Judge Mark C. Kim, Case 19LBCV00214 2023-03-23 Tentative Ruling

Judge: Mark C. Kim, Case: 19LBCV00214, Date: 2023-03-23 Tentative Ruling

Case Number: 19LBCV00214 Hearing Date: March 23, 2023 Dept: S27

1. Motion to Dismiss

a. Filing of FACC

On 11/21/21, the Court granted Cross-Complainants’ motion to amend the cross-complaint by removing AIH as a named cross-complainant, asserting derivative claims of AIH by Cross-Complainants, and adding certain substantive allegations.

b. Motion to Dismiss

At this time, Cross-Defendants move to dismiss the derivative claims, contending (a) Cross-Complainants have not alleged compliance with Corporations Code §17709.02(a), and (b) Cross-Complainants cannot, under Revenue and Taxation Code §23301, assert the derivative claims on behalf of a suspended LLC.

c. Corporations Code §17709.02(a)

Cross-Defendants, in their moving papers, seek to have the derivative claims dismissed on the ground that Cross-Complainants did not, and indeed cannot, allege they made a demand on the majority of the members or the manager of the LLC and the LLC, through its majority or manager, refused to act. Cross-Defendants contend this cannot be alleged because AIH itself was maintaining the claims in its own capacity at the time they sought leave to make those claims derivative, and also because they are the majority owners and manager of AIH, so they cannot allege they made a demand to themselves and then refused to act.

Cross-Complainants, in opposition, show the set of unique circumstances that have led to the filing of derivative claims in this case. They show that Cross-Defendants have caused AIH’s corporate status to be suspended, which means AIH cannot assert the claims on its own behalf. They also show that Cross-Defendants have consistently taken a position, until very recently, that they are the current owners of AIH, and therefore the derivative claim was necessary unless and until the ownership issue is settled.

Any reply to the opposition was due on or before 3/16/23. The Court has not received any reply papers. The Court finds the opposition is sufficient to show that a demand would be futile under the circumstances, such that one was not required. Bader v. Anderson (2009) 179 Cal.App.4^th 775, 789-790.

d. Revenue and Taxation Code §23301

Cross-Defendants also move to dismiss the derivative claims pursuant to Revenue and Taxation Code §23301, which precludes derivative claims on behalf of a suspended LLC. See Kaufman & Broad Communities, Inc. v. Performance Plastering, Inc. (2006) 136 Cal.App.4^th 212, 218. Cross-Complainants, in opposition to the motion, cite to Duncan v. Sunset Agricultural Minerals (1969) 273 Cal.App.2d 489, wherein the Court held that an action on behalf of a suspended corporation can be continued for the purpose of seeking a revivor. Cross-Complainants contend they will seek a revivor once they are established to be the owners of AIH, at which time the claims will be ripe.

The problem with Cross-Complainants’ contention, however, is that the claims, at that time, will need to be asserted as direct, not derivative, claims.

The situation is a conundrum. AIH cannot assert its direct claims presently because it is suspended, and there is an absolute bar on a suspended corporation asserting direct claims. So Cross-Complainants re-asserted the claims as derivative claims, basically to hold the claims in abeyance pending resolution of the ownership issues. If the ownership issues are resolved in their favor, they will need to re-assert the now derivative claims as direct claims. If the ownership issues are not resolved in their favor, they will lose any ability to pursue the claims.

The Court, therefore, must discuss the ownership issue, which is the other matter on calendar today.

2. Motion to Determine Ownership Interest

The parties agree that Rotondo, Moriarty, and Chiaro have ceded any ownership interest in AIH. See opposition, page 2, lines 8-10.

The parties are disagreeing concerning two issues. First, Heckman is continuing to assert a 10% ownership interest in AIH. Second, Cross-Complainants seek an order specifying that Rotondo, Moriarty, and Chiaro have had no interest in AIH since 2013.

Alcantar and Gascon, with their moving papers, filed a flow chart immediately after their points and authorities. The flow chart shows ownership transferring fully from Heckman to Alcantar and Gascon sometime after the 11/20/13 judgment. Cross-Defendants, in opposition, contend, “Alcantar’s sworn deposition testimony admits that they have not completed the purchase of Heckman’s interest, so he remains an owner of AIH.” No deposition testimony is attached to the opposition. No reply was filed. The Court will hear argument on the issue of whether or not Heckman transferred his last 10% ownership interest to Alcantar and Gascon at the time of the hearing.

As to Rotondo, Moriarty, and Chiaro, Alcantar and Gascon contend their claims of ownership past 2013 never had any merit, as evidenced by the fact that they dismissed all of their claims seeking ownership. In opposition, Rotondo, Moriarty, and Chiaro contend they dismissed their claims not because they lacked merit, but because AIH no longer had any value. They also contend, without providing any transcript, that Alcantar and Gascon have given sworn testimony that conflicts with their current position that they have been the sole owners since 2013. Again, Alcantar and Gascon have not filed reply papers. The Court asks Cross-Defendants to have the evidence to which they refer available at the time of the evidentiary hearing.

3. Conclusion

The Court will hold an evidentiary hearing concerning Heckman’s ongoing claim of a 10% ownership interest and the remaining Cross-Defendants’ claim that they had ownership interests between 2013 and 2017. The Court asks both parties to ensure all evidence upon which they rely is present at the hearing for review.

The Court finds that, no matter what the outcome of the ownership hearing, Alcantar and Gascon will be the current majority owners (90%) of AIH. Thus, their ability to revive AIH will be ripe, and they will not be able to assert derivative claims. They must revive AIH and assert direct claims on its behalf if they wish to continue to pursue any claims.