People v. Shaw CA2/8

Filed 10/28/20 P. v. Shaw CA2/8
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
THE PEOPLE, B298177
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. BA458328)
v.
KIMBERLY ANNE SHAW et al.,
Defendants;
AERO INSTITUTE,
Real Party in Interest and
Appellant.
APPEAL from a judgment of the Superior Court of
Los Angeles County, Mary Lou Villar, Judge. Affirmed.
Law Offices of Russell G. Petti and Russell G. Petti for Real
Party in Interest and Appellant.
Jackie Lacey, District Attorney, John Niedermann and
Kenneth Von Helmolt, Deputy District Attorneys, for Plaintiff
and Respondent.
No appearance for Defendants.
____________________
The Los Angeles District Attorney alleged a nonprofit’s
president and secretary, together with a mayor, schemed illegally
to divert the nonprofit’s funds. The trial court granted the
prosecution’s requests for temporary restraining orders freezing
the nonprofit’s bank accounts under Penal Code section 186.11.
While the criminal cases were ongoing, the court denied the
nonprofit’s request to dissolve the injunctions. The nonprofit
appeals this decision. We affirm.
All undesignated statutory references are to the Penal
Code.
I
The appellant is AERO Institute, a nonprofit with a
mission of “educating the public regarding aerospace and STEM
[Science, Technology, Engineering, and Math].” AERO’s main
source of revenue has been cooperative agreements with the
National Aeronautics and Space Administration (NASA).
Kimberly Anne Shaw and Susan Burgess Miller worked for
AERO. Bank records, corporate documents, and federal tax
documents call Shaw AERO’s president, president and CEO, or
operations manager. Those records call Miller AERO’s secretary
or “Secretary/Treasurer.”
On June 21, 2017, the People filed a felony complaint
against Shaw, Miller, and James Coleman Ledford. At the time,
Ledford was the mayor of the City of Palmdale.
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The complaint alleged Shaw and Miller conspired with
Ledford to embezzle, misappropriate, and steal public funds.
We summarize the alleged multi-part scheme, which
spanned from 2009 to 2017. Miller siphoned money NASA had
given AERO to companies she owned. She used some of that
money to pay Ledford, who performed no substantial work for
AERO. Ledford lied to conceal the payments, which were over
three times his mayoral income. He voted to approve a seven-
year, maximum $3.9 million contract between Shaw and
Palmdale. Palmdale leased property to AERO for $1 a year.
Amended complaints also alleged Shaw made false statements on
AERO’s income tax returns.
The district attorney’s investigator described the funds in
AERO’s accounts as “public funds” belonging to NASA.
A February 2019 report from NASA’s Office of
Investigations questioned how AERO could have lawfully
received revenue from NASA in excess of AERO’s expenses. The
report addressed several issues. One issue was AERO’s claimed
expenses being greater than its actual expenses. Another issue
was AERO’s potentially improper expenses, such as payments to
Ledford and payments to a consulting company of Shaw’s.
The case before us centers around AERO’s bank accounts.
Before we turn to the accounts, we must detour to provide
background about AERO’s personnel.
First, we introduce two other AERO employees: Amber
Abel and Curtis Cannon. Abel began working for AERO in 2009.
As of September 2018, she was AERO’s business manager.
Cannon said he has served on AERO’s board since 2009. From
May 2017 until February 2018, he was AERO’s “Executive
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Director.” The district attorney’s investigator said Cannon took
over after the prosecution filed charges against Shaw and Miller.
The record does not specify exactly when Shaw and Miller
stopped working for AERO. As of March 2018, AERO still
employed Shaw. AERO paid Shaw through at least 2018.
AERO’s bank statements show payments as late as July 2018 to
MillerMosely, a company the prosecution alleged Miller
incorporated.
We turn to the bank accounts. Shaw and Miller had access
to AERO’s bank accounts during the period corresponding to the
prosecution’s charges against them. AERO had accounts with
two banks: Bank of America and Wells Fargo. Shaw and Miller
were signatories of AERO’s Bank of America accounts until
September 2017. Shaw was a signatory of AERO’s Wells Fargo
account until September 2018.
As of September 27, 2017, Cannon and Abel were
signatories for AERO Bank of America accounts. The same
month, AERO transferred $581,331 from four other accounts into
one Bank of America account. In October 2017, Cannon and Abel
opened a Merrill Lynch account and transferred most of AERO’s
funds, more than $2 million, into it. Shaw and Miller were not
signatories on this account.
In August 2018, the People asked the court to issue a
temporary restraining order freezing AERO’s Bank of America
and Wells Fargo accounts. The People did not know about the
Merrill Lynch account yet. On August 22, 2018, the same day as
Miller’s, Shaw’s, and Ledford’s arraignments, the court issued a
temporary restraining order freezing certain Bank of America
and Wells Fargo accounts. The basis of the freeze was section
186.11, subdivision (d)(2), which allows a court to freeze a
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defendant’s assets or property to “prevent dissipation or secreting
of assets or property.”
On September 6, 2018, Cannon and Abel authorized a
transfer of $52,070 from the Merrill Lynch account to Larson
O’Brien, the law firm representing Shaw. The following day,
AERO deleted Shaw as a signatory of a Wells Fargo account. As
of September 7, 2018, Cannon and Abel were signatories on that
account.
On September 11, 2018, AERO responded to the People’s
motion to freeze its bank accounts. Abel submitted a declaration
with the response stating AERO had removed Shaw and Miller
as signatories from its Bank of America and Wells Fargo
accounts.
On September 26, 2018, at the People’s request, the court
issued another temporary restraining order expanding the freeze
to cover the Merrill Lynch account.
The district attorney’s investigator filed an affidavit in
support of the freeze. The investigator said the source of the
funds in the Merrill Lynch account “came from a previously
identified suspect account.” The investigator described the funds
in AERO’s account as “public funds” belonging to NASA.
In total, the two temporary restraining orders froze more
than $1.85 million, most of which was in the Merrill Lynch
account.
On January 24, 2019, AERO moved to unfreeze its
accounts. It argued there was no basis for the freeze.
Cannon submitted a declaration in support of AERO’s
motion explaining Shaw and Miller were no longer signatories on
AERO’s accounts.
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Cannon also described AERO’s relationship with NASA.
NASA and AERO enter “cooperative agreements” for AERO to
pursue projects. The agreements provide a ceiling of potential
funding. Cannon said funds remain in a government account
upon which AERO could draw after completing tasks under the
agreement. AERO may draw direct costs (the actual costs of
performing tasks) and indirect costs (a percentage of direct costs
necessary for operating expenses). AERO ran surpluses on some
projects and Cannon said AERO owns those funds outright and
can spend them for any purpose consistent with its mission.
In their response to the motion to unfreeze, the People said
any funds retained by AERO belong to the public and any current
funds subject to the temporary restraining order should remain
frozen so they will be available for restitution.
The People submitted the February 2019 NASA Office of
Investigations report as a supplemental exhibit. The report
discussed issues with AERO’s expenses, including AERO’s
claimed expenses being greater than its actual expenses and
AERO’s potentially unallowable expenses.
On March 1, 2019, the court heard AERO’s motion.
At the hearing, AERO denied Shaw or Miller maintained
any control over AERO.
The People expressed concern “these funds will be gone if
this T-R-O is lifted.” The People said AERO’s funds constituted
third party transfers under section 186.11. They also said
Cannon and Abel had unclean hands and were accessories who
helped Shaw “maintain the flow of AERO funds.” AERO delayed
in removing Shaw as a signatory on the Wells Fargo account
until September 2018, after the People had filed the criminal
complaint. AERO transferred funds from other accounts in
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September 2017, which was also after the People filed the initial
criminal complaint. The People believed AERO paid Shaw’s
attorneys without any legal basis. Again, the People asserted the
money in AERO accounts belonged not to AERO but to the public.
The court denied the motion to unfreeze. It found the
People showed “a connection” between the defendants, Shaw and
Miller, and AERO.
AERO appealed.
After AERO filed its opening appellate brief, Shaw and
Miller negotiated plea deals. On January 16, 2020, Miller
pleaded guilty to misappropriating public funds (section 424,
subd. (a)(1)). On January 21, 2020, Shaw pleaded guilty to filing
a false tax return (Rev. & Tax. Code, § 19705, subd. (a)). The
People agreed to dismiss remaining counts against Shaw and
Miller. Pursuant to the pleas, the court placed the defendants on
felony probation for three years each.
As part of their pleas, Miller and Shaw agreed to surrender
their interests in the AERO accounts. AERO was not present at
Miller’s plea but was present at Shaw’s plea.
The parties discussed restitution at the pleas.
At Miller’s plea, the prosecution explained, “There will be
restitution ordered, your honor; however, restitution in this case
will be satisfied through the money that is currently being held
under a temporary restraining order that was filed by the People
on the AERO Institute business accounts.” The total restitution
would be $341,266. The People explained, “It will be the
responsibility of the People and representatives of NASA to
obtain those funds once this case is permanently resolved.”
As to Miller, the court ordered victim restitution to NASA
“payable in the amount and manner as directed by the People
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and NASA.” The minute order stated, “The restitution is
satisfied by money previously seized and will be paid by the
People from the AERO Institute business account.” Additionally,
“The People indicate that upon completion of this case, if any
funds remain in the AERO Institute business account they will
be distributed to NASA.”
At Shaw’s plea, the prosecution explained they will seek
restitution “from the AERO Institute in an appropriate forum”
and they would be seeking $923,468.70. AERO emphasized,
“there’s been no adjudication” that AERO is obligated to pay
restitution. The minute order states the “[p]arties agree that Ms.
Shaw does not have to pay direct restitution in this case.”
II
The trial court did not abuse its discretion by refusing to
unfreeze AERO’s accounts.
We have jurisdiction because the trial court’s order denying
AERO’s motion to unfreeze its accounts was an order refusing to
dissolve an injunction. (Code Civ. Proc., § 904.1, subd. (a)(6)
[appeal may be taken from an order refusing to dissolve an
injunction].)
Refusing to dissolve an injunction rests in the sound
discretion of the trial court. (Salazar v. Eastin (1995) 9 Cal.4th
836, 849–850.) We affirm absent an abuse of discretion. (Ibid.)
The primary purpose of section 186.11 is to facilitate the
payment of restitution by “prevent[ing] dissipation or secreting of
assets or property.” (§ 186.11, subd. (d)(2); People v. Semaan
(2007) 42 Cal.4th 79, 86 (Semaan).) The section authorizes
superior courts to order preliminary relief, including temporary
restraining orders, to preserve property or assets for restitution.
(§ 186.11, subd. (d)(2).)
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Assets or property become subject to the court’s jurisdiction
on a showing the defendant controls them: “any asset or property
that is in the control of that person, and any asset or property
that has been transferred by that person to a third party,
subsequent to the commission of any criminal act alleged . . . may
be preserved by the superior court in order to pay restitution and
fines” pursuant to this section. (§ 186.11, subd. (d)(1).)
Our job is to determine whether the trial court abused its
discretion on March 1, 2019 when it denied AERO’s request to
dissolve the restraining orders.
The purpose of section 186.11 and the context of this case
guide us. The Legislature passed section 186.11 to prevent the
“dissipation or secreting” of assets. (Semaan, supra, 42 Cal.4th
at p. 86.) As of March 1, 2019, the People were in the middle of
prosecuting a complex criminal case against Miller, Shaw, and
Ledford. The parties contested who owned AERO’s funds. The
prosecution asserted the money in AERO’s funds were public
funds that belonged in part to a victim, NASA, not to AERO.
Before the court issued the orders, Cannon and Abel had shifted
money in Aero’s accounts: they had moved most of the money to
a single Bank of America account and then to a new Merrill
Lynch account. In 2018, after the criminal prosecution began but
before the court issued the temporary restraining orders, money
continued to flow from AERO to entities Shaw and Miller owned.
In this context, the court decided to maintain the status quo and
to keep AERO’s accounts frozen. This did not constitute an abuse
of discretion.
AERO’s request to dissolve the restraining orders said
there was no legal basis to support the orders. That is incorrect.
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We begin with the first temporary restraining order, the
court’s freeze of the Bank of America and Wells Fargo accounts.
At the time of this August 22, 2018 order, Shaw remained a
signatory on a Wells Fargo account and thus she maintained
control of the account. As to the Bank of America accounts, Shaw
and Miller controlled the accounts as signatories during their
alleged criminal acts. AERO changed the signatories but a court
could properly find this change in control was a transfer to a
third party sufficient to support the restraining order under
section 186.11, subdivision (d)(2).
As to the second restraining order of the Merrill Lynch
account, the account was created with funds from the Bank of
America accounts. AERO moved these funds before the court
issued the temporary restraining order on the Bank of America
accounts. As we explained, Shaw and Miller had controlled that
fund and a court could properly find they had transferred control,
which brought the account within section 186.11, subdivision
(d)(2).
Furthermore, the prosecution alleged facts sufficient to
demonstrate Shaw maintained control over AERO and its
accounts even after Cannon and Abel removed her as a signatory.
Shaw remained an AERO employee and accepted a salary from
AERO at least through 2018. AERO also paid Shaw’s attorney
from the Merrill Lynch fund. AERO says it is normal for an
employer to indemnify an employee and this is not evidence of
Shaw’s control. The trial court found the People proved Shaw
and Miller had a connection to the accounts sufficient to deny the
motion to dissolve the restraining order. We can infer the trial
court thus made a factual finding Shaw maintained control.
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In its reply brief on appeal, AERO says Miller and Shaw’s
settlements should affect our analysis but those occurred after
the order on appeal. We cannot say the trial court’s ruling was
improper because of events that happened months after its
ruling. Furthermore, the record contains no evidence the People
and Ledford have resolved Ledford’s criminal prosecution.
In sum, the trial court did not abuse its discretion by
refusing to dissolve the injunction freezing the accounts.
DISPOSITION
The judgment is affirmed.
WILEY, J.
We concur:
BIGELOW, P. J.
STRATTON, J.
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