Judge Mitchell L. Beckloff, Case 22STCV37405 2023-04-12 Tentative Ruling

Judge: Mitchell L. Beckloff, Case: 22STCV37405, Date: 2023-04-12 Tentative Ruling

Plaintiff, HK Yuntao Inc. Limited, seeks writs of attachment against Defendants, American Fashion Network, LLC (AFN) and OTR Corporate Apparel, Ltd. (OTR), in the amounts of $678,456.94 and $4,089,102.29, respectively. The amounts sought include estimates of prejudgment interest (pursuant to Civil Code section 3287, subdivision (a)) and estimated costs of $15,000 as to each Defendant.

Defendants’ objections to the Declaration of Sandra Khalili: Objections 2 and 3 are overruled. Objection 1 is sustained in part (as to “and her October 17, 2022 email response to me”).[1]

Defendants’ objections to the Declaration of Yoon Suk Jung: Objections 1, 2, 4, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25 and 26 are overruled. Objection 3 is sustained in part (as to “J.C. Penny (‘JCP’)”), and Objection 5 is sustained in part (as to “JCP filed bankruptcy in May 2020”).

Defendants’ objection to Plaintiff’s oversize reply brief is sustained. The court disregards page 12 of the document.

Defendants’ objection to the declarations filed in reply is overruled. The material addressed in the declarations appears directly responsive to the opposition. Defendants have not identified any specific material in the declarations they assert is “new” and not previously in issue.

Plaintiff’s objections to the Declaration of Jacqueline Ferrari: Objections 1, 5, 7, 8, 9 and 12 are overruled. Objections 2, 3, 4, 6, 10 and 11 are sustained.

Plaintiff’s objections to the Declaration of Patrick Sullivan: Objections 13, 14, 15, 16, 17, 21, 23, 25, 27, 28, 29 and 30 are overruled. Objections 18, 19, 20, 22, 24, 26, 31, 32, 33 and 34 are sustained.

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.

“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.” (Code Civ. Proc., § 484.030.) Statutory attachment procedures are purely creations of the legislature and as such “are subject to ‘strict construction.’ ” (Hobbs v. Weiss (1999) 73 Cal.App.4th 76, 79; see also Nakasone v. Randall (1982) 129 Cal.App.3d 757, 761.) A judge does not have authority to order any attachment that is not provided for by the attachment statutes. (Jordan-Lyon Productions, Ltd. v. Cineplex Odeon Corp. (1994) 29 Cal.App.4th 1459, 1466.) “The declarations in the moving papers must contain evidentiary facts, stated ‘with particularity,’ and based on actual personal knowledge with all documentary evidence properly identified and authenticated.” (Hobbs v. Weiss, supra, 73 Cal.App.4th at 79-80.) “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.” (Id. at 80 [cleaned up].)

“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.” (Code Civ. Proc., § 481.190.)

Plaintiff, Shanghai Nex-T International Company (Nex-T) and HK JY Apparel, Limited (HK JY) are (or were as to HK JY) manufacturer and suppliers of apparel to wholesalers including AFN and OTR. (Jung Decl., ¶ 2.) Defendants placed orders for garments with Plaintiff, Nex-T and HK JY. (Jung Decl., ¶ 2.) Plaintiff, Nex-T and HK JY used a network of manufacturers to fulfill the orders. (Jung Decl., ¶ 2.)

Over the last four years, Defendants purchased “$61,536,221.19 million” of goods from Plaintiff. (Reply Khalili Decl., Ex. 1.)

Plaintiff, Nex-T and HK JY have asserted claims against Defendants based on purchase orders submitted, apparel delivered and invoices issued. Nex-T and HK JY assigned their claims against Defendants to Plaintiff.[2] (Jung Decl., ¶ 3, Ex. 1.) Yoon Suk Jung, a declarant herein, is the owner of Plaintiff, Nex-T and HK JY. (Jung Decl., ¶ 3.)

Through his declaration, Jung explains the business relationship between Plaintiff and its assignors and Defendants. Plaintiff explains how AFN became obligated to it based on orders related to garments provided to AFN’s customer, J.C. Penny. (Jung Decl., ¶ 4.) At some point, the parties agreed Plaintiff would pay a reduced amount of $286,090 for goods delivered to J.C. Penny. (Jung Decl., ¶ 6, Ex. 4.) On August 3, 2021, AFN’s principal, Jacqueline Ferrari, agreed to pay to Plaintiff $289,090 for such goods. (Jung Decl., ¶ 6, Ex. 4.) Plaintiff provides evidence of AFN’s purchase orders[3] and invoices thereafter issued by both HK JY and Nex-T to AFN for the J.C. Penny goods. (Jung Decl., ¶ 6, Exs. 2, 3.)

AFN has not made any payment toward the $289,090 balance due. (Jung Decl., ¶ 6.)

AFN also purchased apparel from Plaintiff for its customer, Amazon. (Jung Decl., ¶ 7.) AFN issued purchase orders for the apparel. (Jung Decl., ¶ 7, Ex. 5.) After shipping the apparel pursuant to the instructions on the purchase orders, Plaintiff issued two invoices. (Jung Decl., ¶ 8, Exs. 6, 7.) The amounts due under the invoices total $479,739.36 ($398,418.06 plus $81,321.30).

AFN made payments on the invoices Plaintiff issued for the Amazon goods. AFN made its last payment on the invoices on May 7, 2020 and thereafter has paid nothing. (Jung Decl., ¶ 9.) The balance due from AFN to Plaintiff on these invoices is $216,331.05. (Jung Decl., ¶ 9.)

Finally, AFN purchased apparel for its customer, Legendary Whitetails. (Jung Decl., ¶ 10.) Plaintiff issued an invoice for $131,019.43 for the apparel shipped to Legendary Whitetails. (Jung Decl., ¶ 10, Ex. 8.) AFN made payments of $35,500. (Jung Decl., ¶ 10.) In January 2023, Ferrari acknowledged AFN owed Plaintiff $110,000 for the Legendary Whitetails apparel. (Jung Decl., ¶ 6, Ex. 4.) The actual balance due to Plaintiff from AFN is $95,519.43. (Jung Decl., ¶ 13.) AFN has not made any payments on the balance due since December 8, 2021. (Jung Decl., ¶ 13.)

Based on the foregoing, Plaintiff alleges AFN owes it $678,456.94. The figure due is calculated as follows: $286,090 plus $47,968.56 for prejudgment interest for the apparel shipped to J.C. Penny; $216,331.05 plus $19,855.45 for prejudgment interest for the apparel shipped to Amazon; and $95,519.43 plus $12,692.45 in prejudgment interest for the apparel shipped to Legendary Whitetails.

OTR purchased apparel from Plaintiff for its customer, Kohl’s. (Jung Decl., ¶ 15.) OTR issued purchase orders for the apparel. (Jung Decl., ¶ 15, Ex. 10.) Plaintiff shipped the apparel to Kohl’s and issued invoices reflecting the amounts due from OTR to Plaintiff. (Jung Decl., ¶ 16, Ex. 11.) OTR made several payments on the invoices related to the apparel shipped to Kohl’s ($17,457.10, and three payments of $8,441.49) leaving a balance due of $3,311,429.67. (Jung Decl., ¶ 16.)

OTR also purchased apparel from Plaintiff for its customer, J.C. Penny, through purchase orders. (Jung Decl., ¶ 19, Ex. 14.) Plaintiff shipped the apparel ordered and thereafter issued invoices to OTR. (Jung Decl., ¶ 20, Ex. 15.) OTR has not made any payment toward the invoices. The balance due from OTR to Plaintiff for the J.C. Penny apparel is $563,394.05.

Based on the foregoing, Plaintiff alleges OTR owes it $4,089,102.29. The figure due is calculated as follows: $331,311,429.67 plus for prejudgment interest of $239,603.04 for the apparel shipped to Kohl’s; and $528,389.75 plus $35,004.30 for prejudgment interest for the apparel shipped to J.C. Penny.

Plaintiff’s evidence includes an email from Ferrari to Plaintiff’s counsel dated October 17, 2022. (Reply Khalili Decl., Ex. 1 [“inadvertently” omitted].) In relevant part, Ferrari advises:

“. . . we do not deny owing Nex T and HK Yuntao money as we have repeatedly told Jung, it is our intention to pay, in total, when we have the money to do so. At this time, we don’t have the funds.”

Defendants oppose Plaintiff’s applications largely on the basis the amounts claimed as due and owing by Plaintiff are “not certain” and “fraudulent[]” as Plaintiff has allegedly “failed to disclose the fact that substantial amounts that [Plaintiff] claims are owed have already been paid.” (Opposition 1:3-5.) Defendants also contend Plaintiff has improperly failed to provide them with credit for chargebacks, fails to show “statutorily required writings” of any obligation owed, and Defendants have not “confessed” the obligation. (Opposition 1:7-9.)

In support of its opposition, Defendants submit evidence from Ferrari and Sullivan.

Ferrari attests—in a conclusory fashion—it is untrue Defendants “have never raised any claims of non-conformity with respect to the goods ordered.” (Ferrari Decl., ¶ 2.) Ferrari does not, however, provide any detail about whether Defendants effectively rejected any goods as non-conforming.

Ferrari also reports she has never seen “any accounting on the outstanding balance payable to the manufacturers.” (Ferrari Decl., ¶ 3.) She generally claims she “thought [she] could trust Jung and other representatives of Plaintiff regarding the amount owed to Plaintiff.” (Ferrari Decl., ¶ 3.) While Ferrari admits Defendants owe Plaintiff money, Ferrari does not provide any figure or calculation of what Defendants owe Plaintiff.

Finally, and again in a conclusory fashion, Ferrari attests if an attachment is wrongly issued against AFN and OTR, their businesses will be “destroyed.” (Ferrari Decl., ¶ 4.) Ferrari advises in her opinion the destruction of Defendants would result in more than $6 million in damages.

Sullivan does not dispute the business relationship between Plaintiff and Defendants. (Sullivan Decl., ¶ 3.) Sullivan reports chargebacks from Kohl’s exist, “continue and persist to this date.” (Sullivan Decl., ¶ 5.) Sullivan also notes Defendants have raised claims of non-conformity with Plaintiff. But, like Ferrari, Sullivan does not provide any evidence Defendants effectively rejected the non-conforming goods. Sullivan attests it is Defendants’ “standard operating procedure” that chargebacks from its customers become the “responsibility of the manufacturers.”[4] (Sullivan Decl., ¶ 5.)

Finally, Sullivan advises “OTR transferred numerous letters of credit it received from its customer Kohl’s to Plaintiff and SH Nex-T to offset outstanding amount owed.” (Sullivan Decl., ¶ 6.) Sullivan attaches “a few samples” to support his testimony. (Sullivan Decl., ¶ 6.) Sullivan does not, however, provide any specific amounts to tie the letters of credit to specific invoices Plaintiff claims are due and owing. (The letters of credit do not address AFN.)

While there is significant conflict between the parties, certain evidence before the court is undisputed.

AFN issued the purchase orders at issue herein. (Jung Decl., Exs. 3 [J.C. Penny], 5 [Amazon].)

HK JY and Nex-T issued the invoices related to product for J.C. Penny to AFN. (Jung Decl., Ex. 4.)

Nex-T issued the invoices related to product for Amazon. (Jung Decl., Exs. 6, 7.)

HK JY issued the invoice related to product for Legendary Whitetails. (Jung Decl., Ex. 8.)

Ferrari acknowledged a debt of $286,090 (J.C. Penny) and $110,000 (Legendary Whitehall) to Plaintiff.[5]

Defendant AFN has submitted no specific evidence to dispute its debt obligation to Plaintiff.[6]

OTR issued the purchase orders at issue herein. (Jung Decl., Ex. 10 [Kohl’s], 14 [J.C. Penny].)

HK JY issued the invoices related to product for Kohl’s to OTR. (Jung Decl., Ex. 11.) Nex-T issued the invoices related to product for J.C. Penny to OTR. (Jung Decl., Ex. 15.)

Defendant OTR has provided no specific evidence to support the amount of any claim of offset or that it effectively rejected nonconforming goods. In fact, Defendant OTR does not identify a single purchase order corresponding to Kohl’s letters of credit.

The evidence submitted by Defendants is insufficient to overcome Plaintiff’s claims. That is, on this evidence and for purposes of the applications, the court cannot find Defendants do not owe the money claimed by Plaintiff, or that Defendants are entitled to any setoff. Defendants have not proffered any evidence to support a setoff claim as to Defendant AFN. The generalized evidence of chargebacks is insufficient to support a setoff claim. The letters of credit appear to be unrelated to the purchase orders on which Plaintiff has sued. (Reply Jung Decl., ¶ 3.)

Nonetheless, Defendants raise several legal issues as a defense to Plaintiff’s claims.

First, Defendants contend there is no writing evidencing Plaintiff’s claims as required by Commercial Code section 2201, subdivision (1).

The parties’ purchase orders, goods shipped and invoices issued established numerous contracts. (Comm. Code, § 2204, subd. (1). See also id., § 2207, subd. (3).) It is clear from the evidence from both parties that the parties entered into contracts for the sale of goods. The documents satisfy the statute of frauds here as the purchase orders set forth the buyer’s name in the upper left hand corner and there is no evidence Defendants objected to Plaintiff’s invoices sent after the goods were shipped. (Comm. Code, § 2201, subd. (2). See also Apex LLC v. Sharing World, Inc. (2012) 206 Cal.App.4th 999, 1013.)

Second, there is insufficient evidence proffered by Defendants to support a claim they effectively rejected any nonconforming goods. (See Comm. Code, § 2602, subd. (1) [delay must not be unreasonable].) “Acceptance of goods occurs when the buyer . . . [f]ails to make an effective rejection (subdivision (1) of Section 2602), but such acceptance does not occur until the buyer has had a reasonable opportunity to inspect them; . . . .” (Comm. Code, § 2606, subd. (b).)

Third, there is no competent evidence before the court certain manufacturers—other than Plaintiff, HK JY and/or Nex-T—must bring these claims. The purchase orders and related invoices at issue herein all belong to Plaintiff, HK JY and Nex-T.

Finally, Defendant has not provided sufficient evidence to support a claim of impossibility, unclean hands or estoppel.

Based on the foregoing, the court finds Plaintiff has demonstrated the probable validity of its claim for purposes of these applications.

The court shall issue a right to attach order if the claim upon which the attachment is based is one upon which an attachment may be issued. (Code Civ. Proc., § 484.090.) “[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).) “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).)

Plaintiff’s claim is based on a series of written contracts and is in excess of five hundred dollars.

Accordingly, the court finds Plaintiff’s claim is a proper basis for attachment.

Code of Civil Procedure section 484.090 provides 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.”

Here, Plaintiff attests the applications for writs of attachment are not sought for a purpose other than the recovery on a claim upon which the attachments are based. (Jung Decl., Jud. Council Form T-105.) Accordingly, the court finds Plaintiff has complied with Code of Civil Procedure sections 484.020 and 484.090.

Code Civil Procedure section 487.010, subdivision (a) provides “[w]here the defendant is a corporation, all corporate property for which a method of levy is provided” is subject to attachment.

The parties dispute the proper amount for an undertaking here. Defendants have suggested any undertaking should be no less than $10 million. The basis for Defendants’ request is a conclusory statement by Ferrari that Defendants will be destroyed if the attachments are issued. Ferrari attests the extent of damages will be $6 million for each Defendant (as the court understands it). Ferrari provides no analysis or foundation to support her statement.

The court finds a $10,000 undertaking for each attachment is sufficient given the lack of persuasive evidence otherwise.

Finally, the court finds Plaintiff’s counsel’s estimate of $15,000 in costs for each Defendant to litigate this matter to conclusion is sufficiently supported by counsel’s declaration.

[1] The court notes the email apparently inadvertently omitted as part of Exhibit 19 has been submitted in reply.

[2] Except where necessary for clarity, the court refers to Plaintiff, Nex-T and HK JY collectively as Plaintiff.

[3] Based on statements by Ferrari and Patrick Sullivan, the Chief Financial Officer of AFN and OTR, Jung reports JESspeed2market—the entity that issued the purchase orders—refers to JES Apparel, “a division of, or simply another name for, the same entity, as AFN.” (Jung Decl., ¶ 4.) Defendants do not submit any evidence to the contrary.

[4] There is no evidence of the course of dealing on this issue between Plaintiff and Defendants.

[5] The court recognizes Ferrari overstated the amount due based on the Legendary Whitehall goods.

[6] Defendants generalized claim of nonconformity of goods appears to relate to OTR. In any event, the allegation of nonconformity standing alone is insufficient to relieve Defendants of the debt obligation.