EC050461

Motion for Confirmation of Sale

This case arises from the claim of Plaintiff, Xerox Corp., that the Defendant, Hairlocs Extension System, Inc. breached a lease agreement by failing to make payments for Xerox’ equipment. A default was entered against the Defendant on September 15, 2009. A default judgment of $112,916.56 was entered against the Defendant on February 11, 2010.

On December 28, 2012, a notice of assignment was filed to provide notice that the Plaintiff, Xerox Corp., had assigned its right and interest in the judgment to Dreamcatchers International, Inc. for a payment of $11,291.66. Dreamcatchers is a competitor of Hairlocs in the business of providing hair extensions.

On January 31, 2013, the assignee, Dreamcatchers International, Inc., appeared with an ex parte application for an order to prohibit the transfer of three patents and one trademark held by the Defendant. In addition, the assignee requested an order appointing a receiver to manage the intellectual properties. The Court issued a temporary restraining order to prohibit the Defendant from transferring the intellectual property.

In addition, the Court appointed a receiver, Theodore Phelps, on June 20, 2013. The receiver was appointed to manage, evaluate, and sell three patents and a trademark owned by the Defendant. The Court ordered that the intellectual property be valued and sold at a public sale within 30 days.

This hearing concerns the receiver’s request for an order confirming the sale of the three patents and the trademark. CCP section 568.5 authorizes a receiver, pursuant to a Court order, to sell real or person property in the receiver’s possession. Section 568.5 states that the sale is not final until confirmed by the Court.

The receiver is an agent of the Court and not of any party. CRC rule 3.1179(a). The receiver acts as a ministerial officer, agent, and a temporary caretaker of the property for the Court. Gill v. Rich (2005) 128 Cal. App. 4th 1254, 1267. The receiver represents the Court appointing the receiver and the receiver is the medium through which the Court acts. Id.

The Court appointed the receiver in this action to enforce a judgment. The Enforcement of Judgments Law, enacted at CCP section 680.010 to 724.260, includes procedures for appointing a receiver to enforce a judgment in CCP sections 708.610 to 708.630. CCP section 708.620 provides that the Court may appoint a receiver to enforce the judgment where the judgment creditor shows that, considering the interests of both the judgment creditor and the judgment debtor, the appointment of a receiver is a reasonable method to obtain the fair and orderly satisfaction of the judgment.

The intellectual property at issue is the following:

1) US Patent No. 7,726,321, issued June 1, 2010;
2) US Patent No. 7,246,623, issued July 24, 2007;
3) US Patent No., 6,938,624, issued September 6, 2005; and
4) Trademark Hairlocs Serial No. 7680447, filed January 6, 2003.

The patents are entitled “METHODS AND DEVICES FOR APPLYING HAIR EXTENSIONS”.

The receiver performed a valuation of the patents in accordance with applicable business valuation standards, including the AICPA’s Statement on Standards for Valuation Services, to which the receiver is bound by virtue of his designation as a Certified Public Accountant. The receiver provides the following facts in his declaration regarding his valuation and sale of the property.

The receiver states that he made repeated requests for information over seven months from the Judgment Debtor’s attorney to obtain information needed to determine the fair market value the property, e.g., tax returns, general ledgers, and financial information (Phelps decl., paragraph 2). The receiver states that the documents were not provided (Phelps decl., paragraph 2).

Instead, the Judgment Debtor’s attorney provided a schedule purporting to be the acquisition costs of the patents (Phelps decl., paragraph 2). The receiver used this schedule to set the minimum bid for the three patents and the trademark at $70,000 (Phelps decl., paragraph 2).

The receiver sold the property at a public sale on February 18, 2014 (Phelps decl., paragraph 3). The sale was conducted pursuant to a notice of sale mailed to Hairlocs and other interested parties on February 7, 2014 (Phelps decl., paragraph 3). The notice was also posted on February 7, 2014 in the Los Angeles County Superior Court, Central District Courthouse, the Los Angeles County Main Public Library, and the Los Angeles City Hall.

A copy of the notice is attached as exhibit 2. The notice indicates that the minimum bid for the property is $70,000.

The property was sold as a complete lot because the receiver determined that this would bring the highest purchase price due to the relation of the patents and trademarks to the unique designs of hair extension systems (Phelps decl., paragraph 4).

The purchaser was Dreamcatchers International, Inc., which is the judgment creditor by way of assignment. The purchase price was $70,000, which is credited against the judgment. A copy of the certificate of sale is attached as exhibit 3.

The receiver states that there were no other offers for the property (Phelps decl., paragraph 7).

The opposition papers argue that the receiver did not properly value the patents and requests that the Court decline to confirm the sale so that a valuation of the property can take place. The opposition papers offer facts in the declaration of Thomas Pastore, who provides an opinion regarding the value of the property. The Court declines to consider his opinion because, as discussed below, the judgment debtor stated under penalty of perjury that the total value of its assets was $31,000 in a bankruptcy filing.

The judgment debtor filed a notice with the Court on December 16, 2013 that the judgment debtor had filed for bankruptcy protection under chapter 11. In the petition for bankruptcy, the judgment debtor stated under penalty of perjury that its total assets were valued at $31,000 (see reply, exhibit 5). The bankruptcy was dismissed on December 30, 2013 (see reply, exhibit 2).

The doctrine of judicial estoppel, sometimes referred to as the doctrine of preclusion of inconsistent positions, is invoked to prevent a party from changing its position over the course of judicial proceedings when such positional changes have an adverse impact on the judicial process. Jackson v. County of Los Angeles (1997) 60 Cal. App. 4th 171, 181-182. The policies underlying preclusion of inconsistent positions are general considerations of the orderly administration of justice and regard for the dignity of judicial proceedings. Id. Judicial estoppel is intended to protect against a litigant playing ‘fast and loose’ with the Courts. Id. It is well established that, for the doctrine to apply, the seemingly conflicting positions must be clearly inconsistent so that one necessarily excludes the other. Id.

The judgment debtor has taken inconsistent positions in the bankruptcy court and in the state court. In the bankruptcy filing, the judgment debtor took the position that its total assets were valued at $31,000. In its opposition to the receiver’s motion, the judgment debtor took the position that the patents and trademark should be valued at greater than $70,000. These positions are in conflict and necessarily exclude each other because the judgment debtor’s total assets cannot be valued at $31,000 and then valued at greater than $70,000.

Accordingly, the Court finds that the judgment debtor is judicially estopped from asserting its total assets are valued at greater than $31,000. This bars the judgment debtor from arguing that the receiver should have set the minimum bid for the three patents and the trademark at greater than $70,000.

In addition, the Court ordered the receiver to perform the valuation of the property. Pursuant to this order, the receiver requested that the judgment debtor provide information necessary to perform the evaluation, e.g., profit and loss statements, bank statement, and tax returns. Since the judgment debtor did not provide these documents, it should not be permitted to take advantage of its failure to assist the receiver in order to argue the receiver did not perform a proper valuation.

Further, the receiver posted a notice of the sale on February 7, 2014. The notice of sale identifies the minimum price at $70,000. The judgment debtor did not make any motion to the Court to request that the sale be halted so that a valuation could be performed. Instead, the judgment debtor permitted the sale to occur and then objected to the valuation. Since the judgment debtor did not seek relief promptly, it will not be permitted to dispute the receiver’s valuation.

The receiver has provided evidence to demonstrate that he made a valuation, that he provided notice of the sale, and that he sold the property. The receiver has complied with the order appointing him as a receiver.

Therefore, the Court confirms the receiver’s sale of the property.

Finally, the judgment creditor notes in the reply that $180,000 remains unsatisfied in the judgment. The judgment creditor requests that further assets be turned over to the receiver so that they may be valued and sold within 30 days. These include the domain website, www.Hairlocs.com, telephone numbers held in the name of Hairlocs International, Inc., and the customer list.

At the hearing, the Court will make a determination whether it is necessary to appoint the receiver to take over the judgment debtor’s business and to take possession of the judgment debtor’s assets so that its assets, including accounts receivable and other property, may be valued and sold to satisfy the judgment. It is not clear that the judgment creditor has attempted to use the other procedures for enforcing the judgment, e.g., judgment debtor examinations, post-judgment discovery, or judgment liens. The Court may consider ordering the judgment creditor to file a noticed motion to appoint the receiver to take over the judgment debtor’s business and to take possession of the judgment debtor’s assets so that the Court may determine whether a receiver is necessary to enforce the judgment.