Reid v. Rosenberg CA2/3 ( 2021 )

Filed 10/26/21 Reid v. Rosenberg CA2/3
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION THREE
BRIGETTE REID, B307918
Plaintiff and Appellant, Los Angeles County
Super. Ct. No. BC512275
v.
SHERYL ROSENBERG,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of Los
Angeles County, Richard L. Fruin, Judge. Reversed.
Barnhill & Vaynerov, Maxim Vaynerov; Walton & Walton,
L. Richard Walton and Javad Navran for Plaintiff and Appellant.
Gordon Rees Scully Mansukhani, Gary J. Lorch, Don
Willenburg; Tuchman & Associates and Aviv L. Tuchman for
Defendant and Respondent.
_______________________________________
INTRODUCTION
This is a dispute between two sisters, plaintiff and
appellant Brigette Reid and defendant and respondent Sheryl
Rosenberg, regarding SD Sheryl Brigette, a limited liability
company (the LLC) formed for their benefit by their father,
Stanley Diller. Around the time of Diller’s death in January 2012,
Rosenberg produced an operating agreement purporting to name
her as the sole member and sole manager of the LLC,
notwithstanding Diller’s assignment of his membership interest
in the LLC to Rosenberg and Reid in equal shares. Reid filed this
action seeking, as pertinent here, declaratory relief concerning
ownership and control of the LLC.1 Specifically, Reid claims the
operating agreement produced by Rosenberg is fraudulent and,
even if genuine, is invalid.
The trial court granted Rosenberg’s motion for summary
adjudication of the declaratory relief claim, finding that no
triable issues of material fact existed regarding the validity of the
operating agreement. The court subsequently granted
Rosenberg’s second motion for summary adjudication of Reid’s
remaining claims and entered judgment in favor of Rosenberg.
Reid contends the court erred in summarily adjudicating
the declaratory relief claim because a reasonable trier of fact
could find that the operating agreement is fraudulent.
Specifically, although Rosenberg stated that the operating
agreement was prepared by Diller’s attorney and signed by her at
1Reid’s complaint includes several other causes of action alleging
breaches of fiduciary duty by Rosenberg during her tenure as
managing member of the LLC during the past nine years.
2
Diller’s direction in August 2011, Reid produced evidence that the
operating agreement was not signed at that time. Further, Reid
contends that Rosenberg actually signed the operating agreement
near the time of Diller’s death in order to take full control of the
LLC following his passing.
We agree that disputes of material fact exist regarding the
legitimacy of the operating agreement and therefore conclude the
court’s summary adjudication of the declaratory relief claim is in
error. Further, we conclude that even if the operating agreement
is not fraudulent, Rosenberg lacked the legal authority to act
unilaterally in adopting the LLC’s first written operating
agreement. And because the court’s adjudication of Reid’s
remaining claims is inextricably intertwined with its findings on
the declaratory relief claim, we reverse the judgment in its
entirety and remand for further proceedings.
FACTS AND PROCEDURAL BACKGROUND
1. The Parties
Diller was a successful real estate investor and
businessman. He was diagnosed with pancreatic cancer in May
2011 and died on January 4, 2012.
Diller and his first wife had two daughters, Rosenberg and
Reid. Rosenberg is married to Michael.2 They have four adult
children, including Edmundo and Benjamin. Reid has three adult
children.
2We refer to Rosenberg’s husband and her sons by their first names to
avoid confusion. No disrespect is intended.
3
2. The LLC
Diller formed the LLC in August 2011 with the assistance
of his attorney, Jance Weberman. Weberman filed articles of
organization for the LLC with the Secretary of State. The articles
of organization provided that the LLC would be managed by all
its members.
Diller funded the LLC with three assets: (1) his 60 percent
partnership and corporate interests in Jedamist, which controls
the ground lease of a seven-story medical office building just
south of Beverly Hills; (2) his 37 percent interest in WDW, a joint
venture that owns and operates a convalescent hospital in
Downey, and (3) a commercial property in Long Beach. Diller, as
trustee of his living trust, executed a grant deed and a series of
assignments transferring the assets to the LLC. He also accepted
the assignments on behalf of the LLC. Finally, Diller assigned his
interest in the LLC, including his membership interest, equally
to Rosenberg and Reid. He provided that half of each sister’s
interest (i.e., a 25 percent interest in the LLC) was to be allocated
to her children.3 The documents effecting these transfers were
signed by Diller and notarized on August 23, 2011.
3 The assignment states, in pertinent part, “Subject to the terms and
conditions of the Operating Agreement of SD SHERYL BRIGETTE,
LLC, a California Limited Liability Company, Stanley Diller, Trustee
of the Stanley Diller Living Trust dated November 14, 1995 (“Diller”)
hereby assigns and transfers separate shares of all Diller’s rights, title
and interest in SD SHERYL BRIGETTE, LLC, including its
membership interest as follows: [¶] 1) 50% to Sheryl Rosenberg, a
married woman as her sole and separate property … . One half or 50%
of SHERYL ROSENBERG’s share shall be divided equally between her
children … . [¶] 2) 50% to BRIGETTE MARSHAK REID, a married
4
Two additional documents bearing the date of August 23,
2011 were produced during this litigation. The first is an
acceptance of Diller’s assignment of all rights, title and interest
in the LLC, which is signed and dated by Rosenberg as the
managing member of the LLC. The second is an operating
agreement for the LLC “as of August 23, 2011” signed only by
Rosenberg and providing that Rosenberg is the sole member and
sole manager of the LLC. Neither document is notarized.
3. The Probate Litigation and Settlement
After Diller’s passing, City National Bank, as trustee of
Diller’s trust, filed a probate action against the LLC and others
who had received assets from Diller just before his death. As
pertinent here, the action sought to invalidate Diller’s transfer of
assets to the LLC and return those assets to the trust in order to
fund the payment of estate and gift taxes. The Internal Revenue
Service became involved. After several years of extensive
litigation, all parties to the probate action entered into a
settlement agreement in 2016. Throughout the litigation,
Rosenberg acted as the sole managing member of the LLC.
4. The Current Litigation
4.1. Reid’s Complaint
Reid initiated this action in 2013. The operative third
amended complaint contains five claims: declaratory relief,
breach of fiduciary duty (individually), breach of fiduciary duty
woman as her sole and separate property … . One half or 50% of
BRIGETTE MARSHAK REID[’s share] shall be divided equally
between her children … .”
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(derivatively, on behalf of the LLC), accounting and constructive
trust, and judicial expulsion.
Pertinent here, Reid’s first cause of action seeks
declaratory relief that (1) she is a 50 percent owner, member, and
manager of the LLC pursuant to Diller’s assignment of his
interest in the LLC, and (2) the operating agreement signed by
Rosenberg only and purporting to give Rosenberg 100 percent of
the membership and management responsibilities of the LLC is
null and void. Specifically, Reid alleges that Diller assigned his
membership interest in the LLC in equal parts to Reid and
Rosenberg. And because the articles of organization filed with the
Secretary of State in August 2011 stated that the LLC would be
managed by all its members, both Reid and Rosenberg are
members as well as managing members of the LLC,
notwithstanding the operating agreement signed only by
Rosenberg which purports to give 100 percent of the LLC’s
membership to Rosenberg and to name her as the sole managing
member of the LLC. Reid further alleges that Rosenberg did not
sign the operating agreement at Diller’s direction in August 2011,
as Rosenberg claims, but rather created the operating agreement
at some point near the time Diller died in order to take total
control of the LLC after his death.
Reid’s other causes of action allege a variety of breaches of
fiduciary duty by Rosenberg such as failing to make distributions
from the LLC to Reid, taking unauthorized actions on behalf of
the LLC, and using LLC funds to pay for expenses relating to
other business ventures and personal legal fees.
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4.2. Summary Adjudication of the Declaratory Relief
Claim
Rosenberg filed two motions for summary judgment and/or
summary adjudication. The first motion focused largely on the
declaratory relief claim but also asserted that all of Rosenberg’s
actions as managing member of the LLC were both in the best
interest of the LLC and its members and were, in any event,
entitled to deference under the business judgment rule.
As to the declaratory relief claim, Rosenberg asserted Diller
intended that she would be the sole member and manager of the
LLC as set forth in the operating agreement prepared by Diller’s
attorney and approved by Diller. Further, when Diller assigned
his interest in the LLC to Rosenberg and Reid, the assignment
was made “subject to the terms and conditions of the operating
agreement.” By virtue of the operating agreement, Rosenberg
contended, Reid holds only an “economic interest,” not a
membership interest, in the LLC. As such, Reid holds no right to
vote or manage the LLC.
Reid opposed the motion. Primarily, she argued that the
operating agreement signed by Rosenberg was not signed in
August 2011, as Rosenberg said. Reid noted that draft operating
agreements—drafts providing that Reid and Rosenberg were
equal members and managers of the LLC—had been circulated
among members of the Rosenberg family in October and
December of 2011. Consistent with those drafts, Rosenberg filed a
statement of information with the Secretary of State in early
December 2011, stating that both Reid and Rosenberg were
members and/or managers. Reid also noted that the version of
the operating agreement signed by Rosenberg was facially
inconsistent with Diller’s assignment. By the assignment, the
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sisters received equal and identical interests in the LLC from
their father. But the operating agreement stripped Reid (as well
as her children and Rosenberg’s children) of all interest in the
LLC by giving Rosenberg 100 percent of the membership interest
and making no provision for distributions to anyone else.
With respect to her other claims, Reid asserted mainly that
Rosenberg improperly used LLC funds to pay attorney’s fees
relating to personal legal services for herself or other members of
her family.
The court granted Rosenberg’s motion for summary
adjudication with respect to the declaratory relief claim. After
reviewing the evidence, including statements by family members
and Diller’s attorney, the court found that Diller “intended and
implemented a plan to have Sheryl Rosenberg to be the sole
Managing Member of [the LLC].” Further, the court found “[t]he
language [of the assignments] would suggest that both daughters
were gifted a membership interest (as well as an economic
interest), but the membership interest nonetheless was subject to
the provisions in the Operating Agreement. [Fn. omitted.] The
Operating Agreement unambiguously establishes a single
managing member and designates Rosenberg to be that
managing member.”
As to Reid’s other claims, the court found that the
settlement agreement barred Reid from challenging any
attorney’s fees incurred and paid by the LLC in relation to the
probate litigation. The court invited the parties to clarify what
other disputed issues existed as to the payment of attorney’s fees.
8
4.3. Summary Adjudication of the Fiduciary Duty
Claims
Shortly after the court ruled on her first motion for
summary adjudication, Rosenberg filed a second such motion
focusing on her alleged breaches of fiduciary duty relating to the
hiring and payment of attorneys outside the scope of the probate
litigation. Rosenberg explained the roles played by four separate
law firms after the probate litigation and/or in connection with
the present ligation. She also stated that in her professional
judgment, each of the firms provided necessary services to the
LLC or to her as the managing member of the LLC. Accordingly,
her decision to incur the legal fees identified by Reid was entitled
to substantial deference under the business judgment rule.
In opposition to the motion, Reid asserted that the primary
issue was whether the fees incurred by Rosenberg on behalf of
the LLC were reasonable—a question of fact that required a trial.
Reid also disputed the necessity and purpose of work by certain
law firms, suggesting that the LLC paid for work performed by
attorneys who were representing the personal interests of
Rosenberg and her family.
Again, the court found in Rosenberg’s favor and granted the
motion for summary adjudication. The court found Rosenberg
was entitled to indemnification under the operating agreement
and, further, that her decisions concerning the hiring and
payment of law firms were entitled to deference.
4.4. Summary Judgment and Appeal
After granting Rosenberg’s motions for summary
adjudication, the court found that no issues remained to be tried
and entered judgment in favor of Rosenberg. Reid timely appeals.
9
DISCUSSION
Reid contends primarily that the court erred in granting
Rosenberg’s motion for summary adjudication on her declaratory
relief claim. Specifically, Reid asserts triable issues of material
fact exist concerning the validity and effect of the operating
agreement, which purports to name Rosenberg as the LLC’s sole
member and sole managing member. We agree.
1. Standard of Review
The standard of review is well established. “The purpose of
the law of summary judgment is to provide courts with a
mechanism to cut through the parties’ pleadings in order to
determine whether, despite their allegations, trial is in fact
necessary to resolve their dispute.” (Aguilar v. Atlantic Richfield
Co. (2001) 25 Cal.4th 826, 843.) The moving party “bears the
burden of persuasion that there is no triable issue of material fact
and that he is entitled to judgment as a matter of law.” (Id. at
p. 850; Code Civ. Proc., § 437c, subd. (c).) The pleadings
determine the issues to be addressed by a summary judgment
motion. (Metromedia, Inc. v. City of San Diego (1980) 26 Cal.3d
848, 885, reversed on other grounds by Metromedia, Inc. v. City of
San Diego (1981) 453 U.S. 490; Nieto v. Blue Shield of California
Life & Health Ins. Co. (2010) 181 Cal.App.4th 60, 74.)
On appeal from a summary judgment, we review the record
de novo and independently determine whether triable issues of
material fact exist. (Saelzler v. Advanced Group 400 (2001) 25
Cal.4th 763, 767; Guz v. Bechtel National, Inc. (2000) 24 Cal.4th
317, 334.) We resolve any evidentiary doubts or ambiguities in
favor of the party opposing summary judgment. (Saelzler, at
p. 768.) “In performing an independent review of the granting of
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summary judgment, we conduct the same procedure employed by
the trial court. We examine (1) the pleadings to determine the
elements of the claim, (2) the motion to determine if it establishes
facts justifying judgment in the moving party’s favor, and (3) the
opposition—assuming movant has met its initial burden—to
‘decide whether the opposing party has demonstrated the
existence of a triable, material fact issue.’ ” (Oakland Raiders v.
National Football League (2005) 131 Cal.App.4th 621, 630.) “We
need not defer to the trial court and are not bound by the reasons
in its summary judgment ruling; we review the ruling of the trial
court, not its rationale.” (Ibid.)
The appellant has the burden to show error, even if the
appellant did not bear the burden in the trial court, and “ ‘to
point out the triable issues the appellant claims are present by
citation to the record and any supporting authority.’ ” (Claudio v.
Regents of the University of California (2005) 134 Cal.App.4th
224, 230.)
2. The court erroneously concluded that no material
disputed facts exist concerning the creation of the
operating agreement.
2.1. Rosenberg’s evidence regarding the validity of
the operating agreement shifted the burden to
Reid.
Rosenberg’s motion for summary adjudication of Reid’s
declaratory relief claim asserts that, pursuant to the operating
agreement, Rosenberg is the sole member of the LLC as well as
its sole managing member. We conclude that Rosenberg
presented a prima facie case sufficient to shift the burden to Reid
on this issue.
11
As noted, Diller assigned his interest in the LLC, including
his membership interest, to Rosenberg and Reid equally. But,
Rosenberg notes, the first phrase of the assignment states that
the assignment is “subject to the terms and conditions of the
operating agreement.” And the operating agreement provides
that Rosenberg owns 100 percent of the membership of the LLC
and is the sole managing member. Rosenberg contends the
operating agreement trumps the assignment.
As Rosenberg notes, the operating agreement states that it
was made “as of August 23, 2011.” In her declaration, Rosenberg
attests that the operating agreement was prepared by Diller’s
lawyer at Diller’s request, that it was approved by Diller, and
that she signed the operating agreement at Diller’s direction in
August 2011. Weberman, Diller’s lawyer, also stated that
Rosenberg signed the operating agreement around that time. In a
declaration signed in 2012, Weberman said that Diller,
Rosenberg, and Rosenberg’s son Edmundo came to his office on
August 23, 2011 and Rosenberg signed the operating agreement
in his presence. Weberman offered a different account in his 2015
trial testimony in the probate action, when he testified that he
prepared the operating agreement, sent it to Rosenberg, and she
returned it to him at another time. Although Weberman’s
statements are slightly different, both Weberman and Rosenberg
attested that Diller approved the operating agreement and that
Rosenberg signed it at Diller’s direction in 2011.
This evidence was sufficient to shift the burden to Reid.
2.2. Reid’s evidence establishes triable issues of
material fact.
Reid contends that Rosenberg did not sign the operating
agreement in August 2011 at Diller’s direction and, instead,
12
signed the operating agreement near the time of Diller’s death. In
other words, Reid suggests, even though Diller transferred equal
shares of the LLC’s membership to his two daughters, Rosenberg
unilaterally adopted the operating agreement which purports to
give her the entire membership of and total control over the LLC.
Viewed in the light most favorable to Reid, the evidence creates
triable issues of fact on that point.
Weberman’s 2012 declaration, which states that Rosenberg
signed the operating agreement in his office on August 23, 2011,
also states that Edmundo was present. Edmundo confirms he
was present at the meeting but states he did not see any
operating agreement during the August 23, 2011 meeting. In
addition, all the documents executed by Diller relating to the
LLC and its assets were signed and notarized on August 23, 2011
in Weberman’s office. But the operating agreement, which
Weberman attested was signed in his office on the same day, was
signed only by Rosenberg and was not notarized. Rosenberg also
signed an acceptance of Diller’s transfers on behalf of the LLC.
That document is dated August 23, 2011 but, again, it is not
notarized. Edmundo’s statements, together with the presence of
notarization on some documents and the absence of notarization
on other, related documents, could support the theory advanced
by Reid, namely, that the operating agreement was not signed on
August 23, 2011.
It is also significant that in September 2011, Diller, signing
as manager of the LLC, attempted to transfer the commercial
property from the LLC back to his living trust. But if the
operating agreement had been adopted in August 2011, Diller
would not have had any authority to act on behalf of the LLC
because the operating agreement provides that Rosenberg is the
13
only member and only manager. Both Diller and Weberman
would have known this. And although Weberman acknowledges
that he prepared the transfer document and related grant deed
for Diller’s signature, he offers no explanation concerning the
obvious conflict between the operating agreement and Diller’s
attempt to act as manager of the LLC in September 2011.
Both sides also note that Weberman sent a bill to Diller in
early October 2011 that included time spent “Drafting: Review
Operating Agreement LLC.” Weberman also attested that he
began preparing the operating agreement at Diller’s direction in
August 2011. But subsequent discussions among members of the
Rosenberg family could suggest that Weberman prepared a draft
agreement for the Reid and Rosenberg families to consider and
negotiate among themselves. Specifically, in October 2011,
Rosenberg’s husband Michael (who is a lawyer) sent a draft
operating agreement (October draft) to Rosenberg as well as
Edmundo and Benjamin. The October draft is very similar to the
operating agreement but, notably, it names Rosenberg and Reid
as members and managing members in equal shares. In
December 2011, Michael circulated a revised draft operating
agreement (December draft) which, like the October draft, named
both Rosenberg and Reid as equal members and managing
members. The December draft also named the Rosenberg and
Reid children as members in proportionate shares.
Rosenberg asserts these draft agreements show only that
her family members wanted to change the structure and
management of the LLC—an idea that was ultimately nixed by
Diller. But none of the correspondence between the members of
the Rosenberg family about the October draft or December draft
makes reference to an existing agreement or management
14
structure. Moreover, Rosenberg acted in a manner consistent
with the October draft and the December draft when, in early
December, she filed a statement of information with the
Secretary of State listing herself and Reid in the space where the
form asked for “manager or managers, or if none have been
appointed or elected, provide the name and address of each
member.”
The timing of subsequent events could also support Reid’s
theory. According to Reid, Diller suffered a fall in late December
2011, approximately one week before his death, and he never
fully recovered his faculties. And after Diller fell, Rosenberg filed
a second statement of information, this time listing only herself
as member and manager of the LLC.4 Also in late December 2011
or early January 2012, Rosenberg and her husband presented the
signed operating agreement to Benjamin and Edmundo. The
children, including Edmundo who had been working with Diller
in multiple businesses, were unaware that any operating
agreement was in existence.
Based on these facts, a reasonable trier of fact could find in
favor of Reid and conclude that the operating agreement signed
by Rosenberg was not signed in August 2011 at Diller’s direction.
Accordingly, the court erred in finding that no disputed facts
existed regarding the validity of the operating agreement.
4 Rosenberg’s brief asserts this second statement of information was a
“corrected” version. No evidence in the record supports that assertion.
15
3. The court also erred in impliedly finding that
Rosenberg could unilaterally adopt the LLC’s first
written operating agreement.
In granting Rosenberg’s first motion for summary
adjudication, the court found that Diller intended Rosenberg to
be the sole managing member. The court also found, impliedly,
that the operating agreement signed only by Rosenberg validly
effectuated Diller’s intent by eliminating Reid’s membership
interest. Reid argues that even if the operating agreement was
created and approved by Diller, Rosenberg was not empowered
under the Corporations Code5 to act alone in adopting the LLC’s
first operating agreement. We agree.
As noted, Diller “assign[ed] and transfer[red] separate
shares of all Diller’s rights, title and interest in SD Sheryl
Brigette, LLC, including its membership interest” to Reid and
Rosenberg in equal (50 percent) shares, provided that one half of
each sister’s share “shall be divided equally between her
children.” Former section 17001, subdivision (z), defined
“membership interest,” as “a member’s rights in the limited
5 The Legislature substantially amended the statutory provisions
governing limited liability companies in 2012, effective January 1,
2014. (Stats. 2012, ch. 419, § 20; § 17713.13 [effective Jan. 1, 2014];
Kennedy v. Kennedy (2015) 235 Cal.App.4th 1474, 1485–1486
[explaining repeal of former section 17000 et seq. (codified in title 2.5
of the Corporations Code) and enactment of section 17701.01 et seq.,
(codified in title 2.6 of that code)].) We are concerned, however, with
events that took place in 2011 and which are therefore governed by the
statutory provisions in effect at that time. All code references in this
section are to the former code provisions in effect prior to January 1,
2014.
16
liability company, collectively, including the member’s economic
interest, any right to vote or participate in management, and any
right to information concerning the business and affairs of the
limited liability company provided by this title.” Reid contends,
therefore, that Diller transferred two separate but identical
membership interests in the LLC which, under former section
17001, included economic interests as well as management and
voting rights.
Rosenberg contends that the operating agreement
eliminated Reid’s membership interest and left her (as well as all
Diller’s grandchildren) with bare “economic interests” in the LLC.
But the operating agreement does not make any provision for
payments to nonmembers. Instead, it vests 100 percent of the
LLC’s ownership (together with all rights to distributions) in
Rosenberg. It is therefore unclear when and how the “economic
interests” purportedly held by Reid and all the grandchildren
were created and, aside from citing the operating agreement,
Rosenberg does not address the issue. She notes, however, that
former section 17001, subdivision (n), defines an economic
interest as “a person’s right to share in the income, gains, losses,
deductions, credit, or similar items of, and to receive distributions
from, the limited liability company, but does not include any
other rights of a member, including, without limitation, the right
to vote or to participate in management … .” But even if a person,
such as a creditor or an heir of a member, could obtain a bare
economic interest in an LLC, that does not shed any light on how
or when that result could have been lawfully accomplished here.
Timing is also a problem for Rosenberg. Prior to Diller’s
assignment, Rosenberg had no authority to adopt an operating
agreement for the LLC. There is simply no evidence she was a
17
manager of the LLC before she received a membership interest
through Diller’s assignment. And after the assignment, both Reid
and Rosenberg were vested with the power to adopt an operating
agreement under former section 17059, which provided that
“[t]he power to adopt, alter, amend, or repeal the operating
agreement of a limited liability company shall be vested in the
members.” It is unclear, then, when Rosenberg could have been
legally authorized to act alone in adopting an operating
agreement, as she contends.
Former section 17005 provided that relations among and
between members of an LLC were generally governed by the
articles of organization and operating agreement, if any. 6
(§ 17005, subd. (a).) But former section 17151, subdivision (b),
provided that the articles of organization define the management
structure for the LLC: “If the limited liability company is to be
managed by one or more managers and not by all its members,
the articles of organization shall contain a statement to that
effect. Neither the names of the managers nor the number of
managers need be specified in the articles of organization, but if
management is vested in only one manager, the articles of
organization shall so state.” Here, however, the articles of
organization provide that the LLC shall be managed by “all
[LLC] member(s)” which, by virtue of Diller’s assignment,
included both Rosenberg and Reid.
Rosenberg’s counterarguments are misdirected. For
example, she cites former section 17151, subdivision (a), which
provided that an LLC could be managed by one or more
6 Relations were otherwise governed by the Corporations Code.
18
managers who could be, but were not required to be, members of
the LLC. That subdivision is inapposite, however. Rosenberg also
notes that a “member” was defined as someone “admitted to a
limited liability company as a member in accordance with the
articles of organization or operating agreement.” (Former
§ 17001, subd (x).) Rosenberg then asserts that she is the only
member of the LLC because Reid was never admitted to the LLC
as provided in the operating agreement. But that argument
makes no sense. There is no evidence Rosenberg was admitted to
the LLC either. Because Rosenberg and Reid received identical
rights in the LLC from Diller at the same time, either both of
them needed to be admitted—or neither needed to be admitted.
Common sense dictates that when an LLC is comprised of
two equal members, neither member could lawfully eliminate the
other member’s interest by unilaterally adopting an operating
agreement to that effect. So does the Corporations Code. The
court erred in concluding otherwise.
4. The court erred in concluding that the settlement
agreement in the probate action bars Reid from
challenging the attorney’s fees paid for work relating
to the probate action.
Because the court’s summary adjudication of Reid’s
fiduciary duty claims was based upon the conclusions the court
reached in relation to the declaratory relief claim, including its
findings that the operating agreement is valid and Rosenberg’s
actions were performed in her role as the LLC’s managing
19
member, we must reverse the judgment in its entirety.7 We note,
however, an error by the trial court that should be corrected upon
remand.
The court previously concluded that the parties’ settlement
agreement in the probate action estops Reid from challenging
Rosenberg’s actions during the probate litigation, including her
decision to retain multiple law firms in addition to those paid for
by the LLC’s insurance. The court erred. The settlement
agreement expressly excludes the claims at issue in the present
action from the settlement, with the exception of the parties’
agreement relating to the distribution of LLC funds available at
that time.
7 Similarly, the “business judgment rule” did not entitle Rosenberg to
summary adjudication of those claims because judicial review of her
“actions raises various issues of fact, e.g., whether [she] acted as an
ordinarily prudent person under similar circumstances, and in the best
interests of [the LLC]; and whether … she made a reasonable inquiry
as indicated by the circumstances. Such questions generally should be
left to a trier of fact.” (Gaillard v. Natomas Co. (1989) 208 Cal.App.3d
1250, 1267–1268.)
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DISPOSITION
The judgment is reversed and the matter is remanded for
further proceedings consistent with this opinion. Appellant
Brigette Reid shall recover her costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
LAVIN, J.
WE CONCUR:
EDMON, P. J.
EGERTON, J.
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