Judge: Elaine Lu, Case: 19STCV46270, Date: 2024-01-02 Tentative Ruling

Case Number: 19STCV46270    Hearing Date: January 2, 2024    Dept: 26

Superior Court of California

County of Los Angeles

Department 26

Procedural Background

            On December 26, 2019, Plaintiffs Andy Chong and Grant Neilan (jointly “Plaintiffs”) filed the instant action against Defendants Marc Shelton (“Shelton”) and Lock & Key Social Drinkery LLC.  The complaint asserted five causes of action for (1) Breach of Fiduciary Duty, (2) Declaratory Relief, (3) Dissolution of Lock & Key based on Marc Shelton’s Pervasive and Persistent Fraud, (4) Accounting, and (5) Fraud.  On June 2, 2020, Plaintiffs named Drink Eat Social, Inc. (“DES”) and Shelton Food & Beverage, Inc. as Does 1 and 2.  On June 11, 2020, the Court entered default as to Lock & Key Social Drinkery LLC.  On October 4, 2022, after a jury trial, a verdict was entered in favor of Plaintiffs as to the fraud and breach of fiduciary claims against Defendants Shelton, DES, and Shelton Food & Beverage, Inc. 

            On January 13, 2023, the Court required Plaintiffs to make an election between alternative remedies to seek either fraud damages as a whole against all defendants or breach of fiduciary duty damages as a whole against all defendants.  On January 23, 2023, Plaintiffs elected to request judgment in favor of the breach of fiduciary claim.  The court entered judgment in favor of Plaintiff Andy Chong on his breach of fiduciary duty claim against Defendant Shelton for $1,054,046.00 and in favor Plaintiff Grant Neilan on his breach of fiduciary duty claim against Defendant Shelton for $287,800.00.  (Judgment 1/23/23.)

            On July 19, 2023, Plaintiffs filed the instant motion to assign Shelton’s interest to payments from Lock & Key Social Drinkery LLC.  On November 21, 2023, Defendants Shelton and DES filed an opposition.  On November 28, 2023, the Court continued the instant motion from December 7, 2023 to January 2, 2024.  No reply has been filed.

Legal Standard

Code of Civil Procedure section 708.510(a) states, in relevant part:

(a) Except as otherwise provided by law, upon application of the judgment creditor on noticed motion, the court may order the judgment debtor to assign to the judgment creditor or to a receiver appointed pursuant to Article 7 (commencing with Section 708.610) all or part of a right to payment due or to become due, whether or not the right is conditioned on future developments, including but not limited to the following types of payments:

(1) Wages dues from the federal government that are not subject to withholding under an earnings withholding order.

                        (2) Rents.

                        (3) Commissions.

                        (4) Royalties.

                        (5) Payments due from a patent or copyright.

                        (6) Insurance policy loan value.

(Id.)

Code of Civil Procedure section 708.510(c), further provides:

[I]n determining whether to order an assignment or the amount of an assignment pursuant to subdivision (a), the court may take into consideration all relevant factors, including the following:

(1) The reasonable requirements of a judgment debtor who is a natural person and of persons supported in whole or in part by the judgment debtor.

(2) Payments the judgment debtor is required to make or that are deducted in satisfaction of other judgments and wage assignments, including earnings assignment orders for support.

(3) The amount remaining due on the money judgment.

(4) The amount being or to be received in satisfaction of the right to payment that may be assigned.

(Id.)

            “ [U]nder section 708.510, a court can only assign a judgment creditor's ‘interest in the property or “right to payment due.” ’ [Citation.]”  (Casiopea Bovet, LLC v. Chiang (2017) 12 Cal.App.5th 656, 663.)  “When an application is made pursuant to Section 708.510 or thereafter, the judgment creditor may apply to the court for an order restraining the judgment debtor from assigning or otherwise disposing of the right to payment that is sought to be assigned.”  (CCP § 708.520(a).)

Discussion

            Plaintiffs seek an order assigning Defendant Shelton’s interest in any and all payments from Lock & Key Social Drinkery LLC and restraining Defendant Shelton from assigning or otherwise disposing of the right to the payments sought to be assigned.

            Here, judgment was entered in favor of Plaintiff Andy Chong on his breach of fiduciary duty claim against Defendant Shelton for $1,054,046.00 and in favor Plaintiff Grant Neilan on his breach of fiduciary duty claim against Defendant Shelton for $287,800.00.  (Cabanday Decl. ¶ 3, Exh. 1.)  As of the filing the instant motion, “[t]he total unpaid Judgment with accrued interest is $1,407,448.24.”  (Cabanday Decl. ¶ 5.)  Defendant Shelton has made no payments in furtherance of this judgment.  (Cabanday Decl. ¶ 7.)

            On May 26, 2023, Plaintiffs took a judgment debtor examination of Shelton during which Shelton testified that he was the sole owner of Lock & Key Social Drinkery LLC and that his sole source of income was from payroll checks from Lock & Key Social Drinkery LLC.  (Cabanday Decl. ¶ 7, Exh. 2.) 

            In general, “[t]he wage garnishment law provides the exclusive judicial procedure by which a judgment creditor can execute against the wages of a judgment debtor, except for cases of judgments or orders for support. [Citation.] It limits the amount of earnings which may be garnished in satisfaction of a judgment and establishes certain exemptions from earnings which may not be garnished.”  (California State Employees' Assn. v. State of California (1988) 198 Cal.App.3d 374, 377.)  However, the wage garnishment law is inapplicable when the judgment debtor is self-employed.  (See e.g., Moses v. DeVersecy (1984) 157 Cal.App.3d 1071, 1074 [holding that a self-employed individual is not an employee under the Wage Garnishment Law]; see also CCP § 706.011(e), [“‘Employee’ means a public officer and any individual who performs services subject to the right of the employer to control both what shall be done and how it shall be done.”].)
            Here, Defendant Shelton is self employed as he is the sole owner of Lock & Key Social Drinkery LLC.  Accordingly, Shelton is not an employee under the wage garnishment law, and an assignment order is appropriate.  (See e.g., Transportation Management & Consulting, Inc. v. Black Crystal Co., Inc. (N.D. Cal., Jan. 24, 2008, No. C0780256MISC-MJJ MEJ) 2008 WL 205592 [applying California State Law in applying an assignment order against a self-employed attorney].) 

Pursuant to Code of Civil Procedure section 708.550, Defendant Shelton could have made a claim for exemption by timely motion.  (CCP § 708.550(a), [“The judgment debtor may claim that all or a portion of the right to payment is exempt from enforcement of a money judgment by application to the court on noticed motion filed not later than three days before the date set for the hearing on the judgment creditor's application for an assignment order.”].)  However, Defendant Shelton failed to do so.  As such, all exemptions have been waived, (CCP § 708.550(a), [“Failure of the judgment debtor to make a claim of exemption is a waiver of the exemption”]), except for any known applicable exemptions.  (CCP § 708.510(e)-(f).) 

            Here, there is a known applicable exemption.  The evidence presented indicates that all of the payments to Shelton from Lock & Key Social Drinkery LLC came from payroll checks.  (Cabanday Decl. ¶ 7, Exh. 2.)  As such, those payments constituted disposable earnings.  (CCP § 706.011(a), [“‘Disposable earnings’ means the portion of an individual's earnings that remains after deducting all amounts required to be withheld by law.”].)  “[T]he maximum amount of disposable earnings of an individual judgment debtor for any workweek that is subject to levy under an earnings withholding order shall not exceed … Twenty percent of the individual's disposable earnings for that week.”  (CCP § 706.050(a)(1).)  Thus, the assignment of funds cannot exceed 20% of Defendant Shelton’s earnings.

CONCLUSION AND ORDER

Based on the forgoing, Plaintiffs Andy Chong and Grant Neilan’s motion for an assignment order assigning Defendant Marc Shelton’s interest in any and all payments from Lock & Key Social Drinkery LLC and restraining Defendant Marc Shelton from assigning or otherwise disposing of the right to payment sought to be assigned is GRANTED.

Defendant Marc Shelton is hereby ordered to assign twenty (20%) of interest in any and all payments from Lock & Key Social Drinkery LLC to Plaintiffs until the judgment debt is satisfied in full.

Pursuant to Code of Civil Procedure section 708.520, Defendant Marc Shelton is restrained from assigning or otherwise disposing of the right to payment that is assigned.

Upon the signing of the proposed order by the Court, the signed ordered “shall be personally served upon the judgment debtor and shall contain a notice to the judgment debtor that failure to comply with the order may subject the judgment debtor to being held in contempt of court.”  (CCP § 708.520(d).)

Moving Parties are to give notice and file proof of service of such.

DATED: January ___, 2024                                                   ___________________________

                                                                                          Elaine Lu

                                                                                          Judge of the Superior Court