Judge: Jon R. Takasugi, Case: 21STCV35893, Date: 2022-09-12 Tentative Ruling

Case Number: 21STCV35893    Hearing Date: September 12, 2022    Dept: 17

Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENATIVE RULING

Plaintiff’s motion for preliminary injunction is DENIED.

On 9/29/2021, Plaintiffs Matthew Alba and Matix2u, Inc. dba HVAC Inspections Los Angeles (collectively, Plaintiffs) filed suit against David Molina, Raymond Arthur Alba, Certified AC Services, and Matt Alba, Inc. (MAI), alleging: (1) breach of fiduciary duty; (2) breach of statutory duties and to compel inspection of corporate records and information pursuant to California statute; (3) accounting; (4) involuntary dissolution of company; (5) involuntary dissolution of company; (6) appointment of receiver and injunctive relief; (7) retaliation and wage claim; and (8) breach of contract.

            Now, Plaintiffs move for a preliminary injunction.

Factual Background

            Plaintiff has been in the heating/air conditioning and ventilation (“HVAC”) business since approximately 2011, when he began working at a HVAC business with his father, Defendant Ray Alba, and Defendant Molina. In 2014, the three incorporated Defendant Certified AC, which describes itself as a “family-owned, locally operated heating and air conditioning company.”

Defendant Molina and Defendant Ray Alba are the other shareholders of Defendant Certified AC and Defendant MAI, with each holding a thirty-three percent (33%) ownership interest in each of the companies. Plaintiff is listed as the CEO of Defendant MAI. Defendant Molina is listed with the California Secretary of State as the Chief Financial Officer (CFO), and Defendant Ray Alba is listed as the Chief Executive Officer (CEO) of Defendant Certified AC

Discussion 

            Plaintiffs argue that Defendants “have been engaged in corporate misconduct and misappropriation of corporate assets for their personal benefit for years. The two defendants have essentially used the corporate Defendants as their personal piggy banks, and have engaged in such conduct as syphoning money directly from the companies for themselves and their personal expenses (while not paying any dividends to Plaintiff), charging hundreds of thousands of dollars on company credit cards for their personal expenses (for such personal expenses such as the wedding for Defendant Ray Alba’s daughter and Defendant Ray Alba’s hot rod automobile), intentionally misclassifying employees as independent contractors, paying employees “under the table” to avoid tax obligations and to defraud the government, performing “cash jobs” off the books to avoid recognizing income, and disguising unauthorized and exorbitant payments to themselves as “officer loans,” and then implementing schemes to avoid repaying the loans. In a dispute over corporate ownership such as this, appointment of a receiver pending trial is appropriate and warranted where the companies are being mismanaged and corporate resources are being stolen to the detriment of a fellow owner.” (Motion, 16: 22-17:8.)

            In support, Plaintiffs submitted a third-party deposition of Dara Resnick who was the former Director of Finance and Operations for the companies. In that deposition, Resnick stated that:

-         Defendants Ray Alba and David Molina were using company assets to pay their personal expenses. (Resnick Depo. Pg. 38, Line 25 – Pg. 39, Line 6; Pg. 41, Line 24 – Pg. 42, Line 5 (Defendant David Molina used company funds to pay personal expenses); Pg. 54, Lines 1 – 9 (Defendant Ray Alba used the company American Express credit card to pay for his daughter’s wedding and his personal cars); Pg. 59, Lines 17 – 22; and Pg. 61, Lines 3 – 8.) Ray Alba’s charges for those personal expenses alone totaling over $100,000. (Resnick Depo. Pg. 38, Line 25 – Pg. 39, Line 6.) Ray Alba ended up not repaying the money he misappropriated from the company, and not being issuing a form 1099 to recognize the over $100,000 as personal income that he took from the company. (Resnick Depo. Pg. 54, Line 23 – Pg. 55, Line 2; Pg. 58, Lines 4 – 14; Pg. 118, Lines 2 – 20 (Ray Alba called Resnick a “bitch” when she explained that his refusal to issue a 1099 form to recognize the money he misappropriated as personal income constituted tax evasion.)

-         Defendants were evading taxes by performing “cash jobs,” whereby Defendants would have the company perform HVAC jobs for payment in cash (Ms. Resnick was aware of at least 15 to 20 cash jobs performed) and then keep the cash for their personal benefit while not recognizing the payment as income to the company. (Resnick Depo. Pg. 64, Lines 6 – 25; Pg. 110, Lines 13 – 24, Ex. 6.)

-         Defendants illegally arranged to defer an employee’s salary (over $100,000) in order for the employee to continue to receive state benefits. (Resnick Depo. Pg. 77, Lines 18 – Pg. 80, Line 25.) Ms. Resnick communicated her concern that the company was participating in defrauding the state, but Defendants refused to rectify the situation. (Resnick Depo. Pgs. 106 – 107, Ex. 5.)

-         Defendants’ abuse and vulgar conduct towards employees, all exposing the company to significant employment related liability. (Resnick Depo. Pg. 87, Line 20 – Pg. 89, Line 7; Pg. 89, Lines 17 – 23 (Ray Alba called female employees “bitch,” and “other things” such as “slut” and “the ‘c’ word”); Pg. 90, Lines 19 – 22 (Ray Alba’s abuse towards employees was an ongoing problem).)

Plaintiff additionally argues that Defendants have: (1) failed “to pay various vendors and contractors…”; (2) transferred “money from MAI to pay for Defendants’ personal expenses”; (3) illegally “perform[ed] jobs without permits, putting the companies in significant jeopardy”; (4) engaged in “violations of environmental regulations”; and (5) continues to “misclassify employees.” (Motion, p. 8-9.)

To show that this evidence is sufficient to justify the appointment of a receiver, Plaintiff cites Neider v. Dardi (1955) 130 Cal.App.2d 646. In Neider, the parties had entered into a joint venture to manage real estate investments and the defendant eventually commandeered control of the company and withdrew significant funds from the company for his own personal benefit. The appellate court upheld the trial court’s appointment of a receiver, holding:

When, as here, there is substantial evidence that defendant Dardi has excluded his associate from participation in the management of the enterprise, from enjoyment of any share in its profits and from all knowledge of its transactions, the evidence would seem sufficient to support the decision of the trial court. When, in addition, there is evidence of dissipation of a very considerable portion of the receipts of the enterprise and the hazarding of the loss of its sole asset, the need for the appointment of a receiver to protect and conserve the assets and the plaintiff’s share of future rentals is well nigh compelling. (See Hampton v. Rose, 3 Cal.App.2d 167 [39 P.2d 447], receiver appointed pending an action for an accounting and dissolution of a partnership; Moore v. Oberg, 61 Cal.App.2d 216 [142 P.2d 443], affirming appointment of a receiver for a joint venture, in a situation very similar to that of the instant case; Baldwin v. Baldwin, 67 Cal.App.2d 175 [153 P.2d 567], a receiver appointed in action for accounting where one partner threatened to ruin business; Armbrust v. Armbrust, 75 Cal.App.2d 272 [171 P.2d 75], verified pleadings, used as affidavits, showed the probable interest of the respondent and the danger of misappropriation sufficiently to support the decision of the trial judge to appoint a receiver; McNeil v. Graner, 92 Cal.App.2d 371 [206 P.2d 1120], an order appointing a receiver must be affirmed if there is substantial evidence supporting it.).

            (Neider, supra, 130 Cal.App.2d at p. 649.)

In opposition, Defendants argue that: (1) Plaintiff has not shown a risk of irreparable harm; and (2) Plaintiff cannot show a probability of prevailing on the merits.

In support of these contentions, Defendants note that Neider, supra, is distinguishable because there, there was no evidence that the plaintiff had also participated in the misconduct alleged. Defendants then submitted evidence from the same Resnick deposition to show that Plaintiff here also participated in the same misconduct being alleged of them. Second, Defendants note that Plaintiff filed this action nearly a year ago, and his motion does not present new asserations of harm separate and apart from those alleged in his Complaint. As such, Plaintiff has not adequately explained how a risk of irreparable harm could exist now, nearly a year later, that did not exist at the time the action was filed. (See O’Connell v. Superior Court (2006) 141 Cal.App.4^th 1452, 1481.) (Delay in moving for injunctive or other equitable relief should be considered in determining whether the claimed injury is “irreparable.”)

In reply, Plaintiff argues that when he first filed the Complaint, he was still with the Company, and only over the last year has he been pushed out. Moreover, he argues that it was Ms. Resnick’s deposition that provided the evidentiary support for this motion.

After review, the Court concludes that there is insufficient evidence of irreparable harm.

The appointment of a receiver “rests largely in the discretion of the trial court. (Maggiora v. Palo Alto Inn, Inc. (1967) 249 Cal.App.2d 706, 710-711) (citing Sachs v. Killeen (1958) 165 Cal.App.2d 205, 213 (emphasis added).

First, the Court is unpersuaded that there is a new risk of harm that did not exist a year ago when the Complaint was filed. While Plaintiff explains that he has been pushed out over the last year, the misconduct being alleged to support this motion is no different from the conduct alleged of Defendants in the Complaint. If, after a year of this conduct, the Company still remains in operation and viable, there is insufficient evidence to conclude the viability of the Company is at imminent risk of irreparable injury. Put another way, while Plaintiff may have evidence now to help establish his allegations, Plaintiff has not adequately shown why the very same conduct that has, to-date, not posed an existential threat to the Company now poses such a threat.

Second, by its very nature, an irreparable injury is one that cannot be compensated by monetary damages. Here, Plaintiff has not established why the injuries alleged could not be adequately compensated by monetary damages or why those damages would be extremely difficult to ascertain. (Thayer Plymouth Center, Inc. v. Chrysler Motors Corp. (1967) 255 Cal.App.2d 300 (if monetary damages afford adequate relief and are not extremely difficult to ascertain an injunction will not be granted.)

Third, Plaintiff argues that there’s a risk that Defendants will loot the company of all its value during litigation. While the Court understands this argument, this risk exists in every single lawsuit where the parties are fighting over entities or financial assets.  If it were sufficient to show that a party may act in bad faith to decrease or eliminate the available resources to satisfy a future judgment, a receiver would be warranted in every relevant action. This would transform the appointment of a receiver from a drastic action into a standard feature of litigation.

Taken together, Plaintiff has not sufficiently shown there is a risk of irreparable harm that could not be compensated by monetary damages if a receiver was not appointed.

            Based on the foregoing, Plaintiff’s motion for preliminary injunction is denied.

It is so ordered.

Dated:  September    , 2022

   Hon. Jon R. Takasugi
   Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the court at smcdept17@lacourt.org by 4 p.m. the day prior as directed by the instructions provided on the court website at www.lacourt.org.  If a party submits on the tentative, the party’s email must include the case number and must identify the party submitting on the tentative.  If all parties to a motion submit, the court will adopt this tentative as the final order.  If the department does not receive an email indicating the parties are submitting on the tentative and there are no appearances at the hearing, the motion may be placed off calendar. 

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