Judge: Curtis A. Kin, Case: 24STCV02135, Date: 2024-08-15 Tentative Ruling

Case Number: 24STCV02135    Hearing Date: August 15, 2024    Dept: 86

MOTION FOR APPOINTMENT OF RECEIVER

Date:               8/15/24 (1:30 PM)

Case:                           MBL Administrative Agent II LLC v. Maurice Salter et al. (24STCV02135)

TENTATIVE RULING:     

Plaintiff MBL Administrative Agent II LLC’s Motion for Appointment of Receiver is GRANTED.

Pursuant to CCP § 564(b)(1), (b)(6), and (b)(9), plaintiff MBL Administrative Agent II LLC seeks the appointment of a receiver with respect to the real, personal, tangible, and intangible property of defendants Motolease SPE, LLC (“Moto SPE”), Motolease Servicing, LLC (“Moto Servicing”), Motolease Funding, LLC (“Moto Funding”), Moto Holding, LLC (“Moto Holding”), Pico Mobility LLC (“Pico”), Westwood Group LLC (“Westwood”), and M-Nation LLC (“M-Nation”) (collectively, “Moto Entities”).

Under CCP § 564(b), a receiver may be appointed by the court in which an action is pending when a creditor’s “right to or interest in the property or fund, or the proceeds of the property or fund, is probable” and where “the property or fund is in danger of being lost, removed, or materially injured.” (CCP § 564(b)(1).) The Court may also be appointed where “a corporation is insolvent” or “in imminent danger of insolvency.” (CCP § 564(b)(6).) A receiver may also be appointed “where necessary to preserve the property or rights of any party.” (CCP § 564(b)(9).)

A receiver should not be appointed unless absolutely essential, because no other remedy will suffice. (City & County of San Francisco v. Daley (1993) 16 Cal.App.4th 734, 745.) This is so because the appointment of a receiver is recognized as a drastic, time consuming, expensive, and potentially unjust remedy to be used as a final resort. (See Weil & Brown, Civ. Proc. Before Trial § 9:743 et seq.; see also Alhambra-Shumway Mines v. Alhambra Gold Mine Corp. (1953) 116 Cal.App.2d 869, 873.) “The appointment of a receiver is a drastic remedy and is one which should not be invoked unless there is an actual or threatened cessation or diminution of the business.” (In re Jamison Steel Corp. (1958) 158 Cal.App.2d 27, 35.)

The Moto Entities provide financing for the sale and lease of motorcycles, ATVs, jet skis, and other recreational vehicles. (Lovy Decl. ¶ 6.) On May 26, 2022, plaintiff and defendants Moto SPE, Moto Servicing, and Moto Funding entered into a Senior Secured Revolving Credit Agreement (“Credit Agreement”), whereby defendants were lent money in exchange for plaintiff’s right to collect on defendants’ accounts. (Lovy Decl. ¶¶ 10-13, 31, 34 & Ex. 1.) Moto Servicing, Moto Funding, and Moto Holding are Guarantors under the Credit Agreement. (Lovy Decl. ¶¶ 16, 17.) The Credit Agreement was secured by collateral set forth in a Security Agreement, including accounts and leases. (Lovy Decl. ¶¶ 18-20 & Ex. 3.)

The Moto Entities did not remit all the monies owed to plaintiff which the Moto Entities collected. (Lovy Decl. ¶ 38.) Based on plaintiff’s review of balance sheets, income statements, and monthly reports from the Moto Entities showing collections received and amounts owed under leases, as of the end of March 2024, the Moto Entities withheld $4,909,047 from plaintiff. (Lovy Decl. ¶¶ 35-40 & Exs. 8-10.) One of the last payments plaintiff received from the Moto Entities was on August 16, 2023 in the amount of $267,501.23. (Lovy Decl. ¶ 41.) The value of the Moto Entities has decreased from $17,521,160 in June 2022 to $3,296,368 in March 2024, a difference of $13,594,792. (Lovy Decl. ¶ 38.)

Based on bank records produced by the Moto Entities, since June 2022, the Moto Entities have transferred $3,055,405.77 to themselves, including defendants M-Nation, Pico, and Westwood, which are entities related to and under the control of the Moto defendants. (Lovy Decl. ¶¶ 44-46 & Ex. 12.) Since the Moto Entities’ last payment in August 2023, $1,246,757.20 has been transferred to themselves and the entities they control. (Lovy Decl. ¶ 47.)

In deposition on June 18, 2024, Emre Ucer, Chief Executive Officer of the Moto Entities, testified that for about a year, the Moto Entities’ revenues have been insufficient to cover their liabilities. (Cummings Decl. ¶ 5 & Ex. 20 at 50:15-51:17.) While the Moto Entities have been unable to cover their liabilities, they were transferring money to related entities instead of to plaintiff to fund operations. (Cummings Decl. ¶ 5 & Ex. 20 at 128:7-130:11, 228:4-10, 291:17-25, 292:10-20.) The Moto Entities are no longer able to generate loan origination income, its main source of liquidity, because it lost all outside funding. (Cummings Decl. ¶ 5 & Ex. 20 at 45:1-46:8, 49:25-50:2, 50:10-20, 68:10-13, 321:1-3.)

Based on the foregoing, plaintiff has demonstrated that they have a right to collect on the Moto Entities’ accounts under the Credit Agreement but that the Moto Entities have withheld monies owed to plaintiff because liabilities exceed revenues. “The term ‘insolvency’ has two generally accepted definitions: (1) where there is an excess of liabilities over assets; and (2) where one is unable to meet his obligations as they mature in the ordinary course of business.” (California Retail Portfolio Fund GMBH & Co. KG v. Hopkins Real Estate Group (2011) 193 Cal.App.4th 849, 859-60.) Considering the Moto Entities’ admission that their liabilities exceed their revenues, that they have lost their main source of liquidity, and that they are using monies owed to plaintiff to fund operations, plaintiff has demonstrated that the Moto Entities’ property is in danger of dissipation, such that a receiver is necessary to preserve plaintiff’s collateral.

Defendants do not dispute that plaintiff has a right to collect on defendants’ accounts or that they are insolvent. Rather, defendants argue that plaintiff’s property is not at risk of being lost, removed, or materially injured because the Court already granted a temporary restraining order (“TRO”) on July 12, 2024 and because a motion for preliminary injunction is set for August 28, 2024. (Cummings Decl. ¶ 15 & Ex. 26.) However, even with entry of the TRO or a more lasting preliminary injunction, defendants present no evidence to meaningfully counter plaintiff’s showing that the assets are in danger of dissipation. Defendants’ counsel only avers that “[a]lthough it took Moto some time to comply with the order, on July 25th, 2025 [sic], Moto confirmed that it is transferring all of the non-DACA [i.e., plaintiff’s account where payments from Moto Entities are to be deposited] manual payments to MBL within one business day.” (Rokita Decl. ¶ 5; Lovy Decl. ¶ 50 [defining DACA].) This averment does nothing to indicate that the more than $13 million diminution in plaintiff’s collateral is likely to reverse or that the Moto Entities are likely to start earning revenues in excess of liabilities. Further, without information from the Moto Entities gained through a receiver, it would seem that plaintiff has no way to know or verify what collections the Moto Entities are receiving and whether such collections are being deposited into plaintiff’s accounts, as required under the Credit Agreement. (Lovy Decl. ¶ 54.)

Defendants also argue that the Credit Agreement allows plaintiff to replace Moto Servicing with a third-party servicer. (See Lovy Decl. ¶ 10 & Ex. 1 at § 5.07(e).) While that may be true, plaintiff has sufficiently demonstrated transfer of loan servicing to a third-party is not a viable alternative to the requested receivership in light of defendants’ failure to meaningfully facilitate any such transfer successfully to date.  (See Cummings Decl. ¶¶ 13, 17 & Exs. 24, 27; Cummings Supp. Decl. ¶ 11 & Ex. 34; see also Lovy Decl. ¶ 24.)

Plaintiff nominates Christopher Neilson, Managing Partner of Trigild IVL, LLC as the receiver. Neilson’s experience as a receiver appears to predominantly concern management of real property, and it is not clear that he personally (as opposed to his firm) possesses the necessary experience concerning loan servicing and management of the type of asset portfolio at issue here. (See Neilson Decl. ¶¶ 3-6 & Ex. A.) Notably, however, defendants do not dispute Mr. Neilson’s qualifications to serve. Defendants only object to the $400 hourly rate proposed by Mr. Neilson. Any financial burden imposed by the appointment of the proposed receiver is outweighed by the need for such an appointment due to the insolvency of the Moto Entities during the past year and failure to account for funds owed to plaintiff.  At the hearing, the Court will hear from the parties whether Neilson’s appointment as the Receiver in this matter is appropriate.

Irrespective of whom the Court appoints, the Receiver must file an undertaking. (CCP § 567(b); Rule of Court 3.1178.) Plaintiff proposes an undertaking of $10,000. (Proposed Order ¶ 2.) That amount appears reasonable.  Further, before signing any Order appointing a Receiver, the Court raises the following questions and concerns regarding the proposed order, lodged July 24, 2024:

• Why does the proposed Order fail to define “Defendants” when that term is used throughout?

• Paragraph 3: Why does the definition of Receivership Estate exclude property of defendants UCER, LLC, Pico Mobility, LLC and Focus Builders, Inc.?  What evidence supports inclusion of the so-called related entities and defendants Westwood, M-Nation, Ucer LLC, and Focus Builders, Inc. within the definition of the “Receivership Estate” and “Moto Entities”?

• Paragraph 5(ii): If the Receiver’s powers are to include “Operating the Moto Entities,” should the definition of Receivership Estate include the Moto Entities themselves?  Alternatively, if the Receivership Estate is limited to the property of the Moto Entities, what authority does the Court have to empower the Receiver to control and operate the Moto Entities themselves?

• Paragraph 7:  To whom is the Receiver required to “serve” the required monthly statements?  Why is the Receiver not additionally required to provide the Court with periodic reports concerning the activities and operations of the receiver beyond a mere reporting of “fees and administrative expenses” contemplated by the monthly statements? Alternatively, should paragraph 5(viiii) be rewritten to reflect the Receivers’ duty to provide information to the Court as requested and deemed appropriate by the Court?

• Paragraph 10: What authority does this Court have to order non-party banks to act?

• Paragraph 11: Why should this Court blindly extend blanket judicial immunity to the Receiver when existing statutes and case law provide for protections from certain liability for a court-appointed Receiver?

• Paragraph 15:  What is the authority for the Court to provide such broad, undefined and potentially impermissible “Additional Powers” to the Receiver?