Judge: Joseph Lipner, Case: 21STCV26110, Date: 2023-09-15 Tentative Ruling

Case Number: 21STCV26110    Hearing Date: September 15, 2023    Dept: 72

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PROCEEDINGS:¿     MOTION TO BE RELIEVED AS COUNSEL

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MOVING PARTY:¿  James Macdonald, Law Offices of James C. Macdonald

RESP.¿ PARTY:¿       None  

MOTION TO BE RELIEVED AS COUNSEL 

Attorney James Macdonald and Law Offices of James C. Macdonald’s Motions to be Relieved as Counsel for Defendants and Cross-Complainants Jay Hooper and Crown Estate Holding, LLC are GRANTED. James Macdonald and Law Offices of James C. Macdonald are relieved as counsel of record effective upon filing the Proof of Service of this ruling and the order of the Court.  

Background 

During execution of a search warrant in August 2021, plaintiff City of El Monte found uncovered the selling, storing, manufacturing, or giving away of psilocybin, popularly known as magic mushrooms, at industrial real property located at 9860, 9866, 9680, and 9874 Gidley Street in El Monte (the “Property”).  

On January 14, 2022, Plaintiff City of El Monte filed the operative First Amended Complaint against Defendants Crown Estate Holding, LLC, Jay Hooper, and other defendants that purported to have an interest in the Property. 

On June 26, 2023, counsel James Macdonald and Law Offices of James C. Macdonald filed the instant motions to be relieved as counsel. No opposition has been filed.

Legal Standard 

California Rule of Court rule 3.1362 (Motion to Be Relieved as Counsel) requires (1) notice of motion and motion to be directed to the client (made on the Notice of Motion and Motion to be Relieved as Counsel—Civil form (MC-051)); (2) a declaration stating in general terms and without compromising the confidentiality of the attorney-client relationship why a motion under Code of Civil Procedure section 284(2) is brought instead of filing a consent under Code of Civil Procedure section 284(1) (made on the Declaration in Support of Attorney’s Motion to Be Relieved as Counsel—Civil form (MC-052)); (3) service of the notice of motion and motion and declaration on all other parties who have appeared in the case; and (4) the proposed order relieving counsel (prepared on the Order Granting Attorney’s Motion to Be Relieved as Counsel—Civil form (MC-053)).¿ 

The court has discretion to allow an attorney to withdraw, and such a motion should be granted provided that there is no prejudice to the client and it does not disrupt the orderly process of justice.¿ (Ramirez v. Sturdevant (1994) 21 Cal.App.4th 904, 915.)¿ 

Discussion 

James Macdonald and Law Offices of James C. Macdonald move the Court to be relieved as counsel for Defendants and Cross-Complainants Jay Hooper and Crown Estate Holding, LLC

In his Declaration, Macdonald states as follows:

The current Action is currently stayed due to a bankruptcy filing by Crown Estate Holding, LLC. I currently also represent the Defendant and Cross-Claimant Jay Hooper in this Action and am concurrently filing a Substitution of Counsel to allow Jay Hooper to represent himself in pro per in this Action. Jay Hooper is also the managing member of Crown Estate Holding, LLC. I informed Mr. Hooper by email that I would be filing both this Motion and the Substitution of Counsel, which he has consented to. However, Mr. Hooper has not stated whether Crown Estate Holding, LLC will retain separate counsel to represent it in this Action. Because an LLC cannot represent itself in pro per in a legal proceeding in California, and because Crown Estate Holding, LLC has not retained new counsel to represent it in this action, a substitution of counsel filed under Section 284(1) could not be used to relieve the Law Offices of James C. Macdonald as counsel in this matter.

Macdonald complied with rule 3.1362 by filing a notice of motion and motion on form MC-051, a declaration stating why the instant motion is being brought instead of a consensual motion, proof of service by mail, and the proposed order relieving counsel on form MC-053.  

The court finds that there exists good cause for James Macdonald and Law Offices of James C. Macdonald to be relieved as counsel. Additionally, trial is not currently scheduled. As such, the court finds there will be no prejudice to either party and James Macdonald’s removal will not disrupt the orderly administration of justice. However, the court notes that status conference regarding bankruptcy is scheduled for September 15, 2023. Defendant Crown Estate Holding, LLC is a corporate entity. A corporation, unlike a natural person, cannot represent itself before courts of record in pro per, nor can it represent itself through a corporate officer, director, or other employee who is not an attorney. (CLD Const., Inc. v. City of San Ramon (2004) 120 Cal.App.4^th 1141, 1145.) The Court will discuss with the remaining parties how to proceed. 

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PROCEEDINGS:¿     MOTION
FOR DETERMINATION FOR GOOD FAITH SETTLEMENT

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MOVING PARTY:¿  Defendant
and Cross-Defendant IRP Fund II 8B, LLC and Doe Defendant #1 Verus Commercial Real
Estate Finance, Inc.

RESP.¿ PARTY:¿       None
 

MOTION FOR DETERMINATION FOR GOOD FAITH SETTLEMENT

The Court
finds that the settlement between Settling Defendants and Plaintiff is in good faith and
therefore GRANTS this motion provided that Settling
Defendants provide the
Court with a copy of the settlement agreement between the subject parties. 
Settling Defendants shall submit a copy, as well as a proposed order finding
the settlement in good faith by no later than September 22, 2023.

All future
claims against Settling Defendants are barred.  (CCP
§877.6(c).)  Defendant
IRP Fund II 8B, LLC is dismissed from the cross-complaint with prejudice
pursuant to California Rules of Court, Rule 3.1382.

Settling Defendants are ordered give notice of this order
and file proof of service of such. 

Background 

During execution of a search warrant in August 2021,
plaintiff City of El Monte found uncovered the selling, storing, manufacturing,
or giving away of psilocybin, popularly known as magic mushrooms, at industrial
real property located at 9860, 9866, 9680, and 9874 Gidley Street in El Monte
(the “Property”).  

On January 14, 2022, Plaintiff City of El Monte filed the
operative First Amended Complaint against Defendants Crown Estate Holding, LLC,
Jay Hooper, and other defendants that purported to have an interest in the Property. 

On May 24, 2023, Defendant and Cross-Defendant IRP Fund II
8B, LLC and Doe Defendant #1 Verus Commercial Real Estate Finance, Inc.
(“Settling Defendants”) filed this instant motion for determination of good
faith settlement.  No opposition has been
filed.

Request for Judicial
Notice

The Court grants
Settling Defendants’ request for judicial notice in full.

Legal Standard 

The Code of Civil Procedure (“CCP”) §877.6 enables the
settling defendant to free itself not only from any further claims of the
plaintiff but also from any subsequent liability to any nonsettling defendant
for equitable comparative contribution, or partial or comparative
indemnity.  A settling defendant obtains this immunity by settling in
“good faith.”  CCP §877.6(b) provides that the court may determine the
good faith of a settlement on the basis of affidavits and counter affidavits or
may, in its discretion, receive other evidence at the hearing.  Section
877.6 grants the trial court broad discretion in determining whether a
settlement is in good faith for purposes of that statute, and “its decision may
be reversed only upon a showing of abuse of discretion.” (TSI Seismic Tenant
Space, Inc. v. Superior Court (2007) 149 Cal.App.4th 159, 165.) 

To determine whether a settlement was in “good faith” the
judge should inquire as to whether the amount of the settlement is “within the
reasonable range” of the settling defendant’s proportional share of comparative
liability for the plaintiff’s injuries. (Abbott Ford, Inc. v. Superior Court
(1987) 43 Cal.3d 858, 872.)  If the nonsettling defendants do not oppose
the motion on the good faith issue, a “barebones motion which sets forth the
ground of good faith, accompanied by a declaration which sets forth a brief
background of the case, is sufficient.” (City of Grand Terrace v. Superior
Court (1987) 192 Cal.App.3d 1251, 1261.)  Ultimately, the “settlement
figure must not be grossly disproportionate to what a reasonable person, at the
time of the settlement, would estimate the settling defendant’s liability to
be.”  (Tech-Bilt v. Woodward-Clyde & Associates (1985) 38
Cal.3d 488, 499 (quoting Torres v. Union Pacific Railroad Co., (1984)
157 Cal.App.3d 499, 509).  

Discussion 

Under
the terms of this settlement agreement, Settling Defendants will pay Plaintiff
$100,00.00 in exchange for the dismissal of Settling Defendants from the FAC
and a release of all claims against them.  Settling Defendants seek a
determination that this settlement was made in good faith, pursuant to Code of
Civil Procedure section 877.6, and, relatedly for an order dismissing Defendant
IRP from the cross-complaint filed by Kotai, with prejudice.

The
FAC did not request a precise figure of damages from Defendants.  Settling Defendants argue that Plaintiff’s
discovery responses do not yield any evidentiary support for the idea that
Defendants “knowingly created or assisted in the creation of a substantial and
unreasonable interference with a public right” under ConAgra Grocery
Products Co and its progeny.  Indeed,
Settling Defendants assert that the evidence reveals that they did not have any
idea about what was going on at the Subject Property, and Plaintiff’s discovery
responses reflect only summary conclusions of “knowledge” on the part of Settling
Defendants, without any specific facts or evidence to support those
conclusions.

Despite
contesting lability, Settling Defendants have agreed to settle the instant
matter for $100,000.00.  Settling Defendants also argue that the total
amount in payment represented by the settlement constitutes a significant
percentage of what the Plaintiff may reasonable expect to recover through
litigation (and is, in fact, far greater than Plaintiff could ever hope to
recover through the litigation against Defendants in light of the fact that
commercial lienholders cannot be responsible for nuisance activities undertaken
by the owners and/or occupants of the property); by its compromise, the parties
have purchased certainty at the expense of potential future increased benefit.  The parties presented arguments during
negotiations that placed doubt on the ability of Plaintiff to recover any or
all its alleged damages; what remains is an arms-length compromise with each
participating party in the best position to determine their own potential
exposure or potential gain.

Because
there is no opposition showing that the settlement is unreasonable (see Franklin
Mint Co. v. Superior Court (2005) 130 Cal.App.4^th 1550, 1560),
the Court finds that the $100,000 settlement amount is one “within the
reasonable range” of the settling defendant’s proportional share of comparative
liability trial.  In addition, there is no evidence of fraud or collusion
intended to injure the interests of the nonsettling defendants.   

The
Court however notes that the settlement agreement itself is not attached to the
instant motion. Thus, the Court is inclined to grant the instant motion
provided that Settling Defendants provide the Court with a copy of the
settlement agreement between the subject parties.  The Court also grants
Settling Defendants’ request to dismiss Defendant IRP Fund II 8B, LLC from
Defendant and Cross-Complainant Kotai Investment, Inc.’s cross- complaint with
prejudice pursuant to California Rules of Court, Rule 3.1382.

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Ryan C. Baker, the appointed receiver in this action (the
“Receiver”), the Receiver requests for an order approving the Receiver’s
proposed (1) claim procedure, (2) claim form, (3) claim bar date, (4) form and
manner of notice of claims procedure, and (5) such other relief as this Court
deems appropriate. The Motion is made pursuant to paragraph 8.T. of the Order
Granting Plaintiff’s Ex Parte Motion for Appointment of Receiver and to Issue
Temporary Restraining Order and Set Order to Show Cause Why Receiver Should Not
Be Confirmed and Preliminary Injunction Issued rendered by this Court on May 9,
2022, and California law. 

Alternatively, the Receiver requests further instructions
from the Court regarding Plaintiff’s request that the funds of the Receivership
Estate remain in trust pending the resolution of this action.

The Court orders at present that the funds of the
Receivership Estate remain in trust pending the resolution of this action, or
further order of the Court, whichever comes first.  The Court will discuss with the parties the
timing of the resolution of the current matter and may set a further hearing to
decide whether a claims procedure is appropriate.

Background 

During execution of a search warrant in August 2021,
plaintiff City of El Monte found uncovered the selling, storing, manufacturing,
or giving away of psilocybin, popularly known as magic mushrooms, at industrial
real property located at 9860, 9866, 9680, and 9874 Gidley Street in El Monte
(the “Property”).  

The Property is owned and/or operated by defendants Crown
Estate Holding, LLC, Jay Hooper, Thomas Simental, Christian M. Diaz, Ian
Woodworth, IRP Fund II, 8B, LLC, Presto Properties, LLC, and Kotai Investment,
Inc.  Defendants have ignored the City’s
orders to cease unpermitted and unapproved uses and occupancies.  

On January 14, 2022, Plaintiff City of El Monte filed the
operative First Amended Complaint against Defendants Crown Estate Holding, LLC,
Jay Hooper, and other defendants that purported to have an interest in the Property. 

On January 30, 2023, the Court granted the Ex Parte
Application to approve the purchase and sale agreement of the Property filed.  Through the sales process, all secured
creditors of Defendant Crown Estate Holding, LLC were paid in full.  The payments to the secured creditors totaled
$15,906,305.20.  However, there still
remain unsecured creditors that have not been paid.  Unsecured creditors claims may amount to over
$1,899,899.00.  As of May 1, 2023, the
Receivership Estate held cash of $471,698.34. 
The Receiver thus filed the instant Motion for further instructions
and/or entry of order as a remedy to establish a claims process and implement
an appropriate distribution strategy.

Legal Standard 

The Receiver requests further instruction and/or an order
from this Court:

(1)   approving the form and content of a document (the
"Claim Form") to be completed by all creditors of the receivership
estate ("Claimants") for asserting the amount and nature of any claim
against or interest in the receivership estate (a "Claim");

(2)   approving
a deadline by which all Claimants must file Claim Forms or forever be barred
from receiving a distribution from the receivership estate ("Claim Bar
Date");

(3)   approving
the form of a notice of the Claim Bar Date to be sent to all known creditors of
the receivership estate (the "Claims Bar Date Notice"), and the
proposed method of service of the Claim Bar Date Notice; and

(4)  
approving claims objection and reconciliation
procedures ("Claims Procedures").  

Powers/Duties of Receivers

California Code of Civil Procedure section 568 provides, ““[t]he receiver has, under the control of
the Court, power to bring and defend actions in his own name, as receiver; to
take and keep possession of the property, to receive rents, collect debts, to
compound for and compromise the same, to make transfers, and generally to do
such acts respecting the property as the Court may authorize.”  (Code Civ.
Proc., § 568.) 

“‘A receiver is
an agent and officer of the court, and is under the control and supervision of
the court. [Citations.]’”  (Southern
California Sunbelt Developers, Inc. v. Banyan Limited Partnership (2017) 8
Cal.App.5th 910, 922 (quoting City of Chula Vista v. Gutierrez (2012)
207 Cal.App.4th 681, 685).)  “‘The receiver is an agent of the court and
not of any party, and as such: (1) Is neutral; [¶] (2) Acts for the benefit of
all who may have an interest in the receivership property; and [¶] (3) Holds
assets for the court and not for [any party].’”  (Id. (quoting Cal.
Rules of Court, rule 3.1179(a)) (alteration in original).)  “The receiver
is obligated to preserve and manage the property during the course of the
receivership.”  (Id.)  “To
effectually perform that duty necessarily requires some flexibility and
continuity of jurisdiction in giving instructions to the receiver….”  (County of Sonoma v. Qual (2020) 56 Cal.App.5th
657, 684.)

Further, the Order Granting Plaintiff’s Ex Parte Motion for
Appointment of Receiver and to Issue Temporary Restraining Order and Set Order
to Show Cause Why Receiver Should Not Be Confirmed and Preliminary Injunction
Issued rendered by this Court on May 9, 2022, vested the Receiver with various
powers and duties, including, “[t]o apply to this Court for further or other
instructions or orders and for further powers necessary to enable the Receiver
to perform his duties properly, or to address unforeseen circumstances that may
arise with respect to this Receivership.”

Discussion 

The Receiver requests further instruction and/or an
order from this Court approving the Receiver’s proposed claims procedures.  In support of the Motion, the Receiver offers
the declaration of himself. 

Through
the sales process of the Property, all secured creditors of Defendant Crown Estate Holding, LLC, were paid in full.  The payments to the secured creditors totaled
$15,906,305.20.  However, there still
remain a number of significant unsecured creditors that have not been paid.  According to documents filed in the Bankruptcy
Action, unsecured creditor claims may amount to over $1,899,899.00.  As of May 1, 2023, the Receivership Estate
held cash on hand of $471,698.34.  Even
before anticipated future administrative costs, the amount of funds available
in the Receivership Estate will be insufficient to fully satisfy the potential
monetary scope of unsecured creditors.  Therefore, the Receiver
submits this Motion as a remedy to establish a claims process and implement an
appropriate distribution strategy.  (Declaration
of Ryan C. Baker, ¶ 12.) 

The Receiver believes it
is in the best interest of the Receivership Estate to establish a claims bar
date by which all claimants must assert any claims they have against the
Receivership Estate to allow the Receiver to evaluate and process those claims for
the purpose of recommending an eventual distribution plan to the Court.  (Baker Decl., ¶ 13.) 

The claims procedure
proposed by the Receiver involves an adaptation of Chapter 18 of the California
Corporations Code. (Motion p. 9.)

(1)  
Claim Form

The
Receiver proposes all Claimants who wish to participate in any distribution of
the funds of the Receivership Estate be required to submit a completed Claim
Form, on or before the Claim Bar Date.  Some
of the known Claimants are believed to speak either Mandarin or Cantonese;
therefore, the Claim Form has been translated into both languages using an
accredited translation service. The Claim Form requires, among other things,
that Claimants (i) submit current contact information; (ii) designate the
entity that their Claim is against; and (iii) if the Claimant was a provider of
goods or services, state the date that the goods were sold or services were
provided.  (Baker Decl., ¶ 15; Composite Ex.
“A” (Claim Form).)

(2)  
Claim Bar Date

The Receiver proposes the Court set
September 18, 2023, at 5:00 p.m. Pacific Standard Time as the Claims Bar
Date.  The proposed Claim Bar Date is 60
calendar days from the hearing date on the Motion and, will permit ample time
for notice to be given to potential Claimants. 
The Receiver further requests that the Court’s order provide that all
Claimants must file their respective Claims Forms with the Receiver, as
provided on the Claim Form, so that they are received on or before the Claims
Bar Date.  The Receiver proposes to accept
Claims Forms via regular mail or electronic mail.  (Baker Decl., ¶ 19.)

The
Receiver also requests that any order granting this Motion provide that a
Claimant’s failure to submit a Claim Form by the Claim Bar Date will result in
the Claimant being forever barred from seeking or pursing recovery on any Claim
the Claimant may hold or assert against or in the Receivership Estate and/or
the Receiver in his capacity as the Receiver. 
(Baker Decl., ¶ 20.)

The
establishment of a Claim Bar Date is necessary in order to provide certainty
and finality to the claim reconciliation process. Further, liquidating the
Claims against the Receivership Estate will enable the Receiver to formulate
distribution procedures in connection with a plan of distribution.  (Baker Decl., ¶ 21.)

(3)   Claim Bar Date Notice

The
Receiver propose to (i) serve copies of the Claim Bar Date Notice and Claim
Form on those creditors of Crown known to the Receiver and or identified in
filings in the Bankruptcy Action no later than 10 calendar days after entry of
an order approving this Motion (the “Claim Bar Notice"); and (ii) cause
the publication in the Los Angeles Daily Journal (“Publication Notice”).  (Baker Decl., ¶ 22.)

The
Receiver proposes to publish the Publication Notice within two weeks after
entry of the order approving this Motion in one weekday and one weekend edition
of the Los Angeles Daily Journal.  The
Publication Notice will describe the Receiver's appointment, provide the
Receiver's contact information, and provide notice that all Claimants must
assert their respective Claims via properly submitted Claim Forms on or before
the Claim Bar Date or be forever barred from filing Claims against, or
receiving distributions from, the Receiver and/or the Receivership Estate.  (Baker Decl., ¶ 23.)

(4)   Claims Procedures

The
Receiver proposes that Claim Forms be submitted to the Receiver and not filed
with the Court.  The Receiver will then
review the Claims Forms and reconcile them against the records in its
possession and/or the Receivership Estate. 
The Receiver will then make a determination regarding whether to object
to a given Claim on any grounds, including (i) discrepancies between the amount
claimed and the amount reflected in the records in the Receiver’s possession;
(ii) duplication of another Claim; (iii) disputes regarding the nature or
priority of the asserted Claim; and/or (iv) the failure of a Claimant to timely
file its Claim Form.  (Baker Decl., ¶ 16.)

Following
that initial review, the Receiver will, as necessary, object to Claims.  For the sake of efficiency and the Court’s
convenience, the Receiver will endeavor (when appropriate) to group similar
objections together for filing one or more omnibus objections to Claims
(“Omnibus Objections”).  Allowing Omnibus
Objections will enable the Receiver to avoid burdening the Court’s docket with
numerous individual objections based on substantially similar legal premises,
and in doing so will prevent unnecessary waste and expense.  (Baker Decl., ¶ 17.)

The
Receiver proposes to then serve objections on each affected Claimant via First
Class mail.  If the Receiver resolves a
filed objection, the Receiver requests authority to file a notice of settlement
and to submit stipulated orders to the Court for the approval of such
settlements, providing 10 calendar days for parties to file any responses.  This summary process is asserted to be more
efficient and less costly than filing individual motions to settle disputed
claims.  Such notices will be served on
each affected Claimant via First Class mail. 
In the event the Receiver is unable to resolve a disputed claim, the
Receiver proposes that it will request that the Court schedule a hearing on at
least 15 days’ notice to resolve such dispute or to determine the appropriate
procedures for resolving such a dispute. 
Once all of the Claims have been reconciled, the Receiver will then
separately seek Court approval of a plan of distribution, before making any
distributions.  (Baker Decl., ¶ 18.)

Conclusion

The Court finds the Receiver’s proposed claims process generally to be reasonable in
light of the circumstances discussed above and in the Receiver’s declaration.  Moreover, no party has filed an
opposition. 

However, the Receiver has noted that the plaintiff has claims
which, if successful, may be entitled to be priority.  The Court wishes to explore the possibility
of concluding this matter and ensuring that all claims may be appropriately
handled.  Accordingly, the Court orders
that pending further order of the Court the Receiver continue to hold the
funds.  The Court will discuss the
timeline for resolving this matter and will set a review hearing to determine whether
the claims procedure proposed by the Receiver should be instituted.