Judge James C. Chalfant, Case 21STLC04554 2023-01-31 Tentative Ruling

People of the State of California v. Aero Institute, 21STLC04554

Tentative decision on motion to establish claims procedure: granted

Receiver Byron Z. Moldo (“Receiver”) moves the court for an order establishing a claims procedure and bar date for claims against the Receivership of Defendant AERO Institute (“AERO”).

The court has read and considered the moving papers (no opposition was filed), and renders the following tentative decision.

Petitioner People of the State of California (“People”) commenced this proceeding against Defendant AERO Institute (“AERO”) on June 17, 2021 alleging a cause of action for involuntary dissolution. The Complaint alleges in pertinent part as follows.

AERO is a non-profit public benefit corporation with the charitable mission of educating the public regarding science, technology, and aerospace issues. To that end, AERO has hosted a variety of programs with schools and libraries, including pre-teacher programs for adults interested in becoming teachers to improve their ability to teach mathematics and sciences.

AERO’s sole source of funding is cooperative agreements with the National Aeronautics and Space Administration (“NASA”). Based on its representation that it would operate as a charitable organization, AERO received tax-exempt status from the Internal Revenue Service (“IRS”).

On June 20, 2021, the Los Angeles County District Attorney's Office filed a criminal complaint against AERO’s then-executive director Kimberly Anne Shaw (“Shaw”) and consultant Susan Miller (“Miller”) as well as the former mayor of Palmdale James Coleman Ledford (“Ledford”), charging them with embezzlement, misappropriation of public funds, and grand theft. On August 22, 2018, the criminal court issued a temporary restraining order (“TRO”) freezing access to AERO’s bank accounts to prevent dissipation of assets.

After Miller and Shaw’s indictment, AERO board member Curtis Cannon (“Cannon”) became interim executive director until February 2018 when he became its sole director.

On January 16, 2020, Miller pled guilty to the charge of misappropriation of funds in violation of Penal Code section 424(a)(l).

On January 20, 2020, Shaw pled guilty to the charge of filing a false tax return on behalf of AERO in violation of Revenue and Taxation (“R&T”) Code section 19705(a). In doing so, Shaw stipulated to the underlying factual basis in the criminal complaint. Miller and Shaw both agreed to relinquish any interest they may have in AERO’s assets.

After Ledford accepted a plea agreement on April 22, 2021, the criminal court lifted the TRO freezing AERO’s assets.

Since Cannon became interim executive director in 2017, AERO has failed to file required documents with the IRS. Throughout 2018, Business Manager/Vice President of Business Operations Amber Abel (“Abel”) issued letters ending the employment of multiple high-ranking employees until November 30, 2018, when Cannon ended Abel’s employment. Since the August 2018 TRO, AERO has ceased all programs furthering its charitable mission. AERO’s counsel has since stated that the organization plans to cease operations.

The People seek (1) an order involuntarily dissolving AERO under the provisions of Corporations Code (“Corp. Code”) sections 6510 and 6518, providing for satisfaction of all of its lawful debts, and distributing remaining assets in a manner consistent with its charitable mission and any other restrictions, and (2) for attorney’s fees and costs.

On July 2, 2021, Petitioner served AERO with the Complaint and Summons by substitute service, effective July 12, 2021.

On July 23, 2021, the court reclassified the matter from Civil Limited to Civil Unlimited, Dept. 36 (Hon. Gregory Alarcon).

On August 6, 2021, the plaintiff in Susan Miller v. AERO Institute, LASC No. 21AVCV0051, filed a motion to stay that case pending resolution of this case. On September 23, 2021, Petitioner re-filed the motion to stay which was granted on October 29, 2021.

On August 4, 2022, this court granted Petitioner’s motion to appoint a Receiver for AERO’s property.

Dept. 36 (Hon. Wendy Chang) will hear Petitioner’s motion for judgment on the pleadings on March 7, 2023.

Pursuant to CCP section 568, a receiver has, under the control of the court, power to bring and defend actions in his own name, as receiver; to take and keep possession of the property, to receive rents, collect debts, to compound for and compromise the same, to make transfers, and generally to do such acts respecting the property as the court may authorize.

A receiver is an officer or representative of the court, appointed to take charge of and manage property subject to litigation, to preserve it and ultimately dispose of it pursuant to final judgment; the receiver is not agent of either party to action but represents all persons interested in property involved. United States Overseas Airlines v. County of Alameda, (1965) 235 Cal.App.2d 348.

On August 8, 2022, Receiver was appointed for all property of Defendant AERO. Moldo Decl., ¶2, Ex. A. This included all assets, funds, bonds, or insurance policies maintained by AERO or of which it is a beneficiary, and all bank, financial, corporate and other records pertinent thereto owned beneficially or otherwise by or in AERO’s possession or control, or to which AERO has any right of possession, custody, or control. Moldo Decl., ¶2, Ex. A. AERO’s bank accounts were at Wells Fargo, Bank of America, and Merrill Lynch. Moldo Decl., ¶2, Ex. A.

In the motion to appoint a receiver, People asserted that AERO was defunct, had its corporate status suspended, and had approximately $1.8 million in charitable assets. Moldo Decl., ¶3. Because of these issues, AERO should be dissolved. Moldo Decl., ¶3. In granting the motion, the court stated that creditors would have an opportunity to bring claims against AERO. Moldo Decl., ¶3.

Receiver obtained (1) $278,753.33 from Wells Fargo, (2) $54,022.30 from Bank of America, and (3) $1,507,895.59 from Merrill Lynch. Moldo Decl., ¶4. Receiver has also reviewed AERO’s books and records and spoken to counsel for all parties. Moldo Decl., ¶5. Based on this information, he has developed a list of potential creditors, most of whom are in Southern California. Moldo Decl., ¶5. Receiver believes that a claims procedure to submit claims against AERO is necessary and appropriate. Moldo Decl., ¶6.

Receiver Moldo moves for an order establishing a claims procedure and bar date for this Receivership in which creditors would present and have a final date for filing claims with the Receiver. Receiver contends that the procedure will benefit the Receivership Estate in that the identities of the claimants, the aggregate amounts of their claims, and the aggregate amount of all claims will be determined in an efficient manner. Receiver further contends that it will also result in savings because a number of the claims will be sufficiently documented for approval without substantial investigative effort or litigation. Mot. at 7.

Receiver requests the following orders to carry out the proposed claims procedure: (1) An order requiring all persons or entities with claims against AERO to present their claim to Receiver, and (2) barring all creditors and other persons failing to present claims and supporting proof to Receiver on or before 90 days from the entry of the court’s order from participating in the distribution of AERO’s assets and from asserting setoffs of any kind against the Receivership Estate. Mot. at 4.

Notice of the claims procedure would be given to all known potential claimants via electronic or direct mail. The notice would include a claim form requesting (1) the identity of the claimant, (2) the amount of the claim, (3) a brief description of the basis of the claim, (4) whether the claimant contends the claim is secured, unsecured, or entitled to any priority, and (5) the consideration given which gives rise to the claim, if any. Mot. at 4-5, Ex. B. Claimants would be required to attach copies of all documents relied upon in support of their claim. Mot. at 5.

The notice would contain instructions on the claim procedure and completion of the claim form. Mot. at 5, Ex. C. It would instruct claimants that the completed claim form and all supporting documents are to be sent to the Receiver at the address designated in the notice. Id. The notice would state, in bold typeface, that all claimants not presenting claims on or before 90 days from the entry of the court’s order approving the claims procedure shall be forever barred from participating in the distribution of AERO assets. Id.

Receiver acknowledges that he may not have the names and addresses of all potential creditors. Mot. at 5. Thus, in addition to the direct mailing, the Receiver will publish one notice in the Daily Journal to advise potential claimants they must file a claim on or before 90 days from entry of the court’s order approving the claims procedure or be forever barred from participating in any distribution of AERO assets. Mot. at 5, Ex. D. Upon written request of a potential claimant, Receiver will send copies of the letter and claim form. Id.

After Receiver receives the executed claims form and supporting documentation, the information will be entered into a database and Receiver, his staff, and his counsel, if necessary, will review the claims and determine whether to accept, reject, or partially accept or reject such claims or request additional information and documentation. Mot. at 6. If claims are improperly completed or insufficiently documented, he will send such claimants a Notice of Insufficient Documentation and inform the claimant that it has 20 days to supplement the claim with acceptable documentation or Receiver will recommend that the claim be rejected. Mot. at 6.

After Receiver has completed his review of the claims, including documents submitted during the 20-day Insufficient Documentation period, he will file with the court an accounting of all claims submitted and a petition for instructions regarding the claims which Receiver believes should be rejected. All claimants for whom Receiver recommends rejection will be served notice with reasons for the rejection. These claimants will have 20 days after the mailing of a notice of rejection to serve an objection on Receiver. The Receiver proposes that the court will hear all objections to his recommendations and Receiver’s replies at a hearing, with the hearing date included on the notice of rejection forms. Mot. at 6.

Receiver argues that the proposed claims procedure is the most practical method of handling claims and comports with his ability to administer the claims. It is similar to the procedure used by the bankruptcy court and also is an adaptation of Corporations Code Chapter 18. Mot. at 8.

The court agrees that the proposed procedures would allow the Receiver to properly carry out his duties and is in the best interests of the property.