Judge: Holly J. Fujie, Case: BC683350, Date: 2022-10-11 Tentative Ruling

Case Number: BC683350    Hearing Date: October 11, 2022    Dept: 56

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES - CENTRAL DISTRICT

The Court has considered the Plaintiffs’ and Defendants’ (the “Parties”) briefing on the issues submitted for the Court’s determination in the stipulation filed on July 1, 2022 (the “Stipulation”).

DISCUSSION

            This action concerns a dispute concerning the Biafora Family Limited Partnership (“BFLP”).  Among the causes of action alleged in Plaintiffs’ currently operative second amended complaint (the “SAC”) is a cause of action for dissolution of BFLP.  During the pendency of this action, Defendants initiated buyout proceedings pursuant to a provision in the BFLP partnership agreement (the “BFLP Agreement”). 

            The Parties have previously entered into two settlement agreements (collectively, the “Settlement Agreements”): the first in 2015 (the “2015 Settlement”), and the second in 2016 (the “2016 Settlement”).  The issues identified in the Parties’ briefing largely concern the interpretation of the BFLP Agreement as it pertains to the buyout proceedings and the effect of the Settlement Agreements on the merits of Plaintiffs’ claims.

The Parties did not raise any arguments concerning the presentation of Issues 1, 2, and 4.  The Court finds that the Parties have stipulated to the scope of these issues as stated in the Stipulation.

Issue 3: Effective Date of Plaintiffs’ Expulsion from BFLP:

Section 9.04 of the BFLP Agreement states:

“Any Limited Partner may be expelled from the Partnership on the

decision of the Managing General Partner and a Simple Majority Vote of the Limited Partners (not including the expelled Partner).

Upon the expulsion of any Partner, the Partnership shall be required to pay to such Partner an amount equal to the fair market value of such expelled Partner’s Partnership interest. The fair market value of such expelled Partner’s Partnership interest shall be determined by an independent appraisal performed by an independent qualified business appraiser with an acceptable certification or designation agreed to by the Managing General Partner and the expelled Limited Partner, whose decision in this matter shall be conclusive. The cost of the

independent qualified business appraiser shall be borne equally by the expelled Limited Partner and the Partnership. If the Managing General Partner and the expelled Limited Partner are unable or unwilling to agree upon a business appraiser, then the Managing General Partner and the expelled Limited Partner shall each designate and hire a certified independent business appraiser who shall fix an appraised value agreed on by both business appraisers and such value shall be conclusive. If the two selected business appraisers cannot agree on an appraised value, they shall select another qualified appraiser whose appraisal shall establish the value of the Expelled Partner’s Partnership interest and such value shall be conclusive. The cost of the qualified appraiser selected by the two previous business appraisers shall be borne equally by the expelled Limited Partner and the Partnership.”  (See Defendants’ Opening Brief, Exhibit C at § 9.04.)

On September 5, 2019, Defendants voted to expel Plaintiffs from BFLP.  Defendants provide (though it does not appear that such document was provided for the record) that the September 5, 2019 action by written consent that memorialized the expulsion vote states:

“WHEREAS, under Section 9.04 of the Limited Partnership Agreement of the

Partnership (“Section 9.04”), any Limited Partner may be expelled from the Partnership on the decision of the Managing General Partner and a Simple Majority Vote of the Limited Partners (not including the expelled Partner).

WHEREAS, under Section 9.04 of the Limited Partnership Agreement of the

Partnership (“Section 9.04”), any Limited Partner may be expelled from the Partnership on the decision of the Managing General Partner and a Simple Majority Vote of the Limited Partners (not including the expelled Partner).

WHEREAS, the Managing General Partner has decided to expel Limited Partners Linda Spinella and Ruth Ann Biafora from the Partnership.

WHEREAS, a Simple Majority of the Limited Partners (not including the expelled Partners) has voted to expel Limited Partners Linda Spinella and Ruth Ann Biafora from the Partnership.

NOW, THEREFORE, IT IS RESOLVED that Limited Partners Linda Spinella and Ruth Ann Biafora shall be expelled from the Partnership.”  (Defendants’ Response to Issues 3-10 at 2:25-3:5.)

Plaintiffs take the position that the expulsion vote was invalid because Defendants have not yet compensated them for their partnership interests and because the written consent action included the condition that payment would not be made until after the conclusion of this litigation, although Plaintiffs have not provided any direct evidence to support their position. 

Plaintiffs argue that they were not properly expelled as limited partners of BLFP because Defendants have not yet paid them for their partnership interests, while Defendants argue that their expulsion was the condition precedent to the mandatory buyout.  The Parties’ respective positions turn on differing interpretations of Section 9.04.

When interpreting a contract, the court must give effect to the mutual intention of the parties at the time the contract was executed.  (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18.)  The court looks initially to the language of the agreement, seeking its clear and explicit meaning interpreted in its ordinary and popular sense, unless used by the parties in a technical sense or there is a special meaning.  (Id.; see also Civ. Code, §§ 1636, 1638, 1639.) Language in a contract must be interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract.  (Waller v. Truck Ins. Exchange, Inc., supra, 11 Cal.4th at 18.)

Plaintiffs rely on Stephenson v. Drever (1997) 16 Cal.4th 1167 (“Stephenson”) to support their position that their expulsion did not occur on September 5, 2019 due to Defendants’ failure to provide payment.  The Court finds that Stephenson is distinguishable from the facts of this case.

Stephenson involved a plaintiff who was a minority shareholder of a close corporation that also employed him.  (Stephenson, supra, 16 Cal.4th at 1170.)  The plaintiff had entered into a contract that included a buy-sell agreement which provided that in the event of the termination of his employment for any reason whatsoever, including his retirement or death, then, on or before 90 days after the date of such termination, the majority shareholders shall have the right and obligation to repurchase all of the plaintiff’s shares that it agreed to sell to plaintiff and provided that the repurchase price would be the fair market value of the plaintiff’s shares.  (Id.) 

After the plaintiff’s employment was terminated and the buyout procedure was initiated, a dispute arose between the plaintiff and the majority shareholders, causing the plaintiff to initiate a dissolution proceeding.  (Id. at 1171.)  The parties disputed the proper date at which to calculate the fair market value of the plaintiff’s shares.  (See id. at 1171, 1173-74.) 

After evaluating the buy-sell agreement in Stephenson, the Court found that the plaintiff’s rights as a shareholder did not extinguish when he was terminated because the buy-sell agreement was silent on the issue of the status of his rights as a shareholder during the period between his termination and the buyout.  (Id. 1173-75, n. 5.)  As a result, the date of the plaintiff’s termination was not the proper valuation date setting the purchase price of his minority share.  (Id. at 1175-76.)  The Court found that an executory agreement to transfer shares does not result in the transfer of title to the shares unless the agreement expressly provides for the transfer before full performance.  (Id. at 1173-74.)  The Court also noted that the buy-sell agreement could have provided that the plaintiff’s shareholder status terminated concurrently with the termination of his employment.  (Id. at 1175, n. 5.) 

Stephenson is distinguishable because the event that triggered the mandatory buyout was the termination of his employment, rather than an action directly concerning his ownership interest in the entity.  Here, Section 9.04 first provides for an expulsion by vote.  It thereafter refers to the limited partners who were expelled as “Expelled Partners.”  Further, the BFLP Agreement defines a limited partner as “any person who is admitted to the Partnership, either as original Limited Partners or as substituted Limited Partners.  (Exhibit C § 1.07(h).)  Thus, by its own terms, the BFLP distinguishes between limited partners and expelled limited partners.

Once Defendants voted to expel Plaintiffs, they were no longer “admitted” to the Partnership.  Because the triggering event for the buyout relates to Plaintiffs’ ownership and rights in BFLP itself, the Court finds that the completion of the buyout payment was not necessary to properly establish their expulsion from the Partnership.  The date of Plaintiffs’ expulsion is therefore September 5, 2019.  The issue of whether Defendants may delay payment until the end of this litigation is distinct from the propriety of the initial expulsion vote and the date for evaluating the fair market value of Plaintiffs’ interests.

Issue 5: Alternative Decree

            Plaintiffs contend they are entitled to an alternative decree providing for the dissolution of BFLP if the buyout of their interests is not completed by a date certain.

Although a buyout procedure initiated after the filing of a dissolution lawsuit supplants a plaintiff’s original dissolution action, it does not, as Defendants argue, preclude the plaintiff from obtaining an alternative decree.  (See generally Guttman v. Guttman (2021) 72 Cal.App.5th 396.  (“Guttman”).)  Guttman, which Defendants heavily rely on to support their arguments on this issue, does not stand for the proposition that Plaintiffs are not entitled to an alternative decree. 

Guttman considered the plaintiff’s ability to dismiss a dissolution claim after the court granted the defendants’ motion for a Section 15908.02 buyout.  (Guttman, supra, 72 Cal.App.5th at 403-04.)  The Guttman court found that the plaintiff could not dismiss a dissolution claim after the defendants’ buyout motion was granted and the buyout process had been proceeding for several months.  (See id. at 409-15.)  The Guttman court found that once the trial court granted the buyout motion, it effectively disposed of the dissolution cause of action.  (Id. at 413.)  The court described the granting of the buyout motion as “supplanting” or “staying” the plaintiff’s dissolution action such that a trial on the merits of the dissolution claim never occurs.  (Id. at 412-13.)  Crucially, the court found that the granting of a buyout motion caused the dissolution claim to cease to exist even if the purchasing parties ultimately decided not to purchase the moving party’s interests because the “self-executing” decree would be triggered and dissolution would proceed pursuant to the decree.  (Id. at 413.)  Therefore, the supplanting of the dissolution action required both: (1) the approval of a buyout motion; and (2) an alternative decree that provided for relief in the event that the buyout was not completed.  Plaintiffs are therefore entitled to an alternative decree on their dissolution cause of action. 

Issue 6: Effective Dates of the Settlement Agreements

            Defendants assert that the 2015 Settlement precludes litigation related to events, acts, or omissions occurring before July 28, 2015 except as to Plaintiff Ruth Ann Biafora as set forth in the July 25, 2016 Settlement and that the 2016 Settlement precludes litigation by Ruth Ann Biafora related to alleged events acts or omissions occurring before June 15, 2014. 

Plaintiffs do not raise arguments about the effective dates of the Settlement Agreements.  The Court finds that the dates identified by Defendants are the effective dates of the Settlement Agreements.

Issue 7: Defendants’ Entitlement to Attorney’s Fees Pursuant to the Settlement Agreements

            Defendants contend that they should be entitled to attorney’s fees because this litigation concerns events and conduct which are encompassed by the two Settlement Agreements.  The Court is presently unable to make any finding on this issue because: (1) the SAC does not include allegations about the Settlement Agreements and it is unclear what allegations may or may not fall within their ambit; (2) the “prevailing party” in this action has not yet been determined; and (3) the Settlement Agreements were raised as an affirmative defense rather than as a basis for Plaintiffs’ claims.

As stated by the Court in Mountain Air Enterprises, LLC v. Sundowner Towers, LLC (2017) 3 Cal.5th 744,

“Certainly, any inquiry begins with the language of the attorney fees provision itself.  However, as this case illustrates, a complicated and difficult set of facts may sometimes obscure whether a claim on which attorney fees are incurred is within the scope of a fees provision. Thus, if the facts in future cases warrant it, courts should consider the pleaded theories of recovery, the theories asserted and the evidence produced at trial, if any, and also any additional evidence submitted on the motion in order to identify the legal basis of the prevailing party's recovery.”  (Mountain Air Enterprises, LLC v. Sundowner Towers, LLC (2017) 3 Cal.5th 744, 760-61.)

The Court finds that the issue of any party’s entitlement to attorney’s fees pursuant to the Settlement Agreements will likely raise numerous issues that cannot be determined at this phase of the litigation.

Issues 8 and 9:  Issue Preclusion by 2015 and 2016 Settlements and Statute of Limitations

Defendants contend that Plaintiffs are precluded from pursuing claims on issues stemming from facts, acts, or omissions alleged against Defendants and that some of their claims are time-barred.  Defendants have neither identified allegations that are precluded by the Settlement Agreements or evidence to support this argument.  Similarly, Defendants have not identified time-barred claims.  Furthermore, the Court notes that the allegations in the SAC concern acts that occurred in 2017, after the execution of the Settlement Agreements. The Court is therefore unable to determine the issue at this time.

Issue 10:  Enforcement of the BFLP Agreement’s Valuation Provision

            As the Court has previously determined, Section 9.04 of the BFLP Agreement is valid and applicable to the proceeding.  As the Court has also previously indicated, if the Court finds it appropriate after considering the evidence offered by the parties during trial, it may exercise its discretion and determine a fair market value that differs from that provided by the independent appraiser.  Section 9.04 is enforceable, but the Court has discretion to implement equitable relief if appropriate.  (See Guttman v. Guttman (2021) 72 Cal.App.5th 396, 407-08.)

Plaintiffs are ordered to give notice of this ruling.

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. 

  Dated this 11th day of October 2022