Judge James C. Chalfant, Case Number: 21STLC04554, Date: 2023-10-31 Tentative Ruling

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

Tentative decision on motion (1) to approve Receiver’s claim determination: granted; (2) for approval of final report, discharge, and accounting: granted

Receiver Byron Z. Moldo (“Receiver”) moves for approval of his determinations regarding claims totaling $186,318.16 and authorizing him to distribute Receivership Estate funds to pay these claims. He also moves for approval of final report and accounting, discharge from his duties, approval of his outstanding fees and costs approved, and exoneration of his undertaking.

The court has read and considered the moving papers, the objection from Susan Miller (“Miller”), and reply,[1] 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 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, (“Susan Miller”) LASC No. 21AVCV00511, filed a motion to stay that case pending resolution of this case. On September 23, 2021, the plaintiff 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.

On January 31, 2023, the court granted Receiver’s motion to establish a claims procedure and bar date.

On June 1, 2023, Dept. 36 (Hon. Wendy Chang) granted Petitioner’s motion for judgment on the pleadings without leave to amend.

On August 1, 2023, Receiver reported that he had reviewed the claims with extensive supporting documents and reserved this hearing date for a motion to approve claims and his discharge as Receiver.

Pursuant to CRC 3.1184(a), a receiver must present by noticed motion or stipulation of all parties: (1) a final account and report; (2) a request for the discharge; and (3) a request for exoneration of the receiver’s surety. No memorandum is required in support of the motion unless the court orders otherwise. CRC 3.1184(b). Notice must be given to every person or entity known to the receiver to have a substantial, unsatisfied claim that will be affected by the order or stipulation, regardless of whether that person or entity is a party to the action or has appeared in it. CRC 3.1184(c).

If any allowance of compensation for the receiver or for an attorney employed by the receiver is claimed in an account, it must state in detail what services have been performed by the receiver or the attorney and whether previous allowances have been made to the receiver or attorney, and the amounts. CRC 3.1184(d).

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, it had its corporate status suspended, and it 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 to appoint Receiver, 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 developed a list of potential creditors. Moldo Decl., ¶6. Receiver believed that a claims procedure to submit claims against AERO was in the best interests of the Receivership Estate and creditors. Moldo Decl., ¶6.

On January 31, 2023, the court granted Receiver’s motion to establish the recommended claims procedure. Moldo Decl., ¶8. The procedure required Receiver to prepare claims forms and notices of the claims procedure, mail them to all known AERO creditors, and publish notice of the claims procedure in the Los Angeles Daily Journal. Moldo Decl., ¶¶ 8(a)-(c). Once Receiver received the claims forms, he was to make a list of claims he proposed to accept or reject, and to serve notice to rejected candidates with reasons for the rejection. Moldo Decl., ¶¶ 8(d)-(e). Anyone whose claims were rejected in whole or in part had 20 days after the mailing of the notice of rejection to serve Receiver with an objection. Moldo Decl., ¶8(f). Receiver was required to assemble these objections and any reply thereto in a single document for filing with the court. Moldo Decl., ¶8(f).

On February 9, 2023, Receiver filed proof of publication of the claims procedure in the Los Angeles Daily Journal. Moldo Decl., ¶8, Ex. B.

Receiver proposes to approve claims of $15,316.52 from AV East Kern STEM Network, $75,000 from Russell Petti, $41,384 from Amber Abel, $269,280.17 from the California Office of the Attorney General (“AG”), $4,617.64 from Jose Hernandez, and $50,000 from Curtis Cannon. Moldo Decl., ¶9. The AG has agreed that its claim will not be paid as part of the distribution of Estate funds. Moldo Decl., ¶9. Approved claims for disbursement total $186,318.16. Moldo Decl., ¶9.

Receiver proposes to deny a $207,200 claim by Miller. Moldo Decl., ¶9. Based on the transcript from a January 16, 2020 plea hearing in People v. Miller, Case No. BA458328, Miller has surrendered “any and all claims” she may have had against AERO’s seized bank accounts. Moldo Decl., ¶10, Ex. C. On March 14, 2023, Receiver quoted the transcript in a letter to Miller’s counsel advising it not to submit a claim. Moldo Decl., ¶10, Ex. C.

On April 21, 2023, Miller submitted a claim form based on reimbursement of attorneys’ fees and costs in People v. Miller. Moldo Decl., ¶10, Ex. C. In late 2017, Miller was charged with three felonies in her capacity as an AERO agent or employee. Moldo Decl., ¶10, Ex. C. Because AERO refused to pay her attorney’s fees for that action, Miller paid them herself. Moldo Decl., ¶10, Ex. C. She entered a plea agreement and pled guilty to “misappropriation of public funds” in exchange for the district attorney having the other two charges dismissed. Moldo Decl., ¶10, Ex. C.

Miller’s claim contended that, at the time of her plea agreement, she asserted no direct ownership interest in the frozen money but did not intend to waive any claim against AERO itself. Moldo Decl., ¶10, Ex. C. She only waived a $360,000 restitution amount ordered to be paid by her to NASA, which did not include the entire $1.5 million in AERO assets. Moldo Decl., ¶10, Ex. C. Miller asserted that her claim relies on the assumption that a judge or jury could find that she was an AERO employee. Moldo Decl., ¶10, Ex. C. If so, under Labor Code section 2802, AERO must reimburse her for attorney’s fees incurred in the scope of her employment. Moldo Decl., ¶10, Ex. C. This is now at issue in Susan Miller. Moldo Decl., ¶10, Ex. C.

Miller cited Labor Code section 2804, which voids any waiver of the rights afforded under Labor Code section 2802. Moldo Decl., ¶10, Ex. C. She also asserted that to the extent Receiver interprets her Plea Agreement as a waiver of claims against her employer, such release was invalid per Civil Code section 1542. Moldo Decl., ¶10, Ex. C. She therefore urged Receiver not to give the Plea Agreement “undue significance.” Moldo Decl., ¶10, Ex. C.

On October 4, 2023, Receiver informed Miller that, after his review of her claim, he would recommend the court deny the claim based on her waiver of claims in the Plea Agreement. Moldo Decl., ¶10, Ex. C.

The appointment order provided that Receiver was to prepare and serve monthly statements of all fees and expenses. Moldo Decl., ¶13. Interested parties then would have ten calendar days to serve any objections by email and first-class mail. Moldo Decl., ¶13. If no one did, Receiver could draw sufficient funds to pay all out-of-pocket expenses and 75% of fees listed in the statement without further court order. Moldo Decl., ¶13. The remainder was to be paid upon approval of the final account and report. Moldo Decl., ¶13.

Based on interim statements through July 31, 2023, Receiver has withdrawn interim compensation and costs totaling $49,253.61. Moldo Decl., ¶14, Ex. D. Receiver asks for ratification of these payments. Moldo Decl., ¶14.

Receiver’s October 5, 2023 invoice shows $12,902.40 for fees and costs incurred in August and September. Moldo Decl., ¶15, Ex. E. Receiver expects to incur another $15,200 in fees and $200 in costs, or $15,400 total, to terminate the Receivership. Moldo Decl., ¶16. The total amount owed to Receiver is $28,302.40. Moldo Decl., ¶17.

Ledgers from two of the estate’s accounts show outstanding balances of $3,498.79 and $1,813,645.67 in July 2023. Moldo Decl., Ex. D. As of August 31, 2023, Estate assets total $1,816,805.85. Moldo Decl., ¶11.

If the court approves distribution of the proposed $186,318.16 and $28,302.40 in outstanding Receiver fees and expenses, the outstanding balance would be $1,602,185.29. Moldo Decl., ¶¶ 11, 17-18. Because AERO was a non-profit company, those funds must be disbursed to a non-profit organization with a similar purpose under the cy pres doctrine. Moldo Decl., ¶11. Receiver recommends the Aldrin Family Foundation (“Aldrin”) and SETI Institute (“SETI”) each receive half of the excess. Moldo Decl., ¶11. These organizations conduct research and operate similar to the manner in which AERO operated. Moldo Decl., ¶11.

After this division, Receiver will have fulfilled his duties and requests discharge from all further duties, liabilities, and responsibilities. Moldo Decl., ¶19. Receiver also requests exoneration of his $40,000 bond. Moldo Decl., ¶19.

Receiver moves for an order approving his final determinations as to disbursements from the receivership estate. Upon approval of his proposed disbursements, Receiver moves for approval of final report and accounting, discharge from his duties, approval of his outstanding fees and costs approved, and exoneration of his undertaking. Pertinent parties have been served.

Miller objects to the proposed distribution to the extent that it denies her $207,200 claim. She requests that disbursement not occur until after adjudication of her pending Susan Miller civil case based on her right to this amount. Obj. at 2.

Because Miller untimely filed her objection by two days, Receiver asks the court to not consider it. See CCP §1005(a), CRC 1.300(d). Reply at 2. Because Receiver discusses the merits of the objection, it is not prejudiced by the untimely opposition. The court exercises its discretion to consider the opposition and reply.

The court’s order instructed Receiver to prepare claims forms and notices of the claims procedure, mail them to all known AERO creditors, and publish notice of the claims procedure in the Los Angeles Daily Journal. Moldo Decl., ¶¶ 8(a)-(c). Once Receiver received the claims forms, he was to make a list of claims he proposed to accept or reject, and to serve notice to rejected candidates with reasons for the rejection. Moldo Decl., ¶¶ 8(d)-(e). Anyone whose claims were rejected in whole or part had 20 days after the mailing of the notice of rejection to serve Receiver with an objection. Moldo Decl., ¶8(f). Receiver was required to assemble these objections and any reply thereto in a single document for filing with the court. Moldo Decl., ¶8(f).

Receiver recommends approval of claims totaling $186,318.16. Moldo Decl., ¶9. The only claim Receiver has denied is Miller’s claim for $207,200. Moldo Decl., ¶10, Ex. C. Receiver advised her counsel not to submit the claim because her Plea Agreement included a waiver of “any and all claims” she may have had against AERO’s seized bank accounts. Moldo Decl., ¶10, Ex. C. Miller still filed the claim. Moldo Decl., ¶10, Ex. C.

An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful. Labor Code §2802(a). Any contract or agreement, express or implied, made by any employee to waive such rights or any other benefits of Labor Code section 2800 et seq. is null and void. Labor Code §2804.

Miller’s claim asserted that the requested amount represents the attorney’s fees AERO refused to pay in her criminal action. Moldo Decl., ¶10, Ex. C. At issue in Susan Miller is whether AERO should have indemnified Miller for those attorney’s fees under Labor Code section 2802. Moldo Decl., ¶10, Ex. C.

As in her claim, Miller now asserts that, under Labor Code section 2804, she could not have waived her right to reimbursement for those fees through the Plea Agreement. Obj. at 3; Moldo Decl., ¶10, Ex. C. Miller also argues that dissipation of the funds that would be the source of any award in Susan Miller deprives her of her right to a jury trial on her claims therein. Obj. at 2.

Miller fails to provide evidence of a probability of success on her claim in Susan Miller. She admitted that her claim presumes that a judge or jury will identify her as an AERO employee for purposes of invoking Labor Code section 2802. Moldo Decl., ¶10, Ex. C. She provides no evidence that she was an AERO employee. She does provide an attachment to her objection contending that she worked as an independent contractor and as principal investigator for AERO. As principal investigator, she drafted grant applications to NASA and was the primary administrator of contracts between AERO and NASA. Obj. at 5. Miller fails to provide authority that these facts indicate her to be an employee of AERO.

More important, Miller pled guilty to one charge of misappropriation of public funds. Moldo Decl., ¶10, Ex. C. She provides no evidence that her misconduct was part of her duties as an AERO employee or in compliance with instructions from AERO and that she believed it to be lawful. Moldo Decl., ¶10, Ex. C. To the contrary, she admitted her guilt for misappropriation of public funds and her attorney stipulated to a factual basis. Ex. C. As an employee guilty of criminal misconduct, it is unlikely that she is entitled to indemnity under Labor Code section 2802. Courts have yet to extend the indemnity protections of Labor Code section 2802 even to the legal fees of employees who successfully defend criminal actions. Los Angeles Police Protective League v. City of Los Angeles (1994) 27 Cal.App.4th 168, 177 (declining to decide whether public employer must indemnify employee under Labor Code section 2802 who was acquitted in criminal action). There is nothing to suggest that Miller meets the requirements of Labor Code section 2802(a).

Finally, Receiver seemingly would be entitled to offset any claim Miller might have for attorney’s fees against the $341,266 she owes the AERO Estate in restitution. Ex. C. Miller fails to show this is not true or that her attorney’s lien would affect this conclusion.

The court therefore need not reach the issue of whether Miller’s waiver of her claim at the plea hearing and pursuant to the Plea Agreement is void under Labor Code section 2804.[3] Miller fails to demonstrate that Receiver should not have denied her claim for attorney’s fees owed by AERO under Labor Code section 2802.

Miller asks the court to direct Receiver to set aside an amount of $207,200 to satisfy Miller’s fee claim until Susan Miller is decided, arguing that it will harm no one to do so. Obj. at 2. Such an action would be a deferral of Miller’s claim, which would be inappropriate. Miller was obligated to support her claim now, and she may not ask for a deferral of decision on that claim until a related lawsuit is decided. The request is denied.

Receiver moves for ratification of prior payments for interim fees and costs, approval of his final report and accounting, discharge from his duties, approval of $28,302.40 in outstanding fees and costs, and exoneration of his undertaking.

The appointment order allowed Receiver to withdraw all out-of-pocket expenses and 75% of fees listed in monthly interim statements. Moldo Decl., ¶13. Receiver provides interim statements through July 2023 to justify prior withdrawals of $49,253.61. Moldo Decl., ¶14, Ex. D. The request to ratify these payments is granted. Mot. at 9.

The appointment order provided that outstanding fees and costs were to be paid upon approval of the final account and report. Moldo Decl., ¶13. Receiver’s October 5, 2023 invoice shows $12,902.40 for fees and costs incurred in August and September. Moldo Decl., ¶15, Ex. E. Receiver expects to incur another $15,200 in fees and $200 in costs, or $15,400 total, to terminate the receivership. Moldo Decl., ¶16. This is a reasonable estimate. The total amount owed to Receiver is $28,302.40. Moldo Decl., ¶17.

As of August 31, 2023, estate assets total $1,816,805.85. Moldo Decl., ¶11, Ex. D. If the court approves distribution of the proposed $186,318.16 and $28,302.40 in outstanding receivership fees and expenses, the outstanding balance will be $1,602,185.29. Moldo Decl., ¶¶ 11, 17-18. Because AERO was a non-profit company, those funds must be disbursed to a non-profit organization with a similar purpose pursuant to the cy pres doctrine. Moldo Decl., ¶11. Receiver recommends Aldrin and SETI each receive half of the excess. Moldo Decl., ¶11. These organizations conduct research and operate similar to the manner in which AERO operated. Moldo Decl., ¶11. No party objects to Aldrin and SETI as beneficiaries of the estate.

With all disbursements made and the Receiver paid, he will have fulfilled his duties and requests discharge from all further duties, liabilities, and responsibilities. Moldo Decl., ¶19. Receiver also requests exoneration of his $40,000 bond. Moldo Decl., ¶19. Aside from Miller’s opposition based on the denial of her claim, no party objects to Receiver’s discharge.

The motion to approve Receiver’s determinations claims is granted. Receiver is directed to pay $15,316.52 to AV East Kern STEM Network, $75,000 to Russell Petti, $41,384 to Amber Abel, $4,617.64 to Jose Hernandez, and $50,000 to Curtis Cannon.

The motion to approve Receiver’s final report and accounting is also granted. The $49,253.61 of paid fees and costs are ratified. Payment of Receiver’s $28,302.40 in outstanding fees and costs is approved. Receiver is directed to transfer half of the outstanding $1,602,185.29 to Aldrin and half to SETI. Receiver then is discharged and his bond exonerated, and he is relieved of any liability which could be imposed upon the final accounting. See Aviation Brake Systems, Ltd. v. Voorhis, (1982) 133 Cal.App.3d 230, 234.

[1] Miller failed to lodge a courtesy copy of her objection in violation of the Presiding Judge’s First Amended General Order Re: Mandatory Electronic Filing. Her counsel is admonished to provide courtesy copies in all future filings.

[2] Miller’s objection requests judicial notice of the fact that Susan Miller is pending. Obj. at 2. Miller failed to file a separate document requesting judicial notice. See CRC 3.1113(l). The request is denied.

[3] Miller also cites Civil Code 1542, under which a general release does not extend to claims the releasing party does not know or suspect to exist. Obj. at 4; see Moldo Decl., ¶10, Ex. C. Miller does not present evidence that she did not know about her claim to attorney’s fees at the time of the plea hearing. As Receiver notes, Miller admitted that she requested AERO to pay for her defense for the two years the case was pending. Reply at 3.