Source: https://www.keytlaw.com/callclaw/kennedy-vs-kennedy/
Timestamp: 2019-04-24 10:07:13+00:00

Document:
BRIAN KENNEDY, et al., Defendants and Appellants.
APPEALS from an order of the Superior Court of Los Angeles County, Richard Edward Rico, Judge. Affirmed.
Shartsis Friese, Arthur J. Shartsis, Mary Jo Shartsis, Richard F. Munzinger, Nicolas V. Saenz; Greines, Martin, Stein & Richland and Kent L. Richland for Defendants and Appellants.
O’Melveny & Myers, Daniel M. Petrocelli, Robert M. Schwartz, Jonathan Hacker and Molly M. Lens, for Plaintiff and Respondent.
Defendants, Brian Kennedy and, as to Skyline Outdoor Media LLC only, David Seyde, appeal from a May 13, 2014 order in favor of plaintiff, Drake Kennedy.
 The May 13, 2014 order denied defendants’ motion to stay dissolution of a number of corporations and limited liability companies and appoint appraisers to permit a buyout to occur. (Corp. Code, §§ 2000, 17707.03.) Defendants contend the trial court erred as a matter of law in refusing to order the stay, appraisal and buyout procedure in sections 2000 and 17707.03. We affirm.
Drake filed a complaint while Brian’s operative pleading is the second amended cross-complaint. Both pleadings allege extensive misconduct by the parties which are not directly pertinent to the controlling legal issues. Given our resolution of the legal issues, we need not discuss the parties’ mutual allegations and evidence of corporate misconduct.
Drake’s complaint was filed against defendants on September 25, 2013. In addition to Brian, Mr. Seyde and Skyline Outdoor Media LLC, named as defendants were: Regency Outdoor Advertising, Inc.; Corona Outdoor, Inc.; Westminster Outdoor, Inc.; Virtual Media Group, Inc.; West Hollywood Properties LLC; and Kennedy Outdoor Advertising LLC. As can be noted, other than Brian and Mr. Seyde, some defendants are corporations and others are limited liability companies. According to the complaint, Drake and Brian each owned a 50 percent interest in what we will refer to as “the corporations”: Regency Outdoor Advertising, Inc.; Corona Outdoor Advertising, Inc.; Westminster Outdoor, Inc.; and Virtual Media Group, Inc.
In terms of the limited liability companies, Skyline Outdoor Media LLC and West Hollywood Properties LLC, Drake and Brian held different interests. Drake and Brian held a 50 percent interest in West Hollywood Properties LLC. Drake and Brian each held a 40 percent interest in Skyline Outdoor Media LLC. Mr. Seyde held a 20 percent interest in Skyline Outdoor Media LLC. West Hollywood Properties LLC and Skyline Outdoor Media LLC will hereafter be referred to as the “limited liability companies.” Collectively, the corporations and limited liability companies will be referred to as the “companies.” Drake and Brian were each a director, officer, and shareholder or member of each of the companies. Mr. Seyde was a member of Skyline Outdoor Media LLC and held a senior management position in Regency Outdoor Advertising, Inc. Brian was the sole member of Kennedy Outdoor Advertising LLC.
The complaint alleges that Brian: stopped communicating with Drake about most business matters; restricted Drake’s access to information and the books and records: looted and diverted corporate assets; refused to pay costs defending a lawsuit; stole valuable real estate located at the intersection of Sunset Boulevard and Queens Road from West Hollywood Properties LLP; and, with the assistance of Mr. Seyde, transferred the Sunset Boulevard and Queens Road property to Kennedy Outdoor Advertising LLC. Kennedy Outdoor Advertising LLC was an entity owned entirely by Brian. It is alleged Mr. Seyde, with Brian’s assistance, directly competed with Regency Outdoor Advertising, Inc. in the outdoor advertising business. Further, it is alleged Brian and Mr. Seyde created Kennedy Outdoor Advertising LLC to compete with the corporations and West Hollywood Properties LLC.
Drake’s complaint alleges causes of action against defendants collectively or individually: fiduciary duty breach; fraudulent concealment; aiding and abetting and conspiracy to commit fiduciary duty breach; aiding and abetting and conspiracy to commit fraudulent concealment; quiet title; ejectment; director removal; inspection right violation; accounting; and declaratory relief. Depending on the claims, they are brought as derivative or direct actions. Drake’s complaint also contains a cause of action for involuntary dissolution of the corporations and the limited liability companies. The involuntary dissolution claim seeks the appointment of a receiver to take possession of all of the companies’ assets and an order requiring they be sold to a third party. All of defendants’ alleged misconduct occurred prior to September 25, 2013. None of the claims in the involuntary dissolution cause of action are derivative in nature.
On July 14, 2014, Brian filed a second amended cross-complaint against: Regency Outdoor Advertising, Inc.; Drake and Stephanie Kennedy; Corona Outdoor Advertising, Inc.; Westminster Outdoor Inc; Virtual Media Group, Inc.; West Hollywood Properties LLC; and Skyline Outdoor Media, LLC. The second amended cross-complaint contains causes of action for: common counts; conversion; unjust enrichment; fiduciary duty breach; aiding and abetting and conspiracy to commit fiduciary duty breach; constructive fraud; imposition of a constructive trust; director removal; constructive trust imposition; “judicial dissociation” of Drake; promissory estoppel; and trade secret misappropriation. Some of the claims are direct while others are derivative in nature. The second cause of action seeks damages, “disgorgement for unjust enrichment,” various judicial decrees and costs of suit and attorney fees.
On January 28, 2014, defendants filed a motion to stay dissolution and appoint appraisers. The motion was brought pursuant to sections 2000 as to the corporations and 17707.03, subdivision (c) as to the limited liability companies. This would allow defendants to avoid dissolution by purchasing Drake’s ownership interests in the companies. Mr. Seyde filed the motion to stay dissolution and appoint appraisers as to Skyline Outdoor Media LLC only. On February 14, 2014, Drake dismissed with prejudice his involuntary dissolution cause of action. On May 13, 2014, defendants’ motion to stay dissolution and appoint appraisers was denied. The trial court disagreed with defendants’ contention that the invocation of their buyout rights was barred because of the dismissal of Drake’s involuntary dissolution cause of action, “[T]he court finds that as a result of [Drake’s] dismissal of the dissolution claim, the court lacks jurisdiction to consider defendants’ motion for buyout under section[s] 2000 and 17707.03.” The trial court ruled section 17707.03, subdivision (c)(6) did not apply because it was not operative until after Drake filed suit.
Defendants contend the trial court erred in denying their motion to stay dissolution and appoint appraisers under section 2000, subdivision (a). Defendants reason the statutory buyout procedure supplanted the dissolution action. We disagree.
Section 2000, subdivision (a) provides: “Subject to any contrary provision in the articles, in any suit for involuntary dissolution, . . . the holders of 50 percent or more of the voting power of the corporation (the ‘purchasing parties’) may avoid the dissolution of the corporation and the appointment of any receiver by purchasing for cash the shares owned by the plaintiffs or by the shareholders so initiating the proceeding (the ‘moving parties’) at their fair value. The fair value shall be determined on the basis of the liquidation value as of the valuation date but taking into account the possibility, if any, of sale of the entire business as a going concern in a liquidation. . . .” Section 2000, subdivision (a) expressly provides the right to purchase the shares of a plaintiff is an alternative to an involuntary dissolution of a corporation. Section 2000, subdivision (a) applies to any suit seeking an involuntary dissolution. Under those circumstances, the purchasing shareholders “may avoid the dissolution of the corporation and the appointment of any receiver” by buying the plaintiff’s shares. Nothing in section 2000, subdivision (a) provides for a buyout independent of a pending involuntary dissolution suit.
The Court of Appeal granted the defendant’s prohibition petition. Construing former section 4658, the Court of Appeal held: “There is no independent right on the part of one or more stockholders in a corporation to compel the sale to them of the shares of stock of another. There being no such independent right it must follow that there could be no cause of action stated to compel such a sale whether by way of a cross-complaint or counterclaim which would survive after dismissal of the action for involuntary dissolution of the corporation in which the remedy of purchase is given. It is apparent that the real parties in interest here could not bring or maintain a separate action against petitioner the purpose of which would be to compel him to sell his stock to them. Under these circumstances, the remedy provided the real parties in interest under the provisions of section 4658 and section 4659 of the Corporations Code is ancillary to and is dependent upon the existence of the action to compel the involuntary dissolution of the corporation, and upon the dismissal of such action there is nothing left against which the ancillary remedy may be asserted or upon which it may be applied. [¶] In the case at bench, the action for involuntary dissolution having been dismissed with prejudice prior to a decision confirming an award as provided in section 4659 of the Corporations Code, there was left no basis upon which the trial court could make its order, the purpose of which was to ascertain the fair cash value of petitioner’s shares and to permit the real parties in interest to purchase them in order to avoid the involuntary dissolution of the corporation. The making of such an order constituted an act in excess of the jurisdiction of the respondent court.” (Cubalevic, supra, 240 Cal.App.2d at p. 562.) We agree with the trial court that the analysis in Panakosta and Cubalevic, coupled with the express language of section 2000, subdivision (a), required the buyout motion be denied.
Defendants contend they are entitled to buy out Drake’s interests in the limited liability companies even though he dismissed his involuntary dissolution cause of action. Defendants rely on section 17707.03, subdivision (c)(6) which, in the context of limited liability companies, states, “A dismissal of any suit for judicial dissolution by a manager, member, or members shall not affect the other members’ rights to avoid dissolution pursuant to this section.” Section 17707.03, subdivision (c)(6) was enacted in 2012. (Stats. 2012, ch. 419, § 20.) Defendants argue that Section 17707.03, subdivision (c)(6) cannot be applied to this case because it was not operative when the conduct which allegedly permits dissolution occurred.
Before analyzing the parties’ retroactivity contentions, it is appropriate to review the events leading up to the adoption of section 17707.03, subdivision (c)(6). Enacted in 1994, the Beverly-Killea Limited Liability Company Act was largely codified in former section 17000 et seq. (Stats. 1994, ch. 1200, §§ 1-100, pp. 7274-7413; see CB Richard Ellis, Inc. v. Terra Nostra Consultants (2014) 230 Cal.App.4th 405, 411, fn. 4.) Former section 17000 et seq. comprehensively governed the affairs of limited liability companies. (Nicholas Laboratories, LLC v. Chen (2011) 199 Cal.App.4th 1240, 1252; see People v. Pacific Landmark (2005) 129 Cal.App.4th 1203, 1211-1212; Sen. Com. on Judiciary, Rep. on Sen. Bill No. 323 (2011-2012 Reg. Sess.) as amended Jan. 4, 2012, p. 2.) Former section 17000 et seq. was codified in title 2.5 of the Corporations Code. The Beverly-Killea Limited Liability Company Act was replaced in 2012 by the California Revised Uniform Limited Liability Company Act. (Stats. 2012, ch. 323, §§ 1-32; Legis. Counsel’s Dig., Sen. Bill No. 323; see CB Richard Ellis, Inc. v. Terra Nostra Consultants, supra, 230 Cal.App.4th at p. 411, fn. 4.) The California Revised Uniform Limited Liability Company Act enacted new Corporations Code title 2.6 which consists of section 17701.01 et seq. New title 2.6, the California Revised Uniform Limited Liability Company Act, replaced former title 2.5 of the Corporations Code.
Defendants argue that section 17707.03, subdivision (c)(6) applies to this action which was commenced by the filing of Drake’s complaint on September 25, 2013. Drake argues though that the unique retroactivity and operative date provisions applicable to limited liability companies prevents section 17707.03, subdivision (c)(6) from applying here. Drake has the better argument.
Also, committee and caucus reports state the Beverly-Killea Limited Liability Company Act was to be repealed effective January 1, 2014. (Sen. Com. on Judiciary, op. cit., pp. 19-208; Sen. 3d reading analysis of Sen. Bill No. 323 as amended Aug. 14, 2012, p. 1; Assem. Republican Caucus, analysis on Sen. Bill No. 323 as amended Aug. 14, 2012, p. 1; Assem. Republican Caucus, analysis on Sen. Bill No. 323 as amended Aug. 23, 2012, p. 1; Sen. 3d reading analysis of Sen. Bill No. 323 as amended Aug. 23, 2012, p. 1; Assem. Com. on Judiciary, Rep. on Sen. Bill No. 323 as amended Aug. 23, 2012, p. 2; Sen. Rules Com., Off. Of Sen. Floor Analysis, Unfinished Business Analysis of Sen. Bill No. 323 as amended Aug. 29, 2012 (2011-2012 Reg. Sess.).) Additionally, the Legislative Counsel’s Digest for Senate Bill No. 323 states that the Beverly-Killea Limited Liability Company Act is repealed as of January 1, 2014. Further, former section 17657, subdivision (b) was adopted as section 19 of Senate Bill No. 323. Former section 17657, subdivision (b), which was part of title 2.5 of the Corporations Code, stated, “This title shall remain in effect only until January 1, 2014, and as of that date is repealed. . . .” As noted, the Beverly-Killea Limited Liability Company Act enacted title 2.5 of the Corporations Code.
We now return to the language in section 17713.03 which states, “This title does not affect an action commenced, proceeding brought, or right accrued or accruing before this title takes effect.” The plain language of section 17713.03 provides that title 2.6, which includes section 17707.03, subdivision (c)(6), may not affect a lawsuit under four circumstances: where a lawsuit is filed before January 1, 2014; where a proceeding is brought before that date; where a right accrues prior to that date; or a right is accruing before January 1, 2014. As is clear, section 17713.03 is written in the disjunctive, which in its ordinary sense functions to mark an alternative meaning as “‘either this or that’” in statutes. (Houge v. Ford (1955) 44 Cal.2d 706, 712; accord Barker Bros., Inc. v. Los Angeles (1938) 10 Cal. 2d 603, 606.) The dispute at issue involves words “takes effect” in section 17713.03. Defendants contend it is the effective date of the statute. (Cal. Const., art. IV, § 8, subd. (c)(1); Gov. Code, § 9600, subd. (a).) Drake argues it is the date the statute became operative. (§ 17713.13.) The Beverly-Killea Limited Liability Company Act, which was found in former title 2.5 of the Corporations Code, remained in effect until January 1, 2014. (See 9 Witkin, Summary of Cal. Law (2014 Supp.) Partnership, § 192, p. 168.) Thus, title 2.6 of the Corporations Code, which includes section 17707.03, subdivision (c)(6), was not in effect, i.e. operative, until January 1, 2014. (See 5 Ballantine & Sterling, California Corporation Laws (4th ed. 2014) Legislative Alert to Chapter 27, p. SA-27-1 (Rel. 119-6/2013).) As noted, the present action was commenced before January 1, 2014. Because Drake’s complaint was filed prior to January 1, 2014, title 2.6 of the Corporations Code, which includes section 17707.03, subdivision (c)(6) does not apply to the present action. (§ 17713.03; see CB Richard Ellis, Inc. v. Terra Nostra Consultants, supra, 230 Cal.App.4th at p. 411, fn. 4.) Thus, we agree with the trial court that the dismissal of the involuntary dissolution cause of action prevented defendants from invoking their buyout rights in the limited liability companies.
Second, defendants contend that other provisions of the Corporations Code reflect a legislative intent to allow a buyout to occur outside the context of limited liability companies. No such legislative intent is present. Moreover, the Legislature has never evinced an intent to modify the power of a plaintiff to unilaterally dismiss a cause of action. In the published portion of this opinion, we have previously discussed the effect of a dismissal of an involuntary dissolution claim. (See pp. 5-12, supra.) Apart from section 17707.03, subdivision (c)(6), which applies to limited liability companies only, a dismissal of a corporate dissolution claim eliminates the need for a buyout. Only in the context of section 17707.03, subdivision (c)(6) has a Legislature expressed any interest in modifying the effect of a dismissal request by a plaintiff.
Third, defendants rely on a statute of limitations case, County of Sacramento v. Llanes (2008) 168 Cal.App.4th 1165, 1174. Defendants argue that Llanes stands for the proposition that the terms “enactment” and “effective date” have distinct meanings when applied to statutes. Llanes is a case involving a paternity judgment. It has nothing to do with the specific issues raised by sections 17707.03, subdivision (c)(6) and 17713.03 in the context of the California Revised Uniform Limited Liability Company Act.
Fourth, in their post-argument letter brief, defendants argue the Legislature intended that the California Revised Uniform Limited Liability Company Act go into effect as soon as possible. This intention resulted from the alleged legislative view that the primary problem with the Beverly-Killea Limited Liability Company Act was that it was not uniform with other states’ statutory provisions. The flaw with defendants’ argument is that the Beverly-Killea Limited Liability Company Act remained in full force and effect until January 1, 2014. Here there are two comprehensive statutory regimes—the California Revised Uniform Limited Liability Company and Beverly-Killea Limited Liability Company Acts. There are no committee reports which support the conclusion the Legislature intended that both comprehensive limited liability company statutes be simultaneously in effect. No doubt, the Legislature intended that the California Revised Uniform Limited Liability Company Act go into effect as soon as practical, as defendants reason. But the simple truth is the Legislature fixed that date at January 1, 2014, not earlier.
The May 13, 2014 order denying the motion to stay dissolution and appoint appraisers is affirmed. Plaintiff, Drake Kennedy, shall recover his costs incurred on appeal from defendants, Brian Kennedy, David Seyde and Skyline Outdoor Media LLC.
* Pursuant to California Rules of Court, rules 8.1100(b) and 8.1110, this opinion is certified for publication with the exception of part III (C).
† Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
* Pursuant to California Rules of Court, rules 8.1100(b) and 8.1110, this opinion is certified for publication with the exception of parts II (A), (B) and (D).
 Because they share the same surname, for clarity’s purposes, we shall refer to Drake and Brian Kennedy by their first names.
 Further statutory references are to the Corporations Code unless otherwise specified.
 Future references to Senate Bill No. 323 are to the bill enacted in the 2011-2012 Regular Session.

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