Judge: Anne Richardson, Case: 23STCV26122, Date: 2024-06-13 Tentative Ruling

Case Number: 23STCV26122    Hearing Date: June 13, 2024    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

I. Background

A. Pleadings

Plaintiff Steve Wallace sues Defendants Bruce Marder, Capo L.P., Capo, LLC, and Does 1-25 pursuant to an October 25, 2023, Complaint alleging claims of (1) Breach of Fiduciary Duty (direct and derivative), (2) Breach of Contract (monetary and injunctive relief), (3) Conversion (direct and derivative – monetary and equitable relief), (4) Accounting, (5) Declaratory Relief (including injunctive relief), (6) Financial Elder Abuse (Welf. & Ins. Code, § 15610.30, (7) Dissolution (Corp. Code § 15908.02), and (8) Expulsion of General Partner (Corp. Code § 15906.03).

The claims arise from the following allegations. In 1996, Defendant Marder invited Plaintiff Wallace and others to invest in a new restaurant venture that would operate under the name “Capo.” To accomplish this purpose, Defendant Marder formed Defendant Capo, LLC to act as general partner to Defendant Capo, L.P., which in turn is the entity that operates the restaurant. Plaintiff Wallace currently owns a 16.7% interest in Capo, LLC, the general partner of Capo, L.P., in which Plaintiff Wallace is in turn a 3.2% limited partner. Based on these interests, Plaintiff Wallace is entitled to a share of revenues generated by “Capo” the restaurant, which are distributed from Capo, L.P. to Capo, LLC for subsequent distribution to the members in Capo, LLC. Defendants Marder and Does 1-10 have, in connection with a project in Napa Valley, California, engaged in conduct that has resulted in harm to Capo, LLC, Capo, L.P., and Plaintiff Wallace, such as: (a) converting personal property of Capo, L.P. for their own uses; (b) converting revenue earned by Capo, L.P. to their own uses; (c) taking excessive fees and expenses from Capo, L.P.; (d) failing to pay Capo, LLC its proper and fair share of revenue; (e) failing to distribute revenues received by Capo, LLC to its members pro rata; and (f) other breaches of fiduciary duty and wrongdoing according to proof at trial.

B. Relevant Procedural History

On January 12, 2024, Defendant Marder filed a motion to stay this action and to require a $50,000 bond from Plaintiff Wallace to proceed on any derivative claims on behalf of Capo, LLC on the ground that Plaintiff can show no reasonable possibility that the prosecution of such causes of action will benefit that company or its members.  (Notice of Motion.)

On March 11, 2024, Plaintiff Wallace filed an opposition, and on March 15, 2024, Defendant Marder filed a reply.

On March 28, 2024, the motion to stay came before the Court, at which time the Court heard oral argument and took the matter under submission.

On April 2, 2024, the Court denied the motion to stay. The order noted that relief was only sought as to Capo, LLC, and denied relief on the grounds that Plaintiff has alleged that he is a member of Capo, LLC, which is entitled to payments from Capo, L.P., and that Plaintiff has alleged sufficient futility in demand based on Marder’s controlling interest in Capo, L.P., and Capo, LLC.

C. Motion Before the Court

On April 16, 2024, Defendant Marder filed a motion for reconsideration of the April 2, 2024, ruling.

On June 3, 2024, Plaintiff Wallace filed an opposition, and on June 6, 2024, Defendant Marder filed a reply.

Defendant Marder’s motion is now before the Court.

II. Reply Request to Not Consider Untimely Opposition

A. Legal Standard

When an opposing party expressly objects to inadequate notice but then opposes the motion on the merits, the issue of defective notice may be waived unless the opposing party makes a request for a continuance or demonstrates prejudice from the defective notice. (Carlton v. Quint (2000) 77 Cal.App.4th 690, 697 (Carlton); Reedy v. Bussell (2007) 148 Cal.App.4th 1272, 1288 (Reedy); see also Robinson v. Woods (2008) 168 Cal.App.4th 1258, 1264 [When a party only “respond[s] to [a] [late-served] motion by filing a written opposition containing only the notice objections and never argue[s] the merits,” no waiver occurs, such that the objecting party need “not … [even] claim or show prejudice [to object to the late-served motion] because the[] [plaintiffs] did not address the merits [of the motion], in writing or otherwise”]; contra. Boyle v. CertainTeed Corp. (2006) 137 Cal.App.4th 645, 650 [“A party’s participation in a hearing after the party’s objection to the hearing as unauthorized does not constitute waiver by acquiescence”].)

B. Analysis

The Court DENIES the reply request to not consider the late-filed opposition.

This hearing is being held on June 13, 2024, meaning that the opposition was due on May 31, 2024, nine court days prior to the hearing. (Code Civ. Proc., § 1005, subd. (b).) However, the opposition was filed on June 3, 2024, with no explanation as to delay.

However, the reply fails to raise prejudice in relation to defective notice, and the reply further does not request a continuance. Instead, the reply argues the opposition points on the merits. Moreover, the opposition is one court day late, i.e., should have been filed and served on a Friday, but was filed and served on a Monday. Under these circumstances, the Court relies on Carlton and Reedy in determining that the issue of defective notice has been waived, and further determines that the delay was not prejudicial.

III. Motion for Reconsideration: DENIED as to reconsideration by party request but GRANTED as to sua sponte reconsideration to again DENY motion to stay action and post bond, with greater clarity as to evidence in support.

A. Legal Standard

A motion for reconsideration is used to ask the court to modify, amend, or revoke its earlier order on a prior motion to the court because of new or different facts, circumstances, or law. (Code Civ. Proc., § 1008, subd. (a).) Such an order may involve an interim or final order (see Code Civ. Proc., § 1008, subds. (e), (h)), where an interim order is an intermediate ruling of some kind that requires further proceedings before the suit can be resolved, and where a final order is an order that finally disposes of the suit (see People v. DeLouize (2004) 32 Cal.4th 1223, 1231 [differentiating between interim and final orders]).

A motion for reconsideration may be brought by a party or by the court on its own motion. (See Code Civ. Proc., § 1008, subds. (a), (c).) The grounds for the motion vary depending on whether a party or the Court is making the motion. (See Code Civ. Proc., § 1008, subds. (a), (c), (e).)

A party may move for reconsideration based on: (1) new or different facts, (Code Civ. Proc., § 1008, subd. (a); see e.g., In re Marriage of LaMoure (2013) 221 Cal.App.4th 1463, 1473 [reconsideration motion granted on new evidence]); (2) new or different circumstances, (Code Civ. Proc., § 1008, subd. (a)); and (3) new or different law, (Code Civ. Proc., § 1008, subd. (a); Baldwin v. Home Sav. of Am. (1997) 59 Cal.App.4th 1192, 1196.)

However, a party cannot move for reconsideration based on the court’s erroneous order, i.e., the court’s misinterpretation of facts or law. (See Jones v. P.S. Dev. Co. (2008) 166 Cal.App.4th 707, 724, disapproved on other grounds by Reid v. Google, Inc. (2010) 50 Cal.4th 512, 531-532, 532 n. 4; Gilbert v. AC Transit (1995) 32 Cal.App.4th 1494, 1500.) Instead, a party can suggest to the court that it should reconsider its erroneous order on its own motion so long as the suggestion is not made ex parte. (Le Francois v. Goel (2005) 35 Cal.4th 1094, 1108; see e.g., In re Marriage of Spector (2018) 24 Cal.App.5th 201, 214-15 [emails husband sent to court about erroneous order were not ex parte because wife was copied on all emails].)

By contrast, the Court has statutory authority to reconsider final orders and interim orders based on a change in law. (Civ. Proc., § 1008, subds. (c), (e).)

California courts also have a broader constitutional authority to reconsider interim orders that are erroneous that goes beyond Code of Civil Procedure section 1008. (Brown, Winfield & Canzoneri, Inc. v. Superior Court (2010) 47 Cal.4th 1233, 1248 [courts have constitutional authority to reconsider interim orders]; Le Francois, supra, 35 Cal.4th at p. 1108 [“If a court believes one of its prior interim orders was erroneous, it should be able to correct that error no matter how it came to acquire that belief”].)

Case law suggests that while California courts generally do not possess a constitutional authority to reconsider erroneous final orders, a court may correct an error in legal reasoning as to a final order subject to appeal but before the time to appeal has expired. (See e.g., In re Marriage of Spector, supra, 24 Cal.App.5th at p. 215; In re Marriage of Barthold (2008) 158 Cal.App.4th 1301, 1312-1313, 1313, fn. 9.)

B. Court’s Determination

1. Merits of Reconsideration

For the following reasons, the Court DENIES Defendant Marder’s motion for reconsideration as based on due process concerns in favor of GRANTING the alternative relief requested, i.e., for the Court to exercise its inherent power to reconsider the April 2, 2024, order—though the Court notes that it reaches the same disposition as its prior order.

The Court agrees that the April 2, 2024, order did not provide sufficient clarity as to its evidentiary basis. The Court thus makes the below determination superseding the April 2, 2024, order, so as to correct this error.

The Court also notes that the “controlling interest” language in the April 2, 2024, order was a misinterpretation that does not factor into the following ruling.

2. Merits of Motion to Stay Action and Post Bond

The Court again finds in favor of Plaintiff Wallace.

The Court notes that it does not address the brief argument in the opposition that the moving papers’ evidence is inadmissible hearsay, which was not raised as a standalone objection and is unclear as to what portion of the moving papers is being objected to.

The Court also again notes that while Plaintiff is asserting derivative claims both as to Capo L.P., a limited partnership, and Capo, LLC, a limited liability company, the motion to stay and post bond sought a stay and post of bond as to Capo, LLC alone.

Here, Plaintiff’s evidence filed in opposition to the motion to stay and post bond supports the Complaint’s allegations that Plaintiff has an interest in Capo, LLC—a derivative claim as argued in the moving papers. (Complaint, ¶¶ 12, 15; 3/11/24 Opp’n, Greenspan Decl., ¶ 12 & Wallace Decl., ¶ 2.) Nothing in any of the cases cited by Marder hold that a shareholder cannot bring two derivative claims on behalf of two related entities.

The Court notes that because the motion to stay and post bond related to Capo, LLC alone, the “direct claim” arguments that allegedly arose at oral argument are not a basis for the Court’s decision. Neither is it clear how Defendant Marder was prejudiced as to this point by the April 2, 2024, ruling where the ruling did not mention the direct versus derivative claim distinction and instead simply pointed to the allegations supporting Plaintiff Wallace’s interest in Capo, LLC, and the allegations supporting futility. (4/2/24 Ruling, p. 3 at § III.B.2.)

Next, evidence filed in opposition to the motion to stay and post bond supports the Complaint’s allegations of futility in demand, specifically through evidence that the only other managing member in Capo, LLC has absented himself from the LLC’s business for four years, for which reason, in effect, Defendant Marder controls Capo, LLC, making a demand futile. (Complaint, ¶¶ 14, 24, 37, 42 [futility based on total control of Capo, LLC]; 3/11/24 Opp’n, Morris Decl., ¶¶ [authentication], Ex. 1 [2/28/24 email from counsel for Marvin Zeidler to counsel for Plaintiff Wallace indicating that Marvin Zeidler has not participated in Capo’s business affairs for four years, since before the COVID-19 pandemic].)

The Court notes that this determination of futility is based on the allegations in the Complaint regarding futility through de facto control and Plaintiff’s March 11, 2024, evidence showing the only other managing member of Capo, LLC has not been involved with business operations for more than four years, thus showing de facto control of Capo, LLC by Defendant Marder. Moreover, Defendant Marder’s defense in this action has been to deny liability and frame the conduct alleged in the Complaint as falling under the business judgment rule, supporting futility. (See, e.g., 1/12/24 Mot., 9-10.)

Under these circumstances, there appears to be a “reasonable possibility that the prosecution of the cause of action alleged in the complaint against the moving party will benefit the limited liability company” Capo, LLC because Plaintiff Wallace is attempting to vindicate Capo, LLC’s rights to receive a proper and fair share of revenue generated by Capo, L.P. (Corp. Code § 17709.02, subd. (b)(1).)

Based on the above reasoning, the Court again DENIES the motion to stay and post bond. 

IV. Conclusion

Defendant Bruce Marder’s Motion for Reconsideration of Order Denying Bond, or, in the Alternative, Informal Request for Reconsideration is DENIED as to reconsideration based on party request but is GRANTED as to sua sponte reconsideration of the Court’s April 2, 2024, order, with the Court again DENYING Defendant Marder’s motion to stay action and post bond as more fully set forth above.