Judge: Stephen I. Goorvitch, Case: 23STCV30210, Date: 2024-10-02 Tentative Ruling
Case Number: 23STCV30210 Hearing Date: October 2, 2024 Dept: 82
Azar Barani, Case No. 23STCV30210
v.
Hearing:
October 2, 2024
Location:
Stanley Mosk Courthouse
Department:
82
Zara Barani, et al. Judge:
Stephen I. Goorvitch
[Tentative] Order Granting Petition by
Shareholder
for Appointment of Provisional Director
INTRODUCTION
Azar
Barani and Zara Barani, who are sisters, own the Sisters Group Corporation
(“TSGC”). Azar Barani filed a complaint
for resulting trust, constructive trust, declaratory relief, and
accounting. Zara Barani filed a
cross-complaint seeking dissolution of the corporation, removal of director,
production and inspection of corporate records, accounting, declaratory relief,
unjust enrichment, breach of oral agreement, and breach of lease
agreement. Now, Zara Barani seeks
appointment of a provisional director for TSGC, which Azar Barani opposes. The petition is granted.
FACTUAL AND PROCEDURAL BACKGROUND
TSGC was incorporated in August 2015. (Declaration of Zara Barani ¶ 2.) Azar Barani and Zara Barani each own 50% of
the shares of TSGC. (Ibid.) TSGC’s bylaws (“Bylaws”) provides for one
director for each shareholder of TSGC, resulting in a two-member board of
directors. (Id. ¶ 16 and Exh.
C.) The board of directors presently
consists of Azar Barani and Zara Barani.
(Ibid.) The last meeting
of the board of directors was apparently held on August 18, 2015, more than
nine years ago. (Id. ¶ 15, Exh.
B; Petition for Appointment of Provisional Director (“Pet.”) 10:1-3; Opposition
to Petition (“Oppo.”) 6:9-11.) Azar
Barani was elected president of TSGC, to a one-year term, at the board meeting
in August 2015. (Zara Barani Decl. ¶ 15,
Exh. B.) According to Zara Barani, her
sister, Azar Barani, has since “unilaterally anointed herself the president of
TSGC.” (Id. ¶ 15.)
TSGC
is the owner of commercial real property located at 18445 Vanowen Street in Reseda,
California (the “Vanowen Street Property”) which was purchased in approximately
August 2015. (Id. ¶ 3.) In connection with the purchase of the
Property, TSGC obtained two loans: One from Bank of Southern California (the “Bank
loan”) and one from Sonia Harake, successor trustee of the Revocable Living
Trust of Dr. Salem Harake (the “Harake loan”) (collectively, the “Loans”). (Ibid.)
Since
approximately November 15, 2015, TSGC has leased a portion of the Vanowem
Street Property to Access Home Health Care, LLC (“AHHC”). (Id. ¶ 5.) According to Zara Barani, AHHC is the
guarantor of the Bank loan. (Id. ¶
4.) Zara Barani states that she is the
sole member of AHHC, but she acknowledges that Azar Barani disputes that claim
and asserts she is a 50% member of AHHC.
(Id. ¶ 4.)
Since
approximately January 1, 2016, TSGC has also leased a portion of the Vanowen Street
Property to Avicenna Medical Clinic (“AMC”) pursuant to a lease dated January
1, 2016. The AMC lease has expired and
AMC remained in possession in a month-to-month tenancy. (Id. ¶ 6.) Defendant and Cross-Complainant Aref Karbasi
(“Karbasi”) is the owner of AMC. (Id.
¶ 6.)
In
her sworn declaration, Petitioner states:
In June, 2023 and without notice to me, A. Barani caused
TSGC to discontinue making the loan payments to the Bank and Harake. Upon
becoming aware of the foregoing and to avoid having TSGC in default under the
Bank loan and/or the Harake loan, I arranged for AHHC to make the loan payments
to the Bank and Harake. This was done for the period June, 2023 through
September, 2023. To offset the expense
incurred by AHHC for an obligation that was solely an obligation of TSGC, I
caused AHHC to withhold payment of rent to TSGC and I instructed AMC to remit
its rent to AHHC until A. Barani caused TSGC to resume making the loan payments
to the Bank and Harake. Thereafter, AHHC and AMC resumed making rent payments
to TSGC.
(Id. ¶¶ 8-10.)
In her opposition brief, Azar Barani
disputes Zara Barani’s account of the loan and rent payments for June through September
2023. Specifically, Respondent asserts:
The first time AMC suddenly stopped making rent payments
over the course of the life of the lease, was on June 5, 2023, shortly after
Zara Barani physically ejected her business partner and sister, Azar Barani,
from the offices of their shared company, AHHC, which is also a tenant of the
Vanowen property. Zara Barani, intending to commandeer AHHC and claim it to
suddenly be her company alone, stopped making the rent payments on behalf of
AHHC to TSG, and instructed her domestic partner (husband) to do the same with
AMC’s rental payments. To constrict the capital to TSG, would likely result in
Azar using her personal funds to keep TSG afloat with the mortgage lender.
Thus, likely Zara thought, her sister would be further constrained to hire
attorneys and fight any ensuing dispute about the ownership of the company, and
of the real property assets shared between her and her sister, as well as with
Aresh [Karbasi].
(Oppo. 3:12-20.) However, Respondent has not submitted a sworn
declaration attesting to the factual allegations in this statement under
penalty of perjury.
On December 11, 2023, Azar Barani
filed the complaint in this action against Zara Barani and Karbasi.
The complaint concerns three real properties that are not owned by TSGC and
not at issue in the petition for appointment of a provisional director. Specifically, Respondent Azar Barani alleges that pursuant to an oral
agreement three real properties (the Friar Street Property, Bigler Street
Property, and Pulido Street Property) were purchased with her money, but legal
title was vested in vested in the names of Zara Barani or Karabasi for tax
purposes. Respondent Azar Barani alleges that Zara Barani and Karabasi
orally agreed to pay her income from the properties, and/or convey legal title,
and that they failed to do so. Azar
Barani seeks a resulting trust over the properties, among other relief. In the complaint, Respondent acknowledges: “In
or about the beginning of the year 2023, the relationship between Plaintiff and
Defendants deteriorated.” (Compl. ¶
18.)
On February 7, 2024, Zara Barani and
Karbasi filed the cross-complaint against Respondent for multiple causes of
action that pertain to TSGC, including involuntary dissolution of the
corporation pursuant to Corporations Code section 1800. Now, Zara Barani seeks appointment of a
provisional director for TSGC.
LEGAL STANDARD
Corporations Code
section 308 provides in relevant part:
If a corporation has an even number of directors who
are equally divided and cannot agree as to the management of its affairs, so
that its business can no longer be conducted to advantage or so that there is
danger that its property and business will be impaired or lost, the superior
court of the proper county may, notwithstanding any provisions of the articles
or bylaws and whether or not an action is pending for an involuntary winding up
or dissolution of the corporation, appoint a provisional director pursuant to
this section. Action for such appointment may be brought by any director or by
the holders of not less than 33 ¿ percent of the voting power….[¶¶]
(Corp. Code § 308(a).) “A deadlock exists when the board has an even
number of directors who are equally divided and cannot agree as to the
management of its affairs. (Corp. Code § 308, subd. (a).) The provisional
director thus acts as a ‘tie-breaker’ when a deadlock exists between an even
number of directors.” (Belio v. Panorama Optics, Inc. (1995) 33
Cal.App.4th 1096, 1104, citation omitted.)
“The appointment
of a provisional director is ‘merely a method of resolving disagreements
between directors when there are an even number of directors on a board.’ The
statutory remedy is available in situations ‘which have not yet reached the
point that a receiver should or could be appointed.’ ‘It is a less severe
remedy which is available to protect the rights of the parties and does not
reflect upon the financial standing or good name of the corporation nor does it
take the property out of the hands of the owners or the persons actually
administering its business.’” (In re ANNRHON, Inc. (1993) 17 Cal.App.4th
742, 752-753, citing In re Jamison Steel
Corp. (1958) 158 Cal.App.2d 27.)
When considering whether to appoint a provisional director, “the
question before the court is whether there is a deadlock and not why such
deadlock may exist.” (In re ANNRHON, Inc., supra, 17 Cal.App.4th
at 753.) Because section 308 states that
the court “may” appoint a provisional director, the statute “gives the superior
court the discretion to grant or deny the petition.” (Id. at 751.)
EVIDENTIARY ISSUES
Azar
Barani’s objections to the supplemental declaration of Mark L. Edwards are
overruled. The supplemental declaration
is rebuttal and was properly submitted with the reply.
The court rules as follows on Zara
Barani’s objections to the supplemental declaration of Jonathan D. Kintzele,
submitted with Respondent’s objections:
Objection
Number 1 – Overruled
Objection
Number 2 – Sustained
Objection
Number 3 – Sustained
DISCUSSION
A. Petitioner Has Standing
Under Section 308(a)
Petitioner, as a 50% shareholder and director of TSGC, has
standing to move for appointment of a provisional director. (See Corp. Code § 308(a).)
B. The Board of Directors is
Deadlocked as to the Management of TSGC
Petitioner contends that TSGC’s two directors are deadlocked
of the following issues: (1) payments on
the Bank and Harake Loans; (2) rent payments made by AHHC and AMC; (3) the
unlawful detainer action against AMC; (4) election of corporate officers,
generally, and appointment of Respondent Azar Barani as president,
specifically; and (5) whether the two shareholders should continue to operate
TSGC or should dissolve the corporation.
(Pet. 8-10; Reply 2-4; and Zara Barani Decl. generally.)
1. Loan Payments
Petitioner declares that “[i]n June, 2023 and without notice
to me, A. Barani caused TSGC to discontinue making the loan payments to the
Bank and Harake.” (Z. Barani Decl. ¶
8.) Petitioner states that AHHC covered
the loan payments for June to September 2023. Petitioner does not present evidence of an
actual default on the loan payments. (See
Id. ¶ 9.) Petitioner acknowledges
that, currently, TSGC “is making” its loan payments but she is “uncertain” how
such payments are being made and where the funds are coming from. (Id. ¶ 12.) This evidence suggests substantial dissension
between the two directors of TSGC. However,
the evidence does not show deadlock on the issue of whether or not the loan
payments should be made.
2. Rent Payments from AHHC and AMC
Petitioner states that AHHC failed
to pay its rent to TSGC from June through September 2023 because AHHC needed to use those funds to pay
the Bank and Harake Loans for those three months. (Z. Barani Decl. ¶¶ 8-9.) Petitioner further declares:
To date, A. Barani
has failed to confirm her willingness to have TSGC refund AHHC the full amount
it had remitted to the Bank and Harake on behalf of TSGC for the June, July,
August and September, 2023 loan payments in exchange for having AHHC and AMC
remit payment to TSGC for the rent that was due for June, July, August and
September, 2023. Instead, A. Barani has caused TSCG to (i) repeatedly send
notices to AHHC and AMC regarding past due rent (attempting to access interest
and late fees); (ii) send a 3-day notice to pay rent or quit to both AHHC and
AMC; (iii) apply rent payments received from AHHC and AMC in or after
September, 2023 for the months of June, July, August and September, 2023 and
continuing to assert that AHHC and AMC are past due in the payment of rent;
(iv) advise AHHC and AMC that TSGC would no longer accept checks from them and
demanding that all rent payments be made by cashier's check or money order (and
refusing to cash the checks received from AHHC and AMC); and (v) causing TSGC
to initiate an Unlawful Detainer action against AMC. The foregoing actions
taken by A. Barani on behalf TSGC were done without consulting me and without
my authorization or consent. I oppose these actions.
(Id.
¶ 11 [underline in original].) This evidence, which has not been rebutted by Respondent,
shows deadlock between the two directors on several management issues,
specifically whether to give AHHC rent credit for the loan payments made for
June to September 2023, whether to accept checks from AHHC and AMC, and whether
to prosecute the unlawful detainer against AMC.
In reply, Zara
Barani’s attorney informs the court that, in August 2024, he advised attorney
Gene Descrochers, who is representing TSCG in the unlawful detainer action:
[A]t the direction of Z. Barani, AMC had directly
deposited into TSGC’s bank account: (1) the base rent payments for the months
of February, March, April and May 2024 (totaling $20,000) to replace the checks
it previously sent to TSGC for these months which Respondent A. Barani refused
to deposit (noting that she did deposit the rent checks that AMC sent for the
months of January, June and July); and (2) the base rent for the months July,
August and September 2023 (totaling $15,000), while reserving its right to
recoup the prior rent payments it made for these months to AHHC (at the
direction of Petitioner) from the appropriate party. On that basis, I requested
that TSGC dismiss the unlawful detainer action….
(Reply Edwards
Decl. ¶ 3.) If the unlawful detainer
action is dismissed, and if the dispute concerning rent payments for June to
September 2023 is resolved, then those two discrete management issues may not
require appointment of a provisional director.
Further, the court is not persuaded that Respondent’s demand that AHHC
and AMC make payments by cashier’s check or money order is a management issue of
sufficient magnitude to justify, in itself, appointment of a provisional
director.
3. Board Meetings and Election of
Corporate Officers
The last meeting of the board of
directors was apparently held on August 18, 2015, more than nine years
ago. (Z. Barani Decl. ¶ 15, Exh.
B; Pet. 10:1-3; Oppo. 6:9-11.) Zara
Barani does not show that she has attempted to call a board meeting pursuant to
Article III of the Bylaws or that Azar Barani has blocked such efforts. (See Z. Barani Decl. Exh. C.) Petitioner also does not show that she has
taken formal steps, such as calling a board meeting, to remove Azar Barani as
president or to appoint new corporate officers.
Nonetheless, the failure to call a board meeting for nine years,
combined with other factors discussed, establishes deadlock and general
dissension between the two board members.
4. Shareholder Buyout, or Dissolution of
TSGC
In her declaration, Zara Barani also
states that, as a result of “the deterioration of our relationship, I have no
interest in maintaining TSGC which exists solely for the purpose of holding
title to the Vanowen Street Property.”
(Z. Barani Decl. ¶ 11.) Zara
Barani asserts that “either
A. Barani needs to buy me out of my 50% interest in TSGC, I need to buy A.
Barani out of her 50% interest in TSGC or we need put the Vanowen Street
Property up for sale and then wind up and dissolve TSGC.” (Id. ¶ 17.) Respondent
has not filed a responsive declaration or stated that she agrees that a buyout
or dissolution should occur. Further,
Petitioner submits evidence that Respondent’s counsel has insisted “there is no
basis for dissolving TSGC.” (Reply
Edwards Decl. ¶ 2.) Accordingly, there
is deadlock on an important management issue.
Based on the evidence of general
dissension and deadlock between the two directors on several important
management issues, the court elects to appoint a provisional director. As stated by the District Court of Appeal in
similar circumstances: “The situation with [the corporation] supports the
appointment of the provisional director. The parties are deadlocked on whether
to expand the business or, in the alternative, sell out. The moving documents
reflect the degree of dissension that has prevented any movement on any of the
disputed issues.” (See In
re ANNRHON, Inc., supra, 17 Cal.App.4th at 754.)
C. Respondent’s
Contentions
In her opposition brief, Azar Barani does not seriously
dispute that there is a deadlock between the two directors of TSGC within the
meaning of section 308(a) and relevant case law. Rather, Respondent contends that, for various
reasons, the court should decline to appoint a provisional director at this
time.
Azar Barani first contends that TSGC has delegated her
day-to-day management of TSGC, including with respect to “collecting the rent
and covering the mortgage payments.”
(Oppo. 4.) Relatedly, Respondent
contends that, because TSGC has not held board meetings or maintained corporate
formalities, Zara Barani has consented to or ratified Azar Barani’s management decisions. (Oppo. 6, citing Brainard v. De La
Montanya (1941) 18 C.2d 502 and Meyers v. El Tejon Oil & Refining
Co. (1946) 29 C.2d 184.) This does
not address the dispositive issue, whether a “tie breaker” is necessary for the
decisions whether to dissolve the corporation and, if so, how to do so.
Azar Barani also contends that “[i]t would be against public
policy for the Court to condone Zara Barani’s breach of her fiduciary duties to
TSG and Azar Barani's conduct by appointing a director to decide whether or not
to collect rent from a third-party tenant under a commercial lease agreement
with TSG” and that “granting of this Petition would be effectuating an
inequitable result.” (Oppo. 2; see
also Id. 6-7.) The court is not
persuaded. First, there is deadlock as
to whether to dissolve TSGC and sell the Vanowen Street Property. Respondent’s public policy and inequitable
result arguments do not apply to that deadlock.
Second, it is not against public policy or inequitable to appoint a
provisional director to resolve a dispute between two evenly divided directors
as to pursue an unlawful detainer action or provide a deferral or credit of
rent to a tenant. To the contrary, the
statute authorizes such a result. When considering
whether to appoint a provisional director, “the question before the court is whether
there is a deadlock and not why such deadlock may exist.” (In re
ANNRHON, Inc., supra, 17 Cal.App.4th at 753.)
Finally, Respondent contends that “[a]
deadlock cannot occur if a vote has not been conducted.” (Oppo. 7:21-22, citing In re Jamison Steel
Corp. (1958) 158 Cal.App.2d 27.) In
re Jamison Steel Corp. did not consider whether, or hold that, deadlock at
a formal vote of the directors is required to appoint a provisional
director. “An opinion
is not authority for propositions not considered.’” (People v. Knoller (2007) 41 Cal.4th
139, 154-55.) Because Respondent does
not cite any other authority on point, the court rejects her argument that a
formal vote of the board is required to establish deadlock under section
308.
D. Nomination of Provisional Director and
Compensation
Corporations Code section 30 provides:
A provisional director
shall be an impartial person, who is neither a shareholder nor a creditor of
the corporation, nor related by consanguinity or affinity within the third
degree according to the common law to any of the other directors of the
corporation or to any judge of the court by which such provisional director is
appointed. A provisional director shall have all the rights and powers of a director
until the deadlock in the board or among shareholders is broken or until such
provisional director is removed by order of the court or by approval of the
outstanding shares (Section 152). Such person shall be entitled to such compensation as
shall be fixed by the court unless otherwise agreed with the corporation.
(Corp. Code § 308(c).)
Therefore, the court orders the parties to meet-and-confer on whether
the will agree on the appointment of a specific provisional director. If so, they shall file a stipulation and
proposed order on or before October 16, 2024.
If not, each party shall submit the names of two provisional directors,
as well as their qualifications and compensation, on or before October 16,
2024. If necessary, the court will
select one from the parties’ lists.
CONCLUSION AND ORDER
Based
upon the foregoing, the court orders as follows:
1. The motion for appointment of a
provisional director is granted.
2. The court
orders the parties to meet-and-confer on whether the will agree on the
appointment of a specific provisional director.
If so, they shall file a stipulation and proposed order on or before
October 16, 2024. If not, each party
shall submit the names of two provisional directors, as well as their
qualifications and compensation, on or before October 16, 2024. If necessary, the court will select one from
the parties’ lists.
3. The court sets a non-appearance case
review for October 23, 2024, at 1:30 p.m.
4. Counsel for Zara Barani shall provide
notice and file proof of service with the court.
IT IS SO ORDERED
Dated: October 2,
2024 ______________________
Stephen
I. Goorvitch
Superior
Court Judge