Theodore v. Danning, Gill, Diamond & Kollitz
| Decision Date | 24 June 2021 |
| Docket Number | B291700 |
| Court | California Court of Appeals Court of Appeals |
| Parties | MICHAEL THEODORE, Plaintiff and Appellant, v. DANNING, GILL, DIAMOND & KOLLITZ, et al. Defendants and Respondents. |
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. BC680011, Gregory W. Alarcon, Judge. Affirmed.
Steven Zelig, WLA Legal Services, Inc. for Plaintiff and Appellant.
Law Offices of Thomas J. Weiss and Thomas J. Weiss; Lyle Mink for Defendants and Respondents.
Kyle Madison, his former wife Marjan Madison, [1] and Michael Theodore formed a limited liability company to operate a rental property in Mexico. After financial disputes arose, Kyle filed an action against Theodore alleging breach of fiduciary duty and fraud, among other claims. The trial court appointed a referee pursuant to Code of Civil Procedure section 639[2] to conduct an accounting and a liquidator pursuant to the Corporations Code to wind up the company's affairs. After several years of hard-fought litigation, Theodore filed this action against the Madisons their counsel, the referee, the liquidator, and the liquidator's counsel alleging they wrongfully excluded Theodore's counsel from their communications during the prosecution of Kyle's action and unlawfully “teamed up” against Theodore.
The referee, the Madisons, and the Madisons' counsel filed special motions to strike under Code of Civil Procedure section 425.16. Ruling that the referee's and the Madisons' communications and litigation conduct were protected activities and that Theodore failed to demonstrate a probability of prevailing on his claims, the trial court granted the motions. Theodore argues that, because the referee and the Madisons engaged in “criminal misconduct, ” section 425.16 does not apply. According to Theodore, even if the activities of the referee and the Madisons were protected under section 425.16, he made a sufficient prima facie showing of merit. Theodore also argues that the litigation privilege is not a bar to his claims because it does not apply to criminal misconduct noncommunicative conduct, or conspiracy and aiding and abetting. We affirm.
In 2005, Kyle, who is an attorney, Marjan, and Theodore purchased a house in Cabo San Lucas, Mexico and formed a limited liability company, Casa W, LLC (Casa W), to operate the property as a rental business. Theodore was the managing member of Casa W. Theodore owned another limited liability company, Casa Theodore, LLC, that owned the adjacent property known as Casa Theodore. Theodore was the only member of Casa Theodore, LLC.
After the parties could not resolve disputes regarding Casa W's finances, on April 15, 2011, by his counsel Lyle R. Mink, Kyle filed an action against Theodore and Casa W alleging eight causes of action for breach of the contract, breach of fiduciary duty, breach of the covenant of good faith and fair dealing, fraud, dissolution of Casa W, appointment of receiver, an accounting, and preliminary and permanent injunctions in aid of receiver.[3] Kyle alleged that Theodore had engaged in “abuse of authority, self-dealing and pervasive fraud” as the managing member of Casa W. Kyle alleged that, despite repeated requests over the years, Theodore never provided any records of rental income, expenses, and other costs for Casa W. Nor, Kyle alleged, did Theodore furnish any records documenting his disbursements, expenditures, and loans on behalf of Casa W. On April 13, 2012, by their counsel, Daniel J. Spielfogel, Theodore and Casa W filed a cross-complaint against the Madisons alleging five causes of action for declaratory relief, breach of contract, breach of fiduciary duty, breach of the covenant of good faith and fair dealing, and fraud. On January 24, 2013, the trial court[4] appointed Pamela Wax-Semus, a certified fraud examiner, as an expert under Evidence Code section 730 to analyze the financial transactions of Casa W and Casa Theodore, LLC.
After approximately 15 days of trial, in an October 22, 2015 statement of decision, the trial court[5] ruled that Theodore breached his fiduciary duties to the Madisons because “he cut the Madisons out of the operation of the business with no authority to do so and did not share the profits with them, thus, acting against the interests of the Madisons.” The trial court further ruled, “[G]iven that it was and is not possible for the members of [Casa W] (vs. Theodore alone) to carry out the business of [Casa W] according to the terms of the Operating Agreement because [Theodore] has essentially shut out the Madisons, [Casa W] must be dissolved.” The trial court found, “Wax-Semus' work exceedingly credible, reliable, and instructive.” The trial court added, The trial court further found, “Wax-Semus did exactly what a certified fraud examiner is supposed to do-she followed the evidence in order to arrive at her conclusions.”
By order dated March 4, 2016, in accordance with section 639, subdivision (a)(2), the trial court appointed Wax-Semus as a referee to conduct an accounting. The trial court ordered Wax-Semus to “prepare a detailed accounting of all receipts and disbursements, which includes an analysis of source documents (e.g., bank statements and canceled checks) and a detailed analysis of the financial accounting records of [Casa W], including but not limited to general ledgers, cash receipts journals, disbursement journals, and general/adjustment journal[s] from January 1, 2005 to date.” The trial court ordered Casa W to pay for Wax-Semus's services. The trial court further ordered, “If there are insufficient funds in the [Casa W] bank account to pay her bill, the parties may seek a further order of court to decide the appropriate course of action at that time.”
In another order dated March 4, 2016, [6] the trial court dissolved Casa W effective October 22, 2015 pursuant to Corporations Code section 17707.03, subdivisions (a) and (b). The trial court appointed Richard C. Diamond the “Court-Appointed Liquidator of [Casa W]” to “wind up” Casa W's affairs. The order provided, The order further stated, “Diamond shall have the sole authority to employ and discharge persons whose services for or on behalf of [Casa W] may or may not be reasonably necessary in connection with the winding up process, including but not limited to attorneys, accountants, brokers, and other professionals.” The order also provided, “Under Corporations Code section 17707.04(c), Diamond shall be entitled to reasonable compensation from [Casa W] to wind up the affairs of the [Casa W].” The order stated, “If there are insufficient funds in [Casa W] bank account(s) to pay expenses associated with the winding up process, including but not limited to costs associated with the sale of [the rental property], the parties may seek a further order of court to decide the appropriate course of action at that time.”
In March 2016, Diamond hired his law firm, Danning, Gill, Diamond & Kollitz, LLP (Danning Gill), to act as the liquidator's general counsel. On August 1, 2016, the trial court ordered Theodore to pay $166, 211.87 to Diamond. The trial court also ordered the Madisons and Theodore to “each pay one-half of all of the bills of Ms. Pamela Wax-Semus.”
On July 13, 2016, Mink filed on behalf of the Madisons an action in the Los Angeles Superior Court against Theodore's counsel, Spielfogel, and Theodore's accounting expert, Thomas E. Pastore. Based on allegations that Theodore paid Spielfogel and Pastore “monies from bank accounts that contained the undistributed [Casa W] funds due the Madisons” and that Spielfogel and Pastore “wrongly assumed control” over the funds and “applied them” to their own personal use, the complaint asserted causes of action for conversion. The Madisons attached payment schedules prepared by Wax-Semus to their complaint
On February 14, 2017, based on Wax-Semus's “legion of unauthorized ex parte communications” with Kyle, Mink, and Diamond, Theodore filed a motion to disqualify Wax-Semus, vacate the court's October 22, 2015 statement of decision, require Wax-Semus to return to Theodore all fees he paid to Wax-Semus, and enter terminating sanctions against the Madisons. On March 24, 2017, after finding that “Wax Semus had a duty to avoid ex parte communications and promptly notify parties of the substance of ex parte communications to provide the parties with an opportunity to respond, ” the trial court disqualified Wax-Semus as a referee.
The trial court found that “there is overwhelming evidence that Wax Semus has consistently violated her duty to refrain from engaging in ex parte communications in her capacity as a referee in this action.”...
To continue reading
Request your trial