James B Hart vs Cement 1031 LLC et al

Case Number

Case Type Civil Law & Motion Hearing Date / Time Fri, 06/05/2026 - 10:00 Nature of Proceedings CMC; Appointment for Receiver/Preliminary Injunction Tentative Ruling For the reasons set forth herein, the application of plaintiff James B. Hart for appointment of a receiver, and for issuance of a preliminary injunction in aid of a receiver, is denied.

Background: (Note: The following background is intended to provide a sufficient description to understand the basis for the court's decision and is not intended to be comprehensive. The court has reviewed all of the evidence and arguments of the parties in reaching its ruling herein and has relief only upon admissible evidence. Also, the public redacted version of the supplemental opposition declaration of Tadd McKenzie was filed twice, the second time erroneously in place of a public redacted version of the supplemental opposition declaration of Barry Brand.)

Defendants Cement 1031, LLC (Cement), Pacific Dutch Group, LLC (PDG), JJ Agriculture, Inc. (JJ Agriculture), New Horizon Farming, Inc. (New Horizon), Primetime Farms, Inc. (Primetime), and Arroyo Verde Farms, Inc. (Arroyo), (collectively, Borrowers) are engaged in the business of cultivating, packaging, and selling marijuana and marijuana products. (Hart decl., dated May 5, 2026 [Hart decl. 1], P. 2.)

On April 20, 2023, Cement entered into a promissory note (Original Note) evidencing a loan by plaintiff James B. Hart (sometimes, Lender) in the original principal amount of $1 million. (Hart decl. 1, P. 6 & exhibit 1.) The Original Note provided that Cement was required to make monthly interest-only payments in the amount of $20,000, with the principal amount and any accrued and unpaid interest to be repaid on or before its maturity date of July 2023. (Hart decl. 1, P. 7 & exhibit 1.)

Defendant Barry Abraham Richard Brand (sometimes, Guarantor) entered into a Guaranty and Subordination Agreement (Guaranty) guaranteeing the obligations of Cement. (Hart decl. 1, P. 8 & exhibit 2.)

On November 28, 2023, the Borrowers entered into a second promissory note (the Replacement Note) which extended the maturity date of the Original Note to May 31, 2025, increased the principal amount to $2.507 million to reflect additional amounts advanced and fees incurred by Hart. (Hart decl. 1, P. 9 & exhibit 3.) Under the terms of the Replacement Note, Borrowers were required to make monthly interest-only payments in the amount of $50,000 commencing on December 1, 2023, with the principal amount and any accrued and unpaid interest to be repaid on or before its maturity date. (Hart decl. 1, P. 10 & exhibit 3.)

As security for the obligations of the Replacement Note, Borrowers entered into a Security Agreement which granted Hart security interests in Borrowers' assets (the Collateral). (Hart decl. 1, P. 14 & exhibit 4.) The security interests in the Collateral were perfected by the filing of UCC-1 Financing Statements. (Hart decl. 1, P. 17 & exhibit 5.) Additionally, Guarantor entered into a Restated Guaranty and Subordination Agreement (Restated Guaranty). (Hart decl. 1, P. 18 & exhibit 6.)

After the execution of the Replacement Note, Hart made 14 additional advances to Borrowers in the total amount of $3.75 million. (Hart decl. 1, P. 19.)

On March 21, 2025, Borrowers entered into a restated promissory note (Restated Note), which was given in substitution for the Replacement Note. (Hart decl. 1, P. 20 & exhibit 7.) Under the terms of the Restated Note, Borrowers were required to make monthly interest-only payments in the amount of $70,000, with the principal amount and any accrued and unpaid interest to be repaid on or before its maturity date of December 31, 2026. (Hart decl. 1, P. 21 & exhibit 7.)

According to Hart, on March 21, 2025, Borrowers also entered into a promissory note (Tyler Note) evidencing a loan by Tyler Dayspring, LLC (Tyler Dayspring) in the principal amount of $3.5 million. (Hart decl. 1, P. 25 & exhibit 8.) Under the terms of the Tyler Note, Borrowers were required to make monthly interest-only payments in the amount of $70,000, with the principal amount and any accrued and unpaid interest to be repaid on or before its maturity date of December 31, 2026. (Hart decl. 1, P. 25 & exhibit 8.) Tyler Dayspring concurrently assigned the Tyler Note to Hart. (Hart decl. 1, P. 27 & exhibit 9.)

According to Brand, the Tyler Dayspring loan documents were executed in anticipation of financing using an informal arrangement rather than a formal escrow. (Brand decl., dated May 8, 2026 [Brand decl. 1], P. 5.) The Tyler Dayspring financing never closed, no funds were provided by Tyler Dayspring, and the executed documents should have been returned or destroyed. (Ibid.; McKenzie decl., dated May 8, 2026 [McKenzie decl. 1], P. 14.)

According to Hart, the amount of all of the loans remains due and owing. (Hart decl. 1, P.P. 30-33.)

According to Tadd McKenzie, President and Chief Financial Officer for PDG, after making interest payments in June 2024, Hart told McKenzie that there was no need to make the future payments. (McKenzie decl. 1, P. 13.) In August 2024, Hart refunded the total amount of interest paid to PDG. (Ibid.)

There is a dispute as to the import of various confidential financial reports. (Compare Hart decl. 1, P.P. 38-41 with Brand decl. 1, P.P. 11.) (Note: In supplemental opposition, Borrowers have lodged with the court provisionally under seal various financial documents. A motion to file such documents under seal is pending.)

According to Hart, Borrowers are in violation of various Santa Barbara County cannabis regulations relating to odor abatement and are in danger of losing their licenses. (Hart decl. 1, P.P. 43-51.) The cost of compliance would cause financial despair, leaving borrowers unable to pay basic operating expenses. (Hart decl. 1, P. 49.) According to Borrowers, the odor abatement issue is limited, is subject to current plans and operations to resolve the issue, and will not cause financial despair. (Brand decl. 1, P. 12; McKenzie decl. 1, P.P. 5-11.)

There is also a dispute as to the import of Hart's removal as a manager on the board of managers. (Compare Hart decl., dated May 27, 2026 [Hart decl. 2], P.P. 3-19 with McKenzie decl. dated June 2, 2026 [McKenzie decl. 2], P.P. 11-14.)

On February 3, 2026, Hart filed his complaint in this action asserting six causes of action: (1) breach of promissory notes; (2) breach of guaranty; (3) judicial foreclosure of security interest in personal property collateral; (4) judicial foreclosure of real property; (5) appointment of a receiver; and (6) claim and delivery.

On March 27, 2026, defendants filed their answer to the complaint, generally denying the allegations thereof and asserting 26 affirmative defenses.

On May 6, 2026, Hart filed his ex parte application for the appointment of a receiver and for issuance of a preliminary injunction prohibiting interference with the receiver and otherwise in aid of the receiver's activities. Also on May 6, 2026, defendants filed preliminary opposition to the ex parte application, particularly asking for a short continuance in order to file a more complete opposition. The ex parte application was heard on May 7, and the court continued the hearing to May 11 without making any substantive orders.

On May 8, 2026, defendants filed their opposition to the ex parte application.

On May 11, the court held a continued hearing on the application. The court continued the matter to this hearing date of June 5, permitted plaintiff to file an augmented request, defendants to file additional opposition, and plaintiff to file a reply.

Analysis: Because the court has permitted the parties time and an opportunity to file supplemental papers in support of this application, the court finds that no exigency exists requiring the temporary appointment of a receiver pending a further hearing with sufficient notice to determine appointment of a receiver pending disposition of this action. Thus, the court considers the application for appointment of a receiver under the standards of a noticed motion rather than under the standards for an ex parte application for temporary appointment of a receiver.

"A receiver may be appointed, in the manner provided in this chapter, by the court in which an action or proceeding is pending in any case in which the court is empowered by law to appoint a receiver." (Code Civ. Proc., Sec. 564, subd. (a).) "A receiver may be appointed by the court in which an action or proceeding is pending, or by a judge of that court, in the following cases: [P.] ... [P.] "(6) Where a corporation is insolvent, or in imminent danger of insolvency, or has forfeited its corporate rights. [P.] ... [P.] "(9) In all other cases where necessary to preserve the property or rights of any party." (Code Civ.

Proc., Sec. 564, subd. (b)(6), (9).) (Note: Subdivision (b)(9) was amended in 2001 to its current language and subdivision number without intending a substantive change from its former language. (Cal. Law Revision Com. com., West's Ann. Code Civ. Proc. (2026) foll. Sec. 564; Stat. 2001, ch. 44, Sec. 4.) The former language read, "In all other cases where receivers have heretofore been appointed by the usages of courts of equity." (Stats. 1998, ch. 931, Sec. 75.))

"Because the appointment of a receiver transfers property--or, in this case, a business--'out of the hands of its owners' and into the hands of a receiver [citation], the appointment of a receiver is a very 'drastic,' 'harsh,' and costly remedy that is to be 'exercised sparingly and with caution.' [Citations.] Due to the 'extraordinary' nature of this remedy and the special costs it imposes, courts are strongly discouraged--although not strictly prohibited--from appointing a receiver unless the more intrusive oversight of a receiver is a 'necessity' because other, less intrusive remedies are either ' "inadequate or unavailable." ' [Citations.]" (Medipro Medical Staffing LLC v. Certified Nursing Registry, Inc. (2021) 60 Cal.App.5th 622, 628.)

Hart notes that the Security Agreement includes the provision: "The Lender may also have a receiver appointed to take charge of all or any portion of the Collateral and to exercise all rights of Lender under this Agreement." (Security Agreement, P. 14(f).)

The case of Barclays Bank of California v. Superior Court (1977) 69 Cal.App.3d 593 (Barclays Bank) is instructive. In Barclays Bank, the bank was the beneficiary of a trust deed covering certain real property. (Id. at p. 596.) In response to an action brought by the owner of the property, the bank cross-complained for foreclosure of the deed of trust and for appointment of a receiver. (Id. at pp. 596-597.) The trial court denied the application for appointment of a receiver on an order to show cause on the grounds that no showing had been made that the value of the property was insufficient to recover the amount of the debt. (Id. at p. 597.)

On writ review, the Barclays Bank court observed that a receiver may only be appointed as permitted by Code of Civil Procedure section 564. (Barclays Bank, supra, 69 Cal.App.3d at p. 597.) Because there was no showing that the value of the property was insufficient, the court addressed whether a receiver could or should have been appointed based upon the general provision of the former subdivision permitting appointment "[in] all other cases where receivers have heretofore been appointed by the usages of courts of equity." (Id. at p. 598.)

The court noted that the provision in the deed of trust allowing for a receiver was by itself insufficient: "It is a corollary that, where one's entitlement to a receiver is not otherwise established, a mortgagee or beneficiary of a trust deed may not by stipulation or consent, however manifested, confer jurisdiction upon the superior court to appoint such a receiver." (Id. at p. 600.) The court concluded that the trial court erred in basing its denial solely on the lack of proof that the value of the property was insufficient because the court had authority, but not the obligation, to appoint a receiver under this general authorization. (Ibid.)

Even so, consent to, or agreement for, appointment of a receiver may be persuasive: "We therefore hold it to be the law of California that although a trust deed's recital that upon default the beneficiary shall be entitled to the appointment of a receiver is not binding upon the courts, such a recital nevertheless has some evidentiary weight." (Barclays Bank, supra, 69 Cal.App.3d at p. 602.)

There are many disputed issues here, including the scope of the financial obligations, the time when repayment was or is required, and whether, or to what extent, there are nonmonetary defaults. The evidence presented is conflicting.

The court notes that the evidence is sufficient for the court to find Borrowers in default. The evidence shows that Hart has substantial security interests in Borrowers' property, providing a level of protection for Hart's financial interests that weighs against the appointment of a receiver. As noted in Barclays Bank, however, the existence of security, even in a value sufficient to fully securitize the debt, does not prohibit appointment of a receiver where otherwise appointment may be proper. The provision in the Security Agreement authorizing appointment of a receiver weighs in favor of appointment of a receiver, notwithstanding substantial security interests.

At the same time, the court is not persuaded from the evidence presented that Borrowers are, collectively or individually, insolvent or that there is a reasonable danger that Hart's security would be impaired. Based on the evidence and arguments presented, the court finds that Hart has not shown that the balance of the equities meets the standards for appointment of a receiver. Among other things, Hart is not without recourse both provisionally and after judgment (if ultimately successful) to protect his interests without the appointment of a receiver. Under the totality of the circumstances presented here, the court finds that a receiver is not warranted. Accordingly, the application for appointment of a receiver will be denied.

Because the application for a preliminary injunction is solely for injunction orders in aid of an appointed receiver, the application for such a preliminary injunction is moot and will be denied on that ground.

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