Judge: Mark A. Young, Case: 24SMCV01185, Date: 2024-04-30 Tentative Ruling
Case Number: 24SMCV01185 Hearing Date: April 30, 2024 Dept: M
CASE NAME: Art Center
Holdings, Inc., et al., v. WCE CA Art LLC, et al.
CASE NO.: 24SMCV01185
MOTION: Motion
to Appoint Receiver
HEARING DATE: 4/30/2024
Legal
Standard
Code of Civil Procedure section
564 provides that “[a] receiver may be appointed, in the manner provided in
this chapter, by the court in which an action or proceeding is pending in any
case in which the court is empowered by law to appoint a receiver.” Subsection (b)
lists the circumstances under which a receiver may be appointed: (1) in actions by a joint owner in any
property or fund where it is shown that the property or fund is in danger of
being lost, removed, or materially injured; (2) in actions by a secured lender
for foreclosure of a deed of trust or mortgage where it is shown that the property
or fund is in danger of being lost, removed, or materially injured; (3) after
judgment, to carry the judgment into effect; (4) after judgment, to dispose of
property according to the judgment; (5) in actions where a corporation has been
dissolved; (6) where a corporation is insolvent or otherwise forfeited its
corporate rights; (7) in actions for unlawful detainer; (8) at the request of
the Public Utilities Commission; and (9) in all other cases where necessary to preserve the
property or rights of any party.
A receivership is a “harsh” remedy,
and thus is available only where a more “delicate,” alternative remedy (such as
an injunction, writ of possession, attachment, provisional director, lis
pendens) is inadequate. (City & County of San Francisco v. Daley
(1993) 16 Cal.App.4th 734, 745.) In other words, receivership should not be imposed
unless no other remedy will do the job.
(See Id., [receiver properly
appointed to repair residence maintained so poorly as to constitute a public
nuisance, after owners “repeatedly thumbed their noses” at efforts to compel
them to correct code violations and one owner had been jailed for contempt for
disobeying earlier court orders]; Medipro Med. Staffing LLC v. Certified
Nursing Registry, Inc. (
) 60 Cal.App.5th 628 [appointment of
receiver to enforce money judgment reserved for “exceptional” circumstances
such as “when the judgment debtor has frustrated the judgment creditor's
collection efforts through obfuscation or through otherwise contumacious
conduct that has rendered feckless the panoply of less intrusive mechanisms for
enforcing a money judgment”].) Admissible evidence that clearly establish a
receiver is necessary to protect the property and maintain the status quo. (Barclay
Bank of California v. Superior Court (1977) 69 Cal. App. 3d 593, 597; Daley,
supra, 16 Cal.App.4th at 744.) As the appointment of a receiver is an equitable remedy, there
must also be a showing of irreparable injury. (Alhambra-Shumway Mines, Inc.
v. Alhambra Gold Mine Corp. (1953) 116 Cal.App.2d 869, 872.)
In the context of corporate disputes,
“[t]rial courts have wide and broad discretion in appointment of receivers to
take over the operation of a business.” (Barber v. Lewis & Kaufman, Inc.
(1954) 125 Cal.App.2d 95, 99.) Receivers may be appointed not only in
dissolution actions, but also in situations where “[d]issensions, honest differences
of opinion, which result in making it impossible for the corporation to carry
on its business to advantage . . ..” (Boyle v. Superior Court of City and
County of San Francisco (1917) 176 Cal. 671, 674.) In Misita,
the appellate court affirmed the trial court’s appointment of a receiver in a
business dispute where a member of a corporation’s board of directors sought 1)
removal of a director and 2) appointment of a receiver pendente lite. (Misita
v. Distillers Corp. (1942) 54 Cal.App.2d 244, 246.) The receiver was
appointed specifically to “control the business of the corporation, to preserve
its assets, and protect the rights of the complaining stockholders . . ..” (Id.
at 252.) In affirming the appointment, the appellate court noted that even
though the corporation was solvent, the trial court still had inherent power to
appoint a temporary receiver on the ground that fraud or gross mismanagement
exists “as to make it impossible for the corporation to carry on its business
to advantage.” (Id. at 252.) The court noted that “[t]his power will not
be exercised in a doubtful case; and the remedy being a drastic one, only in
case of an urgent necessity, where there is no other adequate remedy, will a
receiver be appointed for such corporation.” (Id.)
In Sibert v. Shaver (1952) 113 Cal.App.2d 19, the
appellate court affirmed the trial court’s appointment of a receiver in an
action against a defendant member of a partnership where defendant allegedly
threatened to spend the entirety of the partnership proceeds and “go bankrupt
before he would account” to the plaintiffs. (Id. at 21.) The receiver
was appointed in part to take possession of the records and assets of the
partnership, as well as manage and operate the business. (Id. at 20 –
21.) Specifically, the court noted that an appointment was proper “to preserve
the property during the pendency of the appeal.” (Id. at 22.)
In Golden State Glass Corp. v. Superior Court of Los
Angeles County (1939) 13 Cal.2d 384, majority stockholders of a corporation filed suit against
the corporation, and the trial court appointed a receiver for the corporation
solely based upon allegations in the complaint. (Id. at 387.) The
court held that although the corporation was deadlocked due to dissension and
distrust between its directors, it was not proper to appoint a receiver in the
action because the corporation was solvent and continued “conducting the business
of the corporation.” (Id. at 395-396.) “Stronger proof is essential
to justify a receivership where specific and detailed evidence that the
corporation's business is being successfully conducted at a profit is presented
in opposition thereto.” (Id.) “Even if there is dissension in corporate
management a receiver should not be appointed where no actual or threatened
cessation or diminution of business operations is shown.” (Id. at 394.)
Appointment of Receiver
“‘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.) “‘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].’” (CRC, rule 3.1179(a).) The
receiver is obligated to preserve and manage the property during the
receivership. “The 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.” (CCP § 568.)
Persons who can qualify for the
appointment are defined by statute in negative terms. The following persons may
not be appointed: A party, attorney to the action, or person related to a judge
of the court within the third degree. Anyone else who is qualified can be
appointed. (CCP § 566.) Each party may nominate in writing one or more
persons for appointment as receiver. (CRC 3.1177(a).)
Two separate bonds may be
required: a) a discretionary bond by plaintiff, where the appointment, if
erroneous, would damage the defendant; and b) a receiver’s bond, which the receiver
must post before he or she enters upon performance of their duties. (CCP § 567.)
EVIDENTIARY ISSUES
The objections to the April 10, 2024, Surrey Declaration
are SUSTAINED as to nos. 3, 5-10, 15, 18, 21-22, 28, 30-31, and 35 as to the
legal conclusions stated therein, but not to his understanding or reasoning for
his own actions. The remainder are OVERRULED.
The objections to April 10, 2024, Supplemental
Declaration of Hal Danzer, M.D. are OVERRULED.
The objections to the April 10, 2024, Supplemental
Declaration of Carolyn Alexander, M.D. are OVERRULED.
The objections to April 10, 2024, Supplemental
Declaration of Howard B. Grobstein, M.D, are SUSTAINED. The expert opinions
expressed therein lack adequate foundation per ¶ 19 (the relied-upon records
“are incomplete and are not reliable due to lack of detail and data”).
The objections to the Slade Declaration are OVERRULED.
The objections to the Arroyo Declaration are OVERRULED.
The objections to the Bower Declaration are OVERRULED.
The objections to the Kuroki Declaration are OVERRULED.
The objections to the McHorney declaration are OVERRULED.
There is also
a motion to seal which has been filed, but not been placed on calendar. The Court will discuss that issue at the
hearing.
Analysis
Plaintiffs Art Center Holdings, Inc., for itself and derivatively
on behalf of WCE CA Art, LLC; Roxbury Surgery Holdings, Inc., for itself and derivatively
on behalf of Roxbury
Surgery
Center, LLC; Mark Surrey, M.D., as Trustee of the Mark W. Surrey Trust dated
December 28, 2004 and derivatively on behalf of SCRC Medical Group, P.C.; Hal
C. Danzer, M.D.; Carolyn Alexander, M.D.; Lina Akopians, M.D.; and Jason
Barritt, Ph.D. (“Plaintiffs”) move for the appointment of a receiver to take over
and manage non-clinical business operations of Roxbury Surgery Center, LLC, (“Roxbury
LLC”), WCE CA Art LLC ( “WCE CA Art”), and SCRC Medical Group, P.C. (“SCRC”)
(the “Receivership Entities”). These entities are currently owned and operated
by Defendants Women’s Care Holdings, Inc.; Women’s Care Enterprises, LLC; WCE
SCRC, LLC; WCE CA Fertility, Inc.; Physician Business Services, LLC (“Defendants”).
(CCP § 564(b)(1), (9).) Plaintiffs argue that the court must install a receiver
to avoid several disasters for the business, including regulatory
non-compliance, criminal corporate
practice of medicine, continuing failure to abide by corporate formalities, and
Defendants’ self-dealing.
Unlicensed
Practice of Medicine
Plaintiffs assert that a receiver is necessary to guard
against adverse regulatory and criminal actions against the Receivership Entities
because Defendants have caused the entities to unlawfully practice medicine. Plaintiff
contends that WCE engages in the unlicensed practice of medicine by forcing a
forfeiture of Dr. Surrey’s shares in the clinical entity, SCRC, and through
their unlawful installation of Dr. Helen Kuroki as their Chief Medical Officer.
They reason that Dr. Kuroki’s installation was a voidable attempt to overrule
Dr. Surrey’s clinical judgment. In
response, Defendants contend that their contract allow them to remove Dr.
Surrey as the owner of SCRC PC upon termination of the Consulting Agreement, so
long as the ownership was transferred to another California-licensed doctor. However,
the entire record, including Defendants’ arguments and cited evidence, reveal
that Defendants have overstepped their authority and made clinical decision otherwise
reserved for physicians.
California law generally prohibits
unlicensed persons from practicing, advertising, or holding themselves out as
practicing “any system or mode of treating the sick or afflicted” or
diagnosing, treating, operating for, or prescribing for any ailment, blemish,
deformity, disease, disfigurement, disorder, injury, or other physical or
mental condition of any person. (Bus. & Prof. Code § 2052(a).) Physicians are
also prohibited from employing, aiding, or abetting any unlicensed person “to
engage in the practice of medicine or any other mode of treating the sick or
afflicted which requires a license to practice.” (Bus. & Prof. Code §§ 125,
2264.) Physicians who allow their license to be used by a non-physician, or who
acts as the agent or partner of a non-physician with the intent to aid or
assist the non-physician in the unlicensed practice of medicine, is guilty of a
misdemeanor and subject to professional discipline. (Id.)
California law permits physicians
to conduct their medical practices through medical corporations or partnerships,
so long as all the entities’ shareholders, partners, and employees rendering
professional services are themselves licensed. (People ex rel. Allstate Ins. Co. v. Discovery Radiology
Physicians, P.C., (2023)
94 Cal. App. 5th 521, 533-543 (“Discovery Radiology”); see Bus.
& Prof. Code §§ 2402, 2406, 2415, 2416; Corp. Code, §§ 13401, 13405; see also
Lathrop v. HealthCare Partners Medical Group (2004) 114 Cal.App.4th 1412,
1420-1421.) Non-physician owned
corporations may manage non-medical, business aspects of a physician's practice
without violating the Medical Practice Act. (Epic
Medical Management, LLC v. Paquette (2015) 244 Cal.App.4th 504, 517–518 (Epic).)
“[F]or-profit corporations—other than licensed medical corporations—are
still barred from providing medical care through either salaried employees or
independent contractors.” (People v. Cole (2006) 38 Cal.4th 964, 970–971.)
“[A] violation of the Act occurs
if a non-physician exercises ‘control or discretion’ over a medical practice.”
(Discovery Radiology, supra, 94 Cal.App.5th at 535, citations omitted;
citing Epic, supra, 244 Cal.App.4th at 517; People v. Superior Court
(2013) 218 Cal.App.4th 492, 498 (“Cardillo”).) “Whether a contractual relationship between a physician
and a non-licensee results in the non-licensee's unlicensed practice of medicine
requires a legal interpretation of the substantive provisions of the agreement.
The issue turns on whether the non-licensee exercises
or has retained the right to exercise control or discretion over the
physician's practice.” (Epic,
supra, 244 Cal.App.4th at 517 [“strict delineation” between the medical
elements and non-medical elements of practice met where management company
exercised “no control” over the doctor’s practice].)
In the 2023 case of Discovery Radiology, the
Second District Court of Appeal surveyed the above caselaw, the above regulations,
as well as the opinions of regulators, and held that an alleged business
model with a non-physician owning and playing a role in
medical corporations involved the unlicensed practice of medicine. (Discovery
Radiology, supra, 94 Cal.App.5th at 533-541.) The Discovery Radiology court relied, in part, on
the opinions of the California Medical Board and California Attorney General to
be relevant authorities on the matter. “The Attorney General noted that,
as general rule, a corporation may neither engage in the practice of medicine
directly, nor may it do so indirectly by
engaging [physicians] to perform professional services for those with whom the
corporation contracts to furnish such services.” (Id. at 535, citing 65
Ops.Cal.Atty.Gen. 223 (1982), quotations omitted.) The court further cited to the
California Medical Board’s guidance to practitioners regarding the delegation
of practice management to non-physicians:
“[T]he following
‘business’ or ‘management’ decisions and activities, resulting in control over
the physician's practice of medicine, should be made by a licensed California
physician and not by an unlicensed person or entity: ...
• Selection,
hiring/firing (as it relates to clinical competency or proficiency) of
physicians, allied health staff and medical assistants;
• Setting the
parameters under which the physician will enter into contractual relationships
with third-party payers;
• Decisions
regarding coding and billing procedures for patient care services; and
• Approving of the
selection of medical equipment and medical supplies for the medical practice.
…[T]he above decisions and activities “cannot be delegated
to an unlicensed person, including (for example) management service
organizations. While a physician may consult with unlicensed persons in making
the ‘business’ or ‘management’ decisions described above, the
physician must retain the ultimate responsibility for, or approval of, those
decisions … a non-physician may not own[ ] or operat[e] a business that
offers patient evaluation, diagnosis, care and/or treatment,” and a management
service organization may not arrang[e] for, advertis[e], or
provid[e] medical services rather than only provid[e]
administrative staff and services for a physician's medical practice (non-physician exercising controls over a physician's medical
practice, even where physicians own and operate the business).”
(Id. at 537-538, quotations and citations omitted.)
Applying the above law to the facts of Discovery
Radiology, the Second District reversed the trial court’s finding
and held the complaints alleged a business model that had “an unlawful degree of control by non-physicians over the medical
corporations’ provision of diagnostic radiology services.” (Id. at 539-541.) The Discovery Radiology court noted that “a
non-licensed individual need not examine a patient or render a medical
diagnosis to engage in the unlicensed practice of medicine—to the contrary, a non-physician unlawfully practices medicine if he or she
exercises undue control over a medical practice. A non-physician undoubtedly exercises undue control by owning a medical practice,
but may also exercise such control in a variety of other ways,
including by choosing physicians to provide medical services, selecting medical
equipment, determining the parameters of physicians’ employment, including case
load and compensation, and making billing decisions.” (Id. at 539.)
“[A]lthough Discovery Radiology was licensed as a professional medical
corporation owned by Drs. Feske and Safvi, it actually was ‘owned,
operated, or controlled’ by Mir, who is not a physician and is not
licensed to practice medicine.” (Id.) The court specifically identified actions
by Mir as violating the above prohibition against unlicensed practice of
medicine, including that he: i) solicited and recruited patients from attorneys;
ii) referred the patients to MRI facilities and radiologists with whom Mir had
contracted; iii) billed insurance for the MRIs (notably misrepresenting that
the MRIs had been performed by the defendant medical corporations and grossly
inflated the fees for the services provided); iv) filed documents on Discovery
Radiology's behalf with the California Secretary of State, the Medical Board of
California, and the Center for Medicare and Medicaid Services; v) recruited physicians, including physicians Feske and Safvi, to
appear on paper as owners; vi) entered into contracts with professional
and diagnostic radiology facilities to administer and interpret the MRIs; and vii)
selected the facilities and radiologists to whom patients would be referred.
The Discovery Radiology
court also considered Epic, in which the Court of Appeal considered the extent to which a
non-physician may lawfully be involved in the running of a medical practice. There,
the management company “exercised no control” over the practice. Thus, the management
company permissibly contracted with a physician to lease him office space and
medical equipment, provide non-physician personnel, and manage the physician's
marketing, billing, collections, and accounting. In exchange, the physician
agreed to pay the management company 50 percent of his professional revenues
and 25 percent of his surgical revenues. (Id. at 508.) In Cardillo, two non-physician owners
of a corporation that operated Kush Dr., a medical marijuana clinic, were criminally
charged with practicing medicine without a license. (Id. at 494.) They asserted
they only provided management services for the physicians who operated out of
the clinic and wrote medical marijuana prescriptions. (Id. at pp.
495–496.) The Cardillo court held that there was substantial evidence
presented at the preliminary hearing which indicated that the clinic's owners
“controlled the operations of the clinics by employing licensed physicians to
issue recommendations for medical marijuana, setting the physicians’ hours,
soliciting and scheduling patients, collecting fees from the patients, and
paying the physicians a percentage of those fees. In short, defendants set up a
system or mode for treating the sick or afflicted in violation of section 2052.
The fact that neither [non-physician] actually examined any patients or
prescribed medical marijuana to them does not absolve them of criminal
liability for practicing medicine without a license.” (Id. at 498.)
In light of Discovery Radiology, and based on a
plain reading of the various agreements which comprise the contractual
relationship between the non-physician Defendants and the Doctors, and Defendants’
admitted actions, the record reveals that Defendants have engaged in the
unlicensed practice of medicine by directly and indirectly controlling SCRC.
In 2019, the Doctors and their affiliated companies sold
a 51 percent stake in their Fertility Practice (including ART and Roxbury) to WCE
(the “Management Company”) for immediate cash and deferred/contingent
consideration. (Slade Decl., Exs. 18–20.) The Management Company and its
affiliates were to provide non-clinical services to the Fertility Practice in
exchange for fixed percentage fees. (Id.) The Medical Group sold its clinical
assets to a new entity, SCRC. (Id., Ex. 20 Art. 8.) The parties entered a Participating
Physician Compensation Plan, which set out how the Doctors would be paid for
providing clinical services to SCRC, including a guaranteed minimum salary and
other incentives. (Id., Ex. 20 § 5.1 & Ex. E; Ex. 36.) The Medical Group
entity then converted to an ordinary business corporation, WCE, and sold its
equity to its parent. (Id.) Roxbury, ART, SCRC PC, and certain of their
subsidiaries would enter into Management Services Agreements and Administrative
Services Sub-Contracts. (Slade Decl., Ex. 18 § 12.3(g); Ex. 19 § 5.1(h) &
ex. C; Ex. 20 § 5.1(f) & exs C & D; Ex. 27.) In 2020, BC
Partners acquired WCE and its affiliated companies, including WCE’s interest in
the Fertility Practice. (Surrey Decl., ¶ 15.)
Critical to regulatory compliance, Dr. Surrey retained
100 percent ownership of SCRC PC. Dr. Surrey signed two contracts with the
Management Company – a Consulting Agreement and a Continuity Agreement. (Slade
Decl., Exs. 23, 24.) Under the Consulting Agreement, Dr. Surrey would advise,
attend meetings, and consult on “questions of a medico-administrative nature.” (Id.,
Ex. 23 § 2(a)(iii).) Further, the agreement defined SCRC’s professional
services to include the authority to engage and terminate the services of any
Clinical Professional, establish work schedules for all Clinical Professionals,
on a provider-by-provider basis, and to fix the rates of compensation. (Supp.
Surrey Decl., Ex. A, ¶¶ 3.2(a)-(b), (d)-(e).) It is therefore undisputed that as
the doctor/owner of SCRC, Dr. Surrey had authority to make clinical decisions
regarding the firing or discipline of medical personnel. (Id., Ex. 46.)
As argued in the papers, the Doctors became unhappy with
the above arrangement, leading to tensions between the parties. Defendants
explain the incidents which gave rise to this current tension. On June 6, 2023,
a former employee of the ART laboratory sued ART, Dr. Barritt, and another
employee for retaliation and workplace sexual harassment. (Slade Decl., Ex. 9.)
The complaint alleged some of the harassment was done by an employee supervised
by Dr. Barritt, who saw the harassment and took no action. (Id. ¶¶ 15-17.) In
addition, after the employee returned from receiving breast augmentation
surgery, Dr. Barritt allegedly humiliated her by presenting her with a “happy
boob day” cake and mockingly singing Happy Boob Day to You. (Id. ¶ 18.)
Defendants also notes issues with Dr. Shahin Ghadir, who throughout 2023 allegedly
engaged in an ever-escalating mistreatment and intimidation of staff,
constantly threatening to walk out and sue, and aggressively berating company personnel
with rants, verbal attacks, profanity, efforts to solicit a mass exodus, and
other inappropriate workplace aggressions. (McHorney Decl. ¶ 22.) Further, SCRC
PC and Dr. Ghadir were sued for wrongful death and medical malpractice, where Dr.
Ghadir allegedly caused the death of a 33 year-old attorney who was undergoing
IVF treatment at the Fertility Practice. (Id., Ex. 37.)
The Management Company raised these concerns about Drs.
Barritt and Ghadir with
Dr. Surrey. Defendants
wanted Dr. Surrey to fire these doctors for the above clinical and non-clinical
reasons. Defendants admit that Dr. Surrey had authority to make clinical decisions
regarding the firing or discipline of medical personnel. (Id., Ex. 46.) While Dr.
Barritt independently resigned, Dr. Surrey was unwilling to terminate Dr.
Ghadir. (Kuroki Decl. ¶ 13.) Because of this, on November 27, 2023, the
Management Company sent a notice to Dr. Surrey, terminating the Consulting
Agreement. (Id., Ex. 9.) In support, Defendants cite a term in the Consulting
Agreement stating that it was terminable by the Management Company for any
reason upon written notice to Dr. Surrey. (Slade Decl., Ex. 23 § 6(b)(ii).) They
further reason that in such a case, under the Continuity Agreement, Dr. Surrey’s
shares in SCRC would automatically transfer to a “Designated Transferee,” who
would be another California-licensed doctor chosen by the Management Company.
(Id., Ex. 24 § 2(b), § 2(i)-(ix).) Essentially, under the contract, Defendants had
the right to exercise sole and absolute discretion to remove Dr. Surrey from control over
the clinical entity, SCRC. In accordance with this purported right, Defendants designated Dr.
Helen Kuroki, a licensed California physician, as his replacement for SCRC. (Kuroki
Decl. ¶¶ 6–10; Exs. 30, 31.) Dr. Kuroki assumed control of the operations of
SCRC, and terminated Dr. Ghadir, amongst other clinical actions. (Kuroki Decl.
¶ 13.)
This undisputed record demonstrates that the
non-physician defendants, including WCE, have complete control over the
physicians that own SCRC through the forced transfer terms. In fact, the
control that WCE exercised in this case is the exact type of control which
constitutes “undue control over a medical practice” warned against in Discovery Radiology.
There is no dispute that hiring, firing, and discipline of clinical personnel were
clinical subjects reserved to SCRC by contract and regulation. Yet, WCE had the
contractual ability to remove Dr. Surrey from his position in SCRC if they
disagreed with his decisions. If they have such a right, then WCE necessarily had
undue control over the doctor-owner of SCRC, even if they did transfer SCRC to
another California-licensed doctor. WCE may simply replace any doctor-owner at will
and select a new doctor that will bend to their will. Defendants, in fact,
exercised this right in
order to indirectly fire Dr. Ghadir via their control of Dr. Kuroki.
Therefore, Plaintiffs meet their burden of establishing
that the Receivership Entities are in danger of being lost, removed, or
materially injured. The continued operation of SCRC – where a non-physician directly
controls the physicians in charge of SCRC – would be against public policy and
subject the individual parties to the risk of professional and criminal
repercussions. The
criminal and regulatory risks of unlicensed practice of medicine render it impossible for the corporation to carry on its business. Thus,
the Court grants relief as to SCRC. However, these issues do not justify a
receivership over the non-medical portions of the business, including ART and
Roxbury. As to the non-medical issues, Plaintiffs do not demonstrate other
grounds for relief. Thus, the Court is not inclined to grant the motion for a
receiver over ART and Roxbury.
Other Issues
The court otherwise does not find
any substantial evidence of self dealing, or breach of any corporate
formalities. To that end, Plaintiffs fail to justify a receivership or
preliminary injunction.
For instance, Plaintiffs contend
that WCE have failed to hold regular board meetings or seek shareholder
approval for key corporate decisions. However, Plaintiffs’ evidence is
unspecific, conclusory and self-serving. (See Danzer Decl.; Alexander Decl.; Surrey
Decl., ¶¶ 24-25.) Plaintiffs also do not support contentions of gross
mismanagement with substantial evidence. Plaintiffs’ expert accountant explains
that he lacks the records and books to form an informed opinion on the matter.
Therefore, his declaration is of little evidentiary value. This is true,
especially in light of Defendants’ proffered explanations and evidence.
Moreover, any failure to provide
access to financial books and records, by itself, would not justify a receivership.
This can be remedied by less extreme measures, such as an injunction or a mandamus
writ directing compliance, which have not been requested.
Conclusion
Accordingly,
the motion for a receiver is GRANTED as to SCRC only. This will be for the
limited purpose of transferring SCRC’s equity interest back to Dr. Surrey. As an alternative, the Court will discuss with
the parties imposing a preliminary injunction ordering the transfer of SCRC back
to Dr. Surrey, but without a receiver.
Otherwise, the Court will set an
OSC re: Appointment of Receiver for _________________. Each party may make a
written nomination of a receiver to be filed and served 3 court days prior to
the hearing. (CRC Rule 3.1177(a).) Upon nominating the receiver, the Court will
require Plaintiffs post two $10,000.00 bonds, one for Plaintiffs and the other
for the receiver. (CCP § 567.)