Judge: Margaret L. Oldendorf, Case: 22AHCV01400, Date: 2023-05-04 Tentative Ruling

Case Number: 22AHCV01400    Hearing Date: May 4, 2023    Dept: P

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES

NORTHEAST DISTRICT

            I.         INTRODUCTION

            The complaint and cross-complaint in this action concern the sale of a business. Craig and Jeanne Reiber owned and operated Crescenta Valley Tile Distributor, Inc. for 30 years. In 2021, the Reibers began to look for someone to sell the business to so they could retire. Raymond Clark, after conducting due diligence, purchased the business.

            In the main action Clark alleges fraud claims against the Reibers. He alleges that they misrepresented that the financials had been prepared in accordance with Generally Accepted Accounting Principles (GAAP), that the financials were accurate, that Accounts Receivable (AR) was accurate, and that the financials supported their belief that there was a positive cash flow, and the company would not require any additional capital investment by Clark. The main action contains causes of action for both intentional and negligent misrepresentation. The prayer is for rescission and/or $500,000 in compensatory damages, plus punitive damages.

            The Reibers allege in their cross-complaint that, after signing a letter of intent to buy the business in December 2021, Clark spent the next eight months conducting due diligence. During that time he had unfettered access to the company’s records. The sale was postponed, first from March 2022 and then from May 2022, because Clark had reservations about the accounting system.  Each of these postponements allegedly resulted in a substantial price reduction, which the Reibers agreed to.

            The deal that the Reibers allege became final in August 2022 is attached as Exhibit A to the Cross-Complaint. They allege the total value of the deal to them was more than $1.5 million.  It included the following terms: (1) payment of $100,000 cash; (2) relinquishment of two $200,000 employee retention tax credits due to the company; (3) assumption of the company’s accounts payable and other debt amounting to about $783,000; (4) $300,000 to be paid over five years at 5% annual interest; (5) 5% profit sharing until payment of the $300,000 payment is complete. Cross-Complaint, ¶21.

            The Reibers allege that from August to December 2022, Clark breached the agreement in several ways including failing to complete the F Reorganization and lease negotiations, failing to timely pay business and credit accounts held in the name of Craig Reiber (which allegedly caused him to incur substantial debt and harmed his credit), and failing to request a “true-up” accounting. The Reibers further allege that in December 2022, Clark informed the Reibers he would not invest any more money in the company.  Further, Clark allegedly refused to pay debt of more than $500,000 that was personally guaranteed by Craig Reiber; and he renounced any further obligations under the contract. Clark also announced he was closing the company.  On December 29, 2022, Clark caused the company to file for bankruptcy.

            The Reibers filed a creditor’s claim in the bankruptcy case.  They allege that in February 2023 the bankruptcy trustee filed a report showing the company had no assets and dismissed the bankruptcy without discharge. The Reibers allege that since the dismissal, Clark has used the company’s equipment and former employees to start a new business in a new location, doing the same business as the former company. They allege Clark used the bankruptcy in order to “break” the lease and the contract, and to then renegotiate employees’ pay and begin doing business again in a different place without paying what he promised to the Reibers.

            The cross-complaint sets forth 7 causes of action: breach of contract; repudiation of contract; breach of the implied covenant of good faith and fair dealing; express indemnity; intentional misrepresentation; negligent misrepresentation; untrue statement or omission in connection with the sale of a security.

            The Reibers filed an Application for a Writ of Attachment on April 7, 2023.

            The evidence presented by Cross-Complainants and Cross-Defendant in connection with the Application is in conflict. On this evidentiary record, the probable validity of Cross-Complainants’ claims cannot be ascertained. Additionally, the application fails to adequately identify the fixed or readily ascertainable amount Cross-Complainants seek to attach. The application is therefore denied.

II.        LEGAL STANDARD

            “[A]n 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) exclusive of costs, interest, and attorney’s fees.” Code Civ. Proc. §483.010(a).

            “[A]n attachment will lie upon a cause of action for damages for a breach of contract where the damages are readily ascertainable by reference to the contract and the basis of the computation of damages appears to be reasonable and definite. [Citations.] The fact that the damages are unliquidated is not determinative. [Citations.] But the contract sued on must furnish a standard by which the amount due may be clearly ascertained and there must exist a basis upon which the damages can be determined by proof.” CIT Group/Equipment Financing, Inc. v. Super DVD, Inc. (2004) 115 Cal.App.4th 537, 540.        

            Attachment may only issue against a natural person where the debt arose out of conduct by the defendant of a trade, business, or profession; in other words, a commercial claim. Code Civ. Proc. §483.010(c).

            Attachment may only issue where the debt is unsecured or secured by personal property pursuant to the Commercial Code. Subdivision (b).

            Code Civ. Proc. §487.010 identifies what property may be attached. Subdivision (a) provides that where the defendant is a corporation or a partnership, “all corporate property”  or “all partnership or association property” for which a method of levy is provided may be attached. Subdivision (c) itemizes the property that may be attached when the defendant is an individual.

            Code Civ. Proc. §487.020 identifies exempt property.

            A trial court will issue a writ of attachment if it finds all of the following:

(1) The claim upon which the attachment is based is one upon which an attachment may be issued.

(2) The plaintiff has established the probable validity of the claim upon which the attachment is based.

(3) The attachment is not sought for a purpose other than the recovery on the claim upon which the attachment is based.

(4) The amount to be secured by the attachment is greater than zero.

            A writ of attachment requires the posting of a $10,000 undertaking. Code Civ. Proc. §489.220.           

III.      ANALYSIS

            Writ of attachment is a purely statutory remedy. Judicial Council form (AT-105) tracks these requirements. “The Attachment Law statutes are subject to strict construction.” Pacific Decision Sciences Corp. v. Superior Court (2004) 121 Cal.App.4th 1100, 1106.

Cross-Complainants’ application is examined for compliance with the statutory requirements.

            The application sufficiently identifies the person against whom attachment is sought (Application at ¶2.a); and the basis upon which attachment is sought (Application at ¶3).

            The application alleges Cross-Complainants’ claims arise out of the conduct of Cross-Defendant, who is a natural person engaged in a trade, business, or profession. ¶6.a.

            The application states it is based upon an attached declaration (¶7.b) -- but no declaration is attached. The declaration at the end of the form is also not filled out. There is a declaration attached to the Memorandum of Points and Authorities. It is assumed that this  Declaration, executed by Craig Reiber, is the evidentiary basis for the application.

            Paragraph 8 requires that the amount sought to be attached must be identified. This tracks with Code Civ. Proc. §484.020(b), which requires that an application include “A statement of the amount to be secured by the attachment.” Paragraph 8 has been left blank. The Reiber Declaration also does not state the amount to be attached.

Attachment is only appropriate “where the total amount of the claim or claims is a fixed or readily ascertainable amount.” Code Civ. Proc. §483.010(a). The Cross-Complaint itself does not state an amount of monetary damages sought; and even if it had, since the pleading is not verified it cannot provide the needed evidentiary support for the requested attachment. As the Attachment Law statutes must be strictly construed, and as this application for attachment does not identify the total amount of the claim, the application fails.

            Paragraph 9 is where the property to be attached is to be listed. As to this requirement, Cross-Complainants have adequately described the property in sufficient detail in Attachment 1.

            Even if the application had identified the amount sought to be attached, the right to attachment has not been established.  This is because the Reibers have not shown the probable validity of their claim.  A threshold issue in this litigation is whether Clark breached the contract, or was entitled to rescind it. The Court has read and considered the Reiber Declaration and the Declaration of Raymond Clark; but on this evidentiary record it cannot determine which is more probable. Absent a showing of the probable validity of Cross-Complainants’ claim, attachment is not appropriate.

            The Court notes that Cross-Complainants have expressed concerns that Cross-Defendant is selling the company’s assets. Reiber Declaration, ¶9. In opposition, Clark declares that the assets are in storage. Clark Declaration, ¶12. The parties may wish to meet and confer regarding the feasibility of entering into a stipulation concerning maintaining  the assets in storge pending the outcome of the litigation.

IV.      CONCLUSION

            The Cross-Complainant’s Application for Writ of Attachment is denied.      

            Plaintiff/Cross-Defendant Clark is ordered to give notice.

Dated:                                                                        _______________________________

                                                                                          MARGARET L. OLDENDORF

                                                                                 JUDGE OF THE SUPERIOR COURT