Judge Melvin D. Sandvig, Case 22CHCV00729 2023-05-02 Tentative Ruling

Judge: Melvin D. Sandvig, Case: 22CHCV00729, Date: 2023-05-02 Tentative Ruling

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Case Number: 22CHCV00729 Hearing Date: May 2, 2023 Dept: F47

Dept. F47

Date: 5/2/23

Case #22CHCV00729

MOTION FOR ORDER APPOINTING RECEIVER

Motion filed on 1/6/23.

MOVING PARTY: Defendant/Cross-Complainant Irma Torres

RESPONDING PARTY: Plaintiff Albert Gonzalez on behalf of himself and all other members of Extra Hubbard, LLC and Cross-Defendant Albert Gonzalez

NOTICE: ok

RELIEF REQUESTED: An order appointing professional receiver Richard Weissman as receiver of all property jointly owned by Torres and Gonzalez, including but not limited to Super Mission, LLC (“Super Mission”), Extra Hubbard, LLC (“Extra Hubbard”), IA Manor, LLC (“IA Manor”), and all real property held by them as tenants in common, including 12341 San

Fernando Rd., Los Angeles, CA 91342, APN 2611-007-014 (the “Palacio”). The other real properties at issue held by the companies previously named include: 14117 Hubbard St., Los Angeles, CA 91342, Assessor’s Parcel Number (“APN”) 2508-027-029 (the “Plaza”), owned by Extra Hubbard; 455 San Fernando Mission Blvd., San Fernando, CA 91340, APN 2521-022-021, and 415 San Fernando Mission Blvd., San Fernando, CA 91340, APN 2521-021-027, and 12446 San Fernando Rd., Los Angeles, CA 91342, APN 2507-007-030 (collectively, the “Banquet Halls”), owned by Super Mission; and the vacant lot with APN 2841-040-017 (“Sand Canyon”), owned by IA Manor (each a “Property” and collectively, the “Properties”).

In connection with the order appointing a receiver, Torres requests that the Court order, among other things, that: (1) the properties and assets jointly owned by Torres and Gonzalez, as described above, be assigned to the receiver; (2) the receiver be given all power under applicable law including, but not limited to, the power to manage, operate, and control Extra Hubbard, Super Mission, and IA Manor, and to sell the tangible and intangible assets of the same, and further to collect debts and/or pursue legal action on behalf of these entities; (3) Gonzalez and any officers, directors and agents of Gonzalez or his entities and anyone acting in concert with any of them be restrained, enjoined and prohibited from removing, transferring, encumbering or otherwise disposing of any of the properties and assets described above, and from interfering with the discharge of the receiver’s duties.

RULING:

SUMMARY OF FACTS & PROCEDURAL HISTORY

This action arises out of the business relationship between Plaintiff/Cross-Defendant Albert Gonzalez (Gonzalez) and Defendant/Cross-Complainant Irma Torres (Torres). Gonzalez and Torres, either by membership in limited liability companies or as co-tenants, are 50-50 owners of the following properties: 12341 San Fernando Rd., Los Angeles, CA 91342, Assessor’s Parcel Number (APN) 2611-007-014 (the “Palacio”); 14117 Hubbard St., Los Angeles, CA 91342, APN 2508-027-029 (the “Plaza”); 455 San Fernando Mission Blvd., San Fernando, CA 91340, APN 2521-022-021; 415 San Fernando Mission Blvd., San Fernando, CA 91340, APN 2521-021-027; 12446 San Fernando Rd., Los Angeles, CA 91342, APN 2507-007-030; and a vacant lot with APN 2841-040-017 (“Sand Canyon”).

Prior to 2016, when he died, Torres’ husband, Rafael Torres, Jr. (Raphael) was Gonzalez’s business partner. (Torres Decl. ¶1; Gonzalez Decl. p.18:21-27). Upon Raphael’s death, Torres became joint owners in the above-mentioned Properties with Gonzalez. (See Torres Decl. ¶1; Gonzalez Decl. p.20:15-17). Based on the operating agreements between the parties, Gonzalez and Torres are coequal managers of each LLC which owns certain of the Properties at issue. (Torres Decl. ¶10).

The Properties are managed by companies owned and operated by Gonzalez’s and/or Torres’ children: Alda Property Management (Alda) which is owned by Gonzalez’s son, Albert Gonzalez, Jr. (Albert, Jr.), and Torres’ son, Daniel Torres (Daniel) and/or Olivos Property Management (Olivos) which is owned by Gonzalez’s daughter, Evita Gonzalez (Evita). (Torres Decl. ¶9; Coleman Decl.; Gonzalez Decl., p.30:24-p.31:4). However, Gonzalez also claims that he manages the Properties. (Gonzalez Decl., p.25:6-10).

Pueblo Restaurants, Inc. (Pueblo), which owns and operates restaurants and banquet halls, is one of the main tenants at the Properties. (Torres Decl. ¶4; Gonzalez Decl. p.19:24-p.20:6). Gonzalez, Albert Jr., Daniel and other members of Gonzalez’s family are shareholders of Pueblo. (Torres Decl. ¶¶4, 10; Gonzalez Decl. p.18:7-8). Pueblo owes about $769,000 in back rent. (Torres Decl. ¶5). Torres contends that before 2022, she received approximately $10,000 per month in distributions of rental income from the properties. Torres believes that when a dispute arose between her and Gonzalez and Gonzalez filed this action against her on 9/2/22 for Breach of Fiduciary Duty and Declaratory Relief, Gonzalez also instructed the property managers to cease making distributions to her. (Torres Decl. ¶¶3, 10-11).

On 10/14/22, Torres filed a cross-complaint against Gonzalez and thereafter, on 1/6/23, a First Amended Cross-Complaint against Gonzalez; Extra Hubbard, LLC; Super Mission LC; IA Manor, LLC and Does 1-100 for: (1) Breach of Fiduciary Duty of Loyalty, (2) Breach of Fiduciary Duty of Care; (3) Breach of Contract; (4) Reformation of Contract; (5) Dissolution of LLCs and (6) Concealment.

On 1/6/23, Torres also filed the instant motion seeking an order appointing professional receiver Richard Weissman as receiver of all property jointly owned by Torres and Gonzalez, including but not limited to Super Mission, LLC (“Super Mission”), Extra Hubbard, LLC (“Extra Hubbard”), IA Manor, LLC (“IA Manor”), and all real property held by them as tenants in common, including 12341 San Fernando Rd., Los Angeles, CA 91342, APN 2611-007-014 (the “Palacio”). The other real properties at issue held by the companies previously named include: 14117 Hubbard St., Los Angeles, CA 91342, Assessor’s Parcel Number (“APN”) 2508-027-029 (the “Plaza”), owned by Extra Hubbard; 455 San Fernando Mission Blvd., San Fernando, CA 91340, APN 2521-022-021, and 415 San Fernando Mission Blvd., San Fernando, CA 91340, APN 2521-021-027, and 12446 San Fernando Rd., Los Angeles, CA 91342, APN 2507-007-030 (collectively, the “Banquet Halls”), owned by Super Mission; and the vacant lot with APN 2841-040-017 (“Sand Canyon”), owned by IA Manor (each a “Property” and collectively, the “Properties”).

Gonzalez has opposed the motion and Torres has filed a reply to the opposition.

ANALYSIS

Gonzalez’s objections (numbers 1-25) to the Torres declaration submitted in support of the motion are overruled.

CCP 564(b) provides, in relevant part:

“A receiver may be appointed by the court in which an action or proceeding is pending, or by a judge of that court, in the following cases:

(1) In an action by a vendor to vacate a fraudulent purchase of property, or by a creditor to subject any property or fund to the creditor's claim, or 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.

. . .

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

A receiver may be appointed in actions involving corporate fraud or mismanagement and/or internal dissentions deadlocking a corporation or frustrating it or threatening its purposes. See Misita (1942) 54 CA2d 244, 251. Similarly, official breaches of trust, mismanagement and waste, are generally regarded as grounds for the appointment of a receiver to protect rights. Id. The appointment of a receiver rests in the discretion of the court based on all facts and upon the requesting party’s showing of a prima facie case. Copper Hill Mining Co. (1864) 25 Cal. 11.

However, the appointment of a receiver is a very drastic, harsh and costly remedy that is to be used sparingly and with caution because it transfers property out of the hands of the owners and into the hands of a receiver. See Medipro Medical Staffing LLC (2021) 60 CA5th 622, 628. Because of the “extraordinary” nature of the appointment of a receiver and the special costs it imposes, court are strongly discouraged, but not prohibited, from appointing a receiver unless the more intrusive oversight of a receiver is necessary because other less intrusive remedies are inadequate or unavailable. Id.

The evidence establishes that: (1) Gonzalez and Torres are 50-50 owners of the Properties either through LLCs or as tenants-in-common), (2) Gonzalez is the Chief Executive Officer and owns 9.95% of Pueblo, a tenant at the Properties; (3) Pueblo owes almost $800,000 in back rent to Gonzalez and Torres, (4) Gonzalez is in the middle of a shareholder dispute with the other owners of Pueblo; and (5) the property managers of the Properties are comprised of Gonzalez’s and Torres’ children some of which are also shareholders in Pueblo. (See Torres Decl.; Gonzalez Decl.).

Additionally, based on the conflicting declarations of Torres, submitted in support of the motion, and Gonzalez, submitted in support of the opposition, it is clear that they are at a deadlock over the management of the LLCs and/or the Properties. Torres claims conflicts of interest and self-dealing by Gonzalez based on his ownership interest in Pueblo, one of main tenants at the Properties, Gonzalez’s dispute with his business partners in Pueblo and his familial relationship the owners of the management company(ies) for the properties. (See Torres Decl.). On the other hand, Gonzalez claims that Torres has breached her fiduciary duties to benefit her son, Daniel, a 50% owner of Pueblo and an owner of one of the management companies managing the Properties. (See Gonzalez Decl.). The deadlock is further evidenced by communications from the property management regarding urgent matters such payment of overdue property taxes, approval of lease extensions for tenants, approval of rent collection efforts and approval of third-party contracts. (See Coleman Decl. ¶¶3-4, Ex.B, C).

The evidence shows that Torres disapproves of the current management of the Properties and does not believe she has been given full access to all of the LLCs records, including financial records, in order to determine whether the management companies, whose owners also have ownership interests in one of the main tenants of the Properties, have committed any misconduct. (See Torres Decl.; Coleman Decl.; Coleman Decl.). Gonzalez claims that the management company, Alda, has done an excellent job managing the Properties at a reasonable rate, but also contends that he manages the Properties which calls into question why a management company is being paid at all and/or whether Gonzalez actually controls the management company. (Gonzalez Decl., p.25:6-10, p.30:25-p.31:4)

Further, the evidence indicates that Gonzalez has refused to comply with Torres’ request to replace the current property managers with neutral disinterested property managers which would be paid at market rate and/or would only consider doing so if Torres paid any increased costs in doing so. (See Motion, p.7:23-24; Reply, p.6:10-14; Coleman Decl. ¶¶3-5).

Unless the parties can now come to an agreement regarding replacement of the current property managers for the Properties with neutral, disinterested property managers to be paid at market-rate with such costs being borne equally by the parties, the Court finds that the appointment of a receiver is necessary to end the deadlock between Torres and Gonzalez regarding the Properties and to ensure that no injury results to the Properties or to either of the owners’ interests therein as a result of the deadlock.

However, the Court finds that certain of the terms requested by Torres for the appointment are unwarranted at this point and/or insufficient. For example, Torres seeks an order authorizing the receiver to dissolve the LLCs and sell the Properties and assets. (See Motion, p.14:1-7). However, such relief would essentially resolve certain of Torres’ cross-claims before they have been litigated.

Also, contrary to Torres’ assertion, the Court finds that the costs of the receivership should be borne equally by Torres and Gonzalez.

The Court notes that Torres has not authenticated the Resume and Legal Biography of Richard Weissman, the proposed receiver, attached to the motion as Exhibit 1. Nor, has a declaration been submitted attesting to the fact set forth in the motion regarding Weissman not being interested in the action. (See Motion, p.13:3-6). Additionally, a declaration from Weissman indicating his willingness to act as a receiver in this action has not been provided. The Court notes that the opposition does not challenge Weissman’s qualifications or nominate any other person to act as receiver if the motion is granted. See CRC 3.1177.

The motion also fails to address the requirements of the oath and undertaking of the receiver as set forth in CCP 567.

CONCLUSION

Unless the parties have come to an agreement regarding the management of the Properties which renders this motion moot, the Court intends to appoint a receiver as to all property jointly owned by Torres and Gonzalez, including but not limited to Super Mission, LLC (“Super Mission”), Extra Hubbard, LLC (“Extra Hubbard”), IA Manor, LLC (“IA Manor”), and all real property held by them as tenants in common, including 12341 San Fernando Rd., Los Angeles, CA 91342, APN 2611-007-014 (the “Palacio”). The other real properties at issue held by the companies previously named include: 14117 Hubbard St., Los Angeles, CA 91342, Assessor’s Parcel Number (“APN”) 2508-027-029 (the “Plaza”), owned by Extra Hubbard; 455 San Fernando Mission Blvd., San Fernando, CA 91340, APN 2521-022-021, and 415 San Fernando Mission Blvd., San Fernando, CA 91340, APN 2521-021-027, and 12446 San Fernando Rd., Los Angeles, CA 91342, APN 2507-007-030 (collectively, the “Banquet Halls”), owned by Super Mission; and the vacant lot with APN 2841-040-017 (“Sand Canyon”), owned by IA Manor (each a “Property” and collectively, the “Properties”).

In connection with the order appointing a receiver, the Court intends to make the following orders: (1) the Properties and assets jointly owned by Torres and Gonzalez, as described above, are assigned to the receiver; (2) the receiver is given all power under applicable law including, but not limited to, the power to manage, operate, and control Extra Hubbard, Super Mission, and IA Manor, and to collect debts and/or pursue legal action on behalf of these entities; (3) Gonzalez and any officers, directors and agents of Gonzalez or his entities and anyone acting in concert with any of them be restrained, enjoined and prohibited from removing, transferring, encumbering or otherwise disposing of any of the properties and assets described above, and from interfering with the discharge of the receiver’s duties; and (4) Torres and any of her agents or anyone acting in concert with her are also restrained, enjoined and prohibited from removing, transferring, encumbering or otherwise disposing of any of the properties and assets described above, and from interfering with the discharge of the receiver’s duties.

If during the receivership the receiver finds it necessary to sell the tangible and intangible assets of Extra Hubbard, Super Mission, and IA Manor, aside from what is necessary for their management, operation and control, the receiver may apply to the Court for such permission. In other words, if the receiver deems it necessary to sell the real properties owned by Extra Hubbard, Super Mission, and IA Manor, the receiver must apply to the Court for permission for such sales.

However, due to the lack of declaration attesting to the proposed receiver’s qualifications and the amount of the undertaking of the receiver, the hearing will be continued. At least 10 court days before the continued hearing date, Torres’ is ordered to file and serve a declaration(s) attesting to the qualifications of the proposed receiver and the amount of the undertaking required by CCP 567(b). Additionally, a declaration from Weissman indicating his willingness to act as a receiver in this case must also be filed at least 10 court days before the continued hearing date. Gonzalez may also file and serve a declaration(s), at least 10 court days before the continued hearing date regarding the amount of the receiver’s undertaking.

The Court notes that counsel for both Torres and Gonzalez have failed to bookmark the declarations and/or exhibits attached to the motion and opposition as required. See CRC 3.1110(f)(4); (5/3/19 First Amended General Order Re Mandatory Electronic Filing for Civil).

Additionally, the opposition memorandum of points and authorities exceeds 10 pages without including a table of contents or a table of authorities as is required. See CRC 3.1113(f).

Counsel for the parties are warned that failure to comply with these requirements and/or rules in the future may result in matters being continued so that papers may be resubmitted in compliance with the rules and orders, papers not being considered and/or the imposition of sanctions.