Judge Thomas D. Long, Case 21STCV38661 2022-11-28 Tentative Ruling

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.

At the August 18, 2022 hearing on the motion for summary judgment, the Court continued the hearing and allowed supplemental briefing regarding deemed admissions.

At the November 8, 2022 hearing, the Court again continued the hearing and allowed supplemental briefing.

In its August 29, 2022 supplemental briefing on the motion for summary judgment, Plaintiff relies on Rhee’s admissions. Plaintiff served requests for admission on Rhee, and he never responded. Plaintiff then moved to deem the RFAs admitted, and Rhee did not file an opposition. Therefore, on June 29, 2022, the Court granted the motion and deemed the RFAs admitted.

Where a party fails to timely respond to a request for admission, the propounding party may move for an order that the genuineness of any documents and the truth of any matters specified in the requests be deemed admitted. (Code Civ. Proc., § 2033.280, subd. (b).) “[A] deemed admitted order establishes, by judicial fiat, that a nonresponding party has responded to the requests by admitting the truth of all matters contained therein.” (Wilcox v. Birtwhistle (1999) 21 Cal.4th 973, 979.) “Any matter admitted in response to a request for admission is conclusively established against the party making the admission in the pending action.” (Code Civ. Proc., § 2033.410, subd. (a).) “As a general rule an admission is conclusive in the action as to the party making it. [Citations.] Absent leave of court to amend or withdraw the admission, no contradictory evidence may be introduced.” (Murillo v. Superior Court (2006) 143 Cal.App.4th 730, 736.) The trial court has the power “to determine the admissibility and relevance of evidence related to admitted facts. . . . The court must have discretion to admit evidence to elucidate and explain an admission, because the admission of a fact does not always reflect the party’s reasonable understanding of that fact.” (Fredericks v. Filbert Co. (1987) 189 Cal.App.3d 272, 278 (Fredericks).)

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 be 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 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.)

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. (Motion 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.

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’s motion 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.

Through his deemed admissions, Rhee admitted that he falsely represented in writing that YNE’s monthly average sales for its business was $87,832.27 and its annual sales were $1,053,987.20. (See Suppl. Brief at pp. 4-5.) He admitted that he intended to mislead EBF into purchasing YNE’s Future Receipts for $50,000.00, and EBF justifiably relied on the false representations about monthly average sales and annual sales. (See ibid.) As a result, Plaintiff entered into the Purchase Agreement and has been harmed by YNE’s subsequent breach of the agreement in the amount of $56,790.00. (Jackson Decl. ¶ 14.) Plaintiff has therefore proven all elements, satisfying its initial burden for these causes of action.

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.”].) The statute applies only to activities that “can properly be called a business practice,” meaning that it involves “ongoing wrongful conduct.” (Hewlett v. Squaw Valley Ski Corp. (1997) 54 Cal.App.4th 499, 519 (Hewlett).) “[T]he ‘practice’ requirement envisions something more than a single transaction, as in this case; it contemplates a ‘ “pattern’ . . . of conduct’ [citation], ‘on-going . . . conduct’ [citation], ‘a pattern of behavior’ [citation], or ‘a course of conduct.’ [Citation.]” (State of California ex rel. Van de Kamp v. Texaco, Inc. (1988) 46 Cal.3d 1147, 1169-1170.)

In the original motion, Plaintiff provides no evidence of Rhee’s involvement in the stop-payment and NSF notifications.

In its supplemental briefing, Plaintiff relies on Rhee’s admission that he intentionally caused an ACH block code against YNE’s bank account, preventing Plaintiff from debiting YNE’s account under the Purchase Agreement. (See Suppl. Brief at p. 5.) The failure to allow Plaintiff to collect accounts receivable payments under the Purchase Agreement was not due to a lack of collectible receivables or inability to pay under the Purchase Agreement. (See ibid.) Plaintiff has now shown Rhee’s involvement in stopping YNE’s payments to Plaintiff. “[L]iability can lie against an officer or director who either personally commits a tort or, relevant here, personally commits the alleged UCL act or was sufficiently responsible for the commission of that act through his personal direction or action that he may be held personally liable.” (In re JUUL Labs, Inc., Marketing, Sales Practices, and Products Liability Litigation (N.D. Cal. 2020) 497 F.Supp.3d 552, 635.)

Plaintiff received stop payment and NSF notifications on March 22, 2021, and it incurred a total of three or four NSF fees. (Complaint ¶¶ 12, 17; see Jackson Decl. ¶¶ 9, 14.) Three different events may be properly termed “business practices” for the purposes of the UCL. (Hewlett, supra, 54 Cal.App.4th at p. 520.)

Plaintiff has therefore met its burden of showing Rhee’s violation of the UCL.

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. With respect to Section 5.1.1, Plaintiff does not provide evidence that after the execution of the Purchase Agreement and Personal Guaranty, 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.

Through his deemed admissions, Rhee admitted that he was in breach of the Personal Guaranty. (Suppl. Brief at p. 4.) However, this deemed admission is contrary to the evidence and the language of the Personal Guaranty, so the Court finds it inadmissible to prove his breach. (See Fredericks, supra, 189 Cal.App.3d at p. 278.) Excluding this contrary and unsupported admission, 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).

In its August 29, 2022 supplemental briefing, Plaintiff withdraws the fifth cause of action. (Suppl. Brief at p. 5.) In its November 15, 2022 supplemental briefing, Plaintiff agrees to dismiss the sixth cause of action.

It is undisputed that 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.)

The motion for summary adjudication is GRANTED for the second, third, and fourth causes of action. The first cause of action is asserted only against thee defaulted defendant YNE.

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.)

The first cause of action for Breach of Payment Rights Purchase and Sale is brought against only YNE. The Court grants summary adjudication of the second (Fraud), third (Negligent Misrepresentations and Omissions), and fourth (Violation of UCL) causes of action, which are brought against both YNE and Rhee. The fifth and sixth causes of action are dismissed. All causes of action have now been adjudicated or dismissed.

The proposed judgment seeks to have the entire judgment entered against YNE. However, with the concurrently issued order granting summary adjudication, Plaintiff is also entitled to a judgment entered against Rhee. A several judgment is no longer proper, and Plaintiff cannot receive two judgments in the same amount against both defendants. Instead, a single joint and several judgment is appropriate.

Additionally, the requested judgment seeks possession of collateral, which appears to no longer be an available remedy upon dismissal of the fifth cause of action.

The request for entry of default judgment, submitted on July 25, 2022, is DENIED WITHOUT PREJUDICE.

Judgment is to be entered in favor of Plaintiff EBF Holdings, LLC and against Defendants YNE Fabric Wholesale Inc. and Steve Byunghoon Rhee, jointly and severally, for damages of $56,790.00.

Plaintiff is also awarded its costs via verified memorandum of costs and contractual attorney fees via noticed motion. (See Code Civ. Proc., §§ 1032, subd. (b), 1033.5.)

An Order to Show Cause Re: Dismissal for Failure to Submit Proposed Judgment is scheduled for 12/05/2022 at 08:30 AM in Department 48 at Stanley Mosk Courthouse (December 5, 2022).

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.

Hon. Thomas D. Long

Judge of the Superior Court