Judge Walter P. Schwarm, Case 30-2021-01178204 2022-08-16 Tentative Ruling

Judge: Walter P. Schwarm, Case: 30-2021-01178204, Date: 2022-08-16 Tentative Ruling

Receiver’s (Douglas P. Wilson) Motion to Approve Receiver’s Final Account and Report (Motion), filed on 8-11-21 under ROA 280, is GRANTED.

On 6-7-22, the court issued the following ruling on this Motion: “. . . , the court tentatively GRANTS Receiver’s (Douglas P. Wilson) Motion to Approve Receiver’s Final Account and Report, filed on 8-11-21 under ROA No. 280, except as to the FAR’s request for $28,200.00 in attorney’s fees. The court CONTINUES the Motion to 08/16/2022 at 9:00 a.m. in Department W8 for further hearing regarding the Receiver’s request for the attorney’s fees contained in the FSR and SSR. The Receiver shall submit counsel’s time entries with a supporting declaration no later than 7-15-22. Defendants may submit a response to the declaration, not to exceed five pages, no later than 7-22-22.” (6-7-22 Minute Order.) The court incorporates its 6-7-22 ruling as to Motion No. 1 into this decision as to GRANTING the Motion to approve the Receiver’s Final Account and Report (FAR) attached to the 8-10-21 declaration of Douglas Wilson. (Filed on 8-11-21 under ROA No. 278.)

Based on the court’s 6-7-22 ruling, the purpose of the 8-16-21 hearing was to determine the Receiver’s request for attorney’s fees after 1-18-22. On 7-26-22, the court permitted Defendants (Laguna HW, LLC, Laguna HI, LLC, The Masters Building, LLC, Retreat at Laguna Villas LLC, 694 NCH Apartments, LLC, Sunset Cove Villas, LLC, 837 Park Avenue, LLC, 689 South Coast Hwy, LLC, Laguna Art District Complex, LLC, 891 Laguna Canyon Road, LLC, Heisler Laguna, LLC, Laguna Festival Center, LLC, 777 at Laguna LLC, Duplex at Sleepy Hollow, LLC, 4110 West 3rd Street DE, LLC, 314 S. Harvard, DE, LLC, Cliff Drive Properties DE, LLC, and Tesoro Redlands DE, LLC) to file supplemental objections to the FAR. (7-26-22 Minute Order.) The court deemed Defendants’ Ex Parte Application for Leave to File Supplemental Objections to Receiver’s Final Account and Report (Application), filed on 7-25-22 under ROA No. 456, as the supplemental objections to the FAR. (7-26-22 Minute Order.)

Supplemental Objections:

The Application states, “Here, the certainty provided by a compensation cap in the appointment order is critical to that objective. Pursuant to the express language of the OAR, the Receiver was granted the authority to hire his own company, ‘Douglas Wilson Company, Investors' Property Services’ and was allowed to pay the company ‘not more than 2-5 percent of the gross monthly rents’ attributed to the receivership estate. (Exhibit C, ¶ 6) (Emphasis added.) If the relief requested herein is not granted, Defendants will suffer the irreparable harm that the Receiver will siphon off nearly double the amount of compensation to which he is entitled under the very order appointing him Receiver.” (Application; 4:17-24 (Emphasis in Application.).)

Receiver’s Opposition to Defendants’ July 26, 2022 Objections to the Final Account and Report (Opposition), filed on 8-5-22 under ROA No. 465, asserts, “The 2-5% limit on property management fees, specified in Section 6 of the OAR, only applies to fees incurred by a property management company employed by the Receiver; but the Receiver did not employ a property management company. Defendants’ mischaracterization of the OAR notwithstanding, the OAR does not limit the Receiver’s fees to 2-5% of the gross monthly rents for the Receivership Estate. Unlike fees incurred by a property management company, the Receiver’s fees are limited to an hourly rate and not a percentage of Receivership Estate rents. (See ROA 7, Sec.5 (‘Receiver’s fees. The receiver may charge for the receiver’s services no more than…$475.00…per hour’.) The Receiver did not employ a property management company, and the Receiver’s Requests did not contain or request fees from a property management company. Therefore, the 2-5% limit does not apply to the Receiver’s Requests.” (Opposition; 4:14-24 (Emphasis in Opposition.).) The Opposition also contends that the supplemental objections are an untimely motion for reconsideration of the court’s 6-7-22 ruling pursuant to Code of Civil Procedure section 1008. (Opposition; 5:8-16.)

Code of Civil Procedure section 1008, subdivision (a), states, “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.”

The court finds that Defendants’ Application is, in effect, an untimely motion for reconsideration of the court’s 6-7-22 ruling because the court issued a ruling as to the FAR except as to attorney’s fees. The Application does not demonstrate that new or different facts, circumstances, or law support the request for consideration. However, to the extent that the court did not finalize it’s 6-7-22 ruling because of the outstanding issue regarding attorney’s fees, the court will address the supplemental objections on the merits.

The Order Appointing Receiver (OAR) states in part, “Receiver’s fees. The receiver may charge for the receiver’s services no more than (check all that apply): [¶] a. $475 per hour. . . .” [¶] ““Management company. The receiver may employ the management company of (name)” Douglas Wilson Company, Investors’ Property Services [unless another management company is warranted] [¶] a. . . . [¶] (2) 2-5 percent of gross monthly rents. . . .” [¶] “Management. [¶] a. The receiver shall operate the property and take possession of all accounts relating to the property. [¶] b. The receiver may [¶] (1) employ agents, employees, clerks, accountants, and property managers to administer the receivership property, and [¶] (2) purchase materials, supplies, and services reasonably necessary to administer the receivership property. . . .” (Maralan Decl., ¶ 4 and Exhibit C (§§ 5, 6, and 16 of the OAR.).)

The Receiver’s 8-5-22 declaration states in part, “3. As reflected in section 6 of the OAR, the Court authorized me to employ one of two property management companies, either the (1) Douglas Wilson Company, or (2) Investors’ Property Management Services. [¶] 4. Before taking over the Receivership Estate – and as I previously stated in paragraph 5 of my Receiver’s Final Account and Report (the “Final Report”) – I anticipated the need to put a new property management team in place. However, after a thorough review of the Receivership Estate, I determined this was not a simple rents and receipts receivership. Although my review uncovered significant property management issues, my more pressing concern was the inadequate asset management of the Receivership Estate. [¶] 5. Under the circumstances, I determined the best course of action was to maintain the current property management team and provide increased oversight and direction. I made that decision because I thought it was important to preserve some continuity as well as the existing team’s institutional knowledge of the properties. I thought that the existing problems with their management could be triaged and addressed with my direction and supervision. The more pressing issue facing the Receivership Estate went well beyond the collection of rents and included, among other things, approximately $650,000.00 in delinquent Transient Occupancy Taxes owed to City of Laguna Beach, approximately $940,000.00 in outstanding accounts payable, and the total lack of a formal leasing strategy for the Receivership Estate’s office and retail units.” (8-5-22 Wilson Decl., ¶¶ 3-5.)

The FAR states in part, “Shortly after his appointment, the Receiver held multiple meeting with the underlying principal owner of the Receivership Properties, Mo Honarker . . . as well as his management company, 4G Ventures . . . After securing financial control, the Receiver performed a review of the management in place, headed by the 4G Ventures team. After his review, the Receiver elected to maintain the current 4G Ventures team in place but with increased oversight and direction from the Receiver and his staff. This was a conscientious decision directed at maintaining continuity within the Receivership Properties and retaining the historical knowledge held by the 4G Ventures team. . . .” (8-10-21 Wilson Decl., ¶ 4 and Exhibit A (FAR; 4:5-25.)

The Receiver’s 8-10-21 declaration, 8-5-22 declaration, and FAR show that the Receiver did not use “Douglas Wilson Company, Investors’ Property Services” as the management company. This evidence demonstrates that the Receiver has acted pursuant to sections 5 and 16 of the OAR by employing agents and employees of 4G Ventures to continue to administer the Receivership property. The Receiver chose not to employ a property management company under section 6 of the OAR. The court finds that section 5 of the OAR applies to the Receiver’s compensation, and that section 6 of the OAR does not apply to the Receiver’s compensation.

Therefore, the court DENIES Defendants’ Ex Parte Application for Leave to File Supplemental Objections to Receiver’s Final Account and Report filed on 7-25-22 under ROA No. 456.

Additional Receiver’s Fees:

The Receiver’s 8-5-22 declaration states, “Exhibit ‘B’ reflects $5,841.00 in receiver’s fees incurred after the period addressed in the Second Supplemental Report. During this period, I accomplished for the Receivership Estate, among other things, the following: (1) further defending the Receiver’s Final Account and Report against Defendants’ further efforts to oppose it and preparing the several documents ordered by the Court at the June 7, 2022 and July 26 2022, hearings. I estimate I will incur an additional $5,075.00 in receiver’s fees (7 hours by D. Wilson at $475/hr and 5 hours by R. Baker at $350/hr) after filing this declaration.”

The Receiver’s request for additional fees to defend the Final Account and Report is GRANTED in the amount of $5,841.00 as reflected in Exhibit B. The Receiver has not submitted evidence showing that the additional amount of $5,075.00 will be necessarily incurred under the OAR. However, the court will grant the request for additional receiver’s fees of $1,425 reflecting three hours of Mr. Wilson’s time to prepare for and appear at the hearing. (8-5-22 Wilson Decl., ¶ 11.) Therefore, the request to approve additional receiver’s fees is GRANTED in the amount of $7,266.00.

Attorney’s Fees:

PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1095, explains, “As the Court of Appeal herein observed, the fee setting inquiry in California ordinarily begins with the ‘lodestar,’ i.e., the number of hours reasonably expended multiplied by the reasonable hourly rate. ‘California courts have consistently held that a computation of time spent on a case and the reasonable value of that time is fundamental to a determination of an appropriate attorneys’ fee award.’ [Citation.] The reasonable hourly rate is that prevailing in the community for similar work. [Citation.]” EnPalm, LLC v. Teitler (EnPalm) (2008) 162 Cal.App.4th 770, 774, explains, “The trial court has broad discretion to determine the amount of a reasonable fee, and the award of such fees is governed by equitable principles. [Citation.] The first step involves the lodestar figure—a calculation based on the number of hours reasonably expended multiplied by the lawyer's hourly rate. ‘The lodestar figure may then be adjusted, based on consideration of factors specific to the case, in order to fix the fee at the fair market value for the legal services provided.’ [Citation.] In short, after determining the lodestar amount, the court shall then ‘ “consider whether the total award so calculated under all of the circumstances of the case is more than a reasonable amount and, if so, shall reduce the section 1717 award so that it is a reasonable figure.” ’ [Citations.] The factors to be considered include the nature and difficulty of the litigation, the amount of money involved, the skill required and employed to handle the case, the attention given, the success or failure, and other circumstances in the case. [Citation.] The ‘necessity for and the nature of the litigation’ are also factors to consider. [Citation.]” (Italics in EnPalm.) “In referring to ‘reasonable’ compensation, we indicated that that trial courts must carefully review attorney documentation of hours expended; ‘padding’ in the form of inefficient or duplicative efforts is not subject to compensation. [Citation.]” (Ketchum v. Moses (Ketchum) (2001) 24 Cal.4th1122, 1132; Italics in Ketchum.) Christian Research Institute v. Alnor (2008) 165 Cal.App.4th 1315, 1322, provides, “ ‘To the extent a trial court is concerned that a particular award is excessive, it has broad discretion to adjust the fee downward or deny an unreasonable fee altogether.’ [Citation.]” “ ‘[C]ounsel may not submit a plethora of noncompensable, vague, block-billed attorney time entries and expect particularized, individual deletions as the only consequence.’ ” [Citation.]” (Guillory v. Hill, (2019) 36 Cal.App.5th 802, 812.)

The Receiver requests a total of $50,254.57 in fees and expenses between 1-18-22 and 7-15-22. Initially, the court notes that the Supp. Opp. does not challenge the reasonableness of the hourly rates for the attorneys listed in the billing records. (7-15-22 Martin Decl., ¶ 5, and 7-14-22 Wilson Decl., ¶¶ 10-12 and Exhibits A, B, and C.)

Defendants’ Opposition to Receiver’s Supplemental Memorandum in Support of Request for Attorney’s Fees (Supp. Opp.), filed on 7-22-22 under ROA No. 453, states, “Defendants provide the specific objections below to the claimed fees as unreasonable or unsubstantiated. It is difficult to understand how these tasks could have possibly taken the amount of time billed, and moreover the Receiver has stonewalled on every discovery request made by Defendants. (Supp. Opp.; 4:4-8.) Specifically, Defendants list ten objections to the attorney’s fees claimed by the Receiver. (Supp. Opp.; 4:4-5:17.)

The first objection challenges the entire fee request as exceeding “. . . the amount allowable under the receivership order. The order capped all fees at 2-5% . . . .” (Supp. Opp., ¶ 1 on p. 4.) The court OVERRULES this objection for the same reasons as discussed in overruling the Supplemental Objections discussed above.

The second objection challenges “. . . the Receiver’s request to ‘reserve $90,000.00 in the Receivership Estate for payment of legal assistance associated with any party’s above mentioned appeal(s) . . . .” (Supp. Opp., ¶ 2 on p. 4 (See also, Receiver’s Supplemental Memorandum in Support of the Receiver’s Request for Attorney’s Fees (Supp. Memo.) filed on 7-15-22 under ROA No. 450; 6:8-19.).) The court DENIES, without prejudice, the Receiver’s request for authorization to employ counsel on appeal as premature. The court’s 1-18-22 Minute Order only authorized the employment of counsel for the purpose of defending Defendants’ challenge to the FAR. (1-18-22 Minute Order.)

The third objection challenges the 1-19-22 billing entry (1.7 hours) contained in the 7-14-22 Receiver’s declaration at paragraph 10 and Exhibit A. The 1-19-22 billing entry (1.7 hours) is sufficiently specific to identify the tasks Receiver’s counsel performed. Therefore, the court OVERRULES the third objection.

The fourth objection challenges the 1-19-22 billing entry (1.2 hours) contained in the 7-14-22 Receiver’s declaration at paragraph 10 and Exhibit A. The 1-19-22 billing entry (1.2 hours) is sufficiently specific to identify the tasks Receiver’s counsel performed. Therefore, the court OVERRULES the third objection.

The fifth objection challenges the 1-28-22 billing entry (1.8 hours) contained in the 7-14-22 Receiver’s declaration at paragraph 10 and Exhibit A. The 1-28-22 billing entry (1.8 hours) is sufficiently specific to identify the tasks Receiver’s counsel performed. Therefore, the court OVERRULES the fifth objection.

The sixth objection challenges the 2-1-22 billing entry (2.7 hours) contained in the 7-14-22 Receiver’s declaration at paragraph 11 and Exhibit B. The 2-1-22 billing entry (2.7 hours) is sufficiently specific to identify the tasks Receiver’s counsel performed. Therefore, the court OVERRULES the sixth objection.

The seventh objection challenges the 2-21-22 billing entry (6.10 hours) contained in the 7-14-22 Receiver’s declaration at paragraph 11 and Exhibit B. The 2-21-22 billing entry (6.10 hours) is vague to the extent that the court cannot determine the tasks performed by Receiver’s counsel. Therefore, the court SUSTAINS the seventh objection.

The eighth objection challenges the 4-27-22 billing entry (6.10 hours) contained in the 7-14-22 Receiver’s declaration at paragraph 11 and Exhibit B. The 4-27-22 billing entry (6.10 hours) is vague to the extent that the court cannot determine the tasks performed by Receiver’s counsel. Therefore, the court SUSTAINS the eighths objection.

The ninth objection challenges the 5-17-22 billing entry (2.6 hours) contained in the 7-14-22 Receiver’s declaration at paragraph 12 and Exhibit C. The 5-17-22 billing entry (2.6 hours) is duplicative of tasks performed on 5-6-22 and 5-12-22. (7-14-22 Wilson Decl., ¶ 11 and Exhibit B.) Therefore, the court SUSTAINS the eighths objection.

The tenth objection challenges the 5-20-22 billing entry (3.10 hours) contained in the 7-14-22 Receiver’s declaration at paragraph 12 and Exhibit C. The 5-20-22 billing entry (3.10 hours) is sufficiently specific to identify the tasks Receiver’s counsel performed. Therefore, the court OVERRULES the tenth objection.

Based on the above, the court GRANTS Receiver’s (Douglas P. Wilson) Motion to Approve Receiver’s Final Account and Report, filed on 8-11-21 under ROA 280, as set forth above.

Plaintiff is to give notice.