Preview
1 Blake C. Alsbrook (SBN 262603)
balsbrook@ecjlaw.com
2 Chase Stone (SBN335228)
cstone@ecjlaw.com
3 ERVIN COHEN & JESSUP LLP
9401 Wilshire Boulevard, Twelfth Floor
4 Beverly Hills, California 90212-2974
Telephone (310) 273-6333
5 Facsimile (310) 859-2325
6 Attorneys for Receiver Kevin Singer
7
8 SUPERIOR COURT OF THE STATE OF CALIFORNIA
9 COUNTY OF SANTA BARBARA – SOUTH COUNTY DIVISION
10
11 EAST WEST BANK, a California state Case No. 23CV02629
banking corporation,
12 Hon. Colleen K. Sterne
Plaintiff,
13 RECEIVER KEVIN SINGER'S NOTICE
v. OF MOTION AND MOTION FOR
14 ISSUANCE OF ORDER AUTHORIZING
HERBL, INC., California corporation, dba AND CONFIRMING SALE OF
15 HERBL, HERBL DISTRIBUTION RECEIVERSHIP PERSONAL
SOLUTIONS, and HDS NATURALS, PROPERTY; DECLARATION OF KEVIN
16 SINGER; MEMORANDUM OF POINTS
Defendant. AND AUTHORITIES
17
Date: January 8, 2024
18 Time: 10:00 a.m.
Dept. 5
19
20 TO ALL PARTIES AND THEIR RESPECTIVE ATTORNEYS OF RECORD:
21 PLEASE TAKE NOTICE that on January 8, 2024, at 10:00 a.m. or as soon thereafter as
22 the matter may be heard, in Department 5 of the above-entitled Court located at 1100 Anacapa
23 Street, Santa Barbara, California 93121-1107, counsel for Court Appointed Receiver Kevin Singer
24 ("Receiver") will appear remotely and move the Court for the issuance of an Order Authorizing
25 and Confirming Sale of Receivership Personal Property comprised of accounts receivable
26 ("Accounts Receivable").
27 This motion is made pursuant to California Code of Civil Procedure §568.5, on the
28 following grounds:
17011.19:11102536.1 1
1 On June 28, 2023, this Court issued an Order (1) Approving Stipulation for Appointment
2 of Receiver; (2) Appointing Receiver; and (3) Issuing Preliminary Injunction (the “Order”). The
3 Order appointed the Receiver with authority to sell “any assets of the Receivership Estate in
4 [Receiver’s] possession on a commercially reasonable basis,” subject to Plaintiff’s reasonable
5 approval and the general sale provisions in the order, and that all applications for approval of
6 receivership assets with a proposed purchase price of more than $250,000 be brought before the
7 Court on noticed motion or ex parte notice.
8 Since the issuance of that Order, the Receiver has diligently carried out the work directed
9 and has entered into an Asset Purchase Agreement (“APA”) to sell the Accounts Receivable to
10 Distro Accounts Receivable LLC (“Buyer”) for $600,000.00, with the sale subject to the final
11 approval of this Court.
12 The APA that the Receiver has reached with Buyer confers a significant benefit on the
13 parties and helps accomplish the purpose for which the Receiver was appointed in this matter.
14 The Receiver therefore seeks the issuance of an Order by this Court allowing him to close the sale
15 in question to Buyer so that the Receiver can close the sale.
16 This motion will be based on the pleadings, papers and records on file herein, the
17 accompanying memorandum of points and authorities, the declaration of Kevin Singer, and all
18 exhibits attached thereto, and any evidence, both oral and documentary, as may be presented at the
19 hearing of this Motion.
20 PLEASE TAKE FURTHER NOTICE that pursuant to the Court’s December 21, 2023
21 ruling on the Receiver’s Ex Parte Application for Order Shortening Time, any opposition to the
22 motion is to be filed and served electronically no later than January 3, 2024, and any reply is to be
23 filed and served electronically no later than January 5, 2024 at noon.
24 DATED: December 21, 2023 ERVIN COHEN & JESSUP LLP
25
26
By:
27 Blake C. Alsbrook
Attorneys for Receiver Kevin Singer
28
17011.19:11108240.1 2
1 DECLARATION OF KEVIN SINGER
2 I, Kevin Singer, declare as follows:
3 1. I am the duly-appointed and acting State Court Receiver in the above-referenced
4 matter. I have personal knowledge of the facts set forth in this Declaration and, if called as a
5 witness, I could and would testify competently to such facts under oath.
6 2. On or about June 28, 2023, this Court entered an Order (1) Approving Stipulation
7 for Appointment of Receiver; (2) Appointing Receiver; and (3) Issuing Preliminary Injunction
8 ("Appointment Order"), appointing me as the Receiver to take complete possession, custody and
9 control of defendant HERBL, Inc. ("Defendant" or "HERBL") and its assets. A true and correct
10 copy of the Appointment Order is attached hereto as Exhibit 1.
11 3. The Appointment Order appointed me as the Receiver over HERBL and "all the
12 assets" of HERBL. (Ex. 1 at ¶1.) The Appointment Order provides that I may "sell any assets of
13 the Receivership Estate in [my] possession on a commercially reasonable basis," subject to
14 Plaintiff's reasonable approval and the general sale provisions in the order, and that all applications
15 for approval of receivership assets with a proposed purchase price of more than $250,000 be
16 brought before the Court on noticed motion or ex parte notice." (Ex. 1 at ¶3(q) and (x).)
17 4. One of HERBL's primary assets is a significant is a significant amount of
18 outstanding, uncollected accounts receivable due from various cannabis dispensaries, totaling
19 approximately $8,728,240. For purposes of simplification and clarification for the Court, HERBL
20 was a distributor of cannabis, meaning that it purchased from growers/manufacturers and sold to
21 retailers on "terms", meaning that it would be paid within a predetermined time period. In many
22 cases the retailers thereafter failed to remit payment, and HERBL therefore retains a right to
23 collect.
24 5. Unfortunately, in many cases, HERBL's failure to recover from retailers meant that
25 it was incapable of paying its own debts due and owing to manufacturers and brands for the
26 purchase of products.
27 / / /
28
17011.19:11102536.1 3
1 6. After my appointment, I retained WeCann, a notable California cannabis asset
2 broker, to assist me in the marketing process for the various assets in this matter. WeCann and my
3 Receivership Administration team spent significant time valuing and marketing the Accounts
4 Receivable, among other property of HERBL.
5 7. In an effort to assist the various brands and manufacturers who were not paid by
6 HERBL, my team scheduled a round table and discussed an arrangement by which the
7 brands/manufacturers could purchase accounts receivable related to the sale of their own products
8 and attempt to collect themselves. Unfortunately, this proposal was rejected by the brands and
9 manufacturers, many of whom were angry and unhappy regarding the demise of HERBL and the
10 general state of the cannabis market in California. I explained to these brands and manufacturers
11 that, to the extent they did not purchase their own accounts receivable, it was my job as Receiver
12 to sell the Accounts Receivable on the open market to the highest bidder, free and clear of liens
13 and claims, meaning that it was quite possible they would not be paid anything, as unsecured
14 creditors. Despite my attempts, the retailers were not forthcoming, and I continued my marketing
15 efforts.
16 8. I received an initial offer from Distro Accounts Receivable LLC ("Buyer") of
17 $900,000.00 for the Accounts Receivable, which was the highest offer I received. My counsel
18 prepared an Asset Purchase Agreement ("APA") that was fully executed on November 9, 2023, a
19 true and correct copy of which is attached hereto as Exhibit 2. The offer from Buyer was
20 ultimately reduced to $600,000.00 (the "Purchase Price") to account for a reduced amount of
21 Accounts Receivable that would be transferred to Buyer as well as market factors such as the
22 closure of certain retailers to be collected from, pursuant to the First Amendment to the APA
23 ("First Amendment") and the Second Amendment to the APA ("Second Amendment"), true and
24 correct copies of which are attached hereto as Exhibits 3 and 4.
25 9. After exercising my business judgment and working directly with my broker, I
26 determined $600,000.00 to be a fair and reasonable purchase price for the Accounts Receivable
27 under the circumstances. Moreover, the sale of the Accounts Receivable is beneficial to the Estate
28 because it accomplishes the sale of a significant asset, does so at market value, and by selling as a
17011.19:11102536.1 4
1 large bundle avoids the transaction costs and legal fees that would be associated with smaller sales
2 of accounts receivable amounts due and owing.
3 10. The APA provides for the sale of the Accounts Receivable free and clear of liens
4 and interests, meaning that no individual or entity will be allowed to claim amounts due and owing
5 from any Accounts Receivable actually collected. Selling free and clear of liens is the only
6 manner in which the Accounts Receivable can be marketed and sold. To the extent that any
7 brands and manufacturers claim rights under payments received, their recovery will be made
8 available from the Receivership Estate funds in their position as unsecured creditors.
9 11. On or about December 11, 2023, pursuant to the PSA, Buyer wired $300,000.00 to
10 my receivership account, and I am currently holding Buyer’s funds pending Court approval of the
11 APA. As agreed upon in the APA, until this Court approves the sale and enters its Order, the
12 funds cannot be used for any purpose. If the sale is denied, the funds will be returned to the Buyer.
13 12. Pursuant to the terms of the Appointment Order, I have obtained the approval of the
14 Plaintiff in this matter for the current transaction.
15 I declare under penalty of perjury under the laws of the State of California that the
16 foregoing is true and correct and that this Declaration was executed on December 21, 2023 at Los
17 Angeles, California.
18
19 Kevin Singer
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24
25
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27
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17011.19:11102536.1 5
1 MEMORANDUM OF POINTS AND AUTHORITIES
2
3 A receiver’s powers in any particular action are established by statute, the appointment
4 order, and the court’s subsequent orders governing the scope and extent of the receiver’s power.
5 (See Cal-American Income Property Fund VII v. Brown Development Corp. (1982) 138
6 Cal.App.3d 268, 273.) “If authorized by court order, a receiver may sell real or personal property
7 in the receiver's possession.” (Miller & Starr, 12 Cal. Real Est. (4th ed. 2023) § 41:13 [citing
8 C.C.P. § 568.5].) The Receiver’s sale of property may be made free and clear of liens. (City of
9 Riverside v. Horspool (2014) 223 Cal.App.4th 670, 684.) Here, the relevant statutory authority,
10 and this Court’s Appointment Order, establish the Receiver’s authority to sell the Accounts
11 Receivable as described in the APA.
12 As described in the Declaration of Kevin Singer above, after exercising his business
13 judgment, the Receiver determined that the sale of the Accounts Receivable for the Purchase Price
14 of $600,000.00 is fair and reasonable under the circumstances. Disposing of the Accounts
15 Receivable in this manner meets the exigencies of the case and is in the best interests the creditors.
16 Consequently, the Receiver respectfully requests this Court authorize and confirm the sale
17 immediately.
18
19 DATED: December 21, 2023 ERVIN COHEN & JESSUP LLP
20
21
By:
22 Blake C. Alsbrook
Attorneys for Receiver Kevin Singer
23
24
25
26
27
28
17011.19:11102536.1 6
EXH IBIT “1”
Pursuant to CRC 2.259 this document has been electronically filed by the NB
Superior Court of California, County of Santa Barbara, on 6/26/2023
Marshall J. Hogan (#286147)
FILED
1234567009 SUPERIOR COURT of CALIFORNIA
mhogan@sw1aw_com COUNTY of SANTA BARBARA
Andrew B Still (#312444) 06/28/2023
astill@swlaw.com Darrel E.
-
ExecutIve Officer
SNELL & WILMER L.L.P.
.
Parker,‘
BY Chavez, TerrI
600 Anton Boulevard, Su1te 1400 Deputy Clerk
Costa Mesa, CA 92626-7689
Telephone: 714.427.7000
Facsimile: 714.427.7799
Bryce A. Suzuki (pro hac vice forthcoming)
bsuzuki@swlaw.com
SNELL & WILMER L.L.P.
One East Washington Street, Suite 2700
Phoenix, AZ 85004
Telephone: 602.382.6000
Facsimile: 602.382.6070
10 Attorneys for Plaintiff
EAST WEST BANK
11
12
SUPERIOR COURT OF THE STATE OF CALIFORNIA
600 Anton Boulevard, Suite 1400
Wilmer
1
3
13
LAW OFFICES
82.2.1.1:
(714) 427—7000
COUNTY OF SANTA BARBARA— SOUTH COUNTY DIVISION
1
4
4}.
p—I
Snell &L.L.P.
1
G
5
EAST WEST BANK, a California state CASE NO. 23CV02629
1
6
380
banking corporation,
Assigned to: Hon. Colleen K. Stern
1
7
Plaintiff,
[WRDER
1
oo
vs.
(l) APPROVING STIPULATION FOR
1
9
HERBL, INC., a California corporation, APPOPINTMENT OF RECEIVER;
dba HERBL, HERBL DISTRIBUTION
2
0
SOLUTIONS, and HDS NATURALS, (2) APPOINTING RECEIVER; AND
2
1
Defendant. (3) ISSUING PRELIMINARY
INJUNCTION
2
2
Hearing Information:
2
3
Date: June 28, 2023
Time: 8:30 AM.
2
4
Dept.:5
2
5
Complaint Filed: June 20, 2023
2
6
2
7
28
[PROPOSED] ORDER APPOINTING RECEIVER AND ISSUING PRELIMINARY INJUNCTION
4871-1287-1263.6 Exhibit "1'
Page 7
1 The Court, having considered (i) the Complaint filed by Plaintiff East West Bank
2 (“Plaintiff”), (ii) the Stipulation for Appointment of Receiver and Issuance of Preliminary
3 Injunction (“Stipulation”); (iii) the Nomination of Kevin Singer as Receiver; and (iv) the Oath of
4 Receiver; and good cause appearing, makes and enters the following Order:
5 IT IS ORDERED that the Stipulation is granted.
6 RECEIVER’S APPOINTMENT AND DUTIES
7 IT IS FURTHER ORDERED that:
8 1. Kevin Singer shall be and is appointed as Receiver (“Receiver”) of defendant
9 HERBL, Inc. (“Defendant”) and all the assets of Defendant (collectively, the “Receivership
10 Estate”), with the full power of a general equity receiver.
11 2. Upon the entry of this Order, and because the Receiver has already filed his Oath
12 of Receiver, the Receiver shall be vested with all the powers and responsibilities of a general
Costa Mesa, California 92626-7689
600 Anton Boulevard, Suite 1400
Wilmer
13 equity receiver as provided by law to receivers and as specifically set forth herein.
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(714) 427-7000
14 3. The Receiver is authorized and directed to perform the following duties:
Snell &L.L.P.
15 a. Take possession, custody and control of the Receivership Estate.
16 b. Assume full control of Defendant, including by removing, as the Receiver
17 deems necessary or advisable, any director, officer, manager, independent contractor, employee,
18 or agent of any Defendant, from control of, management of, or participation in, the affairs of
19 Defendant.
20 c. Acquire from Defendant, its members, officers, managers, accountants,
21 managing members, and agents, all keys, contracts, agreements, all books and records, books of
22 account, ledgers, operating statement, budgets, all banking records, tax bills wherever located,
23 applicable to the Receivership Estate, documentation pertaining to all contracts, completed or in
24 progress, all lease and/or rental agreements, leasehold interests, and all documents, records and
25 accounts pertaining to the operation, development, and operation of Defendant and the
26 Receivership Estate, expressly including, but not be limited to, all information contained on
27 computers and any and all software relating thereto, including any and all passwords, usernames,
28 security questions to access any systems or online portals or accounts necessary to operate or
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[PROPOSED] ORDER APPOINTING RECEIVER AND ISSUING PRELIMINARY INJUNCTION
4871-1287-1263.6 Exhibit "1'
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1 administer the business and/or any of the Receivership Estate.
2 d. Notify the United States Post Office or other mail depository of this Order
3 and instruct it to divert mail to the Receiver;
4 e. Notify applicable local, state and federal taxing authorities of the
5 commencement of the receivership and communicate with said authorities on behalf of the
6 Receivership Estate.
7 f. Open one or more bank accounts for the deposit of assets subject to the
8 receivership, deposit all assets collected in such designated account(s) and, make all payments
9 and disbursements from the Receivership Estate from such account(s).
10 g. Subject to an operating budget reasonably acceptable to Plaintiff, continue
11 to conduct the business, or cease operation of the business, of Defendants in such manner, and to
12 such extent, and for such duration as Receiver may in good faith deem to be necessary or
Costa Mesa, California 92626-7689
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13 appropriate to operate the businesses profitably and lawfully, if at all.
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14 h. Terminate or, subject to an operating budget reasonably acceptable to
Snell &L.L.P.
15 Plaintiff, retain existing employees or related parties in order to continue any business operations,
16 and in case of such retention, all payroll taxes, workers’ compensation insurance, and related
17 costs will be carried and reported as those of Defendant or such related parties, and not of the
18 Receivership Estate.
19 i. Demand, receive, take control of, and collect all income, rents, issues,
20 profits, proceeds, sales, and all other monies arising from assets of the Receivership Estate,
21 including but not limited to, cash, bank accounts, funds in safety deposit boxes, funds in safes,
22 accounts receivable, monies, checks, drafts, securities, letters of credit and any tangible and
23 intangible pledges as security for the letters of credit; collect debts and compromise same; and
24 take any action respecting assets of the Receivership Estate which the Court may authorize. The
25 Receiver shall have the authority to change signatures to the Receiver on signature cards for
26 existing accounts, and to transfer existing accounts, or funds in existing accounts, into account(s)
27 established by the Receiver. Receiver shall have the authority to receive and endorse checks
28 constituting income from the Receivership Estate.
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4871-1287-1263.6 Exhibit "1'
Page 9
1 j. Instruct any individuals making payments to Defendant to instead make all
2 payments to Receiver.
3 k. Subject to an operating budget reasonably acceptable to Plaintiff, enter into
4 contracts and purchase insurance as the Receiver reasonably deems necessary. If the Receivership
5 Estate has insufficient funds to purchase adequate insurance coverage for the Receivership Estate,
6 funds may be supplied by Plaintiff, or Receiver will seek instructions from the Court with respect
7 to whether insurance will be obtained and how it is to be paid for. Consistent with existing law,
8 the Receiver shall not be responsible for claims or damages arising from not procuring or inability
9 to obtain insurance.
10 l. Subject to an operating budget reasonably acceptable to Plaintiff, obtain
11 and pay for any licenses or permits that the Receiver reasonably believes to be necessary for
12 operation of the Receivership Estate. The Receiver is authorized to assume and utilize and pre-
Costa Mesa, California 92626-7689
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13 existing licenses or permits, including without limitation licenses governed by the California
LAW OFFICES
(714) 427-7000
14 Department of Cannabis Control, subject to applicable regulations and requirements. This Order
Snell &L.L.P.
15 shall constitute sufficient documentation under section 15024(b)(4) of Article 3, Division 19 of
16 Title 4 of the California Code of Regulations to show that the Defendant is incapable of
17 performing the duties associated with any license issued under the Medicinal and Adult-Use
18 Cannabis Regulation and Safety Act throughout the term of the receivership. The Receiver may
19 also enter into agreements with local and state government to use or extend licenses, permits, or
20 other authorizations currently in place with respect to the Receivership Estate.
21 m. Subject to an operating budget reasonably acceptable to Plaintiff, incur
22 expenses as Receiver deems advisable or necessary for the care, preservation, and maintenance of
23 the Receivership Estate.
24 n. Maintain accurate records of all receipts and expenditures that the Receiver
25 makes.
26 o. Choose, engage, and employ agents, employees, attorneys, accountants,
27 appraisers, property managers, and other independent contractors and technical specialists as
28 Receiver deems advisable or necessary in the performance of duties and responsibilities under the
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4871-1287-1263.6 Exhibit "1'
Page 10
1 authority granted by this Order. Subject to an operating budget reasonably acceptable to Plaintiff,
2 Receiver shall be permitted to pay such individuals out of funds that come into his possession as
3 Receiver to administer the Receivership Estate. Any liability arising therefrom shall be the sole
4 risk and obligation of the Receivership Estate, and not the personal liability of the Receiver.
5 p. Do all things and incur the risks and obligations in managing assets of the
6 Receivership Estate as ordinarily incurred by owners, managers, and operators of similar assets;
7 provided, however, that no such risk or obligation so incurred shall be the personal risk or
8 obligation of Receiver, but shall be the risk and obligation of the Receivership Estate.
9 q. Subject to Plaintiff’s reasonable approval and paragraph 3.x., infra, sell any
10 assets of the Receivership Estate in Receiver’s possession on a commercially reasonable basis.
11 r. Use any tax identification or social security numbers previously used in
12 collection with the operation of assets or documents of the Receivership Estate. For the avoidance
Costa Mesa, California 92626-7689
600 Anton Boulevard, Suite 1400
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13 of doubt, the Receiver may use the State and Federal taxpayer identification numbers of
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(714) 427-7000
14 Defendant in connection with all accounts and accounting for the Receivership Estate.
Snell &L.L.P.
15 s. Issue subpoenas and conduct and participate in discovery, take depositions,
16 pursue contempt actions, and otherwise pursue all remedies available on behalf of the
17 Receivership Estate and/or to ensure compliance with Receiver’s authority granted herein.
18 t. Cooperate with reasonable requests for information or assistance from
19 applicable law enforcement agencies.
20 u. Institute, adjust, appear in, intervene in, defend, or compromise or
21 otherwise dispose of legal actions in state, federal, or foreign courts or arbitration proceedings as
22 the Receiver deems necessary or advisable to recover, protect, maintain, or sell assets of the
23 Receivership Estate, or that the Receiver deems necessary or advisable to carry out the Receiver’s
24 mandate under this Order, including, but not limited to, actions challenging fraudulent or voidable
25 transfers.
26 v. Exercise any power authorized by statute or ordered by the Court.
27 w. Apply to this Court, at any time, for further or other instructions or orders
28 or for additional or other powers necessary to enable Receiver to properly perform his duties.
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[PROPOSED] ORDER APPOINTING RECEIVER AND ISSUING PRELIMINARY INJUNCTION
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1 x. Market for sale, and subject to notice to all parties and with the consent of
2 the Court, sell all, or substantially all, of the receivership assets, including the Defendant’s
3 business as a going concern, execute all documents required for such sale, and undertake any and
4 all duties required to effectuate such sale. All applications for approval of such sale, or any other
5 sale of assets with a proposed purchase price of more than $250,000, shall be brought before this
6 Court by the Receiver on noticed motion or if time does not allow, by ex parte notice to all
7 parties. Where such application is brought on ex parte notice, all parties shall, unless the Court
8 indicates otherwise, have seven (7) calendar days within which they may file objections together
9 with supporting evidence as to the price or terms of such sale, in which case the Court may either
10 order further briefing, and/or set a hearing for further argument or rule on the pleadings then on
11 file. If no objection is filed within said seven (7) day time period to any ex parte application, the
12 Court will conclude that there is no opposition to the Receiver’s application.
Costa Mesa, California 92626-7689
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13 y. Upon a sale of assets pursuant to the immediately preceding paragraph, the
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14 Receiver shall disburse, or if appropriate, instruct escrow to distribute all net funds resulting from
Snell &L.L.P.
15 said sale(s) as follows:
16 (i) First to the payment of all fees and expenses incurred by the
17 Receiver and its professionals in managing the Receivership Estate;
18 (ii) Second to the expenses of administering the receivership;
19 (iii) Third to the payment of Plaintiff’s claim;
20 (iv) Fourth to the payment of any taxes which, if not paid, would form
21 the basis for a lien on the Receivership Estate; and
22 (v) The remainder to be held by the Receiver until further order of this
23 Court in an interest-bearing segregated account with all liens attaching to those
24 funds in the priority in which they are entitled to be paid. However, the Receiver,
25 at any time, may use these segregated funds to pay any taxes, fines, fees or other
26 governmental agency costs or assessments attributable to the Property as they
27 become due.
28 4. All expenses of the operation of Defendant’s business are the risk of the
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4871-1287-1263.6 Exhibit "1'
Page 12
1 Receivership Estate and not the personal obligation of the Receiver.
2 5. A conformed copy of this Order shall be as good as a certified copy for the
3 Receiver’s purposes of taking possession and control of Defendant’s business and the assets and
4 documents subject to this order.
5 PRELIMINARY INJUNCTION, REQUIRED COOPERATION, AND
6 STAY OF ACTIONS
7 IT IS FURTHER ORDERED that:
8 6. Defendant and its agents, partners, joint venturers, property managers, officers,
9 employees, assignees, successors, attorneys, representatives, and all persons acting under, in
10 concert with, or for them, and all other persons
Preview
1 Blake C. Alsbrook (SBN 262603) balsbrook@ecjlaw.com 2 Chase Stone (SBN335228) cstone@ecjlaw.com 3 ERVIN COHEN & JESSUP LLP 9401 Wilshire Boulevard, Twelfth Floor 4 Beverly Hills, California 90212-2974 Telephone (310) 273-6333 5 Facsimile (310) 859-2325 6 Attorneys for Receiver Kevin Singer 7 8 SUPERIOR COURT OF THE STATE OF CALIFORNIA 9 COUNTY OF SANTA BARBARA – SOUTH COUNTY DIVISION 10 11 EAST WEST BANK, a California state Case No. 23CV02629 banking corporation, 12 Hon. Colleen K. Sterne Plaintiff, 13 RECEIVER KEVIN SINGER'S NOTICE v. OF MOTION AND MOTION FOR 14 ISSUANCE OF ORDER AUTHORIZING HERBL, INC., California corporation, dba AND CONFIRMING SALE OF 15 HERBL, HERBL DISTRIBUTION RECEIVERSHIP PERSONAL SOLUTIONS, and HDS NATURALS, PROPERTY; DECLARATION OF KEVIN 16 SINGER; MEMORANDUM OF POINTS Defendant. AND AUTHORITIES 17 Date: January 8, 2024 18 Time: 10:00 a.m. Dept. 5 19 20 TO ALL PARTIES AND THEIR RESPECTIVE ATTORNEYS OF RECORD: 21 PLEASE TAKE NOTICE that on January 8, 2024, at 10:00 a.m. or as soon thereafter as 22 the matter may be heard, in Department 5 of the above-entitled Court located at 1100 Anacapa 23 Street, Santa Barbara, California 93121-1107, counsel for Court Appointed Receiver Kevin Singer 24 ("Receiver") will appear remotely and move the Court for the issuance of an Order Authorizing 25 and Confirming Sale of Receivership Personal Property comprised of accounts receivable 26 ("Accounts Receivable"). 27 This motion is made pursuant to California Code of Civil Procedure §568.5, on the 28 following grounds: 17011.19:11102536.1 1 1 On June 28, 2023, this Court issued an Order (1) Approving Stipulation for Appointment 2 of Receiver; (2) Appointing Receiver; and (3) Issuing Preliminary Injunction (the “Order”). The 3 Order appointed the Receiver with authority to sell “any assets of the Receivership Estate in 4 [Receiver’s] possession on a commercially reasonable basis,” subject to Plaintiff’s reasonable 5 approval and the general sale provisions in the order, and that all applications for approval of 6 receivership assets with a proposed purchase price of more than $250,000 be brought before the 7 Court on noticed motion or ex parte notice. 8 Since the issuance of that Order, the Receiver has diligently carried out the work directed 9 and has entered into an Asset Purchase Agreement (“APA”) to sell the Accounts Receivable to 10 Distro Accounts Receivable LLC (“Buyer”) for $600,000.00, with the sale subject to the final 11 approval of this Court. 12 The APA that the Receiver has reached with Buyer confers a significant benefit on the 13 parties and helps accomplish the purpose for which the Receiver was appointed in this matter. 14 The Receiver therefore seeks the issuance of an Order by this Court allowing him to close the sale 15 in question to Buyer so that the Receiver can close the sale. 16 This motion will be based on the pleadings, papers and records on file herein, the 17 accompanying memorandum of points and authorities, the declaration of Kevin Singer, and all 18 exhibits attached thereto, and any evidence, both oral and documentary, as may be presented at the 19 hearing of this Motion. 20 PLEASE TAKE FURTHER NOTICE that pursuant to the Court’s December 21, 2023 21 ruling on the Receiver’s Ex Parte Application for Order Shortening Time, any opposition to the 22 motion is to be filed and served electronically no later than January 3, 2024, and any reply is to be 23 filed and served electronically no later than January 5, 2024 at noon. 24 DATED: December 21, 2023 ERVIN COHEN & JESSUP LLP 25 26 By: 27 Blake C. Alsbrook Attorneys for Receiver Kevin Singer 28 17011.19:11108240.1 2 1 DECLARATION OF KEVIN SINGER 2 I, Kevin Singer, declare as follows: 3 1. I am the duly-appointed and acting State Court Receiver in the above-referenced 4 matter. I have personal knowledge of the facts set forth in this Declaration and, if called as a 5 witness, I could and would testify competently to such facts under oath. 6 2. On or about June 28, 2023, this Court entered an Order (1) Approving Stipulation 7 for Appointment of Receiver; (2) Appointing Receiver; and (3) Issuing Preliminary Injunction 8 ("Appointment Order"), appointing me as the Receiver to take complete possession, custody and 9 control of defendant HERBL, Inc. ("Defendant" or "HERBL") and its assets. A true and correct 10 copy of the Appointment Order is attached hereto as Exhibit 1. 11 3. The Appointment Order appointed me as the Receiver over HERBL and "all the 12 assets" of HERBL. (Ex. 1 at ¶1.) The Appointment Order provides that I may "sell any assets of 13 the Receivership Estate in [my] possession on a commercially reasonable basis," subject to 14 Plaintiff's reasonable approval and the general sale provisions in the order, and that all applications 15 for approval of receivership assets with a proposed purchase price of more than $250,000 be 16 brought before the Court on noticed motion or ex parte notice." (Ex. 1 at ¶3(q) and (x).) 17 4. One of HERBL's primary assets is a significant is a significant amount of 18 outstanding, uncollected accounts receivable due from various cannabis dispensaries, totaling 19 approximately $8,728,240. For purposes of simplification and clarification for the Court, HERBL 20 was a distributor of cannabis, meaning that it purchased from growers/manufacturers and sold to 21 retailers on "terms", meaning that it would be paid within a predetermined time period. In many 22 cases the retailers thereafter failed to remit payment, and HERBL therefore retains a right to 23 collect. 24 5. Unfortunately, in many cases, HERBL's failure to recover from retailers meant that 25 it was incapable of paying its own debts due and owing to manufacturers and brands for the 26 purchase of products. 27 / / / 28 17011.19:11102536.1 3 1 6. After my appointment, I retained WeCann, a notable California cannabis asset 2 broker, to assist me in the marketing process for the various assets in this matter. WeCann and my 3 Receivership Administration team spent significant time valuing and marketing the Accounts 4 Receivable, among other property of HERBL. 5 7. In an effort to assist the various brands and manufacturers who were not paid by 6 HERBL, my team scheduled a round table and discussed an arrangement by which the 7 brands/manufacturers could purchase accounts receivable related to the sale of their own products 8 and attempt to collect themselves. Unfortunately, this proposal was rejected by the brands and 9 manufacturers, many of whom were angry and unhappy regarding the demise of HERBL and the 10 general state of the cannabis market in California. I explained to these brands and manufacturers 11 that, to the extent they did not purchase their own accounts receivable, it was my job as Receiver 12 to sell the Accounts Receivable on the open market to the highest bidder, free and clear of liens 13 and claims, meaning that it was quite possible they would not be paid anything, as unsecured 14 creditors. Despite my attempts, the retailers were not forthcoming, and I continued my marketing 15 efforts. 16 8. I received an initial offer from Distro Accounts Receivable LLC ("Buyer") of 17 $900,000.00 for the Accounts Receivable, which was the highest offer I received. My counsel 18 prepared an Asset Purchase Agreement ("APA") that was fully executed on November 9, 2023, a 19 true and correct copy of which is attached hereto as Exhibit 2. The offer from Buyer was 20 ultimately reduced to $600,000.00 (the "Purchase Price") to account for a reduced amount of 21 Accounts Receivable that would be transferred to Buyer as well as market factors such as the 22 closure of certain retailers to be collected from, pursuant to the First Amendment to the APA 23 ("First Amendment") and the Second Amendment to the APA ("Second Amendment"), true and 24 correct copies of which are attached hereto as Exhibits 3 and 4. 25 9. After exercising my business judgment and working directly with my broker, I 26 determined $600,000.00 to be a fair and reasonable purchase price for the Accounts Receivable 27 under the circumstances. Moreover, the sale of the Accounts Receivable is beneficial to the Estate 28 because it accomplishes the sale of a significant asset, does so at market value, and by selling as a 17011.19:11102536.1 4 1 large bundle avoids the transaction costs and legal fees that would be associated with smaller sales 2 of accounts receivable amounts due and owing. 3 10. The APA provides for the sale of the Accounts Receivable free and clear of liens 4 and interests, meaning that no individual or entity will be allowed to claim amounts due and owing 5 from any Accounts Receivable actually collected. Selling free and clear of liens is the only 6 manner in which the Accounts Receivable can be marketed and sold. To the extent that any 7 brands and manufacturers claim rights under payments received, their recovery will be made 8 available from the Receivership Estate funds in their position as unsecured creditors. 9 11. On or about December 11, 2023, pursuant to the PSA, Buyer wired $300,000.00 to 10 my receivership account, and I am currently holding Buyer’s funds pending Court approval of the 11 APA. As agreed upon in the APA, until this Court approves the sale and enters its Order, the 12 funds cannot be used for any purpose. If the sale is denied, the funds will be returned to the Buyer. 13 12. Pursuant to the terms of the Appointment Order, I have obtained the approval of the 14 Plaintiff in this matter for the current transaction. 15 I declare under penalty of perjury under the laws of the State of California that the 16 foregoing is true and correct and that this Declaration was executed on December 21, 2023 at Los 17 Angeles, California. 18 19 Kevin Singer 20 21 22 23 24 25 26 27 28 17011.19:11102536.1 5 1 MEMORANDUM OF POINTS AND AUTHORITIES 2 3 A receiver’s powers in any particular action are established by statute, the appointment 4 order, and the court’s subsequent orders governing the scope and extent of the receiver’s power. 5 (See Cal-American Income Property Fund VII v. Brown Development Corp. (1982) 138 6 Cal.App.3d 268, 273.) “If authorized by court order, a receiver may sell real or personal property 7 in the receiver's possession.” (Miller & Starr, 12 Cal. Real Est. (4th ed. 2023) § 41:13 [citing 8 C.C.P. § 568.5].) The Receiver’s sale of property may be made free and clear of liens. (City of 9 Riverside v. Horspool (2014) 223 Cal.App.4th 670, 684.) Here, the relevant statutory authority, 10 and this Court’s Appointment Order, establish the Receiver’s authority to sell the Accounts 11 Receivable as described in the APA. 12 As described in the Declaration of Kevin Singer above, after exercising his business 13 judgment, the Receiver determined that the sale of the Accounts Receivable for the Purchase Price 14 of $600,000.00 is fair and reasonable under the circumstances. Disposing of the Accounts 15 Receivable in this manner meets the exigencies of the case and is in the best interests the creditors. 16 Consequently, the Receiver respectfully requests this Court authorize and confirm the sale 17 immediately. 18 19 DATED: December 21, 2023 ERVIN COHEN & JESSUP LLP 20 21 By: 22 Blake C. Alsbrook Attorneys for Receiver Kevin Singer 23 24 25 26 27 28 17011.19:11102536.1 6 EXH IBIT “1” Pursuant to CRC 2.259 this document has been electronically filed by the NB Superior Court of California, County of Santa Barbara, on 6/26/2023 Marshall J. Hogan (#286147) FILED 1234567009 SUPERIOR COURT of CALIFORNIA mhogan@sw1aw_com COUNTY of SANTA BARBARA Andrew B Still (#312444) 06/28/2023 astill@swlaw.com Darrel E. - ExecutIve Officer SNELL & WILMER L.L.P. . Parker,‘ BY Chavez, TerrI 600 Anton Boulevard, Su1te 1400 Deputy Clerk Costa Mesa, CA 92626-7689 Telephone: 714.427.7000 Facsimile: 714.427.7799 Bryce A. Suzuki (pro hac vice forthcoming) bsuzuki@swlaw.com SNELL & WILMER L.L.P. One East Washington Street, Suite 2700 Phoenix, AZ 85004 Telephone: 602.382.6000 Facsimile: 602.382.6070 10 Attorneys for Plaintiff EAST WEST BANK 11 12 SUPERIOR COURT OF THE STATE OF CALIFORNIA 600 Anton Boulevard, Suite 1400 Wilmer 1 3 13 LAW OFFICES 82.2.1.1: (714) 427—7000 COUNTY OF SANTA BARBARA— SOUTH COUNTY DIVISION 1 4 4}. p—I Snell &L.L.P. 1 G 5 EAST WEST BANK, a California state CASE NO. 23CV02629 1 6 380 banking corporation, Assigned to: Hon. Colleen K. Stern 1 7 Plaintiff, [WRDER 1 oo vs. (l) APPROVING STIPULATION FOR 1 9 HERBL, INC., a California corporation, APPOPINTMENT OF RECEIVER; dba HERBL, HERBL DISTRIBUTION 2 0 SOLUTIONS, and HDS NATURALS, (2) APPOINTING RECEIVER; AND 2 1 Defendant. (3) ISSUING PRELIMINARY INJUNCTION 2 2 Hearing Information: 2 3 Date: June 28, 2023 Time: 8:30 AM. 2 4 Dept.:5 2 5 Complaint Filed: June 20, 2023 2 6 2 7 28 [PROPOSED] ORDER APPOINTING RECEIVER AND ISSUING PRELIMINARY INJUNCTION 4871-1287-1263.6 Exhibit "1' Page 7 1 The Court, having considered (i) the Complaint filed by Plaintiff East West Bank 2 (“Plaintiff”), (ii) the Stipulation for Appointment of Receiver and Issuance of Preliminary 3 Injunction (“Stipulation”); (iii) the Nomination of Kevin Singer as Receiver; and (iv) the Oath of 4 Receiver; and good cause appearing, makes and enters the following Order: 5 IT IS ORDERED that the Stipulation is granted. 6 RECEIVER’S APPOINTMENT AND DUTIES 7 IT IS FURTHER ORDERED that: 8 1. Kevin Singer shall be and is appointed as Receiver (“Receiver”) of defendant 9 HERBL, Inc. (“Defendant”) and all the assets of Defendant (collectively, the “Receivership 10 Estate”), with the full power of a general equity receiver. 11 2. Upon the entry of this Order, and because the Receiver has already filed his Oath 12 of Receiver, the Receiver shall be vested with all the powers and responsibilities of a general Costa Mesa, California 92626-7689 600 Anton Boulevard, Suite 1400 Wilmer 13 equity receiver as provided by law to receivers and as specifically set forth herein. LAW OFFICES (714) 427-7000 14 3. The Receiver is authorized and directed to perform the following duties: Snell &L.L.P. 15 a. Take possession, custody and control of the Receivership Estate. 16 b. Assume full control of Defendant, including by removing, as the Receiver 17 deems necessary or advisable, any director, officer, manager, independent contractor, employee, 18 or agent of any Defendant, from control of, management of, or participation in, the affairs of 19 Defendant. 20 c. Acquire from Defendant, its members, officers, managers, accountants, 21 managing members, and agents, all keys, contracts, agreements, all books and records, books of 22 account, ledgers, operating statement, budgets, all banking records, tax bills wherever located, 23 applicable to the Receivership Estate, documentation pertaining to all contracts, completed or in 24 progress, all lease and/or rental agreements, leasehold interests, and all documents, records and 25 accounts pertaining to the operation, development, and operation of Defendant and the 26 Receivership Estate, expressly including, but not be limited to, all information contained on 27 computers and any and all software relating thereto, including any and all passwords, usernames, 28 security questions to access any systems or online portals or accounts necessary to operate or -2- [PROPOSED] ORDER APPOINTING RECEIVER AND ISSUING PRELIMINARY INJUNCTION 4871-1287-1263.6 Exhibit "1' Page 8 1 administer the business and/or any of the Receivership Estate. 2 d. Notify the United States Post Office or other mail depository of this Order 3 and instruct it to divert mail to the Receiver; 4 e. Notify applicable local, state and federal taxing authorities of the 5 commencement of the receivership and communicate with said authorities on behalf of the 6 Receivership Estate. 7 f. Open one or more bank accounts for the deposit of assets subject to the 8 receivership, deposit all assets collected in such designated account(s) and, make all payments 9 and disbursements from the Receivership Estate from such account(s). 10 g. Subject to an operating budget reasonably acceptable to Plaintiff, continue 11 to conduct the business, or cease operation of the business, of Defendants in such manner, and to 12 such extent, and for such duration as Receiver may in good faith deem to be necessary or Costa Mesa, California 92626-7689 600 Anton Boulevard, Suite 1400 Wilmer 13 appropriate to operate the businesses profitably and lawfully, if at all. LAW OFFICES (714) 427-7000 14 h. Terminate or, subject to an operating budget reasonably acceptable to Snell &L.L.P. 15 Plaintiff, retain existing employees or related parties in order to continue any business operations, 16 and in case of such retention, all payroll taxes, workers’ compensation insurance, and related 17 costs will be carried and reported as those of Defendant or such related parties, and not of the 18 Receivership Estate. 19 i. Demand, receive, take control of, and collect all income, rents, issues, 20 profits, proceeds, sales, and all other monies arising from assets of the Receivership Estate, 21 including but not limited to, cash, bank accounts, funds in safety deposit boxes, funds in safes, 22 accounts receivable, monies, checks, drafts, securities, letters of credit and any tangible and 23 intangible pledges as security for the letters of credit; collect debts and compromise same; and 24 take any action respecting assets of the Receivership Estate which the Court may authorize. The 25 Receiver shall have the authority to change signatures to the Receiver on signature cards for 26 existing accounts, and to transfer existing accounts, or funds in existing accounts, into account(s) 27 established by the Receiver. Receiver shall have the authority to receive and endorse checks 28 constituting income from the Receivership Estate. -3- [PROPOSED] ORDER APPOINTING RECEIVER AND ISSUING PRELIMINARY INJUNCTION 4871-1287-1263.6 Exhibit "1' Page 9 1 j. Instruct any individuals making payments to Defendant to instead make all 2 payments to Receiver. 3 k. Subject to an operating budget reasonably acceptable to Plaintiff, enter into 4 contracts and purchase insurance as the Receiver reasonably deems necessary. If the Receivership 5 Estate has insufficient funds to purchase adequate insurance coverage for the Receivership Estate, 6 funds may be supplied by Plaintiff, or Receiver will seek instructions from the Court with respect 7 to whether insurance will be obtained and how it is to be paid for. Consistent with existing law, 8 the Receiver shall not be responsible for claims or damages arising from not procuring or inability 9 to obtain insurance. 10 l. Subject to an operating budget reasonably acceptable to Plaintiff, obtain 11 and pay for any licenses or permits that the Receiver reasonably believes to be necessary for 12 operation of the Receivership Estate. The Receiver is authorized to assume and utilize and pre- Costa Mesa, California 92626-7689 600 Anton Boulevard, Suite 1400 Wilmer 13 existing licenses or permits, including without limitation licenses governed by the California LAW OFFICES (714) 427-7000 14 Department of Cannabis Control, subject to applicable regulations and requirements. This Order Snell &L.L.P. 15 shall constitute sufficient documentation under section 15024(b)(4) of Article 3, Division 19 of 16 Title 4 of the California Code of Regulations to show that the Defendant is incapable of 17 performing the duties associated with any license issued under the Medicinal and Adult-Use 18 Cannabis Regulation and Safety Act throughout the term of the receivership. The Receiver may 19 also enter into agreements with local and state government to use or extend licenses, permits, or 20 other authorizations currently in place with respect to the Receivership Estate. 21 m. Subject to an operating budget reasonably acceptable to Plaintiff, incur 22 expenses as Receiver deems advisable or necessary for the care, preservation, and maintenance of 23 the Receivership Estate. 24 n. Maintain accurate records of all receipts and expenditures that the Receiver 25 makes. 26 o. Choose, engage, and employ agents, employees, attorneys, accountants, 27 appraisers, property managers, and other independent contractors and technical specialists as 28 Receiver deems advisable or necessary in the performance of duties and responsibilities under the -4- [PROPOSED] ORDER APPOINTING RECEIVER AND ISSUING PRELIMINARY INJUNCTION 4871-1287-1263.6 Exhibit "1' Page 10 1 authority granted by this Order. Subject to an operating budget reasonably acceptable to Plaintiff, 2 Receiver shall be permitted to pay such individuals out of funds that come into his possession as 3 Receiver to administer the Receivership Estate. Any liability arising therefrom shall be the sole 4 risk and obligation of the Receivership Estate, and not the personal liability of the Receiver. 5 p. Do all things and incur the risks and obligations in managing assets of the 6 Receivership Estate as ordinarily incurred by owners, managers, and operators of similar assets; 7 provided, however, that no such risk or obligation so incurred shall be the personal risk or 8 obligation of Receiver, but shall be the risk and obligation of the Receivership Estate. 9 q. Subject to Plaintiff’s reasonable approval and paragraph 3.x., infra, sell any 10 assets of the Receivership Estate in Receiver’s possession on a commercially reasonable basis. 11 r. Use any tax identification or social security numbers previously used in 12 collection with the operation of assets or documents of the Receivership Estate. For the avoidance Costa Mesa, California 92626-7689 600 Anton Boulevard, Suite 1400 Wilmer 13 of doubt, the Receiver may use the State and Federal taxpayer identification numbers of LAW OFFICES (714) 427-7000 14 Defendant in connection with all accounts and accounting for the Receivership Estate. Snell &L.L.P. 15 s. Issue subpoenas and conduct and participate in discovery, take depositions, 16 pursue contempt actions, and otherwise pursue all remedies available on behalf of the 17 Receivership Estate and/or to ensure compliance with Receiver’s authority granted herein. 18 t. Cooperate with reasonable requests for information or assistance from 19 applicable law enforcement agencies. 20 u. Institute, adjust, appear in, intervene in, defend, or compromise or 21 otherwise dispose of legal actions in state, federal, or foreign courts or arbitration proceedings as 22 the Receiver deems necessary or advisable to recover, protect, maintain, or sell assets of the 23 Receivership Estate, or that the Receiver deems necessary or advisable to carry out the Receiver’s 24 mandate under this Order, including, but not limited to, actions challenging fraudulent or voidable 25 transfers. 26 v. Exercise any power authorized by statute or ordered by the Court. 27 w. Apply to this Court, at any time, for further or other instructions or orders 28 or for additional or other powers necessary to enable Receiver to properly perform his duties. -5- [PROPOSED] ORDER APPOINTING RECEIVER AND ISSUING PRELIMINARY INJUNCTION 4871-1287-1263.6 Exhibit "1' Page 11 1 x. Market for sale, and subject to notice to all parties and with the consent of 2 the Court, sell all, or substantially all, of the receivership assets, including the Defendant’s 3 business as a going concern, execute all documents required for such sale, and undertake any and 4 all duties required to effectuate such sale. All applications for approval of such sale, or any other 5 sale of assets with a proposed purchase price of more than $250,000, shall be brought before this 6 Court by the Receiver on noticed motion or if time does not allow, by ex parte notice to all 7 parties. Where such application is brought on ex parte notice, all parties shall, unless the Court 8 indicates otherwise, have seven (7) calendar days within which they may file objections together 9 with supporting evidence as to the price or terms of such sale, in which case the Court may either 10 order further briefing, and/or set a hearing for further argument or rule on the pleadings then on 11 file. If no objection is filed within said seven (7) day time period to any ex parte application, the 12 Court will conclude that there is no opposition to the Receiver’s application. Costa Mesa, California 92626-7689 600 Anton Boulevard, Suite 1400 Wilmer 13 y. Upon a sale of assets pursuant to the immediately preceding paragraph, the LAW OFFICES (714) 427-7000 14 Receiver shall disburse, or if appropriate, instruct escrow to distribute all net funds resulting from Snell &L.L.P. 15 said sale(s) as follows: 16 (i) First to the payment of all fees and expenses incurred by the 17 Receiver and its professionals in managing the Receivership Estate; 18 (ii) Second to the expenses of administering the receivership; 19 (iii) Third to the payment of Plaintiff’s claim; 20 (iv) Fourth to the payment of any taxes which, if not paid, would form 21 the basis for a lien on the Receivership Estate; and 22 (v) The remainder to be held by the Receiver until further order of this 23 Court in an interest-bearing segregated account with all liens attaching to those 24 funds in the priority in which they are entitled to be paid. However, the Receiver, 25 at any time, may use these segregated funds to pay any taxes, fines, fees or other 26 governmental agency costs or assessments attributable to the Property as they 27 become due. 28 4. All expenses of the operation of Defendant’s business are the risk of the -6- [PROPOSED] ORDER APPOINTING RECEIVER AND ISSUING PRELIMINARY INJUNCTION 4871-1287-1263.6 Exhibit "1' Page 12 1 Receivership Estate and not the personal obligation of the Receiver. 2 5. A conformed copy of this Order shall be as good as a certified copy for the 3 Receiver’s purposes of taking possession and control of Defendant’s business and the assets and 4 documents subject to this order. 5 PRELIMINARY INJUNCTION, REQUIRED COOPERATION, AND 6 STAY OF ACTIONS 7 IT IS FURTHER ORDERED that: 8 6. Defendant and its agents, partners, joint venturers, property managers, officers, 9 employees, assignees, successors, attorneys, representatives, and all persons acting under, in 10 concert with, or for them, and all other persons