HERBL Inc vs Central Coast Agriculture Inc et al

Case Number

22CV00077

Case Type

Hearing Date / Time

Fri, 12/15/2023 - 10:00

Nature of Proceedings

Right to Attach

Tentative Ruling

For the reasons set forth herein, the renewed application for right to attach order and for issuance of a writ of attachment of cross-complainant Central Coast Agriculture, Inc., is denied.

Background:

This dispute arises out of a distribution relationship between the parties for cannabis products.

On January 10, 2022, plaintiff HERBL, Inc. (HERBL) filed its original complaint against defendant Central Coast Agriculture, Inc., dba Raw Garden (CCA) asserting one cause of action for breach of contract.

On January 28, 2022, without any response having been filed to the original complaint, HERBL filed its first amended complaint (FAC) asserting 11 causes of action: (1) intentional misrepresentation; (2) negligent misrepresentation; (3) breach of contract; (4) breach of implied covenant of good faith and fair dealing; (5) express indemnity; (6) unfair business practices as to Raw Garden (UCL) (Bus. & Prof. Code, § 17200 et seq.); (7) intentional interference with contract; (8) intentional interference with prospective economic relations; (9) negligent interference with prospective economic relations; (10) aiding and abetting; and (11) UCL as to new defendant Nabione, Inc., dba Nabis (Nabione).

On March 7, 2022, Nabione filed its demurrer to the FAC. The demurrer was noticed for hearing on May 6.

Also on March 7, 2022, CCA filed its demurrer to the FAC, also noticed for hearing on May 6. CCA concurrently filed its verified cross-complaint (VCC) against HERBL asserting four causes of action: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3) account stated; and (4) open book account.

Additionally, on March 7, 2022, CCA filed an application for right to attach order and for issuance of writ of attachment (First Application).

On April 8, 2022, HERBL filed its verified answer to the VCC admitting and denying allegations therein and asserting 22 affirmative defenses.

On May 5, 2022, pursuant to the order of the court on the stipulation of the parties, HERBL filed its second amended complaint (SAC), asserting 12 causes of action: (1) intentional misrepresentation; (2) negligent misrepresentation; (3) breach of contract; (4) breach of implied covenant of good faith and fair dealing; (5) express indemnity; (6) unfair business practices as to Raw Garden (UCL) (Bus. & Prof. Code, § 17200 et seq.); (7) intentional interference with contract; (8) intentional interference with prospective economic relations; (9) negligent interference with prospective economic relations; (10) civil conspiracy to commit fraud; (11) aiding and abetting fraud; and (12) UCL as to Nabione. The filing of the SAC rendered the demurrers to the FAC moot.

On June 3, 2022, CCA and Nabione filed their answers to the SAC, generally denying the allegations thereof and asserting 20 and 18 affirmative defenses, respectively.

On August 12, 2022, the court denied the First Application, finding that CCA had not met its burden on the application.

On June 20, 2023, East West Bank filed an action in another department of the Santa Barbara Superior Court against HERBL, as East West Bank v. HERBL, Inc., case number 23CV02629 (Receivership Action). (CCA Request for Judicial Notice [CCA RJN], exhibit 22.) The Receivership Action asserted causes of action for breach of contract, appointment of receiver, and injunction in aid of receiver. (Ibid.) None of the parties have filed a notice of related case and these two cases remain independent of one another.

On June 28, 2023, the court in the Receivership Action entered its order (Receivership Order) approving the stipulation of those parties for appointment of a receiver, appointing Kevin Singer as Receiver, and issuing a preliminary injunction. (HERBL Request for Judicial Notice [HERBL RJN], exhibit A.)

On August 2, 2023, the court in the Receivership Action entered its order on Receiver Singer’s application to schedule an auction sale of assets of HERBL. (CCA RJN, exhibit 23; HERBL RJN, exhibit B.) No assets were ultimately sold at this auction, but the Receiver is still endeavoring to sell the HERBL assets. (Alsbrook decl., ¶ 5.)

On November 6, 2023, CCA filed its ex parte renewed application for right to attach order and for issuance of writ of attachment (Renewed Application).

On November 7, 2023, the court set the Renewed Application for hearing on December 1. On November 30, the court continued the hearing on the Renewed Application to this hearing date.

The Renewed Application is opposed by HERBL and its Receiver.

Analysis:

“Upon the filing of the complaint or at any time thereafter, the plaintiff may apply pursuant to this article for a right to attach order and a writ of attachment by filing an application for the order and writ with the court in which the action is brought.” (Code Civ. Proc., § 484.010.)

“[S]ection 484.100 does not preclude the court from entertaining a subsequent motion for a right to attach order, after a previous motion has been denied. It follows … that section 1008 may be resorted to in connection with applications to renew attachment motions. Nothing in the section precludes using it when attachments are involved and it should be read together with the attachment sections in interpreting legislative intent.” (Film Packages, Inc. v. Brandywine Film Productions, Ltd. (1987) 193 Cal.App.3d 824, 829.)

The court will consider the Renewed Application as a renewed motion.

“At the hearing, the court shall consider the showing made by the parties appearing and shall issue a right to attach order, which shall state the amount to be secured by the attachment determined by the court in accordance with Section 483.015 or 483.020, if it 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.

“(4)      The amount to be secured by the attachment is greater than zero.” (Code Civ. Proc., § 484.090, subd. (a).)

“Whether or not the defendant appears in opposition, the plaintiff has the burden of proving (1) that his claim is one upon which an attachment may be issued and (2) the probable validity of such claim.” (Cal. Law Revision Com. com., West’s Ann. Code Civ. Proc. (2022 ed.) foll. § 484.090; see also Loeb & Loeb v. Beverly Glen Music, Inc. (1985) 166 Cal.App.3d 1110, 1116.) “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.)

HERBL, by its Receiver, argues that the claim of CCA is not a claim upon which an attachment may be issued because of the receivership in the Receivership Action.

“The function of the receiver is to aid the court in preserving and managing the property involved in a particular lawsuit for the benefit of those to whom it can ultimately be determined to belong. [Citations.] A receiver is an officer of the court and is subject to the court’s continuing control; a receiver only has those powers granted to it by statute or an order of the court. [Citations.] The receiver, acting for the court, is not the agent of any party but acts for the benefit of all holding an interest in the receivership property.” (City of Sierra Madre v. SunTrust Mortgage, Inc. (2019) 32 Cal.App.5th 648, 656.) “A receiver has the power, with court authorization, to take possession of property, receive rents, collect debts, borrow money, and sell real or personal property in receivership pursuant to court order. [Citations.] The receiver acquires no title in the property but instead acts as an officer of the court, and title remains vested in those persons or entities in whom it was vested when the receiver was appointed.” (Id. at pp. 656-657.)

The order appointing Receiver Singer in the Receivership Action appointed Singer as receiver over HERBL and over all of the assets of HERBL. (Receivership Order, ¶ 1.) The Receivership Order also stayed actions to establish or to enforce claims:

“Except by leave of this Court, during the pendency of the receivership ordered herein, Defendant [HERBL] and all clients, vendors, and creditors of Defendant, and all others acting on behalf of such client, vendor, or creditor, including sheriffs, marshals, other officers, deputies, servants, agents, employees, and attorneys, aside from the Receiver, are hereby stayed from taking any action to establish or enforce any claim, right, or interest for, against, on behalf of, in, or in the name of, Defendant, any of their partnerships or entities, or the Receiver or the Receiver’s duly authorized agents acting in their capacities as such, including, but not limited to the following actions:

            “a.       Commencing, prosecuting, continuing, entering, or enforcing any suit or proceeding, except that such actions may be filed to toll any applicable statute of limitations.

            “b.       Accelerating the due date of any obligation or claimed obligation; filing or enforcing any lien; taking or attempting to take possession, custody, or control of any asset subject to the receivership; attempting to foreclose, forfeit, alter or terminate any interest in any asset, whether such acts are part of a judicial proceeding or are acts of self-help or otherwise.

            “c.        Executing, issuing, serving or causing the execution, issuance or service of, any legal process, including, but not limited to, attachments, garnishments, subpoenas, writs of replevin, writs of execution, or any other form of process whether specified in this order or not;

            “d.       Doing any act or thing whatsoever to interfere with Receiver taking custody, control, possession, or management of the receivership assets or documents, or to harass or interfere with Receiver in any way, or to interfere in any manner with the exclusive jurisdiction of this Court over Defendant’s business.” (Receivership Order, ¶ 14.)

“Attachment is an ancillary or provisional remedy to aid in the collection of a money demand by seizure of property in advance of trial and judgment.” (Rreef America Reit II Corp, YYYY v. Samsara Inc. (2023) 91 Cal.App.5th 609, 616–617, citations and internal quotation marks omitted.) “A levy on property under a writ of attachment creates an attachment lien on the property from the time of levy until the expiration of the time provided by Section 488.510.” (Code Civ. Proc., § 488.500, subd. (a).)

The property sought to be attached by this Renewed Application is any property of HERBL. (Application, ¶ 9a.) In reply, CCA argues that the stay order does not prohibit seeking a writ of attachment, instead only prohibiting levying on the writ. (Reply, at pp. 3-4.)

The interplay of receivership and provisional collection remedies is helpfully discussed in Robbins v. Bueno (1968) 262 Cal.App.2d 79 (Robbins). In Robbins, a wife filed for divorce against her husband, after having recorded a declaration of homestead on a residence the previous day. (Id. at p. 81.) The resulting divorce decree ordered husband to pay child support and alimony. (Ibid.) The residence was found to be the husband’s separate property but was awarded to the wife for life. (Ibid.) In lieu of a grant of specific community property, the wife was awarded a money judgment. (Ibid.) The husband, whose assets were largely outside of California, left the state and ignored the court’s orders. (Ibid.) The court appointed a receiver over all of the husband’s assets in California in an effort to satisfy the court’s orders. (Ibid.) After entry of the divorce decree, the husband confessed a money judgment in favor of his attorney. (Ibid.) The attorney sought to enforce the judgment against the residence. (Ibid.) The attorney also served garnishment by way of execution of this judgment on the receiver, who made a return that he had no funds belonging to the husband. (Ibid.) The wife then sued the attorney to enjoy further efforts to satisfy the judgment at the expense of the homestead or the receivership. (Id. at p. 82.) The trial court entered an order enjoining the attorney from serving any writs of execution or garnishment on the receiver without obtaining permission of the court and from selling the residence. (Ibid.)

On appeal in Robbins the attorney argued, among other things, that the judgment was a judicially created interest in the funds of the husband and that the property held in receivership was therefore subject to garnishment. (Robbins, supra, 262 Cal.App.2d at p. 82.) The Robbins court stated:

“Property in the custody of a receiver is generally not subject to garnishment or attachment without the court’s consent. [Citations.] Because the receiver is appointed by the court, he becomes an officer of the court; thus his custody is actually the custody of the court. [Citation.] But when there has been a final determination that a party has a right to a certain share of the funds held by a receiver, the receiver is subject to garnishment by a creditor of the party so entitled after the court has ordered the receiver to pay. [Citations.] [The attorney] attempts to bring himself within the [rule of Dunsmoor v. Furstenfeldt (1891) 88 Cal. 522]; but at the time of the attempted garnishment there was no debt owing to [the husband] by the receiver which could be subject to garnishment by [the husband’s] judgment creditor.

“If [the attorney’s] judgment had become a lien on [the husband’s] property prior to the lien of the financial provisions of the divorce decree, [the attorney] could not be denied satisfaction notwithstanding the fact that the property to be levied upon is in the custody of the court. [Citation.] … [I]n the present case the receivership would not protect assets against a judgment lien senior to the rights protected by the receivership established by the divorce decree. [Citation.] But [the attorney] obtained his judgment after the appointment of the receiver and after the receiver took possession of [the husband’s] assets. Thus the court was entitled to protect the priority of its judgment, as against the later judgment which [the husband] confessed to [the attorney], by preventing any interference by [the attorney] with any of [the husband’s] assets held by the receiver. This holding applies to [the husband’s] interest in the homestead property as well as to his other property in the receivership. That interest is an asset held in receivership, and it is not impossible for circumstances to arise in which the receiver may be able to sell that interest and apply the proceeds toward [the wife’s] unsatisfied judgment.” (Robbins, supra, 262 Cal.App.2d at pp. 84–85.)

Robbins has two immediate impacts here. First, Robbins explains that attachment is generally not available as a remedy for any property that is under receivership. Where, as here, no attachment lien had attached prior to the entry of the receivership order, the receivership property is not subject to attachment without the Receivership Action court’s consent. (See also Cal. U. Com. Code, §§ 9102, subd. (a)(52)(A)(iv) [defining “lien creditor” as including a receiver from the time of appointment], 9317, subd. (a)(2) [subordinating security interest of a third party to that of a lien creditor if prior to perfection of third party security interest].) Second, as Robbins explains, property under receivership is property under the control and direction of the court issuing the Receivership Order. In order to manage that property and to avoid interference with the receivership, it must be the Receivership Action court that determines whether an attachment is a proper remedy as against receivership property.

In addition to the rule of Robbins, the terms of the Receivership Order must be considered separately. The Receivership Order specifically stays a creditor of HERBL, like CCA here, from “taking any action to establish or enforce any claim, right, or interest … against” HERBL, including “prosecuting” or “continuing” “any suit or proceeding,” including this one, “[e]xcept by leave of this Court.” (Receivership Order, ¶¶ 14 & 14a.) The “this Court” refers, of course, to the Receivership Action court. So, while the Receivership Order does not preclude CCA from asking for permission to seek a writ of attachment, the Receivership Order plainly requires that permission to be sought from the Receivership Action court in the first instance as a form of relief from that court’s stay of all actions against HERBL. Whether this court should issue a writ of attachment that could affect priorities in rights to receivership property is a matter of concern intimately connected to the management of the receivership and the ultimate distribution of receivership property in satisfaction of creditors’ claims. It is practical as well as proper for those considerations to be weighed by the court managing the receivership in the first instance.

The court therefore concludes, in the absence of consent by the Receivership Action court, that the claim upon which the attachment is sought to be based is not one upon which an attachment may be issued. The Renewed Application will therefore be denied. This ruling is without prejudice to the filing of a further renewed application should the court in the Receivership Action provide its consent.