Greenspan v. Llc

Decision Date13 April 2011
Docket NumberNo. B222539.,B222539.
Citation2011 Daily Journal D.A.R. 43,191 Cal.App.4th 486,10 Cal. Daily Op. Serv. 22,121 Cal.Rptr.3d 118
CourtCalifornia Court of Appeals Court of Appeals
PartiesArnold GREENSPAN, as Trustee, etc., Plaintiff and Appellant, v. LADT, LLC, et al., Defendants and Respondents.

**124 Bingham McCutchen, Daniel Alberstone, Peter F. Smith, Santa Monica; Greines, Martin, Stein & Richland, Robin Meadow, Jeffrey E. Raskin, Gary J. Wax, Los Angeles; Baron & Budd and Daniel Alberstone, Los Angeles, for Plaintiff and Appellant.

Leonard, Dicker & Schreiber, Richard C. Leonard, Steven A. Schuman, Beverly Hills; Horvitz & Levy, David S. Ettinger**125 and Jason R. Litt Encino, for Defendants and Respondents.

MALLANO, P.J.

*495 A real estate developer created several limited liability companies to supervise his various construction projects. The developer transferred ownership of the companies to a trust, chose his brother as the trustee, and acted as the "manager" of the companies.

Plaintiff filed suit against two of the companies, alleging a claim for breach of contract, among others. Plaintiff sued the manager on different claims, such as breach of fiduciary duty but not breach of contract. The case was arbitrated. At the time of the arbitration, one of the companies had recently received more than $47 million in property sales. Plaintiff prevailed against the two companies for breach of contract. The manager prevailed on the claims against him. The arbitrator awarded plaintiff $8.45 million against the companies.

The trial court, Judge Robert L. Hess presiding, confirmed the arbitration award and entered judgment accordingly. The companies unsuccessfully appealed. ( Greenspan v. LADT, LLC (2010) 185 Cal.App.4th 1413, 111 Cal.Rptr.3d 468 ( Greenspan I ).)

Meanwhile, the $47 million had dwindled to less than $13,000. The two companies appeared to be judgment proof. Plaintiff commenced proceedings to satisfy the judgment. After conducting judgment debtor examinations, plaintiff filed a motion to amend the judgment to add the manager, the trustee, and two other affiliated companies as judgment debtors, relying on the alter ego doctrine. (See Code Civ. Proc., § 187; undesignated section references are to that code.)

The trial court, Judge Joanne B. O'Donnell presiding, denied the motion. First, the court held it would be inequitable to add the manager as a judgment debtor because he had been a party to the arbitration and had prevailed. Second, the trial court concluded that alter ego principles do not apply in the *496 trust context, precluding the addition of the trustee. Last, the trial court sustained multiple objections to plaintiff's exhibits, excluding most of his evidence.

We conclude it would not always be inequitable to add as a judgment debtor a party who prevailed in an arbitration. Rather, it would depend on the facts of the case. Here, the manager was not sued for breach of contract and did not prevail on that claim. The judgment is based on a claim to which he was not a party. The addition of the manager as a judgment debtor would not constitute a finding that he breached the companies' contract but would instead serve to remedy his alleged disregard of the companies' separate existence. Second, we determine that although a trust is not subject to the alter ego doctrine because it is not a legal entity, a trustee may be added as a judgment debtor. Last, with two exceptions, the trial court erred in sustaining the objections to plaintiff's evidence. We therefore reverse the order denying the motion to amend the judgment.

IBACKGROUND

The allegations and facts on this appeal are taken from the complaint, the record in the arbitration proceeding, and the papers and exhibits submitted in connection with the motion to amend the judgment.

A. Parties' Contract

Barry Shy (Shy) is a real estate developer who worked with Andrew Meieran **126 (Meieran) to renovate the Higgins Building in downtown Los Angeles. For that purpose, they formed a company, LADT LLC (LADT). LADT was jointly owned by (1) LABAR LLC (LABAR), another of Shy's companies, and (2) the Andrew Meieran Family Trust (Meieran Trust or Trust).

In 1998, LADT purchased the Higgins Building and started to convert the dilapidated structure, built in 1910, from an office building into apartments. In 2003, Shy, who managed LADT and LABAR, proposed to convert the Higgins Building into loft-style residential condominiums, with commercial units on the ground floor.

The goal of the Meieran Trust was to develop and operate historic bars. In pursuit of that goal, the trustee, Arnold Greenspan, decided to sell the Trust's interest in LADT to Shy and to acquire commercial space on the ground floor of the Higgins Building, where the Trust would later build the Edison Bar.

*497 On August 20, 2004, the Meieran Trust sold its interest in LADT to a new company created by Shy—LA ABC, LLC (LA ABC)—in exchange for $7.75 million and title to six commercial units in the Higgins Building, valued at $3.5 million altogether. The terms of the transaction were recited in a "Purchase Agreement," which stated that the agreement was "entered into ... by and between Arnold Greenspan, Trustee of the Andrew Meieran Family Trust u/a/d 12/19/03 ... (the 'Seller'), and LA ABC, a California limited liability company (the 'Purchaser')."

Section 6 of the Purchase Agreement addressed LADT's obligations under the agreement, stating: "LADT hereby consents to the terms of this Agreement, including, without limitation, the provisions of ... Section 4. LADT shall cooperate with the parties hereto and take all actions and execute any agreements and other documents necessary to effectuate the transactions contemplated by this Agreement, including, without limitation, the transactions set forth in ... Section 4, as necessary." Section 4 stated that LA ABC would indemnify the Trust for any breach of the Purchase Agreement by LA ABC and that the Trust would indemnify LA ABC with respect to any breach by the Trust.

The Purchase Agreement was signed by Greenspan as trustee of the "Seller"—the Meieran Trust—and by Shy as manager of the "Purchaser"—LA ABC. For its part, LADT "acknowledged and agreed ... to Section 6" of the Purchase Agreement, with Shy signing twice, first as manager of LADT and then individually. Meieran signed the Purchase Agreement as a member of LADT. The agreement did not contain an arbitration provision.

In 1998, Shy had created the BR Shy Irrevocable Trust (Shy Trust) for the benefit of his children. He transferred ownership of LA ABC and LABAR to the trust. As a result of the Purchase Agreement, LA ABC and LABAR became the owners of LADT, and LADT, too, became the property of the Shy Trust. Shy chose his brother, Moti Shai, to serve as the trustee.

During the construction phase of the Higgins Building project, Shy and Meieran had a number of disagreements. They argued about walls that had been moved, trash areas, parking spaces, and storage spaces. In the midst of the squabbling, LA ABC failed to make a payment to the Meieran Trust that was due under the Purchase Agreement.

In an attempt to settle their disputes, Shy and Meieran participated in a mediation on September 26, 2005. The mediation resulted in a handwritten document drafted by the mediator, which Shy and Meieran signed. The document contained **127 a list of 10 items to be provided or completed by LA *498 ABC. It concluded: "This is the agreement between the parties with regard to the purchase of LADT by LA ABC [from the] Andrew Meieran [Family] Trust.... The parties hereby agree that LA ABC will do or perform or pay these items in exchange for release from the [Meieran] Trust with respect to this purchase ( [of] the Higgins Building), and as full satisfaction of the obligation of LA ABC with regard to the tenant improvements. [¶] Any dispute as to the interpretation of this agreement shall be submitted to mediation, failing which, shall be submitted to binding arbitration." (We will refer to the handwritten document as the Arbitration Agreement.)

B. Complaint

On August 10, 2006, Greenspan, as trustee of the Meieran Trust, filed this action against LADT, LA ABC, and Shy (defendants). The complaint alleged as follows.

LA ABC had failed to pay more than $4.2 million of the purchase price for the Meieran Trust's interest in LADT. LA ABC had also interfered with the Trust's use of parking spaces and storage space in the Higgins Building.

The complaint asserted seven causes of action: (1) rescission of the Purchase Agreement, against LA ABC and LADT; (2) breach of the Purchase Agreement, against LA ABC; (3) breach of guaranty, against Shy; (4) breach of fiduciary duty, against Shy; (5) accounting, against all defendants; (6) conversion, against all defendants; and (7) constructive trust, against all defendants.

C. Petition to Compel Arbitration

On September 22, 2006, defendants filed a petition to compel arbitration and stay the action pending the outcome of arbitration. According to the petition, the Arbitration Agreement required the parties to arbitrate disputes related to the Purchase Agreement. Greenspan filed opposition papers, contending (1) the Meieran Trust was not a party to the Arbitration Agreement because Andrew Meieran—not Greenspan, the trustee—had signed the agreement, and (2) the Arbitration Agreement did not encompass the causes of action in the complaint.

By order dated January 11, 2007, the trial court, Judge Robert L. Hess presiding, found that "the parties have entered into a valid agreement to submit disputes regarding the Higgins Building initially to mediation and thereafter to binding arbitration. [¶] ... Plaintiff is to initiate mediation, and defendants are to cooperate in that initiation. Should mediation be unsuccessful, the parties are to attempt to agree upon an arbitrator. If the parties are unable to agree, the Court on application will select an arbitrator."

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