Medley Opportunity Fund II and PhenixFIN Corporation v. POINT.360, 23STCV27768

Tentative decision on applications for right to attach order: granted

 

 

Plaintiffs Medley Opportunity Fund II (“MOF II” or “Medley”) and PhenixFIN Corporation (“PFX”) apply for a right to attach order against Defendant POINT.360 in the amount of $8,513,242.33.

The court has read and considered the moving papers, opposition, and reply, and renders the following tentative decision.

 

A. Statement of the Case

1. Complaint

Plaintiffs filed the Complaint against Defendant POINT.360 on November 13, 2023, alleging claims for breach of term loan agreement and promissory notes.  The Complaint alleges in pertinent part as follows. 

Pursuant to a term loan agreement dated as of July 8, 2015 (the "Term Loan Agreement"), Plaintiffs agreed to extend $6 million in term loans to Point.360. 

Pursuant to a security agreement dated as of July 8, 2015 (the "Security Agreement"), Point.360 granted a security interest to Plaintiffs in all of Point.360's assets other than its receivables and real property (and the direct proceeds thereof) (the “Collateral”).  Plaintiffs perfected their security interests in the Collateral.  (The Term Loan Agreement and the Security Agreement are collectively referred to as the “Loan Documents”.) 

In addition to the Loan Documents, Point.360 executed a Warrant to Purchase Shares of Common Stock of Point.360 dated as of July 2015, by and between Point.360 and MCC and a Warrant to Purchase Shares of Common Stock of Point.360 dated as of July 2015, by and between Point.360 and MOF II (collectively, the “Warrants”). The Warrants were cancelled pursuant to Point.360’s Second Amended Chapter 11 Plan as Modified in Point.360’s Chapter 11 bankruptcy proceeding filed as Case No. 2:17-bk-22432 (the “Bankruptcy Case”) in the United States Bankruptcy Court, Central District of California, Los Angeles Division, which was confirmed pursuant to a bankruptcy court order entered on June 11, 2019. 

Under the Term Loan Agreement, Medley provided $6 million in cash in “Term Loans” to Point.360.  The Term Loan Agreement provided for a “Closing Date Term Loan” of $1 million and additional “Delayed Draw Term Loans” of up to $5 million in total.  During the year following the closing of the Term Loan Agreement, Point.360 borrowed all $5 million of the Delayed Draw Term Loans in a series of draws. 

The Term Loans matured on July 8, 2020.  Pursuant to Section 16 of the Term Loan Agreement, Point.360 was obligated to pay to Plaintiffs the principal balance of the outstanding Term Loans together with any accrued interest.  Point.360 did not repay the Term Loans or any other amounts owing under the Loan Documents on the maturity date. 

On July 9, 2020, Plaintiffs provided Point.360 with a notice of default.  Pursuant to the notice of default, Plaintiffs gave Point.360 notice that it had elected to charge an additional 2.00% interest on all amounts outstanding under the loan documents. 

On August 5, 2022, Plaintiffs provided Point.360 with another formal demand for payment of the amounts due and owing under the Loan Documents.  To this date, Point.360 has never made a payment to Plaintiffs on its obligations under the Loan Documents. 

As of September 30, 2023, Point.360 owed Plaintiffs $11,837,464.60.  In addition to principal and interest owing under the Term Loan Agreement, pursuant to the Term Loan Agreement Point.360 agreed “to pay all reasonable and documented out-of-pocket expenses, legal and/or otherwise paid or incurred by Plaintiffs in endeavoring to collect Point.360’s obligations.  Over the course of six years of bankruptcy litigation and appellate practice, Plaintiffs have incurred over $3.1 million in legal fees and expenses.

As of September 30, 2023, the total amount Point.360 owed to Plaintiffs under the Loan Documents, inclusive of principal, interest, fees, and expenses, was in excess of $14,900,000. 

 

2. Course of Proceedings

On November 13, 2023, Plaintiffs filed the Complaint.

On February 5, 2024, Defendant filed an Answer. 

 

B. Applicable Law

Attachment is a prejudgment remedy providing for the seizure of one or more of the defendant’s assets to aid in the collection of a money demand pending the outcome of the trial of the action.  See Whitehouse v. Six Corporation, (1995) 40 Cal.App.4th 527, 533.  In 1972, and in a 1977 comprehensive revision, the Legislature enacted attachment legislation (CCP §481.010 et seq.) that meets the due process requirements set forth in Randone v. Appellate Department, (1971) 5 Cal.3d 536.  See Western Steel & Ship Repair v. RMI, (12986) 176 Cal.App.3d 1108, 1115.  As the attachment statutes are purely the creation of the Legislature, they are strictly construed.  Vershbow v. Reiner, (1991) 231 Cal.App.3d 879, 882.

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).  A claim is “readily ascertainable” where the amount due may be clearly ascertained from the contract and calculated by evidence; the fact that damages are unliquidated is not determinative.  CIT Group/Equipment Financing, Inc. v. Super DVD, Inc., (“CIT”) (2004) 115 Cal.App.4th 537, 540-41 (attachment appropriate for claim based on rent calculation for lease of commercial equipment).

All property within California of a corporation, association, or partnership is subject to attachment if there is a method of levy for the property.  CCP §487.010(a), (b).  While a trustee is a natural person, a trust is not.  Therefore, a trust’s property is subject to attachment on the same basis as a corporation or partnership.  Kadison, Pfaelzer, Woodard, Quinn & Rossi v. Wilson, supra, 197 Cal.App.3d at 4.

The plaintiff may apply for a right to attach order by noticing a hearing for the order and serving the defendant with summons and complaint, notice of the application, and supporting papers any time after filing the complaint.  CCP §484.010.  Notice of the application must be given pursuant to CCP section 1005, sixteen court days before the hearing.  See ibid.

The notice of the application and the application may be made on Judicial Council forms (Optional Forms AT-105, 115).  The application must be supported by an affidavit showing that the plaintiff on the facts presented would be entitled to a judgment on the claim upon which the attachment is based.  CCP §484.030. 

Where the defendant is a corporation, a general reference to “all corporate property which is subject to attachment pursuant to subdivision (a) of Code of Civil Procedure Section 487.010” is sufficient.  CCP §484.020(e).  Where the defendant is a partnership or other unincorporated association, a reference to “all property of the partnership or other unincorporated association which is subject to attachment pursuant to subdivision (b) of Code of Civil Procedure Section 487.010” is sufficient.  CCP §484.020(e).  A specific description of property is not required for corporations and partnerships as they generally have no exempt property.  Bank of America v. Salinas Nissan, Inc., (“Bank of America”) (1989) 207 Cal.App.3d 260, 268.

A defendant who opposes issuance of the order must file and serve a notice of opposition and supporting affidavit as required by CCP section 484.060 not later than five court days prior to the date set for hearing.  CCP §484.050(e).  The notice of opposition may be made on a Judicial Council form (Optional Form AT-155). 

The plaintiff may file and serve a reply two court days prior to the date set for the hearing.  CCP §484.060(c).

At the hearing, the court determines whether the plaintiff should receive a right to attach order and whether any property which the plaintiff seeks to attach is exempt from attachment.  The defendant may appear the hearing.  CCP §484.050(h).  The court generally will evaluate the attachment application based solely on the pleadings and supporting affidavits without taking additional evidence.  Bank of America, supra, 207 Cal.App.3d at 273.  A verified complaint may be used in lieu of or in addition to an affidavit if it states evidentiary facts.  CCP §482.040.  The plaintiff has the burden of proof, and the court is not required to accept as true any affidavit even if it is undisputed.  See Bank of America, supra, at 271, 273.

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. Plaintiffs’ Evidence[1]

Between July 9, 2015 and April 26, 2016, Plaintiffs provided Defendant with $6 million in Term Loans, pursuant to the Term Loan Agreement. Compl., ¶¶12 and 28; admitted as true, Verified Answer, ¶3(b). Pursuant to Section 16 of the Term Loan Agreement, Point.360 was obligated to “pay to [Plaintiffs] the principal balance of the outstanding Term Loans together with any accrued interest and other amounts payable hereunder or under any other Loan Document on the Maturity Date.”  Compl., ¶16; admitted as true, Verified Answer, ¶3(b).

Defendant has never made a payment to Plaintiffs under the Loan Documents.  Compl., ¶19; admitted as true Answer, ¶¶3(b).

On October 10, 2017, Defendant filed a petition for relief under Chapter 11 of the Bankruptcy Case.  Compl., ¶20; admitted as true, Verified Answer, ¶ 3(b).  Defendant objected to Plaintiffs’ claims in connection with the Term Loan Agreement by commencing an adversary proceeding in the Bankruptcy Case (the “Adversary Proceeding”).  On May 1, 2019, Defendant filed its First Amended Complaint (“FAC”) for (1) Mandatory Subordination; (2) Objection to Claim; and (3) Lien Avoidance whereby Defendant objected to Plaintiffs claims under the Term Loan Agreement.  Compl., ¶22; Admitted as true, Verified Answer, ¶3(b).

On January 26, 2021 Plaintiffs filed a motion for summary judgment in the Adversary Proceeding. Compl., ¶25; Admitted as true, Verified Answer, ¶3(b).  On July 2, 2021, the bankruptcy court granted Plaintiffs’ motion for summary judgment and entered its order and Judgment in favor of Plaintiffs on all claims for relief.  Compl., ¶26, Exs. 15, 16; Admitted as true, Verified Answer, ¶3(b).  Also on July 2, 2021, the bankruptcy court entered its Findings of Uncontroverted Facts and Conclusions of Law.  Compl., ¶27, Ex. 17; Admitted as true, Verified Answer, ¶ 3(b).

In addition to ruling against each of Defendant’s objections to Plaintiffs’ claims arising under the Term Loan Agreement, the bankruptcy court made the following specific findings of uncontroverted facts:

2.  Under the Term Loan Agreement, Medley provided $6 million in cash in Term Loans to Point.360.

16. On June 11, 2019, the bankruptcy court entered the Confirmation Order confirming the Debtor Plan.

17. The Debtor Plan provided for the reinstatement of the Term Loans pursuant to the Term Loan Agreement and related Loan Documents and that Medley’s liens and secured claims were unimpaired under sections 1124(1) and (2) of the Bankruptcy Code.

24. On July 8, 2020, the Term Loans matured.

25. As of July 9, 2020, the outstanding indebtedness under the Term Loan Agreement and related Loan Documents was an aggregate principal amount of $8,501,325.59, plus $11,916.74 in accrued and unpaid interest.

26. Point.360, to date, has not paid Medley the outstanding indebtedness under the Term Loan Agreement and related Loan Documents. Compl., ¶28; admitted as true, Verified Answer, ¶¶3(b).

Plaintiffs seek an attachment solely for the purpose of recovering on their claims against Defendant under the Term Loan Agreement.  App. (Item 4); Lorber Decl., ¶5. 

When PFX entered into the Term Loan Agreement and made its loans to Point.360, it was licensed as a Finance Lender with the California Department of Financial Protection and Innovation (the “DFPI”).  Lorber Decl., ¶6. 

On April 16, 2021, the DFPI issued an Order Summarily Revoking Finance Lender and/or Broker License(s) Pursuant to Financial Code section 22715 on account of PFX’s failure to file Annual Reports with the CFPI (the "CFPI Order").  Lorber Decl., ¶7.  At the time, PFX had already ceased to engage in finance lender activities in California.  Lorber Decl., ¶7.  At all times since, PFX has complied with the CFPI Order.  Lorber Decl., ¶7. 

MOF II has never conducted any activities pursuant  to Financial Code sections 22340 and 22600 in connection with the Term Loan Agreement to Defendant.  Green Decl., ¶6.  MOF II has never sold any of the promissory notes evidencing Defendant’s obligation to repay the loans made by MOF II, nor any portion thereof, to any institutional investors or any other person.  Green Decl., ¶6.  MOF II continues to own 100% of the made to Defendant.  Green Decl., ¶6. 

 

2. Defendant’s Evidence

a. MVF Purchase

On July 9th, 2015, Defendant Point.360 purchased the assets of Modern VideoFilm, Inc. (“MVF”) from PFX.[2]  Bagerdjian Decl., ¶3.  PFX represented that the MVF assets were projected to generate annual revenues, and earnings before interest, taxes, depreciation, and amortization (“EBITDA”), of $22.0 million, and $1.9 million, respectively.  Bagerdjian Decl., ¶3.  The Loan Agreements were drafted by PFX without financial forecasts.  Bagerdjian Decl., ¶3.  The MVF assets grossly underperformed compared to Medley’s forecast, generating just $16.0 million in revenue with an EBITDA loss of $5.2 million.  Bagerdjian Decl., ¶3.  The MVF assets’ poor performance ultimately forced Point.360 to file Chapter 11 bankruptcy in November 2017.  Bagerdjian Decl., ¶3.   

As part of the MVF purchase, PFX provided Point.360 up to $6.0 million of financing, bearing interest at a rate of approximately 6.28%.  Bagerdjian Decl., ¶4.  Point.360’s previous lender, Summit Financial Resources, provided capital at a rate of 12.95%.  Bagerdjian Decl., ¶4.  Prior to the MVF purchase, Point.360’s EBITDA was negative $521,000 and negative $1,267,000 for fiscal years ending 2014, and 2015, respectively.  Bagerdjian Decl., ¶4. 

During POINT.360’s conversations with James Feeley (“Feeley”) on behalf of PFX, Feeley reiterated that he needed two board seats of POINT.360 to appease PFX’s credit committee.  Bagerdjian Decl., ¶6.  He also expressed that PFX would be very much involved in the future growth of POINT.360.  Bagerdjian Decl., ¶6.  Feeley reiterated that his credit committee knew POINT.360 was unable to pay the loan, and therefore they will be very much involved with Point.360’s management’s decision-making.  Bagerdjian Decl., ¶6.  Furthermore, Feeley asked to change the MVF deal structure to an asset purchase rather than a share purchase, and to extend indemnification to POINT.360 in the event lawsuits materialized against it.  Bagerdjian Decl., ¶6.  In addition, concessions were offered to settle ongoing issues with MVF’s landlord.  Bagerdjian Decl., ¶6.  But for these assurances that the debt would be converted into equity, and that PFX would be partnering with POINT.360 to make the MVF acquisition work, POINT.360 would not have agreed to the MVF transaction.  Bagerdjian Decl., ¶6. 

PFX insisted that it be provided two board seats on Point.360’s Board of Directors, in addition to warrants to purchase Point.360’s stock as a condition to closing the MVF asset purchase.  Bagerdjian Decl., ¶7. 

As part of PFX’s inducement to Defendant to purchase the MVF assets, PFX advocated that Point.360’s publicly traded entity could be utilized as a vehicle to acquire other assets, and ultimately convert the original $6.0 million of debt to equity with the understanding that the initial loan would not be repaid.  Bagerdjian Decl., ¶8.  Point.360 presented to PFX and to its Board multiple acquisition targets, but a change of management at PFX led to it deciding to pass on all acquisitions presented by Point.360.  Bagerdjian Decl., ¶8.  Point.360 was unable to acquire other financing to facilitate the acquisition of other assets.  Bagerdjian Decl., ¶8.  PFX subsequently resigned its two seats on Point.360’s Board of Directors.  Bagerdjian Decl., ¶8. 

 

b. The DFPI Order

On April 19, 2022, the DFPI revoked PFX’s finance lender and/or broker license(s) pursuant to Financial Code Section 22715.  Landau Decl., ¶2, Ex. 1. 

 

c. Irreparable Harm

As of November 27th, 2024, Point.360 employs 154 full-time employees, and dozens of part-time employees and freelancers, that are paid approximately $1.2 million in wages and benefits.  Bagerdjian Decl., ¶9.  If PFX’s attachment is levied upon Point.360’s cash flow at any time during a given month, it will necessarily attach to funds constituting wages and benefits payable to these employees.  Bagerdjian Decl., ¶9.  Point.360’s business will not be sustainable to the trial date.  Bagerdjian Decl., ¶9.  Any interruption to payroll will be devastating to its business and cause immediate closure.  Bagerdjian Decl., ¶9. 

 

D. Analysis

Plaintiffs seeks right to attach orders against Defendant Point.360 in the amount of $8,513,242.33.  Point.360 opposes.

 

1. Procedural Issues

Defendant Point.360 objects that Plaintiffs cannot rely on their verified Complaint.  Opp. at 2-3.  Point.360 is correct.  Pursuant to CCP section 446, a corporate officer can verify a complaint but it “shall not otherwise be considered as an affidavit or declaration establishing the facts therein alleged.”  See Lorber Industries v. Turbulence, Inc., (1985) 175 Cal.App.3d 532, 536 (cross-complaint verified by corporation’s president could not be used as evidence).  Plaintiffs are saved, however, by the admissions in Point.360’s Answer.  In other words, the verified Complaint is not relied on as evidence but rather as allegations, and Point.360’s admissions in the Answer are the evidence.

Point.360 also objects to the declaration of Eric Green (“Green”) that is part of Plaintiffs’ application as well as the declarations of Green and David Lorber (“Lorber”).  Opp. at 3.  The court has ruled on Point.360’s evidentiary objections.

There is another problem with the declarations.  With the exception of the Green declaration that is part of the application and the Declaration of Lewis R. Landau, the other declarations submitted by the parties do not meet the requirements of CCP section 2015.5 that a declaration be made under penalty of perjury and (a) state the date and place of execution if executed in California and (b) if executed either inside or outside California, state the date and that it is made under penalty of perjury under the laws of California.  Plaintiffs’ declarations (Green and Lorber) were executed in New York and do not state they were made under California’s perjury law.  Point.360’s supporting Declaration of Haig S. Bagerdjian does not state its place of execution and states that it is made under the perjury laws of the United States, not California.   As neither side objected on these grounds, any objection is waived.

2. 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). 

            Plaintiffs’ claim is a claim for money based upon a debt arising out of express contract and it exceeds $500.

             

            3. 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., (“CIT”) (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 amount sought for attachment is $8,513,242.33, which consists of the total amount Point.360 owed to Plaintiffs under the Term Loan Documents, inclusive of principal, interest, fees and expenses.  Plaintiffs seek a writ of attachment in the amount owing as of July 9, 2020, of $8,513,242.33 as established by the bankruptcy court.  The $8,513,242.33 sought is fixed and readily ascertainable. 

            3. 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).

Between July 9, 2015 and April 26, 2016, Plaintiffs provided Defendant with $6 million in Term Loans, pursuant to the Term Loan Agreement. Compl., ¶¶12 and 28; admitted as true, Verified Answer, ¶3(b). Pursuant to Section 16 of the Term Loan Agreement, Point.360 was obligated to “pay to [Plaintiffs] the principal balance of the outstanding Term Loans together with any accrued interest and other amounts payable hereunder or under any other Loan Document on the Maturity Date.”  Compl., ¶16; admitted as true, Verified Answer, ¶3(b).

Defendant has never made a payment to Plaintiffs under the Loan Documents.  Compl., ¶19; admitted as true Answer, ¶¶3(b).

On October 10, 2017, Defendant filed a petition for relief under Chapter 11 of the Bankruptcy Case.  Compl., ¶20; admitted as true, Verified Answer, ¶ 3(b).  On January 26, 2021 Plaintiffs filed a motion for summary judgment in the Adversary Proceeding. Compl., ¶25; Admitted as true, Verified Answer, ¶3(b).  On July 2, 2021, the bankruptcy court granted Plaintiffs’ motion for summary judgment and entered its order and Judgment in favor of Plaintiffs on all claims for relief.  Compl., ¶26, Exs. 15, 16; Admitted as true, Verified Answer, ¶3(b). 

In addition to ruling against each of Defendant’s objections to Plaintiffs’ claims arising under the Term Loan Agreement, the bankruptcy court made the following specific findings of uncontroverted facts:

2.  Under the Term Loan Agreement, Medley provided $6 million in cash in Term Loans to Point.360.

16. On June 11, 2019, the bankruptcy court entered the Confirmation Order confirming the Debtor Plan.

17. The Debtor Plan provided for the reinstatement of the Term Loans pursuant to the Term Loan Agreement and related Loan Documents and that Medley’s liens and secured claims were unimpaired under sections 1124(1) and (2) of the Bankruptcy Code.

24. On July 8, 2020, the Term Loans matured.

25. As of July 9, 2020, the outstanding indebtedness under the Term Loan Agreement and related Loan Documents was an aggregate principal amount of $8,501,325.59, plus $11,916.74 in accrued and unpaid interest.

26. Point.360, to date, has not paid Medley the outstanding indebtedness under the Term Loan Agreement and related Loan Documents. Compl., ¶28; admitted as true, Verified Answer, ¶¶3(b).

            Plaintiffs argue that the bankruptcy court’s Judgment and findings establish Plaintiffs’ claims under the Term Loan Agreement and are binding on Point.360.  All of Point.360’s affirmative defenses in its Answer, except for two, are matters that were or could have been raised in the Adversary Proceeding.  Verified Answer, Affirmative Defenses, ¶¶1-20 and 23-24.  Given that Plaintiffs obtained summary judgment “on all claims for relief” (Compl., ¶26; admitted as true, Verified Answer, ¶3(b)), they have been disposed of and Point.360 is precluded from asserting them again in the present action.  Pl. Mem. at 5.

Point.360’s first additional affirmative defense is that the relief sought in the Complaint is the subject matter of another action pending between the parties on the same cause of action. Answer, Affirmative Defenses, ¶22.  This is a reference to Point.360’s appeals of the bankruptcy court’s Judgment to the federal district court and then the Ninth Circuit.  The Bankruptcy Case was closed upon the filing of a final decree and order closing case entered on December 12, 2021. Point.360 never sought a stay of the bankruptcy court’s Judgment and the Bankruptcy Court’s Judgment always was final for all purposes.  Moreover, Defendant lost both appeals and no other actions are presently pending between the parties at this time.  Pl. Mem. at 6.[3]

Point.360 argues that Plaintiffs fail to reduce the amount to be secured by attachment as required by CCP section 483.015(b).  Plaintiffs claim a security interest in Point.360’s property.  Compl., ¶9, Exs. 3-8.  Yet, they have failed too offer evidence of the net unsecured amount due.   Opp. at 4.

Point.360 misreads CCP section 483.015(b)(4), which provides that the amount to be secured shall be reduced by the value of any security interest in the property of the defendant held by the plaintiff to secure the defendant’s indebtedness”. (emphasis added).  Per the Security Agreement, Plaintiffs’ claim a security interest in the Collateral, which is in Point.360’s possession and not held by them.   No reduction under CCP section 483.015(b)(4) is required.

Point.360 next relies on a fraudulent inducement claim.   It argues that it was fraudulently induced to enter into the Term Loan Agreement to purchase MVF by PFX’s assurances that the debt would be converted into equity, and that PFX would be partnering with POINT.360 to make the MVF acquisition work.  Bagerdjian Decl., ¶6.  But for these assurances, POINT.360 would not have agreed to the MVF transaction.  Bagerdjian Decl., ¶6. 

This argument runs afoul of Plaintiffs’ point that any new issue concerning the validity of the Term Loan Agreement is barred by res judicata.  Pl. Mem. at 8-9.

Res judicata, also known as claim preclusion, prevents relitigation of the same cause of action in a second suit between the same parties or parties in privity with them.  Mycogen Corp. v. Monsanto Co., (“Mycogen”) (2002) 28 Cal.4th 888, 896.  Res judicata serves to prevent inconsistent rulings, promote judicial economy by preventing repetitive litigation, and protect against vexatious litigation.  Federation of Hillside and Canyon Associations v. City of Los Angeles, (“Federation”) (2004) 126 Cal.App.4th 1180, 1205.  A judgment on the merits is res judicata and is conclusive on all issues that were raised or could have been raised in the prior proceeding.  Id. at 1205.  Res judicata applies if (1) the decision in the prior proceeding is final and on the merits, (2) the present proceeding is on the same cause of action as the prior proceeding, and (3) the parties in the present proceeding (or parties in privity with them) were parties to the prior proceeding.  Id. at 1202.  In order to avoid piecemeal litigation, a judgment is conclusive not only as to the issues actually decided, but those that might have been raised as well.  Thibodeau v. Crum, (1992) 4 Cal.App.4th 749, 754; Sych v. Insurance Co. of North America, (1985) 173 Cal.App.3d 330.  Res judicata would appear to bar Point.360’s defense of fraud in the inducement as it is an issue that could have been raised in the Adversary Proceeding.  Point.36 does not address this issue.

Point.360’s other affirmative defense is that Plaintiffs are barred from pursuing their claim by the DFPI’s action revoking their licenses.  Pursuant to the orders of the DFPI, Plaintiff MOF II was ordered to discontinue all activity conducted pursuant to Financial Code section 22600 within 60 days of April 19, 2022.  Landau Decl., Ex. 1.  Financial Code section 22600 includes the “collection of payments or the performance of services with respect to those notes.” To the extent Plaintiffs are collecting payments on behalf of institutional investors, the order prohibits their collection of payments on the alleged notes.  Opp. at 6.

The Lorber and Green declarations do not resolve the issue. These declarations admit that the Plaintiffs were engaged in finance lender activities in California at the time the loan was made in 2015.  Thus, the loan to Point.360 was made by a licensed finance lender.  While Plaintiffs later discontinued finance lender activities in California, they are still collecting on the loan to Point.360 that was made when licensed. The DFPI order directed Plaintiffs to discontinue all activity conducted pursuant to section 22600, including “collection of payments or the performance of services with respect to those notes.” Plaintiffs are in violation of the DFPI orders by continuing their collection litigation against Point.360.  Opp. at 6.

The DFPI order revoked Plaintiff MOF II’s license and ordered it to discontinue making or brokering any loan made pursuant to the California Financing Law (Fin. Code §22000 et seq.) and also to discontinue all activity conducted pursuant to Financial Code sections 22340 and 22600.  Landau Ex. 1.  Financial Code sections 22340 and 22600 permit a licensee to sell promissory notes to institutional investors and to make agreements with institutional investors for the collection of payments or the performance of services with respect to those notes.  Fin. Code §§ 22340(a), (c), 22600(a), (c).  Plaintiffs never sold the Term Loan Agreement to institutional investors and never made agreements with institutional investors to collect payments from Point.360.  Plaintiffs are not in violation of the DFPI’s order.

Plaintiffs have shown a probability of success on their claim.

  

4. 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).  Plaintiffs seek only to attach a portion of the amount Point.360 owes under the Term Loan Documents and therefore seek attachment for a proper purpose.

 

            5. Exemption

            Point.360 purports to make a  claim of exemption for unpaid earnings under CCP section 487.020(c).

            Compensation payable by an employer to an employee for personal services performed by such employee, whether denominated as wages, salary, commission, bonus, or otherwise, is exempt from attachment.  CCP §487.020(c); CCP §706.011(b).  This provision exempts a debtor employee from attachment of earnings, not an employer.

 

            6. Bond

            Point.360 seeks an undertaking in an amount no less than $1.2 million to protect it against damages for the wrongful issuance of the writ. CCP Section 489.210 states, “Before issuance of a writ of attachment…the plaintiff shall file an undertaking to pay the defendant any amount the defendant may recover for any wrongful attachment by the plaintiff in the action.” “Wrongful attachment” is defined in CCP Section 490.010 as, among other things, “levy under a writ of attachment or the service of a temporary protective order in an action in which the plaintiff does not recover judgment.” CCP §490.010.

If a writ of attachment is granted, Point.360’s business will not be sustainable up to the trial date presently scheduled for January 21, 2025.  Point.360 sells the services of its employees. Any interruption to payroll will be devastating to its business and cause immediate closure. The closure will cause all of Point.360’s customers to find a new service provider. Thus, the damages arising from wrongful attachment are a minimum of $1.2 million in payroll before the trial date.  Opp. at 8.

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.