Judge: Curtis A. Kin, Case: 24STCV02587, Date: 2025-04-22 Tentative Ruling

Case Number: 24STCV02587    Hearing Date: April 22, 2025    Dept: 86

Plaintiffs 4E Capital LP, Pharm Capital LLC, and Alexey Mikhaylov (collectively “plaintiffs”) each separately move for a right to attach order as to each of the following defendants as follows: (1) against defendant OMB PDG, LLC (“OMB PDG”) in the amount of $10,491,286, on the basis of alter ego, or alternatively, $447,947 on the basis of fraudulent transfer; (2) against defendant Via Real Group, LLC (“VRG”) in the amount of $447,947 on the basis of fraudulent transfer; and (3) against defendant Zevo Drive Holdings, LLC (“Zevo”) in the amount of $25,000 on the basis of fraudulent transfer.

I.       Background

            This case arises from a lending relationship between plaintiffs and defendant Pacific Consolidated Holdings Group, Inc. (“PCH”).

Defendant PCH is a cannabis company.  Through its wholly-owned subsidiary defendant OMB PDG, PCH invested in a separate cannabis company, Pacific Dutch Group LLC. (Pl. Mem. at 5; Beatty Decl., Exs. 6 & 8 at ¶ 5; Opp. at 7; Mehlman Decl. ¶ 3; RJN, Ex. A at ¶ 2; Steinberg Decl. ¶ 3.) In 2019, during Pacific Dutch Group’s expansion, funding was provided to acquire two properties, VR1 and VR 2, to be used as greenhouse. (Opp. at 7; Mehlman Decl. ¶ 5; Steinberg Decl. ¶ 6; RJN Ex. A at ¶ 4.) The VR1 property is owned by defendant Zevo, and defendant VRG, a wholly-owned subsidiary of PCH, acts as the operations entity for the property. (Pl. Mem. at 6; Beatty Decl. Exs. 5 & 7.)

In 2020, following a criminal investigation into Pacific Dutch Group, OMB PDG and Pacific Dutch Group engaged in protracted litigation to detangle their business interests. (Opp. at 8; Mehlman Decl. ¶ 7; Steinberg Decl. ¶ 8; RJN, Ex. A at ¶ 6.) That litigation culminated in a settlement agreement in January 2022, resulting in Pacific Dutch Group buying out OBM PDG’s equity, which was formalized through various legal instruments (“PDG Notes”). (Pl. Mem. at 6; Beatty Decl. Ex. 6; Opp. at 8; Mehlman Decl. ¶ 8; Steinberg Decl. ¶ 9, RJN, Ex. A at ¶ 7.)  

In 2021, defendant PCH obtained loans from plaintiffs 4E Capital LP and Pharm Capital LLC. (Pl. Mem. at 6; Beatty Decl. Ex. 8 at ¶ 6, Ex. 9 at ¶ 2, Ex. 12 at ¶ 5.) In 2022, in loan negotiations with plaintiffs 4E Capital LP and Mikhaylov, defendant PCH offered as collateral the payments due to PCH under the PDG Notes. (Pl. Mem. at 6; Beatty Decl. Ex. 8 at ¶ 14, Ex. 9 at ¶ 4.) Defendant PCH purportedly represented that it had the right to assign those monthly payments to plaintiffs as collateral for the loans. (Pl. Mem. at 6; Beatty Decl., Ex. 9 at ¶¶ 7-10.)

Since 2023, defendant OBM PDG has periodically transferred funds to defendant PCH to aid in on-going operations. (Opp. at 8-9; Mehlman Decl. ¶ 10.) There is no formal contractual obligation that required defendant OBM PDG to remit funds to defendant PCH. (Opp. at 9; Mehlman Decl. ¶ 9, Steinberg Decl. ¶ 10; RJN Ex. A at ¶ 9.) Pertinent to the present writs, on February 12, 2024, defendant OBM PDG transferred $800,000 to defendant PCH to help cover operational expenses and legal expenses associated with this action while defendant PCH awaited a sizable tax refund. (Opp. at 11; Mehlman Decl. ¶ 16; Steinberg Decl. ¶ 13; Beatty Decl., Ex. 2 at 14.) The refund of $1,012,64.22 was received on March 7, 2024. (Opp. at 11; Beatty Decl., Ex. 2 at 16.)

          On April 2, 2024, plaintiffs sought writs of attachment against defendant PCH based on breach of contract. (Beatty Decl. ¶ 2.) On May 16, 2024, at the scheduled hearing for those writs of attachment, defendant PCH sought a continuance in order to allow the parties to mediate their disputes. (Beatty Decl. ¶ 3.) To facilitate the continuance, the parties entered into a stipulation, pursuant to which defendant PCH agreed “not use, or otherwise dispose of, any deposits held in any account in the name of PCH and will not dispose of any real or personal property held in the name of PCH.” (Beatty Decl. ¶ 3 & Ex. 1.) The mediation was ultimately unsuccessful, and the Court granted the applications for writs of attachment against defendant PCH on June 5, 2024. (Beatty Decl. ¶¶ 5-6 & Ex. 14.)   

            After discovering defendant PCH’s intent to proceed with a corporate restructuring that might negatively impact plaintiffs’ ability to recover against defendant PCH, plaintiffs moved ex parte on July 17, 2024 for a writ of attachment against OBM PDG before Hon. Stephen Goorvitch and sought a TRO and OSC re Preliminary Injunction before Hon. Holly J. Fujie in the assigned court. (Beatty Decl. ¶ 9.) The ex parte application for a writ of attachment was denied on the basis that irreparable harm had not been established for ex parte relief and that the evidence presented was insufficient to support a theory of alter ego liability. (Beatty Decl. Ex. 15.) On August 14, 2024, a preliminary injunction was issued enjoining conduct that would affect the PDG Notes, based on a finding that plaintiffs had established a substantial likelihood that they would prevail on their fraudulent transfer claim. (Beatty Decl. Ex. 16 at 8-10.)

            On September 27, 2024, plaintiffs conducted third-party discovery on East West Bank, seeking bank records relating to defendants PCH, OBM PDG, and VRG, among others, which resulted in records produced on October 21, 2024. (Beatty Decl. ¶ 11.) Such records revealed that defendant PCH wired $447,947 to defendant OBM PDG six days before the May 16, 2024 hearing on plaintiffs’ applications for writs of attachment. (Beatty Decl. Ex. 2 at 20.) Due to this large transfer, combined with another to counsel for $125,000 and other smaller transfers, defendant PCH’s account balance was reduced to $1,564. (Beatty Decl. Ex. 2 at 20-22.) By August 2024, the account was closed. (Beatty Decl. Ex. 2 at 25.) Three days after receiving $447,947 from defendant PCH, on May 13, 2024, defendant OBM PDG wired the same amount to defendant VRG, whose account had been opened with a starting balance of $1,772 on April 16, 2024, less than one month prior to receiving the $447,947 transfer. (Beatty Decl. Ex. 3 at 74, 82-83.) After receiving this transfer, VRG made several large payments to various companies, including transferring $25,000 to defendant Zevo. (Beatty Decl. Ex. 3 at 85-92.)

II.      Applicable Law

            “Upon the filing of the complaint or at any time thereafter, the plaintiff may apply . . . for a right to attach order and a writ of attachment . . . .” (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. § 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 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

Defendants request that the Court take judicial notice of the following documents: (1) a copy of the Declaration of Omar Mangalji filed in support of Defendants’ opposition to Plaintiffs’ preliminary injunction; (2) a copy of Plaintiffs’ ex parte writ application for a right to attach orders and writs of attachment against Defendant OBM, PDG filed in Department 82; and (3) a copy of the Court’s order denying Plaintiffs’ ex parte writ application for a right to attach orders and writs of attachment against Defendant OBM, PDG on July 19, 2024. (RJN Exs. A-C.) The request is GRANTED pursuant to Evidence Code § 452(d), but only for the existence of the Exhibits 1 and 2 and not the truth of any assertions therein.  As for Exhibit 3, the Court takes judicial notice of its existence and the truth of facts asserted therein. (6 Witkin, California Procedure, 4th Edition, 2000, Proceedings Without Trial, § 210, p.622.)  

Defendants’ evidentiary objections to the declaration of Christopher D. Beatty are OVERRULED in their entirety. Defendants’ evidentiary objections to the declarations of Will Abbott, Tom Rini, and Alexey Mikhaylov are SUSTAINED only to the extent that those declarations contain improper legal conclusions or argument.

2.            Procedural Issue

Defendants argue that the instant applications constitute an improper motion for reconsideration because the Court (Hon. Stephen Goorvitch) previously denied an application for writ of attachment against defendant OBM PDG. (Opp. at 13; RJN Ex. C at 1.) This argument is unpersuasive. The Court denied the ex parte applications on the ground that there was no irreparable harm to justify ex parte relief. Thus, no formal order was issued as to the merits of the application. Furthermore, with respect to plaintiffs’ alter ego theory of liability, the Court merely found that sufficient evidence had not been produced at the time of that hearing. There was no finding that the alter ego theory could not be established upon a more developed record. Accordingly, the instant applications do not constitute an improper motion for reconsideration.  

3.            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).) 

            Plaintiffs’ claims against defendants are based on the claims of fraudulent transfer and alter ego liability. Under Civil Code § 3439.07(a)(2), a fraudulent transfer claim is a proper basis for attachment “against the asset transferred or other property of the transferee in accordance with the procedures described in Title 6.5 . . .  of Part 2 of the Code of Civil Procedure . . . .” In addition, writs of attachment have been issued where the plaintiff successfully established alter ego liability. (See Grotheer v. Meyer Rosenberg Inc. (1936) 11 Cal.App.2d 268, 271-272; see also Johnson v. Alexander (1976) 63 Cal.App.3d 806, 810.) Defendants do not dispute that these are valid grounds for attachment.

With respect to the issue of alter ego liability, however, the Court finds that such a determination is not appropriate at this juncture of the litigation.  A writ of attachment based on alter ego liability may be obtained in an action to enforce a judgment against an entity alleged to be the alter ego of the judgment debtor. (See, e.g., Grotheer, 11 Cal.App.2d at 269-70.) In pending litigation in which liability to the plaintiff has yet to be established, attachment against a purported alter ego has been allowed where the dispute over alter ego liability is unopposed or straightforward. (See Johnson, 63 Cal.App.3d at 810; Meineke Franchisor SPV LLC v. Taw, 2023 WL 9379185 at *3 (C.D. Cal. Nov. 3, 2023) [finding that attachment against an individual defendant was appropriate because he was a 100% owner of the breaching entity and had signed a personal guaranty].)  Here, by contrast, both sides present competing evidence as to whether defendant OBM PDG is an alter ego of defendant PCH. Consequently, the Court declines to prematurely make a determination of alter ego liability at this stage of the litigation.          

Accordingly, the Court addresses plaintiffs’ right to attachment only on the basis of its claim for fraudulent transfer.

4.            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.)

Under Civil Code § 3439.04, a transfer is fraudulent if it is made “[w]ith actual intent to hinder, delay or defraud” or the debtor made the transfer “without receiving reasonably equivalent value in return, and either (a) was engaged in or about to engage in a business or transaction for which the debtor's assets were unreasonably small, or (b) intended to, or reasonably believed, or reasonably should have believed, that he or she would incur debts beyond his or her ability to pay as they became due.” “Whether a conveyance was made with fraudulent intent is a question of fact, and proof often consists of inferences from the circumstances surrounding the transfer.” (Filip v. Bucurenciu (2005) 129 Cal.App.4th 825, 834.) Under Civil Code § 3439.04(b), the following factors can be considered in determining actual intent:

(1) Whether the transfer or obligation was to an insider. [¶] (2) Whether the debtor retained possession or control of the property transferred after the transfer. [¶] (3) Whether the transfer or obligation was disclosed or concealed. [¶] (4) Whether before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit. [¶] (5) Whether the transfer was of substantially all the debtor's assets. [¶] (6) Whether the debtor absconded. [¶] (7) Whether the debtor removed or concealed assets. [¶] (8) Whether the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred. [¶] (9) Whether the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred. [¶] (10) Whether the transfer occurred shortly before or shortly after a substantial debt was incurred. [¶] (11) Whether the debtor transferred the essential assets of the business to a lienor that transferred the assets to an insider of the debtor.

Here, plaintiffs assert that a writ of attachment against defendants OBM PDG, VRG, and Zevo is appropriate because the sequence of transfers of funds from (i) PCH to OMB PDG; (ii) OBM PDG to VRG; and (iii) VRG to Zevo constituted fraudulent transfers. Plaintiffs reason that (1) defendant PCH engaged in a scheme to avoid attachment by transferring the funds to its wholly-owned subsidiaries; (2) it retained control over the transfers; (3) it had been on notice of plaintiffs’ intent to pursue writs of attachment; (4) it transferred nearly all of its funds; (5) it failed to disclose the transfers in party discovery or at the time it requested a continuance of the hearing on the applications for attachment to pursue mediation; (6) defendant VRG’s bank account was less than a month old when it received defendant OBM PDG’s transfer; and (7) defendants were found to have fraudulent intent with respect to issuance of the preliminary injunction. (Pl. Mem. at 10.)

In opposition, defendants claim that plaintiffs are unable to establish that the transfers were made with an actual intent to hinder, delay or defraud plaintiffs. First, they assert that defendant PCH did not retain control over the transfers because the corporations are separate entities. Second, they assert that the transferred funds belonged to defendant OBM PDG and were only provided to cover operational expenses. Third, they contend that the failure to disclose was an oversight and that there was no bad faith in negotiating and entering into the May 16, 2024 stipulation because the transfers occurred days beforehand. Fourth, they assert that the fact that defendant VRG opened a separate bank account does not suggest the transfer was fraudulent. Fifth, they contend the basis for the preliminary injunction relating to defendant PCH’s proposed corporate restructuring is unrelated to the transfers at issue here. (Opp. at 14.)

While there is a factual dispute as to whether defendant PCH retains control over its wholly-owned subsidiaries to have facilitated the transfers, there are several other factors under Civil Code § 3439.04(b) that support a finding of defendants’ fraudulent intent.

First, it is undisputed that defendants OBM PDG and VRG are wholly-owned subsidiaries of defendant PCH. Thus, the initial two transfers were effectively made to insiders.

Second, plaintiffs filed their applications for writs of attachment against defendant PCH on April 2, 2024. Defendant PCH thus knew of plaintiffs’ intent to attach its property and suspiciously transferred substantially all of its funds to defendant OBM PDG less than one week before the hearing on those applications. While defendant PCH may contend it merely transferred funds on May 10, 2024 that belonged to defendant OBM PDG, such contention is unsupported by credible evidence. Defendants concede that there is no contractual agreement between defendants OBM PDG and PCH providing for transfer of funds between them. More to the point, there is no evidence that defendant PCH’s transfer of funds was to repay defendant OBM PDG for previously providing funds.  Indeed, if, as defendants contend, the prior $800,000 transfer from OBM PDG on February 12, 2025 was to provide PCH with temporary funding until it received its tax refund, it is hard to see why defendant PCH would have waited over two months after receiving its tax refund on March 7, 2024 to transfer any funds back to defendant OBM PDG.  The timing of the May 10, 2024 transfer more closely aligns with an intent to defraud and make the funds unavailable for attachment.

Third, the transfers were never disclosed to plaintiffs. While defendants may claim that this was merely oversight, such information would have been highly relevant to plaintiffs when they stipulated to a continuance of the hearing on their applications for a writ of attachment as to defendant PCH on May 16, 2024. Had it been disclosed to plaintiffs that nearly $500,000 had been transferred out of defendant PCH’s bank account, leaving only $1,564, there would have been little reason or incentive for them to agree to a continuance.

Fourth, even if defendant OBM PDG had previously transferred funds to a different bank account belonging to defendant VRG, those transfers had never been similar in size and degree as the one for $447,947 made on May 13, 2024. (See Beatty Decl. Ex. 3 at 64, 67, 70, 72.)

Fifth, the previously issued preliminary injunction highlights that defendant PCH will try to circumvent its obligations unless directly ordered by the Court. The sequence of transfers that occurred here is consistent with that finding of fraudulent intent.

Accordingly, for the foregoing reasons, the Court finds that plaintiffs have demonstrated a probable validity of their fraudulent transfer claims against defendants OBM PDG, VRG, and Zevo. (See Nautilus, Inc. v. Yang (2017) 11 Cal.App.5th 33, 39 [“A fraudulent conveyance is ‘a transfer by the debtor of property to a third person undertaken with the intent to prevent a creditor from reaching that interest to satisfy its claim.’ (Citation omitted)]; Civ. Code § 3439.08(b)(1).)

5.            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).) Plaintiffs 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.) Plaintiffs also demonstrates that the amount to be secured by the attachment is greater than zero. (Apps. ¶ 8.)  

6.            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).” Plaintiffs provide this statement. (Apps. ¶ 5.) 

7.            Property Subject to Attachment

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. Plaintiffs moves to attach any property of defendants.

8.            Exemptions

No claim of exemption was filed.

9.            Undertaking

CCP § 489.210 requires a plaintiff to file an undertaking before issuance of a writ of attachment. CCP § 489.220 states that the Court “shall” order an undertaking in the amount of $10,000, with an exception for increasing the $10,000 undertaking if the Court finds it is insufficient. The Court will require an undertaking of $10,000 for each requested writ of attachment.

The Court notes that plaintiffs have posted an undertaking of $600,000 with respect to the previously ordered attachment as to defendant PCH.  Insofar as plaintiffs contend the $600,000 undertaking is excessive, the Court is unaware of any authority—and plaintiffs cite none—that would permit them to seek and obtain a reduction of that undertaking in connection with the instant applications for writs of attachment, which involve different defendants and different amounts of attachment.  If plaintiffs seek reconsideration of the previously ordered undertaking, they must do so in accordance with the requirements for reconsideration of a prior Court order.

IV.     Conclusion

The applications against defendant OBM PDG are GRANTED IN PART in the amount of $447,947. The applications against defendant VRG are GRANTED in the amount of $447,947. The applications against defendant Zevo are GRANTED in the amount of $25,000. 

The Court will sign the Proposed Right to Attach Orders, electronically received March 18, 2025, in accordance with the above.