Michael Dennis vs Ralph T Iannelli et al

Case Number

18CV03317

Case Type

Hearing Date / Time

Fri, 05/03/2024 - 10:00

Nature of Proceedings

CMC; Motion for Approval

Tentative Ruling

For the reasons set forth below, plaintiffs’ motion for approval to dismiss defendant Essex Capital Corporation, with prejudice, is granted.

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 permanent injunction in the District Court Action barring third parties from pursuing claims against Essex and Iannelli during the pendency of the receivership, which is still pending. (Winkler Dec., ¶ 6 & Exh. B.)

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.)

On April 5, 2024, the court continued the hearing date on the motion and ordered plaintiffs to file and serve further briefing addressing any prejudice, or lack thereof, to potential class members, as well as the status of the District Court action.

Plaintiffs have filed supplemental briefing and declarations addressing the court’s concerns. Plaintiffs have provided more detail regarding the District Court action and its potential effects on putative class members resulting from the dismissal of Essex.

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.”

“ ‘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.)

“[A] trial court should grant or deny the dismissal motion based upon the purpose to be served, to wit, the protection of the class.” (Malibu Outrigger Bd. of Governors v. Superior Court (1980) 103 Cal.App.3d 573, 579.)

 

Here, there will be no prejudice to class members if Essex is dismissed as a defendant in this action. The SEC would not permit Winkler to pursue claims against Montecito Bank and Trust and Garufis, for the benefit of Essex’s creditors, unless Essex was dismissed. Based on an agreement with the SEC, the permanent injunction against pursuing claims against Iannelli has been lifted. The putative class members are already participating in the proceeds from the liquidation of Essex’s assets through the receivership proceedings in district court. (Foley Sup. Dec., ¶¶ 3, 4, 5 & Exh. A.) As dismissal will not prejudice the putative class members, no notice need be given to them.

Having considered the declarations and all the evidence submitted, the court will grant plaintiffs’ motion for approval to dismiss defendant Essex Capital Corporation, with prejudice.