Does an UD Action Support a Prejudgment Right to Attach Order?

In the recent decision in Rreef America Reit II Corp YYYY v. Samsara Inc., Defendant Samsara Inc. (Samsara) appealed from a prejudgment right to attach order and order for issuance of writ of attachment in favor of plaintiff Rreef America Reit II Corp, YYYY (Rreef) in Rreef’s unlawful detainer action against Samsara.

The writ secured $1,969,477.56 for daily rent and charges and attorneys’ fees and costs.

On appeal, Samsara asserted several challenges to the attachment order.

First, Samsara argued that Rreef did not satisfy the requirement under Code of Civil Procedure section 484.090 that the amount to be secured is greater than zero, because the amount that Rreef sought to attach must be reduced under section 483.015(b)(4) by the amount remaining on the letter of credit serving as collateral for Samsara’s performance of its obligations under the parties’ lease agreement, and the amount remaining on the letter of credit is greater than the amount Rreef sought to attach.

Second, Samsara argued that the trial court erroneously refused to consider Samsara’s affirmative defenses of waiver, estoppel, and retaliatory eviction, which are relevant to the requirement in section 484.090(a) that Rreef establish the “probably validity” of its claim.

Third, Samsara argued there was insufficient evidence to support findings that those defenses did not bar Rreef’s unlawful detainer action.

Finally, Samsara argued that the trial court erroneously declined to consider whether Rreef sought attachment for an improper purpose.

The appellate court concluded that Rreef’s interest in the letter of credit did not fall within the scope of section 483.015(b)(4), and thus Samsara had not shown that the amount to be secured by the attachment is not greater than zero.

It further concluded that the trial court implicitly found that Samsara’s waiver and estoppel defenses did not bar Rreef from proceeding with its unlawful detainer action, and that substantial evidence supports those findings.

However, the record showed that the trial court declined to consider Samsara’s retaliatory eviction defense, and the issue of whether Rreef sought attachment for an improper purpose, believing it should not be expected to determine whether Rreef was acting in “good faith” at that stage of the proceedings.

Therefore, the order was reversed, and the matter was remanded to the trial court for further proceedings.

In March 2019, Samsara entered a lease agreement with Rreef to rent office space in San Francisco. The lease provided for a ten-year term, commencing on “the date on which Landlord tenders possession . . . in a condition sufficient to allow Tenant to commence performing the Initial Alterations . . .”

Samsara agreed to pay rent in monthly installments beginning at $843,341.67 and increasing annually.

The lease further provided that if Rreef did not deliver the premises in “delivery condition” on or before November 1, 2019, Samsara had the option of terminating the lease by providing written notice to Rreef. Samsara would also be entitled to a rent abatement of $56,222.78 per day until the delivery date occurred.

The lease required Samsara to provide Rreef with a letter of credit in the amount of $11,384,368.00.

The letter of credit was to serve as “collateral for the full performance by Tenant of all of its obligations under this Lease and for all losses and damages Landlord may suffer as a result of Tenant’s failure to comply with one or more provisions of this Lease.”

Samsara’s bank issued the letter of credit the following month.

Over two years later, in September 2021, Samsara filed a complaint against Rreef asserting claims for violation of Health and Safety Code section 25359.7, subdivision (a); breach of contract; declaratory relief; and violation of Business and Professions Code section 17200 et seq. (the environmental action).

Samsara alleged that in July 2019, after Rreef had certified that the premises were in “delivery condition,” Samsara discovered that the premises were contaminated with lead and asbestos.

Testing allegedly showed that most of the paint was lead-based paint containing lead in amounts 24 times the EPA limit, and lead wipe samples demonstrated concentrations up to 35 times the legal limit.

The premises also allegedly contained at least 80,000 square feet of asbestos-containing flooring and roofing material.

The complaint further alleged that after Samsara conducted the testing, Rreef accused Samsara of breaching the lease and cut off its access to the premises, displacing Samsara from the premises for months. Rreef eventually hired its own environmental contractor, but it shared limited information with Samsara regarding its testing of the premises, and it allegedly failed to test for the presence of lead.

The day after Samsara initiated its environmental action, Rreef served it with a 5-day notice to pay rent or quit based on Samsara’s alleged failure to pay rent for the months of August 2021 and September 2021, in the total amount of $1,826,697.95.

Approximately two weeks later, Rreef filed an unlawful detainer complaint, alleging that Samsara failed to pay the amount due as stated in the 5-day notice.

The complaint alleged that Samsara stopped paying rent in May 2021, and had created a pretext to avoid its lease obligations because the report of the environmental consultant Samsara had hired in early 2021 showed that despite de minimis contamination of lead, the premises were safe to use under applicable standards, and Samsara continued to use the premises.

 The complaint sought possession of the premises, recovery of all unpaid rent for the months of August and September 2021, and damages for each day Samsara continued in possession from October 1, 2021 through the date of judgment.

In its verified answer, Samsara asserted several affirmative defenses, including retaliatory eviction, equitable estoppel, and waiver.

In October 2021, Rreef filed an application for right to attach order and order for issuance of a writ of attachment in the unlawful detainer action.

In its application, Rreef argued that it had met the statutory requirements for a right to attach order.

First, it contended that its claim was one upon which an attachment may be issued because its unlawful detainer claim was an unsecured, commercial claim for money due under a contract for a readily ascertainable amount.

Second, it had established the probable validity of its claim because Samsara failed to pay rent as required under the parties’ lease agreement, Rreef had served a 5-day notice on Samsara, Samsara failed to cure or quit within five days after receiving the notice, and Samsara had no viable defenses.

Third, Rreef was seeking attachment for a proper purpose because it sought attachment for no purpose other than to recover rent and charges due and owing under the lease.

Finally, Rreef asserted that the amount to be attached should be $3,796,175.51, consisting of the amount demanded in the 5-day notice ($1,826,697.5) and $1,784,477.53 for the reasonable rental value per day from October 1 through November 30.

Attachment is an ancillary or provisional remedy to aid in the collection of a money demand by seizure of property in advance of trial and judgment.

The amount to be secured by an attachment” is the amount of the defendant’s indebtedness claimed by the plaintiff.

Before an attachment order is issued, the court must find all of the following:

(1) the claim upon which the attachment is based is one upon which an attachment may be issued;

(2) the applicant 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 upon which the request for attachment is based; and

(4) the amount to be secured by the attachment is greater than zero.

The plaintiff has the burden of establishing the probable validity of the claim upon which the attachment is based.

Letters of credit are governed by the Commercial Code, and it defines a letter of credit as “a definite undertaking . . . by an issuer to a beneficiary at the request or for the account of an applicant . . . to honor a documentary presentation by payment or delivery of an item of value.”

There are essentially three relationships that exist in a letter of credit transaction:

that of the bank to its customer who purchases the letter of credit;

that of the bank to the beneficiary to whom it makes a promise to pay; and

that between the customer and the beneficiary.

The parties did not present any case law, nor did the appellate court find any, establishing that a beneficiary’s interest in a letter of credit constitutes a security interest under the Commercial Code, and if it is a security interest, that it is a security interest in the customer’s property.

The appellate court concluded that because the parties agreed to use a letter of credit as collateral for Samsara’s performance under the parties’ lease agreement, Samsara’s performance is secured by its bank’s obligation to pay on the letter of credit, and not by Samsara’s property.

In reaching that conclusion, the appellate court did not decide whether a beneficiary’s interest in a letter of credit constitutes a “security interest” within the meaning of the Commercial Code.

It held only that Reef’s interest in the letter of credit is not a security interest in the property of Samsara, and thus section 483.015(b)(4) did not apply to reduce the amount to be secured by attachment.

Therefore, Samsara had not shown that the trial court erred in concluding that the amount to be secured by attachment is greater than zero.

Before issuing a right to attach order, the trial court must find that the plaintiff’s claim has “ ‘probable validity,’ ” meaning that “it is more likely than not” that the plaintiff will obtain a judgment against the defendant on that claim.

To determine whether a party has demonstrated the probable validity of its claim under attachment law, the court must “consider the relative merits of the positions of the respective parties and make a determination of the probable outcome of the litigation.

In the trial court, Samsara asserted waiver and estoppel defenses as support for its position that Rreef could not establish the probable validity of its claim.

Samsara argued on appeal that the trial court failed to consider those defenses based on a comment the court made at the hearing on Rreef’s attachment application that those defenses were “neither here nor there.” According to Samsara, the trial court erred as a matter of law in granting the application without considering the merits of those defenses.

Samsara argued that the undisputed evidence shows that Rreef waived its right to proceed with the unlawful detainer action when it accepted rent from Samsara after initiating its unlawful detainer action.

A waiver is an intentional relinquishment of a known right.

Waiver is a question of fact for the trial court.

Conduct manifesting an intention to waive, such as acceptance of benefits under a lease, can support a finding of implied waiver.

The burden is on the party claiming a waiver of a right to prove it by clear and convincing evidence that does not leave the matter to speculation; doubtful cases will be decided against a waiver. 

A nonwaiver clause in the parties’ lease agreement militates against a finding of waiver.

A landlord’s acceptance of rent with knowledge of a preceding breach does not always constitute a waiver of the right to assert a forfeiture based on that breach; waiver is ultimately a matter of intent.

In this case, the evidence presented by the parties show that Samsara ceased paying the monthly rent required by the parties’ lease agreement in May 2021, and Rreef immediately served Samsara with a notice of default, which Samsara did not cure.

After the parties were unable to resolve the rent dispute, Rreef drew on the letter of credit in August 2021 to cover the delinquent rent. Rreef then demanded that Samsara replenish the letter of credit, as required by their lease agreement.

When Samsara failed to do so and again failed to pay rent in September 2021, Rreef sent the 5-day notice demanding payment of rent for August and September, and then filed this action a couple of weeks later. Samsara wired payment for the August and September rent to Rreef after Rreef filed the attachment application.

Samsara argued that Rreef is estopped from proceeding with its unlawful detainer action based on Rreef’s opposition to Samsara’s ex parte application to consolidate the unlawful detainer and environmental actions, where Rreef stated that “Samsara has a clear path to eliminating the Unlawful Detainer Action: it can either pay the unpaid rent, under protest, or it can surrender the Premises and return the keys.”

According to Samsara, Rreef is judicially and equitably estopped from asserting its unlawful detainer claim because the trial court denied Samsara’s ex parte application, and Samsara relied on the statement in Rreef’s opposition when it paid the rent demanded in the 5- day notice.

Judicial estoppel prevents a party from asserting a position in a legal proceeding that is contrary to a position previously taken in the same or some earlier proceeding.

The doctrine serves a clear purpose: to protect the integrity of the judicial process.

Judicial estoppel is an “equitable doctrine,” so its application is “discretionary,” even where all elements of the doctrine are met.

The doctrine must be “applied with caution” and is “limited to egregious circumstances.”

It is an “extraordinary" remedy to be invoked when a party’s inconsistent behavior will otherwise result in a miscarriage of justice.

The doctrine applies when: (1) the same party has taken two positions; (2) the positions were taken in judicial or quasi-judicial administrative proceedings; (3) the party was successful in asserting the first position (i.e., the tribunal adopted the position or accepted it as true); (4) the two positions are totally inconsistent; and (5) the first position was not taken as a result of ignorance, fraud, or mistake.

Absent success in a prior proceeding, a party’s later inconsistent position introduces no risk of inconsistent court determinations, and thus poses little threat to judicial integrity.

Finally, Samsara argued that certain comments the trial court made at the hearing on Rreef’s attachment application shows that the court failed to consider Samsara’s retaliatory eviction defense and the issue of whether Rreef was seeking attachment for a proper purpose.

Rreef argued that we should presume the trial court considered those issues, and even if the court failed to consider those issues, Samsara’s retaliatory eviction defense fails as a matter of law.

The appellate court concluded that Samsara’s retaliatory eviction defense did not fail as a matter of law, and that remand was required for the trial court to consider Samsara’s retaliatory eviction defense and the issue whether Rreef sought attachment for a proper purpose.

LESSONS:

1.         Before an attachment order is issued, the court must find all of the following:

            (1) the claim upon which the attachment is based is one upon which an attachment may be issued;

            (2) the applicant 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 upon which the request for attachment is based; and

            (4) the amount to be secured by the attachment is greater than zero.

2.         The plaintiff has the burden of establishing the probable validity of the claim upon which the attachment is based.