Judge: Holly J. Fujie, Case: 22STCV39284, Date: 2023-12-20 Tentative Ruling

Case Number: 22STCV39284    Hearing Date: December 20, 2023    Dept: 56

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES - CENTRAL DISTRICT

MOVING PARTY: Plaintiff

RESPONDING PARTIES: Defendants Saki Middleton, John Stanley, Inc., John Stanley Urban Partners, LC, Rohan Gupta, and GFO Companies LLC

            The Court has considered the moving, opposition and reply papers.

BACKGROUND

            This is a shareholder derivative action.  Plaintiff’s complaint (the “Complaint”) alleges: (1) accounting; (2) breach of fiduciary duty; (3) breach of contract; (4) breach of the implied covenant of good faith and fair dealing; and (5) conversion.

On November 21, 2023, Plaintiff filed a motion for the appointment of a referee (the “Motion”).  The Motion argues that the appointment of a referee to render a long account

of the transactions of nominal defendant John Stanley Affordable Housing Fund II, LLC (“Fund II”) would be efficient and economical.

DISCUSSION

Under California Code of Civil Procedure (“CCP”) section 639, subdivision (a)(1) and (1)(2), when the parties do not consent to the appointment of a referee, a judge may, on a party's written motion or on the judge's own motion, appoint a referee when the trial of an issue of fact requires the examination of a long account on either side or when taking an account is necessary for the judge's information before judgment or for carrying a judgment or order into effect.  (CCP § 639, subd. (a)(1)-(a)(2).)  A reference for an accounting under CCP section 639, subdivision (a) is based on the rationale that the reference is allowed because a trained accountant is generally better able to efficiently and inexpensively examine a long account than a trial court judge is able to do through adversarial court proceedings.  (Jones v. Wagner (2001) 90 Cal.App.4th 466, 475.)

            The Motion argues that a reference should be appointed to conduct a forensic accounting of Fund II’s transactions because of the convoluted records of Fund II and the entities in which it holds equity interests.  (See, e.g., Declaration of Gary L. Krausz (“Krausz Decl.”) ¶¶ 4-5.)  Defendants dispute the characterization of facts set forth in the Motion and argue that expert witnesses may sufficiently condense the information contained in Fund II’s financial records.  Defendants do not, however, dispute the voluminosity or complexity of the records required to perform an accounting.

The Court finds that it is in the interest of judicial economy and avoiding increased trial costs and delays to appoint a special referee to examine the accounting issues and provide an advisory recommendation for the Court’s review.  The Court therefore GRANTS the Motion. The Court schedules an order to show cause hearing regarding the appointment of the referee on January 10, 2024 at 8:30 a.m. in this department.  The Court orders Plaintiff and Defendants to submit up to three nominees (including the nominee’s name, business address, telephone number and CV, and the maximum hourly rate the referee may charge) for appointment as referee by January 5, 2023.

Moving party is ordered to give notice of this ruling.

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.

      Dated this 20th day of December 2023