Judge: Alison Mackenzie, Case: 22SMCV02702, Date: 2023-05-17 Tentative Ruling

Case Number: 22SMCV02702    Hearing Date: May 17, 2023    Dept: 207

Background

Plaintiff Ebby Shakib (“Shakib”) brings this action against Defendant Jamshid Goltche (“Goltche”) and several nominal defendants, centered around an alleged business partnership formed through years of business dealings between Plaintiff and Defendant. Goltche now moves the Court to appoint an accountant referee pursuant to Code Civ. Proc. § 639 to conduct an accounting of the parties’ respective obligations to each other concerning more than thirty business entities they have been involved in through the course of their business dealings with each other. Shakib opposes Goltche’s motion.

Objections to Evidence

Shakib’s objections to the declarations of Saul Reiss and Jesse Kaplan are OVERRULED.

Legal Standard

Courts may appoint private individuals, who are not officers of the Court (although in practice they are often retired judges) as referees or “private judges,” either by agreement of the parties or upon motion.

When the parties do not consent to the appointment of a referee, the Court may upon motion appoint a referee for various purposes, including “When the trial of an issue of fact requires the examination of a long account on either side; in which case the referees may be directed to hear and decide the whole issue, or report upon any specific question of fact involved therein.” (C.C.P. § 639(a)(1).) Where the trial requires “examination of a long account” on either side, the referee may be directed to hear and decide the “whole issues” (the entire accounting) or to report upon specific questions of fact involved. (C.C.P. § 639(a)(1); United States Fid. & Guar. Co v. Sup. Ct. (1988) 204 Cal.App.3d 1513, 1527.)

The reference for “examination of a long account” is permitted because “a trained accountant is generally better able to efficiently and inexpensively examine a ‘long account’ than a trial court judge is able to do through adversarial court proceedings.” (De Guere v. Universal City Studios, Inc. (1997) 56 Cal.App.4th 482, 499.) The referee may determine the proper accounting methodology to be applied and the necessary accounting records at issue. (Id.) Outside of the particular circumstance of examining accountings, “the language of section 639, subdivision (a) cannot constitutionally be interpreted to allow a referee to make broader determinations, such as the intent of the parties, or whether their agreement is a contract of adhesion.” (Id.; see also Jones v. Wagner (2001) 90 Cal.App.4th 466, 475.)

Analysis

Shakib raises several procedural objections to Goltche’s motion. First, Shakib argues that Goltche improperly requests the appointment of a particular referee, specifically Jason A. Engel of Engel & Engle, LLP. California Rule of Court, rule 3.921(a) requires a motion requesting appointment of a particular referee be accompanied by a written certification by the proposed referee agreement to appointment and agreeing to comply with the Code of Judicial Ethics pursuant to rule 3.924. Goltche acknowledges his motion does not comply with rule 3.921(a) but argues his motion does not seek the appointment of a particular referee. It is unclear whether Goltche’s motion specifically seeks the appointment of Mr. Engel. Goltche’s notice of motion states he is seeking the appointment of “a forensic accountant referee” without specifying Mr. Engel as that accountant. (Motion at 1.) However, Goltche’s motion also expressly identifies Mr. Engel as the proposed referee. (Id. at 10.) The proposed order submitted by Goltche also seeks the specific appointment of Mr. Engel to act as the referee. As Goltche’s reply in essence withdraws any request to specifically appoint Mr. Engel, the Court will construe Goltche’s motion as not seeking the specific appointment of Mr. Engel.

Shakib also argues this case was assigned to Judge Zukin, and thus under California Rules of Court, rule 3.921(b), she is the only one who can rule on Goltche’s motion. As Shakib is aware, Judge Zukin is currently sitting pro tem in the California Court of Appeal and in her absence other judges have been assigned to assume her position in Department 207 to which the instant case is assigned. Shakib does provide any authority which supports his claim that the judicial officer assigned to the department in which this action is pending is somehow unable to rule on the instant motion. Assertions unsupported by legal authority are presumed to lack merit. (Atchley v. City of Fresno (1984) 151 Cal.App.3d 635, In Re Marriage of Nichols (1994) 27 Cal.App.4th 661, 673; Utz v. Aureguy (1952) 109 Cal.App.2d 803, 807.) The Court finds rule 3.921(b) does not prevent it from ruling on Goltche’s motion in Judge Zukin’s temporary absence.

Turning to the merits of Goltche’s motion, it is undisputed that resolution of this action will require an accounting of the various business entities that Shakib and Goltche have been involved in through the years of their business dealings with each other. Shakib’s operative First Amended Complaint asserts three distinct causes of action for accounting. It is also undisputed the parties, through counsel, have discussed an agreement which would provide for a joint forensic accounting to resolve the disputes regarding who is owed what concerning each of the entities the parties have been involved in over the course of their business relationship, however they have apparently been unable to come to final agreement on those terms. Goltche now moves to have the Court appoint a referee to conduct that accounting pursuant to Code Civ. Proc. § 639, which gives the Court the power to appoint a referee to conduct an examination of a long account without the consent of all parties.

Shakib argues that appointing a referee to determine an accounting would deprive him of a right to a jury trial because his cause of action for breach of contract depends on the results of the accounting. As the Court explained in De Guere v. Universal City Studios (1997) 56 Cal.App.4th 482, the fact that an equitable cause of action for accounting is intertwined with a legal cause of action for breach of contract does not preclude the appointment of a referee to determine the accounting:

A cause of action for an accounting is an equitable proceeding to which no right to jury trial attaches. [Citation.] There is a right to jury trial on a cause of action for breach of contract. [Citation.]

Mr. De Guere’s claim for damages for breach of contract is not determinative of the right to jury trial. [Citation.] The fact that the amount of a defendant’s liability to the plaintiff will be established by an accounting indicates that the action is equitable rather than legal. (Ibid.)

Here, in the breach of contract cause of action, Mr. De Guere lists 26 accounting practices by Universal which he claims were improper, and which deprived him of his right to net profits. A significant number of these allegations relate to charges for items which were standard, rather than actual, costs. Other items relate to the classification of items as costs of production, rather than as expenses of distribution. Mr. De Guere also alleges that various improper practices related to distribution fees and expenses. In light of these allegations, we are satisfied that the gist of the action is for an accounting, and that there was no right to jury trial. [Citation.]

Only one of the twenty-six acts alleged in the cause of action for breach of contract presents an issue involving extrinsic facts beyond accounting practices. Mr. De Guere specifically alleges that Universal “understated the true amount that should have been received from the domestic television syndication of the Series, by collecting a below-market syndication license fee from the licensing of the Series in the New York market to television station WWOR, a station owned at the time” by Universal’s parent company. While the resolution of this issue may depend on extrinsic, contested facts, that circumstance does not alter the nature of the action. The overwhelming gist of the action is equitable, relating to the accounting practices employed by Universal.

Nothing we have said is intended to affect our determination that Mr. De Guere is entitled to a trial on the issues of contract interpretation and enforceability. The question of his right to jury trial on those issues will depend on whether the parties present conflicting extrinsic evidence on the contract interpretation issues, as we discussed above.

(Id. at 507-508.)

Shakib raises the precise argument here that was rejected by De Guere. Shakib argues he has asserted a cause of action for breach of contract which is a legal claim, rather than an equitable one. However, as in De Guere, the gist of Shakib’s cause of action for breach of contract is equitable, as the cause of action for breach of contract contained in his operative First Amended Complaint expressly alleges “The remaining amount of the Debt to Shakib can only be ascertained by an accounting.” (FAC at ¶133.) The De Guere Court recognized that questions of law relating to the breach of contract action could not be decided by a referee appointed under Code Civ. Proc. § 639, but the existence of such questions of law did not prevent the Court from appointing a referee to conduct an accounting simply because the accounting was relevant to the cause of action for breach of contract.

Notably, Shakib does not identify any questions of law which would be impermissibly delegated to the referee under Goltche’s proposal. Instead, Shakib simply argues that because his breach of contract claim relates to his claim for accounting, the Court cannot appoint a referee to conduct an accounting. This runs counter to the holding of De Guere set forth above. Similarly, Shakib’s reliance on Grim v. Norris (1861) 19 Cal. 140 is misplaced, as in that case the trial court referred an action in its entirety to a referee, including claims at law. In reversing, the Grim Court simply followed the same rule in De Guere that referees can resolve questions of fact on equitable claims for accounting but cannot resolve questions of law.

Shakib also contends the appointment of a referee will not benefit the parties because a referee appointed pursuant to Code Civ. Proc. § 639 may only hold formal hearings to take evidence and examine witnesses, the same way this Court would, and thus the parties would still have to fight over discovery and retain expert witnesses to present different theories and findings to the referee. But as Goltche points out in his reply, this argument is belied by caselaw showing referees appointed under section 639 may be empowered to conduct the accounting itself upon his or her own investigation of the relevant documents:

To examine a long account under Code of Civil Procedure section 639, subdivision (a), the accountant may examine the books and records of the partnership, and the partnership is required to make its books and records available to partners and their agents. ( Corp. Code, § 16403.) Such books and records are business records and therefore qualify as an exception to the hearsay rule. (Evid. Code, § 1270- 1272.) In addition, the accountant may contact the partners and third parties to obtain and verify information, and to fill in omissions in order to audit and reconstruct the books and records of the partnership. … In order to examine a long account under a Code of Civil Procedure section 639, subdivision (a) reference, the accountant should therefore be given access to all information he or she deems necessary to do the job, regardless of whether the specific information was previously introduced into evidence or not.

(Jones v. Wagner (2001) 90 Cal.App.4th 466, 475-476.) The proposed order submitted by Goltche indicates this is precisely the role he contemplates the referee performing here as the order provides “The Accountant Referee shall examine any and all books and records that the Accountant Referee deems relevant of the Entities, any Additional Entity as well as any other entity to which any of the Entities has a documented membership, shareholder or other ownership interest in (i.e. subsidiaries). The Accountant Referee will be given full access to the original files, books and records of the Entities including those that are maintained by Goltche or Shakib.” (Proposed Order at p. 5.) The Court thus rejects Shakib’s contention that the appointment of a referee would not reduce the burden on the parties in resolving the equitable accounting issues raised by this litigation. Having a referee conduct the requisite accounting concerning the parties and more than 30 discrete entities they have been involved in together will unquestionably reduce the burden on the Court and the parties in resolving some of the key issues raised by this action.

Shakib also argues that Goltche will refuse to comply with any future discovery if the Court grants the instant motion, stating that Goltche will instead object that the appointment of the referee moots all discovery or limits discovery into matters not covered by the scope of the referee’s appointment. This is pure speculation and conjecture unsupported by any authority or evidence. The Court has before it no reason to conclude that Goltche will refuse to comply with discovery.

Shakib accuses Goltche of trying to “cram down upon Shakib a limited scope that he will not agree to.” (Opposition at 7.) However, Shakib does not offer the Court any alternative proposal or suggest what modifications to Goltche’s proposed scope would be necessary to make it acceptable to Shakib. Shakib also paradoxically argues that the proposed reference would impermissibly resolve causes of action at law that are beyond the power of a referee to determine, while also complaining that the accounting proposed by Goltche is defective because it would not resolve the litigation in its entirety. Shakib seems to prefer that the parties stipulate to a joint forensic accounting. In this respect, the Court agrees and would similarly prefer the parties come to an agreement on such an accounting, as both sides have previously acknowledged to the Court that an accounting is both desired by the parties and necessary to the resolution of this case. However, the parties have for some reason apparently been unable to reach such an agreement, leaving the Court no choice but to appoint a referee without the consent of all parties pursuant to Code Civ. Proc. § 639.

For these reasons, the Court GRANTS Goltche’s motion to appoint a referee to conduct an accounting pursuant to Code Civ. Proc. § 639. The parties are ordered to meet and confer on the selection of a referee pursuant to Code Civ. Proc. § 640(a). Within 14 days of the date of this order, the parties must notify the Court as to their selection of a referee or file their own lists of up to three nominees pursuant to Code Civ. Proc. § 640(b). The parties will then have 7 days to file legal objections to the individuals nominated by the other party as may be warranted. The Court will then make its appointment pursuant to Code Civ. Proc. § 639(d).

Conclusion

Goltche’s motion to appoint a referee pursuant to Code Civ. Proc. § 639 to conduct an accounting is GRANTED.