Judge Curtis A. Kin, Case Number: 24STCV21046, Date: 2024-09-12 Tentative Ruling

Judge: Curtis A. Kin, Case: 24STCV21046, Date: 2024-09-12 Tentative Ruling

Case Number: 24STCV21046 Hearing Date: September 12, 2024 Dept: 86

ORDER TO SHOW CAUSE

RE: PRELIMINARY INJUNCTION

Date: 9/12/24 (1:30 PM)

Case: Periodic Holdings v. Megan McMurray et al. (24STCV21046)

TENTATIVE RULING:

Plaintiff Periodic Holdings’ request for a preliminary injunction is DENIED.

Plaintiff seeks a preliminary injunction enjoining defendant Continental Stock Transfer & Trust (“Continental”) from canceling shares of WPFH in plaintiff’s possession and reissuing them in the names of defendants Megan McMurray and Chad Correia. (See Kasper Decl. ¶ 47; Richards Decl. ¶ 5; Hipple Decl. ¶ 16; Pls. Exs. 5, 10.) Plaintiff essentially argues that defendants McMurray and Correia misrepresented themselves and their ability to raise capital for plaintiff’s start-up company so that plaintiff would transfer its shares in WPFH as collateral for the investment. (Kasper Decl. ¶¶ 6-8, 43; Supp. Kasper Decl. ¶ 5.)

“[T]he question whether a preliminary injunction should be granted involves two interrelated factors: (1) the likelihood that the plaintiff will prevail on the merits, and (2) the relative balance of harms that is likely to result from the granting or denial of interim injunctive relief.” (White v. Davis (2003) 30 Cal.4th 528, 554.)

As a preliminary matter, on 8/23/24, the Court ordered plaintiff to serve all moving papers, any supplemental moving papers, the summons and complaint, and the order to show cause on defendants by 8/30/24. Defendant McMurray was served by substitute service on 8/28/24. However, no proof of service indicating that the supplemental brief filed on 8/30/24 was served on McMurray has been filed. Moreover, defendant Correia was untimely served on 9/4/24. No proof of service was filed as to defendant Continental. For the failure to serve and provide adequate notice alone, the requested preliminary injunction shall not issue.

Even considering all the papers filed, the Court finds no cause to issue the preliminary injunction. Plaintiff has not demonstrated a likelihood of prevailing on the merits. Plaintiff cites Corporations Code § 25401, which states: “It is unlawful for any person to offer or sell a security in this state, or to buy or offer to buy a security in this state, by means of any written or oral communication that includes an untrue statement of a material fact or omits to state a material fact necessary to make the statements made, in the light of the circumstances under which the statements were made, not misleading.” (See also Complaint ¶¶ 58, 59.) There is no evidence that defendants bought the WPFH shares. Plaintiff apparently transferred the shares to defendants McMurray and Correia not for any monetary compensation but based on an expectation that they would raise capital for his start-up. (Kasper Decl. ¶¶ 7-14.)

Plaintiff also alleges that it transferred the shares to McMurray and Correa due to defendant’s misrepresentations, deceit, and concealment. (Complaint, ¶ 55.) Plaintiff, however, fails to demonstrate justifiable reliance in order to successfully make out any fraud. (See Small v. Fritz Cos. Inc. (2003) 30 Cal.4th 167, 173 [element of fraud is justifiable reliance on misrepresentation].) “The reasonableness of the plaintiff's reliance is judged by reference to the plaintiff’s knowledge and experience.” (OCM Principal Opportunities Fund, L.P. v. CIBC World Markets Corp. (2007) 157 Cal.App.4th 835, 864.)

Plaintiff’s principal avers that he was introduced to Correia by a mutual acquaintance named Randy, who he knew for two to two and a half years. (Supp. Kasper Decl. ¶ 4.) Randy described Correia as someone capable of raising funds and managing a family on behalf of his wife’s family. (Supp. Kasper Decl. ¶ 4.) Randy claimed to have known Correia for years and vouched for his experience in managing various brokerage accounts. (Supp. Kasper Decl. ¶ 4.) Plaintiff later was introduced to McMurray, who he was led to believe was Correia’s wife. (Supp. Kasper Decl. ¶ 4.) Correia and McMurray represented to plaintiff’s principal that they could assist plaintiff in raising capital through their family office or other financial vehicles, such as stock loans, syndication, and direct introductions to investors. (Supp. Kasper Decl. ¶ 5.) Defendants never raised any capital for plaintiff. (Supp. Kasper Decl. ¶ 8.) Plaintiff’s principal later learned that Correia and McMurray are not married, that Correia misrepresented his name as “Chris,” and that Correia had been arrested for forgery and ID fraud. (Kasper Decl. ¶¶ 5, 31, 33, 34; Supp. Kasper Decl. ¶¶ 4, 9, 10.) McMurray is also purportedly facing criminal prosecution for ID fraud as well. (Supp. Kasper Decl. ¶ 10.) McMurray filed a complaint with the Securities and Exchange Commission, leading Continental to threaten to cancel plaintiff’s shares and issue them in the name of McMurray. (Pl. Ex. 10.)

Plaintiff appears to have relied on Randy’s recommendation of Correia, as well as Correia and McMurray’s usage of the language of investments in believing that they knew how to raise capital. (Supp. Brief at 11:1-3 [“Defendant Correia is knowledgeable about the finance and securities business and made statements to Plaintiff designed to have them reasonably believe progress on various opportunities was progressing”].) Plaintiff apparently did not investigate Correia and McMurray’s experience in raising start-up capital. As plaintiff envisioned raising $75 million and $125 million (Kasper Decl. ¶ 6), the Court does not find plaintiffs’ reliance to have been reasonable or justifiable under the circumstances, as plaintiff failed to conduct any reasonable inquiry into defendants’ background or claims.

Moreover, defendants purportedly required the capital to be “collateralized” by plaintiff’s shares in WPFH. (Kasper Decl. ¶ 5.) It is unclear how such collateralization would work, including under which circumstances and/or how the shares would be used as collateral or when, if ever, the shares would be released to plaintiff. The insufficient—if not nonsensical—description of the terms of plaintiff’s agreement to use the shares as collateral also renders this Court unable to find that the transfer of the shares to defendants was justifiable under the circumstances.

Plaintiff does not discuss any other causes of action on which it is likely to prevail. For the foregoing reasons, plaintiff has not demonstrated that it is likely to prevail on its claims.

Having failed to show a likelihood of prevailing on any cause of action, plaintiff’s request for a preliminary injunction is DENIED, notwithstanding any puported harm that may result from the denial of plaintiff’s request. (Jessen v. Keystone Savings & Loan Assn. (1983) 142 Cal.App.3d 454, 459 [“In a practical sense it is appropriate to deny an injunction where there is no showing of reasonable probability of success, even though the foreclosure will create irreparable harm, because there is no justification in delaying that harm where, although irreparable, it is also inevitable”].)

Plaintiff’s request for a preliminary injunction is DENIED. The Court’s Temporary Restraining Order and Order to Show Cause re: Preliminary Injunction issued on 8/23/24 are accordingly dissolved and discharged, respectively.