Judge Mary H. Strobel, Case 22STCV30789 2022-12-15 Tentative Ruling

Hon. Mary H. Strobel

The clerk for Department 82 may be reached at (213) 893-0530.

Plaintiffs Shana Levin and Tamara Levin, individually and as Trustees of The Michael Arnold Levin Irrevocable Trust, Dated February 13, 2007 (“Plaintiffs”) move for appointment of a receiver over nominal defendant JosLevin Realty Corp. of L.A. (“JosLevin” or “JLR”). Defendants Andrew Clapkin, Dina Marshall, and Marci Clapkin Weiser (“Defendants”) oppose the motion.[1] Through different attorneys, JosLevin has both joined the motion and opposed it.

Plaintiffs’ Objection to Opposition Filed by Valensi Rose PLC On Behalf of JosLevin

Plaintiffs’ objection to the opposition brief filed by Valensi Rose PLC is OVERRULED. Valensi Rose’s ex parte application to affirm itself as counsel was denied by Judge Teresa Beaudet on December 2, 2022, without prejudice to the filing of a regularly noticed motion. At the ex parte hearing, Judge Beaudet stated that she intended to hear the issues on which firm should represent JosLevin as a noticed motion, and that everyone who believed they should file a response to Plaintiffs' motion to appoint a receiver should file their papers. (Reply Cohen Decl. Exh. A.) Considering that ruling and also this court’s limited assignment over receivership matters, the court does not rule upon the dispute as to legal representation of JosLevin for this receivership motion. For this motion, the court will consider the legal briefs filed by both Polsinelli LLP and also Valensi Rose PLC.

Defendants’ Evidentiary Objections to Declarations of Shana Levin, Noel Cohen, and Ann Lee

48: Sustained as to “I learned from Mr. Miranda that the authorized signers on JLR’s account were now Andrew, Manuel Castillo and Guy Marshall. I also learned that on August 8, 2022, the $250,000 in funds I placed in a business CD had been withdrawn and JLR’s account had been closed.” Overruled as to remainder.

49: Sustained as to: “After further communications with FCB, I learned that from Mr. Grossi, that JLR’s funds were withdrawn by Andrew, Dina and/or Marci in the form of a cashier’s check in the sum of $249,000, on August 9, 2022.” Overruled as to remainder.

62: Sustained as to “on or about August 8, 2022, I spoke to Ms. Guillen and she confirmed that Marci and Dina were the ‘two women’ that came into PPB to attempt to change the signers on the JLR account.” Overruled as to remainder.

Formed in 1959, JosLevin is a family owned corporation that owns nine separate parcels of industrial and commercial real property located in Huntington Park, California, none of which is mortgaged. JosLevin leases the property to approximately 17 tenants. JosLevin has cash, some of which includes tenants’ security deposits, of about $1,000,000. JosLevin earned gross revenues of approximately $870,000 in 2021. (Shana Levin Decl. (“Levin Decl.”) ¶¶ 7-8; see also Andrew Clapkin Decl. ¶¶ 13-14.)

Plaintiffs Shana and Tamara Levin each own 3.7% shares in JosLevin. In 2022, they also inherited the 37% shares of Michael Levin, their father, which are held in trust. Accordingly, Plaintiffs effectively control 44.4% shares in JosLevin. (Levin Decl. ¶ 12, Exh. 2; Andrew Clapkin Decl. ¶¶ 5-6.)

Sheila Clapkin, Plaintiffs’ aunt, owns 37% of the shares of JosLevin. Her five children – Andrew Clapkin, Marci Clapkin Weiser, Dina Marshall, Karen Callan and Sheri Clapkin – each own 3.7% shares in JosLevin. (Levin Decl. ¶ 12.) Defendants submit evidence that Sheila Clapkin’s 37% shares are held by the Irwin Babbitt Clapkin and Sheila Clapkin Grantor Trust, of which Sheila’s five children are all co-trustees. (Andrew Clapkin Decl. ¶ 3.) Defendants submit evidence that “the trust instrument provides that three of the five co-Trustees have authority and power to vote the Irwin/Sheila Trust’s shares in Joslevin.” (Id. ¶ 3.) Plaintiffs represent, and Defendants do not dispute, that non-party Karen Callan has aligned with Defendants such that Sheila Clapkin, Defendants, and Karen Callan as a group (hereafter the “Clapkins”) control a majority of the shares (51.8%). (Mot. 2:18-21.)

JosLevin is an S-corporation that elects to pass income, losses, deductions, and credits through to their shareholders. (Id. ¶ 13.)

From about 2008 to February 2022, the Clapkins were elected directors and officers of JosLevin and made all financial decisions for the company. (Levin Decl. ¶¶ 14-27.) During this time, the company paid “consultant fees” to shareholders. (Id. ¶ 15.) Some of the Clapkins and their spouses also worked as employees for JosLevin. (Id. ¶¶ 14-21; Guy Marshall Decl. ¶ 7 [property management and other services]; Andrew Clapkin Decl. ¶¶ 7-14 [summarizing Clapkins’ management of the company].)

Plaintiff Shana Levin declares that, under Clapkins’ management, the consultant fees were not proportionate to the shareholders’ ownership interests. (Levin Decl. ¶¶ 15-17.) She also asserts that Sheila Clapkin’s husband, Irwin Clapkin; (2) Andrew Clapkin; (3) Dina Marshall’s husband, Guy Marshall; and (4) Andrew Clapkin’s husband, Manual Castillo all earned salaries for working for JosLevin that exceeded the market rates for managing real property and, in some cases, used company credit cards to pay for personal expenses such as iPhones, Apple watches, and meals. (Id. ¶¶ 37-41.)

Defendants dispute these contentions. They contend that it was company policy for JosLevin to buy iPhones and employee vehicles for employees and directors, and that they used the company credit cards to pay for business-related expenses. (Guy Marshall Decl. ¶ 8; Andrew Clapkin Decl. ¶¶ 39-45.) They contend that employee payroll was $148,648 in 2021. (Andrew Clapkin Decl. ¶ 14.) Defendant Andrew Clapkin declares that “[a]ll shareholders were consultants, and total consultant fees were $100,000.” (Ibid.) “The amount of the consultants’ fees was never tied to the amount of shares held by a particular shareholder because the consultants’ fees were never intended to be a benefit of share ownership. Rather, they were intended to compensate the consultants for providing Joslevin with their ideas for growing and improving the company. Each grandchild, whether on the Clapkin side of the family or the Levin side of the family, received the exact same consultants’ fee. From time to time over the years, the Board would vote to increase the monthly consultant fees. In those instances, each 3.7% shareholder would receive the same increase, and so would Sheila and Michael (whose consultants’ fees were higher than those of the grandchildren).” (Id. ¶ 38.)

Defendants submit evidence that Plaintiffs did not attend any shareholder’s meetings from 2012 until February 2022, when their father, Michael Levin, died and gave his shares to Plaintiffs. (Id. ¶¶ 5-6, 21.)

In 2021 and early 2022, JosLevin’s Board of Directors voted to issue dividends to shareholders at the request of Plaintiff Tamara Levin to help pay for Michael Levin’s hospice care and medical-related financial needs. Defendants submit evidence that these dividends totaled more than $160,000. (Andrew Clapkin Decl. ¶¶ 22-25.) Plaintiffs acknowledge that the dividends were issued but contend that the dividends should have been higher. Plaintiff Shana Levin states that “at the end of my father’s life, the Clapkins paid him approximately $10,000 a month in dividends, which not only fell short of the $20,000 a month he needed to pay for his cost of care, but also far less than what my father should have received from JLR” given his large shareholder interest. (Levin Decl. ¶ 21; Mot. 3-4.)

In addition to serving as a managerial employee, Andrew Clapkin served as a Board member from February 2006 to February 8, 2022, and as President of JosLevin from February 2019 to February 8, 2022. (Andrew Clapkin Decl. ¶¶ 11-12.) In September 2021, Defendant Marci Clapkin Weiser sent a letter about mismanagement to her brother, Andrew Clapkin, who was then-President of JosLevin. In particular, Marci questioned whether Andrew’s husband, Manuel Castillo, performed any services for JosLevin. Marci also questioned why Sheila Clapkin was on the board when she lacked mental capacity. (Levin Decl. ¶¶ 23-25, Exh. 3.) Marci submitted a declaration in opposition to this motion in which she claims Shana has taken the letter out of context, and that she never believed Andrew engaged in self-dealing with respect to the employment of Manuel or the placement of Sheila on the board.

Shana Levin is Elected President/CEO in February 2022; and Board Makes Management Changes

JosLevin held its annual shareholder’s meeting on February 8, 2022. At that meeting, Dina Marshall, Marci Weiser, and Shana Levin were elected to the three-person Board of Directors. Shana Levin was elected president, chief executive officer, and treasurer. Multiple other officers were appointed, including Sheri Clapkin as secretary. (Levin Decl. ¶ 27; Andrew Clapkin Decl. ¶¶ 29-30 and Exh. 13.)

The new Board of Directors made several significant changes to the management of JosLevin. Among others, the Board hired a professional property management firm, MGMT Group, to manage the company’s real property; fired JosLevin’s three employees (Andrew, Manuel Castillo, and Guy Marshall); and hired outside counsel Jason Stone to advise Board on corporate governance and employment matters. Board member Dina Marshall voted against several of these changes. JosLevin also hired bookkeeper Ronda Burke. (Levin Decl. ¶¶ 27-35, Exh. 5-6; Clapkin Decl. ¶ 30, Exh. 13.)

Plaintiff Shana Levin declares that she requested that Board members Marci Weiser and Dina Marshall attended a Board meeting on May 20, 2022, but “they refused.” (Levin Decl. ¶ 42.) Defendants contend that it was Shana that refused to call a Board meeting on May 20, 2022. (See Weiser Decl. ¶ 18.) Defendants assert that Marci and Dina “called and duly noticed a special meeting of the Board for May 20, 2022 at 4:30 p.m. to be held by Zoom.” (Id. ¶ 19.) Shana did not attend that meeting. Minutes from that special meeting state Marci and Dina constituted a quorum of the Board. The minutes state that, among other matters, Marci and Dina voted to remove several officers, including secretary Sheri Clapkin; to appoint Andrew Clapkin as secretary; to fire attorney Jason Stone and bookkeeper Rhonda Burke; and to “stop all investigations against previous management and employees.” (Levin Decl. ¶¶ 42-43, Exh. 7.)

Marci and Dina assert that they noticed and called special meetings of the Board for June 2, July 29, and October 26, 2022. Marci and Dina assert that Shana refused to attend these meetings, while Shana states that Marci and Dina refused her reasonable requests to reschedule the meetings at times she could attend. Shana does not explain why she could not attend the meetings at the scheduled times. Nor does she develop an argument that the meetings were improperly noticed or lacked a quorum. Minutes from the June 2 and July 29 meetings state that quorums were present and Marci and Dina voted to remove Shana as President, CEO, and Treasurer of JosLevin, and to “delegate” those functions to other persons. (See Levin Decl. ¶¶ 44-45, Exh. 8; Dina Marshall Decl. ¶¶ 5-10, Exh. 18-19, 22-23; Weiser Decl. ¶ 23.)

Marci submits a declaration explaining that, while she voted to appoint Shana as President and CEO in February 2022, she disapproved of Shana’s management of the company for various reasons and thus voted for her removal from management positions in subsequent Board meetings. (Weiser Decl. ¶¶ 5-9, 14-17.)

As discussed below, Defendants also submit evidence that Shana has refused to recognize the Board’s actions starting from the May 20, 2022, Board meeting, including Shana’s purported removal from the positions of President, CEO, and Treasurer of JosLevin. (See e.g. Dina Marshall Decl. ¶¶ 12-32.)

Plaintiffs allege that, starting in August 2022, the Clapkins “looted or attempted to loot” JosLevin’s bank accounts for their personal benefit. (Mot. 6-7.) Those allegations are discussed in detail infra.

On November 10, 2022, the court (Judge Strobel) granted Plaintiffs’ ex parte application for leave to file a first amended motion to appoint receiver and for preliminary injunction. The court set a hearing on the motion to appoint receiver for December 15, 2022, and set a briefing schedule. Any opposition was due December 2, 2022, and any reply by December 8, 2022.

On November 14, 2022, Plaintiffs filed the operative first amended complaint for derivative claims for conversion, breach of fiduciary duty, and to invalidate interested director transactions; and direct claims for removal of directors and accounting. On November, 22, 2022, Polsinelli LLP filed an answer for JosLevin.

On November 21, 2022, Plaintiffs filed their amened motion to appoint receiver and supporting papers. On November 22, 2022, Polsinelli LLP filed a joinder in the motion on behalf of JosLevin. On December 5, 2022, Defendants filed an opposition, and Valensi Rose, PLC filed an opposition on behalf of JosLevin.[2] On December 8, 2022, Plaintiffs filed a reply, and Polsinelli LLP filed a reply on behalf of JosLevin.

On December 12, 2022, Valensi Rose PLC filed a response to objections and a sur-reply on behalf of JosLevin. The court has considered the response to objections, but not the sur-reply. The sur-reply was not authorized by this court. JosLevin’s objection to the sur-reply, filed by Polsinelli LLP on December 13, is sustained.

On December 14, 2022, at approximately 5:49 pm the day before the hearing, Defendants filed supplemental declarations of Andrew Clapkin and Dina Marshall and a supplemental appendix of evidence. Defendants did not request, and the court did not grant leave to file this supplemental evidence. The court disregards these declarations and exhibits.

On November 22, 2022, one day after Plaintiffs filed this motion, a fire destroyed JosLevin’s building located at 5830 Soto St., Los Angeles, one of JosLevin’s “most valuable assets.” The cause of the fire is still under investigation. An incident report of the Los Angeles County Fire Department states “arson investigators at scene” and the matter is “under investigation.” (Andrew Clapkin Decl. ¶ 50; Suppl. Levin Decl. ¶¶ 3-5, 15 and Exh. 35.)

Defendants submit evidence that, on November 30, 2022, a majority of JosLevin’s shareholders elected to voluntarily wind up and dissolve JosLevin. On November 30, 2022, a Certificate of Election to Wind Up and Dissolve Joslevin ("Certificate") was submitted for filing with the California Secretary of State. Defendants submit evidence that a Notice of Commencement of Voluntary Dissolution of Joslevin Realty Corp. of L.A. was then mailed to all shareholders of Joslevin and all currently known creditors and tenants of Joslevin. (Andrew Clapkin Decl. ¶¶ 50, 53-56, Exh. 28, 30, 31; see also Weiser Decl. ¶ 25; Dina Marshall Decl. ¶ 33.)

On November 30, 2022, Defendants, as trustees of three different trusts, filed a petition for supervision of voluntary winding up of JosLevin, including appointment of Stephen J. Donnell as receiver to conduct winding up. The petition has been assigned to Department 82, Judge Mary Strobel. (RJN Exh. A; see Case No. 22STCP04239.)

Several other lawsuits are pending between the parties and have been related before Department 50, Judge Teresa Beaudet. Where relevant, these other lawsuits are discussed infra. (See Mot. 7-8.)

Plaintiffs move for appointment of a receiver pursuant to CCP section 564(b)(1) and (9), which provides in relevant part:

“(b) A receiver may be appointed by the court in which an action or proceeding is pending … in the following cases:

(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 thereof, is probable, and where it is shown that the property or fund is in danger of being lost, removed, or materially injured.

(9) in all other cases where necessary to preserve the property or rights of any party.”

“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. (Barclays, supra, 69 Cal. App. 3d at 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.)

“The court may appoint a receiver in a stockholder's suit if the directors and majority of the stockholders are so managing or disposing of its business or assets in their own interest that they will probably be lost or destroyed before a decree can be rendered, or where there are such dissensions within the corporation that its business cannot be honestly or properly managed, or if for any other reason it clearly appears to the court that the appointment of a receiver pending the suit is necessary to preserve the assets of the corporation, and protect the rights of the complaining stockholders.” (Misita v. Distillers Corp. (1942) 54 Cal.App.2d 244, 250-251.)

However, “[a]ppointment of a receiver may well result in serious injury to the name and good will of a solvent, going concern, and that if there is any other adequate remedy, which is less severe and which will protect the rights of the parties, a court should not take the drastic step of appointing a receiver.” (In re Jamison Steel Corp. (1958) 158 Cal.App.2d 27, 36.) “Ordinarily, if there is any other remedy, less severe in its results, which will adequately protect the rights of the parties, a court should not take property out of the hands of its owners.” (Golden State Glass Corp. v. Sup. Ct. (1939) 13 Cal.2d 384, 393.)

As holders of shares in JosLevin, Plaintiffs have a probable interest in the corporation and have standing to seek appointment of a receivership pursuant to section 564(b)(1) and (9). The issue is whether Plaintiffs have shown that JosLevin is in danger of being lost, removed, or materially injured or that a receiver is otherwise necessary to protect Plaintiffs’ property rights in JosLevin.

The court first discusses several issues related to the scope of receivership sought by Plaintiffs and also Defendants’ petition for supervision of voluntary winding up of JosLevin.

While Plaintiffs move for appointment of a “limited purpose receiver,” the scope of receivership proposed by Plaintiffs is broad. According to their four-page proposed order, Plaintiffs seek a receivership that would take possession and control of all of JosLevin’s cash, stocks, and financial assets; oversee Board meetings and “determine whether a director can vote or must abstain from voting”; review all corporate records and “undertake an accounting of JLR and prepare a report and recommendations regarding the Receiver’s findings”; oversee property manager MGMT Group; employ and terminate employees; hire lawyers and other professionals; and “institute any court proceedings in this State or other States as is necessary involving JLR,” among other duties. (Mot. 1-5.) Plaintiffs also seek a preliminary injunction that would enjoin the Clapkins from, among other things, “[c]alling, noticing or holding regular or special board of directors or shareholder meetings” or “[c]ommencing, prosecuting, continuing or enforcing any suit or proceeding in the name of JLR.” (Mot. 6-7.)

Given the scope of receivership requested by Plaintiffs, the court rejects Plaintiffs’ argument that “the parties all agree a receiver is necessary.” (Reply 1.) Plaintiffs seek a broad receivership to manage JosLevin, including its financial assets, litigation, and property business. In contrast, Defendants seek a receiver to wind up JosLevin, a purpose not remotely similar to the one proposed by Plaintiffs. (See RJN Exh. A.) The parties are not in agreement on the scope of any receivership. The court decides on this motion only whether Plaintiffs are entitled to the receivership requested in their motion, not whether to appoint a receiver to wind up JosLevin.

Defendants contend that Plaintiffs’ motion to appoint a receiver is moot because JosLevin shareholders have elected to voluntarily wind up the corporation. (Oppo. 6-7.) “A case is considered moot when ‘the question addressed was at one time a live issue in the case,’ but has been deprived of life ‘because of events occurring after the judicial process was initiated.’” (Wilson & Wilson v. City Council of Redwood City (2011) 191 Cal.App.4th 1559, 1574.) In reply, Plaintiffs state the election to wind up JosLevin was “invalid” and that they “will be challenging it.” (Reply 7.) An election to voluntarily wind up a corporation requires a “vote of shareholders holding shares representing 50 percent or more of the voting power.” (Corp. Code § 1900(a).) Plaintiffs appear to contend that the 37% shares of Sheila Clapkin were not properly voted by the co-trustees and, therefore, at least 50% of the shares did not vote for the election. The court does not decide that fact-intensive issue for this motion to appoint receiver. Defendants’ petition for supervision of voluntary winding up of JosLevin has not yet been set for hearing. (RJN Exh. A; see Case No. 22STCP04239.) Accordingly, because Plaintiffs challenge the election to wind up JosLevin, Defendants do not show that the instant motion to appoint a receiver is moot.

However, Defendants are correct that the shareholders’ purported election to wind up JosLevin changes the status quo and weighs against appointing the broad receivership sought by Plaintiffs at this time. “When a voluntary proceeding for winding up has commenced, the corporation shall cease to carry on business except to the extent necessary for the beneficial winding up thereof and except during such period as the board may deem necessary to preserve the corporation's goodwill or going-concern value pending a sale of its business or assets, or both, in whole or in part.” (Corp. Code § 1903(c).) While a receiver could be appointed to help wind up the company, Plaintiffs do not seek a receiver for that purpose. Unless Plaintiffs can show in the petition for dissolution that the election was not voted on by at least 50% of the shareholders, it could be counterproductive and inefficient to appoint a receiver for the broad purposes sought by Plaintiffs.

In reply, Plaintiffs contend that the election to dissolve JosLevin is a “ruse” and the shareholders could revoke the consent upon defeating this motion. (Reply 7-8.) While revocation of the election is possible (see Corp Code § 1902(b) [discussing revocation of election],) the argument seems speculative given the discord with Plaintiffs over management of the corporation and the steps JosLevin has taken to commence dissolution proceedings. On this record, the court has insufficient basis to view the election to dissolve as a ruse.

While the election to wind up and dissolve JosLevin weighs against appointment of the receivership sought by Plaintiffs at this time, the court denies the motion for additional reasons discussed below.

Are JosLevin’s Assets in Danger of Being Lost, Removed, or Materially Injured?

To justify a receivership under section 564(b)(1), Plaintiffs must show that JosLevin’s assets are “in danger of being lost, removed, or materially injured.” Plaintiffs make two primary arguments to prove this requirement: (1) that a receivership is necessary to protect JosLevin’s cash and property from Defendants’ looting; and (2) a receiver is necessary to oversee Board meetings and functions.

JosLevin owns nine separate parcels of industrial and commercial real property located in Huntington Park, California, none of which is mortgaged. JosLevin has cash, some of which includes tenants’ security deposits, of about $1,000,000. JosLevin earned gross revenues of approximately $870,000 in 2021. Shana Levin represents that JosLevin’s rents are projected to total $930,000 this year. (Levin Decl. ¶¶ 7-8; Andrew Clapkin Decl. ¶¶ 13-14.) Defendants submit evidence that employee payroll was $148,648 in 2021. (Andrew Clapkin Decl. ¶ 14.) Plaintiffs state that the operational costs of new property manager MGMT are approximately $55,000 a year, well below revenues. (Levin Decl. ¶ 30.) Thus, JosLevin is a profitable company. Plaintiffs do not submit any evidence that JosLevin is at risk of bankruptcy or losing assets to creditors as a result of debt or mismanagement. Defendants also submit evidence that JosLevin has been operated as a viable business for many years, has no mortgages on its properties, and could be expected to continue to earn substantial revenues from its property business under present circumstances. (See generally Andrew Clapkin Decl.; Dina Marshall Decl.; and Marci Clapkin Decl.)

However, it is not necessary for Plaintiffs to establish that JosLevin is insolvent or unprofitable to obtain a receivership over the corporation. “Official breaches of trust, mismanagement and waste, are generally regarded as grounds, according to usages of equity, for a receivership to protect rights.” (Misita v. Distillers Corp. (1942) 54 Cal.App.2d 244, 250-251.)

Plaintiffs contend that “[a]bsent a receiver, there is a substantial risk that the Clapkins, who have for years deprived the Levins of their fair share of the profits and now refuse to recognize Shana as the duly elected President/CEO and Treasurer/CFO, will dissipate JLR’s cash before the Court can determine the parties’ rights and claims in this derivative action.” (Mot. 10.) Plaintiffs do not sufficiently support this argument.

Plaintiffs’ allegations that Defendants improperly paid salaries, consultant fees, or other benefits to family members in the past, or failed to declare dividends in the past, do not justify appointment of a receiver. Defendants dispute these allegations. While Plaintiffs could reasonably disagree with decisions of past management, including the hiring of family members as employees, the evidence for this motion, on the whole, does not show a past pattern or history of Defendants’ “looting” the company for their personal benefits. (See generally Andrew Clapkin Decl. ¶¶ 11-46; see also Guy Marshall Decl.) Significantly, Plaintiffs did not attend any shareholder’s meetings from 2012 until 2022, and they apparently did not previously file derivative actions for alleged looting or mismanagement. (Id. ¶¶ 5-6, 21.) On this record, Plaintiffs do not show that JosLevin as an entity was materially harmed by the prior management’s practice of employing certain family members or paying “consultant fees.” In any event, these actions of prior management do not present any present risk of harm to JosLevin.

Plaintiffs submit evidence that, starting in August 2022, the Clapkins sought to take control of certain financial assets of JosLevin. These alleged actions occurred after a majority of the Board (Marci and Dina) voted to remove Shana Levin as President, CEO, and Treasurer in June and July 2022. (Oppo. Exh. 19, 23.)

Specifically, on or about August 9, 2022, Marci and Dina closed a $250,000 CD held by JosLevin at First Citizens Bank. (Levin Decl. ¶¶ 55-58; Dina Marshall Decl. ¶ 27.) Defendants submit evidence, which Plaintiffs do not rebut in reply, that the “funds were transferred to a new FDIC-insured account held in the name of Joslevin” and “[t]he only authorized signers on that account are Marci and I, both of whom are officers (President/Vice-President and Treasurer, respectively) and directors comprising the majority of the Board.” (Dina Marshall Decl. ¶ 28.) Dina also explains that she and Marci took this step “out of concern that Joslevin’s business operations would be negatively impacted if any more of its accounts were frozen or emptied of their funds by Shana.” (Id. ¶ 27.)

Plaintiffs submit evidence that Andrew Clapkin is the authorized signer on JosLevin’s Merrill Lynch brokerage account, which holds approximately $314,000. (Levin Decl. ¶¶ 59-62, Exh. 16.) Plaintiffs contend that he has wrongfully “refused to transfer control of this account to Shana who is the duly elected Treasurer.” (Mot. 7.) Andrew Clapkin declares that he “never received a request from Merrill Edge (or Shana) to transfer my signing authority over Joslevin’s Merrill Edge brokerage account to Shana.” (Andrew Clapkin Decl. ¶ 47.) He points out that the Board purported to remove Shana as treasurer on July 29, 2022, as discussed further below. He also declares that he “never used any of Joslevin’s funds for my own personal benefit” and “[a]ll of the funds once held in the First Citizens Bank and Merrill Edge accounts are now being safely held in accounts owned by Joslevin, not by me personally.” (Id. ¶ 48.) Dina Marshall similarly declares that the Clapkins “moved the assets held in the Merrill Edge account to another account held in Joslevin’s name at a different financial institution on October 5, 2022. The only authorized signers on that account are me and Marci.” (Dina Marshall Decl. ¶ 30.) She further declares: “I have never used any of Joslevin’s funds for my own personal benefit. All of the funds once held in the First Citizens Bank and Merrill Edge accounts are now being safely held in accounts owned by Joslevin, not by me personally. Those funds were moved to new accounts solely to protect those funds from the unlawful and improper actions by Shana.” (Id. ¶ 32.)

Also during this time period of August 2022, and in the midst of the alleged removal of Shana Levin as CEO, President, and Treasurer, the Clapkins sought to withdraw funds or change the authorized signers for JosLevin’s accounts with Bank of America, Bank of Hope, and Pacific Premier Bank. (Mot. 7; Levin Decl. ¶¶ 63-79.) In part due to efforts of Shana Levin, the Clapkins were not able to withdraw funds from these accounts. (Ibid.) The Bank of America account remains active and Shana Levin is the authorized signer. (Levin Decl. ¶¶ 63-69.) The Bank of Hope account, which has a $240,000 balance, has been frozen as a result of the dispute over control between factions of JosLevin shareholders. (Levin Decl. ¶¶ 70-71; Dina Marshall Decl. ¶¶ 18-21.) The account at Pacific Premier Bank was closed and Shana Levin withdrew all funds from that account. Shana Levin declares that $250,016.95 of the funds were deposited with MGMT Group to pay for JosLevin’s operational costs. Another $64,294.13 was transferred to the JosLevin Bank of America account. (Levin Decl. ¶ 79.) Defendants contend that Shana Levin’s withdrawal of funds from Pacific Premier Bank was unauthorized because she had been removed as treasurer prior to that time. (See Dina Marshall Decl. ¶¶ 14-17.)

In the motion, Plaintiffs characterize the Clapkins’ actions as “looting” and “bad faith” efforts to take control of JosLevin’s financial assets. Plaintiffs assert that the Clapkins wrongfully removed $250,000 from First Citizens Bank and attempted to take other assets “for their personal use and benefit.” (Mot. 10.) The court finds insufficient evidence of “looting” or that the Clapkins took the $250,000 from First Citizens Bank for their personal use and benefit.

As summarized above, the undisputed evidence shows that Marci and Dina withdrew the $250,000 from First Citizens Bank in early August 2022, shortly after they voted to remove Shan Levin from her positions as CEO, President, and Treasurer on July 29, 2022. Defendants submit evidence, which Plaintiffs have not rebutted, that the financial assets controlled by Defendants are being held in the name of JosLevin and are not being used for personal benefit of the Clapkins. (Dina Marshall Decl. ¶¶ 30-32; Andrew Clapkin Decl. ¶¶ 47-48.) The minutes for the July 29, 2022, Board meeting corroborate this evidence, and state as follows: “The board of directors discussed Shana Levin's position as Treasurer, and her failure to cooperate with the board to provide access to bank accounts, by refusing to update the board with recent bank account statements, by refusing to answer questions about unusual money contributions to the property management company…. Marci Weiser made a motion to remove Shana Levin as Treasurer of the Joslevin Realty Corp. of L.A., Dina Marshall seconded the motion…. Marci Weiser made a motion to nominate Dina Marshall as Treasurer of the Joslevin Realty Corp. of L.A., Dina Marshall seconded the motion. Official Vote: Marci Weiser - Yes; Dina Marshall - Yes; Shana Levin - Absent. The motion passed and Dina Marshall is Treasurer of the Joslevin Realty Corp. of L.A.” (Oppo. Exh. 23.) Weighing the evidence, the court finds that Plaintiffs do not prove that Defendants’ withdrawal of funds from First Citizens Bank was “looting” or a bad faith attempt to use JosLevin funds for their personal benefits.

For all other financial accounts, Plaintiffs do not show any present risk of danger to JosLevin’s financial assets. The Merrill Edge account is held in JosLevin’s name and Plaintiffs do not submit evidence of any withdrawals or that Defendants have taken action to use funds from that account for their personal benefit. Shana Levin controls the Bank of America account and withdrew the funds from Pacific Premier Bank. The $240,000 in the Bank of Hope account has been frozen and is held in the name of JosLevin.

Plaintiffs argue that Defendants “are wrongfully using JLR’s funds to pay the Valensi Rose law firm under the guise it represents JLR.” (Reply 4.) As discussed, the legal representation of JosLevin is a disputed issue that this court does not resolve for this motion. Further, while Plaintiffs challenge Valensi Rose’s authorization to represent JosLevin, Plaintiffs acknowledge that Valensi Rose has performed legal work purportedly for the benefit of JosLevin. Plaintiffs do not show use of the JosLevin funds for Valensi Rose’s representation of Defendants personally.

The division of JosLevin’s financial assets between the two factions does theoretically raise a risk that JosLevin may not have sufficient accessible funds to operate. However, Defendants, who control the board, have not sought a receivership on that basis. Plaintiffs, who seek a receivership, do not submit evidence of a present danger that JosLevin’s assets will lost, removed, or materially injured as a result of such circumstances. For instance, none of the properties is mortgaged. Accordingly, Plaintiffs do not show that JosLevin is at risk of defaulting on a loan or that any of the properties are at risk of foreclosure. Also, while Plaintiffs vaguely state that some of the $250,000 controlled by Defendants is for “tenants’ security deposits,” Plaintiffs cite no evidence of the amounts of the security deposits, that tenants have demanded the return of same, that Defendants would not return security deposits from the $250,000, or that other financial assets are insufficient to return any security deposits that could be sought by tenants. (Mot. 1:3-8, 2:9-10, 7:4-6; Levin Decl. ¶¶ 55-58.) Plaintiffs also do not show that JosLevin cannot pay property manager MGMT or other employees under present circumstances. Indeed, Plaintiffs state that $250,016.95 of the funds were deposited with MGMT Group to pay for JosLevin’s operational costs. (Levin Decl. ¶ 79.)

Plaintiffs do not show grounds to appoint a receiver based on their allegations of “looting” against Defendants.

Corporate Deadlock; and Alleged Need for Receiver to Oversee Board Meetings and Functions

“A court of equity has power to appoint a receiver of a going corporation upon a showing that there are such dissensions in its governing body as to create a virtual suspension of its business” (See Golden State Glass Corp. v. Sup. Ct. (1939) 13 Cal.2d 384, 393; accord Misita, supra, 54 Cal.App.2d at 250-251 [“court may appoint a receiver “where there are such dissensions within the corporation that its business cannot be honestly or properly managed”].)

Plaintiffs contend that “both sides agree that the board cannot function because each side claims to be in rightful control of JLR, which threatens irreparable damage to JLR’s property and business pending this litigation.” (Mot. 11.) At first blush, the argument appears wholly untenable because the Clapkins control two of the three seats on the Board of directors. At least for Board decisions for which Dina and Marci are disinterested, there is no evidence of deadlock on the Board because a majority of the three Board members can vote on corporate decisions.

However, the deadlock issue is somewhat more involved than who controls the Board. Plaintiffs contend that: (1) Shana is the only “disinterested director” and therefore effectively controls the Board; (2) Dina and Marci are “interested directors” and “should abstain from voting” as Board members; (3) a provisional director cannot be appointed because there is not an even number of directors (Corp. Code § 308); and (4) preliminary injunctive relief preventing Shana from serving as President, CEO, and Treasurer would not benefit the shareholders and lead to a multiplicity of lawsuits. (Mot. 10-12.) Relatedly, Plaintiffs contend that Dina and Marci were not authorized by the bylaws to remove Shana as President, CEO, and Treasurer, and that such actions cannot be taken until the annual Shareholder’s meeting scheduled for February 14, 2023. (Mot. 4, fn. 4 and 10:5-19; Reply 2-3.)

The court has considered all of Plaintiffs’ contentions. While there is evidence of conflict between two different shareholder factions, the evidence does not preponderate in support of a finding that JosLevin is presently in danger of being lost or materially injured as a result of corporate deadlock or dissension. The Board has three directors and is not deadlocked in any general sense. To the extent Shana Levin is still the CEO, President, and Treasurer, she cannot obtain an equitable remedy of receivership for refusing to comply with lawful decisions and resolutions of the Board of Directors. Plaintiffs also admit that a Shareholder’s meeting is scheduled for February 14, 2023, and that the primary point of disagreement – whether Shana should be President, CEO, and Treasurer – could be decided at that meeting. Given that there is less than two months before the Shareholder’s meeting, and no evidence of imminent danger to JosLevin’s business or assets from corporate dissension, it would not be equitable at this time to take the drastic step of placing the corporation in receivership.

The court further analyzes Plaintiffs’ contentions that Marci and Dina are interested directors, and that Shana was not properly removed as CEO, President, and Treasurer, as follows:

Corporations Code section 310 requires directors interested in a transaction to either abstain from voting or prove the transaction was just and reasonable to the corporation. (Corp. Code § 310(a)(2) and (3).) In reply, Plaintiffs contend that the term “transaction” is construed broadly and “may cover situations which go beyond the traditional contract or agreement, such as a board decision to decline a business opportunity in which one or more of the directors is interested.” (Reply 6.) However, Plaintiffs do not show that Marci and Dina are interested directors for any significant number of Board decisions or any decisions that could place JosLevin in imminent danger of being harmed or materially injured. Plaintiffs state that “Marci and Dina are interested directors concerning the board’s investigation into prior management and employees, as that investigation directly implicates them or members of their immediate family.” (Mot. 11.) However, Plaintiffs do not show a receivership is needed to the extent Marci and Dina improperly voted to cease investigations into family members. Even if their votes on such matter was improper (which the court does not decide), Plaintiffs do not show that it presents an imminent danger to JosLevin’s business. Plaintiffs also have less drastic remedies to address their concern that Marci and Dina improperly voted to cease investigations. While Plaintiffs suggest in reply that Marci and Dina are interested directors with respect to certain lawsuits, they do not fully brief the issue or show that any improper vote on such matters cannot be addressed through less drastic remedies. (Reply 6.) To the extent Plaintiffs argue that Marci and Dina must abstain from all Board decisions (see Mot. 11:15), the argument is unsupported and unpersuasive.

Plaintiffs contend that Dina and Marci were not authorized by the bylaws to remove Shana as President, CEO, and Treasurer, and that such actions cannot be taken until the annual Shareholder’s meeting scheduled for February 14, 2023. (Mot. 4, fn. 4 and 10:5-19; Reply 2-3.) The court finds it unnecessary to decide whether Shana was properly removed from such positions. Plaintiffs do not show that the dispute concerning her authority to act as President, CEO, and Treasurer justifies appointment of a receiver until either the Shareholder’s meeting on February 14, 2023, or a decision on the petition to dissolve JosLevin, which is also pending before this court.

Under California law, “the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board.” (Corps. Code § 300(a).) “California has recognized the rule that the board cannot delegate its function to govern. As long as the corporation exists, its affairs must be managed by the duly elected board. The board may grant authority to act, but it cannot delegate its function to govern. If it does so, the contract so providing is void.” (Kennerson v. Burbank Amusement Co. (1953) 120 Cal.App.2d 157, 173- 174.)

Plaintiffs cite certain provisions from the bylaws that state that the CEO, president, and treasurer shall hold office until the next annual Shareholder’s meeting, which Petitioners state will occur on February 14, 2023. (Mot. 4, fn. 4 and 10:5-19; Reply 2-3.) However, Plaintiffs do not address Kennerson, supra or cite any authority to support a position that an appointed president or CEO may supersede or refuse to comply with decisions of the corporate board. (Sehulster Tunnels/Pre-Con v. Traylor Brothers, Inc. (2003) 111 Cal.App.4th 1328, 1345, fn. 16 [failure to address point is “equivalent to a concession”].) The bylaws state that the president “shall see that all orders and resolutions of the Board are carried out.” (Oppo. Exh. 1 at § VIII.) Section X states that “in the absence of disability or refusal to act of both the President and the Vice-President, the Board may appoint a President Pro Tem.” (Ibid. [bold italics added].) Section XII states that “unless otherwise provided by resolution of the Board of Directors, the Treasurer shall have custody of the funds and securities of the corporation.” (bold italics added.) Section XIII states that “in the case of the absence or disability of any officer of the corporation, or for any other reason deemed sufficient by a majority of the Board, the Board of Directors may delegate … the powers or duties of any officer ….” (Ibid. [bold italics added].)

For purposes of this motion, the court need not decide whether Shana was properly removed as CEO, President, and Treasurer by Dina and Marci. Assuming arguendo that Shana was not removed, she is required by the bylaws to “see that all orders and resolutions of the Board are carried out.” (Oppo. Exh. 1 at § VIII.) If she is unable or refuses to perform that duty, the majority of the Board may delegate Shana’s duties to another person. To the extent Shana is still the CEO, President, and Treasurer, she cannot obtain an equitable remedy of receivership for refusing to comply with lawful orders of the Board of Directors. “One who seeks equity must do equity.” (Dickson, Carlson & Campillo v. Pole (2000) 83 Cal.App.4th 436, 445-446.)

If the court in the petition for dissolution finds that at least 50% of the shareholders elected to wind up JosLevin, then the business must cease operations in any event. Furthermore, Plaintiffs concede that a Shareholder’s meeting must be held by February 14, 2023, at which time Shana could be removed as CEO, President, and Treasurer. In these circumstances, and at present time, there is insufficient evidence of a danger to JosLevin to grant the broad receivership sought by Plaintiffs in this motion.

Plaintiffs contend that “[a] limited purpose receiver is also necessary to manage counsel purporting to represent JLR in the four (4) pending actions.” (Mot. 13.) Plaintiffs state: “The Clapkins’ actions authorizing suit in JLR’s name against Shana are invalid as interested director transactions under Corporations Code § 310, or breach of their fiduciary duty as majority directors/shareholders. The Clapkins have a material financial interest in removing Shana as President/CEO, seizing control of JLR’s bank accounts and stopping the board’s investigation into past management and employees.” (Mot. 13.) Plaintiffs also contend that “the Clapkins may not shift the cost of their defense of this derivative action to JLR” and “[t]his is what the Clapkins seek to do by hiring Laurie Murphy of Valensi Rose to ‘represent’ nominal defendant, JLR.” (Ibid.)

As discussed above, the parties’ contentions regarding legal representation of JosLevin are more appropriately litigated in the main legal action before Department 50, Judge Teresa Beaudet. Furthermore, while a multiplicity of lawsuits does increase the legal expenses of JosLevin, the court cannot conclude on this record that such expenses justify appointment of a receiver, which in itself would be expensive and further increase the corporation’s legal costs. Plaintiffs have provided the court no evidence concerning the legal costs being incurred by JosLevin, and Plaintiffs concede that some of the legal actions were filed either by Plaintiffs or by JosLevin “at Shana’s direction.” (Mot. 7.) In the circumstances discussed at length above, including the existence of a three-person Board that can make decisions with respect to pending litigation, it would not be equitable to appoint a receiver to stay litigation or manage counsel.

In reply, Plaintiffs argue that “Board dysfunction” jeopardizes JosLevin’s insurance claim for the fire at 5830 Soto St. and requires appointment of a receiver. (Reply 4-5.) Plaintiffs did not move for a receivership on that basis because the fire did not occur until after the motion was filed. While Plaintiffs may raise this issue in reply, Plaintiffs do not show any Board “dysfunction” related to the insurance claim that requires appointment of a receiver. As discussed, Defendants control two of the three Board seats and are not deadlocked. Plaintiffs cite no persuasive evidence that Marci or Dina is an interested director with respect to the insurance claim.

Plaintiffs contend that the Clapkins have put the insurance proceeds at risk because “Marci accused the Levins of failing to remove transients from the property as the reason for the fire.” (Reply 4.) Plaintiffs apparently rely on an email stating Marci’s opinion that Shana and others are to blame for the fire and that presumably would not have been made public to the insurer except for Plaintiffs’ disclosure. (Sheri Clapkin Decl. ¶ 7, Exh. 30.) Plaintiffs do not explain how Marci’s opinion could reasonably place the insurance claim at risk. In any event, the email does not show “Board dysfunction.”

Plaintiffs assert that “the Clapkins apparently seek to hijack JLR’s insurance proceeds just like they hijacked its bank accounts.” (Reply 5.) Plaintiffs fail to support this claim.

The parties agree that 5830 Soto St. is a valuable asset of JosLevin. (Oppo. 6.) They also agree that the property was insured. Because the three-person Board of Directors can make decisions related to the fire, including by directing officers to pursue an insurance claim, Plaintiffs do not show that a receiver is needed related to the fire.

“Ordinarily, if there is any other remedy, less severe in its results, which will adequately protect the rights of the parties, a court should not take property out of the hands of its owners.” (Golden State Glass Corp. v. Sup. Ct. (1939) 13 Cal.2d 384, 393.)

If Plaintiffs contend that Marci and Dina improperly voted to cease Board investigations, took control of JosLevin financial assets, hired or fired attorneys representing JosLevin, filed legal actions, or have not properly pursued an insurance claim for the fire at 5830 Soto St., those issues may be raised in an action for damages or for injunctive relief. Plaintiffs do not show that such alternative remedies are inadequate.

Defendants request a continuance of this motion on the grounds that “Plaintiffs still refuse to turn over Joslevin’s corporate records to its other board member.” (Oppo. 17, citing Heller Decl. ¶¶ 2-8.) Defendants do not identify any specific requests for records that was unfulfilled or any specific records that are needed to oppose the motion. The request for continuance is denied.

Because the court denies the motion, the court need not address the parties’ arguments concerning the preliminary injunctive relief sought by Plaintiffs; the parties’ nominations for receiver; or the amount of undertaking.

[1] At times in this ruling, the court may refer to Plaintiffs, Defendants, and certain non-parties by their first names. No disrespect is intended.

[2] Defendants and Valensi Rose filed declarations explaining that the oppositions could not be filed on December 2, 2022, due to maintenance of the court’s e-filing system. The oppositions were timely served on December 2, 2022, and Plaintiffs were not prejudiced by the late filing.