Judge James C. Chalfant, Case 22STCV32692 2023-02-14 Tentative Ruling

Joseph Cinnante v. Jonathan Manahan, et al., 22STCV32692

Tentative decision on application for appointment of receiver: denied

Plaintiff Joseph Cinnante (“Cinnante”) moves for the appointment of a receiver for Nominal Defendant Canine Behavior, Inc. (“CBI”).

The court has read and considered the moving papers, opposition, and reply,[1] and renders the following tentative decision.

Plaintiff Cinnante filed his Complaint on October 6, 2022, against Defendants Jonathan Manhan (“Manhan”); P-Cove Enterprises, Inc. (“P-Cove”); Neal Marks (“Marks”); and Marks & Associates (“M&A”). The Complaint alleges claims for (1) declaratory relief, (2) conversion, (3) fraud, (4) constructive trust, (5) breach of contract, (6) recission, (7) breach of the implied covenant of good faith and fair dealing, (8) negligence, and (9) permanent injunction. The Complaint alleges in pertinent part as follows.

In 2014, Cinnante founded Advanced Canine Systems (“ACS”) to provide dog training to the public. In 2017, Manhan hired Cinnante to train a dog. Manhan posed as a successful businessman with significant financial resources. He claimed that he could use his resources and experience to grow ACS and proposed that they form a corporate entity to that effect. This entity became CBI, with Cinnante and Manhan as 50% partners. Manhan offered that, in exchange for the 50% ownership, he would provide Cinnante a 50% ownership interest in real property on which the business of CBI could operate and Cinnante could reside. Cinnante agreed.

Manhan claimed that Marks, a certified public accountant at M&A, could identify the appropriate form of business entity, prepare and file the appropriate corporate documents, and provide financial and tax advice and preparation. Cinnante retained Marks in reliance on Manhan’s statements.

On August 27, 2019, CBI was formed. With Manhan’s and Marks’s advice, Cinnante agreed that their principal business address would be in Canoga Park where Manhan had a business address but CBI had no business location. On September 9, 2019, Marks filed CBI’s Statement of Information with the Secretary of State. On Manhan and Marks’s advice, the Statement of Information listed Manhan as Chief Executive Officer (“CEO”) and Financial Officer, with Cinnnante as just Secretary despite the fact that he was in charge of the business.

CBI’s Articles of Incorporation indicate that CBI can issue 1,000 shares of common stock, but it never did. Cinnante contributed his and ACS’s business and goodwill, but Manhan demanded that he also contribute $100,000 in capital. Cinnante did so but still did not receive share certificates. Marks presented draft Bylaws to Cinnante but they were never executed.

In August 2019, Manhan purchased real property at 800 East Carlisle, Westlake Village, California (the “Property”). Instead of acquiring the property through CBI and sharing ownership equally with Cinnante, Manhan acquired title through his trust and retained 100% ownership. He convinced Cinnante to pay $900,000 from CBI’s account in loan payments, property taxes, insurance, utilities, general expenses, and improvements for the Property in reliance on the representation that Manhan would convey 50% ownership interest in the Property to Cinnante.

In early 2022, a dispute arose over the ownership of CBI and the Property. Manhan insisted that he owned 100% of the Property and 50% of CBI. Because he failed to provide 50% ownership in the Property as promised, Manhan has no right to an interest in CBI.

Pursuant to his claim that he is a 50% owner, Manhan withdrew from CBI’s bank account (1) $100,000 on August 8, 2022 in retaliation for Cinnante borrowing the same amount, and (2) $325,000 on October 3, 2022, which he deposited into P-Cove’s account. In early October 2022, Manhan accessed CBI’s online business accounts and attempted to or succeeded in restricting or eliminating Cinnante’s access to them.

Manhan’s conduct has caused CBI to suffer losses of at least $1.35 million. Cinnante seeks (1) damages of at least $900,000, (2) injunctive relief, (3) rescission, (4) punitive and exemplary damages, (5) attorneys’ fees and costs, and (6) interest at the legal rate.

On November 15, 2022, Manhan filed a Cross-Complaint against Cross-Defendants Cinnante, Miriam Baptista (“Baptista”), Max de Leseleuc (“Leseleuc”), Makayla Thomas (“Thomas”), ACS, and Canine Works LLC (“Canine Works”). The Cross-Complaint alleges (1) breach of oral contract, (2) fraud, (3) fraud by concealment, (4) negligent misrepresentation, (5) unjust enrichment, (6) breach of fiduciary duty, (7) involuntary dissolution of a corporation, (8) conversion, (9) removal of director, and (10) accounting. The Cross-Complaint alleges in pertinent part as follows.

Manhan is 50% shareholder of record of CBI. Manhan and Cinnante are its sole directors and 50% shareholders.

In September 2019, Manhan and Cinnante orally negotiated a contract to form and operate CBI wherein (1) Cinnante would contribute his dog training business ACS for CBI to operate as dba, (2) Manhan would purchase and make available the Property on which to operate the business and at which Cinnante could live, (3) Manhan would contribute towards improving the premises and operating the business, (4) Manhan and Cinnante would be 50% owners of CBI and split its profits, and (5) Cinnante would operate the business on a day-to-day basis and provide regular records of its operation to Manhan.

Manhan and Cinnante incorporated CBI in September 2019, with each as the sole directors and 50% owners. Manhan was President and Cinnante was Secretary. Without any contribution from Cinnante, Manhan bought the Property with his family trust. From 2019 through 2021, Manhan contributed at least $775,000 to CBI in improvements to the facilities on the Property and operating expenses which Cinnate never paid.

In late 2019, CBI began to do business as ACS. Cinnante, his girlfriend Baptista, and his children live in a residence on the Property. Cinnante regularly sought advice from Manhan on improvements to the business, employee hiring and firing, expansion, bill payment, the possibility of dog food services to incorporate into CBI, and travel to different events related to operating a kennel. Cinnante treated Manhan as a 50% owner.

In late 2021, Manhan discovered that Cinnante was having a sexual relationship with Thomas, a CBI employee. Cinnante refused to stop when Manhan asked him to avoid liability for CBI. Manhan eventually had Cinnante and Thomas sign a Consensual Relationship Agreement to protect CBI from liability. This frustrated the Office Manager because she could not reprimand Thomas for her misdeeds and the Office Manager resigned. Cinnante also had relations with at least one other CBI employee.

When Manhan learned that Cinnante was consuming drugs and alcohol in CBI’s office, and encouraging employees to do the same, Manhan decided he did not want to remain in business with Cinnante. In early 2022, Manhan proposed that he sell Cinnante his 50% interest in CBI and just collect rent as the owner of the Property. Cinnante counteroffered to purchase the Property as well and searched for funding. When Cinnante failed to obtain this funding, Manhan decided to remain in business because CBI was profitable. To bolster his negotiating power in these discussions, Cinnante relied on CBI financial records that he had doctored with the help of Baptista and De Leseleuc.

Since the inception of CBI, Cinnante provided Manhan with reports on CBI’s income and expenses. Cinnante also provided some records to Marks so he could prepare tax returns. In late 2021, Manhan began to demand that Cinnante provide him with CBI books and records, including transactions on various platforms. Cinnante provided limited data but not access to QuickBooks or Gingr, two primary sources of financial data for CBI.

When Cinnante provided Marks with some of the requested data in 2022, Marks determined that Cinnante was embezzling more than half a million dollars from CBI. When Marks and Cinnante confronted him, Cinnante began to engage in other embezzlement, deception, and misconduct. This included formation of another company, Canine Works, and instructing CBI customers to pay Canine Works for CBI services. De Leseleuc has assisted Cinnante in the embezzlement and fraud by helping to falsify CBI records that purport to account for the embezzled funds.

Manhan has also reviewed payroll records and discovered that Cinnante had unilaterally doubled his salary $5,000 per month salary. He also began paying himself commissions on sales, which Manhan would never have agreed to because Cinnante already profited as 50% owner from each sale. Cinnante also pays for personal expenses through CBI credit cards despite demands to stop.

Manhan seeks (1) general and punitive damages, (2) an order removing Cinnante as CBI director, (3) an order dissolving CBI pursuant to Corporations Code section 1800, and (4) an accounting.

On October 6, 2022, Department 82 (Hon. Mary Stroebel) denied Cinnante’s ex parte application for mandatory and temporary injunction, writ of possession, and turnover order for $328,500.

On October 12, 2022, Cinnante personally served Manhan with the Complaint and Summons by substitute service, effective October 22, 2022.

On October 12, 2022, this court heard Cinnante’s ex parte application for a temporary restraining order (“TRO”) and order to show cause re: preliminary injunction (“OSC”), mandatory injunction, and turnover order compelling Manhan to (1) transfer $428,500 to CBI, (2) provide Cinnante all login information for CBI’s business accounts, and (3) not interfere with Cinnante or CBI’s use of the business accounts. The court denied injunctive relief for turnover of any money and require noticed application for a writ of possession and continued the hearing on the rest.

On October 24, 2022, the parties stipulated to (1) provide mutual access to the business accounts except for the Instagram account and email address info@advancedcaninesystems.com and not use the latter accounts except for CBI purposes, (2) preserve and not delete business account information and take steps to restore any information already deleted, (4) use CBI funds only for CBI’s legitimate business expenses and not personal expenses, and (5) have Cinnante report to Manhan daily the funds that CBI receives and the expenditures it makes. The court signed the stipulated order on October 26, 2022.

On October 26, 2022, the court denied Manhan's ex parte application for an OSC re: contempt in favor of a noticed motion.

On December 12, 2022, Manhan served ACS, Canine Works, Baptista, and De Leseleuc with the Cross-Complaint. Also on December 12, 2022, Manhan served Cinnante and Thomas with the Cross-Complaint and Summons by substitute service, effective December 22, 2022.

On December 12, 2022, Cross-Defendant Cinnante filed an Answer to the Cross-Complaint.

On December 20, 2022, Cross-Defendant De Leseleuc filed an Answer to the Cross-Complaint.

On January 18, 2023, Cross-Defendants Baptista, Thomas, ACS, and Canine Works filed an Answer to the Cross-Complaint.

Defendants Manhan, P-Cove, Marks, and M&A demurred to the Complaint and the demurrer will be heard by Department 26 (Hon. Elaine Lu) on May 18, 2023.

CCP section 564(b) provides that the court has authority to appoint a receiver in any of the following pertinent circumstances: (1) in an action by a vendor to vacate a fraudulent purchase of property, or by a creditor to subject any property or fund to the creditor's claim, or between partners or others jointly owning or interested in any property or fund, on the application of the plaintiff, or of any party whose right to or interest in the property or fund, or the proceeds thereof, is probable, and where it is shown that the property or fund is in danger of being lost, removed, or materially injured; and (9) in all other cases where necessary to preserve the property or rights of any party.

The appointment of a receiver is a drastic remedy to be utilized only in “exceptional cases.” As such, a receiver should not be appointed unless absolutely essential and because no other remedy will serve its purpose. City & County of San Francisco v. Daley, (1993) 16 Cal.App.4th 734, 744. A plaintiff who seeks appointment of a receiver of certain property under CCP section 564(b)(1) has the burden to establish by a preponderance of the evidence that plaintiff has a joint interest with defendant in the property, that the property is in danger of being lost, removed or materially injured, and that plaintiff's right to possession is probable. Alhambra-Shumway Mines, Inc. v. Alhambra Gold Mine Corp., (1953) 116 Cal.App.2d 869, 873.

In 2014, Cinnante founded ACS to provide a brand name for his dog training services. Cinnante Decl., ¶2. In 2017, he met Manhan, who was to be a client. Cinnante Decl., ¶3. Manhan had no experience dog training but boasted that he had significant financial resources that could grow ACS to a much higher level and faster that Cinnate could alone. Cinnante Decl., ¶3. Manhan proposed that they form and have equal ownership of a corporate entity, which became CBI. Cinnante Decl., ¶4. Because Cinnante would perform his goodwill and experience as a trainer, Manhan agreed to purchase and contribute the Property for CBI and Cinnante to use for housing and training facilities. Cinnante Decl., ¶3. The Property would be owned by an entiy in which he and Manhan would each own 50%. Cinnante Decl., ¶3. Cinnante believed that the relationship would allow him to hire additional employees to expand the training that ACS offered, so he agreed. Cinnante Decl., ¶3.

Manhan claimed that Marks, a certified public accountant at M&A, could (1) advise on how to form the appropriate business entity, (2) prepare and file the appropriate corporate documents, and (3) provide financial and tax advice and preparation to CBI. Cinnante Decl., ¶4. Cinnante retained Marks in reliance on Manhan’s statements. Cinnante Decl., ¶4.

On August 27, 2019, Cinnante and Manhan formed CBI with Marks’ advice. Cinnante Decl., ¶5. On Manhan and Marks’s advice, Cinnante agreed to have the principal business address in Canoga Park, where Manhan had a business address but CBI had no business location. Cinnante Decl., ¶5.

On September 9, 2019, Marks filed CBI’s Statement of Information, which listed Manhan as CEO and Financial Officer and Cinnante as just the Secretary. Cinnante Decl., ¶6. Although Cinnante oversaw business operations, he followed Mark’s recommendation that he be the Secretary. Cinnante Decl., ¶6.

CBI’s Articles of Incorporation indicate that CBI can issue 1,000 shares of common stock, but it never did. Cinnante Decl., ¶¶ 6-7, Ex. A. Marks also presented a set of draft bylaws for Cinnante to review, but they were never executed. Cinnante Decl., ¶7.

Cinnante contributed ACS’s business and goodwill, but Manhan demanded that he also contribute $100,000 to help purchase the Property and make their contributions to the business equal. Cinnante Decl., ¶8. Cinnante agreed even though he thought their contributions already were equal. Cinnante Decl., ¶8.

Cinnante operated CBI as its manager for approximately 18 months without taking salary, commissions, or bonuses. Cinnante Decl., ¶9.

In August 2019, Manhan purchased the Property through his family trust and retained 100% ownership, despite the agreement that it would be owned by a business co-owned by Manhan and Cinnante. Cinnante Decl., ¶10. On November 11, 2019, Manhan asked his attorney if he had finished transfer of the Property to the parties’ company, Big Bird, LLC (“Big Bird”). Cinnante Decl., ¶10, Ex. B. Cinnante continued to work without compensation for CBI under the belief that he owned half of the Property. Cinnante Decl., ¶10. When he asked Manhan about it, Manhan replied that Cinnante owned half the Property because he owned half of Big Bird. Cinnante Decl., ¶10.

Meanwhile, Cinnante moved the CBI business to the Property and began paying most of its expenses via payments from CBI to Big Bird and third parties. Cinnante Decl., ¶11, Ex. C. Cinnante did not learn until December 2021 that Manhan never transferred the Property to Big Bird. Cinnante Decl., ¶10. He would not have agreed for CBI to pay expenses for the Property if he knew that fact. Cinnante Decl., ¶11.

In late 2021, Manhan offered to sell the Property to Cinnante and give up any claim to ownership of CBI that instead of providing a 50% of interest in the Property. Cinnante Decl., ¶12. After a conversation with Marks about CBI’s growth in the last three years, Manhan withdrew this offer. Cinnante Decl., ¶12. After an unsuccessful exchange of offers, Manhan threatened to sell the Property, of which he was still the 100% owner. Cinnante Decl., ¶12.

In 2022, Manhan disclosed that he would not transfer the Property to Big Bird. Cinnante Decl., ¶13. He insisted that he was still both 100% owner of the Property and 50% owner of CBI. Cinnante Decl., ¶13.

On August 8, 2022, without Cinnante’s permission, Manhan transferred $100,000 to P-Cove. Cinnante Decl., ¶14. Cinnante assumes that this was in retaliation for a $100,000 personal loan Cinnante took from CBI, which Cinnante properly documented and for which he immediately started to make monthly payments. Cinnante Decl., ¶14.

On October 3, 2022, again without Cinnante’s permission, Manhan withdrew $325,000 from CBI’s account. Cinnante Decl., ¶15. This left only a fraction of the monies CBI needed to cover operating expenses. Cinnante Decl., ¶15. The Wells Fargo bank account’s records show that the transfer to P-Cove was “per attorney’s request.” Cinnante Decl., ¶15. CBI and Cinnante never do business with P-Cove. Cinnante Decl., ¶15. Manhan’s attorney has represented that the $350,000 is in the attorney’s trust account and still available for CBI use. Cinnante Decl., ¶15. On October 5, 2022, Manhan withdrew another $3,500. Cinnante Decl., ¶16.

These withdrawals make it impossible for CBI to pay its bills and operate properly, including paying its ten employees. Cinnante Decl., ¶16. Manhan has also prohibited Cinnante from paying himself the fair market rate of compensation for his work at CBI. Cinnante Decl., ¶16.

On October 3, 2022, Cinnante discovered that Manhan had locked him out of all CBI business accounts not related to finances. Cinnante Decl., ¶18. On October 4, 2022, Cinnante checked the activity log for Gingr, software that Cinnante uses to manage the business. Cinnante Decl., ¶19, Ex. D. It showed that Manhan, account name “Jmanhanacs,” bought one type of dog food on January 26, 2020 and began logging in regularly from August 6, 2022. Cinnante Decl., ¶19, Ex. D. On August 8, 2022, Manhan exported the list of owners and animals that did business from CBI. Cinnante Decl., ¶19, Ex. D.

In October 2022, Manhan began adding and changing personnel information with no reason to do so. Cinnante Decl., ¶19, Ex. D. This included updating information for Baptista, Florella Quiroz (“Quiroz”), Alli Bernacki (“Bernacki”), and Aleah Degeneres (“Degeneres”). Cinnante Decl., ¶19, Ex. D.

On October 5, 2022, Cinnante discovered that CBI’s website is no longer accessible. Cinnante Decl., ¶21. Cinnante discovered that Manhan gained access to the GoDaddy account that manages the website and erased it. Cinnante Decl., ¶21. Cinnante was eventually able to restore the website by using an older version, but a lot of the updates and features that were implemented over time have been lost. Cinnante Decl., ¶21. Since Manhan deleted the website, CBI’s online presence has fallen and inquiries from potential customers has decreased. Cinnante Decl., ¶21.

Manhan also deleted CBI’s online store. Cinnante Decl., ¶21. Cinnante restored it but lost all the data from before the store’s deletion. Cinnante Decl., ¶21.

On October 6, 2022, Cinnante discovered that someone changed the GoDaddy website’s domain name. Cinnante Decl., ¶22. He also received an email from WordPress, the host of CBI’s webpage, that someone had changed the account email address to payback@scrapdr.com. Cinnante Decl., ¶23. The scrapdr.com domain name is associated with Manhan. Cinnante Decl., ¶23. This robbed Cinnante of control over the webpage. Cinnante Decl., ¶23.

At the hearing on Cinnante’s application for a TRO, he received an order compelling Manhan to provide access to CBI’s business accounts, but Manhan also received an order that (1) both parties must approve any CBI expense of over $1,000, and (2) Cinnante provide Manhan a daily accounting of the income and expenses that CBI incurs. Cinnante Decl., ¶25. Manhan has taken control of a business in which he has no ownership in and cannot determine the legitimate expenses of because he has no experience as a dog trainer. Cinnante Decl., ¶25. He also cannot evaluate and make good faith determinations of compensation. Cinnante Decl., ¶25. Manhan has refused to approve a salary of $120,000 for Cinnante, even though Cinnante works for CBI ten hours a day and 6-7 days per week; Manhan only approved a $60,000 salary. Cinnante Decl., ¶25.

Richard Ormond (“Ormond”) has over 25 years of experience trying cases in various areas of law and has served as receiver in both state and federal matters. Ormond Decl., ¶4, Ex. A. He is now semi-retired as a lawyer but is the President of the California Receivers Forum. Ormond Decl., ¶¶ 4, 6, Ex. A. There is no contract between him and Cinnante as to what his role will be as receiver, how to administer the estate, how much he will charge, and who to hire for management services. Ormond Decl., ¶5. He is not related to any judge or commissioner of the court. Ormond Decl., ¶7.

In 2019, Cinnante and Manhan negotiated the arrangement to establish CBI as 50% owners. Manhan Decl., ¶2. Cinannte would contribute his dog training business ACS for CBI to operate as a dba. Manhan Decl., ¶2. Manhan would make available a piece of land that he would purchase in Westlake Village on which to operate CBI. Manhan Decl., ¶2.

The 2019 Statement of Information lists Manhan as CEO, Financial Officer, and director. He has remained in all three positions. Manhan Decl., ¶3, Ex. C. ACS is registered as a fictitious business name of Sherwood Canine Club & Pet Resort. Manhan Decl., ¶¶ 3-4, Ex. D.

From 2019 to 2021, Manhan has contributed about $775,026.64 into CBI for premises improvements and operating expenses. Manhan Decl., ¶4. Cinnante did not contribute to Manhan’s $2.4 million purchase of the nine-acre Property in September 2019. Manhan Decl., ¶6. All the money for that purchase came from Manhan’s family trust and a bank loan. Manhan Decl., ¶6. Manhan has paid for improvements to the Property totaling $252,609.29 in 2019, $385,332.97 in 2020, and $137,084.39 in 2021. Manhan Decl., ¶7. Cinnante has not contributed. Manhan Decl., ¶7. Manhan never committed to transferring the Property so that Cinnante would own 50%. Manhan Decl., ¶27. The parties discussed that as a possibility and the email Cinnante provides was generated during preliminary discussions about that option, but Manhan wanted to see how successful the business was first. Manhan Decl., ¶27.

In late 2021, Manhan discovered that Cinnante was having a inappropriate sexual relationship with Thomas, a CBI Training Specialist. Manhan Decl., ¶8. At the time, Cinnante lived on the Property with his two children and live-in girlfriend. Manhan Decl., ¶8. Manhan was upset, both because Cinnante exposed CBI to liability and because Manhan’s family personally knew Cinnante’s family. Manhan Decl., ¶8. As CBI President, Manhan asked him to stop any romantic and sexual relationship with CBI employees. Manhan Decl., ¶9. Cinnante claimed he had the knowledge, consent, and approval of his live-in girlfriend. Manhan Decl., ¶9. Manhan had Cinnante and Thomas sign a Consensual Relationship Agreement to protect CBI from liability. Manhan Decl., ¶9. Cinnante did not object. Manhan Decl., ¶9.

The affair still upset some CBI employees and caused them to resign. Manhan Decl., ¶10. Office Manager Bernacki found it offensive and claimed that she could not reprimand Thomas for performance issues due to the relationship. Manhan Decl., ¶10. She resigned before she completed the CBI personnel policy and procedures manual she was developing. Manhan Decl., ¶10.

Cinnante’s lack of professionalism, his inability to make good decisions, and the low morale CBI was experiencing from his actions led Manhan to propose a separation. Manhan Decl., ¶11. In early 2022, Manhan proposed that he sell Cinnante his 50% interest in CBI and just collect rent as owner of the Property. Manhan Decl., ¶11; Marks Decl., ¶¶ 4-5. Cinnante counteroffered to purchase the Property as well. Manhan Decl., ¶11; Marks Decl., ¶5. Manhan agreed but said that Cinnante would need to pay all the money Manhan had invested in the business plus the fair market value of the Property. Manhan Decl., ¶11; Marks Decl., ¶5. Cinnante tried to find a lender or investor to obtain that money but failed. Manhan Decl., ¶11; Marks Decl., ¶5. Because CBI made good money, Manhan decided to remain in the business as 50% owner. Manhan Decl., ¶11.

Marks prepared a spreadsheet that showed that for Cinnante to become 50% owner of the Property and to equalize his ownership interest in CBI, Cinnante would have to pay Manhan $425,000. Manhan Decl., ¶12; Marks Decl., ¶6. Cinnante replied that he owed nothing for the business because it has grown and his contribution was greater than he promised in the 2019 arrangement. Manhan Decl., ¶12; Marks Decl., ¶6.

Beginning in 2021, Manhan requested from Cinnante full access to CBI’s books and records. Manhan Decl., ¶13. Cinnante provided limited data from Quickbooks that Manhan sent to Marks. Manhan Decl., ¶14; Marks Decl., ¶7. Marks discovered that substantial sums of CBI money appeared in another software named Gingr, not Quickbooks, to which Cinnante had not given access to Manhan. Manhan Decl., ¶13; Marks Decl., ¶7.

Marks also discovered that Cinnante was stealing hundreds of thousands of dollars of income from CBI. Manhan Decl., ¶14; Marks Decl., ¶8. Cinnante reported only $122,750 in cash sales and transactions, but CBI made $400,000. Marks Decl., ¶8. Cinnante had also used $255,586 CBI funds for personal expenses, such as giving his girlfriend a company credit card to purchase many items. Manhan Decl., ¶14; Marks Decl., ¶8. Manhan never agreed to this and told his attorney to issue a demand to Cinnante’s attorney that he stop that. Manhan Decl., ¶14. This discovery also led Manhan to cease all negotiations for Cinnante’s purchase of the Property or of CBI. Manhan Decl., ¶12; Marks Decl., ¶6.

On May 24, 2022, P-Cove counsel Thomas Brown, Esq. (“Brown”) received from Cinnante’s counsel ACS profit and loss statements for the period January through April 2022 as Manhan had requested. Brown Decl., ¶3. At the time, Cinnante did not dispute that Manhan was a 50% owner and entitled to the statements. Brown Decl., ¶3. When Brown requested CBI’s financial documentation throughout the spring and summer of 2022, Cinnate provided some data, but not information from QuickBooks or Gingr. Brown Decl., ¶6.

In August 2022, Cinnante stopped providing Manhan with daily reports on CBI income and expenses. Manhan Decl., ¶15. On August 8, 2022, Brown wrote an email to Cinnante’s new counsel Stephen Hyam, Esq. (“Hyam”) explaining his struggles to get information from Cinnante’s previous counsel and asking Hyam to be more forthcoming. Brown Decl., ¶9. Hyam replied that the discussions between the parties have been proceeding for months. No information was forthcoming. Brown Decl., ¶10.

On the week of October 3, 2022, a day or two before Cinnante filed his Complaint, Manhan was on the CBI email account and observed in real time Cinnante log in and delete hundreds of emails. Manhan Decl., ¶16. This violated a document preservation request Manhan had sent to Cinnante months before. Manhan Decl., ¶16.

A review of CBI records also showed that Cinante had withdrawn $100,000 without Manhan’s permission. Manhan Decl., ¶17. To equalize the withdrawal, Manhan withdrew $100,000 for his attorneys to hold in their trust account pending resolution of the dispute. Manhan Decl., ¶17. Manhan also decided to withdraw $330,000 from CBI’s account for safekeeping and again placed it in his attorney’s trust account pending resolution of the dispute. Manhan Decl., ¶18. Manhan was familiar enough with CBI expenses to know that the $40,000 left in its account was sufficient. Manhan Decl., ¶18.

At the October 12, 2022 hearing on Cinnante’s ex parte application for a writ of attachment and other relief, counsel for Manhan noted that Cinnante’s application did not disclose the long history of negotiation between counsel for both parties. White Decl., ¶3. Counsel repeated the commitment that his firm would preserve any of the funds Manhan withdrew from CBI’s account until further order of the court or 30 days’ advance notice to Cinnante. White Decl., ¶3. The court’s order (1) required that both parties be given access to all business accounts, (2) required Cinnante to seek Manhan’s approval on all expenditures over $1,000, and (3) prohibited destruction of evidence. White Decl., ¶3. The parties negotiated a stipulation to the same effect, except that (1) some business accounts were excepted from shared access, and (2) both parties must approve expenditures over $1,000. White Decl., ¶4, Ex. C.

Since the court’s order that Cinnante provide Manhan with daily reports of CBI income, Manhan has seen CBI’s steadily decreasing volume of services. Manhan Decl., ¶19. This in turn led to a decrease in CBI income. Manhan Decl., ¶19. Per the order, Cinnante has also requested approval for all expenditures over $1,000. Manhan Decl., ¶20. Manhan has approved most of them but objected to Cinnante’s proposed salary, which is double what they agreed. Manhan Decl., ¶20; White Decl., ¶6. Cinnante has sought approval to be paid sales commissions, which makes no sense given that he owns 50% of the company. Manhan Decl., ¶20.

During this time, counsel also exchanged information to secure Manhan’s access to all business accounts. White Decl., ¶5; Manhan Decl., ¶24. Manhan has not locked Cinnante out of any accounts and has only attempted to gain equal access so that he can see what Cinnante is doing with CBI’s funds. Manhan Decl., ¶24. The court ordered the parties to cooperate to ensure that both sides have access and at no point has Hyam indicated that Cinnante still lacks access to business accounts. White Decl., ¶5; Manhan Decl., ¶24.

In January 2023, Manhan discovered that Cinnante sent several payments from CBI to American Express where he has a personal account for groceries, entertainment, and similar expenses. Manhan Decl., ¶21; White Decl., ¶6. These payments were $900 each to avoid the requirement that he seek approval from Manhan. Manhan Decl., ¶21. Manhan still objected and got Cinnante to stop. Manhan Decl., ¶21.

On another occasion Cinnante sought approval of an expensive employee health insurance plan that he never discussed with Manhan. Manhan Decl., ¶22; White Decl., ¶6. Manhan invited more discussion on the subject but never received a response. Manhan Decl., ¶22.

On January 19, 2023, in an email that approved payroll disbursements from CBI, counsel for Manhan Kenneth White, Esq. (“White”) advised Hyam that Manhan’s associate would be coming to the site to check the premises. White Decl., ¶7, Ex. D. Hyam responded that Cinnante had vacated the premises. White Decl., ¶7, Ex. D. When asked to clarify, Hyam explained that Cinnante vacated the residence and the business would operate through the end of January. White Decl., ¶7, Ex. D. Customers had been advised that the kennel would shut down, consistent with Manhan’s demands. White Decl., ¶7, Ex. D. Manhan made no such demand, and he was surprised to learn that Cinnante was vacating the premises. White Decl., ¶7, Manhan Decl., ¶23.

Confused as to how CBI was paying employees if the company was closing, White withdrew the approval for payroll expenses and began to ask questions. White Decl., ¶8. Hyam accused Manham of baseless retaliation. White Decl., ¶7, Ex. D. In an email on January 19, 2023, White explained that Manhan did not demand the closure of CBI and that Cinnante did so unilaterally. White Decl., ¶8, Ex. E. White urged Cinnante to withdraw his motion to appoint a receiver based on the business closing and Haym declined. White Decl., ¶9.

Manhan may not know about dog training, but he does know about running businesses that offer a variety of services. Manhan Decl., ¶26. He knows that management should not embezzle money, set its own salary, or use company funds for personal expenses. Manhan Decl., ¶26. In exercising his right to approve expenses over $1,000, that is all he tried to prevent. Manhan Decl., ¶26.

On February 1, 2023, Hyam asked for approval of payroll checks for the pay period from January 25 to 31, 2023. Hyam Decl., ¶4, Ex. A. White replied that Manham approved the payroll for all employees except Cinnante and Baptista. Hyam Decl., ¶4, Ex. A. He claimed that, based on the information Manham received, this pay was for work done for Cinnante’s competing business and not for CBI. Hyam Decl., ¶4, Ex. A.

Plaintiff Cinnante applies for the appointment a receiver for CBI pursuant to CCP sections 564(b)(1) and (b)(9). Manhan opposes.

The parties accuse each other of serious misconduct that has compromised CBI and defrauded the other. Cinnante has now shut down CBI and filed a certificate of dissolution with the Secretary of State. Reply at 2. As a result, there is no ongoing business to run; there is only a business to wind up. Cinnante asserts a receiver is necessary for the winding up process: marshaling the assets, paying business debts, closing the books, and preparing the final tax returns. He concludes that this winding up effort will be a subject of dispute between the parties and will dissipate the assets” necessary to preserve the property rights related to the business. Reply at 4.

The question is whether Cinnante is correct that a receiver is the best option. In evaluating this issue, the court will address the parties’ positions, most of which are irrelevant to the need for a winding up receiver.

Cinnante alleges that per their agreement, Manhan was supposed to purchase and contribute the Property for CBI and Cinnante to use for housing and training facilities. Cinnante Decl., ¶3. Manhan bought the Property using his family trust but never transferred it to Big Bird, a company the parties created to co-own the Property. Cinnante Decl., ¶10, Ex. B. Manhan used Cinnante’s ownership of Big Bird to convince him that he (Cinnante) did own 50% of the Property, and he did not know otherwise until December 2021. Cinnante Decl., ¶10. CBI paid most of the Property’s expenses, which Cinnante would not have done if he knew that Manhan still held title. Cinnante Decl., ¶11, Ex. C. Because Manhan’s 50% ownership of CBI was contingent on transfer of the Property, there is no consideration for Manhan as a 50% owner of CBI. Mot. at 8, 10; Cinnante Decl., ¶13.

Manhan admits he never transferred the Property but claims he never agreed to do so. Manhan agreed to make available a piece of land that he would purchase in Westlake Village on which CBI would operate. Manhan Decl., ¶2. This does not mean that the Property would be owned by CBI or Cinnante. Manhan Decl., ¶27. Although he emailed his attorney to ask if the transfer of the Property to an LLC was complete (Cinnante Decl., ¶10, Ex. B), that occurred during preliminary discussions about that as an option. Manhan Decl., ¶27. Manhan wanted to see how successful the business was before he committed to the transfer. Manhan Decl., ¶27. Manhan also paid for all improvements to the Property. Manhan Decl., ¶¶ 4, 7.

The parties’ positions on Manhan’s ownership of CBI is a reason why there is a lawsuit but is not relevant to the need for a winding up receiver.

The parties accuse each other of fraud. Cinnante claims that on August 8, 2022, without Cinnante’s permission, Manhan transferred $100,000 to P-Cove. Cinnante Decl., ¶14. On October 3, 2022, again without Cinnante’s permission, Manhan withdrew $325,000 from CBI’s account. Cinnante Decl., ¶15. On October 5, 2022, Manhan withdrew another $3,500. Cinnante Decl., ¶16. The monies left are insufficient to operate CBI. Cinnante Decl., ¶¶ 16-17.

Manhan admits to taking $430,000 from CBI accounts but claims that he only did that after learning that CBI’s financial records suggested that Cinnante embezzled money. Manhan Decl., ¶¶ 17-18. For an unstated year, Cinnante reported only $122,750 in cash sales and transactions, but CBI made $400,000. Marks Decl., ¶8. Cinnante also used $255,586 CBI funds for personal expenses, such as giving his girlfriend a company credit card for personal purchases. Manhan Decl., ¶14; Marks Decl., ¶8. Manhan decided to keep CBI’s assets as safe as possible for his attorneys to hold in their trust account. Manhan Decl., ¶¶ 17-18. Manhan was familiar enough with CBI expenses to know that the $40,000 he left in its account was sufficient. Manhan Decl., ¶18. At the October 12, 2022 hearing on Cinnante’s ex parte application for a writ of attachment and other relief, Manhan’s counsel reaffirmed this commitment. White Decl., ¶3.

The return of these monies is a significant reason why Cinnante wants a receiver. He wants the receiver to marshal the company’s assets, including collection of the $430,000 held by Manhan’s attorney. Reply at 3. Yet, Cinnante presents no evidence to suggest that the money is not available for CBI or that a receiver is the best remedy to reacquire these monies. In fact, it is not. Cinnante can seek a court order that the monies be placed in escrow or deposited with the court.

Cinnante accuses Manhan of depriving him of access to business accounts. On October 3, 2022, Cinnante discovered that Manhan had also locked him out of all business accounts not related to finances. Cinnante Decl., ¶18. On October 4, 2022, Manhan began adding and changing personnel information in Gingr without a reason. Cinnante Decl., ¶19, Ex. D. The account Manhan used to access the business accounts was payback@scrapdr.com. Cinnante Decl., ¶20. The domain name scrapdr.com is for Manhan’s business and the name “payback” makes it clear that this is an act of revenge. Reply at 4.

Manhan also deleted CBI’s online store. Cinnante Decl., ¶21. Cinnante restored it but lost all the date from before the store’s deletion. Cinnante Decl., ¶21. On October 6, 2022, Cinnante discovered that someone changed the GoDaddy website’s domain name. Cinnante Decl., ¶22. He also received an email from WordPress, the host of CBI’s webpage, that someone had changed the account email address to payback@scrapdr.com. Cinnante Decl., ¶23. This robbed Cinnante of control over the webpage. Cinnante Decl., ¶23.

After the hearing on Cinnante’s ex parte application for a writ of attachment and other relief, the parties stipulated that they would provide each other access to all business accounts except for a few excepted accounts. White Decl., ¶4, Ex. C. All of Cinnante’s allegations predate this agreement, signed on October 26, 2022. White Decl., ¶4, Ex. C. Manhan denies doing anything other than trying to assure his own access to business accounts. Manhan Decl., ¶24. He asserts that his counsel provided all requested information and never heard Cinnante or his counsel complain that he was still missing anything. White Decl., ¶5; Manhan Decl., ¶24.

This business account interference has been addressed by the stipulated injunction, which has not been violated by either party. As such, it is not a basis for a winding up receiver.

Cinnante asserts that receivership is necessary because Manhan, a man with no experience in pet training, holds financial authority over CBI even though he cannot determine what is a valid expense. Cinnante notes that Manhan has refused to approve a salary of $120,000 for him, even though Cinnante works for CBI ten hours a day and 6-7 days per week. Manhan only approved a $60,000 salary. Cinnante Decl., ¶25. Manhan’s decision to not approve a fair market salary is a harm to CBI. Mot. at 10.

Manhan asserts that Cinnante is really only complaining that Manhan would not agree to double Cinnante’s salary. Cinnante does not show any other expense over $1000 that Manhan failed to approve. Opp. at 11. Cinnante also sought approval to be paid sales commissions which is wholly inappropriate for a 50% owner of a business. Manhan Decl., ¶20.

The salary issue is mooted by the business closing. Insofar as Cinnante needs a salary for the winding up, it probably need not be greater than the $60,000 approved by Manhan.

In any event, the appropriate remedy for winding up of a two-director corporation is not the appointment of a receiver but the appointment of a provisional director. If a corporation has an even number of directors who are equally divided and cannot agree as to the management of its affairs, so that its business can no longer be conducted to advantage or so that there is a danger that its property and business will be impaired or lost, the court may, notwithstanding any provisions of the articles or bylaws, appoint a provisional director. Action for such appointment may be brought by any director or by the holders of not less than 1/3 of the voting power. Corp. Code §308(a).

There are two issues for the winding up: (a) return of the funds held by Manhan’s attorneys and (b) the corporate decisions for winding up by marshaling assets, paying business debts, closing the books, and preparing the final tax returns. The former can be remedied by court deposit or an escrow and the latter can be remedied by a provisional director. There is no need for a receiver and the motion for appointment of a receiver is denied. The court would be willing to consider appointment of Ormond as a provisional director under Corp. Code section 308 for the winding up.

[1] Although Defendant Jonathan Manhan (“Manhan”) filed his opposition late, the parties have stipulated to accept it provided that Cinnante had an extra day to file his reply brief. Cinnante timely filed his reply brief even without the extension and waived any argument as to untimeliness of the opposition brief.

The parties failed to lodge courtesy copies of said opposition and reply briefs in violation of the Presiding Judge’s First Amended General Order Re: Mandatory Electronic Filing. Their counsel is admonished to provide courtesy copies in all future filings.