Leong v. Havens

ARNOLD LEONG, Plaintiff and Respondent, v. WARREN HAVENS, Defendant and Appellant.

A147027

COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION FIVE

August 23, 2017

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Alameda County Super. Ct. No. 2002-070640)

Arnold Leong and Warren Havens have been involved, for over 15 years, in contentious litigation regarding the ownership and control of two entities holding licenses issued by the Federal Communications Commission (FCC or the Commission). Twelve years after the action was compelled to arbitration, the trial court appointed a receiver for the assets and granted a preliminary injunction restraining Havens from interfering with the receivership (the Receivership Order). (See Code Civ. Proc., § 1281.8.)¹ Havens appeals from the Receivership Order, pressing a litany of complaints. We affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

In 1999 and 2001, Leong and Haven entered into written limited liability company agreements establishing Verde Systems LLC (Verde) (formerly Telesaurus-VPC LLC)and Telesaurus Holdings GB LLC (Telesaurus). The primary business of both Verde and Telesaurus is the acquisition and transfer of valuable radio spectrum licenses for the development of wireless networks.² According to the written limited liability company agreements (the LLC Agreements), Leong holds a 49.9 percent interest in each entity, while Havens owns the remaining 50.1 percent. The LLC Agreements also name Havens as "the initial" manager with "full and complete authority" to manage the entities' affairs.

Leong alleges he invested over a million dollars in the enterprise under an oral agreement that he and Havens would share ownership and control "50-50." Per the alleged agreement, Havens would only temporarily have sole management authority, to qualify for a FCC bidding discount, but Leong was to have an equal right of control in the near future. In 2001, Havens disavowed the existence of any such agreement. Thereafter, Leong maintains Havens excluded him from decision making and provided only extremely limited financial information.³ And, despite the licenses yielding substantial returns on investment, Havens has not distributed any profit to Leong.

In 2002, Leong filed suit against Havens, seeking declaratory relief, dissolution, an accounting, and damages on breach of contract, fraud, and breach of fiduciary duty causes of action. In October 2003, Havens compelled Leong to arbitrate, pursuant to arbitration provisions contained in the LLC Agreements.⁴ The LLC Agreements also contain a provision concerning choice of law, which reads in relevant part: "This Agreement and any and all disputes, controversies, claims, or differences . . . arising outof, relating to, or having any connection with this Agreement (including any question relating to its existence, validity, interpretation, performance, or termination) shall (a) be governed by and construed in accordance with the [Delaware Limited Liability Company Act] and other laws of the State of Delaware applicable to contracts made or to be performed entirely within such state and without giving effect to any choice of law or similar principles that would lead to the selection of the law of another jurisdiction . . . ."

On April 22, 2015, in an administrative proceeding before the FCC in which Havens, Verde, and its wholly owned subsidiary Environmentel LLC (Environmentel) were parties, Administrative Law Judge Richard L. Sippel issued an order (the Sippel Order) finding that Havens, Verde, and Environmentel, had engaged in repeated "egregious" behavior before the Commission, including threatening members of the FCC staff, disregarding the ALJ's "clearly understandable" orders, ignoring deadlines, disregarding summary decision procedures, filing frivolous motions and interlocutory appeals, and making false or misleading statements. The ALJ found that Havens, Verde, and Environmentel "not only filed [a] Motion for Summary Decision in bad faith, but also engaged in patterns of egregious behavior that . . . warrant a separate proceeding in which several issues as to the character qualification of [Havens] and the [Havens companies] to hold Commission licenses are examined." The Sippel Order certified "such deliberate transgressions, together with an account of [Havens's] history of disruptive disregard of orders and otherwise contemptuous behavior, to the Commission for determination as to whether a separate proceeding should be designated to decide whether [Havens] and his companies qualify to hold [FCC] licenses." Following entry of the Sippel Order, Havens sought reconsideration and filed an interlocutory administrative appeal.

In May 2015, Leong responded to the Sippel Order by filing an ex parte application, in the Alameda County Superior Court, to appoint a receiver for Verde, Telesaurus, Environmentel, Environmentel 2 LLC (Environmentel-2), Intelligent Transportation and Monitoring Wireless LLC (Intelligent), Atlis Wireless LLC (Atlis), V2G LLC (V2G), and Skybridge Spectrum Foundation (Skybridge) (collectively, theReceivership Entities)⁵ and for entry of a temporary restraining order. Citing sections 564, subdivision (b)(9), and 1281.8, subdivision (b) of the Code of Civil Procedure, Leong argued a receivership was necessary to protect his valuable interests in the Receivership Entities and the FCC licenses. Leong contended the licenses were in "immediate jeopardy" if a receiver was not appointed immediately because the Sippel Order could trigger "a significant risk of imminent harm" due to limited transferability of the entities' FCC licenses in the event the FCC issued a "hearing designation order." Leong also insisted the Receivership Entities were "in imminent danger of insolvency" should they lose their licenses.

Havens initially opposed the receivership motion by arguing there was no emergency. He conceded that if a hearing designation order is entered, the entities would be unable to freely alienate their licenses thereafter, but insisted due process protections ensure the FCC will not " 'freeze' or prohibit[] the assignment or transfer of licenses for many months, if not years." He also asserted Leong was merely a competitor attempting to steal the licenses and that a receivership could work more harm than good.⁶

At a May 26, 2015 hearing on the motion, the Honorable Frank Roesch stated his inclination to appoint a receiver but took the matter under submission and ordered the parties to meet and confer regarding a proposed order. Before an order was entered, Havens removed the case to federal court on the theory it presents a FCC licensing dispute—purportedly triggering federal question jurisdiction. After finding the matter was "fundamentally a state court dispute" concerning only issues of business ownership and control, the federal district court remanded the matter to Alameda County Superior Court on an expedited basis.

On remand, Leong was granted leave to file his second amended complaint, which named six new parties (Environmentel, Environmentel-2, Intelligent, V2G, Atlis, and Skybridge) as Havens's alter egos.⁷ The following causes of action were alleged against all defendants except Verde and Telesaurus: (1) fraud; (2) breach of contract (against Havens alone); (3) breach of fiduciary duty; (4) breach of the implied covenant of good faith and fair dealing; (5) unjust enrichment; and (6) minority shareholder suppression. Appointment of a receiver, dissolution, an accounting, and other equitable remedies were also sought.

Leong also renewed his motion for appointment of a receiver and issuance of a preliminary injunction, relying on Code of Civil Procedure sections 564, subdivisions (b)(1) and (b)(9), and 1281.8, subdivision (b).⁸ Leong again asserted the Sippel Order remained a threat to his interests, in that the FCC could issue a hearingdesignation order at any time "to commence proceedings on Havens'[s] (and the [Receivership Entities']) qualifications to hold licenses." Leong asked the trial court to take judicial notice of certain FCC records, including the Sippel Order and the FCC Enforcement Bureau's opposition to Havens's motion for reconsideration.⁹ Leong also presented alternative evidence of gross mismanagement, in the form of declarations, showing Havens's failure to prepare and provide annual reporting of financial information and Havens's assignment or donation of licenses owned by Verde and Telesaurus to the other Receivership Entities.

In his opposition, Havens maintained Delaware law "governs" the dispute but did not explicitly direct the trial court to the choice of law clause in the LLC Agreements or point out any relevant difference between California and Delaware law. Havens and the Receivership Entities again argued the Sippel Order did not constitute an emergency, that appointment of a receiver would be risky because Havens possesses unique business acumen, and that, because Havens would retain equitable ownership interest, appointment of a receiver would not necessarily insulate the licenses from revocation. Havens also asserted a receiver should not be appointed until after the arbitrator decided Leong's disputed ownership claims.¹⁰

At an August 11, 2015 hearing, the motion for appointment of a receiver was granted, but formal entry of the order was delayed until October 5, 2015. The court explained, "If the arbitration has been completed before that time or if the parties agree to do something differently, I would consider a request to reverse course and not issue that order." On October 1, 2015, the arbitration remained ongoing and the proposed date of entry of the order...