Judge Holly J. Fujie, Case 22STCV09592 2022-10-26 Tentative Ruling

This action arises out of a dispute concerning Miracle Estate, LLC (the “LLC”), a limited liability company co-owned by Plaintiff and Defendant.[1] On March 7, 2022, Plaintiff filed a complaint (the “Complaint”) to involuntarily dissolve the LLC pursuant to Corporations Code section 17707.03, subdivision (a).

On April 4, 2022, Defendant filed an answer (the “Answer”) to the Complaint. Defendant’s 38th affirmative defense stated in the Answer alleged that Defendant had elected to purchase Plaintiff’s interest in the LLC and initiate statutory buyout procedures and stay the dissolution action. (See Answer ¶ 38.) Also on April 4, 2022, Defendant filed a notice of election to proceed with the purchase of Plaintiff’s LLC membership interest pursuant to Corporations Code section 17707.3, subdivision (c)(1).

On August 29, 2022, Plaintiff filed a motion to appoint appraisers pursuant to Corporations Code section 17707.3 (the “Motion”). The Motion requests that the Court impose firm deadlines for Defendant’s statutory buyout process, including the appointment of three neutral appraisers to determine the fair market value of the Parties’ membership interests.^{^[2]}

Pursuant to an action filed by any manager or by any member or members of a limited liability company, a court of competent jurisdiction may decree the dissolution of a limited liability company whenever any of the following events occurs: (1) it is not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement; (2) dissolution is reasonably necessary for the protection of the rights or interests of the complaining members; (3) the business of the limited liability company has been abandoned; (4) the management of the limited liability company is deadlocked or subject to internal dissension; or (5) those in control of the limited liability company have been guilty of, or have knowingly countenanced, persistent and pervasive fraud, mismanagement, or abuse of authority. Corp. Code § 17707.03, subds. (a)-(b).)

In any suit for judicial dissolution, the other members may avoid the dissolution of the limited liability company by purchasing for cash the membership interests owned by the members so initiating the proceeding, the “moving parties,” at their fair market value. (Corp. Code § 17707.03, subd. (c)(1).) In fixing the value, the amount of any damages resulting if the initiation of the dissolution is a breach by any moving party or parties of an agreement with the purchasing party or parties, including, without limitation, the operating agreement, may be deducted from the amount payable to the moving party or parties; provided, that no member who sues for dissolution on the grounds set forth in paragraph (3), (4), or (5) of subdivision (b) shall be liable for damages for breach of contract in bringing that action. (Id.)

If the purchasing parties elect to purchase the membership interests owned by the moving parties, are unable to agree with the moving parties upon the fair market value of the membership interests, and give bond with sufficient security to pay the estimated reasonable expenses, including attorney's fees, of the moving parties if the expenses are recoverable under paragraph (3), the court, upon application of the purchasing parties, either in the pending action or in a proceeding initiated in the superior court of the proper county by the purchasing parties, shall stay the winding up and dissolution proceeding and shall proceed to ascertain and fix the fair market value of the membership interests owned by the moving parties. (Corp. Code § 17707.03, subd. (c)(2).) The court shall appoint three disinterested appraisers to appraise the fair market value of the membership interests owned by the moving parties, and shall make an order referring the matter to the appraisers so appointed for the purpose of ascertaining that value. (Corp. Code § 17707.03, subd. (c)(3).) The order shall prescribe the time and manner of producing evidence, if evidence is required. (Id.) The award of the appraisers or a majority of them, when confirmed by the court, shall be final and conclusive upon all parties. (Id.) The court shall enter a decree that shall provide in the alternative for winding up and dissolution of the limited liability company, unless payment is made for the membership interests within the time specified by the decree. (Id.) If the purchasing parties do not make payment for the membership interests within the time specified, judgment shall be entered against them and the surety or sureties on the bond for the amount of the expenses, including attorney's fees, of the moving parties. (Id.) Any member aggrieved by the action of the court may appeal therefrom. (Id.)

If the purchasing parties desire to prevent the winding up and dissolution of the limited liability company, they shall pay to the moving parties the value of their membership interests ascertained and decreed within the time specified pursuant to this section, or, in the case of an appeal, as fixed on appeal. (Corp. Code § 17707.03, subd. (c)(4). On receiving that payment or the tender of payment, the moving parties shall transfer their membership interests to the purchasing parties. (Id.)

Plaintiff provides evidence that the Parties have been unable to agree upon the fair market value of Plaintiff’s membership interest in the LLC. (See Declaration of Felix T. Woo (“Woo Decl.”) ¶¶ 4-5; Declaration of Leann Li (“Li Decl.”) ¶ 2.) The Court notes that Defendant does not contest that the Parties have been unable to agree upon the fair market value of Plaintiff’s interest in the LLC or otherwise assert that he does not intend to proceed with the statutory buyout. Instead, Defendant requests that the Court refrain from appointing appraisers pending the resolution of a motion to expunge lis pendens filed in the related case styled as Ying Liu, et al. v. Peter Wang, et al., LASC No. 22STCV04587 (the “Liu Matter”). The pending motion to expunge lis pendens in the Liu Matter concerns a notice of pendency recorded against the real property which comprises the LLC’s sole asset and is set for hearing on October 31, 2022 in Department 73 before the Honorable Timothy Patrick Dillon.

The Court notes that Corporations Code section 17707.03, subdivision (c) empowers the purchasing party (in this case, Defendant), to move for a stay of a dissolution proceeding in order to determine fair market value in the event that the parties cannot agree on a fair market value, as opposed to the party who filed the dissolution action. In such circumstances, the Court is required to appoint three neutral appraisers to assess fair market value. The authority to seek the appointment of the appraisers therefore lies with Defendant rather than Plaintiff. (See Corp. Code § 17707.03, subd. (c)(2)-(3).)

Based on the foregoing, the Court DENIES the Motion. Taking into consideration Defendant’s apparent concession that he intends to proceed with buyout proceedings, however, the Court recommends that the Parties meet and confer to discuss an appropriate bond amount and a mutually agreeable method for selecting the three appraisers. The Court sets an OSC regarding the status of Defendant’s statutory buyout on November 16, 2022 at 8:30 a.m. in this department, at which time Defendant shall indicate to the Court if the Parties have stipulated to a stay and any terms regarding the appraisers or if he intends to file a motion to stay the dissolution action and appoint appraisers. Defendant is further ordered to file with the Court by November 9, 2022 a report as to the outcome of the hearing before Judge Dillon.

In consideration of the current COVID-19 pandemic situation, the Court¿strongly¿encourages that appearances on all proceedings, including this one, be made by LACourtConnect if the parties do not submit on the tentative.¿¿If you instead intend to make an appearance in person at Court on this matter, you must send an email by 2 p.m. on the last Court day before the scheduled date of the hearing to¿SMC_DEPT56@lacourt.org¿stating your intention to appear in person.¿ The Court will then inform you by close of business that day of the time your hearing will be held. The time set for the hearing may be at any time during that scheduled hearing day, or it may be necessary to schedule the hearing for another date if the Court is unable to accommodate all personal appearances set on that date.¿ This rule is necessary to ensure that adequate precautions can be taken for proper social distancing.

Parties who intend to submit on this tentative must send an email to the Court at SMC_DEPT56@lacourt.org as directed by the instructions provided on the court website at www.lacourt.org. If the department does not receive an email and there are no appearances at the hearing, the motion will be placed off calendar.

[1] The Court refers to Plaintiff and Defendant collectively as (the “Parties”).

[2] The Motion requests that the court-appointed appraisers complete their valuation analysis by December 2, 2022. The Court notes, however, that the Motion was originally scheduled to be heard on September 22, 2022, and several of the dates in Plaintiff’s proposed timeline have since passed.