Atkins v. Rancho Physical Therapy CA2/2

Filed 11/17/20 Atkins v. Rancho Physical Therapy CA2/2
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION TWO

WILLIAM ATKINS et al., B293634

Plaintiffs, Cross-defendants, and (Los Angeles County
Respondents, Super. Ct. No. BC516798)

v.

RANCHO PHYSICAL THERAPY, INC.,

Defendant, Cross-complainant,
and Appellant.

APPEAL from a judgment of the Superior Court of
Los Angeles County. Terry A. Green, Judge. Affirmed.

Ogloza Fortney + Friedman, Darius Ogloza, David Fortney,
and Micah Nash for Defendant, Cross-complainant, and
Appellant.

Law Offices of Joel W. Baruch and Joel W. Baruch for
Plaintiffs, Cross-defendants and Respondents.

______________________________
 Plaintiffs, cross-defendants, and respondents William
Atkins (Atkins), Gregory K. Smith (Smith), and John Waite
(Waite) were the owners and employees of defendant, cross-
complainant, and appellant Rancho Physical Therapy, Inc.
(Rancho). After plaintiffs transferred their interest in Rancho to
OptimisCorp (Optimis), the relationship among plaintiffs,
Rancho, Optimis, and Alan Morelli (Morelli), a principal of
Optimis, soured, resulting in extensive litigation in both
Delaware and California. In the instant case, plaintiffs sued
Rancho for claims arising out of the termination of their
employment. The case proceeded to a bench trial, resulting in a
judgment for plaintiffs. Rancho appeals, challenging: (1) The
trial court’s March 22, 2017, order dismissing its cross-complaint
after adjudicating plaintiffs’ plea in abatement affirmative
defense in plaintiffs’ favor; and (2) The August 30, 2018,
judgment in favor of plaintiffs on their claim for wrongful
termination in violation of public policy.
We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
1
I. Factual Background
A. The parties
Plaintiffs are all licensed physical therapists, and together,
in 1991, they founded Rancho.
In 2007, plaintiffs were introduced to Morelli, who had a
company that later became Optimis, a Delaware corporation.

1
Because Rancho does not challenge the trial court’s factual
findings, we set forth the factual background as summarized by
the trial court in its statement of decision.

2
Optimis had an undeveloped software program for electronic
physical therapy records for offices like Rancho.
B. Business arrangement between Rancho and Optimis
On June 29, 2007, plaintiffs and Optimis entered into a
stock purchase agreement, whereby plaintiffs transferred 100
percent of their Rancho stock to Optimis in exchange for
approximately 34 percent of Optimis stock. As part of the
transaction, plaintiffs also received four-year employment
contracts with Rancho.
This new business arrangement between Rancho and
Optimis also provided for a five-director board of directors for
Rancho. Plaintiffs remained three of the directors; another
physical therapist, Joseph Godges (Godges), became the fourth
director; and Morelli, an attorney and not a licensed physical
therapist, became the fifth board member.
In addition, Waite “became the #2 in the Optimis
organization as its COO [chief operating officer]. Unlike Waite,
Atkins and Smith did not become employees or officers of Optimis
under the new arrangement. All three plaintiffs, however, were
on the Optimis nine-person board.”
After the initial four-year term on plaintiffs’ employment
contracts expired, there were three extensions, with the last
contract set to expire on June 29, 2014.
C. Attempt to remove Morelli from Optimis for sexual
harassment
In September 2012, Waite, in his capacity as COO of
Optimis, received a complaint from Optimis physical therapist
Tina Geller (Geller) that Morelli was “sexually harassing and/or
assaulting her.” Following an investigation, “Morelli’s sexual
harassment of . . . Geller was proven.” As a result, on October 20,

3
2012, the Optimis board removed Morelli as the controlling
member of the Optimis board and as its chief executive officer.
“However, because no agenda was sent to Morelli along with the
meeting notice . . . , the Optimis board vote was a nullity under
Delaware law. Morelli, therefore, was able to resist the removal
2
attempt.”
D. Plaintiffs’ concerns about Rancho
By 2013, Rancho was “flourishing” under plaintiffs’
direction and “Optimis was floundering under Morelli’s direction.
Optimis/Morelli were actively seeking financing through bank
loans.” Plaintiffs were concerned about a potential loan from an
internet bank because the bank required the loan on the
condition that Optimis pledge the Rancho business in the event of
a default. And the loan transaction would have violated
pertinent provisions of the Rancho operating plan and the
Optimis stockholders agreement.
Also in 2013, plaintiffs sought legal advice about whether
the corporate structure of Rancho violated the law. They were
advised that Rancho was a corporation that could only be owned
and operated by licensed physical therapists. Thus, since June
2007, Rancho had been operating illegally.
E. Optimis removes plaintiffs from Rancho
On June 25, 2013, “Optimis/Morelli decided to remove”
plaintiffs and Godges from the Rancho board. “The reason for
[plaintiffs’] removal as directors of the physical therapy

2
This issue was at the heart of the first lawsuit filed in
Delaware, what has been referred to as the section 225 action.
(See, e.g., Atkins v. Morelli (Sept. 26, 2017, B271329) [nonpub.
opn.], p. 3.)

4
corporation that they founded and developed into a successful
entity was because Plaintiffs would not sign the loan documents
from the internet bank.”
F. Plaintiffs and Rancho file the illegality lawsuit against
Optimis
“Upon being advised they were removed as directors (and
officers) of Rancho . . . , and were being replaced by lawyers
Morelli and [Laurence] O’Shea, who were not licensed physical
therapists as required under” Rancho’s bylaws “and by the
[Moscone-Knox Professional Corporation Act (the Moscone-Knox
Act)] (codified at Corporations Code §§ 13400-13410), Plaintiffs
had no choice but to seek the intervention of the Superior Court.”
Plaintiffs and Rancho filed an action against Optimis and Morelli
in Los Angeles on June 26, 2013 (the illegality lawsuit).
On July 2, 2013, the superior court in the illegality lawsuit
found “that the corporate structure of Rancho . . . was illegal
since the June 29, 2007 . . . arrangement between it and
Optimis—i.e. Rancho . . . was a physical therapy corporation that
had to be owned, operated, and managed by licensed physical
therapists. The Superior Court, however, also decided that it
would not be practical and fair to undo the past transactions of
six years between the parties. Going forward in an illegal
structure was a different story from the Superior Court’s
perspective—consequently, the Superior Court set another
hearing on July 5, 2013 for Rancho . . . to come up with a plan
whereby it would be owned, operated, and managed by licensed
physical therapists instead of by Optimis and Morelli.”
G. Plaintiffs’ employment is terminated
“Once Plaintiffs’ illegality lawsuit was filed on June 26,
2013, Morelli hired and installed a licensed physical therapist

5
named Edwin Tinoco [(Tinoco)] as the sole 100% shareholder of
Rancho . . . , and then made him the sole director and the CEO of
the organization. In exchange, which was wholly without any
consideration, Tinoco agreed to give Optimis back a management
services agreement in which 55% of the monthly Rancho
. . . revenues would be sent to Optimis.”
On July 5, 2013, Tinoco terminated each plaintiff’s
employment. That same date, the superior court in the illegality
lawsuit determined that the illegality issue had been resolved;
plaintiffs soon thereafter dismissed that action.
II. Procedural Background
A. The pleadings
3
Plaintiffs initiated this action on July 30, 2013. The
operative pleading, the first amended complaint (FAC), alleges
multiple causes of action against Rancho. As is relevant to the
issues raised in this appeal, the fifth cause of action alleges
wrongful termination in violation of public policy.
Rancho filed an answer to the FAC, setting forth 33
affirmative defenses. The first affirmative defense alleges:
“When Plaintiffs filed their FAC in this action and at all times
thereafter, an action has been pending in the Court of
. . . Chancery of the State of Delaware between Plaintiffs and
Defendants . . . , alleging breaches of fiduciary duty, breach of

3
Shortly thereafter, on August 5, 2013, Optimis and Morelli
filed an action in the Delaware Court of Chancery against
plaintiffs, Godges, and William Horne, former chief financial
officer of Optimis, for assorted claims, including breach of
fiduciary duty and conspiracy (the second Delaware action).
Following trial, the Court of Chancery “issued a 200-plus page
ruling in which he denied all of Optimis/Morelli’s claims.”

6
contract, and tortious interference. . . . The parties and the
subject matter are the same in the two actions. Accordingly, this
action should be abated.” The twelfth affirmative defense alleges
that the “FAC and each of its causes of action are barred either in
whole or in part by the doctrines of collateral estoppel and res
judicata.”
In response, Rancho filed a cross-complaint against
plaintiffs. Plaintiffs answered the cross-complaint, asserting,
inter alia, an affirmative defense of plea in abatement.
B. Trial on plea in abatement
Prior to trial, plaintiffs filed a motion to try their plea in
abatement affirmative defense first. The trial court granted their
request and then found in favor of plaintiffs on that affirmative
defense. Rancho’s cross-complaint was dismissed.
C. Trial on claims in the FAC
The only claims that went to trial were plaintiffs’ fifth
cause of action for wrongful termination in violation of public
policy and a claim that combined the sixth and seventh causes of
action for failure to pay plaintiffs their accrued vacation pay upon
their termination from Rancho employment.
D. Statement of decision and judgment
After consideration of the evidence, the trial court issued
its statement of decision. First, the trial court referenced its
prior order dismissing Rancho’s cross-complaint:
“Optimis/Morelli filed an action for damages against” plaintiffs in
Delaware. “The Optimis Board authorized the filing of this
Delaware lawsuit for damages on July 9, 2013, only four days
after Plaintiffs were terminated. [Citation.] The primary claims
in that lawsuit against Plaintiffs were that (1) they conspired
with other Optimis board members and amongst themselves to

7
remove Morelli as the controlling director based on allegedly false
sexual harassment allegations of . . . Geller against Morelli;
(2) they breached their fiduciary duty to Optimis by attempting
to take control of Rancho . . . for themselves; and, (3) they
breached their fiduciary duty to Optimis by refusing to sign off on
the [internet bank loan]. In that lawsuit, Optimis/Morelli also
claimed monetary damages for Plaintiffs’ activities in connection
with their operation of Rancho . . . business after [June 29,
2007]), all of which were contained in the Cross-Complaint filed
by . . . Rancho . . . that was ultimately dismissed by this Court in
the [Code of Civil Procedure section] 597 proceeding on
January 6, 2017.”
The trial court then pointed out that the Delaware Court of
Chancery had issued a “200 plus page statement of decision”
denying all of Morelli’s claims.
Thereafter, the trial court turned to the issues in this
action. “In this fifth cause of action, Plaintiffs alleged that the
Moscone-Knox . . . Act, codified at Corporations Code §§ 13400-
13410, and specifically Corporations Code §§ 13406(a) and 13407,
created a public policy that licensed physical therapists had to
operate, manage, and control a professional physical therapy
corporation such as [Rancho]. Further, Plaintiffs alleged that
they were wrongfully discharged from their employment at
Rancho . . . on July 5, 2013 after they filed [the illegality lawsuit]
against Optimis/Morelli on June 26, 2013.”
The trial court found that the “substantial motivating
factor” for Rancho’s termination of plaintiffs’ employment was
plaintiffs’ filing of the illegality lawsuit. Moreover, the Moscone-
Knox Act (Corp. Code, § 13400 et seq.) “created a fundamental
and substantial public policy that licensed physical therapists

8
had to operate, manage, and control a professional physical
therapy corporation” such as Rancho. And “this statutory scheme
and these specific code sections inured to the benefit of the public
rather than serving the interest of individuals.” Furthermore,
plaintiffs’ filing of the illegality lawsuit “qualified as an exercise
of a right or privilege to report an alleged violation of statutes of
public importance,” the allegations in the illegality lawsuit were
“meritorious and well taken” and “did not breach any fiduciary
duty or duty of loyalty” to Optimis. Although the Delaware Court
of Chancery “found that [plaintiffs’] failure to report to the
Optimis board and to . . . Morelli the illegality of the corporation
structure at [Rancho] was a violation of their duty of loyalty, it
. . . further found that this violation was not a motivating factor
in their discharge from the employment at” Rancho. Finally, the
trial court found that any attempt to approach and/or notify
Morelli of the unlawful corporate structure of Rancho prior to the
filing of the illegality lawsuit would have been futile.
Based upon the foregoing, the trial court found in favor of
plaintiffs and against Rancho on the fifth cause of action for
4
wrongful termination in violation of public policy.
Judgment was entered awarding monetary damages to
5
plaintiffs.
E. Appeal
6
Rancho’s timely appeal from the judgment ensued.

4
The trial court found in favor of Rancho on the failure to
pay accrued vacation pay.

5
The total monetary awards were $438,381.58 for Atkins,
$442,212.18 for Smith, and $436,425.26 for Waite.

9
 DISCUSSION
I. Plea in abatement
Rancho contends that the trial court erred in finding that
collateral estoppel barred this action because, according to
Rancho, it was not in privity with Optimis in the second
Delaware action.
A. Procedural background
On February 6, 2015, Rancho filed a cross-complaint
against plaintiffs, alleging causes of action for breach of fiduciary
duty, conversion, constructive fraud, violation of Penal Code

6
In the parties’ appellate briefs, the parties assert that
Rancho is appealing two judgments: the dismissal of the cross-
complaint following the hearing on plaintiffs’ plea in abatement
(Code Civ. Proc., § 597) and the judgment following the trial on
the merits. No matter how characterized by the parties, two
judgments were not entered. “California has adopted the ‘one
judgment rule.’ This rule mandates that under California
procedure there is ordinarily only one final judgment in an
action. A cross-complaint, under this rule, is not considered
sufficiently independent to allow a separate final judgment to be
entered upon it, unless the judgment or order on the cross-
complaint may be considered final as to some of the parties. A
judgment is final when it terminates the litigation between the
parties on the merits of the case. [Citations.]” (Lemaire v. All
City Employees Assn. (1973) 35 Cal.App.3d 106, 109; see also
California Dental Assn. v. California Dental Hygienists’ Assn.
(1990) 222 Cal.App.3d 49, 59 [“there cannot be such a final
judgment with respect to parties as to whom a cross-complaint
remains pending, even though the complaint has been fully
adjudicated”].)

10
section 502, civil conspiracy, unfair competition, and declaratory
relief.
Plaintiffs answered the cross-complaint, asserting, inter
alia, the affirmative defense of plea in abatement. In so alleging,
plaintiffs asserted that another action was pending between
“most of the parties” to the cross-complaint in Delaware. They
asked that the cross-complaint be dismissed once a decision was
reached in the second Delaware action.
On August 15, 2016, plaintiffs filed a motion to try their
plea in abatement affirmative defense first at trial of action.
Thereafter, on October 4, 2016, plaintiffs filed a motion in limine
to try their plea in abatement affirmative defense first, pursuant
to Code of Civil Procedure section 597. They asserted that
Rancho was barred from pursuing its claims in the cross-
complaint because “the Delaware Court of Chancery already has
resolved all of the cross claims [that Rancho] purports to bring in
this action.”
Rancho responded to plaintiffs’ motion by filing a
submission for entry of judgment for Rancho on the collateral
estoppel/res judicata special defense. It argued that it was not a
party in the second Delaware action, “nor was Rancho in privity
with a party to the [second] Delaware action.” In addition, it
asserted that “[n]o Rancho agent with authority to bring claims
on Rancho’s behalf was a party to the” second Delaware action.
On January 6, 2017, the trial court heard argument on
plaintiffs’ affirmative defense of plea in abatement based upon
the doctrines of res judicata and collateral estoppel. At the onset
of the hearing, the trial court noted that the primary issue was
privity. And it found that there was no “material difference
between Optimis and Rancho. It looks like one does physical

11
therapy and one does everything else. . . . [O]ne was a wholly-
owned subsidiary, they’re interlocking board of directors.” The
trial court continued: “I understand that you have the
management agreement, the management agreement just
basically gives Rancho compliance with California law that it has
to be run by physical therapists, but everything else is run by
Optimis. [¶] I just don’t see what the difference would be. I
think the interest of one would be interest of both. So I would
find privity between the two, and that sort of resolves our issue,
doesn’t it? Because it was resolved on the merits in Delaware.
[¶] And, in fact, looking at the papers, it looked like that Rancho
sort of agrees because with the discovery responses that were
given, it makes your position, Rancho, now difficult here to now
argue something else. So I would say that this matter has been
concluded in Delaware.”
Plaintiffs’ counsel then added an exhibit that “further
solidifie[d] the conclusion the court ha[d] reached.” Specifically,
plaintiffs presented a copy of an Optimis shareholder/stockholder
update dated November 17, 2016. That document provides, in
relevant part: “‘Through the excellent advocacy of our outside
counsel, Darius Ogloza [counsel for Rancho in this action], and
general counsel, Paul Price, the company successfully removed
the bulk of the claims by the former directors and, in turn, filed
and has pursued counterclaims against the former directors for,
among other things, breach of their fiduciary duty to the
company’s Rancho operating unit.’” According to plaintiffs, this
document was “a pretty clear admission from Optimis that
Optimis and Rancho are the same thing and they are pursuing
the same claims.” The trial court agreed.

12
 Rancho’s counsel then urged the trial court to find no
privity. But in response to various contentions, the trial court
noted: “Well, I can see why you have separate companies, for any
number of reasons . . . . [¶] But the operating agreement that
was at issue here pretty clearly said that you’re only separate
companies to the extent Rancho does physical therapy and
Optimis does everything else. I mean, it looks like, to me looking
at it, was total control except for who’s going to bend this arm
back and tweak the hamstrings, which, of course, Optimis can do.
Otherwise, it’s—it’s the same company.”
Later, after extensive argument, the trial court stated to
Rancho’s counsel: “[T]he party in privity who owns the party you
now represent and controls by matter of contract, controls all the
business of the party you represent made a tactical decision not
to pursue factual predicates, not to prove the factual predicates
that the court clearly had jurisdiction of; and therefore, I think
you’re bound by it.”
Ultimately, the trial court granted plaintiffs’ motion and
7
dismissed Rancho’s cross-complaint.
B. Standard of review
This is an appeal from a judgment following a court trial on
plaintiffs’ affirmative defense. Because the facts are undisputed,
and the issues presented involve questions of law, we review the

7
A judgment of dismissal was purportedly entered on
March 22, 2017. And Rancho timely filed a notice of appeal from
that judgment. Rancho later abandoned that appeal. We deem
the dismissal to be part of the final judgment entered August 30,
2018. The trial court’s statement of decision incorporates the
dismissal of the cross-complaint, which led to the final judgment.

13
judgment de novo. (Gavin W. v. YMCA of Metropolitan
Los Angeles (2003) 106 Cal.App.4th 662, 669–670; Noble v.
Draper (2008) 160 Cal.App.4th 1, 10 [“In reviewing the trial
court’s ruling to dismiss the . . . counts on the grounds of res
judicata and collateral estoppel, we apply de novo review since
the matter presents a question of law. [Citation.]”].)
C. Relevant law
Code of Civil Procedure section 597 provides, in relevant
part: “When the answer . . . sets up any . . . defense not involving
the merits of the plaintiff’s cause of action but constituting a bar
or ground of abatement to the prosecution thereof, the court may
. . . upon the motion of any party[] proceed to the trial of the
special defense . . . before the trial of any other issue in the case,
and if the decision of the court . . . upon any special defense so
tried . . . is in favor of the defendant pleading the same, judgment
for the defendant shall thereupon be entered.” This statute
“applies to the trial of special defenses pleaded in an answer to a
cross-complaint.” (Code Civ. Proc., § 597.)
“To ‘abate’ a right of action is to suspend its prosecution due
to some impediment that, without defeating the underlying cause
of action, prevents the present maintenance of suit.” (County of
Santa Clara v. Escobar (2016) 244 Cal.App.4th 555, 564.)
Plaintiffs sought abatement here on the grounds of collateral
estoppel.
“Collateral estoppel is one aspect of the broader doctrine of
res judicata. [Citation.] ‘Where res judicata operates to prevent
relitigation of a cause of action once adjudicated, collateral
estoppel operates (in the second of two actions which do not
involve identical causes of action) to obviate the need to relitigate
issues already adjudicated in the first action. [Citation.] The

14
purposes of the doctrine are said to be “to promote judicial
economy by minimizing repetitive litigation, to prevent
inconsistent judgments which undermine the integrity of the
judicial system, [and] to protect against vexatious litigation.”
[Citation.]’” (Syufy Enterprises v. City of Oakland (2002) 104
Cal.App.4th 869, 878.)
“Collateral estoppel precludes relitigation of issues argued
and decided in prior proceedings. [Citation.] Traditionally, we
have applied the doctrine only if several threshold requirements
are fulfilled. First, the issue sought to be precluded from
relitigation must be identical to that decided in a former
proceeding. Second, this issue must have been actually litigated
in the former proceeding. Third, it must have been necessarily
decided in the former proceeding. Fourth, the decision in the
former proceeding must be final and on the merits. Finally, the
party against whom preclusion is sought must be the same as, or
in privity with, the party to the former proceeding. [Citations.]
The party asserting collateral estoppel bears the burden of
establishing these requirements. [Citation.]” (Lucido v. Superior
Court (1990) 51 Cal.3d 335, 341, fn. omitted.)
“‘[T]he word “privy” has acquired an expanded meaning.
The courts, in the interest of justice and to prevent expensive
litigation, are striving to give effect to judgments by extending
“privies” beyond the classical description. [Citation.] The
emphasis is not on a concept of identity of parties, but on the
practical situation.’ [Citation.] ‘“Privity is essentially a
shorthand statement that collateral estoppel is to be applied in a
given case; there is no universally applicable definition of
privity.” [Citation.] The concept refers “to a relationship
between the party to be estopped and the unsuccessful party in

15
the prior litigation which is ‘sufficiently close’ so as to justify
application of the doctrine of collateral estoppel.”’ [Citation.]”
(California Physicians’ Service v. Aoki Diabetes Research Institute
(2008) 163 Cal.App.4th 1506, 1521 (California Physicians).)
“Notions of privity have been expanded to the limits of due
process. [Citation.] ‘In the context of collateral estoppel, due
process requires that the party to be estopped must have had an
identity or community of interest with, and adequate
representation by, the losing party in the first action as well as
that the circumstances must have been such that the party to be
estopped should reasonably have expected to be bound by the
prior adjudication.’ [Citation.]” (California Physicians, supra,
163 Cal.App.4th at p. 1522; see also Kerner v. Superior Court
(2012) 206 Cal.App.4th 84, 125.)
“Moreover, ‘[a] person who is not a party but who controls
an action, individually or in cooperation with others, is bound by
the adjudications of litigated matters as if he were a party if he
has a proprietary or financial interest in the judgment or in the
determination of a question of fact or of a question of law with
reference to the same subject matter or transaction . . . .’
[Citations.]” (Kerner v. Superior Court, supra, 206 Cal.App.4th at
p. 126.)
D. Analysis
Applying the foregoing legal principles, we conclude that
the trial court did not err in finding that Rancho’s claims in the
cross-complaint are barred by the doctrine of collateral estoppel.
Rancho makes only one argument on appeal: It contends
that it was not in privity with Optimis in the second Delaware
action and therefore is not precluded from pursuing the claims in
the cross-complaint. We are not convinced. As the trial court

16
expressly found, there is no “material difference between Optimis
and Rancho.” While Rancho does the physical therapy, Optimis
“does everything else.” And Rancho is a wholly-owned subsidiary
of Optimis, with an interlocking board of directors. It follows
8
that the interest of one would be the interest of both.
Rancho further argues that it would be unfair to find
privity here. We disagree.
“Even where minimum requirements for collateral estoppel
are established, the doctrine will not be applied ‘if injustice would
result or if the public interest requires that relitigation not be
foreclosed. [Citations.]’ [Citation.] Thus the court must also
consider whether the application of collateral estoppel in a
particular case will advance the public policies which underlie
the doctrine. [Citation.] ‘The purposes of the doctrine are to
promote judicial economy by minimizing repetitive litigation,
preventing inconsistent judgments which undermine the
integrity of the judicial system and to protect against vexatious
litigation.’ [Citation.]” (Roos v. Red (2005) 130 Cal.App.4th 870,
886–887.)
Rancho has not shown how it was unfair to apply the
doctrine here. Because Rancho’s interests were adequately
represented by Optimis in the second Delaware action, no
injustice results. And the public interest does not require that
Rancho be permitted to relitigate issues that were already
litigated and fully determined in the second Delaware action.
Rather, applying the doctrine of collateral estoppel advances the

8
Bolstering our conclusion is the November 17, 2016,
Optimis shareholders update that plaintiffs introduced at the
hearing on their motion.

17
purposes of that doctrine by minimizing repetitive litigation and
preventing a potentially inconsistent judgment.
In a similar vein, Rancho asserts that no “party to the
[second] Delaware Action had the authority to bring claims
owned by Rancho on Rancho’s behalf in that action.” It also
contends that Optimis lacked standing to pursue any of Rancho’s
claims in the second Delaware action. The problem for Rancho is
that it fails to offer any legal authority in support of its apparent
theory that Optimis had to have had authority and/or standing to
bring Rancho’s claims in the second Delaware action in order for
the doctrine of collateral estoppel to apply here. (Benach v.
County of Los Angeles (2007) 149 Cal.App.4th 836, 852.) Nor
could it. As set forth above, in order to establish that the doctrine
of collateral estoppel applies, the party against whom preclusion
is sought must be the same as, or in privity with, the party to the
former proceeding. (Lucido v. Superior Court, supra, 51 Cal.3d at
p. 341.) There is no requirement that the party in the prior
action (in this case, Optimis) have authority to bring claims on
behalf of the party against whom preclusion is sought (in this
case, Rancho), just as there is no requirement that the party
against whom preclusion is sought (in this case, Rancho) have
standing in the prior proceeding in order for the doctrine of
collateral estoppel to apply.
II. Judgment in favor of plaintiffs on the fifth cause of action for
wrongful termination
Rancho argues that the trial court erred in granting
judgment to plaintiffs on their claim for wrongful termination in
violation of public policy.

18
 A. Standard of review
This appeal presents mixed questions of fact and law.
Generally speaking, mixed questions of law and fact are reviewed
de novo. (Haworth v. Superior Court (2010) 50 Cal.4th 372, 385.)
B. Relevant law
The elements of a claim for wrongful termination in
violation of public policy are: (1) an employer-employee
relationship; (2) the employee was subjected to an adverse
employment action; (3) the adverse employment action violated
public policy; and (4) the adverse employment action caused the
employee damages. (Haney v. Aramark Uniform Services, Inc.
(2004) 121 Cal.App.4th 623, 641.) For an adverse employment
action to have violated public policy, the employee must establish
that his “dismissal violated a policy that is (1) fundamental,
(2) beneficial for the public, and (3) embodied in a statute or
constitutional provision.” (Turner v. Anheuser-Busch, Inc. (1994)
7 Cal.4th 1238, 1256, fns. omitted.)
C. Analysis
Applying these legal principles, we conclude that the trial
court properly awarded judgment for plaintiffs on their wrongful
termination cause of action.
First, an employer-employee relationship existed between
Rancho and plaintiffs; in fact, plaintiffs had employment
contracts with Rancho. Second, plaintiffs were subjected to
adverse employment action—their employment was terminated.
Third, the termination of plaintiffs’ employment violated public
policy. After all, as the trial court found, their employment was
terminated in response to their filing of the illegality lawsuit, and
that lawsuit implicated a public policy embodied in a statutory

19
scheme, namely the Moscone-Knox Act. And fourth, plaintiffs
were damaged.
Urging us to disagree, Rancho challenges the third element
and argues that the filing of a lawsuit is insufficient to support a
claim for wrongful termination in violation of public policy. In
support, Rancho relies heavily upon Jersey v. John Muir Medical
Center (2002) 97 Cal.App.4th 814 (Jersey). Jersey does not
support Rancho’s contention on appeal.
In Jersey, the Court of Appeal considered whether an
employer “that terminates an at-will employee for bringing [a
lawsuit] violates a fundamental public policy that supports a so-
called Tameny claim.” (Jersey, supra, 97 Cal.App.4th at p. 818,
citing Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167,
170.) The Court of Appeal concluded that it did not (Jersey,
supra, at p. 818), reasoning: “While discharging an employee for
exercising a right or privilege may in some instances contravene
a fundamental public policy, supporting a wrongful termination
claim, neither [Gantt v. Sentry Insurance (1992) 1 Cal.4th 1083
(Gantt), overruled on other grounds in Green v. Ralee Engineering
Co. (1998) 19 Cal.4th 66, 80, fn. 6] nor any other case has held
that every such discharge necessarily satisfies the criteria for a
wrongful termination action. Discharging an employee for
exercising a right is tortious only if the criteria enumerated in
Gantt and subsequent decisions are met. [Citation.] The public
policy that is violated must be one that is delineated by
constitutional, statutory, or regulatory provisions. [Citations.] It
must be a policy that inures to the benefit of the pubic, and it
must be well established, ‘“fundamental” and “substantial.”’
[Citations.]” (Jersey, supra, at p. 821.)

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 Ultimately, the Jersey court held that “[n]one of the broad
constitutional and statutory provisions plaintiff relies upon
reflect a legislative determination that it is against public policy
for an employer to insist that its employees not sue its customers,
clients or patients. . . . The question is not whether the
[employer’s] decision to terminate plaintiff was justified, but
whether the termination violated a public policy that has been
clearly articulated by a legislative or regulatory body.” (Jersey,
supra, 97 Cal.App.3d at p. 825.)
Unlike the plaintiff in Jersey, plaintiffs did more than just
file a run of the mill lawsuit. Their illegality lawsuit was rooted
in public policy as codified in the Moscone-Knox Act. As one
court has explained: “Prior to the enactment of the Moscone-
Knox Act in 1968, practitioners of certain professions were not
permitted to incorporate, the prevailing case law being that a
corporation, as an artificial entity, could not ‘practice’ that
profession.” (Marik v. Superior Court (1987) 191 Cal.App.3d
1136, 1139.) Moreover, there were concerns about laymen
exercising control over decisions made by certain practitioners;
after all “laymen, who are not bound by the ethical standards
governing the profession, might seek to enhance the corporation’s
‘commercial advantage’ rather than conform to professional
strictures. [Citations.] [¶] These public policy concerns were
incorporated into the Moscone-Knox Act, which prohibits persons
other than those answerable to the licensing authority of the
particular profession from becoming shareholders or directors of
a corporation engaged in rendering the services of that
profession.” (Marik v. Superior Court, supra, at p. 1139.)
In other words, the Moscone-Knox Act sets forth a
fundamental public policy that inures to the public benefit and is

21
delineated by statute, and plaintiffs’ illegality lawsuit invoked
that public policy. It follows that plaintiffs’ termination for filing
the illegality lawsuit constitutes a wrongful termination in
violation of public policy.
Finally, Rancho asserts that the filing of the illegality
lawsuit did not constitute the reporting of a violation of the
Moscone-Knox Act, giving rise to a Tameny claim. There are at
least two problems with this argument. First, it appears that
Rancho conflates two categories of violations of public policy. “In
Gantt, the Supreme Court . . . observed, ‘as courts and
commentators alike have noted, the cases in which violations of
public policy are found generally fall into four categories:
(1) refusing to violate a statute [citations]; (2) performing a
statutory obligation [citation]; (3) exercising a statutory right or
privilege [citation]; and (4) reporting an alleged violation of a
statute of public importance [citations].’ [Citation.]” (Jersey,
supra, 97 Cal.App.4th at pp. 820–821.) Here, as set forth above,
plaintiffs were terminated for exercising their right to bring a
lawsuit that invoked a fundamental and important public policy.
That is Gantt’s third category. And while terminating an
employee for bringing a lawsuit may not always constitute a
wrongful termination in violation of public policy, for the reasons
set forth above, it was here. (See Jersey, supra, at p. 824 [while
“an employer may with impunity discharge an employee for filing
an action over matters that do not enjoy . . . statutory protection,”
a discharge because of an employee’s exercise of statutory rights
may give rise to a wrongful termination claim].)
Second, while Rancho may be “unaware of any case
involving a Tameny claim in which an employee’s report of a
violation of statute . . . involved a report made to a court by the

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filing of a lawsuit,” that does not mean that the filing of a lawsuit
cannot give rise to such a claim. Absent legal authority to
support Rancho’s contention that the filing of a lawsuit can never
mean “reporting” a statutory violation, particularly when
reporting the violation to Morelli would have been futile, there is
no basis upon which to reverse. (Benach v. County of
Los Angeles, supra, 149 Cal.App.4th at p. 852.)
DISPOSITION
The judgment is affirmed. Plaintiffs are entitled to costs on
appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.

_____________________, Acting P. J.
ASHMANN-GERST

We concur:

________________________, J.
CHAVEZ

________________________, J.
HOFFSTADT

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