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Noahs Ark Processors, LLC v. CMBG Advisors, Inc.

United States District Court, C.D. California

July 15, 2019


          Present: The Honorable CHRISTINA A. SNYDER


         Proceedings: MOTION TO DISMISS FIRST AMENDED COMPLAINT (Dkt.26, filed June 10, 2019)


         On February 12, 2019, plaintiff Noah's Ark Processors, LLC filed this action against CMBG Advisors, Inc. (“CMBG”), alleging claims for breach of fiduciary duty and constructive fraud. Dkt. 1. On March 13, 2019, CMBG filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Dkt. 9. The Court granted CMBG's motion and provided plaintiff with leave to amend the complaint. Dkt. 24 (“Order”).

         On May 20, 2019, plaintiff filed the first amended complaint which alleges a single claim for breach of fiduciary duty. Dkt. 25 (“FAC”). On June 10, 2019, CMBG filed the instant motion to dismiss pursuant to Rules 12(b)(1) and 12(b)(6). Dkt. 26 (“Mot.”). Plaintiff filed an opposition on June 24, 2019. Dkt. 28 (“Opp'n”). CMBG filed a reply on July 1, 2019. Dkt. 29 (“Reply”).

         The Court held a hearing on July 15, 2019. After carefully considering the parties' arguments, the Court finds and concludes as follows.


         A. An Assignment for the Benefit of Creditors

         An assignment for the benefit of creditors (“ABC”) is a “business liquidation device available to an insolvent debtor as an alternative to formal bankruptcy proceedings.” Credit Managers Assn. v. Nat'l Indep. Bus. All., 162 Cal.App.3d 1166, 1169 (1984). Such assignments in California are governed by common law and a patchwork of state statutes. See id. Under an ABC, a distressed entity transfers its property to a third-party assignee who becomes responsible for liquidating the entity's estate in a fiduciary capacity for the benefit of the estate's creditors. See id. at 1169- 1171. The laws governing ABCs require the third-party assignee to pay certain claims, such as secured claims or priority unsecured claims, before any general unsecured claims. See, e.g., Myzer v. Emark Corp., 45 Cal.App.4th 884 (1996); Cal. Code Civ. P. § 1204.5 (providing for priority treatment of consumer deposit claims); Cal. Code Civ. P. § 1204 (providing for priority treatment of claims for wages, salaries, commissions, and employee benefit contributions).

         B. Plaintiff's Allegations

         Plaintiff filed suit against Value Meats, Inc. dba Charlie's Pride (“VMI”) in the Superior Court for the County of Los Angeles. FAC ¶ 4. In approximately August 2016, plaintiff reached a settlement with VMI in which VMI agreed to pay plaintiff $180, 000. Id. Ex. A (“Judgment”) at 2. VMI made a single payment of $42, 107.18 on or about August 31, 2016, but failed to make any subsequent payments. Id. On October 18, 2016, VMI entered a general ABC in favor of CMBG. FAC Ex. B (“VMI ABC”).

         Pursuant to the VMI ABC, VMI transferred ownership of its assets to CMBG, and in so doing, designated CMBG to act, pursuant to California law, as the assignee for the benefit of creditors of VMI. VMI ABC at 1-2. The VMI ABC provides that the net proceeds from the liquidation of VMI's estate are to be applied first to certain prioritized claims, including secured claims, taxes, and employee claims, and that “all distributions to other creditors shall be, within each class, pro-rata in accordance with the terms of each creditor's indebtedness, until all such debts are paid in full.” Id. at 6.

         Plaintiff learned that VMI had entered an ABC on November 4, 2016. FAC ¶ 5. On November 14, 2016, plaintiff requested a judgment against VMI in the Los Angeles Superior Court. Id. ¶ 4. The Superior Court granted plaintiff's motion and entered judgment against VMI in the amount of $137, 892.82, representing the principal of $180, 000 less VMI's payment of $42, 107.18, as well as interest in the amount of $2, 684.90, attorneys' fees in the amount of $15, 000, and interest at the rate of $37.78 daily through the date of satisfaction of judgment. Id.; Judgment at 2. Plaintiff represents that the amount required to satisfy that judgment is now $189, 693.06. Id. ¶ 4.

         In January 2017, plaintiff submitted a claim form to CMBG for an unsecured claim in the amount of $157, 957.86. Compl. ¶ 5; Ex. C. On May 3, 2017, plaintiff's counsel, Ami Meyers, asked CMBG about the status of plaintiff's claim. CMBG, through Lisa van Eyssen, responded the next day that it was “in the process of settling a class action wage lawsuit with an agreed amount still pending” and that “[o]nce the priority claims have been paid out, [CMBG] will disburse to unsecured creditors on a pro-rata basis.” FAC ¶ 6. CMBG also included a spreadsheet that listed VMI's creditors. Id.

         On June 9, 2017, Meyers emailed van Eyssen requesting another status update. Id. ¶ 7. After receiving no response for over a month, Meyers emailed van Eyssen again around July 18, 2017. Id. That same day, van Eyssen responded that CMBG was “reviewing the 100 claims that came in for ...

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