Judge: Walter P. Schwarm, Case: 30-2021-01183125, Date: 2022-10-04 Tentative Ruling

Plaintiff’s (Mira Kim) Motion for Appointment of Receiver and Injunctive Relief (Motion), filed on 6-14-22 under ROA No. 117, is DENIED without prejudice.

Defendants’(Gina Kim, Anna Kim, Kyong Su Kim, Myong Kil Kim, and May enterprise, LLC) Evidentiary Objections to the Declaration of Mira Kim filed on 9-7-22 under ROA No. 155 (The court notes that Defendants did not sequentially number their objections and only identified the objections by referring to the paragraph numbers in the declaration subject to he objections.): The court SUSTAINS all of the objections.

Plaintiff’s Evidentiary Objections to the Declarations Submitted in Opposition to Motion for Appointment of Receiver and Injunctive Relief filed on 9-13-22 under ROA No. 164 (The court notes that Plaintiff did not sequentially number their objections and only identified the objections by referring to the paragraph numbers in the declaration subject to the objections. The court will address these objections in the order presented and refer them by number): As to the declaration of Gina Kim, the court SUSTAINS Objection Nos. 1, 5, 6, 9, 11, 13, 14, 17, 20, and 21. The court OVERRULES the remaining objections to the declaration of Gina Kim. As to the declaration of Anna Kim, the court DECLINES TO RULE on these objections because they are immaterial to the court’s decision as set forth below.

Code of Civil Procedure section 564 states in part, “(a) A receiver may be appointed, in the manner provided in this chapter, by the court in which an action or proceeding is pending in any case in which the court is empowered by law to appoint a receiver. [¶] (b) 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: [¶] (1) In an action by a vendor to vacate a fraudulent purchase of property, or by a creditor to subject any property or fund to the creditor's claim, or between partners or others jointly owning or interested in any property or fund, on the application of the plaintiff, or of any party whose right to or interest in the property or fund, or the proceeds of the property or fund, is probable, and where it is shown that the property or fund is in danger of being lost, removed, or materially injured. . . . [¶] (9) In all other cases where necessary to preserve the property or rights of any party.”

Medipro Medical Staffing, LLC v. Certified Nursing Registry, Inc. (2021) 60 Cal.App.5th 622, 628 (Medipro), explains, “What we must decide is whether the trial court in this case properly exercised this authority in the post-judgment collections context. Because trial courts enjoy a ‘large measure’ of discretion, albeit ‘not an entirely uncontrolled one,’ in deciding when to exercise their authority to appoint a receiver [citations], we review the decision to appoint one solely for an abuse of that discretion [citation]. [¶] Because the appointment of a receiver transfers property—or, in this case, a business—'out of the hands of its owners’ and into the hands of a receiver (Golden State, supra, 13 Cal.2d at p. 393, 90 P.2d 75), the appointment of a receiver is a very ‘drastic,’ ‘harsh,’ and costly remedy that is to be ‘exercised sparingly and with caution.’ [Citations.] Due to the ‘extraordinary’ nature of this remedy and the special costs it imposes, courts are strongly discouraged—although not strictly prohibited—from appointing a receiver unless the more intrusive oversight of a receiver is a “necessity” because other, less intrusive remedies are either ‘ “inadequate or unavailable.” ’ [Citations.]”

The Motion states, “There are no checks and balances on May LLC. The family dips into the Company at will as their own private piggy bank. Now that the family has resolved to expel Mira from the Company, they have no incentive to maintain its value or protect Mira. They are siphoning as much money as they can and reducing the value of May LLC so that if they eventually win the right to force a sale of Mira’s interest, that interest will be worth nothing. This is a classic case of conflict of interest. An independent receiver is required to protect May LLC and all members’ interests.” (Motion; 12:15-21.)

Defendants’ Opposition to Motion for Appointment of Receiver and Preliminary Injunction (Opposition), filed on 9-7-22 under ROA No. 157, responds, “Gina has refuted every single claim made by Mira with detailed supporting evidence. Anna Kim . . . supports Gina’s decisions and her continued management of May. May continues to earn and profit.” (Opposition; 13:9-11.)

In order to demonstrate that Defendants are mismanaging the assets of May Enterprise, LLC, Plaintiff provides the following evidence: (1) “On the balance sheet for May LLC for the year 2017 (Exhibit 14 hereto), I noted that May LLC had recorded as an asset a “loan receivable” from “Kim” in the amount of $550,000, which I understood to mean that May LLC had made a loan to one of my family members in the amount of $550,000. I had not been aware of this loan and had not been asked to consent to it.” (Mira Kim Decl., ¶ 15.); (2) “On the balance sheet for May LLC for the year 2018 (Exhibit 15 hereto), I discovered distributions by May LLC of $1.9 million. I never received notice of this distributions or any amount of these distributions.” (Mira Kim Decl., ¶ 16; Underscore in declartion.); (3) “I understand from my parents’ written discovery responses that $550,000 of the $1.9 million in distributions was forgiveness of the $550,000 loan that May LLC had made to Kyong one year earlier. I was not informed of or asked to consent to this loan forgiveness or to any ‘reclassification’ of the loan as a distribution.” (Mira Kim Decl., ¶ 17.); (4) “I understand from my parents’ written discovery responses that $1.35 million of the $1.9 million in distributions purportedly was to repay them for personal loans they allegedly made to me in 2004 and to Gina and Anna in 2006 to purchase our membership interests in May LLC (also referred to as our initial capital contributions in May LLC). I was not informed of or asked to consent to these payments on members’ personal loans. Nor did I ever execute a written consent for these payments.” (Mira Kim Decl., ¶ 18.); (5) “The $1.9 million in distributions in 2018 brought May LLC’s total current assets, as shown on its balance sheets, from $1,952,257.37 in 2017 (Exhibit 14 hereto) to $102.058.04 in 2018 (Exhibit 15 hereto).” (Mira Kim Decl., ¶ 19; Underscore in declaration.); (6) “I discovered from documents produced in November 2021 by Hanmi Bank in my parents’ case that Gina has been receiving monthly payments of $3,500 from May LLC since at least 2017.” (Mira Kim Decl., ¶ 20.); (7) “I also discovered that Gina has been cooperating with my parents to create other methods to transfer money from May LLC to themselves. For example, on May 29, 2020, Gina directed May LLC to enter into a ‘Consulting and Service Agreement’ with my parents’ company, John K. Management.” (Mira Kim Decl., ¶ 21.); (8) “In Hanmi Bank’s production, I discovered other checks from 2017 to 2020 reflecting payments exceeding a total of $175,000 that Gina and my parents made from May LLC’s account for the personal use of family members. For example, Kyong and Myong signed three checks on behalf of May LLC, on March 19, 2018, August 17, 2018, and on July 10, 2019, directing the company to pay a total of $78,737 to Kobo’s Furniture.” (Mira Kim Decl., ¶ 22.); and (9) “Looking at the balance sheet of May LLC for 2019 (Exhibit 16 hereto), I also discovered a problem with my capital account compared to the capital accounts of my sisters. Although we each own a one-third interest in May LLC, my capital account was less than the capital accounts of my sisters starting in 2019.” (Mira Kim Decl., ¶ 23; Underscore in declaration.)

Defendants provide the declaration of Gina Kim in opposition to the evidence provided by Plaintiff. The declaration of Gina Kim provides the following evidence as well as other evidence: (1) “At the end of 2017, with the concurrence of Mira, May applied for and received a cashout refinance from Hanmi Bank. All members of May signed the loan documents and provided a signed guaranty of this loan. In early 2018, Hanmi funded the cash-out refinance. The members K-1’s FYE 2018, including Mira’s K-1, Exhibit 4, all show the distributions.” (Gina Kim Decl., ¶ 11; Underscore in declaration (Footnote 1 omitted.).); (2) “May’s financial statements FYE 2017, Exhibit 6, show that operating income was $249,626.16. After a member distribution of cash-out refinance funds in January 2018, there was a $287,265.82 in May’s checking account, amounting to 14 months of operating income. See Exhibit 7, Hanmi Bank statement for May for the month ending 1/31/2018. The distribution was made possible due to the members’ cash-out refinance with Hanmi Bank, a decision Mira concurred with. Mira signed the Change in Terms Agreement, Exhibit 8, Disbursement Request and Authorization, Exhibit 9, and Limited Liability Company Resolution to Borrow, Exhibit 10.” (Gina Kim Decl., ¶ 13; Underscore in declaration (Footnote 2 omitted.).); (3) “The loan was not forgiven. The loan was paid and satisfied by Anna, Mira and I transferring our $633,333 respective distributions to Kyong, thus paying down our personal debt obligations to Kyong. We agreed to net Kyong’s $550,000 loan from May by reducing what each of us owed him.” (Gina Kim Decl., ¶ 14.); (4) As to the $3,500.00 management fee, “The fee was paid to me not in my capacity as May’s Manager; it was paid to me as its property manager. If I did not do the job, May would have had to hire an outside third-party property manager. The usual and customary fee for an outside property manager is generally 3% to 4% of revenue and as a flat fee would be significantly higher than $3,500/month.” (Gina Kim Decl., ¶ 15.); (5) “May did indeed pay our parents, through their business, John K. Management, Inc., $8,500/month from June 1, 2020 to October 31, 2021, consisting of 14 months during the term of the lease with the County of Los Angeles (‘County Lease’) and three months afterwards, and with good reason. See Exhibit 20 to Mira Kim Declaration, John K. Consulting Agreement. During the County Lease, which commended on April 11, 2020 and ended on August 10, 2021, there were many issues such as hotel employees quitting, issues with staffing due to Covid fears, purchasing lots of equipment and inventory for the new clientele, maintenance, repairs, and plumbing (which my mom and dad were greatly a part of hiring plumbers, repair people, and ordering parts at discounted pricing for May).” (Gina Kim Decl., ¶ 16; Emphasis in declaration.); (6) “Staffing was severely reduced during COVID. May lost staff and my parents adjusted to short staffing, doing every manner of grunt work like plumbing and housekeeping. Payments made to my parents offset reduced payroll to hotel staff, who quit when Covid was announced and the hotel had no occupants.” (Gina Kim Decl., ¶ 18.); (7) “My parents, Anna, and I have no furniture from Kobo’s Furniture. The furniture consists of bedding: Queen and King size headboards, mattresses and mounts. The invoices from Kobos, Exhibit 13 , match the cancelled checks mentioned in Mira’s declaration to the penny. All of the furniture was used at Sunrise Hotel.” (Gina Kim Decl., ¶ 22.); (8) “I did not receive a $100,000 distribution. Per May’s financials FYE 12/31/2018, Exhibit 4, there was no distribution of $100,000 to me in 2018. The check to me for $100,000 was on account of because Kyong owed me for a commission and services related to my management of other properties, which was reported as part of the $1.9 million distribution from members in 2018, in which Anna, Mira and I directed May to repay our loans from Kyong.” (Gina Kim Decl., ¶ 23.); (9) “In September 2021, Jay Patel expressed interest in leasing Sunrise Hotel. I knew that he and his team were credible hotel operators based on the fact that they already operate at least four ‘Motel 6’ locations 3 and was on the Board of Asian American Hotel Owners Association. On October 22, 2022, May signed a lease with his entity, 525 Harbor LLC, (‘Harbor Lease’), Exhibit 21. The Harbor Lease is for a three-year term commencing November 1, 2022 with a rental of $50,000/month after rental allowances provided in the Lease.” (Gina Kim Decl., ¶ 34; Emphasis and underscore in declaration. (The court notes that Exhibit 21 indicates that the lease commenced on October 22, 2021 and that the declaration is incorrect by stating that the commencement date was 10-22-22.).); and (10) “The income from the Harbor Lease will be sufficient to support the debt service to Hanmi Bank and all other operating expenses.” (Gina Kim Decl., ¶ 36.)

Further, the declaration of Gina Kim describes the efforts Gina Kim made to manage May Enterprise, LLC during the pandemic. (For example, see Gina Kim Decl. at ¶¶ 16, 17, 18, 19, 26, 27, 28, 29, 30, 31, 32, and 33.)

Plaintiff’s Reply in Support of Mira Kim’s Motion for Appointment of Receiver and Injunctive Relief (Reply), filed on 9-13-22 under ROA No. 161, states, “The Opposition cannot dispute that market reviews, even if untrue, show a declining reputation and goodwill for the Sunrise Hotel under the new operator. The Opposition also cannot dispute that May LLC’s new business plan has it on a path to insolvency.” (Reply; 1:22-25.)

On 9-27-22, the parties filed a Stipulation and Joint Statement After Receivership Hearing (Stipulation) under ROA No 176. The Stipulation states in part, “4. Pending the outcome of this case at trial, the Kim Family shall not, without Mira’s prior written consent: (a) cause May to enter into any new borrowing or cause May to open any new accounts at any financial institution, (b) hypothecate, encumber, or transfer any of May’s assets, and/or (c) make or cause to be made any distributions from May. [¶] 5. Pending the outcome of this case at trial, May shall deliver to Mira, through her counsel, Molly Stephens, the following financial documents for May: [¶] quarterly and monthly financial statement sin the form of balance sheet and profit and loss statements, prepared by May’s outside CPA. Monthly financial statements shall be delivered to Mira’s counsel no later than 21 days following the end of each month. Quarterly financial statements shall be delivered to Mira’s counsel no later than 21 days following the close of each calendar quarter. The next financial statements to be produced are for the month and quarter ending September 30, 2022. [¶] (b) All offers to purchase May received by any of the Kim Family, whether orally or in writing. If received in writing, May shall forward the offer no later than three business days after receipt by any of the Kim Family. If received orally, May shall identify the person making the offer, along with any terms of such offer, for Mira in an email to Mira’s counsel no later than three business days after receipt by any of the Kim Family.” (Stipulation, ¶¶ 4 and 5.)

Based on the above, evidence the court exercises its discretion and does not appoint a receiver over May Enterprise, LLC. Defendants provide evidence of their efforts to manage May Enterprise, LLC, and evidence that contradicts their use of the May Enterprise, LLC’s assets for their personal purposes. Although Plaintiff speculates that May Enterprise, LLC may become insolvent, May Enterprise, LLC has a lease agreement for the hotel that expires in October of 2024. Plaintiff’s evidence does not show that May Enterprise, LLC is currently insolvent.  The Stipulation allows Plaintiff to monitor May Enterprise, LLC’s financial status, prevents Defendants from encumbering the property, and requires Defendants to notify Plaintiff of any offers to purchase the property.

Further, the court notes that the trial date in this action is set on 2-17-23 which is well before the current lease agreement will terminate. This trial date provides Plaintiff with an adequate remedy to obtain Plaintiff’s alleged damages before termination of the lease agreement. The availability of an adequate remedy by way of a monetary damages at trial does not support the appointment of a receiver at this stage of the proceedings.

Based on the totality of this evidence, the court exercises its discretion, and DENIES Plaintiff’s (Mira Kim) Motion for Appointment of Receiver and Injunctive Relief, filed on 6-14-22 under ROA No. 117, without prejudice.

Defendants are to give notice.