SUPERIOR COURT - STATE OF CALIFORNIA

COUNTY OF RIVERSIDE

JEFFRY M. KAATZ,
Plaintiff, vs.

) )
) ) CASE NO. RIC1112557

RICARDO GRAHAM, et al.

Defendants.

) )
) )

___________________________________)

REPORTER'S TRANSCRIPT OF PROCEEDINGS Before the Honorable Ronald L. Taylor, Judge, Dept. 6 December 5, 2011

APPEARANCES: For the Plaintiffs: McCUNE WRIGHT LLP By: RICHARD D. McCUNE, JR. 2068 Orange Tree Lane, Suite 216
Redlands, California 92374

For the Defendants:

LEWIS, BRISBOIS, BISGAARD & SMITH By: MICHAEL W. CONNALLY, Esq. 650 Town Center Drive, Suite 1400 Costa Mesa, California 92626 HIROCHIMA, JACOBS, ROTH & LEWIS By: JON DAGGETT, Esq. 1420 River Park Drive, Second Floor Sacramento, California 95815

Reported by:

VANESSA LIZARRAGA-FELIX, CSR NO. 12829

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 All right.

RIVERSIDE, CALIFORNIA - DECEMBER 5, 2011 BEFORE THE HONORABLE RONALD L. TAYLOR - DEPARTMENT 6 THE COURT: MR. McCUNE: Kaatz versus Graham. Good morning, Your Honor. Richard

McCune for the plaintiffs. THE COURT: plaintiffs? MR. McCUNE: MR. CONNALLY: Yes. Good morning, Your Honor. Michael Okay. Mr. McCune, you represent

Connally of Lewis, Brisbois, Bisgaard & Smith on behalf of defendant, La Sierra University, Pacific Union Conference, and the North American Division, The Church of Seventh Day Adventist. THE COURT: Okay. You're Mr. Connally.

MR. CONNALLY: THE COURT:

Yes, Your Honor.

You're representing La Sierra University.

MR. CONNALLY: THE COURT:

And Pacific Union.

Yes. And North American Division

MR. CONNALLY:

Corporation of Seventh Day Adventist. THE COURT: MR. DAGGETT: Okay. Good morning, Your Honor. John Daggett

representing Ricardo Graham, defendant. THE COURT: Okay. Then we have a demurrer to the We also have

complaint, and we have a motion to strike.

another demurrer to the complaint, two more, and A motion to strike portions of the complaint.

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So are we ready to move forward? MR. McCUNE: MR. CONNALLY: MR. DAGGETT: THE COURT: Yes, Your Honor. Yes, Your Honor. Yes, Your Honor. Okay. All right. Then, let's take up La

Sierra's demurrers, and the motion to strike by La Sierra. Would you just like me to give you my indicated sentence on this? MR. CONNALLY: THE COURT: Yes, Your Honor.

Did anybody wish to be heard? We'd all like hear your tentative

MR. CONNALLY:

THE COURT:

Okay.

La Sierra's demurrers to the

entire complaint on the grounds that the complaint fails to state facts sufficient to constitute a cause of action. Generally, La Sierra contends the Court cannot adjudicate issues within a religious organization, otherwise, it would violate the first amendment. La Sierra also argues that there are no facts to demonstrate that the tape recording was illegal. the opposition disagrees with that. Of course,

However, I would say as to

the motion to strike, the plaintiff admits that damages under 17,200 is improper and should be stricken, but, otherwise, contends that the allegations are not irrelevant, and that the punitive damages as to individual defendants and requests for attorney's fees are proper. La Sierra requests judicial notice of, number one, the official teachings of the Church in its 28 Fundamental

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Beliefs; and, two, the 2010 bylaws of La Sierra.

The Court

would deny La Sierra's request for judicial notice, tentatively. The hearing on the demurrer may not be turned

into a contested evidentiary hearing the guise of having the Court take judicial notice of affidavits, declarations, depositions, and other such material which was filed on behalf of the adverse party and which purports to contradict the allegations and contentions of the plaintiff. give a case cite on that. I'm going to

It's Del E. Webb Corporation versus

Structural Materials Company, 1981 case, 123 Cal.App.3d, 593, in particular, page 604, 605. First, as to the teachings of the Church, La Sierra's citation to Varcoe, V-a-r-c-o-e, versus Lee, a 1919 case, which that's almost a hundred years old, but, in any event, that's 180 Cal. 338, 346 is unpersuasive to the Court. And in that

matter, the Varcoe court took judicial notice of the fact that an area in the city was in a business area. In passing, the

court cited to an Ohio case where the court took judicial notice of the doctrines of Christian Science. The court did

not adopt a ruling wherein it would take judicial notice of a religious doctrine. In contrast, in court in In re Estate of

Wirt, W-i-r-t, which is a 1929 case, 207 Cal. 106, 110, page 110, 111, specifically declined to take judicial notice of whether the objective of the Order of Masonry was a charitable one. Second, as to the bylaws, the interpretation of the bylaws is in dispute in the complaint -- or as a result of the complaint. Therefore, the Court cannot take judicial notice of

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the bylaws. So we can go forward, or did anybody wish to be heard at this moment in time? MR. CONNALLY: Sierra. Your Honor, Michael Connally for La I'm

I'm going to shorten it to the Church defendants.

representing the three church institutions. THE COURT: Yes. You announced a tentative ruling on

MR. CONNALLY: the judicial notice.

So I could focus our remarks, do you have

any tentative ruling on the demurrer and the motion to strike? THE COURT: Yes, I do. Thank you. I'll move forward. All right.

MR. CONNALLY: THE COURT:

Okay.

MR. CONNALLY:

I'd like to be heard, eventually, on

the judicial notice, but it will allow us to focus if we know what the rest of the ruling is. THE COURT: Okay. All right. Let's take up, then,

the argument that La Sierra makes that the Plaintiffs' claims are barred by two portions the First Amendment, free exercise of religion, and right to freely associate. As to the first issue, the courts in interpreting the First Amendment have, quote, "developed a general rule barring judicial review of employment disputes between religious organizations and their clergy employees." And that's a case

Schmoll S-c-h-m-o-l-l, versus Chapman University, a 1999 case 70 Cal.App.4th, 1344, in particular, 1438. Courts recognize

that the constitutional right that religious organizations to choose their own employees in the employment of clergy.

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Courts, however, also recognize that, quote, "the First Amendment is not implicated when a religious institution makes an employment decision about an employee whose duties do not go to the heart of the church function in the manner of a minister or a seminary teacher, and that's the Schmoll case, which I cited, at page 1439, footnote 9. And, then, of course, let's take up the case, Hope International University versus Superior Court 2004, 119 Cal.App.4th, 719, in particular, 723, a Christian affiliated university fired two professors who allegedly had an affair while one of the professor's divorce was pending. The

professors sued for marital status discrimination, under Tameny and FEHA, breach of employment agreement and promissory estoppel. The Hope court focused on the ministerial exception,

which are exceptions to federal and civil rights statutes, and provides that the law should not be construed to govern the relationship of the church and its ministers. Therefore, it's

the Court's view that the test is whether an employee's duties, quote, "go to the heart of the church's function in the manner of a minister or seminary teacher. Hope. And that's page 734 of

The court, however, drew the line on academics, the

court stated, quote, "the work of teaching religion for a church, as distinct from a school, obviously comes within the ministerial exception." Thus an employee whose role is

inherently a religious one like a campus chaplain, or where the employee teaches the institution's own religion is subject to the exception. But where an employee performs purely secular

work performed for a religious institution, the exception does

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not apply.

And that is Hope at page 739.

Since the professors

taught psychology, the court found that there was a triable issue as to whether the professors fell within the ministerial exception. That's at page 740. And then we've got La Sierra's arguments, which I'm not going to go into at this point, but based upon the facts pled in the complaint, which the Court must take as true for the purposes of the demurrer, the ministerial exception as state in Hope applies. is not at issue as pled. of La Sierra. The second argument is based upon a violation of freedom of association rights under the First Amendment. In Accordingly, the exercise of religion And that goes to the first argument

the case, Boys Scouts of America versus Dale, 2000, which is 530 U.S. 640, in particular, 643, 645, the U.S. Supreme Court held that a state's law, which required public accommodation for homosexuals violated the Boys Scouts' right of expressive association, since the Boy Scouts denied membership to homosexuals. The court stated that to determine whether a

group is protected by the association right, the court must first determine whether the group engages in expressive activity. If the group does, then the court must determine

whether the inclusion of a member with contrary views would significantly burden the group's beliefs. This is a very

fact-specific finding, and there are no allegations in the complaint to suggest that plaintiff's criticism of the Seventh Day Adventist Church, and the leadership of La Sierra, or criticism of the accreditation process would significantly

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burden Defendants' beliefs for pleading purposes.

Therefore,

the Court would indicate that it would overrule the demurrer on these grounds. With regard to the cause of action involving illegal recording, as alleged in the complaint, every cause of action is based on the allegation that Defendants wrongly used an illegal tape recording of Plaintiffs' private conversations in an attempt to coerce Plaintiffs to see sign a letter of resignation, and the complaint alleges that in violation of Penal Code Section 632 -- excuse me, that there is a violation of Penal Code Section 632, as well as 18 USC 2511 and Article 1, Section 1 of the Constitution. The violation of these

statutes, however, is only alleged in the first cause of action for the Tameny claim. The remaining cause of action focus on

the Plaintiffs' termination without cause or the use of threats to coerce Plaintiffs' resignation, which essentially constitutes a fraudulent misrepresentation. As such, I don't

see how or whether or not the tape recording was illegal is relevant to the remaining issues. Of course, I'm familiar with Penal Code Section 832. La Sierra argues there's no allegations that Darnell intentionally activated the tape recorder, in violation of the Penal Code, and that even if he did, La Sierra could not be held liable under Warden versus Kahn, which is a 1979 case, 99 Cal.App.3d 805. their opposition. Here there's no allegation that Darnell recorded the private conversation with, quote, "intent to do so." Instead, Plaintiffs do not address this argument in

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the complaint alleges that Darnell recorded the faculty meeting, but that the board member, I'm assuming refers to Mr. Darnell, was unaware at the time that the digital recording contained anything other than a recording of the special faculty meeting. So I would then, tentatively, indicate that I

would sustain the demurrer only as to the first cause of action, since it's based upon a statutory violation, and is not alleged that the tape recording occurred with the requisite, quote, "intent." With regard to the 9th cause of action, intentional infliction of emotional distress, La Sierra argues that this claim is subject to the worker's compensation exclusivity doctrine. Plaintiffs argue in opposition that La Sierra's use

of the recording and subsequent threats took the case out of worker's comp field. overrule the demurrer. With regard to the 12th cause of action, violation of Business and Professions Code Section 17200, La Sierra argues that it cannot be held liable for a Section 17200 violation, citing the case of Doe versus California Lutheran High School Association, which is a 2009 case, 170 Cal.App.4th 838. I Here, the Court would be inclined to

think that case is distinguishable from the facts that we have here, in that it involved students who filed a complaint for violation of the Unruh Act, and that's 170, Cal.App.4th 828, in particular, page 833. The court found that the religious

school was not a business enterprise subject to the Unruh Act, and that's at page 841. 17200 at all. The case did not discuss Sections

This instant action does not allege an Unruh Act

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violation.

Therefore, the Court would overrule the demurrer. With regard to the breach of contract claim, La

Sierra contends that Plaintiffs failed to plead the contract terms or attach the contract, and that the contract terms may be alleged generally according to legal intendment. The

relevant contractual term is that La Sierra would not terminate Plaintiffs without cause. I think that's, in the court's view,

sufficient for pleading purposes. La Sierra also is asserts that the allegations in the complaint are contradictory. A party, however, may plead in Take a look

the alternative and make inconsistent allegations.

at the case of Adams versus Paul, a 1995 case, 11 Cal.4th 583, 593. So I don't agree that the complaint is somehow deficient

because it makes allegations in the alternative. With regard to the motion to strike, La Sierra argues that Plaintiffs have not obtained a court order to seek punitive damages against a religious corporation pursuant to CCP Section 425.14. Plaintiffs contend that they are not

seeking punitive damages against the Church, which is why Plaintiffs ask for punitive damages against the individual, Defendants. La Sierra points out in their reply that it

appears that Plaintiffs are seeking punitive damages against the religious defendants. So then the Court will be inclined

to deny this, because the court -- this motion, because I do think that sufficient facts are alleged. La Sierra moves to strike damages as requested under Business and Professions Code Section 17200. concede this point. Plaintiffs

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La Sierra moves to strike attorney's fees under Section 17200, or the common right of privacy claim, as neither provides attorney's fees. As to whether this actually involves a public right, that can be determined on a motion for attorney's fees after trial. As to the remaining requests, La Sierra's motion to strike repeats the allegation of the demurrer, and so the Court is inclined to deny those remaining requests. The other thing that's kind of interesting, I understand there is case in front of the United States Supreme Court that's been argued, a case out of Michigan, that involves some very similar issues to this case here, and it's based upon the ministerial exception. oral argument in that case. And I believe they've already had I'm not sure what it's called, but

it is a case out of Michigan and involving ministerial exception. So anyway, that's how I see the demurrer to the complaint and motion to strike. Counsel? MR. CONNALLY: Thank you, Your Honor. Mike Connally

for the Church defendants.

First, just because it will help

lay out the scope of what we're dealing with, I'd like to briefly address the judicial notice ruling, the bylaws, in particular. While we do think that the Varcoe case, be it old,

does stand for a venerable and unchallenged proposition as to religious beliefs that is only helpful in laying out context for some of Plaintiffs' allegations. So the demurrer and

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motion to strike, still, we believe should lie as to those, even if judicial notice is denied. But as to the bylaws, there are two things that are very important. First, Your Honor cited the Del E. Webb case. Yes. And I'm familiar with the Del E. Webb

THE COURT:

MR. CONNALLY:

case, and it actually stands for the opposite proposition as to allegations that are contradictory to the complaint. In the

Del E. Webb case, at pages 604 to 605, which Your Honor had cited, what the court did was -- it said the court's will not close their eyes to situations where a complaint contains allegations of facts inconsistent with, and it says, attached documents, which they didn't do, or allegations contrary to facts which are judicially noticed. And then it goes on to say, the court will take judicial notice of records such as admissions, answers to interrogatories, affidavits, and the like, when considering a demurrer, only where they contain statements of the plaintiff or its agent, which are inconsistent with the allegations to the pleading before the court. And it says that the hearing

can't be turned into a contested evidentiary hearing. But, here, we're not talking about something that's reasonably calculated to be disputed. We're talking about

exactly what the Del E. Webb court case says in an instance where you can and should take judicial notice. Plaintiffs

selectively paraphrase and quote portions of the bylaws in the trustees handbook of La Sierra University. They do it very

selectively, and present a misleading presentation to the court

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about what those bylaws hold. Having done that, and having pled their conclusions about what those bylaws mean, the Del E. Webb case actually stands for the proposition that if you have something that can't be contested, the full language of the bylaws, and they don't dispute in their opposition to the judicial notice or the demurrer or motion to strike, that we've quoted accurately part of the bylaws that they omitted, and to those circumstances, the court should not permit a plaintiff, buy selectively quoting, and then offering conclusions about the meaning of a document about which there is no dispute, to get buy and present a claim that is obviously contradicted by those allegations -- or by the bylaws and meritless. important point for La Sierra -THE COURT: Yeah, but this is a demurrer. So it's That's an

challenging the sufficiency of the pleadings.

That very well

maybe the case, but, in fact, the interpretation of the bylaws have been put into dispute as a result of the complaint. MR. CONNALLY: point. Exactly, Your Honor, and that's my

The Del E. Webb case says that under those

circumstances the court can take judicial notice if a document that the court can properly take as authentic, and there's been no dispute as to the authentic bylaws being attached to our request for judicial notice, that the court can take judicial notice of the complete document. And where that document contradicts allegations, especially conclusionary allegations in the complaint, then the court should not close its eyes to that artful pleading. And

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that's what's happened here, Your Honor. and the Church organization -THE COURT:

La Sierra University

Let me -- because I disagree with you on I don't reach the same

that -- respectfully disagree with you.

conclusion that you do, because where you're in a demurrer situation, you take the facts of the complaint as true. not possible for the court to do that with respect to the bylaws, because counsel for the plaintiff has contested the interpretation of the bylaws. So I just don't agree with you on that. different conclusion. I reach a It's

I understand your position on this, but,

sir, I don't agree with it, and you're argument is not persuasive to me. MR. CONNALLY: Then, shifting to the bylaws

themselves, the fact that Plaintiffs have alleged only parts of an operative document, and offered their opinions and conclusions, makes this analogues, and, in fact, they've done same thing as to the contract. They're pleading their

conclusions as to legal documents that should have been attached to the complaint, and we've cited case law that says that one cannot just offer a paraphrase and make that equivalent to pleading the legal affect of the contract in order to establish that you've pled to meet the burden for pleading the effects of a contract or of the bylaws. You have to plead facts showing that you've accurately summarized all the material terms of the document. And they certainly have not established that they have pled facts that establish all the material terms of the bylaws.

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They haven't established or pled facts that show they've pled all the material terms of the contract. They've -- they

haven't quoted, for instance, anything in these contracts that say they're for cause, and they can't, because the bylaws make it clear they aren't for cause. THE COURT: But --

Mr. Connally, let me tell you this, I

have a panel of 60 jurors coming in my courtroom in about 20 minute, so we've got to kind of move forward with this hearing. MR. CONNALLY: Amendment? THE COURT: Yes. Sure. Go ahead. Could I then focus on the First

MR. CONNALLY: ministerial exception -THE COURT:

The Court's elaboration on the

Right, and I think that that's what

applies to the situation that we have here. MR. CONNALLY: Except that I want to clarify, Your

Honor, because we don't site the ministerial exception as the basis for our First Amendment defense. The problem here is not

that the Plaintiffs are alleging, we were terminated by La Sierra University, and nothing more. The problem and the

reason why we've raised the First Amendment is that they're alleging interference -- they're alleging that religious organizations form of government is violative of their rights. They have not -- we're not saying that these people are -- that the Church defendants are entitled to reduce the administrative duties of two of the people, and terminate one, because of the ministerial exception. What we've alleged in

our demurrer is that the allegations about, for instance, that

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there's a conflict of interest between La Sierra University and the Pacific Union Conference or the North American Division, requires the court to examine what are the goals of the Pacific Union Conference, the North American Division, and La Sierra University. That's what we're arguing, and the Court's

tentative ruling addresses really a red herring that plaintiffs raised, when they said, we don't fall within the ministerial exception. We aren't arguing that. We pointed out that, for

instance, they allege that there's a breach the fiduciary duty by Pacific Union Conference, because it was looking at its religious interest in the university, instead of allowing the university to govern itself. Those are governance issues, and

we quoted from the complaint itself where Plaintiffs expressly allege that to understand their complaint the court -- this is at page 7 through 9, and the complaint at page 67, they say, it's important to understand the importance of accreditation to the La Sierra University as an institution of higher education. The heated political climate surrounding a recent negative accreditation by the Seventh Day Adventist Church Organization charged with accrediting Seventh Day Adventist Education Institutions, and the governance structure of La Sierra University. That's the focus of our demurrer.

Their allegations require this court to involve itself in deciding who is entitled to govern these religious organizations, and whether these religious organizations are entitled to take into account their educational and ministerial goals, not the ministerial exception, but their

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interrelationship with each other. THE COURT: right now.

For example --

Sir, again, I've only got a limited time

Let's ask Mr. McCune what his response is to your

argument in this area. MR. McCUNE: The response on that is, Your Honor,

that the La Sierra University as alleged in the complaint is a separate legal entity, and according to the bylaws, it is a separate legal entity that's responsible to set its own policy, curriculum, and operations through the board and through the president. The fact that it has an affiliation with the

Seventh Day Adventist Church does not change that. So the melding of all of these as one giant umbrella of religious entities under the Seventh Day Adventist church is not found by either the facts that are alleged in the complaint -- the problem is we're turning this into a summary judgment motion. We'll be able to deal with these kind of facts. But

as alleged in the complaint, and what is quoted in the complaint, is this is a separate institution from these other religious organizations that Mr. Connally is lumping them in. THE COURT: MR. DAGGETT: Did you wish to be heard, sir? Your Honor, if I may just say, I'd just

like to add in if it adds anything, that you can look solely at the complaint, and you see that they allege La Sierra separate, but they have causes of action against the higher Church entities, as well as my client Ricardo Graham, claiming breaches of fiduciary duty, and that Graham was acting on behalf of PUC and NAD. The only way the Court can resolve

those questions is to determine whether that's proper, which

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necessarily involves it in a religious governance issues, which is, in a sense, an entangling issue. That's has plainly on the

face of the complaint, regardless of anything we say. There's no way the Court can resolve those questions without excessively entangling itself in the governance between those three entities. And it's not making a factual We're not asking you to find any We're just saying for the Court to

determination at this stage. of those facts or not true.

resolve those facts, which it will have to do based on the way the complaint is pled, it will be excessively entangling. THE COURT: Just a second.

(Pause In The Proceedings) THE COURT: here. MR. CONNALLY: THE COURT: Thank you, Your Honor. So did you -- if it's possible, We're trying to make some adjustments

Okay.

Mr. Connally, would you like to respond briefly, because as I said, I don't really have time for extensive legal argument this morning. MR. CONNALLY: just conceded a point. Yes, Your Honor. Plaintiffs counsel

He said that this is going to require

the Court to look at La Sierra as a separate institution, and they've alleged more. They've alleged this separate

institution has a religious institution communicating with it, and they're trying to allege against my other two clients that they're in tort, because they communicated with the religious university. So it requires the Court to look at what should be

the relationship between a religious corporation, admittedly

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so, they've alleged that, and the two religious organizations that are affiliated with it, and one of which founded it, and so they're asking the court -- and that's why the ministerial exception is a red herring. They're asking the Court to decide

whether it's proper for La Sierra University to consider its religious ties, and its connections and communications from religious leadership, when evaluating whether or not these people are fulfilling their educational goals. the problem is. If Plaintiffs were to allege against La Sierra University alone, there was some nonreligious tort that had been committed here, we wouldn't be demurring. alleged much more than that. But they've And that's what

They've alleged that La Sierra

has committed the tort because it listened to its religious affiliates. Furthermore, Your Honor, you made a ruling that we agree with, which is that the illegal recording are not involved here, and Your Honor sustained the demurrer as to first cause of action because of that, but that allegation permeates this complaint. THE COURT: It does. So it's not just limited to the first

MR. CONNALLY: cause of action.

For instance, the 17200 cause of action is

based entirely upon allegations that they violated the criminal law. That's the alleged unlawful business practice that my Your Honor has found that

client is alleged to have committed. they didn't violate the law. fall.

So that 17200 claim needs to

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THE COURT:

I didn't find that they didn't violate

MR. CONNALLY: overstated it. THE COURT:

Well, Your Honor, I'm sorry.

I maybe

Yeah, I think you did. What you found was that they had not

MR. CONNALLY:

pled that there was an intentional recording -THE COURT: Correct. -- so they hadn't pled facts showing.

MR. CONNALLY: THE COURT:

Again, this is based upon pleadings.

What we're talking about here today is pleadings. MR. CONNALLY: Right. And my point is, Your Honor

found they didn't plead an illegal recording, and that illegal recording is the key not just to the first cause of action, but the 17200 cause of action. So to be consistent, since Your

Honor ruled they haven't pled facts showing illegal recording, they haven't pled facts showing the predicate for a 17200 unlawful practice. THE COURT: I'm assuming that they would address that

in the amendment to the complaint. MR. CONNALLY: Well -- but my point is you should be

sustaining the demurrer as to the 17200 cause of action with leave to amend as well. THE COURT: I see your point. So I'll sustain it as

well as to that cause of action. MR. CONNALLY: And the illegal recording is in the

other four causes of action about the interference with the contract as well. We've cited to --

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THE COURT:

Let me just say this, if it's contained

in any other cause of action, maybe I missed that, but if it is, it needs to be addressed in the amendment to the complaint. MR. CONNALLY: Okay. So it will be sustained as to

those causes of actions where they've alleged the illegal recording? THE COURT: If it's in that cause of action, yes. Okay. Moving to the motion to strike,

MR. CONNALLY: Your Honor. THE COURT:

Yes. A very important issue that --

MR. CONNALLY: THE COURT:

Again, be brief, Mr. Connally. I understand. You had said that they

MR. CONNALLY:

concede that the punitive damages against the corporation are not being pled. But, at least as I heard it, you said that you They've conceded

were going to deny the motion to strike. that -- if we could suggest -THE COURT: Correct.

MR. CONNALLY:

-- the ruling should be granting the They've clarified that

motion to strike as to the corporation.

they didn't intend to, but they do plead that fact. THE COURT: motion to strike it. MR. CONNALLY: THE COURT: that's fine. MR. CONNALLY: Then, Your Honor, another important Okay. I'm okay with that. I'll grant the

It doesn't seem like it's necessary, but

issue that hasn't been addressed is the allegations about WASC.

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Plaintiffs have included a whole bunch of allegations about the WASC accrediting association. They didn't defend those, and

their opinions and conclusions stated by WASC that also required this Court to become involved in church governance issues -THE COURT: The court is not going to become involved I can assure you of that,

in church governance issues. Mr. Connally. MR. CONNALLY:

Then the motion should be granted as

to the WASC allegations, because those allegations are allegations about opinions and conclusions that WASC offered about how this religious organization ought to operate its university. THE COURT: the WASC allegations. MR. CONNALLY: THE COURT: Denied? That motion is denied, with respect to

Isn't that what you said? On what grounds?

MR. CONNALLY: THE COURT:

Your motion. Why should the WASC opinions and

MR. CONNALLY:

conclusions about how religious organizations operate be allowed, if you're not going to involve yourself in religious issues? THE COURT: Because this is the pleading stage. You

keep seeming to miss that point, and, in fact, it seems to the Court as if you are attempting to use this as a summary judgment motion, and the Court is not inclined to go along with your strategy on this.

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 of WASC.

MR. CONNALLY:

Respectfully, Your Honor, what our

point is as to WASC, and it's important, the allegations are irrelevant to the allegations in the complaint. They're

alleging that WASC had these opinions about what La Sierra did. That's immaterial conclusions. Conclusions are not properly

pled, and they're not even talking about their conclusions. They're pleading the conclusions of an outside organization, and they're pleading their conclusions about an outside organization's opinion of our religious operations. THE COURT: Mr. McCune? MR. McCUNE: I do, Your Honor. Mr. Connally is Okay. Do you want to respond to that

confusing concepts here.

It is their -- there are

representations, and I think that the factual basis will be developed in discovery, that La Sierra has taken positions with the accreditation as to their governance as it relates to our clients, that is completely in conflict with what's being -the position being taken here. It is -- there is not a cause of action for violation It is part of the story that relates to the breach of

fiduciary duty, the breach of contract, the basic issues that are being presented in this case, and it goes to the facts that support Plaintiffs' position, and it will be developed in discovery, and then at the appropriate time, the Court can rule on its relevance. THE COURT: progress here. You know, we're not making very good

So at this time, the Court is going to adopt

its tentative ruling with regard to the demurrer to the

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

complaint and motion to strike.

However, I still have the

demurrer by Pacific Union Conference, and I have the demurrer and motion to strike by Graham. I don't really believe we have the time to adequately discuss these issues. So I think I'm going to trail the

balance of this hearing to another date this week so we have more time. I don't feel we ought to just try to cram it into

the few minutes that I've got left before I start my trial. So with that being said, what about Friday. MR. CONNALLY: THE COURT: day for me. MR. CONNALLY: MR. DAGGETT: MR. McCUNE: THE COURT: That's fine. That's fine. That would work, Your Honor. Okay. So let's trail it, and I'll tell The 9th? That would be a good

Yes, this Friday.

you what, I'll put you on at 9:30 so you don't have to sit through the other calendar. So just come back at 9, 30 and

we'll have time to complete the -- actually, make that 9:00 o'clock. We'll just trail it until 9:00 o'clock, and then

we'll take up the demurrer to the complaint filed by Pacific Union Conference, the demurrer to the complaint and motion to strike portions of the complaint, okay. MR. McCUNE: Before we adjourn, Your Honor, Plaintiff

would request leave to amend on the two issues that the court found against them. THE COURT: MR. DAGGETT: Yes, I'm going to grant leave to amend. Actually, I would like to request the

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Court suspend entering a tentative ruling until Friday, because a lot of the issues are so intertwined, it might make it difficult if we're able to undo you on anything, Your Honor. don't see any harm in putting that off until Friday. THE COURT: I don't agree with you on that. I'm not I

going to suspend my ruling, Mr. Daggett. suspend my ruling, okay. MR. DAGGETT: THE COURT: MR. McCUNE: MR. CONNALLY:

I'm not inclined to

Thank you, Your Honor. You're welcome. Thank you. Your Honor, if I could, do you have a

tentative ruling that we could review to focus remarks for resumption of the hearing that might help everybody? THE COURT: My tentative ruling? Well, I'm not asking you to read it.

MR. CONNALLY:

I'm just saying if you had, for instance, a tentative ruling in printed form -THE COURT: No, I don't. Okay.

MR. CONNALLY: THE COURT:

I could have done it that way, but that's Yes, I have

not normally the way I do it on the demurrer.

tentative rulings, but because we spent so much time on the Seventh Day -- La Sierra University -- well, actually you represent La Sierra Seventh Day Adventist, and you also represent the Pacific Union Conference. MR. CONNALLY: separate -THE COURT: Okay. All right. Well, be back here And North American, but they have

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

this Friday at 9:00 o'clock, and we'll wrap this thing up. MR. CONNALLY: MR. DAGGETT: MR. McCUNE: Thank you. Thank you. Thank you.

(Proceedings Adjourned.)

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REPORTER'S CERTIFICATE

JEFFRY M. KAATZ, Plaintiff, vs.

)
) ) CASE NO. RIC1112557

RICARDO GRAHAM, et al.

Defendants.

) )
) )

___________________________________)

I, VANESSA LIZARRAGA-FELIX, Certified Shorthand Reporter, No. 12829, do hereby certify: That on December 5, 2011, in the County of Riverside Dtate of California, I took in stenotype a true and correct report of the testimony given and proceedings had in the above-entitled case, pages 1 through 25, and that the foregoing is a true and accurate transcription of my stenotype notes, taken as aforesaid, and is the whole thereof.

DATED:

Riverside, California, December 8, 2011.

_______________________________________ VANESSA LIZARRAGA-FELIX, CSR NO. 12829

VANESSA LIZARRAGA-FELIX, CSR