Judge: Daniel S. Murphy, Case: BC704544, Date: 2022-08-05 Tentative Ruling

Case Number: BC704544    Hearing Date: August 5, 2022    Dept: 32

BACKGROUND

            On May 1, 2018, Plaintiffs Sam Segal and Bella Segal initiated this contract and fraud action against Defendants Bidding Unlimited, Inc., David Zinberg, Garry Itkin, and Daneilla Krashenny. On January 4, 2021, Plaintiffs obtained a judgment against Defendants Itkin, Zinberg, and Bidding Unlimited. A writ of execution was issued on June 14, 2022. On June 28, 2022, the Court granted Plaintiffs’ ex parte application to levy on the bank account of third party Garry Itkin JD, Inc. (“JD Inc.”).

            On July 5, 2022, Defendant Itkin and third party JD Inc. (collectively “Moving Parties”) filed the instant motion for reconsideration of the Court’s June 28, 2022 order granting the levy against JD Inc. Moving Parties argue that the funds are exempt from levy because they were obtained as federal financial assistance under the CARES Act for COVID relief.

LEGAL STANDARD

“When an application for an order has been made to a judge, or to a court, and refused in whole or in part, or granted, or granted conditionally, or on terms, any party affected by the order may, within 10 days after service upon the party of written notice of entry of the order and based upon new or different facts, circumstances, or law, make application to the same judge or court that made the order, to reconsider the matter and modify, amend, or revoke the prior order. The party making the application shall state by affidavit what application was made before, when and to what judge, what order or decisions were made, and what new or different facts, circumstances, or law are claimed to be shown.” (Code Civ. Proc., § 1008, subd. (a).)

DISCUSSION

I. Exemption

Moving Parties argue that the funds are exempt from levy under an executive order issued by Governor Newsom. Executive Order N-57-20 states, in pertinent part, the following:

“Financial assistance made available under section 2201 of the CARES Act

(concerning 2020 Recovery Rebates for Individuals), and any other federal-, state-, or local-government financial assistance made available to individuals in express response to the COVID-19 pandemic, shall be exempt from any attachment, levy, execution, or garnishment …”  

(Horn Decl., Ex. 4, § 1.) The exemption only applies “to the extent those funds are traceable to the financial assistance received by that individual.” (Ibid.)

            Defendant Itkin avers that in 2020, he applied to the Small Business Administration (“SBA”) for disaster relief loans under the CARES Act to help his struggling business, JD Inc. (Itkin Decl. ¶ 2.) Defendant attaches the loan authorization agreements as evidence. (Id., Ex. 1, 2.) Defendant also attaches evidence of transfers of the same amount to his and JD Inc.’s accounts. (Id., Ex. 3, 4.) Defendant further avers that from July 2021 to January 2022, he was granted several loan modifications, again attaching the authorization agreements and bank transfers. (Id., ¶¶ 7-17, Ex. 5-9.)   

II. Application of Executive Order N-57-20

            Plaintiffs apparently concede that the money in question came from CARES.  Plaintiffs, however, argue that the Executive Order does not apply because it only exempts funds received by individuals under CARES Act Section 2202, and JD Inc. is a corporation that received funds under Section 1110.

            However, the Executive Order applies to Section 2201 of the CARES ACT or “any other federal-, state-, or local-government financial assistance made available to individuals in express response to the COVID-19 pandemic . . . .” (Horn Decl., Ex. 4, § 1.) Therefore, financial assistance received under Section 1110 in response to COVID falls under the Executive Order. Additionally, corporations are considered persons under California law. (Corp. Code, § 28043.) The purpose of the Executive Order is to protect funds loaned by the government to meet emergency needs created by the pandemic. Plaintiffs cite no authority for the proposition that funds in a corporate bank account are treated differently than funds held by a natural person for purposes of the Executive Order.  

III. Proper Procedures for Levying

            The Code of Civil Procedure sets forth the following requirement for levying funds from a third party:

“Except as provided in subdivision (b), a deposit account or safe-deposit box standing in

the name of a person other than the judgment debtor, either alone or together with other third persons, is not subject to levy under Section 700.140 or 700.150 unless the levy is authorized by court order. The levying officer shall serve a copy of the court order on the third person at the time the copy of the writ of execution and the notice of levy are served on the third person.”

(Code Civ. Proc., § 700.160, subd. (a).)

Moving Parties argue that Plaintiffs failed to follow the proper procedures because they filed an ex parte application as opposed to a creditor’s suit or fraudulent transfer action. However, Moving Parties cite no authority limiting levy on a third party to situations involving a creditor’s suit or fraudulent transfer action. The Code only requires a court order and notice, which Moving Parties do not dispute were obtained. (See Code Civ. Proc., § 700.160, subd. (a).) Therefore, Plaintiffs followed the proper procedures for securing the levy.

However, Plaintiff's ex parte application was that Defendant moved $349,000 from his personal account to the corporate account in order to hide it from judgment. (King Decl. ISO Ex Parte App., ¶ 3(G).) In the motion for reconsideration, Defendant presents evidence that he received the $349,000 as a CARES loan and transferred it to his company. (Itkin Decl., Ex. 5, 6.) Therefore, the ex parte application was made on an incorrect premise that the Defendant was trying to hide money.  In reality, he was transferring government relief loans. In light of Defendant's evidence, Plaintiff presents no opposing evidence that the $349,000 was transferred fraudulently.

CONCLUSION

            Defendant Garry Itkin’s and third party Garry Itkin JD, Inc.’s motion for reconsideration is GRANTED.   Defendant Garry Itkin’s and third party Garry Itkin JD, Inc.’s claims for exemption are GRANTED.