 .......................................................................................................................... 19
14
Hartong v. Partake, Inc. (1968)
15
266 Cal.App.2d 942 .......................................................................................................... 15, 16
16
Hinman v. Westinghouse Elec. Co. (1970)
2 Cal.3d 956 ............................................................................................................................ 10
17
18 Johnson v. Monson (1920)
183 Cal. 149 ............................................................................................................................ 12
19
Lindsay-Field v. Friendly (1995)
20
36 Cal.App.4th 1728 ......................................................................................................... 12, 20
21
Lisa M. v. Henry Mayo Newhall Memorial Hosp. (1995)
12 Cal.4th 291 ......................................................................................................................... 10
22
23 Meyer v. Glenmoor Homes, Inc. (1966)
246 Cal.App.2d 242 ................................................................................................................ 14
24
Mott v. Nardo (1946)
25
73 Cal.App.2d 159 .................................................................................................................. 14
26 Myers v. Trendwest Resorts, Inc. (2007)
148 Cal.App.4th 1403 ............................................................................................................. 12
27
28
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FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT
E-FILED: Aug 2, 2013 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-143298 Filing #G-56056
TABLE OF AUTHORITIES
(continued)
1
2
3
Page(s)
North Beverly Park Homeowners Ass’n v. Bisno (2007)
147 Cal.App.4th 762 ................................................................................................................. 6
4
People v. Bartow (1996)
46 Cal.App.4th 1573 ................................................................................................................. 6
5
6 People v. Parker (1965)
235 Cal.App.2d 86 .................................................................................................................. 18
7
Perez v. Van Groningen & Sons, Inc. (1986)
8
41 Cal. 3d 962,968 .................................................................................................................. 10
9
Petersen v. Securities Settlement Corp. (1991)
226 Cal.App.3d 1445 .............................................................................................................. 12
10
11 Rodgers v. Kemper Constr. Co. (1975)
50 Cal.App.3d 608 .................................................................................................................. 10
12
Saks v. Charity Mission Baptist Church (2001)
13
90 Cal.App.4th 1116 ............................................................................................................... 14
14
Sands v. Eagle Oil & Refining Co. (1948)
83 Cal.App.2d 312 .................................................................................................................. 14
15
16 South Sacramento Drayage Co. v. Campbell Soup Co. (1963)
220 Cal.App.2d 851 ................................................................................................................ 12
17
Teitelbaum Furs, Inc. v. Dominion Ins. Co. (1962)
18
58 Cal.2d 601 ............................................................................................................................ 5
19 The First National Bank of Reedley v. Reed (1926)
198 Cal. 252 ................................................................................................................ 16, 17, 18
20
21 STATUTES
22 California Civil Code
§ 2306 ...................................................................................................................................... 14
23
§ 2317 ...................................................................................................................................... 12
24 California Evidence Code
§ 788 .......................................................................................................................................... 5
25
§ 1230 ........................................................................................................................................ 6
§ 1300 ........................................................................................................................................ 6
26
27 California Code of Civil Procedure § 437c, subd. (p)(2) ................................................................ 9
28
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FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT
E-FILED: Aug 2, 2013 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-143298 Filing #G-56056
TABLE OF AUTHORITIES
(continued)
1
2
3
4
OTHER AUTHORITIES
Page(s)
1 Witkin, Summary of California Law 10th ed. (2005) Contracts, § 305, p. 331 ......................... 13
5 Restatement (Third) of Agency § 7.08 (2006), Comment c(4) ...................................................... 13
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
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FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT
E-FILED: Aug 2, 2013 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-143298 Filing #G-56056
1 I.
INTRODUCTION
2
ProMedia Technologies, Inc. (“ProMedia”) is asking this Court to rule as a matter of law that
3 paying kickbacks and bribes is perfectly legal. ProMedia premises its motion on this theory that,
4 regardless of whether it colluded with Ausaf Umar Siddiqui (“Siddiqui”) to defraud Fry’s Electronics,
5 Inc. (“Fry’s”), the scope of Siddiqui’s agency was so broad that everything Siddiqui did is attributable
6 to Fry’s and hence ProMedia cannot be liable to Fry’s under the Second Amended Cross-Complaint
7 (“SACC”). (See ProMedia’s Notice of Motion and Motion [“ProMedia Motion”], 2:10-19;
8 ProMedia’s Memorandum of Points and Authorities [“ProMedia Mem.”], 7:5-18.) ProMedia’s theory
9 is legally and factually erroneous. The law does not permit what occurred here: ProMedia’s collusion
10 with Siddiqui to engage in a kickback scheme wherein ProMedia knowingly sent Fry’s false and
11 inflated invoices for three years, collected millions of dollars in fraudulently induced overpayments
12 from Fry’s, wired these overpayments to Siddiqui’s sham company PC International, LLC (“PCI”),
13 not to mention making millions of dollars in unsecured “loans” to Siddiqui/PCI, all in return for
14 ProMedia obtaining millions of dollars in sales to Fry’s.
15
Siddiqui did not have express or ostensible authority to engage in this kickback scheme.
16 Siddiqui was criminally prosecuted for his involvement in this scheme. He entered into a plea
17 agreement and made detailed factual allocutions in federal court, wherein Siddiqui admitted his
18 involvement in the scheme, that Fry’s knew nothing of the scheme, and that the vendors in this action
19 (the “Vendors”) knowingly participated in the scheme. Siddiqui admitted that he wired his portion of
20 the proceeds of the kickback scheme to certain Las Vegas casinos to pay his gambling debts, and that
21 he had a gambling addiction. The admitted purpose of this scheme—to fuel a “massive gambling
22 addiction”—reflects that rather than arising in the ordinary conduct of Fry’s business, it is the result of
23 a personal compulsion that makes vicarious liability inapplicable.
24
Further, where, as here, a third party—such as ProMedia—colludes with the agent to defraud
25 the principal, the agent’s knowledge and conduct is not imputed to the principal. And contrary to
26 ProMedia’s argument, Fry’s is not barred from seeking affirmative relief against ProMedia – an active
27 participant in the wrongdoing. Although a principal may be barred from enforcing against a third
28 party an agreement that the principal has disavowed as exceeding an agent’s authority, Fry’s is not
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FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT
E-FILED: Aug 2, 2013 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-143298 Filing #G-56056
1 seeking to enforce or recover under the unauthorized and undisclosed agreement between Siddiqui and
2 ProMedia, under which ProMedia claims to have paid kickbacks—cloaked with the code words
3 “commissions” and “loans”—to Siddiqui. Rather, Fry’s seeks to enforce the Vendor Agreement
4 between Fry’s and ProMedia—which Fry’s has never disavowed—and seeks redress for fraud based
5 on ProMedia’s submission of inflated invoices to Fry’s to pay for its kickbacks to Siddiqui.
ProMedia has submitted a great amount of purported “evidence” in support of its motion, a
6
7 good deal of which is inadmissible hearsay, baseless speculation, and a self-serving declaration that
8 contradicts prior sworn deposition testimony. (See Fry’s Evidentiary Objections to Separate Statement
9 of ProMedia Technologies. Inc., filed herewith.) When the purported evidence is winnowed down to
10 the undisputed, the insufficiency of ProMedia’s evidence to establish a complete defense to Fry’s
11 SACC is clear. Consideration of the relevant material facts ProMedia has omitted further bolsters this
12 conclusion. (See Fry’s Opposing Separate Statement (“OSS”.) In sum, ProMedia has not established
13 the lack of any triable issues of fact with respect to Fry’s claims, so its motion must be denied.
14
15
II.
THE UNDISPUTED ADMISSIBLE EVIDENCE PROMEDIA RELIES ON IS
INSUFFICIENT TO ESTABLISH A COMPLETE DEFENSE TO FRY’S CLAIMS
16
ProMedia presents a seven-page argumentative and adjective laden rendition of its version of
17 the “facts” which it contends leads to the “only reasonable inference”—that Fry’s had “constructive
18 notice” of Siddiqui’s wrongful conduct. (ProMedia Mem. Part III.C.) It’s no wonder that ProMedia
19 does not specifically cite evidence to support its hyperbolic assertions—as demonstrated in Fry’s
20 Opposing Separate Statement (“OSS”), much of the evidence ProMedia relies on does not withstand
21 scrutiny. For example, ProMedia falsely asserts that Siddiqui pledged his interest in PC International,
22 LLC (“PCI”) as collateral to Fry’s, that Fry’s should have known about PCI, that Fry’s knowingly
23 used casino “comps,” and that Fry’s was aware of the extent of Siddiqui’s gambling. None of these
24 assertions is supported by ProMedia’s purported evidence, much less by undisputed evidence
25 (Compare ProMedia Mem., 15:17-18:3, with Fry’s OSS, Response to ProMedia Undisputed Material
26 Fact (“UMF”) Nos. 15, 18-21, 31-36 & 38.)
27
Stripped of the argument and adjectives, and limited to the actual admissible evidence
28 presented, the undisputed facts show that ProMedia does not have much to rely on:
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FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT
E-FILED: Aug 2, 2013 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-143298 Filing #G-56056
1

Fry’s and ProMedia entered into a Vendor Agreement in 2006 under which ProMedia was
2
to supply consumer electronic goods to Fry’s. (Fry’s OSS, Response to UMF Nos. 1, 2, 4,
3
9, 22.)
4

Siddiqui was a vice president (not an “officer”) and starting in 2006 was a small minority
5
shareholder (less than one percent) of Fry’s, and attained this position because of Fry’s
6
belief that he had valuable negotiating skills (Fry’s OSS, Response to UMF Nos. 5 & 7.)
7

Fry’s made loans to Siddiqui as part of his compensation package (which Siddiqui never
8
paid back); Fry’s owners invested in the San Jose SaberCats, as did Siddiqui. (Fry’s OSS,
9
Response to UMF Nos. 26-28 & 39.)
10

Siddiqui directed ProMedia to pay money to PCI, which he used “to fund a massive
11
gambling addiction” that accorded him preferential treatment by some Las Vegas casinos;
12
however, no one else affiliated with Fry’s ever told ProMedia to pay money to PCI. (Fry’s
13
OSS, Response to UMF Nos. 12, 16 & 17.)
14

In the summer of 2008, Fry’s loss prevention and security director was tasked by Kathy
15
Kolder with conducting an internal investigation into Siddiqui’s activity, and as a result of
16
that investigation, Siddiqui was arrested by agents of the Internal Revenue Service and
17
terminated from employment by Fry’s in December 2008. (Fry’s OSS, Response to UMF
18
Nos. 40 & 42.)
19

In December 2008, Fry’s stopped payment on several checks previously transmitted to
20
ProMedia for merchandise previously supplied by ProMedia on the grounds that it had
21
discovered that Siddiqui was receiving kickbacks. (Fry’s OSS, Response to UMF No. 43.)
22
23

Siddiqui was audited by the IRS prior to his arrest in 2008—but there is no evidence that
Fry’s was aware of these audits. (Fry’s OSS, Response to UMF No. 45.)
24 These facts are insufficient to support ProMedia’s motion. All they show is that Fry’s viewed
25 Siddiqui as a valuable employee, but Siddiqui had a personal compulsion that caused him to
26 commit crimes that harmed Fry’s. These facts, standing alone, do not as a matter of law support
27 the imputation of Siddiqui’s knowledge and conduct to Fry’s. Unlike a delivery van driver
28 involved in a fender bender on his route or a bank teller who skims a depositor’s account to
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FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT
E-FILED: Aug 2, 2013 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-143298 Filing #G-56056
1 supplement his income, orchestrating a multi-party kickback scheme “to fund a massive gambling
2 addiction” is not conduct “sure to occur in the conduct of the employer’s enterprise.” (See Part
3 IV.A. infra.) ProMedia provides no authority showing that it is, so its motion fails.
4
Moreover, there is either no admissible evidence supporting or conflicting evidence regarding
5 material issues underlying ProMedia’s motion, such as the extent of Siddiqui’s authority, Fry’s
6 knowledge of PCI, ProMedia’s belief that PCI was affiliated with Fry’s, Fry’s knowledge of Siddiqui’s
7 gambling addiction, and Fry’s receipt of benefits from Siddiqui’s wrongful conduct. (See, e.g., Fry’s
8 OSS, Response to UMF Nos. 3, 5-8; UMF Nos.15, 34-36 & 38; UMF Nos. 12-15; UMF Nos. 18-21;
9 UMF Nos. 19 & 20.) These are essential elements of ProMedia’s motion. (ProMedia Motion, 2:1010 19.) Thus, for these reasons as well ProMedia’s motion fails. And when the facts ProMedia has
11 omitted are considered, the lack of any basis for imputation becomes even more stark.
12
13
III.
PROMEDIA HAS OMITTED ADMISSIBLE MATERIAL FACTS THAT
PRECLUDE SUMMARY JUDGMENT
14
A.
15
ProMedia completely ignores the following material facts that Siddiqui attested “are true” in
The Plea Agreement and Transcript of the Plea Hearing
16 his Plea Agreement and at his Plea Hearing:
17

kickbacks to Siddiqui or PCI and International Marketing Resources, LLC (“IMR”).
18
19
Siddiqui did not have authority to execute vendor agreements which provided for

As part of his scheme to defraud Fry’s, Siddiqui created and controlled two sham
20
companies, PCI and IMR, which conducted no business other than to receive the
21
fraudulently induced payments from Fry’s vendors.
22

Siddiqui represented to Fry’s that he would obtain merchandise from Fry’s vendors at a
23
lower price if Fry’s authorized him, as its Vice President of Merchandising and Operations,
24
to enter sales contracts on Fry’s behalf with Fry’s vendors directly instead of buying
25
merchandise through sales representatives, to whom Fry’s vendors would be obligated to
26
pay sales commissions for arranging purchases by Fry’s.
27
28

Siddiqui failed to disclose to Fry’s that he made secret deals with the Vendors for them to
make payments to PCI and IMR based on the amount of merchandise purchased by Fry’s.
-4-
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FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT
E-FILED: Aug 2, 2013 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-143298 Filing #G-56056
1

Siddiqui failed to disclose to Fry’s that he was the founder and controlled PCI and IMR.
2

Siddiqui failed to disclose to Fry’s that, in his capacity as its Vice President, he awarded
3
contracts to the Vendors who secretly agreed to pay funds to PCI or IMR based on the
4
amount of merchandise purchased by Fry’s and that those Vendors made payments to PCI
5
or IMR pursuant to his scheme.
6

The Vendors had secret agreements with Siddiqui to pay him, via PCI or IMR, kickbacks
7
to do business with Fry’s. On numerous occasions, the Vendors advanced kickback
8
payments to Siddiqui before Fry’s actually paid the Vendors for the merchandise. The
9
Vendors also made “loans” amounting to millions of dollars to Siddiqui through PCI
10
11
and/or IMR.

12
13
The Vendors were aware that the kickback payments were fraudulently being paid to PCI
or IMR.

Neither Fry’s nor any officer, director, or employee of Fry’s authorized the kickback
14
scheme and the Vendors’ payments of money directly to Siddiqui or indirectly to him
15
through PCI and/or IMR.
16
17

As a direct result of the kickback scheme, Fry’s overpaid for merchandise from the
Vendors by at least the amount of the kickbacks paid to Siddiqui, PCI, and IMR.
18 (Fry’s OSS, Additional Undisputed Material Facts [“AUMF”] Nos. 48-59.)
19
ProMedia remarks in passing that “Siddiqui’s conviction does not create a triable issue because
20 it is inadmissible against ProMedia, a third party with no involvement in the criminal proceeding.”
21 (ProMedia Mem. at 18:14-17, citing Cal. Evid. Code §788; Teitelbaum Furs, Inc. v. Dominion Ins. Co.
22 (1962) 58 Cal.2d 601, 607.) This is an incorrect statement of the law, apparently arising from
23 ProMedia’s misunderstanding of the purpose and basis for admissibility of Siddiqui’s Plea Agreement
24 and Transcript of the Plea Hearing. (See Fry’s Request for Judicial Notice [“RJN”], Ex. 1.) Fry’s is
25 not submitting this evidence against ProMedia for purposes of collateral estoppel, which is the issue
26 addressed by Teitelbaum (58 Cal.2d at pp. 606-07), nor to attack Siddiqui’s credibility, which is the
27 subject of Evidence Code section 788. Rather, Fry’s requests that the Court take judicial notice of
28 these federal court records and consider the admissions they contain because they constitute admissible
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FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT
E-FILED: Aug 2, 2013 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-143298 Filing #G-56056
1 evidence that falls within an exception to the hearsay rule. (See North Beverly Park Homeowners
2 Ass’n v. Bisno (2007) 147 Cal.App.4th 762, 778.) Failure to consider such evidence constitutes error.
3 (See People v. Bartow (1996) 46 Cal.App.4th 1573, 1579-1582.)
4
Here, the Plea Agreement and Transcript of the Plea Hearing may be considered for the truth
5 of the matters set forth therein against any party because they are admissible pursuant to at least two
6 well-established exceptions to the hearsay rule: (1) they contain statements that are declarations
7 against interest (Evid. Code §1230); and (2) they are “offered in a civil action to prove any fact
8 essential to the judgment” (Evid. Code §1300). The requirements for admissibility under section 1230
9 are met, since Siddiqui’s statements are clearly against his interest—he is admitting criminal
10 conduct—and Siddiqui is an “unavailable” witness, having been held in contempt by the Court for
11 refusing to testify at his deposition. (See Fry’s RJN, Ex. 3.) Siddiqui’s statements established the
12 factual predicate for his conviction, making them “essential.” In particular, the explanation of the
13 Vendors’ role in his kickback scheme was necessary because without the complicity of the Vendors—
14 including ProMedia—Siddiqui could not have engaged in the kickback scheme.
15
B.
16
Other material facts ignored by ProMedia demonstrate that the factual predicate for its motion
Additional Material Facts
17 for summary judgment is flawed. Those facts include the following:
18

The Vendors are interrelated in terms of ownership, business and familial relationships. In
19
particular, ProMedia shares a common ownership with ECS and BTC through a parent
20
company --the Pou Chen Corporation. ProMedia’s president, Johnny Tsai, is a member of
21
the Tsai family that owns and operates the Pou Chen Corporation. Sam Tsai, another
22
member of the Tsai family is president of ECS. ProMedia is a wholly owned subsidiary of
23
Pro Arch Manufacturing , which is a wholly owned subsidiary of Pou Chen. (Fry’s
24
OSS,AUMF Nos. 78-82.)
25

Mei Hsu acted as an employee and/or agent of the Vendors in the scheme. She helped
26
bring each of the Vendors, including ProMedia, into the scheme and then acted as a contact
27
person for the Vendors in their dealings with Siddiqui, including sales of products to Fry’s,
28
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FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT
E-FILED: Aug 2, 2013 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-143298 Filing #G-56056
1
the payment of kickbacks to Siddiqui, and reviewing and approving the accountings of the
2
kickback payments from the Vendors to Siddiqui. (Fry’s OSS, AUMF Nos. 71-77)
3

ProMedia and US Media Technologies, Inc. were created and existed as a fronts to
4
overcharge Fry’s for imported products and kickback money to Siddiqui and at least
5
ProMedia ceased doing business upon the arrest of Siddiqui in December 2008. (Fry’s
6
OSS, AUMF Nos. 83-89.)
7

Upon the arrest of Siddiqui in December 2008, one of the Vendors, Behavior Tech
8
Computer (USA) Corp. (“BTC-USA”) terminated all of its employees, ceased doing
9
business, sold the building it owned and “loaned” the proceeds of the sale and cash on
10
hand to its Taiwanese parent company BTC-Taiwan. BTC-Taiwan then declared
11
bankruptcy in Taiwan. Further, in this action, within approximately ten days after this
12
Court upheld a discovery order from Judge Jacobs-May ordering BTC-USA to fully
13
disclose the business and social relationships between the Vendors and their principals and
14
parent entities, BTC-USA declared bankruptcy. (Fry’s OSS, AUMF 102; Dkt. 293.)
15

ProMedia’s payments and “loans” to Siddiqui and PCI have all the indicia of kickbacks
16
and corrupt payments. (Fry’s OSS, AUMF Nos. 90-99.) These include the facts that:
17
o ProMedia’s payments and “loans” to Siddiqui did not have the characteristics of bona
18
fide business transactions. They were made without documentation and on the basis of
19
an unsigned, sham contract. ProMedia had varying justifications for the payments, and
20
varying methods for accounting for them. The unsigned “General Marketing and Sales
21
Agreement” between ProMedia and Siddiqui – the alleged legitimate basis for
22
ProMedia’s payments to Siddiqui – stated payments to Siddiqui were for Siddiqui’s
23
assistance with “product design, packaging, advertising and pricing” but there is no
24
evidence that ProMedia ever received such services from Siddiqui or PCI. ProMedia
25
communicated with Siddiqui using his personal “comcast.net” email address. (Fry’s
26
OSS, AUMF Nos. 91-94.)
27
28
o Fry’s Vendor Agreement made clear that Fry’s did not tolerate payment of kickbacks or
bribes, and the terms of Fry’s Vendor Agreement preclude the idea that PCI might be a
-7SMRH:409721619.8
FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT
E-FILED: Aug 2, 2013 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-143298 Filing #G-56056
1
legitimate affiliate of Fry’s or a legitimate part of Fry’s purchasing process. (Fry’s OSS,
2
AUMF Nos. 95-98; ProMedia Notice of Lodgment (“Not. Lgmt”), Ex. 2.)
o ProMedia never attempted to verify Siddiqui’s representations or the legitimacy of PCI.
3
(Fry’s OSS, AUMF No. 99.)
4
o ProMedia admits that it never informed anyone at Fry’s of the scheme to pay
5
6
“commissions” to Siddiqui or complained to anyone at Fry’s about Siddiqui’s demands,
7
despite its express obligation to do so under its Vendor Agreement, and despite the fact
8
that ProMedia (through its employees and intermediary) communicated with a number
9
of Fry’s employees other than Siddiqui, and hence had the opportunity to do so. (Fry’s
10
OSS, Response to UMF No. 14; AUMF No. 100.)
o The Vendors, including ProMedia actively concealed the kickback scheme from Fry’s,
11
12
in spite of numerous opportunities to discuss it with Fry’s personnel other than Siddiqui.
13
For example, during meetings attended by Siddiqui and other Fry’s personnel,
14
ProMedia’s principal never discussed pricing or disclosed that ProMedia was making
15
payments to PCI. (Fry’s OSS, Response to UMF No. 15; AUMF No. 101.)
16

No Fry’s officer, director, or employee who supervised Siddiqui ever authorized Siddiqui’s
17
kickback scheme, nor was even aware of it until the summer of 2008 at the earliest. (Fry’s
18
OSS, AUMF No. 64.)
19

scheme prior to his arrest in December 2008. (Fry’s OSS, AUMF No. 65.)
20
21

Siddiqui dealt directly with the Vendors to make pricing and marketing decisions relating
to their products. (Fry’s OSS, AUMF No. 66.)
22
23
The Fry’s employees who reported to Siddiqui were not aware of Siddiqui’s kickback

ProMedia’s principal and Siddiqui verbally agreed that ProMedia would invoice Fry’s an
24
artificial, inflated price and that ProMedia would pay the difference between the agreed
25
price and invoice price to PCI. (Fry’s OSS, Response to UMF No. 12.)
26

The amount by which invoices submitted to and paid by Fry’s were inflated to account for
27
“commissions” ProMedia paid to Siddiqui exceeds the amount of the checks on which
28
ProMedia alleges Fry’s stopped payment. (Fry’s OSS, AUMF No. 68.)
-8SMRH:409721619.8
FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT
E-FILED: Aug 2, 2013 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-143298 Filing #G-56056

1
Before Fry’s learned of Siddiqui’s and the Vendors’ kickback scheme, Fry’s viewed
2
Siddiqui as a valuable employee. Fry’s extended loans to Siddiqui as part of his
3
compensation package, in order to help ensure that Siddiqui would not leave the company.
4
(Fry’s OSS, Response to UMF No. 28.)

5
ProMedia admits that Siddiqui had a severe gambling addiction that, in effect, compelled
him to orchestrate a kickback scheme that victimized Fry’s. (Fry’s OSS, AUMF No. 67.)
6

7
None of the Fry’s owners, and none of the Fry’s employees who reported to Siddiqui, were
aware of Siddiqui’s gambling habits. (Fry’s OSS, AUMF Nos. 61 & 62.)
8

9
Documents that ProMedia asserts show Fry’s “constructive” notice of PCI were fraudulently
10
filed by Siddiqui or his agents. (Fry’s OSS, Response to UMF Nos. 34-36, 38.)
11
C.
12
Siddiqui’s statements in the Plea Agreement and Transcript of the Plea Hearing alone foreclose
The Omitted Material Facts Preclude Summary Judgment
13 ProMedia’s request for summary judgment, since they both evidence that Siddiqui’s wrongful conduct
14 was not a foreseeable incident of his employment and that the Vendors, including ProMedia, were
15 third party colluders in Siddiqui’s scheme. The additional material facts set forth above further
16 demonstrate ProMedia cannot prevail on its claim that Fry’s must, as a matter of law, be responsible
17 for all of Siddiqui’s wrongful conduct. As shown in Fry’s motion for summary judgment/adjudication
18 of ProMedia’s Third Amended Complaint against Fry’s, this evidence establishes that Fry’s cannot be
19 charged with knowledge of or responsibility for Siddiqui’s wrongful conduct.
20 IV.
PROMEDIA’S MOTION SHOULD BE DENIED
21
ProMedia has not established a complete defense, but even if it had Fry’s need only show that
22 there is a triable issue of fact as to any element of ProMedia’s defense in order to defeat its motion for
23 summary judgment. (Civ. Proc. Code § 437c, subd. (p)(2).) There are many such issues.
24
25
ProMedia Has Not Shown That Siddiqui’s Knowledge and Conduct Must Be
Imputed to Fry’s Under Respondeat Superior or Agency Principles
26
1.
A.
27
Respondeat Superior
To impose liability on an employer under respondeat superior, the plaintiff has the burden of
28 demonstrating that the employee’s tortious act was committed within the scope of his employment.
-9SMRH:409721619.8
FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT
E-FILED: Aug 2, 2013 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-143298 Filing #G-56056
1 (Perez v. Van Groningen & Sons, Inc. (1986) 41 Cal. 3d 962,968.) In general, under respondeat
2 superior, “an employer is vicariously liable for the torts of its employees committed within the scope
3 of the employment.” (Lisa M. v. Henry Mayo Newhall Memorial Hosp. (1995) 12 Cal.4th 291, 296
4 (Lisa M.).) However, as recognized by the California Supreme Court:
5
6
7
Notwithstanding the generally broad view given to scope of employment
determinations, the law is clear that an employer is not strictly liable for all actions
of its employees during working hours. Significantly, an employer will not be held
vicariously liable for an employee’s malicious or tortious conduct if the employee
substantially deviates from the employment duties for personal purposes.
8 (Farmers Ins. Group v. County of Santa Clara (1995) 11 Cal.4th 992, 1004-05 (Farmers Ins.
9 Group) [emphasis added].)
10
11
12
13
[V]icarious liability is deemed inappropriate where the misconduct does not arise
from the conduct of the employer’s enterprise but instead arises out of a personal
dispute, or is the result of a personal compulsion. In such cases, the risks are
engendered by events unrelated to the employment, so the mere fact that an
employee has an opportunity to abuse facilities or authority necessary to the
performance of his or her duties does not render the employer vicariously liable.
14 (Id. at 1006 [citations omitted and emphasis added].) Here, ProMedia admits that Siddiqui had a
15 “massive gambling addiction” that compelled him to, in effect, orchestrate a kickback scheme to
16 steal over $99 million from Fry’s. (ProMedia UMF No. 17; see also Fry’s OSS, AUMF No. 67
17 [“Siddiqui had an extraordinary and outrageous gambling habit.”].) This is the paradigm of a
18 “personal compulsion” that makes Siddiqui’s conduct “inappropriate” for vicarious liability.
19
Furthermore, in order for liability to be imposed on an employer, “the tortious occurrence must
20 be ‘a generally foreseeable consequence of the activity.’” (Rodgers v. Kemper Constr. Co. (1975) 50
21 Cal.App.3d 608, 618.) This means that “[r]espondeat superior liability should apply only to the types
22 of injuries that ‘as a practical matter are sure to occur in the conduct of the employer's enterprise.’ The
23 employment, in other words, must be such as predictably to create the risk employees will commit
24 intentional torts of the type for which liability is sought.” (Lisa M., supra, 12 Cal.4th at 299
25 [emphasis added], quoting Hinman v. Westinghouse Elec. Co. (1970) 2 Cal.3d 956, 959.) And
26 “[w]hile the scope of employment may encompass tortious conduct that disregards the employer’s
27 express orders, an employer will not be held vicariously liable where, as here, it clearly appears that
28 neither directly nor indirectly could the employee have been serving his employer.” (Farmers Ins.
-10SMRH:409721619.8
FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT
E-FILED: Aug 2, 2013 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-143298 Filing #G-56056
1 Group, supra, 11 Cal.4th at p. 1008 [emphasis added, internal citations and quotations omitted].)
2 There is no evidence that the very nature of Siddiqui’s job responsibilities were such that they
3 predictably created the risk that he would conspire with ProMedia to submit fraudulent invoices to
4 Fry’s, much less that he would (allegedly) force ProMedia to advance payments or loans in
5 anticipation of being repaid from the proceeds of such fraudulent invoices. ProMedia itself attests that
6 Siddiqui’s conduct was far “beyond the bounds”—i.e., acting in a “highly coercive manner,”
7 “threaten[ing] ProMedia,” and engaging in an “extortionate scheme.” (Declaration of Nai-Chung Tsai
8 in Support of ProMedia’s Motion (“Tsai Decl.”), ¶¶13 [4:7-8], 14 [4:17-18], 15 [5:1].) ProMedia
9 cannot have it both ways—on the one hand accusing Siddiqui of extortion, while on the other hand
10 feigning that there was no reason to think that he was not acting in conformance with normal business
11 practices. Nor did Siddiqui’s conduct in any way serve or benefit Fry’s. Because Siddiqui and
12 ProMedia colluded to inflate the prices charged Fry’s for the benefit of Siddiqui and ProMedia,
13 vicarious liability is wholly inappropriate. Indeed, unlike here, in cases where employers have been
14 held vicariously liable the party seeking redress did not actively collude in the employee’s tortious
15 conduct to the detriment of the employer. ProMedia is asking this Court to legally excuse and
16 condone the payments of kickbacks and bribes on the theory that the doctrine of vicarious liability
17 operates as a complete immunity in favor of the bribe payer.
18
Finally, the assertion that ProMedia was purportedly at Siddiqui’s mercy given his position at
19 Fry’s is not determinative. (ProMedia Motion, 2:10-12.) The California Supreme Court has rejected
20 the proposition that “an employer may be vicariously liable for an employee’s misconduct whenever
21 there is an abuse of a job-created, hierarchical relationship in which the employee is afforded a high
22 degree of authority over the victim.” (Farmers Ins. Group, supra, 11 Cal.4th at p. 1012-13.) On the
23 contrary, “for purposes of respondeat superior, employees do not act within the scope of employment
24 when they abuse job-created authority over others for purely personal reasons.” (Id. at p. 1013
25 [emphasis added].) Moreover, Siddiqui did not have control over ProMedia. ProMedia is an
26 independent business entity. ProMedia could have declined to do business with Fry’s in the fraudulent
27 manner proposed by Siddiqui, and could have stopped doing business with Fry’s and stopped making
28 payments to Siddiqui at any time. ProMedia offers no substantive evidence to the contrary.
-11SMRH:409721619.8
FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT
E-FILED: Aug 2, 2013 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-143298 Filing #G-56056
1
2
2.
Agency
Under agency doctrine, the principal can be liable for “wrongful acts” committed within the
3 scope of the agent’s actual or ostensible authority. (See Johnson v. Monson (1920) 183 Cal. 149, 152.)
4 But just as with respondeat superior, there are limits, and those limits preclude the imposition of
5 liability on Fry’s for the acts of Siddiqui. Although respondeat superior and agency are different
6 liability theories, courts may consider the requirements for liability under one in construing the other.
7 (Capitol City Foods, Inc. v. Superior Court (1992) 5 Cal.App.4th 1042, 1049-1050; Myers v.
8 Trendwest Resorts, Inc. (2007) 148 Cal.App.4th 1403, 1427, 1434-1435.) Thus, since Siddiqui was an
9 employee, the limitations on vicarious liability under respondeat superior equally apply to ProMedia’s
10 assertion that Fry’s is liable for Siddiqui’s tortious conduct under agency principles.
11
Because the evidence shows that Siddiqui did not have actual authority from Fry’s to
12 undertake the kickback scheme to enable ProMedia to overcharge Fry’s for Siddiqui’s and ProMedia’s
13 benefit, ProMedia relies on ostensible authority. (See ProMedia Mem., 9:4-10:27.) “Ostensible
14 authority is such as a principal, intentionally or by want of ordinary care, causes or allows a third
15 person to believe the agent to possess.” (Cal. Civil Code § 2317; South Sacramento Drayage Co. v.
16 Campbell Soup Co. (1963) 220 Cal.App.2d 851, 856.) “Ostensible authority of an agent cannot be
17 based on the agent’s conduct alone; there must be evidence of conduct by the principal which causes a
18 third party reasonably to believe the agent has authority.” (Lindsay-Field v. Friendly (1995) 36
19 Cal.App.4th 1728, 1734 , citing Petersen v. Securities Settlement Corp. (1991) 226 Cal.App.3d 1445,
20 1452; South Sacramento Drayage Co., supra, 220 Cal.App.2d at pp. 856-57.) “In the absence of
21 showing ostensible authority, persons dealing with an assumed agent are bound at their peril to
22 ascertain the extent of the agent’s authority.” (Lindsay-Field, supra, 36 Cal.App.4th at p. 1734.)
23
Here, any assertion by ProMedia that Siddiqui had ostensible authority to demand
24 “commissions” (a/k/a kickbacks) would fail because ProMedia admits it would be based on the
25 statements and conduct of Siddiqui alone—as opposed to anyone else at Fry’s. (Fry’s OSS, Response
26 to UMF Nos. 14 and 15;AUMF Nos. 64-66.) Moreover, the reasonableness of ProMedia’s purported
27 reliance on ostensible authority is belied by a host of facts demonstrating that ProMedia’s payments
28 and “loans” to Siddiqui and PCI were corrupt kickbacks, and not bona fide transactions, including:
-12SMRH:409721619.8
FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT
E-FILED: Aug 2, 2013 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-143298 Filing #G-56056
1

The interrelationship of the Vendors in terms of ownership, business, and families.
2

ProMedia’s status as a shell company organized to facilitate the scheme.

Lack of documentation or an executed contract.

No evidence that PCI ever provided services to ProMedia.

ProMedia’s deliberate failure to even attempt to verify Siddiqui’s representations or the
legitimacy of PCI.

ProMedia’s admission that it never informed anyone at Fry’s of the scheme to pay
“commissions” to Siddiqui or complained to anyone at Fry’s about Siddiqui’s
demands, despite its express obligation to do so under its Vendor Agreement and
numerous opportunities to do so.
3
4
5
6
7
8
9 (Fry’s OSS, Response to UMF No. 14; AUMF Nos. 78-100.)
10
The fact that the Vendor Agreement expressly prohibits “the solicitation or acceptance of any
11 bribe, kickback, or gratuity by any Fry’s employee in the transaction of its business,” expressly
12 obligates ProMedia to “report any violation” to Fry’s President or Executive Vice President, and
13 identifies Kathryn Kolder as a higher level executive to whom suspected wrongdoing by others was
14 required to be reported(ProMedia Not. Lgmt, Ex. 2), carries legal significance. ProMedia thereby had
15 notice that Siddiqui did not have authority from Fry’s to enter into an agreement with ProMedia to
16 facilitate the payment of millions of dollars to him personally at the expense of Fry’s:
17
18
19
20
21
22
23
A principal may protect itself against this risk by requiring its agents to use
documentation for transactions, prepared by the principal, that provides effective
warning to third parties with whom the agent deals of limitations on the agent’s
authority to bind the principal through representations. Such a provision, if
effective, precludes a third party’s ability to subject the principal to liability on the
basis that the agent acted with apparent authority in making a misrepresentation. In
the third party’s dealings with the agent, it is not reasonable for the third party to
believe that the agent acted with actual authority in making such representations. It
is a question of fact whether a provision in a contract is effective to provide notice
to a third party of limitations on an agent’s authority to make a particular type of
representation. The efficacy of the provision may also be a matter of contract
interpretation.
24 (Restatement (Third) of Agency § 7.08 (2006), Comment c(4); 1 Witkin, Summary of California
25 Law 10th ed. (2005) Contracts, § 305, p. 331 [“the innocent principal may by a stipulation
26 limiting the agent’s authority relieve himself or herself from liability in a tort action for damages
27 for fraud and deceit”] [emphasis added].) By including an express provision against kickbacks,
28 bribes, or gratuities to any Fry’s employee in its Vendor Agreement with ProMedia, Fry’s gave
-13SMRH:409721619.8
FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT
E-FILED: Aug 2, 2013 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-143298 Filing #G-56056
1 ProMedia effective notice that any effort by Siddiqui to obtain such payments was outside the
2 scope of his agency or employment. (Harnischfeger Sales Corp. v. Coats (1935) 4 Cal.2d 319,
3 320-21 [“by stipulating in the contract that the agent has no such authority, the principal has done
4 all that is reasonably possible to give notice thereof to the third party” and “[u]nder such
5 circumstances the innocent principal may justly be relieved of liability for the agent’s wrong”].)
6 In sum, had ProMedia simply done what it was obligated to do under the Vendor Agreement,
7 Siddiqui’s kickback scheme could not have been perpetrated.
8
Finally, California law provides that “[a]n agent can never have authority, either actual or
9 ostensible, to do an act which is, and is known or suspected by the person with whom he deals, to be a
10 fraud upon the principal.” (Cal. Civ. Code § 2306; Saks v. Charity Mission Baptist Church (2001) 90
11 Cal.App.4th 1116, 1138 (Saks); Meyer v. Glenmoor Homes, Inc. (1966) 246 Cal.App.2d 242 (Meyer).)
12 Thus, “[a] corporation is not chargeable with the knowledge of an officer who collaborates with an
13 outsider to defraud it.” (Meyer, supra, 246 Cal.App.2d at 264 [emphasis added].) As explained in
14 Saks: “There is nothing fair or equitable about permitting a third party to attribute a corporate
15 employee’s acts to the corporation where the third party is engaged in a conspiracy with the employee
16 to use the corporation to obtain a benefit for himself.” (Saks, supra, 90 Cal.App.4th at pp. 1139-40
17 [holding that a doctor who provided funds to a developer and the pastor of a church in furtherance of a
18 scheme to use the church to acquire property to be transferred to the three of them could not hold the
19 church liable when the funds were not repaid].) Moreover, the general rule that an agent’s acts and
20 knowledge are imputed to the principal does not apply where “the agent and the third party act in
21 collusion against the principal.” (Sands v. Eagle Oil & Refining Co. (1948) 83 Cal.App.2d 312, 319;
22 Mott v. Nardo (1946) 73 Cal.App.2d 159, 165 [“[k]nowledge of the acts of an agent which are in his
23 own interest or in the interest of others and adverse to those of his principal will not be imputed to the
24 principal because of the mere existence of the agency”].)
25
ProMedia’s assertion that it “had no way to investigate the relationship between Fry’s and
26 PCI” and could therefore reasonably believe whatever Siddiqui said is pure fabrication. The Vendor
27 Agreement told ProMedia precisely what to do under such circumstances. There are two choices here,
28 neither of which supports ostensible authority. ProMedia either: (1) was not suspicious and did not
-14SMRH:409721619.8
FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT
E-FILED: Aug 2, 2013 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-143298 Filing #G-56056
1 investigate because it was colluding with Siddiqui; or (2) failed to take the minimal step of confirming
2 with Kathy Kolder—as it was contractually obligated to do if it had any suspicions—whether Siddiqui
3 was acting within his authority, and hence failed to reasonably rely on Siddiqui’s purported authority.
4 The evidence overwhelmingly weighs in favor of the first choice. (Fry’s OSS, AUMF Nos. 55 & 57,
5 84-94.) In sum, the prohibitions in the Vendor Agreement, ProMedia’s failure to report the kickback
6 scheme, and ProMedia’s participation in the kickback scheme preclude finding as a matter of law that
7 Fry’s must be liable for Siddiqui’s tortious conduct. In fact, as demonstrated in Fry’s pending motion
8 for summary judgment/adjudication, these facts require the opposite result.
9
B.
10
11
ProMedia Has Not Shown That It Cannot Be Held Liable for Colluding with
Siddiqui In the Scheme to Defraud Fry’s
Although ProMedia spends considerable time discussing various respondeat superior and
12 agency cases, virtually all of those cases are inapposite because they involve innocent third parties
13 who were unequivocally duped and harmed by agents, and not agents and third parties who colluded to
14 defraud or otherwise directly harm principals. (ProMedia Mem., 6:15-7:4, 7:21-10:19.) For example,
15 ProMedia focuses on and tries to analogize its situation to that of the plaintiffs in Hartong v. Partake,
16 Inc. (1968) 266 Cal.App.2d 942, in which the Court of Appeal, affirming judgment for plaintiffs after
17 a bench trial, held that there was sufficient evidence of ostensible authority. (ProMedia Mem., 9:2718 10:10:27.) That case, however, involved plaintiffs who were innocent “would-be franchisors” duped
19 by two of the principal’s independent contractor agents into thinking that they were entering into
20 franchise agreements with the principal, Partake, Inc., when those agreements were actually with
21 Pacific Way, Inc., a company formed by the agents. Moreover, in its zeal, ProMedia inaccurately
22 describes the factual basis for imputation as follows:
23
24
25
The principal was imputed with notice of the rogue agent’s representations given his
access to information showing that the agent was using the principal’s name and
promotional literature and title as area manager to conduct business on behalf of the
agent’s separate company, and thus liable for the damages caused by the agent’s fraud.
26 (ProMedia Mem., 10:12-15.) In fact, while the agents had “made extensive use of the Partake
27 name and office and the ‘confidence-inspiring’ materials provided by Partake,” the basis for
28 imputation was actually that:
-15SMRH:409721619.8
FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT
E-FILED: Aug 2, 2013 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-143298 Filing #G-56056
1
2
3
4
5
Partake permitted these uses to continue even after March 11, 1963, when Melvin
[Partake’s founder/Vice President/Executive Director] became aware of the fact that
Raub [one of the agents] was using the Partake office and materials to sell Pacific
franchises. Partake’s contention that it was not aware of these facts is negated by
one of the grounds expressly stated in its April 1 termination notice to Werry [the
other agent], namely: ‘Use of Partake advertising office, and program to sell
unauthorized franchise packages.’ . . . The trial court cautiously concluded that
only the four plaintiffs who had signed their contracts after Melvin’s visit of March
11, during the course of which he had notice of Werry and Raub’s activities, were
entitled to recover from Partake.
6
7 (Hartong, supra, 266 Cal.App.2d at p. 961.) Here, the evidence is undisputed that Fry’s was not
8 aware of the scheme, and that once it learned of it Siddiqui was fired and criminally prosecuted.
9 (Fry’s OSS, Response to UMF No. 42; AUMF Nos. 58, 64 & 65.) Other key factual differences
10 distinguish Hartong from this case. In Hartong it was “undisputed” that the plaintiffs were
11 “completely ignorant about the franchise and distributorship business,” “there was no lack of
12 ordinary care on the part of the plaintiffs” (i.e., they were not negligent), “nothing said or done by
13 Raub was so extraordinary as to be beyond the bounds of his apparent authority,” and “plaintiffs’
14 suspicions were repeatedly deflected by plausible assertions of fact.” (Id. at 966-67.) Here,
15 ProMedia’s sophistication is in dispute and ProMedia itself attests that Siddiqui’s conduct was far
16 “beyond the bounds.”— (See Tsai Decl., ¶¶13 [4:7-8], 14 [4:17-18], 15 [5:1].)
17
It would serve no purpose to individually address most of the remaining cases cited by
18 ProMedia; none of them involve principals charged with responsibility for the conduct of employees
19 or agents under facts remotely comparable to those of this case. For example, this is not a case
20 involving an elderly widow bilked by a fast talking broker, or a naïve woman swindled out of
21 thousands of dollars for dance lessons. (See ProMedia Mem., 8:8-10, 9:19-21, citing Blackburn v.
22 Witter (1962) 201 Cal.App.2d 518, and Beck v. Arthur Murray, Inc. (1966) 245 Cal.App.2d 976.)
23 Moreover, these cases did not involve employees or agents who colluded with third parties to defraud
24 principals. Thus, Fry’s will focus on The First National Bank of Reedley v. Reed (1926) 198 Cal. 252
25 (Reedley), the sole case cited by ProMedia for the proposition that a principal cannot sue a third party
26 who colludes with the principal’s agent. (ProMedia Mem., 7:8-18.)
27
In Reedley, the bank sued to recover the amount due under a promissory note. The bank
28 admitted that if the bank’s “sole purpose” in taking the note “was to cover up a deficit in the bank’s
-16SMRH:409721619.8
FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT
E-FILED: Aug 2, 2013 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-143298 Filing #G-56056
1 assets and deceive and mislead the bank examiner, then, notwithstanding the fact that defendant
2 participated with the bank officers in a fraudulent transaction, the court would not aid either party, and
3 the plaintiff could not recover.” (Reedley, supra, 198 Cal. at 258.) But the bank argued that its
4 agent—the cashier—“had no authority to bind the bank in the negotiations” with the defendant under
5 which it was agreed that the defendant would not be responsible for paying the note, and “insisted that
6 the directors of the bank had no knowledge of the criminal nature of the transaction and believed that
7 the giving of the note was a strictly legitimate transaction.” (Id.) The bank argued that “the
8 knowledge of the cashier could not be imputed to the principal—in this case the bank—for the reason
9 that this rule [of imputation] was established for the protection of those who deal with the agent in
10 good faith.” (Id. at 259.) The court acknowledged that “if the agent and the third party are acting in
11 collusion to defraud the principal the principal will not be held bound by the knowledge of the agent,”
12 but noted that this rule is “ordinarily applied in cases where the liability of the principal to a third
13 person is involved and is based upon the idea of protection to the innocent principal.” (Id.) The court
14 then made the following statement seized upon by ProMedia: “The exception, holding as it does that
15 the principal is not bound by the knowledge of his agent, has no application to a situation such as
16 presented here, wherein the principal is seeking to establish the liability of a third person.” (Id.)
17 However, the court clarified and limited this holding:
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In the situation presented here the sole representative of the bank was the cashier
and acting manager. The bank cannot claim anything except through him, and
therefore, if it claims through him, it must accept his agency with its attendant
notice of his knowledge of the facts as they actually existed. The bank cannot in
one breath be heard to say that the cashier was without authority to bind itself as its
agent and accept the note upon condition that it was an accommodation note for
which the defendant should not be liable, and in the next breath insist that it can
avail itself of his act in taking the note. It cannot avail itself of only so much of the
transaction as was beneficial to it and repudiate the rest.
23 (Id. at 259-60.) The complete holding of Reedley demonstrates that ProMedia’s reliance on it is
24 misplaced. Since a principal will not be bound by an illegal agreement entered into on its behalf
25 by its agent in collusion with a third party, it makes perfect sense that the principal cannot turn
26 around and sue the third party to recover under that same agreement. But Fry’s is not seeking to
27 enforce or recover under the unauthorized, collusive agreement between Siddiqui and ProMedia.
28 Instead, it seeks to enforce the entirely separate and legitimate Vendor Agreement, and to recover
-17SMRH:409721619.8
FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT
E-FILED: Aug 2, 2013 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-143298 Filing #G-56056
1 for fraud based on the inflated invoices submitted under the Vendor Agreement. If Fry’s has no
2 recourse against ProMedia under these circumstances, the purpose of “protect[ing] the innocent
3 principal against the fraud of his agent acting in collusion with the third person” will be frustrated.
4
Subsequent cases have made it clear that defrauded principals are not barred from suing third
5 parties who collude with their agents. For example, in People v. Parker (1965) 235 Cal.App.2d 86,
6 93-95, the court cited Reedley for the proposition that “[a] corporation is not chargeable with the
7 knowledge of an officer who collaborates with an outsider to defraud it,” and then went on to affirm
8 the defendant’s conviction for grand theft from a savings and loan association, holding that an officer’s
9 knowledge of the defendant’s false representations as to construction progress to obtain construction
10 loans “cannot as a matter of law be attributed to the corporation.” If a third party who colludes with an
11 agent can be convicted for defrauding the principal, then a fortiori that third party can be sued in a civil
12 suit brought by the principal/victim of that fraud.
13
C.
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15
ProMedia’s Arguments Regarding Specific Causes of Action Fail to Establish
a Basis for Summary Judgment
To seek summary judgment on every cause of action in the SACC , ProMedia relies on its
16 overarching argument that Siddiqui’s status as Fry’s employee-agent insulates ProMedia from liability.
17 (ProMedia Mem. Part III.D.) As demonstrated above, that argument cannot prevail, particularly given
18 the additional facts submitted by Fry’s. For the reasons explained below, ProMedia’s other arguments
19 with respect to specific causes of action are equally meritless. Finally, because ProMedia seeks
20 summary judgment based on the sole ground that Fry’s is responsible for Siddiqui’s conduct,
21 ProMedia’s argument that Fry’s aiding and abetting cause of action is legally unavailable because
22 ProMedia is not a “fiduciary” (ProMedia Mem., 19:18-24) should be disregarded.
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1.
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25
ProMedia’s Assertion That the Fraud Cause of Action Fails Because It
Had No Duty to Disclose Is Specious
It is undisputed that ProMedia never informed anyone at Fry’s of the kickback scheme or
26 complained to anyone at Fry’s about Siddiqui’s demands. (Fry’s OSS, Response to UMF No. 14].)
27 Notwithstanding its express contractual duty to disclose this misconduct ( ProMedia Not. Lgmt, Ex. 2),
28 ProMedia argues that it had no duty to disclose, and thus its “[c]oncealment is not actionable,” because
-18SMRH:409721619.8
FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT
E-FILED: Aug 2, 2013 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-143298 Filing #G-56056
1 Siddiqui was Fry’s agent, and knowledge of the kickbacks was therefore “imputed” to Fry’s.
2 (ProMedia Mem., 18:7-14.) As already explained (see Parts IV. A. & B. , in perpetrating the kickback
3 scheme with ProMedia and other Vendors, Siddiqui was not acting as Fry’s agent. Hence, the premise
4 of this argument is false. Furthermore, ProMedia did not merely fail to disclose Siddiqui’s
5 wrongdoing--ProMedia was an active participant in that wrongdoing. (See, e.g., Fry’s OSS, Response
6 to UMF No. 12.) Thus, ProMedia’s status as athird party colluder, forecloses Fry’s from being held
7 responsible for Siddiqui’s conduct and ProMedia is not relieved of its duty to disclose.
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2.
Fry’s Common Counts Are Not Barred
ProMedia’s secondary spin on the common counts cause of action is that: (1) Fry’s theory is
10 “contradicted by Fry’s stopping payment on checks to ProMedia for goods previously furnished”; and
11 (2) “Fry’s retained the benefits of the commission payments to PCI by accepting amenities from the
12 casinos where Siddiqui gambled away the commissions.” (ProMedia Mem., 18:22-23, 19:1-2.)
13 Regardless of whether Fry’s stopped payment on checks, Fry’s is still entitled to recover for the
14 amount it overpaid ProMedia as a setoff, since the amount of these checks (even including the inflated
15
portion of invoices) is less than the amount by which the invoices ProMedia submitted to and paid by
16 Fry’s were inflated to enable ProMedia to pay kickbacks to Siddiqui. (Fry’s OSS, AUMF No. 68; see
17 also Granberry v. Islay Investments (1995) 9 Cal.4th 738, 744; Harrison v. Adams (1942) 20 Cal.2d
18 646, 648.) Moreover, ProMedia has admitted that Siddiqui “divert[ed] the commission payments to
19 PCI to casinos to fund a massive gambling addiction” (ProMedia UMF No. 17), not to bestow benefits
20 on Fry’s. Thus, Siddiqui acted out of a personal compulsion, unknown to Fry’s, that precludes holding
21 Fry’s responsible for his conduct.
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3.
Fry’s Is Entitled to Enforce the Vendor Agreement
ProMedia argues that Fry’s “cannot rely on the Vendor Agreement to disclaim the terms of the
24 contract between PCI and ProMedia.” Once again, this fundamentally misconstrues Fry’s claims.
25 Fry’s is not a party to ProMedia’s collusive kickback agreement with Siddiqui and PCI, and is not
26 seeking to “disclaim” the terms of the sham “General Sales and Marketing Agreement” between them.
27 (ProMedia Not. Lgmt, Ex. 4.) ProMedia has provided no evidentiary basis for equating Fry’s and PCI,
28 other than assumptions based on Siddiqui’s purported hearsay representations, which are inadmissible.
-19SMRH:409721619.8
FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT
E-FILED: Aug 2, 2013 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-143298 Filing #G-56056
1 Moreover, ProMedia cannot rely on Siddiqui’s representations alone to establish the scope of Fry’s
2 responsibility. (See Lindsay-Field, supra, 36 Cal.App.4th at1734 (“[o]stensible authority of an agent
3 cannot be based on the agent’s conduct alone; there must be evidence of conduct by the principal
4 which causes a third party to reasonably believe the agent has authority”).) ProMedia seeks a
5 declaration that the anti-kickback provision in the Vendor Agreement is “unenforceable,” on the
6 ground that the provision is mere “boilerplate” and that contracts must be construed to “avoid[] any
7 inconsistencies or illegal or absurd result.” (ProMedia Mem., 19:27-20:9.) However, it identifies
8 nothing in the Vendor Agreement with which the anti-kickback provision is inconsistent, nor does it
9 explain how its enforcement would produce any illegal or absurd results. Accepting this argument
10 would nullify contractual anti-kickback clauses in innumerable contracts for the precise purpose of
11 preventing and exposing employee misconduct. That would be an “absurd” result. Thus, Fry’s is
12 entitled to rely on and enforce the Vendor Agreement, including its anti-kickback provision.
13
4.
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15
ProMedia Has Not Established That the Vendors Are Not Alter Egos
and Co-Conspirators
ProMedia claims its agency argument precludes any cause of action against ProMedia as a
16 corporation, and hence makes evidence of derivative theories of liability “irrelevant.” (ProMedia
17 Mem., 20:12-21.) Fry’s has shown it cannot be charged with responsibility for Siddiqui’s knowledge
18 or conduct, and has raised triable issues of fact barring ProMedia’s defense that it cannot be liable for
19 colluding with Siddiqui to defraud Fry’s and breaching its contact with and common law duties to
20 Fry’s. Evidence of the relationships between and among the Vendors and their principals is relevant to
21 their liability, and Fry’s claims based on their collusion and conspiracy are not barred by ProMedia’s
22 baseless argument. Therefore, it would be premature to foreclose such claims at this stage.
23 V.
CONCLUSION
24
For all the foregoing reasons, Fry’s requests that ProMedia’s motion be denied in its entirety.
25 Dated: August 2, 2013
26
SHEPPARD, MULLIN, RICHTER & HAMPTON
LLP
By
JAMES M. CHADWICK
Attorneys for FRY’S ELECTRONICS, INC.
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-20SMRH:409721619.8
FRY’S ELECTRONIC PURCHASING CASES (JCCP 4589)
OPPOSITION TO PROMEDIA’S MOTION FOR SUMMARY JUDGMENT