Smith v. Arakelian CA24 ( 2014 )


Menu:
  • Filed 1/7/14 Smith v. Arakelian CA24
    NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
    California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
    publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
    or ordered published for purposes of rule 8.1115.
    IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
    SECOND APPELLATE DISTRICT
    DIVISION FOUR
    WILLIAM SMITH,                                                       B247253
    Plaintiff and Respondent,                                   (Los Angeles County
    Super. Ct. No. BC435220)
    v.
    GARY ARAKELIAN,
    Defendant and Appellant.
    APPEAL from judgment of the Superior Court of Los Angeles County, Michael
    Johnson, Judge. Affirmed.
    Schreiber & Schreiber, Edwin C. Schreiber and Eric A. Schreiber for Defendant
    and Appellant.
    Charlston, Revich & Wollitz and Tim Harris for Plaintiff and Respondent.
    _________________________
    This is an appeal from a judgment granting respondent William Smith attorney
    fees and costs. Appellant Gary Arakelian and Mr. Smith were co-owners of Ventura
    Investors Group (VIG), a California limited liability company. The fee award arose from
    an action by Mr. Smith to dissolve the company or induce a buyout. Mr. Arakelian
    argues Mr. Smith did not prevail in the action, and thus should not receive attorney fees
    or costs. We disagree.
    FACTUAL AND PROCEDURAL SUMMARY
    Mr. Arakelian and Mr. Smith incorporated VIG in January 2005. They served as
    the company’s only co-managers, each owning 50 percent of the shares. Governed by a
    written operating agreement, VIG’s primary purpose was to own and operate real
    property. Its only asset was an office building at 11326 Ventura Boulevard in Studio
    City. Pursuant to their agreement, Mr. Arakelian managed remodeling and real estate
    activities, while Mr. Smith handled bookkeeping and tax matters.
    Sometime in 2010, Mr. Smith became concerned with Mr. Arakelian’s conduct in
    managing the company. He claimed Mr. Arakelian “tried to act as if the LLC
    belong[ed]” only to him. Mr. Smith contended Mr. Arakelian reneged on agreements to
    sell the property, demanded capital contributions and administrative fees, claimed Mr.
    Smith was in default for refusal to pay such fees, and planned to engage in contracts
    without Mr. Smith’s signature, which the operating agreement required. In April 2010,
    Mr. Smith filed a complaint seeking dissolution and accounting of VIG pursuant to
    1
    former Corporations Code section 17351, subdivision (a). He sought reimbursement
    within 15 days of a court decree confirming the appraisal of his shares, or in the
    alternative, the dissolution and windup of the company.
    Mr. Arakelian hired attorney Joel Farkas to oppose Mr. Smith’s complaint on
    behalf of VIG, and at the expense of the company. Mr. Arakelian joined in VIG’s
    1
    Former Corporations Code section 17351 was repealed and reenacted as
    Corporations Code section 17707.03 without substantive change. (Stats. 2012, ch. 419,
    § 19 [repealed]; Stats. 2012, ch. 419, § 20 [reenacted].) We use both section numbers in
    this opinion.
    2
    2
    demurrer to Mr. Smith’s complaint. In his answer, Mr. Arakelian denied “each and
    every allegation and contention made in [Mr. Smith’s] complaint” and raised six
    affirmative defenses. He also asserted an affirmative defense that VIG’s operating
    agreement prohibited dissolution. When Mr. Arakelian refused to participate in his
    deposition, the court imposed monetary sanctions and twice ordered him to appear. It
    also granted a motion for entry of a preclusion sanction that prevented Mr. Arakelian
    from contesting Mr. Smith’s complaint for dissolution.
    Mr. Smith filed a motion seeking to disqualify Mr. Farkas from representing VIG,
    and to prevent Mr. Arakelian from using company funds for the litigation. In August
    2010, the court ordered Mr. Arakelian to account for fees and costs, and disqualified Mr.
    Farkas. We denied Mr. Arakelian’s petition for writ of supersedeas (Smith v. Ventura
    Investors Group, LLC (Sept. 22, 2010, B226761) [nonpub. opn.]), and affirmed the order
    disqualifying Mr. Farkas and prohibiting the use of VIG funds in the dispute. (Smith v.
    Ventura Investors Group, LLP et al. (June 7, 2011, B226761) [nonpub. opn.].)
    In September 2011, Mr. Arakelian moved to purchase Mr. Smith’s interest in VIG
    pursuant to former Corporations Code section 17351, subdivision (b)(1), now
    Corporations Code section 17707.03, subdivision (c)(1), under the terms of the operating
    agreement. Mr. Smith opposed the motion because Mr. Arakelian sought a buyout only
    after more than a year spent contesting the dissolution action. Mr. Smith also was
    concerned that granting the buyout motion might prejudice his ability to recover attorney
    fees incurred due to Mr. Arakelian’s delay in seeking a buyout. However, the court
    granted the motion and appointed three appraisers. By April 2012, all three appraisers
    valued Mr. Smith’s 50 percent interest in VIG at $700,000. The court denied Mr.
    Arakelian’s motion to vacate the appraisal. Later Mr. Arakelian completed the buyout
    process under former Corporations Code section 17351, subdivision (b), now
    Corporations Code 17707.03, subdivision (c), by tendering $700,000 to Mr. Smith. In
    2
    The record on appeal does not indicate the outcome of the demurrer.
    3
    December 2012, the court dismissed Mr. Smith’s original complaint, found him to be the
    prevailing party, and awarded him $96,518 in attorney fees and costs pursuant to the fee
    clause in the operating agreement. It denied Mr. Arakelian’s motion for attorney fees.
    He filed a timely notice of appeal.
    DISCUSSION
    Mr. Arakelian argues the trial court erred in determining Mr. Smith was the
    3
    prevailing party in the dispute pursuant to Civil Code 1717. He contends the judgment
    awarding attorney fees and costs to Mr. Smith should be reversed.
    Code of Civil Procedure section 1032, subdivision (a)(4) provides courts with the
    discretion to award costs to the “prevailing party” in an action. In contract actions,
    section 1717, subdivision (a) requires courts to award reasonable attorney fees and costs
    4
    to the “party prevailing.” Here, the company’s operating agreement, signed by both Mr.
    Arakelian and Mr. Smith, sets forth the buyout procedures during a dissolution event and
    provides for attorney fees and costs to the prevailing party in a dispute. This contract
    forms the basis for the present appeal. Because the “prevailing party” definition of Code
    of Civil Procedure section 1032 is “not determinative” in contract disputes, the “party
    prevailing” definition of section 1717 governs our analysis. (Zintel Holdings, LLC v.
    McLean (2012) 
    209 Cal. App. 4th 431
    , 438.) “‘California courts liberally construe the
    term “‘“on a contract”’” as used within section 1717. [Citations.] As long as the action
    “involve[s]” a contract it is “‘on [the] contract’” within the meaning of section 1717.
    [Citations.]’” (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008)
    
    162 Cal. App. 4th 858
    , 894 (Blickman Turkus).) The “party prevailing” is “the party who
    recovered a greater relief in the action on the contract.” (§ 1717, subd. (b)(1).)
    Two cases are instructive for determining how to apply the section 1717 prevailing
    party definition to the present matter. “[T]he trial court is to compare the relief awarded
    3
    All statutory references are to the Civil Code, unless otherwise indicated.
    4
    When authorized by contract, attorney fees are permissible as costs. (Code Civ.
    Proc., § 1033.5, subd. (a)(10).)
    4
    on the contract claim or claims with the parties’ demands on those same claims and their
    litigation objectives as disclosed by the pleadings, trial briefs, opening statements, and
    similar sources. [This] determination is to be made . . . only by ‘a comparison of the
    extent to which each party ha[s] succeeded and failed to succeed in its contentions.’
    [Citation.]” (Hsu v. Abbara (1995) 
    9 Cal. 4th 863
    , 876 [finding party obtaining “simple,
    unqualified win” on single contract claim was party prevailing and entitled to attorney
    fees under section 1717].) Courts “should be guided by ‘equitable considerations.’ For
    example, a party who is denied direct relief on a claim may nonetheless be found to be a
    prevailing party if it is clear that the party has otherwise achieved its main litigation
    objective. [Citations.]” (Id. at p. 877.) Where “an action is dismissed, a court may base
    its attorney fees decision on a pragmatic definition of the extent to which each party has
    realized its litigation objectives, whether by judgment, settlement, or otherwise.
    [Citation.]” (Santisas v. Goodin (1998) 
    17 Cal. 4th 599
    , 622 (Santisas) [finding
    defendants were prevailing parties where plaintiffs voluntarily dismissed the action].)
    We review a court award of attorney fees to a prevailing party for abuse of
    discretion. (Silver v. Boatwright Home Inspection, Inc. (2002) 
    97 Cal. App. 4th 443
    , 449.)
    “‘“Discretion is abused whenever, in its exercise, the court exceeds the bounds of reason,
    all of the circumstances before it being considered. The burden is on the party
    complaining to establish an abuse of discretion, and unless a clear case of abuse is shown
    and unless there has been a miscarriage of justice a reviewing court will not substitute its
    opinion and thereby divest the trial court of its discretionary power.”’” (Ibid.) “The trial
    court exercises a particularly ‘wide discretion’ in determining who, if anyone, is the
    prevailing party for purposes of section 1717(a).” (Blickman 
    Turkus, supra
    ,
    162 Cal.App.4th at p. 894.)
    The trial court did not err in designating Mr. Smith as the prevailing party. When
    he filed his initial complaint, Mr. Smith sought the appraisal of his ownership interest and
    a timely buyout, and if that was not possible, an order of dissolution. From the
    beginning, his litigation objective was clear: to quickly disassociate from the company,
    5
    and obtain compensation for his ownership interest. By the time he moved to purchase
    Mr. Smith’s interest in the company, Mr. Arakelian had opposed the complaint for over
    one year, had resisted cooperating with depositions, and had challenged the unanimous
    appraisal. The court granted a motion to sanction and preclude him from contesting Mr.
    Smith’s dissolution petition. By all indications, Mr. Arakelian attempted to prevent Mr.
    Smith from achieving his litigation objective. When Mr. Arakelian later paid Mr. Smith
    $700,000 for his interest in the company, Mr. Smith received what he wanted, although at
    a later date than he had requested in his complaint. Thus, the trial court did not abuse its
    discretion in finding Mr. Smith to be the prevailing party.
    Mr. Arakelian contends Mr. Smith was not the prevailing party because the court
    dismissed his original petition for dissolution, and he did not receive any monetary
    recovery since the appraised value merely compensated Mr. Smith for his preexisting
    interest in the company. To the contrary, as the court in Santisas observed, “it seems
    inaccurate to characterize the defendant as the ‘prevailing party’ if the plaintiff dismissed
    the action only after obtaining, by means of settlement or otherwise, all or most of the
    requested relief . . . .” 
    (Santisas, supra
    , 17 Cal.4th at p. 621.) Here, the court dismissed
    Mr. Smith’s complaint after he received payment from Mr. Arakelian, and achieved his
    requested relief. Most significantly, Mr. Smith would not have received a buyout of his
    interest pursuant to former Corporations Code section 17351, subdivision (b), now
    Corporations Code section 17707.03, subdivision (c), without filing his original action.
    (Former Corp. Code, § 17351, subd. (b)(1) [“In any suit for judicial dissolution, the other
    members may avoid the dissolution of the limited liability company by purchasing for
    cash the membership interests owned by the members so initiating the proceeding . . . .”
    (Italics added.)].) Thus, it was no abuse of discretion to designate Mr. Smith as the
    prevailing party.
    Mr. Arakelian argues that Mr. Smith opposed the buyout, so when Mr. Arakelian
    tendered $700,000 to him, Mr. Smith did not achieve his alleged objective of dissolving
    the company. Mr. Arakelian claims the court in Merlino v. Fresno Macaroni Mfg. Co.
    6
    (1946) 
    74 Cal. App. 2d 120
    (Merlino), held that a party prevailed when it purchased the
    interest of another party seeking dissolution. The court reasoned that where “[p]laintiffs
    failed to obtain what they sought in their complaint and defendants obtained the
    affirmative relief prayed for in their answer,” the defendants who completed the buyout
    prevailed. (Id. at p. 125.) That case does not support Mr. Arakelian’s argument for
    several reasons. First, unlike the defendants in Merlino, Mr. Arakelian never prayed for
    the buyout remedy in his answer. Second, the plaintiffs in Merlino sought dissolution,
    and “did not retreat [from that position] until shortly before the termination of the
    litigation.” (Ibid.) To the contrary, Mr. Smith sought a buyout, and in the alternative,
    dissolution of the corporation. He opposed Mr. Arakelian’s buyout motion largely
    because it was untimely. Over the course of a year, Mr. Arakelian contested Mr. Smith’s
    complaint, resisted cooperating with discovery, and challenged the unanimous appraisal.
    Finally, Mr. Smith achieved the relief he sought in his complaint when Mr. Arakelian
    paid him $700,000. As a result, Merlino does not support Mr. Arakelian here, and the
    court did not abuse its discretion in designating Mr. Smith as the prevailing party.
    Mr. Arakelian also contends that as a matter of law Mr. Smith cannot be the
    prevailing party once Mr. Arakelian invoked his statutory buyout right. He claims that
    “once invoked, the statutory buyout process ‘supplants the action for involuntary
    dissolution,’” which precludes the party seeking dissolution from prevailing. In support
    of his position, he cites Panakosta Partners, LP v. Hammer Lane Management, LLC
    (2011) 
    199 Cal. App. 4th 612
    , 631 (Panakosta) [affirming trial court’s denial of buyout
    motion for lack of jurisdiction because plaintiffs had dismissed original dissolution
    action], quoting Go v. Pacific Health Services, Inc. (2009) 
    179 Cal. App. 4th 522
    (Go)
    [party initiating action for involuntary dissolution opposed granting of motion for buyout
    on grounds that she should have been allowed to litigate dissolution claim].
    In neither of these cases did the court address a prevailing party determination for
    purposes of awarding attorney fees. In Go, the court held that once a party invoked its
    statutory right to a buyout within the timeframe provided for in the court decree, the
    7
    opposing party had no right to continue contesting the dissolution action. 
    (Go, supra
    ,
    179 Cal.App.4th at pp. 530-531.) The buyout remedy provides relief for parties who
    “aspire to buy out the moving party, with minimal expenditure of time and money that
    would otherwise be spent in litigation . . . .” (Id. at p. 531.) That finding is consistent
    with the dissolution and buyout framework in former Corporations Code section 17351,
    which provides a right to purchase a moving party’s shares in order to preserve the
    corporation. However, this case is distinguishable. Here, Mr. Arakelian moved for a
    buyout only after the parties had incurred a year of litigation expenses. Although Mr.
    Smith initially opposed the buyout, he did so to preserve his ability to recover over a year
    of litigation costs. In addition, unlike in Go, Mr. Smith did not insist on pursuing only
    dissolution. Instead, Mr. Smith’s original complaint requested buyout as one of two
    alternative remedies. After Mr. Arakelian offered a buyout, Mr. Smith accepted
    payment. As a result, the court did not abuse its discretion in finding Mr. Smith to be the
    prevailing party.
    Mr. Arakelian also contends the timing of his buyout petition should not influence
    the court’s determination as to which side is the prevailing party. The relevant standard
    requires that we examine “‘the extent to which each party ha[s] succeeded and
    failed . . . in its contentions.’” 
    (Hsu, supra
    , 9 Cal.4th at p. 876.) In doing so, we consider
    the “pleadings, trial briefs, opening statements, and similar sources.” (Ibid.) Here, Mr.
    Arakelian’s conduct prior to filing the buyout petition reveals his contentions, and
    accordingly, is relevant in the court’s determination of his litigation objectives. (See
    
    Santisas, supra
    , 17 Cal.4th at p. 622.) During that time, he opposed Mr. Smith’s
    complaint for a buyout or dissolution, as evidenced by his multiple filings. Under these
    circumstances, the court acted within its discretion in considering Mr. Arakelian’s
    conduct during the time before his ultimate petition for a buyout.
    Finally, Mr. Arakelian claims that affirming the trial court’s finding that Mr.
    Smith is the prevailing party amounts to poor public policy and chills litigation because a
    plaintiff cannot be rewarded for achieving a remedy not afforded by law. He argues that
    8
    a party who refuses to purchase after the appraisal is only liable for expenses “incurred
    by the moving parties in the appraisal process.” Mr. Arakelian relies on Trahan v.
    Trahan (2002) 
    99 Cal. App. 4th 62
    , 75. In that case, a party appealed the trial court’s
    confirmation of a negative appraised value of a corporation. (Ibid.) The case is
    consistent with former Corporations Code section 17351, now Corporations Code section
    17707.03, which grants a moving party the right to attorney fees where a purchasing
    party elects and then reneges on a buyout. (Former Corp. Code, § 17351, subd. (b)(3).)
    Mr. Arakelian appears to argue that, since he ultimately accepted the buyout, he should
    not be responsible for any attorney fees or costs. However, Mr. Arakelian’s buyout did
    not follow the typical buyout procedure. Unlike the defendant in Trahan, Mr. Arakelian
    not only refused to purchase Mr. Smith’s shares immediately after the appraisal, but also
    contested the action for over a year before then. A purchasing party in an action for
    dissolution may avoid liability for most or all fees by promptly invoking its statutory
    right to a buyout under Corporations Code section 17707.03, subdivision (c). It is not
    against public policy to affirm an award of fees and costs to the prevailing party in this
    case.
    DISPOSITION
    The judgment is affirmed. Respondent to have his costs on appeal.
    NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
    EPSTEIN, P. J.
    We concur:
    WILLHITE, J.                                             MANELLA, J.
    9
    

Document Info

Docket Number: B247253

Filed Date: 1/7/2014

Precedential Status: Non-Precedential

Modified Date: 4/18/2021