Preview
1 JEFFREY F. RYAN (CA Bar No. 129079)
2
Jeff@jeffreyryanlaw.com
LAW OFFICES OF JEFFREY F. RYAN
3 The Fitzpatrick Building
2000 Broadway Street
4
Redwood City, California 94063
5 Phone; (650) 922-2341
6 Attorney for Plaintiffs FRED H. GEISLER, NORMAN C. FLEMING, and GENA
ZISCHKE
7
8
9 IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA
10 FOR THE COUNTY OF SAN MATEO
11 COMPLEX CIVIL LITIGATION - DEPT. 2
12 FRED H. GEISLER, M.D., Ph.D., an CASE NO: 17-CIV-02888
individual, NORMAN C. FLEMING, an
13
individual, and GENA ZISCHKE, an
14 individual, directly, and derivatively on
behalf of RHAUSLER, INC.;
15 COPERNICUS DYNAMICS GROUP, LP, PLAINTIFFS’ OBJECTIONS TO
16
AND ROES 1-25, inclusive. PROPOSED STATEMENT OF
DECISION SERVED BY THE COURT
17 Plaintiffs,
(C.C.P. § 632; C.R.C., Rule 3.1590)
18 V.
19 TERRY J. JOHNSTON, an individual;
ROBERT JOHN GLYNN, JR., an
20
individual; 3COR MEDICAL, INC., a
21 California Corporation; INDUSTRY OF
THE REDWOODS, LLC, a Nevada LLC,
22 RHAUSLER, INC., a California
23
corporation, and DOES 1 to 25, Inclusive,
24 Defendants,
25
and RHAUSLER, INC., a California
26 Corporation,
27 Nominal Defendant.
28
1
PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT
Geisler, etal, v. Johnston, etal. No. 17-CIV-02888
1 I. OBJECTIONS TO PROPOSED STATEMENT OF DECISION
2 A. Legal Standard
3 A statement of decision is required to explain the factual and legal basis for the
4 Court’s decision as to each of the principal controverted issues at trial. (Code Civ. Proc. §
5 632.) The main purpose of an objection to a proposed statement of decision is to bring to the
6 court’s attention inconsistencies between the court’s ruling and the document that is supposed
7 to embody and explain that ruling." {Heaps v. Heaps (2004) 124 Cal.App.4th 286, 292.) A
8 party should also bring ambiguities and omissions in the factual findings of the statement of
9 decision to the trial court's attention. {Fladeboe v. American Isuzu Motors Inc. (2007) 150
10 Cal.App.4th 42, 48.)
11 By filing specific objections to the court’s statement of decision a party pinpoints
12 alleged deficiencies in the statement and allows the court to focus on the facts or issues the
13 party contends were not resolved or whose resolution is ambiguous." {Golden Eagle Ins. Co.
14 V. Foremost Ins. Co. (1993) 20 Cal.App.4th 1372, 1380.) The objections should focus on the
15 particular omission or ambiguity in the proposed statement of decision and provide the court
16 with meaningful guidance as to how to correct each particular defect. {Ermoian v. Desert
17 Hosp. (2007) 152 Cal.App.4th 475, 498.)
18 B. Objections to Factual Matter in Proposed Statement
19 1. Invention of the PLAGE
20 The Court’s Proposed SOD states in relevant part:
21 Plaintiff Dr. Fred Geisler and Defendant Terry Johnston invented
22 a cervical spine implant known as the Plage while they worked for
23 Olsen Medical in Chicago.
24 (Court’s Proposed Statement of Decision (“SOD”), p. 7.)
25 In fact, Terry Johnston had no involvement whatsoever in inventing the Plage and
26 holds no patent relating to the PLAGE. Dr. Fred Geisler (“Dr. Geisler”) invented a cervical
27 spine implant known as the PLAGE in 1999. (Trial Exhibit No. 0570 [U.S. Patent No.
28 6,231,610]; Request for Judicial Notice (“RJN”), H 1 [Trial Transcript]).) Dr. Geisler
2
PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT
Geisler, etal., v. Johnston, etal.. No. 17-CIV-02888
1 assigned the patent to the Allegiance Corporation in 2001 for manufacturing and marketing.
2 However, the Allegiance Corporation did not develop the PLAGE and transferred the
3 assignment of this patent back to Dr. Geisler. After Dr. Geisler started his association with
4 Olsen Medical and Terry Johnston in 2005, they jointly developed the Olsen Plate and Screw
5
anterior cervical implant system, but not the PLAGE. Although Olsen Medical had expressed
6
an interest in manufacturing and marketing the PLAGE personally owned by Dr. Geisler,
7
this did not occur, and the PLAGE patent remained the personal property of Dr. Geisler.
8
The Court’s Proposed SOD also states in relevant part:
9 44
Olsen Medical, Geisler and Johnston entered into an agreement
10
to sell all rights to the Plage (and related plates and screws) to
11
Geisler and Johnston. In simple terms, they then used the Plage
12
and its patent as the foundation of the business then named
13 Rhausler Inc.
9^
14
(Proposed SOD, p. 7.)
15 In fact, Olsen Medical, Geisler and Johnston entered into an agreement to sell all
16 rights to the Olsen Plates and Screws implant systems to Geisler and Johnston. In simple
17 terms. Dr. Geisler and Johnston then used the Plate and Screw implant system and its patent
18 as the foundation of the business then named Rhausler, Inc. (“Rhausler”). (Exhibit #0126).
19
After Rhausler was formed in 2008, the PLAGE patent was assigned by Geisler personally to
20
Rhausler on February 25, 2009 (Trial Exhibit E - Fleming PPM) in return for the promise by
21
Mr. Johnston of 8% royalty payments to Dr. Geisler from Rhausler. The PLAGE was
22
manufactured and sold by Rhausler, but no royalties were ever paid to Dr. Geisler for the
23 sales of the PLAGE.
24
Plaintiffs request that the Proposed SOD be modified to reflect the undisputed
25
evidence at trial and trial testimony of Dr. Geisler.
26
2. Typographical Errors
27 The bottom paragraph of page 19 of the Court’s Proposed SOD states:
28
3
PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT
Geisler, etal, v. Johnston, etal, No. 17-CIV-02888
1
44
Finances were handled in a very irregular manner: (i) No checks
2
were printed (and thus electronically recorded), all checks were
3
separately handwritten and all signed by Johnston; (ii) the
4 reconciliation function was ever used, instead it was done
5
manually on paper only; [Emphasis added].
6
(Proposed SOD, p. 19 (underlining added.) The underlined sentence above should read “the
7 reconciliation function was never used....
C. General Objections
9 On February 22, 2023, Plaintiff Geisler served a Request for Statement of Decision on
10 Controverted Issues After Bench Trial pursuant to California Rules of Court Rule 3.1590(d).
11 Plaintiffs generally object to the Court’s Tentative Statement of Decision to the extent that it
12 omits findings on principal controverted issues in the Request for Statement of Decision or to
13 the extent that its findings are ambiguous. (Code Civ. Proc. § 632, 634; Cal. Rules of Court,
14 rule 232(d).)
15 D. Specific Objections
16 Plaintiffs respectfully request that this Court strike or modify the following statements
17 and findings in its Statement of Decision.
18 1. Objections to Proposed Statement of Decision Regarding Defendant
19 Robert Glynn
20 The Court’s Proposed SOD reads in relevant part:
ii
21 Although Plaintiffs make arguments in their Closing Arguments
22 regarding liability and damages as to Defendant Robert Glynn,
23 that is not procedurally proper. After the death of Defendant
24 Glynn, in November 2019 this Court ordered that all claims by and
25 against Glynn were severed and stayed. At the time of severance,
26 the claims pending against Glynn were a direct cause of action for
27 breach of fiduciary duty, a derivative cause of action for aiding
28 and abetting constructive fraud, a direct cause of action for
4
PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT
Geisler, et al, v. Johnston, et al. No. 17-CIV-02888
1
violation of B&P Code Section 17200 (which was later
2
dismissed), and a derivative cause of action for misappropriatio n
3
of trade secrets. The matter was ordered stayed until compliance
4 with C.C.P. Section 377.40 or further order of this Court.
5
The Court is unable to find any subsequent order lifting the stay as
6
to Glynn. There has been no substitution of his Estate in this case,
7
or appointment of counsel in this lawsuit by his Estate. Plaintiffs
8
have not substituted as a party any personal representative of the
9
Glynn Estate under Section 377.41. This was not a trial against
10 Glynn.
11
However, on March 18, 2021, the Court lifted the stay pursuant to its Order After
12
Hearing Granting Motion to Continue Pending Action Against Decedent’s Estate, which
13
reads in relevant part:
14 a
This Court’s Order Staying All Claims By and Against Glynn
15
entered on November 12, 2019, is hereby lifted as to the claims
16
against Defendant Robert John Glynn Jr. (“Mr. Glynn”)
^9
17
(RJN, T| 2 [Order, pg. 2, paragraph 3], emphasis added.)
18
“Plaintiffs may now pursue their claims against Mr. Glynn and, in
19
this regard, the Estate of Robert J. Glynn Jr. (pending in the
20
Superior Court of California, County of Alameda, case no. RP-
21
20061940) and any applicable personal representative thereof
22
shall by substituted as Defendant in place of Mr. Glynn.
23
(RJN, 12 [Order, p. 2, paragraph 4].)
24
At the time of Robert John Glynn Jr. (“Glynn”)’s death, this action was pending
25
against him. After Glynn passed away, Dr. Geisler filed to open the probate because no other
26
person had done so, including Mr. Glynn’s wife and children. (Alameda County, Case No.
21
RP20061940.) (RJN, ^ 2.) On September 23, 2020, the Alameda County Superior Court
28
entered its Order Appointing Dr. Geisler as Administrator of the Estate of Glynn. (Id.)
5
PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT
Geisler, etal, v. Johnston, elal. No. 17-CIV-02888
1 Letters of Administration were issued to Dr. Geisler on September 28, 2020. {Id.) Notice of
2 Proof of Publication of Dr. Geisler’s Petition was filed on August 3, 2020. {Id.) Mrs. Glynn
3 and her children never filed any objection to the proceedings, nor did anyone else. The
4
appointment of Dr. Geisler was limited to “aecept[ing] serviee of the filing of Creditors’
5
Claims relating solely to the litigation pending against the Decedent as of his date of
6 death....” {Id.)
1
On September 30, 2020, each plaintiff in this action filed and served his or her own
8
Creditor’s Claim in the probate case and elected to have them deemed rejected pursuant to
9 Probate Code section 9256. Pursuant to Probate Code section 9370, each plaintiff filing a
10 Creditor’s Claim was entitled to continue with the lawsuit “against the decedent’s personal
11
representative.” {Id.) However, Mrs. Glynn and her children all refused to be appointed as
12 personal representative in order to defend the Estate in this action, even though they had
13
been served with notices of this action, perhaps to avoid a judgment against the estate. {Id)
14 In short, Glynn’s Estate elected not to hire counsel to represent it at trial and did not offer
15
any contrary evidence at trial. Plaintiffs therefore presented and proved their case against
16 Glynn.
17 At trial, Plaintiffs presented evidence of the following facts:
18 1) Glynn was directly involved in obtaining and collecting the commission paid to
19
Terry Johnston from Olsen, without Dr. Geisler’s knowledge or consent and in
20 breach of Glynn’s duties as an officer and director of Rhausler owed to Dr.
21
Geisler, from the sale of Olsen to Rhausler (#0125 and #0480);
22 2) Glynn set up Cabo Spine to be wholly owned by Rowena Mier without Rhausler’s
23
consent (#0074 and #0075 and #0076 and #0791) and helped Terry Johnston usurp
24
this Rhausler corporate opportunity for himself in breach of his fiduciary duties as
25
an officer and director of Rhausler; Glynn actively concealed these facts from
26 Geisler;
27 3) Glynn set up and negotiated Johnston's side contract with Tecomet so Johnston
28
personally would receive a development consultation fee and a commission from
6
PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT
Geisler, etal, v. Johnston, etal, No. 17-CIV-02888
1
Trabeculite implant sales instead of Rhausler (#0627 and #790 and #0791 and
2
#0793); and Glynn kept this side deal hidden from Dr. Geisler;
3 4) Glynn set up Industry of the Redwoods ("lOR”) to have the tray business owned
4
as Johnston’s and Bell’s company, separate from Rhausler and hidden from
5 Rhausler’s shareholders (#0066);
6 5) Glynn set up ZY, Inc. to be a method to syphon money from Rhausler’s tray sales
7
to his then girlfriend (now 4th wife) (#0066);
8 6) Glynn performed work directly for Tedan Surgical Innovations, LLC (“TSI”)
9
within Rhausler’s office and initially passed the bills onto Rhausler (#0114 and
10 #0115);
11 7) During his deposition, Glynn stated that he considered Rhausler and TSI to be the
12
same (#0658, pages 62, 71,72, 74, 77, 78, 79);
13 8) Glynn was working on the Moran trial on behalf of TSI and having Rhausler pay
14
the settlement for TSI (#0255);
15 9) Glynn pretended to be Dr. Geisler’s legal counsel representing Dr. Geisler’s
16
interests for the sale of the Spinal Integration business owned partially by Dr.
17
Geisler to Rhausler. Dr. Geisler paid Glynn for these legal services. However, Dr.
18
Geisler subsequently learned that Glynn was actually Johnston’s personal lawyer
19
for this transaction and had tricked Dr. Geisler (#0127).
20
Thus, the Court should modify its SOD to find that: 1) Glynn’s surviving spouse and
21
children did not apply to be appointed as personal representative of his Estate and filed no
22
objections to any proceedings in the Probate Court; 2) this Court lifted the stay on March 18,
23
2021; 3) Glynn’s Estate was served with notice of this action, but elected not to hire counsel
24
to represent it at trial; 4) Plaintiffs did pursue claims against the Estate of Robert J. Glynn Jr.;
25
and 5) as to the Estate of Robert J. Glynn Jr., there exists personal liability pertaining to Dr.
26
Geisler and derivative liability as it pertains to all shareholders in the amount of $900,000,
27
which was proven by a preponderance of the evidence at trial and with no contrary evidence
28
presented by anyone.
7
PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT
Geisler. et ai, v. Johnston, el al. No. 17-CIV-02888
1
2. Objections to Proposed Statement of Decision Regarding Terry
2 Johnston Being the Alter Ego of Rhausler, Inc.
3 Plaintiffs alleged that Defendant Terry Johnston is the alter ego of Rhausler. (See
4 Fourth Amended Verified Complaint (“4AVC”) at 50, 104, 105, etc.\ see, also,
5 PLAINTIFFS’ REBUTTAL TO CLOSING ARGUMENT BRIEF OF DEFENDANT
6 TERRY J. JOHNSTON, filed and served 11/15/2022, at 2:5, 6:11 - 7:16.) Plaintiffs also
7 presented overwhelming and uncontroverted testimonial and documentary evidence that:
● Terry Johnston charged thousands of dollars of personal expenses to the Rhausler
9 American Express cards and used the rewards points for his own personal purposes.
10 (Exhibit 397, 397A.)
11 ● Terry Johnston arbitrarily and unilaterally caused Rhausler to pay him an annual
12 salary of $100,000 for fiill-time work (the full-time status was listed in Rhausler
13 Private Placement Memorandum, Board of Director meeting notes, IRS filings, and
14 in shareholder meeting minutes) despite Johnston knowing a major fraction of his
15 efforts were devoted to the profitability of his other multiple companies that directly
16 competed with Rhausler and despite having a company car specifically based on his
17 full-time status, bonuses of up to $50,000 per year (all with no approval or
18 notification of the Rhausler BOD), and health insurance premiums for himself and
19 his family. These benefits were unilaterally made by Johnston to himself using
20 Rhausler funds even as he was working on behalf of TSI and 3COR more than 50%
21
of his time.
22 ● Terry Johnston ordered all the company files of his alter ego, Rhausler, deleted from
23 the office computer hard drives, the cloud server, and closed Dropbox and other
24 cloud storage and document transfer accounts, thereby effectively deleting all
25 Rhausler files stored thereon. These deleted files included those listing the past
26 history of transactions, FDA and CA state regulatory documents required to sell
27 medical implants, mechanical diagrams to manufacture Rhausler tools and implants,
28 and disappearance of the Rhausler inventory from the Rhausler office. (Exhibits
8
PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT
Geisler, et al, v. Johnston, etal.. No. 17-C1V-02888
1
5017; 5020, 5021.). Copies of many of these deleted files had been previously
2
transferred to PMG/Bell by Kimberly Azucena at the direction of Terry Johnston (as
3 th
detailed in section (c) of the Sixth Cause of Action of the and proposed 5
4
Amended Complaint for Conversion Against Johnston).
5
● Terry Johnston used Rhausler resourees, including personnel, office supplies and
6
equipment, to further the sales efforts of his other businesses, e.g., 3COR Medical,
7
Inc., and TSI, without bothering to seek consent, or even advising, the other Rhausler
8 director and officer, Fred H. Geisler, M.D., Ph.D., of this (mis)use of Rhausler
9 resources.
10
● Terry Johnston, aided and abetted by Glynn and Mier, entered into agreements
11
whereby Johnston would be paid a ‘'commission” ($90,000) for the sale of
12
intellectual property to Rhausler by Olson Medical, and paid a “consulting fee
9?
13
($3,000 per month) for Johnston’s services on a joint Rhausler-Tecomet project while
14
he was president/CEO of Rhausler, without seeking consent by the Rhausler board of
15
directors, or even informing them of these transactions. (Exhibits 125, 398, 433, 480;
16
Exhibits 1802F, 5037, respectively.)
17
● Terry Johnston ordered Rhausler employees Kimberly Azucena and Rowena Mier to
18 hide surgical trays, instruments, tools, mats, etc., in the Rhausler warehouse from
19 Rhausler board of directors’ member and Chief Medical Officer Fred I I. Geisler,
20
M.D., Ph.D., when Geisler visited the Rhausler offices. (Exhibits 104, 5025; 5036.).
21
● Terry Johnston “owned” Rhausler according to Rowena Mier, who testified that this
22
was her belief from 2008 until after 2015. (Exhibit 0663.)
23
● “Terry [Johnston] being Rhausler ...” aceording to the testimony of Rowena Mier.
24 (Exhibit 0663.)
25
● Terry Johnston rarely scheduled, let alone conducted, meetings of the Rhausler board
26
of directors, or shareholders, and only sporadically, inconsistently did Rhausler
27
provide shareholders with written progress reports and tax return information.
28
9
PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT
Geisler, et ai, v. Johnston, et al. No. 17-CIV-02888
1
● Terry Johnston negotiated and signed on behalf of Rhausler and 3Cor the
2 distribution agreement without disclosing it to the board or the shareholders, paying
3
himself a handsome discount for his other wholly owned company 3Cor, which the
4
court has already found was Johnston’s alter ego (Exhibit 0368).
5
6
The Court’s own Proposed SOD states in relevant part:
7 Defendant Johnston testified that he set his own salary at Rhausler Inc.
8 Rowena Mier testified that Johnston's personal expenses were paid by
9
Rhausler. Evidence was presented that Johnston used his authority to have
10
nursing home bills paid for his mother, although it was unclear whether they
11
were paid by 3Cor (which would then reduce the profitability payable to
12
Rhausler) or by Rhausler directly.
13 (Proposed SOD, p. 12.)
14
Yet, the Court’s Proposed SOD omits any finding that Terry Johnston is the alter ego
15
of Rhausler. This finding is crucial for many reasons, including the fact that Plaintiffs
16 entered into a stipulated judgment that Rhausler is liable to Dr. Geisler in the amount of
17
$3,735,526. Dr. Geisler also stipulated that “he will make no effort to enforce the stipulated
18
judgment against Rhausler”, and “instead will rely solely on his collection of all sums due
19
under any Judgment, or Settlement in his favor and against the other remaining defendants,
20
including Terry J. Johnston....” (RJN, H 4.) Plaintiffs entered into this stipulated judgment
21 because they knew the evidence at trial that Johnston was the alter ego of Rhausler would be
22 overwhelming. Indeed, there was clear and convincing evidence at trial that Johnston was, at
23
all times relevant to these proceedings, the alter ego of Rhausler.
24
Under the alter ego doctrine, when the corporate form is used to perpetrate a
25
fraud, circumvent a statute, or accomplish some other wronglul or inequitable purpose, the
26
courts will ignore the corporate entity and deem the corporation's acts to be those of the
27
persons or organizations controlling the corporation, in most instances the equitable owners.
28
{Robbins v. Sleeker (1997) 52 Cal.App.4th 886, 892; Communist Party v. 522
10
PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT
Geisler, etai, v. Johnston, etai. No. 17-CIV-02888
1
Valencia, Inc. (1995) 35 Cal.App.4th 980, 993-994.) The alter ego doctrine prevents
2 individuals or other corporations from misusing the corporate laws by the device of a sham
3
corporate entity formed for the purpose of committing fraud or other misdeeds.
4 {Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.App.2d 825, 842.)
5
Instructive is a decision by our Supreme Court:
6
The findings that the two corporations were controlled, dominated,
7
managed, and operated by the Leuschners and that there was no
separateness between them and the corporations are supported by the
8 evidence set forth above insofar as concerns Leuschner, Jr., and the
relationship between Mrs. Leuschner and Yosemite. We need not
9
repeat that evidence in detail but may state generally that it supports
10
inferences that these two defendants, with the aid of Leuschner. Sr.,
transferred most of the assets of Yosemite to Kadota. that they
11 failed to follow normal corporate procedures with respect to
12
holding meetings and keeping records, and that, although they
were officers and directors, they entered into personal transactions
13 with the corporations, to the disadvantage of the corporations,
without prior approval of the other directors and stockholders.
14
15 {Riddle v. Leuschner {\9S9)51 Cal.2d 574, 581; emphasis added.)
16 Thus, Plaintiffs have proved, by a preponderance of the evidence, that Terry Johnston
17 is the alter ego of Rhausler, and consequently a joint debtor on any judgment entered against
18 RJiausler. Plaintiffs request that the Court modify its Statement of Decision to include this
19 specific alter ego finding against Johnston on behalf of the shareholders of Rhausler, who
20 were defrauded by him through commingling of his personal debts with those of Rhausler,
21 through his use of Rhausler’s funds as his own personal piggy bank, through his failure to
22 follow corporate formalities, including but not limited to failing to have annual shareholder
23 meeting and annual board of director meetings, through sending diverting nearly a million
24 dollars of Rhausler’s receivables from a Rhausler customer Swedish Covenant to an address
25 in Texas at the same address a TeDan was located, for keeping two sets of books, for dolling
26 out K-ls to certain shareholders of Rhausler but not others, for paying his mother’s hospital
27 bills from funds due Rhausler from 3Cor, from paying his girlfriend for doing absolutely
28 nothing for Rhausler a salary of $3,000/month, to starting several businesses within Rhausler
11
PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT
Geisler, etal, v. Johnston, etal. No. 17-CIV-02888
1
without paying any overhead.
2
3. Objections to Proposed Statement of Decision Regarding Derivative
Claims of Terry Johnston’s Fraud
4 The Court’s Proposed SOD states in relevant part:
4^
5 The Court finds that Plaintiffs derivatively have not proven a
6 cause of action for affirmative misrepresentation against
7 Defendant Johnston by a preponderance of the evidence.
8 (Proposed SOD, p. 3, 22.) The Proposed SOD also states;
a
9 Although Plaintiffs made some arguments in the Closing
10 regarding misrepresentations to the shareholders in the Private
11 Placement Memorandum and otherwise, those are direct claims for
12 fraud under the second cause of action, which are not the subject
13 of this Court Trial.
14 (Proposed SOD, p. 23.)
15 However, all of the allegations regarding the Private Placement Memorandum
16 (“PPM”) in the Second cause of action were incorporated into the Third cause of action,
17 which pleads, “Plaintiffs re-allege and incorporate by reference the facts and allegations set
18 forth in Paragraphs 1-136 above, as though fully set forth herein.
19 . Thus, all of the allegations in the Second cause of action about the PPM (and
20 otherwise) were incorporated into the Third cause of action as though they had been typed
21 into the Third cause of action.
22 At trial. Dr. Geisler’s unrefuted testimony was that Terry Johnston (“Johnston”)
23 created the Private Placement Memorandum (“PPM”). The PPM was a matrix of
24 inaccuracies, omissions, and misrepresentations, all of which were used to defraud
25 Rhausler’s investors and shareholders. Johnston did not refute the fact that he prepared the
26 PPM, nor did he refute the numerous material misrepresentations contained therein. (See
27 Exhibit #0505E Replacement Exhibit.)
28
12
PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT
Geisler, et al., v. Johnston, et al, No. 17-CIV-02888
1
Plaintiffs presented testimony about the specific misrepresentat ions to the
2 shareholders in the Private Placement Memorandum:
3
- The PPM falsely stated it intended to secure $3.5 million dollars of passive capital
4 investment. In reality, it only secured 20% of that figure, but the investors were
5 not advised of the shortfall, or its effect on the business plan. (11/16/20 Trial
6 Transcript, p. 26.)
7 - The PPM falsely stated Rhausler would establish sales and marketing departments.
8 No such departments were established. (11/16/20 Trial Transcript, p. 27.)
9 - The PPM falsely stated Rhausler would assemble a clinical advisory board
10
consisting of industry respected orthopedic and neurospine surgeons. No such
11
board was assembled. (11/16/20 Trial Transcript, p. 27.)
- The PPM falsely stated RJiausler would complete design and submit the 510(k)
12
FDA approval for the Vertebral Body Replacement Cage (“VBR Cage”). No such
13
product line was ever initiated, and it was altogether abandoned. (11/16/20 Trial
14
Transcript, p. 27-28.)
15
- The PPM falsely stated Plaintiff Geisler would receive a salary in the form of
16
deferred royalty payments. No such payments were received by Plaintiff Geisler.
17
(11/16/20 Trial Transcript, p. 28.)
18
- The PPM falsely stated it would continue research and development and product
19
development. No such actions were taken. (11/16/20 Trial Transcript, p. 33)
20
- The PPM falsely stated that Rhausler was a California State S Corp, when in
21
reality it failed to follow applicable S Corp rules. (11/16/20 Trial Transcript, 33-
22 34)
23 The PPM falsely included certain units and products in its calculations of units
24 sold and projections. For example, the PPM falsely counted a Quick Plate and
25 cervical PLAGE and screw as having come out in year 2 when they actually came
26 out later. (11/16/20 Trial Transcript, p. 35)
27
28
13
PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT
Geisler, et ai, v. Johnston, et al. No. 17-C1V-02888
1 - Similarly, the PPM falsely stales the VBR cervical product was counted as a
2 product with reasonable sales in years both years 3 and 4, when it had never been
3 developed. (11/16/20 Trial Transcript, p. 35.)
4 - The PPM further falsely stated the OSTEOSORB short-term anterior plate was
5 projected to come out in years 3 and 4, however, it was never developed, never
6 brought to market, and was actually abandoned. (11/16/20 Trial Transcript, p. 35.)
7 - The PPM falsely stated the Allograft bone product was a Rhausler product which
8
would make money for Rhausler; however, it was actually sold through Johnston’s
9
wholly owned company, 3COR, and not through Rhausler, which means those
profits went to Johnston’s company when they should have gone to Rhausler.
10
(11/16/20 Trial Transcript, p. 36-38.)
11
- The PPM falsely stated that a split-rivet fastener, a BioSorb anterior cervical plate
12
with locking mechanism, a BioSorb pin external bone fixation, and BioSorb rivet
13
bone fastener would be developed. None of these projects were developed.
14
(11/16/20 Trial Transcript, p. 45-47.)
15
- The PPM falsely stated a VBR cervical spacer would be designed, no such product
16
was initiated or developed. (11/16/20 Trial Transcript, p. 47.)
17
(RJN, 5 [Trial Transcripts].)
18
In addition to the misrepresentations above, the PPM had a host of material
19
omissions. Specifically, the PPM failed to disclose that: 1) Johnston was a Managing Partner
20
of TSI and had been for 3 years; 2) Johnston did not intend to work full time for Rhausler; 3)
21
Johnston intended to undertake research and development of new inventions and products
22
and to assign them to TSI instead of Rhausler; 4) Johnston intended to operate Rhausler as a
23
de facto subsidiary of TSI and to conduct TSI research and development, sales, and
24
marketing activities out of Rhausler offices while using Rhausler employees without any
25
compensation going to Rhausler; and 5) Johnston did not intend to hire any sales or
26
marketing employees for Rhausler, but instead intended to outsource those critical business
27
28
14
PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT
Geisler, etal, v. Johnston, etal. No. 17-CIV-02888
1
activities to himself through 3COR to eontrol the revenue stream to Rhausler and markup
2
Rhausler produets to award himself a commission. (Exhibit #0505E.)
3 There was evidenee that Johnston created and used the PPM to defraud all of the
4
shareholders, making this a derivative claim. Indeed, Rhausler collected $785,000 from all of
5
the shareholders based upon the lies and omissions within the PPM.
6
The misrepresentations and material omissions in the PPM were derivative elaims
7
because they harmed Rhausler’s body of shareholders whose investments of either money or
sweat equity were ultimately wasted due to Johnston’s fraud, and also hanned Rhausler,
9
which itself was sued and nearly rendered bankruptcy as a result of Johnston’s fraud.
10
Two investors (shareholders) testified at trial that they relied upon the representations
11
contained in the PPM prepared by Johnston and Johnston’s own affirmative representations
12
to them that he would be working full time to make Rhausler a success: Norman Fleming
13
and Kathy Tully. Both were very credible witnesses. Johnston never even attempted to deny
14
making such representations to them during his weeks of testimony. Both Kathy Tully and
15
Norm Fleming testified that these representations were material to their respective decision
16
to invest their own money in Rhausler and had they known the truth (that Johnston was
17
already working full-time for TSI), they never would have made the investment in Rhausler.
18
Norm Fleming invested $100,000 of his own money into Rhausler based upon the material
19
misrepresentations by Johnston; Kathy Tully invested $150,000 of her own money based
20
upon Johnston’s intentional misrepresentations of material fact.*
21
Thus, Plaintiffs derivatively have proven a cause of action for intentional
22
misrepresentation (fraud) against Defendant Terry Johnston by a preponderance of the
23 evidence.
24
Plaintiffs request that the Court modify its Statement of Decision to include these
25
speeific findings: 1) Plaintiffs derivatively have proven a cause of action for intentional
26
misrepresentation (fraud) against Defendant Johnston by a preponderanee of the evidence; 2)
27
I
Plaintiffs have repeatedly requested trial transcripts from the Court Reporter over the past year including the days when
28
Tully and Fleming testified but were told by the Reporter that she is too busy to prepare the trial transcripts.
15
PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT
Geisler, etal., v. Johnston, etal, No. 17-CIV-02888
1
the claims of intentional misrepresentation (fraud) by shareholders against Terry Johnston
2
under the third cause of action incorporate all allegations in the second cause of action and is
3
a derivative claim; and 3) the amount of damages for the fraud are, at a minimum, the
4 collective amount of the shareholders’ investments ($785,000).
5
4. Objections to Proposed Statement of Decision Regarding Conversion of
6 Rhausler’s Physical Assets and Inventory
7 The Court’s Proposed SOD states:
8 Although not alleged specifically in the Fourth Amended
9 Complaint, if amended to confonn to proof at trial, Plaintiffs
10 presented evidence during the trial, of wrongful conduct by
11 Defendant Johnston in transferring the remaining physical assets
12 and inventory of Rhausler to Stephen Bell at Precision Machining
13 Group in Ohio. Terry Johnston was an owner of PMG. (Trial
14 Exhibit #5048.) Evidence was also presented that intellectual
15 property of Rhausler Inc. was also given to Bell by Johnston, to be
16 used for PMG to manufacture the products of Rhausler Inc. (Trial
17 Exhibit #5049 email to Bell of instructions for use of the Rhausler
18 Plate and Plage, sent in April 2019 by Kim Azucena at Rhausler
19 per instructions of Johnston; Trial Exhibit #5050 email by
20 Azucena to Bell of literature on Rhausler Plate and Plage, dated
21 May 2019; Trial Exhibit #5051, December 2019 email from
22 Johnston to Bell regarding an "offer" between PMG and Rhausler
23 to solicit customers and to manufacture Rhausler Cervical Plates
24 and Cervical Plage Implants). Trial Exhibit #5040 reflects that
25 2921 emails were sent to or from Bell from Johnston at Rhausler.
26 Trial Exhibit #5051 confirms that the intellectual property of
27 Rhausler Inc. was given to Bell/PMG without having a license
28 agreement between the companies. Accordingly, the Court finds
16
PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT
Geisler, e( ai, v. Johnston, et al. No. 17-C1V-02888
1
that Plaintiffs derivatively on behalf of Rhausler Inc. have proven
2
a claim of conversion on this ground against Defendant Terry
3 Johnston.
4
(Court’s Proposed SOD, p. 24-25.)
5 On or about November 2, 2023, Plaintiffs filed a Motion for Leave to Amend the
6
Fourth Amended Complaint (“Motion to Amend”), as well as an ex parte application to
7
shorten time on the hearing of said Motion. The proposed Fifth Amended Complaint,
8
attached to the Motion to Amend conforms to the proof at trial by alleging that Defendant
9
Johnston wrongfully transferred the remaining physical assets and inventory of Rhausler to
10
third parties. (RJN, 6.) On November 6, 2023, the Court granted Plaintiffs’ ex parte
11
application to shorten time on the hearing and ordered that the hearing date of the Motion be
12
set for November 28, 2023. {Id.) Plaintiffs’ Objections to the Court’s Proposed SOD are due
13
on November 9 prior to the hearing on the Motion to Amend on November 28, 2023.
14
Plaintiffs’ do not anticipate any opposition from Johnston to this motion for leave.
15
Accordingly, Plaintiffs request that, upon the granting of the Motion to Amend, the
16 Court modify its Statement of Decision to include these specific findings: 1) Plaintiffs have
17
amended their Complaint to conform to the proof at trial that Plaintiffs derivatively, on
18
behalf of Rhausler, have proven a claim of conversion on this ground against Defendant
19
Terry Johnston; and 2) The damages for transfer of the physical assets and inventory, as
20 acknowledged by Johnston and reflected on the Rhausler financial records and tax returns, is
21
$900,000, plus interest accruing at 7% from the date of transfer, e.g., 2019.
22
5. Objections to Proposed Statement of Decision Regarding
23 Compensatory Damages
24 Plaintiffs presented the unrefuted, detailed testimony of accounting expert, Sydney
25 Blum, CPA. Blum’s expert report was also admitted into evidence. (# 0514.) Yet, there is no
26 reference to Blum’s expert report, Blum’s deposition testimony, or Blum’s trial testimony
27 anywhere in the Court’s Proposed SOD. This is a significant oversight because it deprives
28 Plaintiffs and Rhausler of millions of dollars in damages. Significantly, Johnston offered no
17
PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT
Geisler. el at, v. Johnston, el at, No. 17-C1V-02888
1
expert testimony to refute Blum’s expert opinions as to the reasonable royalties owed to
2
Rhausler as a result of the transfer of patents to TSI by Johnston without compensation to
3
Rhausler even though he was a co-inventor of those patents. Johnston’s failure to negotiate a
4
reasonable royalty from his other company TeDan was a breach of his fiduciary duty to
5 Rhausler and its shareholders.
6 Damages Owed to Rhausler
7
Plaintiffs’ expert, Sydney Blum, CPA, testified as to the reasonable amounts owed to
8 Rhausler on account of Johnston’s use of Rhausler’s intellectual property to benefit TSI and
9 himself, as set forth in Trial Exhibit 0514. Blum’s uncontroverted testimony was as follows:
10
(a) Damages Owed to Rhausler for Unpaid Royalties and Unjust Enrichment
11 “Opinion #2: The Value of Royalties Due to Rhausler from TSI Are
12 $2,290,691 Plus Interest of $887,833 for a Total of $3,178,524.” {See Exhibit
13 #0514 at p. 50, 60.)
4;
14 Opinion #3: The Unjust Enrichment of Accused Products Due Rhausler
15 is Net Sales Revenues of $13,474,658 Plus Convoyed Sales TBD Less Costs TBD
16 Plus Prejudgment Interest TBD. The Minimum Unjust Enrichment Damages are
17 $7,680,555.” {See Exhibit #0514 at p. 50, 60.)
18 “Opinion #4: Accused Products Plus Convoyed Sales: Total Royalties
19 Due of $21,190,160.” {See Exhibit #0514 at p. 50, 60.)
20
(b) Damages Owed to Rhausler for Missing or Stolen Inventory
21 Johnston himself admitted in his Closing Brief, filed on October 25, 2022, that there
22 was $1,000,000± in Rhausler inventory. (Johnston’s Closing Brief, p. 39, line 10 (“As of
23 today, Rhausler ... has one-million-dollar worth inventory.”)) The undisputed testimony of
24 Dr. Geisler was that the physical inventory of surgical tray sets having a market value of at
25 least $900,000, as listed in Rhausler’s QuickBooks, was missing from the office with no
26 record of their whereabouts or sale when an inventory of the total contents remaining in the
27 Rhausler office was done after Plaintiffs gained control of Rhausler. Plaintiffs request that
28
18
PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT
Geisler, et ai, v. Johnston, et al. No. 17-C1V-02888
1
the Court award Plaintiffs $900,000 for theft by Johnston (who was the only one with access
2
to the Rhausler Offices) of physical inventory from Rhausler. (Exhibit #5025.)
3
(c) Damages Owed to Rhausler for Diverted Payments
4 Plaintiffs presented evidence of damages resulting from the misdirection of payments
5 that should have flowed through 3COR Medical, Inc., to Rhausler, but instead were paid to
6 SCORE Surgical” in Texas, whose offices were within the same building as TSTs office.
7 Those payments, from Swedish Covenant Hospital, amount to $1,089,796.19 from July 2010
8 to July 2014 (Exhibits #0750, #0751, and #5066.) Interest at 7% simple interest per annum
9 just from July 14, 2010, through November 9, 2023, amounts to $898,580.49.
10 (d) Damages for Misuse of Rhausler’s Resources
11 Plaintiffs presented evidence of damages resulting from the misuse of Rhausler
12 resources to further Johnston’s other business activities. These damages are $3,321,052 with
13 prejudgment interest at 7% simple interest per annum (using the 50% utilization rate from
14 Exhibit 560), bringing the total to $4,300,225.24 as ofNovember 9, 2023. (Exhibit 560.)
15
DATED: November 9, 2023 Respectfully Submitted,
16
17
18
19
20
21
22
23
24
25
26
27
28
19
PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT
Geisler, et a!., v. Johnston, et ai. No. 17-C1V-02888
1 PROOF OF E-SERVICE
2 I, the undersigned, declare that I am over the age of 18 years and not a party to this
3 action. My business address is 2000 Broadway Street, Redwood City, CA 94063.
4 Pursuant to two written JOINT stipulations dated February 8, 2018 and October 15,
5 2018 by and among the following parties, and by Case Management Order #8 dated
6 November 20, 2018, I caused to be served on set date set forth below, by means of electronic
7
mail, the attached document(s) to the Person(s) at the email address set forth below their
8
respective names:
9
DOCUMENTS SERVED:
10
PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED
11 BY THE COURT
12
REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF PLAINTIFFS’ OBJECTIONS
13 TO PROPOSED STATEMENT OF DECSION SERVED BY THE COURT
14
15 PERSONS SERVED:
16 Terry J. Johnston Judge’s Copy – Department 2
7551 Saguaro Cactus Avenue San Mateo Superior Court
17 Las Vegas, NV 89178 400 County Center
18
Terry.j.johnston7551@gmail.com Redwood City, CA 94063
Defendant/Cross-Complainant complexcivil@sanmateocourt.org
19
I declare under penalty of perjury under the laws of the State of California that the
20
foregoing is true and correct. Executed in Redwood City, California, on November 8, 2023.
21
22
23
________________________
Judy Lucero
24
25
26
27
28
PROOF OF E-SERVICE BY JOINT STIPULATION
SAN MATEO COUNTY SUPERIOR C
Preview
1 JEFFREY F. RYAN (CA Bar No. 129079) 2 Jeff@jeffreyryanlaw.com LAW OFFICES OF JEFFREY F. RYAN 3 The Fitzpatrick Building 2000 Broadway Street 4 Redwood City, California 94063 5 Phone; (650) 922-2341 6 Attorney for Plaintiffs FRED H. GEISLER, NORMAN C. FLEMING, and GENA ZISCHKE 7 8 9 IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA 10 FOR THE COUNTY OF SAN MATEO 11 COMPLEX CIVIL LITIGATION - DEPT. 2 12 FRED H. GEISLER, M.D., Ph.D., an CASE NO: 17-CIV-02888 individual, NORMAN C. FLEMING, an 13 individual, and GENA ZISCHKE, an 14 individual, directly, and derivatively on behalf of RHAUSLER, INC.; 15 COPERNICUS DYNAMICS GROUP, LP, PLAINTIFFS’ OBJECTIONS TO 16 AND ROES 1-25, inclusive. PROPOSED STATEMENT OF DECISION SERVED BY THE COURT 17 Plaintiffs, (C.C.P. § 632; C.R.C., Rule 3.1590) 18 V. 19 TERRY J. JOHNSTON, an individual; ROBERT JOHN GLYNN, JR., an 20 individual; 3COR MEDICAL, INC., a 21 California Corporation; INDUSTRY OF THE REDWOODS, LLC, a Nevada LLC, 22 RHAUSLER, INC., a California 23 corporation, and DOES 1 to 25, Inclusive, 24 Defendants, 25 and RHAUSLER, INC., a California 26 Corporation, 27 Nominal Defendant. 28 1 PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT Geisler, etal, v. Johnston, etal. No. 17-CIV-02888 1 I. OBJECTIONS TO PROPOSED STATEMENT OF DECISION 2 A. Legal Standard 3 A statement of decision is required to explain the factual and legal basis for the 4 Court’s decision as to each of the principal controverted issues at trial. (Code Civ. Proc. § 5 632.) The main purpose of an objection to a proposed statement of decision is to bring to the 6 court’s attention inconsistencies between the court’s ruling and the document that is supposed 7 to embody and explain that ruling." {Heaps v. Heaps (2004) 124 Cal.App.4th 286, 292.) A 8 party should also bring ambiguities and omissions in the factual findings of the statement of 9 decision to the trial court's attention. {Fladeboe v. American Isuzu Motors Inc. (2007) 150 10 Cal.App.4th 42, 48.) 11 By filing specific objections to the court’s statement of decision a party pinpoints 12 alleged deficiencies in the statement and allows the court to focus on the facts or issues the 13 party contends were not resolved or whose resolution is ambiguous." {Golden Eagle Ins. Co. 14 V. Foremost Ins. Co. (1993) 20 Cal.App.4th 1372, 1380.) The objections should focus on the 15 particular omission or ambiguity in the proposed statement of decision and provide the court 16 with meaningful guidance as to how to correct each particular defect. {Ermoian v. Desert 17 Hosp. (2007) 152 Cal.App.4th 475, 498.) 18 B. Objections to Factual Matter in Proposed Statement 19 1. Invention of the PLAGE 20 The Court’s Proposed SOD states in relevant part: 21 Plaintiff Dr. Fred Geisler and Defendant Terry Johnston invented 22 a cervical spine implant known as the Plage while they worked for 23 Olsen Medical in Chicago. 24 (Court’s Proposed Statement of Decision (“SOD”), p. 7.) 25 In fact, Terry Johnston had no involvement whatsoever in inventing the Plage and 26 holds no patent relating to the PLAGE. Dr. Fred Geisler (“Dr. Geisler”) invented a cervical 27 spine implant known as the PLAGE in 1999. (Trial Exhibit No. 0570 [U.S. Patent No. 28 6,231,610]; Request for Judicial Notice (“RJN”), H 1 [Trial Transcript]).) Dr. Geisler 2 PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT Geisler, etal., v. Johnston, etal.. No. 17-CIV-02888 1 assigned the patent to the Allegiance Corporation in 2001 for manufacturing and marketing. 2 However, the Allegiance Corporation did not develop the PLAGE and transferred the 3 assignment of this patent back to Dr. Geisler. After Dr. Geisler started his association with 4 Olsen Medical and Terry Johnston in 2005, they jointly developed the Olsen Plate and Screw 5 anterior cervical implant system, but not the PLAGE. Although Olsen Medical had expressed 6 an interest in manufacturing and marketing the PLAGE personally owned by Dr. Geisler, 7 this did not occur, and the PLAGE patent remained the personal property of Dr. Geisler. 8 The Court’s Proposed SOD also states in relevant part: 9 44 Olsen Medical, Geisler and Johnston entered into an agreement 10 to sell all rights to the Plage (and related plates and screws) to 11 Geisler and Johnston. In simple terms, they then used the Plage 12 and its patent as the foundation of the business then named 13 Rhausler Inc. 9^ 14 (Proposed SOD, p. 7.) 15 In fact, Olsen Medical, Geisler and Johnston entered into an agreement to sell all 16 rights to the Olsen Plates and Screws implant systems to Geisler and Johnston. In simple 17 terms. Dr. Geisler and Johnston then used the Plate and Screw implant system and its patent 18 as the foundation of the business then named Rhausler, Inc. (“Rhausler”). (Exhibit #0126). 19 After Rhausler was formed in 2008, the PLAGE patent was assigned by Geisler personally to 20 Rhausler on February 25, 2009 (Trial Exhibit E - Fleming PPM) in return for the promise by 21 Mr. Johnston of 8% royalty payments to Dr. Geisler from Rhausler. The PLAGE was 22 manufactured and sold by Rhausler, but no royalties were ever paid to Dr. Geisler for the 23 sales of the PLAGE. 24 Plaintiffs request that the Proposed SOD be modified to reflect the undisputed 25 evidence at trial and trial testimony of Dr. Geisler. 26 2. Typographical Errors 27 The bottom paragraph of page 19 of the Court’s Proposed SOD states: 28 3 PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT Geisler, etal, v. Johnston, etal, No. 17-CIV-02888 1 44 Finances were handled in a very irregular manner: (i) No checks 2 were printed (and thus electronically recorded), all checks were 3 separately handwritten and all signed by Johnston; (ii) the 4 reconciliation function was ever used, instead it was done 5 manually on paper only; [Emphasis added]. 6 (Proposed SOD, p. 19 (underlining added.) The underlined sentence above should read “the 7 reconciliation function was never used.... C. General Objections 9 On February 22, 2023, Plaintiff Geisler served a Request for Statement of Decision on 10 Controverted Issues After Bench Trial pursuant to California Rules of Court Rule 3.1590(d). 11 Plaintiffs generally object to the Court’s Tentative Statement of Decision to the extent that it 12 omits findings on principal controverted issues in the Request for Statement of Decision or to 13 the extent that its findings are ambiguous. (Code Civ. Proc. § 632, 634; Cal. Rules of Court, 14 rule 232(d).) 15 D. Specific Objections 16 Plaintiffs respectfully request that this Court strike or modify the following statements 17 and findings in its Statement of Decision. 18 1. Objections to Proposed Statement of Decision Regarding Defendant 19 Robert Glynn 20 The Court’s Proposed SOD reads in relevant part: ii 21 Although Plaintiffs make arguments in their Closing Arguments 22 regarding liability and damages as to Defendant Robert Glynn, 23 that is not procedurally proper. After the death of Defendant 24 Glynn, in November 2019 this Court ordered that all claims by and 25 against Glynn were severed and stayed. At the time of severance, 26 the claims pending against Glynn were a direct cause of action for 27 breach of fiduciary duty, a derivative cause of action for aiding 28 and abetting constructive fraud, a direct cause of action for 4 PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT Geisler, et al, v. Johnston, et al. No. 17-CIV-02888 1 violation of B&P Code Section 17200 (which was later 2 dismissed), and a derivative cause of action for misappropriatio n 3 of trade secrets. The matter was ordered stayed until compliance 4 with C.C.P. Section 377.40 or further order of this Court. 5 The Court is unable to find any subsequent order lifting the stay as 6 to Glynn. There has been no substitution of his Estate in this case, 7 or appointment of counsel in this lawsuit by his Estate. Plaintiffs 8 have not substituted as a party any personal representative of the 9 Glynn Estate under Section 377.41. This was not a trial against 10 Glynn. 11 However, on March 18, 2021, the Court lifted the stay pursuant to its Order After 12 Hearing Granting Motion to Continue Pending Action Against Decedent’s Estate, which 13 reads in relevant part: 14 a This Court’s Order Staying All Claims By and Against Glynn 15 entered on November 12, 2019, is hereby lifted as to the claims 16 against Defendant Robert John Glynn Jr. (“Mr. Glynn”) ^9 17 (RJN, T| 2 [Order, pg. 2, paragraph 3], emphasis added.) 18 “Plaintiffs may now pursue their claims against Mr. Glynn and, in 19 this regard, the Estate of Robert J. Glynn Jr. (pending in the 20 Superior Court of California, County of Alameda, case no. RP- 21 20061940) and any applicable personal representative thereof 22 shall by substituted as Defendant in place of Mr. Glynn. 23 (RJN, 12 [Order, p. 2, paragraph 4].) 24 At the time of Robert John Glynn Jr. (“Glynn”)’s death, this action was pending 25 against him. After Glynn passed away, Dr. Geisler filed to open the probate because no other 26 person had done so, including Mr. Glynn’s wife and children. (Alameda County, Case No. 21 RP20061940.) (RJN, ^ 2.) On September 23, 2020, the Alameda County Superior Court 28 entered its Order Appointing Dr. Geisler as Administrator of the Estate of Glynn. (Id.) 5 PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT Geisler, etal, v. Johnston, elal. No. 17-CIV-02888 1 Letters of Administration were issued to Dr. Geisler on September 28, 2020. {Id.) Notice of 2 Proof of Publication of Dr. Geisler’s Petition was filed on August 3, 2020. {Id.) Mrs. Glynn 3 and her children never filed any objection to the proceedings, nor did anyone else. The 4 appointment of Dr. Geisler was limited to “aecept[ing] serviee of the filing of Creditors’ 5 Claims relating solely to the litigation pending against the Decedent as of his date of 6 death....” {Id.) 1 On September 30, 2020, each plaintiff in this action filed and served his or her own 8 Creditor’s Claim in the probate case and elected to have them deemed rejected pursuant to 9 Probate Code section 9256. Pursuant to Probate Code section 9370, each plaintiff filing a 10 Creditor’s Claim was entitled to continue with the lawsuit “against the decedent’s personal 11 representative.” {Id.) However, Mrs. Glynn and her children all refused to be appointed as 12 personal representative in order to defend the Estate in this action, even though they had 13 been served with notices of this action, perhaps to avoid a judgment against the estate. {Id) 14 In short, Glynn’s Estate elected not to hire counsel to represent it at trial and did not offer 15 any contrary evidence at trial. Plaintiffs therefore presented and proved their case against 16 Glynn. 17 At trial, Plaintiffs presented evidence of the following facts: 18 1) Glynn was directly involved in obtaining and collecting the commission paid to 19 Terry Johnston from Olsen, without Dr. Geisler’s knowledge or consent and in 20 breach of Glynn’s duties as an officer and director of Rhausler owed to Dr. 21 Geisler, from the sale of Olsen to Rhausler (#0125 and #0480); 22 2) Glynn set up Cabo Spine to be wholly owned by Rowena Mier without Rhausler’s 23 consent (#0074 and #0075 and #0076 and #0791) and helped Terry Johnston usurp 24 this Rhausler corporate opportunity for himself in breach of his fiduciary duties as 25 an officer and director of Rhausler; Glynn actively concealed these facts from 26 Geisler; 27 3) Glynn set up and negotiated Johnston's side contract with Tecomet so Johnston 28 personally would receive a development consultation fee and a commission from 6 PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT Geisler, etal, v. Johnston, etal, No. 17-CIV-02888 1 Trabeculite implant sales instead of Rhausler (#0627 and #790 and #0791 and 2 #0793); and Glynn kept this side deal hidden from Dr. Geisler; 3 4) Glynn set up Industry of the Redwoods ("lOR”) to have the tray business owned 4 as Johnston’s and Bell’s company, separate from Rhausler and hidden from 5 Rhausler’s shareholders (#0066); 6 5) Glynn set up ZY, Inc. to be a method to syphon money from Rhausler’s tray sales 7 to his then girlfriend (now 4th wife) (#0066); 8 6) Glynn performed work directly for Tedan Surgical Innovations, LLC (“TSI”) 9 within Rhausler’s office and initially passed the bills onto Rhausler (#0114 and 10 #0115); 11 7) During his deposition, Glynn stated that he considered Rhausler and TSI to be the 12 same (#0658, pages 62, 71,72, 74, 77, 78, 79); 13 8) Glynn was working on the Moran trial on behalf of TSI and having Rhausler pay 14 the settlement for TSI (#0255); 15 9) Glynn pretended to be Dr. Geisler’s legal counsel representing Dr. Geisler’s 16 interests for the sale of the Spinal Integration business owned partially by Dr. 17 Geisler to Rhausler. Dr. Geisler paid Glynn for these legal services. However, Dr. 18 Geisler subsequently learned that Glynn was actually Johnston’s personal lawyer 19 for this transaction and had tricked Dr. Geisler (#0127). 20 Thus, the Court should modify its SOD to find that: 1) Glynn’s surviving spouse and 21 children did not apply to be appointed as personal representative of his Estate and filed no 22 objections to any proceedings in the Probate Court; 2) this Court lifted the stay on March 18, 23 2021; 3) Glynn’s Estate was served with notice of this action, but elected not to hire counsel 24 to represent it at trial; 4) Plaintiffs did pursue claims against the Estate of Robert J. Glynn Jr.; 25 and 5) as to the Estate of Robert J. Glynn Jr., there exists personal liability pertaining to Dr. 26 Geisler and derivative liability as it pertains to all shareholders in the amount of $900,000, 27 which was proven by a preponderance of the evidence at trial and with no contrary evidence 28 presented by anyone. 7 PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT Geisler. et ai, v. Johnston, el al. No. 17-CIV-02888 1 2. Objections to Proposed Statement of Decision Regarding Terry 2 Johnston Being the Alter Ego of Rhausler, Inc. 3 Plaintiffs alleged that Defendant Terry Johnston is the alter ego of Rhausler. (See 4 Fourth Amended Verified Complaint (“4AVC”) at 50, 104, 105, etc.\ see, also, 5 PLAINTIFFS’ REBUTTAL TO CLOSING ARGUMENT BRIEF OF DEFENDANT 6 TERRY J. JOHNSTON, filed and served 11/15/2022, at 2:5, 6:11 - 7:16.) Plaintiffs also 7 presented overwhelming and uncontroverted testimonial and documentary evidence that: ● Terry Johnston charged thousands of dollars of personal expenses to the Rhausler 9 American Express cards and used the rewards points for his own personal purposes. 10 (Exhibit 397, 397A.) 11 ● Terry Johnston arbitrarily and unilaterally caused Rhausler to pay him an annual 12 salary of $100,000 for fiill-time work (the full-time status was listed in Rhausler 13 Private Placement Memorandum, Board of Director meeting notes, IRS filings, and 14 in shareholder meeting minutes) despite Johnston knowing a major fraction of his 15 efforts were devoted to the profitability of his other multiple companies that directly 16 competed with Rhausler and despite having a company car specifically based on his 17 full-time status, bonuses of up to $50,000 per year (all with no approval or 18 notification of the Rhausler BOD), and health insurance premiums for himself and 19 his family. These benefits were unilaterally made by Johnston to himself using 20 Rhausler funds even as he was working on behalf of TSI and 3COR more than 50% 21 of his time. 22 ● Terry Johnston ordered all the company files of his alter ego, Rhausler, deleted from 23 the office computer hard drives, the cloud server, and closed Dropbox and other 24 cloud storage and document transfer accounts, thereby effectively deleting all 25 Rhausler files stored thereon. These deleted files included those listing the past 26 history of transactions, FDA and CA state regulatory documents required to sell 27 medical implants, mechanical diagrams to manufacture Rhausler tools and implants, 28 and disappearance of the Rhausler inventory from the Rhausler office. (Exhibits 8 PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT Geisler, et al, v. Johnston, etal.. No. 17-C1V-02888 1 5017; 5020, 5021.). Copies of many of these deleted files had been previously 2 transferred to PMG/Bell by Kimberly Azucena at the direction of Terry Johnston (as 3 th detailed in section (c) of the Sixth Cause of Action of the and proposed 5 4 Amended Complaint for Conversion Against Johnston). 5 ● Terry Johnston used Rhausler resourees, including personnel, office supplies and 6 equipment, to further the sales efforts of his other businesses, e.g., 3COR Medical, 7 Inc., and TSI, without bothering to seek consent, or even advising, the other Rhausler 8 director and officer, Fred H. Geisler, M.D., Ph.D., of this (mis)use of Rhausler 9 resources. 10 ● Terry Johnston, aided and abetted by Glynn and Mier, entered into agreements 11 whereby Johnston would be paid a ‘'commission” ($90,000) for the sale of 12 intellectual property to Rhausler by Olson Medical, and paid a “consulting fee 9? 13 ($3,000 per month) for Johnston’s services on a joint Rhausler-Tecomet project while 14 he was president/CEO of Rhausler, without seeking consent by the Rhausler board of 15 directors, or even informing them of these transactions. (Exhibits 125, 398, 433, 480; 16 Exhibits 1802F, 5037, respectively.) 17 ● Terry Johnston ordered Rhausler employees Kimberly Azucena and Rowena Mier to 18 hide surgical trays, instruments, tools, mats, etc., in the Rhausler warehouse from 19 Rhausler board of directors’ member and Chief Medical Officer Fred I I. Geisler, 20 M.D., Ph.D., when Geisler visited the Rhausler offices. (Exhibits 104, 5025; 5036.). 21 ● Terry Johnston “owned” Rhausler according to Rowena Mier, who testified that this 22 was her belief from 2008 until after 2015. (Exhibit 0663.) 23 ● “Terry [Johnston] being Rhausler ...” aceording to the testimony of Rowena Mier. 24 (Exhibit 0663.) 25 ● Terry Johnston rarely scheduled, let alone conducted, meetings of the Rhausler board 26 of directors, or shareholders, and only sporadically, inconsistently did Rhausler 27 provide shareholders with written progress reports and tax return information. 28 9 PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT Geisler, et ai, v. Johnston, et al. No. 17-CIV-02888 1 ● Terry Johnston negotiated and signed on behalf of Rhausler and 3Cor the 2 distribution agreement without disclosing it to the board or the shareholders, paying 3 himself a handsome discount for his other wholly owned company 3Cor, which the 4 court has already found was Johnston’s alter ego (Exhibit 0368). 5 6 The Court’s own Proposed SOD states in relevant part: 7 Defendant Johnston testified that he set his own salary at Rhausler Inc. 8 Rowena Mier testified that Johnston's personal expenses were paid by 9 Rhausler. Evidence was presented that Johnston used his authority to have 10 nursing home bills paid for his mother, although it was unclear whether they 11 were paid by 3Cor (which would then reduce the profitability payable to 12 Rhausler) or by Rhausler directly. 13 (Proposed SOD, p. 12.) 14 Yet, the Court’s Proposed SOD omits any finding that Terry Johnston is the alter ego 15 of Rhausler. This finding is crucial for many reasons, including the fact that Plaintiffs 16 entered into a stipulated judgment that Rhausler is liable to Dr. Geisler in the amount of 17 $3,735,526. Dr. Geisler also stipulated that “he will make no effort to enforce the stipulated 18 judgment against Rhausler”, and “instead will rely solely on his collection of all sums due 19 under any Judgment, or Settlement in his favor and against the other remaining defendants, 20 including Terry J. Johnston....” (RJN, H 4.) Plaintiffs entered into this stipulated judgment 21 because they knew the evidence at trial that Johnston was the alter ego of Rhausler would be 22 overwhelming. Indeed, there was clear and convincing evidence at trial that Johnston was, at 23 all times relevant to these proceedings, the alter ego of Rhausler. 24 Under the alter ego doctrine, when the corporate form is used to perpetrate a 25 fraud, circumvent a statute, or accomplish some other wronglul or inequitable purpose, the 26 courts will ignore the corporate entity and deem the corporation's acts to be those of the 27 persons or organizations controlling the corporation, in most instances the equitable owners. 28 {Robbins v. Sleeker (1997) 52 Cal.App.4th 886, 892; Communist Party v. 522 10 PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT Geisler, etai, v. Johnston, etai. No. 17-CIV-02888 1 Valencia, Inc. (1995) 35 Cal.App.4th 980, 993-994.) The alter ego doctrine prevents 2 individuals or other corporations from misusing the corporate laws by the device of a sham 3 corporate entity formed for the purpose of committing fraud or other misdeeds. 4 {Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.App.2d 825, 842.) 5 Instructive is a decision by our Supreme Court: 6 The findings that the two corporations were controlled, dominated, 7 managed, and operated by the Leuschners and that there was no separateness between them and the corporations are supported by the 8 evidence set forth above insofar as concerns Leuschner, Jr., and the relationship between Mrs. Leuschner and Yosemite. We need not 9 repeat that evidence in detail but may state generally that it supports 10 inferences that these two defendants, with the aid of Leuschner. Sr., transferred most of the assets of Yosemite to Kadota. that they 11 failed to follow normal corporate procedures with respect to 12 holding meetings and keeping records, and that, although they were officers and directors, they entered into personal transactions 13 with the corporations, to the disadvantage of the corporations, without prior approval of the other directors and stockholders. 14 15 {Riddle v. Leuschner {\9S9)51 Cal.2d 574, 581; emphasis added.) 16 Thus, Plaintiffs have proved, by a preponderance of the evidence, that Terry Johnston 17 is the alter ego of Rhausler, and consequently a joint debtor on any judgment entered against 18 RJiausler. Plaintiffs request that the Court modify its Statement of Decision to include this 19 specific alter ego finding against Johnston on behalf of the shareholders of Rhausler, who 20 were defrauded by him through commingling of his personal debts with those of Rhausler, 21 through his use of Rhausler’s funds as his own personal piggy bank, through his failure to 22 follow corporate formalities, including but not limited to failing to have annual shareholder 23 meeting and annual board of director meetings, through sending diverting nearly a million 24 dollars of Rhausler’s receivables from a Rhausler customer Swedish Covenant to an address 25 in Texas at the same address a TeDan was located, for keeping two sets of books, for dolling 26 out K-ls to certain shareholders of Rhausler but not others, for paying his mother’s hospital 27 bills from funds due Rhausler from 3Cor, from paying his girlfriend for doing absolutely 28 nothing for Rhausler a salary of $3,000/month, to starting several businesses within Rhausler 11 PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT Geisler, etal, v. Johnston, etal. No. 17-CIV-02888 1 without paying any overhead. 2 3. Objections to Proposed Statement of Decision Regarding Derivative Claims of Terry Johnston’s Fraud 4 The Court’s Proposed SOD states in relevant part: 4^ 5 The Court finds that Plaintiffs derivatively have not proven a 6 cause of action for affirmative misrepresentation against 7 Defendant Johnston by a preponderance of the evidence. 8 (Proposed SOD, p. 3, 22.) The Proposed SOD also states; a 9 Although Plaintiffs made some arguments in the Closing 10 regarding misrepresentations to the shareholders in the Private 11 Placement Memorandum and otherwise, those are direct claims for 12 fraud under the second cause of action, which are not the subject 13 of this Court Trial. 14 (Proposed SOD, p. 23.) 15 However, all of the allegations regarding the Private Placement Memorandum 16 (“PPM”) in the Second cause of action were incorporated into the Third cause of action, 17 which pleads, “Plaintiffs re-allege and incorporate by reference the facts and allegations set 18 forth in Paragraphs 1-136 above, as though fully set forth herein. 19 . Thus, all of the allegations in the Second cause of action about the PPM (and 20 otherwise) were incorporated into the Third cause of action as though they had been typed 21 into the Third cause of action. 22 At trial. Dr. Geisler’s unrefuted testimony was that Terry Johnston (“Johnston”) 23 created the Private Placement Memorandum (“PPM”). The PPM was a matrix of 24 inaccuracies, omissions, and misrepresentations, all of which were used to defraud 25 Rhausler’s investors and shareholders. Johnston did not refute the fact that he prepared the 26 PPM, nor did he refute the numerous material misrepresentations contained therein. (See 27 Exhibit #0505E Replacement Exhibit.) 28 12 PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT Geisler, et al., v. Johnston, et al, No. 17-CIV-02888 1 Plaintiffs presented testimony about the specific misrepresentat ions to the 2 shareholders in the Private Placement Memorandum: 3 - The PPM falsely stated it intended to secure $3.5 million dollars of passive capital 4 investment. In reality, it only secured 20% of that figure, but the investors were 5 not advised of the shortfall, or its effect on the business plan. (11/16/20 Trial 6 Transcript, p. 26.) 7 - The PPM falsely stated Rhausler would establish sales and marketing departments. 8 No such departments were established. (11/16/20 Trial Transcript, p. 27.) 9 - The PPM falsely stated Rhausler would assemble a clinical advisory board 10 consisting of industry respected orthopedic and neurospine surgeons. No such 11 board was assembled. (11/16/20 Trial Transcript, p. 27.) - The PPM falsely stated RJiausler would complete design and submit the 510(k) 12 FDA approval for the Vertebral Body Replacement Cage (“VBR Cage”). No such 13 product line was ever initiated, and it was altogether abandoned. (11/16/20 Trial 14 Transcript, p. 27-28.) 15 - The PPM falsely stated Plaintiff Geisler would receive a salary in the form of 16 deferred royalty payments. No such payments were received by Plaintiff Geisler. 17 (11/16/20 Trial Transcript, p. 28.) 18 - The PPM falsely stated it would continue research and development and product 19 development. No such actions were taken. (11/16/20 Trial Transcript, p. 33) 20 - The PPM falsely stated that Rhausler was a California State S Corp, when in 21 reality it failed to follow applicable S Corp rules. (11/16/20 Trial Transcript, 33- 22 34) 23 The PPM falsely included certain units and products in its calculations of units 24 sold and projections. For example, the PPM falsely counted a Quick Plate and 25 cervical PLAGE and screw as having come out in year 2 when they actually came 26 out later. (11/16/20 Trial Transcript, p. 35) 27 28 13 PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT Geisler, et ai, v. Johnston, et al. No. 17-C1V-02888 1 - Similarly, the PPM falsely stales the VBR cervical product was counted as a 2 product with reasonable sales in years both years 3 and 4, when it had never been 3 developed. (11/16/20 Trial Transcript, p. 35.) 4 - The PPM further falsely stated the OSTEOSORB short-term anterior plate was 5 projected to come out in years 3 and 4, however, it was never developed, never 6 brought to market, and was actually abandoned. (11/16/20 Trial Transcript, p. 35.) 7 - The PPM falsely stated the Allograft bone product was a Rhausler product which 8 would make money for Rhausler; however, it was actually sold through Johnston’s 9 wholly owned company, 3COR, and not through Rhausler, which means those profits went to Johnston’s company when they should have gone to Rhausler. 10 (11/16/20 Trial Transcript, p. 36-38.) 11 - The PPM falsely stated that a split-rivet fastener, a BioSorb anterior cervical plate 12 with locking mechanism, a BioSorb pin external bone fixation, and BioSorb rivet 13 bone fastener would be developed. None of these projects were developed. 14 (11/16/20 Trial Transcript, p. 45-47.) 15 - The PPM falsely stated a VBR cervical spacer would be designed, no such product 16 was initiated or developed. (11/16/20 Trial Transcript, p. 47.) 17 (RJN, 5 [Trial Transcripts].) 18 In addition to the misrepresentations above, the PPM had a host of material 19 omissions. Specifically, the PPM failed to disclose that: 1) Johnston was a Managing Partner 20 of TSI and had been for 3 years; 2) Johnston did not intend to work full time for Rhausler; 3) 21 Johnston intended to undertake research and development of new inventions and products 22 and to assign them to TSI instead of Rhausler; 4) Johnston intended to operate Rhausler as a 23 de facto subsidiary of TSI and to conduct TSI research and development, sales, and 24 marketing activities out of Rhausler offices while using Rhausler employees without any 25 compensation going to Rhausler; and 5) Johnston did not intend to hire any sales or 26 marketing employees for Rhausler, but instead intended to outsource those critical business 27 28 14 PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT Geisler, etal, v. Johnston, etal. No. 17-CIV-02888 1 activities to himself through 3COR to eontrol the revenue stream to Rhausler and markup 2 Rhausler produets to award himself a commission. (Exhibit #0505E.) 3 There was evidenee that Johnston created and used the PPM to defraud all of the 4 shareholders, making this a derivative claim. Indeed, Rhausler collected $785,000 from all of 5 the shareholders based upon the lies and omissions within the PPM. 6 The misrepresentations and material omissions in the PPM were derivative elaims 7 because they harmed Rhausler’s body of shareholders whose investments of either money or sweat equity were ultimately wasted due to Johnston’s fraud, and also hanned Rhausler, 9 which itself was sued and nearly rendered bankruptcy as a result of Johnston’s fraud. 10 Two investors (shareholders) testified at trial that they relied upon the representations 11 contained in the PPM prepared by Johnston and Johnston’s own affirmative representations 12 to them that he would be working full time to make Rhausler a success: Norman Fleming 13 and Kathy Tully. Both were very credible witnesses. Johnston never even attempted to deny 14 making such representations to them during his weeks of testimony. Both Kathy Tully and 15 Norm Fleming testified that these representations were material to their respective decision 16 to invest their own money in Rhausler and had they known the truth (that Johnston was 17 already working full-time for TSI), they never would have made the investment in Rhausler. 18 Norm Fleming invested $100,000 of his own money into Rhausler based upon the material 19 misrepresentations by Johnston; Kathy Tully invested $150,000 of her own money based 20 upon Johnston’s intentional misrepresentations of material fact.* 21 Thus, Plaintiffs derivatively have proven a cause of action for intentional 22 misrepresentation (fraud) against Defendant Terry Johnston by a preponderance of the 23 evidence. 24 Plaintiffs request that the Court modify its Statement of Decision to include these 25 speeific findings: 1) Plaintiffs derivatively have proven a cause of action for intentional 26 misrepresentation (fraud) against Defendant Johnston by a preponderanee of the evidence; 2) 27 I Plaintiffs have repeatedly requested trial transcripts from the Court Reporter over the past year including the days when 28 Tully and Fleming testified but were told by the Reporter that she is too busy to prepare the trial transcripts. 15 PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT Geisler, etal., v. Johnston, etal, No. 17-CIV-02888 1 the claims of intentional misrepresentation (fraud) by shareholders against Terry Johnston 2 under the third cause of action incorporate all allegations in the second cause of action and is 3 a derivative claim; and 3) the amount of damages for the fraud are, at a minimum, the 4 collective amount of the shareholders’ investments ($785,000). 5 4. Objections to Proposed Statement of Decision Regarding Conversion of 6 Rhausler’s Physical Assets and Inventory 7 The Court’s Proposed SOD states: 8 Although not alleged specifically in the Fourth Amended 9 Complaint, if amended to confonn to proof at trial, Plaintiffs 10 presented evidence during the trial, of wrongful conduct by 11 Defendant Johnston in transferring the remaining physical assets 12 and inventory of Rhausler to Stephen Bell at Precision Machining 13 Group in Ohio. Terry Johnston was an owner of PMG. (Trial 14 Exhibit #5048.) Evidence was also presented that intellectual 15 property of Rhausler Inc. was also given to Bell by Johnston, to be 16 used for PMG to manufacture the products of Rhausler Inc. (Trial 17 Exhibit #5049 email to Bell of instructions for use of the Rhausler 18 Plate and Plage, sent in April 2019 by Kim Azucena at Rhausler 19 per instructions of Johnston; Trial Exhibit #5050 email by 20 Azucena to Bell of literature on Rhausler Plate and Plage, dated 21 May 2019; Trial Exhibit #5051, December 2019 email from 22 Johnston to Bell regarding an "offer" between PMG and Rhausler 23 to solicit customers and to manufacture Rhausler Cervical Plates 24 and Cervical Plage Implants). Trial Exhibit #5040 reflects that 25 2921 emails were sent to or from Bell from Johnston at Rhausler. 26 Trial Exhibit #5051 confirms that the intellectual property of 27 Rhausler Inc. was given to Bell/PMG without having a license 28 agreement between the companies. Accordingly, the Court finds 16 PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT Geisler, e( ai, v. Johnston, et al. No. 17-C1V-02888 1 that Plaintiffs derivatively on behalf of Rhausler Inc. have proven 2 a claim of conversion on this ground against Defendant Terry 3 Johnston. 4 (Court’s Proposed SOD, p. 24-25.) 5 On or about November 2, 2023, Plaintiffs filed a Motion for Leave to Amend the 6 Fourth Amended Complaint (“Motion to Amend”), as well as an ex parte application to 7 shorten time on the hearing of said Motion. The proposed Fifth Amended Complaint, 8 attached to the Motion to Amend conforms to the proof at trial by alleging that Defendant 9 Johnston wrongfully transferred the remaining physical assets and inventory of Rhausler to 10 third parties. (RJN, 6.) On November 6, 2023, the Court granted Plaintiffs’ ex parte 11 application to shorten time on the hearing and ordered that the hearing date of the Motion be 12 set for November 28, 2023. {Id.) Plaintiffs’ Objections to the Court’s Proposed SOD are due 13 on November 9 prior to the hearing on the Motion to Amend on November 28, 2023. 14 Plaintiffs’ do not anticipate any opposition from Johnston to this motion for leave. 15 Accordingly, Plaintiffs request that, upon the granting of the Motion to Amend, the 16 Court modify its Statement of Decision to include these specific findings: 1) Plaintiffs have 17 amended their Complaint to conform to the proof at trial that Plaintiffs derivatively, on 18 behalf of Rhausler, have proven a claim of conversion on this ground against Defendant 19 Terry Johnston; and 2) The damages for transfer of the physical assets and inventory, as 20 acknowledged by Johnston and reflected on the Rhausler financial records and tax returns, is 21 $900,000, plus interest accruing at 7% from the date of transfer, e.g., 2019. 22 5. Objections to Proposed Statement of Decision Regarding 23 Compensatory Damages 24 Plaintiffs presented the unrefuted, detailed testimony of accounting expert, Sydney 25 Blum, CPA. Blum’s expert report was also admitted into evidence. (# 0514.) Yet, there is no 26 reference to Blum’s expert report, Blum’s deposition testimony, or Blum’s trial testimony 27 anywhere in the Court’s Proposed SOD. This is a significant oversight because it deprives 28 Plaintiffs and Rhausler of millions of dollars in damages. Significantly, Johnston offered no 17 PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT Geisler. el at, v. Johnston, el at, No. 17-C1V-02888 1 expert testimony to refute Blum’s expert opinions as to the reasonable royalties owed to 2 Rhausler as a result of the transfer of patents to TSI by Johnston without compensation to 3 Rhausler even though he was a co-inventor of those patents. Johnston’s failure to negotiate a 4 reasonable royalty from his other company TeDan was a breach of his fiduciary duty to 5 Rhausler and its shareholders. 6 Damages Owed to Rhausler 7 Plaintiffs’ expert, Sydney Blum, CPA, testified as to the reasonable amounts owed to 8 Rhausler on account of Johnston’s use of Rhausler’s intellectual property to benefit TSI and 9 himself, as set forth in Trial Exhibit 0514. Blum’s uncontroverted testimony was as follows: 10 (a) Damages Owed to Rhausler for Unpaid Royalties and Unjust Enrichment 11 “Opinion #2: The Value of Royalties Due to Rhausler from TSI Are 12 $2,290,691 Plus Interest of $887,833 for a Total of $3,178,524.” {See Exhibit 13 #0514 at p. 50, 60.) 4; 14 Opinion #3: The Unjust Enrichment of Accused Products Due Rhausler 15 is Net Sales Revenues of $13,474,658 Plus Convoyed Sales TBD Less Costs TBD 16 Plus Prejudgment Interest TBD. The Minimum Unjust Enrichment Damages are 17 $7,680,555.” {See Exhibit #0514 at p. 50, 60.) 18 “Opinion #4: Accused Products Plus Convoyed Sales: Total Royalties 19 Due of $21,190,160.” {See Exhibit #0514 at p. 50, 60.) 20 (b) Damages Owed to Rhausler for Missing or Stolen Inventory 21 Johnston himself admitted in his Closing Brief, filed on October 25, 2022, that there 22 was $1,000,000± in Rhausler inventory. (Johnston’s Closing Brief, p. 39, line 10 (“As of 23 today, Rhausler ... has one-million-dollar worth inventory.”)) The undisputed testimony of 24 Dr. Geisler was that the physical inventory of surgical tray sets having a market value of at 25 least $900,000, as listed in Rhausler’s QuickBooks, was missing from the office with no 26 record of their whereabouts or sale when an inventory of the total contents remaining in the 27 Rhausler office was done after Plaintiffs gained control of Rhausler. Plaintiffs request that 28 18 PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT Geisler, et ai, v. Johnston, et al. No. 17-C1V-02888 1 the Court award Plaintiffs $900,000 for theft by Johnston (who was the only one with access 2 to the Rhausler Offices) of physical inventory from Rhausler. (Exhibit #5025.) 3 (c) Damages Owed to Rhausler for Diverted Payments 4 Plaintiffs presented evidence of damages resulting from the misdirection of payments 5 that should have flowed through 3COR Medical, Inc., to Rhausler, but instead were paid to 6 SCORE Surgical” in Texas, whose offices were within the same building as TSTs office. 7 Those payments, from Swedish Covenant Hospital, amount to $1,089,796.19 from July 2010 8 to July 2014 (Exhibits #0750, #0751, and #5066.) Interest at 7% simple interest per annum 9 just from July 14, 2010, through November 9, 2023, amounts to $898,580.49. 10 (d) Damages for Misuse of Rhausler’s Resources 11 Plaintiffs presented evidence of damages resulting from the misuse of Rhausler 12 resources to further Johnston’s other business activities. These damages are $3,321,052 with 13 prejudgment interest at 7% simple interest per annum (using the 50% utilization rate from 14 Exhibit 560), bringing the total to $4,300,225.24 as ofNovember 9, 2023. (Exhibit 560.) 15 DATED: November 9, 2023 Respectfully Submitted, 16 17 18 19 20 21 22 23 24 25 26 27 28 19 PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED BY THE COURT Geisler, et a!., v. Johnston, et ai. No. 17-C1V-02888 1 PROOF OF E-SERVICE 2 I, the undersigned, declare that I am over the age of 18 years and not a party to this 3 action. My business address is 2000 Broadway Street, Redwood City, CA 94063. 4 Pursuant to two written JOINT stipulations dated February 8, 2018 and October 15, 5 2018 by and among the following parties, and by Case Management Order #8 dated 6 November 20, 2018, I caused to be served on set date set forth below, by means of electronic 7 mail, the attached document(s) to the Person(s) at the email address set forth below their 8 respective names: 9 DOCUMENTS SERVED: 10 PLAINTIFFS’ OBJECTIONS TO PROPOSED STATEMENT OF DECISION SERVED 11 BY THE COURT 12 REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF PLAINTIFFS’ OBJECTIONS 13 TO PROPOSED STATEMENT OF DECSION SERVED BY THE COURT 14 15 PERSONS SERVED: 16 Terry J. Johnston Judge’s Copy – Department 2 7551 Saguaro Cactus Avenue San Mateo Superior Court 17 Las Vegas, NV 89178 400 County Center 18 Terry.j.johnston7551@gmail.com Redwood City, CA 94063 Defendant/Cross-Complainant complexcivil@sanmateocourt.org 19 I declare under penalty of perjury under the laws of the State of California that the 20 foregoing is true and correct. Executed in Redwood City, California, on November 8, 2023. 21 22 23 ________________________ Judy Lucero 24 25 26 27 28 PROOF OF E-SERVICE BY JOINT STIPULATION SAN MATEO COUNTY SUPERIOR C