Judge Teresa A. Beaudet, Case Number: 22STCV35791, Date: 2025-01-30 Tentative Ruling

XIANG HAO CUI, et al.

Plaintiffs,

vs.

DAE YONG LEE, aka DAVID LEE, et al.

Defendants.

STANFORD PLAZA ASSOCIATION, INC.,

Nominal Defendant.

Case No.:

22STCV35791

Hearing Date:

January 30, 2025

Hearing Time: 10:00 a.m.

[TENTATIVE] ORDER RE:

MOTION FOR RECONSIDERATION OF THE JULY 11, 2024, ORDER GRANTING NOMINAL DEFENDANT’S MOTION FOR SUMMARY JUDGMENT

On November 14, 2022, Plaintiffs Xiang Hao Cui, for himself and derivatively on behalf Nominal Defendant Stanford Plaza Association, Inc., 800 East Pico Blvd, LLC, 808 East Pico Blvd, LLC, and Stanford Plaza Holdings, LLC filed this action against Defendants Dae Yong Lee aka David Lee, Hellen Lee, Young Sung Cho, William Hong, Stanford Pico Plaza, LLC, and Secured Properties Management Group, Inc. and Nominal Defendant Stanford Plaza Association, Inc.

The Complaint alleges causes of action for (1) removal of directors, (2) breach of fiduciary duty, (3) aiding and abetting breach of fiduciary duty, (4) accounting, (5) declaratory relief, and (6) injunctive relief.

Nominal Defendant Stanford Plaza Association, Inc. (the “Association”) previously moved for an order granting summary judgment on Plaintiffs’ Complaint. In the alternative, the Association moved for an order granting summary adjudication in its favor. The motion was unopposed. On July 11, 2024, the Court issued an Order on the motion providing, inter alia, that “the Association’s motion for summary judgment is granted as to Plaintiffs’ derivative claims.”

Plaintiffs Xiang Hao Cui, 800 East Pico Blvd, LLC, 808 East Pico Blvd, LLC, and Stanford Plaza Holdings, LLC (collectively, “Plaintiffs”) now move for reconsideration of the Court’s July 11, 2024 Order. The Association opposes.

The Court denies Plaintiffs’ request for judicial notice filed with the reply. The Court notes that “¿[t]he general rule of motion practice…is that new evidence is not permitted with reply papers.¿”¿(¿Jay¿v. Mahaffey¿(2013) 218 Cal.App.4th 1522, 1537.)

“When an application for an order has been made to a judge, or to a court, and refused in whole or in part, or granted, or granted conditionally, or on terms, any party affected by the order may, within 10 days after service upon the party of written notice of entry of the order and based upon new or different facts, circumstances, or law, make application to the same judge or court that made the order, to reconsider the matter and modify, amend, or revoke the prior order. The party making the application shall state by affidavit what application was made before, when and to what judge, what order or decisions were made, and what new or different facts, circumstances, or law are claimed to be shown.”

Reconsideration cannot be granted based on claims the court misinterpreted the law in its initial ruling; that is not a “new” or “different” matter. (Gilberd v. AC Transit, supra, 32 Cal.App.4th at p. 1500.) Moreover, counsel’s mistake based on ignorance of the law is not a proper basis for reconsideration. (Pazderka v. Caballeros Dimas Alang, Inc. (1998) 62 Cal.App.4th 658, 670.)

Plaintiffs first assert that the Court should vacate the July 11, 2024 Order “due to the Nominal Defendant’s lack of capacity to sue.” (Mot. at p. 5:1-2.) Plaintiffs assert that “the Nominal Defendant’s status as a suspended corporation constitutes new facts that warrant review on a motion for reconsideration.” (Mot. at p. 6:5-6.) In his supporting declaration, Plaintiffs’ counsel states that “[a] true and correct copy of nominal defendant Stanford Plaza Association, Inc.’s California Secretary of State Business Listing is attached hereto as Exhibit ‘G.’” (Forster Decl., ¶ 8.) Plaintiffs’ Exhibit G includes a document titled “Business Search” from the California Secretary of State, pertaining to “Stanford Plaza Association, Inc.” (Forster Decl., ¶ 8, Ex. G.) The document lists “Suspended – FTB” next to “Status.” (Forster Decl., ¶ 8, Ex. G.)

Plaintiffs cite to Tabarrejo v. Superior Court (2014) 232 Cal.App.4th 849, 862, where the Court of Appeal noted that “[t]he ‘corporate powers, rights and privileges’ of any domestic corporate taxpayer may be suspended for failure to pay certain taxes and penalties. (Rev. & Tax. Code, § 23301.) This means the suspended corporation cannot sell, transfer or exchange real property in California, and contracts entered into during the time of suspension are voidable…through legal action…Nor, during the period of suspension, may the corporation prosecute or defend an action, seek a writ of mandate, appeal from an adverse judgment, or renew a judgment obtained before suspension.”

Plaintiffs argue that “[t]he Nominal Defendant’s MSJ was filed and heard while the Nominal Defendant was suspended, thus its motion should constitute ‘an unauthorized act by a suspended corporation in violation of Revenue and Taxation Code section 23301.’” (Mot. at p. 4:24-28.) Plaintiffs cite to Grell v. Laci Le Beau Corp. (1999) 73 Cal.App.4th 1300, 1303, where the Court of Appeal noted that “[t]he Helphrey action was filed, and respondent’s demurrer on statute of limitations grounds to the Helphrey third amended complaint was sustained without leave to amend on several causes of action, while respondent was suspended.” The Grell Court found that “[a]s to Helphrey, respondent’s demurrer to the third amended complaint while it was suspended constituted an unauthorized act by a suspended corporation in violation of Revenue and Taxation Code section 23301.” (Id. at p. 1306.)

In the opposition, the Association admits that it “was a suspended entity as of the time the MSJ was filed.” (Opp’n at p. 2:14-15.) However, the Association argues that “although the MSJ was filed by the Association while it was a suspended entity, the Association’s August 6, 2024 reinstatement caused it’s otherwise invalid MSJ to become valid.” (Opp’n at p. 3:25-26.) The Association’s counsel provides as Exhibit 1 a California Secretary of State “Business Search” for Stanford Plaza Association, Inc. (Lim Decl., ¶ 2.) The first page of the Association’s Exhibit 1 lists “Active” next to “Status.” (Lim Decl., ¶ 2, Ex. 1.) The second page of Exhibit 1 contains the heading “System Amendment – FTB Revivor – 8/26/2024,” and lists the “Filing Status” as “Changed From” “Suspended-FTB” and “Changed To” “Active.” (Lim Decl., ¶ 2, Ex. 1.)

The Bourhis Court noted that “Brown Eyed Girl purported to file notices of appeal while its corporate powers were suspended. In general, a corporation may not prosecute or defend an action, nor appeal from an adverse judgment in an action while its corporate rights are suspended for failure to pay taxes. Thus, the notices of appeal were invalid when filed. However, Brown Eyed Girl later received a certificate of revivor. When that certificate is received, as one court put it, [t]he legal rights of a suspended corporation are then revived, as an unconscious person is revived by artificial respiration. In a number of situations the revival of corporate powers by the payment of delinquent taxes has been held to validate otherwise invalid prior action. We must decide whether the revival of corporate powers in this case validated the earlier notices of appeal.” (Bourhis v. Lord, supra, 56 Cal.4th 320 at p. 324 [internal quotations and citations omitted].) The Bourhis Court noted that “[t]he Peacock Hill court concluded that as to matters occurring prior to judgment the revival of corporate powers has the effect of validating the earlier acts and permitting the corporation to proceed with the action. We are satisfied that the same rule should ordinarily apply with respect to matters occurring subsequent to judgment…” (Id. at p. 325 [internal quotations omitted].) The Bourhis Court concluded that “[w]e adhere to Rooney, supra, 10 Cal.3d 351, and Peacock Hill, supra, 8 Cal.3d 369. Accordingly, we affirm the Court of Appeal’s orders denying the motions to dismiss the appeals.” (Id. at p. 329.)

In the reply, Plaintiffs do not address the Bourhis case or dispute the Association’s assertion that under Bourhis, “the Association’s August 6, 2024 reinstatement caused it’s otherwise invalid MSJ to become valid.” (Opp’n at p. 3:25-26.)
In the opposition, the Association also cites to New York Times Co. v. Superior Court, supra, 135 Cal.App.4th at page 212, where the Court of Appeal noted that “Section 1008, subdivision (a) requires that a motion for reconsideration be based on new or different facts, circumstances, or law. A party seeking reconsideration also must provide a satisfactory explanation for the failure to produce the evidence at an earlier time.”

As noted by the Association, Plaintiffs state in the motion that “[s]hortly before the hearing on the MSJ, the Plaintiffs’ counsel became aware that the Nominal Defendant currently had its corporate status suspended by the Franchise Tax Board…” (Mot. at p. 3:15-17.) The Association asserts that “although this fact may be ‘new’ to the court, Plaintiffs admit that it was within their personal knowledge before the MSJ hearing. Plaintiffs’ attorney was present at the hearing. He could have raised this issue during the hearing, but decided not to.” (Opp’n at p. 5:7-10.) The Association’s counsel’s states, “I attended the hearing on the Motion for Summary Judgment. The Court allowed Plaintiffs’ counsel to respond to the tentative decision granting the Motion for Summary Judgement. At no time during oral argument did they argue that the Motion was improper because the Association was suspended.” (Lim Decl., ¶ 6.) As noted by the Association, Plaintiffs’ counsel’s declaration does not address why Plaintiffs’ counsel failed to raise the Association’s suspended status at the July 11, 2024 hearing on the Association’s motion for summary judgment, or in the alternative, summary adjudication. The Court agrees with the Association that Plaintiffs do not provide a “satisfactory explanation for the failure to produce the evidence at an earlier time.” (New York Times Co. v. Superior Court, supra, 135 Cal.App.4th at p. 212.)

In the motion, Plaintiffs also state that they “ask the Court to review its order sua sponte to determine if the Nominal Defendant carried its burden of showing an adequate investigation.” (Mot. at p. 7:8-10.) Plaintiffs cite to Le Francois v. Goel (2005) 35 Cal.4th 1094, 1108, where the California Supreme Court noted that “[i]f a court believes one of its prior interim orders was erroneous, it should be able to correct that error no matter how it came to acquire that belief. For example, nothing would prevent the losing party from asking the court at a status conference to reconsider a ruling…But a party may not file a written motion to reconsider that has procedural significance if it does not satisfy the requirements of section 437c, subdivision (f)(2), or 1008.” (Emphasis omitted.)

In the July 11, 2024 Order on the Association’s motion for summary judgment, or in the alternative, summary adjudication, the Court noted as follows:

“The Association cites to Finley v. Superior Court (2000) 80 Cal.App.4th 1152, 1158, where the Court of Appeal noted that ‘[a] number of other states (or federal courts applying the law of other states) have recognized a special litigation committee defense. This defense arises out of the interplay between the business judgment rule and the requirement in a stockholder’s derivative action that the plaintiff must have made a demand on the board of directors to have the corporation pursue the action. Thus, it has been held that, once a duly appointed committee of disinterested directors reasonably determines that it is not in the best interests of the corporation to pursue the claims asserted in the derivative action, that decision is protected by the business judgment rule. The trial court must determine, as a matter of fact, whether the committee members were disinterested and whether they conducted an adequate investigation. If it answers yes to both questions, however, it must dismiss the derivative action.’” (July 11, 2024 Order at p. 6:4-14.)

The July 11, 2024 Order further provides that “the Court finds that the Association has shown that ‘the committee members were disinterested,’ and that ‘they conducted an adequate investigation…As discussed, if the Court ‘answers yes to both questions…it must dismiss the derivative action.’” (July 11, 2024 Order at p. 10:5-8.)

Plaintiffs assert that the Association “failed to carry its burden of showing an adequate investigation was conducted by the Investigation Committee.” (Mot. at p. 8:3-4.) Plaintiffs contend that “[f]rom the IC members’ sworn statements, it’s evident on its face that the only ‘investigation process’ the IC engaged in was reviewing a curated set of documents provided to them by the association, not the special litigation committee.” (Mot. at p. 9:1-3.) Plaintiffs cite to the March 15, 2024 Declaration of Frances M. O’Meara, and note that Ms. O’Meara’s declaration provides, inter alia, that “[i]n or around late April 2023 and early May 2023, Chung Whan Park, the other member of the IC, and I reviewed the allegations set forth in the complaint filed in this matter, and various documents provided to us by the Association.” (Forster Decl., ¶ 6, Ex. E (O’Meara Decl., ¶ 5).)

Plaintiffs asserts that “[t]he five-member association that selected the documents for the IC members to review was comprised of three named Defendants in the lawsuit the IC was reviewing documents for.” (Mot. at p. 9:5-7.) But Plaintiffs do not appear to cite any evidence to support this statement. Plaintiffs also assert, without citing to any supporting evidence, that “[t]he IC member’s process consisted of an extremely ‘restricted in scope’ document review…” (Mot. at p. 9:7.) Plaintiffs’ counsel also provides a copy of the “May 8, 2023 Minutes from the meeting of the Special Litigation Committee” from the “S. Young Lim Declaration in Support of the Nominal Defendant’s Motion for Summary Judgment.” (Forster Decl., ¶ 7, Ex. F.) Plaintiffs assert that such meeting minutes show that the Investigation Committee “did not address the accounting claim in the Complaint…” (Mot. at p. 9:14.) But Plaintiffs do not include (or address) the entire sentence from the meeting minutes, which provides, “[t]he IC did not address the accounting claim in the Complaint since there was no allegation of improper accounting.” (Forster Decl., ¶ 7, Ex. F.)

Based on the foregoing, the Court does not find that Plaintiffs have demonstrated that the Court should reconsider, sua sponte, the July 11, 2024 Order.

Lastly, as noted by the Association, Plaintiffs’ reply raises a number of new arguments that were not presented in Plaintiffs’ motion. For instance, Plaintiffs state that they “request that the Court reconsider its ruling because a finding that the board approved a payment plan for David Lee’s arrears does not constitute a finding that Lee paid one cent of the arrears.” (Reply at p. 4:1-3.) Plaintiffs assert for the first time that “the Independent Committee’s perfunctory findings failed to address several matters the Association would have to know to determine whether the derivative claims are still necessary including whether David Lee paid the arrears, whether board members were appointed subject to the governing documents, and whether the board procured insurance at reasonable industry rates (it didn’t).” (Reply at p. 4:8-12.) Plaintiffs also assert for the first time that “[r]econsideration is…warranted because Plaintiffs should have a meaningful opportunity to oppose the MSJ subject to the Association’s discovery responses.” (Reply at p. 5:7-8.) The Court notes that “¿[p]oints raised for the first time in a reply brief will ordinarily not be considered, because such consideration would deprive the respondent of an opportunity to counter the argument.¿” (American Drug Stores, Inc. v. Stroh (1992) 10 Cal.App.4th 1446, 1453¿.) Thus, the Court declines to consider the arguments raised for the first time in Plaintiffs’ reply.

Superior Court of California

County of Los Angeles

Department 50