1 2 JS-6 3 4 5 6 UNITED STATES DISTRICT COURT 7 CENTRAL DISTRICT OF CALIFORNIA 8 LOS ANGELES DIVISION 9 IN RE: HOAG URGENT CARE- CASE NO. SACV 19-2343-MWF 10 TUSTIN, INC. 11 ORDER RE: CONSOLIDATED 12 APPEAL FROM THE UNITED 13 STATES BANKRUPTCY COURT’S ORDERS 14 15 Before the Court is a consolidated appeal from the United States Bankruptcy 16 Court (the Honorable Theodor C. Albert, United States District Judge). Appellants 17 Robert Amster, Robert Amster, M.D., Inc., and Your Neighborhood Urgent Care, 18 LLC (“YNUC”) submitted their Opening Brief (“OB”) on December 2, 2020. 19 (Docket No. 35). Appellees Hoag Memorial Hospital Presbyterian (“Hoag 20 Hospital”) and Newport Healthcare Center, LLC (“Newport”) submitted their 21 answering brief (“AB”) on December 29, 2020. (Docket No. 36). Appellants filed a 22 reply brief (“RB”) on January 26, 2021. (Docket No. 39). Appellants appeal three 23 of the bankruptcy court’s orders: 24 1. The Order Granting Defendants’ Renewed Motion for Partial Summary 25 Judgment (the “Joint Venture Order”), issued on November 19, 2019;

26 2. The Order Granting Counter Claimants’ Motion for Partial Summary 27 Judgment (the “Counterclaim Order”), issued on November 19, 2019; 1 3. The Order Granting Hoag Parties Motion to Strike Untimely Jury Demand (the “Jury Demand Order”), issued on October 11, 2019. 2

3 (See OB at 1). Appellants initially indicated that they intended to appeal a fourth 4 order as well, the Judgment Approving Stipulation Re: Amount of Damages in 5 Connection with Order Granting Counterclaimants’ Motion for Partial Summary 6 Judgment (the “Damages Judgment”), issued on February 21, 2021. (See id.). 7 However, the Opening Brief made no arguments with respect to the Damages 8 Judgment. (See generally OB). At the hearing, Appellants confirmed that they have 9 abandoned this portion of their appeal. (Hearing Transcript (“Tr.”) 27:15-22). 10 The Court has read and considered the papers filed in this consolidated 11 appeal, and held a telephonic hearing on February 12, 2021, pursuant to General 12 Order 20-09 arising from the COVID-19 pandemic. 13 For the reasons that follow, the Joint Venture Order and the Counterclaim 14 Order are AFFIRMED. Because the Court affirms the Joint Venture Order and the 15 Counterclaim Order, it need not reach the appeal of the Jury Demand Order. 16 17 I. BACKGROUND 18 A. The Parties’ Business Dealings 19 In early to mid-2010, Appellants Dr. Robert Amster and YNUC, Dr. Amster’s 20 wholly-owned company, discussed a potential business arrangement with Appellee 21 Hoag Hospital in which they would partner together to develop and operate up to 22 five Hoag-branded urgent care centers in the area. (Appellants’ Excerpts of Record 23 (“Appellants’ ER”) at Vol. 3, pp. 509-511 (Docket No. 35-3)). Dr. Amster had 24 expertise in and already owned and operated several urgent care centers in Orange 25 County. (Id.). 26 The parties initially discussed entering into a joint venture agreement 27 whereby Hoag Hospital would own 51% and Dr. Amster would own 49% of an 1 3, pp. 475, 480-488, 510, 520). However, in June 2010, Hoag Hospital alerted 2 Appellants that “the original JV wasn’t feasible.” (Appellants’ ER at Vol. 3, pp. 3 510, 520-22). As a result, the parties pivoted to pursue an arrangement in which 4 Appellees Hoag Hospital and Newport would lease real property and equipment to 5 YNUC, loan funds to YNUC, and license the Hoag Hospital brand for use in 6 connection with the urgent care centers’ operations. (Appellants’ ER at Vol. 3, pp. 7 490-92, 496, 511). 8 On November 1, 2010, the parties’ discussions culminated in the execution 9 of the Master Urgent Care Development Agreement (“MUCDA”). (Appellants’ ER, 10 Vol. 2 at pp. 86-97 (Docket No. 35-2)). Under the terms of the MUCDA, the urgent 11 care clinics (the “Clinics”) were to be 100% owned and operated by Dr. Amster and 12 YNUC and were to use the Hoag Hospital brand name pursuant to a licensing 13 agreement setting forth certain standards that the Clinics were required to meet. 14 (Id.). In addition, Hoag Hospital loaned YNUC funds for opening and operating the 15 Clinics and Newport leased real estate and equipment to YNUC pursuant to various 16 subleases (the “Subleases”). (Id.). Appellees had no share of the profits or liability 17 for the losses incurred by the Clinics and YNUC’s financial obligations to Appellees 18 that were created by the licensing and sublease agreements were not contingent on 19 the Clinics’ financial success. (See generally id.). 20 In connection with each of the Subleases, and as security for YNUC’s 21 monthly payment obligations, Dr. Amster and Amster, Inc. executed the following 22 Guaranty of Sublease Agreements (collectively, the “Guaranties”), pursuant to 23 which Dr. Amster and Amster, Inc. unconditionally guaranteed all of YNUC’s 24 payment and other obligations under each of the Subleases. (Appellees’ Excerpt of 25 Record (“Appellees’ ER”) at Vol. 2, pp. 481-500 (Docket No. 37-2)). 26 On December 1, 2012, after YNUC had experienced financial difficulties and 27 was unable to make the loan and rental payments to Hoag Hospital and Newport, the 1 “Restructuring Agreements”). (Appellants’ ER at Vol. 2, pp. 77, 99-125 (Docket 2 No. 37-1); id. at Vol. 3, pp. 535, 539-625). In the Restructuring Agreements, Dr. 3 Amster and YNUC agreed and acknowledged that “Neither [Hoag Hospital / 4 Newport], nor any of its present or former employees, officers, directors, or agents 5 at any time has agreed or consented to being an agent, principal, participant, joint 6 venturer, partner or alter ego of YNUC.” (Appellants’ ER at Vol. 2, p. 108) 7 (emphasis added); (see also Appellees’ ER at Vol. 2, p. 535). Beginning in May 8 2017, Newport stopped receiving the required rent and equipment payments under 9 the Subleases with YNUC. (Appellants’ ER at Vol. 2, p. 75; id. at Vol. 3, p. 536; 10 Appellees’ ER at Vol. 2, p. 700). 11 12 B. The Adversary Proceeding 13 On August 2, 2017, the HUC Debtors filed chapter 11 bankruptcy petitions. 14 (Appellants’ ER at Vol. 2, p. 75; Appellees’ ER at Vol. 2, p. 700). On December 4, 15 2017, Appellants commenced the underlying adversary proceeding and filed their 16 amended complaint on June 25, 2018. (Appellants’ ER at Vol. 2, pp. 2-68; id. at 17 Vol. 2, pp. 69-137; id. at Vol. 2, pp. 138-300). Appellants’ amended complaint 18 alleged that the parties were engaged in a joint venture, and that Appellees had 19 breached fiduciary duties owed to Appellants as part of that alleged joint venture 20 (the “Joint Venture Action”). (Id.). In turn, Appellees asserted counterclaims for 21 breach of the Subleases and the Guaranties (the “Counterclaim Action”). (Id.). 22 Appellants defended the Counterclaim Action by asserting that the Guaranties were 23 invalid as “sham guaranties,” and therefore unenforceable. (Appellants’ ER at Vol. 24 18, p. 4342 (Docket No. 35-18)). 25 On April 15, 2019, Appellees moved for Partial Summary Judgment in the 26 Counterclaim Action (“Counterclaim MSJ”). (Appellants’ ER at Vol. 2, pp. 311- 27 367). On September 12, 2019, Appellees filed their Renewed Motion for Partial 1 Summary Judgment on the Joint Venture Action (the “Joint Venture MSJ”). 2 (Appellants’ ER at Vol. 3, pp. 408-458). 3 On November 19, 2019, the bankruptcy court granted Appellees’ Joint 4 Venture MSJ and Counterclaim MSJ. (Appellants’ ER at Vol. 18, pp. 4330-4332; 5 id. at Vol. 17, pp. 4242-4269, 4333-4345) (Docket No. 35-17). In the Joint Venture 6 Order, the bankruptcy court held that Appellees were entitled to summary judgment 7 because there was “not a shred of evidence” that the parties co-owned or intended to 8 co-own anything, an indispensable requirement of a joint venture. (Appellants’ ER 9 at Vol. 17, pp. 4254). In the Counterclaim Order, the bankruptcy court ruled that the 10 Guaranties are enforceable and rejected Appellants’ “sham guaranty” defense, 11 holding that sham guaranties can only exist in the context of a real property 12 foreclosure. (Appellants’ ER at Vol. 18, pp. 4333-4345). 13 14 II. STANDARD OF REVIEW 15 The Court has jurisdiction to hear appeals from final judgments, orders, and 16 decrees of the bankruptcy court.

(a). When considering an appeal 17 from the bankruptcy court, a district court uses the same standard of review that a 18 circuit would use in reviewing a decision of a district court. See In re Baroff, 105

(9th Cir. 1997). 20 “A grant of summary judgment is reviewed de novo.” L.F. v. Lake 21 Washington Sch. Dist. #414,

(9th Cir. 2020) (citation omitted). A 22 reviewing court must determine, “viewing the evidence in the light most favorable 23 to the nonmoving party, whether there are any genuine issues of material fact and 24 whether the district court correctly applied the relevant substantive law.” Id. 25 (citation omitted). 26 27 1 III. DISCUSSION 2 A. The Joint Venture Order 3 The bankruptcy court granted Appellees’ motion for summary judgment on 4 Appellants’ breach of fiduciary duty claim, holding that Appellants had failed to 5 show the existence of a fiduciary relationship as a matter of law. (Appellants’ ER at 6 Vol. 18, pp. 4330-4332; id. at Vol. 17, pp. 4242-4269). Appellants’ claim rested on 7 the theory that the parties were engaged in a joint venture which imposed fiduciary 8 duties on Appellees. (Id.). Appellants contend that the bankruptcy court erred in 9 determining that Appellants had failed to create a triable issue as to the existence of 10 a joint venture. (OB at 22-29). 11 “A joint venture is an undertaking by two or more persons jointly to carry out 12 a single business enterprise for profit. Like partners, joint venturers are fiduciaries 13 with a duty of disclosure and liability to account for profits.” Weiner v. Fleischman, 14

,

(1991) (internal citations and quotation marks 15 omitted). Generally, three elements show the existence of a joint venture: “(1) joint 16 interest in a common business; (2) with an understanding to share profits and losses; 17 and (3) a right to joint control.” Jacobs v. Locatelli,

, 328 n.10, 18

(2017) (citation omitted). 19 A joint venture may be formed by express agreement or it “may be assumed 20 as a reasonable deduction from the acts and declarations of the parties.” Scottsdale 21 Ins. Co. v. Essex Ins. Co.,

,

(2002). 22 Indeed, “the conduct of the parties may create a joint venture despite an express 23 declaration to the contrary.” Apr. Enterprises, Inc. v. KTTV,

, 24 820,

(1983) (citing Universal Sales Corp. v. California Press 25 Mfg. Co.,

,

(1942)). “[W]here evidence is in 26 dispute, the existence or nonexistence of a joint venture is a question of fact to be 27 determined by the jury.”

1 In granting summary judgment in favor of Appellees, the bankruptcy court 2 held that co-ownership is an indispensable aspect of a joint venture and that there 3 was “not a shred of evidence” in this case that the parties here co-owned anything. 4 (Appellants’ ER at 4254). Appellants do not dispute that, under the terms of the 5 MUCDA, Appellees had no ownership rights in and did not explicitly share in the 6 direct profits or losses of the Clinics. (OB at 29). Rather, Appellants assert that the 7 bankruptcy court erred by adopting an excessively narrow and literal understanding 8 of shared profits and losses in the context of a joint venture. (Id. at 28). Appellants 9 contend that the parties intended to create a joint venture because they understood 10 that the success or failure of the Clinics would impact both parties. (Id.) 11 While “[s]haring profits and losses in a common enterprise is usually an 12 indispensable feature of a joint venture,” “this strict approach has not always been 13 followed, and similar cooperative contractual arrangements may be loosely termed 14 joint ventures, or akin to them.” 9 Witkin, Summary of California Law (11th Ed. 15 2020), Ch. XII Partnership § 14 Sharing of Profits and Losses (citing Krantz v. BT 16 Visual Images, L.L.C.,

,

(2001)). 17 For example, in Krantz, the appellate court reversed the trial court’s grant of 18 summary judgment in favor of the defendants on the plaintiff’s breach of fiduciary 19 duty claim, holding that triable issues existed as to the existence of a joint venture. 20

. The parties had entered into an agreement to sell custom 21 video conferencing systems — which were designed by the plaintiff and composed 22 of the defendants’ parts — with the understanding that the plaintiff would receive a 23 certain commission on any sales to a particular client.

. The court 24 acknowledged that the parties had not agreed to share profits and losses but 25 determined that this fact did not foreclose the existence of a joint venture as a matter 26 of law.

. The court reasoned that 27 [w]hile in a technical joint venture there is usually a sharing of profits and losses in prosecution of the common enterprise, the mode of 1 participation in the fruits of the undertaking may be left to the agreement of parties; and whether they create the strict relation of joint 2 adventurers or some other relation involving cooperative effort depends 3 on their actual intention.

4

. Although the defendants asserted that the parties were independent 5 contractors under the terms of their agreement, the plaintiff created a triable issue by 6 pointing to parole evidence suggesting that the parties’ intent was to enter into a 7 joint venture.

. 8 It is worth noting that Krantz’s expansive approach to the typical requirement 9 of sharing profits and losses is an outlier, as Krantz itself acknowledges. See

App. 4th at 177-78 (stating that the “strict approach” of treating the sharing of 11 profits and losses as an indispensable feature of a joint venture “has not always been 12 followed”). However, even adopting Krantz’s atypical approach here, the success of 13 Appellants’ argument still depends on the existence of some evidence that the 14 parties actually intended to create a joint venture. See id. at 178. Yet, the evidence 15 in the record shows the opposite. The parties initially contemplated joint ownership 16 of the Clinics but later decided to pivot away from that arrangement after Appellees 17 determined that a joint venture “wasn’t feasible.” (Appellants’ ER at Vol. 3, Ex. 17, 18 pp. 510 and 520-22; at Vol. 10, Ex. 50, pp. 2401:8-2402:14). The parties instead 19 opted to structure their business relationship to that of creditor/debtor, 20 landlord/tenant, lessor/lessee, and licensor/licensee. The fact that the parties entered 21 into these legal arrangements after affirmatively rejecting a joint ownership structure 22 indicates that Appellees intended to avoid the implications of a joint venture, that is, 23 the responsibilities and risks — as well as the benefits and rewards — of co-owning 24 and co-operating the Clinics with Appellants. And although it is not determinative, 25 see Apr. Enterprises,

, Appellants also signed an agreement 26 with Appellees in which all parties expressly disclaimed any past or current intent to 27 be joint venturers. (Appellants’ ER at 108; Appellees’ ER at 535). 1 Appellants point to evidence showing that Hoag intended to profit from the 2 parties’ relationship through (1) revenues from the financing of the Clinics; (2) 3 revenue from patient referrals; (3) revenue from increased market share; and (4) 4 revenue from expanding recognition of the Hoag brand. (OB at 28). Without more, 5 these anticipated benefits fall far short of evincing Hoag’s intent to create a joint 6 venture with Appellants. Unlike the business arrangement in Krantz where the 7 plaintiff was to receive a percentage of the revenue from each joint sale, Appellees 8 were legally entitled to receive the exact same loan and rental payments from 9 Appellants, regardless of the amount of revenue the Clinics generated (or failed to 10 generate). As the bankruptcy court reasoned, it cannot be the case that a joint 11 venture is established whenever two entities intend to make a mutually beneficial 12 business deal; such a rule would have “no limiting principle,” creating putative joint 13 ventures for a wide range of standard contractual agreements. (Appellants’ ER at 14 4251). The Court agrees with the bankruptcy court that there is simply no evidence 15 from which a reasonable trier of fact could conclude that the parties intended to 16 create a joint venture. 17 The bankruptcy court’s Joint Venture Order is AFFIRMED. 18 19 B. The Counterclaim Order 20 Appellants do not dispute that Dr. Amster and Amster, Inc. executed the 21 Guaranties, unconditionally guarantying all of YNUC’s monthly payments and other 22 obligations under each of the Subleases. (See OB at 30-32). Rather, Appellants 23 contend that the Guaranties are unenforceable “sham guaranties.” (OB at 30-32). 24 Appellants made this same argument below, which the bankruptcy court rejected 25 after determining that the “sham guaranty” defense does not exist outside of the 26 context of a real property foreclosure. (Id. at 30). Appellants contend that the 27 bankruptcy court erred in rejecting their sham guaranty defense and granting 1 summary judgment in favor of Appellees on Appellees’ breach of guaranty claim. 2 (Id.). 3 “A lender is entitled to judgment on a breach of guaranty claim based upon 4 undisputed evidence that (1) there is a valid guaranty, (2) the borrower has 5 defaulted, and (3) the guarantor failed to perform under the guaranty.” Gray1 CPB, 6 LLC v. Kolokotronis,

,

(2011). 7 “A lender may not obtain a deficiency judgment on a guaranty that is shown 8 to be a sham.” LSREF2 Clover Prop. 4, LLC v. Festival Retail Fund 1, LP,

App. 5th 1067, 1075,

(2016). “In determining whether a 10 guaranty is a sham, the court examines whether the guarantor is actually the 11 principal obligor, which occurs when . . . the guarantor is, in reality, the principal 12 obligor under a different name by operation of trust or corporate law or some other 13 applicable legal principle.”

(citation omitted). “The court’s overall focus when 14 examining whether guaranties are shams is to look to the purpose and effect of the 15 parties’ agreement to determine whether the guaranties constitute an attempt to 16 circumvent the antideficiency law and recover deficiency judgments when those 17 judgments otherwise would be prohibited.”

(citation omitted). 18 California “courts have repeatedly recognized that the antideficiency laws 19 embodied in [Code of Civil Procedure] sections 580a through 580d and 726 reflect a 20 legislative policy that strictly limits the right to recover deficiency judgments for the 21 amount the debt exceeds the value of the security.” Cadle Co. II v. Harvey,

App. 4th 927, 932,

(2000) (emphasis added). These laws 23 were created to “prevent an overvaluation of the security,” “prevent the aggravation 24 of an economic recession which would result if creditors lost their property and 25 were also burdened with personal liability,” and “prevent the creditor from making 26 an unreasonably low bid at the foreclosure sale, acquire the asset below its value, 27 and also recover a personal judgment against the debtor.” Torrey Pines Bank v. 1 Starr, Cal. Real Estate (2d ed. 1989) § 9:156 at 524-25) (internal quotation marks 2 omitted). 3 During the hearing, Appellants conceded that they had not identified a single 4 California case applying the sham guaranty defense outside of the context of real 5 property. (Tr. 27:1-14). Given the lack of case law supporting Appellants’ position, 6 as well as the policy reasons underlying the antideficiency laws and the sham 7 guaranty defense, the Court agrees with the bankruptcy court that the sham guaranty 8 defense is not applicable here, where the Guaranties involved obligations wholly 9 unrelated to foreclosure of real property. 10 Accordingly, the Counterclaim Order is AFFIRMED. 11 12 C. The Jury Demand Order 13 Appellants contend that the bankruptcy court erred in denying their demand to 14 have the joint venture and breach of guaranty issues determined by a jury, asserting 15 that (1) their demand was timely under Federal Rule of Civil Procedure 38, and (2) 16 even if it were not timely, the bankruptcy court should have exercised its discretion 17 under Rule 39 to allow a jury trial on all issues. (OB at 32-37). 18 Because the Court affirms the orders granting summary judgment against 19 Appellants in the Joint Venture and Counterclaim Actions, the Court does not reach 20 the issue of whether the bankruptcy court erred in issuing the Jury Demand Order. 21 22 23 24 25 26 27 LIV. CONCLUSION 2 The Joint Venture Order and Counterclaim Order and the Judgments are 3 || AFFIRMED. Accordingly, the Court does not reach the appeal of the Jury Demand 4 || Order. 5 6 IT IS SO ORDERED. 7||DATED: March 30, 2021 Ho. WV Zs

8 9 MICHAEL W. FITZGERALD 10 United States District Judge CC: Bankruptcy Court 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28