Judge Mary H. Strobel, Case 22STCV07930 2023-04-25 Tentative Ruling

Plaintiff Arash Soleimani (“Plaintiff” or “Arash”) moves for appointment of “a receiver of the real property located at 2994 Durand Drive, Los Angeles, California 90068; APN: 5582-012-007 (the ‘Property’), for the purpose of preparing and offering the Property for sale.” (Mot. 2.) Plaintiff also moves for a preliminary injunction in aid of the receivership. Defendants Dion Dersarkissian (“Dion”), Arin Dersarkissian (“Arin”), Pinky’s Iron Doors, LLC (“Pinky’s”), and 2994 Durand LLC (“Durand LLC”) (collectively, “Defendants”) oppose the motion.

On March 4, 2022, Plaintiff filed a complaint against Defendants for breach of contract, breach of fiduciary duty, fraud, declaratory relief, and other claims. The complaint alleges that Defendants breached an oral promise to make him a 25% member of Pinky’s. (Compl. ¶¶ 37-42.) The complaint also alleges that Plaintiff is a 33.3333% member of Durand, an LLC that was formed to purchase the Property, and that Defendants have denied Plaintiff access to his real estate investment in the Property. (Id. ¶¶ 8, 29, 34.)

On April 1, 2022, Plaintiff filed a notice of lis pendens with respect to the Property.

On April 18, 2022, Defendants moved to compel arbitration and stay proceedings pending arbitration. Plaintiff opposed the motion.

On June 20, 2022, the court (Judge Draper) granted the motion to compel arbitration and stay proceedings.

On August 5, 2022, an arbitration was initiated before JAMS with respect to the complaint. Defendants filed an answering statement and counterclaims. Among other things, Respondents requested “an order with respect to the fair and orderly winding up and final disposition of Durand LLC and the Property” pursuant to Corporations Code section 17707.03. (Tokar Decl. Exh. B, ¶ 20.)[1]

The arbitration is still pending before JAMS. The Arbitration hearing is scheduled for July 8, 2024. (Tokar Decl. ¶¶ 5, 15.) Attorney Tokar represents that the hearing date was selected “in part because the initial arbitrator in this matter, Judge Ann I. Jones (Ret.) left JAMS, and on February 25, 2023, Judge Elizabeth A. White (Ret.) was appointed as the arbitrator.” (Id. ¶ 15.)

On March 28, 2023, Plaintiff filed this motion for appointment of a receiver. On April 13, 2023, Defendants filed and served an opposition. On April 18, 2023, Plaintiff filed his reply.

Plaintiff objects that the opposition was due April 12, 2023, and was served one day late. (Reply 6.) Plaintiff has responded on the merits in reply and shows no prejudice. Accordingly, the objection is overruled.

Plaintiff moves for appointment of a receiver pursuant to Code of Civil Procedure sections 564(b)(1), (5), (6), and (9). (Ex Parte 12-13.)

“In this state a receiver may be appointed only as permitted by Code of Civil Procedure section 564.” (Barclays Bank of California v. Sup.Ct. (1977) 69 Cal.App.3d 593, 597.)

Appointment of a receiver is a drastic provisional remedy that the court should only grant when facts are presented by 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; City and County of San Francisco v. Daley (1993) 16 Cal.App. 4^th 734, 744). The appointment of a receiver is an equitable remedy and should be used only when necessary and where other legal remedies are unavailable. (Rogers v. Smith (1946) 76 Cal.App.2d 16, 21).

On or about May 17, 2021, Plaintiff, Dion, and Arin entered into a written operating agreement for 2994 Durand LLC (“Operating Agreement”). The Operating Agreement shows that Plaintiff, Dion, and Arin each hold a 33.3333% ownership interest in the company. (Soleimani Decl. ¶ 3, Exh. A.)

In paragraph 10, the Operating Agreement states in pertinent part: “Except as expressly provided elsewhere in this Agreement, all decisions respecting the management, operation, and control of the business and affairs of the Company and all determinations made in accordance with this Agreement shall be made by a vote of over fifty percent (50%) of the Members’ ownership-interest.” (Id. Exh. A.)

Shortly after it was formed, Durand LLC purchased the Property, which is located in the “Hollywoodland” area of Los Angeles, for approximately $1,705,878.33. (Dion Decl. ¶ 4.) Dion declares: “The purchase was primarily funded by Pinky’s, which extended a $500,000 loan to each of the three members of Durand LLC. Pinky’s also loaned the sums subsequently allocated for an extensive redesign and renovation of the Property using Pinky’s door and window products.” (Id. ¶ 4.) Dion further declares and submits documentary evidence that Plaintiff participated in the hiring of an architect for the redesign of the Property; communicated with the architect about the redesign by email; and signed an architectural agreement on behalf of Durand LLC. (Id. ¶¶ 5-7 and Exh. 1-2.) Plaintiff has not rebutted that evidence for purposes of this motion.

Dion further states the following in his declaration about the redesign of the Property:

9. The contractor hired to perform the renovations was Alexander Trochez, formerly with Aguirre Rosales Construction Inc….

10. By the summer of 2022, the remodeling of the Property was substantially complete, and a final inspection by the Los Angeles Department of Building and Safety (the “Department”) took place on or about June 13, 2022. The Department issued a “Not Approved – Correction Notice” (the “Notice”), a true and correct copy of which is attached as Exhibit 4. The Department had discovered the apparent lack of permits on file for two additions to the Property: a first-floor addition and the entire third floor, both added in the 1980s. The Notice indicated that, if no permits could be located, the Property would need to be “return[ed] to original condition” – meaning removal of the first floor addition and the entire third floor. The contractor estimated that the cost of performing such time-consuming work would easily exceed $150,000, in addition to the loss of value resulting from diminished square footage.

11. Mr. Heifetz [the architect] engaged in protracted negotiations with the Department and has worked out a proposed compromise, for which we are currently awaiting Department approval. In brief, the compromise would involve the following:

• Designating a portion of the Property as an Accessory Dwelling Unit (“ADU”) and assigning it a new address (2996 N. Durand Dr.);

• Widening the driveway by five feet to permit easier fire truck access. If approved, the work will take approximately six months and cost $50,000-$100,000. Pinky’s will provide the necessary funds by providing a loan to the Durand LLC estate at 3% APR.

In February 2023, Defendants obtained an appraisal of the Property by Ramona E. Laird of T&M Appraisals. Assuming the absence of any permitting or zoning issues, Laird determined the Property’s fair market value to be $2,590,000 and opined that market conditions in the area appear to be “stable.” Further, Laird estimated that if the Property had to be reverted to “the original two-story property… with removal of the downstairs ADU,” this would reduce the market value by “at least $200,000.” (Kayayan Decl. ¶¶ 8-9, Exh. 7.) Plaintiff has not submitted an appraisal to rebut Laird’s opinions.

On or about January 7, 2022, Dion filed a “LLC Termination – Short Form Cancellation Certificate” with the California Secretary of State with respect to Durand LLC. (Tokar Decl. ¶ 9, Exh. E; see also Id. Exh. A ¶ 8.)

Paragraph 17 of the Operating Agreement governs dissolution and liquidation of the LLC. This paragraph states, in pertinent part:

The liquidation of the Company shall be conducted and supervised by a person designated for such purposes by the affirmative vote or consent of Member(s) holding a majority of the Members’ Percentage Interests (the “Liquidating Agent”). The Liquidating Agent hereby is authorized and empowered to execute any and all documents and to take any and all actions necessary or desirable to effectuate the dissolution and liquidation of the Company in accordance with this Agreement.

Promptly after the termination of the Company, the Liquidating Agent shall cause to be prepared and furnished to the Member(s) a statement setting forth the assets and liabilities of the Company as of the date of termination. The Liquidating Agent, to the extent practicable, shall liquidate the assets of the Company as promptly as possible, but in an orderly and businesslike manner so as not to involve undue sacrifice.

Dion declares that, with the consent of his brother Arin, who also owns 33.3333% of Durand LLC, he has been appointed the Liquidating Agent of the LLC pursuant to paragraph 17. (Dion Decl. ¶ 2.)

CCP section 564(b)(5) and (6) authorize appointment of a receiver: “(5) Where a corporation has been dissolved, as provided in Section 565. (6) Where a corporation is insolvent, or in imminent danger of insolvency, or has forfeited its corporate rights….”

CCP section 565 states: “Upon the dissolution of any corporation, the Superior Court of the county in which the corporation carries on its business or has its principal place of business, on application of any creditor of the corporation, or of any stockholder or member thereof, may appoint one or more persons to be receivers or trustees of the corporation, to take charge of the estate and effects thereof, and to collect the debts and property due and belonging to the corporation, and to pay the outstanding debts thereof, and to divide the moneys and other property that shall remain over among the stockholders or members.”

Plaintiff does not move for appointment of a receiver over Durand LLC. Rather, Plaintiff moves for appointment of a limited purpose receiver to market and sell the Property, which is owned by Durand LLC. CCP sections 564(b)(5) and (6) concern appointment of a receiver over a corporation or LLC. CCP sections 564(b)(1) and (9) are the more appropriate provisions for appointment of a limited purpose receiver to market and sell real property. Moreover, Plaintiff does not show that Durand LLC has been dissolved within the meaning of sections 564(b)(5) and 565. Although Dion filed an “LLC Termination” and “Cancellation,” the actual winding up and dissolution of the LLC has not yet occurred and is a pending claim before JAMS. (See Corp. Code § 17707.06 [“A limited liability company that has filed a certificate of cancellation nevertheless continues to exist for the purpose of winding up its affairs”]; Tokar Decl. Exh. B, fourth counterclaim.) Plaintiff cites no authority that section 564(b)(5) applies in these circumstances. Finally, as discussed below with respect to CCP section 1281.8, Plaintiff does not show that Durand LLC is insolvent or in imminent danger of insolvency. For all these reasons, section 564(b)(5) and (6) do not support appointment of a receiver.

CCP section 564(b)(5) and (6) authorize appointment of a receiver: “(1) In an action … 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…. [and] (9) in all other cases where necessary to preserve the property or rights of any party….”

It is undisputed that Plaintiff owns a 33.3333% interest in Durand LLC, which in turn owns the Property. Thus, Plaintiff has a “probable” interest in the Property. The issue is whether the Property “is in danger of being lost, removed, or materially injured.” Plaintiff argues that there are several risks of harm to the Property that justify a receivership. None of his arguments persuade.

Plaintiff asserts that property taxes for the Property have not been paid. (Soleimani Decl. ¶ 5.) However, Dion declares that he first learned of the delinquency when Plaintiff served the motion and he “arranged for Pinky’s to advance the delinquent tax installment, a second then-outstanding installment, and a third upcoming installment, for a total of $35,628.37.” (Dion Decl. ¶ 14.) Documentary evidence shows that the taxes have been paid. (Id. Exh. 5.) In reply, Plaintiff submits no evidence to the contrary. Nor does Plaintiff show that Durand LLC lacks the financial ability to pay the taxes pending completion of the arbitration. Plaintiff fails to show risk of imminent harm to the Property based on unpaid property taxes.

Plaintiff contends that Defendants have been “[e]mploying an unlicensed contractor to engage in construction services on the Property in violation of Business & Professions Code §§ 7028 and 7031.” (Mot. 8.) Specifically, Plaintiff’s attorney declares: “Based on records available from the California State Contractors Licensing Board, there is no contractors number associated with Mr. Torchez registered with the State of California. On the contrary, a building permit obtained for the Property on March 16, 2022 says that the licensed contractor in support of the permit is Aguirre Rosales Construction, Inc., License No. 1039164…. A review of the California State Contractors License Board for License No. 1039164 demonstrates that Aguirre Rosales Construction, Inc.’s license has expired [on May 31, 2022].” (Tokar Decl. ¶¶ 13-14, Exh. K-M [underline added].)

In opposition, Defendants submit evidence of the following: “The contractor hired to perform the renovations was Alexander Trochez, formerly with Aguirre Rosales Construction Inc. In 2022, Mr. Trochez started his own company, Trochez Construction, Inc. Attached hereto as Exhibit 3 is a true and correct copy of the Contractors State License Board card for Trochez Construction, Inc. that Mr. Trochez provided me, bearing Contracting License No. 1097458.” (Dion Decl. ¶ 9 Exh. 3.) In reply, Plaintiff submits evidence that Trochez Construction Inc. has been licensed with the Contractors State License Board since at least October 6, 2022. (Reply Tokar Decl. ¶ 5, Exh. O.)

Plaintiff has not shown that any contracting work was performed by an unlicensed contractor. Plaintiff’s arguments on this issue lack record citation and sufficient detail concerning the dates when contracting work was performed in comparison to the dates of licensure of Aguirre Rosales Construction, Inc. and Mr. Trochez. (Reply 4-5.) Notably, many of the checks that Plaintiff submits are dated before May 31, 2022, when Aguirre’s license expired, or after October 6, 2022, when a license was issued to Trochez Construction, Inc. (See Tokar Decl. Exh. J.) In any event, it is undisputed that the current contractor, Trochez Construction, Inc., has a contractor’s license. Plaintiff does not show any risk of harm to the Property in these circumstances. Plaintiff suggests that some contract may be unenforceable by Trochez or Aguirre, but Plaintiff does not develop the argument or explain how this creates any risk to the Property. (See Reply 4-5, citing Fairlane Estates, Inc. v. Carrico Constr. Co. (1964) 228 Cal.App.2d 65, 68.)

Plaintiff argues that “the Property has several zoning violations which have ‘red-tagged’ the Property, and that to fix any of these items would cost upwards of $100,000, if not more.” (Mot. 7.) However, Defendants submit undisputed evidence that Plaintiff discussed the “unpermitted” space with the architect in June 2021 and decided to proceed with the renovations. (Dion Decl. ¶¶ 5-7, Exh. 1-2.) To the extent the zoning problems could have been corrected earlier, Plaintiff himself bears partial responsibility. Plaintiff lacks an equitable basis to request a receivership for a problem he himself created. (See generally De Garmo v. Goldman (1942) 19 Cal.2d 755, 759-761.) Plaintiff concedes that the zoning issues do not reflect mismanagement by Defendants. (Reply 5:15-17 [“It is not Plaintiff’s intent to attribute the zoning issues directly to ‘imprudent management’ as Defendants contend”].)

To prove harm, Plaintiff relies primarily on statements of Defendants’ attorney that “2994 Durand would have to spend an additional $50,000 to $100,000 to repair the Property.” (Tokar Decl. ¶ 8.) Plaintiff submits no appraisal or declarations of contractors or the architect. In opposition, and as summarized above in the Factual Background, Defendants submit evidence that architect “Heifetz engaged in protracted negotiations with the Department and has worked out a proposed compromise, for which we are currently awaiting Department approval.” (Dion Decl. ¶ 11.) “If approved, the work will take approximately six months and cost $50,000-$100,000.” (Ibid.) Assuming the zoning issues are resolved, the Property has been appraised at $2,590,000, substantially above the purchase price. (Kayayan Decl. ¶¶ 8-9.)

Plaintiff argues that “[a]s to Dion’s mitigation plan, while it is created to sound appealing on paper, no formal plan has in reality been presented.” (Reply 3.) However, Dion’s declaration is competent evidence that reasonable steps are being taken to address the zoning issues, which include negotiations between the architect and the City. Plaintiff submits no different plans to address the zoning issues and he does not explain how a receivership, which would add substantial expense, would be more effective or economical in addressing the zoning issues.

In any event, if Plaintiff wishes to stop Defendants from completing the work to cure the zoning issues, he has a less drastic alternative available. Specifically, JAMS Comprehensive Rule 24(e) expressly permits the Arbitrator to grant “injunctive relief and measures for the protection or conservation of property and disposition of disposable goods.” (Kayayan Decl. ¶ 7).

Plaintiff contends that a receiver should be appointed to sell the Property immediately. Plaintiff states that “[t]here is no reason to delay and wait any longer as the real estate market continues to be uncertain in these financial times.” (Mot. 7.) Plaintiff “assumes a sale price of $2,400,000 in a market where interest rates increase and sale prices trend downward.” (Mot. 9.) Plaintiff has cited no competent evidence, such as a real estate appraisal, in support of these contentions. Although Plaintiff points to rising interest rates, Plaintiff has no evidence to support an inference that interest rates will necessarily continue to rise or that market conditions will deteriorate for the Hollywoodland area in which the Property is located. The National Association of Realtors article cited by attorney Tokar highlights a 1.3% increase in median existing-home sales prices nationwide and is not persuasive evidence of market conditions with respect to the Property and Hollywoodland area. (Tokar Decl. ¶ 15 and Exh. N.)

In contrast, Defendants submit undisputed evidence that the Property’s fair market value is $2,590,000 and that market conditions in the area appear to be “stable.” (Kayayan Decl. ¶¶ 8-9, Exh. 7.) The alleged market risk does not justify a receivership.

Plaintiff contends that Defendants have “[c]ontinued to spend countless thousands of dollars into the remodel of the Property in violation of Corp. Code, § 17707.06 when all that needs to be done is have the Property preserved for an inevitable sale.” (Mot. 7.) At the same time, Plaintiff acknowledges that the Property has potential zoning issues that may need to be corrected before the Property can be sold. (Reply 5.) Undisputed evidence also supports that the Property will have a substantially higher valuation at sale if the zoning issues are addressed. (Kayayan Decl. ¶¶ 8-9, Exh. 7.) In terms of maximizing the sale price, Plaintiff does not show that the steps being taken by Defendants are unreasonable or present a significant risk of harm to the Property itself.

Corporation Code section 17707.06 does not necessarily preclude Defendant Dion, as the “Liquidating Agent” under the Operating Agreement, from taking steps to correct the zoning issues and then sell the Property. Section 17707.06(a) states: “A limited liability company that has filed a certificate of cancellation nevertheless continues to exist for the purpose of winding up its affairs, prosecuting and defending actions by or against it in order to collect and discharge obligations, disposing of and conveying its property, and collecting and dividing its assets. A limited liability company shall not continue business except so far as necessary for its winding up.” (bold italics added.)

Defendants are taking actions with respect to the Property that are related to the winding up of the LLC. The Property is the sole asset of the LLC. If Plaintiff contends that Dion is taking actions that exceed the scope of his authority as Liquidating Agent (which is unclear from Plaintiff’s briefs), Plaintiff has adequate remedies in the arbitration, including injunctive relief, as discussed further below. (Kayayan Decl. ¶ 7).

Plaintiff argues that he has been excluded from operation of Durand LLC and that this case is analogous to Neider v. Dardi (1955) 130 Cal.App.2d 646. In Neider, the Court of Appeal held that the trial court did not abuse its discretion in appointing a receiver. The plaintiff and defendant were joint venturers with respect to the management and use of a lease of real property. Substantial evidence supported that the defendant excluded the plaintiff from participating in management of the venture, from enjoyment of any share in its profits and from knowledge of its transactions, and that its sole asset was in danger of being lost.

Here, in contrast, Plaintiff does not show that the Property is in danger of being lost. Further, Plaintiff submits no evidence that Defendants have taken profits from Durand LLC and excluded him from taking the same profits.

Plaintiff declares: “On or around December of 2021, I was forced out of my membership interest in Pinkys Iron Doors, LLC by with [sic] Dion Dersarkissian and Arin Dersakissian. l was also forced out of my membership interest in 2994 Durand LLC. Since then, I have had no access to any of the books and records of 2994 Durand LLC, nor any of the day-to-day management affairs of 2994 Durand LLC except for what I have received in discovery during the Arbitration. I have not been asked for any input into any decisions of 2994 Durand LLC since that time.” (Soleimani ¶ 4.)

Section 8 of the Operating Agreement governs books, records, and tax returns. (Id. Exh. A.) Section 10 of the Operating Agreement states that “all decisions respecting the management, operation, and control of the business and affairs of the Company and all determinations made in accordance with this Agreement shall be made by a vote of over fifty percent (50%) of the Members’ ownership-interest.” (Id. Exh. A.) Section 11 requires an annual meeting of the members and states that “Special meetings of the Member(s), for any purpose or purposes, may be called by any Member(s) (or such other number of Member(s) as the Member(s) from time to time may specify).” (Ibid.) In the event of dissolution, section 17 states that Defendants are permitted as the controlling shareholders to appoint a Liquidating Agent. (Ibid.)

Plaintiff does not show that he has made a request to review books and records of Durand LLC, or requested a special meeting of the members to discuss any issues. While Plaintiff asserts in reply that a member meeting should have been held before appointing Dion as Liquidating Agent, he develops no argument that the terms of the Operating Agreement required a meeting. (Reply 2.) Further, while Plaintiff contends in reply that it is improper for Defendants to obtain funding from Pinky’s “at a rate of 3% APR,” Plaintiff does not identify some other source of funding to address the zoning issues. (Reply 2.)

Plaintiff has not developed an argument that Defendants have taken actions not permitted by the Operating Agreement. However, even if Plaintiff makes that contention, he has less drastic remedies that could be sought in the arbitration. Specifically, JAMS Comprehensive Rule 24(e) expressly permits the Arbitrator to grant “injunctive relief and measures for the protection or conservation of property and disposition of disposable goods.” (Kayayan Decl. ¶ 7). Plaintiff does not show that he pursued less drastic relief in the arbitration before moving for appointment of a receiver. Equitably, his failure to pursue less drastic remedies weighs against granting a receivership.

Based on the foregoing, Plaintiff is not entitled to appointment of a receiver pursuant to CCP section 564(b)(1) and (9).

Since an arbitration is pending with respect to Plaintiff’s claims and Defendants’ cross-claims, Plaintiff must also comply with CCP section 1281.8, which states in pertinent part:

A party to an arbitration agreement may file in the court in the county in which an arbitration proceeding is pending, or if an arbitration proceeding has not commenced, in any proper court, an application for a provisional remedy in connection with an arbitrable controversy, but only upon the ground that the award to which the applicant may be entitled may be rendered ineffectual without provisional relief. (emphasis added.)

If an arbitration is pending, the court cannot grant a provisional remedy, including a receivership, if this showing has not been made. (See also California Retail Portfolio Fund GMBH & Co. KG v. Hopkins Real Estate Group (2011) 193 Cal.App.4th 849, 856-857.) In California Retail Portfolio Fund, the Court of Appeal held “the apparent insolvency of a party to an arbitration agreement, or other evidence showing that the party was experiencing severe financial difficulties, is sufficient to satisfy the ineffectual relief requirement.” (Id. at 857.) “The term ‘insolvency’ has two generally accepted definitions: (1) where there is an excess of liabilities over assets; and (2) where one is unable to meet his obligations as they mature in the ordinary course of business.” (Id. at 859-860.) “[T]he inability to pay damages is an alternative to insolvency” and can also satisfy section 1281.8. (Id. at 862.) Plaintiff does not argue or show that Durand LLC is insolvent. (See Mot. 8-9.) .

Plaintiff suggests that the arbitration will be ineffectual if a receivership is not appointed because “if the construction by Dion and Arin continues to move further along, the chances of Arash, Dion, or Arin ever being repaid from the Property’s sale would be unlikely.” (Mot. 8-9.) Plaintiff’ has not developed this argument with competent evidence or reasoned legal analysis. Plaintiff does not develop an argument that a receivership, which would be expensive, would result in a more economical distribution of assets than could be obtained in the arbitration. Plaintiff does not submit sufficient evidence that the zoning issues or market risks justify appointment of a receiver to conduct an immediate “fire sale” of the Property. Finally, Plaintiff does not show that he pursued less drastic remedies in the arbitration, such as injunctive relief. For all these reasons, Plaintiff fails to satisfy the ineffectual relief requirement of section 1281.8.

Because the court denies the motion, the court need not analyze the Receiver’s qualifications or determine the amount of the Receiver’s bond or the injunction bond.

[1] Defendants’ counterclaim cites to Corporations Code section 17703.03, but no such statute exists. They appear to have meant section 17707.03, which governs dissolution.