CA Billing, LLC v. Hillis

(3) The allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery. ... (Code Civ. Proc., § 128.7, subd. (b).)

An attorney or litigant filing the paper is subject to sanctions for a violation of this certification. (Code Civ. Proc., § 128.7, subd. (c).)

The purpose of Section 128.7 is “to check abuses in the filing of pleadings, petitions, written notices of motions or similar papers.” (Musaelian v. Adams (2009) 45 Cal.4th 512, 514.)

These sanctions are discretionary. The court is not required to impose a monetary sanction or any sanction at all. (See Code Civ. Proc. §§ 128.5(a); 128.7(c); Kojababian v. Genuine Home Loans, Inc. (2009) 174 Cal.App.4th 408, 422 [“Section 128.7, subdivision (c) does not require the imposition of monetary sanctions upon the finding of a violation of section 128.7, subdivision (b); rather, it gives the trial court discretion to impose sanctions based on such a finding.”].).

“[T]he moving party must show the party's conduct in asserting the claim was objectively unreasonable. ... A claim is objectively unreasonable if ‘any reasonable attorney would agree that [it] is totally and completely without merit.’” (Peake v. Underwood (2014) 227 Cal.App.4th 428, 440 [citations omitted]; see also Optimal Markets, Inc. v. Salant (2013) 221 Cal.App.4th 912, 921 [the trial court applies “an objective standard in making its inquiry concerning the attorney’s or party’s allegedly sanctionable behavior in connection with a motion for sanctions brought under section 128.7”]).

Complaint Against Hillis

Defendant Hillis moves for sanctions against Plaintiff CA Billing and its counsel, Thomas Fasel of Fasel Law.

Defendant Hillis argues that the claims asserted against him in the complaint are frivolous. Plaintiff’s original complaint asserted four causes of action for breach of contract, fraud, breach of the implied covenant of good faith and fair dealing, and violation of Bus. & Prof. Code § 17200 et seq. against both Defendants Hillis and Oceanfront Recovery at Laguna Beach, LLC.

Both Defendants brought a demurrer on 11/14/25. With regards to Defendant Hillis, the parties agreed that the contract at issue was only between Oceanfront and Plaintiff, and that Hillis was not a signatory. Plaintiff, however, alleged, and argued in its Opposition to the demurrer, that Hillis is still liable for Oceanfront’s alleged breach under an alter ego theory. On 1/15/26, this court issued a ruling overruling the demurrer to the 1st, 3rd, and 4th causes of action, and rejected Defendant Hillis’ arguments regarding alter ego.

With regards to the fraud cause of action, this court found that Plaintiff did, in fact, allege that Oceanfront was more financially strained and in debt than what Defendants represented, and that Hillis made continued assurances even though he would not perform. However, this court sustained the demurrer with leave to amend on the basis that the representations lacked specificity. (See 1/15/26 Order).

Defendant now submits declarations by Mr. Hillis and Mr. Diamond in support of the motion.

Defendant Hillis declares that the majority of the day-to-day operations, including services, contracts, and finances were run by Keenen Diamond, Oceanfront’s Chief Operating Officer and President. (Decl. of Hillis, ¶ 4). Mr. Hillis declares the specific communications he had with CA Billing. (See, for example, Decl. of Hillis, ¶¶ 7-10). He declares that he had prior to November 12, 2024, he personally had no interaction with the CA Billing of any kind. (Decl. of Hillis, ¶ 6). He also declares various facts to refute the alter ego allegations. (Decl. of Hillis, ¶¶ 17- 43).

Mr. Diamond declares that “I confirm that all communications with CA Billing on behalf of Oceanfront were conducted by me. I confirm that I negotiated and executed the Agreement and maintained all contact and communications with CA Billing.” (Decl. of Diamond, ¶ 6). He also declares that he engaged in an informal agreement with CA Billing and hat “Mr. Hillis was unaware of this informal, verbal arrangement.” (Decl. of Diamond, ¶ 9). Mr. Diamond also declares various facts to refute the alter ego allegations. (Decl. of Diamond, ¶¶ 24-26).

In his reply, Defendant Hillis argues that surviving a demurrer does not negate that the claims are not frivolous, because Plaintiff has not provided any evidence of alter ego and Defendant Hillis’ liability for the claims, despite the action being litigated for nine months.

However, as Defendant acknowledges, this case has only been in litigation for nine months, and this case is not even at issue, as there is a demurrer pending with a hearing date set for 8/6/26. This court cannot make an alter ego finding at this stage, based on two declarations by the party and one witness, without Plaintiff having a meaningful opportunity to complete its own discovery.

Ultimately, it is undisputed that Hillis is the founder and CEO of Oceanfront. Plaintiff has communicated with Defendant Hillis regarding their agreement. Plaintiff alleged in the original complaint that Defendant Hillis made representations to Plaintiff. Plaintiff alleged in the original complaint that Hillis used the collected funds for his own personal benefit by paying personal expenses, purchasing personal property and paying personal debts. It is not “objectively unreasonable” at the pleading stage to allege alter ego.

Accordingly, the motion is DENIED.

Plaintiff’s request for attorneys’ fees is also DENIED.

Defendant Hillis shall give notice.

Case Management Conference

The Case Management Conference is continued to August 06, 2026, at 1:30 p.m. in this department.

Plaintiff to give notice.

12 Brown v. Brodsky Defendants JACOB TYSON BRODSKY; KOI MASTERS USA, INC. DBA SKYLINE CUSTOM BUILDERS; KOI MASTERS USA, INC. DBA ORANGE COUNTY INTEGRITY PRECISION; KOI MASTERS USA, INC. DBA OCIP’s motion to bifurcate is GRANTED in part.

The court will bifurcate and preclude evidence of defendants’ wealth and profits or financial condition only until after a trial during the liability phase of trial. Evidence of liability, compensatory damages, and malice, oppression, or fraud entitling punitive damages relief will be allowed during the liability phase of trial.

Civil Code section 3295(d) provides in relevant part, “The court shall, on application of any defendant, preclude the admission of evidence of that defendant's profits or financial condition until after the trier of fact returns a verdict for plaintiff awarding actual damages and finds that a defendant is guilty of malice, oppression, or fraud in accordance with Section 3294.”

“The purpose behind Civil Code section 3295, which allows bifurcation and preclusion of evidence of a defendant's wealth and profits during the liability phase of trial, is to minimize prejudice prior to the jury's determination of a prima facie case of liability for punitive damages. [citation omitted] However, such evidence is not to be excluded on the basis of prejudice when the information is relevant to liability.” Notrica v. State Compensation Ins. Fund (1999) 70 Cal.App.4th 911, 940. “As an evidentiary restriction, section 3295(d) requires a court, upon application of any defendant, to bifurcate a trial so that the trier of fact is not presented with evidence of the defendant's wealth and profits until after the issues of liability, compensatory damages, and malice, oppression, or fraud have been resolved against the defendant.

Bifurcation minimizes potential prejudice by preventing jurors from learning of a defendant's “deep pockets” before they determine these threshold issues.” Torres v. Automobile Club of So. Calif. (1997) 15 Cal.4th 771, 777-778 (bold added).

Where the same trier of fact decides all stages of the trial, evidence admitted in the first stage of a bifurcated or severed trial need not be presented again in a later stage of trial but can be considered by the trier of fact for the later stage of trial. Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 888.

Here, Defendants seek bifurcation of trial into two phases—liability and punitive damages. Defendants contend that the jury will be confused given that there are two distinct burdens of proof: preponderance of evidence for compensatory damages and clear and convincing evidence for punitive damages. The court finds that Defendants’ request for bifurcation is overbroad and exceeds the scope of section 3295. The

evidence of liability for compensatory damages and malice, oppression, or fraud will necessarily involve overlapping evidence and witness testimony. Bifurcating the issue of whether or not defendants’ conduct rises to the level of malice, oppression, or fraud will needlessly waste judicial and jury time by requiring re-litigation of similar facts, conduct, witnesses, and documents regard defendants’ conduct in multiple phases. Any potential confusion to the jury may be solved with jury instructions regarding the different burdens of proof as well as a special verdict.

Bifurcating evidence related to the amount of punitive damages and defendants’ profits or financial condition until after the trier of fact has determined defendants’ liability and plaintiff’s entitlement to punitive damages, in the first, place, balances Defendants’ concerns with efficiency and the policy purposes behind section 3295.

Defendants’ motion to bifurcate trial of punitive damages is granted in part as set forth above.

Moving Defendants to give notice.

31