Judge: Curtis A. Kin, Case: 23STCV09558, Date: 2024-04-16 Tentative Ruling

Case Number: 23STCV09558    Hearing Date: April 16, 2024    Dept: 86

Plaintiff Gary R. Belz, as representative for the benefit of himself and Gary Belz Family LP, moves for a right to attach order against defendants (1) Cyber 1, LLC, (2) Norman Kravetz, and (3) Douglas Jacobsen in the amount of $5,239,394.33.

I.       Factual Background

            On February 15, 2022, plaintiff Gary R. Belz, as representative for the benefit of himself and Gary Belz Family LP, and defendant Cyber 1 LLC (“Cyber 1”) entered into a written Promissory Note (“Note”), whereby Cyber 1 borrowed $4,550,000 from plaintiff. (Belz Decl. ¶ 2 & Ex. 1.) Under the Note, repayment shall be made in four annual installments as follows: (1) $450,000 on February 1, 2023; (2) $600,000 on February 1, 2024; (3) $1,000,000 on February 1, 2025; and (4) the remaining principal balance on February 1, 2026. (Belz Decl. Ex. 1 at § 1(b).)

            On February 15, 2022, defendants Norman Kravetz and Dougals Jacobsen guarantied Cyber 1’s payments under the Note. (Belz Decl. ¶ 7 & Exs. 2, 3.)

            Cyber 1 failed to make the required $450,000 payment on or before February 1, 2023. (Belz Decl. ¶ 4.) The entire principal payment of $4,550,000 remains unpaid. (Belz Decl. ¶ 4.) Interest in the amount of $489,394.33 as of February 25, 2024 also remains unpaid. (Belz Decl. ¶ 6.)

II.      Applicable Law

            “Upon the filing of the complaint or at any time thereafter, the plaintiff may apply pursuant to this article for a right to attach order and a writ of attachment by filing an application for the order and writ with the court in which the action is brought.” (CCP § 484.010.)

The application shall be executed under oath and must include: (1) a statement showing that the attachment is sought to secure the recovery on a claim upon which an attachment may be issued; (2) a statement of the amount to be secured by the attachment; (3) a statement that the attachment is not sought for a purpose other than the recovery on the claim upon which the attachment is based; (4) a statement that the applicant has no information or belief that the claim is discharged or that the prosecution of the action is stayed in a proceeding under the Bankruptcy Act (11 U.S.C. section 101 et seq.); and (5) a description of the property to be attached under the writ of attachment and a statement that the plaintiff is informed and believes that such property is subject to attachment. (CCP § 484.020.)

            The application for a writ of attachment must be supported “by an affidavit showing that the plaintiff on the facts presented would be entitled to a judgment on the claim upon which the attachment is based.” (CCP § 484.030.) The Court shall consider the showing made by the parties, as well as the pleadings and other papers in the record. (CCP § 484.090(a), (d).) The Court shall issue a right to attach order if it finds all of the following:

(1) The claim upon which the attachment is based is one upon which an attachment may be issued.

(2) The plaintiff has established the probable validity of the claim upon which the attachment is based.

(3) The attachment is not sought for a purpose other than the recovery on the claim upon which the attachment is based.

(4) The amount to be secured by the attachment is greater than zero.

(CCP § 484.090(a)(1-4).)

            “The Attachment Law statutes are subject to strict construction….” (Epstein v. Abrams (1997) 57 Cal.App.4th 1159, 1168.)

III.     Analysis

1.            Evidentiary Matters

All evidentiary objections are OVERRULED. Defendants’ requests for judicial notice are DENIED as “unnecessary to the resolution” of the issues before the Court. (Martinez v. San Diego County Credit Union (2020) 50 Cal.App.5th 1048, 1075.) Judicial notice is not required to cite the Complaint or exhibits thereto.

2.            Basis of Attachment

“[A]n attachment may be issued only in an action on a claim or claims for money, each of which is based upon a contract, express or implied, where the total amount of the claim or claims is a fixed or readily ascertainable amount not less than five hundred dollars ($500) exclusive of costs, interest, and attorney’s fees.”  (CCP § 483.010(a).)  “An attachment may not be issued on a claim which is secured by any interest in real property arising from agreement ….”  (CCP § 483.010(b).) 

            With respect to Cyber 1, the amount sought to be attached is based on amounts due under a written Promissory Note executed by Cyber 1 in favor of plaintiff. (Belz Decl. ¶ 2 & Ex. 1.) With respect to Kravetz and Jacobsen, the amount sought to be attached is based on their General Continuing Guaranties (“Guaranties”) that Cyber 1 will pay all amounts due under the Note. (Belz Decl. ¶ 7 & Exs. 2, 3.)

            Defendants argue that an essential element of CCP § 483.010 is an unsecured debt. Defendants contend that Kravetz and Jacobsen each pledged 7.5% of their outstanding membership interests in Equity Orchestration LLC as collateral to secure their guaranties. (See Belz Decl. ¶ 8 & Ex. 4.) Kravetz and Jacobsen have not transferred their membership interests to plaintiff. (Belz Decl. ¶ 10.)

            Defendants do not cite any applicable authority indicating that the claim for which plaintiff seeks attachment must be unsecured. CCP § 483.010(b) prohibits attachment on a claim that is secured by real property. Plaintiff’s claim is not secured by real property. (Belz Decl. ¶ 2.) Defendants rely on case law citing CCP § 537(1), which required no security to have existed at the time of attachment. (Jue v. Bass (9th Cir. 1962) 299 F.2d 374, 379.) However, CCP § 537 has since been repealed. The text of CCP § 483.010 does not limit attachment to unsecured debts.

            Defendants also contend that plaintiff has not presented evidence of a fixed or readily ascertainable amount. According to defendants, because the value of the collateral has not been assessed, defendants do not know the maximum amount of their property that is affected. However, defendants have the burden of establishing the value of any offset to which they believe they are entitled. (See Lydig Construction, Inc. v. Martinez Steel Corp. (2015) 234 Cal.App.4th 937, 945.) Defendants have not provided any evidence of the value of their membership interests. (See generally Jacobsen Decl.) Accordingly, the Court does not apply any offset to the requested amount for attachment. (See generally CCP § 483.015(b) [setting forth mandatory reductions to amount to be attached].)

Defendants do not otherwise dispute that the total due under the Note is $4,550,000 and that the amount of unpaid interest is $489,394.33. (Belz Decl. ¶¶ 4-6.)

Plaintiff has thus demonstrated that an attachment may be issued with respect to his claims made pursuant to the Note and the Guaranties.

3.            Probable Validity of Plaintiff’s Claims

“A claim has ‘probable validity’ where it is more likely than not that the plaintiff will obtain a judgment against the defendant on that claim.” (CCP § 481.190.) “If the defendant opposes the application, ‘the court must then consider the relative merits of the positions of the respective parties and make a determination of the probable outcome of the litigation.’ [Citations.]” (Pech v. Morgan (2021) 61 Cal.App.5th 841, 855.)

            With respect to Cyber 1, the Note provides that the first payment in the amount of $450,000 was due on February 1, 2023. (Belz Decl. ¶ 2 & Ex. 1 at § 1(a).) It is undisputed that Cyber 1 did not tender the first payment. (Belz Decl. ¶ 4.) Upon breach of any provision of the Note, plaintiff can declare the entire amount owed under the Note due and payable. (Belz Decl. ¶ 2 & Ex. 1 at § 4.) Cyber 1 has not paid any of the principal due under the Note. (Belz Decl. ¶ 4.) Accordingly, plaintiff demonstrates a probable validity that the entire $4,550,000 principal under the Note is due and payable by Cyber 1.

            With respect to Kravetz and Jacobsen, they guarantied Cyber 1’s performance under the Note. (Belz Decl. ¶ 7 & Exs. 2, 3 at § 1.) Kravetz and Jacobsen have not made any payments toward the principal or interest due under the Note. (Belz Decl. ¶ 9.) Nor have Kravetz and Jacobsen transferred their membership interests which they pledged as collateral to secure the Guaranties. (Belz Decl. ¶¶ 8, 10 & Ex. 4.) Accordingly, plaintiff demonstrates a probable validity that the entire $4,550,000 principal under the Note is due and payable by Kravetz and Jacobsen.

Defendants also do not dispute plaintiff’s calculation of unpaid interest in the amount of $489,394.33. (Bezl Decl. ¶ 6.)

            Accordingly, plaintiff demonstrates the probable validity of its claim for breach of contract against defendants Cyber 1, Kravetz, and Jacobsen. (Compl. ¶¶ 21-35.)

4.            Purpose and Amount of Attachment

The other required findings under CCP § 484.090 are that the “attachment is not sought for a purpose other than the recovery on the claim upon which the attachment is based” and that the “amount to be secured by the attachment is greater than zero.” (CCP § 484.090(a)(3), (a)(4).)

Plaintiff declares that “[a]ttachment is not sought for a purpose other than the recovery on a claim upon which the attachment is based.” (Apps. ¶ 4.) Plaintiff also demonstrates that the amount to be secured by the attachment is greater than zero. (Apps. ¶ 8.)

Contrary to defendants’ assertion, plaintiff’s attachment may include interest and attorney fees. Just because the amount to be attached must be at least $500 exclusive of costs, interest, and attorney’s fees under CCP § 483.010(a), this does not mean that interest and attorney fees cannot be included in the attachment. Rather, the amount to be attached, not considering amounts for interest or attorney fees, must be at least $500. As stated above, the outstanding principal on the Note is $4,550,000 – more than $500.

With respect to fees, “[t]he plaintiff’s application for a right to attach order and a writ of attachment pursuant to this title may include an estimate of the costs and allowable attorney’s fees.” (CCP § 482.110(a).) Plaintiff seeks to attach $200,000 for fees for drafting the Complaint, researching and drafting a summary judgment motion, and for various discovery disputes. (Apps. ¶ 8; Gurvitz Decl. ¶ 10.) Defendants contend that this amount is not reasonable. Given defendants’ vigorous opposition to the instant applications for right to attach orders and assertion of 34 affirmative defenses in their Answer, defendants have demonstrated that they intend to zealously defend against plaintiff’s claims.  Indeed, the level of activity in this case as is reflected in the docket entries for this matter (of which this Court takes judicial notice) so reflects. Plaintiffs’ estimate of fees seems reasonable.

5.            Bankruptcy

CCP § 484.020(d) requires a “statement that the applicant has no information or belief that the claim is discharged in a proceeding under Title 11 of the United States Code (Bankruptcy) or that the prosecution of the action is stayed in a proceeding under Title 11 of the United States Code (Bankruptcy).” Plaintiff provides this statement. (Apps. ¶ 5.)

6.            Property Subject to Attachment

With respect to Cyber 1, CCP § 487.010(a) states that where the defendant is a corporation, all corporate property for which a method of levy is provided in CCP § 488.300 et seq. is subject to attachment. Plaintiff moves to attach any property of Cyber 1.

With respect to Kravetz and Jacobsen, “[w]here the defendant is a natural person, the description of the property shall be reasonably adequate to permit the defendant to identify the specific property sought to be attached.” (CCP § 484.020(e).) “The requirement of specificity [under CCP § 484.020(e) does not] … prohibit a plaintiff from targeting for attachment everything an individual defendant owns [s]o long as the property descriptions are adequate.” (Bank of America v. Salinas Nissan, Inc. (1989) 207 Cal.App.3d 260, 268.) Plaintiff’s description of the property to be attached, including defendants’ “real property, personal property, equipment, motor vehicles, chattel paper, negotiable and other instruments, securities, deposit accounts, safe deposit boxes, accounts receivable, and general intangibles” (Apps. ¶ 9(c)) is reasonably adequate and limited to property in which defendants have an interest.

Accordingly, to the extent that the property sought to be attached is not listed in CCP § 487.010(c), such property is still subject to attachment.

7.            Exemptions

In the notice of oppositions, defendants seek an exemption from attachment of “household furnishings, appliances, provisions, wearing appeal, and personal effects,” pursuant to CCP § 704.020. Such an exemption is not needed because plaintiff seeks to attach “non-exempt” property of the individual defendants. (Apps. re: Kravetz and Jacobsen ¶ 9(c).)

With respect to Jacobsen, Jacobsen contends that he has no salary, compensation, or other sources of income and that his cash on hand is necessary for the support of him and his family. (See Jacobsen Decl. ¶¶ 9, 10.) Jacobsen does not make any direct averments regarding any distributions owed on account of his partnership/LLC interests. Further, Jacobsen’s asserted monthly expenses of over $42,000 appear grossly inflated, including $9,808 per month for rent, $4,667 per month for insurance, and $1,998 per month for entertainment. To the extent that the expenses are not inflated, Jacobsen does not explain why he should not be expected to reduce such expenses. Jacobsen also does not adequately support his asserted $10,000 per month in legal expenses. Because Jacobsen appears to be understating his available assets and overstating his expenses, the Court declines to reduce the amount of attachment in any amount.

8.            Undertaking

CCP § 489.210 requires the plaintiff to file an undertaking before issuance of a writ of attachment. CCP § 489.220 provides, with exceptions, for an undertaking in the amount of $10,000.

Defendants seek an increase of the bond because the default interest rate of 11% is usurious. (Belz Decl. ¶ 2 & Ex. 1 at § 1(b).) However, the original interest rate is 8%. Only upon default is 3% added. “[A] transaction that was not usurious at its inception cannot become usurious by virtue of the debtor’s voluntary default.” (Southwest Concrete Products v. Gosh Construction Corp. (1990) 51 Cal.3d 701, 708 [discussing inapplicability of usury prohibition to late charges and interest on overdue invoices].) Because Cyber 1 defaulted on its Note, the addition of 3% does not render the loan usurious. Defendants do not show how including interest in the attachment would be wrongful.

The Court will order an undertaking in the amount of $10,000 for the attachment as to each defendant.

Pursuant to CCP § 489.310, defendants seek an order permitting them to post a bond in lieu of attachment of their assets. However, defendants must seek such an order through noticed motion. (CCP § 489.310(a).) Defendants have not filed any noticed motion.

IV.     Conclusion

The applications are GRANTED in the amount of $5,239,394.33 as to defendants (1) Cyber 1, LLC, (2) Norman Kravetz, and (3) Douglas Jacobsen. Before any writ of attachment shall issue, plaintiff Gary R. Belz, as representative for the benefit of himself and Gary Belz Family LP, must post an undertaking of $10,000 as to each writ of attachment.