Judge: Malcolm Mackey, Case: BC717394, Date: 2023-05-10 Tentative Ruling
Case Number: BC717394 Hearing Date: May 10, 2023 Dept: 55
KOENIG
v. CENTRALIA APARTMENTS, BC717394
Hearing Date: 5/10/23,
Dept. 55.
#8:
2.
MOTION FOR RECONSIDERATION OF ORDER
APPOINTING RECEIVER.
3.
RECEIVER’S APPLICATION FOR INSTRUCTIONS
REGARDING DUTIES, AUTHORITY, COMPENSATION, AND BOND.
Notice: Okay
Opposition
MP:
1. Defendants
CENTRALIA APARTMENTS; CENTRALIA LIMITED INVESTORS; PIONEER LIMITED INVESTORS,
LP; CENTRALIA G.P., LLC; INAMERICA
HOLDINGS, LLC; DEBRA L. DUGGAN; and PROLAND MANAGEMENT COMPANY LLC.
2. Defendants
3. Kevin
Singer, Superior Court Receiver.
RP:
1. Plaintiffs
MICHAEL
N. KOENIG, LAUREN M. KOENIG; and Kevin
Singer, Superior Court Receiver.
2. Plaintiffs.
3. Defendants
Summary
On 8/10/18, plaintiffs MICHAEL N. KOENIG, LAUREN M.
KOENIG, individually and derivatively on behalf of CENTRALIA LIMITED INVESTORS,
LP, filed a Complaint.
On 12/12/22, plaintiffs filed a Fourth Amended Complaint,
alleging: Plaintiffs are limited
partners and co-owners of a 10.986% interest in CENTRALIA LIMITED INVESTORS,
LP. Defendant, DONALD E. HOLLINGSHEAD
was, before his passing and ensuing Probate proceedings, an individual who was
the shareholder/member, President and a director of the General Partner or
acting General Partner of CENTRALIA APARTMENTS, CENTRALIA LIMITED and PIONEER
28 LIMITED. After this action was filed,
HOLLINGSHEAD filed his own action (LASC
Case No. 19STCV05411) against DEBRA DUGGAN, PROLAND MANAGEMENT COMPANY, LLC,
CENTRALIA GP, LLC, INAMERICA HOLDINGS, LLC and other Defendants from multiple
partnerships, alleging that DUGGAN and her late
husband, RONALD GREGG, through PROLAND MANAGEMENT, engaged in a series of
financial and management misconduct that resulted in HOLLINGSHEAD losing his
partnership interests in numerous properties with an estimated value of over
$100 million. Defendant DUGGAN created
multiple entities, including CENTRALIA GP, INC, CENTRALIA GP, LLC, and
INAMERICA HOLDINGS, LLC, in order to shield herself from potential liability
going forward with the ACQUISITION AGREEMENT dated 4/10/15, DUGGAN entered into
with HOLLINGSHEAD and HOLLINGSHEAD MANAGEMENT, for the allegedly illegal
purchase by DUGGAN of the alleged General Partnership interests in the various
Partnerships that are the subject of Hollingshead v. Duggan.
As part of an illegal and improper ACQUISITION AGREEMENT, DUGGAN, and
her illegal and improper entities, agreed with HOLLINGSHEAD to purchase Limited
Partners' interests at a reduced price through the use of the familiar PRO LAND
in an attempt to reduce their future exposure. Without Limited Partners’
approval, HOLLINGSHEAD and DEBRA and each alter ego, effectuated the
ACQUISITION AGREEMENT, to self-deal to usurp Partnership opportunity. A 1972 CENTRALIA LIMITED PARTNERSHIP
AGREEMENT was breached by HOLLINGSHEAD and DEBRA including by failing to
distribute Profits and Losses. A 2005 CENTRALIA LIMITED PARTNERSHIP AGREEMENT
was breached by HOLLINGSHEAD and DEBRA, such as by failing to terminate the
Partnership as of 12/15/15, diverting yearly rental income and failing to
obtain 51% approval of the Limited Partners on refinance loans. A 2015 CENTRALIA LIMITED PARTNERSHIP
AGREEMENT was breached by HOLLINGSHEAD
and DEBRA wrongfully omitting the obligation to Share Profits to Limited
Partners, et cetera.
The causes of action are
:
1. BREACH OF PARTNERSHIP
AGREEMENTS;
2. BREACH OF FIDUCIARY
DUTY;
3. BREACH OF FIDUCIARY
DUTY;
4. CONVERSION;
5. CONVERSION;
6. DECLARATORY RELIEF;
7. DISSOLUTION OF
CENTRALIA LIMITED;
8. BREACH OF
CONTRACT (DERIVATIVELY ON BEHALF OF
CENTRALIA LIMITED INVESTORS, LP AGAINST CENTRALIA APARTMENTS );
9. BREACH OF FIDUCIARY
DUTY;
10. CONVERSION;
11. FRAUD;
12. DECLARATORY RELIEF;
13. DISSOCIATION OF
GENERAL PARTNER OF CENTRALIA LIMITED;
14. DISSOCIATION OF
GENERAL PARTNER OF CENTRALIA APARTMENTS;
15. DISSOLUTION OF
CENTRALIA APARTMENTS.
MP
Positions
Buyout
Moving parties request an order for buyout of a
limited partnership, as to the plaintiffs’ Seventh Cause of Action dissolution
of CENTRALIA LIMITED, on grounds including the following:
·
Defendant PROLAND is the largest holder of
interests in Centralia Limited, and thus has an absolute right under the Code
to effectuate a statutory buyout of Plaintiffs’ interests, and thereby resolve
any claim for dissolution.
·
Corporations Code Section 15908.02 does
not provide Plaintiffs with a right to object or a basis to reject a statutory
buyout, once the price is set by the Court.
·
The procedure, dictated by the Code, is
uncomplicated and can quickly be accomplished after three appraisers, appointed
by the Court, recommend to the Court a “fair market value” for purchase of the
Plaintiffs’ interest.
·
The cited case, Goles, distinguishably had
the valuation was based on a “fair value” instead of a “fair market value,”
because it involved a corporation, and so the valuation was based on Section
2000, rather than the section applicable to a limited partnership-- Section 15908.02.
Reconsideration
Moving parties request an
order reconsidering the receiver appointment, on grounds including the
following:
·
The receivership
order was erroneously granted upon pleadings and hearsay that constituted
judicial error. The predecessor Judge
erroneously referenced the operative complaint as being verified.
·
Appointing a
receiver is an extraordinary order and must be supported by a verified
complaint or affidavits. (See: e.g., McNeil v Graner (1949) 92 Cal.App.2d 371,
373.)
·
A trial court
has authority to reconsider an order, on its own motion, to correct error. Le Francois v. Goel (2005) 35 Cal.4th 1094,
1108.
·
Defendant Proland
filed an application for a statutory buyout, and so the appointment of a
receiver is moot. A receivership is a remedy that should not be employed where
a remedy less drastic in its nature and scope is available that will adequately
protect the rights of the litigants. (Golden State Glass Corp. v. Superior Ct.
(1939) 13 Cal.2d 384, 393).
·
After demurrers
were sustained, plaintiffs’ abandoned their fraud claim, and the Fourth Amended
Complaint was filed after the Court’s November 30, 2022 Ruling, which is a new
fact that justifies the request for reconsideration under Section 1008.
·
The receiver has
filed documents in which he makes improper accusations against Defendants and
their counsel, which risk influencing the Court against Defendants. Such
conduct is egregious from a purportedly neutral party.
Receiver
Instructions
The appointed receiver
request an order of instructions, regarding duties, authority, compensation,
and bond, included in the proposed order, on grounds including the following:
·
The appointed
Receiver is duty-bound to seek instructions from the Court, in light of the ambiguous
Appointing Order of 11/30/22.
·
The Appointing
Order was silent or ambiguous with respect to the Receiver’s duties, authority,
compensation including hourly rate, and bond amount.
·
The Appointing
Order, page 40, states, in pertinent part, “The Court APPOINTS Kevin A. Singer
as Receiver for the purpose of managing and protecting the affairs and interest
of Centralia Limited and its Limited Partners as to Centralia Apartments and
peripheral matters.”
·
Plaintiffs’
counsel communicated that the Receiver’s appointment included management of the
64-unit apartment complex known as Centralia Apartments, but Defendants’
counsel stated his belief that the appointment solely concerned the Centralia
Limited entity and did not include management of the Property.
·
The defendants’
accusations against the Receiver are incorrect.
For instance, the Receiver did not seek to expand the scope of his
appointment. At no time in this matter
has the Receiver showed “open hostility” toward Defendants or their counsel,
nor has he made any false or inflammatory accusations against them.
·
The Receiver is
a neutral agent of the Court and takes no position regarding the propriety of
his appointment.
RP
Positions
Buyout
Opposing parties advocate denying, for reasons including
the following:
·
Movants failed to establish the elements
required under Corporations Code, § 15908.02, since the Partnership Agreement expired
December 15, 2015, and movants lack a majority interest since in 2015 their interest
was 9.463%, in Centralia Limited.
·
Applicable law is Goles v. Sawhney, (2016)
5 Cal.App.5th 1014, 1018-1021 (derivative claims like Centralia Limited's
considered in arriving at a "fair market value"); Siry Investment, L.P. v. Saeed Farkhondehpour,
(2022) 13 Cal.5th 333; and Penal Code, § 496 trebling of damages to Centralia
Limited and the unavailability to use a lack-of- control discount.
·
Debra Duggan's Declaration is unrebutted
in proving the expiration of the Centralia Limited Partnership Agreement on
December 31, 2015, and failures to make distributions.
·
Movants failed to rebut the Court's
appointment of a Receiver, and Orders of November 30, 2022 and December 8,
2022, to protect the further waste of Centralia Limited' s interest in Centralia
Apartments.
·
Corporations Code, § 15908.02 and its
interpretative case law establish rules of a potential buyout that would
include Centralia Limited' s derivative claims alleged in the complaint. See Goles v. Sawhney, (2016) 5 Cal.App.5th
1014, 1018-1021 and Schrage v. Schrage, (2021) 69 Cal.App.5th 126, 152-58.
·
Movants rely on Cheng v. Costa/ L.B.
Associates, (2021), 69 Cal.App.5th 112, to argue it permits a lack of control
discount in determining the fair value of minority shareholder interests, but
distinguishably that did not involve derivative claims.
Reconsideration
Opposing parties advocate
denying reconsideration of receiver appointment, and issuing an Order to Show
Cause Re: Sanctions against the Duggan
Defendants and Tucker & Ellis for their Intentional and Willful Failure to
comply with Code of Civil Procedure,
Section 1008, for reasons including the following:
·
The 11/30/22
ruling appointing, sufficiently included the following:
o The 2015 Centralia Apartments Partnership Agreement
is not signed by the General Partner.
o No distributions of net rental income have been paid
to and through Centralia Limited and its Limited Partners.
o No distributions have been made to Centralia Limited
from the 2015 and 2019 loan Refinancing.
·
The Court
properly could appoint the Receiver to insure that Centralia Limited's interest
in Centralia Apartments is properly protected.
·
The absence of a
declaration from Debra Duggan means there is no competent evidence establishing
"new or different facts, circumstances or law." Declarant Mr. Kaplan is not a percipient
witness to the operation of Centralia Limited and Centralia Apartments,
especially as to hearsay of Mr. Hollingshead's conduct between 1972 to 2005.
·
The reconsideration request contains exhibits,
whereas the opposition to the receiver appointment had no exhibits.
·
At no time did
the Hon. David Sotelo connect the Motion for Buyout to the Court’s appointment
of the receiver.
·
Defendants filed
a Motions for Reconsideration December 14, 2022, within the ten day statutory
timeframe in Code of Civil Procedure,§ 1008(a), and another one on March 14,
2023, outside of the ten day statutory deadline.
·
Despite
Defendants’ unfounded allegations of bias, the Receiver will always remain
neutral in this case.
Receiver Instructions
Opposing parties advocate
denying, for reasons including the following:
·
Over 4 years
after filing this lawsuit, Plaintiffs sought appointment of a receiver over:
(1) all of the assets of the entity in which they each hold less than 5%
limited partnership interests (defendant Centralia Limited Investors, LP; (2) a
separate general partnership in which they are not partners at all (defendant
Centralia Apartments); and, (3) Centralia Apartments’ primary asset-- a 64 unit
apartment complex.
·
The appointment
order of 11/30/22 included Centralia Limited, but not Centralia Apartments or
the apartment complex.
·
There were
conflicting orders regarding the receivership.
·
The appointment
order mistakenly relied on “verified” allegations in a complaint that was not
verified.
·
Proland filed an
Application for a Statutory Buy-Out (which triggers an automatic stay).
·
The Receiver’s
breached of his duty of neutrality, including by filing this disguised motion
for reconsideration for expanding the scope of authority in favor of
plaintiffs.
·
Defendant’s
motion for reconsideration of the appointment of the receiver instead should be
granted.
·
The stay on
activities of the receiver should remain until the statutory buyout process is
completed, at which time the continued viability of Plaintiffs’ claim for a
right to a receiver could be properly evaluated.
Tentative
Ruling
The Defendants’ Application For Statutory Buyout
Pursuant To California Corporations Code Section 15908.02 is denied.
The Motion For Reconsideration Of Order Appointing
Receiver is denied.
The Receiver’s Application For Instructions Regarding
Duties, Authority, Compensation, And Bond, is granted as prayed.
The opposing request for an order to show cause re
sanctions is denied, in the Court’s discretion.
Buyout
The First Amended Complaint is not suitable for a
statutory buyout, including because plaintiffs’ allegations, arguments and
proof include arguments made in the alternative, that the subject partnership
agreement expired in 2015 such that several subsequent agreements are void, or
that the partnership exists and should be dissolved. (see, e.g.,
opp. filed 1/10/23 by plaintiffs to buyout motion, 10:2 (“the Motion does NOT include a Partnership
Agreement because the Partnership has expired, Corporations Code,§ 15908.01
(a).”)).
Hence, appraisers would be unable to soundly ascertain
a fair market value of the subject partnership interests, while the contested
allegations are still pending, which could result in unpredictable findings
about the partnership and its assets. Appraisers
likely would notify the Court of such obstacles to appraisals, upon discovering
them, as has happened in other cases having unresolved issues related to
appraisals.
Generally, complainants properly may plead, in the
alternative, inconsistent facts or theories.
Crowley v. Katleman (1994) 8 Cal. 4th 666, 690; Adams v. Paul (1995) 11 Cal.4th
583, 593. “[E]ach count stands on its
own allegations, unaffected by those contained in other counts." Penziner v. West American Finance Co.
(1933) 133 Cal. App. 578, 582.
Corporations Code Section 15908.02 is a discretionary
procedure, and provides as follows:
“(a) On application by a
partner, a court of competent jurisdiction may order dissolution of a
limited partnership if it is not reasonably practicable to carry on the
activities of the limited partnership in conformity with the partnership
agreement.
“(b) In any suit for
judicial dissolution, the other partners may avoid the dissolution of the
limited partnership by purchasing for cash the partnership interests owned by
the partners so initiating the proceeding (the ‘moving parties') at their fair
market value. In fixing the value, the amount of any damages resulting if the
initiation of the dissolution is a breach by any moving party or parties of an
agreement with the purchasing party or parties, including, without limitation,
the partnership agreement, may be deducted from the amount payable to the
moving party or parties.
“(c) If the purchasing
parties (1) elect to purchase the partnership interests owned by the moving
parties, (2) are unable to agree with the moving parties upon the fair market
value of the partnership interests, and (3) give bond with sufficient security
to pay the estimated reasonable expenses, including attorneys' fees, of the
moving parties if the expenses are recoverable under paragraph (3) [sic ], the
court, upon application of the purchasing parties, either in the pending action
or in a proceeding initiated in the superior court of the proper county by the
purchasing parties, shall stay the winding up and dissolution proceeding and
shall proceed to ascertain and fix the fair market value of the partnership
interests owned by the moving parties.
“(d) The court shall
appoint three disinterested appraisers to appraise the fair market value of the
partnership interests owned by the moving parties, and shall make an order
referring the matter to the appraisers so appointed for the purpose of
ascertaining that value. The order shall prescribe the time and manner of
producing evidence, if evidence is required. The award of the appraisers or a
majority of them, when confirmed by the court, shall be final and conclusive
upon all parties. The court shall enter a decree that shall provide in the
alternative for winding up and dissolution of the limited partnership unless
payment is made for the partnership interests within the time specified by the
decree. If the purchasing parties do not make payment for the partnership
interests within the time specified, judgment shall be entered against them and
the surety or sureties on the bond for the amount of the expenses, including
attorneys' fees, of the moving parties. Any member aggrieved by the action of
the court may appeal therefrom.
“(e) If the purchasing
parties desire to prevent the winding up and dissolution of the limited
partnership, they shall pay to the moving parties the value of their partnership
interests ascertained and decreed within the time specified pursuant to this
section, or, in the case of an appeal, as fixed on appeal. On receiving that
payment or the tender thereof, the moving parties shall transfer their
partnership interests to the purchasing parties.
“(f) For the purposes of
this section, the valuation date shall be the date upon which the action for
judicial dissolution was commenced. However, the court may, upon the hearing of
a motion by any party, and for good cause shown, designate some other date as
the valuation date.”
Panakosta, Partners, LP v. Hammer Lane
Mgmt., LLC (2011) 199 Cal. App. 4th 612, 619. [Emphasis added.]
Reconsideration
On 11/30/22, the predecessor Judge, appointing the
receiver, made a long, well-reasoned decision, supported by references to other
documentation, which was not confined to an unverified complaint as the supporting
bases.
This trial Court’s authorized role is not to
reconsider argued errors made by other judges.
Issues of judicial error do not support motions for relief under Code of
Civil Procedure Section 473, or reconsideration, but instead the prescribed
remedy is to file a notice of appeal. Lavrischeff v. Blumer (1978) 77
Cal. App. 3d 406, 411. Disagreement with
a ruling is not a new fact that will support the granting of a motion for
reconsideration. Gilberd v. AC Transit (1995) 32 Cal.App.4th 1494,
1500.
Additionally, the receiver has disputed moving
parties’ criticisms against the receiver, and the Court resolves the disputes
to find in favor of the ongoing appointment.
Further, the buyout is not a new fact for
reconsideration, because it postdates the original ruling, and also this Court
denies the buyout motion.
Motions for reconsideration must be made within 10
days after service of written notice of entry of the order, extended under Code
of Civil Procedure Section 1013(c) where service was by mail, fax or overnight
delivery. Forrest v. Dept. Of Corps. (2007) 150 Cal.App.4th 183, 203, disapproved on other grounds by Shalant
v. Girardi (2011) 51 Cal. 4th 1164, 1172.
"A motion for reconsideration may only be brought if the party
moving for reconsideration can offer 'new or different facts, circumstances, or
law' which it could not, with reasonable diligence, have discovered and
produced at the time of the prior motion....
A motion for reconsideration will be denied absent a strong showing of
diligence." Forrest v. Dept. Of
Corps. (2007) 150 Cal.App.4th 183,
202, disapproved on other grounds by Shalant
v. Girardi (2011) 51 Cal. 4th 1164, 1172.
See also Baldwin v. Home Sav. of Am. (1997)
59 Cal. App. 4th 1192, 1199 (noting that 1992 amendment to CCP §1008 tightened
diligence requirements). “[M]otions to
reconsider allow the trial court to consider new facts or law relevant
to its order….” Morton v. Wagner
(2007) 156 Cal. App. 4th 963, 973 (dictum).
[Emphasis added.] Cf. also Wiz Tech., Inc. v. Coopers
& Lybrand (2003) 106 Cal. App. 4th 1, 17-18 (no relevant basis for reconsideration
shown).
Further, the Court will not reconsider on its own
motion, because no material change in the ruling would result. Judges' reconsideration, on their own
motions, must be based on the evidence originally submitted. In re Marriage of Barthold (2008) 158
Cal.App.4th 1301, 1314. Here, moving parties argue some
after-occurring facts beyond evidence originally submitted.
As for the opposing request for an order to show
cause: “Subdivision (d) of section 1008
provides that: ‘(d) A violation of this section may be punished as a contempt
and with sanctions as allowed by Section 128.7.’”In re Marriage of Barthold
(2008) 158 Cal.App.4th 1301, 1314 n.12.
[Emphasis added.]
Receiver Instructions
The Court finds that the Receiver’s requests for
clarification are well-taken, including because the predecessor Judge’s ruling
was clear enough to show those intentions, notwithstanding that the ruling
could have been written with more detail.
For example, the appointment order inferentially included the
apartments, as “peripheral matters.”
Until judgment is entered, a court has authority to
change its statement of decision pursuant to a motion for clarification
that does not amount to request for reconsideration. Bernstein v. Consolidated Am. Ins.
Co. (1995) 37 Cal.App.4th 763, 774 (motion for clarification appropriate
where minute order denying motion for summary adjudication failed to comply
with requirements of CCP §437c(g), and court acted sua sponte in correcting
while not reconsidering), disapproved on
other grounds by Vandenberg v.
Sup. Ct. (1999) 21 Cal.4th
815, 841 n.13.