Judge James C. Chalfant, Case 22STCP02332 2023-02-02 Tentative Ruling

BT-1 Ventures, LLC v. No Mo-Stache LLC, 22STCP02332

Tentative decision on petition for writ of mandate: denied

Petitioner BT-1 Ventures, LLC (“BT-1”) seeks a writ of mandate directing No Mo-Stache, LLC (“Company”) to allow it to inspect and copy select company books, records, and financial documents.

The court has read and considered the moving papers, opposition, and reply, and renders the following tentative decision.

Petitioner BT-1 filed this Petition on June 17, 2022, alleging in pertinent part as follows.

Through a Subscription Agreement (“Agreement”) dated April 4, 2018 and BT-1’s purchase of membership units afterwards, BT-1 is a Company member.

On March 21, 2022, BT-1 sent a request via email to Company owner Gita Vasseghi (“Vasseghi”) for (1) Company’s Schedule K-1 for BT-1 members Teri Gevinson (“Gevinson”) and Garrett Bender (“Bender”), and (2) documentation relating to Company’s distribution schedule. BT-1 never received a response.

On April 11, 2022, BT-1 sent a letter demanding the right to inspect (1) all audited and unaudited financial statements prepared by or on behalf of Company from April 4, 2018 to present; (2) all tax returns filed with any agency or unit of any level of government from April 4, 2018 to present; (3) all written records, reports, memoranda, communications, correspondence, and documentation relating to or reflecting distributions Company has made from April 4, 2018 to present; (4) all written records, notes, reports, memoranda, summaries, and documentation relating to or reflecting annual, semi-annual, quarterly, or other regular meetings of Company or its Board of Managers from April 4, 2018 to present; and (5) a current list of full name and last known business or residential address of each Company member and transferee, in alphabetical order, with their contribution and share in profits and losses.

The April 11 letter explained that BT-1 wanted this information to (1) understand Company’s financial condition in relation to its past and present ability to make distributions and (2) better assess the valuation of BT-1’s membership interest.

On May 16, 2022, counsel for Vasseghi and Company stated in a letter to BT-1 that it would respond to BT-1’s letter in five days but did not do so. On May 25 and June 9, 2022, BT-1 sent emails asking for a status update, but No-Mostache did not provide one.

BT-1 seeks a writ of mandate requiring Company to permit inspection of the books and records and to bear the costs of inspection and copying of such books and records. BT-1 also seeks attorney’s fees and costs.

On July 29, 2022, upon request, the court entered default against Company. BT-1 agreed to set this default aside on September 29, 2022.

On January 24, 2023, Company filed a substitution of attorney substituting Christopher Smith, Esq. (“Smith”) for Andrew Pongracz, Esq. (“Pongracz”).

On January 27, 2023, the court denied Company’s ex parte application to specially set a hearing on a motion to dismiss this Petition for BT-1’s lack of standing. The court emphasized that a standing argument would be appropriate at the trial of the Petition.

A party may seek to set aside an agency decision by petitioning for either a writ of administrative mandamus (CCP §1094.5) or of traditional mandamus. CCP §1085.

“A writ of mandate may be issued by any court to any inferior tribunal, corporation, board, or person, to compel the performance of an act which the law specially enjoins, as a duty resulting from an office, trust, or station, or to compel the admission of a party to the use and enjoyment of a right or office to which the party is entitled, and from which the party is unlawfully precluded by such inferior tribunal, corporation, board, or person.” CCP §1085(a).

A traditional writ of mandate under CCP section 1085 is the method of compelling the performance of a legal, ministerial duty. Pomona Police Officers’ Assn. v. City of Pomona, (1997) 58 Cal.App.4th 578, 583-84. Generally, mandamus will lie when (1) there is no plain, speedy, and adequate alternative remedy, (2) the respondent has a duty to perform, and (3) the petitioner has a clear and beneficial right to performance. Id. at 584 (internal citations omitted). Whether a statute imposes a ministerial duty for which mandamus is available, or a mere obligation to perform a discretionary function, is a question of statutory interpretation. AIDS Healthcare Foundation v. Los Angeles County Dept. of Public Health, (2011) 197 Cal.App.4th 693, 701.

No administrative record is required for traditional mandamus to compel performance of a ministerial duty or as an abuse of discretion.

All limited liability companies must maintain the following in writing or a form capable of being converted into clearly legible form:

(1) A current list of the full name and last known business or residence address of each member and of each transferee set forth in alphabetical order, together with the contribution and the share in profits and losses of each member and transferee.

(2) If the limited liability company is a manager-managed limited liability company, a current list of the full name and business or residence address of each manager.

(3) A copy of the articles of organization and all amendments thereto, together with any powers of attorney pursuant to which the articles of organization or any amendments thereto were executed.

(4) Copies of the limited liability company's federal, state, and local income tax or information returns and reports, if any, for the six most recent fiscal years.

(5) A copy of the limited liability company's operating agreement, if in writing, and any amendments thereto, together with any powers of attorney pursuant to which any written operating agreement or any amendments thereto were executed.

(6) Copies of the financial statement of the limited liability company, if any, for the six most recent fiscal years.

(7) The books and records of the limited liability company as they relate to the internal affairs of the limited liability company for at least the current and past four fiscal years. Corporations Code §17701.13(d).

Upon reasonable request, any member has the right to inspect or copy the records required by section 17701.13(d) for purposes reasonably related to the interest of that person as a member. The company is required to promptly deliver a copy of the information at its expense. §17704.10(a), (b).

Section 17701.02[2] defines a “member” as a person that has become a member of a limited liability company under section 17704.01 and has not dissociated under section 17706.02. §17701.02(p). After formation of a limited liability company, a person may become a member (1) as provided in the operating agreement, (2) as the result of a transaction effective under section 17710.01 et seq. (merger and conversion); (3) with the consent of all members, or (4) if, within 90 days after the company ceases to have any members, the last person to have been a member or the member’s legal representative designates a consenting person to become a member. §17704.01(c). A person may become a member without acquiring a transferable interest and without being obligated to make a contribution to the company. §17704.01(d).

Section 17701.02 defines a “membership interest” as a member’s rights in the limited liability company, including the member’s transferable interest, any right to vote or participate in management, and any right to information concerning the business and affairs of the limited liability company provided by this title. §17701.02(r).

A court of competent jurisdiction may enforce the duty of making and mailing or delivering the requested information. §17704.10(f). The court may award a petitioner with his or her reasonable expenses, including attorney’s fees, in the event that a corporation or limited liability company fails to comply with a proper demand without justification. §17704.10(g).

A limited liability company that fails or refuse to keep or maintain the records required by section 17701.13(d) is subject to a penalty of $25 for each day that the failure or refusal continues, starting 30 days after receipt of a written request that the duty be performed, up to a maximum of $1,500. The penalty shall be paid to the member or members making the request. §17713.07(a).

BT-1 is a New York limited liability company with its primary office location, principal place of business, and one member’s residence in New York. Bender Decl., ¶3.

On April 4, 2018, Vasseghi sent the Agreement to BT-1. Bender Decl., ¶7, Ex. A. Under the Agreement, BT-1 agreed to purchase and accept 30% of all outstanding Membership Units of Company, which would have all rights and privileges of Paschall and Vasseghi as founders, for $300,000. Ex. A, §§ 1.1-1.2.

BT-1’s obligation to purchase these units was contingent on (1) performance of all Company obligations under the Agreement, (2) accuracy of all Company representations and warranties, and (3) BT-1’s receipt of the units with any certificates and duly executed assignments transferring the same. Ex. A, §1.3.

Company’s obligation to transfer the units on the closing date was contingent on satisfaction or waiver of the following: (1) receipt of the full $300,000 investment on closing; (2) BT-1’s performance of all its obligations under the Agreement; and (3) the accuracy of all of BT-1’s representations and warranties. Ex. A, §1.4.

The closing date for BT-1’s purchase was defined as the date on which Company met all conditions under section 2 of the Agreement or they were waived. Ex. A, §9.1.

Company was required to make quarterly distributions of 80% of all quarterly dividends or other equity capital distributions to BT-1 and 20% to all other members until BT-1 was returned its $300,000 investment. Bender Decl., ¶7, Ex. A, §10.4. After BT-1’s distributions exceeded its $300,000 investment, the quarterly distributions would be based on pro rata member ownership. Ex. A, §10.4.

The Agreement included a choice of law provision that selected the internal laws of the state of New York to govern, construe, and enforce the Agreement. Ex. A, §23.1. Changes, waivers, and modifications of the Agreement will only be valid if in writing and signed by both parties. Ex. A, §23.4. A waiver of any provision of the Agreement is effective only if the party against whom one seeks to assert waiver signs a written copy of the waiver. Ex. A, §23.9. Such a waiver is only applicable to the specific instance to which it relates; it will not serve as a continuing or future waiver. Ex. A, §23.9.

On April 11, 2018, Company co-owner Jennifer Paschall (“Paschall”) wrote to BT-1 member Garrett Bender (“Bender”) that Company needed funding for several projects immediately, including $30,000 to repay a manufacturer and $5,000 to prepare new products. Bender Decl., ¶8, Ex. B. BT-1 wired $35,000 the next day. Bender Decl., ¶9, Ex. C.

On May 9, 2018, co-owner Vasseghi wrote to BT-1 that Company needed $60,000 to order more inventory to fulfill projected sales. Bender Decl., ¶10, Ex. D. BT-1 sent an email on May 10 to affirm that it would wire $60,000 the next day. Bender Decl., ¶11, Ex. E. Company confirmed receipt on May 14, 2018. Bender Decl., ¶12, Ex. F.

On July 5, 2018, BT-1 received a $30,000 wire from Company. Bender Decl., ¶13, Ex. G.

On October 18, 2018, Paschall requested $40,910 for cash flow and said that Company could set up a payment plan as early as January 2019. Bender Decl., ¶14, Ex. H. On October 25, 2018, BT-1 confirmed that it had wired $40,000. Bender Decl., ¶15, Ex. I.

On November 26, 2018, Paschall asked BT-1 for clarification about the Agreement. BT-1 had received $100,000 of the $300,000 investment and asked if that meant that BT-1 had a 10% interest in Company. Bender Decl., ¶16, Ex. J. Counsel for BT-1 replied that was incorrect. The investment was based on the Agreement and BT-1 had never “denied any payment” to Company “with detail demonstrating where it is being applied.” Bender Decl., ¶16, Ex. J.

Paschall thanked BT-1 for the clarification and said that Company really needs the remaining $200,000 to help the business grow, pay commissions to business partners, and hire a woman with experience in helping companies grow. Bender Decl., ¶16, Ex. J. Paschall explained that “[t]aking the full investment will be extremely beneficial for all of use….Especially since no matter what you receive the 30% investment.” Bender Decl., ¶16, Ex. J. It would also make payback of the “loan” cleaner and easier, and they could develop a comfortable payback plan for all the investment if BT-1 so chose. Bender Decl., ¶16, Ex. J.

Three hours later, Paschall sent a breakdown of what BT-1 wanted Company to spend the requested investment on for the following year. Bender Decl., ¶16, Ex. J. The breakdown totaled $153,500, not $200,000. See Bender Decl., ¶16, Ex. J.

On November 27, 2018, BT-1 explained that it needed to understand how Company planned to repay the amounts provided before it provided additional capital. Bender Decl., ¶25, Ex. S. Company had paid $30,000 and still owed $105,000. Bender Decl., ¶25, Ex. S. Paschall had said in October that Company could repay at $5,000 per month if its accountant agreed. Bender Decl., ¶25, Ex. S. BT-1 requested confirmation that the $5000 payments had begun, and that Paschall had met with the accountant to discuss whether they can be increased. Bender Decl., ¶25, Ex. S.

The next day, Paschall stated that it was confusing to ask for money and then immediately pay it back. She asked BT-1 to help her understand the Agreement. BT-1 was to pay $300,000 for 30% of Company, yet it had not received the $300,000. Bender Decl., ¶25, Ex. S. If BT-1 needed Company to repay the money received at $5,000 per month, it could. Bender Decl., ¶25, Ex. S. Paschall also acknowledged that some of the expenses for which it sought investment money were not in the Agreement, but Company considered them crucial for growth. Bender Decl., ¶25, Ex. S.

On November 29, 2018, BT-1 reaffirmed that section 4 of the Agreement gave it control over how Company used BT-1’s investment. Bender Decl., ¶25, Ex. S. Section 10.4 required Company to make quarterly distributions to members until it repaid the investment. Bender Decl., ¶25, Ex. S. BT-1 always had the $300,000 available, but it did not distribute the money because Company did not have a need for it when funding began. Bender Decl., ¶25, Ex. S. If Company was unhappy with the partnership, it could repay the funds BT-1 had loaned in exchange for the return of the units. Bender Decl., ¶25, Ex. S. BT-1 gave Company ten days to accept the offer. Bender Decl., ¶25, Ex. S.

On December 3, 2018, Paschall explained that Company just wanted BT-1 to communicate openly to explain how the companies could best work together. Bender Decl., ¶25, Ex. S. Company wanted BT-1 to explain what information it needed when Company asked for more funds. Bender Decl., ¶25, Ex. S. More guidelines on how payment plans should work would also make the requests and resulting back-and-forth communication feel less like a negotiation. Bender Decl., ¶25, Ex. S. The email also included a request for $92,000. Bender Decl., ¶25, Ex. S.

On December 5, 2018, BT-1 offered to pay half of the requested $92,000 immediately and half on July 1, 2019 if Company agreed to repayment at $5,000 per month by the fifth of each month. Bender Decl., ¶25, Ex. S. Paschall agreed the next day. Bender Decl., ¶25, Ex. S.

On December 7, 2018, BT-1 sent an addendum to the Agreement to change the use of the investment before it wired the funds. Bender Decl., ¶26, Ex. T. When BT-1 sent a follow-up email on December 20, 2018, Paschall explained that she just needed time to process the addendum and would respond by next week. Bender Decl., ¶27, Ex. U.

On January 7, 2019, counsel for Company asked that BT-1 direct any further inquiries about the investment under the Agreement to him. Bender Decl., ¶28, Ex. V. The parties tried for several months to resolve their differences via email to no avail. Bender Decl., ¶29.

Between March 21 and June 9, 2022, BT-1 requested multiple times access to (1) all audited and unaudited financial statements prepared by or on behalf of Company from April 4, 2018 to present, (2) all tax returns filed with any agency or unit of any level of government from April 4, 2018 to present, (3) all written records, reports, memoranda, communications, correspondence, and documentation relating to or reflecting distributions Company has made from April 4, 2018 to present, (4) all written records, notes, reports, memoranda, summaries, and documentation relating to or reflecting annual, semi-annual, quarterly, or other regular meetings of Company or its Board of Managers from April 4, 2018 to present, and (5) a current list of full name and last known business or residential address of each Company member and transferee, in alphabetical order, with their contribution and share in profits and losses. Bender Decl., ¶30. To date, Company has not responded or provided any of these documents. Bender Decl., ¶31.

Petitioner BT-1 seeks a writ of mandamus pursuant to section 17704.10 compelling Company to allow inspection of the requested records. BT-1 alleges that (1) it is a member of Company and (2) it has requested records for purposes reasonably related to its investment and interest in Company. Pet. Op. Br. at 5, 9, 12.

Section 17704.10(b) grants any member of a limited liability company the right to inspect company records and documents for any reason reasonably related to the member’s interests in the company. The issue is whether BT-1 is a member. If BT-1 is a member, Company does not dispute that the requested records are reasonably related to its investment and interest. Opp. at 4-5.

A contract is to be interpreted according to the law and usage of the place where it is to be performed; or, if it does not indicate a place of performance, according to the law and usage of the place where it is made. Civil Code §1646. As BT-1 argues, “[w]hen California is the forum, disputes arising out of contractual choice of law provisions are resolved in accordance with the decision in Nedlloyd Lines B.V. v. Superior Court, (1992) 3 Cal. 4th 459.” Hughes Elec. Corp. v. Citibank Del., (“Hughes”) (2004) 120 Cal. App. 4th 251, 258.) Under Nedlloyd, “[i]f one of the parties resides in the chosen state, the parties have a reasonable basis for their choice”. Id. at 466-67.

The Agreement contains a “choice of law” provision stating that the laws of the state of New York shall govern, construe, and enforce the Agreement. Bender Decl., ¶7, Ex. A, §23.1. BT-1 is a New York limited liability company with its primary office location, its principal place of business, and one member’s residence in New York. Bender Decl., ¶3. Since BT-1 is a New York company and maintains its principal place of business in New York, the parties have a reasonable basis for their choice of law which will be enforced by a California court. Hughes, supra, 120 Cal. App. 4th at 258 (Citibank’s principal place of business in New York alone warranted enforcement of New York choice-of-law provision in contract). Accordingly, New York law controls the interpretation of the Agreement.

Company notes that BT-1 is seeking to enforce member right under California law without any reference to comparable member inspection statute under New York law. Opp. at 5.

Company is conflating two separate issues. The Agreement defines the terms under which BT-1 may become a member and its choice of law provision governs how the court should interpret the Agreement. If BT-1 is a member of Company, it enjoys the rights of a member to inspect a California company’s books under California law. §17704.10(a), (b).

In sum, the Agreement must be interpreted pursuant to New York law. California law governs whether BT-1 is a member of Company with inspection rights.

The Agreement provided by BT-1 does not have BT-1’s signature. Bender Decl., ¶7, Ex. A. Company implicitly asserts that the Agreement cannot be enforced if BT-1 never executed it. Opp. at 2.

BT-1 correctly replies that New York law does not require a contract to be signed by the enforcing party; it only requires that the contract be signed by the party to be charged with enforcement. “The absence of a signature by the party seeking to enforce the agreement is without legal significance.” Kaplan v. Lippmann, (1990) 75 N.Y.2d 320, 324, n. 1. Reply at 2.

In any event, Company’s agreement to the Agreement’s terms is demonstrated by its subsequent conduct. For example, on November 26, 2018, Paschall asked to confirm if BT-1 now had 10% investment in Company because by then it had wired $100,000 of the $300,000 investment under the Agreement. Bender Decl., ¶16, Ex. J.

As pertinent, the Agreement provided that BT-1 would purchase 30% of Company. Ex. A, §§ 1.1-1.2. Company’s obligation to transfer the units on the closing date was contingent on satisfaction or waiver of receipt of the full $300,000 investment on closing. Ex. A, §1.4. The closing date for BT-1’s purchase was defined as the date on which Company met all conditions in section 2 of the Agreement or they were waived. Ex. A, §9.1. The conditions included valid marketable title for the purchased interest, free of encumbrances. Bender Decl., ¶7, Ex. A, §2.4.

The Agreement required Company to use the investment in ways that BT-1 approved as reflected on a use of proceeds schedule. Ex. A, §4, Ex. B. The parties could modify this schedule after closing to accommodate changes in business circumstances. Ex. A, §4. Company was required to give priority to repaying BT-1 its investment in its quarterly distributions until the $300,000 was returned. Ex. A, §10.4. After BT-1’s distributions exceeded its $300,000 investment, the quarterly distributions would be based on pro rata member ownership. Ex. A, §10.4.

Assuming that the Agreement is valid,[3] the evidence shows that a closing under the Agreement never occurred, and that BT-1 never invested the full $300,000 required. BT-1 makes several arguments why this does not matter.

On November 26, 2018, Paschall stated that BT-1 should invest the requested money to help the company grow. Bender Decl., ¶16, Ex. J. She argued that BT-1 would benefit from that growth because “no matter what” BT-1 “receive the 30% investment.” Bender Decl., ¶16, Ex. J.

BT-1 argues that this was an admission that, no matter how BT-1 provided funding it would still hold a 30% interest in Company. Pet. Op. Br. at 6.

Evidence of a statement is not made inadmissible by the hearsay rule when offered against the declarant in an action to which he is a party in either his individual or representative capacity, regardless of whether the statement was made in his individual or representative capacity. Evid. Code §1220.

Paschall’s statement is ambiguous, but it is somewhat clarified by the context. Earlier that day, Paschall asked BT-1 if it now had 10% investment in Company because it had wired $100,000 of the $300,000 Initial Investment under the Agreement. Ex. J. BT-1’s attorney replied that Paschall was wrong; BT-1 had never denied payment to Company. Bender Decl., ¶16, Ex. J. Implicit in the attorney’s statement was the suggestion that BT-1 already owned 30% of Company. Paschall’s reply simply was that it would help Company grow if the balance of the investment was made at that time, but BT-1 would receive its 30% ownership no matter the timing of investment. Ex. J.

This is not an admission that BT-1 owned 30% of Company. In fact, Paschall was uncertain of BT-1’s ownership status – i.e., whether BT-1 had a pro rata ownership -- and did not admit to the attorney’s implied contention that BT-1 already owned 30%. Rather, she reaffirmed that BT-1 would receive 30% ownership no matter whether the balance of the $300,000 was paid now or later.

On November 28, 2018, Paschall asked how the Agreement worked if it required BT-1 to pay $300,000 for 30% of Company, yet Company did not have the $300,000. Bender Decl., ¶25, Ex. P. BT-1 replied that the Agreement gave it control over how Company used BT-1’s investment. Ex. P. BT-1 chose not to distribute the full $300,000 because Company did not need it all when funding began. Ex. P. If Company was not happy with those terms, it could repay the funds received within ten days and receive BT-1’s 30% interest. Ex. P.

Paschall’s responding email on December 3, 2018 did not dispute BT-1’s assertion that it controlled the timing of its investment. Nor did the email dispute the offer that Company could receive its 30% interest for repayment of the moneys paid so far. Paschall simply asked BT-1 to (1) explain what information it needs when Company asked for more funds and (2) guidelines on how repayment plans should work. Bender Decl., ¶25, Ex. S.

BT-1 argues that Paschall’s silence in the face of BT-1’s assertion that it owned a 30% interest is an admission of that fact. Pet. Op. Br. at 6. BT-1 notes that these statements are not inadmissible settlement communications because they are not settlement discussions and are not being offered to show Company’s liability or invalidity of any claim by BT-1. See Evid. Code §1152, 1154. Pet. Op. Br. at 7.

When a person makes a statement in the presence of a party to an action under circumstances that would normally call for a response if the statement were untrue, the second party’s silence, evasion, or equivocation may be considered as a tacit admission of the statements made in his presence. In re Neilson’s Estate (1962) 57 Cal. 2d 733, 746.

The court agrees that the discussion is not a barred settlement communication, but Paschall was not silent in the face of BT-1’s assertion . Nor did she evade or equivocate. BT-1 replied that the Agreement gave it control over how Company used BT-1’s investment. Ex. P. BT-1 asserted that it was a 30% owner but offered to rescind the Agreement if its moneys were repaid. Paschall chose to attempt to continue the parties’ relationship by addressing timing issues of investment and repayment. She was trying to avoid rescission of the Agreement and her failure to address BT-1’s assertion that it already owned 30% of Company was not a tacit admission.

Company has not admitted that BT-1 is a 30% owner, and therefore a member of Company.

The Agreement provides that changes, waivers, and modifications will only be valid if in writing and signed by both parties. Ex. A, §23.4.

Under New York law, a written contract prohibiting oral modifications cannot be changed by an oral executory agreement. Rose v. Spa Realty Associates (“Rose”), (1977) 42 N.Y.2d 338, 343. On the other hand, such a written contract may still be orally modified if the party seeking enforcement can demonstrate partial performance of the oral modification, “which performance must be unequivocally referable to the modification”. Latin Events, LLC v. Doley, (“Latin Events”) (2014) 990 N.Y.S.2d 600, 601; Hannigan v. Hannigan (“Hannigan”) (2013) 960 N.Y.S.2d 492, 497. Performance is “unequivocally referable to the modification” if it is inconsistent with any other explanation. Id. Oral discussions and the parties’ actions taken may both be used by the court to test the alleged modification and demonstrate its nature and extent. Rose, supra, 42 N.Y.2d at 343.

BT-1 acknowledges that the Agreement prohibits oral modifications and argues that the parties mutually departed from that term. Although the Agreement requires the occurrence of a closing at which BT-1 was to pay the full purchase price of $300,000 before becoming a member of Company, the parties’ conduct manifested an agreement to modify such requirements. On four separate occasions following execution of the Agreement, Company submitted a funding request in an amount for less than the full $300,000, and on each such occasion BT-1 agreed to fund the request. See Bender Decl., Exs. B-E H, I, R, S. Such conduct is incompatible with the terms of the Agreement, which by its plain language requires payment of the full $300,000 at closing. BT-1 concludes that, as it stated on November 29, 2018 (Bender Decl., Ex. P), the parties agreed through their conduct to modify the Agreement such that BT-1 would make available up to $300,000 in funding upon Company’s request and a mutually agreeable allocation of such funds. Because the evidence does not indicate that BT-1 in any way breached that obligation, the court should conclude that BT-1 is a member of the Company. Pet. Op. Br. at 9.

The court agrees that the parties modified the Agreement by their discussions and conduct. BT-1 was not required to provide the full $300,000 at closing and instead could fund those monies as needed by Company and pursuant to BT-1’s approval. The partial performance of this oral modification is inconsistent with any other explanation. Hannigan, supra, 960 N.Y.S.2d at 497. BT-1 apparently also has not breached this oral modification.

However, the oral modification only impacts the timing of BT-1’s investment. It does not undermine the fact that BT-1 is obligated to invest $300,000 in order to receive its 30% ownership of Company. There was no modification of that provision, oral or written, that would give BT-1 a pro rata interest. Indeed, Paschall asked this very question, and BT-1’s attorney incorrectly replied that it already owned 30% of Company. Bender Decl., ¶16, Ex. J.

The Agreement provides that a waiver of any provision is effective only if the party against whom one seeks to assert waiver signs a written copy of the waiver. Ex. A, §23.9. Such a waiver is only applicable to the specific instance to which it relates; it will not serve as a continuing or future waiver. Ex. A, §23.9.

Contractual rights may be waived if they are knowingly, voluntarily and intentionally abandoned. Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset Mgt., L.P., (2006) 7 N.Y.3d 96, 104. Such abandonment may be established by affirmative conduct or by failure to act so as to evince an intent not to claim a purported advantage. Id. at 104. However, waiver should not be lightly presumed and must be based on a “clear manifestation of intent” to relinquish a contractual protection. Id. Even where a contract contains a non-waiver clause and a provision stating that it cannot be modified except by a writing, it can be effectively modified by actual performance and the parties’ course of conduct. Aiello v. Burns Int’l Sec. Servs. Corp., (2013) 973 N.Y.S. 2d 88, 96.

BT-1 argues that Company’s conduct manifested an intent to depart from the terms of the Agreement. Although the Agreement requires the occurrence of a closing at which BT-1 was to pay the full price of $300,000 prior to becoming a member, Company’s conduct manifested an intention not to require BT-1 to do so. On four separate occasions following execution of the Agreement, Company submitted a funding request in an amount far less than the full $300,000, and on each such occasion BT-1 agreed to fund the request. Bender Decl., Exs. B-E, H, I, R, S. Company’s conduct is incompatible with the terms of the Agreement, which by its plain language requires payment of the full $300,000 at the closing. Thus, Company’s conduct evidenced an intention to abandon that precondition to BT-1’s membership. In the absence of any evidence that BT-1 breached the Agreement, BT-1 should be considered a member of the Company. Pet. Op. Br. at 10-11.

Although it is more difficult to show waiver than a partly performed oral modification, the court again agrees that Company waived any requirement that the full $300,000 be paid at closing.

This waiver is only applicable to the specific instance to which it relates. Bender Decl., ¶7, Ex. A, §23.9. Moreover, the waiver is only as to the timing of BT-1’s investment. It does not excuse the requirement of a full $300,000 investment before BT-1 receives a 30% interest in Company.

New York’s doctrine of equitable estoppel states that once a party to a written agreement has induced another’s significant and substantial reliance upon an oral modification, the first party may be estopped from invoking a New York statute barring proof of that oral modification. Rose, supra, 42 N.Y.2d at 344. Comparable to the requirement that partial performance be unequivocally referable to the oral modification, conduct relied upon to establish estoppel must not otherwise be compatible with the agreement as written. Id. at 344. In addition, party making the representation must do so with the expectation that it would be relied upon, and that the other party justifiably relied on the representation to its detriment. O&Y Finan. Co. v. Chase Family Ltd. P’ship No. 3, (SDNY 1994) 1994 WL 250310 at *6.

BT-1 argues that Company should be estopped from contending that BT-1 is not a member. Company sent BT-1 a request to provide “immediate[ ]” funding in the amount of $35,000 within one week after the Agreement was executed. Bender Decl., Ex. C. Company then followed the initial April 2018 funding request with requests for funding in the amounts of $60,000 in May 2018 (Bender Decl., Ex. E), $40,000 in October 2018 (Bender Decl., Ex. I), and $92,000 in December 2018 (Bender Decl., Exs. R, S). BT-1 argues that this pattern of conduct “actively lulled the [BT-1] into thinking the … modification had been accepted.” Rose, supra, 42 N.Y.2d at 345. This funding pattern is incompatible with the Agreement, which by its plain language requires payment of the full $300,000 at the closing. The Company’s assurance to BT-1 - that “no matter what [way the Company is funded] you receive the 30% investment” (Bender Decl., Ex. L), further induced BT-1 into believing that the Agreement had been modified such that BT-1 would be required only to fund up to $300,000 in the aggregate upon Company’s request and a mutually agreeable use of such funds. Pet. Op. Br. at 12.

BT-1 contends that it relied upon Company’s representations to its detriment. BT-1 provided the Company with net funding of $105,000 (advances of $135,000 and repayments of $30,000), and yet Company’s view is that BT-1 is not entitled to the privileges of membership. Such reliance was reasonable and justifiable in light of the parties’ past practices and pattern of conduct. Cf. N.Y. Yankees P’ship v. SportsChannel Assocs., (1987) 510 N.Y.S. 2d 9-870, 872 (“the Yankees’ claim of estoppel also fails since they have not actually demonstrated that their reliance upon the purported modification was reasonable. The past practice of the parties had always been to amend the contract only by executed writings”). Pet. Op. Br. at 12.

BT-1 shows only that Company sought funding on an incremental basis. These were requests, not representations. Company did not expect BT-1 to rely on these requests but rather to respond to them. BT-1 also fails to show that it relied on anything Company said to its detriment. O&Y, supra, 1994 WL 250310 at *6. The only detriment claimed by BT-1 is that Company has deprived BT-1 of membership rights it thought it had. Nothing said or done by Company misled BT-1 to believe as much. BT-1 has not shown that equitable estoppel applies to its membership.

The Agreement required BT-1 to pay $300,000 for a 30% interest in Company. The purchase was supposed to occur at closing, but the parties’ conduct and discussion modified the Agreement on the timing of the investment. The parties never modified, and Company never waived, BT-1’s obligation to pay the full $300,000 to obtain its ownership, and hence membership, interest. Until that amount is paid, BT-1 is not a member of Company and has no member inspection rights. The Petition is denied.

Company’s counsel is ordered to prepare a proposed writ and judgment, serve them on Company’s counsel for approval as to form, wait ten days after service for any objections, meet and confer if there are objections, and then submit the proposed judgment along with a declaration stating the existence/non-existence of any unresolved objections. An OSC re: judgment is set for March 9, 2023 at 9:30 a.m.

[1] All future citations cite to the Corporations Code unless otherwise specified.

[2] Company cites section 17001 for definitions of relevant terms. Opp. at 4. The Legislature repealed this definitions provision in 2014. There is no modern analog to former section 17001(y), which defined “member of record.”

[3] Under California law, a person may become a member of a limited liability company, inter alia, (1) as provided in the operating agreement or (2) with the consent of all members. §17704.01(c). Company’s members at the time of the Agreement were Paschall and Vasseghi, each of whom owned 50%. Ex. A, p. 20. Yet, the Agreement is only signed by Vasseghi; Paschall’s consent is not manifest. The parties do not provide Company’s operating agreement.