seiu-uhw's lawsuit against duane dauner, greg adams and the california hospital ass'n, nov. 24, 2015
TRANSCRIPT
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ROGER &
ROSENFELD
Profeuional
Cofpontion
a V i n ^ pHkmy,SU M 200
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ROGER&
ROSENFELD
ProftssioMl CoiporURm
Mtfhi
VfRi«e
Pvfcwiy. Snile IM
acdhCUUftnlaMJOl
I. INTRODUCTION
1.
This is a
case to
remedy the corrupt
acts
of Defendant
C. Duane
Dauner ( Dauner ) an
his enablers. The conduct alleged herein arises from Defendant Dauner's decision to sell his v
powers
as Co-chair of the Board of Directors
for
Nominal
Defendant
Caring
for
Califomians,
LLC ( CFC ) in exchange for
favors
that
advance
his own — but not CFC's — interests.
2.
CFC is
a
non-profit organization dedicated
to
increasing funding
for Medi-Cal
and
thereby ensuring that millions of low income and disabled Califomians have
access
to high
quality health
care.
CFC invested heavily in realizing this goal by pursuing a
statewide ballot
t
would rely on revenue generated from he personal income taxes of Califomia's wealthiest
individuals, and then channeling some
of
the revenue that is generated from hose taxes to Med
Cal.
3. As Co-Chair and a
Director
of CFC, Dauner owes CFC a fiduciary duty of loyalty, goo
faith, honesty and candor.
Dauner
also serves as the President and
Chief
Executive
Officer
( CEO ) of the
Califomia Hospital
Association
( CHA ).
4. As will be set forth herein. Defendant Daimer and his co-defendants breached each and
every one
of
those
duties
when they
agreed
to shut
down
the
operations of
CFC.
Specifically,
coalition of employers and labor organizations (the ABC
Coalition ),
with political interests th
do not align with CFC, threatened to initiate ballot measures that
would
reign in the pay of
hospital executives, cap the prices of medical services charged
by
hospitals, and require hospit
to provide a certain level of charity care.
5. Because these
ballot
measures
were
direct
threats
to
Davmer's other
company, CHA,
Dauner secretly met with the ABC Coalition and agreed to exchange his power to veto any
proposed
CFC
action
i f
the
ABC
Coalition
dropped their
ballot initiatives.
In
effect,
Dauner
so
out
CFC
and the dream of
a fully
funded
Medi-Cal
program
for
higher hospital executive pay a
profits.
6. Plaintiff Service Employees Intemational Union, United Healthcare
Workers
West
( UHW ) is a
member of
the CFC and
hereby
brings suit on its own behalf and
derivatively
on
behalf
of CFC
for
Dauner's breach of fiduciary
duty
and related causes of
action.
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ROGER &
ROSENFELD
vai i i* Fwwwy.
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30D
II .
PARTIES
7. Defendant C. Duane
Dauner, an
individual,
is the
Co-Chair
and a Director of CFC. He
also
the President and
CEO of CHA
and the Califomia
Association of
Hospitals and
Health
Systems
( CAHHS ). Upon information and belief,
he maintains
residencies
in
Sacramento
an
Palm Springs,
Califomia.
8. Defendant Gregory
A .
Adams
( Adams ),
an individual, is
a Director and
Treasurer
of
CFC. In addition. Defendant
Adams
is
an
officer and
the Chair
of
the
CHA and CAHHS Boar
of Directors. Defendant Adams is also the
Group
President of
Kaiser
Permanente. Upon
information and belief,
he
is a resident of
Altadena,
California.
9.
Defendant Mark
R.
Laret ( Laret ), an individual, is a Director of CFC. In addition.
Defendant
Laret is an officer of
the
CHA
and
CAHSS Boards of Directors.
Defendant
Laret
is
also
the
CEO of the University o f Califomia Medical
Center, San
Francisco. Upon information
and belief,
he
is a resident of Marin, Califomia.
10.
Defendant James R. Holmes
( Holmes ), an
individual,
is a Director of CFC, In additio
to. Defendant
Holmes
is
an
officer and
the Chair-elect
of
the
CHA
and
CAHSS Boards of
Directors. Defendant Holmes is also the President and CEO of Redlands Commimity Hospital
Upon information and belief,
he
is a resident of Redlands, California.
11. Nominal Defendant Caring for Califomians, LLC
is
a Labor Management
Committee
established
pursuant
to
the Labor-Management Cooperation Act of
1978,
organized under
Califomia's
Nonprofit
Mutual Benefit Corporation
Law.
CFC's
headquarters
is
located
in
Sacramento, Califomia.
12. Plaintiff Service Employees Intemational Union, United Healthcare
Workers - West
is
labor organization that
for
all
imes
relevant
to
this
complaint was
a
member
of
CFC. UHW's
headquarters
is
located in
Oakland,
Califomia.
13.
UHW
is
ignorant
of the tme
names
and
capacities
of
the
defendants sued in
this
Complain
DOES
1 through 10, inclusive, and therefore
sue these
defendants by such fictitious
names
and
capacities.
UHW will
amend
this
Complaint
to
allege
those DOE defendants'
tme
names
and
capacities when
leamed.
UHW
alleges that
each
of
the
defendants named as
DOES was
in
som
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ROGER &
ROSENFELD
Corpomion
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manner
responsible
for the acts and omissions alleged in
this
Complaint.
III . JUR ISDICTION AND VENU E
14. This Court has
jurisdiction
over this action pursuant to Article VI , section 4 of the
Califomia
Constitution and
section
1600 of the
Califomia
Code
of Civil
Procedure
( CCP ).
15. This Court has personal jurisdiction over the Defendants who engaged in conduct, and
who continue to
engage
in conduct, giving rise o the claims stated herein at locations within th
State of Califomia and Alameda County.
16.
Venue
is
proper in
this Court
pursuant to, among other provisions,
CCP
§
392(a),
beca
the injury occurred in
this
covinty and because
CFC's
primary
place ofbusiness is within
this
county.
IV . FACTS
A. TH E BR OKEN AND
SEVERELY UNDERFUNDED
MEDI-CAL SY STEM AND
CFC'S M ISSION TO FIX IT AND IMPROVE T HE HEALT HC ARE OF
MILLIONS OF CALIFORNIANS.
1. TH E MEDI-CAL PROB LEM.
17. Medi-Cal is Califomia's version of Medicaid, the
federal program
that provides health
to low income and disabled persons. Under the Affordable
Care
Act ( ACA ), the Medi-Cal
program
has expanded dramatically, and it will soon provide healthcare to three out of every t
Califomians.
18. Nearly
13 million Califomians —
mostly,
children,
seniors, and the
disabled —
are
enrolled in the Medi-Cal program and rely on it for their health coverage. Almost half of the
births
in
Califomia are
covered by
Medi-Cal, and one
in two
children
relies on Medi-Cal for
the
health coverage. Fifty-six percent of Medi-Cal recipients are female. And Medi-Cal pays for
services
covering two-thirds of Califomia's
nursing home
residents.
19. Yet, Medi-Cal is severely
underfimded.
Califomia ranks 49 out of iie 50 states in the
amount that
healthcare providers are reimbursed to provide Medi-Cal funded services. This
means providers,
such as hospitals and physicians, lose substantial amounts of money provid
care to Medi-Cal recipients. To
account
for this shortfall, these healthcare providers
charge
m
to privately
insured
people, which
drives
up healthcare and insurance costs for everyone
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ROGER &
ROSENFELD
Prolononal Corpontloo
htotra Vai»»« PnfcMy, a« UO
(3iO)xn-iooi
including those who get their health insurance through their employers. The
insufficiency of
Califomia's Medi-Cal funding also results in
limited
access
to doctors and
healthcare services
those who depend on the Medi-Cal program for their health coverage.
20. The
insufficiency
of
Medi-Cal funding
poses
the
largest threat
to the
quality
of
healthca
for Califomians. Because Medi-Cal is
such
a poor payer, Medi-Cal beneficiaries are
systematically denied
adequate
and
timely care. Medi-Cal
beneficiaries
cannot
obtain the
care
that they need, when they need i t, because many doctors simply
cannot
afford or refuse to tak
new Medi-Cal patients.
21 . An
inadequately funded
Medi-Cal
program
also
inflates the
cost of
commercial insuran
by
forcing
consumers and their employers to subsidize the cost of
insuring
the Medi-Cal
population, and it forces hospitals to seek artificial operational and financial work-arounds to
spread
the burden
of
Medi-Cal losses across the hospital industry.
As
a result, hospitals
lose
billions of dollars
each
year.
2.
TH E
MEDI-CAL SOLUTION.
22.
On May 5,2014, in
an
effort to
address the
inadequacy of Medi-Cal funding, CHA
and
UHW entered into what has been hailed as a breakthrough agreement that created a
strategic
relationship
designed
to change the face
of
healthcare
in
Califomia and serve as a new natio
model
for how
employers and unions interact. êe
CHA Press Release, CA
Hospitals,
SEIU-
UHW Reach Agreement to Improve Healthcare, Create New Model of Labor Relations (May 6
2014).
23. CHA described its new partnership with UHW as unique because it committed C
and UHW to focus on a shared strategic vision of improving health and healthcare deliv
Califomia.... Ibid.
24. The centerpiece of the CHA-UHW partnership was the creation of
a
$ 100 million join
advocacy
conunittee to drive improvements to the healthcare delivery
system
that could not be
obtained through direct negotiation
between
employers and labor unions. This
would
be
accomplished
by
identifying new resources and financing approaches at the
federal
and
state
levels, including educational activities, legislative and regulatory efforts,
a
ballot initiative, or
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ROSENFELD
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PrafasUutfl
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other strategies.
Id
25. The
joint
advocacy committee provided for in the CHA-UHW
partnership
took the
for
of CFC, established
pursuant
to the
Labor-Management
Cooperation Act of 1978, organized
under
Califomia's
Nonprofit
Mutual
Benefit
Corporation
Law
with
the
specific
and
primary
purpose to:
)
Function
as an
industry-wide Labor
Management
Cooperation
Committee, as permitted by the
federal
Labor Management
Cooperation Act of 1978 ( LMCA ), for the
purposes
of
jointiy
advocating on
behalf
of Califomia Hospital
Association
and
Service
Employees
Intemational
Union,
United Healthcare Workers
- West (the "Designators") for improved communication
between
representatives of
labor
and
management; providing healthcare
workers
and employers
with
opportunities
to study and
explore
new
and innovative
joint approaches
to
achieving organizational
effectiveness;
assisting healthcare workers
and
employers
in
solving problems of
mutual
concem
not susceptible to resolution
throu^
the
iadit ional collective bargaining
process; studying and
exploring ways of eliminating potential problems which reduce the
competitiveness and
inhibit
the economic development of the
healthcare industry
in Califomia; enhancing the involvement of
healthcare
workers
in
making
decisions that affect
their working
lives;
expanding and
improving working relationships
between
healthcare workers
and managers; and any other permissible
purposes
under the LMCA; and
Focus during the firsttwenty-four months after the date of
incorporation
on the
following
agenda: obtaining
full
Medi-Cal
fimdijig and
payments
to
hospitals
for services rendered to Medi
Cal beneficiaries to the
maximum
amount allowed
imder federal
law without
reliance
on a hospital fee, tax, or assessment program,
unless otherwise agreed by the Designators.
26. CHA and UHW
committed
to each
other
to
fund
CFC. In accordance
with
this
commitment, CHA agreed to
provide
$80
million
in
funding
to
CFC,
and UHW agreed to
pro
$20
million
in funding. To
date,
CHA and UHW have contributed half of
their
funding
obligations to CFC. CFC currently holds more than $7
million dollars
of UHW contributions
which
can only be
spent
by an action
taken
by the
Board
of
Directors
for
CFC.
B. THE
STURCTURE
AND OPERATION OF CFC
27. Per CF C's
Bylaws,
CFC has two "designators," CHA and UHW.
Botii
CHA and UHW
are authorized to act through
their
designated representatives. The designated representative f
CHA is
Defendant
Dauner, while the designated representative for UHW is the President of
UHW, David
Regan ("Regan").
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ROSENFELD
kWM vnu^ PtAwsy Mu
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Ckli'finfiMJOt
(910)1)7-1001
28.
The primary
authority of the
"designators,"
as set forth in Articles
III and IV ofthe
Bylaws,
is the
right
to appoint a certain
number
of
Directors
to the Board of Directors.
29.
CF C consists
of eight Directors.
As
per the Bylaws, the President of CHA, or
whoeve
his
or her successor
as
CEO
of
CHA,
is
designated
the
CHA
Co-Chair
of
CFC
by
virtue
ofhis
her
position. Likewise, the President of UHW,
or
his
or her
successor, is the UHW Co-Chair
CFC by
virtue
ofhis
or her
position.
30.
Three
of the
other
six directors
are appointed
by the President of CHA,
and
the remain
three are appointed by the President of UHW.
31. Because he has been CHA 's President and CEO at all timesrelevant to this Complain
Defendant
Dauner has
been
CHA 's Co-Chair and Director of CF C at all relevant
times.
32. The
other
CHA Directors
have
included
Defendants
Adams,
Laret,
and
Holmes
(collectively
with
Defendant
Daimer, the CHA Directors").
Defendants
Adams,
Laret,
and
Holmes are each officers of CH A and CAHHS and are subordinate to Defendant Dauner in
CHA and CAHHS
hierarchy.
33.
At
all relevant
times,
the UHW Co-Chair has been
Regan
by
virtue
ofhis position as
UHW's
President. The
other
UHW
Directors
have
included
Arianna
Jimenez ("Jimenez"), C
Gualvez ("Gualvez"), and
David Kieffer ("Kieffer").
34. In addition to the two Co-Chairs, CFC has a Secretary and a
Treasurer.
At all relevant
times,
Jimenez has served as Secretary and Defendant
Adams
has served
as
Treasurer.
35.
CF C
is
independent and legally distinct
from CHA,
CAHHS, and
UHW. Even
tiiough
Director may also serve as
an
officer
or director
of
CHA,
CAHHS,
or UHW,
each Director o
CFC owes a duty to CFC that obligates them to
"perform
the duties of a
director
in
good
fai
a
manner such director
believes
to be in the
best
interest
of
this corporation
and
with such
ca
including
reasonable
inquiry, as an ordinarily
pmdent
person in a like
situation
would use un
similar circumstances."
36. CFC
employs
an
Executive
Director, Peter
Ragone ("Ragone"),
who reports to the
Co
Chairs.
37. The Board of
Directors
must authorize any expenditure. The Executive Director is
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R O G E R &
R O S E N F E L D
Pnfisslona]
Corporal
icm
m
V i l h ( * P B f a i 4 y . & i i U » 0
A l n i c i l h C d i l M 9 4 » l
(Jl0)337-I00)
authorized to
sign
checks for
amounts
up to fifty
thousand
dollars, provided
that
the Board ha
authorized such
expenditures,
but he
mustfirstreceive approval
from
both
Co-Chairs. The C
Chairs must
jointly
sign
checks for
expenditures
over fifty thousand
dollars
and
only
for Boar
authorized expenditures.
38. In order for the
Board
to
take
any action, the Bylaws of CFC
require
a quorum to be
established.
The
Bylaws define a
quorum
as "[t]he presence of both
Co-Chairs
plus at
least
t
other
CHA
Directors
and two
other SEIU-UHW Directors
"
Once
a quorum is
establishe
an
action may only be approved
if
"both
Co-Chairs
plus
at
least
two of the CHA Directors and
two of the
SEIU-UHW
Directors" vote in favor. Thus, either Co-Chair may veto an action
simply by
withholding
his approval.
C.
CFC S
BALLOT MEASURE AND THE ABC COALITION S COMPETING
BALLOT
MEASURE
39. One of CFC's major
purposes,
and its
sole focus
for its first two
years,
is and
should
continue
to be to
obtain full funding
for Medi-Cal.
40. To
this
end, on July 28,2015, the Board of Directors unanimously approved a "Strateg
Plan"
aimed at
"obtaining
fiill Medi-Cal funding and
payments
to
hospitals
for services rende
to
Medi-Cal
beneficiaries
to the
maximum amount allowed under federal
law
without reliance
a hospital fee, tax, or
assessment program."
41
As
part o f the Strategic Plan adopted
by
the Board o f Directors, the parties devel
initiative that would be placed on the November 2016 statewide ballot that would rely, in
revenue generated from he current but temporary personal income tax rates for individ
making over $300,000 year, as established by Proposition 30. In addition, CFC's initia
contain two additional increased tax rates for individuals making over $1 million and $
annually. This initiative was entitled The Invest in California's Children Act.
42. A
conservative estimate
is
that these taxes would produce
$ 10 billion in increased ann
revenue. The
revenue
generated by the
taxes
would be distributed to public
education
(K-14)
(45%),
higher
public
education (5%),
Medi-Cal (40%), and
early leaming programs
(10%).
43. If passed, CFC's initiative would, by
conservative
estimates, produce $4 billion in
permanent annual revenue
for Medi-Cal, with
most of the money going to doctors
and
hospit
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RG. ROGER &
ROSENFELD
PFo&ssiMia) Corporaiiaa
ViIbt«riifc««y:S«il«UO
This would
fully fund
Medi-Cal,
and,
in
the
process, improve
the
lives
of
millions
of
Califomians v̂ ô rely on the
Medi-Cal
program.
44. At or around the
same
time CFC was developing its idea of a ballot initiative to fix and
fully
ftmd
he
Medi-Cal
program,
a
separate coalition that includes
the
Califomia
Teachers
Association ( CTA'O,
the
Califomia
Medical
Association ( CMA ),
and the
SEIU State Counc
("State Council)
(collectively
known as the ABC Coalition"), began to develop a competing
ballot
initiativetiiat would use
revenue
derived from the Proposition 30
taxes
to fund K-12
education,
but not
Medi-Cal, higher education or early leaming.
45. In or around August 2015, CFC became
aware
that the ABC Coalition was planning to
file
a competing initiative. At
this time,
various
Directors
of CFC
advocated that
CFC fil ts
initiative
with the
Califomia Attomey General before
the
ABC Coalition filed
ts initiative, an
concurrentiy engage
representatives
of the A BC Coalition in an effort to get the two organizati
to agree on
a single
initiative rather than having competing
initiatives
on the 2016
ballot.
46.
In
or
around August
2015,
Defendant Dauner
claimed
that
he had
knowledge that
the
ABC Coalition would not meet with CFC. Defendant Dauner
made
it clear that he opposed
proposal
that
called for CF C to fil ts own initiative,
despite
the
fact that
the
A BC
Coalition
might file
their
initiative first
and put
CFC's initiative
at
an electoral disadvantage.
47. Because
Defendant
Dauner, as
a
Co-Chair o f CFC, must approve any action of the Boa
of Directors, he
effectively
vetoed filing
CFC's
Invest
in California's Children
Act
in
August
2015.
48.
On September 14,2015,
the
AB C Coalition filed
ts
competing
initiative.
The School
Funding and Stability Act of 2016, with the Califomia
Attomey
General.
49.
Defendant
Dauner's
opposition
to
CFC's
filing
ts own
initiative
was
significant,
becau
it provided the
A BC
Coalition with multiple
strategic
and procedural advantages
over
CFC,
which
had yet to file ts own initiative.
For example, a party that files
an
initiative before anot
that
will
compete with it can (1)
collect
signatures for the initiative before the party filing a
competing initiative, and (2) once qualified, the initiative
receives
preferential
placement
on t
election ballot.
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ROSENFELD
PnfitfsioDal Corpomion
U ^ VUhp M« ra r, SnlH
zoo
a» di .Ct] i l i nbH»l
(3IO)3]7-im
50. Defendant Dauner intentionally
opposed
the filing of CFC's initiative prior to the filing
the ABC Coalition's initiative for
a
nefarious purpose - that is, in order to put CFC's initiative
a
disadvantage,
while providing both a strategic and
procedural advantage
to the
ABC
Coalition
Defendant Dauner, however, kept
to
himself the fact
that
he had
been
secretiy
working
with
th
ABC Coalition to undermine CFC's initiative.
51. On September
15,2015, after
the
ABC
Coalition had
alreaidy filed
ts
initiative,
the Boar
of Directors
unanimously
voted to file CFC's initiative on September 21,2015. In accordance
with
the Board's
unanimous
vote, CFC's
initiative. Invest
in California's Children
Act,
was file
with
the
Califomia
Attomey
General.
The
proponents
of the initiative are
Gualvez,
who
serve
on the Board o f Directors of CFC, and Dietmar Grellmann, Senior
Vice
President of Professiona
Services for CHA. Defendant Dauner personally selected Grellmann to serve as the proponent
and Grellmann is
Dauner's
subordinate.
52. After personally selecting Grellmann as the proponent. Defendant Dauner threatened
Regan that
Grellmann would not
participate in
the filing and processing of CFC's initiative
i f
CHA decided
to end its partnership
with UHW. Regan
informed Defendant Dauner that
Grellmann could not unilaterally block the filing and processing of CFC's initiative.
53. On
October 26,2015,
the Board of Directors
unanimously agreed
to fund a
campaign
committee with
a $9 million dollar loan and
$1
million dollar contribution, to support CFC's
initiative.
Invest
in California's Children
Act.
Although Defendant Dauner approved
this
action
he had no intention
of
approving any
expenditure that
would
enable
the
committee's operation
because
ofhis
secret
deal
with
the
ABC
Coalition to
undermine
CFC's initiative.
D.
AT T H E EXPENSE OF
MILLIONS
O F CALIFORNIANS
WHO
R E L Y ON
MED
CAL,
DEFENDANT
DAUNER AND CH A EMBARKED ON
A COVERT
CAMPAIGN TO UNDERMINE
CF C
B Y
W O R KING
W I TH
TH E
ABC
COALITION
54. In or
around
March 2015, Defendant Dauner had been secretiy
meeting with
members o
the A BC Coalition, altiiough iie ABC Coalition had not yet been formally organized. Defendan
Dauner routinely met
with
Dustin
Corcoran,
the CEO of
CMA, in order to
keep him informed o
the
business
of CFC, including but not
limited
to CFC's confidential Strategic
Plan.
55. During
this same
period. Defendant Dauner also met
with
representatives of the SEIU
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ROGER &
ROSENFELD
ProTcislonil Corporaiioii
hriEiray, SdM 300
OIO)3]T.|0OI
State
Council in order to keep
them
informed ofthe
business
of CFC, including but not limite
CFC's confidential "Sfrategic
Plan." The
SEIU
State
Council
is led by
Jon Youngdahl
("Youngdahl"),
who is the Executive Director ofthe State
Council,
and Laphonza
Butier
("Butier"),
who is
tiie
President
of
tiie
State
Council.
56.
In addition, Butler
is the
President
of the
SEIU, United Long-Term Care Workers
( ULTCW )
as
well
as tiie
provisional President
of
SEIU, Local
2015.
Local
2015 represents
approximately 285,000 home-care and nursing home workers m California, two constituencies
whose employers
rely on Medi-Cal funding and would benefit from a fully funded Medi-Cal
program. Local
2015 is the
result
of
a merger
of home
care and nursing
home members
from
tiiree
SEIU-affiliated Unions:
SEIU
Local
521, ULTCW, and UHW. As a
result
of tiie merg
UHW lost half its membership to
Local
2015.
57. Prior to the merger,
representatives
ofthe SEIU
State
Council informed
Defendant
Da
that
Regan would soon lose
half of UHW's membership and that Defendant
Dauner
needed
deal with Butier
and the State
Council
- not
Regan
and UHW - ifhe wanted to
accomplish
an
legislative and policy goals that were important to CHA's members.
58. On infonnation and belief.
Defendant
Dauner met with representatives of CTA in
orde
keep them
informed
of the business of
CFC, including
but not
lihiited
to
CFC's confidential
"Sfrategic
Plan."
59.
Beginning in or
around March 2015, Defendant
Dauner
decided to
work
covertly
with
CMA, the SEIU State
Coimcil,
and CTA, while duplicitously pretending to carry out his duties
a Director and Officer in the interest of CFC.
60. Defendant Dauner chose to work
with
the ABC Coalition for
several
reasons. First, he
feared
CTA's
political
reach
in
Sacramento. Second,
he no
longer
wanted
to be
involved
ih a
"sfrategic
partnership" with UHW because the partnership was
threatening
his
power
within
CHA, and members of CH A were
calling
for an end to the
partnership
for ideological reasons.
Third, he believed that he could take
advantage
of an
intemal
SEIU
disagreement
between
Bu
and
Regan
regarding the ransfer of UHW members into Local 2015.
61. In or around August 2015, after the ABC Coalition had officially formed and after the
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ERG, ROGER &
ROSENFELD
ProfeBlonaJ
Catpomloa
Uvtn
VUU|i hritMny;
S IU 200
' '•.CdifinfeWOI
ABC Coalition had
drafted
its competing
initiative.
Defendant Dauner took actions to sabotag
CFC's initiative, while hiding from his Co-Chair and UHW Directors the fact that he was secr
working with the
ABC
Coalition to imdermine
CFC's
initiative.
62.
To
this
end.
Defendant
Dauner
opposed
the
filing
of
CFC's
initiative
before
the
ABC
Coalition filed ts
initiative.
He
also
refused to authorize expenditures that CFC had incurred
related to a
public
Medi-Cal campaign and its initiative campaign.
63. In or around August 2015,
Defendant
Dauner promised the A BC Coalition that he wou
get
CFC
to
abandon
its
effort
to get its
initiative
enacted.
64. In an effort to avoid being exposed as a saboteur, Defendant Dauner did not initially s
to block every action that CFC
decided
to take regarding CFC's initiative. Defendant Dauner
failure to get CFC to abandon its initiative did not sit well with the
ABC
Coalition, which
believed
that it
had
been double-crossed by Defendant
Dauner.
65. As a
result,
on
October
29,2015, in
order
to bring
maximum pressure
and leverage to
on Defendant Dauner, attomeys for the A BC Coalition filed three ballot initiatives aimed
dire
at the hospital
industry:
the
Charitable
Hospital Executive Compensation Act of 2016, which, i
enacted, would limit the pay of
hospital executives;
the Fair
Healthcare
Pricing Act of 2016,
which would cap the
prices
of
medical
services
charged
by hospitals; and the Charity
Care
Ac
2016, which would require
hospitals
to provide a certain level of charity care.
These
measure
enacted,
would
cost
the hospital industry millions of dollars.
66.
These
initiatives
captured
Defendant Dauner's attention.
Following
the filing of
these
initiatives. Defendant Dauner, in consultation and agreement
with
the other Defendants, decid
to make a deal with the ABC Coalition. The agreement consisted of Defendants, on behalf of
CHA,
offering
to
support
inancially
the
A BC
Coalition's
original
initiative
and
offering
to use
his
veto
power, as
Co-Chair
of CFC, to
veto
any
Corporation
action in exchange for the
ABC
Coalition dropping its three
later
initiatives and
redrafting
the ABC
Coalition's
original initiat
to provide at
least
$1
billion
dollars to the hospital
industry.
67. On November 2,2015, Defendant
Dauner
requested a
conference
call
with Regan
and
multiple other persons,
including
other Directors of CFC to discuss CFC's initiative and his
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RG, R OGER
&
ROSENFELD
PrarttfSlonal Coipotalkn
Jia)]3T.|00l
94501
agreement with the A BC Coalition.
68
On the call. Defendant Dauner revealed that he had been secretiy meeting and n
with the ABC Coalition regarding its competing initiative. The School Funding
and Sta
of2016
69.
Defendant
Dauner
explained that
he had engaged in these
covert actions
because the C
Board
of
Directors
had insfructed him to do so and
that a
"substantial number of
hospitals,"
affiliated
with
CHA did not want CHA to participate in CFC
or
to
continue
its
partnership wit
UHW. The reason that a substantial number of
hospitals wanted
to end the sfrategic partnersh
between
CHA and UHW is because these
hospitals
are philosophically opposed to the
unionization ofthe hospital
industry and
seek
to
remain non-union
so
that they
may
continue
without
interference,
to
provide
their
employees
substandard working
conditions,
pay, and
benefits. Because the ABC Coalition does not
consist
of any labor organization that
seeks
to
organize
hospital
workers
in
Califomia,
working with the A BC Coalition is
preferred over
working with UHW.
70.
During
the
call. Defendant Dauner revealed that
his
discussions
with the
A BC Coalitio
had led to a written agreement, executed by and
between
CTA, CMA, and the SEIU
State
Cou
and
Defendant
Dauner and CHA.
71 According to Dauner, the agreement with the ABC Coalition provides that Defen
CHA
will
jointiy sponsor, and contribute
financially o
the ABC Coalition's The School
and Stab ility
Act
of 2075
that
is
in direct competition with CFC's initiative. Invest in Cal
Children Act
72.
Defendant
Dauner
further agreed
to to veto any
expenditure"
to
support
CFC's initia
and
Adams,
Laret and
Holmes agreed
to
support
Dauner
in
this cessation
of
CFC's
activities.
Thus, the CHA Directors agreed to terminate all of CFC's
operations
by using Defendant
Dauner's veto
power
73. Put otherwise. Defendant Dauner agreed to use his position of
power
to quash
CFC's
initiative and to support the ABC Coalition's competing initiative, and the
other
CHA Directo
accepted
and
enabled this decision.
As a result, lacking any financial support, CFC's initiativ
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ROGER
&
ROSCNFELD
Prarenlofial
Corpofailoa Uaraa Pvfcvqr. Sniu m
Abmdi,CilirtnUM»l
(}0)337-1001
certain to
fail and
the
ABC Coalition's initiative
will have no
effective
opposition.
74. As
part
of the
quid
pro quo that Defendant
Dauner and CH A
entered into
with
the
AB
Coalition,
Defendant Dauner
and
CH A agreed to sponsor
ahd
inancially support the
ABC
Coalition's initiative.
The
School
Funding
and
Stability
Act
of 2016.
In
exchange
for
Defenda
promise
to
terminate
the efforts of
CFC,
Defendants
confirmed
that the
ABC Coalition had
agreed to
withdraw
its three
later-filed
initiatives - the Charitable Hospital Executive
Compensation
Act
of 2016; the Fair Healthcare Pricing Act of 2016;
and
the Charity Care
Act
2016 (collectively, the
AB C Ballot Measures")
-
that
threatened the
hospital industry's
reven
and
which the
ABC Coalition had
used to
bring
Defendants "to heel."
75.
Dauner
sold his
veto
power as
a Co-Chau:
of
CFC in exchange for
the
ABC Coalition
withdrawing
its three
anti-hospital
initiatives
and
the
ABC
Coalition rewriting its origuial
initiative to provide the hospital
industry with at
least
a
billion dollars
in annual revenue.
76.
Adams, Laret
and Holmes
approved
this sale
after
the
fact and
have since agreed to
s
down
CFC
as
part
of the
deal with
the
ABC Coalition.
77.
On
November 5,2015,
CHA publicly
announced it
had reached an agreement with
"th
Califomia
Medical Association,
the Califomia
Teachers Association and
SEIU Califomia Stat
Council... to
sponsor
a new ballot measure that will extend the temporary income tax provis
of
Proposition
30
from
Jan.
1,2019 iirough
Dec.
31,2030." CH A Press Release, CHA Joins
With
Doctors, Teachers,
and State Workers to Sponsor Single Prop. 30 Ballot
Measure
(Nov.
2015).
78
The public aimouncement also made clear that CHA's financial and advocacy
will
be
devoted
to
enacting this
new
jointiy sponsored initiative. [And] CHA will not pr
support for any other Proposition 30 extension initiative. Ibid.
79.
On
November 18,2015, Defendants spoke
with Regan regarding
the
ABC Coalition's
initiative.
Defendants
pleaded
with Regan
to dissolve CFC. Regan, however, refused to agre
dissolution.
In accordance with
his
agreement with
the
ABC Coalition,
Defendant
Dauner sta
that he would exercise his
veto
power, as Co-Chair, on any
and all decisions
that came before
CFC
regarding
expenditures related to
CFC's
initiative, which CFC
had
unanimously voted to
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ROGER A
ROS£NFEU>
Piofbstlonal Coipontion
Martaa
VObgt hifcwsy. Bttiu
200
(5IO}3r-iaol
and
fund.
80. During
this
conversation, Dauner explained that his decision to veto any and all
expenditures
had nothing to do with his fiduciaryduty and loyalty to CFC. Rather, Defendant
Dauner
explained that
his
decision to veto any and
all expenditures
was
based
upon
(1)
his
agreement to support and
finance
he ABC Coalition's initiative, which
is
in direct
competition
with
CFC's
initiative, and (2) his
loyalty
to CHA and CHA's Board
of
Directors,
which
had
durected
him
to end
his participation with UHW
and CFC.
81. By refusing to approve any expenditure related to CFC's initiative. Defendant Dauner
CHA
have
blocked the ability
of
UHW to expend any portion
of
its more than
$7 million
dolla
contribution to
CFC
in support of CFC's initiative.
82. Defendants' seizure of UHW's contribution of more than $7 million
serves
only the
interest of
the ABC Coalition,
which Defendants have
now
agreed
to financially
support,
beca
it
means
that the ABC
Coalition
can run a campaign in support of
its
initiative without a
financially backed opposition and without
facing
a financially-sfrong competitor.
83. Defendants' agreement
with
the ABC
Coalition
is in direct confiict
with
their fiduciary
duties
to CFC.
84. The agreement
with
the
ABC Coalition
was negotiated in secrecy and
without f i i l l
disclosure and specifically requires Defendant
Daimer
to act in a manner confrary to the best
interests
of
CFC.
85. Because Defendant
Dauner
can veto any action
of
CFC by
virtue
ofhis position as Co-
Chair and
because
the three other
CHA-appointed
Directors are Defendant Dauner's subordma
at CHA, any
effort
to remedy Defendant Dauner's conduct
or
to
demand
that CFC bring suit
against
Defendant Dauner
for
breach
of
fiduciary
duty
would
be
futile.
First
Cause
of Action
(Breach of
Fiduciary
Duty)
U H W , on
Behalf
of CFC, against Defendants
86. UH W
hereby incorporates
the allegations set forth iri Paragraphs 1-85
of
this Complaint
by
reference as i f set forth in full herein.
87. At all
imes
relevant to this Complaint, UHW has been a member of CFC, as that
term
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ROGER A
ROSENFELD
Prtrfcttlana] Caporaiion
VtOifa
PrtiMy.
Suha
300
310)337.1001
defined by Califomia Corporation Code § 5056, because UHW has the right o vote for the
election
of a dfrector
or directors, on
a
disposition
of all
or substantially
all of
the
assets of
CFC
or on a
merger
or dissolution.
88.
Califomia
Corporations
Code
§
7231 obligates
directors, officers and
executive
board
members to execute their duties in good faith and with such care as an ordinarily pmdent
perso
in
a like
position would
use
under
similar
circumstances.
This duty does not exist solely within
statute,
but
within Califomia
common
law
as
well.
89.
As
Directors
of
CFC,
Defendants
owe CFC the
highest
degree
of honesty
and
loyalty
a
fiduciary and are
under
a statutory and common law duty take no actions adverse to CFC, an
conduct themselves with the utmost good faith, trust, candor, and confidence with regard to CF
90. Because Defendants have unilaterally elected to terminate the operations of CFC, have
failed
to conduct themselves with candor,
have
withheld critical information from CFC, and
h
committed
themselves to a course of
action
directiy adverse to
the purposes and
goals of
CFC,
they
have
breached thefr
fiduciary duties
to CFC and
have failed
to act in its best interest.
91.
This
breach
has caused, and
continues to
cause, CFC damage
in
an
amount
to be
determined at
trial.
Second Cause
of Action
(Breach of
Fiduciary
Duty)
UHW against
Defendants
92. UHW
hereby
incorporates the allegations set forth in Paragraphs 1-91 ofthis Complain
by
reference
as
i f
set forth
in full
herein.
93.
At all
times relevant
to
this Complaint, UHW has
been a member of
CFC, as
that
term
defined by Califomia Corporation Code § 5056, because UHW has the right o vote for the
election of a director or directors, on disposition of
all
or substantially
all
of the
assets
of CFC,
on
a merger
or dissolution.
94. Califomia Corporations Code § 7231 obligates directors, officers and executive board
members to execute their duties in good faith and with such care as an ordinarily pmdent perso
in
a like position
would
use
under similar cfrcumstances.
This duty does not exist solely
within
statute, but within Califomia common law as
well.
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ROGER
A
ROSENFELD
CoipwatioD
Uufaa Vi|l>c« Fwtmy.
S D I U
300
(310)}37I00I
95. As Dfrectors
of
CFC,
Defendants
owe CFC the
highest
degree
of
honesty and
loyalty
a
fiduciary and are
under
a
statutory
and common law
duty
take no actions adverse to CFC, and
conduct themselves with the utmost good faith, tmst, candor, and confidence with regard to CF
96.
Because
Defendants
have
unilaterally
elected
to
terminate
the
operations
of
CFC, have
failed to conduct themselves with candor, have withheld critical information from CFC, and ha
committed themselves to a
course of
action directiy adverse to the purposes and goals
of
CFC,
they
have breached
thefr
fiduciary duties to CFC and have failed to act in its best interest.
97. This
breach
uniquely harmed UHW among the members because CFC is comprised of
two designators, UHW and CHA. Because
Defendants
conduct in breaching thefr fiduciary
duties was in furtherance of CHA's interests and confrary to
UHW's,
Defendant' conduct caus
a unique injury to UH W.
98.
This
breach has
caused,
and continues to
cause, UHW damage in an
amount
to
be
determined at trial.
Third Cause
of Action
(Fraud by Concealment)
UHW, on Behalf of CFC, against Dauner
99. UHW hereby incorporates the allegations set forth in Paragraphs 1-98 of this Complain
by reference as i f set forth in f i i l l herein.
100. Civil Code section 1710 specifies fraud can consist of (1) the suggestion, as a fact, of th
which
is not tme,
by one
who does not
believe
it to
be tme [uitentional misrepresentation of
fact
and (2) the suppression
of
a fact, by one who is bound to
disclose
i t, or who gives information o
other facts which are likely to mislead for want of communication of that fact [concealment or
suppression
of
fact].
101. As
a Co-Chair and Director of
CFC,
Dauner
has a
fiduciary
duty
to CFC
which
includes
duty
of
candor.
102. When Defendant
Dauner failed
to
disclose
to CFC his secret negotiations with the ABC
Coalition,
Defendant Daimer intentionally failed to disclose an important fact that was known
only to him and that CFC
could
not
have
discovered,
103. Because Dauner did not disclose these secret
agreements,
Dauner was able to underm
. 17
COMPLAINT
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&
ROSENFELD
Pnrfkssiofttl Cofpomlion
St
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ROGER
&
ROSENFELD
Pnfiessional Corporalton
VSDv*
pHfciMy,
Mu
3fB
(SIO)33%)00l
proposed expenditures.
115. The decision to cease all expenditures was not taken as a proper
Board
action and
therefore
CFC
did
not
consent
to
it.
116. This action dfrectiy and proximately
caused
CFC harm
in
an
amount
to
be
established a
tiial.
Sixth Cause of Action
(Violation of Business & Professions Code
§§ 17200
etseq.)
U H W,
on Behalf of
CFC,
against Defendants
117.
UHW
hereby incorporates the
allegations
set
forth in Paragraphs
1-116 of this Complain
by reference as i f set forth in full herein.
118. Defendants'
acts
and
practices
as detailed above
constitute acts
of unfafr competition.
119.
Defendants
have engaged in an unlawful, unfafr orfraudulent business
acts
and/or
practices within
the
meaning
of
Califomia
Business
& Professions Code §
17200.
120. All
parties
to this action are
persons
as
that term is defined in Califomia Business and
Professions Code § 17201.
121.
Defendants
have engaged in an unlawful business
act and/or
practice by engaging in
conduct set
forth
above.
These business acts
and
practices
violated
numerous
provisions of
law
including, inter alia, Califomia Penal Code § 641.3 and Califomia Corporations Code § 7231.
Plaintiff
reserves the right o identify additional violations of
law
as
further
investigation
warrants.
122. Califomia Penal Code § 641,3(a) prohibits employees
from
accepting, or agreeing to
accept, anything of
value from a
person other than his
or
her employer cormptiy
aiid vvithout ti
knowledge or consent ofthe employer, in retum for using or agreeing to use his or her position
for
the benefit
of
that other person.
123. Califomia Penal Code § 641.3(d)(1) defines
employees
to include directors such as
Defendants.
124.
Califomia Penal Code §
641.3(d)(3) defines cormptiy as intending
to injure
or defraud
employer.
125. Because Defendant Dauner secretly and without
CFC's
consent agreed to cease
the
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ERG, ROGER &
ROSENFELD
Prolbsilonal Corporatloa
Vdbia
Pidnay,
SBha
100
A l uMh Callflnl* MSOl
(»10)S37-I00l
operations of CFC in exchange for the ACB
Coalition's
promise to withdraw the ABC Ballot
Measures and because
Defendant
Dauner
intended
to injure and/or defraud C FC by entering
this
agreement.
Defendant Dauner violated Califomia
Penal
Code § 641.3 and thus committed
unfafr, unlawful,
and/or
raudulent
business
act
or
practice within
the
meaning
of California
Business and Professions Code § 17200.
126. Because
Defendants
agreed
without
CFC's consent to terminate the
operations
of CFC
exchange for the A CB
Coalition's
promise to withdraw the ABC Ballot
Measures
and
because
Defendants intended
to injure and/or
defraud
C FC by entering into this
agreement. Defendan
violated Califomia Corporations Code § 7231, which obligates
directors, such
as Defendants,
mutual benefit corporations,
such
as CFC, to
perform
thefr duties in good faith, in a manner
director
believes to be in the best interests of CFC and
with such care, including
reasonable
inquiry, as
an
ordinarily
pmdent
person in a like
position
would use under
similar
cfrcumstan
Defendants thus committed an unfair, unlawful
and/or
raudulent business act or
practice with
the meaning of Califomia Business and
Professions
Code § 17200.
127. By engaging the aforementioned conduct, CFC has suffered injury in fact and has lost
money or property as a result of
Defendants' conduct.
128. UH W brings this Cause of Action
derivatively
and on
behalf
of CFC and on
behalf
of t
public as private
attomeys
general
pursuant
to Business
& Professions Code § 17204.
129. Pursuant to
Califomia
Business &
Professions
Code
§
17203, UHW, on behalf of CFC
seeks a
temporary, preliminary, and/or
pennanent
order
from this Court
prohibiting
Defendan
from taking fiuther
actions against
the
interest
of CFC, removing
Defendant
Daunerfrom
hi
position
as
director
and co-chair of CFC, and refomung CFC's By-Laws so that CHA may
appomt
a
Co-Chafr
other than
CHA's
President.
130. Pursuant to Business &
Professions
Code § 17204,
UHW,
on behalf of CFC,
seeks
an
order
of this Court enjoining Defendant Dauner
from
continuing to engage in the acts as set
fo
in
tiiis
Complaint, including
holding
the
position
of Director
and Co-Chair
of CFC.
131. CFC will be irreparably harmed if
such
an
order
is not granted.
/ / /
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ROGER
&
ROSENFELD
vaiati
M n y ;
SBiu
300
AhmdhCillfbnuMMI
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139. As a
proximate
result of Defendant Dauner's bad faith actions, unlawfiil conduct, and
breach
of fiduciary duty, UHW has suffered and
will
continue to
suffer
substantial and irrepara
harm.
140
C F C
is
a
mutual benefit corporations
a s
defined
b y
a nd
govemed
b y
Califomia
Corporations Code
§
§ 7110
e / seq
141. Pursuant to CFC's By-Laws, UHW is one of two Designators and has the right o
appoint half the Board of
Dfrectors
and is
therefore
a
member
as that term is defined by
Califomia Corporations Code § 5056 and a 50% shareholder as that term is understood
under
Califomia Corporations Code §§ 5071-5072,
142. Califomia Corporations Code § 304
authorizes
the Court to remove from
office
any
director
in
case
of fraudulent
or
dishonest acts
or
gross abuse of authority or
discretion
with
reference to CFC and may bar from reelection any director so removed for a period prescribed b
the Court upon the suit
of
shareholders holding at least
10 percent of
the number
of
outstanding
shares ofany class.
143. UHW, as a shareholder with more than 50% of the shares in CFC, files such a suit base
upon the unlawfiil, dishonest, and bad faith abuse of discretion of Defendant
Dauner
in
agreei
to veto any Board action in exchange for the ABC Coalition's promise to withdraw the ABC
Ballot Measures
and
other
value.
144. In order to prevent and resfrain a continuation of Defendant Dauner's
unlawful activity
and
gross
abuse of
authority,
wdiich in the
absence
of injunctive
relief
is likely to occur, CFC is
entitied
to permanent injunctive relief and Defendant
Dauner
must be removed bom his
office
Director
and Co-Chair.
V. P RA YER FOR
RELIEF
WHEREFORE,
Plaintiff
prays
that this Court award
it
the
following
relief:
1.
Damages
in an
amount
to be determined at
trial;
2.
Interest
on all sums
awarded;
ROGER &
ROSENFELD
Praieslonsl OnpoEBtloo
Vilbc Pirinny. SuJh 300
AboMdi. CiliTimU MSOl
010)337.1001
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. ROSENFELD
Pntfisslonal CoTpomioa
Uvt e VObi* P^ utty.S BI U m
Abmdi.C>li ftRn«4»l
(J 10)
337.1001
3.
Reformation
of CFC's Bylaws to remove the
veto
power of the Co-Chairs and t
decouple the position of Co-Chair from the Presidency of CHA;
4. Injunctive relief
ordering Dauner
to
resign from
his
position
as
Co-Chafr
and
Director
of
CFC;
and
5.
Such
other and
fiirther
relief as the Court
deems proper.
Dated:
November 24,2015
By:
WEINBERG, ROGER
&
ROSENFELD
A Professional Corporation
BRUCE A.
HARLAND
EMILY
P. RICH '
MICHAEL D. BURSTEIN
Attomeys for Plaintiff
SEIU,
UNITED
HEALTHCARE W ORKERS
-
WEST, on its own
behalf and on behalf
of
CARING FOR
CALIFORNIANS,
LLC
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ROGER
&
ROSENFELD
PntesioDal
CcBpooUon
PUknr, S D R
300
AbnM^
CilUinla 94501
StO) 337-1001
DEMAND
FOR JURY
TRIAL
Plaintiff Service
Employees
Intemational
Union,
United
Healthcare
Workers - West
hereby demands a
jury trial on all issues and
causes of
action.
Dated: November
24,2015
By:
WEINBERG,
ROGER
&
ROSENFELD
A Professional
Corporation
BRUCE A .
HARLAND
EMILY
P. RICH
MICHAEL
D. BURSTEIN
Attomeys
for Plaintiff SEIU,
UNITED
HEALTHCARE WORKERS
-
WEST, on its ow
behalf and on behalf of
CARING
FOR
CALIFORNIANS, LLC
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GDSSC COV^^^SOHT