Opinion
G060513
01-09-2023
In re the Marriage of MOHAMMAD and POURAN HONARKAR. v. BLAKE ALSBROOK, Real Party in Interest and Respondent. MOHAMMAD HONARKAR, Appellant,
Much Shelist and Ryan N. Burns for Appellant. Ervin Cohen &Jessup, Byron Z. Moldo and Blake C. Alsbrook for Real Party in Interest and Respondent.
NOT TO BE PUBLISHED
Appeal from an order of the Superior Court of Orange County, Super. Ct. No. 00D008576 Lon F. Hurwitz, Judge. Affirmed.
Much Shelist and Ryan N. Burns for Appellant.
Ervin Cohen &Jessup, Byron Z. Moldo and Blake C. Alsbrook for Real Party in Interest and Respondent.
OPINION
GOETHALS, J.
Mohammad Honarkar (Husband) appeals from the trial court's order denying him leave to file an independent lawsuit against the court-appointed receiver in his marital dissolution proceedings. Finding no error, we affirm. The court acted properly in denying leave, as Husband's claims of financial mismanagement were resolved as part of the receivership itself.
FACTS
This appeal arises from an acrimonious 20-year divorce case. A thorough summary of the course of the dispute is unnecessary here; we include only those facts relevant to resolving the present appeal.
Husband married Pouran Honarkar (Wife) in 1984. He petitioned for dissolution in 2000. Around that same time, Husband began to acquire and develop substantial real estate holdings in Orange County and elsewhere. Meanwhile, his divorce case dragged on for two decades.
During those proceedings, Husband violated multiple court orders by selling and encumbering assets, so Wife asked the trial court to appoint a receiver to preserve all assets pending trial. In July 2020, the court granted Wife's request. Citing Family Code section 290, which authorizes family courts to enforce court orders by appointing a receiver, the court appointed Blake C. Alsbrook (Receiver) and ordered him to take control of, operate, and maintain all businesses in which Husband had a controlling interest. Husband did not appeal that order.
Over 50 business entities fell within the receivership; these included four hotels, multiple restaurants in California and Arizona, and a wide variety of real estate ventures, including commercial and hotel projects at various stages of development, three event centers, vacation rental properties, and a number of single-family residences, among other properties.
The trial court empowered Receiver "to enter into such contracts as the receiver reasonably believes necessary for the operation of the Receivership Business" and "to take such other steps as are reasonably necessary to care for, manage, preserve, protect and maintain the Receivership Business." It also gave Receiver discretion to determine whether any of the properties under control of the receivership business should be sold.
Receiver posted his bond and filed his oath with the trial court; he then began operating the receivership business. Soon thereafter, he determined the receivership business was in grave financial danger, with insufficient cash on hand to pay loan and settlement payments, as well as inadequate infrastructure, accounting, and tax practices.
Receiver's concerns were largely twofold. First, Husband had entered into a $195 million loan using the majority of his real estate as security, but the real estate had not been generating sufficient income to service the debt, which was accruing at over $300,000 per month. Second, Husband had invested a huge amount of capital to redevelop one of the hotels, but he had failed to make a sufficient security deposit to secure the underlying ground leases and had not paid rent to the landlord for over a year.
Receiver took various steps over the next five months to stabilize the receivership business. According to Husband, Receiver "set about dismantling [Husband's] budding real estate empire" and organized a "veritable fire sale" under the guise of saving his assets.
In December 2020, after weeks of negotiations, Husband and Wife settled their divorce case, and the trial court approved and signed the stipulated judgment of dissolution. Section VIII of the stipulated judgment "terminated" the receivership effective immediately, directed Receiver to release all assets under his management and control to Husband, relieved Receiver from responsibility for any future action, directed Receiver to file his final report and account in accordance with Rule 3.1184 of the California Rules of Court, and reserved Husband's right to object to Receiver's fees and costs.
A week later, Receiver filed his final report and account. Husband filed an opposition, asserting Receiver's fees were unreasonable and unnecessary.
At the January 2021 hearing on Receiver's final report and account, Husband's counsel argued Receiver had exceeded his authority and breached his fiduciary duties and Husband had the right to sue Receiver for those breaches. Receiver and his counsel countered that any claims against Receiver had to be brought to the trial court's attention at the time of Receiver's final report and account, and the court's discharge of Receiver would act as res judicata to bar any future litigation against him. The court asked the parties to provide supplemental briefing on those issues.
Both parties filed supplemental briefing as directed. Receiver's supplemental brief addressed Husband's allegations of misconduct in detail and provided documentary evidence in support of his actions.
In addition to his supplemental briefing, Husband filed an ex parte application for leave to file an independent lawsuit against Receiver for exceeding his authority, breaching his fiduciary duties, committing gross negligence, and causing undue waste to the receivership assets. Receiver opposed the application, asserting Husband's allegations could and should be addressed via the supplemental briefing and resolution of Receiver's final report and account. The trial court set the matter for hearing in March 2021.
At the hearing, the trial court noted that if Husband were permitted to file an independent lawsuit against Receiver, that second case would almost certainly be assigned to the same judge, and it would be tried in equity, without a jury. The court reasoned that allowing a separate civil action would be inappropriate because Husband's claims could and should be litigated in the receivership before the court approved the final report and account. Accordingly, the court ordered that Husband could submit written objections to the proposed final report and accounting with offers of proof as to each objection, and the court would then determine whether an evidentiary hearing was needed; if so, the court would schedule a status conference to set up a timetable; if not, the court would simply rule on the objections.
Husband's counsel apparently agreed with the court's approach, responding: "Very good, your honor." However, rather than filing objections with offers of proof, Husband filed a supplemental brief for leave to file suit against Receiver, reiterating his claims of alleged misconduct. A week later, Receiver filed his final supplemental brief in support of his final report and account, again addressing the various issues forming the basis of Husband's proposed lawsuit.
In May 2021, seemingly having determined that an evidentiary hearing on Husband's objections was unnecessary, the trial court issued a minute order overruling Husband's objections to Receiver's final report and denying Husband's application for leave to file a separate lawsuit. That same day the court also entered an order approving and settling Receiver's final report and account, ratifying Receiver's contracts, and discharging Receiver.
Husband appeals from the trial court's order denying his application for leave to file suit against Receiver; he does not challenge the court's order approving Receiver's updated revised report.
DISCUSSION
Husband contends Receiver "clearly exceeded his authority, breached his fiduciary duties and wasted receivership assets," and an independent lawsuit against Receiver is "necessary to prevent a total denial of due process" of Husband's claims. Before addressing the merits of these arguments, we first discuss the process of asserting a claim against a receiver.
Family Code section 290 empowers a trial court to appoint a receiver to enforce orders made under the Family Code. "The function of [a] receiver is to aid the court in preserving and managing the property involved in a particular lawsuit for the benefit of those to whom it can ultimately be determined to belong. [Citations.] A receiver is an officer of the court and is subject to the court's continuing control; a receiver only has those powers granted to it by statute or an order of the court. [Citations.] The receiver, acting for the court, is not the agent of any party but acts for the benefit of all holding an interest in the receivership property." (City of Sierra Madre v. SunTrust Mortgage, Inc. (2019) 32 Cal.App.5th 648, 656.)
"The receiver is obligated to preserve and manage the property during the course of the receivership." (Southern California Sunbelt Developers, Inc. v. Banyan Limited Partnership (2017) 8 Cal.App.5th 910, 922 (Sunbelt).) Thus, a receiver may be held "liable, in his official capacity only, for negligence in the performance of his authorized duties, and any recovery is a charge upon the estate in receivership." (Jun v. Myers (2001) 88 Cal.App.4th 117, 124, fn. 5 (Jun).)
Before bringing a misconduct claim against the receiver, a party or other claimant must first obtain permission from the court that appointed the receiver. (Vitug v. Griffin (1989) 214 Cal.App.3d 488, 492-493 (Vitug); see Code Civ. Proc., § 568.) This rule is founded upon notions of judicial economy and aims to protect the receiver from a proliferation of lawsuits. (Vitug, at p. 493.)
In response to an application for leave, a trial court may either '"grant leave to sue [the receiver] in an independent action, or it may deny leave and require the claimant to intervene in the receivership proceedings to assert his claim."' (Ostrowski v. Miller (1964) 226 Cal.App.2d 79, 84 (Ostrowski).) The court's decision whether to grant leave to sue the receiver is reviewed for abuse of discretion. (Jun, supra, 88 Cal.App.4th at pp. 124-125; Robbins v. Bueno (1968) 262 Cal.App.2d 79, 85-86.)
"In most cases a claimant can obtain appropriate relief in the receivership action; therefore an independent action will not be necessary." (Vitug, supra, 214 Cal.App.3d at p. 493.) '"The more common practice, and the one generally recommended, is to hear and determine all rights of action and demands against a receiver by petition in the cause in which he was appointed."' (Ostrowski, supra, 226 Cal.App.2d at p. 84.) However, "the court may not refuse permission [to file an independent lawsuit] where the effect would be to cut off plaintiff's rights. If the court cannot afford plaintiff the same relief in intervention as he is entitled to in an independent action, refusal to permit the lawsuit to proceed will constitute an abuse of discretion. [Citations.] For example, if plaintiff's claim contemplates a jury trial, the court may not require plaintiff to try the claim before the court sitting in equity in the receivership action." (Vitug, supra, 214 Cal.App.3d at p. 493.)
If the trial court denies a party's request to file a separate action against the receiver, any claims against the receiver must be adjudicated as part of the final accounting before the receiver is discharged. As this court recently explained, "Before the [trial] court rules on the final accounting, the parties may question, and the court must consider, issues such as whether the receiver exceeded his or her authority, caused injury to others, or acted negligently in operating the receivership estate. '[U]pon the receiver's final report and account, the receiver in his personal capacity may be surcharged for losses to the receivership estate based upon his misconduct or mismanagement.' [Citation.] 'It is of course an indispensable part of the receiver's duties to file an accounting and submit himself [or herself] to inquiry and attack by those beneficially interested in the estate.'" (Sunbelt, supra, 8 Cal.App.5th at p. 926.)
"After discharge the receiver is no longer a proper party to an action on his conduct in his official capacity." (Jun, supra, 88 Cal.App.4th at p. 124.) Further, "because all issues concerning the receiver's actions are fully adjudicated as part of the final accounting, it is well settled the discharge order operates as res judicata as to any claims of liability against the receiver in his or her official capacity. [Citation.] . . . In summary, the last chance to challenge the receiver's actions, management, and omissions is at the time of the final accounting because the provisional receivership remedy is collateral to the main case." (Sunbelt, supra, 8 Cal.App.5th at pp. 926-927; see Aviation Brake Systems Ltd. v. Voorhis (1982) 133 Cal.App.3d 230, 235 (Aviation Brake) ["the questions now sought to be raised [in an independent action] about the [receiver's conduct] could and should have been raised as objections to the receiver's final report and account"].)
Applying these authorities here, we conclude the trial court did not abuse its discretion in denying Husband's application for leave to file an independent lawsuit against Receiver. '"[Permission [to file an independent action] may be denied where full relief can be granted by intervention in the original proceeding."' (Ostrowski, supra, 226 Cal.App.2d at p. 84.) Such was the case here. The trial court provided Husband with the opportunity to fully litigate his grievances against Receiver before Receiver was discharged.
Husband asserts he was not privy to certain aspects of Receiver's activities-and thus was unable to properly object or bring a claim-until after the trial court approved Receiver's final report and account. The record belies that assertion. The receivership was terminated in December 2020 as part of the stipulated judgment in the divorce case, at which point the trial court directed Receiver to release all assets under his management and control to Husband. Over the next five months, Husband had ample opportunity to evaluate and raise any grievances about Receiver's conduct; indeed, Husband did so via his February 2021 objections and in his April 2021 supplemental briefing on Receiver's final report and account. During that same time frame, Receiver repeatedly addressed Husband's allegations of misconduct in detail, providing documentary evidence in support of his actions. The court overruled Husband's objections and approved Receiver's final report and account in May 2021.
Husband nevertheless insists the trial court "[c]ut [o]ff" his right to a remedy and should have permitted him to file a separate action against Receiver. But an independent action against a receiver is generally appropriate only when the relief sought is not available within the receivership proceeding itself (Ostrowski, supra, 226 Cal.App.2d at p. 84) - most typically, when the claims are brought by a third party claimant who is not a party to the receivership (see, e.g., Jun, supra, 88 Cal.App.4th 117; Vitug, supra, 214 Cal.App.3d 488; Chiesur v. Superior Ct. (1946) 76 Cal.App.2d 198, 199). Unlike those cases, Husband was a party to this receivership proceeding, so he was able to air his claims in that proceeding. The court did not err in refusing to allow him to 2 litigate those claims in an independent proceeding.
Husband argues in passing that the trial court never determined whether the assets in receivership were all community property. However, since Husband did not appeal from the order appointing Receiver or the order settling the account of Receiver, we consider that argument waived.
Finally, we note that even if we had reached a different conclusion in this appeal and found that Husband should be permitted to file an independent lawsuit against Receiver, Husband still would be without a remedy because he failed to appeal from the trial court's May 2021 order approving and settling Receiver's final report and account.
That discharge order "operates as res judicata as to any claims of liability against the receiver in his or her official capacity." (Sunbelt, supra, 8 Cal.App.5th at p. 926.) Thus, a court in any new action could properly sustain a demurrer by Receiver on the grounds that Husband's claims against Receiver were fully litigated in this proceeding and thus "may not be collaterally attacked in [a new] proceeding." (Aviation Brake, supra, 133 Cal.App.3d at p. 234 [affirming order sustaining demurrer on those grounds].)
DISPOSITION
The trial court's order is affirmed. Respondent shall recover his costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1).)
WE CONCUR: O'LEARY, P. J. SANCHEZ, J.