Judge: Lee W. Tsao, Case: 23NWCV01153, Date: 2023-09-14 Tentative Ruling

Case Number: 23NWCV01153    Hearing Date: October 10, 2023    Dept: C

SUPERIOR COURT OF THE STATE OF CALIFORNIA

THE COUNTY OF LOS ANGELES

     I.        INTRODUCTION

This case is an action between Plaintiffs Leticia L. Charnetsky and Victor C. Charnetsky (collectively “Charnetskys”), Family Trust of Victor C. Charnetsky and Leticia L. Charnetsky (“Family Trust”), and Crewe Street Acquisition, LLC (“CSA”) (collectively “Plaintiffs”) and Defendants Robert Michael Aronson (“Aronson”) and Law Office of Robert M. Aronson, APC  (“Attorney Aronson”) (collectively “Defendants”) arising from Defendants’ responsibilities to hold certain funds in trust (“Trust Fund”) pursuant to a Chapter-11 Plan in a dismissed Bankruptcy Case.  The Chapter-11 Plan required the debtors Brian Buenviaje (“Brian”) and Rosalinda Buenviaje (collectively the “Buenviajes”) and their company LBJ Healthcare Partners LLC (“LBJ”) to make monthly payments to the Trust Fund beginning in December 2020.

On April 13, 2023, Plaintiffs filed a Complaint alleging causes of action for (1) negligence; (2) breach of fiduciary duty; (3) breach of fiduciary duty—imposition of constructive trust; (4) conversion; (5) accounting; (6) civil penalties under penal code § 496(c); (7) declaratory relief; and (8) injunctive relief.

On June 13, 2023, Plaintiffs filed its noticed motion to appoint a receiver.

On June 30, 2023, Defendants filed a Demurrer with a Motion to Strike.

On September 14, 2023, this Court overruled Defendants’ Demurrer.

On September 28, 2023, Defendants filed its opposition to Plaintiffs’ Motion to Appoint Receiver.

On October 3, 2023, Plaintiffs filed a Reply and Evidentiary Objections to Attorney Aronson’s Declaration.

Trial is set for January 3, 2024.

    II.        LEGAL STANDARD

CCP § 564(b)(1) states that “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 of the property or fund, is probable, and where it is shown that the property or fund is in danger of being lost, removed, or materially injured.”  A receiver may be appointed by the court in which an action or proceeding is pending, or by a judge thereof, after judgment, to carry the judgment into effect, or in all other cases where necessary to preserve the property or rights of any party.  (CCP § 564, subd. (b)(3) & (9).)

The moving party has the burden of showing that there is a danger of irreparable injury to the moving party and that the receivership is necessary to prevent the injury. (Alhambra-Shumway Mines, Inc. v. Alhambra Gold Mine Corp. (1953) 116 Cal.App.2d 869, 873-74.) Evidence to justify appointment may be presented in the form of allegations of pleadings, affidavit, or testimony. (Ambrust v. Ambrust (1946) 75 Cal.App.2d 272, 274.) The appointment of a receiver is a drastic remedy to be utilized only in “exceptional cases.” In determining whether to appoint a receiver, the Court considers the availability and efficacy of other remedies in determining whether to employ the extraordinary remedy of a receivership. (City & County of S.F. v. Daley (1993) 16 Cal.App.4th 734, 745.) As such, a receiver should not be appointed unless absolutely essential and because no other remedy will serve its purpose. (Id. at p. 744.) Thus, a receiver should be appointed only where “less onerous remedies would be inadequate and unavailable” and is “obviously necessary” to the protection of the opposite party. (Morand v. Superior Court (1974) 38 Cal.App.3d 347, 351.) The power should be sparingly exercised and never used in a doubtful case. (Koshaba v. Koshaba (1942) 56 Cal.App.2d 302, 314.) The appointment of a receiver rests largely in the discretion of the Court. (Daley, supra, 16 Cal.App.4th at 744; Misita v. Distillers Corp. (1942) 54 Cal.App.2d 244, 252.) Accordingly, the appointment of a receiver will not be disturbed in the absence of a showing that the Court's discretion has been abused. (Ibid.) 

  III.        RULINGS ON EVIDENCE

Plaintiffs filed four (4) objections to the declaration of Defendant Aronson.

The Court declines to rule on Plaintiffs’ evidentiary objections.  There is no authority holding that the Court must rule on an evidentiary objection made in connection with a motion other than a motion for summary judgment or an anti-SLAPP motion.

 IV.        DISCUSSION

Plaintiffs request the Court appoint a receiver to control of the approximate $300,000 Trust Fund and Accounting Records which are received and held by Defendants.  Plaintiffs demanded accounting from Defendants, which Defendants were required to promptly provide in writing to the client or other person for whom the lawyer holds funds, pursuant to RPC Rule 1.15(d)(4).  (Catanzarite Decl. ¶¶21-22, 59-63.)  However, Defendants have failed to do so and continually refuse Plaintiffs’ requests for an accounting of the monthly payments.  Plaintiffs are now concerned Defendants (1) have not properly maintained the funds in a segregated blocked account with interest, now approximately at $300,000 and (2) did not receive timely $9,000 monthly payments and failed to notify Plaintiffs of such, as required by RPC Rule 1.15.  Plaintiffs argue Defendants’ refusal to provide Accounting Records and demonstrate what banks are holding the $300,000 Trust Fund raises inferences of misconduct and raises concerns about loss of the assets. 

In opposition, Defendants argue that ordering receivership is a drastic remedy since Plaintiffs’ Complaint already seeks an injunction and the trial date is less than three months away.  Defendants also argue Plaintiffs do not provide any evidence whatsoever that they will prevail on the merits of their Complaint since it rests on the false theory that Defendants stole the trust funds in their keeping.  Defendants argue they have all the monies entrusted to them and are awaiting a final order as to where those funds should be distributed.  Defendants further argue that CCP § 564(a)(1) does not apply here because while Plaintiffs have an interest in the trust issue, Defendants do not own or have an interest in the trust funds.  Additionally, Defendants argue Plaintiffs’ Motion fails because it is based on a non-existent contract since neither the Confirmation Order nor the Chapter 11 Plan contain language constituting a contract.  Also, Defendants argue Business & Professions Code § 6091 explicitly concerns only client trust accounts, and Plaintiffs are not Defendants’ clients.  Further, Defendants argue Rule 1.15 does not apply because the account in question did not originate as a “client trust account” but as a result of a United States Bankruptcy Court order.  Furthermore, Defendants argue Plaintiffs have not demonstrated that they have any rights or property that is in any danger.  Finally, Defendants argue that no Receivership can be established because the bankruptcy case has now reopened and any disputes regarding whether the trust funds are property of the estate must be decided in Bankruptcy Court. 

In response, Plaintiffs argue their evidentiary allegations of wrongdoing are not merely conclusory because as of now, the Trust Fund balance should be approximately $330,000. Plaintiffs repeatedly requested an accounting from Defendants and Defendants have failed to do so. Plaintiffs reiterate that RPC Rule 1.15(d)(4) applies because it states Defendants are required to promptly provide in writing to the client or other person for whom lawyer holds funds an accounting of the funds. Defendants’ failure to provide accounting has caused Plaintiffs concern that Defendants have not properly maintained funds in a segregated account with interest, now at $330,00 ($30,000 of interest due), did not receive timely $9,000 monthly payments, and failed to notify Plaintiffs thereof.  Plaintiffs assert that Defendants’ one page Wells Fargo Account Statement (Opp., Exh. 2) shows Defendants came up with the $295,475.40 (without interest) in September 2023, right when the bankruptcy case reopened, suggesting Defendants only recently came up with that figure.  Further, Plaintiffs argue Defendants have not provided any evidence of when or how the funds in Exh. 2 were received and used from December 15, 2020 to September 26, 2023.  Finally, Plaintiffs argue that the pending bankruptcy case does not block the appointment of receiver and Cutter is distinguishable in the instant matter because this is not a Chapter 7 case.  

Here, Plaintiffs have sufficiently shown that a danger of irreparable injury exists.  Attorney Aronson is a trustee appointed by the Bankruptcy Court.  As such, Attorney Aronson is subject to Rule 1.15(d)(4) and B&P § 6091.  Rule 1.15(d)(1) states a lawyer who is safekeeping funds and property of clients and other persons must notify the client or other person no later than 14 days of receipt of funds, securities, or other property in which the lawyer knows or reasonably should know that the client or other person has an interest.  Based on the evidence before this Court, Defendants have refused to do so.  Further, at the client’s written request, the attorney shall furnish the client a complete statement of the funds received and disbursed and any charges upon the trust account within 10 calendar days after receipt of request.  (Bus. & Prof. Code § 6091.)  While Plaintiffs have not presented any evidence of written requests served upon Defendant asking for accounting, Defendants still are in breach of RPC Rule 1.15(d) because they have not provided Plaintiffs with any evidence of receipt of funds from LBJ in the Trust Account.  The only evidence of accounting comes from Defendants’ Opposition Exhibit 2, a Wells Fargo Bank Statement dated September 27, 2023. (Opp., Exh. 2.)  The bank statement has the same date in which the U.S. Bankruptcy case was reopened.  (Opp., Exh. 1.) 

Further, Defendants’ argument that a receivership cannot be established because it is now blocked by the pending bankruptcy case is meritless.  In the instant matter, Plaintiffs’ claims do not affect the debtor’s rights in any way because they are claims against Attorney Aronson arising out of his independent duty to hold payments in the trust.

Since Defendants have failed to comply with Plaintiffs’ requests for accounting of the Trust Fund and Defendants’ opposition does not make representations as to future compliance, the Court thus finds that at this stage, Plaintiffs have sufficiently shown a danger of irreparable injury.

There do not appear to be alternative remedies available in the instant circumstances that would address Plaintiffs’ concerns. 

   V.        CONCLUSION

The motion is GRANTED.

Moving Party is ORDERED to give notice.

DATED: October 10, 2023

___________________

Lee Tsao

Judge of the Superior Court