Judge Stephen I. Goorvitch, Case Number: 23STCV26135, Date: 2024-08-23 Tentative Ruling

Judge: Stephen I. Goorvitch, Case: 23STCV26135, Date: 2024-08-23 Tentative Ruling

[Tentative] Order Tentatively Approving Receiver’s Motion to Accept Credit Bid

On October 26, 2023, the court (Beckloff, J.) appointed Ryan Baker (the “Receiver”) as receiver over the real and personal property assets of Defendants THC Design, LLC; Project Indigo Devco, LLC; 1333 GRO, LLC; 3001 LA, LLC; NuGROW, LLC; 1512 LA, LLC; 1350 LA, LLC’ Project Indigo LLC; 1346 LA, LLC; and Ineffable Wares, LLC (collectively “THC Design” or “Defendants”). (See Baker Decl. ¶ 2.) The Receiver was then appointed by stipulation between Plaintiff THCD Altmore, LLC (“Plaintiff”) and Defendants. (See id. ¶ 4, Exh. A.) Now, the Receiver seeks authorization to accept Plaintiff’s credit bid of $___________ for certain receivership assets—including cannabis licenses—identified as follows:

a. 3001 LA, LLC’s Department of Cannabis Control (“DCC”) license no. CCL18-0003646 and Department of Cannabis Regulation (“DCR”) license no. LA-C-23-200042-ANN;

b. 1512 LA, LLC’s DCC license no. CCL18-0003645 and DCR license no. LA-C-23-200066-ANN; and

c. all operations and assets associated with 1512 LA, LLC and located at 1512 Calzona Street, Los Angeles, California 90023.

Section B.1 of the Receivership Order states that the Receiver “shall have the right, in his sole discretion, to: 1. Sell, lease, transfer, collect and convey the Receivership Property, and to execute any documents necessary to effectuate such sale, lease, transfer or conveyance.” (Baker Decl. Exh. A.) However, a sale of receivership property by the Receiver is not final until confirmed by this court. (Code Civ. Proc. §§ 568 and 568.5; see Cal-American Income Property Fund VII v. Brown Development Cor. (1982) 138 Cal.App.3d 268, 273-74 [CCP sections 568 and 568.5 “authorize the receiver to … [sell] real and personal property upon notice and subject to court confirmation”].)

A receiver may, pursuant to an order of the court, sell real or personal property in the receiver’s possession upon the notice and in the manner prescribed by Article 6 (commencing with Section 701.510) of Chapter 3 of Division 2 of Title 9. The sale is not final until confirmed by the court.

(Code Civ. Proc. § 568.5.) A receivership court is not strictly bound to the procedure set forth in section 568.5. “Code of Civil Procedure section 568 grants receivers the general power ‘to do such acts respecting the property as the Court may authorize.’ Read together, these provisions permit a court to tailor the method of sale of receivership property to the circumstances before it.” (County of Sonoma v. Quail (2020) 56 Cal.App.5th 657, 684.) The receivership court has broad discretion in determining the proper manner of sale of the property. (Lesser & Son v. Seymour (1950) 35 Cal.2d 494, 499 [“a court in an equity proceeding has the power to change the manner of sale of property in its custody by a receiver appointed by it from that previously prescribed by it in the order directing the sale”].)

The proof of service attached to the motion reflects that Receiver gave notice of the motion to counsel for Defendants and counsel for Plaintiff. The remaining issue is whether the Receiver gave adequate notice of the proposed sale of the Remaining Assets to other potential lienholders or creditors of Defendants. As noted, Code of Civil Procedure section 568.5 states:

(Code Civ. Proc. § 568.5.) Notice procedures for the sale of real property are set forth in section 701.540, et seq. While a court sitting in equity is not strictly required to follow such procedures, the court must consider the circumstances of the case in determining the appropriate method of sale, including the notice given. (County of Sonoma v. Quail (2020) 56 Cal.App.5th 657, 684.) Absent some reason to not give notice of the sale, it would appear notice generally should be given. (See Cal-American Income Property Fund VII, supra, 138 Cal.App.3d at 273-74 [CCP sections 568 and 568.5 “authorize the receiver to … [sell] real and personal property upon notice and subject to court confirmation”].)

In his declaration, the Receiver explains that he entered a brokerage agreement with Green Life Business Group (“GLBG”), a firm that specializes in selling cannabis licenses, to market and broker the sale of the Remaining Assets. (Receiver’s Decl. ¶ 9.) The sale was marketed for 30 days with a call for offers occurring on June 13, 2024. (Id. ¶ 10.) An ad was published on multiple platforms and two email blasts related to the sale were sent to GLBG’s contact list. (Id. ¶ 11.) As part of the sale process, the Receiver reviewed UCC-1 financial statements for claims or liens against the Remaining Assets. (Id. 13, Exh. B-D.) One entity, Hometown Heart, Inc., notified Receiver that it holds a position as a secured creditor. (Id. ¶ 14.) Based on his review of the UCC search reports, Receiver opines that “Hometown Heart may have a lien against certain limited pieces of equipment used at the operations of 1512 LA, LLC, which may be included as part of the Remaining Assets.” (Id. ¶ 14.)

It appears the marketing process conducted by the Receiver and GLBG provided notice, generally, of the proposed sale to some potential lienholders or creditors, including Hometown Heart. However, the Receiver did not give notice of this motion to these third parties. Therefore, the court will evaluate the offer but continue the hearing to provide notice to Hometown Heart and all potential lienholders/creditors.

The amount of the credit bid is unclear. According to the Receiver, the original credit bid was $7.5 million, which “far exceeded any bid that would likely come in from the market.” (Receiver’s Decl. ¶ 12.) Then, Plaintiff increased its credit bid to $14,575,000 “for accounting purposes.” (Ibid.) The Receiver states: “I believe that Plaintiff’s credit bid of $14,575,000 provides the highest value that can be achieved for the Remaining Assets.” (Ibid.) This suggests that the court would be approving a credit bid of $14,575,000. However, the proposed order seeks approval of a credit bid of $7.5 million. Therefore, the amount of the credit bid is unclear.[2]

Reaching the merits, the court finds that the credit bid is reasonable under the circumstances.

Judicial confirmation of a receiver’s sale rests upon the appointing court's sound discretion exercised in view of all the surrounding facts and circumstances and in the interest of fairness, justice and the rights of the respective parties. The proper exercise of discretion requires the court to consider all material facts and evidence and to apply legal principles essential to an informed, intelligent, and just decision.

(Cal-American Income Property Fund VII, supra, 138 Cal.App.3d at 274, citation omitted.)

In this case, Plaintiff is a secured creditor and has encumbered all receivership assets with its liens totaling in excess of $15 million. (Receiver’s Decl. ¶ 10.) Plaintiff initially submitted a credit bid of $7.5 million for the Remaining Assets, which was used as a “stalking horse bid” to maximize the value of the assets. (Id. ¶ 10.) “During the marketing process, only two groups expressed general interest about the listing. One was curious about the valuation for their own grow operation and the second claimed to have a security interest in the Remaining Assets.” (Id. ¶ 12.) No overbids were received by the Receiver. The Receiver opines that “the broad marketing effort and the two inquiries received demonstrate that the credit bid provided by Plaintiff THCD Altmore, LLC provides the highest value that can be achieved for the Remaining Assets.” (Ibid.) Based on this evidence and the marketing process conducted by Receiver and GLBG, the court is satisfied that the proposed acceptance of Plaintiff’s credit bid is reasonable, fair, and in the best interests of the receivership estate.

Because there are existing liens, Receiver recommends that Plaintiff would take the Remaining Assets subject to all liens existing on the assets as of August 25, 2021, when Plaintiff filed its UCC-1 statement. (Receiver’s Decl. ¶ 15.) The court agrees that this condition is reasonable.

1. The court tentatively grants the Receiver’s motion to approve the credit bid of $________ for the remaining receivership assets.

2. The court orders the Receiver to serve a copy of this order upon Hometown Heart and all potential lienholders/creditors on or before _______, 2024.

3. The court orders any objections to be filed on or before ________, 2024. The court provides notice that if no objections are received on or before the deadline, the court intends to adopt this tentative order approving the credit bid of $_______ for the remaining receivership assets.

5. Counsel for the Receiver shall provide notice and file proof of service with the court.

[1] In his declaration, Receiver summarizes the disposition of other receivership assets, which are not at issue for this motion. (Receiver’s Decl. ¶ 6.)

[2] The court assumes there is an error in the proposed order, and the actual credit bid is $14,575,000.