Van Kleef v. Azria

1

PAUL VAN KLEEF, Plaintiff and Respondent, v. LUBOV AZRIA, as Executor, etc., Defendant and Appellant.

B314772

California Court of Appeals, Second District, Second Division

August 25, 2022

NOT TO BE PUBLISHED

APPEAL from an order of the Superior Court of Los Angeles County No. 19STCV28303, Maurice A. Leiter, Judge. Affirmed.

Jeffer, Mangels, Butler &Mitchell and Vatche J. Zetjian for Defendant and Appellant.

Affeld Grivakes, David W. Affeld, and Damion D. D. Robinson for Plaintiff and Respondent.

HOFFSTADT, J.

A person who signed contracts ceding his controlling percentage over a company was subsequently fired by the company's new owner. The new owner subsequently died. The person sued the owner's estate and others. The estate participated in the litigation for nearly two years before moving to compel arbitration. The trial court denied the motion to compel on the grounds that (1) the claims at issue in the lawsuit fell outside of the pertinent arbitration agreement, and (2) the estate had waived its right to seek arbitration. We conclude that the trial court's second rationale was correct, and have no occasion to reach the first. Accordingly, we affirm.

FACTS AND PROCEDURAL BACKGROUND

I. Facts^[1]

A. Clean Concept, LLC (the LLC)

In 2015, Paul Van Kleef (plaintiff) and Robert McFarlane (McFarlane) invented what they deemed to be an "innovative pest control product." It was a bug zapper. In early 2016, plaintiff and McFarlane, as 50/50 partners, formed the LLC as a vehicle for manufacturing and distributing their so-called "Zapplight." The LLC was created in Nevada, but its principal place of business was Los Angeles, California.

B. Max Azria (Max)^[2] acquires a controlling interest in the LLC, and uses it to raid the LLC and fire plaintiff

Plaintiff and McFarlane needed capital to expand the LLC. The LLC's online sales consultant, Yasmine Hanane (Hanane), recommended Max as a potential source of funding. At that time, Max was Hanane's mentor as well as her paramour. Max was married to Lubov Azria (Lubov).

In the spring of 2016, plaintiff and McFarlane spoke with Max. In those discussions, Max agreed to invest $2 million in the LLC and to pay its day-to-day operating expenses.

Based on those promises, plaintiff, McFarlane, and Max in June 2016 signed an operating agreement for the LLC that (1) named Max, plaintiff, and McFarlane as "members" of the LLC; (2) granted Max a controlling 68 percent ownership interest in the LLC, with plaintiff and McFarlane each retaining a minority 16 percent interest in the LLC; and (3) named Max, plaintiff, McFarlane, and Hanane as "managers" of the LLC.

In November 2016, the parties executed a first amended operating agreement. That further agreement added Hanane as a "member," with Max retaining a 52 percent controlling interest, Hanane being granted a 24 percent interest, and plaintiff and McFarlane each retaining a 12 percent interest. Plaintiff asserts that he signed this new agreement "under extreme financial duress."

Max never made the promised, $2 million investment in the LLC.

Max thereafter proclaimed himself to be a "god" who would thenceforth, as the LLC's controlling member, make all decisions for the LLC. In that vein, Max used the LLC's assets and funds to finance his other business ventures and for nonbusiness purposes, usurped the LLC's business opportunities, and paid himself (and Hanane) exorbitant salaries.

In late November 2017, Max terminated plaintiff's employment with the LLC, which was governed by a separate "services agreement" that the parties executed in June 2016. Max provided no reason for the termination, and did not pay plaintiff the severance package required for terminations without cause under the services agreement.

After his termination, plaintiff in April 2018 and November 2018 invoked his right as a member of the LLC to inspect the LLC's books and records; his requests were denied.

C. Max dies, and Lubov assumes control of the LLC

Max passed away on May 6, 2019. By virtue of the original operating agreement, Lubov-as Max's spouse-became a nonvoting member with Max's 52 percent of the LLC's interest.

In August 2019, Hanane convened an "emergency meeting" of the LLC's remaining members. Two of the voting members- Hanane and McFarlane-voted to convert Lubov's nonvoting interest into a voting interest, thereby making her the controlling member of the LLC. Plaintiff objected to the meeting on the basis of improper notice, so did not vote. According to plaintiff, McFarlane sanctioned this maneuver because Max's and Lubov's lax control over the LLC had also allowed McFarlane to raid the LLC for his "personal benefit."

II. Procedural Background

A. Pleadings

1. Plaintiff's operative complaint

After filing an initial complaint in August 2019, plaintiff filed a 269-paragraph operative first amended complaint in September 2019,^[3] and later a supplemental complaint adding allegations against Lubov. In 20 different claims, plaintiff sued the LLC, Max, Hanane, McFarlane, and Lubov as well as the "Estate of Max Azria" (Max's estate) (collectively, defendants). Plaintiff alleged that he would "amend his complaint to substitute the executor, administrator, or trustee of [Max's estate] once the identity of the person becomes known."

Plaintiff brought some claims in his individual capacity, and other claims as derivative claims on behalf of the LLC.

As an individual, plaintiff (1) brought two claims based on a breach of contract-namely, (a) all defendants' failure to allow plaintiff to inspect the LLC's books and records (claim No. 3), and (b) Lubov's conduct in "causing" the LLC's members to vote to make her a voting member (claim No. 8); (2) brought five tort or tort-related claims-namely, (a) three breach of fiduciary duty claims against Max, Max's estate, Hanane, McFarlane, and Lubov for misappropriating the LLC's assets and opportunities, for elevating Lubov to be the voting, controlling member of the LLC, and for oppressing the LLC's minority owners (claim Nos. 4, 7 and 9), (b) a claim that Max, Max's estate, and Hanane fraudulently induced plaintiff to sign the June 2016 operating agreement (claim No. 2), and (c) a claim for declaratory relief that defendants committed these various torts and breaches of contract (claim No. 1); (3) brought a claim for an equitable accounting of the LLC's assets (claim No. 13); and (4) brought six employment-related claims against the LLC premised on breach of contract, tort, or Labor Code violations-namely, (a) failure to pay earned wages in accordance with the services agreement (claim No. 14), (b) failure to provide itemized wage statements (claim No. 15), (c) failure to indemnify plaintiff for employment-related expenses (claim No. 16), (d) breach of the services agreement (claim No. 17), (e) wrongful termination in violation of public policy (claim No. 18), and (f) retaliation under Labor Code section 1102.5 (claim No. 19), which was also brought against Max and Max's estate.

On behalf of the LLC, plaintiff (1) brought two claims for breach of fiduciary duty against Max, Max's estate, Hanane, McFarlane, and Lubov-namely, (a) for misappropriating the LLC's assets and opportunities, and (b) for elevating Lubov to a voting, controlling member (claim Nos. 5 and 10); (2) brought a claim against all defendants for conversion of the LLC's funds as well as a claim against Max, Max's estate, and Hanane for money had and received (claim Nos. 11 and 12); and (3) brought a claim against Max, Max's estate, and Hanane for civil theft under Penal Code section 496 (claim No. 20).

As relief, plaintiff seeks compensatory and punitive damages. In other pleadings, plaintiff estimated that his individual compensatory damages total $36,671,150 and that the LLC's compensatory damages total $80 million.

2. Responsive pleadings

a. From Max's estate

Max's estate retained counsel, which was the same counsel Lubov retained.^[4] Through its counsel, Max's estate acknowledged receipt of plaintiff's operative complaint; answered that complaint, and in so doing, alleged 24 affirmative defenses; and filed a case management statement jointly with other defendants demanding a jury trial.

b. From the other defendants

The LLC, Hanane, and McFarlane answered the operative complaint jointly with Max's estate, and Lubov answered separately. The LLC, Hanane, and McFarlane each filed crosscomplaints against plaintiff.

B. Postcomplaint litigation

1. Preliminary injunction(s)

After Lubov wrote to the LLC's members in September 2020 informing them that she was going to wind down the LLC and liquidate its assets, plaintiff sought-and the trial court issued-a preliminary injunction prohibiting Lubov, the LLC, and the LLC's other members from "taking any action to liquidate, dissolve, or wind up [the LLC]" or "causing [the LLC] to pay any asserted debts to [Lubov] outside the ordinary course of business." In December 2020 and again in June 2021, the trial court modified the preliminary injunction to require Lubov and the LLC to grant plaintiff access to the LLC's offices, its cloud computer system, and its online data.

Max's estate filed oppositions to plaintiff's motion for the injunction as well as its subsequent modifications.

2. Discovery

Plaintiff served extensive discovery on defendants. Max's estate also propounded form interrogatories jointly with the other defendants.

Max's estate served responses to plaintiff's discovery requests, including his requests for document production requests for admissions, form interrogatories, and special interrogatories. The attorney for Max's estate endorsed each of those responses, and Lubov verified the estate's supplemental responses to plaintiff's ...