Textron Financial Corp. v. Spanish Springs II, LLC, 2022 WL 1296098 (C.D.Cal., April 6, 2022).

Opinion 2022 California Federal Unknown_Interest Opinion2022CaliforniaTextronFinancial



Textron Financial Corp. v. Spanish Springs II, LLC, 2022 WL 1296098 (C.D.Cal., April 6, 2022).

United States District Court, C.D. California.

TEXTRON FINANCIAL CORPORATION, Plaintiff,

v.

SPANISH SPRINGS II, LLC, et al., Defendants.

Spanish Springs II, LLC, et al., Counterclaimants,

v.

Textron Financial Corporation, Counter Defendant.

NO. CV 09-1205-JFW (KSx)

Signed 04/06/2022

Attorneys and Law Firms

Steven B. Sacks, Sheppard Mullin Richter and Hampton LLP, San Francisco, CA, for Plaintiff/Counter Defendant.

Justin P. Karczag, Karczag and Associates PC, Los Angeles, CA, Nathan T. Lowery, Levinson Arshonsky & Kurtz, LLP, Sherman Oaks, CA, Thomas Foley, Foley Bezek Behle and Curtis, Santa Barbara, CA, for Defendants/Counterclaimants.

AMENDED REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

KAREN L. STEVENSON, UNITED STATES MAGISTRATE JUDGE

  • 1 This AMENDED Report and Recommendation is submitted to the Honorable John F. Walter, United States District Judge, pursuant to the provisions of 28 U.S.C. § 636 and General Order No. 05-07 of the United States District Court for the Central District of California. The undersigned recommends that the Court GRANT the unopposed Motion for Order Charging Judgment Debtors' Interest in Limited Liability Companies with the payment of the sum of $1,151,413.90.

I. INTRODUCTION

On February 4, 2022, assignee judgment creditor, AKRO Real Estate Partners LLC, a California limited liability company (“Assignee Judgment Creditor”) filed a Notice of Motion and Motion for Order Charging Defendants/Judgment Debtors John E. King's and/or Carole King's (together “Judgment Debtors”) interests in limited liability companies with the payment of the sum of $1,151,413.90, representing the outstanding balance due on a judgment entered by the Court on January 19, 2010 and as modified on April 5, 2010 in favor of Plaintiff Textron Financial Corporation against Spanish Springs II, LLC and Judgment Debtors, as renewed by the Court Clerk on January 8, 2020. (Dkt. No. 157 [the “Motion”].) Assignee Judgment Creditor also filed a Declaration of Paul G. Metchik (“Metchik Decl.”) in support of the Motion. (Id.) Judgment Debtors filed no opposition to the Motion. On February 8, 2022, Assignee Judgment Creditor filed proofs of service confirming that on February 4, 2022, the Motion was served on Judgment Debtors John E. King (dkt. no. 158) and Carole King (dkt. no. 159).

On March 3, 2022, the Court found the Motion suitable for decision without oral argument and took the matter under submission. (Dkt. No. 160.) On March 4, 2022, the Honorable John F. Walter referred the Motion to the undersigned United States Magistrate Judge for a Report and Recommendation (“R&R”). (Dkt. Nos. 161, 162.)

The original R&R, filed on March 10, 2022, concluded that Assignee Judgement Creditor did not satisfy the California requirements for a charging order. (Dkt. No. 164 at 6-7.) Specifically, the R&R found that the evidentiary record did not sufficiently establish that Judgment Debtors John E. and Carole King own membership interests in the seven limited liability companies for which Assignee Judgement Creditor seeks the entry of a charging order. (Id.) The R&R also recommended that “Assignee Judgment Creditor be permitted to bring the motion again when it is supported by substantial evidence of Judgment Debtors' membership interests in the aforementioned entities.” (Id. at 9.)

On March 23, 2022, Assignee Judgement Creditor augmented the record with six proofs of service indicating that it had served an authorized agent of six of the seven LLCs at issue with copies of the instant Motion. (Dkt. Nos. 165-70.) None of those entities have entered an appearance or responded to the Motion.

On March 30, 2022, Assignee Judgment Creditor filed Objections to the R&R. (Dkt. No. 171.) The Objections included four exhibits, including a Limited Liability Company Certificate of Amendment discussed below. (Dkt. No. 171-4.)

  • 2 Because the augmented record alters the findings and conclusions in the original R&R, the undersigned Magistrate Judge issues this Amended R&R.

II. THE MOTION

A. Procedural Background

Plaintiff Textron Financial Corporation (“Plaintiff”) commenced this lawsuit on February 19, 2009 by filing a complaint against Defendants Spanish Springs, II, LLC, John E. King, and Carole King seeking: (a) judicial foreclosure of a deed of trust secured by real property and certain personal property located in San Luis Obispo, California; (b) foreclosure of security interest; and (c) remedy for guarantors' breach of guaranty as a result of Spanish Springs II, LLC's default under a loan agreement. (Dkt. No. 1; Metchik Decl. at ¶ 3.) On January 19, 2010, pursuant to an order granting summary judgment in favor of Plaintiff, the Court entered judgment against John E. King and Carole King in the amount of $4,286,125.34, plus interest from December 1, 2009 through the date of entry of judgment at the rate of $925.06 per day for a total additional amount of $45,327.94, as modified to include an award of attorneys' fees and costs in the amount of $321,620.94 by order of April 5, 2010, for a total judgment of $4,653,074.22 (the “Judgment”). (Motion at 4-5; Metchik Decl. at ¶ 3; and see Dkt. Nos. 111, 127.) On January 8, 2020, the Court Clerk renewed the Judgment in the total amount of $1,143,181.43. (Motion at 5; and see Dkt. No. 152.) Assignee Judgment Creditor represents that the total sum due as of January 28, 2022, including post-judgment interest, is now $1,151,413.90. (Metchik Decl. at ¶ 3.)

On or about January 11, 2016, Plaintiff assigned all of its legal and/or equitable rights, title, and interest in the Judgment and any proceeds thereof in favor of ORKA Real Estate Partners LLC, a California limited liability company, and its successors and assigns. (Motion at 5; Metchik Decl. at ¶ 4.) On or about June 5, 2020, ORKA Real Estate Partners LLC assigned all of its legal and/or equitable right, title, and interest in the Judgment and proceeds thereof in favor of Assignee Judgment Creditor. (Motion at 5; Metchik Decl. at ¶ 5.) Assignee Judgment Creditor represents that Defendants/Judgment Debtors John E. King and Carole King have made no efforts “to consensually satisfy the remainder of the Judgment.” (Motion at 5; Metchik Decl. at ¶ 6.)

B. Judgment Debtors' Limited Liability Interests

Paul Metchik represents in his declaration that on January 6, 2022, John E. King testified under oath that he and/or his wife and co-judgment debtor, Carole King, own interests in the following limited liability companies:

(1) HIGUERA BREW LLC, a California limited liability company [CA Entity No. 201510510377], 285 Bridge Street, San Luis Obispo, CA 93401;

(2) NIPOMO PROPERTIES LLC, a California limited liability company [CA Entity No. 201728610296], 285 Bridge Street, San Luis Obispo, CA 93401;

(3) OAK SHORES GROUP LLC, a California limited liability company [CA Entity No. 199929510018], 285 Bridge Street, San Luis Obispo, CA 93401;

  • 3 (4) SHAFFER LANE LLC, a California limited liability company [CA Entity No. 201728610292], 285 Bridge Street, San Luis Obispo, CA 93401;

(5) HUNTER RANCH GOLF COURSE LLC, a California limited liability company [CA Entity No. 201107310074], 285 Bridge Street, San Luis Obispo, CA 93401;

(6) SLO SOUTH HIGUERA, LLC, a California limited liability company [CA Entity No. 201519110036], 285 Bridge Street, San Luis Obispo, CA 93401; and

(7) SPANISH VINEYARDS LLC, a California limited liability company [CA Entity No. 201710310499], 285 Bridge Street, San Luis Obispo, CA 93401.

(Motion at 5-6; Metchik Decl. at ¶ 8.)

C. The Augmented Record

On March 23, 2022, after the Magistrate Judge filed the R&R, Assignee Judgment Creditor augmented the record. Specifically, Assignment Judgment Creditor lodged the following supplemental evidence: (1) a proof of service of the pending Motion on John G. King as agent for service of process for Higuera Brew LLC; (2) a proof of service of the pending Motion on John G. King as agent for service of process for Hunter Ranch Golf Course LLC; (3) a proof of service of the pending Motion on John G. King as agent for service of process for Nipomo Properties LLC; (4) a proof of service of the pending Motion on John G. King as agent for service of process for Shaffer Lane LLC; (5) a proof of service of the pending Motion on John G. King as agent for service of process for SLO South Higuera LLC; and a proof of service of the pending Motion on John G. King as agent for service of process for Spanish Vineyards LLC. (Dkt. Nos. 165-70.)

Further, Assignee Judgment Creditor included three exhibits with the Objections to the R&R: (1) an Order to Appear for Examination in the judgment debtor proceeding issued to John E. King; (2) a proof of service on John E. King as to the judgment debtor proceeding; (3) a Notice of Continuance of the judgment debtor examination; and (4) a Limited Liability Company Certificate of Amendment filed with the California's Secretary of State indicating that John E. King is a manager of Oak Shores Group LLC and the designated agent for service of process on Oak Shores Group LLC. (Dkt. Nos. 171-1 – 171-4.)

III. DISCUSSION

A. Applicable Legal Standards

Federal Rule of Civil Procedure 69(a)(1) provides that the enforcement of a money judgment, and “proceedings supplementary to and in aid of” such a judgment, “must accord with the procedure of the state where the court is located, but a federal statute governs to the extent it applies.” Fed. R. Civ. P. 69(a)(1).

As to the applicable California statutes, California Code of Civil Procedure section 708.310 provides that “[i]f a money judgment is rendered against a partner or member but not against the partnership or limited liability company,” it is permissible to apply “the judgment debtor's interest in the partnership or limited liability company ... toward the satisfaction of the judgment by an order charging the judgment debtor's interest pursuant to Section ... 17705.03 of the Corporations Code.” Cal. Civ. Proc. Code § 708.310 (West).

California Corporations Code § 17705.03 provides, in relevant part, that “[o]n application by a judgment creditor of a member or transferee, a court may enter a charging order against the transferable interest of the judgment debtor for the unsatisfied amount of the judgment.” Further, the statute provides that “[a] charging order constitutes a lien on a judgment debtor's transferable interest and requires the limited liability company to pay over to the person to which the charging order was issued any distribution that would otherwise be paid to the judgment debtor.” Cal. Corp. Code § 17705.03 (West).

B. Analysis

  • 4 Assignee Judgment Creditor maintains that pursuant to Federal Rule of Civil Procedure 69(a), the California Code of Civil Procedure, and the California Corporations Code, Judgment Debtors' interests in the subject limited liability companies should be charged with satisfying the Judgment. (Motion at 6-7.)

The docket indicates that Judgment Debtors were each served with copies of the pending Motion. (See Dkt. Nos. 157, 158.) Further, the record as augmented after the R&R was filed now indicates that Assigned Judgment Creditor served six of the subject LLCs with notice of the instant Motion via authorized agent (all except Oak Shores Group LLC). (Dkt. Nos. 165-70); see also Cal. Civ. Proc. Code § 416.40 (a summons may be served on an unincorporated association via “the person designated as agent for service of process in a statement filed with the Secretary of State or to the president or other head of the association, a vice president, a secretary or assistant secretary, a treasurer or assistant treasurer, a general manager, or a person authorized by the association to receive service of process.”).

However, the Motion is uncontested. Neither the Judgment Debtors nor any of the subject LLCs have made an appearance to dispute the Motion in this case. Consequently, as to those LLCs that have been served with notice: Higuera Brew LLC, Hunter Ranch Golf Course LLC, Nipomo Properties LLC, Shaffer Lane LLC, SLO South Higuera LLC, and Spanish Vineyards LLC, the Court deems the lack of opposition as acceptance of the Motion. See C.D. Cal. L.R. 7-12 (“The failure to file any required document, or the failure to file it within the deadline, may be deemed consent to the granting or denial of the motion.”); see also Express Working Capital, LLC v. Starving Students, Inc., No. CV 17-97-VAP (Ex), 2017 WL 10605963, at *2 (C.D. Cal. Mar. 1, 2017) (applying L.R. 7-12 to an uncontested motion for order charging membership interest in a LLC).

As to the remaining subject LLC, Oak Shores Group LLC, the Court must accord with the procedure of the state where the federal court is located, in this case, California. Fed. R. Civ. P. 69(a)(1). Therefore, the Court applies California Code of Civil Procedure section 708.310, and must determine whether “a money judgment [was] rendered against a partner or member but not against the partnership or limited liability company” itself. Here, Exhibit D to the Objections is a copy of a Limited Liability Company Certificate of Amendment filed with California's Secretary of State. The Certificate of Amendment indicates that John E. King is a manager of Oak Shores Group LLC, and the designated agent for service of process on Oak Shores Group LLC. (Dkt. Nos. 171-4.)

The Court finds this exhibit constitutes substantial evidence of Judgment Debtor John E. King's interest in Oak Shores Group LLC. See Textron Fin. Corp. v. Gallegos, No. CV 15-1678-LAB (DHB), 2015 WL 11658718, at *2 (S.D. Cal. Oct. 7, 2015) (citing Ribero v. Callaway, 87 Cal. App. 2d 135, 139 (1948)). Further, the Court finds that Oak Shores Group LLC is not a party to this action. Based upon the foregoing, the Court concludes that a money judgment was rendered against a member of Oak Shores Group LLC, but not against Oak Shores Group LLC, and that Judgment Debtor John E. King's interest in Oak Shores Group LLC may be applied toward the satisfaction of the judgment by an order charging Judgment Debtor John E. King's interest. Cal. Civ. Proc. Code § 708.310; Express Working Capital, LLC, 2017 WL 10605963, at *2.

IV. RECOMMENDATION

  • 5 For the foregoing reasons, IT IS RECOMMENDED that the District Judge issue an ORDER GRANTING Assignee Judgment Creditor's Motion for Order Charging the payment of the sum of $1,151,413.90 against Defendants/Judgment Debtors John E. King's and/or Carole King's interests in the following limited liability companies:

(1) HIGUERA BREW LLC, a California limited liability company [CA Entity No. 201510510377], 285 Bridge Street, San Luis Obispo, CA 93401;

(2) NIPOMO PROPERTIES LLC, a California limited liability company [CA Entity No. 201728610296], 285 Bridge Street, San Luis Obispo, CA 93401

(3) OAK SHORES GROUP LLC, a California limited liability company [CA Entity No. 199929510018], 285 Bridge Street, San Luis Obispo, CA 93401;

(4) SHAFFER LANE LLC, a California limited liability company [CA Entity No. 201728610292], 285 Bridge Street, San Luis Obispo, CA 93401;

(5) HUNTER RANCH GOLF COURSE LLC, a California limited liability company [CA Entity No. 201107310074], 285 Bridge Street, San Luis Obispo, CA 93401;

(6) SLO SOUTH HIGUERA, LLC, a California limited liability company [CA Entity No. 201519110036], 285 Bridge Street, San Luis Obispo, CA 93401; and

(7) SPANISH VINEYARDS LLC, a California limited liability company [CA Entity No. 201710310499], 285 Bridge Street, San Luis Obispo, CA 93401.

NOTICE

Reports and Recommendations are not appealable to the Court of Appeals, but may be subject to the right of any party to file objections as provided in the Local Rules Governing the Duties of Magistrate Judges and review by the District Judge whose initials appear in the docket number. No notice of appeal pursuant to the Federal Rules of Appellate Procedure should be filed until entry of the judgment of the District Court.