Global Assets Liens & Foreclosures LLC vs Gold Flora Partners LLC et al

Case Number

24CV03459

Case Type

Hearing Date / Time

Fri, 10/18/2024 - 10:00

Nature of Proceedings

Demurrer; (11) Right to Attach

Tentative Ruling

(1) For all reasons discussed herein, the demurrer of defendant Coastal Wellness, Inc., to plaintiff’s complaint is overruled. Defendant Coastal Wellness, Inc.,  shall file and serve its answer to plaintiff’s complaint on or before October 28, 2024.

(2) For all reasons discussed herein, the Court continues the hearing on plaintiff’s application for right to attach order and writ of attachment to December 13, 2024. On or before November 8, 2024, plaintiff shall file a proof of service of the application on defendants Coastal Wellness, Inc., and Coastal Wellness dba Coastal Cannabis as provided herein. Coastal Wellness, Inc., is authorized to file a supplemental opposition to the application of plaintiff for right to attach order and writ of attachment in accordance with this ruling. Any supplemental opposition to the application by Coastal Wellness, Inc., and any reply thereto, must be filed and served within the time set forth in Code of Civil Procedure section 1005, subdivision (b).

(3) Plaintiff shall give notice of the Court’s ruling herein.

Background:

On June 20, 2024, plaintiff Global Assets Liens & Foreclosures, LLC (Global Assets), filed a complaint against defendants Gold Flora Partners, LLC (Gold Flora LLC), Captain Kirk Services Inc. dba Airfield Supply Company (Captain Kirk), Coastal Wellness (Coastal Wellness), Coastal Wellness dba Coastal Cannabis (Coastal Cannabis), Coastal Retail Concord LLC dba Coastal California At Caliva (Coastal Concord), Coastal Dispensary LLC (Coastal Dispensary), Varda Inc. (Varda), Coastal Retail Lompoc, LLC dba Coastal Stockton (Coastal Lompoc), Releaf Alternatives, Inc. dba Coastal Vallejo (Releaf), NC3 Systems dba Deli by Caliva Bellflower (NC3 Bellflower), NC3 Systems dba Caliva San Jose (NC3 San Jose), NC4 Systems, Inc. dba Caliva Brisbane Delivery Service (NC4), NC6 Systems, Inc. dba Deli by Caliva Hanford (NC6), Caliva CamiSJ2 dba Deli By Caliva San Jose (Caliva San Jose), and Calma Weho, LLC (Weho) (collectively, defendants), alleging four causes of action: (1) breach of written contract; (2) account stated; (3) open account; and (4) goods sold and delivered. As alleged in the complaint:

Defendants are affiliated companies controlled and operated by mutual principals who each do business under the trade name “Gold Flora”. (Compl., ¶ 15.) Plaintiff is the assignee and owner of certain accounts receivable acquired through receivership proceedings in Santa Barbara Superior Court case number 23CV02629 entitled East West Bank v. Herbl, Inc. (the receivership action). (Id. at ¶ 20 & Exh. A.)

From late 2022 through mid-2023, the predecessor of Global Assets engaged in a series of business transactions with defendants related to the supply of wholesale cannabis products for retail sale to the public. (Compl., ¶ 24.) The dealings of Global Assets’ predecessor and defendants occurred pursuant to the terms and conditions of written customer onboarding instructions, credit applications, purchase orders, and invoices (collectively, the contract or contracts) exchanged between the predecessor and defendants. (Ibid.) Delivery of the cannabis products was affected in a timely manner to defendants at specified receiving addresses as stated on corresponding invoices. (Id. at ¶ 25.)

Defendants agreed to remit payment for the cannabis products within a specified date as indicated on each individual invoice. (Compl., ¶ 24.) A total balance of $350,606.47, representing unpaid invoices for the sale and delivery of various cannabis products to defendants, became due from defendants between December 2022 and July 2023. (Id. at ¶¶ 21, 29, 32 & 35.) Defendants have failed to pay the balance due for the unpaid invoices. (Id. at ¶¶ 22, 27, 30, 32-33 & 36.)

Court records reflect that on July 17 and 18, 2024, Global Assets separately filed fifteen notices and applications for a right to attach order and writ of attachment (collectively, the application or applications) directed to Gold Flora LLC, Captain Kirk, Coastal Wellness, Coastal Cannabis, Coastal Concord, Coastal Dispensary, Varda, Coastal Lompoc, Releaf, NC3 Bellflower, NC3 San Jose, NC4,, NC6, Caliva San Jose, and Weho. The applications are each supported by an omnibus memorandum.

On September 26, 2024, Coastal Wellness filed a general and special demurrer to the first through third causes of action alleged in the complaint on the grounds that Global Access lacks standing to pursue these causes of action and has failed to allege facts sufficient to state a cause of action, and to the fourth cause of action on the grounds that Global Assets has failed to state facts sufficient to constitute a cause of action. The demurrer of Coastal Wellness is opposed by Global Assets.

On October 11, 2024, Coastal Wellness filed notice of opposition to the application asserting that Global Assets failed to effectively serve or notify it of the hearing on the application. Coastal Wellness further opposes the application on the same grounds identified in the demurrer.

Also on October 11, 2024, Global Assets filed a notice in lieu of a reply brief asserting that defendants have not filed or served any opposition to the applications.

Analysis:

(1) The Demurrer of Coastal Wellness

In ruling on a demurrer, the court determines whether the complaint states a cause of action. (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125.) The pleading subject to demurrer is given a reasonable interpretation and is read as a whole, with all its parts in their context. (Ibid.) The demurrer assumes the truth of properly pleaded material allegations, but not of contentions, deductions, or conclusions of fact or law. (Ibid.) The court also accepts as true facts that may be inferred from those expressly alleged and facts appearing in exhibits attached to the complaint. (McMahon v. Craig (2009) 176 Cal.App.4th 1502, 1509; Mead v. Sanwa Bank California (1998) 61 Cal.App.4th 561, 567.) “If the complaint states a cause of action under any theory, regardless of the title under which the factual basis for relief is stated, that aspect of the complaint is good against a demurrer.” (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38.)

Timeliness of the demurrer:

In its opposition to the demurrer, Global Assets asserts that it served the complaint on Coastal Wellness on July 25, 2024. Because the demurrer was filed on September 25, 2024, two months after the date the complaint was served, Global Assets contends that the demurrer was untimely filed. For this reason, Global Assets argues that the Court should decline to consider the demurrer.

Coastal Wellness responds to Global Assets’ contention regarding the timeliness of the demurrer in its reply. In support of its reply to the opposition, Coastal Wellness submits a declaration of its counsel, Kelly M. Hayes (Hayes). In the Hayes reply declaration, Hayes does not dispute that Coastal Wellness was served with a copy of the complaint on July 25, 2024, or that a response to the complaint was due from Coastal Wellness no later than August 25, 2024. (Hayes Reply Decl., ¶ 3.) Hayes states that her office was retained by Coastal Wellness on August 23, 2024, at which time Hayes left a voicemail for Global Assets’ then counsel of record. (Id. at ¶¶ 4-6.) Hayes received a return call from Global Assets’ then counsel on August 26, 2024, stating that he was no longer representing Global Assets in this case. (Id. at ¶ 7.) On the same day, Hayes filed a declaration in support of an automatic 30-day extension of time to file a responsive pleading based on an inability by Coastal Wellness to meet and confer with Global Assets before filing the demurrer. (Id. at ¶ 8; see also Aug. 26, 2024, Declaration of Demurring Party.)

Hayes further declares that although the demurrer was filed and served on September 25, 2024, on September 26, 2024, Hayes received through One Legal, who is ostensibly Hayes’ efiling service provider, a message from the clerk of the Court notifying Hayes that the demurrer had been rejected due to an inadvertent error. (Hayes Reply Decl., ¶ 10 & Exh. 2.) On September 26, 2024, Hayes spoke with the clerk of the Court, remedied the error, and refiled the demurrer. (Id. at ¶ 11.)

Even if the Court were to assume without deciding that the demurrer was untimely filed, Global Assets offers no reasoned argument to show the manner in which it has, if at all, been prejudiced by any delay. (McAllister v. County of Monterey (2007) 147 Cal.App.4th 253, 282.) For example, there is no information or evidence to show that Global Assets took steps to enter the default of Coastal Wellness. Global Assets also has not moved to strike the demurrer. Furthermore, available information shows that any delay in filing the demurrer was inadvertent. Under the circumstances present here, there exists no absolute right to strike the demurrer based on any lack of timeliness. (See id. at pp. 281-282.) Therefore, the Court will exercise its discretion to consider the demurrer.

Extrinsic matters:

On demurrer, the court rules only on matters disclosed in the pleading at issue, and may not consider matters raised in a memorandum supporting the demurrer which are not otherwise pleaded. (Ion Equipment Corp. v. Nelson (1980) 110 Cal.App.3d 868, 881, superseded by statute on another ground as stated in Hart v. TWC Product and Technology LLC (N.D. Cal. 2021) 526 F.Supp.3d 592, 599.) The court is also precluded from weighing disputed facts on demurrer. (Executive Landscape Corp. v. San Vicente Country Villas IV Assn. (1983) 145 Cal.App.3d 496, 499-500.)

In support of the demurrer, Coastal Wellness relies on extrinsic matters which the Court may not consider. For example, Coastal Wellness contends that the allegation that it does business as “Gold Flora” is “blatantly false”, and that Coastal Wellness has never received any correspondence from Global Assets and has no record of doing business with Herbl, Inc. (Memo. at p. 9, ll. 3-10.) Coastal Wellness also raises issues regarding the legal effect of documents which comprise the contract alleged in the complaint that Coastal Wellness requested from, and that was provided by, counsel for Global Assets. (Id. at p. 9, ll. 11-21.) These examples are intended to be illustrative but not exhaustive. For present purposes, the Court does not consider extrinsic matters offered in the demurrer to determine the sufficiency of the complaint.

Validity of the assignment alleged in the complaint:

Coastal Wellness contends that Global Assets has failed to prove the existence of a lawful and valid assignment of the claims alleged in the complaint. Grounds for special demurrers include that “the complaint is uncertain in that the exhibits attached to the complaint are inconsistent with the allegations thereof.” (Bacon v. Wahrhaftig (1950) 97 Cal.App.2d 599, 603.)

Attached to the complaint as exhibit A is an “Order Authorizing and Confirming Sale of Receivership Personal Property” entered in the receivership action on January 10, 2024, (the Order), and in which the Court granted a motion of receiver Kevin Singer (Singer) for an order authorizing and confirming the sale of receivership personal property (the Receiver Motion). The Order authorized Singer to sell uncollected accounts receivable (the AR) held by Herbl Inc., and due from various cannabis dispensaries, for the amount of $600,000, pursuant to an Asset Purchase Agreement (the APA) dated November 9, 2023. (Compl., Exh. A at PDF p. 10, ¶ 2.) The Order further provides that the buyer of the AR “shall take all right, title, and interest to the AR, free and clear of liens, claims, interests, and encumbrances (collectively, the ‘Liens’), with any existing Liens attaching to the sale proceeds in the same order of priority, and with the same validity, force, and effect, that existed with respect to the AR immediately prior to consummation of the sale.” (Id. at PDF p. 11, ¶ 3.)

Exhibit A to the complaint also includes a document titled “Assignment of Assets under certain order: Order Authorizing and Confirming Sale of Receivership Personal Property” (the assignment). (Compl., Exh. A at PDF p. 16.) The assignment appears to expressly refer to the Order, and provides that Distro Accounts Receivable LLC (Distro) “grants, assigns, and transfers to [Global Assets] all asset [sic] acquired by [Distro] by certain [sic] dated January 10th, 2024, by case number 23CV02629, County of Santa Barbara, South County Division.” (Ibid.) The assignment is ostensibly signed by the managing member of Distro and by Robert Philips, who is identified as the Chief Executive Officer of Global Assets. (Ibid.)

In the demurrer, Coastal Wellness asserts that there exists no proof that Distro was authorized or permitted to assign its rights to Global Assets under the APA referenced in the Order, that the assignment complied with the APA, or that there exists any “actual” signatures on the assignment. Coastal Wellness further contends that the assignment does not identify the managing member of Distro by name, and was never filed or approved by the Court.

A demurrer admits the truth of all well pleaded material facts, including facts that may be implied or inferred from those expressly alleged, notwithstanding whether the allegations are improbable or  plaintiff can prove the allegations. (Milligan v. Golden Gate Bridge Highway & Transportation Dist. (2004) 120 Cal.App.4th 1, 5; Dino, Inc. v. Boreta Enterprises, Inc. (1964) 226 Cal.App.2d 336, 339; Landmark Screens, LLC v. Morgan, Lewis & Bockius, LLP (2010) 183 Cal.App.4th 238, 244.) Construing the complaint liberally (Picton v. Anderson Union High School Dist. (1996) 50 Cal.App.4th 726, 733), it can be reasonably inferred from the facts alleged by Global Assets, including facts appearing in the exhibits to the complaint, that the AR that is the subject of the Order was assigned to Global Assets under the assignment, which itself refers to the Order and the receivership action. There is no information appearing on the face of the complaint to show that the signatures on the assignment are not authentic, nor does Coastal Wellness offer any reasoned legal or factual argument to show why any assignment of the AR by its buyer required Court approval. In addition, for present purposes, the Court does not consider whether Global Assets can prove the assignment was valid. (Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1034.)

Furthermore, it can be inferred from the allegations described above that the causes of action alleged in the complaint arise from the AR that is the subject of the Order and that the AR was assigned to Global Assets. Therefore, and for all reasons discussed above, the Court will overrule the demurrer on the grounds that Global Assets has failed to prove a lawful or valid assignment.

Demurrer to the first cause of action:

Coastal Wellness contends that it is not clear from the allegations of the complaint whether the contract that is the subject of the first cause of action for breach of contract was oral or written, that Global Assets has failed to provide details of the contract “verbatim” and to attach a copy of the alleged contract, and has failed to allege the legal effect of any breach of contract as to Coastal Wellness. For these reasons, Coastal Wellness argues, Global Assets has failed to allege facts sufficient to state a cause of action for breach of contract.

“A breach of contract is ‘[t]he wrongful, i.e., the unjustified or unexcused, failure to perform’ the terms of a contract. [Citation.]” (Chen v. PayPal, Inc. (2021) 61 Cal.App.5th 559, 570.) “A cause of action for breach of contract requires pleading of a contract, plaintiff’s performance or excuse for failure to perform, defendant’s breach and damage to plaintiff resulting therefrom. [Citation.] A written contract may be pleaded either by its terms—set out verbatim in the complaint or a copy of the contract attached to the complaint and incorporated therein by reference—or by its legal effect. [Citation.]” (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1489.)

As further detailed above, the contract alleged in the complaint purportedly consists of individual invoices, credit applications, and purchase orders exchanged between the predecessor of Global Assets and defendants, including Coastal Wellness, which each include terms and conditions purportedly breached by defendants’ failure to pay amounts due for the delivery of cannabis products pursuant to the alleged contract. Global Assets further alleges that delivery of the cannabis products to defendants was affected in a timely manner and that the predecessor performed its obligations under the contract. (Compl., ¶¶ 24-26.) The allegations further detailed above also plead a failure by defendants to remit payment for the cannabis products as reflected in the invoices and other documents, and damages resulting from the alleged breach. Furthermore, the complaint alleges the specific amount due from each of the defendants, including Coastal Wellness, for the cannabis products allegedly delivered to defendants under the contract. (Id. at pp. 7-8 [Prayer].)

It can be reasonably inferred from the allegations described above that the contract or contracts at issue were written. “Where a complaint is based on a written contract which it sets out in full, a general demurrer to the complaint admits not only the contents of the instrument but also any pleaded meaning to which the instrument is reasonably susceptible. [Citation.] While plaintiff's interpretation of the contract ultimately may prove invalid, it [is] improper to resolve the issue against [the plaintiff] solely on [the plaintiff’s] own pleading. ‘In ruling on a demurrer, the likelihood that the pleader will be able to prove his allegations is not the question.’ [Citation.]” (Aragon-Haas v. Family Security Ins. Services, Inc. (1991) 231 Cal.App.3d 232, 239.)

Accepting as true the facts alleged in the complaint as further described above, and giving the complaint a reasonable interpretation, Global Assets has sufficiently alleged the existence of a contract between its predecessor and each of the defendants identified in the complaint with respect to the purchase, sale, and delivery of cannabis products by the predecessor to defendants, the performance of the contract by the predecessor including the delivery of the cannabis products to defendants, a breach of the purported contract arising from each defendants’ failure to remit payment for the cannabis products as required under the contract, and damages resulting from the purported breach. For reasons further discussed above, the complaint also includes allegations sufficient to plead an assignment of claims arising from the purported agreement to Global Assets.

As the allegations further discussed above are sufficient to allege a written contract between the predecessor of Global Assets and defendants, an assignment of rights under the contract to Global Assets, performance under the contract, and a breach of the contract by defendants based on defendants’ failure to pay amounts purportedly owed to the predecessor. For these reasons, Global Assets has alleged facts sufficient to state a cause of action for breach of contract. (Miles v. Deutsche Bank Nat’l Trust Co. (2015) 236 Cal.App.4th 394, 401-402.) Moreover, any ambiguities with respect to the purported contract or its breach “can be clarified under modern discovery procedures.” (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616.) Therefore, and for all reasons discussed above, the Court will overrule the demurrer to the first cause of action alleged in the complaint.

Demurrer to the second, third, and fourth causes of action:

As further described above, the second, third, and fourth causes of action allege common counts based on an account stated in writing, an open book account, and for goods sold and delivered.

The elements of the causes of action for an account stated and open book account are effectively similar though not identical. (See Leighton v. Forster (2017) 8 Cal.App.5th 467, 491 [essential elements of an account stated]; State Compensation Insurance Fund v. ReadyLink Healthcare, Inc. (2020) 50 Cal.App.5th 422, 449 [elements of a cause of action for open book account].) Generally, to state a claim for an account stated in writing or an open book account, Global Assets must plead “previous transactions between the parties establishing the relationship of debtor and creditor”; (2) an agreement between the parties, express or implied, on the amount due from the debtor to the creditor; [and] (3) a promise by the debtor, express or implied, to pay the amount due.” (Zinn v. Fred R. Bright Co. (1969) 271 Cal.App.2d 597, 600.) Similarly, to state a cause of action for goods sold and delivered, Global Assets must allege “ ‘(1) the statement of indebtedness in a certain sum, (2) the consideration, i.e., goods sold, work done, etc., and (3) nonpayment.’ [Citation.]” (Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 460.)

The same reasoning and analysis applies. For all reasons further discussed above, Global Assets has alleged facts sufficient to show previous transactions between its predecessor and defendants for the sale and delivery of cannabis products, as well as a contract with defendants, each defendants’ indebtedness in a sum certain including the specific amount purportedly owed by Coastal Wellness for the cannabis products purchased by and delivered to Coastal Wellness, and nonpayment by defendants. Global Assets has also sufficiently alleged the existence of the assignment giving rise to the claims alleged in the complaint. Therefore, and for all reasons further discussed above, the Court will overrule the demurrer of Coastal Wellness to the second, third, and fourth causes of action alleged in the complaint.

The reply of Coastal Wellness:

In its reply to Global Assets’ opposition to the demurrer, Coastal Wellness raises new arguments with respect to the purported filing of Global Assets’ Articles of Organization (the Articles) with the California Secretary of State on February 21, 2024, and the contents of the Receiver Motion to which a copy of the APA was attached, to support its contention that the assignment is invalid. (Reply at p. 5.) In the Hayes reply declaration, Hayes states that the Articles and Receiver Motion have been lodged with the Court as, respectively, exhibits 3 and 4. (Hayes Reply Decl., ¶¶ 12-13.)

The Court has no record of the lodging by Coastal Wellness of the Articles or the Receiver Motion with the reply. These documents are also not attached to the Court’s copy of the Hayes reply declaration. Further, the Court has no record of the filing of a request for judicial notice of either the Articles or the Receiver Motion by Coastal Wellness with the reply.

On October 16, 2024, the day prior to the hearing on the demurrer, Coastal Wellness filed and served a request for judicial notice of the Articles and the Receiver Motion. Coastal Wellness is required to file the request for judicial notice with the reply. (See, e.g., Cal. Rules of Court, rules 3.1112 & 3.1113(l); see also rule 3.1300 [setting forth time for filing and service of papers].) Furthermore, to the extent the recordation or filing of the Articles and the Receiver Motion are proper subjects of judicial notice, the truth of facts asserted in these documents and any specific interpretation of their meaning are not. (See Tenet Healthsystem Desert, Inc. v. Blue Cross of California (2016) 245 Cal.App.4th 821, 836; People v. Tolbert (1986) 176 Cal.App.3d 685, 690.)

In addition, though Coastal Wellness challenges the validity of the assignment in the demurrer, Coastal Wellness did not raise in its supporting memorandum points or issues regarding the date on which the Articles were filed, the date on which Global Assets became a legal entity, or the specific terms of the APA with respect to the assignment. As these points could have been but were not specifically raised in the demurrer, Global Assets has been deprived of any opportunity to fairly respond to these arguments. Therefore, the Court will not consider these points or evidence raised for the first time in reply. (Jay v. Mahaffey (2013) 218 Cal.App.4th 1522, 1537 [“new evidence is not permitted with reply papers”]; Reichardt v. Hoffman (1997) 52 Cal.App.4th 754, 764.)

Even if the Court were to consider the arguments made by Coastal Wellness for the first time in reply, they do not change the Court’s analysis. There are no allegations on the face of the complaint from which it can be inferred that Singer did not approve the assignment notwithstanding whether Singer’s approval does not appear on the assignment itself. For this reason, the question of whether or not Singer approved the assignment implicates extrinsic matters which the Court does not consider on demurrer. Similarly, nothing in the Order precludes the assignment of the AR by Distro to any other party. The information and evidence also shows that Global Assets was a legal entity at the time Distro signed the assignment. As further discussed above, the Court does not consider, at this stage of the proceedings, whether or not Global Assets can prove the claims alleged in the complaint.

(2) The Application

There exists a question regarding whether or not the application was served on Coastal Wellness. Court records reflect that on August 13, 2024, Global Assets filed thirteen proofs of service of the application and its supporting papers on the following defendants: (1) Gold Flora LLC; (2) Captain Kirk; (3) Coastal Dispensary; (4) Coastal Concord; (5) Varda; (6) NC3 Bellflower; (7) NC3 San Jose; (8) NC4; (9) NC6; (10) Coastal Lompoc; (11) Releaf; (12) Caliva San Jose; and (13) Weho. The Court has no record of the filing of proofs of service of the application on either Coastal Wellness or Coastal Cannabis.

As there exists no evidence or information to show that a copy of the application has been served on Coastal Wellness or Coastal Cannabis, the Court will continue the hearing on the application to permit Global Assets to effect proper service of the application on these parties. The Court will further order Global Assets to file proofs of service of the application on Coastal Wellness and Coastal Cannabis on or before November 8, 2024.

To the extent there exist additional deficiencies with respect to the service of the application on any of the additional defendants identified above, the Court expects that Global Assets will cure these deficiencies sufficiently prior to the continued hearing to permit the timely filing of any opposition to the application.

In addition, as the opposition of Coastal Wellness to the application is made solely on the grounds of lack of service and those asserted in the demurrer which the Court will overrule, and as Coastal Wellness has not been afforded a meaningful opportunity to otherwise respond to the application, the Court will permit the filing of a supplemental opposition to the application by Coastal Wellness. Any opposition to the application, and any reply that may be filed by Global Assets to that opposition, must be filed and served within the time frames set forth in Code of Civil Procedure section 1005, subdivision (b).