Camden Sys. v. 409 N. Camden

323 Cal.Rptr.3d 562

CAMDEN SYSTEMS, LLC, Plaintiff and Appellant,

v.409 NORTH CAMDEN, LLC et al., Defendants and Respondents.

B324716

Court of Appeal, Second District, Division 7.

Filed July 23, 2024

APPEAL from a judgment of the Superior Court of Los Angeles County, Barbara M. Scheper, Judge. Affirmed. (Los Angeles County Super. Ct. No. 21STCV11537)

Law Offices of David M. Wolf and David M. Wolf, Los Angeles, for Plaintiff and Appellant.

Kaufman Dolowich Voluck, Vincent S. Green and Steve R. Segura, Los Angeles, for Defendants and Respondents.

FEUER, J.

Camden Systems, LLC appeals from the judgment entered in favor of defendants 409 North Camden, LLC and its individual members after the trial court granted defendants’ summary judgment motion. Camden Systems’s complaint sought declarations that certain actions taken by members of 409 North Camden, including distributions to the members, were invalid, and it sought return of the distributed funds. In its motion, 409 North Camden acknowledged that some of the actions taken by its members at the company’s February 2021 annual meeting were invalid in light of defective notice of the meeting, but it argued that at its February 2022 annual meeting a majority of the members ratified the prior actions, thereby curing any defect in the 2021 notice. The trial court agreed and granted summary judgment in favor of 409 North Camden.

On appeal, Camden Systems contends that the members’ ratification of the actions taken at the February 2021 meeting did not cure the defective notice because members of limited liability companies, unlike corporations, may not ratify prior actions taken on behalf of company. However, the California Revised Uniform Limited Liability Company Act (Corp. Code, § 17701.01 et seq.; the Act),¹ which governs the management and operation of limited liability companies, provides that a limited liability company generally "shall have all the powers of a natural person in carrying out its business activities." (§ 17701.05.) Because a natural person has the power to ratify acts taken on the person’s behalf, limited liability companies likewise may, through their members, ratify actions previously taken on behalf of the company. In addition, the court did not err in upholding the resolution adopted by the majority of 409 North Camden’s members to indemnify its mem- bers and advance defense costs and expenses incurred in the lawsuit filed by Camden Systems. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

A. The Formation of 409 North Camden and Camden Systems’s Purchase of a Membership Interest

In 1963 a group of six friends purchased a two-story office building in Beverly Hills. From 1963 until 2016 the purchasers (and some of their heirs) owned the building as tenants in common without any formal partnership agreement. In 2016 the owners, still composed of the original purchasers and their heirs, formed 409 North Camden as a manager-managed limited liability company and transferred ownership of the office building to the company. At the time of its formation, 409 North Camden had 13 members. Jeffrey Young, the son of one of the original owners, was elected as the manager of the company.²

In 2020 Camden Systems became a member of 409 North Camden by purchasing the membership interests of three existing members. As of October 2020, there were 10 members of the company, all of whom—except for Camden Systems—were the building’s original purchasers or their family members. Camden Systems owned a 22.5 percent interest in the company, comprising the largest single membership interest.

B. The Disputed Actions

1. Distributions of "Available Cash"

The operating agreement of 409 North Camden provides that "[t]he Company shall make quarterly distributions of Available Cash at such times and in such amounts as determined by the Manager, subject to the approval of the Members."³ Since September 2016 the company distributed approximately $773,000 in Available Cash to its members. Each distribution was authorized by a majority of the members. The members did not authorize any distributions after Camden Systems became a member in July 2020.

2. Actions taken at the February 2021 annual meeting

On January 11, 2021 Young sent the members of 409 North Camden a notice that the company’s annual meeting would take place on February 20, 2021. The notice included copies of three documents Young indicated would be discussed at the meeting regarding potential building upgrades or modifications. The notice stated an agenda and annual report would be distributed "a few days" prior to the meeting. No other topics of discussion or potential action items were mentioned in the notice.

On February 11, 2021 Young sent the company’s members a meeting agenda for the upcoming meeting, which listed four action items that members would vote on at the meeting: (1) re-election of Young as manager;⁴ (2) withholding cash distributions for the first quarter of 2021; (3) authorization of payment of expenses in excess of $10,000; and (4) approval of a "[m]anagement assistance fee" of $1,500 per month to member Kenneth Young.

On February 15, 2021 an attorney for Camden Systems sent a letter to Jeffrey Young complaining that Young had failed to produce certain corporate records Camden Systems had previously requested. Camden Systems’s attorney asserted the records were necessary for his client to prepare for the upcoming member meeting, and therefore, it intended to object to any business taking place at the February 20 meeting without having first received the records. Camden Systems also provided a notice to Young that it intended to object to any business being conducted by the members at the February 20 meeting because the January meeting notice did not state the general nature of the business to be transacted, as required by the Corporations Code. Further, although the February 11 notice specified the business to be transacted at the meeting, the notice was untimely because it was sent less than 10 days before the meeting, in violation of the Code.

The annual meeting was held as scheduled on February 20, 2021. Joseph Shabani, the manager of Camden Systems, attended the meeting and reiterated Camden Systems’s objections as stated in its attorney’s letter and notice. The four action items listed in the meeting agenda were voted on and approved by a majority of the members who were present. Shabani, on behalf of Camden Systems, abstained from each vote.

C. Initiation of This Lawsuit and 409 North Camden’s Response

On March 25, 2021 Camden Systems, in its individual capacity and derivatively on behalf of 409 North Camden, filed this action against 409 North Camden (as a nominal defendant) and its members (member defendants),⁵ alleging causes of action for breach of fiduciary duty, breach of contract, and declaratory relief. The allegations in the complaint were based, in part, on the alleged impropriety of the authorizations for cash distributions made between 2016 and July 2020 and the actions taken at the February 2021 meeting.

On May 3, 2021, prior to responding to the complaint, the member defendants adopted a written resolution regarding the pending litigation. The resolution stated in its recitals that after Camden Systems became a member of 409 North Camden, Shabani and his attorney told Young that Shabani "expect[ed] to buy" the remaining interest in 409 North Camden and " ‘things will not go well for you if you refuse to sell the property to him.’ " Shabani had also contacted individual members and threatened to sue them if they did not sell their interests in the company to him. According to the resolution, the member defendants were "uniform in their decision that they do not want to sell their interest in the Company or the Property at all and certainly not to Shabani under these circumstances." The member defendants resolved that 409 North Camden would not make upcoming cash distributions and would instead reserve all excess funds for defense of the lawsuit. In addition, the member defendants agreed 409 North Camden "shall indemnify and hold the Manager and the Members harmless" against the lawsuit and shall "advance defense costs and expenses accordingly." The resolution was dated May 3, 2021 and signed by all members of the company except Camden Systems.

Over the next year, the trial court sustained multiple demurrers to the complaint and amended complaints with leave to amend, and on February 15, 2022 Camden Systems filed its operative third amended complaint.

On February 8, 2022, after the demurrer to the second amended complaint was sustained but before Camden Systems filed the third amended complaint, Young sent an agenda for the upcoming annual meeting to the members of 409 North Camden. The agenda explained the status of the lawsuit and that there were remaining allegations "involving the adequacy and timeliness of our prior meeting agendas," which "were not sent out 10 days before our meetings. Camden Systems is seeking to have any action items approved during those years be deemed null and void by the court. This action item is to RATIFY the members’ prior actions, one by one, from 2020 and 2021…. Such ratification will be retroactive to the date of the February 2020 and February 2021 meetings." The agenda then listed the specific items to be ratified, including the cash distributions, the ’four actions taken at the February 2021 meeting, and the indemnification resolution.

The annual meeting was held on February 19, 2022. The members approved by majority vote the ratification of the prior cash distributions, the actions taken at the February 2021 meeting, and the indemnification resolution. Shabani, on behalf of Camden Systems, voted no or abstained from each vote, except the ratification of the 2021 vote to pay expenses in excess of $10,000, for which Shabani voted yes. The meeting minutes do not state that Shabani or Camden Systems objected to the ratification process prior to or...