People v. Stark

• Citation: 131 Cal.App.4th 184,31 Cal.Rptr.3d 669
• Decision Date: 20 July 2005
• Docket Number: No. E035533.,E035533.
• Court: California Court of Appeals
• Parties: The PEOPLE, Plaintiff, v. Norman David STARK et al., Defendants; Byron Z. Moldo, as Receiver, etc., Movant and Respondent; Kane Automotive Group, Appellant; Shaver Automotive Group, LLC, Respondent.

31 Cal.Rptr.3d 669

131 Cal.App.4th 184

The PEOPLE, Plaintiff, v. Norman David STARK et al., Defendants Byron Z. Moldo, as Receiver, etc., Movant and Respondent Kane Automotive Group, Appellant Shaver Automotive Group, LLC, Respondent.

No. E035533.

Court of Appeal, Fourth District, Division 2.

July 20, 2005.

Kane Law Firm, Brad S. Kane, and Michael F. Will for Appellant.

Pachulski, Stang, Ziehl, Young, Jones & Weintraub and Larry W. Gabriel, Los Angeles, CA, for Movant and Respondent.

No appearance for Respondent.

OPINION

KING, J.

INTRODUCTION

Appellant Kane Automotive Group (Kane) appeals from the trial court's February 6, 2004, orders concerning a sale of assets by court-appointed receiver, Byron Z. Moldo, Esq. (Moldo). In the orders, the trial court denied Moldo's motion to approve a sale to Kane of the assets of an auto dealership (the Kia dealership assets) following a public auction of the assets, voided Kane's contractual right to match the highest bid received at auction, directed Moldo to conduct a second auction, and confirmed a sale of the Kia dealership assets to the highest bidder at the second auction, Shaver Automotive Group, LLC (Shaver). We affirm the trial court's orders.

SUMMARY OF FACTS AND PROCEDURAL HISTORY

Moldo was appointed receiver of the assets and properties of Norman Stark (Stark) and Stark's wholly owned corporation, JPS Corporation (JPS), pursuant to Penal Code section 186.11.¹ Kane offered to purchase certain assets of the receivership, specifically, the Kia dealership assets, including the dealership's franchise or "blue sky" value. Moldo entered into an agreement to sell the Kia dealership assets to Kane. The purchase price was $150,000 for the franchise, plus an additional amount for the dealership's other assets, including parts, tools, and other items. Kane was apparently the first to offer Moldo any amount for the Kia dealership assets. Accordingly, Kane's offer was referred to as the "stalking horse bid."

Moldo's agreement with Kane was subject to court approval and overbids at an auction, that is, bids in excess of $150,000 for the franchise, plus the additional amount Kane had offered for the Kia dealership's other assets. The purchase agreement also provided that Kane had a right to match the highest overbid following the auction. In other words, Kane had a right to match the highest overbid after the auction concluded, and the other bidders did not have a right to meet or exceed Kane's matching bid. This contingency was referred to as Kane's "bid matching right" or right of first refusal.

Moldo conducted an auction for overbids without first seeking court approval of the purchase agreement with Kane or Kane's bid matching right. However, the bidders were informed of Kane's bid matching right before and during the initial auction. The bidders were further informed that Moldo had filed a motion to approve the sale to Kane subject to overbids and Kane's right to match the highest overbid. The initial auction was held on January 16, 2004. Kane did not participate in the bidding. Another bidder, O'Brien Automotive Group (O'Brien), was the highest bidder for the Kia dealership's franchise at $490,000. O'Brien also offered to purchase more of the dealership's other assets than Kane had offered to purchase, and at prices equal to or exceeding Kane's original offer. After the bidding concluded, Kane matched O'Brien's bid of $490,000 for the franchise, plus the same amount O'Brien had offered to pay for the dealership's other assets. Moldo accepted Kane's matching bid. O'Brien immediately offered $550,000 for the Kia dealership's franchise, or $60,000 more than Kane's matching bid, but Moldo took the position that the bidding had closed.

Following the initial auction, O'Brien and other bidders, including Shaver, filed written objections to Moldo's motion to approve the sale to Kane, and appeared at the hearing on the motion on February 6, 2004. The objectors argued that Kane's bid matching right suppressed the bidding and prevented Moldo from obtaining the highest value for the assets. Shaver raised an additional concern regarding the conduct of the auction. Shaver argued that Moldo should have auctioned the Kia dealership assets in combination with the real estate on which the dealership was located, and that selling the assets as a package would result in a higher sales price to the receivership. Indeed, at the initial auction, Shaver offered $590,000 for the Kia franchise, $100,000 more than Kane's matching bid of $490,000 and $40,000 more than O'Brien's postauction bid of $550,000, conditioned on Shaver being the successful bidder at Moldo's subsequent auction for the real estate.

At the hearing on Moldo's motion to approve the sale to Kane, Moldo's counsel suggested that a new auction should be conducted. Kane argued that it had provided value to the receivership by being the first to offer any amount for the Kia dealership assets, and that its bid matching right should therefore be enforced. After hearing the arguments of the objectors, Moldo, and Kane, the trial court denied Moldo's motion to approve the sale to Kane, voided Kane's bid matching right, and ordered a second auction. At the second auction, the trial court directed Moldo to auction the Kia dealership assets first, then the real estate, then both as a package.

The second auction took place in the courtroom immediately after the hearing on February 6, 2004. O'Brien was the highest bidder for the Kia dealership assets at $670,000 for the franchise, beating Kane's next highest bid at $650,000.² The highest bid for the real estate alone was $3.65 million. Shaver was the highest bidder for the assets as a package at $4.882 million. Thus, Shaver's bid exceeded the highest bids for the assets auctioned separately by over $1 million. Immediately after the second auction, the court approved the sale of the Kia dealership assets and the real estate to Shaver. Kane appealed from the trial court's February 6, 2004, orders.

SUMMARY OF ISSUES ON APPEAL

We first address an issue we raised following Kane's filing of its notice of appeal: whether Kane has standing to appeal the trial court's orders. We conclude that Kane has standing to appeal. In short, Kane had a contractual right to purchase the Kia dealership assets, subject to court approval, and Kane's contractual right was adjudicated in the trial court, adversely to Kane. Because the trial court's orders are binding on Kane, and Kane is aggrieved by the orders, Kane has standing to appeal the orders. We next address a second procedural issue: whether, as Moldo contends, this appeal is moot because Moldo has sold the Kia dealership assets to Shaver. Based on the record before us, we conclude that this appeal is not moot. Moldo has not shown that all of the assets subject to the receivership have vested in Shaver, or that Kane would have no remedy whatsoever if it prevailed on this appeal.

We then turn to Kane's contentions on this appeal. First, Kane contends that the trial court abused its discretion in disapproving the sale to Kane following the first auction, because the trial court erroneously considered only whether a second auction would result in a higher sales price for the receivership. Kane argues that the trial court should have also considered the benefit to the receivership of Kane's initial "stalking horse bid." We conclude that the trial court acted within its discretion in disapproving the sale to Kane, voiding Kane's bid matching right, ordering the second auction, and approving the sale to Shaver.

Second, Kane contends that its procedural due process rights were violated because it was not given adequate notice that a second auction would be held immediately following the February 6 hearing. Kane further argues that it was not given adequate notice that Moldo would change its position at the hearing and concede that a second auction should be held. We reject Kane's procedural due process arguments, because Kane had sufficient reason to expect that a second auction would be held immediately after the February 6 hearing, if the court did not approve the sale to Kane at that hearing. Moreover, Kane did not object to the second auction being held immediately after the hearing and participated in the second auction.

FACTS AND PROCEDURAL HISTORY

On October 16, 2003, Stark and other defendants were charged with felony grand theft and conspiracy, based on their operation of a check-kiting scheme. The scheme allegedly caused First Bank of Palm Desert (First Bank) to lose over $3 million, and was allegedly perpetrated to keep Stark's two automobile dealerships operational. In November 2003, Stark pleaded guilty to felony grand theft and conspiracy, and admitted an "aggravated white collar crime enhancement." (§§ 186.11, subd. (a)(2), 1203.045 & 12022.6, subd. (a)(2).)

On October 20, 2003, the People applied for and Stark stipulated to an order appointing Moldo temporary receiver pursuant to section 186.11. The order directed Moldo to take possession of the assets of Stark and his wholly owned entity, JPS. JPS owned and operated two automobile dealerships, a Kia dealership and a Mazda dealership. Both dealerships were located on land Stark owned in La Quinta. Moldo took possession of the assets and was later appointed permanent receiver.

The assets of the dealerships included franchise rights or "blue sky" value, new and used car inventories, parts, special tools, furniture, equipment, and signage. The dealerships owed approximately $1.6 million to a flooring financier, Primus Financial, had outstanding accounts payable in excess of $500,000, and owed over $200,000 to the Franchise Tax Board. The dealerships had also failed to make installment payments on a forbearance agreement with First Bank. Stark had acknowledged owing First Bank $3.8 million. The real estate was appraised at $5 million, and was encumbered by over $6.5 million...