Source: https://www.keytlaw.com/callclaw/cb-richard-ellis-inc-v-terra-nostra-consultants/
Timestamp: 2019-04-24 09:54:10+00:00

Document:
TERRA NOSTRA CONSULTANTS et al., Defendants and Appellants.
No. G049803.Court of Appeals of California, Fourth District, Division Three.Filed October 7, 2014.
Law Office of Brenda D.E. Yanoschik and Brenda D.E. Yanoschik for Defendants and Appellants Terra Nostra Consultants, Hanan Haskell, Israel Feit, Roy Matthew Haskin, Roy Randall Haskin, Jack DiLemme, and C&R Consultants, Inc.
Walters & Caietti and Robert M. Caietti for Defendants and Appellants Charles Ratzersdorfer, Naftali Ratzersdorfer, David Tarabulsi, Avi Gross, Moshe Gross, Zvi Tennenbaum, Yair Weill, Zvi Frankenthal, Haim Weiss, Zvi Ben Zvi, Amiram Lasker, Dov Schwartz, Tomy Deutsch, Jacob Oren, Eitan Feldbaum, and Bruce G. Keeton, as trustee of the Bruce G. Keeton Trust.
Corbett, Steelman & Specter, Ken E. Steelman, and Susan J. Ormsby for Plaintiff and Appellant.
Plaintiff CB Richard Ellis, Inc. (CBRE), citing a 2004 listing agreement, sought a commission after the 2005 sale of 38 acres of land in Murrieta, California (the Property). Arbitration proceedings between CBRE and the seller, Jefferson 38, LLC (Jefferson), resulted in a confirmed arbitral award in CBRE’s favor, but no monetary satisfaction for CBRE because Jefferson had no assets by the time of the arbitral award and judgment.
This action represents CBRE’s attempt to recover damages from Jefferson’s individual members. A jury trial resulted in a $354,000 judgment in favor of CBRE. Both defendants and CBRE appeal the judgment, citing alleged errors pertaining to jury instructions, the admissibility of evidence, juror misconduct, attorney fees, and prejudgment interest. We reject the parties’ contentions, except with regard to CBRE’s entitlement to attorney fees.
In March of 2004, CBRE and Jefferson signed an exclusive sales listing agreement for the Property. CBRE agreed to use its “best efforts to effect a sale” of the Property within the term of the listing agreement. Subject to certain exclusions, Jefferson agreed to pay a sales commission of 6 percent of the gross sales price for any sale completed within the term of the listing agreement. Utilizing its expertise and contacts, CBRE sought a buyer for the Property.
On September 16, 2004, Covenant Development, Inc. (Covenant), through its agent David Stolte of NAI Capital, transmitted a letter of intent to Jefferson to purchase the Property for $11 million. Jefferson directly responded to Stolte the next day with a counteroffer of $12 million. Before this exchange of letters, an individual representing Jefferson told Stolte that Jefferson had fired CBRE because they had not moved the sale forward fast enough.
Meanwhile, CBRE continued to market the Property. On November 10, 2004, CBRE contacted a Jefferson representative regarding additional potential buyers. Jefferson responded with a letter the next day, stating Jefferson’s position that the listing agreement expired six months from its March 8, 2004 listing date. Jefferson acknowledged a pending letter of intent identifying Walmart as a prospective buyer, a deal that would result in a commission for CBRE. But Jefferson otherwise expressed its dissatisfaction with CBRE’s performance, which (according to the letter) led Jefferson to allow the listing agreement to expire. CBRE claims the term of the listing agreement was actually one year, plus applicable extensions based on the circumstances of the sale. There is no evidence CBRE took action to insert themselves into the negotiations between Jefferson and Covenant.
In a transaction between Jefferson and an entity to which Covenant assigned its interests, the sale of the Property eventually closed on July 11, 2005 for a gross sales price of $11,800,000. Escrow would have closed sooner but for two extensions requested and paid for by Covenant. NAI Capital (the buyer’s agent) received a commission payment of $354,000 (i.e., 3 percent of the gross sales price) out of an aggregate commission of $708,000 (i.e., 6 percent of the gross sales price); the other half of the commission was paid to L. James Grattan & Associates, which was designated as the seller’s agent. Roy Matthew Haskin (a defendant and judgment debtor) worked for L. James Grattan & Associates and began representing Jefferson as the seller’s agent “right around [the] same time” Covenant submitted its offer. Roy Matthew Haskin personally received $264,000 for his services. CBRE did not receive a commission. There is no evidence CBRE attempted to make a claim upon the funds deposited into escrow.
On July 12, 2005, $11,025,625 was transferred into Jefferson’s bank account as a result of the close of escrow. The next day, Jefferson transferred all but $474.45 out of its account. This money was ultimately transferred in varying amounts to defendants and others. There is no evidence CBRE made a claim upon Jefferson at this time or otherwise attempted to interfere with the distribution of funds.
In June 2009, CBRE filed a complaint for breach of written contract and prohibited distributions in the instant case against defendants, the alleged individual members of Jefferson. A jury trial commenced in July 2011. By way of a special verdict, the jury found that CBRE and Jefferson entered into a contract, CBRE performed its contract obligations, all the conditions occurred that were required for Jefferson’s performance, Jefferson failed to perform, and CBRE was harmed in the amount of $354,000 by that failure to perform. The jury also found the dissolution of Jefferson occurred and Jefferson made a distribution to its members upon dissolution. In separate special verdicts, the jury found each of the defendants were members of Jefferson, then specified the amount distributed to each of these defendants upon the dissolution of Jefferson.
The court entered judgment in accordance with the special verdicts, awarding $354,000 to CBRE and against defendants (jointly and severally up to their individual limit as established by the jury’s determination of the amount distributed to each defendant upon dissolution). The court denied CBRE’s posttrial motions for attorney fees and prejudgment interest, as well as defendants’ motions for a new trial and judgment notwithstanding the verdict.
Defendants do not challenge the sufficiency of the evidence with regard to any of the jury’s factual findings, e.g., Jefferson’s breach of contract, CBRE’s damages, defendants’ membership in Jefferson, or the amount distributed to each defendant upon Jefferson’s dissolution. Instead, defendants claim they are entitled to a new trial based on instructional error, evidentiary error, and juror misconduct.
Applying this instruction, the jury concluded that Jefferson dissolved and defendants received distributions upon dissolution, presumably based on undisputed evidence that Jefferson’s only substantial asset was the Property, the proceeds of the July 2005 sale of the Property were distributed immediately after the sale, Jefferson conducted no substantial business after the close of escrow, and Jefferson filed a certificate of cancellation with the California Secretary of State on February 27, 2006 (signed February 16 by Hanan Haskell and Roy Randall Haskin) indicating Jefferson had been dissolved in a vote by all of its members.
Defendants contend special instruction No. 2 incorrectly states the law. The court rejected defendants’ proposed special instruction on the issue, which tracked (nearly word for word) former section 17350. Defendants’ position is that the jury should have been limited to inquiring whether one of the three preconditions to dissolution (as stated in former § 17350, (1) an occurrence specified in the governing documents, (2) a majority vote of the members to dissolve, or (3) a judicial dissolution decree) had happened before distribution to defendants. According to defendants, the jury cannot be allowed to determine the date of dissolution by conducting a free-ranging inquiry into when a limited liability company ceases to operate in the ordinary course of business. Thus, defendants posit, so long as the distribution of funds to members comes before the de jure dissolution of a limited liability company, the distribution was not “upon dissolution.” (Cf. Bacarella Transp. Services, Inc. v. Right Way Logistics, LLC (D.Conn. 2009) 639 F.Supp.2d 249, 254-257 [granting summary judgment in favor of members because limited liability company was not dissolved at time of lawsuit].) By limiting “dissolution” to the specified statutory preconditions, defendants seek to prohibit the application of former section 17355 when the distribution precedes, as relevant here, the vote of the members to dissolve the limited liability company.
It is unclear whether the Legislature intended former section 17350 to preclude a determination (for purposes of an action pursuant to former § 17355 or otherwise) that a limited liability company dissolved prior to the date of any of the three circumstances specified. Certainly, the plain language of the statute does not explicitly preclude that possibility. The statute does not say there are no other potential causes of dissolution. Nor does the statute indicate that satisfaction of one of the three statutory events is the exclusive determinant of dissolution. Pertinent legislative history likewise does not provide an answer to this question.
To break this interpretive logjam, we interpret former section 17350 in light of the purposes of the entire statutory scheme, and in particular the purpose of section 17355, subdivision (a)(1). It is self-evident that former section 17355, subdivision (a)(1), was designed to prevent the unjust enrichment of members of limited liability companies, when such members have received assets the dissolved company needs to pay creditors. (See Gottlieb v. Kest (2006) 141 Cal.App.4th 110, 154 [former § 17355 “simply creates an enforcement mechanism so that company liabilities can be recovered out of distributed assets; it `compel[s] [a member] to return distributed assets'”].) Other sections contemplate that limited liability companies will not distribute funds to members without reserving sufficient assets to pay debts and liabilities. (Former §§ 17254, 17353.) If defendants’ interpretation of the statutory scheme were correct, companies (and their members) could avoid the force of former section 17355, subdivision (a)(1)(B), by the simple expedient of transferring assets out of the company the day before voting to dissolve. On the other hand, CBRE’s interpretation of former section 17350 allows for a jury to find that the company had actually dissolved at the time of the distribution, based on the reality of the company’s finances and operations.
We agree with CBRE and hold that the jury was correctly instructed. “De facto” dissolution is an acceptable predicate to a claim under former section 17355, subdivision (a)(1)(B).
Denying a motion in limine and overruling repeated objections by defendants, the court authorized the admission of evidence pertaining to the arbitral award against Jefferson, including exhibit 77, a copy of the arbitral award. Defendants contend the court erred because this evidence supposedly allowed the “jury to review, weigh, and be influenced by the Arbitrator’s reasoning and factual determinations, which goes well beyond the permissible scope of judicial review of arbitration awards. The jury was to determine the facts based on the relevant evidence presented at trial, not based on an Arbitrator’s determination of facts . . . .
The court erred by admitting the entire arbitral award, complete with the arbitrator’s factual findings and reasoning. As the court recognized, the arbitral award could not collaterally estop defendants. (See Vandenberg v. Superior Court (1999) 21 Cal.4th 815, 824; Gottlieb v. Kest, supra, 141 Cal.App.4th at p. 154 [former § 17355, subds. (a)(3), (b) “does not permit a court to declare a member personally liable for fraud based solely on a judgment against the company”].) And, as explained above, Jefferson’s individual members cannot be held to account for Jefferson’s liabilities as a matter of course. (§ 17703.04, subd. (a).) CBRE needed to prove its breach of contract action at trial on the merits against defendants. To the extent the jury needed background information concerning the arbitration to make sense of the case, the information could have been provided to the jury without revealing the arbitrator’s factual findings and legal reasoning.
Even if we were to overlook defendants’ forfeiture and conduct a prejudicial error review without the benefit of briefing, we would conclude (based on our review of the record) that there is not a reasonable probability defendants would have obtained a more favorable result had the arbitration award been excluded from evidence. For one, the five-page award is terse and conclusory (and deals largely with the procedural history of the arbitration). It does not wrestle with the factual complexities introduced at trial because it was a default proceeding. Second, CBRE did not ask the jury to defer to the arbitrator’s findings. CBRE’s counsel stated in closing argument, “I’m not suggesting that . . . the arbitrator is taking over your position. You’re going to independently determine the evidence as it’s in here.” Finally, the jury did not simply adopt the arbitrator’s view of the case. Recognizing the need to pay the buyer’s agent, the jury awarded only 3 percent of the purchase price as damages to CBRE rather than the full 6 percent commission set forth in the listing agreement (and awarded by the arbitrator, alongside interest, attorney fees, and costs).
Defendants also claim they are entitled to a new trial based on alleged juror misconduct. On appeal, defendants’ assertion is limited to the accusation leveled by two jurors in posttrial declarations that a third juror (referred to as Juror B) said, at least three times during deliberations, that “if he could only tell [them] what he knew about these defendants and the ranch, [the jury] would see how these people are guilty, guilty, guilty.” These declarations were very brief, consisting of a few sentences of information.
Here, there is substantial evidence supporting the court’s conclusion that no misconduct occurred — Juror B’s thorough declaration denying he had preexisting knowledge concerning defendants or that he uttered the alleged improper statement. The court explicitly rejected the credibility of the other two jurors based on their brief, conclusory declarations. That is the end of our inquiry; there is no need to decide whether the court should have granted a new trial had it found Juror B actually said what he was accused of saying.
CBRE limits its appeal to the court’s denial of CBRE’s posttrial motions for attorney fees and prejudgment interest.
CBRE claims attorney fees are authorized by the listing agreement (which was signed by Jefferson, not defendants) in conjunction with CBRE’s statutory basis for recovery against defendants (i.e., Jefferson’s members). We agree with CBRE’s position and therefore reverse the court’s order denying the recovery of attorney fees.
The statute explicitly authorizes CBRE to enforce its breach of contract “cause of action” against defendants. Thus, subject to the limitation that they cannot be held liable beyond the amount they were distributed “upon dissolution,” Jefferson’s members were deemed to be statutory parties to the contract with CBRE by reason of the jury’s findings pertaining to Jefferson’s dissolution. The obvious purpose behind this statute is to dissuade limited liability companies from distributing funds to its members without paying creditors (or reserving sufficient funds to pay contingent claims) during the winding up process. Because CBRE could recover attorney fees pursuant to the listing agreement against Jefferson, former section 17355 likewise authorizes the recovery of attorney fees against defendants (i.e., Jefferson’s members), so long as the total recovery against any individual member does not exceed that member’s distribution upon dissolution. Allowing defendants to escape payment of attorney fees would only encourage abuses by limited liability companies seeking to avoid the payment of attorney fees when there are disputed creditor’s claims.
This is not an alter ego case. But the statutory remedy provided by former section 17355 is similar to alter ego doctrine in that it prohibits investors from inequitably leaving creditors high and dry with an empty judgment against an insolvent entity. Likewise, had defendants prevailed on the merits in this action, CBRE should not have been able to disclaim its contractual obligation to pay attorney fees for an unsuccessful attempt to enforce the listing agreement. In sum, CBRE is entitled to an award of reasonable attorney fees as the prevailing party in this civil litigation.
We disagree, however, with CBRE’s contention that it should be allowed to recover the attorney fees it incurred when it arbitrated its breach of contract claim with Jefferson. Defendants are simply not liable for any aspect of the arbitral judgment, whether for damages, attorney fees, costs, or interest. Former section 17355 does not hold members liable for judgments entered against a dissolved limited liability company. Instead, it authorizes third parties to enforce against members of a dissolved limited liability company the causes of action that ordinarily would be brought against the limited liability company.
Additional facts complicate the picture, however. The listing agreement required payment of a 6 percent commission to CBRE (not 3 percent). Although the listing agreement authorized CBRE to share the commission with a buyer’s agent, it did not specify that the split would necessarily be equal. Testimony suggested commissions usually are split in this fashion, but not in all cases. In CBRE’s initial arbitration filings against Jefferson, it requested $363,000 (on July 12, 2006), then $726,000 (on July 10, 2008). CBRE obtained a judgment of $985,439.80 (including damages, attorney fees, interest, and costs) against Jefferson as a result of the confirmed arbitral award. CBRE’s complaint requested the same $985,439.80 in damages against defendants, which included but was not limited to a $708,000 commission (i.e., 6 percent of the sales price). (See Wisper Corp. v. California Commerce Bank (1996) 49 Cal.App.4th 948, 961 [“The greater the disparity between the complaint and the damages, . . . the less likely prejudgment interest is appropriate”].) There is no evidence CBRE demanded at any time before trial that defendants pay $354,000 (or even $708,000) to satisfy CBRE’s claim.
On appeal, CBRE acknowledges there were at least two possible damage awards: $708,000 (6 percent) or $354,000 (3 percent). But CBRE argues the jury’s selection of the lower figure represents an offset, which should not affect CBRE’s right to prejudgment interest. Indeed, some of the defendants pleaded offset as an affirmative defense, claiming CBRE would be required to share any commission with cooperating brokers.
This is a difficult issue. Had CBRE consistently requested and advocated for a commission of $354,000, it would have been entitled to prejudgment interest. But under the specific circumstances of this case, damages were uncertain and unliquidated. The jury was instructed with a modified version of CACI No. 350, which pertains to contract damages. The jury was tasked with determining the harm suffered by CBRE as a result of any breach by Jefferson that might have occurred. The jury was not instructed to consider the effect of cooperating broker commissions as an affirmative defense or offset. In closing argument, CBRE’s counsel stated damages amounted to 6 percent of the sales price (“over $700,000”). Neither defense counsel argued in their closing arguments for $354,000 to be awarded because of the need to pay a buyer’s agent commission. Neither defense attorney mentioned the issue of damages, preferring to argue there was no liability for a number of reasons.
During its deliberations, the jury indicated in four questions that it was struggling with the issue of damages, in particular the question of whether CBRE was harmed in the amount of a 6 percent commission or a 3 percent commission. Counsel for both sides agreed the question of damages, in particular the question of 3 percent versus 6 percent, was a factual dispute. Substantial evidence would support either award, as it was unclear whether CBRE would have been able to secure the entire 6 percent commission had Jefferson not breached the listing agreement. Substantial evidence might also support an award of damages other than the two options focused on by the jury, on the theory that a 3 percent buyer’s commission is not set in stone. The court invited counsel to address the jury. Interestingly, at this late stage, defense counsel argued that the correct amount of damages would be $363,000. One might speculate this was simply a misstatement or miscalculation, but it is nonetheless fitting that, to the end of the trial, the supposedly clear, liquidated number was not being used by either party.
Based on all the foregoing circumstances, we conclude damages were unliquidated and uncertain. CBRE was not entitled to prejudgment interest under Civil Code section 3287, subdivision (a).
The postjudgment order denying CBRE’s motion for attorney fees is reversed and the matter is remanded for a new hearing as to the amount of attorney fees. The judgment and accompanying postjudgment order denying recovery of prejudgment interest are affirmed. CBRE shall recover costs incurred on appeal, as it prevailed on almost all of the issues raised.
O’LEARY, P. J. and ARONSON, J., concurs.
[*] Pursuant to California Rules of Court, rule 8.1105(b) and 8.1110, this opinion is certified for publication with the exception of Discussion parts IB, IC and IIB.
 Judgment was entered against the following 25 defendants: C&R Consultants, Inc.; Jack DiLemme; Israel Feit; Hanan Haskell; Roy Matthew Haskin; Roy Randall Haskin; Haskin, Inc.; Jack DiLemme, Inc.; Terra Nostra Consultants; Zvi Ben Zvi; Tomy Deutsch; Eitan Feldbaum; Zvi Frankenthal; Avi Gross; Moshe Gross; Bruce G. Keeton, trustee of the Bruce G. Keeton Trust; Amiram Lasker; Jacob Oren; Charles Ratzersdorfer; Naftali Ratzersdorfer; Dov Schwartz; David Tarabulsi; Zvi Tennenbaum; Yair Weill; and Haim Weiss. Each defendant was held jointly and severally liable up to a specific individual maximum liability, which was established by the jury for each defendant based on the amount distributed to that defendant upon dissolution of Jefferson. Judgment was entered by default with regard to two of the defendants, Haskin, Inc., and Jack DiLemme, Inc. The other 23 defendants appealed the judgment and appear by counsel before this court.
 The first section of the agreement grants to CBRE “the exclusive right to sell the Property for a period commencing March 8, 2004 and ending midnight March 8, 2004.” The parties are in agreement that this was a typographical error and that the listing agreement was not intended to apply for only one day. CBRE claims the agreement should have stated March 8, 2005 as the termination date. Jefferson claims it was a six month listing agreement and that the month was typed incorrectly (March rather than September). A fair amount of the lengthy trial was devoted to deciding this and related contract performance issues, although the parties’ briefs largely ignore the trial testimony because of the nature of the appeal.
 This description oversimplifies matters for purposes of avoiding unnecessary confusion. Actually, the jury found that the following defendants were not members of Jefferson: C&R Consultants, Inc., KSI Funding, Inc. (KSI), Jack DiLemme, Roy Matthew Haskin, and Roy Randall Haskin. But all of these defendants except KSI were found to be partners in Terra Nostra Consultants (which was a member of Jefferson) and were held liable for the judgment on that ground.
 All statutory references are to the Corporations Code unless otherwise stated. The California Revised Uniform Limited Liability Company Act (§ 17701.01 et seq., added by Stats. 2012, ch. 419, § 20) took effect on January 1, 2014, supplanting the Beverly-Killea Limited Liability Company Act (former § 17000 et seq., repealed by Stats. 2012, ch. 419, § 19). We apply the Beverly-Killea Limited Liability Company Act because this dispute arose before 2014. But we will cite the revised statutes when there is no relevant difference between the two acts or for purposes of comparing the provisions of the two acts.
 Section 17707.07, subdivision (a)(1), is nearly identical to former section 17355, subdivision (a)(1).
 “A limited liability company shall be dissolved and its affairs shall be wound up upon the happening of the first to occur of the following: [¶] (a) At the time specified in the articles of organization, if any, or upon the happening of the events, if any, specified in the articles of organization or a written operating agreement. [¶] (b) By the vote of a majority in interest of the members, or a greater percentage of the voting interests of members as may be specified in the articles of organization or a written operating agreement. [¶] (c) Entry of a decree of judicial dissolution pursuant to [former section] 17351.” (Former § 17350.) Section 17707.01 is similar to former section 17350, although it adds one additional circumstance in which dissolution occurs (i.e., lack of any members for 90 days).
 Even though CBRE pointed out the lack of briefing as to the question of prejudice in defendants’ opening brief, defendants’ reply brief included no analysis of the prejudice question. Indeed, at oral argument, counsel was at a loss to express a specific rationale as to why the error was prejudicial.

References: § 17350
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 § 17355
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 § 20
 § 17000
 § 19
 § 17350