Judge Mitchell L. Beckloff, Case Number: 23STCV12687, Date: 2023-11-03 Tentative Ruling

Judge: Mitchell L. Beckloff, Case: 23STCV12687, Date: 2023-11-03 Tentative Ruling

to: (a) take possession and control of the United Facility Solutions, Inc. (the ‘Corporation’ [or UFS]); (b) operate and collect all income earned by the Corporation; (c) clawback all monies belonging to the Corporation; (d) pay off all Corporation creditors and claims; (e) wind down the business of the Corporation; (f) dissolve the Corporation; and (g) divide the remaining assets of the corporation among the stakeholders. (Notice 2:6-11.)

Plaintiff’s evidentiary objections to the Declaration of Mark Myers: Objections 1, 2, 7, 8, 9, 10, 11 and 12 are sustained. The remaining objections are overruled.

On June 5, 2023, Plaintiff filed a complaint against Defendants (and nominal Defendant UFS), for appointment of a receiver; breach of fiduciary duty; removal of Defendant Myers as a Director of UFS; conversion; theft pursuant to Penal Code section 496; elder financial abuse; and involuntary dissolution of UFS. Defendants answered the complaint.

On July 18, 2023, Defendants filed a cross-complaint against Plaintiff, Luz Maria Veloz, and several other cross-defendants for breach of loyalty, unfair competition, tortious interference, and misappropriation; breach of contract; specific performance; accounting; and constructive trust. Plaintiff answered the cross-complaint.

On August 23, 2023, the court (Judge Curtis Kin) denied Plaintiff’s ex parte application for appointment of a receiver. The court found there was no urgency or emergency justifying the ex parte nature of the request.

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

Appointment of a receiver is a drastic provisional remedy that the court should grant only when facts are presented by admissible evidence clearly establishing a receiver is necessary to protect the property and maintain the status quo. (Ibid; City and County of San Francisco v. Daley (1993) 16 Cal.App.4th 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).

“Appointment 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. Superior Court (1939) 13 Cal.2d 384, 393.)

Plaintiff moves for appointment of a receiver pursuant to Code of Civil Procedure sections 564, subdivision (b)(1), (5), (6), and (9). (Memo 16:4-12.) Code of Civil Procedure section 564, subdivsiion (b)(1), (5), (6), and (9) authorize the appointment of a receiver in a pending action, as follows:

(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.

(6) Where a corporation is insolvent, or in imminent danger of insolvency . . . .

Plaintiff also relies on Corporations Code sections 1800 and 1803 as additional authority in support of her request for the appointment of a receiver. (Memo 17:12-28.)

Corporations Code section 1800 provides, in pertinent part, any shareholder who holds shares representing not less than 33 1/3 percent of the corporation may pursue involuntary dissolution of the corporation on the following grounds:

(3) There is internal dissension and two or more factions of shareholders in the corporation are so deadlocked that its business can no longer be conducted with advantage to its shareholders or the shareholders have failed at two consecutive annual meetings at which all voting power was exercised, to elect successors to directors whose terms have expired or would have expired upon election of their successors.

(4) Those in control of the corporation have been guilty of or have knowingly countenanced persistent and pervasive fraud, mismanagement or abuse of authority or persistent unfairness toward any shareholders or its property is being misapplied or wasted by its directors or officers.

If, at the time of the filing of a complaint for involuntary dissolution or at any time thereafter, the court has reasonable grounds to believe that unless a receiver of the corporation is appointed the interests of the corporation and its shareholders will suffer pending the hearing and determination of the complaint, upon the application of the plaintiff, and after a hearing upon such notice to the corporation as the court may direct and upon the giving of security pursuant to Sections 566 and 567 of the Code of Civil Procedure, the court may appoint a receiver to take over and manage the business and affairs of the corporation and to preserve its property pending the hearing and determination of the complaint for dissolution.

UFS is a corporation in the business of providing security guard and janitorial services to commercial clients. Until May 2021, UFS was owned 50-50 by two shareholders, Defendant Myers and Martin Benom. (Benom Decl. ¶¶ 4-5.) On May 15, 2021, Martin Benom died. (Id. ¶ 4.) Upon Martin Benom’s death, half of his UFS shares passed to Plaintiff, his wife, under community property laws, and the other half passed to Plaintiff as Martin Benom’s sole heir and representative of his estate. (Id. ¶ 4.) On March 24, 2022, the Orange County Superior Court confirmed that Martin Benom’s 25 percent community property interest in UFS passed to Plaintiff and that Plaintiff owned another 25 percent of UFS. (Id. ¶ 5, Exh. C.)

In light of the Superior Court’s March 24, 2022 order, it is undisputed Plaintiff owns 50 percent of the shares of UFS. (See Opposition 5:7-10.)

However, that was not always the situation. Defendant “refused to acknowledge Paula as a shareholder . . . . of UFS” after Martin Benom’s death in May 2021 until the Superior Court issued its confirmation order in March 2022. (Memo 8:23-25; Benom Decl. ¶ 5; Myers Decl.

¶¶ 8-10.)[2] Although Defendant Myers asserts “there were a number of conflicting ownership claims asserted against the husband's UFS shares,” he identifies only a single alleged conflicting claim of Piper Benom, Martin Benom’s daughter from a previous marriage. (Myers Decl. ¶ 8.) Both Piper Benom and Plaintiff dispute Defendant Myers’ contention Piper Benom ever made a claim for Martin Benom’s shares of UFS after his death. (See Reply Decls. of Piper Benom and Plaintiff; and Exhibit 1 thereto.) Nonetheless, the court need not decide for purposes of this motion, whether Defendant Myers had a valid basis to refuse to acknowledge Plaintiff’s ownership interest in UFS until March 2022. For purposes of this motion, the foregoing evidence is relevant simply because it shows the origin of a sometimes contentious and unworkable relationship between UFS’s two 50 percent shareholders.

Sometime in the Spring of 2022, both Plaintiff and Defendant Myers decided joint ownership of UFS by its two 50 percent shareholders was not possible. (Memo 9:18-19; Benom Decl. ¶ 6; see also Opposition 6:9-10 [acknowledging mutual desire to dissolve and wind down UFS].) Defendant Myers reports “[w]hen Plaintiff obtained the Orange County Superior Court order that confirmed her ownership of her husband's UFS shares, both Plaintiff and I had already mutually agreed to dissolve UFS and divide the business.” (Myers Decl. ¶¶ 11-12.)

Plaintiff and Defendant Myers have discussed how to “divide the business” and have taken certain steps to do so. As summarized by Plaintiff:

UFS's clients and employees were, in an operational sense, divided into two groups, depending on which faction was more directly working with various clients. Accordingly, we began to discuss a schedule and terms for a fair division of UFS's operations, and an orderly transition process. (Benom Decl. ¶ 6.)

These discussions (attended by separate counsel for Plaintiff and Defendant Myers) continued from the Spring of 2022 until around February 7, 2023. (See Lee Decl. ¶¶ 3-21 and Exh. 1-10.) Although the parties discussed many technical details and made some progress toward UFS’s division, the discussions eventually broke down. The evidence demonstrates, for purposes of this motion, Plaintiff and Defendant Myers have not finalized the terms of, or executed, an agreement to dissolve and wind down UFS. (See ibid.; Benom Decl. ¶¶ 7-21; Myers Decl. ¶¶ 11-33; but see RJN Exh. A ¶¶ 45-55 [Defendant Myers’ unverified cross-complaint alleging Plaintiff and Myers entered an “oral agreement to dissolve UFS and to wind down”].)[3]

Plaintiff submits evidence in late 2022 Defendant “Myers was preparing to move a portion of UFS’s clients and employees into his newly-formed corporation, Gibraltar Protection, Inc. (‘Gibraltar’), which would operate in the security guard industry (i.e. the same industry which UFS operated in).” (Benom Decl. ¶ 8.) “[I]n the first week in January of 2023, Gibraltar used UFS's employees and facilities to begin invoicing UFS clients in Gibraltar's name and office address.” (Benom Decl. ¶ 10 and Exh. K; see also id. ¶¶ 11-16.) Plaintiff also acknowledges:

[Defendant] Myers’ anticipated move would leave behind the remaining portion of UFS’ clients and employees who were not going with him to Gibraltar, to be moved into a separate new corporation to be controlled by me and two remaining UFS colleagues, Luz Veloz and Guillermo Amador. Accordingly, on December 3, 2022, Articles of Incorporation for that new company named Customized Guard Services & Systems ("CGSS") were filed by Ms. Veloz on our behalf. . . . This was to be the corporate vehicle into which such remaining portion of UFS’s clients and employees would be transitioned, in the event that [Defendant] Myers and I were ever able to come to an agreement on how to divide up the business and wind down UFS. To that end, CGSS had applied for a PPO [“Private Patrol Operator License”] as well.

In January, CGSS received its required PPO License from BSIS, leaving just one final item of approval from the California Department of Consumer Affairs for the use of CGSS Badge, Uniform Patch and/or Cap Insignia, which was later issued March 14, 2023. Effective March 29, 2023, CGSS began its own operations. Accordingly, UFS ceased providing any services to clients. However, UFS still had substantial funds to pay its outstanding obligations, after which any remaining monies should have been split in a 50-50 final distribution to [Defendant] Myers and me as the equal shareholders of the company.

Defendants do not dispute that Defendant Myers has taken steps to “move” a portion of UFS’s clients and employees to Gibraltar, or that Plaintiff has taken steps to move the remainder of the company to CGSS. (See Myers Decl. Generally.)

Plaintiff submits evidence Defendant Myers has taken possession of “a check from the Internal Revenue Service (‘IRS’) payable to UFS dated December 6, 2022, in the amount of $966,042.08.” (Benon Decl. ¶ 9 and Exh. E, H.) Defendant Myers acknowledges that his attorney, Daniel Yee, has possession of these funds. (Myers Decl. ¶ 22.) Defendant Myers explains the funds are being held “in trust for the benefit of UFS.” (Ibid.)

Plaintiff acknowledges receipt of two other checks from the IRS in the amount of $411,407.49 and $1,153,551.28, respectively. (Reply Benom Decl. ¶¶ 7-8.) Plaintiff attests she caused the $411,407.49 check “to be deposited into the Wells Fargo Bank account of UFS’s factoring company, State Financial, on January 19, 2023.” (Reply Benom Decl. ¶¶ 7-8.) Plaintiff also reports she caused the $1,153,551.28 check to be deposited “into UFS’s operating bank account at Wells Fargo Bank on March 30, 2023.” (Reply Benom Decl. ¶¶ 7-8.)

As further discussed infra, the parties accuse one another of misappropriation of UFS funds and wrongful exclusion from UFS’s operations and bank accounts. Plaintiff also submits evidence that UFS is in imminent danger of insolvency because it has been unable to pay its obligations in the ordinary course of business. (Benom Decl. ¶¶ 17-21; Myers Decl. ¶¶ 15-33.)

Plaintiff is a 50 percent shareholder of UFS. Accordingly, she shows a “probable” and/or joint interest in the corporation. (Code Civ. Proc., § 564, subd. (b)(1).) Plaintiff also demonstrates UFS is “in danger of being lost, removed, or materially injured” as a result of corporate dissension. (Ibid.)

“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.) “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.” (Golden State Glass Corp. v. Superior Court, supra, 13 Cal.2d at 393.)

As summarized above, the evidence before the court demonstrates UFS’ two 50 percent shareholders have not finalized an agreement to dissolve and wind up UFS. (See Lee Decl. ¶¶ 3-21; Benom Decl. ¶¶ 6-21; and Myers Decl. ¶¶ 11-33.) Although Plaintiff’s attorney emailed Defendant Myers’ attorney a draft "Mutual Separation and Transition Agreement" on January 20, 2023, that agreement was not finalized and executed by Plaintiff and Defendant Myers. (Lee Decl. ¶ 20.) Defendant Myers’ attorney acknowledges discussion between counsel ceased in early February 2023. (Lee Decl. ¶ 21.) Nonetheless, despite having no formal process or agreement in place, both Plaintiff and Defendant Myers have taken steps to move clients and employees from UFS to their own newly formed corporations. (See Benom Decl. ¶¶ 8, 10-17.)

Plaintiff contends Defendant “Myers has refused to conduct shareholders’ meetings, appointed a director (Defendant Redon) without so much as a shareholder meeting . . . [and] fired [Plaintiff] (a 50 percent shareholder) thereby cutting off her access to company information such as emails, accounts receivable ledgers, accounts payable ledgers and UFS’s bank accounts.” (Memo 18:24-19:1.) There is evidentiary support for her contentions. (See e.g. Benom Decl. ¶ 16. [“Myers refused to proceed with the Shareholders' Meeting”] and Exh. O [corporate resolution dated March 22, 2023, dismissing Plaintiff from her employment with UFS and revoking her signatory authority with “all banks”].)

Significantly to the court, Defendant Myers acknowledges that his attorney, Daniel Yee, has possession of at least $966,042.08 in UFS funds. (Myers Decl. ¶ 22.) Defendant Myers attests Yee is holding the funds “in trust for the benefit of UFS.” (Myers Decl. ¶ 22.) However, Defendant Myers does not support his position with evidence, such as bank statements, proving the funds are being held “in trust” or segregated for UFS. More importantly, Defendant Myers’ uniliteral possession and control of nearly $1 million in UFS funds means such funds are not currently available for use of the corporation and payment of its creditors.

Plaintiff also submits some evidence of Defendant Myers’ control over another (approximately) $1 million in UFS funds. (Benom Decl. ¶ 19.) In opposition, Defendant Myers concedes he closed UFS’s Wells Fargo accounts and “withdrew the funds and deposited the money into new accounts under the name of UFS.” (Myers Decl. ¶18.) Defendant Myers does not specify the amount of money he withdrew from the Wells Fargo accounts. He claims the “funds in these accounts will held and not used, pending the final accounting between the parties.” (Myers Decl. ¶ 19.) However, as with the nearly $1 million IRS check, Defendant Myers does not submit bank statements supporting his contention the UFS funds are safely held and preserved. More importantly, Defendant Myers’ uniliteral possession and control of UFS funds means that such funds are not currently available for use of the corporation and payment of its creditors.

Defendants contend “Plaintiff also caused Defendant Myers, the UFS CEO, to be removed as a signatory on the UFS operating accounts at Wells Fargo. She also caused the removal of Defendant Myers’ access to both the UFS Quickbooks accounting software and Payroll Services.” (Opposition 14:6-9; Myers Decl. ¶ 15.) The evidence cited in support of Defendants’ position is conclusory and not particularly persuasive. (Myers Decl. ¶ 15.) Plaintiff disputes Defendants’ assertion in reply. (Reply Benom Decl. ¶¶ 10-13.) Nonetheless, there is evidence Plaintiff has asserted control over the remaining portion of UFS’s operations as well as a substantial portion of UFS’s funds (approximately $1.5 million). (See Benom Decl. ¶ 17 [acknowledging control over certain aspects of UFS operations]; Reply Benom Decl. ¶¶ 7-8 [control over more than $1.5 million in UFS funds].)

For purposes of this motion, the court need not resolve the parties’ competing claims about who has acted “wrongfully” in excluding the other or taking possession of UFS funds. The salient points are UFS is experiencing profound dysfunction between its two 50 percent shareholders; UFS is not being managed effectively because of the dissension; and UFS still has substantial financial assets in its name (approximately $2.5 million or more) that need to be preserved and distributed appropriately.

The corporate dissension risks material and permanent harm to UFS and its assets. As discussed detailed infra, Plaintiff submits evidence UFS is in imminent danger of insolvency because it has been unable to pay its obligations in the ordinary course of business. (Benom Decl. ¶¶ 19-20; Reply Benom Decl. ¶ 14.) Defendant Myers has possession and control of at least $966,042.08 in UFS funds that are currently unavailable for corporate use. Plaintiff has asserted control over another $1.5 million or so in UFS funds. These circumstances vividly demonstrate judicial supervision, through a receiver, is required to manage, control, and preserve UFS’s financial and other assets.

In addition, the corporate dissension makes it impossible for Plaintiff and Defendant Myers to dissolve and wind down UFS, without judicial supervision, in a manner that preserves value for the two shareholders. Plaintiff and Defendant Myers, along with counsel, engaged in meaningful and productive efforts for approximately a year to reach an agreement to dissolve and wind down UFS. Unfortunately, the shareholder efforts were not successful. Since discussions ceased, each shareholder has acted unilaterally to move UFS clients and employees to new corporate entities, and to take control of UFS monies, which necessarily causes harm to UFS and both its shareholders.

Based on the foregoing, the moving and opposing evidence demonstrate “there are such dissensions within the corporation that its business cannot be honestly or properly managed.” (Misita v. Distillers Corp., supra, 54 Cal.App.2d at 250-251.) Accordingly, Plaintiff has shown a receivership should be appointed over UFS pursuant to Code of Civil Procedure section 564, subdivision (b)(1).[4]

Pursuant to Code of Civil Procedure section 564, subdivision (b)(5), a receiver may be appointed “[w]here a corporation has been dissolved, as provided in Section 565.” Plaintiff does not provide any evidence suggesting UFS “has been dissolved, as provided in Section 565.” Accordingly, the court may not appoint a receiver under Code of Civil Procedure section 564, subdivision (b)(5) at this time.

Pursuant to Code of Civil Procedure section 564, subdivision (b)(6), a receiver may be appointed “[w]here a corporation is insolvent, or in imminent danger of insolvency . . . .”

“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. In the absence of a controlling statutory definition, the second definition is preferred.” (California Retail Portfolio Fund GMBH & Co. KG v. Hopkins Real Estate Group (2011) 193 Cal.App.4th 849, 859-860.)

Plaintiff submits evidence UFS is in imminent danger of insolvency because it has been unable to pay its obligations in the ordinary course of business. (Benom Decl. ¶¶ 19-20; Reply Benom Decl. ¶ 14.) Defendants have not rebutted the evidence that certain UFS creditors have gone unpaid. (See Myers Decl. generally.) As discussed earlier, both Plaintiff and Defendant Myers acknowledge control over a substantial amount of UFS funds that could be used to pay creditors or otherwise benefit UFS. A receivership would benefit UFS by enabling these funds to be marshaled, preserved, and used for corporate purposes, including payment of creditors. Accordingly, Plaintiff has demonstrated a receivership should be appointed over UFS pursuant to section Code of Civil Procedure section 564, subdivision (b)(6).

Plaintiff has filed a complaint for involuntary dissolution of UFS. For the same reasons discussed above as to Code of Civil Procedure section 564, subdivision (b)(1), “the court has reasonable grounds to believe that unless a receiver of the corporation is appointed the interests of the corporation and its shareholders will suffer pending the hearing and determination of the complaint.” (Corp. Code, § 1803.) Accordingly, Plaintiff has also shown a receiver should be appointed pursuant to section 1803.

“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. Superior Court, supra, 13 Cal.2d at 393.)

While Defendants cite case authority that stand for this principle, Defendant do not explain, in any detail, how less drastic remedies would adequately protect UFS and its shareholders under the circumstances discussed above. That is, Defendants propose no solution to effectively resolve the dissention.

To be sure, Defendants suggest the court “ENJOIN the parties from disbursing or using any UFS funds until after the court approves the final accounting.” (Opposition 20:24-25.) Even if the court issued such injunction, it would not resolve issues with UFS to using its own funds to pay its creditors or to use for other corporate purposes pending resolution of this action. Further, such injunction would not safeguard and ensure the UFS funds are actually being held “in trust” for UFS. A receiver is necessary to take possession and control over all UFS funds for the protection of UFS, its creditors and its shareholders.

Defendants also request the court “Order the parties (1) to exchange all the information that is required to complete the accounting, (2) to complete forthwith the final accounting, (3) to wind down and dissolve UFS in a timely manner following court approval of the final accounting, and (4) to distribute the UFS funds and assets in accordance with the final accounting, after approval of the same by the court.” (Opposition 20:26-21:2.) In essence, Defendants request a final resolution of Plaintiff’s complaint for involuntary dissolution and Defendants’ cross-claim for accounting.

The court cannot adjudicate such claims or grant such relief based on a request made in an opposition brief. Moreover, given the dissension between Plaintiff and Defendant Myers, Defendants fail to explain how the requested orders would be effective. The evidence discussed earlier suggests that constant court involvement (micromanagement) would be required to enforce such an order. A receivership would be a much more efficient means of accounting for UFS’s assets, collecting and preserving such assets for UFS’s benefit, identifying creditors, and determining how to use or distribute UFS funds for the benefit of the corporation and its shareholders.

The court has considered alternative remedies and concludes none proposed will adequately protect the parties and UFS. Accordingly, a receivership is the appropriate provisional remedy under these facts and circumstances.

Defendants contend Plaintiff has “unclean hands” and, therefore, is not entitled to an equitable remedy, such as a receivership.

A party seeking equitable relief must have “clean hands” and inequitable conduct by the party seeking relief is a complete defense. (Dickson, Carlson & Campillo v. Pole (2000) 83 Cal.App.4th 436, 446; Salas v. Sierra Chem. Co. (2014) 59 Cal.4th 407, 432.) A plaintiff’s “hands are rendered unclean . . . by any form of conduct that, in the eyes of honest and fair-minded persons, may properly be condemned and pronounced wrongful.” (Bennett v. Lew (1984) 151 Cal.App.3d 1177, 1186.) The plaintiff must “come into court with clean hands, and keep them clean,” or the plaintiff “will be denied relief, regardless of the merits of his claim.” (Kendall-Jackson Winery, Ltd. v. Superior Court (1999) 76 Cal.App.4th 970, 978.) For the doctrine to apply, “there must be a direct relationship between the misconduct and the claimed injuries.” (Mattco Forge, Inc. v. Arthur Young & Co. (1997) 52 Cal.App.4th 820, 846.) In other words, “it must pertain to the very subject matter involved and affect the equitable relations between the litigants.” (Ibid.) Thus, “[t]he issue is not that the plaintiff's hands are dirty, but rather that the manner of dirtying renders inequitable the assertion of such rights against the defendant.” (Ibid.)

[i]t is believed that she used the authority of her position [in the accounting department of UFS] (1) to manipulate the amount of uncollectible accounts at the factoring company to decrease Defendants' share of revenue, (2) to receive $1,522,958.29 of UFS Employee Retention Credit payments and not to account for the same, (3) to remove Defendant Myers’s a signatory on the UFS Wells Fargo Bank accounts, (4) to remove Defendant Myers' access to the UFS Quickbooks account software so that he may be kept in the dark about UFS business for which he is responsible, and (5) to remove Defendant Myers’ access to Paycom, again to keep him in the dark about UFS business for which he is responsible.” (Opposition 13:10-18 [citing Myers Decl. ¶ 15][emphasis added].)

Defendants’ evidence supporting the allegations of unclean hands lacks foundation and personal knowledge, and is speculative and conclusory, as reflected in the court’s rulings on evidentiary objections. (See Evidentiary Objections Nos. 7-9, 11.) For that reason alone, Defendants do not demonstrate the defense of unclean hands precludes appointment of a receiver here.

Furthermore, the court has considered all of Defendants’ contentions and cited evidence for the defense of unclean hands. Plaintiff disputes Defendants’ assertions that she has engaged in wrongful conduct. Having weighed and considered the admissible evidence, the court concludes, for purposes of this motion, that Plaintiff has not engaged in inequitable conduct that would support denial of a receivership under the circumstances presented here. As discussed earlier, the evidence shows extreme dissension between the two shareholders of UFS and unilateral efforts to divide the business, but without a formal agreement or process for doing so. Given the circumstances, Defendants’ contentions regarding alleged misappropriation of UFS funds; exclusion from bank accounts and UFS operations; and the alleged need for an accounting do not prove unclean hands by Plaintiff and, instead, weigh in favor of the appointment of a receiver.

For purposes of this motion only, the court finds Defendants’ defense of unclean hands unpersuasive. Of course, Defendants are not precluded from developing such defense further in subsequent proceedings in this action.

Based on the foregoing, the court finds that appointment of a receiver over UFS is justified pursuant to Code of Civil Procedure section 564, subdivision (b)(1), (6) and (9) and Corporations Code section 1803.

Plaintiff seeks an order authorizing the appointed receiver to “take possession of the Corporation and . . . manage, control, care for, preserve, maintain, and incur the expenses necessary for the management, control, care for, preservation, and maintenance of the Corporation, and, specifically, to operate the Corporation, to satisfy creditors, and to otherwise employ labor as may be necessary, purchase supplies, and incur the risks and obligations ordinarily incurred by owners and managers of similar Corporation.” (Proposed Order ¶ 3.) Given the corporate dissension and risk of insolvency, the court tentatively concludes that paragraph 3 of the proposed order, as well as paragraphs 1, 2, 4, 5 (a) through (d), 6, 7, 8, 9, 11, 12 and 13 are proper.

Absent the stipulation of the parties, the court finds paragraph 14 of the proposed order (“Receiver shall wind down operations of the Corporation and dissolve same”) not appropriate at this time. UFS’ dissolution and wind down cannot occur until the parties have either voluntarily agreed to dissolve and wind down UFS or have obtained a judicial decree for dissolution pursuant to Corporations Code sections 1804 and 1805. The purpose of the receivership is “to take over and manage the business and affairs of the corporation and to preserve its property pending the hearing and determination of the complaint for dissolution.” (Corp. Code, § 1803.) It follows that the receiver shall not be authorized to wind down and dissolve UFS prior to adjudication of the complaint for dissolution.

At the hearing, the court requires further argument from the parties whether paragraphs 5(e), 10 and 15 (through page 6, line 3) should be included in the receivership order or modified in some way.

The proposed preliminary injunction at page 6, line 4 through page 7, line 6 appears proper.

At the hearing, the court requires further argument from the parties whether the unparagraphed section at page 7, line 7 through page 8, line 6 (regarding bankruptcy) should be included in the receivership order or modified in some way.

Plaintiff nominates Kevin Singer as the receiver. Singer is qualified to serve as receiver. (See Singer Decl. ¶¶ 2-5, Exh. A; Cal. Rules of Court, Rule 3.1117, subd. (b).) Defendants have not opposed the nomination of Singer or his proposed hourly rates.

Receiver must file an undertaking. (Code Civ. Proc., § 567, subd. (b); Cal. Rules of Court, Rule 3.1178.) Plaintiff proposes a receiver undertaking of $10,000. (Proposed Order ¶ 2.) The court finds such a bond reasonable.

Plaintiff must also file an undertaking in support of the preliminary injunction. (Code Civ. Proc., § 529.) The court orders a $10,000 undertaking for the preliminary injunction.

On or about October 31, 2023, Defendants filed a request to present oral testimony pursuant to California Rules of Court, Rule 3.1306, subdivision (b).

[a] Evidence received at a law and motion hearing must be by declaration or request for judicial notice without testimony or cross-examination, unless the court orders otherwise for good cause shown. . . . [b] A party seeking permission to introduce oral evidence, except for oral evidence in rebuttal to oral evidence presented by the other party, must file, no later than three court days before the hearing, a written statement stating the nature and extent of the evidence proposed to be introduced and a reasonable time estimate for the hearing. When the statement is filed less than five court days before the hearing, the filing party must serve a copy on the other parties in a manner to assure delivery to the other parties no later than two days before the hearing.

Defendants’ request to present oral testimony complies with the procedural requirements of Rule 3.1306, subd. (b). The court concludes, however, oral testimony is unnecessary here.

Even if Defendant Myers testifies as outlined in his request to present oral testimony, it would not change the court’s ruling set forth above because of the evidence the parties have presented. In the circumstances discussed above, Defendants’ contentions regarding alleged misappropriation of UFS funds; exclusion from bank accounts and UFS operations; and the alleged need for an accounting do not prove unclean hands by Plaintiff and, instead, weigh in favor of the appointment of a receiver. Defendant Myers’ proposed oral testimony is consistent with the court’s finding of extreme corporate dissension at UFS; an imminent danger of insolvency at UFS; and the need for appointment of a receiver “to take over and manage the business and affairs of the corporation and to preserve its property pending the hearing and determination of the complaint for dissolution.” (Corp. Code, § 1803.)

The motion for appointment of a receiver is GRANTED IN PART. The court appoints the nominated receiver to manage, control, care for, and preserve UFS and its assets; to perform an inventory of UFS’s property; and to engage in related duties, as stated above with respect to Plaintiff’s proposed order. The request for a preliminary injunction in aid of the receivership is GRANTED. (See Proposed Order page 6, line 4 through page 7, line 6.) The court DENIES the request to appoint a receiver to “wind down operations of the Corporation and dissolve same.” (Proposed Order ¶ 14.)

Receiver shall post an undertaking of $10,000. Plaintiff shall post a preliminary injunction undertaking of $10,000.

Defendants’ Myers request to present oral testimony is DENIED. Given the substance of the proffered testimony, the court finds no good cause to take oral testimony for this motion.

[1] The opposition indicates nominal Defendant, United Facility Solutions, Inc. (UFS), opposes the motion.

[2] Myers does not lay a sufficient foundation for his assertion that “none of alleged shareholder meetings prior to [Plaintiff’s] confirmation as a shareholder were properly called or noticed.” (Myers Decl. ¶ 7; see Plaintiff’s Evidentiary Objections No. 2.) Nonetheless, for purposes of this motion, the court need not decide whether the shareholder meetings from 2021 were properly called or noticed.

[3] Defendant Myers is not precluded by this court’s ruling on a motion for receivership from further developing his contention the parties reached an oral agreement to dissolve and wind down UFS in future proceedings in this action. The court’s finding is limited to the evidence provided for this motion.

[4] In light of this conclusion that corporate dissension justifies a receivership, the court need not decide whether Myers has engaged in “mismanagement” or “self-dealing.” (See Mot. 20.)