2014-00160123-CU-PT

In Re: The Matter of Simple Traditions, Inc.

Nature of Proceeding:      OSC for Court Supervision of Voluntary Winding Up

Filed By:    Byers, Stephen

Counter-Petitioner Maria Paluch’s petition for court supervision of voluntary winding up
of Simple Traditions, Inc. (“STI”) is granted.  Petitioner Nancy Linn’s petition is denied.

On March 12, 2014, Nancy Linn filed a petition for judicial supervision of winding up
affairs of STI and Paluch filed the instant counter petition on April 8, 2014.  On April
24, 2014, the Court granted Paluch’s ex parte Application for an OSC on her counter-
petition.  The Court addresses Linn’s petition and Paluch’s counter-petition in the same
ruling.
The parties’ requests for judicial notice are granted.

The petition and counter-petition come as a result of an election to wind up and
dissolve STI.

Here, the parties do not dispute that the Court should assume jurisdiction over STI.
Rather, the parties agree on the following:  whether Paluch should be removed as a
director pursuant to Corporations Code § 1806(g) and whether after assuming
jurisdiction the Court should order Paluch to provide written notice to STI’s creditors
and claimants or appoint a third party neutral to conduct the winding up process on
behalf of STI pursuant to Corporations Code § 1805(b).  As seen below, the Court will
grant Paluch’s petition in full and deny Linn’s petition in which she requests that Paluch
be removed as director, that Linn be appointed as sole manager in charge of winding
up and dissolving STI, that STI be permitted to take in new business for up to 3
months, and her award of attorneys’ fees.

When a corporation begins the voluntary wind-up process, it “shall cease to carry on
business….[and]  The board shall cause written notice of the commencement of the
proceeding for voluntary winding up to be given…to all known creditors and
claimants.”  (Corp. Code § 1903(c).)  Corporations Code § 1904 provides that a court
may take jurisdiction over the voluntary winding up proceeding “if that appears
necessary for the protection of the parties in interest.  The court, if it assumes
jurisdiction, may make such orders as to any and all matters concerning the winding
up of the affairs of the corporation and for the protection of its shareholders and
creditors as justice and equity may require.  The provisions of Chapter 18
(commencing with Section 1800) (except Sections 1800 and 1801) shall apply to such
court proceedings.”  In the instant case, Paluch has shown that STI consists of two
directors, herself and Linn, and that they have been unable to agree on any matters
related to the winding up and dissolution of STI.  (Paluch Decl. ¶ 5.)  Further, Paluch’s
counsel contacted Linn’s counsel on numerous occasions advising Linn’s counsel of
Linn’s obligations as STI’s president and director to work with Paluch to wind up and
dissolve STI, by ceasing to carry on business, and providing notice.  As stated above,
there is no dispute that the Court should assume jurisdiction over STI.

The Court denies Linn’s request that Paluch be removed as a director, made solely
pursuant to Corporations Code § 1806(g).  A director may only be removed where “it
appears that the director has been guilty of dishonesty, misconduct, neglect or abuse
of trust in conducting the winding up or if the director is unable to act.”  (Corp. Code
§ 1806(g).)  Linn provides no evidence that Paluch has engaged in any “dishonesty,
misconduct, neglect or abuse of trust in conducting the winding up’ of STI or that
she is “unable to act.”  While Linn cites to a number of alleged instances of misconduct
or neglect in her declarations, the majority of the conduct involves conduct after
February 21, 2014 when the resolution to wind up and dissolve STI was executed.
Further, while Linn argues in her memorandum that Paluch has abused the winding up
process because she seeks to compel Linn to buy her STI shares at a “grossly inflated
price” of $100,000 in return for an agreement to revoke the wind up resolution, she
provides no evidence showing that Paluch is attempting to extract a “grossly inflated
price.”  Indeed, her evidence at most shows that Paluch valued her 600 shares of
stock at $1,875 in a bankruptcy proceeding in 2011.  But there is no evidence
regarding what the stock is valued at today.  Nor has she provided evidence that
Paluch is “unable to act.”   In any event, the Court sustained Paluch’s objections to
much of Linn’s evidence in this regard.  On this additional basis, the request that  Paluch be removed is denied.

The Court notes that both parties level various accusations against the other.  For
example, both accuse the other of having drug-related issues.  In addition Paluch
accuses Linn of starting a competing business and misusing STI funds as evidenced
by checks made out to “cash” and to Linn’s husband.  On these issues, the Court
simply notes that neither party has offered convincing evidence to bear out any of
these contentions.  Indeed, Paluch has successfully objected to much of Linn’s
evidence in this regard and Linn has offered counter declarations either denying or
explaining the accusations and thereby minimizing the accusations.  However, what
remains clear is that the parties are simply at an impasse and agree that the Court
should assume jurisdiction over STI’s winding up process.

In addition, the Court finds Paluch is authorized to send immediate written notice to
STI’s creditors and claimants.  The Court notes that Linn argues that Paluch should
not be appointed the “Manager in charge.”  However, Paluch does not seek to be
appointed Manager and instead simply seeks an order authorizing her to provide
notice to ST’s creditors and claimants.  Indeed, pursuant to Corporations Code § 1805
(b) when the winding up process “has commenced the board shall conduct the winding
up affairs of the corporation, subject to the supervision of the court, unless other
persons are appointed by the court, on good cause shown to conduct the winding up.
The directors or such other persons may, subject to any restrictions imposed by the
court, exercise all of their powers through the executive officers without any order of
the court.”  Here, Paluch has shown good cause that she, not Linn should be
authorized to send immediate written notice to STI’s creditors.  Indeed, the evidence is
clear that Paluch and Linn have been unable to work together to send out the notice to
creditors and claimants that is required by Corporations Code § 1903(c), or otherwise
meaningfully conduct the winding up process.  The Court therefore finds that Paluch
shall be appointed to provide notice as requested in her counter-petition and denies
Linn’s request that she be appointed to conduct the winding up process.  The Court
also recognizes Linn’s arguments that she founded STI and that she is the only
licensed funeral director.  However, the Court does not find that these facts require her
to be appointed to oversee the winding up process or preclude Paluch from being
appointed to provide the requisite notice under the Corporations Code, especially
given the Corporations Code’s requirement that the corporation cease doing business
upon commencement of the winding up process.  (Corp. Code § 1903(c).)  The Court
notes that Paluch requested in the alternative that a neutral third party be appointed to
conduct the winding up process, but sees no reason to require STI to incur such
additional expense under the circumstances.

Further, given that the Court is denying Linn’s petition, it necessarily denies her
request that STI be allowed to take in new business for three additional months.

The Court denies Linn’s request for attorneys’ fees given that it has denied her petition
and in any event, the authority cited dealt with a situation where a corporation was
ordered to pay attorneys’ fees where it was found that counsel’s services benefited the
corporation.  (Grant v. Hartman Ranch Co. (1961) 193 Cal.App.2d 497, 502.)  Here,
not only was Linn’s petition denied, but she failed to explain how her counsel
benefitted STI.

The Court again notes that both Linn and Paluch accuse the other of drug use.
However, the Court did not consider any of the arguments in that regard.  Indeed, the
evidence was either not relied upon in connection with any finding made by this Court
or was properly objected to.

Paluch’s evidentiary objections filed on April 10, 2014, are ruled upon as follows:
objections ##1 and 5 are sustained and objections ## 2 through 4 and 6, and 7 are
overruled.

Paluch’s evidentiary objections filed on May 15, 2014, are ruled upon as follows:
objections #1 through 7 are sustained.

The Court recognizes Paluch’s numerous procedural objections raised in her
opposition to Linn’s counter-petition (e.g., the memorandum exceeded the permissible
length under the CRC).  However, the above essentially renders the objections moot.

In sum, Linn’s petition is denied and Paluch’s counter-petition is granted in full.

The Court will sign the proposed order granting Paluch’s counter-petition.