2019-00257525-CU-MC

Eli Aramouni vs. 1st Choice DVBE, Inc.

Nature of Proceeding: Motion for Decree of Involuntary Dissolution of Corporation

Filed By: Alves, Suzanne M.

Effective September 23, 2019, official court reporters will not be available in Departments 53 and 54, with exceptions listed in the Court’s Policy Regarding Availability and Unavailability of Official Court Reporters. Additional information regarding this policy can be found on the Court’s website at www.saccourt.ca.gov.

Plaintiff Eli Aramouni’s “motion for decree of involuntary dissolution of corporation [Corp. Code §1800] and appointment of receiver for winding up and liquidating corporate assets [Corp. Code §1803]” is denied, without prejudice as set forth below.

Plaintiff’s request for judicial notice is granted.

In this action, Plaintiff filed his verified complaint against Defendant 1st Choice DVBE, Inc. (“1st Choice”) seeking involuntary dissolution of 1st Choice. It is alleged that 1st Choice was formed by Plaintiff and Murray Peters in May 2018 to provide engineering services. Peters owns 51% of the corporation’s stock and Plaintiff owns 41%. Plaintiff and Mr. Peters were directors. Plaintiff was named the secretary and Mr. Peters was named the president and CFO. Plaintiff was the licensed engineer designated as the corporation’s responsible owner/manager. Due to Mr. Peter’s status as a disabled veteran, the corporation was certified as a “Disabled Veteran Business Enterprise.” Plaintiff has now filed a “motion” seeking an order for dissolution and appointment of a receiver. 1st Choice opposes the motion.

Plaintiff claims that by the end of 2018, he was “shouldering the lion’s share” of getting the corporation off the ground even though he was only the minority shareholder. He argues that once his son passed away in January 2019 he informed Mr. Peters that he no longer felt capable of continuing his management and ownership responsibilities. He asserts that Mr. Peters ignored him and did nothing to search for a licensed engineer to replace him until he was compelled to do so when contacted by the California Board for Professional, Land Surveyors and Geologists. Plaintiff also claims that Mr. Peters refused to honor 1st Choice’s payroll obligations after he resigned in May 2019 which has exposed him to statutory penalties.

At the outset, the Court must note that Plaintiff presents no direct authority which would permit this Court on a “motion” to essentially adjudicate Plaintiff’s ultimate right to relief in this action, which does not in any way comply with any of the formalities, for example, a motion for summary judgment. The Court is aware that a complaint for involuntary dissolution under Corporations Code § 1800 is a special proceeding. (CCP § 23) Plaintiff also cites to CCP § 1064 which provides that the definitions of a motion and an order in a civil action are applicable to similar acts in a special proceeding. He reasons that since CCP § 1003 identifies an application for an order as a motion than he can seek an order for involuntary dissolution by way of a motion. The Court is also aware that Corporations Code § 1804 provides that “[a]fter hearing the court may

decree a winding up and dissolution of the corporation if cause thereof is shown or, with or without winding up and dissolution, may make such orders and decrees and issue such injunctions in the case as justice and equity require.” Nonetheless, California case law suggests that the entitlement to dissolution requires a more formal procedure than simply a “motion”. No case suggests that a complaint for involuntary dissolution may be adjudicated by simply filing a “motion.”

In fact, the very authorities cited by the Plaintiff in his motion involve a more formal procedure than simply a “motion”. Specifically, in Bauer v. Bauer (1996) 46 Cal.App.4 th 1106, the right to involuntary dissolution was decided after a nonjury trial. In Stuparich v. Harbor Furniture Mfg. (2000) 83 Cal.App.4th 1268, the issue was decided by way of a motion for summary judgment. Here, however, Plaintiff has simply filed a motion with lengthy declarations and Mr. Peters has filed an opposition with declarations. As seen from a cursory review of the papers, the parties present sharply conflicting accounts. In order to find that Plaintiff is entitled to involuntary dissolution, the Court would be required to adjudicate his complaint for involuntary dissolution without requiring Plaintiff to go through any of the formalities to bring, for example, a motion for summary judgment, etc. Plaintiff failed to cite a single authority allowing a complaint for involuntary dissolution to be adjudicated by way of a motion.

In re O’Brien Machinery, Inc. (1964) 224 Cal.App.2d 564, 570, a case not cited by either party, the Court stated that “there is no particular statutory procedure for corporate dissolution proceedings in the sense that witnesses must be brought into court, sworn and testify in open court. We see no reason why, if the parties, their counsel and the court are agreeable to it and no objection is made, the matter of a dissolution petition could not be presented by affidavits as was done in this case. To be true, it may not be the preferred procedure but it is not illegal or
improper.” [emphasis added] 1st Choice asserts that “granting such essentially irreversible relief at this early juncture, on a mere motion, would be inequitable and raise due process concerns.” (Oppo. 2:5-7.) This statement is an indication that 1st Choice is not agreeable to resolving the issue of dissolution on the supporting and opposing affidavits on this motion. But even if it could be said that the parties agreed to this procedure, the Court is not agreeable to this procedure and as O’Brien makes clear, this is not the “preferred procedure”. Rather the Court will require an appropriate motion that complies with the Code of Civil Procedure, for example, a motion for summary judgment by which Plaintiff presents a separate statement of material facts claimed to be undisputed which would demonstrate his right to relief. This procedure will allow both 1st Choice and also the Court to determine what specific facts are or are not in dispute such that a focused opposition can be interposed and a clear and concise ruling can be produced.

The Court will not address the various basis sought for dissolution in light of the above.

Appointment of Receiver

The Court also denies, without prejudice, Plaintiff’s request for an appointment of a receiver given that it is essentially only requested that the receiver be appointed for purposes of winding up and dissolution of 1st Choice. But as seen above, the Court is not considering the issue of dissolution on this motion. In any event, Corporations Code § 1803 allows the Court to appoint a receiver if “at the time of the filing of a complaint for involuntary dissolution or at any time thereafter, the court has reasonable grounds to believe that unless a receiver of the corporation is appointed the interests of the corporation and its shareholders will suffer pending the hearing and determination of the complaint, upon the application of the plaintiff, and after a hearing upon such notice to the corporation as the court may direct and upon the giving of security pursuant to Sections 566 and 567 of the Code of Civil Procedure, the court may appoint a receiver to take over and manage the business and affairs of the corporation and to preserve its property pending the hearing and determination of the complaint for dissolution.”

Here, even if Plaintiff could properly seek a receiver under section 1803, the Court finds for purposes of the instant motion that he has not yet demonstrated that there are reasonable grounds that the interests of 1st Choice or its shareholders will suffer pending the determination of the dissolution complaint. Plaintiff contends that 1st Choice is or has been performing unlicensed engineering work and is ignoring its payroll obligations as to two former employees. However as seen in the opposition, Plaintiff resigned on May 1, 2019 and Plaintiff apparently believed he could provide engineering services as an independent contractor to 1st Choice. He only filed a Disassociation Request with the State on May 28, 2019 after discovering that his shareholder status with 1st Choice was insufficient to allow 1st Choice to continue servicing contracts without a managing engineer. Once the Board notified 1st Choice of the licensing issue on June 6, 2019, and on June 12, 2019, Mr. Peters sent an updated Organization Record executed by a new licensed engineer. The Board acknowledged receipt and no further communications were received regarding any licensing issue. (Peters’ Decl. ¶ 16 Exh. A.) In addition, Mr. Peters declares that he is in a wage dispute with Sanford Wong and that 1st Choice will satisfy any obligations as determined by the Labor Commissioner. (Id. ¶ 17.) Two potential wage disputes with former employees is not a basis for appointment of a receiver. Courts often note that receivership is an extraordinary remedy, to be applied with caution, and only in cases of apparent necessity, and when other remedies would be inadequate. See, e.g. Rogers v. Smith (1946) 76 Cal. App. 2d 16, 21. Further, Mr. Peters details how 1st Choice currently has four ongoing projects and is negotiating an additional subcontract and submitted a bid for another project. (Id. ¶ 14.) 1st Choice currently has two permanent employees and remains viable even though Mr. Peters believes that Plaintiff and Mr. Wong left to form a competing business. (Id. ¶ 15.) There is simply no basis for appointment of a receiver over 1st Choice, which is a going concern, at this time. Indeed, based on the record at hand, the interests of 1st Choice or its shareholders could suffer if a receiver was appointed.

The motion is denied in its entirety. To the extent Plaintiff seeks a determination as to his right for dissolution, that determination must be sought in accordance with the rules set forth in the California Code of Civil Procedure, i.e. by a motion for summary judgment, or trial.

Plaintiff’s evidentiary objections are overruled.

The minute order is effective immediately. No formal order pursuant to CRC Rule 3.1312 or other notice is required.

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