Case Number: KC066119    Hearing Date: April 24, 2014    Dept: J

Re: Hong Kong Gree Electric Appliance Sales, Ltd., etc. v. MJC Supply LLC, etc., et al. (KC066119)

MOTION TO INCREASE UNDERTAKING IN CONNECTION WITH PLAINTIFF’S WRITS OF ATTACHMENT

Moving Parties: Defendants MJC Supply, LLC, MJC America, Ltd., Soleus East, Inc., Jimmy Loh, Charley Loh, Leping Loh and Simon Chu

Respondents: Plaintiff Hong Kong Gree Electric Appliance Sales Ltd. and Defendant Jian Chen

POS: Moving OK; Opposing OK; Reply OK

The Complaint herein filed on 6/25/13 alleges that between June 10 and 17, 2013, Defendants converted $28,622,320.81 from Plaintiff by signing seven checks on behalf of Plaintiff which were issued based on fabricated invoices issued to Plaintiff from Defendant MJC Supply Ltd. The operative First Amended Complaint, filed on 7/19/13, asserts causes of action for:

1. Conversion
2. Conspiracy
3. Breach of Fiduciary Duty
4. Fraudulent Conveyance
5. Fraud
6. Negligent Misrepresentation
7. Constructive Fraud
8. Fraudulent Transfer (CC § 3439 et seq.)
9. Constructive Fraudulent Transfer (CC § 3439 et seq.)
10. Ultra Vires
11. Implied Covenant of Good Faith and Fair Dealing
12. Embezzlement
13. Injunctive Relief
14. Declaratory Relief

On 8/23/13, MJC America Holding Co., Inc. filed a derivative complaint on behalf of Gree USA Sales Ltd. against Dong Mingzhu and Jian Chen in case KC066270. On 8/29/13, KC066270 was consolidated with the instant matter. The operative First Amended Complaint, filed on 9/13/13, asserts a single cause of action for Breach of Fiduciary Duty.

On or about October 21, 2013 this court (Judge Sirna) granted Plaintiff’s applications for writs of attachment in the aggregate amount of over $22 million located in the bank accounts of the moving Defendants. At that time, the court ordered Plaintiff to post an undertaking of $25,000 with respect to each Defendant whose funds were subject to attachment, for a total undertaking of $150,000. At that time, Judge Sirna agreed to schedule another hearing to consider the adequacy of the undertakings. In the meantime, this action was reassigned, first to Judge Hoffstadt, then to this court.

Defendants now move to increase the amount of the undertaking to $200,000 per Defendant (a total of $1.2 million) pursuant to CCP 489.220, 490.020, and 995.920 on the grounds that the amount of the undertakings deposited by Plaintiff are insufficient to cover all costs and expenses, including attorney’s fees reasonably expected to be expended in defeating the attachments.

Under California law, the “amount of the undertaking” must be increased to cover Defendants’ potential damages associated with the writs of attachment in the event Defendants prevail in the action. (CCP 489.220(b)). The beneficiary of a bond may object if the amount of the bond is insufficient (CCP 995.920(b)).

If Plaintiff Hong Kong Gree Electric Appliance Sales Ltd. (“Gree Hong Kong”), fails to obtain a final judgment in its favor in this case, Defendants contend that they will be entitled to recover “[a]ll costs and expenses, including attorney’s fees, reasonably expended in defeating the attachment.” (CCP 490.020(a)(2)). Defendants assert that they have already incurred attorney’s fees and costs well in excess of the amount of undertakings deposited in connection with Gree Hong Kong’s writs of attachment. Defendants contend that they have been billed in excess of $300,000 between November 2013 and February 2014, and Defendants expect to incur significantly more in attorney’s fees and costs if they are forced to litigate this case through trial.

In opposition, Plaintiff claims that it is likely to prevail on the claims, as evidenced by three separate determinations by the court. First, a Temporary Restraining Orer was granted. Second, a Preliminary Injunction was granted. Third, the court heard argument on the applications for writs of attachment, and granted them. Plaintiff argues that trial courts are granted wide discretion to set the appropriate amount on an undertaking based on “all material factors,” including the probability that the plaintiff will prevail on the merits of its claims. See North Hollywood Marble Co., Inc. v. Sup.Ct., 157 Cal.App.3d 683, 688-689 (1984). Defendants’ fees are unexplained, as there is no evidence of counsel’s hourly rate, or that the work incurred thus far was necessary.

In reply, Defendants note that liability for the amounts claimed by Plaintiff in this litigation is hotly contested, and notes that the court actually denied Plaintiff’s request for a preliminary injunction.

On balance, given the amount in controversy in the action, the amount of funds subject to attachment herein, and the length of time anticipated prior to arriving at a final judgment herein, the court finds the amount of the undertakings previously posted by the Plaintiff to be inadequate under CCP 489.220(b). The motion to increase the undertakings to $200,000 per affected Defendant, a total of $1.2 million, is granted.