Judge: Cynthia A Freeland, Case: 37-2018-00054719-CU-PP-NC, Date: 2024-02-23 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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SOUTH BUILDING TENTATIVE RULINGS - February 22, 2024

02/23/2024  01:30:00 PM  N-27 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Cynthia A. Freeland

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Civil - Unlimited  Petition - Partnership & Corporate governance Motion Hearing (Civil) 37-2018-00054719-CU-PP-NC SMITH VS PETERS [IMAGED] CAUSAL DOCUMENT/DATE FILED: Motion - Other, 11/07/2023

The court, on its own motion, continues this matter to Friday, March 1, 2024 at 1:30 p.m. in this department. In advance of that hearing, the court issues the following tentative ruling: Petitioners Zachary R. Smith, James R. McCormick, Kyle E. Lakin, and Christina Baine DeJardin (collectively, 'Petitioners')'s motion for an order substituting Chapter 7 Trustee Leonard J. Ackerman as real party in interest in place of Intervenor Janet Peters is denied without prejudice.

On June 27, 2022, the Honorable William McCurine (ret.) issued his ruling awarding Petitioners $9,857,608.76, plus $800,000.00 in punitive damages, plus prejudgment interest on a portion of the award from September 1, 2016, plus attorney's fees and costs, for a total of more than $15,000,000.00.

See Smith Decl., ¶ 3. On September 16, 2022, the court granted Petitioners' application for a right to attach order and order for issuance of writ of attachment as to the real and personal properties set forth in the attachments to that application (with the exception of the Via Valente Property, which Petitioners agreed to exclude from the writ of attachment order) (the 'Writ of Attachment'). Ibid., ¶ 4; ROA No. 498.

On September 27, 2022, the court issued the Writ of Attachment in the amount of $10,657,608.76 as to certain community real property and investment/deposit accounts held by Respondent David M. Peters and Ms. Peters. See Smith Decl., ¶ 4; ROA No. 501. On October 26, 2022, Petitioners filed a motion to confirm the arbitration award (the 'Motion to Confirm'). See ROA No. 507. On November 21, 2022, Ms.

Peters filed a motion to intervene to respond to the Motion to Confirm. See ROA No. 565. On December 9, 2022, the court granted Ms. Peters' request to intervene finding, in pertinent part, that Ms. Peters had established a direct and immediate interest in this action that is being threatened by a seizure or in any other manner. See ROA No. 595. On January 19, 2023, the court, over Mr. Peters' and Ms. Peters' respective objections, issued a tentative ruling granting the Motion to Confirm. See ROA No. 678.

On January 20, 2023, Mr. Peters filed a voluntary Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the Southern District of California, which petition resulted in a stay of this action and precluded the court from entering a final order granting the Motion to Confirm. See Smith Decl., ¶ 5; ROA Nos. 685, 688, 692. On February 14, 2023, Petitioners filed a claim in the bankruptcy action in the amount of $15,339,614.41, with $10,657,608.76 of that amount secured by virtue of Petitioners' attachment lien. See Smith Decl., ¶ 6. On April 10, 2023, the Honorable Margaret M. Mann entered an order converting Mr. Peters' Chapter 11 case to one under Chapter 7. Ibid., ¶ 8, Ex. C. That same day, Mr. Ackerman was appointed as the Chapter 7 Trustee in the bankruptcy action. Ibid., ¶ 8, Ex. D. Upon conversion of the bankruptcy case from Chapter 11 to Chapter 7, Mr. Peters' legal rights and interests in this action were transferred to Mr. Ackerman, who is now acting as the representative of Mr. Peters' bankruptcy estate. See M & M Foods, Inc. v. Pacific American Fish Co., Inc. (2011) 196 Cal. App. 4th Calendar No.: Event ID:  TENTATIVE RULINGS

3049293 CASE NUMBER: CASE TITLE:  SMITH VS PETERS [IMAGED]  37-2018-00054719-CU-PP-NC 554, 562. Such rights and interests will remain with Mr. Ackerman unless and until: (1) Mr. Ackerman chooses to abandon them; (2) the bankruptcy court orders that Mr. Ackerman abandon them; or (3) they are not administered at the time of the closing of the bankruptcy action. See 11 U.S.C. §§ 554(a)-(c). On April 10, 2023, Judge Mann granted Petitioners relief from the automatic stay to proceed to a final judgment in this action but indicated that Petitioners are not allowed to enforce any such judgment on property of the bankruptcy estate and/or to otherwise lien, encumber, or levy property of the estate without further order from the bankruptcy court. See Smith Decl., ¶ 8, Ex. B.

On June 16, 2023, the court granted Mr. Ackerman's motion for an order substituting himself as the real party in interest in place of Mr. Peters. See ROA No. 740. Petitioners now seek the same order as to Ms.

Peters in light of the bankruptcy court's April 10, 2023 order converting Mr. Peters' bankruptcy case to one under Chapter 7. See ROA No. 751.

The court finds that the motion, at best, is premature. It is undisputed that Mr. Ackerman has served as the Chapter 7 Trustee for Mr. Peters' bankruptcy estate since April 10, 2023. Since the conversion date, all of Mr. Peters' rights, claims, interests, and/or causes of action with respect to the present action have belonged to the bankruptcy estate subject to administration by Mr. Ackerman. See 11 U.S.C. §§ 541(a)(1), (7). It is further undisputed that the bankruptcy estate consists of the Peters' community property interests as of the commencement of the bankruptcy action. See 11 U.S.C. § 541(a)(2). To date, Mr. Ackerman has not: (1) abandoned the bankruptcy estate's interest in the rights, claims, interests, and/or causes of action previously held by Mr. Peters, or (2) sought to represent and/or protect Ms. Peters' interests with respect to any matter. Moreover, Ms. Peters is not seeking to litigate and/or defend any claims now held by the bankruptcy estate – she merely intends to protect her potential interests in whatever the final arbitration award will be in this matter (if anything). That being said, the court agrees with Mr. Ackerman that divesting Ms. Peters of her intervention rights, at this point, would be premature given that the bankruptcy court has yet to make any determination(s) as to any separate property held by Ms. Peters. Petitioners cite Griffin v. Allstate Ins. Co., 920 F. Supp. 127 (C.D. Cal. 1996), In re Moreno, 622 B.R. 903 (Bankr. C.D. Cal. 2020), Bostanian v. Liberty Savings Bank (1997) 52 Cal. App. 4th 1075, and Midi Music Center, Inc. v. Smith, 140 B.R. 904 (Bankr. D.N.M. 1992) for the general proposition that, once a debtor spouse files for bankruptcy, the nondebtor spouse no longer owns the couple's community property and thus lacks standing to assert a community property cause of action. However, Petitioners cite no authority supporting the relief they seek by way of the pending motion, namely an order compelling the Chapter 7 trustee to substitute into a state court action in place of a nondebtor intervening spouse. Furthermore, Mr. Ackerman's 'discretion' in his representation of Mr.

Peters' bankruptcy estate is not germane to the resolution of this matter. Mr. Ackerman ultimately will administer the bankruptcy estate consistent with his obligations as the Chapter 7 Trustee. The scope of that administration will depend, in part, on the bankruptcy court's determination(s) as to community/separate property nature of estate assets.

Furthermore, the court respectfully disagrees with Petitioners that granting the motion, at this juncture, will not occasion any prejudice. Indeed, removing Ms. Peters as an intervenor without first knowing the extent of her separate property interest in the subject assets unfairly may limit her ability to challenge the potential final arbitration award in this matter. At the same time, Petitioners have not demonstrated sufficient prejudice flowing from a denial of the motion. Specifically, Petitioners' contention that they will be forced to litigate the Motion to Confirm on multiple fronts – which is likely to involve similar issues/arguments by Mr. Ackerman and Ms. Peters regarding the community property nature of the subject assets – does not outweigh Ms. Peters' substantial interest in protecting her property interests from an execution on a potential arbitration award and/or seeking to vacate such arbitration award.

In light of the foregoing, the court denies the motion without prejudice.

This is the tentative ruling for the hearing at 1:30 p.m. on Friday, March 1, 2024. If no party appears at the hearing, this tentative ruling will become the order of the court as of March 1, 2024. If the parties are satisfied with the court's tentative ruling or do not otherwise wish to argue the motion, they are encouraged to give notice to the court and each other of their intention not to appear, though this notice Calendar No.: Event ID:  TENTATIVE RULINGS

3049293 CASE NUMBER: CASE TITLE:  SMITH VS PETERS [IMAGED]  37-2018-00054719-CU-PP-NC is not required.

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