Judge Craig D. Karlan, Case 20SMCV00478 2023-03-01 Tentative Ruling

This Motion: Defendant again moves for an order compelling out-of-state Plaintiff to post an undertaking of $106,535.00.

Defendant moves to compel Plaintiff to post an undertaking in the amount of $106,535.00 to secure an award of costs. Defendant argues that Plaintiff is a foreign corporation, and Defendant has a reasonable possibility of success at trial because Plaintiff’s damages would be purely speculative.

Plaintiff does not dispute Defendant’s contentions that it is unlikely to prevail. Instead, Plaintiff argues that it recently merged with Flixcity Mgmt Inc., which is a California corporation, and therefore Section 1030 does not apply. Plaintiff also argues it lacks the financial ability to post an undertaking, and the bond requested by Defendant is excessive.

Defendant David Loomstein’s Motion for an Order Compelling Plaintiff to Post an Undertaking is GRANTED.

Plaintiff shall post bond in the reduced amount of $46,535.00 within 30 days or this action will be dismissed pursuant to Code of Civil Procedure section 1030(d).

Defendant’s motion is accompanied by the following three requests for judicial notice:

1. Defendant’s Amended Motion For An Order Requiring Non-Resident Plaintiff To File An Undertaking To Secure Award of Costs; Memorandum of Points And Authorities; Declarations of S. Michael Kernan and David Loomstein from the action The One Experience, LLC v. David Loomstein, et al., LASC Case No. 20SMCV00478, filed on June 18, 2020.

2. The Court’s Minute Order Granting Defendant’s Motion For The Posting of a Bond in the Amount of $106,535.00 from the action The One Experience, LLC v. David Loomstein, et al., LASC Case No. 20SMCV00478, filed on September 4, 2020.

3. Defendant’s Response To Plaintiff’s Supplemental Declaration Re: Damages And Evidentiary Objections to Supplemental Declarations of Kenneth Schwenker Submitted in Support of Plaintiff’s Opposition to Defendant’s Special Motion to Strike (Anti-SLAPP) from the action The One Experience, LLC v. David Loomstein, et al., LASC Case No. 20SMCV00478, filed on October 2, 2020.

The Court does not need to take judicial notice of these items as they are filings from this case. The request is DENIED.

Plaintiff’s opposition is accompanied by a request the Court take judicial notice of the Declaration of Ken Schwenker, which was filed with Plaintiff’s opposition to Defendant’s motion to require Plaintiff to post an undertaking brought in the appeal of this action, 2nd Civil Appellate No. B309857. For the same reason as above, the request is DENIED. The Court does not need to take judicial notice of filings from this case.

Defendant’s reply is accompanied by the following six requests for judicial notice:

1. The corporate status page of The One Experience, LLC from the State of New Mexico Secretary of State dated February 21, 2023.

2. The corporate status page of The One Experience, LLC from the State of New Mexico Secretary of State dated February 16, 2023.

3. The "Certificate of Merger" filed on February 15, 2023 with the California Secretary of State.

4. The "Officer Stock Certificate" filed on February 15, 2023 with the California Secretary of State.

5. The "Agreement of Merger" filed on February 15, 2023 with the California Secretary of State.

The Court may take judicial notice of public records and “[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” (Evid. Code §§ 452(c) and 452(h).) Accordingly, requests 1-5 are GRANTED. For the reasons stated above, request 6 is DENIED.

Defendant raises two objections to the declaration of John Burgee. The Court declines to rule on the objections because they do not affect this ruling.

Under Code of Civil Procedure section 1030, subdivision (a), a defendant sued by an out-of-state plaintiff “may at any time apply to the court by noticed motion for an order requiring the plaintiff to file an undertaking to secure an award of costs and attorney’s fees which may be awarded in the action or special proceeding.” To prevail on a motion for undertaking, the defendant must show that (1) the plaintiff resides out of state and (2) there is a “reasonable possibility” that the defendant will obtain a judgment in the matter. (Code Civ. Proc., § 1030(b).)

A defendant need not show there is no possibility of the plaintiff prevailing, only that it is reasonably possible that defendant will prevail. (Baltayan v. Estate of Getemyan (2001) 90 Cal.App.4th 1427, 1432.) Additionally, the motion must be accompanied by a supporting affidavit that sets forth the nature and amount of the costs the defendant has incurred and expects to incur. (Code Civ. Proc., § 1030(b).) If the Court determines that it is proper to require an undertaking, the plaintiff shall file the undertaking no later than 30 days after service of the court’s order. (Code Civ. Proc., § 1030(d).) Finally, “[t]he determinations of the court” on a motion for undertaking “have no effect on the determination of any issues on the merits of the action . . . and may not be given in evidence nor referred to in the trial of the action or proceeding.” (Code Civ. Proc., § 1030(f).)

Defendant moves to compel Plaintiff to post an undertaking in the amount of $106,535.00 to secure an award of costs, on grounds that Plaintiff is a foreign corporation and Defendant has a reasonable possibility of prevailing. Plaintiff raises three arguments in opposition: First, Plaintiff is no longer a foreign corporation because it merged with Flixcity Mgmt Inc. (“Flixcity”), which is a California corporation, and Flixcity assumed all the rights and claims being asserted in this action; second, Plaintiff lacks the financial ability to post an undertaking; and third, the bond requested by Defendant is excessive. Plaintiff does not dispute Defendant’s contentions that Defendant has a reasonable likelihood of prevailing.

Plaintiff argues it merged with Flixcity, and pursuant to Code of Civil Procedure section 368.5, Flixcity may continue this action under the name of the original plaintiff—The One Experience, LLC. Defendant responds the merger is a sham, and if Plaintiff merged with Flixcity then it no longer has the capacity to sue and this action must be dismissed.

Code of Civil Procedure section 368.5 states: “An action or proceeding does not abate by the transfer of an interest in the action or proceeding or by any other transfer of an interest. The action or proceeding may be continued in the name of the original party, or the court may allow the person to whom the transfer is made to be substituted in the action or proceeding.”

Plaintiff argues Flixcity is now the rightful plaintiff in this action because Flixcity assumed Plaintiff’s rights and claims. Plaintiff, however, offer zero evidence of a legitimate transfer of interests—it simply proclaims Flixcity is now the Plaintiff.

Under both California and New Mexico law, a corporation does not lose its right to continue as a plaintiff when it merges and dissolves. Nor does it automatically assign all its rights and claims for existing lawsuits.

New Mexico statutory and case law provides: “The dissolution of a corporation does not take away or impair any remedy available to or against the corporation, its directors, officers or shareholders, for any right or claim existing, or any liability incurred, prior to the dissolution and any such action or proceeding by or against the corporation may be prosecuted or defended by the corporation in its corporate name.” (N.M. Stat. Ann. § 53-16-24 (West); Reynolds v. Landau (N.M. Ct. App. 2020) 468 P.3d 928, 936.)

California Corporations Code section 2010, subdivision (a) provides: “A corporation which is dissolved nevertheless continues to exist for the purpose of winding up its affairs, prosecuting and defending actions by or against it and enabling it to collect and discharge obligations, dispose of and convey its property and collect and divide its assets, but not for the purpose of continuing business except so far as necessary for the winding up thereof.” And Section 2010, subdivision (b) provides: “No action or proceeding to which a corporation is a party abates by the dissolution of the corporation or by reason of proceedings for winding up and dissolution thereof.” (See also Favila v. Katten Muchin Rosenman LLP (2010) 188 Cal.App.4th 189, 212 [finding corporations continue to prosecute and defend pending actions after dissolution].)

In other words, under both California and New Mexico law, The One Experience, LLC has not lost its right to continue as Plaintiff because it merged and dissolved. Nor does Flixcity automatically become the plaintiff in this action because it merged with The One Experience, LLC. If Plaintiff wishes to substitute Flixcity as the plaintiff in this action it must offer proof that it transferred its rights and claims in this action to Flixcity before it dissolved. Simply stating it did so and citing to an inapplicable statute is insufficient.

Without such proof, The One Experience, LLC is still Plaintiff in this action, and The One Experience, LLC is a foreign corporation under Section 1030.[1]

Code of Civil Procedure Section 995.240 provides: “The court may, in its discretion, waive a provision for a bond in an action or proceeding and make such orders as may be appropriate as if the bond were given, if the court determines that the principal is unable to give the bond because the principal is indigent and is unable to obtain sufficient sureties, whether personal or admitted

"Where the plaintiff establishes indigency, a trial court has discretion to waive the posting of security under Code of Civil Procedure section 1030." (Baltayan v. Estate of Getemyan (2001) 90 Cal.App.4th 1427, 1433.)

Here, Plaintiff has not adequately established indigency such that the Court finds it appropriate to exercise its discretion to waive security under Section 1030. The only evidence Plaintiff offers is the self-serving declaration of its shareholder who states that TOL took over a fledging music festival, its ability to generate revenues was set back by Defendant’s conduct and a worldwide pandemic, and Plaintiff has minimal assets and no ability to procure an undertaking as a result. (Schwenker Decl., ¶¶ 6, 11-13.) Mr. Schwenker attaches a purported TOL bank statement, but the balance of single account from 2019 does not provide an accurate assessment of Plaintiff’s current finances—especially considering its recent merger with Flixcity. (See Id., Ex. A.) Plaintiff offers no other evidence of indigency.

Plaintiff does not dispute Defendant’s contention that Defendant has a reasonable possibility of prevailing. Indeed, the Court already found that Defendant establishes the second element of Section 1030:

“Defendant provides evidence the alleged statements were either: (1) protected opinion, (2)

substantially true, or (3) not intended to disrupt plaintiff’s relationship with Pearson. Loomstein

decl. ¶¶30-35. This is sufficient to clear the low ‘reasonable possibility’ bar.” (Sept, 4, 2020 Order, pg. 4.)

This determination is for the purposes of this motion only and may not be given in evidence nor referred to at trial. (See Code Civ. Proc., § 1030, subd. (f).)

Plaintiff’s final argument in opposition to this motion is that the amount of Defendant’s requested bond is excessive. Here, the Court agrees with Plaintiff.

In support of its requested bond, Defendant offers a declaration from counsel who provides an estimate of costs based on his experience with entertainment law cases. (Kernan Decl., ¶ 4.) Included in Defendant’s total request for $106,535.00 in security are $60,000 in expert fees. (Ibid.) However, expert fees are not recoverable as costs unless authorized by the court or an agreement between the parties. (Code Civ. Proc. § 1033.5(b)(1).) Defendant offers no agreement between the parties allowing the prevailing party to recover expert fees. The Court will therefore deduct counsel’s estimate of expert fees from Defendant’s requested amount of bond. The Court finds the rest of defense counsel’s estimates to be reasonable.

Accordingly, the Court reduces Defendant’s requested bond by $60,000 to $46,535.00 total.

Defendant David Loomstein’s Motion for an Order Compelling Plaintiff to Post an Undertaking is GRANTED. Plaintiff shall post $46,535.00 within 30 days or this action will be dismissed pursuant to Code of Civil Procedure section 1030(d).

[1] Plaintiff argues in passing that it is an LLC, not a corporation, and therefore Code of Civil Procedure section 1030 does not apply. The argument is not persuasive. The statute’s purpose is to enable California residents to secure costs against “out-of-state residents” in general. (Alshafie v. Lallande (2009) 171 Cal.App.4th 421.)