Case Number: BC674580 Hearing Date: January 17, 2018 Dept: 39

Kenneth Nutley, et al. v. AJN Film Solutions, LLC, et al., BC674580

Motion by Defendants AJN Film Solutions, LLC and Allen Knudson to Stay Proceedings Pending Resolution of Pre-Existing Third Party Claim: the unopposed motion is GRANTED. The matter is stayed through July 25, 2018. The court continues the OSC re: proof of service and Case Management Conference currently set for February 6, 2018 to July 25, 2018 at 8:45 a.m.

Background

This case arises in connection with the enforceability of a Loan and Security Agreement (the “AJN Loan Agreement”) related to a motion picture entitled: “Kickboxer: Vengeance” (the “Picture”) between Defendant AJN and/or AJN Film Group LLC (“AJN”) as the lender and Acme Kick, LLC (“Acme Kick”), Acme Kick Productions, LLC (“Acme Kick Productions”), and Acme Kick Investments, LLC (“Acme Kick Investments”) (collectively “Acme”). Plaintiffs allege Defendant Allen Knudson (“Knudson”) is the owner or principal of AJN.

Plaintiffs Kenneth Nutley (“Nutley”) and Stephen Cagnazzi (“Cagnazzi”) allege they are judgment creditors of the AJN Parties. Plaintiff has separately filed suit against Acme in the action captioned Nutley, et al. v. Radar Pictures, LLC, et al., Case No. BC623018, in the Superior Court of Los Angeles County (the “Radar Action”). Defendants have asserted third-party claims against Plaintiffs in that action that involve substantially the same issues as in Plaintiff’s Complaint.

Plaintiffs allege they made an unsecured $1 million loan to Acme Kick Productions on or about December 5, 2014 (the “Nutley Loan”), for production of the Picture. (Declaration of Brandon M. Tesser (“Tesser Decl.”), ¶ 3, Ex. 2 [Plaintiffs’ verified statement challenging the security interest of AJN Film Solutions, LLC (“Verified Statement”)], at p. 1.) AJN asserts it and Acme entered into the AJN Loan Agreement in June 2015, pursuant to which AJN lent Acme over $7 million (the “AJN Loan”). (Tesser Decl. ¶ 7, Ex. 4.) Defendants assert that Acme used $1 million of the proceeds from the AJN Loan to discharge its secured debt owed to Emigrant Bank, in exchange for which Emigrant Bank assigned its first priority security interest in the assets of Acme to AJN. (Mot. Br. 2.) According to Defendants, Acme defaulted under the AJN Loan Agreement when it came due in June 2016.

Plaintiffs filed a lawsuit in the Radar Action against Acme and other defendants on June 7, 2016. Plaintiffs obtained a writ of attachment in the amount of $1 million against Acme Kick Productions on November 14, 2016, and subsequently instructed the Los Angeles County Sheriff (the “Levying Officer”) to levy monies owed to Acme Kick. (Tesser Decl. Ex. 2, at pp. 2-3.) Acme and Plaintiffs stipulated to judgments in the Radar Action, and the court entered judgment on the stipulations for entry of judgment on August 24, 2017 in the principal amount of $1,950,000 in Plaintiffs’ favor against Acme.

On March 30, 2017, AJN initiated a third-party claim proceeding by filing a verified Third-Party Claim with the Levying Officer, claiming a priority security interest in and right to possession of each item of Acme’s property that may have been levied pursuant to the writ of attachment. On November 13, 2017, AJN amended its Third-Party Claim in the Radar Action. Plaintiffs have filed objections to both third-party claims by Defendants. On December 14, 2017, AJN filed an ex parte application for an order to set the hearing in January 2018 on the Amended Third-Party Claim. This ex parte application was denied.

In the Complaint in this action, Plaintiffs allege three causes of action for: (1) declaratory relief; (2) violation of Civil Code, § 1916-3; and (3) injunctive relief. Plaintiffs seek a judicial declaration that (a) the AJN Loan Agreement is illegal and unenforceable; (b) any and all security and other interests attached to, or emanating from, the AJN Loan Agreement are void and unenforceable; and (c) that Defendants are only entitled to recover any monies derived from the distribution, licensing, and/or exploitation of the feature-length Picture, but they should recoup such sums after Plaintiffs have been fully paid their judgment liens, as unsecured creditors or equity participants in the Picture.

Defendants now move to stay all proceedings pending resolution of AJN’s third-party claims in the Radar Action.

Discussion

The court has “the inherent power to stay proceedings in the interests of justice and to promote judicial efficiency.” (Freiberg v. City of Mission Viejo (1995) 33 Cal.App.4th 1484, 1489; Code Civ. Proc., § 128, subd. (a).) California Courts have held that “[t]he pendency of another earlier action growing out of the same transaction and between the same parties is a ground for abatement of the second action.” (Leadford v. Leadford (1992) 6 Cal.App.4th 571, 574 (Leadford).) Where the court determines there is another action pending in another court in the same state raising substantially the same issues between the parties, abatement of the second action is a matter of right and a trial court has no discretion to allow the second action to proceed. (Ibid.)

Defendants contend that good cause exists for staying all further proceedings in this action pending entry of judgment on AJN’s third-party claim in the Radar Action. Defendants argue that this action and the third-party claim proceeding address the same subject matter, i.e., the validity and superiority of AJN’s claim to a blanket, first priority security interest in Acme’s assets. According to Defendants, virtually all the factual and legal issues raised by the Complaint in this action are the same as those to be determined at the hearing on the Amended Third-Party Claim. And Defendants further contend that a stay is warranted because judgment on the Third-Party Claim would be res judicata on Plaintiffs’ claims in this action. (Mot. Br. 7, citing Code Civ. Proc., § 720.390 [“At the conclusion of the hearing, the court shall give judgment determining the validity of the third–party claim and may order the disposition of the property or its proceeds in accordance with the respective interests of the parties. Subject to Section 720.420, the judgment is conclusive between the parties to the proceeding.”].)

Defendants additionally argue that judicial economy would favor a stay as the Complaint in this action only presents two issues not already raised in the Third-Party Claim Proceeding: (1) whether Plaintiffs can obtain declaratory and/or injunctive relief against Knudson on an alter-ego theory, and (2) whether Plaintiffs are entitled to recover from Ace the total damages for which AJN is purportedly liable to Acme for is alleged “loan sharking” in violation of Civil Code, section 1916-3. According to Defendants, these two issues are entirely dependent upon the outcome of the hearing on the Amended Third-Party Claim, and judicial efficiency would be served by a stay.

Plaintiffs have not filed an opposition, and do not respond to the subject motion.

The court has examined the evidence presented and finds that the Complaint raises substantially the same issues as have been raised in AJN’s Amended Third-Party Claim in the Radar Action. These claims involve the same transaction and the same parties in the same court, and warrant a stay. (See Leadford, 6 Cal.App.4th at p. 574.) Accordingly, the court GRANTS the motion and STAYS the action pending the resolution of Defendants’ third-party claims in the Radar action, to July 25, 2018. The February 6, 2018 OSC re: proof of service and Case Management Conference is continued to July 25, 2018 at 8:45 a.m. Moving party is to give notice.