Judge Thomas Falls, Case 22PSCV00421 2023-01-23 Tentative Ruling

RE: OAKS BY THE LAKE, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY vs GSC HOLDING GROUP, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY, et al. (22PSCV00421)

(2) Plaintiff’s APPLICATION FOR RIGHT TO ATTACH ORDER AGAINST GSC HOLDING GROUP, LLC

(1) Plaintiff’s APPLICATION FOR RIGHT TO ATTACH ORDER AGAINST TERESA TSAI is GRANTED, but subject to modification regarding Defendant Tsai’s property [see discussion section].

(2) Plaintiff’s APPLICATION FOR RIGHT TO ATTACH ORDER AGAINST GSC HOLDING GROUP, LLC is GRANTED.

This case arises from a commercial lease agreement. Plaintiff Oaks by the Lake, LLC alleges the following against Defendants GSC Holding Group, LLC (“GSC”) and Teresa Tsai (“Tsai”): On October 23, 2017, the parties entered into a lease. On May 1, 2018, Defendants breached the contract by failing to pay rent. Defendants owe nearly 4 million dollars in unpaid rent.

On July 6, 2022, default was entered against Defendants. That same day, Defendants filed their Answer.

On October 26, 2022, Plaintiff filed the instant applications for writ of attachment.

On December 28, 2022, Plaintiff filed a Motion for Judgment on the Pleading as to Defendants’ Defectively-Pled Affirmative Defenses.

On January 9, 2023, Defendants filed their Opposition to the application for writ of attachment.

Plaintiff makes the application pursuant to Code of Civil Procedure (“CCP”) section 484.010.[1]

“Except as otherwise provided by statute, an attachment may be issued only in an action on a claim or claims for money, each of which is based upon a contract, express or implied, where the total amount of the claim or claims is a fixed or readily ascertainable amount not less than five hundred dollars ($500) exclusive of costs, interest, and attorney's fees.” (Code Civ. Proc., § 484.010.)

“The application [for a writ of attachment] shall be supported by an affidavit showing that the plaintiff on the facts presented would be entitled to a judgment on the claim upon which the attachment is based.” (Code Civ. Proc., § 484.030.) Statutory attachment procedures are purely creations of the legislature and as such “are subject to ‘strict construction.’” (Hobbs v. Weiss (1999) 73 Cal.App.4th 76, 79 [citing Vershbow v. Reiner (1991) 231 Cal.App.3d 879, 882]; see also Nakasone v. Randall (1982) 129 Cal.App.3d 757, 761.) A judge does not have authority to order any attachment that is not provided for by the attachment statutes. (Jordan-Lyon Productions, Ltd. v. Cineplex Odeon Corp. (1994) 29 Cal.App.4th 1459, 1466.) “The declarations in the moving papers must contain evidentiary facts, stated ‘with particularity,’ and based on actual personal knowledge with all documentary evidence properly identified and authenticated.” (Hobbs, supra, 73 Cal.App.4th at p. 79–80 [citing Code Civ. Proc., § 482.040].) “In contested applications, the court must consider the relative merits of the positions of the respective parties and make a determination of¿the probable outcome of the litigation.” (Hobbs, supra, 73 Cal.App.4th at p. 80.)

The Court shall issue a right to attach order if the Court finds all of the following:

1. The claim upon which the attachment is based is one upon which an attachment may be issued.

2. The plaintiff has established the probable validity of the claim upon which the attachment is based.

3. The attachment is not sought for a purpose other than the recovery on the claim upon which the attachment is based.

“A claim has ‘probable validity’ where it is more likely than not that the plaintiff will obtain a judgment against the defendant on that claim.” (Code Civ. Proc., § 481.190.) A claim of exemption must describe the property to be exempted and specify the statute section supporting the claim. (Code Civ. Proc., § 484.070, subd. (c).) The plaintiff has the burden of opposing the Defendant’s claim of exemption, and if the plaintiff fails to oppose a claim of exemption, “no right to attach order or writ of attachment shall be issued as to the property claimed to be exempted.” (Code Civ. Proc., § 484.070, subd. (f).) “In the discretion of the court, the amount to be secured by the attachment may include an estimated amount for costs and allowable attorney’s fees.” (Code Civ. Proc., § 482.110, subd. (b).)

Plaintiff moves for relief on the grounds that Defendants have breached their contractual obligations for years, causing nearly 5 million dollars in damages and rather than paying their obligations, Tsai has been transferring assets in to avoid her financial obligations to Plaintiff. (Motion p. 4.)

In Opposition, Defendants argue that Plaintiff has failed to sufficiently describe the property subject to attachment and cannot establish the probable validity of its claim.

As a prefatory matter—as Plaintiff has also filed a writ of attachment against an individual, Defendant Tsai, based on her role as a guarantor of the Lease, the court will address the issue of whether Plaintiff may assert a commercial claim against Tsai.

Plaintiff's claim against a natural person must arise out of the defendant's conduct of a trade, business or profession. (Code Civ. Proc., § 483.010, subd. (c).) What constitutes conduct of a “business” in its “broad sense embraces everything about which one can be employed; the word is often synonymous with calling, occupation, or trade engaged in for the purpose of obtaining a livelihood or profit or gain. [Citation] . . . . ‘Business' is defined to be that which occupies the time, attention, and labor of men for the purpose of livelihood or for profit. (citations). An occupation or employment will not be excluded from the classification of business merely because it actually results in loss instead of profit; but it is essential that livelihood or profit be at least one of the purposes for which the employment is pursued, in order to bring it within the accepted definition of the word.” (Long v. City of Anaheim (1967) 255 Cal.App.2d 191, 197) (emphasis added).

Here, the property was intended to be converted into an indoor cannabis cultivation manufacturing and distributing facility. Defendants sought and obtained the requisite licenses from the City of El monte to open its cannabis facility. (Motion pp. 6-7.) It is commonly known that producing and selling cannabis is a labor-intensive and undoubtedly lucrative business.

Therefore, as Tsai sought and obtained the licenses for cannabis cultivation, Plaintiff’s claim against Tsai arises out of Tsai’s conduct of a business.

Here, the court finds that Plaintiff meets the requirements of CCP section 483.010 because: (1) the obligation is based upon a claim for money (nearly 5 million dollars); (2) said five million dollars is an ascertainable amount of money as evidenced by schedule A of the Lease;[3] and (3) said Lease—a written commercial lease and written commercial guaranty—is a contract.[4]

In Opposition, Defendants do not refute that the statute’s three requirements are satisfied.

Therefore, Plaintiff has established that the present case is within the purview of CCP section 483.010 subdivision (a).)

Next, the court will address the property subject to attachment and whether such property is exempt.[5]

Attachable property consists of “property of the defendant,” classified in terms of three kinds of defendants: (a) corporations; (b) partnerships or other unincorporated associations; and (c) natural persons. (Code Civ. Proc., § 487.010.) Where the defendant is a corporation, “all corporate property for which a method of levy is provided” is attachable. (Id., subd. (a).) Amongst property of a natural person that is subject to attachment are interests in real property, securities, and money on the premises of the defendant’s business. (Id., subd. (c).) However, attachment may not issue on a claim against an individual for the lease to use the property if the individual used the property “primarily for personal, family, or household purposes.” (Code Civ. Proc., § 483.010, subd. (c).)

The property sought to be attached is “all property belonging to a corporation, including real estate assets, bank accounts, deposits, and similar such assets and property, and certain real property and limited liability company interests and vehicles, including membership interests in limited liability corporations belonging to the Guarantor.” (Motion p. 8.) As for the individual defendant Tsai, Plaintiff seeks to attach (i) membership interests in Hikari Property, LLC; (ii) Membership interests in GSC Holding Group, LLC; (iii) Membership interests in GSC Capital Group, LLC, and (iv) Ownership interests in 202 Red Cloud, Dr., Diamond Bar, CA 91765. (See Application p. 2, section 9.) Plaintiff does not seek to attach Tsai’s personal bank accounts which are used to support her family.

In Opposition, Defendant Tsai’s declaration requests the court exempt from any order her (1) personal residence where her minor child and her live; (2) income from GSC that is used to support her and her family; personal vehicle; and household furnishings.

Here, the court agrees with Tsai that certain property should be exempt. The property sought to be attached are not only generally used for personal, family, and household purposes, but used for basic living purposes. After all, one needs a home to live in; one needs a car for transportation (to work, school, etc); one needs an income to purchase necessary commodities (e.g., food); and one needs furniture to live decently.[6]

Therefore, the court determines that the corporation property sought to be attached is “attachable” not all the individual defendant Tsai’s property. The court requests that Plaintiff modify the proposed order.

In addition, the property to be attached (i.e., the types of property subject to attachment pursuant to CCP section 487.010 (supra) must be described. (Code Civ. Proc., § 484.020.) The governing CCP section provides the following:

A description of the property to be attached under the writ of attachment and a statement that the plaintiff is informed and believes that such property is subject to attachment. Where the defendant is a corporation, a reference to “all corporate property which is subject to attachment pursuant to subdivision (a) of Code of Civil Procedure Section 487.010 ” satisfies the requirements of this subdivision . . . . Where the defendant is a natural person, the description of the property shall be reasonably adequate to permit the defendant to identify the specific property sought to be attached.

In Opposition, Defendants argue that Plaintiff’s description does not sufficiently identify the property sought to be attached “and may include property exempt from attachment, such as ‘earnings’ as defined by [CCP] section 706.11.” (Opp. p. 7.)

Here, the court finds Defendants’ arguments unavailing. For one, as for the entity Defendant GSC, the statute itself allows for a general description. As for the individual defendant Tsai, an overly inclusive description in the attachment application does not invalidate it but see court’s modification above.[8]

Therefore, the court finds that Plaintiff has specifically described the property.

Plaintiff has the burden of proving the probable validity of its claim. A claim has “probable validity” where “it is more likely than not that the plaintiff will obtain a judgment against the defendant on that claim.” (Code Civ. Proc., § 481.190.) This means that a plaintiff must at least establish a prima facie case. If defendant opposes the application, “the court must consider the relative merits of the positions of the respective parties and make a determination of the probable outcome of the litigation.” (Loeb & Loeb v. Beverly Glen Music, Inc. (1985) 166 Cal.App.3d 1110, 1120.) This determination is solely within the discretion of the trial court and is not likely to be disturbed on appeal. (Id.)

On one hand, Plaintiff’s argument is seemingly ironclad: Defendants breached the lease agreement and owe millions of dollars.

But, on the other hand, Defendants advance a persuasive rebuttal: the property at issue “has been and continues to be severely contaminated and polluted.” (Opp. p. 2.) As explained by Defendants, the Los Angeles Regional Water Quality Control Board prepared a report that identified elevated concentrations of contaminants in the soil, soil vapor, and groundwater. In fact, the Board stated the site “need to be thoroughly investigated and cleaned.” (Opp. p. 2.) Yet, despite these hazardous substances, not only did Plaintiff fail to perform mandated environmental remediation and pay for cleanup, but Plaintiff failed to inform Defendants of the hazard. Accordingly, Defendants are entitled to abatement pursuant to Paragraph 9.6(a) of the Lease which states that the “Lessee is not responsible for under the lease, the Rent payable by Lessee for the period required for repair, remediation or restoration of such damage.” (Plaintiff’s Applications, Ex. 1.)

First, no where in the Opposition do Defendants argue that they paid for any portion of the Lease. Effectively, with an inherent concession that they did not perform, Defendants further bolster Plaintiff’s prima facie case for breach of contract.

Second, to the extent that Defendants rely on the hazardous conditions of the Property, this argument is also unavailing. For one, nowhere in the Opposition do Defendants assert that the Property was uninhabitable or unsuitable for use. Put differently, Defendants do not argue that they could not and did not at any time use the Property for marijuana cultivation. Of import, the Opposition also fails to mention any notification to Plaintiff of any hazardous substances when the Lease specifically requires that Defendants have a duty to inform the lessor. (Reply p. 7, Lease ¶6.2(b).) In fact, a review of Defendants’ Answer does not assert defenses for non-performance (such as frustration of purpose) nor did Defendants file a cross-complaint against Plaintiff for its alleged breach of contract. Effectively, this also bolsters Plaintiff’s prima facie case for breach of contract because Defendants are again tacitly conceding they used the property without upholding their end of the agreement (i.e., payment).

Third, even with hazardous conditions, Plaintiff explains that the as the Property “has a known history of being contaminated,” Paragraph 55 of the Lease expressly discloses the condition of the Property.[9] (Reply p. 3.) Moreover, not only does the Lease provide specific and extensive disclosures about the condition of the Property, but the Lease also has a provision wherein Defendants expressly agreed that they would conduct their own due diligence as to the Property’s suitability. (Reply p. 3.) Furthermore, not only does the Lease provide a list of contaminants, but Plaintiff provided all the environmental documents and reports to Defendants before they took possession, whereas Defendants’ opposition appears to argue that Plaintiff concealed or never provided such information until after signing the Lease.

All in all, Plaintiff has established a prima facie case for breach of contract: (1) contract (lease), (2) allegedly breached by Defendants (i.e., failure to pay), and (3) said breach of contract has caused over $4,875,027.00 million in damages. As such, the court declines Defendants’ s request that Plaintiff file an undertaking.

Lastly, Plaintiff seeks a TPO as it alleges that Defendants are dissipating their asserts before writs of attachment can be issued. While Defendants have not disputed such alleged conduct, the court finds Plaintiff have not provided evidence of this allegation, and evidence is required for injunctive relief. Moreover, Plaintiff is seeking two forms of relief (writ of attachment and injunctive relief) in one motion, which is generally improper as a motion addresses one form of relief.

Based on the foregoing, Plaintiff’s motion is GRANTED, but based on the aforementioned modification regarding Defendant Tsai’s property.

[1] All further statutory references are to the Code of Civil Procedure unless otherwise stated.

[2] Defendants ask the court take judicial notice of Exhibits A-G, which are letters/reports from pertinent water board organizations. The court declines to take judicial notice as none of the documents are authenticated or certified. Therefore, all of Plaintiff’s evidentiary objections are SUSTAINED.

[3] The damages “must be measurable by reference to the contract sued upon.” (CIT Group/Equipment Financing, Inc. v. Super DVD, Inc. (2004) 115 Cal.App.4th 537, 540.)

[4] A lease of real property constitutes a contract. (CIT Group/Equipment Financing, Inc, supra, 115 Cal.App.4th at p. 540 [“The term ‘contract’ as used in Code of Civil Procedure section 483.010, subdivision (a) has been interpreted to include leases of real or personal property.”].)

[5] A defendant bears the burden of proving that property is exempt from attachment. (Code Civ. Proc., § 484.070, subd. (g).)

[6] Plaintiff’s Reply does not address Defendant Tsai’s argument.

[7] Defendants’ opposition does not distinguish which property (i.e., as to corporation or individual defendant) is not adequately identified.

[8] See also Bank of America v. Salinas Nissan, Inc. (1989) 207 Cal.App.3d 260, 268 [“We do not understand [the requirement of specificity] to prohibit a plaintiff from targeting for attachment everything an individual defendant owns … [CCP § 484.020(e)] allows for the possibility that a plaintiff may want to make such a comprehensive attempt, possibly in order to provoke and resolve an individual defendant's exemption claims all at once.”].)

[9] Indeed, the provision states: Lessor is aware of ongoing remediation of soil contamination both around and beneath 4400 Temple City Blvd., and discloses to Lessee that the following contaminants may be in the soil, ground water, and soil vapor, on and around the property: 1,1,1-trichoroethan (1,1,1-TCA), toluene, methyl ethyl ketone (MEK), isopropyl alcohol, tetrachloroethene (PCE), and petroleum-based paints and thinners . . . LESSEE IS ADVISED THAT LESSEE HAS A DUTY TO INVESTIGATE AND SATISFY ITSELF AS TO THE ENVIRONMENTAL CONDITION OF THE PROPERTY PRIOR TO ENTERING INTO THIS LEASE AGREEMENT, AND ACKNOWLEDGES THAT IT HAS BEEN AFFORDED TIME AND OPPORTUNITY TO REVIEW EACH OF THE ENVIRONMENTAL DUE DILIGENCE MATERIALS SET FORTH HEREINBELOW.” (Reply p. 4, see also Nosic Decl) (emphasis original).