AG7 Enterprises v. The Evergreen Advantage, LLC, et al.

In June 2022, Total New Energy Systems Co., Ltd. (“TNES”) entered in an Equipment Assignment and Joint Venture Agreement (“TNES JV”) valued at ten million dollars for solar panel manufacturing operations with LeSoleil, Inc. (FAC, ¶ 12.) In July 2022, Atlas Capital Investments, LLC (“Atlas”), purchased the Subject Property via a mortgage with Evergreen. (FAC, ¶ 13.) In 2023, Khloris defaulted on its rental obligation and in turn, Atlas fell behind on its payments to Evergreen. (FAC, ¶¶ 14-15.)

In May 2024, Evergreen foreclosed on the Subject Property and became the owner. (FAC, ¶ 16.) In November 2024, the TNES JV was assigned to Plaintiff by LeSoleil, Inc., including ownership and security rights in the solar panel manufacturing equipment and other personal property stored at the Subject Property and thereafter executed a Security Agreement with TNES. (FAC, ¶¶ 17-18.) Plaintiff then filed a UCC-1 Financing Statement with the California Secretary of State, perfecting its lien on all equipment and listing a secured interest of at least ten million dollars. (FAC, ¶ 19.)

In May 2025, Plaintiff served notice to SVD, asserting its security interest and warning that auctioning the equipment without Plaintiff’s consent could constitute wrongful conversion. (FAC, ¶ 20.) Despite this, Evergreen refused to allow Plaintiff to recover its equipment and SVD conducted an online auction to sell the personal property at issue in June 2025, excluding Plaintiff. (FAC, ¶¶ 21, 22.) The third-party buyer has yet to pay for the equipment and has not taken possession of it, thus, Evergreen continues to exercise control over the personal property. (FAC, ¶ 24.)

Plaintiff filed its FAC, asserting five claims for:

1) Trespass to Chattel & Conversion;

2) Wrongful Disposition of Collateral;

3) Violation of Business and Professions Code, section 17200 et seq.;

4) Declaratory Relief; and

5) Injunctive Relief.

On January 5, 2026, Defendants filed this Demurrer to the FAC in its entirety and each of the FAC’s causes of action. Plaintiff opposed the Demurrer, and Defendants filed a reply.

I. Plaintiff’s Appeal regarding a Preliminary Injunction ruling does not stay this Demurrer.

Plaintiff asserts that the arguments in the demurrer are not properly before the Court because, pursuant to Code of Civil Procedure section 916, the appeal stays proceedings in the trial court. (Opposition, p. 5, subd. (E).)

On August 20, 2025, this Court (Hon. Hayashi) denied Plaintiff’s request for preliminary injunction, holding that Plaintiff did not have a perfected security interest in the subject equipment and Plaintiff did not offer any other testimony addressing an alleged ownership interest in the subject equipment. Judgment was entered on October 4, 2025.

On December 5, 2025, Plaintiff filed an appeal to the Sixth District Court of Appeal regarding the denial of the preliminary injunction.

In some instances, the perfecting of an appeal will effectively stay proceedings in the trial court. (See Code. Civ. Proc., § 916.) But “an appeal from the denial of a preliminary injunction does not stay further trial court proceedings on the merits. Because the injunction ‘amounts to a mere preliminary or interlocutory order to keep the subject of litigation in status quo pending the determination of the action on its merits’ (Gray v. Bybee (1943) 60 Cal. App. 2d 564, 571 [] (Gray)), the affirmance or reversal of its denial does not and cannot eliminate the need for additional proceedings on the merits. Section 916 therefore does not automatically stay such proceedings. (See Major v. Miraverde

Homeowners Assn. (1992) 7 Cal.App.4th 618, 623 [9 Cal. Rptr. 2d 237]; Gray, [supra,] at p. 571.)” (Varian Medical Systems, Inc. v. Delfino (2005) 35 Cal.4th 180, 191.)

Therefore, the Court may properly and does now address the arguments raised in this Demurrer.

II. Defendants’ Demurrer

Defendants demur generally to the FAC on the ground it fails to state sufficient facts to constitute a cause of action pursuant to Code of Civil Procedure section 430.10, subdivision (e).

a. Legal Standard on Demurrer

In ruling on a demurrer, the Court treats it “as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.” (Piccinini v. Cal. Emergency Management Agency (2014) 226 Cal.App.4th 685, 688, citing Blank v. Kirwan (1985) 39 Cal.3d 311, 318 (Blank).) “A demurrer tests only the legal sufficiency of the pleading. It admits the truth of all material factual allegations in the complaint; the question of plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213-214.)

Under California law, even if a demurrer is sustained, leave to amend the complaint is routinely granted. “Liberality in permitting amendment is the rule, if fair opportunity to correct any defect has not been given.” (Angie M. v. Superior Court (1995) 37 Cal. App. 4th 1217, 1227.) “Unless the complaint shows on its face that it is incapable of amendment, denial of leave to amend constitutes an abuse of discretion, irrespective of whether leave to amend is requested or not.” (McDonald v. Sup. Ct. (Flintkote Co.) (1986) 180 Cal. App. 3d 297, 303-304.)

b. Defendants’ Request for Judicial Notice

In support of their demurrer, Defendants request judicial notice of the UCC-1 Statement dated May 14, 2025 (Ex. 1.) The request is GRANTED. (Evid. Code, § 452, subds. (c) and (h).)

c. Analysis on Demurrer

Defendants argue: 1) the entire FAC is insufficient because Plaintiff does not have a valid, perfected security interest in the subject equipment; 2) the entire FAC is insufficient because Plaintiff cannot allege it was the prior tenant or owner of the subject equipment; 3) Plaintiff failed to join TNES; 4) and each of the five causes of action fail to state sufficient facts.

i. Valid Security Interest

Defendants’ primary argument is that Plaintiff does not have a valid or perfected security interest in the subject equipment and because the Court has already found that Plaintiff does not have a perfected security interest, all the causes of action fail. (Demurrer, p. 7:10-17.)

While the Court understands Defendants’ argument, it must still focus on the allegations of the FAC to determine if a valid cause of action has been stated. “[A] preliminary injunction is an interim order which ‘reflects nothing more than the superior court’s evaluation of the controversy on the record before it at the time of its ruling; it is not an adjudication of the ultimate merits of the dispute.’” (Department of Fair Employment & Housing v. Superior Court (2020) 54 Cal.App.5th 356, 391 [emphasis original].) An order on preliminary injunction “may not be given issue-preclusive effect with respect to the merits of the action.” (Ibid. [citations omitted].)

“In considering the merits of a demurrer, the facts alleged in the pleading are deemed true, however improbable they may be.” (See Bader v. Anderson (2009) 179 Cal.App.4th 775, 787; see also Alcorn v. Anbro Engineering, Inc. (1970) 2 Cal.3d 493, 496 [court reviewing propriety of ruling on demurrer is not concerned with the “plaintiff’s ability to prove . . . allegations, or the possible difficulty in making such proof”].) Thus, the Court will not look outside the four corners of the FAC in addressing the demurrer and as a result, it will not rely on the order on preliminary injunction, or any of the related evidence and declarations, in reaching its conclusions here. Any argument that depends on the preliminary injunction and its related evidence will not be addressed further in resolving this Demurrer.

Accordingly, the Demurrer to the entire FAC based on the Court’s ruling on the preliminary injunction is OVERRULED.

ii. Security Agreement

Defendants next argue: 1) that Plaintiff has no security interest in the subject equipment because its Security Agreement with TNES is not supported by consideration (Demurrer, pp. 7:18-20, 8:4-6); and 2) Plaintiff’s UCC-1 filing did not create a valid or perfected lien because TNES is a Japanese entity, and thus, every claim fails. (Id. at p. 9:15- 19.)

Defendants acknowledge that the Security Agreement is not attached to the FAC but argue that the Court can review the documents referenced by the pleading and attaches the Security Agreement as Exhibit 1 in their supporting memorandum of points and authorities. (Id. at p. 7:20-21.) The Court declines to consider the Security Agreement as Defendants did not properly request judicial notice of the document. (Tenet Healthsystem Desert, Inc. v. Blue Cross of California (2016) 245 Cal.App.4th 821, 834 [“Because a demurrer challenges defects on the face of the complaint, it can refer to matters outside the pleading only if those matters are subject to judicial notice”].) Defendants’ reliance on City of Pomona v. Superior Court (2001) 89 Cal.App.4th 793, 800 and Qualcomm, Inc. v. Certain Underwriters at

Lloyd’s, London (2008) 161 Cal.App.4th 184, 191 is unpersuasive as the cases state that, “[w]here written documents are the foundation of an action and are attached to the complaint and incorporated therein by reference, they become a part of the complaint and may be considered on demurrer.” (Qualcomm, Inc., supra, at p. 191 [emphasis added].) Consequently, the Security Agreement is not before the Court at this time and Defendants’ reliance on it or any language contained therein that is not alleged in the pleading is unavailing. Likewise, the Court declines to review the TNES JVA. (See Demurrer, p. 8, fn. 2 [requesting the Court review Exhibit 2 of the memorandum of points and authorities].)

As for the argument that Plaintiff cannot establish a perfected security interest in the subject equipment, the Court is not persuaded. Here, Plaintiff sufficiently alleges that it perfected its security interest. (FAC, ¶¶ 7, 30, 46.)1 Moreover, even if the security interest were not perfected, if there is a valid security interest it is still “enforceable against all parties unless the holder of a later-acquired interest qualifies under some other provision of the [Uniform Commercial] Code. . . .

For example, an unperfected security interest will defeat the interest of an unsecured general creditor. . . .” (Turbinator, Inc. v. Superior Court (1995) 33 Cal.App.4th 443, 451 (Turbinator).) Thus, the remaining issue is whether the security interest is valid. The requirements for “validity [of a security interest] are those set out in section 9203: a signed agreement, value given, and the debtor’s rights in the collateral. Once these are met, an enforceable security interest exists.” (Turbinator, supra, 33 Cal.App.4th at p. 451.)

Even without reviewing the Security Agreement, as currently alleged, the FAC is devoid of fact allegations that the Security Agreement is supported by value given. The allegations found in Paragraphs 18 and 19 seem to only allege that Plaintiff and TNES executed a Security Agreement for a secured interest of $10,000,000 based on an agreement with LeSoleil. (Opposition, p. 4:17-21, citing FAC, ¶¶ 18-19.) In opposition, Plaintiff states that this action has nothing to do with consideration between Plaintiff and TNES and that there is no obligation to find that an assignment comes with sufficient consideration. (Opposition, pp. 3:20-21, 4:22-23.)

Plaintiff cites no authority to support this proposition. (See People v. Dougherty (1982) 138 Cal.App.3d 278, 282 [a point asserted without citation to authority will be disregarded].) While consideration may be presumed where there is an alleged written simple contract, the above three requirements must be alleged to state a valid security interest, regardless of whether the security interest is perfected. (See Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1235 [a security interest cannot exist without an underlying obligation].)

And because the FAC fails to plead facts that the Security Agreement is supported by value given, the Demurrer to the FAC on the ground it fails to state sufficient facts to constitute a cause of action pursuant to Code of Civil Procedure section 430.10(e) is SUSTAINED.

1 The Court here declines to determine whether the filing of the UCC-1 with the California

Secretary of State perfected the lien based on TNES’ CEO’s location in California as this falls outside of the four corners of the FAC.

That said, as the Court cannot now say that the pleading is “incapable of amendment” (McDonald, 180 Cal. App. 3d at 303-304), the Court hereby grants Plaintiff leave to amend its pleadings to sufficiently allege the requirements of a valid security interest.

Specifically, the Court grants Plaintiff LEAVE within 15 days of today to file a Second Amended Complaint. And Defendants, of course, in turn may answer or otherwise respond to the SAC in any manner allowed, and within the time allowed, by the Code of Civil Procedure.

While the Court can and does now SUSTAIN the Demurrer based on this ground alone that by failing to plead facts showing a valid security interest the FAC fails to state sufficient facts to constitute any cause of action under Code of Civil Procedure section 430.10(e), for purposes of clarity of the record the Court also now addresses Defendants’ remaining argument regarding non-joinder.

iii. Non-joinder of TNES

Defendants additionally argue that the FAC fails because the alleged owner of the subject equipment and debtor of Plaintiff (TNES) is not joined in this action. (Demurrer, p. 10:25-27.) In opposition, Plaintiff argues that Code of Civil Procedure section 389 only requires joinder where complete relief cannot be accorded among the already named parties. (Opposition, p. 3:17-19, citing Code Civ. Proc., § 389.) Plaintiff asserts there is no reason why debtor TNES must be joined as the action has nothing to do with the consideration between Plaintiff and TNES, TNES is not in possession of the subject equipment, and there is no cause of action that would justify TNES’s inclusion in as a defendant. (Opposition, p. 3:20-23.)

Subdivision (a) of section 389 provides: “A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in his absence complete relief cannot be accorded among those already parties or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest. If he has not been so joined, the court shall order that he be made a party. . . .” (Code Civ. Proc., § 389 [emphasis added].)

As for the first clause, “[t]he term complete relief refers only ‘to relief as between the persons already parties, and not as between a party and the absent person whose joinder is sought.” (Countrywide Home Loans, Inc. v. Superior Court (1999) 69 Cal.App.4th 785, 794 [internal quotations omitted].) In other words, if Defendants were to prevail in this action, and damages could not be ascertained or judgment rendered if TNES was not a party, then joinder is necessary to give Defendants complete relief. The second clause is invoked where nonjoinder may harm the interest of TNES or expose other parties to multiple liability. The Court is not persuaded by Defendants’ assertions that not joining TNES would impair

TNES’s ability to protect its interests in the subject property because the allegations indicate TNES entered into an agreement with Plaintiff. (FAC, ¶ 18 [stating Plaintiff entered into an agreement with TNES whereby TNES granted Plaintiff a security interest in the subject equipment].) Further, the allegations indicate that Plaintiff owns the subject equipment, thus, the argument that Defendants would be exposed to multiple liabilities is unavailing. (FAC, ¶ 17 [stating ownership rights were assigned to Plaintiff in November 2024].)

Accordingly, the Court overrules Defendants’ arguments for demurrer on the basis of non-joinder.

III. Conclusion and Order

Accordingly, Defendants’ Demurrer to the FAC is SUSTAINED under Code of Civil Procedure section 430.10(e) for failing to allege facts showing a valid security agreement. And the Court grants Plaintiff LEAVE within 15 days from today to file a Second Amended Complaint to try to cure the pleading deficiencies identified herein.

SO ORDERED.

Date: August 5, 2026 Hon. Vincent I. Parrett Superior Court of the State of California, County of Santa Clara

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