Judge Theresa M. Traber, Case 21STCP02137 2023-04-20 Tentative Ruling

Judge: Theresa M. Traber, Case: 21STCP02137, Date: 2023-04-20 Tentative Ruling

Case Number: 21STCP02137 Hearing Date: April 20, 2023 Dept: 47

Tentative Ruling

Judge Theresa M. Traber, Department 47

HEARING DATE: April 20, 2023 TRIAL DATE: July 11, 2023

CASE: Vladimir Zeetser, et al. v. Avanguard Surgery Center, LLC, et al.

CASE NO.: 21STCP02137

MOTION FOR SUMMARY JUDGMENT, OR, IN THE ALTERNATIVE, SUMMARY ADJUDICATION

MOVING PARTY: Defendants Avanguard Surgery Center, LLC and Gary Bellman

RESPONDING PARTY(S): Plaintiffs Vladimir Zeetser and Alen Cohen

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

Plaintiffs, a podiatrist and an ENT doctor, filed this action on July 2, 2021, alleging they were orally expelled from membership in Defendant Avanguard Surgery Center without receiving a written buyout notice, contrary to the terms of Avanguard’s operating agreement.

Defendants Avanguard and its manager, Gary Bellman, move for summary judgment or summary adjudication of all causes of action

TENTATIVE RULING:

Defendants’ Motion for Summary Judgment is DENIED.

Defendants’ alternative Motion for Summary Adjudication is DENIED.

DISCUSSION:

Motion for Summary Judgment

Defendants move for summary judgment against Plaintiffs. As Defendants have not demonstrated that they are entitled to summary adjudication of each cause of action asserted against them for the reasons addressed below, Defendants are not entitled to summary judgment.

Accordingly, Defendants’ Motion for Summary Judgment is DENIED.

Motion for Summary Adjudication

Defendants move in the alternative for summary adjudication of each cause of action.

Legal Standard

The function of a motion for summary judgment or adjudication is to allow a determination as to whether an opposing party can show evidentiary support for a pleading or claim and, if not, to enable an order of summary dismissal without the need for trial. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.) Code of Civil Procedure Section 437c(c) “requires the trial judge to grant summary judgment if all the evidence submitted, and ‘all inferences reasonably deducible from the evidence’ and uncontradicted by other inferences or evidence, show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” (Adler v. Manor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1119.) “The function of the pleadings in a motion for summary judgment is to delimit the scope of the issues; the function of the affidavits or declarations is to disclose whether there is any triable issue of fact within the issues delimited by the pleadings.” (Juge v. County of Sacramento (1993) 12 Cal.App.4th 59, 67, citing FPI Development, Inc. v. Nakashima (1991) 231 Cal. App. 3d 367, 381-82.)

As to each claim as framed by the complaint, the defendant moving for summary judgment must satisfy the initial burden of proof by presenting facts to negate an essential element, or to establish a defense. (Code Civ Proc. § 437c(p)(2); Scalf v. D. B. Log Homes, Inc. (2005) 128 Cal.App.4th 1510, 1520.) Courts “liberally construe the evidence in support of the party opposing summary judgment and resolve doubts concerning the evidence in favor of that party.” (Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 389.) The lack of opposition by a plaintiff is not grounds to grant a motion for summary judgment if a defendant cannot meet their initial burden of proof. (See Thatcher v. Lucy Stores, Inc. (2000) 79 Cal.App.4th 1081, 1087.)

Once the defendant has met that burden, the burden shifts to the plaintiff to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto. To establish a triable issue of material fact, the party opposing the motion must produce substantial responsive evidence. (Sangster v. Paetkau (1998) 68 Cal.App.4th 151, 166.)

First Cause of Action: Violation of Corporations Code Section 17704.10 (Inspection of Records)

Defendants move for summary adjudication of the first cause of action for violation of Corporations Code section 17704.10 (asserted against Defendant Avanguard only) on the grounds that this cause of action is without merit.

Corporations Code section 17704.10 entitles members of a California limited liability company to inspect the company’s books and records. (Corp. Code § 17704.10(a)-(b).) A “member” is “a person that has become a member of a limited liability company under Section 17704.01 and has not dissociated under Section 17706.02.” (Corp. Code § 17701.01(p).) Section 17706.02 enumerates the methods by which a person may be dissociated as a member, including, as relevant here, “when . . . [t]he person is expelled as a member pursuant to the operating agreement.” (Corp. Code § 17706.02(b).)

Defendants first argue that, because Plaintiffs were expelled, they are no longer “members” entitled to inspection of Avanguard’s books and records under section 17704.10 as a matter of law. Not so. As the Court stated in its February 9, 2022 ruling on the Demurrer to the Complaint, Plaintiffs may be entitled to an inspection if they can demonstrate that the expulsion was invalid. (February 9, 2022 Minute Order) Defendants’ primary authority to the contrary – Wolf v. CDS Devco (2010) 185 Cal.App.4th 903 – has already been rejected by the Court in that prior ruling as irrelevant to this case. (Id.) Therefore, in the context of summary adjudication, Defendants must demonstrate that Plaintiffs cannot produce evidence demonstrating that their expulsion was invalid to prevail on Defendants’ motion as to this cause of action.

Section 2.15 of the Second Amended Operating Agreement governs the expulsion of members of Avanguard as follows:

(a) A Member may be expelled, whether for or without cause.

(b) The expulsion shall be deemed valid upon the affirmative vote of the Majority of Members.

(d) A Member may be expelled at a meeting of Members, provided that a quorum of Members is present. If a Member whose expulsion is sought is present at such a meeting, expulsion may be effective immediately, provided that the payment of the purchase price (determined as provided in Article 10 of this Agreement) is mailed within five (5) business days from the date of the expulsion meeting.

(e) A Member may be expelled by a written resolution of Majority of Members. A copy of such resolution accompanied by the payment of the purchase price (determined as provided in Article 10 of this Agreement) shall be mailed to the expelled Member. Expulsion shall be effective on the thirtieth (30th) day from the date of mailing.

(f) For purposes of paragraph (f) of this Section, the term “Cause” refers to a conviction for a felony offense arising from (i) misuse of misappropriation of money or property of Company or (ii) unlawful activity, which, if known to the public, is likely to diminish the Company’s ability to provide services or cause significant and material harm to the Company’s reputation and standing in the medical community.

(Defendants’ Appendix of Evidence Exh. 1 § 2.15 [emphasis added].) Section 10.2 of the Operating Agreement governs buyouts of a member’s interest:

(a) Buyout Option, Fixed Buyout Price. Notwithstanding any provision relating to alienability of interests in this Company, on the occurrence of an Optional Purchase Event with respect to any Member (the "Selling Member"), Company shall have an option to acquire the entirety of Selling Member’s Membership Interest in the Company or, if applicable, the Unpermitted Transferee’s Economic Interest (hereafter, collectively, “Repurchased Interest”) by paying to Selling Member or Unpermitted Transferee, as the case may be, an amount equal to the respective Fixed Buyout Price.

(b) Exercise Period. The option granted herein may be exercised by Company at any time during a three (3) year period after the occurrence of an Optional Purchase Event (the “Exercise Period”). A failure to exercise this option during the Exercise Period shall be deemed a waiver of the option rights solely in connection with the specific Optional Purchase Event that has triggered it. Manager shall have no liability whatsoever for permitting any Exercise Period to lapse.

(c) Approval of Exercise. The option granted herein shall be exercised upon affirmative vote of the Majority of Members. Selling Member shall have the right to vote against the exercise of the Option.

(d) Manner of Exercise. Manager shall evidence the exercise of the option to purchase the Selling Member’s Interest by means of a written notice (the “Buyout Notice”) mailed or emailed to the last known address of the Selling Member and, to the extent the repurchase is triggered by an Unpermitted Transfer, to the last known address of the Unpermitted Transferee. A check in the amount equal to the Fixed Buyout Price shall accompany any Buyout Notice, which is mailed; or shall be sent by certified mail within two-(2) business day of the date of any Buyout Notice, which is e-mailed. In connection with the exercise of the Option, the Majority of the Members may require the Selling Member to enter into certain restrictive covenant agreements, including non-competition and non-solicitation agreements.

(Defendants’ Exh. 1 § 10.2 [emphasis added].)

Defendants do not contest that the plain language of the Operating Agreement lays out explicit methods for giving notice of Plaintiffs’ expulsion and the buyout of their interests in Avanguard, instead focusing on the facts surrounding the effort to expel Plaintiffs and effectuate a buyout of their interests. Defendants offer evidence that Plaintiffs were present for a July 6, 2020 special meeting of the Membership, at which all of the Class A members were present in person or by proxy. (Defendants’ Separate Statement of Undisputed Material Fact Nos. 6-7.) At that meeting, a vote was taken on the expulsion of Plaintiffs, and all other members (save Plaintiffs) voted for expulsion. (SSUMF Nos. 10-11.) At that meeting, Defendants contend Plaintiffs were physically each handed a written Buyout Notice and a check for $76,100. (SSUMF No. 13.) Defendants argue that, since Plaintiffs were physically handed a written Buyout Notice and a check for the purchase price of their interest, Avanguard was not required to formally deliver written notice or payment by mail pursuant to the Operating Agreement.

In support of this position, Defendants rely on case law reaching similar conclusions regarding a notice provision in an insurance policy (Belz v. Clarendon America Ins. Co. (2007) 158 Cal.App.4th 615, 631), or under workers’ compensation laws (Kaiser Found. Hospitals v. Workers Comp. Appeals Bd. (1985) 39 Cal.3d 57, 65.) The Court is not persuaded by this line of reasoning. Insurance policies are governed by a separate body of precedent that does not create general rules outside the insurance context. (See Moe v. Transamerica title Ins. Co. (1971) 21 Cal.App.3d 289, 302.) Nothing in that body of law provides any basis for extending those rules into other forms of litigation. Similarly, the requirement of prejudice in the worker’s compensation context arises from the policy behind the workers’ compensation notification statutes: to protect those employees unaware of their rights. (Kaiser, supra, 39 Cal.3d at 64-65.) No such policy goal is present here.

Further, it is not lost on the Court that Defendants argue on the one hand that the first cause of action is without merit because Defendants were not required to strictly comply with the language of the Operating Agreement, while also arguing that Plaintiffs are strictly bound by the terms of the Agreement with respect to the second cause of action, infra. Defendants cannot have it both ways. The plain language of the Operating Agreement requires that written notice be mailed or e-mailed. Defendants concede that they did not do so. Defendants have therefore failed to demonstrate that Plaintiffs cannot show that their expulsions were invalid. The burden therefore does not shift to Plaintiffs to demonstrate a triable issue of fact in this respect, and Defendants are not entitled to summary adjudication of the first cause of action.

Accordingly, Defendants’ motion for summary adjudication of the first cause of action is DENIED.

Second Cause of Action: Breach of Fiduciary Duty

Defendants move for summary adjudication of the second cause of action for breach of fiduciary duty on the grounds that this cause of action is without merit.

To prevail on a cause of action for breach of a fiduciary duty, a plaintiff must show the existence of a fidicuary relationship, its breach, and damage proximately caused by that breach. (See, e.g., Brown v. California Pension Administrators & Consultants (1996) 34 Cal.App.4th 333, 347-48.)

Plaintiffs allege that Defendant Bellman “deliberately structured distributions so as to avoid paying Plaintiffs and expelling them for the purposes of withholding payment to Plaintiffs.” (Complaint ¶ 27.) Plaintiffs also allege that they were expelled so that Defendants could exclude them from the proceeds of a settlement of Avanguard Surgery Center, LLC v. Cigna C.D.Cal No. 20-cv-03405. (Complaint ¶ 12.) Section 6.5(d) of the operating agreement—erroneously cited in the moving papers as section 6.5(c)—states:

No Entitlement to Distributable Cash Prior to Distribution. No Person shall have any right or entitlement to any Distributable Cash of this Company to the extent that such Distributable Cash has been earned, collected, generated or held prior to the date of termination of such Person’s Membership in this Company, but has not been distributed on or before the last date thereof. Nothing in this Agreement prohibits the Manager of the Company to delay distribution of Distributable Cash pending termination of a Person’s Membership from the Company, provided that such delay shall not be for more than ninety (90) days from the date of the last distribution.

(Defendants’ Exh. 1. § 6.5(d).)

Defendants first contend that, under the plain language of this provision, Plaintiffs have been bought out, and thus are not owed any further fiduciary duties. However, as stated above, Defendants have not demonstrated that Plaintiffs’ challenge to the validity of their expulsion is without merit. Thus, Defendants have not carried their burden to demonstrate that no fiduciary duties were owed to Plaintiffs. The burden of proof therefore does not shift to Plaintiffs to demonstrate a triable issue of fact in this respect, and Defendants are not entitled to summary adjudication on this basis.

Defendants next argue that, even if Defendants did owe Plaintiffs a fiduciary duty, Defendants did not breach that duty by withholding distributions from Plaintiffs and expelling them to cut them out of their recovery in the then-pending lawsuit against Cigna, as alleged in the Complaint. (See Complaint ¶¶ 16-18, 26.) Defendants state that, at the time of Plaintiffs’ expulsion, Avanguard did not know whether it could make a summer distribution at all, that Plaintiffs received all distributions to which they were entitled, and the Cigna lawsuit played no role in their expulsion whatsoever. (SSUMF Nos. 17-21.) Defendants’ sole piece of evidence in support of these contentions is Defendant Bellman’s self-serving declaration that does little more than blandly negate Plaintiffs’ allegations. (See Declaration of Gary Bellman ISO Mot. ¶¶ 32-33, 41.) Conclusory statements such as those offered by Defendant Bellman are insufficient to show that Plaintiffs cannot prevail on this issue, such that the burden of proof shifts to Plaintiffs to show a triable issue of fact. (See, e.g., Krantz v. BT Visual Images (2001) 89 Cal.App.4th 164, 173.) Defendants are therefore not entitled to summary adjudication on this basis.

Accordingly, as Defendants have failed to demonstrate that they are entitled to summary adjudication of the second cause of action, Defendants’ motion for summary adjudication on this cause of action is DENIED.

Third Cause of Action: Accounting

Defendants contend that the third cause of action for an accounting is without merit for the reasons stated above in connection with the first and second causes of action. As the Court has denied summary adjudication on both of those causes of action, the motion likewise fails with respect to this cause of action. Accordingly, Defendants’ Motion for Summary Adjudication is DENIED as to the third cause of action for an accounting.

Conclusion

Accordingly, Defendants’ Motion for Summary Adjudication is DENIED.

CONCLUSION:

Accordingly, Defendants’ Motion for Summary Judgment is DENIED.

Defendants’ alternative Motion for Summary Adjudication is DENIED.

Moving Parties to give notice.

IT IS SO ORDERED.

Dated: April 20, 2023 ___________________________________

Theresa M. Traber

Judge of the Superior Court

Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept47@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.