Superior Court of California

County of Los Angeles

Department 26

VATCHE PAPAZIAN,

Plaintiff,

JACK Brown, et al.,

Defendants.

Case No.: BC692993

Hearing Date: January 30, 2023

[TENTATIVE] order RE:

Plaintiff Vatche Papazian’s motion to enforce the settlement agreement

Background

On February 6, 2018, plaintiff Vatche Papazian (“Plaintiff”) filed the instant derivative action against defendants Stephen, Brown (“Stephen”) Jack Brown (“Jack”), Suzanne Brown (“Suzanne”), OYB Clothing LLC (“OYB”), and nominal defendants Herbal Solutions Pre ICO, LLC (“Herbal”) and Herbal Cooperative Solutions Pre ICO, Inc. alleging violations of duties owed to the nominal defendants. On July 12, 2021, Plaintiff filed a Doe Amendment naming UTR Management, LLC (“UTR”) as Doe 1.

On November 8, 2021, Plaintiff filed the First Amended Complaint (“FAC”) against Stephen, Jack, Suzanne, Herbal, Herbal Cooperative Solutions Pre ICO, Inc., UTR (“Defendants”) and OYB asserting five causes of action for (1) Breach of Fiduciary Duty to Herbal Solutions Pre ICO LLC, (2) Breach of Fiduciary Duty to Herbal Cooperative Solutions Pre ICO, Inc., (3) Conversion, (4) Accounting, and (5) Alter Ego.

On May 4, 2022, Plaintiff filed a notice of settlement of the entire case. On May 5, 2022, the parties stipulated for the Court to retain Jurisdiction under Code of Civil Procedure section 664.6. On June 30, 2022, Plaintiff dismissed the entire action subject to the Court’s retention of jurisdiction under Code of Civil Procedure section 664.6.

On June 28, 2022, Plaintiff filed the instant motion to enforce settlement. On January 20, 2023, Defendants filed an opposition. On January 23, 2023, Plaintiff filed a reply.

Untimely Opposition and Reply Papers

“All papers opposing a motion so noticed shall be filed with the court and a copy served on each party at least nine court days, and all reply papers at least five court days before the hearing.” (Code Civ. Proc., § 1005(b).) This is calculated by counting backwards from the hearing date and excluding holidays and weekends. (Code Civ. Proc. §§ 12-12(c).) The court may refuse to consider a late-filed paper. (Cal. Rules of Court, Rule 3.1300(d).)

Here, the opposition was filed on January 20, 2023 – a mere six court days before the instant hearing. Accordingly, the opposition is untimely. However, as Plaintiff was able to timely file a reply, the Court will consider the untimely opposition.

Request for Judicial Notice

In opposition, Defendants request that the Court take judicial notice of:

1. Excerpts from California — Assembly Bill No. 195 from 2021-2022 session; Approved by Governor June 30, 2022. Filed with Secretary of State June 30, 2022. Published July 1, 2022

2. Article from The Orange County Register, dated July 5, 2022 for the proposition under section 452 (g), that fact that Southern California cannabis industry is failing financially is not a subject of reasonable dispute.

As the Court may take judicial notice of court records and actions of the State, (See Evid. Code, § 452(c)(d)), Defendants’ first request for judicial notice is GRANTED. However, the Court will not take judicial notice of the truth of assertions within the Court records. (See Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366, 1375.)

As to the second request, “[t]he existence of the newspaper article is irrelevant, and the truth of its contents is not judicially noticeable.” (In re Noreen G. (2010) 181 Cal.App.4th 1359, 1390.) Accordingly, Defendants’ second request for judicial notice is DENIED.

Legal Standard

Code of Civil Procedure section 664.6 provides that “[i]f parties to pending litigation stipulate, in a writing signed by the parties outside the presence of the court or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement.” In ruling on a motion to enter judgment the trial court acts as a trier of fact. It must determine whether the parties entered into a valid and binding settlement. To do so it may receive oral testimony in addition to declarations. (Kohn v. Jaymar-Ruby, Inc. (1994) 23 Cal.App.4th 1530, 1533.) However, “the power of the trial court under section 664.6 ‘is extremely limited.’” (Howeth v. Coffelt (2017) 18 Cal.App.5th 126, 134.)

Discussion

Plaintiff seeks an order compelling Defendants to comply with the Settlement Agreement by (1) producing all documents requested by the appraisers within 14 days following this Court’s order, and (2) producing all persons requested by the appraisers for interviews between 28 and 35 days following the Court’s order.

On May 3, 2022, the parties entered into a settlement agreement under which Defendants agreed to purchase Plaintiff’s interest in nominal defendants Herbal Solutions Pre ICO, LLC and Herbal Cooperative Solutions Pre ICO, Inc. (Johnson Decl. ¶ 2, Exh. 2.) The settlement agreement provides in relevant part that:

[Defendants] and [Plaintiff] will agree to two mutually agreeable licensed appraisers with experience appraising commercial cannabis companies to appraise the value of [Plaintiff’s] Interest. [Defendants] and [Plaintiff] will have fourteen (14) days from the Effective Date to mutually agree upon two appraisers. In the event [Defendants] and [Plaintiff] cannot agree on appraiser(s), [the parties] will notify ADR Services, In. (“ADR”) fifteen (15) days from the Effective Date, and ADR will provide a list of candidates to [the parties] with experience in the cannabis business and/or business valuations to decide the issue. Gail Title will be excluded from the list. ADR shall provide this candidate list no later that seven (7) days after [the parties] notify ADR of the issue. [The parties] ma strike three (3) candidates from the selected ADR candidates and then rank the remaining candidates in order of preference. [The parties] will have seven (7) days after receiving the ADR candidate list to submit their strike/rank list. ADR shall have no more than seven (7) days from the date [the parties] submit their strike/rank list to select a candidate. After ADR selects the candidate, [Plaintiff and Defendants] will each submit the names of three (3) appraisers and the appraisers’ qualifications to the ADR candidate within seven (7) days of the notification of the candidate. The selected ADR candidate will have two (2) weeks to choose the appraiser(s) after [the parties] submit their paperwork to the ADR candidate. [Defendants will pay 100 percent of the upfront cost for the appraisals and ADR services (if needed). [Defendants] agree[] that [Plaintiff] will also be sent the invoices from the Appraisers via his counsel of record, Johnson & Johnson, LLP. There shall be no ex parte communications with any proposed appraisers by either [parties] once selected by the parties or ADR. Any Party and their counsel have the right to listen to all conversations between the Appraisers and any other Party unless a Party waivers that right. Any communications with the appraisers must be scheduled at least forty-eight (48) hours in advance by either party or on a Friday by noon if the communication will take place on a Monday. All paperwork shared with the appraisers shall also be shared with the other party. It is estimated that it will take three to four weeks for the appraisers to complete their analysis. [Plaintiff’s] counsel will receive a copy of the Final Appraisal reports. The candidate selected by ADR shall resolve any disputes about the appraisal process. All disputes involving the appraisal process shall be resolved by the ADR candidate within forty-five (45) days or as soon as possible. All documents and communications with the appraisers shall be subject to the confidential protective order previously entered into in this litigation.

(Johnson Decl. ¶ 2, Exh. 2 at § Agreement (1)(b).)

On June 6, 2022, the parties agreed upon two appraisers, Spaulding Financial and Cohn Reznick. (Johnson Decl. ¶ 3, Exh. 1.) “On July 22, 2022, Cohn Reznick (one of the selected appraisers) provided counsel for [Defendants] a list of approximately thirty categories of documents needed for the appraisal contemplated by the [the parties’] settlement agreement.” Winokur Decl. ¶¶ 2-3, Exhs. 3-4.) “On August 2, 2022, Erin Spaulding of Spaulding Financial [the other appraiser] sent a document to Defendants’ counsel entitled ‘Cannabis Related Business Information Request List.’ This communication further informed the Defendants of the need to interview management ‘about 2 weeks after receiving much of the information here requested.’” (Winokur Decl. ¶ 5, Exhs. 6-7.)

“On or before August 3, 2022, Cohn Reznick supplied Defendants a secure document portal for Defendants to upload the documents required for its appraisal.” (Winokur Decl. ¶ 4, Exh. 5.) “On August 8, 2022, Defendant Stephen Brown uploaded balance sheets and profit and loss sheets for years 2015-2020 (‘2015-2020 Docs’) to a cloud storage drive Stephen maintained and controlled (and he provided a link to the appraisers).” (Winokur Decl. ¶ 9.)

On August 19, 2022, Erin Spaulding of Spaulding Financial “reported that Defendants had only provided access to the 2015-2020 Docs and that many other requested documents remained outstanding.” (Winokur Decl. ¶ 12, Exh. 11.) Cohn Reznick reported that it had not received any of the requested documents. (Winokur Decl. ¶ 13, Exh. 12.)

Plaintiff’s Counsel attempted to contact Defendants multiple times. On August 23, 2022, Defendants represented that they would produces the 2021 and 2022 year to date financial statements and the profit & losses (“2021-2022 Docs”) that day, and the remaining documents would come later. (Winokur Decl. ¶¶ 14-16, Exhs. 13-15.) However, no documents were ever provided. (Winokur Decl. ¶ 17.) After several requests by Plaintiff and the Appraisers, on September 20, 2022, Defendant provided some of the documents requested – i.e. copies of their commercial lease, a cannabis license, and a year-old invoice from the city. (Winokur Decl. ¶ 25.)

After further requests by Plaintiff and the appraisers requesting a timeline and after the instant motion was filed, Defendants uploaded a few more documents on November 22, and November 23, 2022. (Supp. Winokur Decl. ¶¶ 3-10.) However, Defendants failed to provide a timeline of when the additional missing documents would be produced. Moreover, the overwhelming majority of the documents requested are still outstanding. (Supp. Winokur Decl. ¶ 21, Exh. 44.)

In opposition, Defendants claim that the delay is due to the requested documents requiring creation, compilation, analysis and drafting which has been significantly delayed due to a majority of the staff being laid off to keep the company afloat during the poor market for cannabis. (Burt Decl. ¶ 6.)

In sum, Plaintiff provides ample evidence that Defendants have failed to produce documents to permit the Appraisers to appraise Herbal Solutions Pre ICO, LLC and Herbal Cooperative Solutions Pre ICO, Inc. Though the Settlement Agreement does not provide a precise deadline for Defendant to provide such documents, (Johnson Decl. ¶ 2, Exh. 2), the terms of the Settlement Agreement encompass a mutual understanding that all parties will cooperate with the Appraisers in order to allow the Appraisers to complete the appraisal within a reasonable time period. “A settlement agreement is interpreted according to the same principles as any other written agreement.” (Leeman, supra, 236 Cal.App.4th at p.1374.) Thus, like any contract “[i]f no time is specified for the performance of an act required to be performed, a reasonable time is allowed.” (Civ. Code, § 1657.)

Here, Defendants have failed to provide documents that the Appraisers first requested approximately six months ago. The staffing issues to which Defendants point do not adequately explain this period of delay. Any further delay is very unlikely to be reasonable.

To the extent that Plaintiff contends that Defendants have previously failed to comply with Court orders to pay monetary sanctions, the Court notes that no further action is warranted for such failure. This is because as noted by the Court of Appeal in Newland, “many attorneys seem to be unaware that monetary sanction orders are enforceable through the execution of judgment laws.” (Newland v. Superior Court (1995) 40 Cal.App.4th 608, 615.) Monetary Sanctions “have the force and effect of a money judgment, and are immediately enforceable through execution, except to the extent the trial court may order a stay of the sanction.” (Ibid.)

CONCLUSIONS AND ORDER

Based on the foregoing, Plaintiff Vatche Papazian’s motion to enforce the settlement agreement is GRANTED to the extent that Plaintiff moves to compel the production of documents and interviews of persons requested by the appraisers as follows: No later than February March 1, 2023, Defendants are to produce all documents requested by the appraisers. Defendants are to produce all persons requested by the appraisers for interviews between March 15, 2023 and March 22, 2023.

Defendants must file a declaration by March 22, 2023 attesting to their compliance with this order. If Defendants have failed to comply with the instant order in full, Defendants must explain in their declaration filed by March 22, 2023 the cause for their failure to comply, the cause for further delay, and a specific timeline for the production of such documents and witnesses.

If Defendants have failed to comply with the instant order in full, Plaintiff may file a supplemental declaration no later than March 27, 2023 identifying the remaining areas of non-compliance and specifying any additional attorney’s fees and costs incurred in furtherance of enforcing the settlement agreement.

Plaintiff Vatche Papazian’s motion to enforce the settlement agreement is CONTINUED TO April 3, 2023 to the extent that Plaintiff requests attorney’s fees incurred in enforcing the settlement.

Plaintiff is to give notice to all parties and file proof of service of such.

DATED: January 30, 2023 ___________________________

Elaine Lu

Judge of the Superior Court