The Little Cottage Caregivers v. Meiri CA2/3 ( 2020 )

Filed 8/21/20 The Little Cottage Caregivers v. Meiri 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NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 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 This opinion has not been certified for publication or ordered published for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.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION THREE
THE LITTLE COTTAGE B294533
CAREGIVERS,
(Los Angeles County
Plaintiff and Respondent, Super. Ct. No. SC126909)
v.
ADIE MEIRI,
Defendant, Cross-complainant
and Respondent;
TZEHOU KUNG,
Cross-defendant and Appellant.
APPEAL from a judgment of the Superior Court of Los
Angeles County, Gerald Rosenberg, Judge. Reversed with
directions.
Horvitz & Levy, Curt Cutting, Allison W. Meredith and
Rebecca G. Powell; Katchko Vitiello & Karikomi, Giandominic
Vitiello, Tatyana Brenner and Edward E. Angwin for Cross-
defendant and Appellant.
Law Offices of JT Fox & Associates and J.T. Fox for
Plaintiff and Respondent and Defendant, Cross-complainant and
Respondent.
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In 2010, Vietnam Nguyen (Nguyen) sold a 50 percent
interest in The Little Cottage Caregivers, LLC, a California
limited liability company (Caregivers), to respondent Adie Meiri
(Meiri). The following year, Nguyen signed a second agreement
giving Meiri an option to buy an additional 35 percent interest in
Caregivers for $1,000.
In 2012, while the option period remained open, Nguyen
sold a 50 percent interest in Caregivers to Yun Kang (Kang),
appellant Tzehou Kung’s (Kung) predecessor in interest.
Thereafter, Meiri purported to exercise his option. This litigation
followed.
The case was tried to the court, which concluded that Meiri
owned an 85 percent interest in Caregivers because he entered
into the 2010 purchase agreement and the 2011 option agreement
before Kang purported to purchase his competing 50 percent
interest in the company. Kung challenges this finding on appeal:
Although he concedes that Meiri validly acquired his initial
50 percent interest, Kung urges that Meiri’s purported
subsequent acquisition of an additional 35 percent interest was
invalid because Kang did not have actual or constructive
knowledge of the option agreement. We conclude that Kung is
correct, and thus we reverse the judgment with directions.
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FACTUAL AND PROCEDURAL BACKGROUND
I.
Background1
A. Meiri’s Acquisition of an Interest in Caregivers
Caregivers is a medical marijuana collective that has
operated in Los Angeles since at least 2006. Prior to the events
at issue, Nguyen was Caregivers’s sole owner.
At some point in 2010, Meiri’s father, Shlomo Meiri
(Shlomo), decided to give 19-year-old Meiri a gift in the form of a
business. Shlomo met Nguyen through a third party and, in
September 2010, he purchased a 50 percent interest in
Caregivers in Meiri’s name.
After the transaction closed, Nguyen “approached [Shlomo]
in tears” and asked to repurchase the 50 percent interest in
Caregivers. Shlomo agreed and retained an attorney to draft a
repurchase agreement. As relevant here, the repurchase
agreement provided as follows:
(1) Nguyen would have the right to repurchase his
50 percent interest in Caregivers upon certain terms and
conditions—namely, an immediate cash payment of $110,000, a
subsequent cash payment of $60,000, and the assignment to
Meiri of a $230,000 debt.2
1 The record does not contain a complete reporter’s transcript
of the bench trial; thus, references to trial testimony are to the
settled statement certified by the court.
2 The drafting attorney testified that he intentionally made
the repurchase agreement ambiguous as to whether Nguyen
would recover the 50 percent share immediately or after the
satisfaction of the specified conditions. For purposes of this
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(2) Contemporaneously with the repurchase agreement,
the parties would execute an option agreement “under which
[Meiri] shall, for $10.00, . . . acquire [the option to purchase a]
thirty-five [percent] (35%) additional interest in the Company in
the case of [Nguyen’s] nonperformance of” his obligations under
the repurchase agreement. The option agreement provided that
Meiri could exercise the option during its two-year term by giving
written notice to Caregivers’s manager or to Nguyen,
accompanied by a check for $1,000. The option agreement
further provided that Nguyen “may not assign any of its rights or
duties under this Agreement without the express written consent
by [Meiri].”
Nguyen and Meiri executed the repurchase agreement and
the option agreement on January 24, 2011. There is no evidence
that either agreement was ever recorded. It is undisputed that
Nguyen did not comply with all of his obligations under the
repurchase agreement, and thus he never reacquired the
50 percent interest in Caregivers from Meiri.
B. Kang’s Acquisition of an Interest in Caregivers
In March 2012, Caregivers was unable to pay its rent and
was facing an unlawful detainer action. That month, Nguyen
entered into an agreement with Kang (the investment
agreement), in which Kang agreed, in exchange for a 50 percent
interest in Caregivers, to pay Caregivers’s past due rent and
other expenses.
The investment agreement recited that Nguyen “and his
partner” were unable to make a rent payment on time, and their
appeal, Kung does not contest that Meiri retained his initial
50 percent share of Caregivers, and thus we need not address the
ambiguity.
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landlord had initiated an unlawful detainer action against
Nguyen. Kang was willing to invest in Caregivers by paying
Nguyen’s landlord the accrued but unpaid rent. In exchange,
“Nguyen shall give and Kang shall acquire one-half ownership
interest in [Caregivers].” From the date of the agreement, Kang
would have the right to operate and manage Caregivers, but
Nguyen would continue to work on licensing matters in
consultation with Kang.
The investment agreement provided that Nguyen would
obtain the consent of a person named “Dick Van Vu,” who either
had relinquished, or would relinquish, “any and all rights in”
Caregivers to Kang. Nguyen “represents and warrants that there
are no other person [sic] who has any interest, ownership or
otherwise, in [Caregivers] other than Nguyen himself.”
Kang testified that he did not question Nguyen about
Dick Van Vu, and he did not ask whether there were any other
members of Caregivers. It is undisputed that at the time Kang
executed the investment agreement, he had never heard of Meiri,
and he was not aware of any competing interests in Caregivers or
any outstanding options to purchase an interest in Caregivers.
He learned of Meiri’s claimed interest in Caregivers for the first
time in 2016.
C. Meiri’s Purported Exercise of the Option
Shlomo determined Nguyen was in breach of the
repurchase agreement. On July 30, 2012, at Shlomo’s direction,
Meiri executed an “Option Exercise Notice” (option notice) that
purported to exercise Meiri’s option to purchase an additional 35
percent interest in Caregivers.
Shlomo testified that although Meiri executed the option
notice in July 2012, he did not deliver it to Nguyen at that time.
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Shlomo ultimately delivered the option notice and $1,000 in cash
to Nguyen sometime in late 2012. Shlomo testified that Nguyen
accepted the $1,000 and signed the assignment certificate.
However, at trial neither Shlomo nor Meiri produced a copy of the
signed assignment certificate, testifying that it had been “lost.”
Despite Meiri’s purported 85 percent interest in Caregivers,
neither Meiri nor his father ever visited Caregivers’s premises
after their single visit there in 2010, at the time of the original
investment. Neither Meiri nor his father ever performed any
work on Caregivers’s behalf, and neither ever received a
paycheck, disbursement, or any other funds from Caregivers.
D. Kang’s purported acquisition of an additional
50 percent interest in Caregivers from Nguyen.
More than a year after Meiri’s purported exercise of the
option, Kang lent Nguyen $115,000, evidenced by a promissory
note dated October 5, 2013. The note provided that, in the event
Nguyen failed to repay the loan, Kang would become the full
owner of Caregivers. Nguyen failed to repay the loan, and Kang
exercised his rights under the note to replace Nguyen as
100 percent owner.
E. Kung’s acquisition of an interest in Caregivers.
In July 2014, Kang sold his interest in Caregivers to a man
named Don Yoo (Yoo). After the sale, Kang remained as manager
of Caregivers.
In June 2016, Yoo sold his interest in Caregivers to Kung.
Kung made significant improvement to Caregivers’s premises at
his own expense.
Kung first learned of Meiri’s claimed interest in Caregivers
after Meiri filed a Statement of Information with the California
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Secretary of State in 2016, which listed Meiri as the chief
executive officer and sole manager of Caregivers.
II.
The Present Action
A. Operative Pleadings
On January 10, 2017, Caregivers, through Kung, filed a
complaint against Meiri for declaratory relief. The operative first
amended complaint alleged that Kung was the managing
member of Caregivers, and that an actual controversy existed
between Caregivers and Meiri with respect to the ownership and
control of Caregivers.
Meiri filed a cross-complaint against Kung for declaratory
relief. Meiri pled that he owned an 85 percent interest in
Caregivers and was entitled to be the company’s managing
member.3
B. Trial and Statement of Decision
The matter was tried to the court on the parties’ respective
claims for declaratory relief.
On May 14, 2018, the court signed a statement of decision,
which found that Meiri was an 85 percent owner of Caregivers.
The court explained: “The evidence support[ed] the conclusion
that [Meiri] was a bona fide purchaser for value and [Kung] was
not. [Meiri] acquired his interest prior to [Kang]. [Kang] entered
[into] his March 23, 2012 agreement with [Nguyen] during [a]
time that [Meiri’s] Option remained open, for a period of two
years beginning January 24, 2011, during which time there was a
restriction on [Nguyen’s] right to [transfer any] interests.
3 The complaint and cross-complaint contained various other
causes of action, but the parties dismissed those claims prior to
entry of the final judgment.
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[Nguyen] breached [the repurchase agreement], [and] therefore
[Meiri] retained his 50% interest, and by exercise of an Option,
[Meiri] increased his membership interests by 35%, to a total of
85% of the membership interests in [Caregivers].” (Record
citations omitted.)
On August 15, 2018, the trial court entered a judgment
declaring Meiri the owner of an 85 percent interest in Caregivers
and the company’s managing member. Kung timely appealed.
CONTENTIONS
For purposes of this appeal, the parties agree that Kung’s
interest in Caregivers is derivative of Kang’s, and thus that Kung
could not have acquired a greater interest in Caregivers than
Kang had. The parties also agree that Meiri acquired a
50 percent interest in Caregivers in 2010, and thus that the only
question before the court is who owns the remaining 50 percent.
As to that issue, Kung contends that because Kang did not
have actual or constructive knowledge of Meiri’s rights under the
option agreement, Kang was a bona fide purchaser for value.
Kung therefore urges that Kang’s 2012 purchase of a 50 percent
interest in Caregivers was not subject to Meiri’s unexercised
option. Meiri contends, in contrast, that he had the right to
purchase an additional 35 interest in Caregivers by virtue of the
2011 option agreement. He urges that his option was a “fully
valid and enforceable interest[] in property,” and therefore
Kang’s interest in Caregivers (and thus Kung’s) cannot exceed
15 percent.
As we discuss, although Meiri’s option to purchase an
additional 35 percent interest in Caregivers preceded Kang’s and
Nguyen’s 2012 execution of the investment agreement, the option
was enforceable against Kang only if Kang had actual or
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constructive knowledge of the option. The record before the trial
court establishes that Kang did not: The undisputed evidence
was that Kang did not have actual knowledge of Meiri’s
purported interest in Caregivers, and the facts known to Kang in
2012 would not have prompted a reasonable person to inquire as
to whether any other person owned, or had the right to acquire,
an interest in Caregivers. Accordingly, Kung is entitled to a 50
percent interest in Caregivers as a matter of law.
DISCUSSION
I.
Legal Principles
It is black-letter law that a bona fide purchaser for value4
who acquires his or her interest in property without knowledge or
notice of another’s prior rights or interest in the property “takes
the property free of such unknown interests.” (In re Marriage of
Cloney (2001) 91 Cal. App. 4th 429, 437 (Cloney); accord,
Melendrez v. D & I Investment, Inc. (2005) 127 Cal. App. 4th 1238,
1251 (Melendrez).) Conversely, “it is an equally well-established
principle of law that any purchaser of . . . property acquires the
property subject to prior interests of which he or she has actual or
constructive notice.” (Cloney, supra, at p. 437.)
This principle applies equally to an option to purchase
property. “[A]n option to purchase . . . is valid against a
subsequent purchaser who takes with notice of the option.”
(Claremont Terrace Homeowners’ Assn. v. United States (1983)
146 Cal. App. 3d 398, 408, italics added (Claremont Terrace);
accord, Utley v. Smith (1955) 134 Cal. App. 2d 448, 450 (Utley).)
An option to purchase is invalid, however, against a bona fide
4 It is undisputed that Kang paid value for his interest in
Caregivers.
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purchaser for value—i.e., a subsequent purchaser who lacks
actual or constructive knowledge of the option. (Utley, supra, at
pp. 449–451.)
“Actual notice is ‘express information of a fact,’ while
constructive notice is that ‘which is imputed by law.’ [(Civ. Code,
§ 18.)] A person with ‘actual notice of circumstances sufficient to
put a prudent man upon inquiry’ is deemed to have constructive
notice of all facts that a reasonable inquiry would disclose.
(Civ. Code, § 19; see Hobart v. Hobart Estate Co. (1945) 26 Cal. 2d
412, 439; 1 Schwing, Cal. Affirmative Defenses [(2007) Statute of
Limitations,] § 25:4, pp. 1340–1341 at fn. 28.)” (E-Fab, Inc. v.
Accountants, Inc. Services (2007) 153 Cal. App. 4th 1308, 1318–
1319 (E-Fab).)
A bona fide purchaser may seek a legal determination that
the title he obtained remains free and clear of any adverse
interest in the property. (Reiner v. Danial (1989) 211 Cal. App. 3d
682, 690.) As a general rule, the person claiming bona fide
purchaser status bears the burden to present evidence that he
acquired interest in the property without notice of a prior
interest. (Gates Rubber Co. v. Ulman (1989) 214 Cal. App. 3d 356,
366, fn. 6; First Fidelity Thrift & Loan Assn. v. Alliance Bank
(1998) 60 Cal. App. 4th 1433, 1442.)
Whether a buyer is a bona fide purchaser is ordinarily a
question of fact. (Melendrez, supra, 127 Cal.App.4th at p. 1254;
Triple A Management Co., Inc. v. Frisone (1999) 69 Cal. App. 4th
520, 536 (Triple A).) We thus may reverse the trial court’s
determination that Kang (and therefore Kung) was not a bona
fide purchaser only if that determination is unsupported by
substantial evidence. (Melendrez, at p. 1254; Triple A, at p. 536.)
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II.
The Trial Court’s Finding that Kang Was
Not a Bona Fide Purchaser is Unsupported
by Substantial Evidence
As we have said, a person is a bona fide purchaser only if,
at the time he purchased an interest in property, he lacked actual
or constructive knowledge of a competing claim to the property.
(Cloney, supra, 91 Cal.App.4th at p. 437.) Thus, in order for the
trial court to conclude that Kang (and therefore Kung) was not a
bona fide purchaser, the court had to have found that Kang had
actual or constructive knowledge of Meiri’s unexercised option to
purchase an additional 35 percent interest in Caregivers. As we
discuss, that implied finding was not supported by substantial
evidence.5
Kang testified that he first became aware of Meiri’s claimed
interest in Caregivers after Meiri filed a Statement of
Information in 2016 with the California Secretary of State. Prior
to that time, Kang said he did not know who Meiri was, and he
was not aware of any competing interests, including any
outstanding options, in Caregivers. Meiri did not present any
evidence to the contrary—that is, neither Meiri nor any of his
witnesses testified that, prior to 2016, Meiri had any contact with
Kang or took any affirmative steps to make Kang aware of his
existence. The undisputed evidence thus compels the conclusion
that when Kang entered into the investment agreement in 2012,
5 Following a bench trial, the doctrine of implied findings
requires a reviewing court to infer that the trial court impliedly
made every factual finding necessary to support its decision.
(Fladeboe v. American Isuzu Motors Inc. (2007) 150 Cal. App. 4th
42, 48.)
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he did so without actual knowledge of Meiri’s claimed interest or
his option to purchase an additional interest in Caregivers.
The undisputed evidence also compels the conclusion that
Kang entered into the investment agreement without
constructive knowledge of Meiri’s claimed interest. As we have
said, a person with “ ‘actual notice of circumstances sufficient to
put a prudent man upon inquiry’ is deemed to have constructive
notice of all facts that a reasonable inquiry would disclose.” (E-
Fab, supra, 153 Cal.App.4th at p. 1319.) The question before us,
therefore, is whether there is substantial evidence in the record
that Kang was on inquiry notice of Meiri’s unexercised option
before he entered into the investment agreement in 2012 and, if
so, whether a reasonable investigation would have revealed
Meiri’s claim.
It is undisputed that Meiri never performed any work for
Caregivers or visited the company’s business premises after he
purchased an interest in the company in 2010. It also is
undisputed that Meiri never received a paycheck, disbursement,
or any other funds from Caregivers. And, it is undisputed that
Meiri never opened a bank account in Caregivers’s name, had not
communicated with any of Caregivers’s vendors or employees,
had not signed a lease on Caregivers’s behalf, and did not file a
Statement of Information in connection with Caregivers prior to
August 2016. In short, there is no evidence that Kang could have
learned of Meiri’s interest in or claim to Caregivers by visiting
Caregivers’s premises or reviewing its financial or other records.
Notwithstanding these undisputed facts, Meiri contends
Kang was on inquiry notice of Meiri’s claim because the
investment agreement Kang entered into with Nguyen in 2012
stated that Nguyen “and his partner” were unable to make rent
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payments, and Nguyen would provide documentation that an
individual named “Dick Van Vu” had or would relinquish “any
and all right in the Business to Kang.” Meiri asserts that this
disclosure gave Kang notice of facts giving rise to a duty to
investigate, and Kang “therefore [was] on inquiry notice, and not
a bona fide purchaser.”
We do not agree that the disclosure that “Dick Van Vu” had
an interest in Caregivers, which according to the investment
agreement he was willing to relinquish, put Kang on inquiry
notice that anyone other than Vu had an interest in Caregivers—
particularly in light of Nguyen’s express representation in the
investment agreement that “there are no other person [sic] who
has any interest, ownership or otherwise, in the Business other
than Nguyen himself.” But even were the disclosure sufficient to
put Nguyen on inquiry notice, he could be charged with
constructive notice of Meiri’s unexercised option only if a
reasonable investigation would have revealed that fact. (E-Fab,
supra, 153 Cal.App.4th at pp. 1318–1319.) Here, there is
absolutely no evidence that, even had Kang investigated, he
would have discovered Meiri’s unexercised option to purchase an
additional 35 percent interest in Caregivers. There is no
evidence that either the repurchase agreement or the option
agreement was ever recorded, and thus a search of public records
would not have revealed their existence. There is also no
evidence that anyone other than Nguyen, Meiri, Shlomo, and
Shlomo’s attorney had actual knowledge of either agreement; and
Kang knew only Nguyen, who had specifically disavowed that
any other individual had an interest in the company. There thus
is no evidence that a diligent inquiry by Kang with respect to
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Dick Van Vu would have revealed that Meiri held an unrecorded
option to purchase another 35 percent of Caregivers.
Given all these circumstances, we conclude there is no
substantial evidence that when Kang entered into the investment
agreement with Nguyen in 2012, he had actual or constructive
knowledge of Meiri’s option. As a matter of law, therefore, Kang
purchased a 50 percent interest in Caregivers free and clear of
Meiri’s option.6
III.
Meiri’s Contrary Claims are Without Merit
Notwithstanding the foregoing, Meiri contends that
Nguyen could not have validly transferred an interest in
Caregivers because the option agreement prohibited Nguyen
from “assign[ing] any of its right or duties under this Agreement
without the express written consent [of] [Meiri].” Meiri thus
contends the option agreement “precluded Nguyen from making
any transfer of [Caregivers]” during the two-year period the
option remained open, and the investment agreement “thus
constituted an improper, void, and non-existent transfer of
interest in [Caregivers].”
Meiri’s contention lacks merit. As we have said, a bona fide
purchaser who acquires an interest in property without notice of
another’s asserted rights in the property takes the property free
of such unknown rights. (Deutsche Bank National Trust Co. v.
Pyle (2017) 13 Cal. App. 5th 513, 521.) Therefore, a violation by
Nguyen of the nonassignment clause in the option agreement
6 Having so concluded, we need not reach Kung’s alternative
contention that, at a minimum, the trial court should have
concluded that Kung holds a 15 percent interest in Caregivers.
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could have no bearing on whether Kang was a bona fide
purchaser.
DISPOSITION
The judgment is reversed with directions to the trial court
to enter a new and different judgment that declares Kung a
50 percent owner of Caregivers, and is otherwise consistent with
the views expressed herein. Kung is awarded his appellate costs.
NOT TO BE PUBLISHED IN THE OFFICIAL
REPORTS
EDMON, P. J.
We concur:
EGERTON, J.
DHANIDINA, J.
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