Michael Dennis vs Ralph T Iannelli et al

Case Number

18CV03317

Case Type

Hearing Date / Time

Fri, 04/05/2024 - 10:00

Nature of Proceedings

Motion: Approval

Tentative Ruling

1. The hearing on the motion for approval pursuant to California Rules of Court, rule 3.770 to dismiss defendant Essex Capital Corporation with prejudice is continued to April 26, 2024.
2. Plaintiff shall file and serve further briefing addressing any prejudice, or lack thereof, to potential class members, as well as the status of the District Court case, no later than April 17, 2024.
3. Plaintiff shall provide notice of this ruling to all parties.

Background:

This action commenced on July 3, 2018, by the filing of the original complaint by plaintiffs Michael Dennis and all those similarly situated against defendants Ralph T. Ianelli, Essex Capital Corporation (“Essex”), and Does 1 through 30. The complaint is a class action and sets forth causes of action for: (1) Negligence; (2) Violation of California Security Laws; (3) Negligence Per Se; (4) Fraud; and (5) Financial Elder Abuse.

On October 11, 2023, plaintiffs substituted defendants Janet Garufis for Doe 1 and Montecito Bank & Trust for Doe 2.

On March 18, 2024, plaintiffs filed the operative first amended class action complaint (“FAC”) setting forth causes of action for: (1) Negligence by Class Representatives; (2) Negligence by Receiver Winkler; (3) Violation of California Security Laws; (4) Fraud and Aiding and Abetting Fraud; and (5) Financial Elder Abuse.

Including attachments, the FAC is 361 pages long. In essence, the complaint alleges that Essex and Iannelli committed securities fraud by defrauding investors into loaning money to Essex for its equipment leasing business.

Prior to the filing of the original complaint, on June 5, 2018, the Securities & Exchange Commission (“SEC”) filed a complaint in the Federal District Court for the Central District of California against Essex and Iannelli. (Foley Dec., ¶ 2.)

On September 9, 2019, the District Court entered an order granting a preliminary injunction appointing Winkler as permanent receiver for Essex. (Foley Dec., ¶ 4 & Exh. A.) The order also enjoined third parties from pursuing claims against Essex or Iannelli while the receivership is pending. (Ibid.) [Note: Plaintiff refers to the injunction as a permanent injunction. However, the document provided to the court is a preliminary injunction.] Foley is informed and believes that the receivership is still pending. (Ibid.)

Winkler, after consultation with Allen Matkins, retained plaintiffs’ counsel, Foley, Bezek, Behle & Curtis, on a contingency basis, to pursue claims against third parties who may have aided and abetted Essex and Iannelli. (Foley Dec., ¶ 6.) Any monetary recovery by settlement or judgment in the present case will be administered by Winkler pursuant to Winkler’s distribution plan approved by the District Court. (Ibid.)

Because of the injunction in the SEC’s District Court litigation, prohibiting pursuing claims against Essex, and because Foley’s firm will be representing Winkler to pursue claims against third parties, plaintiff moves for permission to dismiss Essex with prejudice. (Foley Dec., ¶ 9.)

The motion is unopposed.

Analysis:

California Rules of Court, rule 3.770 provides:

“(a) Court approval of dismissal

A dismissal of an entire class action, or of any party or cause of action in a class action, requires court approval. The court may not grant a request to dismiss a class action if the court has entered judgment following final approval of a settlement. Requests for dismissal must be accompanied by a declaration setting forth the facts on which the party relies. The declaration must clearly state whether consideration, direct or indirect, is being given for the dismissal and must describe the consideration in detail.

“(b) Hearing on request for dismissal

The court may grant the request without a hearing. If the request is disapproved, notice of tentative disapproval must be sent to the attorneys of record. Any party may seek, within 15 calendar days of the service of the notice of tentative disapproval, a hearing on the request. If no hearing is sought within that period, the request for dismissal will be deemed denied.

“(c) Notice to class of dismissal

If the court has certified the class, and notice of the pendency of the action has been provided to class members, notice of the dismissal must be given to the class in the manner specified by the court. If the court has not ruled on class certification, or if notice of the pendency of the action has not been provided to class members in a case in which such notice was required, notice of the proposed dismissal may be given in the manner and to those class members specified by the court, or the action may be dismissed without notice to the class members if the court finds that the dismissal will not prejudice them.”

Here, there has been no preliminary certification of a class, or has any notice of pendency of the action been provided to class members.

“ ‘California courts recognize and preserve the rights of absent class members, even before the issue of certification has been determined.’ [Citation.]” (Pirjada v. Superior Court (2011) 201 Cal.App.4th 1074, 1082.)

 Plaintiff fails to adequately explain how potential class members will not be prejudiced by the dismissal, with prejudice, of Essex. As stated above, plaintiff has provided the court with a preliminary injunction related to the assets of Essex and Iannelli rather than a permanent injunction. Also, there are potential statute of limitations issues that must be addressed and considered. Finally, while reference is made to Winkler’s distribution plan approved by the District Court, no copy has been provided to this court and plaintiff has not provided any information regarding whether any recovery will benefit potential class members.

The court will continue the hearing on the motion to allow for further briefing by plaintiff, specifically setting forth facts showing that the dismissal would not prejudice potential class members.