Judge James C. Chalfant, Case Number: 23STCV12303, Date: 2024-01-25 Tentative Ruling

UC 2870 West Olympic Holder, LLC v. 2870 O Consortium LLC et al, 23STCV12303

Tentative decision on motion for approval of Receiver’s final report, discharge, and accounting: granted

Receiver Stapleton Group, Inc. (“Receiver”) moves for approval of final report and accounting, discharge from his duties, approval of his outstanding fees and costs approved, 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 UC 2870 West Olympic Holder, LLC (“UC 2870” or “Lender”) commenced this proceeding against Defendants 2870 O Consortium LLC (“Borrower”), Live Work Create Equity LLC (“Live Work”), Perri Lee (“Lee”), City of Los Angeles Department of Building and Safety (“LADBS”), Rosewood Assets, LLC (“Rosewood”), Howard Industries, Inc. (“Howard”), JR Plumbing and Rooter, Inc. (“JR”), Edward’s Sheet Metal Supply, Inc. (“Edward’s”), Triple Play Electric, Inc. (“Triple Play”), L&W Supply Corporation (“L&W”), Climate Industries, Inc. (“Climate”), White Cap L.P. (“White Cap”), and Reyes Heating and Air Conditioning (“Reyes”), alleging (1) two counts of breach of contract, (2) appointment of receiver, (3) foreclosure by judicial sale, and (4) conversion. The Complaint alleges in pertinent part as follows.

On March 26, 2020, Lender’s predecessor UC Funding, LLC (“UC Funding”) executed a Loan Agreement pursuant to which Borrower obtained a $30 million loan. A Promissory Note was also executed to that effect. Through a Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing (“DOT”), Borrower granted a security interest in 2870 West Olympic Boulevard, Los Angeles, California 90010 (“Property”) to Chicago Title Company as trustee for UC Funding’s benefit.

Also on March 26, 2020, UC Funding, Borrower, and Lee signed a Completion Indemnity and Guaranty Agreement whereby Borrower and Lee jointly and severally guaranteed the construction performance promised in the Loan Agreement by the promised deadline. Borrower and Lee also agreed that the construction would be free from any liens or claims performing services or labor on the Property and, if not, they jointly and severally agreed to pay such costs.

UC Funding then assigned to Lender its interest in the DOT, Loan Agreement, and Promissory Note (“2020 Loan Documents”).

On October 1, 2021, Lender, Borrower, and Lee signed a Modification Agreement and Note increasing the amount of the loan to $31.7 million. They also agreed in an Amendment to Recorded Documents that any reference to the loan in the 2020 Loan Documents referred to the $31.7 million modified loan principal.

On September 1, 2022, Lender, Borrower, and Lee signed a second Modification Agreement. Lender agreed to extend the loan’s maturity date to April 1, 2023, postpone collection of outstanding payments until then, accept payments of Borrower’s net operating income in lieu of regular interest payments, with any excess interest accruing and payable on the new maturity date or upon earlier repayment of the Loan and waive the requirement to replenish the interest reserve under the 2020 Loan Documents.

Borrower failed to pay the outstanding principal on the extended maturity date or the accrued interest within five days. It also failed to provide insurance as required under the Loan Agreement. Borrower further failed to complete the construction described in the Loan Agreement by the required completion date of June 30, 2021. Under the Note, each event of default accelerates all amounts owed. Lender is entitled to foreclose on the DOT and have a receiver appointed.

Lender seeks compensatory damages for breach of contract, prejudgment interest at the legal rate, punitive damages, and attorney’s fees and costs. Lender also asks the court to enforce the clauses in the 2020 Loan Documents entitling it to possession of the Property and appointment of a receiver.

Lender further asks for judicial foreclosure, damages in the amount of the deficiency plus late charges, fees, and interest, costs incurred in connection with the sale of the Property, and attorney’s fees and costs.

On July 5, 2023, White Cap, formerly known as HD Supply Construction Supply, LTD., filed a Cross-Complaint against Cross-Defendants Lender and Borrower, alleging breach of written contract, open book account, account stated, quantum meruit, and foreclosure of mechanic’s lien. White Cap’s Cross-Complaint alleges in pertinent part as follows.

On September 20, 2022, White Cap and Borrower entered a Credit Application Agreement (“Credit Agreement”) wherein White Cap would provide various building materials, hardware, cement, sealant, visqueen, flashing, and related supplies. White Cap has done so, but Borrower has failed to fully pay for the provided materials.

On January 12, 2023, White Cap served preliminary lien notices on both Lender and Borrower per Civil Code section 8200 et al. On May 1, 2023, White Cap filed and recorded its mechanic’s lien with the Los Angeles County Recorder's Office.

Borrower owes White Cap $21,272.25 plus delinquency charges at a 10% annual rate accruing from March 6, 2023. The Credit Agreement also entitles White Cap to attorney’s fees and costs. White Cap seeks damages for attorney’s fees and costs of preparing and recording the mechanic’s lien, with proceeds from sale of the Property to be applied to satisfy White Cap’s claims. White Cap also seeks judgment that Borrower and Lender’s interests in the Property are subject to White Cap’s lien.

On November 20, 2023, Rosewood filed a Cross-Complaint. The operative pleading is a First Amended Cross-Complaint filed on November 27, 2023 against Cross-Defendants Borrower, Live Work, and Lee, alleging breach of contract against Borrower and conversion and negligence against all Cross-Defendants. Rosewood’s FACC alleges in pertinent part as follows.

On April 25, 2022, Rosewood loaned Borrower $3.5 million to fund improvements on the Property (“Rosewood Loan”). The maturity date for the Rosewood Loan and accompanying Note was April 24, 2023. Borrower agreed to repay the loan balance plus the accrued unpaid interest on that date. It failed to do so and therefore was in default. Borrower also failed to provide insurance as required by the Rosewood Loan.

Rosewood seeks $4.5 million in compensatory damages, pre-judgment interest, punitive damages, and attorney’s fees and costs.

On June 7, 2023, Lender personally served White Cap and L&W with the Complaint and Summons.

On June 8, 2023, Lender served Rosewood with the Complaint and Summons by substitute service, effective June 18, 2023.

On June 12, 2023, Lender personally served Reyes with the Complaint and Summons.

On June 13, 2023, this court granted Lender’s ex parte application for appointment of a receiver and a preliminary injunction in support thereof.

On July 5, 2023, White Cap filed an Answer to the Complaint along with the White Cap Cross-Complaint.

On July 13, 2023, this court confirmed the appointment of Receiver after Defendants’ Non-Opposition and Stipulation to Appointment of Receiver and Temporary Restraining Order.

On July 13, 2023, White Cap filed a notice of lis pendens for the Property and served Lender and Borrower with it by mail.

On July 20, 2023, Borrower filed a notice of a related case, Climate Industries, Inc. v. Juan Carlos Reyes et al, Case No. 23STCV08377.

On July 26, 2023, Lender filed a notice of lis pendens for the Property and served Borrower, Live Work, Lee, Climate, DBS, Rosewood, JR, Edward’s, L&W, Triple Play, White Cap, and Reyes with it by mail.

On July 28, 2023, Department 71 (Hon. Daniel Crowley) rejected Lender’s request for entry of default against Reyes. Also on July 28, 2023, White Cap served Borrower with its Cross-Complaint and Summons by substitute service, effective August 8, 2023.

On August 4, 2023, Department 71 rejected Lender’s requests for entry of default against Reyes and L&W.

On August 10, 2023, Department 71 rejected Lender’s requests for entry of default against Reyes and L&W.

On November 14, 2023, Department 71 granted an oral request to dismiss the Complaint against Howard without prejudice.

On November 20, 2023, Rosewood filed its Cross-Complaint and served Lender, Borrower, White Cap, JR, Reyes, Lee, Triple Play, Edward’s, Climate, L&W, and Live Work with it by mail.

On November 27, 2023, Rosewood filed its FACC and served Lender, Borrower, White Cap, JR, Reyes, Lee, Triple Play, Edward’s, Climate, L&W, and Live Work with it by mail.

On December 22, 2023, Borrower and Lee filed an Answer to Rosewood’s Cross-Complaint.

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).

The Property consists of a multi-story mixed-use building with retail space on the street level and residences on the upper level. Kieffer Decl., ¶4. On March 26, 2020, UC Funding loaned Borrower $30 million to fund improvements on the Property. Kieffer Decl., ¶4. Borrower failed to repay the loan even after Lender extended the maturity date. Kieffer Decl., ¶4.

On June 13, 2023, Receiver took possession of the Property pursuant to the court’s order granting Lender’s ex parte application to appoint a receiver. Kieffer Decl., ¶3, Ex. 1 (Final Report, Ex. A). At the time, construction at the Property was incomplete and the building still had scaffolding in place. Kieffer Decl., ¶4. Because the barricades protecting the building were dilapidated and easily breached, the Property was not secure from intruders or squatters. Kieffer Decl., ¶4. Because security cameras had been removed, the Property also became the subject of vandalism and theft of electrical components. Kieffer Decl., ¶4.

On June 15, 2023, Receiver met with a prospective general contractor to inspect the condition of the building, assess any known issues, and propose a stabilization plan with cost forecast. Kieffer Decl., ¶5. Receiver also contacted the existing security company to provide directions for securing the premises. Kieffer Decl., ¶5. Receiver’s agent thereafter frequently visited the Property for continued oversight of the protection and preservation of the Property. Kieffer Decl., ¶5.

Receiver opened a bank account at City National Bank (“City National”). Kieffer Decl., ¶6. Lender funded the City National account on July 14, 2023 with $1,823,586.43 to cover 2022 property taxes and insurance. Kieffer Decl., ¶6; Final Report, p. 3. On July 27, 2023, Receiver issued and recorded a $1,823,586.43 Receiver’s Certificate in Lender’s favor. Kieffer Decl., ¶7; Final Report, p. 3.

From August to September 2023, Receiver recorded six more Receiver’s Certificates to manage, preserve and protect the assets, income, and expenses of the Receivership Estate, as well as to pay the costs of administering it. Kieffer Decl., ¶7; Final Report, p. 3. Between seven Receiver’s Certificates and two Lender contributions, a total of $2,091,882.36 was placed in the City National account. Kieffer Decl., ¶7; Final Report, p. 3. As of October 10, 2023, Receiver spent $2,091,789.16, leaving a total balance of $93.20. Kieffer Decl., ¶7; Final Report, p. 3.

Lender recorded a Notice of Trustee’s Sale for the Property on September 12, 2023, and the foreclosures sale took place on October 6, 2023. Kieffer Decl., ¶8; Final Report, Ex. B.

Receiver’s fees for the Receivership have totaled $110,325. Kieffer Decl., ¶9; Final Report, p. 4. Receiver delivered invoices for interim fees and expenses to all parties through regular reports. Kieffer Decl., ¶9; Final Report, p. 4. The final report seeks payment of all unpaid final fees and expenses from the funds of the Receivership Estate after the notice period expires. Kieffer Decl., ¶9; Final Report, p. 4. Receiver estimates that its unpaid fees, including fees related to filing the final report, will total $20,000. Kieffer Decl., ¶9; Final Report, p. 4. Because the Receivership Estate has no funds to pay such obligations, Receiver requests an order compelling Lender to pay the unpaid obligations to Receiver within five days of the entry of such an order. Kieffer Decl., ¶9; Final Report, p. 4.

Receiver has provided notice to all known Receivership and pre-Receivership creditors. Kieffer Decl., ¶10, Ex. 2.

Receiver moves for termination of the Receivership, approval of its final report and accounting, exoneration of all bonds and undertakings, approval of the fees and expenses described in the final report, and an order for Lender to pay all final Receivership expenses and other amounts owing to Receiver within five days of entry of such an order. The pertinent parties have been served and no party objects to the motion. Kieffer Decl., ¶10, Ex. 2.

Receiver explains that the Receivership has served its purpose because the Property has been sold at a trustee’s sale. Kieffer Decl., ¶8; Final Report, Ex. B. Receiver opened a City National account to cover Property expenses and that account has a balance of $93.20. Kieffer Decl., ¶¶ 6, 7; Final Report, p. 3. There are no creditors of the Receivership Estate because all obligations and liabilities have been paid. Kieffer Decl., ¶10.

Receiver seeks approval of his fees and costs totaling $110,325 through September 30, 2023. Kieffer Decl., ¶9; Final Report, p. 4. His unpaid fees, including the costs for October 2023 and to file the final report and accounting and terminate the Receivership, are estimated to total $20,000. Kieffer Decl., ¶9; Final Report, p. 4. Because the Receivership has no funds to pay such obligations, Receiver requests an order compelling Lender to pay the unpaid obligations to Receiver within five days of the entry of such an order. Kieffer Decl., ¶9; Final Report, p. 4.

Courts may impose the receiver costs on a party who sought the appointment of the receiver. City of Chula Vista v. Gutierrez, (2012) 207 Cal. App. 4th 681, 685-686. Receiver was appointed at Lender’s request to take possession of the Property after Borrower failed to repay a $30 million loan to fund improvements on the Property. Kieffer Decl., ¶¶ 3-4, Ex. 1. Lender has no objection to Receiver’s handling of the Property or the fees he incurred.

Receiver’s motion for approval of final report and accounting, discharge from his duties, approval of his outstanding fees and costs approved, and exoneration of his undertaking is granted.