Judge Mitchell L. Beckloff, Case Number: 22STCV33196, Date: 2024-01-24 Tentative Ruling

Judge: Mitchell L. Beckloff, Case: 22STCV33196, Date: 2024-01-24 Tentative Ruling

Plaintiff, Access Road Capital, LLC, moves for a writ of attachment against Defendant, Jonathan M. Kramer, in the amount of $8,000,000.

Plaintiff’s evidentiary objections to Defendant’s declaration are overruled.

“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.” (Code Civ. Proc., § 484.010.)

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.

“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.” (Id. at § 481.190.) “In contested

applications, 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.”¿(Hobbs v. Weiss (1999) 73 Cal.App.4th 76, 80.)

“The application 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.”¿(Code Civ. Proc., § 484.030.) Code of Civil Procedure section 482.040 states in pertinent part: “The facts stated in each affidavit filed pursuant to this title shall be set forth with particularity. Except where matters are specifically permitted by this title to be shown by information and belief, each affidavit shall show affirmatively that the affiant, if sworn as a witness, can testify competently to the facts stated therein. As to matters shown by information and belief, the affidavit shall state the facts on which the affiant's belief is based, showing the nature of his information and the reliability of his informant. The affiant may be any person, whether or not a party to the action, who has knowledge of the facts.”

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

The application is based on Plaintiff’s cause of action for breach of a guaranty agreement (the Guaranty). To establish a claim for breach of contract, a plaintiff must 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 resulting from the breach. (Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1367.)

In support of the application, Plaintiff submits a declaration of Idan Shani, Plaintiff’s Chief Operating Officer. Shani declares he has “personal knowledge of the facts set forth in th[e] declaration based upon [his] personal experience and knowledge and [his] review and knowledge of business records, documents, materials and files pertaining to [Plaintiff’s] operations.” (Shani Decl. ¶ 1.)

Shani also submits the following evidence to support the probable validity of Plaintiff’s claim:

On or about March 26, 2020, Plaintiff and Rive Gauche Television and Aftershock Comics, LLC (Borrowers) executed a Credit and Security Agreement under which Plaintiff agreed to provide Borrowers a four-year non-revolving loan in the principal amount of $11,090,000, secured by a lien on Borrowers’ personal property. (Id. ¶ Exh. 1.) Borrowers also executed a promissory note in favor of Plaintiff in the face amount of $11,090,000. (Id. ¶ 3, Exh. 2.) Borrowers used the proceeds of the loan to retire an existing loan to Rive Gauche Television made by East West Bank. In consideration for Rive Gauche Television satisfying the East West Bank loan, East West Bank agreed to dismiss a lawsuit it had filed against Rive Gauche Television and to assign to Plaintiff certain collateral it had received to secure the loan. (Id. ¶ 4.)

On or about March 23, 2020, Defendant executed the Guaranty of up to $8 million of the obligations arising from the loan to Borrowers under the Credit and Security Agreement. The Guaranty is not secured. (Id. ¶ 6, Exh. 4.) The Guaranty states Plaintiff “[o]n the date on which any payment is due and payable by the Borrower under the Financing Documents, Lender, in its sole discretion, may proceed directly against the Guarantor to exercise any right or remedy that Lender may have under this Guaranty without pursuing or exhausting any other right or remedy that Lender may have against the Borrower.” (Id. ¶ 8, Exh. 4.)

On or about October 15, 2021, Plaintiff and Borrowers entered into an amendment to the Credit and Security Agreement under which Plaintiff agreed to make additional loans in an amount equal to 85 percent of the receivables payable to Rive Gauche Television pursuant to specified license agreements in an amount not to exceed $2,392,000. (Id. ¶ 5, Exh. 3.)

Borrowers have defaulted under the Loan Documents and are in breach of those agreements by virtue of, among other things, having failed to pay principal and interest when due (“Event of Default”). As of January 26, 2023, there is unpaid principal and interest owing of not less than $15,964,182.00 . . . . Plaintiff notified Borrowers and [Defendant] by letter of the Events of Default on May 5, 2022. A true and correct copy of the notice of default is attached hereto as Exhibit 5. Despite being notified, Borrowers and [Defendant] failed to cure the Events of Defaults. (Id. ¶¶ 13-14, Exh. 5.)

Borrowers filed for Chapter 11 bankruptcy relief on December 19, 2023. (See Notice of Filing filed May 4, 2023.) Plaintiff represents the bankruptcy matter is still pending. (Appl. ¶ 4.)[1]

The foregoing evidence, if not rebutted, supports all elements of Plaintiff’s claim for breach of the Guaranty against Defendant in the amount of $8 million, specifically: (1) the existence of the Credit and Security Agreement and Guaranty; (2) Plaintiff’s performance of the agreements; (3) Defendant’s breach of the Guaranty for failure to pay the full amount due after Borrowers’ event of default; and (4) Plaintiff’s damages in the amount of $8 million.

Defendant contends the evidence “lacks the particularity necessary to satisfy due process requirements” and Code of Civil Procedure section 482.040. Specifically, Defendant contends Shani’s declaration is deficient because “[t]he amount that was actually lent is not stated” and “[n]o calculation showing how the amount owing came to exceed the maximum amount that could be lent by more than $2 million is provided.” (Opposition 3:13-14, 16-18.) The argument is unpersuasive.

Shani described, with particularity, how Borrowers executed the Credit and Security Agreement and Plaintiff executed the Guaranty; how Plaintiff performed, as evidenced by the promissory note in the face amount of $11,090,000 and Borrowers’ use of the loan proceeds to retire the East West Bank loan; and the event of default triggering a total balance due of $15,964,182 (including accrued interest). (Shani Decl. ¶¶ 2-15.) Shani’s declaration is corroborated by Exhibit 5, which is a demand letter to Borrowers and Defendant, dated May 5, 2022, advising an event of default occurred under the Credit and Security Agreement, including failure to make a $1,428,436 principal and interest payment on March 28, 2022. The demand letter also states, pursuant to section 9.2(b) of the Credit and Security Agreement,[2] the entire balance of the note (then $13,715,613.82) became due and payable, and that default and regular interest had accrued (increasing the balance to $14,077,674.14 as of May 5, 2022) and that such interest continued to accrue on a per diem basis in the amount of $12,899.70. (Id. Exh. 5.)

Such evidence is sufficiently detailed to satisfy Code of Civil Procedure section 482.040.

Randone v. Appellate Department (1971) 5 Cal. 3d 536, cited by Defendant, is inapposite. The case concerned the constitutionality of a prior attachment statute under which attachment could be granted without prior notice or hearing. Here, in contrast, Defendant has received notice and opportunity to respond to Plaintiff’s evidence. The court also notes Plaintiff’s attachment application has been pending for almost an entire year and repeatedly continued at the request of both parties.

Notably, Defendant does not rebut the evidence submitted by Plaintiff. Defendant does not submit any evidence disputing the event of default by Borrowers or the total amount due, including interest, after acceleration of the loan pursuant to section 9.2(b) of the Credit and Security Agreement. The court also notes Defendant’s obligation under the Guaranty is limited to $8 million, substantially less than the amount of loan funds extended to Borrowers and the $15,964,182 balance due with interest. Defendant submits no evidence to suggest that the total amount due on the Credit and Security Agreement by Borrowers, who are in bankruptcy, is less than $8 million.

Except for an issue regarding the valuation of Borrowers’ collateral (discussed below), Defendant does not raise any other argument to dispute the probable validity of Plaintiff’s claim.

Based on the foregoing, Plaintiff has shown a probably valid claim against Defendant in the amount of $8 million.

“[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, subd. (a).) “An attachment may not be issued on a claim which is secured by any interest in real property arising from agreement . . . .” (Code Civ. Proc., § 483.010, subd. (b).) “[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.” (CIT Group/Equipment Financing, Inc. v. Super DVD, Inc. (2004) 115 Cal.App.4th 537, 541.)

“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. (Code Civ. Proc., § 483.010, subd. (c); see Advance Transformer Co. v. Superior Court (1974) 44 Cal.App.3d 127, 143-144.)

Here, Plaintiff’s application for a writ of attachment is based on an agreement where the total amount allegedly due exceeds $500. The Guaranty is not secured by real property. Plaintiff’s damages are fixed and readily ascertainable from the terms of the Guaranty and Plaintiff’s declaration and exhibits. The evidence shows Defendant executed the Guaranty as part of his trade, business, or profession. (See Shani Decl. ¶ 14 and Exh. 1-3 [evidence showing Defendant is the President of Rive Gauche Television and the Managing Member of Aftershock Comics, LLC].)

Code of Civil Procedure section 484.090 states 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.”

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

Defendant argues “repayment of the underlying obligation is secured by (1) an assigned pledge of shares of Rive Gauche that Kramer holds through the Kramer Living Trust and also

(2) a pledge of Kramer’s membership interest in AfterShock.” (Opposition 3:22-25.) Defendant “has concluded, based on his discussions with numerous prospective investors, that the assets have a value in excess of $10 million.” (Opposition 5:8-10 [citing Kramer Decl. ¶ 4].)

Although the court admits paragraph 4 of Defendant’s declaration into evidence, the court agrees with Plaintiff—in the context of the Borrowers’ pending bankruptcy—such evidence is insufficient to prove the pledged assets have the value of $10 million or any other specific value. (See Reply 4:16-19.) Defendant fails to discuss the bankruptcy proceedings in his valuation of the pledged assets, and he fails to provide sufficient evidence that a $10 million valuation of his partial interest is reasonable in light of the pending bankruptcy. (See Kramer Decl. ¶¶ 3-4.)

Moreover, regardless of the value of the pledged assets, Defendant fails to respond to Plaintiff’s argument and cited authorities as to the effect of the waivers included in the Guaranty. (See Appl. 5-6; Sehulster Tunnels/Pre-Con v. Traylor Brothers, Inc. (2003) 111 Cal.App.4th 1328, 1345, fn. 16 [failure to address point is “equivalent to a concession”].)

Specifically, “[a] guaranty is a separate and independent obligation from that of the principal debt.” (United Central Bank v. Superior Court (2009) 179 Cal.App.4th 212, 215.) “Case law holds that a writ of attachment may issue on a guaranty, regardless of whether the principal loan is secured, so long as the guarantor has waived the right to require the creditor to proceed first against the security given for the primary obligation.” (Ibid.) “[W]here [the] guarantor waives rights arising from existence of security given by debtor, guarantor's obligation is unsecured and creditor can obtain attachment order against guarantor.” (Ibid. See also Bank of America, N.A. v. Stonehaven Manor, LLC (2010) 186 Cal.App.4th 719, 723.)

Here, the Guaranty states Guarantor “waives any right to require Lender to: (a) proceed against any person, including Borrower, (b) proceed against or exhaust any collateral held from the Borrower or any other person; (c) pursue any other remedy in Lender’s power; or (d) make any presentments, demands for performance, or give any notices of nonperformance, protests, notices of protests or notices of dishonor in connection with any obligations or evidences of the payments under the Loan guaranteed hereunder.” (Shani Decl. ¶ 10 and Exh. 4.)

Based on the authorities cited above and the waiver provision in the Guaranty, Plaintiff has a probably valid claim it is not required to exhaust any collateral held by Borrowers before obtaining a writ of attachment against Defendant. Accordingly, Defendant does not show the attachment should be reduced by an attachable claim for offset or an affirmative defense. (Code Civ. Proc., § 483.015, subd. (b).)

Plaintiff requests attachment against Defendant, a natural person, of items listed in Code of Civil Procedure section 487.010, subdivisions (c) and (d). Specifically, Plaintiff seeks to attach Defendant’s residence located at 470 25th Street in Santa Monica (the Residence). (Appl. ¶ 9c.) That request is proper. (See Bank of America v. Salinas Nissan, Inc. (1989) 207 Cal. App. 3d 260, 267-268 [“all-inclusive” application satisfies Code of Civil Procedure section 484.020, subd. (e)].)

Defendant has filed a claim of exemption for the Residence. Defendant contends the homestead exemption in Code of Civil Procedure sections 704.710 and 487.025, subdivision (b) apply and reduces the amount of attachment against the Residence to $1,122,692. (Claim of Exemption ¶ 4.c (5); Opposition 5:19-6:9; Kramer Decl. ¶¶ 5-9.)

“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.” (Code Civ. Proc., § 484.060, subd. (b).) A claim of exemption must describe the property to be exempted and specify the statute section supporting the claim. (Id. at § 484.070, subd. (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.” (Id. at § 484.070, subd. (d).)

“If the plaintiff desires to oppose the claim of exemption, the plaintiff shall file and serve on the defendant, not less than two days before the date set for the hearing, a notice of opposition to the claim of exemption, accompanied by an affidavit supporting any factual issues raised and points and authorities supporting any legal issues raised. 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.” (Code Civ. Proc., § 484.070, subd. (f) [emphasis added].) As noted earlier, “[t]he Attachment Law statutes are subject to strict construction.” (Epstein v. Abrams, supra, 57 Cal.App.4th at 1168.)

Here, consistent with Code of Civil Procedure sections 484.060 and 484.070, Defendant filed an opposition and claimed a specific statutory exemption for the Residence. Plaintiff did not timely file a notice of opposition to the claim of exemption as required by Code of Civil Procedure section 484.070, subdivision (f).[3]

Accordingly, the claim of exemption is granted. Specifically, the writ of attachment on the Residence is limited to the surplus over $3,477,308 ($1,833,000 plus $923,000 plus $671,308.) Defendant submits undisputed evidence that the current market value of the residence is $4.6 million. (Kramer Decl. ¶ 7.) Thus, the writ of attachment on the residence is limited to $1,122,692 ($4,600,000 minus $3,477,308.)

It is somewhat unclear from the application whether Plaintiff seeks a writ of attachment only against the Residence or against all of Defendant’s property subject to attachment, including the Residence. (Appl. ¶ 9.c.) Plaintiff’s counsel should clarify at the hearing. Any attachment against the Residence is limited to $1,122,692 based on Defendant’s claim of exemption.

Code of Civil Procedure section 489.210 requires the plaintiff to file an undertaking before a writ of attachment is issued. Code of Civil Procedure section 489.220 provides, with exceptions, for an undertaking in the amount of $10,000. The court concludes that the statutory undertaking of $10,000 is appropriate.

The application for writ of attachment is GRANTED in the amount of $8 million. Defendant’s claim of exemption is also GRANTED in the amount of the homestead exemption specified in Defendant’s opposition ($3,477,308).

It appears from the application Plaintiff seeks a writ of attachment only against the Residence. (Appl. ¶ 9.c.) Accordingly, based on the current value of the Residence, the writ of attachment is limited to $1,122,692.

Alternatively, if Plaintiff seeks attachment against all of Defendant’s property subject to attachment, then the writ of attachment against the Residence is limited to $1,122,692. The writ of attachment against Defendant’s remaining property subject to attachment is granted in the amount of $8 million.

[1] Defendant has not filed for bankruptcy relief, and the pending bankruptcy of Borrowers does not impact Plaintiff’s right to apply for attachment against Defendant. (See Appl. ¶ 8; Ingersoll-Rand Financial Corp. v. Miller Min. Co., Inc. (1987) 817 F.2d 1424, 1427.)

[2] Section 9.2 of the Credit and Security Agreement provides that following an Event of Default, Plaintiff may declare all principal and interest owing under the loan and note forthwith due and payable. (Id. Exh. 1.)

[3] It appears likely Plaintiff concedes the exemption’s application here.