Appellants appeal the court's order, contending the court abused its discretion in granting Ontiveros's motion. In addition, Appellants maintain the trial court improperly interpreted section 2000 in granting the motion. Ontiveros counters that the court's order is not appealable. In the alternative, Ontiveros insists that if we find an appealable issue exists, the court did not abuse its discretion.
We agree with Appellants that they have presented an appealable issue. In addition, we are persuaded that the trial court abused its discretion here. In reaching this conclusion, we determine that the special proceeding under section 2000, once initiated, "supplants" the cause of action for involuntary dissolution. (See Go v. Pacific Health Services, Inc. (2009)
FACTUAL AND PROCEDURAL BACKGROUND
On December 19, 2012, Ontiveros filed his initial complaint containing seven causes of action, including involuntary dissolution. Ontiveros's operative complaint is the second amended complaint, which he filed on May 31, 2013. It added several causes of action, but the claim for involuntary dissolution remained. Appellants filed a cross-complaint and subsequently amended it on March 4, 2014. Both operative pleadings allege extensive misconduct by the parties that is not directly pertinent to the issues presented here. As such, we need not discuss the parties' mutual allegations in detail.
The parties have litigated the matter spanning several years, including engaging in discovery and bringing discovery motions. On April 17, 2014, Ontiveros moved to disqualify Defendants' counsel. Defendants' appealed the court's order granting Ontiveros's motion, and this court affirmed in part and reversed in part the order. (See Ontiveros v. Constable (2016)
Almost seven months later, Appellants moved to stay proceedings and appoint appraisers to fix the value of Ontiveros's shares under section 2000. This procedure would allow Omega to avoid dissolution by having Kent purchase Ontiveros's stock in Omega. (See § 2000, subd. (a).) Appellants asserted that the court should order the procedure under section 2000 because Kent owned more than 50 percent of Omega's stock, Ontiveros was a minority shareholder, and Ontiveros had sued to involuntarily dissolve Omega.
Ontiveros opposed the motion, arguing that the motion was premature, the derivative portions of the lawsuit needed to be litigated first, Appellants were attempting to exclude valuation of certain "illegally obtained fees," and an alternative date for valuation must be set.
After multiple continuances of the hearing date, on March 2, 2017, the court granted Appellants' motion, staying the proceedings pending determination of the fair value of Omega pursuant to the procedure set forth in section 2000. The court required Kent, within seven days of the date of the order, to deposit with the court a bond of $75,000 to secure payment of the reasonable expenses of Ontiveros if Ontiveros's shares were not purchased within the required time provided in section 2000. Within seven days of the posting of the bond, the court required Ontiveros, on the one hand, and Kent and Omega, on the other, to nominate in writing one proposed appraiser to serve
Four days after the order was entered, Ontiveros attempted to file a request for dismissal, without prejudice, of his cause of action for involuntary dissolution in the second amended complaint. The court clerk did not enter dismissal of the involuntary dissolution cause of action because the March 2, 2017 order stayed the proceeding.
The court denied Ontiveros's ex parte application. The court also continued the hearing on Ontiveros's motion to April 14, 2017 and ordered supplemental briefing. In addition, the court stayed the March 2, 2017 order until April 14, 2017, such that Kent was not required to deposit a bond with the court, and the parties were not required to select appraisers by the order's timetable.
The court continued the April 14 hearing date to April 28, 2017. On April 28, after considering the moving papers, opposition, and reply as well as entertaining oral argument, the court, treating Ontiveros's motion as a motion for leave to file a dismissal with prejudice, granted the motion.
Appellants timely appealed. We asked the parties to submit letters addressing whether the appeal should be dismissed because it was taken from a nonappealable order. The parties filed the requested letters. We determined that the appeal could proceed, but suggested that the parties further address the issue in their respective appellate briefs and informed them that we would further consider the appealability issue.
After hearing oral argument, we requested supplemental briefing addressing the merits of Appellants' challenge to the superior court's order. The parties submitted the requested supplemental briefing.
DISCUSSION
I
APPEALABILITY
A section 2000 shareholder buyout is a special proceeding that supplants an
Below, the court originally granted Appellants' motion under section 2000 in the March 2, 2017 order. However, after the court allowed Ontiveros to dismiss his cause of action for involuntary dissolution of Omega, the court
Section 2000, subdivision (c) addresses appealability. At the time of Appellants' motion, that subdivision provided:
"The court shall appoint three disinterested appraisers to appraise the fair value of the shares owned by the moving parties, and shall make an order referring the matter to the appraisers so appointed for the purpose of ascertaining such value. The order shall prescribe the time and manner of producing evidence, if evidence is required. The award of the appraisers or of a majority of them, when confirmed by the court shall be final, and conclusive upon all parties. The court shall enter a decree which shall provide in the alternative for winding up and dissolution of the corporation unless payment is made for the shares within the time specified by the decree. If the purchasing parties do not make payment for the shares within the time specified, judgment shall be entered against them and the surety or sureties on the bond for the amount of the expenses (including attorneys' fees) of the moving parties. Any shareholder aggrieved by the action of the court may appeal therefrom."5 ( § 2000, subd. (c).)
Ontiveros asserts the plain language of section 2000, subdivision (c) only allows a party to appeal after a trial court issues an "alternative decree" for winding up and dissolution of the corporation. In other words, an aggrieved shareholder may only appeal after the conclusion of the section 2000 procedure when the court enters its decree providing, in the alternative for winding up and dissolution of the company, a time by which the majority shareholder(s) must purchase the minority shareholder's stock at a certain price. In contrast, Appellants assert a party may appeal an order denying a motion under
Although the parties essentially concede that there is no authority directly addressing the appealability issue before us here, Ontiveros urges this court to follow Dickson v. Rehmke (2008)
The court in Dickson , supra ,
Appellants maintain Panakosta , supra ,
Among other issues, the appellate court addressed whether the minority partners could appeal from a denial of a motion to buy out the majority partners' interests under section 15908.02. In answering that
We find Panakosta helpful here. The language addressing appeals in subdivision (d) of section 15908.02 is almost identical to the language in section 2000, subdivision (c). Like the minority partners in Panakosta , supra ,
In short, the court's denial of Appellants' motion for an appraisal and buyout under section 2000 is appealable, and we proceed to consider Appellants' challenge to the superior court's order.
THE DENIAL OF THE MOTION TO INVOKE THE SECTION 2000 SPECIAL PROCEEDING
As we discuss above, the superior court's May 10, 2017 order had the effect of denying Appellants' motion for appraisal and buyout under section 2000. That motion was based on the rights afforded by subdivision (a) of section 2000.
However, the initial allegation of a cause of action for involuntary dissolution in a complaint does not make the granting of a motion under section 2000 automatic. For example, in Kennedy , supra ,
The Court of Appeal affirmed the order denying the motion. The court observed that a plaintiff generally has an unfettered right to dismiss a cause of action before the commencement of trial. ( Kennedy , supra ,
Thus, Kennedy , supra ,
Appellants claim that section 2000 does not give the party seeking involuntary dissolution of a corporation the right to avoid the statutory election to purchase after the election process has been commenced by order of the court. Specifically, Appellants insist that section 2000, subdivision (a) "mandate[s] that once the right to purchase has been ordered in a pending lawsuit for dissolution, the court must stay the dissolution action and order the appraisal, and thereafter must issue an alternative decree for purchase in cash at the appraised value or actual dissolution of the company if not purchased." In support of their position, Appellants focus not on section 2000, but on section 17707.03, subdivision (c)(6).
Appellants claim section 17707.03, subdivision (c)(6) prevents Ontiveros from dismissing his involuntary dissolution cause of action to avoid the appraisal and buyout procedures under section 2000. However, as a threshold matter, we observe that section 17707.03 applies to limited liability companies, not corporations like Omega. And there is no analogous provision in section 2000 comparable to section 17707.03, subdivision (c)(6). Appellants, undaunted by this distinction, urge us to apply section 17707.03, subdivision (c)(6) here because section 2000 and section 17707.03 are "functionally identical"; thus, the legislative intent as to section 17707.03 applies to section 2000. In other words, although section 2000 does not contain any provision analogous to subdivision (c)(6) of section 17707.03, Appellants contend we must read that subdivision into section 2000 based on legislative intent. We decline to do so.
Section 17707.03 and section 2000 are not "functionally identical" as Appellants claim. The former applies to limited liability companies while the latter affects corporations. And limited liability companies are not corporations. " ' "A limited liability company is a hybrid business entity formed under the Corporations Code ... [which] provides members with limited liability to the same extent enjoyed by
The Legislature crafted a statute to govern a buyout procedure when one member sues the other members to dissolve a limited liability company.
Yet, our conclusion that section 17707.03 does not apply to a dissolution action involving a corporation is not the death knell for Appellants' contentions. The question remains whether a plaintiff can dismiss its cause of action for involuntary dissolution after a special proceeding under section 2000 has commenced. Go, supra,
In Go , the plaintiff filed a complaint seeking the involuntary dissolution of a close corporation of which she was a shareholder. The plaintiff also sought damages in her complaint based on claims of breach of fiduciary duty and fraud. ( Go , supra ,
The Court of Appeal rejected the defendants' contention, concluding that when the defendants obtained a stay of the dissolution proceedings and implemented the appraisal process of section 2000, they were agreeing to use that summary proceeding in lieu of litigating their claims in the involuntary dissolution action: "[T]hat is precisely the concession [the] defendants chose when they elected to proceed under section 2000." ( Go , supra ,
We note that there exist some factual differences between Go and the instant action. In Go, after the defendants moved for the procedure under section 2000 and that procedure had run its course, they attempted to avoid the consequences of the stay, appraisal, and buyout by arguing they had the right to litigate the involuntary dissolution claim. ( Go , supra ,
Yet, even acknowledging these differences, we must address the appellate court's conclusion that section 2000's special
Such a conclusion finds support in section 2000. A cause of action for involuntary dissolution of a corporation seeks to end the subject corporation's legal existence. (See § 1800.) In litigating that cause of action, the plaintiff would have to show that dissolution of the corporation was warranted while the defendant would fend off such a claim. Section 2000 allows the parties to avoid such litigation if the corporation or holders of 50 percent or more of the voting power of the corporation opt to purchase the shares owed by the plaintiff at their "fair value." ( § 2000, subd. (a).) Subdivision (c) of section 2000 provides for a procedure to determine the fair value of the shares if the parties do not agree on a value. As such, section 2000 provides a mechanism to take the place of a cause of action for involuntary dissolution by allowing the parties to avoid litigating that claim and providing a means to establish the fair value of the corporation's shares. In this sense, the court's use of the word "supplants" is particularly apt. (See Goles v. Sawhney (2016)
In our request for supplemental briefing, we asked the parties to address four questions in light of the appellate court's quote explaining that section 2000's special proceeding "supplants" the action for involuntary dissolution. (See Go , supra ,
Code of Civil Procedure section 581, subdivision (e) provides: "After the actual commencement of trial, the court shall dismiss the complaint, or
In a trial of an involuntary dissolution claim, the parties would be adversaries with the plaintiff offering evidence showing that grounds exist warranting dissolution of the corporation and establishing the plaintiff's damages. The defendant, on the other hand, would offer evidence undercutting the plaintiff's claim that dissolution of the corporation is necessary. The parties would elicit testimony from witnesses and ask the fact finder to decide the dispute on the merits, defining the rights and obligations of the parties while determining liability and damages. In contrast, the special proceeding under section 2000 includes none of the attributes of a trial. There is no resolution of the disputes on the merits. The special proceeding does not determine whether the corporation should be dissolved, but instead, provides the plaintiff and defendant with a statutory remedy without trial. (See Go , supra ,
We also note that section 2000 does not expressly incorporate Code of Civil Procedure section 581. (See
Code of Civil Procedure section 581 is included in part 2 of the Code of Civil Procedure. As such, it does not apply to section 2000 because that section does not expressly incorporate it. ( Veyna , supra ,
Our conclusion is not undermined by our holding in Conservatorship of Martha P. (2004)
Having concluded that Code of Civil Procedure section 581, subdivision (e) does not allow a plaintiff to dismiss a cause of action for involuntary dissolution once a court grants a motion under section 2000, we next turn to whether the superior court abused its discretion in granting Ontiveros's motion for reconsideration and terminating the special proceeding under section 2000. Below, the trial court concluded that Ontiveros, under Code of Civil Procedure section 581, subdivision (e), had the "absolute right to dismiss" with prejudice the involuntary dissolution cause of action "at any time, even after the commencement of trial." With the cause of action for involuntary dissolution dismissed, the court concluded there was no reason to continue the special proceeding under section 2000. Thus, the trial court's conclusion to terminate the special proceeding hinged on its determination that Ontiveros could
Although we establish that Code of Civil Procedure section 581, subdivision (e) does not allow a plaintiff to dismiss an involuntary dissolution cause of action with prejudice after a court orders the commencement of a special proceeding under section 2000, we do not suggest that a court does not have discretion to dismiss a special proceeding under any circumstance. For example, we can imagine a scenario where the parties settle the dispute rendering the purpose of the special proceeding moot. In addition, there may be other scenarios where justice or equity would support a court ending a special proceeding under section 2000. Such a situation might even present itself as a motion for reconsideration under Code of Civil Procedure section 1008. That said, a new fact under that statute cannot be the plaintiff
DISPOSITION
The order is reversed and the matter is remanded to the superior court with directions to reinstitute the special proceeding under section 2000. Appellants are entitled to their costs on appeal.
WE CONCUR:
AARON, J.
IRION, J.
Notes
Karen Constable is not a party to this appeal. To avoid confusion, we will use Kent to refer to Kent Constable and Karen to refer to Karen Constable. Because Karen is not a party to this appeal, we refer to Omega and Kent as Appellants. We refer to Kent, Karen, and Omega collectively as Defendants.
On March 9, 2017, Appellants served notice of entry of the March 2, 2017 order.
Although the court treated Ontiveros's motion as a motion for leave to file a dismissal with prejudice, the court explained: "[E]ven if the court considered this a Motion for Reconsideration under [Code of Civil Procedure] section 1008, it would find as a new fact [Ontiveros's] attempt on March 6, 2017 to file and have entered the Request for Dismissal."
On January 1, 2018, the last sentence of section 2000, subdivision (c) was modified in that the word "therefrom" was amended to state "the court's decision." Thus, the last sentence now reads, "Any shareholder aggrieved by the action of the court may appeal the court's decision." (Stats. 2017, ch. 721, § 1.) Appellants argue this change makes clear that the Legislature intended to provide any aggrieved shareholder the "immediate right of appeal." Ontiveros does not respond to this argument.
Former section 17351 provided a buyout procedure for limited liability companies that was like the one set forth in section 2000. In 2014, section 17531 was repealed and replaced by section 17707.03. (Stats. 2012, ch. 419, § 19, operative Jan. 1, 2014.)
Ontiveros cites Panakosta , supra ,
Section 15908.02 provides an appraisal and buyout procedure for limited partnerships that is similar to the shareholder appraisal and buyout procedure for corporations set forth in section 2000.
The court also noted that section 15908.02, subdivision (d) appeared to contain a drafting error because it referred to "member" when limited partnerships only have partners. Despite this error, the court determined "subdivision (d) nonetheless expressly confers a statutory right to appeal from an action of the court on a request for buyout of interests by partners who seek judicial dissolution of a partnership." (Panakosta , supra ,
Section 2000, subdivision (a) provides: "Subject to any contrary provision in the articles, which may include a reference to a separate written agreement between two or more shareholders pertaining to the purchase of shares: [¶] In any suit for involuntary dissolution, or in any proceeding for voluntary dissolution initiated by the vote of shareholders representing only 50 percent of the voting power, the corporation or, if it does not elect to purchase, the holders of 50 percent or more of the voting power of the corporation (the 'purchasing parties') may avoid the dissolution of the corporation and the appointment of any receiver by purchasing for cash the shares owned by the plaintiffs or by the shareholders so initiating the proceeding (the 'moving parties') at their fair value. [¶] The fair value shall be determined on the basis of the liquidation value as of the valuation date but taking into account the possibility, if any, of sale of the entire business as a going concern in a liquidation. In fixing the value, the amount of any damages resulting if the initiation of the dissolution is a breach by any moving party or parties of an agreement with the purchasing party or parties may be deducted from the amount payable to the moving party or parties, unless the ground for dissolution is that specified in paragraph (4) of subdivision (b) of Section 1800. The election of the corporation to purchase may be made by the approval of the outstanding shares (Section 152) excluding shares held by the moving parties."
Subdivision (c) of Code of Civil Procedure section 581 provides: "A plaintiff may dismiss his or her complaint, or any cause of action asserted in it, in its entirety, or as to any defendant or defendants, with or without prejudice prior to the actual commencement of trial."
In the respondent's brief, Ontiveros asserts multiple times that courts "have consistently held for over 50 years that these Appellants have no right to force a buyout of Respondent's interest." None of the cases cited by Ontiveros, however, address the issue presented here, where a plaintiff dismisses an involuntary dissolution cause of action after a court grants a motion to proceed under section 2000.
The statute also allows a court to decree the dissolution of a limited liability company under certain circumstances in addition to a suit for judicial dissolution. (§ 17707.03, subds. (a), (b)(1)-(5).)
We note this amendment occurred after section 17707.03, subdivision (c)(6) was effective.
Ontiveros commenced the instant action on December 19, 2012. Because section 17707.03 was not yet operative when the action commenced, its provisions, including subdivision (c)(6) do not apply to this matter. (See Kennedy , supra ,
"A trial shall be deemed to actually commence at the beginning of the opening statement or argument of any party or his or her counsel, or if there is no opening statement, then at the time of the administering of the oath or affirmation to the first witness, or the introduction of any evidence." (Code Civ. Proc., § 581, subd. (a)(6).)
The appellate court's second reason for concluding the automatic stay did not apply was that the trial court's decree was self-executing. (Veyna , supra ,
Welfare and Institutions Code section 5000 et seq.