Judge James C. Chalfant, Case 21STCV05614 2022-10-25 Tentative Ruling

Unify Financial Federal Credit Union v. Gjelina Group, LP, et al., 21STCV05614

Tentative decision on motion for approval of final report and accounting: granted

Receiver Eric P. Beatty (“Beatty”) moves for approval of his final report and accounting, discharge from his duties, approval of his outstanding fees and costs, and exoneration of his undertaking.

The court has read and considered the moving papers (no opposition was filed) and renders the following tentative decision.

Plaintiff Unify Financial Federal Credit Union (“Unify” or “Lender”) filed the Complaint on February 11, 2021, against Defendants Gjelina Group, LP (“Gjelina”), Oakwood Park, LLC (“Oakwood”), Fresco’s Gym, LLC (“Fresco’s”); Hamtramck Hospitality, LLC (“Hamtramck”), L.L., LLC (“LL”), Venice Beach SPV I, LLC (“Venice Beach”), Fran Camaj (“Camaj”), and Travis Lett (“Lett”), alleging causes of action for: (1) breach of business agreement; (2) breach of written continuing guaranties; (3) intentional interference with contractual relations; (4) judicial foreclosure; and (5) appointment of a receiver. The Complaint alleges in pertinent part as follows.

On February 7, 2018, Defendants Gjelina, Oakwood, Fresco’s, Hamtramck, and LL (collectively, “Borrowers”) executed a promissory note in the original principal sum of $3,956,250.00 payable to Lender (the “Note”). The Note was secured by a commercial security agreement (“Security Agreement”) executed by Borrowers which granted Lender a security interest in Borrower’s interest in certain property, including all accounts, general intangibles, instruments, rents, monies, payments, and all other rights arising out of a sale, lease, consignment, or other disposition of any of the property (“Collateral”).

In addition to the Security Agreement and to further secure the Note, Defendant Oakwood executed a Leasehold Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing (“Leasehold DOT”) wherein Oakwood granted Lender a lien on its leasehold property (“Leasehold Property”).

In connection with execution of the Leasehold DOT, Lender and the lessor of the Leasehold Property, Ramsens, LLC (“Lessor”) executed a Lease Lender Recognition and Estoppel Agreement (“Estoppel Agreement”) reflecting that Oakwood is the lessee of the Leasehold Property.

The Note was further secured by two commercial guaranty agreements executed by Camaj and Lett (collectively, the “Guarantors”) wherein each agreed to pay Lender all outstanding indebtedness of the Borrowers, including but not limited to the indebtedness owed under the Note.

On April 1, 2020, Lender and Borrowers executed a Change-in-Terms Agreement whereby the Lender agreed to defer collection of principal and interest payments on the Note for the months of April 2020, May 2020, and June 2020. The maturity date remained unchanged and the Deferred Payments were added to the principal of the Note to be collected when the Note reached final maturity, and regular monthly payments were to resume on July 1, 2020 (the “Deferral Period”). (The Note, Security Agreement, Leasehold Deed of Trust, Estoppel Agreement, Guaranty Agreements, and Change-in-Terms Agreement are collectively referred as the “Loan Documents.”)

Until August 13, 2010, Oakwood owned and operated a restaurant business (“Restaurant”) on the Leasehold Property which generated income. Pursuant to the Leasehold DOT, the restaurant income is Lender’s cash collateral. Pursuant to the Leasehold DOT, Oakwood was permitted to manage the Leasehold Property and collect rents so long as no default occurred.

On August 10, 2020, Venice Beach was formed. On August 13, 2020, Oakwood and Venice Beach entered into a sublease of the Leasehold Property without Lender’s knowledge and express written consent as required by the Leasehold Deed of Trust.

After lapse of the Deferral Period, Borrowers failed to resume payments as required by the Note and the Modification. Borrowers have not made payment on the Note since July 2020. Likewise, the Guarantors defaulted under the terms of the Guaranty Agreements.

In addition to the Payment Default, Oakwood is in default under the Leasehold DOT for transferring an interest in the Leasehold Property to Venice Beach without the Lender’s prior express written consent.

On February 21, 2021, Unify served Lett, Oakwood, Camaj, Fresco’s, Hamtramck, Venice Beach, Gjelina, and LL with the Complaint and Summons.

On April 6, 2021, Unify moved for an order appointing Beatty as receiver for management of the Property. The court appointed the Receiver on May 4, 2021.

On October 5, 2021, Department 28 (Hon. Rupert A. Byrdsong), after an order to show cause (“OSC”) hearing for entry of default for corporate Defendants’ failure to retain counsel, the court struck the Answers of Gjelina, Hamtramck, and L.L.’s and entered their defaults.

On February 8, 2022, Unify requested dismissal without prejudice of the Complaint against Ramsens, LLC, which was entered on February 9, 2022.

On July 7, 2022, after the parties agreed that Unify had foreclosed, this court terminated the Receivership.

On October 17, 2022, Unify moved for summary judgment, which will be heard by Department 28 (Hon. Rupert A. Byrdsong) on January 3, 2023.

Pursuant to CRC 3.1184(a), a receiver must present by noticed motion or stipulation of all parties: (1) a final account and report; (2) a request for the discharge; and (3) a request for exoneration of the receiver’s surety. No memorandum is required in support of the motion unless the court orders otherwise. CRC 3.1184(b). Notice must be given to every person or entity known to the receiver to have a substantial, unsatisfied claim that will be affected by the order or stipulation, regardless of whether that person or entity is a party to the action or has appeared in it. CRC 3.1184(c).

If any allowance of compensation for the receiver or for an attorney employed by the receiver is claimed in an account, it must state in detail what services have been performed by the receiver or the attorney and whether previous allowances have been made to the receiver or attorney, and the amounts. CRC 3.1184(d).

On May 4, 2021, the court appointed Beatty as Receiver in part to collect all restaurant income generated by Oakwood and Venice Beach. Beatty Decl., ¶2, Ex. A. Because the Defendants refused to account for or turn over the restaurant income, on June 7, 2021 Beatty filed an ex parte application for the court to provide instructions as to his authority to collect it. Beatty Decl., ¶3. Defendants made a simultaneous application for an order prohibiting Receiver from collecting the restaurant income. The court denied Defendants’ application and confirmed the Receiver’s authority. Beatty Decl., ¶¶ 3-4.

Defendants continued to not turn over the restaurant income to Receiver. Beatty Decl., ¶5. The limited financial information that they did provide alerted him to the fact that that beginning on May 5, 2021, Defendants took more than $580,000 in restaurant income and distributed it among other accounts held by Venice Beach, affiliated companies, and a family member of Defendant Camaj. Beatty Decl., ¶6.

On July 9, 2021, pursuant to Receiver’s second ex parte application, the court ordered the gross restaurant income immediately frozen and turned over to him. Beatty Decl., ¶7. The court further ordered that Defendants must deposit $361,000 with either the court or Receiver by July 13 to prevent Beatty from taking possession of the restaurant. Beatty Decl., ¶7.

Defendants did not pay the $361,000, on July 14, 2021 and Receiver took possession of the restaurant. Beatty Decl., ¶8. The restaurant’s income was $536,460.09 in June 2021 and $312,884.16 from July 1 to 17, 2021. Beatty Decl., ¶9. Defendants continued to refuse to turn over the restaurant’s income or provide Beatty with the access to the restaurant’s point-of-sale system to take possession of the income himself. Beatty Decl., ¶10.

On July 18, 2021, Defendants closed the restaurant without notice. Beatty Decl., ¶11. On July 23, 2021, the court authorized Receiver to employ a real estate broker to market the Leasehold Property for a lease with less than a five-year term. Beatty Decl., ¶12. On November 4, 2021, the court instructed Receiver to negotiate a lease of the restaurant property and seek approval and confirmation of the lease by December 31, 2022. Beatty Decl., ¶15.

In January 2022, Unify elected to initiate a non-judicial foreclosure of the Leasehold DOT. Beatty Decl., ¶16. The court ordered Receiver on February 3 to cease further efforts to lease the Leasehold Property and retain the property pending the non-judicial foreclosure. Beatty Decl., ¶17.

Unify completed the non-judicial foreclosure proceedings in June 2022, purchasing Defendants’ leasehold interest in the Leasehold Property through a credit bid. Beatty Decl., ¶¶ 18-19.

The current assets of the Receivership include: (1) the Leasehold Property; (2) various articles of personal property on the Leasehold Property; and (3) $10.67 in cash. Beatty Decl., ¶27, Ex. F.

Receiver learned at the court’s July 7, 2022 status conference that Unify had foreclosed on the Leasehold DOT. Beatty Decl., ¶18. Receiver has satisfied all known debts of the Receivership Estate with the exception of $14,370.36 to DWP for electric service since July 2021 and $319 in water service charges by DWP. Beatty Decl., ¶20.

The $3,000 in income generated after the restaurant closed in July 2021 was insufficient to pay the utility charges. Beatty Decl., ¶22. The utilities remain in the name of Receiveer’s managing agent, Allied Management, Inc., to manage those utilities. Beatty Decl., ¶23.

On August 29, 2022, Receiver requested from Unify information on the status of the utilities to the Leasehold Property as well as all personal property on the premises. Beatty Decl., ¶24, Ex. C. Unify replied that it had taken over utilities for the Leasehold Property and would like the personal property to remain there. Beatty Decl., ¶24, Ex. D. The same day Receiver’s administrator, Krys Rosen (“Rosen”), informed him that the outstanding utilities balance was $15,367.87 and that Unify still needed to call to have it switched to its name. Beatty Decl., ¶¶ 20(A), 24, Ex. E.

Receiver has provided receipts for $77,785.69 in fees and costs for the Receivership through August 2022, including $16,000 in costs he personally advanced. Beatty Decl., ¶29, Ex. G. He expects to incur additional fees of $1,700 and costs of $28.95, bringing the total to $79,514.64. Beatty Decl., ¶¶ 30-32. Receiver has not received interim payments during the Receivership. Beatty Decl., ¶33.

Receiver seeks instructions that he deliver the Leasehold Property to Unify only after it (1) pays his $76, 532.25 in fees and costs; (2) transfers utilities to Unify’s name; and (3) pays the balance for utilities currently owed on the Leasehold Property. Beatty Decl., ¶35.

Receiver moves for approval of his final report and accounting, discharge from his duties, approval of his $79,514.64 in fees and costs, and exoneration of his undertaking. Receiver asks for an order that the transfer of the Leasehold Property to Unify will occur only after it (1) pays Receiver’s fees and costs; (2) transfers utilities to Unify’s name; and (3) pays the balance for utilities currently owed on the Leasehold Property. Beatty Decl., ¶35. Pertinent parties have been served and no party objects to the motion.

Receiver explains that the Receivership has served its purpose because Unify purchased the interest in the Leasehold Property after its non-judicial foreclosure. Beatty Decl., ¶¶ 18-19. The Leasehold Property’s account only has $10.67 in cash. Beatty Decl., ¶27, Ex. F.

Receiver seeks approval of total fees and costs of $79,514.64. Beatty Decl., ¶¶ 30-32. He provides invoices for $77,785.69 in fees and costs through August 2022. Beatty Decl., ¶29, Ex. G. The hourly rates never exceeded the court’s maximum of $425 and was sometimes less than half of that. Beatty Decl., ¶¶ 2, 29, Exs. A, G. Receiver’s expectation that he will incur additional fees of $1700 and costs of $28.95 is reasonable. Beatty Decl., ¶¶ 30-32.

As the owner of all assets following the foreclosure, Unify assumes the debts of the Receivership, including Beatty’s fees. Beatty Decl., ¶¶ 18-19. The outstanding balance for utilities if $15,367.87 and Receiver asks for an order that Unify must pay this amount prior to possession of the Leasehold Property. Beatty Decl., ¶¶ 20(A), 35, Ex. E.

The motion is granted. Receiver’s $79,514.64 in fees and costs is approved. Unify is ordered to pay those fees and costs, transfer the utilities for the Leasehold Property into its name, and pay the outstanding balance of $15,367.87 for utility charges. Upon completion of those tasks, Receiver is directed to transfer possession of the Property and the personal property to Unify. Receiver then is discharged and his bond exonerated, and he is relieved of any liability which could be imposed upon the final accounting. See Aviation Brake Systems, Ltd. v. Voorhis, (1982) 133 Cal.App.3d 230, 234.