Judge Peter Wilson, Case 2017-00941566 2023-08-24 Tentative Ruling

Judge: Peter Wilson, Case: 2017-00941566, Date: 2023-08-24 Tentative Ruling

Motion for Appointment of Limited-Purpose Receiver

Plaintiff / Judgment Creditor Gizmo Beverages, Inc. (Gizmo) seeks an order appointing a limited-purpose receiver to issue a stock certificate in the name of Defendant / Judgment Debtor Dong S. Park (Park) representing his 100% interest in Ramblewood Holdings, Ltd. (Ramblewood) and turn the certificate over to the Sheriff so it can be sold towards satisfaction of the outstanding judgment in this matter.

For the reasons set forth below, the Motion is GRANTED, on the terms set forth herein.

Gizmo contends that pursuant to Commercial Code § 8112(e), this Court has the authority to appoint a receiver for the limited purpose of ordering the issuance of a new certificate representing Park’s interest in Ramblewood and turn it over to the Sheriff in order for the Sheriff to sell Park’s interests and apply the proceeds to the Judgment.

Park and Ramblewood (collectively Defendants) contend the Court does not have the jurisdiction to appoint a receiver because the laws of the British Virgin Islands govern the issuance of Ramblewood’s stock and whether an adverse claim can be made on Park’s shares. ROA 1882, Opp., pp. 3-4. Defendants also argue that Park is not the only shareholder in Ramblewood and that there are other shareholders who would be adversely affected in the pending arbitration if Park loses his shares and control over Ramblewood’s prosecution of its claims in the pending arbitration. Defendants contend this would be an inequitable result since Gizmo is adverse to Ramblewood in the arbitration. ROA 1882, Opp., pp. 4-8, 10-11. Further, Defendants contend that based on Ho v. Hsieh (2010) 181 Cal.App.4^th 337, it is an abuse of discretion to turn Park’s shares over to Gizmo when there has not been any valuation demonstrating that Park’s shares in Ramblewood have any value.

Commercial Code § 8112 provides, in relevant part:

(b) The interest of a debtor in an uncertificated security may be reached by a creditor only by legal process upon the issuer at its chief executive office in the United States, except as otherwise provided in subdivision (d).

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(d) The interest of a debtor in a certificated security for which the certificate is in the possession of a secured party, or in an uncertificated security registered in the name of a secured party, or a security entitlement maintained in the name of a secured party, may be reached by a creditor by legal process upon the secured party.

(e) A creditor whose debtor is the owner of a certificated security, uncertificated security, or security entitlement is entitled to aid from a court of competent jurisdiction, by injunction or otherwise, in reaching the certificated security, uncertificated security, or security entitlement or in satisfying the claim by means allowed at law or in equity in regard to property that cannot readily be reached by other legal process. (Emphasis added.)

Thus, it appears that Gizmo is correct that Commercial Code § 8112 provides the Court with broad authority to reach uncertificated securities. (See also Ho v. Hsieh, supra, 181 Cal.App. at 345-346 [discussing how Section 8112 provides the court with power to reach security interests held under the Commercial Code].)

The Court disagrees that it has no jurisdiction to require issuance of the certificate. Commercial Code §§ 8102 and 8110 do not divest this Court of jurisdiction over Ramblewood. Ramblewood has clearly subjected itself to the jurisdiction of this Court as shown by its participation in the underlying lawsuit and the Judgment against it.

Commercial Code § 8110 merely identifies the law that should be applied when “an adverse claim can be asserted against a person to whom transfer of a certificated or uncertificated security is registered or a person who obtains control of an uncertificated security.” (Comm. Code §8110(a)(5), (d).) As pointed out by Gizmo, there is no pending “adverse claim” as that term is defined by Commercial Code § 8102(1). No one disputes that Park is the owner of certain shares in Ramblewood. But even if there was an “adverse claim”, Defendants have not presented any evidence or authority that under the laws of the British Virgin Islands, the Court cannot order the issuance of a certificate for Park’s shares in Ramblewood.

The Court is also not persuaded by Defendants’ other arguments. In Ho v. Hsieh, the court held that “the trial court abused its discretion by ordering the property transferred directly to Creditor without any reduction in the outstanding money judgment.” (181 Cal. App. 4th at 347.) Here, no such transfer will occur as the newly issued certificate would be delivered to the Sheriff, not Gizmo, and all proceeds from the contemplated sale by the Sheriff would indeed result in a reduction in the outstanding money judgment.

Gizmo contends Park is the only shareholder of Ramblewood but Defendants present evidence Park holds only 58% of the shares in Ramblewood and the other shareholders hold 42%.

While there is no dispute that there is no formal valuation of Ramblewood’s shares (ROA 1882, Park Decl., ¶18), it further appears that the only asset Ramblewood currently has is its claims against Gizmo in arbitration. ROA 1882, Park Decl., ¶¶15-17. Defendants themselves represent that those claims involve $1 million cash plus the value of 326,389 shares of Gizmo’s Class B common stocks (ROA 1882, Lu Decl., ¶5). Whatever value the certificate holds (representing 58% of the shares in Ramblewood) will be realized in the Sheriff's sale, and applied to the Judgment.

If the certificate fails to sell, which would be a clear indication that it has no realizable value, the Court hereby Orders that it be returned to Park.

Defendants’ further arguments concerning equities are both unavailing and speculative. Gizmo has a Judgment against Defendants which remains unpaid and under the circumstances presented here is entitled to attach and attempt to realize on such assets of Defendants as are susceptible to attachment, which include Park’s interest in Ramblewood.

Gizmo is ordered to file and serve a proposed order within three court days, and to give notice.

Motion To Hold Elavon, Inc. Liable for Levy

Judgment Creditor Gizmo Beverages, Inc. (Gizmo) seeks to hold Third Party Elavon, Inc. (Elavon) liable for failing to comply with the levy served on Elavon by Gizmo for money that Elavon owed to DP Textiles, Inc. aka D.P. Textile & Apparel, Inc. (DPT), pursuant to Code of Civil Procedure §§ 701.010, 701.020, and 701.050, and $2,650 in attorney fees and costs for Elavon’s failure to comply with the levy without good cause under Code of Civil Procedure § 701.020(c).

For the reasons set forth below, the Motion is GRANTED.

Elavon’s objections (ROA 1905) to new arguments and evidence in Gizmo’s Reply are SUSTAINED.

Code of Civil Procedure § 701.010 establishes the procedures for levying property in the possession or under control of third parties. It provides, in relevant part:

(a) Except as otherwise provided by statute, when a levy is made by service of a copy of the writ of execution and a notice of levy on a third person, the third person at the time of levy or promptly thereafter shall comply with this section.

(b) Unless the third person has good cause for failure or refusal to do so:

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(2) To the extent that the third person does not deny an obligation levied upon, or claim a priority over the judgment creditor's lien, the third person shall pay to the levying officer both of the following:

(A) The amount of the obligation levied upon that is due and payable to the judgment debtor at the time of levy.

(B) Amounts that become due and payable to the judgment debtor on the obligation levied upon during the period of the execution lien.

(3) If the third person makes a delivery or payment to the levying officer pursuant to this section, the third person shall execute and deliver any documents necessary to effect the transfer of the property.

(c) For the purposes of this section, “good cause” includes, but is not limited to, a showing that the third person did not know or have reason to know of the levy from all the facts and circumstances known to the third person.

Thus, where the levy is upon an “obligation” owing to the judgment debtor, the third party is required to pay to the levying officer amounts currently due at the time of the levy and subsequent amounts coming due and payable while the execution lien remains in effect.

Gizmo contends Elavon is DPT’s credit card processor and presents evidence it served a levy and subpoena on Elavon on or about March 9, 2023. ROA 1834, Zunshine Decl., ¶¶2-4, Ex. 1, POS of Writ of Execution and Levy, and Ex. 4, Subpoena [incorrectly identified as Ex. 3]. As such, Gizmo contends that Elavon is required to pay all money it collects for DPT between March 9, 2023 and February 27, 2025 pursuant to CCP §§ 697.710 and 701.010(b)(2)(B).

Elavon does not dispute this evidence but points out the documents served were not submitted with this Motion. ROA 1878, Opp., p. 3. However, Elavon does not dispute that the writ of execution and garnishee memorandum were served on it, along with the levy, as described in the proof of service. ROA 1834, Ex. 1. Nor does Elavon argue that the levy was invalid or not effective.

Instead, Elavon argues Gizmo has not demonstrated CCP § 701.010(b)(2)(B) applies because Gizmo has not presented evidence of any “obligation” owed by Elavon to pay DPT. Additionally, Elavon argues that if DPT did have some right to payment, the amount Elavon was required to submit was $0 because there was nothing due to DPT at the time the levy was served. Elavon disputes that it is required to pay any amounts becoming due and owing after the notice of levy was served because Gizmo has not proven a preexisting obligation.

Code of Civil Procedure § 701.030 requires the third person served with a notice of levy to return a Garnishee’s Memorandum, which must state under oath, among other things:

(1) A description of any property of the judgment debtor sought to be levied upon that is not delivered to the levying officer and the reason for not delivering the property.

(2) A description of any property of the judgment debtor not sought to be levied upon that is in the possession or under the control of the third person at the time of levy.

(3) A statement of the amount and terms of any obligation to the judgment debtor sought to be levied upon that is due and payable and is not paid to the levying officer, and the reason for not paying the obligation.

(4) A statement of the amount and terms of any obligation to the judgment debtor sought to be levied upon that is not due and payable at the time of levy.

(5) A statement of the amount and terms of any obligation to the judgment debtor at the time of levy not sought to be levied upon.

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(7) A statement that the garnishee holds neither any property nor any obligations in favor of the judgment debtor.

(Code Civ. Proc. § 701.030(b).)

Elavon returned the Garnishee’s Memorandum on or about April 5, 2023. ROA 1834, Zunshine Decl., ¶5 and Ex. 3 [incorrectly identified as Ex. 4]. Elavon did not check the box in the Garnishee’s Memorandum indicating it holds “neither any property nor any obligations in favor of the judgment debtor”. ROA 1834, Ex. 3, ¶3. Elevon indicated it was not delivering “property levied upon” and explained that it had placed on “hold” two accounts and a check for the funds held “at this point” was requested and would be sent. ROA 1834, Zunshine Decl., ¶4. Moreover, in response to the section requiring Elavon to “[d]escribe the amount and terms of any obligation owed to the judgment debtor that is levied upon but is not yet due and payable”, Elavon responded “future transaction proceeds, if any”. ROA 1834, Ex. 3, ¶7.

Moreover, Elavon did turn over $16,443.29 of proceeds collected and due to DPT after March 23, 2023. ROA 1834, Zunshine Decl., ¶7.

Given Elavon’s representations in the Garnishee’s Memorandum that it did have obligations levied on, Elavon’s arguments that Gizmo has not established Elavon owed any “obligations” are unpersuasive. Similarly, the Court disagrees with Elavon’s arguments that payment of funds to the Sheriff is not an admission of liability. ROA 1834, Opp., p. 9. When viewed with Elavaon’s representations in the Garnishee’s Memorandum, the payment of funds clearly demonstrates that Elavon acknowledged and understood it owed a continuing obligation to collect and pay funds to DPT from future transactions Elavon processed. There is no other reasonable interpretation for Elavon’s actions.

Further, Elavon confirms it has an obligation to pay funds, except for service fees, to DPT. Elavon explains that it provides payment processing services for credit and debit cards to merchants, such as DPT, and that DPT used its services. ROA 1880, Franklin Decl., ¶¶3-4. Elavon contends it is mere go-between the card issuer and DPT but it is obligated to pay the funds owed by the card issuer (on behalf of its customer) to DPT and for which Elavon is reimbursed by the card issuer. ROA 1880, Franklin Decl., ¶3.

When the levy is made on property owed to a judgment debtor of an account debtor, the duties are different. Code of Civil Procedure § 701.050 (duty of account debtor) is an exception to the general duty of a garnishee. (Code Civ. Proc. § 701.010, Law Revision Comm’n Comments.)

Code of Civil Procedure § 701.050 provides:

After service of a copy of the writ of execution and a notice of levy on an account debtor obligated on an account receivable, chattel paper, or general intangible:

(a) If the account debtor has been making payments or is required to make payments to the judgment debtor, the account debtor shall make payments to the levying officer as they become due unless otherwise directed by court order or by the levying officer. Payments made to the judgment debtor after the account debtor has received notice of the levy do not discharge the obligation of the account debtor to make payments as required by this subdivision.

Elavon argues that Code of Civil Procedure § 701.050 does not apply because it is not an “account debtor” as defined under Commercial Code § 9102. Commercial Code § 9102 defines “account debtor” as “a person obligated on an account, chattel paper, or general intangible”. (Com. Code § 9102(a)(3).) “Account” is defined as “a right to payment of a monetary obligation, whether or not earned by performance, … (vii) arising out of the use of a credit or charge card or information contained on or for use with the card, .... The term does not include … (vi) rights to payment for money or funds advanced or sold, other than rights arising out of the use of a credit or charge card or information contained on or for use with the card.” (Com. Code § 9102(a)(2).)

Based on the plain language of Commercial Code § 9102(a)(2), it appears Elavon is an account debtor since it has been and is required to make payments to DPT.

However, Elevon points to the Comments that state “[a]s used in the definition of ‘account,’ a right to payment ‘arising out of the use of a credit or charge card or information contained on or for use with the card’ is the right of a card issuer to payment from its cardholder. A credit-card or charge-card transaction may give rise to other rights to payments; however, those other rights do not ‘arise out of the use’ of the card or information contained on or for use with the card.” (Com. Code § 9102, Comment 5.a.)

But even if Elavon does not qualify as an “account debtor” based on the limitations in the Comments to Commercial Code § 9102(a)(2), this just means that the exception under Code of Civil Procedure § 701.050 to Code of Civil Procedure § 701.010 does not apply, and Elavon is subject to the general duties of a garnishee.

Accordingly, Gizmo is entitled to the $41,056.89 collected by Elavon and paid to DPT rather than to Gizmo from March 9 – 23, 2023.

Moreover, Elavon has not demonstrated “good cause” for its failure to comply with the levy. Elavon cannot meet the definition of “good cause” in Code of Civil Procedure § 701.010(c) because it is undisputed Elavon was aware of the levy. ROA 1834, Ex. 1, POS of Writ of Execution and Levy, and Ex. 3, Garnishee’s Memorandum [incorrectly identified as Ex. 4]. As such, pursuant to § 701.020 Gizmo is entitled to its attorney’s fees and costs in the amount of $2,650.

Gizmo is ordered to give file and serve a proposed order within 3 court days, and to give notice.