Kennedy v. Kennedy ( 2015 )

Filed: 4/22/2015 Unmodified opinion attached
CERTIFIED FOR PARTIAL PUBLICATION*
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
DRAKE KENNEDY, B257446
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. BC522560)
v.
BRIAN KENNEDY, et al., MODIFICATION ORDER
[NO CHANGE IN JUDGMENT]
Defendants and Appellants.
The opinion filed on April 20, 2015 is modified as follows:
On the last line of the footnote on page 1, “parts II (A), (B) and (D)” is to be
deleted and replaced with “part III (C).”
_____________________ ______________________ ______________________
†
TURNER, P.J. KRIEGLER, J. GOODMAN, J.
* Pursuant to California Rules of Court, rules 8.1100(b) and 8.1110, this opinion is
certified for publication with the exception of part III (C).
†
Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
Filed: 4/20/15 Unmodified opinion
CERTIFIED FOR PARTIAL PUBLICATION*
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
DRAKE KENNEDY, B257446
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. BC522560)
v.
BRIAN KENNEDY, et al.,
Defendants and Appellants.
APPEALS from an order of the Superior Court of Los Angeles County, Richard
Edward Rico, Judge. Affirmed.
Shartsis Friese, Arthur J. Shartsis, Mary Jo Shartsis, Richard F. Munzinger,
Nicolas V. Saenz; Greines, Martin, Stein & Richland and Kent L. Richland for
Defendants and Appellants.
O’Melveny & Myers, Daniel M. Petrocelli, Robert M. Schwartz, Jonathan Hacker
and Molly M. Lens, for Plaintiff and Respondent.
* Pursuant to California Rules of Court, rules 8.1100(b) and 8.1110, this opinion is
certified for publication with the exception of parts II (A), (B) and (D).
I. INTRODUCTION
Defendants, Brian Kennedy and, as to Skyline Outdoor Media LLC only, David
Seyde, appeal from a May 13, 2014 order in favor of plaintiff, Drake Kennedy.1 The
May 13, 2014 order denied defendants’ motion to stay dissolution of a number of
corporations and limited liability companies and appoint appraisers to permit a buyout to
occur. (Corp. Code,2 §§ 2000, 17707.03.) Defendants contend the trial court erred as a
matter of law in refusing to order the stay, appraisal and buyout procedure in sections
2000 and 17707.03. We affirm.
II. BACKGROUND
A. Complaint and Second Amended Cross-Complaint
Drake filed a complaint while Brian’s operative pleading is the second amended
cross-complaint. Both pleadings allege extensive misconduct by the parties which are
not directly pertinent to the controlling legal issues. Given our resolution of the legal
issues, we need not discuss the parties’ mutual allegations and evidence of corporate
misconduct.
Drake’s complaint was filed against defendants on September 25, 2013. In
addition to Brian, Mr. Seyde and Skyline Outdoor Media LLC, named as defendants
were: Regency Outdoor Advertising, Inc.; Corona Outdoor, Inc.; Westminster Outdoor,
Inc.; Virtual Media Group, Inc.; West Hollywood Properties LLC; and Kennedy Outdoor
Advertising LLC. As can be noted, other than Brian and Mr. Seyde, some defendants are
corporations and others are limited liability companies. According to the complaint,
1 Because they share the same surname, for clarity’s purposes, we shall refer to
Drake and Brian Kennedy by their first names.
2 Further statutory references are to the Corporations Code unless otherwise
specified.
2
Drake and Brian each owned a 50 percent interest in what we will refer to as “the
corporations”: Regency Outdoor Advertising, Inc.; Corona Outdoor Advertising, Inc.;
Westminster Outdoor, Inc.; and Virtual Media Group, Inc.
In terms of the limited liability companies, Skyline Outdoor Media LLC and West
Hollywood Properties LLC, Drake and Brian held different interests. Drake and Brian
held a 50 percent interest in West Hollywood Properties LLC. Drake and Brian each held
a 40 percent interest in Skyline Outdoor Media LLC. Mr. Seyde held a 20 percent
interest in Skyline Outdoor Media LLC. West Hollywood Properties LLC and Skyline
Outdoor Media LLC will hereafter be referred to as the “limited liability companies.”
Collectively, the corporations and limited liability companies will be referred to as the
“companies.” Drake and Brian were each a director, officer, and shareholder or member
of each of the companies. Mr. Seyde was a member of Skyline Outdoor Media LLC and
held a senior management position in Regency Outdoor Advertising, Inc. Brian was the
sole member of Kennedy Outdoor Advertising LLC.
The complaint alleges that Brian: stopped communicating with Drake about most
business matters; restricted Drake’s access to information and the books and records:
looted and diverted corporate assets; refused to pay costs defending a lawsuit; stole
valuable real estate located at the intersection of Sunset Boulevard and Queens Road
from West Hollywood Properties LLP; and, with the assistance of Mr. Seyde, transferred
the Sunset Boulevard and Queens Road property to Kennedy Outdoor Advertising LLC.
Kennedy Outdoor Advertising LLC was an entity owned entirely by Brian. It is alleged
Mr. Seyde, with Brian’s assistance, directly competed with Regency Outdoor
Advertising, Inc. in the outdoor advertising business. Further, it is alleged Brian and Mr.
Seyde created Kennedy Outdoor Advertising LLC to compete with the corporations and
West Hollywood Properties LLC.
Drake’s complaint alleges causes of action against defendants collectively or
individually: fiduciary duty breach; fraudulent concealment; aiding and abetting and
conspiracy to commit fiduciary duty breach; aiding and abetting and conspiracy to
3
commit fraudulent concealment; quiet title; ejectment; director removal; inspection right
violation; accounting; and declaratory relief. Depending on the claims, they are brought
as derivative or direct actions. Drake’s complaint also contains a cause of action for
involuntary dissolution of the corporations and the limited liability companies. The
involuntary dissolution claim seeks the appointment of a receiver to take possession of all
of the companies’ assets and an order requiring they be sold to a third party. All of
defendants’ alleged misconduct occurred prior to September 25, 2013. None of the
claims in the involuntary dissolution cause of action are derivative in nature.
On July 14, 2014, Brian filed a second amended cross-complaint against:
Regency Outdoor Advertising, Inc.; Drake and Stephanie Kennedy; Corona Outdoor
Advertising, Inc.; Westminster Outdoor Inc; Virtual Media Group, Inc.; West Hollywood
Properties LLC; and Skyline Outdoor Media, LLC. The second amended cross-
complaint contains causes of action for: common counts; conversion; unjust enrichment;
fiduciary duty breach; aiding and abetting and conspiracy to commit fiduciary duty
breach; constructive fraud; imposition of a constructive trust; director removal;
constructive trust imposition; “judicial dissociation” of Drake; promissory estoppel; and
trade secret misappropriation. Some of the claims are direct while others are derivative
in nature. The second cause of action seeks damages, “disgorgement for unjust
enrichment,” various judicial decrees and costs of suit and attorney fees.
B. Motion to Stay Dissolution and Appoint Appraisers and the Trial Court’s Ruling
On January 28, 2014, defendants filed a motion to stay dissolution and appoint
appraisers. The motion was brought pursuant to sections 2000 as to the corporations and
17707.03, subdivision (c) as to the limited liability companies. This would allow
defendants to avoid dissolution by purchasing Drake’s ownership interests in the
companies. Mr. Seyde filed the motion to stay dissolution and appoint appraisers as to
Skyline Outdoor Media LLC only. On February 14, 2014, Drake dismissed with
4
prejudice his involuntary dissolution cause of action. On May 13, 2014, defendants’
motion to stay dissolution and appoint appraisers was denied. The trial court disagreed
with defendants’ contention that the invocation of their buyout rights was barred because
of the dismissal of Drake’s involuntary dissolution cause of action, “[T]he court finds
that as a result of [Drake’s] dismissal of the dissolution claim, the court lacks jurisdiction
to consider defendants’ motion for buyout under section[s] 2000 and 17707.03.” The
trial court ruled section 17707.03, subdivision (c)(6) did not apply because it was not
operative until after Drake filed suit.
III. DISCUSSION
A. The Dismissal of Plaintiff’s Cause of Action for Dissolution of the Corporations
Renders the Statutory Buyout Provision Inapplicable
Defendants contend the trial court erred in denying their motion to stay dissolution
and appoint appraisers under section 2000, subdivision (a). Defendants reason the
statutory buyout procedure supplanted the dissolution action. We disagree.
Because this issue involves an issue of a statutory interpretation applied to
undisputed facts, we exercise independent review. (Burden v. Snowden (1992) 2 Cal. 4th
556, 562; Panakosta, Partners, LP v. Hammer Lane Management, LLC (2011) 199
Cal. App. 4th 612, 628 (Panakosta).) Our Supreme Court has explained: “When
construing a statute, we look first to its words, ‘“because they generally provide the most
reliable indicator of legislative intent.” [Citation.] We give the words their usual and
ordinary meaning [citation], while construing them in light of the statute as a whole and
the statute’s purpose [citation].’ (Pineda v. Williams-Sonoma Stores, Inc. (2011) 51
Cal. 4th 524, 529-530.)” (Accord, In re Ethan C. (2012) 54 Cal. 4th 610, 627; Hsu v.
Abbara (1995) 9 Cal. 4th 863, 871.) According to our Supreme Court: “‘If there is no
ambiguity in the language, we presume the Legislature meant what it said and the plain
5
meaning of the statute governs.’ [Citation.] ‘Only when the statute’s language is
ambiguous or susceptible of more than one reasonable interpretation, may the court turn
to extrinsic aids to assist in interpretation.’ [Citation.]” (Pineda v. Williams-Sonoma
Stores, Inc., supra, 51 Cal.4th at p. 530; see In re Ethan C., supra, 54 Cal.4th at p. 627.)
Section 2000, subdivision (a) provides: “Subject to any contrary provision in the
articles, in any suit for involuntary dissolution, . . . the holders of 50 percent or more of
the voting power of the corporation (the ‘purchasing parties’) may avoid the dissolution
of the corporation and the appointment of any receiver by purchasing for cash the shares
owned by the plaintiffs or by the shareholders so initiating the proceeding (the ‘moving
parties’) at their fair value. The fair value shall be determined on the basis of the
liquidation value as of the valuation date but taking into account the possibility, if any, of
sale of the entire business as a going concern in a liquidation. . . .”3 Section 2000,
3 Section 2000, subdivisions (b) through (d) state: “(b) If the purchasing parties (1)
elect to purchase the shares owned by the moving parties, and (2) are unable to agree
with the moving parties upon the fair value of such shares, and (3) give bond with
sufficient security to pay the estimated reasonable expenses (including attorneys’ fees) of
the moving parties if such expenses are recoverable under subdivision (c), the court upon
application of the purchasing parties, . . . in the pending action[,] . . . shall stay the
winding up and dissolution proceeding and shall proceed to ascertain and fix the fair
value of the shares owned by the moving parties. [¶] (c) The court shall appoint three
disinterested appraisers to appraise the fair value of the shares owned by the moving
parties, and shall make an order referring the matter to the appraisers so appointed for the
purpose of ascertaining such value. The order shall prescribe the time and manner of
producing evidence, if evidence is required. The award of the appraisers or of a majority
of them, when confirmed by the court, shall be final and conclusive upon all parties. The
court shall enter a decree which shall provide in the alternative for winding up and
dissolution of the corporation unless payment is made for the shares within the time
specified by the decree. If the purchasing parties do not make payment for the shares
within the time specified, judgment shall be entered against them and the surety or
sureties on the bond for the amount of the expenses (including attorneys’ fees) of the
moving parties. Any shareholder aggrieved by the action of the court may appeal
therefrom. [¶] (d) If the purchasing parties desire to prevent the winding up and
dissolution, they shall pay to the moving parties the value of their shares ascertained and
decreed within the time specified pursuant to this section, or, in case of an appeal, as
6
subdivision (a) expressly provides the right to purchase the shares of a plaintiff is an
alternative to an involuntary dissolution of a corporation. Section 2000, subdivision (a)
applies to any suit seeking an involuntary dissolution. Under those circumstances, the
purchasing shareholders “may avoid the dissolution of the corporation and the
appointment of any receiver” by buying the plaintiff’s shares. Nothing in section 2000,
subdivision (a) provides for a buyout independent of a pending involuntary dissolution
suit.
Here, Drake’s involuntary dissolution claim was dismissed with prejudice. Code
of Civil Procedure section 581, subdivision (c)4 generally grants a plaintiff an unfettered
right to dismiss a cause of action before commencement of trial. (Wells v. Marina City
Properties, Inc. (1981) 29 Cal. 3d 781, 786; Panakosta, Partners, LP v. Hammer Lane
Management, LLC, supra, 199 Cal.App.4th at p. 632.) There is no issue in the case
concerning a derivative shareholder claim. The language in section 2000, subdivision (a)
is unambiguous. Upon dismissal of the dissolution cause of action, there is no dissolution
to avoid and, thus, no right to buy out plaintiff’s interests. (Id. at pp. 634-635; Cubalevic
v. Superior Court (1966) 240 Cal. App. 2d 557, 562 (Cubalevic).)
In Panakosta, supra, 199 Cal.App.4th at pages 618-635, limited partners in a
partnership filed an action. The plaintiffs filed suit against other limited partners and
sought judicial dissolution of the partnership as well as declaratory and injunctive relief.
(Id. at p. 618.) While the suit was pending, one of the defendants filed a proceeding
under a new case number. The new lawsuit sought: to buy out the plaintiffs’ partnership
interests; the appointment of appraisers; and a stay of the related dissolution proceeding.
(Id. at p. 621.) The plaintiffs then dismissed with prejudice their claim for dissolution of
the partnership. (Ibid.) The trial court denied the defendants’ motion for appointment of
fixed on appeal. On receiving such payment or the tender thereof, the moving parties
shall transfer their shares to the purchasing parties.”
4 Code of Civil Procedure section 581, subdivision (c) provides, “A plaintiff may
dismiss his or her complaint, or any cause of action asserted in it, in its entirety, or as to
any defendant or defendants, with or without prejudice prior to the actual commencement
of trial.”
7
appraisers and stay of the related case. Among other things, the trial court ruled that the
request for dissolution, which was the condition precedent for the buyout, had been
dismissed. (Ibid.)
The Court of Appeal affirmed the trial court’s rulings. At issue was the
application of section 15908.02. Section 15908.02 is substantially the same as the section
2000. Section 15908.02, subdivision (b) provides, “In any suit for judicial dissolution,
the other partners may avoid the dissolution of the limited partnership by purchasing for
cash the partnership interests owned by the partners so initiating the proceeding (the
‘moving parties’) at their fair market value.” The Court of Appeal held: “[T]he right of
buyout under section 15908.02 is dependent upon a cause of action for judicial
dissolution. A request for buyout under section 15908.02 does not constitute a cause of
action independent from a judicial dissolution action. Instead, a buyout represents an
alternative to winding up a business when ‘it is not reasonably practicable to carry on the
activities of the limited partnership in conformity with the partnership agreement.’
(§ 15908.02, subd. (a).) . . . [¶] . . . [¶] . . . Without a pending judicial dissolution
action, the trial court was without jurisdiction to allow the buyout petition to proceed.”
(Panakosta, supra, 199 Cal.App.4th at pp. 634-635.)
In Cubalevic, supra, 240 Cal.App.2d at page 558, the plaintiff shareholder filed a
lawsuit that included an involuntary dissolution cause of action against a corporate
defendant. A shareholder defendant moved for a stay of the dissolution proceeding and
an order appointing appraisers. (Id. at pp. 559-560.) But before the argument on the
motion, the plaintiff dismissed with prejudice the involuntary dissolution cause of action.
(Id. at p. 560.) The trial court: treated the buyout motion as a cross-complaint; granted
the buyout motion; and appointed an appraiser to fix the value of the plaintiff’s shares.
(Id. at pp. 560-561.) The shareholder defendant filed a prohibition petition seeking to set
aside the foregoing orders. (Id. at pp. 558-561.)
8
The Court of Appeal granted the defendant’s prohibition petition. Construing
former section 4658,5 the Court of Appeal held: “There is no independent right on the
part of one or more stockholders in a corporation to compel the sale to them of the shares
of stock of another. There being no such independent right it must follow that there
could be no cause of action stated to compel such a sale whether by way of a cross-
complaint or counterclaim which would survive after dismissal of the action for
involuntary dissolution of the corporation in which the remedy of purchase is given. It is
apparent that the real parties in interest here could not bring or maintain a separate action
against petitioner the purpose of which would be to compel him to sell his stock to them.
Under these circumstances, the remedy provided the real parties in interest under the
provisions of section 4658 and section 4659 of the Corporations Code is ancillary to and
is dependent upon the existence of the action to compel the involuntary dissolution of the
corporation, and upon the dismissal of such action there is nothing left against which the
ancillary remedy may be asserted or upon which it may be applied. [¶] In the case at
bench, the action for involuntary dissolution having been dismissed with prejudice prior
to a decision confirming an award as provided in section 4659 of the Corporations Code,
there was left no basis upon which the trial court could make its order, the purpose of
which was to ascertain the fair cash value of petitioner’s shares and to permit the real
parties in interest to purchase them in order to avoid the involuntary dissolution of the
corporation. The making of such an order constituted an act in excess of the jurisdiction
5 Former section 4658 provided: “In any such suit the holders of 50 percent or more
of the outstanding shares of the corporation may avoid the appointment of a receiver or
the dissolution of the corporation by purchasing the shares of stock owned by the
plaintiffs at their fair cash value. [¶] If the holders of 50 percent or more of the
outstanding shares of the corporation (a) elect to purchase the shares owned by the
plaintiffs, and (b) are unable to agree with the plaintiffs upon the fair cash value of such
shares, and (c) give bond with sufficient security to protect the interests and rights of the
plaintiffs and to assure to the plaintiffs the payment of the value of their shares, the court
shall stay the proceeding and shall proceed to ascertain and fix the value of the shares
owned by the plaintiffs.” (Stats. 1947, ch. 1038, § 4658, p. 2389; see Cubalevic, supra,
240 Cal.App.2d at p. 559, fn. 1.)
9
of the respondent court.” (Cubalevic, supra, 240 Cal.App.2d at p. 562.) We agree with
the trial court that the analysis in Panakosta and Cubalevic, coupled with the express
language of section 2000, subdivision (a), required the buyout motion be denied.
Defendants rely on Go v. Pacific Health Services, Inc. (2009) 179 Cal. App. 4th
522, 530 (Go). The facts in Go are unrelated to the procedural scenario in our case. The
following is the procedural scenario: “Go sued defendants on September 7, 2006,
seeking the involuntary dissolution of [Pacific Health Services, Inc.] pursuant to section
1800, subdivisions (b)(3) and (b)(4). Go also sought damages based on claims of breach
of fiduciary duty and fraud (1) as a shareholder’s derivative action, and (2) as a direct
action brought by a shareholder and director. (Vilma Go v. Pacific Health Services, Inc.,
et al., Los Angeles Super. Court Case No. BC358117.) [¶] On December 7, 2006,
defendants filed a cross-complaint for breach of contract, misappropriation of corporate
opportunities, and breach of the duty of loyalty. [¶] On April 5, 2007, defendants filed a
motion pursuant to section 2000 for an order to stay the dissolution proceedings. They
requested that the court set a valuation date of August 14, 2006, and fix the value of Go’s
shares. [¶] . . . On May 11, 2007, the court issued an order staying the dissolution
proceedings, and providing for the appointment of three appraisers. The parties were to
each choose one appraiser, and the two appraisers would then choose the third appraiser.
The court ordered the valuation date to be September 7, 2006—the date Go filed suit—
and ordered the appraisal to be concluded by September 14, 2007.” (Go, supra, 179
Cal.App.4th at pp. 527-528, fns. omitted.) After the appointment process was completed
and the appraisals conducted, eventually, the trial court issued what the Court of Appeal
characterized as an alternative decree. (Id. at p. 525.) The Court of Appeal described the
alternative decree thusly, “On September 19, 2008, the [trial] court issued an order
directing [defendants] to pay Go $155,484, within 45 days, and stating that ‘if this
payment is not made within such time the involuntary winding up and dissolution of
defendant corporation shall proceed immediately.’” (Id. at p. 529.)
10
On appeal, the Court of Appeal characterized the issue as follows: “Defendants
contend on appeal that the alternative decree the court issued on September 19, 2008,
should be set aside ‘because [defendants] have not yet had the opportunity to defend
themselves against [Go’s] claim for Involuntary Dissolution of [PHS],’ and that ‘Go has
not proven that she is entitled to relief under that claim.’ Defendants argue, as they did in
the trial court, that ‘once there has been a determination on the merits that [Go] is entitled
to commence the dissolution of [PHS], the entry of a decree with the effect of the
Alternative Decree would be appropriate. . . . However, now is not the time for such an
order, as the interests of equity and the desire for a determination on the merits justify a
delay in the imposition of that relief.’ They request that we set aside the alternative
decree and ‘remand this matter with directions to the Trial Court to only enter such a
decree after [Go] has prevailed on [her] claims for involuntary dissolution.’” (Go, supra,
179 Cal.App.4th at p. 529.)
Go, supra, does not support defendants’ position. In Go, the plaintiff did not
dismiss her dissolution cause of action. The entire appraisal issue was litigated, orders
were issued and the trial court issued an alternatively phrased decree which dissolved the
corporation if the plaintiff remained unpaid. There was no discussion concerning how a
dismissal by the plaintiff of the dissolution claim would have affected the defendants’
right to purchase her shares. Here, Drake’s dismissal of his involuntary dissolution claim
rendered inapplicable the section 2000 buyout procedure. (See Panakosta, supra, 199
Cal.App.4th at pp. 621, 634-635; Cubalevic, supra, 240 Cal.App.2d at pp. 558-563.)
One final note is in order concerning the dismissal of the involuntary dissolution
cause of action. No party has asserted that Drake is pursuing a derivative claim against
defendants. Dismissal of a derivative claim requires court approval. (Whitten v. Dabney
(1915) 171 Cal. 621, 630-632; see Westwood Temple v. Emanuel Center (1950) 98
Cal. App. 2d 755, 762.) No party has asserted that court approval was necessary in this
case for Drake to dismiss his involuntary dissolution cause of action. Any contention in
that regard has been forfeited. (Tiernan v. Trustees of Cal. State University & Colleges
11
(1982) 33 Cal. 3d 211, 216, fn. 4; Johnston v. Board of Supervisors (1947) 31 Cal. 2d 66,
70, disapproved on another point in Bailey v. Los Angeles (1956) 46 Cal. 2d 132, 139.)
B. Defendants Have No Right to Compel a Buyout of Plaintiff’s Interest in the Limited
Liability Companies
Defendants contend they are entitled to buy out Drake’s interests in the limited
liability companies even though he dismissed his involuntary dissolution cause of action.
Defendants rely on section 17707.03, subdivision (c)(6) which, in the context of limited
liability companies, states, “A dismissal of any suit for judicial dissolution by a manager,
member, or members shall not affect the other members’ rights to avoid dissolution
pursuant to this section.” Section 17707.03, subdivision (c)(6) was enacted in 2012.
(Stats. 2012, ch. 419, § 20.) Defendants argue that Section 17707.03, subdivision (c)(6)
cannot be applied to this case because it was not operative when the conduct which
allegedly permits dissolution occurred.
Before analyzing the parties’ retroactivity contentions, it is appropriate to review
the events leading up to the adoption of section 17707.03, subdivision (c)(6). Enacted in
1994, the Beverly-Killea Limited Liability Company Act was largely codified in former
section 17000 et seq. (Stats. 1994, ch. 1200, §§ 1-100, pp. 7274-7413; see CB Richard
Ellis, Inc. v. Terra Nostra Consultants (2014) 230 Cal. App. 4th 405, 411, fn. 4.) Former
section 17000 et seq. comprehensively governed the affairs of limited liability
companies. (Nicholas Laboratories, LLC v. Chen (2011) 199 Cal. App. 4th 1240, 1252;
see People v. Pacific Landmark (2005) 129 Cal. App. 4th 1203, 1211-1212; Sen. Com. on
Judiciary, Rep. on Sen. Bill No. 323 (2011-2012 Reg. Sess.)6 as amended Jan. 4, 2012, p.
2.) Former section 17000 et seq. was codified in title 2.5 of the Corporations Code. The
Beverly-Killea Limited Liability Company Act was replaced in 2012 by the California
6 Future references to Senate Bill No. 323 are to the bill enacted in the 2011-2012
Regular Session.
12
Revised Uniform Limited Liability Company Act. (Stats. 2012, ch. 323, §§ 1-32; Legis.
Counsel’s Dig., Sen. Bill No. 323; see CB Richard Ellis, Inc. v. Terra Nostra
Consultants, supra, 230 Cal.App.4th at p. 411, fn. 4.) The California Revised Uniform
Limited Liability Company Act enacted new Corporations Code title 2.6 which consists
of section 17701.01 et seq. New title 2.6, the California Revised Uniform Limited
Liability Company Act, replaced former title 2.5 of the Corporations Code.
We turn now to section 17707.03. Section 17707.03, subdivision (a) allows for
the dissolution of a limited liability company under specified circumstances. 7 Those
7 Section 17707.03 provides in its entirety: “(a) Pursuant to an action filed by any
manager or by any member or members of a limited liability company, a court of
competent jurisdiction may decree the dissolution of a limited liability company
whenever any of the events specified in subdivision (b) occurs. [¶] (b)(1) It is not
reasonably practicable to carry on the business in conformity with the articles of
organization or operating agreement. [¶] (2) Dissolution is reasonably necessary for the
protection of the rights or interests of the complaining members. [¶] (3) The business of
the limited liability company has been abandoned. [¶] (4) The management of the
limited liability company is deadlocked or subject to internal dissention. [¶] (5) Those
in control of the limited liability company have been guilty of, or have knowingly
countenanced persistent and pervasive fraud, mismanagement, or abuse of authority. [¶]
(c)(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, the ‘moving parties,’ at their fair market value.
In fixing the value, the amount of any damages resulting if the initiation of the dissolution
is a breach by any moving party or parties of an agreement with the purchasing party or
parties, including, without limitation, the operating agreement, may be deducted from the
amount payable to the moving party or parties; provided, that no member who sues for
dissolution on the grounds set forth in paragraph (3), (4), or (5) of subdivision (a) shall be
liable for damages for breach of contract in bringing that action. [¶] (2) If the
purchasing parties elect to purchase the membership interests owned by the moving
parties, are unable to agree with the moving parties upon the fair market value of the
membership interests, and give bond with sufficient security to pay the estimated
reasonable expenses, including attorney’s fees, of the moving parties if the expenses are
recoverable under paragraph (3), the court, upon application of the purchasing parties,
either in the pending action or in a proceeding initiated in the superior court of the proper
county by the purchasing parties, shall stay the winding up and dissolution proceeding
and shall proceed to ascertain and fix the fair market value of the membership interests
owned by the moving parties. [¶] (3) The court shall appoint three disinterested
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circumstances are specified in section 17707.03, subdivision (b). Section 17707.03,
subdivisions (c)(1) through (5) describes how the buyout procedure is conducted. As
noted, section 17707.03, subdivision (c)(6) permits the corporate buyout remedy to
proceed even when a plaintiff seeking dissolution of a limited liability company
dismisses his or her cause of action. There is no similar buyout provision in the General
Corporation Law codified in section 1 et seq. (Forming and Operating California Limited
Liability Companies (Cont.Ed.Bar 3d ed. 2014), § 16.21 (Forming and Operating).)
Also, no such comparable terms are present in the Uniform Limited Partnership Act of
2008 which is codified at section 15900 et seq. (Forming and Operating, op. cit, §
16.21.) The upshot of section 17707.03, subdivision (c)(6) is as follows in the context of
limited liability companies: “[O]nce the buyout procedure is commenced, the moving
party cannot, by dismissing the judicial dissolution action, prevent the buyout procedure
appraisers to appraise the fair market value of the membership interests owned by the
moving parties, and shall make an order referring the matter to the appraisers so
appointed for the purpose of ascertaining that value. The order shall prescribe the time
and manner of producing evidence, if evidence is required. The award of the appraisers
or a majority of them, when confirmed by the court, shall be final and conclusive upon all
parties. The court shall enter a decree that shall provide in the alternative for winding up
and dissolution of the limited liability company, unless payment is made for the
membership interests within the time specified by the decree. If the purchasing parties do
not make payment for the membership interests within the time specified, judgment shall
be entered against them and the surety or sureties on the bond for the amount of the
expenses, including attorney’s fees, of the moving parties. Any member aggrieved by the
action of the court may appeal therefrom. [¶] (4) If the purchasing parties desire to
prevent the winding up and dissolution of the limited liability company, they shall pay to
the moving parties the value of their membership interests ascertained and decreed within
the time specified pursuant to this section, or, in the case of an appeal, as fixed on appeal.
On receiving that payment or the tender of payment, the moving parties shall transfer
their membership interests to the purchasing parties. [¶] (5) For the purposes of this
section, the valuation date shall be the date upon which the action for judicial dissolution
was commenced. However, the court may, upon the hearing of a motion by any party,
and for good cause shown, designate some other date as the valuation date. [¶] (6) A
dismissal of any suit for judicial dissolution by a manager, member, or members shall not
affect the other members’ rights to avoid dissolution pursuant to this section.”
14
from going forward. The purchasing party has the right to pursue the buyout procedure
by compelling a sale (if the valuation is favorable) or walking away (if it is not).”
(Forming and Operating, op. cit., § 16.21.)
Defendants argue that section 17707.03, subdivision (c)(6) applies to this action
which was commenced by the filing of Drake’s complaint on September 25, 2013. Drake
argues though that the unique retroactivity and operative date provisions applicable to
limited liability companies prevents section 17707.03, subdivision (c)(6) from applying
here. Drake has the better argument.
Defendants first rely on California Constitution, article IV, section 8, subdivision
(c)(1) which states, “Except as provided in paragraphs (2) and (3) of this subdivision, a
statute enacted at a regular session shall go into effect on January 1 next following a 90-
day period from the date of enactment of the statute next following a 90-day period from
the date of enactment of the statute. . . .” (Gov. Code, § 9600, subd. (a) [codifying Cal.
Const., art. IV, § 8, subd. (c)(1)].) Defendants argue that section 17707.03, subdivision
(c)(6) was therefore effective on January 1, 2013. Then, defendants cite to the savings
clause for the California Revised Uniform Limited Liability Company Act which states,
“This title does not affect an action commenced, proceeding brought, or right accrued or
accruing before this title takes effect.” (§ 17713.03.) Section 17707.03 is part of title 2.6
of the Corporations Code and the California Revised Uniform Limited Liability
Company Act. (§ 17701.01.) Thus, defendants argue the Legislature intended the buyout
provisions for limited liability companies in section 17707.03, subdivision (c)(6) to apply
to our action which was filed after January 1, 2013. Further, defendants’ motion to stay
the dissolution and appoint appraisers was filed on January 28, 2014. Also, Drake’s
dismissal request was filed on February 10, 2014. Since these events occurred after the
effective date of the California Revised Uniform Limited Liability Company Act,
defendants contend section 17707.03, subdivision (c)(6) applies here. By contrast, Drake
relies upon both sections 17713.03, which we have discussed, and 17713.13 which states,
“This title shall become operative on January 1, 2014.”
15
In our view, the statutory language concerning when the California Revised
Uniform Limited Liability Company Act in general and section 17707.03, subdivision
(c)(6) in particular is ambiguous. A sound argument can be made, as defendants do, that
the limited liability company legislation applies to an action commenced prior to January
1, 2014. Likewise, the operative date language in section 17713.13 supports Drake’s
thoughtful contention that section 17707.03, subdivision (c)(6) cannot apply in our case.
As we previously explained, when statutory language is ambiguous, it may be appropriate
to resort to legislative history documents to determine what the Legislature intended. Our
Supreme Court has held: “If the statutory language is susceptible of more than one
reasonable interpretation, we must look to additional canons of statutory construction to
determine the Legislature’s purpose. (Olson v. Automobile Club of Southern California[
(2008)] 42 Cal.4th [1142,] 1147.) ‘Both the legislative history of the statute and the
wider historical circumstances of its enactment may be considered in ascertaining the
legislative intent.’ (Dyna-Med, Inc. v. Fair Employment & Housing Com.[ (1987)] 43
Cal.3d [1379,] 1387.)” (McCarther v. Pacific Telesis Group (2010) 48 Cal. 4th 104, 111.)
We allowed the parties to address the desirability of judicially noticing the documents
referenced in the remainder of this opinion. (Evid. Code, §§ 455, subd. (a), 459, subd.
(c); see People v. Preslie (1977) 70 Cal. App. 3d 486, 493.) We cite them because they
are relevant to discerning the Legislature’s intentions. (Jankey v. Lee (2012) 55 Cal. 4th
1038, 1050; People v. Soto (2011) 51 Cal. 4th 229, 240-241.)
In order to determine the Legislature’s intent, we turn to documents largely
prepared in 2012 including those contained in legislative files. To begin with, legislators
were repeatedly advised that adoption of the California Revised Uniform Limited
Liability Company Act would repeal the Beverly-Killea Limited Liability Company Act.
(Sen. Com. on Judiciary, Rep. on Sen. Bill No. 323 as amended Jan. 4, 2012, pp. 1- 2, 19-
20; Sen. Rules Com., Off. of Sen. Floor Analyses, 3d reading analysis of Sen. Bill No.
323 as amended Jan. 13, 2012, p. 1; Assem. Com. on Judiciary, Rep. on Sen. Bill No. 323
as amended Jan. 13, 2012, p. 1; Assem. Republican Caucus, analysis on Sen. Bill No. 323
16
as amended Jan. 13, 2012, p. 1; Assem. Com. on Appropriations, Rep. on Sen. Bill No.
323 as amended Aug. 6, 2012, pp. 1-2; Dept. of Finance Analysis of Sen. Bill No. 323 as
amended Aug. 14, 2012, p. 1; Sen. 3d reading analysis of Sen. Bill No. 323 as amended
Aug. 14, 2012, p. 1-2; Sen. Republican Policy Office, Rep. on Sen. Bill No. 323 as
amended Aug. 14, 2012 p. 1; Assem. Republican Caucus, analysis on Sen. Bill No. 323
as amended Aug. 14, 2012, p. 1; Assem. Com. on Judiciary, Rep. on Sen. Bill No. 323 as
amended Aug. 23, 2012, pp. 2, 4; Sen. Republican Policy Office, Rep. on Sen. Bill No.
323 as amended Aug. 23, 2012, p. 1; Assem. Republican Bill Analysis on Sen. Bill No.
323 as amended Aug. 23, 2012, p. 1; Sen. Rules Com., Off. of Sen. Floor Analyses,
Unfinished Business Analysis of Sen. Bill No. 323 as amended Aug. 29, 2012, pp. 3-5;
Sen. Republican Policy Office, Rep. on Sen. Bill No. 323 as amended Aug. 29, 2012,
p. 1; Assem. Republican Bill Analysis on Sen. Bill No. 323 as amended Aug. 29, 2012,
p. 1.) And Senator Juan Vargas, the author of Senate Bill No. 323, advised the Assembly
Committee on Judiciary his legislation would repeal the Beverly-Killea Limited Liability
Company Act. (Assem. Com. on Judiciary, Mandatory Information Worksheet
concerning Sen. Bill No. 323, p. 1.)
Further, the Legislature was aware that Sen. Bill No. 323 would create separate
effective and operative dates for the California Revised Uniform Limited Liability
Company Act. As originally proposed, there were two separate effective and operative
dates. The initial Senate Judiciary committee report prepared for the January 10, 2012
hearing states: “Typically, when large sections of the Corporations Code [are] repealed
and a new act is enacted, the Legislature provides at least 2 years from the date of
enactment of the bill for the repeal of the old laws to allow forms to be updated and
provide sufficient notice to the public of the changes in the statutes. (See e.g., AB 339
(Harman, [c]h. 495, Stats. 2006).) . . . Accordingly, if this bill moves forward, the
inoperation and repeal dates of Beverly Killea should be modified, along with the
operation date of this bill, and the author has agreed to take these amendments in
committee.” (Sen. Com. on Judiciary, Rep. on Sen. Bill No. 323 as amended Jan. 4, 2012
17
(2011-2012 Reg. Sess.) p. 16.) This analysis is consistent with section 1004 of the
Revised Uniform Limited Liability Company Act which serves as the basis of section
17701.01 et seq. Section 1004 of the Revised Uniform Limited Liability Company Act
recommends there be a date between when a new limited liability company statute is
enacted and it becomes operative. (Revised Uniform Limited Liability Company Act
(2006) § 1004, Legislative Note.)
Also, committee and caucus reports state the Beverly-Killea Limited Liability
Company Act was to be repealed effective January 1, 2014. (Sen. Com. on Judiciary, op.
cit., pp. 19-208; Sen. 3d reading analysis of Sen. Bill No. 323 as amended Aug. 14, 2012,
p. 1; Assem. Republican Caucus, analysis on Sen. Bill No. 323 as amended Aug. 14,
2012, p. 1; Assem. Republican Caucus, analysis on Sen. Bill No. 323 as amended Aug.
23, 2012, p. 1; Sen. 3d reading analysis of Sen. Bill No. 323 as amended Aug. 23, 2012,
p. 1; Assem. Com. on Judiciary, Rep. on Sen. Bill No. 323 as amended Aug. 23, 2012, p.
2; Sen. Rules Com., Off. Of Sen. Floor Analysis, Unfinished Business Analysis of Sen.
Bill No. 323 as amended Aug. 29, 2012 (2011-2012 Reg. Sess.).) Additionally, the
Legislative Counsel’s Digest for Senate Bill No. 323 states that the Beverly-Killea
Limited Liability Company Act is repealed as of January 1, 2014. Further, former
section 17657, subdivision (b) was adopted as section 19 of Senate Bill No. 323. Former
section 17657, subdivision (b), which was part of title 2.5 of the Corporations Code,
stated, “This title shall remain in effect only until January 1, 2014, and as of that date is
repealed. . . .” As noted, the Beverly-Killea Limited Liability Company Act enacted title
2.5 of the Corporations Code.
From the foregoing, we deduce the following. The Legislature intended that the
Beverly-Killea Limited Liability Company Act remain in effect until January 1, 2014.
The Beverly-Killea Limited Liability Company Act was repealed effective January 1,
2014. The Beverly-Killea Limited Liability Company Act has no provisions similar to
section 17707.03, subdivision (c)(6) which permits a buyout to occur if an involuntary
dissolution claim is dismissed. The Legislature did not intend that both the Beverly-
18
Killea Limited Liability Company and California Revised Uniform Limited Liability
Company Acts be operative at the exact same time. And, the Legislature intended there
be separate dates upon which the California Revised Uniform Limited Liability Company
Act was enacted and when it actually went into effect. Further, on occasion, the
Legislature has enacted statutes which have different effective and operative dates. In
People v. Alford (2007) 42 Cal. 4th 749, 753, footnote 2, our Supreme Court explained:
“‘“The effective date [of a statute] is . . . the date upon which the statute came into being
as an existing law.” [Citation.] “[T]he operative date is the date upon which the
directives of the statute may be actually implemented.” [Citation.] Although the
effective and operative dates of a statute are often the same, the Legislature may
“postpone the operation of certain statutes until a later time.” [Citation.]’ (Preston v.
State Bd. of Equalization (2001) 25 Cal. 4th 197, 223.)”
We now return to the language in section 17713.03 which states, “This title does
not affect an action commenced, proceeding brought, or right accrued or accruing before
this title takes effect.” The plain language of section 17713.03 provides that title 2.6,
which includes section 17707.03, subdivision (c)(6), may not affect a lawsuit under four
circumstances: where a lawsuit is filed before January 1, 2014; where a proceeding is
brought before that date; where a right accrues prior to that date; or a right is accruing
before January 1, 2014. As is clear, section 17713.03 is written in the disjunctive, which
in its ordinary sense functions to mark an alternative meaning as “‘either this or that’” in
statutes. (Houge v. Ford (1955) 44 Cal. 2d 706, 712; accord Barker Bros., Inc. v. Los
Angeles (1938) 10 Cal. 2d 603, 606.) The dispute at issue involves words “takes effect”
in section 17713.03. Defendants contend it is the effective date of the statute. (Cal.
Const., art. IV, § 8, subd. (c)(1); Gov. Code, § 9600, subd. (a).) Drake argues it is the
date the statute became operative. (§ 17713.13.) The Beverly-Killea Limited Liability
Company Act, which was found in former title 2.5 of the Corporations Code, remained in
effect until January 1, 2014. (See 9 Witkin, Summary of Cal. Law (2014 Supp.)
Partnership, § 192, p. 168.) Thus, title 2.6 of the Corporations Code, which includes
19
section 17707.03, subdivision (c)(6), was not in effect, i.e. operative, until January 1,
2014. (See 5 Ballantine & Sterling, California Corporation Laws (4th ed. 2014)
Legislative Alert to Chapter 27, p. SA-27-1 (Rel. 119-6/2013).) As noted, the present
action was commenced before January 1, 2014. Because Drake’s complaint was filed
prior to January 1, 2014, title 2.6 of the Corporations Code, which includes section
17707.03, subdivision (c)(6) does not apply to the present action. (§ 17713.03; see CB
Richard Ellis, Inc. v. Terra Nostra Consultants, supra, 230 Cal.App.4th at p. 411, fn. 4.)
Thus, we agree with the trial court that the dismissal of the involuntary dissolution cause
of action prevented defendants from invoking their buyout rights in the limited liability
companies.
[Part III (C) is deleted from publication. See post at p. 22 where publication is to
resume.]
C. Unpublished Discussion
First, defendants contend that section 17707.03, subdivision (c)(6) applies to all
other claims, not merely those involving the limited liability companies. This contention
has no merit. Section 17707.03, subdivision (c)(6) only applies to limited liability
companies. (Legis. Counsel’s Dig. Sen. Bill No. 323, para. 1 [“This bill would repeal
[the Beverly-Killea Limited Liability Company Act] as of January 1, 2014, and enact the
California Revised Uniform Limited Liability Company Act, as of that date which would
recast provisions governing the formation and operation of limited liability companies.”];
§ 17707.03, subdivision (c)(1) [“ In any suit for judicial dissolution, the other members
may avoid the dissolution of the limited liability company by purchasing for cash . . .”],
italics added; 9 Witkin, op. cit., § 192, p. 168.)
Second, defendants contend that other provisions of the Corporations Code reflect
a legislative intent to allow a buyout to occur outside the context of limited liability
20
companies. No such legislative intent is present. Moreover, the Legislature has never
evinced an intent to modify the power of a plaintiff to unilaterally dismiss a cause of
action. In the published portion of this opinion, we have previously discussed the effect
of a dismissal of an involuntary dissolution claim. (See pp. 5-12, supra.) Apart from
section 17707.03, subdivision (c)(6), which applies to limited liability companies only, a
dismissal of a corporate dissolution claim eliminates the need for a buyout. Only in the
context of section 17707.03, subdivision (c)(6) has a Legislature expressed any interest in
modifying the effect of a dismissal request by a plaintiff.
Third, defendants rely on a statute of limitations case, County of Sacramento v.
Llanes (2008) 168 Cal. App. 4th 1165, 1174. Defendants argue that Llanes stands for the
proposition that the terms “enactment” and “effective date” have distinct meanings when
applied to statutes. Llanes is a case involving a paternity judgment. It has nothing to do
with the specific issues raised by sections 17707.03, subdivision (c)(6) and 17713.03 in
the context of the California Revised Uniform Limited Liability Company Act.
Fourth, in their post-argument letter brief, defendants argue the Legislature
intended that the California Revised Uniform Limited Liability Company Act go into
effect as soon as possible. This intention resulted from the alleged legislative view that
the primary problem with the Beverly-Killea Limited Liability Company Act was that it
was not uniform with other states’ statutory provisions. The flaw with defendants’
argument is that the Beverly-Killea Limited Liability Company Act remained in full force
and effect until January 1, 2014. Here there are two comprehensive statutory regimes—
the California Revised Uniform Limited Liability Company and Beverly-Killea Limited
Liability Company Acts. There are no committee reports which support the conclusion
the Legislature intended that both comprehensive limited liability company statutes be
simultaneously in effect. No doubt, the Legislature intended that the California Revised
Uniform Limited Liability Company Act go into effect as soon as practical, as defendants
reason. But the simple truth is the Legislature fixed that date at January 1, 2014, not
earlier.
21
[The balance of the opinion is to be published.]
IV. DISPOSITION
The May 13, 2014 order denying the motion to stay dissolution and appoint
appraisers is affirmed. Plaintiff, Drake Kennedy, shall recover his costs incurred on
appeal from defendants, Brian Kennedy, David Seyde and Skyline Outdoor Media LLC.
CERTIFIED FOR PARTIAL PUBLICATON
TURNER, P. J.
We concur:
KRIEGLER, J.
GOODMAN, J.*
* Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
22