Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
APPEAL from orders of the Superior Court of Los Angeles County Super. Ct. No. BC328398, Robert L. Hess and David P. Yaffe, Judges.
King & Miller, King, Cheng & Miller, David P. King and Gregory N. Albright for Defendant and Appellant.
Pillsbury Winthrop Shaw Pittman, William B. Freeman, Nathan M. Spatz and Brian N. Gurwitz for Plaintiff and Respondent.
Ezra Brutzkus Gubner and Richard L. Mann for Respondent Eric Shaw
KITCHING, J.
INTRODUCTION
Plaintiff and respondent DBS Bank, Ltd. (DBS Bank) filed suit against Nikota USA, Inc. (Nikota) and Richard Han (Han), among others, for alleged breach of a credit agreement. Defendant and appellant Han, the president and chief executive officer of Nikota, was the guarantor of the credit agreement.
Contemporaneous with the commencement of this litigation, DBS Bank filed a motion for appointment of a receiver, respondent Eric Shaw (Shaw), which the trial court granted upon stipulation by the parties. The trial court authorized Shaw to collect and liquidate Nikota’s collateral, which was used to secure the credit agreement. The trial court also authorized Shaw to turn over to DBS Bank certain funds recovered from the sale of the collateral.
Two years after appointment of the receiver, Han filed a motion to relieve Shaw as the receiver and to appoint a substitute in his place. The trial court (per Judge Yaffe) denied the motion. Later, Han filed a motion for appointment of a co-receiver, which the trial court (per Judge Yaffe) also denied. Individually and derivatively on behalf of Nikota, Han then filed a motion for leave to file a cross-complaint against Shaw, Nikota and DBS Bank. The trial court (per Judge Hess) denied the motion for leave to file the cross-complaint. Han purports to appeal each of the foregoing orders.
We dismiss the appeal. Han purports to appeal from orders which are not appealable. An order denying a motion to relieve and replace a receiver is not an appealable order. (Title Ins. & Trust Co. v. Calif. Etc.ornia Development Co. (1911) 159 Cal. 484, 487 (Title Ins.).) Likewise, an order denying leave to file a cross-complaint is not an appealable order. (Marx v. McKinney (1943) 23 Cal.2d 439, 443-444; Security Pacific National Bank v. Adamo (1983) 142 Cal.App.3d 492, 496.)
Otherwise, we decline to treat Han’s appeal as a petition for writ relief. The trial court is actively engaged in supervising the scope of the receiver’s duties and addressing whether the receiver has violated any court orders. This court is not better positioned than the trial court to supervise the work of the receiver. The trial court is well-equipped to resolve any issues related to whether the receiver acted improperly. Allowing the trial court to complete its supervision of the receiver’s work will result in a more complete record of the receiver’s conduct and will serve to assist this court in any future review of this case. Moreover, Han has not demonstrated that he does not have an adequate remedy at law. (See Olson v. Cory (1983) 35 Cal.3d 390, 400-401.)
FACTUAL AND PROCEDURAL BACKGROUND
1. The Credit Agreement with DBS Bank
In 2001, Han formed Nikota to import power tools and dirt bikes. At all relevant times, Han was Nikota’s president, chief executive officer and a shareholder. Nikota’s biggest customer was Pep Boys.
According to Han’s declaration, in 2004, Nikota had a loan from Sinopac Bank and was indebted to it for approximately $8 million. At some point, Nikota and DBS Bank initiated a relationship to provide Nikota with alternate financing.
In 2004, DBS Bank retained New York Credit Inc. to conduct a collateral audit of Nikota. The receiver in this case, Shaw, was the president of New York Credit Inc.
According to Shaw’s deposition testimony, a collateral audit shows if a company’s books and records are up to date, whether the taxes were paid, the amount of inventory and whether there were accounts receivable.
In October 2004, Nikota entered into a credit agreement with DBS Bank, pursuant to which DBS Bank made a $15 million commitment to Nikota. DBS Bank paid Nikota’s $8 million debt to Sinopac. The credit agreement had a maturity date of October 8, 2005.
Shaw’s company, New York Credit Inc., was appointed the “Administrator” under the credit agreement. As long as any of Nikota’s obligations remained unpaid, section 5.04(d) of the credit agreement obligated Nikota to “employ the Administrator, [New York Credit Incorporated,] . . . to provide collateral management services to [Nikota], including cash collection and Collateral reporting assistance.” Thus, Shaw was familiar with Nikota’s business operations prior to becoming the receiver in this case.
Section 5.03(b)(iv) of the credit agreement provided: “If at any time the Effective Amount of Revolving Loans plus the Effective Amount of any L/C Obligations shall exceed the Borrowing Base, the Borrower, upon becoming aware of such excess, shall immediately prepay the outstanding principal amount of the Revolving Loans and any L/C Advances, in an amount equal to such excess and, if necessary, shall also cash collateralize outstanding Letters of Credit.” It is undisputed that it was the responsibility of New York Credit Inc. to determine Nikota’s “borrowing base.” In addition, New York Credit Inc. determined the value of Nikota’s inventory and was responsible for collecting accounts receivable.
Pursuant to a separate security agreement, Nikota granted DBS Bank a security interest in substantially all of Nikota’s assets, including inventory, equipment, accounts receivable, and intellectual property.
2. DBS Bank Files Suit
On February 7, 2005, DBS Bank filed suit against Nikota for breach of the credit agreement. DBS Bank alleged that Nikota breached the credit agreement because the amount of credit extended to Nikota exceeded the borrowing base.
DBS Bank alleged: “Specifically, on or about December 9, 2004, an Event of Default arose under the Credit Agreement because the Effective Amount of all Revolving Loans plus the Effective Amount of all L/C Obligations exceeded the aggregate Commitments by $484,981.63 (the ‘Over Advance’). Pursuant to Section 5.03(b)(i) of the Credit Agreement, the Over Advance constituted a Mandatory Prepayment that should have been repaid immediately by Nikota. Because Nikota failed to repay this Mandatory Over Advance, on February 1, 2005, DBS accelerated all of Nikota’s obligations to DBS. . . . [¶] As of the date of this Complaint, there is presently due, owing and unpaid under the Credit Agreement, the principal amount of $5,568,102.02; together with interest . . . .”
3. Trial Court Appoints Shaw Nikota’s Receiver
Two days after it filed suit, on February 9, 2005, DBS Bank filed an ex parte application for appointment of a receiver to oversee and control the operations of Nikota. DBS Bank also sought a temporary restraining order to prevent dissipation of Nikota’s assets. DBS Bank sought to appoint Shaw as the receiver.
Nikota supported the application. The order approving appointment of Shaw as receiver included the following stipulation signed by counsel for Nikota: “The appointment of Eric Shaw as receiver, the imposition of a temporary restraining order and all other provisions set forth herein are approved as to both form and content.”
Pursuant to the order appointing Shaw as receiver, the trial court authorized Shaw to, among other things: (1) seize, manage and control all of Nikota’s assets; (2) liquidate all of Nikota’s collateral; (3) take possession of Nikota’s bank accounts; (4) receive payment of all of Nikota’s account receivables; and (5) compromise all debts.
Paragraph 10 of the order appointing Shaw as receiver provided: “Monies coming into [the] possession of the Receiver and not expended for the purposes herein authorized may be turned over to [DBS Bank] for payment of Nikota’s obligations to [DBS Bank] sued upon in [the] Complaint, without further order of this Court, at the Receiver’s sole discretion, subject to such further orders as this Court may hereinafter issue as to its disposition.”
Paragraph 11 of the order appointing Shaw as receiver provided that Shaw could employ agents, accountants and attorneys to “administer the Receivership Estate, and to protect the Collateral as [Shaw] shall deem it necessary.”
Paragraph 13 of the order appointing Shaw as receiver provided that Shaw could institute ancillary proceedings as necessary to obtain possession and control of Nikota’s collateral, and that Shaw could engage the services of attorneys if necessary.
4. Receiver Files Ex Parte Application to Commence Litigation
On May 5, 2005, Shaw filed an ex parte application for an order authorizing the receiver to conduct discovery and initiate legal proceedings which may not be related to taking possession or control of Nikota’s collateral and thus outside the scope of the order appointing the receiver. The receiver stated in the application that he determined that certain legal proceedings may need to be initiated concerning unfair businesses practices against Nikota. The receiver also stated that prior to his appointment, Nikota shredded many relevant documents and that he need to conduct discovery to obtain copies of these documents.
The trial court denied the receiver’s ex parte application for an order authorizing the receiver to initiate legal proceedings. In order to file a lawsuit, the court ordered the receiver to make a showing justifying a particular lawsuit and why it was likely to benefit the receivership estate. The court was also concerned about a purported lack of notice to creditors of Nikota other than DBS Bank.
5. DBS Bank Files Suit Against Han
As noted, Han personally guaranteed repayment of Nikota’s debt. On November 29, 2005, DBS Bank filed the operative first amended complaint and named Han as a party defendant. DBS Bank alleged that Han breached the personal guarantee.
6. The Receiver’s Status Report
On January 30, 2006, Shaw, as Receiver, filed an interim status report. There, Shaw explained that he initially tried to run Nikota as a going concern. According to the report, “[t]he Receiver, however, quickly realized that Nikota’s principals had left the company in such operational disarray; he could not effectively operate Nikota as a going concern. The Receiver determined that he was required to liquidate its assets in the most efficient manner possible so that a distribution could be realized by Nikota’s creditors.
The Receiver reported: “To date, the receivership estate has been successfully operated. The Receiver has generated $7,051,336 in income through December 30, 2005. Of that amount, $5,000,000 was from the auction sale of Nikota’s inventory, intellectual property, returns, furniture, fixtures, equipment, spare parts, etc., which took place on March 24, 2005. The expenses of the receivership estate through December 30, 2005 is $1,858,117. Thus, the Receiver was able to reduce the debt owned to DBS Bank from approximately over $9 million before the Receiver was appointed by approximately $4 million. With further successes in the pending litigation, including the one against Pep Boys, the Receiver hopes to further reduce the debt owed to DBS Bank.”
The receiver also summarized the state of Nikota’s current litigation as follows: (1) the Bandak matter in Los Angeles Superior Court filed by Nikota on November 9, 2004; (2) the Heli Group, Inc. matter in Los Angeles Superior Court filed by the receiver on June 20, 2005; and (3) the China Export & Credit Insurance Corporation matter in Los Angeles Superior Court filed by China Export against Nikota on June 2, 2005, and later dismissed without prejudice.
In the Heli matter in which Han was a named defendant, the trial court overruled Han’s demurrer where Han argued that the receiver was not authorized to commence the litigation. In the matter filed against Nikota’s accountant, in which Han was named as a party defendant, the trial court overruled Han’s demurrer where Han argued that the receiver was not authorized to commence the litigation.
7. Entry of Default Judgment Against Nikota
On February 1, 2006, the trial court entered a default judgment against Nikota in this case. Han filed a separate answer on February 8, 2006.
8. Han Files Substitution of Attorney
On November 7, 2006, Han filed a substitution of attorney form. The record does not contain a substitution of attorney form showing what law firm was representing Nikota and for how long.
9. Receiver Transfers Additional Funds to DBS Bank
On March 1, 2006, the receiver distributed $200,000 to DBS Bank.
10. Han’s Motion to Relieve and Replace Shaw as Receiver
On January 16, 2007, Han filed a motion to relieve Shaw as receiver and to appoint a substitute receiver. Han also sought an order instructing the new receiver to: take all steps to restore Nikota to good standing as a California Corporation; file a motion to set aside the default against Nikota; retain independent counsel to defend, investigate and prosecute certain claims made by DBS Bank.
Shaw and DBS Bank filed separate oppositions. The trial court denied the motion to appoint a substitute receiver. The court, however, did increase the receiver’s undertaking bond amount to $100,000 from $25,000 based upon the amount of funds being handled by the receiver. In addition, the court ordered that the receiver was not to transfer any proceeds to DBS Bank except upon a duly noticed motion, with statutory notice to all claimants.
In the minute order, the trial court explained: “The court appointed Eric Shaw as receiver without any knowledge that Shaw had been previously involved in the transaction between plaintiff and defendant that gave rise to the receivership. If that information had been disclosed to the court, the court would have inquired further to determine whether Shaw was a neutral mutually agreed to by the parties to collect the defendant’s receivables for the benefit of both parties, or whether he was a watch dog or spy for the plaintiff whose presence was imposed upon the defendants as a condition of the loan. [¶] The court does not believe the recent testimony of Han contained in his declaration dated January 11, 2007. Han had a duty, as president of Nikota, to object to the appointment of Shaw as a receiver if there was any basis for such an objection. Han’s excuses for not doing so are neither persuasive nor credible. [¶] Han presents no evidence that Shaw has done anything wrong, or even questionable, in his activities as receiver since his appointment. Han’s current objections to the receiver, none of which were made before the receiver was appointed, are obviously the result of plaintiff’s amendment to the complaint to seek recovery against Han personally for the unpaid indebtedness due to plaintiff from defendant Nikota. The court accords them no credibility.”
11. Han’s Motion for Leave to File Cross-Complaint
On February 6, 2007, individually and derivatively as a shareholder of Nikota, Han filed a motion for leave to file a cross-complaint against Shaw, Nikota and DBS Bank for, among other causes of action, breach of contract, breach of fiduciary duty, negligent loan administration, conversion and unfair business practice. Han sought leave to file six causes of action in his individual capacity and at least 10 causes of action in a derivative shareholders action.
DBS Bank opposed the motion. DBS Bank asserted that Han acted in bad faith by filing the motion for leave to amend. Shaw filed a separate opposition to the motion for leave to amend.
The trial court denied the motion for leave to file a cross-complaint. In its minute order, the court set forth six reasons for the denial: (1) the court did not give permission to sue the receiver; (2) the motion for leave was a collateral attack on the order appointing the receiver; (3) the claims against third parties were not related to the original writ; (4) the claims of Han individually were in direct conflict with the purported derivative claims on behalf of Nikota because Han’s attempt to avoid personal liability was counter to the interests of Nikota in holding him liable as a personal guarantor on the obligations to DBS Bank; (5) Han did not give an adequate explanation for the lengthy delay in asserting these claims; and (6) there was no adequate allegation of the prerequisites for filing a derivative lawsuit.
12. Han’s Ex Parte Application for Further Orders Regarding the Receivership
On March 8, 2007, Han filed an ex parte application for further orders regarding the receivership. There, Han sought to notify the trial court that the receiver was opposing the efforts by Han to enable Nikota to defend itself, and that Han allegedly had evidence that Shaw’s counsel misrepresented facts at the prior hearing on the motion to relieve Shaw as receiver and appoint a substitute. Han sought the appointment of a co-receiver to investigate Nikota’s potential defenses in this case.
Shaw and DBS filed separate oppositions. The trial court denied the ex parte application.
13. Notice of Appeal
On April 27, 2007, Han filed a notice of appeal from the order denying the motion to relieve Shaw; the order denying the motion for leave to file a cross-complaint and the order denying the ex parte application to appoint a co-receiver.
14. Proceedings Following the Notice of Appeal
a. Motion for Certificate of Indebtedness
On January 11, 2008, Shaw filed a motion for an order authorizing execution of a receiver’s certificate of indebtedness to DBS Bank in the amount of $125,000. The receiver explained that the receivership estate did not have sufficient funds to pay on-going litigation costs in the action against Pep Boys.
Han filed an opposition. Han asserted that the receiver had bankrupted the receivership estate. Han also asserted that the receiver had filed litigation in violation of the court’s May 5, 2005, order.
The trial court denied the receiver’s motion. The trial court ruled that the receiver did not have authority to transfer to DBS Bank any funds that are necessary for the administration of the receivership estate. The trial court also ordered DBS Bank to return to the receiver upon demand any funds that the receiver distributed to DBS Bank which the receiver states he needs to administer the receivership estate. The court also explained that it “can find no indication that the lawsuits being prosecuted by the receiver are being prosecuted for the benefit of any creditor of Nikota other than [DBS Bank], or for the potential benefit of any shareholder of Nikota.” The court ordered the receiver, if he contends otherwise, to submit evidence to support the existence of all actual and potential beneficiaries of the estate.
b. Motion to Terminate Receivership
On January 17, 2008, Han filed a motion for an order terminating the receivership. Han requested that the receiver provide a full and complete account of all the receiver’s activities. Han asserted that Shaw exhausted the receivership estate by transferring the $4 million to DBS Bank and pursuing unauthorized litigation matters with legal costs in excess of $580,000.
Shaw filed an opposition. There, Shaw asserted that Han had not established that Shaw did anything improper as receiver. Shaw asserted that he acted within the scope of authority when he filed the lawsuits referenced above. Shaw asserted that the lawsuits were authorized by the order appointing him a receiver because those actions were in pursuit of Nikota’s collateral.
In its order, the trial court required the receiver to submit evidence showing whether the receivership estate had any beneficiaries other than DBS Bank. The trial court granted any such persons leave to file briefs on the issue of terminating the receivership. The trial court then set an April 24, 2008 hearing date on the issue of whether the receivership should be terminated.
CONTENTIONS
Han contends that the trial court erred by denying the motion to relieve and replace Shaw, denying the motion for leave to file a cross-complaint, and denying the ex-parte application for appointment of a co-receiver. As noted, we conclude that this appeal must be dismissed because Han has purported to appeal from orders which are not appealable.
Han requests, however, that we treat his appeal as a petition for writ relief. The record shows that the trial court is actively supervising the work of the receiver, which counsels this court that we should not deem this appeal to be a request for writ relief. In addition, upon a final judgment, the record will likely present a more complete history of the receiver’s conduct.
With respect to the order denying the motion for leave to file the purported compulsory cross-complaint, we decline to treat the appeal as a petition for writ relief. The trial court entered a detailed order denying leave upon a noticed motion. Han has not presented a justifiable basis for this court to exercise its discretion to review the merits of this unappealable order given that Han has an adequate remedy at law, an appeal after final judgment. (See Olson v. Cory, supra, 35 Cal.3d at p. 400-401.)
Accordingly, we decline to treat the appeal as a petition for writ relief. We order the appeal dismissed.
DISCUSSION
1. The Order Denying the Motion to Replace Shaw as Receiver and the Order Denying the Ex-Parte Application to Appoint a Co-Receiver are not Appealable Orders
The right to appeal from a trial court order is wholly statutory. (Barnes v. Litton Systems, Inc. (1994) 28 Cal.App.4th 681, 683.) Code of Civil Procedure section 904.1 (section 904.1) sets forth two possible bases for appealing an order regarding a receivership. The first statutory basis is section 904.1, subdivision (a)(7), which authorizes an appeal from “an order appointing a receiver.” (Italics added.) The second statutory basis is set forth in section 904.1, subdivision (a)(2), which authorizes an appeal from “an order made after a judgment.”
In Title Ins., the Supreme Court explained: “In the case at bar the appellant seeks to appeal from an order (made before judgment) refusing to vacate a prior order appointing a receiver. An order appointing a receiver is, since the amendment of 1897 to section 963 of the Code of Civil Procedure, the subject of direct appeal. The statute does not, however, authorize an appeal from an order refusing to vacate the appointment of a receiver. It would seem clear, therefore, that the attempted appeal now under discussion does not come within the terms of the statute and that, if the appellant has any right to a review of the order complained of, it must be by means of an appeal from such final judgment as may hereafter be entered in the action.” (Title Ins., supra, 159 Cal. at pp. 486-487; see also: Albertson v. Warriner (1962) 199 Cal.App.2d 560, 564 [order denying motions to discharge a receiver are not appealable]; and Hammond Lumber Co. v. Timourian (1932) 122 Cal.App. 448, 450 [order denying motion to discharge receiver and pay over money held by receiver is not appealable].)
In this case, Han is not appealing from an order appointing a receiver. In addition, the trial court has not entered judgment. Instead, Han is purporting to appeal an order seeking to vacate Shaw’s appointment and an order denying an ex parte application for appointment of a co-receiver. Neither order under review is an order appointing a receiver or an order after judgment. Thus, there is no statutory basis for this appeal.
Han responds that the order seeking to relieve Shaw and the order denying appointment of a co-receiver are appealable pursuant to Raff v. Raff (1964) 61 Cal.2d 514 (Raf). We reject this argument. In Raff, the court held that a post-judgment order denying a motion to replace a receiver was appealable. (Id. at p. 518.) Thus, in Raff, the appellant was appealing an order made after judgment. Raff does not apply here because the trial court has not entered a judgment. In conclusion, the orders at issue are not appealable orders.
2. The Order Denying Han Leave to File the Purported Compulsory Cross- Complaint is Not an Appealable Order
It is settled that a party may not appeal from an order denying leave to file a cross-complaint. (Marx v. McKinney, supra, 23 Cal.2d at pp. 443-444; Security Pacific National Bank v. Adamo, supra, 142 Cal.App.3d at p. 496.) Han presents no authority suggesting otherwise. Instead, Han may appeal the order after final judgment. (Silver Organizations Ltd. v. Frank (1990)217 Cal.App.3d 94, 97.) Thus, the order at issue is not an appealable order.
Han relies upon Jun v. Myers (2001) 88 Cal.App.4th 117 (Jun), for the proposition that collectively the orders at issue in this appeal had the cumulative effect of depriving Nikota of access to the courts and violating its right to due process. We reject this assertion. First, Han and Nikota are parties to this action and have not been denied access to the courts. In addition, the Jun case is readily distinguishable. There, the appeal was taken from an order dismissing a compliant in intervention, which was an appealable order. (Id. at p. 122.)
3. The Trial Court Is Actively Supervising the Work of the Receiver and This Court will Not Deem the Appeal to Be a Petition for Writ Relief
Han asserts that this Court should exercise its discretion to review the receivership orders as if presented in a petition for a writ of mandate. We decline to deem Han’s appeal to be a petition for writ relief.
Han raises a number of arguments as to why this court should review the orders refusing to remove the receiver. He asserts that Shaw acted improperly by allegedly terminating Nikota’s attorneys and allowing a default judgment to be taken. He also asserts that the receiver improperly transferred funds to DBS Bank in violation of a court order. He further asserts that the receiver improperly retained counsel and commenced litigation in violation of a prior court order. Finally, Han asserts that Shaw was biased in favor of DBS Bank.
The record shows, however, that the trial court is directly involved with supervising the work of the receiver, both before and after Han filed the notice of appeal in this case. The trial court is well-equipped to address and resolve any issues related to whether Shaw acted properly by instituting litigation. Given that the trial court is actively involved with this issue, has requested additional briefing and set a hearing date, we declined to exercise our discretion to treat this appeal as a writ in order to examine whether the receiver has engaged in any impermissible conduct.
4. Because the Trial Court is Well-Equipped to Resolve Any Pleading Issues, We Decline to Treat the Purported Appeal of the Denial of the Motion for Leave to Amend as a Request for Writ Relief
Han asserts that the trial court erred by denying leave to file the purported compulsory cross-complaint. We refuse to deem Han’s appeal as a petition for a writ of mandate. We find no reason to review this ruling at this stage of the proceedings.
Han presented the issue of leave to file a cross-complaint on a duly noticed motion. The court held a hearing and permitted oral argument. The court then entered a detailed order denying leave for six separate reasons. Han has an adequate remedy at law by an appeal following final judgment.
Moreover, judicial economy will not be served by deeming this appeal to be a petition for writ relief. The proceedings in the trial court will likely improve the record and the briefing on the issue of whether the receiver has violated any trial court orders or otherwise acted improperly. (See Morehart v. County of Santa Barbara (1994) 7 Cal.4th 725, 746.)
DISPOSITION
The appeal is dismissed. Plaintiff is awarded costs on appeal.
We concur:
KLEIN, P. J., ALDRICH, J.
Han declared that in December 2004, he cured the claimed alleged Over Advance by paying DBS Bank the sum of $490,000.