Case Number: BC677527 Hearing Date: June 01, 2018 Dept: 34

SUBJECT: Motion for Appointment of Receiver and Preliminary Injunction in Aid of Receivership

Moving Party: Plaintiff/Cross-Defendant Eytan Levin

Resp. Party: Defendant/Cross-Complainant Richard Ciotti

The motion is DENIED. Plaintiff’s request for a preliminary injunction in aid of the receivership is MOOT.

BACKGROUND:

Plaintiff commenced this action on 09/27/17 against defendants for: (1) involuntary dissolution of a corporation; (2) breach of fiduciary duty (direct); (3) conversion (direct); (4) breach of fiduciary duty (derivative); (5) conversion (derivative); (6) unfair business practices; and (7) fraud and deceit.

Defendant Richard Ciotti filed a Cross-Complaint on 11/29/17 and filed a First Amended Cross-Complaint on 02/27/18 against cross-defendants for: (1) involuntary dissolution of a corporation; (2) involuntary dissolution of a limited liability company; (3) waste of corporate assets; (4) waste of limited liability company assets; (5) gross mismanagement; (6) breach of fiduciary duty; (7) breach of fiduciary duty; (8) unfair business practices; (9) conversion; (10) conversion; (11) fraudulent concealment; (12) accounting; (13) breach of loan agreement; (14) anticipatory breach of contract; (15) common count: services rendered; (16) quantum meruit; and (17) foreclosure of mechanic’s lien.

ANALYSIS:

This action arises out of a failed business relationship between plaintiff Eytan Levin and defendant Richard Ciotti. In 2012, they became business partners: Ciotti purchased 50% of Levin’s business — Malibu Market and Design, LLC — and Levin purchased 50% of Ciotti’s business — RTC Design and Build, Inc. (“RTC”) (See Motion, p. 1:3-9; Opposition, p. 3:26-4:3.) The purpose of the partnership was to design and build high-end real estate, primarily in the Malibu area. (See Opposition, p. 3:28.)

Relevant Law

Code of Civil Procedure section 564 provides, in relevant part:

“A receiver may be appointed by the court in which an action or proceeding is pending, or by a judge thereof, in the following cases: . . . (1) In an action . . . between partners or others jointly owning or interested in any property or fund, on the application of the plaintiff, or of any party whose right to or interest in the property or fund, or the proceeds thereof, is probably, and where it is shown that the property or fund is in danger of being lost, removed, or materially injured. . . . (5) [w]here a corporation has been dissolved, as provided in Section 565.” (Code Civ. Proc. § 564, subd. (b)(1), (5).)

Code of Civil Procedure section 565 provides that:

“Upon the dissolution of any corporation, the Superior Court of the county in which the corporation carries on its business or has its principal place of business, on application of any creditor of the corporation, or of any stockholder or member thereof, may appoint one or more persons to be receivers or trustees of the corporation, to take charge of the estate and effects thereof, and to collect the debts and property due and belonging to the corporation, and to pay the outstanding debts thereof, and to divide the moneys and other property that shall remain over among the stockholders or members.” (Code Civ. Proc. § 565.)

“The moving papers must allege facts establishing one of the statutory grounds for appointment of a receiver.” (Edmon & Karnow, Civ. Proc. Before Trial (The Rutter Group 2017) ¶ 9:759; Miller v. Oliver (1917) 174 Cal. 407, 410.) Additionally, “since a receivership is an equitable remedy, the equitable considerations in an injunction proceeding apply — i.e., there must be a showing of irreparable injury and inadequacy of other remedies.” (Edmon & Karnow, supra, at ¶ 9:759; Alhambra-Shumway Mines, Inc. v. Alhambra Gold Mine Corp. (1953) 116 Cal.App.2d 869, 872.)

“A receivership is a harsh, time-consuming, expensive and potentially unjust remedy and thus is available only where a more ‘delicate,’ alternative remedy (i.e., injunction, writ of possession, attachment, provisional director, lis pendens) is inadequate. In other words, it should not be requested unless absolutely essential because no other remedy will do the job.” (Edmon & Karnow, supra, at ¶ 9:743; See City and County of San Francisco v. Daley (1993) 16 Cal.App.4th 734, 745.) Furthermore:

“[r]eceiverships are very expensive — often to both parties, since the costs are normally paid out of an estate in which both parties typically have an interest. . . . The receiver is not merely another executive appointed to run a business or an apartment house. Rather, a receiver must proceed in a prescribed way, requiring lawyers, requests to be instructed, bonds, accounts, and the like. Thus . . . for a receiver to be considered seriously, a business . . . must simultaneously have a sufficient margin of profit to pay the costs and be in immediate danger of a disaster that warrants the cost of a receiver.” (Edmon & Karnow, supra, at ¶ 9:744-9:746.)

Discussion

Plaintiff and Cross-Defendant Eytan Levin moves the Court to appoint a receiver for nominal defendant Malibu Market and Design, LLC (“Malibu”) “for the limited purpose of winding up and dissolving Malibu.” (Notice of Motion, p. 1: 6-8.) Levin also seeks a preliminary injunction which would enjoin Levin and his former business partner, defendant Richard Ciotti from taking any part in the decisions relating to the dissolution of Malibu. (See Id. at p. 1:9-19.)

Levin argues that the appointment of a receiver to take charge of completing the dissolution of Malibu is necessary and appropriate due to “the level of acrimony between the parties, their inability to agree on the most basic things regarding the continued management of Malibu, and the fact that they both seek dissolution.” (Motion, p. 4:16-18.) The Court notes that Levin has alleged “facts establishing one of the statutory grounds for appointment of a receiver.” (See Edmon & Karnow, supra, at ¶ 9:759.) Levin notes that the Court has the authority to appoint a receiver under both Section 564(b)(1) and 564(b)(5) because Malibu has been dissolved and because Levin is a “50% owner of all Malibu property/assets.” (See Motion, p. 4:23-6:16.)

However, the moving papers do not contain evidence to suggest that there is any danger of irreparable injury or that other remedies would be inadequate. (See Edmon & Karnow, supra at ¶ 9:759.) Levin argues that a receiver must be appointed in order to “verify that no such nefarious activities” as alleged in Ciotti’s Cross-Complaint “are actually afoot.” (Motion, p. 3:10-13.) Due to these allegations, Ciotti “should welcome the opportunity to have a neutral third-party conduct the windup of Malibu given his accusations against Levin, who has been managing Malibu’s day-to-day affairs.” (Id. at p. 6:13-16.) Levin also argues that a receiver should be appointed because he “reasonably fears that Ciotti will take actions to squander Malibu’s assets, thereby directly affecting the property and/or proceeds to which Levin would be ultimately entitled.” (Id. at p. 7:3-6.; Levin Decl., ¶ 15.) In support of this argument, Levin refers to his unproven allegation that “Ciotti has already displayed his propensity for looting Malibu’s assets when he and his wife, Defendant Tammy Ciotti, effected an unauthorized voice-initiated transfer from Malibu’s bank account in the amount of $110,000.” (Id. at p. 7:7-9 [citing Complaint, ¶¶ 32-36, 54-59].)

In his opposition, defendant Ciotti argues that Levin has failed to “show by a preponderance of the evidence that the appointment [of a receiver] is warranted” because Levin “has asserted no facts that even begin to demonstrate that any property or assets are at risk of being lost, removed, or materially damaged.” (Opposition, p. 6:12-14; 24-25 [citing Alhambra-Shumway Mines, Inc., supra, at p. 874].) This is because Levin “possesses exclusive and complete control over Malibu’s assets and operation. Defendant Ciotti, on the other hand, has no access to Malibu’s operations, no access to its monetary or hard assets, no access to its inventory, no access to its payroll, and no access to its bank accounts, accounting records, books or anything else for that matter.” (Opposition, p. 6:26-28.) Defendant also notes that “there are far less drastic and still adequate remedies available than the appointment of a receiver. As just one example, Malibu can hire an auditor or independent accountant to oversee the company’s books and records.” (Id. at p. 8:8-10.) Thus, even if Levin reasonably fears that Ciotti would like to take some action to squander Malibu’s assets, he has not presented any evidence to suggest that Ciotti could actually do so.

The Court finds that plaintiff has not presented sufficient evidence to show that there are no other adequate remedies or that plaintiff or Malibu will suffer irreparable harm is a receiver is not appointed.

Accordingly, the motion is DENIED. Plaintiff’s request for a preliminary injunction in aid of the receivership is MOOT.