Judge: Teresa A. Beaudet, Case: 22STCV09612, Date: 2023-10-24 Tentative Ruling

Case Number: 22STCV09612    Hearing Date: April 12, 2024    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.

Plaintiff filed the operative Third Amended Complaint (“TAC”) on August 29, 2023, alleging 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.

Plaintiff now moves “for an order for judicially supervised dissolution of Defendant Plant Ranch…” Simms and Santillan (jointly, “Defendants”), filed a “qualified” opposition to the motion.

Request for Judicial Notice

The Court grants Defendants’ request for judicial notice.

Discussion

Plaintiff’s notice of motion states that Plaintiff moves “pursuant to California Corporations Code, Sections 1800, et seq. and Code of Civil Procedure Section 564, for an order for judicially supervised dissolution of Defendant Plant Ranch…” (Notice of Motion at pp. 1:28-2:2.) Plaintiff further asserts that “[i]n the alternative, the Court should appoint a receiver to sell Plant Ranch or its assets.” (Mot. at p. 3:19.)

“A court may order the dissolution of a corporation against its will (i.e., involuntarily) under Corps.C. § 1800 et seq…” (Friedman et al., Cal. Practice Guide: Corporations (The Rutter Group 2023) ¶ 8:791.) Pursuant to Corporations Code section 1804, “[a]fter hearing the court may decree a winding up and dissolution of the corporation if cause therefor is shown or, with or without winding up and dissolution, may make such orders and decrees and issue such injunctions in the case as justice and equity require.”

Pursuant to Corporations Code section 1805, subdivision (a), “[i]nvoluntary proceedings for winding up a corporation commence when the order for winding up is entered under Section 1804.” Pursuant to Corporations Code section 1805, subdivision (b), “[w]hen an involuntary proceeding for winding up has commenced, the board shall conduct the winding up of the affairs of the corporation, subject to the supervision of the court, unless other persons are appointed by the court, on good cause shown, to conduct the winding up. The directors or such other persons may, subject to any restrictions imposed by the court, exercise all their powers through the executive officers without any order of court.”

In addition, pursuant to Corporations Code section 1806, “[w]hen an involuntary proceeding for winding up has been commenced, the jurisdiction of the court includes:

(a) The requirement of the proof of all claims and demands against the corporation, whether due or not yet due, contingent, unliquidated or sounding only in damages, and the barring from participation of creditors and claimants failing to make and present claims and proof as required by any order.

(b) The determination or compromise of all claims of every nature against the corporation or any of its property, and the determination of the amount of money or assets required to be retained to pay or provide for the payment of claims.

(c) The determination of the rights of shareholders and of all classes of shareholders in and to the assets of the corporation.

(d) The presentation and filing of intermediate and final accounts of the directors or other persons appointed to conduct the winding up and hearing thereon, the allowance, disallowance or settlement thereof and the discharge of the directors or such other persons from their duties and liabilities.

(e) The appointment of a commissioner to hear and determine any or all matters, with such power or authority as the court may deem proper.

(f) The filling of any vacancies on the board which the directors or shareholders are unable to fill.

(g) The removal of any director if it appears that the director has been guilty of dishonesty, misconduct, neglect or abuse of trust in conducting the winding up or if the director is unable to act. The court may order an election to fill the vacancy so caused, and may enjoin, for such time as it considers proper, the reelection of the director so removed; or the court, in lieu of ordering an election, may appoint a director to fill the vacancy caused by such removal. Any director so appointed by the court shall serve until the next annual meeting of shareholders or until a successor is elected or appointed.

(h) Staying the prosecution of any suit, proceeding or action against the corporation and requiring the parties to present and prove their claims in the manner required of other creditors.

(i) The determination of whether adequate provision has been made for payment or satisfaction of all debts and liabilities not actually paid.

(j) The making of orders for the withdrawal or termination of proceedings to wind up and dissolve, subject to conditions for the protection of shareholders and creditors.

(k) The making of an order, upon the allowance or settlement of the final accounts of the directors or such other persons, that the corporation has been duly wound up and is dissolved. Upon the making of such order, the corporate existence shall cease except for purposes of further winding up if needed.

(l) The making of orders for the bringing in of new parties as the court deems proper for the determination of all questions and matters.”

The Court notes that pursuant to Corporations Code section 1800, subdivision (b), “[t]he grounds for involuntary dissolution are that:

(1) The corporation has abandoned its business for more than one year.

(2) The 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, and the holders of the voting shares of the corporation are so divided into factions that they cannot elect a board consisting of an uneven number.

(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.

(5) In the case of any corporation with 35 or fewer shareholders (determined as provided in Section 605), liquidation is reasonably necessary for the protection of the rights or interests of the complaining shareholder or shareholders.

(6) The period for which the corporation was formed has terminated without extension of such period.”

As an initial matter, although Plaintiff moves “pursuant to California Corporations Code, Sections 1800, et seq…for an order for judicially supervised dissolution of Defendant Plant Ranch, Inc.,” (Not. of Mot. at pp. 1:28-2:2), Plaintiff’s memorandum of points and authorities in support of the motion still does not appear to discuss Corporations Code section 1800, subdivision (b) or apply any of the specific grounds set forth in this provision to the facts here.

Plaintiff previously moved for an order for the judicially supervised dissolution of Plant Ranch, and such motion was denied without prejudice. (See Court’s October 25, 2023 minute order.) The Court’s October 25, 2023 minute order on Plaintiff’s previous motion also provides that “Plaintiff’s memorandum of points and authorities in support of the motion does not appear to discuss Corporations Code section 1800, subdivision (b) or apply any of the specific grounds set forth in this provision to the facts here.” (October 25, 2023 Minute Order, p. 11.)

Plaintiff also asserts in the motion that “in light of the two offers to purchase Plant Ranch, the Court should set up a date to have the company sold and notice be provided to all parties and the public of the sale at a time and date convenient for the Court.” (Mot. at p. 4:25-27.) In addition, Plaintiff asserts in the conclusion section of the motion that “Plaintiff…petitions the Court to allow him to bid on Plant Ranch’s assets.” (Mot. at p. 6:7-8.) Plaintiff does not appear to cite to any legal authority in support of these requests. In their qualified opposition, Defendants state that they “are not aware of, and Plaintiff does [sic] cite to any authority for the proposition that ‘the interests of fairness and justice’ would be served by the Court selling and/or auctioning Plant Ranch—particularly to Plaintiff, i.e., the very person seeking its dissolution.” (Opp’n at p. 4:19-21.)

Plaintiff also asserts that “in the alternative, the Court should appoint a receiver to oversee the dissolution.” (Mot. at p. 5:1-2.) Plaintiff cites to Code of Civil Procedure section 564, subdivisions (b)(5), (b)(6), and (b)(9) which provide that “[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:…(5) Where a corporation has been dissolved, as provided in Section 565[1]. (6) Where a corporation is insolvent, or in imminent danger of insolvency, or has forfeited its corporate rights…(9) In all other cases where necessary to preserve the property or rights of any party.”

As an initial matter, Plaintiff does not show that Plant Ranch has been dissolved as provided in Code of Civil Procedure section 565. It is thus unclear why Plaintiff cites to Code of Civil Procedure section 564, subdivision (b)(5). In addition, Plaintiff does not appear to assert or demonstrate that Plant Ranch is “insolvent, or in imminent danger of insolvency, or has forfeited its corporate rights.” (Code Civ. Proc., § 564, subd. (b)(6).) Thus, it is also unclear why Plaintiff cites to Code of Civil Procedure section 564, subdivision (b)(6).

In addition, in the qualified opposition, Defendants cite to Golden State Glass Corp. v. Superior Court of Los Angeles County (1939) 13 Cal.2d 384, 393, where the California Supreme Court noted as follows:

“Section 564 of the Code of Civil Procedure vests jurisdiction in the superior court to appoint receivers under certain enumerated conditions. Authority to act, if it exists under the facts presented here, may be found only in subdivision 7 of that section which confers the power In all other cases where receivers have heretofore been appointed by the usages of courts of equity. This is a broad provision which vests a large measure of discretion in the trial court, and in the absence of a clear showing of an abuse of that discretion, its action in either appointing or refusing to appoint a receiver will be upheld. However, because of the drastic character of the remedy, the discretion is not an entirely uncontrolled one but must be exercised with due regard for the facts in a particular case. Especially is this true where serious injury to the name and good will of a solvent going concern may result from the appointment of a receiver. 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.” (Internal quotations omitted.)

Defendants assert that “[h]ere, Plaintiff already has proposed the ‘other [available] remedy,’ i.e., a judicially-supervised winding up and dissolution of Plant Ranch.” (Opp’n at p. 6:6-7.) Indeed, Plaintiff’s motion appears to acknowledge that there is another remedy, i.e., the

requested judicially supervised dissolution of Plant Ranch.

Lastly, as noted in the Court’s October 25, 2023 minute order on Plaintiff’s previous motion, on November 14, 2022, the Court issued an Order on Defendants’ motion to “(1) stay the dissolution action; and (2) appoint appraisers and order buyout pursuant to Corp. Code § 17707.03(c) and Operating Agreement of Cena Kitchen, LLC.” The Court’s Order provides, inter alia, that “Defendants’ motion is granted in part. Discovery and further proceedings are stayed as to Plaintiff’s seventh cause of action for dissolution.” (November 14, 2022 Order at p. 9:21-22.) Neither Plaintiff nor Defendants appear to discuss the impact of the November 14, 2022 Order on the instant motion. 

Conclusion

In light of the foregoing, Plaintiff’s motion is denied.

Defendants are ordered to give notice of this Order. 

DATED:  April 12, 2024                                ________________________________

Hon. Teresa A. Beaudet

Judge, Los Angeles Superior Court