Judge: Thomas D. Long, Case: 21STCV38661, Date: 2022-08-18 Tentative Ruling

Case Number: 21STCV38661    Hearing Date: August 18, 2022    Dept: 48

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES - CENTRAL DISTRICT

On October 20, 2021, Plaintiff EBF Holdings, LLC filed this action against Defendants YNE Fabric Wholesale Inc. (“YNE”) and Steve Byunghoon Rhee.  On December 21, 2021, the Court entered default against YNE.  On December 30, 2021, Plaintiff filed a request for entry of default judgment against YNE, which the Court denied without prejudice on January 19, 2022.

On May 2, 2022, Plaintiff filed a motion for summary judgment, or in the alternative, summary adjudication.  Rhee did not file an opposition.

On July 25, 2022, Plaintiff filed another request for entry of default judgment against YNE and a request for a prove-up hearing.

FACTUAL BACKGROUND

On or about 2021, Plaintiff purchased Future Receipts from YNE in the sum of $75,000.00.  (Undisputed Material Facts “UMF” 1.)  In return for the Purchase Amount, Plaintiff paid YNE a Purchase Price of $50,000.00, and in consideration for the Purchase Price, YNE executed a series of documents, including a Payment Rights Purchase and Sale Agreement, an Agreement for Direct Deposits (ACH Credits) and Direct Collections (ACH Debits), an Addendum to Payment Rights Purchase and Sale Agreement, and Bank Login Information (collectively, the “Purchase Agreement”).  (UMF 1.)

The Purchase Agreement provides that the transaction in question was a purchase and sale of Future Receipts of Defendant Company, and it starts as follows: “Seller hereby sells, assigns and transfers to Purchaser, without recourse, upon payment of the Purchase Price, the Purchased Amount of Future Receipts by delivering to Purchaser the Specified Percentage of the proceeds of each future sale by Seller.  ‘Future Receipts’ includes all payments made by cash, check, ACH or other electronic transfer, credit card, debit card, bank card, charge card (each such card shall be referred to herein as a ‘Credit Card’) or other form of monetary payment in the ordinary course of Seller’s business.  BASED UPON SELLER’S CALCULATIONS AND EXPERIENCE IN OPERATING ITS BUSINESS, SELLER IS CONFIDENT THAT THE PURCHASE PRICE PAID BY PURCHASER IN EXCHANGE FOR THE PURCHASED AMOUNT OF FUTURE RECEIPTS WILL BE USED IN A MANNER THAT WILL BENEFIT SELLER’S CURRENT AND FUTURE BUSINESS OPERATIONS.”  (UMF 2.)  The Purchase Agreement also states that any misrepresentation made in connection with the agreement may constitute a cause of action for fraud, intentional misrepresentation, and/or unjust enrichment, and the Purchaser would ne entitled to costs, expenses, and reasonable legal fees.  (UMF 6.)

Events of default under the Purchase Agreement include: “(a) Seller intentionally interferes with EBF’s right to collect the Daily Payment in violation of this Agreement; (b) Seller violates any term or covenant in this Agreement; (c) Any representation or warranty by Seller in this Agreement proves to have been incorrect, false or misleading in any material respect when made; (d) Seller defaults under any of the terms, covenants and conditions of any other agreement with Purchaser . . . .”  (UMF 7.)

As part of the Purchase Agreement, YNE, through its authorized agent Rhee, represented in writing that its monthly average sales for YNE’s business were $87,832.27 and its annual sales were $1,053,987.20.  (UMF 3.)  Concurrently with execution of the Purchase Agreement, Rhee executed a Performance Guaranty.  (UMF 4.)

Plaintiff made its purchase of YNE’s Future Receipts on or about February 3, 2021, by remitting the Purchase Price to YNE in the sum of $50,000.00.  (UMF 5.)  According to the terms of the Purchase Agreement, Defendant Company authorized Plaintiff to debit from its bank account, by means of an automated clearing house (ACH) debit, 20% of YNE’s accounts-receivable (the “Specified Percentage”), by means of an online ACH debit, an initial fixed, agreed-upon amount from its bank account as a good faith approximation of the Specified Percentage (the “Initial Daily Installment”) until such time as the Purchase Amount of Future Receipts realized were remitted in full.  (UMF 5.)

On or about March 22, 2021, Plaintiff received stop-payment and non-sufficient funds (“NSF”) notifications from YNE’s Bank.  (UMF 5.)  Plaintiff has received a total of four NSF notifications.  (UMF 5.)  Plaintiff demanded repayment of money paid under the Purchase Agreement, but YNE has failed and refused to pay the sums due.  (UMF 8.)  The total balance owing is $56,790.00, which consists of a receivable balance of $56,400.00, plus three NSF fees of $140 ($35 x 4) and a UCC Fee of $250.00.  (UMF 10.)

Plaintiff has also demanded that the defendants deliver up possession and control of the Subject Collateral set forth in the Purchase Agreement, but they have refused to surrender possession.  (UMF 13.)

Plaintiff contends that YNE breached the Purchase Agreement when it prevented Plaintiff from debiting its account to make payments, and Rhee’s representations or warranties about YNE’s monthly and annual average sales proved to be incorrect, false, or misleading in a material respect.  (UMF 9.)

DISCUSSION

A plaintiff moving for summary adjudication must satisfy the initial burden of proof by proving each element of a cause of action.  (Code Civ. Proc., § 437c, subd. (p)(1).)  Then the burden shifts to the defendant to show that a triable issue of material fact exists as to the cause of action or a defense.  (Code Civ. Proc., § 437c, subd. (p)(2).)  To establish a triable issue of material fact, the party opposing the motion must produce “substantial responsive evidence.”  (Sangster v. Paetkau (1998) 68 Cal.App.4th 151, 162-163.)

Plaintiff’s motion contains no substantive argument, instead stating only, “Each of the elements of the Causes of Action against the Defendant Guarantor is established as set forth in Separate Statement and Declarations of Laura Jackson and Marshall Goldberg.”  (Motion at p. 8.)

Plaintiff notes that the Court sustained in part a demurrer to Rhee’s answer, and Rhee failed to provide discovery responses, so he has no defenses to the Complaint.  (Id. at pp. 8-9.)  This does not preclude the possibility of defenses at trial.  Moreover, in order to meet its burden of showing that there is no defense to a cause of action, Plaintiff must “prove[] each element of the cause of action entitling the party to judgment on the cause of action.”  (Code Civ. Proc., § 437c, subd. (p)(1).)

Plaintiff also incorrectly asserts, “The court has already granted a judgment in the sum of $66,739.80 plus fees and costs as against the Defendant Company.”  (Motion at p. 9.)  No such judgment has been entered.

A.        Second, Third Causes of Action – Fraud, Negligent Misrepresentation

The second cause of action alleges Rhee willfully and intentionally engaged in fraud and deceit by inducing Plaintiff to enter into the Purchase Agreement through representations that YNE would remit 20% of its daily accounts-receivable because the monthly average sales for YNE were $87,832.27 and its annual sales were $1,053,987.20.  (Complaint ¶ 20.)  The third cause of action alleges negligent misrepresentations and omissions based on the same facts.  (Complaint ¶ 26.)

“The essential elements of a count for intentional misrepresentation are (1) a misrepresentation, (2) knowledge of falsity, (3) intent to induce reliance, (4) actual and justifiable reliance, and (5) resulting damage.”  (Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 230-231.)  “The elements of negligent misrepresentation are (1) a misrepresentation of a past or existing material fact, (2) made without reasonable ground for believing it to be true, (3) made with the intent to induce another’s reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damage.”  (Ragland v. U.S. Bank National Assn. (2012) 209 Cal.App.4th 182, 196.)

Plaintiff provides no evidence of Rhee’s mental state regarding the falsity of any statement or omission, and no evidence of his intent to induce reliance.  Plaintiff’s evidence also does not show that YNE’s monthly average were not actually $87,832.27 and its annual sales were not actually $1,053,987.20.  Plaintiff has not met its initial moving burden of proving every element of the causes of action.

Summary adjudication of the second and third causes of action is denied.

B.        Fourth Cause of Action – Violation of UCL

The fourth cause of action alleges that the defendants’ unfair business practices, particularly YNE’s bank issuing stop-payment and NSF notifications, harmed Plaintiff.  (Complaint ¶¶ 34-36.)

California’s Unfair Competition Law (“UCL”) includes any unlawful, unfair, or fraudulent business act or practice and unfair, deceptive, untrue, or misleading advertising.  (Bus. & Prof. Code, § 17200.)  The UCL embraces “anything that can properly be called a business practice and that at the same time is forbidden by law.”  (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180.)  “By proscribing any unlawful business practice, section 17200 borrows violations of other laws and treats them as unlawful practices that the unfair competition law makes independently actionable.”  (Ibid.; see Klein v. Earth Elements, Inc. (1997) 59 Cal.App.4th 965, 969 [“Virtually any law can serve as the predicate for a section 17200 action.”].)

Plaintiff provides no evidence of Rhee’s involvement in the stop-payment and NSF notifications.  Plaintiff also does not identify or provide evidence of a law serving as the predicate for this cause of action.  To the extent that Plaintiff seeks liability imposed pursuant to the Personal Guaranty, Plaintiff provides no legal basis for that, and in any event, the cause of action for breach of guaranty fails as further discussed below.

Summary adjudication of the fourth cause of action is denied.

C.        Fifth, Sixth Causes of Action – Claim and Delivery, Breach of Guaranty

The sixth cause of action alleges that Rhee breached the Personal Guaranty because there has been a default under the Purchase Agreement, and he refuses to pay the $56,790.00 due.  (Complaint ¶ 42.)  The fifth cause of action seeks possession of the Subject Collateral, pursuant to Section 1.13 of the Purchase Agreement.  (Complaint ¶ 38.)

Through the Personal Guaranty of Performance, Rhee “agrees to irrevocably, absolutely and unconditionally guarantee to Purchaser prompt and complete performance of the following obligations of Seller (the ‘Guaranteed Obligations’): 5.1.1. Seller’s obligation to provide bank statements and other financial information that fairly represent the financial condition of Seller at such dates, within 5 business days after request from Purchaser; 5.1.2 Seller’s obligation to not change its Credit Card processor, add terminals, change its financial institution or bank account(s), use multiple bank accounts, or take any similar action that could have an adverse effect upon Seller’s obligations under this Agreement, without Purchaser’s prior written consent; 5.1.3 Seller’s obligation to not conduct Seller’s business under any name other than as disclosed to Processor and Purchaser; 5.1.4 Seller’s obligation to not change any of its places of business or the type of business without prior written consent by Purchaser; and 5.1.5 Seller’s obligation to not voluntarily sell, dispose, transfer or otherwise convey its business or substantially all business assets without (i) the express prior written consent of Purchaser, and (ii) the written agreement of any purchaser of transferee assuming all of Seller’s obligations under this Agreement pursuant to documentation satisfactory to Purchaser.”  (Jackson Decl., Ex. 1 at p. 9, § 5.1.)

The Personal Guaranty further provides, “In the event that Seller fails to perform any of the Guaranteed Obligations, Purchaser may recover from Guarantor for all of Purchaser’s losses and damages and all remedies specified in Section 3.2 of this Agreement by enforcement of Purchaser’s rights under this Performance Guaranty without first seeking to obtain payment from Seller or any other guarantor, or any other guaranty.”  (Jackson Decl., Ex. 1 at p. 9, § 5.1.)

Plaintiff does not allege breaches of the Guaranteed Obligations in Sections 5.1.2, 5.1.3, or 5.1.4.  To the extent Section 5.1.1 may be tangentially related, Plaintiff does not provide evidence that it requested bank statements and other financial information and that YNE failed to provide them, or that Plaintiff’s harm was caused by this.  Plaintiff also does not provide evidence that YNE sold, disposed of, or transferred its business assets, in violation of Section 5.1.5.  Instead, Plaintiff appears to base the breach on YNE’s alleged act of default through intentionally interfering with Plaintiff’s right to collect the Daily Payment and its false representations and warranties.  (See UMF 7, 9; see also Jackson Decl., Ex. 1 at pp. 6-7, § 3.1.)  This is outside the scope of Rhee’s Guaranteed Obligations.  The Personal Guaranty does not guarantee all of YNE’s acts and payments; rather, it specifically defines the Guaranteed Obligations.

Plaintiff has not shown that Rhee breached the defined Personal Guaranty (sixth cause of action).

For the same reasons, Plaintiff has not shown that Rhee is personally obligated to deliver possession of the Subject Collateral under Section 1.13 (fifth cause of action).

Summary adjudication of the fifth and sixth causes of action is denied.

CONCLUSION

The motion for summary judgment, or in the alternative summary adjudication, is DENIED.

REQUEST FOR ENTRY OF DEFAULT JUDGMENT

Plaintiff seeks a default judgment against YNE in the amount of $59,368.80, consisting of $56,790.00 in damages, $2,025.80 in attorney fees, and $553.00 in costs.  The proposed judgment also seeks possession of collateral (Jackson Decl. ¶ 18) and states: “Secured Party has purchased certain ‘Future Receipts’ from Debtor.  ‘Future Receipts’ means all payments made to Debtor by cash, check, ACH or other electronic transfer, credit card, debit card, bank card, charge card or other form of monetary payment in the ordinary course of Debtor’s business.  Debtor and Secured Party intend that the sale of Future Receipts is a sale and not an assignment for security.”

Plaintiff submits an application for a several judgment against YNE.  “In an action against several defendants, the Court may, in its discretion, render judgment against one or more of them, leaving the action to proceed against the others, whenever a several judgment is proper.”  (Code Civ. Proc., § 579.)

As the Court stated in its January 19, 2022 order, a separate judgment against YNE is not proper, and Plaintiff provides no reason why the result should be different now.  All of the causes of action against Rhee, who is not in default, are intertwined with the causes of action and facts alleged against YNE.  It is possible Rhee may have a defense that, if successful, would also be a defense to claims against YNE.

The request for entry of default judgment is DENIED WITHOUT PREJUDICE.  Entry of judgment will be proper when the claims against Rhee are resolved.

Moving party to give notice.

Parties who intend to submit on this tentative must send an email to the Court at SMCDEPT48@lacourt.org indicating intention to submit.  Parties intending to appear are encouraged to appear remotely and should be prepared to comply with Dept. 48’s new requirement that those attending court in person wear a surgical or N95 or KN95 mask.

         Dated this 18th day of August 2022