Case Number: EC062181 Hearing Date: June 13, 2014 Dept: B

Motion for Appointment of a Receiver

This case arises from the Plaintiff’s claim that the Defendant is mismanaging the company Precision Powdered Metal Parts, Inc. The Plaintiff seeks damages and dissolution of the company.

No trial is set. The case management conference is set for July 28, 2014.

This hearing concerns the Plaintiff’s motion for the appointment of a receiver to manage Precision Powdered Metal Parts, Inc. CCP section 564 permits the Court to appoint a receiver in a case where it is necessary to preserve the property or rights of any party. The moving party has the burden of showing that there is a danger of irreparable injury to the moving party and that the receivership is necessary to prevent the injury. Alhambra-Shumway Mines, Inc. v. Alhambra Gold Mine Corp. (1953) 116 Cal. App. 2d 869, 873-874. In the motion for the appointment of a receiver, the Court is not required to determine the ultimate issues involved in the case; instead, the Court determines whether it is probable that the Plaintiff may establish its claim. Maggiora v. Palo Alto Inn, Inc. (1967) 249 Cal. App. 2d 706, 711.

In determining whether to appoint a receiver, the Court considers the availability and efficacy of other remedies in determining whether to employ the extraordinary remedy of a receivership. City & County of S.F. v. Daley (1993) 16 Cal. App. 4th 734, 745. Ordinarily, if there is any other remedy, less severe in its results, which will adequately protect the rights of the parties, a Court should not take property out of the hands of its owners. Alhambra-Shumway, 116 Cal. App. 2d at 873.

Receiverships are governed by CCP sections 564 to 570 and CRC rules 3.1175 to 3.1184. A receiver is an officer of the Court, appointed to take charge and manage the property which is subject to the litigation, for the purpose of its preservation and disposition according to the final judgment. The receiver is an agent of the Court, not the parties.

The property subject to the order is the receivership estate. The Court’s order appointing the receiver also specifies the receiver’s powers and duties. Interference with a receiver in carrying out the receiver’s duties is deemed contempt of the Court.

The appointment of a receiver rests largely in the discretion of the Court. City & County of S.F. v. Daley (1993) 16 Cal. App. 4th 734, 744. Accordingly, the appointment of a receiver will not be disturbed in the absence of a showing that the Court’s discretion has been abused. Id.

The Plaintiff attempts to meet his burden with facts in his own declaration. The Plaintiff states that he is a 50% shareholder in Precision Powdered Metal Parts, Inc. The Plaintiff states that the Defendant has refused to hold shareholder’s meetings and not allowed the Plaintiff to vote his shares at a shareholder’s meeting on September 5, 2013. Further, the Plaintiff states that he has not been provided access to corporate records and not been provided with updates on corporate operations. In addition, the Plaintiff states that the Defendant has barred the corporate employees from providing any information to the Plaintiff. Finally, the Plaintiff states that when the Defendant offered to buy his shares, the Defendant stated that the company was not profitable.

None of these facts demonstrate that there is a danger of irreparable injury to the Plaintiff or that a receivership is necessary to prevent the injury. There is no evidence that the Defendant is engaged in any conduct related to Precision Powdered Metal Parts, Inc. such that a receiver is needed to prevent the conduct. The facts are insufficient to demonstrate that the extraordinary remedy of a receiver is necessary to avoid irreparable injury to the Plaintiff.

Further, the Plaintiff did not demonstrate that he can establish the claims in his Complaint. For example, the Plaintiff attempted to plead causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty based on a contract that the parties formed in 1986. The pleadings do not plead any facts identifying the terms of the contract or the manner in which the Defendant breached the agreement. Further, the Plaintiff’s declaration offers no facts to demonstrate that he can establish these causes of action and that no other remedy will suffice to protect his interests.

Finally, the Plaintiff did not nominate a receiver or demonstrate that the nominee has the experience needed to be the receiver for the company. The Plaintiff did not provide any oath or undertaking for the receiver.

Accordingly, the Plaintiff has not met his burden of demonstrating that there is good cause to appoint a receiver to prevent irreparable harm to the Plaintiff.

Further, the opposition papers contain facts to demonstrate that the company is well managed and that the financial records for the company have been provided to the Plaintiff. In the opposition, the Defendant provides facts in the declaration of another director, Ducquan Nguyen, in his own declaration, and in the declaration of Mohammed Dhalla.

First, the Defendant offers facts in the declaration of another director, Ducquan Nguyen. Mr. Nguyen states that in his opinion, the company is profitable and well managed. Mr. Nguyen also states facts to demonstrate that the Plaintiff does not have personal knowledge of the company’s business. Mr. Nguyen states that the Plaintiff has not attended meetings of the board of directors, has not come in to work, and has not responded to customer telephone calls and emails.

Second, the Defendant, David Connelly, provides facts to demonstrate that the Plaintiff does not have personal knowledge of the facts regarding the Company. Mr. Connelly states that the Plaintiff stopped coming in to work on a regular basis in late 2010. Mr. Connelly states that when the Plaintiff comes in, he does not perform any work; instead, the Plaintiff feeds and brings bottled water for wild animals, e.g., feral cats, raccoons, opossums, rats, and skunks that live near the plant. Mr. Connelly states that this has caused the employees to complain about the smell created by the manure and the wild animals.

Third, the Defendant provides facts to impeach the statement of the Plaintiff that he has not been able to obtain financial records. Mohammed Dhalla provides facts to demonstrate that he has provided financial records of the company to the Plaintiff’s agents. Mr. Dhalla states that he has never refused any request for financial records from the Plaintiff.

These declarations contain facts that are further grounds to find that there is no good cause for a receiver because the facts, uncontested by evidence from the plaintiff, indicate that the company is well-managed and that there is no conduct causing irreparable harm to the Plaintiff.

Therefore, the motion to appoint a receiver is denied.