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BRUCE A. HARLAND, Bar No. 230477


EMILY P. RICH, Bar No. 168735
MICHAEL D. BURSTEIN, Bar No. 248516
WEINBERG, ROGER & ROSENFELD
A Professional Corporation
1001 Marina Village Parkway, Suite 200
Alameda, Califomia 94501
Telephone (510)337-1001
Fax (510)337-1023
E-Mail: bharland(^umoncovmsel.net
erich@unioncounsel.net
mburstein(gunioncounsel.net

FILED
Superior Court Of Callfonnia,

11/24/2015
B5i

, Deputy

Casu Numbur!

34-2015-0018713B

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Attorneys for Plaintiff SEIU, UNITED HEALTHCARE


WORKERS - WEST, on its own behalf and on behalf of CARING
FOR CALIFORNL\NS, LLC

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SUPERIOR COURT, STATE OF CALIFORNIA

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COUNTY OF SACRAMENTO

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SEIU, UNITED HEALTHCARE WORKERS


WEST, on its own behalf and on behalf of
CARING FOR CALIFORNIANS, LLC,

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Case No,
COMPLAINT AND DEMAND FOR
JURY TRIAL

Plaintiff,

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C. DUANE DAUNER; GREGORY A.


ADAMS; MARK R. LARET; JAMES R.
HOLMES, and DOES 1-10
Defendants,

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and

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CARING FOR CALIFORNL\NS, LLC,

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Nominal Defendant.

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BY FAX

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EIN0ERG, ROGER &
ROSENFELD
A Profeuional Cofpontion
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COMPLAINT AND DEMAND FOR JURY TRIAL

I.

INTRODUCTION

1.

This is a case to remedy the corrupt acts of Defendant C. Duane Dauner ("Dauner") and

his enablers. The conduct alleged herein arises from Defendant Dauner's decision to sell his veto

powers as Co-chair of the Board of Directors for Nominal Defendant Caring for Califomians,

LLC ("CFC") in exchange for favors that advance his own but not CFC's interests.

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thereby ensuring that millions of low income and disabled Califomians have access to high

quality health care. CFC invested heavily in realizing this goal by pursuing a statewide ballot that

would rely on revenue generatedfromthe personal income taxes of Califomia's wealthiest

CFC is a non-profit organization dedicated to increasing funding for Medi-Cal and

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individuals, and then channeling some of the revenue that is generatedfromthose taxes to Medi-

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Cal.

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3.

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faith, honesty and candor. Dauner also serves as the President and Chief Executive Officer

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("CEO") of the Califomia Hospital Association ("CHA").

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4.

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every one of those duties when they agreed to shut down the operations of CFC. Specifically, a

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coalition of employers and labor organizations (the "ABC Coalition"), with political interests that

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do not align with CFC, threatened to initiate ballot measures that would reign in the pay of

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hospital executives, cap the prices of medical services charged by hospitals, and require hospitals

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to provide a certain level of charity care.

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5.

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Dauner secretly met with the ABC Coalition and agreed to exchange his power to veto any

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proposed CFC action if the ABC Coalition dropped their ballot initiatives. In effect, Dauner sold

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out CFC and the dream of a fully funded Medi-Cal program for higher hospital executive pay and

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profits.

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6.

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("UHW") is a member of the CFC and hereby brings suit on its own behalf and derivatively on

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behalf of CFC for Dauner's breach offiduciaryduty and related causes of action.

As Co-Chair and a Director of CFC, Dauner owes CFC afiduciaryduty of loyalty, good

As will be set forth herein. Defendant Daimer and his co-defendants breached each and

Because these ballot measures were direct threats to Davmer's other company, CHA,

Plaintiff Service Employees Intemational Union, United Healthcare Workers - West

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COMPLAINT

II.

PARTIES

7.

Defendant C. Duane Dauner, an individual, is the Co-Chair and a Director of CFC. He is

also the President and CEO of CHA and the Califomia Association of Hospitals and Health

Systems ("CAHHS"). Upon information and belief, he maintains residencies in Sacramento and

Palm Springs, Califomia.

8.

CFC. In addition. Defendant Adams is an officer and the Chair of the CHA and CAHHS Boards

of Directors. Defendant Adams is also the Group President of Kaiser Permanente. Upon

information and belief, he is a resident of Altadena, California.

Defendant Gregory A. Adams ("Adams"), an individual, is a Director and Treasurer of

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9.

Defendant Mark R. Laret ("Laret"), an individual, is a Director of CFC. In addition.

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Defendant Laret is an officer of the CHA and CAHSS Boards of Directors. Defendant Laret is

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also the CEO of the University of Califomia Medical Center, San Francisco. Upon information

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and belief, he is a resident of Marin, Califomia.

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10.

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to. Defendant Holmes is an officer and the Chair-elect of the CHA and CAHSS Boards of

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Directors. Defendant Holmes is also the President and CEO of Redlands Commimity Hospital.

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Upon information and belief, he is a resident of Redlands, California.

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11.

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established pursuant to the Labor-Management Cooperation Act of 1978, organized under

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Califomia's Nonprofit Mutual Benefit Corporation Law. CFC's headquarters is located in

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Sacramento, Califomia.

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labor organization that for alltimesrelevant to this complaint was a member of CFC. UHW's

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headquarters is located in Oakland, Califomia.

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DOES 1 through 10, inclusive, and therefore sue these defendants by suchfictitiousnames and

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capacities. UHW will amend this Complaint to allege those DOE defendants' tme names and

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capacities when leamed. UHW alleges that each of the defendants named as DOES was in some

Defendant James R. Holmes ("Holmes"), an individual, is a Director of CFC, In addition

Nominal Defendant Caring for Califomians, LLC is a Labor Management Committee

Plaintiff Service Employees Intemational Union, United Healthcare Workers - West is a

UHW is ignorant of the tme names and capacities of the defendants sued in this Complaint as

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COMPLAINT

manner responsible for the acts and omissions alleged in this Complaint.

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III.
14.

JURISDICTION AND VENUE

This Court has jurisdiction over this action pursuant to Article VI, section 4 of the

4 Califomia Constitution and section 1600 of the Califomia Code of Civil Procedure ("CCP").
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15.

This Court has personal jurisdiction over the Defendants who engaged in conduct, and

6 who continue to engage in conduct, givingriseto the claims stated herein at locations within the
7 State of Califomia and Alameda County.
8 16.

Venue is proper in this Court pursuant to, among other provisions, CCP 392(a), because

9 the injury occurred in this covinty and because CFC's primary place ofbusiness is within this
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county.

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IV.
A.

FACTS

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THE BROKEN AND SEVERELY UNDERFUNDED MEDI-CAL SYSTEM AND


CFC'S MISSION TO FIX IT AND IMPROVE THE HEALTHCARE OF
MILLIONS OF CALIFORNIANS.

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1.

THE MEDI-CAL PROBLEM.

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17.

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to low income and disabled persons. Under the Affordable Care Act ("ACA"), the Medi-Cal

Medi-Cal is Califomia's version of Medicaid, the federal program that provides healthcare

17 program has expanded dramatically, and it will soon provide healthcare to three out of every ten
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Califomians.

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enrolled in the Medi-Cal program and rely on it for their health coverage. Almost half of the

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births in Califomia are covered by Medi-Cal, and one in two children relies on Medi-Cal for their

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health coverage. Fifty-six percent of Medi-Cal recipients are female. And Medi-Cal pays for

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services covering two-thirds of Califomia's nursing home residents.

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19.

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amount that healthcare providers are reimbursed to provide Medi-Cal funded services. This

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means providers, such as hospitals and physicians, lose substantial amounts of money providing

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care to Medi-Cal recipients. To account for this shortfall, these healthcare providers charge more

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to privately insured people, which drives up healthcare and insurance costs for everyone

Nearly 13 million Califomians mostly, children, seniors, and the disabled are

Yet, Medi-Cal is severely underfimded. Califomia ranks 49 out oftiie50 states in the

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COMPLAINT

including those who get their health insurance through their employers. The insufficiency of

Califomia's Medi-Cal funding also results in limited access to doctors and healthcare services for

those who depend on the Medi-Cal program for their health coverage.

20.

for Califomians. Because Medi-Cal is such a poor payer, Medi-Cal beneficiaries are

systematically denied adequate and timely care. Medi-Cal beneficiaries cannot obtain the care

that they need, when they need it, because many doctors simply cannot afford or refuse to take on

new Medi-Cal patients.

21.

The insufficiency of Medi-Cal funding poses the largest threat to the quality of healthcare

An inadequately funded Medi-Cal program also inflates the cost of commercial insurance

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by forcing consumers and their employers to subsidize the cost of insuring the Medi-Cal

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population, and it forces hospitals to seek artificial operational and financial "work-arounds" to

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spread the burden of Medi-Cal losses across the hospital industry. As a result, hospitals lose

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billions of dollars each year.

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2.

THE MEDI-CAL SOLUTION.

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22.

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UHW entered into what has been hailed as a "breakthrough agreement" that created "a strategic

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relationship" designed to "change the face of healthcare in Califomia and serve as a new national

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model for how employers and unions interact." ^ee CHA Press Release, CA Hospitals, SEIU-

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UHW Reach Agreement to Improve Healthcare, Create New Model of Labor Relations (May 6,

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2014).

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23.

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and UHW to focus on "a shared strategic vision of improving health and healthcare delivery in

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Califomia...." Ibid.

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24.

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advocacy conunittee to drive improvements to the healthcare delivery system that could not be

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obtained through direct negotiation between employers and labor unions." This would be

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"accomplished by identifying new resources and financing approaches at the federal and state

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levels, including educational activities, legislative and regulatory efforts, a ballot initiative, or

On May 5,2014, in an effort to address the inadequacy of Medi-Cal funding, CHA and

CHA described its new partnership with UHW as "unique" because it committed CHA

The centerpiece of the CHA-UHW partnership was the creation "of a $ 100 million joint

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COMPLAINT

5_

1 other strategies." Id.


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25.

of CFC, established pursuant to the Labor-Management Cooperation Act of 1978, organized

under Califomia's Nonprofit Mutual Benefit Corporation Law with the specific and primary

purpose to:

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Function as an industry-wide Labor Management Cooperation


Committee, as permitted by the federal Labor Management
Cooperation Act of 1978 ("LMCA"), for the purposes of jointiy
advocating on behalf of Califomia Hospital Association and
Service Employees Intemational Union, United Healthcare Workers
- West (the "Designators") for improved communication between
representatives of labor and management; providing healthcare
workers and employers with opportunities to study and explore new
and innovative joint approaches to achieving organizational
effectiveness; assisting healthcare workers and employers in
solving problems of mutual concem not susceptible to resolution
throu^ thetiaditionalcollective bargaining process; studying and
exploring ways of eliminating potential problems which reduce the
competitiveness and inhibit the economic development of the
healthcare industry in Califomia; enhancing the involvement of
healthcare workers in making decisions that affect their working
lives; expanding and improving working relationships between
healthcare workers and managers; and any other permissible
purposes under the LMCA; and
Focus during thefirsttwenty-four months after the date of
incorporation on the following agenda: obtaining full Medi-Cal
fimdijig and payments to hospitals for services rendered to MediCal beneficiaries to the maximum amount allowed imder federal
law without reliance on a hospital fee, tax, or assessment program,
unless otherwise agreed by the Designators.

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The joint advocacy committee provided for in the CHA-UHW partnership took the form

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CHA and UHW committed to each other to fund CFC. In accordance with this

commitment, CHA agreed to provide $80 million in funding to CFC, and UHW agreed to provide
$20 million in funding. To date, CHA and UHW have contributed half of their funding
obligations to CFC. CFC currently holds more than $7 million dollars of UHW contributions,
which can only be spent by an action taken by the Board of Directors for CFC.

B.

THE STURCTURE AND OPERATION OF CFC

27.

Per CFC's Bylaws, CFC has two "designators," CHA and UHW. Botii CHA and UHW

are authorized to act through their designated representatives. The designated representative for
CHA is Defendant Dauner, while the designated representative for UHW is the President of
UHW, David Regan ("Regan").
6
COMPLAINT

28.

Bylaws, is the right to appoint a certain number of Directors to the Board of Directors.

3 29.

The primary authority of the "designators," as set forth in Articles III and IV ofthe

CFC consists of eight Directors. As per the Bylaws, the President of CHA, or whoever is

4 his or her successor as CEO of CHA, is designated the CHA Co-Chair of CFC by virtue ofhis or
5 her position. Likewise, the President of UHW, or his or her successor, is the UHW Co-Chair of
6 CFC by virtue ofhis or her position.
7 30.

Three of the other six directors are appointed by the President of CHA, and the remaining

8 three are appointed by the President of UHW.


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31.

Because he has been CHA's President and CEO at alltimesrelevant to this Complaint,

10 Defendant Dauner has been CHA's Co-Chair and Director of CFC at all relevant times.
11

32.

The other CHA Directors have included Defendants Adams, Laret, and Holmes

12 (collectively with Defendant Daimer, the "CHA Directors"). Defendants Adams, Laret, and
13 Holmes are each officers of CHA and CAHHS and are subordinate to Defendant Dauner in the
14 CHA and CAHHS hierarchy.
15 33.

At all relevant times, the UHW Co-Chair has been Regan by virtue ofhis position as

16 UHW's President. The other UHW Directors have included Arianna Jimenez ("Jimenez"), Cass
17 Gualvez ("Gualvez"), and David Kieffer ("Kieffer").
18 34.

In addition to the two Co-Chairs, CFC has a Secretary and a Treasurer. At all relevant

19 times, Jimenez has served as Secretary and Defendant Adams has served as Treasurer.
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35.

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Director may also serve as an officer or director of CHA, CAHHS, or UHW, each Director of

CFC is independent and legally distinctfromCHA, CAHHS, and UHW. Eventiiougha

22 CFC owes a duty to CFC that obligates them to "perform the duties of a director in good faith, in
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a manner such director believes to be in the best interest of this corporation and with such care,

24 including reasonable inquiry, as an ordinarily pmdent person in a like situation would use under
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similar circumstances."

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36.

CFC employs an Executive Director, Peter Ragone ("Ragone"), who reports to the Co-

27 Chairs.
28 37.
The Board of Directors must authorize any expenditure. The Executive Director is
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COMPLAINT

1 authorized to sign checks for amounts up tofiftythousand dollars, provided that the Board has
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authorized such expenditures, but he mustfirstreceive approvalfromboth Co-Chairs. The Co-

Chairs must jointly sign checks for expenditures overfiftythousand dollars and only for Board

authorized expenditures.

38.

In order for the Board to take any action, the Bylaws of CFC require a quorum to be

6 established. The Bylaws define a quorum as "[t]he presence of both Co-Chairs plus at least two
7 other CHA Directors and two other SEIU-UHW Directors

" Once a quorum is established,

8 an action may only be approved if "both Co-Chairs plus at least two of the CHA Directors and
9 two of the SEIU-UHW Directors" vote in favor. Thus, either Co-Chair may veto an action
10 simply by withholding his approval.
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C.

CFC'S BALLOT MEASURE AND THE ABC COALITION'S COMPETING


BALLOT MEASURE

39.

One of CFC's major purposes, and its sole focus for itsfirsttwo years, is and should

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continue to be to obtain full funding for Medi-Cal.


40.

To this end, on July 28,2015, the Board of Directors unanimously approved a "Strategic

Plan" aimed at "obtaining fiill Medi-Cal funding and payments to hospitals for services rendered
to Medi-Cal beneficiaries to the maximum amount allowed under federal law without reliance on

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a hospital fee, tax, or assessment program."

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41.

As part of the Strategic Plan adopted by the Board of Directors, the parties developed an

initiative that would be placed on the November 2016 statewide ballot that would rely, in part, o
revenue generatedfromthe current but temporary personal income tax rates for individuals

making over $300,000 year, as established by Proposition 30. In addition, CFC's initiative wou

contain two additional increased tax rates for individuals making over $1 million and $5 milli
annually. This initiative was entitled The Invest in California's Children Act.
42.

A conservative estimate is that these taxes would produce $ 10 billion in increased annual

revenue. The revenue generated by the taxes would be distributed to public education (K-14)
(45%), higher public education (5%), Medi-Cal (40%), and early leaming programs (10%).
43.

If passed, CFC's initiative would, by conservative estimates, produce $4 billion in

permanent annual revenue for Medi-Cal, with most of the money going to doctors and hospitals.
8
COMPLAINT

This would fully fund Medi-Cal, and, in the process, improve the lives of millions of

Califomians v^^o rely on the Medi-Cal program.

44.

fullyftmdthe Medi-Cal program, a separate coalition that includes the Califomia Teachers

Association ("CTA'O, the Califomia Medical Association ("CMA"), and the SEIU State Council

("State Council) (collectively known as the "ABC Coalition"), began to develop a competing

ballot initiativetiiatwould use revenue derived from the Proposition 30 taxes to fund K-12

education, but not Medi-Cal, higher education or early leaming.

45.

At or around the same time CFC was developing its idea of a ballot initiative to fix and

In or around August 2015, CFC became aware that the ABC Coalition was planning to

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file a competing initiative. At this time, various Directors of CFC advocated that CFCfileits

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initiative with the Califomia Attomey General before the ABC Coalitionfiledits initiative, and

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concurrentiy engage representatives of the ABC Coalition in an effort to get the two organizations

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to agree on a single initiative rather than having competing initiatives on the 2016 ballot.

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46.

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ABC Coalition would not meet with CFC. Defendant Dauner made it clear that he opposed any

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proposal that called for CFC tofileits own initiative, despite the fact that the ABC Coalition

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might file their initiativefirstand put CFC's initiative at an electoral disadvantage.

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47.

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of Directors, he effectively vetoedfilingCFC's Invest in California's Children Act in August

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2015.

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48.

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Funding and Stability Act of2016, with the Califomia Attomey General.

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it provided the ABC Coalition with multiple strategic and procedural advantages over CFC,

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which had yet tofileits own initiative. For example, a party thatfilesan initiative before another

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that will compete with it can (1) collect signatures for the initiative before the partyfilinga

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competing initiative, and (2) once qualified, the initiative receives preferential placement on the

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election ballot.

In or around August 2015, Defendant Dauner claimed that he had knowledge that the

Because Defendant Dauner, as a Co-Chair of CFC, must approve any action of the Board

On September 14,2015, the ABC Coalitionfiledits competing initiative. The School

Defendant Dauner's opposition to CFC'sfilingits own initiative was significant, because

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9
COMPLAINT

50.

the ABC Coalition's initiative for a nefarious purpose - that is, in order to put CFC's initiative at

a disadvantage, while providing both a strategic and procedural advantage to the ABC Coalition.

Defendant Dauner, however, kept to himself the fact that he had been secretiy working with the

ABC Coalition to undermine CFC's initiative.

51.

of Directors unanimously voted to file CFC's initiative on September 21,2015. In accordance

with the Board's unanimous vote, CFC's initiative. Invest in California's Children Act, was filed

with the Califomia Attomey General. The proponents of the initiative are Gualvez, who serves

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on the Board of Directors of CFC, and Dietmar Grellmann, Senior Vice President of Professional

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Services for CHA. Defendant Dauner personally selected Grellmann to serve as the proponent

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and Grellmann is Dauner's subordinate.

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52.

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Regan that Grellmann would not participate in the filing and processing of CFC's initiative if

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CHA decided to end its partnership with UHW. Regan informed Defendant Dauner that

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Grellmann could not unilaterally block the filing and processing of CFC's initiative.

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53.

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committee with a $9 million dollar loan and $1 million dollar contribution, to support CFC's

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initiative. Invest in California's Children Act. Although Defendant Dauner approved this action,

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he had no intention of approving any expenditure that would enable the committee's operation

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because ofhis secret deal with the ABC Coalition to undermine CFC's initiative.

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D.

AT THE EXPENSE OF MILLIONS OF CALIFORNIANS WHO RELY ON MEDICAL, DEFENDANT DAUNER AND CHA EMBARKED ON A COVERT
CAMPAIGN TO UNDERMINE CFC BY WORKING WITH THE ABC
COALITION

54.

In or around March 2015, Defendant Dauner had been secretiy meeting with members of

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Defendant Dauner intentionally opposed the filing of CFC's initiative prior to thefilingof

On September 15,2015, after the ABC Coalition had alreaidyfiledits initiative, the Board

After personally selecting Grellmann as the proponent. Defendant Dauner threatened

On October 26,2015, the Board of Directors unanimously agreed to fund a campaign

the ABC Coalition, altiioughtiieABC Coalition had not yet been formally organized. Defendant
Dauner routinely met with Dustin Corcoran, the CEO of CMA, in order to keep him informed of
the business of CFC, including but not limited to CFC's confidential "Strategic Plan."
55.

During this same period. Defendant Dauner also met with representatives of the SEIU
10

COMPLAINT

State Council in order to keep them informed ofthe business of CFC, including but not limited to

CFC's confidential "Sfrategic Plan." The SEIU State Council is led by Jon Youngdahl

("Youngdahl"), who is the Executive Director ofthe State Council, and Laphonza Butier

("Butier"), who istiiePresident oftiieState Council.

56.

("ULTCW") as well astiieprovisional President of SEIU, Local 2015. Local 2015 represents

approximately 285,000 home-care and nursing home workers m California, two constituencies

whose employers rely on Medi-Cal funding and would benefitfroma fully funded Medi-Cal

program. Local 2015 is the result of a merger of home care and nursing home members from

In addition, Butler is the President of the SEIU, United Long-Term Care Workers

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tiiree SEIU-affiliated Unions: SEIU Local 521, ULTCW, and UHW. As a result oftiiemerger,

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UHW lost half its membership to Local 2015.

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57.

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that Regan would soon lose half of UHW's membership and that Defendant Dauner needed to

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deal with Butier and the State Council - not Regan and UHW - ifhe wanted to accomplish any

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legislative and policy goals that were important to CHA's members.

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58.

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keep them informed of the business of CFC, including but not lihiited to CFC's confidential

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"Sfrategic Plan."

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59.

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CMA, the SEIU State Coimcil, and CTA, while duplicitously pretending to carry out his duties as

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a Director and Officer in the interest of CFC.

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60.

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feared CTA's political reach in Sacramento. Second, he no longer wanted to be involved ih a

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"sfrategic partnership" with UHW because the partnership was threatening his power within

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CHA, and members of CHA were calling for an end to the partnership for ideological reasons.

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Third, he believed that he could take advantage of an intemal SEIU disagreement between Butier

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and Regan regarding thefransferof UHW members into Local 2015.

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61.

Prior to the merger, representatives ofthe SEIU State Council informed Defendant Dauner

On infonnation and belief. Defendant Dauner met with representatives of CTA in order to

Beginning in or around March 2015, Defendant Dauner decided to work covertly with

Defendant Dauner chose to work with the ABC Coalition for several reasons. First, he

In or around August 2015, after the ABC Coalition had officially formed and after the

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COMPLAINT

ABC Coalition had drafted its competing initiative. Defendant Dauner took actions to sabotage

CFC's initiative, while hidingfromhis Co-Chair and UHW Directors the fact that he was secretly

working with the ABC Coalition to imdermine CFC's initiative.

62.

Coalitionfiledits initiative. He also refused to authorize expenditures that CFC had incurred

related to a public Medi-Cal campaign and its initiative campaign.

63.

get CFC to abandon its effort to get its initiative enacted.

64.

To this end. Defendant Dauner opposed thefilingof CFC's initiative before the ABC

In or around August 2015, Defendant Dauner promised the ABC Coalition that he would

In an effort to avoid being exposed as a saboteur, Defendant Dauner did not initially seek

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to block every action that CFC decided to take regarding CFC's initiative. Defendant Dauner's

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failure to get CFC to abandon its initiative did not sit well with the ABC Coalition, which

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believed that it had been double-crossed by Defendant Dauner.

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65.

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on Defendant Dauner, attomeys for the ABC Coalitionfiledthree ballot initiatives aimed directiy

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at the hospital industry: the Charitable Hospital Executive Compensation Act of 2016, which, if

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enacted, would limit the pay of hospital executives; the Fair Healthcare Pricing Act of 2016,

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which would cap the prices of medical services charged by hospitals; and the Charity Care Act of

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2016, which would require hospitals to provide a certain level of charity care. These measures, if

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enacted, would cost the hospital industry millions of dollars.

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66.

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initiatives. Defendant Dauner, in consultation and agreement with the other Defendants, decided

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to make a deal with the ABC Coalition. The agreement consisted of Defendants, on behalf of

23

CHA, offering to supportfinanciallythe ABC Coalition's original initiative and offering to use

24

his veto power, as Co-Chair of CFC, to veto any Corporation action in exchange for the ABC

25

Coalition dropping its three later initiatives and redrafting the ABC Coalition's original initiative

26

to provide at least $1 billion dollars to the hospital industry.

27

67.

28

multiple other persons, including other Directors of CFC to discuss CFC's initiative and his

As a result, on October 29,2015, in order to bring maximum pressure and leverage to bear

These initiatives captured Defendant Dauner's attention. Following thefilingof these

On November 2,2015, Defendant Dauner requested a conference call with Regan and

/EINBERG, ROGER &


ROSENFELD
A ProfeBlonaJ Catpomloa
01 Uvtn VUU|i hritMny; SBIU 200
'
'.CdifinfeWOI

12
COMPLAINT

agreement with the ABC Coalition.

68.

with the ABC Coalition regarding its competing initiative. The School Funding and Stability A

of2016.

69.

Board of Directors had insfructed him to do so and that a "substantial number of hospitals,"

affiliated with CHA did not want CHA to participate in CFC or to continue its partnership with

UHW. The reason that a substantial number of hospitals wanted to end the sfrategic partnership

between CHA and UHW is because these hospitals are philosophically opposed to the

On the call. Defendant Dauner revealed that he had been secretiy meeting and negotiat

Defendant Dauner explained that he had engaged in these covert actions because the CHA

10

unionization ofthe hospital industry and seek to remain non-union so that they may continue,

11

without interference, to provide their employees substandard working conditions, pay, and

12

benefits. Because the ABC Coalition does not consist of any labor organization that seeks to

13

organize hospital workers in Califomia, working with the ABC Coalition is preferred over

14

working with UHW.

15

70.

16

had led to a written agreement, executed by and between CTA, CMA, and the SEIU State Council

17

and Defendant Dauner and CHA.

18

71.

19

CHA will jointiy sponsor, and contributefinanciallyto the ABC Coalition's The School Fundin

20

and Stability Act of2075 that is in direct competition with CFC's initiative. Invest in California'

21

Children Act.

22

72.

23

and Adams, Laret and Holmes agreed to support Dauner in this cessation of CFC's activities.

24

Thus, the CHA Directors agreed to terminate all of CFC's operations by using Defendant

25

Dauner's veto power

26

73.

27

initiative and to support the ABC Coalition's competing initiative, and the other CHA Directors

28

accepted and enabled this decision. As a result, lacking any financial support, CFC's initiative is

During the call. Defendant Dauner revealed that his discussions with the ABC Coalition

According to Dauner, the agreement with the ABC Coalition provides that Defendants a

Defendant Dauner further agreed to "to veto any expenditure" to support CFC's initiative,

Put otherwise. Defendant Dauner agreed to use his position of power to quash CFC's

VEINBERG, ROGER &


ROSENFELD
A PrarttfSlonal Coipotalkn

13

1H

94501
(Jia)]3T.|00l

COMPLAINT

certain to fail and the ABC Coalition's initiative will have no effective opposition.

2 74.

As part of the quid pro quo that Defendant Dauner and CHA entered into with the ABC

Coalition, Defendant Dauner and CHA agreed to sponsor ahdfinanciallysupport the ABC

Coalition's initiative. The School Funding and Stability Act of 2016. In exchange for Defendants'

5 promise to terminate the efforts of CFC, Defendants confirmed that the ABC Coalition had
6 agreed to withdraw its three later-filed initiatives - the Charitable Hospital Executive
7

Compensation Act of 2016; the Fair Healthcare Pricing Act of 2016; and the Charity Care Act of

8 2016 (collectively, the "ABC Ballot Measures") - that threatened the hospital industry's revenues
9 and which the ABC Coalition had used to bring Defendants "to heel."
10 75.
11

Dauner sold his veto power as a Co-Chau: of CFC in exchange for the ABC Coalition

withdrawing its three anti-hospital initiatives and the ABC Coalition rewriting its origuial

12 initiative to provide the hospital industry with at least a billion dollars in annual revenue.
13 76.

Adams, Laret and Holmes approved this sale after the fact and have since agreed to shut

14 down CFC as part of the deal with the ABC Coalition.


15 77.

On November 5,2015, CHA publicly announced it had reached an agreement with "the

16 Califomia Medical Association, the Califomia Teachers Association and SEIU Califomia State
17 Council... to sponsor a new ballot measure that will extend the temporary income tax provisions
18 of Proposition 30fromJan. 1,2019tiiroughDec. 31,2030." CHA Press Release, CHA Joins
19 With Doctors, Teachers, and State Workers to Sponsor Single Prop. 30 Ballot Measure (Nov. 4,
20 2015).
21

78.

The public aimouncement also made clear that "CHA's financial and advocacy resourc

22 will be devoted to enacting this new jointiy sponsored initiative. [And] CHA will not provide
23

support for any other Proposition 30 extension initiative." Ibid.

24 79.

On November 18,2015, Defendants spoke with Regan regarding the ABC Coalition's

25

initiative. Defendants pleaded with Regan to dissolve CFC. Regan, however, refused to agree to

26

dissolution. In accordance with his agreement with the ABC Coalition, Defendant Dauner stated

27 that he would exercise his veto power, as Co-Chair, on any and all decisions that came before
28

CFC regarding expenditures related to CFC's initiative, which CFC had unanimously voted to file

VEINBERG, ROGER &


ROSCNFELD
A Prarenlofial Corpofailoa
HI Uaraa
Pvfcvqr. Sniu m
Abmdi,CilirtnUMl
(}|0)337-1001

_14
COMPLAINT

and fund.

2 80.

During this conversation, Dauner explained that his decision to veto any and all

3 expenditures had nothing to do with hisfiduciaryduty and loyalty to CFC. Rather, Defendant
4 Dauner explained that his decision to veto any and all expenditures was based upon (1) his
5 agreement to support andfinancethe ABC Coalition's initiative, which is in direct competition
6 with CFC's initiative, and (2) his loyalty to CHA and CHA's Board of Directors, which had
7 durected him to end his participation with UHW and CFC.
8 81.

By refusing to approve any expenditure related to CFC's initiative. Defendant Dauner and

9 CHA have blocked the ability of UHW to expend any portion of its more than $7 million dollar
10 contribution to CFC in support of CFC's initiative.
11

82.

Defendants' seizure of UHW's contribution of more than $7 million serves only the

12 interest of the ABC Coalition, which Defendants have now agreed to financially support, because
13 it means that the ABC Coalition can run a campaign in support of its initiative without a
14 financially backed opposition and without facing afinancially-sfrongcompetitor.
15 83.

Defendants' agreement with the ABC Coalition is in direct confiict with their fiduciary

16 duties to CFC.
17 84.

The agreement with the ABC Coalition was negotiated in secrecy and without fiill

18 disclosure and specifically requires Defendant Daimer to act in a manner confrary to the best
19 interests of CFC.
20 85.
21

Because Defendant Dauner can veto any action of CFC by virtue ofhis position as Co-

Chair and because the three other CHA-appointed Directors are Defendant Dauner's subordmates

22 at CHA, any effort to remedy Defendant Dauner's conduct or to demand that CFC bring suit
23

against Defendant Dauner for breach offiduciaryduty would be futile.

24

First Cause of Action


(Breach of Fiduciary Duty)
UHW, on Behalf of CFC, against Defendants

25
26

86.

UHW hereby incorporates the allegations set forth iri Paragraphs 1-85 of this Complaint

27 by reference as if set forth in full herein.


28 87. At alltimesrelevant to this Complaint, UHW has been a member of CFC, as that term is
VEINBERG. ROGER A
ROSNFEU>
A Piofbstlonal Coipontion
Ktl Martaa VObgt hifcwsy. Bttiu 200
(5IO}3r-iaol

_15
COMPLAINT

defined by Califomia Corporation Code 5056, because UHW has therightto vote for the

2 election of a dfrector or directors, on a disposition of all or substantially all of the assets of CFC,
3 or on a merger or dissolution.
4

88.

Califomia Corporations Code 7231 obligates directors, officers and executive board

5 members to execute their duties in good faith and with such care as an ordinarily pmdent person
6 in a like position would use under similar circumstances. This duty does not exist solely within
7 statute, but within Califomia common law as well.
8 89.

As Directors of CFC, Defendants owe CFC the highest degree of honesty and loyalty as a

9 fiduciary and are under a statutory and common law duty take no actions adverse to CFC, and to
10 conduct themselves with the utmost good faith, trust, candor, and confidence with regard to CFC.
11

90.

Because Defendants have unilaterally elected to terminate the operations of CFC, have

12 failed to conduct themselves with candor, have withheld critical informationfromCFC, and have
13 committed themselves to a course of action directiy adverse to the purposes and goals of CFC,
14 they have breached thefrfiduciaryduties to CFC and have failed to act in its best interest.
15 91.

This breach has caused, and continues to cause, CFC damage in an amount to be

16 determined at trial.
17

Second Cause of Action


(Breach of Fiduciary Duty)
UHW against Defendants

18
19 92.

UHW hereby incorporates the allegations set forth in Paragraphs 1-91 ofthis Complaint

20 by reference as if set forth in full herein.


21

93.

At all times relevant to this Complaint, UHW has been a member of CFC, as that term is

22 defined by Califomia Corporation Code 5056, because UHW has therightto vote for the
23

election of a director or directors, on disposition of all or substantially all of the assets of CFC, or

24 on a merger or dissolution.
25

94.

26

members to execute their duties in good faith and with such care as an ordinarily pmdent person

Califomia Corporations Code 7231 obligates directors, officers and executive board

27 in a like position would use under similar cfrcumstances. This duty does not exist solely within
28

statute, but within Califomia common law as well.

VEINBERG, ROGER A
ROSENFELD
A Prtrfcttlana] Caporaiion

_16

01 Mirin VtOifa PrtiMy. Suha 300


(310)337.1001

COMPLAINT

"

95.

As Dfrectors of CFC, Defendants owe CFC the highest degree of honesty and loyalty as a

fiduciary and are under a statutory and common law duty take no actions adverse to CFC, and to

conduct themselves with the utmost good faith, tmst, candor, and confidence with regard to CFC.

96.

failed to conduct themselves with candor, have withheld critical informationfromCFC, and have

committed themselves to a course of action directiy adverse to the purposes and goals of CFC,

they have breached thefrfiduciaryduties to CFC and have failed to act in its best interest.

97.

two designators, UHW and CHA. Because Defendants conduct in breaching thefr fiduciary

Because Defendants have unilaterally elected to terminate the operations of CFC, have

This breach uniquely harmed UHW among the members because CFC is comprised of

10

duties was in furtherance of CHA's interests and confrary to UHW's, Defendant' conduct caused

11

a unique injury to UHW.

12

98.

13

determined at trial.

This breach has caused, and continues to cause, UHW damage in an amount to be

14

Third Cause of Action


(Fraud by Concealment)
UHW, on Behalf of CFC, against Dauner

15
16

99.

17

by reference as if set forth in fiill herein.

18

100.

19

which is not tme, by one who does not believe it to be tme [uitentional misrepresentation of fact];

20

and (2) the suppression of a fact, by one who is bound to disclose it, or who gives information of

21

other facts which are likely to mislead for want of communication of that fact [concealment or

22

suppression of fact].

23

101.

24

duty of candor.

25

102.

26

Coalition, Defendant Daimer intentionally failed to disclose an important fact that was known

27

only to him and that CFC could not have discovered,

28

103.

UHW hereby incorporates the allegations set forth in Paragraphs 1-98 of this Complaint

Civil Code section 1710 specifiesfraudcan consist of (1) the suggestion, as a fact, of that

As a Co-Chair and Director of CFC, Dauner has afiduciaryduty to CFC which includes a

When Defendant Dauner failed to disclose to CFC his secret negotiations with the ABC

Because Dauner did not disclose these secret agreements, Dauner was able to undermine

VEINBERG, ROGER A
ROSENFELD
APrafessiOQal CoipwatioD

1 Uufaa Vi|l>c Fwtmy. SDIU 300

(310)}37'I00I

COMPLAINT

17

CFC when he prevented CFCfromfilingInvest in California's Children Act v^dth the Califomia

Attomey General in August 2015, and thereby causing CFC to lose the first mover advantages set

forth above.

104.

CFC did not know of the concealed facts set forth above.

105.

By concealing his negotiations and agreements with the ABC Coalition, Defendant

Dauner intended to deceive CFC by concealing the fact.

106.

CFC reasonably relied on Defendant Dauner's deception, and this reliance was a

8 ^ proximate cause of harm to CFC


9

Fourth Cause of Action


(Conversion)
UHW, on Behalf of CFC, against Defendants

10
11

107.

UHW hereby incorporates the allegations set forth in Paragraphs 1-106 of this Complaint

12

by reference as if set forth in full herein.

13

108.

14

including those lent to it by UHW,

15

109.

16

substantially interfered with CFC's property by terminating all operations of CFC by vetoing any

17

proposed expenditures.

18

110.

19

therefore CFC did not consent to it.

20

111.

21

tiial.

CFC owns, possesses, and has arightto possess the funds within its bank account,

Defendants intentionally and in a gross abuse of their authority as Dfrectors of CFC

The decision to cease all expenditures was not taken as a proper Board action and

This action directiy and proximately caused CFC harm in an amount to be established at
Fifth Cause of Action
(Trespass to Chattel)
UHW, on Behalf of CFC, against Defendants

22
23
24
25
26
27
28
VEINBERG, ROGER &
ROSENFELD
A Pnrfkssiofttl Cofpomlion
(St<0 337.1001

112.

UHW hereby incorporates the allegations set forth in Paragraphs 1-111 of this Complaint

by reference as if set forth in fiill herein.


113.

CFC owns, possesses, and has arightto possess the fimds within its bank account,

including those lent to it by UHW.


114.

Defendants intentionally and in a gross abuse of thefr authority as Directors of CFC

substantially interfered with CFC's property by terminating all operations of CFC by vetoing any
^
^
18
COMPLAINT

proposed expenditures.

115.

therefore CFC did not consent to it.

116.

tiial.

The decision to cease all expenditures was not taken as a proper Board action and

This action dfrectiy and proximately caused CFC harm in an amount to be established at

Sixth Cause of Action


(Violation of Business & Professions Code 17200 etseq.)
UHW, on Behalf of CFC, against Defendants

7
8

117.

UHW hereby incorporates the allegations set forth in Paragraphs 1-116 of this Complaint

by reference as if set forth in full herein.

10

118.

Defendants' acts and practices as detailed above constitute acts of unfafr competition.

11

119.

Defendants have engaged in an unlawful, unfafr orfraudulentbusiness acts and/or

12

practices within the meaning of Califomia Business & Professions Code 17200.

13

120.

14

Professions Code 17201.

15

121.

16

conduct set forth above. These business acts and practices violated numerous provisions of law,

17

including, inter alia, Califomia Penal Code 641.3 and Califomia Corporations Code 7231.

18

Plaintiff reserves therightto identify additional violations of law as further investigation

19

warrants.

20

122.

21

accept, anything of valuefroma person other than his or her employer cormptiy aiid vvithout tiie

22

knowledge or consent ofthe employer, in retum for using or agreeing to use his or her position

23

for the benefit of that other person.

24

123.

25

Defendants.

26

124.

27

employer.

28

125.

All parties to this action are "persons" as that term is defined in Califomia Business and

Defendants have engaged in an "unlawful" business act and/or practice by engaging in the

Califomia Penal Code 641,3(a) prohibits employeesfromaccepting, or agreeing to

Califomia Penal Code 641.3(d)(1) defines "employees" to include directors such as

Califomia Penal Code 641.3(d)(3) defines cormptiy as intending to injure or defraud the

Because Defendant Dauner secretly and without CFC's consent agreed to cease the

/EINBERG, ROGER &


ROSENFELD
A Pnfiessional Corporalton

19

01 MsfM VSDv* pHfciMy, M u 3fB


(SIO)33%)00l

COMPLAINT

operations of CFC in exchange for the ACB Coalition's promise to withdraw the ABC Ballot

Measures and because Defendant Dauner intended to injure and/or defraud CFC by entering into

this agreement. Defendant Dauner violated Califomia Penal Code 641.3 and thus committed an

unfafr, unlawful, and/orfraudulentbusiness act or practice within the meaning of California

Business and Professions Code 17200.

126.

exchange for the ACB Coalition's promise to withdraw the ABC Ballot Measures and because

Because Defendants agreed without CFC's consent to terminate the operations of CFC in

8 Defendants intended to injure and/or defraud CFC by entering into this agreement. Defendants
9

violated Califomia Corporations Code 7231, which obligates directors, such as Defendants, of

10

mutual benefit corporations, such as CFC, to perform thefr duties in good faith, in a manner such

11

director believes to be in the best interests of CFC and with such care, including reasonable

12

inquiry, as an ordinarily pmdent person in a like position would use under similar cfrcumstances.

13

Defendants thus committed an unfair, unlawful and/orfraudulentbusiness act or practice within

14

the meaning of Califomia Business and Professions Code 17200.

15

127.

16

money or property as a result of Defendants' conduct.

17

128.

18

public as private attomeys general pursuant to Business & Professions Code 17204.

19

129.

20

seeks a temporary, preliminary, and/or pennanent orderfromthis Court prohibiting Defendants

21

from taking fiuther actions against the interest of CFC, removing Defendant Daunerfromhis

22

position as director and co-chair of CFC, and refomung CFC's By-Laws so that CHA may

23

appomt a Co-Chafr other than CHA's President.

24

130.

25

order of this Court enjoining Defendant Daunerfromcontinuing to engage in the acts as set forth

26

intiiisComplaint, including holding the position of Director and Co-Chair of CFC.

27

131.

28

///

By engaging the aforementioned conduct, CFC has suffered injury in fact and has lost

UHW brings this Cause of Action derivatively and on behalf of CFC and on behalf of the

Pursuant to Califomia Business & Professions Code 17203, UHW, on behalf of CFC,

Pursuant to Business & Professions Code 17204, UHW, on behalf of CFC, seeks an

CFC will be irreparably harmed if such an order is not granted.

VEINBERG, ROGER &


ROSENFELD
A Prolbsilonal Corporatloa

l U M B H Vdbia Pidnay, SBha 100


A l u M h Callflnl* MSOl
(10)S37-I00l

20
COMPLAINT

Seventh Cause of Action


(Injunctive Relief)
UHW, on Behalf of CFC, against Dauner

1
2
3

132.

UHW hereby incorporates the allegations set forth in Paragraphs 1 -131 of this Complaint

by reference as if set forth in full herein.

133.

As a proximate resuh of Defendant Dauner's bad faith actions, unlawful conduct, and

6 breach offiduciaryduty, CFC has suffered and will continue to suffer substantial and irreparable
7 harm.
8

134.

Unless Defendant Dauner is permanently enjoinedfromabusing his authority and position

9 of tmst as CFC Dfrector and Co-Chair, CFC will be substantially and irreparably injured by the
10

following:
a. continued negative impact on CFC's ability to use, manage, confrol, and operate

11
12

its business affairs due to Defendant Dauner's agreement to veto any and all Board

13

actions;
b. continued interference and dismption to CFC's employees and partners by

14
15

preventing the effective operation of CFC and the realization of its goals as set

16

forth in the Code of Conduct, Articles of Incorporation, and By-Laws; and


c. continued loss of operational efficiency and good will because of the damage to

17

CFC's campaign for The Invest in California's Children Act.

18
19

135.

CFC has no adequate legal remedy at law.

20

136.

Greater injury will be inflicted upon CFC by the denial of a permanent injunction than

21

will be imposed on Defendant Dauner by the granting of such relief.

22

137.

23

which in the absence of injunctive relief is likely to occur, CFC is entitied to permanent injunctive

24

relief.

In order to prevent and resfrain a continuation of Defendant Dauner's unlawfiil activity,

25

Eighth Cause of Action


(Injunctive Relief Pursuant to Califomia Corporations Code 304)
UHW against Dauner

26
27

138.

28

by reference as if set forth in full herein.

UHW hereby incorporates the allegations set forth in Paragraphs 1-137 of this Complaint

VEINBERG, ROGER &


ROSENFELD
A Proliasional CcipnatlOD
001 ttofaH vaiati M n y ; SBiu 300
AhmdhCillfbnuMMI
<5I0) 337-1001

COMPLAINT

21

139.

As a proximate result of Defendant Dauner's bad faith actions, unlawfiil conduct, and

breach offiduciaryduty, UHW has suffered and will continue to suffer substantial and irreparable

harm.

140. CFC is a mutual benefit corporations as defined by and govemed by Califomia

Corporations Code 7110 e/ seq.

141.

appoint half the Board of Dfrectors and is therefore a "member" as that term is defined by

Califomia Corporations Code 5056 and a 50% shareholder as that term is understood under

Califomia Corporations Code 5071-5072,

Pursuant to CFC's By-Laws, UHW is one of two "Designators" and has therightto

10

142.

11

director in case of fraudulent or dishonest acts or gross abuse of authority or discretion with

12

reference to CFC and may barfromreelection any director so removed for a period prescribed by

13

the Court upon the suit of shareholders holding at least 10 percent of the number of outstanding

14

shares ofany class.

15

143.

16

upon the unlawfiil, dishonest, and bad faith abuse of discretion of Defendant Dauner in agreeing

17

to veto any Board action in exchange for the ABC Coalition's promise to withdraw the ABC

18

Ballot Measures and other value.

19

144.

20

and gross abuse of authority, wdiich in the absence of injunctive relief is likely to occur, CFC is

21

entitied to permanent injunctive relief and Defendant Dauner must be removed bom his office of

22

Director and Co-Chair.

Califomia Corporations Code 304 authorizes the Court to removefromoffice any

UHW, as a shareholder with more than 50% of the shares in CFC,filessuch a suit based

In order to prevent and resfrain a continuation of Defendant Dauner's unlawful activity

23
24
25

V.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff prays that this Court award it the following relief:

26

1.

Damages in an amount to be determined at trial;

27

2.

Interest on all sums awarded;

28
VEINBERG, ROGER &
ROSENFELD
A Praieslonsl OnpoEBtloo
I M v i n Vilbc* Pirinny. SuJh 300
AboMdi. CiliTimU MSOl
010)337.1001

22
COMPLAINT

3.

Reformation of CFC's Bylaws to remove the veto power of the Co-Chairs and to

2 decouple the position of Co-Chairfromthe Presidency of CHA;


3

4.

Injunctive relief ordering Dauner to resignfromhis position as Co-Chafr and

4 Director of CFC; and


5

5.

Such other and fiirther relief as the Court deems proper.

6
7
8

Dated: November 24,2015

WEINBERG, ROGER & ROSENFELD


A Professional Corporation

9
10

By:

11
12

BRUCE A. HARLAND
EMILY P. RICH'
MICHAEL D. BURSTEIN
Attomeys for Plaintiff SEIU, UNITED
HEALTHCARE WORKERS - WEST, on its own
behalf and on behalf of CARING FOR
CALIFORNIANS, LLC

13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
/ElNBERG,ROGER&
. ROSENFELD
A Pntfisslonal CoTpomiioa
01 U v t e VObi* P^!utty. SBIU
Abmdi.C>liftRn4l
(J 10) 337.1001

23

COMPLAINT

DEMAND FOR JURY TRIAL

2
3

Plaintiff Service Employees Intemational Union, United Healthcare Workers - West


hereby demands a jury trial on all issues and causes of action.

4
5 Dated: November 24,2015

WEINBERG, ROGER & ROSENFELD


A Professional Corporation

6
7
By:

BRUCE A. HARLAND
EMILY P. RICH
MICHAEL D. BURSTEIN

9
Attomeys for Plaintiff SEIU, UNITED
HEALTHCARE WORKERS - WEST, on its own
behalf and on behalf of CARING FOR
CALIFORNIANS, LLC

10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
VEINBERG, ROGER &
ROSENFELD
A PntesioDal CcBpooUon
ot Mirin Vilbfi P U k n r , SDR* 300
AbnM^ CilUinla 94501
(StO) 337-1001

24
COMPLAINT

GDSSC COV^^^SOHT