Opinion
G059084
03-30-2021
LINDA HONG, Plaintiff and Respondent; KENNETH A. KRASNE, Plaintiff and Appellant, v. WON BEOM LEE et al., Defendants and Respondents.
Grignon Law Firm, Margaret M. Grignon, Anne M. Grignon; Frandzel Robins Bloom & Csato and Brett L. McClure, for Plaintiff and Appellant. Law Offices of Tom S. Chun and Tom S. Chun, for Defendants and Respondents. No appearance for Plaintiff and Respondent Linda Hong.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2014-00745940) OPINION Appeal from a postjudgment order of the Superior Court of Orange County, Ronald L. Bauer, Judge. Affirmed. Grignon Law Firm, Margaret M. Grignon, Anne M. Grignon; Frandzel Robins Bloom & Csato and Brett L. McClure, for Plaintiff and Appellant. Law Offices of Tom S. Chun and Tom S. Chun, for Defendants and Respondents. No appearance for Plaintiff and Respondent Linda Hong.
* * *
In the underlying proceeding, the trial court awarded Linda Hong a 50 percent interest in a health spa business. (See Hong v. Lee (June 5, 2019, G054880) [nonpub. opn.]. Respondents Won Beom Lee, Eun Joo Lee, and Beom & Eun Investments, LLC (BEI) appealed the related judgments. While the appeal was pending, the trial court appointed appellant Kenneth A. Krasne as the receiver for the spa. The court authorized Krasne to distribute "net profits to Plaintiff Linda Hong in accordance with the Court's ruling of her ownership interest." Krasne distributed over $685,000 to Hong and her attorney from the purported net profits of the spa business.
After this court reversed the judgments, Krasne submitted his final report and accounting, and filed a motion for approval of the final report on October 28, 2019. In the final report, Krasne stated: "If I had been aware of and acted in accordance with the July 5, 2017[] Order limiting disbursements to Plaintiff to 50 [percent] of the net profit and had set aside an amount equal to the rent, no distributions would have been made to Plaintiff." Respondents objected to the final report and accounting, and moved to surcharge Krasne for the distributions. The trial court denied Krasne's motion for approval of the final report, and granted respondents' motion to surcharge him.
Krasne contends his distributions to Hong and her attorney were proper because he was appointed to enforce the money judgment Hong obtained against the respondents. As discussed below, the appointment order does not reference satisfaction of a money judgment and no court order authorized distributions in satisfaction of a judgment. Krasne also contends a surcharge order is barred because respondents may obtain restitution from Hong in the amount of the distributions. He cites no legal authority for this contention, and we decline to hold that a restitution action is the exclusive means to recover the distributions. Finally, Krasne challenges the evidence to support the surcharge order. We conclude the trial court could rely on Krasne's own statements to find Krasne committed misconduct or mismanagement that resulted in the loss of over $685,000 to the receivership estate. Accordingly, we affirm.
I
FACTUAL AND PROCEDURAL BACKGROUND
After obtaining favorable verdicts on her claims against respondents, Hong filed an ex parte application for a temporary restraining order and appointment of a receiver for the spa and respondent BEI, whose sole business asset was the spa. In the motion, Hong argued appointment of a receiver was authorized under Code of Civil Procedure sections 564, subdivisions (b)(1) and (b)(9), because the property was in danger of being lost and a "receivership [was] critical to preserve Plaintiff's property and her rights thereto." According to Hong, a receivership was "urgently needed" because the spa's landlord, L.A. Pacific Plaza LLC (LAPP), had given the spa 30 days notice to quit the premises. Hong nominated Krasne, who submitted a declaration describing his qualifications.
On March 30, 2017, the trial court granted Hong's application and appointed Krasne as receiver for BEI and the spa. The order obligated Krasne to "care for, preserve, operate and maintain the Receivership Property." It did not authorize Krasne to distribute any profits to third parties.
On April 17, 2017, Krasne filed an ex parte application for several orders in furtherance of the receivership. One requested order was that Krasne may "make periodic distributions of net profits to Hong in accordance with the Court's ruling of her ownership interest." In a supporting declaration, Krasne stated that the spa was operating as of April 8, 2017, and generating revenue. "While I am unsure at this time how much in funds will be needed to continue to operate the business as a going concern, cover payroll, pay utilities, cover my fees, potentially make a deposit on a new lease, and maintain some surplus in the account, I should be allowed to make distributions of net profits in due time."
The following day, the trial court granted the application in its entirety, and signed the proposed order prepared by Krasne. The order provided that Krasne, "may, at his sole discretion, make periodic distributions of net profits to Plaintiff Linda Hong in accordance with the Court's ruling of her ownership interest." The court ordered Krasne to file quarterly declarations summarizing any distributions made to Hong.
On May 10, 2017, respondents filed an opposition to the April 8, 2017 order. Although respondents objected to several orders directed at them, they did not object to the order authorizing distributions of net profits to Hong. On July 5, 2017, the trial court issued a minute order reaffirming that Krasne could "distribute 50 [percent] of the profits of the spa to plaintiff," and deferred its ruling on all other matters raised in the opposition. The July 5, 2017 minute order stated Krasne was present when the court issued its rulings.
On July 17, 2017, Krasne filed a quarterly declaration summarizing his distributions of the spa's profits to Hong. He stated: "For the quarter ended June 30, 2017, I have made distributions to the Daniel Park, Esq., Client Trust Account for the benefit of Ms. Linda Hong in the amount of $58,000 . . . . As a 50% owner of [BEI], Ms. Hong would be entitled to a 50% share of the distribution, so it would be the additional 50% (i.e. $29,000) that would have otherwise been distributed to the defendants which is applied to the satisfaction of the judgment."
Krasne initially did not explain how he calculated the $58,000 profit amount. He later submitted a supplemental declaration for the time period, which included a document showing the spa's cash flow for the three-month period from April through June 2017. The document, denominated as an operating statement, shows a $35,000 rental payment for May 2017, but no rental payment for April or June 2017.
Over the next two years, Krasne regularly submitted similar declarations. The attached operating statements showed no further rental payments. Thus, from June 2017 through June 2019, Krasne paid no rent. In contrast, over that same time period, Krasne distributed $618,000 to Hong or her attorney.
On June 5, 2019, this court reversed the underlying judgments. (See Hong v. Lee (June 5, 2019, G054880) [nonpub. opn.].) On September 25, 2019, Krasne filed an ex parte application to terminate the receivership. The trial court partially granted the application, ordering the termination of the receivership "subject to the . . . filing of his final report and accounting and approval from the Court."
On October 28, 2019, Krasne filed a motion for an order approving his final report and accounting. In the motion, Krasne summarized his actions during the receivership. He stated that upon possession of the spa, he tendered rents for April 2017 and May 2017 to the landlord LAPP, but LAPP rejected the May 2017 payment and requested Krasne vacate the premises. Krasne further stated he "continued to operate the Spa with the goal that LAPP would engage in negotiations or mediation" and "continued to set aside rent funds each month in an amount he deemed sufficient, in his best business judgment."
Krasne explained he made distributions to Hong and her attorney because he interpreted the April 18, 2017 order as authorizing distributions to satisfy the underlying judgments. He claimed he was unaware of the July 5, 2017 order limiting distributions to 50 percent of the net proceeds, and he was unaware of the court's admonishment to reserve funds for rent as "you cannot stay for free." Krasne argued the July 5 order did not limit distributions made to satisfy the judgments. Krasne distributed the total of $685,832 to "satisfy the money judgment[s]." He noted that despite being on notice of the distributions, no party ever objected.
In the accompanying final report, Krasne repeated the statements in his motion. He also stated: "If I had been aware of and acted in accordance with the July 5, 2017, Order limiting disbursements to Plaintiff to 50% of the net profit and had set aside an amount equal to rent, no distributions would have been made to Plaintiff and the estate would have funds sufficient to cover the full amount claimed by LAPP."
Krasne stated he has been paid $305,832 in fees, but is owed $15,349 for receivership administrative fees and $152,366 for attorney's fees. The trial court never ruled on Krasne's request for fees and attorney's fees.
Respondents objected to Krasne's final report and accounting. They contended Krasne's distributions to Hong exceeded his authority and violated the trial court's orders, citing Krasne's own admission that he would not have made distributions if he had been aware of the July 5, 2017 order. Respondents further contended Krasne was negligent in failing to establish any reserve for accrued rent, arguing that no evidence supported Krasne's claim he had set aside funds for rent. They noted they asked Krasne on February 4, 2019, whether he had setup a reserve for rent liability or how he planned to restore the distributed funds if the underlying judgments were reversed on appeal, but he never answered and instead deflected the inquiry by raising an unrelated issue. Krasne then made 14 more distributions to Hong despite stating he "duly noted" respondents' "warning" about establishing a rental reserve fund or restoring the distributions if the judgments were reversed.
Respondents also contended Krasne committed misconduct when he joined in Hong's lawsuit against the landlord without obtaining approval from the court, and hired Hong's attorney to represent BEI in that action despite the fact that Hong was currently suing BEI.
In addition to objecting to the final report and accounting, respondents filed a separate motion to surcharge Krasne for the distributions on several of the grounds raised in their objection. In response, Krasne argued the distributions were proper because the "entire purpose of the Receiver, post judgment, was to satisfy the Jury Judgment [Hong] obtained in the approximate amount of $2.7 million," noting the application to appoint a receiver was based, in part, on statutes governing "appointment of a receiver to satisfy a money judgment." He asserted the distributions were made only to satisfy the money judgment, not to make profit distributions.
The trial court denied Krasne's motion to approve the final report and accounting, and granted respondents' motion to surcharge him for the distributions to Hong and her attorney. After noting Krasne's concession that he would not have made any distributions to Hong or her attorney had he been aware of the July 5, 2017 order and had set aside an amount for rent, the court rejected Krasne's "profession of ignorance." It found Krasne was present when the order was issued. Furthermore, Krasne had "an obligation to know what orders the court has made and to obey them." The court also rejected Krasne's argument that he made distributions only to satisfy the judgment, not distributions of profits. It concluded no court order authorized Krasne to make distributions to satisfy the money judgment. The court surcharged Krasne for the unauthorized distribution of $685,832 in spa assets to Hong and her attorney.
II
DISCUSSION
Krasne contends we must reverse the trial court's surcharge order because (1) he had authority to make the distributions to Hong to satisfy the money judgment; (2) respondents' right to restitution from Hong bars the surcharge order; and (3) substantial evidence does not support the surcharge order. We disagree.
Krasne contends he should not be surcharged for payments made to partially satisfy Hong's money judgment because he was appointed to enforce the judgment. We find no support in the record for this contention.
Code of Civil Procedure section 564, subdivision (b), ("section 564(b)"), provides, in relevant part, that the court may appoint a receiver for several reasons, including, "[a]fter judgment, to carry the judgment into effect," and "[a]fter judgment, to dispose of the property according to the judgment, or to preserve it during the pendency of an appeal." (Code Civ. Proc., § 564, subds. (b)(3) & (b)(4).) Although section 564(b) permits appointment of a receiver to enforce a judgment, the appointment order here was issued to preserve the disputed property. Krasne was appointed because "the facts in this case satisfy the requirements of [section 564(b)] for appoint[ment] of receiver, namely, that property in which Plaintiff has a probable interest in is in danger of being lost, removed or injured; that a receivership is otherwise necessary to preserve the property and rights of Plaintiff; that not appointing a receiver would result in irreparable injury; and that other remedies are inadequate." (Italics added.) In addition, the order specified Krasne's powers and responsibilities, including his obligation to "care for, preserve, operate and maintain the Receivership Property." The order made no reference to satisfaction of a money judgment or authorization to make any distributions to Hong and her attorney. The April 18, 2017 and July 5, 2017 orders also did not reference satisfaction of a money judgment. In sum, no evidence supports Krasne's contention he was appointed to enforce Hong's money judgment.
In arguing he was appointed to enforce the money judgment, Krasne also cites Code of Civil Procedure section 708.620, which provides that the superior court may appoint a receiver to enforce a money judgment. While this statute was discussed in the memorandum of law and authorities in support of appointment of a receiver, the statute was never referenced in the actual appointment order, which was drafted by Hong's attorney.
In a related argument, Krasne contends respondents waived any challenge to his distributions because they failed to file any objection until the final report and accounting, despite being apprised he was making payments in satisfaction of the judgment. Krasne cites no legal authority applying the waiver doctrine in this manner. California courts have found waiver or forfeiture where a party failed to file an objection to a receiver's final report and accounting, and later sought to challenge the receiver's actions. (See Southern California Sunbelt Developers, Inc. v. Banyan Limited Partnership (2017) 8 Cal.App.5th 910, 926-927); Aviation Brake Systems, Ltd. v. Voorhis (1982) 133 Cal.App.3d 230, 235.) This court has held that "the last chance to challenge the receiver's actions, management, and omissions is at the time of the final accounting." (Southern California Sunbelt Developers, Inc. v. Banyan Limited Partnership, supra, 8 Cal.App.5th at pp. 926-927.) No court has held that failure to object at an earlier time results in a waiver or forfeiture of the right to object at the time of the final accounting.
Moreover, Krasne has not persuaded us to extend the waiver doctrine to the facts of this case. Waiver is the intentional relinquishment or abandonment of a known right or privilege. "The intent to waive may be expressed in words, either oral or written, or implied by a party's conduct." (Smith v Ogbuehi (2019) 38 Cal.App.5th 453, 475.) The known right here is the right to challenge Krasne's actions or to seek a surcharge order against Krasne following the receiver's final report and accounting. Respondents have not expressly relinquished their right to challenge Krasne's actions. As for implied relinquishment, respondents' conduct demonstrates they did not intend to relinquish their right to question the receiver's actions. Before the final report and accounting, respondents questioned Krasne whether he established a reserve fund for rent or considered how to restore the distributed funds if the judgments were reversed on appeal, but Krasne did not respond to their inquiry.
More important, beneficial parties may question or challenge the receiver's actions at the time the trial court is considering the receiver's request for approval of the final report and accounting. "[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." (Aviation Brake Systems, Ltd. v. Voorhis, supra, 133 Cal.App.3d at p. 235, emphases added.) Thus, "[b]efore the 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." (Southern California Sunbelt Developers, Inc. v. Banyan Limited Partnership, supra, 8 Cal.App.5th at p. 926; see also Macmorris Sales Corp. v. Kozak (1967) 249 Cal.App.2d 998, 1005 ["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."].) Here, respondents argued the trial court should not approve the final report and accounting because the distributions to Hong exceeded the receiver's authority under the various court orders. The trial court implicitly rejected the waiver argument below and we see no basis to question that decision. Thus, respondents did not relinquish or abandon their right to challenge Krasne's distributions or seek a surcharge.
Next, Krasne argues the trial court erred in failing to consider respondents' ability to recover restitution from Hong and her attorney for the distributions. Again, he cites no legal authority to support his claim of error. More important, Krasne cites no legal authority for the proposition that respondents' ability to seek restitution from Hong for Hong's unjust enrichment precludes a surcharge order against the receiver for the receiver's misconduct or mismanagement. In sum, the court did not err in surcharging Krasne despite the possibility of a separate action for restitution against Hong.
Finally, Krasne challenges the sufficiency of the evidence to support the surcharge order. "In reviewing the sufficiency of the evidence, we must consider all of the evidence in the light most favorable to the prevailing party, accept as true all the evidence and reasonable inferences therefrom that tend to establish the correctness of the trial court's findings and decision, and resolve every conflict in favor of the [surcharge order]." (Baxter Healthcare Corp. v. Denton (2004) 120 Cal.App.4th 333, 369.) "It is not our task to weigh conflicts and disputes in the evidence; that is the province of the trier of fact. Our authority begins and ends with a determination as to whether, on the entire record, there is any substantial evidence, contradicted or uncontradicted, in support of the [order]." (Howard v. Owens Corning (1999) 72 Cal.App.4th 621, 630-631.) "Even the uncorroborated testimony of a single witness may constitute substantial evidence." (Casella v. SouthWest Dealer Services, Inc. (2007) 157 Cal.App.4th 1127, 1144.
Here, the trial court found Krasne's misconduct or mismanagement resulted in a $685,832.50 loss to the receivership estate. Substantial evidence supports the court's finding. It is undisputed that Krasne distributed $685,832.50 to Hong and her attorney. Krasne stated, however, that had he been aware of the court's July 5, 2017 order and had set aside an amount for rent, "no distributions would have been made to Plaintiff." The trial court found -- and Krasne does not dispute on appeal -- that Krasne was aware of the trial court's order. In his final report, Krasne claimed he set aside an amount for rental liabilities, which implicitly acknowledged failure to account for rent would be misconduct or mismanagement. We note that had Krasne set aside $35,000 monthly for rent, the total rental reserve amount would have exceeded the distributions to Hong, suggesting there were no net profits during the time period Krasne made the distributions. Thus, as Krasne conceded, no distribution should have been made to Hong and her attorney. In light of Krasne's concessions, substantial evidence supported the trial court's finding that Krasne committed misconduct or mismanagement when he distributed $685,832.50 to Hong and her attorney. In sum, the trial court did not err in surcharging Krasne for the total distributions.
Krasne requests that "[s]hould the [surcharge, final accounting, and discharge] order be reversed, this Court should remand with additional instructions for the trial court to decide the Receiver's final outstanding fee request and his request for attorneys' fees, which were not addressed in the prior order." Because we affirm the order, we decline to address this request. --------
III
DISPOSITION
The surcharge order is affirmed. Respondents are entitled to their costs on appeal.
ARONSON, ACTING P. J. WE CONCUR: FYBEL, J. IKOLA, J.