Judge: David A. Hoffer, Case: 30-2022-1266819, Date: 2022-09-19 Tentative Ruling
Before the court is an OSC re: Why a Receiver Should Not Be Confirmed and Why a Preliminary Injunction Should Not be Granted.
1. Application for Receiver
The Application by plaintiff Sunwest Bank (“Bank”) for Appointment of Jacob Di Iorio of Stapleton Group as Receiver is GRANTED.
Appointment is proper where plaintiff demonstrates its right or interest in the property is probable and the property is in danger of being lost. (Snidow v. Hill (1948) 84 Cal.App.2d 702, 704) This showing may be made by allegations in a verified complaint and affidavits, including those from plaintiff’s counsel. (Republic of China v. Chang (1955) 134 Cal.App.2d 124, 131).
Bank has met its burden of demonstrating that its right or interest in the collateral at issue is probable and that the collateral property is in danger of being lost. Specifically, Bank has shown, and defendants do not dispute, that on 5/1/2019, Bank extended credit to Spectrum Construction Group (“SCG”) as a Business Loan Agreement. (Compl. Ex. 1) Concurrently therewith, SCG executed a U.S. Small Business Administration Note in the sum of $1,000,000. (Id. Ex. 2) To secure repayment, on the same date, SCG executed a Security Agreement. (Compl. ¶¶9-10; Haden Decl. ¶¶9-10; Exs. 1-3) On 9/24/2021, SCG executed a Business Loan Agreement (“Asset Based”) for $3.5 million which superseded and replaced the original loan agreement. (Compl. ¶12; Haden Decl. ¶12, Ex. 5)
The Note provides that SCG is in default if it does not make a payment when due under the Note or fails to do anything required by the Note and the other Loan Documents. (Haden Decl. Ex. 2, ¶4) In October 2021, SCG missed loan payments. (Haden Decl. ¶29) On 5/1/2022, SCG did not make an interest payment due in the amount of 15,821.85 (Haden Decl., Ex. 6) On 5/6/2022, Bank made a demand upon SCG to cure the defaults, but SCG has failed to do so, such that the Note is due and payable. (¶15, Ex. 6) SCG owes the principal sum of $3,499,987.50, plus accrued interest, late charges and other fees. (Haden Decl.¶16, Ex. 8).
SCG contractually agreed that when, as here, a default occurs, Bank may assemble collateral and appoint a Receiver. (Hadden Decl. Ex. 3, p. 4) Such agreement created a prima facie evidentiary showing of Bank’s entitlement to the relief sought, which SCG has failed to rebut. (See Barclays Bank of California v. Superior Court (1977) 69 Cal.App.3d 593, 602)
Bank has also demonstrated that SCG is no longer in business (Haden Decl. ¶¶23, 25), and that assets are in danger of disappearing because in October 2021, defendant Bisher Aljazzar (“Aljazzar”) was transferring and disposing of real property holdings, (Haden Decl. ¶29) and some SCG equipment/collateral has been located but with a new company’s name on it. (Haden Decl. ¶26). Bank’s argument has merit that the property is in danger of being removed because equipment and materials are easily transported and tax refunds can be quickly transferred, concealed, or dissipated. In further support of Bank’s contention that SCG is in default and that the assets are in danger of disappearing is evidence that Aljazzar did not provide a listing and location of collateral when asked to do so, even though the Loan Documents required SCG to provide this information. (Haden Decl. ¶¶23-24; Ex. 3)
Based on the above, Bank has satisfied the statutory requirements for appointment of a receiver. Having failed to oppose the application, defendants present no evidence to the contrary.
The court notes that Great American Insurance Company (“GAIC”) filed an opposition and that the parties have agreed upon and submitted a proposed order addressing GAIC’s objections.
Bank’s application for appointment of Receiver , the terms of which shall be consistent with the proposed order jointly agreed upon by Bank and GAIC, is therefore granted.
In the absence of objection, Jacob Di Orio, of the Stapleton Group shall be appointed Receiver.
Bank shall post a $10,000 undertaking. (CCP §566(b)) Further, consistent with CCP §567(b) the Receiver shall give an undertaking to the State of California in the amount $10,000.
The court will sign the proposed order.
2. OSC re: Preliminary Injunction (“PI”)
The requested PI shall be GRANTED.
On 7/14/2022, the court granted Bank’s TRO ordering that SCG/Aljazzar were restrained/enjoined from transferring any receivership property or destroying any of SCG’s books and records. Bank thereafter filed an undertaking of $10,000 in accordance with CCP §529.
Bank now seeks a PI, pursuant to CCP §526, to prevent defendants from interfering with discharge of the Receiver’s duties.
An injunction prohibiting disposal of property is proper if such disposal would render the final judgment ineffectual. (Heckmann v. Ahmanson (1985) 168 Cal.App.3d 119, 136). An injunction may issue to restrain a party from dissipating profits from the sale of an asset. (Id.)
The moving party bears the burden to show all elements necessary to support issuance of a preliminary injunction. (O’Connell v. Superior Court (2006) 141 Cal.App.4th 1452, 1481.) When deciding whether to issue a preliminary injunction, the court weighs two ‘interrelated’ factors: (1) the likelihood that the moving party will ultimately prevail on the merits and (2) the relative interim harm to the parties from issuance or nonissuance of the injunction. (Id. at p. 1463) The court’s determination is guided by a ‘mix’ of these factors. (Id.)
Irreparable harm is the cornerstone of the availability of injunctive relief. (Retail Portfolio Fund GMBH & Co. KG v. Hopkins Real Estate Group (2011) 193 Cal.App.4th 849, 857). Insolvency and the inability to otherwise pay damages are measures of irreparable harm that could render an award ineffectual. (Id. at p. 857-858.)
For all of the reasons outlined in the ruling above, Bank has shown that it is likely to prevail on the merits. Bank argues that because SCG defaulted on the loan and is no longer entitled to use and possess the collateral or the proceeds and is no longer in business, there is little harmful effect that the injunction will have on SCG. This argument has merit. SCG agreed it is no longer in business and therefore is not using the equipment and materials pledged as collateral. SCG does not oppose the PI or the contention that it owes over $3.5 million to bank. Nor does it dispute that the Loan Documents which it executed allow Bank to collect the collateral and sell it. Since defendants no longer have a right to the collateral or a need to use it for construction purposes, there is little harm to SCG if the PI is granted.
The relative interim harm to Bank if the PI is denied is that there will be no inventory, equipment, machinery or money left in defendant’s control to repay the $3.5 million loan or satisfy the judgment if defendants transfer or dispose of equipment or property or retitle it to prevent Bank from collecting it. The balance of the harms weighs heavily in favor of Bank.
The only potential harm shown is to GAIC’s bonded projects, but the proposed order submitted jointly by the parties addresses GAIC’s concerns.
The PI, the terms of which are set forth in the proposed order. Is therefore granted.
As Bank has already posted bond, no additional undertaking is required.
The court will sign the proposed order.
Bank is ordered to give notice of these rulings.