Case Number: BC702093    Hearing Date: June 21, 2018    Dept: 85

Mutual Trading, Co v. Hiroyuki Kodama, et al., BC 702093

Tentative decision on application for right to attach order: granted

Plaintiff Mutual Trading Co., Inc. (“MTC”) seeks a right to attach order in the amount of $1,215,701 against Defendant Hiroyuki Kodama (“Kodama”).

The court has read and considered the moving papers, opposition,[1] and reply, and renders the following tentative decision.

  1. Statement of the Case
  2. Complaint

Plaintiff MTC commenced this proceeding on April 13, 2018.  The operative pleading is the First Amended Complaint (“FAC”) filed May 3, 2018.  The FAC states causes of action for (1) breach of fiduciary duty, (2) constructive fraud, (3) conversion, (4) money had and received, (5) unjust enrichment, (6) unfair competition, and (7) civil theft.  The FAC alleges in pertinent part as follows.

MTC is a premier Japanese food, alcohol beverage, and restaurant supply specialist.  From 2010 until their terminations on February 15, 2018, Defendants Kodama and Steve Akune (“Akune”) were at-will employees of MTC.  Kodama served as MTC’s Chief Financial Officer (“CFO”) and Akune as MTC’s Accounting Manager.

In March 2010, Defendants opened and utilized an off the books and unauthorized bank account in the name of MTC at California Bank and Trust (“Unauthorized Account”).  From this point through the end of 2017, Defendants used the Unauthorized Account to divert funds from MTC without the company’s knowledge and for their own personal benefit.  Through these wrongful schemes, Defendants misappropriated at least $3,647,795.70 from MTC.

In February 2018, MTC discovered Defendants’ scheme.  MTC thereafter interviewed Defendants about the misconduct, and they admitted wrongdoing.  MTC demanded that Defendants return the misappropriated funds.  To date, they have failed to do so.

  1. Course of Proceedings

On May 11, 2018, the court granted MTC’s ex parte application for a temporary protective order (“TPO”) prohibiting Kodama from transferring any interest in real property located at 22741 Ironbark Drive, Diamond Bar, CA 91765 (“Ironbark Residence”).

On June 8, 2018, the court granted MTC’s and Kodama’s joint ex parte application for an order modifying the conditions of the TPO. The order allows Kodama to sell the Ironbark Residence so long as Kodama deposits the sale proceeds into an escrow account and the proceeds remains in that account until further court order or joint stipulation.

Proofs of service on file show that Kodama was served with the FAC and Summons by personal service on May 4, 2018 and with the moving papers and TPO by delivery on May 10, 2018.

  1. Applicable Law

Attachment is a prejudgment remedy providing for the seizure of one or more of the defendant’s assets to aid in the collection of a money demand pending the outcome of the trial of the action.  See Whitehouse v. Six Corporation, (1995) 40 Cal.App.4th 527, 533.  In 1972, and in a 1977 comprehensive revision, the Legislature enacted attachment legislation (CCP §481.010 et seq.) that meets the due process requirements set forth in Randone v. Appellate Department, (1971) 5 Cal.3d 536.  See Western Steel & Ship Repair v. RMI, (1986) 176 Cal.App.3d 1108, 1115.  As the attachment statutes are purely the creation of the Legislature, they are strictly construed. Vershbow v. Reiner, (1991) 231 Cal.App.3d 879, 882.

A writ of 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).  CCP §483.010(a).  A claim is “readily ascertainable” where the amount due may be clearly ascertained from the contract and calculated by evidence; the fact that damages are unliquidated is not determinative.  CIT Group/Equipment Financing, Inc. v. Super DVD, Inc., (2004) 115 Cal.App.4th 537, 540-41 (attachment appropriate for claim based on rent calculation for lease of commercial equipment).

All property within California of a corporation, association, or partnership is subject to attachment if there is a method of levy for the property.  CCP §487.010(a), (b).  While a trustee is a natural person, a trust is not.  Therefore, a trust’s property is subject to attachment on the same basis as a corporation or partnership.  Kadison, Pfaelzer, Woodard, Quinn & Rossi v. Wilsonsupra, 197 Cal.App.3d at 4.

The plaintiff may apply for a right to attach order by noticing a hearing for the order and serving the defendant with summons and complaint, notice of the application, and supporting papers any time after filing the complaint.  CCP §484.010.  Notice of the application must be given pursuant to CCP section 1005, sixteen court days before the hearing.  See ibid.

The notice of the application and the application may be made on Judicial Council forms (Optional Forms AT-105, 115).  The application must 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 §484.040.

 Where the defendant is a corporation, a general reference to “all corporate property which is subject to attachment pursuant to subdivision (a) of Code of Civil Procedure Section 487.010” is sufficient.  CCP §484.020(e).  Where the defendant is a partnership or other unincorporated association, a reference to “all property of the partnership or other unincorporated association which is subject to attachment pursuant to subdivision (b) of Code of Civil Procedure Section 487.010” is sufficient.  CCP §484.020(e).  A specific description of property is not required for corporations and partnerships as they generally have no exempt property.  Bank of America v. Salinas Nissan, Inc., (“Bank of America”) (1989) 207 Cal.App.3d 260, 268.

A defendant who opposes issuance of the order must file and serve a notice of opposition and supporting affidavit as required by CCP section 484.060 not later than five court days prior to the date set for hearing.  CCP §484.050(e).  The notice of opposition may be made on a Judicial Council form (Optional Form AT-155).

The plaintiff may file and serve a reply two court days prior to the date set for the hearing.  CCP §484.060(c).

At the hearing, the court determines whether the plaintiff should receive a right to attach order and whether any property which the plaintiff seeks to attach is exempt from attachment.  The defendant may appear at the hearing.  CCP §484.050(h).  The court generally will evaluate the attachment application based solely on the pleadings and supporting affidavits without taking additional evidence. Bank of Americasupra, 207 Cal.App.3d at 273. A verified complaint may be used in lieu of or in addition to an affidavit if it states evidentiary facts.  CCP §482.040.  The plaintiff has the burden of proof, and the court is not required to accept as true any affidavit even if it is undisputed.  See Bank of Americasupra, 207 Cal.App.3d at 271, 273.

The court may issue a right to attach order (Optional Form AT-120) if the plaintiff shows all of the following: (1) the claim on which the attachment is based is one on which an attachment may be issued (CCP §484.090(a)(1)); (2) the plaintiff has established the probable validity of the claim (CCP §484.090(a)(2)); (3) attachment is sought for no purpose other than the recovery on the subject claim (CCP §484.090(a)(3); and (4) the amount to be secured by the attachment is greater than zero (CCP §484.090(a)(4)).

A claim has “probable validity” where it is more likely than not that the plaintiff will recover on that claim.  CCP §481.190.  In determining this issue, the court must consider the relative merits of the positions of the respective parties.  Kemp Bros. Construction, Inc. v. Titan Electric Corp., (2007) 146 Cal.App.4th 1474, 1484.  The court does not determine whether the claim is actually valid; that determination will be made at trial and is not affected by the decision on the application for the order.  CCP §484.050(b).

The amount to be secured by the attachment is the sum of (1) the amount of the defendant’s indebtedness claimed by the plaintiff, and (2) any additional amount included by the court for estimate of costs and any allowable attorneys’ fees under CCP section 482.110. CCP §483.015(a); Goldstein v. Barak Construction, (2008) 164 Cal.App.4th 845, 852.  This amount must be reduced by the sum of (1) the amount of indebtedness that the defendant has in a money judgment against plaintiff, (2) the amount claimed in a cross-complaint or affirmative defense and shown would be subject to attachment against the plaintiff, and (3) the value of any security interest held by the plaintiff in the defendant’s property, together with the amount by which the acts of the plaintiff (or a prior holder of the security interest) have decreased that security interest’s value.  CCP §483.015(b).   A defendant claiming that the amount to be secured should be reduced because of a cross-claim or affirmative defense must make a prima facie showing that the claim would result in an attachment against the plaintiff.

Before the issuance of a writ of attachment, the plaintiff is required to file an undertaking to pay the defendant any amount the defendant may recover for any wrongful attachment by the plaintiff in the action.  CCP §489.210.  The undertaking ordinarily is $10,000. CCP §489.220.  If the defendant objects, the court may increase the amount of undertaking to the amount determined as the probable recovery for wrongful attachment.  CCP §489.220.  The court also has inherent authority to increase the amount of the undertaking sua sponte.  North Hollywood Marble Co. v. Superior Court, (1984) 157 Cal.App.3d 683, 691.

  1. Statement of Facts
  2. Plaintiff’s Evidence

MTC is a premier Japanese food, alcohol beverage, and restaurant supply specialist.  Ohata Decl. ¶3; Yamamoto Decl. ¶3.

From 2010 until their terminations on February 15, 2018, Defendants Kodama and Akune were at-will employees of MTC.  Ohata Decl. ¶4; Yamamoto Decl. ¶4.  Kodama served as MTC’s CFO and Akune as MTC’s Accounting Manager.  Id.

In March 2010, Defendants opened and utilized an off-the-books and unauthorized bank account in MTC’s name at California Bank and Trust.  Ohata Decl. ¶5; Yamamoto Decl. ¶5.    Defendants were the account’s only authorized signers.  Id.  Through the end of 2017, Defendants used the Unauthorized Account to divert funds from MTC by depositing rebate checks from MTC’s customers into the account without MTC’s knowledge.  Ohata Decl. ¶6; Yamamoto Decl. ¶6.  Defendants then diverted the funds from the Unauthorized Account for their own personal benefit through various schemes, such as writing checks to themselves.  Ohata Decl. ¶7; Yamamoto Decl. ¶7.  Kodama misappropriated at least $1,215,701 from the Unauthorized Account by causing checks to be issued to himself as the stated payee.  Ohata Decl. ¶8, Ex. A; Yamamoto Decl. ¶8.

In February 2018, MTC discovered the scheme.  Ohata Decl. ¶10; Yamamoto Decl. ¶9.  On February 14, 2018, MTC representativesinterviewed Defendants about their misconduct.  Ohata Decl. ¶13; Yamamoto Decl. ¶10.  MTC representatives confronted Defendants with copies of the Unauthorized Account statements and checks.  Id.  Defendants admitted that their signatures were on the checks and that they had misappropriated MTC’s funds.  Id.  Kodama admitted that he received funds in the amount of $1,215,701 from the Unauthorized Account.  Ohata Decl. ¶14; Yamamoto Decl. ¶11.

On April 6, 2018, MTC’s counsel sent Kodama a written demand to return the misappropriated funds.  Wallerstein Decl. ¶5, Ex. 2.  As of May 10, 2018, Kodama has failed to comply with this demand and to return any of the misappropriated funds to MTC.  Ohata Decl. ¶15; Wallerstein ¶6

  1. Defendant’s Evidence

Kodama’s only residence is the Ironbark Residence.  Kodama Decl. ¶2.  Kodama lives there with his wife.  Id.  Kodama and his wife own the residence in joint tenancy.  Id.  Maintaining this property is necessary for the support of Kodama and his family members. Kodama Decl. ¶4.

  1. Analysis

MTC seeks a right to attach order against Kodama in the amount of $1,215,701.  Kodama opposes only on the issue of whether the Ironbark Residence, which is his personal residence, is a proper subject of attachment.

MTC’s claim is based on an implied-in-law contract between MTC and Kodama.  See CCP §483.010(a); Klein v. Benaron, (“Klein”) (1967) 247 Cal.App.2d 607, 609.  The theory underlying the implied-in-law contract is that Kodama, an MTC employee, misappropriated funds from the company and owes restitutionary obligations to the same.  See Kleinsupra, 247 Cal.App.2d at 609 (noting propriety of attachment claims based on fraud and conversion, among others).  The amount due pursuant to breach of this implied-in-law contract is the amount misappropriated, $1,215,701.  Ohata Decl. ¶8.  This is a fixed and readily ascertainable amount. This is a claim on which attachment can be based.

MTC asserts, inter alia, that it has demonstrated the probable validity of its conversion claim against Kodama.  App. at 8-9.  The elements of a conversion claim are (1) the plaintiff’s ownership or right to possession of the property, (2) the defendant’s conversion by a wrongful act or disposition of property rights, and (3) damages.  Lee v. Hanley (2015) 61 Cal.4th 1225, 1240.  In the instant case, the undisputed evidence shows that (1) the funds in question belonged to MTC because they were rebate checks from MTC’s customers made out to MTC, (2) Kodama diverted the funds into an Unauthorized Account whereupon he used them for his own personal benefit, and (3) this scheme damaged MTC in the amount of, at least, $1,215,701.  MTC has demonstrated the probable validity of this claim.

MTC does not address whether attachment is available against Kodama, a natural person.  If the action on a claim of money is against a defendant who is a natural person, an attachment may be issued only on a claim which arises out of the conduct by the defendant of a trade, business, or profession.  CCP §483.010(c).  Regardless, the showing is clear.  MTC’s claims arise out of Kodama’s conduct as an employee of the company.  By definition, this is Defendant conduct of a trade, business, or profession.

MTC provides a description of property sought to be attached from Kodama, including all interests in real property (including the Ironbark Residence), accounts receivable, chattel paper, general intangibles, equipment, money on the premises, money located elsewhere, negotiable documents, instruments, securities, and community property interests.  These descriptions meet the requirements of CCP section 484.020(e) and are sufficient to permit Kodama to identify the specific property sought to be attached.

Kodama argues that the Ironbark Residence is not subject to attachment because it is his primary residence that supports himself and his family.  Kodama Decl. ¶¶ 2, 4.  His recording of a homestead declaration (Kodama Decl. ¶2) has no effect on MTC’s right to attach the Ironbark Residence.  CCP §487.025(a).  As MTC concedes, Kodama has a $100,000 exemption in the Ironbark Residence under CCP sections 487.025 and 704.730(a)(2).  Reply at 3.  Kodama has not shown that he is entitled to a greater homestead exemption under CCP section 704.730(a)(3).  He also has not shown that the Ironbark Residence is necessary for his family under CCP sections 487.020(b) and 703.115 through a declaration or comprehensive financial statement.  Kodama’s homestead exemption for the Ironbark Residence is limited to $100,000.  See Martom v. Aboyan, (1983) 148 Cal.App.3d 826, 831.

The application for right to attach order is granted against Kodama in the amount of $1,215,701.  MTC has not submitted a proposed right to attach order on a Judicial Council form and is ordered to do so within two court days or it will not be signed.  No writ of attachment shall issue until MTC posts a $10,000 bond.

[1] The opposition does not include any memorandum of points and authorities in violation of CCP section 484.060(a), but the court has exercised its discretion to consider it.