Judge Mark H. Epstein, Case Number: 24SMCV04899, Date: 2025-01-06 Tentative Ruling

Judge: Mark H. Epstein, Case: 24SMCV04899, Date: 2025-01-06 Tentative Ruling

Case Number: 24SMCV04899 Hearing Date: January 6, 2025 Dept: I

This is a request for a writ of attachment. Actually, three writs. Although the issues relating to ZenMoose are a bit different from the two individuals, and the other individual is set for another day, the court addresses them all together.

Plaintiff asserts a breach of contract action. The back story is that plaintiff hired an individual, Pearson, as its CEO. According to plaintiff, and unbeknownst to plaintiff, Pearson was breaching his fiduciary duties left and right. He allegedly stole $16 million using various means and methods, one of which was making unauthorized loans of plaintiff’s money to friends or using corporate funds to buy private property for himself. One loan that Pearson made was to ZenMoose, which loan was guaranteed by the two individuals, Warren and Simone. For purposes of this writ application, though, plaintiff is not alleging the tort—that ZenMoose was defrauding plaintiff or that it was helping Pearson to do so. Instead, plaintiff alleges that Calfund in fact made a loan to ZenMoose of $2,970,000. In return, ZenMoose agreed to repay the principal plus compound interest at 20% in a balloon payment due 1095 days after the loan funded. There was also a $30,000 documentation fee. So, when the loan became due, the amount that was due was $5,184,000. If there was a default, Calfund was entitled to a 10% late charge. The loan funded on October 8, 2021, making the loan due on October 7, 2024. For purposes of the attachment, Calfund will take the loan on its face as if it were a legitimate transaction. It seeks an attachment in the amount due, plus the late fee. The two individuals—Warren and Simone—signed a guarantee for the loan, guaranteeing not only the loan itself but also fees and costs that might be incurred to enforce the loan. On December 7, 2022, Calfund recorded a UCC Financing Statement with the Nevada Secretary of State. On September 25, 2024, Calfund sent defendants a letter noting that the loan would soon be due. Defendants acknowledged the debt but said that they could not repay it. The astute reader will have guessed that the maturity date came and went with no payment. Plaintiff seeks what is due under the note, and seeks to attach the assets of ZenMoose and the individuals. Plaintiffs also seek a Temporary Protective Order stopping defendants, or any of them, from transferring any assets anywhere.

Defendants raise a host of reasons why the application ought to be denied. The first is a technical reason. Defendants state that plaintiff’s counsel ought not have signed the applications because the application ought to be signed by one of the principals. In fact, the application must be signed by the corporation—even though it is a jural entity. Because corporations are not humans, the actual person putting pen (or fingers) to paper (or keyboard) must be a human authorized to sign, such as “XYZ Corporation by Casey Smith, its President.” In contrast, the verification and supporting declaration must be signed by a human as a human, such as “Casey Smith.” The human is attesting to the truth of the matters verified, the entity is only attesting that it is seeking the writ. As such, it is not the end of the world if counsel for plaintiff signed the attachment request on Calfund’s behalf if he was authorized to do so. But counsel could not sign the verification unless counsel had knowledge of the underlying facts in the application—something unlikely as to the background facts, but quite possible as to litigation or collection-related facts. The court agrees that Kornberg is plaintiff’s lawyer and that there is no reason to believe that he has knowledge of anything (other than through discussions with his client) relating to the background of the loan. Of course, that may not be the case; Kornberg may be general counsel and may actually have been the person who does have knowledge of the pertinent facts, but there is nothing to so indicate here. However, the court also has Minasyan’s declaration, and it would seem that Minasyan has more knowledge. Thus, to the extent that Minasyan’s declaration provides adequate support for the writ, the fact that a lawyer signed the application is not fatal. The court will inquire to be sure that Kornberg was authorized to sign the application, but it would be odd if he lacked such authority.

If plaintiff can get past that, then the court must consider the test set forth in CCP section 483.010. That requires a showing that the underlying claim must be one for money arising from contract in an amount exceeding $500 and must arise from the operation of the defendant’s business. While the specific amount of the damages need not be fully liquidated, the amount must be measurable from the contract itself and the calculation must be reasonable and certain. Further, plaintiff must make a showing that it will prevail. Here, no one disputes that the amount in controversy exceeds $500. Nor does anyone really dispute the amount directly. The principal is set forth in the loan document, as is the interest rate, documentation fee, and late fee. It could be that defendants have an issue with the math, but they have not specified what it is. What defendants do argue in their papers is that the amount is uncertain because they are entitled to an offset based on their cross-complaint. That is a bit of an unusual claim. Usually, the offset is based on a cross-complaint by the defendant against the plaintiff, or at least an affirmative defense of offset. So, for example, if there were a claim that Calfund did not provide the loan proceeds until 6 months after they were promised, that could lead to an offset both as to the amount of interest and potentially based on any damages the flowed from the delay. That is not the problem here. Defendants agree that the full amount of the loan timely funded (although defendants emphasize that only ZenMoose got the actual money, not Warren or Simone). The cross-complaint is against Pearson. The claim, one would suppose, is that he is really the bad guy here and that the amount of the loan ought to be offset by his bad acts. The court thinks that this is a distinction with a difference. Generally, this doctrine applies to an offset but must be “cross-demands for money [existing] between the parties.” (Birman v. Loeb (1998) 64 Cal.App.4th 502, 508-509, emphasis added.) This has its origin in cases in which both parties are debtor and creditor to one another: a writ of attachment can be had only for the net. (Granberry v. Islay Investments (1995) 9 Cal.4th 738.) Defendants do not suggest that they are entitled to an offset from plaintiff. Therefore, the court believes that the amount of the claim is sufficiently alleged. However, the court does have one issue, discussed below, that plaintiff will need to address.

The next issue is probable validity. Defendants do not really argue this point as to ZenMoose, but they do seem to argue that there will be no recovery from Warren or Simone. The court does not see why that is. The court agrees with the defense that the money went to ZenMoose. From there, it might have gone to the individuals, although there is no evidence of that. But that is not really the point. Warren was ZenMoose’s CEO. And although the court does not know what Simone’s precise relationship is with ZenMoose, Simone is alleged to be an owner and controlling individual and appears to have the same address as Warren. At the end of the day, though, they each signed a guarantee, and they do not challenge that allegation. As guarantors, a writ of attachment will lie against them as much as it does for the borrower. Relatedly, defendants seem to suggest that it is Calfund’s fault that defendants are in this mess because they did not supervise Pearson. The court disagrees. There is no allegation here that ZenMoose was tricked by Pearson into signing the loan document. The court agrees it is a pretty horrible loan document for ZenMoose, but the court cannot say, based on the arguments now before the court, that the document was illegal as to ZenMoose such that it ought to be set aside. The fact is that they got the money; they don’t get to just keep it.

No one disputes that this is a suit for damages.

Defendants do contest the property to be attached. The court agrees with plaintiff that all property held by ZenMoose is subject to attachment in California. But the defense seems to argue that any attachment must be limited to the property within the UCC Financing Statement, which would include only ZenMoose property in Nevada. The court does not understand the argument. A creditor need not have a UCC filing to seek a writ of attachment. So the fact that the property at issue in this application is not subject to the UCC filing is of no moment. Related to that, Warren and Simone seem to suggest that their guarantee did not give plaintiff the right to attach their personal assets. The court agrees that a guarantee contract could be written that way. But the court does not see anything like that in the guarantee at issue here. In other words, the guarantee gives the creditor the right to attach anything that is not expressly excluded or exempted by law. There is no contractual language of exclusion here.

Warren and Simone do, however, claim an exemption. The court agrees that wages and property necessary for support are exempt from attachment. (CCP sec. 487.020.) Each claims that they are paid $15,000/month and that this amount is necessary to pay rent and other living expenses. The problem is that other than simply saying the words, there is no proof. For example, there is no proof of the amount of the lease or mortgage they pay; there is no proof as to the amount of money spent on food; there is no proof of the amount of money spent on utilities. Were the numbers smaller, the court might overlook this issue. After all, it definitely takes some money to live, and if the total exemption amount were, say $2500/month, the court might just say that it sounds reasonable and move on. But $30,000/month (which is what they claim—and recall that they share a single address) is not something the court will just take on faith. The claim of exemption is therefore of no evidentiary value. Further, the claim of exemption must specify the specific property to be exempted. The court assumes that the claim is to exempt income, as that is how the declaration reads. But this also suggests that all other assets are fair game, including cars, homes, and other non-income stuff. The fact is that the defense had to present financial information to back up the exemption claim. They did not do so.

And that leaves the issue that the court raises sua sponte. Plaintiff declares, through Minasyan, that the ZenMoose loan was “unauthorized” and made “without the knowledge or consent of the other officers or members of Calfund.” To the extent that this is an unauthorized loan, the court is a bit troubled by the 20% interest rate and the 10% penalty provision, which seems like what it says it is—a penalty and not liquidated damages. The court would have expected at least some of these issues to have been addressed and it is having trouble understanding whether it ought to issue a writ in the full amount demanded with those issues outstanding. In addition, the request for the TPO is not based on evidence. It is based on Minasyan saying that he heard from somewhere that ZenMoose, Warren, and Simone, are moving funds into asset protection mechanisms. The declaration is plainly based on nothing but hearsay, as Minasyan states “This information was conveyed directly to Calfund through third parties,” with no additional detail. That was not enough when the ex parte was requested and it is not enough now. Although, that said, there does seem to be some evidence that ZenMoose is not paying its bills on time—at least not this debt. And defendants seeks a $3 million bond. Why? Because. Other than saying in a conclusory way that this will put all of ZenMoose’s property on the line, there is nothing. The court does not know what property ZenMoose has outside the state, or inside the state for that matter; the court does not have any financial documents as to ZenMoose’s assets; the court has nothing on the finances of Warren and Simone other than that they live large.

In short, plaintiffs have made out a claim for the writ, at least in the principal amount plus some addition for fees and costs. The court will therefore issue a writ in the amount of $3.2 million. This is without prejudice to increasing the writ on a proper showing explaining how the admitted impropriety of the loan might affect the validity of the loan’s terms. The writ will be dependent upon a bond being posted of $100,000. The relatively small amount is because defendants have raised no defense to the action—at least as to the principal of the loan—and thus the likelihood that defendants will suffer harm from an improper attachment is small. Further, defendants have provided no evidence of the harm they will suffer from the writ. As to the TPO, the court needs more evidence before it essentially stops defendants from transferring any assets. The court warns the defense, though, that plaintiffs can take discovery. If defendants are not forthcoming in a proper way in discovery, the court might draw the inference that it is because they are hiding the truth. Further, plaintiff, should it prevail, will be able to utilize the UVTA to recover any improperly transferred assets, including from those to whom the assets were transferred. But for now, the TPO request is denied for lack of evidence. The only evidence of insolvency is the failure to pay this particular debt, and that is not enough. The evidence of hiding assets is non-existent on this record.

Plaintiff will submit a revised writ. Because this decision does away with the hearing as to Simone (same reasoning), absent strong objection the court will advance that hearing to today and this order will be the ruling thereon.