Judge: Douglas W. Stern, Case: 19STCP04706, Date: 2023-11-17 Tentative Ruling

Case Number: 19STCP04706    Hearing Date: November 17, 2023    Dept: 68

Friend of Camden, Inc. vs. Barbara Brandt, et al., 19STCP04706

Motion for an Order Requiring Plaintiff to Distribute Sale Proceeds or, in the Alternative, to Replace Plaintiff as Liquidator

Moving Parties: Defendants Barbara Brandt, Shirley Wilson, et al.

Motion

The Court has reviewed the Points and Authorities, Declarations and Exhibits submitted by the parties.

This dispute arises out of the soon-to-be end of the Limited Liability Company Ventura-Petit East LLC, an entity that once owned an office building.  It was sold in June 2023 for $40 million.  The net proceeds are approximately $31 million.

Defendants/Cross-Complainants request that the Court either order Friends of Camden to distribute to them their 50% of the net sale proceeds from the sale of the real property (approximately $15 million for their 50% share) or that the Court appoint a neutral third party liquidator pursuant to Corporations Code § 17707.04.

Friends of Camden notes that it is willing to make a distribution of most of the net proceeds (less reasonable reserves for various liabilities of $1.25 million) so long as Defendants agree to a “Push-Out Election” whereby the parties all agree that the tax liability shall be borne by the various members of the entity, rather than remain at the entity level.  They contend that in the absence of such a “Push-Out Election” Friends of Camden must conduct a tax analysis and wait until the taxes are no longer subject to a tax audit by the taxing authorities – 3 and 4 years – before it distributes most of the net proceeds.

Corporations Code § 17707.04 provides:

“In the event of a dissolution of a limited liability company all of the following apply:

(a) The managers who have not wrongfully dissolved the limited liability company, or, if none, the members, or, if none, the person or a majority of the persons signing the articles of organization, may wind up the affairs of the limited liability company, unless the dissolution occurs pursuant to Section 17707.03, in which event the winding up shall be conducted in accordance with the decree of dissolution. The persons winding up the affairs of the limited liability company shall give written notice of the commencement of winding up by mail to all known creditors and claimants whose addresses appear on the records of the limited liability company.

(b) Upon the petition of any manager or of any member or members, or three or more creditors of a limited liability company, a court of competent jurisdiction may enter a decree ordering the winding up of the limited liability company, if that appears necessary for the protection of any parties in interest. The decree shall designate the managers or members, or if good cause is shown, another person or persons, who are to wind up the affairs of the limited liability company.

(c) Except as otherwise provided in the articles of organization or a written operating agreement, the persons winding up the affairs of the limited liability company pursuant to this section shall be entitled to reasonable compensation.”

The Court of Appeal issued its mandate directing that VPE be wound up in accordance with the statutory requirements.  This has proven to be a difficult and contentious effort.  No doubt, the parties shall continue to litigate issues that arise both from the prior operation of the entity and new issues that arise from the winding-up itself.

Based on the status of this case, it is clear that the parties will not be able to wind-up VPE’s affairs in accordance with the mandate of the Court of Appeals without extraordinary effort, time and expense.  In order to fulfill the mandate of the Court of Appeals, the Court finds that the best available option is to appoint a neutral third party liquidator to replace Friends of Camden in order to wind-up the affairs of VPE pursuant to Corp. Code § 17707.04.

While no one can predict the future, it appears to the Court that appointing a dis-interested neutral third party to wind-up VPE, while imposing some costs, may assist the parties in both obtaining a timely winding-up and potentially reduce the actual costs by eliminating litigation expenses that might otherwise be incurred were the present “non-neutral” manager remain as the person in charge of the winding-up process.

Defendants have requested that David P. Stapleton, CPA, CLPF, be appointed as the neutral third party liquidator for VPE.  His CV is attached as Exhibit 11 to the Martin Declaration filed with Defendants’ original ex parte application.  Based on his CV, he appears qualified to be liquidator.  Friends of Camden has opposed the appointment of a liquidator, but has not chosen to provide the Court any objection to the qualifications of David P. Stapleton or an alternative proposed liquidator.

The Court appoints Mr. Stapleton as the third party liquidator.