Community Action Employee Assistance Program v. Bruner CA2/5

background facts from the district court’s opinion in Fed 1. (Id. at pp. *3-*5.)

2 provided various human resource-like services to the employees of the contracting parties. CAEAP provided quarterly “utilization reports” that described how many of each client’s employees used CAEAP’s services. In 2016, management of CAEAP was transferred to a new entity, Lux EAP, LLC (New Manager). According to the allegations of the complaint, this was essentially a “sale” of CAEAP, but non-profits cannot be owned or sold in California, so the transaction was arranged as a transfer of control. The arrangement was effectuated by two agreements – a management agreement transferring control of CAEAP to New Manager, and a consulting agreement with Founders, pursuant to which they would assist with the transition. New Manager placed Colin Conner and John Gorzynski in control of CAEAP, in place of Founders. As part of the deal, New Manager would pay Founders $3.1 million over five years. New Manager was unable to operate CAEAP successfully. New Manager blamed Founders for this. New Manager alleged that, when Founders operated CAEAP, they issued inflated utilization reports to its clients, which…