Judge: Elaine W. Mandel, Case: 25SMCV00146, Date: 2025-06-10 Tentative Ruling

Case Number: 25SMCV00146    Hearing Date: June 10, 2025    Dept: P

Tentative Ruling

Delmorgan Group v. Phoenix Capital Group, Case no. 25SMCV00146

Hearing date June 10, 2025

Defendants’ Demurrer to the Complaint

Plaintiffs’ Application for Writ of Attachment

Plaintiffs Delmorgan Group, LLC and Globalist Capital, LLC sue defendants Phoenix Capital Group Holdings, LLC and Phoenix Operating, LLC for breach of the parties’ contract whereby defendants would pay plaintiffs a fee in exchange for finding third parties to finance defendants. The contract contained a trailing fee provision in force two years following termination of the contract. Plaintiffs allege 18 months after terminating the contract, defendants received financing from nonparty Fortress Credit Corporation, which plaintiffs introduced to defendants. Plaintiffs claim entitlement to a fee of $6,457,500 and prejudgment interest of $1,875,589.

Defendants demur, arguing the funds received from Fortress do not constitute a loan not covered by the contract. Plaintiffs apply for a writ of attachment for $8,793,563.

Requests for Judicial Notice

Defendants request judicial notice of: (1) declaration of Delmorgan CEO Morganbesser, dated 2/17/25; and (2) “Amended and Restated Senior Secured Credit Agreement” dated 8/12/24, referenced in para. 45 of Morganbesser’s declaration.

Plaintiffs request judicial notice of: (1) Morganbesser’s declaration in support of plaintiffs’ application for writ of attachment, filed 3/4/25; (2) Form S-1 Registration Statement Under the Securities Act Of 1933, filed 10/28/24 by the SEC for Phoenix Capital Group Holdings, LLC; and (3) Amended and Restated Senior Secured Credit Agreement dated 8/12/24.

The court may take judicial notice of filings in its own records. Cal. Evid. Code §452(d). The court may take notice of official acts of the legislative, executive or judicial branches of the United States. Cal. Evid. Code §452(c). The court may take notice of facts and propositions not reasonably subject to dispute and which are immediately ascertainable by reference to sources of reasonable accuracy. Cal. Evid. Code §452(h). GRANTED as to all.

Defendants’ Demurrer to the Complaint

“The function of a demurrer is to test the sufficiency of the complaint as a matter of law.” Holiday Matinee, Inc. v. Rambus, Inc. (2004) 118 Cal.App.4th 1413, 1420. A complaint “is sufficient if it alleges ultimate rather than evidentiary facts” Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 550, but plaintiff must set forth the essential facts of the case “with reasonable precision and with particularity sufficient to acquaint [the] defendant with the nature, source and extent” of the plaintiff’s claim. Doheny Park Terrace Homeowners Ass’n., Inc. v. Truck Ins. Exchange (2005) 132 Cal.App.4th 1076, 1099. In reviewing the legal sufficiency of a complaint against a demurrer, a court will treat the demurrer as admitting all material facts properly pleaded. Blank v. Kirwan (1985) 39 Cal.3d 311, 318; C & H Foods Co. v. Hartford Ins. Co. (1984) 163 Cal.App.3d 1055, 1062.

Defendants demur to the claim for breach of written contract. The elements are: (1) a contract; (2) plaintiff’s performance or excuse for nonperformance; (3) defendant’s breach; and (4) damage. See Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1186.

Plaintiffs allege: (1) existence of a contract via letter of engagement (Compl. paras. 1, 14); (2) plaintiffs met their obligations by introducing defendants to Fortress and providing due diligence information (Compl. para. 23); (3) defendants’ breach by refusing to pay plaintiffs’ claimed 4.5% fee (Compl. paras. 35-36); and (4) damages of $6,457,500, plus interest. Compl. para. 35.

Plaintiffs allege Fortress was on a list of entities covered by the parties’ agreement. Compl. paras. 26, 28. The agreement terminated 3/3/23, with a two-year trailing period which entitled plaintiffs to a fee if a transaction with a covered entity occurred prior to expiration of that period. Compl. para. 20. Id. Fortress and defendant Phoenix Capital Group entered into a loan agreement August 2024, which was within the trailing period. Compl. para. 2.

Defendants do not dispute existence of an agreement between the parties, whether plaintiffs performed nor existence of a loan agreement with Fortress. However, defendants assert plaintiffs cannot show breach, arguing the Phoenix/Fortress loan does not constitute a “transaction” as defined by the agreement. Defendants argue the agreement only contemplated transactions whereby defendants would issue debt in exchange for securities, not merely cash repayments. Mtn. 6:12-15. Defendants argue the loan agreement is not a “security” as defined by the agreement. See Kirschner v. J.P. Morgan Chase (2d Cir. 2023) 79 F.4th 290, 304, review den. [term loans are not “securities” for purposes of securities laws] citing Reves v. Ernst & Young (1990) 494 U.S. 56.

Plaintiffs argue the agreement contemplated multiple types of transactions. “The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity.” Cal. Civ. Code §1638. The court must use the definitions within the agreement. See Morrison v. Wilson (1866) 30 Cal. 344. The agreement defines transaction as: “(a) a private placement by the company…  including without limitation a placement of equity, debt, convertible securities or other financial instrument” or “(e) a recapitalization involving the issuance of any indebtedness or equity securities by the Company.” Compl. para. 17.

Further, the parties’ letter of engagement states “the term ‘Transaction’ shall include, but specifically not be limited” to the aforementioned definitions. Compl. exh. A. The agreement contemplates any form of debt issuance as a “transaction.” Defendants’ arguments that the debt issuance constituted “replacement” and not “placement” are unavailing; the agreement contemplates the issuance of “any indebtedness.” See Reply 3:3-5; see also Compl. para. 17.

The loan between Fortress and defendant Phoenix Capital Group is sufficiently alleged to be a form of indebtedness as contemplated by the agreement. OVERRULED. Defendant to answer within 15 days.

Plaintiffs’ Application for Writ of Attachment

A writ of an attachment may issue on a claim for money based on contract where the total amount owed is equal to or greater than $500, and the amount sought is “fixed or readily ascertainable” by reference to the contract. A writ of attachment may not issue against a claim secured by real property, and it may only issue against a natural person when the claim arises out of the conduct of a “trade, business, or profession.” Cal. Code Civ. Proc. §483.010.

A writ of attachment will only issue if the court finds (1) the claim on which the writ is based is one upon which an attachment may be issued, (2) plaintiff established the probable validity of the claim, (3) the attachment is not sought for a purpose other than the recovery on the claim upon which the attachment is based, and (4) the amount to be secured by the attachment is greater than zero. Cal. Code Civ. Proc. §484.090.

Plaintiffs apply for a writ of attachment for $8,793,563, reflecting: (1) $6,457,500 in principal; (2) $1,875,589 in prejudgment interest; (3) $25,474 in costs; and (4) $435,000 in attorney’s fees. Plaintiffs offer the declarations of CEO Morganbesser and counsel Maloney in support. Plaintiffs seek a writ of attachment on an unsecured claim arising from a written contract. Decl. Maloney exh. 1. This is a claim upon which a writ may issue.

Defendants argue plaintiffs seek an amount not readily ascertainable, as the underlying transaction does not fall under the parties’ agreement. This argument is unavailing; see above. Defendants argue plaintiffs cannot show the probable validity of the claim. Plaintiffs alleged a prima facie case for breach of written contract and offered Morganbesser’s and Maloney’s declarations. This is sufficient to establish the probable validity of the underlying claim.

Plaintiffs declare the writ is for no purpose other than to secure payment. Decl. Morganbesser para. 70. Defendants argue, without evidence, that plaintiffs’ purpose is to “apply outside pressure to pay an unwarranted fee, and quite possibly actionable interference with contractual relations.” Opp. 11:9-11. This is not well taken.

Plaintiffs satisfied the statutory requirements for a writ; however, plaintiffs have not demonstrated necessity. “The main purpose of an attachment is to secure and ensure the payment of any judgment that may be recovered in the successful prosecution of an action in order that the ends of successful litigation are not fruitlessly pursued or frustrated.” Loeb & Loeb v. Beverly Glen Music, Inc. (1985) 166 Cal.App.3d 1110, 1118, citing Halstead v. Halstead (1946) 72 Cal.App.2d 832, 836.

Plaintiffs do not offer arguments as to defendants’ financial situation. Defendants’ CFO Allen provides evidence of defendants’ liquidity and financial health. Decl. Allen para. 13. Per the Morganbesser deposition, plaintiffs have no suspicion of financial instability or reason to believe that a judgment at the end of litigation would not be paid. Decl. Kwok para. 3, exh. 1. Plaintiffs seek a writ of attachment of almost $9 million; absent indicia that a potential judgment could be frustrated, there is no basis to issue a writ against defendants who are fully engaged in the proceedings. DENIED.