Jason Welsh vs Fiore Management Inc

Case Number

22CV00597

Case Type

Hearing Date / Time

Fri, 05/31/2024 - 10:00

Nature of Proceedings

CMC; Motion: Order Re Delivery and Deposit of Funds

Tentative Ruling

For the reasons set forth herein, the motion of plaintiff Jason Welsh for an order requiring the delivery and deposit of funds pursuant to Code of Civil Procedure section 572 is denied. The requests of Receiver Ryan C. Baker for orders requiring Welsh to comply with the claims procedure set forth in the order appointing Baker as receiver and to stay this action are denied without prejudice to the making of motions with notice as required by the Code of Civil Procedure.

Background:

On February 15, 2022, petitioner Jason Welsh filed his petition pursuant to Corporations Code section 17711.06 to determine the fair value of Welsh’s membership interest.

On May 23, 2022, Welsh additionally filed a complaint asserting a cause of action for breach of contract and for violation of his dissenter’s rights.

On December 15, 2022, defendant Fiore Management, Inc., (Fiore) filed its general denial (answer) to the complaint, generally denying the allegations thereof and asserting one affirmative defense.

On July 28, 2023, Welsh filed his first motion for summary judgment. The court denied this motion on November 3, 2023, because Welsh had failed to meet his initial burden.

On November 6, 2023, Welsh filed a second motion for summary judgment. This motion was originally set for hearing on February 9, 2024.

On December 27, 2023, former attorney Frederick Strasser filed his motion to be relieved as counsel for defendant Fiore.

On February 9, 2024, the court continued the hearing on the second motion for summary judgment to March 15. On March 15, the court denied the second motion for summary judgment for failing to comply with Code of Civil Procedure section 1008 regarding renewed motions.

On March 22, 2024, Welsh filed this motion for an order requiring delivery and deposit of funds in court pursuant to Code of Civil Procedure section 572.

On April 26, 2024, the court granted the motion of attorney Strasser to be relieved as counsel for Fiore.

On May 20, 2024, Ryan C. Baker (Receiver), as court-appointed receiver over defendant Fiore, filed opposition to Welsh’s motion. The opposition also requests that the court require Welsh to comply with claim presentation procedure against the receivership estate and that the court stay this action pending the Receiver’s disposition of the claims presented.

Analysis:

“When it is admitted by the pleadings, or shown upon the examination of a party to the action, that he or she has in his or her possession, or under his or her control, any money or other thing capable of delivery, which, being the subject of litigation, is held by him or her as trustee for another party, or which belongs or which is due to another party or which should, under the circumstances of the case be held by the court pending final disposition of the action, the court may order the same, upon motion, to be deposited in court or delivered to such party, upon those conditions that may be just, subject to the further direction of the court.” (Code Civ. Proc., § 572.)

“[S]ection 572 is exclusively a pre-judgment remedy [as] is confirmed by its language, which refers to admissions in pleadings, and funds that are ‘the subject of litigation.’ ” (In re Marriage of Fithian (1977) 74 Cal.App.3d 397, 401.)

“A party to a controversy involving a right to a certain sum of money cannot be required to pay that money into court, unless it is either clearly admitted by him in his pleading, or shown in some proceeding in the cause, that he has himself no right to retain it, and that his antagonist is entitled to it, or at least has an absolute interest therein. Such admission must be free from any condition, and the antagonist must himself claim an immediate right to the money before he can ask that it be deposited in court. If the admission make the right of the other party dependent upon his performance of some condition, or if the other party does not claim any right to the money, or disputes the existence of the condition, the court will not order the money to be deposited before a hearing in the cause and a judicial determination of the respective rights of the parties ….” (Green v. Duvergey (1905) 146 Cal. 379, 385–387.)

Welsh asserts that “[i]n previous pleadings, the Defendant has admitted that the Plaintiff qualifies as a dissenting member,” citing Fiore’s Case Management Statement, filed on April 24, 2023. That Case Management Statement contains the statement: “On August 26, 2021 Fiore Management LLC converted from a California limited liability company to a Delaware corporation assuming the name Fiore Management, Inc. Mr. Welsh was the sole dissenter who elected to enforce his dissenter’s rights. The company and Mr. Welsh have been unable to agree on a valuation for his shares.” According to Welsh, “In recognizing the Plaintiff’s status as a dissenting member under the statute, the Defendant also acknowledges that ‘the dissenting member is entitled to the agreed price with interest thereon at the legal rate on judgments from the date of consummation of the reorganization.’ See CA Corp Code § 17711.05(a).” (Motion, at pp. 4-5.)

Welsh overstates the effect of the assertion in Fiore’s Case Management Statement.

“If the limited liability company and the dissenting member agree that the member’s interest is a dissenting interest and agree upon the price to be paid for the dissenting interest, the dissenting member is entitled to the agreed price with interest thereon at the legal rate on judgments from the date of consummation of the reorganization. All agreements fixing the fair market value of any dissenting member’s interest as between the limited liability company and that member shall be in writing and filed in the records of the limited liability company.” (Corp. Code, § 17711.05, subd. (a).)

The Case Management Statement includes the concession that Fiore “will stipulate that the Plaintiff qualifies as a Dissenter under the statute.” (Fiore Case Management Statement, filed Apr. 24, 2023, ¶ 19b.) As quoted above, that Case Management Statement further states that the parties do not agree on a price to be paid. There has been no judicial determination of the price to be paid. Fiore’s answer expressly disputes the price per share claimed by Welsh in his complaint. (General Denial, filed Dec. 15, 2022, ¶ 2.) There are thus no pleadings or admissions that the sum asserted by Welsh unequivocally is held by Fiore (or the Receiver as successor to Fiore’s assets) and belongs to Welsh.

Consequently, Welsh, as the moving party, has not met his burden to establish entitlement to the prejudgment remedy of Code of Civil Procedure section 572. Welsh’s motion will be denied.

In opposition, the Receiver requests that the court order Welsh to comply with the order appointing the Receiver and to stay this action pending the Receiver’s approval or disapproval of Welsh’s claims when presented. These requests for orders have only been made in opposition, without sufficient notice as required by Code of Civil Procedure section 1005, subdivision (b). The court will deny these requests for orders without prejudice to the making of these motions upon appropriate notice. In so ruling, the court expresses no opinion on the merits of the requests for orders.