Judge: James C. Chalfant, Case: 22STCV31381, Date: 2023-04-27 Tentative Ruling

Case Number: 22STCV31381    Hearing Date: April 27, 2023    Dept: 85

            The court may issue a right to attach order (Optional Form AT-120) if the plaintiff shows all of the following: (1) the claim on which the attachment is based is one on which an attachment may be issued (CCP §484.090(a)(1)); (2) the plaintiff has established the probable validity of the claim (CCP §484.090(a)(2)); (3) attachment is sought for no purpose other than the recovery on the subject claim (CCP §484.090(a)(3); and (4) the amount to be secured by the attachment is greater than zero (CCP §484.090(a)(4)).

            A claim has “probable validity” where it is more likely than not that the plaintiff will recover on that claim.  CCP §481.190.  In determining this issue, the court must consider the relative merits of the positions of the respective parties.  Kemp Bros. Construction, Inc. v. Titan Electric Corp., (2007) 146 Cal.App.4th 1474, 1484.  The court does not determine whether the claim is actually valid; that determination will be made at trial and is not affected by the decision on the application for the order.  CCP §484.050(b).

            Except in unlawful detainer actions, the amount to be secured by the attachment is the sum of (1) the amount of the defendant’s indebtedness claimed by the plaintiff, and (2) any additional amount included by the court for estimate of costs and any allowable attorneys’ fees under CCP section 482.110.  CCP §483.015(a); Goldstein v. Barak Construction, (2008) 164 Cal.App.4th 845, 852.  This amount must be reduced by the sum of (1) the amount of indebtedness that the defendant has in a money judgment against plaintiff, (2) the amount claimed in a cross-complaint or affirmative defense and shown would be subject to attachment against the plaintiff, and (3) the value of any security interest held by the plaintiff in the defendant’s property, together with the amount by which the acts of the plaintiff (or a prior holder of the security interest) have decreased that security interest’s value.  CCP §483.015(b); see also CCP §483.010(b) (“an attachment may not be issued on a claim which is secured by any interest in real property arising from agreement, statute, or other rule of law…However, an attachment may be issued where the claim was originally so secured but, without any act of the plaintiff or the person to whom the security was given, the security has become valueless or has decreased in value to less than the amount then owing on the claim).  A defendant claiming that the amount to be secured should be reduced because of a cross-claim or affirmative defense must make a prima facie showing that the claim would result in an attachment against the plaintiff.

            Before the issuance of a writ of attachment, the plaintiff is required to file an undertaking to pay the defendant any amount the defendant may recover for any wrongful attachment by the plaintiff in the action.  CCP §489.210.  The undertaking ordinarily is $10,000. CCP §489.220.  If the defendant objects, the court may increase the amount of undertaking to the amount determined as the probable recovery for wrongful attachment.  CCP §489.220.  The court also has inherent authority to increase the amount of the undertaking sua sponte.  North Hollywood Marble Co. v. Superior Court, (1984) 157 Cal.App.3d 683, 691.

            C. Statement of Facts[1]

            1. Tri-West’s Evidence

            In the spring of 2021, Tri-West President Allen Gage (“Gage”) met with Kolay’s president, Mitchell, and other Kolay representatives.  Gage Decl., ¶2.  Kolay told Gage that it had a new facility that could promptly produce multiple flooring products in significant volumes.  Gage Decl., ¶2.  The representatives also said that Kolay had the equipment needed to produce product that met key specifications.  Gage Decl., ¶2.  These statements led Gage to believe that Kolay could be a successful manufacturing partner for Tri-West.  Gage Decl., ¶2. 

            On August 5, 2021, KFI’s Dalila Chamberlain (“Chamberlain”) emailed Tri-West to confirm a guaranty that Kolay would produce 529,200 square feet of flooring at its Las Vegas facility upon receipt of a $500,094 deposit.  Gage Decl., ¶6, Ex. 4.  She also guaranteed that KFI would produce 8,260 trim pieces at a facility in the City of Industry upon receipt of a $56,413.70 deposit.  Gage Decl., ¶6, Ex. 4. 

            On August 11, 2021, Tri-West and both Kolay companies entered a year-long Agreement for Tri-West to purchase flooring products from Kolay.  Gage Decl., ¶3, Ex. 1.  Under the Agreement, Tri-West was authorized to distribute purchased products.  Gage Decl., ¶3, Ex. 1.  Tri-West would issue purchase orders with definite delivery schedules, which it could only cancel in advance of manufacturing.  Gage Decl., ¶3, Ex. 1.  Kolay was to use all reasonable efforts to fulfill these orders by the listed due dates, or within a reasonable period if no due date was specified.  Gage Decl., ¶3, Ex. 1. 

            Tri-West agreed to a 50% advance payment for all purchase orders and pay the balance within 30 days of product delivery.  Gage Decl., ¶4, Ex. 1.  In return, Kolay agreed to use all reasonable efforts to meet requested delivery dates.  Gage Decl., ¶4, Ex. 1.  If Kolay could not fulfill an order in a reasonable time frame, Tri-West could cancel the purchase order and obtain a refund of its advance payment.  Gage Decl., ¶4, Ex. 1. 

            The parties were to use all best efforts to promote, sell, and service products within the territory at issue and promote the goodwill associated with the products.  Gage Decl., ¶4, Ex. 1. 

            On August 12, 2021, Tri-West wired $557,160.80 as advance payment for 29 purchase orders, as reflected in Chamberlain’s August 5, 2021 email.  Gage Decl., ¶¶ 5-6, Exs. 2-3.  $500,152.80 of this payment was to Kolay, and the remaining $57,008 was to KFI.  Gage Decl., ¶5, Exs. 2-3.  Tri-West relied on the promise that Kolay had the capacity to fulfill the orders and would refund Tri-West’s advance if it failed.  Gage Decl., ¶6.

            Defendants led Tri-West along for months with promises that they would provide the promised product.  Gage Decl., ¶7.  What little they did provide was defective in that the flooring would not lock properly and was not properly finished.  Gage Decl., ¶7.  Tri-Weset’s efforts to raise these issues failed.  Gage Decl., ¶7.  Tri-West never received the product for which it had spent over half a million dollars.  Gage Decl., ¶7.

            After months of waiting, Tri-West asked Kolay to cancel all the August 2021 purchase orders and refund the $557,160.80 advance payment.  Gage Decl., ¶8.  In June 2022, Mitchell replied that to keep payment accurate, he needed time to review documentation of all of the “triumphs orders” for which he believed “we’re not paid”, but he would keep in touch and “it will happen shortly.”  Gage Decl., ¶8, Ex. 5.   To date, Kolay has not returned any of the funds.  Gage Decl., ¶9.

            2. Defendants’ Evidence

            a. Background

            KFI is a leading distributor of luxury flooring coverings founded in 2011.  Mitchell Decl., ¶3.  Kolay is a manufacturer of luxury flooring coverings founded in 2019.  Mitchell Decl., ¶4. 

            Launched in 2019, Kolay started to look for a partnership to sell Kolay products on an original equipment manufacturer (“OEM”) basis whereby Kolay manufactures the flooring while the other company provides branding for the end consumers.  Mitchell Decl., ¶13.  One company, now known as LL Flooring, launched one Kolay color in summer of 2022 and has since grown to offer four colors of Kolay products.  Mitchell Decl., ¶¶ 14-16. 

            b. Meeting Tri-West

            Tri-West is one of the top flooring distributors on the West Coast.  Mitchell Decl., ¶17.  In 2020, Kolay’s sales team members introduced Tri-West’s owners to Kolay’s manufacturing line.  Mitchell Decl., ¶18.  On March 22, 2021, Daniel Mitchell, President and CEO of KFI and Kolay, invited Tri-West founders to visit the Vegas facility in person.  Mitchell Decl., ¶¶ 1, 22, Ex. 503. 

            c. The May 2021 Plan

            On May 6, 2021, Johnston circulated a summary of Tri-West’s tour a day earlier.  Mitchell Decl., ¶24, Ex. 505.  During the tour, the parties had agreed to create a new line of products with 14 stock-keeping units (“SKU”), or colors.  Mitchell Decl., ¶24, Ex. 505.  The email said that Kolay would work up to 1 million feet per month as the parties built their business together.  Mitchell Decl., ¶24, Ex. 505.  The parties needed further discussion on certain features and the marketing budget.  Mitchell Decl., ¶24, Ex. 505.  Kolay would send product to another company for trim until it had the capacity to do the trimming itself.  Mitchell Decl., ¶24, Ex. 505.  Both companies needed to start the color development process ASAP.  Mitchell Decl., ¶24, Ex. 505.  Tri-West responded that they were very impressed and excited and would work to keep things moving on their part.  Mitchell Decl., ¶25, Ex. 506.

            On May 13, 2021, as the parties discussed their shared excitement, Mitchell asked Tri-West to think of them as a team and that it takes money to get things going.  Mitchell Decl., ¶27, Ex. 507.  Tri-West said it was well-capitalized and Koly would never have to worry about its credit.  Mitchell Decl., ¶27, Ex. 507.  Mitchell was excited to enter into this partnership with Tri-West.  Mitchell Decl., ¶26.  As soon as Tri-West was ready to put up significant capital, Kolay was ready to devote the majority of its resources to getting the new product line off the ground.  Mitchell Decl., ¶27.

            On May 19, 2021, Tri-West sent Kolay a draft business plan whereby Tri-West would provide wood samples for Kolay to scan and use as a basis for the colors for their flooring product.  Mitchell Decl., ¶28, Ex. 508.  Tri-West would review the finished products and provide additional scan samples if needed.  Mitchell Decl., ¶28, Ex. 508.  The listed specifications on the plan included the possibility of three locking systems: “Unilin Push,” “I4F,” and “angle.”  Mitchell Decl., ¶28, Ex. 508. 

            The May 2021 plan also provided that the parties would select 12 to 14 SKU’s of product for a stacker display.  Mitchell Decl., ¶28, Ex. 508.  The initial launch would include 300 to 400 sets of samples placed in the field.  Mitchell Decl., ¶28, Ex. 508.  The initial order would be 1 or 2 full truck loads per SKU.  Mitchell Decl., ¶28, Ex. 508. 

            On May 21, 2021, Kolay replied that it agreed with all but a couple of points in the May 2021 plan.  Mitchell Decl., ¶29, Ex. 509.  On May 27, 2021, Kolay responded to each bullet point in the plan.  Mitchell Decl., ¶30, Ex. 510.  This included a note that while Kolay’s locking system was “5 GI,” it could provide “I4F.”  Mitchell Decl., ¶30, Ex. 510. 

            On May 28, 2021, Tri-West replied that its goal was to grow with Kolay and agreed with Kolay’s May 27 email.  Mitchell Decl., ¶29, Ex. 510. 

            d. The Agreement

            By mid-June, Kolay and Tri-West were still working on developing the best colors.  Mitchell Decl., ¶32.  On June 15, 2021, Tri-West sent 4-6 SKUs in addition to the 20 samples it already sent.  Mitchell Decl., ¶32, Ex. 512.  Tri-West noted that this was a brand-new and unique product not yet on the market.  Mitchell Decl., ¶32, Ex. 512.  The scanning process was costly, but Kolay was willing to invest the resources to contribute to the partnership.  Mitchell Decl., ¶32. 

            On June 22, 2021, Tri-West identified a list of open items to resolve before Tri-West could issue purchase orders for formal test product for the new line.  Mitchell Decl., ¶33, Ex. 513.  These included the colors for the new line.  Mitchell Decl., ¶33, Ex. 513. 

            On August 4, 2021, Tri-West submitted purchase orders for the “Sinanian project” with an order total of $178,775.10.  Mitchell Decl., ¶36, Ex. 516.  Tri-West was willing to wire that without a “Guarantee of Performance” agreement but wanted Mitchell or another Kolay individual to sign one before any further transfers.  Mitchell Decl., ¶36, Ex. 516.  A short paragraph would suffice for such an agreement.  Mitchell Decl., ¶36, Ex. 516.  This is what led to Chamberlain’s email on August 5, 2021 (Gage Decl., ¶6, Ex. 4).  Mitchell Decl., ¶36.  Kolay fully satisfied this order, but this was only for one of the 12 to 14 SKUs in the May 2021 plan.  Mitchell Decl., ¶¶ 37-38. 

            Before Kolay devoted more of its own resources to develop Tri-West’s full product line, it wanted Tri-West to make a good faith deposit so that both parties would have a stake in success.  Mitchell Decl., ¶39.  The parties agreed that Tri-West would issue a series of purchase orders for all the SKUs in the new product line -- named the Patriot Line -- and use them as the basis for an investment with Kolay’s manufacturing capability, along the lines of a 50% deposit on the purchase orders.  Mitchell Decl., ¶39.  Across all SKUs, the estimated cost for purchase orders was $1,000,000 in flooring products and $100,000 in flooring accessory or molding products.  Mitchell Decl., ¶39.  Based on this estimate, Tri-West would deposit $500,000 for flooring and $50,000 for molding.  Mitchell Decl., ¶39. 

            Tri-West insisted a written contract before investing across the entire product line.   Mitchell Decl., ¶40.  Kolay had no prior agreements to draw from and asked Tri-West for the language to use in the Agreement.  Mitchell Decl., ¶40, Ex. 517.  Tri-West responded with a draft of the Agreement, which was only intended to cover purchase orders and not every aspect of the partnership.  Mitchell Decl., ¶41.  The draft provided that Tri-West would provide a 50% deposit for any purchase order, and Kolay would fulfill the order in a reasonable time.  Mitchell Decl., ¶41.  Both sides understood that it would take time to launch the new products, so the draft gave that flexibility and asked both parties to use best efforts to make the product successful.  Mitchell Decl., ¶41. 

            The draft’s cancellation provisions protected both sides.  Mitchell Decl., ¶42.  Paragraph 5 allowed Tri-West to cancel an order if Kolay was not performing, but paragraph 3 provided that Tri-West could not cancel an order after manufacturing had begun.  Mitchell Decl., ¶42.  This was because the products were a custom line unique to Tri-West that only Tri-West could sell.  Mitchell Decl., ¶42.  For these reasons, Mitchell signed the Agreement.  Mitchell Decl., ¶43.

            e. The Purchase Orders

            Since at least the plant tour in May 2021, Tri-West knew that Kolay did not yet have the capacity to make molding products.  Mitchell Decl., ¶44.  The $57,008 payment to KFI (Gage Decl., ¶5, Ex. 3) was for molding because KFI would take the agreed-on designs and have its overseas partners make them.  Mitchell Decl., ¶44.  The $500,152.80 deposit was to Kolay (Gage Decl., ¶5, Ex. 2) which would make the flooring planks in-house.  Mitchell Decl., ¶44.  Once Tri-West made these payments, Kolay dedicated 60-75% of its resources to Tri-West orders.  Mitchell Decl., ¶45.

            After the Agreement, Tri-West began to move the goalposts for the project.  Mitchell Decl., ¶46.  First, it wanted the Patriot Line to have beveled edges instead of Kolay’s usual flat edges.  Mitchell Decl., ¶46.  This required an additional step where machines slice off a small portion of the flooring’s edge at an angle.  Mitchell Decl., ¶47.  This makes the process more expensive, but Kolay agreed to try.  Mitchell Decl., ¶47. 

            Tri-West then wanted Kolay to add wood grain images onto the beveled edge.  Mitchell Decl., ¶48.  In an email on October 13, 2021, Kolay explained that the digital printer it uses had difficulty printing that image onto the edge, but technicians believed they had fixed that problem.  Mitchell Decl., ¶49, Ex. 518.  Kolay also reported “milling” issues with the locking mechanisms.  Mitchell Decl., ¶49, Ex. 518. 

            Although Kolay eventually figured out how to add paint to a beveled edge to make it look more like wood, this introduced a new problem whereby excess paint would dry on the edges and remove some of the paint on the plank surface when it chipped.  Mitchell Decl., ¶50.  Kolay added another step that addressed this extra paint.  Mitchell Decl., ¶50. 

            With technical challenges almost behind them, on November 18, 2021, Mitchell sent Tri-West’s owners mock-ups of the full Patriot Line with images of logos that use the American flag.  Mitchell Decl., ¶51, Ex. 519.  The executives went back and forth about which logo to use.  Mitchell Decl., ¶51, Ex. 519.  The next day, Mitchell sent an image of 12 of the 14 SKUs with the logo affixed.  Mitchell Decl., ¶51, Ex. 519.  Johnston asked Mitchell to tell him when all 14 were done and added with a smiley face that “As far as I’m concerned the jobs not done yet.”  Mitchell Decl., ¶51, Ex. 519.  Mitchell replied that the other two would be done the next Monday.  Mitchell Decl., ¶51, Ex. 519.

            At the start of 2022, both sides were still not on the same page about the Patriot Line’s launch.  Mitchell Decl., ¶52.  Mitchell had reason to believe that White and Johnston were not Tri-West owners.  Mitchell Decl., ¶52, Ex. 520.  On February 26, 2022, he texted Gage that he only wanted to deal with a Tri-West owner going forward.  Mitchell Decl., ¶52, Ex. 520.  That day, Gage responded that White and Johnston were Tri-West owners with full authority to make decisions.  Mitchell Decl., ¶52, Ex. 520. 

            On March 3, 2022, Mitchell texted Gage about progress regarding product testing after Tri-West had demanded more changes to the colors, wood-grain lines, and knot placement.  Mitchell Decl., ¶53, Ex. 520.  Mitchell was concerned that Tri-West was growing weary of the pace.  Mitchell Decl., ¶53, Ex. 520.  Gage responded that a few days’ delay was not an issue.  Mitchell Decl., ¶53, Ex. 520. 

            On March 10, 2022, Mitchell went to Tri-West offices to meet with the owners and show all 14 designs that Kolay had developed, with the beveled and painted edge that Tri-West wanted.  Mitchell Decl., ¶54.  On March 16, 2022, Mitchell asked Tri-West for updates.  Mitchell Decl., ¶55, Ex. 520.  Gage responded that Tri-West was waiting for Mitchell to update it on changing the locking system from I4F to a Uniclic system.  Mitchell Decl., ¶55, Ex. 520.  An installation instructor had complained that the I4F joints were “milled a bit too tight” which made it difficult to bring pieces together.  Mitchell Decl., ¶55, Ex. 520. 

            Mitchel was disappointed that Tri-West was moving the goalposts a second time.  Mitchell Decl., ¶56.  On March 21, 2022, Mitchell texted Gage that while the Uniclic system was possible, Kolay would need to pay a licensing fee of $0.10 per foot.  Mitchell Decl., ¶57, Ex. 520.  It would also take 6-8 weeks for the necessary equipment to arrive.  Mitchell Decl., ¶57, Ex. 520.  On March 30, 2022, Mitchell said the cutter blades should arrive within 3-4 weeks.  Mitchell Decl., ¶57, Ex. 520. 

            f. Tri-West’s Breach

            In May 2022, Gage told Mitchell that Tri-West had decided to use a different manufacturer.  Mitchell Decl., ¶58.  Gage then demanded its deposits back.  Mitchell Decl., ¶58.  KFI had already used its $57,008 payment to order the custom molding from overseas partners, and that molding was enroute.  Mitchell Decl., ¶58.  For the $500,152.80 deposit, Kolay had produced $1 million worth of product for Tri-West before the requests to switch to painted beveled edges and a new locking system.  Mitchell Decl., ¶58.  Kolay had fully performed and cannot be held responsible for delays because Tri-West repeatedly changed its mind.  Mitchell Decl., ¶58. 

            During the work on the Patriot Line, Kolay delivered other product that Tri-West did not pay for, including the Triumph Line.  Mitchell Decl., ¶59.  Tri-West had not paid the full amount for this product.  Mitchell Decl., ¶59.  Mitchell’s June 2022 email (Gage Decl., ¶8, Ex. 5) refers to the Triumph Line and was not an admission that Tri-West was entitled to its money.  Mitchell Decl., ¶59.

            In reliance on Tri-West’s commitment to the partnership, Kolay invested $2,368,668.11 solely for Tri-West’s product from August 2021 through April 2022.  Watts Decl., ¶¶ 4-5, Ex. 522.

            On June 19, 2022, White texted to Mitchell that he hopes they can restore the partnership soon.  Mitchell Decl., ¶63, Ex. 521.

            3. Reply Evidence

            When Kolay and KFI solicited Tri-West’s business as a flooring distributor, Tri-West understood that it would issue purchase orders that Kolay would fill in exchange for payment.  Johnson Decl., ¶2.  At no time did anyone from Kolay or KFI assert that they were in a joint venture or partnership with Tri-West.  Johnson Decl., ¶3.  Kolay and KFI also never informed Tri-West that it would be responsible for expenses incurred in producing product.  Johnson Decl., ¶3. 

            As part of its efforts to market to Tri-West, Kolay asserted it could quickly replicate Tri-West samples for production.  Johnson Decl., ¶4.  On April 1, 2021, representative Jaime Topete (“Topete”) informed Tri-West that Kolay had run samples of a paradigm that Tri-West had provided.  Johnson Decl., ¶4, Ex. 6.  Topete sent samples that Kolay finished in half a day as proof of how fast Kolay can “strike off” color.  Johnson Decl., ¶4, Ex. 6.  On April 12, Topete reiterated that the strike-offs only took five hours to do.  Johnson Decl., ¶4, Ex. 6. 

            E. Analysis

            Plaintiff Tri-West applies for a right to attach order against Defendants Kolay and KFI in the amount of $557,160.80.  

            1. A Claim Based on a Contract and on Which Attachment May Be Based 

            A writ of attachment may be issued only in an action on a claim or claims for money, each of which is based upon a contract, express or implied, where the total amount of the claim or claims is a fixed or readily ascertainable amount not less than five hundred dollars ($500).  CCP §483.010(a). 

            Tri-West’s claim is for breach of the Agreement for failure to refund the $557,160.80 in advance payments after failing to fill the purchase orders within a reasonable time.  Gage Decl., ¶¶ 3-5, Exs. 1-3.  This is a claim on which attachment may be based. 

            2. An Amount Due That is Fixed and Readily Ascertainable  

            A claim is “readily ascertainable” where the damages may be readily ascertained by reference to the contract and the basis of the calculation appears to be reasonable and definite.  CIT Group/Equipment Financing, Inc. v. Super DVD, Inc., (2004) 115 Cal.App.4th 537, 540-41.  The fact that the damages are unliquidated is not determinative.  Id.  But the contract must furnish a standard by which the amount may be ascertained and there must be a basis by which the damages can be determined by proof.  Id. (citations omitted). 

            The Agreement required Tri-West to pay in advance 50% of all purchase orders.  Gage Decl., ¶4, Ex. 1.  If Defendants did not fulfill an order in a reasonable time, Tri-West could cancel the purchase order and obtain a refund of the advance payment.  Gage Decl., ¶4, Ex. 1.  Tri-West has presents evidence that it wired $500,152.80 to Kolay and $57,008 to KFI as advance payments. Gage Decl., ¶5, Exs. 2-3.

            Defendants note that Kolay and KFI are separate entities.  Opp. at 14-15.  Tri-West responds that both Kolay and KFI are defined as “Kolay” in the Agreement and that Kolay is responsible for any refund.  Reply at 1.  The court agrees that both Kolay and KFI would be responsible for any amount owed under the Agreement.

            4. Probability of Success 

            A claim has “probable validity” where it is more likely than not that the plaintiff will recover on that claim.  CCP §481.190.  In determining this issue, the court must consider the relative merits of the positions of the respective parties.  Kemp Bros. Construction, Inc. v. Titan Electric Corp., (2007) 146 Cal.App.4th 1474, 1484.  The court does not determine whether the claim is actually valid; that determination will be made at trial and is not affected by the decision on the application for the order.  CCP §484.050(b). 

            Tri-West presents evidence that, on August 11, 2021, it, Kolay, and KFI entered the year-long Agreement for Tri-West to purchase flooring products.  Gage Decl., ¶3, Ex. 1.  Pursuant to the Agreement, Tri-West would issue purchase orders with definite delivery schedules, which could only be canceled in advance of manufacturing.  Gage Decl., ¶3, Ex. 1. Kolay would use all reasonable efforts to fulfill these orders by the listed due dates, or within a reasonable period if no due date was specified. Gage Decl., ¶3, Ex. 1.  Tri-West agreed to advance a 50% payment for all purchase orders and pay the rest within 30 days of product delivery. Gage Decl., ¶4, Ex. 1.  If Defendants could not fulfill an order in a reasonable timeframe, Tri-West could cancel the purchase order and obtain a refund of its advance payment. Gage Decl., ¶4, Ex. 1.

            Tri-West alleges that Defendants strung it along for months after the products were ordered and the advance payments were made on August 12, 2021.  Gage Decl., ¶7.  What little product Defendants did provide was defective.  Gage Decl., ¶7.  As a result, Tri-West cancelled the purchase orders and demanded a refund.  Gage Decl., ¶¶ 7-8.

            Defendants suggest that the parties entered into a partnership or a joint venture (which is a project-specific partnership).  They provide evidence that Tri-West toured Koray’s facility on May 6, 2021 and was very impressed.  Mitchell Decl., ¶25, Ex. 506.  On May 13, 2021, Mitchell asked Tri-West to think of them as a team.  Mitchell Decl., ¶27, Ex. 507.  Mitchell was excited to enter into a partnership with Tri-West and, as soon as Tri-West was ready to put up significant capital, Kolay was ready to devote the majority of its resources to getting the new product line off the ground.  Mitchell Decl., ¶¶ 26-27. 

Tri-West sent Kolay a draft business plan and the parties eventually agreed upon it.  Mitchell Decl., ¶¶ 28-30, Ex. 508, 509, 510.  On May 28, 2021, Tri-West replied that its goal was to grow with Kolay.  Mitchell Decl., ¶29, Ex. 510.   The scanning process was costly, but Kolay was willing to invest the resources to contribute to the partnership.  Mitchell Decl., ¶32.  Tri-West insisted a written contract before investing across the entire product line.   Mitchell Decl., ¶40.  The Agreement was only intended to cover purchase orders and not every aspect of the partnership.  Mitchell Decl., ¶41.  Both sides understood that it would take time to launch the new products, so the draft Agreement gave them flexibility and asked both parties to use best efforts to make the product successful.  Mitchell Decl., ¶41. 

            Despite Defendants’ reference to a partnership and a joint venture, they provide no specific terms of such a joint venture beyond the Agreement.  The hallmark of a partnership or a joint venture is a sharing of profits and losses.  April Enterprises, Inc. v. KTTV (1983), 147 Cal. App. 3d 805, 819.  Defendants provide no terms of profit and loss sharing, and it is clear from the Agreement and the purchase orders that the parties were not going to share profits and losses.  In fact, Defendants refer to the August 4, 2021 $178,755.10 purchase order for the Sinanian project as a completed purchase order with no discussion of shared profit.  Mitchell Decl., ¶36, Ex. 516.  As Tri-West asserts, this reflects a merchant relationship of purchase and supply.  Reply at 7.  Defendants have not shown that there was a partnership or joint venture.

Defendants assert that the Agreement does not permit Tri-West to cancel a purchase order after Kolay began manufacturing the product.  Opp. at 9; Mitchell Decl., ¶42.  Paragraph 5 allows Tri-West to cancel an order if Kolay was not performing, but paragraph 3 provides that Tri-West could not cancel an order after manufacturing had begun.  Mitchell Decl., ¶42.  This was because the products were a custom line unique to Tri-West that only Tri-West could sell.  Mitchell Decl., ¶42.  By the time Tri-West cancelled the purchase orders, KFI had already used its $57,008 payment to order the custom molding from overseas partners, and that molding was enroute.  Mitchell Decl., ¶58.  Similarly, Kolay already had produced over $1 million of product for Tri-West before the latter made design changes for painted beveled edges and a new locking system.  Mitchell Decl., ¶58.  Defendants argue that Tri-West could not cancel the two purchase orders and breached the Agreement in doing so.  Opp. at 11.

            As Tri-West observes, Kolay provides no documentary evidence to support its assertion that the $57,008 for molding was enroute from overseas partners.  Reply at 4, n.3.

            Defendants misread the Agreement.  Contract interpretation is a matter of law.  Civil Code §§ 1636, 1639.  Courts should interpret a contract based on the usual and ordinary meaning of the contractual language and the circumstances under which the agreement was made.  Rice v. Downs, (2016) 248 Cal. App. 4th 175, 185-86.  No extrinsic evidence may be received to vary the terms of a contract that is fully integrated.  The existence of an integration clause in the contract is a key factor in determining whether the parties intended the contract as a final and complete expression of their agreement.  Grey v. Am. Mgmt. Servs., (2012) 204 Cal.App.4^th 803, 807.  When the parties dispute the meaning of contract language, the first issue is whether the language is reasonably susceptible to the interpretation urged by the party.  Dore v. Arnold Worldwide, Inc., (2006) 39 Cal.4^th 384, 393.  If so, the court must consider all credible evidence offered to prove the intention of the parties.  Pacific Gas & Electric Co. v. G.W. Thomas Drayage, (1968) 69 Cal.2d 33, 39-40.  The parties’ undisclosed intent or understanding is irrelevant to contract interpretation.  Iqbal v. Ziadeh, (2017) 10 Cal.App.5^th 1, 8-9.   

Applying the principles of contract interpretation, Paragraph 3 permits Tri-West to cancel an accepted purchase order for no reason only prior to manufacturing.  Paragraph 5 provides that Tri-West may cancel a purchase order, and obtain a refund, if Defendants are unable to fulfill the purchase order in a reasonable time.  Reply at 6; Gage Decl., ¶4, Ex. 1.  In other words, Tri-West may cancel a purchase order for any reason if Kolay has not begun manufacturing to fill the order.  Tri-West may cancel a purchase order after Kolay has begun manufacturing the product only if Kolay fails to deliver in a reasonable time.  In that circumstance, Tri-West is entitled to a refund.

            Defendants failed to deliver the ordered products on time.  The issue is whether Defendants have shown that Tri-West’s changes made timely delivery infeasible. 

Tri-West asserts that Defendants cannot rely on the affirmative defenses excuse or prevention of performance because the operative Answer does not plead.  Kolay has filed a motion for leave to file a First Amended Answer (“FAA”) including these defenses which will be heard by the I/C court.  As such, these defenses are waived.  Cal. Academy of Sciences v. City of Fresno, (“Academy”) (1987) 192 Cal.App.3d 1436, 1442.  Reply at 3.

Tri-West’s assertion that the defenses are waived is untenable.  An answer raising affirmative defenses is not essential for purposes of attachment and Tri-West points to no authority to the contrary.  Academy is a summary judgment case in which the county’s waiver and estoppel arguments had not been pled as affirmative defenses in its answer.  Id. at 1442.  Plainly, a failure to plead an affirmative defense at the summary judgment stage differs from a provisional remedy such as attachment which may issue long before an answer is ever filed.  Moreover, Defendants’ pending motion for leave to amend its Answer to add these affirmative defenses suffices to meet any pleading requirement for an affirmative defense to attachment.

            Tri-West asserts that on August 5, 2021, Koly’s Chamberlain emailed Tri-West to confirm a guaranty that Kolay would produce 529,200 square feet of flooring at its Las Vegas facility upon receipt of a $500,094 deposit.  Gage Decl., ¶6, Ex. 4.  She also guaranteed that KFI would produce 8,260 trim pieces at a facility in the City of Industry upon receipt of a $56,413.70 deposit.  Gage Decl., ¶6, Ex. 4.

            Defendants suggest that, after the Sinanian project was completed, Tri-West wanted a short performance guarantee before any further payment transfers.  For this reason, Chamberlain wrote the August 4, 2021 email guaranteeing production in response to the two purchase orders for $56,413.700 and $500,094.00.  Mitchell Decl., ¶36, Ex. 516.  Whatever the reason, Defendants guaranteed Tri-West their performance on these purchase orders.[2]

            This brings the court to Defendants’ argument that Tri-West prevented timely performance by Defendants due to continuing changing specifications.  Defendants provide substantial evidence that Tri-West’s changing demands caused the production delays. 

After the parties entered into the Agreement, Tri-West asked for beveled edges that require an extra step to make.  Mitchell Decl., ¶¶ 46-47.  Tri-West attempts to cast Defendants’ statements as an admission that beveled edges were always the plan.  Reply at 6.  Not so.  Defendants’ evidence is that Tri-West asked for beveled edges arose after the parties signed the Agreement.  Mitchell Decl., ¶¶ 46, 48.  In an October 13, 2021 email, Kolay explained that this request had caused delays because the digital printer had difficulty printing that image onto the edge.  Mitchell Decl., ¶49, Ex. 518.  Kolay also had to develop a method to remove extra paint before it dried on the edges so that it would not chip off.  Mitchell Decl., ¶50. 

Tri-West asserts that Kolay found a method that worked no later than November 2021, and the request did not prevent performance.  Reply at 8.  True, but the beveled edges issue influences what timeframe for performance was “reasonable” for Tri-West’s purchase order. 

            By November 18, 2021, Kolay had finished 12 of the 14 SKUs agreed upon with Tri-West.  Mitchell Decl., ¶51, Ex. 519.  On March 3, 2022, Kolay’s CEO Mitchell texted Tri-West’s CEO Gage about product testing.  Mitchell Decl., ¶53, Ex. 520.  When Mitchell asked Gage whether he could start mass production immediately after, Gage responded that the main focus was getting things right even if it took a few days.   Mitchell Decl., ¶53, Ex. 520.  On March 10, 2022, Mitchell presented the finished SKUs to Tri-West’s owners.  Mitchell Decl., ¶54.  During that conversation, Gage asked Kolay to switch the agreed upon I4F interlocking system to a Uniclic system.  Mitchell Decl., ¶55, Ex. 520. 

Tri-West argues that the switch to a Uniclic system did not change the goalposts because its draft business plan listed the Unilin Push 14F system only was preferred.  Mitchell Decl., ¶28, Ex. 508.  Kolay attempted to use this locking system but it caused significant issues.  On October 13, 2021, Kolay reported “milling” issues with the I4F locking mechanisms.  Mitchell Decl., ¶49, Ex. 518.  As of March 2022, Tri-West informed Kolay that the locking system was still “a bit too tight”.  Mitchell Decl., ¶52, Ex. 520.  Tri-West then asked Koly to use a different locking mechanism.  Id.  Kolay did not object to this change or argue that Tri-West was moving the goalposts.  Kolay instead tried to accommodate the request.  Mitchell Decl., ¶¶ 55-56, Ex. 520.  Kolay never was able to produce a finished product and, after nearly a year of waiting, Tri-West canceled its orders.  Reply at 8. 

Tri-West fails to explain why Kolay’s attempts to be flexible impedes its argument that Tri-West’s changes excused or prevented Kolay’s performance, and that the delay in its performance remained reasonable under the Agreement.  On March 21, 2022, Mitchell texted Gage that Kolay would need to wait 6-8 weeks for the necessary equipment to arrive and it would add $0.10 per foot in cost. Mitchell Decl., ¶57, Ex. 520.  Tri-West did not wait for Kolay to finish the new interlocking system.  Instead, Tri-West terminated the relationship in May 2022.  Mitchell Decl., ¶58. 

            Based on the evidence presented, Tri-West’s changes made Defendants’ delay in production reasonable.  Performance is excused when prevented or delayed by the act of the creditor.  Civil Code §1511.  See Taylor v. Sapritch, (1940) 38 Cal.App.2d 478, 481 (performance excused when prevented by acts of the opposite party).  As such, Tri-West has not shown that it was entitled to cancel the purchase orders under the Agreement.  Tri-West has failed to demonstrate a probability of success that Defendants breached the Agreement, and that Tri-West is entitled to a refund.

            5. Offset

            Any amount to be secured by attachment must be reduced by the amount claimed in a cross-complaint or affirmative defense and shown would be subject to attachment against the plaintiff.  CCP §483.015(b)(2).

            In general, expenses necessarily incurred by the nonbreaching party in good faith, in anticipation of, or in preparation for, performance by the other party are recoverable as an element of damages for breach of contract.  Walpole v Prefab Mfg. Co. (1951) 103 Cal.2d 472.  The court in Lewis Jorge Constr. Mgmt., Inc. v. Pomona Unified Sch. Dist. (2004) 34 Cal.4th 960, 968-69, found that consequential damages are recoverable if the special or particular circumstances from which they arise were actually communicated or known or should have been known by the breaching party. 

            Defendants present evidence that, in reliance on Tri-West’s commitment to the business plan, Kolay invested $2,368,668.11 solely for Tri-West’s product from August 2021 through April 2022.  Watts Decl., ¶¶ 4-5, Ex. 522. 

            Tri-West replies that Defendants have pled no cross-claim, do not allege this in their Answer, and have never raised this demand during months of litigation.  Reply at 9.  The court need not consider these arguments because Tri-West is correct that the claim is not available for attachment.  Reply at 9.  While Defendants may claim $2,368,668.11 in damages at trial, they are not available for offset.  The damages awardable on a cross-claim can only offset the amount to be attached if the cross-claim damages themselves would be eligible for attachment.  See CCP §483.015(b)(2).  This means that the cross-claim damages must be readily ascertainable from the contract.  See CCP §483.010(a).  There is no provision in the Agreement from which Defendants’ investment of monies to build the products Tri-West wanted is readily ascertainable. 

Assuming that Defendants can obtain damages from Tri-West’s breach, these damages are not available for offset.

            6. Attachment Sought for a Proper Purpose¿ 

            Attachment must not be sought for a purpose other than the recovery on the claim upon which attachment is based.¿ CCP §484.090(a)(3).  Tri-West seeks attachment for a proper purpose. 

            E. Conclusion

            Tri-West’s applications for right to attach orders are denied.