Judge: Curtis A. Kin, Case: 24STCV06467, Date: 2024-07-18 Tentative Ruling

Case Number: 24STCV06467    Hearing Date: July 18, 2024    Dept: 86

Plaintiff Allen Matkins Leck Gamble Mallory & Natsis LLP moves for a right to attach order against defendants DFH Crenshaw LLC, Pembridge Real Estate LLC, and DFH Partners LLC in the amount of $784,035.00.

I.       Factual Background

On August 5, 2019, defendant LivWRK LLC (“Liv LLC”), doing business as LivWRK Holdings, and plaintiff Allen Matkins Leck Gamble Mallory & Natsis LLP entered into a written fee agreement, whereby plaintiff would provide legal services to LivWRK LLC. (R’bibo Decl. ¶ 2 & Ex. 1.)

            Around September 1, 2020, Liv LLC and DFH Partners LLC (“DFH Partners”) agreed to form a joint venture to acquire and develop Baldwin Hills Crenshaw Plaza (“Crenshaw Property”). (R’bibo Decl. ¶ 3.) In furtherance of the joint venture: (1) DFH Partners formed defendant DFH Crenshaw, LLC (“DFH Crenshaw”); (2) Liv LLC formed defendant LivWRK BH LLC (“Liv BH”); and (3) DFH Crenshaw and Liv BH formed defendant LivWRK DFH BH, LLC (“Joint Venture”). (R’bibo Decl. ¶ 3.) DFH Crenshaw and Liv BH are the sole members of the Joint Venture. (R’bibo Decl. ¶ 3.)

            Around September 1, 2020, all the named defendants purportedly requested plaintiff to represent the Joint Venture. (R’bibo Decl. ¶ 4.) No written engagement agreement was ever signed by the Joint Venture, DFH Partners, or DFH Crenshaw. (Passalacqua Decl. ¶ 3.)

            From September 1, 2020 to December 20, 2020, plaintiff performed legal services in connection with the Joint Venture. (R’bibo Decl. ¶ 5.) Plaintiff contends that defendants owe more than $1 million, including the principal sum of $744,035 plus interest. (R’bibo Decl. ¶¶ 5, 6.) Plaintiff stopped providing legal services because defendants failed to pay legal fees. (R’bibo Decl. ¶ 6.)

            After signing a purchase and sale agreement for the Crenshaw Property, the Joint Venture deposited $10,000,000 in escrow. (R’bibo Decl. ¶ 7.) The Joint Venture later decided to cancel their purchase of the Crenshaw Property. (R’bibo Decl. ¶ 7.) Pursuant to a settlement agreement, the Joint Venture and the seller agreed that the seller would keep $1,250,000 of the escrow deposit, with the remaining $8,750,000 to be returned to the Joint Venture. (R’bibo Decl. ¶ 8.)

            On February 5, 2021, the two members of the Joint Venture, Liv BH and DFH Crenshaw (collectively “Members”), executed a First Amendment to the Operating Agreement. (R’bibo Decl. ¶ 9 & Ex. 3 [“Amendment”].) Under the Amendment, the Members agreed that DFH Crenshaw “shall be responsible for the liabilities for costs and expenses incurred by the Company [i.e., Joint Venture] in connection with the transactions contemplated by the Purchase Agreement….” (Amendment at Recitals, p. 2.)  In Schedule 1 attached to the Amendment are listed “all of the expenses which the Company is alleged to have incurred,” but the Amendment notes explicitly that inclusion of expenses in Schedule 1 is “made for informational purposes” and “shall in no event constitute an admission by the Company that any expense or liability set forth on Schedule 1 is valid or an admission of the Company’s amount set forth on Schedule 1.” (Amendment ¶ 4(a).)  With respect to plaintiff, Schedule 1 lists “Allen Matkins” as a “Vendor” and states “Legal” for the expense “Description.” (Amendment at Schedule 1.)  Schedule 1 also lists the “Cost” as $685,000 but states “Estimate need to verify” in the “Notes” column next to it.  (Amendment at Schedule 1.)

Pursuant to the Amendment, DFH Crenshaw “assume[d] responsibility and liability for the Company Expenses, with the exclusive obligation to pay any amounts which are finally determined to be due and owing” by the Joint Venture. (Amendment at ¶ 4(b).) The Amendment provided that DFH Crenshaw “at its sole cost and expense, shall have the sole and exclusive right to negotiate with any and all payees and claimants with respect to the Company Expenses…and to pay, not pay, settle or litigate any such claims, in all cases in DFH’s sole and absolute discretion….” (Amendment at ¶ 4(b).) DFH Crenshaw also agreed to indemnify and hold Liv BH harmless for any claims for payment of Company Expenses. (Amendment at ¶ 4(b).)

            Wire instructions attached to the Amendment directed the escrow agent under the settlement agreement to pay $6,750,000 to DFH Partners and $2,000,000 to Liv BH into an account in the name of LivWRK Jay Street Holding LLC. (Amendment at ¶ 3 & Ex. C.) Plaintiff alleges that the transactions under the wire instructions are voidable. (Compl. ¶¶ 21, 23.)

            Between 2021 and 2024, DFH Partners changed its name to defendant Pembridge Real Estate LLC (“Pembridge”). (Kessler Decl. ¶ 4 & Exs. 1, 2.)

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. § 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.            Preliminary Comments

            As a preliminary matter, the operative Amended Application for Right to Attach Order seeks a right to attach order against defendants (1) DFH Crenshaw LLC, (2) Pembridge Real Estate LLC  (“Pembridge”), and (3) DFH Partners LLC. With respect to DFH Partners LLC, however, plaintiff replaced that defendant with Pembridge Real Estate LLC through the filing of the Amendment to Complaint on June 11, 2024. DFH Partners LLC is thus no longer a defendant in this action. The Court accordingly construes the application as seeking attachment against only (1) DFH Crenshaw and (2) Pembridge only.

2.            Merits

“[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).) 

            Plaintiff contends that, around September 1, 2020, all the named defendants—including DFH Partners (later renamed to Pembridge) and DFH Crenshaw—requested plaintiff to provide legal services. (R’bibo Decl. ¶ 4.) At the very least, DFH Crenshaw admits to having entered into some form of agreement for plaintiff’s services (Passalacqua Decl. ¶ 3 [“I reluctantly (and, in retrospect, mistakenly) agreed on behalf of DFH Crenshaw to use R’bibo’s firm Allen Matkins, with which I had no experience”], ¶ 4.)

            Further, with respect to the portions of the refunded deposit that was wired to DFH Partners (now Pembridge) and to Liv BH (Amendment at ¶ 3 & Ex. C.), such funds are arguably attachable if plaintiff can show that the Members of the Joint Venture—Liv BH and DFH Crenshaw—actually intended to hinder, delay, or defraud plaintiff as their creditor with respect to its claim on a contract. (Civ. Code §§ 3439.04(a)(1), 3439.07(a)(2), 3439.07(b) [“If a creditor has commenced an action on a claim against the debtor, the creditor may attach the asset transferred or other property of the transferee if the remedy of attachment is available in the action under applicable law and the property is subject to attachment in the hands of the transferee under applicable law”].)

However, neither DFH Partners nor DFH Crenshaw nor the Joint Venture ever executed a written engagement agreement with plaintiff for legal services. (Passalacqua Decl. ¶ 3.) Therefore, even assuming that plaintiff’s claim is based on some oral contract by DFH Partners, DFH Crenshaw, or the Joint Venture to pay plaintiff for legal services, and that the funds to satisfy such purported contractual obligation were fraudulently conveyed, it is not possible on plaintiff’s current showing to determine any “fixed or readily ascertainable amount” owed to plaintiff pursuant to that oral contract, which is required under CCP § 483.010(a). (CIT Group/Equipment Financing, Inc. v. Super DVD, Inc. (2004) 115 Cal.App.4th 537, 540, quoting Lewis v. Steifel (1950) 98 Cal.App.2d 648, 650 [“[T]he contract sued on must furnish a standard by which the amount due may be clearly ascertained and there must exist a basis upon which the damages can be determined by proof”].) Plaintiff does not provide any information regarding the hourly fees or payment terms to which DFH Partners, DFH Crenshaw, or the Joint Venture purportedly agreed. Plaintiff only states that all named defendants requested plaintiff’s legal services. (R’bibo Decl. ¶ 4.) Consequently, how much is owed to plaintiff is not readily apparent.  In this regard, the Court finds lacking plaintiff’s reliance on its engagement letter with Liv LLC for “general business and real estate matters”—an agreement to which none of the defendants are a party and which was executed over a year before both the formation of the Joint Venture or any purported agreement by defendants to engage plaintiff for legal services.  (See R’bibo Decl. ¶¶ 2-4 & Ex. 1.)

In addition, “[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.)

Per the operative Complaint, plaintiff seeks to set aside allegedly voidable transactions, including (1) the transfer of the refunded deposit from the Joint Venture to Liv Jay Street and DFH Crenshaw (Compl. ¶ 27), (2) the transfer from Liv Jay Street to Liv LLC and Liv BH (Compl. ¶ 38), and (3) the transfer from DFH Crenshaw to DFH Partners (Compl. ¶ 51). Plaintiff alleges that such transfers have left the Joint Venture unable to pay its debts. (Compl. ¶ 21; R’bibo Decl. ¶ 10 [“As a result, based on the language in paragraph 8(d) of the Amendment stating that the Joint Venture was to cease operating after the Refund was disbursed and the creditors paid, I believe that the Joint Venture has no funds and no ability to pay any of its creditors”].)

Such transfers are voidable only if they were made “[w]ith actual intent to hinder, delay, or defraud” plaintiff or “without receiving a reasonably equivalent value in exchange for the transfer.” (Civ. Code §§ 3439.04(a)(1), (a)(2), 3439.05(a).) Plaintiff provides no evidence of intent or whether or not the transferors received a reasonably equivalent value in exchange for the transfer. (See R’bibo Decl. ¶ 10.)

Here, the Amendment provides that DFH Crenshaw shall assume responsibility and liability for the Joint Venture’s expenses and shall resolve them. (Amendment at ¶¶ 4(b), 8(d).) DFH Crenshaw has “the sole and exclusive right to negotiate with any and all payees and claimants with respect to the Company Expenses…and to pay, not pay, settle or litigate any such claims, in all cases in DFH [Crenshaw]’s sole and absolute discretion….” (Amendment at ¶ 4(b).) The Amendment provides that “the business of the [Joint Venture] will be concluded, and thereafter the [Joint Venture] shall engage in no further business or activities other than resolving the Company Expenses (which, pursuant to Section 4(b) of this Amendment, shall be the obligation of and controlled exclusively by DFH [Crenshaw]).” (Amendment at ¶ 8(d), emphasis added.) Without more, this Court cannot conclude it is more likely than not the transfer of the refunded deposit to DFH Crenshaw and then to DFH Partners (now Pembridge) was a fraudulent conveyance, as opposed to the permissible movement of funds as part of the winddown of the Joint Venture.  (See Passalacqua Decl. ¶ 11 [“[T]he transparent purpose of directing DFH Crenshaw’s share of the earnest money deposit refund to DFH Crenshaw, rather than to the Joint Venture was to facilitate DFH Crenshaw’s contractual obligation to pay, settle, or litigate expense claims in connection with [the Crenshaw Property]”.)

IV.     Conclusion

For the foregoing reasons, plaintiff’s application for right to attach order is DENIED.