NEW ICON INC, A CALIFORNIA CORPORATION VS DANIEL KANG, ET AL.

Tentative Rulings

Case Number: *******5330 Hearing Date: November 15, 2022 Dept: 82

Plaintiff New Icon Inc. (“Plaintiff”) moves for writs of attachment against Defendants Joseph Choi, James Lee, and Daniel Kang (“Defendants”) in the amount of $11,760,000 for each defendant.

Judicial Notice

Defendants’ Request for Judicial Notice (“RJN”) Exhibits 1 and 2 – Granted.

Procedural History

On September 24, 2021, Plaintiff filed an unverified complaint against Defendants for avoidance and recovery of fraudulent transfer (actual intent); avoidance and recovery of fraudulent transfer (constructive fraud); and conspiracy to defraud creditors. Defendants filed answers to the complaint.

On December 17, 2021, the court (Judge Armen Tamzarian) found that the instant case is not related to Case No. 20STCP01397, in which Plaintiff successfully petitioned to confirm an arbitration award in the amount of $7,211,147.87 against Providence Industries, LLC (“Providence”).

On April 29, 2022, Plaintiff filed and served a first set of applications for writ of attachment. Defendants opposed the applications. Subsequently, Plaintiff requested to take the applications off calendar.

On August 26, 2022, the court (Judge Holly Fujie) granted Plaintiff’s unopposed motion for leave to amend complaint.

On September 19, 2022, Plaintiff filed an unverified first amended complaint against Defendants for avoidance and recovery of fraudulent transfer (actual intent); avoidance and recovery of fraudulent transfer (constructive fraud); and conspiracy to defraud creditors. Defendants have answered the FAC.

On October 12, 2022, Plaintiff filed the instant applications for writ of attachment. On November 7, 2022, Defendants filed and served an opposition brief, opposing evidence, notices of opposition, and claims of exemption on form AT-155. On November 10, 2022, Plaintiff filed and served a reply and supplemental declarations. Plaintiff has not filed a notice of opposition to the Defendants’ claims of exemptions.

The court notes Plaintiff filed a substantially over-sized reply memorandum without leave of court. Plaintiff’s counsel is admonished to comply with the California Rules of Court regarding page limits. (CRC 3.1113(d).)

Summary of Applicable Law

“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.” (CCP 484.010.)

The application shall be executed under oath and must include: (1) a statement showing that the attachment is sought to secure the recovery on a claim upon which an attachment may be issued; (2) a statement of the amount to be secured by the attachment; (3) a statement that the attachment is not sought for a purpose other than the recovery on the claim upon which the attachment is based; (4) a statement that the applicant has no information or belief that the claim is discharged or that the prosecution of the action is stayed in a proceeding under the Bankruptcy Act (11 U.S.C. section 101 et seq.); and (5) 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. (CCP 484.020.)

“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.” (CCP 484.030.)

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.

(4) The amount to be secured by the attachment is greater than zero.

CCP 484.090.

“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.” (CCP 481.190.) “In determining the probable validity of a claim where the defendant makes an appearance, 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.” (See Loeb & Loeb v. Beverly Glen Music, Inc. (1985) 166 Cal.App.3d 1110, 1120.)

“The Attachment Law statutes are subject to strict construction.” (Epstein v. Abrams (1997) 57 Cal.App.4th 1159, 1168.)

Analysis

1. May Plaintiff Obtain Pre-Judgment Attachment Based on Claims for Fraudulent Transfer?; and Has Plaintiff Satisfied the Requirements for Attachment?

Here, as discussed further below, Plaintiff does not seek attachment based on a contract claim against Defendants. While Plaintiff’s judgment against Providence is viewed as a contract for purposes of attachment, Plaintiff has no judgment against Defendants and does not seek in its motion to enforce a judgment against Defendants, including on an alter ego theory. Plaintiff’s claims against Defendants are solely for fraudulent transfer.

Plaintiff contends that “a plaintiff who suspects that ‘the defendant-debtor has fraudulently transferred assets in order to become judgment proof may also enforce its claim against the transferred property by way of a writ of attachment.’” (Mot. 13, citing Whitehouse v. Six Corporation (1995) 40 Cal.App.4th 527, 532 and Civil Code 3439.07(a)(2) and (b).) Defendants oppose this argument and contend that section 3439.07 does not provide an independent basis for attachment against them. (Oppo. 10 and fn. 6.) The parties raise an issue of statutory construction with respect to Civil Code section 3439.07(a)(2) and (b).

“The rules governing statutory construction are well settled. We begin with the fundamental premise that the objective of statutory interpretation is to ascertain and effectuate legislative intent. [Citations.] To determine legislative intent, we turn first to the words of the statute, giving them their usual and ordinary meaning. [Citations.] When the language of a statute is clear, we need go no further. However, when the language is susceptible of more than one reasonable interpretation, we look to a variety of extrinsic aids, including the ostensible objects to be achieved, the evils to be remedied, the legislative history, public policy, contemporaneous administrative construction, and the statutory scheme of which the statute is a part.” (Nolan v. City of Anaheim (2004) 33 Cal.4th 335, 340.) When interpreting a statute, the court must construe the statute, if possible to achieve harmony among its parts. (People v. Hall (1991) 1 Cal. 4th 266, 272; Legacy Group v. City of Wasco (2003) 106 Cal.App. 4^th 1305, 1313.)

Civil Code section 3439.07 is part of the Uniform Voidable Transactions Act (“UVTA”) and is titled “Remedies of Creditors.” The statute provides in relevant part:

(a) In an action for relief against a transfer or obligation under this chapter, a creditor, subject to the limitations in Section 3439.08, may obtain:

….[ ]

(2) An attachment or other provisional remedy against the asset transferred or other property of the transferee in accordance with the procedures described in Title 6.5 (commencing with Section 481.010) of Part 2 of the Code of Civil Procedure, or as may otherwise be available under applicable law.

….[ ]

(b) If a creditor has commenced an action on a claim against the debtor, the creditor may attach the asset transferred or other property of the transferee if the remedy of attachment is available in the action under applicable law and the property is subject to attachment in the hands of the transferee under applicable law. (bold italics added.)

As a preliminary matter, the parties cite no published case that has addressed the statutory question presented by the applications. In Whitehouse, supra, cited by Plaintiff, a creditor brought an action against a debtor (a corporation) seeking judicial foreclosure of three parcels of secured realty. The creditor obtained a pre-judgment writ of attachment against all of the debtor’s property, including the three real properties. Meanwhile, the debtor transferred its interest in the three real properties to its sole owner (Sammy Jo Reeder) and a subsidiary (jointly, the “appellants”), as evidenced by three separate deeds. The trial court entered judgment directing foreclosure of the three real properties. The appellants filed a third party claim of ownership pursuant to CCP section 720.110 et seq. The trial court denied the third party claim finding the appellants failed to meet their burden of proof. The Court of Appeal reversed, holding that when a creditor resists a third party claim by asserting the property has been fraudulently transferred to the third party, the creditor must prove this allegation by a preponderance of the evidence. The Court held that the trial court committed legal error by failing to shift the burden to the creditor on this issue. (Whitehouse, supra, 40 Cal.App.4th at 531-535.)

In its summary of applicable law, the Court of Appeal in Whitehouse stated that “[a] plaintiff who suspects that the defendant-debtor has fraudulently transferred assets in order to become judgment proof may also enforce its claim against the transferred property by way of a writ of attachment.” (Id. at 533, citing Civ. Code 3439.07(a)(2).) However, the Court did not address the issue presented here – which is whether a creditor may seek pre-judgment writ of attachment against transferees of allegedly fraudulently transferred assets based solely on a claim under the UVTA and when there is no underlying contract claim against the transferees. The Court was not required to address that issue because the pre-judgment attachment at issue was granted against the debtor’s property. The debtor was a party to the legal action and no one disputed that the claim against the debtor was based on a contract. The appellants sought to protect their interests in the three real properties by filing third party claims under section 720.110 et seq. The creditor had not sought to attach the appellants’ assets based solely on a claim for fraudulent transfer. “‘It is axiomatic that language in a judicial opinion is to be understood in accordance with the facts and issues before the court. An opinion is not authority for propositions not considered.’” (People v. Knoller (2007) 41 Cal.4th 139, 154-55.)

The other cases cited by the parties also provide no guidance here. Hasso v. Hapke (2014) 227 Cal.App.4th 107, cited by Plaintiff, discussed section 3439.07 only generally and did not analyze the scope of attachment relief that could be granted in a claim under the UVTA. (See Mot. 13-14.) Kalikas v. American Contractors Indemnity Company (2014) 2014 WL 278773 is not published and should not have been cited or relied upon by Defendants. (See Oppo. 10; see Cal. Rules of Court, Rule 8.1115.)

Turning to the statutory question as applied to this case, the court concludes that Plaintiff has not shown an independent basis for pre-judgment attachment against Defendants.

Civil Code section 3439.07(b) states that “if a creditor has commenced an action on a claim against the debtor, the creditor may attach the asset transferred or other property of the transferee if the remedy of attachment is available in the action under applicable law and the property is subject to attachment in the hands of the transferee under applicable law.” (bold italics added.)

The court interprets this statute to mean Plaintiff can only obtain pre-judgment attachment based on a claim of fraudulent transfer if that remedy would be available under the attachment statutes, i.e. “applicable law,” and if the property is subject to attachment “in the hands of the transferee,” i.e. Defendants, under the attachment law. Plaintiff develops no different statutory interpretation. (See Reply 10-11.) Thus, among other requirements, Plaintiff must comply with CCP section 483.010(a), which states: “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.”

Plaintiff contends that “the first requirement under Section 483.010 of a ‘contract’ claim” is satisfied because Plaintiff has a money judgment against non-party Providence Industries, LLC. (Mot. 13, citing Grotheer v. Meyer Rosenberg, Inc. (1936) 11 Cal.App.2d 268, 271-272; see Lee Decl. Exh. 10-11 [arbitration award and judgment against Providence].) This argument is not persuasive. While “an action based on a judgment is an action based on a contract” (Grotheer, supra at 272), the judgment was entered only against Providence. (Lee Decl. Exh. 11.) Plaintiff has no judgment against Defendants and does not seek to enforce a judgment in this case against Defendants. Unlike in Grotheer, Plaintiff does not seek, in the moving papers, to recover on the judgment against Defendants on the grounds they are alter egos of Providence. Plaintiff does not submit evidence to support an alter ego theory with the moving papers. The court concludes that the contract requirement of section 483.010 is not satisfied against Defendants in these circumstances.

Plaintiff also does not sufficiently address the requirement that its damages must be fixed and readily ascertainable from a standard set forth in a contract. “It is a well-recognized rule of law in this state that an attachment will lie upon a cause of action for damages for a breach of contract where the damages are readily ascertainable by reference to the contract and the basis of the computation of damages appears to be reasonable and definite. [Citations.] The fact that the damages are unliquidated is not determinative. [Citations.] But the contract sued on must furnish a standard by which the amount due may be clearly ascertained and there must exist a basis upon which the damages can be determined by proof.’ ” (See CIT Group/Equipment Financing, Inc. v. Super DVD, Inc. (2004) 115 Cal.App. 4th 537, 541.)

Plaintiff seeks attachment in connection with the $7.2-million judgment against Providence. However, Plaintiff does not seek attachment solely of the amount of the judgment, but rather $11,760,000 for each defendant for a total of $35,280,000. While Plaintiff may have a fixed and readily ascertainable contract claim against Providence for the $7.2-million judgment, Plaintiff develops no argument that it has a fixed and readily ascertainable contract claim against Defendants, individual persons, in the amount of $11,760,000 each.

In reply, Plaintiff makes new arguments to support the claim for attachment of $11,760,000 based on the supplemental declaration of Karl Schultze, including on the basis that “Providence Industries also owed significant unpaid amounts to other creditors of the company, including East West Bank and LuLaRoe.” (Reply 18.) “The salutary rule is that points raised in a reply brief for the first time will not be considered unless good cause is shown for the failure to present them before.” (Balboa Ins. Co. v. Aguirre (1983) 149 Cal.App.3d 1002, 1010.) Plaintiff does not show good cause to raise new arguments in reply. The court notes that this action has been pending since September 2021, and this is Plaintiff’s second application for writ of attachment. Also, the attachment statutes have very short briefing deadlines, with the reply filed just two court days before the hearing. Because these new arguments were improperly raised in reply, the court does not consider them for these applications.

In reply, Plaintiff also asserts, for the first time, that “Defendants were the ‘alter egos’ of Providence Industries when they looted the company in April 2018, the looting made the company insolvent shortly thereafter in July 2018.” (Reply 11, citing FAC 15-18.) Plaintiff also does not show good cause to make an alter ego argument in reply. The unverified FAC was filed in September 2022 and alleges a generic alter ego claim against Defendants. (FAC 7, 15.) If Plaintiff sought attachment based on those alter ego allegations, that claim should have been developed in the motion so that Defendants could respond. Plaintiff needed to submit evidence to support the elements of alter ego in the moving papers. Plaintiff did not do so. The court disregards this new reply argument.

Based on the foregoing, Plaintiff does not seek attachment against Defendants “based upon a contract, express or implied” as required by CCP section 483.010(a). For that reason alone, the applications must be denied in full. Furthermore, Plaintiff’s alleged damages greater than the $7,211,147.87 judgment are not fixed and readily ascertainable within the meaning of the attachment law.

2. Purpose and Amount of Attachment

Code of Civil Procedure section 484.090 states that the Court shall issue a right to attach order if “the attachment is not sought for a purpose other than the recovery on the claim upon which the attachment is based . . . [and] the amount to be secured by the attachment is greater than zero.”

Plaintiff declares that attachment is not sought for a purpose other than the recovery on Plaintiff’s claim. (Appl. 4.) The amount to be secured is greater than zero.

Defendants contend that Plaintiff seeks attachments for an improper purpose because Plaintiff seeks attachment of $35,280,000, almost five times the amount of the $7.2-milllion judgment against Providence. (Oppo. 13-14.) The court agrees in part. As discussed above, the judgment is not a contract against Defendants and, where no alter ego claim is made, does not support a contract claim against Defendants. However, even if Plaintiff had proven an alter ego or related contract theory against Defendants, Plaintiff would only have a contractual claim in the amount of the judgment. The amount of the judgment is fixed and undisputed. Despite that, the moving papers sought an attachment of $35,280,000, almost five times the amount of the judgment. By seeking attachment of substantially greater than the amount of the judgment, Plaintiff seeks attachment for a purpose other than the recovery on the claim upon which attachment is based. As noted above, Plaintiff makes new arguments in reply to support the claim for attachment of $11,760,000 against three defendants based on the supplemental declaration of Karl Schultze. (Reply 18.) Those reply arguments are procedurally improper, especially for an attachment proceeding with very short briefing deadlines, and are disregarded for that reason. (Balboa Ins. Co. v. Aguirre (1983) 149 Cal.App.3d 1002, 1010.)

The court finds that attachment is sought, in part, for a purpose other than the recovery on the claim upon which the attachment is based. For that additional reason, the applications are denied.

3. Reduction of Amount to be Secured

Defendants do not submit evidence of an attachable cross-claim or offset defense. (CCP 483.015(b).)

4. Subject Property

Plaintiff requests attachment against Defendants, natural persons, of items listed in CCP 487.010(c) and (d). (Application 9c and Attachment 9c.) That request is proper. (See Bank of America v. Salinas Nissan, Inc. (1989) 207 Cal. App. 3d 260, 267-268.) However, as Plaintiff acknowledges in reply, the proposed attachment is improper to the extent it is not worded in the manner provided by CCP sections 487.010(c) and (d), including the limitation on certain assets “arising out of the conduct by the defendant of a trade, business, or profession.” (See Reply 18-19.)

5. Exemptions

“If a defendant filing a notice of opposition desires to make any claim of exemption as provided in Section 484.070, the defendant may include that claim in the notice of opposition filed pursuant to this section.” (CCP 484.060(b).) A claim of exemption must describe the property to be exempted and specify the statute section supporting the claim. ( 484.070(c).) “The claim of exemption shall be accompanied by an affidavit supporting any factual issues raised by the claim and points and authorities supporting any legal issues raised.” ( 484.070(d).)

The plaintiff must oppose any claim of exemption filed by the defendant by filing a “notice of opposition” not less than two days before the hearing. (CCP 484.070(f).) “If the plaintiff does not file and serve a notice of opposition as provided in this subdivision, no writ of attachment shall be issued as to the property claimed to be exempt.” (Ibid.; see also Bank of America v. Salinas Nissan, Inc. (1989) 207 Cal.App.3d 260, 270.) If the plaintiff has timely filed a notice of opposition to Defendant’s claim of exemption, the burden is on Defendant to prove “that the property is exempt from attachment.” (CCP 484.070(g).)

“The Attachment Law statutes are subject to strict construction.” (Epstein v. Abrams (1997) 57 Cal.App.4th 1159, 1168.) The court notes that the attachment statutes provide for very short briefing deadlines, with the reply filed two court days before the hearing, which may partly explain the strict requirement for the plaintiff to file a notice of opposition to claims of exemption.

Here, on November 7, 2022, Defendants filed and served claims of exemption on form AT-155 asserting that all property sought for attachment is exempt under various statutory exemptions. Plaintiff has not filed a notice of opposition to the Defendants’ claims of exemptions. Nor has Plaintiff addressed Defendants’ various claims of exemption in the reply. Because Plaintiff has not properly opposed the claims of exemption, no writ of attachment shall be issued as to the property claimed to be exempt.” (CCP 484.070(f).)

6. Probably Validity of Plaintiff’s Claims for Fraudulent Transfer

The applications are based on Plaintiff’s causes of action for fraudulent transfer. Because Plaintiff has not satisfied the requirements of CCP section 483.010 for attachment against Defendants, and because there are other defects in Plaintiff’s application as discussed above, the court need not decide he probable validity of Plaintiff’s fraudulent transfer claim.

Conclusion

The applications are DENIED.

Case Number: *******5330 Hearing Date: August 26, 2022 Dept: 56

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES - CENTRAL DISTRICT

MOVING PARTY: Plaintiff

The Court has considered the moving papers. No opposition papers were filed. Any opposition papers were required to have been filed and served at least nine court days before the hearing under California Code of Civil Procedure section 1005, subdivision (b).[1]

BACKGROUND

On September 24, 2021, Plaintiff filed a complaint (the “Complaint”) alleging: (1) avoidance and recovery of fraudulent transfer (actual intent); (2) avoidance and recovery of fraudulent transfer (constructive fraud); and (3) conspiracy to defraud creditors. On July 28, 2022, Plaintiff filed a motion for leave (the “Motion”) to file a first amended complaint (the “FAC”).

The Motion is fully compliant with California Rules of Court, rule 3.1324. For this reason and because it is unopposed, the Court GRANTS the Motion with 5 days leave for Plaintiff to file the proposed FAC. (Sexton v. Superior Court (1997) 58 Cal.App.4th 1403, 1410.)

Moving party is ordered to give notice.

In consideration of the current COVID-19 pandemic situation, the Court strongly encourages that appearances on all proceedings, including this one, be made by LACourtConnect if the parties do not submit on the tentative. If you instead intend to make an appearance in person at Court on this matter, you must send an email by 2 p.m. on the last Court day before the scheduled date of the hearing to SMC_DEPT56@lacourt.org stating your intention to appear in person. The Court will then inform you by close of business that day of the time your hearing will be held. The time set for the hearing may be at any time during that scheduled hearing day, or it may be necessary to schedule the hearing for another date if the Court is unable to accommodate all personal appearances set on that date. This rule is necessary to ensure that adequate precautions can be taken for proper social distancing.

Parties who intend to submit on this tentative must send an email to the Court at SMC_DEPT56@lacourt.org as directed by the instructions provided on the court website at www.lacourt.org. If the department does not receive an email and there are no appearances at the

hearing, the motion will be placed off calendar.

Dated this 26th day of August 2022