Zhou v. Hotel Winters CA3

CourtCalifornia Court of Appeal
DecidedJuly 5, 2024
DocketC098326
StatusUnpublished

This text of Zhou v. Hotel Winters CA3 (Zhou v. Hotel Winters CA3) is published on Counsel Stack Legal Research, covering California Court of Appeal primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Zhou v. Hotel Winters CA3, (Cal. Ct. App. 2024).

Opinion

Filed 7/5/24 Zhou v. Hotel Winters CA3 NOT TO BE PUBLISHED California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published,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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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 THIRD APPELLATE DISTRICT (Yolo) ----

XINYAO ZHOU, C098326

Plaintiff and Appellant, (Super. Ct. No. CV20221963)

v.

HOTEL WINTERS, LLC et al.,

Defendants and Respondents.

Defendant Hotel Winters, LLC, was created to raise funds to build a hotel and to distribute the hotel’s profits once it was built. In 2016, plaintiff Xinyao Zhou invested in Hotel Winters as a Class B investor, which entitled her to an ownership interest in the company, profit sharing, and an annual return on her investment. In 2022, plaintiff filed a complaint against Hotel Winters and multiple people involved in the company; the complaint generally alleged that other investors in the company conspired to reduce her

1 ownership interest and profit sharing while enriching themselves. As to Hotel Winters, plaintiff alleged causes of action for conspiracy and “unjust enrichment.” Hotel Winters demurred to plaintiff’s complaint on the basis that plaintiff failed to comply with a mandatory mediation provision in the operating agreement that provided the terms of her investment, and individually to the causes of action asserted against it on the bases that the complaint failed to allege facts sufficient to state a cause of action. The trial court sustained the demurrers without leave to amend, and subsequently granted Hotel Winters’s motion for dismissal with prejudice. (Code Civ. Proc., § 581, subd. (f)(1).)1 Plaintiff appeals from the judgment of dismissal. We affirm. FACTS AND PROCEEDINGS Plaintiff’s Complaint We summarize the allegations in plaintiff’s complaint, which she filed on November 10, 2022. Hotel Winters was created to raise funds to build a hotel and, upon completion of the hotel, to distribute its profits among the company’s members. Hotel Winters had two classes of membership, A and B. Class A members were the company’s main operators. They were required to contribute $1 million to the company and would be responsible for contributing any additional required funds, and were entitled to a 40 percent return on the company’s profits. Class B members held 70 percent of the equity in the company, and were entitled to a fixed 60 percent profit return and an 8 percent annual return on their investment. Class B investment was capped at $2.4 million. In July 2016, plaintiff signed an operating agreement and a subscription agreement, which provided that in return for her $500,000 investment as a Class B member, she would receive 14.07 percent ownership of the company, a fixed 12.5 percent profit return, and an 8 percent annual preferred return. The operating agreement

1 Further undesignated statutory references are to the Code of Civil Procedure.

2 provided that plaintiff had the right to vote on important issues--including budget increases greater than 5 percent--and that increasing investment beyond the $2.4 million cap on Class B investment required agreement by all Class B members. Plaintiff signed the operating agreement along with manager and Class A member Michael Olivas, and Class A members Ashok Patel and Ken Patel. Additionally, the operating agreement included an addendum requiring Hotel Winters to satisfy the conditions required to establish plaintiff’s eligibility for lawful permanent resident status through the EB-5 Immigrant Investor Program. The addendum was signed by accountant Mike Guynn on behalf of Hotel Winters. Class A members initially failed to satisfy their $1 million contribution requirement, leading to a request by the bank providing construction loans to contribute additional funds. The bank released loan funds after new Class B investors contributed $1 million, and construction on the hotel began. Another membership class--Class C-- was created for investment beyond the $2.4 million cap on Class B investment. In September 2018, Olivas and Guynn sought the members’ approval to raise an additional $2 million, which the members rejected because the proposed changes would delay the hotel’s completion date and because a significant portion of the additional funds would be allocated to paying Class A members a “ ‘developer’s fee.’ ” In September 2019, plaintiff noticed that her equity share in the company had decreased to just over 10 percent, but Guynn assured her that a portion of her equity dollar balance changed each year. In January 2020, plaintiff received an e-mail with an amended operating agreement and a request that she sign and return the amended agreement within three days. Later that day she received an e-mail from Alan Barmaper, whom she did not know, stating that he had been involved in the project since 2018, and that he would give the Class B investors a week to sign the updated operating agreement. Plaintiff received another e-mail from Ravi Mehta, which introduced him as the company’s legal counsel

3 and endorsed the amended operating agreement.2 Barmaper and Mehta became plaintiff’s points of contact with the company. Barmaper told plaintiff that new investors in the project--who had not been disclosed to the members--had invested more than $8 million and now owned 70 percent of the company. Additionally, the budget of the project had dramatically increased, without the approval of the members and in violation of the operating agreement. In advance of a November 2020 meeting, David Fischbach, who had become the largest investor in the company, proposed eliminating Class B members’ annual return because it had become economically burdensome, although he earned a 10 percent annual return in violation of the operating agreement. Fischbach also proposed reallocating members’ profit sharing to reflect their current equity share, which would have further decreased plaintiff’s profit share. Plaintiff raised her concerns about these proposals to Barmaper, who advised her to accept the new terms. Plaintiff wrote a letter opposing the meeting and questioning the new investors; she did not attend the meeting. According to Olivas, the new investors signed a new operating agreement. Plaintiff subsequently obtained access to the company’s financial files, which demonstrated that Olivas had issued himself, K. Patel, A. Patel, and Guynn more than $2 million in “sweat equity” and “ ‘developer’s fees.’ ” There were multiple other transactions lacking sufficient explanation, including a “ ‘legal fee’ ” and “ ‘reimbursement’ ” paid to Barmaper. In December 2020, plaintiff wrote to Olivas and “all other original Class A members . . . requesting for a mediation of all the disputes according to the operating agreement.” “[T]he mediation failed to happen due to non-response from original Class A members, and Barmaper and Ravi Mehta refusing a [Z]oom mediation during the COVID, and insisting on an in-person meeting, because they have ‘numerous evidence’

2 Mehta represented the defendants at trial, and represents Hotel Winters in this appeal.

4 that would be inconvenient to show on [Z]oom. They also conveniently voted to change a term in a revised proposed [operating agreement] that both parties shall pay the mediation fee and the prevailing party would get reimbursed.” The complaint named as defendants Hotel Winters, Barmaper, Olivas, Mehta, Fischbach, Guynn, K. Patel, A. Patel, and Yolo Hospitality Ventures (an LLC the complaint alleged was created by Mehta, Barmaper, and Fischbach to raise money to invest in Hotel Winters).

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Zhou v. Hotel Winters CA3, Counsel Stack Legal Research, https://law.counselstack.com/opinion/zhou-v-hotel-winters-ca3-calctapp-2024.