Old Goat Farms, LLC v. Alkhemist DM, LLC

CASE NO.: 21STCV25790 RECEIVER KEVIN SINGER'S MOTION FOR ORDER: 1) Approving and Settling the Receiver's Final Report and Accounting; 2) Approving Final Compensation and Reimbursement of Expenses; 3) Approving Receiver's Recommended Distribution of Funds; 4) Exonerating All Bonds; 5) Terminating the Receivership Appointment; and 6) Retaining Jurisdiction re This Receivership Appointment

I. INTRODUCTION

This is a breach of contract and conversion case. Plaintiff Old Goat Farms (Plaintiff or Old Goat) operates a cannabis cultivation farm. Defendant Alkhemist DM, LLC (Defendant or Alkhemist) is in the business of "trimming" marijuana.

Plaintiff and Defendant entered into an oral and implied in fact contract. The terms of the contract included: (1) in exchange for payment, Alkhemist would trim Old Goat's cannabis product, which included accurately categorizing the product; (2) Alkhemist would account for and inventory the product; and (3) Alkhemist would store the cannabis safely and in a manner to prevent spoilation.

In early 2021, Old Goat suspected a significant inventory shortage and sued Alkhemist for missing and damaged product. On July 13, 2021, Old Goat sued Alkhemist. The case was tried before the court in December 2023. On August 15, 2024, the court rendered judgment against Alkhemist on both claims and awarded Old Goat compensatory damages, interest, and costs in the total sum of $603,385.88. Plaintiff is the judgment creditor, and Defendant is the judgment debtor.

On October 18, 2024, Plaintiff filed a motion for order appointing receiver. On January 7, 2025, the court granted the unopposed motion and appointed Kevin Singer as the receiver (hereafter, the "Receiver").

On June 10, 2026, Receiver filed this motion for the following order: 1. Approving and Settling the Receiver's Final Report and Accounting; 2. Approving Final Compensation and Reimbursement of Expenses; 3. Approving Receiver's Recommended Distribution of Funds; 4. Exonerating All Bonds; 5. Terminating the Receivership Appointment; and 6. Retaining Jurisdiction Regarding This Receivership Appointment.

As relevant here, Receiver recommends that the remaining balance of $13,603.78 recovered from Alkhemist be distributed to Plaintiff. On August 18, 2026, the Labor Commissioner filed an objection to Receiver's motion. The Labor Commissioner argues the law and the equities support distribution of the remaining funds to the more than one hundred workers to whom Alkhemist did not pay a final check nor overtime wage. On August 25, 2026, the Receiver filed a reply.

II. DISCUSSION

A. Final Report and Account

The Receiver has submitted his final report and account by noticed motion. A review of the final report and account shows that the purpose of the receivership has concluded. The Receiver states that he has "exhausted all viable avenues of recovery from Defendant and that continue to attempt to collect on any remaining accounts receivable, or to pursue any additional Business assets secreted away by [Business's principal, James] Chung and his associates, would cost more than the likely recovery." (Singer Decl., P. 4.) The purpose of this receivership has ended. No party has submitted any opposition papers to show any problems with the Receiver's work. The court will approve the Receiver's final report and account.

B. Recommended Distribution of Funds

The Labor Commissioner filed an objection limited to Receiver's proposed distribution of the remaining assets of $13,603.78. [1] Those funds are insufficient to satisfy all known claims against the Receivership Estate. The Receiver recommends distributing those funds to Plaintiff because Plaintiff obtained the Receivership. For this reason, the Receiver argues it would be inequitable for a different judgment creditor who had no role in obtaining or funding the Receivership to receive payment ahead of Plaintiff, at Plaintiff's expense.

As to the Labor Commissioner's claim, the Receiver argues that the Code of Civil Procedure section 1204 [2] affords labor claims priority against general unsecured creditors, but not over secured creditors like Plaintiff. The Labor Commissioner argues the Receiver's interpretation of Section 1204 is based upon a case-- T.H. Mastin & Co. v. Pickering Lumber Co. (N.D. Cal. 1933) 2 F.Supp. 605 (Mastin) -- construing a prior version of Section 1204. In the Labor Commissioner's view, the the operative version of Section 1204 gives wage claims in receivership preference over all other claims, secured or otherwise.

After reviewing Mastin and the operative version of Section 1204, the court agrees with the Labor Commissioner. Mastin construed a version of Section 1204 with contained an exception central to Mastin 's holding. That exception was removed from the modern version of Section 1204.

The Mastin court analyzed the then-existing version of Section 1204 and divided it into two sentences as follows: 'When my assignment, whether voluntary or involuntary, and whether formal or informal, is made for the benefit of creditors of the assignor, or results from any proceeding in insolvency or receivership commenced against him, * * * the wages and salaries of miners, mechanics, salesmen, servants, clerks, laborers, and other persons, for personal services rendered such assignor, * * * within ninety days prior to * * * the commencement of the proceeding when a court action is involved, and not exceeding two hundred dollars each, constitute preferred claims, and must be paid by the trustee, assignee or receiver before the claim of any other creditor of the assignor, insolvent, or debtor whose property is to turned over, and must be paid as soon as the money with which to pay same becomes available. * * * 'This section is binding upon all the courts of this state and in all receivership actions, except those based on a prior recorded lien, the court must order the receiver to pay promptly out of the first receipts and earnings of the receivership, after paying the current operating expenses, such preferred labor claims.' (Mastin, at p. 607.)

The first sentence is nearly identical to the operative version of Section 1204. The second sentence has been amended to strike the "except those based on a prior recorded lien" exception. Mastin continues on: The sentences of section 1204 are apparently contradictory. The first sentence makes wage claims preferred claims 'before the claim of any other creditor,' which would seem to make them prior to secured liens. The last sentence of the section applies to operating receiverships, provides that these preferred claims shall be paid first after the current operating expenses out of the first receipts and earnings, but excludes [from] its effect receiverships based on a prior recorded lien.

As to the first sentence, the Legislature had the power to make these claims prior to mortgage claims by expressly stating so in the statute but not otherwise. 14a Corpus Juris, 1025; Fitzgerald v. Meyer, 65 Mo.App. 665; Schmidtman v. Atlantic Phosphate & Oil Corporation (C.C.A. 2) 230 F. 769. The statute of New York state (Laws 1897, c. 415, Sec. 8), construed in the Schmidtman Case, supra, provided that 'upon the appointment of a receiver of a partnership or of a corporation * * * the wages of the employees of such partnership or corporation shall be preferred to every other debt or claim.'

After a careful consideration of the authorities interpreting statutes giving priorities, the court held that such a statute cannot impair contract liens unless its language clearly indicates an intention to do so, that the statute in question did not contain such express language, and that the effect of the statute was to give priority in the unencumbered assets but not in the incumbered assets. Similarly there is nothing in the California statute expressly giving preference over mortgage liens.

Our statute creates a preference in behalf of wage claims, but the preference is over general creditors and not over secured creditors. The first sentence of section 1204 is therefore entirely consistent with the exclusion of receiverships based on recorded liens in the last sentence. (Mastin, supra, at pp. 607-608.)

Stated another way, the Mastin court resolved what it viewed to be a seeming conflict within the statute and ultimately concluded both sentences were consistent with the general principle that secured claims prevail over unsecured claims. Mastin, however, is a federal district court case and is not binding on this court. Further, the court is not persuaded by the reasoning in Mastin. In the absence of any California appellate authority construing the exception, [3] Mastin looked to similar statutes and case law from other states to conclude that a legislature could have stated that an unsecured wage claim had priority over a mortgage lien or contract lien but did not do so.

But the language in Section 1204 is broad. Similar to the prior version, the modern version of Section 1204 provides that wage claims "shall be paid by the trustee, assignee or receiver before the claim of any other creditor of the assignor, insolvent, or debtor whose property is so turned over, and shall be paid as soon as the money with which to pay same becomes available." (Sec. 1204(c).) The language "before the claim of any other creditor" is not qualified. If the California Legislature wanted to create an exclusion for secured claims or state the order of priorities, it could have so stated. [4] In fact, the Legislature did so in the prior version of Section 1204, which stated that its provision was binding on all "receivership actions, except those based on a prior recorded lien." As discussed, ad nauseum, that exception no longer exists.

In sum, the court concludes that the plain language of Section 1204 directs payment of wage claims against a receivership estate prior to any other claims, including the Plaintiff's. For this reason, the court will direct the distribution of the remaining funds to the Labor Commissioner for distribution to Defendant's unpaid wage claimants.

C. Receiver's Fees

Receivers are entitled to compensation for their own services and the services performed by their attorneys. (Venza v. Venza (1951) 101 Cal.App.2d 678, 680.) Generally, the costs of a receivership are paid from the property in the receivership estate. (Andrade v. Andrade (1932) 216 Cal. 108, 110.) However, courts may impose the receiver costs on a party who sought the appointment of the receiver and on a party who benefited from the receivership. (Baldwin v. Baldwin (1947) 82 Cal.App.2d 851, 856.) Courts are vested with broad discretion in determining who is to pay the expenses of a receivership, and the Court's determination must be upheld in the absence of a clear showing of an abuse of discretion. (Id.)

Here, the Receiver indicates that he has been paid $189,538.06. The Receiver also indicates that he expended and seeks compensation in the amount of $20,218.16 for fees to the Receiver, for a total fee to the Receiver of $209,756.22. A copy of his billing is attached as Exhibit 10 to the Singer Declaration. The Receiver also states that compliance counsel, Sharmi Shah, is owed a total of $2,145.00 for her work on behalf of the Receivership Estate. The Receiver requests that he be authorized to pay himself the outstanding balance of $20,218.16 and Ms. Shah's outstanding balance of $2,145.00. No party has filed any opposition to the Receiver's fees nor Ms. Shah's fees. Accordingly, the court approves the fees paid to the Receiver and Ms. Shah in the total sum of $31,342.78.

D. Exoneration of Bond and Discharge of Receiver

Here, the Receiver posted bond on February 24, 2025, regarding the receivership. Since the court will approve the final report and accounting, the court will also issue an order exonerating the bonds and discharging the Receiver.

III. CONCLUSION

Pursuant to the court's modification of the proposed distribution, the motion is GRANTED. The court makes the following orders to: 1. approve the Receiver's final report and account; 2. approve distribution of the remaining Receivership funds of $13,603.78 to the Labor Commissioner for distribution to Defendant's unpaid workers; 3. approve the Receiver's outstanding fees of $20,218.16 and Ms. Sharmi Shah's outstanding fees of $2,145.00; 4. exonerate the Receiver's bond; 5. discharge the Receiver; 6. and to retain jurisdiction of this receivership. Moving party to give notice.

Dated: September 1, 2026 | | | Brock T. Hammond Judge of the Superior Court |

[1] Receiver arrives at this figure by recommending that, of the $53,705.94 remaining in the Receivership Estate, $20,218.16 be paid to the Receiver for his outstanding balance, $2,145 be paid to compliance counsel, Sharmi Shah, and $15,000 be paid to Plaintiff for initially funding the Receivership Estate. There being no objection, and as discussed more herein, the court approves these distributions.

[2] All unspecified statutory references hereinafter are to the Code of Civil Procedure.

[3] The court notes there is no relevant California appellate authority construing Section 1204.

[4] This is confirmed by looking to section 6756 of the Revenue & Taxation Code which provides, "This section does not give the state a preference over any lien or security interest which was recorded or perfected prior to the time when the state records or files its lien as provided in Section 7171 of the Government Code. [P.] The preference given to the state by this section shall be subordinate to the preferences given to claims for personal services by Sections 1204 and 1206 of the Code of Civil Procedure."

Case Number: 26STCV01060 Hearing Date: September 1, 2026 Dept: 407 Tentative Ruling Judge Brock T. Hammond, Department 407 HEARING DATE: September 1, 2026 TRIAL DATE: May 15, 2028 CASE: Zhao Zehao v. BMW of North America, LLC