Superior Court of California 

County of Los Angeles – West District 

Beverly Hills Courthouse / Department 205 

 

 

 

MOVING PARTY: Plaintiff and Cross-Defendant Civic Center Way LLC  

 

RESPONDING PARTY: Defendants and Cross-Complainants Third Point Land Company, LLC and Kelemen Company, LLC 

 

BACKGROUND 

  This case arises from a dispute between a buyer and seller of undeveloped land located in the City of Malibu (the “Property”).  Plaintiff Civic Center Way, LLC (“CCW”) bought the Property from Defendant Third Point Land Company LLC (“Third Point”) for an initial purchase price of $6 million with a residual purchase price of up to $4 million.  CCW intended to convert the vacant parcel into a medical building.  CCW now seeks to rescind the sale.  CCW alleges that Third Point actively concealed a Notice of Violation it had received from the City of Malibu which found violations of city environmental regulations resulting from prior brush clearing activities on the Property.  CCW contends this Notice of Violation was a material fact affecting the value of the land as it made developing the Property more difficult and expensive and potentially impossible.  (Compl. ¶¶ 25-30).   

The following facts are relevant to the instant motion:  CCW and Third Point entered into a Purchase and Sale Agreement for the sale of the Property (the “Agreement”).  (Ex. C to Compl.)  The Agreement was first amended by the parties to designate an initial purchase price of $6,000,000 and recharacterize the remainder of the purchase price (up to $4,000,000) as a “Residual Purchase Price.”  (Ex. B to First Amended Cross-Complaint (“FACC”).)  The Residual Purchase Price was to be paid by CCW once “all [e]ntitlements” necessary for the construction of a medical office building were secured.  (Ex. B to FACC, at Section 2.6.)   

Specifically, the First Amendment added a new Section 2.6 which provides: “If on or before the date which is five (5) years after the Closing Date (the “Entitlements Date”), Developer has secured all Entitlements necessary for the construction of the office building (or other use approved by Buyer in its sole discretion) … then the Buyer shall pay to Seller pursuant to the terms of this Section 2.6, an additional amount  (the “Residual Purchase Price”) calculated in accordance with the table set forth on Exhibit G attached hereto based on the square footage approved by the applicable Governmental Authorities for the Property.”  (Id.)          

“Entitlements” is defined to include inter alia “[a]pproval from the City of Malibu Planning Commission of the site plan of the Project for the Property and any additional discretionary approvals necessary to construct the Project on the Property and for the Project’s intended use following completion of construction (collectively, the “City Approvals).  City Approvals shall include all necessary zoning approvals and other agency approvals including without limitation a Coastal Development Plan permit and related approvals, including grading permits, building permits, improvement plan approvals and electrical permits to develop the Project contemplated by the City Approvals[.]”  (Ex. C o FACC.) 

  The parties then entered into a Second Amendment of the Agreement.  (Ex. C to Compl.)  Section 2(d) of the Second Amendment replaced a provision of the Agreement relating to a letter of credit (“LOC”).  The revised LOC provision states:  “As partial security for the payment of any Residual Purchase Price due from Buyer, concurrently with the Closing (1) Buyer shall deliver a Letter of Credit in the amount of Two Million Dollars ($2,000,000) drawable on First Republic Bank … [I]n order to draw upon the Letter of Credit, Seller shall cause a senior officer of Seller to certify that (i) Seller is entitled to payment of the Residual Purchase price in accordance with this Agreement …”.  (Ex. C to Compl.) 

First Republic issued an LOC in the amount of $2 million.  (Ex. 1 to Rahimtoola Decl.)  The LOC designates CCW as the “Applicant” and Third Point as the “Beneficiary.”  (Id.)  In order to draw on the LOC, the LOC states Third Point must certify certain facts contained in a “Drawing Certificate” attached to the LOC.  (Ex. 1 to Rahimtoola Decl.).  The Drawing Certificate requires an authorized representative of Third Point to certify that “Beneficiary [Third Point] is entitled to payment of the ‘Residual Purchase Price” as defined in and in accordance with the terms of the [Agreement as amended] …”.  (Ex. 1 to Rahimtoola Decl.)   

This hearing is on CCW’s preliminary injunction motion, seeking to enjoin Third Point from drawing on the LOC pursuant to Commercial Code § 5109.  CCW argues that the conditions for drawing on the LOC have not been satisfied and any draw on the LOC would be the result of a material fraud by Third Point.  CCW also argues the requested relief is necessary to preserve the status quo during the pendency of this litigation and to prevent irreparable harm to CCW, and Third Point will suffer no harm if the injunction is granted because the LOC will remain in place.                   

 

REQUEST FOR JUDICIAL NOTICE 

CCW seeks judicial notice of (1) a June 3, 2020 notice of violation from a City of Malibu senior code enforcement officer to Tibor Kelemen, as a representative of Third Point, (2) a July 28, 2021 letter from the California Coastal Commission re unpermitted removal of vegetation within environmentally sensitive habitat area, and (3) an August 20, 2021 notice from a City of Malibu senior code enforcement officer to Kelemen, as a representative of Third Point.  CCW’s request is unopposed.  The Court grants the request pursuant to Cal. Evid. Code §§ 452(c) and 452(h), although it does not assume the truth of the matters contained in the judicially noticed documents.  (See, e.g., McAllister v. County of Monterey (2007) 147 Cal. App. 4th 253, 267 n.3 (taking judicial notice of coastal commission documents); Redondo Beach Waterfront, LLC v. City of Redondo Beach (2020) 51 Cal. App. 5th 982, 990 n. 6 (taking judicial notice of minutes of Coastal Commission meeting); Grosman v. Kasloff, 2022 Cal. Super. LEXIS 9421 at *8 (taking judicial notice of City of Malibu memorandum to file).)   

Third Point also seeks judicial notice of a July 14, 2020 memorandum prepared by the City of Malibu.  CCW opposes the request, arguing that Third Point seeks to introduce the memorandum for the truth of the matter asserted therein, i.e., that there was no violation of the applicable environmental regulations.  The Court disagrees.  The memorandum is relevant to show Third Point’s state of mind regarding whether there was a violation of the applicable environmental regulations.  This purpose does not require the Court to assume the truth of the contents of the memorandum.  The type of document and purpose for which Third Point seeks judicial notice is indistinguishable from CCW’s own request for judicial notice.  Accordingly, the Court grants Third Point’s request for judicial notice on the same grounds set forth above as to CCW’s request.         

EVIDENTIARY OBJECTIONS 

The Court sustains Third Point’s objections to the Declaration of Zahid Rahimtoola dated March 9, 2023 and the Declaration of George Soneff dated March 13, 2023.   

The Court overrules Third Point’s Objection No. 1 and sustains Objection No. 2 to the Declaration of Julian Stone-Kronberg dated March 9, 2023.   

The Court overrules Third Point’s objections to the Supplemental Declarations of George Soneff and Julian Stone-Kronberg dated March 28, 2023 and March 29, 2023, respectively. 

The Court sustains CCW’s Objection No. 1 to the Declaration of Tibor Kelemen dated March 23, 2023 and sustains in part and overrules in part CCW’s Objection No. 2 to the Kelemen Declaration.  The Court sustains the objections to the first and last sentences quoted in Objection No. 2.     

LEGAL STANDARD 

In determining whether to issue a preliminary injunction, the trial court considers two factors: (1) the reasonable probability that the plaintiff will prevail on the merits at trial; and (2) a balancing of the “irreparable harm” that the plaintiff is likely to sustain if the injunction is denied compared to the harm that the defendant is likely to suffer if the court grants a preliminary injunction.  (C.C.P. §526(a); 14859 Moorpark Homeowner’s Assn. v. VRT Corp. (1998) 63 Cal.App.4th 1396, 1402; Pillsbury, Madison & Sutro v. Schectman (1997) 55 Cal.App.4th 1279, 1283. 

The Court’s determination is guided by a “mix” of the potential-merit and interim-harm factors; the greater the plaintiff’s showing on one, the less must be shown on the other to support an injunction. (Butt v. State of California (1992) 4 Cal.4th 668, 678.)  However, a trial court may not grant a preliminary injunction, regardless of the balance of interim harm, unless there is some possibility that the plaintiff would ultimately prevail on the merits of the claim.  (Ibid.) 

The court must consider both factors.  The two factors are a sliding scale – the stronger the showing of probability of prevailing, the lesser showing is required for irreparable harm.  (Butt v. State 4 Cal.4th at 678; The Right Side Coalition v. Los Angeles Unified School District (2008) 160 Cal.App.4th 336 (reversing denial of preliminary injunction based solely on balancing of hardships without considering probability of prevailing).  The plaintiff must make some showing of each factor. (Jessen v. Keystone Savings & Loan Assn. (1983) 142 Cal.App.3d 454, 459.)  A court may not issue a preliminary injunction if the plaintiff cannot possibly prevail on the merits even if a strong showing of irreparable harm has been made.  (Butt v. State (1992) 4 Cal.4th 668, 677-78.) 

The court’s ruling on a preliminary injunction is not an adjudication of the merits, is not a trial, and does not require a statement of decision.  (Cohen v. Board of Supervisors (1985) 40 Cal.3d 277, 286; People v. Landlords Professional Services, Inc. (1986) 178 Cal.App.3d 68, 70-71.)  The Court is not required to state its reasons for granting or denying a preliminary injunction; a cursory statement is sufficient. (City of Los Altos v. Barnes (1992) 3 Cal.App.4th 1193, 1198.)¿ 

DISCUSSION 

Likelihood of Success 

The Court first considers whether it can enjoin the drawing of a letter of credit.  Third Point argues that under the “independence principle” the Court cannot enjoin the drawing of the LOC unless there is a showing of forgery or fraud.  Under the independence principle, the letter of credit is considered to be independent from the underlying contract between the issuing bank’s customer (here CCW) and the beneficiary of the¿letter of credit (here Third Point). (San Diego Gas & Electric Co. v. Bank Leumi (1996) 42 Cal. App. 4th 928, 934.)  This unique feature, referred to as the “independence principle”, is the primary characteristic of a¿letter of credit.  (Id.)  Absent fraud, the issuer must pay upon proper presentment regardless of any defenses the issuer’s customer may have against the beneficiary arising from the underlying transaction.  (Id.)  Thus, the issuer of a letter of credit is not required or even permitted to go behind the documents to determine if the beneficiary has performed in conformity with the underlying contract.  (Id.)     

“The rule of the independence of the letter of credit from the underlying transaction is based on two policy considerations.  First, the issuing bank can assume no liability for the performance of the underlying contract because it has no control over making the underlying contract or over selection of the beneficiary [citation].  Second, the letter of credit would lose its commercial vitality if, before honoring drafts, the issuing bank were obliged to look beyond the terms of the letter of credit to the underlying contractual controversy between its customer and the beneficiary [citation].” (Id.)  ¿“[O]ne of the expected advantages and essential purposes of a letter of credit is that the beneficiary will be able to rely on assured, prompt payment from a solvent party; necessarily, a part of this expectation of ready payment is that there will be a minimum of litigation and judicial interference, and this is one of the reasons for the value of the letter of credit device in financial transactions.¿ [Citations.]”  (Id.) 

The independence principle, however, does not mean that a beneficiary can “call a letter of credit under circumstances where the underlying contract plainly shows he is not to do so.”  Itek Corp. v. The First Nat’l Bank of Boston (1st Cir. 1984) 730 F.2d 19, 24.  If the beneficiary has no plausible or colorable basis under the contract to call for payment of the letter of credit, its effort to obtain the money is fraudulent and payment can be enjoined.  (Id. at 25.)   

Mitsui Mfrs. Bank v. Tex. Commerce Bank-Fort Worth (1984) 159 Cal.App.3d 1051, is instructive.  There, the court reversed the denial of a preliminary injunction seeking to enjoin a beneficiary of a letter of credit from calling that letter because the beneficiary could not satisfy terms contained in the letter of credit itself without lying.  Defendant contended that the language of the letter of credit did not limit its entitlement to draw on the credit and that even if there was such limitation, it could not be enjoined under the law.  (Id. at 1055.)  The appellate court rejected defendant’s argument.  (Id. at 1055-1059.)  It held that the language of the letter of credit limited defendant’s entitlement to draw on the letter of credit, providing that a request for payment must “be accompanied by beneficiary’s signed statement stating that [third party] failed to meet its obligations to pay the face amount of loans drawn by themselves on beneficiary in connection with the drilling of oil wells for [oil company].”  (Id. at 1054.)  The appellate court concluded that the language of the letter of credit “cannot be ignored”, stating that “[beneficiary] may not draw on the letter of credit unless [beneficiary] can submit a truthful statement that [third party] has failed to repay the loans drawn by [third party] in connection with [the] drilling of oil wells …”  (Id. at 1057.)  The ‘beneficiary of a letter of credit is bound to comply with its terms and conditions[.]”  (Id. at 1055.)  If the letter of credit requires that certain documents be submitted, those documents must be correct: “Presentation of fraudulent documents to a¿bank by a beneficiary subverts not only the purposes which letters of credit are designed to serve in general, but also the entire transaction at hand in particular.¿ Falsified documents are the same as no documents at all.”  (Id. at 1055.) 

As in Mitsui, here, Third Point has not met the conditions of drawing on the LOC.  To draw on the LOC, Third Point must certify it is “entitled to payment of the Residual Purchase Price in accordance with [the] Agreement[.]”  (Ex. C to Compl.)  Under the Agreement, Third Point is entitled to the Residual Purchase Price only when “all Entitlements” have been secured.  (Ex. B to FACC.)  Third Point does not dispute that “all Entitlements” necessary to construct a medical office building have not been secured.  It only lays the blame for the failure to secure entitlements on CCW.  But regardless of who is to blame, the conditions for drawing on the LOC have not been met, and any certificate by Third Point seeking to draw on the LOC would be fraudulent.  Therefore, the Court may properly enjoin the drawing of the LOC on this basis.            

Balance of Interim Harms  

The second element of the “two interrelated factors” governing the issuance of a preliminary injunction is “the relative interim harm to the parties from the issuance or nonissuance of the injunction.” (Hunt v. Superior Court (1999) 21 Cal.4th 984, 999.)  “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, quoting¿Cohen v. Board of Supervisors¿(1985) 40 Cal.3d 277, 286, fn. 5;¿14859¿Moorpark Homeowner's Assn. v. VRT Corp. (1998) 63 Cal.App.4th 1396, 1402.) 

Of these various factors, Third Point challenges only CCW’s showing of irreparable injury, arguing that CCW “can simply seek to recover the [$2 million] additional damages in this pending action.”  “Irreparable injury” is harm that cannot¿be fully compensated by money damages.  (Tahoe Keys Property Owners' Assn. v. State Water Resources Control Bd.¿(1994) 23 Cal.App.4th 1459, 1471.)  Although a showing of irreparable injury is “ordinarily” a requirement for preliminary injunctive relief (Intel Corp. v. Hamidi¿(2003) 30 Cal.4th 1342, 1352), irreparable injury is only one element of the calculus required of the trial court in its balance of the hardships.  Moreover, “the more likely it is that plaintiffs will ultimately prevail, the less severe must be the harm that they allege will occur if the injunction does not issue. This is especially true when the requested injunction maintains, rather than alters, the status quo. [Citation.]  Thus, . . . if the party seeking the injunction can make a sufficiently strong showing of likelihood of success on the merits, the trial court has discretion to issue the injunction¿notwithstanding that party’s inability to show that the balance of harms tips in his favor.¿[Citation.]”  (14859¿Moorpark Homeowner's Assn. v. VRT Corp., 63 Cal.App.4th at 1407 quoting King v. Meese (1987) 43 Cal. 3d 1217, 1227.)   

Measured by the proper objective standard, CCW’s likelihood of success is very great, lowering the degree of harm necessary to sustain the balance of hardships in its favor.  In addition, the injunction as entered maintains the status quo, similarly lowering the standard for harm.  Particularly in light of these two mitigating factors, CCW’s showing of irreparable injury is adequate – unless an injunction will issue, CCW will be irreparably harmed because Third Point would receive a benefit to which it is not entitled under the Agreement.  (Fretz v. Burke (1967) 247 Cal. App. 2d 741, 746 (irreparable injury shown where defendants would obtain control of funds to which they are not entitled).)  Weighed against these factors is the relative lack of harm to Third Point from grant of the preliminary injunction.  In spite of the injunction,¿the LOC remains in place to secure Third Point’s recovery.  All Third Point has lost through entry of the preliminary injunction is the acceleration of that debt, which remains payable according to its terms.  There is no credence to Third Point’s claim that CCW can elect not to renew the LOC.  While the LOC has an expiration date, it is automatically renewed and extended unless First Republic Bank, not CCW, serves a “Non-Renewal Notice.”  (Ex. 1 to Rahimtoola Decl.)  Indeed, elsewhere in its Opposition, Third Point acknowledges that any non-renewal notice would be issued by First Republic Bank, not CCW.  (Opp. at 15.)   

Unclean Hands 

Third Point maintains the doctrine of unclean hands should bar CCW from obtaining the equitable relief of a preliminary injunction.¿ “The doctrine demands that a plaintiff act fairly in the matter for which he seeks a remedy. He must come into court with clean hands, and keep them clean, or he will be denied relief, regardless of the merits of his claim.” (Kendall-Jackson Winery, Ltd. v. Superior Court¿(1999) 76 Cal.App.4th 970, 978.)  As a¿general rule,¿the application of the doctrine is primarily a question of fact and, in the context of a preliminary injunction, within the discretion of the trial court.  (See¿Insurance Co. of North America v.  Liberty Mutual Ins. Co. (1982) 128 Cal.App.3d 297, 306-307;¿Boericke¿¿v.¿Weise¿(1945) 68 Cal.App.2d 407, 418.)  The bar applies only if the inequitable conduct occurred in a transaction directly related to the matter before the court and affects the equitable relationship between the litigants. (Pepper¿v.¿Superior Court¿(1977) 76 Cal.App.3d 252, 259;¿Fibreboard Paper Products Corp.¿v.¿East Bay Union of Machinists¿(1964) 227 Cal.App.2d 675, 728-729; see also generally 7 Witkin, Summary of Cal. Law (8th ed. 1974) Equity, § 10, pp. 5235-5236.)  

Here, Third Point argues that CCW has repeatedly breached the parties’ agreements, including by stopping the “funding and processing of entitlements, thereby preventing timely completion of the entitlements to avoid the residual payment to Third Point.”  (Opp. at 8; Kelemen Decl. ¶ 18.)  CCW argues, however, that it is continuing to take steps to entitle the Property.  For example, there is a permit application pending with the City of Malibu for approval of work necessary to cure the habitat damage that was the subject of the Notice of Violation, and CCW still has various professionals engaged to obtain entitlements.  (Stone-Kronberg Decl. ¶ 6; Supp. Stone-Kronberg Decl. ¶¶ 6, 10.)  The Court concludes the evidence is in equipoise.  When the scales are evenly balanced and the relevant evidence leaves a trier of fact in “equipoise,” the party with the burden of proof loses.  (Buzgheia v. Leasco Sierra Grove (1997) 60 Cal.App.4th 374, 394, 70 Cal. Rptr. 2d 427 (court may use the “burden of proof” as a “tie-breaking tool” when “the evidence [stands] in relative equipoise”).)  As Third Point has the burden to prove unclean hands, it loses.       

Bond 

In the event a preliminary injunction were to issue, Third Point requests that the Court “require a $2 million bond or deposit into escrow, and that if First Republic Bank provides a notice of non-renewal of the letter of credit that is to be renewed in July 2023, the funds can be immediately drawn by Civic Center to avoid complete evaporation of its bargained for partial security.”  (Opp. at 15.)  The Court declines Third Point’s request.  The letter of credit is the security that Third Point bargained for, and Third Point cannot be heard to complain that it is now insufficient to protect its interests.     

CONCLUSION 

Based on the foregoing, the Court GRANTS CCW’s motion for a preliminary injunction.   

 

IT IS SO ORDERED. 

 

DATED:  May 1, 2023 ___________________________ 

Edward B. Moreton, Jr. 

Judge of the Superior Court