Judge: Mary H. Strobel, Case: 21STCV33008, Date: 2022-10-25 Tentative Ruling

Case Number: 21STCV33008    Hearing Date: October 25, 2022    Dept: 82

            Defendant and Cross-Complainant Bank of Hope (“Bank”) moves for writs of attachment against Plaintiffs and Cross-Defendants Sukhpal Singh and Jasbir Singh (“Cross-Defendants”) in the amount of $466,902.62.

Judicial Notice

Bank’s Request for Judicial Notice Exhibits 1-3 – Granted.

Defendants’ Evidentiary Objections

Declaration of Sang H. Cho

Overruled: 1-10, 13-17, 19-22, 24, 25, 27-31

Sustained: 11, 12, 18, 23, 26

Bank’s Evidentiary Objections to Declaration of Sukhpal Singh

Overruled: 2

Sustained: 1, 3-6

Relevant Procedural History

             On September 7, 2021, Plaintiffs Texarkana Hospitality, LLC, Sukhpal Singh, and Jasbir Singh filed a complaint against Bank and Sylvester Kim for injunctive and declaratory relief. 

            On November 15, 2021, Bank filed a cross-complaint against Plaintiffs Texarkana Hospitality, LLC, Sukhpal Singh, and Jasbir Singh for breach of loan agreement, breach of guaranty, and other causes of action.

            On September 14, 2022, Bank filed the instant applications for writ of attachment.

            On October 18, 2022, Cross-Defendants filed an opposition and claims of exemption.

            On October 21, 2022, Bank filed a reply. 

Summary of Applicable Law

“Upon the filing of the complaint or at any time thereafter, the plaintiff may apply pursuant to this article for a right to attach order and a writ of attachment by filing an application for the order and writ with the court in which the action is brought.”  (CCP § 484.010.)

The application shall be executed under oath and must include: (1) a statement showing that the attachment is sought to secure the recovery on a claim upon which an attachment may be issued; (2) a statement of the amount to be secured by the attachment; (3) a statement that the attachment is not sought for a purpose other than the recovery on the claim upon which the attachment is based; (4) a statement that the applicant has no information or belief that the claim is discharged or that the prosecution of the action is stayed in a proceeding under the Bankruptcy Act (11 U.S.C. section 101 et seq.); and (5) a description of the property to be attached under the writ of attachment and a statement that the plaintiff is informed and believes that such property is subject to attachment.  (CCP § 484.020.)

“The application [for a writ of attachment] shall 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.) 

The Court shall issue a right to attach order if the Court 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.

CCP § 484.090.

“A claim has ‘probable validity’ where it is more likely than not that the plaintiff will obtain a judgment against the defendant on that claim.”  (CCP § 481.190.)  “In determining the probable validity of a claim where the defendant makes an appearance, the court must consider the relative merits of the positions of the respective parties and make a determination of the probable outcome of the litigation.”  (See Loeb & Loeb v. Beverly Glen Music, Inc. (1985) 166 Cal.App.3d 1110, 1120.)

“The Attachment Law statutes are subject to strict construction.” (Epstein v. Abrams (1997) 57 Cal.App.4th 1159, 1168.) 

Analysis 

1.    Probably Validity of Bank’s Claim

The application is based on Bank’s cause of action for breach of guaranty.  To establish a claim for breach of contract, a plaintiff must generally prove: (1) existence of a contract; (2) plaintiff’s performance or excuse for nonperformance; (3) defendant’s breach of the contract; and (4) damages incurred by plaintiff as a result of the breach.  (Durell v. Sharp Healthcare, (2010) 183 Cal.App.4th 1350, 1367.) 

Bank submits evidence of the following.  In February 2013, Bank made a loan to Texarkana Hospitality, LLC (“Borrower”) in the amount of $2,109,000, as evidenced by a promissory note, business loan agreement, and deed of trust (referred to collectively as “loan agreement”).  The note requires Borrower to make monthly loan payments of principal and interest of $12,638.00 with a final payment for all amounts then owing under the loan due on February 7, 2038.  The note specifies that Bank may recover late fees of 5%; that Bank may recover attorney fees and costs to enforce the note; and that Bank may recover expenses to preserve or dispose of the collateral, including insurance, appraisals, and environmental remediation costs.  (Cho Decl. ¶¶ 6-12, Exh. 1-2.)  The note states that “If Lender incurs such expenses, it may demand immediate repayment from Borrower or add the expenses to the principal balance.”  (Id. Exh. 1 at p. 3.)  The loan agreement includes similar provisions concerning Bank’s contractual right to recover permitted expenditures against Borrower.  (Id. Exh. 2 at p. 3 [“Lender’s Expenditures”].)  The note is secured by a deed of trust encumbering real property located at 5401-5403 N. State Line Ave., Texarkana, TX 75503 (the “Property”).  (Id. ¶ 12, Exh. 5-6.)  Cross-Defendants executed unconditional guaranties of the loan obligations created by the note and loan agreement.  (Id. ¶¶ 13-14, Exh. 6-7.)

The loan agreement required Borrower to maintain fire and other risk insurance as Bank may require with respect to borrower’s properties.  (Id. ¶ 15, Exh. 2 at page 2.)  Because Borrower failed to obtain adequate insurance with respect to the Property, Bank obtained a Force Placed Policy.  (Id. ¶ 16.)  In February 2021 and February 2022, fires occurred at hotel structures that are part of the Property that secures the note.  (Id. ¶¶ 19-26.)  Bank filed a claim for loss under the Force Placed Policy and eventually recovered $1,626,714.00 from the insurance carrier.  (Id. ¶¶ 22-27.)

Bank further submits evidence that Borrower failed to make loan payments that came due on October 14, 2020 or after that date.  (Cho Decl. ¶ 29.)  Bank submits evidence that, as of August 24, 2022, the total amount due by Borrower and Cross-Defendants on a joint and several basis exclusive of default-rate interest and attorney fees and costs, is not less than $466,902.62 after application of the insurance proceeds. The loan amount consists of the following (a) outstanding principal of $119,347.84; (b) $148,826.57 in unpaid interest based on regular (non-default) contract rate; (c) late charges of $54,188.31; (d) force placed insurance policy expenses of $68,547.47; (d) legal fees and costs of $58,462.43; and (e) additional recoverable collection fees and expenses of not less than $17,530.00.  (Id. ¶¶ 30-34, Exh. 8; see also Suppl. Cho Decl. ¶¶ 4-23, Exh. 2.)

In an opposing declaration, Cross-Defendant Sukhpal Singh refers to the “outstanding debt referenced in the Application.”  (Singh Decl. ¶ 6.)  He does not dispute or rebut Bank’s evidence that Borrower defaulted on the loan and that there is an outstanding principal balance of $119,347.84; unpaid interest based of $148,826.57; and late charges of $54,188.31.

The note and loan agreement specify that Bank may recover attorney fees and costs to enforce the note; and that Bank may recover expenses to preserve or dispose of the collateral, including insurance, appraisals, and environmental remediation costs.  (Cho Decl. ¶¶ 6-12, Exh. 1-2.)  For the most part, Cross-Defendants do not challenge Bank’s evidence showing the expenses that Bank seeks to recover, including insurance costs, legal fees, and other collection expenses.  In the complaint, Plaintiffs/Cross-Defendants acknowledged that Borrower entered into the loan agreement with Bank; that Bank obtained insurance for the Property pursuant to the loan documents; and that a fire occurred at the Property in February 2021.  (Compl. ¶¶ 9-16.)  Cross-Defendants have not disputed that Bank was permitted by the loan agreement to purchase the insurance policy and to recover insurance and other expenses. 

Cross-Defendants seem to challenge Bank’s claim for legal fees and costs of $58,462.43.  (Oppo. 7, citing Compl. ¶ 36.)  However, the only evidence Cross-Defendants cite is an unverified statement from the complaint.  Bank’s estimate of recoverable legal fees and costs is reasonable considering the scope of the enforcement action at issue, which includes the ongoing dispute regarding application of insurance proceeds to Borrower’s debt.  (See CCP § 482.110(b); see generally Rhim Decl. ¶¶ 1-7, Exh. 1 and Compl. ¶¶ 9-48.)  Cross-Defendants fail to show otherwise.    

Cross-Defendants refer to their claims for injunction, declaratory relief, and accounting in the complaint. (See Oppo. 6-8.)  They seek an injunction to prevent Bank from “pursuing any deficiency in the Loan obligations against Texarkana Hospitality, LLC and Sukhpal Singh and Jasbir Singh individually.”  (Oppo. 7.)  Cross-Defendants concede that their “request for an injunction is still outstanding.”  (Ibid.)  The court file does not show that a motion for preliminary injunction has been calendared.  While the court’s ruling on the motion for attachment does not prevent Cross-Defendants from seeking injunctive relief (CCP § 482.020), the prayer for injunction in the complaint does not detract from the probable validity of Bank’s claim.

Based on the foregoing, Bank shows a probably valid claim against Cross-Defendants in the amount requested.

2.    Basis of Attachment

“[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.”  (CCP § 483.010(a).)  “An attachment may not be issued on a claim which is secured by any interest in real property arising from agreement ….”  (CCP § 483.010(b).)  “If the action is against a defendant who is a natural person, an attachment may be issued only on a claim which arises out of the conduct by the defendant of a trade, business, or profession.  (§ 483.010(c); see Advance Transformer co. v. Sup.Ct. (1974) 44 Cal.App.3d 127, 143-144.)

Here, Bank’s applications for writ of attachment are based on guaranties where the total amount allegedly due is in excess of $500.  The guaranties are not secured by real property.  (See Cho Decl. ¶¶ 13-14, Exh. 6-7.)  While Cross-Defendants point out that the underlying note is secured by real property, they develop no argument that this security bars Bank from seeking attachment against Cross-Defendants as guarantors. (Oppo. 8-9.)  Notably, the Guaranties expressly permit Bank to enforce the Guaranties without taking action against the collateral and Cross-Defendants waived various defenses related to the collateral.  (See Cho Decl. Exh. 6-7 [which include various waivers with respect to collateral and suretyship rights]; and Bank of America, N.A. v. Stonehaven Manor, LLC (2010) 186 Cal.App.4th 719 [discussing waiver of rights in guaranty].)

Bank cites undisputed evidence that Cross-Defendants executed the guaranties as part of their trade, business, or profession.  (Cho Decl. ¶ 36 and Exh. 1-2 [loan documents executed by Sukhpal Singh as manager and member of Texarkana Hospitality, LLC]; Compl. ¶ 4 [“Plaintiffs Jasbir Singh and Sukhpal Singh are individuals and members and officers of Texarkana Hospitality, LLC.”],) 

            Bank’s contract damages are fixed and readily ascertainable from the terms of the loan documents and guaranties and from the declarations of Sang Cho and exhibits.  (See CIT Group/Equipment Financing, Inc. v. Super DVD, Inc. (2004) 115 Cal.App. 4th 537, 541.)   Cross-Defendants develop no persuasive argument to the contrary.  While they assert that an accounting is necessary, Cross-Defendants fail to identify any specific item of damages that is not based on a reasonable and definite standard set forth in the loan documents, or that is not supported by competent evidence. (See Oppo. 6-8.) 

3.    Purpose and Amount of Attachment

Code of Civil Procedure section 484.090 states that the Court shall issue a right to attach order if “the attachment is not sought for a purpose other than the recovery on the claim upon which the attachment is based . . . [and] the amount to be secured by the attachment is greater than zero.”

Bank declares, and the court finds, that attachment is not sought for a purpose other than the recovery on Bank’s claim.  (Appl. ¶ 4.)  The amount to be secured is greater than zero.

Cross-Defendants seem to argue that the attachment is sought for an improper purpose, specifically “harassment,” because “[t]he outstanding debt is already secured by real property owned by the entity Cross-Defendant, and the value of that real property securing the outstanding debt is far more than adequate to cover any outstanding debt related to the relevant contracts.”  (Oppo. 9, citing Sukhpal Decl. ¶ 6.)  Cross-Defendants do not show that attachment, based on the Guaranties, is sought for an improper purpose.  The Guaranties expressly permit Bank to seek to enforce the Guaranties without taking action against the collateral and Cross-Defendants waived various defenses related to the collateral.  (Cho Decl. Exh. 6-7.)  The court finds that attachment is not sought for an improper purpose.   

Cross-Defendants also raise an issue about whether Bank seeks an excessive attachment, which the court analyzes below.

4.    Reduction of Amount to be Secured Based on Offset Claims or Affirmative Defenses

Code of Civil Procedure section 483.015(b) provides that the amount to be secured by the attachment shall be reduced by, inter alia:  “(2) The amount of any indebtedness of the plaintiff that the defendant has claimed in a cross-complaint filed in the action if the defendant’s claim is one upon which an attachment could be issued.”

“[T]o sustain reduction in a writ amount, most courts require that the defendant provide enough evidence about its counterclaims and/or defenses to prove a prima facie case [for attachment against Plaintiff].”  (Ahart, California Practice Guide: Enforcing Judgments and Debts, ¶ 4:64 (1998 rev.).)  Defendant has the burden of proof to satisfy the requirements of attachment for any offset claim.  (See CCP § 483.015 and Lydig Construction, Inc. v. Martinez Steel Corp. (2015) 234 Cal.App.4th 937, 945.)  

Cross-Defendants do not show that the amount of attachment should be reduced by an attachable claim or affirmative defense.  (See Oppo. 6-8.)  Cross-Defendants refer to their claims for injunction, declaratory relief, and accounting, but those remedies are not contract claims upon which attachment could be based.  Furthermore, Cross-Defendants do not prove all elements of attachment, including damages in any specific amount.

5.    Subject Property

Bank requests attachment against Cross-Defendants, natural persons, of items listed in CCP § 487.010(c) and (d), including interests in real property.  (Application ¶ 9c.)  That request is proper. 

6.    Exemptions

“If a defendant filing a notice of opposition desires to make any claim of exemption as provided in Section 484.070, the defendant may include that claim in the notice of opposition filed pursuant to this section.”  (CCP § 484.060(b).)  A claim of exemption must describe the property to be exempted and specify the statute section supporting the claim.  (§ 484.070(c).)  “The claim of exemption shall be accompanied by an affidavit supporting any factual issues raised by the claim and points and authorities supporting any legal issues raised.”  (§ 484.070(d).)

Bank Has Filed a Notice of Opposition to Cross-Defendant’s Claim of Exemption

The plaintiff must oppose any claim of exemption filed by the defendant by filing a “notice of opposition” not less than two days before the hearing.  (CCP § 484.070(f).)  “If the plaintiff does not file and serve a notice of opposition as provided in this subdivision, no writ of attachment shall be issued as to the property claimed to be exempt.”  (Ibid]; see also Bank of America v. Salinas Nissan, Inc. (1989) 207 Cal.App.3d 260, 270.)

Here, Bank filed an opposition to the claims of exemption with its reply brief.  Accordingly, the burden is on Cross-Defendants to prove any exemptions. 

Homestead Exemption

Although Cross-Defendants claim exemption for certain real property, they have not asserted a homestead exemption pursuant to CCP sections 487.025(b) and 704.730.  Nor do Cross-Defendants submit evidence of liens or encumbrances on the property from which a homestead exemption could be determined. 

      Property Necessary for Support

Cross-Defendants contend that certain property that Bank seeks to attach is necessary for support of Cross-Defendants and their families.  (Oppo. 3-4.)  CCP section 487.020 provides an exemption for “Property which is necessary for the support of a defendant who is a natural person or the family of such defendant supported in whole or in part by the defendant.” 

In determining this exemption, “the court shall take into account all property of the judgment debtor and, to the extent the judgment debtor has a spouse and dependents or family, all property of such spouse and dependents or family, including community property and separate property of the spouse, whether or not such property is subject to enforcement of the money judgment.”  (CCP § 703.115.)  “It is not enough for defendant merely to submit a declaration stating that the property is ‘necessary for support’ of his or her family. Defendant's claim of exemption must include a financial statement meeting the requirements of CCP § 703.530 (detailing earnings of all members of family, list of assets and obligations, etc.).”  (Rutter, Cal. Prac. Guide, Civ. Pro. Before Trial, ¶ 9:875.) 

The financial statement requirement is set forth in CCP section 703.530, which provides in part:

(a) If property is claimed as exempt pursuant to a provision exempting property to the extent necessary for the support of the judgment debtor and the spouse and dependents of the judgment debtor, the claim of exemption shall include a financial statement.

(b) The financial statement shall include all of the following information:

(1) The name of the spouse of the judgment debtor.

(2) The name, age, and relationship of all persons dependent upon the judgment debtor or the spouse of the judgment debtor for support.

(3) All sources and the amounts of earnings and other income of the judgment debtor and the spouse and dependents of the judgment debtor.

(4) A list of the assets of the judgment debtor and the spouse and dependents of the judgment debtor and the value of such assets.

(5) All outstanding obligations of the judgment debtor and the spouse and dependents of the judgment debtor.

(c) The financial statement shall be executed under oath by the judgment debtor and, unless the spouses are living separate and apart, by the spouse of the judgment debtor.  (emphasis added.) 

            Cross-Defendants have not filed a financial statement that complies with CCP section 703.530.  This requirement is mandatory.

Cross-Defendant Sukhpal Singh has filed a declaration in which he purports to claim the “necessary for support” exemption for himself and also Cross-Defendant Jasbir Singh.  The declaration asserts that certain real property and certain unspecified “bank accounts” are necessary for the support of Sukhpal Singh and his family, and that other real property and assets are necessary for the support of Jasbir Singh and his “family.”   It is unclear from the declaration if Sukhpal Singh and Jasbir Singh have spouses, but the reference to “families” suggests that they may have spouses and that they have dependents.  As to Sukhpal Singh, the declaration is deficient because it does not state that name of his spouse (if any); the name, age, and relationship of all persons dependent on him or his spouse; all sources and the amounts of earnings and other income of him and his spouse; a list of his assets and the value of such assets of him and his spouse; and all outstanding obligations of him and his spouse.   Also, the declaration is not executed under oath by Sukhpal Singh’s spouse (if any.)  As to Jaspir Singh, the declaration is deficient for these same reasons and also because Sukhpal Singh does not show personal knowledge about Jaspir Singh’s financial circumstances.

Without a complete statement of Cross-Defendants’ financial circumstances, the court cannot find that any specific property is necessary for the support of them or their families.  The claim of exemption is DENIED.

7.    Excessive Attachment

Cross-Defendants contend that the value of their real property assets far exceeds the debt and the court therefore has discretion to limit the property subject to attachment.  (Oppo. 4-5.)  “If the court determines at the hearing on issuance of a writ of attachment under this title that the value of the defendant’s interest in the property described in the plaintiff’s application clearly exceeds the amount necessary to satisfy the amount to be secured by the attachment, the court may direct the order of levy on the property described in the writ or restrict the amount of the property to be levied upon.”  (CCP § 482.120 [emphasis added].) 

In his declaration, Cross-Defendant Sukhpal Singh declares in relevant part, as follows: “The outstanding debt referenced in the Application is already secured by real property owned by the entity Cross-Defendant located at 5401 N. State Line Avenue, Texarkana, TX, 75503, and the value of that real property, approximately $950,000, is far more than adequate to cover any outstanding debt related to the loan and guaranties.”  (Singh Decl. ¶ 6.)  As discussed, Cross-Defendants waived recovery against the collateral in the Guaranties.  Thus, this evidence appears irrelevant to the contract claim at issue.  Moreover, this evidence is incomplete because Singh does not specify whether any other liens or encumbrances are held on the property.  Also, major fire damage occurred at the property, which Cross-Defendants concede, and required recovery of $1,626,714.00 from the insurance carrier.  Singh’s conclusory declaration does not provide any evidence about the current status of the property, including any environmental contamination from the fire or other issues that may impact its value. 

Furthermore, CCP section 482.120 directs the court to determine whether “the value of the defendant’s interest in the property described in the plaintiff’s application clearly exceeds the amount necessary to satisfy the amount to be secured by the attachment.”  (bold italics added.)  Thus, the relevant question for purposes of excessive attachment is whether the value of Cross-Defendants’ personal assets clearly exceeds the amount of attachment.  As discussed, Cross-Defendants have not provided a complete financial statement concerning any liens or encumbrances on their real property.   Given this deficient evidence, the court cannot conclude on this record that attachment against Cross-Defendants’ personal assets is clearly excessive.  However, the attachment would be limited to the amount of the debt proven for this application. 

8.    Undertaking

Code of Civil Procedure section 489.210 requires the plaintiff to file an undertaking before issuance of a writ of attachment.  Code of Civil Procedure section 489.220 provides, with exceptions, for an undertaking in the amount of $10,000.  Neither party argues for a different amount of undertaking. 

Conclusion

The applications for writs of attachment are GRANTED in the amount of $466,902.62.  Bank to post an undertaking of $10,000 for each Cross-Defendant.  The court denies the alternative issuance of a TPO.