Judge: Daniel S. Murphy, Case: 22STCV14915, Date: 2023-01-20 Tentative Ruling

Case Number: 22STCV14915    Hearing Date: January 20, 2023    Dept: 32

BACKGROUND

            On May 4, 2022, Plaintiff WG Holdings SPV, LLC (WGH) initiated this action for breach of fiduciary duties, breach of contract, interference, and fraud stemming from Defendants’ purported mismanagement of Plaintiff. The operative First Amended Complaint was filed on October 14, 2022.

The complaint alleges that Defendant E&B Natural Resources Management Corporation (E&B) sought to purchase a 25% stake in WGH. Due to financial issues with its lenders, E&B could not directly deal with WGH. Instead, E&B allegedly formed Defendant Triton LA, LLC (Triton) to hold E&B’s 25% interest in WGH. The complaint alleges that the arrangement was induced by fraud and that Defendants merely sought to take over WGH’s assets for themselves. Triton allegedly demanded a higher ownership stake in WGH, which WGH’s board denied. Thereafter, Defendants allegedly mismanaged WGH’s finances and operations, leading to the damages sought in this action.

Triton has cross-complained against Scott Wood (Wood), William Nicholson (Nicholson), and CW Children Holdings, LLC (CWH). Triton asserts causes of action for harm done to Triton and asserts claims derivatively on behalf of WGH. Triton and CWH are allegedly the sole members of WGH. Wood and Nicholson are two of three board members on WGH, both appointed by CWH. Triton alleges that Wood, Nicholson, and CWH colluded to deprive Triton of its rights and also mismanaged WGH assets. The operative Second Amended Cross-Complaint (SACC) was filed on October 27, 2022.

Wood and CWH have filed their own cross-complaint against Triton, E&B, and various others. Wood wanted to invest in oil and gas properties and came into contact with Galesi Group (Galesi), a consortium of companies with experience in operating oil and gas assets. Wood was allegedly led to believe that Galesi was financially solvent and had the expertise needed to operate the oil and gas properties he sought to purchase. Wood paid the money to purchase the oil and gas assets and formed CWH and WGH to hold his 75% interest. Wood agreed to give Galesi 25% in return for Galesi’s promise to operate the assets and pay government bond premiums. Cross-Defendants allegedly lied about their financial stability, capability to operate the assets, and intent to pay the government bond premiums. Wood and CWH then replaced Cross-Defendants and rescinded the LLC Agreement (ARLLCA) that the parties had signed. The operative First Amended Cross-Complaint was filed January 9, 2023.

            On December 27, 2022, Triton filed the instant motion for a preliminary injunction to accomplish the following: (1) enjoin Cross-Defendants from refusing to recognize Triton as a member of WGH; (2) enjoin Cross-Defendants from refusing to recognize David Buicko as a manager of WGH; (3) enjoin Cross-Defendants from entering into any related party transactions; (4) require WGH to submit to an independent financial audit; and (5) require WGH to notify all members in writing when carrying out certain business transactions.

LEGAL STANDARD

The purpose of a preliminary injunction is to preserve the status quo pending final resolution upon a trial. (See¿Scaringe¿v.¿J.C.C. Enterprises, Inc.¿(1988) 205 Cal.App.3d 1536.) A trial court deciding whether to issue an injunction weighs two interrelated factors—the likelihood the moving party will prevail on the merits at trial and the relative balance of interim harms that are likely to result from the granting or denial of preliminary injunctive relief. (White v. Davis (2003) 30 Cal.4th 528, 554; Cohen v. Board of Supervisors (1985) 40 Cal.3d 277, 286.)

“An evaluation of the relative harm to the parties upon the granting or denial of a preliminary injunction requires consideration of: (1) the inadequacy of any other remedy; (2) the degree of irreparable injury the denial of the injunction will cause; (3) the necessity to preserve the status quo; [and] (4) the degree of adverse effect on the public interest or interests of third parties the granting of the injunction will cause.” (Vo v. City of Garden Grove (2004) 115 Cal.App.4th 425, 435.) “It is within the trial court's sound discretion to grant or deny a preliminary injunction.” (MaJor v. Miraverde Homeowners Assn. (1992) 7 Cal.App.4th 618, 624.)  

DISCUSSION

I. Likelihood of Prevailing on the Merits

When the preliminary injunction mandates an affirmative act, it is scrutinized strictly. A mandatory injunction is rarely granted and “is not permitted except in extreme cases where the right thereto is clearly established.” (Shoemaker v. County of Los Angeles (1995) 37 Cal.App.4th 618, 625.) Even an injunction that, as phrased, “may appear to be negative or prohibitory frequently upon scrutiny proves to be affirmative and mandatory.” (Byington v. Superior Court (1939) 14 Cal.2d 68, 70.)

Triton requests a mandatory injunction compelling WGH to recognize Triton as a member, to submit to an audit, and to provide written notice for certain transactions. Triton has not “clearly established” its right to such relief at this stage. (See Shoemaker, supra, 37 Cal.App.4th at p. 625.) Triton’s rights as a member of WGH are at the heart of this lawsuit and subject to unresolved factual disputes. WGH alleges that Triton and its cohorts fraudulently induced WGH into the ARLLCA and failed to tender consideration for the agreement. There are also factual disputes as to whether Wood was pilfering WGH funds or receiving reimbursement for business expenses, as well as disputed interpretations of the ARLLCA. Ultimately, Triton has not made a sufficient showing to justify a mandatory injunction.

II. Balance of Harms

“[G]iven their extraordinary nature, equitable remedies are usually unavailable where the remedy at law is adequate, as where damages are quantifiable.” (DVD Copy Control Assn., Inc. v. Kaleidescape, Inc. (2009) 176 Cal.App.4th 697, 726.) Irreparable injury refers to “wrongs of a repeated and continuing character, or which occasion damages estimable only by conjecture and not by any accurate standard.” (Donahue Schriber Realty Group, Inc. v. Nu Creation Outreach (2014) 232 Cal.App.4th 1171, 1184.)

Triton fails to articulate any harm that could not be redressed by legal damages. Triton relies on Wind v. Herbert (1960) 186 Cal.App.2d 276, 285, affirming a preliminary injunction to prevent the defendants from “continu[ing] to dissipate the assets of the partnership by unwise and unauthorized disbursements to themselves or others from partnership funds over which defendants have usurped complete control.” While the trial court did not abuse its discretion in granting a preliminary injunction under the facts of that case, that does not mean the risk of unauthorized disbursements always justifies an injunction. In Wind, the trial court “could further have determined that such disbursements could not be adequately traced and that the accounting ordered by the court incident to dissolution of the partnership might not fully disclose the damages suffered by plaintiffs.” (Ibid.)

Triton does not make a similar showing here, and is in fact able to readily calculate damages of $1.5 million from Wood’s purported pilfering and acknowledges that its damages are “far from speculative.” (See Mtn. 15:1-6; Reply 10:8-9.) As to conflicted transactions, Triton relies on caselaw where the court granted an injunction to prevent a specific merger that was about to take place. (See Sealy Mattress Co. of New Jersey v. Sealy, Inc. (Del. Ch. Ct. 1987) 532 A.2d 1324, 1341.) Triton, meanwhile, “can only surmise what new related party transaction Wood might sneak through next.” (Mtn. 2:23-24.) In other words, Triton cannot identify a specific transaction that needs to be enjoined, much less demonstrate any irreparable harm from such a transaction.

On the other hand, an injunction would require WGH to recognize Triton as a member and provide corresponding rights and access to information even though Triton may have induced the ARLLCA by fraud and failed to tender the proper consideration. Triton argues that the harm to WGH would be minimal because the injunction would simply require WGH to abide by the terms in the ARLLCA. However, the validity of the ARLLCA and Triton’s entitlement to enforce it are themselves in dispute in this action. The cases cited by Triton do not address a situation like this, but instead deal with undisputed agreements and partnership stakes.   

In sum, Triton has not made a sufficient showing to justify a preliminary injunction. (See DVD Copy Control Assn., Inc., supra, 176 Cal.App.4th at p. 726; Shoemaker, supra, 37 Cal.App.4th at p. 625.)

CONCLUSION

            Triton’s motion for preliminary injunction is DENIED.