Judge: Maurice A. Leiter, Case: 19STCV30353, Date: 2023-09-29 Tentative Ruling

Case Number: 19STCV30353    Hearing Date: September 29, 2023    Dept: 54

Hearing Date: September 29, 2023

Department 54, Judge Maurice A. Leiter

Motion to Confirm Appraisal

Moving Party: Defendants Hassen Holding Company, Inc., et al.

Responding Party: Plaintiff Ziad Alhassen

T/R:      DEFENDANTS’ MOTION IS CONTINUED TO DECEMBER 7, 2023 AT 9:00AM.

DEFENDANTS TO NOTICE.

If the parties wish to submit on the tentative, please email the courtroom at SMCdept54@lacourt.org with notice to opposing counsel (or self-represented party) before 8:00 am on the day of the hearing.

The Court considers the moving papers, opposition, and reply.

“A section 2000 shareholder buyout is a special proceeding that supplants an action for involuntary dissolution of a corporation.”  (Goles v. Sawhney (2016) 5 Cal.App.5th 1014, 1018.) “Section 2000 provides that when a shareholder sues for involuntary dissolution, the corporation, or the holders of 50 percent or more of the voting power of the corporation, may avoid the dissolution by purchasing for cash the shares owned by plaintiffs at their ‘fair value.’”  (Ibid.) 

“The statute defines ‘fair value’ as the ‘liquidation value as of the valuation date but taking into account the possibility, if any, of sale of the entire business as a going concern in a liquidation.”  (Ibid.)  “If the parties cannot agree on a valuation, the trial court shall appoint three disinterested appraisers to appraise the fair value of the shares.”  (Ibid.)  “The order shall prescribe the time and manner of producing evidence, if evidence is required.  The award of the appraisers or of a majority of them, when confirmed by the [trial] court, shall be final and conclusive upon all parties.”  (Ibid.)  “[W]hen the determination of the fair value of the shares by the appraisers, or a majority of them, is erroneous, it is the duty of the trial court to examine the matter de novo and to fix a proper value.”  (Mart v. Severson (2002) 95 Cal.App.4th 521, 535 [internal quotations omitted].)  An award pursuant to section 2000 “requires that at least two of the appraisals reach a consensus on fair value.”  (Goles v. Sawhney, supra, 5 Cal.App.5th at p. 1020.)

Defendants move to confirm the appraisal of Plaintiff’s share in Defendant HHC for $97,833.00.

In opposition, Plaintiff challenges both the documents relied on by the appraisers and the manner the appraisal was calculated. Plaintiff asserts the appraisers relied on financial documents that are speculative and without foundation, and refused to consider evidence provided by Plaintiff showing a single enterprise comprised of various entities.

A key issue in performing the calculation is whether to consider priority payments of profits from the entities at issue on an “aggregate” or “individual” basis. HHC owns four subsidiaries with Dighton, two of which have been dissolved and no longer exist. Dighton made capital contributions to each of the four subsidiaries with priority return agreements, meaning profits from the subsidiaries would be distributed first to Dighton until Dighton’s capital contributions had been paid back. The partnership agreements for each entity treat each capital contribution and priority payment agreement separately, meaning profits from one company cannot be used to repay capital contributions to another. Plaintiff asserts Defendants’ capital contributions to the existing entities have long been repaid.

Defendants assert, and the appraisers agreed, that despite the partnership agreements, profits from one subsidiary were paid to Dighton to repay capital contributions to other subsidiaries. This resulted in 99% of the profits from one subsidiary being distributed to Dighton and 1% being distributed to HHC over several years. The appraisers thus determined that HHC’s interest in this subsidiary was 1%, rather than the 45% set forth in the subsidiary partnership agreement. The appraisers noted, however, that they would recalculate Plaintiff’s interest if the Court determines that HHC’s interest in the subsidiaries should be 45%.

The Court declines to rule on this motion before trial. To rule on the valuation, the Court must weigh evidence and make various factual findings directly related to issues at trial, such as whether the entities are a single enterprise and whether Defendants wrongfully diverted funds from the entities. Trial is set for November 13, 2023. This motion is CONTINUED to December 7, 2023 at 9:00am.