Judge: Martha K. Gooding, Case: 22-01247362, Date: 2023-08-07 Tentative Ruling
Motion for Leave to Intervene – GRANTED
The Motion by third parties Brian Arcari and Stephen Arcari (collectively, “Intervenors”) to intervene is GRANTED.
Plaintiff’s request for judicial notice is denied; it is unnecessary to ask the court to take judicial notice of materials previously filed in this case. “[A]ll that is necessary is to call the court’s attention to such papers.” (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2018) ¶ 9.53.1a.)
Under Civil Procedure Code (“CCP”) section 387(a), the trial court has discretion to permit a nonparty to intervene where: (1) the intervenor has a direct interest in the litigation; (2) intervention will not enlarge the issues raised by the original parties, and (3) the reasons for intervention outweigh any opposition by the existing parties. (Truck Ins. Exch. v. Superior Court (1997) 60 Cal.App.4th 342, 346.) This is “permissive intervention.” Whether such intervention should be allowed in a particular case “is best determined by a consideration of the facts of that case” and the decision is generally left to the sound discretion of the trial court. (Fireman's Fund Ins. Co. v. Gerlach (1976) 56 Cal.App.3d 299, 302.)
CCP section 387(b) governs compulsory joinder. It provides that a nonparty has the right to intervene in litigation between others where he/she claims an interest in the property or transaction involved in such litigation and is so situated that any judgment rendered in his absence “may as a practical matter impair or impede that person's ability to protect that interest ... ” Thus, the test for a party claiming a right to intervene is that he/she must show an interest in the “property or transaction” that is the subject of the litigation that would be substantially prejudiced by any judgment rendered in his or her absence. (The Rutter Group, Cal. Prac. Guide Civ. Pro. Before Trial Ch. 2-E at 2:409.)
CCP section 387 is to be construed liberally in favor of intervention. (Simpson Redwood Co. v. State of Calif. (1987) 196 Cal.App.3d 1192, 1201.)
The Court finds Intervenors here have shown an interest in the subject of the litigation, as reflected in both the Complaint and Cross-Complaint that have been filed, such that they would be prejudiced if not allowed to participate.
In the Complaint, filed on February 25, 2022, Plaintiffs Fair Friend Enterprise Co. (“FFE”), FFG DMC Co. Ltd. (“FFG”) and MAG Automotive, LLC (“MAG”) (collectively, “Plaintiffs”) allege that Defendant CNC Systems, Inc. (“CNC”) failed to pay them for millions of dollars of equipment and machinery that was sold to CNC. The parties entered into an agreement in April 2021 to remedy this, which required CNC Systems to turn over certain equipment as an offset for the amount owed. Plaintiffs allege CNC breached this agreement by failing to turn over all of the equipment to which it agreed. In addition, Plaintiffs allege Defendants CNC and Bryan B. Chen failed to disclose that the equipment turned over to Plaintiffs was encumbered by a lien.
In the Cross-Complaint, filed on April 23, 2023, Defendant CNC alleges it entered into an agreement with Plaintiff FFE whereby FFE would acquire a majority of CNC stock and CNC would become the exclusive US distributor of certain FFE machines. CNC alleges FFE made a number of misrepresentations in connection with this deal. For example, FFE represented that CNC would be able to defer wholesale payment for the machines until they were resold, but then ended up requiring full payment upfront. Also, FFE’s representations that CNC would be the exclusive distributor of the machines proved to be false, as there were other competing distributors.
The proposed Plaintiffs-in-Intervention, Intervenors Brian Arcari and Stephen Arcari, are Vice Presidents and shareholders of CNC Systems.
The claims Intervenors wish to assert against FFE are similar to those CNC alleges in its Cross-Complaint against FFE.
Specifically, CNC’s Cross-Complaint is focused on multiple misrepresentations FFE allegedly made to CNC and the Arcaris during negotiations of the acquisition. Intervenors allege that in exchange for FFE’s purchase of CNC stock, they were to receive an annual salary of $450,000 guaranteed by Fair Friend, were entitled to a portion of the cost of CNC Systems’ building (which was to be sold per Fair Friend’s instructions), and would be entitled to a share of CNC Systems’ “accounts receivable” balance. (See S. Arcari Decl. Ex. 1; B. Arcari Decl. Ex. 1). The Arcaris’ further allege that they believed FFE would honor its promises and misrepresentations related to the management of CNC Systems. On or about January 9, 2019, the stock purchase agreements were finalized, and FFE acquired a controlling interest in CNC Systems. See S. Arcari Decl. Ex. 1; B. Arcari Decl. Ex. 1).
Intervenors allege that shortly after the acquisition, the relationship between FFE and CNC broke down. (See S. Arcari Decl. ¶ 23; B. Arcari Decl. ¶ 23). Furthermore, as also alleged in the Cross-Complaint, FFE began to demand that CNC pay for all equipment upfront (instead of after it was sold) and FEE shipped higher volumes of equipment to CNC, which exceeded the demand and resulted in losses to CNC. Intervenors allege this caused them direct harm. In addition, resolution of this action will impact CNC Systems’ ability to pay its debts, including its debts to the Arcaris.
Contrary to FFE’s arguments in opposition, the Court finds that Intervenors’ claims relate to both the claims made in CNC’s Cross-Complaint and those in FFE’s Complaint. The fact that the Cross-Complaint is currently the subject of a pending motion to dismiss and demurrer is of no consequence to this motion, as those motions are not currently ripe for adjudication. In addition, FFE’s argument that Intervenor’s counsel has a conflict of interest is not material to the determination of the instant motion to intervene.
Lastly, the Court rejects FFE’s argument that the Motion to Intervene is untimely. Timeliness of a motion to intervene is determined by the totality of the circumstances, with a focus on three primary factors: (a) the stage of the proceedings; (b) the prejudice to other parties from the delay in seeking to intervene; and (c) the reason for the delay. Prejudice to the existing parties from the delay is the most important consideration in determining whether the motion is timely. (Crestwood Behavioral Health, Inc. v. Lacy (2021) 70 Cal.App.5th 560, 574-576.)
Here, Intervenors correctly point out that the right to intervene is measured not from the date the would-be intervenor knew about the litigation but, rather, from the date the would-be intervenor knew or should have known their interests in the litigation were not being adequately protected. (Id. at 575 [“In determining whether intervention is timely, courts ‘focus “‘on the date the person attempting to intervene should have been aware his interest[s] would no longer be protected adequately by the parties, rather than the date the person learned of the litigation.’”]) Intervenors state that they only learned that their interests would not be adequately represented recently with the filing of the Cross-Complaint.
In addition, no prejudice has been shown to support the argument that the motion is not timely.
As a result, based on the foregoing, and because CCP section is to be construed liberally in favor of intervention, the Court grants the Motion to Intervene. Intervenors shall file and serve their pleading within 15 days.