Judge: Teresa A. Beaudet, Case: 22STCV09612, Date: 2023-03-06 Tentative Ruling

Case Number: 22STCV09612    Hearing Date: March 6, 2023    Dept: 50

Superior Court of California

County of Los Angeles

Department 50

Background

On March 18, 2022, Plaintiff Gary Huerta (“Plaintiff”) filed this action against Defendants Michael Simms (“Simms”), Carmen Santillan (“Santillan”), Plant Ranch, Inc. (“Plant Ranch”), and Cena Kitchen, LLC (“Cena Kitchen”).

Plaintiff filed the operative Second Amended Complaint (“SAC”) on September 15, 2022. The SAC alleges causes of action for (1) constructive fraud, (2) accounting, (3) conversion, (4) breach of the operating agreement, (5) breach of fiduciary duty, (6) declaratory relief, and (7) dissolution.

Simms and Santillan (jointly, “Defendants”) now move “for an order requiring Plaintiff…to solely bear the costs of his own appraiser and to equally split (50/50) with Defendants the costs of the third appraiser appointed pursuant to Corporations Code section 17707.03 with respect to Plaintiff’s membership interest in Cena Kitchen, LLC…” Plaintiff opposes.

Discussion

On November 14, 2022, the Court issued an Order in this matter granting in part Defendants’ motion to (1) stay the dissolution action and (2) appoint appraisers and order buyout pursuant to Corporations Code section 17707.03(c) and operating agreement of Cena Kitchen. The Court’s November 14, 2022 Order provides, inter alia, that “[d]iscovery and further proceedings are stayed as to Plaintiff’s seventh cause of action for dissolution. For purposes of the appraisal of the fair market value of the membership interests owned by the moving parties, the Court orders that Plaintiff shall select one appraiser, Defendant shall select one appraiser, and those two appraisers shall jointly select a third appraiser.” (Order at p. 9:21-25.)

Defendants indicate that thereafter, they appointed Edward Fixen as their appraiser, and Plaintiff selected David Hanson as his appraiser. (Gladstein Decl., ¶¶ 4, 7.) On January 17, 2023, Mr. Fixen and Mr. Hanson mutually agreed upon the appointment of a third appraiser, Justin Johnson. (Gladstein Decl., ¶ 11.) Defendants state that on January 18, 2023, Plaintiff offered to pay for his own appraiser’s costs on the condition that Defendants solely pay for the costs of both their appraiser and Mr. Johnson (the mutually-appointed third appraiser). (Gladstein Decl.,  ¶ 12.) On January 3, 2023, Defendants’ counsel had communicated to Plaintiff’s counsel that Defendants’ position is that each side will cover the costs of the appraiser they select with the cost of the third appraiser being split evenly. (Gladstein Decl., ¶ 8.)

In the instant motion, Defendants request that the Court require Plaintiff to solely bear the costs of his own appraiser and to equally split with Defendants the costs of the third appraiser.

Defendants assert that the Court has the authority and discretion to order an equal apportionment of the appraisers’ costs between Plaintiff and Defendants. Defendants cite to Nazir v. United Airlines, Inc. (2009) 178 Cal.App.4th 243, 289-290, where the Court of Appeal noted that “[t]here is nothing novel in the concept that a trial court has the power to exercise a reasonable control over all proceedings connected with the litigation before it. Such power necessarily exists as one of the inherent powers of the court and such power should be exercised by the courts in order to insure the orderly administration of justice. The trial court’s inherent powers have been recognized, endorsed and affirmed in a considerable body of authority, and the powers have been flexibly applied in response to the many vagaries of the litigation process.” (Internal quotations and citation omitted.)

In addition, Defendants assert that the Operating Agreement of Cena Kitchen mandates the costs split requested by Defendants herein. Defendants note that Article I, Section 1.01 of the Operating Agreement defines “Buy-Out Purchase Price.” This provision of the Operating Agreement provides, inter alia, that “[e]ach Member shall compensate the appraiser appointed by such Member, and the compensation of the third appraiser and the expenses of the appraisal shall be borne equally by the Selling Member and the purchasing Member.” (Gladstein Decl.,     ¶ 16, Ex. I, Art. I, § 1.01.)

In the opposition, Plaintiff does not dispute Defendants’ point that the Operating Agreement of Cena Kitchen calls for the apportionment of appraiser costs that Defendants request in the instant motion. Rather, Plaintiff asserts that “[p]ayment for the cost of the appraisers at issue here should be made by Cena Kitchen and not Plaintiff as this is consistent with the case law.” (Opp’n at p. 3:11-12.)

In support of this assertion, Plaintiff cites to Guttman v. Guttman (2021) 72 Cal.App.5th 396, 402, in which “Bruce J. Guttman (Bruce), Phillip Guttman (Phillip), and Judith Douglas (Judith) are siblings and coequal general partners of the Guttman Family Limited Partnership (the partnership), which owns certain real estate in Los Angeles County. Bruce sued to dissolve the partnership. In response, Phillip and Judith initiated a statutory procedure to buy out Bruce’s interest in the partnership. Pursuant to this procedure, court-appointed appraisers submitted to the court their valuations of the partnership’s properties.” The Court of Appeal noted that the trial court “identified three appraisers to appraise the fair market value of the partnership properties,” and ordered that “[t]he cost of the appraisals ‘shall be borne by the [p]artnership.’” (Id. at           p. 403.) However, the Court of Appeal in Guttman did not make any determination as to whether the partnership was required to bear the cost of the appraisals. As Defendants note, the cost of the appraisals was not an issue on appeal.

Plaintiff also cites to Cotton v. Expo Power Systems, Inc. (2009) 170 Cal.App.4th 1371, where Plaintiff Ken Cotton filed a complaint against Expo Power Systems, Inc. (“Expo”), Douglas Frazier, Toni Frazier, and the Fraziers’ companies Amber Management Company and Diversified Investments Group, LLC. (Id. at pp. 1376-1377.) “The complaint alleged that the Fraziers had breached fiduciary duties to Cotton by diverting Expo’s assets for their own purposes. Cotton sought a constructive trust, an accounting, declaratory relief, and dissolution of Expo.” (Id. at p. 1377.) The “defendants filed a motion requesting a stay of dissolution in order to fix the value of Cotton’s shares, appoint appraisers, and set bond as required by section 2000. Defendants argued that substantial litigation would be avoided, because the value of Expo would be appraised, including the value of Cotton’s derivative claims, and purchased by the Fraziers.” (Ibid.) The trial court “confirmed the appointment of three appraisers and ordered Expo to pay the costs of the appraisal.” (Ibid.) The Court of Appeal noted that “[a]lthough Expo was ordered to pay the costs of the appraisal, it appears from the record that the Fraziers are the purchasing parties.” (Id. at p. 1377, fn. 3.) However, like the Guttman case, the Court of Appeal in Expo Power Systems referenced the trial court’s ruling pertaining to the costs of the appraisal, and such costs were not an issue on appeal.

The Court agrees with Defendants that Guttman and Expo Power Systems do not stand for the proposition that the entity, i.e., Cena Kitchen here, is required to pay for appraisal costs in the context of a buyout procedure. In addition, Defendants note that Guttman and Expo Power Systems do not address Corporations Code section 17707.01, et seq., which is the statutory scheme at issue here. (See November 14, 2022 Order.)

Next, Plaintiff asserts that Defendants’ proposed allocation is unjust and prejudicial to Plaintiff. Plaintiff argues that “Defendants have wrongfully ousted Plaintiff from Cena Kitchen and Plant Ranch and are taking all actions necessary to defraud Plaintiff of his rights and interests in the companies.” (Opp’n at p. 3:18-19.) The Court does not see how such argument is relevant to the instant motion. The Court also does not see how the parties bearing the costs of their own appraisers and splitting the costs of the third appraiser would result in Plaintiff “pay[ing] for the appraisal costs twice,” as Plaintiff argues. (Opp’n at p. 4:11-12.) 

Lastly, Plaintiff asserts that in the alternative, the Court should reapportion costs after the conclusion of the appraisal process. Plaintiff cites to Code of Civil Procedure section 1032, subdivision (a)(4), which provides that “‘[p]revailing party’ includes the party with a net monetary recovery, a defendant in whose favor a dismissal is entered, a defendant where neither plaintiff nor defendant obtains any relief, and a defendant as against those plaintiffs who do not recover any relief against that defendant. If any party recovers other than monetary relief and in situations other than as specified, the ‘prevailing party’ shall be as determined by the court, and under those circumstances, the court, in its discretion, may allow costs or not and, if allowed, may apportion costs between the parties on the same or adverse sides pursuant to rules adopted under Section 1034.” Defendants assert in the motion that Plaintiff should agree to the cost split proposed by Defendants and then seek recovery of his costs if he is determined to be the prevailing party. (Mot. at pp. 5:26-6:1.) The Court agrees.

Conclusion

Based on the foregoing, Defendants’ motion is granted.

The Court orders that Plaintiff is to pay for his appraiser’s costs, Defendants are to pay for their appraiser’s costs, and Plaintiff and Defendants shall equally split the costs of the third appraiser on a 50%/50% basis.

Defendants are ordered to give notice of this Order. 

DATED:  March 6, 2023                                ________________________________

Hon. Teresa A. Beaudet

Judge, Los Angeles Superior Court