Court Opinion

ID: 4856786
Source: CourtListenerOpinion
Date Created: 2021-08-24 22:02:36.309284+00
Date Added: 2024-06-11T08:11:51.458408
License: Public Domain

Filed 8/24/21 Pourmoradi v. Gabbai CA2/5
   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         SECOND APPELLATE DISTRICT

                                        DIVISION FIVE

JOHN POURMORADI, et al.,                                     B301009

     Plaintiffs and                                          (Los Angeles County
Respondents,                                                 Super. Ct. No. VC066389)

         v.

BEHRUZ GABBAI, et al.,

     Defendants and
Appellants.

      APPEAL from an order of the Superior Court of the County
of Los Angeles, Brian F. Gasdia, Judge. Reversed and remanded
with instructions.
      Russ, August & Kabat, Matthew A. Rips and Nathan D.
Meyer, for Defendants and Appellants.
      Buchalter, Michael L. Wachtell, Efrat M. Cogan, and David
E. Mark, for Plaintiff and Respondent John Pourmoradi.
      Greenberg Traurig, Frank E. Merideth, Jr., for Plaintiff
and Respondent Andrea Pourmoradi.
                    I.    INTRODUCTION

      Plaintiffs,1 owners of a 50 percent membership interest in a
limited liability company, filed an action under Corporations
Code section 17707.032 for judicial dissolution of the company.
Defendants,3 who owned the other 50 percent interest, sought to
avoid dissolution by exercising their statutory right to purchase
plaintiffs’ interest for fair market value. Following the required
appraisal process, the trial court ascertained and fixed the value
of plaintiffs’ interest and entered an alternative decree that
ordered: (1) defendants to buy plaintiffs’ interest for the
appraised value, but without the recommended reduction for lack
of control or marketability; or, in the alternative, (2) the
immediate dissolution of the company.
       On appeal, defendants contend that the trial court erred by
applying a “fair value” standard—instead of the required “fair
market value” standard—to fix the purchase price of plaintiffs’
interest. We conclude the court abused its discretion by applying
the wrong statutory valuation standard. We therefore reverse
the alternative decree and remand with instructions.

1     Plaintiffs are John and Andrea Pourmoradi, as trustees for
the Pourmoradi Family Trust (Pourmoradi trust). When we refer
to them individually, we use plaintiffs’ first names for clarity.

2     All further statutory references are to the Corporations
Code, unless otherwise indicated.

3     Defendants are Behruz and Katherine Morovati Gabbai, as
trustees for the Gabbai revocable Family Trust (Gabbai trust).

                                2
     II.      FACTUAL AND PROCEDURAL BACKGROUND

A.         2801 East Vernon LLC

       On November 27, 2009, the Pourmoradi trust and the
Gabbai trust formed 2801 East Vernon LLC (the company), a
California limited liability company (LLC). The trusts each
owned an undivided 50 percent interest in the company. The
primary asset of the company was a parcel of commercial real
property in Vernon which included a 102,000 square foot
warehouse with a showroom and office space.
       Pursuant to the company’s operating agreement, Behruz
Gabbai and John were appointed as the managers of the
company. The agreement provided that disputes regarding
management of the company could only be resolved by a majority
of the managers. It also required that any actions of the
company, including dissolution, required a majority vote of the
members.

B.         Judicial Dissolution Action

       In June 2017, the management and membership of the
company became deadlocked over whether to restructure a
secured loan or sell the property. After the parties were unable
to reach an agreement on the price for defendants’ purchase of
plaintiffs’ interest, plaintiffs filed on June 29, 2017, an action to
dissolve the company and appoint a receiver to wind up its
affairs.

                                     3
C.    Application to Stay and Value Membership Interest

      On October 10, 2017, defendants filed an application for an
order staying the dissolution proceeding and ascertaining the
value of plaintiffs’ membership interest in the company pursuant
to section 17707.03, subdivision (c).4
       Following certain stipulations, applications, and orders
concerning the appointment of two party-nominated-appraisers
and a neutral appraiser, the trial court, on March 7, 2018,
entered an order appointing a plaintiffs’ appraiser, a defendants’
appraiser, and a neutral appraiser. The order provided that the
appraisers were “charged to appraise the fair market value of the
membership interest owned by [p]laintiffs pursuant to [section]
17707.03[, subdivision] (c) . . . .”

D.    Initial Appraisers’ Report

    On April 4, 2018, the appraisers submitted a three-page
summary report that attached, among other documents, the
appraisals of the neutral appraiser and defendants’ appraiser.5

4       As explained below, under section 17707.03, subdivision
(c)(1), when a member of an LLC moves to dissolve the company,
a nonmoving member may avoid dissolution by electing to
purchase the moving member’s interest for fair market value.
Under subdivision (c)(2), the purchasing party may request an
order staying the proceeding and fixing the purchase price of the
moving member’s interest.

5     Plaintiffs’ appraiser did not submit a separate appraisal of
plaintiffs’ membership interest in the company. He did, however,
submit a joint summary report, along with the two other

                                   4
According to the summary, all three appraisers agreed that the
market value of the real property owned by the company on the
valuation date of June 29, 2017, was $14,400,000. But the
appraisers could not agree on a definition of the term “fair
market value” as used in section 17707.03. Plaintiffs’ attorneys
advised the appraisers that the term “fair market value” was the
equivalent of the term “fair value” used in section 20006 for
corporate dissolutions. Defendants’ attorneys opined that the
definition of “fair market value” was as set forth in IRS Revenue
Ruling 59-607 and the American Society of Appraisers (ASA)
Business Valuation Standards.8

appraisers, concerning the market value of the real property
itself. That separate valuation was accepted and used by
defendants’ appraiser and the neutral appraiser to determine the
fair market value of plaintiffs’ membership interest.

6      As explained below, under section 2000 the “fair value” of a
minority shareholder’s interest in a corporation is determined on
the basis of the liquidation value of the shareholders’ interest as
of the valuation date, taking into account the possibility of a sale
of the entire business as a going concern in a liquidation.

7     According to the report, IRS Revenue Ruling 59-60 defined
fair market value as: “The price at which the property would
change hands between a willing buyer and a willing seller when
the former is not under any compulsion to buy and the latter is
not under any compulsion to sell, both parties having reasonable
knowledge of relevant facts.”

8    According to the report, the ASA Business Valuation
Standards defined fair market value as: “The price, expressed in
terms of cash equivalents, at which the property would change
hands between a hypothetical willing and able buyer and a

                                 5
      The report therefore used both parties’ definitions, and all
three appraisers agreed that the fair value of plaintiffs’ interest
in the company was $4,989,000. But they disagreed on the fair
market value. Defendants’ appraiser concluded that the fair
market value was $4,030,000, applying a lack of control discount
of 10 percent and a lack of marketability discount of 15 percent.
The neutral appraiser concluded that the fair market value was
$4,223,000, applying a combined lack of control and
marketability discount of 20 percent.

E.    Hearing and Order on Initial Report

       Following the appraisers’ initial report, defendants filed a
brief, arguing that the trial court should adopt defendants’ fair
market value appraisal and reject the fair value appraisal
because it ignored and altered the applicable statutory language
of section 17707.03. In their brief, plaintiffs argued that because
the appraisers disagreed as to the fair market value of plaintiffs’
interest, the court should reject their report, take further
evidence, and decide the valuation question de novo. Plaintiffs
also maintained that the control and marketability discounts
were not warranted, arguing that there was no reason to treat
LLC dissolutions under section 17707.03 differently from
corporate dissolutions under section 2000, particularly when the
interest involved was a 50 percent interest. Plaintiffs supported
their position with an expert declaration from Daniel

hypothetical willing and able seller, acting at arm’s length in an
open and unrestricted market, when neither is under compulsion
to buy or sell and when both have reasonable knowledge of the
relevant facts.”

                                 6
McConaughy who disputed, among other things, the factual basis
for the lack of control and marketability discounts used by
defendants’ appraiser and the neutral appraiser. Plaintiffs also
separately moved to change the valuation date.
      Following further briefing, the trial court held a hearing
and issued a minute order that denied plaintiffs’ request to
change the valuation date and remanded the matter to the
appraisers for a new valuation using the definition of fair market
value applied in eminent domain proceedings under Code of Civil
Procedure section 1263.320.9 The court further instructed the
appraisers to attempt to agree on a unanimous appraisal and
advised that, in the event they could not arrive at one, the court
would either choose from among the conflicting appraisals or
decide the matter de novo.

F.    Unanimous Report

      On August 10, 2018, the appraisers submitted a unanimous
report on the value of plaintiffs’ membership interest. According

9      Code of Civil Procedure section 1263.320 provides: “(a)
The fair market value of the property taken is the highest price
on the date of valuation that would be agreed to by a seller, being
willing to sell but under no particular or urgent necessity for so
doing, nor obliged to sell, and a buyer, being ready, willing, and
able to buy but under no particular necessity for so doing, each
dealing with the other with full knowledge of all the uses and
purposes for which the property is reasonably adaptable and
available. [¶] (b) The fair market value of property taken for
which there is no relevant, comparable market is its value on the
date of valuation as determined by any method of valuation that
is just and equitable.”

                                 7
to the appraisers, they used the definition of fair market value
provided by the trial court and the fair value definition in section
2000. The appraisers calculated the net asset value of the
company to be $10,557,729 and the fair market value of plaintiffs’
interest in the company to be $4,487,000. In reaching that
conclusion, the appraisers explained that they applied a 15
percent discount—to account for lack of control and
marketability—to reduce plaintiffs’ proportionate 50 percent
share of the net asset value of the company.
      The appraisers also concluded that the fair value of the
plaintiffs’ interest, under the definition set forth at section 2000,
was $4,989,000. In calculating fair value, the appraisers applied
a 5.5 percent discount—to account for estimated liquidation
costs—to reduce plaintiffs’ proportionate 50 percent share of the
net asset value of the company.

G.    Hearing and Ruling

       On August 21, 2018, defendants moved to confirm the
appraisal in the unanimous report, arguing that because there
was no bona fide dispute remaining in the action, the trial court
should accept and confirm the report. Defendants requested that
the trial court issue an order and alternative decree that the
value of plaintiffs’ interest in the company was $4,487,000.
       Andrea objected to the unanimous report and moved to
strike it, arguing that the appraisers failed to follow the trial
court’s definition of fair market value as found in Code of Civil
Procedure section 1263.320. Citing to the attached expert
declaration of Bradford Thompson, Andrea also contended that
there was an insufficient factual basis to support the lack of

                                 8
control and marketability discounts. As Bradford explained, in
his 29 years of appraisal practice, he had never seen lack of
control and marketability discounts applied in eminent domain
cases.
       In his opening brief, John contended that, because there
was no comparable market for plaintiffs’ interest, justice and
equity dictated that each member of the company receive its 50
percent proportionate share of the net asset value of the
company, without any valuation discounts or other factually
unjustified reductions. Citing to an attached supplemental
expert declaration of McConaughy, John also complained that the
appraisers applied a discounted cash flow analysis to their
valuation that was inapplicable under the circumstances. And,
John reiterated based on McConaughy’s original and
supplemental declarations that the lack of control and
marketability discounts were factually unsupported in this case.
       Following the initial round of briefing, the parties
submitted further briefing and objections. On January 24, 2019,
the trial court held a hearing on the report and took the matter
under submission.
       On March 28, 2019, the trial court issued a minute order
approving the unanimous report, except for the 15 percent
discount for lack of control and marketability. According to the
court, “[w]hile the 15 [percent] reduction for [lack of control and
marketability] arguably appears justified from an accounting
standpoint (although the agreed and accepted compromise
reduction of 15 [percent] is really without further explanation),
the court finds controlling the logic and holding set forth by the
[a]ppellate [c]ourt in [Brown v. Allied Corrugated Box Co., Inc.]
(1979) 91 Cal.App.3d 477 [(Brown)]. . . . [¶ . . . ¶] [H]ere the

                                9
[company] is made up of only two partners. The sale of one
partner’s interest to the other partner would give the purchasing
partner total control over the entire company. As such, a
reduction for lack of control or lack of marketability would serve
no purpose under this scenario. Such a reduction would only
make sense if [plaintiffs were] selling [their] shares to some
third[-]party purchaser who lacked control over the business
affairs of [the company]. [¶] Accordingly, this court declines to
apply the 15 [percent] reduction in value for [lack of control and
marketability]. In fixing and setting the amount in the
alternative decree, the court finds . . . the purchase amount . . . to
be $5,278,865.00 [plaintiffs’ 50 percent share of the net asset
value of the company] . . . , without any percentage reduction
therefrom. All other analyses, calculations, and conclusions of
the unanimous [report] are well thought out and supported by
the extensive research of the appraisers, and except as noted
herein, are hereby approved without further offset, reduction or
alteration.”
       On July 25, 2019, the trial court entered an alternative
decree that ordered defendants to pay plaintiffs, within 120 days,
$5,278,865 “representing one-half of the [c]ompany’s net asset
value as of [the] June 29, 2017[, valuation date].”10 The decree
provided that if payment was not fully and timely made, the
company would be dissolved and wound up.

10     The decree also ordered defendants, within 120 days, to pay
plaintiffs $1.8 million as reimbursement for certain post-
valuation date capital contributions, unless a different agreement
for reimbursement could be made within that time.

                                 10
      On September 23, 2019, defendants filed a timely notice of
appeal from the alternative decree.11

                       III.   DISCUSSION

A.    Standard of Review

       We review questions of statutory interpretation under a de
novo standard of review. (United Riggers & Erectors, Inc. v.
Coast Iron & Steel Co. (2018) 4 Cal.5th 1082, 1089; see also Goles
v. Sawhney (2016) 5 Cal.App.5th 1014, 1018 [the factual aspects
of the fair value determination are reviewed under the
substantial evidence standard, but trial court’s “‘interpretation of
the statutory standard set forth in section 2000 is subject to de
novo review on appeal’”].) Challenges to a trial court’s valuation
of property, including a court’s acceptance or rejection of expert
valuation testimony, are generally reviewed for abuse of
discretion. (See In re Marriage of Ackerman (2006) 146
Cal.App.4th 191, 197; People ex rel. Dept. of Transportation v.
Clauser/Wells Partenrship (2002) 95 Cal.App.4th 1066, 1073.) A
court abuses its discretion when it applies the wrong legal
standard. (Costco Wholesale Corp. v. Superior Court (2009) 47
Cal.4th 725, 733.)

11   Plaintiffs each filed notices of cross-appeal, but those
appeals were abandoned and dismissed.

                                 11
B.    Statutory Scheme Governing Dissolutions

      1.    Fair Value Under Section 2000

        Effective January 1, 1977, the Legislature enacted section
2000 which deals with actions for the involuntary dissolution of
corporations and the right of majority shareholders’ to avoid
dissolution. Subdivision (a) provides, in pertinent part: “In any
suit for involuntary dissolution, or in any proceeding for
voluntary dissolution initiated by the vote of shareholders
representing only 50 percent of the voting power, the corporation
or, if it does not elect to purchase, 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.” (§ 2000, subd. (a), italics added.)
        In Trahan v. Trahan (2002) 99 Cal.App.4th 62 (Trahan),
the court explained the valuation process under section 2000 as
follows: “The objective of section 2000 is to provide an alternative
to dissolution through a [buyout] by the holders of 50 percent or
more of the shares of the corporation. The objective of the
statutory appraisal process is to find a fair value for the shares of
the parties seeking dissolution and to award the 50 percent
shareholders seeking dissolution the liquidation value they would
have received had their dissolution action been allowed to

                                 12
proceed to a successful conclusion. If the purchasing parties
believe the price fixed by the court is too high, they can refuse to
purchase the shares at that price and permit the winding up and
dissolution of the corporation to proceed. Their only liability
would be to pay the expenses (including attorney fees) incurred
by the moving parties in the appraisal process. (See § 2000,
subd. (c); [citation].) No comparable provision allows moving
parties to refuse to accept a share price they believe to be too
low.” (Trahan, supra, 99 Cal.App.4th at p. 75.)
        As the court in Trahan, supra, 99 Cal.App.4th 62 noted,
under the fair value standard of section 2000, valuation discounts
for market factors, such as lack of control, are not permitted. “In
Brown[, supra, 91 Cal.App.3d 477], the court held, among other
things, that under former sections 4658 and 4659 (the
predecessor statutes to [section] 2000), it was improper to
discount the value of minority shares being purchased because of
their lack of control. The court looked to the statutory [buyout]
scheme to determine whether minority shares should be
discounted, finding the practice of devaluing minority shares in
the area of taxation to have little validity in the [buyout] context.
([Brown, supra, 91 Cal.App.3d] at p. 486.) According to the court,
‘it is clear that upon distribution of the dissolution proceeds each
of the shareholders would have been entitled to the exact same
amount per share, with no consideration being given to whether
the shares had been controlling or noncontrolling. . . .’ (Id. at
p. 486, fn. omitted.) . . . ‘[T]he statutes suggest that a minority
shareholder who brings an action for the involuntary dissolution
of a corporation should not, by virtue of the controlling
shareholder’s invocation of the [buyout] remedy, receive less than

                                 13
he would have received had the dissolution been allowed to
proceed.’” (Trahan, supra, 99 Cal.App.4th at pp. 74–75.)

      2.    Fair Market Value Under Section 17707.03

        “The Legislature enacted the Beverly-Killea Limited
Liability Company Act (the Act) in 1994. ([ ] § 17000 et seq.) ‘“A
limited liability company is a hybrid business entity formed
under the Corporations Code . . . [which] provides members with
limited liability to the same extent enjoyed by corporate
shareholders [citation] . . .[ ]”’ (PacLink Communications
Internat., Inc. v. Superior Court (2001) 90 Cal.App.4th 958, 963
. . .) while maintaining the attributes of a partnership for federal
income tax purposes. [Citation.]” (People v. Pacific Landmark,
LLC (2005) 129 Cal.App.4th 1203, 1211–1212.)
        In 1994, the Act included a provision, former section
17351—dealing with LLC dissolutions and a nonmoving
member’s buyout rights—that was apparently modeled on section
2000. (Ontiveros v. Constable (2018) 27 Cal.App.5th 259, 269, fn.
6; see Dickson v. Rehmke (2008) 164 Cal.App.4th 469, 474–475
and fn. 2 (Dickson).) There were, however, two significant
differences between the two provisions. Instead of using the term
“fair value” from section 2000, former section 17351 substituted
the term “fair market value.” (See Dickson, supra, 164
Cal.App.4th at pp. 474–475.) And, the section 2000 definition of
fair value—the liquidation value on the date of valuation—was
omitted from section 17351, without providing an alternative
definition.
        Effective January 1, 2014, the Legislature amended the
Act, and former section 17351 was repealed and replaced with

                                14
current section 17707.03 without substantive change.12
(Ontiveros, supra, 27 Cal.App.5th at p. 269, fn. 6.) Specifically,
section 17707.03 continued to use the term “fair market value”
throughout and continued to omit the section 2000 reference to
the liquidation value of the interest being purchased or any other
definition of “fair market value.”

C.    Analysis

      Defendants contend that the trial court failed to correctly
apply the “fair market value” standard for valuation and instead
applied the “fair value” standard set forth at section 2000.
Plaintiffs counter that that the court correctly applied the “fair
market value” standard for valuation, which, in their view, is

12     Subdivisions (a) and (b) of section 17707.03 state that
when, as here, the management of an LLC is deadlocked, any
manager or member may move to dissolve the company.
Subdivision (c) provides: “(1) In any suit for judicial dissolution,
the other members may avoid the dissolution of the limited
liability company by purchasing for cash the membership
interests owned by the members so initiating the proceeding, the
‘moving parties,’ at their fair market value. . . . [¶] (2) If the
purchasing parties elect to purchase the membership interests
owned by the moving parties [and] are unable to agree with the
moving parties upon the fair market value of the membership
interests, . . . the court, upon application of the purchasing
parties, either in the pending action or in a proceeding initiated
in the superior court of the proper county by the purchasing
parties, shall stay the winding up and dissolution proceeding and
shall proceed to ascertain and fix the fair market value of the
membership interests owned by the moving parties.” (Italics
added.)

                                 15
“materially indistinguishable” from the “fair value” standard. In
our view, defendants have the better argument.
       We presume that when the Legislature used the term “fair
market value” in the Act, rather than “fair value” from section
2000, it intended to change that standard of valuation for LLC
dissolutions. We also presume that, by omitting any reference to
the liquidation value of the interest being purchased, the
Legislature intended a new definition for the term “fair market
value,” which differed from the liquidation value. (Dix v.
Superior Court (1991) 53 Cal.3d 442, 461 [“We presume the
Legislature intends to change the meaning of a law when it alters
the statutory language [citation], as for example when it deletes
express provisions of the prior version [citation]”].) Finally, we
presume that the Legislature was aware of prior judicial
constructions of the term “fair value,” as precluding valuation
discounts for lack of control. (Id. at p. 461–462 [“Because the
Legislature is presumed aware of prior judicial constructions of a
statute, the inference of altered intent is particularly compelling
when . . . the omitted word or phrase was significant to such a
construction”]; see Trahan, supra, 99 Cal.App.4th at pp. 74–75.)
Thus, it follows that the Legislature, in enacting former section
17351, intended to depart from the “fair value” standard and its
liquidation value definition and utilize instead a market-based
definition that included valuation discounts based on the amount
a hypothetical willing and able buyer would pay for the interest
in the marketplace.13

13    As one commentator has explained, “fair value” and “fair
market value” are terms of art to valuation experts and can
result in valuations that are materially different based on the
inclusion of valuation discounts under the latter standard.

                                16
       We next consider whether the trial court correctly applied
the “fair market value” standard of valuation. The court’s ruling
demonstrates that despite its recitation of a definition of “fair
market value” that articulated a market-based approach to
valuation, it applied the incorrect “fair value” standard set forth
at section 2000.14 Indeed, aside from the reduction in value for
lack of control and marketability, the court expressly adopted the
appraisers’ valuation of the net assets of the company.
Nonetheless, it ultimately valued plaintiffs’ interest in the
company based solely on the net value of its assets, with no
discount for market factors. In other words, the court awarded
plaintiffs the amount they would have realized if the company’s
assets were sold off, after paying off the outstanding loan
balance, which reflects an application of the “fair value” standard
as defined by cases such as Brown, supra, 91 Cal.App.3d 477.
Moreover, in explaining that it would not apply a reduction in

(Barber, Are Valuation Discounts Appropriate in LLC Member
Statutory Buyouts? St. Bar Cal. Bus. Law News, at p. 18.) The
record of the appraisal process in this case confirms that the
three appointed experts understood the two terms of art to be
different.

14     Plaintiffs contend that defendants waived their arguments
on appeal because they failed to challenge the trial court’s order
defining fair market value for the appraisers and failed to fully
summarize the evidence in their appellate brief. Defendants,
however, do not challenge the court’s recitation of the definition
of fair market value, but instead contend that the court failed to
apply its own definition. Therefore, they did not waive their
argument on appeal. Further, we decline to find waiver based on
any purported inadequacies in defendants’ statement of facts on
appeal.

                                17
value for lack of control and marketability, the court observed
that “[s]uch a reduction would only make sense if [plaintiffs were]
selling their shares to some third[-]party purchaser.” By refusing
to consider how much “some third[-]party purchaser” would pay
for plaintiffs’ interest, the court declined to apply the fair market
value standard, which is based on the hypothetical willing and
able buyer, and not the actual buyers in this instance,
defendants. Finally, the court’s statement that its valuation was
controlled by the “logic and holding” of Brown, supra, 91
Cal.App.3d 477—which was based solely on section 2000 and the
well-established fair value standard—further supports our
conclusion that it applied the wrong legal standard.
       By awarding, in essence, the liquidation value of plaintiffs’
interest, the trial court ignored the Legislature’s command to use
a market-based standard and instead focused on the relationship
of the parties to the dissolution proceeding. The court therefore
defaulted to the wrong statutory valuation standard, even if it
did not expressly acknowledge that it was utilizing that standard.
Because its valuation was based on an incorrect legal standard,
and therefore contrary to the intent of the Legislature in
redefining the extent of the court’s valuation discretion, the
alternative decree must be reversed and remanded for further
proceedings consistent with this opinion.
       In reaching this conclusion, we do not suggest that the
court was required to adopt the unanimous appraisers’ report in
determining the value of plaintiffs’ interest in the company.15

15    We observe, however, that the court expressly adopted the
unanimous appraisers’ valuation of the net assets of the
company. Further, we do not interpret section 17701.07 to confer
on the trial court broad equitable discretion to ignore the plain

                                 18
We conclude only that the court abused its discretion by using the
wrong legal standard in calculating that value.

                     IV.   DISPOSITION

      The alternative decree is reversed and the matter is
remanded with instructions to enter a new decree based on the
controlling fair market value standard. Defendants are awarded
costs on appeal.

      NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

                                          KIM, J.

I concur:

            RUBIN, P. J.

meaning of the “fair market value” language chosen by the
Legislature and substitute instead its own notions of fairness
under the circumstances of this case. Nor do we read that section
as an invitation for courts to rewrite the valuation standard
applicable in section 17707.03, subdivision (c) dissolution
proceedings.

                               19
John Pourmoradi et al. v. Behruz Gabbai et al.
B301009

BAKER, J., Dissenting

       It is a rare thing—maybe even an unprecedented thing—for
this court to reverse a trial court ruling on the theory that the
court did something that it expressly said it was not doing. But
that is where we are, it seems. I respectfully decline to be part of
such an enterprise. For reasons I will go on to outline, I believe
the trial court’s approach in this case was thoughtful, sensible,
and within its discretion.

                                  I
      Corporations Code sections 17707.01 and 17707.03 permit
a member of a limited liability company to file an action for
judicial dissolution of the company for various reasons, including
internal dissention among management.1 Section 17707.03
permits the non-suing managing member (or members) to avoid
dissolution of the company by buying out the interest of the suing
member for “fair market value.” (§ 17707.03, subd. (c).) When
managing members disagree on what constitutes fair market
value, the court must decide the valuation after receiving
opinions from a panel of appraisers. (§ 17707.03, subd. (c)(3).)

1    Undesignated statutory references that follow are to the
Corporations Code.
       Limited liability companies exist with all manner of
management structures and differing numbers of managing
members. The problem in this case arises because there are only
two managing members with equal control of the company in
question, 2801 East Vernon LLC. More specifically, the key issue
is whether the “fair market value” of the Pourmoradi parties’
interest should include some “discount” because, in theory, a
market participant buying the Pourmoradi parties’ share would
not have control of the company; instead, the buyer would in
theory have only the 50 percent share purchased—not enough to
take action alone when the other 50 percent owner disagrees.
       That, however, is an entirely artificial manner of analysis
in the case of an equal-share, two-member-controlled company
that is the subject of a section 17707.03, subdivision (c)
proceeding: a successful section 17707.03, subdivision (c)
purchaser in that scenario will end up with 100 percent control of
the company. There is no legal or practical justification for
applying a lack of control or marketability discount in that
circumstance. Indeed, if such a discount were applied, that
would allow the purchaser to reap a windfall: the buyer need only
pay the court-ordered, discounted price to obtain full control of
the company and then, once in possession of full control and the
premium it is worth, immediately turn around and sell the
company to a third party at a higher price—laughing all the way
to the bank to pocket the difference.
       The trial court understood that makes no good sense. As I
read the record, the court believed some consideration of the
equities was necessary to avoid an outcome in this particular
factual scenario that the Legislature may not have foreseen but
could not have intended. That is exactly right, and the

                                2
Corporations Code grants a trial court equitable discretion to do
just that. (§ 17701.07, subd. (b) [“Unless displaced by particular
provisions of this title [i.e., Title 2.6, the California Revised
Uniform Limited Liability Company Act], the principles of law
and equity supplement this title”]; cf. Ex parte Ellis (1858) 11
Cal. 222, 225 [“[I]t is impossible for the Legislature to enter into
immensity of detail. It can only make laws in a general manner,
and in applying their acts to particular cases, the construction
ought to be conformable to the intention of the Legislature. It
cannot be presumed that the Legislature intended anything
absurd”].) I would affirm on that basis.2

                                 II
      Why then does the majority reverse? Not because the
majority disputes my assessment of the equities or the prospect
of a nearly seven-figure windfall for the Gabbai parties. It comes

2      The majority says it “does not interpret section 17701.07 to
confer on the trial court broad equitable discretion to ignore the
plain meaning of the ‘fair market value’ language chosen by the
Legislature and substitute instead its own notions of fairness
under the circumstances of this case.” The rejoinder to that
(besides disregarding the “broad” and “ignore” rhetorical
flourishes) is obvious: why not? The majority does not say, and I
believe the purpose and applicability of section 17701.07 is plain
in a case like this. There is no good policy reason why the
Legislature would have wanted a lack of control discount to apply
in a scenario like this one (as opposed to scenarios posing no issue
of purchased consolidated control). The problem is simply that
the Legislature could not have anticipated every factual scenario
that might arise—and that is the reason for the supplemental
equitable discretion the Legislature itself conferred on courts via
section 17701.07.

                                  3
down to one thing, really: the majority believes the trial court
cited the wrong case when articulating its reason for declining to
apply a lack of control discount.
       Indisputably, the trial court stated the legal standard
governing its valuation was the fair market value standard. That
is the standard referenced in the “Legal Standard” section at the
outset of the court’s written ruling, the court’s ruling defines the
concept of fair market value—a definition no one contends is
erroneous, and the court’s ruling confirms all of the selected
appraisers were ordered to determine the fair market value of the
Pourmoradi parties’ interest in the company. The sticking point
for the majority, though, is that later in its ruling when
explaining why there should be no lack of control discount, the
trial court cited Brown v. Allied Corrugated Box Co. Inc. (1979)
91 Cal.App.3d 477 (Brown). The majority believes that citation
betrays the trial court’s sub silentio use of a different legal
standard: a “fair value” standard (§ 2000) that it believes
inapplicable. In my view, however, the trial court’s citation to
Brown is understandable and unobjectionable because, in one
factual respect, the case is remarkably similar to this one.
       In Brown, there were four owners of a closely held
corporation: two minority shareholders that held a 49 percent
stake and two other shareholders that held the remaining 51
percent. (Brown, supra, 91 Cal.App.3d at 479-480.) The minority
shareholders filed a dissolution complaint, and the trial court
adopted a valuation of their ownership share that included a
discount because a purchaser of that share would be obtaining
less than a controlling interest in the corporation. (Id. at 481,
484.) On appeal, the minority shareholders argued this was error
and the Court of Appeal agreed. Specifically, the Court of Appeal

                                 4
explained (and this was the only portion of the opinion quoted in
the trial court’s ruling here): “As a practical matter, there is no
question but that the lack of control inherent in plaintiffs’
minority shares would substantially decrease their value if they
were placed on the open market. In fact, it appears to be the
practice in the area of taxation to devalue minority shares in
closely held corporations for just this reason. [Citation.] [¶] It
has been noted, however, that the rule justifying the devaluation
of minority shares in closely held corporations for their lack of
control has little validity when the shares are to be purchased by
someone who is already in control of the corporation. In such a
situation, it can hardly be said that the shares are worth less to
the purchaser because they are noncontrolling.” (Id. at 485-486.)
       Courts (including this one) often find support in appellate
opinions even when they are not perfect analogs or every point of
law discussed in the opinion is not apt. That, in my view, is what
the trial court did here: the court seized on a factually similar
discussion to buttress its own logic in declining to apply a lack of
control discount. That does not mean the court secretly applied
the Corporations Code statute at issue in Brown as the legal
standard that applies here. It just means that, without a better
directly controlling case to cite, the court made do with what was
available. I remain convinced the trial court applied the correct
legal standard, albeit tailored to the equities in the specific case
before it. That is what we expect courts to do.

                                  III
      In the end, the actual impact, if any, of today’s decision is
uncertain. The majority does not remand with directions to apply
a lack of control discount or to fix a particular company

                                 5
valuation. Instead, the majority remands with only vague
“instructions to enter a new decree based on the controlling fair
market value standard.” Because the majority reverses while at
the same time declining to tell the trial court precisely what it
must do—or what must be redone—I read the court’s disposition
to require the trial court to start from scratch: direct the same
panel of appraisers or a new panel to prepare updated appraisal
reports (time alone may have changed the valuation), consider
the revised reporting, and then exercise its own valuation
prerogative when deciding whether to confirm the appraisers’
recommended award. If the court ends up with the same
valuation at issue in this appeal (or close to it) after that process,
nothing in the court’s disposition forbids it.

                             BAKER, J.

                                  6