Judge: Stephen I. Goorvitch, Case: BC709417, Date: 2025-04-16 Tentative Ruling
Case Number: BC709417 Hearing Date: April 16, 2025 Dept: 82
Ocean Blue Investments I, LLC, Case No. BC709417
v.
Hearing:
April 16, 2025
Location:
Stanley Mosk Courthouse
Department:
82
Saeed
Farkondehpour, et al. Judge: Stephen I. Goorvitch
[Tentative] Order Granting Receiver’s
Motion for Instructions
INTRODUCTION
This action arises
from multiple disputes over real property.
In June 2018, Plaintiffs Ocean Blue Investments I, LLC, Morad Behrooz
Neman (“Neman”), Sion Neman, and Hersel Neman (collectively, “Plaintiffs” or
the “Nemans”) filed a complaint against Defendant Saeed Farkhondehpour
(“Defendant”) for various causes of action related to their business ventures
and investments in real estate. In September
2018, the court granted Defendant’s motion to compel arbitration and stayed
this litigation. An arbitration was held
before Hon. Charles W. McCoy Jr. (Ret.), who rendered the March 9, 2021 Partial
Final Award and the February 4, 2022 Final Award (collectively referred to
hereafter as the “Arbitration Award”).
(Alsbrook Decl. ¶ 2, Exh. 1, 2.)
The court (Beckloff, J.) appointed a receiver to effectuate the
arbitration award. Now, the receiver
moves for instructions on three issues: (1) The division of one loan secured by
the property at issue; (2) The preparation of the property’s 2022 financial
statements and how to address certain alleged issues; and (3) The financing and
payment of outstanding Receivership obligations. The court grants the motion and shall provide
instructions on the three issues.
BACKGROUND
As summarized in the Arbitration Award,
Neman and Farkhondenpour created partnerships in the 1980s for the purpose of
acquiring, owning, and managing commercial and residential properties. In 2005, they decided to part ways and the
process of separating their joint ownership interests continues to this day. (Id. Exh. 2 at 5-6.) Defendant moved to compel arbitration,
arguing that the parties agreed to arbitrate:
Any
and all claims, disputes, or controversies between the Parties in connection
with or arising out of their respective interests in the Properties, including
but not limited to the separation of ownership in the Properties, and the
forensic accounting and reconciliation of the accounts thereof, shall be
resolved by mediation, to be immediately followed by binding arbitration of any
issues not resolved by mediation . . . .
(See
Farkhondepour Decl., filed on June 27, 2018, Exh. 1.) The court (Williams Court, J.) granted the
motion and ordered the parties to arbitration.
As relevant to this motion, the
Arbitration Award called for the division of property known as the “Medallion”
or the “Medallion Property.” The parcels
comprising the Medallion, referred to by Judge McCoy as “Medallion Land” and
“Medallion Building,” are located at 334 South Main Street in Los Angeles,
California. The Arbitration Award
ordered that an entity owned by the Neman parties, Plaintiff Ocean Blue
Investments I, LLC (“Ocean Blue”) receive the Medallion Building, while the
entity owned by Defendant Farkhondehpour, Illusion Holdings, LLC (“Illusion”) take
the Medallion Land. (Alsbrook Decl. ¶ 2,
Exh. 1 at 4-5.)
In February 2020, while the arbitration
was still pending, the court (Beckloff, J.) appointed the Receiver for the
limited purpose of refinancing the current debt on the Medallion Property. (See Court Order filed December 19, 2019;
Order Appointing Receiver filed February 21, 2020.) In March 2022, after the Arbitration Award
was issued, Ocean Blue applied ex parte to modify the Receiver’s duties
in this matter. On March 7, 2022, the court (Beckloff, J.) entered its Order
After Hearing re Ex Parte Application to Modify Court-Ordered Duties of
Appointed Receiver. That order expanded
the receivership and directed the Receiver to, among other things: (1) Prepare
deeds for the transfer of various properties, including the Medallion; (2) Supervise
the signing and recording of such deeds; and (3) Supervise the division of the
loan secured by the Medallion Property pursuant to the terms of the Arbitration
Award. (Alsbrook Decl. ¶ 3, Exh. 3.)
On or about September 7, 2022, the
Receiver filed an ex parte application for the issuance of an order
authorizing him to carry out the remaining provisions of the Arbitration Award.
On or about September 16, 2022, the
court (Beckloff, J.) entered an order granting that application and directing the
Receiver to take sole possession and control over the Medallion Land and
Medallion Building; directed Farkhondehpour to turn over all security deposits,
rent and lease payments, and any other funds in his possession related to the
Medallion; directed the Receiver to obtain financial information and prepare an
accounting for the operation of the Medallion Building through March 31, 2022;
and directed the Receiver to meet-and-confer with the parties regarding the
manner in which the loan encumbering the Medallion Land and Medallion Building
should be divided. (Alsbrook Decl. ¶ 4,
Exh. 4.)
On or about October 26, 2023, Ocean Blue
filed an ex parte application, alleging that Farkhondehpour had prepared
materially incorrect financial statements for the 2022 tax returns relating to
the Medallion Property, and requesting that the Receiver be authorized to
obtain all financial information from Farkhondehpour related to the Medallion
Property and retain a CPA to prepare accurate financials to ensure that returns
filed with the IRS were accurate.
(Alsbrook Decl. ¶ 5, Exh.5.) On October
27, 2023, the court (Beckloff, J.) granted the ex parte application and
issued an order directing the Receiver “to
retain a certified public accountant to prepare
the necessary financial documents for
the preparation of the 2022 tax returns relating to the
Medallion property.” (Id. ¶ 6, Exh. 6.)
On January 16, 2024, Plaintiffs
filed a noticed motion to expand the Receiver’s powers “to take all reasonable
actions to require defendants to reimburse plaintiffs for sizeable excess
interest payments they have been making on the mortgage loan for the Medallion
property.” (Kaufler Decl. ¶ 3, Exh.
B.) On March 27, 2024, the court
(Beckloff, J.) denied the motion. (Id.
Exh. A.)
Pursuant to the court’s March 7,
2022, Order, the Receiver has prepared and recorded grant deeds transferring
Illusion’s interest in the Medallion Building to Ocean Blue, and Ocean Blue’s
interest in the Medallion Land to Illusion.
(Alsbrook Decl. ¶ 7.) The
Receiver declares that “the separation of the Medallion Land and Medallion
Building real properties is now fully complete.” (Id. ¶ 8.)
The Receiver indicates that there
are several receivership matters for which he requires further court
instructions, to wit: (1) The division of the loan secured by the Medallion Property;
(2) The preparation of the Medallion Property’s 2022 financial statements; and
(3) The financing and payment of outstanding Receivership obligations. (Alsbrook Decl. ¶¶ 9-27.)
DISCUSSION
A. The
Division of the Loan Secured by the Medallion Property
The Arbitration
Award called for the division of the loan, which is a joint obligation of
Illusion and Ocean Blue, held by First Credit Bank (“Medallion Loan”) that
encumbers the Medallion Building and the Medallion Land. (Alsbrook Decl. ¶ 9, Exh. 2 at 9.) Specifically, the Arbitration Award found
that the parties are bound by the 2017 Spreadsheet agreement (the “2017
Spreadsheet”), which assigned $24,692,038 of the balance of the Medallion Loan
to Ocean Blue, and $4,592,038 of the balance to Illusion. (Ibid.; see also Id. Exh. 7 [2017
Spreadsheet].) While the 2017
Spreadsheet allocated a balance of $29,284,076, in reality the balance of the
Medallion Loan at the time was approximately $31,000,000. (Id. ¶ 11.) The Nemans had previously agreed, pursuant to
the 2015 Medallion Agreement, to pay down $3,000,000 of the Medallion Loan
balance. As of the time the 2017 Spreadsheet, however, they had only paid
$1,000,000. Thus, as noted by Judge McCoy, $2,000,000 of the loan balance was
in dispute. (Id. ¶ 11 and Exh. 2
at 9.)
In the March 7, 2022, order, the court
(Beckloff, J.) directed the Receiver to supervise the division of the Medallion
Loan pursuant to the terms of the Arbitration Award. (Alsbrook Decl. ¶ 3, Exh. 3.) In the September 16, 2022, order, the court
(Beckloff, J.) directed the Receiver to meet-and-confer with the parties
regarding the division of the Medallion Loan.
(Alsbrook Decl. ¶ 4, Exh. 4.) These
orders authorize the Receiver to propose a division of the Medallion Loan,
consistent with the Arbitration Award, and to request further instructions from
the court with respect to such proposal.
At present, the Medallion Loan balance
totals $31,324,104. (Id. ¶ 12, Exh. 9.) Thus, there is a difference of $2,040,028
between the current loan balance and the $29,284,076 allocated in the 2017
Spreadsheet. The allocation of this
$2,040,028 remains in dispute. After
conferring with the parties, the Receiver proposes two possible divisions of
the Medallion Loan:
· Pro Rata
Allocation:
The 2017 Spreadsheet allocated approximately 84.3% of the Medallion Loan to
Ocean Blue and 15.7% to Illusion. Using
this same ratio, the resulting division of the current loan balance would be as
follows: $31,324,104 x .843 = $26,406,219 total to be borne by the Nemans/Ocean
Blue, with the remaining $4,917,885 to be borne by Farkhondehpour/Illusion.
·
50/50 Allocation of the $2,040,028: The Receiver
contends that a 50/50 allocation of the $2,040,028 would be consistent
with the Arbitration Award, which already ordered the Nemans to pay $1,000,000
to Farkhondehpour for breach of the 2015 Medallion Agreement. The resulting division would be as follows:
$2,040,028 / 2 = $1,020,014 being borne by each party. The total loan balance
would therefore be borne $25,712,052 by the Nemans/Ocean Blue and $5,612,052 by
the Farkhondehpour/Illusion.
(Alsbrook Decl. ¶
13.) In their response brief, Plaintiffs
agree that the 50/50 allocation proposed by the Receiver is appropriate and
consistent with the Arbitration Award.
(Plaintiffs’ Response 4-5.) In
opposition, Defendant argues that the Arbitration Award conclusively decided
the allocation of the Medallion Loan.
This issue must be resolved by the
arbitrator who issued the award.
Therefore, the court denies the motion and orders the parties to proceed
by way of arbitration if they cannot resolve the issue amongst themselves.
B. Medallion Property’s 2022 Financial
Statements
On October 27, 2023, the court (Beckloff,
J.) issued an order directing the Receiver “to
retain a certified public accountant to prepare the necessary financial
documents for the preparation of the 2022 tax returns relating to the Medallion
property.” (Alsbrook Decl. ¶ 6,
Exh. 6.) Pursuant to this order, the
Receiver retained Dominic LoBuglio (the “CPA”) to serve as his CPA “for the
purpose of preparing the Medallion financial statements necessary to the
Parties’ preparation of their 2022 tax filings.” (Id. ¶ 16.) The Receiver submits a lengthy declaration
and accompanying report of the CPA. As
summarized by the Receiver, “the CPA’s ultimate conclusion is that, unless
additional documentation and information is provided, Farkhondehpour be
required to pay $564,177.40 to the Neman parties in equalization payments.” (Id. ¶ 18; see also LoBuglio
Decl. and Exh. 10.) The Receiver now
requests instructions regarding his proposal to “adjust the Medallion’s 2022
accounting in keeping with the CPA’s recommendations.” (Mot. 19.)
Thus, the Receiver apparently seeks an order requiring Defendant to pay $564,177.40
to Plaintiffs as “equalization.” In
opposition, Defendant argues that LoBuglio’s financial analysis ignores
critical information from the 2022 balance sheet, and that Ocean Blue should
pay Illusion $2,011,051.55 to equalize the capital accounts. Defendant also argues that he does not owe
any money for rent prorations.
These
issues are governed by the parties’ arbitration agreement. Therefore, the court orders the parties to
proceed by way of mediation and, if unsuccessful, arbitration if they cannot
resolve the issue amongst themselves.
C. Payment of the Receiver’s Fees and Costs
The court has broad discretion in
determining who pays the costs of the receivership. As stated by the Court of Appeal:
Receivers are entitled to compensation for their own
services and the services performed by their attorneys. Generally, the
costs of a receivership are paid from the property in the receivership estate.
However, courts may also impose the receiver costs on a party who
sought the appointment of the receiver or “‘apportion them among the parties,
depending upon circumstances.’” Courts are vested with broad discretion
in determining who is to pay the expenses of a receivership, and the court's
determination must be upheld in the absence of a clear showing of an abuse of
discretion.
….[¶]
A court may require one or more parties to pay for
receiver fees where the property subject to the receivership is inadequate to
compensate the receiver and/or where other equitable circumstances support
imposing fees on a party. In considering the appropriate source for
the compensation, a relevant factor is whether the party to be charged obtained
a benefit from the receiver's services.
(City of Chula
Vista v. Gutierrez (2012) 207 Cal.App.4th 681, 685-686.)
Here, the Receiver states that as of February
19, 2025, he and his staff have incurred unpaid fees and costs in the aggregate
amount of approximately $80,757.35.
(Alsbrook Decl.
¶ 19.) The Receiver further states that his CPA has
unpaid fees and costs totaled $46,635. (Id.
¶ 21.) The Receiver also states that an additional
$70,000 in fees and costs will be incurred in this receivership. (Id. ¶¶ 20-21.) Thus, the Receiver estimates that “the total
funding necessary to complete the work of this case, and to pay outstanding
fees and costs of administration, is approximately $197,392.35.” (Id. ¶ 22.) The Receiver has not submitted billing
records with the motion but rather refers to invoices that were “served on the
parties.” (Id. ¶¶ 19, 21.) Therefore, the court is not
approving any of the Receiver or the CPA’s fees or costs at this point. Rather, the court determines that $200,000 is
a reasonable estimate of the fees and costs of administration to complete the
receivership.
The Receiver
requests instructions on how to fund the unpaid fees and costs. He proposes that at the time the loans are
“divided,” he will ask the lender to provide additional “cash out.” (Alsbrook Decl. ¶ 22.) That proposal is reasonable and has not been
opposed by Plaintiffs or Defendant. In
the alternative, if the lender will not provide a “cash out,” the Receiver
proposes that the parties must “either fund the receivership themselves or [he]
can obtain funding from a receivership lender pursuant to a receiver’s
certificate bearing first priority ahead of all creditors.” (Id. ¶ 22.) To the extent the court must decide the
allocation for the receiver and CPA’s fees and expenses, the court orders that
they be borne equally by both parties. Plaintiff
argues that Defendant is responsible for these issues, and Defendant argues
that he received only 15.7% of the property at issue. Neither is a persuasive argument. Both parties are responsible for the issues,
and the receiver and CPA’s work is not specific to the percentage of ownership
of the property at issue.
CONCLUSION AND ORDER
Based
upon the foregoing, the court orders as follows:
1. The receiver’s motion for instruction
is granted.
2. The court orders the parties back to
arbitration concerning the division of the loan secured by the Medallion Property
unless they resolve the issue themselves.
3. The
court orders the parties to mediation and, if unsuccessful, arbitration
concerning the issues relating to the preparation of the Medallion Property’s
2022 financial statements.
4. The court grants the receiver authority to request the lender
on the Medallion Loan to provide additional “cash out” in the amount of $200,000
to pay for the receiver and CPA’s estimated fees and costs. Any excess amounts shall be returned equally
to Plaintiffs and defendant. To the
extent the court must decide the allocation for the receiver and CPA’s fees and
expenses, the court orders that they be borne equally by both parties.
5. The
receiver shall provide notice and file proof of service with the court.
IT IS SO ORDERED
Dated: April 16,
2025 ______________________
Stephen
I. Goorvitch
Superior
Court Judge