Filed 3/2/21

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION EIGHT

HOLISTIC SUPPLEMENTS, L.L.C., 

et al.,

Plaintiffs and Appellants,

v.

CHRISTOPHER STARK et al.,

 Defendants and Respondents.

 B300711

 (Los Angeles County

 Super. Ct. No. BC599796)

APPEAL from a judgment of the Superior Court of 

Los Angeles County. Rupert A. Byrdsong, Judge. Reversed and 

remanded.

Horvitz & Levy, Lisa Perrochet and Aaron Henson; Nelson 

Hardiman, Salvatore J. Zimmitti and Mark S. Hardiman for 

Plaintiffs and Appellants. 

Buchalter, Robert M. Dato; and Arthur D. Hodge for 

Defendants and Respondents.

_____________________________
2

This case arises from an ownership dispute over a medical 

marijuana dispensary in Los Angeles. In essence, plaintiff Jamie 

Kersey claims defendant Christopher Stark transferred his 

ownership in Holistic Supplements, L.L.C. (hereafter the LLC) to 

her in April 2015. Unbeknownst to Kersey and despite that

alleged transfer, he later converted the LLC from a limited 

liability company to a corporation and then a mutual benefit 

corporation in his name called Holistic Supplements Inc. (the 

corporation) and changed the business address. In that process, 

he claimed rights to a Business Tax Registration Certificate, a 

city-issued tax document that enabled the dispensary to operate. 

Kersey and the LLC sued Stark and the corporation for 

conversion, unfair competition, and declaratory relief, among 

other claims. The case went to a jury trial, presenting the core 

factual dispute of whether Stark validly signed the April 2015 

transfer documents or whether his signatures were forged. 

The jury ultimately decided only a single claim of conversion 

asserted by the LLC against the corporation, returning a defense 

verdict. The trial court removed the rest of the claims from the 

jury by granting nonsuit to defendants.

On appeal, plaintiffs argue nonsuit was improper and the 

trial court committed prejudicial instructional error on the 

conversion claim decided by the jury. We agree on both points. 

We conclude: (1) nonsuit was erroneous on Kersey’s individual 

claims because she has standing to sue for conversion of her 

personal property membership interest in the LLC; (2) nonsuit 

was erroneous on claims against Stark in his individual capacity, 

since he can be held liable for personally participating in the 

tortious conduct of the corporation; (3) nonsuit was erroneous on 

plaintiffs’ claims under the unfair competition law (Bus. & Prof. 
3

Code, § 17200 et seq.; the UCL) because we reject the only two 

grounds for nonsuit defendants raise on appeal; and (4) the BTRC 

is property subject to conversion, so the trial court prejudicially 

erred when it instructed the jury it was not. 

We also reject defendants’ contention Kersey lacked 

standing because she failed to file a petition for reinstatement of 

the LLC pursuant to Government Code section 12261. The plain 

language of that provision permits a court to order reinstatement 

of a falsely or fraudulently terminated business entity upon 

either submission of “a petition to the superior court containing 

the legal and factual basis for reinstatement or as part of a civil 

action for damages or equitable relief.” (Gov. Code, § 12261, 

subd. (c), italics added.) Plaintiffs permissibly sought 

reinstatement as part of this lawsuit, so they did not need to file 

a separate petition in the superior court.

We reverse the judgment.

BACKGROUND

Holistic Supplements, LLC is a limited liability company 

formed in 2005 to operate a medical marijuana dispensary in 

Canoga Park consistent with California’s Medical Marijuana 

Program Act. (Health & Saf. Code, § 11362.7 et seq.) For 

practical purposes, Brad Barnes owned the dispensary. He also 

owned a strip club, a bar, and an adult entertainment store in the 

same shopping center. Although Barnes was a member of the 

LLCs that owned his other businesses, he was not a member of 

the LLC that owned the dispensary. Instead, the sole member 

was David Gold, with Barnes overseeing operations. Barnes 

worried having his name on the LLC would jeopardize the 

licenses for his other businesses. So in exchange for 10 percent of 
4

the dispensary’s net revenue, he and Gold agreed Gold would be 

listed as the sole member of the LLC.

Shortly after formation, the LLC obtained a Business Tax 

Registration Certificate, or BTRC, from the City of Los Angeles 

(the City), listing the dispensary’s Canoga Park address. The 

City requires every business to have a BTRC, not just marijuana 

dispensaries. (L.A. Mun. Code, § 21.03, subd. (a).) The BTRC 

bears the disclaimer: “ISSUED FOR TAX COMPLIANCE 

PURPOSES ONLY [¶] NOT A LICENSE, PERMIT, OR LAND 

USE AUTHORIZATION.” As we will discuss in more detail 

below, various City laws after 2007 prevented medical marijuana 

dispensaries from operating unless they had a pre-2007 BTRC. 

In light of this prohibition, the LLC’s grandfathered BTRC 

allowed it to continue operating after 2007.

In April 2014, Gold left the LLC and transferred his 

interest to defendant Christopher Stark, Barnes’s friend and 

employee at the strip club. Gold backed out because he no longer 

wanted to work with Barnes. He also feared he might be 

arrested after the dispensary was raided by police in 2011.

In July 2014, the LLC filed an updated “Statement of 

Information” with the Secretary of State reflecting Stark as the 

new sole member. Barnes and Stark orally agreed to the same 

arrangement Barnes had with Gold—Stark would be the sole 

member of the LLC in exchange for 10 percent of net revenue. 

The dispensary was not profitable during this time, and by 

the start of 2015, the relationship between Stark and Barnes had 

deteriorated. The parties dispute what happened next. 

According to plaintiffs, in April 2015, Stark told plaintiff 

Kersey (who is Barnes’s ex-wife) and the dispensary’s corporate 

attorney Robert Manuwal that he no longer wanted to own the 
5

dispensary. Stark explained he didn’t want to work with Barnes 

anymore, the dispensary wasn’t profitable, and the dispensary 

still owed Barnes for financing the opening and fixing property 

damage from the 2011 raids. Barnes testified Stark agreed to 

transfer his LLC interest to Kersey. Kersey similarly testified 

she talked to Stark, who agreed to transfer his ownership to her 

in exchange for her agreeing to repay the dispensary’s debt to 

Barnes.

Documents dated April 23, 2015 reflect the transfer of 

ownership of the LLC from Stark to Kersey. They bear Stark’s 

signatures, but Stark disputes their authenticity. Kersey, 

attorney Manuwal, and Barnes testified that on the night of April 

23, 2015, Stark and Kersey signed these documents at Manuwal’s 

home transferring Stark’s interest in the dispensary to Kersey, 

leaving her with the debts and assets of the LLC. Manuwal and 

Barnes testified they personally witnessed Stark signing; Kersey 

arrived later. 

For his part, Stark confirmed he went to Manuwal’s house 

that night. He claimed he went to pick up dispensary-related 

documents and endorse some checks at Barnes’s request. The 

only documents he signed were the check endorsements; he did 

not sign any transfer documents and claimed his signatures were 

forgeries. When pressed at trial, he conceded the signatures 

could be his, but he never knowingly signed any documents 

transferring his interest in the LLC. 

After that night, Stark had no further involvement in the 

dispensary operations at the Canoga Park location. He never 

returned to pick up any assets, cash, marijuana product, or 

equipment. The day after the alleged transfer, Kersey met with 

dispensary employees to tell them about the change in 
6

ownership. Dispensary operations continued as normal. A few 

weeks later on May 11, 2015, the LLC filed an updated 

“Statement of Information” with the Secretary of State 

identifying Kersey as the new sole member.

Unbeknownst to Kersey and Barnes, Stark did not 

relinquish his ownership of the LLC. On September 2, 2015, he 

filed “Articles of Incorporation With Statement of Conversion” 

with the Secretary of State. The form listed Stark as the 

managing member of the LLC and purported to convert the LLC 

to Holistic Supplements, Inc., a corporation with Stark as the sole 

shareholder. The document listed Stark’s home address as the 

business address for the corporation. On September 30, 2015, 

Stark converted the corporation to a nonprofit mutual benefit 

corporation “in order to comply with state and local laws and 

regulations.” He was still listed as the sole shareholder. He filed 

a statement of information with the Secretary of State on the 

same day listing the corporation’s address as his home address. 

On September 30, 2015, Kersey and Barnes first learned 

Stark was still claiming ownership of the dispensary. Kersey and 

the LLC filed this lawsuit against Stark and the corporation in 

November 2015. As relevant here, Kersey and the LLC each 

asserted causes of action for conversion, violation of the UCL, and 

declaratory relief.1 

In December 2015, Stark changed the address for the 

BTRC to a downtown Los Angeles location. Throughout 2016, 

the parties submitted a number of competing requests to change 

1 Plaintiffs also asserted claims for corporate identity theft 

and trade name infringement, but those claims were dismissed at 

trial and are not at issue here.
7

the BTRC address back and forth between the Canoga Park and 

downtown Los Angeles locations. The City eventually froze the 

BTRC at Stark’s downtown address sometime in late 2016 or 

2017, saying a court must determine the rightful owner of the tax 

account. 

In response to the dispute over the BTRC, plaintiffs filed a 

supplemental complaint, alleging defendants had illegally 

operated a dispensary at the downtown Los Angeles location 

between December 2015 through April 2017, and had 

“hijacked . . . and purported to use [the LLC’s] business taxation 

accounts, including business tax registration certificate account 

no. 0002072981-0001-4.” Plaintiffs alleged Stark’s attempts to 

take the BTRC were additional bases for their unfair competition, 

conversion, and declaratory relief claims. 

For the declaratory relief claim, plaintiffs alleged Stark 

“was never authorized to change Holistic Supplements, LLC’s 

organization from a limited liability company to a stock 

corporation to a mutual benefit corporation; or change the 

registered address associated with the BTRC.” Plaintiffs sought 

“a judicial declaration of the rights and duties of Defendants with 

respect to entities known as Holistic Supplements, LLC and 

Holistic Supplements, a California non-profit mutual benefit 

corporation.” In the prayer for relief, plaintiffs sought 

declarations that Stark had unlawfully converted the LLC to the 

corporation; Kersey “is the owner and managing member of 

Holistic Supplements, LLC”; Stark “is not the owner of Holistic 

Supplements, LLC and/or any of the converted entities”; and 

Kersey had the authority to manage the BTRC whereas Stark did 

not. 
8

The case proceeded to a jury trial. Kersey testified she had 

ceased operations of the dispensary in Canoga Park because it 

could not operate without the BTRC. Stark testified his 

downtown Los Angeles dispensary was associated with an 

investor who agreed to buy the corporation from Stark for $1.85 

million should he win this lawsuit and be found owner of the 

dispensary and the BTRC. The same investor was financing 

Stark’s legal defense.

After plaintiffs’ opening statement, defendants moved for 

nonsuit. The court deferred ruling until the close of evidence, at 

which point it granted the motion. It dismissed all of Kersey’s 

individual claims, all claims against Stark individually, and 

plaintiffs’ UCL claims. The court did not set forth the reasons in 

an order or on the record in open court. All that remained were 

the LLC’s claims for conversion and declaratory relief against the 

corporation. The jury returned a defense verdict for the 

corporation on the conversion claim. The LLC dismissed its 

remaining declaratory relief claim with prejudice and plaintiffs 

appealed the defense judgment.

DISCUSSION

1. Nonsuit Was Improper

Standard of Review

“A defendant is entitled to a nonsuit if the trial court 

determines that, as a matter of law, the evidence presented by 

plaintiff is insufficient to permit a jury to find in his favor. 

[Citation.] ‘In determining whether plaintiff’s evidence is 

sufficient, the court may not weigh the evidence or consider the 

credibility of witnesses. Instead, the evidence most favorable to 

plaintiff must be accepted as true and conflicting evidence must 

be disregarded. The court must give “to the plaintiff[’]s evidence 
9

all the value to which it is legally entitled, . . . indulging every 

legitimate inference which may be drawn from the evidence in 

plaintiff[’]s favor.” ’ [Citation.] A mere ‘scintilla of evidence’ does 

not create a conflict for the jury’s resolution; ‘there must be 

substantial evidence to create the necessary conflict.’ ” (Nally v. 

Grace Community Church (1988) 47 Cal.3d 278, 291 (Nally).)

We review the grant of nonsuit de novo. (Legendary 

Investors Group No. 1, LLC v. Niemann (2014) 224 Cal.App.4th 

1407, 1422.) “In reviewing a grant of nonsuit, we are ‘guided by 

the same rule requiring evaluation of the evidence in the light 

most favorable to the plaintiff.’ [Citation.] We will not sustain 

the judgment ‘ “unless interpreting the evidence most favorably 

to plaintiff’s case and most strongly against the defendant and 

resolving all presumptions, inferences and doubts in favor of the 

plaintiff a judgment for the defendant is required as a matter of 

law.” ’ ” (Nally, supra, 47 Cal.3d at p. 291.) 

There is a split of authority on whether our review of a 

nonsuit motion is limited to the reasons given by the trial court 

or whether we may examine grounds raised by a defendant but 

not ruled on by the trial court in order to affirm the ruling. 

(Compare Alpert v. Villa Romano Homeowners Assn. (2000) 81 

Cal.App.4th 1320, 1328, fn. 8 [noting split of authority over 

whether review of grant of nonsuit is limited to grounds raised by 

defendant and ruled on by trial court] with Saunders v. Taylor 

(1996) 42 Cal.App.4th 1538, 1542, fn. 2 [rejecting narrow scope of 

review and finding no bar to the “consideration on appeal of 

alternative grounds which were stated by the moving party but 

which were not among those relied upon by the trial court in 

granting the motion”].) 
10

We need not take a side. The trial court did not explain its 

reasons for granting nonsuit on plaintiffs’ various claims, so 

presumably the court accepted the reasons presented by 

defendants. In any case, all the issues raised by defendants were 

legal questions and did not turn on the evidence presented. 

We may address them to determine “whether, as a matter of law, 

there is no basis for the plaintiff’s claim.” (Alpert v. Villa 

Romano Homeowners Assn., supra, 81 Cal.App.4th at p. 1328, 

fn. 8.)

Kersey Has Standing to Pursue Individual Claims

Defendants sought nonsuit on Kersey’s individual claims 

because they believed she lacked standing to assert the LLC’s 

derivative claims in an individual capacity. In response, Kersey 

argued she was asserting individual claims based on the theft of 

her membership interest in the LLC as distinct from any 

derivative claim for injury to LLC assets. Kersey is correct.2

“[I]t is settled that one who has suffered injury both as an 

individual owner of a corporate entity and in an individual 

capacity is entitled to pursue remedies in both capacities.” 

(Denevi v. LGCC, LLC (2004) 121 Cal.App.4th 1211, 1221.) 

The line between personal and derivative claims is drawn 

according to the injury inflicted: “The claims are derivative 

where the injury alleged is one inflicted on the corporate entity or 

on the ‘whole body of its stock.’ [Citation.] A personal claim, in 

contrast, asserts a right against the corporation which the 

shareholder possesses as an individual apart from the corporate 

2 On appeal, the parties do not draw any distinction among 

the conversion, UCL, and declaratory relief claims for the 

purpose of analyzing Kersey’s standing. We will likewise handle 

them together for the purpose of our opinion.
11

entity: ‘If the injury is not incidental to an injury to the 

corporation, an individual cause of action exists.’ ” (Id. at 

p. 1222.) “In determining whether an individual action as 

opposed to a derivative action lies, a court looks at ‘the 

gravamen of the wrong alleged in the pleadings.’ ” (PacLink 

Communications Internat., Inc. v. Superior Court (2001) 90 

Cal.App.4th 958, 965 (PacLink).) 

The “ ‘gravamen’ ” of Kersey’s individual claims was the 

injury inflicted when “[d]efendants willfully took [her] 

membership interest in Plaintiff Holistic Supplements, LLC by 

changing its organization from a limited liability company to a 

stock corporation to a mutual benefit corporation; changing the 

registered address associated with the BTRC; and causing the 

City of Los Angeles Office of Finance to place a freeze on the 

BTRC.” Kersey’s membership interest in the LLC was personal 

property belonging to her as an individual. (Corp. Code, 

§ 17701.02, subd. (r) [“membership interest” in LLC encompasses 

“member’s rights in the [LLC], including the member’s 

transferable interest,” italics added]; id., § 17705.01 [“transferable 

interest” in LLC is “personal property”]; id., § 17701.02, subd. 

(aa) [“transferable interest” in LLC includes “right . . . to receive 

distributions from a limited liability company”].) As personal 

property, Kersey’s membership interest could be subject to 

individual claims based on theft of that interest. 

An apt analogy is to the law of corporate stock. California 

law treats corporate stock as personal property, and an 

individual shareholder may bring personal claims for conversion 

based on theft of that stock. (Payne v. Elliot (1880) 54 Cal. 339, 

342 (Payne); Fremont Indemnity Co. v. Fremont General Corp. 

(2007) 148 Cal.App.4th 97, 122 (Fremont) [“ ‘It is a uniform rule 
12

of law that shares of stock of a company are subject to an action 

in conversion.’ ”]; Haro v. Ibarra (2009) 180 Cal.App.4th 823, 835 

(Haro).) In Haro, for example, former shareholders brought 

individual claims for conversion of their stock and derivative 

claims for breach of fiduciary duty on behalf of the corporation 

and shareholders. (Id. at pp. 826–830.) The court allowed the 

conversion claim to proceed, finding the plaintiffs adequately 

alleged the defendants engaged in a wrongful scheme to deprive 

the plaintiffs of ownership of their shares in the corporation. 

(Id. at p. 835.) Kersey’s claim of conversion of her personal 

property membership interest in the LLC is no different.

Defendants characterize Kersey’s claims as derivative 

based on PacLink. While PacLink involved a dispute among 

members of an LLC, its resemblance to this case ends there. 

Minority members of the LLC alleged the majority shareholders 

defrauded them through a series of transfers of the LLC’s assets. 

(PacLink, supra, 90 Cal.App.4th at p. 961.) They asserted 

personal causes of action alleging “ ‘[t]he fraudulent transfers 

and the conversion of the “sale” proceeds rendered [the LLC] 

insolvent and thereby defrauded plaintiffs by preventing them 

from being paid for their Ownership Interests in [the LLC] and 

its business and assets.’ ” (Id. at pp. 961–962.) Two of the 

defendants demurred, arguing the plaintiffs lacked standing to 

bring their claims as individuals because the real party in 

interest was the LLC, and “ ‘the gravamen of the claim is that 

[its] assets and net worth have been diminished. Plaintiffs do not 

claim any direct injury or loss suffered by them; their only claim 

is that the value of the LLC was diminished and that their 

ownership interests as members were thereby diminished. The

claim belongs to the LLC, not to the plaintiffs.’ ” (Id. at p. 962.) 
13

The PacLink court agreed. “[T]he essence of plaintiffs’ 

claim is that the assets of [the LLC] were fraudulently 

transferred without any compensation being paid to the LLC. 

This constitutes an injury to the company itself. Because 

members of the LLC hold no direct ownership in the company’s 

assets [citation], the members cannot be directly injured when 

the company is improperly deprived of those assets. The injury 

was essentially a diminution in the value of their membership 

interest in the LLC occasioned by the loss of the company’s 

assets. Consequently, any injury to plaintiffs was incidental to 

the injury suffered by [the LLC].” (PacLink, supra, 90 

Cal.App.4th at p. 964.) 

Kersey’s claims look nothing like the derivative claims in 

Paclink. They are not based on any alleged diminution of the 

value of the LLC’s assets. The LLC has alleged those claims on 

its own behalf.3 Instead, Kersey claims Stark’s actions in 

reorganizing the LLC and naming himself as sole shareholder 

amounted to theft of her personal property membership interest 

in the LLC. The distinction in Haro fits this scenario snugly: 

Kersey may pursue her personal claims to recover for the direct 

injury caused by Stark’s alleged theft of her personal property 

membership interest, apart from any derivative claims for injury 

3 Plaintiffs label the LLC’s claims as “derivative.” That may 

not be accurate since the LLC has sued in its own name. (See 

PacLink, supra, 90 Cal.App.4th at p. 965 [corporate entity must 

“ ‘ “itself bring the action to recover the losses thereby occasioned, 

or if the corporation fails to bring an action, suit may be filed by a 

stockholder acting derivatively on behalf of the corporation,” ’ ” 

italics added].) The parties have not addressed the issue further; 

neither do we.
14

to the LLC’s assets. The trial court erred in granting nonsuit on 

these claims.

Stark Can Be Personally Liable for Plaintiffs’ Claims

In a brief comment to the trial court, defendants argued for 

nonsuit on all of plaintiffs’ claims asserted against Stark 

individually, claiming Stark “did not do anything to individually 

gain by any evidence. Anything that happened here is part of 

Holistic Supplements, the corporation. There’s no evidence 

Mr. Stark personally benefitted in any way related to this 

assignment or transfer.” Their position is incorrect.

As the director and shareholder of the corporation, Stark 

could be held personally liable for participating in, directing, or 

authorizing tortious conduct. (Frances T. v. Village Green 

Owners Assn. (1986) 42 Cal.3d 490, 504 (Frances T.) [“Directors 

are liable to third persons injured by their own tortious conduct 

regardless of whether they acted on behalf of the corporation and 

regardless of whether the corporation is also liable.”]; Wyatt v. 

Union Mortgage Co. (1979) 24 Cal.3d 773, 785 [“Shareholders of a 

corporation are not normally liable for its torts, but personal 

liability may attach to them . . . when the shareholder specifically 

directed or authorized the wrongful acts.”]; United States 

Liability Ins. Co. v. Haidinger-Hayes, Inc. (1970) 1 Cal.3d 586, 

595 [“Directors or officers of a corporation do not incur personal 

liability for torts of the corporation merely by reason of their 

official position, unless they participate in the wrong or authorize 

or direct that it be done. They may be liable, under the rules of 
15

tort and agency, for tortious acts committed on behalf of the 

corporation.”].)4

Stark personally performed every act plaintiffs claim was 

tortious. He secretly converted the LLC to a corporation, then a 

mutual benefit corporation; he changed the corporate address to 

his home address; and he changed the address of the BTRC to the 

downtown Los Angeles location. If a jury were to conclude he 

validly signed the documents in April 2015 transferring his 

membership interest in the LLC to Kersey, it could find his later 

actions exercising ownership over the LLC were unlawful and he 

was personally liable for the torts he committed on behalf of the 

corporation.

Defendants assert a few brief arguments in response, 

but none is meritorious. They contend plaintiffs should not be 

allowed to obtain a new trial on the core ownership issue because 

4 Stark does not suggest a different rule applies after he 

converted the corporation to a nonprofit mutual benefit 

corporation. (See, e.g., Frances T., supra, 42 Cal.3d at p. 500, 

fn. 7 [noting case involved nonprofit mutual benefit corporation].) 

The same rule also governs any acts Stark took as sole member of 

the LLC. (Corp. Code, § 17703.04, subd. (b) [“A member of a 

limited liability company shall be . . . personally liable under a 

judgment of a court or for any debt, obligation, or liability of the 

limited liability company, whether that liability or obligation 

arises in contract, tort, or otherwise, under the same or similar 

circumstances and to the same extent as a shareholder of a 

corporation may be personally liable for any debt, obligation, or 

liability of the corporation.”]; see id., § 17703.04, subd. (c) 

[“Nothing in this section shall be construed to affect the liability 

of a member of a limited liability company to third parties for the 

member’s participation in tortious conduct.”]; People v. Pacific 

Landmark, LLC (2005) 129 Cal.App.4th 1203, 1212.)
16

the LLC dismissed its remaining declaratory relief claim after 

the jury’s verdict. However, our opinion will permit plaintiffs to 

proceed on five claims, including Kersey’s individual claim for 

declaratory relief. Those claims will present and resolve the core 

ownership dispute between Kersey and Stark. The LLC’s 

dismissal of its declaratory relief claim does not affect them.

To the extent defendants suggest Stark didn’t “personally 

benefit” from the conversion of the LLC and change of address for 

the BTRC, they are wrong. Stark is claiming ownership of a 

corporation authorized to run a valuable medical marijuana 

dispensary in Los Angeles. Apparently the business is worth 

nearly $2 million, the price in the contract he has in place to sell 

the corporation should he prevail here. Stark will surely 

personally benefit as sole shareholder of the corporation if he 

wins and sells the business.

Defendants respond that Stark didn’t personally benefit 

because the BTRC was never technically “transferred” from the 

LLC to the corporation. They are correct that a business entity 

converting to another type of business entity is “the same entity 

that existed before the conversion and the conversion shall not be 

deemed a transfer of property.” (Corp. Code, § 17710.09, subd. 

(a).) Upon conversion, however, “[a]ll the rights and property, 

whether real, personal, or mixed, of the converting entity or 

converting limited liability company are vested in the converted 

entity or converted limited liability company.” (Id., § 11710.09, 

subd. (b)(1).) If a jury were to find Stark was no longer owner of 

the LLC, it could readily conclude he personally benefitted when 

he wrongly took over the LLC and the BTRC, since the BTRC 

moved with the LLC’s “rights and property” when he converted 

the LLC to a corporation. 
17

The trial court erred in granting nonsuit on the claims 

against Stark individually.

Plaintiffs’ UCL Claims May Proceed

“The purpose of the UCL . . . ‘is to protect both consumers 

and competitors by promoting fair competition in commercial 

markets for goods and services. [Citation.]’ [Citation.] It ‘defines 

“unfair competition” to mean and include “any unlawful, unfair or

fraudulent business act or practice.” ’ ” (McKell v. Washington 

Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1470.) “Because the 

statute is framed in the disjunctive, a business practice need only 

meet one of the three criteria to be considered unfair 

competition.” (Id. at p. 1471.)

On appeal, plaintiffs have not briefed their claims based on 

the fraudulent prong. We find those claims forfeited. (Christoff 

v. Union Pacific Railroad Co. (2005) 134 Cal.App.4th 118, 125.)

As for plaintiffs’ unfair and unlawful conduct UCL claims, 

defendants’ perfunctory defense of the nonsuit rests on two legal 

errors.5 

Their first claim is that the BTRC is not property and 

cannot be the subject of restitution. Below we reject this 

mistaken view; the BTRC indeed counts as property. 

Defendants’ second claim is the LLC had to exhaust 

administrative remedies. This “exhaustion” argument is based 

upon their position plaintiffs were required to petition for 

5 We will not address the trial court’s tentative passing 

comment that plaintiffs’ UCL claims were not viable because 

“[t]here was no evidence regarding whatever business Mr. Stark 

was trying to set up was in competition or unfair competition.” 

Defendants did not advance that ground in their nonsuit motion 

and do not raise it on appeal.
18

reinstatement of the LLC pursuant to Government Code section 

12261 before filing suit. As we explain below, we disagree.

The trial court erred in granting nonsuit on plaintiffs’ UCL 

claims to the extent they were based on unlawful and unfair 

conduct. They must be remanded for further proceedings.

2. The Trial Court Incorrectly Instructed the Jury 

the BTRC Was Not Property For Purposes of Conversion

For the conversion claim that went to the jury, plaintiffs 

contend the trial court committed prejudicial instructional error 

when it refused to instruct the jury the BTRC was property 

subject to conversion, and then, in response to a jury question, 

told them it was not property. We agree the BTRC qualifies as 

property under the circumstances. The court’s instruction was 

legally incorrect, and it almost certainly led to the defense 

verdict.

Background

The parties agreed to give the following modified version of 

CACI No. 2100 on the elements of conversion, which did not 

define the term “property”: 

“In its cause of action for conversion, Holistic Supplements, 

LLC claims that Holistic Supplements, the corporation, 

wrongfully exercised control over Holistic Supplements LLC’s 

property. To establish this claim, Holistic Supplements, LLC 

must prove all of the following essential elements:

“1. Holistic Supplements LLC had a right to possess the 

property;

“2. Holistic Supplements, the corporation, intentionally 

and substantially interfered with Holistic Supplements, LLC’s 

property by taking possession of the property, or assuming 
19

control or ownership over the property, or applying the property 

to his or its own use; 

“3. Holistic Supplements, LLC did not consent;

“4. Holistic Supplements, LLC was harmed; and 

“5. Holistic Supplements, the corporation’s conduct was 

a substantial factor in causing Holistic Supplements, LLC’s 

harm.”

The LLC requested an additional instruction that defined 

the BTRC as property: “A Business Tax Registration Certificate 

or BTRC issued by the City of Los Angeles to a medical 

marijuana dispensary is property.” The LLC argued it had a 

protectable property interest in the BTRC that could be subject to 

conversion. Defendants argued the BTRC was not property, but 

rather a “tax certificate for purposes of tracking the collection of 

tax.” The trial court refused to give the instruction, but 

permitted the parties to “argue what they want to argue.” 

The jury was given a special verdict form setting out the 

elements of conversion. Like the instructions, the form did not 

define what “property” was subject to the conversion claim. 

An hour into deliberations, the jury sent the court 

questions asking, “On the verdict form, what does ‘property’ refer 

to?” and “Can the BTRC be legally considered property?” The 

court conferred with the parties and submitted written responses, 

which are not in the record. According to the trial transcript, the 

parties agreed to respond that “property” in the verdict form 

referred to “things under the control of the party.” That response 

is not at issue.

On the second question about the BTRC, the parties once 

again argued their positions. The court decided to answer the 

question “no,” effectively instructing the jury that a BTRC is not 
20

property as a matter of law. The LLC complained this was 

tantamount to a directed verdict “on the state of the evidence.” 

The court disagreed, saying, “You don’t know what they’re 

considering,” and “Maybe they’re figuring something else out.”

Ten minutes after getting these responses, the jury came 

back with a defense verdict. It found on the verdict form that the 

LLC had a right to possess “the property,” but the corporation did 

not “intentionally and substantially interfere with Plaintiff 

Holistic Supplements, LLC’s property by taking possession of the 

property, or assuming control or ownership over the property, or 

applying the property to its own use[.]”

Analysis

We review a claim of instructional error de novo. (Crouch 

v. Trinity Christian Center of Santa Ana, Inc. (2019) 39 

Cal.App.5th 995, 1021.) “[W]e view the evidence in the light most 

favorable to the appellant. In such cases, we assume that the 

jury might have believed the evidence upon which the instruction 

favorable to the appellant was predicated.” (Alcala v. Vazmar 

Corp. (2008) 167 Cal.App.4th 747, 754.) We will not reverse 

unless it is reasonably probable the error affected the verdict. 

To evaluate prejudice, we examine “ ‘(1) the state of the evidence, 

(2) the effect of other instructions, (3) the effect of counsel’s 

arguments, and (4) any indications by the jury itself that it was 

misled.’ ” (Id. at p. 755.)

The definition of property in California is broad, 

encompassing nearly every “thing” over which a person can 

exercise ownership. (Civ. Code, § 654 [“The ownership of a thing 

is the right of one or more persons to possess and use it to the 

exclusion of others. In this Code, the thing of which there may be 

ownership is called property.”]; see Civ. Code, § 655 [“There may 
21

be ownership of all inanimate things which are capable of 

appropriation or of manual delivery; of all domestic animals; of 

all obligations; of such products of labor or skill as the 

composition of an author, the good will of a business, trade marks 

and signs, and of rights created or granted by statute.”].) 

The type of property that can be subject to conversion is 

similarly broad. It includes not only tangible things, but 

“ ‘ “every intangible benefit and prerogative susceptible of 

possession or disposition.” [Citation.]’ ” (Welco Electronics, Inc. v. 

Mora (2014) 223 Cal.App.4th 202, 211 (Welco Electronics).) 

Courts have held a wide array of intangible interests may be 

converted, including a business’s net operating loss (Fremont, 

supra, 148 Cal.App.4th at p. 122), a credit line from a credit card 

(Welco Electronics, supra, 223 Cal.App.4th at p. 212), and 

corporate stock (Payne, supra, 54 Cal. at p. 342), to name a few. 

The question here is whether we may add the BTRC to this list.

We start with the nature of the BTRC. Every business 

within the City of Los Angeles must pay a business tax and 

obtain a BTRC in order to operate. (L.A. Mun. Code, § 21.03, 

subds. (a) & (b).) It is not a permit to do business, so obtaining a 

BTRC does not “authoriz[e] the conduct or continuance of any 

illegal business or of a legal business in an illegal manner.” 

(Id., § 21.01.) Indeed, each BTRC must have this disclaimer 

printed on the back: “This certificate does not authorize the 

person to conduct any unlawful business or to conduct any lawful 

business in an illegal manner or to conduct within the City of Los 

Angeles the business for which this certificate has been issued 

without strictly complying with all the provisions of the 

ordinances of said City, including but not limited to those 

requiring a permit from any board, commission, department or 
22

office of the City. THIS BUSINESS TAX REGISTRATION 

CERTIFICATE DOES NOT CONSTITUTE A PERMIT.” (Id., 

§ 21.08, subd. (b).) As defendants point out, the BTRC at issue 

here had a similar disclaimer that it was “ISSUED FOR TAX 

COMPLIANCE PURPOSES ONLY [¶] NOT A LICENSE, 

PERMIT, OR LAND USE AUTHORIZATION.” 

Under this scheme, then, a BTRC is a required, but not 

necessarily sufficient, step to operate a business in the City.

A BTRC also has limited transferability. While it is not 

transferable on its own, it is transferable “where the business 

taxed is transferred, whether by sale or otherwise, to another 

person under such circumstances that the real or ultimate 

ownership of the business after the transfer is substantially 

similar to the real or ultimate ownership existing before the 

transfer. For purposes of this section, stockholders, bond-holders, 

partners, or other persons holding an interest in a corporation or 

other entity herein defined to be a person are regarded as having 

the real or ultimate ownership of such corporation or other 

entity.” (L.A. Mun. Code, § 21.11.)

The BTRC in dispute here—obtained by the LLC prior to 

2007 to operate a medical marijuana dispensary—gained 

additional significance due to the developments in marijuana 

regulation in the City. Many cases have traced the history of 

marijuana laws in California and we need not repeat it. (See, 

e.g., Safe Life Caregivers v. City of Los Angeles (2016) 243 

Cal.App.4th 1029, 1033–1038 (Safe Life Caregivers) 

[summarizing medical marijuana law up to 2016].) Suffice it to 

say, starting in 2007, the City made several attempts to regulate 

medical marijuana dispensaries consistent with state law. The 

first law was a temporary Interim Control Ordinance that barred 
23

“Medical Marijuana Dispensaries,” except for “any dispensary 

established before the ordinance’s effective date (Sept. 14, 2007) 

and operating in accordance with state law, if the owner or 

operator of the dispensary were to register with the City Clerk by 

filing certain identified documents within 60 days (Nov. 13, 

2007).” (Id. at pp. 1034–1035.) Those documents included a 

BTRC. (420 Caregivers, LLC. v. City of Los Angeles (2012) 219 

Cal.App.4th 1316, 1327, fn. 3.) 

After other legal developments between 2007 and 2013 (see 

Safe Life Caregivers, supra, 243 Cal.App.4th at pp. 1035–1037), 

City voters enacted Proposition D in May 2013. Proposition D 

banned all medical marijuana businesses in the City but granted 

“limited immunity from prosecution under Los Angeles Municipal 

Code sections 11.00 (code violations generally) and 12.27.1 

(administrative nuisance abatement) to some establishments that 

are medical marijuana businesses as defined under the 

ordinance. . . . [T]his limited immunity extends ‘only [to] a 

medical marijuana business at the one location identified in its 

original or any amended business tax registration certificate 

issued by the City, and only if that medical marijuana business 

does not violate any of’ the 15 conditions” set forth in Proposition 

D. (People ex rel. Feuer v. Nestdrop, LLC (2016) 245 Cal.App.4th 

664, 669–670.) Those conditions included that the business “was 

established as of September 14, 2007, and registered with the 

City Clerk by November 13, 2007 [citation]; submits proof of 

continual ‘operation at the location set forth in its original or any 

amended business tax registration or tax exemption certificate’ 

[citation]; [and] registered to pay and pays applicable taxes to the 

City.” (Id. at p. 670; see People ex rel. Feuer v. Progressive 

Horizon, Inc. (2016) 248 Cal.App.4th 533, 540.)
24

The parties do not dispute that the LLC obtained its BTRC 

prior to 2007 and was grandfathered through these changes in 

the law, enabling it to continue operating the dispensary at the 

time Stark allegedly converted the LLC to a corporation in 2015 

and changed the address on the BTRC. 

The law has continued to evolve. “On November 8, 2016, 

California voters passed as an initiative measure the Control, 

Regulate and Tax Adult Use of Marijuana Act, more commonly 

known as Proposition 64. [Citation.] Proposition 64 legalized 

adult, recreational use of marijuana and reduced the criminal 

penalties for various offenses involving marijuana, including its 

cultivation and possession for sale.” (County of Kern v. Alta 

Sierra Holistic Exchange Service (2020) 46 Cal.App.5th 82, 106

(County of Kern).)

After the passage of Proposition 64, the Governor signed 

into law the Medicinal and Adult-Use Cannabis Regulation and 

Safety Act. (Bus. & Prof. Code, § 26000 et seq.) The statute 

repealed previous state law on medicinal marijuana and “created 

one regulatory system for both medicinal and adult-use (i.e., 

recreational) cannabis.” (County of Kern, supra, 46 Cal.App.5th 

at p. 106.) It did not “supersede or limit the authority of a local 

jurisdiction to adopt and enforce local ordinances to regulate 

businesses licensed under this division, including, but not limited 

to, local zoning and land use requirements, business license 

requirements, and requirements related to reducing exposure to 

secondhand smoke, or to completely prohibit the establishment or 

operation of one or more types of businesses licensed under this 

division within the local jurisdiction.” (Bus. & Prof. Code, 

§ 26200, subd. (a); see County of Kern, supra, at p. 106.)
25

In response to these state-level changes, the City repealed 

Proposition D effective January 1, 2018 and replaced it with 

Ordinance No. 185343, a comprehensive licensing scheme for 

retail sales of marijuana. (L.A. Mun. Code, § 104.00 et seq.; 

People v. Onesra Enterprises, Inc. (2018) 24 Cal.App.5th Supp. 9, 

15.) Ordinance No. 185343 was predicated on voter-enacted 

Proposition M passed the year before. Through Proposition M, 

City voters “contemplated that [medical marijuana businesses] 

‘that have been operating in compliance with the limited 

immunity [provided by Proposition D] . . . should continue to 

operate until City licenses or permits are available.’ ” (People v. 

Onesra Enterprises, Inc., supra, at p. 20.) To that end, Ordinance 

No. 185343 gave “ ‘an existing medical marijuana dispensary that 

is in compliance with all restrictions of Proposition D’ . . . priority 

in obtaining a city license, only as long as it has been in full 

compliance with the Proposition D requirements for limited 

immunity. (L.A. Mun. Code, § 104.07(a).)” (Id. at p. 20.) 

Thus, an existing medical marijuana dispensary that met

“ ‘all of Proposition D requirements shall continue to have limited 

immunity up until the time the [existing medical marijuana 

dispensary] receives Temporary Approval’ for a license to sell 

marijuana.’ (L.A. Mun. Code, § 104.07(b), italics added.)” (People 

v. Onesra Enterprises, Inc., supra, 24 Cal.App.5th Supp. at pp. 

20–21.) Ordinance No. 185343 also gave Proposition D-compliant 

dispensaries limited immunity from prosecution while their 

license applications were processed (L.A. Mun. Code, § 104.07, 

subd. (b)) and exempted them from some pre-licensing inspection 

and zoning requirements (id., § 104.07, subds. (g), (h)). 

There was a time limit in Ordinance No. 185343 for 

Proposition D-compliant dispensaries to obtain priority 
26

processing of licensing applications. They had to apply within 60 

days after the Los Angeles Department of Cannabis Regulation 

began “accepting applications.” (L.A. Mun. Code, § 104.07, subd. 

(a).) The record reflects the LLC sought to apply for this priority 

processing for a temporary license on January 30, 2018 by 

requesting the City unfreeze the BTRC. The City declined to 

process the application due to this ongoing litigation and the 

parties’ competing claims to the BTRC. It appears plaintiffs 

received a temporary license for the Canoga Park dispensary in 

2018 pending the City’s review of the priority processing 

application and the outcome of this lawsuit. 

This is a long way of saying the BTRC had real value to the 

LLC beyond registering with the City for tax purposes. It 

allowed the dispensary to operate when non-grandfathered 

dispensaries could not. More to the point, the parties are fighting 

tooth-and-nail over it in this litigation, and Stark has a contract 

to sell the dispensary business for nearly $2 million should he

win. As plaintiffs’ counsel astutely pointed out in the trial court, 

if the BTRC “has no value, give it to us, and [defendants] 

shouldn’t care about it. If they’re correct and it didn’t matter, 

they have given [it] to us already. We’d have no case.” Of course, 

defendants haven’t taken plaintiffs up on that offer.

We think the circumstances and nature of the BTRC here 

points ineluctably to characterizing it as property that can be 

converted. The treatment of other government certificates and 

licenses provides the closest analog. In Golden v. State (1955) 

133 Cal.App.2d 640 (Golden), the question was whether a federal 

tax lien could reach a liquor license as “property” under the 

federal tax code. Looking to the California Civil Code definitions 

of property, the court said yes. The license was “issued to a 
27

specific person,” was “renewable under the conditions expressed 

in the statute,” and was “transferable from one person to another 

upon approval” by the regulating agency and upon paying a 

transfer fee. (Golden, supra, at p. 643.) The court noted the 

limits on the number of on-sale licenses, coupled with 

transferability, created substantial value in the license, as 

demonstrated by $7,700 a purchaser paid into escrow, “the 

license being the principle item of value in the transfer.” (Id. at 

pp. 643–644.)

G.S. Rasmussen & Assocs. v. Kalitta Flying Serv., Inc. 

(9th Cir. 1992) 958 F.2d 896 (G.S. Rasmussen), was a conversion 

case involving a federally issued certificate permitting 

modifications to certain airplane designs. To obtain the 

certificate, the applicant must complete the “arduous process” of 

proving the modification is airworthy. (Id. at p. 899.) Taking a 

cue from Golden and other California cases, the federal court 

distilled three criteria to identify property subject to conversion 

in California: “First, there must be an interest capable of precise 

definition; second, it must be capable of exclusive possession or 

control; and third, the putative owner must have established a 

legitimate claim to exclusivity.” (G.S. Rasmussen, at pp. 902–

903, fns. omitted.) 

The court applied these criteria to find the certificate was 

property subject to conversion. It was “capable of precise 

definition: It enables an airplane owner to obtain an 

airworthiness certificate for a particular design modification 

without the delay, burden and expense of proving to the FAA that 

the plane so modified will be safe.” (G.S. Rasmussen, supra, 958 

F.2d at p. 903.) Federal regulations restricted the rights in the 

certificate to the holder, creating exclusive possession. (Ibid.) 
28

And the holder had a legitimate claim to exclusivity because he 

had invested significant time and effort to obtain the certificate. 

(Ibid.)

Plaintiffs urge us to apply this three-part test from G.S. 

Rasmussen to the BTRC. (See, e.g., Welco Electronics, supra, 223 

Cal.App.4th at p. 211 [applying test to find credit line from credit 

card was subject to conversion]; Kremen v. Cohen (9th Cir. 2003) 

337 F.3d 1024, 1030 [applying test to find Internet domain name 

was property subject to conversion].) Without deciding whether 

this test is always applicable in every case in which the property 

element of conversion is implicated, we agree the test stakes out 

useful guideposts here.

Interest Capable of Precise Definition. This criterion is 

easily met. A BTRC is a necessary feature for every business 

operating in the City. The LLC’s grandfathered BTRC for the 

medical marijuana dispensary here was capable of even more 

precise definition because it enabled that business to continue 

when dispensaries without grandfathered BTRCs could not. 

More so than the airworthiness certificate in G.S. Rasmussen

that merely allowed the holder to avoid additional delay, burden, 

and expense, the BTRC enabled the dispensary to exist.

Exclusive Possession or Control. This criterion is met 

because a BTRC is exclusive to the business that obtains it. 

Indeed, it is not transferable except when the underlying 

business is transferred and only in limited circumstances. 

(L.A. Mun. Code, § 21.11.)

Legitimate Claim to Exclusivity. This criterion is similarly 

met because the LLC applied for and maintained the BTRC for 

the Canoga Park dispensary location since 2007 until Stark 

attempted to change the registration address in 2015. The BTRC 
29

enabled the dispensary to navigate the City’s bans on similar 

dispensaries and may still provide preferential benefits. Again, 

like the time and effort to obtain the certificate in G.S. 

Rasmussen, the LLC’s efforts in obtaining and maintaining the 

BTRC established its legitimate claim to exclusivity.

Defendants insist the sin qua non of property is 

transferability, and because, in their view, the BTRC “cannot be 

transferred or sold, it is not property under Civil Code section 

654.” (See Yuba River Power Co. v. Nevada Irrigation Dist. 

(1929) 207 Cal. 521, 523 [“ ‘The term “property” is sufficiently 

comprehensive to include every species of estate, real and 

personal, and everything which one person can own and transfer 

to another. It extends to every species of right and interest 

capable of being enjoyed as such upon which it is practical to 

place a money value.’ ” (Italics added.)]; Douglas Aircraft Co. v. 

Byram (1943) 57 Cal.App.2d 311, 317; see also In re Marriage of 

McTiernan & Dubrow (2005) 133 Cal.App.4th 1090, 1100 [“[E]ven 

if incorporeal or intangible, property must be capable of being 

transferred. ‘[I]t is a fundamental principle of law that one of the 

chief incidents of ownership in property is the right to transfer it.’ 

[Citation.] ‘A common characteristic of a property right, is that it 

may be disposed of, transferred to another.’ ”].) 

None of the cases defendants cite involved the tort of 

conversion. As for the cases we have discussed, Golden found the 

transferability of the liquor license significant in defining it as 

property for the purpose of a federal tax lien statute. While G.S. 

Rasmussen did involve conversion and the court found it 

“relevant” that the certificate at issue was “transferrable and it 

may be licensed, in accordance with FAA procedures” (G.S. 

Rasmussen, supra, 958 F.2d at pp. 901–902), the court did not 
30

mention transferability in its three-part test for defining 

property. 

Whether the tort of conversion requires that the property 

be transferable is a question we need not decide because 

defendants’ factual premise is incorrect. As noted, a BTRC can 

be transferred, albeit in a very circumscribed way—as part of the 

sale of the business to which it belongs and only if “the real or 

ultimate ownership of the business after the transfer is 

substantially similar to the real or ultimate ownership existing 

before the transfer.” (L.A. Mun. Code, § 21.11.) Defendants have 

cited no law suggesting these kinds of strict limits on 

transferability strip the BTRC of its character as property for the 

purpose of conversion. (See Civ. Code, § 679 [“The ownership of 

property is absolute when a single person has the absolute 

dominion over it, and may use it or dispose of it according to his 

pleasure, subject only to general laws.” (Italics added.)]; 51 

Cal.Jur.3d Property, § 32 [“Even when transfer is generally 

permitted, restrictions on the manner of disposal of personal 

property may be enacted . . . .”].)6 

In the context of this case, the BTRC is a sufficiently 

definable interest exclusive to the LLC that it qualifies as 

property subject to conversion as a matter of law. The trial court 

erred in instructing the jury otherwise.

6 Defendants note the back of the BTRC says: “This 

certificate is void upon any change of ownership or location.” 

That may be true for a general change of ownership, but the 

BTRC may be transferred between the same effective owners as 

part of a transfer of the taxed business, as permitted by the 

Municipal Code.
31

This error almost certainly affected the jury’s verdict. The 

LLC’s conversion claim rested primarily on the theft of the 

BTRC. The jury must have focused on the BTRC because it not 

only asked what “property” meant in the verdict form but also 

asked specifically whether the BTRC qualified as property. 

When the court told them it was not property, the jury returned a 

defense verdict within 10 minutes, a strong signal the nature of 

the BTRC was dispositive. (Cf. Sandoval v. Bank of America 

(2002) 94 Cal.App.4th 1378, 1388 [question about verdict form 

reflected jury’s confusion, which was exacerbated by court’s 

erroneous response].) If the BTRC was not property as the court 

instructed the jury, the only “property” subject to conversion was 

perhaps the LLC’s physical assets, money, and product at the 

Canoga Park dispensary. The evidence was undisputed 

defendants took nothing from the dispensary, so it’s no surprise 

the jury so quickly found the LLC had the right to possess “the 

property” but the corporation did not interfere with that right. 

Defendants seem to imply plaintiffs suffered no prejudice 

from the court’s incorrect instruction because they failed to offer 

any evidence of damages. They cite testimony from Kersey that 

“the dispensary wasn’t making money for several years, 

especially during the time that [Stark] was the owner.” But the 

LLC didn’t seek lost profits as damages. As the jury was 

instructed, the LLC sought the fair market value of the 

“property” and compensation for the time and money it spent in 

attempting to recover the “property.” (See Civ. Code, § 3336.) 

The jury could have concluded the grandfathered BTRC had 

significant value by allowing the dispensary to continue 

operating as the legal landscape around it changed. This is 

perhaps best demonstrated by the nearly $2 million price tag on 
32

the corporation should the corporation be declared the rightful 

owner of the dispensary and the BTRC.

The trial court prejudicially erred by refusing to give the 

LLC’s proposed instruction that the BTRC was property and then 

instructing the jury the BTRC was not property as a matter of 

law. Upon any retrial, the court must instruct the jury the BTRC 

at issue here qualifies as property for the tort of conversion.

3. Plaintiffs Complied with Government Code 

Section 12261

Government Code section 12261 creates a procedure for the 

Secretary of State to reinstate a business entity to active status if 

“a court finds any of the following: [¶] (1) The factual 

representations by a shareholder, member, partner, or other 

person that are contained in the termination document are 

materially false. [¶] (2) The submission of the termination 

document to the Secretary of State for filing is fraudulent.” (Gov. 

Code, § 12261, subd. (a).)7 If a court orders reinstatement, the 

statute sets forth the information that must be contained in the 

court order. (Id., § 12261, subd. (b).) At issue here is the 

statutory procedure to obtain this court order: “The court order 

for reinstatement may be obtained by submitting a petition to the 

7 A “termination document” is defined as “the certificate or 

other document required by the Corporations Code that is the 

last certificate or document filed with the Secretary of State to 

effect the final dissolution, surrender, or cancellation of the 

business entity.” (Gov. Code, § 12260.) While the conversion 

document Stark filed isn’t listed, it qualifies because “[t]he filing 

with the Secretary of State of . . . articles of incorporation 

containing a statement of conversion . . . shall have the effect of 

the filing of a certificate of cancellation by the converting limited 

liability company . . . .” (Corp. Code, § 17710.06, subd. (d).)
33

superior court containing the legal and factual basis for 

reinstatement or as part of a civil action for damages or equitable 

relief. The Secretary of State shall not be made a party to the 

proceeding.” (Id., § 12261, subd. (c).)

In the trial court, defendants sought nonsuit on the LLC’s 

claims, arguing the LLC “lacked capacity” by not filing a petition 

for reinstatement pursuant to this provision. Defendants also 

sought nonsuit against both Kersey and the LLC on their 

declaratory relief claims because they did not “exhaust legal 

remedies,” again by not filing a petition to reinstate the LLC. 

It appears the court rejected these arguments because it allowed 

the LLC’s conversion and declaratory relief claims to proceed. 

If the court had believed the LLC was required to file a petition 

for reinstatement under this statute, then it would have 

dismissed all of the LLC’s claims.8

On appeal, defendants raise a new argument that Kersey 

lacked standing because she did not “restore” her interest in the 

LLC by petitioning for reinstatement pursuant to Government 

Code section 12261. While a party normally forfeits a claim 

raised for the first time on appeal (Truck Ins. Exchange v. AMCO 

Ins. Co. (2020) 56 Cal.App.5th 619, 635), plaintiffs do not argue 

forfeiture, so we turn to the merits. 

8 Plaintiffs did not address the Government Code section 

12261 issue in their opening brief on appeal, taking the position 

that the trial court must have rejected defendants’ arguments. 

In response, defendants argue plaintiffs forfeited the issue by not 

addressing it, taking the position the trial court did accept this 

argument in granting nonsuit. We agree with plaintiffs. We find

no forfeiture under the circumstances.
34

Defendants’ position that Kersey needed to file a separate

petition to reinstate the LLC pursuant to Government Code 

section 12261 contradicts the plain language of the statute. 

When we interpret a statute, “ ‘our goal is “to ascertain the intent 

of the enacting legislative body so that we may adopt the 

construction that best effectuates the purpose of the law.” ’ 

[Citation.] First, we must look to the words of the statute, which 

generally provide the most reliable indicator of legislative intent. 

[Citation.] If the statutory language is unambiguous, then we 

presume the Legislature meant what it said and our inquiry 

ends.” (Barker v. Garza (2013) 218 Cal.App.4th 1449, 1454.) 

Government Code section 12261 is clear: an individual 

may obtain a court order for reinstatement of a wrongly 

terminated business entity in one of two ways, either by (1) 

“submitting a petition to the superior court containing the legal 

and factual basis for reinstatement” or (2) “as part of a civil 

action for damages or equitable relief.” (Gov. Code, § 12261, 

subd. (c).) Defendants’ view that plaintiffs needed to file a standalone petition before pursuing their claims in this case is simply 

wrong.

While a separate petition is not necessary, plaintiffs did not 

expressly plead a claim for reinstatement pursuant to 

Government Code section 12261 as part of their complaint. 

But the statute does not impose any specific pleading 

requirements when seeking an order as part of a civil case. 

The statute only imposes a pleading requirement for a standalone petition, which must “contain[] the legal and factual basis 

for reinstatement.” This distinction makes sense. A court 

evaluating a stand-alone petition may know nothing about the 
35

facts supporting reinstatement, whereas a court handling other 

claims in a civil case probably will.

Plaintiffs’ complaint here was enough—albeit barely—to 

obtain an order for reinstatement, should one be warranted. 

The complaint was built on the core factual allegation that Stark 

transferred his membership in the LLC then filed documents 

with the Secretary of State converting the LLC and falsely 

representing he still had that membership interest. Plaintiffs 

sought a declaration that Kersey was the owner of the LLC and 

Stark was not. If a jury were to find Stark transferred his 

membership interest in the LLC to Kersey, plaintiffs’ complaint 

gave the trial court adequate grounds to issue an order declaring 

Stark fraudulently converted the LLC and reinstating the LLC. 

While we encourage parties in future cases to more clearly plead 

relief under Government Code section 12261, plaintiffs’ complaint 

was enough here.

For similar reasons, we reject defendants’ argument 

plaintiffs failed to expressly “plead that the modification filings 

were materially false or fraudulent.” This presumably refers to 

subdivision (a) of the statute, which directs the Secretary of State 

to reinstate an entity if a court finds factual representations were 

“materially false” or submission of the termination document was 

“fraudulent.” Again, this is not a pleading requirement. Even if 

it were, plaintiffs alleged Stark filed documents converting the 

LLC “without basis or authority” and was “never authorized” to 

convert the LLC to a corporation or mutual benefit corporation. 

While not using the magic words “fraudulent” or “materially 

false,” this was sufficient to allege entitlement to an “order for 

reinstatement . . . as part of a civil action for damages or 
36

equitable relief,” should one be warranted. (Gov. Code, § 12261, 

subd. (c).)

DISPOSITION

The judgment is reversed and the matter is remanded for 

further proceedings consistent with this opinion. Appellants are 

entitled to costs on appeal. 

CERTIFIED FOR PUBLICATION

BIGELOW, P. J.

We Concur:

STRATTON, J.

WILEY, J.