Summary
applying this rule to affirm a preliminary injunction against a corporate officer "because of his personal involvement in allowing the nuisance to persist"
Summary of this case from In re Juul Labs, Inc., Marketing, Sales Practices, & Prods. Liab. Litig.Opinion
No. B171419
May 31, 2005 CERTIFIED FOR PARTIAL PUBLICATION
Pursuant to California Rules of Court, rules 976(b) and 976.1, this opinion is certified for publication with the exception of part I of the Discussion.
Appeal from the Superior Court of Los Angeles County, No. BC298138, David P. Yaffe, Judge.
Morton Minikes for Defendants and Appellants.
Rockard J. Delgadillo, City Attorney, Debbie Lew, Assistant City Attorney, and Katharine H. MacKenzie, Deputy City Attorney, for Plaintiffs and Respondents.
OPINION
INTRODUCTION
The City of Los Angeles and the People of the State of California (collectively, the City) brought a red light abatement action (Pen. Code, § 11225) against the operators of a business and the owners of the strip mall where the business was located. The action alleged that the business was a front for prostitution and an illegal massage parlor. The trial court issued a preliminary injunction prohibiting the operation of a massage parlor or a house of prostitution. Pacific Landmark, LLC (Pacific), a limited liability company and owner of the property, and Ron Mavaddat, Pacific's manager (collectively, appellants), appeal, contending that the preliminary injunction is moot because the offending business has vacated the premises, with the result there is no threat of future harm. Mavaddat also contends, as manager of Pacific, that he is exempt from personal liability for any order or judgment against Pacific. (Corp. Code, § 17158.) In the unpublished portion of this opinion (part I), we hold that there was no error in issuing the injunction. In the published portion (part II), we hold that managers of limited liability companies are not immune from personal liability if they have participated in tortious or criminal conduct while performing duties as managers. Accordingly, we affirm the order issuing the preliminary injunction.
FACTUAL AND PROCEDURAL BACKGROUND
1. The City's application for temporary restraining order and preliminary injunction.
In June 2003, the City commenced the instant action to enjoin and abate a public nuisance. (Pen. Code, § 11225; L.A. Mun. Code, § 11.00, subd. ( l).) The complaint alleged that an illegal massage parlor was being operated for the purpose of prostitution and as a disorderly house in a strip mall (the premises) located in the Tarzana area of the City, owned and leased by Pacific and managed by Mavaddat. Defendants, Arthur Melikyan, doing business as Victoria's Health Care and/or the Weekly Press, and Zachary Noel Spencer, doing business as Victoria's Health Care (together defendants), were the occupants, operators, and lessees of the premises.
Defendants are not parties to this appeal.
The City sought to permanently enjoin appellants and defendants from maintaining or occupying the premises for purposes of prostitution or operating a massage parlor. The City also requested a civil penalty. (Pen. Code, § 11230.) The complaint alleged that unless enjoined, appellants and defendants would continue to maintain the premises for the unlawful purposes.
The complaint also alleged in the third cause of action that defendants were engaged in unlawful and unfair competition under Business and Professions Code section 17200. The appeal, however, does not raise any issues concerning the third cause of action.
The City then filed its application for a temporary restraining order and an order to show cause for a preliminary injunction. The City argued (1) it was likely to prevail at trial on the merits because traditional law enforcement and abatement efforts had failed to eliminate the illegal activity; and (2) harm to the public was presumed from defendants' maintenance of a nuisance per se as declared by Penal Code section 11225 and Los Angeles Municipal Code section 11.00, subdivision ( l).
Los Angeles Municipal Code section 11.00, subdivision ( l) reads in relevant part: "In addition to any other remedy or penalty provided by this Code, any violation of any provision of this Code is declared to be a public nuisance and may be abated by the City as a nuisance by means of a restraining order, injunction or any other order or judgment in law or equity issued by a court of competent jurisdiction. The City may seek injunctive relief to enjoin violations of, or to compel compliance with, the provisions of this Code or seek any other relief or remedy available at law or equity."
In support of its application, the City submitted 17 declarations and 47 exhibits demonstrating the following:
(A) In July 2001, Pacific leased the premises to Melikyan for three years with an option for a five-year extension. Mavaddat signed the lease on behalf of Pacific. Thereunder, the tenant was to obtain Pacific's written approval for all signs. Pacific retained the right to enter the premises to inspect its condition and the tenant's compliance with laws, ordinances, permit requirements, and the lease. The permitted use was "Medical Therapy Offices." The premises were to be used for the business known as Victoria's Health Care.
(B) Victoria's Health Care has a well-established reputation as a location where illicit activity, notably prostitution, occurs on an open and systematic basis. Defendant Spencer, whose chiropractic license was displayed on the wall in the reception area, was "known to the law enforcement community as a chiropractor engaged in several illegal massage parlor and prostitution operations in the City. . . ."
(C) Posing as customers, plainclothes Los Angeles police officers entered the premises and found a massage therapy business in violation of the permit and zoning requirements. Once the officers were inside the massage rooms, the therapists offered to perform acts of prostitution for an additional fee. The police found new and used condoms hidden in each room of the premises. Between February 2002 and May 2003, the police made 36 arrests at Victoria's Health Care for prostitution (Pen. Code, § 647, subd. (b)), operating a disorderly house (Pen. Code, § 316), being present in a house of prostitution (Pen. Code, § 315), supervising or directing a prostitute (Pen. Code, § 653.23), and unlawfully operating a massage parlor and performing massage therapy within 500 feet of a residential area without permits (L.A. Mun. Code, §§ 103.205, 103.205.1, 12.14.A.1(a), 12.70C).
(D) Despite repeated and continuous law enforcement efforts, including meetings with the owners' counsel, the police, and the city attorney's office, defendants continued to do business as usual. The city building and safety inspector investigated the premises in May 2002 and determined that it was being used to operate an unlawful massage parlor within 500 feet of a residential zone. The inspector issued an order to comply, notifying Pacific of the violations. The order gave Pacific until May 23, 2002, to discontinue the illegal use of the premises. Victoria's Health Care was still operating an unlawful massage business on the premises in January 2003.
(E) In a meeting held in January 2003 with counsel for Pacific, the deputy city attorney summarized the massage parlor and prostitution activity at the premises, and gave an overview of the City's nuisance abatement program and the Red Light Abatement Law. Counsel for Pacific thereafter instructed his client to serve defendants with a notice to perform covenant or surrender possession of the premises. Later that month, Pacific's attorney sent by facsimile a letter indicating that the tenant had requested a change in use from medical offices to business offices for a publication called "the Weekly Press," and promised that the tenants would comply with the lease and conduct a valid business on the site. Nonetheless, the illegal activity continued to occur at the premises as reflected by the arrest reports through May 2003.
2. The temporary restraining order.
Appellants opposed the issuance of a temporary restraining order. They argued that as lessor, and as manager of the lessor, neither Pacific nor Mavaddat respectively, operated or had an interest in Victoria's Health Care or the Weekly Press, nor engaged in or condoned the conduct associated with those businesses.
In his supporting declaration, Mavaddat averred that he was responsible for leasing the premises to Melikyan. Once informed of the activities occurring at Victoria's Health Care, appellants fully cooperated with law enforcement to remedy the situation. Mavaddat served a notice to quit on Melikyan on January 8, 2003. Appellants did not thereafter institute unlawful detainer proceedings against defendants because appellants never received notice or communication from anyone, or had any knowledge, that illegal activity continued at the premises. The first time appellants learned that the illegal activity had not ceased was when the City served them with the complaint in this action in July 2003.
On July 15, 2003, the trial court issued a temporary restraining order pending hearing on the injunction request. The court restrained appellants and defendants and their agents from owning, possessing, controlling, leasing, or operating a business which permits prostitution, a disorderly house, or a massage business without a valid permit.
3. The preliminary injunction.
In opposing the request for preliminary injunction, appellants argued that it was moot because, after the restraining order was issued, the illegal activity ceased and no longer posed a threat of harm. Declarations showed that Victoria's Health Care and the Weekly Press had vacated the premises the same day the restraining order was issued. Mavaddat changed the locks on the door and removed all signs. In September 2003, the district attorney and a police detective inspected the premises to verify that they were empty. Appellants asserted, "it is not now nor has it ever been the intent of Pacific, the owner of the subject property, [to] allow the subject premises to be used for any criminal and illegal activity."
The City replied that the issue was far from moot. The City's supporting evidence showed that signs advertising Victoria's Health Care and its "services" remained posted at the strip mall in September 2003. Although it appeared that the tenants had vacated, the status of the premises remained "in limbo." The original term of the lease did not expire for a year, after which the tenant had an option for five more years. Appellants had never provided the City with a lease termination. There had been no guarantees, evidence, or allegations that the property would not be leased to someone with ties to Spencer and Melikyan, or that appellants would disallow establishments like Victoria's Health Care or other such enterprises to operate at the premises. The City wanted relief to prevent appellants from allowing defendants or others like them from setting up an unlawful business at the property.
Following a hearing, the court issued the preliminary injunction on September 30, 2003. In so doing, the court stated that by "permitting their premises to be used as a house of prostitution for an extended period of time, [appellants] have shown that they are likely to continue to do so unless a preliminary injunction is issued by this court."
The preliminary injunction enjoins Pacific and Mavaddat and their agents from owning, leasing, maintaining, or managing Pacific's property in a manner that permits prostitution, or the performance of massage therapy thereon. The injunction orders appellants to cooperate with all law enforcement investigations and to comply with all laws and Los Angeles Municipal Code regulations. Appellants' notice of appeal was timely filed.
CONTENTIONS
Appellants contend that (1) the trial court abused its discretion in issuing a preliminary injunction because, as the premises had been vacated, there is no threat of future harm; and (2) as manager of a limited liability company, Mavaddat is immune from judgment. (Corp. Code, § 17158, subd. (a).)
DISCUSSION
I. The Preliminary Injunction. a. Standard of review. "`The law is well settled that the decision to grant a preliminary injunction rests in the sound discretion of the trial court.' [Citation.] `A trial court will be found to have abused its discretion only when it has "`exceeded the bounds of reason or contravened the uncontradicted evidence."'"[Citation.] `Further, the burden rests with the party challenging the [trial court's ruling on the application for an] injunction to make a clear showing of an abuse of discretion.' [Citation.]" ( Shoemaker v. County of Los Angeles (1995) 37 Cal.App.4th 618, 624.) Two interrelated factors are evaluated by the court in deciding whether to issue a preliminary injunction. The first is the "reasonable probability" that the plaintiff will prevail on the merits at trial. ( Robbins v. Superior Court (1985) 38 Cal.3d 199, 205-206.) "`The second is the interim harm that the plaintiff is likely to sustain if the injunction were denied as compared to the harm that the defendant is likely to suffer if the preliminary injunction were issued.' [Citation.]" ( Shoemaker v. County of Los Angeles, supra, 37 Cal.App.4th at pp. 624-625.) "An appeal from an order granting a preliminary injunction involves a limited review of these two factors. . . . If the trial court abused its discretion on either factor, we must reverse. [Citation.]" ( Shoemaker v. County of Los Angeles, supra, 37 Cal.App.4th at p. 625.) We determine if "the trial court's factual determinations, whether express or implied, are supported by substantial evidence. [Citation.] Thus, we interpret the facts in the light most favorable to the prevailing party and indulge in all reasonable inferences in support of the trial court's order. [Citations.]" ( Ibid.) The only element at issue in this case is the second. That is, appellants contend solely that there is no showing of a threat of future harm to the City. b. Overview of the Red Light Abatement Law. The purpose of Red Light Abatement Law is to abate a nuisance, a long-established and well-recognized exercise of the state's police power. ( People ex rel. Van de Kamp v. American Art Enterprises, Inc. (1983) 33 Cal.3d 328, 336, (dis. opn. of Reynoso, J.).) "Since its enactment in 1913, the Red Light Abatement Law has had as its principal purpose — as its name suggests — the abatement `of houses of ill fame . . . and other like places, where acts of lewdness and prostitution are habitually practiced and carried on as a business.' [Citation.]" ( Id. at p. 337.) Penal Code section 11225 provides that every building or place where acts of "prostitution . . . are held or occur, is a nuisance which shall be enjoined, abated, and prevented. . . ." Any violation of the Los Angeles Municipal Code is a nuisance which may be abated and enjoined. (L.A.M.C., § 11.00, subd. ( l).) Hence, the Red Light Abatement Law "creates a statutory nuisance per se. [Citation.] Although it is a civil action, it is penal when contrasted with nuisance actions brought under the Civil Code [citation], as it is a forfeiture proceeding based on illegal activity. [Citation.] A temporary injunction to abate may issue upon a showing of the existence of a nuisance to the satisfaction of the court [citation], but a building may not be closed thereby unless there is no other way to prevent recurrence or continuance of the nuisance. [Citation.] After trial, the injunction against the nuisance may become permanent and the building may be closed for a period of up to one year, during which time fixtures and movable property used in the business may be sold by an officer of the court. [Citation.]" ( People v. Adult World Bookstore (1980) 108 Cal.App.3d 404, 409.) c. The evidence supports the trial court's conclusion that there is a threat of future harm. Turning directly to the second factor in the preliminary injunction equation, appellants contend that the evidence does not establish "a threat of future harm [to the City] in that Pacific and Mavaddat would continue to allow the Property/Premises to be used for illegal and unlawful purposes[.]" (Italics added.) Appellants contend that the nuisance was abated "long before the preliminary injunction issued and there was no real threat that the same would be repeated or recur in the future." "[T]he Red Light Abatement Law cases hold the action should be dismissed when a nuisance has been voluntarily abated in good faith before the complaint was filed. [Citations.]" ( People ex rel. Gwinn v. Kothari (2000) 83 Cal.App.4th 759, 766, fn. 3, italics added.) Here, with respect to the timing, the complaint was filed in June 2003, but defendants did not vacate until the temporary restraining order was issued in July 2003. Furthermore, the evidence supports the trial court's factual conclusion that the activity is likely to recur without an injunction. "Injunctive relief will be denied if, at the time of the order of judgment, there is no reasonable probability that the past acts complained of will recur, i.e., where the defendant voluntarily discontinues the wrongful conduct." ( California Service Station etc. Assn. v. Union Oil Co. (1991) 232 Cal.App.3d 44, 57, citing Phipps v. Saddleback Valley Unified School Dist. (1988) 204 Cal.App.3d 1110, 1118.) The recurrence of the objectionable conduct is an important aspect of the second element of likelihood of future harm. "The mere fact that a defendant refrains from unlawful conduct during the pendency of a lawsuit does not necessarily preclude the trial court from issuing injunctive relief to prevent a posttrial continuation of the unlawful conduct. [¶] `[M]any courts have rejected arguments against injunctive relief where defendants changed their practices only in response to being sued.' [Citation.]" ( Aguilar v. Avis Rent A Car System, Inc. (1999) 21 Cal.4th 121, 133 ["`An employer that takes curative actions only after it has been sued fails to provide sufficient assurances that it will not repeat the violation to justify denying an injunction.' [Citations.]"].) "` [T]he voluntary discontinuance of alleged illegal practices does not remove the pending charges of illegality from the sphere of judicial power or relieve the court of the duty of determining the validity of such charges where by the mere volition of a party the challenged practices may be resumed.' [Citation.]" ( Marin County Bd. of Realtors, Inc. v. Palsson (1976) 16 Cal.3d 920, 929; Phipps v. Saddleback Valley Unified School Dist., supra, 204 Cal.App.3d at pp. 1118-1119 [compliance with a court order is not voluntary discontinuance of prohibited conduct].) In People ex rel. Hicks. v. Sarong Gals (1974) 42 Cal.App.3d 556, the operator of a beer bar in which lewd acts occurred challenged the issuance of an injunction on the ground, inter alia, that the nuisance had been voluntarily abated and so there was no evidence that the nuisance was continuing at the time the complaint was filed. ( Id. at p. 560.) The appellate court rejected this argument stating, "once the People presented evidence to show that lewd acts had taken place [on the premises], it was incumbent upon appellants to present evidence showing that the nuisance had been abated. [Citations.] It is a maxim of jurisprudence that `[a] thing continues to exist as long as is usual with things of that nature.' [Citation.] Appellants' reliance on People v. Goddard, [ 47 Cal.App. 730, 734] is misplaced. In Goddard, there was clear and uncontradicted evidence to show that the persons occupying the premises for immoral purposes vacated the premises three days before the filing of the complaint. No similar showing was made here." ( People ex rel. Hicks. v. Sarong Gals, supra, at p. 562; City of Signal Hill v. Owens (1984) 154 Cal.App.3d 118, 121.) Looking at the evidence in this case in a light most favorable to the City ( Shoemaker v. County of Los Angeles, supra, 37 Cal.App.4th at p. 625), it supports the City's contention that the abatement was not done in good faith as the unlawful conduct is likely to recur on appellants' property. The court had before it the City's evidence that the nuisance was a continuing and notorious problem, having persisted for at least 15 months before the City commenced this Red Light Abatement action. Appellants did nothing to stop the conduct in the face of the City's "Order to Comply," issued to Pacific in May 2002. While the City again informed appellants of the ongoing nuisance in January 2003, appellants did not take action to force Victoria's Health Care or the Weekly Press to vacate until the hearing on the temporary restraining order, after the abatement action had been filed. Appellants stopped the practices on their property only in response to the threat of an injunction. The record also shows that appellants demonstrated little concern about the conduct occurring on their property, leading to the inevitable conclusion that appellants would not prevent the conduct in the future without action by the City. The lease gave appellants the right to inspect their property to assure compliance with the lease and all laws and ordinances. Even a perfunctory check would have revealed that defendants' flagrant violation of the Penal Code and the Los Angeles Municipal Code persisted after appellants were given a second notification of the activity in January 2003. Appellants simply did not take the time to perform an inspection. Although Mavaddat declared he served a notice to quit in January 2003 in response to the City's warnings, he also admitted he never followed up to ascertain that Victoria's Health Care or the Weekly Press had actually quit the premises. The failure to verify that the premises had been vacated allowed the illegal activity to continue until the City filed the abatement action. Even after the premises was vacated in July 2003, appellants made no effort to manage their property; two and one half months after the temporary restraining order, appellants still had not removed the signs from the marquee or the windows, which continued to advertise Victoria's Health Care and its services. Furthermore, appellants have never provided the City with evidence that the lease with Melikyan, which still had a year to run plus a five-year option, had ever been formally terminated. By their inaction, appellants provide absolutely no assurance that they would prevent the conduct from recurring. Because the premises remained vacant at the time of the hearing, the trial court acted within its discretion in concluding the nuisance would continue and in issuing the preliminary injunction to prevent a posttrial continuation of the unlawful conduct.
See footnote, ante, page 1203.
II. The Liability of Limited Liability Company Managers.
"Courts repeatedly construed the injunctive relief provided by the [Red Light Abatement Law] as in personam in nature. [Citations.]" ( People ex rel. Gwinn v. Kothari (2000) 83 Cal.App.4th 759, 769 [ 100 Cal.Rptr.2d 29].) "[A] public nuisance abatement injunction is binding . . . on those whose actions are responsible for the nuisance; injunctions `may work to deprive the enjoined parties of rights others enjoy precisely because the enjoined parties have abused those rights in the past.' [Citation.]" ( Id. at p. 766.) A nuisance abatement injunction is effective also against anyone through whom the enjoined party may act. ( Ibid.) Thus, Penal Code section 11226 provides, "Whenever there is reason to believe that a nuisance as defined in this article is kept, maintained, or is in existence . . . the district attorney . . . or the city attorney . . . may . . . maintain an action in equity to abate and prevent the nuisance and to perpetually enjoin the person conducting or maintaining it, and the owner, lessee, or agent of the building or place, in or upon which the nuisance exists, from directly or indirectly maintaining or permitting it." (Italics added.) Therefore, as manager and hence agent of the property's owner (Corp. Code, § 17157, subd. (b)(2)), Mavaddat may be enjoined from maintaining the nuisance thereon. (Pen. Code, § 11226.)
Mavaddat contends however, that as manager of a limited liability company, he is immune from personal liability for any judgment of a court against the company he manages. We disagree.
The Legislature enacted the Beverly-Killea Limited Liability Company Act (the Act) in 1994. (Corp. Code, § 17000 et seq.) "`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 corporate shareholders [citation]. . . .'" ( PacLink Communications Internat., Inc. v. Superior Court (2001) 90 Cal.App.4th 958, 963 [ 109 Cal.Rptr.2d 436]) while maintaining the attributes of a partnership for federal income tax purposes. (Assem. Com. on Rev. Tax., Analysis of Sen. Bill. No. 469 (1993-1994 Reg. Sess.) as amended Aug. 9, 1994.)
The limited liability company "`consist[s] of at least two "members" [citation] who own membership interests [citation]. The company has a legal existence separate from its members . . . but . . . the members . . . actively participate in the management and control of the company [citation]' [citation]" ( PacLink Communications Internat., Inc. v. Superior Court, supra, 90 Cal.App.4th at p. 963), "[u]nless the articles of organization state that the management is vested in a manager or managers." (9 Witkin, Summary of Cal. Law (2004 supp.) Partnership, § 152, p. 338.)
The company's articles of organization may, but need not, provide that the business and affairs of the company are to be managed by one or more managers. (Corp. Code, § 17151, subd. (a).) The managers need not be members of the company. ( Ibid.) "Every manager is an agent of the limited liability company for the purpose of its business or affairs. . . ." (Corp. Code, § 17157, subd. (b)(2).)
The manager owes the same fiduciary duties to the limited liability company and to its members as a partner owes to a partnership and to the partners of the partnership. (Corp. Code, § 17153.)
While generally members of a limited liability company are not personally liable for judgments, debts, obligations, or liabilities of the company "solely by reason of being a member" (Corp. Code, § 17101, subd. (a)), they are subject to liability under the same circumstances and to the same extent as corporate shareholders under common law principles governing alter ego liability and are personally liable under the same circumstances and extent as corporate shareholders. (§ 17101, subd. (b); 9 Witkin, Summary of Cal. Law, supra, Partnership, § 140, pp. 328-329.) Also, the Act "do[es] not relieve a member from liability arising from (1) the member's tortious conduct, or (2) the terms of a member's written guarantee or contractual obligation." (9 Witkin, supra, Partnership, § 140, p. 329, citing Corp. Code, § 17101, subd. (c).) By contrast, the Act does not contain a similar provision specifically exposing managers to personal liability.
Mavaddat focuses on Corporations Code section 17158, subdivision (a) to contend that the trial court erred in issuing the nuisance abatement injunction against him because that section exempts him from personal liability for any judgments against or obligations of the limited liability company he manages.
Corporations Code section 17158 reads, "No person who is a manager or officer or both a manager and officer of a limited liability company shall be personally liable under any judgment of a court, or in any other manner, for any debt, obligation, or liability of the limited liability company, whether that liability or obligation arises in contract, tort, or otherwise, solely by reason of being a manager or officer or both a manager and officer of the limited liability company." (§ 17158, subd. (a), italics added.) A manager may agree to become personally responsible for the limited liability company's debts and liabilities by written contract, or if the operating agreement or articles so specify. ( Id., subd. (b).)
Although research has revealed no California case to address this issue, we hold that whereas managers of limited liability companies may not be held liable for the wrongful conduct of the companies merely because of the managers' status, they may nonetheless be held accountable under Corporations Code section 17158, subdivision (a) for their personal participation in tortious or criminal conduct, even when performing their duties as manager.
In interpreting a statute, we apply long-established principles: "`The fundamental rule . . . is to ascertain the intent of the Legislature in order to effectuate the purpose of the law. . . . In doing so, we first look to the words of the statute and try to give effect to the usual, ordinary import of the language, at the same time not rendering any language mere surplusage. The words must be construed in context and in light of the nature and obvious purpose of the statute where they appear. . . . The statute "`must be given a reasonable and commonsense interpretation consistent with the apparent purpose and intention of the Legislature, practical rather than technical in nature, and which, when applied, will result in wise policy rather than mischief or absurdity. . . .'"' [Citations.]" ( Klajic v. Castaic Lake Water Agency (2001) 90 Cal.App.4th 987, 997 [ 109 Cal.Rptr.2d 454]; see Dyna-Med, Inc. v. Fair Employment Housing Com. (1987) 43 Cal.3d 1379, 1386-1387 [ 241 Cal.Rptr. 67, 743 P.2d 1323].)
The plain language of Corporations Code section 17158, subdivision (a), above quoted, expresses a circumscribed protection from liability. The phrase declaring managers exempt from liability is qualified by the phrase "solely by reason of being a manager. . . ." Reading the language of section 17158, subdivision (a) as a whole, it is clear that managers were not intended to be held liable for the wrongs their companies commit simply because of their status as managers. The qualifying clause, however, does not preclude personal liability for a manager's own conduct. At least one commentator appears to agree that managers may be held liable for their personal wrongful conduct. (Forming Operating California Limited Liability Companies (Cont.Ed.Bar 2005) § 6.28, pp. 212-213.)
Our construction is consistent with Corporations Code section 17155. Section 17155 allows a limited liability company to provide for indemnification for its managers against judgments, settlements, penalties, fines, or expenses, "incurred as a result of acting in that capacity" (§ 17155, subd. (a)), and to purchase and maintain insurance for its managers against liability asserted against or incurred by the manager "in that capacity or arising out of the person's status as a manager." (§ 17155, subd. (b).) If, as Mavaddat contends, section 17158, subdivision (a) cloaked him in absolute immunity, then there would be no need for indemnification or insurance, and no need for section 17155 to exist. Our construction of section 17158, subdivision (a) is compatible with the Act's statutory scheme as a whole.
We disagree with Mavaddat that Corporations Code section 17158, subdivision (a) grants "absolute immunity" to him as manager "with respect to any defalcations" of the business he manages for whatever reason. Such a reading is overbroad. Had the Legislature intended such unconditional immunity, it could easily have written the statute that way. We decline to redraft the statute to grant absolute immunity where the Legislature has conspicuously omitted to do so. ( City of Santa Cruz v. Municipal Court (1989) 49 Cal.3d 74, 88 [ 260 Cal.Rptr. 520, 776 P.2d 222].)
Although the statute is clear on its face, we find support for our conclusion in other statutes and principles. Managers of limited liability companies may be held responsible under Penal Code section 387. Section 387 shields managers of limited liability companies from liability "solely by reason of being a manager," but then makes those managers guilty of a public offense for conduct in which they have "management authority" and "significant responsibility . . . that includes actual authority" for the wrongful conduct. (§ 387, subds. (b)(1) (d).) Given that the Legislature exposed limited liability company managers to liability under section 387 for their responsibility or actual authority for a public offense, it is reasonable to conclude that managers would not be shielded from personal liability by Corporations Code section 17158, subdivision (a) when they have actual authority over, or significant responsibility for, the wrong.
Penal Code section 387, subdivision (a) provides that a limited liability company, "or person who is a manager with respect to a product, facility, equipment, process, place of employment, or business practice, is guilty of a public offense . . ." if that company or manager has "actual knowledge of a serious concealed danger" that is subject to regulation, and fails immediately, to inform the regulatory authorities and warn affected employees. (§ 387, subd. (a)(1).) Subdivision (d) then states: "No person who is a manager of a limited liability company shall be personally liable for acts or omissions for which the limited liability company is liable under subdivision (a) solely by reason of being a manager of a limited liability company. A person who is a manager of a limited liability company may be held liable under subdivision (a) if that person is also a `manager' within the meaning of paragraph (1) of subdivision (b)." (Italics added.) Such a manager is one who has "management authority" and "[s]ignificant responsibility . . . that includes actual authority" for the safety of the product, practice or research. (Pen. Code, § 387, subd. (b)(1)(A) (1)(B).)
A similar conclusion was reached by the Iowa Supreme Court based on a comparable statutory scheme for limited liability companies. In Iowa, "[e]xcept as otherwise provided in this chapter or by written agreement of a member, a member or manager of a limited liability company is not personally liable solely by reason of being a member or manager of the limited liability company under any judgment, or in any other manner, for any debt, obligation, or liability of the limited liability company, whether that liability or obligation arises in contract, tort, or otherwise." (Iowa Code Ann. § 490A.603, subd. (1), italics added.) In Estate of Countryman v. Farmers Co-op. Assn. (Iowa 2004) 679 N.W.2d 598, the Iowa Supreme Court rejected the argument that the manager of a limited liability company was protected from liability for damages caused by an explosion of propane gas the company had delivered to the decedents' home. The Iowa Supreme Court stated, "this approach is contrary to the corporate model and agency principles upon which the liability of LLC members and managers is based, and cannot be found in the language of the statute. We acknowledge that the `participation in tortious conduct' standard would not impose tort liability on a manager for merely performing a general administrative duty. [Citations.] There must be some participation. [Citation.] The participation standard is consistent with the principle that members or managers are not liable based only on their status as members or managers. [Citation.] Instead, liability is derived from individual activities. Yet, a manager who takes part in the commission of a tort is liable even when the manager acts on behalf of a corporation. [Citations.] The [Iowa limited liability company act] does not insulate a manager from liability for participation in tortious conduct merely because the conduct occurs within the scope and role as a manager." ( Id. at p. 604, citing 3A Berger et al., Fletcher Cyclopedia of the Law of Private Corporations (perm. ed. 2002) §§ 1135, 1137, pp. 200-219.)
We agree with this reasoning. In California, Corporations Code section 17158, subdivision (a) does not preclude holding managers liable for their participation in wrongful conduct when acting on behalf of the company.
By way of analogy ( PacLink Communications Internat., Inc. v. Superior Court, supra, 90 Cal.App.4th at p. 963 [Act incorporates many provisions of the Corporations Code]), it has long been the law elsewhere, that although officers cannot be held liable solely by virtue of their corporate title, they can and are held personally liable for actively participating in criminal and tortious conduct. (See United States v. Park (1975) 421 U.S. 658, 674 [ 44 L.Ed.2d 489, 95 S.Ct. 1903] [jury properly instructed that the defendant's guilt cannot be "solely on the basis of [his] position in the corporation;" but properly when the defendant "`had a responsible relation to the situation,' and `by virtue of his position . . . had . . . authority and responsibility' to deal with the situation"].) In California, "[d]irectors or officers of a corporation do not incur personal liability for torts of the corporation merely by reason of their official position, unless they participate in the wrong or authorize or direct that it be done." ( United States Liab. Ins. Co. v. Haidinger-Hayes, Inc. (1970) 1 Cal.3d 586, 595 [ 83 Cal.Rptr. 418, 463 P.2d 770]; see 5 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, §§ 34-35, pp. 94-95; Corp. Code, § 204, subd. (a)(10).) Corporate officers in California can be held criminally answerable for the acts of corporations in which they are "` personally a participant. . . .' [Citations.]" ( Sea Horse Ranch, Inc. v. Superior Court (1994) 24 Cal.App.4th 446, 457 [ 30 Cal.Rptr.2d 681], italics added, citing Otis v. Superior Court (1905) 148 Cal. 129, 131 [ 82 P. 853] People v. International Steel Corp. (1951) 102 Cal.App.2d Supp. 935, 942-943 [226 P.2d 587]; see People v. Conway (1974) 42 Cal.App.3d 875, 884-886 [ 117 Cal.Rptr. 251] [president "was in a position to control the activities of the [corporation] and thus could be held criminally liable for false advertising"].)
It is fair to assume that the Legislature was aware of the prior cases concerning corporate officer and director liability when it enacted section 17158, subdivision (a) in the Corporations Code, and intended to codify existing case law when it utilized similar language in section 17158, subdivision (a) to describe the liability of limited liability company managers. ( City of Santa Cruz v. Municipal Court, supra, 49 Cal.3d at p. 88.) Certainly, there is no indication that the Legislature intended to confer more protections for managers of limited liability companies than for corporate officers and directors. Therefore, consistent with analogous principles of corporate law and based on the words of the statute itself, we hold that managers may not be held liable for tortious or criminal wrongs committed by the company merely because of their status as managers, but may be personally liable for their participation in those wrongs.
Turning to Mavaddat, the preliminary injunction was not imposed on him solely because of his status as manager of Pacific, but because of his personal involvement in allowing the nuisance to persist. By his own admission, Mavaddat occupied a prominent and influential position at Pacific. Mavaddat declared he had extensive knowledge and control over Pacific's affairs, is "thoroughly familiar with all of its operations and business. . . ." He selected and authorized counsel to appear at the meeting with the City's attorney. Mavaddat had full responsibility for and authority over the property where the nuisance occurred. He leased the premises to Melikyan, and his name appears on the lease as the agent of Pacific. He retained the right under the lease to inspect the premises to determine its compliance with the lease and all laws and ordinances. It was Mavaddat who served the notice to perform covenant and yet failed thereafter to inspect the premises to ascertain whether defendants had complied with the notice. Mavaddat served the notice to quit, arranged to have the locks changed and signs removed after defendants moved out, and intended to arrange for another tenant to lease the premises. Yet the sign for Victoria's Health Care remained on the strip mall's main pylon sign in September 2003. Mavaddat had the knowledge and the responsibility to prevent the nuisance. He is not insulated from liability by virtue of Corporations Code section 17158, subdivision (a) for his personal involvement in aiding and abetting the nuisance and for failing to abate it, which thereby forced the City to bring this Red Light Abatement action. The preliminary injunction was properly issued against Mavaddat.
DISPOSITION
The order is affirmed.
Klein, P.J., and Croskey, J., concurred.