2018-00233627-CU-CO

MG CH4, LLC vs. Ray Brewer

Nature of Proceeding: Writ of Attachment

Filed By: Waldron, Piper A.

Plaintiff MG CH4, LLC’s (“Plaintiff”) motion for right to attach order and order for issuance of writ of attachment against defendants Ray Brewer (“Brewer”), California Dairy Energy 4, LLC (“CDE4”), CH4 Power, Inc. (“CH4 Power”), and Golden Biogas LLC (“Golden Biogas”) (collectively, the “Brewer Defendants”) is ruled upon as follows.

Plaintiff’s request for judicial notice is granted.

Factual and Procedural Background

This action arises out of the plans of CDE4 and its members, Plaintiff and CH4 Power, to plan, develop, permit, and profit from a biogas project in Fresno County. Specifically, CDE4 was going to build an anaerobic digester for California dairy farmers.

In 2016, CH4 sought investors to partner with to build and maintain the anaerobic digesters. In exchange, among other things, investors were allowed to benefit from a

30% Investment Tax Credit (“ITC”) as long as construction began by December 31,

2016.

In early-mid December 2016, CH4 Power approached Plaintiff with the investment opportunity. Plaintiff agreed to purchase a 10% membership interest in CDE4. Plaintiff executed a final memorandum of understanding (“MOU”) on December 26, 2016, and funded the equity investment on December 27, 2016, by making a $5 million payment to Golden Biogas’ account. CH4 Power then executed CDE4’s Operating Agreement. Thereafter, Plaintiff and CH4 executed an Addendum to the Operating Agreement, dated December 27, 2016, outlining the specific details of the MOU. (Complaint at Exhs. 4-5.)

Plaintiff contends the Brewer Defendants fraudulently induced it to invest $5 million into the CDE4 project. Plaintiff contends the Brewer Defendants breached the Operating Agreement and Addendum because they failed to use commercially reasonable efforts to maximize the 2016 ITC, failed to provide a project timeline and subsequently provided a fabricated timeline, failed to start construction in a timely manner and misrepresented construction status, prohibited Plaintiff from physically inspecting the site, falsely represented construction was on hold due to ancient artifacts being found belonging to a Native American tribe, failed to build the digester, failed to make numerous contractually required payments to Plaintiff, and failed to return Plaintiff’s $5 million investment.

On May 23, 2018, Plaintiff filed its complaint against the Brewer Defendants, William J. Crock, and Vernon E. Landeck alleging causes of action for negligent misrepresentation, fraud, civil conspiracy, breach of contract, breach of fiduciary duty, unjust enrichment, conversion, and money had and received.

On June 15, 2018, this Court entered a temporary protective order against the Brewer Defendants.

Plaintiff now moves for a pre-judgment right to attach order and writ of attachment against the Brewer Defendants only in connection with its breach of contract claim in the amount of Plaintiff’s original investment, $5 million.

Discussion

A Right to Attach Order and Order for Issuance of a Writ of Attachment “shall be issued” if the Court finds at the hearing that: “(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 of the claim upon which the attachment is based; and (4) the amount to be secured by the attachment is greater than zero.” (Cal. Code of Civ. Proc, § 484.090(a)(l-4).) The Court’s determination is to be made upon the basis of the pleading and other papers in the record. (Cal. Code of Civ. Proc. § 484.090(d).)

A writ of attachment may be issued only if the underlying action is (1) a claim for

money based upon an express or implied contract where, (2) the total amount of the
claim is a fixed or readily ascertainable amount of at least Five Hundred Dollars

($500.00), exclusive of costs, interest, and attorneys’ fees, (3) the claim is not secured
by any interest in real property; and (4) the property sought to be attached must be

proper for attachment. (Cal. Code of Civ. Proc, §487.010; Kadison, Pfaelzer, Woodward, Quinn & Rossi v. Wilson (1987) 197Cal.App.3d 1, fn 1; Western Steel and Ship Repair, Inc. v. R.M.L, Inc. (1986) 176 Cal.App.3d 1108,1113.)

The plaintiff has the burden of proving the probable validity of the claim (Code Civ. Proc §§ 481.190, 484.090(a)(2)) by admissible evidence, such as an appropriate declaration. (Code Civ. Proc. § 484.030.) The plaintiff’s claim has probable validity if 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, when the defendant makes an appearance, the court must consider the relative merits of the positions of the parties and make a determination of the probable outcome of the litigation. Loeb & Loeb v. Beverly Glen Music, Inc. (1985) 166 Cal. App. 3d 1110, 1120. Any claim against a natural person may be made under the statute only if the debt arises from defendant’s conduct of a “trade, business, or profession.” (Code Civ. Proc § 483.010(c).)

There are strict statutory requirements that must be met to establish a prima facie claim to relief. Strict construction of the statutory scheme prevents any relief unless specifically provided in statute. (Pacific Decision Sciences Corp. v Superior Court (2004) 121 Cal.App.4th 1100, 1106.)

The Claim Upon Which the Attachment is Based is One Upon Which an Attachment May Be Issued

A Claim for Money Based Upon an Express or Implied Contract

Plaintiff contends this claim arises from a contractual obligation that existed between Plaintiff and the Brewer Defendants via the Operating Agreement, Addendum, and Plaintiff’s transfer of $5 million to Golden Biogas’ account.

In opposition, the Brewer Defendants do not dispute the existence of certain agreements between the entity defendants, but claim Plaintiff has failed to establish any contractual relationship with Brewer, an individual, and failed to establish any legal authority for seeking attachment as to Brewer. The Brewer Defendants argue the Operating Agreement and Addendum were both executed by Brewer in a representative capacity on behalf of CH4 Power and that neither agreement, nor the wire transfer to Golden Biogas, created a contract with Mr. Ray Brewer, the individual.

Indeed, it is not in dispute that Ray Brewer is not a party to any of the agreements in his individual capacity. The Operating Agreement is “by and between CDE4 …, the Initial Members and those Persons who hereafter become Members.” (Complaint, Exh. 4.) Ray Brewer signed the Operating Agreement in his capacity as President of CH4 Power and never became a member of CDE4 in his individual capacity. The only members of CDE4 are CH4 Power and Plaintiff. Similarly, Ray Brewer executed the Addendum between Plaintiff and CH4 Power in his capacity as President of CH4 Power.

At most, Plaintiff argues “There is no requirement that the parties be in contractual privity in order to obtain a writ of attachment” and cites generally to Code of Civil Procedure section 484.090(a). The provisions of section 484.090(a), which the Court sets forth above, do not state that contractual privity is not required and Plaintiff has failed to provide any further legal authority establishing this contention. Further, as the

claim must be based on an express or implied contract, the reasonable conclusion is that a writ of attachment based upon such a contract could only be imposed on the parties to that contract. As Plaintiff has failed to provide any legal authority by which Brewer, in his individual capacity, can be subject to the request writ of attachment, the Court finds the motion is denied as to Mr. Ray Brewer.

The Total Amount of the Claim is a Fixed or Readily Ascertainable Amount

The Brewer Defendants oppose on the basis that Plaintiff failed to meet its burden to show the claim is for a fixed or readily ascertainable amount. The damages sought need not be liquidated, but must be measurable by reference to the contract itself. (See Kemp. Pros, Const. Inc. v. Titan Elec.Corp. (2007) 146 Cal.App.4th 1474, 1481. “The fact that the damages are unliquidated is not determinative.. .[b]ut 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.” ( CIT Group/Equipment Financing, Inc. v. Super DVD, Inc. (2004) 115 Cal.App.4th 537, 540-41.) And, there must exist a basis upon which the damages can be determined by proof (Id.) Moreover, “uncertainty as the specific amount of ultimate damages is not a basis to deny attachment.” (Id.) Courts have also found that using estimates and averages to determine damages are not too uncertain to preclude attachment. (See, e.g., Walker v. Phillips, 205 Cal.App.2d 26, 27-28 (average profits over two years is not too uncertain to justify attachment where the section of lease relating to the rentals provided a clear and definite formula for the computation of damages); see also Bringas v. Sullivan (1954) 126 Cal.App.2d 693 (average weekly earnings were a sufficient basis for ascertaining plaintiffs’ future damages).)

Plaintiff contends the $5 million is “fixed or readily ascertainable” because reference to the Operating Agreement and Addendum establishes Plaintiff’s damages are at least the amount it invested – $5 million. Plaintiff cites to sections 3.5 (no withdrawal/priority of capital or distributions other than pursuant to agreement), 9.4 (order of payment of liabilities upon dissolution), 12.1 (withdrawal by members), and 13.17 (remedies cumulative) of the Operating Agreement, as well as Mr. Geismar’s declaration stating the amount of his equity investment as support. Plaintiff contends there is no requirement that the amount owed appear on the face of the contract. (Bringas v. Sullivan (1954) 126 Cal.App.2d 693, 701-702.)

Upon review of the cited sections to the Operating Agreement, the Court is not persuaded that these sections clearly furnish the standard by which damages can be calculated. Section 3.5 simply provides that no member can withdraw any part of its capital contribution or receive any distributions except as provided in the agreement. Section 9.4 concerns CDE4’s obligations to pay liabilities upon dissolution, but dissolution is not being sought through this action, nor is there any evidence CDE4 is dissolving at this time. Even assuming CDE4 was dissolving and paying its debts and liabilities, this section does not clearly provide for the return of Plaintiff’s entire equity investment. Section 12.1 concerns the procedure by which a member can request a withdrawal from the Company, but this does not clearly provide the withdrawal amount owed to Plaintiff would be $5 million. Finally, section 13.17 only provides that the remedies under the agreement are cumulative.

Moreover, the Court finds this is not a situation where estimates or averages are discernible from the agreements by which Plaintiff’s estimated damages can be readily determined. While Plaintiff mentions a demand to return its equity investment

pursuant to Article X of the Operating Agreement and Addendum (Plaintiff’s Memo at 13:11-12), Article X deals with indemnification proceedings and the entity’s authority to purchase insurance.

In short, the Court cannot say upon the showing presented in support of the application that Plaintiff demonstrated that its claimed $5 million in damages are readily ascertainable or that it has shown the probable validity of that claim. Therefore,Plaintiff has not, at this time, met its burden.

Again, to be clear, attachment will lie upon a cause of action for damages for a breach of contract, 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. Thus, although damages need not be liquidated in order for an attachment order to issue, damages must be measurable by reference to the contract sued upon, and their basis must be reasonable and certain. Indeed, the requirements for the issuance of a writ of attachment are strictly construed against the applicant. (Pos -A-Traction, Inc. v. Kelly-Springfield Tire Co. (2000) 112 F.Supp.2d 1178, 1181; Loeb & Loeb, supra, at p. 1116.) The burden is on the applicant to establish each element necessary for an attachment order by a preponderance of the evidence. (Id.)

However, the Brewer Defendants have, to some extent, cured Plaintiff’s evidentiary failings through its opposition. That is, the Brewer Defendants concede the parties had an agreement that at least the first annual redemption would become due on April 1, 2018, in the amount of $483,810. (Addendum at section 8(b).) As that date has passed and there is evidence no payment has been made, it is clear for purposes of the instant application that the parties had an agreement and that at a minimum Plaintiff has readily ascertainable damages in the amount of $483,810.

The Brewer Defendants do not dispute that the clam is not secured by real property or that the claim does not arise out of the Brewer Defendants’ trade or business, and the Court finds Plaintiff has met its burden in this regard. As Plaintiff has established this is a claim upon which attachment may be issued, the next step is to determine whether Plaintiff has established the probable validity of its claim.

The Plaintiff has Established the Probable Validity of the Claim Upon Which the Attachment is Based

The Brewer Defendants contend Plaintiff’s claims lack probable validity because performance under the Addendum was temporarily suspended because PG&E refused to issue PPAs that were required to trigger the release of funds from Rabobank to CDE4 to pursue the project further. The Brewer Defendants set forth evidence that they pursued implementation of the CDE4 project.

However, Plaintiff has also presented evidence that the Brewer Defendants breached certain provisions of the Operating Agreement and Addendum, such as using commercially reasonable efforts to maximize the 2016 Federal Tax Credit allocable in 2016; developing the CDE4 Project in a timely manner; entering into separate redemption agreements to cover the annual redemption of 1.25% of MG CH4’s initial 10% Membership Interest at a rate of $438,810 per year; providing MG CH4 with a worksheet detailing the calculation of the budgeted and actual-to-date qualified Project expenses in form acceptable to MG CH4; and allowing MG CH4 to physically inspect

the Project. (Geismar Decl. at ¶ 24, 27-29, 36, Ehs. A-B.)

While the Brewer Defendants argue there were reasons they were unable to pursue the project and their actions were not sinister, they do not contend or put forth evidence that they did not breach the agreements as alleged by Plaintiff.

Based on the foregoing, the Court finds Plaintiff has met its burden to establish the probable validity of its claim that the Brewer Defendants breached the Operating Agreement and Addendum.

The Attachment is Not Sought for a Purpose Other Than the Recovery of the Claim Upon which the Attachment is Based and the Amount Secured by the Attachment is Greater than Zero

The Brewer Defendants do not dispute Plaintiff’s showing on the final two elements to establish a writ of attachment and the Court finds Plaintiff has met its burden in this regard.

Conclusion

Plaintiff’s application for writ of attachment is granted in the amount of $483,810, except as to Ray Brewer, an individual.

Plaintiff shall post a $10,000 undertaking. (CCP § 489.220(a).)

Plaintiff shall submit a proposed order on the required judicial council form which the Court will sign once Plaintiff has posted the undertaking.