Judge Lynne M. Hobbs, Case Number: 20STCV01095, Date: 2025-02-07 Tentative Ruling

Judge: Lynne M. Hobbs, Case: 20STCV01095, Date: 2025-02-07 Tentative Ruling

Case Number: 20STCV01095 Hearing Date: February 7, 2025 Dept: 61

ZACHARY WERNER vs JOSEPH RUBIN, et al.

Tentative

Judgment Creditor Zachary Werner’s Motion to Appoint Receiver is DENIED.

Judgment Debtor to provide notice.

Analysis:

I. MOTION TO APPOINT RECEIVER

Plaintiff and Judgment Creditor Zachary Werner (Werner) seeks the appointment of a receiver over Coachella Lighthouse, LLC (Lighthouse), based on the non-compliance of judgment debtor Joseph Rubin (Rubin) with this court’s order of January 2023, granting Werner’s motion for a charging order on Rubin’s interest in Rubin Capital Group, LLC (RCG).

“On application by a judgment creditor of a member or transferee, a court may enter a charging order against the transferable interest of the judgment debtor for the unsatisfied amount of the judgment. A charging order constitutes a lien on a judgment debtor's transferable interest and requires the limited liability company to pay over to the person to which the charging order was issued any distribution that would otherwise be paid to the judgment debtor.” (Corp. Code § 17705.03, subd. (a).) The court may make orders necessary to effectuate the charging order, including the appointment of a receiver of the distributions subject to the charging order, or if a showing is made that distributions under the charging order will not pay the judgment within a reasonable time, a foreclosure upon the lien and a sale of the transferable interest. (Corp. Code § 17705.03, subd. (b)(1)–(3).) “The court may appoint a receiver to enforce the judgment where the judgment creditor shows that, considering the interests of both the judgment creditor and the judgment debtor, the appointment of a receiver is a reasonable method to obtain the fair and orderly satisfaction of the judgment.” (Code Civ. Proc. § 708.620.) “[T]he appointment of a receiver is a very ‘drastic,’ ‘harsh,’ and costly remedy that is to be ‘exercised sparingly and with caution.’” (Medipro Medical Staffing LLC v. Certified Nursing Registry, Inc. (2021) 60 Cal.App.5th 622, 628.) While the appointment of a receiver may be appropriate where a judgment debtor controls “property which rightfully should be subject to execution, . . . [t]he power to appoint a receiver is a delicate one which is exercised sparingly and with caution, and only in an extreme case under such circumstances as demand or require summary relief, and never in a doubtful case or where there is no necessity or occasion for the appointment.” (Morand v. Superior Court (1974) 38 Cal.App.3d 347, 350.)

The factual basis for Werner’s seeking of a receiver was the subject of a prior motion brought by Werner to schedule an OSC re: contempt against Rubin for his failure to abide by the charging order, which is set to take place concurrently with the present motion. Essentially, this court granted a charging order on Rubin’s interest in RCG, which was entitled to money distributions from Lighthouse. These payments were initially made to Werner in full, but diminished over time, and ceased altogether in September 2024. Rubin’s justification for the cessation of payments was financial hardship on the part of the Lighthouse, a hardship supported only by his own testimony, and which this court in its prior ruling found suspect, given Rubin’s status as judgment debtor, the owner of RCG, which manages Lighthouse, of which Rubin is the majority shareholder. (See 12/16/2024 Order.) In its order granting Werner’s request to charge Rubin’s interest in RCG, the court declined to grant Werner’s request that a receiver be appointed to see that the proper distributions were made, reasoning that such an appointment would be a drastic remedy, and no showing had been made that Rubin would fail to comply with the order. (See 1/23/2023 Order.)

Here, Werner’s request for a receiver is markedly different from that made in the motion for a charging order. In that motion, Werner sought the “appointment of a receiver over the distributions owed by RCG to Judgment Debtor,” in keeping with Corporations Code § 17705.03, subd. (b)(1) [authorizing the appointment of “a receiver of the distributions subject to the charging order, with the power to make all inquiries the judgment debtor might have made.” (12/14/2022 Motion at p. i.) But Werner here seeks appointment of a receiver to “take possession, custody, and control of The Coachella Lighthouse, LLC,” an entity mostly owned by Rubin and partly by Werner. (Proposed Order ¶ 2.)*

The case of Medipro Medical Staffing LLC v. Certified Nursing Registry, Inc. (2021) 60 Cal.App.5th 622, is instructive. There, a judgment creditor medical staffing company (Medipro) secured a monetary judgment against a competitor company (Certified) and its owner (Sy). (Medipro, supra, 60 Cal.App.5th at p. 624.) To enforce the judgment, Medipro served levies on Certified’s accounts receivable with several hospitals, and obtained a charging order on Sy’s interest in an LLC owned by Sy’s husband. (Id. at p. 625.) But the monetary yields on the levies began to dwindle, and eventually stopped altogether, prompting Medipro to move for the appointment of a receiver to take possession of Certified’s funds, to enforce the charging order against the LLC, and for a preliminary injunction requiring Certified and Sy to give access to all books and records of Certified and the LLC. (Id. at p. 626.) The trial court granted the motion, appointing a receiver with control over Certified’s and the LLC’s properties, bank accounts, and offices. (Id. at pp. 626–627.)

The court of appeal reviewed the trial court’s ruling, noting that receiver’s were not ordinarily available “for the enforcement of a simple money judgment,” given “the sheer number of enforcement mechanisms for collecting money judgments under the Enforcement of Judgments Law.” (Medipro, supra, 60 Cal.App.5th at p. 628.) The appellate court reversed the trial court’s appointment of the receiver, holding that the trial court had abused its discretion:

The trial court in this case abused its discretion in appointing a receiver to enforce Medipro's money judgment because there was no evidence—let alone the substantial evidence necessary to sustain a proper exercise of discretion [Citation] —that Certified or Sy had engaged in obfuscation or other obstreperous conduct to the degree that the other collection mechanisms available under the Enforcement of Judgments Law were ineffective. Excising the evidence the trial court ruled inadmissible, the remaining evidence in support of Medipro's motion showed, at best, that (1) Certified's accounts receivable had slowed in August 2019 and stopped in September 2019, even though Certified continued to have funds to pay its consultant, and (2) the LLC did not make any distributions to Sy. But the court did not have before it any evidence as to why, and, more specifically, did not have before it any evidence that Certified or Sy had actually earned accounts receivable or distributions despite the slowdowns or that they had engineered these slowdowns to confound Medipro's collection efforts. Indeed, the only evidence in the record on these points came from Certified and Sy, and indicated that the slowdowns were due to factors beyond their control—namely, that Medipro's collection efforts had severely crippled Certified's business and reduced the frequency and amount of its accounts receivable, and that the LLC had not turned any profit that would allow for a distribution.

Medipro argues that the trial court could have reasonably inferred that the slowdowns in Certified's accounts receivable and the LLC's distributions were due to nefarious conduct by Certified or Sy, but this inference is based on nothing but speculation and thus is not a reasonable inference. [Citation] Medipro's fear that Sy's husband might try to subvert its collection efforts in the future is based on nothing more than its counsel's “information and belief,” and is thus also “insufficient.” [Citation] And Medipro offered no evidence that the remaining arrows in its Enforcement of Judgments Law quiver would be insufficient; nor could it, as Medipro had barely sought to employ any of them.

(Medipro, supra, 60 Cal.app.5th at p. 622.)

The showing here is essentially similar. The evidence before the court shows that Rubin and RCG have largely ceased making payments pursuant to this court’s charging order. Rubin unconvincingly claims that distributions to RCG from Lightouse are “discretionary,” and offers little corroborating evidence to support his testimony that the failure of payments is due to Lighthouse’s financial hardship. However, there is little evidence to contradict his testimony, save Werner’s invocation of prior instances in which Rubin’s claims proved unreliable. Moreover, Werner has not presented evidence that other methods for collecting on on his money judgment are insufficient. Appointment of the receiver that Werner seeks here has therefore not been shown to be warranted.

The motion is DENIED.