Case Number: KC066219 Hearing Date: September 10, 2019 Dept: J

HEARING DATE: Tuesday, September 10, 2019

NOTICE: See below[1]

RE: Azusa Pacific University v. Reid (KC066219; C/W KC066326)[2]

______________________________________________________________________________

Receiver George R. Monte’s MOTION FOR ORDER: (1) TERMINATING

RECEIVERSHIP AND DISCHARGING RECEIVER; (2) APPROVING AND SETTLING

RECEIVER’S FINAL ACCOUNT AND REPORT; (3) APPROVING FINAL

COMPENSATION AND REIMBURSEMENT OF COSTS FOR RECEIVER AND

OTHER PROFESSIONALS; (4) EXONERATING ALL BONDS; (5) APPROVING AND

RATIFYING ALL OF THE RECEIVER’S ACTS AND TRANSACTIONS; (6)

RETAINING JURISDICTION REGARDING RECEIVERSHIP AND (7) PROVIDING

INSTRUCTIONS REGARDING DISTRIBUTION OF RECEIVERSHIP FUNDS

Responding Party: Plaintiff, Azusa Pacific University

Tentative Ruling

See below.

Background

Plaintiff Azusa Pacific University (“APU”) alleges that Defendant David Reid used his decade-long employment relationship with APU to exploit his position as its Director of Assets Management and engage in improper self-dealing transactions to APU detriment. On August 1, 2013, APU filed a complaint, asserting causes of action against David Reid and Glenda L. Reid, individually and as Trustees of the Sun Country Campus Trust and the Erudite Trust dated July 10, 2012 (“The Reids”) and Does 1-50 for:

1. Breach of Fiduciary Duty

2. Fraud

3. Constructive Fraud

4. Intentional Interference with Contract and/or Prospective Economic Advantage

5. Negligent Interference with Prospective Economic Advantage

6. Negligence

7. Breach of Express Contract

8. Breach of Implied Covenant of Good Faith and Fair Dealing

9. Promissory Estoppel

10. Conversion

11. Accounting

12. Violation of Bus & Prof C § 17200, et seq.

On August 4, 2014, The Reids filed a First Amended Cross-Complaint, alleging causes of action against APU, Cross-Defendants Paul A. Newkirk and Elaine Newkirk, individually and as Trustees of the Paul & Elaine Newkirk Irrevocable Property Trust dated November 28, 2011 (“The Newkirks”), Erudite Capital LLC (“Erudite”), W. Daniel Tate and Patricia Lynn Tate, individually and as Trustees of the Tate Family Trust (“The Tates”), Sun Country Campus Development, LLC (“SCCD”) and Roes 1-50 for:

1. Breach of Written Contract

2. Breach of Fiduciary Duty

3. Declaratory Relief

4. Accounting

5. Breach of Oral Contract

6. Breach of Written Contract

7. Breach of Fiduciary Duty

8. Declaratory Relief

9. Accounting

10. Fraud

11. Tortious Interference with Contract

On December 5, 2014, The Tates filed a cross-complaint, asserting causes of action against David Reid and Glenda L. Reid, individually and as Trustees of the Sun Country Campus Trust (“Cross-Defendants”) and NOES 1-50 for:

1. Rescission

2. Intentional Misrepresentation

3. Negligent Misrepresentation

4. Suppression of Facts

On September 9, 2015, a “Stipulation and Order re Continuing Court Jurisdiction to Enforce Settlement under Code of Civil Procedure Section 664.6” was filed, advising therein of The Reids’ settlement with The Newkirks and Erudite. On December 9, 2015, “Stipulation and Order for Dismissal and Retention of Jurisdiction” was filed, wherein APU dismissed its complaint and The Reids dismissed their cross-complaint as to APU only with prejudice. On December 22, 2016, the court granted Cross-Defendants’ motion for summary judgment on the Tate cross-complaint; on January 3, 2017, the “Order on Cross-Defendants David Reid and Glenda Reed, Individually and as Trustees of Sun Country Campus Trust’s Motion for Summary Judgment, or in the Alternative, Summary Adjudication of Issues as to Cross-Complainants W. Daniel Tate and Patricia Lynn Tate, Individually and as Trustees of the Tate Family Trust Cross-Complaint” was filed. On January 6, 2017, the “Notice of Entry of Judgment or Order” was filed. On January 11, 2017, The Tates filed their “Notice of Appeal.” On January 11, 2017, The Tates filed a “Notice of Stay of Proceedings.” On January 24, 2017, the court granted The Tates’ motion in limine to stay proceedings pending appeal and ordered Cross-Defendants to submit an order re: preliminary injunction.

On March 30, 2017, the “Order Appointing Receiver” was filed, wherein George Monte was appointed as receiver for the assets of SCCD. On April 3, 2017, the “Notice of Entry of Judgment or Order” was filed. On April 7, 2017, The Tates filed their “Notice of Appeal” and “Notice of Stay of Proceedings.” On April 19, 2017, the court determined that the order of appointment of receiver was not stayed due to the filing of a notice of appeal. On April 21, 2017, the “Notice of Entry of Judgment or Order” was filed. On June 12, 2017, the “Order Authorizing Retention of Counsel and Accountant Nunc Pro Tunc to On or About April 1, 2017” was filed.

On March 4, 2019, the court was informed that the case had settled in its entirety. An Order to Show Cause Re: Dismissal (Settlement) is set for September 10, 2019.

Legal Standard

“The power to discharge a receiver [is]. . . a necessary adjunct to the power of appointment.” (Sly v. Superior Court of California in and for Los Angeles County (1925) 71 Cal.App. 290, 294.) “The power of a court of equity to remove or discharge a receiver . . .may be regarded as well settled, and it may be exercised at any stage of the litigation.” (Hozz v. Varga (1958) 166 Cal.App.2d 539, 544 [internal quotations and citation omitted].)

Upon completion of the receivership, the court may discharge the receiver upon the approval of the receiver’s account. The order of discharge also approves payment of any remaining claims to the receivership estate, the payment of any remaining expenses of administration, and compensation of the receiver. (Aviation Brake Systems, Ltd. v. Voorhis (1982) 133 Cal.App.3d 230, 232.)

“The examination of the account of a receiver is conducted in a spirit of equity, assuming the receiver to be honest until the contrary appears, and from the standpoint of benefit or injury to the estate rather than of strict and technical adherence to form.” (People v. Riverside University (1973) 35 Cal.App.3d 572, 586 [citation omitted].)

“A receiver must present by noticed motion or stipulation of all parties: (1) A final account and report; (2) A request for the discharge; and (3) A request for exoneration of the receiver’s surety.” (California Rules of Court (“CRC”) Rule 3.1184(a).) “No memorandum needs to be submitted in support of the motion or stipulation served and filed under (a) unless the court so orders.” (CRC Rule 3.1184(b).) “Notice of the motion or of the stipulation must be given to every person or entity known to the receiver to have a substantial, unsatisfied claim that will be affected by the order or stipulation, whether or not the person or entity is a party to the action or has appeared in it.” (CRC Rule 3.1184(c).) “If any allowance of compensation for the receiver or for an attorney employed by the receiver is claimed in an account, it must state in detail what services have been performed by the receiver or the attorney and whether previous allowances have been made to the receiver or attorney and the amounts.” (CRC Rule 3.1184(d).)

Discussion

Receiver George R. Monte moves the court for an order approving and settling Receiver’s Final Account and Report, terminating the Receivership and discharging Receiver from any further duties or responsibilities, approving final compensation and reimbursement of costs for Receiver and his retained professional, exonerating all bonds, approving and ratifying all of Receiver’s acts and transactions, retaining jurisdiction regarding any claims or issues which may arise from this Receivership and for such other and further orders as the court deems appropriate.

On March 30, 2017, the “Order Appointing Receiver” was filed, wherein George Monte (“Receiver”) was appointed as receiver for the assets of SCCD. Receiver reports that in his initial review of information provided by SCCD’s accountant, Linda S. Glau, CPA (“Glau”) of the lease and financial books and records, the SCCD Balance Sheet dated March 31, 2017 showed a combined $1,967,149.26 owing to SCCD from W. Daniel Tate (“Mr. Tate”) ($1,510,514.67) and from the Tate Family Trust ($456,634.59). (Receiver Decl., ¶2.) The principal estate property remains real estate leased to APU, which uses it as an instructional campus. (Supplement, ¶3.) Receiver continues to prepare and distribute monthly statements of Receivership receipts and disbursements. (Id., Exh. A.) No objections have been filed or made known to Receiver by any of the litigation parties to the information provided in said statements, including statements of fees incurred and reimbursement of costs sought by Receiver and/or his retained professionals provided in the indicated months. (Id.) All said fees and costs have been paid, save and except for the month of July 2019 and as otherwise stated below. (Id.)

Receiver has been advised that the parties have reached a settlement on all matters disputed in the civil proceeding, as set forth in a Confidential Settlement Agreement and Mutual Release (“Agreement”) variously signed by the parties on either April 6 or April 10, 2019 and approved by respective counsel on May 16 and May 17, 2019. (Id., ¶4.) The sole term addressing the Receivership in the Agreement reads: “The parties will stipulate to dismiss the court-appointed receiver, George Montes (sic), and appoint David Reed as the manager. Dan Tate will have no management function or authority.” (Receiver Decl., ¶5.) The Agreement further provides: “Tate and Reid agree to work together to help SCCD resolve, one, the lease scheduled dispute with APU; two, the dispute over square footage; and, three, the security deposit dispute.” (Id., ¶6.)

Receiver represents that, as of the close of period July 1 through July 31, there was $94,077.42 in the Receivership’s operating account, $26,101.25 in the Receivership’s savings account and (Receiver is advised) $153,772.46 in the APU Security Deposit Account, for a total of $271,951.13. (Supplement, ¶7.) With respect to this latter account, the court approved replenishment of same with post-receivership to the amount of $83,640.00. (Id.) APU has withheld from monthly lease payments the additional amount of $70,000.00. (Id.) The security deposit account is/was “vested” in APU, as best it can be interpreted from the terms of the leases and lease amendments. (Id.)

Receiver was principally tasked with protecting assets and stopping the flow of funds from the Estate to Mr. Tate in the form of loans and direct disbursements. (Receiver Decl., ¶9.) Receiver retained the services of Dominic LoBuglio, CPA (“LoBuglio”) as forensic accountant and continued the employment of Glau, who had been preparing SCCD’s books and records for years and had an extensive history with Mr. Tate and the properties in question. (Id.)

Receiver represents that the terms of the underlying lease for the APU property were “confused and confusing,” and consisted of a master lease and at least four written amendments. (Id., ¶10). Receiver represents that “further muddying the waters” was the fact that Mr. Reid had been employed by or affiliated with APU prior to and/or during the drafting of these agreements and amendments. (Id.) Receiver needed to reconstruct SCCD’s books and records in order to learn the exact disposition of assets received during the approximate 10 years the lease had been in effect. (Id., ¶11.) On or about April 24, 2018 (after all funds were replenished by the Estate), APU declared the draining of the security deposit account an act of default, and declared a monthly withholding of $5,000.00 in lease payments as a 10% default interest rate on a (non-existent) judgment lien for the prior depletion. (Id., ¶12). Receiver brought this to the court’s attention, which was ultimately set for hearing on December 11, 2018. (Id., ¶13). The court declined to issue a contempt citation against APU at that time. (Id.) The settling parties are acquainted with these issues and have taken it upon themselves, per the Agreement, to resolve this and other issues affecting the Receivership property as they deem fit. (Id., ¶14.)

During the April 26, 2017 through July 31, 2019 period, the Receivership estate received $2,147,156.47 and disbursed $2,053,078.82. (Receiver Decl., ¶15, Exh. E; Supplement, P. 4, ¶1, Exh. B). A statement of all fees and costs incurred during the operating period is attached as Exhibit C to the Supplement. A total of $119,766.17 was expended for services of Receiver and Receiver’s staff time. (Receiver Decl., ¶18, Exh. F; Supplement, P. 5, ¶4, Exhs. B and D). A total of $84,285.00 was expended for LoBuglio’s services. (Receiver Decl., ¶18, Exh. G; Supplement, P. 5, ¶4, Exhs. B and D). Legal fees to the estate’s legal counsel Kirk Rense totaled $5,630.24. (Receiver Decl., ¶18, Exhs. E and H; Supplement, P. 5, ¶4, Exh. B.)

The court is inclined to GRANT the motion to discharge Receiver; however, the motion and Supplement, as well as APU’s response filed August 23, 2019, indicate that the following issues must be addressed at the time of the hearing before any such discharge can be approved:

1. Receiver advises that Mr. Reid has made requests for certain distributions from the Receivership Estate which Mr. Reid states are allowed to him under terms of the Agreement between Mr. Reid and Mr. Tate, but that Receiver has not received any signed settlement agreement or any instructions from the court authorizing any such distributions.

2. Receiver advises that Receiver holds receivership estate administrative funds in the amount of $104,706.24, which relate to the operating and savings accounts, and requests instructions regarding disbursement of same.

3. APU requests clarification regarding who will take over operating SCCD and the subject property after Receiver is discharged.

4. APU requests that a mechanism to safeguard its interest in the subject property be fashioned.

[1] The motion was filed July 5, 2019 and originally set for hearing on October 15, 2019. On August 1, 2019, an Order to Show Cause Re: Dismissal (Settlement) was held; at that time, per the request of defendant, the hearing on the motion for order terminating receivership scheduled for October 15, 2019 was advanced to August 1, 2019 and continued to September 6, 2019, with defendant’s counsel to provide notice. On August 23, 2019, Receiver’s counsel filed a first supplement to the motion, which listed the September 6, 2019 hearing date. However, on August 23, 2019, APU filed a response, advising therein, in part, that APU did not receive notice of the September 6, 2019 hearing date “until this week. . .” (Response, 1:25-27).

[2] Case No. KC066326 was dismissed, with prejudice, on September 29, 2015.