Schrage v. Schrage
| Decision Date | 19 August 2020 |
| Docket Number | B288478 |
| Parties | LEONARD SCHRAGE, Plaintiff and Respondent, v. MICHAEL SCHRAGE et al., Defendants and Appellants. |
| Court | California Court of Appeals Court of Appeals |
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Los Angeles County Super. Ct. No. BC579623)
APPEAL from an order of the Superior Court of Los Angeles County, Joanne O'Donnell, Judge. Modified and affirmed.
Randall S. Waier for Defendants and Appellants.
Manatt, Phelps & Phillips, Benjamin G. Shatz, and Kishan H. Barot; Pearl Cohen Zedek Latzer Baratz and Steven M. Goldberg for Plaintiff and Respondent.
INTRODUCTION
Leonard Schrage filed this action against his two brothers, Michael and Joseph Schrage, for involuntary dissolution of the family business. After invoking their statutory right to buy Leonard's interests in the business pursuant to a court-ordered appraisal, Michael and Joseph declined to complete the purchase. The trial court granted Leonard's motion to recover attorneys' fees and other expenses he incurred in the ultimately fruitless appraisal process and in obtaining injunctive relief during the appraisal process to protect the business from misconduct by Michael and Joseph.
Michael and Joseph argue the trial court erred in awarding the attorneys' fees Leonard incurred in obtaining the injunctive relief because the relevant buyout statutes authorize the court to award only those attorneys' fees and expenses incurred in the appraisal process. They also argue that Leonard did not submit admissible evidence of his attorneys' fees and expenses, that the judge who granted Leonard's motion lacked jurisdiction to rule on it after the judge who first heard the motion became unavailable, that the court erred in making the award against Michael and Joseph's surety, and that the dissolution order was improper. We conclude Leonard was not entitled to recover his injunction-related attorneys' fees, strike that portion of the expense award, reject Michael and Joseph's other arguments, and affirm the order as modified.
Leonard, Michael, and Joseph each owned a one-third interest in the Sage Automotive Group, a family-owned car dealership business founded by their father. In April 2015 Leonard filed this action against Michael, Joseph, and 14 corporate entities in the Sage Automotive Group to dissolve and wind up those entities. Leonard alleged Michael and Joseph engaged in a pattern of self-dealing and mismanaged the business by, among other things, misappropriating company assets to fund a separately held car dealership and pay for lavish personal expenses, making business decisions without Leonard's consent, and denying Leonard access to corporate books and records. Leonard sought to dissolve five corporations under Corporations Code section 1800,1 eight limited liability companies under section 17707.03, and one limited partnership under section 15908.02. Leonard requested an order distributing the assets of each entity equally among the brothers and an order appointing a receiver to manage and preserve the assets of the business during the pendency of the action. Leonard also sought compensatory and punitive damages against Michael and Joseph for breach of fiduciary duty.
On August 18, 2015, shortly after filing a first amended complaint, Leonard filed a motion asking the court to appoint a receiver. On December 15, 2015 the trial court denied the motion, but issued a preliminary injunction (1) prohibiting Michael and Joseph from using any funds, assets, or employees of any of the entity defendants for the benefit of Michael and Joseph's separate dealership and (2) requiring a court-appointed independent examiner to approve any loan or expense reimbursement any of the parties requested. The court found injunctive relief was necessary in light of evidence Michael and Joseph had "used Company money to live the 'high life,' and did so partly at Leonard's expense."
In June 2016 Michael and Joseph filed an ex parte application under sections 2000, 15908.02, and 17707.03 to stay the dissolution action and to determine the value of Leonard's interest in the entity defendants. Michael and Joseph argued that, under the shareholder buyout provisions of section 2000, the defendants in an involuntary dissolution action may elect to purchase the plaintiff's interests at a fair value determined by appraisers and confirmed by the court and that during the buyout process the court had to stay the dissolution. In their supporting declarations Michael and Joseph affirmed that they each held a one-third interest in the Sage Automotive Group and that they had elected to purchase all of Leonard's interests in the entity defendants.
After the court denied their ex parte application, Michael and Joseph filed a noticed motion seeking the same relief. As required by the statutory buyout provisions, Michael and Joseph posted a $1 million bond underwritten by their surety. On August 23, 2016 the trial court stayed Leonard's three dissolution causes of action (one for each legal form of business ownership) to allow Michael and Joseph to proceed on their election to purchase Leonard's interests in the business. The court did not stay Leonard's breach of fiduciary cause of action or Michael and Joseph's causes of action in their cross-complaint for breach of fiduciary duty, conversion, and recording confidential communications in violation of Penal Code sections 630 and 632.2 The parties subsequently stipulated to having a retired judge serve as the referee to oversee and adjudicate all aspects of the appraisal process. The parties also entered into a stipulation and order governing the appraisal process that provided, among other things, the appraisal and buyout would cover the 14 entity defendants named in the first amended complaint, plus five additional limited liability companies (collectively, the buyout entities).
On August 9, 2016, shortly before the trial court stayed the dissolution proceeding, Leonard filed an ex parte application for additional injunctive relief, claiming Michael and Joseph violated the original injunction and asking the court to bar them from managing the business. On November 28, 2016, following a three-day hearing and extensive briefing, the trial court issued a second preliminary injunction that prohibited any transfer of assets or funds from any of the entity defendants without Leonard's prior written consent. The court found Michael and Joseph intentionally violated the December 2015 injunction by, among other acts, transferring company assets to their separate dealership and using intercompany loans to purchase another car dealership without approval of the independent examiner. The court further found that Michael and Joseph fabricated corporate records to disguise transfers and fraudulently characterized loans as investments and that their claimed ignorance of the transactions was not credible. The court also rejected the argument by Michael and Joseph that the injunction violated the stay under the buyout statutes. The court ruled that "[s]imply because the winding up and dissolution proceedings are stayed does not mean that Leonard cannot move to protect his interests by way of a preliminary injunction in the meantime."
On March 30, 2017 Leonard filed an ex parte application seeking to hold Michael and Joseph in contempt of the December 2015 and November 2016 injunctions. Leonard claimed Michael and Joseph continued to violate the first and second preliminary injunctions by misusing company funds to pay for their personalexpenses. On July 12, 2017, following a five-day hearing, the trial court issued a third preliminary injunction against Michael and Joseph. The court found that a receivership was warranted because the continuing violations by Michael and Joseph of the two prior injunctions were endangering Leonard's interests in the business. Instead of appointing a receiver, however, the court enjoined Michael and Joseph from directly or indirectly exercising any management authority over the entity defendants. The court also ruled Michael and Joseph could move to terminate the injunction if they acquired Leonard's interests in the businesses through the statutory buyout procedure.
On July 25, 2017, following a lengthy appraisal process, the referee confirmed that the value of Leonard's interests in the buyout entities was $40,237,000 and stated that, if Michael and Joseph did not pay Leonard that amount by September 11, 2017, the entities would be wound up and dissolved. The referee stated that, under the stipulation and order, the referee's findings were "'final' and 'all parties [have] expressly waive[d] any right to contest, challenge, or object to such rulings before'" the court. The referee concluded, "Accordingly, the Court should enter this order as a final order of the Court without further hearings." On July 28, 2017 the trial court approved the referee's recommendation and entered it as the court's order.
Michael and Joseph did not pay Leonard by the deadline. On September 27, 2017 the trial court appointed a receiver to wind up and dissolve the buyout entities.
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