Filed 3/11/20 Pak v. Joo CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

HELEN PAK,

Plaintiff and Appellant,

v.

YOONKYUNG JOO et al.,

Defendants and Respondents.

G055470, G055978

(Super. Ct. No. 30-2015-00772080)

O P I N I O N
Appeal from a judgment and a postjudgment cost order of the Superior Court of Orange County, Theodore R. Howard, Judge. Affirmed.

Law Offices of Edward Y. Lee and Edward Y. Lee for Plaintiff and Appellant.

Park & Lim, S. Young Lim, Jessie Y. Kim and Dennis McPhillips for Defendants and Respondents.

* * *

Helen Pak appeals from the trial court’s entry of judgment on a jury verdict rejecting causes of action that included breach of contract and breach of fiduciary duty against Dr. Jae Chon, YoonKyung (aka Tammy) Joo, and Tammy’s husband, Paul S. Joo. Pak based her claims on her contention she attained membership, by agreement of the parties, in several limited liability companies (LLCs) that were formed to purchase and operate two assisted living facilities. Pak contends the trial court erred by refusing three special jury instructions she requested regarding LLC membership.

Pak also asserts error in the trial court’s cost award. The jury found Pak was entitled to back wages from Kairos Management One, LLC and S.H.A.L. Management, Inc. in the amount of $12,500 each for her work at the two assisted living facilities. Pak contends this award made her the prevailing party in the action as a whole for purposes of recouping her litigation costs. The court, however, disagreed and only granted her recovery of 10 percent of her costs. As we explain, the court did not err in refusing Pak’s proposed jury instructions or in its costs award. We therefore affirm the judgment and the postjudgment order.

FACTUAL AND PROCEDURAL BACKGROUND

In the fall of 2013, after Tammy had been working for two years as an administrator in an assisted living facility in which Pak had an ownership interest, Pak suggested that they invest together to purchase another facility. The two women and their husbands had been longtime friends outside of work. Pak also approached Chon to make a substantial investment, and she, Chon, and Tammy met to discuss the idea. At this time, because they did not know the specifics of their potential venture, they anticipated Pak, Chon, and the Joos each having a one-third investment interest.

Sometime after the meeting, in January 2014, Pak directed an attorney, Peter Kim, to form two entities, S.H.A.L. Management, Inc. (SHAL) and Kairos Management, LLC (Kairos LLC). In March of that year, three of the parties—Pak, Chon, and Tammy Joo—made an offer through the Kairos LLC to purchase a facility known as Sunny Hills Assisted Living for $16 million, but that deal was never closed.

In April 2014, the parties, through the Kairos LLC, made a bid of $10.2 million to purchase two facilities, Cambridge Court and Acacia Villas (the Stone facilities), from Hewette Stone and his wife. Kim formed two additional entities, Kairos Management One, LLC (Kairos One) and Kairos Management Two, LLC (Kairos Two), so that, along with SHAL and Kairos LLC, two entities would own the real property underlying each facility, and two others would own the assisted living businesses operated at each facility.

Closing escrow on this deal proved to be challenging. Once their offer was accepted, the parties needed to fund it. Their difficulties—or rather, Pak’s difficulty—in doing so ultimately resulted in this litigation. The offer on the Stone facilities required a $2 million down payment, with the remainder of the sales price to be financed through an $8.2 million loan from BBCN Bank.

The parties’ agreement for funding the down payment went through several iterations during escrow. The parties agreed their respective funding percentages would dictate their respective ownership interests in the venture. But, as Chon testified, “those numbers were changing at different times” as the parties tried to find capital for the down payment. Initially, they agreed Chon would contribute 50 percent of the down payment, and Pak and the Joos 25 percent each. When Tammy and Paul realized they “did not have enough money,” they consulted with the others and, “after [a] discussion,” Chon agreed to “take over” half their contribution amount.

This resulted in a new agreement in which Chon would contribute 62.5 percent of the down payment, Pak 25 percent, and the Joos 12.5 percent, with corresponding ownership percentages. Chon testified that these percentages represented “the capital contribution that everybody’s promising to bring, not that you own it [as of that moment]. You own something after you pay for it. [¶] . . . [W]e’re talking about, what can you bring to this project? And [once made,] that was gonna be the percentage of ownership, yes.”

Escrow was initially scheduled to close in May 2014, but closing was extended to August 2014. During a meeting in late June 2014, Pak told the Joos and Sonny Mehra, the real estate broker on the deal, that her lender had backed out and she would be unable to make her $500,000 contribution. Paul testified that Pak acknowledged that, once her “financial backing fell through,” she believed “she was out of the deal.” Mehra offered to try to persuade Stone to agree to carry a $500,000 note.

Stone testified that the note was an unwelcome “eleventh hour change,” but he felt compelled to agree to it to save the deal. Two owner carry notes for $250,000 each were executed, with Kairos LLC and Kairos One as the borrowers on one, and Kairos Two and SHAL on the other. Chon testified that the purpose of the notes was to “save [Pak]’s portion again so she can still be part of the partnership . . . .” Chon distinguished paying the notes from a promise to pay them.

The carry notes originally were not due until July 2019, but for reasons not explained in the record, their maturity date was advanced to January 2015. Tammy, Paul, and Chon executed guarantees that made them personally responsible for payment of the notes, and Pak, while she did not similarly give a guarantee, pledged her residence and a business as security. Stone, however, testified he did not record Pak’s two deeds of trust because he believed that the properties were already overencumbered. Only the Joos and Chon gave personal guarantees for the $8.2 million BBCN Bank loan.

With the carry notes in place, escrow closed in August 2014. By September 2014, Chon and the Joos had made their funding contributions and had invested more than three-quarters of the required $2 million down payment—Chon, approximately $1.3 million and the Joos, approximately $300,000. Paul testified that Pak had not made any of her agreed upon contributions at that time.

The Kairos entities immediately assumed management of the assisted living facilities, but because it would take 6 to 12 months to obtain the necessary operating license from the California Department of Social Services (CDSS), Stone agreed to an interim management arrangement utilizing his license. However, he limited the interim agreement to 10 months after the close of escrow.

Tammy and Pak oversaw day-to-day operations at the properties. In September 2014, at Pak’s request, attorney Kim e-mailed LLC operating agreements for the two Kairos entities operating the assisted living facilities to Bank of America so Pak could be included on newly opened banking accounts. Unlike the operating agreements provided to BBCN Bank as a prerequisite for the $8.2 million loan, the agreements furnished to Bank of America identified Pak as an LLC member with a 25 percent interest.

Paul testified that none of the “14, 15 different variations” of LLC operating agreements that Kim drafted since the parties began discussing investing together reflected a contribution amount for any of the parties. Instead, they listed a “zero amount” for each, even after Chon and the Joos had made their contributions. Paul testified that as a C.P.A., he had never seen an operating agreement where the capital contribution was left blank. He claimed Chon said, “We will until everyone brings money in, including Helen Pak, [when] she pays off the note, $500,000 by January 15, 2015.”

In November 2014, Stone contacted Paul to express concern that he could not reach Pak. Paul testified that Stone claimed Pak paid her October interest only payment on the carry notes late and that she was also late on the November payment. Stone was also upset that the Kairos entities had not applied for the necessary CDSS license, claiming he did not want to remain “tied up” in facility operations.

The parties met twice in November to discuss these concerns. Kim testified he explained that Chon and the Joos, as personal guarantors for repayment of the carry notes, were individually liable “if [Pak] didn’t come up with the money and/or she didn’t have any assets in the property to make good on them.” Pak said she thought the notes were due in February 2015, but Kim reiterated that the maturity date was January 15th. Pak stated she would pay off the amount due or “try to negotiate [with Stone] an extension or better terms.” She also stated that, regardless of whether she was able to renegotiate the terms, she understood she “had [to] pay it off. She won’t let it fall [unpaid].” According to Kim, Chon expressed the position that “from the outset [as it] has always been, I don’t care how you pay it, just pay it. I don’t have any problems with you being here or not as long as you pay.”

Stone e-mailed Pak on January 13, 2015, reminding her of the impending maturity date. Pak replied that she believed February 20th was the applicable date, and requested an extension. Stone responded, “I am neither willing nor able to modify the maturity date to February 20th per your request. The Amended Note was very clear and I have other obligations to which I am committed. I’m sorry if this is an inconvenience, however, the note is very straightforward and frankly I’m a bit surprised that you’re asking me the day before the maturity date for an extension. It is not possible nor granted.”

Having been copied on this correspondence, Paul testified he was “devastated” not only because of his personal guarantee on the notes, but because the Joos and Chon risked losing “everything.” He feared Pak’s default would cause Stone to refuse to extend the management contract. He testified, “The minute he does not extend [the] management contract, we are out of [a] license, . . . we cannot operate our business, which, therefore, [would] jeopardize our investment, 1.2 [million dollars] from Dr. Chon and about $300,000 from us. [¶] And not only that, we lose all our patients. [¶] And not only that, we sign for $8.2 million . . . loan that we cannot pay. So everything was [in a] jeopardizing situation, we cannot let it happen.”

Paul sought Kim’s advice, which was to make sure to “pay off the note when [the] seller called the note [in] default.” He said the carry notes had a five-day grace period.

Pak did not contact Chon or the Joos until January 16, the day after the notes were due. She e-mailed them late that night to say she was hiring an attorney to negotiate, as Paul recalled, “this owner carry note . . . with the seller.”

After discussing the matter, the Joos and Chon resolved to pay off the carry notes if Pak did not do so by the grace date. Paul attempted to discuss repayment of the notes with Pak, but she responded, “Hang up the phone.” On January 21, 2015, an attorney representing Chon and the Joos informed Pak by letter that they had paid off the notes. He added, “any agreement for you to own an interest in any of the Kairos entities is now null and void.”

Pak filed her complaint against respondents in February of 2015. Over the course of a 10-day trial, she presented evidence that she had been a member of the Kairos entities since their inception, notwithstanding her acknowledged failure to pay off the carry notes by their due date. Her evidence included the following: she had directed Kim to form the initial two entities, SHAL and Kairos LLC; she had coined the name Kairos; Kim referred to her as “one of the founding members”; her real estate agent had located the purchased properties; and Pak signed the purchase offers on behalf of Kairos LLC.

Pak also relied on Kim’s testimony that, in e-mails and in-person meetings between the parties, Kim referred to Pak as a member without objection from the others. Additionally, Kim had listed Pak as a member on initial drafts and later versions of the Kairos entities’ operating agreements, listed her as a director and secretary in SHAL’s bylaws, and listed her as the secretary for Kairos Two in documents submitted to Bank of America.

Pak believed Paul’s acknowledgment at trial that Kim had addressed her as a member in an e-mail constituted an admission that she was one. She introduced deposition testimony she viewed as a conclusive admission that Paul never discussed with her that she would not be a member if she did not pay the notes. Her view was that Paul admitted in his deposition that he “only came up with the contention that . . . Pak would not be a member until she paid off her Notes” long after they were due.

Pak asserted the fact she had been given a $36,572.00 “disbursement” by the Kairos entities showed she was a member, along with the fact that she made a $133,427.50 escrow deposit. Pak also showed the jury handwritten notes by Chon and Tammy, authored in late January of 2015, stating she was “no longer active as a secretary or member” of the Kairos entities (italics added), which she argued established she was a member before then.

Pak presented evidence that she offered to pay Chon and the Joos her overdue $500,000 contribution nine days after they had paid off the carry notes. She testified she had the resources to do so at that time.

After two hours of deliberations, the jury rejected Pak’s claim she was a member of any of the Kairos entities and all her causes of action as noted above, except for her wage claim. The trial court subsequently reduced Pak’s request for costs as the prevailing party by virtue of her successful wage claim. She now appeals.

DISCUSSION

1. Alleged Instructional Error

Pak contends the trial court erred in declining her request to give the jury three special instructions. “Upon request, a party in a civil case is entitled to correct, non-argumentative jury instructions on every theory of the case that is supported by substantial evidence.” (Maureen K. v. Tuschka (2013) 215 Cal.App.4th 519, 526 (Maureen K.).) Proposed instructions should be “accurate, brief, understandable, impartial, and free from argument.” (Cal. Rules of Court, rule 2.1050(e).) They must correctly and completely state the law relevant to the issues in the case. (Morales v. 22nd Dist. Agricultural Assn. (2016) 1 Cal.App.5th 504, 526.) We review claims of instructional error de novo because “[t]he propriety of jury instructions is a question of law.” (Ted Jacob Engineering Group, Inc. v. Ratcliff Architects (2010) 187 Cal.App.4th 945, 961.)

Like the parties in their briefing, we begin our review with Pak’s proposed jury instruction No. 21 because it pertained to the central issue in the case: how a person becomes a member of an LLC. California law governing the formation of LLCs provides that when, as Pak asserted here, an LLC is to have more than one member upon formation, “those persons become members as agreed by the persons before the formation of the limited liability company.” (Corp. Code, § 17704.01, subd. (b), italics added; all further undesignated statutory references are to this code.) The law also provides that there may be an “organizer” who “acts on behalf of the persons in forming the limited liability company.” (Ibid.) The trial court instructed the jury verbatim with these principles, but Pak argues the court erred in rejecting her request to supplement it.

Pak sought to add “Special Instruction No. 21,” as follows: “A person may become a member of a limited liability company without making any contribution.” The court rejected the instruction as unsupported by the evidence because “[w]hatever the deal was, that was not the deal, that she could become a member without any kind of contribution.” The court concluded, “There’s no evidence in this case whatsoever that that was ever agreed to. They were expecting a contribution from her of a half million dollars, and that was it, either in the form of directly putting it into escrow like everyone else, or paying Hugh Stone off before the note became due.”

The trial court did not err. The evidence not only did not support Pak’s requested instruction, the code provision on which she attempted to justify the instruction does not support it. Furthermore, Pak’s proposed language only quoted a portion of the code provision, making it misleading.

Pak justified the instruction based on section 17704.01, subdivision (d), which provides: “A person may become a member without acquiring a transferable interest [in the LLC] and without making or being obligated to make a contribution to the limited liability company.” (Hereafter, Subdivision (d).)

Both parties overlook the origin of this provision, and therefore miss its purpose. Like much of California law governing LLCs, it derives from the Revised Uniform Limited Liability Company Act of 2006 (cf. § 17701.01). The commissioner’s comment to the subsection in the uniform act on which Subdivision (d) is based sheds light on its purpose. The comment states that, “[t]o accommodate business practices and also because a limited liability company need not have a business purpose, this subsection permits so-called ‘non-economic members.’” (6C Thomson Reuters’ U. Laws Ann., Bus. and Nonprofit Org. and Assoc. Laws (2016) Rev. Lim. Liab. Co. Act (2006), com. to § 401, p. 311.)

Neither the uniform act nor the Corporations Code defines or further references “non-economic members.” Nevertheless, it is clear that Pak when filing her lawsuit did not claim she was a non-economic member of the LLCs at issue, i.e., a member without a “transferable interest” as referenced in Subdivision (d). A transferable interest presumably would have at least potential economic value, whereas a non-economic interest would have none. Instead, Pak sought to vindicate her claim that she had a 25 percent interest in the venture—an economic interest as demonstrated by her prayer for damages. Thus, whatever the exact purpose behind Subdivision (d) was in providing for non-economic members, it was not applicable here because Pak did not claim she was one. An instruction based on Subdivision (d) was therefore unwarranted.

Pak’s proposed instruction was also incomplete and misleading in that it omitted the “without acquiring a transferable interest” and “without . . . being obligated to make a contribution” language from Subdivision (d). The trial court may reject instructions that are not complete statements of the applicable law. (Hardin v. Elvitsky (1965) 232 Cal.App.2d 357, 372.) The court similarly may reject an instruction if it is not supported by the evidence or is likely to mislead the jury. (Joyce v. Simi Valley Unified School Dist. (2003) 110 Cal.App.4th 292, 302 (Joyce).) There is “no duty on the court to cull out what is proper from what is not; nor is the court under a duty to modify such instruction or give others in lieu of it as long as the jury is properly instructed as to the law of the case.” (Fibreboard Paper Prods. Corp. v. East Bay Union of Machinists (1964) 227 Cal.App.2d 675, 717.)

Here, the trial court properly instructed the jurors that, to determine when and how a person becomes a member of an LLC, they must look to “the agreement [for membership] made by those persons” forming the entity. Pak argues her proposed instruction was necessary in order to present to the jury that her “theory of the case was that [she] was a member without paying a contribution, and that [she] could pay the contribution at a later date.” But this theory that she gained membership while her contribution was still pending is embraced in the court’s directive to the jury to ascertain the parties’ “agreement” for membership. Nothing in the court’s directive to look to the parties’ agreement precluded the jury from concluding that—if the agreement so provided—a person could become a member of the Kairos entities without making a contribution by a certain date.

By omitting “without acquiring a transferable interest” and “being obligated to make a contribution,” Pak’s proposed instruction risked misleading the jury. (Subdivision (d).) The declarative nature of her instruction (“A person may become a member . . . without making . . . a contribution”) could be interpreted to suggest the law compelled a finding of membership despite a person not “making . . . a contribution,” even if that was not the parties’ intent. (Subdivision (d).) Pak’s instruction did not specify that membership without any contribution only occurred if that was what the founding members had agreed. In offering the instruction, Pak made no effort to clarify this distinction and the court was not required to do so for her. “The trial court has no duty to instruct on its own motion, nor is it obligated to modify proposed instructions to make them complete or correct.” (Maureen K., supra, 215 Cal.App.4th at p. 526.)

Additionally, Pak’s instruction did not articulate her theory that she “could pay the contribution at a later date.” Her instruction made no reference to the timing of a contribution. It erroneously suggested membership could arise without making a contribution at all, whether or not the parties had so agreed. We must view the evidence in the light most favorable to a requested instruction (DeWitt v. Monterey Ins. Co. (2012) 204 Cal.App.4th 233, 240), but as the trial court correctly observed, no evidence in the case suggested any of the potential LLC members were exempt from making a contribution. Therefore, the court reasonably could conclude the safer course was simply for the jury to decide what constituted the parties’ “agreement” on membership, as instructed. Thus, the court did not err in refusing to give Pak’s proposed instruction No. 21.

The same is true for her other two proposed special instruction Nos. 11 and 19. In “Special Instruction No. 11,” Pak sought to instruct the jurors as follows: “(a) A person’s obligation to make a contribution to a limited liability company is not excused by the person’s inability to perform. If a person does not make a required contribution, the person remains liable to make the contribution to the limited liability company. [¶] (b) The obligation of a member to make a contribution to a limited liability company may be compromised only by the consent of all the members.” (Italics added.)

Pak offered this instruction based on her theory that even though “[s]he can’t pay Stone now” because the payoff date for the owner carry note had long passed, she could still qualify as a member because “she can pay the corporation,” i.e., the Kairos entities. Defendants objected to the instruction as “confusing, misleading,” and having “no factual basis.” When the court observed that “[t]he obligation she undertook was to pay Stone,” Pak answered, “And if she doesn’t do that, if that was her capital contribution, then the law is clear that the debt belongs to the LLC, that the member is obligated to pay the LLC.” (Italics added.) Unpersuaded, the court refused to give the instruction.

The trial court similarly declined to give Pak’s proposed “Special Instruction No. 19,” which stated, “[a]n offer in writing to pay a sum of money, is, if not accepted, equivalent to the actual production and tender of the money.” A parenthetical in the instruction restated the instruction’s meaning this way: “A Rejected Offer to Pay a Sum of Money is Equivalent to the Production and Tender of the Money.”

Pak offered this instruction (and others she does not pursue on appeal) based on her theory that, while “she did have an obligation to Mr. Stone” to repay the carry notes, she could meet her membership obligation in an alternate manner because “she also had an obligation to the Kairos entities to pay her agreed upon contribution.” Indeed, she had offered to do so after the payoff date had passed for the carry notes. Defendants objected to the instruction as “not applicable” to the facts of the case because Pak’s membership contribution was not due “any time the debtor felt like it.” Defendants argued that if that were true, “rather than paying, [a putative member] would simply say, I’d pay you tomorrow or next week.” The court did not err in refusing both instructions.

The flaw in both is that they were misleading. Each could cause a juror to conclude a person could make a contribution to become a member of an LLC at any time, even if that was not part of the parties’ agreement. Both instructions obscured rather than clarified the critical question presented to the jury: whether or not the parties’ agreement required Pak to make her contribution by a deadline in order to become a member. Resolving that question required the jury to determine whether there was such an agreement, or whether, as Pak argued, the parties had agreed to become co members of the LLC without any conditions except to ultimately provide payment—in which case her contribution was overdue but curable.

Pak’s proposed instruction No. 11 put a “thumb on the scale” in her favor. By stating that “[t]he obligation of a member” (italics added) to make a contribution remains due if the person has not made it, Pak’s instruction assumed the critical fact she had to prove, namely, that she was a member.

Similarly, in stating in unqualified terms that a written offer was as good as tendering payment—without regard to the timing of the offer—Pak’s proposed instruction No. 19 clouded the question of timeliness. The instruction glossed over whether or not the parties intended timeliness to be a condition precedent to gaining membership. Instead, the instruction focused on whether a written offer constitutes a tender. But the technical requirements of a tender were not at issue. The instruction was therefore both misleading and irrelevant.

It is true, as Pak points out, that her proposed instruction Nos. 11 and 19 were based on provisions of the Corporations Code and Civil Code, respectively. (See § 17704.03 & Civ. Code, § 2074.) Trial courts, however, can properly exclude statements of law that are correct in the abstract, but misleading or irrelevant to the issues or evidence in the case. (Joyce, supra, 110 Cal.App.4th at p. 302.) The court here reasonably concluded that the proper course was to focus the jury’s attention on the dispositive issue of whether Pak ever became a member “as agreed” by the parties in forming the Kairos entities. (§ 17704.01, subd. (b).) The court instructed the jury on that question in the express language of the statute. (Ibid.) The court did not err in rejecting Pak’s instructions.

2. Costs

Pak contends the trial court erred in granting defendants’ motion to tax her costs, reducing the $38,813.96 amount she requested to an award of $3,881.39. Pak based her cost request on the fact that she prevailed on her wage claim under Labor Code section 218.5 to recover a positive sum ($25,000), which she asserted made her the prevailing party on the action as a whole under Code of Civil Procedure section 1032 (section 1032). Subdivision (a)(4) of section 1032 defines the ‘“prevailing party”’ as the party “with a net monetary recovery,” among other possibilities. The court did not err, as explained in Sharif v. Mehusa, Inc. (2015) 241 Cal.App.4th 185 (Sharif).

In Sharif, the plaintiff argued the trial court “ignored her ‘net monetary recovery and rather focused on her failure to win on all causes of action in order to deny she was the sole party entitled to costs.’” (Sharif, supra, 241 Cal.App.4th at p. 195.) The Sharif court, however, explained that “[j]ust as Code of Civil Procedure section 1032, subdivision (a)(4) does not necessarily determine the prevailing party for purposes of an attorney fees award under section 218.5, it also does not necessarily determine the prevailing party for purposes of a costs award under section 218.5.” (Sharif, at p. 195.) Instead, as Sharif explained regarding the “logic” of both attorney fees and costs (ibid.) awarded under section 218.5: “‘prevailing party status should be determined by the trial court based on an evaluation of whether a party prevailed “‘on a practical level,’” and the trial court’s decision should be affirmed on appeal absent an abuse of discretion.’” (Sharif, at p. 192.) In other words, a party may be the “prevailing party” for purposes of a wage claim under Labor Code section 218.5, but not for the action as a whole—and vice versa.

“‘Among the factors the trial court must consider in determining whether a party prevailed is the extent to which each party has realized its litigation objectives.’” (Sharif, supra, 241 Cal.App.4th at p. 192.) Here, the trial court reasonably could determine Pak was entitled to recoup her costs as the prevailing party on her wage claim, but that did not entitle her to recover all her litigation costs. The court’s award of approximately 10 percent of Pak’s costs is manifestly reasonable “on a practical level” in light of her limited success on her litigation objectives as a whole, which were primarily devoted to her unsuccessful LLC membership claim. We discern no abuse of discretion in the court’s cost award.

DISPOSITION

The judgment is affirmed. Respondents are entitled to their costs on appeal.

GOETHALS, J.

WE CONCUR:

O’LEARY, P. J.

MOORE, J.