Judge: Nathan Vu, Case: 30-2021-01217093, Date: 2022-12-19 Tentative Ruling
Please Note: The hearing on this matter is scheduled for 8:30 A.M.
Application for Right to Attach Order
Plaintiff Alonzo C. Whitner’s application for right to attach order and order for issuance of writ of attachment is GRANTED.
Plaintiff shall submit to the court a proposed Right to Attach Order and Order for Issuance of Writ of Attachment After Hearing (Form AT-120) that is consistent with this ruling.
The court ORDERS that prior to submitting the proposed order, Plaintiff shall file an undertaking in the amount of $10,000 pursuant to Civil Procedure Code sections 489.210 and 489.220(a), and file a notice of the posting of the bond or other undertaking, including evidence thereof.
Defendant Nelson Brothers Professional Real Estate, LLC’s evidentiary objections to the Declaration of Plaintiff Alonzo C. Whitner are OVERRULED as to evidentiary objections numbers 1-6.
Plaintiff Alonzo C. Whitner’s evidentiary objections to the Declaration of Brain Nelson and Declaration of Joseph Boufadel are SUSTAINED as to evidentiary objections 1-10.
Plaintiff Alonzo C. Whitner, as trustee of the Whitner Family Trust, applies for a right to attach order and order for issuance of a writ of attachment against Defendant Nelson Brothers Professional Real Estate, LLC (Defendant NBPRE).
Standard for Right to Attach Order and Order for Issuance of Writ of Attachment
Upon the filing of a complaint or at any time thereafter, the plaintiff may apply for a right to attach order (RTAO) and an order for issuance of a writ of attachment by filing an application with the court in which the action is brought. (Code Civ. Proc., § 484.010.) The application must be executed under oath and must include the statements set forth in Code of Civil Procedure section 484.020. (See Code Civ. Proc., § 484.020.)
To obtain an RTAO, Plaintiff has the burden of proving: (1) the claim is one on which an attachment order may be issued; (2) the probable validity of the claim; and (3) that the attachment is not sought for any other purpose than to secure recovery on the claim. Evidence proffered in support of, or in opposition to, an application for an RTAO must be set forth with particularity, admissible, competent, and under oath by declarants with personal knowledge of the facts proffered. (See Code Civ. Proc., §§ 482.040, 484.020, & 484.030; Generale Bank Nederland, N.V. v. Eyes of the Beholder Ltd. (1998) 61 Cal.App.4th 1384, 1390.) The party seeking the attachment at all times bears the burden of proving the facts essential to support the attachment sought. (See Loeb & Loeb v. Beverly Glen Music, Inc. (1985) 166 Cal.App.3d 1110, 1115-1116.)
An attachment may be issued if the claim: (1) is a claim for money based upon a contract; (2) of a fixed or readily ascertainable amount not less than $500; (3) that is either unsecured or secured by personal property, not real property (including fixtures); and (4) that is a commercial claim. (Code Civ. Proc., § 483.010.) After considering the parties’ papers and hearing oral argument, the court may issue an RTAO if it finds: (1) the claim is based on contract; (2) the creditor’s claim is “probably valid”; (3) the attachment is not sought for any purpose other than securing the creditor’s claim; and (4) the amount to be secured by the attachment is greater than zero. (Code Civ. Proc., § 484.090.)
Attachment Order May Be Issued
Plaintiff has demonstrated that the requirements for issuance of a right to attach order are met here. The claim is based in contract, of a fixed or readily ascertainable amount of not less than $500, is secured by personal property, and the claim arises out of conduct of Defendant NBPRE’s trade, business, or profession. (Whitner Decl., Exhs. A & B, ¶ 1.)
Plaintiff has also shown that the claim is based on contract and the probability of success on the contract claim. Plaintiff submits evidence of the existence of the Note, (Whitner Decl. ¶ 3, Exh. A); Plaintiff’s performance in loaning $528,000 to Defendant NBPRE (id., at ¶ 2); NBPRE’s breach in failing to make the balloon payment that came due on 09/30/2017 (id., at ¶ 6); and damages resulting therefrom (id., at ¶ 7). (See Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811.)
Plaintiff argues that the purpose of the RTAO and writ of attachment is to secure Plaintiff’s claim and Defendant NBPRE does not assert otherwise. Finally, there is no dispute that the amount to be secured is greater than zero.
Standing
Defendant NBPRE argues that Plaintiff Lorenzo C. Whitner did not make the loan himself and that he has not shown he has standing to seek an RTAO or writ of attachment. However, Plaintiff brought suit in this case as the trustee of the Whitner Family Trust, (see ROA #2), and the Note was made between the Whitner Family Trust and Defendant NBPRE. Further, Plaintiff asserted under oath that he is the trustee of the Whitner Family Trust. (See Whitner Decl.,¶ 1.)
Discovery
In addition, Defendant NBPRE asserts that it has been prejudiced because Plaintiff has not produced “a single document in response to NBPRE’s discovery requests [and] [t]hose documents are overdue.” However, there is no requirement in the law that a defendant be given a full opportunity to conduct discovery prior to plaintiff seeking an RTAO and write of attachment. In fact, the Civil Procedure Code allows a plaintiff to file its application immediately after filing its complaint. In any case, this matter has been pending for more than a year and Defendant NBPRE has not filed any motions to compel discovery.
Novation
Defendant NBPRE also claims that there was a novation with respect to the Note that defeats Plaintiff’s claim.
“Novation is the substitution of a new obligation for an existing one.” (Civ. Code, § 1530.) Parties may achieve novation “[b]y the substitution of a new debtor in place of the old one, with intent to release the latter.” (Civ. Code, § 1531, subd. (2).) “Novation is made by contract, and is subject to all the rules concerning contracts in general.” (Civ. Code, § 1532.) “Essential to a novation is that it ‘clearly appear’ that the parties intended to extinguish rather than merely modify the original agreement.” (Howard v. County of Amador (1990) 220 Cal.App.3d 962, 977; see also 5 Witkin Cal. Pro. (5th ed. 2008) Pleading § 1094.) “The burden of proof is on the party asserting that a novation has been consummated.” (Howard v. County of Amador, supra, 220 Cal.App.3d at p. 977.)
Here, Defendant NBPRE asserts that since 2018, the loan obligation became Defendant Patrick Nelson’s primary obligation and responsibility. Defendant NBPRE then reasons that because Plaintiff understood that Defendant Patrick Nelson would be serving the loan, that this constituted a novation. Defendant NBPRE, however, provides no competent evidence of the new obligation. Defendant NBPRE cites the judgment confirming the arbitration award between the Defendant Patrick Nelson and his brother Brian Nelson (Case No. 2021-01197655), but that judgment does not mention the subject note or assign liability for the note to any specific party.
Interest Rates
Defendant NBPRE next argues that the 12% interest rate set forth in the Note violates California’s usury laws. However, Corporations Code section 25118(b) creates a statutory exemption to the usury laws for indebtedness aggregating or committing over $300,000. The so-called “sophisticated borrower” exemption applies here, as the original loan amount on the Note was $528,000. (fn.1)
Defendant NBPRE also asserts that the 15% interest rate for late payments constitutes an unenforceable penalty under Civil Code section 1671. That statute states: “Except as provided in subdivision (c), a provision in a contract liquidating the damages for the breach of the contract is valid unless the party seeking to invalidate the provision establishes that the provision was unreasonable under the circumstances existing at the time the contract was made.”)
Late charges, in and of themselves, are not improper. (Garrett v. Coast & Southern Fed. Savings & Loan Assn. (1973) 9 Cal.3d 731, 738; see also 1 Witkin, Summary 11th Contracts § 509 (2022).) As the California Supreme Court noted in Garrett v. Coast & Southern Fed. Savings & Loan Association, late charges serve a dual purpose: compensating the lender for the administrative expenses and cost of money wrongfully withheld, and encouraging the borrower to make timely future payments. (Garrett v. Coast & Southern Fed. Savings & Loan Association, supra, 9 Cal.3d at pp. 739-740.)
Nevertheless, “[i]f the sum extracted from the borrower is designed to exceed substantially the damages suffered by the lender, the provision for the additional sum, whatever its label, is an invalid attempt to impose a penalty inasmuch as its primary purpose is to compel prompt payment through the threat of imposition of charges bearing little or no relationship to the amount of the actual loss incurred by the lender.” (Id. at p. 740.)
Section 1671 places the burden of proving unreasonableness upon the party seeking to invalidate the provision – in this case, Defendant NBPRE. Here, Defendant NBPRE fails to present evidence of the damages that Plaintiff would suffer as a result of the default, such as the administrative expenses and cost of money wrongfully withheld.
Further, Defendant NBPRE treats the entire amount of interest at the rate of 15% as the liquidated damages when it is actually, the liquidated damages are the difference between the default interest rate of 15% and the normal interest rate of 12% -- in other words 3%.
Finally, Defendant NBPRE asserts, without explanation or evidence, that the amount of the liquidated damages is unreasonable and out of proportion to Plaintiff’s damages. Defendant NBPRE has not met its burden to show that the liquidated damages provision is unreasonable.
Attorney’s Fees and Costs
Plaintiff requests that the RTAO and writ of attachment secure additional amounts for estimated attorneys’ fees and costs. However, Plaintiff fails to show these fees and costs are recoverable. The Note includes no attorney’s fees provision. Although the Pledge Agreement includes a fees provision, Plaintiff does not explain how that provision of the Pledge Agreement applies to enforcement of the Note. The court exercises its discretion and declines to include attorney’s fees and costs in the amount to be secured.
The amount to be secured by the RTAO and writ of attachment is $648,120. (See Whitner Decl., ¶ 7; Code Civ. Proc., § 483.015.)
Plaintiff shall give notice of this ruling.
(fn.1) In any event, Plaintiff does not request any interest for the time period when the 12% interest rate applied (i.e., the six-month period before the Note became due). (See Whitner Decl. ¶ 7 [table calculating amount due under the Note not apply interest before October of 2017].)