Judge Holly J. Fujie, Case Number: 23STCV01162, Date: 2023-09-20 Tentative Ruling

MOVING PARTIES: Defendants Edidin Partners, LLC; 1P Ventures, LLC; KAN Funding, LLC; Pescetarian Brothers, LLC; WM Investment Holdings, LLC; WMIH-I, LP, the Segil Living Trust; The Entrust Group FBO Sharran Sirvatsaa IRA; Srilo, LLC; Evan Schlessinger; Joshua Lobel; Noteh Berger; Eli Gordon; David Fiedler; Michael Sachse; and MGB Mining Defined Benefit Pension Plan.

This action arises from alleged fraudulent transfers and/or voidable transfers of assets—namely Porch.Com, Inc. common unregistered stock -- by Defendant Kandela, LLC in connection with Porch.Com, Inc.’s acquisition of certain assets of Kandela, LLC pursuant to an Asset Purchase Agreement between Porch.Com, Inc. and Kandela, LLC dated March 22, 2019.

On October 4, 2023, plaintiffs Porch.Com, Inc. and Matthew Ehrlichman (“Plaintiffs”) filed the first amended complaint against defendants Kandela, LLC; Eli Gordon; David Fiedler; Noteh Berger; Renee J. James; Joshua Lobel; Evan Schlessinger; Michael Sachse; Aaron Hirschhorn; Westwood Concierge, LLC; WM Investment Holdings, LLC; WMIH-I, LP; Kan Funding, LLC; Edidin Partners, LLC; 1P Ventures, LLC; Sharran Investments; The Entrust Group FBO Sharran Sirvatsaa IRA 7230011965; Srilo Ventures, LLC; Brian G. Johnson Defined Benefit Pension Plan; Segil Living Trust, dated August 10, 1984, Larraine Segil Trustee; MGB Mining Defined Benefit Pension Plan; and Pescetarian Brothers, LLC. Plaintiffs sued for (1) actual intent fraudulent conveyance/voidable transfer, (2) constructive fraudulent conveyance/voidable transfer, (3) indemnification, and (4) breach of contract as to defendant members.

The day before, defendants Edidin Partners, LLC; 1P Ventures, LLC; KAN Funding, LLC; Pescetarian Brothers, LLC; WM Investment Holdings, LLC; WMIH-I, LP, the Segil Living Trust; The Entrust Group FBO Sharran Sirvatsaa IRA; Srilo, LLC; Evan Schlessinger; Joshua Lobel; Noteh Berger; Eli Gordon; David Fiedler; Michael Sachse; and MGB Mining Defined Benefit Pension Plan (collectively, “Defendants”) moved for sanctions and dismissal of the action based on the filing and service of the original complaint.

A court may order a party to pay the reasonable expenses, including attorney's fees, “incurred by another party as a result of actions or tactics, made in bad faith, that are frivolous or solely intended to cause unnecessary delay.” (Code Civ. Proc., § 128.5, subd. (a).) Frivolous means “totally and completely without merit or for the sole purpose of harassing an opposing party." (Code Civ. Proc., § 128.5, subd. (b)(2).)

“Frivolous” means totally and completely without merit or for the sole purpose of harassing an opposing party. “Because the Legislature intended that the conditions for sanctions under the current version of section 128.5 mirror section 128.7, [the California Court of Appeal has held] that the objective standard used to evaluate section 128.7 sanctions motions applies to section 128.5.” (San Diegans for Open Government v. City of San Diego (2016) 247 Cal.App.4th 1306, 1318.) “Although the objective standard of proof is easier to satisfy, the Legislature intended to ‘retain the extremely high proof required for such awards’ with its applicability lying with ‘truly egregious behaviors.’” (Id. at pp. 1318-19.) An objectively reasonable attorney standard applies to this determination. (Id. at p. 1319.)

An attorney or unrepresented party who presents a motion to the court makes an implied certification as to its legal and factual merit, which is subject to sanctions for violation of this certification under Code of Civil Procedure section 128.7. (Murphy v. Yale Materials Handling Corp. (1997) 54 Cal.App.4th 619, 623.) The Court may impose sanctions for conduct that violates any one of the requirements set forth in Code of Civil Procedure section 128.7, subdivision (b). (Eichenbaum v. Alon (2003) 106 Cal.App.4th 967, 976.)

(b)¿By presenting to the court, whether by signing, filing, submitting, or later advocating, a pleading, petition, written notice of motion, or other similar paper, an attorney or unrepresented party is certifying that to the best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, all the following conditions are met:

(1)¿It is not being presented primarily for an improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.

(2)¿The claims, defenses, and other legal contentions therein are warranted by existing law or by a non-frivolous argument for the extension, modification, or reversal of existing law or the establishment of new law.

(3)¿The allegations and other factual contentions have evidentiary support or, if specifically, so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery.

(4)¿The denials of factual contentions are warranted on the evidence or, if specifically, so identified, are reasonably based on a lack of information or belief.

In addition, section 128.7 does not require a finding of subjective bad faith; instead it requires only that the Court finds that the conduct be objectively unreasonable. (In re Marriage of Reese & Guy (1999) 73 Cal. App. 4th 1214, 1221.)

Under section 128.7, a court may impose sanctions if it concludes a pleading was filed for an improper purpose or was indisputably without merit, either legally or factually. (Bucur v. Ahmad (2016) 244 Cal.App.4th 175, 189–190.) A claim is factually frivolous if it is “not well grounded in fact” and is legally frivolous if it is “not warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law.” (Ibid.) In either case, to obtain sanctions, the moving party must show the party's conduct in asserting the claim was objectively unreasonable. (Ibid.) A claim is objectively unreasonable if “any reasonable attorney would agree that [it] is totally and completely without merit.” (Ibid.) However, “section 128.7 sanctions should be ‘made with restraint’ [Citation] and are not mandatory even if a claim is frivolous.” (Peake v. Underwood (2014) 227 Cal.App.4th 428. at 448.)

If the alleged sanctionable conduct is the filing and service of a complaint, Code of Civil Procedure section 128.5 has a safe harbor provision, which requires that the moving party serve the motion on the sanctionable party at least 21-days before it is filed with the Court. (Code Civ. Proc., § 128.5, subd. (f)(1)(B); Code Civ. Pro., § 128.7, subd. (c)(1).) This affords the party an opportunity to cure the improper pleading. (Ibid.)

Similarly, Code of Civil Procedure section 128.7 has a safe harbor provision, which requires that the moving party serve the motion on the sanctionable party at least 21-days before it is filed with the Court. (Code Civ. Proc., § 128.7, subd. (c)(1).) The papers to be served on the opposing party must be the same papers which are to be filed with the court. (Hart v. Avetoom (2002) 95 Cal.App.4th 410, 414.)

The 21-day “safe harbor” provision is strictly enforced. “Substantial compliance” is insufficient. (See Cromwell v. Cummings (1998) 65 Cal.App.4th Supp.10, 15 [“Correspondence to opposing counsel which threatens sanctions of an unknown nature at an unspecified time against unidentified persons, and which lacks citation to controlling authority, does not fulfill these statutory purposes.”].)

Because Plaintiffs filed an amended complaint after Defendants moved for sanctions, the motion for sanctions and motion to dismiss are moot.

Further, defendants did not meet the safe harbor provision of Code of Civil Procedure section 128.5 and 128.7 because the motion they served on September 1, 2023, differs from the motion they filed on October 4, 2023. The court reviewed the differences between the two motions and finds that there are additional points and authorities. (Reply Decl. Jackson, ¶ 4, Ex. 2.) Plaintiffs would be entitled to a new 21-day period to withdraw or correct the pleading. (Hart v. Avetoom, supra, 95 Cal.App.4th 410 at p. 413.)

Parties who intend to submit on this tentative must send an email to the Court at SMC_DEPT56@lacourt.org as directed by the instructions provided on the court website at www.lacourt.org. If the department does not receive an email and there are no appearances at the hearing, the motion will be placed off calendar.

Hon. Holly J. Fujie

Judge of the Superior Court