Friend of Camden v. Brandt ( 2022 )

Filed 8/3/22 (unmodified opn. attached)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
FRIEND OF CAMDEN, INC., et B309746
al.,
Plaintiffs and Appellants, Los Angeles County
Super. Ct. No. 19STCP04706
v.
BARBARA BRANDT, as Trustee, ORDER MODIFYING OPINION
etc., et al., [Change in Judgment]
Defendants and Respondents.
THE COURT:
The opinion herein, filed on August 2, 2022, is modified as follows:
On page 15, at the end of the disposition add: Costs are awarded
to appellants.
There is a change in the judgment.
___________________________________________________________________
GRIMES, Acting P. J. WILEY, J. HARUTUNIAN, J.*
*
Judge of the San Diego Superior Court, assigned by the Chief
Justice pursuant to article VI, section 6 of the California Constitution.
Filed 8/2/22 (unmodified opinion)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
FRIEND OF CAMDEN, INC., et B309746
al.,
Plaintiffs and Appellants, Los Angeles County
Super. Ct. No. 19STCP04706
v.
BARBARA BRANDT, as Trustee,
etc., et al.,
Defendants and Respondents.
APPEAL from an order of the Superior Court of Los Angeles
County, Maureen Duffy-Lewis, Judge. Reversed and remanded
with directions.
Gutman Law, Alan S. Gutman, John Juenger; Greines,
Martin, Stein & Richland, Robin Meadow, Geoffrey B. Kehlmann
and Jeffrey Gurrola for Plaintiffs and Appellants.
Klapach & Klapach, Joseph S. Klapach; Hamburg, Karic,
Edwards & Martin, Gregg A. Martin and Ann S. Lee for
Defendants and Respondents.
____________________________________
SUMMARY
A plaintiff owning a 1 percent interest in a limited liability
company (LLC) filed a lawsuit seeking judicial dissolution of the
LLC under Corporations Code section 17707.03. (All statutory
references are to the Corporations Code.) Defendants, other
members of the LLC who together held 50 percent of the
membership interests, filed a motion to avoid the dissolution by
purchasing the plaintiff’s 1 percent interest. (§ 17707.03,
subd. (c).) Then the plaintiff, together with other members owning
49 percent of the membership interests in the LLC—for a total of
50 percent—voted to dissolve the LLC. (§ 17707.01, subd. (b).)
The issue in this appeal is whether the vote to dissolve the LLC
extinguished the right defendants otherwise would have had to
purchase plaintiff’s 1 percent interest and avoid dissolution of the
LLC.
We conclude, in accordance with the plain language of
section 17707.01, that the answer is “yes,” and the vote of
50 percent of the LLC membership interests to dissolve the LLC
must be given effect. Consequently, the trial court erred when it
issued an order appointing appraisers to determine the price
defendants must pay to purchase plaintiff’s 1 percent membership
interest. The trial court must dismiss the buyout proceeding as
moot and direct the parties to wind up the activities of the LLC.
FACTUAL AND LEGAL BACKGROUND
1. The Parties
The parties are members of an LLC, Ventura-Petit East,
LLC (VPE), that owns a commercial office building. Plaintiff
Friend of Camden, Inc., is the manager of VPE and owns 1 percent
of the membership interests in VPE. The two other members who
voted with Friend of Camden to dissolve the LLC are Avondale
2
Investment Partners, L.P., which owns 39.415 percent of the
membership interests, and an irrevocable trust that owns 9.585
percent of the membership interests, the trustees of which are
Ralph and Shirley Shapiro. (Mr. Shapiro is also chairman of
Friend of Camden and chairman of the general partner in
Avondale Investment Partners.) Together, these three entities
own 50 percent of the membership interests. We will refer to them
as plaintiffs or the Shapiro parties.
Defendants, as trustees of various trusts, own the other
50 percent of the membership interests in VPE. They include
Barbara Brandt, Shirley Wilson, James Bristol, Jamy Kahn and
Fiduciary Trust International of California. We will refer to them
as defendants or the Brandt parties.
Plaintiffs and defendants have disagreed since 2017 about
whether to sell the building VPE owns and manages, which is
VPE’s primary income-producing asset. Plaintiffs sought to
market the building for sale, but they could not obtain the
approval of more than 50 percent of the membership interests as
required under the LLC’s operating agreement.
2. The Legal Background
Under section 17707.01, an LLC is dissolved in one of four
different ways, only two of which are relevant to our discussion:
(1) 50 percent or more of the members vote to dissolve the LLC
(id., subd. (b)); or (2) a court decrees judicial dissolution under
section 17707.03 (§ 17707.01, subd. (d)). An LLC “is dissolved . . .
upon the happening of the first to occur” of those events.
(§ 17707.01.) A court may decree the dissolution of an LLC on the
occurrence of several events, including that “[t]he management of
the limited liability company is deadlocked or subject to internal
dissension.” (§ 17707.03, subd. (b)(4).)
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In a suit for judicial dissolution by a manager or member of
an LLC, “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.” (§ 17707.03,
subd. (c)(1).) If the purchasing parties are unable to agree with the
moving parties on the fair market value, and provide a bond as
described in the statute, “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.”
(Id., subd. (c)(2).)
The statute describes how the court shall fix the fair market
value of the moving parties’ membership interests and the decree
to be entered. It provides in part: “The court shall appoint three
disinterested 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. . . . Any member aggrieved
by the action of the court may appeal therefrom.” (§ 17707.03,
subd. (c)(3).)
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The statute also provides that “[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.” (§ 17707.03, subd. (c)(6).) “The upshot of
section 17707.03, subdivision (c)(6)” is that “ ‘[o]nce the buyout
procedure is commenced, the moving party cannot, by dismissing
the judicial dissolution action, prevent the buyout procedure 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).’ ” (Kennedy v. Kennedy
(2015) 235 Cal.App.4th 1474, 1487.) One question we must resolve
in this appeal is whether section 17707.03, subdivision (c)(6),
supports defendants’ contention that plaintiffs cannot prevent a
buyout, even though plaintiffs never dismissed this dissolution
action, and the buyout procedure did not commence before
plaintiffs voted to dissolve the LLC. As explained below, we reject
that contention.
3. The Lawsuit
Friend of Camden, manager and 1 percent owner of VPE,
filed this lawsuit in October 2019, seeking a decree of judicial
dissolution of the LLC. The complaint cited the irreconcilable
deadlock between the Brandt parties and the Shapiro parties,
“whose interests are split 50-50, over what to do with VPE’s sole
income-producing asset.”
These were the pertinent ensuing events.
On December 17, 2019, defendants filed an answer and a
cross-complaint alleging several causes of action against Friend of
Camden (and the LLC as a nominal defendant), including breach
of fiduciary duty and breach of contract. On the same day, they
filed a “motion to stay proceedings in order to ascertain value of
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and purchase [Friend of Camden’s] membership interest.” The
motion stated, among other things, that defendants were prepared
to post the necessary bond and that the court was “required to
order stay of all proceedings and appoint appraisers to appraise
the value of [Friend of Camden’s] membership interest in VPE.”
On January 2, 2020, Friend of Camden and the other
Shapiro parties, together holding 50 percent of the membership
interests, voted “for dissolution pursuant to and in accordance with
California Corporations Code § 17707.01(b).”
On January 10, 2020, Friend of Camden and the other
Shapiro parties as prospective plaintiffs moved for leave to file a
first amended complaint for judicial dissolution. The proposed
amended complaint added the other Shapiro parties as plaintiffs
seeking dissolution of VPE; added VPE as a nominal defendant;
and added “a second cause of action for dissolution pursuant to
Corporations Code § 17707.01(b), as 50% of the voting interests
have voted for dissolution.” The motion stated among other things
that new counsel for Friend of Camden substituted into the case on
December 16, 2019, and that there was “no statutory prohibition
regarding amendment for additional members to be included
amongst the ‘moving parties’ seeking dissolution.”
On January 13, 2020, Friend of Camden filed its opposition
to defendants’ motion to stay the proceedings, arguing the motion
should be denied without prejudice or continued until after a
ruling on Friend of Camden’s motion for leave to amend.
On January 17, 2020, defendants filed a reply, arguing their
right to a stay in order to purchase Friend of Camden’s
membership interest was mandatory, and Friend of Camden lost
any right to prosecute its dissolution action once defendants
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elected to purchase Friend of Camden’s interest, including any
right to amend its complaint.
On February 10, 2020, the trial court issued a ruling
granting defendants’ motion for stay of proceedings “per
Corporations Code 17707.03(c) and $100,000.00 bond must be
posted.” Defendants posted the bond on February 26, 2020.
Although the court had stayed the dissolution proceeding, on
March 16, 2020, the court granted Friend of Camden’s motion for
leave to amend the complaint for judicial dissolution. Plaintiffs
filed the first amended complaint on March 20, 2020. Defendants
responded with a demurrer and a motion to strike the first
amended complaint.
On July 10, 2020, defendants filed a motion to appoint
appraisers.
On September 10, 2020, the court held a hearing on
defendants’ demurrer and motion to strike the first amended
complaint. The court stated its understanding that defendants
were demurring “because the case is stayed and the buyout is in
progress,” and defense counsel confirmed that understanding.
(Plaintiffs’ counsel said, among other things, that defendants were
trying “to take an advantage of a technical mistake that was made
[by] prior counsel in filing this action on behalf of Friend of
Camden.”) The trial court found “the bond was previously posted,
the case is stayed.” The court’s minute order similarly stated:
“The case is stayed. Defendant[s] [are] in the process of buying
out.” Having found the case was stayed, the court did not rule on
defendants’ demurrer or motion to strike the first amended
complaint.
On October 27, 2020, plaintiffs filed their opposition to
defendants’ motion to appoint appraisers. They argued the court
7
lacked jurisdiction to grant the motion for several reasons,
including that VPE had already been dissolved by the January 2,
2020 vote of 50 percent of the voting interests in accordance with
section 17707.01, subdivision (b). Plaintiffs asked the court to lift
the February 10, 2020 stay order and issue a new stay “of the
entire action except for Plaintiffs’ second cause of action for an
order confirming VPE’s dissolution pursuant to [section]
17707.01(b).”
After a hearing on November 9, 2020, the court granted
defendants’ motion to appoint appraisers.
On January 5, 2021, plaintiffs filed a notice of appeal from
the order granting defendants’ motion for appointment of
appraisers. The next day, plaintiffs filed a petition for writ of
supersedeas in this court, requesting a stay of the appraisal order
pending appeal. After receiving opposition from defendants and
plaintiffs’ reply, we granted the writ of supersedeas and stayed any
further buyout proceedings.
DISCUSSION
We note two preliminary matters.
First, plaintiffs request judicial notice of the petition for writ
of mandate they filed on January 6, 2021. We grant the request.
Second, defendants argue we lack jurisdiction because the
appraisal order is not appealable, and further contend we should
not exercise our discretion to treat an improper appeal as a
petition for writ of mandate. Even if the order were not appealable,
we would exercise our discretion to treat the appeal as a writ. In
our view, the necessary “extraordinary circumstances” are present
to warrant writ review. (See H. D. Arnaiz, Ltd. v. County of San
Joaquin (2002) 96 Cal.App.4th 1357, 1366-1367.) Accordingly, we
do not decide the appealability issue, and proceed to the merits of
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the legal issue presented: whether plaintiffs’ January 2, 2020 vote
to dissolve the LLC under section 17707.01, subdivision (b),
extinguished defendants’ right under section 17707.03, subdivision
(c), to purchase Friend of Camden’s 1 percent interest in VPE.1
1. The Law
We have already described the statutory scheme for
dissolution of an LLC. As relevant here, there are two ways: by a
vote of 50 percent of the membership interests, or by entry of a
decree of judicial dissolution. Friend of Camden first sought a
decree of judicial dissolution, resulting in the apparently
unanticipated prospect of a buyout that would give the Brandt
parties control of the LLC. Friend of Camden and the other
Shapiro parties then took the second route, voting to dissolve the
LLC. We see no legal basis for preventing them from doing just
that.
The statute states unequivocally that an LLC “is dissolved,
and its activities shall be wound up, upon the happening of the
first to occur” of the events listed, one of which is a vote to dissolve.
Before that vote, defendants filed their buyout motion in the
judicial dissolution proceeding, but we see nothing in the statute or
other law to suggest that the mere filing of the buyout motion
somehow operated to prevent members from voting to dissolve the
1 Our resolution of this issue makes it unnecessary to decide
numerous other issues raised by the parties, including plaintiffs’
contentions the buyout cannot go forward because the complaint
for dissolution was superseded by the first amended complaint; the
trial court was required to grant leave to amend the complaint
because the added plaintiffs were indispensable parties; and that a
buyout, if permitted, must include the entirety of the Shapiro
parties’ 50 percent interest.
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LLC. The buyout procedure did not begin until the court ordered
the stay of the dissolution proceeding 39 days after the vote to
dissolve. Under the statute, the LLC was dissolved in accordance
with that vote, and its activities are now required to be wound up.
2. Defendants’ Contentions
Defendants proffer several reasons why, they say, the
January 2020 vote “was not effective, immediately or otherwise, to
dissolve VPE.” Most of the asserted reasons take as their premise
the notion that plaintiffs cannot vote to dissolve after a judicial
dissolution action is filed and after defendants have filed a motion
to stay that action to seek a buyout. Defendants describe the
timing of the vote to dissolve as “circumvent[ing] the statutory
buy-out procedure.”
We agree the vote to dissolve effectively circumvented the
buyout procedure. Section 17707.01 expressly permits a vote to
dissolve, and such a vote effectively moots a judicial dissolution
proceeding and any ensuing buyout proceeding. Defendants
present no authority to support their assertions that such a vote is
in any way improper.2 There is none.
Defendants briefly acknowledge the statutory “first to occur”
language, but say “this language means only that the four methods
are alternative methods of dissolution,” implying that the first
“method” to occur was the buyout proceeding. That is not what
section 17707.01 provides. Section 17707.01 says an LLC is
2 The parties argue about whether the original complaint for
dissolution was filed only by Friend of Camden and not the other
Shapiro parties by mistake or as a deliberate strategy. We find
immaterial the circumstances that led to the vote to dissolve, as
the statute does not require an explanation or justification.
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dissolved by the “happening of the first to occur,” either “the vote of
50 percent” or “[e]ntry of a decree” of judicial dissolution.
Defendants say this construction of the statutory language
“would frustrate the purpose of section 17707.03’s buy-out
procedure and the Legislature’s clearly expressed intent.” For this
they cite Mart v. Severson (2002) 95 Cal.App.4th 521, 524, where
the court stated that the buyout procedure for corporations
(§ 2000) “reflects the Legislature’s ‘interest [in] preserving the
corporate enterprise as a going concern if desired by the majority
or by the other 50 owners’ and is intended to be a ‘meaningful
alternative to termination of the enterprise.’ ”
But the law applicable to corporations is different from the
law applicable to LLC’s. Section 2000, the statute construed in
Mart v. Severson, provides a buyout procedure for corporations
that applies in both a suit for involuntary dissolution and in a
proceeding for voluntary dissolution. Under section 2000, if
shareholders representing only 50 percent of the voting power of
the corporation vote to dissolve, holders of the other 50 percent
have the right to avoid dissolution by buying them out. (§ 2000,
subd. (a).) That is not the case under the law governing LLCs:
When 50 percent vote to dissolve under section 17707.01, the LLC
is dissolved, and the other 50 percent have no buyout right. In
short, the Legislature intended to treat the dissolution of
corporations differently than the dissolution of LLC’s.
Next, defendants refer us to one of the provisions on judicial
dissolution in the law governing LLC’s. That provision,
section 17707.03, subdivision (c)(6) (already described at p. 5,
ante), says a dismissal of a suit for judicial dissolution “shall not
affect the other members’ rights to avoid dissolution pursuant to
this section.” (§ 17707.03, subd. (c)(6).) Defendants say that if
11
Friend of Camden “had formally dismissed its dissolution action
and then purported to vote to dissolve the LLC,” it “could not have
prevented [defendants] from repurchasing its interest.” Indeed,
section 17707.03, subdivision (c)(6) says a plaintiff cannot dismiss
a judicial dissolution action after the buyout procedure begins.
But plaintiffs did not dismiss the dissolution proceeding.
Instead, they voted to dissolve the LLC as authorized by
section 17707.01, subdivision (b). That statutorily authorized vote
was not a “dismissal” of the action for judicial dissolution, and we
cannot treat it as one. Defendants’ rights to avoid judicial
dissolution under section 17707.03 have nothing to do with the
entirely separate right of 50 percent of the membership interests to
vote to dissolve the LLC. Moreover, the vote to dissolve the LLC on
January 2, 2020, occurred well before the court ordered the stay of
the dissolution proceeding on February 10, 2020, the first event
that allowed the buyout procedure to begin.
Next, defendants contend that when they moved for the
buyout on December 17, 2019, before the vote to dissolve, they
became “the equitable and beneficial owners” of Friend of
Camden’s 1 percent interest. They refer to what they describe as
the “closely analogous context of contractual stock options,” citing
chancery courts in Delaware that have held “once an option to buy
stock is exercised the holder of the stock loses the right to vote that
stock even before the closing of the sale.” (See Len v. Fuller (Del.
Ch., May 30, 1997, Civ. A. No. 15352) 1997 Del. Ch. Lexis 78,
pp. *8–9.)
This argument fails, too. For one thing, this is California,
not Delaware. Defendants cite no California authority to support
their contention, which lacks both legal and logical support. The
exercise of a contractual stock option is not “closely analogous” to
12
the rights to dissolve or buy out interests in an LLC. LLC
members who want to buy out the interests of other members who
sued for judicial dissolution cannot be construed as “equitable and
beneficial owners” of the interests of the members seeking
dissolution because the buyout procedure does not require them to
purchase the interests. They can simply walk away from the
transaction if they do not like the purchase price. Even Len v.
Fuller, which defendants find “instructive,” explains that it is the
“binding nature” and “specific enforceability” of the contract that
allows a court of equity, “under certain circumstances,” to require a
corporation “to treat the equitable holder as a registered holder for
purposes of counting votes in an election contest . . . .” (Len v.
Fuller, supra, 1997 Del. Ch. Lexis 78, p. *10.) There is no analogy
to the circumstances here, much less a persuasive one.
Defendants’ next contention is the January 2020 vote to
dissolve was not “in and of itself, legally sufficient to terminate the
LLC.” They point out that neither a vote to dissolve nor a decree of
judicial dissolution automatically terminates an LLC’s existence.
The managers of the LLC have to file a certificate of dissolution,
specifying the event causing dissolution (e.g., a vote to dissolve or
entry of a decree of judicial dissolution) (§ 17707.08, subd. (a)), and
a certificate of cancellation when the winding up is completed (id.,
subd. (b)). Only upon filing the certificate of cancellation do the
LLC’s powers, rights and privileges cease. (Id., subd. (c).) And,
after a certificate of dissolution has been filed, a majority of
members may file a certificate of continuation (if there is a
unanimous vote of the remaining members, or each member who
consented to dissolution revokes his vote, or the LLC “was not, in
fact, dissolved” (§ 17707.09, subd. (a))).
13
All of that is correct, and there is no evidence plaintiffs have
filed a certificate of dissolution. But the statute does not specify a
deadline within which plaintiffs must file the certificate of
dissolution after a vote to dissolve. Defendants make no coherent
argument about why the winding up processes that necessarily
occur after a vote to dissolve (or a decree of judicial dissolution) are
relevant to the legal effectiveness of the vote to dissolve.
Defendants simply return, again and again, to their assertion that
plaintiffs cannot vote to dissolve the LLC when Friend of Camden’s
1 percent interest “was already subject to [defendants’] buy-out
rights”—an assertion we have found is without legal support.
Finally, defendants argue plaintiffs are judicially estopped
from claiming VPE was dissolved by the January 2020 vote. They
say plaintiffs did not propose to amend the complaint to allege
“that VPE was already dissolved or that the January 2020 vote
divested the trial court of the power to enter a decree of
dissolution.” Instead, plaintiffs told the court the purpose of the
proposed second cause of action was “to enable the court to enter a
decree of judicial dissolution based on Corporations Code
§ 17707.01(b),” the provision under which the LLC is dissolved by a
50 percent vote.
Defendants have shown no reason why the doctrine of
judicial estoppel should bar plaintiffs’ dissolution of the LLC.
Judicial estoppel requires, among other things, two “totally
inconsistent” positions, and its purpose is “to protect against fraud
on the courts.” (Blix Street Records, Inc. v. Cassidy (2010)
191 Cal.App.4th 39, 47.) We see nothing inconsistent—and
certainly no “fraud on the courts”—in plaintiffs’ two positions:
seeking a decree of judicial dissolution, and seeking such a decree
based on the vote to voluntarily dissolve.
14
To recap: Under the plain language of section 17707.01, an
LLC “is dissolved, and its activities shall be wound up, upon the
happening” of “the vote of 50 percent or more of the voting
interests of the members” (id., subd. (b)). Fifty percent of the
voting interests of VPE voted to dissolve the LLC on January 2,
2020. As a result, VPE “is dissolved, and its activities shall be
wound up . . . .” (§ 17707.01.)
DISPOSITION
The order appointing appraisers is reversed. The cause is
remanded to the trial court with directions to vacate its order and
to enter a new order denying the appraisal motion, dismissing any
further buyout proceedings as moot, and directing that VPE’s
activities be wound up in accordance with statutory requirements.
GRIMES, Acting P. J.
WE CONCUR:
WILEY, J.
HARUTUNIAN, J.*
*
Judge of the San Diego Superior Court, assigned by the
Chief Justice pursuant to article VI, section 6 of the California
Constitution.
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