In Strategic Concepts, LLC v. Beverly Hills Unified School District, published May 10, 2018, the Second District Court of Appeal, Division 6 reversed a judgment, entered after jury trial, that awarded the plaintiff LLC millions in damages for breach of contract. A district employee who administered the planning, construction, and maintenance of the District's school facilities persuaded District officials to change her position from employee to consultant. She entered into a contract with the District under which her duties remained the same, but her $113,000 salary was replaced by a $130 per hour rate with a maximum compensation of $170,000 per year. The maximum was not enforced, and the LLC she formed was paid $1.3 million per year in two consecutive years. The contract was replaced by another one with no limit on compensation. She pushed through a bond measure that named her company as a consultant, with no other bids taken. The District then took the position that the contract was void under Government Code section 1090, which forbids conflicts of interest. The LLC's founder was prosecuted for a criminal violation of section 1090 and found guilty, but her conviction was reversed on appeal, with the court ruling that for purposes of criminal law section 1090 does not apply to independent contractors. The LLC and its founder sued the District. The District cross-complained, asserting section 1090 and violation of the competitive-bidding statutes at Government Code section 4525 et seq. The trial court granted nonsuit on the section 1090 claim, concluding the statute did not apply. The founder withdrew as plaintiff, leaving the LLC. The court instructed the jury that section 1090 did not apply.
The appellate court concluded that section 1090 did apply. In People v. Superior Court (Sahlobei) (2017) 3 Cal.5th 230, the California Supreme Court held that the term "employees" in section 1090 included independent contractors with duties similar to public employees. The trial court therefore erred in granting nonsuit on the section 1090 claim. The trial court also failed to give the District's requested instruction on the competitive bidding statutes. That was also error. Finally, because the contract with the LLC included a termination-for-convenience clause, if the LLC can prove breach of contract on remand, its damages are limited to compensation for services performed and expenses incurred to the date of termination, lost profits for 120 days after termination, and the equivalent of three months' payment.
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