Case Number: KC066219 Hearing Date: December 11, 2018 Dept: J

Re: Azusa Pacific University v. David Reid, etc., et al. (KC066219)

MOTION FOR ISSUANCE OF CITATION OF CONTEMPT AND ANCILLARY RELIEF AGAINST AZUSA PACIFIC UNIVERSITY FOR INTENTIONALLY INTERFERING WITH RECEIVERSHIP ADMINISTRATION

Moving Party: Receiver George R. Monte

Respondent: Plaintiff Azusa Pacific University

POS: Moving NOT OK[1]

In this action, 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, to engage in improper self-dealing transactions to APU’s detriment and for his own unjust enrichment. The complaint, filed on 8/1/13, asserts 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 9/9/13, The Reids filed a cross-complaint. The Reids’ First Amended Cross-Complaint, filed on 8/4/14, asserts causes of action against plaintiff, 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 12/5/14, 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 9/9/15, 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 12/9/15, a “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 12/22/16, the court granted Cross-Defendants’ motion for summary judgment on the Tate cross-complaint; on 1/3/17, 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 1/6/17, the “Notice of Entry of Judgment or Order” was filed. On 1/11/17, The Tates filed their “Notice of Appeal.” On 1/11/17, The Tates filed a “Notice of Stay of Proceedings.” On 1/24/17, 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 3/30/17, the “Order Appointing Receiver” was filed, wherein George Monte was appointed as receiver for the assets of SCCD. On 4/3/17, the “Notice of Entry of Judgment or Order” was filed. On 4/7/17, The Tates filed their “Notice of Appeal” and “Notice of Stay of Proceedings.” On 4/19/17, the court determined that the order of appointment of receiver was not stayed due to the filing of a notice of appeal. On 4/21/17, the “Notice of Entry of Judgment or Order” was filed.

On 6/12/17, the “Order Authorizing Retention of Counsel and Accountant Nunc Pro Tunc to On or About April 1, 2017” was filed.

On 7/20/18, the court denied Receiver’s ex parte application for issuance of citation of contempt and ancillary relief against Azusa Pacific University for intentionally interfering with receivership administration, on the basis that a noticed motion was required.

The Final Status Conference is set for 2/8/19. A jury trial is set for 2/19/19.

George R. Monte (“Receiver”), the duly-appointed receiver for the assets of Sun County Campus Development, LLC (“SCCD”), moves for the issuance of a citation of contempt and for ancillary relief against Azusa Pacific University (“APU”) for intentionally interfering with receivership administration. Receiver alleges that his initial examination of SCCD’s books and records revealed that SCCD was required by that lease with APU to maintain a security deposit equal to the “Base rent” for the first month in the amount of $72,000.00, plus an additional deposit to total $82,160.92. Receiver discovered that the trust account had been drained and advised all parties of this. By email letter to Receiver dated 4/24/18, APU declared the lease with SCCD to be in default because of SCCD’s failure to maintain the required security deposit in an interest-bearing account. A review of SCCD’s books jointly conducted by Receiver’s accountant, Receiver and SCCD’s accountant showed that the initial account holding these funds was closed many years prior to the imposition of the receivership, on or about 2/1/10. Receiver proposed to the court and APU that these funds be replaced with an immediate deposit of $30,000.00 and deposits thereafter until the full deposit amount has been replaced, and obtained permission from the court to do so by order made and entered 5/31/17. The account was fully replenished with interest on 2/18/18 in the amount of $83,661.09, including $1,500.00 in interest. APU’s Vice President for Administration, Donald H. Davis, was advised by letter dated 10/5/17 that the APU building was in full custody of the court, that property of a receivership may not be interfered without prior court order, and that self-help by APU without prior court permission would be grounds for litigation and could be punished as a contempt. On 4/24/18, APU allegedly instituted a program of self-help by charging the Receivership Estate $5,000.00/month, the amount it deemed a 10% default interest rate on a judgment lien for the depletion of the trust account would have accrued, even though the trust account had already been fully replenished with interest. At no time known to Receiver did APU obtain a judgment against SCCD or any other entity giving APU the right o assert any judgment lien against the Receivership Estate. Also, APU, per the lease, had no right to possession of any portion of the trust account sums until the end of the lease, if then. The lease, in fact, does not provide for any payment of the trust amount to APU unless APU undertakes a purchase of the property; rather, it is to be applied as an offset against final lease payments at the conclusion of the lease. Since APU never had any matured possessory rights to the funds, it incurred no damages now that the account is fully funded and its actions constitute a contempt.

Receiver has failed to establish contempt of court or the basis for an injunction. “The power to punish for contempt or to use the contempt powers to obtain compliance with a court order is conferred on the court by statute. (Code Civ.Proc., sec. 1218). ‘Disobedience of any lawful judgment, order, or process of the court’ constitutes contempt. (Code Civ.Proc., sec. 1209, subd. (a)(5)).” Conn v. Superior Court (1987) 196 Cal.App.3d 774, 784. “The substantive issues involved in a contempt proceeding are (1) the rendition of a valid order, (2) actual knowledge of the order, (3) ability to comply, and (4) willful disobedience.” Id.

An indirect contempt proceeding is commenced by the filing of a charging affidavit containing factual statements as to each allegation (i.e., valid order, knowledge, ability to comply and willful disobedience). CCP § 1211(a).

“Before a party may be held in contempt of an order of the court, ‘the acts constituting the contempt must be clearly and specifically prohibited by the terms of the injunction,” and the “party bound by an injunction must be able to determine from its terms what he may and may not do; he cannot be held guilty of contempt for violating an injunction that is uncertain or ambiguous.’” Gottlieb v. Superior Court In and For Los Angeles County (1959) 168 Cal.App.2d 309, 312 (citations omitted).

Receiver does not attach any such court order that APU allegedly disobeyed. Receiver’s affidavit is deficient as to each of the above elements and is made “to the best of [his] personal knowledge and belief,” which is similar to the language of the verified complaint found insufficient in Ancora Citronelle Corp. v. Green (1974) 41 Cal.App.3d 146 (i.e., “He has read the Complaint and First Amendment to Complaint herein and to the extent of his knowledge, information or belief, the allegations thereof are true”). Of this language, the court noted: “We note that this ‘verification’ is consistent with the declarant having no knowledge whatever of the alleged facts of these pleadings, and that nowhere does it day that he alleged facts are true.” Id. at 150.

Receiver, moreover, provides no authority for the proposition that the mere nonpayment of a disputed contractual obligation constitutes interference with the Receiver’s possession of receivership property subject to contempt. In any event, APU’S Vice President for Administration, Donald Davis, attests that APU has been paying $5,000.00 per month into the Receiver’s “Security Deposit Account” which was established under the lease (Davis Decl., ¶ 5, Exh. A).

The motion, then, is denied. The court declines the parties’ competing requests for fees.

[1] The motion was filed 11/20/18, with 11/19/18 fax service. The motion should have been filed and personally served no later than 11/15/18 pursuant to CCP § 1005(b). APU has objected on this basis, but has also opposed the motion on the merits. “It is well settled that the appearance of a party at the hearing of a motion and his or her opposition to the motion on its merits is a waiver of any defects or irregularities in the notice of motion.” Tate v. Superior Court (1975) 45 Cal.App.3d 925, 930.