Preview
20STCV05477
Assigned for all purposes to: Stanley Mosk Courthouse, Judicial Officer: Anthony Mohr
Electronically FILED by Superior Court of California, County of Los Angeles on 02/11/2020 12:33 PM Sherri R. Carter, Executive Officer/Clerk of Court, by M. Barel,Deputy Clerk
1 LOUIS R. MILLER (State Bar No. 54141)
smiller@millerbarondess.com
2 AMNON Z. SIEGEL (State Bar No. 234981)
asiegel@millerbarondess.com
3 JEFFERY B. WHITE (State Bar No. 291086)
jwhite@millerbarondess.com
4 MILLER BARONDESS, LLP
1999 Avenue of the Stars, Suite 1000
5 Los Angeles, California 90067
Telephone: (310) 552-4400
6 Facsimile: (310) 552-8400
7 Attorneys for Plaintiff
LM HOLDCO, INC.
8
9 SUPERIOR COURT OF THE STATE OF CALIFORNIA
10 COUNTY OF LOS ANGELES, CENTRAL DISTRICT
11 LM HOLDCO, INC., a California corporation, CASE NO.
12 Plaintiff, COMPLAINT AND DEMAND FOR JURY
TRIAL FOR:
13 v.
(1) BREACH OF CONTRACT;
14 FORTRESS INVESTMENT GROUP LLC, a
Delaware limited liability company; WHEELS (2) BREACH OF IMPLIED COVENANT
15 INVESTORS LLC, a Delaware limited OF GOOD FAITH AND FAIR
liability company; WHEELS FINANCIAL DEALING;
16 GROUP, LLC, a California limited liability (3) BREACH OF FIDUCIARY DUTIES;
company; WFG INTERMEDIATE, LLC, a
17 Delaware limited liability company; WFG (4) AIDING AND ABETTING BREACH
HOLDINGS, LLC, a Delaware limited OF FIDUCIARY DUTIES; AND
18 liability company; DAVID KING, an (5) DECLARATORY RELIEF
individual; WARREN LYONS, an individual;
19 JEFFREY WEISS, an individual; HUGO
DOONER, an individual; and DOES 1-20, [DEMAND FOR JURY TRIAL]
20 inclusive,
21 Defendants.
22
23
24
25
26
27
28
450482.3
COMPLAINT AND DEMAND FOR JURY TRIAL
1 Plaintiff LM Holdco, Inc., a California corporation, alleges in this complaint against
2 Defendants Fortress Investment Group LLC, a Delaware limited liability company; Wheels
3 Investors LLC, a Delaware limited liability company; Wheels Financial Group, LLC, a California
4 limited liability company d/b/a LoanMart (“LoanMart”); WFG Intermediate, LLC, a Delaware
5 limited liability company; WFG Holdings, LLC, a Delaware limited liability company; David
6 King, an individual; Warren Lyons, an individual; Jeffrey Weiss, an individual; Hugo Dooner, an
7 individual; and DOES 1-20, inclusive, as follows:
8 NATURE OF THE ACTION
9 1. Plaintiff LM Holdco, Inc. (“Plaintiff” or “LM Holdco”) is the founder of LoanMart.
10 LoanMart is a consumer lending company that was established in 2001 by Ron Gonen (“Gonen”)
11 in Van Nuys, California, where it is still headquartered today. LoanMart provides loans to car
12 owners, secured by the value of the vehicle, that enables them to achieve their financial objectives.
13 Gonen’s mission was to ensure LoanMart provided superior service to customers while operating
14 as a stable, financially responsible company. Gonen spent over a decade building LoanMart into a
15 successful business with a loan portfolio of over $100 million.
16 2. In 2013, Defendant Fortress Investment Group LLC (“Fortress”), a large New York
17 private equity firm, agreed to buy a majority stake in LoanMart. In connection with the sale,
18 Plaintiff retained—and continues to own—a minority stake in LoanMart.
19 3. Plaintiff brings this action because Defendants are exercising control and
20 dominance over LoanMart to eviscerate Plaintiff’s equity and grab all cash from LoanMart for
21 themselves. Defendants’ bad faith misconduct will wipe out Plaintiff’s equity and effectively
22 hand the company to Fortress. Worse, Fortress is planning to use the cash it seizes from
23 LoanMart’s existing $100 million loan portfolio to fund a so-called “new” portfolio under the
24 LoanMart name. But this “new” portfolio is not new at all; rather, it’s the same LoanMart
25 business as before. Defendants are merely using this “new” portfolio to keep all LoanMart
26 proceeds for themselves and not pay Plaintiff, LoanMart’s founder. Defendants’ misconduct
27 violates the parties’ agreement, destroys Plaintiff’s equity and effectively ousts Plaintiff from
28 LoanMart. This pure money-grab is corporate greed at its worst.
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1 PARTIES
2 4. Plaintiff LM Holdco is a California corporation with its principal place of business
3 in Los Angeles County, California. Plaintiff is owned by the founders of LoanMart, including
4 Ron Gonen and other members of the Gonen family.
5 5. Defendant Fortress Investment Group LLC is a Delaware limited liability company
6 with its principal place of business in New York.
7 6. LoanMart is a dba for, and conducts business within, Defendant Wheels Financial
8 Group, LLC. Wheels Financial Group, LLC is a California limited liability company with its
9 principal place of business in Los Angeles County, California. Its parent companies, Defendants
10 WFG Intermediate, LLC and WFG Holdings, LLC, are Delaware limited liability companies.
11 Wheels Financial Group, LLC, along with WFG Intermediate, LLC and WFG Holdings, LLC, are
12 collectively referred to herein as “WFG.”
13 7. Defendant Wheels Investors LLC (“Wheels Investors”) is a member, and majority
14 owner, of LoanMart. Wheels Investors is a Delaware limited liability company owned, on
15 information and belief, by Fortress. Wheels Investors holds all of Fortress’ interests in LoanMart.
16 8. Defendant David King is a managing director at Fortress and a manager on
17 WFG’s/LoanMart’s Board of Managers. King is an individual who, on information and belief, is
18 domiciled in New York.
19 9. Defendant Warren Lyons is a manager on WFG’s/LoanMart’s Board of Managers.
20 Lyons is an individual who, on information and belief, is domiciled in Sonoma County, California.
21 10. Defendant Jeffrey Weiss is the Chairman of WFG’s/LoanMart’s Board of
22 Managers. Weiss is an individual who, on information and belief, is domiciled in Florida.
23 11. Defendant Hugo Dooner is WFG’s Chief Executive Officer and a member of
24 WFG’s/LoanMart’s Board of Managers. Dooner is an individual domiciled in Los Angeles
25 County, California.
26 12. The true names and capacities of Defendants DOES 1 through 20 are unknown to
27 Plaintiff, which therefore sues these Defendants by such fictitious names. Plaintiff will, if
28 necessary, amend this Complaint to show the true names and capacities of DOES 1 through 20
450482.3 3
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1 when their names and capacities have been ascertained. Among others, and without limitation,
2 DOES 1 through 20 include agents, affiliates and representatives of other Defendants, and others
3 who culpably participated in or are in some other way responsible for the misconduct committed
4 by the other Defendants and for the damages Plaintiff suffered, as alleged herein.
5 13. Plaintiff is informed and believes, and on that basis alleges, that except as
6 otherwise alleged herein, each of the Defendants is, and at all times relevant to this Complaint
7 was, the employee, agent, employer, partner, joint venturer, alter ego, affiliate, and/or co-
8 conspirator of the other Defendants and, in doing the acts alleged herein, was acting within the
9 course and scope of such positions at the direction of, and/or with the permission, knowledge,
10 consent, and/or ratification of, the other Defendants. In the alternative, Plaintiff is informed and
11 believes, and based thereon alleges, that each Defendant, through its acts and omissions, is
12 responsible for the wrongdoing alleged herein and for the damages suffered by Plaintiff.
13 JURISDICTION AND VENUE
14 14. The Court has jurisdiction in this matter pursuant to California Code of Civil
15 Procedure section 410.10 and the California Constitution, Article VI, § 10. Section 410.10 of the
16 Code of Civil Procedure provides that California state courts “may exercise jurisdiction on any
17 basis not inconsistent with the Constitution of [California] or of the United States.” The exercise
18 of jurisdiction by California is constitutionally permissible here because each of the Defendants
19 resides, conducts business, has bank accounts and/or owns property in California. Therefore, each
20 Defendant has sufficient minimum contacts with the State of California, and/or has intentionally
21 availed itself of—and/or purposefully directed its activities toward—the State of California, so as
22 to render the exercise of jurisdiction over them by California courts consistent with traditional
23 notions of fair play and substantial justice.
24 15. The Court has jurisdiction over this matter, notwithstanding a Delaware forum-
25 selection clause in the Amended and Restated Limited Liability Company Agreement of WFG
26 Holdings, LLC (the “LLC Agreement”), dated May 6, 2013, and amended as of March 2, 2016
27 and September 2018, because the LLC Agreement contains a predispute jury trial waiver, which is
28 prohibited in California. Grafton Partners v. Superior Court, 36 Cal. 4th 944 (2005). The
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1 constitutional right to a jury trial in California is fundamental, inviolate and sacred. California law
2 does not permit predispute jury trial waivers.
3 16. Where an agreement involving a California resident includes a forum selection
4 clause and predispute jury trial waiver, and the designated forum enforces jury trial waivers
5 (unlike California which does not), the forum selection clause is unenforceable because it “would
6 be contrary to California’s fundamental public policy protecting the jury trial right and prohibiting
7 courts from enforcing predispute jury trial waivers.” Handoush v. Lease Fin. Grp., LLC, 41 Cal.
8 App. 5th 729, 734-35 (2019) (reversing a trial court order granting defendant’s motion to dismiss
9 based upon a New York forum selection clause because the agreement also included a jury trial
10 waiver). This law is squarely on point. The LLC Agreement contains a Delaware forum selection
11 clause and a jury trial waiver; predispute jury trial waivers are enforceable in Delaware, but not in
12 California. Therefore, the Delaware forum selection clause in the LLC Agreement, like the New
13 York forum selection clause in Handoush, is unenforceable. Plaintiff, a California resident, is
14 entitled to a jury trial in California.
15 17. Venue is proper under California Code of Civil Procedure sections 395(a) and
16 395.5 because Plaintiff and LoanMart are based in Los Angeles County, and the actions taken by
17 Defendants to cause harm to Plaintiff occurred in Los Angeles County.
18 FACTUAL BACKGROUND
19 A. LoanMart
20 18. LoanMart is a consumer finance company that was created in 2001. It issues
21 automobile title loans secured by a borrower’s equity in their automobile, allowing a borrower to
22 obtain credit quickly and without surrendering possession of their personal property or assets.
23 19. LoanMart is involved throughout the life cycle of the loan. On the front end,
24 LoanMart interfaces with potential borrowers, reviews applications and extends credit to qualified
25 applicants. LoanMart also services the loans, issuing account statements and collecting payments.
26 20. Most of LoanMart’s customers are considered high-risk, with lower credit scores,
27 less access to credit and limited cash on hand. Borrowers that are higher-risk are more likely to
28 default. To adjust for this risk, LoanMart and other automobile title lenders charge interest rates
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1 that are higher than many other credit products. The interest rate, or annualized payment rate
2 (“APR”), that LoanMart charges depends on a borrower’s risk profile, the amount of equity in
3 their automobile and the size of the loan.
4 21. In 2011, LoanMart expanded its business outside California for the first time, into
5 New Mexico, Missouri and Utah. LoanMart has expanded its operations to over 20 states today.
6 B. In 2013, Fortress Purchased A Majority Stake In LoanMart
7 22. From 2001 to 2013, LoanMart was a family business. In April 2013, that changed
8 when Gonen and the other stockholders sold a majority of LoanMart to Fortress. Fortress
9 purchased its majority stake in LoanMart through Defendant Wheels Investors.
10 23. Under the deal, LoanMart would continue to make automobile title loans under the
11 same LoanMart brand name. The business name at that time, Wheels Financial Group, Inc., was
12 converted to Defendant Wheels Financial Group, LLC (still a California company); and Wheels
13 Financial Group, LLC was under the ownership of a new holding company, Defendant WFG
14 Intermediate, LLC, which in turn is owned by Defendant WFG Holdings, LLC.
15 24. Fortress invested $77,350,000 into the company and acquired majority control of
16 WFG. In connection with this investment, Fortress’ senior leadership, including its Principal and
17 Co-Chief Executive Officer, Peter L. Briger, Jr., visited LoanMart’s offices in Los Angeles
18 County and met with Gonen. Briger and other senior Fortress executives met with the founding
19 owners and conducted diligence reviews in Los Angeles. Fortress and its senior leadership have
20 remained deeply engaged over time. Defendant David King (“King”), a Managing Director at
21 Fortress, was heavily involved in the due diligence process prior to the sale, making many trips to
22 Los Angeles. And King remains heavily involved, attending in person Board meetings at
23 LoanMart’s headquarters in Van Nuys, California, and traveling to California for other LoanMart
24 business. Warren Lyons (“Lyons”) and Jeffrey Weiss (“Weiss”), two other directors on
25 WFG/LoanMart’s Board of Managers (the “Board”), also travel to Los Angeles County to attend
26 Board meetings and to engage in LoanMart business, from hiring to meetings regarding financing.
27 25. In the transaction, Fortress acquired majority control of WFG, but Plaintiff retained
28 significant equity and other important rights, which it still holds today. Defendants are trying to
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1 destroy the value of Plaintiff’s equity and eviscerate Plaintiff’s rights.
2 1. The LLC Agreement
3 26. On April 1, 2013, Plaintiff and Wheels Investors executed a limited liability
4 company agreement for WFG. This agreement was modified the following month as the operative
5 LLC Agreement, a copy of which is attached hereto as Exhibit A. 1
6 27. Under the LLC Agreement, the ownership of WFG was split among multiple unit
7 classes or series. Plaintiff holds Series A and B Units, while Wheels Investors acquired its
8 majority ownership of LoanMart through Series C Units. As described in more detail below, the
9 series also delineate the distributions that owners (or “Unitholders”) receive, and the order in
10 which those cash distributions are made to them.
11 28. The units in WFG were apportioned as follows among the various Unitholders:
12 Unitholder Series A Units Series B Units Series C Units Series D Units
13 Plaintiff 12,000,000 11,743,997 - -
14 Wheels Investors - - 77,350,000 -
15 Oscar - 1,906,003 - -
Rodriguez 2
16
17 2. Plaintiff Has First Priority in Distributions Through Its Series A Units
18 29. Article 3 of the LLC Agreement is titled “Distributions and Allocations” and
19 governs how income generated by LoanMart’s business is to be distributed to the various series of
20 Units.
21 30. Distributions follow a particular sequence, based on order of priority. When a
22 distribution is made, the particular series of Units having superior priority rights is paid first. The
23 next series of Units in order of priority is paid only if the series of Units above is paid their full
24 distribution—and there is money left over. This process repeats itself down the distribution
25 waterfall until there are no more cash proceeds left to be distributed.
26
1
27 Capitalized terms not defined herein have the same definition as in the LLC Agreement.
2
28 Oscar Rodriguez was the CEO of LoanMart at the time of the purchase agreement.
450482.3 7
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1 31. This order of priority is codified in Section 3.1(c) of the LLC Agreement, which
2 governs distributions made through May 2017, and Section 3.1(d), which governs distributions
3 made after May 2017. Under each section, however, the order of priority is substantially identical,
4 with distributions to be made in the following order:
5
• First, to Series A Units, in proportion to their Unpaid Series A Yield—i.e., the
6 specified rate of return, which is approximately 10% 3;
7 • Second, to Series A Units, up to the amount of Series A Unreturned Capital—i.e., the
excess of capital contributions over distributions;
8
• Third, to Series B and C Units, on a pro rata basis, up to a 10% rate of return;
9
10 • Fourth, to Series B, C and D Units, on a pro rata basis, up to a 15% rate of return;
11 • Fifth, to Series B, C and D Units, on a pro rata basis, up to a 25% rate of return; and
12 • Sixth, the remainder, if any, to Series B, C and D Units, on a pro rata basis.
13 32. In short, Series A Units have first priority. Plaintiff, who is the only holder of
14 Series A Units, bargained for this term as a condition of selling a majority of LoanMart to Fortress
15 in 2013. Only after Series A Units are paid back (principal and interest) is Wheels Investors
16 (Fortress) able to collect distributions through its lower-priority Series C Units (in Step 3); and
17 only then on a pro rata basis with Plaintiff’s Series B Units. Plaintiff still owns 11,000,000 Series
18 A Units and 8,643,997 Series B Units (representing approximately $20,000,000 in total unreturned
19 capital contributions by Plaintiff to the business).
20 3. The LLC Agreement Includes a Narrow Exception Allowing Defendants to
21 Reverse the Order of Distributions
22 33. In 2013, the State of California did not regulate the maximum rate of interest that a
23 consumer finance lender (or “CFL”), like LoanMart, could charge. However, the parties
24 3
Under Section 3.1(d), the Unpaid Series A Yield was to increase to 15% after May 2017, but the
25 parties amended the LLC Agreement to, among other things, lower the rate in return for a
redemption of some of the Series A and B Units. In the two amendments to the LLC Agreement,
26 Fortress fraudulently induced LM Holdco to postpone the pay-out for its Series A Units and
reduce the interest rate on repayment. LM Holdco agreed to do this because Fortress stated that it
27
was to help LoanMart. But it is now evident that Fortress advocated these changes to benefit itself
28 and harm LM Holdco as the priority Series A Unitholder.
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1 understood that a new usury law capping interest rates could be enacted in the future. If that
2 occurred, then LoanMart might not be able to absorb the volume of defaults and other expenses
3 inherent in its high-risk portfolio, and it would have to wind-down its business and “run-off” its
4 existing loan portfolio, i.e., not issue new loans.
5 34. To address this risk, the LLC Agreement included a series of conditions that, if
6 met, would allow WFG to reshuffle the distribution waterfall in favor of Wheels Investors,
7 specifically its Series C Units, and subordinate Plaintiff’s equity (Series A Units), in connection
8 with a winding-down (or “run-off”) of the business. To invoke this exception, three steps had to
9 happen.
10 35. First, the Board had to declare that a Material Adverse Regulatory Change (or
11 “MARC”) had occurred. Under the LLC Agreement, a MARC occurs only if there is a new
12 regulatory enactment that would have a “material adverse effect” on LoanMart’s business in an
13 “Applicable State.” An “Applicable State” is any state where LoanMart originated and/or serviced
14 more than 5% of its loan portfolio, which then and now applies only to California. The LLC
15 Agreement defines a MARC as follows:
16 “Material Adverse Regulatory Change” means any change in any
Legal Requirement applicable to Applicable States that has had or
17 would reasonably be expected to have, either individually or in the
aggregate with all other changes in Legal Requirements, a material
18
adverse effect on the Company’s and its Subsidiaries’ businesses,
19 financial condition, results of operations, cash flows, operations,
assets, liabilities or prospects in the Applicable States; provided, that
20 each of the following, without limitation, shall be deemed a “material
adverse effect”: (i) a newly enacted usury cap of 60% or less in any
21 Applicable State or (ii) a decrease of 20% or more in the projected
earnings of the Company and its Subsidiaries in the Applicable States
22
for any 12 month period.
23
24 (LLC Agreement § 1.7.)
25 36. Second, after the Board finds that a MARC has occurred, then the Board must vote
26 to authorize a “Run-off Election,” which means “the election by the Board that the Company and
27 its Subsidiaries’ accumulated assets affected by the [MARC] should be placed in run-off.” (LLC
28 Agreement § 1.7 (emphasis added).)
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1 37. The term run-off is not defined in the LLC Agreement. But it was understood by
2 the parties during their negotiations that if, for example, a new usury cap was enacted, the business
3 would not be able to continue operating profitably and issue new loans, which would therefore
4 necessitate a “run-off” of the existing loan portfolio and winding down of the business. This is
5 also consistent with industry custom and usage where the term “run-off” is used in the context of
6 loans and other fixed-income assets to mean that a lender has decided to exit a business, stop
7 issuing new loans and run-off its existing portfolio until all of the outstanding loans are paid back
8 or otherwise discharged.
9 38. Third, “[i]n the event the Board makes a Run-off Election . . . the Company may
10 make Distributions to the Unitholders” following the order and priority in Section 3.1(e) of the
11 LLC Agreement. Under this section, the distribution waterfall no longer gives first priority to
12 Plaintiff’s Series A Units. Instead, Fortress’ Series C Units jump the line and have first and
13 second priority in the waterfall; Series A Units are bumped down to third priority. This comports
14 with the parties’ intent that Fortress/Wheels Investors should recover its initial capital outlay (plus
15 a 20% return) in the event that LoanMart is forced to wind-down (or “run-off”) its loan portfolio
16 due to a material adverse change that harms the business (a MARC).
17 39. If the above conditions are met, all distributions from that point forward must be
18 made pursuant to Section 3.1(e). That is, even if a run-off is appropriate, WFG must make
19 distributions to Unitholders going down the run-off distribution waterfall in Section 3.1(e) for all
20 times thereafter until there are no more proceeds to distribute.
21 40. As set forth below, Defendants’ misconduct in triggering a “run-off” of the existing
22 loan portfolio and the creation of a “new” portfolio violates the letter and spirit of the LLC
23 Agreement and is a quintessential breach of fiduciary duty where the majority tramples the rights
24 of minority stakeholders.
25 C. Defendants Create A New Lending Model For LoanMart
26 41. After acquiring majority control of LoanMart, Fortress, Wheels Investors and the
27 other Defendants were mindful that new rules regulating the maximum APR might be enacted in
28 California where more than 90% of LoanMart’s loans are issued. Using LoanMart money,
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1 resources and human capital, including Plaintiff’s equity, Defendants began exploring ways that
2 WFG could continue to issue the same loans even if a new usury cap were enacted.
3 42. This process went on for several years and cost LoanMart millions of dollars,
4 including fees to attorneys, consultants, regulatory experts and others, plus the diversion of
5 internal resources including employee and management time. These costs and expenses were
6 incurred by LoanMart at Fortress, WFG and the Board’s behest, and they were deducted off-the-
7 top, coming out of any distributions that were made to Plaintiff.
8 43. Eventually, Defendants settled on a lending model that involves issuing loans
9 from a separate bank and then purchasing them after-the-fact (the “Bank Model”). The Bank
10 Model was made possible by LoanMart’s reputation and stature in the industry, which was critical
11 to LoanMart forming a partnership with a banking institution. Of course, it was the founding
12 owners who were primarily responsible for building LoanMart into a widely respected business.
13 44. Under the Bank Model, the loans are issued on the front-end by a bank. A lender
14 (here, LoanMart) purchases the rights and interests in the loans from the bank after the loan is
15 made. The lender proceeds to service the loans and collect payments until they are repaid.
16 45. Defendants first began using the Bank Model in early 2019 with respect to loans
17 issued to Florida residents. The Bank Model was soon expanded to loan operations in Illinois,
18 Kentucky and Tennessee, and 12 more states were added through the remainder of 2019. This
19 Bank Model puts LoanMart ahead of its competitors and provides a significant competitive
20 advantage in California now that a new usury statute has been enacted.
21 D. WFG Stands To Gain Because Of Its Bank Model
22 46. On January 1, 2020, Assembly Bill 539 (“AB 539”) took effect in California.
23 Under this statute, a California resident who borrows between $2,500 and $10,000 from a CFL
24 can be charged no more than a 36% APR. This 36% cap is lower than the rates that have
25 historically been charged by CFLs.
26 47. AB 539 is a boon for LoanMart, however. Using the Bank Model, LoanMart can
27 still charge comparable interest rates and fees on automobile title loans to California residents, and
28 residents of other states that have similar usury caps. Because a bank is not a CFL under
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1 California law, LoanMart’s Bank Model is not subject to the 36% APR cap.
2 48. LoanMart actually stands to benefit from AB 539 because many of its competitors,
3 particularly in California, do not have a Bank Model in place. Indeed, other lenders have even
4 contacted LoanMart to ask if it will purchase their loan portfolios because they intend to exit the
5 consumer finance business entirely (run-off their business). In addition, there are LoanMart
6 competitors that have already started sending leads to LoanMart. Those companies cannot write
7 loans without the Bank Model, so they in essence write them through LoanMart either for a flat
8 fee or some type of revenue-sharing arrangement. This, too, will help boost LoanMart’s growth
9 and profitability.
10 49. Hence, AB 539 has not had a “material adverse effect” on LoanMart’s business.
11 To the contrary, LoanMart stands to gain through higher profits and greater market share. In fact,
12 using the Bank Model, Defendants continue to market, issue and service loans under the LoanMart
13 name, and are charging comparable interest rates and fees as before, including in California.
14 E. Defendants Plot To Wipe Out Plaintiff, While Running The Same Lending Business
15 50. Plaintiff has recently learned that Defendants are conspiring to take advantage of
16 AB 539 to eliminate Plaintiff’s ownership in LoanMart. Under Defendants’ scheme, Wheels
17 Investors will take first priority in the distributions of the business forever, while Defendants will
18 subordinate Plaintiff’s Series A and B Units and render them virtually worthless. As of
19 January 21, 2020, this scheme is already underway, and distributions that belong to Plaintiff have
20 been misappropriated by the Defendants.
21 1. The Board Votes to Call a Run-Off and Eliminate Plaintiff’s Equity
22 51. On the evening of January 20, 2020, Plaintiff was given notice that a Board
23 meeting would be held the following day and sent copies of sweeping redline changes to a
24 proposed Second Amended and Restated Limited Liability Company Agreement of WFG
25 (“Proposed Second Amended LLC Agreement”). The redlined document confirmed that
26 Defendants were conspiring to eliminate Plaintiff’s equity. A copy of the redlined Proposed
27 Second Amended LLC Agreement is attached hereto as Exhibit B.
28 52. Then, approximately one hour before the January 21 Board meeting, Defendant
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1 Hugo Dooner (“Dooner”), CEO of WFG, texted Gonen that King would like to discuss proposed
2 amendments to the LLC Agreement with just the Board members before the company meeting.
3 53. An hour later, Gonen dialed in to the pre-meeting of the Board requested by
4 Defendants. During the meeting, a lawyer for Defendants spoke for less than ten minutes. He
5 stated that Defendants plan to call a MARC, “run off” the existing loan portfolio of approximately
6 $100 million and start a “new” portfolio. The Board members voted to start the Proposed Second
7 Amended LLC Agreement as of that day, January 21, 2020. The attorney stated that the existing
8 loan portfolio (approximately $100 million) will be treated under the “Run-Off Election” in the
9 LLC Agreement, while all new loans issued after January 21, 2020 will be part of a “new”
10 portfolio with a new series of equity and new distribution priority, which would further benefit
11 Defendants and subordinate Plaintiff’s Series A and B Units.
12 54. The so-called “new” portfolio, however, is not new at all—it involves the same
13 loan products, marketing to the same people, charging the same interest rates, managed by the
14 same LoanMart employees, and utilizing the same infrastructure and valuable LoanMart brand
15 name as before. What’s more, Defendants concocted this “new” portfolio scheme using
16 LoanMart’s money and resources, of which Plaintiff is still an owner; and Defendants are running
17 the “new” portfolio through the same LoanMart employees and infrastructure as the existing
18 portfolio. Yet, Defendants refuse to pay Plaintiff. The “new” portfolio is a farce. Using the
19 LoanMart brand to issue loans for this “new” portfolio, Defendants are trying to steal the
20 company.
21 55. Defendants’ misconduct is contrary to the LLC Agreement. Defendants’ Bank
22 Model is not subject to any adverse effect from AB 539. The Bank Model allows LoanMart to
23 continue to issue similar loans as before; and accordingly, AB 539 has had no adverse impact on
24 LoanMart. Since AB 539 has not had a material adverse effect (if anything, it has boosted
25 LoanMart), Defendants are wrong to call a MARC. Moreover, even assuming a MARC occurred,
26 the “Run-Off Election” can only be triggered for assets “affected by” the MARC. Because there
27 are no LoanMart assets affected by the MARC, Defendants have no right to “run-off” the existing
28 loan portfolio. Lastly, even assuming Defendants could institute a “Run-Off Election” under the
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1 LLC Agreement (they cannot), they do not have the authority to create a sham “new” portfolio and
2 new distribution priority, which is designed solely to enrich themselves at the expense of their
3 minority partner, Plaintiff.
4 56. With almost no discussion, the Board voted to authorize Defendants’ plan to cheat
5 Plaintiff out of millions in LoanMart equity and cash. The Board did not state any “material
6 adverse effect” on the business from AB 539 because there is none. The decisions to call a
7 MARC and initiate a “Run-Off election” took effect immediately, ensuring that Plaintiff would be
8 stripped of distributions from January 21, 2020, and thereafter. Defendants have, in fact, started
9 cheating Plaintiff out of distributions. Plaintiff’s monthly distribution for January 2020 was 30%
10 less than what it had received every month since 2013. Plaintiff will receive nothing in February
11 2020, and thereafter.
12 57. Lest there be any doubt about Defendants’ intentions, King stated to Dooner that
13 Fortress’ plan is to “prevent [Plaintiff] from ever seeing another penny.” Fortress, Wheels
14 Financial Group and WFG Intermediate have actively worked with Wheels Investors and
15 LoanMart management to devise and execute this nefarious scheme to seize the company.
16 2. Defendants’ Sham “New Business” Is Designed to Steal the Company
17 58. Under Defendants’ scheme, there is no winding-down (or “run-off”) of the business
18 at all. Instead, Defendants have made an arbitrary January 21, 2020 cut-off date so that all
19 proceeds from future loans are paid to a “new” portfolio and series of equity.
20 59. The “new” portfolio is a sham. Loans after January 21, 2020, are the same as the
21 existing $100 million lending portfolio at LoanMart. Indeed, WFG has already been using the
22 Bank Model to issue loans since early 2019. The Run-Off Election is just an excuse by Wheels
23 Investors (Fortress) to help itself to more distributions and equity, to the detriment of Plaintiff.
24 Defendants continue to exploit the LoanMart name but only for their benefit. Defendants’ attempt
25 to have their cake and eat it too tramples Plaintiff’s rights.
26 60. The most shocking aspect of Defendants’ scheme is how Defendants intend to
27 double- and triple-dip into Company proceeds to prevent Plaintiff from “ever seeing another
28 penny.” Not content to reshuffle the waterfall once, Defendants will be taking the proceeds from
450482.3 14
COMPLAINT AND DEMAND FOR JURY TRIAL
1 the “run-off” on the existing portfolio (return of capital plus 20% return) and putting that money
2 into the sham “new” portfolio and newly concocted series of equity. With their capital and 20%
3 already returned, Defendants are then using that money to award themselves millions of newly
4 created units in LoanMart, which they are calling Series N Units; and these new Series N Units
5 will have first priority in distributions plus a preferred 12% return from the “New Business” (post-
6 January 21, 2020 portfolio of loans). In short, Fortress is paying itself back plus 20% under the
7 “run-off,” reinvesting that money into the same company, paying itself back again on that
8 reinvested money and taking another 12% return on top of that—thus creating an endless cycle to
9 benefit Fortress. And this is all before Plaintiff can get paid any cash distributions from
10 LoanMart’s ongoing business (even though distributions are supposed to be paid to Plaintiff’s
11 Series A Units first).
12 61. Unlike Fortress, which is using the money its paying itself back to acquire new
13 units in LoanMart, Plaintiff must come forward with new capital in order to acquire Series N Units
14 in the “new” portfolio going forward. Unless Plaintiff puts new money in, its existing Series A
15 and B Units would, according to King, have “de minimis” value. Yet, Defendants are not putting
16 in money of their own but instead funding their new Series N Units with cash distributions from
17 the old portfolio that Defendants are misappropriating from Plaintiff. Making matters worse,
18 WFG will continue charging the existing portfolio for company expenses that have nothing to do
19 with running off the existing portfolio but rather are exclusively benefiting the “new” portfolio,
20 such as marketing, sales, underwriting and employee compensation related thereto. There are
21 approximately 100 employees at LoanMart working exclusively on matters relating to the issuance
22 of new loans who will not be doing work to “run-off” the current $100 million portfolio.
23 62. Defendants are using a narrow exception to push out Plaintiff and keep the
24 proceeds for Wheels Investors. The parties had intended and understood that the MARC and
25 “Run-Off Election” would only be used if there was a catastrophic new regulatory enactment that
26 forced LoanMart to wind down the business. But because of the Bank Model, that is not the
27 situation. Indeed, WFG has not changed interest rates or underwriting standards, much less
28 stopped issuing new loans. It is business as usual at LoanMart. In fact, the business is likely to
450482.3 15
COMPLAINT AND DEMAND FOR JURY TRIAL
1 grow because competitors without a Bank Model are dropping out. Despite this, Defendants’
2 unilateral changes to the LLC Agreement will wipe out Plaintiff and make its once-senior Series A
3 Units worthless.
4 FIRST CAUSE OF ACTION
5 (Breach of Contract)
6 (By Plaintiff Against Defendant WFG Holdings, LLC, Wheels Financial Group, LLC and
7 Wheels Investors LLC)
8 63. Plaintiff hereby repeats, realleges and incorporates by reference each and every
9 allegation as fully set forth in this Complaint, and further alleges as follows.
10 64. On May 6, 2013, Plaintiff entered into the LLC Agreement with WFG and Wheels
11 Investors.
12 65. WFG and Wheels Investors have breached multiple provisions of the LLC
13 Agreement.
14 66. As an initial matter, the MARC provision in the LLC Agreement does not apply to
15 AB 539 because it has not had and is not expected to have a material adverse effect on LoanMart’s
16 business. To the contrary, LoanMart’s business continues as usual and is likely to prosper. Even
17 assuming a MARC occurred (Plaintiff contends it has not), under Section 1.7 of the LLC
18 Agreement, WFG’s/LoanMart’s Board of Managers can initiate a Run-Off Election and place only
19 assets “affected by” a MARC, if any, into run-off. Assets not affected by a MARC cannot be
20 placed into run-off, and remain subject to the regular order of distribution giving priority to Series
21 A Units.
22 67. Defendants breached the LLC Agreement by calling a MARC; and in the
23 alternative, they have breached by placing the entire existing loan portfolio into run-off, even
24 though none of these assets are affected by a MARC. Moreover, as discussed above, a “run-off”
25 of LoanMart’s assets means winding down the business. Rather than winding down the business,
26 Defendants are ramping up the business under the sham “new” portfolio and depriving Plaintiff of
27 its equity and distributions in the process. Defendants do not have the right to place the assets in
28 “run-off” and have breached the LLC Agreement by doing so.
450482.3 16
COMPLAINT AND DEMAND FOR JURY TRIAL
1 68. Even assuming Defendants could “run-off” the assets of LoanMart (they cannot), if
2 the Board votes to authorize a Run-Off Election, then WFG and Wheels Investors must continue
3 making distributions through the Run-Off Distributions, until all cash, property and securities are
4 paid out to the Unitholders. However, Defendants are not complying with this requirement of the
5 LLC Agreement. Instead of distributing all of LoanMart’s assets as required by Section 3.1(e),
6 Defendants have improperly and arbitrarily decided to distribute Run-Off Distributions only for
7 the existing loan portfolio but not the “new” portfolio of loans issued after January 21, 2020. If a
8 “run-off” is permitted (Plaintiff contends it is not), then once WFG calls a “Run-Off Election,” it
9 must continue making distributions through the Run-Off Distributions waterfall, including to
10 Plaintiff’s Series A and B Units under Section 3.1(e)(iii-vi), for all loans, including the so-called
11 “new” loans. Defendants created the sham “new” portfolio to avoid compliance with the LLC
12 Agreement. Defendants’ financial fraud allows them to pay themselves twice: once in first
13 priority under the Run-Off Distributions, and a second time, again in first priority, in the “new”
14 portfolio scheme.
15 69. Plaintiff has been harmed by the foregoing breaches of the LLC Agreement and is
16 entitled to an award of compensatory damages, in an amount to be proven at trial, but believed to
17 be in excess of $20 million.
18 SECOND CAUSE OF ACTION
19 (Breach of Implied Covenant of Good Faith and Fair Dealing)
20 (By Plaintiff Against Defendants WFG Holdings, LLC, Wheels Financial Group, LLC and
21 Wheels Investors LLC)
22 70. Plaintiff hereby repeats, realleges and incorporates by reference each and every
23 allegation as fully set forth in this Complaint, and further alleges as follows.
24 71. By law, an implied covenant of good faith and fair dealing attaches to every
25 contract, including the LLC Agreement. The implied covenant requires contracting parties to
26 refrain from conduct that has the effect of preventing the other party to the contract from receiving
27 the benefits of the agreement.
28 72. WFG and Wheels Investors had an implied obligation under the LLC Agreement to
450482.3 17
COMPLAINT AND DEMAND FOR JURY TRIAL
1 not (a) cause or fabricate a “Material Adverse Regulatory Change” (or “MARC”) absent a change
2 that would have a material adverse effect on WFG’s consumer lending business; (b) authorize a
3 “Run-Off Election” absent a regulatory change compelling LoanMart’s consumer lending business
4 to be placed into “run-off” and thereby wound-down; (c) authorize a “Run-Off Election” of only
5 LoanMart’s existing loan portfolio, and not all loans; (d) subordinate Plaintiff’s Series A and B
6 Units through its aforementioned scheme such that Plaintiff’s equity would be rendered virtually
7 worthless; and (e) use the proceeds of a Run-Off Election to fund a new consumer loan portfolio
8 under the LoanMart name in which Wheels Investors would have priority and be entitled to a
9 preferred 12% return before any distributions would be made to Plaintiff.
10 73. WFG and Wheels Investors breached the implied covenant by engaging in the
11 aforementioned conduct. Using LoanMart money, employees, trade name, licenses, and other
12 resources, Defendants improperly established a so-called “New Business” 4 that would deprive
13 Plaintiff of its rights to receive distributions and own equity in LoanMart. The implied covenant
14 exists to prevent this type of nefarious conduct that deprives Plaintiff of its right to receive the
15 benefits of the contract.
16 74. Plaintiff has been harmed by the foregoing breaches of the implied covenant of
17 good faith and fair dealing and is entitled to an award of compensatory damages, in an amount to
18 be proven at trial, but believed to be in excess of $20 million.
19 THIRD CAUSE OF ACTION
20 (Breach of Fiduciary Duties)
21 (By Plaintiff Against Defendants Wheels Investors LLC, David King, Warren Lyons, Jeffrey
22 Weiss and Hugo Dooner)
23 75. Plaintiff hereby repeats, realleges and incorporates by reference each and every
24
4
25 In the Proposed Second Amended LLC Agreement, Defendants have purported to define “New
Business” as “the businesses of [LoanMart] other than the Run-Off Business,” or all loans after
26 January 21, 2020. This further demonstrates the preposterousness of Defendants’ fraudulent
distinction between the existing loan portfolio and the “new” portfolio. The only difference is
27
whether the loans were made before or after January 21, 2020, but everything else about the
28 LoanMart business is the same.
450482.3 18
COMPLAINT AND DEMAND FOR JURY TRIAL
1 allegation as fully set forth in this Complaint, and further alleges as follows.
2 76. By virtue of its status as the “CCP Investor Member” of WFG, Defendant Wheels
3 Investors owes fiduciary duties to Plaintiff. Wheels Investors owes Plaintiff the highest obligation
4 of good faith, fair dealing, loyalty and due care. These fiduciary duties to other members of
5 LoanMart are non-waivable under California law. Therefore, the purported blanket elimination of
6 any fiduciary duties, and other overbroad exculpatory clauses, in the LLC Agreement is void and
7 unenforceable as contrary to fundamental California law and public policy.
8 77. In addition, by virtue of their status as members of the WFG’s/LoanMart’s Board
9 of Managers, Defendants David King, Warren Lyons and Jeffrey Weiss owed fiduciary duties to
10 Plaintiff. King, Lyons and Weiss owed Plainti
Related Content
in Los Angeles County
Ruling
YOUNG CHOW DAI VS PAUL P. CHENG & ASSOCIATES, ET AL.
Jul 30, 2024 |
Echo Dawn Ryan |
18STCV10177
Case Number:
18STCV10177
Hearing Date:
July 30, 2024
Dept:
26
Dai v. Paul P. Cheng & Associates, et al.
MOTION FOR LEAVE
TENTATIVE RULING:
Plaintiff Young Chow Dais Motion for Leave is DENIED.
ANALYSIS:
On December 31, 2018, Plaintiff Young Chow Dai (Plaintiff) filed the instant action against Defendants Paul P. Cheng & Associates and Marsha S. Mao. Plaintiff filed the operative Second Amended Complaint (SAC) on October 4, 2019 against Defendants Paul P. Cheng (Defendant Cheng), Marsha S. Mao (Defendant Mao), and Law Offices of Paul P. Cheng & Associates (Defendant Cheng & Associates). The SAC, which arises from alleged wrongful actions in connection with a settlement agreement, alleges causes of action for: (1) accounting; and (2) fraud.
On February 7, 2023, Defendant Cheng filed a motion for summary judgment (MSJ). On March 1, 2023, Defendant Cheng filed a motion to deem the truth of the matters in Defendants Requests for Admission, Set One, served on Plaintiff, admitted and for monetary sanctions. On April 12, 2023, Plaintiff filed a motion to transfer venue to the Santa Monica Courthouse.
On July 24, 2023, after hearing and oral argument, the Court: (1) granted the MSJ filed by Defendant Cheng; (2) granted Defendant Chengs motion to deem the truth of the matters in Defendants Requests for Admission, Set One, as admitted and awarded Defendant monetary sanctions; and (3) denied Plaintiffs motion to transfer and change venue. (Minute Order, 07/24/23.) On August 4, 2023, Defendant Cheng filed and served Notice of Entry of Judgment or Order as to the Courts July 24, 2023 order.
On August 7, 2023, Plaintiff filed a
Motion to Vacate Judgment and Enter a New and Different Judgment
. On August 8, 2023, the Court entered judgment in favor of Defendant Cheng and against Plaintiff. The Courts order for entry of summary judgment provides that Plaintiffs case against Defendant Paul P. Cheng is therefore dismissed with prejudice. (Minute Order, 08/08/23, p. 3:1-4.) Plaintiff filed an Amended Motion to Vacate Judgment and Enter a New and Different Judgment on August 11, 2023. Plaintiff filed similar motions to vacate on August 25, 2023 and September 29, 2023.
In a ruling considering all three Motions to Vacate, the Court denied the request to vacate the judgment on January 17, 2024. (Minute Order, 01/17/24.) Plaintiff then filed a Motion for Reconsideration on January 23, 2024. The Motion for Reconsideration was denied on March 26, 2024. (Minute Order, 03/26/24.) On April 16, 2024, the Court granted Defendants Motion to Deem Plaintiff a Vexatious Litigant. (Minute Order, 04/16/24.) Plaintiff sought to challenge that ruling via a motion in Department 1, which was denied on June 27, 2024. (Minute Order, 06/27/24.)
The instant Motion for Leave was filed by Plaintiff on May 2, 2024. The Motion was originally set for hearing on July 3, 2024 and then continued to July 30, 2024. Defendant filed an opposition on July 24, 2024.
The instant Motion does not explain what relief is sought or on what basis.
The memorandum must contain a statement of facts, a concise statement of the law, evidence and arguments relied on, and a discussion of the statutes, cases, and textbooks cited in support of the position advanced. (Cal. Rules of Court, Rule 3.1113(b).) Indeed, Plaintiffs failure to provide a memorandum as required by the Rule is an admission that the [request] is without merit and cause for its denial. (Cal. Rules of Court, Rule 3.1113(a), (b);
In re Marriage of Falcone & Fyke
(2012) 203 Cal.App.4th 964, 976.) As the Court cannot discern what relief Plaintiff seeks or the legal basis for any relief, the Motion for Leave is denied.
Conclusion
Plaintiff Young Chow Dais Motion for Leave is DENIED.
Court clerk to give notice.
Ruling
THE MANIJEH SHAMS TRUST, ET AL. VS FARIBA JAVAHERPOUR
Jul 26, 2024 |
22BBCV00226
Case Number:
22BBCV00226
Hearing Date:
July 26, 2024
Dept:
A LOS ANGELES SUPERIOR COURT
NORTH CENTRAL DISTRICT - BURBANK
DEPARTMENT A
TENTATIVE RULING
JANUARY 25, 2024
MOTION TO ENFORCE SETTLEMENT AGREEMENT
Los Angeles Superior Court Case # 22BBCV00226
MP:
THE MANIJUE SHAMS TRUST AND MANIJEH SHAMS (Plaintiff)
RP:
FARIBA JAVAHEROUR, ET AL (Defendant)
All parties are requested to appear either in person or via LA Court Connect to address the tentative ruling.
Brief Summary of Requested Relief
The Court has read and considered Plaintiffs Motion to Enforce Settlement, Defendants opposition, as well as Defendants Further Opposition to the Motion.
The parties entered into a settlement as set forth in Plaintiffs moving papers, which included a CCP §664.6 provision.
Defendant has declined to sign the written settlement agreement until Plaintiff amends her trust to reflect that the settlement of $60,000 will inure to the benefit of the Plaintiffs grandchildren, specifically the children of Plaintiffs deceased son, Massoud Bahmanyar.
The parties appear to be at an impasse.
Ruling on Motion to Enforce Settlement
Pursuant to CCP §664.6, a Court has continuing jurisdiction to enforce a settlement agreement.
As such, the Court exercises its authority under CCP §664.6 and orders the following be completed within the next 30 days:
1.
Plaintiff Manijeh Shams is to create a new irrevocable trust: The Manijeh Shams Irrevocable Grandchild Trust in which she is the primary beneficiary, and the children of Massoud Bahmanyar are the contingent beneficiaries.
Manijeh Shams shall be the initial trustee, with a successor trustee to be named by Ms. Shams in the trust.
2.
The terms of the trust will include that the $60,000 settlement, as well as any earnings, may be used for the direct support of the settlor, and upon settlors death will inure to the benefit of Massoud Bahmanyars children in equal parts
per stirpes
. In the event that any grandchild predeceases the settlor, that grandchilds share shall inure to the grandchilds children
per stirpes.
In the event that a deceased grandchild has no children, the share shall be divided equally among the remaining living grandchildren.
3.
Defendant Fariba Javaherpour shall deposit the total sum of $60,000 into the newly established trust within ten days of being informed that the new irrevocable trust has been established and a bank account in the name of the new trust is set up.
4.
The Manijeh Shams Irrevocable Grandchild Trust shall be subject to Part 4, Chapter 1 of the California Probate Code, beginning at §16060 et seq., including but not limited, to §§16062 and 16063.
Upon request from any contingent beneficiary, the contingent beneficiaries shall have a right directly, or through their representative if minors, to have an accounting no more than annually.
The accounting may be informal, and the cost of the accounting shall be incurred by the trust.
Any contingent beneficiary has the right to petition the court for a formal accounting if there is a prima facie basis to believe that the informal accounting does not properly reflect the trust distributions and expenses.
5.
The individual trustee shall not be entitled to compensation for administration of the trust, nor shall any bond be required of any individual trustee.
A professional or commercial trustee shall be entitled to compensation as permitted by law.
Manijeh Shams may propose specific language to the Court if necessary, with objections and alternative language being proposed by Defendant Fariba Javaherpour.
The Court sets a Status Conference Re: Settlement Agreement compliance for August 8, 2024 at 10:00 AM.
ORDER
The Plaintiffs Motion to Enforce the Settlement Agreement c
ame on for hearing on July 25, 2024, with appearances/submissions as noted in the minute order for said hearing, and the court, being fully advised in the premises, did then and there rule as follows:
THE MOTION TO ENFORCE THE SETTLEMENT AGREEMENT IS GRANTED.
PLAINTIFF TO CREATE NEW IRREVOCABLE TRUST CONSISTENT WITH THE TERMS OF THE SETTLEMENT AGREEMENT MEMORIALIZED IN THE COURTS PRIOR MINUTE ORDER.
NEW IRREVOCABLE TRUST SHALL CONTAIN THE TERMS SET FORTH IN THIS RULING.
DEFENDANT IS TO FUND THE TRUST WITHIN 10 DAYS OF BEING NOTIFIED OF THE NEW TRUSTS CREATION AND BEING PROVIDED BANKING INFORMATION IN THE NAME OF THE NEW TRUST.
STATUS CONFERENCE RE: SETTLEMENT AGREEMENT COMPLIANCE IS AUGUST 8, 2024 AT 10:00 AM.
UNLESS ALL PARTIES WAIVE NOTICE, PLAINTIFF TO GIVE NOTICE.
IT IS SO ORDERED.
DATE: July 26, 2024
_______________________________
F.M. TAVELMAN, Judge
Superior Court of California
County of Los Angeles
Ruling
MARIA PADILLA, ET AL. VS JOSEPH HEFFESSE, ET AL.
Jul 29, 2024 |
23STCV15942
Case Number:
23STCV15942
Hearing Date:
July 29, 2024
Dept:
53
Superior Court of California
County of Los Angeles Central District
Department 53
maria padilla
, et al.;
Plaintiffs
,
vs.
joseph heffesse,
as trustee of the Coldwater Canyon Trust
, et al.;
Defendants
.
Case No.:
23STCV15942
Hearing Date:
July 29, 2024
Time:
10:00 a.m.
[tentative] Order
RE:
petition for approval of compromise of claim for minor claimant anthony jayden diaz
MOVING PARTY:
Petitioner Jeanette Oliveros
RESPONDING PARTY:
Unopposed
Petition for Approval of Compromise of Claim for Minor Claimant Anthony Jayden Diaz
The court considered the moving papers filed in connection with this petition.
No opposition papers were filed.
DISCUSSION
Plaintiff and petitioner Jeanette Oliveros (Petitioner) seeks court approval of the settlement made on behalf of minor claimant Anthony Jayden Diaz (Minor Claimant) in this action.
The compromise of a minors disputed claim for damages is valid only after it has been approved, upon the filing of a petition, by the court.¿ (Prob. Code, § 3500.)¿ The petition must be verified by the petitioner, must contain a full disclosure of all information that has any bearing upon the reasonableness of the compromise, and must be prepared on Judicial Council form MC-350.¿ (Cal. Rules of Court, rule 7.950.)¿
Defendants Joseph Heffesse, as trustee of the Coldwater Canyon Trust, Sandra B. Sternberg Heffesse, and LA Properties Heffesse LLC have agreed to pay a total of $175,000 to settle this action, of which $5,000 will be separately allocated to Minor Claimant.
(MC-350, ¶¶ 10-11.)
Of the $5,000 allocated to Minor Claimant, $1,250 will be paid to counsel for attorneys fees and $134.35 will be paid to counsel for legal costs.
(MC-350, ¶¶ 13, 16.)
The remaining $3,615.65 will be paid or delivered to the parent of Minor Claimant, i.e., Petitioner, without bond, on the terms and under the conditions specified in Probate Code sections 3401-3402.
(MC-350, ¶ 18, subd. (b)(5); MC-350, Attachment 18b(5), Oliveros Decl., ¶¶ 1-2, 6; Prob. Code, §§ 3401, 3402.)
The court has reviewed the petition and finds the settlement to be fair and reasonable, and in the best interest of Minor Claimant.
The court further finds that the declaration of Rachel Fishenfeld is sufficient to support the request for attorneys fees in the amount of $1,250 (representing 25 percent of the $5,000 settlement).
(Fishenfeld Decl., ¶¶ 2-3, 6-11; Cal. Rules of Ct., rule 7.955.)
The court therefore grants Petitioners petition.
ORDER
The court grants petitioner Jeanette Oliveross petition for approval of compromise of claim on behalf of minor claimant Anthony Jayden Diaz.
The court orders that the $3,615.65 settlement on behalf of minor claimant Anthony Jayden Diaz may be paid to plaintiff and petitioner Jeanette Oliveros pursuant to Probate Code sections 3401 and 3402.
The court orders petitioner Jeanette Oliveros to give notice of this ruling.
IT IS SO ORDERED.
DATED:
July 29, 2024
_____________________________
Robert B. Broadbelt III
Judge of the Superior Court
Ruling
IRENE YOUNG, ET AL. VS PACIFIC PLAZA ELITE - ALHAMBRA HOMEOWNERS ASSOCIATION, A CALIFORNIA CORPORATION; AND DOES 1-20;
Jul 31, 2024 |
22STCV08879
Case Number:
22STCV08879
Hearing Date:
July 31, 2024
Dept:
20
Tentative Ruling
Judge Kevin C. Brazile
Department 20
Hearing Date:
July 31, 2024
Case Name:
Young, et al. v. Pacific Plaza Elite-Alhambra Homeowners Association, et
al.
Case No.:
22STCV08879
Matter:
Motions to Compel Further Responses (4x)
Moving Party:
Plaintiffs Irene Young and Jesse Chang
Responding Party:
Defendant Pacific Plaza Elite-Alhambra Homeowners Association
Notice:
OK
Ruling:
The Motion as to Requests for Production is granted in part.
The Motions as to Form Interrogatories and Request for Admission
are granted.
Moving parties to give notice.
If counsel do not submit on the tentative, they are strongly
encouraged to appear by LACourtConnect rather than in person due to the COVID-19 pandemic.
Plaintiffs Irene Young and Jesse Chang seek to compel further responses from Defendant Pacific Plaza Elite-Alhambra Homeowners Association as to their requests for production, set two, form interrogatories, set two, request for admission no. 15.
Request for Admission
Request for Admission no. 15 states, Admit that YOU have not repaired the defects that were the subject of the CONSTRUCTION DEFECT DISPUTE.
Previously, Defendant responded: After a reasonable inquiry concerning the matter contained in this request, admit in part and deny in part. The Court compelled a further response because there was no specificity as to what was admitted and denied.
Defendant then served the following amended response that is the subject of the current Motion: After a reasonable inquiry concerning the matter contained in this request, to the best of Responding Partys knowledge, the Developer has completed the repairs to Plaintiffs property and therefore responds: Deny.
Plaintiffs argue that this is evasive because the request did not relate to the Developer, who is never identified in the response anyway. They also contend that it is unclear whether the phrase Plaintiffs property relates to Plaintiffs unit or the entire condominium building that was the subject of the CONSTRUCTION DEFECT DISPUTE.
The Motion to Compel is granted. A further response should be provided in 10 days that (a) admits that Defendant itself did not do the repairs at issue, but (b) denies that the repairs were never done, because the developer, Pacific Plaza Investments, LLC, addressed them. This would seem to better embody a response that complies with CCP § 2033.220. The Court declines to award sanctions.
Form Interrogatories (2x)
The next Motions pertain to form interrogatory no. 17.1 as it relates to requests for admission nos. 7 and 15.
Given that the Court has required a further response for RFA no. 15, a further accompanying response should also be provided for FI no. 17.1.
With respect to request no. 7, the response for form interrogatory no. 17.1 is deficient. No facts or documents are specifically identified and no contact information is provided for Partners Community Management.
Thus, the Motions to Compel are grantedfurther responses are required within 30 days. The Court awards reduced sanctions to Plaintiffs in the amount of $750.
Requests for Production
With respect to the requests for production, Defendant contends that supplemental documents were served such that the Motion is moot. Defendant, however, never addresses its actual responses. The Motion is granted as to request nos. 1-7, 9-12, 15-22 because the non-privilege objections lack merit and Defendant should provide updated responses in which documents are identified with Bates numbers. For its privilege log, Defendant should indicate recipients and authors.
With respect to request nos. 8, 13, 14, 24, and 25, Defendant should provide a response that complies with Code Civ. Proc. § 2031.230. The Motion is denied without prejudice as to request no. 23, which seems to target predominantly privileged matters. Further responses are to be provided within 30 days. The Court awards Plaintiffs reduced sanctions in the amount of $750.
Moving parties to give notice.
If counsel do not submit on the tentative, they are strongly encouraged to appear by LACourtConnect rather than in person due to the COVID-19 pandemic.
Ruling
FLOSSIE C PARUNGAO VS RONAL B. BIBONIA, AS AN INDIVIDUAL AND AS CO-TRUSTEE OF THE THE RONALD B. BIBONIA AND WILFRED T. CO REVOCABLE TRUST DATED NOV
Jul 30, 2024 |
23PSCV02165
Case Number:
23PSCV02165
Hearing Date:
July 30, 2024
Dept:
K
Defendant Ronald B. Bibonias Demurrer to Complaint is SUSTAINED without leave to amend. Defendant Bibonia is ordered to file an Answer within 10 days.
Wilfred T. Cos Demurrer to Complaint is SUSTAINED in part (i.e., as to the first through fourth, sixth and seventh, and ninth causes of action). The court will inquire of the parties whether leave to amend should be granted.
Background
Plaintiff Flossie C. Parungao (Plaintiff) alleges as follows: Plaintiff and Wilfred T. Co aka Winnifredo T. Co (Co) are siblings. In June 2004, Plaintiff located and negotiated the purchase of the property located at 302 S. Loraine Ave., Glendora, California 91741 (Property) to serve as her residence. Co offered to assist Plaintiff with the purchase of the subject property. Plaintiff and Co agreed that (1) Co would co-sign the purchase financing documents and take record title to the subject property, (2) Plaintiff would provide all of the funds needed for the down payment and closing costs, (3) Plaintiff would thereafter directly pay or provide funds for payment of the loan, property taxes, insurance and other subject property related-expenses, and that (4) upon request from Plaintiff, Co would execute such documents and take such other actions as might be needed to evidence he had no interest in the subject property other than the bare record title he would be relinquishing (Contract). Plaintiff did all things required of her under the Contract.
In 2023, Plaintiff asked Co to sign over record title to her; Co refused. Plaintiffs ensuing investigation revealed that Co transferred the subject property into the Ronald B. Bibonia and Wilfred T. Co Revocable Trust dated November 24, 2020 (Trust).
On July 18, 2023, Plaintiff filed a complaint, asserting causes of action against Co, individually and as Co-Trustee of the Trust, Ronald Bibonia (Bibonia), individually and as Co-Trustee of the Trust (collectively Defendants), and Does 1-50 for:
1.
Specific Performance of Oral Contract
2.
Breach of Oral Contract
3.
Fraud [Promise Without Intent to Perform]
4.
Intentional Misrepresentation
5.
Breach of Fiduciary Duty
6.
Conversion
7.
Violation of Penal Code § 496
8.
Quiet Title
9.
Accounting
10.
Imposition of Constructive Trust
On April 26, 2024, the court sustained with leave to amend the demurrer as to the first through fourth, and sixth and seventh causes of action. It also overruled the demurrer as to fifth and eighth causes of action. On May 16, 2024, the Plaintiff filed a First Amended Complaint against Co, individually and as Co-Trustee of the Trust, Bibonia, individually and as Co-Trustee of the Trust (collectively Defendants), and Does 1-50 for:
1.
Specific Performance of Oral Contract
2.
Breach of Oral Contract
3.
Fraud [Promise Without Intent to Perform]
4.
Intentional Misrepresentation
5.
Breach of Fiduciary Duty
6.
Conversion
7.
Violation of Penal Code § 496
8.
Quiet Title
9.
Accounting
10.
Imposition of Constructive Trust
A Case Management Conference is set for July 30, 2024.
Legal Standard
A demurrer may be made on the grounds that the pleading,
inter alia
, does not state facts sufficient to constitute a cause of action and/or is uncertain. (Code Civ. Proc., § 430.10, subds. (e) and (f).) When considering demurrers, courts read the allegations liberally and in context. In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (
Donabedian v. Mercury Ins. Co.
(2004) 116 Cal.App.4th 968, 994.) A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. (
SKF Farms v. Superior Court
(1984) 153 Cal.App.3d 902, 905 [citations omitted].) At the pleading stage, a plaintiff need only allege ultimate facts sufficient to apprise the defendant of the factual basis for the claim against him. (
Semole v. Sansoucie
(1972) 28 Cal. App. 3d 714, 721.) [A] demurrer does not, however, admit contentions, deductions or conclusions of fact or law alleged in the pleading, or the construction placed on an instrument pleaded therein, or facts impossible in law, or allegations contrary to facts of which a court may take judicial knowledge. (
S. Shore Land Co. v. Petersen
(1964) 226 Cal.App.2d 725, 732 [citations omitted].)
Discussion
Defendants demur, pursuant to Code of Civil Procedure § 430.10, subdivisions (e) and (f), to the first through ninth causes of action in Plaintiffs complaint, on the basis that they each fail to state facts sufficient to constitute causes of action and are uncertain.
[1]
Request for Judicial Notice
The court rules on Defendants Request for Judicial Notice (RJN) as follows: Granted as to Exhibit A (i.e., deed of trust recorded April 11, 2007).
Merits
As to Bibonia
Bibonia contends that the demurrer should be summarily sustained as it pertains to him, on the basis that the FAC is again completely devoid of factual allegations against him. (Dem., 18:9). A review of the FAC demonstrates that Bibonia was not contractually bound based on the alleged oral contract but merely listed on the Propertys title. Plaintiffs contention that Bibonia is a beneficiary to the property is insufficient to allege his involvement in the alleged oral agreement. Nevertheless, Bibonias name on the Propertys title is sufficient to include him on the eighth cause of action for quiet title. As a result, Bibonias demurrer is sustained on this basis as to causes of action one through seven, and nine without leave to amend.
As to Co
First and Second Causes of Action (i.e., Specific Performance of Oral Contract and Breach of Oral Contract, Respectively)
[T]he elements of a cause of action for breach of contract are (1) the existence of the contract, (2) plaintiffs performance or excuse for nonperformance, (3) defendants breach, and (4) the resulting damages to the plaintiff. (
Oasis West Realty, LLC v. Goldman
(2011) 51 Cal.4th 811, 821.) Plaintiff has alleged that in June 2004, she located and negotiated the purchase of the Property to serve as her residence and that [a]t the time, . . . [her brother] Co offered to assist [her] with the purchase of the Property (FAC, ¶¶ 7 and 8); that she and Co agreed that (1) Co would assist [her] by co-signing the purchase financing documents and taking record title to the Property, (2) [she] would provide all of the funds needed for the down payment and closing costs, (3) [she] would thereafter directly pay or provide funds for the payment of the loan, property taxes, insurance and other Property related expenses, and (4) upon request from [her, Co would execute such documents and take such other actions as might be needed to evidence he had no interest in the Property other than the bare record title he would be relinquishing (Contract) (
Id.
). Co first argues that the alleged oral contract is barred by the Statute of Frauds. (See Civil Code § 1624, subd. (a)(3) [The following contracts are invalid, unless they, or some note or memorandum thereof, are in writing and subscribed by the party to be charged or by the parts agent: . . . (3) An agreement for the leasing for a longer period than one year, or for the sale of real property, or of an interest therein . . .]
On April 26, 2024, the court overruled the demurrer on statute of frauds grounds.
As a result, the court will not consider the Statute of Frauds argument. Co next argues that the alleged oral contract fails for lack of consideration. (See Civ. Code § 1550 [It is essential to the existence of a contract that there should be: 1. Parties capable of contracting; 2. Their consent; 3. A lawful object; and, 4. A sufficient cause or consideration].) Plaintiffs only response is that making substantial payments over an extended period of time constitutes consideration. (See Opposition at 14.) Plaintiff relies on
Flojo International, Inc. v. Lassleben
(1992) 4 Cal.App.4th 713, 719, in support of her contention. However,
Flojo
does not support her contention. In
Flojo
, a former distributor of products for a company obtained ownership of the company, extinguished the debts the company owned to the distributor, and provided the former owner royalty rights for future sale of goods. (
Id
. at 719-20.) The court reversed an order granting summary judgment and held that consideration to the companys prior owner in extinguishing debt was sufficient reason or consideration to bind the company. (
Id
. at 720.) Here, Plaintiff again fails to articulate the consideration that Co received. Her contention that other family members benefited by making the Property available as a residence for a sibling demonstrates a sibling promissory estoppel cause of action more so than an oral agreement. Moreover, it appears this alleged consideration was not alleged as part of the original oral agreement. The demurrer is sustained.
Third and Fourth Causes of Action (i.e., Fraud [Promise Without Intent to Perform and
Intentional Misrepresentation, Respectively)
The essential allegations of an action for fraud are a misrepresentation, knowledge of its falsity, intent to defraud, justifiable reliance, and resulting damage. (
Roberts v. Ball, Hunt, Hart, Brown & Baerwitz
(1976) 57 Cal.App.3d 104, 109.)
Promissory fraud is a subspecies of the action for fraud and deceit. A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud. (
Lazar v. Superior Court
(1996) 12 Cal.4th 631, 638.) Co asserts that there is no actionable misrepresentation because, [Plaintiff] herself failed to perform her own obligations under the alleged agreement, including (1) failure to co-sign for the loan and (2) failure to pay off the mortgage as agreed. (Dem., 13:15-17). Plaintiff alleges that Co promised beginning in 2004 that he would execute documents and take such [] actions as might be needed to evidence he had no interest in the Property other than the bare record title he would be relinquishing (Promise). (FAC ¶ 23.) However, there is no specificity as to the specific false statements made by Co. (
Tarmann v. State Farm Mut. Auto. Ins. Co.
(1991) 2 Cal.App.4th 153, 157.) In fact, it is unclear what actionable statements are alleged in the FAC except for that found in paragraph 30 in the FAC (I will do that.). (
People ex rel. Allstate Ins. Co. v. Discovery Radiology Physicians, P.C.
(2023) 94 Cal.App.5th 521, 549.) Because the consideration (i.e. as to Co) under the alleged oral agreement is ambiguous, the statement in paragraph 30 does not provide the necessary sufficiency to support a claim because the extent of the agreement has not been fully described. Cos demurrer to the third and fourth causes of action is sustained.
Sixth Cause of Action (i.e., Conversion)
The elements of a conversion claim are: (1) the plaintiffs ownership or right to possession of the property; (2) the defendants conversion by a wrongful act or disposition of property rights; and (3) damages. (
Los Angeles Federal Credit Union v. Madatyan
(2012) 209 Cal.App.4th 1383, 1387
[quotations and citation omitted].) Further, [t]he tort of conversion applies to personal property, not real property. (
Salma v. Capon
(2008) 161 Cal.App.4th 1275, 1295.)
Plaintiff has alleged that Defendant Co has repudiated his agreement to replace himself with Plaintiff as record title holder of the Property, denied Plaintiffs interest as owner of the Property. In doing so, Defendants have effectively converted and taken for their own use and benefit all of the monies expended by Plaintiff in connection acquisition [sic] and ownership of the Property. (FAC, ¶ 43).
[2]
Co asserts that Plaintiffs cause of action fails because the Property cannot be the subject of a claim for conversion. Plaintiff, in turn, argues that [w]hat was taken was not real property, but instead a specific corpus of personal propertymoney. . . (Opp., 12:14-15). Plaintiff, however, has not alleged that the monies expended by Plaintiff to live in the property ever went to Co, as opposed to the lender. Cos demurrer to this cause of action is sustained.
Seventh Cause of Action (i.e., Violation of Penal Code § 496)
Penal Code § 496, subdivision (a) provides, in relevant part, that [e]very person who
buys or receives any property that has been stolen or that has been obtained in any manner constituting theft or extortion, knowing the property to be so stolen or obtained, or who conceals, sells, withholds, or aids in concealing, selling, or withholding any property from the owner, knowing the property to be so stolen or obtained, shall be punished by imprisonment in a county jail for not more than one year, or imprisonment pursuant to subdivision (h) of Section 1170.
While Co does not provide any authority for his position that Penal Code § 496 does not apply to real property, Plaintiffs allegation portend to allow a lower threshold or burden to obtain more than compensatory damages. As stated before, without greater foundation and briefing, the court will not allow this cause of action to proceed at this time. Cos demurrer to this cause of action is sustained.
Ninth Cause of Action (i.e., Accounting)
A cause of action for an accounting requires a showing that a relationship exists between the plaintiff and defendant that requires an accounting, and that some balance is due the plaintiff that can only be ascertained by an accounting. (
Teselle v. McLoughlin
(2009) 173 Cal.App.4th 156, 179.) Plaintiff has alleged that she is entitled to an accounting of all loans and other transactions secured by or relating in any way to the Property from 2004 to the present, an accounting of any charges or liens against the Property resulting from the conduct and activities of Defendant, as well as an accounting of all property and other assets obtained or derived by Defendants with funds borrowed against or otherwise obtained with respect to the Property. (FAC, ¶ 55). As the court held before, Plaintiff has not alleged that Co ever received any monies for the Property from Plaintiff or anyone else in connection with the Property at any time. Further, Plaintiff has not alleged that Co encumbered the Property at any time. Cos demurrer to this cause of action is sustained.
[1]
The court previously overruled the demurrer as to the fifth and eighth causes of action. (See Order, April 26, 2024.) As a result, the court will consider only the demurrer as to the first through fourth, sixth and seventh, and ninth causes of action.
[2]
It appears Plaintiff failed to edit the FAC as the same grammatical mistakes are repeated in both versions.
Ruling
MAIN CO., LLC VS JANNA SIMON LEWIS
Jul 29, 2024 |
24STCV08420
Case Number:
24STCV08420
Hearing Date:
July 29, 2024
Dept:
47
Tentative Ruling
Judge Theresa M. Traber, Department 47
HEARING DATE:
July 29, 2024
TRIAL DATE:
None Set
CASE:
Main Co. LLC v. Janna Simon Lewis
CASE NO.:
24STCV08420
MOTION FOR RECONSIDERATION
MOVING PARTY
: Plaintiff Main Co., LLC
RESPONDING PARTY(S)
: Defendant Janna Simon Lewis
STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:
This is an unlawful detainer action for nonpayment of rent that was filed on April 3, 2024.
Plaintiff moves for
reconsideration of the Courts June 11, 2024 order granting Defendant Janna Simon Lewiss motion for summary judgment.
TENTATIVE RULING:
Plaintiffs Motion for Reconsideration is DENIED.
DISCUSSION:
Plaintiff moves for reconsideration of the Courts June 11, 2024 order granting Defendant Janna Simon Lewiss motion for summary judgment.
Legal Standard
Code of Civil Procedure section 1008 provides, in relevant part:
a)
When an application for an order has been made to a judge, or to a court, and refused in whole or in part, or granted, or granted conditionally, or on terms, any party affected by the order may, within 10 days after service upon the party of written notice of entry of the order and
based upon new or different facts
,
circumstances, or law
, make application to the same judge or court that made the order, to reconsider the matter and modify, amend, or revoke the prior order. The party making the application
shall state by
affidavit
what application was made before, when and to what judge, what order or decisions were made, and what new or different facts, circumstances, or law are claimed to be shown
.
* * *
(c) If a court at any time determines that there has been a change of law that warrants it to reconsider a prior order it entered, it may do so on its own motion and enter a different order.
(d)
A violation of this section may be punished as a contempt and with sanctions as allowed by Section 128.7. In addition, an order made contrary to this section may be revoked by the judge or commissioner who made it, or vacated by a judge of the court in which the action or proceeding is pending.
(e)
This section specifies the courts jurisdiction with regard to applications for reconsideration of its orders and renewals of previous motions, and applies to all applications to reconsider any order of a judge or court, or for the renewal of a previous motion, whether the order deciding the previous matter or motion is interim or final. No application to reconsider any order or for the renewal of a previous motion may be considered by any judge or court unless made according to this section.
(Code Civ. Proc. § 1008(a), (c)-(e) (bold emphasis added).)
Timeliness
A motion for reconsideration must be made within 10 days after service upon the moving party of written notice of entry of the order. (Code Civ. Proc. § 1008(a).) Here, the Court Clerk served notice of the Courts June 11, 2024 ruling granting the Motion for Summary Judgment on June 11, 2024. (April 29, 2024 Notice of Ruling.) This motion followed on June 20, 2024, less than ten days later. (See Proof of Service.) The Court therefore finds that this motion is timely made.
Analysis
Plaintiff seeks reconsideration of the Courts June 11, 2024 order granting Defendant Janna Simon Lewiss motion for summary judgment based on what Plaintiff characterizes as evidence and/or facts and law which were not available or considered at the time of the hearing. The evidence offered consists of a Los Angeles Certificate of Occupancy showing a change in use of the premises to an artist in residence unit on November 29, 1993 and two Document Reports with the same date referring to the same CHG OF USE apparently concerning the same unit. (Declaration of Yousef Monadjemi, ¶¶ 3-5, Exh. D-F.) The motion for reconsideration must be rejected for several reasons.
First, Plaintiff has offered no explanation, much less any evidence, showing why the evidence belatedly presented was not submitted for the Courts consideration in connection with its ruling on Defendants motion for summary judgment. A party moving for reconsideration must show something more than that the new evidence was not previously presented. Instead, reconsideration may only be granted where there is proof that the moving party could not, with reasonable diligence, have discovered or produced the evidence in opposition to the original motion. (
New York Times Co. v. Superior Court
(2005) 135 Cal.App.4th 206, 212-213.) Here, Plaintiff has failed to demonstrate any valid reason for not presenting the new evidence in opposition to Defendants original motion. (
Gilberd v. AC Transit
(1995) 32 Cal.App.4th 1494, 1500.) As the documents presented are all dated November 29, 1993, the Courts assumption is that they were available to Plaintiff during the pendency of the summary judgment motion, if Plaintiff had sought to secure them for submission to the Court.
Second, the documents recently submitted to the Court are not relevant to the unlawful detainer action before the Court. Plaintiffs complaint alleges: The building in which the premises is located is under L.A.M.C. 150.000 et seq. (1979) as amended, but that defendants unit is exempt from LARSO, because it is an Artist-in-Residence unit. (Complaint, p. 3 & Attachment 17.) As is proper for any motion for summary judgment, Defendants motion was predicated on these allegations of the Complaint and necessarily limited by those allegations. (
Juge v. County of Sacramento
(1993) 12 Cal.App.4th 59, 67 [The function of the pleadings in a motion for summary judgment is to delimit the scope of the issues].) Defendants summary judgment motion did not contest the exemption now being advanced by Plaintiff, and given the narrow scope of the Complaint, such an exemption could not have been challenged in such a motion. As a result, the motion Plaintiff asserts is not one that calls for reconsideration of the prior motion but rather for a ruling on a separate question that falls outside the scope of this lawsuit.
Finally, the recently submitted evidence does not support the conclusion Plaintiff urges. The exemption relied on excludes housing accommodations from regulation under LARSO if the units are located in a structure for which the first Certificate of Occupancy was issued after October 1, 1978 (L.A.M.C. § 151.02, Rental Units, exemption 6), but the records offered say nothing about when the first Certificate of Occupancy was issued for the structure. The records suggest, however, that there may have been such a certificate previously issued because the documents recognize the building as an existing structure that was used as a Retail/Sro Hotel/Dance Hall building. (Exh. D-F.) Even if considered, therefore, Plaintiffs new evidence does not raise a triable issue of fact that would preclude entry of summary judgment in Defendants favor.
CONCLUSION
:
For the reasons explained above,
Plaintiffs Motion for Reconsideration is DENIED.
Moving Party to give notice.
IT IS SO ORDERED.
Dated: July 29, 2024 ___________________________________
Theresa M. Traber
Judge of the Superior Court
Any party may submit on the tentative ruling by contacting the courtroom via email at
Smcdept47@lacourt.org
by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.
Ruling
HAMID REZA MIRSHOJAE, ET AL. VS 5975-5999 TOPANGA CANYON BLVD LLC, ET AL.
Jul 26, 2024 |
21STCV37556
Case Number:
21STCV37556
Hearing Date:
July 26, 2024
Dept:
F43 Dept. F43
Date: 7-26-24
Case #21STCV37556,
Hamid Reza Mirshojae, et al. vs. 5975-5999 Topanga Canyon Blvd LLC, et al.
Trial Date: N/A
MOTION FOR ATTORNEY FEES
MOVING PARTY: Plaintiffs Hamid Reza Mirshojae and Woodland Hills Medical Clinic II, Inc.
RESPONDING PARTY: Defendants 5975-5999 Topanga Canyon Blvd, LLC and Ahang Mirshojae
RELIEF REQUESTED
Plaintiffs are requesting attorney fees in the amount of $
619,675
, plus $17,036.01 in costs, from Defendants.
RULING
: Motion for attorney fees is granted at a reduced amount. No costs will be awarded at this time.
SUMMARY OF ACTION
Plaintiff Hamid Reza Mirshojae (Hamid) and Defendant Ahang Zarin Mirshojae (Ahang) were formerly married and were engaged in extensive litigation against each other prior to 2017. The assets in dispute were in excess of $20 million. At mediation, Hamid and Ahang entered a complex settlement agreement. Immediately after, Hamid alleges that Ahang breached the settlement agreement, and he was forced to incur attorney fees to enforce various terms of the agreement. Eventually, Hamid filed the current suit to enforce the settlement agreement on October 12, 2021.
Ahang accused Hamid and his counsel of inducing her to sign the settlement agreement and sued him for $7 million in damages. This Court eventually struck Ahangs complaint based on Plaintiffs anti-SLAPP motion and determined that Ahang was a vexatious litigant. After this ruling, Ahang attempted to disqualify Hamids lead counsel, though that motion was rejected. Hamid alleges that he has incurred significant legal fees over the course of this litigation.
Finally, after two years of litigation, the parties settled via a 998 Offer on November 17, 2023. The 998 Offer required Defendants to pay Plaintiffs $270,000 and reasonable fees and costs as determined by the Court. Plaintiffs are requesting attorney fees pursuant to the part of the 998 Offer that allows for reasonable fees to be paid.
Plaintiffs are requesting $619,675 in attorney fees from Defendants. Plaintiffs argue in their motion that the attorney fees and hourly rates are reasonable. Plaintiffs evidence in support of their request for attorney fees included a declaration from their attorney, Christopher Beatty, and billing statements (with some redactions) that show which attorney worked on a task, what the task was, and how much time was spent on the task. (Beatty Decl., Ex. H.) The Beatty Declaration also includes a table which shows the hourly rates of the attorneys who worked on the case and their hourly rates at different times. (Beatty Decl., ¶ 35.)
Christopher Beattys hourly rates were $950 (for 2.5 hours in 2021), $975 (for 19.2 hours in 2022), and $1,300 (for 1.5 hours in 2022 and 71.6 hours in 2023). Tami K. Sims hourly rate was $1,115 (for 83.4 hours in 2023). Trevor T. Garneys hourly rate was $955 (for 87.8 hours in 2023). Arron J. Paks hourly rate was $705 (for 277.3 hours in 2023). Minh-Van Dos hourly rates were $795 (for 0.5 hours in 2021) and $840 (for 76.1 hours in 2022). Benjamin Mandels hourly rate was $595 (for 89.6 hours in 2022). Finally, Scarlet Speakmores hourly rate was $350 (for 38.8 hours in 2022).
The total lodestar was calculated by multiplying each of these attorneys hourly rate by their hours worked then adding them all together. The total hours worked for the attorneys totaled 748.3. The total lodestar amount, as previously noted, is $619,675.
Plaintiffs have also requested costs in the amount $17,036.01. However, costs are awarded pursuant to California Rules of Court, Rule 3.1700. If Plaintiffs wish to request costs, Plaintiffs should file a memorandum of costs at the appropriate time.
Defendants Evidentiary Objections to the Declaration of Keith M. Maziarek:
Sustained: Entire Declaration (irrelevant), Paragraph 11
Overruled: None
Plaintiffs Evidentiary Objections to the Declaration of June D. Coleman and the Declaration of Raffi Kassabian: The individual evidentiary objections presented by Plaintiffs to these two declarations are not consecutively numbered. Typically, when written objections to evidence are filed, the written objection must be number consecutively. (See Cal. Rules of Court Rule 3.1354 (applies to written objections to evidence for summary judgment motions).) While Plaintiffs listed them by paragraph number from the declarations, this is not necessarily effective, because in some instances Plaintiffs objected to different sentences from the same paragraph and listed them separately with the same paragraph number. The Court will not rule on the individual evidentiary objections based on this procedural deficiency. Plaintiffs have objected to the entire Coleman Declaration on the basis that it is improper expert testimony because Coleman has not shown any special knowledge, skill, etc., related to billing for these types of cases pursuant to Evidence Code § 720. The Court has determined that Coleman has sufficiently demonstrated her special knowledge as a fee expert with this declaration and her recently submitted supplemental declaration. Plaintiffs objection to the entire Coleman Declaration is overruled.
On April 9, 2024, a hearing was held on Plaintiffs motion for attorney fees. That same day, the Court issued a ruling on the submitted matter requesting that the parties submit additional briefing and that Plaintiffs submit invoices that do not redact the lawyers hourly rates or the amounts billed, along with supplemental points and authorities supporting their fee requests in light of that information.
On May 24, 2024, Plaintiffs submitted their supplemental brief. In their brief, Plaintiffs argue that the Court should award standard hourly rates and that the fees sought for all tasks are reasonable. Plaintiffs submitted new billing records that still contain some redactions, but they do not redact the lawyers hourly rates or the amounts billed.
On June 25, 2024, Defendants submitted their supplemental opposition brief. Defendants argue that the Court should significantly reduce the fees requested by Plaintiffs. Defendants also argue that the Court should consider Defendants expert declaration. Defendants also acknowledge that Plaintiffs conceded that the actual hourly rates and amounts billed are not privileged.
ANALYSIS
A prevailing party is entitled to recover its attorneys fees when authorized by contract, statute, or law. (See CCP § 1033.5(a)(10); Cal. Civ. Code § 1717(a).) A successful party means a prevailing party, and [a party] may be considered prevailing parties for attorneys fees purposes if they succeed on any significant issue in litigation which achieves some of the benefit the parties sought in bringing suit. (
Bowman v. City of Berkeley
(2005) 131 Cal.App.4th 173, 178.)
Plaintiffs are the prevailing party by virtue of the fact that the parties settled in Plaintiffs favor via the 998 Offer. Plaintiffs have requested a total of $619,675 in attorney fees.
Defendants previously opposed Plaintiffs motion on the basis that Plaintiffs agreed only to recover fees actually incurred and according to proof in the 998 Offer, and Defendants argued that Plaintiffs have not provided this proof. However, this argument was resolved with Plaintiffs supplemental brief, as Plaintiffs have now provided unredacted hourly rates and amounts billed.
Plaintiffs attorney Christopher D. Beatty acknowledges in his supplemental declaration that the actual amount charged to the client was $543,156. (Beatty Supp. Decl., ¶ 5.) Defendants argue in their supplemental opposition that this should be the baseline from which any reductions in the requested amount should be made. Defendants argue that Plaintiffs should only be able to recover fees actually incurred because that is what the 998 Offer between the parties allowed. (See
San Dieguito Pship, L.P. v. San Dieguito River Valley Regl Open Spake Park Joint Powers Auth.
(1998) 61 Cal.App.4th 910, disapproved on other grounds by
PLCM Group v. Drexler
(2000) 22 Cal.4th 1084.) The Court agrees. Plaintiffs should only recover the fees actually incurred, which in this case is, at a maximum, $543,156.
Next, Defendants contest the reasonableness of the fees incurred by Plaintiffs.
In determining the reasonableness of fees, courts look to the factors from
Church of Scientology v. Wollersheim
(1996) 42 Cal.App.4th 628, disapproved on other grounds by
Equilon Enters. v. Consumer Cause, Inc.
(2002) 29 Cal.4th 53, 68 n.5. The factors from
Wollersheim
are (1) the amount of money involved in the litigation; (2) the nature of the litigation and its difficulty and the intricacies and importance of the litigation; (3) the skill required and employed in handling the litigation, the necessity for skilled legal training and ability in trying the case, and counsels education and experience in the particular type of work involved; (4) the attention given to the case; (5) the success of the attorneys efforts; and (6) the time consumed by the litigation. (
Id.
)
Plaintiffs argued in the initial motion that they met all of these factors. First, Plaintiffs argue that large amounts of money were involved in this litigation because of Ahangs cross-complaint for $7 million and the fact that the original settlement agreement divided the parties assets that were valued in excess of $20 million. Next, for the second factor, Plaintiffs argue that the nature of this case was an emotional case between two ex-spouses and business partners with significant assets at issue, and Ahang had been determined by the Court to have engaged in fraud. For the third factor, Plaintiffs argued that this was a complex case that required an experienced legal team to handle it, and Beattys team were the logical ones to handle it because Beatty had handled the cases that led to the settlement agreement. For the fourth factor, Plaintiffs argued that their counsel had to devote significant attention to this case. For the fifth factor, Plaintiffs argued that their counsel had success throughout the case in prevailing on the anti-SLAPP motion and defeating the attempt to disqualify Beatty, as well as being the prevailing party for the 998 Offer. Finally, for the sixth factor, Plaintiffs argued that this case consumed considerable time and went on for two years and would have gone on much longer if Hamid had not accepted the 998 Offer.
Defendants argue that the attorney fee award should be reduced as the hours billed are excessively unreasonable. A fee request that appears unreasonably inflated is a special circumstance permitting the trial court to reduce the award or deny one altogether. (
Chavez v. City of Los Angeles
(2010) 47 Cal.4th 970, 990-991(citing
Serrano v. Unruh
(1982) 32 Cal.3d 621, 635).)
This Court previously acknowledged in its tentative ruling the apparent excessive billing for several of Plaintiffs motions: the Anti-SLAPP Motion (160.5 hours), Opposition to Motion to Disqualify (96.5 hours), Demurrer (90.2 hours), Motion for Attorney fees re Anti-SLAPP Motion (49 hours), and Motion to Quash Summons (38.6 hours). This Court also suggested reducing the time spent on those motions by 25%. Defendants argue that they should be reduced by at least 60% because they are beyond excessive.
Other specific tasks that Defendants argue were excessively billed were the 4.0 hours for a half-page notice of continuance; 12.1 hours for a subpoena with 8 document requests; 14.7 hours spent on two identical subpoenas with 6 document requests; 22.3 hours spent on 3 page ex parte application and 2 page declaration to advance a hearing date; 18.3 hours preparing for and drafting a mediation brief; and 10.3 hours on generic case analysis over 48 entries. Defendants argue that the Court should also take into account all of these minor issues in awarding the attorney fees.
Defendants also argue that the at least 209.5 hours spent in relation to the Anti-SLAPP motion was beyond excessive and should be reduced by more than 25%. Defendants cite a case where the Court of Appeal affirmed a reduction in attorney fees and costs related to an Anti-SLAPP motion from $112,288.63 to just $23,000, with the Court of Appeal stating that claiming 200 hours of work & seems excessive and that such a motion should not have been such a monumental undertaking. (
Maughan v. Google Technology, Inc.
(2006) 143 Cal.App.4th 1242, 1248-1252.) Defendant
Finally, Defendants argue that the Court should consider Defendants expert declaration because it would be admissible because the experts declaration included descriptions of her experience as a fee expert. (See Coleman Decl., ¶¶ 3-10, 14, and 15.) The Court previously sustained Plaintiffs objections to the Coleman Declaration, but in light of Defendants arguments and Colemans supplemental declaration, the Court will consider Colemans declaration.
In light of all of the foregoing, the Court believes that some reduction of the requested fees is necessary. Both the previously indicated major issues and the minor issues that Defendants have brought to the attention of the Court should be reduced.
The amount that the Court will start with is $543,156 in fees actually incurred. The Court previously considered reducing certain fees by 25%. Defendants request an across the board reduction of 60%, which would be $217,262 in fees awarded. Alternatively, Defendants request that the Court do an across the board reduction of 25%, since that percentage is what the Court previously found was appropriate. Based on both the major and minor issues with the billing records, the Court agrees that an across the board reduction is appropriate. The Court also finds that an across the board reduction of 25% is reasonable. That would make the fee award $407,367.
The Court will award this amount. Plaintiffs have demonstrated that their attorneys hourly rates are rates are reasonable. Furthermore, this was a complex class requiring a lot of motion practice, particularly where the Anti-SLAPP motion is concerned. Plaintiffs have provided proof of the amount of time spent on the case through the now-unredacted billing statements.
CONCLUSION
Plaintiffs motion for attorney fees is granted in the amount of $407,367.00. Costs should be requested in a memorandum of costs.
Moving party to give notice.
Ruling
805 WOOSTER, LLC., A CALIFORNIA LIMITED LIABILITY COMPANY VS BRETT HYMAN, AN INDIVIDUAL
Jul 26, 2024 |
23STCV27912
Case Number:
23STCV27912
Hearing Date:
July 26, 2024
Dept:
50
Superior Court of California
County of Los Angeles
Department 50
805 WOOSTER, LLC
,
Plaintiff,
vs.
BRETT HYMAN
,
et al
.,
Defendants.
Case No.:
23STCV27912
Hearing Date:
July 26, 2024
Hearing Time:
10:00 a.m.
[TENTATIVE] ORDER RE:
MOTION TO BE RELIEVED AS COUNSEL
Carlos A. LLoreda, Jr. of The Law Office of Carlos A. LLoreda, Jr.
(Counsel) moves to be relieved as counsel of record for Defendant
Brett Hyman.
While Counsel has provided sufficient reason for withdrawal, Items 5, 6, and 7 of the proposed order
(Form MC-053)
are blank.
If Counsel provides the Court with a revised order prior to the hearing, the Court will grant the motion.¿
Counsel is ordered to give notice of this order.¿
DATED:
July 26, 2024
________________________________
Hon. Teresa A. Beaudet
Judge, Los Angeles Superior Court
Document
TONI HULL VS MANVEL CHAPKINYAN
Dec 20, 2023 |
Valerie Salkin
|
Breach of Rental/Lease Contract (not unlawful detainer or wrongful eviction) (General Jurisdiction) |
Breach of Rental/Lease Contract (not unlawful detainer or wrongful eviction) (General Jurisdiction) |
23VECV05619
Document
TONI HULL VS MANVEL CHAPKINYAN
Dec 20, 2023 |
Valerie Salkin
|
Breach of Rental/Lease Contract (not unlawful detainer or wrongful eviction) (General Jurisdiction) |
Breach of Rental/Lease Contract (not unlawful detainer or wrongful eviction) (General Jurisdiction) |
23VECV05619
Preview
20STCV05477 Assigned for all purposes to: Stanley Mosk Courthouse, Judicial Officer: Anthony Mohr Electronically FILED by Superior Court of California, County of Los Angeles on 02/11/2020 12:33 PM Sherri R. Carter, Executive Officer/Clerk of Court, by M. Barel,Deputy Clerk 1 LOUIS R. MILLER (State Bar No. 54141) smiller@millerbarondess.com 2 AMNON Z. SIEGEL (State Bar No. 234981) asiegel@millerbarondess.com 3 JEFFERY B. WHITE (State Bar No. 291086) jwhite@millerbarondess.com 4 MILLER BARONDESS, LLP 1999 Avenue of the Stars, Suite 1000 5 Los Angeles, California 90067 Telephone: (310) 552-4400 6 Facsimile: (310) 552-8400 7 Attorneys for Plaintiff LM HOLDCO, INC. 8 9 SUPERIOR COURT OF THE STATE OF CALIFORNIA 10 COUNTY OF LOS ANGELES, CENTRAL DISTRICT 11 LM HOLDCO, INC., a California corporation, CASE NO. 12 Plaintiff, COMPLAINT AND DEMAND FOR JURY TRIAL FOR: 13 v. (1) BREACH OF CONTRACT; 14 FORTRESS INVESTMENT GROUP LLC, a Delaware limited liability company; WHEELS (2) BREACH OF IMPLIED COVENANT 15 INVESTORS LLC, a Delaware limited OF GOOD FAITH AND FAIR liability company; WHEELS FINANCIAL DEALING; 16 GROUP, LLC, a California limited liability (3) BREACH OF FIDUCIARY DUTIES; company; WFG INTERMEDIATE, LLC, a 17 Delaware limited liability company; WFG (4) AIDING AND ABETTING BREACH HOLDINGS, LLC, a Delaware limited OF FIDUCIARY DUTIES; AND 18 liability company; DAVID KING, an (5) DECLARATORY RELIEF individual; WARREN LYONS, an individual; 19 JEFFREY WEISS, an individual; HUGO DOONER, an individual; and DOES 1-20, [DEMAND FOR JURY TRIAL] 20 inclusive, 21 Defendants. 22 23 24 25 26 27 28 450482.3 COMPLAINT AND DEMAND FOR JURY TRIAL 1 Plaintiff LM Holdco, Inc., a California corporation, alleges in this complaint against 2 Defendants Fortress Investment Group LLC, a Delaware limited liability company; Wheels 3 Investors LLC, a Delaware limited liability company; Wheels Financial Group, LLC, a California 4 limited liability company d/b/a LoanMart (“LoanMart”); WFG Intermediate, LLC, a Delaware 5 limited liability company; WFG Holdings, LLC, a Delaware limited liability company; David 6 King, an individual; Warren Lyons, an individual; Jeffrey Weiss, an individual; Hugo Dooner, an 7 individual; and DOES 1-20, inclusive, as follows: 8 NATURE OF THE ACTION 9 1. Plaintiff LM Holdco, Inc. (“Plaintiff” or “LM Holdco”) is the founder of LoanMart. 10 LoanMart is a consumer lending company that was established in 2001 by Ron Gonen (“Gonen”) 11 in Van Nuys, California, where it is still headquartered today. LoanMart provides loans to car 12 owners, secured by the value of the vehicle, that enables them to achieve their financial objectives. 13 Gonen’s mission was to ensure LoanMart provided superior service to customers while operating 14 as a stable, financially responsible company. Gonen spent over a decade building LoanMart into a 15 successful business with a loan portfolio of over $100 million. 16 2. In 2013, Defendant Fortress Investment Group LLC (“Fortress”), a large New York 17 private equity firm, agreed to buy a majority stake in LoanMart. In connection with the sale, 18 Plaintiff retained—and continues to own—a minority stake in LoanMart. 19 3. Plaintiff brings this action because Defendants are exercising control and 20 dominance over LoanMart to eviscerate Plaintiff’s equity and grab all cash from LoanMart for 21 themselves. Defendants’ bad faith misconduct will wipe out Plaintiff’s equity and effectively 22 hand the company to Fortress. Worse, Fortress is planning to use the cash it seizes from 23 LoanMart’s existing $100 million loan portfolio to fund a so-called “new” portfolio under the 24 LoanMart name. But this “new” portfolio is not new at all; rather, it’s the same LoanMart 25 business as before. Defendants are merely using this “new” portfolio to keep all LoanMart 26 proceeds for themselves and not pay Plaintiff, LoanMart’s founder. Defendants’ misconduct 27 violates the parties’ agreement, destroys Plaintiff’s equity and effectively ousts Plaintiff from 28 LoanMart. This pure money-grab is corporate greed at its worst. 450482.3 2 COMPLAINT AND DEMAND FOR JURY TRIAL 1 PARTIES 2 4. Plaintiff LM Holdco is a California corporation with its principal place of business 3 in Los Angeles County, California. Plaintiff is owned by the founders of LoanMart, including 4 Ron Gonen and other members of the Gonen family. 5 5. Defendant Fortress Investment Group LLC is a Delaware limited liability company 6 with its principal place of business in New York. 7 6. LoanMart is a dba for, and conducts business within, Defendant Wheels Financial 8 Group, LLC. Wheels Financial Group, LLC is a California limited liability company with its 9 principal place of business in Los Angeles County, California. Its parent companies, Defendants 10 WFG Intermediate, LLC and WFG Holdings, LLC, are Delaware limited liability companies. 11 Wheels Financial Group, LLC, along with WFG Intermediate, LLC and WFG Holdings, LLC, are 12 collectively referred to herein as “WFG.” 13 7. Defendant Wheels Investors LLC (“Wheels Investors”) is a member, and majority 14 owner, of LoanMart. Wheels Investors is a Delaware limited liability company owned, on 15 information and belief, by Fortress. Wheels Investors holds all of Fortress’ interests in LoanMart. 16 8. Defendant David King is a managing director at Fortress and a manager on 17 WFG’s/LoanMart’s Board of Managers. King is an individual who, on information and belief, is 18 domiciled in New York. 19 9. Defendant Warren Lyons is a manager on WFG’s/LoanMart’s Board of Managers. 20 Lyons is an individual who, on information and belief, is domiciled in Sonoma County, California. 21 10. Defendant Jeffrey Weiss is the Chairman of WFG’s/LoanMart’s Board of 22 Managers. Weiss is an individual who, on information and belief, is domiciled in Florida. 23 11. Defendant Hugo Dooner is WFG’s Chief Executive Officer and a member of 24 WFG’s/LoanMart’s Board of Managers. Dooner is an individual domiciled in Los Angeles 25 County, California. 26 12. The true names and capacities of Defendants DOES 1 through 20 are unknown to 27 Plaintiff, which therefore sues these Defendants by such fictitious names. Plaintiff will, if 28 necessary, amend this Complaint to show the true names and capacities of DOES 1 through 20 450482.3 3 COMPLAINT AND DEMAND FOR JURY TRIAL 1 when their names and capacities have been ascertained. Among others, and without limitation, 2 DOES 1 through 20 include agents, affiliates and representatives of other Defendants, and others 3 who culpably participated in or are in some other way responsible for the misconduct committed 4 by the other Defendants and for the damages Plaintiff suffered, as alleged herein. 5 13. Plaintiff is informed and believes, and on that basis alleges, that except as 6 otherwise alleged herein, each of the Defendants is, and at all times relevant to this Complaint 7 was, the employee, agent, employer, partner, joint venturer, alter ego, affiliate, and/or co- 8 conspirator of the other Defendants and, in doing the acts alleged herein, was acting within the 9 course and scope of such positions at the direction of, and/or with the permission, knowledge, 10 consent, and/or ratification of, the other Defendants. In the alternative, Plaintiff is informed and 11 believes, and based thereon alleges, that each Defendant, through its acts and omissions, is 12 responsible for the wrongdoing alleged herein and for the damages suffered by Plaintiff. 13 JURISDICTION AND VENUE 14 14. The Court has jurisdiction in this matter pursuant to California Code of Civil 15 Procedure section 410.10 and the California Constitution, Article VI, § 10. Section 410.10 of the 16 Code of Civil Procedure provides that California state courts “may exercise jurisdiction on any 17 basis not inconsistent with the Constitution of [California] or of the United States.” The exercise 18 of jurisdiction by California is constitutionally permissible here because each of the Defendants 19 resides, conducts business, has bank accounts and/or owns property in California. Therefore, each 20 Defendant has sufficient minimum contacts with the State of California, and/or has intentionally 21 availed itself of—and/or purposefully directed its activities toward—the State of California, so as 22 to render the exercise of jurisdiction over them by California courts consistent with traditional 23 notions of fair play and substantial justice. 24 15. The Court has jurisdiction over this matter, notwithstanding a Delaware forum- 25 selection clause in the Amended and Restated Limited Liability Company Agreement of WFG 26 Holdings, LLC (the “LLC Agreement”), dated May 6, 2013, and amended as of March 2, 2016 27 and September 2018, because the LLC Agreement contains a predispute jury trial waiver, which is 28 prohibited in California. Grafton Partners v. Superior Court, 36 Cal. 4th 944 (2005). The 450482.3 4 COMPLAINT AND DEMAND FOR JURY TRIAL 1 constitutional right to a jury trial in California is fundamental, inviolate and sacred. California law 2 does not permit predispute jury trial waivers. 3 16. Where an agreement involving a California resident includes a forum selection 4 clause and predispute jury trial waiver, and the designated forum enforces jury trial waivers 5 (unlike California which does not), the forum selection clause is unenforceable because it “would 6 be contrary to California’s fundamental public policy protecting the jury trial right and prohibiting 7 courts from enforcing predispute jury trial waivers.” Handoush v. Lease Fin. Grp., LLC, 41 Cal. 8 App. 5th 729, 734-35 (2019) (reversing a trial court order granting defendant’s motion to dismiss 9 based upon a New York forum selection clause because the agreement also included a jury trial 10 waiver). This law is squarely on point. The LLC Agreement contains a Delaware forum selection 11 clause and a jury trial waiver; predispute jury trial waivers are enforceable in Delaware, but not in 12 California. Therefore, the Delaware forum selection clause in the LLC Agreement, like the New 13 York forum selection clause in Handoush, is unenforceable. Plaintiff, a California resident, is 14 entitled to a jury trial in California. 15 17. Venue is proper under California Code of Civil Procedure sections 395(a) and 16 395.5 because Plaintiff and LoanMart are based in Los Angeles County, and the actions taken by 17 Defendants to cause harm to Plaintiff occurred in Los Angeles County. 18 FACTUAL BACKGROUND 19 A. LoanMart 20 18. LoanMart is a consumer finance company that was created in 2001. It issues 21 automobile title loans secured by a borrower’s equity in their automobile, allowing a borrower to 22 obtain credit quickly and without surrendering possession of their personal property or assets. 23 19. LoanMart is involved throughout the life cycle of the loan. On the front end, 24 LoanMart interfaces with potential borrowers, reviews applications and extends credit to qualified 25 applicants. LoanMart also services the loans, issuing account statements and collecting payments. 26 20. Most of LoanMart’s customers are considered high-risk, with lower credit scores, 27 less access to credit and limited cash on hand. Borrowers that are higher-risk are more likely to 28 default. To adjust for this risk, LoanMart and other automobile title lenders charge interest rates 450482.3 5 COMPLAINT AND DEMAND FOR JURY TRIAL 1 that are higher than many other credit products. The interest rate, or annualized payment rate 2 (“APR”), that LoanMart charges depends on a borrower’s risk profile, the amount of equity in 3 their automobile and the size of the loan. 4 21. In 2011, LoanMart expanded its business outside California for the first time, into 5 New Mexico, Missouri and Utah. LoanMart has expanded its operations to over 20 states today. 6 B. In 2013, Fortress Purchased A Majority Stake In LoanMart 7 22. From 2001 to 2013, LoanMart was a family business. In April 2013, that changed 8 when Gonen and the other stockholders sold a majority of LoanMart to Fortress. Fortress 9 purchased its majority stake in LoanMart through Defendant Wheels Investors. 10 23. Under the deal, LoanMart would continue to make automobile title loans under the 11 same LoanMart brand name. The business name at that time, Wheels Financial Group, Inc., was 12 converted to Defendant Wheels Financial Group, LLC (still a California company); and Wheels 13 Financial Group, LLC was under the ownership of a new holding company, Defendant WFG 14 Intermediate, LLC, which in turn is owned by Defendant WFG Holdings, LLC. 15 24. Fortress invested $77,350,000 into the company and acquired majority control of 16 WFG. In connection with this investment, Fortress’ senior leadership, including its Principal and 17 Co-Chief Executive Officer, Peter L. Briger, Jr., visited LoanMart’s offices in Los Angeles 18 County and met with Gonen. Briger and other senior Fortress executives met with the founding 19 owners and conducted diligence reviews in Los Angeles. Fortress and its senior leadership have 20 remained deeply engaged over time. Defendant David King (“King”), a Managing Director at 21 Fortress, was heavily involved in the due diligence process prior to the sale, making many trips to 22 Los Angeles. And King remains heavily involved, attending in person Board meetings at 23 LoanMart’s headquarters in Van Nuys, California, and traveling to California for other LoanMart 24 business. Warren Lyons (“Lyons”) and Jeffrey Weiss (“Weiss”), two other directors on 25 WFG/LoanMart’s Board of Managers (the “Board”), also travel to Los Angeles County to attend 26 Board meetings and to engage in LoanMart business, from hiring to meetings regarding financing. 27 25. In the transaction, Fortress acquired majority control of WFG, but Plaintiff retained 28 significant equity and other important rights, which it still holds today. Defendants are trying to 450482.3 6 COMPLAINT AND DEMAND FOR JURY TRIAL 1 destroy the value of Plaintiff’s equity and eviscerate Plaintiff’s rights. 2 1. The LLC Agreement 3 26. On April 1, 2013, Plaintiff and Wheels Investors executed a limited liability 4 company agreement for WFG. This agreement was modified the following month as the operative 5 LLC Agreement, a copy of which is attached hereto as Exhibit A. 1 6 27. Under the LLC Agreement, the ownership of WFG was split among multiple unit 7 classes or series. Plaintiff holds Series A and B Units, while Wheels Investors acquired its 8 majority ownership of LoanMart through Series C Units. As described in more detail below, the 9 series also delineate the distributions that owners (or “Unitholders”) receive, and the order in 10 which those cash distributions are made to them. 11 28. The units in WFG were apportioned as follows among the various Unitholders: 12 Unitholder Series A Units Series B Units Series C Units Series D Units 13 Plaintiff 12,000,000 11,743,997 - - 14 Wheels Investors - - 77,350,000 - 15 Oscar - 1,906,003 - - Rodriguez 2 16 17 2. Plaintiff Has First Priority in Distributions Through Its Series A Units 18 29. Article 3 of the LLC Agreement is titled “Distributions and Allocations” and 19 governs how income generated by LoanMart’s business is to be distributed to the various series of 20 Units. 21 30. Distributions follow a particular sequence, based on order of priority. When a 22 distribution is made, the particular series of Units having superior priority rights is paid first. The 23 next series of Units in order of priority is paid only if the series of Units above is paid their full 24 distribution—and there is money left over. This process repeats itself down the distribution 25 waterfall until there are no more cash proceeds left to be distributed. 26 1 27 Capitalized terms not defined herein have the same definition as in the LLC Agreement. 2 28 Oscar Rodriguez was the CEO of LoanMart at the time of the purchase agreement. 450482.3 7 COMPLAINT AND DEMAND FOR JURY TRIAL 1 31. This order of priority is codified in Section 3.1(c) of the LLC Agreement, which 2 governs distributions made through May 2017, and Section 3.1(d), which governs distributions 3 made after May 2017. Under each section, however, the order of priority is substantially identical, 4 with distributions to be made in the following order: 5 • First, to Series A Units, in proportion to their Unpaid Series A Yield—i.e., the 6 specified rate of return, which is approximately 10% 3; 7 • Second, to Series A Units, up to the amount of Series A Unreturned Capital—i.e., the excess of capital contributions over distributions; 8 • Third, to Series B and C Units, on a pro rata basis, up to a 10% rate of return; 9 10 • Fourth, to Series B, C and D Units, on a pro rata basis, up to a 15% rate of return; 11 • Fifth, to Series B, C and D Units, on a pro rata basis, up to a 25% rate of return; and 12 • Sixth, the remainder, if any, to Series B, C and D Units, on a pro rata basis. 13 32. In short, Series A Units have first priority. Plaintiff, who is the only holder of 14 Series A Units, bargained for this term as a condition of selling a majority of LoanMart to Fortress 15 in 2013. Only after Series A Units are paid back (principal and interest) is Wheels Investors 16 (Fortress) able to collect distributions through its lower-priority Series C Units (in Step 3); and 17 only then on a pro rata basis with Plaintiff’s Series B Units. Plaintiff still owns 11,000,000 Series 18 A Units and 8,643,997 Series B Units (representing approximately $20,000,000 in total unreturned 19 capital contributions by Plaintiff to the business). 20 3. The LLC Agreement Includes a Narrow Exception Allowing Defendants to 21 Reverse the Order of Distributions 22 33. In 2013, the State of California did not regulate the maximum rate of interest that a 23 consumer finance lender (or “CFL”), like LoanMart, could charge. However, the parties 24 3 Under Section 3.1(d), the Unpaid Series A Yield was to increase to 15% after May 2017, but the 25 parties amended the LLC Agreement to, among other things, lower the rate in return for a redemption of some of the Series A and B Units. In the two amendments to the LLC Agreement, 26 Fortress fraudulently induced LM Holdco to postpone the pay-out for its Series A Units and reduce the interest rate on repayment. LM Holdco agreed to do this because Fortress stated that it 27 was to help LoanMart. But it is now evident that Fortress advocated these changes to benefit itself 28 and harm LM Holdco as the priority Series A Unitholder. 450482.3 8 COMPLAINT AND DEMAND FOR JURY TRIAL 1 understood that a new usury law capping interest rates could be enacted in the future. If that 2 occurred, then LoanMart might not be able to absorb the volume of defaults and other expenses 3 inherent in its high-risk portfolio, and it would have to wind-down its business and “run-off” its 4 existing loan portfolio, i.e., not issue new loans. 5 34. To address this risk, the LLC Agreement included a series of conditions that, if 6 met, would allow WFG to reshuffle the distribution waterfall in favor of Wheels Investors, 7 specifically its Series C Units, and subordinate Plaintiff’s equity (Series A Units), in connection 8 with a winding-down (or “run-off”) of the business. To invoke this exception, three steps had to 9 happen. 10 35. First, the Board had to declare that a Material Adverse Regulatory Change (or 11 “MARC”) had occurred. Under the LLC Agreement, a MARC occurs only if there is a new 12 regulatory enactment that would have a “material adverse effect” on LoanMart’s business in an 13 “Applicable State.” An “Applicable State” is any state where LoanMart originated and/or serviced 14 more than 5% of its loan portfolio, which then and now applies only to California. The LLC 15 Agreement defines a MARC as follows: 16 “Material Adverse Regulatory Change” means any change in any Legal Requirement applicable to Applicable States that has had or 17 would reasonably be expected to have, either individually or in the aggregate with all other changes in Legal Requirements, a material 18 adverse effect on the Company’s and its Subsidiaries’ businesses, 19 financial condition, results of operations, cash flows, operations, assets, liabilities or prospects in the Applicable States; provided, that 20 each of the following, without limitation, shall be deemed a “material adverse effect”: (i) a newly enacted usury cap of 60% or less in any 21 Applicable State or (ii) a decrease of 20% or more in the projected earnings of the Company and its Subsidiaries in the Applicable States 22 for any 12 month period. 23 24 (LLC Agreement § 1.7.) 25 36. Second, after the Board finds that a MARC has occurred, then the Board must vote 26 to authorize a “Run-off Election,” which means “the election by the Board that the Company and 27 its Subsidiaries’ accumulated assets affected by the [MARC] should be placed in run-off.” (LLC 28 Agreement § 1.7 (emphasis added).) 450482.3 9 COMPLAINT AND DEMAND FOR JURY TRIAL 1 37. The term run-off is not defined in the LLC Agreement. But it was understood by 2 the parties during their negotiations that if, for example, a new usury cap was enacted, the business 3 would not be able to continue operating profitably and issue new loans, which would therefore 4 necessitate a “run-off” of the existing loan portfolio and winding down of the business. This is 5 also consistent with industry custom and usage where the term “run-off” is used in the context of 6 loans and other fixed-income assets to mean that a lender has decided to exit a business, stop 7 issuing new loans and run-off its existing portfolio until all of the outstanding loans are paid back 8 or otherwise discharged. 9 38. Third, “[i]n the event the Board makes a Run-off Election . . . the Company may 10 make Distributions to the Unitholders” following the order and priority in Section 3.1(e) of the 11 LLC Agreement. Under this section, the distribution waterfall no longer gives first priority to 12 Plaintiff’s Series A Units. Instead, Fortress’ Series C Units jump the line and have first and 13 second priority in the waterfall; Series A Units are bumped down to third priority. This comports 14 with the parties’ intent that Fortress/Wheels Investors should recover its initial capital outlay (plus 15 a 20% return) in the event that LoanMart is forced to wind-down (or “run-off”) its loan portfolio 16 due to a material adverse change that harms the business (a MARC). 17 39. If the above conditions are met, all distributions from that point forward must be 18 made pursuant to Section 3.1(e). That is, even if a run-off is appropriate, WFG must make 19 distributions to Unitholders going down the run-off distribution waterfall in Section 3.1(e) for all 20 times thereafter until there are no more proceeds to distribute. 21 40. As set forth below, Defendants’ misconduct in triggering a “run-off” of the existing 22 loan portfolio and the creation of a “new” portfolio violates the letter and spirit of the LLC 23 Agreement and is a quintessential breach of fiduciary duty where the majority tramples the rights 24 of minority stakeholders. 25 C. Defendants Create A New Lending Model For LoanMart 26 41. After acquiring majority control of LoanMart, Fortress, Wheels Investors and the 27 other Defendants were mindful that new rules regulating the maximum APR might be enacted in 28 California where more than 90% of LoanMart’s loans are issued. Using LoanMart money, 450482.3 10 COMPLAINT AND DEMAND FOR JURY TRIAL 1 resources and human capital, including Plaintiff’s equity, Defendants began exploring ways that 2 WFG could continue to issue the same loans even if a new usury cap were enacted. 3 42. This process went on for several years and cost LoanMart millions of dollars, 4 including fees to attorneys, consultants, regulatory experts and others, plus the diversion of 5 internal resources including employee and management time. These costs and expenses were 6 incurred by LoanMart at Fortress, WFG and the Board’s behest, and they were deducted off-the- 7 top, coming out of any distributions that were made to Plaintiff. 8 43. Eventually, Defendants settled on a lending model that involves issuing loans 9 from a separate bank and then purchasing them after-the-fact (the “Bank Model”). The Bank 10 Model was made possible by LoanMart’s reputation and stature in the industry, which was critical 11 to LoanMart forming a partnership with a banking institution. Of course, it was the founding 12 owners who were primarily responsible for building LoanMart into a widely respected business. 13 44. Under the Bank Model, the loans are issued on the front-end by a bank. A lender 14 (here, LoanMart) purchases the rights and interests in the loans from the bank after the loan is 15 made. The lender proceeds to service the loans and collect payments until they are repaid. 16 45. Defendants first began using the Bank Model in early 2019 with respect to loans 17 issued to Florida residents. The Bank Model was soon expanded to loan operations in Illinois, 18 Kentucky and Tennessee, and 12 more states were added through the remainder of 2019. This 19 Bank Model puts LoanMart ahead of its competitors and provides a significant competitive 20 advantage in California now that a new usury statute has been enacted. 21 D. WFG Stands To Gain Because Of Its Bank Model 22 46. On January 1, 2020, Assembly Bill 539 (“AB 539”) took effect in California. 23 Under this statute, a California resident who borrows between $2,500 and $10,000 from a CFL 24 can be charged no more than a 36% APR. This 36% cap is lower than the rates that have 25 historically been charged by CFLs. 26 47. AB 539 is a boon for LoanMart, however. Using the Bank Model, LoanMart can 27 still charge comparable interest rates and fees on automobile title loans to California residents, and 28 residents of other states that have similar usury caps. Because a bank is not a CFL under 450482.3 11 COMPLAINT AND DEMAND FOR JURY TRIAL 1 California law, LoanMart’s Bank Model is not subject to the 36% APR cap. 2 48. LoanMart actually stands to benefit from AB 539 because many of its competitors, 3 particularly in California, do not have a Bank Model in place. Indeed, other lenders have even 4 contacted LoanMart to ask if it will purchase their loan portfolios because they intend to exit the 5 consumer finance business entirely (run-off their business). In addition, there are LoanMart 6 competitors that have already started sending leads to LoanMart. Those companies cannot write 7 loans without the Bank Model, so they in essence write them through LoanMart either for a flat 8 fee or some type of revenue-sharing arrangement. This, too, will help boost LoanMart’s growth 9 and profitability. 10 49. Hence, AB 539 has not had a “material adverse effect” on LoanMart’s business. 11 To the contrary, LoanMart stands to gain through higher profits and greater market share. In fact, 12 using the Bank Model, Defendants continue to market, issue and service loans under the LoanMart 13 name, and are charging comparable interest rates and fees as before, including in California. 14 E. Defendants Plot To Wipe Out Plaintiff, While Running The Same Lending Business 15 50. Plaintiff has recently learned that Defendants are conspiring to take advantage of 16 AB 539 to eliminate Plaintiff’s ownership in LoanMart. Under Defendants’ scheme, Wheels 17 Investors will take first priority in the distributions of the business forever, while Defendants will 18 subordinate Plaintiff’s Series A and B Units and render them virtually worthless. As of 19 January 21, 2020, this scheme is already underway, and distributions that belong to Plaintiff have 20 been misappropriated by the Defendants. 21 1. The Board Votes to Call a Run-Off and Eliminate Plaintiff’s Equity 22 51. On the evening of January 20, 2020, Plaintiff was given notice that a Board 23 meeting would be held the following day and sent copies of sweeping redline changes to a 24 proposed Second Amended and Restated Limited Liability Company Agreement of WFG 25 (“Proposed Second Amended LLC Agreement”). The redlined document confirmed that 26 Defendants were conspiring to eliminate Plaintiff’s equity. A copy of the redlined Proposed 27 Second Amended LLC Agreement is attached hereto as Exhibit B. 28 52. Then, approximately one hour before the January 21 Board meeting, Defendant 450482.3 12 COMPLAINT AND DEMAND FOR JURY TRIAL 1 Hugo Dooner (“Dooner”), CEO of WFG, texted Gonen that King would like to discuss proposed 2 amendments to the LLC Agreement with just the Board members before the company meeting. 3 53. An hour later, Gonen dialed in to the pre-meeting of the Board requested by 4 Defendants. During the meeting, a lawyer for Defendants spoke for less than ten minutes. He 5 stated that Defendants plan to call a MARC, “run off” the existing loan portfolio of approximately 6 $100 million and start a “new” portfolio. The Board members voted to start the Proposed Second 7 Amended LLC Agreement as of that day, January 21, 2020. The attorney stated that the existing 8 loan portfolio (approximately $100 million) will be treated under the “Run-Off Election” in the 9 LLC Agreement, while all new loans issued after January 21, 2020 will be part of a “new” 10 portfolio with a new series of equity and new distribution priority, which would further benefit 11 Defendants and subordinate Plaintiff’s Series A and B Units. 12 54. The so-called “new” portfolio, however, is not new at all—it involves the same 13 loan products, marketing to the same people, charging the same interest rates, managed by the 14 same LoanMart employees, and utilizing the same infrastructure and valuable LoanMart brand 15 name as before. What’s more, Defendants concocted this “new” portfolio scheme using 16 LoanMart’s money and resources, of which Plaintiff is still an owner; and Defendants are running 17 the “new” portfolio through the same LoanMart employees and infrastructure as the existing 18 portfolio. Yet, Defendants refuse to pay Plaintiff. The “new” portfolio is a farce. Using the 19 LoanMart brand to issue loans for this “new” portfolio, Defendants are trying to steal the 20 company. 21 55. Defendants’ misconduct is contrary to the LLC Agreement. Defendants’ Bank 22 Model is not subject to any adverse effect from AB 539. The Bank Model allows LoanMart to 23 continue to issue similar loans as before; and accordingly, AB 539 has had no adverse impact on 24 LoanMart. Since AB 539 has not had a material adverse effect (if anything, it has boosted 25 LoanMart), Defendants are wrong to call a MARC. Moreover, even assuming a MARC occurred, 26 the “Run-Off Election” can only be triggered for assets “affected by” the MARC. Because there 27 are no LoanMart assets affected by the MARC, Defendants have no right to “run-off” the existing 28 loan portfolio. Lastly, even assuming Defendants could institute a “Run-Off Election” under the 450482.3 13 COMPLAINT AND DEMAND FOR JURY TRIAL 1 LLC Agreement (they cannot), they do not have the authority to create a sham “new” portfolio and 2 new distribution priority, which is designed solely to enrich themselves at the expense of their 3 minority partner, Plaintiff. 4 56. With almost no discussion, the Board voted to authorize Defendants’ plan to cheat 5 Plaintiff out of millions in LoanMart equity and cash. The Board did not state any “material 6 adverse effect” on the business from AB 539 because there is none. The decisions to call a 7 MARC and initiate a “Run-Off election” took effect immediately, ensuring that Plaintiff would be 8 stripped of distributions from January 21, 2020, and thereafter. Defendants have, in fact, started 9 cheating Plaintiff out of distributions. Plaintiff’s monthly distribution for January 2020 was 30% 10 less than what it had received every month since 2013. Plaintiff will receive nothing in February 11 2020, and thereafter. 12 57. Lest there be any doubt about Defendants’ intentions, King stated to Dooner that 13 Fortress’ plan is to “prevent [Plaintiff] from ever seeing another penny.” Fortress, Wheels 14 Financial Group and WFG Intermediate have actively worked with Wheels Investors and 15 LoanMart management to devise and execute this nefarious scheme to seize the company. 16 2. Defendants’ Sham “New Business” Is Designed to Steal the Company 17 58. Under Defendants’ scheme, there is no winding-down (or “run-off”) of the business 18 at all. Instead, Defendants have made an arbitrary January 21, 2020 cut-off date so that all 19 proceeds from future loans are paid to a “new” portfolio and series of equity. 20 59. The “new” portfolio is a sham. Loans after January 21, 2020, are the same as the 21 existing $100 million lending portfolio at LoanMart. Indeed, WFG has already been using the 22 Bank Model to issue loans since early 2019. The Run-Off Election is just an excuse by Wheels 23 Investors (Fortress) to help itself to more distributions and equity, to the detriment of Plaintiff. 24 Defendants continue to exploit the LoanMart name but only for their benefit. Defendants’ attempt 25 to have their cake and eat it too tramples Plaintiff’s rights. 26 60. The most shocking aspect of Defendants’ scheme is how Defendants intend to 27 double- and triple-dip into Company proceeds to prevent Plaintiff from “ever seeing another 28 penny.” Not content to reshuffle the waterfall once, Defendants will be taking the proceeds from 450482.3 14 COMPLAINT AND DEMAND FOR JURY TRIAL 1 the “run-off” on the existing portfolio (return of capital plus 20% return) and putting that money 2 into the sham “new” portfolio and newly concocted series of equity. With their capital and 20% 3 already returned, Defendants are then using that money to award themselves millions of newly 4 created units in LoanMart, which they are calling Series N Units; and these new Series N Units 5 will have first priority in distributions plus a preferred 12% return from the “New Business” (post- 6 January 21, 2020 portfolio of loans). In short, Fortress is paying itself back plus 20% under the 7 “run-off,” reinvesting that money into the same company, paying itself back again on that 8 reinvested money and taking another 12% return on top of that—thus creating an endless cycle to 9 benefit Fortress. And this is all before Plaintiff can get paid any cash distributions from 10 LoanMart’s ongoing business (even though distributions are supposed to be paid to Plaintiff’s 11 Series A Units first). 12 61. Unlike Fortress, which is using the money its paying itself back to acquire new 13 units in LoanMart, Plaintiff must come forward with new capital in order to acquire Series N Units 14 in the “new” portfolio going forward. Unless Plaintiff puts new money in, its existing Series A 15 and B Units would, according to King, have “de minimis” value. Yet, Defendants are not putting 16 in money of their own but instead funding their new Series N Units with cash distributions from 17 the old portfolio that Defendants are misappropriating from Plaintiff. Making matters worse, 18 WFG will continue charging the existing portfolio for company expenses that have nothing to do 19 with running off the existing portfolio but rather are exclusively benefiting the “new” portfolio, 20 such as marketing, sales, underwriting and employee compensation related thereto. There are 21 approximately 100 employees at LoanMart working exclusively on matters relating to the issuance 22 of new loans who will not be doing work to “run-off” the current $100 million portfolio. 23 62. Defendants are using a narrow exception to push out Plaintiff and keep the 24 proceeds for Wheels Investors. The parties had intended and understood that the MARC and 25 “Run-Off Election” would only be used if there was a catastrophic new regulatory enactment that 26 forced LoanMart to wind down the business. But because of the Bank Model, that is not the 27 situation. Indeed, WFG has not changed interest rates or underwriting standards, much less 28 stopped issuing new loans. It is business as usual at LoanMart. In fact, the business is likely to 450482.3 15 COMPLAINT AND DEMAND FOR JURY TRIAL 1 grow because competitors without a Bank Model are dropping out. Despite this, Defendants’ 2 unilateral changes to the LLC Agreement will wipe out Plaintiff and make its once-senior Series A 3 Units worthless. 4 FIRST CAUSE OF ACTION 5 (Breach of Contract) 6 (By Plaintiff Against Defendant WFG Holdings, LLC, Wheels Financial Group, LLC and 7 Wheels Investors LLC) 8 63. Plaintiff hereby repeats, realleges and incorporates by reference each and every 9 allegation as fully set forth in this Complaint, and further alleges as follows. 10 64. On May 6, 2013, Plaintiff entered into the LLC Agreement with WFG and Wheels 11 Investors. 12 65. WFG and Wheels Investors have breached multiple provisions of the LLC 13 Agreement. 14 66. As an initial matter, the MARC provision in the LLC Agreement does not apply to 15 AB 539 because it has not had and is not expected to have a material adverse effect on LoanMart’s 16 business. To the contrary, LoanMart’s business continues as usual and is likely to prosper. Even 17 assuming a MARC occurred (Plaintiff contends it has not), under Section 1.7 of the LLC 18 Agreement, WFG’s/LoanMart’s Board of Managers can initiate a Run-Off Election and place only 19 assets “affected by” a MARC, if any, into run-off. Assets not affected by a MARC cannot be 20 placed into run-off, and remain subject to the regular order of distribution giving priority to Series 21 A Units. 22 67. Defendants breached the LLC Agreement by calling a MARC; and in the 23 alternative, they have breached by placing the entire existing loan portfolio into run-off, even 24 though none of these assets are affected by a MARC. Moreover, as discussed above, a “run-off” 25 of LoanMart’s assets means winding down the business. Rather than winding down the business, 26 Defendants are ramping up the business under the sham “new” portfolio and depriving Plaintiff of 27 its equity and distributions in the process. Defendants do not have the right to place the assets in 28 “run-off” and have breached the LLC Agreement by doing so. 450482.3 16 COMPLAINT AND DEMAND FOR JURY TRIAL 1 68. Even assuming Defendants could “run-off” the assets of LoanMart (they cannot), if 2 the Board votes to authorize a Run-Off Election, then WFG and Wheels Investors must continue 3 making distributions through the Run-Off Distributions, until all cash, property and securities are 4 paid out to the Unitholders. However, Defendants are not complying with this requirement of the 5 LLC Agreement. Instead of distributing all of LoanMart’s assets as required by Section 3.1(e), 6 Defendants have improperly and arbitrarily decided to distribute Run-Off Distributions only for 7 the existing loan portfolio but not the “new” portfolio of loans issued after January 21, 2020. If a 8 “run-off” is permitted (Plaintiff contends it is not), then once WFG calls a “Run-Off Election,” it 9 must continue making distributions through the Run-Off Distributions waterfall, including to 10 Plaintiff’s Series A and B Units under Section 3.1(e)(iii-vi), for all loans, including the so-called 11 “new” loans. Defendants created the sham “new” portfolio to avoid compliance with the LLC 12 Agreement. Defendants’ financial fraud allows them to pay themselves twice: once in first 13 priority under the Run-Off Distributions, and a second time, again in first priority, in the “new” 14 portfolio scheme. 15 69. Plaintiff has been harmed by the foregoing breaches of the LLC Agreement and is 16 entitled to an award of compensatory damages, in an amount to be proven at trial, but believed to 17 be in excess of $20 million. 18 SECOND CAUSE OF ACTION 19 (Breach of Implied Covenant of Good Faith and Fair Dealing) 20 (By Plaintiff Against Defendants WFG Holdings, LLC, Wheels Financial Group, LLC and 21 Wheels Investors LLC) 22 70. Plaintiff hereby repeats, realleges and incorporates by reference each and every 23 allegation as fully set forth in this Complaint, and further alleges as follows. 24 71. By law, an implied covenant of good faith and fair dealing attaches to every 25 contract, including the LLC Agreement. The implied covenant requires contracting parties to 26 refrain from conduct that has the effect of preventing the other party to the contract from receiving 27 the benefits of the agreement. 28 72. WFG and Wheels Investors had an implied obligation under the LLC Agreement to 450482.3 17 COMPLAINT AND DEMAND FOR JURY TRIAL 1 not (a) cause or fabricate a “Material Adverse Regulatory Change” (or “MARC”) absent a change 2 that would have a material adverse effect on WFG’s consumer lending business; (b) authorize a 3 “Run-Off Election” absent a regulatory change compelling LoanMart’s consumer lending business 4 to be placed into “run-off” and thereby wound-down; (c) authorize a “Run-Off Election” of only 5 LoanMart’s existing loan portfolio, and not all loans; (d) subordinate Plaintiff’s Series A and B 6 Units through its aforementioned scheme such that Plaintiff’s equity would be rendered virtually 7 worthless; and (e) use the proceeds of a Run-Off Election to fund a new consumer loan portfolio 8 under the LoanMart name in which Wheels Investors would have priority and be entitled to a 9 preferred 12% return before any distributions would be made to Plaintiff. 10 73. WFG and Wheels Investors breached the implied covenant by engaging in the 11 aforementioned conduct. Using LoanMart money, employees, trade name, licenses, and other 12 resources, Defendants improperly established a so-called “New Business” 4 that would deprive 13 Plaintiff of its rights to receive distributions and own equity in LoanMart. The implied covenant 14 exists to prevent this type of nefarious conduct that deprives Plaintiff of its right to receive the 15 benefits of the contract. 16 74. Plaintiff has been harmed by the foregoing breaches of the implied covenant of 17 good faith and fair dealing and is entitled to an award of compensatory damages, in an amount to 18 be proven at trial, but believed to be in excess of $20 million. 19 THIRD CAUSE OF ACTION 20 (Breach of Fiduciary Duties) 21 (By Plaintiff Against Defendants Wheels Investors LLC, David King, Warren Lyons, Jeffrey 22 Weiss and Hugo Dooner) 23 75. Plaintiff hereby repeats, realleges and incorporates by reference each and every 24 4 25 In the Proposed Second Amended LLC Agreement, Defendants have purported to define “New Business” as “the businesses of [LoanMart] other than the Run-Off Business,” or all loans after 26 January 21, 2020. This further demonstrates the preposterousness of Defendants’ fraudulent distinction between the existing loan portfolio and the “new” portfolio. The only difference is 27 whether the loans were made before or after January 21, 2020, but everything else about the 28 LoanMart business is the same. 450482.3 18 COMPLAINT AND DEMAND FOR JURY TRIAL 1 allegation as fully set forth in this Complaint, and further alleges as follows. 2 76. By virtue of its status as the “CCP Investor Member” of WFG, Defendant Wheels 3 Investors owes fiduciary duties to Plaintiff. Wheels Investors owes Plaintiff the highest obligation 4 of good faith, fair dealing, loyalty and due care. These fiduciary duties to other members of 5 LoanMart are non-waivable under California law. Therefore, the purported blanket elimination of 6 any fiduciary duties, and other overbroad exculpatory clauses, in the LLC Agreement is void and 7 unenforceable as contrary to fundamental California law and public policy. 8 77. In addition, by virtue of their status as members of the WFG’s/LoanMart’s Board 9 of Managers, Defendants David King, Warren Lyons and Jeffrey Weiss owed fiduciary duties to 10 Plaintiff. King, Lyons and Weiss owed Plainti